Predictions for 2015

It's that time of the year for predictions so we will post some of our own.  Often wrong, but never in doubt. 

1. The stock market will be up around 6% to 7% this year and it will again be lead by the mega cap stocks meaning those over $200 billion in market value.  Some of the $150 billion plus stocks will join that group this year as well so if doing your own picking check those out as well if you are into individual stocks.  Look for single digit or lower than teens PE's.  We again like Vanguard's large cap funds for most people.  One can not go wrong with VFIAX by just buying and forgetting. 

2. Best stock value of the year.  Triangle Capital,  symbol TCAP.  This stock has been beaten down mercilessly for reporting some small bad credit issues last quarter.  The 10% plus dividend will not be cut and the stock rebounds 25% making for a nice 35% annual gain. 

3.  New Media Investments, symbol NEWM,  proves us right as the best current long term hold.  This company that is the holder of a large number of medium and small daily newspapers will prove to be a solid buy advancing from the current price of around $23 to past $30 by year end.  Good dividend payout remains as well. 

4. The market will have at least two corrections this year and those who hold mega cap funds and stocks will ride right through them untouched. Stocks, not mega caps,  in industries being sold off will take the pain and stay down. 

5. Interest rates will remain flat.  The Federal Reserve wants to move rates up, but stays on the sidelines as they watch the housing market go nowhere another year and Obamacare pinches full time employment in small businesses and the economy remains too weak to raise rates.  This continues to make our selection NNC a safe choice for yield and capital gains potential into 2015. 

6.  Housing, which is absolutely essential to a growing economy, remains on the sidelines with no growth and with mortgage rates remaining near 4% for a 30 year loan.  Go buy a home to live in, not for an investment (unless at the beach),  if you have not already and lock in these generational low rates. 

7. By the end of the year it will become clear to everyone that Jeb Bush is going to be the next US President. He will win over most independent voters and even some democrats to take a solid lead in the polls versus Hillary Clinton, who will be burdened by Elizabeth Warren and Bill Deblasio.  Bush is the safe choice for the well off, both democrat and republican, so he will gain steam throughout the year. 

8. The NC Legislature will continue to play chicken with real financial reform and do nothing to change tax schemes or any other reforms either.  Hey guys cut income taxes to zero both individual and corporate and end the energy subsidies !!

9. Dan Blue will decide to run against Sen. Richard Burr and be immediately deemed the one as all other democrats drop out of the race. 

10.  Gas prices will remain low as Saudia Arabia will continue to use their clout to bludgeon Russia and Iran. US companies will do as they always do and find ways to cut costs and keep right on drilling.  Obama will veto Keystone Pipeline after having passed both houses of Congress. 

11.  Apple, symbol AAPL, will remain the bluest of blue chips this year and when investors get worried they will pile into the stock as a safe haven for it's super safe dividend and addicted group of users.  Buy some very early in the year and hold. Better than owning US Treasuries. 

12.  For those who like to take real risks in picking stocks, but some Media General, symbol MEG.  This company has consolidated lots of television stations in media markets where politicians will need to spend millions in 2016 election and the company will see profits soar.  It has debt and it has risk, but it also has as it's largest shareholder Warren Buffet, which is not widely known. 

13. Super safe 5 stocks diversified.  APPL, XOM, GS, VZ, and PM. 

14. Super risky stocks for best chance at big return.  TCAP, NEWM, MEG, GILD, and BP. 

15. Sears will be gone by the end of 2015.  Ditto Radio Shack.  Add in one metro newspaper or newspaper chain yet to be named. 

Our Mistakes..

We make mistakes.  We suggest stocks that at some point after our suggestion to buy have issues.  So let's review some of our recommendations and our current opinion on those selections. 

