Option trading begins in Facebook. Making a buck for traders.

Despite the screaming Jim Cramer begging you to buy it, despite CNBC urging you to get some shares in the market the first day, this stock has been a real dog. Having begun life at $38 and some people getting in the low $40's, Facebook is trading today just under $29.  The only person to make out big on this security was Mark Zuckerburg, who sold about $1 billion dollars worth in the IPO and immediately got married and went on a honeymoon with his new wife. 

Say what you will about old Mark being an absentee owner and CEO, but he was smart. Obviously knowing the deal he had got his money and honey and got out of town before anyone could find him and ask what the hell was going on.  Frankly many saw this coming and as always those were overshadowed by a fawning press and Mark being a liberal no one in the press has even questioned him about all the mess he left behind. 

If you got in on the first day you have our condolences, if you got in since then you have our worry if you really need to buying any stock or security without full adult supervision. In any case you have lost your behind and more. So what is a trader or investor to do here? 

Facebook, looking more like Faceberg now, does have some value.  Just no one knows where the value is right now. Honestly we thought that Morgan Stanley and other underwriters would step in and hold this stock up around $32 or so, but even they know when to let this dog find his bottom. If what we have read is correct FB is going to earn about 95 cents per share this year and maybe a bit more next year.  So a high teens or $20 handle might seem appropriate right now with some anticipation of some upside if the company figures out a way to make some money and sell some advertising on their site. But GM put a dent in that idea one day before the IPO, so who knows, maybe $15 is where the real price should be with a 15 PE. 

Frankly we are not convinced that Mr. Z has any idea about making money, only being a cutie for the press and hosting Obama when needed. You know the press just fawns and drools over a CEO who wears hoodies to press conferences.  Normally with the spotlight on you after an IPO the CEO tends to be shown working hard and finding ways to make the stock worth it's lofty IPO price. But Mr. Z is not your normal CEO, he is in our opinion a full blown metrosexual liberal hippie wanna be who thinks he is Steve Jobs lite.  You heard it first here he is not Steve Jobs. For the record since Mr. Jobs died we have learned though not registered as such Mr. Jobs was full bore conservative in operating Apple and his own life. Maybe Mr. Z should take some lessons. 

Anyway for those so inclined today FB finally started trading with options, both puts and calls.   The Sept. $20 puts at 80 cents look interesting here for selling.  However we are keeping out powder dry until some Dec. or Jan. 13 $20 or below puts begin trading and taking a stand there.  Somewhere in the middle teens to $20 if forced to buy you get the stock at a fair price with the opportunity to participate in some upside if there ever is any, if not you get some serious change to put in your account and know you were smarter than Cramer and CNBC. 

                

"Miss Wilma's Tomato Sandwiches'

This is a repost from 2011 when this posting got large readership.  So with lots of new readers I thought I would post it again as tomato sandwich season is upon us as I should pick my first homegrown tomato later this week.
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This has absolutely nothing to do with investing, but I do not care since this is more important in my opinion:)

I do not remember the exact moment of my first tomato sandwich, but I expect it came sometime around the age of 7 or 8 when I was old enough to go into the garden in back of our house on Hargett Street in Richlands NC and pick a tomato for myself. What I do know is that once I got one in my mouth it was love at first bite and I have never missed a summer without as many as I could devour. Before weight became an issue it was not uncommon for me to eat 3 sandwiches at one meal with the accompanying summer vegetables of butter beans, okra, and corn etc. You can have your sophisticated dining and high end places, but if I had a choice of any meal on earth this would be it. Two slices of good bread, some Duke's mayonnaise, several pieces of freshly cooked bacon, salt and pepper, and some HOMEGROWN tomatoes. Folks this is just good eating.

