Some Stocks To Consider Buying

We know that fear sells - even more so than greed. What is happening then is that the people’s emotions are being played by those who are control of the capital markets. The extreme volatility is telling us that at times the market interventionists are in control and at times we traders are in control. To the average person, it looks like chaos.

Having worked both sell-side and buy-side at a high level, I understand what the market is. By way of explaining it simply, I often say that the market is a game that plays people rather than the other way around. In a similar vein, I say that stocks are sold and not bought. To finish the point, there is a set of negotiations underway between governments and bankers to see who retains control of capital markets, and each side is spinning the public. The bankers, who are the ones who sell the stocks, have stopped all activities. Ergo, prices are dropping and everybody is confused. That is the state of the market today.

In any case, these days I spend much of my time helping educate and inform the people about capital markets in order to facilitate their taking control. My basic message is that the owners of capital need to take control of their wealth and to stay away from debt, which is the only path to financial independence.

Some of you might recall the parody of the movie “Wall Street” I wrote back in 2004 and republished in 2005 for the sole purpose of showing how far off the rails America has been taken by bankers, ie, the sell-side. Here is the link.

Yes, value-add is good. In fact, the new financial system to be developed by the G-7 needs to be built on that principle, along with the following precepts:

• eradication of self-regulation and all possible conflict of interest dealings;

• independent and separate financial services and capital markets regulation as a subset of the federal judiciary, with filings managed by Finance ministers;
• removal of central banks and Government Sponsored Entities (GSE) like Fannie and Freddie as quasi government (public) financial institutions, putting them entirely back in the private sector;
• independent private sector depositories for securities and precious metals;
• independent marked-to-market vs cost basis double accounting;
• transparent and fully-disclosed credit markets and financial services, with the elimination of non-disclosed contingent liabilities and off-balance sheet items;
• required time-stamped, on-line XBRL filing of all public data, including all parts of financial reports, notes, management discussions, speeches, and news releases, from all parts of the public as well as the private sectors in each country;
• capital markets that are operated in the best interests of the owners of capital and not for the capital managers or administrators, and

• the universal (general) agreement on currencies to start as soon as possible, and a system for five-year re-balancing.

Every point here is an absolute requirement to build a foundation for global trade and investment that will best serve the world at large and not the interests of bankers. Hence, bankers will fight this tooth and nail, fearing the public will finally have that level playing field.

I fear it is now or never.

We are indeed reaching to get to the top of the hill whereupon we will be staring at the Himalayas. Should my principles-based plan be defeated at this point by central bankers and their own that have been moved, like Trojan horses, into the home of government, the next crisis - the one over pension benefits, healthcare, state and municipal bankruptcies - will be on us within five years. As Michael Panzner has written in his best-seller, Financial Armageddon, that one will drive the world into a global depression.

As nobody knows until some time later when the equity market complex actually has technically reverted from Bear to Bull - I opined that it has already done so notionally in October. With the events of this week, I ought to be saying the turnaround is happening. The bigger point is that it is.

I am a believer that monetary authorities around the world have the means, and have come to international agreement this week, to work in a coordinated manner to end the crisis with money taken from future budgets, and with a commitment to build a new financial system that will start with a universal agreement on currencies.

But the timing of the turnaround is akin to reversing the direction of a cruise ship versus a speedboat. In a dire emergency, with so many people shouting SOS, it’s a painful thing to watch. I get letters every day from people who have been wiped out. Thankfully I get even more letters from people all over the world whom I have never had the pleasure to meet to thank me for helping them save their wealth from this fiasco, so that they can enjoy the rest of their lives in the manner they want, largely as independent people, and people who will pass to their heirs a substantial sum.

In such depressing times, those ‘thank you’ letters are very much appreciated.

As to the capital market; I am now 45% invested in short puts in the shares of select high-quality Cara 100 companies (see my list of 36) plus 30% long the shares of some of these companies and 25% long gold futures. This is a bullish, but cautious stance. With the historically high extremes of volatility, however, the only chance to be successful is to trade positions on an intra-day basis.

I do empathize with people who cannot do that, whether they have self-directed brokerage accounts, or managed pension, mutual and/or hedge funds, particularly in the latter case where asset managers have been incompetent.

My objective with short puts is, in effect, to put in stink bids expecting that only a few are met with stock that is put to me by traders who are under duress of margin calls or other aspects of emotional or forced selling. That is a double win because (i) the stocks for some are acquired at a very low price and (ii) the remaining short puts expire worthless, which is my income while waiting for this market to become an apparent Bull. With the extreme conditions of the times, the option premiums have soared, making put writing a very profitable business.

Here is the October 1 list of three dozen stocks to consider buying (listed in alpha order). Each of these companies has respectable management, financial strength, operating margins, long-term returns on shareholder capital, industry leadership positions, and good products and services:

Sector 10: Energy

• EnCana (ECA)
• Imperial Oil (IMO)
• Suncor Energy (SU)
• Exxon Mobil (XOM)

Sector 15: Basic Materials
• Mostly precious metals at this point [25% invested after the $USD reaches a short-term cycle peak in a couple days as the Euro/Pound sinks due to the credit market crisis that monetary authorities there must stabilize].

• Barrick Gold (ABX)
• Dow Chemical (DOW)
• Goldcorp Inc (GG)
• Silver Wheaton (SLW)

Sector 20: Industrials and Transports

• ABB Limited (ABB)
• Boeing (BA)
• General Electric (GE)

Sector 25: Consumer Discretionary Spending

• None at this point until the credit markets recover

• After an initial rally from an over-sold condition, most of these stocks will likely miss the first leg of the Bull and start to lift say about March 2009

Sector 30: Consumer Staples

• Diageo (DEO)
• Coca-cola (KO)
• McDonalds (MCD)
• Procter & Gamble (PG)
• Walgreens (WAG)
• Wal-Mart (WMT)

Sector 35: Consumer Healthcare

• Genentech (DNA)
• Johnson & Johnson (JNJ)

Sector 40: Financial

• Only a few at this point until the credit markets recover

• After an initial rally from an over-sold condition, most of these stocks will likely miss the first leg of the Bull and start to lift say about March 2009

• HSBC Holdings [very strong in the emerging economies] (HBC)
• Interactive Brokers [brokers and traders and not dealers] (IBKR)
• OptionsXpress Holdings [brokers and not dealers] (OXPS)
• Royal Bank of Canada [very strong in the emerging economies] (RY)

Sector 45: Technology

• Cisco Systems (CSCO)
• Dell Inc (DELL)
• Google (GOOG)
• IBM (IBM)
• Intel Corp (INTC)
• Oracle (ORCL)
• Qualcomm Inc (QCOM)
• Research In Motion (RIMM)

Sector 50: Telecom

• Millicom International (MICC)
• Nokia Corp (NOK)
• Telefonica SA (TEF)

Sector 55: Utilities

• Cameco [not a utility technically speaking but supplies uranium] (CCJ)
• Exelon Corp [uranium utility] (EXC)

I stated at the time I originally published it, this list is lengthy but not complete. There are many other high quality companies that are trading at attractive prices. I reminded you that cycle bottoms happen in periods of fear (and when we have cash and credit available) just like cycle tops happen in periods of greed (and when we run out of cash and credit).

Late in the session on Friday, as market prices were being hammered beyond all reason, I listed 95 stocks, of which 15 are of Cara 100 companies, some of which were included in my list of 36. The last list was compiled by one of the Cara Trading Advisors associates, Pascal Willain, based on an assessment of extremely low debt to equity, hence independence from their bankers.

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