Rocky occasionally peruses his favorite magazine store for investment truths using the “Magazine Cover Contrary Indicator.” Unfortunately, Rocky’s local store doesn’t sell Time, Newsweek or Business Week. Rocky’s local magazine store sells mostly lurid ”periodicals,” ”videos,” and cigars.
Hence, Rocky needed to develop his own contrary media indicator — independent of bulls, bears, and cleavage.
He found one!!
Bloomberg Radio occasionally adjusts their hourly market summaries. Bloomberg no longer even mentions the overnight change in the Japanese Stock Market (up 15% year-to-date); but instead they quote the “yield spread” on defaulted Greek Bonds. For Rocky, this is a very bullish omen for Japanese stocks. And it also means that Greece is irrelevant. (Rocky also noticed his local magazine store has increased its inventory of extremely lurid Shukanshi.)
[Disclosure: Rocky NEVER gives investment advice and he reminds readers that sometimes a "Cigar is just a cigar." However, he confesses that this "radio indicator" contributed to his decision to recently buy some Japanese stocks (currency-hedged) such as the DXJ and NKY Japanese Stock ETF's. He may stay with this position for a long time, or he may spit it out tomorrow like a bad cigar.]
Rocky never provides investment advice. But for once he’ll violate this rule and offer some advice to Congressman Ron Paul.
Members of Congress must file financial disclosure forms which show all of their assets and investments. Rocky studied Rep. Paul’s portfolio from 2003 to the present. http://www.legistorm.com/memberdisclosure/413/Rep_Ron_Paul_TX.html
Ron Paul’s portfolio violates every principle of sound money management. It is not prudent. It is not sensible. It is volatile. It is speculative. And it may give a window into Ron Paul’s perspective on the economy and free enterprise.
From 2003 to the present, Ron Paul’s stock portfolio owned only gold stocks. He owned some real estate. He had some cash. And he owned mutual funds that make money ONLY WHEN the stock market declines. He did not own any gold bullion. And more recently, he purchased more gold mining stocks and added to his bearish bets on the stock market using leveraged bearish funds.
In 2003, the value of his portfolio was between $860,000 and $2,300,00. (The disclosure form only provides a range of values.) In 2010, his portfolio grew to $2.4 million and $5.5 million. (Gold stocks have declined between 15% and 30% in 2011, so his portfolio has declined commensurately. He will declare that loss next year.)
So, over an an 8-year period his portfolio has appreciated by about 12%/year. (And after this year’s losses for gold mining stocks, it will be a bit less than that.)
Not so bad, eh?
If, instead of being such a wiseguy, he had instead just purchased gold bullion, his return would have been 55% better — returning an impressive 18.5% per year! (It’s very strange that Ron Paul doesn’t own any bullion. And a skeptic might wonder whether he owns bullion, but failed to disclose it.)
[Disclosure: If one extrapolates the profile of his portfolio, one must conclude that he either nailed the bottom of the gold market, or he has really lousy long term performance. Remember that (even after this 10 year old rally) gold has appreciated at only about 5% for the past 30 years, while stocks have returned about 11%, and long bonds have returned high single digits. More troubling, however, is the notion that a President of the United States would personally profit from a DECLINING stock market and a declining economy! Even Barack Obama's assets include some S&P Index Funds....]
The term Roach Motel (“where roaches check in, but they don’t check out!”) was coined by Black Flag pesticides in a decades-old advertisement. Judging from Rocky’s recent experience, Groupon membership is quite similar.
After Rocky finishes reading the National Enquirer, he turns to the Guinness Book of World Records to find investment themes.
Question: What technology company and product holds the Guinness World Record of being the “fastest selling consumer electronics device ever?” [Hint: it happened in the past 12 months.]
Answer: Click here for the answer.
[Disclosure: Rocky never provides investment advice, but he admits that he has started purchasing shares of the company that manufactures the Fastest Selling Cosumer Electronics Device EVER! ]
The Captain of the Titanic supposedly said, “Women and children first!” when directing his passengers to the lifeboats.
