Tuesday, September 28, 2010

Bravo Bob Marcin

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I often get emails on what I read, or how I learned this, that, or the other and what I subscribe to for my information.  Everything I get is from free sources other than a long time subscription (decade+) at Realmoney.com - I'm talking since dot com era.  Mostly it helps me get a feel for what "Wall Street" think is so I can get a gauge of what is going out there in "consensus" land similar to watching Fast Money.  That said, there are a few outlier folks who I enjoy ... for the hour by hour "Rev Shark", for strategic multi week views Doug Kass, and for big picture views Bob Marcin.  I probably like Bob Marcin so much because we think almost identical on the economic policy, problems and 'solutions' this country has been through the past decade... I am sure the Wall Street crowd who only cares about making the next buck no matter the long term consequences views him as the old curmudgeon who yells at the speculators to get off his lawn!

Every so often Marcin says something so good I have to copy it over here - hot off the presses.  Bravo Bob...now go buy stocks cuz we're all gonna get rich in the new paradigm financial asset economy!

The clowns at the Fed are center ring of the circus and they have brought out their one trick pony named All-Ease-All-The-Time. The Fed insists this trick is panacea for the economy.


Certain bozos at the Fed, starting with the Lead Clown himself, Alan Greenspan, believed asset speculation creates wealth and economic prosperity. Current Ring Master Bernanke believes currency debasement will create jobs, reflate housing, spike financial assets, and cure cancer. And, it will accomplish this by only gently nudging inflation up to 2%. What a joke.


The next QE performance will create trillions of paper dollars and create no jobs and minimal GDP growth, inflate no home prices and not cure cancer. It might goose financial assets a bit temporarily, but that seems to be the Jokers end game.


QE2 however will crush the dollar, hurt pension funds and savers, spike inflation, especially in commodities and distort market pricing signals. And if it persists, will force investors out on the risk curve and may initiate bubbles in bonds, stocks, and commodities. Easy Al has relinquished the circus ring to Bubble Ben.


In an act of suspension of disbelief, the markets wants to applaud this pony trick. How foolish. Printing money and inflating asset prices creates no sustainable wealth or economic activity. It creates the illusion of wealth and fosters major economic imbalances. That's our problem today, yet the clowns running the circus don't understand that sentence.


We all know how sustaining debt imbalances and supporting uneconomic activity ends. Very badly. After the this circus gets driven out of town, a pile of horse manure will be the only thing their pony leaves. The Fed is short members, and I nominate Ronald McDonald. As far as clowns go, he comes with no pony and less harm.


When will investors understand that the Fed's one-trick pony is phony?

I'd Say Gold (GLD) and Silver (SLV) are Overbought but Bank of England Official Chimes in on Race to Bottom for Fiat Currencies

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It is one thing to make predictions that you think will come true, but are far out of the mainstream, and it is quite another to see them happening before your eyes.   Once the consensus (in early 07 in fact!) was home prices could never fall nationally because... well, they had not in the past.  Pundit after pundit came on CNBC expressing the view.  Meanwhile, I said home prices were wildly inflated versus historical trend and would stage a tremendous national drop.  [Dec 2007: Analysis - What Should Median Home Prices Be Today?]   Three years later you see who was correct..... and it was not the CNBC crowd.  But saying it, and then watching it play out so dramatically was another thing.

Maybe 15 months ago I said gold would rally but not for reasons people were using at the time - i.e. inflation.  Instead it would be as a reserve currency as central bankers went wild as there would be no real recovery and central bankers became increasingly desperate.  Now in the past 3 months, I hear everyone talking about gold as a reserve currency... what was unthinkable a year and a half ago has become consensus.  Again, it is one thing to predict something and quite another to see central bankers attempt to destroy their country's currencies and the living standards of their citizens along with it.  All 4 of the major developed central banks have done, are doing, or are planning to do more of it.  Brazilian officials said just as much earlier this week as emerging markets are receiving much of this fiat money (Brazil, after raising taxes against capital inflowsto offset Bernanke's QE1, is now considering another round to offset this next iteration!) .

  • Brazilian Finance Minister Guido Mantega said the government will buy all “excess dollars” in the market to curb the real’s appreciation as governments around the world engage in a “currency war.”
  • We are experiencing a currency war,” Mantega said. “Devaluing currencies artificially is a global strategy.”
  • “There is a very serious currency problem, which should be addressed,” Meirelles said today. The central bank and the Finance Ministry “agree that’s not something Brazil should pay the price for.”
  • “We should have a balanced global economy,” Meirelles told reporters today in London. “We can’t have some countries having their currencies weakened. Evidently, we’re going to have a few countries paying the price for that.”
  • Brazil’s government is considering increased taxes on capital inflows in a bid to stem the real’s rally as other countries adopt policies to weaken their currencies.  Brazil’s government last October slapped a 2 percent tax on foreign purchases of equities and fixed income securities to fend off what Mantega considered “excess speculation” involving the real.

These type of actions by the Fed, BOE, and BOJ were not part of the ECB charter (ECB was once viewed as the central bank that actually cared about their currency) but even the European central bank is out there buying sovereign debt at auctions so we can pretend "all is well" when these outlier countries try to float sovereign debt.  (wow look how well the auction went!  It's amazing how good they go when the ECB is buying)  Hear no evil, see no evil, believe no evil.

Hence a conundrum... gold and silver continue to rocket for GOOD reasons.  No one can find a reason that gold should go down anymore because of what central banks are engaging in.  But now everyone is on the same side of the trade (know any gold bears?).  So in many ways this becomes a much harder trade now than before... even if in the long run the central bankers will continue to punish their paper currencies and make gold ever more valuable, do we believe it just happens in parabolic fashion?  Good question, I don't know.  Rarely does a trade no one is against keep working.




