Wednesday, October 31, 2007

Halloween


My kids are too old to enjoy Halloween anymore. When they were in full swing, though, it was a night of extraordinary delights. The anticipation was almost as much as Christmas. What could be more fun than dressing up and running yourself crazy for a sack full of candy? Nothing.

Look at this handsome, jaunty lad--you can see his anticipation!

Sunday, October 28, 2007

Subprime and waxing philosophically on politics

Subprime: Calculated Risk has done a terrific job chronicling the credit crap over the last year or so. The reference the following subprime report

The Subprime Lending Crisis
The Economic Impact on Wealth, Property
Values and Tax Revenues,
and How We Got Here
Report and Recommendations by the Majority Staff
of the Joint Economic Committee
Senator Charles E. Schumer, Chairman
Rep. Carolyn B. Maloney, Vice Chair
----------------------------------------------------------------------
The report is worth your looking over. I think that it is well written, and best of all, it has pictures and we know the worth of pictures.

One of the fallouts from this "crisis" will be the effect on state and local revenue. With the boom in housing, that creates the need for schools, water/sewer and other locally delivered services. In my area, over the past 4-5 years, the real estate basis has doubled (in the example following it more than tripled). Local Commissioner's of the Revenue recognized a huge windfall when they went through reassessment. I provided an example of this in one of my blogs. You may wish to visit it here. I recognize that it is only one example, but I don't think that I'd need to look further to find similar ramps!

The politicization of tax discussion nauseates me. It is always so polarized. But let's be clear on a few basic tenets:

1. If you spend more than you take in you have a deficit.
2. Deficit = debt.
3. As spending > than income continues, you pile on more debt.
4. As spending = income results, debt stabilizes.
5. As spending < income is realized, debt decreases.

Now let's suppose you want to do something about the imbalance. There can be two objectives. Objective 1 is to cure the current imbalance so as to not take on any more debt. Objective 2 is to not only cure the current imbalance but also reduce (if not eliminate) the accrued deficit (deficit=debt).

There's not a lot of moving parts here, it is merely income and spending--debt/deficit happens to be the byproduct of the relationship of the first two. So to fix the imbalance, you need to do something along the lines of increasing income and/or decreasing spending. Now where the fighting comes in is that one party believes that if you increase taxes you are effectively reducing income because the free-market grinds to a halt. Much along the same lines that if you tax advantage hedge fund managers, all commerce will go to its needs. I think not. And to be fair, the other party believes that some folks do not pay enough.

Now we want to reduce the corporate tax rate to make our corporations more competitive. Corporations have had the best profitability, are wallowing in cash and the only thing they've been able to do with all of that is pay non-performing executives exorbitant amounts and buy back stocks. And, it's worth noting that the pay of most workers has barely kept up with inflation. I know that. I worked for a Fortune 500 company and I had to manage to a pay increase that did NOT keep up with inflation.

Remember that most of the arguments that you hear about any issue are "people talking their book."

I have no book to talk. But I do know this: First, we have to increase income--and I don't think that incentivizing more "investment" through more tax breaks is going to do it. If so, we would have already seen the results. Second, we have to find a way to reduce our spending. While our "entitlements" which are characterized in such a way that recipients are seen as "freeloaders" (and I resent that a bit because I've paid into these programs with my
own hard earned money as did my employer--which at times was ME).

As with anything, "The devil is in the details," And sadly, the devils in this case are the special interest groups who throw boatloads of money at lobbying for their interest.

I don't look forward to the coming Presdential election. All of the fingerpointing and name calling truly offends me. Unfortunately, it's Politics 101 to discredit the other person--and it's very effective. Politics plays off the same emotionality as the market pickpockets. I do see looming problems ahead largely due to both demographic and economic shifts. I want to see politicians who are committed to what is good for all of us rather than the pandering to a few special interests--and I say that with equal enmity toward both parties--each very skilled in this regard.

My only hope is that people will be so disgusted (and many are now) that we will witness a grassroots effort to rejuvenate and simplify the issues at hand rather than PANDER to special interests--whomever they might be. For myself, I'm not sure where to start, but I feel that my internal pilot has been lit.

Don't worry. I do not plan to make my blog a political anything. I avoid political and religious discussions largely because they are so emotional for many people; accordingly discussion is generally impossible. The thing that I love about my book club, is that we are a pretty diverse group, and somehow we manage to hold these discussions without resorting to fisticuffs. Why? I think that it is because we have a genuine affection and respect for each other.

When I had to negotiate difficult contracts, I always started off our discussions (and these were generally negotiations that took place over many months) with this simple statement: I want to be clear about our expectations for negotiating contracts. The contract and its discussions that we are both undertaking is going to be complex and difficult. We come to the process with an open mind and the singular desire to negotiate a fair and equitable contract that both parties will walk away from feeling good about."

Now you might think that statement hokie. There was a ruthlessness in the 80's about negotiating for maximum, unilateral advantage over others. (Yes, that is infused with testosterone!). But I will attest that "my way" was very effective. During the course of negotiations (which we laughingly started to peg to holidays--that's how far apart some of the milestones were!), if we began to get lopsided, it was a sincere tenet to bring the group back to. Very centering for a group.

The lesson (for me at least!)? When you come to difficult discussions in your work or personal life, (a) have an simple and sincere (I call that elegant) statement about what you want to accomplish; (b) share it clearly with the other party; (c) work toward that goal with energy and passion; and (d) treat all parties with respect. There is no goal that cannot be accomplished with these simple, effective tenets in hand.

I see often the point "you have to respect the opinions of others." I think that you treat people with respect. There are many people that I respect, but some of their opinions I have absolutely no respect for and don't feel any compunction to feel respect for it.






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Saturday, October 27, 2007

Saturday Miscellaney

Our good friend MarkM is taking a sojourn away from blogging. He's been a terrific contributor to this blog and others. To say that he will be missed is an understatement. We'll wait patiently for his return. We could make up stories about his absence, vote on the most outrageous one and present it to him upon his return!

Today I did a transport leg for Tori, a border collie mix and three black lab/mix puppitos. Very good passengers. It was an easy trip, and I really enjoy volunteering in this way. Here's a story for you....C, the person that introduced me to this volunteerism, sent an e-mail out a couple of days ago. Apparently this lovely, 9 year old, female, yellow lab was turned into the shelter because the family was moving. I sent the e-mail to my SIL to vent---she was willing to foster the dog. As she followed up, she was told that a family friend turned up at the shelter to take in the dog. Unless it was extenuating (health, financial debacle) circumstances, I could no more imagine turning my dog into a shelter than turning my kids into a "home". If I were truthful, it would almost be able to turn an insolent, surly teenager in than a dog!

