Tuesday, November 17, 2009

Still All Good for the Bulls - Quiet Consolidation

Barring a nasty reversal in the last 45 minutes, today is a big win for the bulls.  Support of S&P 1100 has been held; a major move up is being consolidated with almost no pullback at all.  Stocks are simply churning before making the next move (up!) - that's how it appears at this point.  One would think they would of dipped us below 1100 for a moment at least to collect all those stop loss orders, but bears cannot even manage that.

Dip buyers remain absolutely confident Ben Bernanke's printing presses will present them with only wins, and no losses.   They will continue the now religious fervor of buy any dip.  One day this will change.  Today is another moment where *that* day seems to be in a galaxy far, far away.  Now we just eagerly hope for more dollar destruction tomorrow....lower living standards, higher stock prices - the new American dream.

USA Today: China Pushes Solar, Wind Development

Just something to keep your eye on as your politicians promise you that the US will be the world leader in green tech jobs.  In fact they will have to layer countless more debt on your children and grandchildren for temporary "green jobs" jobs, to make this mirage come true - for a while.  Most likely this promise will come next spring as the next massive stimulus is pumped to the masses to create "green jobs" retrofitting buildings and such.  Meanwhile, ask where the production is and what work we will be left with after we borrow money from China to create temporary jobs.  [Nov 2, 2009: Lack of Green Energy Manufacturing Capability in US Means 84% of Stimulus Goes to Foreign Firms]

Remember, Japan and Germany are a decade ahead of us as we decided daytrading homes was the real way to prosperity as a nation... and China is subsidizing every form of green energy.

  1. [Aug 25, 2009: UK Telegraph - China Powers Ahead as it Seizes the Green Energy Crown from Europe
  2. [Aug 28, 2008: China to Subsidize Wind Turbines
  3. [Jun 19, 2009: Reuters - Incentives Add Shine to China's Solar Drive]  

Just today I saw two separate Chinese firms (both of which we've owned in the past) pledging to build plants in the US as "political" cover... Suntech Power (STP) in solar and A-Power Energy (APWR) in wind.

  • Gov. Jan Brewer on Monday announced plans for a Chinese-owned solar panel maker to build its U.S. headquarters and a manufacturing plant in the Phoenix area, propelling one of the nation's sunniest states toward a bigger global presence in the renewable energy industry.  Suntech Power Holdings Co. said it expects to start building photovoltaic panels at the facility by the third quarter of 2010. The company, which has more than 9,000 employees, expects to eventually employ 250 or more people at the plant.

By doing so, they can clap their hands that they are creating jobs (hundreds!) in the US - collect money from the federal government (which in reality is their own government's money, just passing through the US government after we borrow it) while 99% of the production is back in the home country.  But hey we get some assembly jobs here, and some great photo opportunities for some governors.

  • With the capacity to make 30 megawatts of solar panels per year, the Arizona facility would represent about 3 percent of Suntech's total production, Bachman said.
If you are not familiar with the solar industry in China - there are literally over 100 firms there.  Suntech is their largest fish, but again its 3% of ONE company's production; i.e. equivalent to 1/10th of one of Suntech's countless smaller competitors.  But again, a wonderful photo opportunity... to be frank it is a genius move by the Chinese; sort of a Trojan Horse strategy.  And they will get tax handouts to boot; brilliant.  Key word below "appear".

  • "They want to appear to be manufacturing here domestically so when the solar market takes off in the U.S., they have room to stand on and say, 'We are producing jobs here and we want to be able to sell our panels here as well,'" Bachman said.

As for US solar companies?  Last I checked our best firm (we only have a handful), First Solar (FSLR) was moving as much production as possible to Malaysia.

Now in the wind space, A-Power, which was the source of the controversial story I highlighted above in early November, has decided it would make for good press to build a plant in the US too.  It is nice that Chinese companies are offering some scraps to the Americans...

  • China's A-Power Energy Generation Systems (APWR) has signed a cooperation agreement with equity firm U.S. Renewable Energy Group (US-REG) to build a plant in the United States to supply wind energy turbines to renewable energy projects in North and South America.
  • The joint announcement in Washington late on Monday came three weeks after A-Power said it planned a $1.5 billion wind farm project in West Texas along with U.S. companies. 
  • It will employ about 1,000 workers and create additional jobs during construction, the companies said.

Convenient timing; I'm sure "central command" back in Beijing did not like the backlash to the New York Times story and A-Power got some "assistance" from their government in making this decision. ;)  So all in all 1250 jobs and I'm sure grand promises of many more to come (ahem).  If you divide those 1250 jobs times all the tax handouts from US federal government I am sure it will be akin to the cost per job "created or saved" from the current stimulus - perhaps $1-$2M a head?

I actually thought about 2 years ago the one thing the US could grow dramatically in the manufacturing base is the production of wind turbines (for domestic usage) since they are so heavy, transporting them across oceans would be cost prohibitive, but ... I guess that thesis was wrong.

Meanwhile a lack of any sort of long term industrial policy continues to make the US look the fool... but it would be "socialist" to plan out 10 years in America.  That's best left to Germans.  Or those "backwards" French who long ago had the majority of their energy usage based on nuclear.  Dogma baby.

