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Monday, January 31, 2011

Obamacare Falls

today's decision by judge Roger Vinson holding Obamacare unconstitutional is a major blow to the proponents of that statute. the judge held the individual mandate to be beyond the power of the federal government and also held that the mandate was so intertwined with the rest of the law that the whole thing has to fall. Accordingly, he declared the entire law invalid as unconstitutional.

The feds are obligated to obey this ruling, although they will surely appeal it. During the appeal, there will likely be a stay of the effect of the law. Nevertheless, this is the first court that struck down the entire law.

Having read all four decisions to date, I have to say that in my opinion, the anti-Obamacare forces have the better argument. My opinioin, however, will not matter to the Supreme Court. My guess is that there is a 5-4 decision down the road determining the fate of Obamacare once and for all.

The Debt Ceiling

Yesterday, I saw Speaker of the House John Boehner say that it would be unacceptable for the USA to default on its debt as a result of the failure to raise the debt ceiling. While this is undoubtedly the correct answer, I was still glad to hear him say this. Some in congress, like Michelle Bachmann are still pushing for there to be no increase in the debt ceiling. This is an unrealistic position since there is no way to increase revenue or decrease spending sufficiently to end the deficits in the next two months. Even were the most stringent spending controls put in place, there is no way to end the deficits for the next few years. Bachmann's position is just plain irresponsible. Nevertheless, it does serve the purpose of keeping the pressure on those like Obama who think that spending just continues no matter what the public thinks or the economy does.

Sunday, January 30, 2011

What was Hillary thinking?

I watched Hillary Clinton on Fox News Sunday and asked myself what was she thinking. She looked like she had been awakened by that three AM call that she had in her ads and had never gotten back to sleep -- for three days. I realize that I will be called sexist for pointing out how bad she looked, but so what. She looked truly awful.

The mystery of it all

If you follow the news like I do, you should be reasonably well informed about what is happening in the world. So, I am going to give you a quick four question quiz.

1. What event set off the demonstrations in Egypt?

2. Who is the new President of Tunisia?

3. When will the USA allow drilling in the deeper waters of the Gulf of Mexico by American companies?

4. What federal programs have been marked for reduction by president Obama?

If you answered I do not know to all of these questions, you could report for the media. There probably is an answer to the second question, but questions 1 and 3 are what I like to call definite maybe's. In other words, no one knows the correct answer. The probable answer to number 4 is NONE, but again, no one knows for sure.

I guess these are just some of the mysteries of the universe. Or as they might say in the movies: how did the riots in Egypt start? No one knows, it's a mystery.

Saturday, January 29, 2011

Investing and Egypt

So the people (or at least some of the people) of Egypt are in the streets protesting/rioting against the rule of Hosni Mubarak. The government of Tunisia was just overthrown in the same manner. There is rioting in Yemen. Maybe the Saudi royal family will be next. In short, there is an extreme amount of uncertainty being injected in the world economy. Tunisia and Yemen we can deal with, but Egypt (and Saudi Arabia) are key parts of the economic and political order of the Middle East. No one knows what Monday will bring. Maybe Mubarak will have managed to bring down the anger level so that he will survive. Maybe there will be a new democratic government headed by Mohammed El Baradei, of atomic bomb control fame. Maybe (God forbid!) the Moslem Brotherhood will be in charge in Cairo. That's the point; no one knows.

All of this has a bad effect on the world's stock markets. Investors hate uncertainty and they flee from it towards safety when it rears its ugly head. Just imagine! What if the Suez Canal gets closed and world oil prices spike by 50%? What if the radicals take over in Egypt giving the terrorists a truly major country to help them? What if Saudi Arabia with all of its oil is threatened?

Anyone who invests in the stock market needs a strategy as to how to deal with this eventuality. So what should the strategy be? In my view, it is a two part one.

First, one needs to decide how severe the threat to the economy truly is. Obviously, if one expects a total disaster, one needs to get out of investments that will tank in that event. Right now, however, it is premature to assume the worst, in my opinion. So that takes us to the second point.

Second, one can put money into highly leveraged hedges that will protet portions of ones portfolio in the event of a decline. There are four basic types of hedges that I would suggest. The first is buying something that will go up as the stock market index goes down. My favorite investment here is options on SDS, Proshares Ultrashort S&P 500. SDS goes up by twice the amount that the S&P 500 goes down. For example, if the S&P declines by 3%, SDS should go up by 6%. In order to leverage this position further, one can buy calls on SDS. This makes the return on investment much greater. For example, at the close on Friday, SDS was selling for $23.01. If there is the same 3% drop in the S&P, SDS will go up 6% to $24.40; at the same time, however, the February 23 calls would rise from about 78 cents to something like $1.55 -$1.60. In other words, an investment in SDS calls would double on a 3% drop in the S&P. What this means is that a small investment in SDS calls can offset a widespread drop in your other holdings.

A second protective investment is to buy options on treasury interest rates. Frequently, when there is trouble around the world, investors flee to the safety of US treasuries and drive the interest rates down. My favorite investment here are puts on TBT, Proshares Ultrashort 20+ year treasuries. TBT is a fund that rises twice as fast when interest rates on long term treasuries rise. That means that it would decline were there to be a rush to the safety of treasuries. Accordingly short term puts on this stock would rise very quickly in that event. Obviously, given the state of world markets, US Treasuries are no longer the haven that they used to be, but they still remain the most likely place for investors to park their funds for safety, so the TBT puts seem like a good hedge right now.

A third protection is gold. There are many reasons people buy gold. One of the oldest is that it is a store of value in times of economic upset. This was apparent Friday as gold went up nicely after a long period of decline even as the rest of the markets were falling. Here too, I think that options on the gold exchange traded fund GLD is the way to go. GLD closed Friday at $130.28, up a little over $2 for the day. with this small percentage movement, however, one can still obtain big protection through the use of options. The February 19 calls with a 130 strike price closed at $2.27. The prices indicate, however, that a $2 rise in GLD would lead to a 50% rise in these options. So, here too, a small investment can be used to offset possible losses on the rest of ones portfolio.

The fourth protective investment is a much more general one: writing covered calls on one's holdings. For example, say that you own stock in Corning which closed at $21.80. If you bought it at $19.32 when I recommended it a month ago, you have a profit of $2.48. If you write the March 22 calls, you could take out 76 cents, or about a third of that profit. If the market declines, you get to keep that 76 cents. On the other hand, if the market rises, you have agreed to sell the stock on March expiration for $22 plus the 76 cents. that means that you have capped your gain at $3.44 for the investment. Given the protection that you gained, this seems like a good deal to me.

You can use one or all of these methods to protect your portfolio. To be sure, none of them will be adequate to protect you if there is a disaster like there was in 2008. For smaller gyrations, however, these methods can certainly smoothe out the bumps.

For the first three methods, there is a clear up-front cost. I view that cost as if I were paying an insurance premium. I would rather not recover on the policy even though I am glad I have the protection.

WARNING: Most of these strategies are highly leveraged and need constant supervision. You have to decide for each when it is time to cash in or to close out the protection. They are not fool proof methods, either, since the market frequently has a mind of its own. They are methods, however, that a skilled trader can use to great advantage. If you are initerested in any of them, please do your own due dilligence to determine if they are right for you.

Disclosure: I have and am currently using each of these methods.

Friday, January 28, 2011

Obama's Statement on Egypt

So I watched the president make an "important statement" on the situation in Egypt. All I can say do now is to quote the song, "Is that all there is?" It seems as if Obama made his statement because there were folks clamoring for him to make a statement. Of course, he really had nothing new to say. What was the point?

What Bump?

Ten days ago, I wrote about the approval ratings for president Obama. Some on the left were announcing that Obama had resturned himself to the country's good graces with a meteoric rise in his approval ratings. I went through the Rasmussen daily presidential approval poll numbers to point out that there had not, in fact, been any change over time. Well now it is ten days later. We have had the State of the Union address with all of the hoopla that accompanies it. Obama should have gotten his bump in the polls. So where is he? As of this morning, the Rasmussen numbers show 49% approval and 50% disapproval. That compares to a 48-51 split ten days ago. In other words, there is no statistically significant change.

