Tuesday, January 13, 2009

Logic Behind Bill Ackman's Purchase of General Growth Properties (GGP)

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Found this story via Marketfolly, via Todd Sullivan's Value Plays, via Reuters... whew!

Bill Ackman [Jul 15: Bill Ackman Offers a Solution to the Fannie/Freddie Mess] at Pershing Capital is a noted hedge fund manager who is generally well respected... he has been purchasing bushels of General Growth Properties (GGP) a mall based REIT we've pointed out in the past with ire. [Oct 18: CNNMoney: Mall's Demise Could Doom Communities] [Nov 11: General Growth Properties Looks to Join Its Tenants] The stock is now down to $1.50ish and seems to be flat lining. So why the purchases that on the surface seem to make no sense? Ackman actually wants the company to go bankrupt... this is generally a terrible thing for common shareholders as they are last in line to get proceeds from a bankruptcy. But maybe not in this case...
  • Hedge fund Pershing Square Capital Management, one of General Growth Properties Inc's GGP.N biggest shareholders, is betting the No. 2 U.S. mall owner will file for bankruptcy -- and equity investors will end up big winners, a person familiar with the firm's thinking said.
  • Bankruptcy usually leaves stock investors with plenty of nothing, but General Growth is an unusual case. It has almost $30 billion of assets on its books, and just about $27 billion of debt. But most of the company's real estate assets are recorded on its books at their historical value, and many were bought years ago, meaning their value now is likely substantially higher. The company's problems are not with its assets, but with refinancing maturing debt in frozen markets.
  • Historically, companies whose assets are worth much more than their liabilities have gone through bankruptcy in a way that leaves shareholders intact, which is what Pershing Square is banking on, the person familiar with the firm's thinking said.
  • Pershing Square owns or has exposure to more than a quarter of General Growth's shares.
  • In real estate circles, Chicago-based General Growth is admired for its ability to manage its properties well, boosting their value in the process. But the credit crisis has hit the company hard, sending its stock price down more than 97 percent, and leading to the firing of its chief financial officer. The company is trying to raise cash by selling off some malls but has yet to do so.
  • In Pershing Square's estimation, General Growth's real problem is its maturing debt, in particular two loans totaling $900 million. Those loans were set to mature at the beginning of December. Lenders extended that deadline to February, adding to the $2.49 billion of other debt due next year.
There is precedent for a "winning" outcome in a bankruptcy for shareholders....
  • General Growth is not the first company to find itself in this bind. Amerco Inc (UHAL.O), parent of moving truck rental company U-Haul International Inc, filed for bankruptcy in 2003 after a dispute with its former auditor and multiple accounting restatements left it unable to refinance debt.
  • The company listed $1.04 billion of assets and $884 million of liabilities in its bankruptcy filing, and had considerably more assets off its balance sheet as well. Its shares tripled during bankruptcy, and rose more than fourfold after it emerged from bankruptcy in 2004.
  • Pershing Square sees parallels between Amerco and General Growth. The founding families of both companies own substantial blocks of stock, giving them a real incentive to refrain from diluting shareholders' stakes during bankruptcy.
  • And General Growth is still generating more than enough cash flow to service its debt and meet other day-to-day obligations, just as Amerco was. In other words, General Growth has problems with liquidity rather than solvency, the person added.
  • Pershing either bought or gained exposure to the shares at prices ranging from 35 cents to $1.58 per share,
So if Ackman is right, this is exactly why he is smarter than the average bear... or blogger.

Meanwhile a reader pointed out a similar name to GGP in terms of a mall based REIT - Developers Diversified Realty (DDR).

Developers Diversified Realty Corporation (DDR) operates as a real estate investment trust (REIT) in the United States. The company engages in acquiring, developing, redeveloping, owning, leasing, and managing shopping centers, mini-malls, and lifestyle centers. As of February 5, 2007, it owned or managed approximately 461 shopping centers and 7 business centers, as well as 1,170 acres of undeveloped land.

There is about $6 Billion in debt - the company claims they can service it.
  • Developers Diversified Realty Corp, which owns and builds shopping centers, is ending the year with enough liquidity from property sales and financings to meet its near-term debt obligations, the real estate investment trust said on Wednesday.
  • The company, whose shopping centers are usually anchored by big-box stores, said that in 2008 it raised $1.2 billion from new mortgage financing, generated $136 million in proceeds from asset sales, and netted $43 million from stock sales to reduce its debt.
  • In the 2008 fourth quarter, it bought at a discount $71 million of its outstanding senior notes. The outstanding principal balance of its Jan. 30, 2009, senior notes is $227 million.
  • To shore up its balance sheet, the Ohio-based REIT earlier this year canceled new U.S. development projects and expansion plans in Russia and slashed its dividend. It suffered a setback earlier this month when a deal to sell 13 assets failed to close.
This is where an analyst who specializes in REITs would be helpful - I'd love to see a list of REITs with the most debt needing to be rolled over in 2009 as a % of total debt.

The danger in this arena is the government interference (see previous blog entry), bailouts (aka lack of free markets), and the fact some of these stocks now whip around like penny stocks (or like our biggest banks): +/- 15 to 20% a day. But it does look like a promising short idea as it's hitting resistance...


No positions

Bailout Nation Continues in Commercial Real Estate Land - "Lemme In on that TARP Money"

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It's all just starting to get very sickening. The commercial real estate developers - many of the very wealthy folks in America after lobbying for a $200 billion bailout (which Barney Frank seems very receptive to) [Dec 22: Wall Street Journal - Property Developers Ask for Government Bailouts] is now asking directly for $20 Billion of TARP funds
  • Stakeholders in the commercial real estate market are pushing lawmakers to devote at least $20 billion of financial rescue funds to a new Federal Reserve facility to unfreeze lending to the sector. Lobbyists for developers of shopping malls, office parks and high rises are warning lawmakers they may not be able to rollover tens of billions of dollars of debt set to mature this year if the government doesn't act.
  • "In 2009, tens of billions of commercial real estate mortgage loans will come due, but under current conditions, there will be insufficient capacity to refinance the performing commercial real estate loans that are maturing, which could result in loan defaults," the coalition wrote to House Financial Services Chairman Barney Frank, D-Mass., and Rep. Spencer Bachus, R-Ala., the panel's ranking member.
  • "Many steps are needed to address this issue, but the first and most significant action would be for policy makers to request that the Treasury Department provide, at a minimum, $20 billion in TARP funds to revive the broader private commercial mortgage markets," the coalition wrote to Frank and Bachus.
Just wanted to let you know of the LONG line jockeying for your tax dollars.

