Thursday, September 30, 2010

RSY: Buy 400 shares CODI at $16.24

As expected last week, Rock Solid Yields {RSY} portfolio was a little over bought and was ready for a correction. IVR took the biggest loss for the portfolio. That is expected to some degree since just past ex-dividend dates theoretically drop by their dividend amount at least, and IVR had a dividend of $1.00 on the ex-dividend date of the 28th.

Compass Diversified Holdings {CODI-Services: Business Services} recently ranked highest in a modified RSY search using MyStockFinder stock search tool. It provides an excellent dividend yield of around 8.5% and that is projected to continue. It has a great ranking for insider buying which makes it eligible for inclusion in our "Top 10 Insider Buying Stocks" {available for silver level members}. The forensic accounting scores are conservative and have a consistency over the past year. The next ex-dividend date should come around the middle of October as they have consistently done that for the past 4 years. It's Sabrient's earnings score is nearly twice it's industry score and well above the S&P score which is based on past performance as well as expected earnings growth going forward. This looks like a good one to add to the RSY portfolio and the portfolio will put in a limit order of 400 shares at a limit price of $16.24 {GTC}. This is above the closing price but avoids any surprises to the upside that a market order could do.
Buy 400 shares CODI at $16.24.

Unknown Dividend Plays

Compass Diversified: Dividend Is Okay, But for How Long ? -- Seeking Alpha
Seeking Alpha Article

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Friday, September 24, 2010


The chart below is closing prices on Friday, 9/24/2010. Clearly, Friday was a stellar day with over $500 in gains for the day, which raised our holdings to over $1900 in gains so far.
If you have been following our newsletter of "Sabrient Select Opportunity Portfolio" or even the blog category of Sector Detector, Scott Martindale has been noting that the SPY and markets in general look to be ripe for a "roll over" correction to the downside. The traditional charting patterns did not hold true and surprised to the upside on Friday. This could also easily reverse course and revert back to the mean. So normally I would consider this as an opportune time to "sew in some profits".

This week contains 3 ex-dividend dates, so we should wait for any moves there. GAIN is the one position that just went past the record date, but it is only slightly up and it is a smaller than normal position in the portfolio. I originally wanted to getting a larger share of this holding through dollar cost averaging.

Nothing has jumped out as a buy for our portfolio as of yet. Evans Bancorp, Inc. {EVBN, Financial: Regional Banks} was a prospect that looked good until looking at the forensic accounting reports and it was labeled as aggressive accounting and the rating was in a downward trend. L-3 Communications Holdings, Inc. {LLL, Capital Goods : Aerospace & Defense} continues to show up on MyStockFinder stock search as a good candidate but there appears to be no reason to rush in on this selection yet. The next ex-dividend date for L-3 should come around the middle of November.



Monday, September 20, 2010

RSY VIII: Oh no no no I'm a rocket man

The RSY portfolio entered into a long position on MRH of 400 shares at a strike price of $16.69 near the opening of the markets on Friday, 9/17/2010. It gapped up slightly from the close the day before and then met the strike price within the first 10 minutes. A summation of our portfolio on the close of Friday is below. {Click on tables for clearer images.}

So far, this is a gain of over $1200 and about 5 3/4% gain based on our ending balance. The chart below gives a different perspective with the added position of ANAT that was closed.

The only loss, so far, is just the slight down position that we just entered on Friday {MRH}. Since Friday this has also changed into positive territory. Knock on wood that that will continue. That is one reason to be extra diligent to enter and exit positions at the prices we want and not what the market desires to give us. The averages {per position} of percent return and dollar profit are interesting but averages can be deceiving as length of hold matters and size of each holding, but at least this gives us a snapshot of performances so far. As of the 17th, dividends have been paid out for ANAT of $77 which is reflected in the table above.

The RSY portfolio has not yet recommended any options as the volume on options have been low and there is low returns for the ones observed. This has been mostly due to market caps being on the low end. RSY also has not engaged in "harvesting profits" or hedging positions. One way to describe the hedging is simply by rebalancing the account for the ones expanding as a percentage of the portfolio. These decisions will also be put off until at least past the dividend dates. MRH and NGPC both have ex-dividend dates on September 28th and GAIN is today.

