Monday, December 24, 2007

Quiet Day

In this shortened day I did not do much.

Took some more profits off that crazy Solarfun (SOLF) up another 15% after a huge spike Friday. I am now down to almost nothing in this position, but with the mania in the sector there is no reason it could not be a $40 stock by end of week (currently $33) but it has now turned into pure speculation. The solar sector is again reaching a point (aside from LDK Solar (LDK) and Trina Solar (TSL)) where valuations are getting hard to justify. But speculators don't care about valuations.

I added a bit to two positions which recovered their 50 day moving averages, FTI Consulting (FCN) <--looks ready to breakout, and Gafisa (GFA). (Gafisa is at a critical juncture, it could either break down back below its 50 day moving average or break out to make a run - hard to tell)

I also added to some of my Ultrashort positions late in the day. I don't want to go overboard because in a very thinly traded market, which we will have this week, the market is very hard to assess.

My overall plan now is to snip away at some of the larger winning positions into rally, and increase some short exposure. Despite my love for all things fertilizer some of these charts are getting might extended so I might need to start snipping away if the rally continues in the latter part of the week. I am already down to a 6% allocation and I don't want to go much lower but some of the moves of late have been quite powerful and with a market I don't trust overall I want to lock in some gains.

The only reason to change this approach is if the market takes off to new all time highs - and then once again we go back to drinking kool aid and pretending the coming economic tsunami is just a figment of our imagination. But until I see otherwise I will simply be going down the path outlined above.

As an aside, I really like what I am seeing from Apple (AAPL)... I try not to mention this name to often because I could write a good thing each and every day about this company and the overall story is not a mystery or ground breaking stuff. The stock just broke to an all time high and we are about to his $200 in this name.

Have a good Christmas and we'll see you Wednesday.

Long all names above in fund; long LDK Solar in personal account

Bloomberg Outraged by Ethanol in Farm Bill

(note: I am not in either party and think 99.8% of politicians are quite useless so this is not a political post)

I do have to say if not Ron Paul than maybe Mike Bloomberg. This sounds like a guy gearing up for a run. Unlike most of the others who clap like seals that we give the 10% largest farmers (not the small farmer mind you) these huge subsidies to produce a product that consumes as much energy as it generates (if not more), while driving up food prices [Why Fertilizer Will Continue to be a Winner; and Why Food Inflation Won't be Stopped by the Fed], at least Bloomberg speaks the truth.

I guess > a billion in net worth affords you such luxuries as not having to pander to the Iowa masses.

Bloomberg and Ethanol
  • Michael Bloomberg is not a fan of ethanol, the corn-based fuel that is critical to farmers in the key caucus state of Iowa and whose increased production is mandated by the energy bill President Bush signed this afternoon.
  • The mayor, asked about the subject during a Q&A near the South Street Ferry Terminal this morning, said the increased production will make food more expensive in America and have “world wide implications” on the overall supply of food.
  • “The part of the bill that, uh, requires using more ethanol was an outrage,” Bloomberg said. “That is going to drive up the cost of food for everybody in this country and have world-wide implications on the food supply. The bottom line is you cannot keep growing corn for ethanol and have reasonably priced food in our country. Farmers are already walking away from planting wheat and soybeans and other things to go over and plant corn because they’ll be able to sell this corn to be used in ethanol plants.
  • There is no evidence whatsoever that the ethanol that is made is fuel efficient or anything else. It’s just, it’s a farm bill rather than an energy bill and I’m not even sure it’s good farm policy. Most of the farm things that we do don’t benefit most farmers. They just benefit ten percent of the more industrial-sized farms. And the small farmers who we really should be helping in this country, who needs a lot of help isn’t sharing in that. So it’s bad energy policy and probably bad agricultural policy.”
  • This is not the kind of rhetoric someone running in the Iowa caucuses can afford to spout. But someone who bypasses the primaries and caucuses and runs as an independent....
Finally, someone in Washington speaking the truth. Wait, he is not in Washington....

I'm just glad someone sees the reality.

Until things change... keep those agriculture stocks at the forefront....

China to Subsidize Rural Farmers Consumption

What an interesting story - China is trying to turn its farmers into American like consumers. I suppose this is what you can do when every day your country bring in boatloads of cash in trade (exact opposite of the US situation)... but quite an interesting maneuver - not sure how much this centralized planning will work and I think farmers have other issues i.e. facing raging inflation costs in their food.... but....

China Subsidies To Boost Farmers' Appliance Spending
  • China will subsidize farmers' purchases of televisions, refrigerators and cell phones to narrow the wealth gap with city dwellers and boost consumption in the world's fourth-biggest economy.
  • The government will pay 13 percent of product prices for farmers in Shandong, Henan and Sichuan provinces in a pilot program that may be extended nationwide, the finance and commerce ministries said on their Web sites on Dec. 22.
  • Almost 740 million of China's 1.3 billion people live in the countryside, where incomes are less than a third of those in the cities. Boosting rural spending may help to curb the nation's dependence on investment and exports for growth.
  • ``Up until now, rural households have spent most of their incomes on food and clothing,'' said Qi Jingmei, a researcher in Beijing at the State Information Center, an affiliate of China's top economic planning agency. ``There's tremendous potential in the rural market.''
  • The plan will ``significantly'' increase rural spending, improve farmers' living standards, narrow China's record trade surpluses and boost consumer-goods manufacturers, according to the ministries' statement. They didn't give costs.
  • Rural ownership of home appliances at the end of last year was at the urban level of almost 20 years ago, Xinhua reported Dec. 22, citing government data. In the countryside, every 100 households had 89 color televisions, 22 refrigerators and 62 cell phones on Dec. 31. The urban figures were 137 color televisions, 92 refrigerators and 153 mobile phones.
  • Rural per-capita income climbed 15 percent to 3,321 yuan ($451) for the nine months through September from a year earlier. That was less than one third of the 10,346 yuan earned by city dwellers.
  • Rolled out nationwide, the subsidies may curb industrial overcapacity and, annually, reduce the trade surplus by more than $10 billion and increase domestic consumption by 100 billion yuan, Xinhua said, citing Zeng Xiaoan, deputy head of the economic construction department of the finance ministry.
  • China's exports of televisions, refrigerators, washing machines, air conditioners and cell phones accounted for $50 billion, or 28 percent, of last year's trade surplus, according to Zeng.
Now if you were a cynic, you'd argue that the Chinese government's over zealous plan to overbuild any and all types of manufacturing is creating huge overcapacity in certain industries. And if you were a cynic you'd say this is a "2 for 1" special of alleviating some of that overcapacity AND trying to help the poor folk in the far regions of the country to maybe offset them being upset with their raging food inflation [China Inflation Highest in 11 Years - Why Do You Care?].

