Bookkeeping: 'Rising Tide' Performance Week 31

Week 31 performance of the mutual fund

Comments: It was another wild and wooly (sp?) week in the market. As we've been discussing the market has been range bound, and my prediction was when we did break out of this range it would be downward, which did happen this week - twice. But for the 3rd week in a row I got Gasparinoed


Gasparinoed /verb/ - to be positioned perfectly anticipating a market selloff due to technical conditions, only to be blindsided by a TV pundit passing "well founded facts" to millions of viewers which ultimately do not come true, and immediately destroying all your short positions to the tune of 5-8% across the board.


Not only did I take a hit 2 weeks ago Friday when the market was about to break down, and Charlie came to the rescue @ 3:30 PM, driving the market up 1.8% in 30 minutes, but he did last week and again this week Tuesday; just as the market broke technical resistance (S&P 1320) that I've been waiting a month to happen. So once again my positions turned against me, and I lost money, but this time at least the effects were short lived. But it still lost some performance.


Of greater note, the saga of Thornburg Mortgage (TMA) killed performance this week, subtracting roughly 3% (when combined with the smaller loss in MFA Mortgage) from fund performance. So first I was Gasparinoed and then I was Thornburged. Thankfully, I did not get Croxed, or I might not even of made it to the keyboard by the end of the week. Either way I felt I was allocated quite smartly if not for the CNBC pundit interference, for the rest of the week. As for being Thornburged - well it is going to happen at some point - but you never expect 90% drop in a week. At this point I am considering that position a lottery ticket as it is so close to $0 as it is, and hopefully some soul will see it worth a buyout - I mean even Countrywide, with a far poorer book, could find a greater fool to buy it out.

With that said, I am going to ask the government for a bailout on my Thornburg Mortgage position; I mean everyone's doing it nowadays so why not me? What's that? I'm not a multi billion bank who showers its CEO with multi millions of compensation to drive the stock into the ground - therefore I don't deserve the entire government riding to my resuce? Ok, I see how it is.


So from a big picture view of the market, we have been broken down but we seem to be moving toward a direct Fed bailout into the mortgage business which raises the risk of short exposure exploding in our face at any moment. The drumbeat grows louder by the hour. S&P 500 level 1270 remains a key level, and we'll watch how the market reacts when we get there. Friday, however financials and peers did seem to outperform by a large degree so these stocks could potentially be washed out for now. There are so many cross currents happening in this group it is hard to know what to expect - without the threat of government interventions the ultimate direction would be very easy to model; but right now anything can happen.


Anyhow, if you exclude this "mortgage related stock" 3% drag the fund did very well this week - but unlike our financial institutions I cannot hide this loss in off balance sheet accounting so I'm stuck with it. Rising Tide Growth Fund lost 3.15% this week, trailing the indexes we track by approximately 0.3% - the S&P 500 was down 2.8% this week and the Russell 1000 was down 2.9% this week.

Price of Rising Tide Growth: $10.984
Lifetime Performance to date (vs Aug 3, 2007): +9.84%

Comparable S&P 500: 1,293.37 (-11.73%)
Comparable Russell 1000: 705.37 (-11.41%)

Fund return vs S&P 500: +21.57%
Fund return vs Russell 1000: +21.25%

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

Here We Go: PIMCO's Bill Gross Says Fed Should Buy Mortgages

It's all be pointing to this direction for a long time... now prominent people are calling for it. For those who don't know, Bill Gross is basically the Warren Buffet of bonds. He is now calling for the Federal Reserve to buy mortgages outright. (full video interview if you follow the link) This was the direction I think we ultimately head as all the King's Horses (and Uncle Ben) put Humpty Dumpty back together again; but it might be a lot sooner than I anticipated. When/if this happens - I expect the stock market to rally quite severely. This is why at any moment it's a risk to hold these Ultrashorts because if it's announced premarket as the Fed loves to do, one will get crushed immediately.

• The Federal Reserve needs to take a more active role in stemming the housing crisis, possibly by exchanging Treasury notes for mortgage notes, Pimco Bonds Chief Information Officer Bill Gross said on CNBC.
• Gross said the Fed's move to increase the allocation for its Term Auction Facility will help the markets, but it needs to be more aggressive to help rally the real estate market. "I think the increased TAF facility this morning will help, but in effect it's sort of a small step for a Fed chairman," Gross said. "What really needs to be done is for the Fed to come in and to lower long-term mortgage rates."
• Gross suggested the Fed can do so by exchanging Treasury securities for mortgage securities. He compared the idea to something called Operation Twist in the 1960s, where the Fed sold Treasurys and bought mortgages.
• The TAF move, he said, "doesn't really provide a floor for mortgage prices and a ceiling for mortgage yields, which is incumbent I think in order to stop the slide of home prices. I mean We still have 30-year Fannie Mae conventional mortgage at 5 3/4 which means 6 1/4, and 7 percent-plus for jumbos. (I didn't know it was the Fed's job to put a stop in the slide of home prices - I didn't see that in their charter? Could someone point that out to me, if you have that handy in front of you?) Egad.
• "The housing market cannot be supported with those types of yields. The Fed needs in effect to buy the mortgage market and not to basically lend on it."

Free market capitalism baby.... works until it doesn't. And then the bailouts begin.

On a related note, I was glad to hear someone is going to become rich from the Thornburg Mortgage (TMA) explosion (it is certainly not going to be me) - like a good vulture, he is passing along the site of a car accident which should not of happened, and stealing the jewelry off the fingers of the mortally injured. Wow, I thought their book of business was just a terrible disaster - so awful that all their banks need to call in their loans immediately; imagine that, the smartest bond manager in America wants to soak up this paper hand over fist. This is simply frustrating to watch this train wreck happen as it's all caused by impatient and frightened banks. Especially when they've let technically bankrupt home builders off the hook for quarters on end.

• The manager of the world's biggest bond fund said on Friday he had bought hundreds of millions of dollars of Thornburg Mortgage Inc's (TMA) debt in the last few days.
• Bill Gross, chief investment officer of Pacific Investment Management Company, or PIMCO, said on CNBC television he has been buying "high-quality" rated Thornburg paper with yields in the "9, 10, 11 percent range." Gross manages the $120 billion PIMCO Total Return Fund.
• "Ultimately, we expect the paper that we're buying to ... provide close to double-digit-type returns," Gross said.

Wonderful. Just fantastic.

Long Thornburg Mortgage in fund; no personal position

Bookkeeping: Starting 2 Mining Positions Emphasizing Iron Ore

I am beginning two mining positions, based on strength in metals, specifically iron ore. I've been patiently awaiting pullbacks in both names - one has hit my initial target and the other has not fully, so I am weighting these differently.

First, I am adding a full position here in CVRD (RIO), the Brazilian conglomerate.... we have seen great price increases in iron ore of late [CVRD Secures 65% Increase in Iron Ore Pricing], and I like the stability of iron because prices are on contract as opposed to spot pricing as with most metals. But CVRD is one of 3 global giants in mining, and the other 2 are engaged in a takeover battle, so this is the clean and easy choice. Technically, the stock has fallen from a recent high of $37.50 to its 50 day moving average just over $33; about a 11% correction. So I've bought a 700 share position here in the $33.40s for a 2.1% exposure for the fund. This won't be a lightning shot type of position, but should be a nice slow and steady stock that I can cut back on when it runs and add as it falls, during a sustained long term trend.

Second, I am adding Cleveland Cliffs (CLF) which is an American iron ore company with some coal exposure - I am shocked this company has not been bought out by now to be blunt. Since the stock has not fully fallen to any key support I only have done a starter position of 50 shares or 0.5% type of position in the $112s range. I was hoping to see $109 which is the 50 day moving average but that's just 2-3% away so I suppose I am being a bit picky; it is down from near $128 so a 12.5% correction. The reasoning is identical to CVRD, but the action in this stock is much more trader friendly in terms of volatile action. But this also makes it more prone to profit taking, hence why I did not build a larger position yet. I'd love to buy a large stake in the mid to upper $90s if possible.

In my 'World of Shortages' scenario the assets these companies own will only become more valuable over time. That said, they are heavily reliant on China to continue it's outsized building and use of steel especially - but at least with CVRD's case they mine many metals so this gives me broad exposure to other commodities as well.

Long both positions in fund; long neither in personal account

Might See that 1270 Today, After All

First whiffs of panic in the air. Ironically the stuff that was pole axed yesterday is holding up well today (financials and commercial real estate). So I am not deriving much benefit from my Ultrashorts there. These sectors just might be "sold out" - i.e. anyone who is going to sell is pretty much out at this point. We saw the same pattern in mid January when everything was selling off yet financials, homebuilders, and retailers were showing relative strength. This development makes things tricky because unlike yesterday my Ultrashort exposure is not providing very much value, in those 2 names at least (Real Estate, Financial). So it's a much rougher day than yesterday when those instruments were up 8-9%. We went through the exact same conundrum in mid January when I could find nothing in the Ultrashorts to offset the damage in the long side.... this is the problem with only being able to buy ETFs on the short side. Sometimes you need a hammer and all you have is a screwdriver. Similar situation forming it appears.

Seeing the strength we have today in those 2 groups (relatively) and assuming they are close to washed out, I will be cutting them back this afternoon with a pretty serious haircut, especially as we break below S&P 1280, on our way to S&P 1270. I do expect the Plunge Protection team to be hitting the "buy" button hard and fast and defend that level at all costs.... so we could get a vicious bounce once we get there. Either way I will be curious what they have up their sleeve Monday in premarket with futures.

By end of the session I'll probably be selling half or more of my exposure to both these positions ...

Long Ultrashort Financial, Real Estate in fund and personal account

Bookkeeping: Coal Finally Correcting - Continuining to Build Up Positions

I added Massey Energy (MEE) this morning, so now with the other 3 coal focused name in the fund finally seeing good signs of weakness I am adding new $4-$5K type of layers into the others

1. Peabody Energy (BTU) - in $52s, worst shape technically, now below the 50 day and breaking down to 200 day moving average
2. Consol Energy (CNX) - in $74s, right near 50 day moving average
3. Arch Coal (ACI) - in $47s, right near 50 day moving average

I certainly don't expect this to be their bottoms, but will continue to expand my basket of coal names as they fall. Aside from fertilizer this will be my 2nd biggest "commodity" weighting, as the macro trends continue to favor this sector. I do expect to take a 10%+ type of exposure as we continue to break down, and the stocks continue to (hopefully) falter to lower prices.

Speaking of, fertilizers are showing their first signs of weakness in a long while- other than a small purchase in CF Industries (CF) I am awaiting the other names to fall to their 50 day moving averages before making the first purchases. Again, in time like this when my major weighting suffer the fund performance will take a near term hit, but these are the positions that constantly make us good money when the market rebounds.

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

Bookkeeping: Restarting Position in Mexican Homebuilder Homex Development (HXM)

I am going to give Homex (HXM) another chance in the portfolio after it's recent impressive earnings [Feb 27: Homex with a Very Nice Earnings Report]. I had held this earlier in the portfolio but had a measly 2% gain... this is not really a fast mover type of stock although it has had a huge run of late. As I wrote in February

This is actually a chart that a momentum chasing technical trader would dream of, but I'd rather buy it on a pullback, as it's just put on a 11% move and this is not a stock that has huge volatility so that is a substantial move for this type of stock.

Well, now I have the makings of a pullback as the stock is down 12% from recent highs of mid $64s range, down to $56s and approaching the support level of the 200 day moving average. Since the market is so weak, I don't want to overcommit capital, so I am only buying 200 shares for a starter position of 1% of the fund. The stock could easily break this key support level on a market sell off which would put it immediately in negative shape on its chart. With stocks like this, which are generally slow movers, it is more important to be prudent than in fast moving stocks which you can generally make up poorer entries with some trading along the way.

This stock has always been hard for me to value since it has no peer to compare to, but with $4+ EPS in 2008 it is trading at a reasonable 14x forward earnings, and should continue to grow in the 15-20%+ level for the next few years.

I've also added a bit to it's Brazilian brother, Gafisa (GFA) today in the $37 range. I continue to look for opportunities away from the United Debtors of America.

Long Homex, Gafisa in fund; no personal positions

Plan for the Rest of the Day

For those who have been around a few weeks, you know I've been selling off my Ultrashort ETFs each Friday afraid of government interventions and or bailout rumors or whatever. I'm actually going to change that policy this weekend (which will probably lead a historic Federal government bailout solution with my luck), but with the markets breaking down and the S&P heading for a retest of January lows I want to keep all my insurance.

In fact, I bought back in the past 30 minutes, 75% of the short exposure I sold off first thing this morning into the selloff, since the market rallied for no good reason other than "Fed cut hopes", and I was able to buy back positions I had just sold 1 hour earlier for a 6-8% discount. I continue to be amazed we rally on "hopes for Fed cuts"....the same Fed cuts destroying our dollar, creating huge bubbles, and not helping much of anything except buoy hope in equity investors. But people are trained to cheer Fed cuts no matter what, so their instinct is to buy. We were also extremely oversold, so this (ahem) rally, basically let people remount shorts at more attractive levels in my opinion. Short of falling very hard this afternoon (to S&P 1270), I just don't see myself letting go of much of this insurance.

Frankly, I am trying to think of the long run and how we get out of this mess, and I don't see any real solution outside of a Federal bailout of the mortgage business where they literally take the loans onto taxpayer's books. Why the Fed is not pressing for full and total disclosure of the "black box" financials is beyond me - we lack transparency even though people claim we are the most transparent system in the world - not in financials. So either the Fed is asleep at the wheel, because without transparency no one is going to trust each other (I wrote this last August, so it's not a new theme), or the Fed knows what is on the books and doesn't want it exposed. Either way it is bad. The fact our country allowed and in fact encourages financials to have off balance sheet accounting is truly astounding considering this is how Enron hid their problems from the world. There is so little regulation in the industry that greases the world's engine, it amazes me. And instead of coming down on hard on the banks to open up their black boxes, we continue with these iterations of kicking the can down the road.

