Bookkeeping: 'Rising Tide' Performance Week 39

Week 39 performance of the mutual fund

Comments: We closed "our" 3rd quarter with yet another week of hear no evil, see no evil. Any good news was great, and anything bad was "not as bad as expected"; hence by transitive theory - also great. Summary: Everything is great. Or will be in 6 months. I've been stating for a long while that the massive systematic inflation (increasing our money supply of late at a rate of 20%) will cause every finite asset to increase over and above it's true value (including stock certificates), and I believe that factor... along with the large cap, multinational strength (who don't need Americans) can keep this market elevated to a large degree. Offsetting that is the weakness in any company facing the US economy without foreign exposure but in "early cycle" moments like we are now, those are in fact the best performing stocks as the market is "forward looking" and can clearly see the great recovery of September 2008 - so the whole market celebrates at those times. Personally what I envision is a long sideways period with a wide range of maybe 20-30% up or down... but no real progress. Hope and inflated asset values (Fed will be printing hard core well into 2009 in my opinion) will keep us up, and the real economy will keep dragging us down. So a few more years of sideways - I mean what's a few more years between friends when we've already lost the first 8 years of this decade? [March 28 WSJ - Stocks Tarnished by Lost Decade] And they said we'd never turn into Japan (who has been in a rut for 2 decades).... well one decade down, 1 to go and we'll catch up!

Since we are not going to change focus 180 degrees for a 5-8 day "early cycle" party, while we called this sector rotation last week, we simply cut back on long positions (which would be sold off during "early cycle, strong dollar" party time), and bought a few names that would participate in said party. If this party lasts as long as the previous ones, we should be nearing midnight... as with the "bottom is in financials" party... of which the time/date was incorrectly posted by CNBC at least 7 times the past 8 months... the "early cycle" party has now been postponed at least 4 times... so now we are in the 5th time... I am sure the 6th time should arrive about a week before the NEXT Fed meeting when Uncle Ben will fight inflation by holding rates steady and furrowing his brow. This will cause inflation to crumble in the States. And the dollar to rocket. He might also write 2 sentences about inflation in his statement. That would cause inflation to leave Earth and move to Mars.

It is still earnings season which is hard to remember, in all the fuss about the "inflation fighting" mid week, but we've continued to (knock on wood) by and large avoid any earnings blowups (hard to do with 50-55 longs) - we did have an incident with Chicago Bridge & Iron (CBI) but she was promptly shown the door after costing us $4K mid week. We actually had some huge % winners this week but most of those names were very small holdings, mostly in China so the overall fund did not advance much off these winners. We did catch a nice trade in Gafisa (GFA), but for the most part we were expecting this sort of "rotation" week as Uncle Ben "fought inflation" by cutting rates 25 basis points and signaled his utmost concern for inflation by typing 7 words about it. This was enough to set off the bevy of NYC traders into "strong dollar is here, Fed is gonna kill inflation now" mood. As always, it's silly but we must wait patiently for our stocks to get trashed those weeks, until sense comes back to the market and the same winners continue forward to be future winners. We did get some nice rotation into tech this week as well, which has been a huge laggard this year but aside from 4-5 names I cannot find any true secular growth stories in that sector - it has become a very cyclical business living off its old glory days. But that doesn't matter on weeks like this one. Our commodity based stocks took a hit, and 7 of the 8 Ultrashorts we carry took hits (especially the ones betting against "early cycle")... we did get some rally on Friday in the coal names but this was just not a week that benefited our type of holdings by and large, as our financials/homebuilders/tech stocks don't offset the rest...

So from here where do we go? We've had the "strong dollar" rally take place - retailers have ramped huge on the riches coming to them from rebate checks, etc etc. Restaurants are flying... I guess people think that's where the rebate checks go next... homebuilder booming... I mean that's where the rebate check goes next (do you notice how every group is really needing that same $600 check?) I think most of this is already priced in and I expect sooner rather than later (by middle of the month, no later) a reversion back to "weak dollar" plays - I mean just today the Fed signaled its "inflation fighting" by agreeing to send out billions more US Pesos in exchange for bonds loaded with auto loans, credit card debt, and student loans. More "strong dollar" ammo. In essence the whole strong dollar theory is: the US Fed is so awesome that it happily threw its middle and lower class under the bus... unlike those stingy Europeans who are still considering HIKING rates [Apr 22: Euro Hits $1.60 as ECB Hints at Rate Hikes].... therefore we will be the FIRST to get back to a "high growth" (read: building homes) economy, while the Europeans struggle with 1-2% growth with less inflation.

Now why would the Europeans consider raising interest rates in their slowing economy? That's not what banks do - they usually LOWER rates in a slowing economy. But you see - these Europeans live in a parallel universe and have a little problem called inflation - luckily our immigration control keeps inflation out of our country; so we don't have the same issue every other country on the globe has. This allows us to cut rates as much as we want. Well that's not completely true - see sometimes inflation sneaks in and our companies complain about how their input costs are rising through the roof... but we have a magic thing called "government reports" and by the time that little bugger meets "the Eraser" (tm) aka government reports.... well inflation just goes away i.e. deported. Anyhow back to the theory.... Since we are SO far ahead of the curve (i.e. our central bankers are soooo smart) and flooded the world with Pesos, it only stands to reason that those laggard Europeans whose economy will slow in the future must now follow our path of easy money. So when they throw their lower and middle class to the wolves with cuts (causing an outflow from their currency), our mighty dollar will rise since our low rates won't seem "so bad" compared to the Euro's rates! Yippee! The race to the bottom (who has the worst currency) will begin anew! Gooooo TEAM USA! It sounds like I am being sarcastic, but folks -- this is truly the reason why people think the US dollar should go up.

Technically the indexes, buoyed by the news of our no/low inflation, full employment economy took stocks up and up... we finally broke out of a long range and crossed over 1400/1405 on the S&P 500. Next resistance is the 200 day moving average up there in the 1430s. But another week of hear no evil, see no evil should get us there... as long as the cult believes that the 2nd half will be a recovery period than we can continue on up... forever. Until evidence comes in to the contrary. But that won't arrive until October 2008 (Q3 earnings). Or January 2009 (Q4 earnings). And by then the herd will have switched to "yeh we were wrong about the 2nd half recovery but now we have the 1st half 2009 recovery"... see, it never really ends. Now if the herd does get their wish about a stronger dollar, than the only oasis in earnings (international sales, and weak dollars) suddenly goes away.... and we're left to rely on (dramatic music here) the American Consumer. Eek! But we can't be worried about that... it's all about the strong (cough) dollar. Keep in mind when CNBC says strong dollar they are simply upgrading the dollar from "near death" to "we removed the breathing tubes". That's strength nowadays. So we'll get back to the circus next week, and see how the market treats its 200 day resistance (about 1435). As I stated above, we could conceivably rally from here to year 2041 on the "2nd half recovery" theme.... I cannot predict when reality will slap the market in the face - even when it does I expect the downfalls to be cushioned by a flood of US peso so falling below January 2008 lows will be tough to do. Keep in mind that Uncle Ben has created US Pesos at a run rate of 20% annualized since Jan 1, 2008 so we'll have 1 new Peso to balance every 5 we used to have by Dec 31, 2008 - that's one way to make sure the market never falls again! not that that causes inflation or anything... just sayin'. [Apr 4: To the Newbie Economists Out there - a Horde of Helicopters has Moved In]

This week both the S&P 500/Russell 1000 gained 1.1% ; Rising Tide Growth Fund lagged with a -0.8% return, so we have up ground both on a relative (vs indexes) and absolute basis. This was another week where hedging positions with shorts & cash hindered more than helped. With that said, I am loving the top holdings in the fund on a 1 year basis. For the next week? They could all be trashed to the tune of 10% for all I know.

Price of Rising Tide Growth: $11.723
Lifetime Performance to date (vs Aug 3, 2007): +17.23%

Comparable S&P 500: 1,413.9 (-3.50%)
Comparable Russell 1000: 771.0 (-3.16%)

Fund return vs S&P 500: +20.73%
Fund return vs Russell 1000: +20.39%

Last week's results here.

Since the market cap of the median stock in the Rising Tide Growth fund (median $7.1 Billion as of April 08) 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 April 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

World of Shortages - What's Next? Good ole Dirt.

This has been a theme of mine from day 1. Too many humans. Too many humans who are now not living in abject poverty. Remember, last year was the first that >50% of humans on the globe lived in urban settings... the small self sufficient rural lifestyle is now the minority (by a hair). [Jan 16: Speaking of a World of Shortages] The great irony of our day and age will be the general upswing in living standards for hundreds of millions (maybe a billion) will accelerate shortages, leading to an era of higher prices for all, leading to abject misery for most (but not those at the top). It's sort of circular. [Mar 24: WSJ - New Limits to Growth Revive Malthusian Fears]

Recommendation: make sure you get to the top of the food chain. If not at the top of the food chain - pray for a series of back to back to back to back technological breakthroughs that I cannot even fathom at this point.

Folks, rising prices are not due to the dollar or due to speculators. Maybe that causes it around the edges. I do believe the Malthusian era is now upon us. And I hope I'm wrong from a human perspective, but as an investor most of my investing themes revolve around this. Remember, it is not that we will "run out" of some of these natural resources, it is simply the fact that too much money (much of it brought into the world by Western governments out of thin air) is chasing too few supplies of hard assets (those supplies already stressed by the basic supply/demand dynamic), causing prices to go up. Out of the reach of those who can least afford it.

So we have a new shortage to add to our list... pork shortage? iron ore shortage? hops and barley shortage? corn? wheat? soybeans? cotton? potash? power? milk? salt? rice? Is it just me or do you notice a pattern? [Feb 24: Commodity Prices Over the Last Year] This is *all* caused by a weak dollar? and speculators? right? I didn't even throw good ole crude in there. But if the magic man in D.C. holds rates steady (or cuts less than expected and then "talks" about inflation) that will cause global inflation to go away... that's the Wall Street thinking. And these guys run our country's financial system.

What's the next shortage? Soil. Our faming techniques and stress on land (not letting the land rest in between seasons) are causing topsoil to run off at an alarming rate. Now I assume the shortage of dirt is going to affect some more than others... for example, people who have resorted to eating it to survive [Jan 30: Hungry Haitans Resort to Eating Dirt] But let's put more corn into our fuel tanks while we mull the issue.

• The planet is getting skinned. While many worry about the potential consequences of atmospheric warming, a few experts are trying to call attention to another global crisis quietly taking place under our feet. Call it the thin brown line. Dirt. On average, the planet is covered with little more than three feet of topsoil -- the shallow skin of nutrient-rich matter that sustains most of our food and also appears to play a critical role in supporting life on Earth.
• "We're losing more and more of it every day," said David Montgomery, a geologist at the University of Washington. "The estimate is that we are now losing about 1 percent of our topsoil every year to erosion, most of this caused by agriculture."
• "It's just crazy," fumed John Aeschliman, a fifth-generation farmer who grows wheat and other grains on the Palouse near the tiny town of Almota, just west of Pullman. "We're tearing up the soil and watching tons of it wash away every year," Aeschliman said. He's one of a growing number of farmers trying to convince others to adopt "no-till" methods, which involve no tilling of the land between plantings, leaving crop stubble to reduce erosion and planting new seeds between the stubble rows.
• Montgomery describes modern agricultural practices as "soil mining" to emphasize that we are rapidly outstripping the Earth's natural rate of restoring topsoil. "Globally, it's clear we are eroding soils at a rate much faster than they can form," said John Reganold, a soils scientist at Washington State University. "It's hard to get people to pay much attention to this because, frankly, most of us take soil for granted."
• The National Academy of Sciences has determined that cropland in the U.S. is being eroded at least 10 times faster than the time it takes for lost soil to be replaced.
• As such, true living topsoil cannot be made overnight, Montgomery emphasized. Topsoil grows back at a rate of an inch or two over hundreds of years.

So let's hope Monsanto (MON) figures out how to make disease free corn, which needs little water, and can be grown in a substance not called soil. As I said... technological breakthroughs... one after the other... will be critical to get through this coming era. But that is asking a bit much...

But don't worry. Buy stocks.

No position

Bookkeeping: Some "Raise Cash Trades"

I am taking some off the table in 3 positions to raise cash; these are bit larger sales than normal since my cash level is below where I prefer.

1. Intuitive Surgical (ISRG) this is now at a price similar to where I bought it (a bit too early) a few weeks ago - I still think potential downside risk to $260s so I'll buy back this stake there (or on a breakout over say $305 where the chart would improve dramatically). The stock is right below resistance of 50 day moving average of just over $300. ISRG down to 1.6% stake.
   
2. Morgan Stanely (MS) - financials have had a good run this week - so I am cutting back a bit more today, just short on cash and want to have money available on pullbacks in other names. I'd like to add back in $46s (current $50). There is no real technical reason (hence I didn't post a chart) to sell here, just a stock that has run in a sector that is way overbought IMO.... MS down to 1.7% stake
   
3. Foster Wheeler (FWLT) - tough call on this one; the infrastructure space has not been kind of late and earnings approach next week. I think expectations might be low since they "missed" last quarter and could easily see a big jump on even a slight surprise upward on earnings but sticking with my game plan of not being over exposed too much in any 1 name going into earnings I took some off as well. Technically the stock is breaking down below both its 50 and 200 day moving average but the "right results" in earnings could reverse that quickly. I think the weakness is more related to its peer group which has stunk of late. FWLT down to 1.6% exposure.
   

Either/or - I like my cash to be closer to 10%, and it's been in mid single digits as of past few days, so after my purchases yesterday (mostly coal) and this AM I needed to raise some cash. Until my investors send me new cash.... which in a virtual world... is impossible, I need to sell something to buy something else ;)

Long all 3 in fund; no personal positions

Don Coxe on Food Crisis

I can't embed the video but here is a link of Don Coxe on the Food Crisis. First time I've ever "seen him", my brother in intellect. ;) He agrees with me on the "food protectionism" & "social unrest" angles... big time.

Almost every solution Coxe offers (which are legitimate) would require worldwide government cooperation along with bringing down each country's protectionism towards their own farmers (not going to happen)

He also agrees with me on the coming meat inflation [Apr 23: Initiating iPath DJ Livestock ETN (COW)] - I will be early on this one but give me a year.

A worthwhile 8 minutes... I'd urge you to pray for good weather globally during each of those 8 minutes.

On the bright side, as the world devolves into anarchy over food, we (along with Russia) are the Saudia Arabia of food ;) I continue to believe productive global farmland will be among the best returning asset classes for decades.

[Jan 18: One Lonely Voice Agrees with Me on Food Inflation]

Long fertilizers, long COW; long fertilizers in personal account

Bookkeeping: Closing iShares Malaysia (EWM)

I need to raise some cash, and I am worried about global inflation beginning to hit the Asian countries hard. While China will subsidize itself to the nth degree since they are rich, and India is doing the same to a smaller degree - the smaller countries don't have the same horde of reserves. With Western governments continuing to flood the world with currency (something I don't see changing anytime soon), global inflation will only continue to accelerate and the normal everyday people of Asia are going to get blasted. Everyone is cheering the dollar because they think Europe will need to cut rates as their economies slow down, but frankly if they cut that will just flood the world with more euros. So Western currency will be flooding the world - creating even more inflation over and above what the US (mostly) and UK/Canada are helping to create now.

I do still like Malaysia's long term story as a natural resource exporter but this ETF has a lot of domestic service names which, if the story there is anything like the service sector in the US, when its populace gets hit with a large spike in inflation, I can imagine the people will be struggling. And they spend much more as a % of income on food than we do.

I have a nice profit here on a country ETF, iShares Malaysia (EWM) of nearly 10% from where I bought in mid March [March 17: Restarting Stakes in Malaysia and Singapore]. Selling 700 shares in $11.90s (bought in $10.90s 6 weeks ago) - this was a 0.7% stake in the fund.

No position

Bookkeeping: Cutting Ctrip.com (CTRP) to Almost Nothing

Much like Sohu.com (SOHU) [Apr 28: Sohu.com Crushes Estimates - Up 15%] I truly do not have enough Ctrip.com (CTRP) - the Chinese travel giant. What a move. I don't have much, but I am essentially selling almost all I have and just keeping a measly 5 shares. This move has been epic, but the company now trades at well over 60x forward estimates. Too rich for me (that is why I have not had a large position) but it gone from under 50x earnings to well over 60x in a span of 2 weeks.

Long both names mentioned in fund; no personal position

Employment Report and More Fed Actions

Due to the fiction that is the monthly employment report I won't mention it except for 2 things

#1 the economy continues to build jobs almost solely on the backs of healthcare and government. Here are my comments on this (if you are new to blog - this link is critical to read) [Apr 2: The Underemployment Rate is Rising]

we have 2 huge beaurocracies - federal government and healthcare. To keep the government from going even more insolvent we should in theory be cutting jobs from these 2 white elephants. Healthcare costs spiral out of control and we hire more people - I believe healthcare is now 16% of GDP. But how do you cut costs without cutting jobs? Thats the other dark secret - most of our recent gains in jobs are either government or healthcare related. So how do you fix the long term problems in either? Chicken or egg? They are sapping our national wealth away by their huge excesses/costs BUT they also provide the main job growth as well. As with everything my expectation is the "kick the can down the road" theory will continue - keep growing these massive beaurocracies (create more jobs and costs now) and let another generation pay for it.

#2 the Birth Death model is continuing to account for most of job "creation" - this is an utter joke. [Jan 27: Monthly Jobs Report & Birth/Death Model]

In brief the government guesses how many jobs were created by companies too new/too small to be calculated. So they have major leeway in "creating jobs" out of thin air.

This is how many jobs they created out of thin air this month: 267,000 (of which are 45,000 jobs in construction...)

Again folks, this is all fiction to reassure the American people everything is fine; tell me in what world the US is adding 45K construction jobs in the past month? Maybe in Walley World. Without the birth death model our -20K turns into nearly 300K jobs lost. But don't worry - be happy.

EDIT: I walked over to Mish's website and he says you cannot add -267 to -20 and get -287K so I'll take his word for it... he does berate this labor report for about 35 reasons however :) He calls the data from Bizarro World.

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

As for the Federal Reserve... what can I say - they continue to create liquidity any way possible. They have been doing historic things for months now... they even took the steps of taking mortgage backed securities on their books at the last ebb in the crisis. Today's move? They will now be taking bonds backed by auto loans, credit cards, and student loans off the banks books as loans in return for Treasuries. Basically the Federal Reserve balance sheet is now an open flea market.

But again don't worry - EVERYTHING is fine - that is why they are taking these historic steps... I mean these once in a lifetime steps are just part of a normal, orderly (did I mention healthy?) market and it's all good. Just buy stocks.

And again this is how they are "fighting inflation" - creating more paper money to flood the system... if this is fighting inflation I am scared to see what happens when they stop fighting it. There is only 1 quote in this story you need to know, and why inflation is ramping worldwide

• ``The world is awash in liquidity, it just isn't reaching the right financial borrowers,''

Yes it is going into all commodity and assets instead - (including equities) - pumping them higher and higher. You will see this at the grocery store, and gas station in months and months to come. (but hey your Ameritrade account will also be pumped up as speculators can use this money to chase a fixed amount of stock with an apparent unlimited amount of US Peso) Enjoy.

Bookkeeping: Taking more Profits out of Gafisa (GFA)

Gafisa (GFA), right near $50, has now increased 31.5% since my purchase Monday [Bookkeeping: Adding Gafisa]. I won't be a pig and I'm going to cut the rest of my position (@ $49.60) in half, taking Gafisa down to a 0.6% stake. Certainly it could run farther but I never expected this sort of short term move... I'll be buying on pullbacks but with such a strong move the pullback will need to be material.

