108 Stocks Returning 10% This Week

I will import the entire list of stocks >$2 billion market cap and >$10 which returned 10% or more tomorrow but here is a sneak preview of interesting names. I am excluding beaten down financials like Freddie Mac (+32%), or names that were buyouts or that I know of were earnings play like J Crew. Now some of these were simply stocks that had been speculators dreams during the last round of "good times" in September and October, and were beat to a pulp once those lemmings jumped off the cliff once the market turned against them, whereas others might be signaling strength due to institutional interest. Sorting which is which is the key...

>20% (9 names)
Of interest: Diana Shipping (DSX), Masimo (MASI), Sohu.com (SOHU)

>15% but <20%>
Fund Holdings: Sterlite Industries (SLT), Mechel (MTL), Suntech Power (STP), Millicom International Cellular (MICC), CNH Global (CNH)

Of interest: Sunpower (SPWR), Banco Itau (ITU), Garmin (GRMN), VMWare (VMW), Intuitive Surgical (ISRG)

>10% but <15%>
Fund Holdings: New Oriental Education (EDU), Agco (AG), Mosaic (MOS), First Solar (FSLR), KBR (KBR), Gafisa (GFA), Potash (POT), Mastercard (MA), McDermott (MDR), CF Industries (CF), Foster Wheeler (FWLT), India Fund (IFN), NII Holdings (NIHD), Research in Motion (RIMM)

Of interest: Gamestop (GME), DryShips (DRYS), Titanium Metals (TIE), Cleveland Cliffs (CLF), Focus Media (FMCN), JA Solar (JASO) [note: this was a holding entering the week], Amazon.com (AMZN), Manitowoc (MTW), Banco Bradesco (BBD), Cemex (CX), lululemon (LULU), Cummins Engine (CMI)

****
An interesting list. Looking over the portfolio I have 53 long positions (some smaller than $2 billion market cap) and 19 are in the list above (20 if you count JA Solar which was sold this week). On weeks like we just had this is especially interesting of a time frame to see where the money is flowing. Again, some of these names have been beaten to pieces so they were destined for big rebounds, but happily it appears that when the market changes from fear to greed the fund is full of stocks that people want to be in.

Below $2 billion market cap there are more names (for example between $1 billion and $2 billion are 51 names) but you start entering an arena with far more speculative fare once you get into small caps... i.e. stocks that lost 50% of their value in the selloff and now made back 10-15%.

Symbol	Company Name	% Price Change 1 Week
GLYT	Genlyte Group Inc	52.6
FRE	Freddie Mac Ord Shs	32.5
JCG	J Crew Group Inc	25.8
CHU	China Unicom Depository Receipt	23.1
DSX	Diana Shipping Inc	23
MOGN	MGI Pharma Inc	21.6
SOHU	Sohu.com Inc	21.4
CBG	CB Richard Ellis Group Inc	20
TNH	Terra Nitrogen Co LP	19.7
CREE	Cree Inc	19.4
FNM	Fannie Mae Ord Shs	19.3
SNDA	Shanda Interactive Entertainment Ltd	18.9
SLT	Sterlite Industries ADR Repstg One Ord Shs	17.9
SPWR	SunPower Corp	17.4
MTL	Mechel ADR Rep 3 Ord Shs	17.4
ITU	Banco Itau Holding Financeira ADR Each Representing One Pref	17.4
NPD	China Nepstar Chain Drugstore Ltd	17.2
SPLS	Staples Inc	17.1
VCLK	ValueClick Inc	16.9
STP	Suntech Power Holdings Co Ltd	16.3
GRMN	Garmin Ltd	16.3
ATVI	Activision Inc	16.1
DCI	Donaldson Company, Inc	16
MICC	Millicom International Cellular Ord Shs	16
VMW	VMware Inc	15.9
CENX	Century Aluminum Co	15.2
ISRG	Intuitive Surgical Inc	15.1
CNH	CNH Global NV	15
WFR	MEMC Electronic Materials Inc	14.9
GME	GameStop Ord Shs Class A	14.6
EDU	New Oriental Education & Technology Group Inc	14.4
CN	China Netcom Depository Receipt	14.4
BKD	Brookdale Senior Living Inc	14.3
DRYS	DryShips Inc	14.2
NETC	Net Servicos de Comunicacao ADR	14.2
AG	AGCO Corp	14.2
CLWR	Clearwire Corp	14.1
TIE	Titanium Metals Ord Shs	13.9
CHA	China Telecom ADR	13.8
SNP	China Petroleum and Chemical (Sinopec) ADR Repstng 100 H Ord	13.7
BMO	BANK OF MONTREAL	13.6
TD	Toronto Dominion Ord Shs	13.6
MOS	Mosaic Co	13.4
CISG	CNinsure Inc	13
BEAV	BE Aerospace Inc	12.9
FSLR	First Solar Inc	12.9
KBR	KBR Inc	12.8
JLL	Jones Lang LaSalle Inc	12.4
ROH	Rohm and Haas Co	12.4
CLF	Cleveland Cliffs Ord Shs	12.1
IHS	Information Handling Services Inc	12.1
CFC	Countrywide Financial Corp	12.1
FMCN	Focus Media Holding Ltd	12.1
MER	Merrill Lynch Ord Shs	12
NAVZ	Navistar International Ord Shs	11.9
PDCO	Patterson Companies Inc	11.9
EXPE	Expedia Inc	11.9
OEH	Orient Express Hotels Ltd	11.8
AMZN	Amazon.com Inc	11.8
JASO	JA Solar Holdings Co Ltd	11.7
CSE	CapitalSource Inc	11.7
MPEL	Melco PBL Entertainment (Macau) Ltd	11.7
UBS	UBS AG Ord Shs	11.6
IVSBF	Investor Class B Ord Shs	11.5
NVDA	NVIDIA Corp	11.5
MTW	Manitowoc Co Inc	11.3
UBB	Unibanco Depository Receipt	11.3
BBD	Banco Bradesco ADR representing one Preference Share	11.3
ARA	Aracruz Celulose ADR	11.2
NUE	Nucor Corp	11.2
GFA	Gafisa ADR Representing 2 Ord Shs	11.1
KEX	Kirby Corp	11.1
LBTYA	Liberty Global Class A Ord Shs	11.1
LAZ	Lazard Ord Shs	11
CY	Cypress Semiconductor Corp	11
MFG	Mizuho Financial Group ADR Reprg 1/500 Share of Ord Shs	11
FIG	Fortress Investment Group LLC	10.9
POT	POTASH CORPORATION OF SASKATCHEWAN INC	10.9
ALB	Albemarle Corp	10.8
KMX	Carmax Inc	10.8
MA	MasterCard Inc	10.8
MEOH	METHANEX CORPORATION	10.7
CBH	Commerce Bancorp Inc	10.7
MDR	McDermott International Inc	10.7
ILMN	Illumina Inc	10.6
CPRT	Copart Inc	10.6
BAK	Braskem ADR	10.6
CF	CF Industries Holdings Inc	10.6
BRC	Brady Corp	10.5
NLC	Nalco Holding Co	10.5
JNS	Janus Capital Group Inc	10.5
VRSN	Verisign Ord Shs	10.5
XL	XL Capital Class A Ord Shs	10.5
DLB	Dolby Laboratories Inc	10.4
MLM	Martin Marietta Materials Inc	10.4
FWLT	Foster Wheeler Ord Shs	10.4
CX	Cemex ADR Repstg Ten Ord Participation Share Certificates	10.4
NSANY	Nissan Motor Depository Receipt	10.4
IFN	India Fund ETF	10.3
GNA	Gerdau AmeriStl Ord Shs	10.3
BCS	Barclays ADR	10.2
DELL	Dell Inc	10.1
LULU	lululemon athletica inc	10
PTV	Pactiv Corp	10
PCS	MetroPCS Communications Inc	10
NIHD	NII Holdings Inc	10
CMI	Cummins Inc	10
AIB	Allied Irish Bks Depository Receipt	10
SNE	Sony Rep 1 Ord Shs ADR	10

A New Position Started Friday: KHD Humbolt Wedag (KHD)

I didn't have time to write a full entry on this new name to the portfolio yesterday, but I added a starter position in this very interesting Hong Kong based infrastructure name: KHD Humbolt Wedag (KDH). Yes that's a mouthful.

I actually found this name in my ever constant search for new and better ideas through an article on Seeking Alpha.

• KHD Humboldt Wedag International, Ltd. (KHD) has spent two years transforming itself from a financial services company into a global infrastructure company. Prior to November 1, 2005 the company was known as MFC Bancorp.
• The transition was completed in the 3rd quarter and now the company is focused on their core business of (from their website): supplying proprietary technologies, equipment and engineering/design services for cement, coal and minerals processing. KHD through its subsidiaries offers their clients all over the world engineering services, machinery, plant and processes as well as process automation, installation and commissioning. The services include staff training as well as pre- and after-sales services through to feasibility studies and financing concepts. This array of supplies and services includes, in particular, the modernization of existing facilities for capacity increases and, for reducing the specific energy demand and the burden on the environment.
• First, KHD’s primary markets are Asia, Russia and eastern Europe. It also does business in the Middle East and Africa. All are strong growth areas for infrastructure.
• Second, revenues are earnings are growing at 50% to 100% rates over 2006 quarters and year to date. The company’s backlog of signed orders is also growing: on Sept. 30 the backlog was $762 million, by Nov. 14 it was up to $925 million. The company has done $420 million in revenue for the first 9 months of 2007.
• Third, the company has a PE of 21 on trailing earnings and over $9 a share in cash. The stock is very fairly valued for this type of growth. I believe the transition from financial services has not yet been noticed by the general market.
• Finally, the company is followed by very few analysts. Yahoo finance shows one, TradeKing has no earning estimates available, there is very little info out on the Internet about the company. So you have a $1 billion market cap, international stock doing infrastructure business in emerging markets, that hasn’t been discovered. Sounds to me like a recipe for some outstanding stock price appreciation.

Well I couldn't of dreamed up a better scenario myself. For those who have been following along you know I love the infrastructure group for: little exposure to domestic US economy, exposure to energy markets, exposure to petrodollars, growing backlogs, etc etc. I also love any companies with exposure to truly emerging markets such as Africa, Eastern Europe, and the Middle East. (For example my investment in Millicom Cellular International (MICC)). So here is a name that appears to be a home run.

Now I will say normally I have a lot of suspicion for companies that are completely changing their line of business, but it appears, over time this seems to be a legitimate and in fact very successful transformation. The numbers in the latest earnings report are truly impressive.

• Revenue for first 9 months of 2007 +75% over 2006
• Net income for first 9 months of 2007 +102% over 2006
• Revenue for Q3 2007 +54% over Q3 2006
• Net income for Q3 2007 +63% over Q3 2006
• Backlog was $762M on Sept 30, 2007 - as of Nov 14, 2007 it increased to $925M

So obviously these are heady numbers and while I don't expect this pace to continue as the company grows larger it looks headed for a nice 30% growth rate for the near term. Analysts are not on board with that, claiming despite 40% revenue growth rate projections for 2008, EPS will only grow by 18% (this could be due in part to higher tax rates, I am not sure yet). Despite this impressive growth background, KHD Humbolt Wedag is valued at only 18x 2007 estimates and 15.5x 2008 estimates (which appear on the surface to be too low). So we get quality growth at a low price - the best of both worlds.

Motley Fool also weighed in on KHD Humbolt Wedag in an August article:

• With all of the troubles in residential real estate, and the worries over weakness in commercial real estate, it might be a bit surprising to see a company that helps build cement plants continue to post amazing growth.
• The strength behind KHD's growth is that it has a truly international business. The difference being that KHD receives an even smaller percentage of its sales from the U.S., which has helped to shelter it from some of the worries recently plaguing our markets.
• 70% of the company's order intake during the second quarter came from Asia, Russia, and Eastern Europe. The company's partnership with CITIC Heavy Machinery will likely provide another stream of earnings starting next year.
• Some might quibble that the 13% gross margins are far below last quarter's results, but the company advised last quarter that those results weren't sustainable. Through the first six months of the year, the company's 16% gross margin is right on par with historical results.
• Overall, the coal and minerals sales only represent about 15% of the current backlog.
• KHD would like to do an acquisition in this sector, and it has the cash and overall balance sheet strength to make one, but it can't find an attractively priced target. It's willing to wait, and in the meantime, the company is pursuing partnerships here and in waste treatment. That should help diversify its revenue stream away from cement engineering, projects where growth will inevitably level off.

So as we've seen with some smaller cap stocks of late in the international arena, when the US market weakens people start tossing the smaller fare out the window the quickest. Stocks like WuXi PharmaTecth (WX) from China, Gafisa (GFA) from Brazil, and Mechel (MTL) were treated like Rosie O'Donnel at a Republican caucus. (i.e. not good) So buying a stock like this carries the risk of "baby get thrown out with bathwater" when the market turns south, plus it carries the inevitable fear of global slowdown risk. While I think that will be a misguided assumption it does not mean these type of stocks cannot lose 1/3rd of their value very quickly while panicky investors flee. Won't mean a change in fundamentals, simply a change in perception. In fact, KHD Humbolt Wedag has already taken quite a hit - the stock peaked near $46 on Halloween and has lost a third of its value simply due to 'fear'.

On a technical basis, the stock's 200 day moving average has been in the mid $28s, which is where the stock fell to in the worst of the selling. It has since recovered a bit, and made a nice 4-5% type of move Friday. What I would like to see now is a move back above the 50 day moving average ($34 and falling by the day) to establish a clear new uptrend. However, I am willing to start a stake here, with the understanding the stock could be relatively range bound until it breaks over this $34 level. So a break above $34 would be bullish, a break below $29 would be bearish and everything in between those 2 levels is sort of 'white noise' from a technical standpoint.

I began my KHD Humbolt Wedag position with a 250 share stake in the mid $31s, or roughly $7.7K (0.7% stake). On either a breakout above $34 or a pullback to $29 I will add a larger stake in this position.

Long all names mentioned in story in fund; long none in personal account

Bookkeeping: 'Rising Tide' Performance Week 17

Week 17 performance of the mutual fund

Comments: An interesting week to say the least (aren't they all?). After a terrible open Monday after a post Turkey day rally last Friday, every index was officially in correction mode. The mood was horrible and talk of bear markets approaching were everywhere. You'd think that was a month or 2 months ago - it was just 3 days ago. After a spike down Tuesday that had us test the August lows - it looked like the bull case was lost. Then out of the air as we touched 10% correction, the helicopters and unicorns united in a magical symphony and we had a reversal and a great day for the 'indexes', but paltry volume and weak breadth (many stocks were still down Tuesday). Strange how every time we are on the precipice the indexes (which take far less buying power) reverse - when many stocks stay in bad shape. Well that index reversal was enough to bring the bulls back and Wednesday we had a full bore rally from top to bottom, followed by a quiet Thursday (unless you were in solar or dry bulk stocks). Thursday night investors were treated to the treat that is a Ben Bernanke signal of future rate cuts (insert needle here), following by a uppercut to the jaw of the bears to news Friday morning that legal debts would no longer matter (for potentially 7 years) for those silly subprime borrowers. We are well on the way to bailouts - and I can only assume this is the beginning. Bulls rejoiced, free market disciples were aghast, and we partied like it was 1999. Late Friday we had a dip and confusion reigned momentarily but 'market forces' got back to work in the last few minutes of the session to make sure the week ended with a bang! Magic!

