Two Opportunities for Investors and Traders.

Shorting a stock is a time honored technique where traders who believe a stock is going down simply borrow shares from someone else and sell them repeatedly assuming they can buy back the shares later at a lower price. The practice tends to produce the desired results because this repeated selling pushes the stock price down and scares longer term investors out and their selling pushes the stock down further. 

Smart traders and investors take patience and time to look for these beaten down stocks, do their due diligence and sometimes decide what has occurred is nothing more than bargain time in pricing of some stocks. Note that this short selling many times is actually saying there IS trouble in the company and indeed the stock price will come down. So research is very important here, but when that research is convincing the opportunity is very ripe for investment gains. 

Now most people like to buy a stock on the way up like what is occurring in Apple shares right now. Apple is the stock that in many investors eyes will make them lots of cash like betting in a casino. Maybe it will, maybe it will not. What we do know is in my decades of experience that chasing stocks up is fools good and only the best market timers survive. We like to find values and value pricing and take our bets in stocks where downside is limited and upside is most positive. 

Two stocks in our current portfolio are currently being taken to the woodshed and beaten down good. 

One Frontier Communications, symbol FTR, is one of our favorite option plays. Earlier this year it took a pounding from short sellers who just knew the company would lower it's dividend and the price would fall further. We will leave it to you to find our posting on this security a month or so ago when we took a well researched and somewhat risky option play on FTR which in the end paid off most handsomely. Today the opportunity is again upon us with short sellers pushing FTR to around $4. The dividend is solid, the company sound and finances improving and the shorts are plainly wrong here. Therefore the opportunity to take a long term position is very good here at just above $4 per share. You get an almost 10% very safe dividend and some possible upside when the short sellers give up. The opportunity to take an option position is just as good. If the short selling continues today we plan on taking a November 4 put option on this stock at 50 cents a share or better.  

The other stock is Enerplus, symbol ERF, which is a Canadian oil company. We have loved this stock for years and even with some losses we took last year it has made us lots of money over the years. The shorts have piled into this company because they believe that the stock is paying a unsustainable dividend. This indeed may be so, but the CEO of the company in repeated interviews has made clear he will stand by his payout which now is almost 10%.  ERF is a situation where as we noted above offers the opportunity to take a position in a company rich in value, but has risk due to being in the oil sector.  Two scenarios. If the company lowers the dividend the stock likely will stabilize and move up since there will less financial pressure on the finances of the company. Even then the dividend will not be lowered hugely and you will have a stock with good capital gains potential and a nice payout. If the dividend is not lowered you continue to get a very juicy dividend and a stock at a bargain basement price. We might be proved wrong here, but there is little to lose and lots to gain if we are right.  We currently have a large put option position on this stock and will not be increasing that position at this time. Note that ERF is a monthly dividend and there is a Canadian tax of 15% before you get the dividend. The Canadian tax can be taken against your US tax as a credit. 

Dinner on the Grounds...A humorous look at one of North Carolina's oldest traditions.

Dinner on the Grounds is a hallowed tradition in North Carolina, especially Eastern North Carolina. For you non native North Carolinians let me define DOTG.  DOTG is an event at a church where everybody brings something they have cooked to eat on one particular Sunday. Generally the event occurs right after Sunday morning services outside on the grounds of the church and sometimes it can be rolled into Homecoming at the church. Now I have yet to have found anything about DOTG in the Bible, but it has got to be there somewhere.

 

As they say in my neck of the woods, "my mama did not raise no fool", and being properly raised I have NEVER turned down an invitation to any church where I have not tried at least one DOTG . I might miss one here but I have partaken of DOTG in Richlands, Jacksonville, Holly Ridge, Kenansville, Bear Marsh, Mount Olive, Clinton, Lumberton, Fayetteville, Kinston, Smithfield,  and one little church in Parkersburg that makes my mouth water right now just thinking about it.  Folks there is no better eating than DOTG. There is also no food planning needed.

 

DOTG means you get the very best of each mama's cooking, after all these ladies want to bring their best dish and want appreciation for their work.  You are there to provide such appreciation. So do not avoid any dish that you might like. For example I love butter beans and at a DOTG you can find as many as 5 different styles of cooking this vegetable and every single one is some kinda good. Ditto for corn, green beans, potatoes, and you name it. You will find every kind of beef and pork dish imaginable too. Casseroles of the like you have never seen. 

