Alpha Apprentice

The Invisible Hand of Foreclosure Prevention

2009-02-18T09:11:00.001-06:00

“These are complicated instruments” they say. We have thousands of bits of mortgages spread over billion dollar pools known as CDOs. Trying to value, or more importantly reconstruct, a mortgage is like trying to build a sandcastle in a hurricane. Let’s accept the premise that the current system is broken beyond repair - and move forwards. While Congress was busy grandstanding, I was trying to figure out a solution.
When a company needs money to purchase assets, it can go to the bond market and issue debt. This debt trades at some value and can usually be bought back below par. Imagine a company issues $50MM at par, and the very next day, a black swan visits Wall Street causing a crash. On this day, the bonds start trading at 80 cents on the dollar. Barring some debt indentures, this company can now repurchase its own $50MM of debt for only $40MM. When the home owner needs money to purchase assets, he or she goes to the lender. Regardless of the economic situation, the home owner is always asked to pay back his debt at par plus accrued interest. There is no reason this practice should continue.
Merrill Lynch sold its mortgage debt portfolio for 22 cents on the dollar. I can imagine almost every single home owner will to pay 23, or more, cents on the dollar for their own mortgage, or for that tranche of their mortgage.
Mortgages should be traded on an exchange where home owners can buy securities that they can later tender in for their mortgage. If we had this system, there would be no issues with transparency, no guessing of values, and stabilize foreclosure rates due to mortgages being under water.
We can use parts of the options trading model to help do this. Each mortgage type will trade within its own category. The following list is not exhaustive but should help clarify my plan.
• By Length of Mortgage (10,15,30 year)
• By Type (Fixed vs. Arm)
• By interest rate ( 5.75%, 5.875%, 6.00%, etc…)
• By FICO Score of Borrower (In 10 point Increments)
• By Geographic region (Midwest vs. Northeast – or maybe even more specific)
• Conforming vs. Jumbo
It would be hard to argue that one 30 year, 5.00% fixed conforming mortgage from a Midwest borrower with an 800 FICO score should be valued different from another. Therefore, if today such a mortgage was trading at 95 cents on the dollar, the individual who was responsible can be rewarded. At the same time, California sub-prime home owner would a choice between foreclosure and trying to repurchase their mortgage below Face Value, preventing mass foreclosures. Lenders could write in specifics to which securities they will allow as tender for the mortgage to protect themselves.
The current system is broken and should not be continued in the future. Let’s replace it with a transparent system that will allow the market to price the value of this debt, like it does so with corporate debt.

Back in Business

2008-12-29T11:27:00.002-06:00

Hello everyone,

I know it has been a while since I have last posted some thoughts. I have been busy with school and building a more professional website.

My next home will be www.Sentimist.com

I will be sharing this website with a fellow investor, Tomasz Dzien.

We plan on posting our thoughts regularly while also offering educational sessions.

Let me also take this time to offer some more current thoughts.

Currently, I am SHORT Best Buy (BBY), First Solar (FSLR), and the Nasdaq 100 (PSQ).

Today's poor retail numbers indicate to me that retailers will continue struggle just to survive. At the same time, I believe that lack of access to credit coupled with very low energy prices are axing alternative energy. My general market outlook is negative. I believe that Technology is the ultimate discretionary spending made my corporations-which is why I am long the PSQ.

More to come.

Oil Plummets Again- This time to $91

2008-09-16T08:29:00.002-05:00

Oil is clearly crashing. This sell-off in oil has been more fierce than anyone thought likely. Oil seems to have been hit by the perfect storm.

Luckily, I recommend that short about $50 ago

DUG is currently at 47.60, which is 46% higher than my original call.

Oil looks right now looks to be easily headed to $80. I think it will near it but I would prefer to take some money money off the table because the inventory reports will come out today. It is likely that Hurricane Ike did affect short term supplies.

I would also like to add that its prudent to buy companies severely affected by high oil prices such as FDX, PG, and KMB

Lehman (LEH) Files for Chapter 11 - Can't find a Buyer

2008-09-15T13:59:00.001-05:00

Here are the thoughts of Brad Hintz

Lehman Brothers Holdings was not sold. Barclays pulled out of the negotiations, apparently concluding that conservatism is the best course of action in today's uncertain credit market conditions, and Bank of America found a better partner in Merrill Lynch.

The US Treasury decided that it will not provide credit support of a Lehman Brothers acquisition beyond the funding support what it is already being provided through the Fed discount facilities. Therefore, The Street spent part of the weekend making preparations for a worst case outcome. ISDA has produced a legal document in an attempt to facilitate the orderly unwind of the Lehman derivatives book in preparation of a potential bankruptcy filing by the firm.

Having survived the weekend without being acquired, LEH apparently concluded that an attempt to open for business this morning in New York was futile. Even with a strong liquidity position and access to the Fed discount window, management realized that it would not be able to raise more equity capital given its stock price and that issuance of long term debt would be problematic. We believe its ratings were about to be taken down by Moodys and it was unlikely that counterparties would accept Lehman settlement risk; therefore, the company would be forced to pre-fund its trades.

And although the $600 billion balance sheet of the firm would provide plenty of sources of immediate cash if the firm began to liquidate its securities inventories, management apparently concluded that the plan Lehman Brothers presented last week was impossible to complete with LEH's stock price more than 90% down and an orderly liquidation strategy would only prolong the inevitable. So the firm filed Chapter 11 this morning.

Oil Nears $100

2008-09-11T10:00:00.001-05:00

Oil Continues Slide
10:30a ET September 11, 2008 (Briefing.com)

Oil futures made a brief spike into positive territory before receding back into negative ground. Oil is currently down 1.0% to trade near $101.50 per barrel. Curde is now up just 5.8% year-to-date. Oil exploration and production companies are currently down 2.1% this session, the worst in the energy sector (-1.4%). However, oil and gas refiners (+4.8%) are faring quite well. Many refiners are curtailing operations as hurricanes threaten their facilities, which eases demand for crude oil. That scenario helps build crude inventories, but makes gasoline and other consumable fuels shorter in supply. Softer fuel prices bode well for stocks since they reduce input and operating costs. However, uncertainty related to the global economy and the threat of continued weakness in the financial sector (-3.2%) has promoted traders to act largely independent of oil prices during recent sessions.

Taking more Profits on this Momumental Day

2008-09-08T12:08:00.006-05:00

Google GOOG: 427

I want any short positions based on my recommendation to be down to 25%. We had a very dramatic move from GOOG and a bounce is inevitable.

First Solar FSLR: 222

Home Depot HD: $30.10

Jim Cramer is now bullish on HD. I still love this stock for another 2 years but we have seen about a 50% run from the bottom.

HUGE NEWS: US Government takes over mortgage giants

2008-09-07T20:05:00.001-05:00

US Government seizes control of mortgage giants Fannie Mae and Freddie Mac WASHINGTON (AP) -- The Bush administration's seizure of troubled mortgage giants Fannie Mae and Freddie Mac is potentially a $200 billion bet that it will help reverse a prolonged housing and credit crisis.

The historic move announced Sunday won support from both presidential campaigns, but private analysts worried that it may not be enough to stabilize the slumping housing market given the glut of vacant homes for sale, rising foreclosures, rising unemployment and weak consumer confidence.

Officials announced that both giant institutions were being placed in a government conservatorship, a move that could end up costing taxpayers billions of dollars. Treasury Secretary Henry Paulson said allowing the companies to fail would have extracted a far higher price on consumers by driving up the cost of home loans and all other types of borrowing because the failures would "create great turmoil in our financial markets here at home and around the globe."

Mark Zandi, chief economist at Moody's Economy.com predicted that 30-year mortgage rates, currently averaging 6.35 percent nationwide, could dip to close to 5.5 percent. That's because investors will be more willing to buy the debt issued by Fannie and Freddie -- and at lower rates -- since the federal government is now explicitly standing behind that debt.

"Effectively, the federal government has now become the nation's mortgage lender," he said. "This takes a major financial threat off the table."

Futures on all major stock indexes rose about 2 percent in electronic trading Sunday night, another sign of investor relief about the takeover plan

The companies, which together own or guarantee about $5 trillion in home loans, about half the nation's total, have lost $14 billion in the last year and are likely to pile up billions more in losses until the housing market begins to recover.

The Treasury Department said it was prepared to put up as much as $100 billion over time in each of the companies if needed to keep them from going broke, in exchange for senior preferred stock. Treasury will immediately be issued $1 billion of such stock from each company, which will pay 10 percent interest. Further purchases of preferred stock will be triggered if quarterly audits find that the companies' capital cushion is below prudent standards.

The government, which will receive warrants representing ownership stakes of 79.9 percent in each company, is hoping that its moves will reassure nervous investors that they can continue to buy the debt of the two companies.

In a statement, President Bush said, "Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth."

Democratic presidential nominee Barack Obama issued a statement agreeing that some form of intervention was necessary, and promised, "I will be reviewing the details of the Treasury plan and monitoring its impact to determine whether it achieves the key benchmarks I believe are necessary to address this crisis."

Republican presidential nominee John McCain also voiced support while his running mate, Alaska Gov. Sarah Palin, said that Fannie and Freddie "have gotten too big and too expensive to the taxpayers. The McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help."

The conservatorship will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie, a move taken at the same time that Congress greatly expanded the power of the Treasury Department to make loans to the two companies and purchase their stock.

The executives and board of directors of both institutions are being replaced. Herb Allison, the former head of the TIAA-CREF retirement investment fund, was selected to head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp, was picked to head Freddie Mac.

Paulson was careful not to blame Daniel Mudd, the outgoing CEO of Fannie Mae, or Freddie Mac's departing CEO Richard Syron for the companies' current problems. While both men are being removed as the top executives, they have been asked to remain for an unspecified period to help with the transition.

Fannie and Freddie both purchase home loans from banks and then repackage those loans as mortgage-backed securities which they either hold on their own books or sell to investors around the globe. This process provides banks with more money to make more home loans, greatly expanding home ownership.

The impact of the government takeover on existing common and preferred shares, which have slumped in value in the last year, will depend on how investors react to Paulson's assertion that they must absorb the cost of further losses first. Under the plan, dividends on both common and preferred stock would be eliminated, saving about $2 billion a year.

After the Treasury Department's announcement, credit rating agency Standard & Poor's downgraded Fannie and Freddie's preferred stock to junk-bond status, but reaffirmed the U.S. government's triple-A rating.

The Federal Reserve and other federal banking regulators said in a joint statement Sunday that "a limited number of smaller institutions" have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were "prepared to work with these institutions to develop capital-restoration plans."

The Fed released a letter from Fed Chairman Ben Bernanke to James Lockhart, the director of the Federal Housing Finance Agency, in which the Fed chief said he concurred in Lockhart's decision to take control of Fannie and Freddie saying the action "will help ensure the safe and sound operation of the enterprises."

Analysts were split on how much the takeover could eventually cost taxpayers although they all agreed the up-front costs will be substantial, possibly hitting $100 billion as the Treasury is called upon to bolster the capital cushions at both institutions.

However, if the plan does the trick of stabilizing the housing market and home prices stop falling and rebound, then the assets of both Fannie and Freddie should rise in value and the government should be able to sell off the companies and recoup its investments.

But it could take a long time to work through that process given all the headwinds facing housing at the moment from the plunge in home prices to soaring defaults on mortgages which are dumping more homes on an already glutted market. The weak economy has pushed unemployment to a five-year high of 6.1 percent, further reducing demand for homes.

"I think the government will end up having to put in far more money then they are planning right now (given all the problems facing housing) but the important thing is the agencies have been taken over by the government," said Sung Won Sohn, an economics professor at California State University Channel Islands. "That means there will be less panic in financial markets."

Under government control, the companies will be allowed to expand their support for the mortgage market over the next year by boosting their holdings of mortgage securities they hold on their books from a combined $1.5 trillion to $1.7 trillion. Starting in 2010, though, they are required to drop their holdings by 10 percent annually until they reach a combined $500 billion.

In addition, officials said the Treasury Department plans to purchase $5 billion in mortgage-backed securities issued by the two companies later this month, the first of a series of purchases planned by the government in an effort to bolster for these securities, which was badly shaken a year ago when the credit crisis first erupted with soaring defaults on subprime mortgages.

Paulson said that it would be up to Congress and the next president to figure out the two companies' ultimate structure and the conflicting goals they operated under -- maximizing returns for shareholders while also being required to facilitate home buying for low- and moderate-income Americans.

"There is a consensus today ... that they cannot continue in their current form," he said.

Members of Congress will be watching in the coming months to see how the takeover works, but more housing legislation appears unlikely until next year given the few weeks remaining both Congress quits to hit the campaign trail.

Sen. Charles Schumer, D-N.Y. said the intervention was sparked by worries within the Bush administration that foreign governments would stop holding Fannie and Freddie's debt. "This was the prudent course to take," he said.

Senate Banking Committee Chairman Chris Dodd, D-Conn., announced his committee would hold hearings on the takeover to address a number of unanswered questions so that the American people will know "if this unprecedented proposal will help keep mortgages affordable, stabilize the markets and protect taxpayer interests."

Lockhart said that all lobbying activities of both companies would stop immediately. Both companies over the years made extensive efforts to lobby members of Congress in an effort to keep the benefits they enjoyed as government-sponsored enterprises.

Sunday's actions followed a series of meetings Paulson had with Bush and other top administration economic officials with Bush relying heavily on the judgment of Paulson, who was the head of investment giant Goldman Sachs before he joined the Cabinet in 2006.

"It is really an assent to Hank's direction, guidance and judgment," said a senior administration official, who spoke on condition of anonymity to discuss behind-the-scenes deliberations.

Associated Press Writer Ben Feller in Washington contributed to this report.

http://biz.yahoo.com/ap/080907/mortgage_giants_crisis.html

Google Launches a Browser: Attack on Microsoft

2008-09-02T09:52:00.002-05:00

On the surface, we designed a browser window that is streamlined and simple. To most people, it isn't the browser that matters. It's only a tool to run the important stuff -- the pages, sites and applications that make up the web. Like the classic Google homepage, Google Chrome is clean and fast. It gets out of your way and gets you where you want to go.

Under the hood, we were able to build the foundation of a browser that runs today's complex web applications much better. By keeping each tab in an isolated "sandbox", we were able to prevent one tab from crashing another and provide improved protection from rogue sites. We improved speed and responsiveness across the board. We also built a more powerful JavaScript engine, V8, to power the next generation of web applications that aren't even possible in today's browsers.

Google released a comic book to explain how this new browser is different.

Taking Profits in Glass: Owens-Illinois (OI)

2008-09-02T09:20:00.005-05:00

This stock has been straight up for the last 3 days. With this recent decline in Natural Gas, the stock should be saving millions in raw material costs on a daily basis. However, this market giveth and taketh very quickly. Time to realize some profits.

