Sunday, March 2, 2008

Remote Area's Medical Lifeline

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Truly quite a shameful situation in the richest country in the world; but as conservatives say "these people really need to work harder" since the hard workers somehow get health care



Stan Brock founded the Remote Area Medical organization to bring free medicine to the Third World, where it was most needed. But increasingly, he's finding thousands of needy patients right here in the U.S., where 47 million people have no health insurance.

Brock speaks to 60 Minutes correspondent Scott Pelley in an interview to be broadcast this Sunday, March 2, at 7 p.m. ET/PT.

He became familiar with the needs of remote peoples through his days working on a South American cattle ranch and as zoologist Marlon Perkins’ muscle-bound assistant in the pioneering television nature show "Wild Kingdom."

The reality now is that between trips to places like the Amazon, Remote Area Medical (RAM) does 60 percent of its work in the United States. Brock was surprised at the numbers of people who came to his first American "medical expedition," as he refers to them. "I was [surprised] and the numbers are getting higher," he tells Pelley, "and I don’t know if it’s because we are getting better known or that the health care in this country is getting worse," says Brock.

Brock is a pilot and often flies some of his volunteer medical staff and donated supplies into an area for a weekend, where, typically, hundreds of people are already lined up to take numbers to see the doctors, dentists and nurses. Who are these patients? "It’s the working poor, middle of their lives, most with families, most not substance abusers and employed without adequate insurance," says Dr. Ross Isaacs, a RAM volunteer.

After spending a weekend providing 920 Americans with free medical care, you would think Brock would feel fulfilled. But as his two-day free clinic in Knoxville, Tenn., ended on a recent Sunday evening, he had to close his doors on 400 people. "That’s the lousy part of this job," he tells Pelley. At the Knoxville clinic, patients came from six states in the middle of the night in freezing weather to get care. The 276 volunteers providing it came from 11 states.

Every year, Brock’s organization helps thousands of Americans who have no health insurance and others who are underinsured. "It’s nice to…know that you’ve helped a bunch of people, but the reality is we can’t do everybody," says Brock.

Pelley and 60 Minutes cameras covered the Knoxville "expedition," where RAM volunteers extracted 1,066 teeth, did 567 fillings, performed 94 mammograms and made 500 pairs of glasses, in addition to almost 300 general medical exams.

One of those getting glasses was Knoxville-area resident Joanne Ford, elderly, living on disability and unable to afford eye care. She came to RAM instead of asking her friends for help and was, like others 60 Minutes interviewed, grateful for the help provided by RAM. "I've worked all my life. I hate to ask. That's why things like this are so wonderful," Ford tells Pelley.

Bookkeeping: Weekly Changes to Fund Positions Week 30

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Week 30 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: 19.3% (vs 28.3% last week)
51 long bias: 68.3% (vs 57.8% last week)
6 short bias: 12.4% (vs 13.9% last week)

57 positions (vs 56 last week)
Additions: DryShips (DRYS), DR Horton (DHI)
Removals: KBR (KBR)

Top 10 positions = 33.7% of fund (vs 28.8% last week)
36 of the 57 positions are at least 1% of the fund's overall holdings (63.1%)

Major changes and weekly thoughts
The market continues to be range bound, listless, and without direction. My overall strategy remains the same - ignore all the blathering on TV and in the online press about "the bottom is in" and "it's time to load up on financials and retailers and the consumer is ready to strike back", and continue to play this range until it breaks. This means, buy as we get closer to the bottom of the range (S&P 500 near 1320), and expand my short exposure/sell as we get to the top of the range (S&P 500 at 1370+). As always, it works until it stops working. It has worked for 6 weeks or so, so the longer it goes the more nervous I get that it will continue to work. My expectation remains it won't be working much longer and we will break down (not up). So when this happens my purchases at the bottom of the range will suffer, but I'll quickly remount my short exposure once key technical levels are broken. In the meantime I've continued to outperform the market and build up some cushion versus the indexes... I do realize when/if the market melts I'll be giving back some of these gains but that's part of the problem of being long focused in orientation. S&P 500 level 1320 remains key to me.




If we break this level, I do expect a retest of January lows (S&P 1270). What we do there will set the stage for the next leg of the market. A "bounce" and we could form a "double bottom" which is a technical term, but simply means two tests of a similar price point - more important to know is off this technical condition can come serious rallies. But if we break this level, it could get very ugly. So this is the road map I view and I continue to let the technicals give me an overview of how to position myself. I continue to view this as a bear market, even with all the Kool Aid floating around telling us how everything is great. Or will be in 6 months.

Even when we do rally I am not a big fan of the US economy at this point and I don't see any quick turnaround. However, I am coming around to the theory that with Kool Aid so rampant, and people so desperate for any shred of good news to drive the market higher (simple rumors move this market 5%), we could be setting up for a rally later in the year, and a sizeable one as Quarter 3 GDP is altered by the rebate checks. Bulls will latch on to that as "the bottom is in", and "see we told you everything would be great", and drive the market up. But I continue to see weakness into the following year, so while I'll try to turn course and follow this run up, I still won't be too keen on the US economy. Frankly, the only areas of real strength are things we are not able to outsource - natural resources and commodities... i.e. coal... i.e. agricultural products, and the export arms of U.S. multinationals. Everything else, in a consumer led economy is at risk and will remain so for a long time in my view. Especially as inflation ramps, and effective buying power of said consumer weakens in real terms. So while I expect great rallies in retail, homebuilders, financials at some point in the coming year as people ignore the reality on the ground, I think its within a framework of a secular bear in these markets. Spending over the past half decade has been a mirage based on easy credit, and the house ATM. If we go back to consumer spending levels of mid to late 90s, it's going to feel like a depression for some sectors. So I continue to focus outside the US and/or commodity based type of sectors who are reliant on cash rich customers (Asians, Brazilians, Middle Easterners). Even when these countries slow down (which they will) their growth rates will feel like a racing car versus what we will have here domestically. What turns the worm in the US? I'm not sure. When the cost of inhabiting a dwelling drops sufficiently people will have a lot more free money in their budget, but this process is going to take quite a long time to play out. Unless wage increases begin reflecting real inflation of 8-12%+, combined with the housing costs retreating, I just cannot be a bull on the greater US economy. Certainly not one, where US consumer is increasingly turning to credit cards and 401k withdrawals to keep their head above water. Frankly, a lot of other countries look like the US 10-20 years ago, so I don't see a reason to sit and wait patiently for the over extended US consumer to go back shopping, when there are great opportunities in cash rich countries whose political leadership seems to "get it" (relatively speaking at least). Sorry if that sounds so harsh. Hopefully there are some great innovations incubating in some distant corner of the US that will lead to some great growth drivers for the coming half decade, and get us going again.

For the fund, I continue to try to be neutral as much as I can considering I am a long biased mutual fund. My short exposure at end of week does not reflect how I was positioned most of the week as I took it down about 10% Friday in anticipation of the bulls trying to make yet another (fruitless?) run early this week. I've been doing this every Friday as we risk government interventions, bailout talks, or the like going into Monday. Then as the market peaks on Kool Aid, I usually add short exposure during the week, and then cut back afternoon Friday. Rinse. Repeat. It is a simple pattern really. We only seem to rally on hope, rumors, bailouts, or "in 6 months it will all be great again". We falter when reality hits. This has been the pattern for over half a year now. But again, most of the stocks I really like have had huge moves up so I am having a hard time applying new cash to these areas so it's a catch 22. I don't want to pile into stocks which are prone to profit taking, especially when the market stands at the edge of breaking down each time it hits S&P 1320. So while my long exposure is nearly 70%, about 10% of that is commodities of some sort or another... so it's not quite as bullish as it looks.

