Tuesday, June 3, 2008

CNBC: Credit Card Use is Surging, Risking Another Debt Crisis

Again, as I always say "it matter when it matters" - all these "worries" that are cropping up here, there and everywhere have been out there for everyone to see, they've just been conveniently ignored for most of the past 2 months as we drank Kool Aid (and sang Kumbaya) much like we did in September and October 07 as the "damage was contained" and "the Federal Reserve will bail us out, they always do".

Two weeks ago it mattered, last week things didn't matter, now this week (thus far) they matter again. Psychology is just about everything in the short term of a market or an individual stock. So away we go - more and more dominoes are falling as we predicted last summer/early fall. Again, we await the first whispers of "1st half 2009" recovery as the pundits realize "2nd half 2008" recovery is a mythology they created to make themselves feel better. Just send me a comment to one of these postings sometime in the next 60 days when we get the first pundit to start talking about the 1st half 09 recovery....

Remember our path - credit cards used up, 401ks drained, beg, borrow, steal (pawn), then bankruptcy in 09. (an '10) Thats unfortunately going to be the fate for a growing subset of Americans. Still to this day, very little of this future fallout is priced into the market - they are still trying to decide if inflation is an issue for average Americans. And frankly it was one of my thesis for the Mastercard (MA) investment - while everyone was saying on TV a slowing economy will hurt Mastercard (this was before VISA came live) and you better "sell, sell, sell" I was saying ohh... not so much, cash strapped consumers will be piling more debt for every day needs onto credit; after all this is the American way. [October 16: Rebuilding Mastercard] I wrote

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. They love all things American so credit is the next step (who needs savings in this world anyhow?!)

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)

And in December 2007 [Mastercard to Benefit from Visa IPO Hype] I wrote

And unlike some commentators, I don't think VISA coming public will hurt Mastercard. You essentially have a duopoly - the only 2 ways to play the increasing plastic based society (cash is trash!), without the credit risk. Further, the more I think about the cash strapped US consumer, and how he/she is turning to plastic to fund gas and groceries (as their discretionary budget evaporates and inflation rips into them), the more I see credit card usage and hence each transactions is just more money for these companies.

So far so good; frankly even the well off are going to put those $70-$80 gas bills onto their card.... let's see how the lower and middle class are doing (and oh yes you on the lower rungs of upper class - I see you too); readying themselves for the 2nd half 2008 recovery I am sure.
  • Cash-strapped Americans are ringing up more and more purchases on their credit and debit cards, but there could be a steep price to pay ahead.
  • Though the trend is a boon for the companies that issue the cards, analysts worry that there could be long-term problems not only for consumers but for the anemic economy and the already-troubled banks that will be underwriting all that risky debt.
  • "Right now what we're seeing is the US consumer losing their disposable income as they have to spend more and more on necessities because of higher prices for gas and food," says Ron Ianieri. (Obviously Mr Ianieri speaks the obvious truth, and therefore does not work on Wall Street)
  • One of the main problems with that is US consumers--and their counterparts in Europe as well--already are delinquent on their credit card payments in numbers not seen in six years. The Federal Reserve last week said credit card delinquencies hit 4.86 percent in the first quarter in 2008, while revolving debt--or the type used in credit purchases--hit $957.2 billion in March, a 7.9 percent increase. (again, as I love to ask - these figures are when we are not even in a (cough) "recession" - what dare we ask happens when we get into one?)
  • As all that risky, high-interest debt keeps accumulating, consumers will find themselves deeper in a hole that threatens to keep the economy in its sluggish state. Economists worry that the problems are being exacerbated by consumers using credit not only to buy big-screen TVs and patio furniture, but also to pay their mortgages and shop for groceries.
  • Meanwhile, the banks that underwrite the credit card debt stand to lose as the delinquencies continue to rise. Standard & Poor's on Monday issued a dour forecast for banks in 2008, in part because of their exposure to bad debt. (no no no, credit crisis is over - CNBC told me - mid March - Federal Reserve puts on super hero cape and fixes all problems - didn't you see that episode?)
  • "It's a disaster, it's a time bomb," Ianieri says. "The credit crisis is a lot more severe than it's being made out to be. I think the government is doing everything it can to keep the severity of this situation under wraps from the general population. I think they're just trying to bide time for these banks." (shhhh!! 2nd half recovery - stick to the script; otherwise we scare the sheep. Government would never do anything like that, shhhhh!!!)
  • Visa and Mastercard back comparatively little of the credit actually issued through their cards, meaning they have a low level of risk for defaults and other payment issues. They get paid a fee each time someone uses their cards, and the banks that issue the cards assume responsibility for the debt.
  • Lehman analyst Bruce Harting, in his research note on Mastercard, pointed out that the company believes it can duplicate its US business model in countries including Brazil, Hungary, Poland, Russia, India and China, nations where it projects 39 percent revenue growth. (mmmm.... credit.... good)
  • "The danger is in painting with a broad brush and casting all consumers as reluctant or unable to spend," says Greg McBride, senior analyst at Bankrate.com. "There are a lot of consumers that are not in the state of distress and can continue to spend in a manner that's not very different than a year or two ago when the economy was stronger. (yes, my blog readers/future investors fall into this category of course) :)
Now folks let me just ask you what happens to these people in the first part of the story when banks start pulling back their HELOC loans, starts cutting the maximum credit limit on their credit cards, stops giving new loans entirely to them, etc etc etc. Oh I know - 2nd half recovery. Coming in 4 weeks to the United State of Subprime....

Long Mastercard in fund; no personal position

Bookkeeping: Starting to Build up Indian Banks

Folks, hide the offspring and avert their eyes - these are charts no child should be exposed to. Oh the horror of it all

I normally do not buy charts like this; I like to buy strength most times, not weakness. But I am hoping a double bottom is being formed with mid March lows in both these names. Further, in the "No Indian Bank Left Behind" program, I am almost obliged to throw these guys a bone. I've not treated these 2 stocks as buy and holds, but more of trading vehicles and the layer in/out approach has actually worked wonders with these two since we have nice profits. I am upping HDFC Bank (HDB) to 1.1% and ICICI Bank (IBN) to 1.2% so this is a mini basket of 2 names of which I am "up" to 2.3% weighting. Not that much really of a portfolio due to my general caution of the market AND the potential for some pain in Asian economies as commodity prices soar. Plus if these names break below their March lows, the potential for much lower prices lies ahead (which is why I don't usually buy these sort of charts)

Folks, what is happening is India is they have this small thing called inflation. So the central bank there is doing the traditional thing, which is to raise interest rates. Banks usually don't like an increasing rate environment. See this is very unlike the United States when, when you have an inflation problem, you hide it under government reports, and say you have no inflation. Then your central bank can have the latitude to cut interest rates from 5.25% to 2.00% (as opposed to holding firm like Europe or raising rates). So you sacrifice the lower and middle class to the dragons of inflation while smiling and saying there is no inflation and even if there was it would "dissipate" in the 2nd half of 2008.