Today a Bank of England official was the latest to jump on the "we piss on all paper money" parade.  If you choices are limited to one of the major global currencies - dollar, pound, yen, euro - I don't know which poison you would pick.  Each central bank is panicking as the 'recovery' rolls along in fine fashion. It truly is funny how the bulls have their cake and eat it too ... the global economy is just fine thank you.  So fine in fact (recession "over" 1.5 years ago!) that we need to continue to print paper money as if its going out of style.  Yep, that sure is a signal of "health".

Via Bloomberg:

  • Bank of England policy maker Adam Posen said the central bank should restart its asset-purchase program to prevent persistent slow economic growth.  Posen said the U.K. central bank should consider buying gilts in its initial effort to do more so-called quantitative easing, though purchases of private assets may be needed later.  (re-read that last part.  Then re-read it again.  And again!)
  • U.K. policy makers signalled this month that they’re closer to adding stimulus to the economy after they held the key rate at 0.5 percent and their bond- purchase plan at 200 billion pounds ($317 billion).
  • “Additional monetary stimulus at this point should begin in the form of additional QE as the Bank of England pursued by purchasing gilts in 2009-2010,” he said. “In case such QE were to prove insufficiently effective,” Posen said he would “still want preparation ahead of a Plan B of large-scale non-gilt asset purchases” in close coordination with the Treasury.
  • Posen’s call for action comes a week after the U.S. Federal Reserve said it’s prepared to ease monetary policy further if needed and has highlighted asset purchases as one option. The Bank of Japan may also discuss more steps to ease monetary policy at its meeting next week.

With talk and actions like this you can see why precious metal investors fell "Bulletproof"




Long gold in fund; no personal position

Bookkeeping: Selling SPY Calls

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First, a technical note - my "fill" on these SPY 114 Oct calls was horrendous; straight out of a Friday the 13th movie.  The price I received should have been somewhere near $1.70ish but instead it was $1.89... that is roughly a 11% haircut.   I am none too happy about it.

That said, the trade worked out perfectly in terms of strategy - my intent was buying in S&P 1133-1134 area and looking for 10 to 15 points.  Just over an hour later my trade is "done".  Please note I don't care about time frames - to outsiders this is a "daytrade".  Not to me; it was a price target... if it took 4 days, 4 hours or 4 minutes my goal was those 10 to 15 points.  (if I was talking a stock I'd say if it took 4 months, 4 weeks, 4 days or 4 hours but since its an option, due to volatility risk, I usually hold them for hours or at most days)



I'll be taking off my trade in the next few minutes with a nice gain of about 33 cents per option contract (roughly $1.89 to $2.22)  That is 17% for maybe 75 minutes of work.  It should have been closer to 30% if my entry point was anywhere near what it should have been.  Can't do much about it.

p.s. today was a POMO day - I am sure it was just happenstance we shook off a horrid consumer confidence number and rallied just as the Fed was infusing the primary dealers with hundreds of millions.  (indeed today was a small POMO day, usually they send in $3-$5B, today was less than a billion)

No position


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Bookkeeping: Adding to Spreadtrum Communications (SPRD)

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Spreadtrum Communications (SPRD) is down sharply this morning on what seems to be a small firm downgrading it.  Truthfully it needed an excuse to come in, so any reason will do but I still find it amazing investors take so much heart in analyst actions.  While I hate "gap downs" as they tend to cause havoc on the charts, this analyst action took the stock down to its 20 day moving average (slightly below intraday) finally offering a more reasonable entry period.  With the S&P 500 so extended I am still treading carefully because SPRD is the type of stock that when the S&P sells off 3%, will drop 10%... but I have added a small 0.9% exposure...

As long as the name holds the 50 day ($11.22) in the long run, it's in decent shape.  I'd prefer to be a buyer "down there".



Long Spreadtrum Communications in fund; no personal position


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Bookkeeping: Long SPY Calls Off S&P Support Levels

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I need some turbo charge to make up for a weak 2 weeks, so I am going under the theory S&P 1131 will hold and have bought some SPY calls (SPY Oct 114 calls) as we test the lower end of this range.  My goal is maybe 10-15 S&P points if and when.... if the S&P 500 breaks below 1129ish, I will sell no questions asked.  About a 3.3% allocation.

Looks like the index is in a 19 point range waiting to decide which way it is going to break (1131 at bottom, 1150 at top)  Rather than caring which way we break out, I just want to see the S&P 500 trade towards the top end of the range at which point I could book some nice profits.

Long SPY Oct 114 Calls in fund; no personal position


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Bookkeeping: Closing Cleveland Cliffs (CLF)

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I thought the 'student body' would buy all commodities en masse, and most are running together.  However natural gas, oil, and iron ore (and coal to some degree) have been the laggards.  Meanwhile, copper & soft commodities (agricultural especially) have been rockstars.   Therefore, my position in iron ore/met coal producer Cleveland Cliffs (CLF) has been the wrong choice.  Instead I should have been in Freeport McMoran Copper & Gold (FCX) for example.



Here are the "ags"


Since I've added some new positions in the past week, and I don't want the # of portfolio positions to expand too much I am going to boot the 1% allocation in Cleveland Cliffs and close it out with a 4% loss.  Technically the stock is forming a sideways base over the past 7 days.  From such bases come breakouts:  if it holds the 50 day moving average there is still a good chance the move from the base will be upward, but if the S&P 500 can show any signs of weakness, the breakout could be to the downside.  It's a flip a coin proposition at this point so one to review later.

