Hello to all Blue Collar Investors. On May 15, Jim Cramer welcomed Bucyrus International CEO Tim Sullivan to the show. Cramer has been bullish on (BUCY) for all you home gamers, for a while now. And he’s been right: The stock is up over 28% to $29.14 since his call on Dec. 9, 2008, and up over 84% since he reiterated the call on March 4 of this year! Cramer thinks this up-trend will continue. 

First, before we get into what the CEO thinks, let’s see if this Cramer stock pick is good for our Blue Collar System:  

Fundamentals: 

IBD SmartSelect Scan is all Green, and a go! 

Scouter rating of 8 

The E/R is due 7/23, all clear so far. 

Technical’s / Chart:

_______________ 

BUCY as of 6-05-09

On the General Economy:

• The economy has fallen off a cliff; we are in an economic Pearl Harbor.
• The economy has slowed as people’s buying and saving behavior has changed.
• High end has been hit the most; that’s why Walmart is doing well.
• We need American exports to grow.
• “Our best days are ahead but how fast we get there is a question”.

The Cause of the Crisis:

• Everyone thought that home prices would only go up.
• This led to poor lending and 11 trillion dollars of mortgage debt built on this wrong theory.
• We now have 1 1/2 million too many houses. Population growth will absorb this in time.
• Vacancy rate is up a few percentage points.
• Lack or decrease in new construction is a positive.
• People’s networth was reduced and this led to fear and a “vicious negative feedback cycle”.
• Rating Agencies refused to rate exotic Wall Street products (approprietly) that they didn’t understand.
• They, too, felt that housing prices would only go up.
• The economy temporarily benefited from “leveraging up”  but too many homes were built.
• Many buyers could not afford these homes and that percentage must go down.
• Corporate America and their CEOs behaved terribly in terms of their attitudes towards the sanctity of the numbers they reported (I think he meant hanky-panky bookkeeping). 

Government Action:

• In September of 2008, the Fed insured money market accounts and commercial paper, thereby saving the US from financial system collapse.
• Fed policy will determine the degree of inflation, what we do with money supply will dictate how bad the effect will be.
• The whole world is leveraging down except the US. We can print money as long as people do business in US dollars.
• The gov’t has done many positives with the banking system except to restore total confidence.
• The gov’t must realize that it is facing an “economic Pearl Harbor” , treat Obama as Commander in Chief and then back him with universal support.
• We need a clear message from our gov’t. This has not as yet happened.
• Obama must articulate that no one should be worried about  having any money in a US bank.
• We need a mortage plan to get payments down to a reasonable amount based on income.
• The gov’t is needed to oversee the recovery.
• Obama is the right President in the right country to repair this problem.
• Obama should not push a big agenda at this time; just concentrate on the economy.
• The stimulous plan is a part of the recovery; restoring confidence is the most important part of the process.
• The SEC should not suspend mark-to-market accounting (this is where we assign a value to a position held in a financial instrument based on the current fair market price for the instrument or similar instruments).
• Re-instatement of the uptick rule is a good idea (this will restrict the activity of those selling short or hoping for stocks to go down in price).
• We should lower taxes for the needy and raise taxes for those more fortunate.
• No problem if we reduce the deductions for charitable donations. These donations are contingent  more on a healthy economy rather than on tax credits.
• The Fed and Bernanke are doing a good job.

The Banking System:

• Banks will earn their way out of this despite fallen stock prices.
• Money is cheap (1.44% for Wells Fargo last year) and deposits are coming in.
• Spreads have never been wider (difference between what banks borrow for and charge the consumer).
• ALL bank deposits MUST be protected.
• Banks must build capital by paying lower dividends and utilizing the large spreads.
• The gov’t must articulate that money is safe in US banks.
• Citigroup shareholders may not see a recovery, but all deposits are safe.
• Bank toxic assets that have been marked-to-market may have good value now.
• Banks that need to go broke, should be allowed to go broke with no consumer out even one penny; shareholders, however, can lose their investments.
• There are 7400 banks, most are okay.

The Auto Industry:

• The  auto industry had been producing 15 million vehiles per year. Lately, that figure has diminished to 9 million/year. This business model does not exist anymore.
• We must re-adapt the model to 13 million/year. Then it would be okay to bail GM out. This is a better approach than bankrupcy.
• If GM goes bankrupt, it will effect the entire economy. 
• There is too much legacy (benefits) costs.
• We need a combination of a new business model and recovery.