Luckily, I am not a cynic. ;)

Giant Interactive (GA) - Recent IPO Buying Back Shares?

Giant Interactive (GA) is one of the handful of Chinese video game makers...not a stock that really fits the fund profile but it's on one of my watch lists and I saw a huge spike this morning... curious to see what was driving the news I found news of a share buyback.
  • Giant Interactive Group Inc. said Monday that the online game developer's board has approved a buyback program for up to $200 million of its outstanding American Depositary Shares.
  • The China-based company expects to buy back stock over the next 12 months in open-market and other transactions. Giant plans to fund the repurchases from available working capital.
  • Chairman and Chief Executive Yuzhu Shi said the company's current share price does not reflect its potential value. "Furthermore," Shi said, "we firmly believe that our available cash resources will allow us to implement a share repurchase program while continuing to pursue growth opportunities."
All well and good until you realize this stock has not even been public for 2 months.... (already buying back shares??)
  • Giant shares have dropped 34 percent since the company's initial public offering priced at $15.50 on Oct. 31.
Wonders never cease...

No position

Sunday, December 23, 2007

Unpaid Credit Cards Bedevil Americans

A kind reader (thanks!) pointed out this article to me.... part of the next flurry of shoes to fall by the cash strapped American consumer aka the world's consumer. I continue to believe the rising cost of living has been masked (for the homeowners) by their cash out financing in their homes aka ATM machine. Renters? I am trying to figure out how they have been surviving.... this is going to take a few quarters to play out (and the dollar amounts are not as huge as mortgages) and until the numbers start showing up in real data, the Goldilocks folks will tell you it's not a problem. Perhaps they are right. I am not in that camp though. Remember, the banks are siding with me, not Goldilocks TV commentators. They have been increasing their allowances for consumer defaults (this is getting lost in the focus on their massive writedowns). With that said, the 'forecasting' skills of banks should also be questioned by their last round of behavior... ;) But that is part of forecasting - if you simply rely on past information you have zero advantage over the 'crowd'.

Remember, across all income strata estimates are 70% live paycheck to paycheck. They don't have cushion for all forms of inflation now hitting them. The shell game has been home equity withdrawals... "now" they are going to credit cards.... when the credit card shell stops working I don't know. But just keep in mind, credit card debt has been packaged, securitized, and ship to your local hedge fund and (who knows?) local government municipality as well. Where this stuff is hiding is anyone's guess. This article taught me a new thing - 45% of credit card debt is now securitized. Wow. Also keep in mind, unlike mortgages (excluding the 2 year teaser type of longer dated ARMs) - credit card rates can change at a moment's notice. So your 11% rate can suddenly jump to 29% if you are late... on that card or really on any card in your portfolio. So unlike mortgages where you have some visibility (think hurricane), credit card rates can change at a moment's notice (think tornado). And that only makes the debt even harder to service... plus late fees.

