Friday, March 25, 2011

Sina (SINA) - Another Breakout

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I've been pounding the table pretty relentlessly on Sina (SINA) since late last year, and it continues to sparkle and amaze.  I thought the stock was finally going to come back to earth in late February after it broke some key supports, but it pulled off a fantastic stick save.  During the Japan selloff it barely blinked, only falling to the 20 day... and since then, off to the races. 


This shows a good example of what to look for (technically) for those looking for new ideas - during any material selloff, try to find the stocks that are holding up the best - they tend to be the leaders out of the gate during the next move up.  We saw less than 30% of stocks were holding their 50 day moving average at the depths of the selloff middle of  last week - yet SINA did not even break its 20 day.  That's relative strength.

SINA has definitely become one of the new leadership stocks taking the mantle from the F5 Networks (FFIV) and Riverbed's (RVBD) of the world.  Starting to hear some talk the past two weeks about something I've proposed - that is a spin off of Weibo into its own IPO.  (something Ebay should have done with Paypal years ago!)  Seems more like a 2012 event for any potential IPO, not 2011, but just the conversation seems to have energized the bulls.

(if you are new to the name, click on the label at the bottom of the post for previous comments and why the stock is so enticing)

No position

What a Move

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In the 7+ sessions since the S&P 500 hit an intraday low of 1249, it is now up 5.5%.  Still needs to take out 1330-ish to make a new "higher high" (maybe the 'Monday morning gap up' takes us past it) but it's been quite a move - albeit until the past 2 days, most of it overnight.  I keep harping on these "V" shaped bounces solely because historically they just did not happen very often, and now they seem to happen EVERY rally.  Hence all of us with a stock market history pre 2009 are constantly saying "it can't happen again", and it does.  Knowing how pervasive they have become, you can imagine how antsy money managers must be once you see these rallies move past what would be considered a normal oversold bounce.  Another new paradigm market dilemma...



We have also made quick work of the % of stocks over their 50 day moving average.  One thing you notice is things can stay overbought (80-90% of stocks over their 50 day MAs) for months on end, but the oversold readings usually resolve themselves quickly!


Brazil's Housing Carnival Stokes Bubble Worries

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Are we in the early to mid stages of a bubble forming in Brazilian real estate?   Who can tell - with the global liquidity tsunami gushing in every direction, there has to be other areas other than commodities where dislocations are forming.  I found this interesting piece while looking over the news for Brazilian homebuilder Gafisa (GFA). While the "mass" mortgage market is still relatively new in Brazil - hence a whole slew of new potential buyers can now enter the market - some of the anecdotes in this Reuters story are eerily similar to those in the U.S. circa 2005.  Who can forget people who were camped out in developments in Las Vegas and Phoenix, just to put a bid down on an empty lot (which of course could be flipped within 2 weeks for a 30% premium).  There is also a massive push by the government to expand home ownership - hmmm, it's starting to all sound so familiar.

I was surprised to hear about the cost of offices in Rio's business district - only trailing London, Hong Kong, and Tokyo?  More than Manhattan? Must be the beaches. ;)

Via Reuters:

  • Listening to Jose Carlos de Vasconcellos talk about Rio de Janeiro's property market is like being transported back to the bubble days in the United States or Europe.  The 60-year-old, who came out of retirement to join Brazil's swelling ranks of real estate brokers, is convinced that property in the beachside city (Rio) is a one-way bet despite a near doubling of house prices in just three years.
  • "I'm confident that the market isn't going to slow down any time soon," he said, taking a break from his afternoon class at a Rio school for real estate brokers. "I don't see any investment that's as good as property."
  • Burned property investors elsewhere may beg to differ, but Vasconcellos is typical of the blissful optimism that has infused Brazil's real estate market at a time when property in much of the developed world remains buried in sour debts.
  • Rio, boasting picture-postcard scenery and plans for big investments ahead of the soccer World Cup in 2014 and the Olympic Games two years later, is not alone in a Brazilian housing boom that is inevitably raising fears of an asset bubble in one of the world's hottest emerging markets.
  • Since early 2008 -- just as the credit crunch was biting in the developed world -- residential property prices in Rio have risen 99 percent with Sao Paulo not far behind on 81 percent, according to a newly launched index by Brazil's Fipe economic research institute. Brazil lacks an official gauge of national house prices, but there have been similar booms in other major cities, including the capital Brasilia and coastal cities in the northeast such as Recife and Salvador.
  • Americans and Europeans would recognize many of the symptoms of Brazil's property fever.  Apartment prices are popular dinner table -- and beach -- conversation in Rio, anecdotes of humble doormen and taxi drivers becoming real estate brokers are common, as are stories of people snapping up apartments without seeing them.
  • Rio's swankier addresses, such as beachside Leblon or Ipanema, are catching up with the eye-watering prices of Manhattan and central London with three-bedroom apartments changing hands for 2 million reais ($1.2 million) or more.
  • Rio's central business area has overtaken Manhattan's Midtown district to become the world's fourth most expensive city to rent office space, behind only Hong Kong, London and Tokyo, according to global real estate group Cushman & Wakefield.
  • Demand for places on training courses to become real estate brokers is booming. Just over 3,300 new brokers were registered in Rio state last year, a nearly ten-fold increase from 2005.  (reminds me of the statistic I read a few years back that 1 in 7 people in California had a brokers license)
  • Brazil's economy grew a sizzling 7.5 percent last year, driven by record-high employment and confident consumers who are swelling the middle class and eager to get a foot on the housing ladder, often with the help of credit.  Millions had for long been locked out of owning property because of a lack of financing, but the mortgage market is now growing rapidly on the back of unprecedented economic stability, bringing home ownership into reach.
  • With a national housing deficit estimated at more than 7 million units, there is plenty of pent-up demand.
  • ......backed by a $41 billion government low-income housing program.
  • Mortgage debt in Brazil is indeed relatively low, standing at about 4 percent of GDP compared to about 15 percent in China in 2009, and much higher levels in developed economies
  • Brazilian banks have stricter standards too, generally lending no more than 80 percent of a property's value.  High mortgage rates also act as a sobering force, although they are now low by Brazil's historical standards. ...... offers 30-year home loans at a 13 percent fixed annual interest rate, almost triple the current rates in the United States.
  • Mortgage debt may be low, skeptics say, but the overall consumer debt burden has been growing fast when taking into account credit cards and installment payments that carry average annual interest rates of around 30 percent.
  • The explosion of credit in recent years has raised concern that Brazil is nurturing a new breed of sub-prime consumers who are not financially astute enough to manage their debts and who could default as the economy cools and interest rates rise.  "It's like putting someone who has never eaten in front of a banquet. They will get ill from eating too much," said Heitor Mello Peixoto, the head of eyesonfuture, a Sao Paulo business consultancy.
  • Matos has noticed that more of his apartments are being bought by investors these days, accounting for 40-45 percent of sales, rather than by families who want a permanent home.

