Main takeouts, the companies you invest in should have or surpass the following benchmarks:
- ROE: 5-year Avg. >= 17%
- Return on Invested Capital: 5-year Avg. >= 17%
- Pre-tax profit Margin: 5-year Avg. >= 1.2* Industry Avg. Pretax Margin: 5-year Avg.
- Price/cash flow ratio <= 0.8* Industry Average price/cash flow ratio
- Price/cash flow ratio >=0.1
- Debt to Equity Ratio <= 0.8*Industry Average Debt to Equity Ratio
On the recent pullback bought DD and CHK in support for early recovery thesis. Another industry that should grow in early recovery is transportation. I already own CSX and am thinking of buying a shipper. But all of them look so vulnerable now.
Missed HD. Wanted to buy it for a long time but it never gives me a meaningful pullback.
Update: Market pulled back more than 1.5%. Bought MA on pullback. By the end of the day market was back to almost even.
Economical crisis has exposed many of the dormant disputes between the nations of European Union. Particular sensitivity gained the question of Greek governmental debt and possible need of urgent financial aid from other, more prosperous and prudent members of European Union.
European Monetary Union brought 16 of members of European Union under the roof of one currency. Skeptics were objecting that the economies of Euro-area members differ wildly in productivity, growth, fiscal discipline and competitiveness. They predicted that having one currency will result in some countries like Germany, France, Austria, Finland having large trade surplus while others like Greece, Italy, Spain, Belgium, Portugal having large trade deficits which will grow to unsustainable levels. They happened to be absolutely right and it happened before our eyes in first months 2010.
First group of countries have economies that are highly competitive, earn more than spend and have very small budget deficit. Second group of countries have economies that are less competitive, spend more than they earn and are deeply in debt. To put things even simpler, Germany and France lend money to Greece, Italy and Spain so that they will by German and French goods. This can not go forever as debt of the southern countries keeps on accumulating and northern countries get more and more dependant on demand for their product from south.
These kinds of disbalances between economies are resolved very easily when economies use different currencies. Currency of more efficient economies appreciates thus making exports more expensive and currency of less efficient economies depreciate thus making imports more costly, even prohibitive. Of course, each country has the level of prosperity more or less linked to the level of productivity of their economy.
With common currency, Euro, this kind of exchange rate adjustment is not possible. Some other methods must be used to compensate for disbalance between economies. I am not going to propose anything here. This is a task for economists and policy makers and there are many practical solutions with different track records for success. None of them though are painless for the people and the economies of countries involved.
What I am going to discuss here is the ugly face of public discourse that we have witnessed during the darkest weeks of January and February of 2010 and how lessons from Mediterranean Culture can help us avoid such discourse in future.
Since the introduction of Euro in 2001, French and German companies were happily selling cars, equipment, weapons, and other products to Greece. German construction companies were busy building airports, stadiums, roads and factories in Greece. All this was financed by the loans from international investors and banks, many of them French and German. When the crisis struck and it became clear that Greek government needs a bail out because speculators were driving Greek debt into ground and interest rates into stratosphere, Greece appealed to European Union; mainly to Germany and France. This bail out is nothing special, it consists of a loan to Greece at the same interest rates that Germany and France was happily loaning money to Greece before the crisis.
Suddenly the German workers who retire at 67 got outraged at Greek worker who retire at 61. European bureaucrats suddenly got very concerned by Greek government’s budget and deficits and were raising alarms about Greece’s bleak future. Donor countries started to accuse Greece and its people of laziness, irresponsibility, lying, and theft. They insisted that Greek government do things to Greek economy that would guarantee that mild recession will grow into a great depression for Greek economy. And they insisted on these measures just because Greece was too weak to object and they wanted the people of Greece to suffer for living beyond their means in the past.
The Greeks accepted the blame and adopted some measures to shore up budget deficit but seeing streams of verbal abuses coming from the rest of Europe again and again for weeks could not resist and revolted. They remanded Germany about the good times when Mercedes Volkswagen, and BMW were beating records selling cars in Greece and when Siemens was bribing Greek politicians to win lucrative projects in Greece. They remanded Germany that Greece did not ask reparation after German invasion in WWII as Greek people did not keep German people responsible for the atrocities of Nazi regime. They even reminded Germany that she was in a happy alliance with Ottoman Empire even as Greek patriots were dying in the war of independence and many a Europeans and Americans along with them.
What went wrong? How could relations deteriorate so fast? What happened to European Union? What happened to common culture, goals, dreams, and aspirations? How money could come before brotherhood and unity? Is European Union a union only for the good times? Is this disunity a fundamental one or is it just caused by economical difficulties?
This question brings us to the Mediterranean Culture. We see before us brothers and sisters from all across the Mare Nostrum: from Morocco to Greece; from Lebanon to Spain. These people have lived together for thousands of years and what is important, traded with each other for thousands of years. And of course their economies are different like the economies of European Union countries are different. And in the same way as European Union uses one currency, Euro, the countries of Mediterranean used one currency, gold. They went through the good times and through the bad times. They went through natural disasters, famines, plagues, and through bloody conflicts. Some times they fell, some times they rose. But they learned how to live together, respect each other, help the ones in need and not take advantage of a brother who is having momentary difficulties.
The Mediterranean has carried human knowledge and civilization for over five thousand years. And I believe that Mediterranean will continue being the guardians of civilization for another five thousand years. All this is achieved through cultural diversity, mutual respect and wisdom of the people. And I believe there is something in this that us, northerners, can learn and apply.
Bought FWLT and PFE. Had an order to buy MO at 19.40 but it did not fill.
Nice observation in this graph
Taken from here: http://scottgrannis.blogspot.com/2010/02/10-yr-treasury-signal.html
And we all listen
Nice to know that Warren the same way as me that Ken Lewis in fact saved U.S. and world economy by buying Merrill Lynch. He has been much demonized for this. He is one of the true heroes of this crisis. For the record, others are Paulson, Bernanke, George W. Bush, and many many others.
Also, nice quote from Bush:
“If money isn’t loosened up, this sucker could go down,” President Bush declared Thursday as he watched the $700 billion bailout package fall apart before his eyes, according to one person in the room.
I doubt that Obama has same degree of understanding of economy as Bush did. What he did to the economy and markets after Massachusetts failure is unspeakable.
European Union woke up and realized that speculative attack on Greek government debt was very akin to speculative attacks on US Banks in 2008. It is rumored that Germany and France are to provide loan guarantees to Greek debt. I applaud them, this is the right thing to do. They just broke the vicious combo that would have spiraled down into a full-blown crisis of Euro currency and maybe even the whole European Union or at least it’s southern part. Somebody in recent days said that Greece is “too small to fail”. Right on.