BAGAKOAA; 9 October 2011 We Got Direction, We Lack Conviction 

Post 516 CLICK HERE To See Past PostsOctober/2011
 

It was an early day at the Cronin house this morning (Thursday) as one of our normally sedate canines decided to wake us up at 2:34 am so he could go out and drink about 6 cups of water. Bocelli our MIG (Miniature Italian Greyhound) began dancing around our bed about 2:30. I took him out back and the skies were perfectly clear as Orion's belt shown across the Southern sky (wow this is good stuff) as he did his business (The dog not Orion). It was then I smelled the hint of skunk. No we dodged that bullet.

 

After getting Bo back upstairs I remembered that we had to wake Jack up for a 7:00 football mass. In all honesty I don't know what that is, but I had him at school by 6:36. Then it was back home to see what the heck Devin had in mind for the Cronin Canine Carnival for the day. If you were wondering, Jacee had a successful tumor removal and she came home last night totally stoned. When I checked on her at 2:30 am, I swear I though she was dead. She was out like a light. I am going to Dr. Kelp, our vet to see if I can get a shot of what ever it was she had. Even early this morning she sounded a lot like Michael Jackson on his phone call to his doctor.

 

Devin got about 19 things done today. I do admire how she can just so much done and still find time to remind me of all the things I forgot to do. She was actually in our office today as she had some paperwork to do and needed to get some addresses from Ellen.

 

I enjoyed a nice lunch today with one of my colleagues. It was the first really fall days we have had. It was nice change. We found out today we got our first snow up in Utah. Now that was cutting it close as we were thinking about doing the wedding the weekend of October 4. Beyond that it was a very quiet day at the Cronin home for a change.

 

That was what we had written as of Thursday night. We had a lot of homework Thursday so we did not get around to posting. I looking at it now, you did not miss that much. There is one class that is a real bugger for us. Religion.

 

It is tough because the answers to so many of the questions are subjective. Like now we are working on an assignment where he must explain how God has revealed himself to Jack, how God has inspired Jack, and what "calling" God had provided Jack. He is 15. Hell I am still waiting for a calling, or I am holding out for a calling like be a Las Vegas Lounge Singer. But I digress.

 

Friday was my day off so I get to watch the market a bit, hang with Devin a bit, run by the office a while, read, and then have a nice dinner at Hanna's with my lovely wife. Jack was at home watching the hounds. It was a great meal. Devin and I shared a bone in ribeye and I had their new incredible pear prosciutto burrata salad. I should have stopped with the salad as it was perfect.

 

We did find out on Friday that Kristin and Ryan were delayed coming out of France by a Rail Union Work Slowdown and missed their flight. Now their flight to Europe was great. While they were in coach, the US based Delta crew made them feel special and smuggled some Dom out of First Class for them to Enjoy. When they eventually left Paris, the French based Air France crew made them special as well. They were rude, inattentive, and unapologetic. The did not serve water through the entire flight. If you wanted water you had to go to the galley and ask for it. A sad way to end a spectacular honeymoon.

 

I had the fun and enjoyment of getting up early Saturday and heading to Coto De Caza to enjoy a cup of Coffee and read Barron's and The WSJ without the distractions of seven dogs. I was able to get in almost an hour of reading before the gang showed up for breakfast. It was good to see everyone again. The prodigal son Thomas L. had return from travels afar and had some good stories to tell. I bowed out of golf on Saturday as we needed to get things in order for the return of the Honeymooners.

 

They really enjoyed themselves and Devin, Jack and I got to see many of the photos and videos. The newlyweds arrived home and spent the night here last night. Captain, their infamous dog, embraced them and then began telling them how badly treated he was while they were gone.

 

We all enjoyed the famous Zweigle White Hots, those white hot dogs Russ C. told us to order from New York. Now we mentioned the regular dogs earlier in the week, but these white hots are incredible. They are basically a mild brat and when perfectly grilled (and they were), they have a great taste.

 

We enjoyed it with one of our favorite Spanish Wines, a 2006 Bodega Numanthia Termes Toro Termes. It worked well as it was dark and jammy and had some nice spices working to compliment the dogs and the condiments. We also had some beans, coleslaw, and potato salad.

 

This morning (Sunday), I joined the gang again to play a round of golf. The course is being winterized so one of the courses were closed and we were jammed tight on the other. After two and half hours with a couple of A personality golfers (Russ and Thomas) we had had enough and took and early out after nine holes.

 

That allowed me to get home, see the newlyweds before they headed home, read a couple of documents from the office, get caught up on the blog, help Jack with a little homework, and start figuring out how to play the market this week. Uuuuuhhh, good segue Brian.

We Got Direction, We lack Conviction

 

A couple of you sent us a note to ask why we did not mention Steve Jobs. Now we have 47 people who get this everyday. On average 29 of you open it. Of those 29, I know 25 of you only read the boring drivel about the crazy stuff at our house, leaving 4 of you who actually read the plagiarized investment economic content we pump out every night. So all we would ask, would be to kindly scroll to the end and see if you missed anything before sending me e-mails telling me what I forgot. I said my adieu to Mr. Jobs at the end, but the man deserves an encore so:

 

sad ipod

Steve Has Left The Building

Thank You And Good Night

 

 

 

Ok we got the jobs report and the direction of the market correct today(Thursday). We would like to say that we think this is the end of the market correction, but it is a bit premature to say that. The lack of bad news out of Europe along with stronger than expected retail numbers helped Mr. Market walk tall and have a third day of black numbers. Typically we think that 3 of anything is a trend, but we do lack conviction. Tuesday we had really nice volume by the big boys (Hedge funds and mutual funds). That has evaporated over the last two days even if the numbers were up.

