Monday, May 3, 2010

Olivia Newton John Comments on Today's Action

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I don't know what just happened around 12:15 PM EST but in the words of Olivia Newton John

"Let's Get Vertical, Vertical
I wanna get vertical, let's get into vertical"



(note - this video is so wrong... so very wrong. Aside from Olivia. Those of you under the age of 35 who are not aware of such video and music... be afraid. Very afraid.)

My suspicion is Goldman was assured through back channels this is all a charade and it will be business as usual. They just need to be flogged publicly for appearance sake. Word got to Blankfein around 12:10 PM.

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I switched from those nasty SPY puts to some SPY calls. Hopefully the market can dump tomorrow back below the 20 day moving average so I can lose money yet again. Rinse. Wash. Repeat.

But most of all be physical ....err vertical.

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Bookkeeping: Stopped Self Out of SPY Puts

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Analysis: arrrrghhhhh!!!!!!

If you are a technician this chart just makes you laugh. Or cry. Or both as you bang your head on the wall, considering how often we are violating the 20 day in both direction back and forth. And how little of it is during the actual trading day.



I sold the SPY puts (symbol: ARGH!) I put on late Friday when the S&P 500 broke support. That's twice in a week it has meant nothing. Another loss although modest this time around! Getting whipsawed both ways ... impossible right now without being active in premarket. If you take out premarket advances I believe this market would have already fallen to the 50 day... just back out the two 0.5-0.6% moves in the past few sessions and you are there.

I really hope this is a head and shoulders formation forming - I need to short something and win. Before Labor Day. Until then, see my analysis on line one.

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Matt Taibbi: The Feds v Goldman Sachs

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From the man who coined Goldman Sachs (GS) the "vampire squid wrapped around the face of humanity" ... we have Matt Taibbi's latest take via Rolling Stone. Again, let it be said that some of the best work on our financial oligarchy is being done by a guy in a music magazine. That tells you what a farce corporate media has become. Then again, when almost all outlets are funding the same lobbyist groups (or mirror images) as those funded by the banking cartel... is is surprising?

Some great cutaway quotes:
  • Just under a year ago, when we published "The Great American Bubble Machine" [RS 1082/1083], accusing Goldman of betting against its clients at the end of the housing boom, virtually the entire smugtocracy of sneering Wall Street cognoscenti scoffed at the notion that the Street's leading investment bank could be guilty of such a thing. Attracting particular derision were the comments of one of my sources, a prominent hedge-fund chief, who said that when Goldman shorted the subprime-mortgage market at the same time it was selling subprime-backed products to its customers, the bait-and-switch maneuver constituted "the heart of securities fraud."
  • Goldman isn't dead – far from it. But this new SEC suit officially places it at the center of a raging national discussion about the hopelessly (BLEEP!) state of American business ethics. As a halting, first-step attempt at financial regulatory reform makes its way toward a vote in the Senate, the government has finally thrown open the door and let a few of the rottener skeletons tumble out.
  • On the surface, the failure-to-disclose rap being leveled at Goldman feels like a niggling technicality, the Wall Street equivalent of a tax-evasion charge against Al Capone. The bank will try and – who knows – might even succeed in defending itself in a court of law against these charges. But in the court of public opinion it was doomed the instant the SEC decided to put this ghastly black comedy of a fraud case on the street for everyone to see.
....
  • In metaphorical terms, Paulson was choosing, as sexual partners for future visitors to the Goldman bordello, a gang of IV drug users, Haitians and hemophiliacs, then buying life-insurance policies on the whole orgy. Goldman then turned around and sold this poisonous stuff to its customers as good, healthy investments.
....
  • These flighty Tourre e-mails boasting of cashing in on a disaster and chuckling over the "surreal" experience of power-lying right in the face of a business partner are Goldman's very own Ben Roethlisberger drunken (BLEEP!)-waving moment. It is hard to imagine any company from now on doing business with Goldman and not picturing its fruitcake executives text-boasting to each other about the pleasures of screwing over their own clients.
  • So within the space of a few days, Goldman issued three different explanations, which progressed from (a) we absolutely, positively didn't do it, to (b) if we did do it, we didn't make any money doing it, and finally on to (c) if somebody did it, it was only that French cat Tourre, and here's his head if you want it. These guys couldn't find the truth if it was sitting in their lap playing the ukulele, and that's the basic problem that the entire financial-services sector – an industry that requires trust and confidence to thrive – is struggling to overcome.


And finally... and Matt should of added at the end ... "thankfully, you dear reader - at least if you are in the United States, have an explicit backstop of all this so the next time these bets go bad en masse.... we'll be needing your grandkids money, thanks! Until then Goldman will be able to fund themselves at below market rates aka Fannie, Freddie since everyone knows the government will protect them... heads they win, tails they still win. It's like your local gambling sharkie- fully backstopped by the United States of Oligarchy."
  • In the year since – and this, to me, is the main lesson from the SEC case against Goldman – the public has quickly come to accept that when it comes to the once-great institutions of modern Wall Street, literally no deal that makes money is too low to be contemplated.
  • There is more fraud out there, and everyone knows it: front-running, manipulation of the commodities markets, trading ahead of interest-rate moves, hidden losses, Enron-esque accounting, Ponzi schemes in the precious-metals markets, you name it. (no Matt - that's crazy talk! shhh! All that is happening is a few good hearted insitutions are "creating liquidity" - just ask them.) We gave these people nearly a trillion bailout dollars, and no one knows what service they actually provide beyond fraud, gross self-indulgence and the occasional transparently insincere public apology. (liquidity Matt!!)
  • The Goldman case emerges as a symbol of all this brokenness, of a climate in which all financial actors are now supposed to expect to be burned and cheated, even by their own bankers, as a matter of course.

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Old Taibbi stuff:
  1. Apr 6, 2010: Matt Taibbi - Looting Main Street
  2. Dec 11, 2009: Matt Taibbi - Obama's Big Sellout
  3. Jun 2009: Matt Taibbi - Goldman Sachs, The Wall Street Bubble Mafia
  4. March 2009: Matt Taibbi - The Big Takeover (must read)

Bookkeeping: Closing Bucyrus (BUCY) and Alpha Natural Resources (ANR)

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Well apparently I caught the "coal train" much too late this year, unlike 2007 when I was early. The coal stocks and 'related fare' have had a few rough weeks... as of late last week both Alpha Natural Resources (ANR) and mining equipment maker Bucyrus (BUCY) had broken support on their charts, so I am going to close out the last of each position, both are 0.5%-0.6%ish type of exposures. 5% loss on the former and 7% on the latter.


Recall I had dumped 60% of Bucryus last Thursday on the initial break below support saying:

So from here my standard operation procedure is to cut back exposure on the initial break of support and watch what it does with less on the line. If the stock quickly recovers we can continue the position; if not we are forced to exit and revisit another time.