Speaking of insolent, surly teenagers, my son received his driver's license (90-day temp) on Friday. Surprisingly, maybe not surprisingly, he thought that he was now able to just get in the car and go wherever he wanted. Upon my telling him NOT, he became insolent and surly....all the the things that any of us were when we were that age and our parents thwarted our every desire! Outside of the abject terror of their getting behind the wheel with their learners and our white knuckled rides with an inexperienced driver, another sort of terror slips in. The terror of their driving alone and being stupid behind the wheel. And as most of us remember from our teenage years, being stupid was a big percentage of our lives! You know what I mean. So we worry for them as our parents worried for us--all that worry predicated on doing all of the stupid things at one time that we were lucky to have lived through.

Daisey continues to heal. I took her stitches out on Friday rather than take her into the vet. It was easy to do. She has a place on her leg that is still open (for drainage) but that has become infected. She's on heavy duty antibiotics, and I'm dressing the wound 2 x a day in addition to putting hot compresses on it. Hopefully we are done with road encounters. Mark has extended the fence: a temporary 3 strand electric (we have electric on the board fence to keep those ladies from charging through the first slat).

We'll put up more board fence, but it is a chore and an expense. Poor Mark is just recovering from the first 160 ft. We have alot of road frontage to cover. We had limited to just where the yard was--but Daisey charged the road through the woods. Macy doesn't go over there, but Daisey is a machine....she covers every square foot of our land (6.5 acres) looking for something to point. Her energy is scary.

Rain has blessedly come. We were so parched. We had about 2 days of steady rain. Everything looks the better for it.
-------------------------------------------------------------------------
Next week in the market will be interesting with the Fed rate decision. Have you listened to Gary K lately? I think that he is totally out of the market, as is his friend Jim Rorbach (who is a well-recognized and successful market timer). I have a few things, but I'm mostly cash. Despite my caution (and the occasional insolent surly comments by some Anon posters over this year), I've earned a very respectable return. I'll ascribe that to luck over skill--but I've really taken to heart some of the horribly painful lessons learned from last year!

Gary K has been the most consistently correct market observer. I've not seen the Fox Business Channel, but Gary must have been on. I tried to tune into his broadcast last Monday or Tuesday and I received a "server is busy". Jim Cramer used to have a radio show. I will tell you that his radio show was worlds apart from his TV show. He was calm, antic free--very much in pedagogical mode. Though I cannot abide by his histrionics, and I think that he tries to churn out too much content which makes him look waffly at best and schizoid at worst, I've learned from him. I wish he would can the TV show and move back to a platform that allows him to showcase his skills.

I've caught CNBC's Fast Money show, and that it quite good. All very smart cats. Perhaps we'll see MarkM on TV!

Friday, October 26, 2007

Subprime: A Sticky Booger

I just finished reading an FT article stating that Merrill Lynch's Sandy O'Neil approached Wachovia bank regarding a proposed merger without the courtesy of discussing this beforehand with his board. Naughty!

For those of you who are youngsters, you many not remember the names of Michael Miliken and Ivan Boesky--but they were at the center of the firestorm in the 1980's junk bond debacle. MM worked for Drexel Burnham Lambert--the 5th largest investment bank in the US. They are no more.

You will remember distinctively how we were told in Mar/Apr and all of the ensuing months until August during the great credit meltdown (or credit freeze, you pick the temperature!), that there was nothing to fear. It was isolated.

This credit *stuff* is like a sticky booger. (1) You you flick it away--that in itself is not easy if it is a particularly obstinate booger. But assuming you are successful, you flick and mistakenly think that you are done with it. You're not. That booger only sticks to something else and causes problems. And because it is sticky it attracts all sort of things.

The sticky booger of the 1980's was junk bonds. The sticky booger of the 1990's was the Savings and Loan fiasco. And now the 2000's have the CDO and all of the derivatives to embrace and call their very own. Remember how benign this started out.

I know that it is difficult to know what is real fear and what is vague, brick-in-the-wall-of-worry you-should-forget-about-it- fear. In order to distinguish between the two, you must imagine a point in time in the future where you might be forced to say, "I should have known better."

And for the life of me, I have to question the precarious ETHICAL situation that Goldman Sachs is in. They profited from the issuance of much of this crap, yet they bet against it to make lots of money. I think that it is one thing to bet against the failure of something that you had NO hand in creating v. betting against your own creation that you sold to other investors. Admittedly, the prospectus is very clear on the risks, but I'd expect my investment banker who was taking the opposite side of the trade to steer my money elsewhere. You're not seeing any press on that, are you?

(1) I credit this metaphor to our IT geeks at a company that I worked for. They were hired guns. But they were really good. Two brothers. One of them was talking about computer viruses and called them like a sticky booger--

Tuesday, October 23, 2007

Did you know. . . .?

You can find the major holders of U. S. Treasuries at here.

http://www.ustreas.gov/tic/mfh.txt

Also, you can find some decent commentary from Wells Fargo here.

Monday, October 22, 2007

Technical Difficulties

I've had trouble all day trying to get into my own blog. I think that I had a Firefox upgrade. I finally had a "duh" moment, and rebooted.

A bit of a bounce today. What it leads to I do not know. But I cannot figure out teenagers, and we must always remember that the market is a teenager!

We had a lovely weekend here in VA. We are in desperate need of rain. I cannot imagine what I would do if my home were to burn down. We live among the oak trees--old oak trees 99+ years old. We had an old red oak taken down. I counted 155 rings, so 99+ is being conservative. Our well has held up. But as I see that San Diego is on fire, I'm reminded that carelessness or a lightening strike can reduce all that I have worked for to rubble. The true test of one's grit is to be like a Phoenix and rise out of the ashes. That spirit is truly within us--some of us have to dig deeper than others. Mine's not been tested, but I'm hoping that I don't have to send a plumb line too far down.

