Monday, October 25, 2010

Bookkeeping: Weekly Changes to Fund Positions Year 4, Week 12

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Year 4, Week 12 Major Position Changes

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

Cash: 69.2% (v 64.9% last week)
18 long bias: 26.3% (v 29.8% last week)
4 short bias: 4.5% (v 5.3% last week)  [Note: Long dollar positions considered 'short']

22 positions (vs 24 last week)

Weekly thoughts
Not much to add to the weekly summaries for much of the past month.  The market goes up; the dollar goes down.  The rare times the dollar goes up - the market goes down.  Intraday, you can almost chart these inverse 1:1.

I continue to point to the 13 day moving average as support on the S&P 500 - this was only tested last week Tuesday after some adverse reactions to tech stock earnings.  Otherwise the frantic "I can't lose because Bernanke has it all backstopped" mantra moves almost without relent.



The dollar did finally break over the 5 day moving average, but was shut down promptly at the 20 day - so for now, it was just a short term "too crowded" release of a valve.



QE2 & POMO dominate the daily and intermediate trading.  And of course each Monday morning starts off with a bang.  Since March 2009 whenever the market stalled at key technical levels, you can almost count with laser precision the 'mark up' rally in premarket Monday morning to cause the "charts to improve" technically in the thinly traded premarket - almost as if the market is being guided by an 'invisible hand' whenever market participants cannot do the work on their own.  And since most of the daily volume is now computerized, the when the Pied Piper moves futures to a 'breakout level' all the computers follow.   And so we will have yet again this Monday as surely the key resistance of S&P 1184/1185 which was troublesome last week will be washed out in a premarket surge.

At this point the market just seems destined to rally into the elections and Fed confirmation of QE2.  The only question is will we get to S&P 1220 (yearly highs) by that time next week. Never have so many well known memes all at once continue to 'surprise', 'astonish', and 'shock' the market.  I repeat often that historically when EVERYONE knows something it ceases to work - but not in this market.  POMO days keep working, any speech by any Fed official hinting at QE2 works, Monday morning nonsense - everyone knows these things, yet they never get discounted.

Multinational earnings always start off the earnings season and as they have been for much of the past year, they have been in the perfect place in the global economy - massaging labor costs down, utilizing government or Asian led strength for revenue, and rolling along.  Domestic companies are not quite as in good shape but in the fairy tale economy where unemployment benefits, food stamps, millions of households living 'rent free' in strategic defaults, and many others getting historic refinanced rates - the flood of cheap money, and government transfers elevates the domestic spender.  The saver continues to be used as a source of funds as a great wealth transfer from saver to debtor continues unabated and shall for what appears years to come.

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The economic news has not mattered in perhaps 6 weeks - good news is good news and bad news is good too because it means QE.  These reports have become a sideshow by a market dominated by worship of the manipulation of the Federal Reserve.

Monday - Existing Home Sales (10 AM) people used to care about this but now just chant and clap for QE2.
Tuesday - Case Shiller (9 AM), Consumer Confidence (10 AM) doesn't matter what home prices are, or if confidence levels remain at levels seen in recession, we have QE2.
Wednesday - Durable Goods (8:30 AM) New Home Sales (10 AM) if durable goods are strong, we cheer - if they come in light it doesn't matter, we have QE2.
Thursday - Weekly Jobless Claims (8:30 AM) maybe last week's will be revised up again by 20,000 and then we can cheer when they drop 20,000 week over week, but it's all moot, because we have QE2.
Friday - first pass of 3rd Q GDP (8:30 AM), Chicago PMI (9:45 AM), Consumer Sentiment (9:55 AM) traditionally GDP figures were always good for bulls, if they are bad you say "backwards looking", if they are good of course you buy in earnest.  This time around it doesn't matter because we have QE2.

POMO days - Tuesday and Thursday of this week; bears basically give up the ghost on these days as the 10: 15 AM surge punishes them.

As for earnings, another big week for multinationals but more of the names are 'inside baseball' versus the retail names last week i.e. Apple, Amazon, GE, banks.  Curiously, there have been quite a few days where the individual companies reporting react pretty badly to their earnings, but unlike other quarters where that dragged down the entire market now they are being ignored.  I assume the worship of QE2 is behind that.

