Tuesday, November 2, 2010

Missing In Action

Yes, I've been MIA for a while and I have to admit, that this market bores me to tears. Because I/we are fundamental investors and this market is dominated by technicians and algorithms.

For the most part, for the foreseeable future, the best course of action, or at least what we're doing is buying dividend paying stocks with decent growth prospects and the periodic special case.

I think we're going to take some time off, relax, and see if we can find our motivation.

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Friday, October 1, 2010

This market and the 'Flash Crash' report

So the word is "trading algorithms" caused the crash. More like the people behind the trading algorithms caused the crash. So what are they going to do about it, because what I find more troubling and sinister is the fact that I'm sure they do this sort of thing intentionally, every day on a smaller scale.

All this talk about low volume days not being good days, as it shows lack of conviction. Well notice those are the days we go up because those are the days the computers are taking off. Hint, hint. This program traders are preying on your fears, so they tend to make their big bets to the downside.

We posed the question a while back and the answer was predictable, "Is it market manipulation to buy or sell a security/option to affect movement versus to take part in the movement"? Put another way should it be considered manipulation to sell a gazzillion shares of a stock just so it goes down along with the derivatives, versus selling a security/option because you think it's going down.

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Thursday, September 16, 2010

Arena in focus UPDATED

Here's my 2 cents on the matter at hand today. Arena (NASDAQ: ARNA) goes before the advisory board today looking for the nod. Be advised, that's only another step in the process, as they don't go before the FDA panel until next month on the 22nd.

Regardless of what happens, I think the stock probably sells off because the vote is probably going to be close, either way. Maybe the stock doesn't sell off, but I see no real upside when everyone is talking about it and it's in the sites of traders (short traders to be exact). The short interest was/is enormous. The big show that's gone on this week is just that, a big show. I'm not too concerned since close vote or not, the FDA vote is what matters.

We'll see what happens, but I'm waiting for the actual day that matters most for both VVUS and ARNA 22 October. Will update later.

So the vote was 5-9 against. I'm a bit surprised. I thought ARNA would get somewhere around 7 or 8 votes in favor. The FDA does really favor large companies, as many large companies get the ok for drugs with all sorts of problems.

The next big moment is in October. It's looking more and more like the FDA might ask for more data and more time when they meet in October. We still don't think either companies gets rejected outright.

By the way, expect a crazy, crazy day in this stock. There are massive options out on this stock, in fact if everyone exercised their options tomorrow, there wouldn't be enough stock to cover the transactions without buying and selling the same shares (all of the shares outstanding) more than once. Yes, the stock market has become a casino.

Okay, I see trades at $2.25 at 5:15PM EST.

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Tuesday, September 14, 2010

Arena was body slammed today

I woke up a little early to day and to my surprised found Arena (NASDAQ: ARNA) getting hammered. I was surprised that it took until 2 days before the advisory board meets to happen. I had been waiting on some crooked business in that stock for the past 2 to 3 weeks.

The news that came out was nothing new and by the way, the bits and pieces that were made public by reporters and analysts, were about 3 sentences from a document that's 270 pages long.

Either way, I'm not saying the board is going to recommend or not. We're long both VVUS and ARNA, as we believe one or both get the OK.

The actually decision for both isn't until October. Stay tuned.

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Now people see and regret

For those who didn't see the poll on investor confidence, here it is. What a surprise, people think the market is rigged and don't want to play.

On the same day people are asking if regulators went to far in creating a nearly all electronic market, that story is here. The SEC was only asleep at the wheel, this monster was created by those who stood to gain the most. You know who you are.

I'll leave it at that, but something needs to be done if we're going to bring back the ma and pa investor.

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Tuesday, September 7, 2010

Up and down, round and round

And we go nowhere. As soon as we get up over 1100 on the S&P, down we go. This time the spin was, European banks. First AP and CNBC start running whatever story the establishment wants, then Bloomberg picks it up, then it becomes reality and down we go. When the S&P gets down to around 1040, the same folks find a reason to buy.

Use this to your advantage, if you still can. When the market falls down under about 1050, pick up the high yielding stocks and hold on to those puppies. I say if you still can because I think people are catching on. Now I keep reading that yields are 'crazy' high and a better deal than bonds. Oh really! Our readers have known this for some time.

The market is currently ruled by speculators, but we can still make good coin. A 6-7% yield is great, especially when you consider banks are paying nothing and the 10 yr is yielding about 2.5% right now. When the rest of the intelligent world realizes this, those stocks are going to tack on 20, 30, 40%.

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Tuesday, August 31, 2010

Feels like the dam is about to break

Do you ever get that feeling that the dam is about to give out, or that it already has and we just don't know as we sit in front of the tv, watching our favorite show, not knowing that a zillion gallons of water is on the way. That's what this market feels like.

It's clear that rampant speculation has taken hold of our markets. Bets to the upside and downside. Huge swings are the norm now. I just read that S&P 500 stocks have their highest correlation to the S&P, 81%, since the 87 crash. This isn't to say that a crash is imminent, but that this is what we see during huge up days or huge down days. Everything moves up or down together, but this usually last a day or two or three, not weeks or months.

This might all sound odd because the stocks make up the index, but each stock should trade on it's own fundamentals, thus some go up and some go down based on what's going on with them. When the correlation moves that close to 100%, somethings really wrong and is a sign that technical traders and other speculators are in control. Group your portfolios by industry and watch every stock in that group trade together nearly every day regardless of individual situations. It doesn't just happen sometimes, but every day. Think about this, the historic average is about 40-45% and we've been near current levels for a very long time.

None of us here are technicians and we don't like the technical talk, so markets like this put us at a disadvantage when they persist. I actually think 99% of retail investors are at an disadvantage, which does not bode well for retirees.

This market feels and looks sick. Time to be smart. Avoid the big stories, avoid high flyers, buy fundamentally sound companies that benefit from a growing economy (yes I said growing), companies that pay a dividend, leave options alone, be patient and pick your moments to get in, count on extremes (something isn't a bargain until the price has fallen by an extreme amount), and invest, don't trade.

my 2 cents

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Sunday, August 29, 2010

Are we at the beginning of an M&A frenzy?

I think companies are just now waking up to the fact that there are a lot of bargains out there, or maybe banks are just starting to lend again. Either way, with the Potash, Genzyme, and then the 3Par bidding war, it's clear at long last we've got some buying.