For the fund, I did, as promised selling into the rally to get more 'neutral' from a very long exposure last week. And I did more buying of short exposure as the week passed - while this held back the fund quite a bit (to the tune of over 1% of return) it's a disciplined conviction until the overall index charts show more staying power. In the future I will just have to remember that at every 10% correction the full faith and power of the federal government will come riding on their white horses (along with those pesky computers who run Wall Street) and every 10% correction must be bought. We will apparently never be allowed to have a (gasp) 15% downturn or (horror) 20%.... ever.... now that I know the playbook (which has obviously changed since 2002), I will learn and adapt. But for now we've put a quick 5.5%-6.0% rally and one would think... wait, thinking is wrong. Conventional wisdom would say... wait, conventional wisdom is moot in a government supported market.... well the truth is who knows. We could be at all time highs by middle of next week with all the kool aid running through our veins now. Or down 5%. Just take it day by day. Old playbooks have been burnt - when market forces are not allowed to play out, you cannot even fathom to guess what will happen. I will see what the government wants us to do, and then follow along. "Take me to your leader"..... Wheeee....

The S&P 500 was up 2.8% and Russell 1000 was up 2.9% his week. I know you'd think they would be up much more but remember, we had a terrible Monday (I know, that feels like eons ago). Rising Tide Growth Fund pulled through like a champ with a up 4.1% week only held back by large short exposure in the back half of the week (without which the fund would of been up roughly 5.5%). But that's ok, I like insurance in this market where 300 point Dow moves are now 'expected'. So a nice 1.16 to 1.3% type of outperformance this week and it was great to see the vast majority of fund holdings outperform the indexes by a mile once the veil of darkness over the markets was lifted. When we go through such severe downturns so quickly, one begins to doubt the stocks but these holdings really put on a heck of a show once we left the domain of "every stock stinks, they all go to $0" type thinking. So the fund is nearly back to the +15% over indexes I want to achieve every year...

I can't even hazard to guess where we go from here. The market is under the influence of pressures that are not 'measurable', so I am simply going to rely on technicals at this point. We are still below S&P 1490, when we eventually get the government to push us through that level, I will drop these short positions and join the party with toga in hand. It's as simple as that. Feels 'great' to have so many people looking over our shoulders to make sure nothing gets out of hand to the downside. If we dare go down, I am sure that will be 'fixed' too, soon enough. I'm sure someone from Omar or Bahrain is itching to buy some Etrade or Washington Mutual or (insert troubled institution of your choice here)! And another problem disappears just like that. Magic!

Price of Rising Tide Growth: $11.573
Lifetime Performance to date (vs Aug 3, 2007): +15.73%

Comparable S&P 500: 1,481.1 (+1.09%)
Comparable Russell 1000: 806.5 (+1.29%)

Fund return vs S&P 500: +14.64%
Fund return vs Russell 1000: +14.44%

Last week's results here.

Since the market cap of the median stock in the Rising Tide Growth fund (median $9.8 Billion as of November 07) is significantly below the SP500 index (median $13.1 Billion as of September 07) but higher than the median market cap in the Russell 1000 (median market cap $5.8 Billion as of September 07), I am measuring the fund against both indexes. Click here to see all fund's holdings as of mid November 2007.

Basis for indexes is 5 day weighted average of closing prices Aug 3-9
SP500 : 1,465.2
Russell 1000 : 796.2

To see why I use the 5 day weighted average of the first 5 trading days to smooth out the volatility of the indexes as the fund launched, see here.

Please click here: fund performance for previous updates

3 Similar Charts - Making Some Buys

With my newfound (ahem) optimism, and oodles of cash I am making some small purchases today since most of this week has been sales. I am not making huge buys... just toes in water additions. Totally unrelated to the rest of this post I added to my Research in Motion (RIMM) which is down 6% on "channel checks" blah blah downgrade.

For illustrative purposes on how I am allowing technical signs to guide the positions near term - I offer 3 stocks: CNH Global (CNH), McDermott (MDR), and National Oilwell Varco (NOV).

1) I mentioned McDermott (MDR) yesterday as a stock that was rising from below the 50 day moving average and was reaching important resistance (so I cut back since it had a pretty nice bounce from lows). Well it did break through later in the day, jumped up today, and now has fallen right back to resistance (from above instead of below). While still in (to me) a precarious position (it could go either way) just to make reader msb happy I did offer a small buy (see now that's an interactive mutual fund). Please note the word "small" (it is still a sub 1% position). I am not going to commit further until it either makes a more strong move upward and/or S&P 500 makes a push above 1490. Yesterday's close was the first time over the 50 day moving average and if it holds $53 today that would be a second day - if the market improves this is the type of position I'd then add to as it would be without any near term resistance to impede a run upward. But it could just as easily break down and bring reader msb to tears... So this is chart #1



2) CNH Global (CNH) an agriculture equipment play has been strangely week despite great news from competitor Deere (DE) and great earnings. Most likely the culprit is the strong euro which hurts exports and exposure to construction (just like Deere) in part of its business. But the chart improved tremendously the past week, and it also broke back above its 50 day moving average, and after spiking this AM has pulled back very nicely to its 50 day this afternoon (down 2%)... I actually like this chart more than McDermott since this is the 3rd day its held its 50 day moving average of $57. So I am adding here. So this is chart #2



3) National Oilwell Varco (NOV) an oil services stock is not faring as well. It was in a very similar setup to McDermott (MDR) yesterday but has failed to push through its 50 day moving average of $69 today. It is sort of just hanging around right at resistance. Really up to 4 PM yesterday the chart of McDermott and National Oilwell Varco were identical. Only difference is McDermott looks far stronger today. Again I like all these names fundamentally but I want to see technicals that confirm. National Oilwell Varco with a strong day or two should join the other two but for now I am holding off adding any. So this is chart #3.



So 3 charts, on 3 stocks I like, 1 strong buy (CNH Global), 1 touchy buy (McDermott) and 1 still waiting on (National Oilwell Varco). Love the long term fundamentals on each, I am just wanting the market to tell me they also love the fundamentals and are ready to put their money where their mouth is....

And away we go... I finally put some money to work on the long side. Thanks Ben!

Long all 4 names in fund; long none in personal account

Less Dogma, More Money

Ok, after a morning of intellectual puking, have to get back to the market.

Rev Shark over at Realmoney.com - one of my favorite web authors said it best today; so I will just follow this credo and ignore the revulsion at what is going on

In addition to the very dovish Federal Reserve, the Treasury Secretary is strong arming banks into foregoing any action to deal with defaulting sub-prime mortgages. Even if you aren't appalled by this gross governmental meddling in the free enterprise system you have to wonder if we are simply delaying the Day of Reckoning and making the eventual pain even worse.

Even though there are some serious doubts about whether this government intrusion into the mortgage mess makes business sense, the market's immediate reaction is positive. With the Fed cutting rates and people being allowed to not pay their legal debts, we have an increase in liquidity and that is enough of a band-aid to hold us up and even bring in buyers who want to ride the wave of short-term optimism.

I find the whole idea of the government (and a Republican administration nonetheless!) telling banks how to deal with sub-prime loans sickening, short-sighted and a bad precedent, but our job here isn't to discuss political philosophy. Our job is to try to make some money and the market is having a positive reason to the news this morning. The question we have to ponder is whether this news is going to give us some legs into the Fed meeting that is scheduled for Dec. 11.

Back in August we ran hot and heavy into, and out of, the Fed meeting as the market seized on the belief that the Fed cut was the salve the market needed. For a while the market seemed to have lost confidence that the Fed could solve all our problems, but in the last few days belief in the Fed as our savior seems to have been restored.

So let's revisit all the 'good things' in a purely market standpoint

1. All branches of government (save judicial?) will do whatever it takes going into an election year to keep any slowdown contained to a bare minimum
2. We have a literal printing press shoveling an avalanche of money into the lending system. This is helping the banks prop up balance sheets, and one day they might even lend this money out to people but for now all that matters is they prop up their balance sheets.
3. What we cannot print, foreigners who we have been sending trillions of dollars to the past decade, will buy from us and place a floor below all major assets (aside from homebuilders I believe)
4. Speculation is now officially back judging by the stocks popping the past 48 hours - worst of breed is rising tremendously which means risk appetites are already back (it only took 1 day of rallying off Monday's low to bring them back) Amazing resiliency.
5. Every time we drop 10% (Feb 2007, August 2007, November 2007) we pop up magnificently like clockwork. 10% correction seems to be the number that the computers that run 70% of trading on the Street go off historic models and funnel oodles of cash back into the market.
   
6. The Fed will be meeting Dec 11th and a chorus will now raise for 50 basis point cuts
7. Santa Claus rally is always in the cards
8. Despite all the problems in the world we are 4% away from all time highs on some indexes
9. Where else are you going to put your money? Treasury rates have fallen off a cliff and real estate is non starter.

There, I found 9 great things that if I only focus on, you have to be an unabashed bull. Now I just have to stare at those and ignore everything else....

Short all political parties at this point

US Banks in Plans to Freeze Suprime Rates

Wow. I totally missed this news. How bad can things be when the kings of free markets are involved in stopping the process.... amazing times we live in. They fight regulation at every turn, but when the market has to cleanse itself they step in and stop the process. True hypocrisy. And in return what will these banks get? Let me guess, an implicit promise to be bailed out by the Fed. Everyone is a winner... lovely.

Sadly its not subprime that is the main issue folks - but I suppose this will help people making $45K live in $500K homes for $1200 a month continue the charade. This is simply going to drag on the process. Subprime is just the tip of the iceberg - many (most) of those people should not be in homes because they cannot afford it, period. And when their houses drop in value they will still be upside down.

US Banks in Plans to Free Suprime Rates - WSJ

• The Bush administration and major financial institutions are close to agreeing on a plan that would temporarily freeze interest rates on certain troubled subprime home loans, according to people familiar with the negotiations.
• An accord could reassure investors and strapped homeowners, both of whom are anxious as interest rates on more than two million adjustable mortgages are scheduled to jump over the next two years. It could also give a boost to the Bush administration, which is facing criticism for inaction amid the recent housing turmoil.
• The plan is being negotiated between regulators including the Treasury Department and a coalition of mortgage-related companies including Citigroup Inc., Wells Fargo & Co., Washington Mutual Inc. and Countrywide Financial Corp. People familiar with the talks say the individual members have agreed to follow any agreement reached by the coalition, which is called the Hope Now Alliance.
• In general, the government and the coalition have largely agreed to extend the lower introductory rate on home loans for certain borrowers who will have trouble making payments once their mortgages increase.
• Under one scenario, the freeze could run as long as seven years. The parties are developing standard criteria that would determine eligibility. The criteria should be finalized by the end of year.
• While the government can't force the industry to modify loans, Mr. Paulson and other administration officials have been using moral suasion to push for workouts, telling the companies it is in their interest to avoid foreclosure since most parties can lose money when that happens. A similar plan to freeze interest rates temporarily was recently announced by California Gov. Arnold Schwarzenegger and four major loan servicers, including Countrywide.
• Among the holdouts have been investors, who typically hold securities backed by mortgages. If interest rates are frozen, they would lose the potential benefit of higher payments. But investors have cautiously moved toward cooperation, likely on the grounds that it's better to get some interest than none at all.
• Treasury officials say financial institutions are likely to set criteria that divide subprime borrowers into three groups: those who can continue to make their payments even if rates rise, those who can't afford their mortgages even if rates stay steady, and those who could keep their homes if the maturity date of their mortgages were extended or the interest rates remained at the teaser rates. Only the third group would be eligible for help. (I'd love to see how they determine who belongs in each group) The creditors are likely to look at whether the borrowers have equity in their homes, despite falling house prices, and whether their incomes are holding steady.
• Mr. Paulson, who is philosophically opposed to federal meddling in markets, at first rejected a sweeping approach to loan modifications when the idea was floated by Federal Deposit Insurance Corp. Chairwoman Sheila Bair. But he shifted his position recently. He told The Wall Street Journal last week that it would be impossible to "process the number of workouts and modifications that are going to be necessary doing it just sort of one-off."

As TheStreet.com says - this is the same Paulson who said in April ""All the signs I look at [show] the housing market is at or near the bottom.""

Oh well I give up. Next time houses are rising 25% a year, I am going all in with 0% down, no doc loans and amassing 50-100 properties. As long as I provide I have an income I should be cool since they will lock me into my 1% ARM rate for 7 years. I'm in (next time). How stupid were we who sat by watching the speculation go on, and not partaking knowing the house of cards would fall. Dumb dumb dumb. Risk aversion is for the uncool kids!

Back to S&P 1490

Well here we are again. Back to our old stomping grounds in just 4 sessions. What a rally.

Today, as I look around, it appears the speculative juices are back - or are they? What is going up the most. The beaten down speculative type of stocks... but is is buying or simply short covering. I am using as bellweathers the solar sector and the 'teflon stocks' in tech - the more speculative names are up in solar whereas the leaders are just up a bit. And the teflon stocks are ranging from down (Research in Motion) to barely up (Apple, Google)

So to get behind a rally from this point of view, I'd like to see those leaders move up... not the 'speculation' stocks. Leadership areas like coal are also weak.

Very strange to see silver and gold so weak today... hmm.... can't figure that one out - you'd think interest rate cuts would be helping those names - that was why I bought Silver Wheaton (SLW) - that theory does not seem to be working out.

I am continuing to sell (trims, not major selloffs) and raise cash - positions lightened: Ciena (CIEN), Chicago Bridge & Iron (CBI), Sterlite Industries (SLT) [again! what a day, up +15%], New Oriental Education (EDU), Foster Wheeler (FWLT), Jacobs Engineering (JEC)

The stuff at the top end of my fund, what I would consider more stable names are just up slightly, whereas the stocks I have much lower exposure to which are more of the high risk/high reward types are flying. Interesting dichotomy and again, appears to me at this point to be a short covering situation. It does not mean performance anxiety won't lead people back into this market as we go to a Santa Claus phase but I'd like to see confirmation before I go there.

All in all, I've liquidated about 5%+ in equities, so cash is up to 19% and I've added to some UltraShorts. As I stated in the plan yesterday, if we break out in the S&P 500, past those resistance levels, than I get more constructive and ignore all macro economic issues and return to punch bowl drunken orgy like everyone else. Until then, staying neutral.

Long all names above in fund; long Foster Wheeler in personal account

Florida Freezes $15 Billion Fund as Subprime Crisis Hits

Well while the folks in New York City high five the bailout of multi millionaires by our tax dollars, here is what is happening on Main Street. Folks, think of the credit system as a huge spider web. The strings are only just beginning to snap in the middle - these nasty SIVs and CDOs are widespread and in places you'd never think of. We won't know about them, until they become clear one by one. For those of you who remember Orange County going bankrupt in the 90s - let's see what 2008 brings us at the county/state/city level.