We have a jobs number Friday that will move the market significantly one way or the other. I don't believe in this government report since it so flawed but it does move markets and with simple rumors able to move this market up 5% in 2-3 days, any perceived good news will take the market up. Last, we are about the stage where people can begin to cheer about Fed rate cuts in mid March... so we will get (yet again) a potential anticipatory rally at some point. It is sort of old at this point, we rally on the same things over and over; as if the first 5 cuts did anything for the market, but of course this is the one we need to rally on because it will be the game changer. Or so that's the backwards logic. Just like we will say once again in late April when we have another 50 basis point to take us to 2%, and our Fed chief will disavow any inflation, or tell us "it will go away in 6 months when the US economy slows". Even though all these rallies are based on the US economy bouncing in 6 months. So we can have it both ways, can't we? That's Kool Aid.

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, as I always seem to be doing of late I increased my short exposure after lightening up the previous Friday. This week in particular as the market skyrocketed on S&P affirming AAA ratings on the bond insurers (a laughable situation), I was able to get some nice prices on my Ultrashorts. AAA is effectively a meaningless designation after this episode in our history.
  2. I added some infrastructure exposure ahead of a slew of earnings in the group, by buying more exposure across most of the basket of names I own.
  3. Foster Wheeler (FWLT) had an earnings report Tuesday that did not please the lemmings, so I added (too early) at $72 and later in the week around $67 and $64 and took this from a 3% type of position to 5%+ when all was said and done. Once again, people are not happy, but a lot of the earnings miss was 1x type of items that has no particular impact on the long term business. We had a very similar situation last summer where the stock was demolished, only to nearly double within months. I continue to love the book of business and not only the type of business (mostly energy related) but where the business is (Asia/Middle East). I can't say the stock will bounce any time soon, but I think 6-9 months from now people will look back at this as a massive buying opportunity just like last summer's sell off proved to be. Again we live in a day and age where people's timeframes are measured in days or weeks... anything longer is old fashioned.
  4. I began a trading position in DryShips (DRYS) @ $79 and said I'd sell if we break $75. Simply due to the nature of the sell off Friday I did not want to overreact but I am watching this closely and if it breaks down further my original intent was to sell, and I will as this was a trading stake, nothing else.
  5. I sold off some of my Russian Mechel (MTL) after an incredible move. The more I read about this name the more I like, and next time it dips I need to make it a more sizeable position - I've held this generally as a 1.5-2.0% stake, but it is flush in multiple secular bull markets. I took some of this money and spread it, along with some cash, into multiple oil service/driller names.
  6. KBR (KBR) had a solid quarter, but I decided to remove it from the portfolio - one less infrastructure stock from my basket.
  7. Wednesday, I continued to cull my fertilizer stocks, as these generally get sold off very hard when the market tanks (but they held up good on Friday, disproving my theory), and continued to add to Powershares DB Agriculture Fund (DBA) on it's recent "weakness". The fertilizers are a group I love the fundamentals, but in this type of market it is hard not to trade them, cut them after huge runs and await a pullback. So I am hoping for a sizeable pullback.
  8. Thursday, Apple (AAPL) rallied on a reiteration of iPhone targets - I used this opportunity to lighten up in the position.
  9. I took some of my precious metal exposure off the table, cutting Silver Wheaton (SLW) and a little Kinross Gold (KGC). As the Fed continues to signal it could care less about inflation and the dollar continues to swoon, these hard commodities continue to run. I do expect volatility to continue to increase as more and more hedge fund money piles into commodities but I laugh at this bubble talk - same junk we heard at crude $50 a few years ago. Our policies are literally inviting hedge funds to pile into these groups as we destroy all credibility with our bailouts by flooding the world with more worthless paper money, so I continue to place myself at the epicenter of this situation. Much like the fertilizers, I continue to love these groups for the long run, but I am hoping for a pullback in this traders market, to add exposure.
  10. Friday I had some fortunate timing; I doubled my stake in Huron Consulting (HURN) just under $51 as a "poor man's" play on the great quarter from FTI Consulting (FCN) - the stock actually went to $54+ later in the day before pulling back to $53 in the very tough market.
  11. I began a trading stake, similar to DryShips earlier in the week in homebuilder DR Horton (DHI) after the stock fell nearly 20% in 2 sessions. Again, I am not a big believer in any real bounce in this sector, but will see if we can squeeze some money out of this on any market rally. So far my history with "trading stakes" in the fund has not been very good, as opposed to things I like to keep for the long run, so we'll see if I can break the streak.
  12. Unlike fertilizer, the coal names did pull back to some degree so I began re-adding exposure, simply buying back the portions of these stakes I had sold off lately at higher prices. If the market does break down of course these stocks will go lower, but in between we can hopefully squeeze some trading profits out of this group while we wait for the market to make a move that lasts for more than 3 days.
The above do not include the trades in my Ultrashorts which I am trading quite often as the market ebbs and flows.

45 Stocks Returning 7%+ This Week

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The indexes were not down much this week, as the late week sell off offset the gains earlier in the week but it was relatively slim pickings to find winners. Only 45 stocks gained 7%+ with the following characteristics
  1. Market capitalization $2 Billion+
  2. Average volume >100K
  3. Stock price $10+
As always, green we own, blue we've owned in the past or discussed; some names in the portfolio that have been quiet for many weeks (non commodity type of stocks) showed up this week, so I was pleased to see that although most are not large positions. I don't really see any pattern of strength this week; simply a hodge podge of individual stories.

Symbol Company Name % Price 1 Week
TTWO Take-Two Interactive Software Inc 52.7
EOG EOG Resources Inc 19.8
FCN FTI Consulting Inc 18.5
LEAP Leap Wireless International Inc 18.0
IVN IVANHOE MINES LTD 14.9
SCGLY Societe Gen Spon Depository Receipt 14.6
AGO Assured Guaranty Ltd 14.4
CRM salesforce.com inc 14.1
CTRP Ctrip.com 14.0
RSH RadioShack Corp 13.7
NFLX Netflix Inc 13.6
ZBRA Zebra Technologies Corp 13.4
NAVZ Navistar International Ord Shs 12.9
LKQX LKQ Corp 12.4
SSRI SILVER STANDARD RESOURCES INC 12.1
CLR Continental Resources Ord Shs 12.1
GFA Gafisa ADR Representing 2 Ord Shs 11.0
SNDA Shanda Interactive Entertainment Ltd 10.9
FIG Fortress Investment Group LLC 10.9
OZM Och Ziff Capital Management Group 10.6
TCK Teck Cominco Ord Shs Class B 10.3
GILD Gilead Sciences Inc 10.3
NFX Newfield Exploration Co 10.0
CNQ CANADIAN NATURAL RESOURCES LTD 9.9
TER Teradyne Inc 9.7
PAAS PAN AMERICAN SILVER CORP 9.6
MEOH METHANEX CORPORATION 9.5
ATN Atlas Energy Resources LLC 9.4
BKD Brookdale Senior Living Inc 9.4
NXY Nexen Ord Shs 8.5
CPNO Copano Energy LLC 8.4
TNH Terra Nitrogen Co LP 8.3
HLX Helix Energy Solutions Group Inc 8.3
RHHBY Roche Holding 144A ADR 8.3
LIHR Lihir Gold Sponsored ADR 8.0
BARE Bare Escentuals Inc 7.9
DWA DreamWorks Animation SKG Inc 7.6
PCS MetroPCS Communications Inc 7.6
TS Tenaris ADR 7.4
KGC KINROSS GOLD CORP 7.3
CPRT Copart Inc 7.2
CBD Companhia Brasileira de Distribuicao ADR 7.2
AKAM Akamai Technologies Inc 7.2
ITRI Itron Inc 7.1
IMCL ImClone Systems Inc 7.1

Friday, February 29, 2008

Bookkeeping: 'Rising Tide' Performance Week 30

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Week 30 performance of the mutual fund

Comments: This week summarized the market over the past month and half quite perfectly. Direction-less. Volatile. Completely bipolar. After a huge rally last Friday in the last 30 minutes, the markets started slow this week but then did another huge parabolic rally on S&P confirming the AAA status of the bond insurers (it is quite laughable that companies in need of a bailout and who have to offer 14% for someone to buy their bond issuances are rated the same as GE or Berkshire Hathaway, but I digress). The market could care less about those details, and economic report after economic report about how badly things are degrading....good feelings of warmth covered the bulls. It continued Tuesday as S&P 500 level of 1370 was finally breached, as more bad economic news was laughed off - and Wednesday as more bad news was smothered under a pillow, we seemed poised to break out; you could hear the trumpets playing in the distance... then Ben came on TV and actually was half way honest about the situation and people said "this is not the company line, what is going on here?". But more importantly, the 50 day moving average of 1390 was not able to be broken. Yet another rally was revealed as nothing more than shorts forced to cover as CNBC breathlessly reported about bond bailout after buyout rumor after political bailout. No real buying after all. Then Thursday and Friday we went back to the bottom of our endless ping pong range. And the whines for Fed cuts began anew. Some things never change.