Current Price: 45.70

I also think we should take some profits in GOOG and FSLR

Historic Day for Oil, Down Over $9

2008-09-02T08:12:00.005-05:00

Oil prices crumble as global economic outlook dims
Tuesday September 2, 8:51 am ET
By Pablo Gorondi, Associated Press Writer

Oil prices fall as global demand concerns resurface after hurricane worries subside Oil prices tumbled more than $8 Tuesday to levels last seen five months ago as investors shifted their focus from hurricanes in the Gulf of Mexico to slowing global demand.By afternoon in Europe, light, sweet crude for October delivery was down $8.06 a barrel to $107.40 in electronic trading on the New York Mercantile Exchange. The last time prices hovered in that range was in early April before a historic run-up above $147 per barrel. Earlier in the session prices had dropped as low as $105.46

"The market continues to be weighed down by worries of a global economic downturn and slowing oil demand in developing markets," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore. "Action by OPEC and supply side concerns should put a backstop to any sharp price drop."
The Organization of Petroleum Exporting Countries is scheduled to meet Sept. 9 in Vienna and has indicated it may take action to defend the $100 a barrel level.
Ahead of Gustav, there was some disruption to oil supplies as oil companies shut down production and evacuated facilities. Altogether, about 2.4 million barrels of refining capacity was halted, roughly 15 percent of the U.S. total, according to figures from Platts, the energy information arm of McGraw-Hill Cos. The Gulf Coast is home to nearly half of the nation's refining capacity.
It could be a day or more before oil and natural gas companies can assess the damage to their drilling and refining installations. Louisiana Gov. Bobby Jindal said as much as 20 percent of oil and gas production that was stopped because of Gustav could be restored by this weekend, stressing that it was a rough estimate.
Traders are also keeping an eye on other storms brewing in the region.
Tropical Storm Hanna was predicted to come ashore in Georgia and South Carolina late in the week and could regain hurricane strength later in the day. Tropical Storm Ike formed late Monday in the Atlantic Ocean and may become a hurricane in the next 36 hours as it approaches the Bahamas.
"September is the peak of the Atlantic hurricane season. After Gustav, there are two more now on the radar screen. The storms are likely to provide some upside risks to the oil futures market," Shum said.
In other Nymex trading, heating oil futures fell 20.8 cents to $3.9839 a gallon, while gasoline prices lost 20.44 cents to $2.6498 a gallon. Natural gas for October delivery fell 68.7 cents to $7.256 per 1,000 cubic feet.
In London, October Brent crude fell $2.97 to $106.44 a barrel on the ICE Futures exchange.
http://biz.yahoo.com/ap/080902/oil_prices.html

Mercifully, Gustav caused considerably less damage than everyone feared. Even though the current price of oil still has a hurricane premium thanks to Hannah and Ike, oil has fallen to a new multi-month low.

This is the vindication I was looking for: Oil will easily break $100 by October.

DUG is up 2.57 (7.43%) to 37.18.

Category 2 Gustav Slamming Louisiana

2008-09-01T11:19:00.001-05:00

Hurricane Gustav is bearing down on the Louisiana coast. It has weakened to a Category 2 hurricane with winds of 110 mph but that doesn't change too much in terms of impacts affecting southern Louisiana.

Watch the latest hurricane forecast.

As of 10 a.m. CDT, Gustav made landfall near Cocodrie, Louisiana. It was centered about 70 miles southwest of New Orleans and about 100 miles southeast of Lafayette, Louisiana. It is moving to the northwest at 15 mph and it will continue in this direction all day today moving into western Louisiana by tonight.

View the Gustav Tracker.

View the projected path.

The northern half of Gustav is now spinning over southeastern Louisiana. In fact, the northern half of Gustav's eyewall is scraping along the marshy coast of southern Louisiana passing south of Houma and eventually south of Morgan City.

Spiraling rain bands will continue to push onshore this morning and will produce tropical storm-force sustained winds (occasionally sustained hurricane-force winds) and easily gust over hurricane force.

The very dangerous water-level rise will continue to grow higher and higher this morning with a 8 to 12 foot surge in the vicinity of landfall. Here's a look at the expected storm surge.

View the current Hurricane watches and warnings and tropical storm watches and warnings.

Remember, don't only focus on the landfall location. Tropical storm-force winds extend 200+ miles from the center and hurricane-force winds extend 70 miles from the center. Wind, surge, and rain impacts will be far reaching. After landfall, the focus will shift from winds and surge to flooding rains and isolated tornadoes.

Tropical Storm Hanna was centered about 40 miles north of the Southeast Bahamas as of 11 am ET. Maximum sustained winds have yet again increased to 60 mph.

A hurricane watch has been posted for a portion of the Bahamas.

View the Hanna Tracker.

Hanna will slide southwest today before making a turn toward the northwest some time on Tuesday. This will take it on a course that will move it over the southeastern and central Bahamas during the next few days.

View the latest projected path for Hanna.

Tropical Storm Hanna has already begun to churn the ocean waters off the Southeast coast. On Sunday afternoon, numerous rescues by lifeguards were carried out along the North Carolina coast and lifeguards along the Georgia coast reported several rip currents. Please be mindful of the dangerous surf during this holiday weekend.

Though Gustav is still on people's minds, coastal residents of Georgia, South Carolina, and North Carolina should all monitor the track and development of Hanna. By Friday, it may be nearing the Southeast U.S. coast.

Elsewhere in the Atlantic Basin, a tropical wave and broad low pressure area has been deemed Tropical Depression 9. It is located halfway between the Lesser Antilles and Africa. Thunderstorm activity has remained with the depression over several hours now.

It may become a tropical storm by later today. It will initially head west-northwest then west over the course of this week. It is forecast to become a hurricane later this week.

There is another tropical wave that has just emerged from the African Coast that has potential for development in the next couple of days.

http://www.weather.com/newscenter/hurricanecentral/update/index.html

Stocks jump on better-than-expected GDP, jobs data

2008-08-28T12:38:00.000-05:00

Stocks jump on better-than-expected gross domestic product reading, decline in jobless claims NEW YORK (AP) -- Stocks extended their advance Thursday after a better-than-expected reading on the nation's economy and a drop in jobless claims. The Dow Jones industrial average rose nearly 200 points.

Stocks gained as oil prices, up in early trading, reversed course.

The Commerce Department said gross domestic product rose at an annual rate of 3.3 percent for the April-June period, as a weaker dollar helped boost U.S. exports. That exceeded the government's initial estimate of a 1.9 percent increase as well as economists' forecast of a 2.7 percent gain.

The growth marked the economy's best performance since the third quarter of last year, when GDP rose at a 4.8 percent pace.

Investors closely watch GDP to determine whether the economy is picking up momentum after being pounded by housing woes and a debilitating credit crisis. The economy grew at a weak rate of 0.9 percent in the first quarter and actually shrank in the last three months of 2007.

Also Thursday, the Labor Department said the number of newly laid off people seeking jobless benefits fell for the third straight week. The number of claims dropped to a seasonally adjusted 425,000, down 10,000 from the previous week. That was slightly better than the 427,000 expected by analysts surveyed by Thomson/IFR.

But economists consider claims above 400,000 an indicator of a slowing economy. Companies have cut jobs every month this year as they grapple with rising energy costs and tighter credit.

"We didn't get a whole lot of new information," said Charlie Smith, chief investment officer at Fort Pitt Capital Group in Pittsburgh, referring to the reports. He noted that trading remains light ahead of the long Labor Day weekend.

"Exaggerated reactions tend to happen when you have thin trading," he said.

In midday trading, the Dow rose 192.81, or 1.68 percent, to 11,695.32 after rising more than 115 points over the past two sessions.

Broader stock indicators also rose. The Standard & Poor's 500 index advanced 14.51, or 1.13 percent, to 1,296.17, and the Nasdaq composite index rose 23.48, or 0.99 percent, to 2,405.94.

Bonds fell as investors moved into stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.81 percent from 3.77 percent late Wednesday. The dollar rose against other major currencies, while gold prices rose.

Investors are also watching oil prices as Tropical Storm Gustav churns toward the Gulf of Mexico on a course that could collide with oil and gas platforms. But strength in the dollar helped drive down the price of oil.

Light, sweet crude fell $2.82 to $115.32 on the New York Mercantile Exchange.

The decline in oil made energy stocks one of the few areas of weakness Thursday.

Devon Energy Corp. fell $4.96, or 4.7 percent, to $101.82, while Hess Corp. fell $2.64, or 2.5 percent, to $104.50.

In corporate news, Sears Holdings Corp. said its second-quarter profit fell 62 percent as weak consumer spending continues to hamper store sales. The retailer earned $65 million, or 50 cents per share, in the three-month period ended Aug. 2. That compares with $173 million, or $1.15 per share, in the year-ago period. The stock rose $3.80, or 4.4 percent, to $90.78.

Tiffany & Co. jumped $3.88, or 9.8 percent, to $43.49 after reporting that its second-quarter profit doubled as sales rose by double-digit percentages in Asia and Europe.

Investors have been looking to retailers' results for information not only about the companies, but about consumers' ability to spend. Several upbeat reports Wednesday from retailers helped buoy Wall Street's confidence in the economy.

Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange, where volume came to 385.5 million shares.

http://biz.yahoo.com/ap/080828/wall_street.html

Hedge Fund Tracking: Lone Pine Capital's 13F (Stephen Mandel Jr.)

2008-08-22T14:37:00.001-05:00

Full Credit for this Post should go to Market Folly

http://marketfolly.blogspot.com/

The Hedge Fund 13F Tracking series continues. If you've missed them, I've already covered Jeffrey Gendell's Tontine Partners here, Bret Barakett's Tremblant Capital here, Peter Thiel's Clarium Capital here, and John Griffin's Blue Ridge Capital here. Next up, we have Lone Pine Capital, managed by Stephen Mandel Jr. Lone Pine is an $8 Billion fund that has returned over 25% annually ever since its inception in 1997. Why is Mandel worth following you might ask? Well, he served as a consumer/retail analyst for Tiger Management back in the day for legendary investor Julian Robertson. Robertson's proteges/right-hand men have been nicknamed the "Tiger Cubs" and many have started their own funds. So, not only has Mandel learned from one of the best, but he has put up some very solid returns himself. Mandel is well versed in the ways of finding undervalued companies and his funds typically like to sniff out solid companies with good management that are trading below their intrinsic value. Just this past year 1 of his funds was up 34% before fees while another was up 32% before fees. His track record speaks for itself. And, not to mention, he learned from one of the greats in Julian Robertson. However, as I wrote about here, Lone Pine has had a rough 2008, where their Lone Cedar Fund was -5.38% year to date (as of the middle of July '08). By analyzing their 13F, maybe we'll be able to see where they are slipping up.

Once again, I'd like to give thanks to Alex Prywes for helping me gather and sort through the data of numerous hedge funds (including the one below). Thanks to Alex's help, we can now cover even more funds. And, on that note.... onto the 13F! The following are Lone Pine Capital's current holdings as of June 30th 2008, as released in their most recent 13F filing with the SEC. The positions in this most recent 13F were compared to last quarter's 13F and here are the changes made to their portfolio:

New Positions:
Entergy Corp (ETR): 3,518,632 shares. This position is 6.06% of Lone Pine's portfolio.
Weatherford Intl (WFT): 4,820,337 shares. This position is 3.42% of Lone Pine's portfolio.
Lorillard Inc (LO): 3,328,911 shares. This position is 3.29% of Lone Pine's portfolio.
Amazon (AMZN): 2,527,634 shares. This position is 2.65% of Lone Pine's portfolio.
Sears Holdings Corp (SHLD) Puts: 1,336,800. This position is 1.41% of Lone Pine's portfolio.

Added to:
America Movil (AMX): Increased position by 39.5%. Position is now 10.74% of their portfolio.
Sandridge Energy (SD): Increased position by 22.24%. Position is now 11.35% of their portfolio.
SAIC (SAI): Increased position by 16.38%. Position is now 2.45% of their portfolio.
Dicks Sporting Goods (DKS): Increased position by 15.8%. Position is now 1.48% of their portfolio.
XTO Energy (XTO): Increased position by 5.41%. Position is now 8.33% of their portfolio.

Reduced Positions:
CB Richard Ellis (CBG): Reduced their position by 9.62%. Position is now 2.94% of their portfolio.
Illumina (ILMN): Reduced their position by 9.97%. Position is now 2.69% of their portfolio.
Fastenal (FAST): Reduced their position by 12.5%. Position is now 3.78% of their portfolio.
Qualcomm (QCOM): Reduced their position by 13.88%. Position is now 7.26% of their portfolio.
Brookfield Asset Mgmt (BAM): Reduced their position by 16.4%. Position is now 3.26% of their portfolio.
Monsanto (MON): Reduced their position by 25.82%. Position is now 3.27% of their portfolio.
Mastercard (MA): Reduced their position by 29%. Position is now 2.48% of their portfolio.
Priceline (PCLN): Reduced their position by 30.75%. Position is now 2.34% of their portfolio.
Google (GOOG): Reduced their position by 39.30%. Position is now 7.39% of their portfolio.
Infosys (INFY): Reduced their position by 49.1%. Position is now 2.19% of their portfolio.
Visa (V): Reduced their position by 57.38%. Position is now 1.93% of their portfolio.
Sears Holdings (SHLD) Puts (2nd put position): Reduced their position by 79.73%. Position is now 0.21% of their portfolio.

Removed Positions (Positions Lone Pine sold out of completely):
Apple (AAPL)
Brookfield Asset Management (BAM) - 2nd listed position
CME Group (CME)
EMC Corp (EMC)
Nutrisystem (NTRI)
Southwestern Energy (SWN)
SRA International (SRX)

Positions with no change:
MSC Industrial Direct (MSM). Position is 3.26% of their portfolio.
Teradata (TDC). Position is 3.06% of their portfolio.
Eagle Materials Inc (EXP). Position is 1.66% of their portfolio.
Bunge (BG) Puts. Position is 0.85% of their portfolio.
Deltek (PROJ). Position is 0.24% of their portfolio.
New York Times (NYT) Puts. Position is 0.02% of their portfolio.

Top 10 holdings by % of portfolio:
1. Sandridge Energy (SD): 11.35% of the portfolio
2. America Movil (AMX): 10.74% of the portfolio
3. XTO Energy (XTO): 8.33% of the portfolio
4. Google (GOOG): 7.39% of the portfolio
5. Qualcomm (QCOM): 7.26% of the portfolio
6. Entergy (ETR): 6.06% of the portfolio (new position)
7. Fastenal (FAST): 3.78% of the portfolio
8. Weatherford Intl (WFT): 3.42% of the portfolio (new position)
9. Lorillard Inc (LO): 3.29% of the portfolio (new position)
10. Monsanto (MON): 3.27% of the portfolio

--------------------------------------------

Breakdown: Well, it's very evident where Mandel & Lone Pine's poor performance is coming from. As of June 30th, they had massive holdings in natural gas and oil players Sandridge Energy (SD) and XTO Energy (XTO). SD was their top holding by % value and XTO was not far behind as their 3rd largest holding. The selloff in natural gas, oil, and all related stocks has undoubtedly affected Lone Pine in a negative way. The selloff in those names started around July, leaving Mandel a very limited window of opportunity to sell. Unfortunately, we'll have to wait until the next round of 13F's in the coming quarter to find out what Mandel has done with his large natural gas positions. Considering that the filing reports holdings as of June 30th, and the major selloff began in July, we have no idea whether Lone Pine was massively hurt by the selloff, or whether they were one of the parties responsible for the selloff. But, no matter how savvy Mandel may be, there is no way he got through July unscathed. So, that looks to be one of the main areas contributing to the lackluster performance of his Lone Cedar Fund so far in 2008.

