Tuesday, September 7, 2010

[Video] F5 Networks (FFIV) on the Rise

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Being a long time investor in F5 Networks (FFIV) and Riverbed Technology (RVBD) I am now awed that they are being treated as golden children due to their label as 'cloud computing' plays.  [Feb 11, 2010: WSJ - What the Heck is this Cloud Computing Thing?]  To that end, I am announcing my mutual fund will be based on the 'cloud' and hence will run faster, jump higher, and trade better - and be valued at triple any comparable fund.  Thank you.

A quickie video (3 minutes) with F5's CEO on CNBC this afternoon.




Long F5 Networks, Riverbed Technology in fund; no personal position


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Russell 3000 Stocks Which Have Returned 100%+ in 2010

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For us data hogs, Bespoke Investment blog is always a fun place to drive by.  Below is their list of all Russell 3000 stocks which have returned in excess of 100% year to date in 2010, the six at the top have gained at last 200%.   I only wish they had put market capitalization next to the name as I'm curious how many of these are small caps since once you get below the Russell 2000 limit you start getting into quite small companies.  A couple of our portfolio holdings are on this list but obviously we did not catch the full return on any of them.

[click to enlarge]



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Six of Ten Largest Mutual Funds Currently Sport 0.99 Correlation with S&P 500

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The immense correlation between the market, and almost all risk assets on Earth is not a new subject to FMMF readers.  [Jun 30, 2009: Bloomberg - Correlation Among Asset Classes Highest Ever]   I beat this dead horse monthly, mostly out of abject frustration.  [Sep 2, 2010: Why Bother with Individual Stocks in the Perfectly Correlated Market?]  I don't have an issue if the market is up 2-3%, that 90% of stocks move in the same direction - it is all these days the market is up or down 0.7% when it drives a person nuts.  Friday for example, every position I had but one was up - as I type this every position but one is down.

This correlation madness started to become an issue in 2007 as we were told that hedgies control 40%(ish) of each day's trading volume.  As I said then, since mutual and pension funds are relatively staid players, the 'fast money' is the marginal buyer.  And 'hot money' hedge funds - especially of the quant variety - are the marginal buyer.  The problem now is they seem to be the only buyer as equity fund withdrawals continue on pace as the retail guy floods into bond funds.  So we have a market dominated by computers trading to computers, all using related algo's - happy, happy, joy joy.  Now we hear things such as 60-70% of trades flow through these players.... and since EFTs are the weapon of choice, computerized trading of EFTs have taken over the market.  [Jun 29, 2010: Correlations Among Asset Classes Reach Ever Higher Extremes as HAL9000 Algos Dominate Life]    The SPY ETF is now about 9% of ALL volume as of last check, and we had a time about 7-8 months ago where Citigroup, AIG, Fannie, and Freddie were 40% of all volume.  Pathetic.

Frankly, it makes the market a frustrating and 'less fun' place - thoughts I am reading in many places on the internet.  The market used to be a 4 dimensional jigsaw puzzle, comprised of fundamental, technical, psychological, and 'animal spirits'.  Now it's just the dumbed down 2 dimensional Etch a Sketch.  Shake it at 4 pm every day, because it has no memory from day to day.  Sure you can adjust (in fact you must adjust) if you plan to stick around, but when everything is a 1:1 correlation, it simply reduces the market to 'stoopid' and coming in each day, checking your brain at the door, and staring at the S&P 500 chart trying to guess where it will be in 3 hours, 3 days, and 3 weeks gets to be boring. [Jul 15, 2010: WSJ - Correlation Soars on S&P 500 Shares]  But this is the casino market we have built, and I don't see anything changing anytime soon.   The other issue is it makes it so much more difficult to outperform the market.  Surely there are a handful of stock names that still outperform (or underperform) but with almost everything swaying in the exact same direction as the market, creating alpha is difficult.  Most of the performance nowadays is not about stocks, but due to calling turns in the greater market - increasingly hard to position for as you scale in size.  Especially when the majority of the turns are due to binary reactions to economic reports or Fed announcements - it's simply placing your bets on red and black, not a stock market.

I've written about said frustration in the past amongst the "human" hedgies, [July 8, 2010: Hedge Funds "Frozen in Headlights" as BiPolar Market with 1:1 Correlation in All Things Not Named U.S. Treasuries Causes Confusion]   and this is taking a toll on the mutual fund managers as well.  One of my big beefs with the mutual fund industry is many players - especially in the bigger funds - are closed index funds.  They all have super cool names but almost anything in 'large cap value' or 'large cap growth' were hybrid closet indexers. They basically flip an Exxon, Intel, or a Microsoft, with a Walmart, Verizon, or a Cisco Systems -- change the order, weighting, and indeed are able to charge a nice fee for doing nothing other than being the S&P 500 with a small twist.  I cannot tell you how many 401k plans I reviewed for people, where I went to look at the top 10 holdings of the 12-15 mutual fund choices and 90% of them were identical (just in different order in weightings!).  The statistic of 0.99 correlation amongst the S&P 500 and many of the largest funds is quite remarkable and points to my 'closet index' beef, but with the mechanics of our new paradigm market, it has taken it to a whole new level.   It also says a lot of people are wasting their money paying management fees for what is an S&P 500 ETF clone.

That said, even with the closet index situation that has been growing for a decade+ you used to be able to try to outperform if you plied your trade in small or medium caps (or international markets), but the HFT + EFT = GLEE environment we now live in has made that increasingly moot, since most of those stocks now move in unison as well.  If your stock is not in a major EFT it generally sits ignored with low volume... if it IS in an ETF than it doesnt matter the company specifics - as long as the algo's are buying (or selling that ETF) as flavor of the day, every component in that ETF is a winner (or loser)!  Stoopid is as stoopid does in the market with 1st grade logic.

One gentleman I've admired for many years is Will Danoff at Fidelity Contrafund (FCNTX).  [Sep 9, 2008: Will Danoff in Kiplinger Magazine]  His fund has been huge in size for years on end, (I'm talking multiples the size of the biggest hedge funds - Contrafund is now up to $62 BILLION), yet he has been able to somehow outperform his peer group (and until the past 5 years the S&P 500) by a wide margin, mostly by being somewhat contrarian.  This despite holding many positions and not being extremely concentrated - a feat I find quite remarkable since once you start owning 200-250 positions I don't know how you can beat the market over time. (Contrafund owns 445 positions as of last quarter!)  Danoff is highlighted in this piece, which is why I mention him - he is no dummy.

