If Buffett Liked Tech, Here's What He'd Buy: CSCO, MSFT, AMBA

Warren Buffett used to define a "margin of safety" as a company that was trading close to - or even below - "breakup value."

Of course, that metric doesn't work as well today - especially in the parts of the tech sector that we like to focus on: You just aren't going to find many high-growth companies trading at bargain-basement levels.

But with U.S. firms sitting on a record $1.7 trillion in cash, you can find some name-brand tech firms whose cash reserves can cover a decent portion of their share price - creating a nice "margin of safety" as we move into the fall. (Good timing, considering everything that's happening - or not happening - in D.C. right now.)

I like to refer to these as "Cash is King" tech stocks. (more)

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A Look at Year-to-Date Asset Class Performance

Let us look at the performance of various asset classes from the year to date perspective.
Let us look at equities first. US equities have outperformed GEM equities by a wide margin. S&P 500 was up almost 20% recently while GEMs are about 3% down for the year. Eurozone equities have done quite well too, up about 18% year to date.  Within the bond sector, Treasuries have grossly under-performed, down about 12% year to date. Corporate bonds have fared better, remaining down by about 4% while Junk Bonds have outperformed by posting a positive return YTD.

Moving along towards commodities, and we can see that precious metals disappointed this year. Gold (and Silver not shown here) are under-performing all other assets and at one point almost 30% down YTD. Base metals have not faired much better, down 16% while Agriculture has also disappointed with a negative return of 12% this calendar year. Energy is the only commodity sector to give positive returns, with a gain of 9% this year.
A simple summary shows that developed market equities have done tremendously well this year, while metals have grossly under-performed all other asset classes.

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Baker Hughes Incorporated (NYSE: BHI)

Baker Hughes Incorporated supplies oilfield services, products, technology, and systems to the oil and natural gas industry worldwide. It offers drilling and evaluation products and services, including drill bits for performance drilling, hole enlargement, and coring; conventional and rotary steerable systems used to drill wells; measurement-while-drilling and logging-while-drilling systems to perform reservoir navigation services; drilling optimization services; tools for coil tubing drilling and wellbore re-entry systems; coring drilling systems; surface logging; emulsion and water-based drilling fluids systems; and reservoir drill-in fluids, as well as fluids environmental services. The company's drilling and evaluation products and services also comprise wire line services, such as tools for open hole and cased hole well logging to gather data to perform petro physical and geophysical analysis; reservoir evaluation coring; casing perforation; fluid characterization; production logging; well integrity testing; pipe recovery; and seismic and micro seismic services.
To review Baker's stock, please take a look at the 1-year chart of BHI (Baker Hughes Incorporated) below with my added notations:
Notice the rising wedge I have outlined on the chart of BHI. A rising wedge price pattern is essentially a type of triangle formation in which the stock (BHI) has formed an up trending resistance line (red) and an up-trending support level (green). These two trend lines converging on one another combine to form a rising wedge, which is usually a terminal pattern. Confirmation of this pattern would occur if the stock broke the up-trending support.

The Tale of the Tape: BHI has created a rising wedge pattern, which should lead to a break lower. A short trade could be entered on a break out of the bottom of the wedge, which currently sits near $47.50. If a trader believes the stock has higher prices in it's future, a long play could be made at that support with a stop placed below that level.
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U.S. Risks Joining 1933 Germany in Pantheon of Deadbeat Defaults

Reneging on its debt obligations would make the U.S. the first major Western government to default since Nazi Germany 80 years ago.
Germany unilaterally ceased payments on long-term borrowings on May 6, 1933, three months after Adolf Hitler was installed as Chancellor. The default helped cement Hitler’s power base following years of political instability as the Weimar Republic struggled with its crushing debts.
“These are generally catastrophic economic events,” said Professor Eugene N. White, an economics historian at Rutgers University in New Brunswick, New Jersey. “There is no happy ending.”
The debt reparations piled onto Germany, which in 1913 was the world’s third-biggest economy, sparked the hyperinflation, borrowings and political deadlock that brought the Nazis to power, and the default. It shows how excessive debt has capricious results, such as the civil war and despotism that ravaged Florence after England’s Edward III refused to pay his obligations from the city-state’s banks in 1339, and the Revolution of 1789 that followed the French Crown’s defaults in 1770 and 1788. (more)