Let's just cross our fingers and hope (aside from all those layoffs you will see in January in the financial world, once the executives get their huge year end bonuses), that most people do continue being employed ... or it can get far worse, far quicker than currently imagined.
  • Americans are falling behind on their credit card payments at an alarming rate, sending delinquencies and defaults surging by double-digit percentages in the last year and prompting warnings of worse to come.
  • An Associated Press analysis of financial data from the country's largest card issuers also found that the greatest rise was among accounts more than 90 days in arrears. Experts say these signs of the deterioration of finances of many households are partly a byproduct of the subprime mortgage crisis and could spell more trouble ahead for an already sputtering economy.
  • "Debt eventually leaks into other areas, whether it starts with the mortgage and goes to the credit card or vice versa," said Cliff Tan, a visiting scholar at Stanford University and an expert on credit risk. "We're starting to see leaks now."
  • The value of credit card accounts at least 30 days late jumped 26 percent to $17.3 billion in October from a year earlier at 17 large credit card trusts examined by the AP. At the same time, defaults -- when lenders essentially give up hope of ever being repaid and write off the debt -- rose 18 percent to almost $961 million in October, according to filings made by the trusts with the Securities and Exchange Commission. [again the raw totals are relatively small, but the percent increase is the focus here... this is still in an economy with historical low unemployment AND roaring GDP growth - if you believe the government numbers. Not hard to imagine a much darker figure if either of these pillars starts falling, but this will be a very lagging indicator. Americans are very good at playing the shell game... until they run out of shells]
  • Serious delinquencies also are up sharply: Some of the nation's biggest lenders -- including Advanta, GE Money Bank and HSBC -- reported increases of 50 percent or more in the value of accounts that were at least 90 days delinquent when compared with the same period a year ago.
  • The AP analyzed data representing about 325 million individual accounts held in trusts that were created by credit card issuers in order to sell the debt to investors -- similar to how many banks packaged and sold subprime mortgage loans. Together, they represent about 45 percent of the $920 billion the Federal Reserve counts as credit card debt owed by Americans.
  • Even after the recent spike in bad loans, the credit card business is still quite lucrative, thanks to interest rates that can run as high as 36 percent, plus late fees and other penalties.
  • The trend carried into November. As of Friday, all of the trusts that filed reports for the month show increases in both delinquencies and defaults over November 2006, and many show sequential increases from October.
  • Discover accounts 30 days or more delinquent jumped 25,716 from November 2006 and had increased 6,000 between October and November this year.
  • Economists also cite America's long-standing attitude that debt -- even high-interest credit card debt -- is not a big deal. "The desires of consumers to want, want, want, spend, spend, spend -- it's the fabric of our nation," said Howard Dvorkin, founder of Consolidated Credit Counseling Services in Fort Lauderdale, Fla., which has advised more than 5 million people in debt. "But you always have to pay the piper, and that can be a very painful process."
  • Filing for bankruptcy is no longer a solution for many Americans because of a 2005 change to federal law that made it harder to walk away from debt. Those with above-average incomes are barred from declaring Chapter 7 -- where debts can be wiped out entirely -- except under special circumstances and must instead file a repayment plan under the more restrictive Chapter 13.
  • In the wake of the jump in defaults on subprime mortgage loans made to borrowers with poor credit histories, banks have been less willing to allow consumers to consolidate credit card debt into home equity loans or refinanced mortgages. That is leaving some with no option but to miss payments, economists said.
  • Investors also are backing away from buying securitized credit-card debt, said Moshe Orenbuch, managing director at Credit Suisse. But that probably has more to do with concerns about the overall health of the U.S. economy, he said. "It's been getting tougher to finance any kind of structured finance -- mortgages, automobile loans, credit cards, student loans," said Orenbuch, who specializes in the credit industry.
  • "You're looking at more and more distress -- consumers desperately trying to preserve their credit lines, but there's nowhere else to go," said Robert Manning, director of the Center for Consumer Financial Services at Rochester Institute of Technology. "It's like a game of dominoes."
Dominoes.... shells.... you get the picture. We are a subprime nation. Wages pressured by a flattening global labor force... inflation rearing it's head... consumerism an "American right" (spend spend spend). I think the master plan by our central bank(s) is to try to force mortgage rates to 5.5% or lower (they can't directly affect the long term rate, but are working feverishly through various means to push in that direction) so people can try the refinance game yet again. Those with equity left in their house that is. Like a drug addict I think it becomes less effective each time we 'shoot up'. Should be interesting....

Best Performing Stocks the past Month

Below is a list of the best performing stocks of the past month. I always like to look at these lists to see what the market is favoring, try to find some new ideas, and to see how stocks I favor do in the big scope of things.

Since I focus mostly on mid caps and large caps I focused on market capitalizations of $2 billion or greater, trading at least 100,000 shares a day, and a price of at least $10. Using a minimum return of 12% for the past month, the list generated 179 names. Keep in mind the S&P 500 is up around 2.5% in that same time frame, and if not for Friday's big rally it would of been closer to 1.2%. I will highlight in green the fund holdings, and in blue stocks of interest to me (either considering to add to the fund, a stock that has been discussed a lot, or past holdings)

40 names generated at least 25% return, sorted by return here is that list. Lower on the page are those returning 12-25%. Some interesting notes - despite the pole axing LDK Solar (LDK) took the last 2 days it is still the 5th performing stock on the list, along with solar brother Yingli Green Energy (YGE). My top holding for much of the past month, Mosaic (MOS) came in 6th. A stock I have been asking to add to its portfolio, Mercadolibre (MELI) for the better part of 3 months came in 7th... I see it now finally available to trade in the system - unfortunately about 40% too late for my purposes. Think Ebay/Amazon of Latin America - very pricey but at $40 I could stomach it, now near $60 it's (BIDU) like expensive. I continue to be amazed at Consol Energy (CNX), which is a coal stock whose chart looks like a solar stock of late.

Happy to say we own 8 of the top 40 stocks of the past month, in the entire market (>$2 billion). You can see some of the same themes I have been espousing for months on end - agriculture, solar, infrastructure, coal. Notice how few "tech" stocks are in the list... and previously hot sectors which I have avoided/exited such as mining, dry bulk shipping, etc - are nowhere to be found. (victims of fears of potential worldwide slowdown). With that said, 1 month ago was near the market lows of November (within a few days), so the % return is off of a steep low point. Also, I am unclear how much longer these same sectors can continue their moves up - certainly with earnings season fast approaching we enter another tricky period. For example I do expect the fertilizer stocks to do very well but "finally" the analysts have gotten their models and expectations raised, whereas much of the past 2-3 quarters they were nowhere near where they should be. So this is how growth stocks get smushed... heightened expectations raised to a point that are impossible to achieve.

% Price Change
Symbol Company Name Last Month
LEAP Leap Wireless International Inc 58.6
GLYT Genlyte Group Inc 51.7
ATVI Activision Inc 47.6
YGE Yingli Green Energy Holding 47.1
LDK LDK Solar Co Ltd 46.2
MOS Mosaic Co 45.8
MELI Mercadolibre Inc 41.8
ARXT Adams Respiratory Therapeutics 41.3
HES Hess Corp 39.5
MASI Masimo Corp 38.9
BMRN Biomarin Pharmaceutical Inc 38.5
JASO JA Solar Holdings Co Ltd 38.3
MOGN MGI Pharma Inc 37
TT Trane Ord Shs 35.3
WFR MEMC Electronic Materials Inc 35.1
CF CF Industries Holdings Inc 34.9
MLHR Herman Miller Inc 33
AGO Assured Guaranty Ltd 32.4
JCG J Crew Group Inc 32
TRA Terra Industries Ord Shs 32
RESP Respironics Inc 32
PCS MetroPCS Communications Inc 31.9
CTV CommScope Inc 31.8
ANR Alpha Natural Resources Inc 31.4
UAPH UAP Hldg Corp 31.1
AMCN AirMedia Group Inc 30.6
RRC Range Resources Corp 30.3
CNX CONSOL Energy Inc 29.9
VIP VympelKom OAO 28.3
GNA Gerdau AmeriStl Ord Shs 28.1
CEDC Central European Distribution 27.9
MTL Mechel ADR Rep 3 Ord Shs 27.7
BEAV BE Aerospace Inc 27.2
CTX Centex Corp 26.8
FSLR First Solar Inc 26.8
CLWR Clearwire Corp 26.6
CLF Cleveland Cliffs Ord Shs 26
MDR McDermott International Inc 25.7
STP Suntech Power Holdings Co Ltd 25.1
FMX Fomento Economico Mexicano 25

