Tuesday, February 23, 2010

IBD: Could Priceline (PCLN), Expedia (EXPE) Hit Headwinds?

IBD reports on one of the hottest stocks on the planet - Priceline.com (PCLN) along with lagging peer Expedia (EXPE).  Usually multiples are based on growth rates, and Priceline warned in their latest earnings report [Feb 18, 2010: Priceline.com - Another Stellar Earnings Report] not to expect the same growth rates go forward as comparisons get tougher from here.  The question now is what expectations of the future are already in Priceline's stock and is this one of those times buying a weaker peer might actually offer more upside.


Via IBD:
  • Online travel agency Priceline (PCLN) has been sailing with the wind for more than a year and demand is billowing, especially in Europe.  Priceline said Wednesday that its gross international bookings, mainly in Europe, soared 81% in the fourth quarter vs. the year-earlier quarter. Its hotel room nights booked jumped 60% worldwide. Its per-share profit has beaten analyst views by at least 18 cents in each of the last six quarters.
  • Other online travel firms also have been lifted. Expedia (EXPE) said on Feb. 11 that its fourth-quarter earnings rose 36% on a 26% rise in bookings. But some analysts — and Priceline itself — note the weather pattern might be shifting. Visitor growth to online travel sites is slowing, and recent economic turmoil in Europe might hurt the travel business.
  • At the same time, sales and marketing expenses are creeping up as the global economy recovers, driving up costs for companies like Priceline and Expedia. And as the economy rebounds, some airlines and hotels might opt to sell plane seats and rooms on their own Web sites rather than offer them to online travel agents.
  • "There's some potential for disappointment in online travel" later this year, said Standard & Poor's equity analyst Scott Kessler. He says a shifting market might hit Priceline the hardest, since it's been doing so well. He says Priceline will face especially tough quarterly comparisons, given its stellar 2009.
  • "The recurring theme and issue for Priceline is the fact that expectations have gotten so high, a lot of the investing public expects them to exceed their guidance," Kessler said.  With Priceline trouncing analyst views routinely, Kessler says a quarter that misses views or only mildly beats might unnerve investors.

  • U.S. visitor traffic to Priceline cooled late in 2009, after surging earlier in the year. One possible explanation is that consumers aren't as passionate about scouring Priceline for travel deals as the economy recovers.   Tracker ComScore Media Metrix says that visitor traffic to Priceline rose 28% in December compared with December 2008, to about 8.8 million unique visitors. But the site's traffic jumped 50% in August and 52% in September.
  • On the plus side, Priceline's Booking.com hotel reservation service in Europe saw traffic soar 83% in November and 72% in December.
  • To be sure, Priceline provided strong guidance for the current quarter. It expects total gross bookings to jump 42% to 48%. It sees international bookings soaring 65% to 73%, with U.S. bookings rising 10% to 15%. It expects revenue to rise 23% to 27%. That would be up from 15% in first-quarter 2009 vs. first-quarter 2008.
  • But Kessler says it's still unclear how the government financing problems facing European nations like Greece will impact travel spending.
  • ... the euro has been weakening against the dollar. Priceline's Boyd noted on his conference call that it's difficult to predict how future currency moves will affect the company's foreign-denominated sales.
  • As the global economy in general picks up, though, so will ad prices of advertisers such as Priceline, says S&P's Kessler.
  • He also notes that while travel suppliers are eager to sell unsold plane seats and rooms on travel sites when the economy's bad, they lose some incentive when the economy improves. Kessler says Priceline and other Web travel firms will be hurt if airlines and hotels get stingy about offering deals on their inventories.
  • He points out that Expedia has a much stronger corporate travel arm than Priceline, a plus as the global economy recovers. Expedia has also been making efforts to crack the Chinese market through its Egencia corporate travel unit. Aside from Agoda, an online hotel reservation service based in Singapore that books rooms in Southeast Asia and China, Priceline has little presence in the Chinese online travel market.  "Expedia's starting to get back on the ball again and their international expansion efforts are paying off," said Morningstar's Miller.
  • Expedia said domestic bookings rose 19% last quarter, while international bookings soared 38%. Global hotel revenue surged 16%.  Kessler says Expedia's TripAdvisor unit, which reviews hotels, restaurants and other travel-related services, is doing well. The service makes money from online ads, so it will gain as ad rates rise. "It's a natural hedge for Expedia," he said.

No position

NY Post: Watered Down Volcker Rules, to be Watered Down Further

Government Sachs (GS) wins again.  (insert audible gasps of shock here)  While the NY Post is generally not the "go to" source for data, you can assess the veracity of these stories out of D.C. by the stock price of Goldman Sachs. 

The "surprise" of the (watered down) Volcker rule truly shocked our oligarchs. [Jan 27, 2010: Bloomberg - Financial Oligarchs Completely Stunned by "Volcker Rules"]  Obviously there was some teeth to real regulation being considered a month ago but "the market" did not like it, and now we run the entire country on what "the market" wants.  And our friends at 85 Broad are the most important private player behind "the market" - when they throw temper tantrums all must be halted.  Judging from the recent strength in the stock - even on a down day like today - the bank lobbyists have 'done good' and now we are getting the typical song and dance... something to trumpet the peasantry, but with almost no impact. [Feb 2, 2010: Senator Shelby - We Don't Need no Stinkin' Volcker Rules]  A watered down version of what was already a watered down proposal.

Fully backstopped via taxpayer hedge funds within investment banks - only in Cramerica.

Via NY Post:
  • The Obama administration is backing off a plan to bar commercial banks from engaging in proprietary trading, favoring instead a watered-down version of a key tenet of the proposed "Volcker rule" governing how banks operate, according to people familiar with the situation. 
  •  Sources told The Post that instead of issuing an outright ban on prop trading -- or trading done on behalf of only the bank itself -- the White House will propose that federally insured banks keep higher cash reserves if they want to run such trading desks.
  • The about-face comes amid signs the administration faced an uphill battle selling lawmakers and Treasury officials on an outright ban. (please check the campaign contributors of these lawmakers for the real reason behind said rejection)
  • The Volcker rule had problems almost from the start, with Volcker and Deputy Treasury Secretary Neal Wolin having difficulty explaining the proposal and its necessity to the Senate Banking Committee.  (that probably speaks more to what type of people are sitting in our Congress than anything else...)
  • ....even as a group of former Treasury secretaries, including John Snow, George Schultz and Paul O'Neill, threw their support behind the prop-trading ban, Volcker himself is said to be only somewhat optimistic about his proposal's chances
  • Well, I for one, feel better now (ahem)

Berkshire Hathaway's Charlie Munger - Basically, It's Over: A Parable About How One Nation Came to Financial Ruin

While Warren Buffet gets all the press and is a media darling, his partner who works in shadows is a person I find much more interesting.  Perhaps because Charlie Munger is one blunt son of a gun as we saw a year ago [May 3, 2009: Berkshire Hathaway's Charlie Munger Says 'Venal' Banks May Avoid Needed Reform]

This is an enormously influential group of people, and 90 percent of that influence is being spent to gain powers and practices that the world would be better off without,” Munger, 85, said yesterday in an interview with Bloomberg Television. “It will be very hard to accomplish the kind of surgery that would be desirable for the wider civilization.”

