Poor Senator

Quick, name a poor senator!
Strategies for investing on an uneven playing field

Portfolio

 

Investment Portfolio is adjusted with an asset allocation model that uses return and risk of the portfolio of investments chosen to suggest the optimum asset allocation

 

Current holdings of modeled portfolio

In November 2008 just following the 2008 Presidential Election we purchased shares of two companies who we felt would be on the inside when it came to administration policy. 

 

1. Chicago Mercantile Exchange (CME); purchased November 2008 because in the wake of the Lehman bankruptcy, and Treasury orchestrated sparing of AIG, Citigroup, Merrill Lynch, Wachovia, and others it was obvious that the incoming Obama administration would push for trading of derivatives in open exchanges and as the hometown exchange of Barack Obama there was no doubt in our minds, that CME was poised to be on the inside track. 

 

The CME stands to greatly benefit from the Dodd-Frank legislation, which is pushing over the counter derivatives, which used to be traded bilaterally between two counterparties, to central clearing houses, such as the CME.  The creation of this new market, resulting from this legislation will greatly add to the CME's revenue.  If the CME wants to thank former Senator, Christopher Dodd, they can do so easily as one of their board members, Jackie Clegg Dodd, is married to Christopher Dodd.  At the time that then Senator Dodd's legislation was passed into law, he and his wife claimed to hold a quarter of a million dollars worth of CME shares.  How fortunate, that same holding would be worth three quarters of a million dollars today.

 

CME shares are up 46% since the 2008 election.  This compares well to the S&P 500; up 44% and NYSE Euronext (NYX).  NYK sought a merger with Deutsche Bourse of Germany, which brought its gain to shareholders up to 55%.  NYSE Euronext, realized the futility of competing with a competitor with political backing in the US and sought refuge with its new German partner / purchaser.  Germany, by the way, ranks number 15 on the Global Corruption Index of 2010, a full 7 ranks higher than the U.S.  (Germany is therefore less corrupt than the U.S.)


After U.S. authorities gave a green light to the merger of NYSE and Deutsche Bourse, the European Competition authority shot it down.  Now NYSE languishes before CME in terms of returns on the stock at $25.  CME has doubled in value since the 2008 election. 


Ahead of the 2012 Presidential election, we are taking some CME profits by selling half of our position.  The election is too close to call and we want to protect our profits from a change of administrations and possible rolling back of some of the Dodd Frank legislation.

 

2. Google (GOOG); purchased because Eric Schmidt its CEO was one of President Obama's advisors during the election campaign.  We like companies where the top brass is on the President's speed dial. Google shares have since doubled in value, easily out pacing the 44% gain in the S&P 500 since that date as well as their competition.

 

2010 Midterm Election Purchases

 

Massey Energy (MEE) was actually purchased in the days after the mine explosion at the Upper Big Branch Mine on April 29.  The thinking behind this purchase was that Massey would be weakened by the mine closure and subsequent focus on its safety record.  MEE CEO Don Blankenship had deep ties in West Virginia politics and the Governor and now Senator Joe Mancin was not going to jeopardize West Virginia jobs.  Even the Republican candidate was going to be favorable with his climate change scepticism.  By the way is there any coal company executive on the record as not being a complete climate change skeptic?  If there is could you email us their name?  Don Blankenship stepped down as CEO.  Massey's board agreed to be acquired by Apha Natural Resources on January 29, 2011 at a price that valued Massey at $69/share.  West Virginia politicians who can take credit for saving jobs in the coal industry.

 

Excelon (EXC) purchased shares on Oct 25. Headquartered in Chicago. The CEO is a big Republican supporter. Mark Kirk, a Republican, won the Senate seat vacated by Barack Obama.  Mark Kirk is bound to be a supporter of positions favored by Excelon, in a Senate which is deadlocked that can be a real asset to the company.  As a Senator, Barack Obama became a supporter of nuclear energy.  Illinois is the state with the most active nuclear plants.  Excelon is poised to gain influence with a former Illinois Senator as president and a member of the ascending Republicans in the Senate.

 

Sempra Energy (SRE): Owned shares, purchased on Oct 28. Sempra has applied for a permit to re-export Liquid Natural Gas from its Cameron, LA LNG terminal. The US is poised to be a big exporter of LNG in the future, thanks to newly accessible shale gas deposits.


Latest News on Positions:


CME has given up gains as its results have not been spectacular, despite the advent of derivatives clearing.  CME needs to get more efficient.  The MF Global scandal did not help their reputation for oversight either.  


X (US Steel) has been performing poorly as China slows and Europe stalls, which is suppressing global demand for steel.  We still expect steel to be a good long term play on infrastructure and global urbanization.


C (Citigroup) has lagged the market in the last year.  But since we are still up 100% from our original investment and we sold our principal at $40, we are playing with house money on the remaining shares in our portfolio. 


CNX (Consolidated Energy) has been battered by slowing US demand for coal in a warm northeast winter and slower economic growth in export markets globally.  The new EPA regulations for utilities are also a negative factor.  But I don't see global demand for coal going away anytime soon.  So we will hold onto CNX.


CSX (CSX Corp) - This Eastern US railway firm suffered from the downturn in coal demand in the US and Europe.  The crisis in the European markets in general is weighing on CSX.  However, we expect demand for coal to increase as economies eventually rebound and demand for coal grows.  Increasing coal demand, especially in India and China will help drive growth in CSX coal cargoes taken to US Eastern seaboard coal export terminals.


Positions in CSCO, STT and EWJ were closed.  CSCO was dropping as competition was eating into its margins, inefficiency was driving up costs, and expansion into non-core businesses had meant a loss of focus.  While this is changing for the better now, we are out of CSCO.  EWJ was closed after a small gain overall.  I just do not see good things for Japan in the near term.  STT was closed out after lackluster performance.


General Electric: (GE) Already owned in one college fund, purchased in March 2009 close to GE's low.  More will be purchased now that the CEO Jeffrey Immelt has been appointed chair of Obama's economic council in January 2011.  Proximity to the administration is good for GE.

 

I will shortly purchase Phillip Morris (PM) because the president is a closet smoker and Speaker Boehner is not in the closet with his smoking.