 

Now proper etiquette is important if you are to attend a DOTG.  Come the spring when many of these occur,  it is ok to drop hints in your workplace or anywhere churchgoers might be that you really enjoy DOTG and that should do it to get you asked to one of these babies.  Never turn down an invite to DOTG from a church you have never been too. Not only is this considered bad manners in North Carolina, it is dumb. Next if you are single this is your chance to ask a girl or guy you have had the hankering to ask out and just knew they would say no.  Trust me on this one if they turn you down for DOTG  they are not worth going out with period.  Most times the answer will be yes since they know what is coming in the food area. Next ALWAYS go to the preaching before DOTG, that right there will set you apart from being someone with manners and someone who has none. Then once preaching is over head politely to the food area making sure you are never first in line, but pretty near the front so as to get the best choices. Being first is bad manners. Finally dig it not being afraid to get all you want and have no fear of piling two foods on top of each other. One real advantage of DOTG eating is everyone EXPECTS you to eat your fill and more.  You will not only be picking up food you will also be picking up pounds. Going back for seconds is also ok and frankly is considered good manners here. Be sure to try several different varieties of the same food as I mentioned earlier. I believe it says in the Bible that God forgives those who overindulge at church DOTG. 

 

One other note, if they have soft drinks and such DO NOT use these for your beverage that right off tell others who are looking at you for further invites that you might be a yankee. Drink the tea, it will be sweet, but do not ask if it is sweet since that too will give it away you are a yankee. Tea is made just for that purpose to find out who the yankees are and they are not invited back next year.

 

Next is the dessert table and proper manners is most important here. First off you "keep your fork", throwing your fork away means you do not show proper concern for the finances of the church. If they have those small plates for dessert get one, if not just use the plate you used for eating the first course since all this stuff ends up in the same place anyway.  Again it is ok to pile cake on top of pie and come back for more. In fact at the dessert table you are required to eat more than one kind and frankly praise to your hearts desire here since the ladies who made the desserts hang around this table taking in the compliments.  This is important because if you eat enough different desserts and praise enough chances are real good some nice lady will send some dessert home with you. Not only is this considered very high manners it make some mama really happy.

 

Now here again is the most important manners at DOTG and will get you invited back every time. One, always complement the preaching to several people including the preacher. Two, complement as many mama's and ladies as you can find about such and such food being the best ever. As I said these ladies work hard at their best dish and they are aching for compliments so pile them on. Finally, eat all you want, that is expected and considered good manners as the ladies who cooked this food look upon this as an exclamation point on your compliments.

 

My best memories of DOTG is at my old home church in Richlands NC where we literally closed the street by the church in town so all the food could be spread out on tables and bring lots of chairs out from the church to sit on while eating. I remember watching ladies in top Sunday dress batting away flies from the food as they laid out the table.  I remember searching for my mama's pound cake and hoping others pass it by so we could take more of it home. I remember what always seemed to be a beautiful sunny day each DOTG day. But mostly I remember the fine food that can not be topped by anything cooked today in a restaurant and the fine fellowship with people with which I grew up. I expect if you are 40 or older and from North Carolina you have such memories yourself. If so consider yourself blessed to have participated in this North Carolina tradition.

                  

Real..Real Estate Investing

For years we avoided investing in real...real estate preferring to have real estate investment trusts to do my bidding. The reason is that the up front costs, personal involvement, and possible return were not worth the asset allocation. Frankly most of rental real estate is get rich real real slow if that. Things have changed.  Frankly good real estate can now be bought where you recover your up front costs the first day with asset recovery from the discounted selling price.  Funny thing is that for years people have tried to accomplish this little game of real estate quick riches by following the television real estate preachers who hook you with buying a book from them or going to a high priced class. Today you can actually do that to some extent sans the book and class price. 

The other concern about real estate for us can be illustrated by the old Jay Leno commercial.  Jay did a Doritos commercial many years ago that had him sitting in a chair talking about the great taste of the product that ended with the tag line, " eat all you want, we'll make more!". Now that little point of about "we'll make more" has always been the drawback for us regarding real estate investing.  The making more is the reason we had the real estate crash.  The huge oversupply of existing homes right now is the primary reason real estate can be bought at prices not seen in decades.  Even when the real estate market returns to something near normal builders will again have the option of making more anytime they want again putting pressure on values.  This is true for almost everywhere in the country except for a few locations.  One of those places are strong inner city cores like New York City where there is nowhere is to build and many people need to live and work. The other place is seashore real estate. In many places along the seashore almost all the open lots are built on now and the ones that are not built on require extensive environmental and local codes that make then much harder to build on. Therefore the real estate values at beaches however depressed should be the first to rebound in price and likely will stay that way. 