We need to remove from the investment banking and the commercial banking industries a lot of the practices and prerogatives that they have so lovingly possessed,” Munger said. “If they are too big to fail, they are too big to be allowed to be as gamey and venal as they’ve been -- and as stupid as they’ve been.”

No surprise, Charlie was right on this one.

Today we have a fascinating piece Mr. Munger wrote in Slate.com titled ''Basically, It's Over" - well worth the full read.  I will let you read between the lines, and of course with a caveat that this is just one of many issues affecting "Basicland".  A few snippets:
  • In the early 1700s, Europeans discovered in the Pacific Ocean a large, unpopulated island with a temperate climate, rich in all nature's bounty except coal, oil, and natural gas. Reflecting its lack of civilization, they named this island "Basicland."
  • The Europeans rapidly repopulated Basicland, creating a new nation. They installed a system of government like that of the early United States. There was much encouragement of trade, and no internal tariff or other impediment to such trade. Property rights were greatly respected and strongly enforced. The banking system was simple. It adapted to a national ethos that sought to provide a sound currency, efficient trade, and ample loans for credit-worthy businesses while strongly discouraging loans to the incompetent or for ordinary daily purchases.
  • Moreover, almost no debt was used to purchase or carry securities or other investments, including real estate and tangible personal property. The one exception was the widespread presence of secured, high-down-payment, fully amortizing, fixed-rate loans on sound houses, other real estate, vehicles, and appliances, to be used by industrious persons who lived within their means. Speculation in Basicland's security and commodity markets was always rigorously discouraged and remained small. There was no trading in options on securities or in derivatives other than "plain vanilla" commodity contracts cleared through responsible exchanges under laws that greatly limited use of financial leverage.

  • .....even a country as cautious, sound, and generous as Basicland could come to ruin if it failed to address the dangers that can be caused by the ordinary accidents of life. These dangers were significant by 2012, when the extreme prosperity of Basicland had created a peculiar outcome: As their affluence and leisure time grew, Basicland's citizens more and more whiled away their time in the excitement of casino gambling. Most casino revenue now came from bets on security prices under a system used in the 1920s in the United States and called "the bucket shop system."
  • The winnings of the casinos eventually amounted to 25 percent of Basicland's GDP, while 22 percent of all employee earnings in Basicland were paid to persons employed by the casinos (many of whom were engineers needed elsewhere). So much time was spent at casinos that it amounted to an average of five hours per day for every citizen of Basicland, including newborn babies and the comatose elderly. Many of the gamblers were highly talented engineers attracted partly by casino poker but mostly by bets available in the bucket shop systems, with the bets now called "financial derivatives."
  • Many people, particularly foreigners with savings to invest, regarded this situation as disgraceful. After all, they reasoned, it was just common sense for lenders to avoid gambling addicts. As a result, almost all foreigners avoided holding Basicland's currency or owning its bonds. They feared big trouble if the gambling-addicted citizens of Basicland were suddenly faced with hardship.
  • And then came the twin shocks. Hydrocarbon prices rose to new highs. And in Basicland's export markets there was a dramatic increase in low-cost competition from developing countries. It was soon obvious that the same exports that had formerly amounted to 25 percent of Basicland's GDP would now only amount to 10 percent. Meanwhile, hydrocarbon imports would amount to 30 percent of GDP, instead of 15 percent. Suddenly Basicland had to come up with 30 percent of its GDP every year, in foreign currency, to pay its creditors.
  • How was Basicland to adjust to this brutal new reality? This problem so stumped Basicland's politicians that they asked for advice from Benfranklin Leekwanyou Vokker, an old man who was considered so virtuous and wise that he was often called the "Good Father." Such consultations were rare. Politicians usually ignored the Good Father because he made no campaign contributions.
  • The views of the Good Father drew some approval, mostly from people who admired the fiscal virtue of the Romans during the Punic Wars. But others, including many of Basicland's prominent economists, had strong objections. These economists had intense faith that any outcome at all in a free market—even wild growth in casino gambling—is constructive. Indeed, these economists were so committed to their basic faith that they looked forward to the day when Basicland would expand real securities trading, as a percentage of securities outstanding, by a factor of 100, so that it could match the speculation level present in the United States just before onslaught of the Great Recession that began in 2008.
  • Basicland's investment and commercial bankers were hostile to change. Like the objecting economists, the bankers wanted change exactly opposite to change wanted by the Good Father. Such bankers provided constructive services to Basicland. But they had only moderate earnings, which they deeply resented because Basicland's casinos—which provided no such constructive services—reported immoderate earnings from their bucket-shop systems.
  • As it worked out, the politicians ignored the Good Father one more time, and the Basicland banks were allowed to open bucket shops and to finance the purchase and carry of real securities with extreme financial leverage. A couple of economic messes followed, during which every constituency tried to avoid hardship by deflecting it to others. Much counterproductive governmental action was taken, and the country's credit was reduced to tatters. Basicland is now under new management, using a new governmental system. It also has a new nickname: Sorrowland.
Welcome to Sorrowland...

That was Quick

That did not take long...

I thought any selloff would take the S&P down to those 2 exponential moving averages in the 1095-1098 area and here we are..

That was the "Ć«asy"part of the move down. What happens from here will be interesting. Let us not forget the gap created by one of our wonderous "pre market futures surges" down there at S&P 1078.  Will we be filling it soon or is that an issue for another week?

Hostage to Ben Bernanke

While I expect no fireworks from Easy Money Ben Bernanke this week, one should expect traders to be on pause awaiting his wise words of almost infinite easy money policies.  Look for knee jerk reactions, both up and down, to any phrase or word that gets traders in a lather.  This is what the gambling hall, errr... stock market has come to.

As for the greater market, as stated yesterday I sold off the index long positions and saw 1109 area (with stop loss over 1112) as a good position to place a short term bearish bet on the market.  That was just about the high of the day yesterday before the late day selloff.  Since I am not at the computer most of the day for the majority of this week I am not doing this strategy right now, but this is what I'd normally be employing.  That said, I am not sure what major downside awaits us on any pullback because some key support levels are not too far below.  However this rally (yet again) on vapor volume continues to astound me, and many other veterans on the internet I have been reading for years. 