Here is another string in the web per CBSMarketwatch:

• Florida halted withdrawals from a $15 billion local-government fund Thursday after concerns over losses related to subprime mortgages prompted investors to pull roughly $10 billion out of the fund in recent weeks.
• The State Board of Administration met earlier Thursday and voted to immediately freeze withdrawals, spokesman Michael McCauley said.
• The decision shows how far this year's subprime-fueled credit crisis has spread. Florida's Local Government Investment Pool, which had more than $27 billion in assets at the end of September, is like a money-market fund that's supposed to invest in ultrasafe assets to provide participants with a secure place to stash spare cash. But even these types of funds have been hit by the widening crunch.
• "It's spreading into areas that people didn't expect and this is a good example," Richard Larkin, a municipal bond expert at JB Hanauer & Co., said. There will likely be more state funds in similar predicaments because they use similar investment guidelines, Larkin and others said.
• "Investors will now be looking at other investment pools around the country, and we can be sure that Florida wasn't the only state to be lulled into taking on riskier debt in order to boost money market returns," Win Thin, senior currency strategist at Brown Brothers Harriman & Co., said. "This is bad news, no matter how you look at it."
• Still, the interest payments on some of these securities are now being delayed. Rating agencies and other experts have traditionally consider a default occurring when investors don't get paid in full and on time, Larkin said.
• Florida's Local Government Investment Pool, has $400 million in Axon Financial, a SIV run by Dinakar Singh's TPG-Axon hedge fund firm, according to the state board's Nov. 9 update. It also has almost $850 million invested in similar two vehicles sponsored by KKR Financial Holdings. Another $577 million is in OTTIMO Funding Ltd., sponsored by Aladdin Capital Management, another hedge fund firm.
• These four vehicles have been downgraded and forced to restructure because they had trouble refinancing themselves in the asset-backed commercial paper market, the state board said on Nov. 9

Now remember, hedge funds argue they should be unregulated and for people to mind their own business and leave them alone because they provide liquidity to the system and absorb risks, and keep risk levels down in our economy. Right? Right! Just so we're straight on that. Remember, regulation is evil. Let everyone self regulate because humans never succumb to greed or anything like that, left to their own devices... no, of course not. ;)

Meanwhile your tax dollars are hard at work bailing out this liquid and safe system, full of "regulated" banks, exotic overleverged hedge funds, private equity which pays taxes at a 15% tax rate (while you are paying 28, 30, 35%) etc. And when things go awry, your tax dollars will help bail them out. This is why we are having a great day on Wall Street. The systems works! (for them) Keep smiling, and enjoy your +$3200 in your Ameritrade account today, because somewhere people are making multi millions/billions and patting Ben on the back in thanks. Remember, free markets rule. Until we need bailouts. Oh yeh, all this money we are feeding into the financial system? That is supposed to be going back out to the financial system for loans? Banks are hording it to shore up their balance sheets because they are so undercapitalized. Instead of delivering it to people who need it... after all bonus season is right around the corner and we need to keep up appearances until Dec 31st - these bonuses are near and dear to our economy so that Tiffany's, Ferrari, yacht companies, et al can have another great year.

Ahhh, capitalism.

I am buying more Ultrashorts into this facade and sham of a system.

Bookkeeping: Trimming Positions

Well I could be wrong since apparently we are entering a new bull market but I am trimming the following
Sterlite Industries (SLT), Mechel (MTL), WuXi PharmaTech (WX), CF Industries (CF), LDK Solar (LDK), Frontier Oil (FTO)

Most of these are more "high beta" (i.e. smaller cap, higher risk) names that fly when speculation is back on the table - as apparently it is now that the crack dealer is back on the corner.

While my long positions are happy, my intellectual thinking cap is disgusted.

In a Complete and Utter Shock the Market Rallies on Fed Ready to Cut Rates

What a shocker. In speech last night, Uncle Ben signals / hints more interest rate cuts are coming down the pike. After jawboning about inflation risks and weak dollar risks. Who would ever of guessed such a thing? (well I was about 2:31 PM on October 31st) So let's party again, because obviously the last two cuts have really fixed the problem. But not to worry, don't ask "why" the Fed is being forced to cut - all the bad news in the macro environment and major instability in credit markets - the reason why does not matter - just the actual crack delivered to the drug addict is all that matters. Didn't we just play this game? Is this simply the same game we are going to play every 6 weeks? Every time we get the "all clear" signal that the drug dealer is ready to deliver we party? Despite the reasons?

Let me give you a preview of Dec 11th - we stand neutral blah blah blah. 6 weeks later, another cut. After the late January meeting let me tell you what will be said - we stand neutral blah blah. 6 weeks later, another cut. And so on and so forth.

Really, Uncle Ben is no different from Uncle Al. Maybe if we can pull rates down to 1% again, we can get that stock market up to 16,000! Yeh! Awesome dude!

Up, up we go - don't ask why the Fed is forced to cut when in theory it doesn't want to - just enjoy the fact that Fed cuts = great times and all ills washed away. Until they don't. Which is usually 3 weeks later when reality hits. It is amazing how simplistic the thinking is. Talk about Groundhog Day. I guess I am always just 'shocked' when things that are plainly obvious are "news" to the investing public. The 'experts'. Unfortunately to be a good stock investor nowadays you need to be more aware of when Ben has speeches, rather than fundamentals of stocks.

The Latest Home Sales Data - Builders Slashing Prices

The beat goes on; as I've written many times (housing bust blog entries) this housing bust that "will all be fine within 2 quarters" as public officials assure us, is just getting started. At the heart of it all (and lost in the subprime mess) is simple unaffordability. Average Americans with average jobs cannot buy homes with reasonable mortgages (read: not exotic) in major urban areas of this country. Mortgage costs have gotten out of whack in relation to rents. This is the main problem, not what mortgages should of been given out to people who never could afford a home in the first place. When an accountant/teacher/police officer type, married couple has to make a $4500 home mortgage payment its just not reasonable. Not for most of us anyhow. So prices need to come down to a point where if you put even 5% down you can afford a reasonable payment, meaning $1500-$2500 type for "most" people.

As CBSMarketwatch reports the first stages of what needs to happen are finally being forced onto the marketplace - that is builders slashing prices to move inventory. Median prices are staying stubbornly high because (as yet) most people are unwilling to face market realities. Hence inventory is building as people think they should at least get what they paid for in an overheated market of 2005/2006. Unlike liquid markets such as equities, the housing market is quite illiquid so this dislocation in pricing can remain for a long time. But what will instigate the eventual correction in pricing will not be homeowners but builders. Why would someone buy a pre-owned home for $100K more than the home a neighborhood over brand new (assuming homes are similar of course). Answer - they won't - and that's what's going to get these prices down, and inventory eventually moving. But it's going to take time for us to get through the 'denial' stage.

• Builders slashed prices at the fastest pace in 26 years in October, boosting sales of new homes from a much lower level of September sales than was originally reported, according to Commerce Department data released Thursday.
• Sales rose 1.7% to a seasonally adjusted annual rate of 728,000 (until it's revised next month) last month from a revised 716,000 in September, which was a 11-year low.
• September's sales pace had originally been reported as 770,000. August's sales were also revised sharply lower to 717,000, down from 735,000 estimated a month ago and from 795,000 estimated in the first release. (oops did we misreport September by a factor of 54,000 homes? Oopsie! Hate when that happens) (with that sort of accuracy I am sure October's numbers are rock solid!)
• "The outlook for sales looks bleak, to put it mildly," wrote Richard Moody, chief economist for Mission Residential. The figures do not include cancellations, and some national builders have reported cancellation rates of around 50%. (oops, those darn cancellations... always accurate to report sales numbers without cancellations)
• "With tightening in credit conditions and substantial inventory levels, we are farther away from a recovery rather than closer," wrote Young Kim, an analyst for Stone & McCarthy Research. (that's not what the National Association of Realtors chief economist said, and really who knows better than him?)
• The large revisions highlight the low confidence that government statisticians have in the monthly report. The standard error in October was plus or minus 11%. (hold on while I clean up the water that just spit out of my nose - maybe these guys should go work for the Bureau of Labor Statistics, which is prone to the same 'accuracy' and 'truth in reporting')
• Sales are down 23.5% in the past year -- a vivid reflection of the carnage in the home-building industry.
• Meanwhile, the September-to-October median sales price fell 8.6% to $217,800 -- the biggest monthly price drop in 26 years. Median sales prices are down 13% in the past year, marking the biggest year-over-year decline in 37 years. (finally, we begin the process) The average sales price, by contrast, is down just 0.3% in the past year, illustrating how sales of homes with higher price points have held up. (ahh, 2 Americas)
  
• Indeed, the number of homes selling for $200,000 to $300,000 dropped by 37% last month, while the number of homes selling for less than $200,000 rose by 37%. The number of homes selling for more than $300,000 rose by 10%. (go figure, affordable housing actually drives sales - interesting concept)
• The Commerce Department said the inventory of unsold homes fell 6.7% to 516,000, representing an 8.5-month supply. The inventory peaked at 9.3 months in August. (good sign!)
• Builders have cut back production of new homes by 23% from a year ago, but the number of completed homes that have yet to be sold rose again in October to 191,000, more than twice as many as in 2004 when sales were booming.
• On Wednesday, the National Association of Realtors said the inventory of existing homes for sale rose to 22-year high, despite a record decline in the median sales price. (not so good sign!)
• In another report released Thursday, the Labor Department said continuing claims for unemployment benefits rose to two-year high, while first-time claims climbed to the highest level since February, further indications of a weakening labor market. (rut roh! Well at least the market is rallying!)

Well seeing that the median price in America is finally falling, I will move this correction up from top of the first inning to the bottom of the first. The problem is since we choose to regulate only after carnage (free markets rule, until we need to bail people out) - the free market will overshoot from one end (have a heartbeat? get a loan!) to the other extreme. So what do we have to look forward to?

• credit being harder to get than it should as lenders get even more risk averse than they should be (gun shy)
• slowing US economy due to potential recession
• unemployment rising
• still unaffordable housing in most major urban centers
• many owners of 2005/2006/2007 vintage being upside down on their homes (a bit tougher of a proposition than being upside down on a car)
• inflation eating away at budget so even less discretionary income for small things like... mortgages

But once we work through this whole situation, by say 3-4 months from now according to public officials, we should be ready to go back to party mode right around... April Fools.

As an aside I've been reading a series of articles in the local friendly (Detroit News: The Foreclosure Factory), about the joke it is to become a mortgage lender in Michigan - do you realize you need a license to cut hair but not sell $500K mortgages? Anyone can put a shingle out. Anyone. Luckily free market forces will fix all this - by 2011. Because as you all know - all regulation is evil, it makes no sense to ever be proactive instead of reactive. Preventing a problem with simple, common sense agreed upon approaches by reasonable people would never work. Let's fix it after it impairs huge swaths of the economy and destroys many individuals. Party on....

It Could be Worse - You Could be an Estonian Investor

I had to make that clever title up due to a specific reader of the blog who has emailed me in the past, who is from Estonia of all places. :)

Below is a chart of all the world indexes returns year to date (courtesy TickerSense) - this was 2 days ago so the US index would be back in the green but overall its been a paltry year for US investors. The chart is sort of hard to read due to size so click on it and it will pop up in larger form in a new window. What is interesting is if memory serves me 2006 was the first year ever that every international index was up - talk about an amazing year. This year it is still a pretty good result worldwide, just no so much here in the US... or Estonia at @ -14.4%

Whose at the top? Shocker... China @ 135%
A lot of Eastern European countries make up the top 5; no surprise - they have been hot for years. Nigeria (oil) is also a big winner. A lot of nice winners in the middle east (petro dollars) - again nothing really surprising there either. The other 'BRIC' members were very solid - India @ 39.6%, Brazil @ 32.9% and Russia @ 13.3%. Personally I find Russia over hyped as they move away from capitalism, and over reliant on energy but hey that's working for parts of the Middle East I suppose.

Major losers? Surprisingly Ireland @ -29.9% - thats been a very hot market for a few years - good old Venezuela with more anti capitalist reforms @ -28%, and Japan @ -14.4%. This was supposed to be the year Japan finally recovered (then again it has supposedly going to be 'that year' for the past decade). The US and UK rank #64 and #66 out of 80, with essentially flat returns. For us. For foreigners who buy into our markets the returns have been gosh awful as their currency appreciates vs the dollar. In the meantime I'll get those "We're #66!" Tshirts ready.... woo hoo!

Overall the emerging markets in my opinion are the place to be for the coming decade(s), however they have had a huge run and are well overdue for a sizable correction. Perhaps this coming US recession will be the driver, and once the next serious correction is in, I think these will be some great buys for 2010+. iShares just introduced a new ETF a few weeks ago, as a matter of fact if you want all your 'BRIC' in 1 ETF... iShares MSCI Bric Index (BKF). There have been a few of these ETFs but most have concentrated too much on 1 country or another - this one has a pretty balanced approach

1. China 36.5%
2. Brazil 27.5%
3. Russia 20.5%
4. India 15.5%

While this ETF is too overdependent on energy for my liking it is a pretty simple & clean 1 stop approach. Personally I prefer BIC over BRIC (no Russia), but again... in time and at lower prices.

Now where is that iShares Estonia I've been hungering for.....

Where the Portfolio Stands

I've done a lot of small trimming on many positions, a snip there, a snip here

Going to a more neutral stance
Cash is up to 15%
Short exposure now up to 13.4% (which is as close to as high as I take it)

It is a very simple road map - we have come a huge way in a short time and now face the important technical resistance I mentioned yesterday. If we burst through that S&P 1480-1490 area that would be extremely bullish. If not, we retrace down. But we face a lot of resistance over head. I'd be very impressed if we just slice right through it....



Surprised? No never surprised - you never know what is going on behind the scenes ;) But it would be an impressive, counter intuitive move.

It seems way too convenient to have an exact 10% correction and then go up 10% from there to make all the bad go away just like that. We already have bounced nearly 5% in just 2 sessions. Maybe it continues, but again it seems JUST too convenient.

Further, yesterday some of the worst (or most beaten) stocks rose the most - I did not see great moves out of the true leaders like Apple or Google (as I mentioned yesterday). So how much was simply over eager shorts needing to cover versus real buying is the question. Remember, Tuesday we had a huge move in the indexes but many stocks were down, breadth stunk. Yesterday was a true rally day where a lot of stocks participated but nothing goes straight up, or down.

From a macro point of view the issues we have won't be going away anytime soon. I do believe the US is going to recession. I do believe earnings estimates are far too high for 2008 for most companies. I do believe we have future rife with homebuilders going bankrupt, and a few banks if not bankrupt going to need major bailouts or outside investors. A lot more bad news on the way. That does not mean the market can't make tremendous moves upward from time to time. Nothing has changed from Monday other than fear went to greed yesterday. The Fed's earlier cuts did nothing. The next cut will do nothing, other than make speculators giddy. The American consumer is still in major dire straits I am afraid to say.

