Tuesday, April 28, 2009

Not So Fast PF Chang's?

Last week I did some work on the casual restaurant chains, and their recent strong performance. This was posted over at Fund My Mutual Fund. For the full analysis of PF Chang's and others, head over there. The thesis here is that restaurants are boosting quarterly earnings by cutting costs and taking advantage of lower commodity prices and decreased analyst expectations.

I just wanted to follow up a bit here as I read a Barron's Article this morning about PF Chang's. They are basically taking the same viewpoint as mine, that shares are getting a little too high, and that it will be tough to sustain earnings in the current fashion.

  • PF Chang's has been among the leading beneficiaries of overeager investors. The chain of restaurants jumped 24% last week after it reported surprisingly strong first-quarter results, stemming from an impressive series of cost-cutting measures. The company managed to grow operating profits despite declining sales figures at its restaurants opened for more than a year, a widely used measure known as comparable sales.
  • P.F. Chang's stock has brushed off the sales figures, with shares up 120% from a November multi-year low. They're up 83% during the broader market rally that began in early March.
  • Casual dining stocks have generally benefited from strong earnings in the first quarter, thanks to cost containment and easing commodity costs, according to Mark Basham, a restaurants analyst at Standard & Poor's Equity Research. "My view is the vast majority of the cost cuts are not sustainable," Basham says. "They reflect things like deferred maintenance and labor costs."

Its important to realize that the trend can continue for some time, and part of the rally was due to the heavy short interest in these stocks and subsequent covering. But my viewpoint remains that they will see some difficulty ahead, and I found these comments interesting:

  • The optimism only goes so far. On a conference call last week, P.F. Chang's co-Chief Executive Officer Robert Vivian cautioned investors that the earnings revision was "not because our business has suddenly become healthy and more vibrant." He said: "We are working very hard to provide the best possible experience for our guests with the belief that we will ultimately serve more of them. At this juncture it is still a belief, not a fact."

No Position in Stock Mentioned.

Pfizer Earnings Not Great...But Not Horrible

Earnings out this morning from drug giant Pfizer:

  • Pfizer Inc. posted a 2 percent drop in first-quarter profit Tuesday, as cost-cutting by the world's largest drugmaker couldn't offset big drops in sales for several medicines, especially a big drop for the cholesterol fighter Lipitor.
  • New York-based Pfizer said it had net income of $2.73 billion, or 40 cents per share, in the first quarter. A year ago, it reported net income of $2.78 billion, or 41 cents per share. Excluding charges, Pfizer's earnings per share were 54 cents., topping analyst estimates of 49 cents.
  • Revenue totaled $10.9 billion, down 8 percent from $11.8 billion in the first quarter of 2007. Analysts polled by Thomson Financial expected slightly higher revenue, at $11.1 billion.
  • Increased competition hurt Lipitor, the world's top-selling drug, with sales dropping 13 percent to $2.7 billion in the quarter. Concerns about dangerous side effects cut sales of smoking cessation drug Chantix by 36 percent, to $177 million.
  • "During the quarter, we continued our ongoing efforts to reshape our operating model, made substantial progress in planning for the Wyeth integration, and faced a challenging and dynamic economic and competitive environment," Chief Executive Jeff Kindler said in a statement. "We remain on track to deliver on our full-year 2009 guidance for revenues and adjusted results."
  • Pfizer reiterated its January financial forecast, saying it expects earnings per share of $1.20 to $1.35 -- or $1.85 to $1.95 a share excluding one-time items. The company expects revenue to range between $44 billion and $46 billion.



