I am retired and take educated guesses on all things financial.

November 27, 2007

November 28, 2007: Investment principles

I published this months ago, but with market conditions and other issues providing a confluence leading to self doubt and angst, I thought it would be appropriate to list these again.

Investment Principles I endorse:

Self discipline, not income level, determines your ability to save money.

If your "safe" investments do not outpace inflation, then they are not truly safe.

Don't try to time the stock market. Those who do usually fail.

Your investments should be a part of an overall strategy designed to achieve your specific financial objectives.

Substantial growth of assets over the long term requires equity investments, which can be volatile. The percentage of equities in your portfolio should be compatible with your tolerance for risk.

The most efficient portfolios are properly diversified both within and among basic asset categories.

The most successful investors are patient, long term investors.

Investing should be as systematic as paying a monthly bill.

You should take a holistic approach to your financial life,recognizing that tax strategies, insurance needs, and investment goals are interrelated.

You should find a knowledgeable tax and financial advisor you can trust --especially the tax advisor if you invest on your own.

November 27, 2007: Gold?

I am not a direct holder of gold. I am comfortable with it not being in my portfolios except as part of a commodities or precious metals basket ETF. I have owned gold and other precious metal stocks.

Gold has evoked a great deal of emotion recently. To some people, gold is almost a religion (like Global Warming). And, perhaps in reaction to that religious fervor, other people find gold somehow to be odious; they would not buy it if it were recommended by a burning bush.

If you overload your portfolio with gold as an act of faith, you may jeopardize your financial security without advancing the "cause" of gold one iota. Or if you adamantly refuse to consider gold as an investment, you may forgo a valuable balancing element for you portfolio. I am happy to take this risk.

In either case, the investment slogans and cliches will provide neither wisdom or profit. "Only hard money will survive hard times" (Gold bugs) or "Gold pays no dividends or interest" (never buying Gold) are equally useless. And the cliche "you can't eat gold" is persuasive only to the gourmet investor who has mastered the art of sauteing stocks and bond certificates.

Consider gold the same as any other investment. A good thing in moderation for many investors, but not for all -myself included.

November 21, 2007

November 22, 2007: Alternative energy, a few good stocks

It is becoming more apparent that coal will have to play a vital role in our energy future here and elsewhere in the world. The environmental lobby, again behaving like infants using old technology and poor data as their mantra, continues to excoriate coal. The reality is that many companies - and one in particular - are working diligently on carbon residue reduction and elimination during the coal burn process which would render coal-fired energy plants "green" by any reasonable measure.

The number one company in the carbon recapture field is Kinder Morgan Energy Partners (KMP). KMP is the only MLP that has a large amount of CO2 experience, which is highly specialized and not easily replicated. KMP will likely be the partner of choice for CCS projects and thus will capture the monies for this necessary procedure. KMP is a superbly run MLP that is best of breed in several endeavors of energy transmission, diffusion and alternative energy applications based upon years of experience. Dividends are tax-advantaged.

Top picks in the palm oil play are Synergy Drive, KLKepong and IOI (see previous posts for ticker symbols).

Biofuel will need a 4% product expansion to meet world bio fuel demands and a 2.5% growth in production to meet human food needs. There will be conflict here between the importance of grain for fuel or grain for human consumption. The use of animal parts and non-edible oils and fats may be the answer. Nova Biofuels (NBF) may be well positioned as a takeover target or dynamic growth stock from its paltry $2.40/share price to leverage their proprietary process in this field.

A top pick in the agriculture business is Indofood Agri (IFAR). Its huge and growing palm oil production will actually benefit from agricultural inflation.

In wind power, FPL Group (FPL) is putting into service 8,000MW of new wind service by 2012. And carbon offset credits may benefit FPL by as much as $3.00/share by 2010.

Hitachi Metals (5486 -Tokyo)is the winner by producing Hercunite, a heat-resistant steel which is needed for non-motor applications (motor magnets) in hybrid cars.

In solar, Sunpower (SPWR) is an increasingly interesting stocks. It was recently raised from a target price of $110 to $165/share by a respected CSFB analyst.

Another solid solar play is Applied Materials (AMAT) due to unexpectedly large sales that show no sign of abating.

Brazil is blessed. With a huge natural resource base, Petrobras last week discovered another 8 billion barrel (minimum) oil field off its coastline. And this country already runs its vehicles on ethanol, so the export potential is huge. Brazil will join OPEC and become a top ten oil producer within five years.

