Saw comments today that mentioned huge positive earnings revisions for technology companies and how negative this was. Huh? how could positive earnings revisions be negative? Well because these analysts are just raising numbers to justify the current speculative rise in stock prices. The commenter assumed there was no way the new estimates were realistic because the economy won't be that good, yada yada yada. wow.
So last quarter it was all just cost cutting and therefore unsustainable and now its the numbers are going up not because anyone thinks they are real but because the analysts need big numbers to justify their target prices and buy ratings. I would argue they didn't juice the numbers like that during the bubble so why would they do it now? (not saying that their estimates at the peak involved sustainable levels of revenues and profits -- obviously not but the numbers were in line with company guidance and recent experience about what was possible -- they didn't need or want to really juice the estimates because they wanted the companies to beat numbers and they just raised the multiple to get their high target prices).
Two things to keep in mind when you hear its all just cost cutting:
1. GDP was flat at best in Q2 so why would anyone expect revenue growth? (granted that flat was Q/Q not Y/Y but that only makes my comment more right because the Y/Y change has to be negative -- so again why would you expect revenue growth in a declining economy?)
2. the dollar was actually a drag on revenue growth in Q2 for multinationals -- probably clipped revenue growth by 5+%.
So as we get to Q4 and you see the dollar is additive to revenue growth instead of a subtraction and GDP growth is now very positive both Q/Q and Y/Y then wouldn't you expect to see very strong earnings given that cost cutting has been so pervasive?
ECRI is unbelievably adamant -- STILL that the recovery is going to be very strong with no double dip. no one believes that. ALMOST EVERYONE believes our problems are so bad that the economy can't possibly enter a sustainable growth phase.
I chatted with some investment professionals today who went through their litany of issues surrounding the banks (will see lots and lots of failures), housing (still falling), government debt and stimulus (recovery is all due to huge stimulus so it can't last -- very inflationary they will have to raise rates), yada yada yada.
Went on and on about all the issues -- when I confront them with the recovery data from ECRI they point out sure the recovery will be strong in Q4 but it can't be sustained and its all just a sugar high from the stimulus. I can assure you that anyone with that kind of thinking has been too bearish all along this year -- someone that admits the recovery will be strong but it can't be sustained is someone that has refused to look forward -- has only looked backward at how bad things were and assumed there can't be any good news to get the market up because we have all these issues. He then switches gears to say that sure now its ok but I'm really worried about the long term -- Hello -- what have I been saying? there will be another bust and it will be ugly but that could be years in the future -- the market could make a triple top at 1550 before then.
One thing I would point out is that I am thinking about adjusting my thoughts on the next bust -- I have thought that since we didn't really deal with the overindebtedness of this last boom --we artificially have lowered rates and used various tactics to support asset values such as houses above true market levels -- that the next bust would be worse. we would have to deal with all the issues from the last boom plus the news issues from this boom. its still quite possible but given that anyone that levered up in the last boom does not have access to credit now, you have to assume that a whole new class of borrowers is going to lever up and cause problems. I'm thinking that maybe just like 2000-2002 was a different bust from 1990 that the next bust will be different from this one -- financials won't go bust twice in a row but some other industry will do it. Tech? probably not since we are too close to the last bubble burst.
Energy and commodities? sure could be. health care? possibly but do you see people going out and levering up to open up health care facilities? I don't.
Infrastructure? yep that's a possibility too -- all that building going on in China and other emerging markets. You'll know which area it will be because that will be the focus of all bullish commentary and it will be the area most often talked about in Time or Newsweek or businessweek or other non-financial publications. It will be the area that MBA's try to get into.
bottom line -- do you know anyone that thinks we are about to have a strong and sustainable recovery? I don't besides ECRI and Cramer.
one last thing -- if we don't see a strong up move on Wednesday that will be a change in the pattern -- last couple of months you see a 3 day sell off followed by a big up day followed by a neutral day -- generally up but basically flat -- followed by another big up day. some are already talking about a lower high -- so if the market pulls back to less than 1035 we will then have a lower low too. obviously at that point the rally is over and we are going to <700 again. Oh except we did all that lower high and lower low in July and then soared about 200 points. I can live with the pain of going below 1000 if I'm confident we will head to 1200+ soon after. unless the economy rolls over, fed raises or people get truly bullish, I don't see how a bigger pull back won't be a better buying opportunity.
good luck
Wednesday, September 30, 2009
Monday, September 28, 2009
VIX
One more thing -- the VIX near 25 is way over priced!!!! Actual historical volatility has been running in the teens so one of two things have to change -- either volatility needs to jump or the VIX has to continue to drop. To give you an idea what a VIX at 25 means -- think 1.6% daily moves in the S&P 500 2/3 of the time -- so out of 21 trading days in a month we should be seeing 1.6% type moves 14 times. Last 10 trading days maybe 3 make the cut or about half of what is needed to justify a VIX near 25.
