Tuesday, August 17, 2010

Bookkeeping: Adding Some Short Exposure to Replace Gentiva Health Services (GTIV)

In trying to adapt to the new world order where HFT + EFT = GLEE (high frequency trading + dominance of EFTs = happiness for us all*) I want to try to avoid the bipolar action when I can.  Especially on the short side since my shorts are far more technically oriented, whereas my longs are combinations of good fundamentals + good charts.  By avoiding hedge fund favorites, I will hopefully not get swept up by a "risk on" day, and the stock can trade on its own merits to some degree.


What is a risk on day?  Today for example when EVERY single stock on the long side of the portfolio is up.  Long before it was called risk on, I called it "student body left" trading, and it's now the de facto standard in a thin market, dominated by professionals (as retail has fled to bond mutual funds)... and most of these professionals now are made of silicon.

So as I peruse charts for shorts, I try to avoid "energy" or "materials" or "China" or anything I know will either be demolished or worshiped based on what HAL9000 has decided is going to be the theme of the day.  I still want liquid names (decent sized market cap, decent amount of shares traded each day) so in the real world they can be shorted easily.  Today's candidate is Henry Schein (HSIC) which is a nice quiet company in the healthcare field.  The specifics are immaterial as this is a technical short.... the stock has had trouble clearing the 50 day moving average for a few months.  In the past few weeks the 50 day has crossed below the 200 day so we now have 2 resistance areas.  I am going to use the intraday high of last week as my stop loss area, so $55.25 or so.  I will short roughly a 2% exposure in the $54.40s.  Downside risk is 1.5%... it's not going to be a 'fast money' mover so unless the market goes into tail spin $53 seems to be the current area of support.... it does have a gap to fill in the $52s.

Gentiva Health Services (GTIV) is headed out the door for a 3% loss which is the maximum I will take on the name.  It still has not broken out over the highs of the month, so this is a precautionary adjustment.  I'll consider this a 1:1 switch between GTIV & HSIC.

I threw on some TNA short as we run into the mountain of resistance on the exponential moving averages, but only a small (2%) amount since simple moving averages seem to be working better of late.  I will cover this on a break over S&P 1100; so I'm "at risk" about 4 S&P points.  Over 1100 I might instead turn tail and go long the same instrument.

Short Henry Schein, Direxion Small Cap 3x ETF in fund; no personal position


S&P 1088.50 Gap Filled (to the Upside) - Now What?

The gap created by the "gap down" last Thursday morning @ S&P 1088.50 is now "filled" - another reason I hesitated to press any shorting activity despite the break of S&P 1086/1087.   For whatever reason, upside gaps on indexes can take many weeks (if not a few months) to fill, whereas downside gaps seem to fill in very short order.  This one only took 3 days.

Now what?

Good question.  Such a difference when you look at things in the simple v exponential world.

In the exponential world we have a quite large mess ahead as almost all key moving averages are converging.  That area should provide quite a pivot point; either it will be resistance or a support (if we rush through it).  Since this level provided no support on the way down last week, I am not sure if it will provide much resistance on the way up.  We might soon find out.

In the simple moving average world (which has seemed to be more important of late) - the 50 day moving average has moved up from 1086 to 1088 over the past few days.   And the 200 day has moved up from 1115 to 1116.  So we can take that range of 1085 to 1115 we've been playing with, and move it up slightly to 1088 to 1116.  In between 1088 and 1116 there is not much to say other than we're back to the bipolar market.

So we'll wait and see how things play out... there are a lot of broken chart out there, but so many things go from extremely overbought to extremely oversold in just days.  (the semiconductors are case in point)  I do remain amazed the market is almost completely ignoring the plummeting 10 year bond yield; it fell another 10 basis points yesterday (2.68 to 2.58%!!)  We're almost back to March 2009 panic yields.... yet it's "no sweat" apparently.   This is yet another that I'd expect at least some oversold bounce in.  TBT ETF for a short term trade??

2 years view

Blast from the Past - How to Lose $12.4 Billion in a Decade

Some of you longer term investors who used to enjoy the "good ole days" when you could daytrade Lycos, Excite, or Yahoo (at the time considered equals) for a good 9-10% a day, anytime there was an announcement that had to do with 'eye balls' or 'web hits' will enjoy this one.  Sort of like the "where are they now?" for once famous TV sitcom actors from the 1980s.  Frankly, I did not even know Lycos still existed but apparently it still gets enough traffic an Indian firm decided the name had some value.  Err... a bit less value than a decade earlier...

Amazingly Lycos is still the 78th most visited site in the world - who knew!

(somewhere the folks who put together the Time Warner-AOL merger are saying "hey we weren't the only one!" while Mark Cuban is still laughing that Yahoo made him a multibillionare -$5 billion- for Broadcast.com)

Via AP:

  • An Indian company on Monday said it is buying Lycos Inc., once a high-flying U.S. Web portal, for $36 million from Korean Web company Daum Communications.  The buyer is Ybrant Digital, a digital marketing company based in Hyderabad.
  • Originally based in Waltham, Mass., Lycos was one of the top destinations on the Web around 2000, helped by its Tripod Web-hosting services. It was bought by Spanish Internet service provider Terra Networks SA in 2001, in a deal originally valued at $12.5 billion.
  • Lycos was unable to keep up with Google, Yahoo and other competitors for the attention of Internet surfers. In 2004, when Lycos was the eighth-largest destination on the Web, Terra sold the Web portal business to Daum in 2004 for $105 million while keeping other assets.
  • Lycos says it gets 12 million to 15 million monthly unique visitors a month in the U.S., and 60 million world-wide. Online research firm comScore pegged Lycos’ traffic at 42.4 million unique visitors in June, enough to put it at the 78th spot worldwide.