Is anyone truly surprised?

More on Egypt

I got an e-mail from a reader who tells me that he believes that the merits of democracy and capitalism will win out in Egypt. I certainly hope so, but I am just not sure that the future here is rosy. Egypt has never been a real democracy. Elections have been held, but the winner was always preordained. The same is true of the economic system; the people in Egypt do not have any experience with a truly free economy. The initial dislocation that would come from such a change would be enormous and, in an era of mob rule, hard to sustain without forcing a change of course.

Egypt has been the most important coutry in the Arab world certainly for the last century. If the terrorists decide to make a move there, it will have bad consequences for the entire world. Let's hope that whatever the resolution in Cairo, it does not lead to an opening for terror.

The Fog of Egypt

I have now read countless articles about the rioting in Egypt and I am left with one major question: what exactly do the rioters want? In fact, do the rioters actually want anything in particular? In each article there is a description of the causes of the riots, although it seems to me that these causes are more the opinion of the author of the particular article rather than any information gleaned from the rioters. Other than the riots being anti-Mubarak, however, no one has put forth a clear explanation of what is desired.

I believe that this is more than the so-called fog of war. It seems to me that there is no clear leader or organization to these riots. That makes them doubly dangerous. If the rioters succeed in bringing down the government, the most organized groups in the country will then be those like the Moslem Brotherhood which are strongly Islamist. Egypt could be lost to the radicals on the backs of a revolt that had nothing to do with them. It would be like the October Revolution in Russia when the tiny Bolshevik Party took over through better organization after a popular uprising against the Tsar. That led to seventy years of Communist control.

The Obama Administration seems on the surface to be treating the problems in Egypt the same way that the Carter Administration treated the uprising against the Shah in Iran thirty years ago. We are hearing calls for "reforms" etc. from the White House. Carter actually promoted the Iranian takeover by the ayatollahs, albeit unintentionally. Let's hope Obama does not do the same in Egypt.

The stakes here are sky high. Were Egypt suddenly to become a radical Islamic center, the whole balance of power in the region would shift strongly against US interests. Indeed, the world would pay a steep price for such an event.

Thursday, January 27, 2011

Fox, Beck and the Rabbis

For the last two days, I have been following the story of the group of rabbis who took out an ad in the Wall Street Journal to call for the censure of Glenn Beck by Fox News for his "attack" on George Soros and his repeated comparison of government officials to Nazi's.

I wonder if the rabbis actually watchthe Glenn Beck program or if they just signed onto the ad based upon what they were told. I happened to have watched the shows about George Soros. On one of the, Beck reported that during World War II, Soros, who was Jewish, hid with a Christian family in his native Hungary. As a result, he often accompanied the man who sheltered him to work. That man had the job of going around to Jewish homes to confiscate property from the Jews. Beck remarked that it must have been terrible for Soros to have to go to assist in taking property from his fellow Jews.

The rabbis argue that Beck is insensitive in his treatment of Soros who was just a teenager and is a holocaust survivor. They miss the point. Beck was not criticizing Soros for what he did to survive. Beck was pointing out how terrible it must have been for him.

These same rabbis also claim upset when Beck compares governmnet officials to Nazi's. Again, they must not watch the show. Beck does not use Nazi's as a description of any current US government officials. That came from the left during the Bush Administration. I am sure we all remember the Bush/Hitler signs and the like. No, Beck talks frequently about tactics used by Nazi's, Bolsheviks, Chinese Communists, Khmer Rouge and other totalitarian movements. One point that he frequently makes is that Nazi propaganda was modeled after the practice developed by the administration of Woodrow Wilson.

In short, as someone who frequently watches the Beck program, I think the claim by these rabbis is ridiculous. Indeed, according to Roger Ailes of Fox news, these rabbis are funded by George Soros. so Soros is trying to use his status as a holocaust survivor as a shield in current political discourse. As far as I am concerned, these rabbis ought to be upset about that.

Let's be clear. The Holocaust was an unspeakable evil perpetrated by the Nazis. It is not something to be used for political gain. And that means it is not to be used by ANYONE even a survivor like Soros. Nevertheless, the holocause and Nazi methods are not thereby rendered a taboo subject. That would just be another step down the road towards a world where political correctness wins over truth.

The stock for February – Kulicke & Soffa Industries

My stock pick for February is Kulicke & Soffa Industries (symbol KLIC). K&S designs and produces capital equipment used to make semiconductor devices. It specializes in ball bonders, devices used to connect very thin wires. It also makes a large variety of other tools used to assemble semiconductor devices. The health of this company is directly tied to that of the semiconductor industry as well as the large users of semiconductors. Given the great upsurge in investment in equipment with semiconductors, K&S seems a natural place to invest.

Looking at the stock from a valuation standpoint, K&S is a standout. Right now, the estimated earnings for the fiscal year that ends in September of 2011 is 91 cent with the following year estimated at $1.26. These estimates have been rising recently as the fortunes of the semiconductor industry have brightened. At the close today, K&S was trading at $9.47 for a P/E of about 10 on this year’s earnings. For a stock with a projected growth rate in earnings of 38%, this is quite low. The market is exacting a penalty on K&S for all of the ups and downs of the past; K&S’s earnings have been volatile to say the least. Right now, however, the future looks bright as much of the world’s industry rushes to make up for the last few years of low purchases of equipment; this modernization wave looks to push demand for K&S products for quite some time into the future.

The company is coming out with first quarter earnings on February 1, so there will be a confirmation of how well it is doing in just a few days. If these earnings are in line with expectations, it should reinforce those in the market who believe in the future of this company and depress the skeptics. With a few more quarters of good earnings, there is no reason why the multiple cannot expand to 15, a move that would bring the stock price up to $13.65 or higher.

K&S is a high risk stock in my opinion, so it makes sense to use options to reduce the risk associated with it. Right now, one could write the april 10 call for 60 cents. That reduces your breakeven point on the stock to $8.87 (assuming a stock purchase at $9.47) and it caps your profit potential at a gain at the annualized rate of just over 50% if the stock is above 10 on April expiration.

My suggestion would be to buy the stock and write these calls for half of your position.

Disclosure: I am long the stock and have written both calls and puts in connection with that position.

Wednesday, January 26, 2011

The last word on SOTU

I have now read the commentary about the State of the Union from the panoply of pundits that make up the American commentariat. My favorite column came from Ed Kilgore at the New Republic who opined that the speech was a carefully set trap for the GOP. According to Kilgore, Obama simply repeated almost all of the mundane semi-centrist ideas for growing the economy by government action that have been put forth over the last twenty years. He also discussed bipartisanship at length. So, says Kilgore, when the GOP resorts to its "manaical" additiction to cost cutting, it will look like Obama is the moderate who wants to grow the economy and the GOP are the crazies who favor nothing but reducing the size of government no matter what the cost to the people. Kilgore also thinks it was brilliant for Obama to be silent about the need to reform entitlements, thereby putting the burden for this subject on the GOP.

I like Kilgore's comments since they reveal both the moral and intellectual bankruptcy of the progressive movement. Kilgore looks at Obama's speech as a political tactic, not an exposition of what would be a good course for the country. The only goal for obama and the left is maintaining their power, not doing right by the country. Indeed, it is not that often that on sees an admission of this fact so clearly in print coming from a certified liberal source like the New Republic.

State of the Union

So now we have seen the State of the Union speech by president Obama. Quick, tell me which are the items for which Obama wants to cut spending. My guess is that if you ask 1000 Americans who watched the speech, over half would not know and a quarter would suggest that he was cutting spending for Sputnik. To say Obama was short on specifics is like calling the Antarctica short on warmth.

We did hear Obama repeat his call for a freeze on discretionery spending at the same time that he called for doubling down on things liek high speeed rail and wind energy. He never explained how one freezes spending at its current excessive levels while adding spending to his favored projects while moving towards a balanced budget.