My interest mostly lies with my position in Wyeth, whom Pfizer agreed to purchase earlier this year. It is a partial cash ($33.00/share), and partial stock (.985 shares of PFE). Thus to get the buyout premium, it all depends on Pfizer's stock. The deal is slated to close later this year. Right now, with Pfizer at 13.49, the value of the transaction would be about $46.28/share for Wyeth shareholders. Wyeth's stock is currently $42.32. As we get closer to the closing, Wyeth shares will get closer to that number, as long as Pfizer's stock holds up. I'm not all that high on the merger, but have to hold the stock for now. Basically I'm holding my shares to get paid. If it was an all cash deal, I would have likely already sold.


Disclosure: Long WYE.

Sunday, April 26, 2009

Insider Selling Quite Strong

There have been many proponents of this latest market rally. Calls of "the worst is over" and the "decline is slowing" have helped boost a market that, going back six weeks ago, was pretty oversold. Now we're not oversold. Some buyers are returning to the market. There has been a lot of talk that much of the big money, or the funds haven't been all in on this rally. If that were to happen, that would be a major tailwind for stocks.

But there still are the fundamentals (who knew, right?). Earnings have done okay relative to expectations (which were pretty low). But there are companies performing well, and they will continue to do so. I haven't participated in buying things with impaired fundamentals just because they were the ones hit the hardest. Things like financials, home builders, and REITs.




What I want to show you is a chart of insider transactions as of late.



The chart speaks for itself. Insider selling is typically a sign that insiders feel stocks are going to fall. This isn't always the case, but when it is this pronounced, you can usually count on it. one detractor from this thesis would be that insiders were planning to sell a certain amount of shares, but waited until stocks rallied so they wouldn't sell at depressed prices. Although insider selling or buying isn't a great indicator on its own, it can be a valuable tool.
So the questions needs to be asked: If the market is so strong, and the rally will continue, then why is there so much insider selling???

Friday, April 24, 2009

Natural Gas: Can it Continue to Fall?

I've been following Natural Gas for awhile now and have a position in UNG. Gas has gotten extremely cheap due to falling industrial demand. I've seen a lot of value traders picking up shares of UNG, as the producers can't make money with gas at these levels. I found an interesting article out today with some analyst opinions that I'd like to share:

Natural gas fell to the lowest price in more than six years in New York on concern supplies of the heating and industrial fuel will overwhelm demand this year.

Gas futures have plunged 41 percent since the end of December as orders for goods at U.S. factories decline, prompting companies including General Motors Corp. to shut down production. Industrial and power plant gas consumption each account for 29 percent of U.S. demand.


  • “Until demand picks up and domestic gas production starts to come down more rapidly we’re going to be in this situation,” said Scott Hanold, an analyst at RBC Capital Markets in Minneapolis. “We’re going to have above-average storage levels for the rest of the year.”
  • Natural gas for May delivery fell 11.6 cents, or 3.4 percent, to $3.293 per million British thermal units at 2:06 p.m. on the New York Mercantile Exchange. Gas earlier dropped to $3.285, the lowest price since Sept. 12, 2002.
  • “Commercial and industrial demand for energy will remain weak through the summer,” Stephen Schork, president of the Schork Group Inc., an energy markets consulting company in Villanova, Pennsylvania, said in a note today. “Demand destruction will still outpace supply destruction through this summer and into next winter.”
  • “I keep thinking we’re going to get a bargain-hunting bounce, but we keep trickling lower,” said Brad Florer, a trader at Kottke Associates Inc. in Louisville, Kentucky. “The fundamentals are terrible. We have record levels of gas and no sign that demand is going to come back on line anytime soon.”
That last comment has echoed most sentiments that I've heard. "Its too cheap and will bounce eventually." Well, it keeps getting cheaper. Producers are shutting down wells at a swift pace (742 active this week vs. 1606 last Sept.). The hope is that shutting down the production will help balance supply/demand, but these reports show it may take awhile.

Right now I'm holding. Its a difficult thing to hold especially when everything else is moving higher, but this is a trade that could take some time. We'll continue to monitor the situation.