PS: After close of markets today, IVR announced its next dividend payout.
The Board of Directors of Invesco Mortgage Capital Inc. (NYSE: IVR) declared a dividend of $1.00 per share for the third quarter of 2010. The dividend will be paid on October 27, 2010 to shareholders of record on September 30, 2010. {BusinessWire}

That is good news indeed.

Oh no no no, I'm a rocket man
Financial markets often appear to have their own set of economic rules that other markets do not show. The Capital Spectator discussed some of those issues at HOW TO THINK ABOUT ECONOMICS, PART II which linked to a blog post at The Economist titled A special case The demand for financial assets is not like the demand for iPods. Below is a quote from The Economist post.
Financial markets do not operate in the same way as those for other goods and services. When the price of a television set or software package goes up, demand for it generally falls. When the price of a financial asset rises, demand generally increases.

Why the difference? The reason is surely that goods and services are bought with a specific use in mind. Our desire for them may be driven by fashion or a desire to enhance our status. But those potential qualities are inherent in the goods themselves—the sports car, the designer sunglasses, the fitted kitchen. Such goods may be means to an end but the nature of the means is still important.

Part of that discrepancy, in the rising are prices driven higher, is momentum players. As an asset is increasing in value there is a derived return on investments. The assumption is that if an asset is increasing at X percent per year or unit of time that it will continue on that trend line. Of course we all know about "past performances do not dictate future returns" but some market participants seem driven more by the "animal instincts". The Capital Spectator states that as in the following section:
Overall, such differences between physics and economics “helps explain why large economic models, which are based on the same laws, fail to make accurate predictions,” Orrell advises. In fact, this is old news. Economists have been telling us for a long time that stuff happens and so the standard theories of what should happen are susceptible to, well, temporary insanity, heightened risk aversion, chaos, or whatever you’d like to call it.

While the quote from The Economist was pertaining to markets as described by microeconomic theory, the Capital Spectator quote was about the macroeconomic analysis in determining the direction of the whole economy. Remarks by Governor Ben S. Bernanke also addressed these macroeconomic concerns and where he stated the following on March 2003.
Why have inflation-targeting central banks emphasized communication, particularly the communication of policy objectives, policy framework, and economic forecasts? In the 1960s, many economists were greatly interested in adapting sophisticated mathematical techniques developed by engineers for controlling missiles and rockets to the problem of controlling the economy. At the time, this adaptation of so-called stochastic optimal control methods to economic policymaking seemed natural; for like a ballistic missile, an economy may be viewed as a complicated dynamic system that must be kept on course, despite continuous buffeting by unpredictable forces.

Unfortunately, macroeconomic policy turned out not to be rocket science! The problem lay in a crucial difference between a missile and an economy--which is that, unlike the people who make up an economy, the components of a missile do not try to understand and anticipate the forces being applied to them. Hence, although a given propulsive force always has the same, predictable effect on a ballistic missile, a given policy action--say, a 25-basis-point cut in the federal funds rate--can have very different effects on the economy, depending (for example) on what the private sector infers from that action about likely future policy actions, about the information that may have induced the policymaker to act, about the policymaker's objectives in taking the action, and so on. Thus, taking the "right" policy action--in this case, changing the federal funds rate by the right amount at the right time--is a necessary but not sufficient condition for getting the desired economic response. Most inflation-targeting central banks have found that effective communication policies are a useful way, in effect, to make the private sector a partner in the policymaking process. To the extent that it can explain its general approach, clarify its plans and objectives, and provide its assessment of the likely evolution of the economy, the central bank should be able to reduce uncertainty, focus and stabilize private-sector expectations, and--with intelligence, luck, and persistence--develop public support for its approach to policymaking.