So are schools -
  • If banks, insurance companies and automakers are getting a piece of Washington's bailout largesse, why not cash-strapped schools? That's the thinking of officials at a few hard-pressed school systems, who have set wheels in motion to get a share of the $700 billion Troubled Asset Relief Program, or TARP, intended for ailing financial institutions, and the economic stimulus package now before Congress.
  • Mike Petrilli of the Thomas B. Fordham Institute, a Washington think tank, says many districts' financial woes can be traced to long-term teacher contracts that have locked them into automatic raises and growing pension expenditures without the flexibility to cut costs "in a smart way." "School districts have gotten themselves into this mess by making promises they can't fulfill," he says. "And now the chickens are coming home to roost." (it seems to be a national epidemic)
You just have to love a country where lobbyists direct public policy.

Money for nothing; chicks for free - welcome to America.

[Jan 6: New York Times - As Vacant Office Space Grows, So Does Lenders' Crisis]
[Mar 4, 2008: WSJ - Building Slowdown Goes Commercial]

Bookkeeping: Short Volcano (VOLC)

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One of the 4 short limit orders I mentioned this morning just hit; Volcano (VOLC)

Volcano Corporation designs, develops, manufactures, and commercializes a range of intravascular ultrasound (IVUS) and functional measurement (FM) products for the diagnosis and treatment of vascular and structural heart disease worldwide.

It's a nicely growing small cap medical instrument company which will be earning $0.02 for 2008 and $0.18 for 2009. Expensive - but not shorting on valuation. Shorting on juicy chart that provides excellent cover.

200 day moving average around $14.70; 50 day moving average in low $15s and falling fast... when/if the 50 day moves BELOW the 200 day that is a very nasty thing in "technical" land ... but more importantly we have 2 layers of resistance ahead of us so "double insurance". Also a double top at $18... all ugly things. If you put a 30 PE ratio on 2009 estimates it would be a $5.40 stock...

Shorting about a 1.2% allocation in the $14.60s area
Stop loss out at $15.30
Target: Open (hoping for sub $13 - maybe $12.50) - $13 would give us a 11% gain.

AP: China Trade Slump Worsens - Exports Fall - and so do Imports

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Not to worry folks; pile into those oil stocks and every commodity related issue because oil is up 1.2% and the Baltic Dry Index is SURGING up 0.0002%. Don't worry about facts - just stick to thesis.

Again, I will repeat this over and over - China will be far worse that the punditry believes in 2009. Every data point I've read over the past half year is getting worse; not "bottoming" or "improving". The "sirens" speak gleefully about 8%+ growth and sing songs of decoupling (still). "Look through the valley and on the other side is recovery" Mr. Cramer is screaming every day how China will be the savior... we'll check back in the summer.

So all the world is banking on "Obama stimulus" and "China resurgence" - two thesis (what is the plural for thesis?) that will sorely disappoint by the time we get "there". But as I always say - it doesn't matter what the reality is when we get "there" - as long as we believe it "here"; the stocks can be run up for no good reason. Facts be damned.

Even the chart (large cap Chinese stocks) does not agree with the punditry.

  • China's trade slump worsened in December as exports fell at their fastest rate in a decade amid global economic turmoil, government data showed Tuesday, aggravating a decline that has fueled a wave of layoffs and fears of unrest. December's export decline was the sharpest since April 1999, according to JP Morgan & Co.
  • December exports fell 2.8 percent from the same month a year earlier, after a 2.2 percent decline in November, the Chinese customs agency said. China's global trade surplus last year rose 12.7 percent over 2007 to a record $295.5 billion, possibly worsening tensions with the government of U.S. President-elect Barack Obama.
  • The slump in global sales has forced thousands of Chinese factories to close. Communist leaders worry about unrest as laid-off migrants stream back to their hometowns from coastal manufacturing regions without jobs or money. Labor protests have occurred in some areas. The government is pressing companies to avoid more job cuts.

  • "Starting in October, our orders dropped sharply. We basically stopped production after October," said Sun Bin, general manager of Huang Gang Hengsheng Clothing Import & Export Co. in the central province of Hubei. The company sells clothing to the United States, Europe and the Middle East. "We don't dare to produce, because the more clothes we make, the more we will lose," Sun said.

  • Adding to exporters' misery, China's yuan has risen over the past year against the U.S. dollar. That has squeezed companies that receive dollars for their goods but pay wages, rent and other expenses in yuan.

  • The decline in China's imports also accelerated in December, with purchases of foreign goods falling 21.3 percent, according to the customs agency. That was a bigger than November's 17.9 percent decline and reflected China's domestic economic slowdown. The drop was due in part to lower prices for imported oil and raw materials but also reflected weaker demand in domestic industries such as construction, auto sales and steel.

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

On a related note - the worse China's economy gets & the more they spend on programs to stimulate domestic demand, the more one has to ask - who is going to buy all this debt we are going to unleash on the world (answer: the Federal Reserve i.e. the left hand will create money and the right hand will buy it)

Shorting Now Available

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Some good news to report - I have found a new service to do portfolio tracking, which unlike Marketocracy.com [which we've been using the past year and a half] allows (a) shorting of individual names and (b) stop losses. I've been slowly easing into it the past week and it seems to be quite easy to use - but I have yet to build any short positions. When the new website design launches I'll introduce this feature and it will allow you to see (1) all open positions (2) profit/loss on each position (3) all limit orders outstanding and (4) all stop losses outstanding. Along with total portfolio value of course. Like a mutual fund, I'll start at $10.00 NAV and we'll work from there.

I will report my results versus the the indexes every 4 weeks, so 13 reporting periods in a year - but you will be able to see the portfolio value at any moment by clicking on the link. So I'm excited to finally have something that works with my strategy (long/short). For now, I'm trying to build a similar portfolio in the new platform to what I currently have without chasing into names at bad prices- obviously all realized gains and losses on my open positions will be lost and I'll be starting from scratch (sort of like closing one mutual fund to new investors and opening a new fund that mimics fund 1) I've been able to rebuild about 1/2 of the current portfolio over the past week into the new platform.

So go forward I'll be doing individual names on the short side - I want to begin "now" but almost all the stocks I'd most want to short (financial, REIT, consumer discretionary) have dropped 20-25%+ in the past week so I am hoping for some Obama rally here in the next few days so I can build up that side of the book. Outside of "themes" to short that I've been stressing for the greater part of a year and a half [Stuff I've Been Negative on Since Fall 2007], I am also going to pick some individual charts that are weak - even if I like the fundamental story. I'd like to have about 8-10 individual names and then occasional use of the Ultrashorts.