 

We were just talking about a support level of 1,100 the other day here and we are glad we cleared it. Ironically we have already hit a resistance number of 1,160 today. If you believe in the tea leave readers aka technicians, if we break through the resistance point, it could be the end of this correction. More commonly, this pseudo rally could fall again, but let's not do that.

 

If you followed our lead on GLW from about two weeks ago, you are doing well. We saw a 6%+ jump today as Corning announced a nice dividend boost and a 1.5Billion dollar buyback program. Ironically at $13.50 a share the stock is trading at its book value. Somebody must have done the math of 22 million iPhones and calculated the the actual square meters of Gorilla Glass that would be and said, BUY BUY BUY. We found a great website for Display research called dispalysearch.com. It has excellent metrics for the industry where Corning sells 80% of their products. We are going to pick it apart over the weekend and look for any weak sport in our GLW at 25 by Q1 theory. Stay tuned.

 

After reading this weeks Barron's, the message is murky as ever. Alan Abelson was on his game as he picked apart the decent jobs report from Friday and demonstrated that we should not be too impressed with the numbers. He noted 26,000 jobs all related to construction and repair related to the slew of hurricanes and storms we had in August. Don't expect them to be around in a few weeks.

 

Alan does take us to the deep dark recesses of the BLS (Bureau of Labor Statistics) Table A-15 that breaks out all the categories of Unemployment, U-1-U-6. The two to focus on are U-3 and U-6. U-3 is what everybody knows as the unemployment rate currently at 9.1% that is defined as U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate). What is interesting (OK most of you are finding this as interesting as counting fern spores.), is U-6 which is defined as; U-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force. NOTE: Persons marginally attached to the labor force are those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for work. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule. Updated population controls are introduced annually with the release of January data.

Now U-6 sounds a lot like people, who if they had a chance at meaningful employment would not be on the U-6 list. Mmmmm. So what would the unemployment rate be if we counted those folk? Try 16.5%. Wow with a little work we could be Greece, Turkey, Italy to name a few.

 

Abelson also pointed out that 46,000 Verizon workers who were on strike in August came back to work in September making the U-3 number look better than perhaps it really is. Now why is this important to you as an investor? As we adjust back to real numbers we could see an increase in U-3 to 9.2 or 9.3%. We are pretty sure Mr. Market won't like it.

 

Jay Plamer did a great piece on Farm related stocks, think ADM, DE, MON and if you have a decent time from say 2-4 years, these are selling at discount. DO YOUR HOMEWORK.

 

Andrew Barry does an article about junk bonds implying it might be time to visit that asset group again. Our number one holding is a juck rated GMAC smartnote with a face coupon rate of 6% now yielding 9.2%. We bout it at 52 cents on the dollar and it is currently moving at 89 cents on the dollar. Barry's article is worth the read. If you got mid to high 6 digits to play with, let me know I have the bond guy for you.

 

Lawrence Straus does a great article and interview with the CEO of Bayer. Bottom line, take to aspirin and call me in a couple of years, you like how you feel.

 

In the weekend Journal, Jason Zweig defines the term Bear Market. It was an educational article. By the end, I still don't know of we are in a bear market. We don't think so, but we are close?

 

On page B5 of the weekend Journal we found a handy little summary page. We don't usually spend so much time the weekend WSJ, because we like the depth of data in Barron's. This chart on B5 caught my attention. It was a summary of trailing and estimated P/E ratios for the S&P 500. Zzzzzzz. Hang in there I am almost done. The twelve month trailing P/E Ratio for the S&P 500 is listed as 13.93. No big deal we frequently use 14 % as the average when we are doing comparables.

 

What is interesting is the estimated P/E Ratio for the next 12 months. It is now at 11.63%. Now you say that is only a 2.3% correction. NOT. It is a 16.6% adjustment downward. So what does that mean to you as an investor?

 

If you have a stock selling for $100.00 and that company is earing $7.18 a share profit, guess what your multiple or P/E ratio is? Yeah 13.93% ($100/$7.17=13.93%) If your profit aka earnings drop 16.6% that means that company is only earning $5.98 a share. If the average Multiple for that stock is 13.93% guess what the value of your stock is? (13.93X$5.98=$83.30 a share) that would be a 16.6% drop in value. In essence, the market is estimating a 16.6% adjustment downward for the next 12 months. Not a good thing. Keep in mind these numbers change every week.

 

Tomorrow is a quasi holiday for the markets. The exchange is open but the bond market and Treasury is closed. We are running very long and it is late so no art tonight and well try and get you a feel for the week to come tomorrow. In the meantime, we are still in a market correction. Be nimble. This is not the time we would enter a new position. We might add to our hard core conviction holdings, but cash is good right now. Guns and Gold are not bad holdings at the moment. 

 

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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