Here is where it gets interesting....while mortgage debt is tiny in relative terms to other countries, household debt has surged.  This in a society where all forms of credit are relatively new.

  • Household debt costs stand at around 22 percent of income in Brazil, according to Sao Paulo consultancy LCA Consultores, compared to 15 percent in the United States at the end 2010.
One wonders if there is going to be a post World Cup / Olympics hangover.  This certainly happened in China in 2008.  Something to keep an eye on the next few years.

NYT: G.E.'s (GE) Strategies Let it Avoid Taxes Altogether

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Lost in the current political fuss about lowering the corporate tax from "35%" is the fact that corporate profits as a % of GDP are at record lows in the U.S.  With armies of accountants (many former government officials) and tax havens across the globe our largest corporate citizens play games of "Double Irish" and "Dutch Sandwich" (what are these? see here), in between lobbying for loopholes galore in the U.S. tax system.  Yes we do have socialism in America ... but it's mega corporate socialism.   Whose are the suckers actually paying 35%?  Small business.  This is why there is actually resistance on Capital Hill to changing the corporate farce that is the "35%" rate to something lower - because it's nothing more than a talking point for our multinationals to whine about.

The New York Times has a fantastic expose on the nation's largest welfare recipient corporation - General Electric (GE).  I will give the CEO Jeffrey Immelt credit though - at least he admits what GE does - here is a quote I've posted a few times the past few years on the site when discussing the "free market" in the U.S.:

It's never been a free market; it's never gonna be a free market. That's just the way it is. The fact that I'd like GE to work in concert with where government policy is in the U.S. doesn't mean that I'm a traitor or a bad guy, I think it's just being practical that that's gotta happen.

That quote speaks more to 'winning' business, but the NYT piece today focuses far more on the financials of the company.  For example:

  • General Electric, the nation’s largest corporation, had a very good year in 2010.   The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States
  • Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion

It all has become a bit of a farce - we've posted many stories on this subject ....who can forget the public housing companies who banked record profits due to the Greenspan/Berananke bubble - but lobbied to get all those taxes credited back during the downturn?  When they did not get what they wanted, they rescinded lobbyist dollars .....and within weeks they got the legislation they demanded.  [Jun 23, 2009: WSJ - Land Rules, Tax Changes and Government Largess Keep Homebuilders Alive] [Apr 4, 2008: Congress is Rushing to Help Homeowners Out!! (Not)]   Who says Congress can't move fast?  I believe it is called bribery in other countries, but we just call it "the political process".  I could go through a litany of examples in almost every industry, but I prefer to keep my breakfast down...

As speculators in the market - this is a 'good thing'.  After all paying a tiny fraction in taxes increases profits.  So we can slap a PE ratio on that lightly taxed profit base and apply an appropriate price, which obviously would be much higher than if these corporations paid what was due under the spirit of the tax code.  However, in terms of a $1.6T annual federal deficit ... it's not quite so bright of an outcome.

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

Anyhow, some snippets from the NYT piece:
  • In a regulatory filing just a week before the Japanese disaster put a spotlight on the company’s nuclear reactor business, G.E. reported that its tax burden was 7.4% of its American profits.  (stop taxing us at 35%.... it's onerous!  Yes your local owner of the plumbing business is paying 35% but not the mega honchos filling the pockets of the political class)
  • Even those figures are overstated, because they include taxes that will be paid only if the company brings its overseas profits back to the United States. With those profits still offshore, G.E. is effectively getting money back.
  • Its (GE's) extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress. 
  • Such strategies, as well as changes in tax laws that encouraged some businesses and professionals to file as individuals, have pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.   Yet many companies say the current level is so high it hobbles them in competing with foreign rivals. 
  • In a rational system, a corporation’s tax department would be there to make sure a company complied with the law,” said Len Burman, a former Treasury official who now is a scholar at the nonpartisan Tax Policy Center. “But in our system, there are corporations that view their tax departments as a profit center, and the effects on public policy can be negative.” 
  • Transforming the most creative strategies of the tax team into law is another extensive operation. G.E. spends heavily on lobbying: more than $200 million over the last decade, according to the Center for Responsive Politics. Records filed with election officials show a significant portion of that money was devoted to tax legislation.  (lobbying has the best Return on Investment of any major operation our largest corporations do - billions in profits saved for a mere couple hundred million in this case)
[click to enlarge]

  • While the financial crisis led G.E. to post a loss in the United States in 2009, regulatory filings show that in the last five years, G.E. has accumulated $26 billion in American profits, and received a net tax benefit from the I.R.S. of $4.1 billion

G.E. obviously has tiger blood.... adonis DNA.

Of course as a side note you know Immelt is now the head of the committee to figure out how to create jobs in the U.S. - even as GE has axed tens of thousands in the U.S.  Sounds logical.....corporate socialism rocks.
  • President Obama has designated G.E.’s chief executive, Jeffrey R. Immelt, as his liaison to the business community and as the chairman of the President’s Council on Jobs and Competitiveness, and it is expected to discuss corporate taxes.  
  • Since 2002, the company has eliminated a fifth of its work force in the United States while increasing overseas employment.

No position

Crude Oil Approaching Key Technical Levels

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The market has completely brushed off - indeed embraced - the rebound in oil the past few days, despite price levels than 3 weeks ago were causing consternation.   After the Japanese news (remember that 'old' story?) temporarily punctured the price, we've seen a rebound and the price in West Texas Intermediate has reached the old closing highs from earlier in the month. 



Technically this is a very interesting juncture - in a stock chart, this would be setting up for either a double top (bearish) or a double top breakout (bullish).  If it's a breakout, I'll be very interested to see what price levels the market can continue to shrug off as apparently every piece of news the past 6 days requires a gap up to celebrate.

Thursday, March 24, 2011

S&P 500 Back Over Key Resistance

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Well, I'll be - I guess you can create an intermediate bottom nowadays on a gap up.  And there is no need to go retest that low.  The new paradigm rulebook.   I am still unclear why with a bevy of bad news the market gapped up this morning but we're back to all news is good news.  The economic news this week has been disappointing to benign but as Bob Pisani says on CNBC today:  the news doesn't matter.  Portugal, durable goods, housing, oil over $105 (which 3 weeks ago was considered a reason to sell off)... doesn't matter.

I would definitely be stopped out of any index hedges now as the S&P 500 finally cleared the 50 day simple moving average at 1303.  (at least the market has gone up during the actual U.S. trading session)



The NASDAQ has cleared the 50 day exponential moving average which was a key level for me... still a bit short of the 50 day simple for those who use that.



And it appears we are right back to something that was rare pre 2009, but has now become the common rule since.  The V shaped bounce.  As I said last week you need to carry around 2 rulebooks nowadays; the one that used to work in the 'old days', and the one for the new paradigm market.

Amazing Statistic in the Housing Market

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Earlier this week we have had data from both existing home sales and new home sales.  Both have been abysmal.... and I'm not speaking in hyperbole.  As I often say, focus on existing home sales because it is generally around 90% of the market - but currently up to 95% since new homes are simply so uncompetitive with so much distressed inventory on the market.  That said, in one story I read on the new home sales figures yesterday an amazing statistic:

Sales are now just half the pace of 1963 -- even though there are 120 million more people in the United States now.

