Stocks – Page 125 – The Aleph Blog

Recent Portfolio Moves

Posted on 17 July 2008 by David Merkel

Over the last few trading days, I did rebalancing buys of Lincoln National, Gehl, Charlotte Russe, Group 1 Automotive and Anadarko Petroleum.? As the market has declined, so has my cash position, from 18% to 8%.

One reader has asked my opinion on stop loss orders, and I must admit, I have never used one.? I use the “economic sell rule,” which tries to look forward at the value of companies, rather than analyzing past price movements.? I sell when companies no longer offer me a good return on my money versus other investments.? I sell a little in rebalancing trades, because there is value in redeploying fundsafter quick moves up.

Do I take some losses from not having an automatic sell rule when prices fall?? Yes, but it is more than made up for from the gains on companies that I would have sold , but didn’t.

Don’t blindly adopt a sell rule, but use your head, and estimate the future value of the company, rather than agonizing over the paper loss.

Full disclosure: long LNC GEHL CHIC GPI APC

Fifteen Notes on the Current Market Stress

Posted on 16 July 2008 by David Merkel

1) Going back to one of my themes, be wary of companies that sell their best assets to bail out their worst assets.? Tonight’s poster child is GM.? How to get cash?? Borrow against the remainder of GMAC, foreign subsidiaries (most promising part of the corporation), etc.? Not a promising strategy.? As I have said many times before GM common is an eventual zero.? Same for Ford.? All the errors in labor relations over the years, compounded with interest, are coming back to bite, hard.

2) So where does GM cut expense?? White collar retiree medical care.? This is rarely guaranteed, except to unions, so it is legal to cancel it.? A word to those whose corporations or state/municipal employers presently have retiree medical care.? It is worth your while to find out whether there are guarantees of coverage or not.? If there aren’t, I can assure you that it will be terminated in the next ten years.? If there are guarantees, then you need to see whether there are standards of care guaranteed, and whether the plan sponsor has the wherewithal to make good on his promises.

One more prediction: many states and municipalities will devise clever ways to escape guarantees over the next 20 years.? That will include Chapter 9 of the bankruptcy code.

3) Note to the SEC, not that the powers-that-be read me: if you’re going to require a contract to borrow shares in order to short for a bunch of financial companies, then require it for every company, now.? Shorts are not the problem.? Failure to properly locate and borrow shares is a problem.? Let there be a level playing field in shorting, and let the investment banks that are lending out more than they have suffer.? (Ironic, huh, ‘cuz they are the ones complaining…)

4) Note to the new management of AIG: please do the following: a) locate lines of business with low ROAs and significant borrowing for funding in order to achieve high ROEs.? b) Close down those lines.? Possible areas include GIC-MTN programs, and life insurance generally.? c) Take a page out of Greenberg’s early playbook, and exit lines, or sell off divisions where it is impossible to achieve superior ROEs.? (I can see American General re-emerging, with SunAmerica in tow!)

5) File this under Sick Sigma, or Six Stigma — GE is finally getting closer to breaking up the enterprise.? It has always been my opinion that conglomerates don’t work because of diseconomies of scale.? As I wrote at RealMoney:

		David Merkel
		GE — Geriatric Elephant
		4/27/2007 1:16 PM EDT

First, my personal bias. Almost every firm with a market cap greater than $100 billion should be broken up. I don’t care how clever the management team is, the diseconomies of scale become crushing in the megacaps.

Regarding GE in specific, it is likely a better buy here than it was in early 1999, when the stock first breached this price level. That said, it doesn’t own Genworth, the insurance company that it had to jettison in order to keep its undeserved AAA rating. Which company did better since the IPO of Genworth? Genworth did so much better that it is not funny. 87% total return (w/divs reinvested) for GNW vs. 28% for GE. A pity that GE IPO’ed it rather than spinning it off to shareholders…

But here’s a problem with breaking GE up. GE Capital, which still provides a lot of the profits could not be AAA as a standalone entity and have an acceptable ROE. It would be single-A rated, which would push up funding costs enough to cut into profit margins. (Note: GE capital could not be A-/A3 rated, or their commercial paper would no longer be A1/P1 which is a necessary condition for investment grade finance companies to be profitable.)

Would GE do as well without a captive finance arm (GE Capital)? It would take some adjustment, but I would think so. So, would I break up GE by selling off GE Capital? Yes, and I would give GE Capital enough excess capital to allow it to stay AAA, even if it means losing the AAA at the industrial company, and then let the new GE Capital management figure out what to do with all of the excess capital, and at what rating to operate.

