Some Numbers to Consider
Posted by Eddy Elfenbein on March 8th, 2011 at 9:10 pm

From the WSJ:

New Chinese government figures show its national debt load remains low compared with other major economies. But including the debts of local governments and many parts of the state-owned banking sector, as many economists say is proper, shows the constraints facing Beijing in the fight against inflation, its top economic priority.

In a report issued during the annual session of the National People’s Congress, China’s legislature, the Ministry of Finance said central government debt at the end of 2010 was $1.03 trillion. That number is equal to about 17% of China’s gross domestic product, far below the levels of the U.S., Japan, and major European countries.

China’s government debt is mostly held domestically. In contrast, about half of the U.S. federal government’s debt is held by China and other foreigners, a source of anxiety among policy makers and the public who fear it makes the U.S. vulnerable to pressure from foreign creditors.

China, meanwhile, sits on foreign-exchange reserves that have grown to $2.85 trillion.

Buy List +1.53%
Posted by Eddy Elfenbein on March 8th, 2011 at 7:16 pm

Today was a huge day for the Buy List. We were up 1.53% compared with just 0.89% for the S&P 500. For the year, the Buy List is up 6.50% compared with 5.10% for the S&P 500.

Here’s a look at how our stocks performed today:

The S&P 500’s 50-DMA Streak Is In Jeopardy
Posted by Eddy Elfenbein on March 8th, 2011 at 10:13 am

The market is currently up today. If this rally holds up, today will be the 129th day in a row that the S&P 500 has closed above its 50-DMA.

However, the streak is starting to look a bit tired. Yesterday was the first time we closed within 1% of the 50-DMA since November.

Here’s another look at the longest 50-DMA streaks going back to 1932:

Raven Industries — Up 210-Fold
Posted by Eddy Elfenbein on March 8th, 2011 at 8:39 am

One of the lessons I give investors is that little-known stocks or “boring” companies can be great investments. In fact, many of these types of investments have a distinct advantage over more glamorous sectors.

The problem with investing in an embryonic industry is that there are so many players and improvements occur so rapidly that it’s hard to know who will win out.

I’ll give you a good example. Check out the number of defunct car companies. Not many made it past about 1922 or so. Ever since I remember, we’ve always talked about the Detroit’s “Big Three.” So we went from many dozens to three, even though they’re not really three anymore.

So I tend to shy away from high-flying stocks in popular sectors. I like predictable businesses in industries I know will be around. The lesson for investors is to concentrate on how well a business is run and not so much on finding the next “Google.” It really is astonishing to see how little interest there is in well-run but dull businesses.

Recently, I gave you the example of Seaboard (SEB). Here’s another little-known gem, Raven Industries (RAVN).

For starters, they’re based in Sioux Falls, SD, so I like them already.

The company has a market cap of just under $1 billion. They’re not in any of the major indexes—and only a few analysts on the Street follow the stock. Raven has less than 1,000 employees and daily trading volume averages about 66,000 shares. In other words… Snoozesville.

Here’s a company description from Hoovers:

Quoth the Raven, “Reinforced plastic, electronics, flow control devices, and balloons!” Raven Industries’ engineered films division does make reinforced plastic sheeting for various applications, including hot air balloons! Its electronic systems division offers electronic manufacturing services, as well as design support, material procurement and management, and eco-stress testing. An applied technology leg manufactures high-tech agricultural aids, from global positioning system (GPS)-based chemical spray equipment to field computers and steering systems. Raven’s Aerostar subsidiary produces high altitude research balloons, parachutes, and protective wear used by US agencies. Goodrich is a major customer.

Steering systems!

Despite Raven’s low profile, the stock has been a massive performer over the last 30 years. Since March 1981, shares of RAVN are up 210-fold (that’s 20,900% for liberal arts majors). That’s an average of 19.5% per year. Raven has been slightly outperformed by Berkshire Hathaway (BRKA). Both stocks have beaten the S&P 500 so badly that the index looks like a girlie flat line in comparison.

I’d bet Raven has done ever better than Buffett over the years since they pay out a dividend and Berkshire doesn’t. The company has sweetened its dividend for the last 24 years in a row. Expect #25 very soon.

Currently, RAVN pays out a quarterly dividend of 16 cents per share which works to a yield of 1.2%. On top of that, Raven has also paid out a special dividend every so often. I love when companies do that. They’re basically saying “Yeah, we’ve so profitable, here’s some extra cash we don’t know what to do with.” In 2008 and 2010, RAVN paid special dividends of $1.25 per share.

If you own Raven, the next time someone asks you where you’re investing, be sure to say, “Reinforced plastic, electronics, flow control devices, and balloons!”

It’ll be our inside joke.

Smith Barney Name May Go Away
Posted by Eddy Elfenbein on March 8th, 2011 at 7:06 am

The financial crisis has unquestionably altered the face of Wall Street. Today’s WSJ reports that Morgan Stanley (MS) is considering getting rid of the name Smith Barney.