Disclosure: Long UNG

Respect the Trend

Earnings continue to please the market. You can go right down the list: Microsoft, Ford, Schlumberger, etc. For people that follow the markets closely, it is frustrating. The market is taking any kind of news good or bad, and putting a positive spin on it. To me, it has a feel that its gone too far, but I know better than to think it can't go further. Personally, I like to wait until periods where I feel comfortable with the market action before I commit more than average capital.

I helped Trader Mark write a synopsis of the casual restaurants and their earnings yesterday. These companies, such as PF Chang's, Buffalo Wild Wing's, and Famous Daves, are performing well (on a relative basis). The past quarter, they have been restructuring to cut costs. This involves things like running specials, negotiating new contracts with suppliers, and cutting workforce. They are also benefiting from a couple of other factors: A) Lower raw material costs due to a drop in commodity prices and B) Consumers are "trading down" to lower cost restaurants like these neighborhood chains.

To me personally, this doesn't seem sustainable because the economy and job market is very uncertain for a lot of Americans, thus they are saving more money. But in this market that doesn't matter. These stocks continue to get bid up. I'm not buying them, but someone is.

The market has a feel to me like Wall Street is trying to pull the average investor back into the market. The longer this rally continues, the more likely people will think "the worst is over" and they are more likely to buy stocks, homes, cars, etc. Wall Street is basically trying to lure that money back out. Maybe we've bottomed, maybe we haven't. Its doesn't mean we're looking as positive GDP and everything is great again either.

Its a funny game, but its what we have to deal with.

Thursday, April 23, 2009

Earnings Miss From ABB

I was anticipating ABB's earnings announcement today, and it was a miss. The stock ran up a bit over the past couple of weeks, and is lower today by about 3%. Let's look at the highlights:

Swiss engineering group ABB gave a cautious outlook after it missed forecasts with a 35 percent drop in first-quarter profit, as industrial firms hesitated about buying equipment due to the economic downturn.

ABB, which sells power equipment to utilities as well as to oil and gas companies, said the business environment in March had improved but it was still too early to say whether the bottom of the market downturn had been reached.

"Visibility in ABB's markets for the remainder of 2009 remains limited," the group said in a statement, noting it will face a difficult comparison base in the second quarter, and is looking to cut even more costs.

ABB is expected to benefit from government stimulus packages designed to counter the slowdown, but said on Thursday it could not forecast when that would start to help the group or when the availability of funding would improve.

  • Net profit fell to $652 million, missing the average forecast of $702 million in a Reuters poll of 21 analysts.
  • Orders at the group fell 16 percent to $9.15 billion, ahead of the average estimate of $8.21 billion forecast in the Reuters poll. Sales missed expectations with a 9 percent drop to $7.21 billion.
  • ABB saw a first-quarter 18 percent drop in its smaller orders, which make up the bulk of sales and are more profitable than larger contracts as customers cut back on investments in products like robots as well as drives, motors and generators.
  • The group's operating profit margin fell to 12 percent in the first quarter, from 17 percent a year earlier.
  • The group, which had net cash of $4.8 billion at the end of the first quarter, down from $5.4 billion at end-2008, is still on the look out for bolt-on acquisitions, Hogan said. He added ABB's first priority would be to keep cash.





My Take: I wasn't surprised that they missed on earnings. Large scale projects are being shelved right now. There isn't access to financing, and companies are holding onto cash. The orders numbers weren't bad (better than expected--that's all that matters in this market). I didn't like to see the drop in margins from 17 to 12 percent. That is the most troubling statistic for me.

The positives for ABB are their reach into China and other emerging markets. They are also well positioned to provide services to the US and Europe as they are upgrading their power systems. I like this company, but for the mean time, the stock may be dead money.

Disclosure: Long ABB

Strong Earnings From Offshore Drillers

Despite the global slowdown, strong results were reported today from two offshore drillers, Diamond Offshore (DO) and Noble Corp. (NE).

First, lets take a look at Diamond.