I've been positioned to try to be as neutral as possible... realizing I'd be trailing if the market shot up quickly Which happened in the last 30 minutes last Friday and Monday and Tuesday of this week. Honestly, I was not really sure what exactly was moving the averages so strongly because aside from a few retailers and homebuilders not much that exists on my watch lists were making strong moves early in the week. But my short exposure worked against me during the Kool Aid drinking sessions early in the week. However, staying consistent with these positions and not bailing out on them (which any good CNBC viewer would of done after hearing the Hosannas early in the week), helped out later in the week. Most of my positions really did not do much this week, it was more about asset allocation. High cash positions and short exposure held me back early in the week, but got me ahead of the market during the latter part of the week. Considering I took two high profile hits with 5% of my portfolio (3% with Foster Wheeler, and 2% with Thornburg Mortgage), and after really lagging the indexes early this week, I am very content with the final result of the week.

I did spend most of Friday throwing aside short exposure and dropped the allocation about 10%, going from low 20%s to low teens. Cash is back up to 19%, and I have about 10% in commodities from the crops to gold to a sliver of silver. So I am still not that hot on equities, BUT we are at the bottom of our "range". (until the range breaks of course) I still have the same problem I've had for a few weeks now. Most of my favorite names have had huge runs and are due for a pullback, and other names of interest have terrible charts. So there are not many areas to apply money, although I picked at spots here and there. Overall, my position remains the same it has been for a long while now. Sitting as neutral as possible (for a long biased mutual fund at least), waiting for a clear direction of the market. Frankly it is quite pathetic to see the market rally on the same news/hopes week after week, but it is like waiting out a 4 year old child who insists on an alternative view of reality. So I'm trying to remain patient. As stated earlier, if we break down past technical resistance I plan to apply this cash right back into heavy short exposure to hedge the long exposure.

The S&P 500 lost 1.7% and Russell 1000 lost 1.6% this week. Rising Tide Growth Fund was flat for the week.

Price of Rising Tide Growth: $11.341
Lifetime Performance to date (vs Aug 3, 2007): +13.41%

Comparable S&P 500: 1,330.63 (-9.18%)
Comparable Russell 1000: 726.46 (-8.76%)

Fund return vs S&P 500: +22.59%
Fund return vs Russell 1000: +22.17%

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 January 2008.

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

How Quickly Things Change - Where is Charlie Gasparino?

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Amazing how things change that quickly, eh? Bear markets.

Wednesday at this time, I wrote an entry in which I put out this chart of the S&P500 and said a picture is worth a thousand words. We were at S&P 1382 level and right below the 50 day moving average. Champagne corks were being uncorked around NYC. The bottom is in folks were crowing. (for the 50th time). "Everything will be fine in 6 months" everywhere you went. Traders were dancing to "Conga"



I wrote:
Once again, people have no clue about the tidal wave of inflation coming in my opinion and just how awful this is going to be to a consumer lead economy. Profits are going to be punished for any company tied to the US consumer, no matter what the stock prices are doing today. It's simply denial. We are in full Kool Aid stage, which happens for a period every 3-5 weeks where bad news is great news. We are simply conditioned to believe the Fed does fix everything and I think sometime in the next 9-12 months people will finally come to the realization it cannot. But they won't believe it until they see it.

Now, exactly 48 hours later to the minute we are down at S&P 1334. And the chart looks like this.



So in 2 days, we're right back at the bottom of this never ending range. At this time 1 week ago is when our buddy Charlie Gasparino broke news of the pending Ambak (ABK) bailout and when all the above mentioned partying began. So again,this is like Groundhog day since August 2007. Bad news comes out... market goes down. Some sort of Fed induced bailout, Bush induced bailout, Paulson induced bailout, Fed cuts, or Buffet buyout news comes out, market goes up. Repeat. Rinse. Over and over and over. Months on end of this. *yawn* When facts come out, market goes down. When interventions come out to stop the inevitable, markets go up. One can only imagine where the market would be without all these bailouts, Fed cuts, speaking tours, etc.

Eventually these people will be right, and the bottom will be reached. But they've been calling it for half a year now. Credibility is shot. And people who listen to them are down a ton. Then when they actually are correct, they will crow about it - not mentioning the 49 previous turns they called too early. Again... bear market. Broken technicals. It is not to be believed until we make a clear uptrend up.

Right now, as the market faces falling off a cliff (again) is when they usually trot out good ole Charlie on CNBC to save the market. I don't have a TV so I'll wait for the market to skyrocket 200 points for no good reason like it did twice (Friday and Monday)... *yawn*. Either way I am dumping (as written this morning) Ultrashorts left and right into this firestorm.

We still remain in this gosh forsaken trading range: S&P 1320 on the bottom and the 50 day moving average (1390) on the top - at least we broke S&P 1370 which was the top for past few weeks. So we have a slightly wider range.

What next? Well for the last 6 weeks pattern, we will bounce soon (just like I wrote last week around almost the exact same level). Groundhog day. The problem is we continue this pattern over and over, and eventually it will break. And the longer a pattern is the more strength the break will have - meaning we are going to have a tremendous move once we exit this range. If it is up or down is an open question but since all this mumbo jumbo trading is below all key technical averages, you have to believe down. But for now, since I fear the ability of Buffet to heal the sick children with a touch of his hand, I am cutting back on my Ultrashorts and simply moving 90% of it to cash. But .... if we break below those key technical levels of late (S&P 1320) it gives credence to the thought that we will be breaking down (not up) and that retest of January lows I've been waiting on is in order. And I'll be buying back all this short exposure (and more) that I am letting go this afternoon.

So it is hard to press shorts here with Buffet-palooza coming to CNBC Monday morning, plus such a swift degradation in 2 trading sessions. But hard to be too bullish based on reality of the economy, and technical condition. So we continue into limbo....

p.s. from the Department of Pathetic Facts: The drug addicts on Wall Street pushed up probability of 75 basis point cut at March Fed meeting from 30% range yesterday to 60% today. These people really are sad. The first 6 cuts really did the trick, eh? I believe the last 50 basis points satisfied the market for an entire 45 minutes before the drug addicts turned against their dealer and pushed the market down. The "fix" is lasting shorter and shorter amounts of time. Do they really think this is a salve for everything. It is so old. But we can begin rallying any day now for that mid March meeting (more Fed cuts coming! Yee haw!), because as we all know (all together now) "Fed cuts solve everything".

They need their drugs (rate cuts) and they need it now. 75 basis points. At some point Ben will look into his gun and realize he is out of bullets. And we're going to be Japan. I'm wondering what the drug addicts will ask for then?

