Wednesday, May 27, 2009

Buying More

I added to my positions today: bought more US Bankcorp (USB) and Brookfield Assets Management (BAM).

Full disclosure: at the time of publication author had long positions in BAM and USB. Positions can change any time.

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Out of the Woods, into the Forest...

I am so bullish for the last couple of months, someone might think that I caught some bug. Wrong! I'm only bullish for the nearest future. For now, this future ends in June, when window dressing is over. For the last two and a half months market is driven by sentiment. Before that, it was driven by technicals. But in the end, fundamentals matter.

I wrote many times that this time is very similar to the Great Depression, but everything is happening much faster. We went through 1929-1932 period in a year and a half. Market hit the bottom on March 9, 2009. The next big hurdle during Great Depression was in 1937, when government raised taxes to reduce deficit and eventually pay off debt. The question is: are we there yet?

There is a lot of noise from Democrats about raising taxes or adding new ones. Not all of these projects will pass Congress, but some will. States are already raising taxes. Would it be enough to push economy further into the spin? But the biggest danger right now is oil price. Interestingly enough, it has nothing to do with oil supply and demand and has everything to do with investment. There is a huge inflow of money into oil futures from hedge and pension funds right now. Oil price may become a huge tax on a world economy and kill any hope for recovery in the nearest future.

Let's make money in the current rally. But let's not forget about dangers ahead and keep watching the situation carefully.

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Tuesday, May 26, 2009

Amazing Rally

My bullish article, republished by Seeking Alpha here, has been met with a lot of unbelieving comments. Which just makes my argument even stronger: this market is driven by sentiment, and mostly bearish sentiment just makes current rally stronger.

There was a hint of changing sentiment last week, but pullback on Wednesday and Thursday killed it off. I'm almost certain now that this rally is going to continue until current quarter ends. There are a lot of hedge funds which were mostly in cash or short the market, which need to show good performance for the quarter. They will get into window dressing mode, just to show that they own stocks which were up good for the quarter.

Until then, it's buy, buy, buy. I'm usually buying on a good pullback, but this time is different. Sideways action is as good buying time as a pullback. And I'm sticking to my favorites: tech, banks and debt. They worked this quarter, they will work through June.

Comes July, things will be different. Maybe sentiment is going to change or maybe we'll see buying panic. In either case, I'm taking profits.

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Thursday, May 21, 2009

US Auto Industry Is Dead

Detroit, RIP. It was a good run, but it's over. There will be some auto industry in this country, but it's going to belong to foreign companies.

It looks like GM (GM) rescue plan is similar to Chrysler's: UAW gets the biggest share. When there is some hope for Chrysler, in case FIAT decides/forced to invest more money and thus gets controlling share, there is no such hope for GM. I am not against unions, but they are by definition against management, they can't be management. They can't control the management. And if they do, the company is dead. It's a pity, really. When I wrote GM Has To Die, I had some hope that GM can be reorganized into smaller, nimbler company or several companies. Ain't gonna happen.

Ford (F) might survive yet, but it has to fight an uphill battle. Battle against foreign competitors, against domestic competitors supported by government. Cash is the biggest problem for Ford. It has enough cash to survive by the end of the year. Maybe by mid-2010. There is no hope for profitability until the end of 2011, so by June of 2010 Ford needs to borrow some spare cash, about a dozen billion or so. If Ford's management pulls this trick, they deserve management of the century award.

Of course, new fuel economy standards introduced by President look like the stake through the heart for auto industry. It's a new tax, no matter how you look at it. And new taxes during depression or recession is not what any industry needs. Especially industry at the edge of the abyss.

I don't see any investment opportunities in autos, domestic or foreign, for the foreseeable future.

Full disclosure: at the time of publication author did not have any positions in GM or F. Positions can change any time.

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Things That Everybody Agrees On

There is an old saying among investors: market always harms most of investors. One of the side effects of this: if everybody agrees on something, this something is probably wrong.

Below, in no particular order, things most, or all, investors are agree upon. I'm not sure that all of them are wrong, but most of them definitely are.

We are going to have high inflation in US soon.

The prices of all commodities are going up.

The price of oil is going up, way up, faster than prices of other commodities.

The price of gold is going up, up, up, name your own price ($2000 per ounce next year looks to be common assumption, although $5000 is not unheard of).

Dollar is going down against other major currencies.

US Treasuries are going down, their yields are going up.

Chinese economy stimulus package is working.

US is loosing status of the biggest manufacturing country in the world.

Stocks can't go up when economy is going down.