Well it looks like I just changed the font - hopefully it will change back next time.
Funny thing is that most think the VIX is too low and is headed higher -- they are reacting to the VIX of the last year that reached 90 and not to actual volatility. They are also fighting the rally and assuming the market is going down at any moment. nope. not gonna happen. not while everyone is expecting and practically wishing for it.
again, that doesn't mean we can't consolidate or pull back at times but no big swoon until either the fed changes dramatically, the economy dives (absolutely no sign yet) or people stop expecting the swoon.
Well it looks like I just changed the font - hopefully it will change back next time.
Funny thing is that most think the VIX is too low and is headed higher -- they are reacting to the VIX of the last year that reached 90 and not to actual volatility. They are also fighting the rally and assuming the market is going down at any moment. nope. not gonna happen. not while everyone is expecting and practically wishing for it.
again, that doesn't mean we can't consolidate or pull back at times but no big swoon until either the fed changes dramatically, the economy dives (absolutely no sign yet) or people stop expecting the swoon.
Its Not going to End Tomorrow!
We will see pull backs like we had last week from time to time but for the moment the end is not here. I had lunch recently with some former co-workers and no one felt comfortable being bullish on the rally -- they all expect a sharp downturn in the market to begin at any time. Asset flows for mutual funds? only if you want a bond fund. I just saw another comparison to 1929 and the big rally that occurred before the bottom fell out in 1930-1933. This is great news for the market -- as long as the wally of worry exists the market can keep rising. When everyone expects the rally to never end and that stocks are the place to be, that's when the end comes. We are so far away from that its not funny.
A few other reasons the rally can end:
the fed raises rates or stops the flow funds into the economy;
the chinese decide to raise the value of their currency vs. the dollar dramatically
the leading indicators on the economy roll over and point to a slow down.
I don't expect any of these to really happen until next year at the earliest -- plus just because the fed starts to raise doesn't mean the end is nigh -- it took a few years from when the fed first raised rates to when the rally ended. if they raise rates faster than obviously it will take less time to end the rally but I think the Fed's fear of pulling the plug too soon and leading to a fall back to the next depression will keep the money flowing.
MXWL -- they announced a deal with Continental to sell lots of ultracapacitors to the auto industry -- this market is just getting started. the stock is likely expensive having run up a few dollars in a matter of days but its one to keep an eye on. This market will be huge -- ultracapacitors will be a key to transitioning the market towards more electricity use within cars.
ERII -- if this stock pulls back towards 5.50 again, I plan on putting on a good position.
TCAP -- actually raised their dividend -- do the same as ARCC. Both have been great stocks -- ARCC is closing in on its NAV from Q2 but that NAV is likely 10-20% higher due to the improvement in the market. we'll see when they report.
BTW, not saying you can't take profits, raise cash or start a short position to hedge yourself given how far we've come. I just think we are going higher. 2003 we paused for several months around these levels. quite possible that happens again.
MCD -- interesting they raised their dividend to a 3.8% yield -- that seems like a high yield to me for this kind of quality company. lots of chinese and indians need to be fed.
A few other reasons the rally can end:
the fed raises rates or stops the flow funds into the economy;
the chinese decide to raise the value of their currency vs. the dollar dramatically
the leading indicators on the economy roll over and point to a slow down.
I don't expect any of these to really happen until next year at the earliest -- plus just because the fed starts to raise doesn't mean the end is nigh -- it took a few years from when the fed first raised rates to when the rally ended. if they raise rates faster than obviously it will take less time to end the rally but I think the Fed's fear of pulling the plug too soon and leading to a fall back to the next depression will keep the money flowing.
