Friday, August 9, 2013

One Year Anniversary and Contrarian Indicators

Horray, I have consistently kept up my blog for a year.

The other day I read this in an online article:

It's just about the most audaciously optimistic investment opinion one could utter, yet a relative handful of Wall Street voices is beginning to say it, out loud and assertively: This market has passed through a 1982 moment.

1982 was the end of stagflation of the 1970's and it signalled the beginning of a two-decade roaring bull market. When I saw this I thought bingo, contrarian indicator! I think of macroeconomic considerations as just one factor in my investing strategy, but I take any individuals opinion with a big dose of skepticism. Macroeconomic issues are notoriously difficult to predict because they involve inputs from many factors and many individuals. Take currencies for example. Currencies is a huge market that is controlled by interest rates and inflation rates. It would seem so easy to bet on future direction of currencies, but it yoyos and often catch people by surprise. I would never directly trade currencies, though I would buy stock in another country without hedging.

But I have to think that now is nearing the crest of a bull market. And when I read that we are heading to a bull market like 1982, I just have to mutter, while shaking my head, "you've got to be kidding me!" The article goes on to remind us that the market went up 14-fold in the next 18 years. Meanwhile, Grantham at GMO is predicting negative returns for US stocks over the next 7 years. I hate to predict market direction, but I am thinking it is very likely that this article is a harbinger of the bull market peak. I think S&P 500 will be below 1700 for a while after the current run.

In other news, Seaboard (SEB) is the latest of my stocks to report earnings. The company reported Q2 2013 earnings of $33.07 versus $41.68 a year ago. For the first half of 2013, earnings were $81.06 versus $109.63 a year ago. Revenue was up about 10%.

Pork is Seaboard's largest segment and corn is the largest part of feed. Corn prices were reasonable in the quarter coming off last year's drought, but now, corn is starting to return to the levels of 2010-2011 when Seaboard profits were good. The power segment did well also. The remaining segments combined lost money. So this confirms my view that Seaboard will constantly struggle with thin margins. Recently the stock reached an all time high of $2948. The stock now has about a $2000 tangible book value and has a projected fiscal year P/E approaching 20x. So I think overall this stock is fair to slightly overpriced at $2948. I have sold some of my position but SEB is still my second largest holding.

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