Again that speaks to new home sales, rather than the more important existing home sales but still astounding.

1963 population: 190M
Today: 310M

1963 new home sales: 560K
Current pace 2011: 250K
(Worst year ever was 2010 @ 323,000)

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

Whatever the case, the data is making certain pundits who did declare a housing bottom in 2009... and 2010... look a bit silly.  I am sure they will go to their typical revisionist history and/or just repeat it again this year.  Eventually they will be right and can claim credit.  Indeed it is almost that time of year - spring/early summer buying season - when housing data ALWAYS picks up and the "it's a housing bottom" cadre will come to your friendly national business television station.

With that said we are getting closer to the median housing value I outlandishly proposed in late 2007 when the "housing prices cannot fall nationally" crowd was crowing exceptionally loud.   [Dec 6, 2007: Analysis - What Should Median Home Prices be Today?]  Unfortunately, our Fed head in chief was one of those believers.  Anyhow, 'subprime is contained'.... why are we still talking about a housing problem? ;)

Historically, a regional housing recession has lasted around 7 years.  So if you use 2007 (maybe 2006) as the starting point of the downturn, we're talking 2014ish for the real recovery.*  Of course this was the mother of all bubbles in housing, with many unique features - so the recovery is going to be disjointed.  And rather than letting the market settle (more painful in short run, but a quicker path to a real recovery), the government stepped in with countless measures: from outright bribery (go buy a home, here is $8000), to record low interest rates, to 95% of the mortgage market now in Fannie, Freddie, FHA hands, to implicitly backstopping the banks while they "mark to myth" the value of defaulted homes on their balance sheets, putting them in no rush to foreclose and admit reality.  So in effect we've "Japan-ized" our housing market.

*I am excluding some of the micro climates of course like Washington D.C. which is in it's own government bubble, Manhattan, or some cities in the upper plains.

As for the recovery, we have a lot of issues highlighted in the Gary Shiller piece below that are secular in nature and will retard any actual bounce - frankly with some of the middle class permanently eradicated the pool of buyers has shrunk (barring another substantial drop in prices).  Of course about 10% of all current mortgage owners sit in a home they don't make a payment on, so we still need to expunge that group in the coming years.  And with wages stagnant for many, and the new jobs created in the recovery often paying far less than those that existed 5 years ago, there is not a huge pool of buyers out there - especially if we speak of anyone who can afford to put down more than 3.5%.  Don't even ask what happens to the market if mortgage rates on a 30 year go back to an unruly (gasp) 6.5%.

But other than those inconvenient issues I'm bullish and calling for a housing bottom for the 3rd year in a row - because that's fashionable and is far easier to explain in a 45 second spot on pundit TV. ;)

[Apr 8, 2008: Recession Causes Relatives to Move in Together & Sharp Drop Off in Divorces]
[Apr 23, 2009: As More Homes Fall Underwater, Trapped Americans Cannot Migrate]
[Apr 9, 2010: 1.2 Million American Households Lost in Great Recession]

[Video] Yahoo Tech Ticker - Gary Shilling "The Two Tier Recovery"

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While like every pundit, Gary Shilling has had some years with excellent trading calls and some years with not so great calls, his general macro economic views are usually very much worth listening to.  Yahoo Tech Ticker has an excellent overview with him on the general "big picture" state of the U.S. economy, condensed into 5 minutes.  Many of the topics and long term secular challenges we've identified over the years on FMMF are outlined in this video, so if you are new(er) to the site, I highly recommend a view.  Obviously this touches more on Main Street than Wall Street .... unless your Main Street happens to be Park Avenue ;)

5 minute video - those who are email subscribers will need to come to site to view





The U.S. has been in official recovery mode since June 2009. But, with millions of Americans still without work and a housing market that continues to take a beating, you may not know that things are looking up.
There's a reason for that disconnect, says economist Gary Shilling of A. Gary Shilling & Co: The U.S. is experiencing a "two-tiered recovery" that consists of the haves and have-nots.

"The last few years we had a revival of all the markets that were crushed during the recession…and anybody that was participating in that — in and out of Wall Street -- has done very well," he tells Aaron and Henry in this interview. "But the rest of the economy has pretty much been lagging and those are the people that are reflected in the high unemployment rate."

Not only is a high jobless rate taking a toll on the majority of Americans, those on the bottom continue to face "depressed pay…and falling house prices," he writes in his latest Insight research note.

He goes on to make the following points in his newsletter:

Income: The top 20% of house holds share of income has been rising since the data began in 1967. The other four quintiles share have consistently fallen…. Note, however, that a falling share of income is not the same as an absolute fall in income. Nevertheless, the real median income per household actually fell 5% between 1999 and 2009.

Depressed Pay: Those who were employed at least three years, lost their jobs between January 2007 and December 2009 and are now employed full-time, 54.9% are earning less than before and 35.8% have suffered 20% or greater income declines.

Employer Cost-Cutting: Serious cost-cutting by American business has been going on for years, importantly in reaction to the international competition brought on by globalization.... Business has been improving productivity and cutting costs for years by not hiring new people as output expands rather than laying off existing employees. After rising in the Great Recession, layoffs have returned to their flat trend while job openings have jumped. But new hires have been relatively flat. Why?

With so many unemployed, businesses can be choosy and take their time in hiring. [But] many of the unemployed probably lack the skills needed for the available jobs. With the collapse in housing stocks and drastic decline in commercial construction, many mechanics are mismatched to job openings.

Housing: The massive overhang of excess house inventories, the mortal enemy of prices, suggests another 20% fall in prices, resulting in a 43% peak-to-trough total decline. This decline would return prices adjusted for general inflation as well as for the tendency for houses to get bigger and, therefore, more expensive over time to their century-long flat trend….. With that further drop in prices, we estimate that about 40% of mortgages will be under water, up from 23% in the fourth quarter 2010. At that point, few will be able to get above water by repaying their mortgage principals.

As you can imagine, there is no easy way out of this. Even more so now with Congress more divided than ever on whether to cut spending or spend more on stimulus programs aimed at helping working men and women in this country.

Tuesday, March 22, 2011

Riverbed Technology (RVBD) Joins F5 Networks (FFIV) in House of (Technical) Pain

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I mentioned last week how a mega stalwart from the past few years, F5 Networks (FFIV), had completely broken down technically.  [Mar 18, 2011: Fall from Grace for F5 Networks]  Despite this rally it has not recovered much and it remains a 'short on bounces until it proves otherwise' stock.  Joining it now, is another of the superstars of the past few years - Riverbed Technology (RVBD) - which is faltering badly today after breaking the key 50 day moving average a few days ago.  Indeed, it has been down 8 of the past 10 sessions.