I took some off the table in the $43s way back... Wednesday [Taking some Gafisa off the Table] at which time I wrote

I will let more go north of $45 if we get there.

Mission Accomplished. (also closing my personal stake)

Long Gafisa in fund; no personal position

Bookkeeping: Restarting Pride International (PDE) as Takeover Bait

I am restarting a position in an old name this AM, Pride International (PDE). This is a company which last year divested it's land drilling to focus on sea drilling [Aug 19: Some Updates on Pride International (PDE)]

Pride is an oil driller which is concentrating its business more and more on the most lucrative market, deep sea drilling. I have concentrated my holdings in this area because its the most insulated from ebb and flow of dayrate fluctuations (vs land drillers, or shallow sea drillers i.e. jackups)

Pride announced a sale of its land drilling assets in South America this week for $1 billion

Also George Soros, one of the most established and respected hedge fund managers (deep pocket investors) announced in a regulatory filing this week that its aquired a 1 million share stake in the company.

This cash infusion makes Pride a more pure play on deep sea ocean drilling, along with allowing it either (a) to develop a larger scale in deep sea drilling and/or (b) making it an even more attractive takeover candidate.

As you see, even then I thought it was a potential takeover candidate; and this was once the 2nd largest position in the fund [Sep 13: Kramer Agrees with me on Pride International... no, not Cramer... Kramer!]. However the stock was not performing and very lazy so by November I exited the position. I have not really been keeping up with the name but in my review of earnings tonight I came upon some interesting items... is that the smell of a potential buyout in the air? Sniff. Sniff.

• Oilfield services group Seadrill wants talks with U.S. driller Pride International (PDE) on a strategic transaction and has no hostile aims towards it, Seadrill said on Wednesday.
• On Tuesday, Houston-based Pride International said Oslo-listed Seadrill had taken a near 10 percent stake in it, and said it disclosed the holding against Seadrill's wishes in the interest of other shareholders.

While this is not a "secret", Seadrill which has a very experienced management team has taken a 9.9% stake in Pride - this spiked the stock from $40ish to mid $40s. Now after tonight's "disappointing earnings" the stock is back down to that gap in the chart... but earnings really are not the point. Commentary from Pride that they are "open to consolidation" set off my radar.

• Oil and gas driller Pride International Inc (PDE) posted a more than 100 percent jump in first-quarter profit that beat market estimates, and said it was open to consolidation in view of speculations about its possible merger with Norway's Seadrill Ltd.
• The company said it recognized the numerous benefits that could be achieved by further consolidation. We believe further consolidation will occur and we are always open to considering opportunities that would be compelling to our shareholders," a company official said in a conference call with analysts.

So unlike the Yahooligans we have a company that sounds very open to being acquired (at the right price - read higher). We might have a relatively easy takeover play. Now one way I'd play this in real life are say January 2009 40 and/or 45 calls, but since I'm playing a mutual fund manager on TV I just have to buy the shares. Which I intend to do this AM. Worst case scenario? I have another driller to replace the Diamond Offshore Drilling (DO) I sold off last week and replaced one company of similar ilk with another, with a potential icing on the cake of a buyout offer pending within say 6 months.

I'll update this entry with the purchase price and data of that sort - I'll probably begin with a 2% stake or so. EDIT: Bought 700 shares around $42 for a 2.5% stake. I see downside to about $38 where I'll add more.

Long Pride International in fund and personal account

Walter Industries (WLT) - the Most Fascinating Company

I've been watching this Walter Industries (WLT) for 2 months now as it kept showing up on my weekly top performing lists throughout February; just kicking behind week after week...

....we got you some metallurgical coal (yes!)
....we got you some natural gas (yes!)
....we got you some homebuilder...

... I said... we got you some homebuilder...

Ruh roh Raggy!

No wait! Homebuilders are the new darlings of '08... so I got you some metallurgical coal (steel play), with some natural gas, WITH a homebuilder, and as a cherry on top a financing division! Bonus!

What does that give you? Put it in a pot, mix it all about ... 100% gains since the January 2008 low. Nice!

So if the 2nd half "no inflation but enough inflation so that commodities boom, but not enough that it hurts US consumers, so they can buy houses, so therefore you must buy homebuilders, and then credit markets clear up perfectly so we can finance those houses" scenario works out (and don't you dare believe it won't) this looks like the 1 stock you can play all those trends, under 1 roof. Wowsers! They reported tonight and while the housing/financing side was a disaster (nevermind that, it will be the strength of the company in 6 months), I was interested in the coal side of the business which is.... booming.

• Walter Industries also announced today that it has settled approximately two million metric tons of its 2008-2009 metallurgical coal tonnage in excess of $315 per metric ton FOB Port. The Company expects to settle another 1.1 million metric tons over the next few weeks in a similar price range and has an additional 0.6 million metric tons available for the second quarter 2009 that will be priced later this year.
• "Continuing supply constraints and robust demand in the international steel market have set the stage for ongoing strength in metallurgical coal pricing beyond the 2008-2009 contract year. With about one million tons of incremental production capacity scheduled to begin coming online in the second half of 2008 and approximately two million additional tons coming online in the first half of 2009, we are very well positioned to take advantage of the strong market for our coal."

So folks they are selling their met coal for $315, and taking it out of the ground for under $50. Want to see how they project margins for met coal for next year?

Q1: $8
Q2: $20-$21
Q3: $75-$81
Q4: $90-$96

So as you see the "strong dollar" is not going to do diddly unless it appreciates by say 750-900% by next year at this time... at which point I'd still be a bull on coal. As long as those Chinese want steel at any price, we are happy campers. I am trying to hand you a gift here, so that you make enough money so that EVERY reader can invest in my mutual fund when we launch in 2009 (right?) - remember, coal is going to be next year's fertilizer... with CNBC anchors aghast at coal and wondering "where did this all come action come from, I thought the bubble ended last year with that stupid potash!". I'm telling you now, a year ahead of time. I'm using Alpha Natural Resources (ANR) and Massey Energy (MEE) more specific for the metallurgical coal but any coal name has some exposure. [Apr 8: Changing Coal Allocation - Peabody Energy Out - Alpha Natural Resources In] I did a full analysis in that entry comparing the 2 names and potential profits/upside.

So this 1 blog entry here, will pay for your yearly subscription to my website - that's how much you can make. What's that? It's a free site? Ok ok... details details. If I did charge - you'd be making it up in spades from this 1 entry.

Missed fertilizer? Get coal. So you can tell your friends next year you were there first. Come back in 1 year, book some profits, send check to my fund and we are all happy. In the meantime, you can sort of laugh quietly to self when CNBC tells you it's time to get out because the dollar will be going up 7% vs the Euro in the next 2 months. And when the stocks fall because the hedge fund computers say it's time to buy Macy's instead... you just shake head in mock horror.

(please note the above is not advice from me, telling you, what to buy because that could put me in liability - I'm just giving you a theoretical situation - if you buy coal stocks and lose 90% of your holdings that's your fault) ;)

Long Alpha Natural Resources, Massey Energy in fund and personal account

May Update - Top 10 Winners & Losers

Previous editions can be found

1. March 16
2. December 18

Here is our every so often look at best and worst contributors to the fund; as long as the top group in aggregate is larger than the bottom group we should be in good shape.

On the winning side, the top 10 list is similar in composition to the last time we looked 6 weeks ago, except a lot more coal names populate the bottom end of the list. If I only held 1-2 coal stakes instead of 4-5, those 1-2 would be near the top of the list but since my gains are spread over a bevy of names, they are lower on the list. But as a sector bet it's been a great situation. Up to today, Ultrashort Financial (SKF) was still the 2nd best performer, but she got whacked by a baseball bat today. CF Industries (CF) is a position I was severely underweight for this past 40%+ run, so most of its gains are from last fall when it briefly held the #1 position in the fund.... I missed it this time around. Mosaic (MOS), while wonderful, I also missed a lot of profit potential because I was cautious going into it's earnings and was very underweight. Much of this was again cautious behavior on my part, which cost us some upside but has kept us out of any major blowups. Mastercard (MA) despite usually hanging around as a 1-1.5% stake continues to climb this list. I've given back about 8K worth of gain in Ultrashort Real Estate (SRS) as the "hedge" has reversed. After all, all is fine in commercial real estate...

Falling off the list has been Ultrashort Xinhau China (FXP) as that Shanghai index, after a 50% fall has rebounded some (taking its US listed counterparts up) - I am actually developing a bullish thesis for China going into Olympics and after this massive haircut, and also Ultrashort Russell 2000 (TWM) - after all April 2008 was a huge month for the market (up). All my Chinese mid caps have had such huge runs... I don't want to chase them but we have some huge % winners in these names the past few weeks, but not a lot of money thrown in their direction.

Top 10 Winners
Mosaic (MOS) +51.1K - fertilizer
CF Industries (CF) +30.3K - fertilizer
Ultrashort Financial (SKF) +27.1K
Potash (POT) +22.2K - fertilizer
Consol Energy (CNX) +16.9K - coal
Mechel (MTL) +16.7K - steel/coal/iron
Ultrashort Real Estate (SRS) +14.4K
Mastercard (MA) +11.1K - credit cards
Massey Energy (MEE) +10.0 - coal
Peabody Energy (BTU) +9.8K - coal

On the losers side, I hope TMA is never surpassed as the biggest loser and permanently holds that #1 spot. My 2 major solar stakes still show a sizable loss at 28K combined but that is down from 42K the last time we looked - we've been able to squeeze some good gains out of them, especially Trina Solar (TSL) in the past 4 weeks. Every other name in the top 10 is out of the portfolio with Chicago Bridge & Iron (CBI) being booted earlier this week. Ironically these fallen angels are showing a lot of positive movement of late or on days like this (for example the 2 networking stocks) - I guess the idea is with the economy "improving" there are no future worries in these sectors anymore. NII Holdings (NIHD) has been on a straight 45 degree angle up since its last earnings where it finally seemed to calm fears; that said I last sold it in the upper $40s in January and it continued on to fall to $30 (now has rebounded back to $46).

Falling off this list from last time around are Apple (AAPL) which turned from a $7K loss (I had a big stake going into it's January earnings report) and Mercadolibre (MELI) which went from a $7K loss to near flat.

Top 10 Losers
Thornburg Mortgage (TMA) -25.6K - high end mortgages
LDK Solar (LDK) -16.3K - solar
Trina Solar (TSL) -12.4K - solar
Riverbed Technology (RVBD) -11.0K - networking
MFA Mortgage Investments (MFA) -9.5K - mortgage REIT
Crocs (CROX) -9.0K - plastic shoes
NII Holdings (NIHD) -8.1K - cell phone
Solarfun (SOLF) -6.6K - solar
Chicago Bridge & Iron (CBI) -6.1K - infrastructure
Blue Coat Systems (BCSI) -6.1K - networking

A New Phone for you CrackBerry Addicts

For all you addicts, here is the next generation - the first flip phone from Blackberry (Kickstart), courtesy of BoyGeniusReport.com - Apple out next with the 3G phone in June which AT&T is probably going to subsidize down to below $200.... Apple and Research in Motion are continuing to make the Motorola's of the world just look silly....

...and yet another device to completely distract people from regular life so they can stare lovingly at that mini LCD screen for hours on end. How do you people who have these things ever take a vacation? "always on" to work ;)

Long peace & quiet ... and Apple, Research in Motion in fund

Bookkeeping: As the Market Rotates - I'm Rotating Opposite - Some Sells

Good news, Bad news day. Good news is we were way ahead of the curve on this commodity sell off [Apr 24: Sector Rotation?] so we had far less exposure than the past few times this happened and we were full bore into commodities with no "early cycle" exposure. This time we own some of those names. So the fund performance today, while sickly, is not as bad as previous episodes when the same rotation was happening in mid January and mid March.

Bad news. I still am having a hard time sitting down today after this butt whipping. I don't mind the long positions getting hit, but I just hate when the Ultrashorts get smacked down right along with it. But this is the power of the hedge fund computers moving in a wholesale switch. Keep in mind, many accounts are that 70% of all trading is automated (i.e. machines) so when you see things that don't make sense - just remember, it's not humans doing most of it.

I am trying to keep my "turnover" lower and not trade quite so much, but as I stated in my Sector rotation piece 1 week ago

Some interesting charts out there - if I had shorter time frames (i.e. hedge fund), I'd be jumping out of these commodity names (which despite my buying today are still prone for further sell offs) and looking at some of these names for a week or so. It is interesting to watch the sector rotation which in the past has usually lasted for 5-8 days. A whole lot of retailers are peaking their head over key resistance points on this rally... all it takes is hope or a soft weekly job claims number, and people are ready to rush in.

So if that reversal in the dollar happens and even if the market goes sideways, money would in the near term flow out of commodities (we can hear about the "commodities are dead" trade again for a few weeks) and then I am scratching my head as to where the money will GO. The obvious candidates are the one that would make no sense from an economic point of view, the "early cycle" plays. But sense never is an impediment to traders who act like robots "dollar down, buy commodities.... dollar up buy retailers, financials, homebuilders".

But again, I take this portfolio in a more conservative way - which means we will take more hits when the market changes direction suddenly - even if we can see it happening ahead of time. As I wrote, above - in a hedge fund environment I wouldn't care so much about turnover and I'd turn 180 degrees anticipating this move, long the 'early cycle', sell/then short the commodities - a powerful pair trade for a week at least... much higher turnover and I could press bets a lot more aggressively. Here I have to sit meekly by and take body blows as my positions get socked in the teeth.

With that said, I am going to be a contrarian and begin selling off some of these "early cycle" stocks as we hit S&P 1405. I believe the best case upside is 1430s which is only 1.8% higher from here, before we hit serious resistance. If the market blows past area (and through that) than I have to say I was wrong to ever doubt the power of the herd, and get fully exposed long (and take the hits on short exposure).

So basically I am fading the rallies (selling the good stuff) and buying the beat up junk in small pieces. I did a bit of buying this morning, and now I'm going to sell part of 3 positions in "favored" areas - Morgan Stanley (MS) investment banking, Lennar (LEN) homebuilding and even dear Apple (AAPL). This is the exact same strategy I did with the commodities LAST week when they were hot... begin selling them off piecemeal as they rally, not catching the top but locking in some profits, with hopes to buy them lower. So the same strategy, with completely opposite groups. Of course I hold far less of this type of stuff because most of it (ex-Apple) is stuff I don't have much long term belief in. But unlike past episodes when I held none of it in the portfolio, it is helping to cushion (to some degree) the pain in other areas. Again these sales are similar to the purchases this morning - layer in, layer out - $4-$6K type of sells.

So as/if we continue ever upward I'd keep siphoning off these 'early cycle' winners and keep rotating money into the beaten up sectors, so when things reverse - whenever that may be - I'll partake in the exact opposite rotation we have today. I don't know when it happens, or from what price points, but I am confidant it will.

I will say Goldman Sachs (GS) I might actually add to as that baby is looking ready to break out. I won't post it, but if we get north of $200 I will be adding GS. (chart is much finer than Morgan - that is why I am treating it differently)

I still am waiting for even more selloff in commodities before becoming more aggressive on the long side... if I'm wrong and they for some reason rally I have enough exposure to partake.

Tomorrow's Employment report (another major faulty report) should dictate the mood of Friday trading. Again we have no idea how it will turn out so we cannot do anything about it. Even if I told you the number, would we know how the market gods would react? Let's say expectations are 80K loss and we come in at 110K? Does it even matter? Would the market sell off on 'worse than expected' or rally on 'doesn't matter, things will be fine in 6 months'? That's why I ignore these things but realize the herd reacts in knee jerk reaction... so it must be monitored if nothing else.

Long all names mentioned in fund; no personal positions

Is it an Official Recession? NY Post says it Should Be

Very interesting comments from NY Post. Let's say for example that the faulty government report from 1 part of government says inflation is only 4%. But when you want to figure out GDP, another arm of government says, strike that we are only going to use 2.6%. Well you can magically make negative GDP turn into positive GDP.

If you had instead used 4% inflation rate - you'd have Q4 2007 as "negative" and Q1 2008 as "negative" and your "official definition" of recession is obtained. If you use 2.6%, you get no recession, not even a negative print once. Fun with numbers folks... fun with numbers; when you peel back the onion you see the truth, but we can't be bothered with such details ;)

• The second thing that happened yesterday was the first-quarter estimate of the nation's gross domestic product - which is nothing more than the financial statement of the country. The Commerce Department estimated yesterday that the nation's economy grew at an annual rate of just 0.6 percent in the first three months of 2008. That was the same growth reported for the fourth quarter of last year.
• Worse, it was government spending and inventory building by corporations that created most of the first-quarter gain. (again government spending is just getting us into more debt, and inventory building means in the future those prices will need to be slashed to move the stuff - but no matter)
• Neither of those is something you want to rely on for a recovery. But the situation was even more dismal than that. In coming up with the 0.6 percent annual growth figure, the Commerce Department decided that inflation was just 2.6 percent.
• Still, the 2.6 percent figure for price increases used for the GDP calculation was nowhere near the 4 percent inflation calculated by other government agencies.
• If inflation, for instance, had been 4 percent then the nation's economy would have contracted by an 0.8 percent annualized rate. And not only that, if inflation was being honestly reported the economy would have contracted in the fourth quarter of 2007 as well.
• In other words, there would have been two straight quarterly declines in GDP and the debate over whether or not we are in a recession would be settled.

And once again folks, this shows you if the government has enough time, they can make any number appear better than expected. Just another in a litany of examples of why it's best to ignore anything they say. But it's good enough to get this market happy. :) Somehow I doubt (cough) this was reported on CNBC... anyone hear it? ;)

Today's Interesting Reads...

Some things I (or my team of 10 hamsters aka research analysts) need to read by the end of the day....

Company Specific

Fortune: Mosaic (MOS) - Why It's Up 342%

• As food prices rise, fertilizer producer Mosaic is cashing in. And despite the massive run up in its shares, they actually look underpriced.
  
• Since 2006, potash prices have increased 190% while prices for DAP have risen 400%. Mosaic's share price and earnings growth have followed similar trajectories. Mosaic's stock gained 342% last year--the best showing of any Fortune 500 company--and it's up another 25% so far in 2008.

Fortune: Chesapeake Energy (CHK) - Meet "Mr. Gas"

• Combative CEO Aubrey McClendon has built once floundery Chesapeake Energy into the country's hottest natural gas company
• He's Aubrey McClendon. He's worth more than $3 billion. He's co-founder and CEO of Chesapeake Energy. It's a natural-gas company, okay? Headquarters in Oklahoma City, $25 billion market cap, No. 324 on this year's Fortune 500. Already the most active driller for gas in the U.S., by a factor of two, and soon to become the country's biggest gas producer.

Food Crisis

1. CNN reports Congress just figured out that food prices are impacting people. News Flash! See, when you use your own government's reports you'd never figure it out. Do you think any of these people actually do their own grocery shopping? Ivory tower...
2. CNN figures out that food price inflation could be here for a few more years.
   
3. WSJ - Americans begin stocking up on food anticipating further price hikes. This is the Fed's worst fear - they fear something called embedded inflation expectations. That's when people begin to horde with expectations of future price increases... which invariably are self reinforcing leading to ... price increases. But you know what? NYC bankers need more bailouts - so we can't worry about small things like that! Thank you for another handout yesterday Uncle Ben says every bank in America.