MXWL -- they announced a deal with Continental to sell lots of ultracapacitors to the auto industry -- this market is just getting started. the stock is likely expensive having run up a few dollars in a matter of days but its one to keep an eye on. This market will be huge -- ultracapacitors will be a key to transitioning the market towards more electricity use within cars.
ERII -- if this stock pulls back towards 5.50 again, I plan on putting on a good position.
TCAP -- actually raised their dividend -- do the same as ARCC. Both have been great stocks -- ARCC is closing in on its NAV from Q2 but that NAV is likely 10-20% higher due to the improvement in the market. we'll see when they report.
BTW, not saying you can't take profits, raise cash or start a short position to hedge yourself given how far we've come. I just think we are going higher. 2003 we paused for several months around these levels. quite possible that happens again.
MCD -- interesting they raised their dividend to a 3.8% yield -- that seems like a high yield to me for this kind of quality company. lots of chinese and indians need to be fed.
Monday, September 14, 2009
asset inflation
Option expiration week -- who knows what will happen this week. On the one hand there is big open interest around 1000 -- otherwise known as straddles. That could pull us lower -- not to mention the fact that the market has gone up for several days in a row without any break. 1035 was a fibonacci area and was expected to lead to consolidation -- so far its sort of working in that the futures can't get much past it. That said, besides Cramer what talking head is bullish? I probably don't watch enough CNBC to really say that but it just seems like everywhere you turn you find doubting thomas' about this rally.
I saw an analysis this morning that said the market was discounting 3-3.5% growth for 2010 in GDP and the analyst thought that rate was probably 2x what was likely. Based on ECRI, I would argue the growth for next year is likely to be faster than most expect -- is that faster than 3.5%? don't know because I'm not sure how many people expect that rate of growth.
But while there are fundamental reasons for the rally -- recovery -- there is also a huge driver known as liquidity -- the fed and every other central bank is pumping out money like crazy and it has to go somewhere -- almost every asset class is gaining in value. its called asset inflation and it happens when excess money needs to find a home and goods inflation isn't possible. I would say excess supply is a good reason why we won't see goods inflation at least for awhile.
The central banks pumping in money is leading to risk trades being put on all over the world -- especially financed by carry trades like taking advantage of the zero rates within the US. As long as the Fed keeps short rates near zero, you should assume the 10 year and 30 year won't get too far above where we are now -- too many arbitrageurs will prevent that -- people will borrow short to lend long and that might be stupid longer term but its very profitable as long as it lasts.
The biggest risk now is that the Chinese change the dollar peg because that is the source of greatest imbalance in the market -- the chinese currency is not being allowed to reach its true value and that causes imbalances to build in the market as everyone tries to find a way around the chinese currency's inability to rise. think of it like water trying to get into a basement -- it will search all around for a weak point and won't stop until the pressure is relieved. the pressure in the currency markets can build for years and then explode. I have a quarter of my assets in asian funds that invest in companies seeking local growth -- i.e. not exporters who will get crushed by the chinese currency soaring.
big question will be will my currency gains from being in non-dollar assets offset the losses that might come from asian stocks selling off figuring the export boom is over. who knows.
FLIR -- ugh! stock is up huge in the last week. I forgot that FLIR is a company that does one warning and is done -- they generally give conservative guidance and usually don't have to adjust lower but when they do its usually the end of the problems -- going forward they generally start beating again. looking around in late august this stock was too cheap compared to others -- their secular growth is huge but the gov business held me back because of all the talk of no growth. guessing someone decided it was too cheap compared to other industrials and that with the economy recovering their results would jump too. on the other hand it could be merger rumors too. not sure. I'm hoping for a pull back to increase my stake a bit.
more to come
I saw an analysis this morning that said the market was discounting 3-3.5% growth for 2010 in GDP and the analyst thought that rate was probably 2x what was likely. Based on ECRI, I would argue the growth for next year is likely to be faster than most expect -- is that faster than 3.5%? don't know because I'm not sure how many people expect that rate of growth.
But while there are fundamental reasons for the rally -- recovery -- there is also a huge driver known as liquidity -- the fed and every other central bank is pumping out money like crazy and it has to go somewhere -- almost every asset class is gaining in value. its called asset inflation and it happens when excess money needs to find a home and goods inflation isn't possible. I would say excess supply is a good reason why we won't see goods inflation at least for awhile.