The Stock Market:

• Business works, over a ten year period you will do better with a basket of stocks than with treasuries.
• Forget stock quotes and just look at the business.
• A cross section of well-capitalized companies will make you money over the long term.
• Some of Warren’s largest holdings include American Express, Coca Cola, Conoco Phillips and Kraft Food.
• Derrivatives (options, packaged mortgage securities etc.) can be dangerous, but not if regulated properly. 

History and Lessons Learned:

• In the 19th centruy there were 6 financial panics due to loss of confidence in banks. In the 20th century the Fed was put in place to calm fears but then the 30s came along and panic set in again. As a result, the FDIC was put in place and no depositor of an insured bank has lost even a penny since 1934.
• Everyone must be totally confident in the safety of our banks.
• The Great Depression reflected weakening confidence in the banking system. That should not exist today because of the FDIC and the fact that our system is better prepared to deal with these issues. The President must articulate this to the public.
• In 1900 the Dow was @ 66; today its at 7000. That’s a return of 100 for 1. Fifteen of those years look terrible. The system works extremely well but at times the government needs to play a role.
• This crisis has demonstrated the dangers of extreme leverage. In the future we should not allow the big institutions to go unchecked as far as the use of leverage.
• Avoid credit card debt and only buy a home when you can afford it.

The Reality of our Situation:

• The recovery will take time but will occur.
• 600,000 more people are unemployed and this effects everyone.
• Fear of losing one’s job leads to less spending.
• Unemployment will go higher and then stabilize.
• The job market recovery will lag the economy.
• The speed of the recovery depends on the wisdom of the gov’t policies.
• The steps we need to take are inflationary. The more money out there (printed) compared to economic activity, the less it is worth.
• The banking system in 2009 will not be a problem; fear that it may be, is the problem. People are fleeing to gov’t-guaranteed vehicles.
• Good business is the best asset against inflation. Own your own or via equity ownership.
• This crisis has changed the spending and investment habits of many. However, if folks put their money in gov’t securities, it will diminish their spending power.

Our Future:

• The American Economy works and will continue to work. We just did some really dumb things relating to leveraging up.
• Stocks will go up over time, businesses will be worth more, and people will have more buying power.
• Everything will be okay. We have the greatest economic machine man has ever created. The system works.

Jim Cramer versus Jon Stewart:

In case you missed it, there was a brouhaha this past week between Jon Stewart of Comedy Central and Jim Cramer of CNBC. Stewart attacked the financial network for irresponsible reporting and for berating average folks for poor investment decisions. Jim Cramer took exception to Stewart’s remarks and started a full-blown media blitz to respond to Stewart’s accusations. Now Stewart is a comedian, but partners those skills with an intellectual capacity for debate that takes a back seat to nobody. In the end, Cramer appeared on Stewart’s program, the Daily Show , for the ultimate battle. Cramer entered as the financial pro, the Harvard genius; Stewart as the brilliant comedy show host with a propensity for bathroom humor. It looked like a mismatch. But once the first shot was fired by Stewart it became apparent that his artillery consisted of indispuatable facts, clips and quotes of immeasurable proportions. Cramer had a box of Kleenex that he used generously.

They lied to me, I should have known, I’ll do better, I’ll change, cowered Cramer…it became more and more uncomfortable to watch. For me, the most disheartening part of the program was when Cramer was shown in a video clip of himself discussing how he can manipulate the market through rumor and innuendo. “I would never say this on television”, he stated in the clip. But he just did! His box of Kleenex appeared empty.

At the end of the show, they shook hands and there was a sadness I felt. Cramer was born a genius. He used his impressive skills to make millions and millions for millionnaires. Now he was supposed to represent the average Joe. The interview demonstrated that part of Jim Cramer still lives in the backrooms of the hedge fund world.

I still believe that there is a part of Cramer  who is for the average investor, just not all of him. His TV Program, Mad Money, can still be a valuable tool in our Blue Collar armanetarium. There are many educational points that can be garnered from his show and behind-the-scene gems that may not appear in other venues. I do believe that Jim Cramer cares about us but he is, in fact, a product of his world, which is far outside of ours.