Via Bloomberg:

  • Fidelity Investments’ William Danoff, the stock picker who led the Contrafund to benchmark- beating returns, isn’t looking very contrarian these days.  Danoff’s $62 billion Contrafund, which seeks to beat the market by picking stocks whose value hasn’t been fully recognized, has tracked the Standard & Poor’s 500 Index more closely this year than in any year during its four-decade history.
  • “Danoff usually finds ways to go against the grain, but these days there isn’t much that’s contrarian relative to the macro theme,” Adviser Investments’ Lowell said. “This is a trendless market and it’s not providing him any room to break away from the S&P 500.”
  • Investing abroad hasn’t helped stock pickers like Danoff because correlation has shot up even between regions.
  • Danoff isn’t alone.   Six of the 10 largest U.S. stock funds show correlations of 0.99 this year, meaning they moved almost completely in sync with the market. Managers are struggling to stand out and attract new money as fear of another crisis prompts investors to move in and out of markets without discriminating between securities, industries or geographies. 
  • Robert Doll, BlackRock Inc.’s chief equity strategist, said while stocks moved in lockstep before, this is the longest he has seen correlation persist across markets.  “We were expecting 2010 to be the year when stock selection would add value, but that hasn’t been the case.”
  • Doll says even the most high-quality stocks have been hurt among a larger sell-off in risky assets.   “We’ve scratched our heads many times during this year as the macro picture is driving everything,” Doll said. “It can be frustrating along the way, but we’re just focusing on the fundamentals and eventually we’ll get paid for it.”
  • The correlation between the U.S. equity benchmark and its individual members was 0.81 in the 50 trading days through July 7 and has since remained close to that level.  That’s almost twice the historical average of 0.45 over the past 30 years.
  • The increase in correlation is making it difficult for actively managed funds to beat their benchmarks and produce better returns than lower-cost index products.    “You can’t pick any mutual fund, even if has previously been a winner, and expect it to outperform in this market.”
  • Mohamed El-Erian, the chief executive officer of Newport Beach, California-based Pacific Investment Management Co., says investors have a “risk-on/risk-off” attitude that leads to sometimes “violent” swings, such as the sell-off in markets worldwide on Aug. 11, after the Federal Reserve indicated that the economic recovery had lost momentum.  “We were particularly struck by the size and correlated nature of the market moves,” said El-Erian.
  • Correlation may be linked to the increased use of exchange-traded funds and index funds in the stock market, especially those that focus on particular industry groups, said Brian James, co-director of equity research at Boston-based Loomis Sayles & Co. Assets in U.S. ETFs have grown to more than $821 billion from $608 billion at the end of 2007, according to Investment Company Institute.  “It is almost axiomatic that if you have an increased presence of single-purpose ETFS and futures traders, it moves stocks in one direction,” said James.
  • Correlation has been particularly pronounced for companies with larger market capitalizations, and for the larger funds. James said that 90 to 95 percent of large-capitalization stocks have tended to move in the same direction this year, up from about 70 percent prior to the 2008 financial crisis.
  • The largest U.S. stock fund, the $148 billion Growth Fund of America, has seen correlation increase to 0.99 this year, from 0.84 in mid-2008.  For the $37 billion Dodge & Cox Stock Fund, run by San Francisco-based Dodge & Cox, the correlation measure was also 0.99 this year, compared with low of 0.81 prior to the height of the crisis in late 2008.<

Bookkeeping: Short Monsanto (MON)

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Almost every Monday morning of the past year and a half we open strongly to start the week; just my luck the one time I want to play the nonsense trade it does not work.  Darn Europeans and their bank issues.

Last week's euphoria stopped me out of the 2 remaining individual shorts I had so I am going to take a stab at Monsanto (MON) which has bounced back with the market, after its earnings "narrowing" of guidance.  It has filled the gap upward, and now sits right below the 50/20 day moving averages.  This is a binary outcome - either it is going to break through or not.



I've shorted with a 2.4% allocation at $56ish; my stop will be over last week's highs i.e. $57.50 - which would trigger a loss of less than 3%.

Short Monsanto in fund; no personal position


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Bookkeeping: Weekly Changes to Fund Positions Year 4, Week 5

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Year 4, Week 5 Major Position Changes

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

Cash: 71.4% (v 71.0% last week)
24 long bias: 28.3% (v 20.7% last week)
2 short bias: 0.3% (v 8.3% last week)

26 positions (vs 25 last week)

Weekly thought
A tale of two halves last week, with continued selloffs earlier in the week testing pivotal support, and an enormous mid week rally based on what one would consider degrading economic data... just not as bad as expected.  S&P 1040 was hit 3 times in a 5 day span and rather than breaking, a Chinese PMI report (just barely expansionary but above the whisper thought that it might be contractionary) set off a wild display in S&P futures leading to a big up open Wednesday.  The domestic ISM manufacturing report at 10 AM that day led to a 2nd leg higher as it was far in excess of expectation.   But taking a step back, the body of work in economic reports was actually quite poor ... the only real positive outliers were ISM manufacturing and pending home sales.  Another 6-8 reports were either "in line" or misses... but it shows you how the market is all about expectations in the near term - the mood had turned dour and after 2 months of miss after miss after miss in economic data, "in line" was good enough.

Bigger picture we are going nowhere fast.. the S&P 500 is just points away from where it began the year.   This is not a buy and hold market; it's a traders market and has been all year.  Nearer term we are in the 5th month of a wide range that mostly has centered in the S&P 1040 to 1130 area.   Those, like myself, who like to buy breakdowns or breakouts out of a range have been stymied of late - whereas those who are content to trade a range and not worry about the market falling out of a range and causing losses (or missing out on gains) have prospered by buying at the edge of this range.   Hence, U.S. markets are range bound and until the pattern is broken, traders will continue to play this 90 S&P point area.


All resistance levels were busted last week; much of it in premarket: 1040, 1057, 1070, and the 50 day simple moving average of 1085ish.   The gap up on "awesome" employment data took the S&P 500 through the 200 day exponential moving average but unfortunately there is now a gap at S&P 1090 that will eventually need to be filled.   In 3 short days 2/3rds of the 90 point range was covered and just like that we've moved from oversold to (soon) overbought.