  • Diamond Offshore Drilling Inc, the world's second-largest contract oil and gas driller, reported a 20 percent jump in quarterly profit, boosted by gains from its floating rigs.
  • Net profit climbed to $348.6 million, or $2.51 per share, from $290.5 million, or $2.09 per share, a year earlier, the company reported on Thursday. Analysts' average earnings forecast was $2.21 per share, according to Reuters Estimates.
Diamond has a great group of rigs, especially in the deep water sector. Barron's profiled these companies a couple of weeks ago, and had this to say about Diamond:

Cash-rich Diamond, in any protracted downturn, has the wherewithal to snap up first-rate equipment on the cheap. The fat balance sheet, combined with generous cash flows, also allows the company to pay out handsome special dividends, which, together with the regular ones, totaled $6.75 in the past 12 months. At the stock's current price of 66, that means Diamond stockholders (including Loews) are getting a yield of 10.2% on their investment. Not bad when 10-year Treasuries yield 2.8%. As Peter Vig puts it, "I like getting paid up front."


Similar results from Noble:

  • Offshore oil and gas driller Noble Corp reported an unexpectedly strong rise in quarterly profit despite global pressure on drilling demand due to weaker energy prices, and its shares rose 4 percent.
  • Noble's first-quarter net profit was $414 million, or $1.58 per share, versus $384 million, or $1.43 per share, a year before, the company said on Wednesday. Revenue rose 4 percent to $896.1 million.
  • Analysts had expected earnings before items of $1.46 per share on revenue of $891.9 million, according to the averages on Reuters Estimates.
Some Barron's commentary on Noble:

With its impressive balance sheet -- long-term debt (net of cash) amounts to less than 5% of equity -- Noble is ready, should things "get ugly," as Chief Executive David Williams puts it, to do what it has always done in a downturn: buy rigs at bargain prices, this time including, perhaps, ultra-deep new-builds.


My Take: The assumption was that with crude oil prices this low, there would be pressure on the huge day rates that these drillers can demand for deep water drilling. Obviously that hasn't held these companies back. A lot of people talk about Transocean in this sector, but I like these companies better. They are a bit smaller and can be more nimble in how they manage things. Transocean completed that big merger with Global Santa-Fe last year, so they are quite large. Also, Diamond and Noble has profit margins of 54%, which is massive. You also have to like the special dividends that Diamond pays out.

As soon as the economy begins to turn, oil prices are going to rise. These companies are going to be well positioned, and I'd be a buyer of either stock, especially if we see some weakness in the next quarter or two.

No positions in stocks mentioned.

Potash: Sales Reached "Virtual Halt"

Interesting news today out of Potash Corp. (POT):

Potash Corp of Saskatchewan Inc., the world’s largest fertilizer producer by market value, said 2009 profit will be less than it previously expected after North American sales of the crop nutrient reached “a virtual halt.”

Earnings this year will be $7 to $8 a share, Saskatoon, Saskatchewan-based Potash Corp. said today in a statement. That’s less than the $10 to $12 a share the company forecast in January and trails the $9.33 average estimate of 14 analysts surveyed by Bloomberg.

We know the global slowdown would cut demand, but this is still a bit surprising. With prices under pressure, Potash will be cutting production.

“The potash companies are cutting production to prop up their prices, and we’re cutting our usage to bring them down,” David Kruse, president of CommStock Investment Inc. in Royal, Iowa, and a grower of corn and soybeans on 640 acres, said before the results were released. “It’s a battle.”

We're seeing this battle take place all over the commodity sector. A couple of days ago, I discussed how natural gas producers can't make money with gas at $3.50. So they are cutting production so demand can catch up with supply. Similar situation here, except the farmers know it and purposely aren't buying. We'll have to monitor this situation.

I'm a believer in this sector long term, but recently sold my position in Mosaic (MOS) as it wasn't moving how I'd like it to.

No positions in stocks mentioned.

