Tuesday, November 24, 2009

David Rosenberg Video: "US in a Form of Depression"

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It's the have your cake and eat it too stock market... good news is a reason to buy stocks because data is improving, and bad news is a reason to buy stocks because data is NOT improving...which means more stimulus and Federal Reserve handouts.  It's the Goldilocks stock economy.

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Overhead on the streets of New York City this morning....

--->  David Rosenberg to Stock Market: "US economy in form of depression"

---> Stock Market to David Rosenberg: "Depression?  If that means more stimulus and free money, we're all for it.  Buy Stocks!"

Carry on....

(11 minute video, email readers will need to arrive at website to view)  Please note, Rosenberg is considered a realist permabear.

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Just in time for the holidays: More gloom and doom from a well-known economist.  David Rosenberg, who used to be Merrill Lynch's chief economist and now works for Gluskin Sheff of Canada, told CNBC Tuesday that the US economy is mired in an economic crisis that shows only scant signs of abating.

"We're in a form of Depression," Rosenberg said in a live interview. "Depressions...typically happen after a prolonged period of credit excess morphs into a collapse and you get asset deflation. We had asset deflation and we had a contraction in private-sector credit."

Rosenberg is just the latest well-known expert—including New York University's Nouriel Roubini and Pimco bond fund's Mohamed El-Erian—to warn that the economy remains mired in either no growth or slow growth that will last several years.

"This is a different animal than the garden-variety of recession that we're used to forecasting in the post-World War II era," he said. "The Fed started reducing rates in 2007 and here we are debating when did the recession end."  "We are basically in a post-bubble credit collapse," Rosenberg said. "Is the recession technically over? You know what? All the expert seem to agree on that. That's what has me a little nervous."







 
[Oct 19, 2009: David Rosenberg on CNBC]
[Oct 2, 2009: David Rosenberg Makes the Case for Canada as a Low Beta Emerging Markets Play]


EnerNOC (ENOC) - Hmmm?

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Not that I am complaining since our position was just established yesterday but any reason for this out performance today (aside from the Mad Money crowd following my recommendation of buy buy buy?) ;)  It sticks out like a sore thumb... or Lady Gaga at a black tie affair.

If this continues, I'll be looking to take profits as EnerNOC (ENOC) approaches $28... if and when.




Oh la la...

or as the kids today say... Gaga oh la la ?




Long EnerNOC in fund; no personal position

Stalled

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Some quick thoughts...

First as we predicted, and as almost every government report is nowadays... the first version of GDP was "better than expected" and "pleasing to the market" - helping to gun it upward.  Then 30, 60 days later the data is quietly revised downward. 


Tuesday - revised GDP, I would assume it gets revised down because "by chance" almost every economic report we've seen the past year has been "better than expected" and then when no one pays attention, revised down 30 to 60 days later. Shhh, just a secret between you and I.... don't tell the lemmings.


How come is it so rare for the government's data manipulation collection to undershoot the first time around , and then to see increases it 30, 60 days later?  Rather than it almost always being vice versa?  Rhetorical question - don't bother to answer.

So if you do believe a $14 Trillion economy can be measured with any accuracy within 45-60 days (those of you who work at multi billion companies, in the accounting department, can get up off the floor after laughing) we "grew" 2.8% (down from 3.5%) on GDP.  Now, let's jog our memories shall we?  Of that 3.5% original figure even the bulls acknowledged that 1.6% of it was Cash for Clunkers.  Another 0.6%-ish was Cash for Cul de Sacs.  That's about 2.2% combined, but we were told the "dynamic" (Fed supported) US economy grew 1.3% on its own!  But now as the revisions have lost 0.7%, what is left in the real economy?  Without getting into the concept that inflation is being under reported (thus over stating GDP) - you can see how poor the economy is even with unprecedented government support.  Even worse, when in the past the biggest GDP gains happened immediately after the most horrific swoons this time we have a limp "bounce".  And this was the worst we've had since the 1930s... yet that's all we get?  I mean we spent a few trillions - we expect better than this.

Just imagine how bad the consumption factor in GDP would be if all these millions of Americans who are living "rent free!" as non paying home "owners" didn't have all that extra disposable income to go shopping.  So this inflated figure (revised downward of course) simply reinforces what we see in natural gas, rail traffic, Walmart data, et al.  The US economy has stabilized, with the aid of countless US treasure stolen from future generations, at quite morbound levels.  But I do have good news - the money we are stealing from grandkids and great grandkids has finally sparked bidding wars in the low end of the housing market in places like Las Vegas.  Ben Bernanke must be beaming.... but full success won't be achieved until Ben prints enough to allow 24 year olds (without jobs) to bid up $600K homes in Cali.  So he is still hard at work 'for you'.

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As for the stock market, we are in the middle of the 3rd week of "stalled".  Other than the "lack of volume" chip bears have nothing on their side. Rather than pulling back, this type of churning over key support levels is bullish.  For now S&P 1111ish has been the ceiling but, until proven otherwise, the market is simply biding its time to make an assault on that figure so we can begin the next breakout.




As for the underlying action we have our speculative spots, but the 3% dip in Shanghai overnight took out some of the steam in the "nonsense stocks" that typically rally this week.  But never fear our memories are short and if blessed a Fed official will say something about "extending easy money until 2042" and we can rally tomorrow.

I can find almost no blogger or trader on established financial website betting against this market in a meaningful way. While there are "intellectual" bears (hand raised) there is a dearth of "positioned" bears; it has just been too painful on the account.

Outside of that, there is nothing to do here as our IQ's slowly fade to black... nothing matters to the world of speculation other than that US dollar.  Stare at it with a blank stare on your face - because that's what all of Wall Street has been reduced to.  It has become numbing in its ability to erode all critical thinking. Another victory for Sir Bubblicious Bernanke.



In summary: government data continues to be a joke as it has for a decade but only so much more painfully obvious now as the tide is out; the body of the victim is completely immersed in morphine which we call "green shoots"; bidding wars are breaking out in the sub $150K range in Las Vegas thanks to your grandchildren, and any level of IQ over 20 in the stock market is penalized.  Gobble, gobble.

Bookkeeping: Partial Stop in Potash (POT) and Going Long the Dollar & Volatility

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First, a bookkeeping note - the 50% of position stop out at $112 on Potash (POT) we mentioned premarket as a limit order hit this morning, so our position size is cut in half with a $5 gain on a 1% allocation.  Content to hold the other half and add to it if the stock falls near support.  Likewise if after that purchase the stock falls below support, we'll exit most (if not all) of the position.