The decision was made for me... forced to exit and revisit another time.

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With copper at a 7 week low, and coal stocks flailing... and the Chinese stock market at 7 month lows, one would assume one should be worried about the global growth story to some degree since it centered around China. But no worries - the Ben Bernanke (and now Trichet) Forcefields are around us... and as long as they keep the premarket open, we can fend off every selloff with a 0.5, 0.6% markup in premarket whenever needed. Boo yah.

No position other than long central banker forcefields

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Remarkable Premarket Magic

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Remarkable how they mark the market up in off hours right to support. I said S&P 1194 would be the key level ... and lo and behold that is exactly where they took the market in the opening salvo of shots.

Once more as I said last Wednesday when "they" did the exact same thing [Thank the Market Gods for Premarket], why bother to have a market during the day anymore? Just do all the buying between 7 AM and 9 AM when the indexes are easy to push around, and call it a day.

On a very related note - conspiracy theorists will understand how important this is - lost in the bailout news was an even more important event in my book. The European Central Bank has decided, much like the Fed, to take whatever they want on their balance sheet in a desperate attempt to assure everyone, "it's all ok" and "there is no longer any risk in the market, we have you covered". Including junk government debt from Greece. So now both major western central banks have taken their pristine balance sheets and used them as warehouses for the worst of the worst... ah, free markets.
  • The European Central Bank said it will accept all Greek government debt as collateral when lending to banks, indefinitely suspending minimum credit-rating thresholds to support a 110 billion-euro ($145 billion) bailout of the debt-strapped nation. (why do we bother to have rating agencies anymore... I mean when push comes to shove ratings don't mean a darn thing, the central bank will buy anything)
  • For the banking sector it’s a big relief,” said Frederik Ducrozet, an economist at Credit Agricole SA in Paris. “It’ll support the liquidity situation and Greek banks will still be able to come to the ECB with their country’s sovereign debt, European banks will be able to too.”
And it's not like the ECB has not been making exceptions to take more and more junk on their balance sheet already.... this is just the next level of scraping gum off the bottom of their shoes.
  • In October 2008, the ECB cut the minimum rating for assets it accepts as collateral to BBB-, the lowest investment grade. It extended the policy change indefinitely on April 8 this year as it became clear a return to the old rules may exclude Greece.
It's amazing what a tailspin the world would be in if not for this entities we call central banks that are levered worse than any bank was during the crisis and can buy anything for any price with zero consequence. They have become our global toilet bowls. If you need to take a dump ....errr, make a deposit... please call Ben B or Jean-Claude at 1-800-BADDEBT. (operators are standing by)

Moral hazard baby.

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Bookkeeping: Weekly Changes to Fund Positions Year 3, Week 39

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Year 3, Week 39 Major Position Changes

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

Cash: 68.2% (v 52.2% last week)
17 long bias: 24.5% (v 44.1% last week)
3 short bias: 7.0% (v 3.7% last week) [Includes 1 'long dollar' position] [Includes 1 option position]

20 positions (vs 21 last week)

Weekly thoughts
Quite a week...volatile, with a little bit of something for everyone. It was confusing to say the least. First, there was no Magical Monday... it started out that way, with the previous Friday's break to new highs (over S&P 1214) continuing in the first half of the day with a kiss of S&P 1220, but that level was sold. Then came Terrible Tuesday where suddenly Greek and Portugal mattered again. The S&P 500 broke the 20 day moving average for the first time since 1st half February - with the worst loss in a session in months - leading one to believe that after a cursory bounce, the market would begin to trail back down. The only day of the week that made much sense to me was Wednesday when indeed the cursory bounce happened... of course almost ALL of it happening premarket. Yet the S&P 500 did not close above the 20 day moving average for the second day, so it seemed destined for a textbook rollover. So what happened Thursday? A "V" shaped surge... crushing bears. And then the real surprise of the week was identical pain for the bulls Friday, in inverse as Goldman Sachs news strikes again. All in all, one of the strangest weeks in many a month and for those with a time frame greater than "a few minutes" tough to handle. The S&P 500 crossed over the 20 day moving average 3 different days this week, wrecking havoc on anyone with reasonable stop losses either long or short.

To close the week the S&P 500 again broke the 20 day moving average... which was the situation last Tuesday. It did not matter then... will it matter this time? We'll see after the (almost always) premarket mark up. S&P 1194 is the level to watch at the beginning of the week.


Last week I highlighted a chart of the 200 week moving average, which appeared to hold Monday as that is just about where the market reversed.

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On the economic front, Greece finally got its bailout (thank you American taxpayer!) as widely expected by late last week. It is actually quite a busy week ahead highlighted by the 2 ISM reports (service and mfg) and Friday's job reports.

Monday: Personal Outlays & Income, Construction Spending and ISM Manufacturing. The latter has been the bell of the ball the past 4-5 months. While not making up much of the US economy (roughly 13% of economy and 9% of jobs) manufacturing still holds the heart of the stock market.

Tuesday: Factory orders

Wednesday: ADP labor report, ISM Services - the latter being much more important to the new age U.S. economy... it has started to finally pick up the past 2 months, let's see if it continues its trend.

Thursday: Productivity and Costs - productivity has been off the charts as the threatened US worker is willing work longer, harder for little more pay, or else face the unemployment rolls.*

*excluding federal government workers who never have such issues

Friday: The all important monthly job figures... I'd expect anywhere from 400-550K gains, of course much of it temporary in nature and coming from census workers. Another traditional 100K will come from the government's spin on small business job creation that they have no way to measure but believe in their heart to be! It will be a hoot to watch the politicians react to this month's figures - the calls of "we delivered on jobs" should be a doozy. If only we could run a census every 5 months in Cramerica... and maybe 8 concurrent at once, we'd have full employment.

We are still in earnings season but now we're moving away from the S&P 500 type names and into the smaller and more foreign firms this week and next.

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For the portfolio we were whipsawed around like anyone else. I am simply glad I did not go overboard Tuesday on the break of support and bet against the non stop V shaped bounces or damage could of been serious. That said some individual names took some real damage and we need to make adjustments.

On the long side - I had piled into some TNA ETF and SPY calls the previous Friday on a breakout over S&P 1214. That looked great as the typical Magical Monday seemed underway, but once S&P tagged 1220 it reversed. Since nothing major happened other than a modest pullback I kept the positions on. Tuesday started slightly down but the severe drop happened suddenly in a 45 minute stretch mid day. So it was time for damage control since I was badly positioned. After falling to as low as S&P 1190, we saw a bounce to 1198, where I dropped half my SPY calls for a loss. When the market failed to make a material move up after that, I sold the other half of the calls and the TNA ETF. While sucking up losses, that was a good move Tuesday as the market broke down late in the day and a lot more unrealized losses would of been taken... and still seemed ok Wednesday, but then the V shaped bounce Thursday would of made those positions ok and if one had the guts there would have been a way to get out with less damage. Until Friday of course, when the market cracked yet again. Obviously volatility was wicked.

