PLAYING THE BRICS

Looking for a safer way to play the BRIC world?

You might want to look at last year's Kraft spin off, Mendelez, MDLZ. 

As a recent Barron's article notes the stock, trading at $28 and change, is essentially a snack food company. Just a few of its products include Cadbury, Ritz Crackers, Dentyne, Oreo Cookies and Wheat Thins. It has many others like Philadelphia cream cheese and Dentyne.

Buffett can have his cherry coke. Offhand we don't know of a single, solitary interplanetary soul who doesn't enjoy an Oreo and a cold glass of milk?

Right off the bat you need to know we own the stock and have been slowly adding to it since acquiring shares in the spin off last year. 

Understand in our view this is not a trader but one of those God-awful, Warren Buffett-like buy and holders with a small dividend and a lot of growth potential. The current p/e, around 18, is a little high, but isn't that what expected growth is all about?

Take a look at some of its competitors, all growing slower at much higher P/E ratios. And could this be a decent currency play if the dollar tanks?

According to Barron's, with revenue in 2012 of $35 billion, 75% of its sales last year came from three rapid growing snack food categories, chocolate, candy, cookies and crackers.

 As one analyst puts it, snack foods are lucrative with good profit margins and little competition from the ever-worrisome private-label firms that continue to chew away at the margins in the grocery business.

In case you're not aware Pepsi's another snack food business, more so than many realize. Here's a little snack to consider with your Oreos and milk. Of MDLZ's 29 well-known brands, nine generate more than $1 billion in annual sales. And, yes, Oreos is one of them.

Now about those BRIC countries, Brazil, Russia, India and China. MDLZ gets about 30% of its annual sale there. When you consider the prospects for annual growth in developing versus developed countries, it's a no-contester.  And remember at least for the nonce snack foods are cheaper and have better profit margins than cars.

A possible unforeseen risk is the food police. We just toss that in so you can't say no one did.

One other quick point. Though we have not heard anything, this is just one of those wild, silly thoughts we get every once in a two-thirds moon while walking the dog, Taylor. 

You want to remember the MAINE. But recall too the HEINZ.

THE RISE AND FALL OF ANDY ZAKY

The guru rule lives.

Not that there's much joy in this story for anyone. There isn't.

It's story way beyond the rise and decline of one person or the rest of the investors involved.

It's a story about people, efficient market theory be damned.

It's a story about how inefficient investors can become.

Choose whatever terms you like. Greed, fear, ignorance, faith, it's still the same.

It's a story about people being people. And it won't be the last one.

Call just about any large firm today and you'll get a robot. Some even tell you: "I can understand complete sentences. How can I help you?"

My response is almost always the same. "Let me talk to a human being? That's a complete sentence."

But those robots have to be programmed, just like Zaky and his investors.

Talk all you want about quants, black swans and technical indicators. Talk all the regulations you want. Behind every market it's still about people.

And that's not going to change anytime soon.


http://blogs.reuters.com/felix-salmon/2013/03/07/why-analysts-should-not-be-investors-andy-zaky-edition/

http://tech.fortune.cnn.com/2013/03/04/apple-zaky-bullish-cross/

RESEARCH FINDINGS: TRUE OF FALSE

If you've ever fooled around in the world of medicine or business or, for that matter, Wall Street (And don't let the term, fool around, distort what we're saying here, though we know it will be difficult.), don't miss this read.

Now here's a little teaser. You need to know this is scientific prose, we use the word prose advisedly, so the water can be a little cold and the current a bit turbulent.

But as the saying goes frown a lot and bear your way through it.

"Is it unavoidable that most research findings are false, or can we improve the situation? A major problem is that it is impossible to know with 100% certainty what the truth is in any research question. In this regard, the pure “gold” standard is unattainable. However, there are several approaches to improve the post-study probability."

http://www.plosmedicine.org/article/info:doi/10.1371/journal.pmed.0020124

THE BUSINESS OF AMERICA

Here's a quote from Warren Buffett's annual report to his shareholders. Make of it what you want and will.