Anyhow back to the Chinese... via USA Today:

  • China leads the world in making solar cells, the key component in solar panels, many of which are exported to the U.S.  But China is setting itself up to do more than just manufacture components for renewable energy, such as wind and solar. It's also spending heavily to build its own domestic market as it attempts to battle its greenhouse gas emissions, electrify its nation of 1.3 billion people and curb its massive pollution problem.
  • The buildup of a huge market in China for renewable energy is luring global manufacturers and research teams to China, energy executives say. (hmmm, I thought that was supposed to be happening here instead
  • That's causing concern in some corners that China – not the U.S. – will emerge as the hub of the new industries, leaving the U.S. as dependent on foreign nations for solar panels, wind turbines and other green-energy equipment and technology as it is on the Mideast for oil.  (why not? dependence on others has been working like a charm the past quarter century.  Anyhow my politicians promise me that this will not, and can not happen.  I believe "drill baby drill!" is the way forward to new industries, right?)
  • "The Chinese government has recognized that these industries are the 21st century's industries of importance, and it wants to be the Silicon Valley of renewables," says Alan Salzman, CEO of U.S.-based VantagePoint Venture Partners, which specializes in clean energy and clean tech investments.  (all government is evil, says right here in my dogma book - this obviously will fail as all things in China have the past 15 years... err)  He says the U.S. hasn't been as clear or as determined as China, a stance echoed by Energy Secretary Steven Chu in testimony before a Senate committee last month.
  • China doesn't look like a poster child for green energy. More than 70% of its energy comes from coal, which produces more carbon than other fuels. Pollution is rampant. But industries and economies have been transformed before, and new leaders have emerged, says venture capitalist Salzman.
  • While China spends about $9 billion a month on clean energy development, the U.S. "has fallen behind," Chu said. (however, Chu happily noted the U.S. leads the world in financial oligopoly support as well as "financial innovation" - ok I made that up)  He noted that the world's largest turbine-making company is headquartered in Denmark, that 99% of batteries for America's hybrid cars are made in Japan and that the U.S. has lost most of its solar cell manufacturing industry.
  • China's government has set ambitious targets for renewable energy, which is scheduled to account for 15% of its fuel by 2020.  The U.S. has no national target.   (and that pretty much sums it up - to have a target would have half the country screaming socialism - remember, in our current climate John F Kennedy is a socialist for daring to ask the country to put a person on a moon in a decade.  It's just turned plain silly at this point.)
  • By 2013, China is expected to become the world's biggest producer of wind energy, the council estimates. Recently, it eclipsed everyone in wind-turbine-making capacity, up from "nothing" five years ago, says Steve Sawyer, the trade group's secretary general.
  • China is muscling up on solar, too. Within five years, it's expected to be the No. 1 solar market.
  • One big reason China can move so fast? Once its central government decides on a policy, it can execute quickly through the nation's handful of state-owned utilities, Chan says. In the U.S., there are thousands of electric utilities and a barrage of regulatory and environmental hurdles to starting new projects. 
  • "China is pushing harder on solar now than anywhere in the world," says Mark Pinto, chief technology officer for the U.S.-based Applied Materials. "In China, nothing is too fast. They've got the land, the need and fast decision-making."
Again, ask yourself where all these jobs will be coming from in the next decade... where is the R&D going? This is what people do not get - we are in a global competition.  The blurb below is exactly what should strike the gut to those who believe in fanciful tales from our politicians.  Our green jobs will be to "install" foreign manufactured green products,  with some cursory foreign plants employing a tiny portion of Americans as eye candy.  I suppose our oligarchs can help in the financing because that's about the last piece we are going to have left.
  • Applied Materials is the biggest maker of equipment to make solar panels. Last month, it opened the world's largest solar research facility – in China.
  • "If the manufacturers are in China, that's where we need to go," Pinto says
Feel free to extrapolate from there.  Again, the dogma tells us in 10-15 years a plethora of new US jobs will be created as the Chinese buy American "stuff".  Solar panels? Wind turbines?  Well there has to be something they will need from us.  Keep the dream alive I suppose... I'll just keep talking to the wall while being called nasty names like "European".  Better yet, I'll cloak myself in the soothing words of our political class.  Words fix everything...  much better than any sort of long term planning or vision, any form of national framework to nurture business - especially the small / medium kind who do not have the lobbyists behind them.  Rather than long term planning, let us expect year after year of shotgun solutions (more stimuli!) printing more and more money (or borrowing) as "solutions".  Looking forward to it myself.

  • Pinto and others say China sits on the cusp of an opportunity it may not have had before.  China's companies have historically been successful because of their low-cost manufacturing of existing technology rather than from innovation of new technologies.  "This time, China has gotten in on the ground floor," Applied Materials' Pinto says.

No positions 

Potash (POT) Could be on the Verge of a Breakout

Fertilizer stocks were some of our huge scores in 2007 and first half 2008; specifically Mosaic (MOS) but Potash (POT) was another huge winner.  While Mosaic remains comatose, Potash might finally be ready to join the commodities party.  I have been observing a double top area in the $106 range; a breakout over that level could lead to a much larger move.  As I type this Potash has just broken over $106....

Might be adding this name later in the day, pending its action (and the market's) in the hours to come.

EDIT 12:40 PM - Long 2% allocation of Potash on a break over $107.

Long Potash in fund and personal account

George Soros Reveals Stake in Ford (F), Adds to Walmart (WMT), Cuts Position in Petrobras (PBR)

It's that time of quarter - when the whales of investing have to reveal what they are doing on the long side to the SEC (they can still keep secret their shorts).  There are a lot of websites that will be looking at these disclosures in the next 48 hours so we'll just focus on a few.  When I did some "Googling" on George Soros last night I was taken aback how controversial a figure this guy is; there are more stories about his politics than investing.   I could care less about his politics, he is a smart guy who uhhh... admittedly plays the gray side of the rule book at times, but Goldman Sachs (GS) is worshiped for the same behavior.

The big news with George Soros this quarter is his revelation of a stake in Ford (F).  I've been very torn on this name because it has the benefit of being the only US car maker who did not go through bankruptcy, and actually has a competent CEO (who came from Boeing).  So that already sets them apart from what the other 2 domestics have had the past decade.  The company seems to be getting good will from the American people due to the fact they did not resort to handouts from the taxpayer.  On the other hand, General Motors and Chrysler were able to wrangle some very competitive concessions from the UAW (union) due to their bankruptcy while Ford is now facing a major issue on that front.  Due to their relative success, the union does not want to give the same deal to Ford.