RVBD does not have a lot of gaps to fill like F5 Networks had, but as I said with the FFIV... if the stock drops to that 200 day moving average, I'd be a very interested buyer.  The chart would be a mess, but at that point you'd be speaking more from a fundamental/valuation basis.

For whatever reason, there seems to be a major rotation out of some of the "2009-2010 tech superstars"... if only we could read HAL9000's mind.

No positions

NASDAQ Still Underperforming

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While I usually focus on the S&P 500 as a market index, the NASDAQ has been more of a leading indicator the past month.  It was the first major index to break down, and has been a laggard during this selloff.  Despite the "off hours" rally we've experienced, it still sits below the 50 day moving average.  Indeed, relatively substantially below... and the 20 day just crossed below the 50 day moving average, another negative sign.  Of course all it takes is one nice gap up tomorrow of 1%+ in premarket to take care of all these conditions, but for now it is something to be aware of.



The S&P 500 is a bit more tricky - I like to use exponential moving averages and on that count, the premarket surge yesterday gapped the S&P 500 over the 50 day moving average.  But it has been held back at the (less important) 20 day moving average.   That said, the simple moving average is something more people seem to be focused on around 1303 and we remain below those levels.  For now, we keep returning to this 1294 level which has been a big pivot point the past few weeks, and is currently the 50 day exponential moving average.



Again, with the news flow and increasingly much of the action now happening in the overnight sessions, this is a difficult market to get your hands around... but I still stand by the (perhaps now old fashion) notion that you don't bottom on a "gap up" as we did Thursday morning.  At minimum we should go retest that low... but a lot of old rules have become obsolete in the new paradigm.  The great irony is this market is now solidly negative the past 4 sessions during American market hours...

Finally, circling back to a measure I noted Thursday morning, the % of stocks in the SP 500 over the 50 day moving average has quickly doubled (percentage wise) from the very oversold levels of the middle of last week.


U.K. Inflation Spikes to 4.4% - Probably a Better Comparable for U.S. Inflation than Government Data

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I've spent quite a bit of time the past few months dissecting the variances between U.K. inflation and U.S. inflation figures, as reported in other posts.  While some of the cost pressures are due to the British tax system - namely the VAT (which was hiked recently) - the biggest difference is accounting for the cost of a roof over one's head.  Essentially it is excluded in the U.K. inflation figures while it is the dominant weighting in the U.S.  So as we try to get our arms around what the true inflation situation is in the U.S. - rather than the politically convenient figures that have been massaged tremendously the past few decades [Dec 16, 2010: Shadowstats.com - Consumer Inflation as Measured in 1980 would be 8%+, as Measured in 1990, 4%], watching the U.S. "mini me" is one route I am going.

As I've written in the past, the central banker in the UK must write a letter each time inflation is past target explaining what is going on.  Thus far Mervyn King keeps writing such inflation is 'temporary' - one wonders how many years it can remain temporary before you actually have to remove the temporary label.  The comments section in the British papers online seem very similar to what I read on U.S. stories for inflation - lots of frustration with their central bankers.  The main difference is the Brits actually believe the figures the government is reporting because they actually seem realistic.

With the ECB potentially increasing interet rates late spring to summer (the euro is now at a 4.5 month high v the dollar despite all the issues in Europe), it will be interesting to see when the BOE moves.  Compounding matters in the U.K. is a government that is trying to cut its budget deficit rather than let the hose run loose indefinitely as continues in the U.S., so the potential for a return to recession 3-5 quarters down the road, seems to be increasing.  Whatever the case, the Fed is nowhere near contemplating any such moves - hence we can expect the U.S. dollar to continue to be treated as trash.


Via UK Telegraph:

  • CPI rose to 4.4pc in February, up from 4pc in January. Economist had forecast a rise to 4.2pc. 
  • Retail price inflation (RPI), which is based on a longer-running index and is used as a starting point for many wage negotiations, rose to 5.5pc from 5.1pc, its highest since July 1991. 
  • Mervyn King, the Governor of the Bank of England, has said that the January VAT rise and other inflationary pressures meant that prices would likely outstrip pay again this year, leaving real wages no higher than they were six years ago. Not since the Depression-hit 1920s has a fall of such scale taken place, said the central banker. 

Via Bloomberg:
  • The gain in inflation was led by clothing prices and the costs of housing services such as heating, the statistics office said. Clothes prices jumped an annual 2.8 percent in February, the most since the data began in 1997. 
  • So-called core inflation, which excludes costs of energy, alcohol, food and tobacco, rose an annual 3.4 percent after a 3 percent increase in January. 

When will the BOE move?
  • Investors have pared bets on the timing of the next increase after the earthquake, tsunami and radiation leaks in Japan, the world’s third-largest economy. Forward contracts on the sterling overnight interbank average showed yesterday the first 25 basis-point increase will be in August. That compares with bets on March 9 for a June increase.

Despite the 3.3% Gain the Past 3 Sessions, the S&P 500 Has Been Negative During Normal Market Hours

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Repeating a pattern very common since the March 2009 bottom, much of the movement in the stock market continues to happen during the thinly traded off hours.  Indeed, we've just seen a three day rally in the S&P 500 which has tacked on a massive 3.3%.  However, during those 3 days the index is actually DOWN during normal hours - all the gains (and some) have come overnight, so you've completely missed the move if you tried to play these moves during the day.  Thursday was essentially flat on the close vs open, Friday the market closed significantly lower than where it opened, and yesterday again was essentially flat (slightly up).  Meanwhile, we've seen three gap ups in a row ....

click for large chart


Friday, March 18, 2011

No SEC Letter this Week After All

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After offering a verbal commitment late last week to our point of contact (fund attorney) that our initial SEC comments/letter would be coming in this week, as of 2 PM Friday we have zilch, nada, nothing.  This after  comments they offered acknowledging how incredibly behind they are, and how patient we’ve been with them... (obviously they have not been talking directly with me).  This is now approaching 90 days after submittal of the documentation needed.  A very frustrating experience... I am off to go bang my head against the wall.




Fall from Grace for F5 Networks (FFIV)

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One of our big winners the past few years has fallen on seriously hard times - F5 Networks (FFIV).  After disappointing guidance mid January [Jan 19, 2011: F5 Networks Implodes After Hours on Disappointing Guidance] the stock was hammered, and filled a gap from October 2010.  After a cursory bounce back that tacked on some $25 and took it back to $130 it's been through another round of downside since mid February, tracking the general indexes.



However, today we are seeing another breakdown as it has fallen below the lows of mid January.   Next stop would appear to be $90, where the stock bottomed in mid October.   Technically, this looks to remain a 'short on any bounce' candidate until it can work out of this tailspin.  On the plus side, this is another name that is getting more interesting from a long term perspective as the valuation was nosebleed.  Still not "cheap" but it's fallen from a peak of 40x forward (2011) earnings, to 27x in the past two months.  Expectations should be quite low going into the next earnings report in April.