I am adding two new hedging positions - they are neither "long" nor "short" but I am going to put them under the "short" banner when we do our weekly summary just because they only seem to increase when the market drops.  Both of these are going to replace what we were using as portfolio insurance... that is, attempting to short this market.  We had been using out of the money puts quite a few months out, and the past 3 attempts have had our heads handed to us.  In a sideways market, or one which is not up 9 MONTHS in a row, these hedging techniques work.  This is not a normal market, so we'll adjust for now.

First, everyone hates the dollar and for good reason.  But it is so crowded, we can have a synthetic short on the market by going "long" the dollar.  Let me be clear - for many years the market went up AS the dollar went up... only recently has this ridiculous inverse correlation dominated. 

Second, volatility has come in a lot as people now assume the market can only go up.  So this gives us a chance to go "long volatility" as a hedge.  Hence both being long the dollar and volatility assume that at some point the market becomes more volatile while the dollar bounces.  If we are wrong the pain won't be so intense as trying to short the Ben Bernanke supported stock market.

We are putting on 2 positions
  1. iPath S&P 500 VIX Short Term Futures (VXX) - 3% allocation [shorter term trade]
  2. March 22 Calls on Powershares DB US Dollar Bullish (UUP) - 1.5% allocation [longer term trade]
On first glance the VXX seems to be a flawed instrument as it is not replicating the performance of the VIX (volatility) index well at all, but it is a short term trade for us. 

A direct investment in VIX (commonly referred to as spot VIX) is not possible. The S&P 500 VIX Short-Term Futures™ Index TR holds VIX futures contracts, which could involve roll costs and exhibit different risk and return characteristics.

VXX v VIX







So we seem to have the exact same problem as many 2x, and 3x ETFs in the VXX ETF... i.e. they don't properly reflect the index they are "betting" for or against. Which is a shame - the 2 charts above don't really coincide although they are supposed to.  What I want to be doing is buying VIX here near $21 as an insurance policy, betting that at some point the voalatility index will jump back into the mid to upper 20s.  But we don't have a good instrument to do this.

I might replace VXX with VXZ ETF for a longer term trade in the future; seems to do a better job for longer term periods although still not tracking very well.

A direct investment in VIX (commonly referred to as spot VIX) is not possible. The S&P 500 VIX Mid-Term Futures™ Index TR holds VIX futures contracts, which could involve roll costs and exhibit different risk and return characteristics.





As for the dollar, well you know the story there... all the world is against the dollar.  Due to Investopedia.com rules I can only buy things that have a good amount of volume; in a real world situation I would be buying Jun 2010 23 calls... but since the March 22 calls are what had volume today that's what I have to go with.  I will keep this one in the portfolio as a "short" although its technically a long... now the US dollar moves relatively slow even when it falls week after week so the type of insurance this will provide is if there is any sort of panic moment between now and March 2010 the premium should expand quite quickly (and in options the premium is the price).  And if we're wrong and the dollar just continues to fall for another 60-90 days straight in a row our losses should be less painful than shorting the S&P 500.




Long all names mentioned in fund; no personal position

Bookkeeping: Selling Off Much of CNinsure (CISG) Post Earnings

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Much like E-House Holdings (EJ) I am having a difficult time reconciling some of the reactions to earnings versus what the actual data was.  I have not had time yet to devle into CNinsure's (CISG) earnings but with the stock breaking below the 50 day moving average I am going to exit 90% of the 1% stake and re-assess. The stock has been unable to mount any sustained trend movement for many weeks; just a lot of herky jerk action that does nothing for our style of investing.




Full report here; I'll edit this post later today when I have some time to review the numbers.

[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

Bookkeeping: Looking to Take Some Profits Today

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Speculation week is off to a roaring start, to wit please see Chinese seed company Origin Agritech (SEED) which always is a place daytraders congregate when agriculture stocks are in favor....




.... now yesterday's performance was somewhat news driven but basically it ran from mid $6s "on the news" to $10+ on "momentum".  And this is why I say Thanksgiving week is the week of speculative fervor, the indexes are relatively meaningless...if you put your chip on the correct red or black market, you win - big.

With that said, I am seeing many extended charts and am going to begin another round of profit taking.  As of this moment S&P 1111ish has been a decent ceiling and if the market breaks over that level, I expect a new round of piling in but we are starting to see some parabolic moves in things such as gold, so it is prudent to lock in some profits and look to buy back lower in the future.  On any breakout over S&P 1111 I'll probably just focus on index plays for now unless I find new opportunities in individual equities.

Let me stress, I am doing these transactions within the context of the fund's portfolio, locking in profit and sailing into the year end.  If you look at any as individual trades i.e. "how dare you sell gold which has a perfect chart!"... you are looking at differently than I am.

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Here are the names I'll be culling today:

1) Powershares DB Gold Double Long (DGP) - I have a bad habit that is pretty typical of most investors, and that is to cut winners off at the knees to soon.  But that is part and parcel with cutting losers off quickly as well, and overall the strategy is fine.  I've been able to let gold run without the compulsion of taking profits so I'm content with participating in this epic run, but obviously wish we had a larger stake. I don't have trailing stops in my tracking mechanism, Investopedia.com, so in a real life situation I might just slap a 5% trailing stop and let it run - but I have to work within the confines of what I have.  I am down to a 1% position after earlier profit taking so I'm going to take profits on 90% of the position after a 25% run in 1 month as the chart of gold begins to hit parabolic range.  Any upside from here, I'll let others enjoy and try to catch it on a pullback in the future; everywhere I turn now - in every magazine and website are stories of gold.  This does not change my long term view here - but financial instruments are all the same to me... when they go up, I want to lock in profits and try to buy back cheaper.




2)  On that note - we've been more exposed to silver than gold which was the correct play 6+ weeks ago, but gold has actually been better in the past month.  As silver hits a new high for the year yesterday, I am going to employ a similar strategy to gold and take off 90% of our remaining 1% position.  We took multiple rounds of profits in our ProShares Ultra Silver (AGQ) so this will obviously be the last round, until we can buy some back lower.   I had originally planned to take another round of profits at $66 but once more tried to remain a bit more patient than usual and it's worked out.  The ETF is about 20% in the past 1.5 weeks. Again in no way, shape, or form am I saying gold or silver will selloff today, tomorrow, Friday, or next week - I have no idea.





3) The past month in trading, then re-buying BHP Billiton (BHP) and taking profits off those sales has been picture perfect.  I am going to press my luck and take off almost all the rest of my shares here (another 1%ish allocation); these were purchases in the $68s and $65s the last time the stock corrected.  I will place a limit buy order to replace these shares sold today (somewhere in mid $70s) down below $69 and see if we can continue the recent pattern.