No position

Bookkeeping: Covering 2nd Half of Intuitive Surgical (ISRG)

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Nice to get a victory on the short side... been a while.  I covered half the Intuitive Surgical (ISRG) short yesterday at $294 area, and am covering the rest today around $287/$288.  Roughly a 3% gain cost averaged.  Modest victories but that is all you can ask for on the short side until the S&P 500 experiences real selling.  Specific to ISRG if the stock can rally back north of $300 I'd like to try the same trade.



At the time I was looking at new names to short late last week I considered Monsanto (MON) in the $54s which had a similar chart - obviously I should have grabbed that one in retrospect.  That would have been a 10% gain in 2 sessions!



S&P 1131 remains the bogey.

No positions

Even the Bulls Need a Break

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I mentioned Baidu.com (BIDU) yesterday - too many charts look like this; it is to the point even the bulls must ask for some backing and filling.  The stock actually opened up into the $107s, before reversing hard and dropping $6 quick points.  (I guess that is a "buying opportunity").  I am sure we've had some other moments such as this in the past year and a half but so many stocks are now not even within shouting distance of their 20 day moving average.... it is boggling.  It's now a game of musical chairs if you are chasing this type of merchandise... just hoping you don't hold the hot potato when the music stops.



No position


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Las Vegas Sands (LVS) Upgraded

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I take little stock in analyst actions on stocks, other than the fact it moves individual equities as people react to such words.  The estimate upgrades however, are significant.  A remarkable turnaround for a company who some feared was at the door of bankruptcy in 2008.  [Sep 3, 2009: Las Vegas Sands - Too Big to Fail?]   Again, despite the name (which the company is considering changing to get rid of the "Las Vegas") this is now a global company, and one focused more on Asia than the U.S.  [Jul 29, 2010: Las Vegas Sands Wins Bet on Asia in Q2]

Since upping Las Vegas Sands (LVS) to the largest position in the fund last Thursday, the stock has continued it's breakout from a 11 day range [Sep 22, 2010: Nice Base Building in Las Vegas Sands] and in a benign environment this is exactly the type of chart you hope to buy as a breakout candidate. Obviously the question remains how much longer things remain benign.

"Textbook breakout"



Via AP:

  • Las Vegas Sands Corp.'s Singapore properties are performing well and a revaluation of the Chinese yuan might help the company, an analyst said Tuesday in removing his sell rating on the stock.  KeyBanc Capital Markets analyst Darnel J. Bentz said in a note to investors that Singapore visitor arrivals have grown sequentially every month since it opened two new Singapore resorts.  "Arrivals are up 23 percent year-to-date through July," he wrote. "We now expect each resort to appeal to a wide variety of tourists and attract more visitors than we previously forecast."
  • In addition, the revaluation of the Chinese yuan should help the company, he said. Sands owns three casino-hotels in the Chinese gambling enclave of Macau in addition to its Venetian and Palazzo casino-resorts on the Las Vegas Strip.  China announced in June that it planned to introduce more flexibility in the value of its currency, but in the last three months the yuan has risen less than 2 percent against the dollar.
  • Bentz raised his rating on shares of Las Vegas Sands, the world's second-largest gambling company behind Harrah's Entertainment Inc., to "Hold" from "Underperform." He lifted his 2010 profit estimate to 84 cents per share from 52 cents per share and his 2011 estimate to $1.25 from 85 cents per share.
[May 7, 2010: Las Vegas Sands Narrows Loss]
[Feb 24, 2010:  First Phase of Singapore Casino for Las Vegas Sands to Launch in April]

Long Las Vegas Sands in fund; no personal position

Monday, September 27, 2010

Bookkeeping: Starting Home Inns & Hotel Management (HMIN)

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The market remains on a tear.  Don't be fooled by the lack of action in the index...after a big move going sideways remains bullish.  All algorithms are set to buy on the inevitable breakout over SP1150 which surely must come if not in the closing flurry of buying today.....in premarket tomorrow (recall if the market can't lift past a level during normal hours it is the 'urgent buyer's' job...he is happy to buy SPY futures at any price).  Even on days like today you see some near vertical moves in the SPY as seen about 90 minutes ago...weird.  Oh yes tomorrow is a POMO day...Dow 11,000 hats?

I have not discussed Home Inns (HMIN) on the blog before but it is one of the larger and more stable Chinese names (I am excluding the mega caps like China Life).  Normally when I go China travel it is Ctrip.com (CTRP) ..a stock I've had on and off for the better part of a decade.  But the chart turned parabolic.  So instead I have gone with this hotel chain which has been in a bull run since early May.  Friday it pulled back to the 20 day and today has bounced close to 4%...so I am going in with eyes toward SP 1170.  2.2% allocation for now.

The valuation is extreme but right now nothing matters but more fiat money (Japan apparently was the latest with a 2nd currency intervention) chasing fixed amount of stock certificates.  Speaking of which please go see chart of Baidu.com for parabolic.  I considered retarting that name 2 weeks ago but thought the rally in the indexes was going to reverse soon.  Wrong.

Long Home Inns & Hotel Management in fund; no personal position

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Bookkeeping: Covering Half of Intuitive Surgical (ISRG) on Goldman Downgrade

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Goldman Sachs downgraded Intuitive Surgical (ISRG) this morning; the stock fell exactly to its 20 day moving average which is providing support.  With bears cowered, short positions of any gain are apt to be taken quickly since the market threatens to go on a new run any second.   Hence, to make up for a litany of -3, -4% stop losses I am going to take a measly 2.3% gain on half the position, and look to find a better entry point nearer to $305 to rejoin the short.   If ISRG can fall through this $294 level there would be more downside, but this market is lifting all boats so you cannot count on it.


As an aside, this sort of cover is exactly why its tough to make money on the downside when the day comes... bears will be so exhausted, and so thrilled with tiny victories that by the time the real swoon happens they will mostly be back to cash after making their small wins.

