Monday, October 6, 2008

Complete Buyers Strike

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Could it of been Friday we were talking S&P 1100? Now looking at potentially 1000?

As we've discussed there was support at 1160 from April 2004; and if that held there really was nothing major below it because then we go back to 2003. Which was essentially straight up (after our last horrific period: 2000-2002). So with no real base building, there is no real support. Not that support matters when there is a complete buyers strike.

Again, in 1987 companies came in and bought back their shares - but they had cash and access to credit. Now, some still have cash - but that access to credit part is an issue.

We've surpassed everything historic so it's simply "remember these past few weeks because they will be talked about for a few generations".

S&P 1100 is psychological "support" if you'd like to call it that, but then again so was Dow Jones 10,000 - so it's quite useless.

I would not be shocked at all to see (yet again) some sort of government response overnight but will anyone care? The problem is we've had so many government responses since August 2007, the patient is building immunity to it. Remember, when we bailed out Fannie and Freddie we had a 24 hour rally - that's it, before we lost all of it. I remember, because I remarked at least with Bear Stearns we got a nice month of rally. Now with this huge bailout the response was a massive selloff, not a rally. So I'm not sure what stops it, until everyone simply gives up.

But just like 2000-2002, another generation of investors will have simply given up on this market. Thank you free markets, lack of regulation, and the masters of the universe who run the global financial system. Another job well done.

Last stat of the day, for those wondering, post Great Depression the average bear market is -30%. Obviously I never thought this would be "average" but then again I thought it would of be drawn out over a much longer pace - but in a leveraged world, margin calls leave us with no time frame. With today's action we are in the mid 30%s from the highs, almost 1 year ago to the day.

The worst since the Depression have been upper 40%s in early 70s and 2000-2002. So to reach the worst non 1930s scenario there is 10-12%ish to go. Again, not unexpected but never expected these moves in such a straight shot.

Bookkeeping: Adding to Sequenom (SQNM)

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Sequenom (SQNM) has now completely filled its gap created on the positive Downs Syndrome data results from 2 weeks ago; down from $29 to $21. Gap was at $21.

I'm taking that opportunity to add to the position and taking it from a 1.1% stake to 4.9%

VXO which is a fear guage, that has been around longer than VIX, at its worst in the 2000-2002 correction hit upper 50s; it is now mid 60s. In 1998 it had one day in the low 60s as we worked through the Long Term Capital blowup/Asian currency crisis. Truly historic.

Long Sequenom in fund and personal account

A-Power Energy (APWR) Announces Huge Contract - Stock Down nearly 30%

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Breathtaking... these small cap Chinese stocks simply have no support. A-Power Energy (APWR) announces a massive sale of 50 of their wind turbines which is a significant amount of their capacity and the stock is down 27% as I type this. The stock was down near 50% in 2 weeks through Friday morning. I bought a tad Friday morning, the stock fell 20%. Today it is down nearly 30%. So since Friday morning it's cut 50%, on top of the previous 50%. Amazing.

I am going to buy a bit more here because we are now approaching silly prices.... the company is, again going to make $2-$2.50 in 2009 and this contract pretty much guarantees it. Yet the stock is in the $4s aka 2x 2009 estimates and even on the $1.15 for 2008 it is now trading at 4x earnings. For 50% growth. Again... amazing.

  • A-Power Energy Generation Systems, Ltd. (Nasdaq: APWR - News; "A-Power"), announced today that it has signed its second sales contract with China National Automation Control System Corp. ("CACS") (http://www.cacs.com.cn/) for the sale of 50 2.7 MW wind turbines. This is in addition to the previously announced contract with CACS for five 2.7MW units. These units are expected to be delivered by July, 2009.
  • These 2.7MW wind turbines will be produced at A-Power's new wind turbine production facility in Shenyang, China with components the company has secured from Fuhrlander AG and other European wind power component suppliers, which will begin arriving in November. This facility consists of two production lines with a designed annual capacity of 300 units of 2.7MW wind turbines and 420 units of 750kW wind turbines, totaling over 1.1GW in annual output.
  • CACS, a subsidiary of China National Machinery & Equipment Group, has been a leading provider of power generation solutions to both China and the international markets since 1981. A-Power will supply wind turbines to CACS' wind farm projects in the Gansu province and the Inner Mongolia Autonomous Region.
  • We are currently in late-stage discussions to sign additional contracts with CACS and the other parties that had signed letters of intent with A-Power in Q1 2008, which in aggregate provide for an additional 325 wind turbines. In addition, we are in discussions with a number of new potential buyers. Based on these discussions, we expect to announce additional contracts over the coming months for both our 2.7MW and 750kW wind turbine units."
Adding a bit more in the $4.80s but as I've said repeatedly, no amount of fundamental news means anything. Up to a 2.4% stake. I honestly think at these prices, this stock will create a 300% return within 2 years. Not that it matters today. As I wrote Friday when I bought around $8 it could go to $6, $4, or $2. Well the first 2 objectives were reached. We'll wait for $2 or 2x 2008 estimates, and 1x 2009 estimates to buy the next batch.