4) We restarted a position in Potash (POT) last week on a breakout over the $106 level (our cost is $107ish); so far a "textbook" breakout.  However yesterday's action (reversal) was not super hot.  I am not going to outright sell today but I have placed a stop loss for half the 2% position at $112.  Overall strategy is to lock in a gain on any correction with half the position, and try to rebuy somewhere in the $105-$107 range if and when.  Then if (a) the stock breaks down, the losses we take would be offset by the gains we locked in or (b) the stock continues to surge after breaking $112 - we at least have half our position on.  Obviously if there is no pullback to $112 or below, it's a moot conversation and the beat goes on.




All names above are simply inverse US dollar trades, pure and simple.

5) Selling all but 1 share of Priceline.com (PCLN) - the stock is approaching 100% gain since our original purchase.  This is one of 2 stocks we never reacquired a large stake after taking profits in the summer. It's not a huge part of the portfolio but let's "lock it in".




6)  Since I've added Ctrip.com (CTRP) and Potash (POT) in the past week, I'd like to keep the # of positions relatively flat so we have an obvious stock to kick out.  I'll be closing E-House Holdings (EJ) - the stock is just not acting well; I'll revisit this at a later date... it makes no sense to me with how impressive its earnings were. Only a 0.2% type of position was remaining after a stop loss hit last week.




7) I placed a full stop loss (i.e. the whole position will be exited) for yesterday's purchase of EnerNOC (ENOC) in the $23.80s so our maximum loss will be 4%. The "red bars" continue on this one.




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

Bloomberg: Investors Rushing to Alternative Mutual Funds from JPMorgan (JPM) to Pimco

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As always I appear to have been early to a trend ;) I really need to get going before the Fidelity's and Vanguard's flood the industry with these type of funds...

Via Bloomberg:
  • JPMorgan Chase & Co. and Pacific Investment Management Co. are inundated with money from individuals attempting to mimic the performance of hedge funds speculating that the stock-market rally is over.
  • So-called bear-market and long-short mutual funds, designed to protect against falling stock prices, attracted a record $10 billion this year through October, more than double the previous high in 2006, according to Morningstar Inc.
  • Asset managers have opened 19 long-short funds, the most in one year.  Long-short funds buy stocks as well as sell them short. In a short transaction, the investor sells borrowed shares in a bet that the price will subsequently fall and the stock can be purchased and the loan repaid at a profit. These funds hold more long positions, or those that make money when prices rise, than shorts.
  • Conventional mutual funds that only buy U.S. stocks posted $4.6 billion of redemptions in the first 10 months of the year, while bond funds added $280 billion.  [Sep 16, 2009: Mutual Fund Investors Cling to Safety of Bonds, Missing Stock Rally]
  • Most conventional mutual funds don’t short stocks.  (most investors think mutual fund "can't" short... not true at all, the industy is staid, fat, and happy to do what is easy - after all the same 10-12 families control the entire 401k market so why bother to take a 'risk'?)
  • The best-seller among the funds is Hussman Strategic Growth, run by economist John Hussman of Ellicott City, Maryland. It drew $1.7 billion through September after limiting its loss last year to 9 percent, according to Morningstar, less than half the average of hedge funds.  (Hussman, who has a very risk averse model, was also an Economics professor at the University of Michigan either while I was there, or right after - can't tell from his bio.  It would be sort of funny if I took one of his courses... can't remember, at worst crossed paths within a year or two of each other)
  • The $3.4 billion Highbridge Statistical Market Neutral Fund, run by JPMorgan’s Highbridge Capital Management LLC, pulled in $1.5 billion. At Pimco, the world’s largest bond manager, Bill Gross’s Fundamental Advantage Total Return Fund raked in $786 million, Morningstar’s data show.  (these numbers are simply staggering)
  • The alternative funds have been around since at least 1977 and had sales increases after the dot-com bubble burst in 2000. They mostly target people who aren’t wealthy enough to invest in hedge funds, the lightly regulated private partnerships that are typically open only to clients with a net worth of at least $1 million.
  • Like other mutual funds, alternative funds are overseen by the U.S. Securities and Exchange Commission and operate with restrictions on the investments they can hold.  They also face limits on a tool employed freely by hedge funds: borrowed money, which can be used to amplify returns.  (this is the main investment difference betwen mutual funds and hedge funds - leverage is an absolute no go for mutual funds)
  • “Mutual funds are heavily regulated and hence often respond to market shifts more like an oil tanker and less like a kayak,” he said.
  • A majority of institutions and financial advisers said alternatives will account for more than 10 percent of their portfolios over the next five years, according to a Nov. 16 survey by Morningstar and Barron’s magazine. A quarter of those polled expect to have more than 25 percent of their investments in that category. (works for me)  “A lot of people don’t want to have another situation like they did in 2008 where they can lose 40 or 50 percent again,”
  • Alternative-investment products currently account for less than 1 percent of the $10.8 trillion mutual-fund industry.  (that will change... bit time.  I've said that for 2+ years - the "dream era" of 1983 to 1999, completely fooled people into thinking that was "normal")
  • The S&P’s rebound this year may limit the growth of alternatives in the near term, says Burton Greenwald, an independent mutual-fund consultant in Philadelphia.  “As the public returns to the equity markets, they will be less interested in these somewhat exotic products,” Greenwald said. “Given a year or two of traditional stock-market returns, their memories might prove to be very short.”  (I agree, people have very short memories....until the next crisis.  Who wants to be hedged when the market "only goes up month after month" after all!)
  • “Mutual funds are losing assets, and it might be that they are looking to salvage some of the market share they are losing to hedge funds,” Peter Rup, chief investment officer at New York-based Orion Capital Management LLC, which invests in hedge funds, said in an interview. “The long-only strategy is antiquated,” he said.  [Feb 5, 2009: Mutual Funds Have Tough Decade]
That last comment is quite interesting... an "antiquated" model has 99% of market share in the place the "peasants" put their money.  But once you enter the "nobility", the investment strategies expand exponentially.  Says a lot if you really think about... and once again it should highlight to you why CNBC has a parade of managers who face the retail client who only know one thing "send me your money, dollar cost average, if you lose 40% with me... that is ok... the market only goes up over the long term.  p.s. did I mention send me more of your money after I killed you in my fund last year?" (of course you end your interview with a smile and the CNBC host giggles in agreement)

[Nov 12, 2009: WSJ - More Mutual Funds Attempt to "Time" the Market]
[Aug 4, 2009: WSJ - Mutual Funds Try "Hedge" Approach in Effort to Trim Stock Losses]
[Apr 10, 2009: More Stock Mutual Funds Declare Cash is King]