But at times the economy and the market disassociate as we saw for about 6 weeks in mid August to late September. But the macro background (to me) is very poor. Until proven otherwise I will follow my game plan to draw down long positions into these rallies and increase shorts. Certainly I could be wrong, as calling market movements is 1000x harder than calling individual stock movements in my book. Perhaps the crack that is Fed cuts is enough to move the market to all time highs. It just seems difficult for one to grasp all time highs in the face of the very serious issues our country faces. The only offset to that is the huge amounts of money being created in this world needs to go somewhere, so in theory it could support the market at far higher levels than the economic outlook would deem reasonable. So as always, many cross currents.

I myself, remain cautious. And remain understanding that for weeks at a time all bad economic news can be ignored and the market can easily put a 10-15% move that makes no 'economic' sense. My (more) neutral stance, while potentially limiting gains to the upside, is the best course of action until we either drop back down to lower levels or move back to higher levels which would indicate a true return of market confidence. Will adjust as we go from here. If we do move back up, you will see a huge scramble of institutions rushing in as they face performance anxiety again so one must be nimble and open to anything.

While these huge swings up sound good, they are actually very hard to 'outperform'. Stock picking is generally favored in relatively calm environments, not when the indexes are swinging +300, and -300 day to day. Hence it is very difficult to outperform in such extreme conditions. Which since mid July has been the order of the day save for 5-6 weeks in early Sep - mid October. I wish we could have more of those 'calm' time frames where actual stock selection is rewarded rather than a decision of how much exposure to cash you should or should not have.... where everything goes up or nothing goes up, regardless of fundamentals.

Speculators fly back to Solars and Dry Bulk Shippers

Shows you how quickly emotions change - we were at the end of the world Monday at 4 PM. Now not 72 hours later it looks like early October all over again. Funny.

Fear and greed. As always, they rule the market.

Suntech Power (STP) has already passed my year end target of $80. I was buying heavily on this pullback to $59 just 5 sessions ago when it fell to its 20 day moving average. +35% return since. Nuts. I did sell some off but don't want to sell below a 1.75% exposure so will just let the rest run. Obviously I sold JA Solar (JASO) 1 day too early. The entire sector, regardless of fundamentals is back to ramping up massively across the board. Throw a dart, and get a 10% return today.

The rest of the market looks pretty benign but if you have a portfolio solely of dry bulk/solar stocks you are having a day to remember.

After the last 4 sessions which were up massive Friday, down massive Monday, up massive Tuesday (on the indexes if not individual stocks), and up massive yesterday, we have a normal day. Finally.

Bookkeeping: Cutting back McDermott (MDR) for Technical Reasons

This is purely a technical trade. I like McDermott (MDR) for the long run but prefer other names this quarter, so I am underweighting MDR for now. McDermott has been under the 50 day moving average for the past 2 weeks or so (under $53). In the past 3 day rally its moved from $47 to $52, or a nearly 11% move. This now takes it to an important test of the 50 day moving average. This is how I normally always treat stocks in this position. When they get close to this resistance I cut back - from there the stock can either

1. fall back from resistance and sag
2. break through resistance and move upward

From a technical point of view, if the former happens than you made a good sale and you look for either a lower area to re-enter or simply wait for the stock to push back through this resistance area before buying - and if the latter happens the stock is technically in good shape and you can buy back the position you just sold.

Again, it might not make sense to those new to the market to buy at a higher level but with so many investors in this world using technical levels to trade, you are simply riding the 'wave' if you will. If a stock clears an important hurdle such as the 50 day moving average, all these investors will latch back onto the story. If not, they won't buy. So you want to join when that buying power jumps into the stock. Otherwise you could be sitting on dead money for quite a while.

Compare this to a peer in the group with very similar fundamentals but far superior technicals, Foster Wheeler (FWLT). FWLT only very lately has even broached the 50 day moving average (fallen below it) and even then just barely, and only in the worst of the waterfall selloff. Then when we rebounded, the stock immediately surged back up over this level. So this is a stock the investment world favors right now, so this is a stock I want to be overweight in the near term.

The above thinking is an example of how I view most stocks - I want to own them when they are in good technical shape or very washed out (i.e. a Crocs in mid to upper 30s). The most dangerous place to own is right below a key technical level, because many times those stocks will fall or weaken further from level, costing you capital. There is your technical analysis 101. Again nothing is foolproof. If I am wrong on McDermott and the stock surges, I will be happy because I like the fundamentals in every stock I own in this fund - all I will need to do is buy above $53 - it costs me about 1.25% in return and commission costs if I am wrong. But if I am right it could save me much more by not being overweight if the stock just falls back. McDermott is now at $52.50 so it would not take much to get it back in good shape technically.

Another example of a stock exactly in the same place as McDermott is National Oilwell Varco (NOV) - great fundamentals, but technicals really broke down. The stock has since rebounded and is sitting right below its 50 day moving average - it could go either way from here (1) burst through upward or (2) sag back down. Probably the overall market health will determine this more than anything.

McDermott is now down to less than 1% of my portfolio.

Long McDermott and Foster Wheeler in fund; long Foster Wheeler in personal account

Deep Sea Driller Atwood Oceanics (ATW) Earnings Surge

Atwood Oceanics (ATW) is a company I have really liked and have held in the past, but truth be told the technicals of this stock broke down severely, as have many oil 'service' type of companies. Last night, we had quite the earnings report - very impressive numbers. 50% top line growth this quarter; 100% bottom line - yet the stock staggers.

I continue to love this deep sea drilling space but since fund inception in August, investors in this area have NOT been rewarded. Investors still seem to be of the mind that if crude drops to $65 business will falter, but once that mind set changes and people see this space is moving to a secular growth story versus cyclical these stocks should take off... I await that day. Atwood Oceanics is the smallest of the group of a very limited ways to get into this space, hence my surprise there has not been better price action.

• Offshore oilfield service provider Atwood Oceanics Inc. said Wednesday its fourth-quarter and fiscal 2007 profit surged on higher revenue to beat Wall Street expectations. Net income for the three months ended Sept. 30 rose to $54.1 million, or $1.69 per share, compared with $23.2 million, or 74 cents per share, during the same period a year earlier.
• Revenue increased to $121.6 million, from $81.8 million. Analysts polled by Thomson Financial forecast earnings of $1.43 per share on revenue of $116 million.
• For the full fiscal year, the company said net income increased to $139 million, or $4.37 per share, compared with $86.1 million, or $2.74 per share, the previous year. Revenue rose to $403 million from $276.6 million the prior year.
• Analysts predicted fiscal 2007 earnings of $4.19 per share on revenue of $393 million.
• Separately, the company said its Atwood Southern Cross drilling rig received a contract from Italian energy company Eni SpA AGIP to drill two wells, with options for two more, at a daily rate of $406,000. (wow)

No current position but always interested in this space once the charts improve

China Life (LFC) Moving Away from Chinese Equities

A few weeks ago I did a piece on how a large proportion of "profits" at mainland Chinese companies were in fact due to speculation on stock prices [How Much of China's "Earnings" are from Operations]

Found this interesting Bloomberg piece about how China Life (LFC), one of the largest companies in the country, is getting frankly a bit sick with the rollercoaster that is Chinese equities. The funny thing is when stocks were going up 100% in a year it was not an issue but now after a recent 200% gain, a 20% drop makes them take the high road and away from those stinky stocks that dare to go down. (a new concept to investors in China apparently) On a more serious note, this could be an interesting foreshadow of things to come, and in the long run I have a feeling that this is going to save China Life a lot of pain down the road when the inevtible house of cards that is the Shanghai market collapses in on itself. (again note I am not saying the Chinese economy, just the domestic A share market)

• China Life Insurance Co., with about $26 billion of assets under management, will trim share investments to reduce risk after the stock market tumbled 20 percent since tripling in the first 10 months of the year.
• ``Other Chinese insurers may be happy living with rollercoaster ups and downs in their performance, but China Life will not be,'' President Wan Feng said at a presentation in Nanjing, a city on the Yangtze River northwest of Shanghai, today. ``For us, stability is key.''
• The company will cut its investments in stocks and mutual funds, and aims for strategic equity stakes to make up 5 percent to 10 percent of its portfolio, Chief Investment Officer Liu Lefei said. China Life will look for infrastructure and financial acquisitions, he said.
• The world's largest insurer by market value joined investor Warren Buffett and former Federal Reserve Chairman Alan Greenspan in casting doubt on the sustainability of China's stock market rally. The nation's stocks, on average, remain the most expensive among the world's largest markets even after the key CSI 300 Index slumped from October's peak.
• ``China Life will still be earning money even if the stock market tanks to 2000 points,'' said Yang today. ``We bought into the stocks very early at cheap prices.''
• China's insurance regulator wants firms to spread risk on their more than $300 billion of assets. In July, China allowed the nation's insurers to invest 15 percent of their assets in overseas stocks and bonds, up from 5 percent.
• China Life has more than $1 billion in Hong Kong stocks among its 194 billion ($26 billion) of total assets under management.
• The company is ``very interested'' in buying foreign banks, Board Secretary Liu Ting said at the presentation. ``Overseas banks are looking very attractive after the subprime crisis brought their share prices down,'' said Liu Ting on the sidelines of today's briefing. ``This provides great opportunities for China Life and is a very worthwhile option for us to consider.'' (rut roh Raggy)

Long valuing companies on actual operations, now how good they are at speculating on stocks

The Volatility in this Market is just Outrageous

This is an amazing time. 2-3% moves are now daily occurrences. We can go from oversold to overbought literally in 2 sessions. Remember two weeks ago, Tuesday, we had a massive move up and by Wednesday mid day the move was over.

We went from mid day yesterday (Tuesday) breaking 1410 on the S&P (in which I got spooked since we were losing our last support), to rallying later in the day, and now are approaching 1470! Thats 4.25% in just about 26 hours. Amazing volatility for an index. I truly think with the influence of computers and buy/sell programs, these trends are so exaggerated versus even 3 years ago.

I have been clinging to S&P 1490 as a resistance but in fact the trend lines are pushing down to 1480. So unfortunately we are already nearing major resistance - just like that. Maybe times have changed and the 'bottom' is in and we run into a Fed cut rally (again) - we've played this game before haven't we? But until we break through that level on a closing basis, I remain neutral and assume we will break down. If somehow we break 1480 and are off to the races with Helicopter Ben theory that all our problems are gone ahead, you have to take the lumps on the Ultrashorts and join the kool aid party. Until reality hits again. But for now I will assume that won't happen, because the greater probability is we hit resistance and sag.

Here is the chart



On another note do you realize we have not had 2 back to back days of increases in the indexes in 20 days? That was reaching historic proportions. Further, Bespoke Blog has an interesting entry on just how putrid November 2007 has been (or was up to 26 hours ago). Since 1980, this was the 7th worst month ... period... at -8.57%.

Now for those of you new to the market, I keep referring to the horror that was 2002. 2001 gets a lot of press for the bursting of the bubble (which it was) but 2002 was the year, our hearts were pulled out of us. Want to know how bad it was? (I sometimes forget myself as I have tried to extinguish that time frame from memory), but since 1980 (around 320 months), 5 of the worst 20 months came in 2002. So 5 of the 320 worst months, were in 1 year.

Just imagine this month (outside of last 26 hours) repeated for half the year. That was 2002.
September 2002: -11.0%
July 2002: -7.9%
June 2002: -7.3%
April 2002: -6.1%
December 2002: -6.0%

So live through this month, and try repeating it again and again and again and again - in fact those 5 months came in a 9 month period. That my friends... was hell. Talk about not wanting to log in and look at your account.

This is why, while these moves down "suck", they are nothing in retrospect. That said, there were great riches to be made in 99 and 00, to offset some of those losses whereas the S&P performance since 2003 is nothing special to write home about...

Short 2002 memories

Totally Off Topic: Shareholder Governance

I found this while going through New York Times online... it should make people angry.

First, upper management get massive compensation packages. Then they tell people, well if have an issue you can vote with your shares. In theory the board of directors is elected by the shareholders, but in truth its generally a bunch of associates (or worse friends) of the CEO. So the fox is watching the hen house. This is our system. Want to agitate for change? Get enough votes together to institute changes? Nice try. This is pathetic and angering news. America - for the corporation, by the corporation. Politicians bought and paid for by your sponsors....

SEC Allows Firms to Deny Investors Access to Ballots

• Federal securities regulators on Wednesday gave companies the authority to deny shareholders access to board-election ballots, a move pension funds and governance advocates say could make corporations less responsive to investors' interests.
• With the lone Democrat on the Securities and Exchange Commission dissenting, the panel voted 3-1 at a public meeting on the shareholder rights issue -- one of the most controversial to come before it in recent years, generating more than 34,000 comment letters to the agency.
• "I am obviously disappointed," the Democratic commissioner, Annette Nazareth, said before the vote. She said the SEC's action "stands in the way of shareholders' rights to elect directors."
• Democrat Roel Campos, who left in September, likely would have voted to adopt a proposal making it easier and cheaper for dissident shareholders to elect candidates they back to a company's board.
• That proposal would allow shareholders who together own at least 5 percent of a company's stock to propose changes to the company's bylaws on elections for directors. Proposed bylaw changes could then be voted on by all shareholders, giving stock holders the right to get their board candidates on ballots that have been paid for and distributed by companies.
• The commission was adopting Wednesday a competing proposal that is closer to the status quo, allowing companies to keep off their proxies shareholder proposals related to the election of board members.
• Last week, a dozen big pension funds and a government employees' union made last-ditch efforts to persuade Cox, a Republican, not to proceed with the vote. Cox has said he wants new shareholder-rights rules in place before the corporate proxy season begins next spring.
• The American Federation of State, County and Municipal Employees, or AFSCME, threatened to sue the SEC if the less expansive rule is adopted. The 12 pension funds -- including the nation's largest, the California Public Employees' Retirement System -- together own more than $300 billion worth of stock in U.S. companies.
• "We think the SEC should go back to the drawing board," Amy Borrus, deputy director of the Council of Institutional Investors, a group representing public pension funds, said recently. "Electing directors is the main means shareholders have to ensure that a company is managed in their interest."
• Under the current system, dissident investors seeking to get new directors on a company's board or to change its bylaws must wage costly proxy fights and appeal to company shareholders themselves.

*******
Just so you know.... always interesting to hear what is going on behind the scenes. What a frustrating country.

Another example of who runs this country - Cable Industry Wins Compromise on FCC Plans

• In the face of a lobbying blitzkrieg by the cable television industry, the Federal Communications Commission drastically scaled back Tuesday evening a proposal by the agency’s chairman to more tightly regulate the industry.
• The compromise was a significant, though not total, victory for the cable industry, whose executives and lobbyists had worked to erode support on the commission for the agenda of the chairman, Kevin J. Martin. Among other things, the commission agreed to postpone for months the decision Mr. Martin had hoped would be made on Tuesday, over whether the cable television industry had grown so dominant that the agency’s regulatory authority over it should be expanded.
• As part of the lobbying effort, top cable executives and lobbyists met last week with senior White House officials. Two lobbyists involved in those meetings said on Tuesday that they included Joshua B. Bolten, the chief of staff; Allan B. Hubbard, the president’s top economic adviser at the White House; and Joel D. Kaplan, the deputy chief of staff and a longtime friend of Mr. Martin’s.