And we are running out of oil? Green to Brazil is not biodiesel, but the color of money. Who can blame them?

November 19, 2007

November 20, 2007: A few dark thoughts on inflation, energy and real estate

A bit on the dark side today.

Anyone for Citicorp (C)? An interesting question given its current price. I am down about ten bucks a share since purchasing it a month ago. Not brilliant, to say the least. Am I going to hold on? Yes. Foolishly? Maybe. I bought it because I felt a change in leadership was imminent. I was correct, and the new management should do very well given time. My price point was weak, to say the least. Time will tell.

I believe that we may be heading for a new round of unexpectedly high inflation. Three reasons give me cause to suspect this.

1. China and other dollar rich adversaries are dumping the dollar as their international currency and accepting the benign Euro from a politically and militarily weak Europe. This will have a profound impact on US foreign policy leverage, and thus dilute US economic prestige throughout the world.

2. Our huge spending binge and resultant debt can only be solved by the government printing presses going top speed, 24/7. It may well be policy that our government has reached the conclusion that we must inflate our way out of debt with cheap dollars. It has worked before, to a degree. The result is the folks on the government dole and unions benefit. Everyone else suffers a loss in purchasing power and quality of life.

3. Raw materials and energy are at a premium with the rest of the world, especially China, India, and the near and far east growing their economies and thus their population's economic expectations for material goods and foodstuffs.Inflation in the raw materials and energy sector means inflation, even if the dollar is being marginalized.

Speaking of energy. Alternative energy is of no consequence in the macro-economic picture. It is not a solution at this time. It is a distraction. With the majority of the developing world choosing carbon energy, no "save the planet" alternatives touted here and in the developed world are going to have much of an impact. Brazil just discovered over 8 billion barrels of oil off it's coast. Cuba has a like amount off our borders (which are off limits to American companies because of environmental restrictions). There is no shortage of oil and there is enough coal for over six hundred years (and China is mining it in vast quantities with twenty-six new mines being developed with little or no environmental considerations -- they just need the energy coal provides, Al Gore be damned). Money can be made in alternative energy stocks. Just don't translate profits to global energy realities.

Real estate may seem to be the opposite of a paper investment. You can stand on the land, scoop up the soil, and live in the house. You aren't concerned with a board of directors a thousand miles or a continent away and the property does not appear to depend on any one's promise.

But with rising inflation that may be an illusion. Real estate is as much a paper investment as a bond or a share of stock. The piece of paper is a government-issued deed. Its value depends on the governments willingness to protect your property, and on its forbearance in not stealing it from you through rent controls, taxes or eminent domain.

Property taxes are nothing more than rent paid to the true, if not rightful, owner - the government. The government can change the terms whenever it feels like it.

If inflation gets especially nasty, say 12-20% or more, the cost of holding mortgaged property and increasingly taxed property will seem outrageous. On one hand, especially if a populist Democrat is President, the government's willingness and ability to protect your property (the supposed reason for property taxes) will diminish,on the other hand the same government will want a larger and larger share of the assessed value.

This is not to say don't own real estate. I own plenty. However, if inflation heats up, be prepared to adjust your thinking, and take actions that will protect wealth that is precious to your current standard of living. What that action will be is any one's guess at this stage.

November 18, 2007

November 19, 2007: Food for thought

pictures: cereal is inded a popular food and, are these fish sticks?

As the market seemingly turns defensive, here are a few random thoughts about a few prominent food stocks.

Price inflation is a reality in the foodstuffs area. Alternative energy has raised basic grain process, which has a ripple effect upon almost all food companies' bottom line.

That said, Kellogg continues to dominate the competition in cereals. Kellogg (K) managed to increase market share while raising prices 2.9% over the past four months. Kellogg's brand power seems to be getting stronger as competitors lost market share while trying to increase prices with Kellogg. Overall sales growth was 5.9% during the past seven weeks and was strong in every area except cookies.Kellogg stock looks attractive.

General Mills sales growth was about 1.5%. Sales declined in cereal, refrigerated dough, frozen and canned vegetables and dry dinners. Yogurt, soup and snack bars had sales growth north of 10%. Danone, however, is taking additional share away from General Mills' (GIS) yogurt operations. This company is stuck in neutral.

Heinz sales growth of 4.6% and is sustainable. Frozen entrees, frozen potatoes and spaghetti sauces all grew. Frozen dinner entrees especially were up: 12.6%.
The new Healthy Choice line is selling much better than the dry-wall tasting products marketed as Healthy Choice previously.Heinz looks good.