[Jan 21, 2011: [Video] Interview with FFIV CEO John McAdams]
[Sep 7, 2010: [Video] F5 Networks on the Rise]
[Aug 27, 2010: IBD - F5 Networks Leads in Key Cloud Market]
[Jan 22, 2010: CEO Interview with F5 Networks]
[Apr 8, 2009: Stimulus Fire Hydrant (Worldwide) Should Benefit Networking Companies/Broadband]

No position

S&P 500 Quickly Bouncing into a Test of Resistance

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Yesterday morning premarket I wrote

For more aggressive folk, trying to play some sort of near term bounce becomes more attractive.  Due to the rapid pace of this selloff, bears probably would like to see a short term bounces of a few days help to work off this condition.   A move back closer to S&P 1290 would be an attractive area to try a new short trade with a very convenient 'stop out' level just above, in case the market pulls off one of its now infamous "V-shaped" bounces. 


In no way did I expect a 30 point S&P move in such a short period of time, but at this point nothing surprises me about the market anymore.  The reason I used S&P 1290 instead of 1294 is I thought any sort of bounce would take at least 3-4 days to play out (hence the 50 day moving average would drift down a bit), but it has happened in essentially 1 market day.



So at this point if you are a believer that resistance still matters and the market is not about to go onto yet another new paradigm V shaped bounce it has now become famous for, this is an area (the next 5 S&P points) where an index short could be built.   Using the old rules of the market, this should be a high probability short for 2 reasons - (a) markets don't usually bottom on gap ups as happened yesterday AM and (b) markets usually go back to test recent lows before making a sustained move up ("double bottom"), hence at minimum one could short until a retest of the lows of Wednesday.  Whatever short exposure one had sold off Tuesday/Wednesday on the swoon selling, I would be re-employing as a hedge here - of course it depends on cash position and long exposure as well.

But again that is how the market acted pre QEinfinity, so nowadays I carry around 2 sets of rules ... new paradigm and pre 2009.  S&P 1294 will be a closely watched area from here for obvious reasons....secondary resistance 1300.  A move over those 2 levels and the bears will be sent back to the corner they have been consigned to for half a year. 

Longer term coast is not completely clear for bulls until a new higher high is in place - I'd want to see S&P 1330 cleared to be singing the praises of The Bernank.

Cost Pressures Begin to Filter their Way into Impacting Margins - Nike (NKE) an Early Example

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It was just a matter of time when commodity cost pressures began to impact margins - you just never know when exactly due to the length of contracts and type of pricing, but record corporate profit margins at U.S. corporations are beginning to take a hit.  Oil is the most obvious issue as it's essentially a tax on everyone and everything, but it's actually been one of the more benign commodities over the past year.  As mentioned early last fall, the response to The Bernank's global liquidity party will be to protect margins by either trying to pass along price increases to consumers and/or by laying off workers.  Obviously neither is good for the 'Main Street' crowd. 

Last evening Nike (NKE) reported a significant hit to profits due to commodity pressure  The response will be across the board price hikes in coming quarters... but for now we have a stock hit 8% in the premarket and a price in the $78s.



Should be an interesting earnings reporting period coming in April as we hear both about these commodity impacts and supply chain disruptions in Japan for some of the global multinationals.  Probably the first reporting period in 2 years where the normal 70-80% of companies beating the analysts' lowly expectations game might be threatened. 
  • Nike is grappling with higher costs for cotton, labor and transportation, which the company projected may reduce profit margins this year. Gross margin, the difference between sales and cost of goods, narrowed 1.1% points in the quarter

More worrisome than the one quarter hit to gross margins is the outlook for the future.
  • Management sees gross margins down 300 basis points year over year for the rest of this fiscal year, and believes there is more downward pressure in 2012

Hence, shoe inflation....
  • Nike, which reported after the close, had been engaging in "surgical" price increases that targeted specific products and markets, but coming price increases will be "across the board," the company said. 

On the plus side, I hear iPads (which are dropping in price) make excellent footwear in a pinch.  (Ok, I promise this is the last iPad joke of the week!)

No position

Futues Jump after G-7 Intervention in Curreny Markets Weakens Yen

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Many of the gains of the past 2+ years have come in the overnight session, and the action the past two nights are par for the course.  The indexes really did not do much in the actual session yesterday as most of the gains came right at the opening bell, and then stocks chopped and flopped most of the day.  Last night, the G7 made a rare coordinated strike to weaken the yen, which equity futures reacted strongly to - futures had been down materially before the move.  This again highlights how difficult markets have become, even if you are correct on a prediction of a move as headlines, interventions, and action in the overnight session cause many a headache.

Specific to the action on the yen, the currency has been surging as a global carry trade unwinds - however, being a massive exporter, the Japanese do not want a strong currency.  Indeed, it appears almost no country wants a strong currency as each central bank is doing its best to dilute theirs.  Got gold?

Via CNBC:

  • The Group of Seven nations have agreed to a secret protocol to guide their coordinated intervention and won’t reveal it in order to keep currency markets guessing, according to people familiar with the matter.
  • The dollar soared 2.7% against the Japanese yen to 81.31 yen.
  • This marks the first time the G-7 countries have jointly intervened in currency markets since the fall of 2000.
  • The suggestion from these sources and the G7 statement is that the intervention could continue for a while and markets will have to guess at the exchange rate level for the Yen - or some other metric - that is the goal of the intervention by the world’s leading economies in the Yen.
  • The statement from the G7 specifically says that the intervention to weaken the Yen will take place Friday but goes on to suggest it could be more open-ended, reading, “We will monitor exchange markets closely and will cooperate as appropriate.”
  • The historic decision to conduct coordinated intervention came together as markets were closing on Thursday but was the product of almost 48 hours of intense talks between Europe, the US and Japan.

Thursday, March 17, 2011

Fortune 1986: Inside the Deal that Made Bill Gates $350M

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If you have a historian bent to you, there is a pretty fascinating original article (from 86) about the IPO of Microsoft that is being reprinted on the Fortune website, to celebrate the 25 years it has been public.  When you read articles like this, or watch movies like the original Wall Street (1987) it is almost amusing how small the dollars are relative to what is tossed around today.   Just today we have an article on Bloomberg that Groupon - which was launched in 2008 and rebuffed a takeover by Google late last year at $6B, might be going IPO near a $25 BILLION valuation.