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Portfolio

The dollar rallied last Tuesday as shorts were caught too fat and happy, and the ship tipped over.  A surprise Chinese rate hike and Geithner talk about the dollar were the reasons, but the market also sold off based on adverse reactions to some key tech stock reports - and of course as the market falls, the dollar must rally.  This lasted all of a day and a half before the selloff in fiat currency began anew... and with that the market ran up.  That really is the only thing anyone looks at anymore - the whole market has become a currency trade.  All economic data last week was essentially ignored.

The portfolio made some progress last week mostly due to a few stocks making positive returns off earnings; Riverbed Technology (RVBD) was the star of the week.  Other than that I continued to stay light on the short side and mostly use cash or the U.S. dollar as a hedge.  The short side remains toxic for the intermediate term - most short trades need to be entered and exited in very quick fashion to lock in gain, or the market takes it away very quickly.   Until the 13 day moving average can be broken on a closing basis the approach will remain the same.  While monotonous and complacent, this is the market we have.

On the long side:

  • Wednesday, despite a lot of lower quality small cap Chinese stocks rallying hard the past few weeks - China Automotive Systems (CAAS) failed on a breakout of the previous week so was sold for a 7% loss. 
  • Playing a bounce off the 13 day moving average, and a "POMO" day - I bought some SPY calls in the low 1070 area hoping for a move to 1080 (10 points) - this came within hours of purchase Wednesday so I sold half around 1080 and half around 1085; 15% gain on the former, 25% on the latter, 20% average.  I tried again Thursday as the market broke over resistance of S&P 1185 but this time it was a trap, and the market reversed ... actually a quite common tactic of late in the market.  I sold for flat to losses.  
  • Thursday, I sold out of Trina Solar (TSL) for a 17% loss as the solar sector topped just as I bought in.
  • Half of Baidu (BIDU) was sold going into earnings; after the earnings were benign, I bought those shares back at about a 5% premium Friday morning. 
  • I had the last part of some old SPY 117 calls that I sold off Thursday as the market was acting shoddy; these were about a 17% gain, but were 33% earlier in the day and could have been sold the next day for 30% so not the best timing. 
  • Closed out CB Richard Ellis (CBG) as this was a technical based trade - a stock breaking out of a long base, but it failed to continue the breakout.
  • Friday, took 30% out of Riverbed Technology (RVBD) as it was up some 15% off of earnings; to replace the exposure in the portfolio Acme Packet (APKT) was restarted as I felt Acme and F5 Networks might get some "halo" effect from Riverbed even though they do completely different things. 
  • Restarted a position in mining equipment producer Bucyrus (BUCY) on a pullback to support after a disappointing earnings report.  
  • Threw a position in Atheros Communications (ATHR) on the docket, just ahead of earnings simply as a small speculation on a beaten down stock. 


On the short side:

  • Monday, took a 1.4% loss on iShares Barclays 20+ Year Treasury Bond (TLT) as the consensus is that the Fed will be targeting shorter term duration paper (3-5-7 years) with most of their buying.  TLT broke key supports, so was sold.  The 10 year yield seemed to bottom in the 2.4% area, so this might be a big change of direction trade - we'll see.
  • Shorted Prudential Financial (PRU) as it rallied to the top end of a narrow range; and covered Friday for a 2% gain - this is 'slow money' and any victory on the short side during this move is a win. 
  • Replaced a long term insurance play, Dec SPY puts with Jan SPY puts.  Took a 60%ish loss on the 1% exposure on the Dec puts as the market has rallied non stop since they were put on at S&P 1120-1130.

Sunday, October 24, 2010

Updated Position Sheet

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Cash: 69.2% (v 64.9% last week) 
Long:
26.3% (v 29.8%) 
Short:
4.5% (v 5.3%) 


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




Friday, October 22, 2010

Reuters Special Report: The Haves, The Have Nots and the Dreamless Dead

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A very nice piece via Reuters (quite lengthy - good for weekend reading to cheer you up) touching on themes we've been very early on.  [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?]  In fact I am starting to see a lot of things in terms of income inequality, wealth concentration, loss of job security, fear of children living worse than their parents, failure of of creating "the American dream" for the masses, and such starting to pop up.

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.