In a related note - Inktomi and Theglobe.com are making a joint bid for AltaVista at $8.* (this is only funny if you lived the Wild West days of 1998-1999)

*I lie.

Bookkeeping: Trio of Morning Sales - Potash (POT), Netflix (NFLX), Riverbed Technology (RVBD)

We've had two days in a row of bad housing metrics, weak guidance from Lowe's and not such great data from Home Depot and Walmart, but the dip buyers came in yesterday morning and the Potash news has a bid under the market today.   I said in the weekly summary the best hope for bulls is not that the data in housing/retail will be good but that expectations are so low that even bad news is ok.  So far, that seems to be the case... but all those serial housing bottom callers must be tiring by now.

In terms of the S&P 500, the 50 day simple moving average looks to be up over 1087... recall there is an upside gap to fill at 1088.50 so I would like that to fill before assessing what to do next.  If we go up there and then fall back down, it would be a great place to do some index shorts.... but if we go up there and keep running then the S&P 500 is back in a 30 point range between 1085 to 1115 (roughly) so one would be more neutral/long oriented (for a trade) as we re-enter the "chop-fest" zone.  That is what I am watching.

In the first 30 minutes or so, I'll be making 3 sales today

1) Potash (POT) - obvious reasons, the stock is up to $144 from $112, so the market has already put a $14 premium on BHP's price.  A premium is not surprising because the first bid will be lowball, but I don't see this going past $160 max, and my first inclination was something closer to $150-$155.   So why would I sell if there is more upside potentially?  First, I am just guessing on a price - if the offer is withdrawn there is no takeover premium as BHP is the main firm I see going after Potash.  Second,  the lion's share of a move from $112 to "$145-$160" is complete.  I can take my cash back and either sit on it, or look for new ventures.  So I'll be closing the entire position and take a nice profit, the position size is small at around 0.8% (before today's big jump) but it is something.  Normally, I'd roll the money over to peer Mosaic (MOS) since I like the action in the agriculture sector, but Mosaic is going to be bid up strongly this morning as well so there is no use chasing.

2) Netflix (NFLX) - this stock is a monster.  I took profits last week in the $125s on the EPIX announcement... the stock closed in the $137s yesterday and is in its own parallel universe as some sort of short squeeze seems to be happening.  The stock is now extremely overbought and nowhere near any meaningful support area (i.e. 20 day moving average) so I am going to take my profits and see if I can buy back in the future on a pullback.  If not, there are other fish in the sea.  I will be selling all but a cursory amount of about 0.1%.

3) Riverbed Technology (RVBD) - this was bought last Thursday morning with a limit order as the stock 'filled a gap' - it is already up almost 8% from that level (pending this morning's open).  I plan to take some profits to "lock it in" and keep some of these gains realized.  Of course if the market runs through S&P 1087 and up to 1115, or whatnot - all sales will be foolish, but since I don't have a magic 8 ball, I am simply going to take some profits as I get them.  I'll edit this piece in 30 minutes once I see where RVBD is at, and then determine how much I will sell.  EDIT 10 AM - I sold half the RVBD position around $35; this is roughly a 10.5% gain since last Thursday.

Long Riverbed Technology, Netflix in fund; no personal position


Potash (POT) in Play as Long Rumored Bid by BHP Billiton (BHP) Comes to Fruition - Stock Up 25% Premarket

While we do not have a huge position in Potash (POT) we were fortunate to have something, as the long rumored bid by BHP Billiton (BHP) is announced this morning.  I never got the impression Mr. Doyle would want to sell the company since it has such an unique franchise and the potash market is sort of dual global oligopolies, but whatever the case - the stock is up 25% in premarket as the paltry $130 price is laughed off.  Not sure what to do with the stock as now the rumors of "who else will bid?" start, but frankly this is not a cheap bride, and only so many companies in the world have the deep pockets and strategic fit to bring on a $40 billion bid.  Maybe 3-4 in the world?

The stock is at $140 right now (vs $112 close).  This should also put a bid into Mosaic (MOS)... I am sure many of the "me too" potash stocks will also run but this market is dominated by Cantopex, and all the middling names like an Intrepid Potash (IPI) are just for show (and speculators to have fun with).

Speaking of speculators, this should be a very good day for George Soros as he generally carries a quite large position in Potash.

Via Bloomberg:

  • Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer producer, rejected an unsolicited $39 billion takeover proposal from BHP Billiton Ltd. as too low, prompting speculation of a higher bid.
  • Potash rose $37.85, or 25 percent, to $140 as of 6:51 a.m. in pre-market trading on the New York Stock Exchange. The company has a market value of $33.3 billion, based on yesterday’s closing price.
  • Potash Corp.’s board turned down the offer of $130 a share in cash, saying it “unanimously believes that the BHP Billiton proposal substantially undervalues Potash Corp. and fails to reflect both the value of our premier position in a strategically vital industry and our unparalleled future growth prospects,” Chairman Dallas Howe said today in a statement.
  • Potash Corp., based in Saskatoon, Saskatchewan, produces fertilizer, industrial and animal feed products.