Splitting up that way would force the industrial arm to become more efficient with its proportionately larger debt load, and would highlight the next round of breakups, which would have the industrial divisions go their own separate ways.

Position: none, and I have never understood the attraction to GE as a stock

6) One to think about: if US Bancorp is having a bad time of it, shouldn’t most large banks be having a worse time of it?? I spent a little time this evening reviewing the prices of junior debt securities of marginally investment grade banks (and a few mutual insurers, also).? The pressure on marginal financial institutions bearing credit risk is huge.

7) Speaking of junior debt securities, Moody’s gave the GSEs, and the US Government a shot across the bow when it downgraded the preferred stock ratings of Fannie and Freddie.? With the fall in the common and preferred stock prices, any possiblity of private capital raising fades.? The Administration and Congress should realize that whatever flexibility/help they grant the GSEs will be taken, and quickly.? Budget for the worst case scenario.

8) Then again, Ackman’s plan to restructure the GSEs, which is similar to mine (given in the last week), is reasonable.? Leverage is reduced and a market panic is avoided.

9) But even if neither plan is implemented, the dividends may be cut for the GSEs common stocks.? Shades of GM.? What is more significant, is if the GSEs feel they can’t issue preferred stock at acceptable yields, maybe they will omit those dividends as well.

10) Now, in the midst of expensive bailout talk, is there a cost imposed on the US?? Yes.? The dollar is weak, and default swaps on US government debt are rising in yield.? (Thought: how do swaps on US government debt pay off?? Hopefully not in dollars…? Also, what qualifies as an event of default?? Inflation doesn’t count, most likely, and yet that is one of the main ways for a government to try to escape debt.

11) Socialism!? Is the bailout socialism? Even for a libertarian like me, I can justify a bailout like Ackman’s, because it hurts those that tried to profit from the public/private oligopoly.? But no, I can’t justify what Paulson is trying to do, and maybe, just maybe, the market is sending him a message that half-measures won’t work.

12) More on preferred stocks.? They have been crushed.? This reinfirces why I rarely recommend preferred stocks, or junior debt securities: the payoff is low in success, and losses are high when things go wrong.

13) Let me get this straight.? You trusted Wall Street on an implicit guarantee?? You didn’t get a formal guarantee in writing?? Oh, my, it happens every decade… implied promises fail, and the cold, hard, printed text governs.? “Yes, that could technically be called, but don’t worry, they never do that.” “AAA insurance obligations never fail.”? “Portfolio insurance will protect you; you don’t have to buy puts.”? Never trust implicit promises of Wall Street, because in a real crisis, they go away.

14) Looking over some of my indicators, it looks like we are close to a bounce.? It feels a lot like January of 2008.? So, is it time to buy??? I’m not sure, but I am adding little by little to my stockholdings.? I’m probably going to up the equity percentage in some of my accounts where I have few options (old job Rabbi Trusts).

15) Not that I am likely to liquidate 401(k) assets, or anything like it.? That some are doing so is a sign of the stress that we are under.? Don’t do it, if you can avoid it.? Better, perhaps, to take in a boarder.? It increases cash flow on an underused asset, and optimally, increases community relations.

Of Value Investing, Industry Rotation, and Selling

Posted on 15 July 200822 June 2017 by David Merkel

At RealMoney, I wrote two articles called “Become a Smarter Seller.”? Part 1 dealt with price targets, and part 2 dealt with reshaping/rebalancing.? Let me try to summarize the core ideas:

If an investment becomes so expensive that bond yields are more attractive, sell it.
If you find another investment significantly more attractive than a current investment, sell it, and buy the new investment.
Sell into price rises, and buy into price declines, if you can’t find economic reasons not to do it.

In other words, trade what you think will perform less well for what you think will do better over your time horizon.

Part of my philosophy in investing is simplifying investment decisionmaking.? Good corporate bond managers have an intuitive feel for when yield relationships justify a trade.? I have tried to do the same thing with equity investing, looking at when valuation relationships justify a trade.? My process where I add new companies four times a year aids the process, because it forces me to evaluate the whole portfolio versus contenders.

Now, many value investors have been hurt recently because financial stocks have done badly.? Included here are many investors that I admire.? I have not suffered along with them, but I offer no guarantee for the future.? I judged that credit-sensitive financials would be bad investments, and avoided them.? Most value investors have a large chunk of their portfolios dedicated to that area.? There were few ways to avoid the crisis.