I was stopped out of 60% of Bucryus (BUCY) on a break of support - the stock continued weak the rest of the week, where I cut a bit more, and the rest will go Monday morning as the stock has broken down it appears. I added to Atheros Communications (ATHR) after it came down to fill a gap created on one of the best earnings reports of the past 3 weeks. I sold some Skyworks Solutions (SWKS) ahead of earnings to be safe - no need, the company had a nice report and was up in a bad tape Friday. I was stopped out of about half my Netlogic Microsystems (NETL) on an old limit order not well priced, as it reacted poorly to what I considered a good report. Just the random nature of markets to earning reports.

On the short side, I did almost nothing except put on some SPY puts as insurance late Friday when we broke support. This failed miserably mid week since the market danced to the upside even after breaking support, let us see if it fails yet again as we try yet another V shaped bounce.

All in all, these look like some days of serious distribution... but can a market that goes up 9 out of 10 days in premarket ever really sell off again? ;)

Sunday, May 2, 2010

Bookkeeping: 2 Transactions from Friday

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I had 2 transactions Friday...

First, Netlogic Microsystems (NETL) triggered a long held stop loss ... the idea when I placed it was to lock in my profits by having a stop loss in the $31s. That meant at worst I would have a 7%ish gain on the stock. Unfortunately as the stock had moved up (and up... and up) I had not moved the stop loss higher. Although with the stock opening "gap down" on earnings Friday morning (around $33) it would not of locked in the profits from prices in the $34s and $33s. However any price higher would have been better than $31s. Hence, I was stopped out about half the position at a price not too far above where I'd like to buy it back (closer to $30). Therefore, not a transaction price I like.


If I were on the ball, I should have had my stop loss right around the 20 day moving average (and kept moving it up every few days).... say in the $32.70 range and then I would have been taken out of my position at a price that made more sense and with more profit. Especially if I wanted to buy back nearer to the 50 day moving average about $2.50 lower.

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Second, later in the day when the S&P 500 broke support (20 day moving average) I once again went by the textbook and added some short exposure via SPY puts. When this break of support happened Tuesday last week all it gave bears was pain since the market experienced a "V shaped bounce" despite a break of support. So following precedent only led to pain. That broke the traditional relationship of what was supposed to happen but all you can do is go with probability and hope the market begins to act normal at some point. Due to that experience my SPY put position is smaller than normal (about 3.5% exposure), but I wanted something to hedge to the downside in case the market reacts as it has done historically. It was a very whippy week.

Long Netlogic Microsystems, SPY Puts in fund; no personal position

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Updated Position Sheet

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Cash: 68.5% (v 52.2% last week)
Long:
24.5% (v 44.1%)
Short:
7.0% (v 3.7%) [long US dollar positions are considered "short"]

This data is updated weekly and can be found on 'Performance/Portfolio' me
nu 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]


LONG (1 photo file)


SHORT



OPTIONS

Friday, April 30, 2010

Did Lehman's Dick Fuld Lie Under Oath About Compensation?

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A quite fascinating piece in Bloomberg for those interested in the subject matter, that being executive compensation, how it is hidden by abusing the "spirit of the law", board of director cronyism, and the myth that the CEOs of failed companies actually felt any real pain. We have created a heads we win, tails we still win [Sep 27, 2008: Heads We Win, Tails We Win] executive compensation culture - which is leading to asymmetric outcomes.

But nothing will change in Cramerica, so let's keep the good times rolling. [Oct 30, 2007: You're Fired! Now Here is $160M to Help Ease the Pain] [Jan 22, 2009: Merrill Lynch's John Thain Can Only Work on $87,000 Rugs] [Sep 17, 2008: Thain's Aides May Get $200M for Weeks of Work]. And it is not just with our oligarchs... Home Depot paid former CEO Bob Nardelli $200M just to leave (heckuva job Brownie!), and Chesapeake Energy ... well it's too long to explain. [Apr 9, 2009: Chesapeake Energy CEO Aubrey McClendon With New Shady Compensation Deal] Many only slightly less egregious events happen each quarter, and year. Be assured you can go company by company ... and realize public corporations have simply become feeding troughs for the few & proud - while jetissoning the American middle class worker to the unemployment rolls in proud fashion [Oct 4, 2008: Credit Crisis Sharpens Anger Over CEO Pay]

As for Dick Fuld, of failed Lehman Brothers, we'll see if years of lobbyist compensation will keep him out of the hot seat for misrepresenting (allegedly) his compensation status under oath. I realize it takes special "talent" to run a company into the ground, but really folks - we're talking half a billion in compensation to 1 individual for not even a decade's work.

As an aside, here is yet ANOTHER example of a whistleblower who contacted the SEC ... and the captured regulator could care less.


Snippets via Bloomberg:

  • On Oct. 6, 2008, three weeks after Lehman Brothers Holdings Inc. filed the largest bankruptcy in U.S. history, Lehman’s former chief executive officer found himself before Representative Henry A. Waxman, the California Democrat who chaired the House Committee on Oversight and Government Reform.
  • “Mr. Fuld will do fine,” Waxman said. “He can walk away from Lehman a wealthy man who earned over $500 million. But taxpayers are left with a $700 billion bill to rescue Wall Street and an economy in crisis.”
  • Fuld said he was a victim... Reckless management had nothing to do with it. “Lehman Brothers,” he said, “was a casualty.”
  • Fuld and Waxman went on to disagree about just how much money Fuld had taken out of Lehman before it went under. Fuld, now 64, said his total compensation from 2000 through 2007 was less than $310 million, not the $485 million that appeared on Waxman’s chart.
  • He said 85 percent of his pay was in Lehman stock that had become worthless. “I never sold my shares,Fuld said at one point. (errr!!) At another, he said he had not sold the “vast majority” of them.

Just typical charades up to this point.... now it gets interesting:
  • Among those closely observing Fuld was a 49-year-old former Lehman lawyer named Oliver Budde who was watching the hearing at home on C-Span. Budde (pronounced Boo-da) was certain Waxman’s figures weren’t too high. They were too low, and he could prove it. Fuld, he believed, had understated the amount he was paid during those years by more than $200 million, and now he had done it under oath, for the entire world to see.
  • For nine years, Budde had served as an associate general counsel at Lehman. Preparing the public filings on executive compensation had been one of his major responsibilities, and he had been infuriated by what he saw as the firm’s intentional under-representation of how much top executives like Fuld were paid. Budde says he argued with his bosses for years over the matter, so much so that he eventually quit the firm.
  • He contacted the Securities and Exchange Commission and the Lehman board of directors and says neither showed interest in meeting him. (well the latter group was just joke to contact, considering they are the people setting the pay hah! That's like telling the fox you'd like to met him about the matter between him and the hens)

The middle part of the story goes into how option grants were abused, reclassified, logged into footnote areas on annual reports rather than in plain sight, etc etc. All the usual obfuscation so that we have transparency. It is actually very enlightening...