Monday, November 23, 2009

NYT: Wave of Debt Payments Facing US Government

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Sometimes I feel like grandma warning to look both ways before crossing the street, and to tie your shoes or you may trip as we talk incessentently about these issues.... to a wall, it appears.  No one listened about our warnings on Fannie/Freddie, no one is listening now about FHA, no one cares about our pension disasters, so who is going to listen to the issue that will make those 3 look like small fry. [Mar 26, 2008: Annual Spring Entitlement Warning Falls on Deaf Ears]   If David Walker, who tried for a decade to get "their" attention from within the snake had no chance, I guess all we can do is talk about these things for amusement purposes.  [May 23, 2008: David Walker on CNCB this Morning] [Nov 23, 2008: David Walker in Fortune Magazine]


Bottom line, is we - along with a few other nations - are on a grand experiment to see how far we can push the boundaries of debt explosion.  [Jun 12, 2009: NYT - America's Sea of Red Ink was Years in the Making]  The year to year budget deficit is one thing [Aug 26, 2009: US Federal Budget in Picture] but those unfunded liabilities are truly a terror. [USDebtClock.org]  I laugh at myself now when I was warning of deficit projections back when they were hundreds of billions a year.... how quaint. . [Jul 28, 2008: US Budget Deficit to Half a Trillion] [Aug 24, 2009: Cumulative Deficit Estimate for Next Decade Increased by $2 Trillion.... Since May]


So for your amusement only... I present the biggest subprime borrower in the history of mankind.  Whose biggest creditor says they hate what we are doing [Feb 13, 2009: Ft.com - China to US: "We Hate You Guys"], and continues to move into shorter and shorter debt durations for the eventual parting of ways. [May 21, 2009: NYT - China Becoming More Picky About Debt]  As a country which only reacts to emergencies, all these issues warned about for years on end will be addressed (the question is "how?" other than money printing) when we're in full blown panic mode, at some future date.


[please click to enlarge that graphic to the right]


Via NY Times:
  • The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.   But that happy situation, aided by ultralow interest rates, may not last much longer.
  • Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.  (on that latter point, that could be YEARS)
  • Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.
  • With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.  (keep in mind our ENTIRE economy is $14 Trillion in a good year, and we're now approaching 20% of that going to healthcare)
  • In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.
  • The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the United States after decades of living beyond its means.
  • Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby boomers are set to explode.
  • The competing demands could deepen political battles over the size and role of the government, the trade-offs between taxes and spending, the choices between helping older generations versus younger ones, and the bottom-line questions about who should ultimately shoulder the burden.  (is there any question?  the debate is over on that last question - the youth have squarely been pegged as the ones who should subsidize those who roam the country taking handouts gladly today)

Just call us Subprime Sam... our serial refinancing Uncle.
  • The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”
What I love is the cries that demand for our debt is so solid now... no one points out that the Federal Reserve is a massive buyer of our debt (call this moving the money from under 1 shell to another) via direct purchases and through indirect purchases.  The latter is even more dastardly as we are using the banks to hide the bodies... banks borrow from Federal Reserve at nearly nothing, and buy debt from US Treasury.  We all win - the banks make a profit on the spread between borrowing at 0.0 to 0.25% and what the government pays them on the debt, and we can can all chime in at how much demand there is for our debt! Even though we are using the Fed to buy it through a middle man.
  • So far, the demand for Treasury securities from investors and other governments around the world has remained strong enough to hold down the interest rates that the United States must offer to sell them.  “All of the auction results have been solid,” said Matthew Rutherford, the Treasury’s deputy assistant secretary in charge of finance operations. “Investor demand has been very broad, and it’s been increasing in the last couple of years.”
In that case, why should anyone work?  Let's just issue more debt and hand it out to people so they can stay at home, enjoy leisure and shop.  The perfect economy. 
  • The problem, many analysts say, is that record government deficits have arrived just as the long-feared explosion begins in spending on benefits under Medicare and Social Security. (Social Security is a pebble compared to the tidal wave that is Medicare)  The nation’s oldest baby boomers are approaching 65, setting off what experts have warned for years will be a fiscal nightmare for the government.
Again, that is what people under 25 are for (the unborn are even more useful).  Thankfully if we keep them financially illiterate they won't even know what has hit them....  still no required economic classes in high school right? 

Right! Cool! (insert sinister laugh here)
  • What a good country or a good squirrel should be doing is stashing away nuts for the winter,” said William H. Gross, managing director of the Pimco Group, the giant bond-management firm. “The United States is not only not saving nuts, it’s eating the ones left over from the last winter.”
No problemo.  The Fed will just print more nuts next winter Mr. Gross.  Yummy!
  • The current low rates on the country’s debt were caused by temporary factors that are already beginning to fade. One factor was the economic crisis itself, which caused panicked investors around the world to plow their money into the comparative safety of Treasury bills and notes. Even though the United States was the epicenter of the global crisis, investors viewed Treasury securities as the least dangerous place to park their money.
  • On top of that, the Fed used almost every tool in its arsenal to push interest rates down even further. (that's not even an accurate statement - it did not use "almost every" tool... it used every tool and then created new ones that had never been thought of before.  When you have a cornered elite, they become very creative) It cut the overnight federal funds rate, the rate at which banks lend reserves to one another, to almost zero. And to reduce longer-term rates, it bought more than $1.5 trillion worth of Treasury bonds and government-guaranteed securities linked to mortgages. 
But not to worry, it won't just be us... many of the world's largest economies will all be competing for this global pool of capital to fund their excesses.  Japan's been the leader on this front for decades but 85% of their debt is held by their own citizens since they do this crazy thing over there called... saving money.  We're not so fortunate here, so we have a very different mosaic to face.
  • The United States will not be the only government competing to refinance huge debt. Japan, Germany, Britain and other industrialized countries have even higher government debt loads, measured as a share of their gross domestic product, and they too borrowed heavily to combat the financial crisis and economic downturn.
  • As the global economy recovers and businesses raise capital to finance their growth, all that new government debt is likely to put more upward pressure on interest rates
  • Even a small increase in interest rates has a big impact. An increase of one percentage point in the Treasury’s average cost of borrowing would cost American taxpayers an extra $80 billion this year — about equal to the combined budgets of the Department of Energy and the Department of Education.  But that could seem like a relatively modest pinch. Alan Levenson, chief economist at T. Rowe Price, estimated that the Treasury’s tab for debt service this year would have been $221 billion higher if it had faced the same interest rates as it did last year.
  • The White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, the Treasury has to refinance, or roll over, a huge amount of short-term debt that was issued during the financial crisis. Treasury officials estimate that about 36 percent of the government’s marketable debt — about $1.6 trillion — is coming due in the months ahead.
Oh well, it all sounds so difficult and this lame blog writer is putting a lot of numbers that are hard to understand.  All I know is it always works out in the end with no cost to myself... now where is that flier for Black Friday! Shopping time!

