Monday, February 18, 2008
Alternative energy is here. We saw a little preview with the ethanol boondoggle perpetrated by the subsidies put forth for ethanol from corn and other biomass. This is merely the first inning of this energy drama, and much more is to come. The bubble is growing.
Harry Newton writes an amazing little blog about all things financial and seems to have a good grasp of the macro-economics we are enduring. He references a Harper's article about bubbles which reminds us that such asset inflation tends to overshoot on the upside, and we may have quite a run ahead of us with alternative energy and especially solar stocks. First Solar (FSLR) is the latest sexy stock that TV guru Jim Cramer is promoting, now that his four horsemen of the Naz are frothy and panting from exhaustion. Newton seems to agree.
Jack Yetev, writing at Jim Kingsdale's Energy Investment Strategies, has a differing opinion after looking at the valuations of various solar stocks. He prefers Canadian Solar (CSIQ) which has no earnings as yet, but boasts a much better sales growth rate than the others. The forward PE for CSIQ is a reasonable 11 based on consensus estimates for 2008. Even using the lowest earnings estimate of the seven analyst covering CSIQ, the PE is only 27. First Solar on the other hand has a consensus PE of 90 and a stratospheric PE of 125 based on the lowest estimate of the 24 analysts covering.
The demand for energy will steadily increase, a current recession notwithstanding. The supplies of fossil fuels are tight and no new reserves or new extracting technologies seem imminent. Add to this shrinking supply and increasing demand the consciousness of global climate change and the scenario is right for massive development of non-carbon energy sources.
I won't go into the vagaries of the methods of alternative energy generation: photovoltaic solar versus thermal solar... and don't forget wind power. You can pursue that on your own. From an investment standpoint, be aware that the big multinationals like General Electric (GE), Siemens (SI) and even Kyocera (KYO) will surely stake their claim and as the market matures their huge coffers will change the playing field.
Personally I own some oil stocks as well as Cameco Corporation, a large uranium mining company, as a play on the non-carbon energy industry. Nuclear has its own set of problems, but I cannot help but see a growing demand for such power generation. I am in the market to expand into alternative energy and Canadian Solar looks like a good candidate.
So let's ride this bubble!!
Sunday, February 17, 2008
My main problem with Cramer is his lack of consistency in stock picks. He will pick stocks based on the industry or sector fundamentals and then select a company that does well within the sector. That seems to work well. But then in the next breath he’ll recommend another company in a supremely bad sector and give a cockamamie reason to own it. He has a nightly show so he obviously must make a lot of recommendations and some are destined to be dogs.
Examples of the above are Monsanto (MON) during the recent and continuing rise in grain commodities. Monsanto has done very well and this is the real benefit of Cramer: telling you which company in a given sector will do well. The fact is that any company in that sector would have done okay, Archer Daniels (ADM) was fine and Mosaic (MOS) even better.
On the other hand, Citigroup ( C ) has been pummeled along with all the banks and financials over the subprime mortgage meltdown and the resultant liquidity crisis. Cramer was pounding the table to buy the stock in anticipation of its CEO Chuck Prince being fired. The stock continued to drop and then when Prince was fired, the stock barely budged upward. My problem with this recommendation is that it is not based on the fundamentals of the industry or the company. To recommend a stock on a potential headline is fraught with plain old bad judgment.
Another example of such bad judgment is his recommendation of Alcoa (AA) in October at the outset of a global economic slowdown. His rationale for the recommendation was because he thought AA would get bought out. Again, a potential headline is not a good reason to buy a stock. In addition, the impending drop in the market and continued weakening of the dollar would only give incentive for a potential suitor to wait for a lower price.
I like Jim Cramer. His infectious enthusiasm stimulates people to consider the market. My problem is his lack of discipline in his recommendations and his lack of consideration of macro-economic factors. To him its always a good time to buy stocks even when it may be abundantly clear from a technical and fundamental analysis that the market is in trouble. As with any teacher, you need to know their weaknesses as well as their strengths.
My guess (and I have not looked at his performance in various markets) is that Cramer does well in broad based bull markets but lags in bear markets or in narrow bull markets. To wit, I read a lot of macro-economic websites in order to get a view of the broader economic issues that are driving stock prices. Over the past 18 months they have been very bearish on owning equities and as a result I have trimmed my stock holdings dramatically and hold more gold and silver than usual. This has done well. The only stocks I have held onto are the oils, although I did lighten that load last fall as well.