The truth is that we have now seen proof that Obama's move towards the center was just public relations put out there to use in his re-election campaign. There are going to be big fights in the coming year over the level of spending. If the House GOP holds firm, there will be nothing that Obama and the Obamacrats can do to get keep the level of spending up at current levels. For the sake of the future of this country, let's hope that the Republicans can hold on.

On another front, I thought that Obama's detailed explanation of the paradigms that guide his foreign policy was thoughtful and informative. Actually, I just wrote that sentence to see if you all were paying attention. Once again, Obama wasted a chance to explain his overall view of where US foreign policy is going. We seem to be drifting aimlessly, carrying out pieces of an uncoordinated policy designed on an ad hoc basis.

One last note: Because of the nature of Obama's speech, even the AP ran a column in which they did a fact check and found the speech wanting. If Obama's has lost the AP, he is really in deep trouble.

Tuesday, January 25, 2011

Olbermann in the Senate?

After the Hill published a story that certain liberals in Connecticut were trying to entice Keith Olbermann to run for the senate from Connecticut to replace Joe Lieberman, I was asked to comment on this possibility. The truth is that there is not much to say. The people of Connecticut are too intelligent to ever pick a purveyor of venom and evile like Olbermann to be a senator. Beyond that, I doubt if more than ten percent of the state has even heard of Olbermann. there is no reason why Olbermann would have much of a chance of winning in Connecticut. So for now, this story is just so much hot air.

Armanino Foods of Distinction -- It just keeps rolling along

Of all the stocks about which I have written on this blog, none has gotten as much attention from me as Armanino Foods of Distinction (AMNF.PK). Like most stocks that trade on the pink sheets, Armanino does not give out enormous amounts of information that would make it easy to gage exactly what is happening at the company. My view of the future of this company is instead based upon the past performance of the long-time expert management and the previous results that they have achieved. Quarter after quarte, Armanino announces record earnings and/or sales. The dividend keeps being raised year after year. The geographic base of the company's market is growing. Management has said that there are a number of new product initiatives that either just came to fruition or are about to do so. And now, for the first time in recent years, there is serious buying interest in this stock. Indeed, the stock is up over 10% so far this year after rising by over 50% in 2010, and the volume continues to climb.

Earlier today I discussed with a colleague whether or not it made sense to reduce ones position in Armanino to take profits at this point. My colleague thought that with the price rise in the stock, it made sense to cut back his holdings by about 20%, and he has done so by selling in small amounts since the stock went past 70 cents. I disagree. In my opinion, Armanino is still undervalued. By any conservative account, it should earn at least 9 cents per share in 2011 which makes the current multiple about 9. Given the growth rate for the company, a P/E of 9 is ridiculously low. Indeed, were this stock trading on a major exchange, it would likely be much higher. My target for the stock is $1.30 during 2011.

I have a very substantial position in Armanino; the accounts I manage hold more than one percent of the company's stock. Even so, I am not going to take any profits at this point. The next earnings report should be out in mid February. If that report is as good as I expect, this stock has a long way up to go. Meanwhile, until the higher stock price gets hit, I will just continue to collect the sizeable qualified dividend.

Disclosure: I am long the stock with a substantial position.

One more take on SOTU

The State of the Unioin speech will be delivered by the president tonight to a joint session of Congress and an audience watching on all the major tv networks. For me, the best response to this event is "So what?" In my lifetime, I have probably watched forty of these extravaganzas and missed many others. I have searched my memory for one that I thought was pparticularly meaningful, but I have come up dry. We will undoubtedly hear about the need for economic growth, world peace, better education and improved health standards. In fact, much of the SOTU seems to come straight from those question and answer sessions held with the finalists of the Mis America pageant (although most of those contestants are better looking than Obama). Nevertheless, there will be an enormous audience waitinig for something important to be said. They will wait and wait and in the end they will be sorely disappointed.

This year, the probelm is even worse since we have been forewarned that the president will be advocating for things that he really does not care about (like cutting spending -- only to substitute "investing" for "spending").

If anyone watches SOTU and sees something that is newsworthy, please leave a comment here to discuss the item. My guess is that there will be no comments.

Corning -- an update

On January 3, 2011, I named Corning (symbol GLW) as the stock of the month for January. At the time, Corning was selling at $19.32. As I write this, the stock last traded at $20.84, a gain of 8% in three weeks. The impetus for this big move was, of course, the earnings announced by the company this morning. The results were quite good in my opinion (and that of the market). Corning's revenues were higher than expected but its earnings missed by a penny. The real news, however, was the stellar growth in the gorilla glass segment and the fact that the TV screen segment did not decline in the way many analysts had feared. After seeing these earnings, I continue to believe that Corning will move forward strongly for the next six months.

When I first recommended the stock, I also suggested that one write the February 20 calls to lower one's purchase price. Given the movement of the stock, one could now roll from the February 20 to the May 21 calls for a credit of 5 or 6 cents. This will provide an annualized gain of over 20% if the stock is over 21 at the May expiration.

Disclosure: I remain long the stock and have written covered calls for part of my holdings.

Monday, January 24, 2011

State of the Union -- what's the Point?

Here's how the Wall Street Journal describes it: "President Barack Obama will call for a 'responsible' effort to shrink the deficit but won't offer detailed plans on spending and taxes in a State of the Union address Tuesday that will presage the broad themes for political debate through the 2012 election. The president is expected to call for 'shared sacrifice' from both parties, and to reach out to the GOP with a nod to possibly lowering the nation's corporate income-tax rate as part of an overhaul of the corporate-tax code, according to people familiar with speech preparations."

So what does that mean? One thing is certain, it seems that Obama is going with the "more of the same" choice on his decision tree. Remember the 2008 campaign when Obama promised to go line by line through the federal budget to cut unnecessary spending? Most people who followed the campaign will remember that. Remember when Obama's budget director sat with obama for that line by line review? Only those on hallucenogenic drugs will remember that one; it never happened. Indeed, since 2007, Obama has talked the talk of spending control; he has, however, never actually done anything about it. Oh, he did freeze certain spending for a year after first radically increasing it. In other words, he used a spending freeze to lock in higher spending. So now we hear of the need for a responsible effort to shrink the budget deficit but without specifics. that's why it is just more of the same from Obama. the sad thing, however, is that the nation cannot survive more of the same. We need to get spending under control. Even a freeze at last year's levels is not responsible. The limits of the US borrowing power are fast approaching.

Obama's call for shared sacrifice from both parties also needs translation. Let me put it into English for you. Obama is saying this: "When Democrats had total control for the last two years, we pushed through expensive programs that were not wanted by the majority of Americans but which we Democrats liked (Obamacare for example.) Now that the GOP has some portion of control through its House majority, it is time for the Republicans to give up the pledges that they made to get elected. Indeed, those unpopular programs that the Democrats put into place need to be protected as part of the shared sacrifice."

Once again, Obama is playing to his base of people on hallucenogenic drugs. Indeed, Obama knows that the GOP will not go along with this plan. He just wants them to look unreasonable when they insist on cuts. His allies in the media are gearing up to help in that effort.

Finally, Obama is going to reach out to the Republicans with agreement for lowering the corporate tax rate. Here too, I see posturing. The Republicans have a whole series of plans to promote economic growth. which one does Obama pick? The one that plays best with the perpetual theme of Democrats that the GOP is a captive of the big business lobby. I will ignore the falsity of this charge for the moment; it requires a longer exposition than space allows here. It just strikes me that the choice where to compromise seems designed to help only the Democrats.

In my lifetime, the State of The Union Address has been received with hoopla and cheers and then been forgotten about 14 minutes after it is completed. As a result, I doubt that much will come from this one. I do think, however, that it is sad that obama is planning to use the speech for such blatant political purposes rather than for trying to improve the lot of all Americans.

Sunday, January 23, 2011

GasFrac -- the explosion and its aftermath

A week ago, GasFrac Energy Services (GFS:CA or GFS.V) announced that it had experienced an explosion and fire on one of its work sites. As a result, on Monday, the stock tanked in Canda. I used that as a buying opportunity and doubled my holdings with an average price of 9.72 Canadian. At the end of the week, GaFrac announced that it had determined that the cause of the explosion had been a leak and that it was working to remedy the potential for a repeat of the problem. Before that announcement, I sold the newly acquired stock for a gain of about 55 cents per share, and I returned to my basic position in the stock. As far as i can tell, the explosion is a one time unfortunate event that has no lasting impact on the stock or the company.