Wednesday, April 22, 2009

IMF: World Economy in Severe Recession

Pretty sobering statement out today from the IMF, but nothing really surprising.

The International Monetary Fund on Wednesday slashed growth forecasts for every major country and urged governments to take forceful action to ensure the world economy's recovery from a severe recession.

In offering new economic projections, the IMF said government measures to battle recession should be sustained, if not increased, in 2010, warning that premature withdrawal of stimulus could set back a recovery.
As expected, the U.S. is at the center of this, and China is the "best of the worst" so to speak.

The IMF said the United States remains at the epicenter of the crisis, and
it said it now expected the U.S. economy to contract 2.8 percent this year. It said while there were signs the U.S. recession might be easing, a recovery was unlikely to take hold until next year, which would leave 2010 gross domestic product flat.

In Asia, where countries are being harder hit by a drop in global trade than by troubles in the financial sector, the IMF said Japan's recession would be far deeper than previously thought, while China's economy will grow at a much slower pace.
This isn't totally valuable information, but worth noting. Those who belive the recession is over need to realize there is more trouble ahead. The IMF typically is more along the Keynesian viewpoint and is in favor of government stimulus programs to pull the economy out of recession. Naturally the current administration/fed aligns well with this line of thought.

Guest Post

Just a quick note to say I did a guest post today over at Fund my Mutual Fund.

It covers the earnings results from the big old school companies, and what it means for the economy ahead.

ABB: Can They Deliver on Earnings?

I've been following ABB since mid-2008. I like their exposure into the industrial electrical sector, and their global reach. Like many companies in their industry, their stock has taken a big hit over the past year, but there is some optimism for shareholders. They seem to been in a good spot relative to their peers for a couple of macro reasons: A) The U.S. is going to be spending a lot of money updating the power grid and providing encouragement for alternative sources of generating electricity. ABB is at the center of that. Heck the whole world is going to be doing that. B) China and other emerging markets. As of late 2008, 28% of their orders were coming in from Asia. I'd be interested to see if that number is improving.

The stock has been rallying a bit, up to 15.30 from its low of just over 9.00. Tomorrow they report earnings. Analysts are looking for 0.25/share. I'll be more interested in the details of their orders for the quarter.

In the results I've been reading from other companies, many seem more optimistic about China's Stimulus Plan than the U.S. version. ABB should benefit from both, and we'll see if they have anything to add.

Disclosure: Long ABB

Tuesday, April 21, 2009

Stocks Rally, But Recovery Still Not Here

Lots of speculation out there right now. The financial stocks are trading in wild swings as we sift through earnings season. We've heard from Washington that there are "signs the slowdown is stopping" or there are "glimmers of hope" for the economy in 2009. That may be true, but I'd rather look at the numbers. The big time US industrials usually tell the economic tale. I'm seeing weak results from Caterpillar, which I already wrote about today. We also have weak results from Dupont. Here's what Barron's writer Bob O'brien said about this:

Dupont has long been considered one of the classic early-cyclical bellwethers for the global economy. If conditions start to get better - in the auto business, electronics, farm economies - it’s going to show up on DuPont’s books before it shows up in the industrial production data the government puts out.

Based on the first-quarter results the chemicals maker put up Tuesday, the economy hasn’t turned as yet. The company a steep year-over-year decline in earnings, coming in at 54 cents - two cents ahead of estimates, but 59% below year-earlier totals, as revenues dropped 20%. For the second consecutive quarter, DuPont reduced its outlook for the year, now pegging the earnings at a range of $1.70 to $2.10 - as much as a buck a share below what it had talked about at the start of the year.

United Technologies, however, did find some strength in one area:

"The good news is that while order rates continue to be down, there are signs of stabilization in the order rates, particularly in China, which is starting to see the early benefits from the stimulus program there," said Chief Financial Officer Greg Hayes on a post-earnings call."

