Portfolio change since this morning's post.

We have dropped BRK.B from our trading list due to the opportunity we find in Sears Holdings, symbol SHLD.  Sears has been sold off significantly since the poor earnings report last week.  Our strike price on SHLD of $40 makes for a fine entry point if our option is assigned.  Sears might be a lousy retail business, but the real estate is top notch and we believe worth more than the current price of the stock.  Add in the number one appliance business and best of breed Craftsman tool business and the price is too good to ignore. 

Current Trading Portfolio

Our current trading portfolio with strike prices.  Note these are trading stocks for us, but the strike prices we note would make fine additions to any portfolio for long term holdings. 

Risk happens fast is an appropriate term for this stock and bond market. Valuations are stretched to the max in our opinion and any event that scares nervous investors will send many for the exits so caution is the operative word. 

LO..Continues to be a good stock to trade.  We consider it the only tobacco stock with growth opportunities.  Our trading price is $40. 

AAPL..Now our largest trading position with $161K in our position at $425 and $400 per share.  Apple has been beat up so badly we believe these price targets stand well now.  It is not the largest phone seller, but it remains the most profitable. 

BTE..The only stock in our portfolio where we are below our strike price of $40.  However the option premiums remain so rich that if we end up having to own the position we consider the risk worth the income.  Canadian oil and gas remain the US best choice for an independent future from the middle east.  BTE is knee deep in this business. 

TCAP..We currently have an option out at $22.50, but once the option expires we will move up our strike price to $25.  Our comfort in this business development company remains strong despite the worry over the Fed ending QE.  Higher interest rates hurt these companies since borrowing costs increase, but TCAP is the lowest cost operation out there and continues to offer investors good income. 

CTL..Our strike price of $33 is conservative, but CTL has a history of surprising with corporate events.  With that said CTL continues to improve their business model and cloud infrastructure and remains a good income producer. 

T...AT&T  is a solid low risk producer of premium income and remains in our portfolio.  Verizon has likely taken the lead in wireless service but T remains bigger than VZ.  Strike price is $34. 

BP...BP has some serious litigation issues, but we like our strike price at $40.  There is risk, but the premium income is good and we will be glad to own it at $40. 

HFC...Superb oil refiner which is in the sweet spot for profits due to the difference between the world oil price and North American mid continent land locked lower prices. Then gets to sell at the higher world refined gasoline price.  Strike price at $41 gives us plenty of safety. 

NOV..One of our latest additions. Our strike price of $60 gives us plenty of safety with this oil and gas drilling parts and equipment builder.  There likely is not a single drill derrick in the world that does not have some part provided by NOV.  The real deal is NOV is the leading provider for the rapidly expanding gas industry in North America and the reason Warren Buffet owns it. 

BRK.B...Speaking of Warren Buffet we are now trading his stock at the strike price of $105, but currently do not own it as we wait for a pullback that gives us more comfort. 

AFL..Another new addition where we have a position at $50.  We believe AFL has a low valuation in a nice cash flow industry.  The major business here is Japan where the population is getting old and needs this insurance. 

FB..The sell off in FB has made us more interested in taking a position.  Our strike price of $20 is a great entry point. If someone here can figure out how to take advantage of all those eyeballs they will make tons of money. 

BCE...We like BCE, but at near $50 the price is too rich for us and we will be exiting our position in June. 

SBY..Our comfort factor in this housing rebound play has weakened due to the huge buying of large hedge funds and we will exiting our position in June. 

O..A great stock and great company that has gotten more than fully valued at over $50. We will exit our position in June. 

Farce in Smithfield

We attend the Smithfield Town Council meetings with some regularity.  We have witnessed some strange things and some out of bound comments by both citizens and commissioners, but last Tuesday night might have taken the cake. 

Bear in mind that these meetings go on far too long and due to the problems with past hired management the town council deals with too many mundane issues that should be handled at the town dept. level.  One such one was Tuesday night when a church was before the council getting an ok to put up a tent for a revival.  This is absolute silliness that this decision made it to the council chambers. It should have been a form filled out and rubber stamped for approval and be done at dept. level.  Similarly the issue that night regarding putting up signs for a charity event.  Just get it approved in some fashion at the town hall and move forward.  But now it seems the council must deal with such minor things and the town council meetings go on for hours of needless discussion. 

