The list of people who stay on past their prime is almost endless and generally involves males who allow their competitive risk taking nature to get the best of them. Michael Jordan made a fool of himself with his continued returns to the basketball court. In the same vein Coach Dean Smith showed the correct way to leave the competitive arena and won much praise and exalted status for doing so. In the investing world we have Warren Buffett, who has made more money and made more correct calls that about anybody ever in stocks. However recently Mr. Buffett has begun to make some foolish errors. His investment in GS could likely expire with absolutely no gains. The preferred stock in BAC looks to be a big dud. Add in his continued outlandish statements regarding politics and you get a man with lots of cash gunpowder and nowhere to shoot it so he has taken to shooting off his mouth. Smart business people know you straddle the fence when dealing with politicians. Yes, you also know you have to pay out some serious contributions to both sides to keep them off your back. But in the end the best policy is no policy. Mr. Buffett in our opinion has stayed in the investing game past his prime and it is past time for him to exit stage left before he makes a statement even dumber than this week's challenge to Republicans to match his debt contributions. We fear the next statement could confirm Mr. Buffett has jumped the shark and make clear his mental capacity has left the normal.
Quietly this week there have been a number of high level layoffs in the US. The list includes banks such as RBS and BAC. Sears and Food Lion added in this past week as well. Several pharmaceuticals added some as well. Not sure if this will show up in the highly managed and adjusted initial jobless claims or the similarly adjusted employment report, but what it does show is that the economy is still in stall mode and that is not a positive sign. Speaking of the employment report I find it fascinating the the press ignores the adjusted and adjusted some more jobless number when everyone knows the number purposely has been tinkered with to help politicians for both sides keep their jobs. Just shows how ignorant and in the game our press has become.
Potash of Canada, symbol POT, has been in the tumble since fall due to worries of business prospects going forward. The stock price has gone from around $60 to now $40 in a matter of three months. That in my opinion is a way over reaction to any news of farming cutbacks. There has been an oversupply of fertilizer in the past year. This is nothing more than the free market reacting to the prior under supply of fertilizer and adjusting by producing more goods. POT could very well be a good capital gain prospect at this level and with the northern hemisphere starting the growing season right now could be a good time to take a position for profits. Even if the oversupply remains POT has likely hit a point where the stock price will not decline further and offers a low risk upside for traders. One could buy the stock here around $43.50 and sell a June $45 option which will net them an over 10% return if the stock moves up not including the dividend. If the stock does not move up you still get the $3.50 option premium, dividends, and 8% profits. Not bad for a 5 month investment. Remember the free market weeds out the higher cost producers at some point and POT is best of breed.
We believe the point has been reached where bond values are high enough to be considered a bond bubble. Rates have declined so far that even the silliest of bonds have value beyond what is real value. The majority of bonds in our municipal bond portfolio are now valued much higher than par. Normally we would expect most muni bonds to be valued near par or just above par to be considered right, but with US Treasuries going down in yield almost daily 5% muni yields are now being bought to the point investors are pushing their face value beyond reason. Not sure how this will all end, but if I was in a bond fund I would consider lightening my position and taking some capital gain profits now.
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