[Jan 7, 2010: BHP Billiton Forges Ahead with Plans to Develop Their Own Potash Reserves]
[Apr 30, 2008: Finally (A Year Late) Fertilizer Hits the Front Page of the NYTimes
[Nov 16, 2007: Potash Expands Mine for $2 Billion]

Long Potash in fund; no personal position

Monday, August 16, 2010

Bookkeeping: Weekly Changes to Fund Positions Year 4, Week 2

Year 4, Week 2 Major Position Changes

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

Cash: 72.7% (v 62.5% last week)
21 long bias: 23.2% (v 32.4% last week)
2 short bias: 4.1% (v 5.1% last week)

23 positions (vs 27 last week)

Weekly thoughts
A poor week with a nearly 4% loss in the S&P 500, and 5% loss in the NASDAQ.  Traders actually got what they were begging for with "QE Lite" but the pendulum swung from "I get more easy money from the Fed" to "why exactly is it necessary for the Fed to be continuing to hand out easy money?".  With the current Fed action, we are in a holding period where the Fed is keeping the balance sheet at status quo level - each time it shrinks naturally via maturation of current holdings, the Fed will step in and make new purchases to replace the old.  Hence "QE Lite".  Now the drumbeat begins for QE 2.0, and I'm sure we'll have a very similar circus to what we had the past few weeks.  It should frighten people that the Fed continues to go to novel (read: desperate) measures to prop up the system, but since most market participants can only look 2 feet ahead and only see trees rather than a forest, they are cheering it on (if not outright demanding it).

Aside from the Fed news, the big event of the week was Cisco guidance - while it was mixed, it was taken as negative. A lot of technical damage was done this week on the S&P 500 (I will use the simple moving average chart). The 200 day simple moving average (1115) was broken, then psychological support at a "big round number" (1100) and finally the 50 day simple moving average (1086).

The exponential chart is a lot simpler - almost all key moving averages are converging at S&P 1095-1100.

There is now actually a gap in the chart but to the upside, around 1088.50 - I was hoping it would be filled promptly Thursday morning, but instead the market only rallied back to the 1086 area, as the 50 day simple moving average provided headwind.   From here, downside targets are 1060, 1040, and then the old lows of 1010.  If and when we get to that latter number not only will we have reached the bottom end of the range of the Fibonacci area [Aug 4, 2010: Amazing Fibonacci] but created (at least temporarily) a "double bottom".  That is as good a place as any to put a stake in the ground on the long side, for at least a trade.   A break below that level would be incredibly troubling, as the 1010 to 1220 range will have finally been broken.  Until then, we remain in a wide range, with a lot of chop.

Both China and copper held in there last week, although China looked dangerous Thursday .. a rebound Friday held the Shanghai index above needed levels.  If one read's Bloomberg reports on why Chinese stocks rally most days, it is ironic how the Chinese are trained just like the Americans now.  Almost every story centers on "hopes for increased liquidity".  Speculators in all markets now apparently simply pray for central banks and governments to hand them money.

Can't say much about the bond market - it continues to scream bad things and/or deflation.  Nothing improved last week.

In currencies, the "safety trade" - while dominated by the yen, finally saw a reversal in the dollar; this is at a key level this week.  The Euro was plastered.... but talk about perfect technicals.  HAL9000 took it directly to the 200 day and then as the tea leaves would have it, the run was over.  So we're back again to 'risk on' & 'risk off'.... if the dollar continues to run... and bonds continue their freefall in yields, you have a risk off environment that should not be messed with.

Semiconductor action (a leading indicator) is also incredibly poor, but this is one oversold chart and I'd expect a bounce sooner rather than later.  While Cisco is not "semis" it should also bounce (dead cat) in some fashion this week, which will help NASDAQ.  That semi/Cisco bounce will be celebrated by the "Fast Money" crew, and analyzed to death as a harbinger of a "tide turning" by those who only know how to be long, but until proven otherwise it will be nothing but a technical correction of a very steep drop.

The economic calender does not help as we're in a quieter period that will be dominated by the morose housing market.  We are supposed to be in high season for housing but the number sound more like February than June, July.  On the docket:

Monday: Empire Mfg, NAHB Housing Survey (lesser reports)
Tuesday: Housing Starts, PPI, Industrial Production
Thursday: Leading Indicators, Philly Fed, Mr. "Deflation" James Bullard Speaks in the afternoon (preparing us for QE 2)

Most earnings reports this week focus on retail, and as both JCPenney and Kohl's (read: middle America) forecast "meh" late last week, this is fitting perfectly into our mosaic of focus on those who sell to foreigners, especially Asians, and fear those who are reliant on Americans (unless it is very low end or very high end).  The main hope for bulls this week is that expectations are low enough on either the housing market or retail stocks and/or James Bullard sings songs of QE2.  I don't see QE2 until post election to early 2011, but it will hang over the market like a stench until then.