Next, I want to highlight that Lone Pine added to their America Movil (AMX) position by 39%, nearly doubling down on their shares. Obviously, Mandel still likes the company and was using the weakness to add to his position. His addition is interesting, considering numerous hedge funds completely removed their AMX position over the past quarter, including his 'Tiger cub' buddy John Griffin over at Blue Ridge Capital. AMX has long been a hedge fund favorite and has been a top 10 holding in many prominent hedge fund portfolios over the past year. But, with the recent developments in AMX over the last few months, many hedge funds have taken action. And, unlike his colleagues, Mandel was buying the shares that other fund managers were selling off. It will be interesting to see how this continues to play out, as the once hedge fund favorite AMX may be falling out of favor with numerous managers. Lone Pine, however, was adding with conviction, making it their portfolio's 2nd largest position.

I would also like to highlight a couple of new positions started by Lone Pine this past quarter. They added Entergy (ETR) in mass, making it their 6th largest holding at 6.06% of their overall portfolio. In the past, I've talked about ETR on the blog as a way to play both the rising demand in electricity as well as the nuclear space in alternative energy. In addition to starting ETR, they started Weatherford (WFT), an equipment and service provider in the oil and natural gas spaces. They brought this position up to the fund's 8th largest holding at 3.42% of their portfolio. Additionally, they started a position in Lorillard (LO), a cigarette manufacturer. They brought this name up to the 9th largest fund holding, at 3.29% of the portfolio. Mandel added ETR, WFT, and LO all with conviction over the past quarter, landing all three as top 10 holdings.

Turning to tech, we see that Lone Pine has sizable positions in hedge fund favorites like Google (GOOG) and Qualcomm (QCOM). However, Lone Pine was selling off some of their tech holdings during the past quarter. They sold 13% of their QCOM position, leaving it as the fund's 5th largest holding. Mandel got aggressive with Google (GOOG) though, selling nearly 40% of his position. Despite the selling, it still remains their 4th largest holding. That just goes to show how large of a position he had in GOOG. Additionally, he sold completely out of Apple (AAPL). Just last quarter, it was his fund's 5th largest holding. Now, he no longer even holds a position.

Lone Pine was also busy selling the payment processors Mastercard (MA) and Visa (V). They sold 30% of their position in MA and 57% of their position in V. You can't really blame them though, as they were sitting on some handsome profits from those positions. We'll keep an eye out to see if they add back to their positions now that MA and V trade at cheaper prices than they did 2 months ago. After all, the payment processors are big hedge fund favorites, having appeared in numerous funds' portfolios.

Overall, its easy to see where Lone Pine might be struggling this year. They've been rewarded with nice gains in some of their tech and payment processing holdings. But, those gains could have been easily nullified by the likely beating their natural gas and oil holdings took. If you are interested in further comparing Lone Pine's holdings, you can check out the analysis I did of their previous 13F here. Lastly, in a recent development, Lone Pine recently filed a 13G with the SEC, disclosing their minority stake in Hansen Natural (HANS), which I wrote about here.

And, you can view their most recent 13F as filed with the SEC here.

A little Vindication For My Bearish Oil Call

2008-08-22T14:12:00.002-05:00

Yesterday, Crude Oil hit $122/ barrel and today we have it trading at $114.63. That's already more than $7 lower from yesterday's high.

The rally we saw less than 24 hours ago was Russia-U.S. fear driven and not insight on demand building. Now that Tropical Storm Fay is looking less and less destructive while tension are easing in Georgia, we are seeing oil fall closer to a Supply/Demand equilibrium.

The sell-off in commodities is the reason I haven't recommended Foster Wheeler (FWLT) even at these level. This stock moves in tandum with oil, although earnings shouldn't. I won't fight the tape.
However, when FWLT falls below $45, the risk-reward ratio looks great.

Bill Gates Buys More Republic Services (RSG)

2008-08-21T10:51:00.003-05:00

For those unfamiliar with the company :

Republic Services, Inc. provides nonhazardous solid waste collection and disposal services for commercial, industrial, municipal, and residential customers in the United States. The company primarily engages in residential collection operations that include curbside collection of refuse from small containers into collection vehicles for transport to transfer stations or directly to landfills. Its commercial and industrial collection operations include the supply of waste containers of various sizes to construction sites and rental of compactors to large waste generators, as well as the provision of waste collection services to industrial and construction facilities on contractual basis. In addition, the company provides recycling services, including the curbside collection of residential recyclable waste to commercial and industrial customers.

Waste management (WMI) is currently trying to buy RSG for $6.73 billion dollars. RSG claims the bid significantly undervalues the company. At the same time, RSG is trying to purchase Allied Waste Industries (AW) for $6.07 billion.

Bill Gates Foundation, Cascade Investment LLC, has bought 3,080,991 shares for a total of $106,976,640 brining the average price to $34.72.

Cascade Investment now owns a total of 31,395,240 shares.

Boeing (BA)To Start Talk with Union

2008-08-21T10:12:00.003-05:00

Boeing (BA) will begin negotiations with its union machinists in order to avoid a potential strike as it hopes to make inroads against mounting pension and health-insurance costs, reported The Wall Street Journal. The International Association of Machinists and Aerospace Workers will seek improved policy on health care, pensions and job security.

Last I checked, the machinists are making around $21 on average and nearing retirement within a decade. More pay probably isn't as important as job security.

Last time there were major talks with the union was after 9/11 where they made large concession. Now they are again negotiating in a tough economy- I guess these guys have no luck at all. I think that completing deliveries is to important for BA not to make concession. I am also a believer in happier employees being more productive, so I expect the extra costs to be made up along the chain.

Crude Oil Finding a Bottom?

2008-08-20T11:51:00.005-05:00

UPDATE: OIL FUTURES: Nymex Crude Falls On Huge Stockpile Gain

(Updates prices and tropical storm forecast; adds background on U.S. crude imports)

By Gregory Meyer

Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Crude oil futures sank more than $1 Wednesday after government data showed U.S. crude stockpiles swelled by nearly 10 million barrels last week.

Light, sweet crude for September delivery was recently down $1.29, or 1.1%, at $113.24 a barrel on the New York Mercantile Exchange. The September contract expires Wednesday. More active October Nymex crude declined $1.26 to $113.28 a barrel. September Nymex crude was trading at $116.86 before the data release.

October Brent crude on the ICE Futures exchange was down $1.09 to $112.16 a barrel.

The U.S. Department of Energy reported domestic crude stockpiles rose by 9.4 million barrels in the week ended Aug. 15, more than 11 times the gain expected by analysts. It was the largest rise in barrel terms since March 2001 and percentage terms since April 2003.

The gains came after crude imports to the Gulf Coast increased by about 1.8 million barrels a day, to 7.2 million barrels a day. Tim Evans, an energy analyst at Citi Futures Perspective, said Gulf imports bounced back after Tropical Storm Edouard had curbed imports in the prior week.

Today we saw inventory build by almost 10 million barrels, the largest build since March of 2001. At the same time, we hear news that Tropical Storm Eduard is waning. But there is another storm forming on in the Orient: China.

You can see the optimism in the futures. Although we had a huge build in oil inventory, the futures are flat. Has oil halted its slide? Even energy stocks found a bottom last couple days. China will soon go back to full throttle and Oil is going back to $150. Goldman Sachs said so.

Where I find flaw in this China-Olympics theory is that the media makes it out to be that there are only 2 consumers in the world of crude, U.S.A and China. Everyone says that this decrease in demand is thanks to the slow down in China to clean up the air before the Olympics. Did everyone forget that the rest of the world, including emerging markets like Russia, Brazil, and India, have NOT slowed down because of the Olympics? To add, China did not close down production country wide but only in Beijing and a few other small factory and port cities. Beijing is less than 2% (1.7% by my math in 2007) of China's GDP.

While the rest of the world (92% of energy consumption) continues to consume at its pre-Olympic pace, Oil has fallen $35. Yet, CNBC won't stop talking about the impending hurricane of demand that will come from China. I disagree.

As I have already said, most of China is still consuming at its pre-Olympic pace too.

Let's do a little guestimation: China accounts for 8% of world oil consumption (1/3 as much as the U.S). Let's say Beijing consumption has slowed 50% (it didn't) By limiting traffic, it is estimated that daily only 1/3 of the 3.3 million vehicles will stay off the road. Non-discretionary consumption should stay flat. So, 2% of 8% is 0.16% of world consumption, or approximately 138K barrels a day of consumptions. Going back to our 50% decrease in consumption number, Beijing purposely decreased its Beijing consumption by 69K barrels a day. There goes the ramping up thesis. 40 factories here and there don't significantly raise that number in the context of world supply.

My point is that China's actions have not significantly, or even marginally, cut demand. However, in the same time frame, Crude Oil has fallen from $148 to $113. To say that the slowdown in China is because of the Olympics is a canard. Furthermore, China has curtailed gasoline demand by raising prices 17% in late June and OPEC has increased supplies.

The Chinese tried very hard to piece together their country before the world arrived. It is arguable that the super spike we saw in oil was because China tried to complete in months what they should have built in years. Now, I will argue that progress (and consumption) will slow from here. Growth tends to slow post Olympics in host countries.

13F Weekened

2008-08-15T09:43:00.002-05:00

13Fs are coming out soon and I'll spend the weekend compiling and condensing information.

Although 13Fs are lagging by about 6 weeks, they are at least very interesting and still informative.

A 13F is a compliance form filed with the SEC by investment managers with AUM of over $100 million.

Inflation Is In The Rear View Mirror

2008-08-14T11:12:00.002-05:00

http://www.bloomberg.com/apps/news?pid=20601087&sid=aoOKMz5QYK9w&refer=home

U.S. Economy: Consumer Prices Rise More Than Forecast (Update1)

By Shobhana Chandra

Aug. 14 (Bloomberg) -- U.S. consumer prices rose at the fastest pace in 17 years in July, limiting the ability of the Federal Reserve to lower interest rates as economic growth slows.

The cost of living climbed 5.6 percent in the year ended in July, the Labor Department said today in Washington. It was up 0.8 percent from the previous month, twice as much as anticipated. So-called core prices, which exclude food and energy, also advanced more than projected.

The surge last month reflected energy prices that have since declined, signaling July may represent the peak in inflation. Still, increases went beyond food and fuel, including gains in clothing, airline fares and education, likely intensifying discussions among Fed policy makers about how quickly to shift toward raising rates.

To play the contrarian, the increase in prices across almost all categories shows capitulation.

I think the market is rallying because this could be the peak of inflation. As I have been writing, I think that commodities have peak in the intermediate future. Also, I think that this inflation numbers represent a level of price increases that if commodity prices stay at this level will lead to margin expansion. This explains the run-up in all companies that have been hurt by raw material costs.

It is foolish to recommend Proctor & Gamble (PG), Clorox (CLX), CL (Colgate), and the like after this recent run up. However, when we see a pullback, they should be worth it.

Becoming Bullish again on Owens-Illinois (OI)

2008-08-13T12:04:00.002-05:00

Current Price: $40.00

The fears of raw materials (natural gas) compressing margins has proven to be overstated with the pullback in the commodities. Natural Gas hit a high near $13.50 at the time the conference call was taking place. Today, NG almost hit $8.00- this extreme pullback was almost unfathomable. However, OI hasn't rallied yet.

Looking at Crude Oil and the steel names, there maybe a short term bounce in commodities, but I do not see Nat Gas nearing those level anytime soon. Time to scale back in.

On top of the recent pullback, there has been insider selling recently within Owens-Illinois.
In August, insiders bought4,265 shares for $178,577. Not as large of a buy as I usually like to see but better than nothing.

The Financial Saga Continues....

2008-08-12T14:12:00.003-05:00

I haven't posted in the last couple days because I have been swamped at work but it can be summed up really quick.

The dollar rally results in a commodity crash. Dollar is rallying because of relative weakness of other countries. As oil crashes, the financial and the Dow have been rallying. On top of that, Jim Cramer thinks that we have hit a bottom on July 15th. I think we need to retest that low to be sure-this is not the time to buy. I will never buy into a rally this strong.

The market is telling me the financials are going down again. After a couple days of the super squeeze, the financials have failed to make new lows. Now, the golden boys, Goldman Sachs (GS) and J.P. Morgan (JPM) have been downgraded big by some of the biggest names on Wall Street.

I think that Wachovia (WB) is the stock that has over-rallied most.

The Financial UltraShort (SKF) is up 9.60% at the moment to $121.30

With the fallout of commodities, solar names have taken a hit too.

First Solar (FSLR) is down to $250.17, about $50 lower since my short call.

Quanta Services (PWR), Trinity Energy (TRN), Zoltek (ZOLT), and SPX Corp (SPW) have all been hit very hard by the solar fallout the results from the Crude Oil plunge. However, crude oil may be closer to a bottom than the top right now. The oil stocks have lead the commodity down, however, the stocks have been flatish last couple of days. Nonetheless, we now have a real top in Oil ($148-150).

Luckily, this commodity bust has caused a retail rally. Home Depot (HD - my first call for this blog) has called almost 35% from its low. Currently trading at $27.60. Another powerhouse I want to mention is Wal-Mart (WMT), which reported "disappointing" same-store-sales recently and taken a hit. The stock had fallen from its 52-week high and that was the perfect buying opportunity. It has already recovered from that large down day.

Lastly, I want to talk about infrastructure. These stocks have probably been some of the most hard hit stocks in the S&P 500. McDermott (MDR) is down about 15% after earnings, while Foster Wheeler (FWLT) and Flour (FLR) are near 52-week lows. These companies do much more than petrochemical projects and many projects are based off of $70-90 oil. These NEED to be bought- they are just too cheap at these levels.

Commodity Stocks Crescendo Fall- AGAIN

2008-08-08T09:19:00.003-05:00

Everything commodity related is being completely thrown out today, although, there is a bit of bottom fishing right now.

Crude Oil falls $3.97 to 116.21

Natural Gas falls $0.21 to $8.35

Gold, copper, silver, corn, and soy beans are also down.

The Oil & Gas UltraShort (DUG) continues to plow higher to 39.40

Here is a list of of commodity related stocks that I follow and their LOD prices

Potash (POT) hit a LOD of 169.00
Monsanto (MON) : $103.50
U.S. Steel (X): $135.23
Cleveland Cliffs (CLF): $85.33
AK Steel (AKS): $50.41
Freeport-McMoran (FCX): $82.01
Companhia Vale (RIO): $25.44
Transocean (RIG): $126.57

Interestingly, AGCO (AG) is up today even though agricultural and steel names are down. The market is telling me that grain prices are still high enough for demand to continue while the drop in steel can help accelerate, or at least maintain, the margin expansion story.

The margin expansion play may be the story behind the rally in Caterpillar (CAT) and Terex (TEX)

Also, Boeing (BA) continues to show strength after the Quarter. BA is up to $66.29- 2.29% today

Foster Wheeler (FWLT) and Quanta Services (PWR) Beat Earnings!

2008-08-06T10:11:00.004-05:00

NEW YORK, Aug 6 (Reuters) - Engineering and construction company Foster Wheeler Ltd (FWLT) posted better-than-expected quarterly earnings on Wednesday, but said its power plant business in North America was slowing.