I am only awaiting the next credit acronym I've never heard of to pop up. Also we now seem to be on the first edge of municipalities running into trouble - I thought this would happen in later 2008 as tax revenues from housing began decreasing (but cities/state refuse to cut budgets or benefits for state workers) but due to the credit freeze up, we are seeing the first wave of issues there as well. Again, it's a huge interconnected web and as the tide goes out, we are seeing a lot of the "ugly" below. How corporations are forced to cut back on jobs but governments continue to hire (with huge long term entitlements to boot) is beyond me...

Last, where exactly is all the insider buying by bank executives since they are such a great value? I've been asking that for months each time a pundit tells me the "great value" in financials. Why does no one from the inside who knows what is going on seem willing to buy their own stock? That tells me everything I need to know. While these financials will have oversold rallies, we seem set to see some bankruptices down the road, if we continue down the same path we are at now with the total freezing of certain credit markets. The inability to offload "junk" to their "loyal customers" is really a huge problem.

So while the equity guys cheer the same Fed cuts (don't they ever learn) - we have some truly dangerous situations being created - I have no point of historical reference to look at so trying to game the outcome is impossible. The problem is no one has any historical reference for what is happening now. All I see is kicking the can down the road. And at times while we kick - the equity markets rally. But this feels suspiciously like early January to me... a lot of lemmings gathering near the cliff edge.

So equity markets will remain at constant risk until something (I'm not sure what) changes. Without housing prices stabilizing, it's all up in the air right now... and from what I am reading foreign governments can only own so much of our financial institutions so I am not sure where we go to raise more capital once we reach the limits. Very few here have that type of money....except the Fed.

Until then, I have popcorn in hand and await the epic battle of the "Invisible Hand" versus market realities we will see at S&P 1270. Should be a doozy.

EDIT: Just read Bush is supposed to address the nation on economy at 2 PM. Might screw up my plan - i.e. free mortgages on us! You just never know ;)

Ciena (CIEN) Continues to Execute

Ciena (CIEN) was briefly the fund's top position in the fall, and made us some solid profits. However, I sold it out of the portfolio a few months ago off [Jan 8: Closing Ciena], and right now the networking stocks simply are not a place to be... even companies executing are continuously sold off due to fears of "future" slowdowns. Perception is reality; so as perception is things must slow in the future the stocks continue to be weak, no matter what reality they provide every quarter. Some of the valuations in the sector are ridiculous but in a bear market, value means nothing... they can stay at ridiculous valuations for as long as the market wants. When the money flow returns to this sector, so will I. But I still keep up to date on the best names.... Ciena has earnings up and is up a nice 11% as a result. Even with today's huge gain, the stock is exactly at the same price I sold out of it nearly 60 days ago.

• Communications equipment maker Ciena Corp (CIEN.O: Quote, Profile, Research) posted a higher-than-expected rise in quarterly profit on Friday and gave an outlook above market expectations, saying strong demand for faster networks helped it avoid being hurt by a weaker economy.
• The stock is down 48 percent from 2007 highs on worries about increasing competition from bigger rivals, many of which have merged over the past few years.
• Ciena, which sells optical switches and other products that support Internet protocol (IP) networks, said it was optimistic about its outlook. The company forecast full-year revenue growth of up to 27 percent, better than the average analyst forecast of 22 percent growth according to Reuters Estimates.
• "While we are mindful of the macro economic environment, indications from our customers to date suggest no change in the fundamental drivers of Ciena's business: the demand for increasing network capacity and the transition to ethernet/IP-based network infrastructures," Ciena Chief Executive Gary Smith said in a statement.
• Ciena said its fiscal first-quarter revenue rose 38 percent to $227.4 million. Analysts, on average, had forecast revenue of $225.7 million for the quarter, which ended Jan. 31, according to Reuters Estimates.
• Quarterly net profit rose to $28.8 million, or 28 cents a share, from $11.1 million, or 12 cents a share, in the same quarter a year earlier. Adjusted earnings rose to 47 cents from 22 cents, far exceeding the average analyst forecast of 39 cents, according to Reuters Estimates.

No position

Bookkeeping: Picking Through Some Rubble

I think the overall market is still on the path downward, and I am not buying stocks that have held up (among my favorites) as I've stated in the past week, as they have potential to fall hard.

I am picking among some of the rubble, making some purchases in my layer in, layer out strategy. These are generally about $5K buys, and as (if) they go lower I want to build up later positions...

1. Indian bank HDFC Bank (HDB) - down 14% in 6 sessions; chart is in bad shape though
2. Indian bank ICICI Bank (ICIC) - down 20% in 6 sessions; chart is in bad shape
3. Chinese travel agency Ctrip.com (CTRP) - down 15% in 6 sessions after earnings spike where I sold off most of my remaining position
4. Coal producer Massey Energy (MEE) - continue to sell this off in parts on lifts, and buy back when it falls back, trying to make some small trading gains in this awful market
5. Medical company Illumina (ILMN) - down 12% in 7 sessions; been waiting for this one to fall for a long time; it's fallen to its 50 day moving average in upper $60s; I'd love to see it in the lower $60s to load the boat

I am trying to find places to apply cash; my favorite sectors still continue to fail to break down - again, as stated yesterday the "generals" will be the last to fall. So I remain patient waiting on a full blown panic before they will sell off.

Long all names in fund; long none in personal account

Morning Thoughts

Good morning... nothing surprising this morning other than the faulty government report which is understating job losses, is at least negative for 2 months ago. January numbers were revised lower from previous levels, as were December 07 numbers. (this is yet another reason to ignore these numbers, as they are not only wrong, they are then revised substantially). More worrisome is the unemployment rate FELL to 4.8%. This signals more and more Americans have just given up the ghost on finding a job and dropped out of the job market altogether. Further, if you believe the numbers to be accurate the government created 38K jobs which means the private sector lost > 100K. Again, this is a highly flawed report so using any numbers is relatively fruitless in my opinion, but the trend is clear for anyone who does not have their head in a bucket of Kool Aid.

The Fed came out this AM and 12 minutes before the report (not they are trying to manipulate the market) announced (a) they are increasing their TAF auctions from $30B an auction to $50B and (b) instead of holding them "until needed" they are now firmly saying at least 6 more months. They are also expanding WHAT they will take, which means our Federal government is on the path to holding subprime mortgages - but since they have the printing press they can do whatever they want. Last some vague language about working with other central banks aka begging them to cut rates so we don't look like the only idiot in the globe.

Due to market sentiment being so poor it would not be surprising to see some attempts at rallies which we already appear to be having. Again it is a process, and people will find any glimmer of silver lining (more rate cuts - woo hoo!) to continue to buffet the market. But hopefully as each data point comes out more people move from denial to acceptance stage. But now the people calling for "everything to be fine in 6 months" are losing more credibility by the minute.

I am selling some of my short exposure into this morning's sell off, but not that much. Now, the next wave of Fed cut chatter, federal government bailout chatter, and the like will be used by bulls to try to move the market up. After any rally we will continue to see the same themes, dollar erosion, more Fed cuts, commodities rally, etc.

We remain in bear market, and simply turn your thinking upside down from the past 5 years... instead of buy on dips, you sell on rallies. Turn the charts upside down if you are a chart reader and just pretend it's a bull market and react accordingly.

I did add back my Powershares DB Agriculture Fund (DBA) exposure that I sold off earlier in the week in mid $42s, when I said I'd be interested buying back in mid $40s. It is just around $40 this morning. I continue to use this as my "safety" fund and inflation buster; not to mention the underlying macro themes are the strongest out there in any sector.

I also am liking the relative strength in technology of late - while I don't expect it to last too long it might work in the near term, much like the relative strength we saw in financials, retailers et al in late January.

I'll be poking around for some other buys, but the key level now is S&P 1270. We are still destined to test it and if it holds or not, determines a lot. I expect the "invisible hand" to work all the magic it has to make sure we hold, at least the first time through.

Be careful of the Kool Aid...

Long Powershares DB Agriculture Fund in fund and personal account

Tomorrow Could Be "One" of Those Days

Hang on for 8:30 AM tomorrow folks, it could be one of those very bad days. Normally after such a bad day in the markets I'd be cutting back some short exposure but I did not sell 1 iota today. The market technically is now breaking down, and I want every ounce of insurance I have.

What I see happening tomorrow morning is a violent reaction to this jobs number 1 way or another. Even if the number comes in "better than expected" I would not trust any rally off of it. It would be like throwing a handful of sand at an oncoming tidal wave expecting to stop it. 1 data point is not going to offset the reality of the situation. So if it's "good" the market may get a knee jerk rally; I won't trust it. If it's "bad", it might make the Kool Aid bulls look into the mirror and declare the 2nd half recovery won't begin like magic on July 1, 2008.

Again, what is happening in the credit market right now is plainly said, quite scary. And more scary are there are no solutions other than "time". Or massive government interventions. As we've been saying for weeks, the credit markets are a mess and equity markets ignored it. It won't matter until it matters. Now that certain stocks are imploding (Fannie Mae is in pure free fall as well), equity investors finally might care. We'll see what tomorrow brings but a bad number could really set us off - straight shot to that S&P 1270 level.

p.s. curious how the fund did today? Despite a 50% loss in Thornburg and 21% loss in MFA (combined they make up less than 2% of the fund at this point), the fund was down 0.05% for the day. Thank you Ultrashorts. And thank you Charlie Gasparino for not showing your mug today... ;)

Now we wait for Mount Olympus to give us the flawed labor report so we can all react like chicken's with our heads cut off tomorrow. As an aside, I'm reading a lot of "a bad jobs number will force a surprise rate cut tomorrow by Fed". Of course as we all know, this will solve everything as the first 225 basis points have helped, right? So if the credit markets dont unfreeze from the first 225 basis points, the next 75 basis points will help. And so on and so forth. See here is the problem with this end game - we only have 300 basis points left to play with. What happens when we run out of ammo? And will we be talking oil $130 and gold $1300 if we continue down this path of destroying our currency? Amazing times :)

So Much for that Mortgage REIT Bull Market!

Wow, the carnage is amazing today in the mortgage REITs. I was looking for some bull markets about a month ago and asked readers for some ideas [Thank you Readers - Found a Bull Market - 4 Mortgage REITs]. After doing some work in this group which was not an area I've invested in before I jumped into MFA Mortgage Investments (MFA).

So that did not work out so well; I am going to place the blame on my readers since I'm already mourning Thornburg Mortgage (TMA). ;) Well these were my 2 positions that were supposed to yin when the rest of my portfolio yanged - and they sure are doing it... but in the wrong direction.

I have a watch list of the 5 major players and all are down between 15-30%. Annaly Capital Management (NLY) which is supposed to be the best of breed is down 18%. This is amazing to watch because these companies take government backed bets (paper backed by Fannie and Freddie)... and the crisis of confidence is getting so bad, even that is not deemed safe anymore.

While this clearly is painful, simply due to the panic in the markets and no sense of logic I am going to cut 1000 of 2500 shares in MFA Mortgage, even at a 30% loss. The action makes no sense, but that doesn't mean investors won't flee in utter panic so I want to reduce exposure a bit. Even if it means eating a loss. I am selling these shares for around $6.75 and taking a bit hit. My exposure is now down to 1% of portfolio though. I don't know how to handle the rest frankly - unless the government is going out of business and/or one believes they will allow Fannie and Freddie to go out of business this action makes little sense.

But I have to say I wish I never tried to follow the Kool Aid herd into finding some "financial" picks that would go up with then Kool Aid about housing rebounding in half a year was in effect. These 2 positions really hurt, especially back to back. Thankfully I have a lot of good positions offsetting these two, but it is a lot of capital I need to make up, over $30K lost in these two positions in just over a month. Which means if I never touched these 2, I'd have close to 3% better performance. Blah. Simply a toxic waste pool ... now i know what it feels like to be a Citigroup (C) investor. But I am a bit disgusted I went down this path when I had avoided all this junk since last summer. Even I was infected by the Kool Aid virus...

• Shares of real estate investment trusts that invest in mortgages plunged Thursday after one of Thornburg Mortgage Inc.'s banks declared the lender in default.
• Keefe, Bruyette & Woods analyst Bose George downgraded Anworth Mortgage Asset Corp. and MFA Mortgage Investments Inc. because he expects book value to decline and expects the companies to hold onto more cash to handle uncertainties in the market. Shares of Anworth Mortgage Asset Corp. tumbled $1.89, or 21.4 percent, to $6.96. Shares of MFA Mortgage sank $1.38, or 15.9 percent, to $7.31. Bose removed Annaly and Capstead from the firm's "Best Ideas List."
• Among other real estate investment funds with steep declines, Anthracite Capital Inc. lost more 11 percent to $5.30, CBRE Realty Financial Inc. fell 18.8 percent to $3.23, Deerfield Capital Corp. sank almost 24 percent to $2.19, Capstead Mortgage Corp. plunged 23.5 percent to $12.47, and Annaly Capital Management plummeted almost 15 percent to $16.45.
  

Long MFA Mortgage Investments, Thornburg Mortgage in fund; no personal position

Joy Global (JOYG) with a Solid Report

I've been considering adding either Joy Global (JOYG) or Bucyrus (BUCY) - both mining equipment makers, which more emphasis on coal from Joy Global. I've owned both of these in the past for my own account, but have yet to own either in the fund. Frankly, I thought the story might be closer to slowing down as emerging markets slow but from the data coming in, my thesis appears incorrect. Also these names are subject to cost inflation as the inputs needed to make their product ramp, but they seem to be able to pass on those costs to a large degree.