On the "pooring of America" - really my comment is not just America but all Western (above global mean) countries as there is a flattening of global wages - those below the mean will improve - those above will falter - I outlined this in 'Do the Bottom 80% of Americans Stand a Chance?'. Again these are not stark differences from 1 month to another - they are LONG term EROSION. So you don't notice it. Until one day you wake up, look back 5 years, 10 years... and for a great many in this country they have made no progress. US (and global) wealth inequality grows.

Now we see it has happened in Europe.... it has happened here in the US as well (real wages flat the entire decade adjusted for government inflation - and in real terms that means negative wage growth adjusted for real inflation). The difference? Social support/safety nets reign in Europe. In America? You fend for yourself... find a way people. NYTimes: For Europe's Middle Class, Stagnant Wages Stunt Lifestyle

• Their combined annual income of 40,000 euros, about $62,500, lands Ms. Renard, a teacher, and Mr. Talpot, a postal worker, smack in the middle of France’s middle class. And over the last year, prices in France have risen four times as fast as their salaries.
• At the end of every month, they blow past their bank account’s $900 overdraft limit, plunging themselves deeper into a spiral of greater resourcefulness and regret. “In France, when you can’t afford a baguette anymore, you know you’re in trouble,” Ms. Renard said
  
• The European dream is under assault, as the wave of inflation sweeping the globe mixes with this continent’s long-stagnant wages. Families that once enjoyed Europe’s vaunted quality of life are pinching pennies to buy necessities, and cutting back on extras like movies and vacations abroad.

Again, we are seeing historic shifts in wealth from the "West" to the "East" - a seismic change (keep in mind the East had some of the greatest civilizations and wealth before the "colonization era"); I swiped a term I saw on Minyanville last year called "reverse colonization"... away we go... Fortune Magazine says we have 7 Years to Learn Mandarin (remember Jim Rogers moved to Singapore and his daughter has a Mandarin only speaking nanny)

• A recent study by the economist Angus Maddison projects that China will become the world's dominant economic superpower much sooner than expected - not in 2050, but in 2015.
• While short-term investors are already cashing in on China's growth by playing the global commodities boom, smart long-term thinkers are contemplating what happens when China matures from an exporter of cheap goods to a competitor in sectors where the U.S. is dominant - technology, brand building, finance. China has almost wiped U.S. makers of low-value items like toys and socks, but by 2015 it may threaten Apple (AAPL, Fortune 500), J.P. Morgan Chase (JPM, Fortune 500), and Procter & Gamble (PG, Fortune 500).
• Angus Maddison's forecast (which uses purchasing power parity) isn't built on outlandish assumptions. He assumes China's growth will slow way down year by year, and America's will average about 2.6% annually, which seems reasonable. But because China has grown so stupendously during the past decade, it should still be able to take the crown in just seven more years.
• If that happens, America will close out a 125-year run as the No. 1 economy. We assumed the title in 1890 from - guess who. Britain? France? No. The world's largest economy until 1890 was China's. That's why Maddison says he expects China to "resume its natural role as the world's largest economy by 2015." That scenario makes sense.

Back to the United States of Subprime - the NYTimes reports that Low Spending is Taking its Toll on Economy. No doubt - that's what happens when 70% of your economy is just transferring the same paper money from 1 human to the next in exchange for "services" and you produce very little tangible (are toxic mortgage backed securities considered an export? I guess so - well at least we have exports). I outlined this as a mosaic of short ideas here (keep in mind, in great irony these are the stocks now RAMPING up as the belief is EVERYTHING will be fine in 6 months - this is just setting them up for excellent shorting in the future - reality will set in to the paper traders in NYC when earnings comes in the 2nd half of 08) A lot of things people don't think about like amusement parks, casinos, and the like - will go... we are too busy buying luxuries like rice.

• For months, beleaguered American consumers have defied expert forecasts that they would soon succumb to the pressures of falling home prices, fewer jobs and shrinking paychecks. Now, they appear to have given in.
• On Wednesday, the Commerce Department reported that the economy continued to stagnate during the first three months of the year, with a sharp pullback in consumer spending the primary factor at play.
• Even more ominously, Americans cut back on a wide variety of discretionary purchases, conserving their cash for necessary spending.

Meanwhile on the topic of politics, our leadership used to be so bad that many just hoped they'd fight to a standstill and not pass anything so they don't cause more harm than good. But now we seemed to have entered an era the past 3-5 years where the leadership is not only not helping the country, they are truly becoming an impediment... the country must now overcome their actions just to keep moving forward. Now that's leadership. It all comes back to lobbyists, special interests, and the fact leadership is only focused on their 4 or 6 year term. They need to pay for elections and "pay back" those who pay "for them" to get into office. Now it's costing us competitively on a global scale. And it will continue, I expect for 10-15 more years until we literally break down under our own weight of inflation, entitlement programs, and structural deficits. I know... I know... that's such liberal thinking... but its bad from both sides - they are both equally harming us.... Thomas Friedman has his thoughts on how putrid our energy policy is.

Bookkeeping: Incrementally Beginning to Add to Coal

I am adding to multiple coal names today as they pull back to their 20 day moving averages or 50 day moving averages

I'm taking a go slow approach but my goal is to get my coal exposure near to my fertilizer exposure by the end of this commodities correction cycle. Our sector rotation continues away from commodities into "domestic companies" because clearly the economy will be picking up shortly. Or within 6 months. When this nonsense is over, people will go right back to the stocks that are being sold off today. It could be in a few days or a few weeks, hence I am not rushing in. We'll pick away here and there, and hope for continued selloffs - this will hurt performance short term but these are the names that will continue to be winners in 2nd half 2008 in my opinion. But for now there is no reason to argue it - the hedge fund computers say it's time to buy retailers, or domestic discretionary stocks - so as that avalanche of money flows from 1 sector to another - we are but gnats on the elephant's behind...

I've added to Arch Coal (ACI), Massey Energy (MEE) and Consol Energy (CNX) today. I threw one chart below, as you can see - we've had massive gains; and it's time to retrace, digest, and churn a bit before making the next big move later in 2008.



I'd added a touch to Cleveland Cliffs (CLF) an iron ore play for the same reasons. I am still hoping for bit lower prices in the fertilizer before adding, maybe this afternoon.

These purchases are still small in scale - $4-$6K variety. As I've been repeating, as long as this sector rotation goes on, we can expect more downside - I'll keep placing buys along the way, not hitting the bottom ... and I'll be selling someday down the road, never catching the top - but will continue to catch the "middle of these moves" and bank profits over time.

I think by mid May we'll see a rotation BACK to these names... maybe sooner. Until then we'll just tread some water and have to give back some gains... my 3% stake in housing stocks doesn't quite offset my commodity exposure ;)

Apple (AAPL) is the new Potash (POT)....

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

I Swear Jim Cramer Reads my Blog

Look at this headline today from Mr. Cramer - The New Reality: The U.S. Doesn't Matter

If you've been reading the blog, you heard that "first" many months ago... but I will say Cramer is ahead of 99% of Wall Street herd mentality (he's been quite early on the famine angle I've been touting as well)... but I've been many months ahead of Cramer ;)

Get used to it folks - I do believe we can now enter an era where (relatively speaking) the stock market will go one direction and the economy the other - I've written about this late last year as a matter of fact... the tax code, the trade system, the labor markets - it's all geared for US corporations - they own the money, they pay for politicians, they get what they want. [Apr 4: Congress is Rushing to Help Home Owners!! (NOT)] They do not need Americans... and will need them less so each year. Now the fly in that ointment is slowdowns overseas will "eventually happen", but as I keep saying as our world gets flatter, the home domicile means less by the year. Note Halliburton moving HQ to Middle East last year. It's getting to the point that despite all my bad feelings about the domestic car market I have been considering in past month if Ford and GM might be good investments because of their overseas arms (Chrysler is a no go if it were public because it is mostly an American company) - Cramer says the same thing.

I continue to believe the narcissistic attitude of Americans, even stock strategists and economists are leading people to many poor outcomes. This is why the Federal Reserve who believes the US still lives in the 1960s, thinks when the US slows inflation should go down. Short of a global slowdown (and again, I do believe the globe especially Europe will be slowing substantially - probably due to GLOBAL inflation), commodity prices won't be "falling". The only saving grace for the inflation front is the total lack of bargaining power for US workers. Again, this is a BENEFIT for corporations - inept US workers cannot ask for raises like they could in the 70s - so we cannot have 'wage inflation' like we did in the 1970s. While that's good for "Fed policy" and corporate profits (and hence the stock market) what does it mean for the US worker/consumer? Not good things. The dichotomy shall continue and only get stronger. You got a complaint? Well your job can be placed in Prague or New Dehli or Rio. So quiet down and take your medicine.

Now the problem with this "new era" is most job creation is with small business, not the corporate titans who get all the headlines. So a flailing domestic economy, full of suffering small business is the reality on the ground... businesses who cannot afford the insane health care premiums to offer to their workers, businesses who rely on our "service economy" of shuffling money from person A to person B with no "goods manufactured"... is not a prescription for any sort of job growth. Again, the past half decade our main countrywide job grower was... building houses. We had millions of jobs created from this industry and all the "related services" (especially in finance from NYC packaging the toxic mortgages to the local guy selling ridiculous option ARMs to keep the juggling act going). 1 in 7 Californians has a real estate license - what does that tell you? So without that, we have been exposed. Unfortunately this is our great hope for the future ... we just have to sit around and wait for the next housing boom - because unlike the experts who say housing is only 4.5% of GDP, it appears to be closer to 10-15-20% when you take into account all the supporting industries. So I don't know how a country continues its greatness for decades on, relying on "building homes". But this appears to be our "recovery plan". At least we still have farms and coal mines...

This paradigm shift is very critical to understand. We've been talking about it for a long time, now Cramer "gets it" which means it should reach consensus on Wall Street by end of 2008.... but it's no short term cyclical situation. This remains why my broad market shorts have focused on US small caps (Russell stocks) and away from US large caps and multinationals (Dow stocks) - the golden era for large caps from the 90s is coming back and just imagine one day (say 2011) when the United States of Subprime can eek out 3% growth again. Then these multinationals will be even better off... until then, they feast on the rest of the world.

Here are some highlights (subscribers to Realmoney.com can go directly there)

• Slow domestic ... weakness in the U.S. ... unfortunate decline in North America ... blah blah blah. Does it even matter anymore? As I listen to call after call after call, I hear the same thing -- sluggish U.S. There was a time, even a year ago, when we would have freaked out and sold any company that was associated with U.S. weakness. For example, Procter (PG) had crummy U.S. numbers, worse than expected. But people yawned! Nobody even cared; everyone figured it.
• This is a radical revision in thinking. Earlier in this year, McDonald's (MCD) reported a weak December in the U.S. The stock dropped 15% immediately. They just announced U.S. weakness again, and the stock went up! I am not kidding. U.S. was bad, and this time nobody cared.
• Yum! Brands (YUM) is a great example. David Novak said, point blank, that the U.S. doesn't have it right now. He's trying to turn the U.S. around, but there are only 3,000 KFCs in China and 18,000 stores in the U.S.; if he did nothing but move to China and flip that ratio, it would be a better use of his time.
• Even GM (GM) and Ford (F) get it. The big takeaway for the multi-billion-dollar GM loss isn't that the company is losing money, it's that the company is, radically, weaning itself off the U.S. market. About two-thirds of their business is going overseas. Either they solve their production/union problems in the U.S. or they just give up and leave.
• This is a phenomenal shift, a no-longer-grudging recognition that how we sell in this country doesn't even matter. Our best companies have adjusted and recognized the reality: The U.S. is not a great place to do business. That's the single most important reason that we may not even be in a recession. Our companies have figured it out, and now Wall Street has figured it out.

Readings from Around the Net

What I'm reading... with a quick blurb on each

In our Food Crisis section

WSJ: Grain Companies' Profits Soar as Global Food Crisis Mounts

• At a time when parts of the world are facing food riots, Big Agriculture is dealing with a different sort of challenge: huge profits. (replace the word agriculture with oil and you'd have politicians yelling from the rafters about how this is evil)
  
• The robust profits are emerging against the backdrop of a food crisis some experts say is the worst in three decades. The secretary-general of the United Nations, Ban Ki-moon, on Tuesday called for the creation of a high-level global task force to deal with the cascading impact of high grain prices and oil prices. He said that countries must do more to avert "social unrest on an unprecedented scale" and should contribute money to make up for the $755 million shortfall in funding for the World Food Program, which feeds the world's hungry.

USAToday: Tensions in Egypt show Potency of Food Crisis

• There's no panic, no desperate scrambling for sustenance — a tentative sign of success for an emergency government plan that involves dramatic increases in spending on bread subsidies and the use of Egyptian soldiers as bakers. "Now we're able to find bread," says Dalia Hafez, 40, seated on a nearby curb in a cappuccino-colored headscarf. "Thanks God, the crisis is over."
• For now, anyway. But the aftershocks from the food trauma here are only beginning to be felt. Tensions are continuing to build in this key U.S. ally, evidence that the global food crisis — the product of factors ranging from unusual weather in producing nations to increased competition for grains from biofuels programs — is now about much more than food.
• "This crisis threatens not only the hungry, but also peace and stability," the head of the United Nations World Food Program (WFP), Josette Sheeran, warned in a recent speech.
• That's certainly true in Egypt, the most populous Arab nation, recipient of $1.8 billion in annual U.S. foreign aid and a critical link in global trade sitting astride the Suez Canal. Its authoritarian government is faced with mounting labor unrest, profound public dissatisfaction over a yawning gap between rich and poor and questions over who will lead Egypt in the coming years. (hmm, sounds vaguely familiar to another country)
• Former Pentagon official David Schenker, who lived in Cairo in the early 1990s and is with the Washington Institute for Near East Policy, returned here recently for a visit and was stunned at the sour public mood. "I was shocked," he says. "I find it very scary."

WashingtonPost: Siphoning Off Fuel to Feed Our Cars

• "This is a fantastic time to be farming," Johnson says. "I'm 65, but I can't quit now."
• Across the country, ethanol plants are swallowing more and more of the nation's corn crop. This year, about a quarter of U.S. corn will go to feeding ethanol plants instead of poultry or livestock. That has helped farmers like Johnson, but it has boosted demand -- and prices -- for corn at the same time global grain demand is growing.
• And it has linked food and fuel prices just as oil is rising to new records, pulling up the price of anything that can be poured into a gasoline tank. "The price of grain is now directly tied to the price of oil," says Lester Brown, president of Earth Policy Institute, a Washington research group. "We used to have a grain economy and a fuel economy. But now they're beginning to fuse."

CBSMarketwatch: Ethanol Backlash Hits New Level as Food Prices Jump (we just discussed this yesterday)

• An increasingly bitter public debate over the role that corn-based ethanol has played in driving up food prices is pitting some of the nation's biggest food manufacturers against each other, with hefty U.S. subsidies and mounting commodity costs at stake.
• At issue is the Renewable Fuel Standard, a mandate to increase the volume of renewable fuels blended into gasoline to 7.5 billion gallons by 2012. It was created by 2005 U.S. energy legislation and expanded in last year's energy bill. Blenders of ethanol also get a 51-cent tax credit for every gallon of ethanol they blend.
• Most commodities analysts agree that these requirements and financial incentives are one reason farmers planted more corn last year than they had in over six decades. They say ethanol has indeed played a role pushing up corn prices to record highs above $6 a bushel this year.
• But most analysts, including senior officials at the U.S. Department of Agriculture, also cite a variety of factors for the run-up in corn and other grains -- including the high price of petroleum, a weak dollar that makes dollar-denominated commodities more pricey, droughts and increasing demand from emerging markets countries for meat and poultry. (and once again, all those OTHER factors are out of control - this one is IN control... but instead of fixing it we will continue to "debate" that the very obvious fact that there are multiple reasons... hilarious if it were not so sad and affected so many across the globe)
  

In our Pooring of America section aka "Just Wait, the Trickle Down Economy will benefit you any moment now"

USAToday: Walmart Delighted it is attracting more Affluent Shoppers

• More affluent customers are shopping at Wal-Mart Stores (WMT) during the economic slump and a company executive said Tuesday that the retailer is in position to keep those shoppers when the economy improves.
• Shoppers with a household income of more than $55,000 to $70,000 are categorized by Wal-Mart as more affluent than its core customers. Castro-Wright cited company research that showed that the number of more affluent shoppers increased 0.7% in February and was up 2.2% in March. [I predicted this one a long time ago - Dec 26: Target Shoppers Turning into Walmart Shoppers]

WSJ: Luxury Retailers Pin Hopes on Outlets - we discussed this in the recent Coach report

• Bracing for a prolonged economic downturn, luxury retailers are lavishing new attention on their lower-end factory-outlet stores. The efforts reflect a new reality for retailers that are being squeezed by one of the worst consumer spending slumps in years. Sales at outlet stores are growing faster than those at full-priced stores at many chains.
• The pattern is far more pronounced for some retailers. At Coach Inc., same-store sales at factory outlets rose a healthy 17.7% in the quarter ended Dec. 29, while sales at full-priced stores fell 1.1%; Coach no longer breaks out retail and factory-store results. (want to know why? soon the full priced stores will show negative comps and the factory outlets will be the only growth - so they want to hide that from you by combining the two numbers - again this means LOWER profits)
• The resurgence of outlets entails new risks for retailers. For one thing, shifting sales to what is by definition a discount format can put pressure on profit margins.

And let's do a quick fly by on the housing bust, which should be recovering any moment now...

NYTimes: Federal Mortgage Plan Falls Short

• Fewer than 2,000 homeowners at risk of foreclosure have been helped by a Federal Housing Administration program that President Bush promised would help homeowners who had fallen behind on their mortgage payments, federal housing statistics show.
• F.H.A. officials have asserted in recent weeks that more than 150,000 people have benefited from the program, which was intended to help troubled homeowners refinance into stable, government-issued loans. But the vast majority of participants have been homeowners who have made their mortgage payments on time, not the borrowers in crisis who were the targets of the president’s plan, the statistics show. (laughable)
• Democratic lawmakers estimate that at least 1.5 million people have fallen behind on their mortgage payments. Yet from October 2007 through the end of March, only 1,729 delinquent mortgages were refinanced by F.H.A., housing statistics show. Officials project that 4,000 such mortgages will be refinanced by the end of September. (targeted help, yep - very effective)
• “Interest rates are no longer spiking,” Ms. Burns said. “People are going into delinquency not as a result of the resets, but because of the local economy.”

NYTimes: The Road to a Jumbo Loan Was Supposed to Get Easier

• In early February, Congress gave beleaguered mortgage borrowers a rare cause for celebration. As part of the economic stimulus package, it passed rules intended to make it easier and less expensive for people to take out hefty loans in the nation’s costliest housing markets.
• Economists and legislators said that helping tens of thousands of borrowers take out billions of dollars in new loans could stanch the bleeding in the housing market, spur spending and reduce the pain of a likely recession.
• Instead, the effort to make it easier to get jumbo mortgages — loans over $417,000 — has yielded frustration and disillusionment. (shocker; most government programs are so effective!!) Since the rules took effect April 1, many prospective borrowers and their mortgage brokers say the new loans are either not available or the rates are far higher than they expected. Relief, they say, has been replaced by grief.
• The program “is so much of a failure that it’s really unbelievable,” said Daniel M. Shlufman, president of the FCMC Mortgage Corporation in Clifton, N.J. Mr. Shlufman likened Congress’s effort to “coming up with a vaccine to a terrible disease, and then not giving it to people, or making it too expensive.” (hey it works like that in every other part of government)

Last we move to our World of Shortages theme

NYTimes: Oil Price Rise Fails to Open Tap

• As oil prices soared to record levels in recent years, basic economics suggested that consumption would fall and supplies would rise as producers drilled for more oil.
• But as prices flirt with $120 a barrel, many energy experts are becoming worried that neither seems to be happening. Higher prices have done little to suppress global demand or attract new production, and the resulting mismatch has sent oil prices ever higher.
• A central reason that oil supplies are not rising much is that major producers outside the OPEC cartel, like Russia, Mexico and Norway, are showing troubling signs of sluggishness. Unlike OPEC, whose explicit goal is to regulate the supply of oil to keep prices up, these countries are the free traders of the oil market, with every incentive to produce flat-out at a time of high prices. But for a variety of reasons, including sharply higher drilling costs and a rise of nationalistic policies that restrict foreign investment, these countries are failing to increase their output. They seem stuck at about 50 million barrels of oil a day, or 60 percent of the world’s oil supplies, with few prospects for growth.
• “According to normal economic theory, and the history of oil, rising prices have two major effects,” said Fatih Birol, the chief economist at the International Energy Agency in Paris. “They reduce demand and they induce oil supplies. Not this time.” (it must be those pesky speculators causing all the problems!)
  