For the past year or so I have suggested to some of my more well off investor friends that one of them needs to set up a partnership of investors where they buy depressed price real estate on the coast of North Carolina.  Almost all of North Carolina coast real estate is 25% to 40% off in price compared to just a couple of years ago. Much of that real estate is below replacement value. Some of that real estate is bank owned or in short sale due to the purchase by people who were either investing thinking they would flip the home or someone who bought the home and now is unemployed and can not make payments.  Right now there is a small glut of mostly existing real estate in many North Carolina beach areas and the people who are trying to sell are being forced to lower prices and lower again to sell.  In those beach areas that are basically full built out due to the lack of available land once the oversupply is sapped up the prices will begin to rise significantly and before real estate recovers in other areas. 

Our personal favorite area is the Bogue Banks area. The real estate market there is all but fully built out, the vast majority of existing structures are single family residential, and the existing regulatory climate there is most positive.  The western end of the island known as Emerald Isle offers the most opportunities in our opinion due to the prevalence of all the factors noted above, plus some solid zoning and easy access via the local high rise bridge. There is also the fact that many families like to have a home to spend their vacations in and the rental market remains strong. 

The sweetener here are the lowest interest rates in years. Good credit and one can get below 4% 30 year loans currently.  Looking down the road 10 years rates that low makes one think that you will basically be paying back with inflation adjusted free money. 

 We suggest if you are in the market for real estate either as a home or investment take a look at seashore opportunities. 

                 

Can not get a job? Here is one reason why.

All public policy has unintended consequences. For some reason politicians believe if they will do something, pass a bill or just make a policy decision, the action will result in exactly what they want to happen results wise. Does not happen, will not happen.  The simple fact is that every action by anyone, including politicians, will have a dynamic effect on someone else who will respond to that action with their own set of changed actions.  Static results are not possible.  Only fools think otherwise. 

Here is a way to show the point. Congress raises tax rates on someone or some company. The person or company contrary to what you might have been led to believe will not just pay the tax and move on. The taxed entity will look for ways to avoid the extra tax and most times can find a way, sometimes by either stopping or doing less of the action that is being taxed.  Take regulations on home building. Seems simple that a governing board can say something like do not build in a restricted zone, but the person owning the restricted zone will find a way to make the zone unrestricted. In Southeastern NC there was an area that has the endangered woodpecker nesting in pine trees. Sure enough the US Game and Wildlife came in and said no one could build on the property. So the landowner came in a cut down every single tree on his land making it impossible for woodpeckers to nest making the land unrestricted again. This stuff happens all the time. 

How does this relate to your not finding a job?  The Federal Reserve has forced by monetary action all interest rates down from what would normally be 2% or 3% in this economic environment to almost zero for banks other lending institutions. Mortgage rates which should be 5% or so are now below 4% for good credit. All this interest rate push down is for two purposes. One to try and stimulate the economy that is near death growth wise and two most importantly to keep US Treasury lending rates ultra low to help with the huge federal deficits and debt. The more Obama spends the more the Federal Reserve will do their best to keep rates near zero.  Just a tick up to say 2% would blow the doors off the country's economy with a blow up of the national debt servicing of interest owed so high the country could collapse. Therefore the policy decision to spend and spend is making interest rates necessarily very low.  Maybe for an extended period too. 

These low interest rates have also had a dynamic effect on people older than say 60 years old or so. The savings they have accumulated over 30 plus years of work and set aside for retirement is not earning 4% or 5% CD rates anymore but more like 1% or less and therefore they can not depend on that savings account interest payout to pay their way in retirement. So these same older people have reentered the job market and displaced the younger set.  These older people have better long earned skill sets and frankly will work cheaper than younger people who are raising families and paying off mortgages. All this displacement is also setting back the younger workers from getting employment to buy homes and begin saving for their own retirement.  Unemployment rates for those under 30 is almost 50% due to the dynamic effects of these policy decisions. 

Yes, these policy decisions are not the only cause of less jobs available, but trust me they are a substantial reason. So anytime you vote consider not only what the politician say he or she is going to do, but just what will be the dynamic results of that policy decision.  Change is not change just on face value.  A good portion of the younger set not being able to find a job started with a decision to spend more at the federal level and force interest rates down, which seemed to be the obvious choice at the time.

               

Newspaper classifieds...Going back to the Future.