I will be putting a post up tomorrow that will be a permanent link on the future website which I'll ask readers to submit any "bad charts" either via comment or to email me... look for it late tomorrow. I spend 95% of my time looking for long ideas - my short ideas are basically broad macro economic themes (i.e. I have been bearish on commercial real estate since summer 07, but don't follow the individual REITs that closely)

Until then, I've just picked 4 names with limit short sale prices below - IYR for a "theme" and the other 3 names due to bad charts.

AXYS @ $54

IYR @ $35.90

VOLC @ $14.60

HOG @ $18 (Harley Davidson, I've been talking about this one as long as Coach - king of discretionary spending - but it just fell off a cliff the past few days from $19 to $14)

I won't be discussing the short positions in depth unlike the long positions since they might only be in the portfolio a few days and most of it will be due to technicals or a broad theme. So you'll get a chart, an entry point, a stop loss price, and a target for selling.

Again, hoping for a nice rally so I can throw a retailer, a Vegas casino, get that REIT exposure, get a financial (boy they have been ugly of late) et al going.

No position


Bookkeeping: Adding to Life Partners Holdings (LPHI)

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Life Partners Holdings (LPHI) has retreated to just over its 50 day moving average this morning (mid $37s) and is bouncing nicely, so I'm increasing my stake in the low $39s. Up from a 0.6% stake to 2.4% stake.

This was one of the names we were looking to add to on a pullback...

Long Life Partners Holdings in fund and personal account


Public Service Announcement: Australia Offering "Best Job in the World"

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I made a resolution that instead of offering 100% gloom as in 2008, 2009 would be the year of 98% gloom and 2% panda (a happy go lucky animal that makes people smile). In lieu of a panda today, I am passing along a way for you to escape the day to day grind with a heck of a job offer. Have at it!

SYDNEY (AFP) – An Australian state is offering internationally what it calls "the best job in the world" -- earning a top salary for lazing around a beautiful tropical island for six months.

The job pays 150,000 Australian dollars (105,000 US dollars) and includes free airfares from the winner's home country to Hamilton Island on the Great Barrier Reef, Queensland's state government announced on Tuesday.

In return, the "island caretaker" will be expected to stroll the white sands, snorkel the reef, take care of "a few minor tasks" -- and report to a global audience via weekly blogs, photo diaries and video updates.

The successful applicant, who will stay rent-free in a three-bedroom beach home complete with plunge pool and golf buggy, must be a good swimmer, excellent communicator and be able to speak and write English.

"They'll also have to talk to media from time to time about what they're doing so they can't be too shy and they'll have to love the sea, the sun, the outdoors," said acting state Premier Paul Lucas.

"The fact that they will be paid to explore the islands of the Great Barrier Reef, swim, snorkel and generally live the Queensland lifestyle makes this undoubtedly the best job in the world."

Lucas said the campaign was part of a drive to protect the state's 18 billion Australian dollar a year tourism industry during the tough economic climate caused by the global financial meltdown.

"Traditional tourism advertising just doesn't cut it sometimes and we are thinking outside the box by launching this campaign."

Queensland Tourism Minister Desley Boyle said some people might question whether it was risky to let an unknown person become an unofficial tourism spokesperson for the state.

"I think the biggest risk will be that the successful candidate won't want to go home at the end of the six months," she said.

"This is a legitimate job which is open to anyone and everyone."

Applications are open until February 22. Eleven shortlisted candidates will be flown to Hamilton Island in early May for the final selection process and the six month contract will commence on July 1.

Job-seekers can apply on .

  1. Islandreefjob.com


Bookkeeping: Cutting Back Allegiant Travel (ALGT)

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Support I was looking at around $38ish for Allegiant Travel (ALGT) appears to be broken [although the price at the end of the day is more important than the intraday price] so I am going to cut the position in half, from a 1.4% stake to 0.7%. I don't have stop losses available to me so we're out in low $37s (intended to be out around $38)

We assumed the stock would benefit if oil prices would fall, which they have (substantially!) since we entered this name early last week - but yesterday the airline stocks were hit on what appear to be economic concerns - i.e. lack of travelers supersedes cheaper input costs. Based on what Allegiant did when oil was $140 I don't think it will be a major issue - they will just cut capacity - but I don't argue with the market.

The 200 day moving average is down at $31 so I'll look at picking up some there, if we hit that level. Or if it gets back over $41 and holds it - right now the stock is in no man's land technically.

Long Allegiant Travel in fund; no personal position


Barron's: Why India Won't Rebound Soon

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Notwithstanding the recently disclosed Indian "Enron" - Satyam (SAY), I will be curious to see if India has any outperformance in 2009 - if not stock market wise (since hedge funds apparently make no differentiation between any emerging market) - at least economically.

Always have to look at both sides of the table... Barron's is not very optimistic (neither are many of our readers) on India despite the same measures the US is doing; government intervention en masse. Aha! It will work here (USA! USA! USA!), but not overseas... I love narcissism. Just hard for me to be as bearish on a country where the elite 0.01% have not convinced everyone that regulation is so evil - even when their dogma brings epic bubbles and crashes every 4-6 years now [Dec 28: New York Times - How India Avoided the Crisis] and a place where American corporations are quitely sending more and more jobs, and not just IT anymore folk - we're cutting financial services in NYC but not India [Aug 15: New York Times - Cost Cutting in India but a Boom in India] Shhhh! Don't tell anyone - the same companies who gutted our financial system and are getting American tax dollars by the bucket are moving well paying (read: expensive) US jobs overseas by the thousands - and have been for a few years - shhh; just between you and I. A lot of that Wall Street research is really written by Mr. Patel or Shah now. Just keep repeating the line "it's only IT and call center jobs- nothing to worry about here" and hand over your wallet for more bailouts. Thank you for your cooperation.... oh yes, America will recover first so buy US stocks.

I am curious to see how much India can yin to the other BRIC's yang - going long Russia is effectively going long oil (and hoping the political heads do not get crazy), going long Brazil (commodities) is a proxy play on China, and going long China is ... well obvious. Hence why India will be interesting to see if it can disassociate from the rest - doubtful. HAL9000 trades them all as one country it appears... the broader ETFs for India look like every darn foreign stock - this is what truly stinks about this market - the robots simply make no differentiation from one thing to the next; it is all horde trading. I could put 50 other foreign company stock charts and overlay on these broad market Indian ETFs and they'd all look identical; no matter the individual countries or business metrics.