Specific to the SEC, the organization looking over your back dear readers (watch for the knife):
  • Budde decided to go to the SEC as a whistleblower. He sent a detailed two-page e-mail on April 14, 2008, to the SEC’s Enforcement Division, under the subject line “Possible Material Noncompliance with New Executive Compensation Disclosure Rules.”
  • ... detailing what he believed was Fuld’s failure to disclose more than $250 million in restricted stock awards,
  • He got a standardized form thanking him for his letter in return. He never heard anything else. (thanks for playing!)

Bottom line:
  • While Fuld said he earned less than $310 million from 2000 through 2007, he actually had received $529.4 million, according to Budde’s calculations.
And about that "I did not sell any shares... err I mean I had not sold the vast majority of them"
  • In direct contradiction to Fuld’s claim to Waxman that he had not sold the majority of his shares, Budde estimates that Fuld earned $469 million from stock sales between 2000 and 2008. These calculations are supported by the working paper from a Harvard University study that was made public late last year and is scheduled to be published this summer in the Yale Journal on Regulation.
  • In “The Wages of Failure: Executive Compensation at Bear Stearns and Lehman, 2000-2008,” Harvard Law faculty ..., calculated that Fuld earned $522.7 million from 2000 to 2007, only slightly less than Budde’s tally.
So it's not just a rogue ex employee detailing the "lies". (allegedly)

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Anyhow that is what the "free market"* will bear for compensation, just as the massive bonuses are continuing today as the "free market" is holding short term rates at zero so banks can print money in their sleep. Viva la free market.

*free market = a small subset of board members who direct compensation packages, many of which are CEOs themselves. You rub my back, I'll rub yours. Just think how awesome we'd all be paid if we set the pay for our peers at other companies. We'd all earn half a trillion in 8 years.

Thursday, April 29, 2010

Bookkeeping: Sold Some Skyworks Solutions (SWKS) Ahead of Earnings Tonight

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I usually try to cut position sizes ahead of earnings since I don't like the bipolar reactions that have little to do with how a company is doing, and everything to do with random reactions vs a bunch of analysts numbers thrown against a wall. That said, I have not done it this period simply because (a) I am underweight stocks and (b) stocks only go up ...or sideways, as the Bernanke Forcefield makes it a stock market of almost only winners. Thus far I have been lucky as almost all stocks reporting have either jumped or lost only a little. No big blowups.

However, last Friday I bought some Skyworks Solutions (SWKS) when it fell to the 50 day moving average of $15.50. I think the company will report a good number but thus far reaction to its 2 main peers have been mixed. The stock has done little until today, so I am simply going to sell the portion of the position I added about a week ago (about 40% of my stake) for a quick 4.5% gain (price was right near $16.20) which isn't bad work for 4 days.



As with TriQuint I think the stock is cheap for its growth... I continue to be boggled by the valuations people are placing in some sectors versus others based on ability to grow. Speaking of, I bought a little TriQuint to offset this sale, and keep my exposure to the sector somewhat consistent.

Aside from that, I am betting on black... no red... no black.

Long Skyworks Solutions in fund; no personal position

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When Momentum Stocks Attack: Green Mountain Coffee (GMCR)

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Investors in Priceline (PCLN), Netflix (NFLX), Baidu (BIDU) and the like are enjoying the best of times - these have become the classic momo stocks. (I am leaving out the las vegas casinos, commercial real estate stocks, and just about any US retailer who also now appear to be in this pantheon)

Momo investing is fun and relatively simple. It's the greater fool theory - buy high, and sell higher. Valuation is for wimps. It is among the most popular investing strategies nowadays & hard to argue with since it works. Until it doesn't.

Green Mountain Coffee (GMCR) has become one of these momo stocks, but finally last night expectations had reached the point the company could not deliver on. And today we see what happens when the music stops in the momo dance hall.



With that said, if you use technical analysis, your warning sign to either get out or at least reduce exposure actually came a week ago Tuesday, when the stock broke support (50 day moving average) on huge volume. If you believe Caesars New York City is all about malfeasance and specific groups with access to information before the masses... this was your sign.
  • Shares of Green Mountain Coffee Roasters Inc. tumbled Thursday, a day after the coffee seller posted a third-quarter outlook that fell short of Wall Street estimates. On Wednesay, the Waterbury, Vt., company said it expected third-quarter earnings of 50 cents to 54 cents per share before a 3-for-1 stock split, and earnings of $1.95 to $2.05 per share for the year. Analysts polled by Thomson Reuters had expected profit of 57 cents per share in the third quarter and $2.04 for the year.

While I respect American's right to love coffee, the 50x forward valuation seemed a bit rich but you could of said that at 45x...40x... etc. Valuation means nothing nowadays. Until it does.

This is how all good momo stories end.... eventually analysts behind the ball and constantly underestimating estimates, will finally raise numbers to a point that even companies executing well (as GMCR is) cannot keep up. Then the lemmings jump.

No position

Bookkeeping: Adding to Atheros Communications (ATHR) on Gap Fill

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We appear to have a textbook pullback on Atheros Communications (ATHR) - allowing a nice entry point. Technically, we see the stock gapped up after stellar earnings (one of the best reports I've seen this earnings season). I sold off 1/5th of the position that day near $42.30 simply to lock in some gains - even though it is wrong to sell any stock at any moment in the new paradigm market. The stock dropped sharply Tuesday on the -2%+ down day in the markets, and then yesterday filled the gap created by the earnings report. That also happened to be the same area as the 20 day moving average. Almost too perfect. In fact, it is rare to see a stock that has such a gap up, fill the gap within a week like that.


With the bounce today, I am going to buy back not only what I sold last week, but more... increasing the already good sized position by another 1.7% or so. This is fundamentally one of the best stories out there, and unlike many things people are chasing into at 40, 50, 60x forward earnings is VERY reasonable versus its growth rate.

To that end, analysts have increased full year 2010 estimates from $2.11 to $2.54 since last week's earnings report, so the stock just got even cheaper. Even a 20x forward PE ratio would give it a $50+ valuation. But I guess it is better to go buy a retail stock at 45x forward estimates instead...