The central banks pumping in money is leading to risk trades being put on all over the world -- especially financed by carry trades like taking advantage of the zero rates within the US. As long as the Fed keeps short rates near zero, you should assume the 10 year and 30 year won't get too far above where we are now -- too many arbitrageurs will prevent that -- people will borrow short to lend long and that might be stupid longer term but its very profitable as long as it lasts.
The biggest risk now is that the Chinese change the dollar peg because that is the source of greatest imbalance in the market -- the chinese currency is not being allowed to reach its true value and that causes imbalances to build in the market as everyone tries to find a way around the chinese currency's inability to rise. think of it like water trying to get into a basement -- it will search all around for a weak point and won't stop until the pressure is relieved. the pressure in the currency markets can build for years and then explode. I have a quarter of my assets in asian funds that invest in companies seeking local growth -- i.e. not exporters who will get crushed by the chinese currency soaring.
big question will be will my currency gains from being in non-dollar assets offset the losses that might come from asian stocks selling off figuring the export boom is over. who knows.
FLIR -- ugh! stock is up huge in the last week. I forgot that FLIR is a company that does one warning and is done -- they generally give conservative guidance and usually don't have to adjust lower but when they do its usually the end of the problems -- going forward they generally start beating again. looking around in late august this stock was too cheap compared to others -- their secular growth is huge but the gov business held me back because of all the talk of no growth. guessing someone decided it was too cheap compared to other industrials and that with the economy recovering their results would jump too. on the other hand it could be merger rumors too. not sure. I'm hoping for a pull back to increase my stake a bit.
more to come
Tuesday, September 8, 2009
did you buy last week's pull back?
The VIX spiked to 29 last week -- a huge move in percentage terms given a shallow pull back of only 3-4% for the market. That told you we weren't going much lower -- too many people were positioned for a big drop paying big premiums for puts -- when everyone realizes they might need insurance, that is when it will be most expensive. Are we just going to spurt to new highs? that is an interesting question. Its harder from here given the drop in the VIX (today's jump is holiday distortion) and options expiration approaching. Last month I was sure we wouldn't break to new highs and then what happened? new highs on expiration friday. Guess everyone else had the same thought.
So the question will be are we going past 1040 before next friday? I am somewhat skeptical again given that this area is around one of those fibonacci numbers -- we paused for 2 months at the last one near 950. So the market rallies another 8% and we pause for a shorter time period? that seems too aggressive. on the other hand the demand for stocks is huge -- unrelenting -- so why not assume further gains? tough call. For a trader the key is to have the most exposure when the odds are in your favor and to reduce exposure as it gets harder.
One thing that is undeniable? have you seen what the commodity tech players are doing? wow. semi's, disk drives, EMS, distributors like AVT, etc. economy has to be getting better unless you assume that all of these industries have removed so much supply that even weak demand can drive an upcycle -- is that even possible for these managements to do? history says no.
Stocks:
One fly in the ointment is CY -- they are supposed to be perfectly positioned given their programmable system on a chip business but the stock has been weak of late -- granted after a huge move off the bottom. watching this one. as far as I know there is nothing wrong but I don't have enough good info to know for sure. this could be a great opportunity to pick up a name on a pullback. I'll try to do some more work on it.
that's it for now
So the question will be are we going past 1040 before next friday? I am somewhat skeptical again given that this area is around one of those fibonacci numbers -- we paused for 2 months at the last one near 950. So the market rallies another 8% and we pause for a shorter time period? that seems too aggressive. on the other hand the demand for stocks is huge -- unrelenting -- so why not assume further gains? tough call. For a trader the key is to have the most exposure when the odds are in your favor and to reduce exposure as it gets harder.
One thing that is undeniable? have you seen what the commodity tech players are doing? wow. semi's, disk drives, EMS, distributors like AVT, etc. economy has to be getting better unless you assume that all of these industries have removed so much supply that even weak demand can drive an upcycle -- is that even possible for these managements to do? history says no.
Stocks:
One fly in the ointment is CY -- they are supposed to be perfectly positioned given their programmable system on a chip business but the stock has been weak of late -- granted after a huge move off the bottom. watching this one. as far as I know there is nothing wrong but I don't have enough good info to know for sure. this could be a great opportunity to pick up a name on a pullback. I'll try to do some more work on it.
that's it for now
Wednesday, August 26, 2009
update
so much for being back huh? one post and then another 5 month break. oh well. I have been busy learning how to trade options -- understanding volatility and its impact on options and basically trying to make money trading. that doesn't make sense for what was supposed to be an investment related blog like this one.
