Growth Report : warren buftett

Gurus Ring the Bell

Ian Wyatt — Tue, 07 Oct 2008 20:13:00 GMT

Gurus Ring the Bell

Ahh, the newsletter crowd is getting bullish. My inbox is full of stock-picking gurus saying now’s the time to be bold and buy stocks. Fear is rampant, they say. Distant relatives are calling in the wee hours asking for advice. The VIX is at an all time high. 59% of respondents to a CNN poll feel a depression is either very likely or somewhat likely.

And you know what? I agree. About being bullish, not about depression.

My trading guru, Benson George, the man behind TradeMaster Daily Stock Alerts saw a silver lining to Monday’s gut-wrenching decline. Namely, the 800 point sell-off came on relatively light volume.

I know, it’s a little difficult to call an 800 point drop orderly, but if there ever was an orderly decline, that was it.

Then there was the substantial recovery off the lows. Clearly, buyers are seeing value at current prices. Now, how long it will take for the buyers to gain the upper hand remains to be seen.

I do know that if Bernanke is trying to prep the market for a rate cut at the upcoming FOMC meeting on October 29^th, he should save his breath. We’re ready. Do it. Do it now.

Victor Sperandeo, of Trader Vic fame, maintained in one of his books that the key to making an interest rate move effective was surprise. Fed moves work best when they are a surprise. And any action that comes during a FOMC meeting is not a surprise.

Bernanke should pull another fast one and cut rates 20 minutes before the market opens tomorrow. That’ll help certain companies’ balance sheets immediately. Bill Gross over at PIMCO wants a full point rate cut. Sounds good to me. At this point, it’s about investor confidence. A big rate cut would definitely help.

A Bottom or THE Bottom?

Of course, I have to hedge my rally call. I do think we’re set for some kind of a rally. But I’m not, repeat not, ringing the bell at the bottom. I’m on record saying that employment has to show improvement before there’s sustainable upside for stocks. And the U.S economy is on pace to lose a million jobs in 2008.

No economy can lose that many jobs and still manage to grow significantly. And don’t forget, consumers don’t have the extra refi cash they used to fuel the last bull market.

In other words, there’s upside for stocks in terms of valuation. But growth? I’m not sold on that one just yet. Still, every one knows the story of how Warren Buffett made his fortune buying beaten down stocks in the 70s.

Earnings Season

I wonder if all the newly bullish realize that earnings season kicked off today with Alcoa (NYSE:AA)? With so much going on, it would be easy to miss. But there’s no way earnings are good. And there may be a few nasty surprise waiting in 10Qs. Because what the heck, when news is already bad, you might as well get it all out there, right?

That’s probably why Bank of America (NYSE:BAC) chose to announce a secondary offering to raise cash at the same time it announced a 68% drop in earnings. You might think investors would be glad that BofA even had earnings.

I can only guess that, somehow, the $10 billion stock offering put a damper on the enthusiasm. And the fact that offering was only two-thirds subscribed probably didn’t help. Neither did the 50% cut in dividend. (Of course, it’s only polite to rein in your own spending when you’re begging for cash, but that doesn’t mean investors have to like it.)

BofA got whacked for better than 24%. And by my rough calculations, that accounts for 20% of the Dow’s drop today.

Here are some stocks I’m targeting for a valuation-based bounce:

General Electric (NYSE:GE) jumps to mind. That stock has hit an 11-year low. It’s important to note that GE has to access the credit markets to fund operations, which could be problematic. But on the other hand, GE’s already done a secondary, and Buffett added some liquidity as well. Earnings are October 10.

Intel (Nasdaq:INTC) quickly recovered from these levels back in 2002. Before that, you’d have to go back to 1996 to find the last time it was under $17. Earnings are October 15.

And Verizon (NYSE:VZ) has hit support at $30 that dates back to 1995. They report on October 27.