Rocky, (hardly a chivalrous fellow), thinks recent Consumer Price Index data demonstrate “Women and Children LAST!”
He notes that women’s and children’s apparel prices are declining at a noticeably faster rate than men’s apparel prices. (See the bottom three lines of the chart above.) Although Rocky continues to wear the same ragged grey sweater and chinos, Trophy Wife may find this data to be an impetus for a visit to the shopping mall.
Rocky theorizes that women can wear men’s clothes (which support the price of shirts and pants), whereas most men wouldn’t be caught dead wearing a dress or skirt. However, if this trend continues, Rocky’s miserly nature will prevail, and he’ll try on a kilt or two.
For the first time in decades, the dividend yield of Japanese stocks exceed the dividend yield of US stocks. As of the close on March 15th, the S&P-500 dividend yield is 1.86. After last night’s 10% decline in Japan (and the horrific catastrophe unfolding there), the dividend yield on the Nikkei-225 is now 2.02%. (The chart above shows the S&P-500 dividend yield minus the Nikkei-225 dividend yield using monthly data. It doesn’t include the post-earthquake price moves.)
Determining whether this represents an investment opportunity, or an accurate reflection of the long-term prospects for Japanese industry, is left as an exercise for the reader. Rocky notes that Japanese 10 year bonds yield 1.21% and US 10 year bonds yield 3.24% — which makes this dividend phenomenon even more striking.
[Disclosure: Rocky never provides investment advice. He will also forgo any jokes about the dismissal of the Aflac Duck because it would be inappropriate -- as the Japanese people suffer the aftermath of a historic disaster. ]
Rocky tips his hat to the uber-quants at Barclays Capital for creating an “index” (fund) that only Cramer (of Seinfeld fame– not Mad Money fame) could have dreamed up.
From their website: (see: https://ecommerce.barcap.com/indices/index.dxml )
The Barclays Capital TOM™ Long Index invests in the relevant underlying equity benchmark Index on the close of the 4th business day before each month end and closes this position 3 business days after the same month end. The Long Index is not invested during the rest of the month.
The Barclays Capital TOM™ Long/Short Index takes a short equity position on the close of the 11th last business day before each month-end and closes this position on the 5th last business day before month-end. It then takes a long position Index on the close of the 4th last business day before each month end and closes this position 3 business days after the same month end. The long/short index is not invested during the rest of the month.
BarCap also has a series of funds aptly named the “Barclays Capital Astro Index.” This inspired Rocky to propose the following variations of this bizarre approach towards so-called “investing”:
1. The Rocky Moon Fund (Buy on the New Moon, Sell on the Full Moon).
2. The Rocky Blue Moon Fund (Sell EVERYTHING on the Blue Moon, buy it all back 1 day later).
3. The Rocky Lunar Eclipse Fund (Buy on the eclipse, sell 2 hours later).
4. The Rocky Solar Eclipse Fund (Stare at a solar eclipse and buy health care stocks.)
[Disclosure: Rocky acknowledges that markets rise and markets fall. But flipping a coin may well be a better approach than investing based on the day of the month. Statistics don't lie. People lie with statistics. ]
Rocky just approved his employee paychecks for the first pay period of 2011. He noticed that everyone’s paycheck increased by almost 2%.
“I don’t remember approving any raises!” Rocky grumbled to his CFO. ”Especially not for Bosley in the mailroom. That’s the guy who nodded off while sitting in front of the postage meter — and his forehead wasted a few hundred dollars in postage stamps!”
“Rocky, it’s the tax cut,” explained the CFO. “Congress passed a one year holiday on Social Security and Medicare taxes. Everyone’s paycheck went up by about 2%.”
“That’s great,” said Rocky. “Allowing people to keep their own money is always a good thing. But what should we do with all those wasted postage stamps? Maybe we should hand them out as holiday bonuses?”
[Disclosure: Reducing taxes is the most efficient way to stimulate an economy.]