Well, there's China again. They seem to have a stimulus plan that is well-targeted. Maybe its time to look into putting some money there.

Where is the Stimulus Money Going?

The economic stimulus plan that was rushed through was sold as a plan to "rebuild America" if I remember correctly. Infrastructure was a buzz word, and many people agreed we needed to rebuild and repair things like roads and bridges. But is the stimulus targeted in the right areas?

Caterpillar Says Obama Stimulus Plan ‘Missed an Opportunity’

Caterpillar Inc., the bulldozer manufacturer President Barack Obama used to help push his $787 billion stimulus plan, called the program disappointing and less effective than measures approved by China.

“The infrastructure portion of the stimulus package was disappointing in that it was less aggressive than other countries and missed an opportunity to correct past underinvestment in U.S. infrastructure,” Caterpillar said in economic commentary with today’s first-quarter earnings report.

Chief Executive Officer Jim Owens, 63, is a member of the president’s Economic Recovery Advisory Board. Obama visited the Peoria, Illinois, headquarters on Feb. 12, the final day of his campaign to press for Congressional passage. Caterpillar today reported its first net loss in 16 years as a global credit crunch and recession reduced demand from builders and miners.


In fact, Caterpillar likes what China is doing, and says it will be more effective.

Caterpillar said it does expect some benefit this year from China, which enacted a stimulus package and cut its central bank interest rates to match the 2004 low, accelerating money growth, the statement said. The actions will let China’s economy grow at a rate of more than 7.5 percent this year.

“China, with an economy one-third the size of the United States, is allocating over three times as much for infrastructure,” Caterpillar said in today’s analysis. “Initial results from this package look promising.”


Obviously it will take more time to know if our own stimulus package will work, but for now its seems maybe it wasn't directed in the right areas.

“You can measure America’s bottom line by looking at Caterpillar’s bottom line,” Obama said during the February visit. “What’s happening at this company tells us a larger story about what’s happening in the American economy.”


After today's weak earnings result by Caterpillar, maybe there is more reason to be worried. It makes me wonder, where is all that money going?

Monday, April 20, 2009

Jesse Livermore Trading Rules: The 10% Loss Rule

I like to read about the investing greats, and Jesse Livermore is one of the all-time great traders. One of his trading rules is the 10% loss rule:

"I call this my 'Bucket Shop' rule, because I learned it in the bucket shops where I worked all my trades with 10% margin. I was automatically sold out by the bucket shops if the loss exceeded the 10% limit. The 10% loss rule became my most important rule for managing money. It is also a key 'timing' rule...since it automatically sets the time to exit a trade.

Remember--a speculator must set a firm stop before making a trade and must: NEVER SUSTAIN A LOSS OF MORE THAN 10% OF INVESTED CAPITAL!

IF YOU LOSE 50% YOU MUST GAIN 100% TO GET EVEN!"


This is a direct quote from Jesse Livermore's How to Trade in Stocks. It is a trading rule that I follow, and one of great importance. Read it. Learn it. Follow it.


Here's the data for losses, and the subsequent amount required to recover them.

% LOSS -- % TO RECOVER LOSS

8.0 ------- 8.7
10.0------- 11.1
20.0------- 25.0
30.0------- 42.8
40.0------- 66.6
50.0------- 100.0

Sunday, April 19, 2009

Plenty of Optimists...Are They Correct?

The market has been running strong for quite some time now, with little hesitation. Individual investors are mostly still skeptical. Its no suprise though, that Wall Street is going to squeeze all they can out of this rally to pull more money back to the market. I don't watch CNBC, but I'm sure they are very bullish. Here's a few more examples:

S&P 500 May Jump 70% on Valuation, Ken Fisher Says

Dubai Index Rises as Ruler Says ‘Worst Is Over’


These are just a couple of examples. My point here is don't get too wrapped up in listening to these guys that you just jump all into the market. At the same time, you can't get too bearish either, because the market does funny things. Things like rally for six weeks with no real pullback. There are lots of speculators out there, and greed has returned to the market. They are bidding up prices in stocks you don't want or need.

