Galt Stock

Independent Investment Research for IRA’s and 401K’s

Nov. 3, 2008

Today was a very quite day waiting on the Presidential election to be over. The Fed Funds rate was cut to 1% last Wednesday, and the LIBOR (London Inter-Bank Overnight Rate) has come down to 4% for 90 day notes, allowing money to flow and lending to loosen. This should increase the money available to invest in the market. 

Oil got cheaper today, other commodities treaded water. Mastercard and Visa lost share price today. Mastercard announced earnings after close of the market and both went back up!

We keep hearing about the large amount of money that is sitting on the sidelines. With mutual fund and hedge fund redemption pressure off the market and money ready to enter we may be poised to have a nice little bear market rally this week.

I entered two more positions today to get a little more money on the table for a nice run. I’m going to get a little greedier for larger gains. Let the winnings run a little longer. I missed a 5% profit on POT this morning. I hope I don’t regret it! 

Today was a good day in the markets. We have 20 positions, our limit, and let all pile on some profits. My trigger finger was itchy to take profits, but I believe it will continue tomorrow. LIBOR came down more overnight. This combined with the money sitting out of the market should provide the fuel to make equities climb higher.

It seems the market has priced in an OBAMA victory. Solar stocks and Ags tacked on ten to twenty percent. Oil was up over ten percent and the dollar fell two percent. Is this the chicken or the egg? As I am writing, there is a talking head on TV telling people to get money out of treasuries and into the market! I wonder if this was the same guy telling people to get out of the market and into treasuries two weeks ago.

The closer the DOW gets to 10,450 or the SP500 to 1070 we need to move to cash or at least have hard sell stops in place on all positions. This will get us ready for the next leg down that I am convinced will come. We went through resistance in the last two days and should continue up.

Tonight and tomorrow should be interesting. 

Now comes the Messiah, oops, the DOW went down 486. The sun came up this morning, but it wasn’t any brighter. We all still had to go out and make something happen. The market opened down 2%, rebounded, then fell again in the first hour. The rest of the day marked water till the last hour, then the water ran over the dam and we dropped another 2 ½ %. We have the government unemployment report coming out Friday; it’s rumored to be bad. If we get a bounce tomorrow it’s time to sell into any strength. I had hoped to do that today; instead I sold POT after it broke through resistance.

I fully expect to have a retest of the lows. I believe it will be wicked fast. Traders have a taste of the profits that can be made if they buy in for the ride. I don’t expect a big drop yet, but that doesn’t mean it can’t happen tomorrow. The buyers are still trying to buy the dips. The real drop will come when the buyers sit back to see how far the market will fall.

It’s time to remember to sell any strength and book your profits. We will get back into cash to buy opportunities.

More low volume and more low prices. The market opened lower then went lower. ADP released payroll figures for their clients. This is used as a predictor of the official non-farm payroll report that comes out on Friday. ADP’s report was not pretty. It projected an official drop in payroll from 160,000 to 200,000. Britain dropped their interest rates 1.5 percent, completely unexpected.  The surprise bumped the dollar and knocked oil, and gold lower. Target and Costco announced same store sales were off in October. Suddenly the news is that people aren’t shopping and retail stocks fell.

Need some more bad news? The U.S. Treasury announced it will seek to borrow $550 billion in the October - December period. This is the highest quarterly borrowing by the U.S. in history, and 35% higher than the $408 billion that was estimated in July. Third quarter borrowing came in at $530 billion. July estimates of third quarter borrowing were $170 billion. So the third quarter came in 311% higher and fourth quarter is projected to be 35% more than projected just three and half months ago. The Treasury plans on $368 billion for first quarter ’09. Sounds inflationary to me.

Oil was down today, but I don’t expect it to last. Saudi Arabia announced additional production cuts. According to the International Monetary Fund, Iran, Venezuela and Nigeria need oil prices above $95 per barrel just to cover their respective national budgets. Saudi Arabia requires oil prices above $75 to cover its budget. Well over half of the revenues of the Russian Federation come from taxes on hydrocarbons. Mexico gets over 40% of its federal revenues from taxes on Petroleos Mexicanos (Pemex), the national oil company.

