Reasonably Thinking

Before the market opened on Friday, I received a call from my broker informing me that shares of CYN were no longer available to borrow, and my short position was to be purchased to cover upon the market open.  Although I was a little surprised, this occasionally happens to short positions.  The last time this happened to me was in late December, 2008, which altered my capital gains tax situation; short seller beware.

My 40 shares were bought to cover at $37.45.

Since my initial short position on August 6th, CYN has fallen 8.2%, whereas the market has risen 8.8%.  My original time horizon was 6-9 months, so most of my arguments have yet to transpire.  I still would avoid banks in problem areas, such as California.  If the opportunity to short CYN reappears, or if I find another bank with similar circumstances, I may recycle this trade. 

Keeping score:

News item:

My last major article, Surviving the Recession of 2010, was published Wednesday on Seeking Alpha.  Here is the link:

http://seekingalpha.com/article/173763-surviving-the-recession-of-2010

Hussman’s weekly column is one of the scary-good articles that he puts out once or twice a month.  Although I would love to reprint the entire thing, I have chosen the excerpt below as it precisely describes why I have been so tame on committing more money to a US inflation trade.  Instead I have made some creatively sound decisions, outlined in my newest piece Surviving The Recession of 2010.

“In my view, deeper loan losses are ahead, and if we deal with the next round the same way that we dealt with the last, we will ultimately succeed in debasing the U.S. dollar. There’s little inflationary pressure at present, and chances are that fresh credit concerns will create enough demand for government liabilities to forestall inflationary pressures for several years more.”

http://www.hussmanfunds.com/wmc/wmc091116.htm

Sold MSFT 20091110

I sold my final 50 shares of Microsoft MSFT this morning at $29.25.  I’ve had limit orders in a few times over the past few weeks, none of which went through, although I did allude to a sale in a previous post.  Microsoft is a solid company, and the decision to dispose of it was based purely on valuation (as I believe the market is overvalued, and MSFT is at least fairly valued).

With regard to Microsoft’s valuation, both S&P 500 and Morningstar rate MSFT at 3 stars (neutral).  Further, as I calculate, some of the valuation metrics look average.

• The forward earnings yield is 5.7%
• The trailing EBIT yield is 7.1%
• The trailing cash return is 7.2%
• The dividend yield is 1.8%

Now, I realize that trailing metrics are not perfect, but Microsoft’s financials aren’t incredibly volatile, so they are of some value.  Even more prevalent is that I am not relying on one metric, but a handful of perspectives that incorporate the income statement, statement of cash flows, and analysts’ reports.  Reasonably thinking, I no longer see a reason to own the stock at this time.

Keeping score:

These transactions equate to about a 12% return.  (I say about because there really are various cash flows at different times, but the two main cash flows are both about a year in length).

News item:

My last major article, The Next Recession, was published today on Seeking Alpha.  Here is the link:

http://seekingalpha.com/article/172420-the-next-recession

I am currently working on a follow up to the article and hope to have it published soon.

I came across this article today.  With regard to the effects of government action, it is spot on.

http://blogs.marketwatch.com/cody/2009/11/05/a-couple-ideas-on-how-to-trade-the-money-supply-bubble/

“Even scarier – if the artificially low 2-3% Fed Funds rates and no-doc jumbo subprime macchiato loans from the last ten years caused the great housing bubble, and if the artificially low 2-3% Fed Funds rates caused the great dot com bubble….aren’t those bubbles going to look like tiny air pockets when we get done with whatever bubbles are caused by the current 0% Fed Funds rates, $8,000 welfare checks for home buyers, FHA loans, trillion dollar TARP bailout cash infusions, $12 trillion in lending and corporate debt guarantees and all the other crap that’s not even being measured in that terrifying money supply bubble chart I posted above.”