We've expect acquisitions in the commodities (fertilizer, ore, coal) space and biotech area for a while. We still think there's a good deal more to come in both of these areas. There are so many small to midsized, very promising drug/biotech companies that there could be a sudden rash of acquisitions there.

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Wednesday, August 25, 2010

Option pirates

In case you haven't been paying attention, option traders (pirates) have adapted to an environment where people are a bit more savvy. All or nearly all equity options used to expire on the same day, the third Friday (technically Saturday) of the month. Not any more. There are options expiring all over the place, on any Friday it seems. Not a lot, but some. Our feeling is that this will catch on. Suspicious thing is, there was no media play on this.

Beware, as this market can be hazardous to your retirement. For those non believers and investors who haven't been paying attention, what goes on in the options market has a lot to do with what goes on in the equity market.

These are treacherous waters, be advised.

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The range is clear

Make no mistake about it, we remain in a trading range from about 1040 to 1100 initially and 1010 to about 1120 next. I hope you're at least collecting a dividend. All this talk of a double dip, if we're not careful we'll end up talking ourselves in to one. Our readers know the dividend plays we like.

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Thursday, August 19, 2010

So predictable

Doesn't really matter these days what the economic news looks like, the markets are ruled by speculators. Get used to it, as we don't see it changing unless someone in Washington decides to do something.

We had another big acquisition announced today, Intel (NASDAQ: INTC) buying McAfee (NASDAQ: MFE). We like the deal, as it diversifies INTC's business in a good way.

The market tanked after the Philadelphia Fed number. Who cares, this is the bottoming process. You bounce along the bottom for a while. The numbers don't really drive trading, it's just an excuse. Thursday and probably Friday had/have more to do with options expiration that economics.

We'd be big buyers of INTC down here. We liked it under 20 and love it under 19. Double digit growth and a 3.3% yield.

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Wednesday, August 18, 2010

Finally, the deals are back

We thought this would have happened months ago, big deals getting done. Everything has been on sale for well over a year now and the fertilizer sector has been ripe for picking with many names hitting multi-year lows over the past 2 years.

The Potash (NYSE: POT) is going higher, no doubt and expect more in this space. The longer would be acquirers wait, the more they'll pay. I don't think Mosaic (NYSE:MOS) gets bought, just because ADM owns so much. Some of the other names are definitely in play.

We also had a smaller deal announced with Reynolds shelling out nearly $5 bills for Hefty Bags.

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Tuesday, August 10, 2010

More discussion on flash trading

The SEC opened up for comment, rules to ban Flash Trading I believe last month. They're dragging their feet on this issue. Instead of just banning the practice all together and getting on with it, they want to know what people think. When I say "people", I mean those who benefit most, the professionals and the exchanges. It's really become a joke and so transparent. The exchanges will tolerate anything as long as it increase volume and volatility.

In case you're not up to date, Flash Trading is where CERTAIN PARTIES are shown (flashed) incoming buy/sell orders in a split second before the rest of us. How is this even legal? Why would anyone think this is legal. It's 'front running', which is illegal. Professionals like, you know who, claim it helps them provide better pricing and increases liquidity. Give me a break.

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Thursday, August 5, 2010

No man's land

Does anyone else feel like the markets are just churning back and forth? Feels like we're in a fog and no one knows where we're going. We've been cutting back on some of the high beta names and moving that money into more reliable dividend and growth names like Intel (NASDAQ:INTC) and even some in to Frontier (NYSE:FTR) which after the dividend reduction will be yielding 10% at these levels. We've split money between FTR and Verizon (NYSE:VZ) which we love, but under 29.

Our high riskier bets have been concentrated these days in names like Cliffs (NYSE:CLF), Freeport (NYSE:FCX), Transocean (NYSE:RIG), and a couple of biotech plays Arena (NASDAQ:ARNA) and Vivus (NASDAQ:VVUS), oh yes and Citi (NYSE:C).

On the next market run up we'd look to get out of CLF, FCX, and RIG. Those first two names just trade too much like 3x leveraged ETFs to hold for too long.

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Tuesday, August 3, 2010

Our disappointment with DOW and relief with BP

After reading/hearing the conference call for Dow Chemical's (NYSE:DOW) 2Q report we're happy with the numbers and not at all troubled by the miss, as we put little into what analyst forecast. We're more disappointed with the lack of clarity around the dividend.

To just say, something like maybe sometime in 2011 or 2012 we might see the dividend addressed isn't good enough. We expect more clarity around the situation, especially after we recall the CEO saying he'd never cut the dividend last year. I think many companies are taking advantage of the situation and may be attempting to create a new norm. We're not getting used to little divs, as there are plenty of companies that are paying hefty dividends. We sold some in response to what we heard today and will re-evaluate next quarter.

BP looks like it finally got its act together and should have done this earlier, but better late than never. We still believe the dividend comes back sooner than most think, sometime between Jan and Mar. That saves the company about $5 billion. Throw that on the pile with the $7-$10 billion in asset sales and a few billion just laying around the office and there's your $20 billion needed for claims.

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Monday, August 2, 2010

Verizon and AT&T getting down to business

It's about time they went ahead and did it. Verizon (NYSE:VZ) and AT&T (NYSE:T) are getting into the mobile payments business. That was just a matter of time, as this is pretty common in other developed nations. Pay with your cell phone, oh what a "new" idea.

I still believe VZ should be a core holding in the long term retirement portfolio. What's not to love; huge dividend, solid growth prospects, and only one real competitor. Why keep that money in that lousy CD paying you nothing when VZ predictably trades between 27 and 31 and yields 6.5%.

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Tuesday, July 27, 2010

Watching BP and DOW

We were buyers of British Petroleum (NYSE:BP) as she fell into the low 30s and after this recent quarterly report, we're happy. Like we stated a month ago, a year from now no one will be talking about this, as it will be on to the next story. People will be talking about what a great buy it was at these levels. The dividend is coming back a lot sooner than people think and buyers at $33 are going to be seeing a 10% yield soon. Maybe not all at once, but soon. This is one of the largest companies in the world and there was talk of bankruptcy! Yeah right. They have real revenues and assets, not Enron revenues.

As far as Dow Chemical (NYSE:DOW), after the DuPont (NYSE:DD) numbers, we feel well positioned here.

The plan we put in motion from last March is still in play. We like companies that are going to directly benefit from the recovery, especially those that pay nice dividends. Check the 2011 Model Portfolio. We've trimmed some, but still hold the primary beneficiaries.

