May 2008

For Ayn Rand fans:

"But you say that money is made by the strong at the expense of the weak? What strength do you mean? It is not the strength of guns or muscles. Wealth is the product of man's capacity to think. Then is money made by the man who invents a motor at the expense of those who did not invent it? Is money made by the intelligent at the expense of the fools? By the able at the expense of the incompetent? By the ambitious at the expense of the lazy? Money is made by the effort of every honest man, each to the extent of his ability. "   

~ "Atlas Shrugged"

The Professional Opinion

S&P 500 Index: 1385.59


There have been no bear markets during election years since WWII.   There have, however been three market corrections  in both major indexes during that time.  These were in 1960, 1980 and 2008.   The first two were brief and mild.  The 2008 correction is expected to be brief and mild as well.

Economic stimulus packages during election years are not designed to benefit the citizenry at large, but to try to ensure the re-election of incumbents.  This one is no different.

The fed is doing all it can to stimulate the economy and it is doing an ok job.  CPI inflation is coming in at 3.2% and core inflation  now measures 2.1%.  This is consistent with a fed doing what it can to keep the economy going.

Buy on weakness when the S&P 500 registers in the low 1300's.

Economic Outlook

First quarter real GDP came in at .6%, which is about the same as the last quarter of 2007.  The 2009 numbers are expected to come in a range of 2-3%

Jobs figures are expected to remain weak and the housing slump is not yet over.  Median home prices have declined 7.7%.  Inflation adjusted, that  is a decline of over 11%.

US exports continue to be the shining star in an otherwise lack luster economy.

One positive aspect of this is the strong demand for US exports in part fueled by the weak dollar.

Earnings and Sentiment

A PE of 16.5 to 17 applied to earnings going forward is a reasonable assumption.  The economic recovery should be evident in the second half of 2008 and new highs in the index will be achieved in 2009.

The Put-Call ratio continues to promote a bullish sentiment.

'We include the put/call series as one of the may tools available to measure stock market sentiment.  Investors can purchase put options in order to position their portfolios for a stock market decline, or to hedge existing positions against  a decline.  The key point is  that when investors purchase a high volume of put options relative to call options, the stock market has a decided tendency to advance in the face of such widespread bearish sentiment and to climb the proverbial Wall Street wall of worry.'

Bob's sentiment index is solidly bullish territory. He views the market as attractive for purchase.  Buy on weakness.

The Fed

The result of Fed's easy money policy will take several more months before results become evident.  There is generally a six month time lag between a fed interest rate move and  the results which show up later.


No changes to portfolios.  


The financial news media should be ashamed of themselves with their ongoing attempts to scare the pants off investors.  Bob maintains a positive outlook for the market and expects to see the S&P 500 reach new market highs in 2009 with the mid 1600's as the target. There may be more probing and testing of the recent market lows, but he views that as unnecessary in order to reach new market highs.

Big Horns - Courtesy of Pete, Up in the Yukon
I heard the other day from Pete, who reportedly lives in the Yukon.  He said while he thought my Yukon Travel series was quite funny, he did have some objection to my depictions of the Yukon in general.  He offered up proof that there is more to the Great White North than tar sands and power plants.

I have reservations............. looks more like Montana to me.

~ Just Kidding 

Personal Portfolio
YTD Return
GE How do you promptly shed 10% of your share value? 

Say one thing and do another.

I didn't think GE would pull a stunt like that.  They did.

Weeks prior, GE's CEO  was out saying quarterly results were
'In the Bag', another great quarter, blah-blah-blah. 

Even though GE still made something like eight billion dollars, it didn't quite live up to analyst expectations.

Speaking of diversification,  I heard another Calpine story the other day. This individual worked at one time for Calpine and once had over 200K worth of Calpine Stock.

He rode it all the way down with the expectation that Calpine's fortunes would reverse one day.

His first clue that something was seriously amiss was when he got a call from the broker saying the value of his account was below the required

He called to see what was up because he saw Calpine at 16 and change on the stock ticker.

What he didn't know was that when Calpine exited bankruptcy, his existing shares were retired and rendered worthless.

~ Poof ~

Diversification - Can't beat it with a stick.

The month of April was quite an improvement over the previous months.  The best and worst performers were individual stocks.   A strange spread.

The low budget stocks performed quite well this month:


I started selling in the mid 4's and stopped in the mid 5's, substantially reducing my position.  I think the stock is going to end up sinking again and there will be more buying opportunities later on.  They just don't have the sales to justify the stock price.

I was seriously looking at increasing my position in Silicon Imaging (SIMG) prior to their earnings announcement but didn't have the $$ to buy more.

The sale of RNIN provided that.  My theory on SIMG was that they were probably going to end up earning less than last quarter but perhaps they would earn more than what the analysts expected and give the share price a boost:


I bought some more shares the day prior to the earnings announcement.  Turned out to be a good bet.  I think it is worth accumulating shares in this company and if you average in on the dips and don't expect to make a fortune  anytime soon. You could be quite pleased with yourself a year or so down the road.  Also, since SIMG seems to be leading the pack in standardization, you might like to skip down a bit and have a look at this.    

I didn't quite know what to make of the conference call, but on balance I thought it was positive.  The SIMG conference call is here.

I wonder if this is a precursor to what the semiconductor index is going to report later on in the week.   Might be worth keeping an eye on the quarterly numbers.

Does this look familiar?  BSC maybe?

Ambac Financial

I thought Ambac's shares were certain to take a hit after their earnings report so I sold the shares I owned a few days earlier and took the loss.   Good thing I decided to do that - would have blown through any stops I  had.