Frankly, Atheros should be doing far better stock wise as the stocks people are chasing are so much more rich in value.

Long Atheros Communications in fund; no personal position

I Flinched on Wyndham Worldwide (WYN)

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Sometimes you are in a zone, sometimes you are not. It appears early to mid spring I get into a lull, since this is 2 years in a row of underperformance in April - hopefully not May too (like last year). That said, I actually was daring to short stocks in late spring 2009 (thinking that huge bounce off March 09 lows "should correct" - laughable in retrospect) whereas Ben and Larry have taught me how fruitless that has become this year. Call me Pavlov's dog.

With that said, old habits die hard. Yesterday as the S&P 500 touched lows of the day, testing Tuesday's intraday lows, I had a buy order in process for Wyndham Worldwide (WYN) as the stock had sold off on earnings about 5%. Since I had sold almost all my position a few weeks earlier, I was looking for a good place to re-enter, and finally the stock had pulled back to near the 50 day moving average. In the $25.20s I had a market order waiting for about a 2.5% allocation. But, I saw the market below the 20 day moving average, and testing the previous days low. Instead of buying, I just left the browser tab open with my proposed purchase, and wrote the piece "Another Retest of Yesterday's Low". My thought was if the S&P 500 broke to new lows, Wyndham would not hold the 50 day moving average and my new purchase would quickly turn into loss. My mistake as shown below... the stock has bounced from $25.20s to $27.60s in 24 hours and is almost at highs of the year. This market punishes you for not acting fast to buy any and all dips.



While only a lost opportunity rather than a loss, it is still frustrating.

Long (a sliver) of Wyndham Worldwide in fund; no personal position

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Just Another V Shaped Bounce

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Remarkable. A break of support means nothing. 2 days closing below support means nothing. Unless an "event" that brings in human emotion (hence real volume) happens each day, it seems the market can only go sideways or up. With premarket being the bulk of gains of course.


Color me lost without any old rules working.

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Looks Like a Potential "Double Top" in Ford (F)

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One of the stock stars of the past year has been Ford Motor (F). In fact, you could throw a dart into the auto sector space and make bundles of money, but Ford has name recognition among the masses, versus the supplier base. The company reported a very good quarter 2 days ago, and this has definitely been a "sell the news" reaction.



The stock might have formed a classic "double top" with mid March highs (bearish). Obviously it sits at the very important 50 day moving average. One would expect a cursory bounce here, but it will be interesting to see what happens after any such bounce.

I'll speak about this in another piece but one has to wonder as Ben Berananke's not stop easy money policies continue, when commodity inflation is going to begin to hit the bottom line of producers ... this was raised as a concern with Ford as they are benefiting from relatively low material costs versus the past few years. Lost in the (a) high gas prices and (b) loss of house ATM to fund purchase of cars was the fact the auto industry was demolished by high input costs. Aside from the obvious steel, "petrol" based products are found up and down the body - ask any chemical or plastic maker. We're beginning to see a repeat... [Mar 8, 2010: BHP Billiton Pushes Through 55% Price Increase in Coaking Coal Prices, Quarterly Pricing - Iron Ore Also Potentially Set to Soar]

No position

TriQuint Semiconductor (TQNT) Earnings Solid, if not Spectacular - Guidance Raised for Q2

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More of the same from TriQuint Semiconductor (TQNT) in last night's earnings... a solid showing, beating analysts by a penny, and then raising guidance by another 2 cents for the next quarter, along with a revenue bump. Keep in mind the company raised guidance mid March. I would prefer if this company and its brothers in arms did a 3:1 reverse split since it is hard to create meaningful earnings PER share with so many shares outstanding (issued in the halcyon days of a decade ago). Thus, while 2 cents extra does not sound impressive - considering the number of shares outstanding, it actually takes a lot of horsepower to generate.

Technically the stock is fine, so we'll see what the reaction is today. First support is $7.75ish and second is $7.35 to $7.40. We last sold some 2 weeks ago around $7.90... of course selling almost any stock has been a curse in this market.



A quick flavor on earnings (full report here)
  • Wireless communications products supplier TriQuint Semiconductor Inc's (TQNT) first-quarter profit edged past market expectations, helped by a rebound in its networks market and strong demand for smartphones, and the company forecast second-quarter results above estimates.
  • The company forecast second-quarter earnings of 15 cents a share, excluding items, on revenue of $200 million to $210 million. Analysts were looking for second-quarter earnings of 13 cents a share, before items, on revenue of $189 million, according to Thomson Reuters I/B/E/S.
  • For the first quarter, TriQuint earned $13.7 million, or 9 cents a share, compared with a loss of $15.6 million, or 11 cents a share, a year ago. Excluding items, the company, which supplies equipment to the latest version of Apple Inc's (AAPL) iPhone, earned 12 cents a share, while analysts were expecting 11 cents a share.
  • Revenue rose 52 percent to $180.8 million, above analysts' expectations of $175 million. Revenue from its networks market grew 42 percent.
Gross margins improved significantly:
  • Gross margin for the first quarter of 2010 was 37.9%, up from 19.6% in the first quarter of 2009. Gross margin increased due to an improved product sales mix and solid factory utilization.
[Feb 26, 2009: TriQuint Semiconductor - Solid Earnings, Guidance Good]
[Oct 21, 2009: TriQuint Semiconductor Destroyed in After Hours Trading]

Long TriQuint Semiconductor in fund; no personal position

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Bookkeeping: Stopped Out of 60% of Bucryus (BUCY)

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One of the principles of buying stocks on dips (near support) rather than chasing momentum stocks ever upward is you are often stopped out as the dip does not stop at the moving average. Usually there is at least one bounce off support - which is what happened after our purchase of Bucryus (BUCY), but in this case the bounce failed, which happens at times. So from here my standard operation procedure is to cut back exposure on the initial break of support and watch what it does with less on the line. If the stock quickly recovers we can continue the position; if not we are forced to exit and revisit another time.

I had not noticed until this morning but my stop loss for Bucryus triggered in the mid $65s, versus entry point of mid $68s so with 60% of the position I've been stopped at a 4%ish loss. I'll probably give the other 40% one or two more days and that's it, because it would be doubtful to see a break of support like this and then a reversal right back upward.* There is some support around $63 from mid March, so if that is broken it's probably a sign that HAL9000 has moved away from the stock.



*Caveat - it used to be rare, I've seen it happen a lot the past 13 months.

Long Bucryus in fund; no personal position

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Wednesday, April 28, 2010

2010 Fund Performance Period 4

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The mutual fund is now on schedule for a [late] summer 2010 launch. If, after reading the blog content you might have an interest in participation, please consider reading why this blog exists.