So what we have here is the same issue that has been happening in the airline industry... and a reason why no one can stay profitable for long, and we see bankruptcies year after year.  One of the players in the industry goes bankrupt, gets major concessions, is able to walk away from much of their debt and then re-enters the competitive landscape meaner and leaner.  They can charge lower prices, which in turns causes pressure to all the other airlines.  Hence that tends to push other airlines into bankruptcy and the whole cycle keeps repeating.  As I assess Ford, I wonder... if their cost structure is now higher than GM or Chrysler... and they did not get their debt (partly) wiped away, are they really in a better position in the long run?  If you use the airline example the answer is no.   Hence this is a tough one, but George Soros appears to be a believer.

On a side note, hat tip to Ken Heebner of CGM Funds who also has been an early believer in the Ford story.  The stock is now at a 2 year high. (double top?)

A quick look at some of Soros' major moves as of Sep 30, 2009:
  • Billionaire investor George Soros' hedge fund reported holdings of $6.2 billion during the third quarter, an increase of $2 billion, after taking a stake in automaker Ford and boosting his holdings in communications services stocks.
  • According to a regulatory filing on Monday Soros Fund Management took a 7.3 million stake in Ford Motor Co (F) during the third quarter that is valued at $53 million. (Amazingly Ford still has a $30B market cap despite trading in the $8 range)  The fund bought at an average of $7.21, gaining $11 million through today, and ranking Soros the automaker’s 38th largest investor, with 0.2 percent of common shares outstanding, according to Bloomberg data.
  • He also raised his stake in retailer Wal Mart (WMT) Stores to 1.1 million shares valued at $54.8 million. The fund had cut back on its position in the retail giant in the previous, quarter to 89,710 shares.
  • Soros cut his stake in Petroleo Brasileiro SA (PBR), or Petrobras, to 7.4 million shares from 9.8 million shares.
Soros was also active in the telecom space, mini oligarchs:
  • Soros also raised his holdings of AT&T (T) to 4.2 million shares at the end of the third quarter, from 791,000, while he raised his stake in Verizon (VZ) to 4.6 million shares, from 594,853 in the second quarter.
And more exposure in two of our "dominant 4" financials, true blue oligarchs:
  • Additionally, the fund boosted its financial sector holdings, betting on two of the largest commercial banking giants - Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM)
  • Soros purchased 224,100 shares of Bank of America and 67,800 shares of JPMorgan. The fund now owns 271,900 shares of Bank of America, valued at $4.60 million, and 73,700 shares of JPMorgan, valued at $3.2 million, as of Sept. 30.  

Soros Top 10 Holdings by value are:
  • Petrobras (PBR) $340M
  • Hess (HES) $277M
  • Potash (POT) $266M
  • SPDR Gold Trust (GLD) $242M
  • Another Petrobras position $231M
  • Plains Exploration & Production (PXP) $169M
  • Verizon (VZ) $138M
  • AT&T (T) $114M
  • Interoil (IOC) $11M
  • DirectTV (DTV) $110M
Soros obviously is a believer in the commodity trade.

      [Oct 26, 2009: George Soros Interview with Financial times - October 2009]
      [Jul 9, 2009: WSJ - Latest Picks from John Paulson and George Soros]
      [Apr 7, 2009: George Soros on Yahoo Tech Ticker]
      [Mar 31, 2009: UK Times: George Soros Sees Global Meltdown]
      [Feb 23, 2009: George Soros - This is the End of the Free Market Era; Situation Similar to Disintegration of Soviet Union]
      [Feb 18, 2009: George Soros Increases Stakes in Potash & Petrobas]
      [Jan 28, 2009: Roubini & Soros on Bad Bank]
      [Apr 9, 2008: Soros Believes Global Subprime Costs to Reach $1 Trillion]
      [Jan 22, 2008: Soros Says World Faces Worst Financial Crisis Since World War II]

      No positions in names mentioned other than a non related gold stake

      Bookkeeping: Rebuilding E-House Holdings (EJ) Position on Earnings Blowout

      The market often makes little sense to me; if a company like Caterpillar (CAT) reported an earning report like we just saw from E-House Holdings (EJ), CNBC anchors would be in tears of joy and the stock would be up 20%.  Instead EJ is up 2%, despite beating by 15 cents... AND increasing guidance.  My first thought this morning when I saw the numbers was "going to have to chase another one" - guess not.

      We had a very small long position as the stock had broken support the past few weeks but we are using today's muted reaction as an entry point to expand our position by just under a 2% allocation.  Even better we have a nice entry point near $20.80 which is not too far above a nice support area so if the market begins to punish E-House Holdings again, we can exit with minor damage.  We'll place a stop loss somewhere in the mid to upper $19s. As the month of October shows - this is a volatile stock.  (range of $17 to $24)

      I will update this entry with more details on the earnings as I have time.

      Per Briefing.com:
      8:08AM E-House China reports 3Q09 net income of $0.46/ADS, ex-item, vs. $0.31 First Call consensus; revenue increased 119% y/y to $86.2 mln vs. $78.9 mln consensus (EJ) 20.42 : Co issues upside guidance for Q4, sees revs of $103-$106 mln vs. $85.9 mln consensus. Co states, "Our strong third quarter results clearly demonstrate the success of our strategy and our ability to create value for our shareholders. For the whole year of 2009, we expect to achieve more than 10 million square meters of new properties sold, which will set an industry record and further solidify our industry leadership position."

      EDIT 10 AM: Full report here.  Some details below

      • Third quarter total revenues were $86.2 million, an increase of 119% from $39.3 million for the same quarter of 2008. 
      • Third quarter revenues from primary real estate agency services were $59.4 million, an increase of 195% from $20.1 million for the same quarter of 2008. This increase was mainly due to a 235% increase in total gross floor area and a 314% increase in total transaction value of new properties sold, partially offset by a lower average commission rate of 1.4% in the third quarter of 2009, compared to 1.9% for the same period in 2008. 
      •  Third quarter revenues from secondary real estate brokerage services were $6.1 million, an increase of 246% from $1.8 million for the same quarter of 2008. The increase was mainly due to higher total secondary real estate transaction volume under improved market conditions, despite a decrease in the total number of secondary real estate brokerage stores E-House operated to 112 as of September 30, 2009, from 136 stores as of September 30, 2008. 
      • CRIC, a subsidiary of E-House, provides real estate information, consulting, advertising and online services. Third quarter revenues from CRIC were $20.5 million, an increase of 19% from $17.2 million for the same quarter of 2008. The growth was attributable to an increase in data integration and subscription services as CRIC further expanded coverage and marketing of the CRIC database in 2009. 
      • Third quarter cost of revenues was $18.7 million, an increase of 130% from $8.1 million for the same quarter of 2008. 
      • The increase was mainly due to higher salaries and commissions paid to the Company's sales staff as a result of higher transaction volume and value of new properties sold, and a higher agency fee paid for signing new primary real estate projects. The expansion of real estate advertising services also contributed to the increase in cost of revenues in the third quarter due to additional cost of purchasing advertising spaces for resale. 
      Income from Operations