Maybe that's just a sign of the economic bottom? ;)

I've highlighted a Citigroup piece from 2005 many times, in which an analyst talked of the investment themes from the "Plutonomy" developing in our country.   [Sep 7, 2009: Citigroup - America; A Modern Day Plutonomy   Indeed, this analyst (who has since upgraded to D.B.) is cited in the story - along with a host of well known pundits.  Whatever the root reasons which surely will be argued over ad nauseum (I've voiced my opinions many times) the reality is little (if anything) is being done to change the course, and based on what I see in our political system - I don't see that changing for a long time.  And frankly with globalization, much of the genie can NOT be put back in the bottle.  So it's best to get used to it, and continue to find investing themes that cater to the quickly growing lower ranks and working poor, or the top end where all the wealth is shifting.

For those who do not believe it is "that bad" out there for many, I'd ask you to take away the modern day version of soup lines  [Nov 10, 2009: Walmart Executive "There are Families Not Eating at the End of the Month"] [Nov 29, 2009: 1 in 4 Children, and 1 in 8 Americans Now on Food Stamps]   and unemployment benefits and watch the chaos unfold.  Or stop transfer payments (rather than wages) from being nearly 20% of income of the typical American.  [May 25, 2010: 1 in 5.5 Dollars of American Income Now Via Government; All time High]  Or have a situation where the states top source of income is ... wait for it... funny money from the federal government (which doesn't have the money either).   [May 5, 2009: Federal Aid Surpasses Sales Taxes as Top Revenue Generator for States]   But maybe the S&P 500 hits 3000 and we all become rich, pensions become fully funded, tax revenues soar, and we all live happily ever by having the Fed buy all the national debt.  We don't have traditional prosperity anymore - we have paper printing prosperity.   [May 19, 2009: Paper Printing Prosperity Defined]  Did you know the Fed is poised to pass China as the largest holder of U.S. debt?  The right hand buying from the left hand.... Banana Republic style.

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

Here is the link to the piece  - again as stock market speculators we reside in the upper pantheon of American society, and apparently the domestic economy no longer matters as long as we have Asians with our old jobs buying stuff from our multinationals ;)

[Warning: anything you read below may be construed as 'class warfare'] 

  • Economists are only beginning to study the parallels between the 1920s and the most recent decade to try to understand why both periods ended in financial disaster. Their early findings suggest inequality may not directly cause crises, but it can be a contributing factor.
  • This raises a host of social, economic and political questions. Should public policy aim to reduce inequality, and if so by what means? Does concentrated wealth at the top of the income spectrum generate asset bubbles, or vice versa? Could raising taxes or interest rates ward off financial meltdowns?
  • Americans are generally not bothered by inequality because they believe with hard work, they, too, can strike it rich. Government policies aimed at spreading the wealth rarely get much support.    Those attitudes may be subtly shifting, although it is unclear that this is anything more than just a temporary knee-jerk reaction to the latest bout of turmoil.
  • There is nowhere near majority backing for the sort of progressive New Deal policies passed during the Great Depression, which helped narrow the wealth gap and keep it contained until it resumed widening in the 1970s.
  • America has one of the largest wealth gaps among advanced economies. Based on an inequality measure known as the Gini coefficient, the United States ranks on a par with developing countries such as Ivory Coast, Jamaica and Malaysia, according to the CIA World Factbook. 
  • During the last period of economic expansion, 2002 to 2007, the top 1 percent enjoyed 10.1 percent annual income growth, adjusted for inflation. For the other 99 percent, the growth rate was just 1.3 percent, Saez found. That meant the top 1 percent received 65 cents of every dollar in income growth.
  • "We need to decide as a society whether this increase in income inequality is efficient and acceptable and, if not, what mix of institutional reforms should be developed to counter it," he concluded.
  • Raghuram Rajan, a professor at the University of Chicago's Booth School of Business and a former chief economist of the International Monetary Fund, believes governments tend to promote easy credit when inequality spikes to assuage middle-class anger about falling behind.  "One way to paper over the rising inequality was to lend so that people could spend," Rajan said.
  • In the 1920s, it was expansion of farm credit, installment loans and home mortgages. In the last decade, it was leveraged borrowing and lending, by home buyers who put no money down or investment banks that lent out $30 for each $1 held.  
  • Kemal Dervis, global economy and development division director at Brookings and a former economy minister for Turkey, said reducing inequality isn't just a matter of fairness or morality. An economy based on consumption needs consumers, and if too much wealth is concentrated at the top there may be times when there is not enough demand to support growth.  (this goes back to when Henry Ford decided those who built the cars should be paid a wage where they could actually afford the product they created - now we are moving the other direction as a society)
  • "There may be demand for private jets and yachts, but you need a healthy middle-income group (to drive consumption of basic goods)," he said. "In the golden age of capitalism, in the 1950s and 60s, everyone shared in income growth."
  • Ajay Kapur, a Deutsche Bank strategist, spotted the inequality parallels between the 1920s and the most recent decade, but didn't see the meltdown coming. The former Citigroup strategist created a stir five years ago when he built an investment strategy around his thesis that essentially divided the world into two camps: the rich and the rest. 
  • Kapur told clients in 2005 that the United States and a handful of other economies were developing into "plutonomies" where the wealthy few powered economic growth and consumed much of its bounty, while the "multitudinous many" shared the leftovers. 
  • Plutonomies come around only once or twice a century, he argued -- 16th century Spain, 17th century Holland, the Gilded Age. The last time it happened in the United States was during the "Roaring 1920s".
  • "When I presented this to clients, they said, 'Okay, this is interesting because you're telling me what happened in the 1920s is happening right now, and you obviously know what happened after 1929, right?'," Kapur said in an interview.  His response? That can't happen again because we know better now.  (oopsie)
     