Back to Hargett Street and "Miss Wilma's Tomato Sandwiches". I call them that because the lady who came over to help my mother "keep house", (that is what is was called in those days), called them that. My mother opened a beauty shop starting sometime late in the 1930"s ( first feminist my friends ) and about the time I was old enough to eat tomato sandwiches had enough business she needed help around the house. I forgot the lady's name now, but I know she said more than once that Miss Wilma could have all the Toot n Tell It ( local drive in ) hot dogs she wanted, but the days she was there to clean there had better be some of "Miss Wilma's tomato sandwiches" for lunch. You see even then back in the early 1960's we in Richlands already had crossed the racial divide because the cleaning lady was black and she ate what we ate, and sat at the table where we sat. If there is one thing blacks and whites agreed on then and now in the South that nothing beats a tomato sandwich for a good summer meal. Cheap, easy to make, and the ingredients could be gotten locally. The important thing here is the HOMEGROWN tomatoes. None of that store bought stuff comes close to the flavor of growing your own tomatoes. I say that because some of you Yankees who have migrated down to the South need to know there is a difference. You can not find these babies in a store, so if you want to partake of this delicacy, either grow your own or find a friend who grows them.

I believe tomato sandwiches are God's gift to Southern culture, much like North Carolina BBQ is the holy grail of food here. I remain convinced that the Civil War ended in April 1965 when the Confederate soldiers opined that why should they stay and fight the damn Yankees, when it was planting season down home and soon there were tomato sandwiches to be had. Makes sense to me anyway. Nothing hold Southerners together like good food and tomatoes sandwiches are something all "real Southerners: can agree on.

Anyway here I sit June 9, 2011 and I have just picked my first two HOMEGROW tomatoes and a tomato sandwich is a day or so away as the tomatoes finish ripening on my counter. So as I take that first bite the next day or two I believe it remain blessed, as other "real Southerners" do that I was first introduced to tomato sandwiches and I get to relive that moment again. Thank you "Miss Wilma" for what I about to enjoy and I remember you and the wonderful gift you gave me in "Miss Wilma's Tomato Sandwiches".

Stocks that Perform plus a Couple of Possible Values.

The past week or so has seen a sell off in the market and smart investors and traders know that when sell offs happen you look for which stocks held up well under selling pressure. These are stocks that we can depend on longer term to keep value and make money with less risk.  Below is a list of stocks we have positions in that have done well. 

AGNC...We continue to love agency reits. Even those that have not only held value, but added capital gains in the past month. AGNC reported solid earnings and the market has rewarded the security with a nice bump up in value.  We also like HTS as well.  Great dividends, government guaranteed mortgages, and little risk until The Fed decides to raise interest rates.  

BCE... This Canadian telecommunications company frankly might be overvalued at $40, but it refuses to go below that price for long.  Good dividend too. 

T... AT&T continues to move upward in price since the merger denial with T-Mobile. The company has been an aggressive buyer or bandwidth and has challenged the federal government to give it more. Another nice and rising dividend. 

DUK...Has moved up a couple of dollars in the last month or so and in our opinion is overvalued. But if you own it that is a plus of course. Once the merger with Progress Energy is decided this stock will be even better. One the negative side the current CEO is one of the worst in the country. Goes to show good regulated utilities are almost bullet proof in this market even with bad management. 

NNN...This is the one security we own that has withstood every downturn before and since the economic troubles of 2008.  We sleep like a baby nightly with it in my portfolio. Good and rising payout. 

O...Current stock price is too high.  Only consider if you can own around $35 per share, 

CTL... Continues to be our favorite stock for long term value currently at $38 or so. Reported solid earnings and continues an above average pay out. 

TCAP...We continue to like this company long term and for the nice rising dividend.  Note if you buy this security you must opt out of the reinvestment dividend plan if you want direct payment. 

SO..Overvalued, but continues to be the safest stock to own on the planet in our opinion.  If you would like a 4% dividend as opposed to government bonds or CD's this is your pick. 

Here are some current values in the market with a little more risk. 

ARCC..If this stock goes below $15 buy it. Great dividend and solid safety.  Frankly it is a good value right now. 

BP... If you like some more risk then BP below $40 makes for some interesting capital gains opportunities. The dividend is reaching almost 5% as well.   Think about this BP is selling at around $38, at the worst of the Gulf oil spill it was selling at $30 per share, surely there is some value at this level. 

Ain't Touching Dis'

Seems interesting to us that the hoopla over the IPO of Facebook is taking place within the same 24 hours of the world's greatest investor having dumped about half a billion dollars into a declining business, newspapers. Warren Buffett has made clear he will not be participating in the Facebook IPO, instead he bought a bunch of mid-size newspapers yesterday. This posting is not about that purchase, but more about IPO investing. 