However, even with this gift, our banks which should be benefiting from these lower rates are so mired in the twin pillars of credit debacle and housing debacle that they are still stinking up the joint (remember we hate regulation here in America - and we basically allowed these guys to self police themselves - yee haw Cowboy). These banks are flat lining even with all the King's horses and all the King's men delivering interest rate cuts to them (license to print money for banks). Ah well, such is the socialistic system we live in - rob from the poor, give to the rich. In India they still have old fashioned notions I suppose... and their banks are suffering for it. But we're still talking about 2 giants in the country (they are beginning to open US branches by the way as the "East" continues to eat up the "West"), in homelands that will be growing exponentially for the next 20-30 years.

Long both names in fund; no personal position

Bookkeeping: Some Morning Transactions

Last week, I cut 4 names back on potential breakdowns in their charts. Three of those names immediately reversed (2 of them being fertilizer which seem to move together)

So this morning I have done transactions (reversing what I did last week) in 3 of the names... first Gafisa (GFA) - it broke its exponential 50 day moving average but NOT (in retrospect) it's simple. (see I'm evolving and learning myself every day) :) So I cut back, when in fact since it had not broken its simple moving average I could of held. The stock promptly bounced off that level (mid $38s) to become one of last week's big winners. I gritted my teeth. [58 Stocks Returning 8% this Week] Since that time, peaking at nearly $45 Friday, it has lost $5 bucks straight away in 1 and a half session, dropping to $40 (11%) so I'm getting another chance not to screw this one up, so I will rebuy what I sold off and make Gafisa back into a 1.8% position. Now I am checking both the simple (just over $39) and exponential ($40) moving averages - if it breaks BOTH - then I'll cut this name back again to a lower exposure. Nothing works all the time, so you'll see the triumphs and tribulations here in plain sight as we move forward on this journey.... because the stock did return back to near where I sold it, this "mistake" did not cost much at all.

On the other hand, the 2 fertilizer names I cut back for similar reasons, did break both their exponential AND simple moving averages on a closing basis. Traditionally, you sell/cut back at those points anticipating the potential for further downside. This did not happen in this case. So be it. I said if they reversed and showed strength, I'd pay up and reverse course. This happens alot when a stock is jumping up, down, and around a key moving average. No harm, no foul. So I added back some Mosaic (MOS) and CF Industries (CF) this AM.

I also added some Potash (POT) which I had not cut back on last week.

Current stakes in my trio of fertilizers (I added a fourth name yesterday of course, but these 3 I've held since late last summer)
Mosaic 3.8%
Potash 3.0%
CF Industries 2.4%

I've held Mosaic up to 8% of fund holdings in the past, so I have no problem going higher; much higher if this is the beginning of a larger move (if only my crystal ball would tell me if it was). But, what I do love about this group is it has consolidated for nearly 6 weeks, in a narrow base.... off such long bases come strong moves (we never know whether it will be up or down) - but as I've said since last summer, the fundamentals in this specific group (especially potash producers) are the best I've seen, period. The fundamentals call for MUCH higher prices - even after huge moves over the past 2 years. So we saw some stupendous moves upward last fall and in the spring... after such huge moves generally we get a consolidation/pullback periods. I was hoping/expecting for more of a pullback - maybe we will still get it... or maybe not. Most likely it will take one of those "waterfall selloff" moments in the general market to push these names down in a meaningful manner. But the charts are starting to really firm up... I won't post all 3, but you can see from 1 the same pattern in all. Again, there is (in my opinion) very large market risk at this time so this is the trouble we have with opening much long exposure at this time - but with less than 50% long exposure in the entire fund I'm willing to buy some of the higher quality fare even if things might reverse on me in the near term.

Now that coal has had a huge run, which we enjoyed thoroughly at Rising Tide Growth, wouldn't it be sweet, as that group rests/consolidates we could now enjoy a run in fertilizer of similar magnitude? Then when the fertilizer rests in 4-6 weeks, coal will be ready to resume a new run... and then when coal rests 4-6 weeks after that move... we could... ok ok, I am dreaming but it would be nice ;) Again, could be just another headfake and these fertilizer names could break down in a few days - we never really know - if we see continued strength later in the week or even this afternoon - I'll probably be adding more to these positions. Frankly fertilizer has been our top "sector" weight for most of our public life so we've felt kind of naked without it, but hey coal was a nice blanket in the interim.

I also added some Vale (RIO) as the stock has trailed nicely down to its 50 day moving average, but again if we ever get this "long awaited" commodity correction, all these purchases today will be underwater very quick - this is why we scale in (and out) of positions in pieces.

Long all names mentioned in fund; long Mosaic, CF Industries in personal account

India Warns They too Cannot Subsidize Energy Costs Forever

We talked about this just yesterday [China Leads Asia in Retreat from Inflation Battle]... at some price point these subsidies to cap prices in Asia become unaffordable - first went the smaller countries, now comes India, the last elephant to fall will be China which thanks to Americans sending money in droves every day (via Walmart) can afford to keep subsidizing but if oil begins a new summit ($150+?) it simply hits a point where even China cannot continue to subsidize everything (they are doing it in both the food chain and the energy chain)

UK Guardian: India Must Cap Subsidies, Will Sustain Growth
  • India must not further subsidise soaring prices of oil and other commodities to protect consumers, but will be able to sustain high economic growth despite global challenges, the prime minister said on Monday. (that will be a good trick, let me know how that works out for you)
  • As his government remains split over how to bail out state oil firms hit by the surge in crude, Manmohan Singh told a leading industry lobby group that a wider political consensus in favour of a sustainable pricing policy was needed.
  • The government is concerned about the impact of high commodity prices at a time of slowing global economic growth. (don't you worry, US economy will be rebounding in 2nd half, slated to begin July 1, 2008)
  • "We cannot allow the subsidy bill to rise any further nor do we have the margin to fully insulate the consumer from the impact of world commodity prices and oil price inflation," he said. (solution: Print Money. Lots of it - I recommend helicopter drops myself. Works like a charm here - further it creates no inflation; with the correct type of government reporting.)
  • Oil prices are up more than 70 percent since mid-2006 and by 0855 GMT stood at just under $127 a barrel, but retail prices of petrol and diesel in India are now lower than they were two years ago. (scary - no wonder there is no demand destruction)
  • Policy makers were expected to agree on a package for oil firms -- including a moderate rise in prices of petrol and diesel -- at the weekend, but their efforts have been complicated by fears of upsetting voters in an important election year. (some things never change, no matter what country you are in)
  • The oil ministry has suggested price rises of 15-20 percent and officials have described a hike as "inevitable", but any increase is likely to be far lower given the potential fallout for the ruling Congress Party-led coalition and inflation fears.
  • The prime minister said fiscal steps taken by the government to tame inflation -- at its highest in more than 3-½ years at an annual 8.1 percent in mid-May and stoking fears of more central bank action -- would yield results. (keep in mind India has been growing 9-11% so 8.1% inflation in a 10% growth world is at least break even... meanwhile in the lovely states we have shoddy growth with arguably 8-14% inflation... err, I mean 3.4% inflation ... with lots of growth.... in the 2nd half)
Bloomberg: India Can't Allow Subsidies to Increase
  • ``Petroleum prices don't reflect world trends,'' Singh told the Associated Chambers of Commerce and Industry in New Delhi. ``This situation cannot continue for ever. We need further political consensus to adopt more rational economic policies.''
  • Singh is under pressure to increase gasoline and diesel prices to alleviate shortages and narrow refiners' losses from $1 billion a week. He hasn't raised prices in the past 3 1/2 months on concern it may accelerate inflation, already the highest since 2004, ahead of national elections in a year's time. (and you though Valero (VLO) was having a tough time of it)
  • Cooking gas prices have been capped since April 2005.
  • India's communist parties, whose support helps Singh's maintain a majority in parliament, said May 31 they won't allow the government to raise prices. The communists said the government should instead cut import and excise taxes on fuel.
  • Indonesia raised fuel prices by an average of around 29 percent on May 24, the first increase in three years, to cut subsidy costs.
  • In China... the government controls prices of gasoline, diesel, jet fuel, coal and power.
  • China Petroleum & Chemical Corp. was paid about 7 billion yuan ($1 billion) in state subsidies for oil imports in April, more than what it got for the whole of last year, according to a company official. China controls fuel prices to limit their effect on inflation, which is running near a 12-year high.
Inflation here (ok not here, we have no inflation)... inflation there... inflation everywhere (except for the U.S.). It appears if true market prices were being paid, we'd have a global consumer recession, not just an American/British/Spanish one.

