Tuesday Jan 10, 2012
Can you feel the momentum building? The Dollar is still up as are govt bonds but the market continues to advance. When TLTand UUP finally collapse, stand back and watch the stock market roar to the upside.
I recommended two contrarian picks this last month, individual stocks no less, let's se how they are fairing.
RIG
I noted that at $40 a share, RIG was trading at 65% of book value. There was no way one could replicate their assets or expertise. Well, did we see the low at the end of 2011 around $39, maybe. The market perked up 5.03% today. There is still time ot get on board.
GM
I also recommended GM which amazingly had $20 per share in cash, whichwas the stock price.
As the Detroit Auto Show opens, GMi is moving up. I have positions in GM and will add RIG tomorrow.
CHK
Chesapeake CHK trades at 1.14 times book value. Natural gas is historically undervalued to crude oil trading at 32 to 1, the normal would be 10 to 1. One is buying all the natural gas locked up in the ground for book value. Let the ratio of nat gas to crude return to normal and this onw should soar. Surely risk is low here, I rate this my third contratrian buy after GM and RIG.
Thanks for reading the Market Perspective.
Dennis- what do you say to the idea that the currency and bond market in particular are the 'smart money'? Typically, when markets contradict each other, it is wise to listen to the bond market over the equity market.
Posted by: neil master | January 10, 2012 at 10:50 PM
Neil
Well Bill Gross, the smart money was out of treasuries earlier this year when TLT dipped under 90, so PIMCO missed the rally from 90 to 120 in TLT, at times the bond market is smarter, it is larger but I have to think the fears of a crash at this point are overdone, TLT is way over its moving averages
Posted by: Dennis Elam | January 11, 2012 at 08:08 AM