Le socialisme est grand jusq'a' ce que vous manquez de personnes riches.

 

That means "Socialism is great till you run out of wealthy people.", in Francoise. As you now know Sarkozy has been voted out of office as of Monday and replaced by a left leaning socialist regime who is going to significantly raise taxes on the wealthy and back pedal on many of the French Austerity plans. Funny how the market reacted to that news but has ignored that Congress here in the US will be facing the distinct possibility of raising taxes on the rich and ignoring the multitude of social programs we can't afford now. Mmmm, this Mr. Market is a funny kinda guy.

 

Things did not turn out to be as bad as it could have been, being down 160+ points at one time today. The Bulls in the crowd found some apparent buy points and brought the market up to only a 70 point loss at closing. We are still in a RED FLAG market correction scenario, meaning be VERY cautious about entering new positions (including that one you started today in Green Mountain Coffee and you know who you are.)

 

Remember Boys And Girls, 70% of a stocks price direction is the result of the overall market direction. The trend is your friend. Since I brought it up, I will assume that our Friend Mr. Cramer was pimping GRCR, Green Mountain Coffee Roasters, Inc. which engages in the specialty coffee and coffee maker business. The company sources, produces, and sells approximately 200 varieties of coffee, cocoa, teas, and other beverages in K-Cup portion packs and coffee in traditional packaging, including whole bean and ground coffee selections in bags and ground coffee in fractional packs for use in at-home (AH) and away-from-home (AFH).

 

For those of you not familiar with the product, they make that really cool single serve coffee maker with those little cups (K Cups) that EVERBODY has. Ok now. Everybody has one, well not everybody, but a whole bunch of folk have them and the stock has gone whacko over the last 3 years. They survived attempts by Starbucks, Pottery Barn, and William and Sonoma to enter this market segment and still held the lead, until last week when they missed top line sales and guided downward quite significantly. The stock is down 50% in one week. To add to their troubles, the Founder and a key board member were asked to step down because of unlawful share trading.

 

We have pimped the stock here in 2009 and 2011, but could never catch a good entry point so we lost out on their incredible gains over the last three years. So is this the time to buy?

 

Here is my humble opinion. When a company admits unsustainable growth momentum and key executive have to break the law to pull money out of the company they founded, is it time to buy that stock? I think not. Cramer needs something to talk about so maybe this is his topic of the day. (I am guessing as I have not seen Mad Money in a couple of weeks as I have been a little distracted.) While there are still analyst target prices of $59-70 a share and the stock closed today at $26.38. That is about 2 times book value which is attractive, but with all the C Suite strife and other market issues, patience may be a valuable virtue.

 

If you really truly think we will see a significant rebound, how about considering a Jan 2013 30 dollar call option for about 5 dollars a contract. Food for thought. If it turns out to be a foolish bet, it will cost you 500 dollars instead of 2500 dollars.

 

TIPS

 

We got a great question today from someone who had heard of a political figure using TIPS to make a huge fortune in the market. They wanted to know if it was a good investment. (Based upon my results of late, I don't know why they are asking me?)

 

I won't get into the grizzly details about what this political figure did as the details are a bit sketchy, and the time frame might lend itself to some very good returns. Let's just explain what TIPs are and how you might consider them as part of your portfolio. In it's simplest definition, a TIP is a government bond tied to a consumer price inflation index. It is designed to protect against inflation and deliver a relatively safe return.

 

They are considered very low risk and their value increases in inflationary times, while their interest rate remains fixed. They are usually bought from the treasury in increments of $100.00-1000.00 with maturities of 5, 10, and 20 years.  

 

A treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation. TIPS are considered an extremely low-risk investment since they are backed by the U.S. government and since their par value rises with inflation, as measured by the Consumer Price Index, while their interest rate remains fixed. Interest on TIPS is paid semiannually. TIPS can be purchased directly from the government through the TreasuryDirect system in $100 increments with a minimum investment of $100 and are available with 5-, 10-, and 20-year maturities.

 

For example, let say you go out and buy a $1,000.00 TIP with a 2% coupon (aka interest rate). We will peg inflation at the prevailing 2% as well. At the end of the year, the TIP's face value would be adjusted up to 1,020 (The face value plus the Consumer Price Index inflation rate. 1000+(1000X.02))The 2% dividend in year two would be paid on the new face value of 1,020. That would be about $20.40.

 

Now that does not sound like a lot, but let's assume the inflation mongers turn out to be correct with all the Bernanke manna falling from the heavens and inflation goes crazy to 10%. Your face value of the TIP goes to 1100 ((1000+(1,000 X .10)) and you get the yield of 2% on that face value. As you can see if you held these for several years during an inflationary period, it could be very lucrative.

 

In a nutshell if you want to protect capital safely against inflation, you might consider a TIP, but keep in mind, like anything else in life safe investment usually do not have tremendous yields as demonstrated by the 10 Year Treasury Yield which today was at, 1.88%.

 

 

Salve Lucrum