The stocks have been very strong of late so I don't want to chase anything in this market, but if/when they pull back I'll be looking to add 1 or both. Joy Global just reported and what else? coal.. contributed to it's strength.

• Mining equipment maker Joy Global Inc (JOYG) reported a better-than-expected rise in quarterly earnings on Thursday, citing strong international demand and improving conditions in the U.S. coal market.
• The company also raised its forecast for 2008 profit and sales, sending its shares up more than 6 percent in early trading.
• Joy Global said earnings from continuing operations for its fiscal first quarter that ended Feb. 1, rose to $71.1 million, or 64 cents per share, from $59.7 million, or 51 cents per share, a year earlier. Analysts' average earnings forecast was 62 cents per share, according to Reuters Estimates.
• Sales rose to $640.3 million from $560.5 million. Analysts had expected $638.7 million.
• Robert McCarthy, an analyst at Robert W. Baird & Co, said "exceptional order activity" during the quarter had added to Joy's "already strong longer-term outlook."
• The Milwaukee, Wisconsin-based company said it expects earnings for the full fiscal year of $3.15 to $3.45 per share, up from a previous estimate range of $3.10 to 3.25 a share. The average Wall Street forecast is $3.34.
• The mining industry's production capacity has fallen behind growth in commodity demand, and investment over an extended period will be needed to boost capacity, Joy Global Chief Executive Mike Sutherlin said in a statement
• Lagging production capacity "has resulted in supply shortages and dramatic increases in commodity prices," he said. "These price increases underlie the expectation that it will take several years and significant investment for capacity to catch up to demand."

No positions

House ATM Creates Overleveraged Americans - The Tide is Out so Now We See It

Since the blog began, and well before then in fact I've been astounded by the use of the house ATM. I've read many stories of "serial refinancers" - people who literally were taking money out of their house yearly, as the housing prices shot up. Now living in a Midwestern industrial state it felt like I was reading about a foreign country but seeing how widespread it was, led me to the thesis that it's not solely (although many people used it this way) for people to overspend for toys. I believed many were using it to mask their lower buying power, not in any 1 year, but in aggregrate [Do the Bottom 80% of Americans Stand a Chance?] The cost of living the "American" way simply is out of touch with 3% type of wage increases most of us get. And again, in a service industry many people are being displaced from what used to be higher paying jobs into lower paying jobs. So this incremental creep has been masked by more people in the household working over the past 10-20 years (namely women), and in the past 7-8 years the use of the house ATM. Cash balances on corporate balance sheets are at their highest levels ever. Cash in the "people's" balance sheet is at its lowest. I don't blame corporations - every rule has been tilted their way of late (even regulation, where we like them "to police themselves")- they pay for elections; they are getting their rewards - the balance of favor has been tilted in their direction, so they are taking advantage of it. That's our system. And then throw the reality of global wage equalization on top of it, and it is simply stacked against the "average" US worker who has "average" skills and tries to live an "average" life like his/her parents. This is not an economy or system for them - only high achievers or people in very narrow industry/job types will do well in this type of system.

Most of these things happen over very long periods of time which is why I like to use the word erosion. In any 1 year when the cost of life goes up 5.4% and your wages go up 3.4% it doesn't mean much. You'll just charge a bit more here, take out a small loan there, etc etc. But when its chronic, and its accelerating (as inflation in things we must have (non discretionary) has the past few years), eventually you hit a wall. Combined with what is essentially a financially illiterate populace ("I didn't read the contract" <--- on that $350K mortgage), and it's just a gasoline can. This is nothing new - people have been warning around this for a long time, but as long as banks were making money and houses continues to go up in value "we all win". Until we don't. And then we are left in today's situation - which is essentially a death spiral of proposed bailouts to keep home prices inflated so more and more people are not underwater, in an inflationary environment, where the worker bees have little bargaining power in their wages (if you won't work for this wage we'll find someone else, either here or overseas).

So as Buffet says... as the tide rolls out, more and more is exposed. Since we don't have day to day "pricing" like we do in the stock market for inflation, housing prices (true prices based on the market, not "sellers wish list for a price"), etc - the true problems remain hidden, and Kool Aid toting bulls can tell us how it will all be fine "in 6 months". But the tide is beginning to roll out... and the facts are beginning to surface. Facts like this... and again, we're still in the early stages of a correction in a "non recessionary" (cough) environment. Just food for thought. Remember... 2008 - the year of the "walk away". 1in every 10 homes in America is upside down - NOW. Just wait as prices continue to falter.

• Americans' percentage of equity in their homes fell below 50 percent for the first time on record since 1945, the Federal Reserve said Thursday.
• Homeowners' portion of equity slipped to downwardly revised 49.6 percent in the second quarter of 2007, the central bank reported in its quarterly U.S. Flow of Funds Accounts, and declined further to 47.9 percent in the fourth quarter -- the third straight quarter it was under 50 percent. (look how quick the degradation is happening, 2% sequential decline in 6 months- amazing)
• That marks the first time homeowners' debt on their houses exceeds their equity since the Fed started tracking the data in 1945.
• Home equity, which is equal to the percentage of a home's market value minus mortgage-related debt, has steadily decreased even as home prices jumped earlier this decade due to a surge in cash-out refinances, home equity loans and lines of credit and an increase in 100 percent or more home financing.
• Moody's Economy.com estimates that 8.8 million homeowners, or about 10.3 percent of homes, will have zero or negative equity by the end of the month. Even more disturbing, about 13.8 million households, or 15.9 percent, will be "upside down" if prices fall 20 percent from their peak.
• The threat of so-called "mortgage walkers," or homeowners who can afford their payments but decide not to pay, also increases as home values depreciate and equity diminishes. Banks and credit-rating agencies already are seeing early evidence of this.

It *IS* the perfect storm, and yes ... it is different this time. Not just a credit crunch. Not just a (regional) recession. Not just a tapped out consumer moving desperately to his credit cards and 401k raids now that house ATM is gone. Not just inflation. But all of them. Together. Last to go will be jobs. Coming to a theater this summer.

Revisiting Crocs (CROX)

I have been going through some sold off positions from the past 3 months to see how they have been doing since I sold. I came upon Crocs (CROX) which when we last discussed [Jan 18: Closing Crocs], I was selling for a sizeable loss in the mid $30s. I looked again today, and had to avert my eyes from the carnage. It now trades at $19. Or 7x 2008 earnings. So it has lost 50% more of its value in 6 weeks - during a time the market has been essentially range bound and in fact retail has had short spurts of Kool Aid buying. This is why it is hard to assign value in bear markets... they could care less about value. Even if you believe its a gimmick, it should still grow 20-25% for a few more years, and now trades at about a 0.3 PEG ratio (P/E to Growth). Amazing. This is one the 10,000 hedge fund computers have snared - sharks who smell blood in the water. At some point it becomes a great value play but I thought that 20 points higher. I had to check the news to make sure they had not opened a subprime mortgage business or something.... doesn't appear to be the case. Children under the age of 18 should not be subject to such graphic images as the chart above..... nor should Crocs investors.

No position

Waiting for the Leaders to Fall Before I Buy in any Scale

For much of the past year we've had a very narrow market - meaning even on upswings it has been very few sectors who are benefiting, and the rest of the market is either flat or going down. This ebbs and flows, and sometimes the leadership changes - for example last fall it was technology, solar, agriculture, and infrastructure leading the way while the rest of the market did not do much. This is how I had a huge amount of outperformance in the fall as I was in these groups before they ramped - so good times were enjoyed. For a few weeks in late January we actually had (cough) leadership (if huge moves off dead cat bounces are leadership) in retail, financial, and home builders (I seriously underperformed those weeks).

Now the commodity complex is obviously running the show - our leadership is fertilizer, crops, coal, natural gas, mining, and gold/silver. I'm happy to say despite some blow ups in the bottom of the portfolio, having a focus on these groups (ex-natural gas which I totally missed), is keeping us doing quite well.

But this also leads to the problem... while these are my favorite groups; they are also the most prone to getting hit hard in a downturn (since other groups have already been hit very hard). This is what happened in mid January - many of my stakes in such names were getting hit for 8-9% a day, every 3rd day. Does it mean it has to happen again? No. But I am assuming it will. And in fact I cannot get very confident about being more long until I see these groups get hit. The popular term is "the generals must be shot".... i.e. the generals are the leadership. So despite having the best fundamentals, and no legitimate reason for being sold off, they will - if this correction scenario I envision plays out - get sold off. And potentially very severely. It happened in August 07, it happened in November 07, and it happened in January 08. It is just a matter of degree... we won't know how severe it will be, so this is why I layer in (and out) of positions. In November 07 I was "right on time" since my layering caught the bottom as that sell off, while 10% off on the indexes, did not hit the leadership groups to the same degree they were hit in August 07 and January 08. In those 2 time frames I was buying into the sell offs, but the stocks continued into free fall for another 8-12 days, and I was simply out of cash and fully invested so I could not catch the ultimate bottom. But no one really does on a consistent basis.

But it is hard for me to be constructive until we see the generals shot - despite my large weightings in groups that have been winning, we need to see them take losses (which will hurt the fund short term), before we can put in a bottom. So as I said a few days ago in the fertilizer group [Thoughts on Fertilizer], I am going to try to remain patient and wait for those moves down in those groups - until then I am just compiling my shopping list and waiting. I do believe the next group of leaders will for the most part be the same groups we have leading now for the foreseeable future (although technology is so beaten down I could see some of the old teflon stocks joining the next bull rush). Other groups might bounce harder or higher at first (like they did last time when we saw home builders, financials, and retailers out perform for a few weeks) but I expect them to fall back down YET again as we move through the late winter/early spring and the "2nd half recovery" folks are shown to be wrong (again) - most of these were the same people touting "1st half boom" or "no recession at all" last summer when problems started surfacing. Again, they will eventually be correct - but I am going on a thesis of a longer and deeper REGIONAL recession (not hitting all parts of America - i.e. areas focused on agriculture and energy or natural resources like coal still doing very well). So I'm going to continue to focus on companies with customers outside the US - those with cash, and rich in resources, and not massive debtor nations such as ourselves.

Frankly, I am not a credit or bond guy - I'm a "generalist" (try to cover as many areas as possible without being the ultimate 'expert' in any, but having a deep knowledge)... but from what I read is going on in the credit markets combined with my macro views on the economy - this is about as bearish as I can recall being since 2002. A lot of the "worst case scenarios" seem to be playing out - I am completely flabbergasted the indexes are not down 10-15% lower then they are but as I've written in the past, EVERY asset will be inflated by the easy money policies of printing devalued dollars and flooding them into the world. Including equities. I truly think this is a large component of what is holding up the markets.... but it is very deceiving... if your asset increases by 8% but true inflation is 10-12%, you are underwater in real terms. I do believe this is happening in the equity markets... instead of being down 25-30%, we are down 15%, but in large part to the asset inflation of devalued currency... so we are "saving" ourself from another 10-15% loss but that only feels good on paper - in real terms with heightened inflation all that "saving" we've done has been destroyed by the devaluation of our dollars. i.e. we are 10% higher than we should be in this asset (equity markets), but at the cost of 10% more inflation. So it's a wash. (or worse if you believe inflation is even higher as I do). In simple economic terms we have relatively fixed number of shares available in the US equity markets, but more and more dollars chasing these same shares - therefore inflating them above where they would be in a non "printing press" strategy by the Fed.

But it's a good mirage because people can "measure" assets easily - they open their 401ks, they see the DJIA average daily.... you can't go get a quote for "inflation" in your online brokerage - so you don't feel the true offset to this "buffering" game that is going on. So much like commodities which are higher than they should be due to this buffering of worthless paper dollars, the same is happening in equities in my opinion - only in this case it's making a much larger loss, less so (as opposed to commodities where we are seeing gains)

2 New ETFs for "India Bugs"

For those of us "India bugs" out there, we've had very limited choices to invest in India. Due to a lack of individual companies listed on US exchanges I've been using The India Fund (IFN), which is a closed end fund - the other alternative is an ETN (Exchange Traded Note) called iPath MSCI India (INP) which has had some massive tracking errors since India changed some regulations (ironically to reduce foreign investments) a few months ago. Neither is a great vehicle, but IndexUniverse.com let's us know that now we have 2 more instruments which seem interesting

1. Powershares India (PIN)
2. WisdomTree India Earnings (EPI)

Despite the higher expense fee and similar top 10 holdings, I think the latter might be a better balance to my current holdings because I hold the main 2 financials (banks) in India, which do trade in the US - I also like more exposure to Materials and less to Info Tech which I have been bearish on for quite a while due to increase in salaries and strength of the currency in India. So I'll keep an eye on both and might switch into 1, and sell off my long held (but currently tiny weighting) India Fund down the road. Marketocracy.com does not yet offer either new ETF as a choice so I can't buy either if I wanted to at this point...

I'd also like to see more ETF choices for Brazil...