One of the things that I did over the weekend was go through my "notebook". Sadly, I have many, and as I tell you about them, you will laugh at me. But I'm all about sharing so that others do not have to toil as I do! Though I think that Stephen Covey is a control freak, I do have a Franklin Planner. Classic size. Because I have a leather (pen and paper) fetish, I will always have some sort of planner that can be encapsulated in luxurious leather. I would never buy a fur, but I have a leather fetish. You may freely call me a hypocrit. It fits. I'll not contest the label. When I trade during the day, I write down my trades. A chronicle of both my genius and stupidity.

As I sat on my deck, enveloped in the lovely Indian summer day, I went back through one of my notebooks. This little number is by Levenger. It is their Circa series and it is purple moc-croc leather. Of course I bought it at deep discount. It is also 8.5 x 5.5--I find that size easier on my eye and hand. When I listen or read stuff, I try to have this in hand, though I must confess that this discipline has escaped me a bit of late.

But I plowed through my notebook making "10.21.07 updates" beside key items such has gold and oil prices. I came across a note that said, "research Linda Bradford Raschke. " Her name came out of Fontenil's Stock Market Course Book that I was rereading. I looked her up, and for you "trader types", I think that you will enjoy reading her articles. Here's an article you can read without registering for anything.

You can find her website here. I read all of her articles, and I gleaned quite a bit. These are trader oriented. Despite the sniffing that our dear, friend Russell120 does at technical analysis traders (and they are the folks that ultimately set prices) use TA regularly. As I've said here before, I see both of them as important. You can have a terrific stock with solid fundamentals that has been bid up so much (easily seen by looking at fundamentals) that you are almost guaranteed to lose money if you by it at the current price. Buy and holds...you can still lose money if you are buying at the top of the cycle and at an extended price. And while our Allegorical Cat adores TA irrespective of fundamentals (some entrails thing that I averted my eyes from as it was dinner time and all that), TA will take you only so far and fundamentals HAVE to be the air beneath the wings, no? John Murphy states that TA is more expeditious than TA, and if one is to think of one's time vs. payoff, I'd have to agree.

And while our cat-of-many-faces asks insightful questions of this blogger ("Did you notice that XAU and HUI were basically FLAT since 11am on Friday even though the Dow was losing another 200pts? Hmmmmm....."), I must admit with great shame that I've NOT considered these aspects.

Saturday, October 20, 2007

Market Margin Call Redux and You May Call me a Fruit Loop

Well, Friday was quite a day in the market. Note that the indices fell off precipitously around 2 p.m. You'll see that happen from time to time. Margin calls (they start at 2) get made at that time. From the leverage stats, there are many leveraged players. If you have a brokerage (non retirement) account with margin, in general they will allow you to leverage double that. If you are tapped as a "day trader" which happens if you make x purchase/sells of the same security over a period of time (sorry, too lazy to look up the rules), then you get 4x margin that has to be closed every day. Here's what D. Willoughby of Barron's says this week about margin debt:

EVEN AFTER A RECENT DROP, margin debt remains within spitting distance of the all-time high it hit in July, and 43% higher than it was a year ago. It's become a source of concern to some investors who worry that it makes the stock market more vulnerable to a nasty tumble, particularly if equities' resurgence continues.

"High margin debts show the effect of over-leveraging and mispricing of risk in our financial system," says Scott Schermerhorn, chief investment officer for Choate Advisors, which runs about $2.7 billion. "It indicates that, despite the August runoff, there's still more problems out there. This will take a long time to work through the system."

So if you are heavily margined--let's say that you are betting that because it is the anniversary of Black Monday (and I'm sure LOTS of folks are still worried about that over this weekend as Monday comes around)--and the market continues to slide, then your positions decline to a point where you are forced to sell to keep the margin ratios.

Regarding margin accounts: They have a negative connotation, but if you do not have a margin account in a non-qualified (retirement) account, you might consider getting one. Why? Because if you restrict yourself to only cash transactions, you may be in a position that you cannot exit because the transaction has not cleared. It's flexibility. And, it doesn't mean that you have to use the 2x leverage, merely that you can be nimble to trade out of a position if and when it is called for. Violating your cash trade requirements can result in your brokerage firm freezing your account for 90 days. Your broker would be happy to help you with this.

Yesterday I did only a few things. All of them with green attached to them. Modest green, but green. I shorted GRMN at 115.556--I covered too soon, but it paid a bill or two. I shorted RIMM and covered at exactly the right time. At the time you never know what the stock is going to do, and I'm happy to scalp smaller green than accept bigger red.

I did close out my NOV FAST puts on Th. It was early, but one of our posters here reminded me of one of my rules--if I have a 30% or more gain in a put that I have > or = $2K basis in, I take it. I made $1K on a 2K put. FAST has acted strangely. Even yesterday when I expected it to drop like a stone, it showed some mid day strength and then slid. Bird in hand, is a bird in hand. I'm not going to look back and second guess.

SEED: I did reenter this position, though not at the most advantageous price. But this stock is stabilizing, and my basis is essentially my gain from my prior holding: house money. I'm mostly cash now, so I don't feel like I have itch fingers.

Now, you will think me odd for suggesting this next site, but I'm going to do it knowing that some of you will think that I'm a certified Fruit Loop. So be it. The site is Ray Merriman's Market Cycle site. Ray is a Financial Astrologer. Few things are as misrepresented as astrology. My intent is not to try to explain it nor defend it, but rather to introduce you to a psychological resource for your market observer tool kit should you choose to use it. Astrology is about symbolism, psychology and timing--the same sort of things that the market is based on. Do not underestimate to power of symbolism in manifesting behavior. You can find Ray's weekly column here. You can see for yourself if you find any of this of value to you. (I was startled to read one of John Murphy's technical books where he notes that the historical price of wheat fluctuates with great regularity with the lunation (moon) cycles.) Here's what he said last week:

Short-Term Geocosmics

The major planetary cluster in effect was centered on October 11 of last week. It involved the third and final waning square of Jupiter-Uranus (October 9), the Libra new moon and Mercury retrograde station on October 11, and the third and final conjunction of Venus and Saturn on October 13. I would expect that this week’s activity would be a reaction to those signatures that peaked last week (or early this week).

For this week, we note the following geocosmic signatures. The “Sagittarius Factor” (Moon in Sagittarius will take place on Monday and Tuesday, coinciding with Venus sextile to Mars on Tuesday. This is followed by the ingress of both the Sun and Mercury over 0 degrees of Scorpio on October 23, the next week. The Sagittarius Factor has a tendency to produce sharp price swings in some financial and commodity markets, like currencies, T-Notes, and Silver. The Venus-Mars sextile also has a rather reliable correlation to reversals in many financial and commodity markets within an orb of just a couple of days. It is likely going to be related to the October 11 critical reversal date in this instance, +/- 3 trading days.