If we are the rocket men, as Elton John sings, then although we do not want to be irrational buyers and sellers, we do want to be aware of forces outside our rocket ship {i.e. our portfolio}. We need to focus on our destination and not be bothered by every small jostle of our portfolio but be aware of the forces that could derail the portfolio. A good place to find information about the market forces affecting our rocket ship is our Sabrient blog with its various voices on how the market works. Whether it is microeconomic, or macroeconomic factors including long term structural concerns, the average investor has a lot to consider in how to invest for long term growth.

Misc. Links:
Rocket Man (I Think It's Going To Be A Long Long Time)

5 Companies That Doubled Earnings While Their Stocks Went Nowhere (GOOG, JNJ, MSFT, WLP, WMT)

Why History Says Stocks Are the Best Buy Right Now

Why These Companies Need Higher Dividends

Very Low Post-Labor Day Volume a Bad Sign


Thursday, September 16, 2010

RSY: Buy MRH 400 @ $16.69

The portfolio recently got out of the position on ANAT, and is now looking to add Montpelier Re Holdings Ltd. {MRH}. ANAT is in the life insurance industry and MRH is in the property and casualty insurance industry.

MRH is rated a strongbuy by Sabrient and has a very high value score at 96.9 and 99 for balance sheet score and 99.5 for fundamental score {all based on 100 being best}. MRH has an average forensic accounting score, recently had good insider activity, and has an extremely low trailing P/E ratio of just over 4. Overall this would be a good addition to our RSY model portfolio. The portfolio will enter a limit order trade of $16.69 of 400 shares at opening of 9/17/2010 {good-til-closed}.

Best regards,
Ronald Rutherford
Retail Product Manager

Full disclosure: The author holds or will hold the stocks mentioned in this edition of Rock Solid Yields.

Disclaimer: The Rock Solid Yield portfolio newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

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Tuesday, September 14, 2010

RSY Update. 9-15-2010

Today ANAT opened up higher before crashing again and then regaining it back and then some. The portfolio is recording this as a sell of 100 shares at a strike price of $78.49, which leaves us with a very small profit of around $28- minus transaction costs. Just wait for our dividend to roll in now. BBY had gapped up and did not hit our limit price, just another fish that got away. But on the bright side...


Friday, September 10, 2010

RSY VII: Buy BBY 100 @ $33.89

The table is above is a snapshot of the model portfolio at of the close of the markets on Friday. {Click on table to get a larger, clearer picture.} NGPC and IVR are definitely doing good for us so far, but ANAT has not yet met our exit price of $78.49 and GAIN while weak is holding steady.

Let us revisit Best Buy (BBY) which we mentioned on August 31st on the post
Rock Solid Yields: Dividend Growth Stocks and Some for the Stock Watch. A reminder of what was said about BBY:
Best Buy Co., Inc. {BBY} is one I have been watching closely for some time. Although the dividend yield is on the low end of the range at less than two percent, it would provide diversity into the retail sector and the market cap of Large-cap stocks. There are lots of things to like about BBY, including good insider buying recently, the forensic accounting score is looking good, and analyst expectations for revenue and earnings growth are good. Everything looks good except for the chart. The ex-dividend date for the next dividend is on October 1st which gives us some more time to consider this choice.

One other point worth mentioning, although it appears to have been put on hold for the mean time, was some type of merger or buyout with Radio Shack {RSH}. Either way, it should not materially alter our decision going forward as RSH has a similar PE ratio and even provides a comparable dividend yield of 1.27%. Since our first mention of BBY, it has followed nearly identical moves to the Nasdaq index with a significant rise in price.

Sabrient rates BBY as a strongbuy and we should add this to our portfolio at some time. For the model portfolio we are adding a limit order of 100 shares at a strike price of $33.89 {GTC} for Monday opening. The portfolio will engage in dollar cost averaging if it makes some retreat from current prices. It is important to remember this is on a $100,000 portfolio, and as such, this is will be less than 4% of our portfolio. The portfolio's goal is to have between 10 to 20 stocks at any time and thus each position should be around 5 to 10%.