Of course the difference between the solutions post 29 meltdown and 08 meltdown, is the the solutions this time around were to bail out those in the upper tranche and concentrate even more wealth into the 'chosen' class.  For this we should be 'thankful'.  Whereas the extreme damage of the 1930s which was NOT used as  template to save the largest campaign contributors economy, set the stage for a more equitable society 2 generations hence.   Of course, even that is debatable in our hyper political culture.

[Sep 3, 2010: FT.com - The Crisis in Middle America]
[Jul 24, 2010: Increasing Evidence that Generation Y Will Not Have the Living Standard of their Parents]
[July 26, 2010: [Video] DatelineNBC - America's Increasing Ranks of Poor]
[Mar 9, 2010: Bifurcation of American Society Continues at Pace; Nearly Half Have Less than $10K for Retirement, a Quarter Less than $1K]
[Jul 29, 2009: Japan's "Herbivore" Men - Young American Men's Future?]
[Jun 3, 2009: A Country that Cannot Function Without Easy Money]
[Feb 18, 2008: Economic Woes Reveal a Long Felt Unease & Denmark is the Happiest Place on Earth?]

Bookkeeping: Rolling Out Portfolio Insurance via SPY Put One Month

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It has been nearly impossible to short much in this market for approaching 2 months - since the infamous QE2 promise at Jackson Hole, Wyoming in late August.  There have been some individual situations but just about everything has rallied, and certainly betting against the index has been hazardous to (anyone's) health.   That said back in late September in the S&P 1120-1130 area I did put some 'portfolio insurance' on in the form of a 1% batch of SPY puts. Unlike my usual forays which are short term in nature and using near term options - these were December 110 SPY puts.  In the month since, the S&P 500 has tacked on some 50-55 points and obviously the insurance was "not needed".  Indeed as the rally has continued AND complacency reigns, premiums have come in on options as "no one loses in the market the Fed backstops".

I am down 62% on the position, costing 0.6% of performance over the past month - but that is the cost of the insurance.  If we had had a sharp drop they would have paid off handsomely.   I've decided to roll this insurance out another month, and since the premiums have dropped substantially I can buy even better protection for a similar price to what I paid back a month ago.   For the right to own January 115 SPY puts I am paying only a slight premium (3.50 per contract) over what I paid for December 110 (3.33).  What this means if if those gaps in the S&P 500 chart fill (1090, 1110) sometime in the coming months of 2010, my gains will be even better.  Of course if we just rally without pause for another 3 months, I'll be facing a similar loss proposition.  That said, generally gaps fill on indexes in 2-3 months - and we'll be hitting the 2 month mark in the next fortnight.  



So we'll put a batch on here in the low S&P 1180s (same 1% exposure as last time) and the next insurance play will be at yearly highs of S&P 1220 aka "next week" (whichever comes first) ;)  I've really only "added" 0.6% short exposure since I had my old 0.4% remaining that I am 'rolling'.