An incredibly rare premarket that is not positive awaits us - I guess Ben is too busy preparing for testimony today to be supervising his underlings to hit the "buy buy buy" button on SPY futures.

Monday, February 22, 2010

Canpotex Reaches Potash Deal with India for $370 per Ton

Canpotex (the Canadian potash 'cartel') struck a deal with India Friday for $370 per ton. Quite a far cry from the good ole days of 2008.  [Mar 27, 2008: Canpotex Potash Contracts Secured with India @ $625]  But hopefully the market has bottomed out, as we are seeing some inventories finally falling.

Via Reuters:
  • Canpotex, the export arm of Canadian potash producers, said on Friday it has signed a deal to sell 600,000 tonnes of potash to Indian buyers at a delivered price of $370 a tonneThe pricing of the deal is consistent with most analysts' expectations, but it is an incremental positive for producers, as it indicates that potash pricing has bottomed out and demand has begun to rebound from the dismal levels of 2009.
  • Canpotex said the new supply contract with India covers shipments through June 2010.
  • "We are encouraged to see physical product flow of potash, which confirms both an improvement in go-forward inventory levels and resumed offshore demand," TD Newcrest analyst Paul D'Amico said in a note to clientsMany analysts speculated that the price of that contract settled at around $350 to $360 per tonne, which is roughly in line with the $350 price that China agreed to with BPC in December.
  • Canpotex, which is jointly owned by Potash Corp (POT), Mosaic Co (MOS) and Agrium Inc (AGU), said the deal was reached with a consortium of Indian buyers including Coromandel International and Tata Chemicals Ltd.Potash Corp, the world's largest producer of the crop nutrient, supplies Canpotex with almost 54 percent of the consortium's potash requirements, with Mosaic and Agrium contributing about 37 percent and 9 percent, respectively.
  • Last week, Canpotex signed a deal to sell 350,000 tonnes of potash to China's Sinofert at an undisclosed price.
  •  Potash emerged from obscurity a few years ago when high grain prices, tight supplies and strong demand drove prices above $1,000 a tonne from below $150.  Potash emerged from obscurity a few years ago when high grain prices, tight supplies and strong demand drove prices above $1,000 a tonne from below $150.
 Long Potash in fund; no personal position

Bookkeeping: Taking Some Profits

With the S&P 500 under 1109, which is the simple moving average discussed in the weekly summary, along with a market up for many days with very little volume, I am going to take some profits on positions.  Many of the individual stocks are up in a straight line and now running into old highs.  This actually is a nice place to short the S&P 500 (around 1109) with a stop loss over 1112 or so.

Both the smallish SPY March call position as well as TNA ETF have been sold completely.

Individual Stocks

Sold 60% of Atheros Communications (ATHR) as it reaches January highs...

Sold 50% of Skyworks Solutions (SWKS) which we bought on a breakout late last week in the $14.20s; had an upgrade this morning so we'll take advantage to lock in profits.

Sold 50% of Seagate Technologies (STX) - super strong chart but simply nowhere near any support

Sold 80% of Rackspace Holdings (RAX) - it has now rallied into heavy resistance; will monitor what it does for now but the prudent thing to do is sell and then re-assess.

Sold 30% of F5 Networks (FFIV) - straight up move, not near any support

Long all individual stocks mentioned in fund; no personal position

Bloomberg: Coal Rally on Chinese Demand Sparks $59 Estimates

A lot of mixed message coming out of China on the commodity front... a potential excess of copper [Feb 9, 2010: China Copper Imports to Halve] and steel [Feb 10, 2010: China to Curb "Maverick" Steelmaking as Costs Rise], but lacking in coal.  Of course coking coal being one of the components that go into steel...hmm.

Via Bloomberg
  • A rally that has boosted coal prices 21 percent from their lows last year may have further to go as the coldest U.S. winter in nine years and China’s record imports increase demand and drain stockpiles.  Prices will average $59.28 a ton this year, up 17 percent from $50.75 as of Feb. 19 on the New York Mercantile Exchange and 41 percent more than last year’s low in April, according to the median of 11 analyst estimates in a Bloomberg News survey. 
  • Stockpiles at utilities swelled last year after a mild summer and the economic recession reduced power demand.
  • China, the world’s biggest coal user, imported 16.4 million metric tons in December, a sixfold increase from a year earlier, customs data show.  [May 13, 2009: Commodities - It's China's World: We Just Live in It]
  • “We’re definitely bullish for a confluence of factors,” said Jeremy Sussman, senior coal analyst at Brean Murray Carret & Co., a New York-based boutique investment bank. “We can see the light at the end of the tunnel in the U.S. The weather has definitely had an impact. The international market is front and center.” 
  • Hedge funds have been buying energy producers, mining companies and airlines, a sign that managers from Louis Bacon to David Tepper are convinced the economy will accelerate. Duquesne Capital Management LLC, led by Stanley Druckenmiller, bought 6.2 percent of coal miner Massey Energy (MEE), whose earnings are projected to double this year. Massey is the sixth-largest U.S. coal company. 
  • The increased U.S. and Chinese consumption prompted Michael Dudas, an analyst at Jefferies & Co. in New York, to raise his 2010 price target for coal to $70 per ton, a figure he originally forecast for 2011. “The weather and better electricity generation have pushed stockpiles lower than people anticipated,” said Dudas, who has followed coal for a decade. “It’s really just accelerating that price.” 
  • The cold weather is the best thing they can get right now that’s not a full economic recovery,” said Daniel Scott, an analyst at Dahlman Rose & Co. in New York. “People are no longer scared to talk about thermal coal.”  The 2009-2010 winter season, which began Dec. 1, is the coldest since the 2000-2001 season and ranks in the coldest third of winters in the past 115 years.
  • Utilities have 57 days worth of coal on hand, down from more than 70 days at the start of winter, according to Genscape Inc., a Louisville, Kentucky-based energy data provider. 
  • U.S. steel capacity utilization tumbled to 68 percent as of Feb. 15 from 91 percent in August 2008, according to the American Iron and Steel Institute, as unemployment climbed to 10 percent and consumers reduced spending 3 percent on appliances in December from a year earlier. 
  • Prices plunged 66 percent to $48.15 per ton at the end of 2009 from a record $143 on July 1, 2008, the steepest decline in at least eight years, according to data compiled by Bloomberg.
  • The risk to forecasts for higher coal prices is a glut of natural gas in the U.S. and prospects for the economy to stumble as the Federal Reserve boosts interest rates for the first time since June 2006. “If the economy tanks again, that changes the outlook,” according to James Rollyson, senior coal analyst at Raymond James Financial Inc. in Houston. “The economy and particularly this year natural gas prices are the variables. Coal lost market share to natural gas because we averaged $4 gas for the year.” 
  • The U.S. relies on coal for about half of its power generation, compared with about 20 percent for gas. Gas has to stay above $5 per million British thermal units to prevent it from being more attractive to utilities at the expense of coal. Natural gas for March delivery fell 12.8 cents, or 2.5 percent, to $5.044 per million Btu on Feb. 19. Rollyson estimates that through November coal lost about 40 million tons worth of demand to gas.