Frankly we find it silly that the media goes ga ga over the IPO of Facebook, we  suppose they think that the news will bring high viewership and maybe it does. Certainly the new billionaires and millionaires now should be fodder for media types who believe these people need to pay bunches of more taxes.  In any case investing in IPO's is a risky business and today we will sit and watch having nothing to do with this new stock presently. 

Facebook has what we in the media business considered extremely valuable, lots of eyeballs. Like almost one billion eyeballs now and that is more than every newspaper, television, radio, and all other media combined have ever put together in one place. Lots of people who they can target via likes, where they live, and just about every other subset you can imagine. That makes for some nice advertising sales opportunities. But the word OPPORTUNITIES is the key here as Facebook is as yet to monetize those eyeballs and more importantly prove they can move consumers to make purchases.  Google has accomplished this task, we will have to see if Facebook for do so.  

That gets you back to newspapers, who have proven they could move consumers to purchase items, but now with hugely declining circulations have lost so many of those eyeballs that most can no longer get advertisers to buy ads. Warren Buffet believes as we do that mid sized daily newspapers have some potential since they still are the primary media in their markets. Reminds us of the legacy telecom business, which many investors have given up for dead. Maybe we should un-retire and offer Mr. Buffett our services in his new newspaper ventures since maybe he would give our ideas a chance, unlike many of those who would not listen to our ideas when we worked in the business. 

Facebook must find a way to monetize all those millions who use their product for free and make some profits if they are going to get past the less than $4 billion in revenue they had last year. The current market value of around $100 billion is not even close to be justified for the smallist revenue and even smaller just under $100 million in profits.  

Today's IPO price of $38 could very likely rip upwards to $60 or more sometime during the day due to the desire of many of get in on the deal and flip the stock for quick profits. Only fools buy into this silliness and we "ain't touching dis" so to speak.  If the shares back off to below $38 sometime down the road we might buy some hundreds of shares and put them away for a decade for speculation purposes.  Rarely do IPO's work well for those of us who do not get in on the offering pre-market so buyer beware is the smart path here. 

Of course maybe we are not the ones to tell anyone about IPO's since during my lifetime we have had three chances to buy IPO's before market opening.  Back in the middle 1980's our broker at the time, the late Andy Augustine, called and said we could buy up to 500 shares of a new software company IPO since he had some pre-market shares to distribute.  We asked him to tell us about this "software business" as what do they make towels or something. No he said they make programming for computers. We told him we had no interest after his repeated points that this was a great opportunity. The company being offered Microsoft of course went on to do quite well. Not so smart there. 

Another offering we did get in on early was Dolan Media where we worked at the time and we bought 1000 shares in pre-market and had another 500 at zero based cost as a management person. The stock opened at $14 and today is selling below $7.  Not so smart there either. 

The final opportunity we had at a IPO was a hardware store from the same broker noted above in the Microsoft offering. Mr. Augustine called us about the hardware store IPO and frankly we did understood that business and the idea the new business owners had of large highly stocked hardware stores.  We bought 500 shares in pre-market there too. Fortunately for us the company Home Depot went on to do very well and we made lots of money in that IPO which allowed us to expand our investing opportunities with lots of new capital. 

So again we will not be buying any Facebook, but maybe we am not the one to do the advising. 

                

 

Silly Selling of Stocks

Sell-offs are always interesting to this trader. You learn your best lessons and gain the most insight when markets sell off. Oh, they are painful and certainly hurt the gains, but in the end one must take the new smarts and move forward.  Our fund has three stocks that if sold now would virtually wipe out all the 2012 gains to date.  Add in one other stock in a personal account and you got lots of losses. 

Through all of this I am reminded of a comment from Jim Powers, who was a smart Lumberton banker who told me one time, "just when you think you got it figured out the market will humble you fast". That advice is as good now as it was when I received it over 26 years ago. 

