All Roads Point to Cash? What does the board think

[keerthiprasad]

I'm not buying anything new, mostly keeping equities where they are.  Will probably start taking some profits.  I am not lying to myself and pretending to forcast the market.  Rather, I think now is the time to move into the most obvious underpriced assets....residential real estate in good places.  Of course you need to have access to the right vehicle to do so.

[biaggio]

http://adventuresincapitalism.com/post/2011/04/17/Flash-Crash-To-The-Upside-In-Gold.aspx

 

Kuppy calling for a "Flash crash to the upside in gold" or a melt up.

 

I am not a fan of gold but Kuppy seems pretty astute. Could we extrapolate that it would be best to hold hard assets/commodities in general/land (and perhaps good/great companies whose products people will always want to buy i.e. KO, JNJ etc) instead of cash?

 

I understand that when the abyss comes everything will go down for a short period of time + I suppose that will be the time to buy---I dont know that I will have the courage + timing to get in.

 

I have no idea.

 

That's what makes this interesting and fun.

 

 

[locutusoftexas]

Myth:

 

Forgive me for not reading your posts in detail and for just stating my macro view, but here goes:

 

Yes to raising cash from stocks; I plan to do so within the next two weeks. Why (take your pick):

(1) The Fed seems done with easing (in various ways). It might resume within a few months.

(2) "Japan" (i.e., the nuclear crisis and fallout [excuse the pun]) are not over. Japan is the third largest economy in the world. The world economy is more vulnerable than we think. Q.E.D.

(3) Shades of 1937 (I was not alive then.). Liquidity will contract in the future.

(4) Wars (Iraq, Afghanistan, Libya) ruin an economy for a decade or more. Remember Vietnam and the aftermath, complex and varied though the ultimate sources of the 1967-81 recession might seem to be. For example, I believe that Vietnam was the last straw for the rest of the world regarding the US and that the antipathy for this war contributed to a groundswell of anti-US actions (e.g., the OPEC oil embargo). I was an adult during this time and was fully invested in tracking Vietnam and its consequences.

(5) Warren is getting really old and Charlie is even older. Berkshire will change for the worse with their departures.

 

As in your case, I like my concentrated portfolio of stocks. It will be hard to sell and then to pay capital gains taxes on them.

 

Good luck,

Tex

[Guest broxburnboy]

 

(4) Wars (Iraq, Afghanistan, Libya) ruin an economy for a decade or more. Remember Vietnam and the aftermath, complex and varied though the ultimate sources of the 1967-81 recession might seem to be. For example, I believe that Vietnam was the last straw for the rest of the world regarding the US and that the antipathy for this war contributed to a groundswell of anti-US actions (e.g., the OPEC oil embargo). I was an adult during this time and was fully invested in tracking Vietnam and its consequences.

 

 

I have to agree with you here, having lived through that era and seen the same consequences. It is truly depressing to see the lessons of that war so quickly forgotten (or denied). The american economy is still going downhill as long as this massive misalocation of resources continues. The notion that these wealth destroying invasions can be financed by ongoing tax cuts is as ridiculous now as it was when first proposed. They remain the most obvious expense that can be cut from the federal budget... but no American politician (outside of Ron Paul or Dennis Kucinich) or economist has the cajones to muster support for doing what's necessary and  inevitable.. end these wealth destroying wars.

As for holding USD cash... consider that American military and diplomatic personal are sprinkling shrink wrapped bales of hundred dollar bill around the globe like holy water, in support of their military causes... can it really be worth what the people think it is?

[Guest broxburnboy]

My previous post touched on how the dollar is getting debased on the fiscal side (government debt/deficit) of the 2 ended candle.

Jim Sinclair in an interview with Ron Hera of Hera Research illuminates the problems of OTC derivatives, state debt and the imperative of continued QE to prop up the house of cards:

 

Probably the most comprehensive and lucid explanation of the dynamics of currency devaluation out there and therefore the most important read to anyone considering holding dollars (or yen, Euros, DM etc) as a store of purchasing power:

 

http://www.321gold.com/editorials/hera/hera042011.pdf

[Alekbaylee]

Gold is going much higher. We could see shocking gold prices, maybe Alf Fields’ target of $10,000 per

ounce or Martin Armstrong’s target of $12,000 per ounce. I think that my price target of $1,650

per ounce gold is going to be so low it will be considered silly.

 

Sorry, but when I see this type of comments, I just stop reading.

 

[arbitragr]

WFC just dropped 4.3% today when everything else is up 1-3% ... no cash for me.  ;D

[Guest broxburnboy]

Gold is going much higher. We could see shocking gold prices, maybe Alf Fields’ target of $10,000 per

ounce or Martin Armstrong’s target of $12,000 per ounce. I think that my price target of $1,650

per ounce gold is going to be so low it will be considered silly.

 

Sorry, but when I see this type of comments, I just stop reading.

 

 

Since that quote was at the end of the article, at least you benefited from reading the meat.