India is going through a quite serious correction right now and I'd like to see some more downside but it is getting more attractive by the day. We are now approaching lows from last fall, but I'd like to see something that really drives a stake through the heart of "decoupling", and cause a panic. With that said, I've been quite fortunate with my timing in these countries [Dec 11: China vs India the Past 2 Months]

• PowerShares may not be the first to market with its latest product, but it's coming in a relatively close second. The PowerShares India Portfolio is set to start trading today on the NYSE Arca exchange under the symbol PIN. It tracks the Indus India Index of 50 companies selected from a universe that includes the stocks traded on the National Stock Exchange and the Bombay Stock Exchange
• In late February, WisdomTree won the race to bring the first exchange-traded fund covering India to market when it launched the WisdomTree India Earnings ETF (NYSE Arca: EPI). The fund tracks an earnings-weighted index of 150 Indian companies that has been adjusted to account for the restrictions on foreign investment imposed by the Indian government.
• Until the WisdomTree launch there was no ETF that tracked just that country's stock market—investors in exchange-traded products had to get exposure through emerging markets ETFs tracking multiple countries or through the iPath MSCI India ETN (NYSE Arca: INP), which has been experiencing significant tracking error in the wake of new restrictions on foreign investment. Both new India ETFs take into account those restrictions.
• Although the sector distributions vary quite a bit, both have Energy as their largest sector, at 23.05% for EPI and 25.21% for PIN. The ETFs also hold seven of their top 10 components in common: Reliance Industries, Infosys Technologies, Reliance Communications, Oil & Natural Gas Corp., Bharti Airtel, Housing Development Finance Co., and ICICI Bank.
• Not surprisingly, PowerShares—as the second to launch—has undercut the annual expense ratio of WisdomTree's India ETF, charging 0.78% versus EPI's 0.88%. The 10-basis-point gap in the expense ratios will surely make a difference in attracting investors, especially with the similarities in the indexes. However, EPI holds roughly 100 more companies than PIN, so some investors may be drawn to its broader scope. Another determining factor will be weighting methodology, as EPI's weightings are based mainly on earnings, while PIN's are based mainly on the amount of investable market capitalization available to foreign investors.

You can see the weightings by sector for both instruments here

Long India Fund in fund; no personal position

Flour (FLR) and McDermott (MDR) Get Upgrades

Where's the love for Foster Wheeler (FWLT)? :) Instead Fluor (FLR) and McDermott (MDR) get upgrades today (for all the same reasons I think FWLT is a pound the table buy with a 6-12 month horizon). Well no complaints as these are quite sizeable price target increases. I am still a bit surprised that the infrastructure group is lagging - the same global growth macro issues that are helping commodities should be helping these companies; I still believe investors are stuck in the belief they are reliant on US growth instead of understanding their new place in the world order.

• An analyst upgraded two engineering and construction companies Thursday, based in part on expectations for strong performance in the oil and gas sectors. Citi Investment Research analyst Brian Chin upgraded Fluor Corp. and McDermott International Inc. to "Buy" from "Hold."
• He moved Irving, Texas-based Fluor's price target to $190.50 from $158, and Houston-based McDermott's target to $78.50 from $64.
• Fluor's strong fourth-quarter performance and "record-setting" backlog "bolsters our conviction," Chin said in a client note. Chin raised his 2008 earnings estimate to $5.90 per share from $5.67 per share, and said the company's own outlook appears "conservative." Analysts polled by Thomson Financial expect, on average, earnings of $5.62 for the period.
• On McDermott, Chin raised his 2008 earnings estimate to $2.86 per share. Analysts expect $3.04 per share earnings for the period. McDermott is likely the sole bidder on a $1.7 billion contract for Qatar Petroleum's Barzan gas field development, and the project is expected to be awarded sometime in the first half of the year, he said.
• Fluor and McDermott shares, as well as others in the sector, have been hurt year to date by recessionary fears and concern that commodity prices will drop, leading to a slowdown in energy infrastructure spending, he said. "However, unless forward commodity prices materially soften, all practical solutions to higher global commodity prices involve infrastructure spending in our view, making Fluor" and its peers a good investment position, he said. (Bingo! Well, I will keep an eye out on this analyst since he seems to have some sense, which puts him in an elite group among analysts as a whole)

Long all 3 names in fund; long Foster Wheeler in personal account

Bookkeeping: Cutting Mercadolibre (MELI) in Half on Nice Earnings

Mercadolibre (MELI), a South American e-commerce play I like for the long run (but expect to be bought out within the next year or two), had earnings out last night, and they were solid. This is a very young company, and my error was buying a bit too early into the teeth of a market that has punished even the quality large cap tech names by 40% in 2 months.... so I have some losses in the name but continue to like it for the long run, and expect a nice premium buyout some day down the road. But for today, it is up 7% in a down market, so I am cutting my position by half, selling right near $40. This takes my stake down to 0.7% of fund.

I think most of today's action is short squeezing as the numbers were not "world beating" versus analysts expectations (but still tremendous growth year over year). This is a pricey stock; always has been - always will be; again scarcity value (name me another Latin American e-commerce stock), and in my opinion, a buyout candidate. I'd like to see it back around $32-$33 where I'd add back the shares I just sold off (and probably more).

• MercadoLibre (MELI) shares are moving higher this morning after reporting first quarter results that were slightly better than expected.
• For the quarter, the Latin American online commerce site reported revenue of $26.9 million, and EPS of 22 cents; American Technology Research analyst Tim Boyd says the number was 11 cents after normalizing the tax rate and adjusting for currency gains. That compared with his estimate of $26.5 million and 10 cents. Boyd notes this morning that operating margins were up 80 basis points sequentially.

Long Mercadolibre in fund; no personal position

UK and European Central Banks Hold Rates Steady; Retail Numbers; Thornburg Mortgage (TMA) Strikes Again

While we continue to laugh off inflation here, central banks in the UK and Europe hold their rates steady to fight it off. Australia has been actually raising rates as have many emerging markets. Only Canada of late has tried to help us out as they are afraid the US contagion might spread up north, despite their rich natural resources. All this action across the world makes me feel like a leper, as we stand out as a complete and utter reversal to all the rest of the world. Oh well, it is working great on the Kyoto Protocal and Iraq war, so why not continue! Those are working swell.

As I've said countless times, we are lucky as inflation somehow cannot cross the Canadian or Mexican borders, nor the Atlantic or Pacific Oceans - therefore we are the one country in the world who doesn't have to worry about it. Lucky us! (sarcasm dripping). If tomorrow's unemployment numbers come in weak the drumbeat for 75 basis point cut will turn into a crescendo and we continue down this path of currency debasement, and commodities should continue to rally hard and fast. At this point the Europeans are appearing to get peeved that the dollar is weakening to such a degree with no end in sight, as it will really hurt their exports big time, on a relative currency basis. I wrote in the past few weeks when Uncle Ben was claiming inflation will abate in the 2nd half, I am hoping oil is $120 and gold $1000 at the mid March meeting to see if he can continue this path of lies with a straight face. Gold looks like it will do its part.... another of my 13 Outlier 2008 Predictions in the bag.

• The European Central Bank and Bank of England took similar paths Thursday by leaving their benchmark interest rates unchanged -- but analysts expect cuts in the coming months.
• The ECB's refinancing rate remained unchanged at 4 percent while the Bank of England left its key rate at 5.25 percent.
• In London, the Bank of England's decision was expected by most economists and followed a cut last month in an attempt to shore up Britain's slowing economy. Economists expect further cuts in the coming months. However, the bank is also responsible for keeping inflation in check and economists said that soaring food costs and energy prices were likely behind this month's decision. (thankfully, not an issue in America)

A quick glance at retail sales - shows continued (as anticipated a few months back) strength in Walmart (WMT), Target (TGT) finally better than expected, the warehouse clubs did well yesterday and general weakness in everything else. Don't get fooled by the "better than expected" cheerleading... remember most of these numbers are contractions - so if your same store sales fell 5% and expectations were 6.5%, the reality is your sales are selling 5% less than last year. As for the "strength", don't forget INFLATION. (not that it exists in the US because our central bank says don't worry about it). But if you did worry about, remember GROCERIES and GASOLINE make up much of the "rise in sales" you are seeing in the big discount shops (esp. Walmart on groceries) and the warehouse clubs. In a related note, Kool Aid was the #1 seller (in bulk) at the warehouse club (Source: I can't tell you) Bottom line: the "pooring" of America continues as real wages adjusted for inflation are being demolished; and the middle class continues to disappear at an alarming rate. Retail is moving downscale big time (did you see Big Lots the other day?) And the Fed is helping the process to bail out those slimy geniuses in NYC. Remember, the ultra rich don't really care too much about 10% inflation - not much skin off their back... all this when the economy is "not even in recession" and "we're at full employment" - just imagine what would happen if we had a recession around here?

Earlier pieces [Jan 29: Fascinating Move by Walmart (WMT) - Continuing "Pooring of America" Scenario] - [Dec 26: Target (TGT) Shoppers Turning into Walmart (WMT) Shoppers]

Last, Thornburg Mortgage (TMA) is making it's weekly 50% fall, down to $1.40 today. At this point I am assuming it is going to $0. Again, if this company goes out of business, the great irony is the paradox that terrible homebuilders (3 of which mentioned here who should be bankrupt) who only exist due to generosity of their banks changing loan terms, and 2 terribly run bond insurers which should be out of business - are being propped up, and they let this company which actually has a good book of business and lower default rate (by a country mile) vs Countrywide (CFC) or Indymac (IMB) - not to mention far superior management - go out of business? It would be strange. Remember, they made money last quarter... amazing. I think at some point someone comes in and buys the assets at a huge discount ala Etrade last year, but it is a darn shame and shareholders certainly will be taking massive pain (hand raised)

• Shares of mortgage lender and investor Thornburg Mortgage Inc. plummeted in premarket trading Thursday as analysts said the company faced bankruptcy because of defaulting financing agreements.
• Thornburg disclosed Wednesday evening that JPMorgan Chase & Co. issued a default notice after Thornburg failed to meet a $28 million margin call. That notice triggered cross-defaults on agreements Thornburg had with other lenders.
• Wednesday's disclosure of default notices could lead Thornburg to file for bankruptcy, RBC Capital Markets analyst Jason Arnold wrote in a research note.
• "Thornburg now appears to be on the ropes, and barring a sizable capital injection (which is possible but seems very unlikely at this point, in our view) we see little in the form of upside," Arnold wrote in the note. Arnold cut his price target to $1, saying there was limited value remaining for shareholders.
• Like the period in August, current margin calls and default notices against Thornburg are not because the company's debt or loans are defaulting, but instead the result of deterioration in pricing of the products. As delinquencies and defaults across certain types of mortgages have risen, investors have shied away from purchasing nearly all types of loans in the secondary market.
• That lack of a market to sell debt backed by mortgages has caused prices to plummet. As those prices fell, companies like Thornburg have been forced to reduce the value of their holdings, regardless of actual performance. That in turn has led banks to require more collateral or cash to secure financing agreements.

We've now lost $27K or 2.4% worth of return on this 1 position in just a few weeks - definitely a body blow.

Other than that folks, with the "all important" unemployment number tomorrow, I expect today to be like days right ahead of a Fed decision - not much action as everyone decides they can't do anything until tomorrow because of course 1 number changes the course of history. We continue to watch S&P 500 level 1320, and now that Charlie Gasparino cannot bail out the market with his continued Ambac (ABK) bailout rumors I am awaiting to see how we react the next time we test it... remember we broke that level earlier this week, before we were "saved" for the 3rd time in as many weeks by Charlie G's dance party on CNBC. I can't say I see any light in the tunnel, credit markets continue to seize up, 2 year bond rates down to flipping 1.5%, we continue to debase our currency to bail out the NYC bankers, spurring inflation (in the rest of the world, not for the US because we are teflon apparently), but hey 50 basis points coming and (all together now) "Fed cuts fix everything". So raise your glasses of Kool Aid and let's all cheer the rate cuts that will solve everything.

The equity bulls continue to cling to the "2nd half recovery" thesis which I disagree with 100%. Once their back is broken I think this market tumbles. But we are still in denial stage. After all these months. If I had any trust that the unemployment figures from the government were accurate, I'd say tomorrow's report would break the camel's back, but since its a work of fiction we can't tell. Anyhow, I am positioned defensive and don't see that changing anytime soon.

Long Thornburg Mortgage in fund; no personal position

NYTimes: Thirsty for Energy in India

I've mentioned quite a few times in the past, I'm always surprised by the almost singular focus on China in this country's press, with nary a word about India... a country without a "1 child" rule and should surpass China in population by 2050. Perhaps I am biased since I've made some solid profits with Indian stocks over the years... I thought perhaps it was due to the lack of Indian stocks that trade in the US, but we have the same problem with Brazil and Russia yet I hear more about Brazil than India. Interesting.

Here is a recent piece from the NY Times. These are the type of articles that makes it simply impossible to bet against energy in the long run, and a 'World of Shortages' thesis overall.

• The air is thick with the construction dust of new glass-fronted high-rise buildings. The traffic moves so slowly that commuters can gape all they want at the Burberry advertisement that lights up the facade of a shopping mall. In the din of car horns and cranes, Sucharita Rastogi, 27, a business school graduate, waits wearily for her office van to pull up and take her home; it will be at least a 90-minute crawl. “Mind-wise,” she says, “we are exhausted, sitting, waiting.”
• A beacon of India’s red-hot economy, this new suburb on the edge of the capital, New Delhi, is also a symbol of India’s fast-growing hunger for energy. By the government’s own estimates, energy consumption in this country of 1.1 billion is expected to quadruple over the next 25 years, inevitably expanding India’s emissions of greenhouse gases.
• At the moment, it is a mixed blessing that Gurgaon remains an island of air-conditioned malls and roaring, round-the-clock office towers, and that behind this brightly lighted boomtown lies a vast nation of darkness and cow-dung-fueled stoves.
• Almost half of India’s population has no access to the electricity grid, and many more people suffer hours without power. Nearly 700,000 Indians rely on animal waste and firewood as fuel for cooking. As a result, India’s per capita carbon footprint remains a small fraction of that of the industrialized world — the average American produces 16 times the emissions of the average Indian — and in turn empowers the central Indian argument for its right to consume more, not less, energy in the future.
• India has consistently bucked pressures to set targets for reducing emissions, arguing that it has neither been a significant polluter nor yet able to spread modern energy to millions of its poor. Instead, it has pledged to ensure that its per capita emissions never exceed those of the developed world.
• India points out that it contributes only 4.6 percent of the world’s greenhouse gases although its people represent 17 percent of the world’s population.
• India’s total emissions are the fourth largest in the world, after the United States, China and Russia, though its per capita footprint remains as low as anywhere in the developing world: 1.2 tons annually, compared with 20 tons in the United States and the world average of 4 tons. The International Energy Agency, a policy and research group in Paris, forecast in November that India’s energy demand would more than double by 2030.
• The agency also forecast that the transportation sector was likely to drive up energy demand the fastest, as prosperity brought more cars on the road. Coal imports alone could rise sevenfold, the report added. Construction is also hugely energy intensive.