The question now to be considered is whether it is time to buy this stock if one has not yet invested or will there be a further dip which will present a buying opportunity. The best way to answer this question is to consider why one would buy GasFrac at this point. The short answer is that the stock is a play on three major trends. First, the gasfrac process is one of those used to complete horizontal wells drilled in shale. given the increasing prices for energy and the discovery of a great number of shale deposits amenable to horizontal drilling, gasFrac should benefit in a major way over the next few years. Second, gasFrac benefits from the current noise being made by the anti-hydraulic fracturing crowd. For example, at the recent innauguration of Pennsylvania's new governor, there was a noisy demonstration by the opponents of hydraulic fracturing. While governor Corbett is unlikely to kowtow to these folks (he rightfully views development of the Marcellus Shale as too important for PA), the pressure from the ecologists is likely to help gasFrac in a major way as well. Third, the gasFrac process results in higher production from a well than hydraulic completion. As understanding of this fact becomes more widespread, there are likely to be more and more wells completed using the LPG process by gasfrac. In short, GasFrac is likely to do quite well over the next few years.

So this leads to my answer. In my opinion, gasFrac at the current price is a good investment. I cannot tell you if there will be dips down fifty cents below the current price or not. That is a question that no one can resonably answer. All I can say is that if you buy it now, I believe that you will still see a 50% increase in the stock within a year.

Friday, January 21, 2011

Eugene Robinson -- Back to the old grind

Washington Post columnist and perpetual MSNBC guest Eugene Robinson lives in a fantasy world where everything that Republicans do is evil and a failure and everything that Democrats and especially president Obama do is both a work of genius and totally successful. To say the least, I got a chuckle from his column today in which he proclaims the repeal of Obamacare by the House to be not only a faillure but also something that is working against the GOP. According to Robinson, most people who oppose Obamacare actually wanted the public option to be included; they were angry that the bill did not go far enough. I guess that explains why not a single Democrat ran for election last fall on the basis of his or her vote for passage of Obamacare. Robinson also claims that Republicans actually lost on the repeal vote because only three Democrats joined the GOP in voting to get rid of the bill. So that must mean that Robinson considered passage of the bill to have been a defeat since only one Republican voted for it. In other words, Robinson is full of it.

The real truth is that the vote to repeal by the House is a necessary first step towards forcing Obama and the obamacrats to defend the actuality of Obamacare. No longer will the issue be phony rhetorical points. the House GOP can now force a consideration of the real issues. For example, how much of that half trillion dollars of Medicare cuts did the Democrats actually get so far. Here's the answer: NONE!!! So the biggest mechanism for paying for Obamacare has so far been a phony. Maybe it would do best to call it what it really was: a blatant lie. I look forward to hearing Kathleen Sibelius explain why there have yet to be any savings nearly a year after passage of the law and where she is going to make up the amounts that were supposed to have been saved by now.

The left loves to talk about speaking truth to power. for the next two years, the mission of the GOP has got to be to force power to speak the truth. It will not be easy. Obama and the Obamacrats are the ultimate propagandists. To paraphrase Will Rodgers, they never met a lie they did not like. It will be interesting to watch this.

Thursday, January 20, 2011

Cutting $2.5 Trillion over 10 years

Well the Spending Reduction Act of 2011 is about to be proposed by a group of Republicans in the House; it cuts 2.5 trillion dollars from the federal budget over the next ten years. Interestingly, the cuts do not come from Social Security, Medicare or the Defense Department. Aid to Education is not singled out for cuts. Indeed, all of the usual targets that the Democrats use to defend spending are not on the list. This will not stop the Democrats from screaming about the cuts and saying that the GOP is trying to balance the budget by starving the poor; it will just make those points by the Democrats even more of a lie than usual. So where do the cuts come from?

The bill wants to set 2011 spending at the levels of 2008 except for defense, veteran's affairs and homeland security. For the nine years after that, the bill would impose the limit of the 2006 spending levels on these portions of the budget. this action alone will save about 2.1 trillion dollars. Beyond this, the bill would stop funding for programs like the national endowment for the arts, national endowment for the humanities, corporation for public broadcasting, the legal services corporation, Amtrak subsidies and many others. the full list can be accessed by clicking on the title to this post.

Think of it! In a time of economic hardship, why should we be subsidizing yet another TV network like PBS or a radio network like NPR? There are already hundreds of channels from which to choose and a plethora of radio stations. These outlets should support themselves in the marketplace or through contributions. Similarly, why should the federal government decide which artists are to get funds? Indeed, why should any artists be subsidized when we just do not have the money? Why should money losing train lines be continued at taxpayer expense. The claim that the train reduces traffic and pollution makes sense only if people actually ride the trains. While this is true in the Boston to Washington corridor and a few other locations around the country, most of the long distance trains travel nearly empty every day. If no one uses the trains, they serve no purpose other than meeting the needs of local officials who like to point to them. There is no need to keep these vanity projects around.

The legal services corporation deserves a special place in hell. There is already way too much litigation in this country. If indigent criminal defendants need counsel, that is one thing, but to fund lawyers so that they can bring civil suits that clog the court at great expense makes no sense at all.

There is also a plan to cut federal employees by 15% through attrition and to cut federal vehicles and offices. With federal workers already making substantially more than their counterparts in private industry, it is time to cut back on these positions.

the truth is that when Obama took office, he raised federal spending within the first year by 84%. It is time for much of this needless increase to be rescinded.

Wednesday, January 19, 2011

The Left and Obama's Approval Ratings

I noticed this evening that Joan Walsh of, an Obama cheerleader if there ever was one, is writing about the 15% rise in president obama's approval ratings from 41% to 53%. Yes, I know that 41% to 53% is a twelve point difference, but Joan announced it as a 15% change. Apparently Joan Walsh never learned arithmatic (although her self esteem is high.) Since the poll Walsh cited was the NBC poll, I decided to check to see what other pollsters were showing. I went to the Rasmussen daily presidential approval tracking poll. The Rasmussen poll is take every day in a consistent manner. While some criticize Rasmussen as a Republican pollster because he appears frequently on Fox News, his poll should show movement if obama's approval really has soared. Here is what I found:

As of this morning, 51% of likely voters disapprove of Obama's performance and 48% approve. That 48% approval is within 5% of the number in the NBC poll. I then went back to see where the number had been over time. On January 3, the first poll of the year, the numbers were 47% approve and 52% disapprove, essentially the same as the current numbers. I went back further. On Thanksgiving, the numbers were 48% approve and 51% disapprove. On Election day, the numbers were 48% approve and 51% disapprove. A month earlier on October 3rd, the numbers were 47% approve and 52% disapprove. On September 1, the numbers were 51 % disapprove and 48% approve. In other words, Obama's approval numbers have not moved in any meaningful way. Oh sure, there were some polls during that time when the numbers moved up to 54 or 55% disapproval, but they kept coming back to the level currently shown. The numbers also swung the other way on occassion; Obama's approval went over 50% for one day just before Christmas, but the numbers then came back to the current levels.

So what does this all mean? Personally, I wonder who was included in the NBC poll. Did they fix the results to help Obama by including more Democrats than usual? Such tactics are not unusual. The AP just released a poll on healthcare which purports to show that the public strongly supports Obamacare; they fixed that result by oversampling Democrats by roughly 10% based upon professed party identification and even more based upon likely voters. It may be true that obama has seen a gain of a few percentage points in his approval during the last month. It does not show up in the Rasmussen poll, but it could be there. One thing, however is certain: there was no 15% (or 12%) rise in his actual approval numbers.

From Hojo to Nojo

As part of my efforts to keep up to date with all things political, I am on a long list of political groups who send me their e-mail. In Connecticut, one of the favorite targets of the left has been Democrat senator Joe Lieberman. Because he supported Bush on Iraq and then endorsed McCain for president, the level of vitriol from the left against Lieberman has been intense. Perhaps the best illustration has comes from the group (you know who you are) that refers to Lieberman as Hojo (not a reference to the old Howard Johnsons but rather calling Lieberman a whore.)