[sdev]

Hesitated to post this, but think it's time well spent if you have an hour:

http://www.talkpoint.com/viewer/starthere.asp?Pres=134567

 

It is the Jeff Gundlach's latest webcast to investors including slides. He does a great job at quantifying where we stand, mostly from a credit perspective. A lot of us talk about things like..stocks aren't cheap/high yield is too high etc. His presentation looks at exactly what is going on in the credit markets versus now, versus what was being done in 06-07. Very eye opening.

 

In addition, I think his fixed income investment strategy is completely unique and not being replicated by others. Yields 8+%, holds half the portfolio in bonds that do well in deflationary scenarios and half the portfolio in bonds that would do well in an inflationary scenario (handpicked Prime and Alt-A MBS priced way way below par). He would always do a much better job than I do in explaining it, so watch the webcast!

[ERICOPOLY]

Due to my foot surgery on the 4th, I've been on pretty heavy dosages of oxycontin & oxycodone.

 

I've spent all of this time lying on my back in bed thinking of reducing risk in my portfolio and moving at least a third into higher quality blue chips.  I would rather be in MSFT or JNJ than cash.

 

Eric, please give your evaluation of MSFT.  It's our second largest holding right now, partly because it seems to be a good value, but also because of the much higher proportion of the QQQ's that will be allocated to MSFT in two weeks with the unusual rebalancing of that index.

 

I didn't see your post until now.

 

There are a couple of reason why I like it, but they are rather general.  And they are not based on whether AAPL is eating their lunch or whatnot:

 

1)  I worry about the USD, and MSFT's expenses are largely denominated in USD, yet the revenues are collected in all sorts of currencies.  Given that revenues are much higher than expenses, you can kind of see where I'm going here.  It is somewhat of a favorable trend to have your revenues rise in relative value to your expenses.

2)  Then there is how they make their money -- they aren't just taking on lots of debt in order to make a big return.  On a risk-adjusted basis, I think MSFT is an incredible value versus the SSWs of the world.  SSW is what I'm selling (reducing the position size).

 

Just looking at the Morningstar website, and looking at the 10 yr financials for MSFT.  It's rather impressive.  They barely had a hiccup during the financial crisis.  It's just solid growth and profitability all the way through.  There was never any solvency risk or whatnot -- so much cash and profitability it is truly AAA.  People aren't happy with the stock performance, but now that it is getting into the single digit P/E range on a forward basis, I'm sort of amazed.

 

I'm not trying to hit the ball out of the park anymore.  I think MSFT is at a price to value where that could be quite a reasonable expectation but without having to reach for too much risk.  That was pretty much my thoughts on JNJ as well.  I think these are AAA companies that are trading down close to single digit P/E.

 

Kind of scared about risk spreads exploding again -- will hurt the SSWs of the world much more than the JNJ or MSFT of the world.  Yet there is not that much difference in forward earnings prospects between MSFT and SSW.

 

[Myth465]

 

I'm not trying to hit the ball out of the park anymore. 

 

 

What made you give that up?

[ERICOPOLY]

 

I'm not trying to hit the ball out of the park anymore. 

 

 

What made you give that up?

 

Fear of striking out. 

 

I think an unleveraged MSFT bet has a shot at delivering 40% over the next 12 months.  It simply needs to trade at 13x average 2012 estimates.  That's considerably lower than current S&P500 P/E.

 

 

[shalab]

BRK is a better bet than MSFT at the moment.

 

Eric is right with both his points. In addition, Microsoft pays most(all?) of its dividends in dollars and the majority of shareholders are in the U.S.  However, there are some cons with MSFT as well:

 

1. Increase in compensation going to cost $400mil more per year

2. MSFT balance sheet is not as pristine as it used to be, there is 10B in debt and 40B in cash and equivalents

3. Desktop, office, server levelled off

4. Emerging businesses consuming huge amounts of cash. Kinect, though a success, not enough to move the needle

 

[Myth465]

Fear of striking out.

 

Makes sense. Should I ever luck up I dont plan on ever betting the farm. First you got to get the farm though lol. I think its a healthy fear and one I look for when I evaluate long term holdings. I like betting the house, but dont want Managers to. I like hearing Prem and Buffett talk about it. Surprisingly enough I think Tom Ward has that fear as well.

[ERICOPOLY]

I wound up using some margin to get both MSFT at-the-money $25 strike 2013 calls and WFC 2013 calls.  Deferring the sale of SSW for a while -- it won't be until after July that it's all long-term tax status anyhow.  So I'm doubled up notional leverage for a bit.

 

Should MSFT run up enough I can write some covered calls to recover the volatility premium.  I expect SSW to pay out enough in dividends to largely repay my margin loan by the time those calls expire -- then I can repeat the exercise if needs be.

 

Trying very hard not to repeat the 2009 tax experience of short-term capital gains at 35%.

 

[Myth465]

I have been kicking tires around MSFT for a while and was looking at doing what you were thinking. Using at / in the money options to juice the returns. I think you guys will make alot of money and TWAs trade on the rebalance will prove to be profitable. My cash is currently being moved around so I am out of ammo for the time being. I think holding SSW will prove profitable. They will raise the Div which should increase the stock price over the short term.