Bookkeeping: Weekly Changes to Fund Positions Year 3, Week 29

Year 3, Week 29 Major Position Changes

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

Cash: 70.3% (v 78.1% last week)
21 long bias: 24.0% (v 13.8% last week) [Includes 1 option position]
4 short bias: 5.7% (v 8.1% last week) [Includes 2 'long dollar' positions, 1 option related]

25 positions (vs 25 last week)

Weekly thoughts
Just as a reminder posting will be a bit sporadic this week until Friday.

US markets were able to post a very strong week, despite some late week surprises with a minor discount rate increase which seemed to hit Asian markets much harder than the U.S.  China comes back from lunar new year and at this point these 2 markets, along with the Greece drama appear to be the only thing investors are focused on.  All of the major US indexes were up every day last week in the holiday shortened period; and Russell 2000 is now up 8 sessions in a row.  One would assume a consolidation period, even if minor, should be fast approaching.

Off to the index charts.. one item to note is a specific situation to the S&P 500 which differs from NASDAQ and Russell 2000 at this time, in that the ''simple" moving averages have a slightly different interpretation than the ''exponential'' moving average (which is what I use).  As always, there is nothing right or wrong about using one or the other, and generally they line up quite close but from time to time you have some small divergences. In this case the S&P 500 50 day moving average has a resistance area at 1109, whereas the index has already cleared the 50 day on the exponential chart.

[click to enlarge]



Below are the charts for NASDAQ and Russell 2000; if interested the 50 day simple moving averages for the two are 2231 and 620 respectively.

So with the caveat that the S&P 500 is sitting right at the 50 day (simple) moving average, the charts are on their normal path upward.  With "Magical Monday"awaiting us, it will be interested if the S&P 500 will have any trouble with this level.

I did expand some individual positions along with adding index exposure once the trio of levels I was seeking to pass over happened, but with on and off access to computer for most of this week I am below long exposure I'd normally have. Further, we are overdue for some sort of pullback so a drop back to the exponential 50 day moving averages would not be surprising.  But at this moment we seem to be right back to 2009 type rallies... V shape, with weak volume.  Very different than usual.

Interestingly, the market has been able to do quite well even in the face of the US dollar having a solid week.  I have been using the dollar as a low beta hedge against market drops, but it's performing well even during a time the market rallies so that's a bonus.

On the economic front, nothing of note Monday but a Ben Beranke appearance Monday (11 AM EST).  Case-Shiller and a consumer confidance survey are on Tuesday, with new home sales and yet another appearance by Helicopter Ben (10 AM EST).  Durable goods are Thursday morning with yet another Ben appearance at 9 AM.  How many times can one man say  "I have the kerosene - and I am happy to use it for an extended period of time"?  I am sure one of these days, 1 small phrase in paragraph 28 will cause a selloff or a rally as we obsess about one man controlling our markets with his money levers.

For the portfolio as discussed above with limited computer access in the near term, I am underweight some exposure versus how I would be if I had better ability to adjust if the market turns very sour.  In a larger sense all dips are to be bought now that the 50 day (exponential) has been recaptured in all index charts, but that policy changes if they begin to break down again.   With the market due for a breather the nature of the pullback will be interesting to watch.  Overall however, it seems in this new paradigm market all light volume days mean the market will be walked up... whereas the market can only sell off when the sellers come out in force (high volume).  In any year other than 2009 this would make no sense.  For individual positions, we sold half the Wyndham Worldwide (WYN) to lock in a quick profit, looking to repurchase on a pullback over a move over a recent highs.   American Superconductor (AMSC) was closed out, as it was unable to mount a rally even in a very strong week for the market and was stuck below the 200 day moving average, so there are easier directions to turn.  Skyworks Solutions (SWKS) was added to as a solid looking chart.

Sunday, February 21, 2010

Updated Position Sheet

Cash: 70.3% (v 78.1% last week)
Long: 24.0% (v 13.8%)
Short: 5.7% (v 8.1%) [long US dollar positions are considered "short"]

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.

[click to enlarge]

Photo files of positions to be loaded later

LONG (2 photo files)



Friday, February 19, 2010

NYT: Party Gridlock in Washington Feeds Fear of Debt Crisis

This snippet says it all:
  • “I used to think it would take a global financial crisis to get both parties to the table, but we just had one,” said G. William Hoagland, who was a fiscal policy adviser to Senate Republican leaders and a witness to past bipartisan budget summits. “These days I wonder if this country is even governable.”
 Via NYT:
  • Senator Evan Bayh’s comments this week about a dysfunctional Congress reflected a complaint being directed at Washington with increasing frequency, and there is broad agreement among critics about Exhibit A: The unwillingness of the two parties to compromise to control a national debt that is rising to dangerous heights.
  • After decades of warnings that budgetary profligacy, escalating health care costs and an aging population would lead to a day of fiscal reckoning, economists and the nation’s foreign creditors say that moment is approaching faster than expected, hastened by a deep recession that cost trillions of dollars in lost tax revenues and higher spending for safety-net programs.
  • Yet rarely has the political system seemed more polarized and less able to solve big problems that involve trust, tough choices and little short-term gain. The main urgency for both parties seems to be about pinning blame on the other, before November’s elections, for deficits now averaging $1 trillion a year, the largest since World War II relative to the size of the economy.
  • Sensing political advantage, Republicans are resisting President Obama’s call for a bipartisan commission to cut the debt, although recent studies have implicated the tax cuts and spending policies of the years after 2000 when they controlled Congress and the White House. Even seven Republican senators who had co-sponsored a bill to create a commission nonetheless voted against it recently.
  • “There isn’t a single sitting member of Congress — not one — that doesn’t know exactly where we’re headed,” Mr. Simpson said in a telephone interview Tuesday just before word of his role got out. “And to use the politics of fear and division and hate on each other — we are at a point right now where it doesn’t make a damn whether you’re a Democrat or a Republican if you’ve forgotten you’re an American.”
  • While he criticized some liberal Democrats’ refusal to reduce entitlement benefits, Mr. Simpson also dismissed Republicans’ antitax arguments that deficits could be controlled with spending cuts alone. “But they don’t cut spending,” he said, referring to the years Republicans governed with President George W. Bush.  
  • Elected Republicans, however, are under intense pressure from their party’s conservative base to oppose any tax increases — a line in the sand that dims any prospects for bipartisan cooperation. Yet economists, including veterans of past Republican administrations, are vocal in insisting that the debt problem is too great to be solved without increasing revenues somehow and perhaps moving to a new consumption tax system like Europe’s.  [Dec 11, 2009: NYT - Many See the VAT Option as Cure for Deficits]
  • The same economists also say a significant deficit-reduction plan is not possible unless Mr. Obama breaks his campaign promise not to raise taxes for households making less than $250,000.
  • As debt rises, so do interest costs; by 2014, at a projected $516 billion, they will exceed the budget for annual appropriations for domestic programs. The government will be competing with the private sector for credit, forcing interest rates higher and imperiling future prosperity.
  • Foreign investors now own more than half of the publicly held debt, and officials for the largest creditor, China, have fretted publicly about the fiscal course of the United States. While few expect foreigners to dump their assets, since the resulting plunge in values would hurt them as well as everyone else, the fear is that investors will demand higher interest payments and reduce or stop future debt purchases, threatening the government’s ability to finance its borrowing.
  • Lesser financial and fiscal crises have brought the two parties together to compromise on tough choices about taxes and spending. They include the 1983 accord between President Ronald Reagan and a Democratic-controlled Congress that reduced the financial strains on Social Security, based on proposals from a commission led by Alan Greenspan, and budget agreements in the 1990s that contributed to a four-year run of surpluses at the end of the decade.
  • Because the worst of the fiscal problem remains years away and therefore somewhat hypothetical to most people, there is also not the same incentive to act immediately that drove, for example, the 1983 deal, when Social Security was facing an imminent crisis.
  • ... politicians’ failure to reduce deficits has long reflected voters’ opposition to the necessary steps. The poll also found that by a two-to-one ratio Americans oppose cutting health care and education; 51 percent oppose lower military spending.
[Aug 26, 2009: US Federal Budget in Pictures
[Jun 12, 2009: NYT - America's Sea of Red Ink was Years in the Making]