All things we've been talking about in the blog for a long time... now hitting the mainstream press in waves. Welcome aboard fellas!

Bookkeeping: Taking some Gafisa (GFA) off Table

I have no idea what has gotten into Brazil today as the iShares Brazil (EWZ) is up nearly 9%; that's the large caps index.. but Gafisa (GFA) is up 14% and since I just added to this Monday in the $38s [Bookkeeping: Adding Gafisa] I am going to cut back a bit here in the $43s. If anyone knows why Brazil is so happy today let me know in comments area; I do have a pretty good idea why Brazil is happy overall. It's Samba time!

Gafisa is now down to a 1.5% stake (it had appreciated to 2.1%); I will let more go north of $45 if we get there. Otherwise I am content to hold the rest since unlike my other homebuilders it's not in the United States of Subprime.

Totally unrelated educational moment of the day: Most Americans have the misconception that Spanish is the language of Brazil. It is actually Portuguese.

Long Gafisa in fund and personal account

Bookkeeping: I'm Meaningfully Adding Short Exposure here on the "Fed Pump"

That was our last catalyst to break through 1400. I'm going to be more negative and if we pop to 1410, 1420 etc on S&P 500 I will began layering in even more shorts.

Since I don't know what the flavor of the day will be (strong dollar? weak dollar? commodities are great? homebuilders are great?), I'm using the broadest short I have which avoids the Dow stocks (multinationals baby) and focuses on those needing the power of Americans, Russell 2000 (TWM) When the hedge fund computers decide if this is a time to jump right back in weak dollar plays, or to continue this recent rotation out - I'll pounce. For now - who knows what the algorithims are saying... they are probably fried.

As you see, the Fed once again is showing it is very intent on "fighting inflation" (not) In fact, I believe a lot of people (me included) are surprised there is not any stronger wording about inflation - even jaw boning (sp?) it would of gotten CNBC into a lather about how "hard the Fed is fighting inflation". They (Fed) still live in a fantasy world of "lower inflation in 2nd half". I guess they will hold that line until Dec 31, 2008 and then be forced to change language to "lower inflation in 1st half 2009". As with kids, watch their actions not their words.

Here's my take - the Fed is afraid of deflation. Deflation gets rich people mad - it hurts people with assets the most (all their assets get devalued - think Great Depression). Inflation, on the other hand, focuses its hurt on lower and middle class - it hurts people who consume. So you can guess which side the Fed is erring on (not the peons). It's either that... or they are truly believing the numbers coming out of the government about inflation (no problemo!)... I don't know which of those 2 thought processes that the Fed brain trust seems to be using... to fear more.

Long Ultrashort Russell 2000 in fund and personal account

MSNBC: Americans Tapping Attic for Spare Cash

Everything will be better in 6 months. Everything will be better in 6 months. Everything will be better in 6 months.

GDP still positive - no recession. GDP still positive - no recession. GDP still positive - no recession.

Unemployment rate low - Americans thriving. Unemployment rate low - Americans thriving. Unemployment rate low - Americans thriving.

Inflation nearly non existent per government reports. Inflation nearly non-existent per government reports. Inflation nearly non-existent per government reports.

Short, shallow recession soon to be over. Short, shallow recession soon to be over. Short, shallow recession soon to be over.

It's all priced in; buy stocks. It's all priced in; buy stocks. It's all priced in; buy stocks.

2nd half 2008 boom. 2nd half 2008 boom. 2nd half 2008 boom.

Stories of woe are a media creation. Stories of woe are a media creation. Stories of woe are a media creation.

70% of Americans live paycheck to paycheck - but don't worry. 70% of Americans live paycheck to paycheck - but don't worry. 70% of Americans live paycheck to paycheck - but don't worry.

Social acrimony will not be a major issue in the US. Social acrimony will not be a major issue in the US. Social acrimony will not be a major issue in the US.

There's no place like home. There's no place like home. There's no place like home.

Americans Tapping Attic for Spare Cash

• The for-sale listings on the online hub Craigslist come with plaintive notices, like the one from the teenager in Georgia who said her mother lost her job and pleaded, "Please buy anything you can to help out."
• Or the seller in Milwaukee who wrote in one post of needing to pay bills — and put a diamond engagement ring up for bids to do it.
• Struggling with mounting debt and rising prices, faced with the toughest economic times since the early 1990s, Americans are selling prized possessions online and at flea markets at alarming rates.
• To meet higher gas, food and prescription drug bills, they are selling off grandmother's dishes and their own belongings. Some of the household purging has been extremely painful — families forced to part with heirlooms.
• "This is not about downsizing. It's about needing gas money," said Nancy Baughman, founder of eBizAuctions, an online auction service she runs out of her garage in Raleigh, N.C. One former affluent customer is now unemployed and had to unload Hermes leather jackets and Versace jeans and silk shirts.
• At Craigslist, which has become a kind of online flea market for the world, the number of for-sale listings has soared 70 percent since last July. In March, the number of listings more than doubled to almost 15 million from the year-ago period.
• Craigslist CEO Jeff Buckmaster acknowledged the increasing popularity of selling all sort of items on the Web, but said the rate of growth is "moving above the usual trend line." He said he was amazed at the desperate tone in some ads.
• In Daleville, Ala., Ellona Bateman-Lee has turned to eBay and flea markets to empty her three-bedroom mobile home of DVDs, VCRs, stereos and televisions. She said she needs the cash to help pay for soaring food and utility bills and mounting health care expenses since her husband, Bob, suffered an electric shock on the job as a dump truck driver in 2006 and is now disabled.
• But clearly, cash-strapped people are selling their belongings at bargain prices, with a flood of listings for secondhand cars, clothing and furniture hitting the market in recent months, particularly since January.
• Earlier this decade, people tapped their inflated home equity and credit cards to fuel a buying binge. Now, slumping home values and a credit crisis have sapped sources of cash.
• Meanwhile, soaring gas and food prices haven't kept pace with meager wage growth. Gas prices have already hit $4 per gallon in some places, and that could become more widespread this summer. The weakening job market is another big worry.
• "I need the money for essentials — to pay my bills and to eat," Hadley said.
• At AuctionPal.com, which helps novices sell things online, for-sale listings rose 66 percent from February to March, much faster than the 25 percent to 30 percent average monthly pace since the company was formed in September, CEO Maureen Ellenberger said. She said she was surprised to see that most of her clients desperately needed to sell items to raise cash.
• On Craigslist, Buckmaster said, three of the four fastest-growing for-sale categories are tied to gas — recreational vehicles like campers and trailers, cars and trucks, and boats.
• Baughman, who runs eBizAuctions, said that over the past four months she's been working with mostly desperate sellers instead of mainly casual ones. Most are middle-class customers who can't pay their bills and now want to be paid up front for the items instead of waiting until they are sold, she said.
• The trend may be hurting secondhand stores too. Donations to the Salvation Army were down 20 percent in the January-to-March period. George Hood, the charity's national community relations and development secretary, said that was probably partly because people were selling their belongings instead.

Buy stocks, Americans don't matter to multinationals. Buy stocks, Americans don't matter to multinationals. Buy stocks, Americans don't matter to multinationals.

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

Finally (A Year Late) Fertilizer Hits the Front Page of the NYTimes; and an Interview with Mosaic (MOS) CEO

Just in time for a sell off... the mainstream press finally wakes up to one of the best investing stories of the past few years... much of this is old news for blog readers but it continues to build on my World of Shortages theme... note how when new factories are created to generate more fertilizer, it leads to more energy consumption which leads to more water usage, and pollution and....

... again, I state this planet is not well suited for 6.5 Billion people unless 4.5 Billion live in abject poverty. The more wealth in this world and the more people move from poverty to "middle class" (we wouldn't call it that necessarily in the US), the more strains on the globe. We will have crisis after crisis until/if/when technological breakthroughs happen... but I believe the next 1-10 years will be fraught with crisis after crisis as world governments (especially ours) are reactive, not anticipatory. Even in the longer run the technological breakthroughs are going to be like plugging holes in a dam waiting to burst...

The problems we are beginning to encounter are global in nature and require cross border cooperation. If I know human nature, we will turn into a much more protective and nationalistic globe, not cooperative as each nation serves to protect its own. We've already seen this in grains as country after country has restricted exports and/or slapped tariffs. Even mighty United States puts enormous tariffs on Brazilian sugar ethanol so it can protect its own corn producers. We're just in the pre game warm up of this thesis.... first pitch has yet to really be thrown out. And as for those 6.5 Billion humans? Well we are headed for 9 Billion by 2042. So we have to cram another 40%+ people onto this globe.... this is why the commodity cycle in my opinion is just beginning and these "strong dollar" selloffs are (while predictable) very laughable in the "big picture"... but I do realize Wall Street does not have a timeline longer than "next week" and I'm talking issues over the next 30 years. The U.S. is 5% of world population (creating 25% of the pollution and consumption) - and we are headed to 3% by the middle of this century. Just imagine when the Asians pollute and consume at a rate of 1/5th of us... and there are another 1-3 billion of them (think 2020 to 2040). I continue to believe productive farmland anywhere on the globe will be the best pure long term investment...

• (In Vietnam)... the widespread use of inexpensive chemical fertilizer, coupled with market reforms, helped power an agricultural explosion here that had already occurred in other parts of the world. Yields of rice and corn rose, and diets grew richer.
• Now those gains are threatened in many countries by spot shortages and soaring prices for fertilizer, the most essential ingredient of modern agriculture.
• Some kinds of fertilizer have nearly tripled in price in the last year, keeping farmers from buying all they need. That is one of many factors contributing to a rise in food prices that, according to the United Nations’ World Food Program, threatens to push tens of millions of poor people into malnutrition.
• The squeeze on the supply of fertilizer has been building for roughly five years. Rising demand for food and biofuels prompted farmers everywhere to plant more crops. As demand grew, the fertilizer mines and factories of the world proved unable to keep up.
• Some dealers in the Midwest ran out of fertilizer last fall, and they continue to restrict sales this spring because of a limited supply. “If you want 10,000 tons, they’ll sell you 5,000 today, maybe 3,000,” said W. Scott Tinsman Jr., a fertilizer dealer in Davenport, Iowa. “The rubber band is stretched really far.”
• Fertilizer companies are confident the shortage will be solved eventually, noting that they plan to build scores of new factories. But that will probably create fresh problems in the long run as the world grows more dependent on fossil fuels to produce chemical fertilizers. Intensified use of such fertilizers is certain to mean greater pollution of waterways, too. (this is why potash has the widest moat - you cannot build a factory to create more potash - nitrogen on the other hand will be at most risk as it is much more easily replicated)
• Agriculture and development experts say the world has few alternatives to its growing dependence on fertilizer. As population increases and a rising global middle class demands more food, fertilizer is among the most effective strategies to increase crop yields.
• “Putting fertilizer on the ground on a one-acre plot can, in typical cases, raise an extra ton of output,” said Jeffrey D. Sachs, the Columbia University economist who has focused on eradicating poverty. “That’s the difference between life and death.”
• From 1900 to 2000, worldwide food production jumped by 600 percent. Scientists said that increase was the fundamental reason world population was able to rise to about 6.7 billion today from 1.7 billion in 1900.
• Vaclav Smil, a professor at the University of Manitoba, calculates that without nitrogen fertilizer, there would be insufficient food for 40 percent of the world’s population, at least based on today’s diets.
• Manufacturers are scrambling to increase supply. At least 50 plants to make nitrogen fertilizer are under construction, many in the Middle East where natural gas is abundant, and phosphorous and potassium mines are being expanded. But these projects are expensive and time-consuming, and supplies are expected to remain tight for years.
• Environmental groups fear increased use, particularly of nitrogen fertilizer made using fossil fuels. Because plants do not absorb all the nitrogen, much of it leaches into streams and groundwater. That runoff has long been recognized as a major pollution problem, and it is growing.
• “This is a basic problem, to feed 6.6 billion people,” said Norman Borlaug, an American scientist who was awarded a Nobel Peace Prize in 1970 for his role in spreading intensive agricultural practices to poor countries. “Without chemical fertilizer, forget it. The game is over.”

On to the Mosaic CEO interview (thanks for reader who sent this to me)

• It's not every executive who can claim to have improved his company's margins from nearly zero to more than 30 percent in less than two years. But Jim Prokopanko, president and chief executive of the Mosaic Co. since January 2007, finds himself riding a rocket driven by growing global demand for his company's crop nutrients and strained supply.
• And Mosaic, the world's largest producer of phosphate fertilizer and second-largest supplier of potash, another key crop nutrient, is in the enviable position of controlling nearly every step in the production process from mining the raw material to shipping the finished product.
• Though Mosaic is based in Plymouth, Minn., outside Minneapolis, more than half its $5.8 billion in sales last year were tied to the phosphate rock they take out of five mines in Central Florida and process at three area plants in Polk and Hillsborough counties.

Q. You've been in the business, previously with Cargill, for 30 years. Did you ever think you'd see diammonium phosphate (DAP) fertilizer selling for more than $1,000 per metric ton?

A. Never. This is absolutely unseen in my generation. And it came about very quickly.

Q. Is it a bubble?

A. We've seen spikes in grain prices before, but those were supply-driven, caused by floods in Mississippi or droughts in Canada. This is demand-driven by an increase in consumption the world over.

I think we've hit a tipping point because while we have very steady population growth, at the same time we're having strong world economic growth.

Though there may be a slowdown in the U.S., the economy is strong in areas of the world like Asia and South America with the greatest population growth.

And at $4,000 to $5,000 per capita annual income, people look to improve their diets. That translates to demand for more grain.

The world's inventory is also dangerously low. We're emptying the cupboard.

Q. So when grain prices rise, farmers plant more acres and want more productivity, increasing the demand for fertilizer?

A. Farmers, of every size, can't afford not to maximize their production. Their costs are also up. For the last two decades, the agricultural industry has not had very favorable returns; the profit has not been there. So there's been consolidation throughout the industry, including in the fertilizer business.

Two years ago, we closed a mine and two plants in Florida (the Fort Green mine and the Green Bay and South Pierce fertilizer plants, all in southwest Polk), which were high-cost facilities.

Though demand has grown, you can't just turn on a dime to produce more phosphate. We're running 24/7, mining 17.5 million tons of phosphate rock each year, and we're working to expand our mining areas, both here and at our potash mines in Canada. But if you started permitting a plant today, it would take five years to get it up and operating.

Q. In addition to phosphate rock, you need ammonia and sulphur to make DAP. How have those costs increased?

A. The cost of ammonia, made from natural gas, has tripled over 10 years. Sulphur, a byproduct of oil refining, has gone from $55 a ton to $450 a ton in the past year.

Ocean transport for fertilizer, from Tampa to India, used to cost $35 a ton. Now it's $100 a ton.

The world price for DAP is set by Morocco, which is the Saudi Arabia of phosphate with a 300-year reserve. Last year, phosphate rock from Morocco was $55 a ton; today it's over $250 and for the second half of the year it's going to be $350 to $400.

That sets a floor price for fertilizer producers who don't own their own rock, who have no choice but to buy from Morocco. But we own our rock.

Q. How are world markets changing?

A. China used to be our largest customer. This year China was a net exporter, supplying 5 million tons to the world market.

But China's government is very concerned about food security, and they've just put a 135 percent tariff on fertilizer exports. That will have a major impact on world supplies.

India is now our biggest customer, but the government caps the price of fertilizer to the farmer at $200 a ton and subsidizes the difference. This year, the Indian government will end up spending more on fertilizer subsidies than on its military. It's an impossible situation.

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

Bookkeeping: Cutting Some Cummins (CMI) & Mosaic (MOS); Adding Some National Oilwell Varco (NOV)

Well my 'dream' scenario of this morning did work out - I wrote this when Cummins Engine (CMI) was in the $59s

My hope right now is the stock runs to mid $60s, where I'd lighten up and then refill the position as it eventually falls back to fill that gap in the chart - ambitious plan but it would be a dream scenario.

Since I'm not watching every movement of the market (damn day job), I missed the move to $64, but I lightened my position here in the $63s, selling down my position by 40%. (200 of 500 shares) Again, I'd like to add this stake back on a pullback. So if I am wrong and there is no pullback then I still have 60% of my position to ride the wave. If there is a pullback, then I will buyback my shares let go here in the $63s with a target of $56.50 - this would be a 10% reduction... if it worked out that beautifully, well I'd be a happy camper. This selloff still keeps the name at 1.7% stake in case it continues to run.

I am still reticent to add a lot of commodity exposure - I can see the "play it by the book" robots who rule Wall Street to sell them off as the "dollar strengthens" but I am going to selectively make buys here and there. One of my favorite oil service names, National Oilwell Varco (NOV) has pulled back significantly here from nearly $76 to $66 in just 7 sessions - so I am going to take this 13% drop as a time to begin rebuying this position... SLOWLY. The stock has fallen to its 50 day moving average. Once again, I could see all these commodity names selling off more significantly as long as people rotate to financials, retailers, and other related junk and out of things that will actually work in 2nd half 2008. I'm taking NOV back to a 0.9% stake, but if crude "falls" to $105-$110, panic will be in the air and we'll hear how the Fed is doing such a great job of fighting inflation. Again, ignore it - the Fed will be keeping rates low through the election, and putting even MORE liquidity into the system through their alternative means. That is not fighting inflation - that is stoking it. The dollar rebound will be short lived in my opinion. But that does not mean the lemming hedge funds won't all pile out the same exit at once and cause harm to portfolios. Hence I am taking it slow adding to any stakes and anticipating a broader selloff on the "vigilant" Fed - a total misnomer.

EDIT: 12:50 PM - I missed the small fact that NOV reported earnings this AM - oops. Here they are. More hamsters (my analyst team) that need to be fired... (interesting comments on the North American land drillers who I've mentioned a few times now as showing great charts of late - this is another group, much like natural gas that I'd abandoned for a few years - major names NBR, PTEN, HP, a few others)

• National Oilwell Varco Inc (NOV) said on Wednesday its first-quarter profit rose 44 percent as record crude oil prices boosted demand for its drilling equipment, particularly in offshore markets.
• Still, the company's shares fell nearly 3 percent as its outlook, which noted improved demand in North American land markets and growth in deepwater markets, failed to inspire investors.
• Here you have a company that is well positioned for the infrastructure build-out we are going to see in North America and internationally," Roger Read, oilfield services analyst at Natixis Bleichroeder, said. "But they didn't tell us anything we didn't already know two weeks ago."
• Net income for the Houston company was $397.6 million, or $1.11 per share, compared with $275.9 million, or 78 cents a share, in the same quarter a year earlier. Net income for the Houston company was $397.6 million, or $1.11 per share, compared with $275.9 million, or 78 cents a share, in the same quarter a year earlier.
• Revenue rose 24 percent to $2.69 billion.
• Backlog for capital equipment orders for the company's rig technology segment increased to $9.9 billion, compared to $9 billion at the end of 2007.
• On a conference call with analysts, National Oilwell's Chief Executive Officer said the company's outlook for North America had improved, citing the development of unconventional shale plays like the Marcellus in Appalachia.
• "I would offer up that the land rig building in the lower 48 is going to improve dramatically this year," CEO Pete Miller told analysts on a conference call.

