Thursday, January 28, 2010

iPad: Too Much Hype, Too Little to See

Looking at this oversized iPod Touch, presented yesterday by Apple (AAPL), I just don't understand, what is this about? For a computer, it's laughable, doesn't have multitasking, on-screen keyboard is a bad substitute for a real one. Networking with other computers at home is a big question. For a book reader, $499 is outrageously expensive. Add to this an interesting fact that you can only buy applications from Apple Application Store.
iPod, iPhone were revolutionary products. I don't see much use for iPad. Of course, Macheads will buy some number of devices, maybe even couple of millions, but I don't see great future for this product.
Of course, I might be wrong. I don't want an iPad, but I don't have an iPhone or a Mac either. Although my wife owns iPod Shuffle.

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

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Wednesday, January 27, 2010

Paradigm Changers Beating Estimates: Four out of Four!

Fundamentals are definitely improving. Especially for my paradigm changers: all four of them managed to beat estimates in the last quarter. Not only they beat on profits, but what's more important, on revenue as well.

Google (GOOG), Intuitive Surgical (ISRG), Netflix (NFLX), VmWare (VMW) are all looking great!

So far, three stocks are up after earnings reports, only Google is going down. Looks like it's going down, first of all, because of quarrel with government of China. I don't see it as a big problem. As for rumored talks between Apple and Microsoft to replace Google on iPhone with Bing, these are just rumors. In any case, if Google drops more, I am a buyer.

Full disclosure: at the time of publication author had long positions in GOOG, ISRG, VMW and NFLX. Positions can change any time.

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Tuesday, January 26, 2010

Changing Short Term Bias

I was wrong. Very wrong right here. Market is not going up.

Technicals are broken. They are not that bad, S&P still holds 1080 level and well above major downtrend which started in January 2008. But they are not good anymore either. All major indices are below 50 days moving average. Of course, that happened before during this amazing rally. And such dips were great buying opportunities. But.

Sentiment is too bullish. This week I've heard at least four guests on CNBC saying that we have perfect buying opportunity in this drop. Bullish sentiment is not a good sign. We didn't have it that bullish since May.

Fundamentals are, by the way, improving. They are just not improving fast enough to catch with the market. Latest earnings reports aren't bad, companies are reporting revenue growth. Much better picture than last quarter, when earnings growth was reported together with revenue drop. There are two remaining problems here though: fundamentals are still bad and main reaction to earnings is to sell everything but huge beat. Doesn't look good.

Political situation is uncertain. I don't believe Obama's "fee" on big banks and other Volcker ideas have any chance of success. But they rattled markets. Let's wait President's Address and see market's reaction.

Of all indicators, only fundies are slightly positive. I had bullish bias since April. I'm changing it to neutral to slightly bearish short term. Long term, I still remain bullish, but if my read is right, we might have serious pullback for several months.

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Friday, January 22, 2010

Opening Goldman (again)

Opened Goldman Sachs (GS) today. On a sharp drop, like I did in 2008. Then I sold it for 15% gain a week later. I might do the same thing this time. Would it mean the same result for Goldman and overall market? (Goldman dropped well under 100, market (S&P) bottomed at 666).

Random musings: a week ago I was extremely bullish, but things didn't work out this way. S&P is down below 50 days moving average, but still above major downtrend which started in January 2008. On the other hand uptrend from March looks broken. Maybe mister President can keep silent about economy for a couple of trading days? Just to let markets settle down somewhat. I'm sure that last two days sell-off was purely political.
What's going on with dollar carry trade? Trillion dollar question...

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Tuesday, January 19, 2010

Yearly Portfolio Review

Every year I'm doing a portfolio review. I decided to do it in the blog this year, to share it with my readers.

Portfolio in this article does not include my retirement plans.

Portfolio goal. Growth. This is high beta, unapologetic growth portfolio with some safeguards and some boring investments.

Basic Principles. Most of the stocks in this portfolio were chosen for long term investment, which, for me, is about 18 months. Every stock is under review all the time, with major review of portfolio once a year. I can trade around any position if I feel like this. Portfolio is not diversified by sectors. Maybe "diversification is the only free lunch" (Jim Cramer), but I'm big believer in TANSTAAFL (There Ain't No Such Thing As A Free Lunch, popularized by Robert Heinlein). Diversification reduces risk, but it also reduces potential gain.