For those who believe the market cannot go down due to QE2, remember July 2009.  The market suffered serious setbacks and the first real correction from the March 2009 low which came about 3 months into QE1.  So it can happen - and will happen.  The key is to stay solvent between now and then.  Even better for those who play both sides of the market, the imbalances Bernanke is creating will create a lot of wins on the short side in the out years (2012-2013) in my opinion.  He is simply Greenspan on steroids.  I expect the 'long only' crowd to suffer tremendous losses sometime in the next 1-3 years (again) as our solutions are short term in nature, and rather than using fingers to plug the burgeoning amount of holes, we are using entire bodies to try to cover them up. 

p.s. on the chart above the Aug - Oct 2010 run is looking suspiciously identical to the Feb - Apr 2010 run, no?

Long SPY Puts in fund; no personal position

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Bookkeeping: Taking a Speculative Stab at Atheros Communications (ATHR)

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No stock has confused me as Atheros Communications (ATHR) the past half year.  Before cloud computing stocks were all the rage, networking stocks like ATHR were the apple of the market's eye - this was one of our big winners in 09 and early 10.  But since crossing below the 200 day moving average in mid July, it has been purgatory... this has been one of the weakest Russell 2000 stocks of them all.



The stock is getting "Riverbed fever" today and showing signs of life, as the halo effect takes over many stocks that are only somewhat related to that stock.   Normally I don't play earnings for earnings sake but with a stock beaten down for so many months in a row, trading at about 12x forward PE for what should still be 20%ish type of growth over the long run, I though it a decent risk/reward to make a smallish foray.  Earnings are Monday so I started a 1.25% exposure just for kicks.  If the stock can get a quarter of the valuation of a Riverbed or F5 Networks or Acme Packet it would be a double from here.  I'm not saying it will - just saying it's cheap.  We'll see if cheap matters soon.

If it bombs again, I'll probably be out Tuesday morning.  If it performs and jumps over that 200 day it can go a long way - the year high was $44.

Long Atheros Communications in fund; no personal position


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Bookkeeping: Covering Prudential (PRU) Short

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Prudential Financial (PRU) has been in a very tight range and if you were only trading this stock it actually has been so range bound, if one were content with 1.5-2.5% moves one could trade it almost daily this entire month.  It is now at the low end of that range so I took my 2% win and am running for the hills ahead of the now almost traditional Monday morning premarket surge.  +2% for shorts nowadays is like +20% in a normal market.



If I were a daytrader I'd actually go long at this price near $53 and sell as it moves back to $54+.  The outer end of the range is $52 to $55.50 but almost all the action is in the $1.50 range of $53 to $54.50.   The chart is still exhibiting weakness over the intermediate term - anything not well over all moving averages or at least the 50 and 200 day MA's during such a melt up speaks volumes.  Earnings Nov 3rd - might be the only thing to wake it up.

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As an aside there is a G20 meeting of finance ministers this weekend where Geithner will talk about the "strong dollar" (I assume with a straight face).  Brazil is not even showing up as they appear quite peeved by the constant money printing which is causing havoc with inflation in strong economies.  Much like they did during QE1 they are taking more steps to try to keep easy money U.S. pesos from flooding their country.  Any country which is realistic with their inflation figures is showing large jumps... with the exception of course of China which insists it can grow 10% forever with only 3% inflation (wink wink).

Western (and Japanese) money printing ---> floods of inflation in East (and Brazil).  Hopefully Geithner has that smile working overtime this weekend.

No position


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Riverbed Technology (RVBD) 20% Down, 30% to Go

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I was joking in the earlier piece when it was noted Riverbed Technology (RVBD) rallied 50% between the last earnings report and this one, when I said let's do ANOTHER 50%.

Well, maybe it's no joke - the stock has put on 20% today, so only 30% more to go.  Yikes.



And this is why people love to gamble on earning reports - the 'thrill' of one of these makes the -15 or -20% losses from those that disappoint seem like bad dreams.

Predictably, the computers are running into F5 Networks (FFIV) and Acme Packet (APKT) - although those have little to do with RVBD's business, but they are the good ole 'momo / pseudo cloud' names - if anything Blue Coat Systems (BCSI) [a real peer] should be surging instead.  But HAL9000 is just not that sophisticated.

As an aside, as I search around the "cloud" for some "rare earth metals" as I "netflix" myself to prosperity, I found a "burrito".  The one growth stock of the past 3 years I have talked about but never added to the portfolio once - bummer.



