Sunday, August 22, 2010


COSTCO Annual report link Stock quote COST Have you ever been to one of their warehouses? 3rd largest retailer in US. It's like Sam's but they do almost twice the business as Sam's per location. They are #25 on the Fortune 500 list, 550 locations, their average warehouse does $3mill / week they stock only 4000 items as opposed to 40,000 for typical retailers. Nobody steals from them (shrinkage is less than 0.16%), ID's checked at the door (membership plan). Since 2005 they have bought back 17% of their stock float, and pay 1.48% dividend as well. I say "as well" (I hate Maria Bartiromo's constant use of this term as gibberish filler because she doesn't know what else to say to sound important) AS WELL because in the transaction of a buyback, money comes from COSTCO to the SHAREHOLDER exactly as a DIVIDEND does. It is most similar to the BOND equivalent of PRINCIPAL REPAYMENT at maturity. It has the added benefit of reducing the denominator for future per share calculations, such as earnings, etc. Strangely, many analysts don't like this tactic, however it has worked well through the years for the Best Stock of AllTime- Philip Morris (Altria). Despite improvements per share, and overall absolute improvement in sales, the stock is at 50% SwingForce from its 2007 high-2008 low. An improving sales & profit picture should be amplified in the per share numbers, pushing this stock much higher. But today, the focus is on the nominal divd 1.48% which is lower than MO 6.00%+, so COST gets left behind. The point I intend to make in the next few emails is PENSION FUNDS need to invest money. And there aren't enough bonds that yield enough % to meet their projections. Most assume an 8% rate of return. But if the going rate is an avg. yield of only 4%, they will need to invest DOUBLE the amount of money in stocks or bonds. That is, if the pension funds have any money to invest at all. The Point is, The Quest for Yield continues, and WILL continue even after all the bonds are bought. Rates can go low, and STAY low, for an extended period of time, where did I hear that before? And when the yield% gets too low, then the focus will shift to "total return", and a stock which is contracting its float will be far more lucrative than a stock who is issuing 100% more shares over the same time period (example: Bank of America).

