Stock market investment blog

I am curious what others who invest and follow the market are investing in or liking these days. I will mention a few of my own and would like to hear your ideas.

1) I know it has become a joke but I have Apple. It has been fantastic. I am not buying any more because with the stock price going up as much as it has, it has become too big a portion of my portfolio to add more. I have sold some and of course been sorry. I have never seen a company hitting on all cylinders like that company is. I am holding my shares and occasionally writing covered calls.

2) Devon Energy this is a good oil and gas producer. Of course it has done well with the energy complex but it has the wild card of the potentially enormous discovery in the Gulf. It holds a 25% stake in what might be another Prudoe Bay. Of course we had a thread on this earlier. In any case the big money has been made there although I think there is more. I actually lightened up my energy holdings a few days ago, selling my energy share mutual funds in my IRA.

3) Two financials
a)CSE a beaten down financial. It has not suffered major credit losses but it’s stock price got down to $10 where it was yielding over 20% on it’s dividend. I bought at 10.6 and it is now over $15. The yield is still very good. They announced plans to buy the branches of Fremont Investment and Loan. I know that company from my days in the banking industry. They are high priced deposits but cheaper than repo agreements or other collateralized agreements used and certainly more stable. This is a case where I kind of caught a falling knife, which I don’t recommend but it has worked out.
b) USB a very well run bank out of Portland. They have largely escaped the blood in the financial industry. They have a dividend yield of 5%. I have owned shares for 8 years and bought more today.

Yes, a speculator can obviously lose money but in a bull market the only sure loser is the end purchaser of the commodity. For this reason, regulators want to make sure that private parties and the speculation isn’t screwing the regular people too much.

This article shows how they failed. It seems Vitol had as much as 11% of oil contracts regulated by the New York Mercantile Exchange.

Naturally it’s becoming a political issue: “It is now evident that speculators in the energy futures markets play a much larger role than previously thought, and it is now even harder to accept the agency’s laughable assertion that excessive speculation has not contributed to rising energy prices,” said Rep. John D. Dingell (D-Mich.). He added that it was “difficult to comprehend how the CFTC would allow a trader” to acquire such a large oil inventory “and not scrutinize this
position any sooner.”

Yes, a speculator can obviously lose money but in a bull market the only sure loser is the end purchaser of the commodity. For this reason, regulators want to make sure that private parties and the speculation isn’t screwing the regular people too much.

This article shows how they failed. It seems Vitol had as much as 11% of oil contracts regulated by the New York Mercantile Exchange.

Naturally it’s becoming a political issue: “It is now evident that speculators in the energy futures markets play a much larger role than previously thought, and it is now even harder to accept the agency’s laughable assertion that excessive speculation has not contributed to rising energy prices,” said Rep. John D. Dingell (D-Mich.). He added that it was “difficult to comprehend how the CFTC would allow a trader” to acquire such a large oil inventory “and not scrutinize this position any sooner.”

We have a complaint about how Disney is trying to maximize profits by making more employees go without health insurance. Ethics aside, is Disney a good investment now?

This article claims that DIS has a wide moat. It’s tough for new competitors to enter the animation market.

I love moats, though as with with Ebay that doesn’t always mean short term success. Disney ought to continue making money (regardless of how well it does cheating employees out of health insurance benefits) but will it outperform the broader market? I’m not counting on it.

This article talks about some of the issues you face finding a home inspector in Pennsylvania, but everyone needs to be careful finding a home inspector. More generally, before you buy a house you really have to make sure you’re not getting screwed.

I know of one case in New Jersey where the sellers cheated on a radon test. The buyers moved in thinking everything was fine but when they went to sell they realized two things:

1. They and their children had been living in a very high radon environment.
2. They would now either have to cheat the new buyers like they had been cheated or they would have to spend thousands of dollars trying to reduce radon levels in the home.

Radon tests are extremely easy to cheat on (too bad they didn’t know that before buying the house) but they chose option #2 and lost a lot of money.