Bookkeeping: Beginning Stake in Smart Grid Company EnerNOC (ENOC)

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I believe this is the first time I've spoken about EnerNOC (ENOC) in the blog, but it is part of a very small niche in the market based on smart grid updates; perhaps 4-5 stocks in all.  Just in the past week or two a new ETF for this sector has been launched (symbol: GRID) which has 29 stocks, but I'd argue many are not pure plays.  I expect a lot of focus in this area by the political class in the future although many of the stocks had huge runs when speculative small cap stocks were more en vogue during the summer.  The key names have sold off sharply since then and ENOC is no different.

Technically, the chart is quite poor but we have a low risk entry point here so I am going to attempt it with a tight stop loss.  I am buying just under $25.00 as a long term "gap" in the chart from July 2009 just filled late last week.  It's been a horrific ride for any investor who jumped in after earnings, as EnerNOC jumped to as high as $35 not 12 sessions ago, but it's been a waterfall selloff since.  Aside from filling the gap, the stock fell all the way to the 200 day moving average in the $24.50s, giving back some 30% from it's peak price just 2.5 weeks ago. 




We can enter here with a stop loss below last Friday's low, essentially $24.  I have done this today creating a 2.1% type of position.  There is obviously zero momentum in the stock and this will potentially be catching a falling knife so if the sell off is not done, we will be exiting stage right with limited loss potential.  As for upside, there will be a lot of trouble breaking through the 20 and 50 day moving averages so we'll see how it acts.  Today could simply be a dead cat bounce and upside will be a moot point.

Please note - 1 gap filled, 1 to go... still a big hole under $20 from mid July.  Hence my caution in sticking around if the name continues it's selloff.

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

Fundamentally, this is a $600M company, with under 400 employees, which just turned profitable for the first time last quarter.  Company website here. Valuation is moot ... (as it is with the entire stock market) but this is the type of name that will move with investor sentiment and psychology.  Was it worth something in the $30s a month or 2 months ago?  Relatively arbitrary considering the profit stream is not there.

EnerNOC, Inc. engages in the development, implementation, and adoption of demand response and energy management solutions for the electric power grid operators and utilities, as well as commercial, institutional, and industrial end-users of electricity in the United States. Its solutions enable in optimizing the balance of electric supply and demand.

Latest earnings data from early November; the company trounced expectations.
  • Revenues - Revenues for the third quarter of 2009 were $103.1 million, compared to $44.2 million for the same period in 2008, an increase of $59.0 million, or 134%
  • Cost of Revenues - Cost of revenues for the third quarter of 2009 totaled $51.4 million, compared to $25.8 million for the same period in 2008, an increase of $25.6 million, or 99%.
  • Gross Profit/Gross Margin - Gross profit for the third quarter of 2009 was $51.7 million, compared to $18.4 million for the same period in 2008, an increase of $33.3 million, or 181%. Gross margin was 50.1% for the third quarter of 2009 compared to 41.6% for the same period in 2008.
  • Operating Expenses - Operating expenses for the third quarter of 2009 were $25.9 million, compared to $21.1 million for the same period in 2008, an increase of $4.7 million, or 22%.
  • Excluding stock-based compensation charges and amortization expense related to acquisition-related assets, non-GAAP net income for the third quarter of 2009 was $30.7 million, or $1.40 per basic share and $1.30 per diluted share, compared to a non-GAAP net loss of $0.3 million, or $0.02 per basic and diluted share for the same period in 2008, an increase of $31.1 million.

Comment:
  • "We believe that we have reached an inflection point in our business. By nearly doubling our megawatts under management over the past year and continuing to drive operational efficiencies, we were able to eclipse $100 million in quarterly revenue and generate more than a dollar per share in GAAP earnings," commented Tim Healy, EnerNOC's Chairman and Chief Executive Officer. "We have positioned ourselves to achieve our 2009 objectives and deliver positive GAAP earnings per share in 2010."

Guidance:
  • Q4 Rev between $23-$25M
  • Q4 EPS between -0.50 and -0.57
  • FY Rev between $187-$189M
  • FY EPS between $0.23 and $0.30
A short video on the "niche" below







Long EnerNOC in fund; no personal position

The Most Controversial Issue in the World this Week

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While 80% of our readers hail from the States, I want to enlighten them on the biggest issue facing the world this week.

Ben Bernanke acting like a reckless drunken sailor? No.
Brad potentially cheating on Angelina? No.
Sarah Palin v Katie Couric v2.0? No.
US healthcare reform debate? No.

Stop being so US centric - there are larger issues facing the globe!

If you really want to impress your European, or in fact friends in any other parts of the world simply say "The Irish were robbed!" (and no, I don't mean the Notre Dame Irish)

In a global travesty, in a match to qualify for the World Cup 2010 in South Africa - Ireland and France played a pivotal qualifier game ... a "win or stay home and try again in 4 years" type of affair.  In football soccer one cannot use their hands, unless one is a goalkeeper.

Or can they? 




Bookkeeping: Selling Index Calls as S&P Approaches 1110

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Thank you Federal Reserve officials... we now, in the first 30 minutes have retraced all the market's losses of last week and it's as if they never happened.  Must be nice to move markets by signaling in so many words, the US dollar is your personal toilet paper. 

We are now at highs reached last week, we'll do our traditional strategy which is to sell into resistance, and then buy on any jump over it.  Thankfully, anticipating another Manic Monday (this marks the 8th up Monday in the past 9 weeks, almost all in excess of 1%) we got rid of our index shorts as the S&P fell into its 20 day moving average, and turned coat late in the session to the long side.  We'll be exiting the SPY calls we threw on in the waning moments of Friday's session (only about a 3.5% allocation as this was not a high probability trade).  I'll update this post shortly with that executed trade.

As for our next pivot point we're talking S&P 1112ish.  So we'll see into it, and get back in if we push right through.  If the S&P break norths of this level this will something like the 84,216th "double top breakout" we've had since March 2009.  (ok I exaggerate a bit)

EDIT 10:10 AM - seems like there is a glitch in Investopedia.com tracking this morning as option prices are stuck on Friday's close and not updating.  Hence I cannot sell here around S&P 1111.  So I'll sit on my hands until they fix it, otherwise I won't benefit.  I have December 110 SPY Calls, bought at 1.92 Friday, currently around 2.90.  Not bad for 1 hour's work.