Thursday, February 18, 2010

Correction Over

All 3 levels I had been looking for coming into the week: S&P 1100, NASDAQ 2220, and Russell 2000 620 are fulfilled / regained. 

At this point I have changed my mindset completely from everything I learned the previous 15 years.  Any day there is low volume now has a 98% chance of being an upward or at worst a sideways day.  The only times we can sell off are on heavy volume.  Heavy volume is no longer needed for rallies that can last for months.

Once you forget everything about the pre 2008 market, it all begins to make more sense.

I've bought some index positions but not as much as usual since access to computer will be limited in coming days.  Until S&P 1100 is broken it will bethe floor, along with the 50 day moving average at 1097 right below it.  There is a gap at 1078 that will need to be resolved in the months ahead, but for now - as long as there is no volume, it's all good.

Big jump in weekly unemployment claims?  No problem. (remember all the celebration about the drop last week?)
No resolution on Greece other than to say "check back in a month"? No problem.
Weak volume? No problem.

The no problem market of 2009 is back.  I, for one, am not going to fight it - learned that the hard way in spring/summer 2009. This bad boy can even rally in the face of a positive dollar.  Russell 2000 up 7 sessions in a row.... no problem.

EDIT 2:50 PM - there is really no resistance on these index charts until we get back to 2010 yearly highs of January.  As long as the 50 day moving averages hold, all dips are now to be bought again.  Outside of a break back below the 50 day moving averages, the next major strategic move will be to see what happens around 2010 yearly highs... if & when.

Jim Cramer Has Lightbulb Moment: Not Paying Mortgages is Keeping Americans Spending

Jim Cramer finally came around to my line of thinking this morning... an "aha" moment as the virtual light bulb went on over his head.  How can retailers be doing pretty darn good... credit cards stabilizing... and even car buying jumping a bit, even as unemployment rages.  He has PART of the picture - the house ATM has been replaced by the govenrment ATM.  [Jun 5, 2009: 1 in 6 Dollars of Income Now Via Government; Highest Since 1929]

But over and above that, as I advanced in November 2009 piece [Nov 25, 2009: America's Stealth Stimulus Plan; Allowing It's Home "Owners" to be Deadbeats] we now have a permanent stimulus happening as great swathes of Americans are sitting in homes not making a payment. 

I was looking through the avalanche of economic data today, and it struck me how once again Americans are spending well over their income growth.
I've written about this in the past in conceptual terms but never put it into an analysis. The true stealth stimulus plan in America is letting so many of its people live "rent free" as they sit in defaulted homes not making a mortgage payment. This "cost savings" allows them to shop and spend, and otherwise support the American consumption society. While it is hard to keep track of all the stimuli, try to think back to the Bush spring 2008 stimulus. (that was about 37 stimuli ago) That goosed GDP quite well for two quarters. But we now have a quasi permanent stimulus plan that goes on quarter, after quarter, year after year.... and its equivalent to have a permanent Bush level stimulus (using VERY conservative figures).

Now obviously in a 6-24 month period it is not the same people who enjoy this stimulus. Some finally are kicked out of their homes, while other new 30+, 90+, 120+ day late borrowers take their place. So it's a "rolling" stimulus if you will, relatively stable in terms of absolute dollars but rolling from 1 household to another as they go through the stages of default.

From anecdotal stories (many of them) it is now taking at minimum 9-12 months to get evicted, and that's in states without super high foreclosure rates.  I read the other day some Florida locations are 2+ years now.  So 9, 12, 15, 18 months of not having to make a $1200, $1500, $1800 payment.  And it can go longer now if you enroll in the trial modifications offered by government, then redefault.  If you are really good at playing the system you might be able to go through two whole default cycles with the trial modification in the middle. 3 years of rent free living? Nirvana.  

Further, with the new accounting rules that were the nexus of the market rally in March 2009, the banks no longer had to mark value of assets on their balance sheet to market... so they can now mark to what they see fit.  Hence this system works for them too.  All these foreclosures they should be closing on are things they are in no hurry to do... because doing so would mean they need to stop pretending about the true valuation of these defaulting mortgages and start admitting reality.  Don't you love what 1 change in accounting rules can do for a country? ;)
In that November piece I laid out some math to show this stimulus to be about $160B a year - one can quibble with my assumptions but I thought they were very conservative.  If it's $135B or $200B ... the point is the consumption figure of our economy is now in full on subsidization mode by so many Americans living without a mortgage payment they honor.  Of course there are hard luck stories of people who simply got caught up in layoffs and are trying to survive.  But for every one of those we have a few like our gentleman in this story I posted a few months ago [Dec 13, 2009: WSJ - American Dream 2: Default, then Rent] - you remember the guy... our fireman from California who is happy to not make his payment on his house, so he can make sure to keep his BMW.  Because trading down to a shoddy car so he could fulfill his debt obligations would not be cool.  These are the new rules of moral hazard in Americana.