A friend writes: “About 18 months ago, I compiled a list of stocks for a buy-and-hold portfolio. As of today, it’s down 3.2% (excluding dividends). Going back further, my “sure-thing” portfolio is down 9.7% (excluding dividends).
Rocky notes that since December, 2008, the S&P500 has risen about 42%, and the “average” (non-market-cap-weighted) stock has gained about 75%. Interestingly, however, 57 stocks in the S&P500 have declined in price during this period!
Losing money during one of the biggest rallies in history is like walking around with a black cloud over one’s head. (A meteorological phenomonen with which Rocky is very familiar.)
In the spirit of the TV game show with-the-same-name, “The Biggest Loser” turns out to be Dean Foods Company (DF) which produces private label dairy products. Dean Foods has lost about 55% of its value during the past two years. The CEO of Dean Foods surely wishes that instead of “milking” his company dry, he had invested in the poultry business — and raised a few “golden” geese, which could have flown above the black clouds.
[Disclosure: Rocky has never invested in Dean Foods. He welcomes bad puns that involve milk companies that turn sour, but acknowledges the futility of crying over spilled milk. He also notes that investing in a "boring" S&P500 Index Fund can makes tons of hay when the sun shines.]
Back when Rocky studied Rocket Science, a popular saying was “Garbage In = Garbage Out.” This meant that if you put silly data into a computer, the lights would flash, the drives would spin, the bells would ring, and out of the printer came: garbage.
The GIGO model came to mind when Rocky read the following e-mail from Dow Jones:
[Disclosure: Basing one's investment decisions on a real-time feed from Dow Jones New Service is reminiscent of a blind man who looks in a mirror and shaves using a straight-edge razor. As for "code words," Rocky has only one word that really matters: "Plastics."]
For long-term investors with a dedicated portion of their portfolio in bonds, Rocky believes that there’s currently an opportunity to reduce exposure — without reducing return.
The “trick” is to extend maturities with a portion of their bonds, and to put the balance of their exposure in cash. This is called a bar-bell trade (named after the exercise equipment) — and the steepest yield curve in 30 years (see chart) provides a rare opportunity to do this trade.
Here’s an example of the mechanics.
An investor has $100,000 in the Vanguard Intermediate Term Investment Grade Bond Fund. This fund yields 3.1% and has an average duration of 5.3 years.
If the investor sells that fund, and buys $58,000 of the Vanguard Long Term Investment Grade Bond Fund which yields 5.4% with a duration of 12.9 years and puts the other $42,000 in FDIC insured money market funds yielding 1.0%, a number of virtuous things can happen:
1) If nothing happens, the cash yield of his portfolio has increased by a little bit. Before the re-allocation, his portfolio was producing $3100 in income, and now it’s producing $3500 in income.
2) The investor has increased his cash balance, and since no one really knows what the future will hold, it’s always good to have lots of cash. If interest rates rise , the investor will be able to put the cash to work at higher yields.
3) If interest rates rise, the yield curve is likely to flatten (based both on history and standard economic theory). That is, short-term rates ”should” rise more than long-term interest rates. So, even though the re-allocation results in a longer duration (7.48 versus 5.3), in most scenarios this risk is overstated. Also, the risk is lessened due to the 42% cash cushion. So the practical increase in duration should be less than the theoretical increase.
4) The investor has sold the portion of the bond market that is being levitated by the Federal Reserve and purchased a portion of the bond market which is being set by market forces. (Most of the Fed’s purchases are under 7 years in maturity.) So, when the Fed stops buying or reverses its purchases, the re-allocation should have less market risk in the short maturities that usually rise the most during tightening cycles.
5) With short rates at zero, there’s nowhere for rates to go except up. However, if the USA is in a Japanese-style depression, the only yields that can still decline are the ultra-long maturities, and one might experience a “bull market flattener”. (This is a low probability event.) Due to its modestly increased duration and position on the yield curve, the re-allocation would likely outperform nicely during a bull market flattener. Additionally, the stock market will be weak in this scenario, and the 48% cash balance might be useful for purchasing some stocks at much lower prices.