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US Weekly Economic Calendar

time (et)	report	period	Actual	CONSENSUS forecast	previous
MONDAY, OCT. 14
	Columbus Day None scheduled
TUESDAY, OCT. 15
8:30 am	Empire state index	Oct.		6.6	6.3
WEDNESDAY, OCT. 16
8:30 am	Consumer price index	Sept.	DELAYED	0.2%	0.1%
8:30 am	Core CPI	Sept.	DELAYED	0.2%	0.1%
10 am	Home builders' index	Oct.		57	58
2 pm	Beige Book
THURSDAY, OCT. 17
	Treasury expects to run out of borrowing authority
8:30 am	Weekly jobless claims	10/12		333,000	374,000
8:30 am	Housing starts (likely delayed)	Sept.		910,000	891,000
8:30 am	Building permits (likely delayed)	Sept.		925,000	926,000
9:15 am	Industrial production	Sept.	DELAYED	0.5%	0.4%
9:15 am	Capacity utilization	Sept.	DELAYED	78.1%	77.8%
10 am	Philly Fed	Oct.		13.0	22.3
FRIDAY, OCT. 18
10 am	Leading indictors (likely delayed)	Sept.		--	0.7%

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Man Who Predicted Gold Takedown Says West Is In Danger

from King World News
In the aftermath of the takedown in gold and silver, today the man who predicted this downside action ahead of time spoke with King World News about what investors should expect next. William Kaye, who is one of the savviest and most well-connected hedge fund managers in the world, also told KWN exactly why the plunge is being orchestrated and what will emerge from all of this. Kaye, who 25 years ago worked for Goldman Sachs in mergers and acquisitions, had this to say in his fascinating interview.
Kaye: “I’m focused on the footprints which strongly suggest that the gold cartel isn’t done yet. I continue to see the cartel making strategic moves at the PM fix in London. The PM fix is a critical time when countries like China show up to buy sizable amounts of gold….
Continue Reading at KingWorldNews.com…
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This Indicator Is Pointing to a Market Rally

Fear is in the air. The Volatility Index is spiking higher. Washington is shut down. And the country is approaching its debt limit. It's no wonder stocks are falling.

 

After hitting an all-time high of 1,725 three weeks ago, the S&P 500 has tumbled 4%. Analysts and television talking heads are jumping over themselves, making predictions that stocks have further to fall.

 

But there's one indicator that suggests stocks are ready to bounce higher...

 

Take a look at this chart of the NYSE McClellan Oscillator (the NYMO) plotted with its Bollinger Bands...

 

 

The NYMO is an indicator of overbought and oversold conditions. Bollinger Bands help to indicate extreme moves on the chart.

 

Bollinger Bands measure the most probable trading range for a stock or an index. So whenever the NYMO moves outside of its Bollinger Bands, it indicates an extreme move – one that is likely to reverse.

 

The red circles on the chart show each time the McClellan Oscillator dropped below its lower Bollinger Band within in the past year.

 

Here's how those circles line up with the action in the S&P 500...

 

 

After every drop, the S&P 500 rallied immediately. Some of the rallies – like the one in April – were short-term and only lasted a few days. But the gains were there if you were quick enough to take them.

 

The McClellan Oscillator closed Tuesday at -63.65. That's a mild negative reading compared to what it reached at the August and November bottoms. So any rally off this level will likely be mild – maybe only 30 to 40 points.

 

Of course, nothing in the financial markets is ever guaranteed. And stocks may keep falling in spite of the oversold reading. But history is suggesting the market is gearing up for a bounce.

 

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