Anyhow here is the article for those interested - vampire squid included.  (click full screen for the easy read)


Inside the deal that made Bill Gates, age 30, $350,000,000                                                                

"No Inflation Alert": Kimberly Clark Raising Prices on Diapers and Toilet Paper to Compensate for Surging Commodity Costs.... Rental Rates Also Set to Rise Sharply

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More signs of "little to no inflation".... aka good news for the bottom 60% who are not getting any of the 'wealth effect' from The Bernank, but all the costs.  I am so tempted to make a comment about how the price increases in toilet paper can be offset by using an iPad per Fed head Dudley .....but that would be in bad taste.  ;)
  • Kimberly-Clark is raising prices for diapers and bathroom tissue as it tries to deal with increasing costs.  The consumer products company said Thursday that it will raise prices in North America for its baby, child care and consumer tissue businesses in the second and third quarters.
  • Kimberly-Clark said Thursday that net selling prices for items like Huggies diapers will go up 3% to 7% on average in the U.S. and Canada. Net selling prices for Cottonelle bathroom tissue will likely rise about 7% in the U.S.
It truly is amazing how the UK and US measures of inflation differ so vastly mostly because the UK does not include a homeowners equivalent rent figure, while that line item dominates CPI in the U.S.  [Jan 19, 2011:  UK Facing Inflation Near 4%, Central Bank Keeps Rates Ultra Easy, Raising Public Ire]   Speaking of OER - it looks like rents are set to spike as well, since so many Americans are being pushed out of houses and into rental units.
  • Renters beware: Double-digit rent hikes may be coming soon.  Already, rental vacancy rates have dipped below the 10% mark, where they had been lodged for most of the past three years. 
  • By 2012, she predicts the vacancy rate will hover at a mere 5%. And with fewer units on the market, prices will explode.   Alford expects rents to spike 7% or so in each of the next two years -- to a national average that will top $800 per month.
  • In the hottest rental markets, the increases will likely top the 10% mark annually for the next couple of years, according to Lesley Deutch of John Burns Real Estate Consulting. In San Diego, she anticipates rents will rise more than 31% by 2015. In Seattle rents will climb 29% over that period; and in Boston, they may jump between 25% and 30%.

So to review, as long as you don't eat, drive, heat (or a/c) a home, use healthcare, have a child in college, or (insert new ones) rent an apartment, have a baby, or go to the bathroom - there is little to no inflation.  Because you can buy iPads on the cheap.

(On a serious note - the theory here is without wage pressure in the U.S. there cannot be inflation because when Americans pay more for some things, they cannot pay for others yadda yadda yadda.  The problem is the things Americans NEED are the ones going up in price, while the things that are for fun are the ones that are dropping)

WSJ: Record Copper Prices Prompt Switch to Aluminum

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Copper is probably the most watched of the commodities for those with a macro economic bent; we've outlined in countless pieces its label as "Doctor Copper" as a marker of industrial health.   Hence its recent pullback in price had caused some concern.....



Rather than a copper ETF, the company Freeport McMoran & Gold (FCX) - which is mostly a copper company despite the name - has become the de facto instrument of copper speculation by the fast money crowd, especially of the hedge kind.  You can see the stock fell off sharply over the past month. 

FCX is now either dead cat bouncing or about to embark on a larger move up, mostly (it appears) based on the new hot thesis - that is "Japan rebuild".  Nevermind we are not even at "Japan containment" yet... speculators need a hot theme, and this one sounds lovely.  Remember, in the market - at least in the shorter run - a thesis need not be correct, as long as enough people believe in it and drive prices en masse in the same direction.  Keep an eye on this name, because if it breaks over this next level of resistance the fast money crowd will begin to cluck everything's back on track.  Too soon to tell where it is headed as it's still in the "making lower highs" mode.



Despite the historical "Doctor Copper" label, I've contended that like most commodities, copper prices are now more an indication of whether China is sucking it up in "huge" quantities or just "large" quantities - rather than a signal on global economic health -  as that country has become the world's marginal buyer.  Perhaps China is successfully slowing down its economy and/or prices finally reached a point where "no mas" was in order. The WSJ has an article on how copper prices have now reached a point a substitution effect with aluminum is now possible.

  • Copper's price surge this year is sparking a switch among manufacturers to another electricity-conducting metal: aluminum.  Makers of automobiles, air conditioners and industrial components are increasingly turning to the much cheaper metal to help offset rising cost pressures as the global economic recovery gains steam.
  • The difference between the prices of copper and aluminum is now enough to cover the costs of retooling some manufacturing processes and pay for the extra aluminum it takes to conduct the same amount of electricity as copper.
  • Markets ripe for the switch include wiring for automobiles and buildings and evaporator and condensing coils used in commercial refrigerators.
  • Such substitution has been on the rise over the past decade as demand from China and constrained mine supply have boosted copper prices. From February 2001 through last month, the metal had risen more than fivefold while aluminum gained 66%.
  • Although copper's recent record-setting rally to more than $4.60 a pound has been clipped by worries about Japan's nuclear crisis and fears that high oil prices will damp the global economic recovery, the metal remains well above the key $3.50-a-pound level where it often becomes more economical to use aluminum instead of the copper. Aluminum now costs around $1.15 a pound.
  • On average, automobiles destined for developed markets contain about 20 to 23 pounds of copper, while more-basic models built in emerging markets have about 5 to 6 pounds. Within five years, if copper rises to the $5-to-$6 range, Burns predicts aluminum will replace 30% to 40% of the copper in automobiles.
  • If copper prices keep rising, aluminum could end up being substituted for 20% of the global 19 million metric ton annual refined copper market, according to Alcoa estimates. At current copper prices, that figure is 4% to 5%, or about 800,000 fewer tons of copper being used.
  • Annual copper substitution losses over the last five years have averaged 425,000 metric tons, or about 2% of the market, according to estimates by Anglo-Australian mining giant Rio Tinto PLC. The mining company expects losses to increase to around 3% of the market in 2010 and 2011.
  • The substitution may end up tempering copper prices somewhat. But most see prices generally trending higher as burgeoning demand from the recovering global economy is expected to outstrip mine supply, leaving industrial companies and their customers in the lurch until they can find substitutes.
  • For the construction industry, sales patterns at Graybar, a St. Louis-based distributor of electrical products, suggest that builders are likely to use more aluminum wiring during this summer's construction season than they have in recent years.  Graybar's sales of a type of copper wire commonly used in construction slipped 6% from the last half of 2009 to the same period last year, while sales of similar aluminum cable rose 6%.
  • The head of the world's largest private-sector copper producer, Freeport-McMoRan Copper & Gold Inc., played down the threat of substitution, but acknowledged in a recent call with analysts that some customers are getting jittery.  "They're concerned about high copper prices because of...the potential substitution, but offsetting that substitution is new markets," Chief Executive Richard Adkerson said.
  • He cited the potential copper demand from hybrid and electric cars, as well as increasing uses of electronics, where aluminum isn't as easily substituted because of space limitations. 
No position

Where's the Tomato?

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As "little to no inflation" continues to course through the U.S. system, it appears due to cost pressure one will now need to ask for tomatoes if they wish to have them on their hamburgers at Wendy's.   This brings back memories for those of us old enough to remember one of the epic commercials of all time.... just replace beef with tomatoes.   While I cannot confirm it, rumors are surfacing that Fed head Dudley requests iPads on his Wendy hamburgers because after all - they are going down in price.  [Mar 11, 2011: Fed's Dudley Says not to Worry About Food Inflation because iPad Deflation Makes Up for It]
  • Food prices at the wholesale level rose last month by the most in 36 years. Cold weather accounted for most of it, forcing stores and restaurants to pay more for green peppers, lettuce and other vegetables, but meat and dairy prices surged, too.
  • Wendy’s, paying higher prices for tomatoes, now puts them on hamburgers only by request. Starbucks and Dunkin’ Donuts have raised prices because they pay more for coffee beans. Supermarkets warn customers that produce may be of lower quality, or limited.