Tomorrow will probably be a rough day, we’ll be buying with what we have left. 

Today saw the end for GM. They delayed release of their 3^rd  quarter results for about 45 minutes this morning, the market halted trading in the stock until the financials were released. This was unusual, thoughts of a bankruptcy filing or other problems were on trader’s minds. GM warned that without Government financial aid or other extraordinary action they would run out of money after the first of the year. GM is burning though over $2 billion cash every month. What a bunch of idiots, they have enough cash to last 12 months and promise to deliver an electric car in 24 months. Then start building a factory that will not be completed until after they are broke!

The market started up this morning with the DOW ranging from a 100 to 200 point gain, closing on buying pressure +248 in the last thirty minutes. It seems the unemployment increase of 240,000 was already discounted, even though it was worse than anticipated. Today was a day to ignore the bad news and buy anyway. Will it continue next week?

We will continue buying on dips and selling when the market gives us profits. We have opened two positions in our long-term portfolio in the last week. They are CVA and MSFT. They were added on the dates shown on the positions page. We will hold these for long term gains with a 20% trailing stop. 

China     ’s top economic official Premier Wen Jiabao announced a $586 billion economic stimulus plan on Sunday. The plan is to be used to build roads, airports, and other infrastructure. There are also provisions for tax deductions for exporters and aid to the poor and farmers. This action was prompted when China’s growth fell to only 9% in the last quarter, this was the slowest growth in the last five years. Asia’s markets bounced overnight, the DOW opened up almost 200 in the first 20 minutes then tanked closing down 67 on light volume.

Retail sales are coming out on Friday. This ought to be scary. I opened a position in Urban Outfitters last week, great company, fantastic earnings growth, bad sector. We will hold it through Wednesday for earnings announcement. They ought to be good but we need to sell on a bounce. After a sales scare last week from Target and other retailers, the whole sector is in the toilet. It was a dumb purchase on my part; I thought a good company in a bad sector could still shine, wrong.

The other scary political cloud on the markets mind is the G20 summit next week in Washington. This is the G8 plus 12 developing countries. Does anyone think this group has the U.S. best interests in their mind? If a crippled Bush administration does not stand hard, our economy will be abused at this meeting. The strong U.S. dollar is holding down energy, commodities and inflation for us. Britain Prime Minister Gordon Brown, France President Nicolas Sarkozy, and Germany Chancellor Merkel have been discussing changes to the world monetary structure they would like to see the U.S. agree to. They have encouraged the expansion of the G8 meeting to include and extra 12 countries, I believe, to put pressure on us. No good can come of this. The U.S. is an easy a target to blame for the worlds problems.

GM fell by 25% as USB commented that the stock was “worthless”. If the government puts up money the bailout may come with, and GM has offered, warrants that would dilute present shareholders. If you own GM, FORD, or any companies that supply the auto industry you should look for a timely exit. Circuit City filed for bankruptcy today, to late to sell them. 

The market continued trending down from the opening today. One explanation was that republicans were waking up to the ramifications of an OBAMA administration. A Rasmussen poll released today suggested that thesis. I do not know that it matters why there are sellers at these depressed prices, just that there are. Volume was very light because the bond market was closed because of Veterans Day.

Oil and other commodities slid lower. Saudi Armco notified refiners that it would cut deliveries in December below the reduced levels of November. The present low price of oil is lulling us into a sense of security. Now is a good time to look at some oil producer and service companies. I believe the price of crude will start to climb back as soon as we work through the present inventory and mindset that the slowing economy keeps the price down. Remember from yesterday’s post, “China’s growth fell to only  9% in the last quarter”. They are still growing and energy will be back on the front burner driving inflation.

GM and Ford are putting on a full court press in Washington for a bailout. OBAMA’s press secretary gave the press a detailed “leak” about OBAMA pushing Bush to approve assistance to Detroit. I think bankruptcy is the best option, it would let the automakers dump their union contracts and other legacy costs that make it impossible for them to compete. If congress gives them more money, much of it will go to the unions. GM is behind on contributions to retirement and health care plans.