The after-hours trades on Ambac prior to their earnings release were not looking pretty. When the stock hit three dollars and change, I decided to buy up a bunch of shares with some of my RNIN and Ambac proceeds.'s a bad habit and this one was hard to resist.  

If the stock doubles from here I can easily recoup the losses from my prior sale of Ambac, which was a 35% loss.  Hard to say which direction this one is going from here.  I will continue with my 'Too Big to Fail' theory.


I got up early one morning and was listening to the usual recession blather on Squawk Box.  One of the guest hosts, a fund manager, was asked what impact he thought the 'Economic Stimulus' checks would have on the economy - what people would buy.

He said that if you were on the lower end of the rebate spectrum, what you would get would be just about enough for a 32" flat screen tv.
People on the upper end would get just enough for a 42" flat screen and therefore he was recommending a couple LCD screen manufacturers.  SIMG and HDMI also come to mind...........

The show hosts were too polite to laugh him off the set but I got to thinking about it and the man might just have a point.  Heck,  for the last couple months we have been looking at flat screen tv's and trying to figure out how to fit one in our entertainment center without destroying it or getting another (we really like the entertainment center).

I took did an informal poll around the office.  Those that didn't have flat screen tv's had them on the list.  I'd say the importance of them getting one in the near future was about 50-50.

Here are the two manufacturers:


How to Establish a DRIP plan.......or.........Thank You Sir!  May I have Another!

Illinois Tool Works

If you ever want to experience sadomasochism and haven't, try establishing a DRIP plan. The holding company is Sado.  You are Masochist. Ever since my drip plan in Compass BancShares was retired because Banco Bilbao Something or Other bought them out,  I have been meaning to establish another but have not been able to psyche myself up for the six months of misery (Masco) it is probably going to take to do so. I finally decided to buck-up and give it another try.  This will probably end up being fodder for my financial page for months to come.

The first item of business is to determine who is holding the DRIP plan and pray to God it is not Stock Bank of New York.
I am no idiot when it comes to Internet searches but damned if  I could find anything on ITW that I could trust.

I went to Illinois Toolworks' web site and of course there was no information there either. There was a phone number for the  company so I decided to give them a call. A secretary picked up on the first ring. Not the voice mail hell one would normally expect.  I told the lady  what I wanted. She was very chatty and said she was enrolled in the DRIP plan herself and had money deducted every month from her check.

Wonderful! Could she direct me to someone who could help me out? 

Sure! - a company I never heard of. She also provided a phone number.

I asked here why the information was not on their web site and she didn't know. She wondered that herself.

Armed with this information, I called ComputerShare and actually got someone on the first ring.  I explained what I wanted and he asked me if I had any stock. I said yes, I had three shares of ITW in a Schwab account . He told me all I had to do is call Schwab, give them a DTC number and Schwab would take care of the rest.

I called Schwab and explained what I wanted to do.  The guy on the phone spent the next half hour telling me that if I wanted more ITW shares, I could buy them from Schwab and have the dividends reinvested in more ITW shares. I said several times that no, I did not want to do that. Buying shares from Schwab costs about $13.00 a trade.  A transaction fee at ComputerShare costs $1.50.  Big difference. I got
irritated and hung up.  Schwab usually has good customer service.

Anyway, I called the ComputerShare guy back and asked if he would send me the registration forms.  I said he couldn't do that until I proved I owned the shares, and the way to do that was to have them taken out of the street name. Did he mean I had to have a share certificate issued?  Yes, either that or give Schwab a DTC number.  I asked him what the DTC number was and he gave me one different than the one before.  I gave up.

The following day I called Schwab and got a different guy.  I told him I wanted a share certificate issued for my three shares of ITW. He asked me if I really wanted to do that for three shares because the cost was around $50.00.  I told him to do it. It would take a couple weeks.



While I am sitting here twiddling my thumbs waiting for a share certificate, I might as well point out a few things I look for when deciding I really do want to go through the agony of establishing another DRIP plan.

The first two things I look at are the dividend payouts and the share price.  ITW has regular payouts and the share price has been slowly increasing over time. 

I look at the minimum purchase required. $100.00 is reasonable.

The minimum shares required for purchase is 1.  I can live with that.

It only costs $1.50 for automated monthly purchases which is very affordable. The fact they have automated monthly purchases is a plus unto itself.

How much of a sales charge do you wish to pay?  

Buy $100 of stock and the fee is 1.5%
Buy $200 of stock and the fee is .75%

How often is a sales 
charge determined by you and not the vendor?  Rhetorical question.

There is no fee for reinvesting dividends.  Some plans charge for this.

ITW looks like it is worth the grief.

I suppose a new reader might wonder why I bother with DRIP plans at all, given my mildly negative opinion of the enrollment process.

Cost.  It's that simple.  You keep more of your money.

There are not many options left when it comes to tax efficient ways to save and invest outside of tax privileged accounts.  Dividends are currently taxed at 15%. You can't do any better than that.

Another way to keep costs down is index funds which use the major indexes. Index funds don't do a lot of selling.  Selling generates capital gains and they get passed through in the form of distributions which is usually at a higher tax rate.

Mutual funds whether or not they are index funds, all charge yearly fees whether they make you money or not.  They still get their cut at the end of the day.

Drip Plans once you buy the shares, cost nothing at all - other than the 15% tax on reinvested dividends.  I suspect this is why it is so difficult to get into a plan. Financial institutions are not heavily vested in altruism.

What are the odds that by the middle of May I will be holding in my hands a stock certificate for three shares of ITW?

Given my luck with the process I would guess 60-40 against.

ComputerShare's number is 1-888-829-7424 if you are not faint of heart.

To be continued....