As for non-insurance financials, we haven’t worked through the effects of all of the bad lending.??? Even with cheap “sticker prices” I am still reluctant to go there.

In closing, I completed my reshaping today.? I sold Helmerich & Payne and Alliance Data Systems.? I bought CRH plc and Kapstone Paper & Packaging.? I like both industries, and both companies are cheap and well-managed.

This takes me a step away from financials and energy, and into two softer materials related names.? There will be pricing power in each company before long.

Full disclosure: long KPPC CRH SAFT

PS — I have one more trade that I am likely to do in the future — trade Safety Insurance for Flagstone Reinsurance (or a similar name).? What I am waiting for is a greater development of the current hurricane year.? If we get near the end of August, and there are no significant damages, it is time to do the windstorm trade.? Sell SAFT, buy FSR, or something like that.

Watching the Leverage Collapse

Posted on 12 July 200813 July 2008 by David Merkel

Four notes for the evening: first, on Lehman Brothers: Deal Journal wrote a piece earlier this week on Lehman potentially selling their subsidiary Neuberger & Berman.? I generally agreed with the piece, and wrote the following response:

Be wary when managements sell their best/safest assets to stay alive. It means that the remaining firm is more risky, and that should the downturn persist, the firm will be in greater jeopardy.

Firms that sell their troubled assets (really sell them, not park the assets in affiliated companies) can survive the harder times. Trouble is, that requires taking losses, and sometimes the balance sheet is so impaired that that cannot be done.

So, selling the good assets may be a necessity, but it does not imply a good future for Lehman.

The same applies to Merrill regarding their stakes in Blackrock and Bloomberg.? Also, I am skeptical that Lehman was truly able to reduce its risk assets as rapidly as they claimed in the midst of a bad market.? I believe that if the tough credit markets persist into 2009, Lehman will face a forced merger of some sort.? Merrill Lynch has more running room, but even they could face the same fate.

Second, Alt-A lending worked when it was truly using alternative means to screen borrowers to find “A” credits.? It failed when loan underwriting ceased to be done in any prudent way.? Alt-A lending will return, but it is less likely that Indymac will see the light of day again.? Whether in insurance or lending, underwriting is the key to long-term profits.? Foolish lenders/insurers economize on expenses at the cost of losses.

Third, we have a possible deal that the US government may buy a convertible preferred equity stake in Fannie and Freddie.? This comes on the heels of news that no access would be granted to the discount window, but this deal would include discount window access.? (Ugh.? Is it going to take a Dollar crisis to make the Fed realize that only the highest quality assets should be on the balance sheet of the Fed?)

Now, this is not my favored way of doing a bailout, but it probably ruffles fewer political feathers, and many get to keep their cushy jobs for a while longer.? My question is whether $15 billion is enough.? It will certainly dilute the equity of Fannie and Freddie, but is it large enough to handle the losses that will come?

Now, reasonable followers of the US debt markets have shown some worry here, but in the short run, this will calm things down.

As a final note, I would simply like to say to all value investors out there that the key discipline of value investing is not cheapness, but margin of safety.? I write this not to sneer at those who have messed this up, because I have done it as well.? Pity Bill Miller if you will, but neglecting margin of safety and industry selection issues have been his downfall, in my opinion.? (And don’t get me wrong, I want to see Legg Mason prosper — I have too many friends in money management in Baltimore.)

I’m coming up on my next reshaping, and one thing I have focused on is balance sheet quality, and earnings stability.? Many value managers have been hurt from an overallocation to credit-sensitive financials.? They own them because the value indexes have a lot credit-sensitive financials in the indexes, and who wants to make a large bet against them?

Well, I have made that bet.? Maybe I should not have owned as many insurers, but they should be fine in the long run.? There is still more leverage to come out of the system, and owning companies that have made too many risky loans, or companies that need a lot of lending in order to survive are not good bets here.? Look at companies that can survive moderate-to-severe downturns.? If the markets turn, you won’t make as much, but if the markets continue their slump, you won’t get badly hurt.

Halftime for 2008

Posted on 9 July 2008 by David Merkel

Well, June was nothing great.? I was ahead of the indexes, but that doesn’t mean much in absolute terms.? For the year, I ended June ever so slightly negative.? Good in relative terms, but I aim for better.