I am a seller on profitable trades. Just like the last 45 days, it is a bear market. Buy on dips and sell on rallies. Good luck. 

Treasury Secretary Hank Paulson had a press conference this morning. He said, "No bailout from the $700 billion for the Detroit automakers". You can buy GM for $2 billion! It would be interesting to see John Galt or Hank Reardon buy the company, slam it into bankruptcy, get rid of the unions and thumb his nose at Washington.

Secretary Paulson announced that the Treasury is not buying distressed assets. Treasury is making direct investments in financial institutions because of the changes in market. We were sold a bill of goods! Remember how if they did not get this bill passed that week, Armageddon would follow? Well it has been a few weeks and they are changing direction on the use of the money. Politics as usual, it makes you wonder if the panic on Capitol Hill and resulting fear on Main Street were engineered because of the election.  

Today the International Energy Agency noted that world oil production will decline at a 9% annual rate from existing wells. Present production levels can only be maintained if Mexico, Venezuela, and other producers invest up to $1.3 trillion a year for the next 20 years in exploration and enhanced recovery. The decline rate can only be reduced to 6% per year with improved recovery, so exploration must make up the difference. Most of these governments are not willing to invest in exploration; they have other uses for their oil profits. Social programs in Mexico, terrorism in the Middle East, military hardware in Russia all take priority over feeding the golden goose. I wonder if Exxon, Chevron and other domestic producers are going to increase or decrease exploration after OBAMA punishes them with higher taxes to pay for our “great social experiment”. Our “big oil” companies are small potatoes compared to the state owned oil companies that control most of the world’s oil. Oil producers may not be the best play, but oil service companies should do very well in the future. 

Today was a wild day on the market. Up, down, up, down and up for the day. Usually it takes a few weeks for the market to move 870 points. Today we did it in seven hours. The DOW dipped under 8000; I sold a position at a loss rather than let it get away from me. Then at noon, the buyers came out. This was probably program trading and short covering. I thought today would be a good day because we had four days down and the market was oversold. Logic would tell us not to expect a rally on Friday, so I sold two positions at a small profit out of the short-term holdings in the last hour.

The rally also coincided with President Bush speaking in New York across the trading floor. The final rally took off as the President began speaking. He warned against government over regulation to cheers from the audience. This speech was aimed at the American public, OBAMA, and the G20 country’s representatives that are coming to Washington next week. His defense of capitalism, free trade, and the free market was refreshing after the last few weeks.

I am working on a new web site. I fear it has distracted me from my duties in this letter. We are bouncing along the bottom. Still a bear buy on dips and sell on rallies!

I hate people that slow down at car wrecks, impeding traffic and causing another collision. This is the time for you to keep driving. What am I talking about? Nancy Pelosi and OBAMA have publicly supported a bailout of Detroit. Paulson saith he cannot use Bailout money; it is only for financial firms. Bush is resistant, congressional republicans are adamant, and a freeway smash up is on the horizon. GM is burning through $2 billion a month; insolvency may be only a few months away. Can they make it to inauguration day? This is high drama. The labor unions gave millions to OBAMA and now the companies where most of those dues were drained from are going broke and the dems cannot get money to them to flow straight into the labor coffers. Paybacks are hell and fun to watch.

The markets were quiet today. Down over 200 at open then back and forth and a final sell off to down on the DOW 337 points.  It seemed everyone had a headache from the party yesterday. Oil and natural gas were down (at 52 week lows), gold and silver were up.      The treasury sold $10 billion this week at a 10 basis point premium to attract a buyer. As our government prints more money and borrows more money the interest rates have no choice but to rise. China doesn’t have to buy our paper. They have a bailout of their own to pay for out of their savings. Bernanke talks of lowering prime, but the cost of funds to the Fed is going to start going up. It’s a great time to own gold and silver. Or it will be very shortly!

Retail investors continue to pull money out of equity mutual funds. Last week had a drawdown of over $30 billion. The week ending 11/07/08 recorded more deposits than withdrawals. This was the only week of greater deposits than withdrawals since July 23^rd   . Investors are making the classic mistake of selling when stocks are cheap only to buy them when they are expensive. Sounds a lot like buy high, sell low. We will continue buying quality stocks at great prices. The market will reward us in the future. As I noted last week the Treasury auction had to increase the interest paid to sell all their notes. The people buying treasuries will suffer again when they try to pull out of these to go back to equities. The bid on lower interest paying notes will be less than face value, so they will have another loss.

