Possible Values In The Marketplace
Stocks moved sideways today waiting for the Congress to act – I guess stocks are just tired of moving so far, so fast.
Bonds are still a place for “safe haven” money. People who are nervous of having their money in stocks can purchase treasuries or money market funds, and know they’ll be getting interest, with little to no downside.
The Dollar and gold moved sideways today too.
Oil and gasoline fell as supplies were higher than traders expected. Any excuse will do to move this crazy market. Also, my private investigation of gasoline prices in AZ shows that prices are about $0.75 too high right now – based on the futures price. Someone is making a bundle of money by buying low, and selling (at the pumps) high.
In the news today….
Warren Buffett is purchasing $3B of GE. He thinks this is a good buy, and GE will be around for the long term. This was a very high vote of confidence in GE.
A new government program is kicking off today to help 400,000 homeowners who have those lousy mortgages, but don’t want to lose their home. They must be paying at least 31% of the income in mortgage payments, and have made 6 months of payments to qualify, as well as bought their house last year or earlier. Mortgage companies and banks must voluntarily reduce the principle and terms of the note – and there is the real rub – will they do it, and if so, by how much?? PS – what about those terms – banks can make a lot of money on the terms of a note.
For those of you who care about LIBOR – it’s used in some ARMs and private lending – will be interested that the credit crunch has driven LIBOR up to a near term record 4.15%. LIBOR is the London Inter Bank Offer Rate, and represents the interest that one bank pays another, when borrowing overnight. This is what happens when banks just don’t lend to each other – and are scared of doing it.
Dinner Conversation – Value Purchases
Given that Warren Buffett has enough confidence in the US economy that he is investing in Goldman Sachs and GE, doesn’t that tell you something about the current “prices” of some companies? Warren’s model is to purchase company’s that produce a great cash flow while costing about 50% of its value.
That implies that our crazy market has produced some VALUE out there. The question for you to answer tonight is “What investments are currently priced at 50% of their value?” (Value is the Present Value of all future cash flow from the investment.)
Some of the things that I think of are Corporate Bonds, Some Stocks (although I don’t like stocks), Closed End Funds (lots paying over 10% interest), ????
Here are Today’s numbers:
Dow Jones 30 Industrial - 10,831 (down 20 points)
10 Year Treasury Bond - 3.77% (down 0.06%)
Euro - $1.4009
Gold - $887 (up $7)
Oil - $98.53 (down $2.11)
Gasoline - $2.36 (down $0.10)
I am real curious about Warren Buffett’s entry point in both GS and GE. While he got very good terms (preferred shares, 10% dividend, warrants, etc.); it still feels like this crisis has more time to run.
Buffett was on CNBC yesterday commenting on the bailout bill. He supports it and said he’d participate in 1% of it if he got the same terms as Treasury.
One of Buffett’s challenges is the large amount of capital he has to allocate each year. Thus he’s looking for whales not minnows. Thus he’s picked up WMT shares, GE, GS, in the last few years. Those are huge companies.
As for what investments are priced to deliver a double digit return. I ask myself that question daily. When I have some ideas for the group, I’ll post them.
On the political front, it is interesting that Warren Buffett supports the Democrats, and McCain said today he would consider Warren Buffett for his Treasury Secretary when elected.
This is the most dynamic political environment i’ve ever seen.
Tom
McCain is all over the place. One of his main economic advisors is/was Phil Gramm who’s probably personally more responsible for this econoimic mess than just about anyone else.
There is NO way Buffett would take any job in the government. Sadly he supported the 700 billion Paulson plan.
However, I’d like to see someone like Ron Paul, who actuals understands macro economic issues, in a position like Treasury Secretary. Of course, I don’t know if we’d be willing to take the harse medicine to get us off the debt based currency, fiat money system of fractional reserve banking.