For the portfolio I spent the week 'de-risking' for multiple reasons.  Early in the week it was simply to lock in profits and avoid the lemmings reaction to our Omnipresent monetary god Ben on Tuesday.  Later in the week it was due to technical conditions corroding.  That said, I am willing to step in and make sporadic buys of stocks that had the best of earnings and/or technical conditions (but have finally pulled back) so there was some buying.

On the long side:

  • The previous Friday I had bought Direxion Large Cap Bull 3x (BGU) as the S&P 500 bounced back over 1120, with a short term target of 1128 to be sold ahead of the Fed meeting.  This happened within 24 hours, and I exited Monday morning for a 2.25% gain.  TNA (my usual candidate) outperformed BGU by 2:1 in that short time frame, but since small caps are more American oriented and have been getting trashed of late, I went with BGU.
  • Spreadtrum Communication (SPRD) exposure was cut in half ahead of earnings - another reason was the stock was running into old highs so I thought there would be some resistance there.  Later in the week the company reported a stellar number, but after a 10%ish gap up, the stock was sold off all the way down to fill the gap.  I mostly just watched in awe, but was compelled to buy a small amount. 
  • Tuesday, I sold half of Netflix (NFLX) on a big deal with Epix to steam movies from 3 major studios.  The stock was approaching old highs, and despite the big selloff the next day and NFLX actually kept chugging upward for much of the week so this sale was 'wrong' from that perspective.
  • I sold 1/3rd of Acme Packet (APKT) as the stock was mentioned on CNBC *and* was approaching old highs - same exact situation as SPRD and NFLX in terms of running at highs reached a few weeks earlier.  I wanted to lock in some gains. 
  • Wednesday, I closed one of our oldest positions: Ultra Silver (AGQ) which has been range bound for months; further I had added other commodity positions in the interim, and some of those (i.e. agriculture) are far more in favor at this moment.
  • Thursday morning premarket as weekly jobless claims surged back towards 500K it looked like the market was going to have another very rough day so I sold quite a few things at the open.  Two of the four stocks in a commodity basket I created were closed - Freeport McMoran & Gold (FCX) and Walter Industries (WLT).  Monsanto (MON) was cut in half (the stock was actually up at the open!), and Rovi (ROVI) was cut by a third. 
  • Riverbed Technology (RVBD) filled its earnings gap in under a month, showing you cannot 'buy and hold' anymore as 'risk on', 'risk off' bipolar action steals almost all profits that are not taken quickly.   It did cause a limit order we placed at the gap to fill and let us restart the position.
  • I originally shorted the gap down Thursday with some index plays (BGU/TNA) but after some weird strength in commodity stocks, I decided to flip the switch, cover (for a loss), and go long.  Nothing but gut but was hoping for 6-7 points on the S&P 500.  I got about 5 which was good enough for half a day so I took my profits at S&P 1086.

On the short side:

  • Monday as we had our typical Monday melt up - I added a 2nd layer of short to the first half of the position I put on the previous week in Whirlpool (WHR), as the stock ran to the 20 day moving average (which has been its resistance for many weeks).  Wednesday, as the market suffered its big selloff I covered for a quick 5.5% gain.  At the time the S&P 500 was holding support at the 200 day exponential moving average which I thought might serve as an area of support, but it did not.

Sunday, August 15, 2010

Updated Position Sheet

Cash: 72.7% (v 62.5% last week) 
23.2% (v 32.4%) 
4.1% (v 5.1%) 

This data is updated weekly and can be found on 'Performance/Portfolio' menu tab on thewebsite. 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)




Friday, August 13, 2010

[Video] Rick Santelli Goes Off ... and Luxury NYC Condos Now Get FHA Backing

It's been a long while since we've done a Rick Santelli video.  While some of his other blowups have been larger [Feb 19, 2009: Rick Santelli Speaks for the Silent Majority]  [Feb 28, 2008: Rick Santelli is Quickly Becoming my Hero] , today's was more of a slow boil which grew over time.  Basically he speaks for all of us sick of interference by the Fed and government in every form of life, and distorting markets to level that are barely recognizable.  As I've been saying for years, we are dependent on big brother's drugs, and as we become more dependent the drug hits necessary are getting bigger and bigger.  Which in turn makes it more "impossible" for Big Brother to remove himself.  Which requires even more drugs. (as these economists demand) And so on and so forth.

p.s. nice shout out to Zerohedge Rick!

I used to tease that eventually the Fed will take us to 3.5% mortgage rates because things are in such bad shape, but this was actually broached in the video. Sigh.

On that subject I am posting a story on how the FHA is now offering loans for luxury condos in NYC.  I posted a similar story last year on the San Francisco market.  [Nov 20, 2009: With FHA Help, Easy Loans in Expensive Areas - Barney Frank Pushes for Higher Permanent Limits, Approaching $1 Million]  Yes the same FHA that was designed to help the lower end buyer get his/her part of the 'dream'.  There are so many amazing things in the story I don't even know where to start but it shows you the dependency I outline above.  Literally you can HEAR the dependency in various quotes throughout the story.  Scary fact of the day - FHA does not even have a FICO score requirement.  To combat that they are now thinking they will use 500.  Which will eliminate the bottom (wait for it) 1% worst risks.  Whew!  That is some sound risk management!