WSJ: Pinched Consumers Scramble for Cash

No surprise here - I mentioned in the fall the path for "no more house ATM for you" American consumers would be credit cards first, drain 401ks (whatever they actually invested, which is very little) second, beg borrow steal (pawn) next, and away we go to bankruptcy circa 2009 last. Real wages stagnant for a decade (using government inflation figures, far worse with 'real inflation') eventually will catch up to you. Keep in mind folks, we are not even "in a recession"; what happens if we "enter" one.

Thankfully issues like this will be resolved in less than a month as the 2nd half recovery commences, and my scenario will not play out. Once July 1, 2008 arrives and the 2nd half recovery begins we won't have to deal with front page stories like this one in the Wall Street Journal - those fear mongers obviously do not understand the recovery story and/or the benign data from government that shows an economy poised to rebound imminently. (cough)
  • After a long binge of borrowing, U.S. consumers face a credit crunch and a sagging economy. To sustain their living standards, many Americans are doing what comes naturally: scrambling to raise more cash.
  • Sheron Brunner, 63 years old, bought a $250,000 life-insurance policy in 1997, planning to leave the proceeds to her three children. Health problems forced her to siphon her savings. A monthly Social Security check of about $700, her only source of income, doesn't cover her medical bills and rising everyday expenses. It wasn't enough, so this spring she signed what's known as a life-settlement agreement with J.G. Wentworth, a company that buys life-insurance policies and other tough-to-sell assets. The contract transfers ownership of a life-insurance policy to a third party, which then pays future premiums and collects the benefit. Ms. Brunner received about $45,000 for her $250,000 term policy. (unfortunately this is the generation of Walmart greeters I keep talking about; they actually have it well off since many have pensions and decent social security - it is their kids in their 40s that are going to lead the true "work til you die" generation of non savers - just imagine how LITTLE social security will pay for in 10 years after another decade of 2-3% cost of living adjustments, based on government data, while "real life goes up 8-15% a year)
  • As consumers max out their credit lines and banks clamp down on lending, many older and middle-class Americans are resorting to pricey, often-risky alternatives to stay afloat. Some are depleting their retirement accounts, tapping 401(k)s for both loans and hardship withdrawals. While 401(k) loans generally carry reasonable interest rates, individuals who take them lose some of the valuable power of compounded returns -- jeopardizing their retirement security in the process.
  • Some new fast-cash options allow homeowners to squeeze equity from their houses -- without the burden of monthly payments. One new product offers a one-time payment. In exchange, the company shares in as much as 50% of any future gain or loss in the property's value, typically collecting proceeds when the house is sold.
  • Many people are resorting to more conventional means of borrowing: In March, consumers had a record $957 billion of credit-card and other types of revolving debt outstanding -- up about 8% from a year earlier, according to preliminary data from the Federal Reserve.
  • Reverse mortgages are gaining new favor. Secured by a home's equity, this vehicle can provide consumers with a lump-sum payout, a line of credit, periodic payments or a combination thereof. Reverse mortgages often involve high fees and costs, which often add up to as much as 5% or 6% of the home value. A homeowner or his heirs must typically sell the house to repay the loan, which becomes due when the borrower leaves the home for more than one year or dies.
  • In 2007, 18% of workers had taken a retirement-plan loan within the past year, up from 11% in 2006 (that's 1 out of 5 for the math challenged, up from 1 out of 10 just a year earlier) ;)
And the last sentence of the paragraph of the article pretty much sums it all up better than I ever could.... now my question is for all these people - what will you do in "retirement" (see Walmart employment line)
He tapped into his retirement savings instead, taking one loan and one taxable withdrawal. His logic: "Why plan for retirement if you can't make it today?"
Folks, in the end it's just a shell game, transferring debt from one place to another - until you run out of places to hide. But we are still in frantic hiding stage. The bankruptcies will be hitting in 2009...and 2010; just in time for the 2nd half recovery (of 2010)

Conclusion: Buy stocks. It's all priced in and most multinationals don't need us slimy Americans anymore to succeed.

Monday, June 2, 2008

Bloomberg: China Leads Asia in Retreat from Inflation Battle

China remains the inflection point of almost every major bull market at this point; thus we must monitor this Ferrari going at 165 mph down a careening oil slick mountain road. Recall, we are already seeing smaller Asian governments buckle under the global commodity price boom [May 23: Smaller Asian Countries Begin to Buckle Under Oil] and we are seeing the impact of steel [May 17: WSJ - Fast Rising Steel Prices Set Back Big Projects] Just speaking from a local perspective the impact on automotive of this steel issue is simply untenable. Hot rolled steel prices have risen from $830 metric ton in April to $1035 in mid May. Folks, thats in 6 weeks; this product was $500 a few years ago (and $150-$200 a few years in the early part of the decade). This industry has paper thin margins in the US as it is... a lot more pain for the Michigan, Ohio, and Indiana area. No subsidies here; just in China.