What I love is how these people complain under the guise of "let the free market" rule, but when policies are being proposed to let the free market rule (i.e. let in more competition by phone companies) they run to momma (White House)

Classic. And pathetic.

The Next Step in the Crisis - Fed Buying Mortgages from Banks

Before I get into this story, I find it laughable of a market rallying on Fed cuts. The same Fed cuts it was rallying on in mid August through mid October. And what did that get us? We have massive write offs, mortgage rates holding steady, rising inflation, and a devalued dollar. Thats what the first 2 round of cuts have gotten us. But aha, this 3rd round will do the trick. It is silly thinking at best, but in the near term logic never dictates a thing in the markets.

Anyhow I digress - on to the next step of the emergency we face. Federal Reserve is making loans direct to banks much earlier in the year and for longer duration: 43 days. Not that it's a crisis or anything...

• Seeking to reassure banks amid the continuing credit crisis, the U.S. Federal Reserve will provide $8 billion to ease concerns about lending during the holiday season. The $8 billion - essentially a low-interest loan to U.S. banks - will be issued Wednesday and repaid Jan. 10, the Fed said Monday. The 43-day loan period is the longest in three years for this type of year-end injection.
• While it is not an unusual step for the Fed, the injection usually takes place later in the fourth quarter and involves a smaller amount. In 2005, the last time the Fed issued year-end funds, it issued 28-day repurchase agreements for $5 billion, starting Dec. 8.
• Wall Street's reluctance to lend can be intensified during the holiday season, as consumers demand more money for spending and banks look to close out their yearly balance sheets with a generous amount of capital and investments in safe securities like U.S. Treasury notes.
• "Many large institutions are reluctant to let money go, even for overnight lending purposes," said Bernard Baumohl, managing director at the Economic Outlook Group. "They prefer to hold onto the cash."

Various financial sites I am reading is that this is basically to buy up mortgages, but no official news story is saying this. Remember, all these "loans" keep getting longer in duration and more common in frequency. Printing press time. Now let's see if what is a normal end of the year situation happens "twice" this end of the year, since they did not even wait until December this year to pull it off.

Revisiting Core Laboratories (CLB)

As I wrote yesterday during my discussion of the sale in CGG Veritas (CGV) the action in the oil services area is quite putrid. I wrote:

Well I have to say the reaction in the oil services today to a measly $2 drop in oil is spooking me. This along with my thesis that oil could go meaningfully down has me thinking on how to reduce exposure there. While I still like the oil services names for the longer term the market is irrational right now and even the best stocks with great fundamentals and backlogs are getting punished so I am simply looking for a candidate to cull.

I've held 3 oil service names since inception, National Oilwell Varco (NOV), FMC Technologies (FTI), and Core Laboratories (CLB) - in good times I cut them back, and in weaker times I add. This is essentially how I try to run the overall fund. I believe my current holdings in this subsector is the lowest allocation I've had since August. These companies are far less secular than typical oil service names but right now seem to really be weakening. Even today in a nice rally, Core Laboratories for example is down 3%. Back in late October the company reported "solid" earnings (nothing spectacular) [Core Laboratories Earnings Solid] but the stock preceded to rally from $130 to $155. I wrote:

Solid if not spectacular earnings from Core Laboratories (CLB) - all they do is continue to execute, and this stock is so sleepy they don't even put out an official press release, just direct you to their SEC filing. In a word, a bit light on revenue $170 vs $173M analyst, a bit higher on earnings $1.29 vs $1.26 analysts, nice margin increases, solid guidance and we're probably looking at $6.00+ on 2008 estimates so I will target a $160-$170 price in 12 months. From these levels thats not a huge gain, but 30% in a year never hurt anyone.

Since my target for 2008 was around $160-$170, I was cutting quite heavily into that rally. I did not catch the top but sold quite a bit in the $140s, topping out at $148. I wrote:

Hopefully the market will push down this stock at some point (it gave us a nice entry at $120 just the other day) and get us a lower entry in the $100s or $110s to build the position. The stock has tacked on 30% since the August lows, so to ask for much more at this time is being greedy - it needs to rest up a bit.

So now it appears we are getting this type of action and with the stock of Core Laboratories around $114 its starting to get more interesting to me. Unfortunately it is in a bit of a free fall so catching a falling knife is not what one wants to do, but I added my first (small) buy today (25 whopping shares) in a long time here under $115. But since the price action is so poor I am in no rush to increase further until the stock stabilizes.

The 200 day moving average is around $107 so let's see how the stock reacts there; right now the chart is showing very sickly action. If it holds, this would be a very attractive entry point; if not and it slides through than this might be signaling some bigger issues. Again even with crude at $65 the services of companies like Core Laboratories will be in need. If I can get back shares I sold in the $140s here in the $100s to $110s that would indeed be a nice trade off (assuming the stock can hold its support levels of course!)

On 2008 estimates of $6.10 the stock was trading at nearly 25x forward estimates when it hit $150. Here at $115 area it is down to under 19x. Much more attractive of a valuation for this steady Eddie company.

Long Core Laboratories, National Oilwell Varco, and FMC Technologies in fund; no personal positions

Bookkeeping: Closing JA Solar (JASO)

I've changed my mind on JA Solar (JASO) for now, and have decided to close this position with a 6% loss. Not a big deal, it was a small(er) position, but with the news flow of late in the sector I'd rather stick with the strongest. While I like JA Solar as an arms merchant (solar cells), I just don't like it as much as some other names and I have enough confidence in the superior prospects and stability of a Suntech Power (STP) that I'd rather own much more of that sort of company than spreading my bets in a basket approach. Put another way I'd rather own a 5% allocation in Suntech Power, rather than 3% Suntech and 2% JA Solar.

When speculation returns to the market, it won't matter what solar stock you own and in fact the worst off will rally the most, but we have the makings of a gorilla in the space with Suntech Power and I'd rather be focusing on stocks who are leaders in this market. Comparing the charts of the two, we can see while JA Solar has held on by the skin of its nails to its 50 day moving average, Suntech Power is in a clear uptrend - so I don't see the reason to take the risk in spreading bets. If JA Solar establishes a better technical position I will revisit this decision ....

I sold the last 220 shares of JA Solar near $52 and netted $11.4K

Long Suntech Power in fund and in personal account

Today's Winners List

Always interested to see what is ramping the most in days like this (should portend to future winners)

Gafisa (GFA) - Brazilian homebuilder +10.5%
Mechel (MTL) - Russian coal/iron +8.9%
Millicom International Cellular (MICC) +6.6%
KBR (KBR) - infra +6.7%
Foster Wheeler (FWLT) -infra +6.0%
Mosiac (MOS) -fertilizer +5.4%
Potash (POT) -fertilizer +4.8%
Shaw Group (SGR) -infra +4.6%
Agco (AG) -agriculture +4.5%
JA Solar (JASO) -solar +5.9%
Suntech Power (STP) -solar +5.5%
Massey Energy (MEE) -coal +5.9%
Blue Coat Systems (BCSI) -networking +10.1%
Crocs (CROX) -retail +7.1%

All of the above outside of CROX, BCSI, GFA and some of the infrastructure names held their 50 day moving average in this entire sell off....

Other non portfolio major strength in VMWare (VMW), all the major dry bulk momentum stocks, Wynn Resorts (WYNN), Goldman Sachs (GS), Intuitive Surgical (ISRG), Sohu (SOHU) and any number of small cap no name Chinese stocks

The more things change....

If not for the major Ultrashort positions this could of been a very great day ;)

Bookkeeping: Morning Transactions

I am going on the continued thesis that bounces need to be sold, so I will be cutting back this AM on some of the largest positions in the fund, along with some of those moving the best.

Stocks with large weightings I cut back: Mosaic (MOS), CF Industries (CF), Potash (POT), Foster Wheeler (FWLT)

Stocks that have large moves this AM I am cutting back: Massey Energy (MEE), Consol Energy (CNX), Blue Coat Systems (BCSI), Suntech Power (STP)

Stocks I added to: Best Buy (BBY) as it broke above $49.50 which was the level I wanted to see it burst through to add more. [On the Buying List: Best Buy]

Note, the above names are among my favorites - none of the sells are huge amounts, simply trimming into strength. It is nice to see when the market actually goes up these stocks go up with some strength. I'll continue to monitor the S&P 1440 level. If we can hold and continue upward this would be a change in character near term in the market. Won't know until late in the day. Obviously if the market continues up from here (long overdue) these stocks will be not be ones you'd wish to be selling off any of the position but until the pattern breaks you have to assume it continues.

If you are playing at home, I'd expect the most washed out, speculative stuff to rise the most if we are indeed in a short term rally (finally). This is a good opportunity to see what sectors are moving and what will outperform once the market gets its footing... so when the next sell off happens, you redeploy into those sectors - it looks like coal and agriculture are doing very well.

On the good news front, Wells Fargo (WFC) announced losses, and Freddie Mac (FRE) announces a cut in divided and need to issue equity but the market is finally ignoring bad news. Reason? Fed members say Fed must nimble and hints to cutting rate. (shocker!) Been saying this since minutes after last Fed cut and I continue to believe we will be in mid 3% range by mid Spring as we bail out a suffering financial system. But I suppose this is a 'surprise' to the experts...

Long all above in fund; long Blue Coat Systems, Foster Wheeler, Mosaic, Suntech Power in personal account

Riverbed Technology (RVBD) Fortune Article

Ironic title - The Best Tech Company You've Never Heard Of

Sometimes I wish... but I continue to hold fast as these stocks in WAN optimization continue to get bludgeoned due to fear over Cisco comments about enterprise spending in the US slowing. No matter what the companies themselves say or show in their financial performance; it just doesn't matter.

• So one of the hottest areas in networking technology is something called Wide Area Network (WAN) optimization - or making networks even faster.
  
• Network World magazine tested a variety of WAN optimization products a few months ago. Riverbed's scored considerably higher than both established competitors like Cisco and smaller ones like Blue Coat Systems. Zeus Kerravala, who heads global enterprise research at the Yankee Group, calls Riverbed "one of the most interesting tech companies that has come along in quite a while."
• Companies of all kinds are centralizing data and applications to reduce the number of servers they operate. But if you're on a PC in New York and have to get a file from a server in San Francisco, get used to twiddling your thumbs. For example, a 1-megabyte Excel file, which would display almost immediately if you called it up from your own hard drive, typically takes about 100 seconds to load cross-country. The problems can become more pronounced if you're doing heavy e-mail remotely. The reason, according to Kennelly, is that data has to travel back and forth to a hard drive 977 times in a row to get that Excel file to load. But each one of those little trips takes a tenth of a second when it's traveling all the way back and forth across the country.
• So here's what Riverbed's technology does: fake out the software so it delivers its information payload in bundles. Rather than 977 trips, the data might be able to take only 10 or 20. That radically increases the perceived speed of the application.
• To achieve this Riverbed's engineers had to dissect - or reverse engineer - Microsoft's software. "Thank God for Microsoft," says Kennelly, "because they created Windows, which is so inefficient. That helped create our company."
• Riverbed has done the same for a range of other types of applications as well: e-mail, accounting, databases, customer relationship management programs, etc. It sells a box filled with fast processors and its own software. You buy at least two, and put them next to a network router or switch at both ends of the trip. Installing them is almost as simple as just plugging them in and turning them on. They range in price from $3500 to $125,000.
• It's apparently worth it. Says Yankee's Keravalla: "Any company I've ever talked to that's done a technical bake-off says Riverbed performs best. Some users see the speed of their applications improve 60-70%."
• Riverbed started shipping products just three years ago but it already has 3,000 customers. But Riverbed (Charts) stock is dramatically down - about 50% - in the past month. It's been a terrible few weeks for networking and enterprise technology stocks, especially high-fliers like this one with outsized price-to-earnings ratios.
• But there seems little reason to think Riverbed won't continue leading in WAN optimization, even though heavies like Cisco (Charts, Fortune 500), Juniper, Citrix and others are fighting to push it aside. Security analyst Troy Jensen at Piper Jaffray has followed this industry for seven years, and says Riverbed's technology is "without a doubt superior." While he was neutral on the stock when it traded around $50 a share, at a recent price of $28 he calls it "a no-brainer."
• Analyst Cobb Sadler at Deutsche Bank Securities, another fan of Riverbed, is enthusiastic about its new all-software optimization product, which can go into a laptop so workers out of the office can get high-speed access to corporate data. "They've got the only product that allows you to do that right now," he says.
• And even in the midst of all the networking and tech stock carnage, Riverbed competitor Blue Coat (Charts) reported surprisingly good results on November 20th, suggesting to Jensen, among others, that the WAN optimization market may be resistant to the downturn in enterprise technology spending many now fear.
• There are several reasons why this is an almost perfect technology. We're in an era of global business, so operations can be anywhere. Companies want to centralize computing resources. And nobody's willing to wait for anything.

*******
Very bullish article eh? You'd think someone would care but nope - both these stocks have been bludgeoned to death. One is the clear technical leader, the other has the best combination of security and optimization rolled into 1. Blue Coat Systems *almost* made a technical breakout after reporting lights out earnings [A Damn Shame], but took a near 6% hit today. Typical. The fear of the boogeyman in the future trumps the reality of the here and now. If one company in a sector is bad, they must all be dying, etc. Instead people run to such high growers as ... Procter & Gamble. But this is why technical analysis is key for near term movements - until the 'coast is clear', undervalued stocks can remain so for a long time.

Oh well, enjoyable article that explains in layman's terms what they do, and any article that has a dig at Microsoft is fun to read. All I know is the stock performances of late have had me feeling "Blue". ;)

Long Riverbed Technology, Blue Coat Systems in fund and in personal account

Portfolio by Sector

I try to look at the portfolio from a 40,000 foot point of view graphically about once a month - my last view was back on October 23rd, and you can see the breakdown here.

Last month I wrote this

at this time I am trying to think ahead a year to a slowing global economy and which sectors will be the least affected by it. A case could be made that global infrastructure and agriculture will be the 2 stalwarts, the former due to enormous backlogs and the latter due to "once you let the genie out of the bottle of rural -> urban migration it's not going back". Oil is a toss up - while slowing economies will slow the demand, I still think finding new supply is getting tougher AND global urbanization is going to dwarf any economic slowdowns effect on oil in the mid to long term. With that said, you could see a lot more volatility in that sector. The same could be said for mining. At this time, the technology stocks I am in, feel quite 'isolated' from any major issues even in a global slowdown. I can see a future with the US in recession (or at best flat growth) and western Europe not too far off from it as they have major speculative housing booms as well (see Spain). So I am trying to position for the long run to match these macro views.