Where does this strategy look worse? If all interest rates across the yield curve move higher by the same amount , then the modestly increased duration can cause an underperformance, and if the yield curve steepens even more, there can be an underperformance. Remember: Rocky isn’t suggesting to just move out the yield curve with the same amount of money… It’s important to tuck about 48% of the portfolio away in safe money market funds . Remember also that when rates rise, bond prices decline. So if interest rates rise a lot, all bond investors will lose money. The underlying theme to this re-allocation is “less exposure — same return.”
[Disclosure: This is NOT investment advice...see the Disclaimer at the top of this page! It's just something that Rocky noticed and investors should think about. It's also an observation that the yield curve is steepest its been in 30+ years. If the 30-year bond keeps rising in yield -- and the Fed keeps rates at 0%, then this strategy will not be attractive. There's no reason to think that today marks the maximum steepness. Lastly, Rocky doesn't have an opinion about when rates will rise; but they eventually will. But as Keynes supposedly said, "In the long run, we're all dead." ]
Rocky’s read a lot of information and mis-information regarding Quantitative Easing. This may be the best and clearest discussion of the issues and is worth a read:
[Disclosure: Rocky rarely agrees with Professor Landsburg, and finds some of his philosophies to be morally objectionable. Nonetheless, the Professor does a good job explaining the pros and cons of QE2 in his article.]
Rocky noticed that his friends see bubbles in bonds, in gold, in stocks, in cotton, sugar and grain prices. In fact, his friends see bubbles EVERYWHERE!
It appears that there may be a bubble in bubbles. And a look at “Google Trends” confirms this bubble. However, this bubble-in-bubbles popped early in 2010 — on the 50th Anniversary of Bubble Wrap!
[Disclosure: Rocky never gives investment advice. When asked if or when the current "bubbles" will burst, he started foaming at the mouth.]
Rocky purchased his HP12C Financial Calculator 25-years-ago, and the calculator has been a loyal, trusted and always-present companion ever since. It witnessed and assisted in life’s most important moments:
- It computed the per-carat cost of Trophy Wife’s engagement ring; and the closing costs of The Humbert Family Estate.
- It calculated the required vitamin pills during pregnancy, and the travel and parking time to reach the local hospital.
- It provided a “Discounted Present Value” for a lifetime supply of Rogaine. ($11,000); the cooking time for a gargantuan slab of discount bbq meat (3 days); and the hours required on a treadmill after eating the slab of meat (3 days).
- It inspired The Second Law of Rocky.
- It deserves credit for every successful (and unsuccessful) arbitrage that Rocky executed over the past 25 years.
Desite dents, scratches and worn feet, HP12C never let Rocky down. Yet suddenly, two days ago, age caught up to HP12C. The display dimmed, and commas/periods randomly appeared and disappeared.
Even though Trophy Wife hates Reverse Polish Notation “RPN,” she recognized the dangers of an unreliable financial calcuator, and located the tiny replacement batteries in a nearby town. Alas, new batteries did not fix the problem: HP12C was approaching the inevitable end of its life…. (Sentimental readers: the YouTube Video of the Byrd’s song “Turn Turn” is here: http://www.youtube.com/watch?v=bgq8_EmOSM0 )
But in calculators, as in life, there is always a silver lining! As HP12C faded, Rocky studied the financials and prospects of HP Corporation (HPQ), and concluded that it could be an interesting investment… if entered at the right price.
Amazingly, this opportunity occurred just one-day-later … as the CEO resigned amidst a sexual harrassment/expense account scandal. Rocky started buying HP stock around 6pm ($42), because the stock lost $11 Billion (11%) in value on the news. He will buy more if it keeps declining solely because of this resignation news. (The stock is trading at 9x earnings, so that means Mr. Market attributes $1.22 Billion in EARNINGS and $19 Billion in SALES to the just-departed CEO. Rocky thinks Mr. Hurd was a fine CEO, but he is neither Steve Jobs nor Warren Buffett, and the reaction presents a Rocky I opportunity.)