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Sunday, July 25, 2010

The government's plan for Citi needs work

The treasury just announced it would be selling another 1.5 billion shares or so of Citigroup (NYSE:C). This doesn't makes sense, why? The stock underperformed after the announcement and I think this is the 3rd such announcement. Why not just make once announcement that's you'll be selling all your shares over the next 6 months and be done with it. The stock would take a hit, but as usual, people would forget about it and move on.

I guess it's asking too much for the government to get it all right.

Anyway, has anyone else noticed the huge increase in earnings estimates for Cliffs (NYSE:CLF) and US Steel (NYSE:X)this year and next. Not long ago they were both losing money, now CLF might earn over $8 per share this year.

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Friday, July 23, 2010

Earnings look good and the commentary sounds great

Just looking at some of the names that have come in so far, Citi (NYSE:C), General Electric (NYSE:GE), Intel (NASDAQ:INTC), IBM (NYSE:IBM), and Apple (NASDAQ:AAPL) I'd say the coast is clear, but of course this market is neither rational or fair.

The services and business sectors look good (IBM), the consumer looks better (AAPL & INTC), the industrial and manufacturing sectors look good (GE), and the financial services sector looks a whole lot better (C). Loan loss reserves are down at Citi, GE is raising the dividend and AAPL had the biggest quarter in history. Not to mention, you can still get a 3% yield on INTC and almost the same on GE.

In a normal market, I'd say what's not to like, but of course the big computer algorithm in the sky, or rather the one collocated next the the exchanges has final say.

We called the summer dividend hike in GE a couple of months back and we're still waiting on Dow Chemical (NYSE:DOW) to do it's thing.

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Wednesday, July 21, 2010

Is the short side getting over and why hold stocks anyway?

Something occurred to me recently. With all the madness and suspect behavior by traders, especially those who short stocks. I wonder if any of the rules are being followed, such as paying dividends when you're short. If they don't even have to borrow legitimate stock then how are they paying dividends on the stock they short? Sometimes they're shorting stock that doesn't exist - 'phantom shares'.

Also, someone commented recently that maybe the average person shouldn't invest in equities. That's a very good point and worth examining. I won't go into a long write up today, but our markets have definitely been corrupted by speculators and those who can't see past next week. Fundamentals mean very little which means the market is more of a casino than anything else.

I think it may take another meltdown before anyone in a position to do anything actually does something. I'd stay away from options, currencies, ETFs, and anything that tends to show up in the media too often. Dividend plays look safe, as do some special situation stocks.

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Friday, July 16, 2010

Days like today are becoming too predictable

Yes, another one of those days where all things traded are down, except for government bonds. Look to the derivatives pit once more, as that's where the real action is. Stocks, metals, grains, oil all hit hard down over 1% as I write this.

Let this be a lesson, don't buy in the week before options expire. Take up those long positions on the Friday they expire. This isn't fool proof, but it seems to happen about 75% of the time.

By the way, did you catch the news that Deutsche Bank fired their quant trading team in Japan. Why you ask, because they did to that market on 1 Jun what traders did to our market on 6 May. Does it alarm anyone else that speculators around the world wield such power over the largest financial markets in the world.

And yes, then there's Vivus (NASDAQ:VVUS). Remember, that was the advisory board, not the final decision and it was close. That was going to be a lose lose outcome, as the vote was so close. Had they recommended approval with a 9-7 vote, the stock would have sold off. We'll wait until I think October and see what happens. We're still leaning towards approval, but we've hedged our bets with Arena (NASDAQ:ARNA).

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Thursday, July 15, 2010

The panel says no to VVUS

The FDA advisory panel voted 9-7 to reject VVUS's weight loss drug. There's good and bad in this. The bad is it's a "no". The good is it was 9-7, there's more data due out, which was one of the panel's concerns, and this bodes well for Arena (NASDAQ:ARNA)

Stay tuned.

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So much for a double dip

First Alcoa (NYSE:AA) and then Intel (NASDAQ:INTC) does its thing. This is shaping up to be another big quarter. Granted, the AA numbers were just ok, but the INTC numbers were phenomenal! Throw in a 3% yield on INTC and what's not to like about that stock.

We're paying close attention to GE and Citi on Friday, as they are good barometers for what's going on in the overall economy, top to bottom. We also love GE and Citi at these levels.

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Tuesday, July 6, 2010

Countdown to V day

The next potential big mover on the radar is Vivus (NASDAQ:VVUS). If their weight loss drug gets the okay then up we go. It's the first of three weight loss drugs up for approval this year.

The 15th is the day and we think they get a recommendation from the advisory board, but I wouldn't be the farm at this point, as this market makes little sense these days. Remember, this little biotechs are concentrated investments. A little goes a long way.

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Friday, July 2, 2010

2011 Model Portfolio Update 2Q10


Yes, the second quarter wasn't a nice quarter, but our model portfolio is still way ahead of the market. The S&P has returned about 23.7% since March 2009 and our portfolio has returned about 79%.

So our portfolio has beat the market by better than 55 percentage points.

Notable moves include dropping Research In Motion (NASDAQ:RIMM). We've talked about it for months now and we pulled the trigger in the mid 60s. We've got our eye on Mosaic (NYSE:MOS). That entire industry is struggling and the consolidation we thought would happen hasn't happened at the level we thought it would. There are still too many players in that space.

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Thursday, July 1, 2010

Reminds me of last year

Those days of indiscriminate selling appear to be back. Stocks down, oil down, gold down, etc.. This is one of those reasons this market is so difficult, no where to hide. This is also one of the reasons we believe this will be short lived, as it clearly has nothing to do with the real economy.

So the recovery is uneven. You can't draw a straight line from the bottom up and not expect there to be bumps along the way. Hysteria has set in again, but this to shall pass. Professional traders live this stuff.

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Wednesday, June 30, 2010

What a day, again!

The market tanks late again and then the Dendreon (NASDAQ:DNDN) dives late on news that's really no news. So Medicare is looking in to Provenge, as expected. The shorts and put holders must be laughing. By the way, what do you expect Medicare to do. For those longs, think about all of the previous stories and the stock reaction.

Next. Count down to Vivus (NASDAQ:VVUS). The 15th is V day. We think approval and the company has a market cap of about $775 million and a drug with $1 billion potential and another in the pipeline.