The ingresses of Sun and Mercury – involving Scorpio – can coincide with a change of sentiment regarding interest rate or debt matters. The concern might about an increased in debt, either national or in regards to the level of personal debt. Perhaps a report comes out about an increase in foreclosures, bankruptcies, and business failures. Perhaps there is more spillover about the sub-prime fiasco of the last few years.

Keep in mind that Mercury is now retrograde through November 1. This is typically a time when technical studies become most unreliable. Support and resistance either do not hold, or fail to be reached as expected. Buy and sell signals are more like “fake-outs,” and markets flip-flop in very short spans of time (compared to usual). Usually we give very few recommendations to position traders during this period. It is better to be a very short-term trader, even day trader, ort stay out of the markets altogether and let others enjoy the confusion of contradictory messages and announcements from economic and political leaders.

Also, we will repeat comments from last week’s column. “Everyone knows about the “October effect,” when stock markets seem to incur a powerful sell-off. Well, the new and full moons of the Libra Sun have the highest correlation to highs from which those declines begin, or lows from which the declines end. This is a new moon week, and it happens on the day Mercury turns retrograde…. between October 8-27, Saturn and the South Node of the Moon will be conjunct. It’s possible that worry becomes heavy, and if prices do continue to decline into the following week, they may continue to do so for several more days. But in all likelihood, these signatures suggest that many declining markets will find a bottom by the end of this month, however sharp the decline is.”

Do not underestimate the power of symbolism on one psyche. The Stock Trader's Almanac is all about cycles and this or that. Like any sort of cycle analysis/divination, it is not always right. I surmise that it is the number of people looking at the cycle or symbolism and what it purportedly manifests that CAUSES the actual event rather than the obverse. Who's to know? I don't, but I do know that myth, symbolism and the stories we create around it are endemic to our being human and is very influential to our behavior whether we acknowledge it or not.

Speaking of myth and symbolism (one of my major reading interests along with comparative religion)--I'm currently reading Myths of the Dog Man by David Gordon White. When I'm done with the book I'll post a bit of it here. I am just beginning to read this book. I picked it up in a used bookstore on the lovely Chincoteague Island where we vacation every now and again. I've had it for a couple of years.

Our book club just finished reading "Spell of the Sensuous", and in our book discussion I remarked how dogs live in two worlds: ours and in nature. I posited that I thought that dogs served as an intermediary to the natural world that with our digitization of our lives we've removed ourselves. I immediately went to my bookshelf and pulled out this book.

For those who enjoy myth and symbolism, and find the case for the canine's presentation in myth--including apocrypha--you will find this book fascinating. I may do an update on this post later when I complete the book, but already I'm totally captivated by this book.

Friday, October 19, 2007

Market Agnosticism

Though I wish I could say with some credibility that I'm a market agnostic, I probably have more ursine tendencies than bovine tendencies. Or perhaps I'm just canine, barking madly because the market rarely does what I think it will do or chasing my tail (or doing both!). A market agnostic would certainly be represented by a feline: sleeping soundly, our fastidiously cleaning its face while the market spins into a vortex.

George Dagnino, an opinion that I not only pay for but admire and respect believes that the market will go higher because of Fed intervention. You can check out his current blog (click on the menu to the right). Others are calling for the market to correct because of the tumult in interest rates, credit derivatives falling dollar, high oil. You can add your own fears to this list.

I'm still not smart enough to know when to listen to my fears or when to quell them. I'm of the mind that Fed stimulation will not provide accretive money, but rather will backfill the stuff that was flushed down the toilet. I certainly do not know, I'm but a lay person. But I didn't believe that bonds would be so attractive last year. They weren't, but luminaries said they would be. When smart folks take opposite poles and folks like me are in the middle it is uncomfortable. It's always your money, your risk and your decision.







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Thursday, October 18, 2007

On Markets, English Setters and Handwritten Notes

Today is not shaping up to be a good day in the market largely due to BAC's poor earnings (big miss). Richard Suttmeier (see link to right) has been a unflagging chronicler of what he saw as the risks to banks. Frankly, I do not believe that his insights have received the attention that they should have in the media. He's been warning of these issues since last fall. Now, one year later, these issues are unfolding. I have to admit, that I was early to the party. And...though I had done my research on MTG and had selected puts on which I would have been handsomely rewarded, I allowed myself to be swayed that somehow I had it wrong. That gets back to analysts bashing! Nevertheless, it was my decision to make, so I blame no one but myself. I think that due to my inexperience (which decreases as each day goes by!) it is hard to discern between conviction and stupidity/ignorance!

My SIL called me last evening. She said that there is a message on her machine that she believes belongs to me. (For some reason, Mark and I ended up with an unlisted number. She has the same last name as we). The message was from a man that received a note from me. What was this note about?

For many years, we would commute to our work along our backroads. One of the homes we passed by owned a beautiful big English Setter. We would see her traveling along on their property or laying under the fruit trees just beside the road. She was a Llewellyn, like Lucy. A llewellyn is a black and white setter with some liver colored spots. They are sometimes called tri-colors. The dog was so big, I actually thought it was a male.

I had not seen the dog in a while. I passed by their home on Monday, and I noted their address off the mail box. I intended to (and did) write a note to them telling them how much Mark and I enjoyed seeing their beautiful dog and that we genuinely missed seeing it. I shared my own loss of my two dogs. Mr. Foster's message was to thank me for the note (I've not heard it yet) and tell us that his Setter's name was Dolly. She's been gone for 2 years. Like Lucy, she lived to be 14. One of her favorite things to do was swim in the river. They have a German short haired pointer now (which Mark told me). They named her Dolly too! In the message he stated that Dolly pointer was not as pretty as Dolly setter!

The only other time I've sent a note of appreciation to a stranger who has enriched my life was to another home on that road. They had a beautiful fir tree which they decorated every year at Thanksgiving for the holiday season. Decorations were the small lights wound around and around the massive tree. I've lived out here for 22 years. That tree grew to a point where they needed a bucket truck to put up the lights. Driving by that tree every year from Thanksgiving to New Years and seeing it lit up every night was something that had become part of my life. Like Dolly, who I would always look for when I passed her home.