ARCP...We really really thought this REIT had their act together.  But we were not the only ones as several big bank lenders kept piling in the cash so the management could buy retail properties.  The dividend rate was stable and secure per their quarterly reports and the spin offs of shopping centers made lots of sense too.  Then they bought big into the Red Lobster real estate.  Too big in our opinion and we backed off a bit thinking they had too many of their eggs in one basket.  Of course they finally jumped the shark with the killer statement about "accounting issues".  Accounting issues anywhere means run.  We never lost money here as we exited our positions early on with that having more to do with luck than smarts.  If you are holding the preferred stock you likely are ok, but if we were holding the common stock we might consider it time to take a tax loss and move on as these shares are not going anywhere real soon. 

TPL...Texas Land Trust peaked out at over $200 per share and have of late settled in around $!25 or so.  As we mentioned early on if you bought in this would be a wild ride and it has been and will continue to do so.  The deal here is to hold on and be one of the last holders when the trust liquidates.  It is a game of chicken and Russian Roulette rolled into one and only for the serious gamblers and big boys. 

TCAP...Triangle Capital has sold off a good bit since we suggested their purchase.  Now settled into around $20 we still like TCAP.  In fact we will go as far to say it is an outright steal here.  Dividend over 10% and one of the best CEO's around who will move on from their hiccup of a quarterly report.  We personally are looking for a place to move in, but will wait until after the New Year to avoid the tax loss selling. 

DOLN...We did not outright suggest the purchase of Dolan Company, but we did say the risk might be worth a few dollars.  We hope you only had a few dollars in this dumper since it declared bankruptcy last year.  The money you had is completely lost as a shareholder.  Bad, really bad management can not be overcome even with decent opportunities for profits is a lesson well learned again. 

CVE, ERF, COSWF...Who knew?  Almost nobody thought oil prices would crash and if you owned any of these stocks noted here the pain has been intense as all of them act as owning a oil well yourself.  We only like one of them right now and that is CVE.  CVE has said their now 5% yield is sustainable and they might be right, but we urge caution and only risk capital if you buy in. 

SBY.. We honestly thought the housing market would take off in 2012 since rates were below 4% for 30 years loans.  The feds were in the game helping people buy and lastly there was a huge market in young people needing first homes.  This made for ideal conditions for renting homes and buying homes reconditioned from the housing crash in 2009.  Not so as what we failed to see was the fact most people were getting only part time jobs and most young people were having issues with even these low payments.  Thus nothing housing related improved or has improved since the so called recovery has begun.

Get in the market and enjoy this ride !

Now twice in the last three months we have had sell offs in the stock market and both times we have not only rallied, but we had ferocious rallies.  What to make of it?  As we have been opining for months this market can not go down as the monetary and fiscal support is just too strong.  We did NOT say the economy is strong, just that economic engineering and political spending is such a support that it is hard to push down this huge asset supporting apparatus built by both the Federal Reserve and Obama.  Begs to question is there anything that could cut the legs out of this market?  

Before we answer that last question, let's pursue something else. For those of you who have been hiding in treasury bonds for years and missed the last 5000 points of the Dow move let me suggest a story I often heard from my father. He told me over and over not to buy a house on the beach as sooner or later a hurricane would take it out. He was right, but during the years one does not have a beach home one is deprived of the joys of owning one. Likewise while many of you hide in bonds and cash you are depriving yourself of the huge money making taking place in the stock ownership.

While waiting for the assumed stock market crash you are losing out on tons of money making.  Yes eventually the downturn will come and yes if you are in the market there will be pain. But honestly no one can predict precisely the date and in our opinion it is years in the future.  When the downturn does come the economic and political moves will predict it so one will have time to then move into safer assets such as the bonds some are invested in now. Add to that bonds are more risky than stocks now due to interest rate risk.

What can bring down this market? The only thing we think that could do so is a geopolitical event of some sort.  Think Iran drops a nuke on Israel, or North Korea attacks the south, or Isis explodes a nuke in some major US city.   Yes they can happen and just like a hurricane can take out your beach house, but if you wait for those as well you lose out on this stock market monetary move.

So make your move into stocks today.  Your ship has come to dock and believe it or not this time you are at the dock.  Like the lady in the Blue Bunny Ice Cream commercial you see on TV, it is good to be rich or working to get rich when you have Obama and Democratic elites who got your back.       