I took 150 of my 500 shares of Mosaic (MOS) off the table for no reason other than the ones listed above... I could easily see a scenario where hedge funds all do their silly dance of "strong dollar means I need to buy Macys" blah blah. I continue to target $110-$114 for this name, so I took some off here in the $122s. If I am wrong and the stock shows strength and the "commodities are dead" play is not on, then I'll be happy to add higher since my year end target is much higher. This is simply a bit of a short term play, and takes my exposure back down to a normalized 3.7% stake. Once the fluff of "weak dollar plays are over" I am going to build this position back to a 6-8% stake; I'll start in that $110-$114 area... and pray for $100 or lower ;)

I would like to add to my coal plays here, but again - I am fearing the herd trade of "the end is here for commodities" which might be playing out at 2:15 PM this afternoon.

Long all names mentioned in fund; long Mosaic in personal account

Totally Not Stock Related: Official Iron Man Theatrical Trailer 2008

There are very few movies I ever get excited about anymore, since they are all so ho hum and/or repeats of various old themes; I probably go to 3-4 movies a year nowadays... but for anyone with a Y chromosome this one has to get your heart racing. Love the casting of Robert Downey Jr. - hope it is half as good as some of the trailers out there.

First Solar (FSLR) Keeps Doing Enough to Satisfy Shareholders

Despite the incredulous valuation First Solar (FSLR) continues to do enough to make shareholders happy. Let me be the first to say, despite my early entry into solar (about 1.5 years ago) I've constantly underestimated this specific name, and missed the boat - we've held it in the fund briefly but since I'm not a "growth at all costs" guy, but a "growth at reasonable cost" guy, I've had a hard time holding this (similar to Baidu.com (BIDU) where there is no reasonable metric of valuation which explains the stock price)

My worry with First Solar is simply an expectations game - they are reaching the stage that within a quarter or two they will finally be hitting the wall in terms of "yes we are growing at an incredible rate" BUT "investors expected us to grow even more".... when that quarter happens, the momentum guys will flee en masse and you'll see a large drop off in the stock price. I thought this quarter might be that quarter since the CEO indicated in the past that 1st half 2008 would be more flattish growth....but not yet - however sequential growth (that is, one quarter out) might be "modest" per the CEO's comments today; and this stock is not priced for modest sequential growth. You can start reading between the lines in their guidance regarding this situation - while they keep raising future guidance it's not nearly the pace of "surprise" as in the past. So I still see this as a potential risk, not from a company execution standpoint but a stock standpoint.

• First Solar Inc (FSLR) raised its full-year 2008 revenue forecast to between $975 million and $1.05 billion from its previous estimate of $900 million to $950 million, Chief Financial Officer Jens Meyerhoff told a conference call on Wednesday.
• The company, which makes thin-film solar products, raised its expected production forecast to between 420 and 460 megawatts of solar modules from its forecast issued in February of 400 to 430 megawatts
• Meyerhoff told the conference call the company expects its second-quarter revenues to rise "modestly" from the first quarter level.

Analysts are currently pegged at $2.53 for 2008 EPS. I'll be generous and say they can do $3.00 - the stock is priced at 100x forward earnings. And 23x revenue. I know bulls will say, that does not matter - and thus far except for a few months - it has not. I'm as big of a bull on solar in the long run as you will find (I do expect some road bumps in the next few years however), but these are not sustainable valuations. In 2009 analysts have the company growing to $5.12 EPS - I'll say the analysts are wrong and FSLR can do $7.... that means the stock is now trading at 43x estimates almost 2 years out. The "law of large numbers" will eventually hit First Solar as it has hit all great growth companies, even Mr Google (GOOG)... once you get to a certain size you cannot just keep doubling revenue every year... I think that is going to be the issue for First Solar between 2009 and 2010; growth should drop to a still excellent 40-60% range - but you are paying a much higher multiple for that earnings. Further, all it's brethren on the polysilicon side who have been hampered by sky high costs are going to see relief by that point (2009-2010) and their costs are going to fall through the floor - so the competitive atmosphere will be very different than it is now in my opinion. But that is neither here or there for now, it continues to execute and one cannot have any qualms with the scintillating growth - it's just a matter of what price do you pay for that growth? And how much more upside can we squeeze out from here? This is always our question on every stock - what is the upside potential versus downside risk - I believe risk is beginning to become more of a factor as upside surprises are becoming harder to reach (simply due to law of large numbers). Again, let me reiterate - execution has been flawless.

• First Solar Inc. said Wednesday that first-quarter earnings spiked, beating Wall Street expectations, as the solar module maker's revenue more than doubled.
• For the first quarter ended March 29, earnings surged to $46.6 million, or 57 cents per share, from $5 million, or 7 cents per share, in the prior year. Quarterly revenue more than doubled to $196.9 million, from $66.9 million in the first quarter of fiscal 2007.
• Analysts surveyed by Thomson Financial forecast first-quarter earnings of 47 cents per share on revenue of $183.6 million.
• Operating expenses jumped 83 percent to $46.2 million as selling, general and administrative expenses more than doubled.
• The company's foreign sales benefited from the weaker U.S. dollar.

No position in First Solar, but various solar positions in fund; long Baidu.com in fund - no personal position

Cummins Engine (CMI) Excellent Report on Strong Int'l Sales

I restarted Cummins Engine (CMI) in the fund 2 weeks ago as a "weak dollar" play - one thing that attracted me to this name in the fall was it's large (and very early) exposure to Chindia. Once I started seeing company after company make up all their US losses with major currency benefits from international sales (along with booming volume sales overseas) this seemed like a good time to re-enter this name. [Apr 18: Restarting Cummins Engine as Rest of the World Moves on Without USA] So far so good; earnings today booming on overseas sales. If not for a nasty gap in the chart which I would like to see "filled" i'd be adding to this position today. Instead I will add when the stock falls and fills this gap (in low $56 range). My hope right now is the stock runs to mid $60s, where I'd lighten up and then refill the position as it eventually falls back to fill that gap in the chart - ambitious plan but it would be a dream scenario. This stock remains dirt cheap.

I do want to STRESS that inflation is REAL and just by the 2 reports I am highlighting today you can see despite government's insistence it does not exist, it is SQUEEZING corporate profit margins - look for this to be a theme in the next year in many earnings reports. We are just seeing the first edge of this in this season's earnings reports and I don't hear ANYONE talking about it.

• Cummins Inc. said Wednesday that first-quarter earnings jumped 33 percent as the diesel engine maker's international growth helped offset increased commodity prices and weakness in some U.S. markets.
• For the period ended March 31, earnings rose to $190 million, or 97 cents per share, from $143 million, or 71 cents per share, in the prior year. Analysts surveyed by Thomson Financial forecast earnings of 89 cents per share on revenue of $3.33 billion.
• Quarterly sales grew 23 percent to $3.47 billion, from $2.82 billion in the first quarter of 2007.
• Cummins said strong performance in international markets helped offset rising commodity prices and weakness in some U.S. consumer-related markets, such as pickup truck engines, recreational vehicle products and recreational marine engines.
• The company said sales growth was driven by its engine business, which is its largest segment. Demand was strong for medium-duty truck engines in the U.S. and for commercial generator sets in India, Great Britain, Asia and the Middle East. Demand also increased for turbochargers and exhaust aftertreatment products in North America and Europe.
• Cummins' distribution business reported strong growth in Europe, the Middle East and Asia Pacific.
• Also, the company's joint venture earnings jumped 86 percent, boosted by emerging markets such as China and India, and by the company's North American distributors.

Again, let me say, the rest of the world cannot decouple from the US; their growth will slow to some degree - BUT in a relative world, they are booming (if China's growth falls in half from peak we are still talking 6%+ growth) and many of these multinationals really could give a damn about the pathetic state of domestic affairs here. The rest of the world does move on, with or without us. Each year that passes we become less and less a share of global GDP. However, the global inflation our central bank is helping to stoke WILL be an issue for the entire globe (how much is to be determined but I fear it could be a serious blow)... I guess it's our way to payback the world - first we try to sink their banks with our toxic mortgage debt sales (risk free!!), and then when that doesn't work, we help exaggerate global inflation with 'easy money policies'... we are a mean bunch. But the rest of the world is observing these self serving actions, and it will be remembered.

Long Cummins Engine in fund; no personal position

Bookkeeping: Closing Chicago Bridge & Iron (CBI) Position

I am closing out one of my infrastructure stocks; Chicago Bridge & Iron (CBI) after a less than stellar earnings report. This is 2 days in a row an infrastructure stock has missed; yesterday was McDermott [McDermott Issues Warning] but I've decided to hold the latter for now. Main difference is despite the name, Chicago Bridge & Iron is based in the Netherlands and thus does not have the tailwind of the US Peso at it's back. Further, yesterday's fall in McDermott (MDR) took the stock down to its 50 day moving average, but not below... nor below its 200 day moving average.... today's fall in CBI has taken it down below both moving averages. So these 2 factors combined are why I am keeping one (for now) and letting the other one go. I have a big stable of infrastructure names, so I still have a big basket of names... I will be curious if the others create the same excuses of "weather" (MDR excuse) or "commodity costs" (CBI). I did not see Jacobs Engineering (JEC) complain about either in its recent report.

Last, I have been adding a lot of positions of late and want to streamline the portfolio and try to keep the long positions at a certain ceiling... so I've been mulling what positions to cut over this past weekend - this was one of the candidates, and this earnings report confirmed. While I can hold this for a while and hope for a rebound to curtail my losses I just decided to cut bait and focus energy on other ideas.

I'm selling my 1.5% stake which I started on November 12, 2007 for a net loss of $6000, selling today in the $42s. Again, for some this is a buying opportunity as the stock has retreated but I just don't like the lack of execution; this is not a 2-3 cent miss but a miss by a mile - again lack of managing Wall Street is not what I like in my holdings. I still like this name for the long run based on what space it operates in.

• Chicago Bridge & Iron Co. said Wednesday its first-quarter profit rose 15 percent year-over-year but failed to meet Wall Street expectations, as escalating material and commodity costs offset revenue growth.
• The engineering and construction company said net income rose to $42.2 million, or 43 cents per share, from $36.6 million, or 38 cents per share, a year ago. Analysts surveyed by Thomson Financial had expected much higher profit of 54 cents per share.
• Revenue surged 68 percent to $1.4 billion from $857.3 million, in line with analysts' expectations. New awards for the quarter totaled $943 million, bringing CB&Is total backlog to $7.3 billion as of March 31.
• "We are confident in our full-year forecast and in the continuing level of capital expenditures in the global energy market although challenges on projects related to labor productivity and escalating material and commodity prices have impacted the quarters results," said Philip K. Asherman, President and CEO.

Long McDermott, Jacobs Engineering in fund; no personal positions

Earnings Review - What Did We Learn by Ignoring CNBC & Government Reports?

First the market - we continue to cling in a tiny range... can't get over that S&P 1400 level no matter what. All week everyone sits on their hands and waits for the Gods from D.C. to tell us what they do with the peons... we expect 25 basis point and then statements saying balances are risked, we care about inflation blah blah. Or maybe even no cut. Either way it doesn't matter much - these are long term situations yet not a trader on Wall Street can hit buy or sell this week until they see the action. This has to be the most telegraphed "we are stopping after this meeting" I've ever seen but still the blackjack players are waiting to see the knee jerk reaction before placing chips. Will anyone care in October 2008 if rates are 2 or 2.25%? No. But for tomorrow it's the most important thing in the world. I'm more interested in Friday's piece of fiction from the government - you know, the monthly "no seriously - unemployment is not an issue" report.

A quick look back at some of the names I mentioned I was looking at earlier this week, all important data points for our forming our macro point of views so we can ignore CNBC blather and government reports which are useless.

In the restaurant biz, Buffalo Wild Wings (BWLD) shows why you don't want to be short or long going into earnings - too much risk, up 10% in after hours on ok earnings - when expectations begin to get so low, it becomes easy to pass the low bar. Their costs rose 22%. If this were a government report their costs would only be up 3%. That's like dog years. I actually like this company, so it's one reason I watch it; but just in a tough neighborhood (restaurants). Domino's Pizza (DPZ) did not far so well. Stop if you've heard this before but United States of Subprime sales down 5.2%, but international sales up 8.8%. In an interesting tidbit the CEO is saying they need to focus on the lower price market, something they've ignored for years.... translation - the pooring of America continues as real wages (adjusted for inflation) continue to eat away our middle class - and companies need to adjust. More and more people are entering the "lower class" so companies need to move "down market". What does it mean for companies? Lower profits. Folks, these are secular issues (not cyclical) . If you believe inflation is permanently going to be a higher issue in my "World of Shortages" scenario than profit margins will be permanently squeezed, and the living wage in America is simply not going to keep up - our lower class will only grow and the gap between rich and poor, already at levels last seen in 1929 will only widen. That's how you lead to social unrest. Unlike the late 1970s where workers were able to get wage increases of 10%+ to compensate for sky high inflation, we are in a new era where employers simply say, we'll find another you if you don't take this 3.2% wage increase. Bad for Main Street. Great for Wall Street.

In the pharmacy benefit space (names I like), MedcoHealth Solutions (MHS) did ok but since they did not give the lemmings what they wanted on guidance, the stock traded down. Express Scripts (ESRX) continues to hot home runs. If it's what the lemmings like or not in the near term, who knows.

Burlington Northern (BNI) - well they run a railroad - 3 words - ethanol, coal, fertilizer. I do want to highlight some points because as I keep saying, this railroad strength has nothing to do with "US strength in 6 months". The rest of the world continues to charge forward (although they will slow to some degree) while the United States of Subprime wallows.

• Burlington Northern Santa Fe Corp., which operates the nation's second-largest railroad, said Tuesday that its first-quarter earnings jumped 30 percent on more rail shipments of farm products and coal, as well as larger fuel surcharges.
• Chairman and Chief Executive Matthew K. Rose said, however, that the company continued to see softness in shipments of consumer products and housing supplies.
• "It is hard to see any significant decline in commodity prices coming in the second, third or fourth quarters," Chief Executive Matt Rose told Reuters in a telephone interview. "But we're seeing a real dichotomy out there in the economy." "It really is a tale of two cities," he added
• Freight volumes rose in the company's coal (up 6.7 percent), agricultural (up 15 percent) and industrial products (up 3.3 percent) divisions. But volumes at BNSF's consumer products division -- which includes hauling consumer goods and automotive shipments -- were down 8.7 percent, due to economic softness related to the slowdown in the U.S. housing sector, the railroad said.
• CEO Matt Rose said that while he expects commodities will continue to perform well throughout the year, sagging U.S. consumer confidence and the housing slowdown will remain a drag on the economy for the remainder of 2008. "We're not expecting any significant breakout on the economic front," he said. (but Mr Rose - they promised me... in... 6 months... )

In the contract research organization space, US player Covance (CVD) was solid but shares were down early hard (recovered all day), whereas Irish player ICON (ICLR) had a very good report and the market rewarded it. From watching these guys over the years, ICON just seems to be best of breed.

US Steel (X) saw a MASSIVE gain from the US Peso - 59 cents. Considering they made under $2, over 25% of their profit is US Peso. No matter, it was only down 1%. People can't be bothered with details like that. Just imagine if we still had a manufacturing base how much of a boom town Pittsburgh would be nowadays. Actually much of PA and OH would be booming...

Valero (VLO) is a quality company but this refiner is simply stuck between a rock and a hard place. The sector has been decapitated, so investing here should be relatively low risk of an entry but one has to hope for crude to meaningfully fall (and I don't mean for a week or two) and/or things to reach a level akin to financial, homebuilders or retailers where as long as you assure investors you won't be out of business the stock can jump 20% on (any) earnings. These were some amazing stocks in spring 2007, not so much this year.

• But Valero chairman and chief executive Bill Klesse said the fundamentals for gasoline are improving, including demand. On the Gulf Coast, he noted, the average "crack" spread for gasoline -- the difference between what refiners pay for crude and get for the gasoline they make -- has more than doubled in April versus March, from about $3 to $6.50 a barrel. At one point last spring, crack spreads reached as high as $37 a barrel.
• The company noted the average price of the benchmark West Texas Intermediate crude increased nearly $40 a barrel in the quarter, while the average wholesale price of Gulf Coast conventional gasoline rose by about $34 a barrel.

Under Armour (UA) is a disaster - every time I think about buying them I have to remind myself... Nike (NKE) = global brand. Under Armour = United States of Subprime brand. End of discussion

Last, but not least, is a stock a reader mentioned Titan International (TWI) which is a derivate play on the global boom/ag boom - they make huge tires for agriculture and mining companies. Business is booming and they are jacking up prices, from 4-35%. In government terms that means they are dropping/raising prices from "-8% to 4%". But I try to stick to the real world. Keep in mind the below results are that good even with a huge share count increase

• Titan International the Quincy, Ill., holding company for interests in wheels, tires and assemblies for equipment for agricultural, construction and consumer applications, swung to a first-quarter profit from a year-earlier loss on 12% higher sales. Earnings were $8.1 million, or 29 cents a share, compared with a net loss of $2.5 million, or 12 cents, in the year-earlier period.
• Revenue reached $253.5 million from $226.3 million. Demand in the agricultural market was "huge," driven by increases in grain-based ethanol and soybean-based biofuel and the resulting higher commodity prices, Chairman and Chief Executive Maurice Taylor Jr. said in a statement
• Titan Tire Corporation, a subsidiary of Titan International, Inc. (NYSE:TWI - News), will implement a price increase on Titan, Goodyear and General branded off-the-road (OTR), farm and construction tires in the aftermarket, effective June 1, 2008. The increase will range from 4 percent to 35 percent to offset rising natural and synthetic rubber, carbon black, fabric, energy and transportation costs. (no inflation here, move along)
  

No positions

Housing Stocks Continue to Ignore the News

At this point the "Decoupling" between reality and the stocks in some areas is reaching amusing proportions. I own 2 homebuilders, not because I believe in any imminent rebound, but because no amount of bad news can bring them down anymore. In fact, days like this are exactly why I own them - to counterbalance the commodity / global growth positions I own such beauties as Lennar (LEN) up 4%.

So when I put on my stock jockey hat I say "everything will be fine in 6 months, buy buy buy". And that's about the depth of my analysis.

When I put on my economist/strategy hat I continue my long held stance that we are still in the early innings (I've moved us up to 3rd/4th inning now that new home prices are being slashed) but if you look at the news flow, it is amusing when overlayed with the stock performance. You could say that for the whole stock market, but this group in particular. Remember, reality does not count in the stock market - only perception. Perception is things are going to be fine "in due time"... on the other hand MY reality is 2008 will be the year of the 'walk away" (people send it keys, and walk away from homes they are underwater on) , inventory numbers are at record levels but do not reflect the "trapped" people - people who want to sell but either (a) refuse to face reality and book their loss or (b) don't have enough money to bring to the table at closing to sell their underwater home, credit tightening so even less home owners are available to sap up inventory, people who feel like they are in a recession are not going to be rushing to buy homes, people whose real wages (adjusted for inflation) are becoming poorer by the day, so their buying power is falling (for homes as well), many potential buyers who should be ready to buy now were sucked in early in 2005-2007 by no down, cheap rate mortgages so that pool of people is nowhere to be found, foreclosures are just beginning as people begin to give up, and it still takes 6 months for inventory to come to the market, and median prices are still too high in most major urban areas for average people with average wages. That's 2008. 2009? Not much better. Get back to me in late 2009/early 2010.