Again, if on $2.00 EPS in 2009 it can get just a 10 PE = $20. Today it is under $5. That is 300% return. Just ridiculous prices.

Long A-Power Energy in fund and personal account

The "Big One"

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6.2% down so far today
not even lunch time...

VIX and VXO completely off the chart...

Can't do much but watch the carnage at this point... bought some more short ETFs this morning with the cash but other than that just watching in awe. More worrisome than the drop is trying to figure out what will actually bring buyers back into this market. In 87 companies began buying back their stock in massive waves - but with the credit issues out there - maybe companies will hoard cash.

At some point we will get oversold, but now we're 16% below the 50 day moving average, far surpassing anything we saw in all iterations of this correction since summer 2007.

This Monday and last, we are down 15% in 2 sessions so far. Throw this 6% on top of the past two weeks 13-14% drop, and you are at a 19-20% drop in 2 weeks and 1 day. So this is essentially a crash, not all in 1 day - but in 2 weeks. Individual names are far worse than the indexes.

Wells Fargo (WFC), PNC Financial (PNC), and BB&T (BBT) continue to hold up relatively well...

Sunday, October 5, 2008

Bookkeeping: Weekly Changes to Fund Positions Year 2, Week 9

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Year 2, Week 9 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 (1 position [SHV] + cash): 24.0% (vs 44.8% last week)
30 long bias: 63.3% (vs 51.4% last week)
7 short bias: 12.7% (vs 3.8% last week)

38 positions (vs 39 last week)
Additions: Portfolio Recovery Associates (PRAA), PNC Financial Services (PNC), BB&T (BBT)
Removals: Fluor (FLR), Polo Ralph Lauren (RL), Parexel International (PRXL), Blackrock (BLK)

Top 10 positions = 38.4% of fund (vs 30.4% last week)
31 of the 38 positions are at least 1% of the fund's overall holdings (81%)

Major changes and weekly thoughts
Not much to say this week. There has been nowhere to run, and nowhere to hide. What was worrisome this week was some sectors that had been holding up the past 5-7 weeks took a hit, from the airlines (despite falling oil prices), to healthcare stocks that had been holding up, to some financials. With the short sell ban coming off financials now that the bailout plan is approved, we'll see how those react.

There really is nothing to say at this point - fundamental analysis has been proven useless, and stock after stock is breaking down on its charts. Every time you move to a place that has been holding up for a few weeks, it begins selling off. If this was just a "bear" market, I could be a bit hopeful here because we are so oversold, but with the credit contraction along with the amazing effect of hedge funds liquidating day after day - there is simply no precedent here. So even after a 9% drop last Monday alone, and 13-14% over the past 2 weeks - I am open to anything at this point, including another huge drop. Despite oversold readings across the board that are historical - without confidence it seems no one wants to step in for more than a few hours on the long side - and without knowing what hedge funds own the stock you own, it's dangerous to own anything because of their relentless selling. Credit markets are also completely frightening - the Federal Reserve is literally supporting the entire financial system over the past 2 weeks. Levels not seen since 1987 are plentiful.

Frankly I've been typing there are no place to find winners for "investors" (different from very short term traders) for months now, and analyzing what we've been trying to do, all it has been is fluttering in and out of stocks trying to make 3% here, 4% there - while exposing ourselves to 30,40,50% losses. So the risk / reward simply has not been there on the long side. Each time I sell something I say "this is capitulation, this is the sale I will regret" but right now 19 out of 20 stock sales has been "the right decision".

I did look back at other market low points over the past 15 months... I wanted to see how far below the S&P 500 was from its 50 day moving average. At the worst periods, in August 2007 the S&P was roughly 8% below its 50 day moving average, in January 2008 12%; in March 2008 7%; in July 2008 9%. Right now we are 10%. So this is right around the median low that marked other "throw in the towel" short term bottoms. But just because that is how it was historically, does not mean in unprecedented times we cannot see something completely different. But outside of a cataclysmic event (which I am not counting out considering how poorly we closed Friday) we are near where other (short term) bottoms were made in terms of divergence between the stock market and moving averages - even in bad times you have a tendency to snap back towards the moving average (think of an extended rubber band). We'll see if this is near the maximum the rubber hand can be extended. Earnings season begins this week ...