Suddenly today, Lieberman has announced that he will not seek re-election to the senate in 2012. The response has been comical. First, I read a piece on Slate from a Connecticut author who explains why she detests Joe. Amazingly, she starts out by proclaiming that her views and his are very close on nearly every issue. Then comes the typical leftwing vitriol about Lieberman and Bush and McCain. Her views are completely irrational. The rest of the response has come in three e-mails that I received from three different groups who are using the retirement as a fund raising opportunity. "Contribut now to make sure we get the senator we need in 2012," they scream.

I think we need to take a moment first and say thank you to Joe Lieberman for his service. I certainly did not always or even frequently agree with his views. I did know, however, that unlike many of his fellow senators, Lieberman was prepared to stand up for what he thought was right and good for the country even if it was not popular back in Connecticut. A few more senators like that and few less who read polls before voting each time would do the country a lot of good.

Thanks Joe.

The Caterwauling about spending begins for real

The AP is out with a story this afternoon discussing at great length how the plan by House Republicans to return spending to 2008 levels will hurt millions of people. This is the opening salvo in the attempt by the media to paint the GOP as hard hearted skinflints who want to take away heated homes for the elederly and school lunches for the children. The only reasonable response is to use the line from Saturday Night Live, "Really!"

In 2009, Obama and the Democrats got total control of the government and ramped up spending to an unsustainable level. Absent serious cuts, we will all just watch the country go over a cliff as we spend ourselves into oblivion. Indeed, the 2008 spending levels were too high and obama just exploded them up by an enormous amount. Somehow, in 2008, people managed to heat their homes with fuel prices even higher than currently, kids ate school lunches and all sorts of federal programs operated not only to support the poor but also to give goodies to those who truly did not need them.

Hopefully, the public will understand that there is an urgent need to cut spending and they will continue to support those who call for fiscal responsibility. The USA can no longer just borrow in order to spend more. Just imagine what would happen if the media were suddenly to explain the likely consequences of continuing the out-of-control spending of obama and the Obamacrats. (OK, the media would never do that. It would conflict with their campaign to help the progressives.)

The battle over spending is going to be long and difficult. People are going to have to sacrifice some of their favorite perks from the government. We can no longer pay for loony research grants to social "scientists" to examine the sex lives of college students. We may all need to pay more to use the National Parks. NASA may have to pull back on its mission to make contact with the Muslim world and instead concentrate its efforts on space exploration. The Department of Energy may have to start working on increasing domestic energy supplies through private development rather than on spending funds for preventing new sources from being developed.

Who knows! Maybe someday the media will actually get it. (I am an incurable optimist.)

Using Options to increase gain and reduce risk

There are probably as many trading strategies for options as there are traders. Some buy calls to leverage gains; others buy puts to protect positions. This article is about using option strangles to increase gain and reduce risk.

A strangle, as I use the term, consists of selling a put and a covered call on the same stock for the same expiration with different strike prices. For example, if you own 1000 shares of Alcoa at $16.27, a possible strangle would be to sell ten of the April 16 puts (last at 88 cents) and also sell ten of the April 17 calls (last at 72 cents). Normally, I couple these strangles with the purchase of the stock when I open new positions, but I also use them on occasion with stock I already own. If you look at the Alcoa example just listed, you see that if you bought the stock, you paid a net of $14.67 per share for the stock/option position. If Alcoa rises above $17 by the April expiration, you have a profit of $2.33 per share for an annualized return of 63%. If Alcoa closes unchanged in April, you still have the stock and keep the option premiums of $1.60 (an annualized return of just under 40%). If Alcoa goes down below $16 at expiration, you will buy another 1000 shares of stock at $16 when the puts are assigned. Your composite purchase price for the 2000 shares will be $15.33 ($16.27 for the first 1000, plus $16.00 for the second thousand, less the option proceeds of $1.60.) In other words, so long as Alcoa is above $15.33 on the April expiration, your trade will be profitable. That means that Alcoa must decline by over six percent before you will start to lose money on the trade.

The whole point of using a strangle is to take advantage of the time value that others are willing to pay when buying the options you are selling. Obviously, the time value for options is not the same for each stock, so the point is to look for stocks where the options have high premiums. To do this, I focus on stocks that have strong fundamentals, good buzz and rapid recent movement. Right now, a good example of this is Entropic Communications Inc. (symbol ENTR). Entropic makes chips that allow for the dissemination of entertainment like video throughout a house. Entropic’s products are used in the multi-room DVR’s that many of the cable and satellite TV companies now install. The current consensus estimate of earnings for 2011 is 76 cents, up from 53 cents in 2010. In the last twelve months, the stock has traded between $2.95 and $13.96. it is currently at $13.51. In short, Entropic is a perfect candidate for the type of trade of which I speak.

Let’s look at an example:
If one were to buy 1000 shares of Entropic at $13.58 and write 10 of the May 10 puts at $0.55 and the May 12.5 calls at $2.50, the total investment for the position would be $10.53. This means that if Entropic stock is above $12.50 at the May expiration, you will earn $1.97 on each share for an annualized rate of return of 56%. The breakeven point on this trade is $10.53. So, Entropic can decline by $1.03 or 7.5% to $12.50 and you will still earn the maximum profit for an annualized return on this four month investment of 56%. Entropic can actually decline by up to $3.05 and you will still make a profit on the investment. At the worst, if Entropic falls below $10.00 you will own 2000 shares of the stock for which you paid a composite price of $10.27, not a bad price for a stock now selling at $13.58. (I am using the prices at the open on January 19th, but the principle remains the same as the numbers shift.)

So what is the downside here? First, if Entropic suddenly runs up to $25.00 per share, you will not make the resulting profit since you are capped at a maximum profit rate of 56%. Second, the point of the trade is to make money as the time value erodes, not as the stock price moves. This means that the day to day ups and downs of the stock are not traded and for those of you used to very short term trading, this strategy may leave you feeling antsy. Third, you can obviously lose if the stock you pick tanks in a major way. Of course, that is true of any investment, and here, you will have the cushion provided by the option premiums to soften the blow. Indeed, at worst, you will be buying the stock at a price 24% below the current market price.

The strategy can be adjusted when there are major moves in the stock. Were Entropic to move up by three points in a month, it might make sense to adjust the strike prices of the options going from the 10 to the 12.5 put and the 12.5 to the 15 call. Alternatively, one can roll the options out to later expiration dates, going from the April 10 puts to the July 10 puts and from the April 12.5 calls to their July counterparts. Frequently, I roll the puts out at the same strike and roll the calls out and up in order to increase the profit potential. One can also begin with strike prices that bracket the stock price (like the May 12.5 puts and the 15 calls for Entropic.) This is a more aggressive strategy that gives higher potential returns but with greater risk.
One last note: for those who are not familiar with selling uncovered puts, you should know that these trades use up margin balances. I recommend that for a while, you buy only half the amount of stock that you would otherwise purchase and then consider the puts to be the other half of the position. In other words, in the Entropic example above, but 500 shares of stock and think of the 5 short puts as representing the other 500 shares that you would want to own.
Disclosure: I am long both Alcoa and Entropic Communications stock, and I have periodically used this strategy with both holdings. Currently, I have option strangles in place only on Entropic.

Tuesday, January 18, 2011

Do they even remember it?

I just saw the cover of Vanity Fair Magazine and noticed that it was promoting an article about the innauguration of John F. Kennedy and the birth of "Camelot". While I have to say that I do not know anyone who actually admits to reading Vanity Fair, I was intrigued by why the magazine would devote space inside and a place on the cover to talk about this fifty year old event. Right now, there are probably very few people under the age of 65 who even remember the Kennedy innauguration. My guess is that there a few over that age who care very much about it. So it still does not explain the magazine. I could chalk it up to poor editing by the magazine's staff; indeed, the article was written by Todd Purdum, a second rater whose main claim to fame is that he is married to the former Clinton flack Dee Dee Myers. But I do not think that is the reason either. After all, Vanity Fair is still in business even if no one actually reads it.