Last week, the 10 year bond finally relented and is in process of filling a gap.  Using the very popular iShares Barclays 20+ Year Treasury Bond (TLT) this is represented by the 'breakout' level of $102.



Generally one can make excellent money when a breakout returns to its base so this will be an area to target... further, in an incredibly correlated market any move to the top of the S&P range (nearer to 1130) would coincide with this bond instrument pulling back.   Looking at yields this would probably mirror a move to 2.80%ish on the 10 year.



And that's about it for analysis on the market nowadays... it is either risk on or off, and every 2nd or 3rd day is now a 90% day where almost every stock (and commodity) on earth trades in the same direction as algorithms dominate in their EFT playground and fundamentals, or industry trends are a sideshow for dinosaurs of the 1990s.  Not much different from the student body left environment we've been stuck in since 2007 - if anything it is getting worse.  Knowing which way the S&P 500 is going to trade each day is 95% of the work - everything is becoming increasingly useless.

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Unlike the last two weeks, and especially last week, the calendar is very light this week - almost nothing is market moving other than Beige Book and weekly jobless claims.  And since we consider a +70K monthly jobs number (almost all of which birth death adjustment) a victory, unless weekly claims go over 500,000 we apparently are to be encouraged that claims are stuck at recessionary 450K+.   With a lull in economic reports and earnings season not set to launch until early October, it should be a quiet week dominate by technicals.

Tuesday:   N/A
Wednesday:   Beige Book (2 PM), Consumer Credit (3 PM)
Thursday:  Weekly Claims & International Trade (premarket)
Friday:  Wholesale Trade (10 AM)

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Portfolio 

I was caught a bit off guard last week as I thought the repeated tests of S&P 1040 would lead to a more normal outcome, that is a breakdown.  Instead a lukewarm Chinese PMI figure overnight Tuesday set world markets ablaze (but not the Chinese market itself!), and the 1-2 combo with US Mfg ISM led to tremendous pain for bears.  I also thought 'the generals' (stocks with the highest relative strength) would falter more before the index bounces, as they suffered very little during the August downdraft.   Last week, I thought the Chinese PMI might contract and that US employment (private) might contract... hence I was cautious from that angle as well.  While private ADP showed US employment was negative, with the benefit of the birth death model (a gauge of small business formation the government has been spinning the entire Great Recession as creating millions of jobs a year - even as banking data shows small business struggling) the 'official' number was positive.  ISM Services, which is a much broader measure of the current U.S. economy was released Friday and was sharply down from July's levels - and well below consensus... but it was lost in the euphoria of the jobs report.

As the S&P 500 began to bounce I turned somewhat more long biased, but the move was so vicious and so much of it happened in premarket there is little time to play the bounce since our range is only 90 S&P points, and in 3 days over 60 points were gained on the bounce.   While the general indexes are not overbought, many individual stocks went in 72 hours from lost at sea to extremely overbought gaining 15-20%+ in many cases... its student body left trading at its best.  Risk on, risk off.   Hence as we enter the new week, we already are less than 30 points away from the top end of the range and have a gap to fill at 1090.  Therefore, I expect a lot more churn in a quiet week for news.  What I decided to do was to take profits in those name that had moved tremendously in 3 sessions, and then add some newer names to the portfolio which had lagged, so if the rally continues they might offer some upside.

On the long side:

  • With Riverbed Technology (RVBD) up 23% since I bought it on August 12th, I took another round of profits Tuesday. 
  • I closed the position in Monsanto (MON), as a narrowing of guidance, punished the stock and it broke support on the charts. 
  • Wednesday, when ISM Manufacturing came in better than expected I quickly bought a 3% allocation in SPY September 107 calls anticipating a positive reaction; in part this was to offset the losses in the SPY puts (1%) allocation I was holding.  This happened around S&P 1070 and my target was S&P 1081 which was where the 50 day simple moving average had fallen to in the first half of the week.  I sold this in 2 batches, first (same day) at 1078 and then Thursday morning around 1081. 
  • Thursday, I sold 30% of Amazon.com (AMZN), and half of Magna International (MGA) as both were stretching into overbought territory. 
  • Friday, I continued to sell things that were overbought - 50% of Netflix (NFLX), Acme Packet (APKT) and 40% of BorgWarner (BWA)
  • I took some of the monies in names I had taken profits in and moved them into 3 new names that had lagged on the hopes if the market continues up these would 'catch up': Gafisa (GFA), Titanium Metals (TIE), and Power-One (PWER)
  • I began a modest rebuild (1%) of F5 Networks (FFIV)


On the short side:

  • As the S&P 500 tested 1040 for the 3rd time in 5 sessions, I opined (wrongly) that the more times you test a level the more you are likely to break it.  Traditionally this is how it works out, but all that gives you is increased probability, not a crystal ball.  I bought a 1% exposure of October 104 SPY puts as 'portfolio insurance Tuesday, thinking I'd hold it for 7 weeks in case 1040 broke.  Instead I ended up selling them the next day as the viciousness of the rally meant these would lose a lot of money (in % terms) if the market kept going up. 
  • I covered a short in Burger King (BKC) for a quick 3.5% gain from an entry point late the previous week; this was a very lucky transaction as overnight Wednesday the stock was rumored as a PE takeover candidate, which was confirmed late in the week.  
  • A stop loss on the short of Toll Brothers (TOL) triggered at a 3% loss on the surge on ISM Manufacturing Wednesday. 
  • Friday's gap up on employment data finally triggered a stop loss in the short on Symantec (SYMC) at 3%. 

Sunday, September 5, 2010

Updated Position Sheet

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Cash: 71.4% (v 71.0% last week) 
Long:
28.3% (v 20.7%) 
Short:
0.3% (v 8.3%) 


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)



SHORT



OPTIONS


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Friday, September 3, 2010

FT.com: The Crisis of Middle Class America

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This  piece from the Financial Times is about a month old; just have not had time to get around to writing the entry it deserves.  It is a pretty comprehensive piece, and I always find it interesting to see views looking in on the U.S. from abroad.   This should be nothing new to long time readers as this story incorporates countless themes we've discussed on the website, but many of the topics we've been highlighting for years are now approaching critical mass as the (credit) tide has washed out.  What is sitting on the beach after a few decades of stagnant wages (many in the middle class now make less, inflation adjusted, than in the 1970s) and without the house ATM to hide it, is now apparent.  For a country where for decades 70% have lived paycheck to paycheck, 1 in 8 now receive food stamps (including 1 in 4 children)  [Nov 29, 2009: 1 in 4 Children, and 1 in 8 Americans Now on Food Stamps and 50% have essentially nothing saved for retirement,[Mar 9, 2010: Bifurcation of American Society Continues at Pace; Nearly Half Have Less than $10K for Retirement, a Quarter Less than $1K]  the gnawing feeling that they their children will not live as good as they have, is now a tangible reality - especially in the private sector.  [Jul 24, 2010: Increasing Evidence that Generation Y Will Not Have the Living Standard of their Parents] (and yes the easy counterpoint to any uncomfortable discussion about the topic, is the worst off in the U.S. are still better off than someone in Ethopia.... but if that is our measure, we are setting the bar low.  We should be comparing our middle class to those of other first world countries such as someone in say Germany or a Nordic country.)