To me, Cramer is my employee who works for free. He brings me ideas and suggestions then I decide what to do with them. I will keep him on my payroll at his current salary. Tony C. will continue to monitor his program and we will publish journal articles, from time to time, about how his ideas may fit into our Blue Collar System. 

Never before has it been more apparent how important it is for the modern day investor to take control of his or her own financial destiny. It wasn’t that long ago that we were trying to understand what happened with AIG, CitiGroup, Lehman, Merrill, Bernie Madoff and all the little Madoff clones. Before these guys, how about Enron, Tyco and Worldcom? The list is endless and hopefully regulation will become a meaningful word once again. If it does, that will benefit all the Blue Collar Investors of the world and even many Wall Street insiders who are unfairly getting a bad name by association.

So I say, tune in Cramer’s Mad Money. He offers us education and he doesn’t charge for it. But when he says “buy-buy-buy” or “sell-sell-sell”, it’s time to tune out-out-out! There’s only one person who makes that decision for my portfolio and that’s me. There should be only one person making that decision for your portfolio and, of course, that’s you.

For those who haven’t seen the program, here is a link:

http://www.thedailyshow.com/full-episodes/index.jhtml?episodeId=220533

Last Weeks Economic News:

Hey, some good news! February retail sales wre better than expected and January sales were revised higher. The US trade deficit narrowed for the sixth straight month to the lowest level in six years. For the week, the S&P 500 was up 10.7% for a year-to-date return of – 15.6%

Hoping I didn’t sound too angry ,

Alan   (YOUR COMMENTS ARE WELCOME, JUST CLICK ON THE “COMMENTS” LINK)

alan@thebluecollarinvestor.com

                                                    “Food for Thought” 

What does Olive Garden, Red Lobster, and Long Horn steakhouse all have in common? They are all under the parent company, Darden Restaurants (DRI), one of Cramer’s 3 best restaurant picks for all you home gamers.

Besides the fact that Cramer wore a bib and waved a large lobster around the set to make his point, there are many reasons to own Darden. First, restaurants don’t have the luxury of federal aid, which means that the recession has thrown this industry into a Darwinian fight for survival and only the strong survive. Darden is keeping prices low to snatch up market share. Another positive is talent retention, usually a launching pad for key managers to further their careers, but in today’s environment they’ll stay put because recession’s mean fewer job opportunities.

Let’s run (DRI) through our Blue Collar system:

IBD diagnosis A+

Technical rating A-

Fundamental rating A-

Attractiveness rating A

Group’s technical B+

2nd out of 63 stocks in the Retail Restaurant Industry

E/R due on 3/19

Scouter rating of 6

So far so good!

Let’s take a look at the chart:

DRI 1-31-09

 - The 20-d ema is trading just above the 100-d ema.

- Price bars are above the 20-d ema.

- MACD is positive

- Stochastic Oscillator is uptrending except for the past 2 days.

- MACD Histogram is neutral.

I would consider this a mixed to slightly positive technical picture and therefore favor I-T-M strikes.

 

Let’s sell a covered call:

- Buy 100 x DRI @ $26.22

- Sell (1) $25 call (I-T-M) @ $2.20 for a 3.9% 3-week return (220 – 122/2500) and a 4.7% downside protection (122/2622). I love this country! Note that we favor an I-T-M strike due to the mixed technical picture and volitile market conditions.

 

More reasons to own DRI per Cramer:

Commodity prices are down. Beef and chicken are cheaper and this company will soon see those benefits when the higher priced contracts roll over. Another reason is that media costs are declining. Problems experienced by the larger advertisers such as the automakers have dramatically reduced costs, which is good news for restaurants which thrive on national ad campaigns. Lastly, these restaurants are affordable. Olive Gardens offers never ending pasta bowls, unlimited soup, salad, and breadsticks (don’t throw away that gym membership!). Even during a recession a family can eat out without breaking the bank.

 

Thanks to all BCIs,

Tony C.

 

Market Tone:

January has been a down month for the market and that is reflected in the charts of the S&P 500 and the VIX. Please note, however, that the S&P 500 is still up 10% from its November lows and the VIX is down 50% from its October highs. To me that means that the big picture is not that terrible and a base is forming. Here are the charts:

S&P 500 1-31-09

 

VIX 1-31-09

Barack Obama applied for and was selected for this job.