Anyway, I wish I would have made several posts in the past -- just to get my market thoughts on record. that's kind of why I started this in the first place -- to create a record of my thinking.
Its end of august and we have had a huge rally --especially since mid july where the market has barely corrected since then. I could easily see another 3-5% drop like we had monday last week but many many folks are adamant that we are topping -- that we will see a big correction -- call it 10-15% drop or something like that. Its possible -- the last year should have taught us that anything is possible -- but I am skeptical we will see that big of a pullback.
Why? simple -- ECRI says we are about to have one of the strongest recoveries since the early 1980's. How many people believe that? even the bullish are likely just playing the momentum game to some extent and hopeful of some kind of recovery. But ECRI has an amazing track record. I have yet to see them be wrong about a big call in 9 years of watching them -- they don't make false calls about recessions or recoveries. They are absolutely adamant we are going to see a strong recovery.
How could they be so sure? because they use leading indicators and these indicators are all pointing upward. Most people do not understand the difference between leading, coincident and lagging but that's what ECRI brings to the table. They say the recession is ending this summer, which means by definition the coincident and lagging indicators are at their worst levels.
That's why it doesn't feel like a recovery yet -- but over the next several months things will begin to feel a lot stronger. Oh, and their long leading index is still pointing upward too -- that means no double dip either. I just don't see how we are going to get a strong pull back when the leading indicators are acting so strong.
One more critical point -- everyone that I read that hates this rally says its all driven by stimulus from fed and gov spending and is therefore unsustainable -- no kidding the fed cannot be successful longer term but the last fed induced recovery lasted years. its way too early to focus on the coming disaster. The other point to make is that way too many people keep saying I would be bullish except for ...... I would join the bullish market if only .... wasn't true. I won't believe the housing market has bottomed until ....... well the problem is that you pay a high price for certainty -- by the time its obvious that the recovery is in place the S&P 500 will be higher than it is now. that's my guess. We will get to levels not realized before.
All that said -- we are certainly ready for a correction -- another few percent drop like we have had because bullishness has gotten a little ahead of it self. there are 2 ways to work off the overbought condition -- time and price. if we are flat for awhile that is enough. the highs on friday were the first new highs in almost 2 weeks -- amazing in hindsight.
now many arguing for a bigger decline say that it will be as obvious in hindsight that the trade was to sell now as it is obvious in hindsight that the trade was to buy in march. my retort is that a correction yes -- mild as the others -- yes but a big pull back no. not while the leading indicators are soaring.
Many are expecting volatility to pick up in september and october -- no way this happens to the extent people think -- that's last year's issue -- think back to the crash of '87 and what was on people's minds in 1988 as we approached the fall -- everyone was all worried about another crash. didn't happen. watched pots don't boil and market concerns that everyone has don't come to fruition.
US is now a carry trade currency. what does that mean? rest of world will outperform US markets -- way to play this is asian markets focused on domestic demand -- not the exporters. china's currency is being held artificially low -- that is unsustainable but it could take a long time to break. but this is in the category of soros and the pound -- its a matter of time. when the chinese currency jumps, the exporters will get hurt but the domestic demand will get a big help. either way being a US dollar investor it helps if you have assets in other currencies that appreciate.
Stocks -- well most of my favorites are doing OK --
TSRA won its legal battles and has rallied but its been stuck in the mid 20's since. another ruling due friday -- we shall see but I can't imagine they lose this ruling -- judge was over ruled on same issues so he has to know he would be overruled again -- only stubborness would make him rule against TSRA again. should get a pop in the stock towards 27 or higher depending on what is going on in the rest of the market. wireless ruling wasn't as big of a deal as I had hoped because most of those they were suing have fallen on hard times or have shifted to Amkor -- who has chosen not to pay for some of this new business. they are continuing to innovate and that will expand their market over time but with the court cases wrapping up the stock is getting tricky. Its one part catalyst from new licensees due to court victories and one part long term growth story due to their continued innovation. as you can imagine the first catalyst leads to a jump in the stock while the second leads to longer term appreciation if successful -- no guarantees they will be as successful now as in the past. If the stock pops, I hope to reduce my position size.