Paradigm Changers. These are stocks of companies that are changing business in sectors or even in the whole world.

Google (GOOG)
Ultimate disrupter. Google is changing the advertising world. Advertising is moving from newspapers, TV and radio to the internet. But it's only part of the story. Another part: many companies are advertising on Google to increase their market reach. There is no significant competition. I'm not sold on other possibilities yet, Android phones might work for Google or might not. But advertising works great and will continue for years to come. This is my biggest position right now.
Risk: All great empires were destroyed by internal problems. There is no external threat to Google right now, I'm watching for internal developments.
Plan: Hold

Intuitive Surgical (ISRG)
Robotic surgery that is changing surgery of internal organs. Initial estimates of demand by analysts were all wrong. Company, with it's leading customers, is constantly developing new medical procedures with its Da Vinci system and successfully selling systems around the world. My second biggest position. Company has monopoly on robotic surgery right now.
Risk: new technologies are being developed, legislation changes can reduce demand.
Plan: hold.

Netflix (NFLX)
This company completely changed video rentals model. It's going to put Blockbuster (BBI) out of business soon, becoming almost monopoly.
Risk: Video rentals are going to move to the internet. Netflix has some internet rental business, but I don't think it will be the leader.
Plan: hold, add on weakness, sell when rentals start moving to the 'net.

VmWare (VMW)
Cloud computing is all the rage, and VmWare is on the frontline. If company wants to create its own cloud, VmWare is the way to go.
Risk: it's not clear that internal clouds would win over external ones or over software as a service.
Plan: hold.

Banks. I didn't invest in banks until last year, with exception of quick trade in Goldman Sachs (GS) in 2008. But currently banks are priced way too low.

US Bancorp (USB)
I live in Minnesota, this is a local company for me. Extremely well run, with conservative management. USB picked up several failing banks in different regions, which positions it well for the future.
RIsk: possibility of management mistakes.
Plan: hold until economy recovers.

CitiGroup (C)
Most speculative position in the portfolio. Pure bet on US and world economy.
Risk: world economy can fall back into recession/depression, management can run company into the ground even in good economic times.
Plan: hold until economy recovers.

Steady growers / high yield. Companies with steady growth, high dividend or both.

Annaly Capital Management (NLY).
Just started this position. Huge dividend and good management are main reasons. Company makes money on distressed mortgages, current holdings are mostly supported by US Government.
Risk: possibility of management mistakes, another real estate crash.
Plan: hold, add on weakness, reinvest dividends.

Brookfield Asset Management (BAM).
Company owns a lot of high income properties, including power generation and transmission, commercial real estate etc. It's also involved in financial asset management. Sometimes referred to as "mini-Berkshire". Canadian company, can also be in "International" category.
Risk: successful asset management is an art, and management changes, if happen, can kill any such company quickly.
Plan: hold, add on weakness.

Altria (MO).
I don't smoke. I don't recommend anybody to smoke. But people do anyway, and they pay exorbitant prices for tobacco products. Altria grew profits steadily in any environment, ignoring tobacco lawsuits, tax hikes and anti-tobacco campaigns.
Risk: ban on tobacco, tobacco deregulation, both are highly unlikely. Possible huge legal expenses.
Plan: hold, reinvest dividends.

Phillip Morris International (PM).
Same reasons to hold as for Altria. Can be also put into "International" category.
Risk: same as with Altria.
Plan: hold, reinvest dividends


Banco Bradesco (BBD).
Was bought as a part of BRIC. I don't think good of Brazil anymore, and decided to sell BBD. You can read more about my reasons here.
Plan: sell into strength.

Indian Fund (IFN).
India is the only part of BRIC which I like now.
Risk: political.
Plan: hold, add on weakness.

Spain Fund (SNF).
I don't actually like EU, and Spain either. But this fund was priced lately for Armageddon, and I don't think Armageddon is gonna happen any time soon.
Risk: EU financial and political problems
Plan: hold.

Fixed Income. Usually very small part of my portfolio, but increased sharply in size last year.