**** Below is the remainder of the list ****

% Price Change
Symbol Company Name Last Month
BUCY Bucyrus International Inc 24.9
ITRI Itron Inc 24.8
ADM Archer-Daniels-Midland Co 24.4
OMTR Omniture Inc 24.2
JOYG Joy Global Inc 24.2
DECK Deckers Outdoor Corp 24.1
VMI Valmont Industries Inc 24.1
JEC Jacobs Engineering Group Inc 24.1
CNH CNH Global NV 23.1
MON Monsanto Co 23.1
IVZ Invesco Ord Shs 22.7
X United States Steel Corp 22.7
SID Sid Nacional ADR Repstg One 22.6
GME GameStop Ord Shs Class A 22.5
FCL Foundation Coal Holdings Inc 22.3
CPRT Copart Inc 22.3
FWLT Foster Wheeler Ord Shs 22.3
ACI Arch Coal Ord Shs 22.1
DO Diamond Offshore Drilling Inc 22
MTW Manitowoc Co Inc 21.9
SPWR SunPower Corp 21.8
TNH Terra Nitrogen Co LP 21.7
LULU lululemon athletica inc 21.3
IFN India Fund ETF 21
OSIP OSI Pharmaceutical Ord Shs 20.9
CSE CapitalSource Inc 20.5
ATW Atwood Oceanics Inc 20.2
CY Cypress Semiconductor Corp 20.2
MEE Massey Energy Co 19.3
GRP Grant Prideco Inc 19.2
EDU New Oriental Education & Technology 19
BYI Bally Technologies Inc 18.8
CYH Community Health Systems Inc 18.7
GEF Greif Class A Ord Shs 18.4
ITC ITC Holdings Corp 18
ILMN Illumina Inc 18
TRB Tribune Ord Shs 18
OZM Och Ziff Capital Management Group 18
CBI Chicago Bridge & Iron Co NV 17.9
DHI D.R. Horton Inc 17.8
JNPR Juniper Networks Inc 17.7
JOE St. Joe Co 17.6
OI Owens Illinois Ord Shs 17.6
CTSH Corp 17.6
PZE Petrobras Energia ADR 17.5
PCAR Paccar Inc 17.4
R Ryder System Inc 17.3
PTV Pactiv Corp 17.3
MA MasterCard Inc 17.3
CMG Chipotle Mexican Grill Ord Shs 17.1
COV Covidien Ltd 17.1
PRGO Perrigo Co 17
WDC Western Digital Corp 17
FRE Freddie Mac Ord Shs 17
LKQX LKQ Corp 16.9
CBD Companhia Brasileira de Distribuicao 16.9
RMD Resmed Ord Shs 16.8
LII Lennox International Ord Shs 16.5
SON Sonoco Products Co 16.4
CMI Cummins Inc 16.4
HANS Hansen Natural Corp 16.3
SII Smith International Inc 16.3
CHU China Unicom Depository Receipt 16.2
STLD Steel Dynamics Inc 16.1
NAVZ Navistar International Ord Shs 16
RDY Dr Reddy Labs Depository Receipt 15.7
SD SandRidge Energy Ord Shs 15.7
CRM inc 15.6
INFY Infosys Technologies Ltd 15.5
APC Anadarko Petroleum Ord Shs 15.3
CHRW CH Robinson Worldwide Inc 15.2
GPS Gap Inc 15.2
BKC Burger King Holdings Ord Shs 15.1
KWK Quicksilver Resources Inc 15
CE Celanese Series Ord Shs Ser A 14.9
FNM Fannie Mae Ord Shs 14.9
BTU Peabody Energy Ord Shs 14.8
FMCN Focus Media Holding Ltd 14.7
ISRG Intuitive Surgical Inc 14.7
DE Deere & Co 14.7
MCHP Microchip Technology Inc 14.6
MBT Mobile Telesystems ADR Rep 5 14.6
DCI Donaldson Company, Inc 14.4
HTV Hearst-Argyle Television, Inc 14.2
SEIC SEI Investments Co 14.1
AZO AutoZone Inc 14.1
AG AGCO Corp 14
OXPS optionsXpress Holdings Inc 13.9
OSG Overseas Shipholding Group Inc 13.9
WDR Waddell & Reed Financial, Inc 13.9
ES Energy Solutions Inc 13.8
BID Sothebys 13.8
SWN Southwestern Energy Co 13.8
MICC Millicom International Cellular 13.8
WIT Wipro Ltd 13.8
UTR Unitrin Inc 13.7
ARG Airgas Inc 13.7
VMW VMware Inc 13.7
JBHT JB Hunt Transport Services Inc 13.5
RCL Royal Caribbean Cruises Ltd 13.5
NUE Nucor Corp 13.5
OGZPY Gazprom Rep 4 Ord Shs ADR 13.5
SKS Saks Inc 13.4
SAN Banco Santander Depository 13.4
BLK Blackrock Inc 13.4
CVI CVR Energy Inc 13.2
WJAFF WestJet Airlines Ord Shs 13.2
PX Praxair Inc 13.2
ROH Rohm and Haas Co 13
ETN Eaton Corp 13
AAPL Apple Inc 13
SCS Steelcase Inc 12.9
APH Amphenol Corp 12.9
ITG Investment Technology Group 12.8
KB Kookmin Bank 12.7
NPD China Nepstar Chain Drugstore 12.6
ECL Ecolab Inc 12.6
SPLS Staples Inc 12.6
BMC BMC Software Inc 12.5
SOHU Inc 12.4
COG Cabot Oil & Gas Corp 12.4
AAP Advance Auto Parts Inc 12.4
RJF Raymond James Financial Inc 12.4
BX Blackstone Group LP 12.4
PBR Petrobras
CBG CB Richard Ellis Group Inc 12.2
SNP China Petroleum and Chemical (Sinopec) 12.2
TSRA Tessera Technologies 12.1
CVA Covanta Holding Corp 12.1
BCR C.R. Bard Inc 12.1
CBE Cooper Industries Ltd 12.1
AMZN Inc 12.1
HP Helmerich & Payne Inc 12
BG Bunge Ord Shs 12
MUR Murphy Oil Corp 12