With an income of about $8,300 a month and a rent of $2,200, Mr. Fernandez says he now has the wherewithal to do things he couldn't when he was stretching to pay the mortgage. He recently went to concerts by Rob Thomas and Mat Kearney. He also kept his black BMW 6 Series coupe, which has payments of about $700 a month.

Cramer finally figured it out today - welcome to the Banana Republic Jim, where debts are just a piece of paper and not our fault - it's the system that tricked us into that kitchen remodel.  Or 3rd SUV  And trust me Jim, if so many Americans were not living paycheck to paycheck, the credit cards would be defaulting at a much higher level as people sent "jingle mail" to their credit card issuers.  But a person needs his cards to live the life he so rightly deserves in "Cramerica".
Since RealMoney is a subscriber service I'll just cut a few blurbs, full subscribers can follow the link here.  I am just so happy to see others coming to my viewpoint... as always, we're early. 

  • You need to have an answer why the expensive shops and goods are doing well and yet unemployment is high. You need to figure out how foreclosures can be mounting and yet people are still going out to dinner at the nicer places such as Red Lobster or Olive Garden .... You have to have an answer for how Coach can consistently deliver actual breakout numbers and why Tiffany's  numbers keep going higher.
  • And I think I have got one. Today the employment claims went up, to a level that's uncomfortable and a precursor to more bad news on the larger jobless front. We know foreclosures aren't tapering off...
  • So what's my theory? What two key metrics are actually going the right way at the banks despite unemployment and foreclosures? Credit cards and auto loans. Defaults have tapered off remarkably month after month in both areas. You know what I think is happening? People aren't paying their mortgages in record droves -- as much as 15% of them are in trouble or just being defaulted on -- but they are keeping the cards and keeping the cars so that they can go out, lead their lives and shop like the old days.
  • So, we have consumer spending doing well even as the consumer's troubled by mortgage payments. In a bizarre way, the banks are subsidizing the consumer by not foreclosing, and we get robust numbers from the retailers and the goods they sell.
  • Bizarre. Different from any other time and positive for all but the companies that do the lending! No wonder consumer spending, two-thirds of the American economy, keeps expanding; there's excess capital that should have gone to the home that instead goes to buy goods, not mortgages!
Congrats on "your theory" Jim...
The full ponzi economy continues ... if we can all borrow to our hearts content and not bother to pay back the money (the banks are too big to fail, and can sit and make up their losses with nearly free money from the Federal Reserve), just imagine how great this economy can be in the next 10-20 years.  A magical place we live...old school rules no longer apply here. 

(Video) Governor Chris Christie of New Jersey Talks Tough on Out of Control Spending, with Some Shocking Statistics

I have never seen newly elected Chris Christie speak before, but he struck me as an impressive guy based on this video.  The only part I did not like was how he said he'd be more than happy to take federal money when offered but I can at least understand that, and he is at least honest about it.   Contrast this to the GOP grandstanders in Congress who cluck about how evil the stimulus is and how they are against it, but even the mainstream media can do enough homework to catch them back in their home districts at photo ops with big fat stimulus checks, with cheesy smiles on their faces. 

I will give him credit for saying all the 'easy choices' have been made, and there are no easy answers nor will the decisions make people happy.

Some absolutely shocking statistics...

#1 for fiscal 2011 (which starts this fall) New Jersey is facing a $11 Billion deficit.  On a $29 Billion budget.   As I keep saying, you think Greece has problems?  We have many Greece's running around, throw in a few Portugal's, Ireland's to boot.

#2 we speak of the horror show that is the public pension situation across America.  [Jan 5, 2010: FT.com - US Public Pensions Face $2 Trillion Deficit]  Christie gave a great example with numbers... he claims a 49 year old retiree (first of all the idea that a 49 year old can retire with full pension is boggling for someone who has only worked in the private sector) will have (a)  paid in $124,000 during his career for pension AND healthcare.  What does he get outt of that investment? (b)  $3.3 MILLION in pension and $500,000 in healthcare benefits.   $3.8 million for $124,000 paid in.

That simply does not square with anything in the private sector outside of the executive suite.  Many people are simply happy to have a 401k match at this point and will be on their own for healthcare until Medicare kicks in.  So it appears New Jersey has the equivalent of a whole class of worker who are at executive level benefits, and can collect even before age 50 if they choose to retire.  No wonder they have the highest property taxes in the nation.

I continue to believe there shall be a great rubber meet the road moment between the public worker and private in America.   And I continue to believe (as I stated 2+ years ago) we will have "stimulus" after "stimulus" after "stimulus" as backdoor bailouts of the states shall continue each year.    In the private sector, the government (if it was a corporation) would be deemed bankrupt and the pensions would go to PBGC and those receiving the pensions would get 10-20 cents on the dollar since there is simply no money to back up these promises.  But in the public sector, we are told this is what people earned so we must find more revenue to pay for promises that never had a chance of being paid back.  Private v Public - 2 worlds.  Your grandchildren will be paying for these obligations - no matter what state you are in. The holes we have dug at the local level no longer can be glossed over with accounting tricks as they have been for a decade+.  The can is finally hitting the wall after being kicked....

16 minute video (email readers will need to come to the site to view) - if you have a fiscal conservative bone in your body you will at least have a shred of hope from viewing. 

[Dec 4, 2008: Bloomberg - Hoboken New Jersey Increases Taxes 47%]

IMF to Begin Selling 191 Tons of Gold (GLD) on Open Market

The first half of a large planned IMF sale of gold went to India, [Nov 2, 2009: International Monetary Fund to Sell One Eighth of Gold Stake to India] and speculation was China would snap up the second half.  But it appears the remaining 191 tons will instead be sold on the open market; since this was announced gold has been under some pressure but it might be more of a knee jerk reaction (as the Reuters article below says) since I would assume the sales will happen in intermediate steps over time.  While under the guise of "raising money to help poor countries", I think the IMF can see the sovereign debt issues that they are going to need to assist with over the next decade and might as well start "getting liquid".

As for gold itself, for now a series of lower highs the past few months.  A move over $1160 would strike me as bullish ...