Also, Citi (NYSE:C) was halted after it's price was manipulated in some dark pool. Does it ever end. No wonder many people have just given up. Look to high yielding household names like Bristol-Myers (NYSE:BMY) and Verizon (NYSE:VZ) if you can't stand the heat.

Once again, this really is the most difficult market. Very little makes sense, retail investors are being thrown around, and the SEC seems powerless. Stay out of options and don't day trade!

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Sunday, June 27, 2010

Too bad for RIMM

So we've talked about it a few times and we'll hit it again. We wouldn't own Research In Motion (NASDAQ:RIMM), as they still don't seem to get it. Little companies become big companies by creating a product or service that people want, building out the brand, and then diversifying or building other products using the brand.

They fell flat on the last part. They didn't really think they'd be able to get by with just the same old smart phones for the next 50 years. Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) must be laughing. Both of which are better investments. Unless RIMM has plans to re-invent itself sometime soon it better sell itself.

The stock is being killed, as investors are just now waking up to the fact that RIMM isn't keeping up with AAPL and GOOG.

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Wednesday, June 23, 2010

The High Frequency list is out

Before you make that next trade you might want to check to see if that stock is on the top 25 hits list. That list is the High Frequency Trading (HFT) list and may explain why some of the stocks you thought were safe, behave erratically.

The list is here. I'm surprised that network snitched on their brethren. By the way, this market acts like it's broken. The most difficult market ever. Primarily a result of HFT in our opinion.

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Sunday, June 20, 2010

We may have turned the corner

So this past week we held up over 1100 on the S&P. We think that's good news and could mean a Summer rally. The news on the Chinese Yuan is being received positively of course. The miners should see a boost, as should the infrastructure names.

Stay tuned for more on this.

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Wednesday, June 16, 2010

We've said so long, see you next year to BP's dividend

Politicians finally got their way. They bullied British Petroleum (NYSE:BP) into suspending the dividend. Surprisingly the stock held up nicely after the news. The questions now are, does BP reinstate the dividend Q1 2011 or sooner, is it paid in arrears, will their be a special dividend, or what?

First things first, they have to get a handle on that leak, and soon. Kevin Costner to the rescue. Who cares how they do it, as long as they do it and do it right.

We went long at about $37 and we're hanging in there, as we believe the dividend comes back early 2011 and we'll be yielding 9+% at our price and the stock goes back to 50 easy. If not, we didn't bet the farm and consider it a risk worth taking.

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Tuesday, June 15, 2010

Do we hold or fall back?

The S&P is at a critical level. If we hold these levels, we believe we move much higher, if we fall back, then the market is broken. We think we move higher, as we've tried this level three times now and the third time is usually the charm (believe it or not).

We'll see where we go from here, but many of the usual names are still trading at bargain prices.

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Monday, June 14, 2010

Navigating the volatility with proven names

In a crazy market like the one we're in, it's nice to have invested in proven names like Bristol Myers (NYSE:BMY) and Verizon (NYSE:VZ). This definitely lowers the volatility in the portfolio and pays you to wait.

We've written about these names in the past and thought we'd hit it again. BMY pays just over 5% and VZ is paying about 7% at the moment. These two names are core holdings in our long term portfolio.

Things have definitely changed a great deal in the markets, as names like Dow Chemical (NYSE:DOW) and General Electric (NYSE:GE) used to be low beta names, but these two names trade like tech stocks. We still like DOW and GE and consider them core long term holdings.

We not only blame speculators, but regulators for creating an environment where our capital markets are more like casinos. Consider the news out today - traders can now speculate on the box office returns of movies. What a joke. Most in the movie industry appose this decision to allow futures traders to speculate in this way. The fear is that movies can be doomed before they ever hit theaters, as traders can sell futures of a certain movie and causing people, theaters, critics, etc. to believe the movie is a flop.

Whatever. There you have it. At the moment we're glad to be collecting 5-7% in dividends from a large part of our portfolio.

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Thursday, June 10, 2010

BP and politics

The situation with the Gulf oil spill would be comical if it weren't so tragic. I'm not sure either party, BP (NYSE:BP) or the feds really care about the little people down there or the little animals as much as they care about money and showboating.

Truth is, if the current administration hadn't endorsed off shore drilling days before the spill, I doubt they would be behaving in such an irrational manner. BP on the other hand has done itself no favors by underestimating the severity of the situation.

One thing is certain, all this talk about criminal investigations and possibly ordering BP to halt the dividend is nothing more than showboating. Save the investigation for later and who says BP can't pay a dividend and the clean up cost. This is one of the largest companies in the WORLD.

By the way, the critics who compare the current administration's response to the oil spill to that of the last administration's response to Katrina, aren't thinking clearly. One final note, other than updates, everyone should stay out of the media, as the talking heads just want to stoke the flames. You'd think all parties involved would know that.

Regardless of what happens, we think the stock, BP, represents good risk adjusted value down here.

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Monday, June 7, 2010

Watching the next few days closely

This sell off has been brutal and has caused many to doubt the economic recovery that is no doubt on going. Most of the excuses for the sell make little sense, as this is more a speculator driven sell off than one driven by fundamentals. Nevertheless it's brutal.

With that typed, the next few days should be crucial as we are sitting around 1050 on the S&P. We're not technicians and actually happen to think technical analysis is a bunch of mumbo jumbo, but this market is being driven by machines and algorithms and they primarily care about the technicals.

We really need to get back over 1100 and stay before we have a chance to change momentum, but more importantly if we move down and stay under 1050 could drag on a while longer.

While all that's happening, we still like the dividend paying stocks. Why not park your money there and earn 6% while you wait this out.

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Sunday, June 6, 2010

What a week

Up 3%, down 3%, and I really don't see a good reason for those kinds of moves. Traders and reporters create excuses later, but to blame a 3+% move down on the jobs number (like economist know what they're talking about), they're guessing like the rest of us. Economist see trends and they pretty much draw straight lines and see those trends continuing. Then the bears said Hungary looked bad. Are you kidding me.

The big up days are probably shorts cashing in, or should I say smart shorts. We need to work our way through this and hope speculators don't drive us into another recession.

By the way, we still like BP (NYSE:BP) and think people need to stay out of the media and stop the grandstanding. Work behind the scenes and make theses guys clean this mess up, but publicly jumping on the company just makes it more likely that they'll go into financial distress (although very unlikely). Wait until the situation is resolved, then blast them.