July has been ugly for me — I am down considerably more than the market, but these things happen… energy is off, and though I am market weight, the names I own have considerable operating leverage.

While I was on vacation, I did the following trades: bought some International Rectifier, Smithfield Foods, and Officemax.? I enjoyed my time off, and disciplined my computer use to half and hour around lunch, and some time after the kids went to bed.

I am still working on my portfolios reshaping, and should have some trades by early next week.

Full disclosure: long IRF SFD OMX

General Motors = General Malaise

Posted on 9 July 2008 by David Merkel

I’ve never been a fan of General Motors [GM].? At RealMoney, I had somewhat more than 70 notes on GM across five years, though I stopped writing about it because I got bored of waiting for the disaster.? Oh, also, the market moved temporarily against my views, and I had better things to write about with the pains in depositary? and credit-sensitive financial stocks.

One of my basic rules is that heavily indebted corporations with bloated cost structures facing stronger competition are rarely good investments. How will the equity get dividends?? Who would buy the company out?

You can’t cut your way to greatness, particularly when there is high debt and high overhead costs.? Those costs need to be spread over a large volume of cars/trucks.? Cutting volume will not help much, except for cash flow in the short run.? In the long run, the accrual items will bite, whether pensions or other fixed obligations.

As Felix points out, bankruptcy may offer options.? That said, the surviving company would be much smaller and less significant to the US economy.? I also doubt that Chevrolet could be spun off without a fraudulent conveyance suit from the senior bondholders.

When I was a corporate bond manager, I sold all of my inherited GM exposure at significantly over par in 2001 (spreads were under 200 bp).? I did not want my clients to face the degradation of value from a mismanaged company.? Not owning GM and owning a tiny amount of Ford debt was a big bet relative to the indexes, but it was one that paid off.

My advice remains the same.? Underweight GM and Ford, both equity and debt.? It may take a while, but eventually the overindebted companies with high fixed costs will be outcompeted by their Japanese rivals.

Fannie, Freddie, and the Financing Methods of Last Resort

Posted on 8 July 2008 by David Merkel

Ugh.? I’m still not home yet, but after my recent 48-hour news blackout, the news on Fannie and Freddie is pretty amazing.? Now, I would not be so certain that an interpretation of SFAS 140 would force Fannie or Freddie to raise capital — GAAP accounting often has little to do with regulatory capital rules.? Only if OFHEO decides to mimic the treatment in GAAP would it force capital-raising, absent any net worth covenants on their debt that might be poorly written.

All that said, the problems with Fannie and Freddie are not primarily accounting-driven, but are being driven by diminishing housing prices, which erodes their margin of safety on their lending and loan guarantees, and diminishes the value of the mortgage insurance that they rely on for some of their business.? Writedowns from these items are what hurt.? It is likely that Fannie and Freddie need to raise capital, but the great questions are how much is needed, and how much can the market stomach?

At times like this, I run through my pecking order of the “financing methods of last resort.”

Have you maxed out trust preferred obligations? Other subordinated debt?
Have you maxed out preferred stock?
Have you issued convertible debt to monetize volatility?
Have you diluted your equity through secondary IPOs, rights offerings, PIPEs, and/or deals with strategic investors?
Have you sounded out investors in your corporate bonds about debt-for equity swaps?
And, unique to Fannie and Freddie, have you asked the US government for a capital infusion or a debt guarantee?

All of these financing methods carry a cost.? (And, as with most situations like this — if it were done, best it should be done quickly.? Delay usually means that cost of financing rises.)? Most of the cost is dilution to existing shareholders, whether common or preferred.? The debt guarantee, or investment by the government has costs for the US taxpayer, which I would rather not see.

Clearly, Fannie and Freddie have room to raise more capital, but the room is not unlimited.? As the Financial Guarantors found, when your stock price gets too low, the jig is up.? You can only raise so much capital relative to the size of your current market capitalization before the market chokes.? After all, most capital raising requires a discount to current price levels, and somehow the diluted value of the equity needs to represent a premium price where new capital gets put in.

In short: it’s tough to get new investors to pay for past losses.? Capitalize a new company?? Could be done, and has already happened with the Financial Guarantors, which has largely sealed the fate of the tarnished incumbents.? That said, why would the US government want a competitor to Fannie or Freddie, aside from GNMA?