  • The Federal Housing Administration agreed in March to insure mortgages for apartments at the 98-unit Gramercy Park development, known as Tempo. That enables buyers to make a down payment of as little as 3.5 percent in a building where apartments range from $820,000 to $3 million.
  • The FHA, created in 1934 to make homeownership attainable for low- to moderate-income Americans, is providing a lifeline to new Manhattan luxury condominiums after sales stalled. Buildings featuring pet spas, concierges and rooftop lounges are applying for agency backing to unlock bank financing for purchasers. The FHA guarantees that if a homebuyer defaults on his mortgage, the agency will pay it.
  • It’s not an accident that the FHA is offering this -- not private lenders,” said Christopher Mayer, senior vice dean at Columbia Business School’s Paul Milstein Center for Real Estate in New York. “An unfilled condominium complex is not the kind of thing that a bank looking to rebuild its balance sheet on real estate is looking to do.”  (translation: what fool in the private sector would make such a loan?  Thankfully there is 1 great fool who has no control over his/her money - the U.S. taxpayer)
  • In New York City, the priciest urban U.S. housing market, the FHA insures loans of as much as $729,750, and permits buyers to borrow up to 96.5 percent of the price.  (aka "low to moderate income" borrowers)
  • “Something has to happen for this product to be marketable,” Miller said (translation - what idiot would fund this project? Oh wait, found one!). “I just find the whole thing ironic that FHA is providing financing for luxury housing.”

FHA made as many loans in Q2 2010, as it did all year as 2007 as the amount of people who could get a "normal" loan (i.e. the type you need to pay back) diminishes in Cramerica.
  • Nationwide, the FHA insured 21 percent of all mortgages made in the second quarter, or $71.4 billion worth of loans, according to Geremy Bass, publisher of the Inside FHA Lendingnewsletter. That’s close to the $79.5 billion total value of all FHA-backed loans in 2007.
  • Nine percent of all FHA-insured loans were 90 days or more past due or in the process of foreclosure in the first quarter, compared with 7.4 percent a year earlier.  (2nd derivative improvement? Not so much)

But no worries people!  I am sure with NO FICO score minimum this will turn out well.
  • The agency doesn’t require a minimum credit score for the mortgage insurance.
  • The FHA is considering a minimum required score of 500, according to a notice the agency filed in the Federal Register on July 15. A person with a 500 rating is in the lowest one percentile of credit scores nationally and was likely delinquent on several accounts in the last year

I have not posted a story on FHA for a long while, effectively I've been beaten over the head to the point I am just laughing go forward at all the things headed our way as we not only do not learn from recent past, but repeat it.  I had a series of posts warning on Fannie, Freddie in 2007 and early 2008 and little help that did - in fact the politicos put more risk on Fannie, Freddie in early 08... 6 months before the implosion.  So it's all just spitting in the wind... you can only laugh from here. (or else you cry)

If you are not familiar with what FHA is doing, we now have essentially created a government sponsored subprime lender.  Even those in the housing industry say so. [Nov 18, 2009: Toll Brothers CEO - "Yesterday's Subprime is Today's FHA"]  Since we are running out of credit worthy Americans who can actually bring a deposit down of 5%+ the entire housing market rests on FHA (and Fannie, Freddie).  We used to call these people new "home owners" a very bad word (renters).  But almost anyone can be a homeowner in the new government backstopped Cramerica - little to no skin in the game, if housing values go up you win, if they go down, you walk (after living in the property 18-30 months "rent free") i.e. you still win.  How did that work out the last time around?  [Feb 1, 2010: 2 Graphs Showing Part of the Reason for the Christmas Eve Taxpayer Massacre

A 9% default rate on FHA loans is just the beginning - can you imagine if these $700-$1M+ homes fall in value even 10% what a mess we have for the future?  But no worries - it is only taxpayer money and worse comes to worse we go Banana Republic style and have the Fed buy the mortgages at face value, and no one loses.  It's "magic"!

Anyhow, I am attaching myself back to the Matrix.  It's all good.... just make it all go away (and push the stock market up..thank you).

MakeMyTrip (MMYT) - Why Can a Barely Profitable Travel Firm IPO Rally 90% in 1 Day? It's Indian.

A reader highlighted a company I was not aware of in the comments section yesterday - MakeMyTrip (MMYT).  I went to look up the stock and saw it was an IPO up nearly 80% on the session (at the time).... in a bad tape no less.  I did a lot more digging on it last night and quite an interesting story with some very interesting facts about Indian ADRs to boot.

In almost all my pieces on Indian stocks I complain about how few there are that trade on U.S. markets.  There might be 15, tops.  You have your IT/outsource guys led by big fish Wipro (WIT) and Infosys (INFY), and then some smaller guys.  You have the 2 banks HDFC Bank (HDB) and IBN Bank (ICICI).  There is Tata Motors (TTM), Dr. Reddy's Laboratories (RDY), Sterlite Industries (SLT) - all 3 of which we've held at one point or another.   I might be missing another 1-2-3 names but that is your universe of Indian stocks.  Over the past 10+ years I've either used the 2 banks or one of two closed end funds to get Indian exposure - it's been slim pickings.  One positive is a couple new ETFs that have been introduced to the marketplace in the past 2 years... but individual equities remain barren. [Mar 6m 2008: 2 New ETFs for "India Bugs"]


Which apparently is part of the reason a travel company barely in the green named MakeMyTrip was able to skyrocket yesterday.  I also believe it is due to the dearth of any great American companies coming to market - the last big IPO of an American company was a tiny firm called Visa (V). You may have heard of it. (Where is all the so called American innovation?)