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Wednesday, June 2, 2010

Pulled the trigger on BP today

Okay, it was too tempting. One of the largest companies in the world, nearly $300 billion in revenues, and nearly 10% yield (in question). Started adding BP (NYSE:BP) today and won't look back. As these things go, anyone expecting BP to some how go away or be acquired is just crazy. Who has that kind of money?

Also, not to sound cynical, but if you think BP is going to end up paying billions and billions in settlements anytime soon, you don't know how the system works. They'll pay, but it won't be nearly as much as people think and they won't pay the last dollar until after the year 2020 sometime. Think about the tobacco companies. The people suing them will grow old waiting.

As soon as they get this leak stopped, the stock is going to move up 10-15% that day, assuming they don't kill the dividend.

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Tuesday, June 1, 2010

Recent Poll Results 25May-1Jun

When asked whether or not we were at a bottom in the market, readers replied evenly across the board, "Yes", "No", "Wish I Knew".

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Monday, May 31, 2010

I See A Trend

I've started noticing that when the US markets are closed and our traders are taking the day off, world markets tend to be less volatile. That might lead one to believe that the leader of the free markets world is responsible for the wild gyrations we see.

Anyway, I couldn't help but notice the yield on BP (NYSE:BP) is approaching 8%. Interesting, but if they don't stop that leak soon that yield will be approaching 12%. Now they have no problem paying it, but I'd hate to collect a 10% dividend and watch half my money evaporate with the stock price.

It's worth paying attention to.

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Thursday, May 27, 2010

Rise Of The Machines, Fall Of Our Markets

Over the past 3 to 4 years, many have wondered why our markets have become so volatile. Well the rise in volatility just happened to coincide with regulators making it really easy for the machines to run our markets. They do away with rules that prevent free falls and allow traders to naked short and stay that way. Then they let the massive, destructive algorithms run our markets.

Many of you probably don't know that two thirds of trading is high frequency trading (HFT). They say it provides liquidity so our markets are better off. Don't believe it, it's just churning. Trading for the sake of creating volume and volatility.

As we've said in the past, don't try to trade this market and don't go in to areas like options or futures (unless you want to lose everything by lunch time).

We've pointed out some good buys and we stand by them. Let's hope regulators wake up and stop catering to speculators.

By the way, what a day in the markets, up 3+%.

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Tuesday, May 25, 2010

Same Story New Day

Our markets have become a traders playground. I wonder if 'they' thought they'd be able to cause this sort of world panic, probably not. Once again, you know it's irrational when all asset classes, except US treasuries (and by proxy, the US Dollar) decline.

Equities, fixed income, oil, gold, grains, etc. are all being beaten again. Well that's not suppose to happen. If there was selling driven by fundamentals, you'd see buying in at the very least, gold.

The question remains, how long can we remain in this state? We're down just over 10% from our recent highs, economic news has been great, and company profits are surging. No doubt, this is a great time to dress up the IRA, 401(k), or whatever you're using, but don't try to trade this market. We've made that point numerous times in the past. Look for good investments, not trades.

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Thursday, May 20, 2010

So Many Names To Choose From, So Little Money?

If you haven't started buying, what are you waiting for? Do you really believe Europe is burning, if not, then get those shopping lists out. There are so many good names out there that we don't know where to start, so we'll just list them - GNW, DOW, HIG, CLF, GE, DNDN, C, AFL, FCX, VZ, INTC, PBR and RIG (yes, we like that name at these levels).

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Well There You Have It, A New Reality

Some traders reality (dream) has become our reality. Recall that this started with tiny Greece, and now all we hear is European crisis. The story finally stuck and the Euro is approaching 1.20 and the S&P is down 10+% from its 2010 high, but what's really happened in Europe. Where's the concrete evidence that things are so dire over there? Concrete evidence isn't trader talk.

Hedge funds and speculators of all types must be having a party because volatility is more than twice what it was just 3 weeks ago. They must also feel embolden, as we see some of the same tactics used back in 2008. Why wouldn't they feel good since nothing has been done on the regulatory front.

I spoke with a trader from a small hedge fund recently and he actually admitted that he was surprised that nothing has been done. Leverage is still the same and they still use the same tactics.

You know we're in an irrational state when the relationships between asset classes break down - equities are down, fixed income is down, oil is down, gold and other metals are down, everything is down except the US dollar. Sound familiar. Also, there's a total disregard for the economic data.

With that typed, we're holding the line. We're not believers in what we see or hear from the talking heads. We're not short term traders, but investors and we certainly don't see some double dip in the economy, no matter how many times the repeat it on TV. Go back to the first paragraph - you'd have us believe Greece is the catalyst for the next big recession. Like Dubai back in January.

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Tuesday, May 18, 2010

Good For Germany And What's With The SEC

The Germans banned naked short selling and buying CDS without owning the debt. Those are two no brainers as far as we're concerned. Now we have to listen to the talking heads claim that action was the reason the markets were down today. Give us a break.

The rampant speculation and runaway capitalism is the reason we were down today. Free markets gone wild.

Also, what's with this stupid 5 minute circuit breaker proposed by the SEC? If a stock falls more than 10% in a 5 minute span, it's halted for 5 minutes, as long as it happens between 9:45AM and 3:35PM EST. Who are these people and why are they in charge.

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Sunday, May 16, 2010

Looking For Opportunities

So traders and other speculators have been successful at changing sentiment and raising volatility. In case you're not aware, you should be by now that 'they' throw negative stories around until one sticks, short the market by selling S&P futures with all their might, then get the 'talking heads' to close the deal by repeating their story every 20 minutes.

Down we go for a while, but this is when we break out the shopping list and pick up those names we've had our eye on.

This story about Europe entering another dark age is pretty dumb, as their situation has been this way for some time and the Euro wasn't in any real trouble until speculators decided it was the slow, frail gazelle running in the heard and easy prey. Besides, their situation really isn't much different from our situation when you look at our country's balance sheet.


See previous posts for ideas for a shopping list.

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Monday, May 10, 2010

Bank, Hedge Fund, Other

What exactly is Goldman Sachs? I vote for other. They do all sorts of deals, they have a bank charter, and they trade like a hedge fund. I heard today that they made money every trading day in the first quarter. They already told us that trading, like the other banks, made their quarter.

Should an entity like that be allowed do exist. Recall, they received a bailout, tax payer money, even though later, Blankman said they didn't really need.