Short Intuitive Surgical in fund; no personal position

Bookkeeping: Weekly Changes to Fund Positions Year 4, Week 8

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Year 4, Week 8 Major Position Changes

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

Cash: 63.7% (v 73.8% last week)
22 long bias: 25.9% (v 17.1% last week)
7 short bias: 10.4% (v 9.1% last week)  [Note: Long bond and volatility positions considered 'short']

29 positions (vs 26 last week)

Weekly thought
Last week followed a pattern often seen since March 2009... key resistance levels that could not be broken via trading during normal hours were bested in a premarket surge.  There was no particular reason for last Monday's premarket jump other than "destiny", and that's just what we do 8 out of 10 Mondays.  Bears lost their backstop at S&P 1131 as the drumbeat for QE2 blared through the cathedral of speculators.  Bernanke delivered Tuesday, with almost clear intent to deliver the good ship monetary easing November 3rd.  The last two Fed meetings marked the top of those respective moves and it appeared that might happen again, and by Thursday the S&P had cracked 1131 setting up a more typical (historically) "break out then fake out" that would trap bulls.  Instead, bears were "Teppered" Friday morning by the new stock market mantra of "you can't lose" - whatever happens, stocks must go up.  This morning the headlines of national publications such as USA Today declare a rising stock market as the best form of stimulus... lo and behold, words central bankers have been whispering to anyone who listens.  Somewhere Bernanke is dressed in robe, in a plush recliner, scratching the cat in his lap and whispering "Excellent".

  • ....former Federal Reserve chief Alan Greenspan has suggested a different form of economic stimulus: an old-fashioned stock rally with legs that makes investors feel richer and CEOs more confident. In a recent speech, Greenspan said the "most effective" stimulus is rising stock prices — not more government spending.
  • Many Wall Street experts agree. "The stock market is a barometer of how people feel," says Quincy Krosby, market strategist at Prudential Financial. "Higher stock prices inspire confidence and help ignite spending."
  • Retail investors have pulled cash out of stock funds all three weeks in September, extending a streak of net outflows to 20 weeks


[click to enlarge]



For anyone keeping track with just a few days to go, this is the best September for the S&P 500 since 1939.  This is the best month, regardless of designation, in a decade - even better than the bounce of March 2009 lows - even better then the move in late 2002 or early 2003 off the 2000-2002 bear market.  Hence anyone playing probabilities of a pullback assuming normal action, has been trounced.

Eventually this market will fall or else Netflix will have a greater market valuation then Exxon Mobil - but if history is any guide very few will be positioned for it, and almost all who will be will have suffered serious damages waiting for their moment of victory.  Until further notice the level broken Thursday but quickly regained premarket Friday, S&P 1131, is the floor.  Two gaps beckon - S&P 1090, and S&P 1110 and generally these fill on indexes within 6-14 weeks.  We are roughly 1 month from the first gap but the movement up from said gap has been much more extreme than normal due to the above mentioned performance metrics.  Reverse engineering some Fibonacci levels, the level the S&P 500 needs to reach (using S&P 1040 as the floor) for 1090 to be filled as each of the 3 retracement levels is as follows:

61.8%: S&P 1170
50%: S&P 1140
38.2%: S&P 1120

Obviously 2 of those choices have been left null and void, so if one expects a Fibonacci pullback to come into play the only option remaining is the 61.8% and that would require the S&P 500 to run to 1170.  Which would put it very close to May 2010 highs, creating a nice 'double top' pattern.  Un

Until the psychology that the Fed can micro manage the stock market to exactly where it wants it go to via threats, primary dealer actions using POMO money, or other actions in concert with the PPT changes - this is where we are.  Neutral observers remain amazed this market can rally for much of the past year and a half with a tidal wave of net outflows from the retail investor - hence, unless Economics 101 has been defeated "someone" is buying.  With bears smarting from the hurt Bernanke put on them during QE1 and the epic run in stocks between March 2009 and April 2010, recency bias dominates.

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

Last week was the second in a row economic news mattered not at all to the market.  All eyes were on QE and all other news was either ignored, or bought.  Even CDS on European debt exploding out is "no problem" because of course the ECB is the backstop to Europe as the Fed is backstop to the U.S. - can you imagine a world without central bankers inflating bubbles than needing to print fiat money like mad to offset the damage they have created?   Either way it's a light week with almost nothing to move the market - we had a similar week not too far back and I said during weeks like that there is little emotion and hence the market almost always now drifts up without news on pathetic volume.  Hence, until Thursday evening (Friday premarket) only secondary type of data points exist.

The only big day is Thursday overnight, and Friday morning where the globe releases manufacturing data.  Europe has been slowing but it has been ignored.

Tuesday: Case-Shiller House Prices (9 AM), Consumer Confidence (10 AM)
Thursday: Third revision of Q2 GDP & weekly jobless claims (8:30 AM), Chicago PMI (9:45 AM)
(Thursday night) - China PMI data
Friday: Personal Income & Outlays (8:30 AM), Consumer Sentiment (9:55 AM), ISM Manufacturing & Construction Spending (10 AM)

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Portfolio


Running any form of hedged portfolio in this sort of environment is an exercise in frustration.  Especially when the moves are so atypical.   Performance has been stagnant the past 2 weeks as I've incorrectly been looking for even the mildest of pullbacks... none to be found.  The one positive is unlike late spring 2009 (especially May) when I "fought the law Fed and the law Fed won", the portfolio is simply suffering from lack of participation rather than outright serious losses.  Back then, some great gains in the first 2 months of the 2009 as the market imploded, were almost completely erased by May as "the market just had to go down!" ... but did not.  I would only be proven correct in July 2009 but by that point the Fed had cowered me and taken many of my sheckles.  Hence, this time around I am more in a cat and mouse game - throwing a short out here or there, to have it snatched away by my friendly central banker but keeping losses limited.   On the long side of the portfolio it remains nearly impossible to find new entries as all our favorite names have now become the market's favorite names and there is no shame now running stocks up 18 out of 20 sessions, or stocks pulling 15%+ away from even the 20 day moving average.  "I Want my Salesforce.com" has now become applicable to a bevy of stocks.


