MidSouth Week in Review: March 1, 2016

Weekly Update from Fund Manager Buzz Heidtke, MidSouth Investment Fund

Mar. 1, 2016 | RedChip Companies

From Buzz

The S & P closed up 1.6% for the week as oil settled in the $30-$35 trading range. Merrill Lynch is predicting $47 oil by June due to increased domestic demand in Saudi and increased summer driving in the U.S. The pound declined against the dollar on speculation they might get out of the EU, and is down 12% since last summer.

I added, to my three tire company positions after reading one of their annual reports that indicated their costs will probably be declining this year. The average tire has approximately 7 gallons of oil used in its manufacture. The group was probably working off their high inventory costs last year. Another positive for this group is that miles traveled is up – it rose 11% in California in December. My three holdings have an average price earnings ratio (PE) of less than 10.

During the oil bust in the 1980’s, oil dropped to $10 a barrel. At that time several oil companies began making take-out offers for small publicly traded drillers, figuring it was cheaper to buy oil reserves than drill.


  • Mutual Funds – Over the past 10 years, 80% of the funds specializing in big cap stocks underperformed the S & P; 87% of mid caps and 81% of small caps fell below their benchmarks – Wall Street Journal

  • A Strong Woman - is one who has the capacity to break a chocolate bar into four pieces with her bare hands and then eat just one of the pieces – children’s author, Judith Viorst

  • Attractive Mortgages – For some it might be a good idea to refinance to a 15-year fixed rate. Mortgages are currently being sold at a low rate of around 2.81% vs. 3.67% for a 30-year mortgage. Normally if you can refinance for one percent less than your current rate, it’s worthwhile considering a change. Also, being in an environment of expected low returns on investments, some might consider temporarily passing on a ROTH and picking up a higher payment 15-year mortgage that costs only about $220 a month more per $100,000 borrowed than a 30-year mortgage – Bankrate, Buzz

  • Monopoly – The popular board game was designed by Elizabeth Magie in 1904, originally called the Landlord’s Game. The purpose of the game was to expose the injustices of unchecked capitalism. The game was ripped off by Charles Darrow who sold it too Parker Bros. in the 30’s. However, the most generous Parker Bros. later paid Magie $500 for her game

  • Stock and Oil Prices – moved together 10% of the time from 1987 to 2014. Since mid-2014 the correlation has been 0.39. Over the 12-week period running through Feb 19, the correlation has jumped to 0.88. Why? The most obvious answer appears to be a fall-off in global growth, reducing demand for crude while also reducing earnings for large U.S. multi national companies that make up a significant portion of the value of the stock market – Sonu Varghese, Convex Capital

  • Socialism – Gallop poll asked Americans whether they would consider voting for 11 categories of presidential candidates, “Socialist” ranked last, garnering 47%, behind “Muslim” and atheist. Among 18 to 29-year-olds, 69% had no problem voting for a socialist. The group has no memory of the Soviet Union or Cold War but do remember the 2008 financial crises – THE WEEK

  • Lawless Mexico – 93% of all crimes in the country go unreported because of a lack of trust in the authorities. Of the cases filed, less than 5% result in convictions, so the chances of paying a penalty for breaking the law is only 1% - www.Oz.com

  • Items Triggering an IRS Audit – 1) Being behind on your tax payments or asking for an extension and low balling your estimated taxes; a financially desperate person is more likely to cheat on taxes. 2) Declaring large losses 3) Big deductions 4) Large charitable deductions 5) Claiming 100% business use of your vehicle 6) Being in a cash intensive business, e.g. hair salons, restaurants and bars 7) Reporting income above $1 million. The IRS audited 10% of fiscal 2015 returns in that group vs. only 7.5% the prior year – Wolfe Law Group

  • Houston’s Housing Hangover – At the top of the oil boom in the early 1980’s, a Dallas bank CEO was quoted as saying, “I thank the Lord every day that I was born a Texan.” A year later his bank was busted. Today, in Houston’s River Oaks, a neighborhood of palatial mansions and lush gardens, the average price of a home has tumbled 35% to $1.3 million from $2 million in 2014. Yesterday, Houston’s Haliburton Co. announced another 5,000 jobs would be cut, on top of the 22,000 workers the company has laid off since the 2014 oil peak – Keller Williams

  • Hospice Care – Between 2005 and 2013, 107,000 patients received care for nearly 1,000 days. They cost Medicare 14% of its overall hospice spending, even though they represented just 1.3% of the patients. Hospice is for patients expected to die within 180 days – Wall Street Journal.

Buzz Heidtke

"I work with many of the companies that would be RedChip companies. And we certainly ascribe to the same view that the RedChip Companies do, which is Discovering Tomorrow's Blue Chips Today."

  • Bob McCooey, Senior Vice President, NASDAQ Stock Market