I don't see how a company like that operates enjoying the best of all worlds. It's like that 15 year old who goes out and does something really bad and risky and later says, "...so what, I'm a juvenile, you can't do anything to me."

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So Much For The Short Timers

Traders were looking for volatility and they got a lot more than they bargained for. The word was the short side was about to double down on their shorts this week, but instead they were forced to cover. Before we investors celebrate, let's see how the week ends.

It's really about time the Europeans did something to at least slow down the speculators that were ravaging their currency. Probably the same people that sent the DOW down 1,000 points. In case you didn't hear, there's an investigation going on as to the role speculators played in Spain and Portugal.

As far as the rating agencies go, what good are they? Speculators move in, then the rating agencies threaten to downgrade an entity, more speculators move in, situation gets worse, downgrade, more speculators, downgrade, feeds on itself, etc. Many times it's just a self fulfilling prophecy. Why don't they downgrade themselves and let the shorts raid them.

Don't get us wrong, we're free market, capitalist over here. With that typed, we also believe in fair, transparent, orderly markets.

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Friday, May 7, 2010

What To Do With This Market Updated?

What do you do with an irrational market? A market that is anything but efficient or transparent? Don't trade it. Pick your spots, get long or short, and know where you want to exit. Expect to hold for at least a few months or a year plus. We're at the beginning of the economic upturn, so we can hold for a while.

We had cash on the sidelines and freed up a little more, as some of the opportunities were too good to pass up. Here's what we did,
1) Bought Genworth (NYSE:GNW) back at around $15 after selling it at $18+ a couple of weeks back. We were originally in at a buck when everyone said they were done.
2) Added to our position in Dow Chemical (NYSE:DOW) at around $27. This is simply one of our favorite stocks and we've been in since $5+.
3) Added to our position in General Electric (NYSE:GE) at around $17. What's not to like here. The company had only good things to say and GE will be one of the chief beneficiaries of the economic rebound.
4) Added to our position in Cliffs (NSE:CLF) a hair under $60. This is a $100 stock passing as a $57 stock.
5) Bought Dendreon back (NASDAQ:DNDN) at around $46. We sold last week at $51+ after being in at $3+.

We're not buying the nonsense, but rather buying good stocks. We talked about this more than a few times, but the return of volatility was expected and we'll ride this one out like we rode it out in January. The economic rebound is real. All the economic data points to it. As long as you're not on margin, you can ride these moments out.

Consider this, we're just about down 10% from the recent high. We believe the coming week is the turn, probably close to options expiration. Our downside target is 1090 on the S&P. If we break that then possibly 1050.

By the way, ignore Europe and Goldman. Those are side shows. Speculators tried to introduce volatility with those two stories, but they never really took hold, so they went out and unleashed their computers on the market. Look at the VIX at the bottom of this page. Now they have something to spook us all with, how transparent. Wish our markets were that transparent.

Forgot to note that we added a little more Verizon (NYSE:VZ) at about $28. Hard to resist that 6.5% yield.

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Thursday, May 6, 2010

Where Are Regulators When We Need Them Most?

We've beat this topic almost to death, but given the fiasco in the market today, we'll beat it a little more. Speculators and other short term opportunist are responsible for the crisis of confidence that must exist in US equity markets.

Over the past few weeks 'they've' tried to change market sentiment from bullish to bearish and actually sent signals that they were gearing up for a rout. Recall over the past 2-3 weeks we've had days where we fell off a cliff (yes we wrote about that). Traders need volatility and it had been on the floor - not any more!

The 'talking heads' blamed Greece. Informed investors knew that Greece was smoke and mirrors. Greece is a fly on the back of a hump on the back of a camel on the back of a 747 as far as world markets go.

This is what happens when you have no real safeguards or rules that make sense (e.g. no uptick rule, high frequency trading, dark pools, etc.)

How do you take a stock like Procter & Gamble (NYSE:PG) down 40% or Accenture (NYSE:ACN) down 99%. If you're going to let traders run massive computers wild in our markets then there needs to be real checks and balances. We believe in free markets, but not so free that a group of knuckleheads can drive this bus off a cliff.

If regulators don't do something to change the rules, then the average Joe will leave and not return for a generation and who can blame them. The stock market isn't suppose to be a place where people just get together and gamble, but a place where among other things, capital is raised and value exchanged. Once the government conned everyone into believing that 401(k)s were the answer to our dreams and pensions were bad, then the feds have an obligation to ensure fair, transparent, and orderly markets.

We wish we were optimistic that something might be done to prevent this from happening again, but we're not. Regulators will take the excuses and those who operate in the shadows, like hedge funds, will continue to raid our markets periodically. For those people who sold today at ridiculously low prices, you have our sympathies. Rein this in while we're still able.

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Wednesday, May 5, 2010

Stay The Course

The shorts are trying to change sentiment and they've done a pretty good job, but don't be fooled. Think longer term. Nothing has changed. Greece is a diversion, the Euro is a diversion, and Australia is a diversion. What's going on right now is a bump in the road and by July you'll look back and not even remember it. Do any of you remember late January, early February? Probably not, but we had a similar pullback. Do any of you really think Greece is the start of the next big thing.

What's really changed? Nothing. All the economic news we get points to a strong recovery. Those who disagree have no proof, just rumors and the hope that panic will spread like last year, but hey, we do what we do and they do what they do.

These are just excuses to sell and create volatility. Ignore the talking heads or you'll always be buying after they've bought and selling after they've sold.

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Tuesday, May 4, 2010

We're Not Impressed

Today's sell off had nothing to do with Greece and everything to do with sellers wanting to sell. The economic news is great, companies are reporting great numbers, and M&A activity is picking up.

Ponder this, first the market sells off when Greece can't get a bailout and now it sells off after it does. Now the lies, I mean rumors about Spain start. These are the same tactics speculators used to take down companies last year and the year before.

Volatility had been on the floor and traders/speculators find it hard to make money with very low volatility. In the short run these things happen and they fired a shot across the bow a few weeks ago (we wrote about this) and let everyone know it was okay to sell em.

Clearly, a group of speculators are very short the Euro and the S&P, thus the raids. I see days like this as sales, not the clearance prices we had March 2009, but still things are going on sale. Over the next 2 weeks there should be opportunities to dress up the IRA.

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Monday, May 3, 2010

All The Miners And Metal Stocks Are Being Beat Because Of The Aussies?

