BAGAKOAA; 30 September 2011 Rubba dub Dub 35 Bottles In A Tub

Post 511 CLICK HERE To See Past PostsSeptember/2011
 

We got up this morning with our tail dragging a bit but took care of the dogs and got man child off to school. Then I got caught up on a teleconference I was unable to attend. Then the fun began. I had asked Ellen my trusty assistant to join in one of the unforgettable "other duties as assigned".

 

That saying got started here at PADI back about 15 years ago when dad had a ranch in Temecula California. He had about 30 horses and 70 head of cattle. It was a cutting ranch and he raised horses used in the sport of cutting. Cutting is a cowhand technique to cull cattle from a herd in order to get branded or wormed and the like.

cuttin horse 

Well when it was time to rotate the herd about every 3 months, they would have to "receive" the new doggies (cattle). That required them to be sent down a walkway, get pinched in a holder, get their horns trimmed (usually resulting in a blood spurt from the cattle), getting shots, and getting wormed which required a hose being shoved up their nose to get the meds into their stomach. Needless to say that often resulted in cattlus vomitus. It was not a fun day at the ranch.

 

Well my dad had a driver named Will as dad lived 50+ miles from the office and he could get work done in the car and enjoy himself with an Irish Whiskey at the end of a special day. A special day was one that ended in the letter "Y". Early in Will's employ dad called Will and said dress casual and meet me at the ranch in the morning.

 

Halfway through the heard, Will looked at my dad, as he was covered in blood and cattle puke, and said, "Mr. C., I don't think this was in my job description." Without missing a beat, dad said, "Check the last paragraph, 'Other Duties As Assigned'." 

 mold

Today Ellen got to help me clean the last 35 bottles from my wine room that was flooded. They were a special set of 2007 Joseph Phelps Insignia in OWCs (Original Wooden Cases). Now these had sat in the mud for about 5 weeks, then in my office bathroom for 7 months. Needless to say, when I opened the cases, there were all kinds of green and black hairy mold monsters growing. It took us about an hour, but they are all clean and resting comfortably in my Eurocave. There were 35 bottles because if you have been reading, we had one about a month ago and it was a tad green.

 

While disposing of the moldy cases one of our employees Juan Carlos asked me a wine question. He said his mom liked Moscato and he was wondering what a good brand might be. My first though was that Moscato is the Muscat grape and I always associated that with muscatel and drunks sleeping in alley ways. During lunch I did some homework and discovered a whole world of grape built around this hardy Muscat grape. Italy has some great whites made from the grape. I called my buddies at Amazing Grape and brought back a couple of bottles of Braida 2009 Vigne Senza Nome Moscato d'Asti. I hope she enjoys them.

 

During the lunch hour and my appointed rounds I had an AM PM hot dog. Truly this was one of the most mediocre lunches I have had in years. To make matters worse, while choking down that vile tube of meat, I got a Facebook shout from my son-in-law telling me they were enjoying a late lunch at some café across from Cathedral named after a college football team from Indiana. Something wrong with this picture. Let me ask you a question. When you are in the mood for a good hot dog, where do you go? Let me know.

How Do You Feel The Market Did

 taking pulse

Yeah, its weird but if you just felt the market this week you would have though we were down. We though it was down a week unto we saw the numbers. The Dow was up on the week and S&P was immeasurably slightly redundantly down. I guess we didn't notice because, sit down for this, we did not make a trade in the Salve Lucrum account all week. We just checked the account and we had a respectable amount of cash come into the account via UN dividends and WY dividends and some interest income on a bond we own. 6% ZION Bank Note CSUIP number 8435846 due 9/15/2015. That bond is currently trading at face ($100.00) and we got in at $84.66. In some of the other accounts, we added to core position like AMZN and GLW on the daily dips. We would have picked up more for ourselves had cash allowed it.

 

Though we did not have much time to follow the market today, it appears as though this really bad quarter wanted to end on a lower note.

low note

I am sure I will get all the grizzly details in Barron's tomorrow, but this is the worst quarter I've seen since the bottom of the financial crisis in 2008 early 09? China started beating the gong before the markets opened with some weak manufacturing numbers. Then Germany piled on more bad news with yucky (a financial term meaning not so good) retail sales numbers. Then we heard some inflation worries out of the Eurozone area. Apparently Mr. Market was focused on that and missed the kinda good news here in the states about better than expected consumer sentiment readings (that one surprised me) and a decent Chicago Purchasing Managers index report. Then things really went south when bell whether Ingersoll Rand guided downward (That is when the CEO or Board fesses up and indicates things might not be as rosy as the analysts think.) Anyway that is why we had a pooper (another technical financial term that has something to do with poor performance) day.

 

That happens to be a good segue to our next topic which is a theory of why the market continues to sell off despite some relatively stable economic factors and decent corporate earnings. I heard this thinking on Bloomberg early this morning and have added our own sick logic.

 

It is important to know that the market and even individual stock prices are determine mostly upon the estimation of future earnings as determined by analysts. More importantly the price (not the value) is truly based upon that company's ability to meet or exceed the analysts expectations of future earnings.

 

(This is the part where David Hanna say I should put something funny.  Too bad I'm tired.) 

 

As the crisis of 2006-2009 happened, companies were forced to cut expenses to levels previously unknown. One of the many reasons for the stock market fall was the inability of analysts to correctly determine just how bad profit in these companies had gotten. They (the analysts) consistently over estimated profits and underestimated revenue. So every quarter you had bell whether company after company miss their quarters (again remember those missed expectations were determine by the analysts) and those disappointments reinforced the poor consumer sentiment in the market.

 

By the end of 2008, companies were lean and mean or bailed out by the feds. Companies were so lean that even with reduced revenues, the bulk of companies were generating decent revenue, profit and cash, but the analysts were stuck in a moribund view of the past twelve months. As a result, earnings started to beat analysts expectation on a regular quarterly basis starting in the second quarter of 2009. That happy scenario carried on until this July when we still had beats of expectations, but the spread on those beats were diminishing.

 

Once again the analysts have been duped into thinking the revenue and profits level will continue. And we all know that can't be the case unless revenues increase. AA (Alcoa) kicks off the next earnings season in a couple of weeks. If the analysts are wrong AGAIN, we could see a really lousy earnings season. Many of the companies will report same quarter earnings over last year and they may be up. However if they don't meet or beat expectations, it will be another bad quarter for Mr. Market. Something to consider as we look into our crystal balls.

 

Here is what I am going to do with this ammo. I am going to look at all of my core holdings and determine the analysts estimation for earnings growth 4th quarter. If they exceed same quarter profit growth over last year by an exceptional amount (it will vary company by company), then I will either buy an "in the money" put option against the long position or sell an out of the money call option against the long option. (Please use the investopedia link on the right column if you have questions about the terms.)

 

Well brief you on these as we do the homework.

 

Have a great weekend and I will polish of the crystal ball and help build another puzzle next week.

roy rogers

Happy Trails 

 

Salve Lucrum

 

 

 

 

 

 
Brian Ireland
BAGAKOAA;

I am not a professional investment advisor. Anybody reading my blog and investing accordingly must be out of their minds. I have made more money than I have lost. There are many more qualified people than I to actually tell you how to invest your money.

BAGAKOAA=Boys And Girls And Kids Of All Ages

Salve Lucrum=Latin for Hurrah for Profit.

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