Saturday, January 03, 2009
First it was the large bank bailouts, but now it appears lots of big entities are in bad financial condition, including government entities at all levels (local, state, federal), pension plans look horrendously underfunded. Some of that is the flip side of how they looked great when the market was happy. We have the possibility of an anti-business government biting the hand that feeds it (and feeds everyone else) just like in the 1930s. This seems like a longshot, but who knows? I think if stocks go up this year, it will be unlikely, as people will be worried about the government harming their re-growing 401Ks. And I think Obama is good at measuring sentiment rather than crusading for some fixed ideology.
It makes sense to see Buffett bullish on US stocks now, but you'll notice that he was still waiting for the market to get/stay worse before jumping in with both feet with his personal money. There's a lot of stuff cheap out there, but there's also a lot of stuff that's going to fail in this climate. I think the big gainers going forward are going to be the solid companies that have been tossed into the garbage pile. Behind that will be the solid companies that have not been tossed into the garbage pile.
But I think there's a lot of bad stuff that needs to play out in the future. I tend to think we're going to see big parts of the economy look like the Titanic. Things that seemed rock solid are going to sink. But it won't be everything. The US economy and big parts of the global economy are very powerful, productive engines that are flexible (especially in the US as long as we don't regulate ourselves into being like Europe) and better than they've ever been in history. The economy can handle enormous amounts of stupidity and waste and still plow ahead. Regardless of bailouts, the garbage is going to eventually flop.
It's funny that everyone is horrified that consumer spending is dropping when the big fear of the past was that people were overspending and not saving. Consumer spending should drop. That's a good thing.
I've been putting as much cash into the market as I can, but like most other people, I need to keep a significant amount aside due to the uncertainties of things now. It's clear to me that things I've personally done "right" are now extremely beneficial: having almost no debt [and having high credit ratings], keeping a solid cash flow, living a cheap lifestyle, not getting caught up in the real estate frenzy whatsoever, and focusing over the decades on solidly marketable skills. In areas where I've been "out on a limb", I've gotten hit badly: owning some stocks that relied too heavily on things going right in the future instead of cash flow now. A lot of that was chasing after high returns in a time when too many things were overpriced. Once again, Buffett was right.
I've sold most of my Strathmore Minerals and Fission Energy stock and shifted what's left of the money into Cameco. There's no question that Cameco will not have the sorts of gains that Strathmore and Fission might have going forward, so it spells a huge permanent loss. Strathmore needs to raise a lot of money going forward and in this climate it's not clear if they can do it, although Hathor and another junior have been able to raise cash. In hindsight I would have been better off waiting until yesterday to bail, but I can't predict the market in the short term.
My view on uranium in the long term hasn't changed. Everything that David Miller at Strathmore has been saying over the years has been happening: demand continues to grow (for a variety of reasons all over the world), established miners have had constant problems getting uranium out of the ground due to 20+ years of neglect, and the hundreds of uranium companies that sprouted up are falling by the wayside.
I believe that the current economic situation favors the big established players in the uranium industry. [It's not clear to me whether Strathmore can pull itself into that category.]
I've also been slowly selling shares of Conforce International (CFRI). One reason for not posting anything here for a long time is that I wanted to give myself time to slowly unload CFRI and I'll probably keep selling more. At this point, I think their success is a crapshoot. At least they have a source of cash flow.
I've been looking at several companies that I had looked at over the years (but not posting anything here). I seriously considered investing in POSCO when they dropped down below $50, I even considered Berkshire Hathaway when they dropped a lot for a while there (the "A" shares were below $80,000). I consider the price of Berkshire to be a reasonable measure of the sanity of the market. When Berkshire drops a lot, it's a reasonable indicator that the market is not sane. In this climate, Berkshire's value goes up, not down, especially with Buffett in charge.
Given how bad the market performed last year, it wouldn't surprise me to see a big gain this year. It also wouldn't surprise me to see a big drop. Who knows?