The larger weekly changes (chronologically) to the fund below:
  1. Monday was the worst down day on the S&P500 since Black Monday October 1987 - we had bought Regions Financial (RF) late last week anticipating some sort of rebound on the House vote - the stock was down 40% Monday so as a risk aversion move we had to cut some in the $11-$11.40s range - in case some sort of market panic took over and took what appears to be a good company to $0. Anything is possible in this market.
  2. We added to James River Coal (JRCC) in the $20s as it had fallen by over a third in a week, along with Mosaic (MOS) in the $68s ahead of earnings. Obviously the latter was a bad move as earnings later in the week were frowned above in a big way. Also added a touch of Potash (POT).
  3. Tuesday, on a big rebound day we closed out Fluor (FLR) - a global engineering firm which is among my favorite companies - I've attempted to hold this through thick and thin but its down 50% in just a quarter. Sickening to watch. This means we've cut Jacobs Engineering (JEC), McDermott (MDR), and Fluor (FLR) - all we have left from this group is Foster Wheeler (FWLT) - again owning 1 is the same as owning all of them.
  4. Wednesday, we began a new position in debt collection firm Portfolio Recovery Associates (PRAA) - the obvious downside to this name is people are in such bad condition that the company is unable to collect debts. We'll see - it is one of the few good charts I can find.
  5. Thursday, we started PNC Financial (PNC) and Friday BB&T (BBT) - I do believe this current bailout plan will not work over the long run and in the end the US government will have to go the full monty and pick "winners and losers" - companies they decide they will keep alive and those they will kill. They will inject capital directly into the ones that they have chosen to win. It might take early next year for this next step to happen, but I do believe the problem is so big we will need to do this.
  6. Closed out retailer Polo Ralph Lauren (RL) and contract research organization Parexel International (PRXL) Thursday as they broke their 200 day moving averages. Simple as that.
  7. Friday, after a 50% drop we added to A-Power Energy Generation (APWR) - within hours the stock was down another 20%. Typical.
  8. James River Coal (JRCC) seemed to be "bottoming" around $19 - I only say that because all week it hit $19 and bounced. That does not mean it cannot go to $15 or $10 next week in this market with no sense of valuation. But I added more Friday, assuming we could have even a short term rally.
  9. We still have a basket of 3 solar names, and I added to them Friday taking them from around 0.3% of portfolio to north of 7%. Within a few hours they all dropped 10%.
  10. Late in the day, we closed Blackrock (BLK) which has been one of the best performers in financials the past year. But the stock has not been acting well of late. I assume if the market does well the stock will rebound, but I decided to build some cash instead.
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

Worst Performers Over Last Quarter

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And here is the list of worst perfomers... keep in mind this is over a 90 day period. I show 136 stocks that lost at least 45% in the previous quarter. Very bad. The list is obvious - anything global growth, commodity related or the "dead" financial types.

Criteria
  1. Market capitalization $1.25B+
  2. Average trading volume 100K+
  3. Stock price $0+
  4. Return this month -45%+
Green names we own, blue names we have owned in the past or discussed in the blog. In orange I listed names we owned at some point during the quarter. As we discussed in [Oct 2: Review of 3rd Quarter 2008 Sales] 95% of the stocks we sold this quarter continued down after we sold them, on average nearly 30%.

If you are a believer in "reversion to the mean" (i.e. what goes down must go up) at some point in the next 6 months you'd think some of these must have tremendous rebounds much like the financials had after being beaten senseless during the winter and spring. But until hedge funds are done liquidating "when" a rebound occurs is an open question. SandRidge Energy (SD) I know from reading 3-4 months ago was a very large holding among hedge funds, as obviously were the fertilizer stocks.... so with what are effectivaly margin calls these are being sold relentlessly, at any price, at any value.