  1. [Jan 2008: Reader Pledges Toward Mutual Fund Launch]
  2. [May 2008: Frequently Asked Questions]
  3. Our story in Barron's [A New Kind of Fund Manager]
  4. [November 2009: General Updates, Questions]

Or if you are just here for daily market / economic commentary or stock trades to follow on your own, consider supporting the blog via donation (paypal buttons can be found on the upper right margin of the blog)

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For those who read the content of the website via email or RSS reader, you can come to the website at any time and click on 'Performance/Portfolio' tab in the menu bar to get updated positions (weekly) and performance.

Total Portfolio Value, as maintained by 3rd party, can be checked here each day with 20 minute delay vs real time (starting value $1,000,000 or $10.00 NAV)

I will post an update of performance versus Russell 1000 every 4 weeks; we moved to a new tracking system in 2009 (Investopedia.com) as the old system would not allow shorting of individual stocks, among other "technical issues" that often came up. Hence while the website and portfolio began in August 2007, we "began anew" in terms of performance with portfolio "B" as of early 2009. Detailed history on latter 2007 and 2008, as well as 2009, [Jan 7, 2010: 2009 Final Performance Metrics] can be found on the above mentioned tab. For 2010 our fourth 4 week period is now complete. (Data is through last Friday's closing prices)

(click to enlarge)


Period 4 was almost identical to period 3... almost every day was up or sideways. The only drama were 2 days in the final 6 of the period; Goldman Sachs Friday and last Thursday when the market opened down in premarket by a material amount for only the 3rd time in 2010. It's been a remarkable streak since mid February - volatility died away, the moves upward have not been large in any 1 session but unrelenting, and the selloffs almost non existent. China continued to struggle and the Greece drama continued but speculators were assured someone will bail them out so no worries there. Unlike last period, we were unable to keep up with the market since the majority of the gains were in sectors we were not focused on, and we were underweight on the long side. Without any large intraday surges in "breakout" fashion short term index plays were limited so we were hand cuffed.


For the fourth "four week" period of 2010 the fund returned +0.9%, versus the market's +4.7%, so an underformance of -3.8%.
On a cumulative basis in 2010 the return is +29.1%, versus the Russell 1000's +9.8%, so an outperformance of +19.2% for the year to date. (thus far 16 weeks)


Period 4 allowed absolute performance (making money) but failed in relative performance (outperforming the market). The yearly goal of beating the index by 15% is on track.

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*** Long/Short Fund Discussion below

Overview: The S&P 500 simply moved along its 6 day moving average for almost the entire period, mimicking performance in period 3. This string of grind up movement was finally broken by the Goldman Surprise, which took the S&P 500 down to 20 day moving average... and that level was retested on the Thursday of the last week of the period. However the NASDAQ and Russell 2000 were so strong, even Goldman Sachs fallout did not push them below their 6 day moving averages. From there a (now) typical V shape bounce occurred the next 3 days. Last Thursday saw a rare gap down open and -1.5% intraday move... which ended up also crushing bears as the market did a V shape intraday bounce. Summary - bears were crushed at every turn.

Below is the chart for period 4...




To show you how consistent the market has been for 2+ months, I cut and paste the chart for period 3 below... almost identical. In fact if not for the "Goldman Sachs event" they might of ended up almost perfectly aligned.



I was expecting SOME form of pullback at SOME point in these past 4 weeks and was wrong the entire period. Thankfully bets against the market were light but caution was punished. While the market was up, up, up, sideways, up, up... there were no big breakouts to play with index positions and we had a few blowups like Massey Energy (MEE). What little dips there were, in retrospect should have been bought. Consumer discretionary stocks remained monsters with the retail ETF (XRT) hitting all time highs... not yearly highs, but all time highs. The Financial ETF was hot until Goldman Friday, and industrials also were smoking hot.

Week 1: Cash 76%, Long 18%, Short 6%

Charts were already extended entering this 4 day week; 90% of stocks were over their 50 day moving average - which usually is an extreme reading. But nothing is too extreme in the new paradigm market. Oil began breaking out so some oil service stocks finally showed life after being massive laggards so I tried my hand there.

Long side moves:
  • I restarted a position in Diamond Offshore Drilling (DO).
  • I I bought more Atheros Communications (ATHR) on a breakout.
  • I closed the last remnant (0.1% exposure) in Telestone Technologies (TSTC) - the stock was not expensive but extremely volatile and is difficult to trade around on technical terms with so many days it moves 8 to 10%; plus the earnings report it gave out the previous week was not received warmly.
  • Some smallish index ETF exposure was bought this week as well.

On the short side:
  • Morgan Stanley China A Shares (CAF) was closed as the instrument broke out.

Week 2: Cash 70%, Long 25%, Short 5%.

On the long side
  • I restarted home builder Lennar (LEN) as nothing more than "people got frothy in 2009 when housing rebounded in spring/summer... I expect them to do the same and be 'surprised' in 2010'."
  • I cut back half of Massey Energy (MEE) after the mine disaster struck...and the stock fell below the 50 day moving average.
  • I sold half of Indian bank HDFC (HDB) simply because it had quite the run
  • I bought some SPY Index calls Friday afternoon.
On the short side
  • I bought back into the exposure against US bonds which I had covered a few weeks previous.
  • I was stopped out of AsiaInfo Holdings (ASIA) late Thursday for a loss.

Week 3: Cash 62%, Long 34%, Short 4%. Same old, same old - straight up. This was the case until Goldman Friday.

On the long side:
  • I sold almost all of our hotel chain Wyndham Worldwide (WYN) - one of our few consumer discretionary stocks - simply to lock in profits after a very nice run.
  • I closed a position (sold the the 2nd half) in Massey Energy (MEE), as the stock looked to be pressured by government scrutiny - instead I rolled that money into a more speculative Chinese equivalent L&L Energy (LLEN).
  • I yook partial profits (25 to 33% of the positions) in 3 names - Quality Systems (QSII), Triquint Semiconductor (TQNT) and NetLogic MicroSystems (NETL), simply to have some discipline.
  • I restarted Discover Financial (DFS) on the idea that many more Americans can now pay their credit card bills since they no longer have to bother with a house payment as delinquencies rule aka the new house ATM.
  • Restarted Rackspace Hosting (RAX) on what appeared to be a breakout - a big move out of a base, on huge volume.
  • I closed Diamond Offshore Drilling (DO) as it has been a major laggard and did not breakout as we had hoped.

On the short side
  • I put on some SPY puts Friday in reaction to Goldman Sachs news... just for some hedging purposes... not a big position.

Week 4: Cash 66%, Long 27%, Short 7%. The question going into the week was "would Goldman matter for more than 1 day?" This week we had 4 names really take off to the upside (3 on earnings, and Lennar on "housing data being stronger in spring"), and was the main reason we were able to scratch out a positive period. Certain stocks began selling off on earnings while other high value momo names were completely blowing out shorts.