Bookkeeping: Weekly Changes to Fund Positions Week 20

Week 20 Major Position Changes

Fund positions of 1.0% or greater can be found each week in the right margin of the blog, under the label cloud and recent comments areas; I highlight weekly the larger position changes.

Being a long only fund, via Marketocracy rules, the only hedges to the downside I have are cash or buying short ETFs. I cannot short individual equities.

To see historic weekly fund changes click here OR the label at the bottom of this entry entitled 'fund positions'.

Cash: 13.5% (vs 24.2% last week)
54 long bias: 79.2% (vs 56.5% last week)
5 short bias: 7.3% (vs 19.3% last week)

59 positions (vs 59 last week)
Additions: Atwood Oceanics (ATW), Blackrock (BLK)
Removals: Tesoro (TSO), Best Buy (BBY)

Top 10 positions = 26.8% of fund (vs 30.9% last week)
40 of the 59 positions are at least 1% of the fund's overall holdings (68.0%)

Major changes and weekly thoughts
I entered the weak relatively bearish with nearly a quarter of funds in cash and nearly 20% in the Ultrashort positions. Technically the markets looked pretty bad, having broken down below their 200 day moving averages, and potentially heading to test new lows. Monday the market fell quite hard, but in the face of more bad news Tue, Wed, and Thur - the market refused to slip further. The one number I have been watching (really for the past few months) is S&P 500 level = 1440. While we did test if briefly mid week, the market held that level all week. With the inability to breakdown further, along with the good earnings news out of Research in Motion (RIMM) I had a hunch we'd get a rally Friday [Santa Claus Rally?] and it worked out pretty well. However, we are now at the top end of our technical resistance (1485-1490) on the S&P 500.

In a general sense I slowly went from a high Ultrashort exposure (for the fund) at nearly 20% to less than half that as the week wore on, and moved that to long exposure, along with about half the cash. Unfortunately, we are already at technical resistance on the indexes, as we trade in a very tight range overall, where we go right from support to resistance every time we move 3% up or down.

Below are the fund changes this week - the specific rationale for each of these major moves is explained in the weekly posts which can be accessed in the left margin under archives.

Some of the larger changes (chronologically) to the fund below:
  1. Monday, I closed refiner Tesoro (TSO) after an upgrade from Citigroup; this closed out a losing trade which was based on the price of crude falling (along with a buyout offer from Tracinda). While crude fell, it did not help the refiners rise - and the buyout offer fell through. At this time the only refiner I am keeping is Frontier Oil (FTO).
  2. I closed Best Buy (BBY) ahead of earnings - the earnings turned out quite good, and after a sell off Tuesday, the stock rebounded later in the week and ended up a bit higher than I sold it. While I still like the stock and the company, retail is not an area I want to be overweight and this was also more of a trade than a typical type of stock I hold in the fund.
  3. Foreign markets took quite a hit last week post Fed, and through Monday so I did some buying - especially in India, and with my 1 Russian stock Mechel (MTL) which had pulled back after solid earnings, and Brazilian homebuilder Gafisa (GFA). I had mentioned in a post just a week earlier that India had really outperformed v China and I felt the names were getting rich, but these are very volatile names and when they pull back, they pull back hard, so I was able to re-up with a new layer into my positions.
  4. National Oilwell Varco (NOV) made what looks to be a good acquisition with Grant Prideco (GRP), so with the stock off sharply I increased my position. In general when stocks make acquisitions their stocks sit in a narrow range until the transaction is complete, so it wuld not surprise me to see National Oilwell Varco not make a serious move anytime soon, but the valuation is very good and this is the type of stock that will make a move later in 2008 once the transaction is finalized.
  5. I restarted a position in one of the 3 deep sea oil drillers I am focused on (and a previous fund holding), Atwood Oceanics (ATW) - in retrospect I wish I had started with a larger stake as the stock took off later in the week.
  6. Wednesday, despite a gosh awful chart, I added to my position in Hong Kong cement and infrastructure name KHD Humbolt Wedag (KHD). This is more of a "value" pick, but unfortunately, without price momentum, value stocks can remain "under valued" for a long time.
  7. After reporting decent results Wednesday night, LDK Solar (LDK) began a sharp descent, so I added Thursday and Friday. I had a very small position ahead of earnings (smallest position in the fund), and started averaging down Thursday with hopes of getting a price of $46-$47, which was achieved amazingly late Thursday and into Friday. This took LDK Solar from the fund's smallest position to it's largest overnight - at under 5% of the fund. If we continue to degrade down to $40, I will push the position up to 6% or so.
  8. Early Friday, as I got bullish on the prospects of a Santa Claus rally, I restarted a new position in financial asset manager Blackrock (BLK) (again a former fund holding), and added to a potpourri of names ranging from Mastercard (MA), iShares Malaysia (EWM), consulting play FTI Consulting (FCN), infrastructure stock Chicago Bridge & Iron (CBI), and coal stock Peabody Energy (BTU).
The above do not include the trades in my Ultrashorts which I am trading quite often as the market ebbs and flows.