Bloomberg is out with an excellent article - some very solid pieces from them of late.
  • Plummeting currencies did in the first Asian economic miracle. The second may fall victim to surging inflation.
  • Central banks from Beijing to Bangkok are losing their bets that a global slowdown would temper price increases. While export demand from the U.S. and Europe may have eased, it has been replaced by rising domestic consumption that has helped push inflation rates in Asia as high as 26 percent.
  • The result: In China, Thailand, the Philippines and at least eight other Asian economies, benchmark borrowing costs are lower than the rate of inflation, resulting in negative real interest rates, according to data compiled by Bloomberg. The risk is that prices will spiral even faster, leading to overheated economies and an eventual bust. (hey, same situation here - print Ben print, just imagine how negative they would be if inflation was actually reported with some accuracy)
  • ``Unless there are concrete measures to tackle inflation, investors are going to reconsider the Asian growth story and realize it's not as rosy as it seems,'' says Sailesh Jha, an economist with Barclays Plc in Singapore. ``Confidence will weaken, and there'll be a significant correction in asset prices such as stocks as capital flows out.''
  • The People's Bank of China, which announced in early December a planned shift to a ``tight'' monetary policy, has kept its main lending rate unchanged at 7.47 percent since the end of 2007, even as inflation soared to 8.5 percent, near a 12- year high.
  • Without stronger action by the central bank, ``the eventual correction will come at a much higher price,'' says Kevin Lai, senior economist with Daiwa Research Institute in Hong Kong. ``The more the problems get delayed, the greater the risk. The subsequent bust cycle will be long and painful.'' (sounds vaguely familiar)
  • ``Policy makers were expecting slower global growth to bring down inflation and do their work for them,'' says Robert Prior Wandesforde, a senior economist at HSBC Holdings Plc in Singapore. ``That's not going to happen. Monetary policy is incredibly loose, and they have a lot of catching up to do.''
  • Bank lending climbed 14.7 percent in Vietnam during the first four months of 2008 after a 50 percent increase last year, and rose 24.4 percent in Singapore in April compared with a year earlier. China's factory and property spending gained 25.7 percent in the four months through April.
  • In Russia, the central bank's two rate increases this year have failed to damp consumer prices, which were up 14.3 percent in April from a year earlier, the fastest acceleration in five years.
The World of Shortages theory continues to wreck havoc under the surface. Eventually someone will need to pay the piper.

Bookkeeping: Beginning Starter Position in Intrepid Potash (IPI)

Based on this morning's earnings report and some follow up information from my analyst team (ahem - readers), we've come to the conclusion that Intrepid Potash (IPI) prices their fertilizer 70% by contract, 30% spot in each quarter. For the contracted portion, if last quarter is a representative sample, they priced the contracted portion with a 4 month lag. Assuming April 1 'contract' pricing came in December 2007-January 2008, we should begin to see meaningful upside in Q2. Q3 (starting July 1) should price in March 2008 and the full effects of the rampant bull in potash pricing should be reflected by then. A risk of course is potash pricing falls in the back half of the year, something I would find as a very small probability

[Mar 27: Canpotex Potash Contracts Secured with India @ $625]
[Apr 2: Potash Makers Already Talking $750, up from $625]
[Apr 16: Chinese Agree to $576 Price Point for Potash]
[Apr 23: Potash Hits $1000 on Spot Market]

With that said, I still want to hear myself tonight, but going on my analyst team I'm creating a starter stake in Intrepid Potash here in the $48s, with a 400 share buy or $19,600. Due to market conditions and potential for commodity pullback, plus the need to listen to the conference call, I'm starting small - this is a 1.6% stake. I would like to add to this position in the low to mid $40s on a sector pullback, or if the name starts to run on me I'll add as well. I don't expect this to take off tomorrow, but if this pricing mechanism outlined above is accurate the current 2008 estimate of $2.24 EPS should be surpassed by Dec 31, 08; but this will be a very backloaded year.

With that said, coal is a 2009/2010 story and that has not stopped the stocks from creating massive moves in 6 weeks. So we won't know when the market will recognize inefficiencies - you just have to identify them and be ready to latch on, once the whale starts swimming. This new information makes me far more bullish on this name than I was 24 hours ago; again every $100 increase in potash = 70 cents EPS to Intrepid according to their filing today.

We estimate that every $10 per ton increase in the price of potash will have a pro forma annual earnings impact of approximately $0.07 per share.

According to their filing this is their current pricing scheme

Q1 Average: $390 (Jan $357, Feb $397, Mar $417)

Q2 Looks like this - Apr $503, May $532, Jun $582

As an added bonus it appears the vast majority of their sales are domestic in nature; with China short changed in their potash this year, I can see certain Asian friends knocking on their door in the coming year. Again... just about everything is about China nowadays - but while they can slowdown their orders of steel, concrete, metals - keeping their people warm (coal) or feeding them (fertilizer) is going to be a very difficult thing to stop doing; so even if China does implode under its own supersonic growth rate, feeding and energy needs should not suffer. (Note that does not mean American stockholders of companies in these areas won't panic sell on first hint of China slowdown, but that's just American stockholders being American stockholders - very little to do with fundamentals)

Long Intrepid Potash in fund and personal account

S&P 500 at Bottom of its Range

Am I the only one who is having trouble accessing the website today?

Anyhow, as we discussed in the weekly round up, we were in the middle of no man's land to enter the week; with a very tight range of 3.5% (1430 on upside, 1380 on downside). Well in just a few short hours we've come down to test the bottom of this range. Now, for you technical analysis types, I've looked at BOTH the exponential and simple moving averages and both 50 days are sitting nicely at 1379-1380. So unlike last week, both types of moving averages show us the same thing. The S&P has dropped to 1378-1379 so we'll see how the rest of the day unfolds. Generally my strategy is to lighten up short exposure when we head into the bottom of a range and then rebuy that exposure if we break through (no bounce). Now when I did that a week ago Friday (rebuying some short exposure after breaking through "support") we got punished for that, but apparently the simple moving average was still sitting as support. This time, a break below 1375 or so would mean both versions of the moving average will have been broken. Frankly this looks like a text book breakdown; the initial surge down (2 weeks ago) followed by a light volume bounce (last week) followed by a retest down... but that's how things used to work. In this new and improved (managed) markets, we just never know what crazy things will happen out of thin air (see mid April)

More serious students of technical analysis can correct me on this ;) But from where I sit it would be important for the bulls to hold 1380 on a closing basis... if normal historical technical patterns are obeyed. For those of you who don't follow technical analysis, just ignore this whole post and realize we are at a potential inflection point :)