I’m sure there are some more speculative stocks that might fare better in a liquidity driven bounce. But for short-term trading opportunities, I favor the blue chips. And for the record, I’d rather buy AIG than anything emerging market related. And I’m not buying AIG.

Best regards,

Ian Wyatt

Chief Investment Strategist

Growth Report

PS – I’m launching a new daily e-letter Monday, October 13, 2008. It’s called 24/7 Investor’s Daily Profit. The website is in place. Feel free to check out the new website, www.247investor.com, and sign up for Daily Profit.

A Yacht, Greenspan and Uranium Stocks

Ian Wyatt — Wed, 10 Sep 2008 01:51:00 GMT

On Monday, in a CNBC Europe interview, Jim Rogers wondered if the US was “…more communist than China.” He was referring to the Fed’s bailout of Freddie Mac and Fannie Mae, and to a lesser extent, the bailout of Bear Stearns back in March. “Socialism for the rich” he called it.

“This is madness, this is insanity, they have more than doubled the American national debt in one weekend for a bunch of crooks and incompetents," Rogers said. "I’m not quite sure why I or anybody else should be paying for this.”

That’s great stuff. And when you consider that the Treasury is on the hook for something like $50 billion (assuming the entire portfolio of mortgages doesn’t go non-performing), it does seem a bit like the taxpayer is, to quote the license plate of my home city, experiencing taxation without representation.

As a counterpoint, Warren Buffett applauded the move as the best deal available. But even Buffett admits that this outcome was made somewhat inevitable when Freddie Mac and Fannie Mae were chartered as quasi-government entities.

There’s a lot of “coulda, shoulda” going on these days.

But to get to the best of them, we need to throw a couple more names into the discussion: Bill Miller and Alan Greenspan.

The Line Up

Bill Miller is the once-legendary manager of a few Legg Mason mutual funds. Miller beat the S&P 500 16 years running. It should be noted that the same year his streak was stopped, 2006, was the year he bought the 9^th biggest yacht in the U.S, the Utopia.

Many wondered at the time if this purchase was the ultimate “sell” signal. Well if that wasn’t, Miller’s early-summer admission that he doubled down on Freddie Mac should have been.

As of July 31, he owned 80 million shares of Freddie Mac. Ouch. So certain was Miller that he was sitting on a value goldmine, he added 30 million shares this summer, even as Freddie’s stock was getting pummeled.

You have to look at Miller as some kind of tragic hero. King Lear perhaps, who thought he was “…more sinned against than sinning.”

Miller apparently took Bernanke and Paulson’s pledge to keep Freddie Mac “in its current form” as gospel. And so it was either greed or ego that made him think averaging down on Freddie Mac was a good idea.

I’m guessing Miller was the only one who took Bernanke at his word. Now he’s found out how much sharper than a serpent's tooth it is to have a thankless Fed!

(I’ll certainly never forget my senior analyst Benson George’s warning to stay away from any mortgage-related stocks, but that’s a different article.)

Heads on a Platter

Bill Miller may be the sacrificial lamb, albeit of the same species as the homeowners who bought more house than they could afford. But what of the “crooks and incompetents” that Rogers spoke of?

It’s not as if Freddie Mac CEO Richard Synor and Fannie Mae CEO Daniel Mudd (could that name be more ironic) had no idea what was going on.

Freddie Mac’s chief risk officer David Andrukonis told Synor in 2004 that the bad loans it was buying “would likely pose an enormous financial and reputational risk to the company and the country.”

Syron got the warning in writing that “shoddy” underwriting standards were exposing the company to losses, according to Andrukonis. Demands to raise its capital cushion went mostly unmet. Even when they came directly from Paulson and Bernanke.

Well Syron’s out of a job now. But of course, he was paid $38 million in the last five years -- $38 million to make $80 billion in shareholder equity disappear.

Freddie Mac’s bond holders will get paid. That’s what Rogers means by “socialism for the rich.” Syron’s mess will get cleaned up. Eventually. It remains to be seen what happens to homeowners in over their heads and Bill Miller. I expect they won’t be the beneficiaries of any socialism.