Big banks, with major questions still ahead are getting bid up because of some profit reports that seem a little fuzzy to me.

REITs are going nuts. Keep in mind these trusts are immensely leveraged, and many are in commerical real estate, which is weakening. They are also diluting their stocks through more stock issues.

Chinese small-caps are running again. I've been reading from traders that these often rise near the end of a market upswing.

But there is value out there. That is the key word. Look for VALUE. Don't speculate in stocks that are still troubled. I still like commodities and commodity-related stocks. They are the most likely to respond if the economy pulls out of this quicker than expected. And they have real fundamentals behind them. Each group has made a small to medium move off its bottom, with the exception of Natural Gas, which I bought last week.

I do some trading, but more in index and sector ETF's. These are a bit more predictable and don't carry earnings-related risk (we are in earnings season). If you need more volatility, you can get 2x and 3x leveraged ETF's, which will do the trick.

There is my current plan of attack. Search for value in individual names. Trade via index and sector ETFs. Avoid speculative stocks. Keep plenty of cash on hand.

Follow it if you like. Comment and tell me I'm wrong if you think so.

Disclosure: Long UNG.

Thursday, April 16, 2009

Greed is Back

Fear dominated for awhile, and still does amongst many individual investors. But greed is back. I'm seeing lots more speculation now. There is an epic battle amongst bulls and bears of financial and real estate-related stocks.

Let's look at some of today's action:

-Commercial real estate giant General Growth Properties filed for bankruptcy protection.

"A Citigroup research report in February described the company by saying, "General Growth is a good company with good assets, just an unfortunate capital structure that has too much debt coming due too soon."


Yes, this is partially true. But any company that takes on that level of debt relative to assets isn't really a good company is it? They may have good assets, but they likely overpaid for them, and most certainly over-borrowed. These types of structures are what caused the current crisis. It happened on a large scale with corporations, all the way down to consumers who bought more than they could afford.

-Rosetta Stone IPO surged 42%. I don't have anything against the product, but to me, 9 times out of 10 IPO means "It's Probably Overpriced."


The way I see our current situation is that this rally is likely to continue, even though on a technical and fundamental basis it should not. The banks are in control as the government has basically thrown out the rule book (which is kind of interesting considering how much talk I hear about this being about a lack of regulation). Banks will take advantage of this to turn large profits, and most people (or the government) won't be able to figure out how. There are a lot more foreclosures coming due, but Wall Street is ready for that.

I'm not happy with the way we've responded to this. I can understand why many Americans were protesting yesterday. As an aside, the Republicans shouldn't be trying to take responsibility for these protests, they are just as much of the problem. Our government is not held accountable, and it seems that voters have lost the means to hold them accountable.

Enough politics. I didn't trade at all today, as hard as that was. I've sold some profitable positions, and have dabbled into Natural Gas. Other than that, I'm waiting it out for a bit.

Disclosure: Long UNG.

Wednesday, April 15, 2009

Buying Natural Gas

Bought some Natural Gas (UNG) this morning. This is a value play. Crude oil has traded up off its lows, and although there is some near term pressure on oil prices, I see prices rising again. Natural Gas often trades (at least somewhat) in tandem with crude oil. Natural Gas has disconnected in the past couple of months, and I see a reversion to the mean. The gas producers are doing everything they can to get profitable, and this likely means cutting off production to level out supply and demand. If they cut off enough supply, and if we see either a hot summer or more than expected strength in the economy, gas prices are likely to respond. It can even be owned just for the bounce.

There are plenty of quesitons about Natural Gas, and especially the producers. They can't make money with gas at these prices. But thats why we buy gas itself, and not the producers. Todd Sullivan has a really good analysis of this thesis, and I'm mostly just following him here. His posts are here, and here.