For the portfolio I kept throwing out some short bait that was hammered.  Being under exposed long, the continuous -3, -4% type of losses on shorts keep eating away at gains from the long side and we remain in quicksand.  I have the right stocks in the portfolio as many of our names are the biggest stars of this move, but obviously in retrospect they were liquidated too early.   I did an an insurance to the downside component this past week with a small (1%ish) SPY put position and if the market makes another 25 or so S&P points I'll add another, and keep doing it every 20-25 points because while hard to believe now - the market can go down.

On the long side:

  • Monday, half of F5 Networks (FFIV) was sold
  • Wednesday, the majority of the remaining Rovi (ROVI) was sold after a big surge due to Apple partnership.  A limit order to purchase shares at the 'gap' from which it surged will be the plan to rebuy shares. 
  • Thursday after the market bounced hard for reasons no one could find after dropping on bad european levels, I went long some SPY calls.  The market reversed back down within hours, through S&P 1131, causing frustration and losses
  • Las Vegas Sands (LVS) was noted as a chart with a multi week base building; when the stock jumped outside of its range, the position size was increased materially (+3%).
  • Friday, because I appeared to be the last man on Earth not buying stocks I added to Thoratec (THOR), VMWare (VMW), Spreadtrum Communications (SPRD), and Riverved Technology (RVBD)
  • A new position was created in "shapewear" name Maidenform Brainds (MFB)


On the short side:

  • Wednesday, Best Buy (BBY) was shorted as it kissed the 200 day moving average for 3 straight sessions.  This was covered the next day for a 2% loss as the stock broke over resistance.
  • Thursday, "good" existing home sales (the numbers were awful) rallied the market after bad european news led to a rarity - a premarket downdraft.  Index shorts (TNA/BGUwere shorted just below S&P 1130, but the market bounced for no particular reason during the day causing a forced cover.  Then late in the day the market plunged but our position was already gone.
  • A longer term 'insurance policy' was bought with a modest SPY put position - Dec 110 puts, hoping for a fill of S&P 1090 sometime in the next 3 months. 
  • Intuitive Surgical (ISRG) and Whirpool (WHR) were shorted. (reason: stocks nearing resistance)
  • Plantronics (PLT) was shorted as the stock was at a make it or break it level - a double top or not.  In this case - not.  The stock was covered the next day for a 2.5% loss. 
  • Friday, the 'best' short of the past few weeks - NASDAQ OMX (NDAX) finally broke over resistance, causing a 4% loss as we were stopped out.  The stock failed to rally with the market for weeks but finally succumbed in the "David Tepper" rally. 

Sunday, September 26, 2010

Updated Position Sheet

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Cash: 63.7% (v 73.8% last week) 
Long:
25.9% (v 17.1%) 
Short:
10.4% (v 9.1%) 


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)



SHORT



OPTIONS




Friday, September 24, 2010

Netflix (NFLX) CEO Reed Hastings: Americans are Self Absorbed

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Classic!  Sorry I cannot disagree with his sentiment, although he is busy apologizing today.... speaking of which I already forgot what Reed said as Dancing with the Stars and NFL Football soon approach:  What's this "Canada" you speak about?  If it's not red, white, or blue it is dead to me.


Netflix is expanding into Canada. And, rather than paying $8.99 a month, our neighbors to the north will be charged $7.99.


The Hollywood Reporter: Are you concerned that American Netflix subscribers will look north and ask for the same discount Canadians get at $7.99?


Reed Hastings: How much has it been your experience that Americans follow what happens in the world? It's something we'll monitor, but Americans are somewhat self-absorbed. 

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

While I understand as CEO he has to be politically correct my retort today would have been "I stand by what I said, do you realize what these Americans pay in drug costs versus every other 1st world country on Earth?? Sometimes 50, 100, 300x as much... all I am asking is an extra $1 a month!  I should be lauded for my generosity."

Just imagine how high NFLX would be if Reed had charged the (huge) Canadian market the same price. Gosh that might be worth at least another $500,000 a year...slap a 6000 PE on it... worth at least $30 more in stock price.  Hewlett Packard better hurry up and buy NFLX before it expands into Costa Rica.



Long (tiny) Netflix in fund; no personal position





Bookkeeping: Starting Maidenform Brands (MFB)

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We are about 2 months away from my favorite CNBC day of the year...that is Black Friday... where anchors are posted at malls across America in the pitch dark and just by their views of the parking lots then can tell us how great of a start a Christmas season it will be.  Every year.  Without fail. This year might be especially special with so many millions of households living in homes they choose not to make a payment on ...after a year or two of this momma's gonna get a lot more shoes this Christmas.  We will clap like seals as an investor class boggled the American consumer can spend like this while some deranged blogging sites will whisper strategic default....ignore those sites.

Maidenform Brands (MFB) has been on my watch list for a long while now because it came to my attention quite a while back for an incredible streak where it had been up an entire month straight without a loss.  Now I know that is nothing in September, as 70% of stocks are acting like that, but that was back in a period when it was unique.  I did some digging into this company and it has one of my favorite type of situations... a subset of its business hidden within a relatively boring company, that is booming.  In this case within a staid undergarment business is a booming shapewear business.  Effectively this is the modern girdle and it's selling like hotcakes.