Sunday, September 05, 2010

A Macro-View: ISM Report August 2010

Headline Numbers:
The August 2010 Manufacturing ISM Report On Business® clearly had a positive effect on the markets as noted at Stocks Rise on Bullish Economic Vibes. Although it was not a dramatic increase but acceptable at .8% to an index of 56.3%, it beat the consensus expectations that were expecting a slow down in growth. MarketWatch noted on its calendar of 53.3% and Econoday stated it as 53.0% with a range of 51.5 to 54.5 percent
here. Econoday said the report was solid but did state that new orders could be a concern going forward as this in an important "leading index" of the overall report numbers. They refined that statement by stating, "The slowing in order build is certain to limit future improvement in business activity."

While the manufacturing ISM index was even above the consensus range, the Non-Manufacturing ISM Report On Business® was below the consensus range provided by Econoday {Econoday Report: ISM Non-Mfg Index September 3, 2010} in the range of 52.0 to 54.5 percent to a headline index of 51.5% which represented a drop of 2.8% from the previous month. The consensus on Econoday was 53.0 and MarketWatch noted it as 53.5 percent.

The average for the manufacturing index over the last 12 months was 56.6 and for non-manufacturing it was 52.3 percent. Both indexes were below the average.

Breakdown of Important Indicators.
1. New Orders Indexes for both reports grew but at a slowing rate with the services report showing the greatest percentage drop of 4.3% to 52.4% and manufacturing dropping just 0.4% to 53.1%. Both reports do show a trend downward in number of firms that are reporting better/higher new orders, since at least May. While not good, this is too early to start wringing hands over "double-dip recession" fears.

2. Employment Index Reports provided a mixed bag as manufacturing showed even stronger growth than previous months with an increase of the index to 60.4%, which was a rise of 1.8%. Services though showed that it could not maintain positive growth and dropped below 50% to 48.2%. Employment in services has not shown any clear trend and has flirted with the 50% since around February 2010 when it reached 48.6%. It is worth noting that even though manufacturing is very strong, it is doubtful this can turn around the anemic labor market in the USA, and services while bad for falling under the 50 mark is something we should see if this was just random noise and not a trend in the wrong direction.

3. Price Indexes jumped significantly for both sectors and both ended up above 60%. Manufacturing showed a 4% increase to 61.5% and services showed a whopping increase of 7.6% to 60.3%. Interestingly, the number of firms reporting higher prices has been decreasing since at least May 2010 {for both reports} and most of that change has resulted in more firms reporting that prices are the same. This could indicate that price increases are becoming more concentrated into specific sectors and specific commodities. Which on one hand could indicate the formation of "bottlenecks" and areas for increased investment opportunities but on the other hand sectoral inflation implications. That is, inflation could spill-over from certain sectors to others and create a vicious cycle of inflation. Doubtful in our open, somewhat flexible economy, but still possible as the 1970s showed.

From the section on commodities, there does not seem to be too many problems in the manufacturing report as commodities up and down in prices were the same at 3 commodities listed and only one in short supply. The services report was different as it noted that 15 commodities were up in price and none down and only one commodity in short supply. The fact of so many commodities are higher in price for services sectors could explain some of the reason for lackluster performance lately.

4. New Export Orders and Imports are naturally considered intertwined in analysis but we must be careful not to assume that they are the same in both reports and can have the same logical analysis applied. For example the article linked above titled "Stocks Rise on Bullish Economic Vibes" quoted the Dismal Scientist as stating: "The gap between new export and import orders suggests trade will provide little support, if any, to growth this quarter." While it is true that imports are a negative for calculating GDP, imports and exports in the manufacturing sectors are hardly the numbers to draw such conclusions from. A lot more of the economy is involved in imports than just manufacturing. If the economy is expanding in the normal method then even if new export orders were not increasing {i.e. less than 50% on index}, it still might be desirable that imports were greater than 50 as this prevents significant bottlenecks from restricting growth.

So then as far as the numbers go, the manufacturing report noted a slight drop {1%} in new export orders to 55.5% and an increase of 4% higher to 56.5% in imports. The non-manufacturing report gave more ominous signs as new export orders index dropped 5.5% to below the 50 mark of 46.5% and imports rose to 50.5% which is an increase of 2.5%. But the services sectors numbers are also skewed by the fact that 67% of respondents do not report in the category of "New Export Orders" and 60% do not report on import numbers.