Via Reuters:
  • Spot gold dropped about 1 percent on Thursday after the International Monetary Fund (IMF) said it would sell its remaining gold reserves, but settled in a narrow trading band as the market absorbed the news.
  • The IMF announced it would begin phased open-market sales of the remaining 191.3 tonnes of gold under a program launched last year to raise new resources for lending.   To avoid disruptions of the gold market, the IMF said the open-market sales "will be conducted in a phased manner over time."
  • "This wasn't totally unexpected given what the IMF has been saying, but it was still enough to give the market a rattle," a gold dealer in Sydney said.
  • "This is probably a knee-jerk reaction. At the end of the day, the sales from the IMF are well-known," said Jacob Oubina, senior currency strategist for forex.com.
  • This could be regarded as negative, as no central bank wants this gold at this market price,” Dincer said of the IMF’s announcement. “On the other hand, the 191.3 tons will not distort the physical gold market, as buying interest for investment purposes is still intact.”
  • Transactions under the previous tranche of the IMF gold-sale program consisted of a 200-ton sale to the Reserve Bank of India in October, followed by November sales of two tons to the Bank of Mauritius and 10 tons to the Central Bank of Sri Lanka
[Oct 13, 2009: Largest Gold Reserves by Country]

Priceline.com (PCLN) - Another Stellar Earnings Report

While I exited out of what was left of the position a few weeks ago, Priceline.com (PCLN) continues to impress; another stellar earnings report last night and the stock was up another 5-7% in after hours.  This appears to be a very well run company, in the right niche, with a global footprint who (importantly) knows how to play Wall Street's "set the bar low and then smash it" game - Mr. Shatner would be proud.

I can't believe I was originally able to load up on this a year ago near $100; wish I had been more patient. 

Full report here, highlights via IBD below.  International results continue to exceed expectations.
  • In what has become a regular occurrence, Priceline late Wednesday released financial results that handily beat analyst estimates, led by international bookings.  But the company's CEO sought to dampen enthusiasm a tad, saying growth will slow to merely very fast rates this year, largely because of the big growth in 2009.
  • Norwalk, Conn.-based Priceline (PCLN), which trailblazed a name-your-price service, said its fourth-quarter profit minus items jumped 54% to $1.99 a share from $1.29 in the year-earlier quarter. The consensus estimate of 19 analysts polled by Thomson Reuters called for $1.68.
  • Priceline's per-share profit has beaten analyst views by at least 18 cents in each of the past six quarters.
  • Priceline said sales surged 33% to $541.8 million. Analysts expected $529.8 million.  The company said international gross travel bookings soared 81% (70% in local currencies), and hotel room nights booked surged 60% worldwide. Domestic bookings rose 21%.
  • Gross bookings, the dollar value of all travel services bought, soared 53% to $2.26 billion.
  • But Priceline Chief Executive Jeffery Boyd warned in a conference call with analysts that the company expects booking and other growth rates "to decelerate," especially in the second half of the year, as its results are compared against relatively strong periods of performance.

  • Priceline said it expects first-quarter revenue to rise 23% to 27% from first-quarter 2009. Analysts had forecast a 27% increase, to $584.8 million. The company pegged profit minus items at $1.54 to $1.64 per share, where analysts were forecasting $1.41.

Analyst talk:
  • Kessler says Priceline's done a "phenomenal job" rolling out attractive travel deals in the last year. But he says there could be a few bumps in the road ahead.  Online ad prices are firming and that could mean higher sales and marketing expenses for Priceline, he says. Kessler also says that recent economic woes in Europe, Priceline's biggest overseas market, could crimp travel buying.
  • Kessler also says that as the U.S. economy rebounds, hotels and airlines might get stingy about making their inventories available to Web travel firms like Priceline.
  • Morningstar's Miller doesn't expect Europe's recent economic wrinkles to have "much of a material effect" on Priceline. He says the company can offset any small drop in online travel demand through aggressive marketing and expanding into new geographic areas. He says Priceline can also sign new travel suppliers to secure more inventory.
  • A report issued Monday by Citigroup analyst Mark Mahaney notes that Priceline has the largest installed base and lowest-cost online travel model in Europe. He says it also has a good "defensive hedge" in the U.S. because its name-your-own-price offering is well-known. Mahaney said Priceline has "the best management team in the online travel sector."
[Nov 10, 2009: Priceline.com Hits an Earnings Home Run]
[Aug 10, 2009: Priceline.com - Recession Recsmession! Continued Impressive Results]
[May 14, 2009: Priceline.com in Investors Business Daily]

[May 11, 2009: Priceline.com Continues to Execute Well]
[Feb 19, 2009: Priceline.com Impresses on Earnings]
[Aug 6, 2008: Priceline.com - Down 17% on Good Earnings?]
[May 8, 2008: 2 Earnings Reports of Note: AIG (AIG) and Priceline (PCLN)]

No position

Wednesday, February 17, 2010

Stocks With Excellent Charts

As we await the breakout over S&P 1100 (if not today, then surely in premarket tomorrow or Friday, when all the important work is done) some chart review.

A lot of stocks have made a quite substantial turn for the better with yesterday's low volume surge.  I am seeing countless charts that look like this below - what is so interesting is how little "resistance" has meant when the computer go hardcore on the "inverse dollar" trade.  It is as if the pretty red line means nothing. [click to enlarge any chart]

I can find about 200 charts that look identical to the one above - and not just the commodities or "early cyclical" stocks - every sector there are many.  "Student body left" trading is alive and well.  If the market "melts up" I'd expect all of them to run en masse. 

I can find a smaller group of stocks similar to our TriQuint Semiconductor (TQNT) which have already rallied back to near mid January highs - these type of names are either about to make a "double top" (hence one would want to sell) or ready to make a new leg up, at which point they would be stocks to buy. 

... because if they make new highs, they would be poised to act like the stocks below, which I consider the strongest charts.  Many of these barely appear to have been hit by the correction ... here are some of the best of the best, from quite disparate sectors.  I have not listed most of them below but we have some of the best charts in consumer non discretionary - especially basic food stocks like Sara Lee (SLE) or Tyson Foods (TSN) of all things!  There are quite a few others - what that action is "telling us" is beyond me, other than Americans are hungry.

Star Stocks Outside of Food Group

Rockwell Automation (ROK) - defense

Brookfield Properties (BPO) - REITS, office

Dolby Labs (DLB) - home entertainment

Autozone (AZO) - car repair

Limited Brands (LTD) - retail

Southwest Air (LUV) - airline

Family Dollar (FDO) - retail

Perrigo (PRGO) - pharma / generic

Ashland (ASH) - chemicals

Chipotle Mexican Grill (CMG) - restaurant

Lennar (LEN) - homebuilder

Long TriQuint Semi in fund; no personal position

Bookeeping: Adding to Skyworks Solutions (SWKS)

Skyworks Solutions (SWKS) is potentially breaking out of an intermediate sideways base.  Buying near some key support areas like this we have very easily seen stop loss areas just below - or we can choose recent lows i.e. $13-13.25 area if we want to give it more leeway.  Adding a 1% exposure in the $14.20s - if the market takes off there should be no resistance until mid January highs in the mid $15s (9% higher). Peer TriQuint Semiconductor (TQNT) is also looking quite nice on the chart - waiting for that one to make new 2010 highs before adding.  Technology seems to be an area of strength as I look through the charts - ironic, considering it was perhaps the worst sector in January 2010.  How quickly HAL9000 changes his mind.

