3/14 Kelly Letter Topics
Weekly market review
Fed oversees banks
EU bails out Greece
China likes Treasurys
Consumers still down
CT suing Moody's, S&P
US AAA rating at risk
Strong retail sales
Topping oil prices
Index chart patterns
Households suffering
Market at 1150
What range top means
FMD shooting higher
Bluefin tuna ban
2010 EDITION
Much has changed; good investing has not
The Neatest Little Guide to Stock Market Investing, 2010 Edition
It's heartbreaking to watch the saga of the latest terrorist kidnappings. Americans Eugene Armstrong and Jack Hensley were beheaded on videotape, and it appears that Briton Kenneth Bigley is destined for the same fate. The three men were abducted last week from their house in the Mansour district of Baghdad.
The still shots and videos bring to mind last May when Nick Berg, an American traveling alone through Iraq, was also abducted and beheaded on videotape. In both cases, the responsible group is "One God and Jihad", led by the Jordanian militant Abu Musab al-Zarqawi. The CIA says it's Zarqawi's voice on the Berg tape and that Zarqawi's hand wielded the knives that decapitated Mr. Armstrong and Mr. Hensley.
All eyes are following the story to its traumatic conclusion. The latest is a video showing 11 minutes of Mr. Bigley begging Prime Minister Tony Blair to spare his life by bowing to the terrorists' demand to release all female prisoners.
While I sympathize with the victims, I have to ask an important question: Why are westerners living so unprepared in Baghdad? There's a war on. Most of the people in all directions loathe Americans and British. The whole reason we're in the area is to fight terrorism. Terrorists do terrifying things like this. Why are kidnappings catching anybody by surprise?
The three men should have had pistols under their pillows, bars over their windows, an alarm system on every door, and an emergency button to the police. If I was forced to live in Baghdad you can be sure that's how I'd approach it.
What's more, I would submit that anybody choosing to go there these days has a responsibility to not become a pawn the way these men have. Because they are the first, we can forgive them for almost anything. We can only imagine the nightmare that was uniquely theirs. But from here on out, there should be no excuse for getting abducted and executed in such ignominious fashion.
There are several reasons for this. The first is that all of us are ambassadors of our respective countries. We don't represent only ourselves, we represent our nations. When a man is reduced to begging for his life, it makes his country look weak. Weakness is what terrorists are looking for. Big, bad America doesn't look so threatening when it's dressed in an orange jumpsuit with its hands tied behind its back awaiting the knife. As tragic as the loss of the individual lives are in these circumstances, the psychological victory enjoyed by the terrorists cannot be overlooked nor allowed. In sum, foreigners living in warzones owe it to their countries to be prepared to defend themselves. They should do everything in their power to avoid becoming tools for terrorists.
The second reason is that when facing terrorists, our lives are forfeit anyway so we should fight to the death -- preferably theirs. Terrorists don't care if they live or die. Many of them want to die in their deluded war against the enemies of Allah. It's impossible to reason with such a foe. It's foolhardy to hope for a reasonable outcome. Therefore, all foreigners living in Iraq and surrounding areas need to be prepared for the not-unlikely event that they will come face-to-face with a terrorist. They cannot roll over and hope for the best. They cannot assume that reasonable people will meet at a table to work things out. They must assume that they are destined to die anyway, and then pull out all the stops to fight their way to freedom. They have nothing to lose. They will most likely be killed in the ensuing melee, but they would have been killed if captured anyway. There's a chance that they will win the fight. Wouldn't that be a reverse blow to the terrorists who tried kidnapping them?
The third reason is that going to the war zone is a choice. Nobody outside the armed services needs to be there. Given the stakes, NOT going seems perfectly reasonable. If one already lives there, then leaving seems perfectly reasonable. Yes, that could mean losing one's job, but does anybody think that Mr. Armstrong and Mr. Hensley would not rather have sought new employment than face what they faced?
If I worked for a company that was doing business in Iraq and I was told to move there, I'd demand the following conditions:
- I am provided housing in a well-guarded area.
- I am armed for self-defense at all times.
- I carry an emergency call button with me at all times.
- I undergo self-defense and counter-terrorism training.
If any of those conditions couldn't be met, I wouldn't go. If that meant losing my job, I'd lose it.
We should not send vulnerable people into harm's way to be ritually slaughtered by the vermin of the Arab World. We need to send only people who would put up such a fight in an encounter that terrorists would think twice before staging another kidnapping. Every foreigner in that god-forsaken country needs to be a gunfight waiting to happen because that's the nature of the place.