With the campaign promises and inaugural pagentry behind us, it’s time to start evaluating what impact this new administration could have on our investment strategies. There are trillions of dollars sitting on the sidelines waiting to come in and start pumping up the market. In the view of most economists, and what common sense dictates,  two things need to occur for the money flow to begin:

1- The investment community needs to be convinced that appropriate measures have been put in place to turn the economy around. Even if it takes several quarters for this to actually happen, the meer perception that it will inevitably occur, is enough for the market to start improving. After all, the institutional investors don’t make money with the cash sitting under their pillows and we all know the incredible role that market pyschology plays in the price movement of the stock market.

2- Investors must be persuaded that the regulatory agencies have been put in place and have the ability to ensure the appropriate transparency that leads to a level playing field for all. There can be no more Bernie Madoffs!

If President Obama can demonstrate that he is directing the economy in a positive way and eliminating the heartless sociopaths and incompetents who hurt so many for their own personal gain, we will be on our way to re-funding our 401Ks and other investment accounts. Give us a fair playing field and we’ll do the rest!

Although it is too early to make any definitive statements, I do see some positive early signs.

Getting our economy back on track:

1- On his first full day in office, Obama met with members of Congress to discuss the $825 billion fiscal stimulous package.

2- There is talk of a National Bank that will buy up the toxic assets.

3- Proposal of money directed to homeowners which will allow the folks to stay in their homes.

4- Requirement that banks receiving the $1.7 trillion rescue dollars have accountability as to where that money is being spent. This will go a long way in satisfying taxpayers who are demanding this type of transparency.

5- Obama had identified turning around the economy as his first and greatest priority.

6- Obama’s planned videoconference with the National Security Council and the US military commanders in the two war zones reminds me of FDRs fireside chat where he calmed the country’s emotions after the depression, claimed the strong leadership role the nation sought, and took the country to new economic heights. He did this eight days after his inauguration. Let’s see if BHO does the same. 

Appropriate regulation to create transparency:

1- Obama aides have told the press that financial regulatory reform is on the top of the President’s agenda. A new regulatory regime is anticipated to present on April 2, when the G-20 ( Group of Tweny Finance Ministers and Central Bank Governors) convenes in London.

2- The appointment of Mary Shapiro as SEC Chair is expected to unleash an enforcement staff that has felt constrained by the Bush policies. She has a deep regulatory and enforcement background, having previously served as SEC commissioner, and CFTC (Commodity Futures Trading commission) Chair. At her confirmation hearing, she promised to be “as aggressive an enforcer as anyone has ever been at the SEC”.

3- There is talk of a merger of the SEC and the CFTC and this could happen with  a smooth transition as Shapiro has great experience at both agencies. This combined commisssion would have investor protection as its primary mission and lead to investor confidence.

4- Shapiro has hinted that there will be a movement to regulate the activities of mortgage brokers, perhaps the key facilitators in the subprime meltdown.

5- After the $150 billion bailout of  AIG, regulation of the insurance industry appears to be in the cards as well.

6- Regulation of hedge funds has also been discussed, brought to the forefront by Mr. Madooff’s ponzi scheme.

At this early point in his administration, Barack Obama seems determined to implement enforcement and create investment transparency. If he is successful, it will represent good news for the entire country and Blue Collar Investors in particular.

Hey, What’s Cramer saying about all this?

As the new administration took office, Cramer enumerated several events that could bode well for the stock market in 2009. Here are a few:

1- The bottom of the housing market will occur this summer (that will be a big deal if he is right on this issue).

2- Obama should give a tax credit to homebuyers for purchasing foreclosed mortgages.

3- A resurgence of China’s economy will be a stimulous to ours.

4- A merger of two of the Big Three Automakers will boost our economy.

5- He once again calls for re-instatement of the uptick rule to protect against bear raids of the bank stocks.

6- Obama should embrace natural gas as the fuel of the future.

Cramer also introduced the “Obama Accountability Index,” a group of six stocks that will grade Obama’s success (or lack thereof) in reparing the nation’s economy. The stocks are Bank of America, Citigroup, Caterpillar, General Motors, JP Morgan, and General Electric. Notice how he selected stocks from the same industries we have been following the last few months to determine market tone: Financials, Autos, and Construction. Whether you follow the individual stocks or their industries, a healthy turnaround should mean significant dollars in our portfolios.