  • Technically speaking, Mark Freeman should count himself among the luckiest people on the planet. The 52-year-old lives with his family on a tree-lined street in his own home in the heart of the wealthiest country in the world. When he is hungry, he eats. When it gets hot, he turns on the air-conditioning. When he wants to look something up, he surfs the internet. One of the songs he likes to sing when he hosts a weekly karaoke evening is Johnny Cash’s “Man in Black”.
  • Yet somehow things don’t feel so good any more. Last year the bank tried to repossess the Freemans’ home even though they were only three months in arrears. Their son, Andy, was recently knocked off his mother’s health insurance and only painfully reinstated for a large fee. And, much like the boarded-up houses that signal America’s epidemic of foreclosures, the drug dealings and shootings that were once remote from their neighbourhood are edging ever closer, a block at a time.
  • What is most troubling about the Freemans is how typical they are. Neither Mark nor Connie – his indefatigable wife, who is as chubby as he is gaunt – suffer any chronic medical conditions. Both have jobs at the local Methodist Hospital, he as a warehouse receiver and distributor, she as an anaesthesia supply technician. At $70,000 a year, their joint gross income is more than a third higher than the median US household.
  • Once upon a time this was called the American Dream. Nowadays it might be called America’s Fitful Reverie. Indeed, Mark spends large monthly sums renting a machine to treat his sleep apnea, which gives him insomnia. “If we lost our jobs, we would have about three weeks of savings to draw on before we hit the bone,” says Mark, who is sitting on his patio keeping an eye on the street and swigging from a bottle of Miller Lite. “We work day and night and try to save for our retirement. But we are never more than a pay check or two from the streets.”
  • Mention middle-class America and most foreigners envision something timeless and manicured, from The Brady Bunch, say, orDesperate Housewives in which teenagers drive to school in sports cars and the girls are always cheerleading. This might approximate how some in the top 10 per cent live. The rest live like the Freemans. Or worse.
  • It only takes about 30 seconds to tour Mark’s 700sq ft home in north-west Minneapolis. Cluttered with chintzy memorabilia, it was bought with a $50,000 mortgage in 1989. It is now worth $73,000. “At one stage we had it valued at $105,000 – and we thought we had entered nirvana,” says Mark. “People from the banks kept calling, sometimes four or five times an evening, offering equity lines, and home improvement loans. They were like drug pushers.”
  • The slow economic strangulation of the Freemans and millions of other middle-class Americans started long before the Great Recession, which merely exacerbated the “personal recession” that ordinary Americans had been suffering for years
  • Dubbed “median wage stagnation” by economists, the annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973 – having risen by only 10 per cent in real terms over the past 37 years. That means most Americans have been treading water for more than a generation. Over the same period the incomes of the top 1 per cent have tripled. 
  • In 1973, chief executives were on average paid 26 times the median income. Now the multiple is above 300. (because US CEOs got that much smarter and better versus the "pathetic" CEOs of the 1970s!  And if you dare question this trend, you are a socialist...even worse, the CEOs will threaten to move to another country and take their talent... of course no one calls them out, since they would not receive a fraction of the same wages in any other country) ;)
  • The trend has only been getting stronger. Most economists see the Great Stagnation as a structural problem – meaning it is immune to the business cycle. In the last expansion, which started in January 2002 and ended in December 2007, the median US household income dropped by $2,000 – the first ever instance where most Americans were worse off at the end of a cycle than at the start. Worse is that the long era of stagnating incomes has been accompanied by something profoundly un-American: declining income mobility.  

This point above is very key, and something to take a moment to focus on; I've been doing a lot of reading on the issue of income mobility the past 12 months since it is so key to the social contract in America.  For decades, in return for "dog eat dog" capitalism (everyone out for themselves) and a general lack of safety net, the typical American was offered the proposal of what I call 'lottery ticket' outcomes; i.e. anyone can be Bill Gates with luck, desire, intelligence, and hard work.  Whereas becoming Bill Gates in Sweden is not so easy, but of course with the (high) tax structure and social contract there is a huge safety net for the masses as everyone has access to healthcare, daycare, higher educational opportunities (without sending people into hock for $70K in debt), et al.  [Feb 18, 2008: Economic Woes Reveal a Long Felt Unease & Denmark is the Happiest Place on Earth?]  This contract fit well with American individualism and the historic pioneer spirit.  Hence the income inequality (which in 2007 had reached levels only seen in the late 1920s before the Great Depression) or wealth disparity was tolerated since many strived to get into the top tranche and indeed a decent proportion (despite lacking K12 public education system) could have a chance to 'win the lottery'.  Or if not the lottery, move up the food chain versus their parents.

According to Internal Revenue Service data, income inequality in the U.S. is at its worst since the 1920s (before the Great Depression). The top percentile of wealthy Americans earned 21.2% of all income in 2005, up from 19% in 2004, while the bottom 50% of wage earners earned 12.8% that year, down from 13.4% a year earlier.

But many of the studies / stories I've read lately have shown the decreasing propensity for the average American to move out of his 'caste'.  Hence the basis for lottery ticket capitalism is faltering; while it is STILL true that (almost) anyone can make it, the percentage of those hitting the lottery is decreasing substantially.   Even worse I can argue that despite lower taxes than Western Europe, when you do a side by side comparison of costs (born by individual in U.S., born more through transfer payments in Europe) it is now costing a family with children more to provide the same lifestyle (healthcare, daycare, college education) in the U.S. than someone in highly taxed socialist Western/Nordic Europe.  And even if the costs were equal, the risks are far higher in the States - you don't lose a lifetime of savings in Western Europe if you happen to get sick at the wrong time.  [On the other hand, I still think the cost structure for those without children is favorable in the U.S.]   With that, what we face ahead is a questioning of the American social contract.   In return for lack of safety net relative versus 'socialists', you used to have many more lottery winners in America.  However in the modern era, there is neither the (W. European) safety net ALONG with the decreasing probability of multiple lottery winners - i.e. worse case scenario in both situations.   These are very difficult issues to work through, and no easy solutions as many will argue that you can still hit it big with big sacrifices (which to a degree is true).  What cannot be argued is income mobility is far lower today than in the old America - study after study is showing this.