So far pretty much on target, although as we found out nothing is safe in a panic; its all just degrees of pain. Some sectors have more, some have less. My mid term outlook (i.e. 2008 or so) is no different than what I wrote above. And I've tried to move the portfolio in that direction

Major difference then vs now
Oil related (then) 17.9% (now) 7.2%
Agriculture (then) 12.4% (now) 15.9%
Short exposure is up quite a bit (4%) but that changes daily
India (then) 7.2% (now) 4.0%
Other Foreign (then) 4.5% (now) 8.5%
Retail (then) 1.2% (now) 4.6%

So I've reduced direct crude exposure, mostly through selling all my deep sea oil drillers (although I still like the group fundamentally), and after today's sale of CGG Veritas (CGV), I just own my 3 oil service stocks I've held since day 1 in the portfolio - CLB, NOV, FTI. In fact about half this 7.2% crude exposure is a bet against it, through refining stocks (who would benefit from lower crude pricing). Agriculture has gone up with the addition of Agco (AG), and heavier exposure to fertilizer which I contend has great winds at its back, and earnings prowess. India had spiked after I did the last analysis so I cut back that country. In "Other Foreign" I've added some new names like Mechel (MTL) in Russia coal/iron and Millicom International Cellular (MICC) - hence the increase. I've also added exposure to Brazil with homebuilder Gafisa (GFA) and an index, replacing some far East exposure such as Hong Kong and Singapore. Thus far although these markets are NOT supposed to be correlated they all essentially go up and down together as one 'BRIC' country is no different from another - apparently the same speculators are in all these countries.

In retail I added a lot of Crocs (CROX) exposure after its implosion and just added some Best Buy (BBY) yesterday. While the financial exposure is the same - back then it was mostly Mastercard (MA) and Blackrock (BLK) - now I've categorized the 2 consulting firms I added today - Huron (HURN) and FTI (FCN) as 'financial', so its a broader mix of companies. I've completely exited the small position in mining and cut back industrials with the sale of Cummins Engine (CMI). I also added 2 currency hedges with the Canadian dollar and a silver company - we shall see how that works out.

I am going to continue to run screens (when/if?) we rally such as [98 Stocks that Returned >5% in the past 30 days] and continue to look and focus on stocks holding their technical support levels. While these might not return as much as the stocks totally washed out, they should provide some stability in what I contend will be a tougher market in 2008.

Two notes:
(1) I break up foreign holdings into (a) China (b) Indian (c) Other and
(2) I did break up energy into (a) Crude related i.e. deep sea oil drilling, oil service, refining, seismic, etc (b) Coal and (c) Solar as the latter two are not directly related to crude oil.

Bookkeeping: Closing out CGGVeritas (CGV) Position

Well I have to say the reaction in the oil services today to a measly $2 drop in oil is spooking me. This along with my thesis that oil could go meaningfully down has me thinking on how to reduce exposure there. While I still like the oil services names for the longer term the market is irrational right now and even the best stocks with great fundamentals and backlogs are getting punished so I am simply looking for a candidate to cull. I decided on CGG Veritas (CGV) which is a seismic data provider that I am *still* bullish on, but will wait for the technical picture to improve before re-entering. Right now fundamentals don't matter in this market.

I bought in mid October and since then it had a so so earnings (slight miss), and the stock was punished severely with a quick drop to $52. The stock has rebounded now to about $57 so I am going to take my 10% loss and convert to cash. This stock is actually flat today so showing some strength, but the technical picture is still mixed. Like most of these oil service stocks, CGG Veritas is below the 50 day moving average but above the 200 day. If the market weakens there is no reason to believe the stock won't retest $52, so I don't want to give up another 10% here. I will be more bullish on the stock once it clears back over its 50 day moving average which is now in the mid $59s. If that last punch down to $52 was indeed a low and the stock is making a V shaped recovery, than one can buy the stock back about 4% higher from here when it clears resistance ... simple enough proposition.

I had cut back this position a bit in the past few weeks (sold a bit yesterday in the $57), but it remained a 0.9% position which I am exiting today in the upper $56s after about a month and a half. If the market would ever put in a 3-4 day stretch of rallying we could see where the new leadership is in the market - but at this point some of the themes that have been working the past 3-4 years seem at risk of faltering if the consensus turns to a slowing world economy in 2008. Too early to tell right now though.

No position

Rally Fading...

If we go red today, it would just be bad. As I mentioned earlier today this was a strange rally because I just saw very little strength out there, especially from previous leaders. It just seems like a market that wants to go down.

It's beginning to feel a lot like 2002 around here. The issue is we can rally here and there, but I believe corporate profits for 2008 are too high and will need to be revised down in many sectors, so it is not like earnings are going to save us.

These days of openings up and closing on the low are just extremely bearish - we used to do the opposite. Just can't get behind any rally and all spikes are to be sold.

I am trying to think like a contrarian since the mood has turned so bearish, but since I was bearish first its like thinking against myself to get bullish :) But at some point the rally for more than 1 day must come. No? Worst month since Sep 2002.

The Russell 2000 and S&P 500 are now just up 0.4% after some rallying earlier today... but again lots of individual issues are just being spanked so the indexes are not telling the story. I would surmise most of the gains remaining that are holding the indexes up are simply dead cat bounces in financials. It now gets to the point of a toddler touching a hot stove - once you get burnt so many times, some people are just going to stop reaching...

All infrastructure stocks now are looking bad technically, even the best of the best - today AECOM (ACM) - a Cramer hype stock is taking down the group off of "not good enough" earnings (I thought it was too expensive and too narrow of a focus). Solar dying on a vine. Energy ex-solar putrid. Apple/Google red. Etc.

All I see working are emerging markets as investors are still clinging to the dream that the US recession will not affect them. Dry bulk index by the way falling hard now (from extremely high levels though, still way above range it was in the summer) but the trend is not looking like a 'global boom' type of trend. Copper has been weak for 2 months. Yet somehow China is expected to exist in its own vacuum ;)

Home Sales Plunging, Car Sales Next

I won't rehash the home numbers - no surprise there unless you've been in a cave the last half year. But the next shoe to fall with unfortunately, I believe be car sales.

I am quoting the below from Realmoney:

• The Conference-Board's survey nonetheless contains significant reasons for concern, particularly steady decline, as well as decreased plans to buy homes and cars and a sharp jump in inflation expectations.
• Plans to purchase a new home, for example, fell to 2.5% of respondents, its lowest level since June 1994, only a tenth of a percentage point above the lowest level seen since 1983. (not good, but not a surprise - again in early innings of multi year contraction in housing)
• Plans to purchase a new car were even worse, with only 4.7% of respondents planning to buy a car, a tenth of a percentage point above a 40-year low. This reinforces the recent pattern in car sales, which have weak all year. (bad, and getting worse)
• Weakness in car sales has led to weakness in automobile production, hurting states in the east north central part of the country, where the Conference-Board's confidence index was at just 55.9 in November, by far the lowest of any region in the country, with the next lowest reading in the New England states, which was at 79.3 in November. (maybe this is why I am such an ornery blogger)

Again, even though the quality of jobs in this country is degrading as we go to a lower paying service economy - at least they are still existing. I do expect unemployment to rise into 2008; it's just a matter of degree. CNBC for example was reporting potential 45K job losses (out of 300K total) at Citibank yesterday. What really worried me about that was in general, the Street being a heartless SOB usually cheers job cuts (since it cuts costs) but Citibank just kept going down on the news. So "good" news or bad news, when stocks continue down, its the exact opposite of the scenario we enjoyed in late August through early October when stocks went up regardless of good or bad news.

I just find it hard to believe an economy so tied to housing and consumerism will retain jobs at these levels. But this will take time to play out and government reports are useless (magically losing and then revising 80K jobs out of the blue) so we just have to keep an eye out on what individual companies are saying. Obviously financial and housing related jobs will suffer - the question is to what degree this pebble in the pond ripples through the rest of the economy. Still to be determined but by late spring we should have a far better idea for 2008.

Indexes Deceiving Today

Very green on the indexes today but this must be due mostly to financials catching a bid. Looking at advancers vs decliners on both NASDAQ and NYSE its 6 to 4 at best.

All things considering the teflon tech stocks are not doing much, and energy is a disaster outside of coal. Agriculture doing well, but that is really about it. Very strange day and it simply looks like much of the most washed out areas are getting a bid. Oil service stocks look particularly troubling and I wonder if they are foretelling this eventual drop down in crude prices. A slowing global economy would theoretically mean lower prices in the year ahead. Even a move back to mid $70s would psychologically hurt some groups, if not in fundamentals, than in sentiment.

Still watching that S&P 1440 and it appears new range is 1410 - 1440. This morning when we broke below 1410 it looked really bad, but it was good to see some reversal. However, I just don't see this broad based buying kicking in. We are soooooooooooooooooooo near term oversold, some bounce would be logical but then again, you could say that for much of the past 2 weeks.

All in all, a confusing day from this table...

Tracinda Withdraws Offer for Tesoro (TSO)

As stated yesterday [Tracinda Says Rights Plan Threatens Tender] my Tesoro (TSO) buy was based mostly on this Tracinda offer (along with hopes of crude dropping so margins for the industry would go up). Well as quickly as it came, the offer has now been pulled away. Bugger!

• Tracinda Corp., the investment arm of billionaire Kirk Kerkorian, on Tuesday withdrew its tender offer for oil refiner Tesoro Corp., expressing concern over the company's recent adoption of a "poison pill" stockholder rights plan.
• Tracinda made a cash tender offer of $64 per share on Nov. 7 for up to 21.9 million shares, or about 16 percent of Tesoro's outstanding stock. That offer was scheduled to expire on Dec. 6.
• A Tesoro statement said it was "surprised" by Tracinda's decision. The San Antonio-based company added that the stockholder rights plan "is in the interest of all stockholders because it reduces the likelihood that a potential acquirer could gain control of Tesoro by open market accumulation or other coercive takeover tactics without paying a premium to every stockholder."

So the stock is in freefall; luckily I sold just over half yesterday @ $55. Unfortunately I still hold the rest and the stock is within 24 hours down to $48.50. That 12% lower. Thus far the 10% of fund I allocate to special situations like this have not fared well. Bah and humbug. At this point I will wait for a rebound to roughly low $50s and get out as this is not a favorite of mine. As I stated my refiner of choice is Frontier Oil (FTO). Ironically the other smaller refiners are all imploding with Tesoro - Western Refining (WNR), Holly Corp (HOC) - even big dog Valero (VLO) is down over 4% - but Frontier Oil is actually up. Hence, why I like it so much. ;)

Long Tesoro and Frontier Oil in fund; no personal position

Citibank (C) Sells Stake to Abu Dhabi

So today's rebound is in part based on the fact Citibank (C) is apparently not going to $0. Woo hoo. For those who have been reading along for a while, you know this is something I have been calling for (not specific to Citibank but large parts of our economy) as has Cramer. With strengthening currencies worldwide versus ours, acquisitions are 'cheap' in their currencies, and faltering stock prices make acquisitions and sizeable stakes even cheaper for foreign entities.

I truly think this is only the beginning - if it is a good, bad, or indifferent thing I will let someone argue that. We have undertaken bad policies, and our compensation system in this country is based on short term risk taking (try to generate outsized performance in a short time frame 2-4 years, get rewarded handsomely and ride off into the sunset with massive compensation gains, even if fired, while someone else is left to clear up the mess). Since this is our system, this is the playbook we have to live by. And the 'free market' will take care of things in the long run. Weakened institutions will be taken over. Remember China took a stake in Bear Stearns already and in the financial system I believe by late 2008, most of those that are left standing will have major foreign equity stakes. I also see this in many other industries as major macro economic forces work against the US and our dollar continues to crater. Now there will be some major counter trend rallies in the dollar but without any political will to face long term debt issues (i.e. Medicare is 30x the issue Social Security is, but we can't even tackle Social Security not to mention what we owe for Medicare) our debtor nation status and lack of institutional controls with any teeth, will continue to lead us down this path. I could go on for a few days writing about the ills, but I'll spare you. Personally, with the way Citibank has been run (along with quite a few others) they deserve to be taken completely over by another country. They couldn't do worse....

But in the coming few years I expect to see a flood of Canadian, Australian, Middle Eastern, and Far East acquisitions. If nothing else this will put a floor on the value of US assets. Sovereign funds are going to be the next "big thing", and their buying power is going to make private equity and hedge funds look like minnows. Remember, I always say find where the dollars are and invest in those companies who benefit from those dollars. This has been the whole thesis for investing in infrastructure and agriculture stocks. So why should it be any different when we talk about the "really big picture". These countries have the money and are getting more by the day either through petrol or trade surplus. There are no short term fixes, and we have no political will to make any fixes so these are very long term trends. And we will continue down this path. What is sad is no one in power really talks about it or seems to even notice. Again I am not saying this in a protectionist fashion - the more intertwined economies are, the less liklihood of future wars or things of that nature so it's always good to be interdependent in my book. But if you believe in a strong country, these types of paths are very unfortunate.

But again, this is simply the beginning... top half of inning 1. The next 2-5 years will see waves of this investment.... we are in fact, giving away the store. We are essentially a subprime nation. The only difference is "we" (federal government) can print new dollars to keep the boat afloat, unlike individual people in the country. But the behavior is no different. (As an aside I'd expect the same to happen in Japan - the US is essentially a younger version of Japan at this point, with more natural resources but heading in a similar path). Of note, recent stakes by Middle Eastern investors in Sony (SNE) and AMD (AMD)

By the way the terms of the deal for Citibank are gosh awful, talk about desperation.

The deal is essentially a convertible bond that pays whopping 11% a year, which is nearly twice what current Citi bond holders earn.

You can tell how desperate the situation is because if this were 2 years ago, people would be raising a fuss, and worried about those "darn foreigners" buying our assets. Now, we are greeting this with hero worship - thank god, someone showed up to buy our crap.

• A $7.5 billion Abu Dhabi deal to buy Citigroup Inc (NYSE:C - News) shares may have created a model for acquisitions by Gulf and other emerging-market investors scouring the ruins of the U.S. mortgage crisis for bargains.
• The Abu Dhabi Investment Authority (ADIA) sought no role in managing Citi, allowing the world's wealthiest sovereign fund to invest as a saviour of the largest U.S. bank without the risk of being perceived in the United States as an Arab predator.
• Investors from Dubai to China could be considering similar deals with cash-strapped U.S. banks, hoping to ride a recovery in their stocks and avoid the political barriers that could have been thrust in their path in better times, analysts said.
• "There will be more such investments," said Giyas Gokkent, head of research at the National Bank of Abu Dhabi. "The other buyers will likely play the same white-knight role," he said of other Gulf Arab investments in Wall Street firms.
• Other Gulf investors, backed by $1.2 trillion in state reserves, say they could follow, depending on when they expect the worst of the crisis triggered by defaults on high-risk home loans to have passed.
• Funds and firms in the world's biggest oil-exporting region have been snapping up assets from Japan to Africa as their government-owners reap the windfall from a five-fold increase in crude prices since 2002. Gulf investors have spent more than $70 billion on foreign acquisitions this year, twice as much as the record set in 2005, to reduce reliance on oil revenue.
• The growing power of sovereign wealth funds is raising concerns in the West, with the Group of Seven industrial nations calling for greater scrutiny of their role this year. Still, the initial response to the Citi investment was different, even though it came from the largest and most secretive of these funds. U.S. Senator Charles Schumer, who opposed the DP World deal and raised questions about Borse Dubai's plans to swap stakes with Nasdaq Stock Market Inc (NasdaqGS:NDAQ - News), said ADIA was helping New York retain its status as the world's financial centre.