But since none of that matters ("it's all priced in"), we have homebuilder stocks in our portfolio - and they go up on days like this when we see Case/Schiller Price Index shows nearly 13% year over year median NATIONAL price reductions (ouch), and foreclosures are at record levels. Thankfully, this will all be past us in "6 months".

• Home prices have posted another record decline, as most of the nation's largest markets suffered double-digit drops over last year, a survey released Tuesday shows.
• The S&P Case/Shiller Home Price Index, which tracks 20 of the largest housing markets, showed prices plummeting by 12.7% in the 12 months ending February. That's the biggest fall since the index began tracking prices in 2000.
• Of those 20 metro areas, 17 posted their largest year-over-year declines ever. Ten of the 20 cities posted double-digit dips.
• "There is no sign of a bottom in the numbers," S&P spokesman David M. Blitzer, said in a prepared statement. "Prices of single family homes continue to drop across the nation."
• "This is huge," said Dean Baker, an economist with the Economic Policy Institute. "Back a couple of years ago, people were saying, 'Housing prices are not like stocks; they change slowly,'" he said. But the drop in home prices appears to be accelerating. Indeed, Baker said that at the rate prices are falling, as much as $6 trillion in home values could be wiped out from the top of the market in June, 2006, through the end of this year. (what's a few trillion among friends? Uncle Ben and his merry band are printing 24/7 to help replace this lost value - replace one bubble with the next)
  
• Prices in the Las Vegas metro area have plunged more than any other city, down 22.8% over the 12 months through February. Miami prices plummeted 21.7%. In Phoenix, they've fallen 20.8%. (so let's review, plunging tax revenues, with government loaded with workers, who need to cut either services or increase revenue - yes you guessed it job losses at the state and local level combined with higher taxes for the minions - all sounds like a recipe for a recovery in "6 months")
• The declines create a vicious cycle, according to Peter Schiff, the president of the investment firm Euro Pacific Capital. He was sounding alarms about the housing bubble more than two years ago. "People wanted houses as vehicles to make money," said Schiff. "Now that they can't make money, they don't want the houses anymore."

On to foreclosures

• The number of U.S. homes heading toward foreclosure more than doubled in the first quarter from a year earlier, as weakening property values and tighter lending left many homeowners powerless to prevent homes from being auctioned to the highest bidder, a research firm said Monday.
• On Monday, the Census Bureau reported that the number of vacant homes for sale has hit a record high. The report shows that 2.9% of U.S. homes -- excluding rental properties -- were vacant and up for sale in the first quarter. That translates to about 2.28 million properties - the highest quarterly number on record since 1956.
• Nationwide, 649,917 homes received at least one foreclosure-related filing in the first three months of the year, up 112 percent from 306,722 during the same period last year, RealtyTrac said.
• The latest tally also represents an increase of 23 percent from the fourth quarter of last year.

With my stock market hat on, I am debating whether this is great news or incredibly great news - it falls somewhere in between the two. I mean any news is good news, so this news is better than "any news". All I know is the bull case for a 2nd half recovery is shaping up beautifully; everything is discounted from here to 2037. Buy stocks.

Long Lennar in fund and personal account

Agco (AG) Unfairly Hit on its Guidace

Agco (AG) is a former fund holding that remains my favorite equipment name; but as I've stated in the past I am using the fertilizer names as my proxy on the group due to the extra risks associated with equipment (plus the pricing power in fertilizer is unmatched). You can see from the chart at bottom of the entry that despite great fundamentals, the farm equipment charts look nothing like the fertilizer charts, so this focus on a "theme" (agriculture boom) but deciding how best to ride said theme, is important. I am highlighting their earnings report, to showcase that one needs to read about related stocks, even if not directly invested. I found a few very interesting comments... note the stock is down 8% today because they "missed" estimates. That is baloney and a good stock market lesson. Agco got hit the last time it reported for the exact same reason [Feb 7: Agco Reports - Guidance Disappoints] So last time around they beat by 19 cents but said they were aiming for $2.75 in EPS with "hopes of $3".

Now, 3 months later? They beat by a mile again (14 cents) and 'raised' THEIR guidance from $2.75 (hoping for $3) to $3.00-$3.15. That's an upgrade. But the analysts were in @ $3.23 so the news headlines blaring are a "miss" on guidance. Not from my perspective, but this is the Wall Street game.

Now I did find the Agco comments about the weakness in US farming interesting... it seems even our farmers are weaker than the global average? I am used to reading about it in every other industry (US market stinks, but international sales fantastic) - but I did not expect it in farming... here is my theory. All these farm bills go mostly to large corporate farmers (Cramerica, for the corporation, by the corporation). As with all things the small guy gets the short end of the stick. Agco says the weakness is in North American small tractors... which is what smaller scale farmers, mom and pop would use. So from that angle, if the thought process is correct, I could see the reasoning - higher fertilizer prices, and fuel costs are squeezing small farmers despite record crop prices - they get little of the $300B in farm subsidies since that is reserved for people who pay for politicians campaigns (corporations), so despite good times all around, they are "relatively" (still better off than the average American of course) more weak than the corporate farmers. Just a thought process, and I could be wrong on that....

Now the last interesting point is how the wet weather, which we've highlighted in the past, is causing late planting in corn. Remember folks, we need to have a string of great weather and bumper crops across the glove so that the world does not go into a new stage of food crisis. So far, it is not looking so good.

• Agricultural equipment maker Agco Corp (AG) reported stronger-than-expected quarterly earnings on Tuesday as sales grew by double digits in nearly all its regional segments outside North America.
• The company also raised its full-year guidance, saying strength in South America and Eastern Europe would more than offset growing weakness in North American demand for smaller tractors.
• Ann Duignan, an analyst at Bear Stearns, said Agco's combine sales were a standout during the quarter, outperforming rivals in both North and South America, and she predicted the market would "react favorably" to the results. (not so much Ann)
• But the good news from Duluth, Georgia-based Agco was overshadowed by concerns about wet weather in the United States, which has created bad conditions for corn planting and dragged the whole agricultural equipment sector lower.
• In a report released on Monday, the U.S. Agriculture Department said that only 10 percent of the corn crop had been planted so far, down from 23 percent last year and a five-year average of 35 percent by this time.
• The news pulled Agco and rivals CNH Global (CNH) and Deere & Co. (DE) lower in early trading on the New York Stock Exchange. All three companies have seen their profits rise, and shares surge, as a result of the push to develop corn-based ethanol and other biofuels, which has sent commodity prices soaring.
• Agco said its first-quarter net profit more than doubled to $62.3 million, or a share, from $24.5 million, or 26 cents a share, a year earlier. 63 cents Analysts had expected earnings of 49 cents per share, according to Reuters Estimates.
  
• Sales rose 34 percent to $1.79 billion, ahead of an average Wall Street estimate of $1.63 billion. Revenue from South America was up by 44 percent.
• Agco said spending on strategic initiatives would limit improvements in operating margins this year.
• The company also said it was targeting 2008 earnings of $3 to $3.15 per share on sales growth of 20 percent to 22 percent. Last quarter, Agco said it expected to report a full-year 2008 profit of $2.75 a share -- though it said it had a "goal" of hitting $3 a share.

No positions

Bookkeeping: Beginning XTO Energy (XTO) Stake

This will add to my basket of natural gas stocks; XTO Energy (XTO) is my 3rd name in the group... this is a technical buy - I have a watch list of about 15 names, and XTO fell to its 50 day moving average today, so I begin my stake. This company seems very aggressive and has been (and looks to continue to) make acquisitions...

Technically the stock has retreated from a high of $70 a few days ago to its 50 day moving average (13% fall in stock price from peak). The 200 day moving average is down at $54, where I would love to add in scale to this position. My other natural gas positions have yet to reach their 50 day moving averages but when they do, I plan to add more layers in.

I started today with 1.6% stake in the low $61s.

Here is a recent conference call via Seeking Alpha which is well worth the read.

Long XTO Energy in fund; not long in personal account but may be "soon"

Sterlite Industries (SLT) Reported this Weekend

I missed this earnings report from Sterlite Industries (SLT), but the company continues to look good. While copper is not necessarily my favorite metal, the company is branching out into various base metals (zinc) and more importantly is located right in the center of the decades long boom coming in Asia. The stock has been very range bound, but I think this reflects a weak India market in 2008 more than anything... the past few sessions the stock finally is responding. Now the ironic thing is these countries who are actually prospering have the exact opposite problem we have - their currencies are strong, and hence they suffer in currency translation...

• Highest ever annual production across all metals
• Costs lower across all operations, inspite of a challenging environment
• HZL to become world’s largest integrated zinc-lead producer by 2010 – announces expansion projects that will take its total integrated zinc-lead capacity to 1,065,000 tonnes per annum with fully integrated mining and captive power generation capacities.
• Copper cathode production at the Tuticorin custom smelter was 339,000 tonnes for FY 2008 compared with 313,000 tonnes in the corresponding prior year. Overall the plant performance was good, with copper recoveries highest ever at 98% plus in FY 2008.
• Copper revenues for FY 2008 were Rs 12,658 crore, an increase of 7.9% compared with the prior year, primarily on account of higher volumes and better LME prices, mainly offset by an appreciating Indian rupee.
• Aluminium production in Q4 was highest ever at 92,000 tonnes, taking the full year production to 359,000 tonnes. Revenues and EBITDA for FY 2008 were Rs 4,170 crore and Rs 1,435 crore respectively. The positive impact of higher volumes on sales in FY2008 was primarily offset by the appreciation of the Indian rupee.
• Mined zinc metal production in FY 2008 was 551,000 tonnes, an increase of 9.1% compared with the previous year. Revenues and EBITDA for FY 2008 were Rs 7,878 crore and Rs. 6,223 crore compared with Rs. 8,560 crore and Rs. 6,644 crore, respectively in the corresponding prior year. The positive impact of higher volumes on sales and EBITDA in FY2008 was offset by adverse impact on account of a decline in zinc LME prices and the appreciation of the Indian rupee vis-à-vis the US dollar.

Sterlite Industries is India's largest non-ferrous metals and mining company with interests and operations in aluminum, copper and zinc and lead. It is a subsidiary of Vedanta Resources plc, a London-based diversified FTSE 100 metals and mining group. Sterlite Industries' main operating subsidiaries are Hindustan Zinc Limited for its zinc and lead operations; Copper Mines of Tasmania Pty Limited for its copper operations in Australia; and Bharat Aluminum Company Limited for its aluminum operations. The company operates its own copper operations in India. The company has entered the commercial energy generation business and is in the process of setting up a 2,400MW independent power plant through its wholly owned subsidiary, Sterlite Energy Limited.

Long Sterlite Industries in fund and personal account

Quick Word about Commodities

Commodity stocks are weak. No shocker; I've written for 3 weeks now they are getting more extended by the day/week and due for a meaningful pullback. I was early in my comments since the stocks kept running. I've written for 2 weeks now that as the Fed signals it is done cutting we'll get a knee jerk dollar rally and the robots that are hedge fund traders will sell off commodities. That "rotation" is now happening. [Sector Rotation?]

It's now been 6 weeks since we had the last round of "commodities are dead" - we were long overdue for hand wringing. [Mar 22: Alert: Commodities are Dead] After that panic, in which the fund took a hit (as always), many stocks rallied on order of 40-50% in the following 6 weeks.

The medium and long term does not change. We are having major deflation in our #1 asset, housing. We have a Federal Reserve that does not care about inflation although they try to talk a good game (watch their actions, not their mouths). We have major structural deficits and candidates (all 3) who don't seem to realize this and all their plans are about giving away more of the store and creating even bigger deficits. We have a US populace that does not understand that you have to give something up if you want to address said deficit. This populace gleefully cheers as candidates promise one thing after another, without addressing where the money is coming from.

We give out rebate checks we cannot afford. We will (in my opinion and I stated this the minute the last "stimulus plan" was announced) have another stimulus plan before the election. We have trained the American people to ask for handouts. Handouts we cannot afford as a nation. The backdrop is not for a stronger dollar long term - sorry. It might rally for 2 days, 2 weeks, 2 months. But our structural issues are immense (Medicaid/Medicare will be a national disaster in about 10 years) and no one who is running save Ron Paul was addressing them because its political dynamite. Read this to see where we are headed [Mar 26: Annual Spring Warning on Entitlement Programs Falls on Deaf Ears] Instead of building solar farms or nuclear plants we are passing farm aid to the tune of $300B for corporate farmers, in times they don't need it. [Mar 27: Farm Lobby Beats Back Assault on Subsidies] Etc. I can write about 100 reasons why we just continue down our path of fiscal stupidity; and why I am going to agree with Jim Rogers that the US Peso will be permanently impaired... but nothing straight down (or up). In short we are going to topple over from our own weight... we know one thing in this country the past 2 decades - "kick the can down the road". Well the end of the road is within sight in 10-15 years. The whole thesis for a "stronger dollar" has nothing to do with the US improving - it has to do with Europe breaking down.... i.e. eventually their economy will weaken and they will need to cut rates. That is not a thesis on US "strength"; it is a thesis on "relative weakness". That's why any "strength" in the US dollar will be relatively short lived.

The same stocks everyone was so high on not even a week ago (and people questioning why I would sell), now people will scratch their head, wonder if the era is over, etc. Blah blah blah. That's why I was selling into that strength. My thesis is none of these stories change, only their stock price changes in the short run. So I'll be building stakes, in layers, as these stocks fall - I will be too early on some of my stakes, and I'll catch the bottom in others. Just like in my sales - I was too early on some of the sells, and caught the top in others. I have no idea where the stock prices will be in 2 days, 2 weeks, or 2 months, but I have a good idea where they will be in 12 months. So I'll be selling shares I probably will be buying in the coming week to the same people who wonder why the heck I would sell last week when euphoria was running rampant. One day the story will change, and I'll move on to a new set of stocks. But for now it's just white noise, daily movement up and down that people think signals either (a) a bull market for 52 straight weeks or (b) the end of an era. Nothing is ever so extreme.

If you keep catching the middle of moves, albeit missing the very tops or bottoms..... year after year....it generally provides very good returns. But you'll take short term hits all the time. I just sold off Mastercard as an example @ $267 - it could go to $300 for all I know. But I made my batch of money, now I have that value in cash, and I'll look to buy it (or something else) lower. Sell euphoria, buy consternation.

Bookkeeping: Taking Profits in Mastercard (MA)

This is one of my favorite business models, but with a gap so wide in the chart, I simply am going to take a large profit off the table here and buy it back on the inevitable pullback.

I only have about a 1.2% stake with today's jump of 10%+, but I am going to cut 80% of my stake around $267 and buy back later in the $240s or lower.

Long Mastercard in fund; no personal position

McDermott (MDR) Issues Warning

This infrastructure company has been a bit of disappointment, falling short on 2 separate occasions since last August. Today, is the 2nd occurrence. We've been fortunate so far this earnings season with no big blowups in the fund, which just by probability is bound to happen. The stock is down but not too bad. However, this practice of continuously not meeting Street expectations has to make me consider removing the name in the future. Of course it's the "weather's" fault.

• McDermott International Inc (MDR), an engineering and construction company, said on Monday it expects first-quarter profit to fall below Wall Street estimates, partly due to bad weather affecting offshore oil and gas operations.
• The company said net income will be in the range of 50 cents to 54 cents per share, with revenue of $1.415 billion to $1.46 billion
• Analysts on average currently expect earnings of 69 cents per share and revenue of $1.58 billion, according to Reuters Estimates. McDermott will issue its actual first-quarter results on May 12.
• The Houston-based company said that during the first quarter, over half its planned offshore working days for major construction vessels were unproductive, primarily due to harsh weather in parts of the Asia-Pacific and Middle East regions. As a result, McDermott's results are anticipated to include an approximate $20 million period expense and the deferral of unrecognized project revenue and income to future periods.
• But the company's Power Generation Systems segment is expected to report strong results in the first quarter, with segment income expected to increase approximately 60 percent over the first quarter of 2007. Improved performance on existing power contracts and an active service and replacement parts business, in addition to an approximate $10 million gain on an asset sale, are the key drivers to this expected performance, the company said.
• The Government Operations segment is expected to report its highest ever level of quarterly segment income. Efficiency improvements and timing benefits in the manufacture of nuclear components for certain U.S. Government programs, and strong performance from site management activity, are major items contributing to the expected year-over-year growth.
• McDermott expects that consolidated first-quarter 2008 backlog will increase approximately $350 million from year-end and over $2.2 billion from a year ago, to a record level of approximately $10.2 billion.

Long McDermott in fund; no personal position

Mastercard (MA) Continues to Impress

Mastercard (MA) just continues it's impressive march, yet another fantastic quarter, layered on top of the past few [Jan 31: Mastercard Continues to be Priceless] & [Oct 31: Bravo Mastercard]

As I outlined in October [Oct 16: Rebuilding Mastercard] maybe people have a few misconceptions about the company.

Mastercard (MA) got whacked in the summer credit swoon and seems to be thrown into the 'financials' bucket - granted its a financial company but it is basically a transaction company, simple as that. Further, half of its revenue is overseas and I expect that to continue to grow as we get the middle class of Brazil, China, India, et al up and running.

There are also worries in this name that the stretched consumer is going to slow down but I'd argue that "could" be a positive or at worst neutral as a stretched consumer uses what when he/she doesn't have cash? Credit! I've already been reading how the worst off in the US are paying off their credit cards ahead of their mortgages (and Mastercard does not even have that risk which is another misconception - the banks offering their branded cards are the ones who carry the risk)

So you have a global brand, which will benefit from weakening dollar, with growth avenues in 3/4 of the world - and its getting throw out with the Citibank's of the world. Typical lemming behavior.

On to earnings...

• MasterCard's profit more than doubled in the first quarter, the card processor said Tuesday, as more customers outside the United States used their credit and debit cards for purchases.
• Cardholder spending within the United States rose, too, but at a more moderate pace, indicating that while Americans are increasingly turning to plastic in a weak economy, emerging markets are becoming especially lucrative for the industry.
• The Purchase, N.Y.-based card company said Tuesday it earned $446.9 million, or $3.38 per share for the January to March period. That is up from $214.9 million, or $1.57 a share, in the same timeframe last year.
• Even after excluding the effects of a gain from terminating a customer business agreement and another gain from selling its remaining holdings in the Brazilian company Redecard, MasterCard's earnings per share totaled $2.59. That was above the average analyst estimate of $2 a share, according to Thomson Financial.
• CEO and President Robert Selander said during a conference call with analysts that he continues to see U.S. consumers shift away from luxury purchases, such as home furnishings, toward necessities like food and gasoline, which are rising in cost.
• Meanwhile, card use outside the United States surged even faster, with gross dollar volume soaring 30 percent to $352 billion. Regions such as Latin America, South Asia, the Middle East and Africa saw particularly significant growth.
• Revenue totaled $1.2 billion, up 29 percent from the previous year and above the average analyst estimate of $1.07 billion, according to Thomson Financial.
• The effect of the dollar's tumble against other world currencies -- particularly the euro and the Brazilian real -- boosted MasterCard's revenue by more than 5 percent.