Maybe one day MakeMyTrip will be India's version of one of our favorites - China's Ctrip.com (CTRP).  (that's how it is being valued)  Or perhaps in 5 years it will be an also ran - who knows.  But amazingly this is the first Indian IPO in the U.S. since 2006!  And only the third since 1999.  For comparison, this year alone China has brought 14 issues in a very poor marketplace for IPOs, and back in the salad days (2006-2007) the amount was mind numbing; every week it seemed another 2-4 names popped up.  Personally, I hope the success of MakeMyTrip encourages other Indian firms to list domestically.

To put current valuation in place - its IPO price placed it at a higher price to sales than Priceline.com - and it jumped nearly 90% over that price on day 1.  Now that's what we call in economics "Scarcity Value".

Two nice background stories here (a) Bloomberg (b) Investors Business Daily

A few clips:
  • MakeMyTrip Ltd. MakeMyTrip Ltd. posted the biggest first-day gain for a U.S. initial public offering since 2007 after becoming the first Indian company in four years to complete an IPO in America.   MakeMyTrip’s first-day climb was the biggest on a U.S. exchange since Athenahealth Inc. of Watertown, Massachusetts, jumped 97% after completing its IPO in September 2007
  • India’s largest online travel company surged 89 percent to $26.45 in Nasdaq Stock Market trading yesterday after selling 5 million shares at $14 each. The original midpoint price had valued the Gurgaon, India-based company at 5.41 times next year’s sales, higher than the average of 4.16 for its U.S.- traded rivals.
  • MakeMyTrip was the first IPO by an India-based company in the U.S. since WNS Holdings Ltd.raised $255 million in July 2006.
  • MakeMyTrip reported net income of $1.3 million last quarter, reversing a loss from a year earlier, after increasing sales by 49 percent. In the prior three fiscal years, it lost a combined $32.5 million.
  • About 48% of the $1 billion in online travel reservations made in India last year were booked through the company, while Yatra.com and Cleartrip.com accounted for a combined 42 percent of sales. MakeMyTrip also cited Expedia and Travelocity.com Inc. as competitors.

Some interesting statistics on India internet penetration; they seem to be lagging China substantially.  Credit is also at a completely different stage than in Western Europe, the U.S. or Japan; something we take for granted here.
  • India still suffers from poor Internet penetration, slow data speeds and low consumer use of mobile travel services despite the country's huge number of cell phone users.  Web site Internet World Stats says Internet penetration in India was only 7% in 2009, vs. 74.1% in the U.S.  
  • What's more, relatively few Indians use credit cards for online travel and other dealings; only 20M Indians have credit cards, but 180M have debit cards they can use to book online.

The company does have a fascinating background - it shows you how a good idea can make you multi millions in 10 years or less.  From an idea to help Indians travel from the U.S. back home, to the leading online agency in the country!
  • MakeMyTrip started in 2000 as a travel Web site for expatriate Indian executives in the U.S. who wanted to make trips to India.  The firm had offices in New York City and Gurgaon, India, from the start and more recently opened a third office in Silicon Valley.

Long Priceline.com in fund; no personal position

Spreadtrum Communications (SPRD) With Big Beat but Hostage to Market

As expected, Spreadtrum Communications (SPRD) had an excellent quarter.  The stock gapped up but already is in the process of giving back much of the move as individual metrics mean little and we're all hostage to the overall market.  I took half off earlier this week, at a price higher than it is currently printing so I'll just sit on the other half I suppose.  The stock would need to clear to new highs along with the S&P 500 regaining at least 1087ish to make a new pass as it.

EDIT: as I typed this the stock has given back almost the entire gain.  Ho hum.  Well at least it is filling its gap promptly.

Not that valuation matters, but the company should make in excess of $1 this year.  Frankly based on guidance for the next quarter we could be talking $1.15 for the year but let's use $1 for kicks.  So for a growth rate of a couple hundred percent year over year, you get a 11x PE ratio. EDIT: 10x PE ratio as the stock sells off. Sounds reasonable. ;) (full report here)

Via Reuters:

  • Fabless semiconductor company Spreadtrum Communications Inc (SPRD) posted a quarterly profit as it shipped more third-generation chips and forecast third-quarter revenue above analysts' estimates.
  • For the third quarter, the wireless baseband chipset provider expects revenue of $88-96 million, with flat or slightly lower gross margins on a sequential basis. Analysts were expecting revenue of $76.7 million, according to Thomson Reuters I/B/E/S.
  • For the second quarter, the Shanghai-based company reported net income of $11.1 million, or 21 cents per American Depository Share (ADS), compared with a net loss of $13.1 million, or 29 cents per ADS, a year ago. Excluding items, it earned 34 cents per ADS.  Analysts on average were expecting earnings of 23 cents per ADS on revenue of $67.1 million.
  • Revenue rose to $71.4 million from $16.2 million recorded a year ago.
  • Unit shipments of 3G semiconductors grew nearly 17-fold over last year.