Friday, December 21, 2007

Bookkeeping: 'Rising Tide' Performance Week 20

Week 20 performance of the mutual fund

Comments: Another interesting week - quite bad Monday, quite good Friday, and quite quiet in the middle. As outlined this morning [Santa Claus Rally?] the news flow this week was actually quite poor in the economic (i.e. real) world, but on Wall Street it's only as bad as your last Fed infusion of capital (or ECB infusion of a half a trillion dollars). Needless to say, despite the drumbeat of bad news, it essentially fell on deaf ears. Remember, as "they" say, when good news is treated badly, get bearish and when bad news is treated well or with indifference, get bullish. So this is why (at least temporarily) after seeing the markets only down half a percent all week despite all the wickedness thrown the market's way, I went back to somewhat bullish mode. There is nothing insightful to really add here - using the S&P 500 as our gauge we are right back to a key level; the 50 day moving average (1485, dropped down from 1490 of late). You can either view it as the markets knowing more than the economic numbers, or the market ignoring the economic numbers. Either way it does not matter from an investing standpoint - it is what it is. No reason to stand in front of a herd of bulls...

For the fund, I entered the week relatively bearish (and the spike down Monday confirmed this to be a good view), and spent most of the week in a heavy cash position [around 25%] waiting for the market to make a decision of which way to go. We tested that ever elusive S&P 1440 level mid week, which regular readers will know is the magical marker which draws the markets like a magnet. And then we didn't break through despite the bad news, so one would assume that to be bullish near term. In a mixed up market like this where fundamentals seem to be disassociated from the news flow, it is better to rely on technicals and just let the price action dictate your actions. Which I do. Fertilizer positions really came to the forefront Thursday (unfortunately I am at my lowest allocation in months at only 6% of fund allocated to this sector), and then Friday we had a nice rally in many names.

So despite a heavy cash position (nearly 25%) and only about 75% of my money actually 'working for me' in the market (either long or otherwise) for most of the week (until Friday), Rising Tide Growth Fund generated a +2.20% return. This compares to +1.1% for the S&P 500 and +1.2% for the Russell 1000. If not for a late week foray into LDK Solar (LDK) which knocked off about 0.4% of performance it would of been even better, but some future week the fund will derive a nice benefit from the position just built in this name.

Only 6 weeks more until "my" 2nd quarter is in the books; so far so good.

Price of Rising Tide Growth: $12.264
Lifetime Performance to date (vs Aug 3, 2007): +22.64%

Comparable S&P 500: 1,484.5 (+1.31%)
Comparable Russell 1000: 808.9 (+1.59%)

Fund return vs S&P 500: +21.33%
Fund return vs Russell 1000: +21.05%

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

Bookkeeping: Are We Having Solarfun (SOLF) Yet?


Taking off some Solarfun Power (SOLF) on this 15% move (this was not a major position - just a bit over 1% of fund). Cutting my position in half on this spike.

With all my purchases of LDK Solar (LDK) in past 24 hours, I have enough solar to go around. I'll look to add back this very volatile name on pullbacks...

Thank you Santa...

p.s. it is very hard to be bearish when you have "Here Comes Santa Claus" in the background - try it, I dare ya! ;)

Long both names mentioned in fund and in personal account

Here Comes Santa Claus (christmas music)


Nice Rally Indeed


Nice rally overall, but unfortunately we already are butting against resistance as I outlined this morning. The S&P 500 keeps butting against level 1480 and the chart shows why. 50 day moving average hanging there creating a ceiling. If we didn't have that stubborn resistance sitting there I'd be more inclined to think we get a more serious rally but for now this will do.

Fortunately a lot of individual names are rallying quite severely in the face of this; I think a lot of market participants simply want a flat market at this point. On the positive side, stocks that deserve to go up, are going up as opposed to "everything goes up" or "everything goes down" attitude which we have had for many of the past few months.

Again this doesn't change a thing in the economic backdrop but the attitude in general has gotten a bit too negative, and nothing goes straight up or down. I will look forward to adding some more short exposure if we do get a spike higher here in the coming week, when many institutions stay home and its amateur week. We have a half day Monday, closed Tuesday, than the kids come out to play Wed - Fri (by kids, I mean us) :)

I have updated my top positions in the far right lower margin to reflect where things stand as of noon.

Illumina (ILMN) Gaps Up Today


I wrote about Illumina (ILMN) yesterday and mentioned the one downside was some patent issues; the stock has gapped up this morning upon a re-examnination on these patents.

“We are pleased to hear that the U.S. Patent Office has decided to re-examine the validity of these two patents. We expect the Patent Office to consider closely the applicability of the prior art in their evaluation of whether these patents should be amended or invalidated in their entirety,” said Jay Flatley, President and Chief Executive Officer of Illumina.

Long Illumina in fund; no personal position

Bookkeeping: Some Morning Purchases

While S&P 1490 lies as resistance ahead, I am trying to wash out the bad economic thoughts and am basically looking at healthy charts (or very beaten down stocks) to add to, today. Unfortunately the indexes might have some issues making some sustained runs but hopefully some individual names can do well in this tape. Below are the major morning transactions