Opened my local twice a week edition newspaper yesterday and began reading. As usual when I came to the back of the publication and found the classifieds I was disappointed.   Disappointed since there were so few to read, virtually no employment ads and no general customer sales ads such as autos, furniture, and appliances. Classified has gone a long way backward since about 2003.  I date it at 2003 because that just happens to be the year I left general circulation newspaper advertising management. At the time I was the advertising manager at the local newspaper and it was not unusual for the classified section to have 6 to 8 pages of ads each issue.  Most of the backsliding since 2003 has nothing to do with my departure to be sure since if one would go back to say 1998 we were publishing 10 to 12 pages of classifieds each issue so classified was losing market share before I left the business.

Frankly we could take this loss of market share back to somewhere around the mid 1980's when newspapers decided to really start raises prices on classified ads and especially local consumer classifieds such as cars and used refrigerators for sale. There was a time in the late 1970's when my classified sales career began that we would run 20 plus pages of DAILY classifieds at a newspaper with less than 20000 circulation. Even then the idea of raising prices without accompanying increases in circulation or market penetration was excused since after all newspapers could not help it due to their suppliers were increasing their prices as well. This little argument is maybe sound but totally irrelevant when it comes to classified advertising.  We forgot that when customers are unhappy they begin to look other options and when they found other options they left.  Pricing yourself out of a market is plainly stupid. 

Now stay with me here since many of you are going to get mad and say this guy knows nothing and want to leave after I tell you the main reasons for these errors in judgement that lead to classified virtually dying at newspapers.  When newspapers began to place people who knew absolutely nothing about the basis of classified advertising as classified managers, when newspapers began to place in publisher positions those who had not come up from long years of working in the newspaper in other lower positions, and when newspapers got the let's do some diversity hiring to fill a position, that is when classified started dying.  People who worked in classified understood the reasons people used the little lines of ads and understood why you would get autos and real estate and all the other businesses who placed display ads in the classified pages 

The reasons were simple.  The consumer liner ads that had someone's used auto, used refrigerator, used bicycle, Saturday's yard sale, and yes employment drew lots and lots of eyeballs. All those eyeballs wanted to see what was for sale since they might find a bargain or maybe find something they were looking to buy. They also drew people needing employment to check out job openings in classified.  Many newspapers in the 1970's would price all those little liner ads at basically what it costs to have someone take them over the phone and place them in the paper, which was really really cheap since there were so many ads. Those same newspapers also allowed lots of ready for this, FREE ads in the same classifieds for really cheap products for sale say under $25.  If you are of late newspaper management vintage I expect you will say why charge so little for these ads when you need to make a profit. Understand that newspaper management have been saying that for long enough to run yourselves right into bankruptcy in many cases.  You have least thought it long enough to virtually destroy whatever classifieds you have left. So your thinking is WRONG.

Newspapers have no one but themselves to blame for the classified ad losses because of thinking  as we are owed a profit or we have bills to pay. But then again most of the current newspaper management is ill equipped to do much more than think this way. Years ago newspapers used all those eyeballs drawn to classifieds to find bargains to sell large space and small space display ads to business customers who wanted a chance to sell their product to the people connected to those eyeballs. They even sold higher priced, much higher priced liner ads to these same customers making sure to readers just which liner ads were business ads and not just the local guy selling his items.  All these ads made nice profits for newspapers not the liner classifieds that drew the readers and ultimately customers for the display ads. 

The other part of this classified loss is the simple fact newspapers quit thinking local. They started thinking save money, thinking how to be more efficient, starting thinking to hell with the customer in many ways including editorial who were told they were immune from such thinking.  So many times what you got was what was termed cross selling where customers who called their local newspaper ended up with their $50 refrigerator ad being run in a newspaper two counties away for the purpose of adding profits to the newspaper with extra runs in more publications.  All of this is of course irrelevant to the guy selling the fridge since all they want is to connect with some who will buy their used item.  Trust me a $35 classified ad is of no use to a guy selling a $50 item, little logic to wasting one's money when you would be better off donating the item to the Salvation Army.  But the real killer of classifieds here is that no one is going to drive 100 miles to buy a used item for $50, especially from someone who might be selling them a pig in a poke. You see part of the wonder of classifieds in the 1970's was that either you or someone you knew had acquaintance with the person selling the used fridge and there was some trust in the purchase. No so anymore so many former classified line ad customer quit using the classifieds for price and being non local. 