Long Riverbed Technology, Acme Packet in fund; no personal position

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Bookkeeping: Restarting Bucryus (BUCY) on Earnings Miss

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Finding reasonable entries during this non stop melt up has been difficult to say the least.  Market selloffs are generally hours in duration, and only rescind the move of the previous day or day and a half - so we're always chasing.  We do have a lower risk opportunity presented by an earnings miss in mining equipment maker Bucryus (BUCY).  Technically the stock has fallen back to the 50 day moving average area, which also happens to be the lows of the previous 30 days - so a nice line in the sand to trade against.  I have restarted a position with a 2.1% exposure; if this level of $67ish is punctured we can be out with minimal loss. (I'm allowing $1 dollar berth for the games the computers are playing)



Of course the risk of not buying stocks that "only go up" (buy high, sell higher) is you might be stepping in front of a multi day/week losing streak.  Hence a stop loss that is relatively tight.  I'll give it to $67ish to shake me out.

As for earnings, the company is digesting a huge acquisition via way of Terex (TEX) and in a market where 'long term's is tomorrow, the market is more worried about beating XYZ number than the powerhouse being built.

[Dec 22, 2009: More Color on Terex-Bucryus Deal] 
[Dec 21, 2009: Bucyrus Buys Mining Assets of Terex]


That said there were some weakness in the earnings report that I did *not* like, so we'll see if its a trend or a one off.  Generally Bucryus is going to trade with the commodity complex as if it was a piece of corn or an ounce of palladium, per HAL9000 algo.  Like I said, there is not much to lose here as we are risking about a $1.50 per share.

(please note - everything you read below is for entertainment purposes - let's keep it real... if the dollar goes down go forward, the stock will go up  - that is all the "analysis" that is being done in the market dominated by first grade logic; everything else is just details)

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Full report here.

The company reported 96 cents versus analysts $1.10 - much of the miss was due to a big jump in a few expense line items - interest expense & ammortiziation as the company has taken on debt for the acquisition.   SGA has also jumped, but in time the company should reduce 'redundancies' - if you know what I mean.  For the year the company should make something in the $3.70 to $3.80 range so it is actually cheaper than Caterpillar (CAT) at about 18.5 forward PE.

Due to the Terex acquisition there are a lot of moving parts but basically the business is split into 2 parts (a) Surface Mining and (b) Underground Mining - and each of those 2 parts is further split into original orders and aftermarket [parts & service].  With the acquisition of the Terex business the surface business metrics are not organic.

Surface Mining OEM: +120%
Surface Mining Aftermarket: +49%
Underground Mining OEM: -3%
Underground Mining Aftermarket: +20%

So the surface business was the strength, and underground business showed some trouble.  However, the organic growth even in the surface aftermarket was poor - it is being masked by the Terex acquisition

Surface
  • Excluding the impact of Terex Mining, original equipment sales increased by approximately 24% and 4% for the quarter and nine months ended September 30, 2010, respectively, compared to the same periods of 2009. The increases were primarily due to increased electric mining shovel sales.  (good)
  • Excluding the impact of Terex Mining, aftermarket parts and service sales decreased by approximately 19% and 10% for the quarter and nine months ended September 30, 2010, respectively, compared to the same periods of 2009. (not good)
Underground

  • The decrease in underground mining original equipment sales for the quarter ended September 30, 2010 compared to the same period of 2009 was primarily in the room and pillar product line, partially offset by an increase in the longwall product line

On the positive side, backlog for the next 12 months in both segments looks good - but again the surface mining is mixed in with the new Terex business

Backlog next 12 months
Surface: +58%
Underground: +39%

Same issue with new orders

Unlike Joy Global who writes an excellent earnings report full of end market analysis - i.e. we see ABC trends in the coal market, Bucyrus just sticks to the numbers so not much to glean in terms of the broader industry.

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As I said above all this analysis is overkill. Every algo is trained on the dollar - if it gets trashed go forward, BUCY will surely rally ... and vice versa.

Long Bucryus in fund; no personal position


Bookkeeping: Transactions in Baidu (BIDU), Riverbed Technology (RVBD), and Acme Packet (APKT)

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The POMO/QE2/WEAK DOLLAR meme is everywhere - I have never seen the market discount the same information (that everyone knows) over and over and over.   At some point news everyone knows is not supposed to cause the same action... strange days.

I am making some transactions this morning...

1) Riverbed Technology (RVBD) surged out of the gate and is up 13% 14% 15% 16% on the open.  I am selling about 1/3rd of the position into the euphoria.