After much thought, I have concluded that the magazine is celebrating an important date in modern liberal theology. Kennedy was the last liberal president who was adjudged a success by the country. Even though Kennedy's liberalism was much different from the far left variety on view today, there was at least a common label that was used. Given the atrocious record achieved by liberal/progressive governance during the ensuing 50 years, it may well be that the Kennedy innauguration is the greatest moment in liberalism for the last half century. Only misplaced self congratulations by the liberals at Vanity Fair could reasonable explain the article.

Obama's regulation review

Sometimes I wonder if I am too suspicious. For example, the news is out this morning that President Obama has ordered a government-wide review of regulations in order to remove those which are hampering economic growth but which are not necessary for health or safety issues. The effort is a good one if it is for real. Unfortunately, I sincerely doubt if the true purpose is anything other than to have Obama look like he wants to help business while actually doing nothing that has any effect. Just think about it! The standard Washington way of looking like one is doing something about an issue is to appoint a commission to study the problem. We all recall the deficit reduction commission who labored over the last year and then issued a report that was labelled dead on arrival. The net effect was no reduction whatsoever in the deficit, but it gave obama something to talk about during the 2010 election campaign.

A government-wide regulation review is something very much akin to a presidential commission. The review makes no changes in the regulations. they stay in place while the bureaucracy "considers" the efficacy of the various regulations. Meanwhile, the main stream media gets to trumpet Obama's commitment to promoting economic growth and job creation. Can you say 2012 election with the main Republican issue pre-empted?

It would have been quite simple for the president to order each department to come to him with ten proposed regulatory changes that would promote economic growth. He could then have announced not a do nothing "review", but the implementation of hundreds of rule changes that will promote growth. Sure, the procedures for changing the regulations would need to be followed, but the time line would have been moved forward by at least a year. Remember, the economy needs help NOW, not in 2012. Wait! Maybe the goal is to have something done in 2012 when it looks like Obama is doing something but there is not enough time to see if the changes made actually have a positive effect. But that's just me being suspicious again. I just have to keep telling myself "Obama really does want to help business, Obama really does want to help business."

Sorry, no matter how many times I say it, I just do not believe it. If Obama really wants to help business, he should endorse the repeal of Obamacare or order the EPA to stop consideration of carbon dioxide as a pollutant. Now that would be a boon to the economy!

Monday, January 17, 2011

Now we know -- It was Keith Olbermann's fault

In the New York Time's profile of the Arizona shooter, we have now learned that he was someone who rabidly hated George W. Bush. In other words, to the extent that he was politically motivated it was more likely from Keith Olbermann's venom spewed on MSNBC rather than Sarah Palin's map. Does anyone think that MSNBC will now devote round the clock coverage to the effect that their loony left hosts have on the public discourse?

The truth is that this ridiculous effort by the media to push "togetherness" is nothing more than a fad. There are deep differences between the governing philosophies of the GOP and the Democrats. Those are not differences that can be papered over. The best analogy is that the country has come to a fork in the road. We either take the fork to the right or the one to the left. If we compromise and go straight we hit a tree. Singing Kumbaya but hitting a tree is not a good strategy.

Saturday, January 15, 2011

Energy Prices and Economic Growth

One thing with which nearly all economists agree is that the price of energy is a critical factor in determining the rate of growth in the US economy. Oil prices spiked dramatically in 1973 and this was followed by a recession and stagnant growth for a number of years. Oil prices also rose dramatically in 1990 when Iraq invaded Kuwait. Although the USA successfully led a coalition force that ousted the Iraqis, the resulting disruption to the world oil flow led to price increases that spawned another recession. In 2008, oil prices rose to record levels close to $150 per barrel. The recession that hit the world at the point has been blamed on the subprime mortgage meltdown, but there is a good case to be made that it had as much to do with the high price of oil as it did with the mortgage panic. The simple truth is that when oil prices get too high, consumers cut back on other spending and the economy falters.

This relationship between energy prices and economic growth presents a major problem for the US economy. Right now, oil is at the highest price in a few years, right around $100 a barrel. There are a few special factors causing the current price. These include the temporary shutdown of the Alaska Pipeline and some difficulties in Norway. Such problems will soon be solved. There are also major long term problems which remain to be addressed. Much of US oil production comes from off shore wells and drilling of new wells has been frozen by Obama and the Obamacrats for the last six months (and there is no end in sight to the freeze). Land owned by the federal government has also been removed as a possible drilling site by decree of the president. In short, Obama and the Obamacrats have acted as if big oil companies are the enemy rather than the means by which the USA gets the energy that it needs to grow.

Beyond the attacks on the oil companies, Obama and the Obamacrats have also done all in their power to drive up the price of other energy or to discourage its production. The coal industry may have sidestepped the cap and trade bill pushed by Obama and his party in the last Congress, but the battle has now moved on to the EPA which is seeking to impose by regulation the same restrictions on coal that congress refused to pass. If such regulations are enacted, the price of energy from coal will, in Obama’s own words, “necessarily skyrocket.” For natural gas, which remains inexpensive and abundant in the USA, the Obamacrats have tried to stop the use of hydraulic fracturing to allow for gas extraction from the many shale deposits that contain reserves sufficient to supply US needs for many decades to come. These efforts have been successful in the state of New York in stopping all production from the Marcellus Shale, the largest of the new shale deposits. There are worries that the EPA will also get involved to stop this kind of drilling across the nation.

With the economy in such a fragile state, it is almost criminal that the president and his party would try so hard to curtail production of domestic energy resources. If the prices rise just a bit more, we may yet see the double dip recession that was the subject of so much fear in the second half of 2010. It truly amazes me that with Obama preparing to spend a billion dollars to get re-elected, no one on his staff can explain to him that his energy policies are likely to cause his defeat. If high oil prices continue and we hit a new recession, no amount of campaign spending will save Obama. He should be promoting the production and use of the massive new natural gas deposits rather than letting his party thwart their development. The technology is there already to have vehicles run on natural gas, a move that would reduce the need to import expensive oil while reducing pollution in a major way. Unfortunately, the Democrats surrounding Obama and the president himself seem to have bought into an ideology that says that only wind and solar energy are “good” and all power from fossil fuels is “bad”. If they keep it up, however, they will discover that the election results in 2010 were “good” and those in 2012 will be “bad”.

I guess I am now a victim

Yesterday, I was a victim of someone stealing one of my posts about GasFrac Energy Services (symbol GFS:CA or GFS.V). I originally posted about GasFrac last October 12 with a lengthy discussion of the merits of the company and why I thought it was a good investment. Yesterday, I inadvertently discovered that the Seeking Alpha site, a rather good investment information site, had published an article about GasFrac. I was interested to see what had been said, since there is not that much out there about the company. I opened the article and discovered that it was my post of October 12th published under the name of another author. In multiple pages of text, this guy only changed the current stock price mentioned in my original post; the rest was word for word verbatim.

I was truly surprised to see that someone had stolen my post, but I decided to see what I could do about it. I wrote to the management of the Seeking Alpha site and told them that the article they had published had been taken from my blog; I sent them the link to my original post to prove what I had been saying. It took about an hour, but Seeking Alpha did the responsible thing and took down the offending article. Then they posted a link to my original article of October 12th. They also told me that the offending "author" who had stolen my work was going to be banned from their site.

I was impressed that Seeking Alpha was able to act so fast to right a clear wrong.

The whole event does make me wonder about one thing: As anyone who reads this blog knows, I am a conservative Republican. But, since I am also now a victim, will that make me someone that the left will now like? Maybe the guy who stole my blog post was egged on by Sarah Palin's rhetoric?

Friday, January 14, 2011

If Obama wants to change the tone, start by limiting the campaign

Just a few days after a speech in which he argued for changing the tone in politics, President Obama is now revealed to be planning a campaign for re-election that will cost in excess of a billion dollars. In 2008, then candidate Obama spent three quarters of that amount in record spending for a presidential run. Indeed, obama was the first candidate in many years who did not accept public financing and the spending limits that come with it. So after years of hearing from Democrats how it is Republicans who get money from the rich so as to outspend the Democrats, we have yet another instance of a Democrat who will spend without limit in order to try to bury his opponents.

