Tuesday, September 8, 2009

Thinking With Your Stomach

It was a long day after the 3 day holiday weekend. Just two days to go until the NFL season kicks off, so that is some relief.

Thinking With Your Stomach
While many readers may find it very hard to believe, I was looking around the markets over the weekend for an investment idea that was not related to precious metals! No, I am not kidding.

On principle I will not trade anything related to real estate or the financials. This of course leaves many things off the table. I figured I would go to real basics, and this is what I am looking at right now.

I am seeing a very weak "recovery" (if it even qualifies as such) led mainly by US government spending and not structural strength in the real economy. The report on consumer credit for July (biggest contraction in history) should have put a scare in the bullish crowd, but it did not. A stingy consumer is one part of my thesis, the other is the coming cold weather season. Sprinkle is a little flu season and I arrived at a couple of ideas for a new position.

The first candidate is Hormel Foods (HRL). The maker of SPAM and Dinty Moore brand beef stew is a low budget heart meal maker. I admit I wanted to get in this stock a while back, but I never got around to it. HRL has surprised to the upside over the past few months, and not by cost cutting alone. There is real growth here. The one year chart:

HRL shows good support at $35 and extremely solid support at $30. The stock closed at about $37 and change today.

The second candidate is Campbell Soup Co. (CPB). Chicken noodle soup is sure to lead the way as the weather turns colder, and if a nervous public is Swine Flu scared, I can imagine plenty of warm soup meals spooned up over the Fall and Winter months. Campbells has over the years expanded their soup menu tremendously, so they have plenty to choose from. The one year chart:

CPB has good support at $28 and a great floor at $25. CPB closed today at about $32.30.

What I am looking at here is two criteria:
-Lower cost alternative food items
-Seasonal factors adding demand

Just as candy makers go up before Halloween, I think warm comfort food may have a place this year more so than others due to the lower cost component.

This of course is NOT INVESTMENT advice. I am sharing an idea that I rolled around in my head over the weekend and I am looking to enter smallish positions this week. The best way to lose money is to listen to me, so you have been warned!
Full Disclosure: No position in HRL or CPB as of writing, but looking to enter a position.

Repudiation of US Financial Engineering Follow Up
On August 26, 2009 I wrote the section Repudiation of US Financial Engineering and I wanted to add a few more notes.

I discussed how foreign debt holders were abandoning agency (read mortgage debt) paper in large numbers. Today the Washington Post (hat tip to The Mess that Greenspan Made) ran a story with the following headline:
Mortgage Market Bound by Major US Role
The story tells the tale of how the US government is now the only player in the mortgage game, with about 90% of all new loans being funded or guaranteed by the US taxpayer. It seems the world has had enough of our mortgage games.

Add to this the almost daily news deluge detailing ways around the dollar as reserve currency and it seems the US is in the dog house the world over. From today:
UN Says New Currency Is Needed to Fix Broken ‘Confidence Game’
Dollar Threat: China Selling Yuan Bonds For The First Time

I am still unclear about how the actions of foreign debt holders fit together. Right now it seems they are serious about returning the more exotic creations of the credit bubble back to the US doorstep, yet at the same time they seem perfectly willing to buy treasury bonds which allows the US to cover those very debts. It is a puzzling picture to be sure.

Have a good night.


GawainsGhost said...

You want a puzzling picture? I give you the Dallas Cowboys.

Let's talk about Spam and Chicken Noodle Soup. No beef and weak, slurpy.

Tom Landry won 17 opening games in a row, had 20 consecutive winning seasons, and won 5 conference championships in 10 years. No one will ever match that record.

It took a league-wide conspiracy to prevent him from winning more Super Bowls than anyone else, but that's another discussion. The point is that Jerry's Cowboys haven't posted a winning record in December, when it matters, or won a playoff game in twelve seasons.

Yeah, I'm down on these Cowboys. I don't see it, the grit, the determination. The refuse to lose attitude. I don't see it. So I don't hold out much hope for this season.

But if I were to make a serious investment in these curious times, I'd opt for Little Friskies, cat food. There is no deprivation pet owners will not go through to provide luxury for their cats.

And it's the same with Jerry Jones. He's got a bunch of pet cats, and he pampers them.

Play like men! Those days are gone forever. Or they are in Dallas at least.

getyourselfconnected said...

I actually enjoy the Cowboys as a franchise and I loved the Troy Aikman/Emmit Smith/Michael Irving juggurnaut teams. The major difference in my eyes over the past few years was a move towards speed on offense and especially defense and away from using the best players per position regardless of speed. Speed is great, but when its -10 degrees in NY or Philly it not all that. Still, I think they could do quite well this year.
My New England Patriots seem a bit unsettled to start this year. Week 3 vs the Atlanta Falcons will tell me tons about where this team is.

getyourselfconnected said...

Home early after a dentist appointment and add positions in both HRL and CPB. Not that anyone seemed all that interested anyway.