Long both names mentioned in fund; no personal position

Bookkeeping: Closing American Superconductor (AMSC)

I am going to close out the last 0.3% of American Superconductor (AMSC) as the stock seems to be in purgatory for now.  Thankfully our stop loss for 75% of the position hit in early February just under $38 - keeping up at very limited losses; and we've sold off a bit more since then as the stock has been acting poorly.  The inability to rally on a day like yesterday when almost all stocks were marked up regardless of prospects has be somewhat concerning.  The only positive is volume seems to be completely drying up - so perhaps sellers are exhausted. 

If we begin another "V" shaped recovery in the markets I am sure AMSC will follow the pack up as almost every stock now moves as one, but there are stocks in far easier chart positions than this one and we can latch onto one of those as a replacement.   Obviously the 200 day moving average is providing quite the headwind at this moment.

No position

Bookkeeping: Selling 1/2 of Wyndham Worldwide (WYN)

I am selling 1/2 of the Wyndham Worldwide (WYN) position, almost all of which was rebought on February 5th @ $20.60 area when a limit buy order was hit.  After that purchase I put a limit sell order at $23.30 which would be near highs from January; the stock looked ready to go there but despite a big rally yesterday the stock seemed stalled.  Being a bit impatient I am going to just move the sale from a limit order to a market order for 50 cents less, in the low $22.80s.  That still generates a nice 10.5% gain in under 2 weeks; not as exciting as some of these Chinese stocks who lose or gain 10.5% in 1 session but the stock has been priceless the past year in working wonderfully with technical analysis; thus allowing us to trade around a core position in a very methodical manner. More "exciting" stocks have a bad habit of quite random movements that cause us many more issues.

I will rebuy this half position on either (a) a pullback  - something in the lower $21s would be nice or (b) a move over mid January highs of $23.50, as that should signify a potential new leg up. Today's sale will drop exposure from 1.8% of portfolio to 0.9%.

As for the general market, every computer waits poised to jump in over S&P 1100.  Please note that YESTERDAY's premarket nonsense caused yet another gap in the chart - this epic rally has been born in premarkets so we have new "gaps" to fill almost every month.  We just filled 2 old gaps in this most recent selloff, and within days a new gap is created - the magic of premarket futures buying.  This fap is around S&P 1078; so that could fill today, tomorrow, in 3 weeks, or 3 months.  It will happen eventually.

Long Wyndham Worldwide in fund; no personal position

Hedge Funds Pile into Citigroup (C); as Does Bruce Berkowitz of Fairholme Funds

According to this Bloomberg story, Citigroup (C) is getting a massive amount of love from the hedge fund community... along with Morningstar's mutual fund manager of the decade Bruce Berkowitz.  I wonder if the taxpayer will get a hand written thank you note from the speculator class (of which I am one!).  On one side you have implicit taxpayer support and on the other you have a Federal Reserve which has thrown American savers under a bus so that our oligarchs - Citigroup front and center - can make money in their sleep by borrowing from the Fed at nearly zero and charging the American people any figure over and above 0.25% for their borrowings.  (rob from the many to give to the few, reverse Robin Hood style)   Now this is a business model, any competent 1st grader could handle at their lemonade stand, but let's bonus these banking executives up the wazoo (there are only a few on the planet who could run such a business corporate social welfare machine) for their incredible skill at navigating what is the biggest corporate handout in the history of the US. 

I still have no idea how to analyze Citigroup (does it still have those infamous off balance sheet accounts ala Enron?) but since the government says Citi is a cockroach that cannot be allowed to die, the investment community seems happy to pile in.  Or perhaps they are all just copying John Paulson... "if Paulson says it's ok, it must be ok!". [Aug 26, 2009: Citigroup Surges on John Paulson Investment]
  • Firms run by John Paulson, Eric Mindich and George Soros purchased almost half a billion shares in Citigroup Inc. last quarter as more than 120 hedge funds said they bought stock in the bank.   Paulson & Co. reported a stake equal to 506.7 million shares in New York-based Citigroup, up from about 300 million at the end of the third quarter, according to a government filing yesterday. Mindich’s Eton Park Capital Management LP acquired 138 million shares, making the company its largest holding. Soros Fund Management LLC reported 94.7 million shares worth $313.4 million.
  • Citigroup stock bought by hedge funds outnumbered the amount sold by a ratio of more than 10 to 1 in the October-to- December period, with about 1.2 billion shares added on a net basis, according to Securities and Exchange Commission filings compiled by Bloomberg.
  • Fairholme Capital Management LLC run by Bruce R. Berkowitz, named U.S. stock mutual-fund manager of the decade last month, bought 214.7 million shares valued at $710.7 million. Hedge fund manager Daniel Loeb’s 15-year-old Third Point LLC also took a new position, adding 25 million shares worth $82.8 million. 
  • The shares traded for an average of $4.10 in the quarter, 24 percent above its closing price yesterday of $3.31, data compiled by Bloomberg show. Citigroup posted a $7.6 billion fourth-quarter loss on costs to exit the U.S. bailout program, giving the company its second straight unprofitable year. Chief Executive Officer Vikram S. Pandit booked an $8 billion pretax charge when he repaid $20 billion of bailout funds in December. Revenue missed analysts’ estimates as trading results fell from the third quarter, helping push the shares down 9.3 percent from their 2010 high. Taxpayers still own 7.7 billion Citigroup shares, and Pandit failed to restore the bank to profitability in his second full year in the top job.
  • Investors may be betting on a rebound in Citigroup after it lost as much as 94 percent of its value during the credit crisis. The purchases came in the same quarter that the third- largest U.S. financial company sold more than 5 billion new shares to help repay government bailouts.
  • Citigroup is forecast to earn 9 cents a share this year, or 2 percent of what it made in 2005, based on Bloomberg’s analyst survey. That’s partly because Citigroup has had to issue almost 23 billion new shares to bolster a weakened capital base. Investors who were shareholders prior to the financial crisis were left with about one-fifth their original stakes.
  • Hedge funds may be speculating on a break-up of Citigroup into individual businesses, according to Diane Garnick, a New York-based investment strategist at Invesco Ltd., which manages about $400 billion.   “The sum of the parts is worth less than each individual part,” said Garnick. “It is easier for investors to assign value to a company if it is broken up into its many component parts. In this market environment people are starting to reward single business unit companies.”
No position

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