Newspaper management, thinking they understood the reasons for classified losses, blamed Craig's List and most notably the Internet for taking their customers. They are wrong and wrong. Craig's list even today can not localize the classified product. They try by taking in larger metro and geographical areas, but it still does not do work as well as former classifieds.  Very few places in the Internet can localize either even though it looks like facebook forums are breaking out in areas where people can join a local used item sales page.  There are some areas where localized webpages are up that target certain 30 mile radius areas with classifieds and such and they seem to be doing fairly well. But in the end newspaper management allowed this once vibrant and profitable market slip away from them by making poor decisions.  Accepting the blame would go a long ways towards taking back some business. 

Going forward the fences are high to getting back this classified markets for newspapers. First off fact is that it is much easier and CHEAPER to keep a market than try and GAIN a market.    I know for a fact most of these inexperienced newspaper managers do not understand that most simple of business rules since many have never actually handled customers or markets. But there is a possible way to begin the slow climb back to a larger classified section but it will not be quick or easy. 

Renewing the classified section is going back to the future. That is local local and local advertising. That is also FREE liner ads.  Begin with letting your subscribers and locals know you are offering free ads for customers who sell used items, and want to place yard sales. Trust an old classified hand on this one that those yard sales are a huge eyeball draw to your product.  Also if the person placing the ad is selling the items outside the true geographical area of your newspaper place the ads in a separate classification and yes charge a small fee for them, again local is the key here.  If you have an online presence place the ads there for free as well. Built your classifieds and slowly regain some control of your market.  Eventually there will come the point where you have enough eyeballs to sell to local businesses who see opportunity in those eyeballs. Can newspapers get back to where they once were, who knows, what I do know is this is the only way. If it fails you have  lost little but stand the chance to gain some profits and most importantly regain some local footing for your product. 

 As to the Internet presence I still believe placing links to business customers and even links to PDF's that someone can open online will help gain some display style ads. If you have the eyeballs you can sell links to business customers who want those eyeballs. Make your website the go to local site for local news and breaking local news. Even arm yourself with the ability to place a late breaking news story and photo online quickly.  Make sure you have a facebook page where you can link your website for local info and breaking stories. 

While you are at it it you are still charging for weddings, engagements, obits, and such stop.  These too are eyeballs drivers and newspapers sent them packing with making customers pay for them. Yes, make your news dept. take them with a smile and sincere thank you.   No, your news dept. will not like it. But maybe explain to them that the news staff is there BECAUSE of the public and not the other way around. if they can not grasp that concept they need to be replaced. Newspapers need to think local and not state or national and that is the only way back. 

The People versus The Power Elites..Interstate 95 edition

Seems some of you in the Power Elite Coral Bay Club crowd were offended by comments in my last I-95 Toll Road posting.  Well sorry to offend you but YOU have offended us by your heavy handed stuff it down their throats approach in trying to force a toll on I-95 through Eastern North Carolina. When someone tries to force their will on you without even the civility of asking your opinion one should expect those so offended to fight back and so we shall.  For the record too we the people will not go away this time as we did last time  a couple of years ago when you backed off and came back with another plan this time around. 

Those of us in the We The People category who are fighting back is growing longer by the day. Here is a partial list of those groups who are just saying NO to tolling I-95.  

Halifax County Board of Commissioners

Halifax County Economic Development Commission

Roanoke Valley Chamber of Commerce

City Council of Roanoke Rapids

Halifax County Convention and Visitors Bureau

Johnston County Board of Commissioners

Johnston County Tourism Authority

City of Smithfield

Nash County Tourism Development Authority

Fayetteville County Commissioners

Town of Kenly 

Greater Smithfield Selma Chamber of Commerce

This list if growing daily and includes some fine newspapers along the corridor as well. Such as The Smithfield Herald, The Wilson Daily Times, The Mount Olive Tribune, The Daily Herald in Roanoke Rapids, and The Robesonian in Lumberton. How about you editors in Dunn and Rocky Mount weigh in as well and let me know you are with us. For the record shame on The Fayetteville Observer for weighing on the other side. Your willingness to self serve is showing my former employers.  Understand not taking a stand is in essence saying you are against us, so no middle ground here to hide. 

While we are at it let's talk politics and just who is with us and who is against us here in our toll fight.  Congratulations and big kudos to Congresswoman Renee Ellmers for not only coming out against the toll, but actually doing something about it. Congresswoman Ellmers has entered a bill to actually forbid any tolling on I-95 through North Carolina.  Congressman Mike McIntrye has also publicly stated his opposition to the toll as well. How about it Mike and sign on to Ms. Ellmers bill and be a co-sponsor of her bill to forbid the toll.  That would be a nice piece of bipartisanship there. Just where is Congressman Butterfield here.  Mr. Butterfield are you so tied to the Power Elite that you can not look after the people in your district who will lose jobs when I-95 is tolled. You had no problem getting upset at the first series of new district maps last year, how about some more of that getting upset regarding your constituents.  If you have come out against the toll road make it known in a press release please. 