Bookkeeping: Reducing Exposure to DR Horton (DHI) Trade

I am reducing exposure to Friday's DR Horton (DHI) trade from 2500 shares to 1500, simply due to the fact of yesterday's breach of critical support levels in the markets overall. I sold these shares at about a 1% premium to where I bought them so no real benefit (essentially a wash), but now that the market has more potential for breaking down, I am taking part of this trade back. Again as I originally stated this is simply a trading position, not a core holding.

I'll look to add these shares back at a lower level, if we do sell off.

It is hard to make any sort of stand going into Friday's flawed labor report - we'll have an overreaction one way or the other. The market is at the point it is desperately grasping for any silver lining in any report so even a somewhat bad report might make it happy that "things are not falling off a cliff", but on the other hand if this report ever does reflect what is going on, in the real world it could degrade significantly. But there is no edge going into this report so maintaining a more hedged outlook is prudent - this way... whatever the knee jerk reaction is, I'll have something working when it happens. I hate these "bipolar" moments, similar to Fed meeting days, where something totally outside of the realm of control and nothing to do with fundamentals moves positions significantly. So I'm just playing defense (hibernation) for now, and waiting for 8:30 AM Friday.

So I'm just in a holding pattern, circling the airport waiting for my landing time Friday morning...

Long DR Horton in fund; no personal position

Ambak (ABK) is Halted Pending "Shocking Announcement"

Looks like the stock is halted pending super secret bailout news.

The irony of this bailout is.... the money is coming from capital constrained banks such as Citigroup (C). These banks are piling into the biweekly super secret Fed auctions since they are don't want to show their face at the discount window because that is a "sign of weakness" - please note, your stock dropping 60-70% is not a sign of weakness - but I digress...

So who is really paying for this bailout? You guessed it... the Fed. But they are using a middleman - the banks. See how it works? We provide the capital... banks go to TAF auctions to get the capital... banks give capital to Ambak (ABK)... and we all live happily ever after.

Personally, I will rejoice and pop champagne when this happens. So I don't have to hear Charlie Gasparino talk about it pending every day when I am positioned for the market to fall, only to see my gains for the day evaporate and turn into losses as he done to me 3x in the past 2 weeks.

This changes very little - the underlying collateral is still in free fall, banks are still black boxes who refuse to provide transparency and are capital constrained, and the credit markets are seized up. But we can't be bothered with those sort of details.

Now with this out of the way (hopefully) we can rally on the next bailout talk....

When everyone expects news, it is generally already priced in. So while the market likes to make fools of everyone making short term predictions, I'd say, gun to head, the marker sells off on the "news" portion of this long long long saga of a rumor.

My overall viewpoint on the subject is: yawn.

Some News Stories of the Day

While we await the top secret bond insurer bailout to finally be over and done with, some other news items of the day...

Friday we have an unemployment report that people pay way too much attention to, and various financial types/bloggers have complained is highly inaccurate - but the market will react anyhow [Monthly Jobs Report and Birth/Death Model] Unfortunately, we are forced to pay attention to it, because the knee jerk action it creates, even though it it is constantly revised by a large measure 30 days later, and still highly inaccurate... some blurbs from a NY Times article on another component of this report, the unemployment rate and why it is staying stubbornly low despite a slowing economy. Myself, I believe many people are under-employed i.e. work part time or in jobs below their skill set to make ends meet; this is certainly true in the industrial Midwest states suffering from manufacturing losses - in the government's world these people are fully employed. I do believe this will also happen in other states as former realtors turn into waiters, or service clerks at Walmart.... hence they'll remain "employed" but at far lower living standard. It also leads to my thesis that unlike the 1970s when workers could bargain for higher wages to combat inflation, this time around workers are really over a barrel - rising inflation and inability to ask for major wage increases because of pool of workers ready to replace them at a moment's notice (either here or overseas) - despite (ahem) "full employment". This article has some thoughts as well...

• This Friday, the government will release the latest employment report, which will help clarify whether the economy is slipping into a recession. Wall Street forecasters are predicting that the February unemployment rate will have inched up to 5 percent, from 4.9 percent in January. Whatever the survey ends up showing, however, you can be sure of one thing: Politicians will be quick to point out that joblessness remains low by historical standards. (and Kool Aid drinking pundits will point this out as well)
• Statistically, all this is true enough. But it’s also deeply misleading. Over the last few decades, there has been an enormous increase in the number of people who fall into the no man’s land of the labor market that Carroll Wright created 130 years ago. These people are not employed, but they also don’t fit the government’s definition of the unemployed — those who “do not have a job, have actively looked for work in the prior four weeks, and are currently available for work.”
• Consider this: the average unemployment rate in this decade, just above 5 percent, has been lower than in any decade since the 1960s. Yet the percentage of prime-age men (those 25 to 54 years old) who are not working has been higher than in any decade since World War II. In January, almost 13 percent of prime-age men did not hold a job, up from 11 percent in 1998, 11 percent in 1988, 9 percent in 1978 and just 6 percent in 1968.
• There are only two possible explanations for this bizarre combination of a falling employment rate and a falling unemployment rate. The first is that there has been a big increase in the number of people not working purely by their own choice. You can think of them as the self-unemployed. They include retirees, as well as stay-at-home parents, people caring for aging parents and others doing unpaid work.
• The second possible explanation — a jump in the number of people who aren’t working, who aren’t actively looking but who would, in fact, like to find a good job — is less comforting. It also appears to be the more accurate explanation. Various studies have shown that the new nonemployed are not mainly dot-com millionaires or stay-at-home dads.
• Instead, these nonemployed workers tend to be those who have been left behind by the economic changes of the last generation. Their jobs have been replaced by technology or have gone overseas, and they can no longer find work that pays as well. West Virginia, a mining state, is a great example. It may have a record-low unemployment rate, but it has also had an enormous rise in the number of out-of-work men.
• These nonemployed remain a distinct minority of the population. But the growth in their numbers is one reason that overall wage growth has been so weak lately. With such a large pool of people who aren’t employed — but willing to work for the right price — those who do have jobs find themselves with less bargaining power.

A few years ago the lobbyists for the credit card industry won a very hard fought battle to make sure it became a lot harder for people to file bankruptcy. Even with how difficult those who are "representing our best interests" have made it, bankruptcies are on the rise, despite "not" being in a recession...

• Americans filed for bankruptcy in growing numbers in February, buckling under the combined weight of rising energy prices, a weakening housing market and sky-high personal debts.
• An average of 3,960 bankruptcy petitions were filed per day nationwide last month, up 18 percent from January and up 28 percent from a year earlier.
• February was the busiest month for filings since Congress overhauled the bankruptcy law in 2005. Bankruptcy experts said the rise was particularly worrisome because those changes made filing for bankruptcy more complicated and expensive.
• “This number of bankruptcies may be under-representative of the true financial distress consumers are feeling because of the steps Congress has taken,” said Jack Williams, a scholar in residence at the American Bankruptcy Institute and a professor at Georgia State University.
• The latest figures show the financial pain is spreading from states like California and Florida, which exemplified the housing boom and subsequent bust, to those along the Eastern Seaboard like Maryland, Virginia and Delaware, which were among the 10 states with the largest percentage increase in filings in January and February. “You are seeing a good-size uptick everywhere,” said Mike Bickford, president of Automated Access.
• Some experts, for example, say bankruptcies often seem to rise in February as debts from the holiday season come due. Even so, the trend is definitely upward, Mr. Lawless wrote. States as disparate as Kentucky and Rhode Island joined the top 10 list, and the absolute number of filings rose significantly.
• Proponents of the bankruptcy law argued in 2005 that some consumers were abusing the law, using Chapter 7, or liquidation, to shed credit card debt. The bill, supported by both Republicans and Democrats, “increased the expense for everyone and reduced the protections for everyone,” said Mr. Williams.
• Elizabeth Warren, a professor at Harvard Law School and the author of books on bankruptcy, said, “The credit industry did its best to drive up the cost of filing but when families are in enough trouble they will fight their way through the paper thicket and higher attorneys’ fees to get help.”

I could post one of these a day, but in the "heads I win, tails I still win" world of corporate America [You're Fired! Now Here is $160M to Help Ease the Pain], the generous folks at Washington Mutual (WM) want to make sure the bright people who led them to this path of shareholder destruction get compensated for their trouble. The excuse corporate America uses? Well these people are geniuses and if we don't pay them, another company will swoop in and steal this talent. Yes of course... if I were another company, I'd be salivating at the chance to hire someone who destroyed immense amounts of shareholder wealth. Pure logic! Even better is CHANGING the rules on how we compensate you in mid stream - hey we used to tie your compensation to how you did, but since this mortgage thing is such a mess, we are going to exclude it from your future compensation payout figures.... because you don't deserve to be responsible for that mess.... it's those ugly subprime people causing the mess, not your lax lending standards or pure greed. Yep! Remember, Cramerica - for the corporation, by the corporation.

• The board of Washington Mutual Inc. has set compensation targets for top executives that will exclude some costs tied to mortgage losses and foreclosures when cash bonuses are calculated this year. The move, approved last week and disclosed in a securities filing late Monday, essentially shields the pay of chairman and chief executive of the thrift, Kerry Killinger, and more than 100 other executives from the continuing mortgage fallout.
• In the fourth quarter, the thrift reported a $1.87 billion loss fueled by a sharp increase in its reserve for loan-related losses. Loan-loss provisions on mortgages, as well as foreclosure costs, will be left out of the new formulas.
• In the past year, WaMu's share price has tumbled about 70% -- to where it was about 12 years ago. "They've cost their shareholders a lot of money," said David Dreman, chairman of Dreman Value Management LLC, which holds 27.9 million WaMu shares. "Bonuses should be given to the executives who enhance shareholder value, not destroy it."

Last, we are getting closer and closer to the "ultimate bailout" I've been predicting since last summer. All moral hazard pushed to the side, all free market crapola pushed forward by Republicans stepped on... anything for votes and to fix a system of greed and total lack of regulation and trusting corporation to "police themselves". Of course the equity markets, full of free market capitalists, salivate at the prospects of a tax payer led ultimate bailout. Hypocrisy at it's best - simply put folks, get out your checkbooks - it will be coming. Oops, I mean get your grandchildren's checkbooks out, because of course we'll borrow to pay this off... we are broke after all.

• However much they might oppose it on ideological grounds, the Bush administration and the Federal Reserve are inching closer toward a government rescue of distressed homeowners and mortgage lenders.
• Though Mr. Bernanke stopped well short of calling for a government bailout, he used his bully pulpit to try to push the banking industry into forgiving portions of many mortgages and signaled his concern that market forces would not be enough to prevent a broader economic calamity.
• Similarly, the Bush administration, despite its public opposition to bailouts, has set the stage for a bigger government role.
• Historically, the F.H.A. and the mortgage companies have focused on conservative mortgages for people borrowing relatively modest sums. But they are now being encouraged to finance much bigger mortgages, in some cases to people who put almost no money down.
• A longstanding bill to modernize the program would lower the down payment needed for F.H.A. loans to 1.5 percent of a home’s value, from 3 percent. (didn't that get us into trouble in the first place? i.e. no skin in the game, no problem walking away from the problem - now we want to institutionalize the problem? sounds logical)
• But skeptics worry that the plans to expand the scope of the F.H.A. will put taxpayers at risk. They note that home prices are likely to fall further. If the government moves to insure or buy mortgages now, it might help arrest the price decline — but only temporarily.
• “The reality is, prices will fall; there is no way to keep them up,” said Dean Baker, co-director of the Center for Economic and Policy Research, a liberal group in Washington. “If we have the government get in, either as the owner of the debt or the guarantor of the debt, a lot of the decline will be shouldered by the taxpayer.”
• The two companies are now trying to decide how to guarantee the bigger and potentially riskier mortgages. Both want to exclude “no-documentation” loans, but Congress authorized them to buy up big mortgages going back to last July — when a high percentage of such loans were approved without verification of the borrower’s income. As a result, company executives are debating whether to buy up at least some “no-doc” loans made last year.

Enjoy!

IndexUniverse.com: DBA is "Full-Up"

A very interesting story today from IndexUniverse.com on Powershares DB Agriculture Fund (DBA) [which I cut back a bit today looking for a pullback to mid $40s, only to see it happen within hours before reversing back up - this market is moving too fast for any rational person]

This ETF is getting so popular it took in $1 billion in assets in February; considering it had $1.8 billion going into the month that is astounding. But with the relative lack of investing vehicles to play the agricultural crop boom, people who don't have direct access to the commodities market are piling into this product. This plays into my general thesis that too much money (buoyed by printing presses working 24/7 in D.C.) is chasing too few assets. It is especially dangerous in the commodities market because they are tiny relative to equity markets. So we get exaggerated inflation of assets - that's a nice way to say we are going to have another epic bubble. The Fed's constant "solutions" simply lay the groundwork for the next disaster. Rinse. Repeat. And repeat again. But the tech bubble infected only a portion of the investor class, whereas the real estate/credit bubble hurts us all in the US... and the agflation bubble? Only a potential for famine among the poor and middle class worldwide. Not a problem!

I always get nervous when a quiet investment begins to get so popular but the overreaching macro trends are just so strong in this area, I still want to buy any major dips (but unfortunately as volatility increases the dips can happen very quickly before reversing). I did feel a lot more comfortable last spring when no one was talking about agriculture. Now the rewards are still high, but the risks are much higher as well with all this 'fast money' is flooding in. These are people who act like locusts... gather in large quantity as unwelcome guests, ravage the fields, and then fly off to their next target to burn and pillage.