Recessions are normal and sometimes the start of something great!

A few months ago, I wrote an article highlighting the fact that recesssions are a normal part of the business cycle. These are extremely difficult times but may bode well for the future. Here are the dates of three of the worst recessions in our nations history and the ensuing 5-year market returns:

May, 1932: + 367%

July, 1982: + 267%

December, 1994: + 251%

This recession has already lasted longer that the average one. Times are bad but we have history on our side.

Book Review for Dr. Dave’s Uncommon Financial Advice:

I recently read this e-book by Dr. David Shafer, a fellow Blue Collar Investor. It is written for the same folks I represent, the average, hard-working investors. What I like most about this book is its philosophical approach to investing and the old barriers that it knocks down. For example, people should “live the life they want by taking control of their finances from the folks on Wall Street”. He goes on: “Personal finance is not so difficult that the majority need to cede control to someone else”. Sound familiar?

This is a book about investing in general, not just the stock market. There is an emphasis on retirement planning and how to achieve financial independence by following a new “paradigm” of investing. Topics such as social security, savings accounts, home mortages, stock index funds, and tax issues  are addressed from a new vantage point. There is also an interesting section on Roth/401Ks that piqued my interest.

Dr. Dave tells us the same thing that common sense dictates: …”you will never be able to hire someone to look out for your interests above their own”. He addresses the concept of wealth creation and ties in real estate, businesses and leveraging in his model. Of course, no good book on investment strategies would be complete without a discusssion on good debt versus bad debt.

The mission of his book and the Shafer Wealth Academy is to bring you to a point where you are motivated to create a comfortable retirement using strategies that work well in todays economic environment. In this regard, I found there to be many interesting, informative and innovative ideas to consider in your investment strategies. I recommend this book, without hesitation, particularly for those looking to establish a wealth creation and retirement plan that incorporates all aspects of investing.

Here is the contact information: 

http://www.shaferfinancial.com/book.php

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* There are many outstanding and ethical financial planners and stockbrokers. I never have a problem with investors who seek the advice of such professionals. I do feel, however, that we should all be educated to the point where we can evaluate the success of their recommendations and ask the appropriate questions.

__________________________________________________________________________________________________

Our readers select their favorite stocks:

The response to my request last week for you to send in your favorite stocks so we can share with everyone was unbelievable. I am unable to list all the equities submitted, but here are ten stocks that were recommended by more than one Blue Collar Investor:

DV
EBS
AVAV
LHCG
HANS
TWGP
APEI
GMCR
THOR
BLUD

We appreciate your willingness to share your selections with us. It gives us the opportunity to evaluate these equities to see if they have a place on our watch lists.

Beat The Street Sweepstakes Grand -Prize Winner:

Congratulations to Sally Bell of Florida, the grand-prize winner. Sally and a guest will be flown to NYC where we have arranged accomodations at the New York Marriott Marquis. Sally and her guest will enjoy dinner @ Tony’s DiNapoli in Times Square and then the great Broadway production of the Lion King (I saw it and it’s fabulous). I will also be hosting a 1-on-1 (two?) consultation with Sally and her guest. 50 copies of my book, Cashing in on Covered Calls, are being shipped to the 1st place winners. Congratulations to all. We had thousands of entries for this contest and I want you to know how much I appreciate your support and interest in The Blue Collar Investor series.

Last Weeks Economic news:

There was little new economic news this past week to evaluate. Construction dropped 15.5% in December to 550,000 units (annualized). This is the lowest level in decades. Permits for new construction dropped by 50% from last Decembers figures. This apparent bad news could deplete inventory and boost new housing starts in the near future. The jobless figures continue to also have a negative impact on the economy. For the week, the S&P 500 declined by 2.1% for a year-to-date return of -10.2%.

Use the “comments” link of this article to add your thoughts or contact me directly @ alan@thebluecollarinvestor.com

My best to all,

Alan

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Blue Collar Mission Statement

1- Become CEO of your own money

2- Become financially independent

___________________________________________________________

Never before have the convictions of the Blue Collar philosophy become more meaningful as they have this past week with the arrest of Bernie Madoff for what may become the biggest fraud in the history of Wall Street. Madoff, now being called “the Thief of Wall Street”, engineered a $50 billion ponzi scheme that has had a rivetting impact on families and charities from Palm Beach Florida to Europe and beyond. How could this have happened, how could it have been avoided, and what are the lessons learned?