As those of us who are against the poll have dug into the pages of the I-95 document we continue to fun little bits of information that NCDOT has failed to bring forward other than deep in the small print for obvious reasons. One is that the approximately $40 per round trip is only the PROPOSED starting toll. The toll could be more, maybe a lot more, since only when the final costs of the construction project are totaled does NCDOT decide what the poll will be and as anyone knows government NEVER goes down on taxes.  Add in that the starting toll will not be the toll rate forever, NCDOT has built in an "inflation" escalator which means the toll could increase a couple dollars every year for the up to 40 years the toll is expected to be in force. 

I have also yet to hear one NCDOT official tell me when the toll will actually end. Could be they do not plan for it to ever end, since they would like this problem of funding I-95 off their plates forever so as to spend gas tax money elsewhere in the state. How about that your children, your grandchildren,  even your great grandchildren,  could be paying an ever increasing toll just to ride on I-95.  So defeating the toll is important to do now. 

The good news is that the people who have come out at the show and tell meetings by NCDOT along the corridor have been vocal and firm about their objection at using a toll to fund upgrades and maintenance of I-95. The other good news is that your concern has had an effect on the Power Elite who have backed off some with their insistence on the toll plan. You know an election is coming up and it is never smart to make the voters mad right before an election.  Let's keep up the pressure and work to defeat this toll and this time bury it for good. 

              

Chasing the Market

Another over 1% rise in the market yesterday and many must be thinking why did I not get in earlier before the run up or even better if it is headed up why not get in now since I can at least catch some of the upward move.  The first point here is this market is a perfect example that buy and hold is not dead. Yes, you hear repeatedly that buy and hold no longer applies to stocks and funds, but do not believe it.  If you are an retirement investor, an investor just wanting to make some long term money for a certain purpose like a home purchase putting money consistently every month into the market will work over the long term. 

We are traders and we trade monthly at a minimum and even with us almost 50% of our net portfolio is in buy and hold low cost mutual funds. Here is a fact, there is almost a 100% chance you can not hit it big and win the lottery in gains by buying a stock and expecting it to move up quickly. The gambler in many of you and especially the risk taker in Generation 13 keeps the trigger finger itchy and wanting to do just that. Avoid the foolishness unless you want to lose significant capital. 

All this is to point out that the market of the last month is fools gold. Indeed it might keep going up for another month or more, but chasing stocks and markets only brings pain and sorrow. Trust us we have been there and refuse to participate. We ourselves keep looking at the upward trend here and keep looking at our watch list and thinking there just MUST be a buy or sell here where we can make some serious short term money. Fortunately experience and the reminder scars keep us from chasing this market. 

The key to making money in any stock purchase is to buy value and then wait for the market to recognize that value. We have a friend who is new to this options game and we note to them repeatedly when they want to place some assets to keep an eye on 52 week lows or near 52 week lows. The odds are much greater there for profits and the chance of loss much much less. When we published our watch list a couple weeks ago we noted some stocks that had sold off significantly in the past few months on the list and those stocks are where we look for forward value. 

Yes, there are opportunities in stocks representing good companies doing profitable business currently, but most times those stocks are fully valued and only represent momentum plays. A momentum play like Apple is prone to take falls in stock price when just one day of bad news hits. Better to have stocks with bottoms in and chance of loss slim. In those stocks just one day of good news can move the stock up significantly and reward the holder.  In trading you look for these values and then make money via options. Once the stock has moved past the value stage you stop trading it and look for another value. If you do not find one you keep your powder dry. More mistakes have been made in trading when money is looking for a place to trade is invest without regard to value. 

Keep the faith and values will reemerge for the part of your portfolio that is for trading. In the meantime fully enjoy the part of your portfolio in long term buy and hold as the up trend either continues or stops.

                

Market Insanity

Another blogger I read regularly titled a posting earlier this week Market Insanity.  That is the perfect title for the absolute insanity we got going right now in the market. There are several reasons for the insanity and why you as either a trader or investor best be very careful here in your stock selections and asset allocations. 