ERF.. We are highly leveraged in this stock and with good reason.  It is a Canadian oil and gas producer that has everything we want in a security. Good monthly dividend, good political situation, and in a business that is not going out of business. That last one is the one that makes the sell off in this stock silly.   Short sellers have taken this stock almost 40% in the last month because of worry about the dividend. There is good worry about the dividend, but examination of the cash flow tells us this stock is an outright steal at the current below $16 price. Even with a 50% dividend cut you still get over 5% payout in a business that is going to do nothing but grow as long as the extreme environmentalists keep us from the oil that is available. As with any falling stock when the short sellers step in and you see the bargain no one knows where the pain gets so great many long term holders start selling from fear of lower prices. So this makes the downtrend even more pronounced.  If you are a long term holder right now this stock is a huge bargain, just buy and hold.

FTR...Again the short sellers have had no mercy on this stock driving it now to below $4 per share. We too are highly leveraged in this security and wonder in amazement what a bargain FTR is at this price. This legacy telecom is not going out of business, is starting to grow it's business and broadband end, and sooner or later someone will see that the current above 12% payout is sustainable for many years forward.  At below $3.30 price right now this is worth some portion of anyone's portfolio just for the dividend and frankly I would be blown away if the price reaches a 2 handle.  The only question is if the silliness will continue to that level.  It will if the short sellers continue to sell it. 

GG.. This gold producer has taken a pounding from the downturn in gold prices in the last month. As the dollar got stronger traders fled gold.  Maybe I have reached stupid status, but if anyone thinks the dollar is so wonderful long term with trillion dollar deficits as far as the eye can see then I really am stupid.  Right now the only reason the dollar is stronger is that the US is the best house in a bad neighborhood and our house is just plain ugly too.  GG offers to some upside capital gains potential here at below $35 and a 1.5% monthly dividend on a gold stock which is silly high in itself. 

WIN...Another legacy telecom that was notably upgraded to buy by Stifel Nicolaus this morning. This company like FTR is not going out of business and been savaged by sellers the last four days due to the small, and do mean small miss on revenue.  If you actually take time to examine the miss on revenue you will find that the reason is that the company suspended sales of a new item due to some technicality with the US Justice Dept.  I would expect that issue to be resolved and sales start anew sometime this next quarter. This company continues to pay down debt and like FTR has lots of rural exposure where competition is weak and should have a solid future. 

We are long and hold options on all four stocks in this posting. 

              

Four Inconvenient Truths.

Like it or not this market is reacting daily to facts that continue to be true despite all the news reports in the media.  Here are four truths that are being misreported. 

1. JP Morgan is currently being hit hard with press reports that say they lost $2 billion dollars in bad trades. That is correct, but frankly the amount when finally known will be much more than the current reported amount.  The thinking was that the Dodd Frank financial regulation bill was going to make these issues go away and now we know they did not. The reason is fairly simple, until the Glass Stegall law is reinstated these events will continue to occur. Banks will either trade like hedge funds in the US or as Goldman Sachs has done take their trade desks overseas.  Note that the JP Morgan trade was done in London.  Reinstating Glass Stegall would force banks to separate their businesses and make sure they are trading with their own money and not depositors.  The reason this did not happen is simple Obama needs bankers money for re-election. Take a look at the big banks on Wall Street and every single one is run by a Democrat and every one is sending checks to Democrats from traders with those banks.  Despite all the BS being talked by Obama and all the financial regulations being passed or proposed they will not do anything to end the campaign cash gravy train. The press is either willingly ignoring this fact to help Obama or maybe reporters today are not smart enough to even know the deal. 

2. Adding to the truth in number one is that Romney and Obama both depend on these bankers for election cash.  Yes, Obama gets much more banker campaign cash but, Romney if elected, will likely do nothing to stop the money flow as well. In fact you can expect him to leverage his power to get more cash himself if elected.  Obama will not change his stripes, maybe voters can help this issue by forcing Romney to state he would place Glass Stegall in the legislative hopper. 

3. Greece and France are in trouble, deep trouble.  Despite Angela Merkel's change of mind to allow printing by the ECB, sooner or later this spending is going to bring down some country's budget.  My first pick is Greece, which everyone knows is gone from the European Union, just everyone to refusing to even say it. Press reports again refuse to admit it since they do not want to see the socialism in Europe end.  The day will come that investors will refuse to lend money, even printed money, and then the dominoes will fall. The simple fact is that this will occur so fast there is no way to avoid it other than steer clear of anything that even smells of European investment.  One will wake up one morning, likely a Monday, and it will be over.  The White House is hoping that that day is sometime after the first Tuesday in November 2012.  Silly investors and traders will continue to play this game until they lose big. 