Stop Me if You've Heard this Before - Coal is Roaring

What can I say - this is simply an epic move. As I keep saying this group reminded me of fertilizer last summer/fall - totally underestimated. I am simply amazed by the strength and voraciousness of this move, even as a super bull on the group. Yet another upgrade today in the group and you are seeing some huge earning revisions and price targets across the board - analysts finally "get it" - after about 40-70% 1 month moves across the board. Always timely these analysts ;) Again, these guys focus on 1 industry (career/full time job devoted to 1 sector) yet missed the whole rocketship, only after the ship is in orbit do they "get it"? Where were they 2 months ago when the writing was on the wall i.e. [Apr 7: Posco (PKX) Agrees to 200% Coal Price Increases]? Now come the upgrades? :) Again, EXACTLY the same scenario that played out in fertilizer. Just more "value add" from these fellas.
  • A Friedman, Billings, Ramsey analyst significantly raised his coal price predictions and upgraded a major miner to "Outperform," suggesting that demand will far outpace supply through 2010.
  • Analyst David Khani raised his price forecast for metallurgical coal, which is used in steel production, by 90 percent for 2009 to $130 per ton. For 2010, he raised his expectation by 130 percent to $250 per ton.
  • For steam coal, used in boilers to produce electricity, Khani raised his predictions by about 25 percent in 2009 and 2010.
  • Based on his new price expectations, he upgraded Massey Energy Co. -- the fourth largest U.S. coal producer by revenue -- to "Outperform" from "Market Perform."
  • Khani noted that lower supply and booming international demand is keeping the metallurgical coal market extremely tight. The steam coal market in the U.S., he said, is undersupplied as power generation demand accelerates the need for the commodity. He suggested that supplies will dwindle at the end of next year and prices should rise at a rapid rate.
  • The analyst lifted his 12-month price targets for all the U.S. coal companies he covers, and added Patriot Coal Corp. as a "Top Pick."
  • Risks: Khani said a weakening global economy, increasing credit defaults and soaring prices for drybulk ships -- which transport coal overseas -- could all weigh down the sector's growth rate.
TheStreet.com has an in depth article out today as well, nothing new to our readers who have been following along this story before the mainstream jumped on [Dec 6: Coal Stocks Quietly in Bull Market] Judging from web traffic in which I'd say about 1/2 of my Google hits the past few days are some incarnation of "coal" (just like 3 months ago they were some incarnation of "fertilizer" or "agriculture" or "rice") I can see the story is catching on. Which again, makes me short term concerned about the group.... but we'll keep riding with what we have left.
  • The price of U.S. coal futures solidly crossed above $100 per ton this month, more than double what they were six months ago.
  • About two-thirds of the world's coal currently goes to fuel electrical plants and the rest goes primarily into steel and concrete production. New demand is coming from emerging markets. Together, according to U.S. Department of Energy estimates, China and India will account for 70% of the increase in world coal consumption over the next two decades.
  • The biggest difference is that global supply conditions have fundamentally changed over the last year, especially in the two largest consuming countries.
  • China, the largest producer of coal in the world, is no longer coal self-sufficient. The booming economy was made possible by more electric power and steel plants, which both require coal to operate. The Chinese will eventually have to bring in more shipments of coal at higher prices, putting more upward pressure on global seaborne coal prices to sustain economic growth.
  • The story is nearly the same in India. Despite its reserves and production, India is not coal self-sufficient either, and has reduced exports too.
  • Supply disruptions and the lack of coal self-sufficiency in Asia and coal supply disruptions have created an immediate global problem.
  • Australia is normally the largest exporter of coal in the world. Last year, Australia accounted for 65% of the world's coking coal exports. But, due to disastrous floods, six of the largest coal exporters in the world legally failed to deliver on contracts. This is a huge drop in supply.
  • Normally, other coal exporters would fill the gap. But South Africa has experienced structural power shortages and Russia is focusing on exporting gas, not coal. So that leaves the business to other players -- like the U.S. coal companies that also benefit from a lower dollar exchange rate.
  • New coal capacity can't be turned on overnight. It takes time, money and corporate/government partnerships to create new integrated mine-railway-port projects for coal. (sounds a lot like potash fertilizer, eh?)
  • While many coal production projects have been announced worldwide, these are not likely to have an impact on current supplies until 2010. In the meantime, prices for available coal will continue to climb.
  • The largest U.S. exporter of coking coal is Alpha Natural Resources(ANR), with a 22% market share of exports.
  • The coming higher coal prices will drive larger public companies to buy into coal companies to ensure they have supplies. Even smaller coal companies with poor earnings records are candidates for bolt-on acquisitions. (we've discussed this in the past - just another potential upside to these stories)
  • Take a look at Patriot Coal(PCX). It posted losses last year, but the stock is up 190% just in the last six months. The acquisitions, new capital raised and higher coking coal prices are making investors salivate over the potential returns.
Long Arch Coal, Massey Energy, Alpha Natural Resources in fund; long Arch Coal in personal account

Intrepid Potash (IPI) Solid Quarter - Future Looks Bright

Intrepid Potash (IPI) which I deemed would be the hottest IPO of 2008 [Apr 18: You Thought Visa (V) was the Hottest IPO of 2008?] has it's first earnings report as a public company and the results are as expected - very good.

This quarter is VERY understated versus what "market prices" for potash now bear as the company was selling potash (70% under previously negotiated contracts it appears) at average $325; some market pricing is double that now.
  • Intrepid Potash, Inc. (NYSE:IPI - News), the successor entity to Intrepid Mining LLC, today announced first-quarter 2008 results with net income of $33.1 million, compared to last years first quarter net income of $6.4 million and exceeding full-year 2007 net income of $29.7 million.
  • On a pro forma basis, assuming a 38.5 percent effective tax rate and the pro forma diluted current share count of 74.8 million common shares for Intrepid, pro forma net income per share would have been $0.27 per share in the first quarter of 2008 as compared to $0.05 per share in the first quarter of last year.
  • During the first quarter, Intrepid produced 224,000 short tons of potash, a 3 percent increase over the 218,000 short tons produced during last years first quarter. First and fourth quarter production typically exceeds second and third quarter production as a result of the evaporation cycle at our solar facilities that occurs primarily in the spring and summer months.
  • Intrepid sold 213,000 short tons of potash in the first quarter at an average FOB the mines or net sales price of $295 per ton as compared to 209,000 short tons at an average FOB price of $178 per short ton during the first quarter of 2007. Intrepid reports tons and per ton price and cost data in short tons; converting our $295 per short ton price to metric tonnes (tonne) would be the equivalent of a $325 per tonne first quarter average FOB price. The $117 per short ton increase in selling price was achieved despite having committed approximately 70 percent of our first quarter sales volumes at guaranteed prices that were primarily negotiated in September 2007, before the significant increases in potash pricing.
  • Our posted price for red granular FOB Carlsbad has increased progressively in each month of 2008 from $317 per short ton at the end of 2007 to $357, $397, $417, $503, $532, and $582 per short ton for January through June, respectively. We estimate that every $10 per ton increase in the price of potash will have a pro forma annual earnings impact of approximately $0.07 per share. (quite staggering when you think about that level of increase)
Now the company does not indicate in future guidance how much of their future production is already under contract (at lower prices) versus open to being sold (at much higher prices) so it's hard to estimate the future prospects; however safe to say - analysts are understating the growth. They are going to be able to do almost 900K (short) tons for the years but the question is are they getting $300, $350, $400, $450, $500, $550 etc, and when the price increases begin to show up (which quarters?). Without that sort of specific guidance it is hard to make a judgement.... perhaps in the conference call they'll give more detailed info. But based on their guidance for every $100 increase in pricing they will derive an additional 70 cents a share.

No position (yet)

US News & World Report: Peter Schiff's Worst Case Scenario

We've highlighted Peter Schiff from time to time in the blog, mostly because he agrees with me. ;) [Mar 22: Financial Turmoil Raises Worries of Deeper Recession] Also since has a lot larger voice than I do, appearing frequently on TV to try to counterweight the "everything is fine, no recession, and even if there was one it will be over in 6 months crowd... and did I mention inflation is benign" crowd. Good to see someone like him making it into mainstream (non financial) press publications although he is deemed an "Ultrabear". I guess the truth hurts? Now my job is to balance his type of commentary which I find extremely true and in fact verbatim in many areas (remember, it overlays with most of what I say so therefore how could it not be true - hah), with what I see as the market view. Remember the end goal here is to make money, not be intellectually correct. There are many intellectually correct (but broke) bears from the tech bubble for example - you can be proven right in the interest of time, but if you lost all your capital proving your point, did you really win? Remember the most famous of quotes - "The market can stay irrational longer than you can stay solvent."