Back to the FT piece:
  • Alexis de Tocqueville, the great French chronicler of early America, was once misquoted as having said: “America is the best country in the world to be poor.” That is no longer the case. Nowadays in America, you have a smaller chance of swapping your lower income bracket for a higher one than in almost any other developed economy – even Britain on some measures. To invert the classic Horatio Alger stories, in today’s America if you are born in rags, you are likelier to stay in rags than in almost any corner of old Europe.
  • Combine those two deep-seated trends with a third – steeply rising inequality – and you get the slow-burning crisis of American capitalism. It is one thing to suffer grinding income stagnation. It is another to realise that you have a diminishing likelihood of escaping it – particularly when the fortunate few living across the proverbial tracks seem more pampered each time you catch a glimpse. “Who killed the American Dream?” say the banners at leftwing protest marches. “Take America back,” shout the rightwing Tea Party demonstrators.
  • Statistics only capture one slice of the problem. But it is the renowned Harvard economist, Larry Katz, who offers the most compelling analogy. “Think of the American economy as a large apartment block,” says the softly spoken professor. “A century ago – even 30 years ago – it was the object of envy. But in the last generation its character has changed. The penthouses at the top keep getting larger and larger. The apartments in the middle are feeling more and more squeezed and the basement has flooded. To round it off, the elevator is no longer working. That broken elevator is what gets people down the most.”  (great analogy)
  • Unsurprisingly, a growing majority of Americans have been telling pollsters that they expect their children to be worse off than they are. During the three postwar decades, which many now look back on as the golden era of the American middle class, the rising tide really did lift most boats – as John F. Kennedy put it. Incomes grew in real terms by almost 2 per cent a year – almost doubling each generation.
  • From the point of view of most economists, the story so far is uncontroversial. Most agree on the diagnosis. But they diverge on the causes. Many on the left blame the Great Stagnation on globalisation. The rise of China, India, Brazil and others has undercut wages in the west and put America’s unskilled, semi-skilled and even skilled workers out of jobs. Manufacturing now accounts for only 12 per cent of US jobs. Think of the typical Detroit car worker 30 years ago, who had a secure middle-class lifestyle, good healthcare and a fat pension to look forward to. Today, he lives in Shenzhen.
  • Another group singles out the explosion of new technology, which has enabled the most routine and easily automated jobs to be replaced by computers. Think of the office assistant, who once took dictation and brewed the coffee. She is now a ­BlackBerry who spends half her life in Starbucks. Or the back office person who, much like those shoemakers in the fairy tale, now stitches your accounts in Bangalore while you sleep.
  • Then there are those, such as Paul Krugman, The New York Times columnist and Nobel prize winner, who blame it on politics, notably the conservative backlash which began when Ronald Reagan came to power in 1980, and which sped up the decline of unions and reversed the most progressive features of the US tax system.
  • Fewer than a tenth of American private sector workers now belong to a union. People in Europe and Canada are subjected to the same forces of globalisation and technology. But they belong to unions in larger numbers and their healthcare is publicly funded. More than half of household bankruptcies in the US are caused by a serious illness or accident.
  • Much as they disagree on what has caused the Great Stagnation, economists also differ on the remedies. Most agree that better education improves people’s earnings potential, even if it does not solve the underlying problem. Others point out that not everybody can be a bond trader, a software entrepreneur or a Harvard professor.
  • Many of the jobs of the future will be in “inter-personal” roles that cannot be easily replaced by computers or foreigners – janitors, beauty technicians, home carers and landscape gardeners, for whom college is often superfluous. Furthermore, a large chunk of Americans who have been hit by stagnation over the past decade are college graduates. Even they are not immune. But more education, at the very least, will improve one’s chances. Paying for it is another matter.  
  • Shareen’s son and daughter-in-law, Dustin and Ruth, both aged 23, recently had to move back home because they could not afford to rent, even though both hold down jobs – Dustin with a bath remodelling company, Ruth in a fabrics store. Both did well in high school and would like to study marine biology – a skill of the future. But they cannot afford the debt.  (yet another bubble in America - the cost of higher education - now completely out of line with many people's ability to pay for it)
  • While incomes in America are stagnating, the cost of education is soaring. Since 1990, the proportion of Americans who are paying off more than $20,000 in student loans a decade after they graduated has almost doubled.   [Dec 5, 2008: NYT - College May Become Unaffordable for Most in US]  

Conclusion?
  • What, then, is the future of the American Dream? Michael Spence, a Nobel Prize-winning economist, whom the World Bank commissioned to lead a four-year study into the future of global growth, admits to a sense of foreboding. Like a growing number of economists, Spence says he sees the Great Stagnation as a profound crisis of identity for America.  
  • For years, the problem was cushioned and partially hidden by the availability of cheap debt. Middle-class Americans were actively encouraged to withdraw equity from their homes, or leach from their retirement funds, in the confidence that ­property prices and stock markets would permanently defy gravity (a view, among others, promoted by half the world’s Nobel economics prize winners, Spence not included). That cushion is now gone. Easy money has turned into heavy debt. Baby boomers have postponed retirements. College graduates are moving back in with their parents.
  • The barometer is economic. But the anger is human and increasingly political. “I have this gnawing feeling about the future of America,” says Spence. “When people lose the sense of optimism, things tend to get more volatile. The future I most fear for America is Latin American: a grossly unequal society that is prone to wild swings from populism to orthodoxy, which makes sensible government increasingly hard to imagine. (this is such an important point) Look at the Tea Party. People think it came from nowhere. While I don’t agree with their remedies, most Tea Party members are middle-class Americans who have been suffering silently for years.” (bingo)
  • Spence admits he is thinking aloud and going “way beyond the data”. And he concedes that America probably still retains its most vibrant strength in its still world-beating capacity for technological innovation. Most economists are not as bleak as Spence.  But it is in the neighbourhoods among ordinary Americans that his pessimism gets its loudest echo.
  • It takes optimism to be like this. But in the past few years the Freemans have been running low on it. “I guess the penny dropped in the last 18 months when we finally realised that it’s always going to be like this – we are never going to be able to retire on our savings,” says Connie.
  • When I asked what the American Dream means to them, Mark looked despondent. “It’s not a dream,” he said. “I would hate to sound like one of those Tea Party people but I really do want my country back. I just don’t feel like that is going to happen.