Rough approximation of the trade... a little understated as my timing on the screen shoot was a bit off




EDIT 10:25 AM - Fonzi kicked Investopedia.com and option pricing is back working, selling around 1111 so more or less the same spot I intended.  I'll look to rebuy a similar call option if we break out to new highs i.e. S&P 1113-1114ish... and then the stop loss will be just under the breakout level.  I've done this trade so many times the past 8 months it is getting boring.




//

LDK Solar (LDK) Kicks off Speculation Week with a Roar

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I mulled buying a solar stock  (the smaller, and more Chinese the better) late last week in anticipation of the speculation that happens this week, almost like clockwork - year after year.  We just mentioned in the previous post:


But even more important than the market is what happens in individual stocks ... the most speculative of fare generally does well this week.... in this current era that means solar stocks, dry bulk shippers, Chinese small cap names, biotech names who don't have a chance to make a profit until 2027, and perhaps even the big 3 - Fannie, Freddie, and AIG. This is the week completely nonsense type of stocks surge 18% in a session followed by 14% the next day.


And LDK Solar (LDK) is lighting our fire with a "better than expected" earnings report, (beat by 37 cents) and raised guidance.





  • Chinese solar wafer maker LDK Solar Co Ltd (LDK.N) reported a surprise third-quarter profit and guided towards better-than-expected fourth quarter sales and sequentially higher shipments. 
  • For the fourth quarter, LDK forecast sales between $280 million and $310 million, way above analysts estimates of $258.7 million, according to Thomson Reuters I/B/E/S.
  • LDK now joins a growing list of Chinese solar companies that have signalled an uptick in demand.
  • For the third quarter, LDK earned $29.4 million, or 27 cents per American depositary share (ADS), compared with earnings of $88.4 million, or 77 cents a share, last year.
  • Sales, which nearly halved from a year ago, however rose nearly 24 percent sequentially to $281.9 million.  Analysts on average were looking for a loss of 10 cents a share, on revenue of $277.2 million, according to Thomson Reuters I/B/E/S.
And in this sector, when one goes - they all go, as the student body rushes in.  TickerSpy has a list of all the Chinese solars here... there ain't (sic) no party like a Solarfun Power (SOLF) party.

No position



Bookkeeping: Weekly Changes to Fund Positions Year 3, Week 16

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Year 3, Week 16 Major Position Changes

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

Cash: 80.5% (v 83.5% last week)
23 long bias: 18.9% (v 13.0% last week) [includes 1 option position]
2 short bias: 0.6% (v 3.5% last week)

25 positions (vs 23 last week)

Weekly thoughts
Thanksgiving week, a time for reflection...celebration... and speculation.  Especially speculation.  Markets are almost always in a good mood, as institutional investors rest and the daytrader class take the market over especially later in the week.  I expect web traffic to fall off a cliff as only I, and the retail investor bother to show up so maybe I'll post party pictures of Nouriel Roubini to keep things fun.  I read late last week that this is not just a gut feel but also backed by statistics; Thanksgiving week is up nearly 70% of the time since 1950, and the 2 day period surrounding Thursday (Wed + Fri) is up over 80% of the time.  Those are Goldman Sachs odds!  But even more important than the market is what happens in individual stocks ... the most speculative of fare generally does well this week.... in this current era that means solar stocks, dry bulk shippers, Chinese small cap names, biotech names who don't have a chance to make a profit until 2027, and perhaps even the big 3 - Fannie, Freddie, and AIG.   This is the week completely nonsense type of stocks surge 18% in a session followed by 14% the next day.  Party on Garth.... our Nouriel.



Last week provided very little opportunity in the markets or individual stocks as stock indexes were in a tight range except for the now traditional beating of the dollar on Monday which allowed a surge of buying... the majority of the rest of the week was marked by an oversold bounce in the dollar which meant of course the inverse trade had to be placed on all risk assets.  One small divergence was in precious metals which actually held up well despite the bounce in the dollar - that is extremely bullish.  While the Russell 2000 broke back below the 50 day moving average, the larger indexes all simply drifted down to support levels - so nothing extreme at all in the selling.  After a first half of the month which only saw 1 day in the red, this was a healthy move to correct some of the excess.  


As we closed the week, I had remarked how Mondays had been magical (to the bulls anyhow) the past 2 months as one event or another (Chinese economic report, G20 meeting, Asian meeting) served to pummel the dollar and by annoying correlation drive up anything in the world.  7 out of 8 Mondays up, and those have been some serious rallies.  Lucky us... Fed President James Bullard says the Fed asset purchase programs - already extended once from Dec 31st to March 31st, 2010 now should "not be retired" (wink wink).   Yippee! Snap that dollar's neck, and let us party. 

  • Federal Reserve Bank of St. Louis President James Bullard said the central bank should retain the flexibility to respond to any weakening in the economy by extending beyond March its authority to buy mortgage-backed securities and agency bonds.
  • “If the economy came in very weak, let’s say, in 2010, weaker than expected, we would have the option of doing further quantitative easing” through additional asset purchases, Bullard said. 


Huh? What?  Weakening economy?  Here I've been drinking Kool Aid (not really) for 8 months as I hear Fed official after official promise us green shoots and recoveries?  Aha, I understand... don't want to upset markets or cause anyone to believe the tsunami of liquidity won't be behind us, always and forever... it's a speculators world and the LAST thing we want is fixed income seniors to believe they will actually earn a dime on their Certificates of Deposit.   Thanks for the reassurance James!  So mark up another "Happy Monday!"  ... 


As for economic data, we're jam packed this week. but none of the data matters anymore... all that any silicon computer chip (or human) wants to know is how the dollar reacts to said dollar.
  • Monday - Existing home sales, far more important than new home sales as this is >90% of the housing market.
  • Tuesday - revised GDP, I would assume it gets revised down because "by chance" almost every economic report we've seen the past year has been "better than expected" and then when no one pays attention, revised down 30 to 60 days later.  Shhh, just a secret between you and I.... don't tell the lemmings. 
  • Tuesday - Case-Shiller home prices.... a non event at this point to me, but hopefully it hurts the dollar.
  • Tuesday - Consumer confidence ... this rarely used to mean much but nowadays these CC reports seem to have an impact.  Whatever the case on Tuesday you can ignore it because by Friday we'll be hearing great stories of how confidence is rampant as seen by the "Running of the Shoppers" in malls throughout Americana. 
  • Wednesday - a HUGE day.... durable goods, personal income & outlays, weekly jobless claims, and the less important new home sales.  Again, let us cross our fingers and hope our currency gets crushed by whatever news is released, as a weak currency is the key to American prosperity. (sarcasm)
  • Friday - no economic data,.... but if we are lucky DryShips (DRYS) will be up 50% on the week by the end of the session.