I'll just copy the story verbatim since there is little need to add my typical snarky commentary; one highlight is the commentary about what happens if China allows their currency to increase - talk about the perfect storm for the United States of Subprime.

Schiff spent the past decade urging brokerage clients to jump ship from the American economy ahead of what he views as inevitable pain caused by a toxic cocktail of lax monetary policy, wayward spending, and tougher competition from all corners of the globe.

Even with some pain already felt as America's economy stumbles, Schiff saw nothing but downside in a recent chat with U.S. News. You'll want to buckle up for some characteristically apocalyptic talk from one of the gloomiest market watchers around. Excerpts:

Say something positive about the U.S. economy.
There's nothing good to say about our situation. The policies both the Fed and government are pursuing are making the situation worse. We've been getting a free ride on the global gravy train. Other countries are starting to reclaim their resources and goods, so as Americans are priced out of various markets, the rest of the world is going to enjoy the consumption of goods Americans had previously purchased. This is a natural consequence of this phony economy. If America had maintained a viable economy and continued to produce goods instead of merely consuming them, and if we had saved money instead of borrowing, our standard of living could rise with everybody else's. Instead, we gutted our manufacturing, let our infrastructure decay, and encouraged our citizens to borrow with reckless abandon.

So what are you doing about it?
I'm getting my clients' money outside of the United States as fast as they can send it to me. I've been recommending that to my clients for close to 10 years. You've got to own resources and energy. I was saying oil was going to $200 a barrel in 2002. I've been buying gold, silver, industrial metals, and all kinds of stocks. My main theme is the global economy will survive and the U.S. economy is a disaster. Everything is about how you benefit from the increased purchasing power and rising standard of living in the rest of the world.

OK, where are the best non-U.S. markets this year?
I still like Singapore, Hong Kong. Asian markets are the place to be. I like resource markets like Scandinavia. I'm spreading my chips around the world. I'm just avoiding the United States.

What are your best or worst calls through this downturn?
I've been bearish on bonds. U.S. bonds have lost a lot of real value but not nominal value. I still think that's going to be proven to be correct. While the housing bubble was inflating, I was telling people to rent. I was telling people to get out of tech stocks in 1998 and 1999. They kept rising, but then they collapsed, and I turned out to be right. The reality is I don't think I've been wrong on anything. (lol)

Most people disagree with that sort of pessimism. If you're staying in the United States, how do you invest?
If you want to be in U.S markets, you avoid anything connected with the American economy. You avoid retailers, the home builders, the financials—anything having to do with consumers buying something or paying back the money they borrowed. If you want to invest in U.S. markets, stick with exporters and resource companies. I've been saying that for five or six years; I haven't gotten anything wrong. We shorted subprime mortgages. I have clients that made 10 times their money. We've never sold an oil stock. We've never sold a gold stock.

Why don't you think soaring oil, grains, or commodities prices are the next bubble?
These prices do not constitute bubbles. They simply constitute the repricing of goods to reflect the diminished value of our money. The way you can tell there's not a bubble is that these markets are clearing. People are buying food and eating it. They're buying gasoline and using it. Speculators aren't buying gasoline and warehousing it in big facilities because they think the price is going to go up. At the same time, we've increased the supply of money dramatically, and the Fed is increasing it even faster now to deal with the bursting of the housing bubble. The only thing that can happen is for prices of commodities to rise to reflect the equilibrium of a greater supply of money. It's not even that oil prices are going up. Oil prices are staying the same. What's happening is the value of money is diminishing, so we need more units of currency to buy the same amount of oil or wheat or corn or whatever.

How about some predictions?
• I think the stock market is headed lower. Gold is going to be $1,200 to $1,500 by the end of the year. That puts the Dow at a less-than-10-to-1 price ratio to gold. Right now, it's about 13 to 1. That's another 30 percent drop in the real value of stocks by the end of the year if you price them in gold. The Dow was worth 43 ounces of gold in 2000. It'll get to 10 by the end of the year and continue to fall from there.

Oil prices had a pretty big run and might not make more headway by the end of the year. But we could see $150 to $200 next year. I don't think oil will hit $250 because there will be enough destruction of demand in the United States to keep it from doubling. The big problem for us is if the Chinese substantially allow their currency to rise. It could increase at least fivefold against the dollar over the span of a year or two. That reduces the price of oil by 80 percent for 1.3 billion Chinese. Consumption would go through the roof, and that will drive prices through the roof for us.

• At a minimum, the dollar will lose another 40 to 50 percent of its value. I'm confident that by next year we'll see more aggressive movements to abandon the dollar by the [Persian] Gulf region and by the Asian bloc. That's where the stuff really hits the fan.

You're a Ron Paul adviser. He's out of contention, so who wins the election, and what happens then?
The Obama presidency will be like the Jimmy Carter presidency on steroids. I'm pretty sure it's Obama because the economy will be so bad into the election that as damaged a candidate as the guy is, I don't think a Republican could beat him. I think Ron Paul could've had a slim chance because he was different enough.

So how bad do you think this economy will get?
The other problem we'll have during those years is civil [unrest]. There will be a big increase in crime. People are going to be hungry. People are going to be cold. There's a sense of entitlement in this country, and when a lot of people used to having things suddenly don't, everybody looks for someone to blame.

We're going through a very rough period in our history. In many ways, it's going to be worse than the Depression.

Sunday, June 1, 2008

Bookkeeping: Weekly Changes to Fund Positions Week 43

Week 43 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: 31.9% (vs 22.8% last week)
50 long bias: 47.2% (vs 49.3% last week)
9 short bias: 20.9% (vs 27.9% last week)

59 positions (vs 61 last week)
Additions: N/A
Removals: FTI Consulting (FCN), Consol Energy (CNX)

Top 10 positions = 28.2% of fund (vs 33.2% last week)
28 of the 59 positions are at least 1% of the fund's overall holdings (47%)

Major changes and weekly thoughts
Much of the same this week as many in the past, and I believe many in the future. Continued deteriorating economic conditions but "not as bad as expected" so we continue to muddle along. Remember, as long as the conventional wisdom is things will be better "in 6 months" (they never really tell us which 6 months) we can continue this type of action for a long time. Along the way I expect a few periods where bad news overwhelms and the market takes a dip, but it appears it will take a lot of bad news in a short span to trigger this and with the parody that are government reports, "better than expected" can be seen on the economic front "forever"? :) At it's basis the stock market should be a value of future earnings; we've already outlined the case that currently fourth quarter 2008 earnings are showing to be 60% higher than fourth quarter 2007. If this comes through, than I'll be the first to say I underestimate the roaring come back of October - December 2008. It seems a bit fanciful to me, but on the basis of that set of earnings one could say the market is a decent value. That appears to be the current mood, and with light volume we can be moved quite easily in any direction on a day to day basis.