The company also announced that Chairman and Chief Executive Officer Raymond J. Milchovich would retire next year.

Net earnings climbed to $160.8 million, or $1.11 a share, from $71.9 million, or 50 cents a share, a year earlier.

Excluding an $18.3 million asbestos-related gain, the company posted quarterly earnings of $142.5 million, or 98 cents a share, topping analysts' average forecast of 84 cents per share, according to Reuters Estimates.

Revenues rose to $1.7 billion from $1.19 billion.

Foster Wheeler said its engineering and construction group booked $538 million in new orders during the quarter, bringing its backlog of work to $1.8 billion at the end of June, up 26 percent from a year earlier.

But its power group added $191 million in new orders, sharply down from the $550 million booked in the year-ago quarter, as North American customers deferred prospective projects because of increased environmental scrutiny, rising costs and fears about the economy.

Backlog at the power group stood at $1.5 billion at the end of the quarter, up 10 percent from a year earlier.

"In our (global power group) -- consistent with our guidance at the end of the first quarter of this year -- we are seeing delays but not cancellations in some North American prospects," Milchovich said in a statement.

The company would seek to offset that slowness by focusing on markets outside North America, he added. (Reporting by Matt Daily and Euan Rocha; Editing by Lisa Von Ahn, editing by Dave Zimmerman)

http://www.reuters.com/article/marketsNews/idINN0641671120080806?rpc=44&pageNumber=2&virtualBrandChannel=0

Utilities contractor Quanta Services Inc (PWR) posted a better-than-expected quarterly profit, and forecast strong third quarter revenue.

For the second quarter ended June 30, net income was $40.5 million, or 22 cents a share, compared with $21.9 million, or 17 cents a share, a year ago.

Before items, earnings in the latest quarter were 26 cents a share.

Revenue rose 74 percent to $960.9 million.

Analysts on average were expecting earnings of 24 cents a share, before special items, on revenue of $903.0, according to Reuters Estimates.

Pro forma internal revenue growth was about 20 percent compared to the year-ago period, Chief Executive John Colson said in a statement.

In July, Quanta, which installs and maintains network infrastructure including electric power, gas, cable TV, and telephone and data lines, acquired Winco Inc, a helicopter services company.

For the third quarter, the company sees earnings of 23 cents a share to 26 cents a share on revenue of $1 billion and $1.04 billion.

It expects earnings from continuing operations, excluding items, to be between 27 cents and 31 cents a share.

Analysts were looking for earnings of 30 cents a share, before special items, on revenue of $967.0 million.

Shares of the Houston, Texas-based company closed at $30.66 Tuesday on the New York Stock Exchange. (Reporting by A.Ananthalakshmi in Bangalore; Editing by Bernard Orr)

http://www.reuters.com/article/marketsNews/idINBNG5472820080806?rpc=44&pageNumber=2&virtualBrandChannel=0

Notable Stocks of the Day 8/05/2008

2008-08-05T10:58:00.003-05:00

Boeing (BA) is rallying today on falling oil prices. The stock is up 5.04% to $64.45.

Black and Decker (BDK) has been trending fiercely up since about a week before the stock reported earning. After hitting a 52week low of 51.56, stock started moving up. Today, BDK is up 4.25% to $61.01. I keep wanting to recommend this stock on weakness and have not seen a big down day.

Wal-Mart (WMT) and other retailers are rallying with the decline in oil. WMT is up 2.40% to $59.84. I am very impressed with WMT on a operational level but the stock has failed to break $60.00 repeatedly. However, with the decline in oil and growing strength of today's uptrend, it may do so this time.

Otter Tail (OTTR) reported poor earnings and lowered guidance. The stock is down $9.20, or 21%, to $35.70. This decline shows how crowded and over-optimistic investors are about any alternative energy.

Oil Continues to Falter

2008-08-05T08:52:00.004-05:00

The Oil & Gas UltraShort (DUG) hits $39.89. This ETF is up over 20% since my call and I have to continue recommending taking more profits.

Overall, this commodity fallout has been viscious- many commodities are at 4-6 month lows. Commodity stocks have been just getting killed, even agricultural stock.

Here is a chart of Monsanto (MON)- just looks painful.

Today the commodity stocks are moving up, opposite of the trend, so we need to be careful about this being a fool's rally. I believe there is a very real possibility that commodities can overshoot their fundamental to the downside as they did to the upside if we keep hearing poor news about emerging markets. This means that exposure to steel stocks should continue to be cut.

Although, I am now becoming bullish on Natural Gas. This seems to be one of the most beaten up commodity sectors and I believe Nat Gas will become a more of an Crude Oil alternative due to the lower BTU price.

Chesapeake Energy is down about 40% in a matter of weeks.

Sell MasterCard (MA) and More!

2008-08-04T11:53:00.002-05:00

Current Price: $233

I Was Wrong About the Quarter for First Solar (FSLR)

2008-07-31T12:13:00.004-05:00

Current Price: 292.50

FSLR managed costs and margins very well and beat expectations by a mile. However, I just don't see a tremendous interest in buying.

If the stock stays below $300, the short side still may have a chance: valuation is still getting rich and oil may keep falling.

AGCO (AG) Upgraded at UBS

2008-07-30T13:56:00.005-05:00

The stock is really taking off towards the close.

Currently, up 5.72% to 62.23.

AGCO numbers raised at UBS to $3.65 from $3.15. Price target raised to $54 from $50. Maintains Sell rating.

Lets expand on that. They raised their numbers by 0.50 or 16% but raised their price target 8%.

The stock grew sales 40% and is estimating to keep growing sales at a long term growth rate up to 30%. Margins are expanding: EPS grew 100% in the MRQ.

But the model for the UBS analyst says the stock will trade a at 15 P/E?

Your model is broken!

Regardless, I recommend taking profits due to the very large run-up the stock has had since most recent recommendation.

First Solar (FSLR) Reports After Hours:

2008-07-30T13:13:00.002-05:00

From Clusterstock (sums up things very well):

Key Metrics:

Q2 EPS: $0.58 consensus, $0.70 whisper
Q2 Revenue: $216.9 million consensus
Gross Margin: 49% consensus
2008 Guidance/Consensus:
- $975 million to $1.05 billion in revenues ($1.04 billion consensus)
- 420MW to 460MW of shipments
- $36 million to $39 million in plant start-up costs
- $50 million to $52 million stock-based compensation
- GAAP operating margin of 25% to 30% with a 28% to 30% tax rate
- 83 million to 84 million fully diluted shares outstanding
- $500 million in capex
- EPS: $2.95 consensus

2009 Consensus
- EPS: $5.84 consensus
- Revenue: $1.88 billion consensus

We're looking for color on:

speed, progress and outlook for the Malaysian plant ramp up
how much margin pressure there will be in the near-term due to the high costs of ramping up in Malaysia
strength of the US utility (and possibly residential) market demand with or without ITCs (Investment Tax Credits)
likelihood of further subsidies around the world and FLSR strategy for taking advantage of them
efficiency improvements
possibility of a weaker Euro (the currency FSLR receives a vast majority of their revenue in)
how they will respond to the increased competition as countless technology companies, from General Electric (GE) to Intel (INTC), take the plunge into solar

And, of course, any reassurances regarding the possible toxicity of their cadmium telluride (CdTe) cells, their supply of Tellurium (a rare element necessary for the production of their CdTe cells), and FSLR's insider stock sales.

http://www.clusterstock.com/2008/7/first-solar-fslr-q2-preview-market-expecting-a-blowout

The last paragraph needs emphasis. From early April, insiders have sold 577,907 shares for an average price of $276.28 for a total of $17,410,277. More importantly, ever since April, FSLR has been in the wide range the stock currently is in. Market is saying telling us something.

http://moneycentral.msn.com/investor/invsub/insider/trans.asp?view=All&Symbol=fslr

I also don't understand why everyone harps on FSLR's ability to create solar panels more cheaply (about half) than its competitors when it's can only convert half (or less) of the sunlight into electricity. To me, this sounds like you get what you pay for. FSLR doesn't sound relatively cheaper at all.

**Industry Conversion Efficiencies**
Manufacturer	Conversion Efficiency
SunPower(Polysilicon)	23.4%
Suntech Power Holdings(Polysilicon)	18%
Sharp (Polysilicon)	13%
Kyocera (Polysilicon)	18.5%
Solarfun (Polysilicon)	17.2%
JA Solar Holdings (Monosilicon)	17.7%
Trina Solar(Mono & Polysilicon)	16.6%
Evergreen Solar (String Ribbon)	15%
EMCORE (GaAs Concentrated Solar System)	37%
Energy Conversion Devices (Amorphous Silicon Thin Film)	8.5%
First Solar (CdTe Thin Film)	10.5%
DayStar Technologies(CIGS Thin Film)	14%
Ascent Solar (CIGS Flexible Thin Film)	9.5%

http://www.wikinvest.com/stock/First_Solar_(FSLR)

Lastly, FSLR carries a HUGE risk exposure to cadmium telluride. The more I read up about this substance the more idiotic the manufacturing process sounds. Why would anyone pick an "alternative" form of energy that is scarcer than. To add, the substance may be banned as illegal in Europe due to its extreme toxicity.

I am doing to stick my head out and stick with my short call. I sell $30 up and $80 down.

Current Price: $283.64

Stories of the Day for 7/30/2008

2008-07-30T09:40:00.006-05:00

Chicago Bridge & Iron (CBI) continues to move up strongly on the release of the Q. Investors are learning that the UK project seems to be a one-off as the rest of the backlog is performing well. The company now trades at 1/2 of backlog.

Current Price: $35.50 Up 4.85% for today. Up almost $5 from my recommendation 2 weeks ago, or 15.6%. AUG 30 Calls moved up from $2.80 to $5.80, or +107%

Garmin (GRMN) disappoints. Delays the release of their phone and weak outlook.

Current price: $39.50 Down 12.23%. LOD was $37.69. I want to take a majority of my stake out at $36.00

SPX Corp (SPW) crushes earnings.

SPX Corp. reports a rise in secomd-quarter net income to $94.8 million, or $1.74 per diluted share. In the same period last year, the Charlotte-based company earned $63.9 million, or $1.12 per diluted share.
Revenue in the latest quarter nearly doubled to $546.5 million from $278.1 million a year ago. The increase was due primarily to the fourth-quarter acquisition of APV, which contributed $217.1 million to revenue for the quarter

SPX Corp is raising its 2008 earnings guidance to between $6.40 and $6.60 per share from its previous estimate of $6.20 to $6.40. The company earned $5.22 per diluted share in 2007.

http://charlotte.bizjournals.com/charlotte/stories/2008/07/28/daily25.html?ana=yfcpc

I am extremely disappointed on this news- it's causing the stock to surge almost 10%. I have been hoping for a strong pullback in the stock before I recommend it. This is a great company and will participate in the future electrical infrastructure boom.

Owens-Illinois (OI) reports after the close. I expect to hear good news. However, I am trying to consistently lower my risk. Let's sell a 1/3 to a 1/2 of the position (depending on your risk tolerance) going into earnings.

Current Price: $48.50

*UPDATE* Currently the DJIA is up 110 points but it feels weak. I think that we will continue to see a sell-off today so don't be afraid to take some day-trading profits on your longs.

Stories of the Day for 7/29/08

2008-07-29T09:28:00.006-05:00

U.S. Steel (X) plowed through the analyst estimates.

U.S. Steel's net income more than doubled to $668 million, or $5.65 per share, for the three months ended June 30, compared with $302 million, or $2.54 per share, during the same period last year.
Revenue climbed 60 percent to $6.74 billion from $4.23 billion in the second quarter of 2007, the company said.
The results easily beat Wall Street estimates. Analysts, on average, predicted earnings of $3.91 per share, according to a survey by Thomson Financial.
http://biz.yahoo.com/ap/080729/earns_united_states_steel.html?.v=3

Current Prices for the Steel names

X: $167.25 Up 15% and going higher. UPDATE: Now $169.20

CLF: $106.48 up 5.18%

AKS: $56.93 up 13.20%. UPDATE: Now $58.30

The relatively weak move in CLF makes me think that the Street really doesn't like the earlier announce acquisition. Lighten up on your position further.

Oil and Natural Gas continue to be weak. Oil approaches $120 and NG broke below $9. Oil & Gas Ultra Short (DUG) moves up to $37.75, or up 4.10% Let's take some more profits.

AGCO (AG) also crushes earnings.

Duluth, Ga.-based AGCO (NYSE: AG) recorded $2.4 billion in sales, a quarterly record for the company. The company earned $133.1 million in net income for the quarter ended June 30, or $1.34 a diluted share. During the same period last year, the company earned $63.8 million, or 67 cents a diluted share.

Richenhagen added the company’s “second quarter operating margins increased 1.4 percentage points to 7.9% compared to the second quarter of 2007.”

Current Price: 58.43, up 11.80%. Stock also hit a HOD of $61.67

Lets takes just some profits when it nears closer to $60 again and let the rest run. My margin expansion thesis is still intact so I continue to be bullish on AG.

Lighten Your Exposure to the Steel Names

2008-07-28T11:06:00.002-05:00

I was a little over-enthusiastic on my original call on steel names.

There are widespread fears of a global slowdown that now isn't completely unfounded.

Current Prices

CLF: $103.20

X: $148.00

AKS: $50.20

Lets Take Some Profits in CSX and OI

2008-07-24T14:11:00.004-05:00

Current Price of CSX: $64.40

UNP reports a good number today but we made some money, this is a tough market, so lets not give it back.

Current Price of OI: $46.25

Owens-Illinois is great. One of my favorite stocks. To boot, NG is coming down, which has been a driving factor for fall in the stocks. But, once again, fears are coming back strong and I'm not a fan of giving back profit.

Boeing Dowgrade: I Disagree

2008-07-24T12:02:00.004-05:00

Here is a small summary of the downgrades (list provided to me by www.clusterstock.com)

Goldman downgrades Boeing (BA) from Neutral to SELL, target price $60. BA has been added to Goldman's Conviction Sell List.

Goldman downgrades Textron (TXT) from Buy to NEUTRAL.

Goldman downgrades Precision Cast (PCP) from Buy to NEUTRAL.

AmTech maintains NEUTRAL on Boeing (BA), target price cut to $67.

We also have an article in the Wall Street Journal stating

the landscape is shifting as oil prices rattle the underlying economics of the airline industry...The combined value of the orders for Airbus and Boeing planes exceeds $500 billion at list prices, so large-scale cancellations and deferrals could easily amount to tens of billions of dollars.

Officials at Boeing and Airbus, a unit of European Aeronautic Defence & Space Co., say orders for their jets are spread across a diverse group of carriers world-wide, insulating them from regional economic swings. But they acknowledge that they are in almost daily talks with airlines seeking to cancel or defer deliveries. Although most of these discussions involve U.S. carriers, signs of stress have emerged from India to Europe....

25% to 30% of the two makers' order books -- roughly equivalent to the number of planes that were intended to accommodate airline growth rather than replace aging planes -- could be subject to what he called the "flake-out factor" if oil prices continue their unprecedented rise.