  • FOR THOSE TEMPTED TO WADE INTO THE INDIAN STOCK MARKET with a view to making a quick killing after its massive slide, consider the advice that Punch magazine once gave a person who was about to marry: Don't. Although India's benchmark Sensex has fallen about 55% from its peak a year ago, the market is still not attractive as a short-term investment. November's terror attacks in Mumbai aren't even the half of it: The Indian economy, valuation issues and broad political uncertainty all argue for real caution.
  • "Even as absolute valuations have corrected, India's relative valuations remain rich," says Ridham Desai, India Strategist at Morgan Stanley. The market's price-to-earnings multiple, based on expected earnings for the next 12 months, is 60% higher than that of emerging markets as a group. And its price-to-book ratio is a whopping 72% higher.
  • India fares no better on the dividend-yield front. The roughly 2% dividend yield on the Sensex pales in comparison to what is available in some of the more advanced economies. The dividend yield for the Australian market, for example, is an eye-popping 6.5%, while most other regional markets offer yields well north of 5%.
  • ...even though the Indian markets are trading at just nine times forward earnings, investors need to exercise caution in interpreting that multiple. "With all the earnings cuts that we have seen from companies, what appears cheap may not be so," he says. "We are seeing a fairly sharp slowdown in the economy, but it remains to be seen whether the markets have discounted all the bad news that is in store." (again, great irony that India is expensive at 9x forward earnings but US cheap at 15-20x forward earnings if you believe $50-$60 EPS for 2009 S&P)
  • While the Indian economy, whose output is now around $1 trillion, looks likely to do well over the next two decades or so, GDP would have to more than double for market capitalization to return to its past glory without valuations being caught in bubble territory. And a doubling of output would likely require at least 10 years of growth, assuming the economy keeps growing at a 7.2% clip.
  • One of the biggest reasons for the surge in the Indian equity markets was the inflow of funds from foreign institutional investors. But that luck hasn't held in the current bear market: Foreigners have pulled $20 billion from the market since the start of 2008, according to provisional data issued by the Bombay Stock Exchange.
  • In its 24 years, the Sensex, now at 9,647, has held above 7,000 only for the three-and-a-half years starting in June 2005. The index's mammoth 200% gains between 2005 and early 2008 are perhaps never to be repeated again.
  • A new bull market, Morgan Stanley's Desai argues, is at least 15 months away. "Even if we assume that the market has hit its bottom, previous bear markets show that the market almost always tests the previous low before a new bull market gets underway," he says. "This process of retesting took between 15 and 24 months in the previous three bear markets."
  • According to Citigroup, India is more vulnerable than regional peers when it comes to external financing. Heavy current-account deficit and its debt repayments have hurt the outlook for the rupee, and the already-weakened currency leaves Indian firms that have borrowed overseas vulnerable. (but less reliant on exports than regional peers)
  • Geopolitics plays a role too. Indians will choose a federal government this year, and must choose between the current party that voters have grown disenchanted with and its major contender which seems to lack a credible leader at the national level.
No position

Monday, January 12, 2009

Santa Claus Mugged

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In our weekend summary we mentioned the bulls still had a sliver of hope based on technicals (if you squinted really hard and tapped your shoes): if you used simple moving averages rather than exponential (I use the latter). But today's action has violated support even in the former situation.

As we've been saying now for a long time S&P 850 to 920 is our "white noise range" - it's a wide range but what happens in between does not really concern me that much - we were stuck in that area for almost all of December. We've been able to make many successful trades in this area. But at some point we will leave this zone and break up or break down (obviously sense would say the latter). The other thing the bulls had going for them was a series of HIGHER lows which is in danger of failing. That said, generally markets do not slice through support like butter (except for insane panic periods like Sep-Nov 2008) so even if this begins a new leg down I'd expect some defense of the "line in the sand" area of S&P 850-860. By defense, I mean at least a cursory bounce. In time I believe this support level will fail but it would be atypical for it to fail the first time we go there. Just going off probabilities. (as I type this we are getting some bounce...)

Series of lower highs risks being violated; trend line since November lows now broken (I excluded the two outlier panic days in November for the series)


Most of the stocks we own at the top of the portfolio ex-Obama infrastructure held up quite well today; but the danger that lies ahead is panic versus orderly sell off.

For now, we have an orderly sell off - the better stocks will brush much of that off. In panic there is no safe zone as we all saw this fall - so no amount of homework helps you. In that situation we go back to the situation we faced a handful of times in 2008 where asset allocation means everything and stock selection means nothing. Below S&P 850 we'll become more aggressively short, and since the market appears to be rolling over we want to even be buying short exposure on rallies as opposed to sitting on the sidelines with short positions as we have the last 6-7 weeks. So our mindset is incrementally changing, and on (a) a break below S&P 850 or (b) a rally to the top side of this range - we'll now be much more inclined to begin creating more short exposure to balance the long side (while keeping loads of cash)

When we turned the calendar for the year, that week we put on a 6% rally and you could feel the Kool Aid in the air. Investment managers, having performance anxiety did not want to be "left behind" and started chasing back into names they would not touch 30-50% lower (7 weeks earlier).... we were selling stock to them and instead headed for the hills. (cash!) Then last week happened and the market lost 4.5%. Today, the market tacked on another 2%+ of losses and your Santa Claus mirage rally is kaput - it took 4 sessions to erase Santa. The adults have come back from holiday and as wrote last Tuesday the police were circling the house to break up the party, once those commodities went ballistic for no good reason. [Back to the Future - Commodities Rule Again] The ping pong continues between "hope" and "reality" (as it shall all year) and all those who waved the flag of hope the past few weeks have seemingly slunk back into their corners.

But don't worry - they'll be back on the next rally singing about market bottoms and "it's all priced in". They remind me of the Greek mythological sirens; except our sirens offer you Kool Aid, "Obama will save you" "it's great that our entire economy now sits on the Federal Reserve's shoulders" along with tales of "2nd half recoveries". Avoid sirens at all cost - they will destroy your capital.

The SIRENS, they say, had maidens' features, but from the thighs down they had the forms of birds. One of them played the lyre, another sang, and another played the flute. By these means, and by clever, knavish, and deceitful words, they persuaded passing mariners to linger, thus causing their destruction. That is why the island where they lived was full of the bones of those who had perished.

Coach (COH) Warns... Again

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For my (few) readers from the early days in the blog, I used to often point to Coach (COH) as one of the best tells in retail; much like Las Vegas it is a symbol for American overconsumption but with my favorite twist - the "aspirational" consumer....

Coach is actually a very well run retailer, led by a very good CEO - however this is like having the best house in a run down, crime riddled neighborhood (retail)

Back in August 2007 I wrote [Aug 28, 2007: Coach as the True Retail Tell]

Many people are citing the deteriorating retail numbers as a tell on the economy; citing Walmart (WMT) in particular - well I'd like to use Coach (COH) as my tell. "Coach is a bit of a status symbol, and something many people in mid/upper class suburbia buy. The problem is many people in suburbia are overextended on their $600,000 home bought with 0% down interest only loans. This does not mean they they don't have good credit; it just means they are very leveraged. So it's a risk."