Right now, the conversation has moved from the "credit crisis" to "oil". What is funny (to me) is many times the market would rally WITH oil rising, as energy stocks have come to dominate more and more of the S&P 500. So that was a "good thing". Now the same people giving us that thesis say the market should rally with oil falling as well, because that will help put a lid on inflation/help the consumer. So once again it's the "have it both way" pundits - when oil is up, it's good because it helps stocks in the S&P 500, and when oil is down it's good because it helps consumers and producers avoid ever higher prices. Conclusion: No matter what the news, it's a good thing. That's unfortunately, how Wall Street seems to think, which is why those of you who are right brained will constantly be frustrated ;) I myself am right brained, but try to revert back to 4th grade level thinking when trying to explain why the stock market can rationalize everything. It serves me well; along with my heavy drinking of Kool Aid. But on a serious note - this is one of those periods where I feel I don't have any near term advantage - most stocks I like best have made huge runs with no meaningful correction, and stocks that could benefit from the "2nd half recovery" are based on a thesis I find completely baseless. I've been typing this for a few weeks now, so I'll continue down that path and remain patient, waiting for juicier pitches to hit.

For the fund while we mentioned last week it was possible that the market would make a bounce after a very heavy selloff, I mistakenly assumed the charts would dictate a further move down. I also ran out of Kool Aid last week which also weakened my rational thinking skills, and turned me too bearish. Now with stocks restored, I can see the market should (and deserves) to go up 50 of every 52 weeks even in the worst credit and housing crisis since the Great Depression. ;) So we took a hit, and since this is one of those periods I have no good feel on the near term direction of the market I have raised cash to a high level, but also lowered short exposure since we are in the middle of a trading range on the S&P 500; 1380 on downside, 1430 on the top side. That entire range is only 3.5% so we should know sooner rather than later which way the next move is. I am not doing much these days, other than adjusting short vs cash allocations as we wait to see how things play out.

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 of the blog under archives.
Some of the larger changes (chronologically) to the fund below:
  1. Monday, we BBQ'd - enjoying the last time it won't cost a mortgage payment to do so.
  2. Tuesday, we began to rebuild a position in dry bulk shipper DryShips (DRYS) after the stock fell 27% in 6 days to the mid $80s.
  3. We closed a position in consultant FTI Consulting (FCN) - a high quality company that I still like the long term positioning of, but I am trying to narrow the portfolio even further and can see more upside in other areas.
  4. I cut back 4 positions for technical reasons (breaking key support level), all but 1 proceeded to disobey the technical condition and bounce back the next day - nothing works all the time.
  5. Wednesday, a few names in the natural gas area pulled back to nice support area - so we added to both. I did not buy the 3rd name, Cabot Oil & Gas (COG) hoping to see it hit $57... which it did later in the week but I was not at the computer at the time or apparently not paying attention when it happened so missed opportunity there.
  6. Thursday, we began rebuilding a stake in Chinese educator New Oriental Education (EDU) on a breakdown to support on "no news". We gave some speculation but it appears with time since, the news is that the earthquake will effect future results. Makes sense but doesn't change the business for the long run.
  7. Late Thursday, I took out my last layer (I still hold a 1% stake which I won't sell) of Alpha Natural Resources (ANR) after a 60%+ 1 month run. Amazing. Friday, I decided to winnow my coal exposure to concentrate on 3 names instead of 4 (I might go back to 4 at a later date), and of the 2 names more focused on thermal coal I decided to stick with Arch Coal (ACI) and eliminate Consol Energy (CNX). I like every name in this sector for the same fundamental reasons - just trying to find some relative outperformance - Arch Coal has had a good month but at this point after some other names have had such huge runs it has become a more compelling valuation versus the group; so I moved some of my Consol Energy sales directly into Arch Coal.
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.

AP: Heating Oil Sticker Shock to Hit New England

We've been discussing for quite a while the lag effects of inflation on the consumer - while many are complaining about their costs today, much of it has yet to really hit the consumer. This is part of the reason why I find any second half recovery almost criminal in nature to sell to the public - that said the stock market MIGHT go up, we never know - but it won't be an economic recovery in the 2nd half. One area that inflation has not even begun to be seen is home heating - for those of you following along we've been heavily into coal (since early last fall) and natural gas (since late in the winter). As we've explained in the past, air conditioning rates will go up this summer but due to long term contracts the real hit will be NEXT summer. Same goes for winter - we didn't feel almost any of the pass through costs this winter. Those of you in the north, start budgeting - your next winter's bills are going to begin to show "inflation" (and they won't fully discount the increase either because of the regulation in the industry).

Now, the company line is, and has been "inflation will abate in the 2nd half as the economy slows" - almost every pundit and Federal Reserve official whispers these sweet nothings in our ears. I'm going to take the other side of that trade (as I have since blog inception) and say, inflation is going to whack you along the head in the 2nd half and 1st half 2009 (except there will be no inflation in houses, iPods and flat panel TVs - none of which you can eat or use for energy; ok maybe you can burn them for some short term heating) So therefore the government reports will show only minor inflation. [News of the Day - Inflation]

So we can look forward to another year of government statistics telling us, since home prices are going down, and electronics continue to hold steady - inflation is steady as she goes. Meanwhile the few of you out there who are forced to buy non essentials like "food", "toilet paper" or "home heating" are going to see a different story. But don't you worry, you can buy a SUV for 8% less than last year. I'll be officially striking all government reports for the next year (err, decade), including this Friday's jobs report - for a truth check have some fun with [Employment Reports and More Fed Actions] - keep in mind, this is a government that somehow told us that the economy added 45,000 construction jobs last month in their "estimation" :) Nice! Nothing like a nice steamed brew of Kool Aid on a Friday morning. But let's get back to those poor suckers in the northern 2/3rds of America. And readers, let's count down the days until Congress trots out those utility CEO's so they can berate them publicly in the "Congressional Oversight Meeting into Predatory Pricing of Utilities". Instead of said Congressmen/women looking into the mirror to see the major culprit.
  • While people in most of the country may be worried about their summer air conditioning bills, many residents in the Northeast are way beyond that: They're already thinking ahead to next winter's heating bills. And what those who heat their houses with oil are seeing is giving them sticker shock.
  • Retail heating oil prices have risen to more than $4.50 a gallon, nearly double what they were last year at this time.
  • Consumers -- already on edge with rising gasoline and food prices -- will probably be outraged when they calculate their oil bills for next winter, said Jamie Py, president of the Maine Oil Dealers Association. (oh they will be so outraged, thankfully the 2nd half recovery will make them a bit less outraged)
  • The angst over heating oil prices is particularly acute in New England, where a higher proportion of people use oil as their primary heating source than any other region, ranging from more than 75 percent in Maine to about 40 percent in Massachusetts.
  • "If prices still keep going up, they're going to find people frozen to death next winter because they won't have the money to buy oil," Foss said.
  • Bangor-based Webber Energy Fuels, which operates across Maine and parts of New Hampshire, has been selling fixed-price programs at $4.70 to $4.80 a gallon for next winter, said President Mike Shea. Last year at this time, the price was $2.50 to $2.60.
  • The residential price of heating oil rose 59 percent from the first quarter of 2007 to the same period this year. (thats a tad higher than the government inflation but not to worry, you can buy Tshirts for 1% higher than last year - buy Tshirts, burn them to heat your home and hence you have no inflation)
Again this is just home heating oil - the pass through effects of coal and natural gas will take much longer to filter through the system due to contracts and regulation. But we can look forward to years... and years... of higher energy costs. Let's all cheer for that global recession so we can save a few bucks this winter. And let's keep voting down solar, wind, and any other alternatives - go team Congress!

