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Tuesday, August 30, 2011

 

Post Hurricane Irene Post

Lots of people were chuckling here in the Mid Atlantic / Northeast States as Irene passed through that we were overhyped again, that as usual, a mean looking storm had lost its punch over our cooler waters and on Long Island's south shore. But interestingly, hurricanes do more damage via water and flooding than by wind. Often that damage is realized after the storm has passed. So it was with Katrina in
2005. Many forget that New Orleans actually breathed a sigh of relief when the storm passed and the worst fears had not been realized. The real flooding came a day or two later, as did the loss of life and the chaos.

Now we have, admittedly on a less intensive scale, a similar post storm learning experience as Irene floods New Jersey and, of all places, Vermont. Though millions from North Carolina to New England have been seriously inconvenienced by the loss of power and the downing of trees, causing suspension of rail service on many routes, these are minor compared to the stories of whole towns being flooded off the map in upstate New York and Vermont. The death toll is rising accordingly.

In fact, here on Long Island's north shore, the wind wasn't much to speak of until later on Sunday afternoon with the rain already long gone. It was at that time, after we had restored the outdoor furniture to its rightful summer places and done some preliminary cleanup of branches, that a neighbor's rather large tree (well over 50 feet) came crashing through our fence and into our back yard, covering about two- thirds of its length and seriously damaging a row of hedges upon which it came to rest. Not having power for about forty or so hours was annoying, but at least we have it back; many do not.

So all in all, we count ourselves very fortunate. The tree missed our house, and we have no flooding or other damage.

The concern is, will other storms this season be inclined to follow much the same track? That would not be an unusual hurricane season experience, since storms go where they go for a reason, usually having to do with the jet stream and prevailing weather conditions.

One other observation. Hearing Governor Christie on Sunday night providing his update (on our battery powered radio), I couldn't help being impressed by a leader clearly hands-on, clearly in charge, stepping up to be responsible for what didn't work as well as what did. It was a refreshing change from the constantly professorial ambivalence we hear from our incumbent President. However things turn out for New Jersey, and it is far from settled, the Governor has demonstrated he has the chops for higher office. I know he doesn't believe 2012 is his time. He's young enough that his time will come.
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The Fed officials keep hinting that QE 3 is still on the table, and that seems to be part of the reawakening of stocks, and quickly ended the correction in gold. To most knowledgeable players, QE 3 means more inflation, more debt, more of what's wrong. However, the folks who will keep buying stocks as long as cans are kicked down the road love the idea.

Those readers who were around to read the posts describing our stock investing formula, or who have reviewed the archives where those posts reside, know that we would be buying now regardless of policy simply because the correction made the stocks on our buy/hold list too cheap, the indication of which is that our cash rose to well over 20%. That is no longer the case so sales will now be mixed in. Meanwhile, we have continued to accumulate other inflation hedges, like gold and TIPS. Historically, you don't go wrong betting against the tendency of governments to debase their currency. Those plays certainly had me sleeping better during our recent sharp correction.
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The hurricane did a lot of economic damage in addition to physical damage. I was supposed to attend a convention with about 1500 other attendees in Philadelphia, and the whole thing was cancelled at the last minute. A disaster for the hotel, the city and its restaurants, not to mention the bars!! This is also prime vacation time, through Labor Day. As if the economy didn't have enough issues.

I guess we'll be hearing Irene added to the litany of plagues that have prevented poor President Obama's program from adding jobs. There was the earthquake and tidal wave in Japan, the European bank crisis, Republicans failing to knuckle under to allow the job training handout to unions that Dems are demanding as ransom for passing the free trade agreements with Panama, Korea and Columbia, the debt limit deadlock and the Treasury downgrade, now Hurricane Irene. How are you supposed to overcome all that with mere hope and change?
-------------------------------------------------------------------------------------We will need to deal with two upcoming spinoffs in the near future and decide which parts of the businesses to keep. Fortune Brands (FO) will be separating its liquor distribution from its other businesses, having already sold its Acushnet golf business. My inclination is to keep both stocks on the buy/hold list. IDT is likely to spin off its Genie shale oil energy business from its telecommunications (main) business. It's the energy business that I was interested in, especially the initiative in Israel. So I may keep Genie and sell IDT.

We've been buying into the correction, as per the formula, and after ten straight buy transactions, we bought 6 more since the last post. On 8/17, we bought 500 more shares of Pulte Homes (PHM), a zero buy at 4.85. We were losing faith, but today Pulte was actually upgraded by a brave analyst. On 8/22, we bought 15 shares of the SPDR Gold Trust (GLD) for the IRA at 181.93. On the same day, we bought 100 shares of ITW, a value buy at 42.40. On 8/25, we bought 300 shares of slumping USA Trucking (USAK) at 7.81, another zero buy. On 8/26, we bought 200 shares of Goldman Sachs Preferred (GS.PR.D) for the IRA at 19.73. Yesterday, we bought 200 shares of IDT, a value buy at 20.36. It closed below 20 on Friday, hence the order for the extra 100 shares.

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