Faced with Mortgage Default, some US Homeowners Walk Out

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This article is something we've been discussing for quite a few months; it should hit the mainstream media by next fall when it becomes more and more rampant. As I've said in the past, taking the morality away, it's actually the "right" financial decision in many ways. Instead of having an albatross of debt around one's neck, just take the 1x hit to credit, and get back to a reasonable rental cost. This is the dirty secret of all these bailout plans - for many people it makes no sense to have a "frozen" rate to keep paying for an overvalued asset. Further as each week passes, more and more are underwater. We've talked about this many times in the past, so nothing new to blog readers.

But.... every time the pundits cheer their Kool Aid about how housing inventory numbers are finally showing signs of bottoming out, just remember all the walk aways that will be coming. Until house prices stop falling AND the cost of living stops increasing quicker than wages; they won't stop walking away. This is what you get when you give people homes that they don't have to put a dime into. And these are the type of people most of these bailout plans will target... that's the irony. Bought at the top? Nothing down? Tax payer money coming to help you!
  • When Raymond Zulueta went into default on his mortgage last year, he did what a lot of people do. He worried. In a declining housing market, he owed more than the house was worth, and his mortgage payments, even on an interest-only loan, had shot up to $2,600, more than he could afford.
  • Then in January he learned about a new company in San Diego called You Walk Away that does just what its name says. For $995, it helps people walk away from their homes, ceding them to the banks in foreclosure.
  • Last week he moved into a three-bedroom rental home for $1,200 a month, less than half the cost of his mortgage. The old house is now the lender's problem. "They took the negativity out of my life," Zulueta said of You Walk Away. "I was stressing over nothing."
  • In an era in which new types of loans allowed many home buyers to move in with little or no down payment, and to cash out any equity by refinancing, the meaning of homeownership and foreclosure has changed, economists and housing experts say.
  • Last year the median down payment on home purchases was 9 percent, down from 20 percent in 1989, according to a survey by the National Association of Realtors. Twenty-nine percent of buyers put no money down. For first-time home buyers, the median was 2 percent. And many borrowed more than the price of the home to cover closing costs.
  • "I think I could make a case that some borrowers were 'renting' (with risk), rather than owning," Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard University, said in an e-mail message.
  • For some people, then, foreclosure becomes something akin to eviction — a traumatic event, and a blow to one's credit record, but not one that involves the loss of life savings or of years spent scrimping to buy the home.
  • Carrie Newhouse, a real estate agent who also works as a loss mitigation consultant for mortgage lenders in Minneapolis-St. Paul, said she saw many homeowners who looked at foreclosure as a first option, preferable to dealing with their lender. "I've had people say to me, 'My house isn't worth what I owe, why should I continue to make payments on it?' " Newhouse said.
  • "There's a whole lot of people who would've been stuck as renters without these exotic loan products," Sinai said. "Now it's like they can do their renting from the bank, and if house values go up, they become the owner. If they go down, you have the choice to give the house back to the bank. You aren't any worse off than renting, and you got a chance to do extremely well. If it's heads I win, tails the bank loses, it's worth the gamble." (this is a GREAT explanation)
  • In the boom market, homeowners took their winnings, withdrawing $800 billion in equity from their homes in 2005 alone, according to RGE Monitor, an online financial research firm.
  • The value of homeownership, then, has increasingly shifted to the home's likelihood to rise in value, like any other investment. And when investments go bad, people tend to walk away.
  • Christian Menegatti, lead analyst at RGE Monitor, said the firm predicted more homeowners would walk away from their homes if prices continued to drop, regardless of their financial circumstances. If home prices drop an additional 10 percent, Menegatti said, 20 million households will owe more than the value of their homes. (think about that for a moment...)
  • When homeowners see houses identical to their own selling for much less than they owe, Menegatti said, "I wouldn't be surprised to see five or six million homeowners walk away."
  • "It's not a moral decision," Maddux said of foreclosure. "The moral decision is, 'I need to pay my kids' health insurance or my car payment so I can get to work.' They made a bad decision, but they shouldn't make more bad ones just because they have this loan."
  • "I know in a few years my credit's going to be fine. If I want to get another house, it's going to be there. I'm not the only one who went through this. I know I'm working the system, but you got to do what you got to do. There's always loopholes."


Bookkeeping: Adding Coal Exposure

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Traders market... all of these names are in nice uptrends but have pulled back in past 2 sessions, so I am beginning to re-expand positions, and buy back shares I sold off of late. $5-$6K type of additions to all 4 of my primary coal names
  1. Peabody Energy (BTU)
  2. Consol Energy (CNX)
  3. Massey Energy (MEE)
  4. Arch Coal (ACI)

Wishing the fertilizers would pull back more - solid as a rock...

Long all names mentioned in fund; long Massey Energy in personal account


Bookkeeping: Trading Stake in DR Horton (DHI) Engaged

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I don't believe in any homebuilder recovery. I don't believe in these stocks. I don't believe in the Kool Aid. That said, I don't need to believe... I just need everyone else to believe.

I have 10% of my portfolio open for "trading" positions, of which I am going to throw this purchase of DR Horton (DHI) in, along with DryShips (DRYS). Why DR Horton? Nothing specific. It could of been Toll Brothers (TOL), Pulte Homes (PHM), Lennar (LEN), blah blah. I am staying away from the worst of breed, Hovnanian (HOV), Standard Pacific (SPF), and the like simply because they are truly junk, but they could of course go up the most. Instead of buying an ETF to buy a basket, I just bought 1 representative stock - they all act the same since people are not differentiating.

DR Horton is down 19% in 2 sessions, when we were in full Kool Aid mode. At some point in the next few weeks we will be back in full Kool Aid mode. I'll set a sell price at $17 or so to offset my purchase today @ $14.25. That would be a 20% gain. Downside risk is a return to the $10.50s-$11s, but I'll still keep the position because at this point bad news does not push these stocks down - people are convinced they are early cycle plays so when the market goes happy, these stocks bounce. So even if it breaks to $11, it will bounce back at some point, so if this one goes against me in the short run I will just sit on it and wait for happiness to return to Oz.

Again pure trade, and a "yin" to my normal "yang" in terms of portfolio holdings. Any bond insurer bailout, Buffet happiness or government bailout will send this type of stock screaming. Not that I agree with those thesis but one only needs to observe. Go forward I plan to trade "a" homebuilder stock on and off until maybe 18 months from now when the real homebuilder rally should begin... when the stock shoot up in anticipation of the bounce in home purchases.... of 2011. Until then, going to act like a pure trader with these names. When they fall, buy - when Kool Aid flows, sell. Repeat.

Last, the risk with any of these is the market finally looks in the mirror and sees the truth, but no risk is without trade and I won't sell this at a loss, because I am of firm belief that when the market rallies (even from a meltdown) people will again run to this type of junk early cycle thesis. Again, not my typical fare nor my typical strategy. But this is simply put a traders market, nothing else. So I am putting on this trade, while waiting for the market to either break out or break down (I am betting on breaking down)

I bought 2000 shares for a 2.5% stake in the $14.20s. I'll be gleeful to pass this along to some Kool Aid bull (or hedge fund computer) at $17.00 sometime in next weeks/month or two.

Long DR Horton in fund and personal account

Bookkeeping: Adding to Huron Consulting (HURN) as Poor Man's FTI Consulting (FCN)

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Off the back of yesterday's great report by FTI Consulting (FCN), I am going to add to my position in peer Huron Consulting (HURN) here in the $50s. I did review the numbers again yesterday from Huron's earnings report and they were not that bad at all; simply guidance was not as great as the market wanted and the stock has been punished tremendously.