If Smith Barney were to be dropped it would join a raft of Wall Street icons to disappear. Morgan Stanley itself killed off the Dean Witter name, and Citigroup offed Salomon Brothers. The financial crisis claimed the names Lehman Brothers and Bear Stearns.

Morgan Stanley now holds 51% of the joint venture, Wall Street’s biggest brokerage force, and has said it plans to buy the rest in the coming years. Morgan Stanley Chief Executive James Gorman has made the retail brokerage business a key part of his strategy for the firm.

A Morgan Stanley spokesman declined to comment specifically on a potential name change, but said “we regularly survey clients about a lot of things relevant to our brand, and I wouldn’t read a whole lot into this.”

Here’s one of John Houseman’s Smith Barney ads with the famous tagline, “They make money the old fashioned way. They URRHNN it.”

Morning News: March 8, 2011
Posted by Eddy Elfenbein on March 8th, 2011 at 6:47 am

Oil Slips as OPEC Discusses Output; Goldman, Merrill Raise Price Forecasts

German Factory Orders Rose in January on Surging Domestic Demand

Hong Kong Stocks Advance to One-Month High as Banks, Gold Gain

Greek, Spanish, Portuguese Bonds Drop as Debt Sales Test Investor Appetite

U.S. Home Sales Accelerate as Prices Decline Amid Rebound

Exchanges Duel for Customers

Attorneys General Push for Loan Reductions, Seek Bank Deal Within 2 Months

Debit Card Fees Prompt a Push Near Deadline

Hitachi Rises on $4.3 Billion Sale of Hard-Drive Unit to Western Digital

Boeing Deals Show Rising Clout of Asian Airlines

Goldman’s Pariah Status Fades as Broadbent Joins BOE Monetary Policy Committee

Subway Runs Past McDonald’s Chain

Howard Lindzon: Discussing Disqus…The Case for Style, Instinct and Less Due Diligence

Paul Kedrosky: LICs Heart BRICs

Joshua Brown: TIME’s Embarrassingly Useless “Top 25 Financial Blogs” List

A Case of the Mondays
Posted by Eddy Elfenbein on March 7th, 2011 at 2:35 pm

This is just an ugly day of trading. The S&P 500 has been as low as 1,303. The index has to stay above 1,297 to remain above the 50-DMA.

Once again, the cyclicals are getting whacked hard. The Morgan Stanley Cyclical Index (^CYC) has been down as much as 1.82%. The CYC-to-S&P 500 ratio will likely close at its lowest level since November.

The Buy List is down with the overall market. Some cyclicals like Ford (F) and Moog (MOG-A) are getting dinged. I think Oracle (ORCL) looks very good below $32 per share.

Outside the Buy List, I see that Cisco (CSCO) is now at its lowest level in 20 months. I hate to think of all that money wasted on share buybacks.

Gold-Silver Ratio Falls Below 40 for the First Time Since the Early 1980s
Posted by Eddy Elfenbein on March 7th, 2011 at 8:29 am

Speaking of gold and silver, the gold-to-silver ratio just dipped below 40 for the first time since the early 1980s. This ratio has fascinated people for centuries. Way back in antiquity, Plato mentioned that the ratio was 12-to-1.

In 1792, the U.S. Congress, at the advice of Alexander Hamilton, passed the Coinage Act of 1792. This was the government’s first attempt at price-fixing (and not the last). The act defined a U.S. dollar as 371.25 grams of silver or 24.75 grams of gold. In other words, Hamilton pegged the Gold/Silver ratio at 15. In 1834, Congress had to bump it up to 16.

Morning News: March 7, 2011
Posted by Eddy Elfenbein on March 7th, 2011 at 6:47 am

China Yuan Hits Record High Late On 3rd Consecutive Record-Low Fixing

Greek Debt Rating Cut 3 Steps by Moody’s on Rising Default Risk

Demand Offsets Impact of Oil’s Surge on Nikkei, UBS Says

Moody’s Downgrades Greece, And Portuguese Yields Are Surging, So Of Course The Euro Is Rallying

Russia Plans $10 Billion Fund to Attract Global Buyout Firms

U.N. Says World Vulnerable to Food Crises

Oil at $110 May Trigger Pain U.S. CEOs Weathered at $100

Fed Unlikely to Remove Its Economic Stimulus Just Yet

Japan’s Terumo To Buy Major US Medical Firm For $2.63 Billion

James River Coal to Buy Coal Companies for $475 Million

LVMH Moet Hennessy Louis Vuitton Takes Controlling Stake In Italy’s Bulgari

From Guns N’ Roses Bassist to Money Manager

Joshua Brown: The Truth About Social Media and the Brokerage Industry

Howard Lindzon: The Facebook Over Reach and Why One Social Network Won’t Rule the Web

Time to Rip Up Those Sell Orders
Posted by Eddy Elfenbein on March 4th, 2011 at 4:53 pm

That’s it folks, the week is done. Gold is back over $1,428. The S&P 500 lost 0.74% and the Buy List dropped 0.79%.

I wrote a sell order for NICK but then decided to rip it up. Naturally, this got plenty of laughs.