UEPS is doing great -- just bought back 16% of stock as a private equity firm had to liquidate to pay off clients.
ILMN -- ok -- talk of delays is not good but stock holding up fine. their innovation is still strong.
LH -- got worried about obamacare because they would be a target -- only way to cut costs is to force less care on the system and fewer tests is part of that (MRI's, x-ray's CT scans, etc more at risk). Valuation and cash flow remain attractive -- personalized medicine remains a growth angle over long term and LH is a play on that.
FLIR -- no secular issues but near term looks icky because of their hopes for flat government revenues -- basically they have been quite successful in recent years on gov biz and that is hard to replace after awhile. stock has been weak -- this one I was glad I sold in the high 20's to low 30's. still have small position.
POWI -- sold this one in the 24-25 range and for awhile it looked pretty smart -- stock bottomed in the teens but now its in the low 30's. just lost track of it with everything else I have going on.
CLB -- bought just a little bit near $50 and sold half near $78 so I'm upset I didn't have the guts to buy more. this is a great secular story -- they help oil and gas companies get more production out of their fields -- a technology/services play that benefits from the secular trend that oil is getting harder and harder to get out of the ground. they have great cash flow and a smart management team.
MXWL -- I sold this last year near $7.50 like an idiot. I had the chance to buy it back for a few months in the 4-7 range but didn't. I did sell puts on it twice and kept the premium so that was neat but in the meantime the stock has doubled off the bottom and they continue to grow revenues and improve margins. I continue to watch this and hope to get involved again. to me they are in the right place but the problem is their business is a little more commodity like to me than I would normally like.
ARCC -- a new position established near the bottom -- they are a business development company that lends money to private businesses as part of middle market private equity. they fill the gap between banks and investment banks -- these are relatively smaller companies so their choices are much more limited now. I bought in around $4 -- should have backed up the truck but who knew. What I bet on was they had the balance sheet to survive and there was no better time to be in middle market lending then during a huge credit panic. rather than buy junk bond funds I bought this. Its like a closed end fund and at the time was at $4 vs. NAV of more than $11. now we are in the $9 range so its still below NAV but not as much. still figure there is opportunity but not as much. I also bought into TCAP.
Besides MXWL, I am keeping an eye on ERII (water play -- they sell key part for desalination plants, good position but very little on going revenue stream so dependent on new plants) and CY (programmable system on chip play -- replacing microcontrollers because of better flexibility, faster time to market and lower overall cost). keeping my eyes open for other stories too.
hope to post more often now.
Anyway, I wish I would have made several posts in the past -- just to get my market thoughts on record. that's kind of why I started this in the first place -- to create a record of my thinking.
Its end of august and we have had a huge rally --especially since mid july where the market has barely corrected since then. I could easily see another 3-5% drop like we had monday last week but many many folks are adamant that we are topping -- that we will see a big correction -- call it 10-15% drop or something like that. Its possible -- the last year should have taught us that anything is possible -- but I am skeptical we will see that big of a pullback.
Why? simple -- ECRI says we are about to have one of the strongest recoveries since the early 1980's. How many people believe that? even the bullish are likely just playing the momentum game to some extent and hopeful of some kind of recovery. But ECRI has an amazing track record. I have yet to see them be wrong about a big call in 9 years of watching them -- they don't make false calls about recessions or recoveries. They are absolutely adamant we are going to see a strong recovery.
How could they be so sure? because they use leading indicators and these indicators are all pointing upward. Most people do not understand the difference between leading, coincident and lagging but that's what ECRI brings to the table. They say the recession is ending this summer, which means by definition the coincident and lagging indicators are at their worst levels.
That's why it doesn't feel like a recovery yet -- but over the next several months things will begin to feel a lot stronger. Oh, and their long leading index is still pointing upward too -- that means no double dip either. I just don't see how we are going to get a strong pull back when the leading indicators are acting so strong.
One more critical point -- everyone that I read that hates this rally says its all driven by stimulus from fed and gov spending and is therefore unsustainable -- no kidding the fed cannot be successful longer term but the last fed induced recovery lasted years. its way too early to focus on the coming disaster. The other point to make is that way too many people keep saying I would be bullish except for ...... I would join the bullish market if only .... wasn't true. I won't believe the housing market has bottomed until ....... well the problem is that you pay a high price for certainty -- by the time its obvious that the recovery is in place the S&P 500 will be higher than it is now. that's my guess. We will get to levels not realized before.