Speaking of needless discussion council members Emerly Ashley and Andy Moore spend at least a half hour on if FOR SURE will NCDOT and/or the project developers were responsible for IF a turn lane was to be needed for an soon to be built apartment complex and to make sure the town would not be on the hook.  We understand  Mr. Moore's and Mr. Ashley's concern there after so many snafus of recent where the town's taxpayers ended up having to pay the freight where they should not have had to and we appreciate their efforts.  With that said this issue too took way more time than needed.  Put your dept. head in charge with instructions and if they do not perform fire them.  Issue solved.  Most competent department heads expect no less and frankly desire the responsibility. 

Of course none of the above discussions come close to the absolute farce that transpired about 45 minutes into the Tuesday meeting when District One Commissioner Charles Williams all but accused Downtown Development Director Chris Johnson of stealing $50000 from his district.  This in public with no evidence but hearsay and the desire of Mr. Williams we suppose to look good.  I tell people my job after retiring in Smithfield is to keep Chris Johnson's ego in check and Mr. Johnson jokingly tells me I got a full time position.  However Chris is not a thief, rather more a huge given of time to the best interests of Smithfield, most times without just compensation.  Oh, he got the nice person of the year award from the SS Chamber this year, but that with about $1 will get you a coffee at his local downtown hangout Melody's.  Fortunately Councilman Moore said basically that in standing up for Mr. Johnson sorta kinda anyway.  Uhhh...just where were the other council members and mayor here in standing up for the Downtown Director?  We think we know why they did not stand up, but will leave it at that here. To further point out how bizarre these moments were note the audience was turning to each other and behind them to ask something like "do you believe what just happened".  To the well known person sitting in front of me I just said "hey this is why I come to the town council meetings better entertainment here than I could see on any of my vast cable channels at home."  It was all I could do but not stand up and let it all hang out and that without even being sword in, but modesty kept me at bay and THAT as others can tell you took a lot of willpower.  So here is what I would have said to Mr. Williams if I had stood up. 

 " Mr. Williams I have served on the Smithfield Downtown Development Board with  Chris Johnson, I know Chris Johnson, Chris Johnson is a friend of mine, and Mr. Williams YOU'RE NO Chris Johnson." 

Target Poor Environment

Try as we may we can find few stocks to take aim at for trading or investing going forward.  Stocks with PE's lower than say 12 or stocks at value prices are just not out there anymore.  Our trading portfolio is down to 10 selections and two of those are at the extreme top end of our trading price range. This market is in our opinion is a good bit overvalued.  Overvalued not only from historical standpoints, but adding the fact that we see a slowing the economy now and heading into the second half of the year. 

Corporations have rung out much of the value they can from cutting costs, cutting employees, and levering low cost debt.  Natural gas using companies have begun to takeout a good bit of the value of lower cost energy from the huge supply here in the US. Stocks with good value such as CSCO are hard to come by.  Contrarian buys such as BP are slowly getting recognized for their value and moving up in price.  

As we move forward we will reign in more and more of our investing asset base as we just can not see comfort in the risk.  We expect much of this strong market move upward is three factors.  One the inflow of funds of current retirees looking for yield that can not be found in traditional saving accounts or CD and of course US Treasuries.   Savers are becoming investors in stocks like Realty Income, symbol O, and pushing up the price to what we consider too high at around $50.  If this market breaks these johnny come lately investors are going to get burned. 

The second factor pushing up the market is the continuing $85 billion dollar monthly purchases of US government debt by the Federal Reserve.  This unprecedented buying is keeping interest rates down and helping Obama keep spending with little of no interest costs.  It is keeping mortgage interest rates down as well, but the home buying market is weakening as well as noted by the sub 3.5% 30 year mortgages.  All this money is like a sugar high since it is not real and will either end when the Fed stops buying or the markets realize that stocks and bonds which appear to be as money good but not good money.  This bond buying has no choice but to end badly and when the Fed announces a start to the ending one can expect the stock market to take a dive.  The question is when they will do it and can one be so good at timing to be out when it happens.  $85 billion in new free money each month and after awhile you are talking about real money. 

Finally many corporations are buying back stock at a pace never seen before. Even Apple joined this game last month.  All these buy backs are reducing the number of available shares and pushing up the prices of those stocks significantly.  The result is also pushing down of stock dividend yields. 

In a future posting we will take a closer look at some of the few value opportunities out there.