At this point I'd normally do a full blown analysis on the site, as this is a new stock to readers, but let's be real.  Stocks can only go up.  Why bother with analysis?

This is all you need to know: Ben + shapewear + strategic default + potential cloud computing initiative = win.

The stock has pulled back to its 20 day moving average so in this market that is a screaming buy.  In theory it could pull back to the 50 day but only in theory because stocks only go up (see Tepper analysis) I am starting with a 2% exposure.



Last earnings report here.

  • Maidenform Brands, Inc. (NYSE:MFB - News), a global branded marketer of intimate apparel, today reported second quarter 2010 net sales of $149.4 million, an increase of 30.8% over the second quarter of 2009, driven by continued strength in its core shapewear and bra businesses across the Company's wholesale channels.  
  • Reported EPS of $0.59 for the second quarter of 2010 was up from EPS of $0.31 in the second quarter of 2009.  
  • Looking ahead, the company expects third-quarter net income of 50 cents to 55 cents per share and full-year net income of $1.88 to $1.93 per share.

(a good overview on the shapewear business via Investors Business Daily here)

  • In the first quarter, shapewear sales jumped 49% over the prior year, making for Maidenform's fastest-growing category.  It now makes up about a third of all sales.
  • Analysts say Maidenform has a 40% market share in shapewear, leading the industry, and that share is still rising. Vieth expects the overall market to continue to grow also, since many women are just now rediscovering shapewear.

As an aside, I don't want to be accused of starting rumors, but I hear undergarments is an area Hewlett Packard is sniffing around ... wait maybe that was just the ex CEO (bada boom - I'll be appearing here all week).

Long Maidenform Brands in fund; no personal position


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Bookkeeping: Buying Stocks cuz it's Fashionable

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My 'pop through resistance and drop' theory  had some legs as of yesterday's close, but Mr. Tepper crushed it this morning.  With no fear of ever losing money in the stock market again, I can now buy stocks with impunity.  (source: Tepper)

I am doubling my position in Thoratec (THOR) - (1.5%ish extra today)  it has made one of those fancy 'flag' things that the squiggly line analysis folks really like.  It is fast approaching an upside gap between $40 to $41... perhaps the Monday morning gap will take the name through that level.   Also Hewlett Packard might be interested in moving into the healthcare field (I am starting that rumor so options activity starts to pick up and the Najarian brothers can highlight it on Fast Money, driving the stock up Monday on 'rumors' at which point I'd dump it on folks who bought on 'option activity' (that I created) and laugh... not that any hedge fund would pull a stunt like that)



I am doubling my position in VMWare (VMW).  (1.5%ish extra today) Reason?  Hewlett Packard could buy it over the weekend.  If not, I'll buy a batch of VMW calls so the Najarian brothers... well you get the game by now right?



I am putting a 1% allocation into Spreadtrum Communications (SPRD) at price far higher than I last sold.  Reason?  Hewlett Packard could decide it wants exposure to Chinese semiconductors.



I am putting a 1.5% allocation into Riverbed Technology (RVBD) - again at prices far higher than I last sold it.  Again, I will cite Hewlett Packard as a potential suitor since it appears to be buying a company every 5th day and if you cannot find a good reason to own a stock you float rumors that HPQ is sniffing around.



I could buy more Amazon and Netflix here, but since I have a transparent system here I cannot fool you into believing I had 8% allocations in each the whole quarter.  Darn it.  (please note, rumors are floating that Hewlett Packard might buy both companies...together... this weekend.  If not this weekend, then next weekend... or as many weekends as it takes to create fears in bears)

p.s. someone wrote in comments they tried to short EDU, a stock I highlighted yesterday in "Egregious".  Ironically the company was forced to report earnings (the one day a quarter stocks can actually go down as reality surfaces) and was down 15% this AM - unfortunately that reader could not find stock to borrow. :(

Long all names mentioned except EDU in fund; long Tepper; long anything that moves (as well as things that do not move as long as Hewlett Packard might buy it); long Ben, long window dressing, long 0% mortgages, long the Chinese miracle, long a nation of strategic defaults who are going to make the shopping malls buzz this Christmas since they don't have to pay mortgages; no personal position

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Bookkeeping: Stopped Out of Plantronics (PLT) Short

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This one did not even last 24 hours.  Plantronics (PLT) just broke over its July highs which was my stop out level, so I am out with roughly a 2.5% loss.  The tidal wave continues to wash over....only 2 more shorts left to be crushed.



Just as an aside if you want to fade all my incorrect moves.  If the S&P 500 jumps over 1150 I plan to get long index instruments, with intention to sell either into the close and/or on the Monday morning gap up. (then again why sell at all!??) On most days now, all the ramp happens in premarket, then in the first hour or so... then the market goes sideways in a very small range for 4-5 hours (today is a great example) as HFT computers trade amongst each other, than there is a flurry of movement at the end of the day.  So if that end of day spike occurs it should be starting in about an hour or 90 minutes.

The schedule for next week:

Monday: Monday morning gap up, M&A Monday, Mutual Fund Monday, Hewlett Packard buys Someone Monday, China's Miracle of 10% growth with Little inflation Economic Report Monday
Tuesday: Fed POMO operation flooding the market with liquidity mid morning
Wednesday: maybe a 0.2% selloff
Thursday: Fed POMO operation flooding the market with liquidity mid morning

There are no major economic reports for most of next week and really even if there were who cares.  U.S. data no longer matters.  If it's good we buy stocks; if it's bad we buy stocks because it means more QE.

