Lots of Cash at Big Corporates

Found another interesting article by Eddy Elfenbein at US Market Blog. This time he talks about cash levels at some of the US giants, in particular Microsoft (MSFT). My motivation for owning many of the US huge multinations is their cash levels. Of course, I'm hoping they spend this cash on share buybacks (in excess of employee option and stock grants) and dividends. I think Eddy and I both fear that it will be spent on stupid acquisitions. I must say one of my main motivations for buying Microsoft last year was their new found ...

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Outsourcing and Urban Myth

Kudos to New York Times Columnist David Leonhard and his column today on the outsourcing of Radiologist Jobs in India, “Political Clout in the Age of Outsourcing” Radiologist, accountants and other white collar workers are being worked into a frenzy of fear around outsourcing by politicians and the media. Fear and job loss makes great TV and Lou Dobbs of CNN has made a career from it. Leonhard talks reality. Leonhard writes about an investigation performed by MIT Economist Frank Levy, "they were able to find exactly one company in India that was ...

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Five Laws about Investing Bias and True Happiness by James Montier

I never met or heard of James Montier when I worked in London but he seems like a financial strategist after my own heart.  Read this Fast Company Magazine clip about him and his five laws.

Link to to article by him on Abu Graves and Behavioral Finance. 
http://turtletrader.com/james-montier.html

I'll be watching this guy.

Portfolio TradesMore YHOO and More Johnson and Johnson.

Doubled Positions in Yahoo (YHOO) Buy Write exactly as yesterday (now at 1/3 position) Added to my position in Johnson and Johnson (JNJ). I’m now up to a 2/3 position. The whole drug sector is still beat up. I think investment managers and small investors are still reeling from buying so much stock at really high valuations over the last few years and afraid to step in again. At some point they will wake up and drive this sector up. This stock still has growing earnings and at a forward price ...

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Portfolio Trade - Yahoo Buy Write

Bought Yahoo (YHOO) at 30.93
Sold 32.5 Calls July at 1.70.
Size = 1/7 of full (max) position.

Yahoo took an earnings decline based on expenses like employee options but the online advertising just keeps growing.  I feel save owning this stock at these levels.  Intersting story on MarketWatch.com.

Disclaimer:  Nothing in this blog is meant to be specific financial advice or a recommendation to buy or sell.  I do not give investment advice.  Do your own research.  Do not rely on anything in this weblog to make investment decisions.  I do not log all my trades here. I only describe or mention those that I think might be interesting. Consult an investment professional familiar with your specific financial situation before buying or selling any security.

Portfolio Trade - Intel

On April 11th, I bought a small amount (1/5 position) of Intel (INTC) at $19.18 from a long standing Good-Till-Cancelled order.  On March 14th  I did two things, I placed a limit order at $19.18  and I sold naked puts for July expiration that would force me to buy Intel at $17.50 should the stock fall below that price.

So why Intel and why at $19.18 and $17.50? (If the $17.50 strike puts I sold for $0.40 are assigned, my cost is $17.10 - and my position size would now be a 1/2 full position)

1. Intel is out of favor relative to Advance Micro Devices (AMD).  All the negative media caught my attention.
2. I chose $19.18 because that gives Intel a dividend yield of 2.1%;  17.1, 2.3%
3. Normally, I don't like companies like Intel that shower employees in options and have huge overhangs of shares to be issued at higher prices. However at low stock valuations good trades are often profitable.  In other words, there could be value.
4.  I like to initiate a small position in a stock that I think might fall further but at a price that still represents value; $19.18 gets me started.  $19.18 implies a p/e ratio of 13 vs. trailing earnings and 18 forward). According to First Call earnings estimates, buying the stock at $17.10, gives me a p/e ratio of 13 versus 2007 estimates and 15.5 for 2006.
5. My portfolio underexposed in the technology sector and the whole sector is starting to look cheap versus normal tech valuations and versus the market as a whole.  And I don't want to gain exposure through expensive stocks.
6. I believe Intel will get its act together and come back. 

Disclosure: I own Intel and am short July 17.50 puts.  I would buy more Intel if the price drops.  I would start to look at selling out the small position in Intel I currently have if the stock went above 22.

Empire State Building Lighting Schedule

I look out the window every night and see the Empire StateBuilding.  People often ask me what the colors mean. Sometimes it's obvious like red-white-and-blue for the Fourth of Julyor all Green on St. Patrick's Day.  But sometimet the colors are amystery. That's when I have to go to the web.   This is the linkto the lighting schedule website of the Empire State Building.

10-year Treasury Yield Breaks 5%; Prelude To A Crash?

I always enjoy historical graphics comparing historic marketcrashes to similar chart formations in the present. Usually an author predicts animpending repeat and the market disaster nearly never happens in the same way.   Such comparisons are always interesting,usually educational but all too often they miss scale or only pick up on a fewof the many factors the precipitate a major market shock.  In this case worth reading, US Market Blogwriter Eddy Elfenbein submits that one of the classic signs of an overheatedstock market are rising interest rates and rising gold prices.  He compares charts before the 1987 marketcrash and now. 

His warning that rising gold prices together with risinginterest rates is a bad sign should be heeded. But these price movements arenot the alarm of an approaching crash they are a forewarning of inflation.  Inflation is never good for the stock marketwhen it starts, and if the Fed really puts the brakes on the economy by raisingrates fast there could be a long and big market decline.  But a stock market decline is a secondary consequence.  His point that money is leaving bonds forgold is an interesting one but not exactly correct.  The world is awash in paper assets due to anexcess is savings.  Thus, excess money isdriving up the price of every store of value. Eventually, all this excess willplay out in more inflation and that is what the gold and bond markets arepredicting.

I recommend the Seeking Alpha Network of which US Market Blog is a part.

US Bonds Cross 5% yield

The benchmark ten-year treasury bond crossed above the 5% yield for thefirst time in years.  I am just going to let my short bondposition run here. I don't see any upside to bond prices (lower yields)until the Fed gives a signal that it might be done raising short term rates.  

However, these big figure changes in benchmark yields do usually bringout retail trading so I do think we'll see some suport for the next twoweeks.  I wouldn't expect yields to go much above 5.2% until someof that technical buying is done.

Sucks to be Rumsfeld - Sucks More to Work for Him

More Retired Generals Call for Rumsfeld's Resignation Article from the NYTimes.  

Maybe if he resigned the US Army would be able to cure the officer retention rate problems as well.  See comments on fastcompany blog as well.