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Wednesday, May 20, 2009

Buying Banks

Started positions in two banks: BB&T Corp (BBT) and US Bankcorp (USB). Both are Cramer's favorites, both have good balance sheets. BB&T trades below book value and has good yield.

Surprise on today's CNBC: sudden change of sentiment. There are more bulls, they are everywhere. Sqwack on the Street, Power Lunch, Fast Money. And of course, Cramer. One day is not enough, but if such sentiment takes hold, it would be time to get cautious.

Full disclosure: at the time of publication author had long positions in BBT and USB. Positions can change any time.

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Monday, May 18, 2009

So Much For a Pullback

Not long ago I asked myself: what's driving this market (here). Looks like the answer is clear: it's driven by sentiment.

Sentiment is always a contrary indicator. There are two major themes in most commentaries. Bulls think that there should be a significant pullback and they are ready to buy that pullback. Bears still don't believe that bull market is for real. My unscientific count on CNBC is about 50/50. Which probably means that rally is going to continue. By all counts, it would be incredible, We had 9 weeks of bull market and now it looks like consolidation. But this market is incredible.

Technicals look better after today's rally. Nasdaq composite crossed above 200 day moving average. If it can hold here, we have a technical confirmation. As for fundamentals, they are still bad, but there is some improvement.

I'm getting ready to buy more. More tech, some REITs, some European companies or ETFs, some debt ETFs or CEFs. And I'm looking for other opportunities.

This bull market will be over when we see a buying panic. That's going to happen when everybody turns bull and start buying everything in panic to be late. Close to the end of quarter it can be multiplied by window dressing. It will be the time to take some profit. For now: buy, buy, buy!

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Wednesday, May 13, 2009

Opening Panera

Panera Bread (PNRA) was on my radar since the beginning of the year. I missed the opportunity in March, then stock ran too high too fast for my taste. Now I think is a time to open the position.

I don't know if it's a bottom for the stock. That's why I opened small amount and will buy more if stock is going down from here.

I was invested in PNRA between 2002 and 2007. Sold in 2007 because I didn't like how business was managed at the time. Now it looks like management fixed the problems and restaurants around me are full of people again. Fundamentals are good, although P/E looks a little bit high at around 21. But company doesn't have any debt and has very tight financial management, which is very important in current conditions.

Full disclosure: at the time of publication author had a long position in PNRA. Positions can change any time.

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Tuesday, May 12, 2009

Nasdaq: Bearish Patterns.

Tech market was running great lately. But it looks like running out of steam. Let's take a look at the chart of Nasdaq composite index since beginning of this year (click on chart to see bigger picture):

We can see several bearish signs here. First of all, Naz crossed 200 day moving average (MA200) on May 4, but dropped under it three days later. Second, there is a head and shoulders pattern. Third, index dropped under 13 day moving average (MA13) today. There is a triangle pattern which is still unresolved. And this triangle is framed by MA 200 and MA13! Index is already below MA13, if we get confirmation soon, it's very bearish.

Market had a great bull run, 9 weeks over 13 day moving average, with one drop below MA13. It's hard to imagine such run continue much longer, without at least some consolidation. Nasdaq was a leader in this run, and now it's faltering.

As mentioned here, I changed my stance to bullish in the end of March. I'm waiting for the dips to increase my current positions or open new ones. Looks like there is a good dip ahead.

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Monday, May 11, 2009

What's in Future?

I'm still enjoying the rally. Unless something really bad happens now, we had a global bottom on March 9: Haines-Kass bottom. Let's remember people who nailed it.

I'm looking at the stock market with huge optimism. Yes, current rally is probably losing steam. There are indications that sentiment changed to bullish, and market usually does directly opposite from what is expected from it. We might have a retracement, maybe quite a deep one. But I don't think it's going to cross Dow Jones 7500, never mind reaching bottom again.

So, can we honestly say that it's all clear for economy? After all, a lot of economists claim that market usually recovers 6 months ahead of economy (if you do a quick check, sometimes it does, sometimes it doesn't). Not so fast.

Let's remember the previous depression, the Great one. Market bottom happened in July 1932, but depression lasted many more years afterwards. There are a lot of different opinions on reasons for the Great Depression, why it was so bad etc. But everybody agrees that tax hike in 1937 made things much worse.

Are there any headwinds in the government? The answer is simple: plenty. They are listed below in no particular order.

Tax hikes. They are on the agenda all the time. New taxes on securities traders, tax rule changes on international companies, additional taxes on rich. Don't forget, this year started with huge ($1 a pack) tax increase on cigarettes. That's on federal level. States are pushing their own increases. That's probably the biggest danger right now.

