Monday, March 31, 2008

Mercadolibre (MELI) with a 3 PM Spike

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Quite an interesting intraday chart for Latin America e-commerce play Mercadolibre (MELI); I don't see definite news yet but it appears to be a withdrawal of their secondary stock offering which generally creates an overhang above a stock...



I don't have a major position in this name as it's been consolidating for a long time and this secondary has been an issue but I was poking around the news today and noticed this nice write up by Sramana Mitra, who has an excellent blog that I frankly do not have the time to get to enough. Too much information on this internet; not enough waking hours. I like the market statistics that she put into the article which I generally gloss over when I do a write up, and her commentary on how the company "grew up". I do agree with the media's lack of attention to many interesting emerging markets; rather focusing it's love for all things Chinese (I've mentioned this in my India pieces many times)
  • There is a market of 500 million people--about 8.6% of the world's population--that the business media all too often neglects as it serves up story after story about China and India. That would be Latin America.
  • Between 2000 and 2007, the number of Internet users in Latin America grew from 18.1 million to 122.4 million, a compounded annual growth rate of 32% compared with only 12% in North America during the same period. Chile has the highest penetration of 43.2%, with Argentina at 39.7%, Brazil at 22.4%. Average penetration across Latin America is approximately 21.5%, as compared with 71.4% for the U.S.
  • Not surprisingly, Latin America is developing its own collection of Internet stars. One that has really caught my eye is MercadoLibre (nasdaq: MELI), an online marketplace that facilitates buying and selling of computers, electronics, photography equipment, household items, even cars.
  • Although MercadoLibre had a rocky start, the company has started delivering stellar results, growing at over 60% and profitability is increasing steadily. The moral of this story: It takes patience to build a great company, even in Internet time. Now, I believe MercadoLibre has an opportunity to become a billion dollar enterprise in the next 10 years and be a force in Latin America's economy.
  • For the year ended Dec. 31, 2007, MercadoLibre's annual revenue increased by 63.5% to $85.1 million. And MercadoLibre is also profitable: Net income for the fiscal 2007 was $9.7 million, a nice jump over the $1.1 million reported for the company's in fiscal 2006. Their 2007 diluted earnings per share of 22 cents met analyst expectations to the penny.
  • MercadoLibre has now become the No. 1 online marketplace for Latin America. It facilitates the buying and selling of merchandise in the same way that eBay and Amazon do. Items range from computers, cameras and MP3 players to furniture and household items to cars. The business, unlike eBay's auction-based model, is primarily driven by fixed price transactions. In that sense, they are closer to Amazon. Mercado also has an online payment offering a la Paypal called Mercado Pago, that is seeing good adoption and has huge potential to facilitate commerce in the Latin America market.
  • Some of MercadoLibre's strength comes from simply outliving its local competition. Language and culture, I believe, are substantial barriers to international competitors, as the big companies have discovered in China. (Even so, eBay holds a 20% stake in MercadoLibre--a smart strategy for the U.S. company.) The region does not have an active venture capital industry, so future competition is likely to be limited. Those factors give MercadoLibre a nice, clean runway to build their business without a lot of interruption and dominate Latin America's e-commerce industry.
I've stated in the past I doubt Mercadolibre (MELI) will be an independent entity in the long run; in fact I am surprised each quarter that passes that it remains on it's own. Valuation? Off the charts. Scarcity value? Also off the charts. When dreamers are putting $15 Billion valuations on Facebook, which can't find a way to generate meaningful revenue, I can only cringe - here is a far more valuable entity for less than $2 Billion. An interesting company all around.

Long Mercadolibre in fund; no personal position

Washington Post: Bush Gives in on Mortgages & States Buckling Under Loss of Revenue from Home Value Bubble

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This is about the 5th Bush homeowner plan- I can't keep track anymore but I believe the last one was just 7 weeks ago [Feb 12: Another Week, Another Mortgage Bailout Plan], but the first where something they denied they'd ever do - use taxpayer funds - is now on the table. Not surprising to readers of the blog as we've been saying this will eventually happen as far back as last fall. But it shows how dogmatic conservative views are tossed out the window when votes are at stake. Remember, I said 2008 will be the year of the "walkaway" (hand in keys, walk away from mortgage) - fully 1 in 10 people are now underwater on their mortgage and if prices continue to fall to where they "should", I believe we are going to 1 in 6-7. The fact we are going to bail out people who put nothing down or bought at the peak of a bubble is truly astounding. As I keep saying over and over - amazing times we live in - the type of things people will be reading about in history texts.

Once again, this raises so many questions as the devil is in the details but we'll talk about that another time. For now, your nanny state awaits you - your left pocket is being robbed to pay your neighbor's right.
  • The Bush administration is finalizing details of a plan to rescue thousands of homeowners at risk of foreclosure by helping them refinance into more affordable mortgages backed by public funds, government officials said.
  • The proposal is aimed at assisting borrowers who owe their banks more than their homes are worth because of plummeting prices, an issue at the heart of the nation's housing crisis. Under the plan, the Federal Housing Administration would encourage lenders to forgive a portion of those loans and issue new, smaller mortgages in exchange for the financial backing of the federal government.
  • If enacted, the plan would mark the first time the White House has committed federal dollars to help the most hard-pressed borrowers, people struggling to repay loans that are huge relative to their incomes and the diminished value of their homes. That may offer encouragement to the banking industry (yes, the most important constituents) and help silence Democrats, who have accused the White House of rescuing Wall Street investment banks while ignoring distressed homeowners.
  • The initiative now being crafted could provide relief to a select group of homeowners who are "under water" on their mortgages, a term that describes the situation when falling home prices leave borrowers with negative equity. These homeowners would have to agree to stay in their homes after refinancing, be able to afford the new monthly payments and have lenders who are willing to go along with the plan, officials said.
  • An estimated 8.8 million households currently have negative equity, due in part to the rise of loans that often required no money down. Negative equity becomes a problem when the homeowner can no longer make mortgage payments. If the homeowner had some equity, the loan could be refinanced or the house could be sold. But a homeowner who is under water cannot afford to do those things because the new loan or sale proceeds would not cover the cost of the existing mortgage.
  • In a recent report, Merrill Lynch identified negative equity as a prime cause of rising default rates, saying borrowers who already have poor credit records are often deciding it makes sense to walk away from their homes when the values fall.
  • Federal Reserve Chairman Ben S. Bernanke has called on lenders to restructure some loans, arguing that it would be less costly to forgive some debt than to foreclose on the properties. [Mar 4: A lot of "News" Today that We've Been Discussing for Months]
  • To spur bankers to action, Frank and other Democrats are working on legislation that would allow the FHA to insure an additional $300 billion in mortgages on which lenders have agreed to accept partial losses. Under Frank's proposal, the new loan could be worth no more than 85 percent of the home's current appraised value. It would also have to meet FHA loan limits, which were raised significantly by the economic stimulus bill recently signed by the president and are currently set at about $730,000 in the Washington area. Homeowners would have to meet stringent eligibility requirements and would be required to share any profits if they sold or refinanced within five years.
  • Depending on its final scope, the proposal could further rile conservatives in Congress alarmed by what they see as a new tendency by the White House to interfere with market forces. (who knew I was a conservative in nature?)
So in an era where...
...I'm supposed to step in with my tax dollars and provide support? Got it. And what is my government going to ask me to do in 9 months when all the same things continue to happen, and home prices drop another 5-10%? Pony up again to help my fellow "indebted, bought at the top, didn't read the document, put nothing down" citizen? Are we going to yet again refinance the already government refinanced loan once the home hits 15% price depreciation? Ok, I'll start saving now...