• Want to know how big the commodity boom is? The PowerShares DB Agriculture ETF—or DBA—is basically full. More accurately, the fund-which invests in commodity futures contracts-has reached its position limits in some of its commodities.
• The commodity exchanges and the Commodity Futures Trading Commission set maximum amounts that certain investors can hold in individual commodities. DBA's assets have soared recently, adding nearly $1 billion in assets in February alone (to hit $2.8 billion), and that asset growth has pushed the fund against CFTC position limits. As a result, as PowerShares DB said in this filing with the SEC, DBA has started trying to replicate the returns of the index by investing in futures that are similar ... but not identical ... to those in the index itself.
• First, it has started buying contracts with different expiration dates. For instance, the index tracks the performance of the corn futures contract expiring in December 2008. But the fund includes both that contract and a separate contract expiring in July 2008. Historically, those two have tracked very close to one another, but of course, that doesn't have to be the case.
• The second thing the fund has done is buy contracts on different exchanges. In the wheat markets, the fund has diversified beyond Chicago wheat contracts to buy contracts in both Kansas City and Minneapolis. But these contracts don't just trade on different exchanges, they are actually different kinds of wheat: Soft Red Winter Wheat (Chicago), Hard Red Winter Wheat (Kansas City) and Hard Red Spring Wheat (Minneapolis). These different varieties tend to perform in similar ways, but not always. They serve different kinds of markets and, because the harvests come due at different times, they can be impacted by different seasonal and weather patterns. Minneapolis wheat, for instance, has seen extraordinary gains recently due to near-term crop shortages.
• Finally, the index has diversified into alternate or "derivative" contracts for soybeans, buying not just the beans themselves but soybean meal as well. These two products are related, but of course, they do not track perfectly.
• Should any of this worry investors? Not necessarily. This fund still offers strong exposure to the agricultural futures market. But it does raise some concerns. Deutsche Bank, for instance, claims that the underlying index is designed to pick the most profitable contracts for each commodity based on the expected roll yield. Simple logic, then, suggests that alternate contracts could be suboptimal.
• The CFTC is reconsidering the limits it places on investors, and may increase them in the future. If they don't, we may see more funds adopt the model of DBA and using alternate contracts to try to approximate the returns of the index itself.

Interesting times we live in. I am just shocked we have not seen a slew of commodity based ETFs, ETNs hit the market - Wall Street is nothing if not quick to react by any means possible to create any product it can sell by the boatload to "late to the game" investors...

Long Powershares DB Agriculture Fund in fund and personal account

"Kool Aid" is Getting Popular

Just wanted to note that I've read or heard the term Kool Aid more in the financial press/media in the past 2 weeks than the last 5 years combined. Obviously my blog readership explodes and the financial press/blogosphere is stealing my thunder. That's ok, imitation is the highest form of flattery - just remember where you read it first. ;) (unless I subconsciously stole it from someone else many years ago)

I'm honored. Really. It feels good to be a trend setter... hah.

Even Rev Shark on RealMoney.com used the term today. (p.s. for non subscribers he says the market is up on another Ambac rumor bailout - I believe the 4th rally in 2 weeks on the same news - are we pathetic or what?) I'm still in the PPT camp myself - they appear to have been very active the past 6 months...

Thanks Charlie G for providing the SAME news you've been providing for 2 weeks, and I'm sure this time your rumor really is true. It is funny your news always comes late in the trading days when the market is testing 1320 or below. Isn't it? I can't wait for this bailout to be done so we stop rallying off the same rumor. Humans really are not very advanced life forms - they seem to react like robots to the same news, over and over.... much like dogs can be easily trained.

Anyhow I'm sea sick watching this market, and a bit just "sick" of some of the things going on behind the scenes. Going to go find some Kool Aid to take the edge off... I hear it cures everything.

Invisible Hand Strikes Back

I don't know which headline to go with

Invisible Hand Wars
The Invisible Hand Strikes Back
Return of the Invisible Hand

All I know is whenever the market looks ready to fall off a cliff, we have massive futures buying to help shore things up... and make everyone feel good. I am sure it was just a coincidence it always happens after 3 pm when the market is in danger, or in premarket when trading is very light. Could it be these guys ... again? Nah.... free markets and everything.

But like clockwork if its not Charlie Gasparino providing us with a 3:30 PM bond insurer "update" on a Friday, it's a massive futures buy order after 3 PM... and this is why the move down is such a long grind, instead of a swoosh. "They" won't allow an orderly natural decline. And so it goes. Maybe we can rally back to 1360 and provide appearances that is all is well again ;)

I'm going to fight the Invisible Hand (even though it is hard to fight something you cannot see) and remain consistent with my positioning... because I believe 10,000 hedge fund computers will eventually overcome the Plunge Protection Team. It's like the epic battle of Kool Aid vs facts. So they can slow down the selling, but eventually we will get where we need to go. I wonder if we'll magically close above 1320 - would be a complete shocker. hah. ;) Always there in times of need, like an old blanket. Thanks PPT!

Thoughts on Fertilizer

As I've stated recently I've cut back on the fertilizer exposure quite a bit, probably to the lowest I've had in many months. Combined around 5% of portfolio, which for me is small since I've been in 10-15% range for much of the life of the fund. I want to buy back exposure but at lower price points. Today we are finally seeing these guys hit (along with Monsanto (MON)).

Here is my thinking on each of my 3 positions, and again I layer in and out of position so I'll be buying in layers, smaller layers first and then (if/when) the price degrades buy in bigger batches. All are falling to or near their 20 day moving average which is a good support level to buy in a BULL market. Considering this is a bear I am going to be greedy and look for even better prices. I'm looking at each position versus 50 day moving average and January lows.

Mosaic (MOS)
Current: $105
Target 1 (50 day): $98
January lows: low $70s

Since I've sold quite a bit in the $110-$120s I'll buy back a first layer around $98 (assuming we get there) and watch from there. I would love to buy in the low $90s or $80s or heck $70s. It will be painful in the short run but provide a turbo charge to performance in the long run. The same goes for the following 2 names, with similar strategy...

Potash (POT)
Current: $154
Target 1 (50 day): $144
January lows: below $110

CF Industries (CF)
Current: $116
Target 1 (50 day): $113
January lows: low $80s

I also have the same strategy for other names I have high interest in such as Mechel (MTL) and Cleveland Cliffs (CLF) <--- not a current position.

While the market is at risk of bouncing at any moment due to a Charlie Gasparino newsbreak about a bailout here or there, I am going to remain patient and try to get in at least at the 50 day moving average and hope for real panic and be able to buy, as in January, at even lower prices. Again, when it is happening in real time it feels awful and your weekly performance stinks, but this is how I attempt to outperform in the long run. Nothing will be changing in the fundamentals, only the short term price. As I've been stating for 3 weeks now, my favorite groups have all had huge runs, so I did not want to commit much new money in their direction, so hopefully this is the beginning of a clearance rack sale in the coming weeks.

I am compiling my list of similar names that I either own or want to own, and will attempt to remain patient. We won't ever catch the absolute bottom but by layering in incrementally we can generally buy "lower" and sell "higher".

S&P 1270 appears to be "in the bag", at least from this perch.

Long all names except Cleveland Cliffs, Monsanto in fund; long Mosaic in personal account

The World According to Americans

Hilarious map on the American 'world view' by "Angry Bear" (just stumbled on this while surfing). Probably a lot more truth to this than we like to admit ;) Click on the map if you want to enlarge it ...

WSJ: Building Slowdown Goes Commercial

Another good piece from the Wall Street Journal on one of my long held theories. For those newer to the blog, my top two Ultrashorts since inception have been Ultrashort Financial (SKF) and Ultrashort Real Estate (SRS) - the latter is focused on REITs not homebuilders. While the Financial has been the better performer since October 2007, I think in many ways the Real Estate position will fare better in 2008 [Dec 26: Credit Downturn Hits the Malls]. Reasons for this are multiple (a) much (not all) of the financial mess is becoming known, as more and more cockroaches are discovered (however I still think people understate the economic strains on Americans and how it's going to cause a lot more writedowns in non mortgage areas) and (b) the entire Federal government is here to support the financial system. Commerical real estate on the other hand is more a play, not as much on credit crunch (although it's affected by it) but simply stated a slowing economy. Especially in retail and restauraunts which I believe this country has too many of. Especially in areas showing slow population growth or net migration. We have too many stores based on spending levels that were inflated by the steroids of easy credit and housing ATM. As inflation continues to erode buying power these stores and restauraunts will continue to flounder and begin to close. Hurting rents. That's why if this were a real fund that I could short individual names, I'd be focusing on those in certain regions and in certain subsectors. But instead I must use the blunt instrument of Ultrashort Real Estate (SRS). Last, unlike financials which the government and all the king's horses (and men) plan on saving by any way possible (read: your tax payer dollars in the end), they won't have such warm hearted spirit for commercial real estate.

So this is a revisit for newer readers of why I've been against this sector and believe it has much more downside as we move from denial to realization of the problems. If you believe in a 6 months recession (or no recession as was popular consensus last fall and early in the winter) my position would make little sense. But by going against the consensus I've made a lot in both positions, and this is why I continue to hold the Real Estate Ultrashort as my top short position. I believe the slowdown will be deeper and longer than people want to admit, simply because this slowdown is based on the consumer, not business. Now that the evidence is finally appearing in front of people's faces, they might finally finally face reality. If you were drinking the Kool Aid, you would simply be saying "it will all be ok in 6 months" back last summer.

• Cracks are starting to show in commercial construction. For the second month in a row, the Commerce Department reported a decline in spending on nonresidential construction -- which includes everything from hospitals to office parks to shopping malls. The report yesterday showed construction spending fell 1.7% in January from December, the steepest drop in 14 years. While residential construction accounted for a big part of the decline, spending on nonresidential construction slid 0.8%.
• Meanwhile, there may be an oversupply of shopping malls and office buildings after a period of intensive construction. It adds up to bad news for employment, the economy and investors.
• While the boom in commercial construction wasn't as dramatic as in home building, the impact of a slowdown on the economy could be significant. Nonresidential construction accounted for 3.6% of gross domestic product in the fourth quarter of 2007, up from 2.5% five years ago and the most since the second quarter of 1988, according to Moody's Economy.com. (but don't worry about it, it is ONLY 3.6% of GDP... just like they said don't worry about this minor housing issue - it is ONLY 4.5% of GDP)
• As home construction got caught in a downward spiral last year, nonresidential construction continued to expand at a healthy clip. Spending on nonresidential structures rose 16% in 2007, the biggest four-quarter increase since 1984, according to Morgan Stanley.
• Signs of trouble cropped up at the end of the year. As credit markets tightened, office space sold in the fourth quarter dropped 42% from a year earlier, and sales of large retail properties declined 31%, says Real Capital Analytics, a New York real-estate research group.
• Nonresidential construction payrolls, down 2.7% in January from their recent peak in March, posted year-over-year declines in December and January, the first such drops since August 2004. A construction slowdown will be especially tough on specialty-trade contractors, such as plumbers, painters and electricians, who account for about two-thirds of overall construction payrolls. This could spell trouble for consumer spending, which accounts for two-thirds of the U.S. economy.
• In the past few years, builders aggressively put up stores and strip malls amid easy financing and resilient consumer spending. Spending on construction of shopping centers leapt 67% in 2007 from 2005 levels.
• Last year, developers built 144 million square feet of retail projects in the top 54 U.S. markets and are slated to build another 131 million square feet this year, according to Property & Portfolio Research Inc., a Boston research company. Property & Portfolio Research calculates that demand justified 36% of the new space built last year and will support 15.7% of the space slated to be completed this year. (take a moment to mull over that, we continue to build stuff that is not justified - sound vaguely familiar?)
• Another problem: Property values of commercial real estate are declining. A Moody's index of commercial real-estate values fell 1.5% in December from the previous month. It was the fourth steepest monthly decline in the seven-year history of the index, which nearly doubled from the end of 2000 through October.
• Moody's expects a peak-to-trough decline of 15% to 20% in commercial real-estate values, returning prices to where they stood about four years ago. Goldman Sachs Group Inc. analysts have projected a drop of as much as 26%.
• Retail is one of the more vulnerable sectors of commercial real estate, tied to the housing market and consumer spending. As the economy lists toward recession, retail property stands to suffer higher vacancy rates, constrained rent growth and declining values. Results for publicly traded retail landlords look healthy. After several years of rapid expansion by retail tenants and strong spending by shoppers, real-estate investment trusts that own and develop retail properties boast occupancy rates in the low- to mid-90% range.

Again, the parallels are striking to residential in many ways. There is also a lot (but not as much as in home mortgages) of securitization in this area. However, it won't be anywhere near as bad as residential in my view, but a lot worse than people have thought the past 6, 3, or 1 months as the economy degrades. As the last paragraph says, shopping is most at risk... while we'll ebb and flow and this Ultrashort will fall when Kool Aid runs rampant and denial is all the rage, I expect the larger trend to be up. So far it's proven to be true, and Ultrashort Real Estate has been the 4th biggest winner for the fund since inception.

Bigger picture for the economy - less construction jobs (if you combine residential and non, 8% of GDP in the US is just "building buildings"), and then we go into the multiplier affect I've been stressing for a long time - each job lost in a service economy means less need for every other service as people can't afford to pay for it. Further, we are going to see a lot of (first) cut backs on expansion plans in retail and (second, after reality hits) closing of stores. We are starting to see the first whiffs of that now... and we are not even "in recession", right Ben?