Pimco CEO Bill Gross pointed out in his monthly column this week that never before have we seen an economy quite like this one. The past thirty years the investing approach has been borrow someone else's money and make more while paying the other person back. This is nothing more than a takeoff of our long ago posting about our mentors where we said we learned how to prosper using someone else's money. Back thirty years ago this was not insane investing since offensive investing was the way to go and if one was smart they could prosper. Mr. Gross also pointed out that wise people now use more defensive tactics than offensive tactics to make money and that includes highly considering safety when looking for yield. Mr. Gross believes as we do that AAA state municipal bonds are a good bet for yield.  But the key thing here is anyone who came out of the financial mess unleveraged the opportunity to borrow at almost zero rates makes for enticing opportunities going forward. For the first time ever the common person can make investing plays like Warren Buffett who uses his considerable cash flow via insurance premiums to make solid investments. Of course the forward capital gains and yields will be less than earlier expected. 

All this plays into the stock market and the fact it makes absolutely no sense for a stock market to be above 13000 and the ten year US Treasury now below 1.9%. What makes for normal times is a higher valued stock market and rising interest rates. Thus the market insanity.  We have been posting for some time now the concern about market valuations and profit expectations not meeting what will actually happen in the economy. Most investment houses have lowered and lowered again their expectations for stocks under their umbrella regarding profit growth and overall economic growth with many below 2% now.  This again makes for even better stock selection and risk aversion when one is considering where to place assets.  An economy growing at the current rate can not create jobs or profits fast enough to ever make for anything close to full employment. 

As mentioned in our last monthly report we are down to 11 stocks where we are confident in placing  trades going forward now. Among those only a few stand out as ones where the downside risk is small.   Accordingly we have reduced our exposure to LO, and increased our exposure to ERF and AGNC,   Next month we will likely increase our exposure to GG, since gold seems to be a current hedge against downside risk.  

ERF is an most interesting risk play. ERF is widely believed to be paying an unsustainable dividend and thus the current price is offering a 9% plus yield. We have invested in this security for almost a decade and frankly can not definitely answer the payout question, what we can say is that with a 9% yield and lots of oil assets we are willing to take the risk.  This stock reminds us of the FTR stock situation a month ago where even if they reduce the payout the stock might go up since investors will consider that a positive for cash flow.  Either way an above 6% payout is sustainable forever and that makes the opportunity good for capital gains and dividends. 

AGNC stock price was hit about a week ago due to a capital stock sale. The opportunity for purchase below $30 is rapidly eroding as investors see this stock for what it is a great opportunity for purchase and high yield at a price with little downside. 

GG continues to intrigue us with little downside risk and lots of option premium. In a situation where risk is high the chance to make profits with little downside risk is hard to ignore. 

FTR our latest long term option play offers significant downside protection here and for those who want to do some buy and hold this stock can be somewhere safe to hide. 

Last week we offered a list of watch list stocks and several of those are high on our list for a long term derivative play when the right chance comes forward. What we consider a good risk play is when a stock gets hit hard in price down to level where the downside risk is minimal. We and if we make a long term option move we will offer that risk play as a separate posting for those interested. 

Another area where we believe is prime for asset allocation is good location real estate. None other than Donald Trump is going around the country buying up golf courses on the cheap. Other investors such as Warren Buffett have noted single family homes being a good bet long term here. Shortly we will be finalizing our first purchase into this opportunity area and will be posting on the selection.  Frankly this might not be our last asset purchase in this real estate area. 

                

Three Christian Men I shall miss.

Woke up Tuesday morning some over two weeks ago to the news that my longest lived and last uncle had passed on overnight. With Uncle Ray Dixon gone the linkage to my family past has been broken since he was the last one to grow up on the family farm. My uncle was as good a Christian man as you would find.  Hard worker, took care of his family, never asked for a dime of charity, and made sure the rest of us younger family members were kept in line. He attended church regularly and actively participated in the worship and music there. Uncle Ray did his duty and served in the Korean War getting injured. His God was his anchor and he knew his actions were answerable to God. Thus he was humble and caring for his fellow man. If he ever spoke harshly of others I never heard it.  He did not have to since his family or friends knew doing something that would hurt him made all of us careful of our own actions. That is what good Christian men did for his country for many years.  I shall miss his wise advise and leadership. 

Then the following Friday evening I find that another man of God I had know for many years has passed on.  I met Jesse Lindsay in 1978 while working in Clinton NC as a sales rep for the local newspaper.  Jesse was another of those men you can call one of the finest Christian men ever.  He started as a bagger at a local grocery store and went on to own several Piggly Wiggly's in the area. He also did his service in the military and came home to keep working, raise a family, and build a business. Jesse got named as one of the 10 most influential people in Sampson County history several years ago, but I know Jesse was more proud of his faith, his family, and his community in that order than any award bestowed upon him. Humble, honest, sincere, and caring are words I think of when I think of Jesse. When I moved to Smithfield in the early 1990's Jesse owned a store there and I got to rekindle our friendship via my calling on him for business again. But I mostly remember his wise advise about raising children during our many conversations. As usual that advise was Christian based and most sound. I saw Jesse last year during an event we were both attending and like all good long term friendships we struck up a conversation like we had seen each other yesterday. I shall miss him and the knowledge of another wonderful Christian man is gone. 