      • Third quarter income from operations was $40.4 million, an increase of 310% from $9.9 million for the same quarter of 2008. 
      • Income from operations excluding share-based compensation expenses (non-GAAP) for the third quarter of 2009 was $42.7 million, an increase of 291% from $10.9 million for the same quarter of 2008. 
      Net Income

      • Third quarter net income attributable to E-House shareholders was $34.9 million, an increase of 220% from $10.9 million for the same quarter of 2008. 
      • Third quarter net income attributable to E-House shareholders excluding share- based compensation expenses (non-GAAP) was $37.2 million, an increase of 211% from $12.0 million for the same quarter of 2008. 
      • The increase was mainly due to an increase of income from operations and an increase of other income, primarily representing cash subsidies received by the Company's subsidiaries from local governments as incentives for investing in certain local districts, partially offset by a higher effective tax rate.  
      • The effective tax rate was unusually low in the third quarter of 2008 as a result of a clarification of the gradual tax rate implementation under the new enterprise income tax law, pursuant to which one of the Company's subsidiaries located in Pudong New Area of Shanghai is eligible for a gradual rate increase to 25% over the 5-year period beginning from January 1, 2008. 
      • Non-GAAP, $37M earnings or 46 cents EPS - up 211%
      Other Info
      • Total gross floor area reached 3.3 million sq meters, up 235%
      • Total value of new properties sold was $4.3 billion, up 314%
      • The Company estimates that its revenues for the fourth quarter of 2009 will be in the range of $103 million to $106 million, an increase of 164% to 172% over the same quarter in 2008. E-House's revenues for the fourth quarter of 2009 other than revenues generated from the online real estate business that was merged into CRIC in October 2009 are estimated to be in the range of $90 million to $92 million, an increase of 131% to 136% over the same quarter in 2008.

      E-House (China) Holdings Limited ("E-House") (NYSE: EJ - News) is a leading real estate services company in China. Since its inception in 2000, E-House has experienced rapid growth and is China's largest real estate agency and consulting services company with a presence in more than 30 cities. In addition to its national presence, E-House offers a wide range of services to the real estate industry through its various business segments including primary sales agency, secondary brokerage, consulting and information services, advertising and investment management. 

      [Sep 30, 2009: China Real Estate Information Seeks US IPO Worth $200M]
      [Sep 29, 2009: E-House Holdings in Investors Business Daily]
      [Aug 12, 2009: E-House Holdings (EJ) Benefitting from China Housing Bubble 2.0]

      Long E-House Holdings in fund; no personal position

      Dennis Gartman: Gold (GLD) is in a "Bubble" - Meredith Whitney Just Plain Confused by the Action

      It is always easy to say after the fact "gosh that was a bubble" or "clearly things were out of control".  Most people will ignore the warnings, ride the good times and then never adjust when the music stops.  That was myself in 1999 thru 2001.  Other people will sit it all out, vying for safety while missing some fantastic (if lacking any root in sense) upside; over the long run they will be "correct" (and be called uber bears) and generally preserve more of their capital then the "bubble riders" because they never believe in the myth.  But they will be mocked along the way, and be compared to a turtle while the hares party.  Unfortunately the downside of bubbles tends to exterminate many hares. 

      Those are the 2 extremes; if one can find some happy middle she will be able to ride at least part of the bubble(s) that used to happen a few times a century but thanks to our central bankers now happen on 3-6 year cycles.  Yet they can remain aware this is all a game of chicken, and jump off the railroad car before it fully falls off the tracks - certainly taking some blunt force damage but nothing mortal.  And that is where we are now; countless traders recognizing that Ben Bernanke has given them a license to steal and knowing much of what is happening now, and to some unknown point in the future, is largely a mirage of paper printing.  But each speculator remains confidant they won't be the last sucker standing i.e. the one without a chair when the music stops.  Of course there is a bell curve, and with limited seating only a portion of those confidant folk will actually find a suitable place to sit when the day of reckoning arrives.

      That sets the stage for 2 videos from CNBC yesterday.  As with oil in 2008, we see a genuine thesis will be taken to extreme by the hot money.  In the crude oil space the correct thesis was "Chindia will bring online X consumers, and demand for crude will increase - therefore prices go up."  That explained a good portion of the move in 2006, 2007 - perhaps explaining the move to $70, $80 in oil.  But then hot money flooded in and the parabolic stage was reached in 2008; when crude peaked near $150.  It was not Chindians behind that portion of the move - that was due to Hedgians and Goldman Sachians.  And so we will see the exact parallel in "the dollar is awful, precious metals are the only thing".  It is based in reality - a government and central bank who treats paper money as if it's toilet paper.  That will explain part of the move... but the Hedgians and Goldman Sachians will push this to some extreme that makes no sense.  If it's "here and now" or in 4 months or 4 quarters or 4 years?  Unknowable.  But human behavior never changes.

      Could I interest you in a tulip per chance?