Kraft sales were up approximately 3.2%. Cheese was the dominant player, up 7%. Importantly, Kraft lost share in 13 out of 20 top categories, which is a real problem for this company. I am not impressed with Kraft at this time.

Here are some companies you may want to explore for inclusion in your portfolio:

Danone (DANO.PA)France
Heinz (HNZ)
Kellogg (K)
McCormick and Company (MKC)
Wal-Mart (WMT) that sells 'em all

If anyone has ever eaten a decent fish stick, please e-mail me. Just curious.

November 15, 2007

November 15, 2007: Palm Oil is "in" as a great biofuel source

pictures: young palm trees being raised to produce oil and, a small part of a palm tree plantation in Malaysia

I try to keep abreast of the alternative energy zoo and pick out the companies and their product(s) that can survive without government subsidies. One such alternative energy source is palm oil. I like the product and its availability to the far east (India, China and the Pacific Rim countries). I like the fact that unlike corn and other biofuel sources, it does not impact basic foodstuff for the tens of millions of people who depend on cheap grain for their subsistence (witness the riots over the price of corn in Central and South America recently because ethanol jacked up the price of that grain which is vital to peasant diets). I like the fact that palm tree production is getting less labor intensive, with research producing types of palm trees that are prone to faster growth and higher palm oil production. And I like the fact that the plantations that produce palm oil in high quantity are still cheap to buy, if you have access to their stock listing placement in such places as Malaysia, Singapore, Indonesia and the Philippines.

There is an 88% correlation between palm oil prices and plantation stock performance. Valuation of plantation companies should continue to be revised upwards to reflect continuing demand. Palm oil prices are at a record high due to crude oil prices and geopolitical reasons. Palm oil inventories fell 19% in September as wheat and corn prices continue to surge, intensifying the competition between those basic grains for food versus fuel.

Palm oil is able to stand on its own without subsidies.

Highly recommend picks are the following:

Kuala Lumpar Kepong KLKK.KL in Malaysia
IOI Corporation IOIB.KL in Malaysia
Indofood Agri IFAR.SI in Singapore - a top pick
London Sumatra LSIP.JK in Indonesia
Sampoerna Agro SGRO.JK in Indonesia

Maybe this sector is ripe for an ETF Fund. Compared with many other recent ETF parsed index funds, plantation palm oil stocks would rate better than many.

November 12, 2007

November 13, 2007: Aero defense picks and E*TRADE debacle

A few notes and picks in the aero defense sector:

Cathy Pacific ordered ten 747-8Fs and seven 777-300ERs worth $5.2b from Boeing.

LAN airlines ordered twenty six 787s worth $4.5b and will lease sis 787-9s from ILFC.

SPR will provide MRO service in Europe for 737NG and 777 nacelles.

Boeing (BA) completed the 747-8 Intercontinental configuration, which includes an 18 foot stretch from the 400 series and several interior improvements.

Goodrich (GR) is opening a large aircraft maintenance facility in Dubai.

The anti-missile program works, as reported here a while ago. Winners are RTN and LMT in this multi-billion dollar asset.

All F-15s are grounded. This ushers in the new wave of fighter aircraft. The F15s were as old as twenty-seven years.

As stated in an earlier post, the Department of the Army has added GD to the Warfighter FOCUS, which will now proceed.

Problems continue to plague the Coast Guard Deepwater program. Internally things are still in quite a mess, externally, the first ship slated to berth in California is too deep for the mooring.This vital program needs to be righted - and fast.

Stock picks:

BAE Systenms (BAE)
BE Aerospace (BEAV)
Boeing (BA)
CACI International (CAI)
DRS Technologies (DRS)
Dyncorp (DYN)
Embraer (ERJ)
Esterline Technologies (ESL)
General Dynamics (GD)
Goodrich (GR)
Honeywell (HON)
KBR Inc, (kbr)
L-1 Identity Solutions (ID)
L-3 Communications (LLL)
Lockheed Martrin (LMT)
Precision Castparts (PCP)
Raytheon (RTN)
Spirit Aerosystems (SPR)
Sran International (SRA)
Textron (TXT)

What is with E*TRADE?

Rumor has it, fueled by E*TRADE'S poor guidance and Citibank's downgrade hinting at bankruptcy has the stock at about $3.00/share, and investors using E*TRADE beginning to head to for exits if their stock balances are not protected by insurance.

E*TRADE had better sooth things fast or there will be a run from every investment instrument that it provides.