Long Ultrashort Real Estate, Ultrashort Financial in fund and personal account

The Housing Bear Who Finally Got it Right

I've never heard of this chap before, but since he was stating things correctly in 2004 (a bit too early for my taste since there was a lot of money to be made chasing a bubble, but at least accurate) it's worthwhile to hear what he says now. Just like me, it appears, he is calling 2008 the year of the "walkaway". Again folks, you are not reading about this or hearing about this almost anywhere right now. By December 31, 2008 I believe you will be hearing about it all over the mainstream press.... as usual they will be late by 6 months to 12 months. This is why they are still distilling the "everything will be fine in 6 months" Kool Aid. People simply to not understand the basic economics of being upside down in a depreciating assets. No amount of rate freezing, or talk about a hit to the credit report is going to matter. And as we've been saying this is not a business recession aka 2001 or 1991. This is a consumer recession aka 1982; a very different animal than most market participants under the age of 50 are used to.

• I want to talk about a guy named Chris Thornberg. As Ben Bernanke suggests this morning that interest rate cuts don't help a homeowner who's underwater in a mortgage, that perhaps lenders should instead write down the PRINCIPAL--as much as 50 percent!--Thornberg jokes he's on a "victory tour."
• "We got a major real estate bubble," Thornberg said. "We got consumers due for some major retrenchment, we have a falling dollar, making U.S. assets look that much less desirable, a massive trade deficit." He said that in December 2004.
• For years, Thornberg gave his outlook as part of the UCLA Anderson Forecast, predicting the housing boom was about to bust. He was early. If you'd sold when he first suggested getting out, you would have lost quite a bit of equity gains. On the other hand, your home is probably now back down to what it was worth when Thornberg suggested getting out...
• Thornberg, now with Beacon Economics, says the worst is yet to come. With the peak of loan resets coming in the third quarter this year, this is "the year of the walk-away." When I asked him if a lot of lenders may end up not resetting, he said, "It doesn't matter."
• Thornberg says we are entering a recession and it's "hard to believe" anyone would say otherwise. Unlike the recession of 2001, consumer spending is now slowing after a 16-year run. As consumer spending slows, business spending will follow. In housing, we should have seen this coming. He claims that between 2004-2006, .75 new homes were built per new adult, while .6 is the norm. He says for the past two years, four million new units were built, while there were only two million new families.
• He predicts we will see a 35 percent decline in home values from the peak, and a third of that has already occurred. He predicts a 2 percent decline in GDP this year, with only minimal help from the tax rebate stimulus package. One of his favorite new made-up words is "Intaxication," which means "the euphoria of getting a tax refund which evaporates once you realize it was your money to begin with." (nice!)
• Thornberg also cautions investors from listening too closely to Wall Street. "They. Don't. Care." He says Wall Street works solely for December 31st and the bonus that comes with the end of the year. "Three good bonuses and they're out of there." (I like this guy more and more, someone telling the truth - nice change...)
• As for being too early to call the housing bust, Thornberg quips, "Trying to predict when a bubble is going to burst is like trying to predict what a crazy person is going to say next. If I knew that, he wouldn't be crazy."
• So, when do things get better. Ever? "The good news about the recession is they do eventually end," he says. He thinks the economy will start to improve at the beginning of 2009, and that housing will bottom by the end of 2009 into the beginning of 2010. Regionally, though, it will be tougher in some spots. When an audience member asked whether to sell a couple of condos in Florida or wait it out, Thornberg said, "Sell. Now." He says the Florida housing market won't improve for eight years.

I'd say very similar views to me, although I am not sure if we're going to need to wait 8 years in Florida. I do agree with the regional differences as I've tagged this recession the "regional recession" (the heartland wonders what all the fuss is about).

Anyhow, as investors, the always tricky part is to figure out when market participants go from denial to anger to acceptance of the facts. We've been in month upon month of denial. Which makes the market that much more difficult to forecast... if I only had a nickel for each time I've heard "It will be fine in 6 months" since last July, I'd be able to fund my mutual fund on my own! :)

Long Iowa, Short California

Bookkeeping: Cutting Blackrock (BLK) Exposure

As things continue to seize up across the credit spectrum, I think even the best of breed might take some hits.... or at least the perception will be that they are. Blackrock (BLK) has been a .... well, rock - considering the hell in the financial space the past 6-7 months. But with some of the recent news in credit markets, their teflon status "could" be hurt. I still remain bullish on this quality franchise with top notch management over the long run, but for now I am going to sell 30 of my 45 shares as the stock is up today (talk about a champ), and if we are entering a situation similar to early January, I'd like to sell when I can, not when I am forced to. The 200 day moving average is down at $180 so that seems a likely area of retrace. I am selling 30 shares here in the $194s - Blackrock drops from a 0.9% exposure to 0.3%. This is still far and away my favorite asset manager and I believe will emerge from this financial morass in far better shape than their peers. That said, they are living in the worst neighborhood in town.

Long Blackrock in fund; no personal position

Bookkeeping: Cutting Some Commodity Exposure

I am simply going to take some off the table in these tremendous moves in commodities. Not large scale sales, but $5-$7K off of both Powershares DB Agriculture Fund (DBA) @ $42.40s and Kinross Gold (KGC) @ $25.60s. I remain very bullish on both, but I'd expect a period of consolidation at some point - nothing straight up? The charts are parabolic at this point.

I'd like to see the former retract to mid $40 range and the latter to $24 or below.

Long both names in fund; long Powershares DB Agriculture Fund in personal account

We Could be Breaking Here...

A close call but we just broke below S&P 500 level 1320. As I've stated I am looking at 1315 or so, and if we break there I'll be pushing much of my 25% cash into the short side, expecting a retest of January lows (S&P 1270). Again, a very important inflection point and as I've been saying for a few weeks, the longer the "range" the stronger the "break" out of that range, whether up or down. I've been betting the break will be down, and we appear close to confirming this. If it happens it should be a powerful move. A few more points to go for me to feel comfortable that hope will be lost and Kool Aid will be on the side of a carton of milk momentarily.

Finger on the trigger... again, if 1315 is broken I'll be buying in spades my 6 Ultrashorts.

EDIT 11:10 AM - S&P 1313 and this appears to be the start of a breakdown in my eyes; moved about 12% from cash to Ultrashorts. For those following along at home, all I am doing now is buying back the short exposure I threw overboard Friday during the 300+ down day, and yesterday. I am paying a bit more, but this was the game plan so I am now following through. At this point I take a more defensive stance, until/unless we make a bounce back to S&P 1330+. As for buying, I am not really going to be interested until S&P 1270. Still a very tricky area because every computer on Wall Street is probably set to the same algorithim, so this could simply be a push down to set off a bunch of panic buttons and then they take the market straight up. :) I'll remain in cautious stance either way.

Long Suffering Trina Solar (TSL) Finally Gets Some Relief

I've cut back my solar exposure quite heavily in the past month, but still hold my long suffering Trina Solar (TSL) - one of the fund's two largest losers from inception. We have an earnings report out this morning and it looks pretty solid, but truth be told this name has been so devastated I think if they simply said we are not going out of business it would of rallied to some degree. The chart is still a complete and utter mess and I am not that bullish on the sector as a whole right now, but it's nice to see some bounce in Trina's broken gait. I have to spend some time looking over the report, but the key with Trina has been getting in house cell processing to a much higher percentage to improve gross margins, which they seem to have achieved by processing 75%+ in house. Gross margins were surprisingly great at 27.3%. This shows their model is working despite huge ramps in polysilicon spot pricing, and effectively makes them the market leader in gross margin (for this quarter at least) among the PV panel markets. This is one of my favorite metrics in any industry, but especially solar. They do expect this to reduce to 23-25% in Q1 2008 but this puts them in the elite strata among peers. This gross margin expansion fed down to operating margin which doubled from 8.2% to 16.0% from last quarter (when gross margins were in the 20%s) - shows you the power of gross margin; it makes a lot of other ills disappear.

Trina had half its sales to Spain this quarter which is good and bad. Good for now because Spain is offering the best incentives in the world. Unfortunately, these incentives get reduced later in year 2008. They do look to be reducing this reliance on Spain later in the year, per guidance offered. They also offer a nice roadmap on efficieny improvements, and reductions in wafer thickeness (all money savers). Frankly, on first glance this is a hoard of good news, and the stock (in a better market) would be up more than the 9-10% it is. Technically, the stock faces resistance of the 50 day moving average of $38, so my initial thought before listening to conference call is lighten up at that level, and then if the stock shows enough strength to break through, I will simply buy back the shares. But in this type of market the more likely scenario is a stock fails to break through big resistance levels. Unfortunately the stock has not even made it to $37 yet. :)

• The Chinese solar company's net income more than tripled to $15.7 million, or 62 cents per share, from $4.6 million, or 28 cents per share. Revenue climbed to $101.4 million from $38.8 million. Analysts polled by Thomson Financial expected much smaller earnings of 49 cents per share on revenue of $95.6 million.
• During the quarter, Trina boosted its production capacity, shipped nearly three times as many systems and expanded sales in developing markets like the Netherlands, Belgium, France, Greece and Korea.
• The company also made efficiency improvements in its production processes, which generally leads to lower overhead costs. As a result, Trina's gross margins rose to 27.2 percent from 20.1 percent in the third quarter and 23.3 percent in the year-ago period.
• In 2008, Trina is determined to "lower our module manufacturing costs through constant improvements in cell efficiencies, wafer thickness reduction, and manufacturing process innovation," he added.
• The Company anticipates its geographic breakdown of 2008 sales in its main markets to be approximately 34% Germany, 26% Spain, 18% Italy, 10% Benelux and 5% in the United States.
• In the first quarter of 2008 the Company initiated commercial production of 180 micron monocrystalline wafers and cells from a current thickness of 200 microns and multicrystalline-based wafers of 200 microns from a current thickness of 220 microns. The Company expects to produce monocrystalline wafers of 160 microns and multicrystalline wafers of 180 microns by year end.
• In 2008 the Company is developing second generation cell technologies to raise its monocrystalline and multicrystalline conversion efficiencies up to 17.5% and 16.0%, respectively.
• In the fourth quarter of 2007 the Company's manufacturing cost per watt excluding polysilicon was approximately $1.28 for combined ingot, wafer, cell, and module production. By fourth quarter 2008, we are targeting cost reduction of approximately 18% to reduce these costs to approximately $1.05 per watt.

Some comments on their polysilicon plant which they gave very vague data about and "surprised" investors with last quarter

• With goals to secure visibility on supply, price, and quality of up to 50% of its long-term polysilicon requirements, the Company is advancing project planning and financing to build and operate a multi-phased polysilicon production facility announced in the fourth quarter of 2007. We are highly confident that the construction of a polysilicon facility is the appropriate strategic direction to enable our vertically integrated platform to drive the necessary cost reductions to secure a sustainable competitive advantage in the global PV module market space.
• We have made good progress in several areas in regard to our silicon production project announced in the fourth quarter. In December we announced our strategic development agreement with the Lianyungang Municipality in China's Jiangsu Province, which includes attractive government support in respect of land and electric power. We have also advanced negotiations for long lead time equipment and engineering procurement contractor (EPC) services. Additionally, we have well-progressed our technical and commercial due diligence work for a long term syndicate debt facility associated with the project.

So if read between the lines it sounds like they will fund this with debt instead of equity which was another concern I had (equity dilution).

Again, this appears to be the breakthrough quarter for Trina when many of their initiatives are finally coming together. While the high cost of polysilicon is still hurting the sector (save First Solar), Trina Solar has a lot of company specific initiatives that seem to be helping them offset the macro issues in the solar industry.

Long Trina Solar in fund and personal account

A Lot of "News" Today that We've Been Discussing for Months

There is a lot of "new news" out today and yesterday; items we've been discussing for a long time, but until it hits equity investors in their faces they refuse to acknowledge it.

First, I've been calling for another large round of writedowns and foreign infusions of capital the minute the last round of "kitchen sink" quarters were announced in the financials. This is about our 5th kitchen sink "moment" we are going to go through. Why it is a surprise to anyone is a shocker. This is the frustration with being "early" - you watch things that make no sense go on for weeks, months, sometimes quarters before the market catches up to your view. Ironically, today's news comes from the source of the foreign capital infusions themselves. Remember when they were "smart money" and since "they" were investing, all the pundits said you should throw your money in too? I refuted that constantly by saying people who live on top of dead dinosaurs and now benefit from that don't qualify for any bouts of genius.... just a lot of cash flow. [Eddie Lampart Selling out of Citigroup While Arabs/Asians Climb In]

• Mideast sovereign wealth funds may fail to save troubled U.S. banking giant Citigroup Inc (C) unless more cash is pumped into the lender, the head of a $13 billion Dubai-owned investment firm said Tuesday.
• Sameer Al Ansari, Chief Executive of Dubai International Capital told delegates at a private equity conference that it will take more than the combined efforts of the Abu Dhabi Investment Authority, the Kuwait Investment Authority and Saudi investor Prince Alwaleed bin Talal to save the bank.
• Al Ansari said "it would take a lot more money to rescue Citigroup."
  

Another prediction I made were the coming cuts on Wall Street - again I was early - I figured once the 2007 year end bonuses were secured for the execs, the axe would come down hard. It's taken a few months, but the Kool Aid is on the wall now, and people are finally realizing that large parts of the business are not coming back (at all in some cases) or for a long time in other cases. This news is Citigroup specific but I expect it to spread throughout Wall Street... now do you think companies banking on a "economic bounce in 6 months" would be laying off people? Somehow doubtful.