      Video #1: Commodities pundit Dennis Gartman says gold, which he was confused by 2 months ago [Sep 4, 2009: Dennis Gartman Scratching Head on Gold] is in a bubble but as with all of our breed, we're in it until the music stops.  And we swear that none of us will be the one to be drawn in by the sirens when a "correction" turns into "a flood of lemmings all trying to exit the same door at once".
      • While not being comfortable with the current gold trade, Dennis Gartman, founder of The Gartman Letter, told CNBC Monday that the price of the precious metal will "continue to go up until it stops."
      • "It is a gold bubble," Gartman told CNBC. He called the trade on gold "mind boggling," but also said he is currently long — or betting gold will go higher.  Gold's Friday low of $1,102 an ounce is the floor, according to Gartman. If it falls below that mark, he suggests investors should "head to the sidelines."
      • The trend for the dollar is "still down" and will continue, Gartman said. It's an "unbelievably crowded trade," he added.
      • As for where he'd park cash for good returns, Gartman tipped Canadian and Australian currencies.  "If you're going to be any place, be there," Gartman said.
      • As for stocks, it will take bad economic data or political circumstance to knock them off their rally, Gartman said.  When asked what is driving stocks' upward movement, Gartman answered: "Liquidity." 
      (Email readers will need to come to website to view video - 2 minutes)

      Gold (GLD)

      [Aug 21, 2009: Dennis Gartman Launches River Crescent Hedge Fund]
      [Jun 17, 2009: Dennis Gartman Speech - Making It Through the Meltdown]
      [Jun 8, 2009: Dennis Gartman Short Term Bearish on Oil]

      Video #2:  There was some hubbub late yesterday when Meredith Whitney, bank analyst to the stars, said she had not been more bearish in a year.  She could not understand the rally.  It was not rooted in fundamentals.  It is all just very confusing.  Sounds like she could write a great blog.  Remember Meredith - you don't need to believe, you only need to partake... and make sure you jump off at the appropriate time. That's how it works in a bubble economy covered in the honey of a bubble market, as offered to us by our bubble policies.  We love living in a mirage so we shall continue to do so; because leaving the Matrix is such an ugly place. 
      • "I haven't been this bearish in a year," she said in a live interview. "I look at the board and every single stock from Tiffany (TIF), Bank of America (BAC), and Caterpillar (CAT) is up. But there is no fundamental rooting as to why these names are up—particularly in the consumer space."
      • There's also been a real contraction in consumer credit. Whitney hasn't seen this much consumer credit contraction, "ever." Whitney said "in 1990, '91, yes, you had the market provide so am liquidity to the consumers, the consumer had more liquidity during that time. Now the consumer has actually a lot less liquidity. $1.5 trillion of credit lines on credit cards have been pulled from the system and that credit contraction is reaccelerating."
      • Whitney said "folks that are hoping for a robust consumer market, (consumer Christmas) are going to be disappointed. There's nowhere to hide at this point."
      • Whitney said there is "no way" the banking sector is well capitalized and it is time to reduce weighting in large-cap banks. Whitney also said she sees a double-dip U.S. recession.
      • "I don't know what's going on in the market right now because it makes no sense to me," she said.
       (Email readers will need to come to website to view video - 11 minutes) 

      [Mar 18, 2009: CNBC - Meredith Whitney's Latest Views]
      [Jan 30, 2009: Meredith Whitney Joins Roubini & Soros in Smothering the Kool Aid]
      [Sep 23, 2008: Meredith Whitney and I Continue to Agree, Bailout or No Bailout]
      [Aug 4, 2008: Meredith Whitney Continues to be Negative on Financials (and Housing)]
      [Mar 26, 2008: I'm on Meredith Whitney's Side


      Monday, November 16, 2009

      Bookkeping: Stopped Out of E-House Holdings (EJ) Short

      We continue to live in a student body left trading environment; the same since summer 2008.  Trying to short anything is just about as fruitless now as going long anything for much of latter 2008 and early 2009.  It's like stealing candy from a baby... except you are the baby.  Long - short strategies are all deemed useless.  Going "all in" is the only way.

      We put a short on E-House Holdings (EJ) last Tuesday as our one sacrificial lamb and the market came and took our candy away, as our stop loss was triggered earlier today.

      Since we are so lacking of short exposure, I thought I'd give it the college try since we have a low risk entry here.  I've put on roughly a 3% short position around $19.50.  We'll give this a 5% berth in terms of stop loss, which would also be a higher high than we saw this morning, i.e. $20.50ish.

      And so we leave her; with earnings out tomorrow it is best this happened since we don't want to take the lemming risk.  Could be +/- 15% this time tomorrow.  On a relative basis this was a "win" as so many stocks have rocketed the past week while EJ has been butting its head against resistance and then constantly turned back.  But today, a rising tide of Kool Aid was strong enough to lift even the weak boats.

      As for the greater market, it is  up every day but 1 in the month of November.  We are all geniuses here... I feel even smarter than I did in 1999 when I could buy any stock on NASDAQ and beat my chest.  Now the index is irrelevant, I can be a genius in any market; heck it doesn't even have to be stocks anymore.  Thanks Alan Ben.

      I continue to hang out near the emergency exit door while amazed at the quantities of Kool Aid being drunken.  Even more amazed is as each punch bowl empties, a bearded fella in a suit shows up with a new barrel.  But as we take out layer after layer of (ahem) resistance... we have to keep moving up mental stops and not stand in front of a freight train.  Being intellectually correct in due time will be useless if we are flattened like Wiley Coyote.  Unless / until we take S&P 1100-1003ish back out to the downside... you know the drill.

      Long E-House Holdings in fund; no personal position

      It's Raining Silver (SLV)! Alleluiah!

      Good news!  Just as Alan Greenspan never saw a single bubble in 20 years, Mr Bernanke today reports no bubbles anywhere as far as he can see.  [Sep 12, 2009: Federal Reserve's Kohn: We Plan to Keep Throwing Kerosene on the Fire]   In that case, more money printing please!  P-cubed is here.  [May 19, 2009: Paper Printing Prosperity Defined]

      Gold (GLD) is rocketing to yet another all time nominal high, and finally its kid brother has joined.

      It's raining Silver (SLV) - Alleluliah!

      Oh no you did not!

      Oh yes, I just did.