So the news is that Australia wants 40% of the profits from miners beginning in 2012. I should qualify that by saying from Australian companies. That's what I heard. So what does that mean for a company that has a subsidiary there and minor operations - not a lot.

Just more excuses for short timers to sell companies that have run long and hard, like Cliffs (NYSE:CLF). Even if the Aussies decided to levy more taxes on foreign companies, the effect is small, especially compared to BHP (NYSE:BHP) and as usual they'd find a way to make us pay.

By the way, you know it's irrational because 'they' sold all resource stocks indiscriminately and this sure sounds like good news for companies that have no operations at all in Australia. The metal stocks were even sold off.

Situations like this present excellent buying opportunities. We love CLF in the 50s and if Freeport (NYSE:FCX) gets there, we're buying that too. We're in the early stages of the economic recovery. These are the stocks you want to own at this point in the cycle. In six months when CLF is 90+ and FCX is 100+, you'll thank yourself for having a cool head.

One more thing, a lot can happen between now and 2012.

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Thursday, April 29, 2010

Dendreon Gets FDA Approval Update 3.0!

What a ride it's been. The stock is still held, and there are no indications where it might open yet, but it was up about 6 bucks before being halted.. Hold on to your socks.

So Provenge is approved for men with asymptomatic and minimally symptomatic prostate cancer. That's huge, as the second group is the large group.

On the conference call and this is what we're hearing:
*) No ROW partner yet, but the company will focus on that now.
*) Demand will swamp supply in the first year.
*) Full treatment will cost $93,000.
*) Plans to start treating 2,000 patients right away supplied by New Jersey facility.
*) Expects $1 billion in annual revenues after facilities come on line in mid 2011 and as much as $2.5 billion the year after that.

So, looking at a minimum of $180 million in revenues over next 12 months.

Stock re-opened at 53+. This is in line with where we thought it would trade, up about 15 points. Let's see where it goes from here. More to come on this.

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Tuesday, April 27, 2010

What A Day

We had a hard time catching a break today. Everything was caught in the down draft today, even good stories. Buying opportunities galore if this continues a few more days. Here's one good name we haven't talked about in a while, Verizon (NYSE:VZ). Under 29 again and yielding 6.5%. Gotta love that stock and one worth adding to the IRA.

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Monday, April 26, 2010

Enough With Greece UPDATED

The two main business networks have almost nothing else to talk about, that's clear. I'm tired of hearing about Greece. I actually feel sorry for Greece, as they are doing what the rest of us are doing, which is borrowing now and worrying about it later. There's little difference between their situation and the situation in Spain, Portugal, and yes, Britain.

Funny how 'they' haven't gotten around to the others yet. That says it all. The opportunistic traders can only focus on one short at a time. Give it a rest already.

Okay, so now they've gotten to Portugal and Spain. Let's see how far they take this. Let's see if they get to a country like Britain or the US and Japan for that matter. Why leave any of us out, as our balance sheets are almost as ugly. Yes, I know our economies are different, but that doesn't change the fact that we keep adding to the bill. This looks and feels a lot like what happened to the banks last year - get the 'talking heads' on your side, float rumors, send up the CDS', then take one down, then the next, and the next. The life of a short term, short trader.

What's going on over there has little to do with the recovery. Big week - Genworth (NYSE:GNW), Hartford (NYSE:HIG), Dow Chemical (NYSE:DOW), Cliffs (NYSE:CLF), Aflac (NYSE:AFL) and of course Dendreon (NASDAQ:DNDN). We've talked about all of these names and we expect good things, as these companies report earnings or significant news this week. Let the good times roll and forget about the side shows with Greece and Goldman. I'm still waiting on someone to tell me what Goldman or Greece has to do with the price of gold or oil or US equities.

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Thursday, April 22, 2010

Front Month Calls On Dendreon Look Suspicious

I think most observers believe Dendreon (NASDAQ:DNDN) is going to get approval for Provenge, but I'd beware swinging for the fence in May. Have a look at the May call options at 45, 50, and 55. There's a whole lot of them and they aren't cheap (neither are the way out of the money puts). We expect more shenanigans and the bears are shore to put pressure on the stock regardless of the FDA outcome. What we've seen over the past few years is when there's huge open interest at certain strike prices, the stocks have a hard time getting over that hump. Blame the SEC and the exchanges. It's just to easy to put pressure on a stock these days (flash trading, no real uptick rule, no enforcement of naked shorting, etc.).

The smart bet if you must buy the calls would be to allow an extra month. You're not paying that much more, but the extra month might mean the difference between zero and a fist full of c-notes.

We could see a scenario where DNDN gets approval, the stock shoots up 15 points, then closes even or up a point or two. Remember, the market isn't rational in the short or intermediate run and hasn't been for a few years now.

disclosure: long DNDN

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Tuesday, April 20, 2010

Apple Is King Of The Hill

Is there any doubt that Apple (NASDAQ:AAPL) is eating the competition's lunch? The only real threat comes from Google (NASDAQ:GOOG). By this time next year AAPL will have revenues that match or exceed those of Microsoft (NASDAQ:MSFT).

All the analyst say the market cap is too high, we say AAPL needs to buyback shares to rectify this. The analyst don't get it. AAPL is a different sort of company. There's no other company in the world with revenues as high as AAPL's that grows at high double digits.

Research In Motion (NASDAQ:RIMM) should take note. This is what they should have tried to be. Take that brand and that cult like following and build it into a diversified technology company. Too bad, too sad. AAPL's latest quarterly numbers provide more evidence for why removing RIMM from our favorite portfolio was the right thing. It's the slow march to and in to the sea for RIMM.

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Monday, April 19, 2010

These Are The Days

Nothing really surprising so far this earnings season. We got what we expected from GE and Citi. Next our attention is drawn to Hartford (NYSE:HIG), Genworth (NYSE:GNW) and Dow Chemical (NYSE:DOW), all names we've talked about and all names we've owned since the bottom last year. We expect very good things from these companies.

We also have our eyes on Dendreon (NASDAQ:DNDN) of course. 'May Day' is quickly approaching. The drama is about to come to an end, or probably some sort of bizarre end. We like buying some just for the run up to the announcement and selling before, but holding some long term, as this little company is destined to be a big company one day. Also, beware the crooks after the announcement. Take those stops off, so what might have happened to you last time, doesn't happen to you this time.