Thursday is the end of the month and with this being the 13th? 12th best month in the history of the market since 1962, the last thing you want to show on your books is that you were not holding Amazon or Netflix the whole time right?  So your job is to trick your shareholders if you are a fine gentleman of Wall Street by stuffing your position sheet with "the hot names".  That way Joe 6Pack can look at his end of quarter fund statement and say "I knew he had Apple the whole quarter... not sure why the fund lagged the market considering he owned 28 of the top 32 stocks.... hmmm ... seems to happen every quarter."   So the market needs to be goosed up next week as people like me who missed the back half of the rally have to show all the "cool" names on their books for their Sep 30th disclosure repot.  (sshhh it's called window dressing - don't tell Joe 6Pack)  Boo yah.

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Warren Buffet: Recession Not Over

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Until we take a break between QE2 and QE3 all discussions of economics and reports will simply be for theoretical and intellectual reasons.  In the end, any market is made up of supply and demand.  If you have a relatively fixed supply of stock certificates (or sugar, coffee, whatever commodity) being chased by an ever increasing amount of fiat money, anyone who took Economics 101 and lasted through day 2 of class knows what happens to price.  The U.S. market was able to rally some 70%+ during QE1 even as Americans actually withdrew (on a net basis) money from the market - so you can see the power of "the not so invisible hand".  [Jan 6, 2010: Charles Biderman of TrimTabs Claims US Government Supporting Stock Market]

This is the template everyone is working on - again to repeat what I say each time, QE has very little to do with the real economy (don't believe the lies coming out of that mouth) and everything to do with goosing assets of all types.  Some portion of those gains in paper assets can then be rolled into the real economy I suppose over time via the 'wealth effect'... so the Fed simply is trying to repeat 1999 NASDAQ as the attempt to repeat 2005-2007 housing looks to be impossible.  (although we are trying mightily with record low mortgage rates, the return of 0% down mortgages - now government sponsored, paying people to buy homes via credits, and the like)

Whatever the case, this mantra has changed psychology and half the battle in the market is animal spirits.  If everyone believes act A will lead to outcome B, then it self reinforces to a great degree.  QE2 has not even begun but everyone is in a rush to front run the perceived asset inflation of all type, hence it has been self fulfilling.  Somewhere Ben is laughing watching the rat's lemming's in his lab experiment scurry.  So as I said, anything I post about economics go forward is to be read, processed and then discarded immediately since none of it matters until we take a break from QE2. (which again - has not even STARTED)  At which point Ben can start hinting about QE3 which should get speculators in a lather, front running assets once more... and we can keep this game going forever and ever (and ever!) Who needs a real economy anymore?  Manipulation of assets is so much easier.

To that end today around 10 AM came a very poor existing home sales number.  The market paused for a second... should it react to reality?  Nah, a permanent open market operation of dollars was going to be flooding in the market in 15 minutes, so let's start a new leg up ... and so we did.

(My only question to this "we can't lose" idea is why did the Japanese stock market not surge to all time highs with the amount of QE they did for a decade+? )

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This story on Buffet refuting the economy is out of recession is interesting not so much for his words but some of the statistics he gave on his businesses.  The railroad companies are acting as if we are back to 2007 global trade highs (in terms of stock action) but apparently economic activity is still far below peak levels.  That said, does it matter?  There is only so much supply of railroad stock certificates with ever increasing fiat money chasing it... you get the picture right?

  • Billionaire Warren Buffett says the economy remains in a recession, by his definition, because most people and businesses still aren't doing as well as they were before the financial crisis.  Buffett's assessment of the economy contradicts the view of experts who announced this week that the recession officially ended in June 2009. But Buffett says he uses a commonsense standard to evaluate the economy.
  • "On any commonsense definition, the average American is below where he was before, or his family, in terms of real income, GDP," (gross domestic product) Buffett said on CNBC. "We're still in a recession. And we're not gonna be out of it for awhile, but we will get out of it."
  • He said the government is running a federal deficit equal to 9 percent of the nation's gross domestic product, which is providing quite a lot of stimulus.  "It doesn't depend on calling it the stimulus bill to be stimulating. I mean, if the government is spending $3 for every $2 it takes in, that is, that is fiscal stimulus," Buffett said.

Here are some of the very interesting metrics:
  • Buffett gets insight into the health of the economy through the performance of Berkshire's subsidiaries.   Buffett said Berkshire's businesses are improving but at a slow rate.
  • He said Berkshire's Burlington Northern Santa Fe railroad, for instance, is probably doing better than many U.S. businesses, and it's only about 61 percent of the way back to its peak shipping volumes from the bottom of the recession.
  • And Berkshire's Shaw Carpet used to sell about 13 million yards of carpet a week. Buffett said that fell to about 7 million yards during the recession, so Shaw eliminated 6,500 jobs. Buffett said Shaw won't start hiring back until the business gets back to selling at least 10 million yards a week, and so far it's only selling about 9 million yards a week.

Bookkeeping: Stopped Out of NASDAQ OMX (NDAQ) Short

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Considering the environment NASDAQ OMX (NDAQ) has been a "good" short in that despite an ever rising market it was stuck below resistance the past few weeks.  Finally today's gap up and surge in the broader market ended the show, and my stop loss was hit, so we're taking a 4%ish loss.   If the market would have ever suffered any meaningful drop off in the past few weeks this lack of upside energy during the good times, would have led to a great probability of some nice profits to the downside, but you cannot fight a tidal wave.



No position

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[Video] Appaloosa's David Tepper - Ben Bernanke Will Make Everything Go Up in the Can't Lose Environment

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Famous value hedge fund manager David Tepper said out loud what has been the thought process of many... essentially what PIMCO's Bill Gross hinted at Tuesday.  Outright manipulation of asset prices is here again - enjoy.  The Bernanke Put is making the infamous Greenspan Put look like child's play.