2 New Recession Plays: Huron Consulting (HURN) and FTI Consulting (FCN)

I am not buying much here, but looking for some long positions that will zig while the rest of the portfolio zags. Two stocks I have been eyeing for a long while are Huron Consulting (HURN) and FTI Consulting (FCN). I will call both companies plays on a slowing economy and future bankruptcies of 2008/2009. FTI Consulting is the best of class, and Huron is the rebound kid which has faltered of late - so I am buying both to create a mini "consulting" basket. They are also becoming plays on globalization as they expand their presence worldwide. These won't be companies that rocket 30% in a month, but should hold up in a slowing US economy and most importantly are very different type of companies from what I currently have in the fund, so provide some diversification.

A nice article on FTI Consulting vis Investors Business Daily here

• A business consulting firm with a strong background in restructuring, FTI has been doing some restructuring of its own house. Five years ago, hardly any business was outside the U.S. Now FTI has offices all over the world, offering a broader array of consulting services. About 17% of total revenue -- which is nearing the $1 billion mark this year -- comes from international work. What's more, FD expanded its presence globally, with 750 clients in 20 countries.
• Smaller foreign acquisitions over the last year also bolstered FTI's presence in Hong Kong, mainland China, Australia and Latin America. FTI intends to keep on making acquisitions, a strategy it's been pursuing for years.
• "A big driver of its business, honestly, is the globalization of the economy," said analyst Mark Bacurin of Robert W. Baird. "The stronger the presence they can have in growing international markets, the better for the company long-term."
• FTI hasn't been doing so badly in the recent past. Since 2003, revenue has been growing around 30% a year on average. Factoring in costs for acquisitions and hirings, earnings have grown slower. Last year they actually dropped 2%.
• But earnings have kicked up this year. In the third quarter they rose 56% from a year ago, to 50 cents a share. Analysts polled by Thomson Financial expect full-year earnings to rise 45% to $1.98, and then 18% in 2008.
• FTI benefits from what analysts call "event-driven" business -- not exactly the positive kind -- that keeps cropping up in the post-Enron era. New SEC regulations such as Sarbanes-Oxley have helped generate a lot of new business. The latest "event" to help business: the subprime credit collapse.
• Also from the subprime spillover, Dunn says FTI has been hired by some private, midtier home builders to help salvage assets. It's also helping some midmarket borrowers restructure their debt.
• Analysts expect FTI's large restructuring practice, which slowed last year, to pick up due to the credit crunch and slowing economy.
• FTI's experts -- some 1,800 at last count -- help clients with issues dealing with accounting, financial disclosure, fraud, collusion, price-fixing, litigation, antitrust, mergers and restructuring. One subsidiary, Palladium Partners, even sends high-level managers to work in top posts on an interim basis.
• "They are best of breed in a lot of practice areas they are in," Bacurin said.

Zach over at Zachstocks did a nice piece of Huron Consulting back in October

• As companies continue to battle the strain of Sarbanes-Oxley, many are turning to consultants to provide efficiency and expertise. At the same time, our litigious society requires vigilance and documentation so that firms are able to fend off accusations of neglect or other liabilities. Huron Consulting (HURN) specializes in litigation, business disputes, regulatory compliance; which puts them in a sweet spot where demand is strong.
• HURN has a diverse client base serving Fortune 500 companies, mid-size companies, and a strong presence in hospitals and universities. The company has grown both organically and through acquisition since coming public in late 2004. While most of the organic growth has occurred in well established business lines, acquisitions have allowed the company to branch out into additional sectors or geographies. A recent purchase of Glass and Associates strengthened the company’s presence in their Corporate Advisory Service practice and also gave the company a presence in the UK and Germany.
• Concerns of a decline in the overall economy may be a boon to the company. Statistics point to a resurgence in bankruptcy filings after a sharp decline following the rule changes last year. As this bankruptcy rate upticks, it means more business for the legal functions. At the same time, regulatory compliance is not a discretionary function and so the company should enjoy strength in this are regardless of the economic cycle.

Both companies were upgraded last Friday in fact and at this time Huron's chart turned positive for the first time in a long time.

• A Banc of America Securities analyst began coverage of FTI Consulting Inc. and Huron Consulting Group Inc. at "Buy" on Friday, expecting both companies to do well during an economic slowdown.
• Analyst Abhishek Gami said FTI's market-leading bankruptcy practice will benefit from a weakening U.S. economy. Gami said the company, whose clients include top U.S. law firms and large banks, among others, has also advised on high profile restructurings. "The company is positioned to grow in any economic environment, though it should perform particularly well as corporate fortunes turn downward," Gami wrote in a client note.
• Gami has a $70 price target on the stock and said further catalysts include acquisitions, international growth and expansion of its technology business.
• Meanwhile, Gami began coverage of Huron Consulting with a "Buy" rating and $86 price target. Gami said Huron specializes in the legal, corporate, health care and higher education sectors and can grow in many economic conditions.
• Gami said the company bought Glass & Associates earlier this year to prepare for an expected increase in bankruptcy and turnaround activity. "While demand for these services has been slower to materialize than expected ... we believe that it is just a matter of time before the opportunities arise," Gami wrote.
• Also, Gami said a rise in the company's bill rates reflects the company's ability to execute strongly. Gami said average hourly bill rates have risen about $100 to nearly $300 since the company went public in 2004.

**************
The companies are not cheap; FTI trades at 25x 2008 estimates and HURN at 22x 2008, but if you believe, like me, the economy is heading for a slowdown and we will see companies begin to head to bankruptcy, their services will become more and more necessary and their earnings growth should be solid for the 2008-2010 time frame.

Technically, FTI Consulting has held up well in this sell off - putting in a series of higher lows. It's 1 year chart is a thing of beauty. It's 20 day moving average is $57.50 which is where I'd like to add to this starter position. The 50 day is down at $55. Current price is just under $59.

Huron Consulting had an earnings miss in late October and investors fled, leaving the stock crushed down to low $60s. But it quickly rebounded to near $70 and for the past 3 weeks the stock has been in a range of $63-$70. It's 200 day moving average has been roughly $66, and its 50 day moving average has been roughly $70 during this time, so it has been turned back at the resistance area of its 50 day moving average for most of the past month. Until Friday, when it gapped up above this area, and has held firm even through yesterday's sell off. I find this very positive technically. So I've begin a starter position today just north of $70.

I plan to add to both these over time - again, these are not like dry bulk shippers or solar stocks that will put on 30% moves (or drops) in 2 weeks, but should be like a Mastercard (MA) or Blackrock (BLK) - slow steady growers over time and increasingly valuable in a slowing economy. More importantly if this global slowdown theory begins to play out, they should be able to hold up and provide a different spin to the portfolio than my typical holdings.

I've started both positions at just under 1% of the fund, 150 shares of Huron Consulting and 160 shares of FTI Consulting. I will look at add to both over time.

Long FTI Consulting, Huron Consulting in fund; no personal positions

Katy Bar the Door

Adding to Ultrashorts....

EDIT: Ok false alarm - I saw that S&P 500 head to 1400 and some stocks drop off a cliff in a matter of minutes... looked bad for a second. Still not out of the woods but some rebound now.

Bookkeeping: Starting Best Buy (BBY) Position

I mentioned yesterday the reasons I was interested in Best Buy (BBY) [On the Buying List: Best Buy]. True to form the stock is actually up 1.5% in a (once again) bad tape.

I am going to begin my starter position here with a 200 share buy in the mid $48s. I will buy the next batch if/when the stock crosses above $49.50 which would confirm a new trend up (with the stock increasing past a recent peak reached a month ago)...

This is a 0.9% position for the fund and I am looking at what is bucking the trend in a gosh awful market. I am not too antsy to increase long positions in this tape so I am not going whole heart in at this time.

Best Buy and all the consumer gadgets it sells is one area the strapped consumer will actually be spending. For more detailed reasons, click on link above.

Long Best Buy in fund; no personal position

More Concerns about Solar ASP Pricing from Jeffries

As I just wrote in my JA Solar (JASO) commentary and wrote a very lengthy entry on this weekend [Price Concerns Already an Issue], Notable Calls blog is out with a note by Jeffries [Solar Module ASP likely to decline by 15% in 2008E] indicating a very aggressive erosion in prices throughout the entire supply chain. This is very interesting to see, because thus far I have felt like quite the outlier calling for ASP declines to start affecting things much sooner than 'the consensus' think, but this analyst seems to agree with me; although in fact he is calling for much more lower prices than even I assumed (and much earlier). Combined with the survey we saw this weekend from the industry itself it surely is food for thought for solar bulls. I continue to stress for investors to stick to those companies with scale/size/R&D and cash. Not all companies can be winners in any industry - despite the mania that currently envelops solar investors. Those with weaker margins in this industry are only going to get crunched as prices (eventually) fall. As I wrote earlier, I think Spain is masking the situation this year and probably for another 2 quarters.... but I think the next 4-6 quarters should be very interesting in this space.

• Jefferies is out with an interesting call saying they believe that global solar module ASP is set to decline by 15% in 2008E due to the rising percentage of sales to mature and lower priced solar markets. They expect that solar module supply will expand from 2.5 GW in 2007E to 4.6 GW in 2008E. Most of this increased supply is driven by new silicon capacity coming on line in the coming months.
• The firm expects that the leading solar markets of Germany, Japan and (to a growing extent) the USA will have to absorb a significant portion of this new supply. These markets already have the lowest module ASPs and are the most price sensitive which will force further price reductions in order to stimulate demand.
• Jeffco expects that the pain of this price erosion will be shared unequally throughout the solar value chain. Their base assumption is that a 15% module price decline will lead to a 10% decline in cell prices and a 5% decline in wafer prices while silicon price will be unaffected. Margins will be most affected in the module and cell production segments.
• Notablecalls: The consensus estimate for solar module ASP decline for 2008 is around -5%, which certainly makes Jeffco's call an out-of-consensus one. I'm not sure if this call is an outright actionable one, but would not be surprised to see weakness is many of the high-flying solar names in the n-t.

So if this call is accurate the module makers will take the largest hit (15%), then down to cells (10%), and then down to wafers (5%). Wafers is the domain of LDK Solar (LDK) a much maligned company I am slowly (very slowly until mid December) building a position here near $29-$30.

Long LDK Solar in fund; no personal position

Hedge Fund Makes 1000% in a Year

Ok, I readily admit I am jealous. :)

Financial Times has a story out on the 1000% return of a hedge fund betting against (wait for it... wait... wait...) subprime! Shocker. Now, there is no easy way for average Joe to do what this guy did, but more power to him - this is apparently the same stuff that is helping Goldman Sachs (GS) stand above the morass. What is interesting is the manager is so negative on the entire credit spectrum (join the club, mate!) and also thinks commercial is the next dangerous area (join the club, mate!) For those who want to join that party, one UltraShort I've held since August is UltraShort Real Estate (SRS) which is actually a bet against a basket of commercial REITs. (there is no pure play UltraShort to play the carnage in residential real estate, so this was my next best option) In fact I think this UltraShort will be even better in 2008 than it has been in latter 2007 when the economy slows and commercial rates start falling. But it's been a great hedge this year as well. And in fact I just bought more early this AM.

• A Californian hedge fund has made more than 1,000 per cent return this year by betting against US subprime home loans, making it one of the world’s best-performing funds of all time.
• Lahde Capital, set up in Santa Monica last year by Andrew Lahde, last week passed the 1,000 per cent mark, after fees, following the latest leg of the credit market turmoil. The fall in the value of subprime-linked securities has boosted a group of funds which spotted the problems in advance.
• The decision to use derivatives to short, or bet against, low-quality US home loans taken by a select group of hedge funds last year appears to have become the most profitable single trade of all time, making well over $20bn in total so far this year. John Paulson’s New York-based Paulson & Co, the biggest of the group with $28bn under management, is said by investors to have made $12bn profit from the trade already.
• However, Mr Lahde, whose fund is one of the smallest specialists shorting subprime, has now begun to return money to investors, telling them in a letter: “The risk/return characteristics are far less attractive than in the past.”
• In his letter, Mr Lahde said he expected the collapse in value of subprime mortgage-linked securities to be repeated for bonds backed by commercial property loans in a deep recession – which he also predicts.
• “Our entire banking system is a complete disaster,” he wrote. “In my opinion, nearly every major bank would be insolvent if they marked their assets to market.” He also said he would be putting some of his own profits into gold and other precious metals. (sound familiar folks?)
• Mr Lahde has used the phenomenal returns to boost his business, launching a fund to bet against commercial real estate this autumn – which made 42 per cent in its first two months – and is in the process of creating a third fund to short credits with a broader mandate.
• Lahde’s first fund, US Residential Real Estate Hedge V Class A, soared 712.8 per cent in the year to the end of October, before this month’s sell-off pushed it past the 1,000 per cent mark.

Nice job! And this folks is why Helicopter Ben must continue to inject liquidity by the week into the market. And why we allow things that people went to jail for at Enron to be pushed through by our Treasury Secretary - Superfund! We can't dare allow those things to go on balance sheets. At least HSBC bit the bullet this morning and did the honorable thing. Transparency is key; even if the news is horrible. We still don't get that here in the good ole US of A. Or maybe if the full plight were known it would simply cause panic of epic proportions. Hmmm.... oh well back to the printing presses Ben. Keep printing, keep handing that money over to our responsible financial institutions and keep destroying the peso... I mean dollar. Let's inflate our way out of this... all together now... heave!

Long Ultrashort Real Estate in fund; no personal position

Bookkeeping: Cutting Some Mosaic (MOS) Today

This is simply a strategic move to be disciplined and raise cash when offered. #1 position Mosaic (MOS) is up 6% or so to mid $64s. I had bought quite a bit in upper $50s-$60 on the last pullback, so I am locking in some near term profits and raising some cash. I think Mosaic is woefully undervalued considering its pricing power in any sort of economy, and will make a run to $80 in time, but until the market returns to normal we seem to be range bound on this name. If we get another pullback to upper $50s-$60, I will simply buy these 200 shares back. Unfortunately this pattern of trading is the only way to make money in the past month.

Sold 200 of 1100 shares or 18% of position raising roughly $13K. Mosaic remains the top position in the fund at 5.1% of fund.

Long Mosaic in fund and in personal account

JA Solar (JASO) Catches an Upgrade

Lehman Brothers grows more positive about JA Solar (JASO). One part of the world where incentives are holding up well (at least through fall 2008) is Spain, and the push to sell product there has helped buoy Average Selling Prices (ASPs) across the industry for those who are selling into this country. While potentially a shorter term catalyst as these incentives are probably pulling in a lot of demand in a rush to take advantage of the very favorable structure of these incentives, the market seemingly only looks at the near term...