So in fact I think this is a lot better tell on the economy than Walmart. The core customer of Walmart is more of the discount shopper already strained by the hikes in gas, energy, and now grocery prices.... whereas the core shopper of Coach is the suburbia soccer mom who loves her trinkets (do you know there are even websites now where you can rent a purse, errr... handbag - in fact, I just googled and I also found a competing site.) This speaks to America's obsession with appearances and keeping up with the Joneses. Even when one cannot afford a handbag, one can pretend to show others they can afford it for the evening. So with this subset of consumer being the main subset buying $450K homes in northern VA, $600K homes in southern CA, $800K homes in northern CA, $400K homes in AZ/NV - many with little down and some scary initial 2 year teaser terms, I am watching Coach to see how it performs. To me, it's a great tell.

In October 2007 [Oct 9, 2007: Our Old Friend Coach - Don't Forget Her] as the market ran to all time highs I wrote

Again, I cannot be short in this fund, but many retailers and restaurant stocks are going to be great shorts (note: exclude restaurants with international exposure like a YUM or MCD or those with $5 type of menus - most of the middle end chains I see a slowdown both from the consumer and major squeeze on their costs) Don't ignore the fact the weaker dollar hurts importers - and some of our food supply comes from overseas; so on top of the domestic food inflation we have the imported kind - on top of a weaker dollar.

But I think Coach (COH) is telling us, the US consumer is finally slowing down without access to 'the ultimate credit card i.e. the house'.

Later in October I wrote [Oct 23, 2007: I'm Feeling a bit Smug this Morning - Coach Down 7% on Earnings]

I went negative on Coach in the mid $40s and its now trading at $38 or a 15% drop in 60 days. It is now at levels not seen since November 2006 - so for 'buy and hold' types, an entire year just got wiped out.

Any bounces in domestic facing retailers aside from a few very narrow niches, restaurants, homebuilders, and financials will continue to be good shorts.

The point is, none of that matters in the face of the aspirational US consumer now unable to nurse herself at the trough of easy credit. The consumer is now at the last stage, turning to credit cards. Once those are maxxed out I don't know the next step. Defaults? We are seeing financial after financial reporting major increases in future loss provisions in their consumer divisions.

By December 2007, the stock had begun its implosion [Dec 19, 2007: Coach Imploding]

But for now this is a play on the US and Japanese consumer. Both slow growth economies facing some very large structural problems - and at least in this country with a government unwilling to face them by cutting back spending and not driving the country into subprime status.

In spring 2008 I wrote [Apr 22, 2008: Coach with Interesting Report]

As I have predicted, many retailers will begin to pull back from all forecasting for the year as the true economy shows in their numbers, as opposed to the multinationals whose foreign sales are masking domestic weakness. All their current 2008 guidance is fiction, and this will be proven true by December 2008. So they are not "cheap", despite what CNBC says. That does not mean they won't rally from time to time, especially when those rebate checks hit, Q3 GDP is artificially boosted, and the seals across financial media will clap their hands in glee.

So all this has come to pass, despite the constant "buy the bottoms" and "stop being so gloomy" calls since I started this website. I have not been watching Coach that closely of late since I could not benefit from my short calls, but I saw this weekend it warned (again) Thursday. They also PULLED guidance due to uncertainty - as I said we'll begin to see over and over. Only financial media pundits have a "clear view" on the 2nd half 2009 recovery - somehow they are smarter than the companies actually living and breathing in the real economy.
  • Coach Inc. on Thursday cut its second-quarter profit estimate after a dismal holiday shopping season led to a 13 percent drop in comparable store sales during the quarter.
  • The maker of high-end purses cut its second-quarter profit projection to 67 cents per share, 10 cents lower than a previous estimate of 77 cents per share and 3 percent lower than what it earned a year earlier.
  • Coach also said it would not give earnings guidance for the second half or full year fiscal 2009 give the "uncertain environment."
So this is an example of quite a few calls of similar ilk I made in 2007 through first half 2008 on the short side that we could only talk about and not profit from due to our tracking device. Is it too late to short these?

Short term chart

Long term chartI continue to believe consumer discretionary should be shorted on all these hyped up "recoveries coming in 6 month" rallies. This is a structural change we are embarking on - the punditry still believes it it some sort of "one off" recession. So every 7-8 weeks the breathless "recovery" talk begins in earnest, these stocks rocket up 40% and we are told "the stocks are telling us the recovery is coming". Not.

Speaking of consumer discretionary, I had pointed out Las Vegas Sands (LVS) as a rally to short - its down about 33% in a week.

Have the CNBC commentators started questioning the Kool Aid of "It's all priced in" yet?

No positions

Wall Street Journal: Wave of Bankruptcy Filings Expected from Retailers in Wake of Holidays

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If it wrong to be openly rooting for retail bankruptcies just so my predictions of the past year and a half come to fruition? [Dec 2007: Credit Downturn Hits Malls]

My latest round on the retail front, was a quite over the top outlier of 5 major brand names to go out by Memorial Day [Dec 16: 13 Outlier 2009 Predictions] I see Goody's Family Clothing has already filed but since that's not a national name brand I won't count it.
  • Goody's Family Clothing Inc. (GDYS) is liquidating operations, becoming the first high-profile retailer to go under in a new year that is expected to see many more going-out-of-business announcements. Goody's has about 9,000 employees and operates 282 small department stores in about 20 states, mainly in strip malls in the Southeastern and Midwestern U.S.
  • As recently as early November, White told the Knoxville News Sentinel that Goody's expected to turn a profit by the end of the year. (loud sigh)
So we'll add Goody's to
  1. Circuit City [Nov 10: McDonalds Strong, Circuit City Out]
  2. Mervyn's [Jul 21: Add Mervyn's to our Growing Litany of Retailers Headed to the Great Sunset]
  3. Steve n Barry's [Jul 10: Another Retailer (Canary in Coal Mine Down]
  4. Linen's n Things [Apr 11: This Day in Bankruptcies - Another Airline and our First Major Retailer]
I'm sure I forgot someone as strip and non strip malls across the country begin to empty... and we're not even touching on the restaurants [Jul 30: Bennigan's, Stake & Ale Close - File for Bankruptcy Protection]

It's time to "right size" retail space in America.... [Sep 20: US News & World Report - The End of the Shopaholic Nation?]