Percent of S&P 500 Stocks Below 50 Day Moving Average Now at Jackson Hole, Wyoming August 2010 Levels

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While it is always possible for "oversold" to get "more oversold", we are reaching a point where a reactionary bounce becomes quite probable.  The % of stocks in the S&P 500 trading above their 50 day moving average has taken a swan dive, and now sits at levels last seen right before the QE2 wink and nod was announced at Jackson Hole, Wyoming in late August 2010.  Notice on the chart how the selloff in November 2010 (due to Ireland debt worries) barely registered on this chart.

[click to enlarge]



Does this mean the bottom is here (or near)?  Who ever knows.  Obviously this reading can get worse as seen by the post flash crash action last summer.  What it does mean is the risk factor for the bears has increased substantially and for those who want to avoid whipsaws, cash is a very nice place for now.  For more aggressive folk, trying to play some sort of near term bounce becomes more attractive.  Due to the rapid pace of this selloff, bears probably would like to see a short term bounces of a few days help to work off this condition.   A move back closer to S&P 1290 would be an attractive area to try a new short trade with a very convenient 'stop out' level just above, in case the market pulls off one of its now infamous "V-shaped" bounces. 



Of course we remain hostage to news headlines due to the nature of global events right now, so to some degree every chart must be taken with a few grains of salt.

WSJ: Getting an ARM Up on Intel (ARMH)

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For those interested in ARM Holdings (ARMH) the stock has become much more attractive in terms of valuation (still not cheap - just cheap(er)) and entry point, than it was 2-3 weeks ago.



The stock has lost nearly a quarter of its value in that time and now sits right above the 200 day moving average (edit, it is actually the 100 day moving average).  This is also an area the stock tested a few times in January 2011.  One could definitely take a swing here and abandon ship if this support level is broken - the stock held up quite well during yesterday's market carnage all things considered.

ARMH took a dramatic hit last Thursday when a few brokerage houses spoke of a potential gut of tablets.  Which shows how quickly things can change considering the tablet market is essentially in its infancy (and we're already talking glut!)  Via Forbes

  • Even before the tablet market gets off the ground, worries have surfaced about a glut. While Apple   launches sales of the iPad 2, most other tablet manufacturers – and there are a zillion of them – have just begun rolling out products, or plan to do so in the months ahead. And already, there are concerns that there are too many competitors – and not enough demand for non-iPad tablets to match the expected production.   J.P. Morgan analyst ....asserted that we could be headed for a huge over-supply of non-iPad tablets in the second half of this year.
  • In his note, Deshpande write that delayed tablet launches could result in order cuts for some chip vendors. And he notes that all the current tablet processors are based on ARM designs – so reduced chip demand could affect ARM’s royalty revenues. And he notes that “this end market is one of the key reasons for the current bullishness on ARM.” The analyst maintains an Underweight rating on the shares.

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

The WSJ this morning ran an interesting backstory on this company - including the fact Apple had a strong hand in ARM Holding's evolution; some snippets below:

  • It's a company that's changing the world, powering the computing revolution that is putting cooler graphics, faster games and amazing apps in everyone's pocket. And you've never heard of it.  The company is ARM Holdings PLC, a British microprocessor firm founded 21 years ago in a turkey barn. While still relatively small, ARM is upending the chip business, posing perhaps the most nettlesome challenge yet to giant Intel Corp.
  • ARM's chips have become the most popular standard for cellphones and tablets and are found in hundreds of millions of other devices, from digital cameras to disk drives. Its market share in handsets is more than 90%, and its stock has tripled over the past 15 months.
  • ARM's growing cachet—and the threat it poses to Intel—was on display March 2, when Apple CEO Steve Jobs presented the iPad 2 to journalists and technophiles. He emphasized how the tablet's processor—which is based on ARM technology—is twice as fast as the previous one, all the while keeping battery life at an impressive 10 hours.
  • "Without ARM, it would take a device the size of a computer to accomplish what the smartphones in our pockets are capable of," says analyst Francis Sideco of researcher IHS iSuppli.
  • Battery life is key. It's why, in handsets, ARM's chip architecture dominates. Intel's brawny processors are speedier, making them ideal for PCs. Compared to ARM's, however, they gulp electricity, making them a bad fit for battery-powered devices.
  • In 1990, Apple wanted a chip for its new personal digital assistant, the Newton. It formed a joint venture with Acorn that was later renamed ARM Holdings. Apple threw in $1.5 million, according to Mr. Hauser. Acorn contributed its 12-person chip design team.  Befitting a tech start-up, ARM's first headquarters near Cambridge, England, was a converted turkey barn. Acorn eventually died, but ARM prospered. Apple made $800 million on its investment.
  • At its start, ARM made a business decision: Rather than make chips itself, ARM would license its technology to others. ARM had in essence developed a particularly well-designed chip brain—and chose to sell the blueprint to other chip companies that could fashion full-fledged "systems on a chip" around it. These ended up dominating handsets because they integrated so many functions into a single chip, making powerful phones possible. 
  • Today Texas Instruments Inc., Qualcomm Inc., Samsung Electronics Co. and others use ARM designs, paying small licensing and royalty fees for the privilege. It's a deeply profitable business—with gross margins of 94%, compared with 65% for Intel last year. 
  • Intel wants to crack into the phone market, and it plans to release a new chip this year that it predicts will match ARM's in both power consumption and performance.  
  • But even if Intel delivers a comparable chip, the company could have trouble making headway in handsets. Device-makers can play all the potential suppliers of ARM chips off against each other, keeping costs down. A bigger hurdle may be persuading mobile-software developers to write Intel-compatible code. 
  • ARM's biggest challenge may be living up to investors' lofty expectations.Its shares fetch almost 70 times its 2011 expected earnings. 
  • In January ARM got a boost when Microsoft Corp. said its next Windows operating system would work with ARM chips. That means they now have a better chance of getting into PCs, too.
  • Ironically, Intel could have saved itself the trouble. Mr. Hauser recalls that before designing its own chip, Acorn approached Intel about using its technology. "They said get lost," recalls Mr. Hauser. "If they had given us [their chip], we never would have done the ARM."

No position

Wednesday, March 16, 2011

You Don't Need to Catch the Bottom

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Unless you are a daytrader or 1-2 day flipper you don't need to get all hyped up about trying to catch the bottom.  It is fun for bloggers or those in the financial media so they can beat their chest but most of the serial bottom callers have tons of losses to account for before their moment of glory.  (i.e. they are wrong most of the time)   I said some 3 weeks ago the market character had changed.  I said it was no longer the "unshortable market", and it was instead time to reign in risk and be cautious.  At that point one should be raising cash, culling positions, and putting some hedges on - I've been using VIX calls above the 50 day moving average.  Once we broke below the 50 day moving average I said this market is now shortable on the index level and you can use a break back above the 50 day (have to give it a few points of leeway) as a stop out level.   And we're not even discussing a lot of individual stocks that had weak charts that one could have shorted as hedges versus long positions.  As I said a bit earlier today, "easier said than done" during this wacky selloff but at minimum above average cash positions once the 'caution' call went out, should help a portfolio in times like this. 

