Weekend Reading – Unfinished

What would Warren Do?

I'm a big Buffettt fan and I'm always interseted in his virtual portfolio moves.  Lon Juricic from StreetInsider notes that the latest 13F reveals the following changes between 9/30 and 12/31:

New Positions:

• Ingersoll-Rd (NYSE: IR) new 636,600
• Unitedhealth Group, Inc. (NYSE: UNH) new 1,021,400
• US Bancorp (NYSE: USB) new 23,307,300 (stake disclosed yesterday in delayed filing but firm held 6.1M shares at 03/31/06, 22.1M shares at 06/30/06 and 23.3M shares at 08/30/06)

Raised Positions:

• USG Corporation (NYSE: USG) from 16,700,992 to 17,072,192
• Wells Fargo (NYSE: WFC) from 190,641,600 to 204,022,100

Why does this give me the feeling that Warren does what I do, we have so much reading to do that we end up sorting things alphabetically and then we end up bunching up picks that are near each other…

Reduced Positions:

• Ameriprise Financial Inc. (NYSE: AMP) from 19.26 million shares to 8.27 million shares
• H & R Block (NYSE: HRB) from 10,971,000 to 4,113,400
  • Watch out – we have this one, although that explains the weakness.
• Comcast Corp (Nasdaq: CMCSA) from 11,110,200 to 8,000,000
• OSI Restaurant Partners, Inc. (NYSE: OSI) from 1,818,800 to 0 (buyout)
• Pier 1 Imports (NYSE: PIR) from 3,290,000 to 1,483,400
• Sealed Air Corporation (NYSE: SEE) from 677,700 to 0
• Target Corp (NYSE: TGT) 745,700 to 0

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But let's forget about Berkshire, Buffett is old news and the biggest name on the investment scene for the rest of this decade is my new man Lou Jiwei! 

"Who?" you may ask – and you'd be close because he has a cousin named Hoo but Lou Jiwei is the man slated to become the Deputy Secretary-General of the State Council (China's cabinet) and the former Vice-Minister of Finance will be put in charge of investing China's $1.07T in cash.

Did I say $1.07 Trillion?  That's $1,007,000,000,000.  For perspective, do you remember 30 seconds ago when you were oohing and ahing (you know these are words even if my spell checker doesn't!) over where Mr. Buffett is moving his $167Bn around.  Let's not forget that Berkshire Hathaway "only" has $44Bn in cash to deploy.  Mr. Jiwei can make $44Bn this year by putting his cash in a money market account!

This is probably the most important financial story of this decade as even a conservative equity strategy would likely include at least $200Bn of US equity investments (they're already heavily invested in China!).

Kudos to Super Banker (Paulson) who should be cashing the world's largest broker commission for flying out to China and convincing Wen Jiabao to do what our congress won't allow the President to do, play the markets!  While giving Bush a few Trillion in Social Security trust accounts probably is a very bad idea, Paulson closed this deal back in December when he and Bernanke flew to China and carried out my master plan.

As I said at the time:

"So Hank Paulson, my nominee for the Mr. Potter look alike contest AND former head of Goldman Sachs, is off to China next week to prop up the dollar and, after much discussion, I’ve decided to let him use my Roach Motel Theory as a Weapon of Mass Dollar Destruction (WMDD) against the Chinese."

"Why will they listen?  Ah, that’s where the old Roach Motel Theory kicks in  – not as it applies to oil, but as it applies to dollars.  The Chinese have a Trillion US dollars!  While they may threaten to diversify them into something more stable Mr. Paulson is going to point out to them that they are not the only roach in the motel."

"Ha ha!  So the devaluing US dollar will hurt China, Europe (the least), OPEC AND every one of that top 10% of the world’s richest people who have 85% of the dollars that are floating around.  I challenge you to find a government, no matter how communist, that can afford to ignore them!"

"So we will keep printing dollars and China will keep buying them, as will everyone else and, now that we have pushed commodities to the limit, they will start using those dollars to buy other American goods and services – maybe even an IPod!   Meanwhile for us investors, that ever expanding money supply has to go somewhere and we may be heading into a very, very soft landing on a very big pile of US dollars!"

Well that was December 9th, I think 3 month's notice is plenty for me to give you guys before the Wall Street Journal agrees with me on page one!

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China remembers and they became the world’s number 2 investor in R&D, inching out Japan at $136Bn.  The US is still #1 with $330Bn spent but that’s out of a $12T economy vs. China’s $3T.  The average Chinese company spends twice as much as the average US company.  Our drug companies alone account for almost half the spending so it’s much worse than you think.  But wait, it’s worse than that – due to wage differentials, China has 926,000 researcher vs. just 1.3M in the US. China is growing R&D at a rate of 10% a year while the US, through aggressive M&A activity, has been cutting back since 2000…

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Trading Goddess had a nice chart on market making decisions that makes a nice companion to our usual panic/euphoria model.

While not quite as accurate as the roller coaster chart we usually use (and I cannot emphasize enough how you should tape it to your monitor until you can see it with your eyes closed!), it does help to know that you're not the first – and will not be the last person to go through these wild mood swings regarding pretty much every position you take!

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Here's another chart that cracks me up,the history of stock market scandals "so far."

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I'm calling Carl Icahn and we're going to make a play for CSTR!

They had a pretty lame Q4 but it beat beaten down expectations and I think this company is totally missing the boat with just $5M in profits on $138M in revenues.  I like the business in general but they are up-front investment heavy and tend to spook investors who have sold them back down to just above their Dec 2004 3M share stock offering at $25.  Revnues are up about 30% since then and the stock is up 15%.

The reason I'm calling Icahn in is that the company now has over 15,000 coin counting machines in operation that sort over a Billion dollars a year in coins.  Cointstar takes a commission for all the change they turn into dollars but I think they are leaving another $100M on the table! 

Since they are getting the contents of everyone's penny jars we can reasonably assume that there are some coins in there that are worth more than their face value.  A reader and I actually did an experiment last year to verify that theory with bank rolls of coins and it works great, just very tedious.  There’s also the lesser value of rare nickels but you don’t see them as often in rolls but the rate of return justifies hiring workers to sort the pennies with minimum wage workers.

Heck, you can melt down a nickel and get $07.25 worth of metal!  Pennies are even better, pre 1982 they have a metal content worth $0.0175!  Try doing that a few Billion times and see what you're making…

Coinstar processes $4M in coins PER DAY and I say we should buy them out for $850M (or take control for a mere $425M) and have some metalurgist come up with a sorter that can pull valuable coins off the line.

The company only makes $20M per year so they are probably not even mining what they have as just getting a 5% premium on the coins they sort would net them $73M per year!

While I'm waiting for Carl to call, I'll begin a position with the April $30s for $1.25 but very small as I'm prepared to roll the the July $25s if this stock is determined to retest last summer's lows.  If it takes off, the July $35s won't be going anywhere for a while…

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Here's my theory on why Vista is having trouble:

This Apple commercial is devastating!  It's on constantly and it plays to every business manager's core fears of switching – especially since the migration to XP was anything but smoothe… 

You may think it's no big deal or amusing but I have talked to dozens of business owners who have a very negative impression of Vista without haveing actually seen it or read about it.  When I press them I get vagueries like "it's still in Beta," "it's got glitches/viruses," "the security will be a nightmare…"  all concerns straight out of Apple's massive campaign.

There's no rush to switch but you also can only delay the inevitable, once those new versions of office documents won't open on your old version of office you know it's only a matter of time before you give in and upgrade.