As I keep repeating here is the big secret - while it stinks for all of us homeowners now to see the value of our asset degrade, the best thing that could happen to Americans as a whole is to devote a much lower % of our monthly expenditures for housing costs. There is only 1 way to get there - the median home price (and associated rentals) need to fall in price. Then we'd have money to pay for things we are fighting globally for ... i.e. fuel and food. But instead we want to support these prices artificially. This is pure Washington DC logic at it's best.

When Bush gets back from Europe we need to fear this from the short side because the Kool Aid will be rolling (no matter what devil is in the details) and as the article said best "That may offer encouragement to the banking industry - yes last I checked socializing losses offers a lot of encouragement.... when times are good you win, when times are bad, the taxpayer loses. Wall Street wins either way. Who wouldn't be encouraged in that system?

****************

Meanwhile, your state government is cutting services and potentially raising your taxes (another thing we predicted) because the housing bubble is what helped support state government spending the past half decade and unlike our federal government which can print print print, the local governments don't have that luxury. So who gets squeezed in the middle? Us. I've said countless times this "housing is 4.5% of GDP" is a red herring - our whole finance based economy is based on bubble asset pricing; especially in the past decade on housing values.
  • State budgets have been hit hard by a worsening national economy, including rising costs for energy and health care. In addition, fallout from the subprime mortgage crisis -- declining home sales, deflated property values and mounting foreclosures -- has caused a slide in states' anticipated tax receipts. Revenue from property taxes, sales taxes and real estate transfer taxes is affected.
  • Instead of raising taxes, most states with shortfalls are curtailing services, and the effects are already being felt nationwide. Some of the most dramatic cuts are being made in California, Maine and Rhode Island, according to budget experts, with New Jersey not far behind.
  • At least half of the nation's states are facing budget shortfalls, some of them severe, and policymakers in most of the states affected are proposing and passing often-painful measures to trim costs and close the gaps. Spending on schools is being slashed, after-school programs are being curtailed and teachers are being notified of potential layoffs. Health-care assistance is being cut for the elderly, the disabled and the poor. Some government offices, such as motor vehicle department locations, will start closing on weekends, and some state workers are receiving pink slips.
  • Some analysts worry that the impact is being felt disproportionately by the most needy. "It's disappointing, the extent they tend to focus their cuts on the most vulnerable, It does appear to disproportionately affect low-income people."
  • In most states, talk of raising taxes has become politically perilous, particularly with residents already hurting from falling housing values and a worsening economy.
  • California is facing the worst budget crisis, with a $16 billion shortfall, and Gov. Arnold Schwarzenegger (R) has proposed a $4.8 billion cut in education services. About 20,000 teachers, counselors, librarians, nurses and other support staff members have received notice of potential layoffs, according to the state's Education Department.
  • A recent 50-state survey by the Associated Press showed that hundreds of thousands of poor children, the disabled and the elderly stand to have their health coverage eliminated as a result of budget cuts, and more than 10 million people would lose access to dental care, specialists and name-brand prescription drugs.
  • Budget experts said they see a repeat of the pattern that happened during the recession of 2001: States generally cut health services and medical benefits first, because these costs are often rising more rapidly than others, and the savings tend to be immediate.
Thankfully this will all be fixed in 6 months.... when the consumer/housing/retail/financial rebound begins! So says the early cycle playbook.


AP: Food Price Inflation Changes How we Shop

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I had mentioned the potential for tough times ahead for restaurants a long time ago [Sept 19: Tough Times Ahead: Restaurants?] - the stock prices began foretelling this way ahead of the reality on the ground, but now the reality on the ground is catching up. Or at least some parts of the media are catching up to the reality... perhaps this is nature's way of solving the American obesity epidemic?
  • Steadily rising food costs aren't just causing grocery shoppers to do a double-take at the checkout line — they're also changing the very ways we feed our families.
  • The worst case of food inflation in nearly 20 years has more Americans giving up restaurant meals to eat at home. We're buying fewer luxury food items, eating more leftovers and buying more store brands instead of name-brand items.
  • For Peggy and David Valdez of Houston, feeding their family of four means scouring grocer ads for the best prices, taking fewer trips as a way to save gas and simply buying less food, period.
  • Soaring prices are causing shoppers to rethink long-held habits such as store loyalty. Wal-Mart and other supercenters that sell food now account for 24 percent of the market, according to the most recent annual survey of shopping habits by Hammonds' organization. [Remember - we pointed out this potential shift from Target shoppers to Walmart shoppers here in December, and the strength in the chart of Walmart stood out like a sore thumb when we looked at what was holding up in the depths of the January selloff - it is no coincidence - it is large scale "pooring" of middle class America; living standards slowly seeping away; not realized by those who run the Street - this story is full of people with "normal jobs" i.e. teachers - we are not talking low end wage jobs. Upper middle class management/professionals? Still doing ok - their issue is more tied to mortgages - the gap between have and have nots will continue into a gulf as we move forward.]
  • Gina Pierson, a music teacher in Columbia, Mo., buys her family's staples at local grocery stores but makes regular trips to Wal-Mart to supplement the weekly shopping list. Like many families struggling to get by, Pierson and her husband, a public school teacher, are adjusting their approach to buying, cooking and eating food. Restaurant meals are now almost a luxury.
  • In 2007, the FMI survey showed the average number of weekly shopping trips falling below two per household for the first time.
  • Paula Curtis, a mental health worker in Montpelier, Vt., said her grocery bill has been steadily climbing by $10 to $20 a week. She has cut back on meat, fruit, vegetables and snack food, and buys milk at the gas station, where she said it's cheaper. "Every time I go, it's more and more," she said. "I make a list, but I don't necessarily get everything on it because I can't afford everything."
  • Those who can't absorb the added expenses are increasingly seeking help from food pantries. America's Harvest, which distributes nearly two billion pounds of food and grocery products each year to more than 200 food banks across the country, estimates that its overall client load increased by 20 percent in the fourth quarter of 2007. [And don't forget the shortages that are now becoming rampant at food banks]
  • The jump has been even higher at the Central Missouri Food Bank's pantry in Columbia, a college town halfway between Kansas City and St. Louis. The food pantry served 7,200 people in 2007, an increase of more than 50 percent over two years, said executive director Peggy Kirkpatrick. Columbia used to be considered inflation-proof because of its high-paying university jobs and proximity to the state capital, 30 miles away in Jefferson City. "That's not the case anymore," she said.
  • Not all shoppers are struggling with the changes. At the Whole Foods Market in downtown Seattle, Beth Miller didn't think twice about paying $6.39 for a gallon of organic orange juice, or $4 for a dozen eggs at the store, which specializes in organic and natural foods.
  • Among retailers, the surge in commodity prices — from corn, now in high demand because of increased ethanol production, to wheat that has tripled in price over the past 10 months — has some industry observers suggesting that higher food prices aren't a temporary fluctuation but instead may be here to stay. "We don't exactly have a crystal ball," said Whole Foods' Perry Abbenante, a senior global grocery buyer. "But I'm not sure (prices) are going back. We're preparing for a new threshold."
But don't worry, CPI food and energy included will show something like 4% inflation - nothing to worry about... sorry I forgot to mention everything will be fine in 6 months (it's been 72 hours since I've stated that and I didn't want my readers to feel any angst) So please carry on... fall 2008 is going to be nirvana.