-------------------------------------

I don't have the answers, but certainly we should acknowledge the issues rather than sweeping them under the rug or conveniently blaming a President for structural ills that have been building for decades.  There are many great things about our current society and many advantages - but it is not close to perfect.  No system is perfect... and we can learn from others; for example Germany seems to do a good job of balancing many of the 'profit seeking' motives that drive all decisions in America, with some social benefits lacking in the U.S.  Perfectly? No - but we're not at a stage where we even acknowledge anyone else might have better systems in any aspect.  Germany was up to this year the world's largest merchandise exporter despite a highly paid mfg workforce, with 40% of GDP reliant on such - with world class education, healthcare, manufacturing, and a retirement age as high or higher than the U.S. - not exactly lazy "socialists" who want nothing but "handouts" as is the dogma if you watch U.S. media.  In fact, when Prez Obama was at the G20 asking for increasing spending by governments worldwide, it was Merkel who pushed back saying no.  Irony.

As the world changes and we introduce a few hundred million competitors to the global labor force, to not have discussions on how the system could (or must) adjust, and instead rely on the narcissistic (and dogmatic)  "We're #1!" (which we no longer are in many measures) as a defense mechanism, is cheating the populace.  Further, having an increasing amount of the populace feel as if they cannot even grasp at a middle class existence can become a dangerous situation in the decades ahead.  Based on recent history, I assume we'll simply kick the can (speaking of things we're #1 at) trying to blow new economic bubbles (if only housing would re-inflate the ATMs could be turned back on!) and turing people on each other via political dogma to 'distract the sheep', until it reaches such an extreme point that leadership fears "cake will be eaten"... which is a sad indictment in itself.  Until then... business as usual I am afraid.

[July 26, 2010: [Video] DatelineNBC - America's Increasing Ranks of Poor]
[Jul 29, 2009: Japan's "Herbivore" Men - Young American Men's Future?]
 [Sep 7, 2009: Citigroup - America; A Modern Day Plutonomy 

Bookkeeping: Beginning to Rebuild F5 Networks (FFIV)

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Interestingly with so many stocks going from oversold to overbought in the span of 72 hours, F5 Networks (FFIV) is not among them.  While it barely suffered a scratch during the selloff the past few weeks, it has not really advanced much either.  Instead it has built a nice 5-6 week base between the mid $80s and low $90s.  Today is the first day it has breached $92.50 since early August and in a benign market I'd say this is a no brainer for a new leg up.  In *this* bipolar market - who can ever tell.

Being amongst my favorite names fundamentally, and lacking that many options in new names that are not already near extreme levels of euphoria (3 days ago you could not give away stocks, now people are running over you to buy them), I'll begin to allocate back into this name with a 1% exposure today.  If the market was not up in vertical fashion I'd be buying a bigger stake.   I was hoping for that gap to fill in the $77s at some point during the S&P 500's travels down to 1040, but my dream was not to be had.



The action in the S&P 500 remains good today, but if we have our typical Tuesday premarket surge and strong day we are going to be very prone to a pullback late Tue-Thu next week.  I don't see any specific catalyst on the calendar but I've run through about 50 stocks this afternoon that have run 15%+ in 3 days.  Either we need to see a rotation into new names, while those names take a rest and consolidate, or we will need a broader pullback for at least a session.  Even chicken wings are going crazy....



Long F5 Networks in fund; no personal position


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Bookkeeping: New Positions - Gafisa (GFA), Titanium Metals (TIE), Power-One (PWER)

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Here are some replacement names for some of the long exposure I cut.

First, a name we've held many times the past 3 years Brazilian homebuilder Gafisa (GFA) [thanks to the reader who reminded me of it this morning].  Gafisa has been under pressure but Brazil's sizzling economy has put pressure on the central bank to increase interest rates (the exact opposite situation as the U.S. is facing), and higher rates always hurt homebuilders.  If the global slowdown causes the central bank to pause this should help the name.  Either way it's back over support and not overbought like much of what we own in the portfolio.  I'll begin a 2.1% stake in the $14.40s.  The stock held mid $13s quite well during the recent selloff, so we have an easy area to identify as a potential stop loss in the future.



Titanium Metals (TIE) is an incredibly volatile name, very tied to the aerospace industry but generally runs when "risk is on".  Unfortunately Boeing has delayed its new jet about 82,000 times so each time it hits this stock.  That said it just regained some areas of support AND if you draw a trend line of its highs in August, it just broke over that level as well.  So a move to S&P 1130 if/when, should help a name like this 'catch up'.  This is not an "investing" stock - but a trading stock... I plan to be out completely if it makes a good run.  If the S&P 500 begins to reverse and break down this will be the first name punted since its never in 'strong hands'.  I don't think it has been in the portfolio since 2007.  2.2% exposure in $19.60 area.



Last but not least is a name I've never owned before, Power-One (PWER) - I noted yesterday that Chinese solar stocks (at least some of them) had made some big moves of late and were amongst the top performers. This is not Chinese and not a traditional solar player but its main growth driver, inverters are a backdoor solar play.  While not a high margin business (almost nothing in solar is) the revenue growth is substantial.   The company had a great quarter in late July....

For the quarter, the company reported revenue of  $215 million and profits of 17 cents a share, ahead of the Street consensus at $185.7 million in revenue and profits of 10 cents a share.  For the third quarter, PWER sees revenue of $250 million to $270 million, well above the old Street consensus forecast of $199. 6 million.

... where it gapped up from low $10s to mid $12s, topping out at $13 a few weeks later.  Showing in this bipolar market how you need to take your trades and lock in gains (or lose them), it then "filled the gap" and gave back the entire move.   But now it is in a more solid technical position so we'll take a stab here with a 2.2% stake around $11.40.



EPS estimates have gone up from mid .30s to mid .70s during the past 90 days (for 2010) and from 50 cents to just over a dollar (for 2011) so you can see how analysts have misjudged the name.

