CI Outlook - Archives

September 2010

The range bound anxious market we wrote about last month is continuing to trade in a string of light volume inconclusive days.  Our patience has been sorely tested all year long as the markets erratic price movements have gone nowhere.  For the year the S&P 500 remains unchanged.  In light of this situation the question remains, what have we done and what do we plan to do going forward.  We have spent much of this year seeking current yield situations we believed to be undervalued.  In that way we get paid to wait for the catalyst we have identified to move the price higher.  CPFL Energia SA was a good example.  We were able to buy the stock around $60 with a yield of 8% and sell it later at $76 for a $15 gain.  Thus we got paid an above average yield and still made a 25% capital gain on our money.  If the stock declines to an attractive price our plan is to buy it back.  This type of trading has become necessary in the current listless market as other strategies, such as investment in small cap high growth stocks, has not worked.  A good example was our investment in Dress Barn.  The company has a rock solid balance sheet, extraordinary return on equity, and rapid growth of same store sales.  These are all characteristics of winning retailers.  But even though the stock was priced at 60% of its estimated value its advance from our purchase price failed to follow through.  So with no dividend support and no upside price momentum we decided to cut our losses, while they were still small.

In the current environment of trendless trading with fewer opportunities to safely invest we have built up with a high cash balance.  We invested a small part of this cash in the VXX.  This ETF will advance in price if the market resumes its more volatile price movements.  As traders return from summer vacations, and survey the economic landscape going into the November elections, we expect more volatile prices.  While we think we have a story and a catalyst this ETF pays no dividend.  We will be quick to liquidate it on any gain in price.  Because even though we expect higher volatility we do not expect price movements to follow through.

As always we want to thank you for your patronage.  We also want to urge you to call us with any questions or comments.  In addition we would enjoy visiting face to face and urge you to call us to set up a time to visit.


CJ Brott                                               K Burns


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