Last week was the deadline for investors to pull money out of Hedge funds before the end of the year. Since they are private, we do not know the amount of redemptions.

The market is seeking direction, paddling along until the last ½ hour when it rolled over for a 223 point loss on the DOW. There seems to be a resignation hanging in the air. The stale air is waiting on something to happen that will create a little excitement. Good news and bad news are greeted with more selling. The last little rally we had was in spite of some bad news, so we just need to wait for something to ignite a fire in the pits!

Nov. 18, 2008

Treasury Secretary Paulson and Fed Chairman Bernanke testified before a House committee today. No good deed goes unpaid. While I do not agree with the bailout, it is good sport to watch congress people that cannot balance their checkbook discussing billions of dollars. Paulson and Bernanke were on their best behavior while explaining that the financial bailout money could not be used for auto manufacturers or plumbers.

The market lacks conviction. There is no forced selling, and the buyers are only buying on tremendous value. As the sellers disappear, buyers will have to bid up prices and we should get a rally. If a sell off starts, it could also snowball as sellers try to escape. While retail investors are getting out of the market, the professional investors are nibbling at positions in great oversold companies. RIMM is up over 10% today on heavy volume. The market closed up 151 on the DOW. This was not a big rally, just some late buying in the market but with little conviction. I think tomorrow has a good chance of a rally.

The UAW and Detroit’s Big Three showed up in front of the Senate Banking Committee this afternoon to ask for money from the government. The robbers showed up in three-piece suits and stern faces. I am reminded of why Bonnie and Clyde robbed banks “That’s where the money is!” Everyone needs a whipping boy, and GM’s Wagoner is a good candidate. An economist followed them from the University of Pennsylvania that advocated bankruptcy. He was as welcome as a skunk at a picnic. Everyone at the table looked away, counting flowers on the wall. It looked like a group of teenagers called into the principal’s office. The problem with bankruptcy is that our government has to back up the unfunded pensions and healthcare promises made in labor contracts. We are going to pay either way.

Nov. 19, 2008

We are starting a new Detroit rescue plan today.  I am asking every one of my readers to buy GM stock.   You can buy it today for less than $3 per share.   What a great buy; think of how many shares you can own!   This is our “Investor” Bailout.   If each of us buys $10,000, worth of their stock they might make it and we can continue buying their cars.   Do not worry about losing your money if they go bankrupt, think of all the jobs you are helping to save!   You have very little chance of ever making money on it, but you will have done something good with your money.   This is the decision the congress is making.   For the democrats it is like your brother-in-law works there and gives you money to help with your family budget.   The republicans are mostly from non-union states, some of which host foreign auto plants, and they see your brother-in-law as an unruly thug.   Enough about my family.   Maybe the test for the congress should be if you are voting to grant $25 billion to Detroit, all of your personal retirement and liquid assets must be invested in GM and Ford stock.   Same for the top management at each company.   To avoid any skullduggery they would have to abstain from any vote concerning additional legislation later.   I would go along if they put all of their personal savings on the line.   As they used to say in the old west, “Nothing concentrates the mind like a public hanging”.

The DOW closed @ 7997 lowest since 2003, the S&P500 support is 789 set on 3/14 2003.  The market was led lower by the financial sector; banks are like lepers right now.   If you own them, you don’t want to admit it!   So let’s recap what we have learned in the last week, do not buy banks, automotive, or retail stocks.   Oh, and resources are bad, commodities are no good, and tech is terrible.   The market did not have the feel of forced selling today, just a gradual drift lower.

We shall see what tomorrow brings.

WARNING:     The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.   It may contain errors and you should not make investment decisions based solely on what you believe you have read here.   Do your own research, it’s your money.    If you lose it, it’s your responsibility, not ours or your grandmothers!    The editor may or may not have a position in any securities discussed.   The editor may have held a position in a security earlier, or in the future.