To summarize, the analyst think that a weakening world environment and rising fuel prices will decrease demand for new planes and increase deferral and cancellations. The analysts are looking out to 2009, 2010, and 2011. I also want to add that the WSJ story is really misleading and has cherry-picked data.

In other words, they are making making an assumption on where the economy, aerospace demand, and oil prices will be 1-3 years old. I have a HUGE problem with this: they might as well be rolling dice with this many assumptions in their model. These guys are wrong half the time where economy and oil price will be 3 months from now but they are making predictions on where all all these moving part- world demand is dependent on the actions of 6+ billion people- will be in 3 years!

For instance, Goldman predicted a super spike of $150-200 in the next 6 to 24 months. What a precise range in such a narrow time frame! What we are seeing right now is clear demand destruction- opposite of their thesis. To contrast, Lehman brothers is now predicting a drop to $93 in 2009.

More importantly, there have been fears of order cancellations for at least 6 months now and all these fears have proved to be unfounded.

Lets get some news straight from the horses mouth. Here are some crucial statements from Boeing:

Despite the cost pressures in the second quarter, we achieved double-digit earnings per share growth in our first-half results.
Commercial airplanes continued to grow its backlog this quarter, with orders exceeding deliveries by a factor of 1.5. BCA's backlog now represents approximately eight times current annual revenues and remains diverse by region, product type and customer. In addition we continue to have unprecedented diversity in our commercial backlog, which now includes only 10% from U.S. airlines.
So far we have experienced a minimal impact on backlog, with only a handful of deferrals by U.S. carriers. We have had no cancellations to speak or, nor have the international carriers come to us to discuss deferral plan
[Although we expect some deferrals and cancellations,] Right now the demand for fuel-efficient new aircraft is still higher than what we can supply from our production plan.

What all this says to be is there is a possibility for some rough waters. However, even with some deferrals and cancellations will be offset by current world demand. Demand is outstripping supply by 1.5- that's really incredible. Also, we a backlog that is years of revenue. So by increasing production and recognizing revenue on delivery, I see little reason to fret until we see China, India, and the Middle East slowing significantly.

Stories of the Day 7/23/08

2008-07-23T09:29:00.006-05:00

Home Depot (HD) is Upgraded

Analyst sees possibility for Home Depot market share improvement when once sector rebounds ATLANTA (AP) -- Shares of The Home Depot Inc. rose Tuesday after an analyst said the world's largest home improvement chain was poised to gain market share when the sector's sales begin to improve.
Citigroup Investment Research analyst Deborah Weinswig told investors in a research note Monday evening that the Atlanta-based company is off to a "solid start" on its efforts to roll out a series of regional distribution centers called "rapid deployment center"
"While the housing market remains challenging, we believe that (Home Depot) is well-positioned to gain market share when home improvement sales begin to improve," Weinswig wrote.
The rapid deployment centers are smaller than traditional distribution centers and are designed to allow Home Depot to improve its in-stock offerings, increase inventory turnover and lower the cost of getting merchandise on to store shelves.

Currently, the stock is up 6.81% to $25.57. I am a very big believer in Frank Blake.

Nike (NKE) is breaking out above $60. The stock is up 2.39% to $60.06. It is finally starting to look like the street is realizing the sales Nike can generate because of the Olympics.

Crude Oil and Natural Gas stocks continue to be weak. Crude Oil falls to $126.51 while Natural Gas stays flat around $10.10. Oil & Gas UltraShort (DUG) is up6.24% to $35.94.

Frontline Shipping (FRO) is up 5.98% to $68.70 on an upgrade from JP Morgan citing potential for dividend expansion.

Boeing (BA) Reports Mixed Quarter

2008-07-23T09:19:00.006-05:00

Stock is down a little under 5%, to $66, at the moment on mixed results on the Quarter.

I think the stock is down on the few one time charges. In contrast, the maiden flight of the Dreamliner is still scheduled for late August. Moreover, U.S airlines only makes up 10% of the BCA backlog.
I want to verify this but I think I heard BA say they spent around $900 million on $11 million shares. Average out to $81.82/share

I still think BA is a buy now but hopefully we will see it closer to $63.

Boeing is very bullish on ramping up of deliveries in FY2009 and even more so in FY 2010.

Today's Stories for 7/22/08

2008-07-22T08:47:00.008-05:00

Wachovia (WB) Post a $8.86 billion loss in the second quarter, slashing its dividend, and cutting 6,350 jobs after losses tied to mortgages soared. But this this into perspective, WB has less than a $25 billion enterprise value.

Stock is down over 10.5% to $11.80.

WB released news last night that they will quit the wholesale lending business. My theory is if a company releases bad news within the quiet period before earnings, earnings will be BAD. It tells me they are simply trying to stretch out the news over a series of days. True to theory, this report was just awful. I am surprised not to have heard of them raising cash this Q. The acquisition the company completed last year of California-based Golden West seem to be the bulldozer that is clearing shareholder value. Although non-performing assets are "only" 2.41%, this continues to be a must sell until they raise boatloads of money and/or break the company apart.

Time to take profits in Circuit City (CC) at $2.30. 15% gain in a retail stock in this terrible market is a gift- don't give it back!

Natural Gas breaks below $10 for the first time in a long time. Good news for stocks like Owens-Illinios (OI) which is up slightly today to $46.43 but up almost $1.00 from low of the day.

Big news for Caterpillar (CAT):

Caterpillar's 2Q profit rises 34 percent as stronger sales outpace material, freight costs PITTSBURGH (AP) -- Caterpillar Inc.'s second-quarter profit jumped 34 percent as stronger international sales outpaced higher raw material and freight costs for the maker of backhoes and other heavy equipment.

The Peoria, Ill.-based company on Tuesday reported profit of $1.11 billion, or $1.74 per share, for the three months ended June 30, compared with $823 million, or $1.24 per share, a year earlier.
The results easily beat Wall Street expectations.
Quarterly revenue rose 20 percent to $13.62 billion from $11.36 billion, with sales shifting outside North America. Caterpillar generated 60 percent of quarterly sales and revenues outside North America, up from 55 percent a year earlier.
Analysts polled by Thomson Financial, on average, expected profit of $1.54 per share on revenue of $12.69 billion.

Because price increases outpaced material and freight costs, I see continued pricing power in those 2 sectors. Steel stocks seems strong and so do the rails like CSX.

Wal-Mart (WMT) rallies 2.34% to $58.65. This stock has faced a lot of resistance in the $59-60 range. If you got into this stock as a quick trade, it is time to start scaling out. If you're in as an investment, I am still bullish on WMT- they are doing brilliant things with their stores.

First Solar (FSLR) is down 3.7% to $270.80. I am still bearish on this stock. I realize that California is a huge catalyst but I think that California may have one of the largest budget shortfalls in the Union with the current housing market. Also, the slow down in Europe should definitely effect FSLR given most of their business come from a new major clients from Germany.

Apple (AAPL) reports Q3: Guidance Disappoints

2008-07-21T16:50:00.003-05:00

I won't talk about Q3 numbers. They were great but they don't matter: it's the past.

The very first numbers that jumped out for me is Q4 EPS guidance of $1.00 on $7.8 billion.

This is, obviously, below Wall Street guidance and I don't care. AAPL consistently gives out "conservative" (AKA sandbags) earnings. What bothers me is they are projecting less EPS on higher revenue than Q3.

This has consistently been a company that puts its products on no or very small sales. This has been a high margin business and they are projecting such a sharp decrease?

Next FY margins are said to contract from 34% to 30%- expect multiple contraction.

On top of this, Steve Jobs was not on the conference call and they would not disclose his state of health. I'm not speculating on his health, vegans can be a crazy bunch, but this will probably spook some people and contribute to the downside of the stock.

Big Movers Today

2008-07-21T13:57:00.003-05:00

MasterCard (MA) down 4.58% to $268.09

Oil and Gas UltraShort (DUG) down 4.53% to $32.65

AGCO (AG) up 7.72% to $54.72

Deere (DE) up 5.03% to $70.74

Cleveland Cliffs (CLF) up 5.56% to $103.70

AK Steel (AKS) up 7.09% to $50.43

U.S. Steel (X) up 4.48% to $149.00

Chicago Mercantile Exchange (CME) down 3.60% to $320.48

Garmin (GRMN) up 2.30% to $46.10 on TomTom's earnings. I recommend lightening up or completely exiting the short recommendation. There are some signs of a slow-down but less than expected.

Bullish on Boeing (BA)

2008-07-18T10:25:00.011-05:00

Current Price: 66.50

Boeing (BA) seems to have found large support in the range of $63 (I wish I posted this $4 ago). Hopefully, we will see this range again as some random event causes oil to spike and market to fall back from this 500 point rally.

This call is based on the hypothesis that fears of order cancellations are overblown. I think that this recent SURGE in airlines can result in stock being issued to afford these new fuel-efficient planes. However, this call does not depend on such a scenario.

The Numbers:

FY 2008 EPS Estimate is $5.92, giving it a 11.4 P/E
FY 2009 EPS Estimate is $6.97, giving it a 9.7 Forward P/E
The growth rate between FY 08 and 09 is 17.7% growth rate and a 0.55 PEG ratio
3-5 year growth rate is expected to be 32.9%, giving it a long-term 0.29 PEG based on FY 09 P/E
The current TTM P/E, 11.77, is the lowest this stock has traded in at least 5 years.
With a backlog of $350+ billion, the company is trading at 1/7 of backlog.

Don't forget the GIGANTIC stock buyback. It has been easy to forget about the $7 billion buyback since the stock has fallen from about $120 since last year. However, this stock buy back is 14% of the outstanding shares at this valuation- incredible. On top of that, you can pick up a $0.35 quarterly dividend. Nothing wrong with a 2.50% yield.

Boeing is bullish on its future too. I reported earlier Boeing's increase its 20 year projection of commercial airline deliveries. I can see this translating into a bullish guidance when BA reports on July 23.

Boeing is a globalization play. The recent news of sales to China for $6.3 billion and many billions more to the oil rich countries support this.The orders beat many analyst forecasts.

(As a side note, I believe in world economies bonding. We have seen the fallout of the Latin American, Russian, and Japanese economies spill over and hurt the rest of the world. The world is more correlated today than before: exports are growing as a larger portion of world GDP. Where is all this decoupling garbage coming from? The bonding of world economies is more true today than ever before. )

BA also seems to have some of the best technology. I am not just talking about the new Dreamliner. Recently,

Boeing Co. said if the U.S. Secretary of Defense picks its 767-based tanker, instead of a rival Airbus A330-based model from Northrop Grumman Corp. and EADS, the U.S. Air Force could save more than $40 billion in fuel bills over 40 years.

In a study paid for by Boeing (NYSE: BA) and conducted by Conklin & de Decker Information, Boeing said, it was determined that the heavier A330-based tanker consumes 24 percent more fuel per trip than its 767-based tanker model.

Also important to note, BA might win back the controversial tanker deal it lost last year. This would be an astonishing turn of events.

Lastly, I must mention the Dreamliner progress. Although, the Boeing team successfully increased its 737 production, the 777 Freighter and the 747-8 programs remain on track, not all is well. The 787 has been pushed back repeatedly and there are fears that it will hurt economic prospects. It will actually take some time for the 787 to be profitable. Initial estimates are break even as the learning curve needs to be built up. More importantly, we have not heard of anymore set back. I am forced to assume they feel comfortable with the current first flight buffer so we will not have anymore delays

Overall, the aerospace industry is an oligopoly. Both BA and Northrup Grumman (NOC) have tons of pricing power so I do not see raw material costs affecting that is affecting so many other companies. Surprisingly, BA operating margin for commerical plans has been growing strongly. Last quarter, BA reported in Q1 2008 that operating margins expanded to 11.3% from 9.3% from Q1 of 2007. Boeing estimates an overall operating margin of 10.5% in 2008 and growth above that in 2009.

This BA stock price and rolling EPS

Also pension expenses are said to be $300 million lower in 2009 vs. 2008. In Q1, BA offer 2009 guidance between $6.80 and $7.00, below Wall Street estimates, but Boeing has historically been a conservative company, raising forecasts in Q2 and Q3.

Although, industrials are hated at the moment, I believe Boeing is poised to outperform over the next 12-24 months.

Get Out of Google (GOOG) and Short It!

2008-07-18T08:47:00.004-05:00

Yesterday's report was tough. Huge miss on many many levels. GOOG is a great company but the stock is broken an the multiple needs to come down.

Get out now, $495.00, and short it until at least $480.00 and down to about $470ish.

This stock will now trade on technicals and should fill the gap (on a self-fulfilling prophecy level).

GOOG REPORTS: HUGE MISS

2008-07-17T14:57:00.004-05:00

Key Metrics (as per TechTicker)

Gross Revenue: $5.4 billion consensus, up 40%
Net Revenue: $3.88 billion consensus, up 44%
EPS: $4.75

Sticking my neck out today for GOOG at $528.00, currently $532.50.

*UPDATE*

Google 2Q Non-GAAP EPS $4.63. GAAP EPS $3.92

Revenue of only $5.37 billion

Paid Clicks Up 19%
International Revenue of $2.80 billion- 52% ot Total Revenue
Network Revenue of $1.66 billion
TAC $1.47 billion

Let's Take Some Profits

2008-07-17T14:12:00.002-05:00

MasterCard (MA) : $286.00

Recommended at $245.00 on 07/08/2008- up $41.00, or 16.7% in 9 days

Oil & Gas UltraShort (DUG) : $36.40

Recommended at $32.59 on 07/15/2008 - up $3.81, or 11.7% in 2 days

I still think that both of these have upset but the gains I've seen in these two are incredible. It is prudent to take some profits!

First Solar (FSLR) a Short

2008-07-17T14:06:00.000-05:00

Current Price : 282.00

Stories of the Day for 7/17/08

2008-07-17T10:23:00.010-05:00

Chicago Bridge & Iron (CBI) Upgraded to BUY by Davidson. Must believe that Q2 was a one-off and the sell-off overdone.

Current Price: $30.70

There is a good price, if you believe that fear of municipality exposure is overblown.

Estimates for FY 2009 is $3.03 EPS. Based on those estimates, the F P/E is 10! Compared to a long-term growth rate of 30%

I agree with this upgrade- I am an infrastructure bull.

Wachovia (WB) Securities HQ raided in auction rate probe.

Securities regulators from several U.S. states raided the St. Louis headquarters of Wachovia Securities, part of Wachovia Corp (NYSE:WB - News), on Thursday as part of a broad investigation into questionable practices involving auction rate securities, Missouri officials said.

Missouri Secretary of State Robin Carnahan's office said the "special inspection" at the Wachovia division, the former A.G. Edwards, concerned the $330 billion auction rate securities meltdown. It said regulators were looking for information about Wachovia Securities sales practices, internal evaluations of the auction rate securities market, and marketing strategies.
In addition to securities regulators from Missouri, regulators from Illinois, Massachusetts, New Jersey, Pennsylvania and other states were part of the team entering Wachovia Securities' headquarters, the officials said.

http://biz.yahoo.com/rb/080717/wachovia_probe.html?.v=2

Owen-Corning (OC) up over 10% at the moment to 23.47. It was up about 17%, or 25.19, at one point. Previous close was $21.60. I have found no news yet. Possible accumulation by smart money- we had insider buying earlier in the month and in June.

