Optimistic Monday
Research for Online Investors

by John Dalt

9/26/11

We are greeted by a rally in the market today after some tentativeness at open.  Traders were encouraged by the G-20 Finance Ministers and IMF meeting this weekend in Washington, D.C.  Inspectors are going to return to Greece this week.  They will confirm progress by Greece to meet requirements to receive an 8 billion euro tranche of funding in the next two weeks.

A Greek official told Reuters the IMF had requested a written document of what measures the government had announced to meet requirement of the IMF lending program.  The BBC reports there is widening acceptance of a Greek default.  The challenge then is to recapitalize European banks that hold Greek debt and increase the size of the European Financial Stability Fund (EFSF) to give bureaucrats the firepower to defend Italy.

Votes to increase the EFSF are scheduled this week in Slovenia tomorrow, Finland on Wednesday and Germany on Thursday.  Unanimous approval by all 17 countries is required.  To your editor, that is almost impossible.  Finland’s newly elected government ran on a platform of limited bailouts.  Finland asked for collateral from Greece last month.  Who believes they are going to increase the amount of money available to bureaucrats in Belgium?

One plan discussed is to “leverage” the present EFSF four or five times by borrowing money from the European Central Bank.  This would dramatically increase the risk to contributing countries.

The rally in the market today seems encouraging…but I am not buying.  The next few days could see significant bad news for the eurozone financial system.

This morning before market open Warren Buffett announced that Berkshire Hathaway (BRK) would have an open ended share repurchase program out of cash on hand.  This is the first time BRK has repurchased stock.  Buffet had mentioned the possibility of a stock repurchase in 1999, but it was never initiated.

BRK will buy back stock when the price is within 10% of book value.  The company had over $47 billion on hand at the end of the second quarter.  There was no commitment of the size of the stock repurchases to be made, but the company said they would not reduce cash below $20 billion.  BRK/B shares closed Friday at $66.37 and have traded as high at $71.46 today on heavy volume.  Book value of “B” shares was $65.81 on 6/30/11.

The high frequency traders are at work…front running your orders and making a penny or two.  The stock is now at the high end of the repurchase price; do you think Buffett is going to pay at the high end?  Relax, wait and buy it when Warren is buying.

An interesting note, Warren Buffet values a company on ‘Book Value.’  Do you value your ownership in stocks at the company’s book value or by its stock price?  Book Value is Assets minus Liabilities.  Simple enough, but too often forgotten.

We wonder how much of the volatility in the stock market would evaporate if investors paid more attention to ‘Book Value’ and less to stock price.

The tech heavy NASDAQ is down 14.1% since putting in a secondary peak in July. Today's chart presents the prevailing trend of the NASDAQ. As today's chart illustrates, the NASDAQ has been and continues to trade within its 17-month trend channel. However, the recent selloff has brought the NASDAQ down near support (green line) which is currently being tested.  Apple has been under pressure today on reports of slowing orders to suppliers for iPad parts.

The index bounced off of support this morning and has moved above the lower trend line.  This is another area of support to watch over the next few weeks.  This area of support will work, until it doesn’t.

Chart courtesy of www.chartoftheday.com

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 is your money.  If you lose it, it is 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.

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