               

Our 2014 results and looking into 2015

We had our second best year in history during 2014.  But the reason was more about amount of invested capital than about gain in percentage terms.  We will finish 2014 at about a 11 percent gain, which is our annual goal number.  Profits under that percentage means we made bad choices and profits above that number tends to say well we got lucky with capital allocation. However we gained in 2015 because we increased our invested capital by almost 40 percent this year mainly due to our belief we had picked the lock of the Obama risk scheme and decided to get aggressive.   We were proved right and it paid off handsomely.  We look into 2015 and will likely up our risk capital by another 20 percent. 

As we have discussed in several postings some 18 months ago we decided that securities that had regulatory protection from Obama and Congressional Democrats were the way to go.  That came after we gained the knowledge of just which securities met that criteria.  Those securities are mega capitalization technology and financial stocks such as MET. PRU, JPM, AAPL, CSCO, ORCL, MSFT, and GS.  Add in the mega sized telecommunication issues such as T and VZ and anything that prospered with low interest rates forever.  We stuck with those for these many months and up sized our positions in these securities a good bit.  Rarely did we take a less than six figure position and during 2014 we had only one losing trade.  That translates into large gains due to larger positions and with frankly little risk.  Given a choice of owning a small business or dining at the Obama profit table we find the choice easy. 

The financial engineering of the Federal Reserve and the Political Economy being run by Obama means interest rates near zero for as far as the eye can see and that is being backed up with no growth political policies.  So mega cap stocks prosper by taking in all that lovely Fed capital and high deficit spending while small business gets killed with regulations they do not have the political muscle to avoid.  The big cap stocks use the profits to buy back stock and increase dividends since they have no competition and little reason to invest for growth.  It also limits to near zero any risk in downside to their stock prices. Utilities like telecommunications are on Obama's protected list due to the near universal love of mobile devices by his young believers and voters.  Lastly municipal bonds, which are a favorite of the state level Democrats enjoy low interest rates and almost zero risk of default make for smart investing for those needing to avoid taxes, which again tend to be the wealthy who support Obama almost universally too. 

Looking into 2015 we see no change in this investment approach.  Republicans might be in charge of Congress, but Obama has made clear he will not allow his supported classes to get hurt with any legislation.  Our selected securities will likely change little or none at all.  We might look closer at some of the battered petroleum securities since they have been oversold and offer little downsize risk,  but again we will look at the mega sized picks such as XOM.  We will also keep in our portfolio picks like SF and NEWM, which we consider first rate picks for picking up market share even when growth is nowhere to be found.  Smart consolidation here is a great approach when bonds can be sold at less than 3 percent long term even for mid market companies. 

We will be posting our 2015 portfolio sometime near the end of 2014,  but note again it will change little from what we have been trading for many months now.  If you are a retirement investor or long term investor we highly suggest you continue to buy low cost mega cap mutual funds or ETF's.  Vanguard has several choices such as MGC, MGV, and VFIAX.    There seems to be little chance that this approach will change even after 2015 and into 2016 as well.  Add in that we assume Hillary Clinton will be elected in 2016 as President and her close connections to the same mega cap companies like Obama will mean pretty much the same investment environment has at least a decade to run.  It's good to be rich and protected by the ruling Democrat political class. 

Now what this simply means is the rich will continue to get richer and the poor poorer.  The employed will continue to be well served and the unemployed looking for jobs even a decade from now.  That made even more so with the huge influx of cheap labor via Obama's decreed immigration rules.  Those new green card holders will be the ones getting any vacant jobs and will be the very ones serving their new masters the politically rich made richer by lower cost services.  If you have resources or can assemble resources via regular investing you can participate in this wealth transfer and blessed years to be rich.  We find it sad for those who are stuck in this financially engineered political economy jobless and poor are voters, many of which clueless voted for these policies are the very ones suffering the most.  We continue to glee at the opportunity given us and will sit by with less effort and collect more profits.  Until something changes we will sit on the beach and frankly hope for voters to usher in a new Morning in America, which for our posterity we personally prefer to this staying rich easy. 