As for the US Government, perhaps this all waits for a new President and Congress to act.? Personally, I think that any help extended to Fannie or Freddie should have strings attached.? Investments, or debt guarantees should allow the US government to profit if things turn around.? Other things to explore: only guaranteeing new liabilities, or, expanding the role of GNMA, which is a full-faith-and-credit of the US Government lender.

The one thing I don’t want to see is a bailout that benefits the shareholders of Fannie or Freddie.? They have long had private profits with many public subsidies for years.? Now it is time for the shareholders to bear the losses; let public money only step in to keep senior obligations whole, if it steps in at all.

(Note: these are my private opinions, and not those of my employer.)

Additional Tickers for the Reshaping

Posted on 5 July 20086 July 2008 by David Merkel

Readers have suggested some additional tickers for me.? Here they are:

GE, MSFT, BMY, BA, ANAT, KCLI, and DE

Beyond that, there was my country screen — cheap names in Taiwan and Korea that trade in the US?

WF SHG LPL KEP KB IMOS AUO

Then for the industry screen.? Here’s the most recent list of cheap industries; I used the ones labeled “Dig Through”:

Remember, this can be used in momentum mode (red) or value mode (green).? I’m using it in value mode, and it gave me a flood of tickers — remember, in this screen, Price-to-book times Price-to-next year’s earnings must be less than 10.? That’s usually a pretty strict criterion, but this time it turned out 121 tickers:

ABD ABG ACE ACGL AEG AEL AFG AGII AIG AMCP ASI AWH AWI AXA AZ BBI BBW BC BKI BWINA BWINB BWS BZ CAB CHB CINF CMRG CNA CNO CONN CPHL CRH DSITY EBF EIHI FFG FMR FNF GBE GIII GLRE GNW GT HALL HMN HSTX IHC INDM ING INT IP IPCR KGFHY KPPC LFG LGGNY LIZ LNY M MERC MGAM MHLD MIG MIGP MRH MRT MSSR MTE MW MYSZY NP NSANY NSIT NYM OB OSK OXM PAG PCCC PEUGY PL PMACA PNX PSS PTP PTRY RCL RE RNR ROCK RSC RT RUSHA RUSHB RUTH SAH SEAB SEOAY SIGI SMLC SSCC SSI SUR SWCEY SWM THG TI TRH TUES TWGP UFCS UFS UNM UPMKY USMO UTR VOXX VR WHR XL ZFSVY

Well, the quantitative ranking method will have its work cut out when I build the main spreadsheet — it will take some effort to scrub the accounting data, and come to some buy decisions, but that’s my next task.

Replacement Candidates for the Portfolio — From AA to ZZ

Posted on 3 July 2008 by David Merkel

Here is my initial list of replacement candidates for the third quarter 2008 portfolio reshaping:

AA??? ACMR??? ACS??? ACXM??? ADP??? AEM??? AEO??? AET??? AFFM??? AHL??? AIB??? AINV??? ALL??? AME??? AN??? APA??? ARP??? ATWO??? AVID??? AVZA??? AXS??? AYR??? BAGL??? BCPC??? BDK??? BGC??? BHI??? BJS??? BKS??? BLL??? BP??? BRO??? BRS??? BSET??? CAM??? CBI??? CBK??? CCK??? CCRT??? CDNS??? CFI??? CKH??? CMI??? COG??? COLM??? COMS??? CPB??? CRDN??? CROX??? CSCO??? CSL??? CTB??? DD??? DELL??? DFG??? DLM??? DRYS??? DUK??? DVN??? EGLE??? ENH??? EP??? ETP??? FAST??? FCX??? FDRY??? FITB??? FLEX??? FLXS??? FRPT??? FRZ??? FSR??? FTEK??? FTO??? GFF??? GHM??? GIL??? GMT??? GNK??? HAIN??? HAL??? HAR??? HAST??? HCC??? HCN??? HCP??? HELE??? HK??? HLYS??? HNT??? HNZ??? HOC??? HON??? HRS??? HRZ??? HTH??? INFS??? IPSU??? IR??? IRE??? ISCA??? ISYS??? IVN??? JCI??? JNX??? JOSB??? KCI??? KEY??? KMX??? KOF??? LMC??? LPX??? LRCX??? LSTR??? LZB??? MAN??? MAS??? MCRL??? MGIC??? MHK??? MHP??? MI??? MKSI??? MOT??? MPS??? MPWR??? MWA/A??? MXGL??? MYE??? NBR??? NBTY??? NFX??? NG??? NM??? NRG??? NSHA??? NTGR??? NVS??? NWLIA??? OC??? OCR??? ODP??? OIS??? OKE??? OMAB??? ONNN??? ORI??? OSK??? OXY??? PAYX??? PBI??? PBY??? PCZ??? PHX??? PKD??? PKI??? PPC??? PPG??? PRE??? PRU??? PTEN??? PVA??? PWR??? PXP??? PZZA??? RCII??? RDC??? RDK??? ROP??? RS??? RTN??? SAFM??? SCX??? SENEB??? SFY??? SGIC??? SGY??? SI??? SII??? SJM??? SKM??? SKX??? SLB??? SLGN??? SNDK??? SNG??? SNX??? SNY??? SPSS??? STZ??? SVR??? SVU??? SWN??? TECUA??? TEX??? THOR??? TLK??? TMS??? TPX??? TRMA??? TRN??? TRV??? TSC??? TSO??? TTC??? TXT??? UNF??? UNT??? URI??? USU??? VE??? VLGEA??? VLTR??? VZ??? WAG??? WDC??? WFT??? WGOV??? WNC??? WRB??? WTI??? WTIU??? WTM??? WY??? XEL??? Y??? ZNT??? ZZ