World-Wide Manufacturing Activity
The Wall Street Journal published an interesting table on the Purchasing Managers Index (PMI) for a variety of countries at
here. A couple of important things to consider on the table is that while 5 nations were expanding faster on rate of change, 15 were expanding slower. So the question becomes is whether the slowing rate of expansion will lead to more countries joining the contracting group that two entered into last month {Brazil, Taiwan}. Also, the fact that China is one of the expanding faster PMIs, but it only raised up to 51.7, makes me wonder how they could have GDP growth of excess of 10%. If manufacturing is their engine of growth then how can their raw numbers look so weak and still maintain such meteoric growth rates?

UK PMI Reports
David Smith, Economics Editor of The Sunday Times, London, provides a bit of commentary and links to the UK's manufacturing and services PMI reports at Manufacturing growing - but more slowly and Significantly weaker services. From the Wall Street Journal, we already saw that the manufacturing report was 54.3 which signified a drop of 2.6 and the report noted this was a nine month low for the index.

On certain factors, Anglo-Saxon nations tend to have high correlations for example in short-termism in financing which this general phenomenon has sometimes been called the Anglo-Saxon disease. Thus, it might be worthwhile to look at some of the report's main points and compare them with the US numbers.

Services sectors in both countries were losing momentum from the most recent recovery and the trend line has been generally slower growth in the economy. David Noble, CEO at Chartered Institute, states it as "stuttering growth" but feels it is too early to predict a double-dip recession. Chris Williamson, Chief Economist at Markit, also states a double-dip is unlikely but with this report the chances become higher. He also states, "The service sector is struggling to sustain momentum after a buoyant second quarter." Employment also dipped below the 50 point with a "marked and accelerated rate". Input costs have accelerated rate of inflation. All that is similar to what the US is experiencing in the services sectors also.

One of the key points from the services PMI, was that uncertainty in the economy is "undermining prospects for new contracts". Some of the uncertainty in the manufacturing is derived from "the looming public sector spending cuts", according to David Noble. This in turn is "keeping UK manufacturers on tenterhooks and slowing the pace of the recovery." Employment continues to be strong in both countries but there was a divergence in both the headline indexes as the US expanded growth and the UK experienced slowing growth rates. Input prices continue to put upward pressures on inflation and the UK reports note that output prices have been rising for 10 months. There is no comparable statistic in the US ISM reports on output prices.

Both countries are experiencing or at least talking about uncertainty but it seems in different ways. The US is more consumed with the government enacting more legislature that could change the business climate and in a way change input prices for businesses. Take for example a cap and trade bill would significantly alter input prices and make certain investments negative NPV and others positive. The UK {from the reports} seem more concerned about austerity measures that will change specific projects and thus the basket of outputs directly. Every country desires to use export markets to increase demand and thus GDP. Rob Dobson, Senior Economist at Markit, states it as, "hoped for support from exports has been fizzling out in recent months."

What does it all mean?
It is a little early to talk about double dip and the deflationistas may want to look at this data before coming to the conclusion that Krugman draws, that is that we are headed {trending} toward deflation. He wants and demands that everything be done to prevent this including getting helicopter Ben to drop a few trillion here and there and having the Federal Government spend, spend, spend...

Every country is trying to promote exports but if everyone is trying the same tactic at the same time, it is unlikely to work well. Until the global imbalances rectifies, export promotion is also to be a hit and miss proposition. In the US, manufacturing is helping the recovery, but until we see solid employment growth in the services sectors, we are unlikely to see dramatic growth in GDP for the mean time.