The chart is an unmitigated disaster and I do not like buying stocks in such a position because they can continue to fall with no bottom in site, but we *might* have some sort of bottom here. Or it could simply be a weigh station before the next leg down. However, we've seen some strength here in the $48-$51 range for a few days at least and I'll add here, and see if we can show some resilience. If this level does not hold there is no support until $40 range, which would take the stock back to late 2006 levels.. a bit silly considering Huron Consulting is growing at a good clip (just not good enough for Wall Street) The stock is off 25% since earnings which is way overdone in my book; we are still talking a company that should be growing 25% a year for the next few years, and targeting over $3.00 in earnings in 2008. And as dislocations grow in the US economy their services "should" be needed more. However, the counter arguement will be as corporations feel squeezed they will cut back on consultants. So I can see both sides of the story, but I believe most of the fears are priced in at this point. Further, the valuation is much more attractive than it was just a few months ago in the $80s.

I've doubled my stake today by buying 150 more shares, and Huron Consulting is now a 1.3% position. If I see some signs of strength I'll add more, but we will have a lot of resistance up ahead in the $60s range.

Long Huron Consulting, FTI Consulting in fund; long Huron Consulting in personal account

Mark vs Buffet vs Ultrashorts

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As we have mentioned each of the past few Fridays, I plan to lighten up on the Ultrashorts as we get near the weekend. We always have to fear government interventions. I watched one show on Fox Business last night, and the first 20 minutes literally was devoted to (I kid you not) comparing about 7 different "intervention" plans, 3 from Dems, 2 from Republicans, and 2 from Hillary/Obama. It is sickening to be blunt, but something we talked about last summer... as the situation worsens we will get bailout proposal on top of bailout proposal by these panderings *edited for content* ;) Now when one of these passes eventually, the market will scream higher, because after all, we are all about free markets here in America right? Right.

Anyhow, I do fear all these invisible hands and worse yet Buffet is on CNBC for 3 whopping hours premarket Monday. Last time he was on, he said he'd be happy to kill off the bond insurers by stealing their municipal bond business, and leave them to die on the side of the road.

This "news" today is quite funny: essentially Buffet told the bond insurers: I want the best part of your business; the business you were founded on - the municipal bond insurance business. This is a business with almost no defaults and the insurance (while low margin) is just about the safest business in the world. It's a cash cow and perfect business for a guy like Buffet. So Buffet "generously" is offering to take it off the hands of the bond insurers, leaving the bond insurers with the junk business. What a deal :). Now pathetically, the municipal bond market is not the problem, yet the equity market is loving every minute of this "bailout'... even though today's news essentially means nothing since it has nothing to do with the at risk part of the market. But logic and the market never really coincide much in the near term. But this is the risk of holding any position betting against financials - any "bailouts" or "solutions", however superficial are seen as major Kool Aid.

Just imagine what would of happened if Buffet actually said something that would of HELPED the bond insurers. This market is so desperate for any Kool Aid, they ran the market up 200 points. While ridiculous, you can't reason with Kool Aid drinking bulls. So Buffet was able to run up the market 200 points in 12 minutes. Now they are going to give him 3 hours. 180 minutes. So by my math that means the markets could rally 3000 points (200 points for every 12 minutes Buffet is on CNBC) Monday. So I don't want to be in front of that.

As we all know
  1. Buffet makes puppies happy
  2. Buffet will be happy to bailout all bond insurers
  3. Buffet will buy all homes from all underwater home owners
  4. Buffet makes little children happy
  5. Buffet can make credit problems disappear with his little pinkie
  6. Buffet makes Chuck Norris look weak
  7. Buffet will buy out Singapore's sovereign wealth fund
  8. Buffet will buy the entire United Arab Emirates
  9. Buffet will buy Yahoo for his buddy Bill Gates
  10. Buffet walks on water while riding a unicorn and butterflies and chirping birds follow him around everywhere he goes

So for these reasons, 3 hours of CNBC will get the Kool Aid bulls shaking with joy and we'll probably see Dow +3000 premarket. So I'll be cutting back Ultrashorts throughout the day fearing the Kool Aid that will literally be gushing out of my TV, not to mention the saliva running down the shirts of CNBC hosts while we hear about unicorns, butterflies, and little puppies.

Anyhow the market is down 2 days in a row, and it's been 48 hours since we heard of bond bailout talk so by 3:30 PM today expect CNBC to trot out Charlie G and tell us about how the bond insurer bailout is going to be here any minute now (for the 40th time). And the bulls will roar. And we'll keep repeating this ridiculous game until someone, somewhere decides to face reality. Until then... more Kool Aid coming next week. Frankly, this charade is all a bit tiring; if we'd face reality we could drop hard, wash out, and then build a case based on reality. But we refuse. So we keep repeating the same up and down, as we toggle between "reality" and "6 months from now everything will be great" - whatever the flavor of the day is, we trade up or down on.

Short Kool Aid


Natural Gas Focused Exploration & Development Companies Continue to Shine

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We mentioned a few weeks ago how the charts for the exploration & development companies, specific the ones with more focus on natural gas, were doing extremely well [Feb 11: An Interesting Development in Natural Gas]. Since then I've been keeping an eye on this space for news flow and everything coming out of this space has been quite bullish.

Some examples.... yesterday EOG Resources (EOG) rose nearly 20% on updates on some finds
  • Shares of EOG Resources Inc (EOG) surged 18 percent to a new high on Thursday after the independent oil producer said it may have discovered one of the largest accumulations of natural gas in Canada so far.
  • It also raised its production forecasts, touting success in the Barnett Shale play in Texas and its lands in northwest Colorado, but did not factor in any volumes in the early-stage Canadian play.
  • Houston-based EOG said drilling on its acreage in northeastern British Columbia may have uncovered 6 trillion cubic feet of natural gas, which one analyst said would rank it among the largest gas resource plays in Canada.
  • EOG also said it is raising annual average production growth estimates for 2009 and 2010 to 13 to 15 percent from its prior forecast of 10 percent.

Southwestern Energy (SWN) had a very impressive earnings report

  • Southwestern Energy Co. doubled its profit in the fourth quarter and set a two-for-one stock split as the natural gas producer capped off a month of big gains in its stock price.
  • The company said late Thursday that net income in the period rose to $71.6 million, or 41 cents a share, more than twice the $33.8 million, or 20 cents a share, it posted a year ago.
  • The company said most of the gains came from a 68% increase in oil and gas production and higher energy prices. Revenue climbed to $402.7 million from $214 million.
  • Friedman Billings Ramsey on Friday raised its price target on Southwestern Energy to $75 a share from $64 a share following the company's profit update. The move reflects FBR's higher net asset value for Southwestern.
  • "With shale production continuing to grow, expectation of average initial production rates continuing to improve, and a good possibility of more strong initial production results in weekly...filings (given the increased use of seismic and longer laterals), we believe that the positive news flow will continue," FBR said.

These are just examples of similar type of news flow throughout the sector. I'm continuing to review these names and revisit this space, which I haven't looked at for 2+ years. I don't really want to chase these names after such massive runs, but most likely with the world energy stresses, I'll be looking to get some exposure here when (if) the stocks pull back. There are just a sizeable amount of names in the space, so figuring out which to include in a mini basket is what I am working through now.

No position


Thursday, February 28, 2008

London Hedge Fund Goes from +87% Return to Out of Business in a Span of Months

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This clearly shows just how dangerous some of the strategies out there truly are. But I am sure they will be handed more money because they were able to provide 87% return last year. So clearly they are brilliant; except they have no risk management skills ;) And this "once in a lifetime" problem won't happen again. Until it does somewhere else in our financial system 7 years from now... just as it did 7 years ago. We are just a global financial system of rolling bubbles and implosions right now....