4. If you do not take the above facts into consideration when you invest or trade you are either a fool or sucker. 

Do you know the way to San Hose? How about do you know the way to Emerald Isle?

When we lived in Clinton NC many years ago before there was an I-40 if you wanted to get a debate going bring up which road or roads offered the easiest, best, or fastest paths to Raleigh. Ditto for when we lived in Lumberton NC about which way was the best for a trip to Raleigh. So it is when bringing up the best road plan in getting to just about anywhere.  So do you know the best and fastest way to Emerald Isle? Lots of people in the Triangle area visit these shores on a regular basis so without hesitation here is the absolute best route to Emerald Isle. 

When we began making trips to our place on the western end of Bogue Banks we had suggested to us several ways to get there from the Triangle area.  The most popular was US 70 to NC 58 in Kinston then the two lane to Emerald Isle. We also had suggested US 70 to a cut through road at New Bern over to US 17 then to NC 58 and on to Emerald Isle. Both of these use a good portion of NC 58 that is two lane and can be frustrating on busy days or almost any day.  Even US 70 can be a hassle especially on weekends due to high traffic levels and numerous traffic lights at busy intersections.  However the route we now use was never suggested by anyone and after trying all the routes our conclusion is that I-95 when needed to I-40 East then to NC 24 exiting at exit 373, then NC 24 using the Kenansville bypass and Jacksonville bypass through Swansboro to NC 58 bridge to Emerald Isle is the best route.  Mileage might be a bit more, but not much. But the ease of the trip using all four lane roads makes the trip time the least and the driver and passengers much less stressed.  The stoplight count on this route is the lowest as well and most of the stoplights are at intersections where traffic is light and mostly green on arrival.  The real difference here is the new Jacksonville bypass that makes that getting around that city a breeze. 

There is also the simple fact that I-40 has less traffic and NC 24 for most of the route to Jacksonville has much less traffic helping you make excellent time.  We suppose this posting might very well make the traffic increase, but we suggest if you are going to the western end of Emerald Isle give this route a try.  Of course Governor Perdue is not going to be happy with this info, so write it down before she forces this blog post down.  LOL

A couple of stopping points for those interested. A good point to stop for gas and refreshments is at the BP station right off I-40 getting on and off the NC 24 Kenansville bypass. The station is easy in and easy out due to the light traffic as well. This point is just under half way as well and gives you a break after some long interstate road miles.  For a full meal or burgers Arnolds Restaurant in Richlands has a cafeteria style country cooking line or burgers and ice cream at a good price and is family friendly.  This stop is about 45 minutes out from Emerald Isle. Richlands and Beulaville both have Hardees and McDonalds along the road path as well. 

 Just for the record 23 traffic lights in all from I-95 not counting the one at Emerald Isle turn.   If I counted right 25 traffic lights going the highway 58 route. 

If you find another route that is better let us know. Not one of the those we already know are not better. 

April Report

As we had mentioned April results were right on target with another excellent cash flow month.  The final result for the month was a 17.26% annualized yield on assets.   ERF, GG, LO, and BCE produced good income for the month.  Margin interest costs were up, but again below normal.  Trading costs came in once again significantly down from last year.  Dividend income far outstripped margin costs by 8 to 1 margin.  We consider a 1 to 1 margin acceptable.  We traded 9 positions this month, and have 10 open for next month. 

Year to date now includes net losses, pending losses, and any stock we are down in the money on in the portfolio. By far the biggest adjustment to the fund is the pending loss in ERF which cuts into our annualized yield by double digit points. We are also down in the money on GG, but currently do not consider that a worry. However it also is included in the year to date annualized yield of 8.7%. 

Looking forward we continue to believe 2012 will be a good year since we are only three months into the year and trading income continues to be as we expected earlier. Best guess would be a 15% gain for 2012 including all net losses and expenses.  Long term options are still a possibility and we are as of this writing looking to pull the trigger on one in our sights which could impact May results a good bit.