Symbol Company Name % Price Change
FNM Federal National Mortgage Association (92.9)
AIG AIG-AMERIC.INT.GRP (85.3)
SD SandRidge Energy Inc (75.8)
RRI Reliant Energy Inc (72.8)
GGP General Growth Properties Inc (70.3)
SIRI Sirius XM Radio Inc (69.8)
MOS Mosaic Co (69.1)
ELN Elan Depository Receipt (68.9)
MTL Mechel ADR Rep 3 Ord Shs (68.9)
PCX Patriot Coal Corp (67.8)
ARA Aracruz Celulose ADR (67.6)
XCO EXCO Resources Inc (67.2)
HK Petrohawk Energy Corp (65.5)
CEG Constellation Energy Group Inc (65.1)
MEE Massey Energy Co (64.2)
MDR McDermott International Inc (63.7)
STLD Steel Dynamics Inc (63.6)
DYN Dynegy Inc (63.5)
AKS AK Steel Holding Corp (61.6)
EXH Exterran Holdings Inc (61.5)
CNX CONSOL Energy Inc (61.3)
CF CF Industries Holdings Inc (60.3)
SGR Shaw Group Inc (60.0)
KWK Quicksilver Resources Inc (59.8)
X United States Steel Corp (59.2)
CMC Commercial Metals Co (59.1)
CLF Cleveland-Cliffs Inc (59.1)
MPEL Melco Crown Entertainment Ltd (59.0)
FCX Freeport McMoRan Copper & Gold Inc (58.7)
WTI W&T Offshore Inc (58.4)
PXP Plains Exploration & Production Co (58.4)
ACGY Acergy ADR (58.3)
WLT Walter Industries Inc (58.3)
WB Wachovia Corp (58.3)
ACI Arch Coal Inc (57.6)
AGU AGRIUM INC (57.6)
HIG Hartford Financial Services Group Inc (57.6)
IPI Intrepid Potash Inc (57.5)
VMW VMware Inc (57.5)
GGB Gerdau SA Depository Receipt (57.5)
VCP Votorantim Celul Depository Receipt (57.4)
CHK Chesapeake Energy Corp (56.7)
GNW Genworth Financial Inc (56.6)
NBR Nabors Industries Ltd (56.5)
CLR Continental Resources Inc(Oklahoma) (56.2)
SDA Sadia ADR Rep 3 Pref Shs (56.0)
MIR Mirant Corp (56.0)
DRYS DryShips Inc (55.6)
RS Reliance Steel & Aluminum Co (55.5)
NHYDY Norsk Hydro ADR Rep 1 Ord Shs (55.4)
ODP Office Depot Inc (55.2)
CBI Chicago Bridge & Iron Co NV (55.0)
AKAM Akamai Technologies Inc (55.0)
TX Ternium SA (55.0)
SID Companhia Siderurgica Nacional ADR (55.0)
NFX Newfield Exploration Co (54.9)
IVN IVANHOE MINES LTD (54.8)
WFT Weatherford International Ltd (54.8)
POT Potash (54.8)
COG Cabot Oil & Gas Corp (54.3)
AAUK Anglo American ADR (53.9)
EQT Equitable Resources Inc (53.8)
WFR MEMC Electronic Materials Inc (53.8)
DNR Denbury Resources Inc (53.6)
PCU Southern Copper Corp (53.6)
BTU Peabody Energy Corp (53.5)
PTEN Patterson-UTI Energy Inc (53.2)
AUY Yamana Gold Inc (52.6)
TRA Terra Industries Inc (52.4)
GDP Goodrich Petroleum Corp (52.2)
EAC Encore Acquisition Co (52.2)
MTW Manitowoc Co Inc (52.1)
TCK Teck Cominco Ltd (52.0)
ATI Allegheny Technologies Inc (51.7)
KBR KBR Inc (51.7)
NOV National Oilwell Varco Inc (51.5)
OIS Oil States International Inc (51.3)
TS Tenaris ADR (51.3)
OEH Orient Express Hotels Ltd (51.2)
GNA Gerdau AmeriSteel Corp (51.1)
FWLT Foster Wheeler Ltd (51.1)
ANR Alpha Natural Resources Inc (50.8)
RIO Companhia Vale Do Rio Docea ADR (50.8)
CZZ Cosan Ltd (50.0)
STR Questar Corp (50.0)
CCJ CAMECO CORPORATION (50.0)
NBL Noble Energy Inc (50.0)
ME Mariner Energy Inc (49.9)
MRVL Marvell Technology Group Ltd (49.7)
WMB Williams Companies Inc (49.6)
SPN Superior Energy Services Inc (49.5)
GTI GrafTech International Ltd (49.4)
CE Celanese Corp (49.3)
PDS Precision Drilling Trust (48.8)
CBG CB Richard Ellis Group Inc (48.8)
EGN Energen Corp (48.8)
CXG CNX Gas Corp (48.8)
OGZPY Gazprom Rep 4 Ord Shs ADR (48.8)
SBS Companhia de Saneamento Basico ADR (48.7)
CRK Comstock Resources Inc (48.5)
TEX Terex Corp (48.5)
CMVT Comverse Technology Inc (48.4)
BG Bunge Ltd (48.2)
SM St Mary Land & Exploration Co (48.1)
NRG NRG Energy Inc (48.1)
SQM Sociedad Quimica y Minera de Chile ADR (48.1)
RTP Rio Tinto ADR Each Reptg Four Ord Shs (48.1)
UNT Unit Corp (48.0)
SLT Sterlite Industries (India) Ltd (48.0)
FLR Fluor Corp (48.0)
NXY NEXEN INC (47.9)
TXT Textron Inc (47.3)
ACH Aluminum Corporation of China ADR (47.3)
CETV Central European Media Enterprises Ltd (47.2)
CPN Calpine Corp (47.2)
AES AES Corp (47.2)
JBL Jabil Circuit Inc (47.1)
HP Helmerich & Payne Inc (47.1)
JOYG Joy Global Inc (47.1)
ATW Atwood Oceanics Inc (47.0)
HAL Halliburton Co (47.0)
RIMM RESEARCH IN MOTION LIMITED (47.0)
MT ArcelorMittal ADR (46.8)
EP El Paso Corp (46.7)
HLX Helix Energy Solutions Group Inc (46.3)
VMED Virgin Media Inc (46.3)
SPW SPX Corp (46.3)
RRC Range Resources Corp (46.3)
BJS BJ Services Co (46.2)
TK Teekay Corp (46.1)
BRY Berry Petroleum Co (45.9)
SLM SLM Corp (45.8)
PCLN Priceline.Com Inc (45.5)
WLL Whiting Petroleum Corp (45.5)
SLW Silver Wheaton Corp (45.1)
OZM Och Ziff Capital Management Group (45.0)