Well it was a good 2.2 year run? Gosh I cannot even raise $15 million and geniuses like this who can lose all their investors money can raise a billion+. Must be nice... I really need to go get a Goldman pedigree - anyone trusts you when you have that I supose.
  • Peloton Partners, the hedge fund founded in 2006 by Ron Beller, a former Goldman Sachs partner, has told investors it is being forced to liquidate a $2 billion fund of asset-backed securities.
  • Beginning the liquidation process for the Peloton ABS Fund represents a massively life-threatening situation for the company, which last year was one of London's best-performing funds.
  • Run by Mr Beller and Geoff Grant, another ex Goldman Sachs partner, Peloton posted an 87 per cent return last year in large part thanks to the success of its bets against sub-prime.
  • But the continued deterioration of the credit markets appears to have gone against the fund in recent weeks. Mr Beller and Mr Grant said they were "working night and day" to secure the future of the fund. The two managers said they had been forced to actively seek a buyer.
  • Speculation mounted that Citadel and GLG Partners, two rival hedge funds, were among several parties to have declared interest. (who else but Citadel which is EVERYWHERE)
  • When the market stalled in recent weeks, the ABS fund, backed by a ratio of four-to-five times leverage, chose an "orderly liquidation" to pay off lenders, one source familiar with the fund's recent activities said. (oops)
  • Peloton also wrote to investors today to tell them it was suspending dealings in the Peloton Multi-Strategy Fund and would no longer try to calculate net asset values.

Leverage works great on the way up, when your 15% return turns into 75% when you borrow 5:1 or 10:1. On the way down? Not so much. Folks this is no different than your margin calls on your online brokerage accounts - but instead of borrowing 1.5:1 like you can - they borrow much much much more. Because they're smarter than you. After all they worked at Goldman. But don't you worry - send them another billion and they promise they won't make the same mistake twice. Scout's honor!

Somehow I don't think this will be the last. I am sure Citadel has billions sitting around waiting for hedge fund after hedge fund (full of very sharp managers with great MBA degrees, who will promise this won't ever happen again) to implode this year. :) Citadel always wins in the end.


FTI Consulting (FCN) Continues to Prove to be Best of Breed

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FTI Consulting (FCN) has been range bound for half a year after digesting a huge move last August. While very pricey, the company continues to execute as proven by today's earnings; and raised guidance for 2008. I don't have a major stake in this name at this point, but investors appear to be happy, taking the stock up 6% in after hours. My other position in this sector, Huron Consulting (HURN) is clearly not best of breed... but I still retain a minor position there as well despite a horrid chart. FTI has more exposure to the area I want to focus on with these stocks, the 'restructing' (aka bankruptcy) business.

From Reuters:
  • FTI Consulting Inc (FCN) reported a 77 percent increase in quarterly profit, which also beat market expectations, and forecast a strong 2008 as the business advisory firm continues to benefit from the turmoil in the credit market.
  • The Baltimore-based company posted a fourth-quarter net income of $30.8 million, or 60 cents a share, compared with $17.4 million, or 42 cents a share, in the year-ago period.
  • Revenue increased about 29 percent to $280.5 million.
  • Analysts expected earnings of 58 cents a share, before special items, on revenue of $261.5 million, according to Reuters Estimates.
  • FTI, which derives 83 percent of its business from the United States, saw revenue from its corporate finance/restructuring consulting segment grow 27 percent to $73.6 million in the fourth quarter.
  • The company expects 2008 earnings of $2.40 to $2.50 a share on revenue of $1,275 million to $1,315 million. Analysts see 2008 earnings of $2.34 a share, before special items, on revenue of $1,153.1 million.

From the CEO:

  • Mr. Dunn concluded, "On a final note, from a business driver perspective, the global credit crisis cannot be ignored. What began as a virus in the U.S. sub-prime mortgage sector has erupted into a financial and economic plague - destabilizing world-wide economies, roiling credit markets and whipsawing stock markets. This plague is attacking transparency, liquidity and, most importantly, confidence in the world's financial markets and the institutions and enterprises that rely on them. Transparency, liquidity and confidence - the very issues our skills are designed to enhance - are vital to enterprise value, which our mission statement calls out for us to protect. We are seeing broadly-based demand in every one of our segments from credit related engagements - and that demand appears to be accelerating."

I was hoping this "rising tide" would help lift even a laggard like Huron Consulting, but so far, not so good on that end. Huron is far cheaper on 2008 estimates (north of $3) but far less reliable, so they are getting their deserved lower multiple.

Long both names in fund; long neither in personal account


Bookkeeping: Taking Some Silver Wheaton off the Table (SLW)

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It is funny how quickly the worm can turn. I was kicking self just 2 weeks ago that I picked the wrong horse by choice of exposure to silver [Feb 12: Silver 3 Months Later - I Picked the Wrong Horse]

At the time the stock was $15. Now 2 weeks later, after an "ok" earnings report [Feb 25: Silver Wheaton (SLW) Ok Results, but Some Massive Expansion Opportunities] we're in the $17.60s. I believe this has more to do with the boom in commodities (along with the overhang of Goldcorp selling finally gone), but this is a 17%+ move in a very short time so I am going to lock in some profits. This is not a major position and I'd like to add back at lower levels now that Silver Wheaton is acting "normal" again (plus I will increase my exposure when I do buy to a larger % of portfolio); but I am going to cull some today. While this position might ying (go up) while the general market corrects, I still don't want to lose such a nice short term profit to the bears....

p.s. Taking a little Kinross Gold (KGC) off as well...the chart looks identical to SLW in the past 2 weeks... that is "vertical". I don't want to take too much away from my core position, because the Fed is playing right into precious metals hands as a 'store of value' vs fiat money printing press.

Long both names in fund; long neither in personal account

China Raising Minimum Wage

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Why do you care? Again, it's all about exporting inflation to you. (but not to worry says our Fed chief) [Rising Factory Costs Erode China's Edge], [China's Inflation Hits American Price Tags]

In a global world, me must keep in touch with what is going on. As I've been stating lately, capital will move from Chinese coasts (where those "rich Chinese" who make $0.85/hour), to inland poorer areas... and then once those people start making massive waves like $0.33/hour... we'll move those factories over to Indonesia and Vietnam. Always a labor force to exploit on this Earth so we can buy things 4 cents cheaper at Walmart.

How much is $120 a month? $4 a day. Or $.50 per hour. Remember, that is the RICHEST province in the country. But we can do much cheaper in Vietnam folks, let's get those factories out of China - those people are making too much money!
  • In an effort to calm grousing consumers as prices rise to 11-year highs, China is raising minimum wages across the country, a move analysts fear could further stoke inflation.
  • Guangdong, China's richest province, said it plans to raise minimum wages by as much as 18% in some cities starting April 1. The decision followed similar actions in other areas, notably the major cities of Shanghai and Beijing.
  • The wage increases, aimed at relieving food and other price pressures, could instead fuel inflation, analysts said. Higher wages are also likely to raise prices of U.S. imports from China, and possibly reduce China's attraction as the world's manufacturing center. (all things we've been talking about since last summer)
  • As an example of higher prices, McDonald Corp.'s China stores recently raised the chain's Big Mac price to 12 yuan ($1.7), up 14% from just seven months ago, reflecting higher meat and wheat prices.
  • In December, Kentucky Fried Chicken, owned by Yum! Brands Inc. also raised prices in its China stores for the first time in more than three years.
  • Since last year, Chinese residents have seen prices of food and other staples increase more than their pay checks, a factor analysts said could potentially unleash social unrest. In light of that, some fear the minimum wage increase came too late. (I always wonder why we never have social unrest here, we just seem to grin and take it - might just be the American mind set of soldiering through, in thick or thin. Now in this country we won't be able to get wage increases to offset inflation because of the threat of moving jobs away from the US - so unlike the 70s when people demanded higher wages to compensate for inflation that won't be so easy this time around - gonna be very interesting to see how it plays out)
  • Guangdong will increase the province's minimum wages by an average 13% on April 1, the province's labor bureau said in a news release last week. The southern China province produces about 13% of China's economic output, the most among the country's 32 provinces.
  • Minimum wages in the capital city Guangzhou will rise to 860 yuan ($120) per month from 780 yuan, an increase of 10%. Wages of other cities in the province will also get a boost, with those in some inland cities up nearly 18%.
  • "The current consensus view is that this year's inflation should peak in the first quarter (that's when Ben says for us too!)," said Lan Xue, an analyst at Citigroup, in a separate research note. However, Xue said "we are getting nervous that not only may we not see a moderation in the second quarter," but that inflation could even continue rising into second half or even 2009. (I doubt it, that would go against what Ben says! Ben would not deceive us!)