I believe ASP's will become more of an issue by middle of 2008 but the market generally only seems to look out 3-6 months so it should not be a major drag for the near term for the industry. JA Solar is quite a narrow scope of a company focusing solely on cell production so there carries some risk in such a strategy but at this point they are basically an arms merchant for the industry. Other larger players are taking their cell mfg in house, but it appears a new slew of smaller solar players are being formed by the quarter in Taiwan and China so those companies will be interested in JA Solar's product. Even companies who have made a pledge to bring cell production in house (which helps their margins) are being forced to continue to outsource their buys of solar cells, as today's announcement by Canadian Solar (CSIQ) highlights. Volumes in the industry are just expanding that fast...

That said, JA Solar is relatively capacity constrained in the near term so I am not sure if the company will be able to live up to investors short sighted expectations of massive sequential revenue growth - this will be an issue I have to revisit later in the quarter. With that said, technically the chart for JA Solar has held up very well in this sell off.

• Shares of JA Solar Holdings Co. Ltd. rose in premarket electronic trading Monday after a Lehman Brothers analyst raised his target price, saying the solar cell maker's fourth-quarter sales prices and margins could surpass expectations.
• Vishal Shah, who rates the stock "Equal weight," raised his target to $65 per share from $55. While he had expected JA Solar's sales prices to decline, Shah now thinks they will be equal to third-quarter prices or slightly higher. He attributed the change to greater demand from Spain.
• Shah added that the prices for solar wafers, which JA Solar buys mostly from Jinglong Co., have increased less than he expected.
• "Our recent checks suggest that wafer prices in the spot market are tracking better than our expectations for Jinglong's wafer pricing and consequently JA Solar may not purchase the additional high priced wafers from Jinglong," he said.

Long JA Solar in fund; no personal position

HSBC (HBC) Bails Out 2 Funds to the Tune of $45 Billion

A lot more dangerous than the 'write off' mania we have is the action done today by HSBC. When banks are forced to bring assets onto the balance sheet, this will be the next level of 'fallout'. It looks like it is already happening - quicker than even I assumed. This is essentially what the Super Bailout Fund... err the Superfund is created to do. So that US banks (specifically Citibank) don't have to do such actions. Again, it boggles my mind why regulated industries are allowed to have off balance sheet entities at all. Apparently this is not just a US phenomenon either - this is why I worry quite a bit about the UK - they seemed to have followed in the 'innovative' tradition of US financial system more than the main continent.

HSBC Bails Out 2 Troubled Funds

• HSBC Holdings PLC, Europe's largest bank, said Monday it will bail out two troubled funds it manages by transferring about $45 billion of their assets onto its balance sheet.
• HSBC said it will also inject $35 billion into the two funds, Cullinan Finance Ltd. and Asscher Finance Ltd., in a move that will clarify responsibility for the funds and prevent liquidation of their assets.
• The funds are "structured investment vehicles" or bank-sponsored businesses that sell short-term debt but have been operated off the bank's balance sheet.
• Structured investment vehicles, or SIVs, are bank-sponsored businesses that sell short-term debt -- such as unsecured commercial paper -- to investors such as hedge funds. The banks use the proceeds to buy longer-term assets, like mortgage-backed securities.
• SIVs normally generate money through fees and the difference between short-term and long-term rates. But in August, demand for short-term assets dried up, creating liquidity problems for SIVs.
• The viability of an SIV relies on its ability to continue borrowing money. Amid this year's flight from risk, lenders in the commercial paper market have frequently balked at letting borrowers "roll over," or extend, their debt. This is what is happening to most of the world's roughly 30 SIVs, which collectively manage about $320 billion.
• Earlier this month, bankers from Citigroup Inc., JPMorgan Chase & Co. and Bank of America Corp. announced an agreement on a multibillion-dollar fund to buy distressed debt securities. HSBC, whose SIVs are among the largest in the market, said it would not be participating in that fund.

Well I guess it's only $320 Billion worldwide... whats a third of a trillion between friends anyhow...

S&P 1440 Fails to Hold Thus Far

Well after 45 minutes of decent action it appears S&P 1440 rears its ugly head and the market (at this moment) is weakening. Pretty sad we cannot put even a half effort at a rally.

I don't watch the Dow much since its so narrow (30 companies) but obviously 13,000 is a key psychological level and we are right there as well.

I lightened up a bit on a few positions that showed strength this morning - mostly stocks that were well under their 50 day moving average but made nice surges this morning (i.e. McDermott +7%) to get back to their 50 day moving average from below - simply technical moves. This helped raise some cash and I broadened my short exposure. Sadly we don't even get 3 day rallies anymore - they are more of the 1.25 day types.

Until the market proves otherwise, it is not to be trusted to the long side. 1440 remains the key point; obviously the direction can change quickly one way or the other in just a few hours. It remains a traders market, not an investors...

Coal, interestingly, as a group is showing a lot of strength this morning.

Tracinda Says Tesoro Rights Plan Threatens Tender

I initiated a position in Tesoro (TSO) in early November for dual purposes of potential pullback in crude oil pricing (which should help refiners margins) and tender offer at $64 per share by Tracinda. After spiking off the tender offer the stock sunk back to $56, which is where I bought. This indicated the market somehow doubted this would go through and lo and behold, at least in the near term, once again the market knows better. Tesoro promptly adopted a 'poison pill' provision which will make it harder for Tracinda to carry out plans and agitate for initiatives that will help push the price up. Further, they might just abandon the plan to tender part of the company at $64.

• Investor Kirk Kerkorian's Tracinda Corp on Monday said that refiner Tesoro Corp's (TSO) decision to adopt a "poison pill" shareholder rights plan could jeopardize its offer to buy 16 percent of Tesoro's shares.
• Tracinda launched an attempt last month to buy up to 21.9 million shares at $64 a share, a nearly 12 percent premium over where the shares were then trading. If completed, the tender offer would bring Tracinda's total stake in the company to 19.98 percent.
• Tesoro adopted the rights plan last week. The plan would make it more costly and complicated for Kerkorian to launch a hostile bid for the refiner.
• Tracinda said it believes the rights plan significantly limits opportunities to enhance stockholder value and has a material adverse effect on the value of Tesoro's common shares.

While I still like the space due to potential of crude oil pricing to pull back, my favorite name is Frontier Oil (FTO), and Tesoro (TSO) was more of a play on the Tracinda bid. Since that part of the thesis is looking weaker by the day, I am going to cut back my position by about half from 525 to 250 shares. This brings Tesoro down to a 1.3% position; this sale is roughly $55 so a $1 loss per share from my entry point and helps to raise $15K for other buys. I will monitor the situation further and from a technical standpoint, one would want the stock to hold $54, the 50 day moving average. If not, the stock could weaken considerably, and it will be time to exit completely for now.

Long Tesoro, Frontier Oil in fund; no personal positions

On the Buying List: Best Buy (BBY)

I mentioned in my most recent Apple (AAPL) post about my interest in Best Buy (BBY). Despite the general consumer weakness, I still think the consumer electronics play is in, and if there is 1 area consumers will be spending on it is gadgets. GPS, cameras, HDTVs, video games, and Apple products. Circuit City (CC) in fact rose 20% Friday - not sure why (talk about worst of breed), but it's main competitor Best Buy, has a chart which is starting to look attractive.

Best Buy is not a typical holding for the fund, as a long term secular growth story, but as always I try to keep about 10% of the portfolio for shorter term opportunities, and with retail simply washed out and hated the environment is here for a nice move.

Technically, Best Buy broke back above its 200 day moving average last Tuesday, and confirmed this Wednesday (in a terrible tape) and Friday with 2 more closes above that mark. We also have 3 days in a row of higher lows, so a trend seems to be in place. While short on cash, I will be looking for candidates to sell to free up some money. While the market as a whole is miserable we are simply overdue sooner or later for some level of bounce and I believe Best Buy will be providing some good results in the quarter ahead. The company reports December 18th, but that will be "last quarter's results", so while there is always risk holding a company through earnings, I think they could speak to positive trends that will be happening in the last week of November through mid December at the time of that call.

The stock is currently at $48, a breakout above $50.50 would take the stock to the highest level since Feb 07. A failure to advance past the $49-$50 range would portend a fall back in the stock price. A position like this is very easy to manage since the 200 day moving average is $47.25. Any drop below this level, and you take the small loss and say "wrong decision".

The stock trades at about 15x earnings, for about 15x growth but this is neither here or there for this type of position. This is simply a Christmas trade with a holding period of perhaps 4-8 weeks, depending on stock performance. A speculator might look at Circuit City instead but Best Buy has proven to be far and away the best merchandiser in this space, so I will go with the quality leader here.

No position but will be looking to buy early this week

98 Stocks that Returned >5% in the Past 30 Days

I ran a simple screen to see how difficult it would be to be able to return 5% over this past horrid 30 days. Amazingly there were only 98 stocks that fulfilled the characteristics

1. Returned 5% or more over past month
   
2. Market cap of at least $2 Billion
3. Average Daily Volume >=100K
4. Stock price >=$10

Here is the full list (sorted from largest co to smallest) if you are interested - some are "flights to safety" and some were earnings driven, but essentially the pickings are slim to find any sort of winners out there outside of very small cap stocks.

Symbol	Company Name	Market Cap	% Return 30 Days
PBR	Petroleo Brasileiro ADR	221.0	10.1
RHHBY	Roche Holding 144A ADR	167.5	12.7
RTP	Rio Tinto ADR	158.5	18.5
EONGY	E ON ADR Reptg 1/3 Ord Shs	136.4	5.3
SI	Sielspon ADR	131.7	10.1
NVS	Novartis ADR	128.5	7.4
SNY	Sanofi-Synthelab ADR	125.9	7.4
OGZPY	Gazprom Rep 4 Ord Shs ADR	115.7	5.2
DT	Deutsche Telekom ADR	98.2	9.3
UNH	UnitedHealth Group Inc	69.9	12.7
DCM	NTT DoComo Sponsored ADR	66.1	12.8
UL	Unilever Depository Receipt	58.3	7.8
UN	Unilever NLG 1.12 ADR	56.8	9
EMR	Emerson Electric Co	43.0	6.4
MC	Matsushita Electric Industrial ADR	43.0	12.1
CL	COLGATE PALMOLIVE	40.3	6.8
RIG	Transocean Inc	36.9	8
DE	Deere & Co	34.5	7.7
SO	Southern Company	28.9	5.1
MHS	Medco Health Solutions Inc	26.1	5.9
DUK	Duke Energy NYSE Ord Shs	25.1	5.9
MA	MasterCard Inc	23.6	15.3
NEM	Newmont Mining Ord Shs	23.5	9.5
TKC	Turkcell Iletisi Depository Receipt	22.0	10.1
LPL	LG Philips LCD Co Ltd	19.5	11
MCK	McKesson Corp	19.4	14.6
GSF	GlobalSantaFe Corp	19.4	8.4
RAI	Reynolds American Inc	19.2	5.3
CEG	Constellation Energy Group	18.0	5.1
AVP	Avon Products Inc	17.7	7.5
TEL	Tyco Electronics Ltd	17.6	5.1
COSWF	Canadian Oil Sands Trust	17.1	6.4
FSLR	First Solar Inc	16.4	39.7
ESRX	Express Scripts Inc	16.3	5.6
AOC	Aon Corp	14.0	5.1
KTC	KT Corp Depository Receipt	11.5	14.5
STP	Suntech Power Holdings Co Ltd	10.5	23.4
CLX	Clorox Co	9.0	5.3
SVU	SUPERVALU INC	8.7	5.8
VRSN	Verisign Ord Shs	8.1	6.2
AIZ	Assurant Inc	7.8	12.9
NT	NORTEL NETWORKS CORP	7.4	7.1
IRM	Iron Mountain Inc	7.0	9.4
CRM	salesforce.com inc	6.5	7.2
CNP	CenterPnt Energy Ord Shs	5.6	6.5
AG	AGCO Corp	5.5	15.6
FLS	Flowserve Corp	5.3	20.1
SPW	SPX Corp	5.3	7
DLB	Dolby Laboratories Inc	5.0	10.1
PGS	Petroleum Geo Services ADR	4.9	6.5
NU	Northeast Utilities	4.9	9
CBI	Chicago Bridge & Iron Co NV	4.9	14.9
TEO	Telecom Argentina ADR	4.9	9.7
MKC	McCormick & Co	4.8	8.6
COGN	COGNOS INC	4.8	17.6
MLNM	Millennium Pharmaceuticals Inc	4.6	21.1
MIL	Millipore Corp	4.4	8.5
FST	Forest Oil Corp	4.4	5.1
CRL	Charles River Laboratories	4.3	6.3
IVGN	Invitrogen Corp	4.3	9.6
PCLN	Priceline.Com Ord Shs	4.1	24.9
URBN	Urban Outfitters Inc	4.1	7
HEW	Hewitt Associates Inc	3.9	8
SRP	Sierra Pacific Resources	3.8	9.3
RESP	Respironics Inc	3.7	5.9
HP	Helmerich & Payne Inc	3.6	13.6
RMD	Resmed Ord Shs	3.5	11.2
IMA	Inverness Medical Innovations Inc	3.5	5.2
CHD	Church & Dwight Co Inc	3.5	10.7
PPP	Pogo Producing Co	3.5	5.7
LEG	Leggett & Platt Inc	3.4	6.6
FRO	Frontline Ord Shs	3.4	5.9
DPL	DPL Ord Shs	3.4	10.1
PTNR	Partner Communications Co Ltd	3.2	15.1
BR	Broadridge Financial Solutions	2.9	8.6
ONXX	Onyx Pharmaceuticals Inc	2.9	21.7
FCN	FTI Consulting Inc	2.9	7.4
FOSL	Fossil Inc	2.9	11.5
SPN	Superior Energy Services Inc	2.9	5.4
SEPR	Sepracor Inc	2.9	10.7
LNCR	Lincare Holdings Inc	2.8	5.4
GFIG	GFI Group Inc	2.8	9.5
PRGO	Perrigo Co	2.8	28.8
ORH	Odyssey Re Holdings Ord Shs	2.7	5.7
PAAS	PAN AMERICAN SILVER CORP	2.6	13.5
GXP	Great Plains Energy Ord Shs	2.6	5
PHRM	Pharmion Corp	2.4	36
TDG	TransDigm Group Inc	2.3	15.3
DRQ	Dril-Quip, Inc	2.3	5.5
BYI	Bally Technologies Inc	2.3	9.1
CGI	Commerce Group Inc	2.2	12.8
MVL	Marvel Entertainment Inc	2.2	17.1
FIC	Fair Isaac Ord Shs	2.1	12.1
LDG	Longs Drug Stores Corp	2.1	7.8
NG	NOVAGOLD RESOURCES INC	2.1	10.3
WTI	W&T Offshore Inc	2.1	10.6
UTHR	United Therapeutics Corp	2.1	34.8
ARO	Aeropostale Inc	2.0	18.2