[Do the Bottom 80% of Americans Stand a Chance?]

Philip Morris International (PM) Now Set Free

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Back in mid January we were looking at various sectors during the heart of the market meltdown to see what was truly a "safety" sector [Jan 19: Even Altria (MO) is Getting Hit & Some Walmart Commentary] - we mentioned back then the interesting potential of the spinoff of Philip Morris International (PM) which has now come to fruition with a nice first day gain.
  • Shares of Philip Morris International Inc (PM), the world's largest non-state-owned cigarette maker, rose as much as 5 percent on Monday morning in their first day of trading after the company was spun off from Altria Group Inc (MO)
  • Investors have long anticipated the Philip Morris International spinoff as a way to get a pure play on the growing overseas tobacco business without being tied to a shrinking U.S. cigarette market. The company trails only state-run China National Tobacco Co in terms of global market share.
  • Philip Morris International has forecast annual growth in earnings per share of 10 percent to 12 percent. Altria expects its own earnings growth to be 8 percent to 10 percent annually.
  • Earlier this month, Philip Morris International Chief Operating Officer Andre Calantzopoulos said there were plenty of areas to grow the cigarette business, noting that only one in six smokers around the world smokes a Philip Morris brand.
  • He said the company has little or no presence in large cigarette markets like China, Vietnam, India and Bangladesh.
So once again, the thesis here is get the addictive steady state growth of Altria but without the legal hassles of America...
  • Altria (NYSE: MO) completed the long-awaited spinoff of its subsidiary Philip Morris International (NYSE: PM) last Friday, and the Marlboro Man is finally free to roam the globe unfettered by the legal and marketing shackles of the U.S. domestic market.
  • Benefits for both the slimmer Altria and the new international company will be realized, but I think the international division will flourish on its own thanks to its leadership position in the international cigarette market and the strength and marketing potential of its global brand.
  • Philip Morris International, or PMI, is the world's leading tobacco company and the third most profitable international consumer goods company. It generated revenue in excess of $55 billion and operating profit of roughly $8.9 billion in fiscal 2007.
  • The company sells its products in some 160 countries and owns seven of the top 15 brands in the world, including Marlboro, Parliament, Virginia Slims, and L&M. In all, PMI held a 15.6% share of the international cigarette market in 2007. The company is especially strong in the higher-margin premium segment of the market, where it estimates that it held a 52.4% share (excluding China) in 2007.
  • While cigarette consumption in the U.S. has been declining, the international tobacco market is an entirely different story as volume growth has been rising overseas.
  • And to put the strength of the Marlboro brand in perspective, consider this: In 2007, Marlboro's volume of 311 billion units was larger than the next three best selling international brands combined. It also outsells the total combined volume of all of British American Tobacco's (NYSE: BTI) global drive brands.
  • I can't help but believe that PMI's brands will only increase in strength as the company is now freed from marketing and regulatory constraints that were part and parcel of being part of Altria.
  • Shares of Philip Morris International opened today at around $51, or roughly 16 times fiscal 2008 earnings estimates of $3.11-$3.17, while offering a dividend yield of 3.6%. (Did I mention that management has already authorized a two-year, $13 billion share buyback program?)
  • This valuation is fairly in line with those of its smaller competitors, British American Tobacco and Imperial Tobacco Group (NYSE: ITY). But I believe that PMI should trade at a premium to these players given the company's leadership position in the international markets, its strong global brands and the fact that management has stated that it expects earnings growth of 12%-14% in 2008
Looks like another backdoor play into the growing Asian middle class.... now if we could only make sure they have food first, and then we can feel more confidant they have money for these addictive "treats".

No positions

Bookkeeping: Adding more Mosaic (MOS) Ahead of Earnings

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Bought 100 shares here in the $98s as the stock has pulled back 6%; I continue to marvel at the price of this stock, which should be north of $120 in my book. Earnings are this Friday, and aside from the great story in potash, the story in phosphate might be even more unbelievable in the near term. Continue to believe this quarter's estimates of $0.95 are too low. Normally I don't buy anything ahead of earnings due to the heightened risk but this is one I will bend that rule for.

Mosaic (MOS) is now a 5% stake in the fund, up from 4.2% entering the day. If the stock is dropped to $90 or so, I'll move this back up to a 6-8% type of position. If we ever see low $80s again it will probably go to a 10%+ position...

Note this is not a "technical" buy - the chart is actually showing a series of lower highs, so one might argue for the very near term it is actually a good short (which I could not argue with) but the focus in this fund is longer term fundamentals, and I can't find a space with better so I'll continue to layer in as the stock drops. Main concern with these type of "winning" stocks is hedge funds continuing to need to deleverage and sell what they can since they cannot sell the illiquid junk.

EDIT @ 12: 58 PM: Added another 50 shares @ $100. Now up to 5.4% stake

Long Mosaic in fund and personal account


Taking a Hit on Schering-Plough (SGP)

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My one "safe stock" in the "safe sector" of healthcare is getting demolished today, down 25%, as its cholesterol drug faces some major questions. I had reduced this exposure a bit to just over 1% of the fund, but 25% is 25%. And this only reinforces my long term view that it is never smart to invest in drug stocks as an FDA approval or disapproval or a good study or bad study can push you up or down 30% completely out of the blue. Essentially riverboat gambling. This is what happens when one leaves their comfort zone - exactly the same issues that happened when I went against better judgement and moved into the "I need some mortgage/housing related stocks since the early cycle Kool Aid is strong". Blah.