On the Saturday morning after I sent the note, there was a knock at my door. It was the man whose tree I had admired. He said that my note brought tears to his eyes. He wanted to come and thank me for it. In addition to decorating a tree, he and his wife also hosted a Christmas party with cookies and hot chocolate for nearby children. The volunteer firehouse Santa, arriving on the firetruck with lights and horns blaring, would also be there. I thanked him very much coming and the invitation. My children were beyond the age of Christmas parties. But my outreach was much appreciated by him, and his in turn, made me feel richly rewarded.

With e-mail and such, the handwritten note seems to be a lost art. It means something to most people to get a hand written note from you. I actually have a place that I keep notes that I get from people. Sometimes it is comforting go back and read positive things that people have said to you.

I hope that you'll take time in your busy day to think about someone who has touched your life--even a stranger (whose address you have some success in getting!)--and send them a handwritten note expressing what your appreciation on how they have touched your life.




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Wednesday, October 17, 2007

Various

Oh what a difference a day makes. INTC, YHOO and IBM reported. An enthusiastic reception so far. All worries cast away.

Now T Boone Pickens is on CNBC shaking his oil shaman gourds that oil is going to $100 per barrel. That may well be, and one can certainly find the fundamental reasons for that BUT...there's that fear premium in oil and the currency slide in that number. If the dollar strengthens and hot-blood cools, then we can see oil prices ease.

I have a stupid stock trick to tell you about (e-trade). I bought--speculative purposes--Oct $25 puts on YHOO. It traded up to $29+ in AH. HAH! It was speculative, but I figured with VCLK's revenues being down that might have been a pretty good tell. It's not that YHOO had spectacular results to sport its PE, but it did surprise upward from previous guidance. Oh well.

My dog Daisey met Harley two days ago. Harley is a Harley Davidson. Thankfully, my neighbor was not hurt badly. (She was in the woods where the fence is not in front of the property--that fence will be promptly extended and shock collars incorporated! Daisey is beaten up pretty badly. Mark pulled a muscle running to see if my neighbor was okay. Daisey came running as fast as she could (running is generally a good sign, but a shot deer runs fast too before it keels over and dies). She ran inside, up the stairs and jumped in my bed. She had two down to the bone gashes in her right leg (hip and lower) and she had some very abraded skin on her underside and top hip. Naturally I was concerned about internal bleeding. Long story short, she is sewn up with two drainage tubes. I picked her up yesterday. She has an Elizabethan collar to keep her from licking her wounds and pulling out the drainage tubes.

Some observations about dog dynamics:
  • Dogs are tough. If I took Daisey outside without a leash, she would bound off.
  • Macy was very upset that Daisy was not home. She sniffed every inch of the bed and appeared very anxious. (She sleeps in the bed, and certainly smelled Daisey).
  • The poodle, Chloe, wanted to nest with Daisey yesterday. She does not normally do this. BUT, when Greta was sick, Chloe lay beside her every day. The amazing healing power of the poodle!

Tuesday, October 16, 2007

Irrational Optimism

Our friend Russell introduced me to this paper. I'll lift three sentences that I hope will entice you to spend a few minutes reading it. If you click on the title, you will be taken to a site where you can download it.


Irrational Optimism
Elroy Dimson, Paul Marsh, and Mike Staunton*

"In this article we show that, historically, annualized long-run equity returns have not been as high as 10 percent in real terms anywhere in the world. Over the past 103 years, a more typical figure has been 4–6 percent. Furthermore, a careful analysis of historical returns indicates that future risk premiums are likely to be lower than in the past. We challenge the widely held view that over an interval of up to 20 years, equity investment is sure to provide a positive real return. Equities are not “safe” in the long run."
----------------------------------------------

Despite what you might think, I do work hard at trying to be objective, though I admit that I have hand wringing tendencies! My Dad is a complete "the end of the world is nigh".

What continues to fascinate me is the role of our beliefs and behaviors--and how normal it all seems until one peels back the skin. I think that this article does a nice job of peeling back the skin on our belief that over the long haul we will always do better with equities.

I don't wish to sound like a CT (conspiracy theorist), but when one thinks about the amount of fees associated with the financial markets, it's in the interest of many many many people for us to feel comfortable about "being in for the long haul".

Reading this article juxtaposed with my reading Mauldin's most recent letter he has one of his invited writers talk about fat tail risk. Here's a lift from the letter:
--------------------------------------------------------------------------------------

Focus on fat tail risk


Now, what investors really should worry about is what we call extreme risk –
3-6 SD events which can potentially wipe out years of profits. This is often
referred to as fat tail risk. It is to be found to the extreme left of
chart 1 (encircled in red). However, according to the text book, they do not
occur very often. Take a closer look at the following table:



[Table 1]


Once every 3 billion years?


Statistically, assuming you are not an '├╝ber human' vastly outliving the
average person on this planet, you should experience only a couple of 2 SD
events in a lifetime. The problem is that recent years have been littered with
6, 7 and 8 SD events. A 7 SD event equals 1 every 3 billion years or
approximately the lifetime of our planet. Since the 1998 Russian debt crisis,
financial markets around the world have experienced at least 10 extreme shocks
none of which were supposed to occur more than once every few billion years.

----------------------------------------------------
The point about current risk models not properly valuing extreme risk was a prominent point in the paper Hedge Funds and Systemic Risk that we reviewed here back in March/Apr.

I did close my RIMM puts out for a decent gain (37%). I'm still holding fast on FAST, though it has been remarkably strong (which I'm attributing to the massive short interest that still needs to cover). My puts are up marginally.








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Monday, October 15, 2007

Evil Clowns


After reading the news today about the consortium of banks that the Treasury is rounding up to bail out SIV's, you will want to visit this site and create your own evil clown to represent any player in this saga. Just click on the face and you will be transported to Scott's Mind. You'll have fun. It would be fun for kids too!

In case you have not read the story, you can read it here.

Please remember the TH's that said that the worst was behind us. No, the TRUTH was ahead of us--the day of reckoning when the crap that was brought to the FED window as collateral had to be repurchased back by the banks was always looming ahead. This story is about the banks--what about all of the hedge fund participants who levered up to buy into this stuff?