      Long Powershares DB Gold Double Long,  Ultra Silver in fund; no personal position

      Interview with Andrew Horowitz of The Disciplined Investor

      Andrew Horowitz at "The Disciplined Investor" and I had a rollicking, free flowing discussion on his weekly podcast; just published on his website.  We had a good 35 minutes of back and forth, and I think we touched on a good many of the issues currently facing investors in this current era.  The link can be found here - at the bottom of the page is a "play" button so you can listen in, or it is also download-able to your iTunes if you care to listen while jogging.

      My portion is roughly between the 10th and 45th minute marks; as an added bonus for those of you who are deep into technical analysis - the other guest this week was the man behind the McClellan Oscillators.

      Guest: Trader Mark is up first as we discuss markets and conditions moving ahead. How is it that the government is continuing on this reckless path? Also, Mark tells us about his trading style and how he targets winners. Then we have a great conversation with Tom McClellan who is the keeper of the McClellan Oscillators. How they work and how to use them -  Don’t miss this episode!

      If you enjoy the podcast, consider voting for The Disciplined Investor in the annual Podcast Awards (who knew such things existed?)  http://www.podcastawards.com

      Let me know what you think and if you enjoy this format (audio)

      Time: 5 Things America Can Learn from China

      Let me preface this post with the normal caveats.  The world is not perfect in China.  There are many challenges in China.  There are many differences between China and the US.

      That said, an interesting piece in Time magazine titled: "5 Things America Can Learn from China" - most of these I'd have to agree with.   I also am glad to see in the opening paragraphs the writer note the issues with China so it's not just a "wow what a wonderful place" article.  It's a long article - thought provoking; and I found it to be quite balanced -  so I am going to hit on the 5 key points, follow the link above for the full read.

      Feel free to comment on any of these 5 aspects - agree? disagree?  Are we too arrogant to learn from anyone?  Is there nothing to learn and the US is simply in a short "rough patch"?  Will China fall flat on its face in 5 years and this is much ado about nothing?


      On the evening of Nov. 15, President Barack Obama, the youthful leader of one of the world's youngest countries, begins his first visit to China, among the world's most ancient societies. Obama and his Chinese counterpart, Hu Jintao, have much to discuss.

      It's hard to imagine two societies that deal with their elderly as differently as the U.S. and China. And I can vouch for that firsthand. My wife Junling is a Shanghai native, and last month for the first time we visited my father at a nursing home in the U.S. She was shaken by the experience and later told me, "You know, in China, it's a great shame to put a parent into a nursing home."

      In China the social contract has been straightforward for centuries: parents raise children; then the children care for the parents as they reach their dotage. When, for example, real estate developer Jiang Xiao Li and his wife recently bought a new, larger apartment in Shanghai, they did so in part because they know that in a few years, his parents will move in with them. Jiang's parents will help take care of Jiang's daughter, and as they age, Jiang and his wife will help take care of them. As China slowly develops a better-funded and more reliable social-security system for retirees — which it has begun — the economic necessity of generations living together will diminish a bit. But no one believes that as China gets richer, the cultural norm will shift too significantly.

      To a degree, of course, three generations living under one roof has long happened in the U.S., but in the 20th century, America became a particularly mobile and rootless society. It is hard to care for one's parents when they live three time zones awayHome care for the elderly will most likely make a comeback in the U.S. out of sheer economic necessity, however. The number of elderly Americans will soar from 38.6 million in 2007 to 71.5 million in 2030. But, says Arnold Eppel, who recently retired as head of the department of aging in Baltimore County, Maryland, "There won't be enough spots for them" in the country's overwhelmed nursing-home system.

      In China, senior-care costs are, for the most part, borne by families. For millions of poor Chinese, that's a burden as well as a responsibility, and it unquestionably skews both spending and saving patterns in ways that China needs to change.  For middle-class and rich Chinese, those costs are a more manageable responsibility but one that nonetheless ripples through their economic decision-making. Still, there are benefits that balance the financial hardship: grandparents tutor young children while Mom and Dad work; they acculturate the youngest generation to the values of family and nation; they provide a sense of cultural continuity that helps bind a society.

      4.  Save More

      You've now heard it so many times, you can probably repeat it in your sleep. President Obama will no doubt make the point publicly when he gets to Beijing: the Chinese need to spend more; they need to consume more; they need — believe it or not — to become more like Americans, for the sake of the global economy.

      And it's all true. But the other side of that equation is that the U.S. needs to save more. For the moment, American households actually are doing so. After the personal-savings rate dipped to zero in 2005, the shock of the economic crisis last year prompted people to snap shut their wallets. Now that it's pouring, in other words, American households have decided to save for a rainy day. The savings rate is currently about 4% and has gone as high as 6% this year. (I would disagree with these numbers, in how the American government measures the savings rate but that's an argument for another day - savings obviously have gone up to SOME degree versus the level they were 3-4 years ago)

      In China, the household-savings rate exceeds 20%. It is partly for straightforward policy reasons. As we've seen, wage earners are expected to care for not only their children but also their aging parents. And there is, to date, only the flimsiest of publicly funded health care and pension systems, which increases incentives for individuals to save while they are working. But China, like many other East Asian countries, is a society that has esteemed personal financial prudence for centuries. (this is a key difference - each passing day we see more stories of where walking away from debt is now not only not shameful, but encouraged.  It's never your fault in America - someone duped you) There is no chance that will change anytime soon, even if the government creates a better social safety net and successfully encourages greater consumer spending.

      Why does the U.S. need to learn a little frugality? Because healthy savings rates, including government and business savings, are one of the surest indicators of a country's long-term financial health. High savings lead, over time, to increased investment, which in turn generates productivity gains, innovation and job growth. In short, savings are the seed corn of a good economic harvest. 

      The U.S. government thus needs to get in on the act as well. By running perennial deficits, it is dis-saving, even as households save more.  To date, the U.S. has seemed unable to have what Indiana Governor Mitch Daniels has called an "adult conversation" about the consequences of spending so much more than is taken in. That needs to change.  (an adult conversation would require 2 sides wanting to have it... neither politicians nor [most] constituents seem to want to even broach the subject, after all... our heads are so much cooler down here under the sand)

      5. Look Over the Horizon 

      The energy that so many outsiders feel when they are in China and that President Obama may see when he is there comes not just from the frenetic activity that is visible everywhere. It comes also from a sense that it's harnessed to something bigger. The government isn't frantically building all this infrastructure just to create make-work jobs. And kids aren't studying themselves sleepless because it's a lot of fun.