[Disclosure: Rocky doesn't believe that the disclosure of his future purchase of a HP calculator constitutes material inside information that will impact HP's stock price. He appreciates that the CEO's expense account irregularities could be just the tip-of-an-iceberg of problems. And he never provides investment advice. ]
The Hampton Inns hotel chain recently added personal waffle makers to its breakfast buffets in 1,800 hotels, and this provides Rocky with a new research project. See story here: http://news.travel.aol.com/2010/06/17/hampton-inn-officially-adds-waffles/
Behavior Finance is already a ”hot” topic, and the spread of do-it-yourself waffle bars enables Rocky to introduce the world to “Culinary Finance” — an interdisciplinary endeavor that studies the duality of dough in one’s wallet and dough in one’s oven. Rocky made this connection while staying at a hotel chain whose room deodorizers emit a fragrance not-found in the natural world.
[For submission to the Journal of Finance]
ABSTRACT- This paper studies the relationship between self-made waffle success and self-made financial success based on three random visits to a Hamptons Inn Hotel Chain Complimentary Breakfast Buffet during July, 2010. We demonstrate that waffle results predict investment results with statistical significance. Previous research demonstrated that a “Watched Pot Never Boils” (M. Mother (1920), however, this is the first paper to extend those results to a “watched waffle iron.”
We identify several classes of waffle failure: (1) Early exit resulting in an undercooked waffle; (2) Late exit — resulting in a burned waffle; (3) Systemic Waffle Iron failure/stickiness. We demonstrate that these three conditions also arise in investing (early exit/late exit/no exit); and may be a metaphor for Goldilocks and the Three Bears.
The paper observes that the most successful waffle users (1) read the directions before pouring batter; (2) stay at the machine’s side for all of the 2 minute and 30 second cooking period; (3) are not distracted by impatient spouses. Men wearing short pants had the highest success rate. Women carrying Fendi purses and wearing tight white pants had the lowest success rate.
[Disclosures: The results are preliminary and have not been independently verified. Because the waffle iron "beeps" annoyingly after the cooking is finished, Rocky excluded deaf people from the study. There is no relation between Warren Buffet and Breakfast Buffet.]
Rocky observes that when he pinches a balloon on one end, it expands on the other end. This simple revelation has implications for his friends who continue to buy corporate bonds at ever lower yields, while ignoring the effects that it has on the stock prices of the same companies.
Bill Miller writes in his latest commentary, “US large capitalization stocks represent a once in a lifetime opportunity in my opinion to buy the best quality companies in the world at bargain prices. The last time they were this cheap relative to bonds was 1951. I was 1 year old then, but did not have then sufficient sentience or capital to invest.”
Rocky doesn’t remember 1951, so he ran some tests on Dow Jones Industrial Average stocks and bonds to test Mr. Miller’s hypothesis, and found that the conclusions are impressive — even if one makes the improbable assumption that there is ZERO real earnings growth over the next ten years.
(During the 2008/2009 financial crisis, corporate bonds were getting hammered too, so one could not have done this analysis in 2008. Also, so long as the US population continues to grow, it’s extremely difficult to have zero economic growth, so this is a very conservative assumption.)
Rocky’s choice : (1) Buy an equal-weighted basket of the 10-year debt of “quality” companies or (2) Buy an equal-weighted basket of the stocks of the same companies. Buy and hold for ten years.
Analysis of choice #1 (bonds):
The average return is 3.9%. This is the best case and assumes no defaults, leveraged buyouts, or other credit events.
Analysis of choice #2 (stocks):
The current average dividend yield is 2.9% per year on the stocks.
The current average earnings yield is 6.3%.
So if one owns this stock basket and there is no earnings growth and no dividend growth, and the economy is Japanese-like, with intermittent recessions and growth, the return is 2.9% + 6.3% = 9.2% per year for the next ten years. (Which is remarkably close to the long-term average return for stocks.) Here Rocky assumes no bankruptcies and assumes a terminal p/e which is unchanged. But it also ignores the possibility that the economy could do much much better (or much worse).
