#20 New position- COW

First chart: COW, which is an ETF reflecting the price of live cattle (65%) and lean hogs (35%).
Second chart: Live cattle prices
Third chart: Lean hogs prices







It is getting hard to find good investment ideas. The stock market is up substantially from its March lows and valuations have rebounded significantly. This leads me to (1)not want to chase stocks higher and (2)try to be diligent about finding ideas that haven't experienced the March to May rebound.

One thing I have noticed is that the price of beef has come way down. At the end of 08 (when I first started cooking at home), filet mignon at Costco was $10.99/lb. A few months later it fell to $9.99/lb and most recently it's been at $8.99/lb. I have also noticed that at our neighborhood Whole Foods, beef is often on sale, with NY strip steak most recently around $7.99/lb (a good price in NYC at a Whole Foods!). These observations led me to take a look again at COW - a livestock ETF. The COW tracks the price of live cattle (65%) and lean hogs (35%).

Here is an interesting article on falling beef prices.

It seems to me that there has been an overall decline in beef demand due to the economy, but also a glut of beef slaughters leading to higher supply. This has obviously led to a big decline in the index. One can argue that as the economy stabilizes, we should see a stabilization and improvement in demand (and hence prices). We would add that buying the COW is also a derivative play on livestock feed, primarily soybean and corn. This is the primary reason for our position.

Below are some recent charts on soybean and corn futures. There is presently a shortfall of soybeans from Argentina (which accounts for 20% of global production) and a delay in Midwest corn plantings due to rain. Our thesis is for both livestock demand to improve and for supply to shrink (based on higher recent slaughters and higher input costs). We have built a roughly 6.5% position in COW at $30.

#19 Sold USBp

Sold the USB puts. Got lucky that the co decided to raise capital ($2.5b common stock offering at $18 announced last night/this am). Stock trading at $17.50 now so our 19 strike puts are in the money ($1.50 itm which is the premium we paid). We sold them at $1.70 figuring we were wrong on our stress test thesis and lucky to escape this having actually made money on those puts.

Overall, the market feels range bound now. Stocks are sharply off their lows and banks have gone thru the stress test. Bears like to talk about commercial real estate which is a 100% legitimate concern, but it isn't like that is anything new. CRE should have been a concern in January (before CNBC started talking about it). There may still be markdowns left, but between the stress test and various government programs to support real-estate backed loans, I think we can reasonably hope that CRE won't fall as much as residential. I think the market has priced in a lot of these concerns. Still, you won't see us going long any banks. Hardest part is finding reasonably priced stocks. The S&P 500 at 900-ish levels imply a 15-16x p/e multiple for the market, a level that we don't find particularly cheap. We're going to hang onto names like MSFT (12x p/e, 6x ev/ebitda) and look for names that are either cheap (not that many) or offer a better GARP-like (growth at reasonable price) valuation.

#18 Dead wrong

Dead wrong on USB (no capital required) and STI (needs capital equivalent to 1/3 of their mkt cap). Good thing I am not a banks analyst. At least it was a small position. On the bright side, COT has saved us so far this month and UNH, ETR and TBT were strong performers today. YTD up 29.7% net of fees, due mostly to COT (up 200% this month).

#17 New Position: USBp

Bank stress test results are supposed to be released on Thursday. As an exercise, I went through 10k's and sellside reports to compile data to do my own stress test. My numbers came out pretty clear in favor of Suntrust (STI) and against PNC and USB. This is the exact opposite of consensus opinions that favor USB and PNC and hate STI (bc of the Southeast (FL) exposure). To have some skin in the game, I did want to be long the name I like and short the other two. However i am cognizant that these names can rip hard and fast in either direction so I thought it would be more prudent to minimize downside by buying options. With stocks up today, the calls are more expensive so I have delayed in buying STIc and just took a 1% position in USB puts with May expiry.

#16 Sold BRK/B

Sold our BRK/B position at $3089. We bought it in the first week of March and earned a 27% return in 2 months. It stinks we have to pay short term gains on the sale, but I have been burned too many times in the past by not selling bc I didn't want to pay Uncle Sam. Berkshire held its annual meeting over the weekend and overall the tone, based on my read of news articles, was cautiously optimistic. The utility and insurance businesses will do fine (but not great) and everything else will be impacted by the economy. When we first bought the shares in March, we noted they were trading at around 1x book value. Now the shares trade closer to 1.4x book value if you consider the price appreciation since March AND Buffett's comments about BV having declined 6% in 1q09. During the 2005-2008 timeframe, BRK traded at an almost 2x P/B value--a reflection of the premium placed on Buffet's expertise. Going forward, sure the stock could go from 1.4x to 2x book value, but we prefer not to hope on multiple expansion to make us money, at least not to 2x when most insurance companies trade below 2x book. Plus, the book/earnings don't appear to be accelerating (again per press reports on Buffett's comments this past weekend). So we are happy to take our gain here and look for other opportunities.

#15 Followup on TBT

This is why we are short 20+ year treasuries: TBT

#14 Position breakdown: April

I also included March for a comparison.