All that said -- we are certainly ready for a correction -- another few percent drop like we have had because bullishness has gotten a little ahead of it self. there are 2 ways to work off the overbought condition -- time and price. if we are flat for awhile that is enough. the highs on friday were the first new highs in almost 2 weeks -- amazing in hindsight.
now many arguing for a bigger decline say that it will be as obvious in hindsight that the trade was to sell now as it is obvious in hindsight that the trade was to buy in march. my retort is that a correction yes -- mild as the others -- yes but a big pull back no. not while the leading indicators are soaring.
Many are expecting volatility to pick up in september and october -- no way this happens to the extent people think -- that's last year's issue -- think back to the crash of '87 and what was on people's minds in 1988 as we approached the fall -- everyone was all worried about another crash. didn't happen. watched pots don't boil and market concerns that everyone has don't come to fruition.
US is now a carry trade currency. what does that mean? rest of world will outperform US markets -- way to play this is asian markets focused on domestic demand -- not the exporters. china's currency is being held artificially low -- that is unsustainable but it could take a long time to break. but this is in the category of soros and the pound -- its a matter of time. when the chinese currency jumps, the exporters will get hurt but the domestic demand will get a big help. either way being a US dollar investor it helps if you have assets in other currencies that appreciate.
Stocks -- well most of my favorites are doing OK --
TSRA won its legal battles and has rallied but its been stuck in the mid 20's since. another ruling due friday -- we shall see but I can't imagine they lose this ruling -- judge was over ruled on same issues so he has to know he would be overruled again -- only stubborness would make him rule against TSRA again. should get a pop in the stock towards 27 or higher depending on what is going on in the rest of the market. wireless ruling wasn't as big of a deal as I had hoped because most of those they were suing have fallen on hard times or have shifted to Amkor -- who has chosen not to pay for some of this new business. they are continuing to innovate and that will expand their market over time but with the court cases wrapping up the stock is getting tricky. Its one part catalyst from new licensees due to court victories and one part long term growth story due to their continued innovation. as you can imagine the first catalyst leads to a jump in the stock while the second leads to longer term appreciation if successful -- no guarantees they will be as successful now as in the past. If the stock pops, I hope to reduce my position size.
UEPS is doing great -- just bought back 16% of stock as a private equity firm had to liquidate to pay off clients.
ILMN -- ok -- talk of delays is not good but stock holding up fine. their innovation is still strong.
LH -- got worried about obamacare because they would be a target -- only way to cut costs is to force less care on the system and fewer tests is part of that (MRI's, x-ray's CT scans, etc more at risk). Valuation and cash flow remain attractive -- personalized medicine remains a growth angle over long term and LH is a play on that.
FLIR -- no secular issues but near term looks icky because of their hopes for flat government revenues -- basically they have been quite successful in recent years on gov biz and that is hard to replace after awhile. stock has been weak -- this one I was glad I sold in the high 20's to low 30's. still have small position.
POWI -- sold this one in the 24-25 range and for awhile it looked pretty smart -- stock bottomed in the teens but now its in the low 30's. just lost track of it with everything else I have going on.
CLB -- bought just a little bit near $50 and sold half near $78 so I'm upset I didn't have the guts to buy more. this is a great secular story -- they help oil and gas companies get more production out of their fields -- a technology/services play that benefits from the secular trend that oil is getting harder and harder to get out of the ground. they have great cash flow and a smart management team.
MXWL -- I sold this last year near $7.50 like an idiot. I had the chance to buy it back for a few months in the 4-7 range but didn't. I did sell puts on it twice and kept the premium so that was neat but in the meantime the stock has doubled off the bottom and they continue to grow revenues and improve margins. I continue to watch this and hope to get involved again. to me they are in the right place but the problem is their business is a little more commodity like to me than I would normally like.
ARCC -- a new position established near the bottom -- they are a business development company that lends money to private businesses as part of middle market private equity. they fill the gap between banks and investment banks -- these are relatively smaller companies so their choices are much more limited now. I bought in around $4 -- should have backed up the truck but who knew. What I bet on was they had the balance sheet to survive and there was no better time to be in middle market lending then during a huge credit panic. rather than buy junk bond funds I bought this. Its like a closed end fund and at the time was at $4 vs. NAV of more than $11. now we are in the $9 range so its still below NAV but not as much. still figure there is opportunity but not as much. I also bought into TCAP.