• Citigroup's job cuts could reach 30,000 or more over the next year and a half because of increasing writedowns from subprime-related debt, CNBC has learned.
• Chief Executive Vikram S. Pandit is currently conducting a massive cost review and could cut as much as 10 percent of the bank's workforce of 370,000, according to people familiar with the situation.
• In the past, Citigroup (NYSE:C - News) would lay off people and then hire them back as consultants. But with more bad-debt writedowns looming, Pandit wants to make the cuts permanent, sources say

Another prediction I've made - 2008 is going to be the worst year in auto sales in 2 decades. Up to a few weeks ago I was hearing Kool Aid from auto executives about the "2nd half recovery" story. That is starting to be silenced, as yet another reality check hits people. One can slice and dice the numbers and find glimmers of hope (as always), but the big picture is what matters and it's not looking good. And it will get worse - remember we are not even "in a recession" yet. Unless you're a car dealer in Omaha or Des Moines or Houston I suppose.

• Ford Motor Co., General Motors Corp. and Toyota Motor Corp. on Monday all reported declines in February U.S. sales, reflecting the tough climate for consumers during the persistent housing slump and credit crunch.
• The industry is in a "crisis, but a crisis is both good news and bad news," Dave Cole, Chairman for the Center for Automotive Research, said. "Crisis is bad news because it's very, very uncomfortable, but it's good news because it helps create a sense of urgency to make the fundamental changes required."
• The annualized rate of sales came in at 15.4 million cars and trucks, topping the 15.3 million targeted by a Thomson Financial survey of analysts.
• "We think there's going to be a lot of stimulus in the economy in the second half of the year, and we're banking on that," GM sales analyst Mike DiGiovanni said in a conference call following the results. (egad!)

Uncle Ben is starting to see just how bad the mortgage crisis really is after having head in sand in 2007 (remember, "subprime will be contained"). He is also suggesting what I've predicted would eventually happen as things degrade - the outright reduction of mortgage balances as housing values fall below earlier borrowed amounts (upside down homes). I do believe this will be the end game that is heavily pushed by the politicos. Remember, if this is not done, people have no reason (other than a credit hit) to not just walk away... I am glad the decision makers in this country see this about a year+ after some others - always on top of the ball... I don't agree with the policy since it's a pure bailout and was I made whole when I was upside down on a trade? No. But political pressure and the simple fact housing (asset prices) are so important to this economy staying afloat, will lend a great chance for this to happen. Another fact the bulls threw in our face last year - don't you worry about housing, it is only 4.5% of GDP. Funny how 4.5% of GDP is causing so much dislocation eh?

• Federal Reserve Chairman Ben Bernanke called Tuesday for additional action to prevent more distressed homeowners from falling into foreclosure. "This situation calls for a vigorous response," Bernanke said in a speech to a banking group in Florida.
• Even with some relief efforts under way by industry and government, foreclosures and late payments on home mortgages are likely to rise "for a while longer," Bernanke warned.
• "Reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods and the nation as a whole," Bernanke said. "Although lenders and servicers have scaled up their efforts and adopted a wider variety of loss-mitigation techniques, more can, and should be, done," the Fed chief said.
• One of the suggestions Bernanke made was for mortgage and other financial companies to reduce the amount of the loan to provide relief to a struggling owner. "Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure," Bernanke said. With low or negative equity in their home, a stressed borrower has less ability -- because there is no home equity to tap -- and less financial incentive to try to remain in the home, he said.
• Bernanke acknowledged this idea might be a tough sell to lenders. Lenders, he said, are reluctant to write down principal. "They said that if they were to write down the principal and house prices were to fall further, they could feel pressured to write down principal again," Bernanke said.

As for the market again folks, we are in this inflection point of S&P 1320. A break below to 1315 or so and I get extremely bearish. A bounce from here and I drink short term Kool Aid. The news flow continues to be awful but the market wants to hang onto this cliff by their fingernails. So we'll see how it goes.

Mr. Hall, I Salute You

Now this is a guy who a financial firm would consider "value add". Amazing to see the compensation structure, in half a decade a trader can earn a quarter of a billion? Wow. Well he deserves it more than former CEO Chuck Prince...

• The commodities market's historic surge is generating huge paydays on Wall Street. One of the biggest beneficiaries has been Andrew J. Hall, an enigmatic British-born trader who, five years ago, anticipated an important shift in the way the world valued oil -- and bet big.
• Over the past five years, Mr. Hall's compensation has totaled well over a quarter-billion dollars, according to a Wall Street Journal analysis of securities filings and Mr. Hall's compensation structure. One of those years he out-earned his boss, the head of Citigroup Inc., about five times over.
• Last year, an unusually rough one for Citigroup, Mr. Hall's secretive trading unit, Phibro, generated close to 10% of the bank's total net income.
• Mr. Hall's power at Citigroup is the result of his winning bets on oil and natural gas, part of a broader commodities boom that has swept the world this decade.
• Mr. Hall's bet -- that long-term and short-term energy prices would soon abandon their historical relationship with one another -- looked like a long shot when he made it. In making it, Mr. Hall individually took on more risk than Citigroup typically permits some groups of traders to carry, according to a person familiar with the bank.
• Now, after 15 straight profitable years, Mr. Hall has considered breaking out on his own. Last year, for the first time, he began managing outside money for clients including investment giant Blackstone Group and others.
• While Mr. Hall is on a winning streak this decade, he has had setbacks in the past. Phibro had three unprofitable years in 1991, 1992 and 1993, when it went through a rough patch with its refining businesses amid an economic downturn.
• He bought a nearly 1,000-year-old castle in Germany to display his collection. (I need one of those)
• Around 2003, Mr. Hall became convinced big structural changes were looming in the oil markets. For more than a decade, oil had ranged from $10 to $30 a barrel. But growth in demand was starting to outstrip growth in supply. And the once-sleepy economies of China and India were starting to compete for that fuel.
• To place his bet, he focused on what was then a stagnant corner of the commodities world: The extremely long-term market in which traders buy and sell oil to be delivered years in the future. He started buying all the oil futures he could for delivery three to five years out. He also bought "call" options, which bestow the right (but not the obligation) to buy oil at a set price in future years. He made similar trades in natural gas.
• The strategy worked. Around 2005, the discount for far-forward oil vanished and it began commanding a premium. That year, tiny Phibro contributed $800 million or more in pretax revenue to Citigroup. Mr. Hall's pay totaled as much as $125 million, around five times that of Charles Prince, who was then Citigroup's chief executive.
• Mr. Hall has sought profits in more unusual commodities, too. Twice in the past decade he has assembled big stockpiles of rhodium, an obscure metal used in catalytic converters. He got out both times at around 10 times his money.
• A generous pay deal dating from the Salomon days lets Phibro keep 20% to 30% of its trading gains. Not only can that outstrip what others within Citigroup receive, it outshines some hedge funds, which typically keep 20% or so of profits.

Who Knew? Salt?

I guess in my 'World of Shortages' scenario just about every commodity will have it's time in the sun, but salt? I've been reading about a lot of cities and states panicking this winter because salt prices are jumping, and it's been a more snowy than average winter in many places, so budgets were set for the 'norm'; now that we've exceeded the norm and winter is still not over we seem to have some short term shortages. But it appears bigger than that.

Compass Minerals International (CMP) is a stock a blog reader pointed me to a few weeks ago... the chart is astounding, and the profit growth (estimated for the next year at least) is also. And it even is (in a tangent way) associated with fertilizer. Below is a general description from Investor Business Daily

• The company (NYSE:CMP - News) is the second-largest salt producer in North America and the biggest in the U.K. Compass also is the largest producer in the U.S. and Canada of sulfate of potash, a specialty fertilizer. To make use of shut mines, it has a records management business, DeepStore, which uses former mines for storage.
• In the fourth quarter, robust demand for de-icing products helped lift sales 55% to $326.1 million. Earnings heated up, rising 64% to $1.31 a share ex items, beating views by 26 cents.
• Frequent snowstorms at the end of the quarter throughout its de-icing markets in North America created above-average demand for highway, consumer and professional de-icing products, says CFO Rodney Underdown. The higher-than-normal demand boosted salt volumes by 47% to 4.84 million tons during the quarter.
• Highway de-icing salt accounted for just over 4 million tons. The price per ton for highway salt rose 13%, to $42.60. It produced 805,000 tons for consumer and industrial de-icing. The average selling price jumped 17%, to $139.12 a ton.
• It maintains flexible labor contracts that allow it to scale back its work force when it's not a productive season. This means that in slower times, Compass doesn't suffer penalties from big severances or layoff packages. Workers are covered by labor contracts that encourage the company to rehire them when business picks up.
• The U.S. accounts for about 60% of Compass's de-icing business. But salt is in short supply in many areas hit by severe weather.
• Compass has addressed the supply constraints by announcing two different expansions at its Goderich, Ontario, salt mine, the largest in the world. It produces 6.5 million tons annually. The first phase will add 750,000 tons of annual capacity at a cost of about $10 million. It will be finished by the end of this year but won't be fully available for the upcoming winter season, Underdown says.
• Compass is also expanding its potash facility at Utah's Great Salt Lake. Its specialty potash has a sulfur element and is primarily used for high-value crops, including tobacco, wine grapes, citrus fruits, vegetables and nuts.
• The company is spending roughly $25 million over a three-year period to raise its output by 100,000 tons. It would add 25,000 tons this year, 25,000 in 2009 and the rest by 2010. Last year, Compass produced 423,000 tons of sulfate of potash, or SOP, up 12% from a year ago.
• Demand for specialty potash is rising, and that's contributing to segment sales. SOP sales last quarter rose 35% to $39.4 million in volume of 115,000 tons, up 20%. The average selling price per ton rose 12% to $341.29.
• One competitive advantage is the naturally occurring mineral brine in the company's 43,000 solar-evaporated ponds at the Great Salt Lake, Underdown says. Rivals, except for one, must produce SOP through a synthetic process. "Our process is a natural one where we solar-evaporate minerals out of the lake, which provides us with a different production technique," he said. "We believe our process is the lowest SOP production cost in the world."
• Also, Compass SOP qualifies as an organic fertilizer because it's produced naturally, which is important to some sub-sectors in the farming community, Underdown says.
• Of the 50 million tons of potash sold annually, about 90% is the standard fertilizer used on row crops such as corn, wheat, cotton and soybean. There has been no price increase for SOP over the last 30 years, but today's market for the commodity is very strong, Silver says.
• Said Silver: "We believe its business possesses little or no sensitivity to volatility in either the broader economy, raw materials or energy costs, import competition or financial markets." (ahhh.... I like that)

I am not that familiar with this company, so still looking into it. I am trying to figure out what they do with said salt the other 6 months of the year when it's warm. And I'll have to look where the 40% of non domestic salt sales are going. But anything within a whiff of fertilizer has some positives going for it....

No position

Here Comes Our Test

We are again at magical S&P 1320. Let's see if the bulls have any magic left in them. Wasn't it just a few days ago we were at S&P 1390 and just about to (theoretically) break above the 50 day moving average? This bipolar market is truly amazing.

p.s. It's been well over 5 days since we've heard rumors of the Ambac (ABK) bailout? Can we be fooled again by the same darn news?

Anyhow, I sit in about 24% cash and ready to apply it back to the dark side if we break down to S&P 1315 or so. I, along with thousands of computers on Wall Street, I am sure.

Other than that, not doing much...

Hit Low End of Our Recent Range

We hit the low end of our recent range, S&P 500 went to 1322 (1320 has been the floor of late) so I lightened up across all my Ultrashorts, anticipating a bounce. If we break back down below this key level to say 1315 or so I will buy these positions back at slightly higher premiums and await a more frantic selloff.

I have done some purchases this AM of $4-$6K variety in names that were hit 3-5% or fell to some support levels: fertilizer name CF Industries (CF), Indian copper Sterlite Industries (SLT), Indian bank HDFC Bank (HDB), Brazilian oil Petrobras (PBR), and Chinese solar LDK Solar (LDK). I still am wary of the solar business but the sell off in LDK Solar is simply overdone. The other names I have more confidance in...

Again, if this bounce is not true, I'll be remounting the short positions I sold off Friday and this AM. I am now at my lightest short exposure in a long while. I guess Buffet-palooza didn't say anything to make the market happy. Let me emphasize every time we test this sort of level on the chart, we are at a potential inflection point. So it is the time to be most flexible. If this level holds, one turns short term bullish; if it breaks one turns bearish. All due to 10 S&P points, one way or the other. My cash position is very high now so I await the outcome.

Commodities continue to be on fire...I continue to feel I don't have enough...

Long all names mentioned in fund; no personal positions

Thornburg Mortgage (TMA) in Freefall

Devastating action in Thornburg Mortgage (TMA) this morning, down over 50%. Here is the news...

• Jumbo mortgage lender Thornburg Mortgage Inc. said Monday it may be forced out of business as it faces an additional $270 million in margin calls on top of the more than $300 million it was being forced to repay, or provide more collateral for, last week.
• Thornburg said it has not met the majority of the most recent calls, but is working to repay them by selling assets or through the raising of additional debt or capital. If Thornburg is unable to meet the current calls, it said the result could materially affect its ability to continue to operate.
• Thornburg said the margin calls are "strictly a result of the continued deterioration of prices of mortgage-backed securities precipitated by difficult market conditions." The calls are not reflective of the actual performance of the securities, the company added.
• Thornburg said Thursday in a regulatory filing it was the subject of margin calls earlier in February on a portfolio of securities backed by alt-A mortgages. It was able to meet all those margin calls without having to sell any assets or raise new capital.

This is essentially akin to a run on a bank... worried investors see what happened last week and panic, and a death spiral ensues. At this point, I am simply going to hold on with this substantial loss, and see where things go - it would be ironic if all these junky home builders who are on death's door are not forced into bankruptcy but TMA was - which is actually run by solid management. We'll see how it plays out but multiple lessons here... I stayed away from the siren calls of anything financial for a long time, but took a risk here, and am losing big time; and don't try to be too cute and go for the home run. Because you can strike out.

Long Thornburg Mortgage in fund; no personal position

Remote Area's Medical Lifeline

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

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

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