Tuesday, October 20, 2009

SOLD BZF/EARNINGS DD, KO, RF/Niall Ferguson on the Fate of the U.S. Dollar

1. Brazilian Real: I referenced an article in my last post from yesterday an article from Bloomberg discussing analyst opinions about the Brazilian currency, the Real. In that article, the analyst from RBS had just downgraded the Real to underweight, based on his concerns that the Brazilian government would start to tax inflows of foreign capital in an effort to slow the Real's rise. It has been the best performing of the major currencies against the U.S. dollar this year, up about 35% before today. After the market's close yesterday, Bloomberg updated the article with new information, the Brazilian government did impose a 2% tax on capital inflows. The President of Brazil, Lula, denied last week that his government plan to impose a tax on foreign capital. Another story about this matter can be found in the WSJ. There is always a problem with excessive capital inflows distorting prices of a nation's assets. Several instances in the recent past highlight the importance of such flows in helping to create a financial crisis. I mentioned yesterday that easy access to large pools of foreign capital played an important role in the U.S. housing bubble. I sold my Brazilian Real. My holding was via a currency ETF, BZF, bought at $24.54. Bought 50 of BZF the Currency ETF for the Brazilian Real/Added 50 PFK at $17.83 (see disclaimer)

2. Coca Cola (KO): This was one of the RB's better buys at 38.72. My analysis of a target price for a potential sell is contained in Barrons Recommendations and My Trades in The Barron's Columnists' Recommendations in 2009. Coca-Cola reported a third quarter profit of .81 cents or $.82 excluding items. This was in line with expectations but sales of 8.04 billion missed expectations slightly. Unit case volume rose 2%. The Pacific region had unit case volume growth of 6%, cycling 7% growth in the third quarter of 2008. Case volume declined in Japan by 4% and rose in India by 37%. China was up 15%. North America declined 4%. Latin America had the largest percentage increase at 7%. I am mildly disappointed with the results, though not enough to sell my position.

3. Hamid Karsai and Corruption: The UN panel looking into fraud in the recent Afghanistan election voided more than 900,000 ballots of the 3 million cast for Hamid Karsai. Based on all independent reports that I have seen, the election was a farce. TIME recently reported that Karsai could call dial his buddy W weekly for a teleconference call, but the Beanpole will not take his calls. The current Administration views his corruption to be one source of our current predicament in Afghanistan.

There was a report that the Afghan "Independent Election Commission" may still certify the election. WSJ.com CBS ran a story of a reporter visiting this "Independent" commission and finding no votes had been quarantine by it as fraudulent. CBS News Video

4. Dupont (owned- Buys of IR & DD /): This buy was at $16.68. My approach for my remaining DD shares is to hold them for so long as DD maintains its dividend, viewing my yield of around 10% at the $16.68 price to be in essence a perpetual bond for so long as the dividend is kept in tact. DuPont beat expectations for the third quarter by 12 cents and reported earnings of $.45 per share. Raw material, energy and freight costs declined 12% from the year ago quarter adjusted for currency and volume. The company revised its forecast for 2009 to a range of $1.95 to $2.05 from the earlier $1.7 to $2.10. Demand in the Asia/Pacific region increased from a year ago.

5. Regions Financial (owned-Lottery Ticket): This one was bought as an LT at $3.47 Lottery Ticket in 50 shares of RF I have zero confidence in the management of this bank. RF reported a larger than expected loss this morning. ITEM # 3: AFTERNOON COMMENTS: 6/23/09/ SOLD NESTLE & BOUGHT BRKB

6. Niall Ferguson: Yesterday, I placed an advanced order for the paperback version of Ferguson's "The Ascent of Money". He is one of the academic types whose opinion is worth considering. I watched his interview this morning with Aaron Task at YF's Tech Ticker, and concluded that our opinions about the fate of the dollar are virtually identical.

Treasury bonds are enjoying a good rally this morning, tempting me to buy back one of the two double short ETFs for the long treasury bonds as a hedge for my expanding portfolio of long corporate bonds. But, it is hard to make a decision when I view the current pricing decisions for 10 to 30 year treasuries to be irrational. Consequently, it is hard for the LB to predict with any degree of comfort how long irrational and illogical decision making will continue. It was Keynes who said that the market can remain irrational longer than the investor can stay solvent.

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