LONG UNG

Tuesday, April 14, 2009

Look For More Weakness in Financials

Looks like it was a good move selling a few names yesterday. I don't have much short exposure, but still feel ahead of the game by locking in those profits. I was close to going short the financials this morning, but held off. Missed one there.

I know Goldman reported good numbers (their accuracy is questionable), but I don't think any other bank will do as well, and quite frankly, their stocks are overextended.

SKF is the one I'm looking at. Had a buy order in the 62's before it ran away from me. There will be more chances, and I may still end up buying some. Be sure to use stop losses with these types of trades, as the reversals come without warning and can be very swift.

The only think I'd buy on the long side right now would be commodity related.

Monday, April 13, 2009

Taking Some Profits

I think we're going to get a little more dose of economic reality. How the market responds to it is still anybody's guess. As a talked about earlier, the market has been starting to respond to unfavorable news in a positive way, which is usually a good sign for investors (or traders actually). I've had a few successful trades, and have been taking a little off for now.

Doug Kass, who was a long time bear turned bull, successfully called this rally. We all kind of felt it coming. He is now growing a little more cautious short term. He still likes the S&P to hit 1050 this summer, but could be a little bumpy between now and then. Here's his post today.

Also, if you're not on Twitter and/or StockTwits, you're missing out on some profitable advice. There are many traders, specifically on StockTwits, giving real time trade info. Completed a profitable trade today from info via these sites.

Thursday, April 9, 2009

Has the Market Turned a Corner?

Right now, it appears so. The economy is still fairly weak, but as usual the market is forward looking. Strong news this morning from Wells Fargo, saying profits will be much higher than expected. Although this crisis has weakened many financial institutions, some will come out stronger, and Wells Fargo appears to be one of those. They were able to buy Wachovia at depressed levels and this will likely turn out well for them. Banks with adequate capital are likely finding ways to make money.

I'm still not a buyer of financial stocks myself. Many are so diluted at this point, and their is still a lot of risk in these names. I continue to like the strength in tech. I think oil stocks will rebound as well.

Interesting action out of Mosaic yesterday. I posted early in the morning about earnings and what it meant. The stock climbed all day and finished quite higher. Once the market turns the corner, all news becomes good news. We appear to be getting there. Mosaic also appears to have a floor under it due to the constant rumor of Cargill buying the rest of the company (they already own a large percentage), and investors like this kind of insurance in a stock.

Looks like a great day! Its always a great day when the Masters is on!

Long MOS.

Wednesday, April 8, 2009

Tough Start to Earnings...What Does it Mean?

Earnings season kicked off with a loss by Alcoa, and some soft numbers from a stock I own and follow, Mosaic (MOS). They missed expected numbers by quite a bit. The numbers don't actually matter that much right now. Many times with these announcements, the outlook is more important than the actual results. The market is forward looking, not backward. So, here's the quote from CEO Jim Prokopanko:

"Despite the turmoil in commodity markets, we remain confident that long-term agricultural fundamentals are excellent. This is a self-correcting cycle because demand for crop nutrients can only be deferred for so long," said Jim Prokopanko, Mosaic's president and chief executive officer. "Large crops are still required to secure the world's food supply and crop nutrients will play an essential role in achieving that objective. We are well positioned financially and strategically to serve our customers and create value for our shareholders."


I am a believer long term in agricultural products. We've heard time and time again from the likes of Jim Rogers that this is truly one of the coming themes, and investors would be wise to heed that advice.

Mosaic did miss last quarter, and investors reacted worse than they are today. The stock gapped pretty low in the morning, and worked its way back up throughout the day. The so-called "dumb money" typically trades in the morning, while the "smart money" trades at the end of the day, so we often see over-reactions as stocks open with questionable results. The stock is lower this morning, but not by a whole lot. I'm holding my position.

Long MOS.