Again, we read these stories from country after country. Middle East, Europe, Asia, North America. It's the same story over and over; just change the name of the country. But it does not register with those in power in this country. In fact they continue to preach the exact opposite of what is happening on the ground. Amazing to watch. But hey, we can continue to prop up asset classes (equity market included) with paper money, so we can keep the sheep distracted. Thank god there is no such think as the Dow Jones Inflation Average to keep track of inflation on a day by day basis, or people might notice what is really going on behind the scenes.


The Hedge Funds are Coming! The Hedge Funds are Coming!

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I wrote a few weeks ago about the coming crush of hedge funds that are coming into commodity markets (I have zero proof but I know any hot market will draw in their computers like blood in shark infested waters) [Feb 12: Wheat is Being Ruined by ... what else... Hedge Funds and Speculators] I wrote:

... strength begets strength and strength means hedge fund computers scanning the globe for any pattern will start chasing each other into the commodity futures markets. While I do expect the trend to remain up, the volatility will increase (thanks hedgies!), and another interesting thing happened - the daily limits were increased so the intraday volatility will sharpen - cool! This allows wider ranges for daytrading for these futures, more fun for the hedge funds.

Again I am not a CBOT trader, never traded a future directly in my life but I know human psychology and the pure and utter greed and avarice on the Street - so I knew this would bring in the hedgies.... and the comments below by experts seem to confirm my guess from a few weeks ago.

Yesterday was apparently the most crazy day ever in wheat futures, a swing of 25% in 1 day! If it is "good" or "bad" I will leave that decision up to you, but you can see how these quant computers truly ruin any market (unless you are a daytrading dynamo). Wherever they go, it is like locusts - they will chew it up, spit it out, spin it, kick it, push it, punt it... and make sure volatility increases by a huge magnitude. And as Ben continues to cut and flood more liquidity into the world, as I stated many times, more and more is going to go into relatively small commodity markets because this is where "hot money" is going; so we will have a bubble - and I fear it will be epic. There is no shame investing in a bubble. It's just a matter of making sure you are not the last rat standing at the party when everyone piles out the door at once. I don't think we're even close but unfortunately the volatility of my once "stable" Powershares DB Agriculture Fund (DBA) is going to increase by a serious amount. Again, this was predicted but it's sort of like having a nice quiet society party, and the wedding crashers (hedge funds) show up with their tattoos, spiked hair, and brash attitude. Damn kids.... I do feel bad for the humans who have been in this market for decades, doing their things and then seeing "this" suddenly arrive.

Remember folks, all this macro thinking and fundamental analysis we try to do? It's is mostly useless in the short term as computers drive 70% of all trading. So when you sit there and ask "why the heck is this the outcome; it makes no sense in light of the news", try not to get too frustrated... it is not human decisions that makes most of the trades nowadays - simply computer programmed algrorithims churning out 100s of decisions by the second across the world. We're just along for the ride in most cases. And these markets are simply TOO small for all the fiat dollars now chasing into the system.

Welcome to the Jungle.

  • The largest price swing in the history of Chicago Board of Trade wheat futures on Wednesday baffled market analysts and sparked frustration among long-time traders who have used the market as a tool to hedge risk.
  • The CBOT March wheat contract traded in a range of nearly $2.70 in a single day, from a low of $10.65-1/4 up to $13.34-1/2, a record spot price for wheat on the 160-year-old market. The contract ended up nearly 7 percent, settling 80-1/2 cents higher at $12.80 per bushel.
  • Until two weeks ago, the normal daily trading limit for CBOT wheat was 30 cents a bushel, either up or down.
  • "This is why a lot traders won't trade this market anymore. This kind of volatility, and lack of connection to what's happening fundamentally in the market, have a lot of traders saying there are other things to trade that have less risk," said analyst Shawn McCambridge at Prudential Financial.
  • "You can't afford to participate in these markets if you're a small or medium-sized guy, as far as an elevator or producer. You could be doing everything 100 percent correctly, and the market trades like this, you could get annihilated," McCambridge said.
  • Yet CBOT floor traders said the market's latest violent gyrations reflect the increasing influence of hedge funds which have been pouring money into CBOT grains.
    The price action on Wednesday, they said, had more to do with fund maneuvers than with bullish fundamental factors.
  • "There is an enormous amount of bitterness down here," one CBOT wheat floor trader said.
  • "When I first started, we had 1/4-cent moves and an 8-cent range, and everybody was happy. Now we have $1 swings, and everyone is mad at each other," a longtime CBOT trader said.
  • He added of Wall Street investors: "Multi-trillion-dollar markets moving money into these type of markets ... exacerbates the problem."

Bloomberg adds....

  • Wheat futures rose more than 25 percent from today's low to their high, a gain that was bigger than all but seven annual price increases for the grain since 1973 on the Chicago Board of Trade. The volatility increased the potential profit and loss on every transaction, discouraging some traders.
  • ``A lot of players are just packing it in or drastically reducing positions because you just can't control the risk,'' said Jack Lablonde, president of Benchmark Trading Inc. in Cedarburg, Wisconsin.
  • ``It's a free-for-all,'' said Tomm Pfitzenmaier, a partner at Summit Commodity Brokerage in Des Moines, Iowa. ``I don't know if it's money management or fear. There's no fundamental justification for prices being limit up yesterday and down the limit today.''
  • ``All technical analysis and fundamental analysis is basically obsolete when the markets start to trade like this,'' said Marcus. ``Bulls and bears are both scared and are in a high-stakes game of hot potato right now.''

Again, I wrote last fall we will have a Bubble 3.0 - caused by Ben. Repeating same policy of Al. When people wrung hands that the Fed won't cut rates due to inflation I laughed. I remember literally saying so on the Halloween cut when "pundits" opined the Fed would be restrained. That's now how it works anymore - we cut, cut, cut - and the fact the financial problems were far bigger than anyone at the time cared to acknowledge would just cause them to continue to cut. Now at the time I said 3% by the spring (when we were around 4.75%) and I never envisioned 1.25% in 9 days. But the destination is the same. And why I think 2% is all but in the bag now as panic over takes the Fed. While they lie about how everything is just dandy.

I didn't know where the next bubble would be, but guessed either foreign markets or commodities. It could still be both. But commodities is such a smaller market, so this onrush of paper money is going to take this bubble to severe heights. Despite tremendous moves, I still think we're in the early innings. And the speculation in the agriculture commodities, is going to be felt the world over -- most likely with some famine. But hey, we bailed out the bankers in NYC, and we're creating some great profit opportunities for some of the richest men in the country (hedge fund managers in CT) and that's all that matters to this Fed. So smile away Ben... ignore Ron Paul and his sense... just smile away, and talk to us about how inflation will be gone when the US economy slows. And keep printing worthless pesos while you smile. In a year from now people will see the light. Until then, CNBC will clap at your actions. And people like me will be accused of Chicken Little tactics.... we'll revisit Spring 09.

Long Powershares DB Agriculture Fund in fund and personal account


Smithfield Foods (SFD) Continues to Struggle With Input Costs

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Smithfield Foods (SFD) is a stock I considered adding very early in the fund, but with the huge run up in grain costs even back then, not to mention how it's gotten much much worse since, I just have a hard time investing in anything that is related to a cow or a pig (I do have one, but it is based on China). I do think however (and today's news reinforces this thesis), this is what you will see a year from now: We are going to see cows slaughtered now because they are getting too expensive to feed. So what will that lead to down the road? You guessed it; a (relative) shortage of beef. And what does that mean for our pocketbooks? Inflation. Even more than we see now. Right now producers are passing along the grain costs - but at some point it's just going to get to a point where they raise less livestock... and for a country (world) increasingly loving protein that causes more issues.