I am not adding or reducing at this point - we'll see how things shake out. Schering still has a far better than average pipeline so it should be ok in the long run, but in the long run we'll all be dead. (in no large part from ineffective drugs the used car salesmen of the drug industry sell us at inflated prices)
  • Shares of Merck and Schering-Plough plunged Monday to their lowest levels in years as new clinical data raised questions about their cholesterol drugs. The companies market the cholesterol drug Vytorin through a joint venture, but earlier this year, partial results from a clinical study showed that Vytorin was no more effective at limiting plaque buildup than Merck's Zocor, a drug that is already available in generic form. Vytorin is a combination of Zetia and Zocor.
  • Full results from that trial were released Sunday. Analysts said they saw little positive news and expected sales of Vytorin and Schering-Plough's drug Zetia to keep declining.
  • Schering-Plough shares plunged 26.4 percent to $14.33 in early trading, touching their lowest levels since August 1996.
  • Wall Street expects prescriptions of Vytorin to keep declining in the wake of a recommendation by leading physicians to use of the drug only after initial therapy with older statins, such as Lipitor and Crestor.
  • Lehman Brothers analyst Charles Butler downgraded Schering-Plough shares to "Equal Weight" from "Overweight," on the news, and he cut his price target to $20 per share from $35. He said prescriptions of Vytorin will keep falling, and because Schering-Plough relies heavily on the joint venture, he slashed his profit estimates over the next five years.
Long Schering-Plough in fund; no personal position

USDA Crop Report

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While weather will have be the determining factor on what actually is harvested, as I predicted last week [Cutting Back on Powershares DB Agriculture Fund - Focus on Fertilizers for Now] when I wrote

With that said, no change to my long term view and I look forward to next week's crop report - my expectation is the exact reverse of what happened last year when farmers piled into corn due to the ethanol boondoggle. With the ridiculous rise in wheat, I expect a huge upswing in wheat plantings and ... *drumroll* a shortage in corn. Which will drive it up next fall/winter ;) And so the World of Shortages continues

Well, lo and behold, corn plantings are down 8%. This in fact, was probably the easiest prediction (aside from bulls touting Kool Aid during every downturn about how everything is fine) I've made on this blog. Simple supply and dynamics at play. Unfortunately for Americans corn has been so subsidized for ages that it literally permeates every part of our food chain. So in 6-12 months when corn begins a new leg up, you are going to be paying for this in a very large way. And it plays right into my prediction of a coming "meat" shortage as corn is a major input in feedstock for chickens/cattle/etc. But maybe your wheat bread will stabilize... for a year... until next year's crop report when farmers will flock back to corn to take advantage of the huge increases we'll have in 12 months. And so we'll keep going...

Now where is that Ultralong cotton ETF....
  • U.S. farmers will plant more soybean and wheat crops this year after prices reached records, while corn and cotton acres will drop, the U.S. Department of Agriculture said.
  • The government survey showed growers will seed 74.793 million acres with soybeans, up 18 percent from 63.631 million last year, the USDA said today in a report. Spring-wheat planting will jump 7.8 percent, as corn planting drops 8.1 percent and cotton acres fall 13 percent, the USDA said.
  • Increased soybean and wheat planting may help refill dwindling inventories, while declining corn output may squeeze supplies available for ethanol makers, including Archer Daniels Midland Co. Prices for most farm commodities reached records this year on booming demand for food, fuel and animal feed.
  • ``The acreage shift into soybeans and away from corn was larger than people expected,'' said Greg Grow, director of agribusiness for Archer Financial Services. ``The markets sense we now need to raise corn prices at the expense of soybeans,'' to increase the incentives for farmers to plant corn this year, Grow said.
  • Soybean acreage also may increase because the crop produces its own nitrogen fertilizer, making it less expensive to grow than corn. ``Corn is a crop that has much higher input costs, especially with regard to nitrogen that is now over $900 per ton,'' said Joel Karlin, a product manager at Western Milling in Goshen, California. ``Soybeans are a good option for those that want to replenish the nitrogen in their soil.''
  • Corn is the biggest U.S. crop, valued at a record $52.1 billion in 2007, followed by soybeans at $26.8 billion. Wheat was in fourth place, behind hay, with a value of $13.7 billion.
  • The USDA said 9.39 million acres will be planted with cotton this year. That's down from a forecast of 9.5 million acres last month and 10.83 million acres planted last year, as growers plant more valuable crops.

Reuters: Tensions Rise as World Faces Short Rations

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I've posted comments about the coming food crisis for many months - and quite a few just last week. I plan to continue to, as I am reading it almost nowhere in the investing "world" - outside of the social acrimony, this has the potential to be very destabilizing to many of the areas, frankly, I like to invest in, so it's a big issue. Maybe this will be my Peter Schiff issue - the one I called early that when it comes to fruition will draw me nationwide fame and accolades? Somehow I think not. But at least you'll know first...

Remember, my key terms here are "agflation" and "food protectionism" (the latter being when countries start to horde their own resources). I need to create a new blog label for all the entries on this topic as it's becoming a pervasive theme - I think I'll go with food crisis. Again the scary thing is... we are just beginning down this crisis. This could be Darwinism playing out in front of our eyes in the years ahead - only the limiting factor will be wealth. If you're poor, your done - if you're not you survive. Scary stuff.

