Yesterday's pump from the Wall Street dump was news that Warren Buffett was willing to help the bond insurers solve their problems. That turned out to be false.
Today's pump is news that retail sales unexpectedly rose in January. The “dump” in the retail numbers is excluding automobiles and gasoline, retail sales were unchanged.
Sales of gasoline rose because the average price of gas hit an average high of $3.11 a gallon in January which is .10-.15 cents high than the previous month. I would expect automobile sales to rise as consumers probably bought more fuel efficient vehicles to save money on the cost of fuel.
Since less people are eating out, grocery stores and beverage companies are reporting higher sales. Clothing retailers showed a 1.4 percent increase in sales as inventories were deeply discounted to make room for the new spring and summer lines.
All in all, retail sales were awful.
On the flip side of the coin, there is a glimmer of positive news. The smart money is beginning to get interested. By smart money, I mean Warren Buffett and Wilbur Ross. I would characterize these two guys as the smartest guys in the room.
Warren Buffett and Wilbur Ross are like two sharks circling in the water around a pool of blood. Both are circling the bloody chum left behind in the water from the sub prime mortgage debacle. If it’s good enough for them, it’s good enough for me.
While Buffett and Ross occupy an exterior of superior social status, internally they approach business opportunities in the same manner as this man;
At this stage of the business cycle, I realize it is difficult to muster up the courage to invest in securities whose reputations have been blemished or marred. But, this is how people like Buffett and Ross became billionaires.
In the midst of the sub prime carnage, Buffett is getting into the re-insurance bond business, and Ross is buying pieces of the mortgage servicing business.
At times we have to make up our minds if we are going to approach life like "Chicken Little", or follow the lead of the truly rich and look 2-5 years down the road.
For my money, I like to buy highly quality companies whose businesses have been temporarily blemished or marred. Many high quality banks fit into this category. As such, I am buying the banks.
Yesterday, the DJIA closed up +133 points led by the Financials.
What is becoming very clear is the full power of the Federal Government is pulling out all the stops to bailout the US financial system. Buffett sees it, and so does Wilbur Ross.
The current credit crisis will be over in due time. In 2-3 years we will look back and say, "do you remember when....". Or, here's one even better. "I could have bought XYZ at $$$ and I couldn't pull the trigger. I am kicking myself now."