Long Spreadtrum Communications in fund; no personal position

[Video] The Bull v Bear Debate: David Rosenberg v Richard Hoey ... Plus Some Jim Rickards

This conversation on CNBC summarizes two of the major camps of view - those who view this as a typical recession / recovery cycle (as presented by Richard Hoey) versus the "it's different this time because we're in a secular deleveraging cycle" (as presented by David Rosenberg aka "permabear").  I think it's a pretty rationale conversation showcasing both sides as Mr. Hoey does not bring the Kool Aid perspective.

Also this morning is one of my favorites Jim Rickards describing how there is no price discovery in the bond markets anymore as we live in some Alice in Wonderland where it is more important to predict what the Fed will do than actually analyzing fundamentals.  Further, some discussion on the same themes I had presented in the past in terms of what *should* have been done in the banking system i.e. the General Motors treatment for the oligarchs (but the horse is out of the barn).  To this day I am amazed GM bond holders were slashed and burned, while bond holders in the finance world were treated like royalty and handed the taxpayers money without condition.  Pathetic.

8 minutes

[May 5, 2010: [Video] Jim Rickards Speak Truth on CNBC "I Can't Find any Metric Where U.S. isn't as Bad or Worse than Greece" - Anchors Can only Scratch Head]

IBD: Riverbed Technology (RVBD) - Its Network Technology Feeds a Digital World Hungry for Speed

Due to the changing structure of the markets with never before seen level of correlations due to HFT + EFT = GLEE, the individual metrics of corporations unfortunately mean less and less to the stock price (other than around earnings season).  For someone who enjoys researching individual companies and trying to find the next generation jewels it's an exercise in frustration to have to spend 80% of your time estimating which way the market will move in the next 5-15 days (and hence almost every stock in your portfolio will move en masse).  This has definitely changed my behavior and how I spend my time - far less time is spent reading up on companies, and much more time is spent on squiggly line analysis and sorting through tea leaves and seeing which ETFs HAL9000 is favoring this week versus last week.  I can see this in the type of posts on the website as well - I used to spend much more time writing stories on the individual companies and their (archaic term alert) "fundamentals".  So this morning I thought I'd go old school and actually post a nice summary on one of the companies - in fact, the one which was just re-introduced to the portfolio yesterday on the swan dive.  Speaking of a company whose fundamentals were ignored as it got demolished when the market turned tail.

As always, Investor Business Daily does an excellent job of a write up that is great for both first timers to a stock as well as those of us who have been following the name for years on end.

  • There is no substitute for speed in the digital world. Everybody wants faster: faster computers, faster e-mails, faster communication, faster downloads and navigation.  Riverbed Technology (RVBD) understands. The company provides technology that speeds up applications over wide-area networks, or WANs. Its products can help consolidate IT infrastructure, minimize bandwidth consumption and accelerate data access and backup.
  • Speed is especially important for wide-area networks, which can go over oceans and continents. Riverbed says its gear can make applications run 10 to 100 times faster.  That's no idle boast, analysts say.  "If you look at the marketplace, their product is far and away the best product for WAN acceleration, period," said Alex Henderson, an analyst at Miller Tabak. "There is no other product that comes even close in terms of quality for what they do."
  • WAN acceleration is a big part of a larger trend toward virtualization and cloud computing. Virtualization means each server can do the work of multiple servers. For data center managers, it's a much more efficient way to do things.  Cloud computing means software is accessible over an Internet browser instead of only a local computer.
  • Riverbed's technology, coupled with high demand for products that can enhance WAN performance, has kept Riverbed growing the past several quarters despite a cutback in information technology budgets for many companies.  "The capital expenditure budgets of companies have not been rising, so they are spending in very narrow niches," Henderson said. "One of them is this orientation toward data center virtualization. The Street would define it as somewhat of a narrow niche, but it ain't such a bad niche to be in."

  • The company's profit has grown for six quarters in a row. Sales growth has accelerated in each of the last four quarters.
  • In a report, Citigroup analyst John Slack said Riverbed performed especially well in Europe despite the continent's debt and economic problems.
  • He also noted an improvement in Riverbed's gross and operating margins. Gross margins rose 16 basis points from the first quarter to 77.3%. Operating margins soared 340 basis points sequentially to 24.2%.
  • There is plenty of room to grow as more companies look to improve their WAN networks and virtualization capacities.  "We're probably no more than 15% to 18% into that process," Henderson said. "The market is still in its infancy in many respects. I'd say there is a minimum three- to five-year cycle in front of us for very robust growth."
  • Analysts expect an additional boost next year when Riverbed eyes a bigger part of the market for desktop virtualization.  With desktop virtualization, companies manage desktops from remote locations for the entire organization. It lets them send updates and changes on individual desktops to a local virtualized desktop.
  • Competition is a big risk, especially with new entrants like Silver Peak enjoying very strong adoption and good momentum," Bracelin said.  Another risk is Riverbed's reliance on business with government clients, though the company has begun to lessen its exposure in that area.  "There had been a lot of angst concerning their exposure to the government, especially if spending were to go down," Henderson said. "That's not as big a concern now. Government clients were around 30% of the business, but that's down to the low 20s."