Best Perfomers Over Last Quarter

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It is a moot point looking at weekly winners this week; just a handful of stocks moving up led by such growers as Campbell Soup (CPB) aka "people will still need to eat soup if nothing else" trade. So instead I am going to look at the best and worst performers the past 3 months. In this post we have every stock over $1.25B in market cap returning 15%+ (115 stocks) Now keep in mind the data is a bit misleading because 3 months ago at this time we were in the throes of another painful correction, in a series of step ladders down. About 90 days ago Fannie and Freddie and Lehman were falling off a cliff, and we were just over a week away from Hank Paulson going to Congress to create a plan to backup Fannie/Freddie. So this was a "bottom" and the financials rallied hard for the next 6-7 weeks - Fannie/Freddie of course were officially taken over within 2 months from that point.

Criteria
  1. Market capitalization $1.25B+
  2. Average trading volume 100K+
  3. Stock price $10+
  4. Return this quarter 15%+
Green names we own, blue names we have owned in the past or discussed in the blog. Obviously a bevy of financial stocks (no short rule pushed some of these up 30-50% in a few days) and airlines (the anti oil trade) were dominant the past 90 days.

Symbol Company Name % Price Change Last Qtr.
MBI MBIA Inc 155.6
HBAN Huntington Bancshares Inc 95.3
UB UnionBanCal Corp 84.3
PHLY Philadelphia Consolidated Holding 78.3
LDG Longs Drug Stores Corp 77.9
BXS BancorpSouth Inc 68.5
CAL Continental Airlines Inc 67.3
GBCI Glacier Bancorp Inc 65.9
IMCL ImClone Systems Inc 63.4
ZION Zions Bancorp 61.0
FHN First Horizon National Corp 60.2
MI Marshall & Ilsley Corp 59.8
BBT BB&T Corp 57.6
STI SunTrust Banks Inc 56.4
FMBI First Midwest Bancorp Inc 56.3
IKN IKON Office Solutions Inc 54.2
BAC Bank of America Corp 53.9
ALO Alpharma Inc 53.1
ROH Rohm and Haas Co 52.2
FDRY Foundry Networks Inc 51.4
WLK Westlake Chemical Corp 50.6
VLY Valley National Bancorp 49.0
THOR Thoratec Corp 48.2
BRL Barr Pharmaceuticals Inc 47.8
TCB TCF Financial Corp 47.5
GHL Greenhill & Co Inc 47.1
REGN Regeneron Pharmaceuticals Inc 45.3
UBSI United Bankshares Inc 44.7
WFC Wells Fargo & Co 44.5
SUSQ Susquehanna Bancshares Inc 42.7
FNB FNB Corp (Pennsylvania) 40.9
PVTB PrivateBancorp Inc 38.0
CYN City National Corp 37.7
EMS Emergency Medical Services Corp 36.3
LEG Leggett & Platt Inc 36.3
WBS Webster Financial Corp 35.8
RAH Ralcorp Holdings Inc 35.8
HBHC Hancock Holding Co 35.6
CMA Comerica Inc 35.4
PHM Pulte Homes Inc 35.2
SMG Scotts Miracle Gro Co 33.8
PNC PNC Financial Services Group Inc 33.2
CBT Cabot Corp 32.1
PAY VeriFone Holdings Inc 31.8
TIN Temple-Inland Inc 31.5
SQNM Sequenom Inc 31.3
RF Regions Financial Corp 31.1
WTNY Whitney Holding Corp 30.3
CASY Casey's General Stores Inc 30.1
JPM JPMorgan Chase & Co 30.0
DF Dean Foods Co 29.7
NWSB Northwest Bancorp Inc 29.4
FULT Fulton Financial Corp 29.3
TSCO Tractor Supply Co 28.6
FMER FirstMerit Corp 27.5
PNY Piedmont Natural Gas Inc 26.7
USB US Bancorp (Del) 26.7
RKT Rock-Tenn Co 26.6
HANS Hansen Natural Corp 26.6
RSH RadioShack Corp 26.1
NDAQ NASDAQ OMX Group Inc 26.0
VPRT VistaPrint Ltd 25.2
FITB Fifth Third Bancorp 25.2
SIVB SVB Financial Group 23.2