The downsides in my picks have been my recent acquisition of Goldman Sachs (GS), a company that Cramer obviously likes, but I am holding my position in the expectation that this well-run company will be the first to emerge from the financial sector doldrums. Another financial I recently bought is Wachovia Bank (WB), which has a nice dividend of 7%, and I am about even now on capital appreciation. I think this may bounce along at the current bottom, and as long as they don’t cut their divvy I am honored to get paid while I wait. Bottom fishing can tax my patience.
The rest of the market is a mystery right now because we are going through a transition. Technically it looked slightly oversold last week, but I’m not so sure now. Fundamentally there are myriad stocks with low PE’s and great anticipated earnings (CAT for example) for the next year, but I fear that this is a value trap; if recession does occur, then earnings projections will be revised downward and stocks will have another leg lower to go.
My answer to this is to buy stable industries that have good cash flow no matter what. The industries I think will outperform now are pharmaceuticals and maybe utilities. These have good dividends and will outperform in a recession. Boring maybe, but this market is scary. Traders, moreso than investors, must preserve capital.
Cash should be okay to hold now, too, since the US dollar is at multi-year lows and as the credit crisis spreads overseas we may see a flight to safety. In addition, if/when European Central Bank and Asian banks lower interest rates further, the US dollar should strengthen. Gold should hold its value too, but it has had a nice run right now.
If you are really daring, real estate is very low now. I would be very careful, but REIT’s have nice dividends and some have been taken out and shot unnecessarily.
Monday, February 11, 2008
The last couple weeks I’ve engaged in a little back and forth over the Hillary and Barack rivalry. The Democratic party is fortunate to have two intriguingly qualified candidates and I am dismayed that the nomination is sprinting toward a contentious battle that may cause scars within the two factions.
In re-reading my scathing rebukes (one and two) of Frank Rich’s soft thinking and ridiculous defamation of the only female candidate in the race, I realize that casual followers of my polemics may think that I am some vehement pro-Clinton lackey or a virulent anti-Obamite. Nothing could be further from the truth. My gripe is with Rich who practices careless critical thinking under the guise of journalism.
Today, Paul Krugman decries the friction: “The bitterness of the fight for the Democratic nomination is, on the face of it, bizarre. Both candidates still standing are smart and appealing…Both have broad support among the party’s grass roots and are favorably viewed by Democratic voters.”
The fact is I understand the hope and vision that Barack Obama prattles on about. I grew up in a grimy Irish Roman Catholic neighborhood on Chicago's south side. By the time I was conscious, the Kennedy Camelot had already been destroyed with two of her finest sons murdered, but the hope was still palpable. We knew that someone like us could one day be president. Growing up, every one of my friends my age was named either John or Bobby or Joe. The girl I took to senior prom in 1979 was Jacqueline. The legacy of those sunny days before November 1963 lived on throughout the decades of my childhood. We're all college educated now, schoolteachers, engineers, lawyers and doctors; some having served appropriately in the Peace Corps, and the Kennedy legacy was a large part of our identity.
This nation could benefit greatly from a President Obama who may indeed bring feelings of limitless possibilities to countless kids in Chicago’s Altgeld Gardens or Detroit’s downriver communities or Kalamazoo’s hardscrabble north side. Such buoyant optimism that could penetrate such insoluble circumstances may be worth the election of Obama in itself.
Or not. While I recognize the intangible benefits that Obama brings to the election, I cannot transcend my concern about the nuts and bolts of running a country at a critical time. My background is limited to plying my trade as a highly skilled laborer in the health care field and I admit ignorance regarding much of geopolitics, federal budgets and legislative process. I know few things, but I do know that Obama’s rebuff of a mandate for universal health insurance will only serve industry and corporations’ interests at the expense of citizens and small businesses, and four years from now we will be no closer to solving that problem. If he lacks detail on that critical issue, then where else is his platform deficient?
When the dust settles, I will likely vote for whichever Democratic candidate is the nominee. I may prefer Hillary Clinton for her policies on specific issues and my perception is that she knows what is necessary to achieve specific goals, but Obama would be okay, too. Barack Obama is appealing for his transcendent rhetoric—and that no doubt is important—and he will get my vote in November (if his name is on the ballot) even though I still see many of his policies as delusional (negotiate directly with Iran’s Ahmadinejad) or toothless (lack of mandates on health care) or pandering (expanding SCHIP).
I understand that certain voters feel excitement about their candidate. Heck, even Tom DeLay and Trent Lott could somehow get their supporters motivated for their hapless candidacies of hatred and cynicism. I get it. What I don’t get is the virulent lying crap being promoted by otherwise progressive and rational Obama supporters—much of it right out of the playbook of Karl Rove. Frank Rich promotes the Orwellian tactic that assumes mere repetition makes any accusation valid.