Instead of the humiliating, sad story coming to its end before us, imagine if something like the following had been reported:
BAGHDAD, IRAQ, Thursday -- Five armed terrorists broke into a home shared by two Americans and one Briton, employees of a construction firm engaged in rebuilding Iraq. The gunmen triggered an advance-warning alarm that awakened the three residents, who then pressed an emergency button to signal the police and took up pre-planned positions to defend themselves with pistols. In the ensuing gunbattle, the residents killed two of the surprised kidnappers. The remaining three kidnappers fled the house, but were shot dead by police arriving on the scene. This is the fourth such incident in which terrorist plans have been foiled by prepared foreigners.
Let's hope that Mr. Bigley is the last foreigner to face death on videotape at the hands of terrorists. Let's get smarter about how we live among the most unreasonable, hateful, dangerous people on Earth.
I decided that while waiting for lower buy prices I might as well make a little money enroute. To that end, I shorted Time Warner (TWX) last Friday at $16.85. It rose a bit during the rest of Friday but is drifting lower today. This is not a major investment, just a quick position to profit if my predictions of a falling market come true. I expect to cover at about $15.50 for an 8% gain.
In other news, both Sun (SUNW) and Maxtor (MXO) are heading lower again. I'm still aiming to buy Sun at prices below $3.50. That would be a major investment, about five times the money I used in shorting Time Warner. I mentioned early in the summer that you should try getting into Maxtor below $4. That would have been good. The stock's up some 38% in the past month. If you missed the chance to buy below $4, you'll probably at least have the chance to buy below $5. The missed $1 gain won't matter much to you when the $5 purchase doubles to $10, as I expect it will. Just don't ask when.
Negative influences on the market include expensive oil, earnings warnings, rising interest rates, an economy that's not out of the woods yet, and the ever-present risk of terrorism. They should give us enough volatility in the next couple of weeks to bring cheaper buy prices.
I mentioned in my Sept. 6th article (see below) that I wouldn't be surprised to see stock prices lift more before dropping. That's exactly what happened in the past week. We appear to be at or near the end of a six-week uptrend. Following it, I expect to see a brief downdraft followed by a seasonal and powerful rally into the new year. That's roughly the pattern we saw last year.
From Dick Green's Big Picture column at Briefing.com:
The pickup in warnings is not surprising. Higher energy prices have sapped consumer spending power. Retailers have felt the impact and had to lower guidance. Energy-dependent firms such as airlines and transports have faced higher than expected costs. Technology companies are a whole issue in themselves. The slowdown in economic growth has made put expectations of a return to blowout growth trends of previous years back into perspective.
The next three weeks are likely to continue to bring earnings warnings at a more rapid pace than seen in quite some time. This has the potential to produce a very choppy market, and even to cause a significant, if brief, sell-off.
This doesn't change our long-term moderately bullish view. The earnings growth is still good enough to ultimately provide a lift to the market. Still, the recent mini-rally should be seen as a bounce from oversold conditions rather than as the start of a steady rise in the market.
Warnings season presents risks to individual stocks and makes it a difficult time to look for stocks that might make strong upward moves. It has historically been a time for investors to take a cautious short-term approach regardless of the long-term view. This quarter looks like there could be a return to those historical trends.
My attempt to build a position in Sun Microsystems last month didn't go as planned. I bought at $3.60, then it dropped. The extent of the drop was enough to indicate that what I thought to have been a support area was too generous. Therefore, I sold at a small profit when the stock rebounded to $3.70. I'm now looking to get in at prices below $3.50 and I think the next four weeks could bring them.
For help in navigating this volatile stock, I looked back at how it performed in this period a year ago. In August 2003, Sun fluctuated mainly between $3.50 and $3.90 with a high of $4 and a low of $3.39. Then in the second week of September it saw a breakout to a high of $4.25. It appeared that the lows of August had been a lost opportunity and that the traditional fall revival was already upon us. I remember watching the stock at that time for an entry point and being disappointed that it just kept rising. However, patience paid. In the first week of October, it crashed to a low of $3.14. I suggested that you buy on October 8th. By the end of October, it was back above $4 and well on its way to my average sale price of $5.64 in February 2004. From there it was all down hill.
I think we're in for a similar pattern this year. The stock closed last week at $3.91, still comfortably below the goal I stated in February of buying below $4. Intel warned last week and technology became weak. Other technology companies may follow. The pre-election jitters should add enough uncertainty into the mix to give us another leg down before the Autumn climb higher.
Note that I would not be at all surprised to see stocks rise a bit more before they start heading lower. That happened last year, as well. Keep your hand steady but keep it ready. As you can see from both the lows last month and the lows in October last year, cheap prices don't last long. I'll be watching as well and will let you know in this space if and when I buy again.
By the way, you'll be in good company as a buyer of this stock below $4. In August, James Barksdale, a Sun director and the former president of Netscape, bought 860,000 shares at prices between $3.35 and $3.79. Here's the insider history.