CBSH Commerce Bancshares Inc 22.8
MTB M&T Bank Corp 22.7
SNV Synovus Financial Corp 22.5
AN Autonation Inc 21.7
ASBC Associated Banc-Corp 21.7
BRO Brown & Brown Inc 21.6
FFH Fairfax Financial Holdings Ltd 21.2
NAL NewAlliance Bancshares Inc 20.9
RGA.A Reinsurance Group of America Inc 20.9
HDB HDFC Bank Ltd 20.7
JNY Jones Apparel Group Inc 20.6
TCL Tata Communications ADR 20.3
DPS Dr Pepper Snapple Group Inc 20.1
HAE Haemonetics Corp 20.0
TTC Toro Co 19.9
UST UST Inc 19.9
IBOC International Bancshares Corp 19.4
CHD Church & Dwight Co Inc 19.3
PBCT Peoples United Financial Inc 19.3
VRX Valeant Pharmaceuticals 19.1
ROL Rollins Inc 19.0
JEF Jefferies Group Inc 18.8
HSY Hershey Co 18.5
PRSP Prosperity Bancshares Inc 18.4
SHLD Sears Holdings Corp 18.4
PTV Pactiv Corp 18.0
CHTT Chattem Inc 17.8
STE Steris Corp 17.6
BOKF BOK Financial Corp 17.3
CLX Clorox Co 17.2
K Kellogg Co 17.2
BLUD Immucor Inc 17.0
BKS Barnes & Noble Inc 16.8
COF Capital One Financial Corp 16.8
MYGN Myriad Genetics Inc 16.7
HR Healthcare Realty Trust Inc 16.4
THO Thor Industries Inc 16.3
ISBC Investors Bancorp Inc 16.2
SJM JM Smucker Co 16.2
TOL Toll Brothers Inc 16.2
ACC American Campus Communities 16.1
HCN Health Care REIT Inc 16.0
LFC China Life Insurance ADR 16.0
CFR Cullen/Frost Bankers Inc 15.9
AMGN Amgen Inc 15.8
ORLY O'Reilly Automotive Inc 15.7
LAZ Lazard Ltd 15.5
GIS General Mills Inc 15.5
BIO Bio-Rad Laboratories Inc 15.4
UMBF UMB Financial Corp 15.3
JOE St. Joe Co 15.1

Foreclosure Alley in Southern California

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Thanks to a reader for highlighting this story - about a 12 minute video of the plight of the Inland Empire. It is quite striking and heartbreaking; very different watching this versus reading the aggregate numbers.

Part 1



Part 2

Saturday, October 4, 2008

Credit Crisis Sharpens Anger Over CEO Pay

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Expect a lot more of this in the coming year as more and more ordinary Americans are "left behind". And the Heads We Win, Tails We Still Win continues at the top of corporate America. Again, let me throw out the hairbrained idea of if like Germany we limit executive compensation to say 50x the median worker. (they limit it to 7x) "Free market" capitalists will say, then the "best and brightest" will leave. I ask - to where? The only exclusions would be people who founded their own company and thus can enjoy the fruits of their labor as they take their company public - the shares they get at IPO should more than make for enough wealth for 50-100 people. Then if they are unhappy with the 50 to 1 ratio for CEO pay they can leave and start a new company - which would be good for US innovation. Most of the rest of the CEOs are highly paid babysitters. Is Coke really going to go out of business if some guy in middle management ran it? I know it won't change - and after a year or two of anger things will continue on their old path, but just asking the questions - i.e. how can German companies stay in business of they are led by such incompetents who somehow only made 7x the average wage? And ... do you think the median wage in America would go up if the CEOs own wage was tied to the median in their company? I think that answer is very easy to figure out....

