Liz Claiborne Turnaround?

Just a quick picture from last Saturday: Liz Claiborne (LIZ) outlet shop, almost empty for the last year and a half, was full of people. There was a line to the fitting rooms! I'm putting company on my watch list, there might be a turnaround in process.


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

Still No End for This Rally

Majority is wrong. It's usually wrong on the market, this is how markets work. This rally is going on for three months already, and all we hear: "Bear market rally". Come on, guys, I understand, it's hard to sit on the sidelines (never mind being short) when market is going up. But if you don't recognize the obvious, you lose money.

I expected some bullishness, if not exuberance, by now. I sit on good gains since March, and my finger is itching to press "sell" button. But there is no point in selling when there are so many bears around. Sentiment remains neutral to slightly bearing on my unscientific screen. And I remain bullish, buying more lately. All my transactions are in the blog, welcome to see them.

The end of quarter remains the crucial point. There is some window dressing going on for sure. But most of it is on the oil market, which is so disconnected from physical product now that even price of natural gas doesn't want to follow it. No panic buying in tech and financials. Mostly sideways action with little upside. That's a "buy" signal, not a "sell", not even "take profit" signal. Sure, if you feel scared sitting on 40% profit, take it. But I'm going to buy more. I don't have any stocks I like very much, so I was buying a little bit of this and that, with exception of VmWare (VMW). This one is one of the Next Great Things, and I'm buying more on weakness. Reasons are outlined here.

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

How to Play Oil Contango

There is a straight way to play oil contango: buy physical oil and oil futures for the equal amount of it several months ahead. Store oil in Cushing, OK or in supertanker somewhere offshore, paying about a dollar per barrel per month and deliver it when future contracts expire. This is for serious oil speculator, who has big capital.

Is there anything individual investor can do? And filling up your swimming pool with crude is not what I have in mind. Yes, there is a possibility to speculate on contango.

Let's take a look at U.S. OIL FUND ETF (USO). As everybody knows, oil price, which usually means next month future contracts for West Texas Intermediate oil (WTE), almost doubled since beginning of the year. USO, which represents next month WTE futures, is up whopping 9.5%. WTF? There is a small problem with USO design: this ETF buys next month future contracts, and in the end of month rolls them over to the following month. Of course, in case of contango, it buys less contracts for the following month, because they are more expensive. Repeated every month, this procedure kills USO in case of contango.

There is another trading tool for oil price: PowerShares DB Oil Fund (DBO). This fund also holds oil future contracts, but somehow loses much less money on contango effect.

Suppose, you shorted 1000 shares of USO at 33.10 and bought 1500 shares of DBO at 19.29. Net difference is $4165. If you sold/covered them today at the close, USO at 36.25 and DBO at 24.88, you'd get additional $1070. Net gain of $5235 minus commissions.

There is a risk involved. If contango is replaced by backwardation (longer future contracts less expensive than near term ones), USO will outperform DBO. DBO is not as widely traded as USO, and there isn't much information evailable about it, so there are some unknown risks as well.

Full disclosure: at the time of publication author had no positions in DBO or USO. Positions can change any time.

Buying More

I was using today's pullback to buy more. Opened position in PowerShares Financial Preferred Portfolio (PGF), this is an ETF representing portfolio of financial preferred stocks, with yield about 10%. And added to my Spain Fund (SNF) position. This closed end fund trades at discount around 16% to its net account value (NAV), and pays yield of 10% of NAV. For the last half a year it's been priced as if Spain is going to disappear. I don't think so.

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

Buying VmWare

I started VmWare (VMW) position today. Reasons are outlined in my yesterday's post.

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

The Future in the Cloud

Last Thursday I visited VmWare (VMW) forum in Minneapolis. And I saw the future.

There is a lot of talk about cloud computing. The idea is simple: take a lot (hundreds, thousands) of inexpensive, Intel-based computers, put them into racks, connect to the network, and use them for different tasks which require a lot of computing power. There is a small problem here: computers without software are useless. And cloud computing requires specialized software. There is specialized software in huge data centers built by Yahoo! (YHOO), Google (GOOG), Amazon.com (AMZN) and by other companies. All this software is proprietary, you can't build your own data center with it.

Here comes VmWare. This company produces virtualization software. Initial idea was that you can build your specialized virtual machines inside of a real computer and then move them around if you need. But new product, vSphere 4, allows you to build a cloud. All cloud functions are here: you can rapidly build virtual machines, clone them, move data and whole virtual machines around.

If you asked me a month ago "what do I need to build a computer cloud?", my answer would be: hundreds of millions. You'd need huge resources to pay good programmers to develop your own cloud computing software, debug it, make it production ready and then support it. Not anymore. Now you can just install VmWare software. It will cost a bundle, but orders of magnitude less than cost of building your own.

I wanted to by VMW right after the forum. As usual in the last couple of months, waiting for a pullback just makes stock more expensive. I'm going to open position anyway in the next several days.

Full disclosure: at the time of publication author had a long position in GOOG and no positions in other companies mentioned. Positions can change any time.

Taking Profit in Allos Therapeutics

Sold my position in Allos Therapeutics (ALTH) today. It was speculative position, the idea (that of Jim Cramer) was that ALTH can present good results of its anti-cancer drug on 45th annual meeting of The American Society of Clinical Oncology (ASCO). Well, results are ok, but not great, presentation is over, so is the speculation. One of the rules of trading: if you bought to trade on the event, sell right after the event.

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