Tensions Rise as World Faces Short Rations
  • Food prices are soaring, a wealthier Asia is demanding better food and farmers can't keep up. In short, the world faces a food crisis and in some places it's already boiling over. Around the globe, people are protesting and governments are responding with often counterproductive controls on prices and exports -- a new politics of scarcity in which ensuring food supplies is becoming a major challenge for the 21st century.
  • Plundered by severe weather in producing countries and by a boom in demand from fast-developing nations, the world's wheat stocks are at 30-year lows. Grain prices have been on the rise for five years, ending decades of cheap food.
  • World population is set to hit 9 billion by 2050, and most of the extra 2.5 billion people will live in the developing world. It is in these countries that the population is demanding dairy and meat, which require more land to produce.
  • "This is an additional setback for the world economy, at a time when we are already going through major turbulence. But the biggest drama is the impact of higher food prices on the poor," Angel Gurria, head of the Organization for Economic Cooperation and Development, or OECD, told Reuters.
  • Global food prices, based on United Nations records, rose 35 percent in the year to the end of January, markedly accelerating an upturn that began, gently at first, in 2002. Since then, prices have risen 65 percent.
  • In 2007 alone, according to the U.N. Food and Agriculture Organization's world food index, dairy prices rose nearly 80 percent and grain 42 percent.
  • "The recent rise in global food commodity prices is more than just a short-term blip," British think tank Chatham House said in January. "Society will have to decide the value to be placed on food and how ... market forces can be reconciled with domestic policy objectives."
  • After long opposition, Mexico's government is considering lifting a ban on genetically modified crops, to allow its farmers to compete with the United States, where high-yield, genetically modified corn is the norm. The European Union and parts of Africa have similar bans that could also be reconsidered.
  • A number of governments, including Egypt, Argentina, Kazakhstan, and China, have imposed restrictions to limit grain exports and keep more of their food at home. (food protectionism) This knee-jerk response to food emergencies can result in farmers producing less food and threatens to undermine years of effort to open up international trade.
  • "If one country after the other adopts a 'starve-your-neighbor' policy, then eventually you trade smaller shares of total world production of agricultural products, and that in turn makes the prices more volatile," said Joachim von Braun, director general of the International Food Policy Research Institute in Washington. (it is human nature to self preserve and take care of your own, so I believe this is the path we are destined for)
  • In Argentina, a government tax on grain led to a strike by farmers that disrupted grain exports. Vietnam and India, both major rice exporters, announced further curbs on overseas sales on Friday, sending rice higher on U.S. futures markets.
  • In the next decade, the price of corn could rise 27 percent, oilseeds such as soybeans by 23 percent and rice 9 percent, according to tentative forecasts in February by the OECD and the U.N. (I think a lot more than that)
  • Waves of discontent are already starting to be felt. Violent protests hit Cameroon and Burkina Faso in February. Protesters rallied in Indonesia recently and media reported deaths by starvation. In the Philippines, fast-food chains were urged to cut rice portions to counter a surge in prices.
  • The Chinese, whose rise began in earnest in 2001, ate just 20 kilograms (44 pounds) of meat per capita in 1985. They now eat 50 kilograms (110 pounds) a year. Each pound of beef takes about seven pounds of grain to produce, which means land that could be used to grow food for humans is being diverted to growing animal feed.
  • As the West seeks to tackle the risk of global warming, a drive towards greener fuels is compounding the world's food problems.
  • "Turning food into fuel for cars is a major mistake on many fronts." said Janet Larsen, director of research at the Earth Policy Institute, an environmental group based in Washington. "One, we're already seeing higher food prices in the American supermarket. Two, perhaps more serious from a global perspective, we're seeing higher food prices in developing countries where it's escalated as far as people rioting in the streets."
  • Similarly, palm oil is at record prices because of demand to use it for biofuel, causing pain for low income families in Indonesia and Malaysia, where it is a staple.
  • But despite the rising criticism of biofuels, the U.S. corn-fed ethanol industry enjoys wide political support because it boosts farmers, who suffered years of low prices, and that support is likely to continue. [Mar 27: Farm Lobby Beats Back Assault on Subsidies]
  • John Bruton, the European Union's Ambassador to the United States, predicts that the world faces 10 to 15 years of steep rises in food costs. And it is the poor in Africa and, increasingly, South East Asia, who will be most vulnerable. (but they don't buy stocks, so nothing to worry about)
  • "It's actually the greatest time in the world to be a farmer around the world," Babcock said. "We are going to see fairly substantial increases in production because farmers have never had such a large incentive to increase production."
  • But others note that expensive seeds and fertilizers are out of reach of farmers in poor countries.
  • Around the beginning of the 19th Century, British political economist Thomas Malthus said population had the potential to grow much faster than food supply, a prediction that efficient farming consistently proved wrong. Now, at the beginning of the 21st century, some are revisiting his predictions.
Posts just from last week on the subject
  1. Mar 24: UN Agency Appeals for $500M to Avoid Food Aid Cuts
  2. Mar 25: This Day in Agriculture
  3. Mar 26: US Government's Humanitarian Relief Agency Cutting Back
  4. Mar 27: UN Report: Asia Faces Jump in Food Costs
  5. Mar 28: This Day in Food Crisis - Rising Rice Prices Spark Concern Across Asia
These stories and my downbeat long term outlook on this crisis are the bedrock for the thesis to continue to invest in the entire agriculture theme, specifically the fertilizers and (once hedge funds are done playing with it) back into the Powershares DB Agriculture Fund (DBA).

So at this point it appears the only ones stressing this are Cramer, me, and Don Coxe [Jan 18: One Lonely Voice Agrees with Me on Food Inflation]. January was about the same time the very first inklings of this problem finally started hitting the press [Jan 21: Food... Food... Food], but it still appears to be largely ignored. The warning signs of this potential uptick in agflation is the main reason I have been watching the main US food producers (Smithfield Foods (SFD), Tyson Foods (TSN), Pilgrims Pride (PPC), and Sanderson Farms (SAFM)) as far back as last summer at the beginning of the blog. Remember, my next prediction is a future shortage of beef.... that might take 9-18 months to play out... but as it becomes more expensive to raise cattle, they will get slaughtered in larger numbers *now* causing a shorter term glut and suppressed prices, but potentially leading to a longer term shortage as the economics simply do not work without a meaningful increase in prices (which US consumers will at some point balk at due to their stagnant real (inflation adjusted) wages).

Inflation - it is truly the most sinister of taxes...

Classic Example of Analysts Overexuberance

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From this quick Reuters article, comes exactly the reason that the US stock market is NOT "cheap" as pundits continue to cry out across the financial media. I've been saying since last year 2008 estimates for any company touching the domestic economy are too high, and will get slashed as the year goes by. But we will go through denial stage (remember most economists in most major firms did not even begin calling for even a potential for recession until December 2007!) ... and we continue to go through denial stage as the mindset now has only fallen to "a mild and short recession".

To see this earnings degradation starkly in just the first quarter (current quarter) here is the progression by 'consensus' (the herd got it very wrong)
  • At the beginning of the quarter, analysts projected 4.7 percent earnings growth during the period. (folks that is 3 months ago...)
  • Last week? 5.5 percent decline projected
  • This week? Earnings for Standard & Poor's 500 companies are now expected to fall 8.1 percent in the first quarter
So in the span of 3 months we have a 12.8% swing in earnings projections - and that's for the 1st quarter which in THEORY should be the easiest to project for companies and analysts since it's the nearest to when they made said projections. If they are that wrong on Q1 how wrong do you think they will be on Q3 and Q4? I've been warning about this incessantly and will continue to warn because 2nd half 2008 projections are far too high (they are built on the "2nd half recovery" thesis) - and as they fall, if the market has any efficiency left in it, stock prices should as well. And no, these earnings shortfalls coming in the 2nd half of 08 are not "already built into stock prices". We did not even accurately build in earnings shortfalls 3 months ago. That doesn't mean we go straight down (or up) in the stock market; it simply means this is going to be a tough year, unless you believe P/E ratios expand at the same time earnings expectations fall (thus holding prices steady). Once again, the canary in the coal mine are these retailers who are beginning to simply pull future guidance altogether since it is pure guesswork at this point. Anything levered to the US consumer remains at serious risk... this is why all these "early cycle" rallies are pure folly when analyzed with any rigor.

Sunday, March 30, 2008

Job Market 2009

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I found this video on Toro's blog, and it is laugh out loud funny... unless you're a white collar professional in finance that is ;) The exact reversal of 2004-2006 - my how quickly things change ...


Howard Davidowitz on US Consumer

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I couldn't copy this over to the blog but here is a 4 minute audio file worth listening to... kind of funny to hear this in a NY accent - makes it sound even more ominous! :)

Same ideas we've been discussing for a long time - consumer under major duress and discretionary spending will be going down the tubes as people flee to bulk warehouses and Walmart... as I keep saying, all the current focus is on saving the banking system, but we have a "minor" problem called a consumer led recession that is being completely ignored. But since the bailout of the over levered, risk loving NYC bankers is the important thing that leads to the wall to wall CNBC coverage ;)

Thankfully "everything will be fine in 6 months" (post government bailout of home mortgages)... or I'd be worried.