Apple (AAPL) came in third place in the U.S. as its shipments rose 38% from a year ago. At the same time AAPL is upgraded to $223

Crude Oil continues to fall. At the same time, Natural Gas inventories were up HUGE- pushing NG to below $11/MMBTU. Both of these affirm my short oil call. The Oil & Gas UltraShort DUG is up another 4% to 35.20, and up 8.5% in 2 days from my original recommendation.

**UPDATE** OIL FUTURES: Crude Off $16 Since Mon,Largest 3-Day Drop Ever To $129.48/bbl. Down $5.12 Today. UPDATE **

*** Google (GOOG) is reporting soon and I think it will beat estimates. I don't have all the channel checks as the big buys but I do have a decent sense of what assumptions were not taken. I believe that because higher gasoline costs are keeping more people home - they are spending more time on the internet. GOOG is a buy at $528.00

AT&T (T) hit a new 52 week low today at $31.34. I think there is too much pessimism towards T with the amount of new subscribers coming onto the carrier thanks to the carrier. I am also bullish on their "Advanced TV" product.

Black & Decker (BDK) rallies today 6.2%. to $58.55. This may be the singles beat company to invest in when the housing market recovers. They have decent of cash, cut their outstanding shares by 20% over the years, a great brand, and trading at less than an 8 P/E.

Vale Do Rio Doce (RIO) is Upgraded by Goldman Sachs to BUY!

2008-07-17T10:09:00.003-05:00

Brazil Miner Vale Raises BRL19.4B In Global Share Offering

Last update: 7/17/2008 6:16:16 AM

SAO PAULO (Dow Jones)--Brazilian mining giant Companhia Vale do Rio Doce (RIO), or Vale, raised 19.43 million Brazilian reals ($12.1 billion) from its global share offering, the company said Thursday in a statement.

Vale said it sold 256.9 million common shares and 189 million preferred shares. The common shares were priced at BRL46.28 per share and each preferred share at BRL39.90
.

The shares were sold in Brazil and to foreign investors in the form of American Depositary Receipts, or ADRs. The shares offered are set to begin trading July 18.

Credit Suisse Group (CS) was the lead coordinator of the operation.

Vale said it will use the net proceeds of the offering for general corporate purposes, which may include financing its program of organic growth based on its $59 billion investment plan, strategic acquisitions, and increased financial flexibility.

Vale's offering was the largest operation in Brazil's equity market in terms of financial volume, considering initial public offerings and primary offerings.

In June, local oil and gas company OGX Petroleo e Gas Participacoes SA (OGXP3.BR) OGX raised BRL6.71 billion from its initial public offering, Brazil's largest ever.

In connection with the current operation, Vale said that it will list and trade its common and preferred ADR's on the Euronext Paris.

Currently, Vale's common and preferred shares are listed on the Sao Paulo Stock Exchange, the Bovespa, and its common ADR's and the preferred ADR's are listed on the New York Stock Exchange.

With the talk that some are disappointed at RIO for not raising $15B, maybe Goldman Sachs thinks that $12+ Billion is enough.

Stories of the Day for 7/16/08

2008-07-16T12:29:00.009-05:00

As oil falls, gold should be taken down with it as inflation fears ease. Easy short for this will be the GDX (Currently: $48.60)

I also think that today's Wells Fargo (WFC) is good news for only them and the very few banks in the same situation. This may be the pop that people should look to sell their longs and go short.

I think the relative weakness in Wachovia (WB) today is a sign to short it. Short sellers are working hard to keep it below $10.00 and push it towards $5.00
With a tight stop, this is a SHORT. Current Price: 9.70

CBI pre-announced yesterday that it will take a 4th quarter loss and the stock is down sharply. At the same time, it is taking down other infrastructure stocks. CBI problems are solely theirs- they have had problems with their UK projects for multiple quarters! This weakness should be taken advantage of- Shaw Group (SGR) confirms for us the general strength of infrastructure industry.

Let's look at some of our previous calls:

The Oil UltraShort (DUG) is working out great! (Maybe to soon to toot my horn, but) it up 5% today to $34.25
Owens-Illinois (OI) is up 4.5% to 43.98 and breaking out past $44. Looks to be going higher as fears of raw cost brought it down dissipate. Most recent recommendation was at $40.50- 8.6% gain!
Mastercard (MA) is up an enormous 7% today to 268. Originally recommended at 242, up $26, or 10.7%
CSX Corp (CSX) is up 6% today after strong earnings to $61.35. Flat since my recommendation.
AGCO (AG) and Nike (NKE), and Frontline (FRO) are flat for the day.
Frontline (FRO) is up to $61.80 from my $59.75 and I want to recommend easing up on it. I like this company less right here.

Foster Wheeler (FWLT) is down to 2.7% to 59.75. Down since my most recent reiteration at $62.80
Garmin (GRMN) is up 7.5% today and $2.00, or 4.5%, since my Short recommendation. Seems to be rallying on the Ford Europe news and a technical breakout. I still don't like GRMN but the market may be telling me I'm wrong. I want to do more research.

My CLF / X / RIO /AKS call doesn't look clearly right at the moment. The charts looks like there is more pain to come, at least, until earnings are released and more news is out.

That' definitely better than the the S&P's 11% loss in about a month.

CRUDE OIL TO FALL IN THE SHORT TERM

2008-07-15T22:59:00.006-05:00

Bold call. As with any bold call, the risk of me falling on my face and looking stupid are pretty good.

I have been not bearish on oil until today. A couple of days ago, we had oil fall $10. Big move. Everyone was thinking that this is another great opportunity before oil hit $150, $170, $200. Easy money? Well sorta. We made a new high of $147. But during this whole time oil felt frail. You can sense it on The Street, on CNBC, and through the movement of the tickers. Now today, we had the largest dollar drop in oil in almost 2 decades.

I can't recall of a time when such a strong and large movement in a parabolic uptrend did not signal (at least a temporary) change in sentiment.

The oil trade is very crowded. Speculation now makes up 70+% of volume verses some 30% a couple years back. Maybe we're short on oil contracts and not barrels of oil? The amount of dollars going into crude oil futures has gone up many, many folds from mutual funds. The gargantuan increase is similar to the tech bubble. By this I mean, the parabolic rise in capital allocated to asset class. When the inflow stops and only sellers are left, there will be a stampede out of oil. We saw a small version of this today, with oil falling $2 in 1 minute.

For the first time in a long time, the refiners Valero (VLO) and Tesoro (TSO) rallied. This tells me something. VLO is completely pitiful with a net income margin of 0.09% and TSO is in the same boat. Along with the airlines, these companies have the most to gain from the fall of oil. For those who are unfamiliar with the situation. The refiners are the middlemen between crude oil and your gasoline. They have no pricing power in this environment so they need oil to fall.

How about a contrarian indicator. Big Oil, like Exxon, is closing down about 2000 gas stations because the profit margins of are so poor. When the big guys give in, this may be the capitulation the market needs. The way of the world, you close down shop at the peak of the pain. I won't buy the argument that XOM has a their finger on the pulse and knows to well to close at the top. XOM has under performed almost ever oil company out there. They spend billions of dollars buying oil at spot prices. They seem to be as much of a consumer of oil as me and you.

Now lets look at the supply/demand aspect. The expansion in oil prices can be summed up, by many, as the world demanding 86 million barrels of oil and we can only supply 85 million per day. Crude is a stable so we can bump up the price without a negative impact on volume. More specifically, growth in China and India will not stop and oil prices will keep climbing. Brazil and Russian are not the problem: they have plenty of their own oil.

Now the U.S uses 21 million, China uses 8, and India uses about 5. If all of a sudden U.S. uses 20.25, China uses 7.5, and India 7.75, we now have a 500,000 barrel/day surplus. Random numbers? Sorta. Firstly, I don't believe anyone can predict the future with much accuracy- even the smartest economist have a 50/50 track record.

EIA estimate thats because fuel prices, the U.S. now uses about 500,000 barrels per day.

Time for some math (simple algebra): 70% of U.S. demand is trasportation (diesel, gasoline, and jet fuel) related. That's 14.7 millions barrels. Looking at the airlines, truck drivers (YRCW), and commuters, a 5% decrease in demand is very viable, if not already present. 5% of that is already 735,000 barrels. I'm not even guessing about the other 30% but I doubt that demand has grown.

Now, all accounts show that China is still growing just a little bit slower. Some say its the earthquake, some don't believe in decoupling (I believe in the opposite, bonding of world economies- we've seen this many times), and others the high interest rates in China. To boot, Chinese stock market has fallen over 50%- eliminating billions in wealth. China is definitely slowing down just a little bit. Lastly, I want to add the near 20% price increase the Chinese government passed onto gas prices. 20% spike in prices overnight will affect demand.

Tomorrow, China reports CPI. Should be educating.

The OIL UltraShort would be a very aggressive way to play this. Current price is 32.59

Intel (INTC) Beats Estimates!

2008-07-15T15:17:00.002-05:00

Intel reports $0.28 vs $0.22 a year ago. Estimates for current Q was $0.25

Revenue $9.47B vs. $8.68B. Projects Q3 Revenue to $10-$10.6B. Gross Margin to stay at 57%.

This sets up a tech rally for tomorrow.

CSX Report AH and Conference Call in the AM Tomorrow * UPDATE* BEATS!

2008-07-15T14:08:00.005-05:00

Estimates: $0.91 EPS (EPS Estimate was $0.90 less than a week ago)
$3.58 For FY 2008
$4.25 For FY 2009

I will update this post a the numbers hit the wire and as the CC takes place.

*UPDATE* NUMBERS RELEASED *UPDATE*

CSX Corp 2Q Non-GAAP EPS 89c Vs Non-GAAP EPS 71c >CSX
CSX Corp 2Q EPS 93c Vs EPS 71c >CSX

CSX Reports Record Second Quarter Earnings

Last update: 7/15/2008 5:01:00 PM

Second Quarter Highlights: - Earnings per share from continuing operations increase 31% - All-time records in revenues and operating income, up 15% and 17% respectively - Safety and service performance remains strong

JACKSONVILLE, Fla., July 15, 2008 /PRNewswire-FirstCall via COMTEX/ --

CSX Corporation (CSX) today reported second quarter 2008 earnings of $385 million, or a record 93 cents per share. Last year CSX reported second quarter earnings of $324 million, or 71 cents per share.

Second quarter 2008 results included 4 cents per share associated with the resolution of certain tax matters. On a comparable basis, excluding this item, second quarter EPS was up 25 percent from a year ago. (See table below for reconciliation of quarter items to reported numbers.)

"CSX continues to deliver significant value for shareholders and demonstrate the secular strength of our business," said Michael Ward, chairman, president and CEO. "The strong earnings performance delivered by this team was supported by all-time records in revenue and operating income, despite the effects of a softer economy."

Sustained strong demand for export coal, grain, ethanol, metals and phosphates and fertilizers, as well as solid yield management, continued to lead significant revenue growth across CSX's markets. Revenue increased in eight of the company's ten markets resulting in overall quarterly revenues of $2.9 billion, a 15 percent increase over the same period last year.

CSX produced quarterly operating income of $717 million, up 17 percent over the $612 million reported last year. The company's continued focus on productivity and cost control helped to offset the significant increase in fuel costs, driving its operating ratio to 75.3 percent for the quarter.

"We are achieving the company's vision, quickly taking this company's results to industry leading positions," said Ward. "This success is propelled by our employees every day delivering exceptional customer service, safety, innovation and a balanced approach to managing capital that drives shareholder value and positions the company to leverage future demand."

Reflecting the company's strong second quarter performance and the underlying strength of its business, CSX continues to target the upper end of its previously announced 2008 EPS guidance of $3.40 - $3.60 on a comparable basis.

Curcuit City (CC ) is a Buy? Nibble on it.

2008-07-15T13:41:00.002-05:00

This may sound like I'm trying to catch a falling knife but there is some logic.

I should start out with the case against. They are taking mind-blowing losses and they are a retailer. There are few sectors doing worse than retail: my Home Depot (HD) turned out disastrous.

But at $2.00, there may be some value here. At this price, the company has an enterprise value of less than $350 million dollars. Icahn can buy CC with his lunch money. I know that I don't have the crystal ball to predict future buy-outs but this is really chump change for a top 5 consumer electronics retailer.

Nike Upgraded to "Positive" Today

2008-07-15T13:34:00.002-05:00

I am STILL very bullish on NKE at this level.

Analyst upgrades Nike shares, says US prospects are improving as selling prices rise NEW YORK (AP) -- An analyst on Tuesday upgraded Nike Inc., due to its relatively cheap share price and the belief that the athletic apparel and footwear maker's U.S. prospects are improving.

Susquehanna Financial Group's John Shanley wrote in a note to investors on Tuesday that Beaverton, Ore.-based Nike's U.S. market share is growing despite a difficult economic environment.

He upgraded Nike to a "Positive" rating from "Neutral" with a $70 price target.

He said the company has made "strong gains" in domestic market share over the past two years. Higher average selling prices are helping to offset overall slowing unit growth, and retail expansion should also help results, Shanley said.

Additionally, he said that any potential downside risk for the company over the next 12 months may already be priced into the stock, which has fallen 13 percent since the beginning of the year.

"We believe Nike's dominant U.S. market share position in the athletic footwear segment of the market, its well-diversified brand portfolio, and its growing presence in developing markets such as China and Russia should allow the company to better navigate through these difficult macroeconomic conditions than many of it competitors," Shanley wrote.

http://biz.yahoo.com/ap/080715/nike_ahead_of_the_bell.html?.v=1

Current Price: 57.29

New Short Selling Rules!

2008-07-15T11:59:00.006-05:00

Just reported, there are new rules that naked short selling will not be allowed in Fannie Mae and Freddie Mac for up to 18 months.

This may also include primary dealers.

Lehman (LEH) is up 14+% on the news.
Washington Mutual (WM) up 24%
Fannie Mae still down 14% but 20% from the bottom
Freddie Mac still down 14% but up ab out 30% from the bottom

I will keep this post updated.

UPDATE:

*CONFIRMATION* *CONFIRMATION* *CONFIRMATION*

Naked Short Selling protection extended to Primary Dealers

Wal-Mart (WMT) is a (BUY)

2008-07-15T10:47:00.002-05:00

Any price between $55 and $56 is a steal. Every single time it has fallen to these levels, it has been a smart decision.

This is one of the few retailers that has y-o-y growth. I am really bullish on the new direction WMT is heading with their new, more attractive, in-store infrastructure.

Current Price: 56.00

Not Bearish on Apple (AAPL) at 167.00

2008-07-15T09:20:00.005-05:00

I am not an Apple fan but I cannot ignore the facts. AAPL selling 1 million iPhones opening weekend is quiet an accomplishment.

My bearishness on AAPL is/was 2 layered.

* I believed that increased competition would diminish demand for the iPhone. I looked to the RIMM Blackberry Bold, Sprint Samsung Instinct, and the HTC Diamond. They have or look like they will fall short. There is no iPhone killer yet. The new price (with the contract) is very appealing. I think that the many iPhone fans who refused to stand in line can help sell the 2nd million very quickly too.