      A few years ago, I interviewed Zhang Xin, a young man from a deeply poor agricultural province in central China. His parents were wheat farmers and lived in a tiny one-room house next to the fields. He had graduated from Tsinghua University — China's MIT — and gotten a job as a software engineer at Huawei, the Cisco of China. His success, Zhang told me one day, had changed his family forever. None of his descendants would "ever work in the wheat fields again. Not my children. Not their children. That life is over." (And neither would his parents. They moved to prosperous Shenzhen, just north of Hong Kong, soon after he started his new job.)  Multiply that young man's story by millions, and you get a sense of what a forward-looking country this once very backward society has become.

      ... hard work today means a much better life decades from now for those who will inherit what he helped create. And if that sounds familiar to Americans — marooned, for the moment, in the deepest recession in 26 years — it should. (I've written quite often this is a difference many US parents are now facing - the real chance that their children will not have the standard of living they enjoyed; especially true in blue collar and I believe it is moving up higher into the food chain)


      All in all, when I put together the mosaic of the 5 components above... you could have applied much of this to the U.S.  About 3 generations ago. 

      Bookkeeping: Adding to CNinsure (CISG)

      Obviously this market continues to run over shorts; I cannot fathom that just two weeks ago as we entered Halloween weekend the market was breaking down, the 50 day moving average punctured, a long term trend line from the March lows to October lows had been penetrated, and we were coming off 5-6 intraday reversals (bearish) in about 10 sessions.  All forgotten in an orgy of buying as the hammering of the US dollar supersedes everything.  November has had 1 down session.

      From reading the internets (sic) many people are scrambling to put on long exposure, as they have been forced to, to "keep up" for much of this rally.  The repeated pattern of V shape rallies is stunning in its both its repetition, lack of consolidation in charts, and strength in duration.  Even more stunning is how middling volume is on these rallies... in the past, rallies on average or weakening volume were to be shorted or sold into.  Now that means nothing... another old signpost that has lost relevance.

      As I look through holdings to see what has lagged, one name today that has finally caught a bid is CNinsure (CISG).  We have a clear double top in October (which we sold half our position into) and then a massive swoon.  During this November run it has been acting very poorly on a relative basis, but Friday it had finally woken up.  I have added roughly a 1.5% exposure to this name in the $22.60s, as I too "chase" into stocks because that's what all the cool kids are doing.  If the stock begins to break back down below $21 we'll cut back; a break over that "double top" level - similar to what we've seen in the S&P 500 today... would be a positive and a place to add exposure.  i.e. $25+

      [Aug 27, 2009: CNinsure Report Solid but Many Acquisition Costs/Benefits Running Through Numbers]
      [Aug 24, 2009: CNinsure - China's Version of Prudential?]

      Long CNinsure in fund; no personal position

      New Highs for the S&P 500; Dollar Crushed - Groundhog Day

      A complete repeat of action last Monday; dollar crushed - equities surge.  We all win here.  I will be expanding the long side via the typical index plays while shaking my head at the IQ 5 market.

      EDIT 9:55 AM - yet another "double top breakout"... same action we've seen numerous times this year and banked a lot of coin on.  Until it stops working, traders will keep doing it.

      I hate to use the word "resistance" anymore since all resistance has been futile so maybe we'll use "resting point" from now on.  I'll start looking at the next "resting point" for the S&P 500, first glance says 1110 and then above that 1140.

      Perfect World (PWRD) Beats Solidly on Earnings, Offers Soft Guidance

      Chinese video game maker Perfect World (PWRD) reported a typical quarter; beating estimates in the current quarter and offering lowball estimates for the following quarter.  Stock is volatile in premarket, but as long as $42 is held we should be ok.

      Full report here.  A quick glance at some of the metrics; analysts had been looking for $82M in revenue and 75 cents on the quarter.  Revenue came in up 13.2% sequentially, and 54.5% year over year; expenses up a tad faster so gross profit "only" gained 8.9% sequentially and 48.0% year over year - gross margin dropped about 3%.  Some of this is due to a non video game blip that I'll come back to at the end of this entry.  Net income up 9.1% quarter over quarter, and 45.4% year over year... impressive numbers but quickly forgotten as stock market lemmings already move onto the next thing to worry about.

      • Total revenues were RMB590.0 million (USD86.4 million) in 3Q09, an increase of 13.2%, or RMB68.7 million, from RMB521.3 million in 2Q09 and an increase of 54.5%, or RMB208.2 million, from RMB381.8 million in 3Q08.  
      • The sequential growth in online game operation revenues was primarily attributable to the successful release of expansion packs for some of the Company's existing games and a series of successful marketing activities.
      • Gross profit was RMB495.0 million (USD72.5 million) in 3Q09, an increase of 8.9%, or RMB40.4 million, from RMB454.5 million in 2Q09, and an increase of 48.0%, or RMB160.4 million, from RMB334.5 million in 3Q08. Gross margin was 83.9% in 3Q09, as compared to 87.2% in 2Q09 and 87.6% in 3Q08.
      • Non-GAAP net income attributable to the Company's shareholders was RMB308.5 million (USD45.2 million) in 3Q09, an increase of 9.1%, or RMB25.7 million, from RMB282.9 million in 2Q09, and an increase of 45.4%, or RMB96.4 million, from RMB212.2 million in 3Q08.
      • Non-GAAP basic and diluted earnings per ADS were RMB6.24 (USD0.91) and RMB5.88 (USD0.86), respectively, in 3Q09, as compared to RMB5.61 and RMB5.32, respectively, in 2Q09, and RMB3.77 and RMB3.56, respectively, in 3Q08.
      So effectively PWRD printed a .86 v .75 expectation or 11 cents over.