On the long side:

  • Rackspace Hosting (RAX) was sold Monday for not participating in this epic rally.
  • After Atheros Communications (ATHR) rocked its earnings report, I sold 1/5th.
  • After some "surprising" housing numbers, I sold 25% of our largest position Lennar (LEN).
  • I was stopped out of half of coal name L&L Energy (LLEN) for a quite nasty loss
  • I restarted a position in Bucryus (BUCY) as the stock pulled back to support post earnings.
  • I added to [new breakout] Quality Systems (QSII) & Skyworks Solutions (SWKS) [fell back to first level support]
  • I added index positions (SPY calls and TNA ETF) in the closing hours as the S&P was poised to take out highs for the years, and "Magical Monday" awaited.
  • I closed Market Vectors Brazil Small Cap (BRF) for similar reasons to Rackspace Hosting... no life.
On the short side:
  • Hands remained tied, simply sold the index put positions I had bought the previous Friday on the Monday dip to the 20 day moving average.

[Apr 1, 2010: 2010 Fund Performance Period 3]
[Mar 2, 2010: 2010 Fund Performance Period 2]
[Feb 2, 2010: 2010 Fund Performance Period 1]
[Jan 7, 2010: 2009 Fund Performance - Final Edition]


For previous years please see tab 'Performance / Portfolio' (we were using other tracking mechanisms at the time)

Another Retest of Yesterday's Lows

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As opined this morning they should of never opened up the market today. It could of just been marked up the traditional 0.5%+ in premarket and never opened and everyone would have been happy. Err...

Also as opined, they did "mark it" right up to the 20 day moving average, almost to the nose. The question is what from there? V shaped run back to old highs immediately as has been the case over and over (and over... and over)? Or a stall. It seems to be stall for now.




If the S&P can break below yesterday's lows, I'd be interested in pressing new index shorts as technically it would be bearish. Obviously the 2:15 PM FOMC announcement causes some trickery, but really I can't see them changing one thing. (it's a shame rates are at zilch, or Ben could of done an emergency rate cut today since the market should not be down 2 days in a row) But until then we are in a very tight range of 1183 to 1193. Obviously any close below the latter number would be the 2nd day below the 20 day moving average. And then we can see futures up tomorrow to try to right that again ;)

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Remeber DragonWave (DRWI)?

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Ouch.

I was reviewing some earnings reports from the past week, and DragonWave (DRWI) competitor Ceragon Networks (CRNT) reported a nice quarter That reminded me to look at DragonWave as I tend to lose track of stocks not in the portfolio nor in my watch list to buy on a near term pullback, and we see a case example of "sell and ask questions later once a chart breaks". I stopped out of the majority of the position in early February when the stock broke support. The worse thing that can happen when you sell on a break of support, is the stock immediately reverses and runs off without you. While that smarts, all you did was lock in a small to moderate loss and missed an opportunity. (that actually happened inititially after my February sale) But it saves you from a protracted move down and much larger loss - which eventually is what happened here.




This is happening despite DragonWave trying to defend its stock by taking in "up to" 10% of its float.

Since the company is so dependent on 1 customer, I assume something has gone awry and "those in the know" have been getting out while the retail investor is being smacked down. But if there is any truth to the full year EPS estimates the company now trades at 9x forward estimates. It should be an interesting earnings report on May 6th.

No position

Wyndham Worldwide (WYN) Beats Estimates Again, Raises Guidance for Q2 & Full Year 2010

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After holding Wyndham Worldwide (WYN) since May 2009, I dumped almost the entire stake 2 weeks ago in the mid $26s, simply to lock in profits after a big move. The stock was once ultra cheap and now is probably a decent value - but not like it used to be. Not that valuation matters in this market. The company continues to execute and reported a solid quarter, with increases in guidance for Q2 and the full year of 2010.


A quick look at earnings (full report here)
  • Wyndham Worldwide Corp (WYN), franchiser of Days Inn and Super 8 hotels, posted higher first-quarter net income on Wednesday and raised its earnings and revenue outlook for the year. Net income rose to $50 million, or 27 cents per share, from $45 million, or 25 cents per share, a year earlier. Excluding items, Wyndham posted a profit of 34 cents per share.
  • Revenue fell 1.7 percent to $886 million, while expenses fell nearly 7 percent.
  • The company now expects annual revenue between $3.6 billion and $3.9 billion, up from its previous outlook of $3.5 billion to $3.9 billion. It sees adjusted earnings of $1.56 and $1.71 per share.
EPS bested analysts by 4 cents. Q2 was raised to $.38 to $.42 vs analysts $.37. Analysts were in at $1.60 for the year, while Wyndham had previously guided $1.48 to $1.69.


Considering RevPAR fell by 6.8% these are actually quite good results, but essentially it's a game of cutting costs by a larger amount than revenue fell.

The company continued to buy back shares, and increased its dividend:
  • ...the Company repurchased approximately 757,000 shares of its common stock at an average price of $24.20
  • ...the Company tripled its quarterly dividend, paying its first dividend at the $0.12 per share level on March 15, 2010
[Feb 10, 2010: Wyndham Worldwide Beats Estimates, Raises Dividend, Restarts Share Buyback Program]

Long Wyndham Worldwide in fund; no personal position

Thank the Market Gods for Premarket

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S&P futures were down in very early morning

S&P futures moved up to flat at 7 AM

S&P futures up half a percent by 8 AM

Not sure why they bother to keep the market open between 9:30 and 4:00 PM anymore other than to lavish 7-8 firms with huge rebates for providing "liquidity"... volume is dismal on up or sideways days and only shows up on down days.  Just open the market for a premarket session each day and we might be at S&P 3000 in no time.

S&P 20 day moving average bumped down a bit to 1193 level, one most certainly would assume we are lifted right to that spot and then we see if we are about to experience another "V shaped" move right back up.  As I said in the closing piece yesterday, a break of the 20 day moving average which sends us to lows of the past 2 weeks should have meant more downside.  But only in theory... not in the new paradigm market where something like half the gains of the past 13 months have been in premarket.  Mark down another "win" for premarket.

I will be dumping my SPY puts for roughly flat.

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Greece Bans Short Selling Until June 28

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What is this? 2008?  Somewhere Jim Chanos and a bunch of traders on the Goldman Sachs prop desk are indignant.