President Obama could easily accept the public funds for his re-election campaign and limit his election spending to the same amount as his GOP opponent. He would still be able to spend what he wants during the primary season, but this show of restraint might give some force to Obama's call for a new tone in politics. Instead we will see the president spend much of the next two years raising funds to fuel his race for the white house.

It really did not take very long for Obama to show how truly unserious he was in Arizona.

GasFrac and Lighting Science -- another Update

On October 12, I recommended purchase of GasFrac Energy Services Inc. (symbol GFS:CA or GFS.TO) when the stock was at $7.10 Canadian. At the moment, GasFrac is trading at 11.45 (a 52 week high and a gain of 62% in 3 months). On December 4, I also recommended Lighting Science Group (LSCG.OB) when it was selling for $3.25. At the moment, it last traded at $4.90 (a 52 week high and a gain of 51% in 5 weeks.) Given the great rise in these two stocks, I was asked if I think they should be sold.

My answer is that I think it is prudent to lighten up a bit on LSCG but to hols on with GasFrac. Lighting Science is a company which is not yet profitable. GasFrac on the other hand does have earnings. Lighting science is much more speculative than GasFrac (Although Gasfrac itself is quite a speculation.) GasFrac has moved on the expected increase in earnings that will come once its new capital equipment is placed into service, an event which will occur during the current quarter. Further, with the recent recovery in natural gas prices and the further increase in oil prices, the demand for GasFrac services should continue to outpace the company's ability to do the work, thus supporting its prices, revenues and profits. Lighting Science, on the other hand, may be soaring due to speculation following the unfortunate death of its chairman. Lighting Science may now be much more likely to be sold to a major competitor in the light bulb industry. There is also a lot of good news for the company, however. Just the other day, Lighting Science announced that it was increasing its work force by over 10%, a clear indication of the rapid growth of this entity.

These factors lead me to believe that GasFrac has further to run before it cools off. Lighting Science may also move up further, but that outcome is less clear. As a result, I would sell one quarter to one third of the holdings in Lighting Science to take some profits off the table. I would hold on with no sales in GasFrac, however. The next two quarters earnings reports for GasFrac should send this stock significantly higher still.

Caution, since these stocks remain speculative, investments in them should only be made with a small portion of your portfolio. Do not be the mortgage money on them. Also, it may be wise to have a stop no more than 10% below the high for the stock as well.

Disclosure: I hold significant investments in both companies. I sold one-quarter of my LSCG holdings as discussed.

Obama's speech in Arizona

I am back after a great vacation in the Caribbean and I just watched the video of Obama's speech about the tragedy in Arizona. It was a good speech. The president spoke about the tragedy and about how we should deal with it. In a departutre from his usual speeches, he did not speak about himself. Obama also did not go along with the crazies on the left who tried to pin the acts of a derranged individual on Sarah Palin or Conservatives in general. Of course, since it is now clear to everyone that the attacker was completely non-political and has been holding a grudge against the Congresswoman since before Sarah Palin ever arrived on the National scene, it would have been extremely stupid for Obama to have gone along with the loony left in its baseless attacks. Nevertheless, Obama deserves credit for a good speech.

I do find it humorous, however, to read and hear the comments that Obama is rehabilitating himself with the speech. It seems that there is a chorus that constantly sings about Obama's return in an unending harmony every time he does something that is not a disaster. When he caved in to agree to no tax increases during hard times, Obama had "snookered" the Republicans (by agreeing to what they wanted) and was on the way back. When Don't Ask Don't Tell was repealed by large majorities in congress, Obama was re-establishing himself (even though the vote seemed a foregone conclusion -- once the Pentagon report had been issued). Even the recess appointments were touted as some sort of great presidential strategem showing how Obama was reborn. Now comes this speech. Let's all swoon over Obama's renaissance!

The truth is that the fate of the Obama presidency is in the hands of the Bureau of labor statistics. If unemployment remains high in 2012, Obama will lose unless the GOP nominates a truly divisive candidate like Sarah Palin (in which case it could go either way). If growth returns to the economy and real unemployment drops substantially, Obama is likely to be re-elected. The rest of this is all window dressing. Sure, there could be a scandal or an international crisis that changes things, but right now, to use the old Carville phrase, "It's the Economy Stupid!"

Monday, January 10, 2011

The Arizona Shooting

I have spent the last two days in Barbados and Domenica, so I have not had access to all of the news sources that I usually peruse, but what I have seen of the coverage of the Arizona shootings has puzzled me. The gloom and doom emanating from the commentators make this event into a "game changer" for the country. It is as if this is the end of the world as we know it. On MSNBC (yes I actually watched it) they were discussing the shooting as the result of the current nature of poltical discourse in the country. From what I can tell, the shooter was not political but rather was just another nut job. I was contrasting the reaction on TV with the one that followed the shooting at Fort Hood where more than twice as many people were killed by Major Hassan in a terrorist attack. The coverage that I recall after that attack was mostly warnings against premature decisions that this had anything to do with terrorism as well as justifications as to why Major Hassan would do such a thing.

I do not want to indicate that I condone in any way the attack in Arizona, but I don't think it was on a par with the Fort Hood shooting. The major acted in furtherance of his twisted quai-religious philosophy. The Arizona shooter seems just to be mentally unstable.

Maybe it means more to the progressive TV commentators that in the Fort Hood shooting only soldiers (who they do not like) were killed, while in Arizona one of the wounded was a Congresswoman.

Sunday, January 9, 2011

More Idiots Besides the Shooter

Yesterday, I wrote that anyone who would shoot a congressman must be an idiot. Today, I have to add that the people like Michael Daly of the New York Daily News who blame Sarah Palin for the shooting are also idiots. According to Daly, the Facebook post last year in which Palin put crosshairs on the districts of those Democrats who Palin was targeting for defeat was a direct cause of the shooting. Apparently, Daly is not troubled by the lack of any link whatsoever between Palin and the shooter. He just knows that Palin is to blame. The best description for this is BS, but I will stick to idiocy instead.

I also find the fools who blame the Tea Party for the shooting to be somehow disconnected from reality. Something crazy like this happens and the progressive left decideds to use it to try to tar the entire Tea Party with responsibility. Strangely, the Obamacrats do this instinctively without the need for so much as a single bit of evidence to support the charge.

Let's hopw that the American people are not takin in by these professional leftists.

Saturday, January 8, 2011

Anyone who shoots a congressman is an idiot

The shooting in Arizona leaves people wondering how such a thing could happen. Was there something wrong with the shooter? What was going on. The truth is that it will take a while to know the full truth. Right now, all we know is that anyone who would do this is best described as an idiot.

Wednesday, January 5, 2011

Panera Bread -- Close the trade if you did not do so yet

Two weeks ago, I recommended buying puts on Panera Bread to hold until just after the New Year. The stock was $105.75 at the time, and by yesterday, the stock had declined about 6% to the mid $99 range. It closed up slightly from there. One of the main factors driving the price of Panera down was people taking profits immediately after the new year in order to avoid capital gains in 2010. This tax related selling is essentially over now. If you have not already closed out this put like I explained in the last post, you should certaily do so now.

Tuesday, January 4, 2011

Away for a few days

I off for a few days of vacation. I may still post a bit, but most likely it will be sporadic. Hope you all have a great 2011.