Long Mastercard in fund; no personal position

States, CEO's Beginning to Snap Back at Ethanol - the "Administration" Holds Firm

This is going to shape up to be a heck of a battle - I've outlined in the past that I do believe *if* a scenario of rampant inflation overtakes the globe and my "World of Shortages" scenarios continue to play on (which it will; it's just a matter of how quickly and to what degree), the ethanol subsidy boondoggle will be at risk. [Potash Hits $1000 on the Spot Market]

If Western governments have any moral backbone they will at least jawbone pulling biofuel subsidies... this would cause backlash reaction in fertilizer even though biofuels are just a small piece of the puzzle. (again this is a minor risk at this point, especially with US elections coming but maybe Europe will react first?) While the biofuel situation is not the major driving factor of agflation that does not matter - perception is everything and go back to point (b) a lot of new investors to a hot sector who know little about the long term situation and just are going by sound bites "rice riots" "fertilizer is hot" "Neil Cavuto even likes fertilizer" - they will panic.

But, it appears it's going to take a lot to get politicians away from the trough that is Midwestern farmer votes. Perhaps I am a cynic, but I think it's going to have to take months upon months of widespread death (via starvation) reported in the 2nd/3rd world and a 5+ governments to fall.... Haiti was just the first but they've been unstable since the dawn of the country. Anything less than this type of catastrophe and I believe Western governments will go along their merry way, ignoring the global pleas for help. (and of course biofuels are not the sole cause but it is the most easily reversed cause for this food crisis). Specific to the US, at least for the term of this presidency, I expect a similar situation as it happening in solar - individual states taking up the reigns and trying to be progressive as the Federal government lives in its own universe. Another trigger will be the working poor in the US revolting - that will hit state governments first since they are in direct line of fire of said people. As I outlined in January (before food inflation was sexy), food banks are being completely crushed [Jan 18: One Lonely Voice Agrees with me on Food Inflation] so the only 'corrective action' most likely will appear from the grassroots up. Missouri & Texas seems to have jumped on the bandwagon already.....Tyson Food's (TSN) CEO is also quite peeved. A McCain presidency would also be a fast track to this retraction as he has been the only candidate to walk into Iowa and say "this is ludicrous" (maybe Ron Paul did as well, but I have not read about it)

Again, I have 3 themes for the food crisis: agflation, social strife, and "food protectionism" between countries. Social strife is the last step and we are now entering that stage. If food prices, after a "strong dollar" pullback, do rebound later this year ....and simply repeat 50% of this year's inflation next year - it's going to make the current global strife look like a walk in the park.

• Missouri is considering rolling back a mandate supporting ethanol production amid growing outrage over rising prices for food and livestock feed. It was less than four months ago that ethanol supporters were celebrating the implementation of a Missouri law requiring gasoline sold throughout the state contain 10 percent ethanol. The law, passed in 2006, took effect January 1.
• But now, in the face of growing criticism of the nation's ethanol-friendly policies, Missouri may be among the first to back away from ethanol supports.
• Critics say federal subsidies and programs such as Missouri's, which encourage corn-based ethanol production, have reduced corn stocks available for food and livestock feed and contributed to skyrocketing prices that are hurting consumers.
• "There certainly are some questions on the ethanol issue that I believe we didn't delve into deep enough," said Neal St. Onge, a Republican Missouri state representative who chairs the house transportation committee. (shocker, politicians not thinking of long term implications ... stop the presses)
• The moves in Missouri come as Texas Gov. Rick Perry is asking the U.S. Environmental Protection Agency for a 50 percent waiver of the mandate for grain-based ethanol production.
• Missouri Corn Growers Association Chief Executive Gary Marshall said ethanol production was only a small factor in food price increases, and the corporate oil industry was to blame for the scare tying ethanol production to rising food prices. "It is a nice use of smoke and mirrors. The major oil companies see ethanol as a threat to their profits," Marshall said. "They can put as much oil money as they want to into this and create a big fight ... we're fighting it tooth and nail." (blame big oil, Uncle Ben skates free)
  
• Last week, Agriculture Secretary Ed Schafer said about 25 percent of the nation's corn went into ethanol and said that the forces driving rising prices in corn and other commodities had more to do with high energy costs, increased consumption around the world and weather-related production problems. He said aside from some small reductions in subsidies in a new farm bill, the administration was not planning to alter its support for ethanol production. (Federal government response -> What's all the fuss about?)

Tyson's CEO...

• The call from the head of Tyson Foods Inc. (TSN) for most ethanol subsidies to be swept away promises to re-ignite the food-versus-fuel debate among U.S. agribusiness companies. Dick Bond, Tyson's president and chief executive, said on an earnings call Monday that Congress should reduce or drop a federal tax subsidy and end import tariffs on sugar-based ethanol.
• His stance has been rejected by the major players in the renewable fuel sector, such as Archer Daniels Midland Co. (ADM), the largest U.S. ethanol producer by volume
• "Diverting corn to make ethanol doesn't make sense," said Bond on a conference call with analysts Monday as the company reported a quarterly loss. He warned that upward pressure on food prices "would get much worse," with 30% of U.S. corn production this year expected to be used for ethanol production.
• The Renewable Fuel Association (not a biased organization at all), or RFA, the industry's main lobby group, has said efforts to blame ethanol production for rising food prices are "flat-out wrong". "The production and use of ethanol, while increasing demand for corn, is not contributing significantly to food price escalation," said RFA President Bob Dineen in a statement responding to Perry's remarks. "It is, however, helping to keep and oil prices lower than they might otherwise be." (oh excellent! So oil would be $150 if not for ethanol. Gee thanks. The scary thing is I bet they really believe it - meanwhile one of the main culprits Uncle Ben gets off easy again)

This corporate on corporate warfare - how intriguing. May he who has the biggest lobbyist arm win.

Now we await the smoke and mirrors CNBC commentary at 2:15 PM Wednesday about how the Fed is now moving into inflation fighting mode because it put "strong" language in it's statement (laughable). So as the Fed keeps rates at these ultra low levels through November 2008... that's how they are going to "fight inflation". Luckily for all of us, in "6 months" the economy will be booming so when the Federal Reserve begins increasing rates it will be fine - I mean it would cause havoc to raise rates in a stagnant economy, right Mr 1979, Mr 1980, Mr 1981?

No position other than shaking head sadly watching all the hyperbole and misinformation being passed around

Bookkeeping: Adding to Gafisa (GFA)

I am adding to my position in Brazilian homebuilder Gafisa (GFA) today - I did this in 2 chunks, as the stock has jumped off its 50 day moving average and is starting to look more promising...



Earnings are May 5th, and full year 2008 estimates are for $3.22 with tremendous growth to near $5 in 2009. P/E ratio compared to most homebuilders is sort of a moot point because most homebuilders are not growing at a 40% clip. So I'm not sure what P/E to "award" this name as "fair"; but I do believe it should be higher than the current forward 12x.

I continue to love Brazil and wish we had more high growth small and mid caps to invest in. I doubled my stake today from 0.9% to 1.8%, with a purchase this morning near $38 and this afternoon in mid $38s. I will add more if we can break over recent highs of $40.

I started this stake in November 2007 [Nov 19: Initiating a Position in Gafisa - Brazilian Homebuilder] and in half a year it is about the exact same price. At some point these great fundamentals should be reflected in a higher share price.

I look at Gafisa as where Homex was a few years ago; Homex has now "slowed" down to a 20% type of grower, which for a home builder is still great; Gafisa is approaching internet stock type growth, at 90-100% last year, and 30-35% going forward next year. Both countries (along with India/China) are learning the ropes about credit... previously cash based societies, now following the western path of "easy credit!" (careful what you wish for). So as mortgages become more common place, and credit markets more developed, home buying and real estate transactions should only grow in these countries.

The company is not cheap here, but has some serious growth engines as shown by its most recent earnings report on Nov 7, found here. Another company with great growth, sizable backlog, and pricing power. The market does not care about these things today, but eventually these type of things will matter again.

Long Gafisa in fund and personal account

Sohu.com (SOHU) Crushes Estimates - Up 15%

I believe in my earnings preview my exact quote was "I don't own enough of this Chinese rocket ship". Let me reiterate... I don't own enough.



Sohu.com (SOHU) crushed estimates... $0.55 actual vs $0.37 estimate, and yet another guidance boost to boot (obviously). All the growth drivers continue to look rosy, and the gaming side of the business is simply growing exponential. My only fear has been some sort of slowdown post Olympics, but I suppose that is a matter for another day. I began this position in early February [Feb 5: Initiating Sohu.com "Starter" Position] near $46. Obviously with the stock now north of $71 (+54% in under 3 months), I (repeat all together) don't own enough. At the time I wrote:

Analysts currently peg $1.54 for 2008 estimates, but Sohu.com already commented that they will beat next quarter's $0.32 by $0.11-$0.13, so that already takes us to $1.65-$1.67 full year territory. The one risk with this name is the Chinese Olympics should drive advertising business for the next few quarters, but then the hand wringing will begin about what drives business afterwards? That's a perception issue but the internet is very young in China and this is a cheaper way to play the online ad market than the very well known (and dominant) Baidu.com (BIDU). Sohu.com is still a bit player (tiny bit player) - but a tiny bit of a growing pie is still growth. As for the gaming side of business, well it is a wildcard to me.

Here are some details from the earnings report

• Chinese online media, search and gaming company Sohu.com Inc. (SOHU) on Monday reported a surge in its first-quarter profit, helped by strong advertising revenue growth as the Beijing Olympic games approach. The company also expects second-quarter earnings and revenues above Wall Street estimates.
• The company's GAAP net income for the first quarter was US$ 21.56 million or US$ 0.55 per share, higher than US$ 4.47 million, or US$ 0.12 per share, a year earlier. GAAP net income increased 383% year-on-year and 43% quarter-on-quarter. On a non-GAAP basis, excluding share-based compensation expenses, the company's net income rose to US$ 25.1 million, or US$ 0.64 per share, from US$ 7 million, or US$0.18 per share, in the prior-year quarter.
• On average, ten analysts polled by First Call/Thomson Financial expected the company to report earnings of US$ 0.37 per share.
• The company's quarterly revenue totaled US$ 84.8 million, a 156% rise from last year's US$ 33.1 million. According to the company, the revenue exceeded the high end of company's guidance by US$ 16.3 million. On a sequential basis, the revenue growth was 30%. Wall Street analysts projected revenues of US$ 69.33 million.
• Advertising revenues climbed 36% to US$ 34.76 million, while non-advertising revenues jumped 570% to US$ 50.1 million. Brand advertising revenues were US$ 33.2 million, up 41% from the same quarter last year and 3% from prior quarter.
• Online game revenues increased 24 times year-over-year and 71% from prior quarter to US$ 41 million, driven by US$ 38.9 million revenues generated by its role-playing game Tian Long Ba Bu.
• Looking ahead, Sohu estimates second-quarter non-GAAP earnings per share between US$ 0.72 and US$ 0.75. The company also projects total revenues in the range of US$ 93 million - US$ 96 million for the quarter. (this compares to $77M and 44 cents by analysts)

So I need to buy more on the next pullback. Great quarter. Probably the best non fertilizer quarter I've seen thus far this season.

Other pure play names in the Chinese gaming space are reaping benefits today i.e. Giant Interactive (GA) +12%, Shanda Interactive (SNDA), and Netease (NTES) +8%

Long Sohu.com in fund; no personal position

Bloomberg: Wall Street Grain Hoarding Brings Farmers, Consumers Near Ruin

I've touched on the themes in this story a few times [Feb 28: The Hedge Funds are Coming! The Hedge Funds are Coming!]

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

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

Again I am not a CBOT trader, never traded a future directly in my life but I know human psychology and the pure and utter greed and avarice on the Street - so I knew this would bring in the hedgies.... and the comments below by experts seem to confirm my guess from a few weeks ago. Yesterday was apparently the most crazy day ever in wheat futures, a swing of 25% in 1 day! If it is "good" or "bad" I will leave that decision up to you, but you can see how these quant computers truly ruin any market (unless you are a daytrading dynamo). Wherever they go, it is like locusts - they will chew it up, spit it out, spin it, kick it, push it, punt it... and make sure volatility increases by a huge magnitude. And as Ben continues to cut and flood more liquidity into the world, as I stated many times, more and more is going to go into relatively small commodity markets because this is where "hot money" is going; so we will have a bubble - and I fear it will be epic.

Also last week in [Articles of Interest Around the Net] was a story NYTimes: A New Threat to Farmers: The Market Hedge

I wrote
I continue to believe as hedge funds control more and more of the world's capital there comes a time when their sheer scale and size must fall under some sort of higher level of regulation as they literally, en masse, can move markets. Perhaps only when a disaster strikes caused by hedge funds, will anyone care to broach this subject - give it 5 to 10 years. As more wealth is concentrated in fewer and fewer hands (sovereign wealth funds and hedge funds), we will have the same things we always have - out sized risk leading to terrible effect. And then the politicians will say "how did everyone miss this and why was there no regulation?" Blah blah.

I continue to be of the belief that these pools of capital are going to ruin the golden goose at some point - it is simply human history to take everything to excess. Now that it is impacting real world situations (housing crisis, credit crisis, and next food crisis) we'll see what, if anything, regulators decide to do about it....

• As farmers confront mounting costs and riots erupt from Haiti to Egypt over food, Garry Niemeyer is paying the price for Wall Street's speculation in grain markets. Niemeyer, who farms 2,200 acres in Auburn, Illinois, won't use futures to protect the value of the crop he will harvest in October. With corn at $5.9075 a bushel, up from $3.88 last year, he says the contracts are too costly and risky.
• Commodity-index funds control a record 4.51 billion bushels of corn, wheat and soybeans through Chicago Board of Trade futures, equal to half the amount held in U.S. silos on March 1. The holdings jumped 29 percent in the past year as investors bought grain contracts seeking better returns than stocks or bonds. The buying sent crop prices and volatility to records and boosted the cost for growers and processors to manage risk.
• Commodity investors control more U.S. crops than ever before, competing with governments and consumers for dwindling food supplies. Demand is rising with population and income gains in Asia, while record energy costs boost biofuels consumption, sending grain inventories to the lowest levels in two decades.

And don't think the Federal Reserves (along with W Europe's) flooding of the world with fiat currency is not exaggerating these issues. Over the past decade the policy response to every crisis if creation of more money. More money leads to inflation. The bubbles have increasingly become worse and less localized. Tech bubble - local to US investor class mostly. Housing bubble/credit bubble - most of the world's investing class. Commodities bubble we are now creating - affects every human on the planet.

Every action has unintended consequences. So after the politicians, one day, stop pointing fingers at "greedy oil executives" or "suspicious sovereign wealth funds" - they probably should take a moment to look in the mirror for their legislative actions, and look across to the street to their buddies at the Federal Reserve and ask "is there any coincidence that every major commodity exploded higher beginning in August, when the Federal Reserve (and ECB) began their liquidity injections?" ... no... I am sure it is just coincidence. Western governments have as of March put nearly $1 TRILLION into the system [Mar 11: Some Interesting Facts on the Fed Injections] As I keep saying, all FINITE assets (including equities) must go up, all other things being equal. And we get inflation in everything. Here is a 2 year chart of oil equivalent... strange how it turned on a dime the minute the spigot was opened by Helicopter Ben. Yet no one in leadership aside from Ron Paul seems to understand why inflation is exploding...

Wall Street Journal Does not Like FTI Consulting (FCN)

FTI Consulting (FCN) is materially weak this morning; looks like due to this WSJ story.

• Judging by its financials, FTI Consulting Inc. looks like a great place to make money. For investors, looks can be deceiving. FTI, which provides legal, financial and public-relations services, handsomely pays the hundreds of professionals it has been adding to its ranks through a series of acquisitions. In the first quarter, FTI bought eight companies and added 445 employees in 49 days.
• But FTI's method of paying for its new companies and rewarding its new executives largely avoids any negative effect on earnings. As a result, its operating income looks bigger, fueling its share-price rise and winning praise from analysts and investors. Meanwhile, its sizable and growing compensation-type payouts and loans go largely unnoticed by investors.
• FTI, which has a market value of $3.3 billion, is trading at 27 times estimated 2008 earnings, or a 50% premium on average to its peers, such as the smaller Huron Consulting Group Inc., according to Thomson Reuters. (HURN also misses its quarter almost every quarter) Only one analyst rates it a "sell." Others rave about earnings growth and how the sagging economy will benefit FTI's restructuring practice, which made up 26% of the company's revenue of $1 billion last year. (well that's why I like it!)
• Like other companies that count people as their main asset, FTI uses "earn-outs" to pay many executives who come with its acquisitions. Under this model, an acquirer gives its new company an upfront payment and then gives the company's owners or executives additional payments over the next few years based on performance targets.
• While there isn't anything technically wrong with these additional payments, they make expenses look smaller and earnings appear larger than they otherwise would because the earn-outs aren't treated as compensation expense, which is subtracted from earnings.
• "I think of earn-outs as a mechanism for inflating operating income," says Michael Winter, a portfolio manager at hedge-fund Otter Creek Management, which manages about $160 million in assets and doesn't own FTI shares. "For a true quality-of-earnings figure, an investor needs to add those amounts back to earnings as compensation expense."
• Earn-outs aren't small change for a company that has made so many acquisitions and that reported pretax income last year of $150 million. In the first quarter, FTI paid nearly $43 million in earn-outs for earlier acquisitions, and it has said it expects to pay $49 million in earn-outs over the next few years for its latest deals.
• Some analysts regard earn-outs as a necessary evil. "It is important to be cognizant of the financial and accounting ramifications of earn-outs, but they're an important way for professionals-based companies to make sure interests are aligned," says Timothy McHugh, an analyst for William Blair & Co. who has a "buy" rating on FTI stock
• Another practice employed by FTI, doling out "forgivable" loans, is far less common in corporate America. In 2006, it launched an incentive compensation program that involved granting $30 million in cash payments "in the form of unsecured general recourse forgivable" loans, to senior managing directors and other employees. Last year FTI paid out $35 million in forgivable loans to about 57 senior managing directors and others.
• FTI typically amortizes the cost of these loans over five years, meaning a fraction of them have an impact on income in the current periods. The total costs aren't reflected until FTI fully forgives the loans. While they are a great incentive to employees, their effect on earnings is delayed.
• "It seems that they really go out of their way to compensate people very well and avoid affecting the income statement," says Donn Vickrey, head of research firm Gradient Analytics. Mr. Vickrey is an earnings-quality analyst who doesn't formally cover FTI. "It gives them a whole lot of room to make their earnings number every quarter."

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

Cummins Engine (CMI) Gaps Up For No Apparent Reason

I am not really sure why, but Cummins Engine (CMI), normally a staid stock is jumping this morning. We just restarted this stake 2 weeks ago [Apr 18: Restarting Cummins Engine as Rest of World Moves on Without USA] The only "news" I can see is Jim Cramer appeared to have mentioned it on Friday...he is mentioning it as a green play... I am mentioning it as a week dollar, Chindia play.

An engine-maker like Cummins might not seem like a Green Week play, but the Columbus, Ind., company is ahead of its peers when it comes to emissions standards.

Cummins Engine has what Cramer called a clear technological advantage over the competition because CMI is designing engines that are years ahead of future emissions standards. Case in point: The company is already testing 2010-compliant on-highway engines.