Background:

Madoff was a self-made man. His roots began on Long Island, NY as a life guard and sprinkler system installer before entering the world of finance. His reputation grew as a competent, ethical, and philanthropic pillar of the Wall Street community. He was named Chairman of the Nasdaq as his reputation reached impeccable heights. Everyone trusted Bernie. His firm, Bernard L. Madoff Investments Securities LLC (“BMIS”) ,consisted of two main branches:

1- The broker-dealer section which traded stocks for their own accounts. This part of the business has not been implicated in any wrong-doing.

2- The money management section where he oversaw tens of billions of dollars of client assets and where he ran his ponzi scheme.

What is a Ponzi Scheme?:

Named after Charles Ponzi wherein money is taken from new investors to pay off longer term investors. Charles did his scam by touting a postage stamp that could be used anywhere in the world. He guaranteed investors to return double their money in 90 days. As new money poured in, the former group of investors were paid off and the scam snowballed. In much the same way, Madoff claimed consistent returns of 12% annually in any and all market conditions. He paid off investors with the tremendous flow of new money coming into his firm. This worked great for many years until the market hit its current downturn and people started pulling out of the market and no new money flowed in. The gig was up!

How did he claim to accomplish these returns?

He used what is called a split strike conversion strategy which is a fancy term for an option collar: He buys a stock from the S&P 100 (like Coke or AT&T), then sells a call option and buys a put option on that stock. This is vaguely similiar to what we do except he also buys a put (like getting insurance but lowering potential profit). This strategy works in an uptrending market but old Bernie claimed success in all market conditions. His trading was non-transparent and never checked by the regulators because everybody trusted Madoff.

Warning Signs and Regulators:

In 1999, Frank Casey, Fortune USA President, along with his fund managers ran a “dummy portfolio” using the split strike conversion strategy. He came to the conclusion that the claimed results were fraudulent and reported this to the SEC in 2000, 2002, 2005, and April of 2008! He backed these allegations with the fact that the volume of options traded could NOT possibly support the claims Madoff made of buying and selling options on tens of billions of dollars of S&P 100 stock. He also complained about the lack of transparency in Madoff’s portfolio. One of Casey’s associates wrote to the SEC: “The SEC should burn in hell for allowing this to blossom from a $10 billion ponzi scheme in 1999 to $50 billion one today”.

The SEC missed many red flags. First of all, Madoff had an impeccable reputation. Many former SEC officers become part of Wall Street. Arthur Levit, former SEC Chairman even asked Madoff to help develop policy for the SEC! How could anyone doubt this man? Furthermore, SEC resources are limited and cases need to be prioritized. They tend to focus on high risk investments like derrivative trading, not the more conservative system of Madoff (or so it seemed).

Christopher Cox (this man is toast!), the current SEC Chairman admits shock over the lack of follow-up with regards to the allegations made from 1999 to the present.

Who got hurt?:

This is the really sad part. So many hard working people trusted their life savings to this monster/sociopath. Members of the rich and famous set like Steven Spielberg, Frank Lautenberg, Mort Zuckerman, and many of their charities all got hooked in. In addition, many pension funds gave a bulk of their cash for Madoff to invest for them. Outside the USA, institutions such as the Royal bank of Scotland and the Korea Life Insurance Company were also severely impacted. First we learned that we could not trust AIG, then Lehman, now this. Who can we trust? How do our global financial partners feel about regulation in this country?

Many people have been effected and may not know it yet. Those who invested in Fund of Funds may have had money held by Madoff. These funds use as an investment strategy investing in other funds rather than investing directly themselves. Many of these Fund of Funds gave a bulk of their money to Madoff and their investors will feel the loss as well.

Lessons learned:

Everyone who knows Bernie Madoff is shocked. Wall Street, the SEC, stockbrokers, friends, relatives, you name it. Where does that leave us, the average Blue Collar Investor? How can we figure out who to trust if all these people can’t? We can’t either!

How can this happen?