"In this kind of economy, with the consumer so scared, we're going to see companies like Penney in big trouble," says retail consultant Howard Davidowitz. The chairman of Davidowitz and Associates says J.C. Penney's slashed profit forecast reflects a consumer who's limiting his spending to necessities. "The things Penney sells are optional," says Davidowitz. "You've probably got 24 sweaters in your closet. You can live without another one."

Time to Enter Vimpel Communications (VIP)?

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I'm starting to get very interested in Vimpel Communications (VIP), a Russian mobile (moving to integrated) telecom player. I've invested in this stock a long time ago in my personal account (2004-2005 time frame) and after falling asleep a few times watching it do nothing, sold it off - of course much too early. Starting in middle 2006 it's rocketed, along with its peer Mobile Telesystems (MBT). The pickings in US listed Russian stocks are extremely limited; most choose to list in London (I suppose its a Cold War thing...). Many stocks are also simply a proxy on the energy trade, of which there are easier ways to play then going through Russia. I've also had my beefs with the way business is run in Russia, but upon reflection and watching how the US business world works, I can't really say we are not throwing rocks from our glass house to criticize any other economic/political system, after what we do in our system that generally transfers wealth up to the elite few (no different than Russia, just with better packaging).

First, let me preface this by saying I don't touch US based telecom because it's a saturated market, and I like secular growth. I even have been a bit wary of international telecom because frankly it seems to go from growth to saturation quite quickly, and Russia is already appearing to be hitting that situation; but some of the moves from Vimpel of late have been interesting, especially it's move to become an integrated player combining land line with its mobile business, creating the potential for "package" services that are very popular in the US. Back in late December, Vimpel announced a $4.3B deal to buy Golden Telecom - that pretty much marked the top in Vimpel stock price, north of $45.
  • Russia's OAO Vimpel Communications agreed to buy broadband and fixed-line operator Golden Telecom Inc for about $4.3 billion. Under the deal announced Friday, VimpelCom will pay $105 for each Golden Telecom share, a 5% premium to where the shares closed Thursday.
  • The deal gives VimpelCom, Russia's second largest mobile operator, a foothold in Russia's growing market for broadband, as well as the slowing business of fixed-line telephony. Golden Telecom is also Russia's largest player in the business of providing telecommunications services to businesses.
As usual, the minute a deal is announced the acquirer gets struck down, and seems to have a ceiling on it's stock price - in Vimpel's case, it's been an even uglier road as the company has lost over 35% of its value in just over 3 months. But the transaction completed in late February 2008 so that overhead should begin to dissipate. Even as recently as a month ago the stock was near $39, but a "disappointing" earnings report mid month along with general retrenchment from the Russian market has booted the stock. By disappointing I mean "wonderful growth numbers but not good enough for analysts".... a typical situation on Wall Street. My 2 risk factors are relative saturation of the Russian mobile market, plus degrading margins (in this case attributed to stock based compensation)- but the risks at $29 should be far less than the risks at mid $40s or mid $30s.
  • Vimpelcom (VIP), Russia's No.2 mobile phone operator, on Wednesday posted an 86 percent jump in fourth-quarter net profit but fell short of market expectations and saw its shares fall by about 5 percent.
  • The net profit, in U.S. GAAP terms, was up to $368.1 million against an average forecast of $401.5 million in a Reuters poll of nine analysts.
  • The OIBDA margin fell to 45.7 percent from 47.5 percent a year ago, below analysts' forecasts of about 49.3 percent.
  • "This shortfall to expectations was primarily due to higher than expected expenses related to stock-based compensation for management, which is a non-cash and non-recurring item," analysts from Uralsib Bank wrote in a results review.
  • Vimpelcom's Chief Executive Officer Alexander Izosimov told reporters the expenses amounted to $118.7 million in the fourth quarter, up by $78.2 million from the third quarter and by $94.5 million over the fourth quarter of 2006. "As the share price rose by more than 50 percent in the fourth quarter, allocations to stock-option programmes increased. This has no burden on the company's cash flow," Izosimov said.
  • Without those expenses, Vimpelcom's OIBDA margin would have exceeded 50 percent, the company said.
  • Vimpelcom, owned by Russian Alfa Group and Norway's Telenor , said revenues were up 38 percent to $2.01 billion, but again missed the analysts' average forecast of $2.025 billion.
  • The average monthly revenues per user (ARPU), an indicator of client quality, rose in Russia to $13.50 from $10.90 in the fourth quarter of 2006 and was slightly higher than a poll figure of $13.40. In Kazakhstan, Vimpelcom's second-biggest market, the ARPU fell to $13 from $13.80, above a market view of $12.60.
  • In 2007 as a whole, Vimpelcom's total revenues rose by 47.3 percent to $7.17 billion, while OIBDA amounted to $3.6 billion.
  • "The main potential for growth is in broadband Internet. Growth will be rapid, similar to what we saw in the mobile phone market," Izosimov said.
Golden Telecom also appears to be quite a healthy company...
  • Russian fixed-line telecoms operator Golden Telecom, which has been recently acquired by Vimpelcom (VIP.N), said on Tuesday its full-year 2007 net profit rose by 78 percent to $152.6 million.
  • The company said in a regulatory filing its 2007 revenues, to U.S. GAAP, rose 51 percent to $1.29 billion from $854.62 million in 2006.
These are just not the type of numbers you see in US based telecom.... or Western Europe. And the Crackberry is coming to Russia through Vimpel as well...
  • Subscriber growth has slowed in Russia, where most people already use cell phones. But users there are burning up more minutes on mobile phones and sending more text messages, boosting the company's revenue. Izosimov wants to keep moving in that direction.
  • And VimpelCom plans to start selling Research In Motion's (NasdaqGS:RIMM) BlackBerry devices in Russia in early 2008.
  • "At first, it looks like a luxury category to the population. Then, it becomes absolutely normal because disposable income reaches a certain level. There's a lot of intrinsic value in the communications (ability) we provide."
  • Izosimov says wireless usage has boomed even in Kazakhstan, where food inflation has roiled consumers. In 2008, he says, VimpelCom will focus on adding more high-spend customers in Kazakhstan, not just subscriber growth.
  • In Ukraine, though, VimpelCom will be focused on grabbing market share. VimpelCom has 2.2 million active subscribers in Ukraine and needs to double that, he says.
  • VimpelCom hopes to get a lift from entering its first market in Southeast Asia in 2008. It's in talks for a joint venture in Vietnam.
Technically, the chart is at an interesting place. The stock has pulled back all the way to its 200 day moving average which is a key technical support/resistance level. A break through this level and the stock could break down much further - a bounce off this level, and we should be in good shape. $29 is also the area the stock sold off to in the January panic, so it is again - simply a key technical level to hold. If we do get a rebound here the $34s provide some resistance as the 50 day moving average is there (and falling sharply by the day).



In terms of profits, we are looking $2.00 in 2008 EPS and $2.50 for 2009 - I would anticipate a 18-22% type of growth rate for the next few years as mobile (and land line) slow down to saturation but broadband starts to take off in mother Russia. So we have a forward P/E ratio of 14.5 compared to Mobile Telesystems (MBT) sub 12, but Vimpel has (in general) the better operational metrics.