MarketWatch consensus forecast data:
ISM 53.2%
Consensus Consensus Range Actual
ISM Mfg Index - Level 53.0 51.5 to 54.5 56.3

ISM services 53.5%
Consensus Consensus Range
Composite Index - Level 53.0 52.0 to 54.5

Calculated Risk: Construction Spending declines in July

The Press Isn’t Talking Us Into a Recession - Real Time Economics - WSJ

Surprising Many, Manufacturing Is Bright Spot - Real Time Economics - WSJ

Calculated Risk: Some comments on August ISM Manufacturing Index

David Smith's Significantly weaker services

Calculated Risk: ISM Non-Manufacturing Index declines in August

Misc. Links:
Mish's Global Economic Trend Analysis: Jobs Decrease by 54,000, Rise by 60,000 Excluding Census; Unemployment Rises Slightly to 9.6%; A Look Beneath the Surface

America's jobless recovery: Labour market perspectives | The Economist


macroblog: Optimism…pessimism…and a bit of perspective

Payrolls: Flat is the new up | Analysis & Opinion |

Relief in the Temp Sector - Real Time Economics - WSJ

Calculated Risk: Employment-Population Ratio, Part Time Workers, Unemployed over 26 Weeks

A Look at the Annointed Leaders Financials and Housing (XLF)

Obama: Jobs Report ‘Positive’ But ‘Not Good Enough’ - Washington Wire - WSJ

Economists React: Jobs Report ‘Stronger-Than-Expected, Yes, Strong, No’ - Real Time Economics - WSJ

Taking a Prudent Course - The Entrepreneurial Mind

Calculated Risk: U.S. Light Vehicle Sales 11.5 Million SAAR in August

Stephen Williamson: New Monetarist Economics: Liquidity Traps and Inflation Traps{Krugman deflationistas}

America's jobless recovery: Recovery summer | The Economist

Calculated Risk: MBA: Purchase Application activity suggests low level of existing home sales in August and September

Calculated Risk: ADP: Private Employment decreases 10,000 in August

BBC - Stephanomics: People power

Fiscal policy: Is economics a right wing conspiracy? | The Economist

Jobs ... but low pay

Economist's View: Does the Recovery Depend on Housing?

Mish's Global Economic Trend Analysis: Weekly Unemployment Claims Drop to 473,000, Last Week Revised Up to 504,000; 4-Week Average Rises to 486,750

Calculated Risk: Richmond Fed: Manufacturing Growth Continued to Ease in August

Empire State Manufacturing Survey (overview) - Federal Reserve Bank of New York

Calculated Risk: Kansas City Fed: Manufacturing activity slowed in August

CBO Report-Stimulus:
Director's Blog » Blog Archive » Estimated Impact of the Stimulus Package on Employment and Economic Output

Economist's View: CBO: Estimated Impact of the Stimulus Package

Calculated Risk: CBO: Stimulus raised GDP 1.7% to 4.5% in Q2

How much it stimulates and what it stimulates

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Thursday, September 02, 2010


The table above is a chart of the sample portfolio of RSY near the close of markets on Friday. It is looking good so far. ANAT is the laggard and was quite volatile since we have added it to our portfolio. We already had plans to exit it after being owner of record for the last dividend disbursement-which has passed. We could try to squeeze out a little more profit with a limit order of like $78.99 or higher but for the model portfolio we will set the limit order on Tuesday of $78.49 {good-til-canceled (GTC)}.

Gladstone Investment Corporation {GAIN} is a micro-cap without options and was ranked highest on MyStockFinder under a modified RSY search criteria. The next ex-dividend date is on the 20th of this month of 4 cents, but since it pays monthly then the next payout is always 30 days or less away. The estimated dividend yield is close to 7 1/2 percent. The strongest buy signal is strong, recent insider buying. Our sample portfolio will start out with just a buy of 400 shares at the Tuesday opening of $6.49. While this would only be a little over 2 1/2 percent on a $100,000 portfolio, we could add some more at an even lower price point, thus engaging in dollar cost averaging.

Summary of trades:
Buy 400 of GAIN at limit price of $6.49 (GTC).
Sell 100 of ANAT at limit price of $78.49 (GTC).

I Hate This Stock (HERO, LVS, MGM, MPEL, NLY, SD, X)

Misc. Links:
401(k) withdrawals at highest level in 10 years - Aug. 20, 2010

Market Data Firm Spots the Tracks of Bizarre Robot Traders - Science and Tech - The Atlantic

Housing markets: Don't think of it as an investment | The Economist

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