*Potential for slowing Mac sales due to harsh economic conditions. Although, there is some talk (and action) on AAPL also becoming a corporate platform t(his has already happened at my work place - a software developer), I also believe another large crowd are college students. Maybe parents do not want to fork over an extra $1000 to buy a Mac vs. Dell. But, I do not want to speculate on how sales are going. I will continue checking some sources and report tomorrow.

The market is extremely bearish so AAPL can always go lower, but at the current price, the risk reward ratio is not favorable.

Let's take our very quick $13 gain (7+%) and wait for more facts.

Expansion of Offshore Drilling in the USA?

2008-07-14T11:46:00.002-05:00

Bush expected to order reversal of offshore drilling ban
12:42p ET July 14, 2008 (MarketWatch)

SAN FRANCISCO (MarketWatch) -- Pres. Bush is expected to announce Monday an executive order lifting a ban on drilling in offshore U.S. waters, but the order is unlikely to play little more than a symbolic role in government efforts to reverse record-high oil and gasoline prices. "The President plans to rescind the executive order withdrawing offshore acreage from energy production," wrote analysts led by Kevin Book at Friedman Billings Ramsey Monday. "While this will put pressure on national lawmakers and local governments, it is not by itself sufficient to conquer a complex web of competing incentives," they said. The White House plans to make a statement on "outer continental shelf exploration" at 1:30 p.m. ET. A spokesperson could not be immediately reached for comment.

NOV and RIG would be the play on very bullish news from the White House.

I expect that orders won't increase immediately, but this can open up potential for increase in future rig rates substantially.

Mastercard Moves to the S&P 500 and 100

2008-07-11T12:45:00.003-05:00

Big news. Now, all the index following funds will start accumulating MA.

Short term, however, this may be a killers. As with the oil names, when you short the S&P500, you're shorting the oils. This trade explains why the oil names have been flat-to-down last 5 weeks or so.

Now, if someone shorts MA, they will add selling pressure. Nonetheless, MA is still a BUY.

Standard & Poor's Announces Changes to U.S. Indices
Thursday July 10, 5:47 pm ET
NEW YORK, July 10 /PRNewswire-FirstCall/- Standard & Poor's will make the following changes to the S&P 500, S&P 100 and S&P SmallCap 600 indices:
-- MasterCard Inc. (NYSE: MA - News) will replace ACE Ltd. (NYSE: ACE - News) in the S&P 500, and MasterCard will replace General Motors Corp. (NYSE: GM - News) in the S&P 100 after the close of trading on Thursday, July 17. ACE is in the process of changing its place of incorporation to Switzerland, thus rendering it ineligible for inclusion in the S&P U.S. indices. General Motors will continue to be a member of the S&P 500.

http://biz.yahoo.com/prnews/080710/nyth143.html?.v=101

Crude Oil May Sell Off

2008-07-10T09:23:00.002-05:00

We say this and last week that even the strongest Bull markets, like steel can fall 20+% in a matter of days.

The lack of upside after the bullish inventory report suggest to me we may see some turbulence in the oil markets.

I recommend selling the RIG AUG 135 Calls for $12.00 to complement my Buy recommendation.

This set up should stay on until we get some more confirmation of the Bull rally in oil continuing.

Apple (AAPL) a Short at $179.98

2008-07-09T13:15:00.003-05:00

On Friday, June 27th, I published a post that Apple will bounce to 175-180ish and then should be considered a Short.

Typically, AAPL stock runs up to the release of the product and then sells off. Last year, I was long AAPL into the launch and made some money off of it. What ensued the following Monday were HUGE estimate of number of iPhones sold- some as high as 900K in a weekend.

I just don't see half the hype the original release had and I can see surprising low estimates coming out this following Monday.

I also worry about Mac sales. I can see the weak economy finally spilling over onto Mac sales, perhaps back into DELL as the low cost alternative.

Short AAPL

Some Tailwinds for Boeing (BA)

2008-07-09T12:36:00.002-05:00

Lawmakers say Pentagon will reopen tanker bid, award winner by the end of the year WASHINGTON (AP) -- The Pentagon will re-compete a $35 billion contract to build the Air Force's fleet of new refueling tankers and pick a new winner by the end of the year, lawmakers said Wednesday.

The Government Accountability Office last month detailed "significant errors" the Air Force made in the original award to Northrop and Airbus parent European Aeronautic Defence and Space Co. The GAO said Boeing might have won the contract had the service not made mistakes in evaluating the bids.

Sen. Richard Shelby, a Republican from Alabama, where the Northrop Grumman team would assemble its plane, said the Pentagon will conduct a limited rebid that looks only at seven issues where government auditors found problems in the initial process.

Shelby called it "the best of all options" that would address the "minor procedural flaws" the GAO cited.

The deal is the first of three contracts worth up to $100 billion to replace nearly 600 refueling tankers over the next 30 years.

Full Article: http://biz.yahoo.com/ap/080709/boeing_tanker_fight.html

Also to add, Boeing came out with a new POSITIVE outlook.

Boeing raises forecast for 20-year deliveries

10:58a ET July 9, 2008 (MarketWatch)

LONDON (MarketWatch) - Boeing Co. on Thursday raised its 20-year forecast for global commercial airline deliveries by 2.8% to 29,400, saying continued air travel growth and record-high fuel prices are boosting demand for new, more fuel efficient aircraft.

Boeing now expects 29,400 new jets worth $3.2 trillion to be delivered over the next two decades compared to 28,600 in its 2007 forecast.

The company said its forecast, which is updated every year, takes into account the short-term pressures on the industry from the deteriorating economic outlook, record-high oil prices and slowing traffic growth in some markets.

It assumes that the oil price will remain "high and volatile" in the near term before falling back to between $70 and $80 a barrel.

"We're facing a very dynamic situation today in the commercial aviation industry," said Boeing's head of marketing for commercial airplanes Randy Tinseth. "This forecast is rooted in today's realities, but also recognizes the nature of the long-term outlook."

Around 43% of the jets will be used to replace older aircraft, an increase from last year's forecast of 36%. The new aircraft will consist of 19,160 single aisles, 6,750 twin aisles, 2,510 regional jets and 980 larger aircraft of the Boeing 747 or Airbus A380 type.

Boeing expects the global fleet at the end of the 20-year period to consist of about 35,800 jets compared with a previous outlook of 36,400.

What stick out to me the post is the assumption that oil will return to between $70 to $80 a barrel. I do so a pullback in the price per barrel at some point but we may never see those prices again.

Currently, Americans use 25 barrels per person per year. China uses 2 and India 1. Even if we can double production in 10-20 years- WHICH IS MOST LIKELY IMPOSSIBLE- I can see China growing at least at a rate of 15%. That means demand, in just those countries, will double every 4-5 years. China and India make up about 40% of the world population, will put enormous pressure on the world.

But I digress, if oil stay at current levels, $140 per barrel, will this hurt Boeing? Will airlines take the definite short term pain of the cost of more fuel-efficient planes for possible future benefits?

One way I can see this occurring is extreme dilution for airline shareholders.

China Play Book Works Again!

2008-07-09T08:50:00.005-05:00

Alcoa and Cleveland Cliffs released news last night that reaffirm the growth of the Asian behemoth!

Some Excerpts on Raw Materials

We like others have been communicating the rise of energy and raw material costs. Let me take a minute and review some of the specific price changes the industry is experiencing...
Next we'd like to point out the sheer magnitude of the increases. From the first half of last year to the first of this year, these costs have increased between 35% to over 80%. In addition, the U.S. dollar declined versus a market basket of the A dollar, the Real, the C dollar, and the Euro by approximately 15%.

With the exceptionally high increase in costs, we need to focus on company with strong pricing power. In best case scenarios, we can find oligopolies.

About China

End markets in China continue to be showing strength. We expect consumption in China to increase approximately 20% this year. We've lowered our projection slightly due to the earthquake relief effort but the projected increased activities in building and construction and to more application and transportation-related areas such as auto and bus platform.

This speaks for itself.

Coupling those comments with Cleveland Cliffs' (CLF) increased profit projections, there is little reason to believe that the growth in China is being derailed.

All China (commodity) names are back onto the BUY list.

U.S Steel (X) is a BUY @ 164.90
AK Steel (AKS) is a BUY @ 55.85
Cleveland Cliffs (CLF) is a BUY (although its up 15% today Michael Luce has purchased $350 million between $98-114) @ 107.00

I would like to reemphasize my Buy recommendation on Foster Wheeler (FWLT) at $62.80.

Transocean (RIG) is a BUY!

2008-07-09T08:40:00.000-05:00

Current Price: $148.00

Garmin (GRMN) is a Short

2008-07-08T13:08:00.001-05:00

Current Price $45.50

Alcoa (AA) Can Kill The Dow Composite

2008-07-08T12:22:00.003-05:00

As always, Alcoa starts the earning season today after the close. Whose ideas was it make such an inconsistent company the first one to report?

AA being the world's largest energy user will be a bellwether for many many stocks that also use energy (read: almost off of them) to produce their products.

So AA can disappoint on two front.
1. It can say that energy cost are squeezing margin.
2. It can say that global demand is slowing, giving some proof to global recession theories, and crushing markets around the world.
3. All of the above

Put on your seat belt, we may be flying into some turbulence!

MasterCard (MA) is a BUY!

2008-07-08T11:33:00.001-05:00

Current Price: $245.00

The days of cash-driven transactions are over.

BUY into OI at $40.50!

2008-07-08T10:50:00.002-05:00

Fundamentally, the value guys should be jumping into this stock about now. With a Forward P/E of less than 9 and a 3-5 year projected growth rate of 20+%, how can you not love this? This stock is even approaching the 6% dividend range.

The only thing that can stop OI is surging natural gas- even though they have pretty powerful pricing power.

Fortunately, there seems to also be run away from commodities these last couple days and the stock as help the $40 level during the sell off.

Commodity Stocks Crescendo Fall

2008-07-08T10:22:00.003-05:00

This market is really pessimistic. The market was falling while oil was running up. We've had a pullback in oil for the last 2 days and in commodities overall for almost a week but we continue to make new lows.

China is don't and won't be until at least the Olympic games. After that, my thesis is, it all depends on increase in foreign investments.

I have been following these stock, like everyone else, looking for an entry.

I resisted calling a Buy on these stocks last Wednesday because the sell-off looked too strong (almost 20% on CLF) to signal a pullback.

Right now, these stocks are broken and they are being sold off with increasing intensity.

Just an update on what I've been looking at

APC: 81 to 64
SWN: 52 to 38
CHK: 74 to 59
DVN: 127 to 104

CLF: 122 to 86
X: 196 to 147
AKS: 73 to 48

MON: 145 to 112
MOS: 163 to 118
POT: 241 to 197

Frontline (FRO) Sinks to $59.75

2008-07-07T13:58:00.002-05:00

I am continually doing more research on FRO and I keep on finding many positives.

For instance, the Baltic Dry Index (BDI) (along with spot rates) is up today.

Dry bulking shipping refers to the shipping of raw materials such as iron ore, coal, and grains. All hot commodities.

FRO also owns tankers to transport oil from from the Middle East.

To me, this company seems to be in the hot spot and has continuously (over years) operated brilliantly - rewarding its shareholders with large dividends. This consistent operating performance may result in an outlook upgrade from Standard and Poor's.

S&P reviews Frontier Oil for possible upgrade
Monday June 30, 2:22 pm ET

S&P places Frontier Oil on review for possible upgrade, citing low debt and stable performance
NEW YORK (AP) -- Standard & Poor's Ratings Services on Monday placed the ratings of oil refiner Frontier Oil Corp. on review for possible upgrade, citing the oil refiner's low debt and consistent operating performance.
The ratings service placed Frontier Oil on CreditWatch with positive implications, meaning it has a one in two chance of being upgraded in the next three months.
S&P currently has a corporate credit rating of "BB-" for Frontier.
Frontier shares fell 77 cents to $70.47 in afternoon trading.
http://biz.yahoo.com/ap/080630/frontier_oil_s_p.html?.v=1

I don't see this changing anytime soon.

FRO seems to have sold off with the rest of the commodities but its income doesn't depend on the supply and demand of commodities but the S/D of shippers. Unfortunately, there seems to the a report increase in shippers but I will argue that record demand and stricter regulations (for oil tankers) require newer ships.

I am still bullish on FRO at this price.

Foster Wheeler (FWLT) is a BUY!

2008-07-02T14:47:00.002-05:00

This infrastructure play, with its large exposure to petrochemicals and coal, still has much upside in this enviroment but being taken down with the broader market.

Current Price: 68.40

I think this stock can fall until $68.00 and then it becomes a must buy.

Filled the gap technically

Also look at FLR as another infrastructure play.

CLF must be looked at too. Taking a brutal beating today but insider have been buying on the way up.

Frontline (FRO) to Beef Up Dividend Again!

2008-07-02T09:22:00.003-05:00

Excerpt

As a result of the delivery of the third and the fourth heavy lift vessels to Dockwise, Frontline expects a net cash generation of approximately $28 million in the second and third quarter of 2008, which will enhance the dividend capacity, and expects to record a gain of approximately $105 million, including deferred gain related to the transaction, in the second quarter of 2008.

http://biz.yahoo.com/iw/080702/0412400.html

With this tough environment, the security of the dividend is heaven. There still is a chance of a flight from security, taking down the stock. But that is a mistake! With a current P/E of only 8, almost a 3rd of the S&P, this stock is CHEAP.

I called this pullback, the flight from quality, a couple of days ago when the stock was at $70.60.

Even with the possibility of this flight, I think the stock is a buy here @ $67.35

I will do some more research on why some of the numbers are LOWER for next year.

First Solar (FSLR) a Short?

2008-07-02T09:16:00.004-05:00

Taking the lesson we learned from Boeing (BA), when your customer is hurting, you're hurting.

With FSLR being the commericial application of solar panels, I think that to many manufactors/retailers are hurting right now to worry build but this sort of infrastructure.

Also, FSLR has failed to break $300 a couple times now and volume has been declining during the up-side rallies.

Current Price: 269.50

Nike (NKE) is a Buy!

2008-07-01T10:15:00.002-05:00

With about 60% of sales coming from over seas and the Olympic games coming up, why would anyone foresee a slow-down for the marking genius?

Current Price: $58.66

$58 is key support

Frontline (FRO) is a Buy!

2008-06-30T08:54:00.003-05:00

This stock held up incredibly well during the sell-off because of the flight to safety (dividend stocks/bonds).

I think that this stock will pull back, flight from safety, as the market recovers from the beating.

The high yield and the growing transport to China makes this a must buy.

Current price = 70.60

Apple (AAPL) a Short?

2008-06-27T11:36:00.004-05:00

The stock failed to make a new high on the iPhone 2.0 release- expectations were too high. Expectations, and how they are met, is everything in the market.

Also, RIMM's perceived disappointment will weight down AAPL.

Earnings wise, Mac sales are the bread and butter but AAPL also trades off of the growth of iPhones as a proxy for future earnings. Now, all my research shows that the iPhone is in HUGE demand over seas but there seems to be a slow down in the U.S. for all cell-phone providers. AAPL is usually price for perfection.