      Guidance below; analysts had been looking for $87M and 79 cents.
      • Based on the Company's current operations, total revenues for the fourth quarter of 2009 are expected to be between RMB578 million and RMB602 million, representing a decline of 2% to an increase of 2% on a sequential basis and an increase of 38% to 44% on a year-over-year basis. 
      • This reflects the expected growth from the Company's existing games and the anticipated contribution from the newly launched "Fantasy Zhu Xian." It also takes into consideration that the Company does not expect to release any movie in 4Q09.
      One caveat and something investors seem to be glossing over is Perfect World had a non core business revenue bump in the last quarter due to a movie.  So to some effect that overstated the current quarter's results, and makes the comparables in the future quarter look weaker than they are.  If you exclude the movie, revenue in the current quarter would of missed slightly - EPS would of been lower but most likely still a solid beat, and the "growth" between this quarter and the next would look far better than the -2 to +2% cited.  Again, management is very conservative and almost always comes in better than what they offer in guidance.
      • Film and television revenues were RMB45.3 million (USD6.6 million) in 3Q09, as compared to Nil in 2Q09 and Nil in 3Q08. All the film and television revenues recognized in 3Q09 were related to the movie "Sophie's Revenge" that was released in August 2009.
      • The film and television cost was RMB27.0 million (USD4.0 million) in 3Q09, as compared to Nil in 2Q09 and Nil in 3Q08. All the film and television cost recognized in 3Q09 was related to the movie "Sophie's Revenge."

      [Aug 11, 2009: Perfect World Continues to Impress in Execution]
      [Jun 19, 2009: Perfect World Raises Guidance]
      [Nov 10, 2008: Earnings for Perfect World Solid]
      [Oct 15, 2008: Perfect World Announces Share Buyback Program]
      [Aug 18, 2008: Perfect World Earnings Mostly Inline]
      [May 20, 2008: Motley Fool on Chinese Gaming]

      Long Perfect World in fund; no personal position

      Bookkeeping: Weekly Changes to Fund Positions Year 3, Week 15

      Year 3, Week 15 Major Position Changes

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

      Cash: 83.5% (v 70.4% last week)
      20 long bias: 13.0% (v 11.8% last week)
      3 short bias: 3.5% (v 2.3% last week)

      23 positions (vs 26 last week)

      Weekly thoughts
      I'll spare you any in depth analysis.  Last week, most of the gains came on Monday as all the world celebrated the G20 reiteration that easy money shall continue to flow , especially from the developed countries.  The rest of the week was a technical battle between a double top on the S&P 500 and double bottom on the dollar.  But this now is a market with the IQ of a parakeet; the only thing that matters is the dollar and basing all decisions on its movement.   Let's not kid ourselves with any further analysis.

      This week there will be a myriad of economic reports.  Each one will move the dollar in knee jerk response.  Every investor will do the opposite of what the dollar does.  That's all there is to review in the market anymore.  Investors pray the dollar can be crushed further so the S&P 500 breaks north of 1103 or so, and everyone can jump in and buy.  Tim Geithner, like countless Treasury Secretaries before him, pleads to the world the US stands behind a strong dollar.
      • It’s very important to the United States, to the economic health of the United States, that we maintain a strong dollar,” Geithner told reporters in Tokyo Nov. 11. He also underscored the U.S. intention of reducing budget deficits
      The world used to laugh at such comments while watching what the US does rather than what it says.  Now it fears what the US is doing as country's such as Brazil and Taiwan try to put up barriers to the avalanche of US dollars pushed out into the world by Sir Bernanke.

      After Hong Kong's leader warned about the US inflating the world into bubbles again last week - so did China and Japan this weekend.  Timmy's response?  "Seriously... we believe in a strong dollar."
      • Financial officials in Japan and China, Asia’s two largest economies, warned the Federal Reserve’s interest-rate policy risks spurring speculative capital that may inflate asset prices and derail the global economic recovery.  
      • Emerging economies “might overheat and experience financial turmoil,” Bank of Japan Governor Masaaki Shirakawa said in Tokyo today.  “Monetary easing in advanced economies has stimulated capital inflows to emerging economies,” Shirakawa said. If emerging nations continue to recover at a faster pace than advanced ones, they “might overheat and experience financial turmoil, triggering a recession,” he said.
      • The comments reflect concern that the Fed’s pledge to keep rates near zero for an “extended period” may lead to a repeat of the financial crisis.
      • The continuous depreciation in the dollar, and the U.S. government’s indication that, in order to resume growth and maintain public confidence, it basically won’t raise interest rates for the coming 12 to 18 months, has led to massive dollar arbitrage speculation,” Liu, chairman of the China Banking Regulatory Commission, said in Beijing yesterday. 
      • Low rates and the dollar’s tumble have “seriously affected global asset prices, fuelled speculation in stock and property markets, and created new, real and insurmountable risks to the recovery of the global economy, especially emerging-market economies,” Liu told reporters in Beijing at the International Finance Forum. 
      • The debate over the Fed and asset prices comes years after some analysts criticized the U.S. central bank for holding down borrowing costs for too long in 2003 and 2004.
      We've been warning about this for a long time, but now financial heads in major nations are saying it out loud.  But that's ok... certainly repeating what got us into the last financial crisis but doing it to 50x the degree is not a cause for concern.  Because our leaders back a strong dollar... just ask them.

      I won't bother you with any further analysis because everything else has become moot... the lower the IQ level you think at (parakeet) the better.  Any other information will cloud your thought process as you stare at the intraday tick of the domestic currency.  As a speculator. cheer for a lower US dollar (and hence lower living standard) and cheer your Etrade account ever upward.  When it ends badly in 4 weeks, 4 quarters, or 4 years... clap at the exhilaration of the boom bust economy our central bank now gives us twice a decade, and begin asking when can we start a new cycle again?  Whomever our central banker is at the time of the next crash will offer a great solution to get us out of that mess... and it will be the exact same thing we've done the past 2 decades. I suppose even bigger the next time around.

      Rinse. Wash. Repeat.

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