                

 

How we pick stocks.

One of the most important decisions in individual stock investing is to avoid making a mistake.  Make that a BIG mistake, one where the company you bought is actually going in the wrong direction and the stock goes into free fall. Risk happens fast, very fast, so fast almost all investors can not adjust quick enough to avoid losing lots of capital.  In trying to catch a falling stock you render a lot of blood capital in the effort before finally finding a way to rid yourself of the stock. You might not get rich quick, but you sure will not get poor fast.  Trust me getting rich slow is a whole lot more fun than getting poor fast. 

Now the key here again is to avoid completely the falling stock and loss of capital and there are some ways to reduce significantly your risk.  Here are some points to keep in mind. 

One, pick stocks with dividends, strong sustainable pay outs, that at some point buffer bad economics and bad economies. Seriously if the stock has a sustainable 4% dividend there comes a point where the stock becomes yield bait to those seeking yield and those buyers come into the market and buy shares shoring up the stock price. Most stocks like these do not have 20% price collapses. 

Two, pick stocks with large capitalization,  We much prefer $200 billion plus which is about 25 stocks, but will look for values down in the $50 billion plus category selectively.  A large capitalization stock will not fall as fast either since they most likely have the financial heft to sustain bad corporate decisions, bad economies, and frankly can use their government connections to help with regulatory pressures.  Take a look at the 52 week highs and lows and you will see little movement. 

Three, we consider this trait the most important and that is a low PE.  In fact we look for stocks with single digit PE's which tell us there is the possibility it is undervalued and ripe for upward movement.  We will buy stocks into the lower teen's PE but almost never above that point of value. Of course one needs to do their due diligence here to make sure there is not a compelling reason for the low valuation.  But when dealing with most large capitalization stocks with low PE's your chances of it going down is much less and your chances of higher price good. 

Four, keep a eye out for stocks that fit the first three criteria that are selling off or have sold off significantly into a value point. We just love seeing stocks fitting the first three criteria getting sold off or a whole category getting sold off.  Recently oil stocks got killed over a two days period and values popped up on our radar from the overselling.  Panic breeds opportunity.  Keep an eye open for chances like these and buy at either the sharp early sell off or wait for a day and see if the stock stabilizes if it sells down to a stable price in a slower manner.  Step in and buy and most times you will get your money in the green within the week or less. 

Follow these criteria and you will find yourself most times a successful investor in individual stocks.  Never ever fall in love with a stock, you date them you do not marry them.  Does not mean you can not hold them for long periods, it means if the value has passed you sell and move on.  There are better values somewhere else or the money is best in cash. Do not let tax issues decide you selling point as a profit taxed is a profit gained and that is much better than a profit lost.  Lastly do not try to make the last dollar, as in you will keep this stock past the point of fair value as the risk increases and smart investors let someone else risk making the last dollars in a stock.

                 

Old Fashioned Gas Wars.

The current downtrend in pump gas prices is nothing more than an old fashioned gas war. Those of you young enough remember gas wars where gas stations would compete for having the lower price and in the end all gas stations got hurt selling below cost.  We actually have bought gas in a gas war at 19 cents per gallon.  In this case however it involves large companies, even larger countries, and much much higher stakes.  Let's take a look at the winners and losers and where one might find some profits from this new oil order. 

Remember the "peak oil" theory tossed out there by everyone from those trying to make a buck on short sighted investors to those who actually created it and championed by the democrat party for the purpose of pushing so called renewables, solar, and wind energy sources.  Well we now know that peak oil was a hoax.  Best guess now we have tapped about 30% of the possible sources of current oil and gas energy.  Furthermore many oil people now think oil and gas come from deep in the earth where it is very hot and the blow off of that heap is seeping crude and gas up through the mantle and then the earth's crust.  Here is something you likely do not know there is more, tons more, crude oil seeping naturally out of the earth's crust into the ocean than could ever be spilled by any oil company well leakage on an annual basis. Simply put we have more oil than we need and we will never run out for all intents and purposes. 