This is probably a whole article unto itself. Suffice it to say that it probably is some combination of lack of education (I know nothing about the stock market), laziness (I just can’t take the time), and greed (It doesn’t sound reasonable but I’m in!). Most of all it takes a brilliant mind tarnished with sociopathic tendancies. Look at all the good people this man hurt.

The Blue Collar Philosophy:

By becoming CEO of your own money we would never entrust all our money to one person. We don’t care about reputation only what makes common sense. Even if we did give some of our hard-earned money to Madoff for his crime spree, it would have been a small portion because diversification is so important in our investment portfolio. We would never, ever give all our money to one guy! I believe in diversifying asset classes, stocks, and cash. If you get hurt in one area the others can pick you up. I’m all for mastering a particular strategy, after all that’s what I do when I sell covered call options. My son, Craig, gave me a great analogy in this regard: He calls it “learning the move”. When he was in high school, Sega Genesis was in vogue. He played an ice-hockey nintendo game where you would take the puck in on the backhand and then as you approached the goalie, switch to the forehand and you could score on anybody. He learned the move and was successful most of the time. Our move is selling covered calls or whatever move you choose. It is much more prudent to learn the move than to fall victim to the Bernie Madoffs of the world.

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Jim Cramer Makes Us Some Blue Collar Money; Vol. IX by Tony Covino

“Let’s Make Some Bread”

Hello all Blue Collar Investors!

On December 11^th Jim Cramer had the CEO of Panera Bread (PNRA), Ronald Shaich, on his show. He told Cramer that despite a tough 2008, Panera Bread is up 34 %. Comp sales have been in positive territory for the first three quarters and said this quarter will be the same. Earnings are expected to jump between 46 % and 54 %. “We’re not walking away from that guidance”, Shaich said.

Panera’s also sitting on $31 million in cash and should generate $ 70 million in free cash flow next year. That’s a great cushion to get through this recession, but Shaich is focused on growth. “A recession is probably the greatest opportunity you can have”, the CEO said, “to build a company and to build a fortune.” This sounds to me like this CEO has tremendous faith in his company!

Let’s run this company through our Blue Collar fundamental checks:

• Overall : A
• Technical: B+
• Fundamental: A –
• Attractiveness: A+
• Group Technical: C
• Overall rank: # 1 out of 63 stocks
• Earnings report due on  2/10/09(not confirmed)

Now let’s look at the chart:

PNRA Chart 12-19-08

The 20d EMA is just above the 100d in an uptrend rebound

• The OHLC bars are trending above the 20d EMA
• The MACD is above its trigger line and both are above the zero line
• The MACD Histogram is above the zero line (above trigger)
• STO is at 80 and slightly below its trigger line
• Heavy volume around December 3^rd pushed the stock price up

If we were to sell an option in a normal market we could sell the Jan $55 call @ $3.20 for a 1-month 5.9% return OR  (more conservatively) sell the Jan. $50 call @ $6.30 for a 3.3% 1-month return with a phenominal 8.5% downside protection!

In closing:

Panera Bread is seeing a benefit of lower commodity prices both for itself and its customers. The company’s food costs are down and that will increase company margins. We have lower gas prices and that means customers are more willing to spend a night out with that extra money in their pockets. Cramer calls Panera Bread, “a winning stock with winning management and that’s exactly what you are looking for in this difficult environment.”

Thanks and I hope to hear from you all,

Tony C.

——————————————————————————————————————Last Weeks Economic News:

On Tuesday, the Federal Reserve Board announced that it would lower the federal funds target rate from 1% to a range of 0% to 0.25%. It also indicated its willingness to purchase mortage-backed and Treasury securities. This sparked a market rally on tuesday wherein the S&P 500 rose 5.1%.

Other news wasn’t as positive. The Consumer Price Index (CPI) had its largest monthly drop ever, indicative of the depth of the recession we are experiencing. Steep declines in housing starts and industrial production also added to the negativity. For the week, the S&P 500 rose 0.9% for a year-to-date return of -38.15%.

I really hate ending my articles on bleak economic news sooooooo…..the Yankee signed Sabathia and Burnett so their pitching staff is looking really strong for 2009!

Use the “comments” link from this article to add your opinions and suggestions.

Best wishes,

Alan (alan@thebluecollarinvestor.com)

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