Since this company is new and I'm not doing the full in depth piece I normally do with new ideas, I'll offer a few links
  1. Last earnings report here
  2. Andrew Horowitz at Disciplined Investor did a write up mid August

Long names mentioned in fund; no personal position

Bookkeeping: Some Sales

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I said I'd be looking to add some long exposure but that does not mean I am not going to sell some as well; what I want to do is sell some of the overextended names and buy some things that are not so overbought.  This way I can keep a decent long bias, but just change the mix of names & exposures.

Here are some sales (I've included Relative Strength index in the chart to show one signal of 'overbought')

I'm selling half of remaining Acme Packet (APKT) near $36 and will look to buy back on a pullback.



I'm selling half of Netflix (NFLX) in the mid $140s and will look to buy back on a pullback


I'm selling 40% of BorgWarner (BWA) [current largest position] over $48, ditto on buying on pullbacks.


I'm selling half of Tibco Software (TIBX) in the $15.20s area, ditto on buying on pullbacks.



Long all names mentioned in fund; no personal position


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Bookkeeping: Covering Symantec (SYMC) Short

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This morning's gap up triggered my stop loss in Symantec (SYMC).  This name actually remained quite weak considering the huge move Wednesday and follow through day yesterday but finally it triggered a 3% threshold and I was out at $14.12.


With that I am mostly out of the short book other than some piddling index exposure.

No position

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ISM Services Far Below Consensus - Market Ignores It

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It has been a very telling day as I said this morning it would be.  ISM Services just came in at 51.5 versus expectation of 53 and previous month's 54.3.  Again, ISM Manufacturing gets all the press as if we still live in the economy of 40 years ago, but ISM Services is the much more representative report.  The S&P 500 sold off an entire 1.5 points on the knee jerk reaction.  Two weeks ago ...heck earlier this week, this would of caused a 2% swoon.

So here is where we stand... there was a gap up over the 200 day moving average this morning and we will eventually need to come down and fill that gap.  We are over S&P 1100 which has been an incredibly important pivot point and in the snap of a finger we went from the precipice of breaking down on the S&P 500 (breaking 1040) to technical conditions doing a 180.  That said, the S&P has rallied well over 5% in just 3 days... extrapolated this would be a 250%+ annual pace of gain.  So we should be overbought very soon and prone to a pullback.  The news today when viewed in a vacuum is actually not good - the report that covers 80% of the economy degraded, whereas we celebrated a report Wednesday (ISM Manufacturing) that covers about 12% of the economy for improving.  The labor force expanded, but still nowhere near a level that even keeps up with population.   All that has happened is expectations have been so low, we were able to beat those figures.

As I typed this the market broke back below 1100 but as long as 1092 holds things are still to the side of the bulls for now.  I would be shocked to see a big intraday reversal with the holiday approaching.

Looking ahead to next week, we have Magical Monday Tuesday - we jump upward almost every first morning of the week almost without fail for the past year and a half.   And the economic calender is almost empty next week - no major reports.  So the bias should be completely technical - doesn't matter if the economy is "meh"; the major reports are out of the way for a few weeks and now people can look forward to the election in November as if that will fix everything.  Again, as long as S&P 1092 holds, selloffs should be contained and I'd be expecting an upside bias as there is no economic data to change people's views.  I'll be looking to add some long exposure today, assuming the 200 day holds.

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Gap Up to S&P 1100 Locked and Loaded as Employment Picture Weakens Less than Expected

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I won't go into too many of the particulars because this is such a convoluted report but private sector payrolls in August gained 67,000 versus expectations of around 40,000.  (the broader number is skewed by losses in census workers so not worth mentioning)   This is higher than ADP's -10K but of course ADP does not have the benefit of "creating" tens of thousands of birth death model jobs.  (Edit: Birth death model added 115,000 jobs as per our government's guess work, small businesses across America continue a hiring binge *cough* that has been nearly unabated during the entire recession.  In a related note, I have bridges for sale in Florida.)

To put the 67,000 in perspective, July's figure was 107,000 so it's a degradation month over month but again - all that matters is expectations.

The best positive of the report was hourly wages which jumped 0.3% versus 0.2% the previous month.

Average workweek was flat versus prior month.

Temporary worker growth seems to be slowing, only 17,000 - this has generally been 50-60K for much of the past year and supposedly a "leading indicator" of recovery.  (my argument has been that the U.S workforce dynamic is changing and temporary employment is increasingly replacing full time).

The unemployment rate increased to 9.6% as part of the millions who have dropped out of the workforce returned (half a million) seeking work.  Recall that the unemployment rate would be multiples higher if the U.S. workforce had remained steady the past 2 years; instead millions have 'disappeared' keeping the unemployment rate below where it would otherwise be.

This also helped drive up "U-6" to 16.7% v 16.5% ... U-6 being unemployed, marginally attached, those working part time but wishing full time, etc.

S&P 1100 has been a big pivot point so now the next knee jerk reaction comes at 10 AM when ISM Services will (I assume) drive us over that level ... then we're only 30 points away from the recent high.   So our entire trading range of 90 S&P points will have been traversed in 3 sessions if all goes well (66% of the range has been accomplished in 2 premarket and 2 sessions) ;)  We are repeating the pattern of much of 2009 and early 2010 where the majority of gains are premarket - of the 55 S&P points gained since Tuesday evening, more than half have come in premarket.

And that's our wild, wacky bipolar market which has no memory from day to day.

Reaction to News More Important than News Today

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The past two days there has been a litany of economic news and it has been mixed.  You would not know that by the reaction in the market which has almost erased all of August losses in 2 sessions.  This goes to the point that at times the market wants to do what it wants to do, and it will cherry pick the required news as needed.

Wednesday, the Chinese PMI was barely expansionary but good enough for a huge surge premarket.  Then came a -10,000 print in ADP and it was brushed off.  The U.S. ISM report led to a second leg of a rally but released at the exact same time was a poor construction spending report, which also was ignored.

Yesterday, weekly jobless claims came in at a recessionary 470K+, and factory orders came in worse than expected.  But pending home sales was the only thing people seemed to focus on and it was another "out of the blue" data point up over 5%.

So out of the 6 domestic economic reports I listed above, 2 could be construed as positive surprises - and those were the 2 the market rallied off of.  Hence one must respect this fact as bad news being bought or ignored is just as important as good news being celebrated.  Sometimes you see the complete opposite where good news is ignored, and that must be respected just the same.