If you did all these things you would be mitigating losses and protecting capital.  The main goal always is to keep capital near maximum levels - making up a 5% loss is much easier than a 15% loss.  Hence anyone who has protected their behind, would not really need to make some great call about timing the bottom.   The uptrends in this market usually last for months on end so missing the first few days is no biggie.   Yes the 'bottom' turn day is often a big reversal and it feels good to catch it, but most people trying have a lot of missing fingers from their hand as they have tried to catch the falling knife unsuccessfully a few times before the 'real turn'.    When you don't have big losses to deal with, you don't need to take the risks of trying to catch bottoms.  Frankly catching the bottom in advance is a very difficult thing - everyone is just throwing guesses out there now like it's a NCAA tournament pool.  About 2% of those guesses will be correct in hindsight ... do you like those odds?  Hence, I leave that to those who beat their chests and have clairvoyant powers.  I'll just get back on the horse once the uptrend returns - hopefully with most of my capital intact and keep chugging along.  Tortoise over hare style.

If you are looking for that 'bottom' moment, sometimes we get fortunate and it is very obvious - i.e. a big selloff during the day (hopefully panic induced) followed by a reversal and a close at the high of the day.  When I see one of those days my ears will perk up.  Barring a miracle in the last 40 minutes, today is not that day.

The (Not so) Invisible Hand Reappears

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"Shockingly" as the market broke down, a massive buy order hits Wall Street causing a U-turn.   As we all know, when a market breaks key support it makes a lot of sense for a flood of buying to show up -- ahem.  Well, maybe if you are the PPT.  Forgive me for my cynicism - after being POMO'd over the head for 6 months, I forgot what the invisible hand looked like during a selloff.  It's been a long while.

Intraday chart - click to enlarge



We'll see if it holds...

[May 27, 2009: Daniel Schaffer Notices the "Invisible Hand" aka Plunge Protection Team]
[Jul 14, 2008: Our Gospel is Spreading - Jim Cramer References "The Hand"]
[Jan 9, 2008: An Amazing Blunt Commentary on the Plunge Protection Team]

That Didn't Take Long

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In the previous post when I said I don't expect these lows to hold, I was thinking more of tomorrow than in the next 15 minutes, but this works too.... makes me look a lot smarter than I am. ;)



Any close at these levels will have wiped out all of 2011's gains in the indexes.  Never fails to amaze how the market is a staircase up, but an elevator down.  What took the market about 2.5 months to build, has effectively been erased in 5 sessions. 

Not an Easy Selloff to Maneuver

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While I am happy to be directionally correct on this selloff, I will admit this is one of those times that talking about the trade/direction of the market has been much easier then than executing trades on it would have been.  While we are once again at lows of the move (lows which I DO NOT expect to hold), the constant late day rallies have caused havoc, and made any tight stop loss strategies difficult to work with.  Yesterday's rally - during the majority of the day, AFTER a gap down, was an example - as it made no sense.  So while on the surface this has been finally been a victory for bears, it has been like riding a bucking bronco .... especially when the rallies have come for no apparent reason and on little volume.




Again, as I said a week or two ago, if we broke the 50 day moving average support the problem for bulls is there is no real secondary support for a long while.  That is a condition of a market that effectively (aside from a 3 week break in November) went straight up for 6 months.... along with a short base that threw in the towel a few months ago.  The 200 day moving average is the next big time support level - if we get there, I'd be interested in going long for a trade.

Ironically the retail investor had just come back into the market per the inflow data about 6-7 weeks ago... just in time to be greeted with a slap to the face.

Worst Performers the Last Month

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With the market peaking just under a month ago, it is always interesting to see which stocks have fared the worst. If you are not a trend follower type of investor, and have a longer term time frame sometimes you can pick up some bargains.  Further, if you see groups of stocks from the same sector you can figure out specific rotations HAL9000's algo's have been telling it to perform.

Here is a list of 42 stocks that have lost at least a fifth of their value in the past month (market cap at least $300M).  A cursory glance shows a lot of tech stocks, which would make sense considering the NASDAQ's under performance of late.


Ticker Company Return  Mkt Cap 
FNSR Finisar Corp. -47.5%                1,824
BKS Barnes & Noble, Inc. -45.4%                   609
CEDC Central European Distribution Corp. -44.1%                   854
HSFT hiSoft Technology International Ltd. -37.9%                   576
DAKT Daktronics Inc. -34.6%                   433
NTRI NutriSystem Inc. -32.8%                   355
RCKBD Rockville Financial, Inc. -32.6%                   311
CCSC Country Style Cooking Restaurant  -32.5%                   405
CIS Camelot Information Systems Inc. -31.5%                   673
FN Fabrinet -29.8%                   713
RLOC ReachLocal, Inc. -28.6%                   487
AMLN Amylin Pharmaceuticals, Inc. -28.3%                1,593
ATML Atmel Corporation -27.2%                5,359
MDAS MedAssets, Inc. -27.2%                   872
NTSP NetSpend Holdings, Inc. -26.4%                   948
OCLR Oclaro, Inc. -26.2%                   609
JDSU JDS Uniphase Corporation -25.0%                4,734
NVDA NVIDIA Corporation -24.8%             10,260
MMI Motorola Mobility Holdings, Inc -24.7%                6,904
MOTR Motricity, Inc. -24.5%                   555
REE Rare Element Resources Ltd. -24.2%                   449
IDCC InterDigital, Inc. -24.2%                1,904
OPLK Oplink Communications Inc. -23.5%                   412
OMX OfficeMax Inc. -23.4%                1,107
NTAP NetApp, Inc. -23.2%             17,113
STEC STEC, Inc. -23.1%                   936
CISG Cninsure Inc. -23.1%                   700
CCJ Cameco Corp. -23.0%             12,845
UIS Unisys Corporation -22.9%                1,315
NAK Northern Dynasty Minerals Ltd. -22.7%                1,327
TNS TNS Inc. -22.3%                   393
HOLI Hollysys Automation Technologies, Ltd -21.9%                   709
SPRD Spreadtrum Communications Inc. -21.6%                   886
PBY Pep Boys - Manny, Moe & Jack -21.5%                   595
LOPE Grand Canyon Education, Inc. -21.4%                   684
CQP Cheniere Energy Partners LP. -21.4%                2,823
TNDM Neutral Tandem, Inc. -21.3%                   466
GTY Getty Realty Corp. -21.2%                   677
MRVL Marvell Technology Group Ltd. -21.1%             10,141
MIPS MIPS Technologies Inc. -20.8%                   588
CY Cypress Semiconductor Corporation -20.5%                3,252
HGG hhgregg, Inc. -20.5%                   544


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