Finally the following Saturday morning I got hit with the news that Rev. Norman Aycock has passed on. Rev. Aycock was my pastor for some years when I came back home from college and before I moved away to better opportunities. Again no finer Christian man has walked this earth in my lifetime. The things I remember about Rev. Aycock was his ability to sense problems in people and the ability to make people feel better. His ministry to my father in his last years made his life much better. My fondest memory there is seeing my father and Rev. Aycock eating fried chicken atBojangles. Two grown men chowing down on what they loved the most was worth the trip to watch. I also remember his wise counsel during times when I needed good Christian counsel.  Humble, caring, loving pastor, and family were words I relate to him. I had the pleasure just a couple of months ago to drop by his home and chat with him. Again as usual he had some comments to share about his knowing my father that warmed my heart. That was the kind of Christian man he was, never did he say anything about others that was not a lifter upper. I shall miss visiting with him and his kindness. 

All this got me to thinking were have all the fine Christian men gone? The men who made this country and raised families of Christians.  Where have all the Southern Gentlemen gone that had few harsh words, but everyone knew their counsel was like gold and others sought it out?  Like it or not everyone this country is not a better one with a less Christian based society. It is not a better one with more supposed freedom and living like we have no God who is an higher authority in our hearts. I frankly am using these men's passing to question myself as well as to my Christian character, as to my willingness to be live a life that inspires and leaves an impression of hope.  I look around me and all is see is people who are in it for themselves, politicians from the President on down who have become un-anchored from good Christian morals and understanding.  Rarely do you find someone anymore who speaks softly and truthful.  Rarely do you find men outside the church who are willing to bring Christian character to the public sphere. Good Christian Men, where have they all gone? Will this country survive without these wise patriarchs who exercised wise authority, but knew they too answered to God for their thoughts and actions? 

             

Stocks on our Watch List. Part Two

The first part of this list was posted earlier this week. 

MO...Continues to be one of our favorite tobacco stocks, but at a lower price.  Altria has moved up over $30 and now is just below. Continues to reward investors with steady increasing dividends. If price was closer to $26 we would buy. 

PM.,..Another tobacco stock we like. This one is domiciled in Switzerland away from pesky trial lawyers and American government lawsuits so safety is above the domestic tobaccos. Phillip  Morris also sells to China and Japan two very good international markets. However stock is premium priced which it richly deserves. We just like value stocks better. Very nice rising dividend.

POT...We keep Potash in our sights as this Canadian producer of fertilizer stock has been on a tear as Asia diners have gotten wealthier they demand meatier diets that come from animals who eat corn. Corn production enhanced by potash. Great play on agriculture. 

RRD...The largest printer left and continues to consolidate other competitors. Efficient and a good dividend payer we continue to look for an option entry here to make a buck. We do not recommend a long term buy here. 

RSH...Contrarian play on Radio Shack the country's largest tech store chain. This company has been mismanaged so long it is a wonder it is still in business. However the stock has all but hit rock bottom as the stock sells for the cash value of the company and it you are a contrarian now might be a good risk play. We prefer the option route. 

SCCO,,,World's best copper producer and copper is the one way to track the world economy. Almost anything you make tech wise has copper in it. Southern Copper pays a good dividend and it rises and falls with the company's profits. At $30 we like it, at $40 we would not touch it. 

SF...My personal broker Stifel Nicolaus in which I have no inside info. However I keep watching the broker consolidate other smaller brokerages and grow without overpaying for the buys. This stock might finally be on a steady up track and should be considered for purchase on any pullback 

SHLD...I do not like Sears Holdings as a stock or company. But for a options trader this one makes us lick our chops and want to dive in. It has been on a up trend the last week due to some good news after people had given it up for dead after Christmas. Just the real estate it owns gives the company some value and once Eddie Lampert the CEO and Hedge Fund genius finally gets most of the shares bought up through repurchases this one could be sold for some considerable profits for the final shareholders. 

WIN... Windstream Communications is included here because we own it in another account for the dividends and safety. We do not suggest purchase here.