Via the Wall Street Journal
  • Drained by the worst consumer-spending slump in decades and burdened by debt, U.S. retailers are expected to begin a wave of post-holiday bankruptcy filings, altering the landscape at malls and on main streets across the country. Retailers are particularly vulnerable in the current downturn after a decade of buoyant consumer spending, which encouraged them to overexpand and overborrow.
  • Several of the industry's biggest lenders, including General Electric Co.'s GE Capital, CIT Group Inc. and Wachovia Corp., are tightening lending terms and reducing exposure to retailers. Their tougher terms are making it harder for retailers to find capital to reorganize under bankruptcy-court protection, as they were able to do in the past, meaning there are likely to be more liquidations.
  • According to ratings company Standard & Poor's, nine U.S. retailers and restaurants, including off-price apparel chain Loehmann's Holdings Inc., drugstore operator Duane Reade Holdings Inc. and jeweler Finlay Enterprises Inc. are at significant risk of default, with junk-bond ratings of CCC, or "very weak."
  • Along with Finlay, which operates Bailey Banks & Biddle jewelry stores, bankruptcy experts think regional department-store chains Bon-Ton Stores Inc. and Gottschalks Inc. and fashion-accessories retailer Claire's Stores Inc. may be under the most stress.
The rest of the story deals with the chains mentioned denying there is any issue - sort of like the infamous appearance by Bear Stearns CEO on CNBC the day before they went to the Federal Reserve on hands and knees.... or Goody's saying they would be profitable in November (and in under 2 months filing bankruptcy)

The one plus side is the stores that are still around when we exit this era should face a lot less competition. Thankfully the (ahem) rip roaring economy of the "2nd half 2009" should make all the pain go away so next Christmas is nothing like this Christmas. Yep - that's what the pundits tell me.

[Dec 18: CNNMoney: The Dead Mall Problem]
[Nov 27: AP - Malls, Hotels Next Victims in New Mortgage Crisis]
[Oct 18: CNNMoney: Mall's Demise Could Doom Communities]
[Jul 5: Bloomberg: Teenagers Skip $50 Jeans in Squeeze of Gas, Job Shortage])

Bookkeeping: Starting Minor Position in American Science & Engineering (ASEI)

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As mentioned in this week's playbook [Playbook for the Week] based on a solid chart and some great news late last week [Jan 9: American Science & Engineering Awarded $67M Defense Contract] ASEI is a name I wanted to get established this week. With the market acting poorly I am hoping to get a lower price, preferably $73 (20 day moving average) or $69-$70 (50 day moving average). But I am going to establish a tiny foothold today just to get it on my sheets as the stock is down from $80 to $75s.

Starting with a 0.4% stake in American Science & Engineering (ASEI) just over $75. I have limit orders ready to hit at the levels mentioned above to make this position more material.

[Dec 30: American Science & Engineering - Very Promising]

Long American Science & Engineering in fund; no personal position

Bookkeeping: Adding to Potash (POT); Monsanto (MON) close

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Ever since I sold out of Mosaic (MOS) last week, I have been wanting to apply the money into Potash (POT) to keep my fertilizer/agriculture exposure constant - if you remember, the return of "herd trading" was back in commodities; so I didn't see a reason to own two names in a sector when 1 will do. By remaining patient, today we get our chance as the (cough) imminent global growth rebound thesis is being sandblasted. I can only assume the Baltic Dry Index of shipping felt 0.000000002% today ... or oil is down.

Potash is down 10% today and has fallen back to its 50 day moving average of $75 so my order executed just above that. This drives up our exposure from 0.7% of portfolio to 1.4% - again all I really am doing here is a pairs trade of sort - I sold out of one name and rolled into another (but I was able to buy the "other" 10%+ lower). I am willing to purchase here, but if we begin to break down to say upper $60s I'll cut back exposure as I believe this "global growth is back because a stupid shipping index is up 2% after falling 90%" is complete bunk.


Further, Monsanto (MON) is coming into range - we've been waiting for this gap to fill, and a buck more to the downside and my limit order should hit.


My limit order here is around $77 so if it hits I will just edit this entry - again I'd like to stress the potential for some losses is far higher here on short term buys then what we've enjoyed the past 7-8 weeks. So I'm looking more towards things I want to keep in the portfolio for the longer run when they pull back.

EDIT 3:45 PM: Monsanto limit order hit

Are people beginning to doubt the veracity of SuperObama being able to reignite growth with his magic wand?

Long Potash in fund; no personal position

A-Power Energy (APWR) Connects with General Electric (GE)

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Excellent news for A-Power Energy (APWR) in terms of credibility - letter of intent signed with a unit of General Electric Drivetrain Technologies (GE). If the order of the deal was in reverse (APWR supplying GE) this would be enormous - but better than a sharp stick to the eye. So this now gives A-Power relationships with a large European wind focused company and one of the largest conglomerates on Earth.
  • GE Drivetrain Technologies, a unit of GE Transportation, and A-Power Energy Generation Systems (Nasdaq: APWR - News) announced today that they have signed two Letters of Intent (LOI), one for GE Drivetrain Technologies to supply A-Power with 2.7 megawatt (MW) wind turbine gearboxes and a second to establish a Joint Venture partnership for a wind turbine gearbox assembly plant.
  • GE Drivetrain Technologies will supply A-Power with more than 900 2.7 MW gearboxes beginning in 2010. ''We're excited about the opportunity to serve A-Power," said Prescott Logan, Business Leader GE Drivetrain Technologies. ''The speed and focus that A-Power has brought to building its wind turbine business, combined with the highly reliable design of its Fuhrlander 2.7 MW turbine, position A-Power well for long-term success in China and the broader global market.''
  • The companies' joint venture agreement creates a wind turbine gearbox assembly business that will be majority owned by GE Drivetrain Technologies and operate under the name GE Transportation. The new assembly plant will bring multi-megawatt gearbox capacity to China and serve as GE Drivetrain Technologies' Southeast Asia manufacturing center from which it will serve its customers in the region beginning in mid-2010.
We don't have a major position at this point since the chart was not so great entering the day, and I doubt anything will "run away" in this market so I'd expect this chart to fill in time.

Today's news pushed the stock from a 0.6% stake to 0.9% so I am going to dump half the position just over $6.

Long A-Power Energy in fund and personal account


Earnings Preview

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Alcoa (AA) which already warned kicks off this week's festivities... still a quiet week as we await the tidal wave in the weeks following - not much interesting from my initial glance.


Monday:
Alcoa (AA) - already warned; bouncing around like all commodity stocks on "global growth will be back around the corner" nonsense thesis.


Tuesday:
Indian outsource firm Infosys (INFY) - potential beneficiary of Satyam scandal.