“American business will do fine over time. And stocks will do well just as certainly, since their fate is tied to business performance. Periodic setbacks will occur, yes, but investors and managers are in a game that is heavily stacked in their favor…Since the basic game is so favorable, Charlie and I believe it’s a terrible mistake to try to dance in and out of it based upon the turn of tarot cards, the predictions of “experts,” or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it.”

We spend much time every now and then talking about the so-called experts. Yes, they know who they are. Just ask them. Go back and look at JFK's quote about the Bay of Pigs disaster and the experts. A little history now and then doesn't hurt, either.

Remember the Guru Rule: There are no gurus. Only two things can prove Buffett incorrect: more government regulations and higher taxes all around.

If as Buffett states "investors and managers are in a game that is heavily stacked in their favor," America and its businesses are no less favorably stacked. Kill one, kill the other. 

As John D. Rockefeller once said: "The business of America is business."

MOM AND MARKETS

My mother was an RN. So it was pretty hard to wake up on a rainy, wintery school morning and feign illness. If you said you felt warm, had a fever, she'd take your temperature. A sore throat, she's get a flashlight and check.

Who knew what she knew or what she saw when she looked in there? It was a lot like one of those days that starts out cloudy and keeps getting clearer and clearer. To fool mom I was going to have to up my game--a lot. And believe me my brother and I tried.

Think of the market as mom.  And don't be fooled by the term fool. The market's been there a long time, doing what markets do. Occasionally a newcomer pulls off a stunner or two. Economists, as they do for nearly everything, have a term for that, outlier.

Most of us are hardly outliers. Now don't get your undies all twisted in a bunch. That's neither bad nor good. Just is. Most of us are basic block-and-tacklers, to use a football idiom. We get better with repetition if we keep at it. It's a basic rule of life: Whatever you focus on expands.

A lot of people probably see Warren Buffett as a genius and that doesn't disturb me. 

Another way to see it, however, is he's a brilliant block and tackler, a real Mr. Fundamentals. He's put in the time, he's consistent and the chances are way better than good he's gotten better at it.

Several years ago I shared an office with an options trader, a pretty good one. One morning when things were particularly slow, he told about his early market experiences.

When he got out of college, clutching his freshly, new-minted business degree, he started trading options, something he'd only dabbled at but enjoyed a modicum of success in school. 

Curious is as curious does, so I asked him how it went.

He told me terrible at first, just awful, as I recall. So I offered the usual assumption, laced with a trace of sympathy such occasions often require: 

"Had some big losers, huh.?"

"Oh, no !" he said, laughing. "They were all big winners. My first 8 or 10 trades went like Swiss clockwork. I thought I was a genius, knew everything.  And then...."

It's the "and thens" we all need to be mindful of that usually come without a warning, like mom with her flashlight.

END OF CELEBRATION DAY WRAP

There was much celebrating today as the DJIA  eclipsed it all time high of 14,168 last seen in 2009, closing at 14,253.77, up nearly 126 points for the session.

It didn't take long for the celebrators to show up, some singing the praises of the Federal Reserve Bank's QE policies while chastising the ECB for being so slow on the draw. Others, however, were not so giddy including a big-time hedge fund manager who essentially borrowed a line from one of college football's television talking heads.

Not so fast. That's a paraphrase of what the fund guy said, but it's close enough, as in "it's going to end very badly." If true that leaves the questions of when and how badly.

Might want to consider some June or September SPY puts.

To quickly recap the DJIA in 2008 dropped nearly 35% amid the housing market blowup and the Fed started its so-called ride to the rescue. Those 401K plans took huge hits and now with the rally some suggests they're worth more now than the last time the  DJIA traded at 14,000.

Another catalyst, according to some, was the Institute for Supply Management index, jumping to 56 for February, up 0.8 from January. So despite all the wall of worry talk, many market followers focused on the good news.

The S & P 500 closed at 1,539.79, just 25 points off its all-time also made four years ago. The NASDQ likewise enjoyed an up day lead by the technology sector, closing at 3,224.13. Gold also rallied for the second day in a row ending at 1,574.60 an ounce.

RELUCTANT TO SAY

You'll get a bunch of interesting comments when you put on a suit and tie, shine your shoes, grab a microphone and head out to a busy shopping mall accompanied by a camera man to do people-on-the-go interviews.