Government intervention in the financial markets virtually guarantees that most investment choices will go up, hedge fund manager David Tepper told CNBC.  Even though market reaction has been tepid, Tepper said this week's Federal Reserve Open Market Committee statement reflected a clear "put"—or the equivalent of an options play in which the government will do whatever it needs to keep the capital markets from sinking below a designated level.

"What, I'm going to say, 'No Fed, I disagree with you, I don't want to be long equities?'" said Tepper, president of Appaloosa Management in Short Hills, N.J., which oversees $12.4 billion in client assets. "We're a bond place, but we changed up to a little bit more equities recently."

"Either the economy is going to get better by itself in the next three months...What assets are going to do well? Stocks are going to do well, bonds won't do so well, gold won't do as well," he said. "Or the economy is not going to pick up in the next three months and the Fed is going to come in with QE.

You talk about when you get moments," he said, referring to the Fed statement. "This might be one of those—kind of."

Tepper, who is notoriously shy when it comes to granting interviews, appeared to move the market as he spoke.



Tibco Software (TIBX) Surges on Earnings, Buys OpenSpirit

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The bears had their 48 minutes of enjoyment late yesterday, back to business.  The Monday morning gap up is being joined by the Friday morning gap up.  After all, we cannot have this stock market under support ... it's urgent buyer time (he who buys SPY futures in premarket at any price just to make sure key technical levels are breached).  Further a famous "value" hedge fund manager was on CNBC this morning saying Ben Bernanke's QE will make every asset on Earth go up, and we had a decent durable goods order report.  Speaking of Bernanke's plan to make us all rich, the primary dealers are ready to help sky the market approx 10:15 AM as its another POMO morning.

So we're back to the "you can't lose" environment: good news = market goes up, bad news = QE = market goes up.  Sorry bears, you had your 15 48 minutes.

Tibco Software (TIBX) reported last evening, and the results were very pleasing to the Street as the stock was strong in after hours, and as of this moment look to be up 12% in premarket.   While long, we only have a tiny position as this was another name in the egregious camp.



Via Reuters:
  • Business software maker Tibco Software Inc (TIBX.O) posted better-than-expected quarterly results, helped by higher license revenue.
  • The company also said it bought privately held OpenSpirit Corp, which provides software for the global oil and gas market, for an undisclosed sum.
  • For the third quarter the company earned $17.4 million, or 10 cents a share, compared with $14.9 million, or 9 cents a share, in the year-ago period.  Excluding items, Tibco which makes programs that help computer systems communicate with each other and quickly analyze data, earned 17 cents.
  • Analysts on average were looking for earnings of 15 cents a share, on $175.8 million in revenue, according to Thomson Reuters I/B/E/S.

Guidance looks good per conference call:
  • Tibco told investors on a conference call that the company sees revenue for FY Q4 of $225 million to $230 million, nicely above the Street consensus at $216.3 million, and up sharply from the $184.5 million reported in Q3. The company sees non-GAAP profits for the quarter of 27-28 cents a share; the Street has been expecting 27 cents.

Long Tibco Software in fund; no personal position


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Thursday, September 23, 2010

Bookkeeping: Sold Spy Calls

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Oh what a wonderful day.  I just wanted to confirm my thought process that the moment I went index long the market would mock me by finally relenting.  Confirmed.

As I said I would happily take losses just to get this market to crack a little so consider it a sacrifice for the masses.  You're welcome.

I have sold the SPY calls for a loss.  The logical thing to do would be to get back short as the SP is back under 1131.  However the minute I would do that the SP500 would rally into the close to get back over  1133 at which time I would cover my SPY index short positions for yet another loss.  Because it is just evil like that.

Well I have nothing witty to say to this monster of a market that made a mockery of sense.  I will stick to individual equities at this moment.  If the SP falls below 1116 I will try the gap fill game...otherwise I believe the market will just steal money from my pocket.

No positions

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Egregious

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'nuff said.













Long tiny amounts of Amazon and Netflix in fund; no personal position

Bookkeeping: Covering Best Buy (BBY) Short

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I am keeping my leash tight on these shorts as the market continues on a heroin induced binge.  I liked the risk reward on a Best Buy (BBY) short yesterday, but today it appears to be starting a new leg up as it cleared what I thought would be some sort of resistance, the 200 day moving average.  All you can do is try to stack odds in your favor and go with probability but things are simply running almost non stop right now and its a freight train moment.

There are so many gaps in this chart I will return to it in the future once the market overdoses and is sent to the emergency room, but for now I am going to take a quick loss of 2%.



No position


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Bookkeeping: Short Plantronics (PLT)

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I have no idea what is so appealing about a company that is essentially a glorified maker of headphones.  But this is completely for technical reasons.  I normally would say "the stock is overextended" ... but that appears to not be an issue anymore.  The new stock market - volume doesn't matter, and massive overbought status does not matter.  No wonder anyone who uses the old rules is bewildered by the action.

Simple game plan here - it either is about to break out over over late July highs.  Or not.  A low risk entry.



Shorting a 2.3% exposure in $33.10s; I'll stop out over $33.70 or so which limits loss to sub 2% (assuming it doesn't rocket up on the traditional Monday morning gap up).  Top risk: Hewlett Packard decides it wants to get into the headphone market and buys it Sunday.  Is there any anti trust function in America anymore or will every tech company be owned by Cisco, HPQ, Apple, Microsoft, IBM, Intel, or Dell by 2012?  I know competition is old fashioned and American corporate oligarchy is "cool" but I'm just asking.

I am going to keep throwing these shorts on one at a time with the belief that one day the stock market can go down again.  I have plenty of room for more eggs on my face.

Short Plantronics in fund; no personal position


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