The same people then bought a house on the Jersey shore. Home inspection was no problem when they bought the house but when they went to sell…

Their dock violated some laws and had to be ripped up and rebuilt. $50,000. The electric had to be redone, etc. The previous owner and the inspector had screwed them. It took them about 12 months longer to sell the house than it should have so in addition to that $50,000 they had 12 months worth of taxes and lawyers and stuff.

Plus the stress was unbelievable. These poor people could hardly talk about anything else during that time. It screwed up their retirement plans pretty good.

So anyway, when you’re buying a home you need to be extremely careful. You can get majorly screwed.

Bank of America Chief Economist Mickey Levy told Bloomberg Television that he expects housing prices to continue to decline. “The decline in home prices, while necessary to clear the inventories, is building in expectations of more house-price declines, which is keeping potential buyers on the sidelines.”

I don’t think anyone is arguing with levy but everyone questions when the declines will reach bottom. Most estimates I’ve heard range from 12-18 months. What do you think? When do you expect the housing market to hit bottom? Is real estate better than stocks right now?

Question: Why the uptick in interest rates. I would think with the Fed rate as low as it is, that 30 Year fixed rates would be around 4-4.5%. I see this morning it is around 6.3%.

Answer 1: Short-term interest rates, such as the Fed Funds rate, are rates charged for loans of a year or two or less. Home mortgages, on the other hand, are typically 15-30 year loans, although on average they are paid or refinanced in 8-10 years.

Over the course of ten years the cumulative impact of inflation will be much greater than it will be over just one year. Think about it: if you as a lender are receiving a fixed payment of say $500/month, how much less will that $500 buy you ten years from now than it will today?

You, I and the markets are seeing evidence of increasing inflation every day. It was reported by the government today that wholesale costs for producers and manufacturers increased over 7% over the prior twelve months. That’s signficant.

So when inflation is rising, longer term interest rates rise in tandem to compensate lenders for the risk that inflation will make the future payments they receive worth less.
Several things are going on.

Answer 2: First, mortgages are priced off of the 10-year Treasury, which is yielding 4.25%, while short-term rates are set in comparison with Fed Funds, which is 2.00%.

Second, 10-year Treasury yields have moved up as investors became more worried about inflation, and stopped expecting the Fed to keep lowering short-term rates. The 10-year Treasury yield bottomed out at around 3.30% in March, so it is up nearly 100 basis points.

Third, banks aren’t all that willing to lend, as they work on fixing their balance sheets. Meanwhile, investors in agency debt and mortgage-backed securities, which help set the interest rate on conforming loans, are requiring more of a risk premium over Treasury yields than they did before the credit “bubble” started to collapse last year.

Finally, while the slope of the Treasury curve has flattened recently, it is still a lot steeper than it was last year in the midst of the credit bubble. In other words, investors are demanding a lot higher yield on long-term debt relative to short-term debt than they did a year ago.

Here’s an article on Steve Hoyt, a successful investor in commercial real estate. On the one hand they say you can make good money hitting singles (as opposed to homers) but on the other hand they call the guy an artist:

What I realized quickly was that Steve had the entire discipline related to real estate that I someday wanted to have,” Lund said. “I do think the art of the deal is something unique. You can’t learn that in college. I think most of Steve’s peers would call him an artist when it comes to real estate.

I don’t think an individual investor needs to be an artist to do OK in real estate. As long as you can hit a few singles before your first strike out….

MVL stock might see a little boost if Iron Man continues to rake in big bucks. This is the first film financed by Marvel so its relative success has a bigger impact on MVL profits than previous films.

However, a successful Iron Man may already be priced into MVL stock so there’s no saying for sure if the stock will see a sudden jump.

Interesting NY Times article here about the retailers going out of business or closing stores to stay in business.

Figures released on Monday showed that spending on food and gasoline is crowding out other purchases, leaving people with less to spend on furniture, clothing and electronics. Consequently, chains specializing in those goods are proving vulnerable.

In short, consumers are still spending money - however we spend so much on gas and food that we don’t have much left over for the local shopping mall.