Evidence

Palm shares slump as loss, sales disappoint

12:22p ET June 27, 2008 (MarketWatch)

SAN FRANCISCO (MarketWatch) -- Palm Inc. shares fell as much as 11% in afternoon trading Friday after the company reported a fourth-quarter loss and a drop in sales as its popular Centro smart phone was unable to make up for declines in other areas.
Palm's gross margin fell to 25% in the fourth quarter, compared with 38% in the same period last year, a sign that Citigroup analyst Jim Suva said "was sudden and is a source for increasing concern."

Friday's biggest gaining and declining stocks
10:43a ET June 27, 2008 (MarketWatch)
SAN FRANCISCO (MarketWatch) - Shares of the following companies are among those making notable moves on the U.S. stock market Friday.
SONY Ericsson, the mobile-phone making venture of Sony and Ericsson , warned that its second-quarter pretax profit will be "about break even" on falling gross margins, due to moderating demand for mid-to-high end mobile phones and a delay in shipping new products.

Now Palm not making the numbers, can easily be passed as Palm's problem. Ericsson, is a little iffy. RIMM is a major disappointment. I do believe that many RIMM customers are waiting for the Bold/Thunder, so this may be a short term blip, but worth mentioning.

On top of all this, there is much speculation about Steve Job's health. No Jobs= No Apple. They lack a succession plan.

I believe that AAPL can bounce back to about 175-180ish with the rest of this oversold market. But now, tech doesn't look like the immune behemoth it did just 2 days ago.

Current Price: 168.50

Trade With Care

2008-06-26T11:54:00.003-05:00

I think it is important to remind every that tomorrow is Friday. Lots of weird stuff happens.

With the markets currently being down 2+% for the day and a lot of negative attitudes carry over from the rest of the week. There may be/probably will be traders closing positions before the weekend.

Wide Scales will keep you in the game!

CSX Corp (CSX) is a BUY!

2008-06-26T11:28:00.002-05:00

When oil raises, the railroads win.

More and more goods are being shipped by rail due but capacity cannot increase by much: you can't build much more (if any) rail road. The only available option is to build large container but the rails are being conservative with this option.

CSX Corporation transports crushed stone, sand and gravel, metal, phosphate, fertilizer, food, consumer, agricultural, paper, and chemical products. In addition, it delivers coal, coke, and iron ore to electricity generating power plants, as well as finished vehicles and auto parts.

These guys in the the hot spot. CSX can charge a larger surcharge when oil goes but has the technology to reduce oil inputs-more miles per gallon. They boast an incredible 421 miles per 1 ton of freight on 1 gallon of fuel!

CSX is trading at 62.45 with the August 65 Calls @ 2.90

Owens-Illinois (OI) Falls to 44.50

2008-06-26T10:46:00.004-05:00

I don't want to sound like I cannot admit I am wrong- I can.

My initial call for OI was early by almost 10%-times like these require wide scales. Selling the previously mentioned called really covered a lot of this downside: the Nov 50 calls are trading now only at $2.80. Don't hate me to much yet though. My initial call was @ 47.17, only $2.67 higher than it is now and you gained about $1.20 on the calls. The market has been rough and this strategy has only cost you $1.47/share- less than 3%!

I do see how all the current fears can play into OI earnings but the current market sell off is being driven by fears.

Technically, OI is at support at the moment and just filled the gap. Never sell into a panic.

RIO Started at Overweight by Lehman Brothers!

2008-06-26T09:43:00.002-05:00

The market is bringing the stock down marginally, even with the upgrade. Still a buy!

Brazil Vale Started At Overweight By Lehman Brothers

Last update: 6/26/2008 7:48:13 AM

SAO PAULO (Dow Jones)--Lehman Brothers initiated the coverage of shares of Brazilian mining giant Companhia Vale do Rio Doce's (RIO) with an overweight recommendation, the investment house said Thursday in a research report for its clients.

"Vale is very well-positioned to benefit from the ongoing mining super-cycle, and we recommend that investors purchase Vale common shares at current levels," said Lehman Brothers.

In addition, the investment house set a 12-month price target for Vale's American Depositary Receipts, or ADRs, at $45. On Wednesday, the company's share closed quoted at $36.68 in New York.

Lehman Brothers said it is expecting that Vale will earn $3.02 per share in 2008 and $3.96 per share in 2009. By comparison, last year the company reported a profit of $2.41 per share.

"Vale should have significant earnings growth from 2007 to 2008 due to iron ore contract price increases (starting April 1, 2008) of 65% for its medium quality standard fines, 71% for its high quality Carajas fines, and 86.7% for its direct reduction and blast furnace pellets," said the investment house.

-By Rogerio Jelmayer, Dow Jones Newswires; 5511-6847-4521; rogerio.jelmayer@dowjones.com

AGCO is trading at $50.70

2008-06-25T09:53:00.003-05:00

AG is down about $3.50 since I've gotten bullish on it. Still am.

The Nov 55 Calls are down $2.00 to $5.30- not bad. Scale in and sell the NOV 55 again.

I see no reason to state that this is a trend reversal instead of just a pullback.

Here is an interview with the CEO. He doesn't see anything slowing down anytime soon.

http://www.thestreet.com/_yahoo/video/strategysession/10422424.html?cm_ven=YAHOOV&cm_cat=FREE&cm_ite=NA#10422424

How to Play Housing

2008-06-25T09:07:00.004-05:00

WASHINGTON (MarketWatch) - Sales of new U.S. homes tumbled 2.5% in May to a seasonally adjusted annual rate of 512,000 as sales in the West fell to a 26-year low, the government said Wednesday. The decline nearly matched economists' expectations. It was the lowest since the 501,000 rate in March. New-home sales were down 40.3% compared with a year earlier. The median sales price in May was $231,000, down 5.7% from a year earlier. The number of homes on the market fell to a three-year low of 453,000, representing a 10.9-month supply.

If I were to tell you that the housing market is being killed by the banks not lowering lending (mortgage) rates you might think I'm stating the obvious. However, I have not heard that housing will rebound with the banks supply of money. Everyone is circulating this idea but not harping on it directly.

The above quote, shows us that inventory is HIGH (we know this), BUT only in relative terms. Relative to the rate of sales. Think of it this way, 450,000 is not a lot for our economy to swallow given the large fall in home price. The market is no longer irrationally inflated. Demand for home is not longer being choked off by the price of the property but the price of the money!

This rate of sales is being choked by the lack of liquidity of the banks: mortgage applications are hitting low for 2008 even while the Fed has been cutting rates. This discrepancy is irregular.
http://money.cnn.com/2008/06/18/news/economy/mortgage_applications.ap/index.htm

To sum up, play the housing stock- if you're brave enough - inversely to mortgage rates.

I cannot believe that one has pointed out this inverse relationship between homebuilders and the 10 year note over the last 6 months!

Home Improvement is Growing

2008-06-25T08:47:00.002-05:00

I am posting this little later than I would have wanted but it only confirms what I have been harping on since my first post.

Paul Raines, Home Depot executive vice president for U.S. stores, also said during a presentation at the 18th Annual Wachovia Securities Nantucket Equity Conference, monitored by webcast, that the retailer was seeing "a tremendous shift toward repair-remodel categories" as the slumping housing market leads consumers to curb big-ticket renovation projects.

He also added that while some suppliers were pressing the Atlanta-based chain for price rises, some vendors were willing to forgo such increases in order to gain sales volume.

http://www.reuters.com/article/marketsNews/idINN2441185420080624?rpc=44

Home Depot = Home Improvement

Food for thought: If demand is strong enough, which Paul Raines words support, HD will not need to put their inventory on sale, thereby maintaining margins.

Vale (RIO) is a BUY!

2008-06-24T22:07:00.002-05:00

This is the cheapest and, arguably, the best mineral company in the world.

For those of you who have never heard of Vale (RIO - not to be confused with Rio Tinto), its one of the world's largest iron ore producers and based in one of the world's strongest economies: Brazil.

The company recently offered ~$15B in stock and diluted some of the shareholders, which is why it is lagging the other steel/mineral plays. The company did this to fuel future growth.

I played this company before from ~$32 to $38. Finally pulled back enough for me to harp on it.

RIO is a buy.

OI is down 5+% to 46.60

2008-06-24T10:45:00.004-05:00

Yesterday, OI was upgraded by Banc of America and almost reach $50.00.
http://finance.yahoo.com/q/ud?s=OI

Today, it was taken off of Goldman Sach's Conviction Buy List.

Make up your own mind because listening to recommendations from the big banks will give you vertigo!

Small Excerpt"

"Owens-Illinois is seeing big global profits in glass containers as sales grew 16.4% in the first quarter. The company has surprised on estimates each of the last four quarters by an average of 66.17%. O-I's forward P/E is only 9.33."

On Apr 30, Owens-Illinois reported first quarter estimates that surprised on estimates by 35.71%, or 29 cents per share. First quarter earnings increased 215% to $174 million, or $1.08 per share, compared to $55.3 million, or 31 cents per share in the year-ago period, excluding a one-time restructure charge of $9.7 million, or 6 cents per share.

The company attributed the earnings rise to improvement in price and product sales mix. Higher energy costs and raw materials, as well as transportation costs, ate into the improvement gains however.

Sales rose 16.4% to $1.961 billion from $1.684 billion in the first quarter of 2007. Favorable currency exchange added $187 million and increased price and product sales racked up another $119 million.

The company said rising energy and raw material costs are going to make 2008 a challenge.

"But I remain confident in the capabilities and dedication of O-I employees to ensure that the strategies we've put into place will deliver solid results," said Al Stroucken, Chairman and Chief Executive Officer.

"Going forward, we will continue to identify opportunities to expand our footprint in attractive geographies and to work with our customers to develop innovative glass packaging that will help distinguish their brands in the marketplace," he said.

http://seekingalpha.com/article/82471-owens-illinois-continues-to-grow

Glass has class and I am still bullish on Owens-Illinois!

Scale into HD @ 25.14

2008-06-23T11:42:00.002-05:00

I'm an not trying to call the bottom but if you believe in my home improvement thesis, as I still do, then this 4.5% decline is another gift (read: buying opportunity)

For more downside protection, it is a touch choice between selling the Nov 25 Calls ($2.45) or shorting the SPY.

SPY allows for more downside protection, after all, we should be on the cusp on a large move. Although, carries more risk if HD does not outperform the SP500. This large movement is also an argument against selling calls because increased VOL means more expensive options (you may need to buy back).

To make a decision, I will always be a favor of selling time and Vol over just Vol. The passing of time is inevitable.

AGCO (AG) is a BUY!!

2008-06-20T12:02:00.003-05:00

Current price: $54.35

A couple days ago this stock made a huge more on an analyst upgrade. Now, it have it all back.

I completely agree with the theory of margin expansion. John Deere (DE), has a profit margin of almost 2x of AG- clearly, there is room for growth.

Please SELL the Nov 55 Call for $7.30. These calls are really pumped up: like taking candy from a baby.

Owens-Illinois (OI) Is a BUY!!

2008-06-20T11:50:00.004-05:00

Time to scale in to OI at $47.17

Again, for downside protection, I recommend SELLING the NOV 50 Calls for about $4.00.

With oil prices surging, plastics are getting REALLY expensive. DD raised prices 20% because of raw material costs.

Glass will become the cheaper and classier alternative.

More analysis to come.

Scale into HD @ 26.38

2008-06-18T09:17:00.004-05:00

Market has been weak last couple of days and is presenting a buying opportunity for HD.

Events to keep in mind:

The Home Depot®, the world's largest home improvement retailer, announced that Craig Menear, executive vice president, Merchandising, will present at the William Blair & Company 28th Annual Growth Stock Conference in Chicago, IL. The presentation will begin at 11:50 a.m. CT on June 18, 2008.
http://biz.yahoo.com/prnews/080617/cltu087.html?.v=101

There was more insider buying was reported yesterday- 250,000 shares @ 27.23.
http://www.insider-monitor.com/reports/insider-buys-sortby-value-20080617.html

HD is trading now almost a dollar below his basis.

For downside protection, I recommend SELLING the 27.50 Nov Calls for about $2.00. If HD breaks the 52 week low, 23.77, get out.

Home Depot (HD) is a BUY!

2008-06-14T20:17:00.007-05:00

I have been saying that HD is a buy for the last 2 weeks. Wall Street is throwing it in the same ugly bucket as home builders and that is WRONG! It is true that Home builders (TOL, HOV, LEN, CTX) and Home Depot have been both beaten down by the housing slump but there is more to the story.

We can all agree that the HUGE inventory is what is killing the home builder. High supply= no pricing power for them. To be more specific, only locations where house prices have fallen 30+% are where buyers have showed up. This is a business you don't want to be in!

In contrast, Home Depot doesn't fully depend on new homes being built. Home improvement will be the new new thing (again). Let me explain: I see the next big trend developing to be home improvement. During the boom, the game plan was to sell your house and buy a new one. There was little incentive to renovate because your old house will most likely be bought as a tear down. It was too easy to get a big enough offer to pay off your mortgage and upgrade. That possibility is dead. In the post-boom summer rebate checks define the playing field.
There still is plenty of homeowners that don't own sub prime loans and have stable enough income to pay off their mortgage. Rebate checks will be spent towards home improvement, such as lawn care and insulation. The CEO of Owens Corning estimates that there are about 60 million homes under-insulated. When you think home improvement think Home Depot. A beautiful lawn may be one of the simplest, and to some the funnest, way to improve home value: curb appeal. Moreover, winter is coming and natural gas is hitting new high on a daily basis. Consumers will need to protect their wallets by lowering their heating bills. What's smarter than buying some Pink Panther and insulating your roof?
More on insulation and natural gas plays later.

Last week my theory was affirmed. Surprisingly strong May retail numbers came out with "eye-popping" 2.4% sales growth in home improvement retailers and furniture stores when compared to April.

Home Depot has a lot more going for it. Firstly, it beat last quarter estimates by $0.04 (0.41 vs 0.37) but the stock fell due to lack of guidance. Wall Street is exaggerating the weakness in Home Depot as evidenced by the Quarter beat. Moreover, I do see guidance. Ever since the HD reported, insiders have been purchasing plenty of shares. About 7 million shares ($190mm) have been bought in the last 3 weeks. http://www.insider-monitor.com/trading/cik354950.html

Lastly, I want to touch upon leadership. Talking to a former district manager of Home Depot, I heard first had how poor of a retail leader Robert Nardelli was. I recently read an interview with the new CEO, Frank Blake, in the WSJ. I was very impressed. He is a man not afraid to create change and very aware of the weakness Nardelli created. I recommend the interview as a read.

HD is a Buy
1. Growing trend towards home improvement
2. Insider buying shares
3. Good leadership who are aware of the problems and doing something about it

Risk Management will be updated soon

What Is This About?

2008-06-14T18:08:00.001-05:00

Stocks. Research. Analysis. Risk Management.

The pursuit of Alpha: outperforming the market.

This blog will be the blow horn for all my investing ideas and serve as a judge, jury, and executioner for my oversights and errors.

I am the market's apprentice. While investing in the stock market over the last 8 years, I made a lot of mistakes and I learned from all of them.

Hence the name "Alpha Apprentice." I am still a student of the market learning the rules of the game on how to earn Alpha.

I want to track my thoughts, successes, failures and be criticized for my errors, so I created this blog.

Stay tuned: I promise to bring my battle with the market to you.

Blood, guts, fears, triumphs, and greed.