Monday, January 3, 2011

The Stock for January -- Corning Incorporated

My stock for January is Corning Incorporated (symbol GLW). The fortunes of Corning are now considered tied completely to the sales of TV's and Computers, a connection whose strength I dispute. Clearly, Corning is the biggest manufacturer of glass for flat screen televisions. Indeed, in the bigger screen sizes Corning has total control of the market. So the fortunes of TV sales has a strong effect on Corning's revenues and sales. But Corning is much more than just the maker of glass for large screen TV's. Corning's product "Gorilla Glass" is a high strength glass product that is being used on all manner of cell phones and tablet computers. Gorilla Glass is scratch resistant and nearly unbreakable. It gives cell phone manufacturers the durable screen that they need for touch screen product. Indeed, the estimate is that Corning will sell about a billion dollars of Gorilla Glass in 2011, or about 13% of total sales for the company. At the moment, the product does not produce as high a gross profit as the flat glass for LCD tv's, but the potential is extremely large. If TV manufacturers begin to use Gorilla Glass for their products (which would allow for thinner designs with a sleeker look), sales of Gorilla Glass could go through the roof.

Another product that Corning has in its repetoire is its bendable fiber optic cable. Corning produces fiber optic cable that can be bent at a 90 degree angle with no signal degredation. This product has not yet taken off, but in any future large scale fiber optic installations, Corning will be in total control.

There are other products that Corning has as well. Nevertheless, the market continues just to look at the flat screen TV's as controlling. Even here, however, Corning has done much better than expected. TV sales may not have been that spectacular this Christmas in the USA, but Corning sells world wide.

At its current price of 19.32, Corning is selling at only ten time expected earnings for the next twelve months. For a company with a product with the potential of Gorilla Glass (which has gone from sales of nothing to a billion dollars a year in two years), such a valuation is ridiculously low.

Investment in Corning is not for those with a very short term horizon, however. GLW should do well over the long term. It could easily go up by 50% over the next 18 months. For those who purchase the stock now at $19.32, I recommend also writing the February 20 calls at 50 cents or greater. This will reduce the cost, although you may lose the stock if the price is over 20 on the Febuary expiration date. Of course, if that option is exercised, you will earn a return in excess of 40% annualized for the seven weeks that you hold the position.

Corning is a stock that the market is overlooking.

Disclosure: I own Corning and have been invested in the company for much of the last year. I have no interest in the February calls mentioned above, although I periodically have both puts and calls written on Corning stock.


Sunday, January 2, 2011

Another Victory for Government Healthcare

Government Healthcare has won another great victory. This one has to do with the cost of prescriptions under the various savings plans that appeared in the last few years. About two years ago, Walmart announced that it would sell about 400 different prescription medicines for $4 for a month's supply or $10 for a three month supply. CVS followed suit a short time later. The CVS deal was for $9.99 for a three month supply so long as one joined the program for $10.00 per year. These programs allowed people with chronic conditions to get their medicines for a substantial savings over the cost under normal insurance. Further, for those with a maximum annual limitation on their prescription costs, the programs allowed the patient to save his allowable amount for higher cost pills when they were needed.

Now, in steps the government. This morning at CVS, I was informed by the pharmacist that the program had been changed so that the annual fee went up by 50% and the cost per prescription went up by 20%. The coverage also apparently has been reduced, although I have not seen the new list of covered medicines, so I am just repeating what I was told. When I asked why CVS was raising these prices by so much, I was told that the government had insisted on the higher prices. It seems that the CVS program was allowing individuals to buy medicines at too good a price when compared to what the government paid for the same medicines supplied to those on medicaid. The government insisted that it get the lowest price of all. As a result, the government also insisted that CVS raise the price for everyone else.

So for all those folks struggling to pay for their medicines, the government has stepped in to require that the cost of the medicine be increased. Only is the world of government bureaucracy could someone think that it serves the needs of the people to force a price rise on them for medicine. Only the government could believe that it was more important for medicaid to get a clearly lower price than everyone else than for everyone buying medicine to get that lower price.

According to Obama, half the cost of Obamacare is going to be paid for by getting rid of waste and fraud in medicare and medicaid. If this latest move is an indication of how well the government deals with waste, we are all in big trouble.

Stocks of 2010 -- an oversight

Somehow, I left out two stocks in my review of the 2010 results.

Pier 1 (PIR), the stock of the month for December was recommended at $9.92. It closed a month later at $10.50. this is an annualized increase of 70%. Of course, since it is only a one month period, the annualized increase rate is not that meaningful. Suffice to say that the stock has been doing well. I would keep this one in the portfolio for now. Christmas sales should be out in the coming week. they may have been hurt due to the snow in much of their selling area, but if PIR dips, it is a buying opportunity. Over the next year, PIR will be moving into internet sales and the big increase that will bring.

MGM Resorts International (MGM) was recommended two weeks ago 12.72. It closed the year at 14.85, and increase of 17% in two weeks. I also recommended option trades with this one. The move here has been so large, that I would now recommend taking profits on half your position.

I also wrote about place for higher yields and about gold and silver trading, but those were in the last few days of the year, so there is no point in evaluating how well they have done.

Sorry for the omission.

UPDATE! -- I got an e-mail from a reader who asked why I am not discussing pSivida (symbol PSDV) in my results. The truth is that I should discuss it, but since it is still an open trade, I did not. On October 6, I recommended a trade of stock, calls and puts. As of now, it is still on track for the total return of the trade to be at the rate of 350%. The stock just needs to stay above $5.00 at the January option expiration for that to be the case. last week pSivida got slammed when their drup Illuvien was not approved by the FDA; instead, the FDA asked for more information. Even after the resulting decline, however, the trade i recommended is right on course to pay its full return. I just felt that until we get to january 22d, it is hard to know for sure just what the return will be.

Stock picks for 2010 - part two - what to do with them now

Yesterday, I wrote about how the stocks that I chose on the blog did up to the end of the year. Today, I want to write about what to do with those stocks if you still have them (or are thinking of purchasing them).

First the truly easy choices:

Shamir (SHAMIR) made an agreement to sell itself to another company. If you are not already out, there is no point to holding further.

Panera puts were recommended to be purchased before the end of last year. Most likely, it is too late to do that trade. If you bought them, you should look to sell during the first few trading days of 2011.

Lighting Science (LSCG) was recommended only a few weeks ago. Nothing has changed here.

Now for the less clear choices:

Caribou Coffee may have a bright future, but I no longer recommend it. I think that the big rise has already happened.

Jack in the Box (JACK) is the one stock I recommended last year that did not rise. Nevertheless, I think it remains a compelling buy. I owuld hold it.

American Capital (ACAS) is up over 50% from where it was when i recommended it. It is no longer likely to be a home run. Nevertheless, I think that there remains a nice up side to the stock. Still, one needs to be vigillant here. If the stock declines below $7.15, I would take the profits.

Armanino Foods (AMNF.PK) remains one of my favorites. While this stock also has risen over 50% since I first mentioned it, it also remains greatly undervalued. My one year target for the stock is $1.30. In the interim, it pays over a 5% dividend at the current price.

Brandywine Realty Trust (BDN) is another company which I would continue to hold. It pays a nice dividend, and over the next few years, some of its superior projects and holdings should begin generating much bigger profits. It is a long term play, but there should be a nice payoff.

Range Resources (RRC) is another I would continue to hold. The likely continued development of the Marcellus shale will bring big benefits to this company.

Gasfrac Energy Services (GFS:CA or GFS.TO) should come into its own this year. The results of the massive capital investment that has been underway for the last year should become apparent in 2011. Both revenues and profits should soar. Environmentalist pressure on hydraulic fracturing should also help GasFrac immensely.

Entropic Communications -- If you followed my initial advice, you no longer own this stock, having sold at 10 in mid December. Despite this, i still think that Entropic has a nice future, at least for the first half of 2011. This is one stock, however, where owning it should be coupled with the sale of covered calls in order to reduce the risk. it is not a stock for those without courage. Putting it another way, it is a speculative holding.

The last trade i recommended in 2011 was investment in municipal bond CEFs. Right now, it is possible to get over 8% return on your money, tax free. The two main risks of these funds are a rise in short term rates and defaults by municipalities or states. Given what the Fed has said, it is unlikely that we will see any short term interest rate rise in the next six months. Defaults or the threat of defaults are another matter. I do not expect a wholesale meltdown of the muni market which, by the way, would most likely kill every investment in securities. The fear of defaults will keep rising, however. This fear could bring down the value of the funds by forcing the rates on munibonds to rise. For the moment, I would keep the investments here, but watch them very closely.