I sometimes think that what you DON't hear about is what you should be worried about. That the government is facilitating this consortium means to me that the problem was always greater than was exposed to us. I think that is just prudent thinking rather conspiracy theorizing. I'm not sure if it is a good or bad thing. I think that their facilitation is a good thing if it is to prevent a collapse--but I'm NOT in favor of losses being obliterated. This move, then, would be the poster child for moral hazard.

Now, if I were an evil hedge fund clown trying to make up for a y-t-d dismal performance, what would I do? I'd start short selling an creating a bit of a scare in a few high flying names? Why? The journey down is a lot quicker than the journey up. There are only 75 days to make 2007 count. Getting a 10-25% return on short profits by spooking the market would be very efficacious. How done--just start selling stock at bid. A lot of these stocks are in weak hands having bought at the top. That's just my surmising--but I wouldn't rule it out. Fear and greed are powerful motivators. Powerful, indeed.

And our friend, Fraidey Cat, doesn't like the market internals. You know the saying, don't look a gift cat in the mouth. Oh well, it goes *something* like that!

Sunday, October 14, 2007

On Analysts and Research--Your OWN

Russell notes the importance of footnotes to financial filings. I have no use for analysts. None. They downgrade when a stock has already plummeted to earth like a meteor and they upgrade when it has already rocketed out of the stratosphere. Not terribly helpful.

Reading the 10-K's is key. No, it isn't fun, but you'll learn a lot. When you are researching a company, there are lots of things that folks look at and comment upon and are important in making an investment decision. But you have to exercise some global filtering to determine whether or not you WANT to look at all the stuff that will make your eyes glaze over. For my part, I like to make sure that I understand four things (admittedly this is simplistic):

Thing 1: Ensure that you have a company that is in a sector that will benefit from the current economic cycle or in long term trends (infrastructure, water). (I say this with a head scratching nod that there's lots of debate as to where one even is in the economic cycle!). Investing in a sector at the top--even when these are terrific companies--is a guaranteed way to see your money evaporate. It's not unusual to see 30% declines. I'm a firm believer that being in the right sector goes along way toward increasing one's probabilities of success. Money rotates in and out of sectors throughout the economic cycle. And it can do so with great alacrity.What are the success factors the industry that the company operates in, how are they measured and how is the company doing against those? IF you don't understand that, you're throwing darts or worse, gambling with your hard earned money. (Though, admittedly, any of this is a bit of a gamble of sorts!).

Here's a graphic of sector performance from John Murphy. I'm sure that I'm violating something, but I offer this as (1) an infrequent post and (2) a recommendation for you to consider this valuable service.



Thing 2: Assuming that you are looking at a company in a favorable sector, ensure that you understand FOR THE SECTOR the success and risk areas and the metrics/information that calibrate their performance. Look at the Fastenal data that I provided on this post. That metric is same store sales and overall growth. Does this trend look promising? Banks have different metrics as does ________ (fill in the blank). Make sure you know what they are. Those are the things that you are going to be looking for as you fight to stay awake in reading the 10-K's. Also of interest is the segment breakdowns (segments within the company's sales as well as geography) and margin analysis for those segments. Very key. Very key.

Thing 3: How does this company compare to other company's in the sector? IBD does a nice job of this, but you can do it too! Get a printout of a report that shows all of the companies in the sector (I use Fidelity's reports) and pull a Yahoo summary ON EVERY COMPANY. Yes, do this. It is worth your time. If you do a lot of research, get a fast printer with duplex (front/back) capabilities. Nothing beats sitting down with coffee, wine or water as well as a favorite pen/highlighter and circling positives and negatives. Throw the marginal companies away (low float, outrageous valuations etc) and focus on the strong ones. Those are the ones that you want to read 10-K's for.


Thing 4: I like to look at the technical chart analysis. I really do not want to buy a strong company whose technicals are already extended. It's a good way to lose money in good companies. Bill Cara has done a mighty fine job of educating people on this. I know that some of you pooh-pooh chart analysis. BUT....there really is no real vodoo in determining whether or not a stock's price has risen beyond continued volume sustainability. In the end, as Bill is fond of saying, we are ultimately trading prices. If you are a "never pay retail person", then I urge you to consider equipping yourself in having a fundamental knowledge of chart technicals.

Friday, October 12, 2007

An Odd Thought

I was writing an e-mail to an on line friend and something occurred to me. Yes, that tinfoil is perforated, and I'll ascribe odd thoughts to that occurrence.

Oftentimes Sep/Oct are met with some chagrin because of the tendency of the market to swan dive. The media (including many respected technicians) accounts were replete with this "fact".

Well, what have you heard about the Fall "fall"? Not much.

I find that odd.

Back to Research

(As I write this I'm listening to GaryK's YESTERDAY broadcast! He thinks that there is a good chance that a (as opposed to "the") top of some sort was put in place. I'm going to listen to today's real time, too).

I'm on my own this weekend. My men-folk, husband and son, are off in West Virginia riding dirtbikes. The place is called Hatfield and McCoy. It is a series of several trails that are old coal roads and the like. It offers terrific ATV fun.

Last October they went for the first time, invited by some friends who've gone up there several times--an annual trip. They had the MOST fun I've ever HEARD them experience--they talked about it for weeks afterward. They left yesterday after much anticipation ahead of it.

We were to go down to Hatteras this week, Sat - Tuesday with my B/SIL. I shared with you a picture of our last trip. This week, the trip was cancelled due to the death of my SIL's father. Sad times. So Mark and Reade had more time to get ready. They needed the time, as there was much maintenance to do to the bikes. It's rough riding, and bikes in top form are critical.

So I'm on my own. Oh, well my daughter is home, but I never see her. (Gary is saying that he is on a buyer's strike). Tomorrow I will do a dog run. I also plan to do some stock research. I have no pressing positions having exited them all yesterday with the exception of a few.

I did buy some NOV $100 puts on RIMM. Why?

The stock is very extended. Lots of ownership late in this move. Granted, these puts are speculative (in my e-trade). I finally signed up for options capability on that account. I'm trying to be judicious in my use of options. If this is a stupid stock trick, I will share that with you. I'm committed to sharing the good and the bad in that account. Heuristic value, you know?

My FAST puts for NOV were up today (I sold my Oct puts). But now I'm underwater (just gurgling, not turning blue). The stock rallied today. There is such a huge short interest, I believe that the buying pressure will increase in the near term. Given the P/E of 30+ for a stock that is growing earnings at less than 10% per year is not attractive to me. I don't see their business prospects encouraging in the near term. I may be proved wrong. I've got a little time for this to bear out.