Besides MXWL, I am keeping an eye on ERII (water play -- they sell key part for desalination plants, good position but very little on going revenue stream so dependent on new plants) and CY (programmable system on chip play -- replacing microcontrollers because of better flexibility, faster time to market and lower overall cost). keeping my eyes open for other stories too.
hope to post more often now.
Tuesday, March 31, 2009
I'm back
wow where did that 6 months between posts go?
its been awhile so I realize if I had any readers they are long since gone. oh well. I got swamped trying to deal with the market, my job (laid off as of mid march) and other issues (2nd child born in early January). I made lots of changes to the portfolio in the last 6 months. some stocks I chose to let go while I held on to others but at reduced position sizes. The following stocks remain in the portfolio at their pre meltdown share count:
1. UEPS - missed this one at $8 -- what a fall during the Oct/Nov time frame as clearly some hedge fund was liquidating their position. I knew that $8 was a ridiculous price given their cash flow and cash on hand -- worked out to just a few times free cash flow. Yet I didn't add to my position because if $8 is ridiculous why wouldn't $5 be even more ridiculous and why wouldn't the price continue lower? too many forced sellers who don't care about price were driving UEPS' price down and what was going to change that dynamic? no idea. holding on worked out since the stock remained above its oct/nov low during the feb/mar sell off -- at $15 recently, its doubled off its lows.
2. MMP and AB -- MLP's so the tax consequences are huge for selling. MMP has the best balance sheet of all the MLPs. AB is my upside hedge -- if things work out that stock will take off and offset the defensive nature of the rest of the portfolio. I continue to think these 2 will do fine.
3. TECH -- while I should have sold some when it rallied to the mid $60's because the valuation was at ridiculous levels but the business is still a very good one even though the stock has dropped to the mid 50's.
Those stocks we sold out of completely:
CME -- got out at $360 to $400 because there was just too much risk that volumes would collapse in a bear market and that fixed income related futures needed the credit markets to return to pre aug 2007 type leverage and derivatives usage for the earnings to grow. would rethink about buying below $200.
FDS -- buyside revenues down 40% so labor costs have to drop to be competive.
its late -- have to finish up later. lots of thoughts on our new socialist government as well as direction of economy etc.
have fun
its been awhile so I realize if I had any readers they are long since gone. oh well. I got swamped trying to deal with the market, my job (laid off as of mid march) and other issues (2nd child born in early January). I made lots of changes to the portfolio in the last 6 months. some stocks I chose to let go while I held on to others but at reduced position sizes. The following stocks remain in the portfolio at their pre meltdown share count:
1. UEPS - missed this one at $8 -- what a fall during the Oct/Nov time frame as clearly some hedge fund was liquidating their position. I knew that $8 was a ridiculous price given their cash flow and cash on hand -- worked out to just a few times free cash flow. Yet I didn't add to my position because if $8 is ridiculous why wouldn't $5 be even more ridiculous and why wouldn't the price continue lower? too many forced sellers who don't care about price were driving UEPS' price down and what was going to change that dynamic? no idea. holding on worked out since the stock remained above its oct/nov low during the feb/mar sell off -- at $15 recently, its doubled off its lows.
2. MMP and AB -- MLP's so the tax consequences are huge for selling. MMP has the best balance sheet of all the MLPs. AB is my upside hedge -- if things work out that stock will take off and offset the defensive nature of the rest of the portfolio. I continue to think these 2 will do fine.
3. TECH -- while I should have sold some when it rallied to the mid $60's because the valuation was at ridiculous levels but the business is still a very good one even though the stock has dropped to the mid 50's.
Those stocks we sold out of completely:
CME -- got out at $360 to $400 because there was just too much risk that volumes would collapse in a bear market and that fixed income related futures needed the credit markets to return to pre aug 2007 type leverage and derivatives usage for the earnings to grow. would rethink about buying below $200.
FDS -- buyside revenues down 40% so labor costs have to drop to be competive.
its late -- have to finish up later. lots of thoughts on our new socialist government as well as direction of economy etc.
have fun
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