Some might quarrel that Rocky is double counting … when he includes the dividends. So he says, “ok, let’s forget about the dividends.” Then, the stock basket’s earnings yield is 6.3% and the bond basket yield is still 3.9%, so it’s a pickup of 240 basis points per year for the risk/reward of owning stocks. Or, put another way, over a 10 year period, 10 x 2.4 = 24% … which means that the earnings yield could decline by more than 20% over the next decade and Rocky would still be better off in the stock market than in the bonds of the same companies.
None of this is making Rocky rush out to buy oodles of stocks tomorrow morning — because it’s certainly possible that stocks AND bonds may decline over the next ten years. However, for an investor in corporate bonds, this is an important result — particularly since in a SEVERE deflation or economic crisis, corporate bonds can get hurt badly. Note that Rocky did not include government bonds in this analysis — only corporate bonds.
Lastly, if stocks keep declining and corporate bonds keep rising, the relative values will become more attractive, however, at some point, corporations will issue new debt and use their cash to repurchase shares … and that’s what will keep the relationship between corporate bonds and stocks in line. Perhaps not at these relative valuations … but at some point.
Column1 = stock ticker
Column2 = dividend yield
Column3 = earnings yield. That is, earnings/price for the trailing 12 months.
Column4 = that company’s yield-to-maturity on its 10year corp bullet bond.
Column5 = earnings yield minus bond yield.
[There is a bit of fudging because Intel has no debt, so Rocky arbitrarily gave it a 3.2%. And he extrapolated some companies who had debt maturing in 8 years or 12 years.]
Data source: Bloomberg
|Dividend||Earnings||10 Yr Corp||Earnings YLD|
|Yield||Yield||Yield||minus 10 Yr Bond Yld|
|AA UN Equity||1.1||-5.6||5.7||-11.3|
|AXP UN Equity||1.7||3.7||4.5||-0.9|
|BA UN Equity||2.7||3.5||3.3||0.2|
|BAC UN Equity||0.3||2.5||5.8||-3.3|
|CAT UN Equity||2.6||3.8||3.9||-0.1|
|CSCO UW Equity||0.0||5.6||3.6||2.0|
|CVX UN Equity||4.0||7.4||4.5||2.9|
|DD UN Equity||4.5||6.0||3.6||2.4|
|DIS UN Equity||1.1||6.7||3.2||3.5|
|GE UN Equity||2.7||8.2||4.9||3.3|
|HD UN Equity||3.4||5.9||3.2||2.7|
|HPQ UN Equity||0.7||8.1||3.2||4.9|
|IBM UN Equity||2.1||7.6||4.0||3.7|
|INTC UW Equity||3.0||6.0||3.2||2.8|
|JNJ UN Equity||3.8||7.2||3.7||3.5|
|JPM UN Equity||0.5||6.5||5.1||1.4|
|KFT UN Equity||4.0||7.5||4.3||3.2|
|KO UN Equity||3.3||5.4||3.3||2.1|
|MCD UN Equity||3.1||6.4||4.2||2.2|
|MMM UN Equity||2.6||5.7||3.2||2.4|
|MRK UN Equity||4.3||8.8||3.4||5.4|
|MSFT UW Equity||2.1||7.3||3.0||4.3|
|PFE UN Equity||5.0||11.1||3.1||8.0|
|PG UN Equity||3.2||7.2||3.4||3.8|
|T UN Equity||6.7||7.6||4.5||3.1|
|TRV UN Equity||2.9||12.6||4.2||8.4|
|UTX UN Equity||2.5||6.6||3.5||3.1|
|VZ UN Equity||7.2||7.2||4.8||2.4|
|WMT UN Equity||2.4||6.9||3.7||3.2|
|XOM UN Equity||3.0||5.9||4.1||1.8|
|Equal Wgt Avg||2.9||6.3||3.9||2.4|
[Disclosure: Rocky is not recommending that anyone do anything that involves money or bonds or stocks or shoelaces. But he's watching this relationship and has started to gradually move some of his "high quality" corporate bonds into the stocks of the same companies -- as the relationship becomes ever more attractive. He also notes that if you pinch a balloon TOO hard, it will burst. ]
The Gillette Business Model is simple and successful. Give away razors for free. Sell the blades at a huge profit.