  1. I am increasing my financial exposure by returning to Blackrock (BLK), a position I've held in the past. This is an asset manager and 'best of breed' in my book, and does not seem to be exposed in any way to the mess that is the credit crunch. This was one of my '12 New Stocks to Buy on a Pullback' and although I was hoping for more of a pullback then this, the stock is sitting at its 20 day moving average ($204) and refuses to fall further the past week, which is an impressive feat. Since I've owned this name in the past, I am restarting this position in quite large fashion with 100 shares or $20.5K (1.7% of fund). Earlier posts about Blackrock can be found here. (please note this is not Blackstone Group the private equity outfit)
  2. I am continuining to add to LDK Solar (LDK) here in the $45s range. I see worst case downside to $40, and once sanity returns to the name, a move back to $50s should be very reasonable in relatively short order.
  3. Speaking of financials I've added to my existing Mastercard (MA) as well, which again only seems to fall to its 20 day moving average. I was hoping both it and Blackrock would fall to its 50 day moving average but the relative strength in these 2 names is enormous.
  4. I'm adding to infrastructure name Chicago Bridge & Iron (CBI), which is yet another stock which is showing fantastic relative strength - not falling below its 20 day moving average.
  5. I'm adding to iShares Malaysia (EWM) which has fallen off the cliff. (considering its an index) - it traded in low $13s just over a week ago, and yesterday was down almost near $12. I have cut back a lot of my Asian index exposure by selling iShares Singapore (EWS), and iShares Hong Kong (EWH) over a month ago, but I still like Malaysia due to being a petroleum and natural resources based economy. While I like all these countries in the "very long" run, for now I am focusing only on Malaysia until the 'next big correction' happens. I do think China probably has a good run in it as well since it's been trashed for weeks on end, so I might return to the EWH soon as well.
  6. I'm adding to my bankruptcy and consulting play FTI Consulting (FCN), which has been lagging Huron Consulting (HURN) of late but seems ready to make a move.
  7. I'm adding to Peabody Energy (BTU), one of my coal stocks - the chart for Consol Energy (CNX) looks like an interenet stock from the late 90s, or a solar stock today - so instead of adding there I am going to take some profits there and actually roll that money into a laggard like Peabody.

Most of these purchases above are of the $5-$8K type of variety as I layer in (and out) of positions. Blackrock is obviously the exception.

Long all names above in fund excl. iShares Singapore and iShares Hong Kong; long LDK Solar and Chicago Bridge & Iron in personal account

Santa Claus Rally?

Well Santa may be late this year, but I have to say after a slew of bad news this week the market is showing a lot of resilience. Let's review just a handful of ominous items we discovered this week:
  1. California is headed to a state of fiscal emergency
  2. Greenspan hints at stagflation and is concerned enough to admit we should just hand out cash to strapped homeowners as the least bad of many bad scenarios
  3. Darden Restaurants which hits square at middle America (Olive Garden, Red Lobster) reports both food inflation and rising labor costs
  4. Coach (COH), which hits square at upper middle income, lower upper income aspirational American consumer continued its implosion
  5. FedEx, which is a great tell on the economy warns of rising fuel inflation, and talks about softness in US industrial production
  6. One bond insurer gets downgraded by Moody's and another decides its time to fess up about what they really have on their balance sheet
  7. Goldman Sachs (GS) reports solid earnings but says November was the toughest month they have faced, Morgan Stanley posts a much larger loss than they anticipated even 4 weeks ago and is forced to go hat in hand to China, Bear Stearns warns of larger loss than they anticipated, and this AM Merrill Lynch will be getting a cash infusion from Singapore.

That's just a sampling off the top of my head. To offset that central banks across the world stand united to inflate the world back to Greenspan era levels with unlimited resources (how's half a trillion suit you?)

With all that said, we are down a measly 0.5% on the S&P 500 this week. In the face of that avalance of bad news. Hence, why it seems Santa Claus looks prepared to enter stage right. I am not sure what else could be thrown at this market and if all this news can't keep a good equity market down, what can? While I believe January earnings reports will showcase many more companies hand wringing over 2008 profit levels, and expect to see guidance slashed by many US focused companies, that is "then", and this is "now". Again, the economy is not necessarily the stock market, so this dichotomy can exist for quite a while. The market seems to be shrugging everything off, so to be an adament bear would leave some good profits on the table.... hence I am an adament chameleon instead and will change with the mood.... just a personal hunch but with a lot of traders off next week, and the market back in the hands of amateurs it's possible we get some nice move up, although some technical resistance lies ahead. Let's see how it goes.

Thursday, December 20, 2007

Research in Motion (RIMM) Nice Results

Quite impressive growth from this large of a company - Research in Motion (RIMM) comes in with 22% sequential revenue growth (and 100% year over year), up to $1.67B (slight beat vs analysts $1.65B) and EPS of $.65 (vs analysts $0.62). But that's old news the second it hits the presses; the all important guidance is what the mad hordes clamor for....

In that arena, the company is saying $1.80-$1.87B (vs $1.75B expectation) and EPS of $.66 to $.70 (vs $0.65)

Now for a normal Research in Motion quarter, this "small" of a guidance increase would be perhaps deemed disappointing but with the stock so weak of late, we have a nice set up where even solid news will be looked upon positively. Of course now we have to deal with the trecherous conference call where one slip of a word can send a stock plunging 15% (ask Cisco), but overall it looks quite good and the fears of Research in Motion falling off the tracks should be quieted... at least for a few weeks .... before the hand wringing begins again. Keep in mind this is still mostly a North American play - the world is still RIMM's oyster.

Technically the stock was trading just below the 50 day moving average and "stuck" for much of the past few weeks, but as long as no ill word is spoken in the conference call this should provide a nice catalyst for a move back up above this resistance level ($107 or so).

Long Research in Motion in fund and in personal account

Bookkeeping: LDK Solar (LDK) Hits Targets

Ok my targets of $46-$47 are now here. I am now adding 400 more shares in the upper $46s to mid $47s, taking LDK Solar (LDK) up to a 3.9% position. From here I will monitor the last 40 minutes of the day. I would think $46 would provide a good floor but with panicked investors they could overshoot to the downside (could happen tomorrow morning or in last 5 minutes as people cannot take the pain anymore). Could it overshoot even more and go to $40 tomorrow? Perhaps - no crystal ball here. But this would start to become a function of panic and nothing to do with the stock or company at that point....

My original thought mid day was LDK Solar (LDK) would gap down tomorrow to reach these mid $40s price points but we got it all in 1 day. Can't complain. I wrote yesterday:

I will be hoping for a pullback to some key gap levels such as $60 before adding any to my small position. (There is a nice gap down south of $46 which would be even more tasty)

So I am getting the tasty level all in 1 day. Quite amazing to watch this meltdown, but always have a battle plan going into every trade and it won't seem so bewildering. The gaps in the charts both got filled, shorts are engorged and happy, longs bewildered, and I just got a new number 1 position in the fund.