I agree with Krugman as he points out:
I won’t try for fake evenhandedness here: most of the venom I see is coming from supporters of Mr. Obama, who want their hero or nobody. I’m not the first to point out that the Obama campaign seems dangerously close to becoming a cult of personality…
…What’s particularly saddening is the way many Obama supporters seem happy with the application of “Clinton rules” — the term a number of observers use for the way pundits and some news organizations treat any action or statement by the Clintons, no matter how innocuous, as proof of evil intent.
I like Barack Obama, but if he plans on being the transcendent uniter, he would do well to remind his supporters (and Frank Rich) first.
Sunday, February 10, 2008
Finally, Rich fictionalizes the current situation of the "ghost delegates" from the phantom primaries in Florida and Michigan. Somehow Clinton is the establishment candidate because she went against the Democratic establishment and entered those primaries and won delegates. As the primary season matures, it is becoming glaringly apparent that the Democratic Party may not have a candidate with the requisite number of delegates to win the nomination unless these two large disenfranchised states are somehow counted. According to Rich, Clinton is somehow being unfair for asking for consideration of those votes that loyal Democrats had cast for her and then he makes up some claim that she is being disingenuous because she never wanted them counted in the first place. Huh? Idiot.
Friday, February 08, 2008
I disagree. Bill Belichick is a dick alright, but I prefer the quieter more disdainful dick-- as in Richard B. Cheney. Belichick more closely approximates the utter contempt for all things civil as embodied in our current Vice-President. While he may not have shot his best friend in the face, if Bill Belichick had I could see his reaction as being very similar to his alter ego's: Drop your martini glass, stagger back into the limo and have your staffers divert the press.
This malignant personality type manifests by attempting to win at all costs and maintain that the rules only apply to everyone else. If caught breaking those rules, whether it's filming the opponents' football practice or lying about the rationale for a war that your buddies are profiting from, then just stare blankly into the camera and tell everyone to fuck the hell off. And it works... obligingly, we do fuck off.
For some unknown reason we revere assholes in our popular culture, and we often confuse a stern or pugnacious demeanor with competence. Belichick obviously has competence, having won three Super Bowls (although allegations have now come out about possible cheating in 2002 vs the Rams), but why is he such a dick, too? Can't personality and ability be mutually exclusive? I'm sure Bill Belichick is very good at drawing X's and O's on chalkboards, but let's face a dark fact: If Tom Brady were on any one of a dozen other teams over the last decade, New England never would have seen one Halas Trophy. (I say that with a heavy heart for my perennially quarterback-deficient Bears and despite my lifetime disdain for all things from University of Michigan.)
There seems to be a subsection of our culture that acts as perpetually abused spouses, accepting bad behavior and seeming to relish in the attention from our abusers, whether they take the form of football coach or politician. Our press, especially the right-wing press represented by NRO, beautifully takes on the role of enabler for these serially abusers.
Nixon, Belichick or Cheney? At this point, NRO can't keep all their dicks straight.
Wednesday, February 06, 2008
Tuesday, February 05, 2008
Dean Baker (right) makes a weak rebuttal.
And Krugman makes a few other points.
My rant: Fixing health care would fix a lot of economic problems in this country. Employees would have more mobility thus increasing innovation, costs would decrease as more healthy insurees pay into the system and insurers are required to take all comers, more health maintenance would give us a healthier workforce and employers would be more willing to hire if health care were not an issue.
Mandates are the only way to get to universal care and Obama relinquishes that item from the start-- a fatal flaw in his plan. In addition to Krugman's many salient points, I would add that currently physicians and hospitals are required to care for all sick and injured people; therefore, all potentially sick and injured should have the ability to pay for those services. Only Clinton provides this requisite.
Saturday, February 02, 2008
Brian Wesbury, a financial planner writing in the WSJ, has just wandered out onto a limb. He says, “Now that the Fed has cut interest rates by 175 basis points, the odds of a huge surge in growth later in 2008 have grown… Keep the faith and stay invested. It's a wonderful buying opportunity.”
On the other hand, George Soros, the noted investor, currency speculator, philanthropist and billionaire says, “The current crisis is not only the bust that follows the housing boom. It’s basically the end of a 60-year period of continuing credit expansion… the end of an era.”
Let’s keep a watch …. One of these gents will be correct, and the other will be wrong. We’ll check back in 4, 6 and 12 months to keep tabs. It’s February 2nd, do you know where your 401 (k) is?
Dow Jones Industrial Average 12,743
S&P 500 1395