If there is one thing to learned from America's experience 2 years ago, it's letting banks pretend what is on their balance sheet while feeding them free money banning short selling fixes everything.
  • Greece’s securities regulator banned short selling on the Athens stock exchange for two months from today after shares slumped yesterday and Standard & Poor’s Ratings Services downgraded the nation’s credit rating to junk. 
  • “The Capital Markets Commission, taking into account the extraordinary conditions prevailing on the Greek market, decided a ban on short selling on the Athens exchange,” the Athens- based Hellenic Capital Market Commission wrote in an e-mailed statement today. The ban is effective today through June 28, it said. 
  • The ASE benchmark general index dropped 6 percent yesterday, the biggest one-day slide since December, and Greek banks, the worst performing shares on Bloomberg’s European banking index this year, may face further declines after Standard & Poor’s cut their credit ratings along with the nation’s on concern over Greece’s funding crisis. 
  • S&P, which also lowered Greece’s sovereign rating to junk, said the banks are at risk from the country’s “deteriorating credit quality” because of their holdings of government debt. Their asset quality and profitability will remain under pressure as the economy contracts and drives up loan losses, S&P said.

If only these rogue Germany taxpayers would get with the program and hoist debt upon their grandchildren to help pay for the largess in Greece (then Portgual, then Spain) this would not even be an issue.  What is wrong with these fiscally conservative folk?

Tuesday, April 27, 2010

Nasty, Tricky Day

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Despite losing money today and being slapped around, I am encouraged to see a market which seems to have a human pulse.  An hour ago, the S&P 500 broke the 20 day moving average again (I bought some SPY puts just as a downside hedge)... then 30 minutes ago popped back up to S&P 1194 enlisting "here we go again" thoughts.  I was beginning to think this was going to be "one of those days" where every move is a disaster, and I am just compounding them by trying to quickly make up what was lost.  Not only had I sold my long index positions I was now exposed to the downside with options.  Then out of the blue the market falls off the cliff.  Anyone who bought that bounce to 1194 thinking "V" shape bounce was hurt.



In theory, a downside reversal like we had today - breaking through the 20 day moving average and sitting at  last Monday's lows on the close - should lead to more downside to come.  In theory.  Downside test if it continues would be to the 50 day moving average at 1167.

In the weekly summary I proposed buying some long dated (Jan 2011) out of the money puts - something in the S&P 1100 range because eventually the market has to go down again and fill those (multiple) gaps.  But after being burned in relentless fashion for endless weeks attempting any shorting, it is hard to take the plunge.  I have however wanted to go long volatility but the darn ETFs to replicate VIX are horrid.

Anyhow let's see what tomorrow brings (actually the PPT is hard at work, with S&P up 3 already in the 10 minutes after the close), China fell to a 7 month low last night, and Europe has its obvious issues.  Fed meeting tomorrow where we will analyze if Ben Bernanke moves one comma in paragraph 5, sentence 3.... and the implications for the world from this action.

Ironically when I posted that Portugal debt story this morning (one I've posted similar articles to in the past), I assume it elicited many yawns.  "Here we go again, talking about something that does not matter".  But Moody's waking up (dear Moody's - you might want to review USA's "AAA" rating as well - speaking of jokes) seems to have made a little difference.  Cmon German taxpayers - do your moral hazard duty and make sure the average Greek public worker can retire at age 53... you don't want to "upset the markets".

As I always like to say, it only matters when it matters.  Knowing when the market chooses to care about something is the part that is very difficult to assess.

Bookkeeping: Sold the Remaining 50% of SPY Calls as Rebound Does not Appear

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I sold the 2nd half of the SPY puts (edit: calls) as there appears to be no miracle coming in the last 90 minutes. Main logic here is not to compound a mistake, go back to cash aka a clean slate and start anew tomorrow.  In the old days I'd also list overnight risk but since almost every morning we are greeted with positive futures it has not been a risk very often the past year+.

From here the only drama is to see if S&P 1194 will hold on the close.  If not, the first close below the 20 day since mid February.

Despite the drop today, it still remains a market that only seems to fall when human emotion is involved... if there is no specific news event, we just grind up.

[Also sold the TNA ETF]

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Cavium Networks (CAVM) - Another Good Quarter, with Raises Guidance; Still Pricey

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I seem to be writing the same commentary in almost all these earning report reviews.  A company which beat lowly analyst estimates, raised guidance, but still an expensive valuation.  All I do is change the name of the company and stock symbol.  Today we have Cavium Networks (CAVM) which I have been keeping an eye on for the past 6 months or so.  [Dec 18, 2010: Cavium Networks Raises Guidance, Breaks Out of 4 Month Range] [Jan 29, 2010: Cavium Networks Continues to Show Strong Growth]

Cavium Networks is a leading provider of highly integrated semiconductor products that enable intelligent processing in networking, communications, storage, wireless and video applications. Cavium Networks offers a broad portfolio of integrated, software compatible processors ranging in performance from 10 Mbps to 40 Gbps that enable secure, intelligent functionality in enterprise, data-center, broadband/consumer and access & service provider equipment. 

Estimates for full year 2010 have increased from 44 cents to 58 cents over the past 90 days.  With today's guide up for next quarter that number should be in the low to mid 60s now. But considering the stock is now near $30, it is still a 50x-ish type of forward multiple.  (record broken alert)



A look at the impressive growth of late (full report here):
  • Chipmaker Cavium Networks Inc (CAVM) posted better-than-expected quarterly results on strong bookings at its chip and software business, and forecast second-quarter results above market expectations.
  • The company, which makes processors for networking and communications equipment makers, forecast second-quarter earnings of 18 cents to 20 cents a share, excluding items, on revenue of $48 million to $50 million.  Analysts were looking for earnings of 13 cents a share, excluding items, on revenue of $43.2 million.
  • Cavium Networks expects gross margins of 63 percent to 64 percent in the second quarter. Gross margins were 59.6 percent in the first quarter.
  • "Enterprises seem to be finally loosening their purse strings and spending on enterprise infrastructure upgrades, which they had postponed," Chief Executive Syed Ali said on a conference call with analysts.
  • The company recorded a strong sequential growth of 25 percent in the enterprise and service provider market, which was 69 percent of first-quarter sales.  The company, whose customers include Cisco Systems Inc (CSCO) ,  Juniper Networks Inc (JNPR) and Alcatel Lucent , said it expects continued strength in the enterprise and service provider market.  Sales at top customer Cisco formed 27 percent of total revenue and grew 20 percent to $11.1 million on a sequential basis.
  • For the first quarter, Cavium posted a loss of $3.1 million, or 7 cents a share, compared with a loss of $6.5 million, or 16 cents a share, a year ago.  Excluding items, the company earned 14 cents a share.
  • Revenue more than doubled to $41.6 million.  (last year $20.4 million) Analysts were expecting earnings of 11 cents a share, excluding items, on revenue of $40.7 million.
  • Jefferies & Co. analyst Adam Benjamin told clients in a note Tuesday that Cavium is poised for "significant" revenue growth over the next few years, driven by the company's backlog of successful chip designs.


No position


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