Let the shareholders decide? We've tried that system for a long while and it hasn't done a thing. Other than Carl Icahn and a few others who actually try to buck the system, it's broken. Most shareholders with scale are institutions who don't want to get involved in this, their job is to make money - not be corporate activists.
  • Arizona design teacher Marsha Minniss believes the culture of paying sky-high salaries to U.S. executives is "insane." Public health director Paul Pisinski from Massachusetts thinks multi-million dollar payouts for CEOs are "unfair" and "unwarranted" as a global financial crisis deepens. Minniss, who was out shopping in upscale Scottsdale, Arizona, agreed. "The whole thing's insane and I think the average American feels that way." (note to Ms Minniss - the average American however does not pay for the political parties or lobbyists)
  • Texan market stall holder Alan Smythe just wishes someone would pay him a million dollars to run a Wall Street financial firm into the ground. "They gave the guy from (American International Group) $40 million. Give me a million and I'll run it into the ground faster than that, I'll run it into the ground in six months," he said.
  • The United States places a high value on the pursuit of wealth and many speak of the American Dream in which anyone can achieve riches and success through hard work—and resentment toward the rich is comparatively rare. But as U.S. lawmakers consider a $700 billion bailout for Wall Street using public money, many on Main Street are turning against the culture of lavish executive pay, analysts say.
  • Last year CEOs of companies in the Standard & Poor's 500 index on average took in $10.5 million in pay, 344 times that of the typical U.S. worker, according to the Institute for Policy Studies and United for a Fair Economy
  • "It's an issue that people are outraged about across the political spectrum," said Sarah Anderson, an IPS analyst specializing in executive pay. "The public feel outraged, but they feel disempowered. They don't know what they can do about it," she said.
  • Up until now, the justification for golden CEO payouts has been that they recognize performance in a competitive international market. But as firms buckle under in the present crisis, and taxpayers are being asked to pick up the tab for some of their worst errors, many Americans are questioning that long held belief.
  • "I do not think it holds up," Pisinski told Reuters. "I don't think it's fair, I don't think it's warranted for anybody to be paid the bonuses and benefits that they have received, especially in light of the fact that they seem to be rewarded for failure."
  • "I don't see that leaving it to shareholders has led us anywhere. Shareholders, all they care about are their profits," she said.
  • "People that work hard and start their own companies, if they make a lot of money, great. But if they're not doing a good job, then no," she said, although she drew the line at laws to curb executive pay. I just wish (executives would) have a conscience and take care of the people who work for them."
50 to 1... if they are unhappy with that go start a new business with your "1 in a million type of abilities" or go to another country to be CEO where you will get far less than 50 to 1. The United States was somehow competitive in the 70s and 80s when it was below 50 to 1... I'm sure we'll find a way to compete under this new "socialistic" rule. ;)

Friday, October 3, 2008

Bookkeeping: 'Rising Tide' Performance Year 2, Week 9

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Year 2, Week 9 performance of the mutual fund

Comments
: Not much bright to say. Nowhere to run, nowhere to hide - continues. It was the worst week since we started for the indexes and for the fund. I looked back at the carnage of the past 14 months and the worst week on the S&P was a -5.4%, and this week approached double that. Double digit loss on the Russell 1000 in 1 week. Combining the past two weeks we have a nearly 13% loss in the S&P 500, and nearing 14% on the Russell 1000. So it's a slow motion crash. The way the market closed ....Monday, frankly, is foreboding. I think every sentiment figure is at multi decade extremes but there is no accounting for deleveraging through an entire financial system - we don't have historical precedent for this - mutual funds cannot use leverage so you know who is causing these issues. It's not "Ma and Pa" retail investor.

Fundamental analysis has been useless for months; technical analysis has become useless the past month and even the highly touted "dart throwing" analysis is becoming moot. This leaves "seek shelter" analysis, which is obviously gaining favor by the day. I don't have much to add about stocks right now - I just recall buying a 5 PE stock and losing 40% in 1 day, and just today buying a 7 PE stock around 10 AM and losing 20% by 4 PM on that minor purchase. For the fund, we lost more than the market but considering some of the carnage individual names took - I guess it is all relative. We literally lost 4.6% alone between 2 PM and 4 PM today as the market went from +3% to -1.4%. That's how quickly things can turn - yet another 4% move which are now becoming "normal". The only place I feel somewhat safe is under the protective wing of the government - banks they will protect at all cost. Or cash.