Saturday, August 14, 2010

Deflation is Twice as Bad

The Fed controls the Money Supply, usually by adding to it. And decreasing each dollar's value thereby. Goods, items, food, and STOCKS all get more expensive as the increasing money supply decreases each dollar's buying power. From "Understanding The Fed" (well, maybe after reading it for the third time LOL): By creating new credit (we call it "money"), which is deposited in a bank then lent out again over and over, The Fed has provided the Fuel to propel Stock prices higher (among other assets). As stock prices go up, the each Dollar value actually goes down (it takes more dollars now to buy 1 share). If you convert your Dollars into Stocks, your net worth rises, until you reconvert back into dollars (when you sell the stock). Then you watch everything go up in price. ITS AN ILLUSION! Stocks aren't moving, its the Dollar that's moving, and in the opposite direction of what you apparently see. Its all RELATIVE. So what happens when the credit supply contracts? There are fewer dollars (mortgage defaults evaporate dollars that were expected in repayments). Fewer dollars Condenses their value (opposite of Dilutes). STOCKS (& other assets) appear to decrease in value, but that's because they are denominated in Dollars. Again, ITS AN ILLUSION! The stocks aren't moving, the value of the Dollar is! This is way oversimplified, but think hard- Wrap your head around this Merry-Go-Round ride, the floor travels at the same speed with you, but if you could see through it you would see the ground underneath going in the other direction. OK, I understand stocks dump because people push the red SELL button, but that's in RE-action to the Dollar's turn. Just like people scramble to Buy stocks in reaction to inflationary news. We think of the USD in terms of Euro or Yen going up or down, but we should think of Dollars in terms of Stock Prices. Bob Prechter has long tried to instill this mentality in us, and it is FINALLY sinking in for me. When we hit an event that destroys a large amount of Dollars that were expected to be repaid to somebody, it will appears that stock prices are dropping. And the reaction to that perception will verify that thought. But if Dollars are becoming scarcer, then the proper trade would be to BUY them, convert your assets INTO dollars, no? Ride the push higher in the dollar's value. Its hard to grasp this mushy concept because a stock price changes every second on your screen- the dollar does not, its constantly the same $1.00 but think about this, that $1.00 buys you twice as much "House" as it did 5 years ago, no? So its value doubled while remaining $1.00 weird. What's Happening Now? Banks are having a tough time with the people they lent to the borrowers that can't/won't pay them back. When the banks verify that the loan went bad, POOF! Deflation hits. Unfortunately for a public company, a "Loss Event" just hit the bottom line at the same time. Let me tell you, the massive bonuses these bank jerks get make them focus ONLY on that bottom line, they will defend that area like a World Cup Goalie, ain't NOTHING getting in that zone. So that's why I'm still sitting in my condo without paying SunTrust in 2 years+. But for their part, their assets have increased beyond the $150,000 I owed them, to $250,000 currently due to late charges, interest penalties, and legal fees. They look "Good on Paper" (Hey, I see FedEx Office has coined my favorite phrase in their advertising, "It Looks Good on Paper!" ). SunTrust's assets are growing because I'M NOT PAYING THEM! Just like my Condo Association's balance sheet is growing because they are charging me $25/mo late fee, interest, plus Becker & Poliakoff has added legal fees that total MORE than the actual balance I owe to the Association! Talk about a license to steal, what about THEIR overstated balance sheet- do they have investors? There is no way I can possibly pay all these entities back the money they say I owe them, even if I wanted to. Its preposterous to think I would. I just got a civil summons from a 3 year delinquent Citibank card. My credit limit was $12,700 but the current balance filed in the Broward County suit # 10-31138 is $23,033.83 its crazy. Nobody will get 1 single penny from me! But rather than deflate by $12,000 they pumped it up to $23,000 so the damage is going to appear much higher/greater now. The event ACTUALLY occured 3 years ago when I stopped paying my non-recourse credit card, oy! Robert Prechter has certainly taught me alot through the 25 years I have been reading his thoughts, and he has always been in the minority of financial opinions. As overwhelming bearish as his current opinion may be perceived, I only assign him a NEUTRAL rank, 100% objective. (No leeway or sway, either side). If you think he has a bearish view, then your Merry-Go-Round is spinning the wrong way (you're too bullish, in relative terms). Do we need Albert to step in here? Mr. Einstein, to the front desk, please, Relativity on line #1, ha. LINK Hey Sugar Bear, Dig This: Mr. Prechter may be BULLISH! As he tries to make us aware, its a relative push & pull. What he may not be plugging into his spreadsheet is the lunacy of adding layers of additional charges upon the original charges, that were never expected to be paid off. The level of defaults are being pumped up by 30%-50%-100% of original values, so the EVENTUAL REPORTED default figures could be Much Higher than what Mr. Prechter is anticipating, making him "Not Bearish Enough" which is the same as "Bullish" relatively speaking, is it not? (I am extrapolating that I am not the exception in the deadbeat pool, and that there are many thousands exactly like me). Oh brother, please don't make me responsible for tomorrow's headlines, "Prechter BULLISH!" Wow, add a "T" Vanna and move the "(i)" and we have something there, wow. Anyway, the realtor who knocked on my door Friday said FNMA will offer me $4000 to move out if I sign an agreement to "Short Sale" my property (worth $85,000) which I will accept gladly. Just think of this situation now as it unfolds- FNMA is the catalyst that caused SunTrust and my Association to realize their actual losses, 3 years late, but double the actual amount. The cost of being Rip van Winkle. One last comment: How in the world is Chris Dodd a Republican???? Hope everybody followed the bouncing ball to the end, and had a good laugh, LIVE from NEW YORK, Its Saturday NIGHT!!!!