Archive for February, 2009

Expect the recession to get much worse

Saturday, February 28th, 2009

Check out the unsold inventory numbers – Reductions in demand were so steep in December that producers were not able to stop in time. That Inventory will be standing there for quite some time, When the quarter gets re stated in 180 days (like they always do) the decline will have been sharper.

Better (as in more current) indicators of actual economic activity would be found looking at Commercial Rail traffic trends or miles driven. Total traffic is down over 16% y-o-y. That suggests that second quarter GDP will be much worse than 4Q08.

The impact of global declines has not yet fully hit our economy. Only one of several reasons why the “this is good, we will now rebound faster” idea is not sound this time around. Many were surprised when at the end of last year, economic data was not as bad as they projected. Part of the reasons was that the excess inventory problem had not fully hit the market. Expect it to hit soon, and hit hard.

It’s a pretty vicious spiral. Consumers don’t buy goods from stores. Stores have inventory sitting on shelves and warehouses, so they don’t buy from manufacturers. Manufacturers don’t get the capital to produce goods (since no one is purchasing). To make end meets, they lay off workers. These workers (consumers) are unable to purchase goods from stores. Hence the spiral.

Add another dimension – the warehouse concept for retail is built on turns per square foot. If people aren’t buying, each marginal purchase picks up cost per square foot. Lower margins can only last for awhile, especially when leverage has been used to fund the stores. Then, take it a step further in regards to the cost function of the supply chains that are no longer at optimal levels. When you have a system that depends on stability, there is no way to forecast the impact of our present instability.

Sophisticated and large supply chains are narrowly optimized (ODE/PDE) and all the hubs, spokes, trucks, rail cars, depots, warehouses and racks and the people within are built to a forecast demand point which squeezews all excess out of the system within a narrow range of the demand forecast….but change the demand forecast downward in a somewhat significant way and the fixed and semi fixed costs escalate all out of proportion to straight line revenue declines.

Gold to go up 10% in the next 12 months?

Tuesday, February 24th, 2009

Investors are buying record amounts of gold bars and coins, shunning risky assets for the relative safety of bullion amid renewed fears about the health of the global financial system.

The move into gold is being driven by the very rich, with bankers saying that some clients are hoarding gold in their vaults. UBS and Goldman Sachs said last week that investor hoarding would drive prices back above $1,000 an ounce.

Here’s the link from Feb 10, 2009

Citi jacking up interest rates on their credit cards: what you can do to avoid paying 29%

Sunday, February 22nd, 2009

It should be illegal for credit card companies to raise the rate on an existing balance. Rate changes should only affect future purchases. What is going on now is just loan sharking.

One fellow with a Citi rewards card received a notice in the mail last month that the rate was going from 9.99% to 29.99% unless I opted out in 30 days. I couldn’t understand why they were doing this to me, because I’ve never missed or made a payment late.

He called up the company, and the rep explained that the reason for the rate increase was because “its becoming more expensive for them to borrow money”. I opted out on the phone, and paid the balance off last week.

Rather than opting out, you can try to make a deal over the phone. Another fellow with Citi went from 12.99 to 19.99% interest. He called and was able to negotiate 3.99 for the next 9 months.

Other credit card posts:
Travel rewards credit cards

Cramer’s Mad Money stock picks short-worthy?

Friday, February 13th, 2009

Stock picks featured on Mad Money don’t live up to the host’s hype. That’s the theme of this Cramer-bashing article.

According the this article, they’re just following the pack:OTHER CAREFUL, HONEST EXAMINATIONS of the CNBC star showed the same underperformance — including several independent studies by finance researchers, and a 2007 review by Barron’s that found the only way to reliably profit from Cramer’s stock picks was to short them (see “Shorting Cramer,” Aug. 20, 2007).

Anyone else invest in GE stock?

Friday, February 6th, 2009

GE is down to under $11. I bought $1000 worth when it was $19 thinking I’d double my money; however, it looks to have backfired on me. I’m confident that it will recover, but it gets quite depressing seeing you kids’ first car fund (about 10 years off) dwindle away. I’m considering dumping another $1K into it.

Answer: Although the CEO says the dividend is safe, and we’re currently looking at 11% or so yield, I think there’s a bit too much risk w/ GE’s financial business. It’s not out of the realm of possibility that GE will need a bailout that will crush shareholders. And given the discount that some stocks are selling at I really think there are much better buys out there.

I think CSCO is a fantastic company that is taking advantage of the recession nicely to build out their business cheaply. They are a global leader in communications which will only become more integral in the upcoming years. They have some serious growth potential and are a safe stock given their phenomenal balance sheet and huge cash flow.

FSLR is has the best solar technology on the market. They have a great balance sheet and will most likely achieve price-parity first. I really think this one is going to the moon and now is a great time to get in.

Lastly, Alcoa (AA) has gotten absolutely crushed thanks to a perfect storm of plunging commodoties prices and a massive drop of in their business. The stock has gotten absolutely pummeled — just check out a 10 year chart. They will be back and if you can wait it out, you should see a phenomenal return on this.

So those are just 3 quick ones that I really like for the long term. In order of most potential, Id rank them as: FSLR, CSCO, AA. In terms of safest, Id rank them CSCO, AA, FSLR.