[Jul 23, 2010: Riverbed Technology Impresses the Street; Announces New Product so it Can be Part of the "Cloud"]
[Apr 23, 2010: Riverbed Technology Earnings Report Pleases the Street]
[Feb 11, 2010: IBD - Riverbed Technology: Making the Network Faster Pays Off]
[Jun 29, 2009: Even Handed Story on Riverbed Technology on CBSMarketwatch] 
[Apr 8, 2009: Stimulus Fire Hydrant (Worldwide) Should Benefit Networking Companies / Broadband] 
[Nov 27, 2007: Riverbed Technology - Fortune Article] 

Long Riverbed Technology in fund; no personal position

Thursday, August 12, 2010

Can You Pick Out the Intraday Resistance Level?

Fun with pictures.  Looks like the traditional late day spike aka hockey stick save, is coming earlier than usual.  I much prefer it to happen post 3:15 PM rather than 2:30 PMish so the "urgent buyer" does not exhaust himself.


NYT: Economic Pessimists Gain Cachet

Hmmm, apparently once you detach from the matrix, you are labeled a pessimist.  While some of these fellas predictions are a tad extreme, much of what they are basing their predictions on, I find quite factual.

The problem for these folk is timing - most likely a lot of things they will say will "one day" be correct, but you are fighting desperate politicians and central bankers at every turn.  Greenspan alone kicked the can for a good 2 decades, and Ben is like Terminator 2 - faster, stronger, and able to shower us with free money at many times the rate of Greenspan 1.0.  Regular ZeroHedge readers will know these guys like the back of your hand... Edwards, Janjuah, TraderMark, tigers. lions... oh my.

[Jun 9, 2010: [Video] Look for a Global $10-$15 Trillion Quantitative Easing Program as Governments Become Desperate - Bob Janjuah]
[May 11, 2010: [Video] 'Permabear" Bob Janjuah in the Flesh on Bloomberg]
[Nov 10, 2009: Albert Edwards Remains Firmly in Bear Camp, Calls for New Lows in 2010]

Via NYT:
  • The central question dividing economists these days is whether Western governments should spend more to ward off a potential second recession or retrench to hold down their ballooning debts to restore confidence among investors.  
  • But Albert Edwards, an investment strategist in London for the French bank Société Générale, considers the debate a waste of time. To be specific, he forecasts a “bloody, deep recession” that produces a stock market collapse of at least 60 percent, followed by years of inflation of 20 percent to 30 percent as the persistent printing of money by central banks desperate to improve the situation sends prices soaring.   
  • Mr. Edwards’s sandals and chuckling demeanor belie his reputation as perhaps the City of London’s best-known permabear — a species that has long flourished on the outer margins of the financial industry but rarely inside mainstream banks.  That is no longer true. 
  • In many smart-money circles, listening to bears has become fashionable, especially now that doubts remain about the sustainability of the euro zone, concerns grow that the United States may slip back into recession and that even the Chinese growth engine may seize up. But to some, the popularization of extremely dire forecasts suggests that the pendulum may have swung too far
  • “Nothing is ridiculous anymore,” said Philippe Jabre, a hedge fund executive in Geneva. “There is no doubt that these days extremely negative research is being tolerated more.”  “These guys are reinforcing a conviction among many who invest in hedge funds that they should remain scared,” he said. 
  • Mr. Edwards’s newfound popularity reflects the trend. Once frequently shown the door by disbelieving clients, Mr. Edwards recently drew 600 investors to a conference in London.
  • Similarly, Bob Janjuah, the one strategist in London whose prognostications are seen by some as even more dire than those of Mr. Edwards — “even I get depressed reading his stuff,” Mr. Edwards remarked — said he was courted by half a dozen investment banks this summer before deciding to leave his post at Royal Bank of Scotland to join Nomura.  
  • “Clients are more receptive to hearing polar ends of an investment view,” said Mr. Janjuah, who expects economic growth for the top developed economies to average little better than 1 percent a year over the next five years.

Disclosure: I have been offered zero investment banking positions despite some relatively good "doomsday" predictions that went against conventional wisdom... i.e. most of the investment banking strategists ;)  Ah, toiling in obscurity!

Now this guy Mr. Pal (who I had never heard of) has it right, offer a high value subscription service talking doom (not this foolish free blogging!) 
  • Further afield, Raoul Pal, a former Goldman Sachs derivatives expert and hedge fund manager, has attracted a growing following with his monthly research note that, most recently, predicted a depression in the United States similar to that of the 1930s and eventual bankruptcy for Britain.
  • Mr. Pal writes The Global Macro Investor from a holiday village in Valencia. a province in Spain. He said that demand was so great now that he has the luxury of doling out his high-price annual subscriptions only to clients he considers sophisticated enough to pass muster or who come recommended by people he trusts. Others must join a waiting list, Mr. Pal said, although he declined to say how large the group is.
  • In the tradition of the great macro hedge fund investors like George Soros and Julian H. Robertson Jr., Mr. Pal, whose last job was as a portfolio manager at GLG, a hedge fund based in London, likes to pick a theme that may take years to pan out and run with it.  His big bet is that the United States economy is not just about to enter a double-dip recession but that it will be far worse than anything experienced in the lifetime of anyone younger than 70. 

I too screen my readers (little known fact)... only those with a pulse may read this website.  Those without one, must close their browser and leave immediately.

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