I will be watching Vimpel for a reversal off of these levels, and be interesting in buying north of $30-$31 or if there is a break of this support level (from which the stock could drop quite a bit to reach any new support). But from a fundamental point of view, while saturation always overhangs any telecom player, the macro trends of natural rich Russia will probably lend to an easier time on the middle class of that country relative to the US in the next few years - despite the dysfunctional governments of both.

Long Research in Motion in fund; no personal positions

Bookkeeping: Weekly Changes to Fund Positions Week 34

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Week 34 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: 27.4% (vs 8.5% last week)
56 long bias: 48.5% (vs 84.4% last week)
6 short bias: 24.1% (vs 7.1% last week)

62 positions (vs 64 last week)
Additions: N/A
Removals: KHD Humbolt Wedag (KHD), MFA Mortgage Investments (MFA)

Top 10 positions = 35.8% of fund (vs 36.2% last week)
29 of the 62 positions are at least 1% of the fund's overall holdings (46.8%)

Major changes and weekly thoughts
The markets continue to trade in listless fashion in my opinion, and we remain in no man's land. After a large rebound post Federal Reserve actions, we seem to be heading back to reality. But what we see now is really nothing new from what we've been seeing for months on end so I have nothing really to add at this point. Congress comes back to work Monday so the drumbeat for homeowner bailouts will continue constantly and when it eventually does come to pass (and some form of it will), the market will rocket as losses will have been passed from the capitalist system to the taxpayer's back (I mean at the debt levels we are at, whats another few hundred billion). And so we'll cheer as investors. That, sadly, is pretty much the roadmap to "victory" for investors at this point. Rob one of your pockets to pay the other.

As I've been stating constantly this week, due to the huge imbalances on both sides of the ledger (downside risk due to "economic reality" combined with "credit contagion" versus upside risk due to "multiple interventions of various types") there is no clear path. Both longs and shorts have risk, longs from natural course being allowed to play out, and shorts from unnatural meddling from outside the system. More important than fundamentals, or risk assessment or any form of analysis - is the simple question of "is the government bigger than the system". Sadly, this is what our markets have devolved to. I don't have any answer so I continue to play conservative and watch sadly as it all plays out. Remember, every form of government intervention into the system i.e. reducing balances on mortgages - raises 20 new unintended consequences... i.e. if we reduce balances now and tell homeowners, don't worry about that $300K you own, it's now down to $200K - what do we say in a year if home prices continue to fall? Another round of principal cuts? And whom exactly qualifies? And how do we ever speak with a straight face to any other country about their need to "let market forces work"? So many thorny issues but I guess a central command economy brings those questions we need to now find answers to. I expect to see continued raging battle between market economic forces (deflation of capital/credit system) vs government interventions being a theme for a long time. We'll see how the market accepts the new round of financial writeoffs relatively soon. Remember, the one thread holding this all together is the belief in powers of the Federal Reserve. If that belief system is shaken, we have a lot to fear. As readers, just keep in mind, you are living through times that are simply historic and the pros/cons of the actions taken by the powers that be will be analyzed and debated for many years to come. We are in a new era. [Mar 22: A Historic 9 Days for the Federal Reserve]

I continue to focus outside the US, and on companies with customers who actually have bright prospects instead of relying on government interventions. Most weeks it works; some weeks (such as last week) when government intervention is cheered and the Kool Aid of a booming consumer coming back in "6 months" it does not. I continue to believe it will work more weeks than not, but I also believe at some point the sheer avalanche of government interference plus liquidity thrown into the market will push every asset up, at the cost of inflation to the man on the Street. But as cold hearted capitalist (who happen to live on Main Street) we have to simply wait for that moment and rejoice in our investor brain while being dismayed with our regular Joe brain. Sadly, most of the regular Joes do not participate in the market except for their $3600 balance in their 401k, so they will only feel the negative effects. But this is the system, so we play by it.

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 the S&P made a valiant move upwards towards the 50 day moving average, I took a slew of sales in 12 names, assuming this move would fail - while beginning to slow build up my short exposure which entered the week at only 7%. I will continue this strategy over and over (and over). Just like in a bull market, I'd be buying dips into the 50 day moving average, in a bear market I am doing the exact opposite and I will be selling moves up. One day it will be wrong to do so, and I'll miss some gains and have to reverse course. Just like in January 2008 it was wrong to buy the dip as we turned from a bull market, officially to a broken bear. [Jan 16: S&P 500 in Worst Condition in Half Decade]. When those "turns" happen, we'll trail the market for this short period, but they happen very rarely - and the most dangerous thing to investors is to listen to these serial "bottom callers". They've now been wrong for nearly half a year, since the early October highs. By the time they are correct, most of your capital will be wiped out. Remember, almost every pundit you hear has a vested interest in keeping you in the market and buying stuff - Wall Street is a game of selling junk and gathering assets - so of course "hope" is the main thing sold. This is why the market can be so confusing to anyone who doesn't know what is happening behind the scenes. It's basically a used car lot full of people with shiny MBAs and fancy titles. One day this "bottom is in call" will be correct and they'll come on TV or on their websites and say "I TOLD YOU SO!". Continue to smirk and move on.
  2. I exited KHD Humbolt Wedag (KHD) on its 13% pop. I continue to like this Hong Kong based infrastructure company but want the market to recognize some value in this name, instead of trashing it constantly. With my purchases of some smaller Asian market ETFs and natural gas stocks last week, I am starting to get a larger portfolio than intended in terms of # of names, so I used this week to begin culling some of the smaller stakes. This was one.
  3. Tuesday, since I was confused about the near term prospects of the market, I sold off some of my commodity exposure and began a move to high cash position. The charts for gold, silver, crops, and the like - while rebounding this week - looked prone to more profit taking and with yet another variable we have no control over (hedge funds forced to liquidate by antsy banks) the risk factor continues to be as high as I can ever remember it (in both directions). Until fundamentals matter again, it is just hard for an investor such as myself to make any sense of this type of market where bipolar changes of 180 degrees happen nearly daily.
  4. Wednesday, I took Goldman Sachs upgrade of the coal names as an opportunity to lighten my exposure. Again, I still like the fundamentals, and long term - but this is risk aversion - and a market where fundamentals mean little. Many of the coal stocks broke back below their 50 day moving average and spent most of the week trending back up towards it, but still sit below. I'd like to see them move above and stay there before expanding my exposure.
  5. I continued to add short exposure Wednesday as we seemed to have once again began a failure of breaking through the 50 day moving average on the S&P 500, and created the 8th lower high since October 2007 - I added as the week progressed across all 6 names.
  6. I closed MFA Mortgage Investments (MFA) - the stock has rebounded (some) from a very rough patch but with the prospects for more credit market dislocations I don't want to take the risk. I bought this name so I could get exposure to the "homebuilding/mortgage" rebound fluff without direct exposure to the homebuilders themselves, but frankly it appears safer to buy homebuilders than any 2nd degree or 3rd degree related stocks. By 2 forays have been disasters.
  7. Thursday, I added to one of my "placeholder" positions (position so small, I am simply keeping them in the fund waiting for a catalyst) in Huron Consulting (HURN). The stock fell 30% on an earnings warning, so I took the opportunity to materially increase my exposure at what is hopefully a low price. While the bottom might or not might be in, I'd rather own it at $40 than $60.
  8. I cut heavily into both of my solar names into the 3 day rally this week - Trina Solar (TSL) and LDK Solar (LDK). These stocks are explosive when they do move, but for many months they have been moribund. Despite difficult fundamentals, in my opinion, I expect the speculators to ignore any fundamental issues dealing with the tight polysilicon market and run these stocks up in a massive way at some point in the next 3-6 months. Just a question of when and from what price point they start. I'll be looking to add back to these 2 positions on a pullback, along with expanding to another name or two to rebuild my "solar basket" on a material pullback in the space.
  9. Friday, I cut back my crop ETF - Powershares DB Agriculture Fund (DBA) - I will sound like a broken clock but risk of hedge fund locusts simply overwhelms return potential at this time. I used to use this ETF as an alternative to cash but at this point until the coast is clear in terms of hedge fund behavior I'll stick to real cash. We have a crop report coming Monday which people will obsess over but frankly all it takes is some bad weather and these crop prices will ramp again - no crop report or allocation study is going to tell us where things will be in 2 months, 4 months, or 6 months but knee jerk reactions are the way of the Street so I'll step aside from now and look to return in the future.
  10. I did sell down my Foster Wheeler (FWLT) exposure throughout the week as the stock rebounded smartly from its ridiculous fall to mid $40s last week, to near $60. In this market I am going to take those quick gains and head to the exit. I'll look to add at lower prices.

