Thursday, January 14, 2010

On Getting What You Want, Part 1

Wall Street and the financial markets are odd and unpredictable. That's why some people win and some lose, and why the individual investor is at a disadvantage compared to those wizened professionals who ply their trade daily in stocks, bonds, et. al..

Because the whims of the market are so unpredictable and can turn on a dime on a news item, a press release, an event - economic, social or political - the average Jane and/or Joe is likely to suffer losses when pros have already gotten out ahead of the pack. The law of the jungle applies, and always has. The fittest get fatter; the weak are thrown to the wolves.

Noting that, the marketeers have finally gotten some news upon which they can act. Reported after the closing bell, Intel (INTC, 21.48) reported a fourth-quarter profit of $2.3 billion, or 40 cents a share, compared with a profit of $234 million, or 4 cents a share, for the year-earlier period. These numbers were well ahead of expectations. In fact the company delivered a 33% earnings surprise, good as gold in anybody's book.

Tomorrow ought to be a red-letter day for tech stocks, as one of the firebrands, Intel, has set some heat under upcoming earnings for the rest of the sector. Trouble is, as great a company as Intel is - and it's definitely top-shelf - the stocks was a loser for the entire 00s decade and seems to be permanently stuck in a range just above its historic lows, because it is already overvalued, by just about any measure.

Intel's price/earnings ratio, using trailing figures, is about 28. Even if the company has quarters equal to this one for the next three running and the stock doesn't go up, it will still be trading at more than 13 times earnings, meaning it would take 13 years of similar profitability just to get your money back. It does carry a dividend of 53 cents per share, but at the current price, that's a yield of less than 3%. It's a great company, all right, and it would be a buy at any price below 15. 12 would be a good starting point, but it will likely never go there. Since Intel isn't going to ever move, tech traders will begin looking elsewhere tomorrow. Don't be surprised if Intel trends lower over the coming weeks. It's a dog and the pros know it, even though it's a part of just about every fund portfolio.

Before that after-the-bell experience, stocks did what they've generally been doing for the past month. They rose slightly.

Dow 10,710.55, +29.78 (0.28%)
NASDAQ 2,316.74, +8.84 (0.38%)
S&P 500 1,148.46, +2.78 (0.24%)
NYSE Composite 7,448.52, +18.38 (0.25%)

Advancing issues were all over decliners, again, 3792-2662. New highs came in at a whopping 554; there were just 53 new lows. Volume remains subdued, which has become acceptable, but the only people trading are funds and pros. It's kind of a closed loop, but as long as nobody sell, stocks will just keep going up. That cannot happen indefinitely, however, and the longer the rise, usually the steeper the fall. The rally is now in its 11th month without a meaningful correction, a great time to SELL.

NYSE Volume 4,470,046,000
NASDAQ Volume 2,301,493,500

Hooray! Oil dipped 30 cents, to $79.35, and natural gas, after a big buildup on CNBC, saw its price shaved by 11 cents, to $5.57. Seems demand for the #1 energy product just hasn't been as great as those speculating for higher prices had hoped. Its already nearly doubled since just 8 months ago, and the US supply is still at 100 years or more. If supply and demand economics were truly in play (they're not, the price is manipulated by big energy firms - you know who they are), natural gas would be selling at wholesale for about $2/1000 btu, and your heating bill would be half of what it is now.

Unfortunately, most Americans who heat with natural gas are stuck with the absurdly high prices charged by local monopoly utilities. Thus, we overpay, and have been for years, especially since deregulation (thanks again, Ronald Reagan).

The stable commodities, the ones you should own, gold and silver, each registered solid gains. Gold added $7.10, to $1,144.00, while silver was up 9 cents, to $18.64. Both are on the verge of major breakouts, especially silver, but Wall Street hates these commodities because they compete with the electrons and protons and pieces of paper they like to peddle, stocks.

Were gold and silver allowed to rise to their actual inflation-adjusted levels, they might be double or triple where they are now. Even if the Wall Street shorts don't cover, they still should return better than stocks for years to come.

Getting What You Want, part 1

One often has to go to extreme measures in order to achieve goals. There are forces working against you, like headwinds keeping a kite grounded or a plane slowed. Sometimes, these headwinds are being blown by your trading partner, or, in layman's terms, your buyer, if you're a seller.

I recently completed a successful negotiation for some items priced about 3 times what I had originally expected to get for them. The negotiations consisted of me asking the prospect for an offer. When he refused and asked me to name my price, I used the first rule of haggling: go high and then add 20%. To my surprise, the prospect was agreeable to my price and terms, but, as I found out, was a chronic payment-delayer, continually adding a day and an excuse for when the transaction would be completed.

This activity continued over the course of 6 days, until I finally took action and laid it out in the simplest of terms, that the deal had to be done, or he should walk. After an abrupt retort, at which point the prospect was willing to walk away, I was forced to detail his abhorrent behavior in quite unsavory terms (in other words, I swore at him up and down, called him names and shamed him). I thought the deal was then kaput, but, to my surprise, the prospect actually was swayed and contacted me, explaining that he thought I was right. A few hours later, the deal was done, even though I called him names and told him I would have had sold to him for less had he made a reasonable offer in the first place, but instead decided to let me set the price (and, by that, the agenda).

So, the moral is that if a deal is breaking down, and you believe that the other party is stalling - for whatever reason, it's not important - put him or her on the spot very aggressively. Be the lion and you'll find many lambs upon which to feast.

That's one way of getting what you want, or, in this case, even more.

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