The first person was an attractive, petite, 40-something Vietnamese lady still dressed in her colorful surgical scrubs.

I asked what in her mind was one of the purposes of computers. She gave it some thought and answered with a question, the same one nearly everyone has: "Make things easier?"

Given her profession I followed that up with how many strokes and heart attacks did she think computers have caused. After all, the frustration level can be off the charts. When will the first law suit, if it hasn't already, be filed? And will it be a big class action one?

You can see the late night infomercial. "If you or anyone you know has suffered a recent heart attack and you or they work with computers, call Skalenny, Skokcroft  and Smith now. You may be entitled to a claim."

Then I asked about her paperwork load, being an RN for 20 years and working two jobs, has it increased or lessened? She just rolled her eyes and smiled. How about trees, has the computer saved any trees and if so how many?

She declined on that one too, again with a smile. So I changed gears a bit and asked her if the legal profession played a role in creating what should be obvious to everyone, the oceans of paper work businesses, large and small, have to deal with everyday in an age of the great computer.

More and more employers today seem to believe or have been sold that more paper work will somehow save them from one of the planet's greediest professions. It doesn't.
More and more businesses today, large and small, seemed to have bought into the idea  that more is really less. It isn't. 

This went on for a while until, to get to the bottom line, I asked where does the demand for all the paper work originate. She wasn't sure. So I offered what I considered was a huge hint--government.

She chuckled a a bit and flashed a brief but bright smile like someone had just tugged on a light bulb string buried deep somewhere in the recesses of her gray matter.

"You know, I have been thinking the same thing for a long time," she said, "but was reluctant to say anything."

In case you don't recognize it, that's pretty much summarizes the American public's stubborn, misplaced willingness to tolerate the pathetic nonsense, right, left or abstained, going on in Washington.

Remain reluctant at your own peril.

THE WEEK AHEAD

The DJIA's all-time high,14,164.53, was on October 9, 2009, the same day the S&P 500 hit an all-time peak,1,565.15. The Dow sits less than one percent off its high while the S&P 500 is rolling around three percent from its all-time high.

Working backwards Friday's about unemployment, expected to stay at 7.8% and 160,000 new jobs, not much over January.  Also on the docket will be SM reaction to $85 billion automatic cuts and their perceived impact on growth after participants had weekend to contemplate. The IMF predicts they will knock 0.5% off US growth in 2013.

Another concern centers on what's truly hoisting stock prices, easy money versus real signs of economic steadying. Each camp has its devotees. It's basically about leadership, growth and small caps versus large caps and value. Some may call it risk-on-risk-off. Just maybe the SM's mimicking the lack of real leadership in Washington.

ONE OF MANY

Here's just one of many possible responses to Mr. Druckenmiller's recent whining about his predicted enchained future for today's youth. Even the king advocate of government spending, John Maynard Keynes, noted that nine of ten times the worst never happens.

One would think a big-time numbers cruncher like Druckenmiller would appreciate that.

http://www.fool.com/investing/general/2013/02/28/every-generation-had-it-better-than-us.aspx

MARKET UPDATE

The stock market ended the week up despite the beginning of sequestration kicking in as the President and Congress failed to cut a deal in what's become a source of entertainment world-wide: Will they reach a compromise or won't they? Will they kiss and make up or is this the start of a legal separation?

Many Americans yawned their way through this carnival as the DJIA closed the week at 14,089, up a whopping .64% for the week. It was a similar tale for the NASDQ, up 0.25%, closing at 3,167 and the S&P 500 closing at 1,518.20, up 0.23% for the session.

Retail investors, apparently tired of waiting and tired of paltry returns available in so-called safer stuff, are now filing into the SM, buying the dips and hoping for the best. With a little luck this could be another episode of their buy high-and-sell lower saga Wall Street loves. Without bait there's no fishing.

Meanwhile, back at the sequestration party the market may decide no compromise is a compromise. Financials and consumer discretionary shares shared the upside limelight of what was another sedate session, with Bank of America (BAC) and the GAP (GPS) leading the charge.