Quite a melange, huh?? Well, my quantitative techniques will winnow the list down.? At this phase in the cycle, I am likely to lower my weights that I apply to future earnings.? Profit margins are declining in many places.

The second quarter was good for me on a relative basis, though being away from home, I suspect I am off a tiny amount in the first half, and that I was a little ahead of the S&P 500 in June.? The first two days of the quarter have not been kind, either.? Well, the quarter is young, and we have a lot of the year remaining.? The market is short-term oversold by my oscillator.? When I have opportunities I add a little here and there.

Over the long weekend, I should post the results of my industry and country screens.? I might begin my quarterly reshaping while on the road.? Pretty amazing what one can do with a PC, the Internet, and Bloomberg out in the middle of nowhere.

I try to ignore short term market moves, and just focus on what I have done well with in stock-picking.? Usually that ends up working well for me, though one can never tellwhat the future will hold.? No stock-picking method is perfect.? I try to make mine a little better by structuring my process highly, making fewer decisions, and making the structure of my decisions easier.? I don’t have to choose the best stocks, just a few stocks that will do better than the stocks that I am selling.? Keep repeating that formula, and the results can be quite good.

If you have other replacement candidate ideas, please feel free to pass them on to me and the rest of the readers.? I usually throw them into the mix, and sometimes I buy one of them.

We Need Economic Stimulus, And We Need It Now!

Posted on 1 July 2008 by David Merkel

It is a wondrous thing to be the global reserve currency.? We can run government deficits of any size that we want, and the rest of the world gets to fund us by buying our debt.? Thus, when I look at calls for still greater stimulus (through Government spending and borrowing) from men like Bill Gross, Larry Summers, and Bob Shiller, I just groan.? When does the rest of the world say “Enough!”, particularly the Persian Gulf States and other oil exporters who don’t have as much of an economic reason to support the US Dollar, because they don’t have to promote exports to the rest of the world.? But, perhaps for political reasons, they keep buying US debts.

This will not end well; the only questions are when, and how severe?? On this issue, I’m not sure it matters who the next president is, because the US no longer independently controls its own destiny.? (Great question for the debates: “Sir, what will you do as President to strengthen the Dolllar’s position as the global reserve currency?”? I would expect the intelligent equivalent of a stutter.)? The main barrier is that there is no good replacement for the Dollar as the global reserve currency.? The Euro could still fail; large-scale monetary unions need to be political unions for them to succeed in the long run.? The rest of the currencies are too small, or their banking systems insufficiently liberalized.

But, maybe the world could live without a single reserve currency.? Currencies could compete against each other, and gold, and other commodities.? This is an age of computers; I’m not sure why there would have to be one standard of value, particularly, when the standard of value varies so much.

I’m still away on vacation, so I may not post a lot until I am back on July 8th.? I did do a trade today; I bought some Smithfield Foods (rebalancing buy).? I suspect they will export a lot more as time goes on, and perhaps one their new major owners agrees.? After all, China’s staple meat is pork, and Smithfield is a high-quality provider.? This is just another way that I consider global demand, rather than local demand.

Bringing this piece full circle, perhaps China found a better way to recycle dollars; at least this investment brings home the bacon.

Full disclosure: long SFD