81 Stock Returning 9%+ this Week

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Despite the indexes not showing much action, a lot of churning under the surface as risk taking appetite appeared to increase, and many stocks shunned for 2 months were favored by the speculative set - showcased by moves back into some high beta technology, Chinese stocks, and solar. A big push back into smaller types of companies as this list is heavily weighted with stocks in the $2-$3B market capitalization range. I continue to find it interesting to see when the solar stocks move, they move en masse - without any differentiation - which makes this group still seem risky to me - there cannot be 100 winners in solar but they are treated all the same 90% of the time - either they are all "bad" or "good", depending on the mood of the market. This would highlight investors clearly have no way to determine the ultimate winners or losers in this group so they run up (or sell off) everything together. Last, the "commodities are dead" trade that was so popular last week, lasted all of 3 days - as it was reversed this week.

One group that caught my eye that has been dead for a long time are the land based US focused driller - Nabors, Patterson-UTI, et al. These have struggled for a long time but finally broke out this week, perhaps on the strength of the natural gas trade.

As always, criteria for the list below
  1. Market cap >$2B
  2. Stock price $10+
  3. Average volume 100K+
  4. Return 9%+
Green we own; blue we have owned in the past or discussed

Symbol Company Name % Price 1 Week
GU Gushan Environmental Energy Ltd 50.8
CLWR Clearwire Corp 38.4
STP Suntech Power Holdings 33.5
RMBS Rambus Inc 28.8
JASO JA Solar Holdings Co Ltd 26.8
LDK LDK Solar Co Ltd 25.6
YGE Yingli Green Energy Holding Co Ltd 23.5
SPWR SunPower Corp 20.7
CIT CIT Group Ord Shs 20.5
HK Petrohawk Energy Corp 19.2
GA Giant Interactive Group Inc 18.6
PTEN Patterson-UTI Energy Inc 18.5
FSLR First Solar Inc 18.1
MON Monsanto Co 17.7
CLR Continental Resources Ord Shs 17.3
BJS BJ Services Co 17.2
WLT Walter Industry Ord Shs 16.3
ANR Alpha Natural Resources Inc 16.1
EQIX Equinix Inc 15.4
WBD Wimm-Bill-Dann OAO 14.7
MOS Mosaic Co 14.6
PDS Precision Drilling Trust 14.1
CY Cypress Semiconductor Corp 13.8
VRTX Vertex Pharmaceuticals Inc 13.4
MDR McDermott International Inc 13.3
WHQ W-H Energy Services Inc 13.1
EAC Encore Acquisition Co 12.6
MXIM Maxim Integrated Products Inc 12.6
BRCM Broadcom Class A Ord Shs 12.5
TLM TALISMAN ENERGY INC 12.3
SPN Superior Energy Services Inc 12.2
OII Oceaneering International Inc 12.2
CTRP Ctrip.com 12.2
DRC Dresser-Rand Group Inc 12.1
TCK Teck Cominco Ord Shs Class B 12.0
LEAP Leap Wireless International Inc 11.9
AZ Allianz ADR Reptg One Tenth Ord Shs 11.9
WFT Weatherford International Inc 11.8
SM St Mary Land & Exploration Co 11.6
CEO CNOOC ADR representing 100 Class H Shares 11.6
MEE Massey Energy Co 11.4
MR Mindray Medical International Ltd 11.4
POT Potash 11.3
SNDA Shanda Interactive Entertainment Ltd 11.2
CENX Century Aluminum Co 11.2
WTI W&T Offshore Inc 11.1
CBI Chicago Bridge & Iron Co NV 11.1
COG Cabot Oil & Gas Corp 11.0
AG AGCO Corp 10.9
FCX Freeport McMoRan Copper & Gold Ord Shs 10.9
RIO Companhia Vale Do Rio Docea 10.8
HTZ Hertz Global Holdings Inc 10.7
BGC General Cable Ord Shs 10.6
APA Apache Corp Ord Shs 10.5
AAUK Anglo American ADR 10.5
BEAV BE Aerospace Inc 10.4
ACGY Acergy ADR 10.4
CPN Calpine Ord Shs When Issued 10.4
CPNZV Calpine Ord Shs When Issued 10.4
RDY Dr Reddy Labs Depository Receipt 10.3
PT Portugal Telecom Sponsored ADR 10.3
ABB ABB Ltd Depository Receipt 10.3
NOV National Oilwell Varco Inc 10.2
IBN ICICI Bank ADR representing 2 Ord Shs 10.1
TNH Terra Nitrogen Co LP 10.0
QGEN Qiagen NV 10.0
SWN Southwestern Energy Co 10.0
NBR Nabors Industries Ltd 9.9
RIMM RESEARCH IN MOTION LIMITED 9.9
TDW Tidewater Inc 9.8
TI Telecom Italia ADR rep 10 shs 9.8
NTES Netease.com Inc 9.7
WLL Whiting Petroleum Corp 9.7
X United States Steel Corp 9.7
ATW Atwood Oceanics Inc 9.5
DNR Denbury Resources Inc 9.5
ACI Arch Coal Ord Shs 9.4
KB Kookmin Bank ADR 9.4
ACH Aluminum Corporation of China ADR 9.4
FST Forest Oil Corp 9.3
KWK Quicksilver Resources Inc 9.1

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