Medical reform. I don't know how to make health care work, but I know how to make it not to work: "single payer system", i.e. outright nationalization. I lived in such system. And if you believe that USA can make such system work better than USSR, I have some lakes for sale in Minnesota. Any health care reform under current administration means essentially new (and not small) taxes.

Commodity prices. The picture of oil futures market is clear: huge index buying, which, when translated to plain English means that funds which lost billions last year in oil futures investments are back in the same game. They (again) think that they can bet on limited (in their minds) resource when inflation (in some inflamed brains, hyperinflation) makes money useless. The danger is that these guys can run price of oil up to the levels when they start hurting economy, which is not in the best shape.

Attacks on Wall Street. Yeah, there are greedy people there. I just wonder if there is any place in the world without them. But those attacking Wall Street don't understand that without it US economy won't work.

Armed conflicts. Keep a worried eye on Pakistan, North Korea, Iran and Russia. Any significant conflict can damage the economy of the world.

Piracy. Don't underestimate its effect on the world trade.

This list is not complete. But I think these are the biggest dangers for economy. Let's enjoy the stock market but remember the bigger picture.

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Tuesday, May 5, 2009 Results: Cramer Needs To Learn Internet Advertising (TSCM) are out and they are not pretty. You'd think that when advertising is moving from deadwood press to internet, and with great popularity of Jim Cramer, would reap huge benefits. As Jim would say 10 years ago, wrong! Company lost big, even without accounting for charges.

How advertising is done on the 'net by successful companies? I know exactly two companies which make money in this area: Yahoo! (YHOO) and Google (GOOG). The bulk of this money is earned by search word advertising, meaning that companies add ads to the search results, clearly marking the ads. Google is much more successful in that, but Yahoo!, with all its problems, makes profit, even in current depression turning into recession. Yahoo! also serves a lot of display ads. All these ads are absolutely not intrusive, they usually do not interfere with browsing.

Now lets see how advertising is done by When you open the site, you are greeted with full page ad. That's the very definition of intrusive ad. Then you go into the site, which is littered with any kind of intrusive advertisements. You see rich (and CPU consuming) flash ads and inline ads, which are no less intrusive. You'd think that Cramer, who recommended Google from the very beginning (and such a great pick it was!), would learn something from Google geeks. No such luck. What we see on is business journal advertising transferred to the 'net. Jim, it doesn't work this way!

Of course, the fact that site was redesigned last year, and not in the best way, doesn't help at all. I mentioned it here as a reason to probably dump the stock. My idea was right, my action was not. I'm still holding TSCM.

I think it's time to dump it at last. Maybe it would pay to wait a little bit when current bull run is finished and dust settles.

Full disclosure: at the time of publication author had long positions in GOOG and TCSM and no positions in YHOO. Positions can change any time.

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Monday, May 4, 2009

Uptick Rule? Why Not Downtick Rule?

Talks about uptick rule are reaching hysteric proportions. Jim Cramer is the main proponent, but he is not the only one.

Explaining uptick rule for dummies: you can't sell stock short unless latest trade closed a little bit higher than trade before it.

Uptick rule was established in 1933, AFTER market bottom during Great Depression. If it's returned now, I'm going to agree with Mark Haines and Doug Kass: we had a global bottom on March 9, 2009. As usual, every Wall Street regulation is late and, as happens often, irrelevant.

Why Cramer wants uptick rule? He screamed many times that short sellers have been shorting bank stocks into oblivion. What banks, you ask me? Remember Washington Mutual, Bear Stearns, Nationwide? What about Citibank, which is technically insolvent? Why is it bad that stocks of these companies were shorted to almost zero? Short sellers just sped up inevitable.

There is another problem on Wall Street: obviously market manipulations are going on all the time. And that includes "naked" short selling, when someone sells short shares he doesn't have and has no intention of borrowing. Or various "pump and dump" schemes, when somebody buys (or sells short) the stocks and then spreads rumors about company inevitable quick rise (or fall). These schemes, and many more, are completely illegal. So why don't we see prosecutions? What about mad speculation on oil futures in January-July of the last year? What about pump and dump schemes in gold? What about future markets many of which exceed physical markets by orders of magnitude?

Bob Pisani was right: if you want an uptick rule for shorting, why not downtick rule for buying? Or someone would say that all buyers are just plain long term investors and there are no bull speculators? Unlike many, I think that honest speculation is what makes markets work, whether it's done on long or short side.

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