In terms of fuel efficiency, Cummins’ engines are 6% better than Caterpillar

Caterpillar Inc CAT 82.58 0.33 +0.4% NYSE

Quote | Chart | News | Profile

[CAT 82.58 0.33 (+0.4%) ]. That’s not the only area where CMI’s coming out on top. It’s taking share from CAT in other heavy-duty engines as well. Cummins is taking share from all its competitors, actually, as it’s now the largest supplier to Paccar

Paccar Inc PCAR 46.985 0.245 +0.52% NASDAQ

Quote | Chart | News | Profile

[PCAR 46.985 0.245 (+0.52%) ].Trading at just 10 times earnings with a 21% long-term growth rate, which is half of CMI’s usual multiple. For that reason, Cramer said he thinks the stock could double.

Here’s the play, though. Cummins reports before the bell on Wednesday, April 30. If Volvo’s latest quarter is any indication – remember, Volvo’s a truck company now, having sold its consumer vehicles division – CMI should do quite well. Cramer’s call: He said he thinks you should get in ahead of CMI’s earnings.

Nobel Winner Stiglitz: U.S. Facing Long Recession

A worthwhile 11 minute video to watch - a voice of reason in a sea of Kool Aid. Much of it echoes the thoughts I've outlined since day 1 in this blog. Some highlights:

• The U.S. economy is already in recession -- and may echo the 1930s, Nobel Laureate Joseph Stiglitz said Friday.
  
• "The big question is: how will the government respond?" said Stiglitz, in an interview with CNBC. Stiglitz, a Columbia University professor and 2001 winner of the Nobel prize, detailed his bleak outlook for the American economy. "This is going to be one of the worst economic downturns since the Great Depression," said Stiglitz.
• He explained that main cause of the current situation is historically unique—and thus is befuddling those charged with creating solutions.
• Other downturns were primarily caused by excesses in inventories or inflation; but this slowdown is due to the condition of "badly impaired" banks and financial entities, which are unwilling and/or unable to lend capital -- stymieing the very borrowers who usually drive the country back to vitality, Stiglitz said. And the Federal Reserve may have used up its ammunition -- and the faith investors and planners have put in it.
• "[The Fed] will be between a rock and hard place. And we're not over-worrying about credit. But [simultaneously], we need to start worrying about the real sector," he said.
• The housing downturn is an even worse economic factor than casual observers realized, Stiglitz said. He explained that during the real estate boom, Americans were able to withdraw billions of dollars from their home equity.
• "[But] with housing prices coming down, it's going to be difficult to do that anymore," he said -- drying up a spending source. And within that problem, still another complication: people typically spent the money they drew off their home equity on consumption, rather than investment -- garnering no return on the spending.
• "The savings rate as we go into the recession is zero. Which means [savings] will go up, " he said—decreasing consumer spending and weakening retail further.
• "The Bush Administration's response is too little, too late -- and very badly designed," he declared. (Bingo) "The president is telling people to go out and get jobs—and there are no jobs for them," he said.

Earnings Preview Monday-Tuesday

Malthusian thought of the day; 7 million net new humans are being added to the Earth every month. Or put another way; the entire population of the US is added every 4 years.

Stocks I'm watching this week, I don't see any huge multinational names out there early in the week.

Monday
CNOOC (CEO) and China Petroleum & Chemical (SNP) - 2 Chinese "oil" stocks

Compass Minerals (CMP) - this "salt" stock is simply relentless - mentioned here [Mar 3: Who Knew? Salt?]

Covance (CVD) - yet another of the contract research outsource outfits.

Flowserve (FLS) - we have a dearth of ways to play for the ultimate natural resource - fresh water. This is a corollary way.

FMC Technologies (FTI) - former fund holding in oil services

Fund holding Mastercard (MA) - one of my favorite business models - I am praying for the day they miss, and the stock will sell off 30%.

Fund holding Silver Wheaton (SLW) - I've pulled back sharply on this name; they have seemed to detach as an inflation hedge the past 3 weeks or so.

Fund holding Sohu.Com (SOHU) - I don't own enough of this Chinese rocket ship; talk about a technical breakout

Texas Roadhouse (TXRH) - only because I am curious about the prices of meat, and their projections

Tyson Foods (TSN) - big chicken seller in the US; been watching this since late summer as a proxy on prices/inflation

Visa (V) - you could of picked any day to report, and you conveniently have to report exactly the same day as your arch rival. Nice.

Tuesday
Agco (AG) - former fund holding in agricultural equipment - their sales should be booming especially with the US peso.

Buffalo Wild Wings (BWLD) - chicken inflation! Coming soon.

Burlington Northern Santa Fe (BNI) - railroad. Ships ethanol, fertilizer, coal. Ships stuff from China to Walmart so desperate Americans can buy it. 'nuff said.

Deutsche Bank (DB) - some say the Europeans are hiding their losses more than the Americans...

Domino's (DPZ) - let's see cheese inflation, wheat inflation, and coming soon ham and pepperoni inflation. Ouch. Maybe they can pull off a "not as bad as we expected" and the stock can bounce 25% instantly. Where it will make a great short.

Express Scripts (ESRX) - still like this space; chart says boom boom good.

General Cable (BGC) - former fund holding; a stealth play on global infrastructure build out

ICON (ICLR) - the Irish version of contract research organization

MedcoHealth Solutions (MHS) - former fund holding; see ESRX above - has exploded up in past week on re-up of deal with UNH which was a huge overhang on the stock.

Panera Bread (PNRA) - the casual dining stock has been partying on either (a) the drop in wheat prices of late or (b) the giddiness about rebate checks; either way it's actually having a heck of a breakout

Patriot Coal (PCX) - then Peabody Energy spun off this asset, I was given shares and sold them off. Oops.

Titan International (TWI) - they make the huge tires for all the huge vehicles moving in mines and farms across the globe. So a backdoor play on globalization that a reader pointed out to me. The chart is a beauty.

Under Armour (UA) - I constantly want to buy this name. The chart never says yes.

United States Steel Corp (X) - former fund holding... should not of sold :)

Valero Energy (VLO) - this one has handed a lot of longs a lot of losses this year. Everyone whose been around the market has been awaiting the traditional late winter/early spring rally that this group almost always provides. But the US providers are in sort of a pickle - global pressures PLUS dollar trashing is increasing crude prices (their input) whereas somewhat weak gasoline demand is hurting their ability to raise prices. Why gasoline is not $4.50 or so at these prices of crude, is beyond me. These names might finally rally if we get a reversal in crude from say $120 to $100.

Totally Random Blog Statistics

Every so often I like to post totally random blog statistics from Google Analytics (which is a de facto standard of measuring your web traffic). Since we've had a big upswing in readers the last month, I thought I'd take a peek to see what's been going on the past 30 days... as a statistician geek this stuff fascinates me.

The mixes have changed quite substantially since last we looked at end of last year [Dec 29: Worldwide Readership]

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Of course most of my traffic is from the US of Subprime: 83%
Next are our friendly Canucks up North: 6.7%

So about 90% come from those 2 countries... then another 118 countries have somehow found the blog (probably 90 by mistake, 25 countries only had 1 visit - probably looking for Jessica Alba pictures)... the remaining top 10 slots go to (in order): UK, India, Germany, Italy, Australia, Singapore, Switzerland, and Hong Kong (Italians and Germans spend the most time per visit - probably needing to translate) ;)


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How does the US stack up? I always love this statistic, although most of it makes sense with where population centers are... I was surprised by Calgary as a top 10 candidate but hey, it's good times up there and they probably have a lot of money to invest and need ideas... outside of potash fertilizer. The top 10 makes up 20% of all visits (keep in mind, NYC and LA are so big they are broken into sectors via Google)

1. Brooklyn (6% of all visits)
   
2. NYC
3. Long Island
4. Monterey Park (L.A.)
5. Chicago
6. N/A
7. Vancouver
8. Jersey City
9. Calgary
10. Beverly Hills (L.A.)
    

Next 10: Alameda (San Fran), Bell Gardens (L.A.), Houston, San Fran, Gardena (L.A.), Los Angeles, Arlington (TX), London, San Luis Obispo (??? some corner of CA, not near any major city), Sunnyvale (San Fran/San Jose)
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Who spends way too much time on the blog (most time spent on each visit)? If you are from Rochester (I assume NY), College Park, Cedar Rapids, Thornhill? (Ontario?) - I need to suggest more hobbies for you... you are averaging an hour a visit. Or maybe the blog is your home page ;)

Looks like the average person is staying 5+ minutes now, which is also well above trend, but I assume most people are like me who have a window open, then move on to another window, without shutting down the previous window/tab so that can be misleading.

Bookkeeping: Weekly Changes to Fund Positions Week 38

Week 38 Major Position Changes

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

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

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

Cash: 13.0% (vs 31.3% last week)
56 long bias: 76.4% (vs 61.4% last week)
8 short bias: 10.6% (vs 7.3% last week)

66 positions (vs 64 last week)
Additions: Yingli Green Energy (YGE), iPath DJ Livestock ETN (COW), Goldman Sachs (GS)
Removals: Diamond Offshore Drilling (DO)

Top 10 positions = 31.3% of fund (vs 27.3% last week)
39 of the 66 positions are at least 1% of the fund's overall holdings (59%)

Major changes and weekly thoughts
Summary of week; another week of everything is fine, all bad news must be good because it cannot get worse than this, and away we go. Good times all around; the real US economy degrades but the stock market pops. And so we go. Not that economic reports matter in a "hear no evil, see no evil" environment but the major economic report is Friday's job report which is radically flawed but market lemmings will react in maniac nature one way or the other so we have to keep it on the radar - if you are new to my rantings on why the monthly Unemployment report is useless go to [Apr 2: The Underemployment Rate is Rising] Before that we have Uncle Ben and his merry band - most likely to stop cutting rates and CNBC will send the alert out to the world "yes Ben is ready to fight inflation - and we really mean it this time" The dollar should rally at least a bit, although at this point it seems everyone and his mother is awaiting this to be the last cut and "strong language about risks to inflation" in the statement, and the dollar rising.. so when everyone anticipates something, it makes it less prone to happen.

The charts are poised for a breakout on the major indexes, trying to escape a long range period of range bound action. We are right at resistance here at 1400, breaking to 1399 late Friday. An inability to break above would not be positive for bulls. We are about 2 weeks into the most heavy part of earnings season, and 2/3 or so of the major multinationals who could care less what country is doing well as long as some country is doing well... and they can print money and use the weak dollar as a major weapon, have reported. After this coming week we run out of multinationals. But no worries there either, retailers and other domestic based stocks now are running the past few days [Sector Rotation?] - the magic exilar of $600 rebate checks (that are just going to be saved, or spent on food or gas) apparently are enough to get the market hot and heavy even in these suffering sectors. So all in all, it's all good. No problems. Drink Kool Aid. Just buy.

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

Some of the larger changes (chronologically) to the fund below:

1. Monday, I initiated a position in a former fund holding, Yingli Green Energy (YGE), on what looked like an apparent technical breakout but this move failed, and the stock retreated later in the week.
   
2. I cut back Powershares DB Agriculture Fund (DBA) as a major position in the low $38s, as the chart was starting to show signs of weakness. By the end of the week it was trading in the $36s. I did the same cut back for gold and silver a few weeks ago. So this is an interesting situation - are the commodities indicating a near term stronger dollar ahead of time? Many things, outside crude and nat gas, are showing signs of turning over. Or is crude turning into this era's gold? A store of value, but with more practical use than gold. We shall see. I would remain cautious on commodities for now.
3. I took just a bit of Jacobs Engineering (JEC) off the table ahead of earnings, but the company put out solid earnings and while the stock spiked the next morning, it pulled back later in the week. I still think the infrastructure group remains very under appreciated, but JEC is one of the most expensive in the group. In its stead, I continue to build up Foster Wheeler (FWLT) position, as it's valuation is at a major discount to JEC.
4. I mentioned last week, if I were truly running money I would of put in to my broker to get me as much Intrepid Potash (IPI) as I could (at the time it was going to price at $27-29).. it ended up pricing at $32. I would of been happy to unload my shares to the unsuspecting retail investors at $48+ for an easy gain of 50%+ on a stake I'd be willing to buy up to 8% of fund. This is a game in which all institutions can juice their returns for nothing else other than they get access to easy IPO trades like this. My return would be X% higher this week and you would of said, man that TraderMark is one smart fella - how'd he manage to pull 3% gain in a 0.6% week? I'd snicker to self...
   
5. Tuesday, I cut back to the bone my fertilizer exposure - we had a huge run, we had a rare IPO in the group, we had Neil Cavuto talking about fertilizer. My readership disagreed with my sales, but I held firm, it was time to go and in fact I did a short term increase in Ultrashort Basic Materials (SMN). I outlined Wednesday the risk factors 24 hours ahead of the Potash (POT) earnings, and true to form, we got a "sell the news reaction"; at which point I began rebuilding my stakes Thursday. I was hoping for more of a selloff than we got, but since a pullback to the 20 day moving average was all the market gods were willing to give, I bought more in my 3 fert names. I was able to get Mosaic at a nice 13% discount and Potash at 11% off. I love sale racks.
   
6. I also took a big slice of Mechel (MTL) off the table Tuesday, for all the same reasons as the fertilizer (too hot and heavy in here) - I was able to buy this position back (plus more) at a nice discount to my sale price (9%) Friday.
7. Wednesday, I decided to not sell down Apple (AAPL) ahead of earnings - and in fact added a bit later in the week after the "we won't sell you down 25% just because you gave us conservative guidance... that you always give" signal was given off their earnings.
8. I initiated iPath DJ Livestock ETN (COW) on a hunch that latter 2008 will be to meat what 2007 was to grains. I don't know the timeline of when this increase will be, but I sense we are getting the slaughterings now (depressing prices) which will lead to shortages later - time TBD. I am hoping by Labor Day so people can complain about their $400 BBQ while CPI will come in at 1.2%, and Uncle Ben call tell us "really, what is all the fuss about inflation - none of our reports say it's there so I refuse to believe. My butler also says it is not there."
9. Thursday on the wimpy commodities sell off, I added back some exposure I had cut back on of late at higher prices, mostly in coal and metals.
10. As Thursday wore on and no amount of bad news could bring this market down I started a larger scale, broad move into equities - you name it, I was buying it.
11. I initiated a new position in Goldman Sachs (GS) adding to last week's purchase of Morgan Stanley (MS) - both are technical buys - again, I might get more upside in Merrill (MER) or Lehman (LEH), but I consider the former two to be better quality firms and they have seemed to have navigated the credit morasse a bit better. I'm still a believer that their long term earnings growth is going to be impaired for a long time, but hey, Kool Aid is Kool Aid.
12. Late Friday, I sold out a long term position in Diamond Offshore Drilling (DO) - frankly this whole group has been a disappointment and the market does not seem to value these names as secular growth, but cyclical growth. I will probably move an allocation to Noble (NE) in the future...
    

The above do not include the majority of my trades in my Ultrashorts which I am trading quite often as the market ebbs and flows.

80 Stocks Returning 8%+ this Week

Our daily look into the weekly top gainers shows a big difference this week than most of the year - a lot of smaller issues in the $2-$3B market cap made the list and as I signaled mid week, we are seeing some return to the retailers, and financials. Last, this was the week of the Chinese as a tax cut in China for investors rallied the derailed Shanghai market, and its dual listed US companies rallied in kind.

Following list contains

1. Market capitalization >$2 Billion
2. Average volume >100K
3. Stock price $10+
4. % Return = 8%+

Green we own; blue we have owned in the past or have discussed. Not a great week for current holdings, but I count no less than 9 old holdings that made this week's list. Some of them have been huge laggards for a long while. Again, we ask - is this the "rotation" we need to create a new bull market move, or are we just seeing dead cat bounces in long dead issues. Inquiring minds want to know...

Symbol	Company Name	% Price 1 Week
SAF	Safeco Corp	42.2
WGOV	Woodward Governor Co	26.4
ERIC	LM Ericsson Telephone ADR	23.3
TRMB	Trimble Navigation Ltd	23.0
RJF	Raymond James Financial Inc	21.8
BRCM	Broadcom Class A Ord Shs	21.3
ESI	ITT Educational Services Inc	20.8
JEF	Jefferies Group Inc	19.6
HXL	Hexcel Corp	19.2
PTR	Petrochina Depository Receipt	18.5
ADSK	Autodesk Inc	18.4
GDI	Gardner Denver Inc	18.3
LOGI	Logitech International S A	17.3
SNP	China Petroleum and Chemical (Sinopec) ADR	17.1
LFC	China Life Insurance ADR Rep 15 H Ord	16.4
MRVL	Marvell Technology Group Ltd	16.2
EW	Edwards Lifesciences Corp	16.2
MICC	Millicom International Cellular Ord Shs	14.7
HNP	Huaneng Power International ADR	14.6
CLWR	Clearwire Corp	14.3
EAT	Brinker International Inc	14.2
SINA	SINA Corp	13.5
EQIX	Equinix Inc	13.4
PHLY	Philadelphia Consolidated Holding Corp	12.9
CERN	Cerner Corp	12.9
CPO	Corn Products International Inc	12.7
TWTC	Time Warner Telecom Inc	12.5
FLIR	FLIR Systems Inc	12.3
WU	Western Union Co	12.2
CTRP	Ctrip.com	12.2
SGMS	Scientific Games Corp	12.1
ALV	Autoliv Ord Shs	12.0
IDXX	IDEXX Laboratories Inc	11.9
IBN	ICICI Bank ADR representing 2 Ord Shs	11.9
PMTC	Parametric Technology Corp	11.8
CBG	CB Richard Ellis Group Inc	11.8
ACH	Aluminum Corporation of China ADR	11.7
BRO	Brown & Brown Inc	11.6
WEN	Wendy's International Inc	11.5
GNTX	Gentex Corp	11.4
DRYS	DryShips Inc	11.2
VMW	VMware Inc	10.9
HAS	Hasbro Inc	10.9
BIG	Big Lots Inc	10.8
SDA	Sadia ADR Rep 3 Pref Shs	10.7
MOLX	Molex Ord Shs	10.7
KSS	Kohl's Corp	10.6
VSEA	Varian Semiconductor Equipment Associates Inc	10.5
UHS	Universal Health Services Class B Ord Shs	10.5
SGP	Schering-Plough Ord Shs	10.5
GMT	GATX Corp Ord Shs	10.4
TER	Teradyne Inc	10.2
WOOF	VCA Antech Inc	10.1
SWN	Southwestern Energy Co	10.0
WYNN	Wynn Resorts Ltd	9.7
ARO	Aeropostale Inc	9.7
AKAM	Akamai Technologies Inc	9.6
TROW	T Rowe Price Group Inc	9.5
SOHU	Sohu.com Inc	9.5
GR	Goodrich Corp Ord Shs	9.5
PKI	PerkinElmer Inc	9.4
BEAV	BE Aerospace Inc	9.4
TRN	Trinity Industries Inc	9.2
DSX	Diana Shipping Inc	9.2
JNPR	Juniper Networks Inc	9.1
HDB	HDFC Bank Ltd	9.1
XMSR	XM Satellite Radio Holdings Inc	9.0
COH	Coach Inc	9.0
V	Visa Ord Shs Class A	8.8
NYT	New York Times Ord Shs	8.8
DKS	Dick's Sporting Goods Inc	8.8
SNA	Snap-on Inc	8.7
DLB	Dolby Laboratories Inc	8.7
BOH	Bank of Hawaii Corp	8.7
SNDA	Shanda Interactive Entertainment Ltd	8.6
JNS	Janus Capital Group Inc	8.6
CHK	Chesapeake Energy Ord Shs	8.5
RSH	RadioShack Corp	8.4
MPEL	Melco PBL Entertainment (Macau) Ltd	8.3
FNM	Fannie Mae Ord Shs	8.3

Rise Shortage Hits 'The Daily Show'

Thanks to reader Patrick for a heads up on this awareness of food "shortages" into the mainstream... 4 minutes long