Today we have 2 big reports - ISM Manufacturing reported Wednesday gets all the attention (because apparently economists think the U.S. still lives in 1978) but ISM Services at 10 AM represents 80%+ of the economy.  (consensus 53)  And before that of course is the employment data at 8:30 AM... everyone expects this report be "bad", so even if it is "bad" it won't be 'news' as long as it is not horrific.  "In line" is considered "good" nowadays as we are grasping for anything positive in the U.S. economy.  So it will be important to watch not so much the news but the reaction to the news.  If the 2 previous days reaction continues, it really won't matter what the news is because (apparently) the market will have priced in any negatives during the August swoon.  If however, we see selloffs on any bad news than the past 2 days was just an oversold dead cat bounce.

The S&P 500 is neither oversold or overbought here and we sit smack dab in the middle of our range of 1040 to 1130.... 50 points off the bottom and 40 points away from the top.  The 50 day simple moving average of 1081 yesterday was sliced through as if it was not there and now we sit right 1093 which is the 200 day (exponential) moving average.  Certainly the "right" number (even if horrid) in the labor data can cause us to gap up over that level in premarket... let's see if that happens.



For you Fibonacci fans, this range from 1040 to 1130 gives us these 3 levels:

38.2% retrace: 1074
50% retrace: 1085
61.8% retrace: 1096

Hence if we gap up and over 1096/1100 it appears likely we are headed back to the top end of this range we are stuck in.

Thursday, September 2, 2010

The Current Hottest Stocks

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Running a quick screen on finviz.com I came up with a list of just under 50 of the hottest stocks in terms of performance.  I pulled out 4 names at the bottom of the list which are takeover candidates.  Here are the criteria:

  1. Market cap > $300M
  2. Trading volume > 200K daily
  3. Stock price > $10
  4. Over 50, and 200 day moving average
  5. At least 10% over 20 day moving average

Some interesting results showed up - some of the normal candidates (high beta generals), and some old names from the portfolio. (I highlighted those in blue)  Chinese solar stocks seem to be back en vogue as well; I did not even recognize JinkoSolar (JKS) as it's been a while since I've bothered to look at the space.   Names I've been debating on and off in terms of adding to the portfolio the past few months are Fossil (FOSL), MBIA (MBI) [seriously], and NetSuite (N) [yet another 'cloud' play].  Somehow LogmeIn (LOGM) is still on this list. [Jun 17, 2010: Best Chart of a Stock You Never Heard of]

If this were 2006 this is where I'd say, if tomorrow's job report pleases the market, these are the names you'd want to focus on in terms of best relative strength, but in the current era where all stocks are the same stock - just buy anything I suppose.

[sorted by market cap]


Ticker Company Industry  Market Cap
CRM Salesforce.com Application Software       14,981
CIB Bancolombia S.A. Foreign Regional Banks       12,932
AKAM Akamai Technologies Inc. Internet Information Providers        8,654
SLW Silver Wheaton Corp. Silver        7,743
ARMH ARM Holdings plc Semiconductor - Specialized        7,378
RHT Red Hat, Inc. Application Software        6,736
FOSL Fossil, Inc. Recreational Goods, Other        3,275
CTCM CTC Media, Inc Broadcasting - TV        3,082
AWI Armstrong World Industries, Inc. General Building Materials        2,391
JKS JinkoSolar Holding Co., Ltd. Industrial Electrical Equipment        2,205
PAY VeriFone Systems, Inc Business Equipment        2,162
ANV Allied Nevada Gold Corp. Gold        2,111
MBI MBIA Inc. Surety & Title Insurance        1,964
TSL Trina Solar Ltd. Semiconductor - Specialized        1,891
EAT Brinker International Inc. Restaurants        1,689
FTNT Fortinet Inc. Computer Peripherals        1,497
MCP Molycorp, Inc. Industrial Metals & Minerals        1,436
ISLN Isilon Systems, Inc. Data Storage Devices        1,392
MMR McMoRan Exploration Co. Independent Oil & Gas        1,360
EJ E-House (China) Holdings Limited Property Management        1,344
ARST ArcSight, Inc. Business Software & Services        1,303
N NetSuite Inc. Business Software & Services        1,247
NZ Netezza Corporation Diversified Computer Systems        1,246
HS HealthSpring Inc. Health Care Plans        1,235
JACK Jack in the Box Inc. Restaurants        1,162
DRIV Digital River Inc. Internet Software & Services        1,093
CVLT CommVault Systems, Inc. Application Software        1,072
EXXI Energy XXI (Bermuda) Limited Oil & Gas Equipment & Services        1,053
SWM Schweitzer-Mauduit International Inc. Paper & Paper Products        1,029
VQ Venoco, Inc. Oil & Gas Drilling & Exploration        1,003
FOE Ferro Corp. Specialty Chemicals           999
COGT Cogent Inc. Business Software & Services           998
HAIN The Hain Celestial Group, Inc. Processed & Packaged Goods           937
HWD Harry Winston Diamond Corporation Nonmetallic Mineral Mining           786
LOGM LogMeIn, Inc. Information Technology Services           773
CRZO Carrizo Oil & Gas Inc. Independent Oil & Gas           765
FIRE Sourcefire, Inc. Security Software & Services           717
RADS Radiant Systems Inc. Business Software & Services           648
SOLF Solarfun Power Holdings Co. Ltd. Semiconductor - Specialized           635
SCMR Sycamore Networks Inc. Networking & Communication Devices           632
DIN DineEquity, Inc. Restaurants           613
EZCH EZchip Semiconductor Ltd. Semiconductor Equipment & Materials           567
SPRD Spreadtrum Communications Inc. Semiconductor - Broad Line           536
GIII G-III Apparel Group, Ltd. Textile - Apparel Clothing           535
REXX Rex Energy Corporation Oil & Gas Drilling & Exploration           503
UNCA Unica Corporation Business Software & Services           451
DTPI Diamond Management & Technology Management Services           343








Ticker Company Industry  Market Cap
POT Potash Corp. of Saskatchewan, Inc. Agricultural Chemicals       43,289
MFE McAfee, Inc. Security Software & Services        7,165
BKC Burger King Holdings Inc. Restaurants        2,559
PAR 3PAR, Inc. Data Storage Devices        2,016


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