Oh what glorious days a big fat rebound brings! Everyone makes money in an up market, and the gloom and doom folk shrink a bit, and all the ads for “safe” investments come out of the woodwork.
I would avoid anything that is popular, especially adds for gold and loan modifications. Although the ads for cars are probably a pretty good deal if you are in the market and not subject to the almost 10% sales tax in Los Angeles.
But on to some good stuff. Can I give you any advice that might add a couple of points to your savings return? Possibly.
Let’s start with interest rates. Short term rates are probably going to stay low since near term economic performance does not appear very strong. While the economy isn’t getting weaker, you can always tell a sketchy situation by “less bad” news being considered good news. On the other hand, I don’t think we can avoid long term interest rate hikes and an inflation spike in the next 3 to 5 years. The government can’t spend like a college teen with a virgin credit card and not pay the price down the road. If you have any long term debt (mortgage, car loan, etc), now is the time to refi and prepare for the worst in a few years.
As for the market, I was forecasting 9000 on 12/31/09 and I’m still standing by my story. That means we’ll be fairly flat for the next several months but probably in the form of moderate volatility. Here are a few events that could increase volatility:
- Obama-care
- China backing away from treasuries
- Iran / Iraq (not necessarily with each other) political issues
- N Korean hostility (could the ill Jong-il get nuke happy on his death-bed?)
- Bernanke replacement (it couldn’t be much worse, right?)
- California default (no really, maybe in 2010, ala NYC)
There are probably others, but these are currently on the brain. As for equity opportunities, I’m bailing on all my holdings related to consumer banking. (this includes XLF) The new credit card regulations combined with pending additional legislation are going to put a big crimp in the consumer credit profit machine. I expect increased fees and rates, but the short term could get very choppy. Advanta just closed down their entire credit card division. I expect poor earnings in this sector which will pressure firms such as B of A and Chase.
I’ve stopped accumulating DOW. With a 120% increase in share price combined with some modest dividends, I’m happy with an exit over 20. The company will benefit form any increase in construction so I’m not necessarily selling yet, but if I see opportunities I will begin to distribute shares as it nears 30.
I still really like MCGC and expect it to double from the current position. If you price-averaged into a sub $2 position you are sitting pretty at this point. The firm just released their management bonus structure and it doesn’t kick in until $5 per share. They appear to have solved their near-term cash issues and they do make money easily.
There are two small M & A plays worth looking at. One is ENPT which is a family business going private. There’s not much to be made here, but the delist price is $2.50 and it is trading at $2.40. The shareholder vote for the delist is in Aug and would take effect almost immediately after approval. I expect approval and delist in weeks. 4% isn’t a huge return but not bad when annualized. The only risk is not getting an adequate poll from the shareholders.
The next M & A play is a bit more typical and exciting. CYCL is a cellular provider being purchased by AT&T. The offer is at $8.50 and the current price is $7.40. The acquisition was announced last year and most opportunistic traders don’t have a stomach for delays in closing. In reality, this deal is probably in the bag. The total is less than $1B which is a smallish transaction for the big T. The delay to a Q3 close is due to the FCC and DOJ not providing approval promptly. But I don’t think the delay has anything to do with anti-competitive concerns. CYCL is too small a fish, even in Puerto Rico where a combination with AT&T would hold 40% market share. The delays are most likely due to the administrative turnover from Obama’s team. Most of this teams are still operating with skeletal staff since he can’t seem to put his full administration in order. I expect an approval and a jump to $8.40 the day after approval. I would expect more news in late Aug or Sep.
I’m quite bullish with my old SFL. I think the improvement in credit markets combined with a stable oil price will show us some nice numbers from our Scandinavian friends. I’m also bullish with ARLP who is really going to hit a homerun if anything looking like a clean coal power plant comes to life in the US. (dozens are on the floor for approval)
At some point retail will be in vogue and when it does I’m looking at my favorite CHKE and the all powerful VFC to plow the way. Both are near highs for the year.
More to come, so stay tuned…
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