Long LDK Solar in fund and in personal account

Fertilizer Continues to Rock and Roll

I don't see any clear catalyst today but the fertilizer group on my watch list is just flying

TNH +7.8%
CF +7.7%
MOS +6.8%
AGU +5.9%
POT +4.7%

In a flat tape, even more impressive. Even MOO is up 3.4%. I can't find any specific reason why - if you happen to know throw a message into a reply to this post.

While I hate the financials, a lot of bad news has been thrown at the market of late and its sitting flattish of late - with Research in Motion (RIMM) coming tonight and I expect good news we might get a quick Santa Claus rally at least to S&P 1490 level or so. Let's see how it plays out. I wouldn't mind a market that rewards winners and punishes losers but it seems for most of the past 4 months its been an 'everything stinks' or 'everything must go up' type of market. The worry is every day you wake up and the next shoe in financials is going to drop everything in your portfolio...

Long CF Industries, Mosaic, Potash in fund; long Mosaic in personal account

Bond Insurer MBIA (MBI) Drops a Bombshell - Down 30%

I realize reading about bond insurers is like going to the dentist but as I implored yesterday [What a Day on the Street] I think it is imperative to understand what is really going on behind the scenes here and the magnitude of potential risks, even if all you care about is fertilizer or solar stocks. We have such a leveraged financial system, and the delevering of this system is 100x more scary than anything simple such as a simple recession. Again let me point to Financial Day of Reckoning Approaches. I keep writing that we have so many layers of this credit web, and much of it won't be discovered until things implode in the dark of the night. How it stops or how it ends, I am frankly, totally unclear about. This is what worries me; I don't see what a solution could even be if we truly begin to unravel decades worth of leverage of credit. Maybe there is some stop gap I cannot think of; I assume there must be something being cooked up but the worry here is finally the problem is larger than the system. I think the general game plan by central banks is to try to keep pushing this off for 2-3 more years and hopefully the main asset much of this junk is based on (home prices) rebound by then; or drive mortgage rates to 5-5.5% levels so people can refinance. But many of these people have little to no equity in their homes, or worse are upside down - hence cannot refinance. All at a time the credit market is drying up as we become more risk averse by the day. Ugh.

Today, bond insurer MBIA made some troubling 'surprise' disclosures.
  • The financial guarantor's shares dove more than 30% in early trading after the firm dropped a bombshell revelation that it has significant exposure to some of the most risky elements of the structured product market.
  • MBIA announced that it guarantees $8.1 billion of structured products called CDOs-squared, among some $30.6 billion in total exposure to CDOs, or collateralized debt obligations. That means MBIA guarantees payment on CDOs that package up other CDOs. Many are filled with subprime or other mortgage-backed debt, which has been subject to downgrades, deterioration in value and default of late.
  • "We are shocked that management withheld this information for as long as it did," writes Ken Zerbe, analyst at Morgan Stanley in a note Wednesday.
  • The news comes as investors are increasingly concerned that the credit market woes that have roiled financial markets in the second half of this year will intensify with the potential default or credit rating slide for a financial guarantor.
  • The credit ratings agencies have been scrutinizing the finances of companies like MBIA and competitors Ambac (ABK), Financial Guaranty Insurance Co., XL Capital Assurance, CIFG Guaranty and Financial Security Assurance. The guarantors rely on having pristine credit ratings and more than enough capital to guarantee that investors receive their payments on securities they own.
  • A ratings downgrade could force some fixed-income investors into a selling spree, because parameters of their investment funds require that their holdings be insured by a guarantor with a triple-A rating.
  • But the fallout of a guarantor downgrade reaches beyond forced bond sales. The guarantors also underwrite credit-default swap protection on securities like bonds, CDOs and other asset-backed debt. These firms have already taken writedowns based on widening risk premiums, or credit spreads, on their credit default swap portfolios, and analysts expect they'll take more.
  • Zerbe had thought Ambac had more risky CDO exposure until MBIA's announcement Thursday. He notes that the news validates S&P's prediction that MBIA's stress-case scenario would engender losses 61% higher than Ambac's $1.5 billion.
  • And many banks and brokerage firms are buyers of guarantors' insurance and credit default swaps as well, begging the question -- why wouldn't someone pony up cash to rescue the firms from capital shortfalls?
  • According to a New York Times report Wednesday, Merrill Lynch (MER ) and Bear Stearns (BSC) were negotiating a bailout of smaller insurer ACA Financial Guaranty Corp., but they were too late. The firm's rating was slashed Wednesday deep into junk territory by Standard & Poor's, to triple-C from single-A.

I know... it's dry reading... blah, even for me. But these companies essentially hold the key for the entire credit system. Without their insurance, it all implodes. As the flashlight searches around the dark room, we see more and more cockroaches emerge - one by one.

More of a detailed look here in a Fortune article - whats interesting is the companies (banks) that bought this insurance are so desperate not to have the insurance agent go under they are willing to infuse capital into the insurance agents to keep them afloat. In layman's terms what is happening on Wall Street is if you had a medical emergency, and your Blue Cross was about to go under, but you knew if it did you'd be on the hook for the 70K hospital bill so instead you start sending money to Blue Cross to keep it afloat - just so it can cover your insurance. That's essentially the stage we are now entering.

While a cash infusion to struggling bond insurers may keep downgrades and write downs from happening right now, at the end of the day the bonds, insured or not, are full of worthless paper. Someone will have to pay, whether it be a bank a bond insurer or some other party. "What we're seeing now is a valuation crisis," says Sylvain Raynes, a former Moody's analyst and principal at the structured finance consultancy R&R Consulting. "Wall Street is a big wheel that is moving the same losses in a circle and only postpones the ultimate reckoning and makes it much worse."

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