So back to the title....I want to complete my research on my life sciences companies. There has been some good movement in those stocks. They seem to be benefiting from a sector rotation.

I hope that you had a good week. Thanks for stopping by.

Thursday, October 11, 2007

Market Margin Call

(I'll load e-trade image later. Blogger not accepting the upload)

For some strange reason, woman's intuition hole in tinfoil hat or whatever, I elected to lighten up even further on my gold stocks (after my first lighten) and sell all of my open positions. This was prior to the market's fall of the cliff. I've learned to listen to that little whisper.

I sold the last of my SEED in the a.m. Fidelity had NO shares short at the end of the day yesterday after having many earlier yesterday. YOu know what that means! Short sellers were feeding chum to the pirhana's in yesterday's feeding frenzy. I quickly calmed my earlier lament of selling too soon.

I bought some DUG in Etrade from my gold stock profits--seemed like OIH was going nuts. Here's my current E-trade--another milestone: >$21K by a hair! That will go away quickly if DUG reverses or WZEN plummets. I re-entered a WZEN position. That may have been ill advised! These are really the only stocks I own now except for my FAST NOV$45 puts

FAST: I sold the OCT puts that I bought yesterday for a 92% gain. I wanted to hold, but those puts can go against you quickly. Plus, they expire next week. I still have November puts.

FXI: I shorted this today profitably.

RIMM: I shorted this UNPROFITABLY. Today's stupid stock trick. It made a nicely positive day a negative day in one account. I'm like a squirrel--I have two non-taxable accounts and two taxable accounts. Rather than treat them as 2 pots of money, I treat them as 4. Yeah, it's probably nutty, but I did say it was squirrel like.

Here's a discipline that I need to learn: Learn to walk away!!!! Fear and greed affects me as well. Overall, I'm fine for the week but I was stupid and overreached.

Nona asks: "Leisa, when you make a killing on a trade, to you reserve some of your profits and keep them? (I'm thinking of that old nugget from "The Richest Man in Babylon" i.e., to pay yourself first.)"

Geez, it happens so often! (g). My real preference, and a strategy that I've had some success with is to take my gain and by options on the stock. Then I feel like I have (1) exposure to additional move and (2) a free ride. I've done this with FMD, HERO, MLHR and others. Perhaps it is a loopy strategy, but it fits with my loopy personality. But yes, I always pay myself first. I would not plow the original plus gains back into the stock. IF you've found an investing style that works for you, stick with it. There are many styles out there.

SEED, for example, because of it's bizarro rocketing all of a sudden became a large part of my portfolio. I already had a very heavy weighting (I've never done, and likely never will do the 5% here and there in stocks). I thought that I would hang onto those last 1K shares. But I was quite sure that the stock would go down (given the pirrhana feeding). So I punted. I would not re-enter SEED here. I'll keep it on a watch list. But it feels like it has shot its wad.

Fastenal

From Fastenal's Press Release:



The decline in same store sales from 2005 to 2007 I think is telling. I own puts on FAST.


Stores more than two years old -- Our stores more than two years old (store sites opened as follows: 2007 group -- opened 2005 and earlier, 2006 group -- opened 2004 and earlier, and 2005 group -- opened 2003 and earlier) represent a consistent same-store view of our business. During the twelve months of 2005 and 2006 and the first nine months of 2007, the stores more than two years old had daily sales growth rates of (compared to the comparable month in the preceding year):

            Jan.     Feb.    Mar.    Apr.    May    June
2005 19.2% 17.1% 14.1% 18.0% 14.0% 12.1%
2006 17.8% 15.0% 14.6% 12.3% 12.5% 14.0%
2007 7.3% 6.0% 9.4% 5.5% 6.7% 7.2%

July Aug. Sept. Oct. Nov. Dec.
2005 13.3% 13.3% 16.7% 13.3% 13.0% 9.0%
2006 12.8% 13.9% 9.2% 9.0% 9.4% 10.9%
2007 6.5% 5.9% 6.8%


All company sales -- During the twelve months of 2005 and 2006 and the first nine months of 2007, all the selling locations combined had daily sales growth rates of (compared to the comparable month in the preceding year):

            Jan.     Feb.     Mar.    Apr.      May     June
2005 26.2% 25.1% 22.5% 26.6% 22.9% 21.2%
2006 23.9% 21.3% 21.1% 19.1% 19.2% 20.6%
2007 12.6% 11.8% 15.5% 12.0% 13.2% 14.8%


July Aug. Sept. Oct. Nov. Dec.
2005 21.8% 21.7% 26.8% 22.7% 21.7% 17.0%
2006 19.7% 20.7% 16.1% 15.9% 16.3% 17.7%
2007 13.9% 13.4% 13.7%


Wednesday, October 10, 2007

Etrade Milestone


I have an e-trade milestone today. My account went over $20K. This account has done well because of gold and SEED. I owned SEED (600 sh) in this account and in a retirement account. I sold it today @ 10 in this account. I sold 1/2 tranche in my retirement @ $12. It closed at 12.73--a wee bit of money left on the table. I could never give any lessons on how to manage a position to maximize profit. I tend to take profits sooner rather than later.

To give you an idea of the volatility of this stock, I present for your consideration this chart:

Don't think for a moment that my sphinctometer was not pegged when it dropped to $6.50. But I invoked Gemmastar's voice and bought more, because I believed in the thesis. But....there were 22M shares changing hands today. That's lots of upward pressure. This stock generally trades 100K or less.

I've never owned a stock that went this far this fast. I still have 1000 shares.

This account has been my risk portfolio. It has fluctuated greatly--it was less than $14K just over a month ago, and I shared that with you.

SEED was my own find. I spent an entire Saturday going through the Halter Index and printing and reviewing profiles of stocks. I threw out those that I did not like the fundamentals. I created a list in Stockcharts for the ones that I liked. SEED was one of them. I review those lists to see where the money is going on a daily basis.

I truly believe that the greatest gains are based on YOUR research and being there before everyone else gets there. This stock gave an early warning when there was some volume a couple of days ago. This stock went up 64% in one day. I should add that the ^%$@$%& thing is trading 13.4+ in after hours.Don't think for a minute that I do not believe that luck of the headlines was a big part of that. Here's the headline. Headline increases and declines are very short lived which is why I recognized gains.