On the bright side, we've won the votes of the farm block with our ethanol push. Always a great thing!

Smithfield Foods out with earnings today.... if not for the darn grain costs, I'd really be interested in this one as a pork exporter play. As with the retailers, and the like, expectations have been beaten down so badly that it is becoming easy to "beat" the number. So while year over year results are degrading they are "better than expectations".
  • U.S. meat company Smithfield Foods Inc (SFD) on Thursday reported lower quarterly earnings due to a big loss in hog production, but the results beat Wall Street forecasts by a wide margin as an acquisition and strong pork exports more than doubled profits in pork processing.
  • The Smithfield, Virginia-based company reported earnings for its fiscal third quarter ended Jan. 27 of $54.6 million, or 41 cents per share, compared with year earlier results of $60.4 million, or 54 cents per share.

  • The hog unit, the nation's largest, lost $80.7 million on an operating basis versus a $4.5 million year-earlier profit, as higher production costs and lower hog prices weighed. The hogs may be a drag on fourth-quarter results too, the company said.

  • "We enjoyed very strong fresh pork margins that were much higher than historical levels as a result of lower hog costs and strong industry exports," Smithfield Chief Executive Officer C. Larry Pope said in a statement.

  • "Our fiscal fourth quarter will likely be very difficult, as our hog production operations probably will not achieve profitability," Pope said in a statement. "Meanwhile, pork exports are expected to continue to grow, which will lend support to the hog and pork markets."

  • Smithfield is the largest U.S. hog producer and earlier this month said it was reducing by 4 to 5 percent its breeding herd because of high feed prices.

  • On Thursday, Smithfield said hog prices averaged $37 per 100 lbs for the quarter, down from $44 a year earlier, while production costs rose to $49 from $42 a year earlier. (now that's a problem; a huge one)

So let's check back in a year; you are going to see a lot of questions as to why meat products are skyrocketing... and probably we'll drag a few executives up to Congress to question them ;) No one will look into the mirror there in DC and ask, why do I continue to burn food for fuel in a world headed for food disaster? But for now they are too busy proposing bailouts for house speculators and those who bought at the top.... they will only investigate after something turns from huge problem to unmitigated disaster. That comes next year in food.

No position


Bookkeeping: Cutting Apple (AAPL) on Rally

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This is purely a technical call on Apple (AAPL). I am cutting back my position to around 0.3% of fund and selling near $128.60, as the stock is rallying "up" to resistance of the 20 day moving average (roughly $129). This still remains a broken chart to me, and a potential to see sub $110 in the near future. So I'll look to rebuy at a lower price, if offered.

If I am wrong, and this is part of a broader tech rally, than so be it. I'd have to see Apple north of its 50 day moving average ($145) to believe this is a true move with staying power. So I'll either buy north of that level or back down where I think Apple could be headed, sub $110. Anything between those 2 levels, to me, is simply a "white noise" trading range - good for traders, but useless for investors. I do find the value compelling here; again simply a technical trade in this case. I also find the obsession with iPhone misplaced; this is a Mac story.
  • Shares of Apple Inc. rose Thursday morning after the iPod maker reiterated expectations to sell 10 million iPhones in 2008, leading an analyst to maintain a top rating.
  • Goldman Sachs analyst David C. Bailey met with Apple's operating chief, Tim Cook, at the Goldman Sachs Technology Symposium Wednesday, and said that growth opportunities remain for the company.
  • "While there was no breaking news on the financial side, the meeting reinforces our view that Apple's industry-leading product cycles should help it overcome softer seasonality and sets the stock up for a strong second half of the year," Bailey said in a client note.

  • Sales of Apple's Macintosh computers should continue to outpace the overall personal computer market, and the iPod Touch should help improve the music product line's revenue even though iPod unit growth is dipping, he said.

Long Apple in fund; no personal position


Rick Santelli is Quickly Becoming my Hero

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I love this guy... one of the few people who actually speaks the truth. Check out this interview from this morning where he rips into a Kool Aid drinking bull.

Also, saw Ron Paul go off on Bernanke again yesterday - love it, 1 voice of truth ... sadly most of the other congressman and women probably have no idea what Dr. Paul is even talking about. Heck some of them don't even know where he worked before he came to the Fed... sad.

Last, as an aside, I notice Buffet will be on premarket CNBC Monday. You know what that means right? We will find a reason to rally as whenever Buffet speaks it means a bailout is around the corner. All you have to do is say "Buffet is sniffing around (insert troubled company name here)" and the whole market can party. Or he will make the bond insurers party. Or if he sneezes a certain way we can party. Or with a magic wave of his pinkie he can make all our problems go away. All I know is whenever he speaks, the market finds an excuse to find some sliver of hope in any phrase and call for a party. Remember about 4 months ago there was a rumor he was buying Bear Stearns.... about $30 higher of course. But if you drink the Kool Aid, you can make a rally out of a rumor. So once again late Friday I will have to cut back short exposure, with expectation that Kool Aid bulls will find any twitch in Buffet's face as a reason to buy.

Ctrip.com (CTRP) Continues to Impress

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We just have an avalanche of earnings to go through today - going to be busy. Ctrip.com (CTRP), is a Chinese online travel company I've been trading for many years; this is one stock I should of just bought and hold as it's been a tremendous asset for shareholders. Further, it is probably among the most reliable stocks I've ever encountered. I always think "this is the quarter they will say something that speculators will hate and drive it down 40% for no good reason" but they chug along, consistently year after year. I continue to be amazed how a competitor of Ctrip's, eLong (LONG) constantly screws up, while Ctrip.com executes. Since eLong announces first most quarters, it always plants a seed of doubt in my mind, but then Ctrip comes along and says "we're #1". It is just sort of funny to watch, as it has been going on for years - this is again a case where a rising tide would theoretically lift all boats, but does not.

I don't have a major position at the time, and the stock was acting very poorly yesterday ahead of earnings which made me more suspicious that something bad was leaking out, but once again, they do come through with solid earnings. Frankly, they's gotten the Wall Street (short sighted focus on 90 days at a time) game down to a tee, and a lot of other Chinese companies could learn from them - under promise each quarter, and over deliver. And they always deliver. Constantly confounding doubters. And even anxious longs (myself included)
  • China's top online travel agent, Ctrip.com International Ltd (CTRP), said quarterly net profit doubled, beating expectations due to higher bookings and pushing its share price up in after-hours trade.
  • Ctrip.com, which is benefiting as a wealthier and expanding Chinese middle class spends more on travel, said it is growing faster than its competitors.

  • "We did increase market share in 2007," Chief Executive Min Fan told analysts on a conference call.

  • For full-year 2008, Ctrip said it expects to continue year-on-year net revenue growth of around 35 percent.

  • Shanghai-based Ctrip said fourth-quarter earnings doubled to $18.6 million, or 27 cents per American Depositary Share, easily beating the $14.8 million profit analysts had forecast.

  • Fourth-quarter net revenue rose 58 percent to $49 million, as hotel reservations, flight bookings and package tours all posted strong growth, the company said.

  • Ctrip had forecast year-on-year net revenue growth of about 35 percent for the fourth quarter, but the firm has a history of publishing conservative forecasts.

  • Full-year 2007 profit rose 66 percent to $55 million.

  • The stock has gained more than 80 percent in the past 12 months, while domestic rival eLong Inc (LONG), majority-owned by U.S. online travel company Expedia Inc (EXPE), has lost more than a quarter of its share value.

  • To help meet rising demand, Ctrip plans to spend $40-$50 million on a second call centre near Shanghai, to complement the 3,500 employees at its first centre.

Long Ctrip.com in fund; no personal position



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