2) To replace Riverbed Tech exposure in 'networking' I am restarting Acme Packet (APKT) which I sold a few weeks ago when it broke support and I thought the general market was ready to roll over.   Obviously the market held on, and Acme Packet has staged a tepid rebound... frankly the chart looks identical to Riverbed pre earnings report.   I am only creating a 1.1% exposure since the company reports next week (28th) - this way if it disappoints my position size is not terminal.



I am also keeping an eye on F5 Networks (FFIV) but it still looks challenged, although perhaps improving today.



3) I added back what I sold yesterday ahead of earnings to Baidu (BIDU) ... I'm "chasing" it here, but my long exposure is low and it is either going to form a 'double top' here or begin a new leg up.  With the market so overextended you would think double top (bearish) but I am going against my gut, and act George Costanza and buy.



Other than that I am waiting to put on the same trade as I did yesterday - that is buy SPY calls on the 'breakout' over 1184/1185ish - based on POMO history we should get a surge a bit after 10 AM as manipulated 'free markets' reign.*  Again let me come full circle on this piece - when EVERYONE knows something in the market, it is not supposed to work anymore.  That's how it used to work anyhow....this is like Wiley Coyota buying stocks in egregious manner, knowing the Acme Co. anvil is going to fall on our head at some point, but not knowing when the Road Runner is about to unleash it.

*if POMO does not do the trick, remember during this run (and much of 2009 and 2010) everytime we struggle with technical resistance as we are now, it is usually surpassed in premarket on a Monday morning - hence we have a great set up to get through 1184/1185 on "Mania Monday".

Long RVBD, APKT, BIDU in fund; no personal position


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ZeroHegde: Today is a POMO Day, Goldman Says "Buy"

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Thanks to ZeroHedge for posting this note from Goldman Sachs, discussing the most well known secret on Wall Street.  When the Fed is conducting Permanent Market Operations - moving money into markets via primary dealers who then can do "what they wish" (wink wink) - you should buy with eyes closed and 2 hands out in egregious fashion.  At this point it does not even matter if the relationship is factual - the market believes it to be true, so like technical analysis it will feed on itself.  When everyone believes the market has a great chance to go up due to POMO, people buy ... which self reinforces itself, causing the market go higher.  POMO Arigato Mr. Roboto.

  • Zero Hedge is happy to advise our readers that finally Goldman Sachs itself has capitulated and is now indirectly telling its clients to frontrun Ben Bernanke via POMO. 
  • (via Goldman)  Since Sept 1 – when QE was becoming a mainstream focus – if you only owned S&P on days when the Fed conducted Open Market Operations (in US Treasuries), your cumulative return is over 11%
  • In addition, 6 of the 7 times when S&P rallied 1% or more, OMO was conducted that day
  • This compares to a YTD return of 5.8%. the point: you would have outperformed the market 2x by being long on just the 16 days when – this is the important part – you knew in advance that OMO was to be conducted. The market's performance on the 19 non-OMO days: +70bps.

As you might know, today is a POMO day - buy at will; the Fed is behind you.  "Free markets at work"

Coming POMO days:  Oct 26, Oct 28, Nov 1, Nov 4, Nov 8

"Secret Secret I've got a Secret"


Riverbed Technology (RVBD) Crushes Estimates; Announces 2:1 Stock Split

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Normally I cut back positions ahead of earnings but every so often I take a walk on the 'wild' side and stay 'all in'.  Since I have sold just about all of the 'cloud' (and cloud "me too") stocks, I decided to just hold all of the one we have remaining.  Let me be clear - Riverbed Technology (RVBD) is not really a cloud stock (they just announced their first cloud initiative last quarter), but I am not going to argue with a room full of hopped up bulls.   What do I know - I've only been following the stock for half a decade.  If Wide Area Network optimization is the new cloud so be it - double the valuation.

Riverbed beat estimates by 7 cents (34c v 27c) - revenue came in +13M (148m v 135m).  Gross margin 74.5%.  They announced a 2:1 split.    And now 1/5th of their revenue comes from the most predictable source in the country - government.  Thank you taxpayer - good stuff all around.