Playing for the History Books

I remember thinking back in 2005, after Greenspan had announced his retirement, that he was playing for the history books. Using low interest rates to prop up a weak economy so he could go out in style. (Sort of like how gas prices have dropped as we head into the election.)

And even now, Greenspan seems to be trying to re-write the books.

"Much as we might wish otherwise, policymakers cannot reliably anticipate financial or economic shocks or the consequences of economic imbalances," Greenspan recently said.

He went on to say that governments and central banks probably could not have altered the course of the once high-flying housing market.

Oh man. This is just too easy. I don’t even need a narrative. These comments speak for themselves:

· ''history has not dealt kindly with the aftermath of protracted periods of low-risk premiums (interest rates).'' 2005 Greenspan

· ''American consumers might benefit if lenders provided greater mortgage product alternatives (read: no interest loans and adjustable rates) to the traditional fixed-rate mortgage.'' Greenspan 2004

· "There do appear to be, at a minimum, signs of froth in some local markets," Alan Greenspan said. June 10 2005

· "…the apparent froth in housing markets may have spilled over into the mortgage markets." June 10, 2005

On July 19, 2005 chief economist for Standards & Poor's, David Wyss offered up some solutions to Greenspan. He said that the Fed could control mortgage rates by increasing interest rates, and could also place restrictions on banks to get them to stop providing mortgages with no money down.

Wyss said these types of loans place risks on the economy by providing owners with houses "that they can't afford." "What do you do when [the owner] mails the key back to the bank?"

Well, we’re finding that out right now. And it’s not good.

On August 29, 2005 Paul Krugman wrote in a New York Times editorial what Greenspan apparently couldn’t see “…we're going to have an economic slowdown, and possibly a recession.”

Wyss could see it. Krugman could see it. Benson could see it. Why not Greenspan or Miller?

Uranium Stocks

Now, on a completely different note, I hosted a forum chat here at Investor’s Insight last Friday. It went really well and I’d like to thank all the readers who came out to ask questions and leave comments.

You really helped that chat with informed questions and insightful comments. Thanks.

The transcript of the discussion is still available under Discussion Forums.

One person inquired about a couple uranium stocks. Here’s my response:

Uranium prices peaked in Spring of 2007 and have been pretty much downhill ever since. There appears to be plenty of supply and little increase in demand.

With a rising dollar, commodities in general have been headed lower. Until there is some stability in the dollar, price pressure will remain on commodities in general.

Uranium is a bit of a special case, as its price started falling well before most other commodities. That’s probably not a good sign. Though it may be worth noting that sentiment on uranium couldn’t get much worse at the moment.

There doesn’t seem to be much talk about new nuclear plants coming on line here in the U.S., and that makes me think that uranium prices may stay low for a while.

However, if you don’t mind waiting for a while, uranium stocks may be OK. But you must buy big companies, with plenty of cash, and, preferably, other sources of income, like gold mining.

For the record, I can’t believe Bancroft Resources (BCFT:OTC:BB) isn’t “bankrupt resources.” Granted, it’s only in the exploration stage, but with virtually no cash, I don’t see how this company stays afloat.

At least Uranium Resources (Nasdaq:URRE) has revenue and a decent cash position. But institutions are dumping and no insiders are buying, despite the stock price sitting at nearly all-time lows. In fact, the stock’s down 17% today on no news. That’s usually not a good sign.

I always advocate waiting for signs of buying before taking a position in a stock. That’s what my stock-picking machine TRIGR is engineered to do, and that’s the way I like it. I don’t want my money sitting around for months or years waiting for a stock to move.

There are plenty of trends moving stocks higher right now that you can profit from. Opportunity cost, while not an outright loss on your capital, is still a cost.

Best Regards,

Ian Wyatt

Chief Investment Strategist

Growth Report