So in summary, rejoice and give thanks.  Mondays are days to use the weekend to behead the dollar, leading to rallies, and our probability of happy times Wed & Fri are in excess of 80%.  Even better, my favorite CNBC moment of each year comes Friday when reporters are stationed at parking lots and malls across America and by the "traffic" they observe they can tell us how spirited and wonderful the shopping season is going!  (hint: not once have they ever been disappointed!) Much like home sales always surge in spring and summer we'll be told great tales of how "the post Thanksgiving crowd is out there in droves!"  We'll act shocked, surprised and that data point will clearly mean it's going to be a bumper Christmas season.  Watch for it, it is almost laughable once you learn the pattern!


For the portfolio, we were stopped out of our last major short position last week; just another in a series of fruitless attempts to stand in front of the freight train called Ben Bernanke's B52 bombing of dollars. For now "cash" will be our hedge so we're long and loving life.  In anticipation of the Monday massacre of the dollar (thanks again Mr Bullard) we took off our short term index bearish hedges Friday and replaced them with some long SPY call options.  We'll be selling them into the euphoria of destruction of American living standards this week.  Let us be thankful.  

A move over highs of last week is the key for the bulls... let's do this.  Ben, to the cockpit!




Sunday, November 22, 2009

Doctor Devi Shetty, India's Henry Ford of Heart Surgery

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A quite fascinating read in the Wall Street Journal, especially in light of the health care debate raging in the country.  On a positive note - it looks like cheaper health care is coming soon to Americans..... in the Cayman Islands.  As the world flattens and borders become more and more meaningless, there are many costs to those who live in high cost parts of the world - but it appears there can be some benefits as well.

Via WSJ
  • As Dr. Shetty pulls the thread tight with scissors, an assistant reads aloud a proposed agreement for him to build a new hospital in the Cayman Islands that would primarily serve Americans in search of lower-cost medical care. The agreement is inked a few days later, pending approval of the Cayman parliament. 
  • Dr. Shetty, who entered the limelight in the early 1990s as Mother Teresa's cardiac surgeon, offers cutting-edge medical care in India at a fraction of what it costs elsewhere in the world. His flagship heart hospital charges $2,000, on average, for open-heart surgery, compared with hospitals in the U.S. that are paid between $20,000 and $100,000, depending on the complexity of the surgery.
  • The approach has transformed health care in India through a simple premise that works in other industries: economies of scale. By driving huge volumes, even of procedures as sophisticated, delicate and dangerous as heart surgery, Dr. Shetty has managed to drive down the cost of health care in his nation of one billion.
  • "In health care you can't do one big thing and reduce the price," Dr. Shetty says. "We have to do 1,000 small things."



  •  His model offers insights for countries worldwide that are struggling with soaring medical costs, including the U.S. as it debates major health-care overhaul.  "Japanese companies reinvented the process of making cars. That's what we're doing in health care," Dr. Shetty says. "What health care needs is process innovation, not product innovation."
  • He says he would also like to find lower-cost versions of his priciest medical equipment. But the Chinese makers that have brought good quality, cheaper machines to market don't yet have enough local service centers to ensure regular maintenance.   So he is still buying equipment from General Electric Co.  Dr. Shetty also gets more use out of each machine by using some of them 15 to 20 times a day, at least five times more than the typical U.S. hospital.
  • At his flagship, 1,000-bed Narayana Hrudayalaya Hospital, surgeons operate at a capacity virtually unheard of in the U.S., where the average hospital has 160 beds, according to the American Hospital Association.  Narayana's 42 cardiac surgeons performed 3,174 cardiac bypass surgeries in 2008, more than double the 1,367 the Cleveland Clinic, a U.S. leader, did in the same year. His surgeons operated on 2,777 pediatric patients, more than double the 1,026 surgeries performed at Children's Hospital Boston.
  • Next door to Narayana, Dr. Shetty built a 1,400-bed cancer hospital and a 300-bed eye hospital, which share the same laboratories and blood bank as the heart institute. His family-owned business group, Narayana Hrudayalaya Private Ltd., reports a 7.7% profit after taxes, or slightly above the 6.9% average for a U.S. hospital, according to American Hospital Association data. 
  • Over the next five years, Dr. Shetty's company plans to take the number of total hospital beds to 30,000 from about 3,000, which would make it by far the largest private-hospital group in India.   At that volume, he says, he would be able to cut costs significantly more by bypassing medical equipment sellers and buying directly from suppliers.
  • Then there are the Cayman Islands, where he plans to build and run a 2,000-bed general hospital an hour's plane ride from Miami. Procedures, both elective and necessary, will be priced at least 50% lower than what they cost in the U.S., says Dr. Shetty, who hopes to draw Americans who are uninsured or need surgery their plans don't cover.

A very telling statistic about the "world's best healthcare system"... over six fold growth in Americans fleeing the US in search of healthcare they can afford.
  • By next year, six million Americans are expected to travel to other countries in search of affordable medical care, up from the 750,000 who did so in 2007, according to a report by Deloitte LLP. 

All sounds like a wonderful life... surely there must be issues.  Let's see what Dr Shetty's rivals (unbiased of course) have to say.
  • Some in India question whether Dr. Shetty is taking his high volume model too far, risking quality.  "On one level, it's a damn good idea. My only issue with it comes from the fact that if you pursue wholesale volumes, you may give up something -- which is usually quality," says Amit Varma, a physician who serves as president of health-care initiatives for Religare Enterprises Ltd., a publicly listed financial services group in Delhi.
  • "I think he has reached the point where if you increase volume any more, you could compromise patient care unless backed up by very robust standard operating procedures and processes," Dr. Varma says.
Not so fast...
  • But Jack Lewin, chief executive of the American College of Cardiology, who visited Dr. Shetty's hospital earlier this year as a guest lecturer, says Dr. Shetty has done just the opposite -- used high volumes to improve quality. For one thing, some studies show quality rises at hospitals that perform more surgeries for the simple reason that doctors are getting more experience. And at Narayana, says Dr. Lewin, the large number of patients allows individual doctors to focus on one or two specific types of cardiac surgeries
  • In smaller U.S. and Indian hospitals, he says, there aren't enough patients for one surgeon to focus exclusively on one type of heart procedure.  
  • Narayana surgeon Colin John, for example, has performed nearly 4,000 complex pediatric procedures known as Tetralogy of Fallot in his 30-year career. The procedure repairs four different heart abnormalities at once. Many surgeons in other countries would never reach that number of any type of cardiac surgery in their lifetimes. 