Fact is we are living in a oil world that started with Ronald Reagan.  That old "supply side" idea of if the capitalists get incentive enough they will produce more oil that demand could ever demand and prices will come down.  Bingo!  Everyone in the oil industry knew there was barrels and barrels of oil underneath America to get if someone could find a way.  Someone found a way, with enough incentive being $80 plus barrels of oil.  Not to get into the details here, but fracking and lesser know horizontal drilling, has produced a bonanza of energy for the US at a cost of around $55 to $60 per barrel here.  Mostly in North Dakota and West Texas.  In the last couple of years all that new oil has come to the market and driven the price down due to the glut.  Oh, and remember those who said "drill baby drill" would not produce more oil, well they owe us an apology for their outright lies. So here we sit with a world oil glut and frankly it is going to be with us a good number of decades if the oil people are left alone to do their thing.  Goes to show a cartel, like OPEC, can only last so long world where at least one country has a free market.  Note one more thing only in the US do you see new oil being extracted, not Europe, not China, and certainly not Russia, no where else because of the incentives at play here and not in other non free market countries. 

Now who are the winners and losers?  Simply put Russia, Venezuela, Iran, and Mexico are right now the losers.  In the case of the first three countries the NEED for higher priced oil is to keep the country afloat financially.  Russia being a gas station masquerading as a real country gets hurts worse since they are in a real bind since they are the world's largest producer.  Venezuela and it's restless population can not survive as a country without higher priced oil.  Lastly Iran is a high cost producer and this current price hurts them badly cash flow wise.  Honestly Saudia Arabia which can produce oil in the $20 to $30 a barrel range knows all this and wants these three countries to suffer geo-politically.  Saudia Arabia also wants to drive the new US drillers into bankruptcy. We will get to Mexico in a moment. 

So the current scenario is hurting US fracking and horizontal drilling producers.  However they have one advantage none of the other producers have in that the United States government in not in essence running and owning the oil companies.  Most of these countries are de facto in ownership of the "oil company" doing the drilling and oil sales.  So unlike the US there is no incentive to find ways to drive costs down and squeeze vendors.  Trust me that is happening righ now in the US oil fields and in a year or two when it really matters they will be able to produce the same oil at a even cheaper price per barrel than the current $55.   Mexico has begun selling off their state owned oil company and one can expect once the free market people get a chance at their oil resources they will begin producing at a lower market based price.  Canada too has huge resources of oil and they will find ways to produce at a lower price given the incentive here.  In all North American will be energy independent if the capitalists are left alone to do their thing. Now how low Saudia Arabia wants to drive the price per barrel down is an unknown, but even they have their tipping point with a restless population hooked on lots of free stuff from oil revenues.  So as we said at the start we have a gas war, which will end eventually, and as in all wars the suppliers in the end win. 

Who are the suppliers we like best?  Let's start with one we like long term,  Haliburton symbol HAL, who is a primary oil field servicier in the world when it comes to specialized services.  HAL will be merging with Baker Hughes next year in a deal just announced and they will find cost savings there. HAL has sold off significantly and we think way too much here at $40. It carries a single digit PE too.   Oil majors will also win since they are multi-faceted businesses ranging from drilling to selling at the pump.  Chevron, symbol CVX,  is a darn good pick here having sold off a good bit.  Exxon is always a good pick if one thinks safety.  However we really really like BP, symbol BP, which carries a nice 6% dividend along with an already substantial upside already due to the Gulf oil incident. We recently bought BP, after they sold off last week,  and HAL and might add more. Since we know there is a point where the gas wars end and anyone who buys when there is blood in the streets value wise gets rewarded.  Might add CVX as well.   CVX and even Conoco Phillips, symbol COP, carry a very safe 4% dividend for those seeking yield. 

So pick your spots and add some oil stock selectionsknowing there is an end to the new fashioned gas wars.