Wednesday:
Recent fund addition HDFC Bank (HDB)


Thursday:
Intel (INTC) - already warned

Posco (PKX) - South Korean steel; if the so called "global growth" recovery thesis has any merit Posco should tell us.


Friday:
PPG (PPG) and Johnson Control (JCI) - two industrial firms who I assume will not be talking about the global recovery that the speculators are wishing for

Life Partners Holdings (LPHI) Earnings

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Yahoo Finance shows Life Partners Holdings to announce earnings Tuesday but a reader gave me a heads up that a SEC filing hit Friday, so we already have the news despite the lack of a press release. The company already pre-announced to the upside in December [Dec 15: Life Partners Holdings Pre Announces ... to the Upside] and in this environment - the few & proud who can do that, are to be taken notice of. Everything continues to look solid for this "non correlated" asset... they hit exactly the numbers they guided to less than a month ago.

Their year end is February 2009 (to be reported in April) at which point analysts have a $2.27 yearly EPS (58 cents is the target for their last fiscal quarter). At $42 this will give them a trailing PE of 18.5 if the price does not change between here and there. Since there is no public competitor I don't know what a fair PE will be - they had 40% type of growth year over year... analysts are conservative for next year saying that growth rate will be cut in half.

The company also announced a 5:4 split last week
  • Life Partners Holdings, Inc. (NasdaqGS: LPHI - News) today announced that its Board of Directors has approved a 5-for-4 split of the company’s common stock which will be paid in the form of a stock dividend on February 16, 2009 to shareholders of record as of February 6, 2009.
Chart continues to say to buy on all dips - hopefully the next time the market falters we can add quite a bit down there in the mid to upper $30s


  • We reported net income of $7,282,878 for the three months ended November 30, 2008 (hereafter “the Third Quarter of this year”), compared to net income of $5,215,695 for the three months ended November 30, 2007 (hereafter “the Third Quarter of last year”). Our stronger net income resulted primarily from a 46% increase in revenues and our ability to keep brokerage fees and operating and administrative expenses in line with revenues. While the number of settlements transacted increased from 52 to 56, the average revenue per settlement increased by 35%, and total revenues net of brokerage fees increased by 44%.
  • Revenues - Revenues increased by $8,805,204 or 46% from $19,298,726 in the Third Quarter of last year to $28,103,930 in the Third Quarter of this year. This increase was due primarily to a 55% increase in our total business volume (i.e. the total face value of all settlements transacted by us during a period) from $125,897,330 in the Third Quarter of last year to $195,459,950 in the Third Quarter of this year, continuing a trend toward transactions with larger face amounts. This resulted in a 35% increase in the average revenue per settlement.
  • Expenses – Operating and administrative expenses increased by 53% or $1,259,419 from $2,384,461 in the Third Quarter of last year to $3,643,880 in the Third Quarter of this year due primarily to increases in settlement costs, legal expenses and employee and executive bonuses. The largest component - general and administrative expense – declined 1.8% as a percentage of net revenues from the Third Quarter of last year to the Third Quarter of this year. Because of the trend toward higher face value policies, our substantial investment in proprietary software and our improvements in automated processing procedures, we have been able to continue to increase our business volume to a greater extent than the increase in general and administrative expenses.
Outlook
  • We continue to produce strong financial results and expect that our growth trends will continue. We believe our company and our industry is fundamentally sound and well positioned to deal with the current uncertainty in the financial and capital markets. Our life settlements are not correlated to the financial or commodities markets, which increases their appeal in uncertain times. Further, we have comfortable amounts of cash and cash equivalents. We carry little or no operational debt and do not rely on leverage in our capital structure. We do rely, however, upon the availability of investment capital. While it is conceivable that a deeper financial crisis could diminish the supply of investment capital throughout the economy, our experience during the First Nine Months of this year indicates that greater investment capital will be placed in life settlements. We believe this is due to the fact that returns in life settlements are not correlated to the performance of the financial markets.
  • Our operating strategy is to increase cash flows generated from operations by increasing revenues while controlling brokerage and operating and administrative expenses. We believe that domestic and international demand for life settlements, especially from institutional clients, will continue to grow as the prospects for economic conditions remain uncertain and investors look for alternative investments. In response to the projected growth in demand for qualified life settlement transactions, on the demand side, we are exploring the use of special purpose entities to expand our market for life settlement investments and continue efforts to attract institutional clients. On the supply side, we are increasing our advertising and professional awareness marketing to potential sellers of policies and to strengthen our broker network.
[Nov 6: Bookkeeping: Beginning Position in Life Partner Holdings]

Long Life Partners Holdings in fund; no personal position

Sunday, January 11, 2009

Playbook for the Week

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Now that the market has lightened up a bit on the "student body left" (or right) trading ("sell everything! buy everything!") we can spend some more time sorting out good charts from bad. Except in times of extremes - this is a market of stocks, not a stock market. Below I'll break out some of the stocks that we made some changes to last week, and others of interest with commentary....

1) We had been holding off on adding to Emergent BioSolutions (EBS) as noted Thursday waiting to see if it was reading to break up, or down... the answer the next morning was down. The answer was down, but after flushing out to $20 it bounced right back to $22, where we took the position from 1.3% to just under 3%... later in the day as the stock bounced near $23 and seemed strong we added more and took it over 5%. In a perfect world I'd like to see this name recapture $25 in short order - I have some limit sells waiting @ $26... we have a lot of locked in gains here, and I'd be comfortable with the name down to $20 which was Friday's intraday low. If that breaks we'll take some losses from Fridays $22-$23 buys and wait for the dust to settle.

2) We were able to add a second batch to our initial stake of Thoratec (THOR) - both this week - to make this a 2.9% stake. I like buying this chart since I'm not a pure momentum chaser and prefer stocks in uptrends consolidating instead... but each time you buy this setup you run the risk of a break down (which is why momentum chasers never buy this chart). I feel comfortable up to $26.50 on the downside which were early December intraday lows - below that I'd have to take some losses and cut bait since it could fall to $24 or so. The stock was downgraded Friday but volume was not immense...

3) EZCORP (EZPW) was an interesting stock this week - our limit order @ $17 hit Monday so we were able to get out of part of our position but the stock fell through the floor this week on fears of Obamamania touching it - but in a bad way. Ironically, its peers have more cash advance store exposure but EZPW fell more than its peers.... I added some in the high $14s that we are already down on - but since stocks below resistance can stay there a long while, I am not going to add more here in the $13s. I'd rather add over $15 when the stock regains its mojo.

4) AeroVironment (AVAV) - see Thoratec chart; exactly the same commentary except we have the backstop of the nanny state (federal government) behind us; we added some late in the week as it bounced around at its 20 day moving average in $35s, I'd like to add more around $34 or even better $30.