What do the numbers say?
  • Dr. Shetty's success rates appear to be as good as those of many hospitals abroad. Narayana Hrudayalaya reports a 1.4% mortality rate within 30 days of coronary artery bypass graft surgery, one of the most common procedures, compared with an average of 1.9% in the U.S. in 2008, according to data gathered by the Chicago-based Society of Thoracic Surgeons. 
But that actually might be understating the success ratio:
  • It isn't possible truly to compare the mortality rates, says Dr. Shetty, because he doesn't adjust his mortality rate to reflect patients' ages and other illnesses, in what is known as a risk-adjusted mortality rate. India's National Accreditation Board for Hospitals & Healthcare Providers asks hospitals to provide their mortality rates for surgery, without risk adjustment. 
  • Dr. Lewin believes Dr. Shetty's success rates would look even better if he adjusted for risk, because his patients often lack access to even basic health care and suffer from more advanced cardiac disease when they finally come in for surgery.

You might wonder how much the doctors are paid? Workload?
  • Cardiac surgeons at Dr. Shetty's hospitals are paid the going rate in India, between $110,000 and $240,000 annually, depending on experience, says Viren Shetty, a director of the hospital group and one of Dr. Shetty's sons. 
  • His surgeons perform two or three procedures a day, six days a week. They typically work 60 to 70 hours a week, they say. Residents work the same number of hours.   In comparison, surgeons in the U.S. typically perform one or two surgeries a day, five days a week, operating fewer than 60 hours.
  • Dr. Shetty says doctor fatigue isn't an issue at his hospital, and in general, his surgeons take breaks after three or four hours in surgery.

In summary it appears outsourcing may actually help drive down price one of two areas where costs only go up, without bound.

Now if we could only outsource our government...

            Updated Position Sheet

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            Cash: 80.5% (v 83.5% last week)
            Long: 18.9% (v 13.0%)
            Short: 0.6% (v 3.5%)

            This
            data is updated weekly and can be found on 'Performance/Portfolio' menu tab on the website. As always the total gain/loss (both dollars and percentages) only apply to the open portion of the position; it is does not apply to portions of the position sold earlier.

            *** Please note, I've added an options category for things I am holding longer than intraday.

            (click to enlarge)


            LONG (1 photo file)








            SHORT







            OPTIONS





            Natural Gas Down 12% on the Month; True Indicator of State of Economy

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            While trying to avoid US government reports as much as possible due to their lack of accuracy and "sunny side up" disposition, there are some much better places to look for a reality check.  On the consumer side of the equation I like to review the results of Walmart (WMT) and Target (TGT), and on the industral side we can use natural gas.  Unlike almost every other commodity on Earth which has been soaring, natural gas has remains in the tank.  Since most commodities are relatively easy to move across the globe (or to be put in storage, especially cheap to do with nearly free money handed out by central banks), their prices have been increasing... along with the now infamous weak dollar play.  However, the difficulty in moving natural gas long distances means its a great domestic marker; hence its performance is even more damning considering the weak dollar.  To put it in perspective, natural gas was peaking near $14 in first half 2008, and now sits back in the $4s.  Much like electricy usage gives us a far better idea of what is happening inside the country of China, natural gas gives us a reality check from the green shoot crowd domestically. 
            • Natural gas prices have dropped by more than 12 percent in the past month as the country continues to sip at its energy reserves and a balmy November allowed homeowners to leave the heat off.
            • The recession has kept natural gas demand low most of the year. With manufacturers shuttering factories and closing offices, the country is using less electricity and power plants are burning less natural gas.
            • Analyst Stephen Schork noted that with industrial production still weak, home heating would be the primary source of natural gas demand for the rest of the year. "What does that say about the current recovery, or lack thereof?" Schork said in a research note. (indeed)
            During the summer we spoke about the eventual "filling" of all US natural gas storage that would be coming sooner or later... it seems right around the corner.
            • The U.S. has added more natural gas into storage every week since March 27, and there is now more natural gas tucked away in the U.S. than at any point in history.
            • Storage houses are crammed beyond their listed capacity in the West on the Gulf of Mexico, and they're nearing capacity elsewhere, according to data from the Department of Energy.
            That said, we're still producing like gangbusters!  American executive compensation schemes ("heads we win, tails we still win") call for pushing more and more production out into the market, rather than acting rationally in a textbook "supply v demand" dynamic.  Why?  Because shareholders reward those companies who can show "growth" of natural gas production with higher prices, and that is how a CEO is judged.  [Aug 6, 2009: Why are Natural Gas Producers Expanding Production So Aggressively?] Cut back production when natural gas in storage is at its highest levels in US history?  Nah, might cut into my bonus - supply and demand and the business cycle is so old school.

            For all the talk about how the 'free market' works, one must see the misallocation or resources when individual compensation rewards are not based on ratioal behavior but simply goosing figures that investors wish for ... in this sector "growth at any cost" is the thing.  No different then what you said about banks about 36 months ago - growth at any cost - who cares where it comes from.  There is no "bad growth" in America.  From August:

            Even as they lament a gas glut, the companies have been reluctant to let revenue and profits fall further in the short term by being the first to curtail output.

            •“I think they might be cutting off their nose to spite their face here,” said Jim Byrne, an analyst at BMO Capital Markets in Calgary who rates Anadarko, Devon and XTO at market perform. “Everybody’s kind of worrying about themselves, and obviously that’s going to happen, but it doesn’t really bode well in our view, certainly for gas prices.”

            The companies are pumping more gas than ever in the face of a demand slump and a supply surfeit that caused prices to plunge 72 percent from their 2008 high. U.S. gas supplies are 19 percent above their five-year average.

            Investors are rewarding companies for production gains.

            •“There’s a pretty clear correlation between production growth and stock performance,” Hanold said. “These exploration and production companies want to take advantage of that.”

            Friday, November 20, 2009

            What the Heck is Going on During Mondays Lately? Always Up

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            I've noticed Mondays have been very strong lately; the past few weeks government officials worldwide reiterated stimulus, money printing, and more stimulus - first in the G20 (2 weekends ago) and then in Asia (last weekend).  But then I thought back and it seemed like every Monday we seem to walk in to things that hammer the US dollar, and the market soars.  So I thought I'd look a bit closer. 





            Whatever (or whomever) is doing this, seems to love marking the markets up on Monday.  Just by chance?  Or am I data mining?  If the pattern holds you should be buying hand over fist for "Monday Mark Up"... or at least covering any index short exposure.  Considering we are sitting just over the 20 day moving average and we'll be drunk in some announcement over the weekend that will cause the US dollar to sink.... odds are for another one lovely Monday?

            I've cut back my index short upon noticing this trend plus the near term support level ....










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