For the year the $1.02 estimate immediately goes up to $1.09 with a quarter (estimated at 30 cents to go).   That 30c in Q4 is based on $145M in revenue so based on Riverbed's guidance of $155-$158M obviously a number closer to 37 cents will be in order.  (the company forecasts 35c)  So that adds another 7 cents to the year - taking us to $1.16 forecasted EPS for 2010.  The stock is up 8% in premarket to just over $49; so we're looking at forward PE of 42 based on my back of envelope figures.  Certainly not cheap by any means, but if we're headed back to NASDAQ 1999 PE multiples via Fed printing, PE is only limited by the amount of money our central bank prints.  The stock is up 50% in the last 90 days - let's keep it going, anyone for another 50% in the next 90?

Unlike the other cloud network plays, this stock actually has not suffered technical deterioration over the past few weeks.



[Full report here]

Via Reuters:
  • Network equipment maker Riverbed Technology (RVBD) posted third-quarter results above market estimates on strong sales of network optimization products, and projected a strong fourth quarter, sending its shares up 9 percent after the bell.
  • Riverbed, which supplies software and hardware that enable high speed data transfer on closed networks, said it expects to report fourth-quarter revenue of $155-$158 million, with government contracts expected to rise.  For the fourth quarter, the company expects to earn 35 cents a share, excluding items.  Analysts are expecting the company to earn 30 cents a share on revenue of $146.1 million in the period.
  • The company, posted third-quarter adjusted earnings of 34 cents a share, which compares with market expectations of 28 cents a share.
  • Revenue rose 45 percent to $147.8 million in the period. Product revenue rose 48 percent, while support and services revenue grew 38 percent.
  • During the third quarter, 21 percent of the company's product revenue came from government contracts.
  • The company additionally announced a 2-for-1 stock split in the form of a stock dividend.


Long Riverbed Technology in fund; no personal position


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Baidu (BIDU) Continues to Execute

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I was hoping yesterday's mostly 'non reaction' to earnings would continue this morning for Baidu (BIDU) but I see the stock is marked up nearly 5% in premarket so the chance to get back in after earnings risk is complete at a similar price won't occur.   Therefore, we'll see how the day goes - if the dollar can be crushed today the market should be set to break to new highs (and stay there, unlike yesterday) and BIDU will be in similar position.  The stock peaked intraday at $107.19 on Sep 28th, so based on the premarket print that level should be tested if not beaten and the potential for a breakout is on the table.



I am surprised the stock is acting so well in light of the results - I would have thought a much bigger beat (3 cents on EPS and $4M on revenue) and / or guide up in guidance would be required to keep the party going, especially at this valuation, but people don't seem to care anymore.  On the plus side, Google's losses are Baidu's gains, and the TAC cost improvement is impressive.

In terms of valuation, analysts had a consensus of $1.41 for 2010; this quarter was beat by 3 cents so that takes us to $1.44 with 1 quarter to go.  Assuming they beat next quarter's EPS estimate by say 6 cents, we have a $1.50 EPS for the year... at $107 (premarket) we have a bargain at 71x forward estimates.

Via IBD:

  • China's leading search engine continues to dominate the fast-growing and world's largest Internet market, reporting late Thursday that Q3 profit more than doubled vs. a year earlier. . Its market share has increased as Google (GOOG), the top U.S. search engine and Baidu's chief domestic rival, continues to struggle with China's government over censorship issues.
  • Baidu's earnings swelled 114% to 45 cents per American depositary share. Analysts had expected 42 cents. Revenue jumped 76% to $337.2 million, beating views for $333.2 million.
  • The company ended Q3 with 272,000 advertisers, up 25.9% from a year earlier and 7.1% from Q2. Revenue per customer shot up 41% from a year before.
  • Baidu expects Q4 revenue of $354.2 million-$364.7 million vs. $187.3 million in Q4 2009. Analysts expect $348.5 million.
  • In Q3, Baidu held a 72.9% share of China's growing multibillion-dollar paid search market, says iResearch. Google had 24.6%. Last year, Baidu had a 60% share to Google's 30%.
  • Shares are up more than 147% this year, while Google is down a fraction even after reporting blowout Q3 results.


  • Traffic acquisition cost, or TAC, is an important metric for Baidu, measuring what the company pays partners to generate search traffic. For the latest quarter, TAC totaled $30.2 million, or 8.9% of total revenue. The ratio relative to total revenue declined on a sequential basis from 9.7% in the second quarter and on a year-over-year basis from 15.9% in the same period a year earlier, a trend the company attributed to "faster organic traffic growth."



Long Baidu in fund; no personal position


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