Blackrock Income Opportunity Trust (BNA).
Bought it in 2007 as a cash management position. Don't like it anymore, there are funds with much better yield.
Plan: sell when it trades at par with NAV, replace with some other fixed income fund.

Wells Fargo Capital Trust XII (BWF).
I use it to hold cash I don't need right now. Good yield.
Risk: Bankruptcy of Wells Fargo.
Plan: hold, sell when need cash.

Evergreen Income Advantage Fund (EAD).
Picked it up at the bottom in March 2009. Great dividend paid monthly.
Risk: currently trades at premium to NAV, can lose value if dividend decreases.
Plan: hold, sell if trades at 10% premium to NAV.

Helios Total Return Fund (HTR).
Fund holds mostly mortgage backed securities. I think they are underpriced. I bought it when it was traded at 10% discount to NAV.
Risk: I might be wrong and we might have another real estate crisis.
Plan: Hold and enjoy dividend, sell if need cash.

PowerShares Financial Preferred ETF (PGF).
This is a bet on recovery in financials plus excellent cash management tool.
Risk: Another crash in financials.
Plan: Hold, sell if need cash.

Wednesday, January 13, 2010

Market is Going Up!

Just take a look at S&P 500 chart (click on image to see bigger picture). It looks so good!

Index is mostly holding above 50 days moving average (MA50) since April. Every violation of MA50 was a huge buying opportunity. Lately, index trades mostly above 13 days moving average. Every time it touches MA13, is a buying opportunity as well. How long can it last? I'm sticking my head here: we are going up again. Technicals are just too good. Take a look at another chart, which is much more important (click on image for bigger picture):

S&P finally resolved long term triangle formation, made up by downtrend from October 2007 and uptrend from March 2009. Triangle is broken up, it's incredibly bullish.

Technicals are great, what about other metrics? Well, fundamentals still suck. Of course, we might see some improvement in current earnings season. Sentiment: my unscientific metric (CNBC guests plus authors I read) is mostly bearish.

So, we have very bullish technicals, so-so fundamentals and bearish sentiment, which, being contrarian indicator, points up. Two of three up.

Up we go!

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Wednesday, January 6, 2010

6 Events Which Will Not Happen in 2010

Everybody is doing list of events which will happen in 2010. Boring. I decided to do a list of events which will not happen. These events have some probability of happening, but my hunch is they won't.

1. Fed will not raise rates. The only reason for Fed to raise rates is inflation or the threat of it. Inflation is nowhere to be found and economy is still in shambles. I don't see any reason for higher rates.

2. Chinese bubble will not pop. I'm still sure that China is in a huge bubble. China makes more than half steel in the world, there is a city for a million people staying empty etc. Eventually, it will pop. But I feel that there is still enough room for this bubble to grow.

3. Israel will not attack Iran. This is a tough one. I might be wrong.But there are very serious reasons for Israel not to attack. Iran is in disarray, and attack can consolidate society. USA is absolutely against such attack. Attack can't reach main objective: destroy all major nuclear facilities.

4. Gold will not hit $2000. Follows from number 1. No high inflation, no bubble in gold. It might reach $1500 at some point, but with the same probability it might drop to $600.

5. There will be no commercial real estate crash. Here I'm completely agree with Jim Cramer. Occupation rate is still very high, we didn't have many bankruptcies. Yes, Linen'n'Things and Circuit City went bust, but those were long time in the making.

6. Not more than one EU country will default. There is some probability that some EU countries will default on government debt. Candidates: Hungary, Greece, Spain, Latvia. But I don't think EU would allow default in more than one. They shouldn't allow even one, but if that happens, we'll have panic similar to the one happening after Lehman Brothers collapse. Will be huge buying opportunity.

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Monday, January 4, 2010

Strarting Annaly and Adding Netflix

I started a new position today: Annaly Capital Management (NLY). This is a REIT with huge, over 15%, dividend. This is a play on improving housing market, because NLY is in the business of buying distressed mortgage securities.

Also added to Netflix(NFLX) position today. Stock was down for no reason, again. Now it's probably the information that box office receipts in 2009 exceeded DVD sales. But Netflix is not in the business of selling DVDs, it's in the business of renting them.

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

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