Origin Agritech Limited Named to Forbes Asia ``Best under a Billion'' List BusinessWire

Origin Agritech Limited (NASDAQ: SEED) ("Origin") today announced that it was selected by the editors of Forbes Asia magazine as one of Asia's 200 "Best Under a Billion" companies. The annual "Best Under A Billion" list draws from over 22,500 publicly listed companies in Asia and the Pacific.
-----------------

On the Subjugation of Logic

Despite my best efforts to do otherwise, I still find myself thinking (and acting as if) logic has a place in investing. What I've come to learn is that in the long term, logic (fundamentals) always wins, but in the short term psychology wins. Kind of like relationships--passion can take you part of the way--and such a way that it is!--but when passion wanes you better have some better stuff supporting the relationship!

Risk in the marketplace is greatest when the bandwidth between emotions and fundamentals. We can dial back to 1999/2000 when it didn't matter whether one was making money or not; it mattered only how quickly you could grow your sales. Ultimately, you either have to make money or be able to finance (investors, shareholders, leverage) your business model. That's a fundamental that is a natural law of the business universe. People want to earn a return on their dollars invested ,and in the case of leverage, ensure that interest payments can be made and their principal loan amount is protected.

A reader asks why I think that the economy is slowing. Job growth below 200K is a sign of a slowing economy as is reduced consumer spending (retail sales are waning), business spending (factory orders are slowing and cap ex has not been the saviour--remember when MS's Vista was supposed to spur the biggest cap ex spending ever seen?). I think that most people agree that the economy is slowing, but the debate is whether the slow down is recessionary or not.

Tuesday, October 09, 2007

For the Record Books

Well the Fed minutes certainly did provoke some bullish activity! This type of activity is precisely what I find perplexing. That the economy is slowing and the credit markets were constipated to the point to demand this type of Fed action--with unanimity among members--is greeted with such glee, just makes me scratch my head.

Yes, I know the "don't fight the Fed", argument, but geez.

I do note that my SDA recommendation was up 6.54% today. But, I was waiting for a more attractive entry point, and it may have just gotten away without my being on board. My Eldorado Gold, which I do own, and pulled the trigger on when it was in the dumpster was up nicely today on another updgrade.

I spent some time over the weekend looking at Life Sciences stocks, but I've not put together any coherent thoughts on it.

In Memory of a Passing Life

Above is a picture of my BIL, SIL, SIL Dad/Mom and Mark. The dog is Jeb. It was taken exactly a year ago while we were at the outerbanks. My SIL's Dad passed quietly last Sunday evening.

SIL's parents are an example of two people who've lived their lives fully: active, social, caring. I'm glad that Mark and I had the opportunity to spend that time with them.

It's been a tough week for the family. SIL's family is in Alexandria--about 2 hours north of here. B/SIL live only two miles away. I've been caring for the dogs while they have been supporting each other in their time of vigil and now their time of grieving and healing. They've been attentive and obedient listeners. I'm happy to help in this small but enjoyable way.

His life is a reminder to live our own lives fully.

Sunday, October 07, 2007

Armenian Genocide

From today's Financial Times (on line):

The bill has 226 co-sponsors. It calls on Mr Bush “to accurately characterise the systematic and deliberate annihilation of 1.5m Armenians as genocide”. The massacres were carried out by Ottoman troops beginning in 1915, before the creation of the republic of Turkey. Turkey rejects characterisation of the deaths as genocide and takes diplomatic and other measures against countries that adopt such a stance.
As many readers know, I'm 1/2 Armenian. My grandmother talked about the slaughter of the Armenians. As no one else was talking about it, we didn't know what to think. I was but a child, and she would often tell us stories far beyond our wildest imaginations. My grandfather's people were fearless mountain folk--shepherds. His sister shaved her head and bound her breasts and fought against the Turks. That's all I know.

A few years ago, I was working with a professor at VCU on a continuing education contract for MD's. I noted that his name was Armenian (they all end in "yan" or "ian") and told him that I was 1/2 Armenian. We felt immediate kinship. He was close to my age. He told me that his grandparents were survivors--but that they were deeply affected. Very melancholy--a state from which they rarely emerged. I told him the stories that my grandmother told us about the death marches across the desert. When he left our meeting, he hugged me--a hug of kinship and understanding. He later called me and apologized if it seemed forward or unprofessional. I said that I understood where the emotion came from, and that I had appreciated his sincere expression of it.

The massacre, which purportedly claimed 2/3's of the Armenian population, was a terrible thing. I do not believe in revisionist history, but I also do not believe that it is necessary to spend time sending bills such as this through Congress. History is replete with such examples of horror toward others, as is our current time. If we were to spend our political energy demanding acknowledgment of such issues, we'd have little time to much else. Our own cultural history in North America toward the Native Americans should cause us enough shame that we should be loathe to point the finger elsewhere.

I don't say any of this to minimize the horror inflicted on 1.5mil people. However, I'd much rather see cooperative measures on economic or environmental issues that forge unity rather than focus on that which is a resurrection of past injustices and oppressions that cause separation.

Friday, October 05, 2007

Interview

Today I had an interview with Dennis Olson of Wall Street Direct. The interview will post next Wednesday. You can listen to other interviews here from other Bloggers.

http://radio.wallst.net/profile.asp?id=165

On another note, KFY was up 8.5% today on the jobs report. I did not take a position in it, but I was pleased that my thesis worked. HSII and MNST had more modest moves.

Jobs and Food

Today's jobs report has been much hyped and much anticipation. Given that this reported has also been much repudiated, I'm not so sure why so much stock is placed in it. Data points, repudiated or not, seem to be like heroine shots to traders.

It would seem to me that if the job report number is good, that some of the employment stocks might get a lifts. Some of them are recovering a bit. You might want to take a look at KFY, HSII, MNST. Here's a picture of all of them--due click to make larger.


I was looking at some food stocks. I found a Brazilian food company, Sadia. Here's a brief description from their website:

Sales continue to grow at an impressive rate exceeding US$3.5 Billion in 2005, Sadia is therefore the largest poultry producer in Brazil and one of the world's leading producers of chilled and frozen Foods. Today approximately 50% of the volume is exported to more than 100 countries making Sadia Brazil's largest exporter of meat based products.

Here's a chart:

Here's a stock you don't here much about, a quiet, but persistent climber:

I've done no due diligence on any of these stocks, but I did want to introduce you to two groups that you don't hear too much about.