I did see an interesting post by Cramer late in the day which I can agree with 100% - I've been a bear on the US consumer since fall 2007 [Stuff I've Been Negative on Since Last Fall] and he outlined an attack plan that hedge funds can now engage in for next week, which is identical to what they did to financials...

I found a new game plan for after the wipeout of the insurers and the industrials -- the retailers.

Buy credit default swaps on Macy's (M) and JC Penney (JCP) debt, maybe add some Nordstrom (JWN) or Kohl's (KSS) and then spread the word that they won't be able to get a line of credit to buy goods for the holidays. You may not even have to do much here, as the numbers next week will be awful and the stocks will most likely trade lower on their own weight.

It is a natural, plus it is an easy sell to the media once the swaps are bought, the puts purchased and the "no uptick, short common" trade gets put on.
Thing of beauty.

I have to agree - the credit default swaps market is supposed to be used as "insurance" not a form of attack. But it's totally unregulated - remember we love that in the United States because regulation stifles innovation. Some of these hedge funds want to keep their existance past Dec 31, 2008 so they need to generate profit somehow - so what is the easy game? The same one that worked in financials for months on end. We've seen this dog and pony show before and outlined it on the blog multiple times as Cramer just mentioned: buy up the credit default swaps (which signal danger), buy up a ton of puts (which signal someone thinks something bad is going to happen), spread rumors in the media to "explain" why the credit default swaps are exploding and why put buying is exploding, let the media cause fear and you get the natural selling of fearful longs, which the credit agencies will them jump on as a reason to downgrade the credit, which causes another round of panic and selling, and lo and behold you have your nextLehman Brothers, AIGs, Bears, Fannies. And unlike financials, the government won't care about retailers - so these can all go to pot.
A splendid move in our land of deregulation and letting "markets look after themselves". Can Buffet buy every major retailer not named Walmart and Target in America? Makes me thankful I sold that Polo yesterday; heck even Buckle (ahem) "buckled" today and it's been the best of breed in retail.

Again, cash is king (or is it? Potash has a ton of cash - does it matter?) - any company that is OWNED by hedge funds in scale or HAS debt whose credit default swaps can be manipulated to create a panic mania is toxic.
I will say some financial stocks actually did hold up quite well today... even late in the day.

Last comment, I am laughing to self a bit as everything the market has whined for over the past 15 months (give us rate cuts, give us individual company takeovers by government, give us mother of all bailouts) it has gotten - and it still goes down. The whiny toddler keeps demanding more and more. It looks like the market is going to find it's natural place - one way or the other. But really... let's regulate that credit default swap market before every company in America with $1 of debt is destroyed. Only people who actually hold the DEBT should be able to INSURE the debt - but without a regulator I guess you can't really put in such rules. Laughable.

So we await to see if any surprises come to us Sunday night and/or Monday premarket. Otherwise I think Monday could be quite treacherous - Mondays in October always hold potential for bad memories. Until confidence comes back it just seems fruitless to buy almost anything since anyone buying seems like they are on a deserted island nowadays. They say huge volatility comes at tops and bottoms. If this is not the (intermediate) bottom I'd hate to see what type of volatility we will get when we "get" to one. Right now holding anything for more than 24-48 hours on the long side feels like whack a mole - except the ones holding the stocks are the moles....

The S&P 500 lost 9.4% this week and the Russell 1000 lost 10.0%. Rising Tide Growth generated a 11.5% loss. Nothing positive to say this week - just happy to have 25%+ cash or it could of been worse. Multiple names in the fund fell 10, 20, 30%+ this week.

*** Year 1 Results here: +10.1% vs -14.0% S&P (+24.1%)

Year 2 Metrics


Price of Rising Tide Growth: $8.656
Year 2 Performance to date (vs Aug 1, 2008): -21.39%

Comparable S&P 500: 1099.2 (-12.78%)
Comparable Russell 1000: 594.5 (-13.87%)

Fund return vs S&P 500: -8.6%
Fund return vs Russell 1000: -7.5%

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 July 2008.

Basis for indexes for year 2 is closing price August 1st, 2008.
SP500 : 1,260.3
Russell 1000 : 690.3

Please click here: fund performance for previous updates


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