5) 2 names we added this week - Indian bank HDFC (HDB) and small airline Allegiant (ALGT). Thus far both have held in ok considering how bad the market was; we snared HDB on the Satyam scandal and so far so good; although if the market weakens people will flee risk and the stock will break down - it will have nothing to do with the company; when the rats run they sell everything. Earnings are this week.

Allegiant is so far ok, but has some risk to it... despite oil falling through the floor last week the stock did not respond in kind (it should go up on that news) - further hedge fund manager Doug Kass went short Friday it appears and probably a lot of people jump in behind him. I'm willing to hold until $38 and then we'll have to cut back if it breaks through. I'd like to see it back north of $42 and hold it to feel comfortable.

6) Interesting week with Illumina (ILMN) - we've been waiting for a breakout after a long period of consolidation and it sort of did a very similar headfake as the market as a whole - we jumped in Monday when it "broke out" (>3% position) but in our "better to be safe than sorry" ethos we said the stock could risk breaking down and we cut right back to a 1.1% and took a small loss... I further cut it to a 0.4% stake as it further weakened.... unfortunately the chart now looks like a short (again) as it has been for many weeks. Until proven otherwise a bounce to upper $25s should be shorted and then you can stop loss maybe $26.50 - bah. This could be headed back to that $20-$21 range.

7) A few names from last week's prospect list [Potential Portfolio Candidates] are still out there - and in fact at levels I *could* buy but have not yet pulled the trigger - O'Reilly (ORLY) is like AutoZone (AZO) - a play on people keeping their cars longer; and then we have two home title firms who make money the more houses change hands - both plays on the (ahem) coming housing boom. Best case scenario I would like to get FNF on a pullback to $14.


8) Commodities/Infrastructure: Late Tuesday when all commodity stocks went ballistic I had a nice trade to take off half our Jacobs Engineering (JEC) right near its high at $54, and then got some back in the $51s near the end of the week. Not as much as we sold, but we are just churning around. My worry here are the prospects for a double top forming near mid $54s/$55. Plus it's an Obama-stock.

Many of these commodity stocks actually have quite solid charts now as they pull back - remember Obama will ignite global growth (source: pundits) as will China (source: Jim Cramer). I think its a farce but thats what HAL9000 is buying. We sold Mosaic (MOS) and I wanted to roll it into Potash (POT) but I missed that pullback Thursday morning...instead I threw some cash back into James River Coal (JRCC) Friday as we hit a "make or break" level.

9) As you can see global growth is BACK! by the recovery of the Baltic Dry Index... by recovery I mean a shipping rate that has dropped 90% is back up 0.000002% - hence the daytraders scream RECOVERY!

Almost every day the past two weeks you wake up and see DryShips trading up 10% premarket - daytraders special.

10) Oh yes, if the global growth thesis was anywhere near true we'd really need China to help... FXI seems to be rolling over again. Remember, one of my calls for 2009 is China will be FAR worse than the punditry believe as they have some of their own bubbles to work through, along with a heavy reliance on US and European consumers... which are not coming back "in 6 months". But you can't talk to daytraders who insist on their DryShips. Now FXI is a basket of stocks, but if it breaks below $25.50ish we have another useless thesis blown to bits. This chart looks like a short to me with a stop loss over $29 (I'm playing this through FXP which is the double inverse) It simply does not make sense for commodity stocks to rally without the engines of either the US or China... ah yes! Obama is more powerful than China and US combined.

11) Names I want to come in so I can buy more of - Sequenom (SQNM), Linn Energy (LINE)

12) Solar got a bid underneath it last week ... the fundamentals in this sector are PUTRID for most - it is so bad in China that they are trying to give money to the larger players to consolidate the 150 smaller players.... you heard me 150! But ObamaSolar power will create enough aura for all the world to be awash in solar panels. Yep. Daytraders will run into First Solar (FSLR) as the speculation of choice... I am just plain worried about the prospects of this sector for 2009 but LDK Solar (LDK) warned and Obamamania was enough to shake off "facts".


13) American Science & Engineering (ASEI) is a stock I see myself putting a foothold down into early this week... for those of us on the sideline it reversed nicely Friday - probably will create a starter position and then hope we can get some in the upper $60s to low $70s. I don't know if the contract signing late this week is in analysts report but in 2009 we want to clutch on the nipple of government (nanny state) and ASEI is another company that lives there.

14) Monsanto (MON) had a very fine report - and after the gap up, I am awaiting this gap to fill with a limit order. I actually would of preferred to see the stock run a bit, since it seems quite weak for a stock to fall so quickly after such a solid report... but I like this one for the long run, not a "buy and flip". Come to papa.

15) Off the back of a strong earnings report from Apollo Group (APOL) the "re-education" or "adult education" stocks went ballistic this week. Zach does not believe in the thesis and I share some concerns - really how are these people paying for these courses (credit card?) without jobs. That can't end well. But for now it's a thesis, a hot thesis, and the speculators of America converge on the group. I suspect by end of 2009 there will be a major blowup in this sector as analysts ratchet up estimates and we start to see inability to pay by customers. Until then - party on Garth; I would not get in front of a steaming train of thesis.

16) As I drove around this weekend in the 92 feet of snow we enjoyed, I was scratching my head at gasoline prices. A month ago when crude was near $40 gas was $1.49-$1.59. Now its $1.99. Hmmm... that says one things, REFINERS! I used to have a chart that linked to "crack spreads" on the blog but must of erased it... refiners used to be a good trade 2-3x a year until hedge funds went wild last year and blasted oil to $140+. I don't know what the crack spread chart is saying, but I can only assume based on my anecdotal evidence the spread is widening (bullish) since the stocks are behaving very well. I've always favored Frontier Oil (FTO) for the location of its refining plants, and its ability to make money when many of its peers could not. Oh well, so much for the "great tax credit for the American consumer".

17) On the short side - 3 names we pointed out over the past week

Good fundamentals, Bad chart

Bad fundamentals (and chart) - headfake north of 50 day moving average; oh HAL9000 - so tricky.

Bad fundamentals that was driven up in the late stage of a bear rally as people run to "junk" - a quick $9 to $7 move in just days.

******

Outside of those I have a couple of other smaller names on my radar as well...

So that's about 30% of what's in my head this week - without stop losses in Marketocracy.com the past year and a half this is the amount of stuff I need to keep straight mentally (PLUS all the names I am interested in on my watch lists) ; it is insane. But makes your mind work like a banshee.

The other 70% of what is on my mind is proprietary.... what's in your wallet?


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