This Week's Poll Results - Should Exxon be Forced to go Green?

I did not want to voice my opinion on this week's poll [May 28: What's your Opinion? Should Exxon go Green?] since I don't want to have any influence on the results, but I have to say I was surprised by the results.

With 117 votes, "No, their job is to make money at their core business - nothing else" won with a 63% majority but "Yes, they should branch out and be working to the greater good" had a much stronger showing than I expected with 37% of the votes.

Myself, I agreed with the majority - I consider that to be the 'conservative' stance (libertarian?), while working for the greater good would be the more liberal stance. Business is business - either government or companies who choose alternative energy as a profit making venture can go down the path of "green"; an oil business is just that - an oil business. The one gray area is one could argue they should go green to help balance out their long term business in case "green energies" do take over in 25 years, but if they believe the best profit opportunity is to stay solely on the current path, then they seem to have made that decision - the core business is where the dinero is. If their judgement is incorrect; than Exxon will be out of business in 30-40 years. Unfortunately CEO's lifespans are much shorter than that, so this makes the arguement - do managers really manage for 15, 25+ years out? Or just long enough to maximize profits during their tenure? Somehow I feel the latter in most of America. Contrast that with say, a Toyota Motors (TM) which has a 25 year business plan.

Anyhow interesting results to take the 'pulse' of the readership.

58 Stocks Returning 8%+ this Week

Despite a bounce back week in the market, there were not a lot of individual moves that were too impressive. Below is a list of 58 stocks that fit the following criteria
  1. Market capitalization >$2 Billion
  2. Stock price $10+
  3. Average volume 100K+
  4. Weekly gain of 8%+
As always green we own, and blue we've owned or discussed in the blog. This was another good week for Brazil, and some of our biggest winners continue to roll on and on.. (and on). Even I am getting tired of seeing them make this list week after week. ;) Indian IT/outsourcing names (darlings of 2005/2006) made some earnings related moves, and a few Chinese names also made the list. In America, it's pretty much beaten down tech shares or "pooring of America" retailers - the exception being Polo which benefited mostly from "overseas sales" - what else.

I do like creating this list each week because sometimes it signals movement in stocks I have one (lazy) eye watching and/or a brand new names. In this category this week 2 names perked my interest - EnergySolutions (ES) is a name I have never heard of which came public in November 2007; my first thought is the market is running up any company, regardless of quality with the name "Energy" or having any business line related to it, so it's most likely just hype. But ES looks sort of interesting as there are very few ways to trade the nuclear story, and this company specializes in removal of nuclear waste. A growth story? Certainly could be if the world begins to move down the path France has taken (80% of energy from nuclear) Now with that said it takes MANY years from planning to building to getting a nuclear plant up and running so it's not exactly 'fast money', but all it takes in the market is the right story, in the right sector and a stock can go from unknown to Jim Cramer fame (and up 50%) in a matter of minutes. This is exactly the type of name he would hype. With that said, it had a pretty good quarter so we'll keep it on the radar.

The other name for you natural gas junkies, and Chesapeake Energy (CHK) fans [May 1: Today's Interesting Reads -> Meet Mr. Gas] is Sandridge Energy (SD), which I've heard of from a couple of places now. First one of our readers, "Madhatter" has a blog where he breaks down some large hedge funds holdings and this name came up when he was analyzing Lone Pine Capital's (Steven Mandel's) holdings, so that perked my attention since I'm on the lookout for interesting natural gas plays. Then the Motley Fool reports the CEO was the cofounder of CHK, so in this type of business you want management who has this level of experience. [May 12: A Chip off the Old Chesapeake] CHK's CEO is infamous for buying stock, he does it in good times or bad which shareholders just have to love - and it looks like Sandridge's CEO Ward is of the same cloth.

So these are just example of how we continue to build watch lists for potential future buys and/or one company can lead to another... you just never know where you will find a new idea.

Symbol Company Name % Price Change 1 Week
FL Foot Locker Inc 20.9
MRVL Marvell Technology Group Ltd 20.8
HXL Hexcel Corp 17.4
ENER Energy Conversion Devices Inc 17.1
RL Polo Ralph Lauren Corp 16.9
ES Energy Solutions Inc 16.7
PVA Penn Virginia Corp 15.7
BIG Big Lots Inc 15.0
GFA Gafisa ADR 14.1
CTSH Cognizant Technology Solutions Corp 13.8
CLF Cleveland Cliffs Ord Shs 13.5
ANR Alpha Natural Resources Inc 13.0
MTL Mechel ADR Rep 3 Ord Shs 12.8
GA Giant Interactive Group Inc 12.7
SOHU Sohu.com Inc 12.5
SAY Satyam Computer Services ADR 12.4
SDA Sadia ADR Rep 3 Pref Shs 12.3
IMA Inverness Medical Innovations Ord Shs 12.2
BYI Bally Technologies Inc 12.1
MR Mindray Medical International Ltd 12.1
PCX Patriot Coal Corp 11.9
SD SandRidge Energy Ord Shs 11.9
MA MasterCard Inc 11.9
DLTR Dollar Tree Inc 11.8
V Visa Inc 11.7
BRCM Broadcom Class A Ord Shs 11.6
ANSS Ansys Inc 11.3
TRMB Trimble Navigation Ltd 11.3
FLS Flowserve Corp 11.3
ITU Banco Itau Holding Financeira ADR 11.2
DCI Donaldson Company, Inc 11.1
INFY Infosys Technologies Ltd 11.1
BRP Brasil Telecom Participacoes ADR 11.0
NBG National Bank of Greece ADR 10.9
BLK Blackrock Inc 10.6
CN China Netcom Depository Receipt 10.5
DELL Dell Inc 10.4
CA CA Inc 9.8
BUCY Bucyrus International Inc 9.7
HK Petrohawk Energy Corp 9.6
UBB Unibanco Depository Receipt 9.5
JBL Jabil Circuit Inc 9.4
PCL Plum Creek Timber Co Inc 9.4
ACN Accenture Ltd 9.4
CREE Cree Inc 9.3
BUD Anheuser-Busch Companies Inc 9.3
EQIX Equinix Inc 9.1
CRM salesforce.com inc 9.1
BBY Best BUY Co Inc 9.1
JOYG Joy Global Inc 8.7
CHU China Unicom Depository Receipt 8.7
FDO Family Dollar Stores Inc 8.6
TRA Terra Industries Ord Shs 8.6
APOL Apollo Group Inc 8.6
ETN Eaton Corp 8.5
SNP China Petroleum and Chemical (Sinopec) ADR 8.4
EXPE Expedia Inc 8.2
FFIV F5 Networks Inc 8.1

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