Dell Computer Corp seems to be trying a twist on the Gillette model: Sell defective computers at cost. Make profits on overpriced service contracts.
Rocky recently purchased a new Dell E6510 Laptop. The machine’s specs looked excellent, and Dell priced it well below the equivalent Apple and HP computers. On Day 46 (one day after the expiration of the return period) the laptop fan died.
Rocky to Dell: “I need to get a service call on my new E6510. The fan died.”
Dell: “You didn’t purchase an on-site warranty. You need to ship it to the Dell Service Depot for repair.”
Rocky: “I need this computer for work, and cannot tolerate a two week turnaround time. Can I upgrade my warranty to on-site repair?”
Dell: “Sure. A warranty upgrade will cost you $829.55 plus $61.18 tax = $890.73″
Rocky: “But I can buy a spare machine for that, and just keep it in the closet!”
“Dell: “Thank you for choosing Dell.”
Fortunately, Dell didn’t tell Rocky that the hardware problem was caused by Rocky performing too many difficult math calculations. That’s what Dell told the University of Texas Math Department, and resulted in a large class action lawsuit. See: http://www.nytimes.com/2010/06/29/technology/29dell.html
[Disclosure: The good news is that Dell's customer service representative spoke perfect English. The bad news is that Dell is on the same downward trajectory that has plagued every PC manufacturer since the early 1980's. Rocky has no position in Dell stock.]
Rocky’s Daughter called the office and said, ”Dad, I want to buy some BP stock.”
Daughter: “I’m thinking that they will eventually get this thing under control, and while the damage may run into the billions, you taught me to be brave when others are fearful — and to be fearful when others are brave.”
Rocky: “Yes. I did teach you that. But sometimes it’s RIGHT to be fearful. Why not buy some Apple stock? It just keeps going up…”
Daughter: “No!!! I don’t want to go near Apple. It’s a fad. It’s a cult. “
Rocky: “But BP really could go bankrupt on this situation. How do we analyze that? And, why should today be THE low?”
Daughter: “I want to buy 10 shares ($370) right now. And we’ll revisit it in a few weeks. If the stock goes a lot lower with no new developments, I might buy a little bit more. But it’s hard to imagine how the news could be worse. Please also buy some Chevron stock for diversification in the sector.”
Rocky: “Ok. You are brave!”
[Disclosure: Rocky has no position in BP shares. However, his daughter now owns 10 shares of BP at a cost of $37. Since May 1st, BP's share price has lost about $65 Billion (27%) in value, and during the same period, Chevron's share price has lost about 12%. It is not entirely crazy to think the market may be close to discounting the possibility that the leak will continue until the relief wells are finished at the end of the summer. However, there is also the possibility that the leak could continue for years; the government taxes the oil companies into oblivion; and BP faces criminal/civil penalties.]
Panera Bread just opened a a new restaurant where customers “pay whatever they want.”
From the Associated Press: CLAYTON, Mo. — Panera Bread Co. is asking customers at a new restaurant to pay what they want. The national bakery and restaurant chain launched a new nonprofit store here this week that has the same menu as its other 1,400 locations. But the prices are a little different — there aren’t any. Customers are told to donate what they want for a meal, whether it’s the full suggested price, a penny or $100.
The full story can be found here: http://www.google.com/hostednews/ap/article/ALeqM5g__EQ-OG9DhU1YwC4Fo4s5QREdbgD9FPBIMG0
This bizarre business model has Trophy Wife jumping up and down with excitement as she hopes that Tiffany’s jewelers may adopt a similar pricing policy. Additionally, if Panera succeeds in this approach, it will be bullish for textbook publishers, as it will require a re-write of every college economics textbook!
[Disclosure: Rocky doesn't own any shares of Panera Bread (PNRA), but if he did, he might be tempted to sell them before he lunches at Panera for a penny.]