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Friday, April 16, 2010

Bears Got What They Wanted Today UPDATED

A big, ugly story on Friday, expiration Friday. I don't know why anyone would be surprised by the Goldman story. Bankers chase money. Bankers do what's in their own best interest. To suggest that this was one rogue employee is ridiculous. The guy was a VP at the time, not a MD and this was a large complex deal. He'd have to get sign off from someone over his head. So when GS finally pays up years from now, they'll owe what amounts to a drop in the bucket (remember BofA's deal after the Merrill disaster).

Let's see, someone approaches a bank and offers to pay that bank to do a deal where that customer gets to pick what goes into the CDO, then the CDO is sold while at the same time that customer makes bets that the CDO will fall in value. Knowing of course that it's all junk. I want that deal! Question, where were the rating agencies? It had to be rated.

In the long run GS will recover, but this may be just what the politicians need to move regulation forward. Things have been out of hand in banking for a while now. Conflicts of interests and greed run amok.

On the other hand, this presents a good opportunity to buy some other names like Citi, GE, and HIG on pull backs.

One more note, the sell off started before the GS news. This was just an excuse to sell today. The banks and funds that trade against you and me were up against it, as many stocks had run pretty hard in one direction into this expiration. Consider this, banks are making money trading, not making loans. They're trading against YOU, so they need volatility. I'll leave it at that.

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Friday, April 9, 2010

Random Thoughts On HIG And RIMM

I'm not one to buy in to your run of the mill conspiracy theory, but when I watch the daily action in a stock like Hartford (NYSE:HIG), I can't help but think all is not right. It almost never fails to behave erratically right before the expiration of options. At some point the short timers will grow tired of the stock and move on. The stock is trading at a discount to its peers, they've only had good news to report over the past nine months, and it's in our 2011 Model Portfolio! Anyway, we still think this is the most undervalued financial/insurance stocks around and worth buying down here.

As far as Research In Motion (NASDAQ:RIMM) goes, it's done. We've removed it from our model portfolio. In the long run, this company is going to burn out sooner than people think. Why oh why haven't they taken that brand and leveraged it into something other than phones. Without product diversification companies become obsolete. Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG), and probably Microsoft (NASDAQ:MSFT) are going to eventually devour this company if they don't evolve.

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Friday, April 2, 2010

2011 Model Portfolio Update March 2010


Here's the update on the portfolio we built on 26 March 2009 and the couple of weeks following. A few things to note again. We sold NYSE (NYSE:NYX) last year and we sold Sierra Wireless (NASDAQ:SWIR) this year. Both were sold for nice gains and although we didn't officially replace them with anything, we unofficially purchased GE and Citi, as some of you will recall.

Although we've done well thus far with this portfolio, to be honest, two of our biggest winners aren't included in this list, Cliffs (NYSE:CLF) and Genworth (NYSE:GNW). GNW was a generational buy at the time. A buck! Things were easy a year ago, as everyone seemed to misprice both credit and market risk.

The S&P returned 41% from 26 March 2009 to 31 March 2010 and our portfolio returned 114% over the same period for a 74% beat. Also, our portfolio isn't nearly as risky as some thought a year ago, so on a risk adjusted basis it did well in comparison.

Biggest disappointment is still Arch Coal (NYSE:ACI). Not sure what's going on and we thought about dumping it, but we still think coal is going to have it's day.

Also, we have nice yields on some of these picks like 7% on AFL and nearly 6% on DOW, but we didn't include that. One more note, we're thinking about dumping RIMM, as we feel their best days are behind them or right in front of them. Not sure why a company with such huge brand equity wouldn't leverage that into other products. Recall, Apple started out making just desktop computers and Microsoft started out just making software for PCs.

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Monday, March 29, 2010

Breaking News: The Gov Is Selling Its Citi Shares This Year

How is this new news? They've told us this numerous times over the past month so why the knee jerk reaction today. Yes, yes, they're selling sometime this year, don't panic. I for one will be glad when it's done, so everyone can stop obsessing, stressing, and lying about it.

This morning I read a headline that said 6.5 billion shares had traded because the government was selling. That was with about 4 hours left to go in the trading day. In fact fewer than 1 billion shares traded all day which is rare.

Anyway, I'm beginning to think maybe a 1 for 2 reverse split wouldn't be too bad after Citi buys back 5 billion or so shares. That would bring the outstanding shares down to about 12 billion shares and the stock price up to about 8 and the market cap below 100 billion.

April should be an interesting month. Maybe they'll throw back the covers and show us what's under there. That is, what they have planned to address their capital structure.

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Friday, March 26, 2010

Let's Pay Attention To The Next 3 Weeks

It troubles me when we get days like Thursday and Friday. We start out up big, then give it all back in 30 minutes. Fundamentally, nothing has changed. The economy is on the mend and corporate profits are going to be good or better than most think. That doesn't change the fact that what we saw on Thursday was what we call a signal. Look at the chart and you see the market falling off a cliff on those days. Big computers selling and momentum traders joining in on Friday.

Most professionals know this usually signals it's safe to get short. You can hear a change in the tone of some of the tv personalities who trade. They all think it's safe for the shorts to come out of hiding. It'll be worth while to pay close attention, and maybe put some tight stops in.

One thing is certain, if they can't beat the market up over the next few weeks, then some who tend to be short only might be having a going out of business sale soon.

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Sunday, March 21, 2010

A New Strategy For A New Market

Here's something we believe works and most savvy investors could use to generated cash each month and boost portfolio returns. It involves options and we see it similar in risk to writing covered, short term calls on stocks you're willing to sell.

In case you haven't been paying attention, the pros are making a ton of $$ selling out of the money calls to retail investors. They push a stock up and then sell a load of calls, then when the time draws near, they short the stock and ensure the options expire worthless. Why not take advantage of this. It's so predictable.

Consider this, Freeport (NYSE: FCX) is a high beta name and favorite of traders/hedgies. The March options expired on the 19th and on the 16th the stock traded above 82. On the 16th the 80 puts traded as low as 17 cents (that's actually $17 for beginners, as you have to buy on 100 shares). With just over 3 days to go, most novices believed the stock had no chance to close below 80 because all the momentum had been to the upside and 80 looked like a long ways away. Wrong.

Of course the stock closed at 78 and change on the 19th and those options could have been sold for 10x as much, as they traded above $1.80 in just 3 days time. More importantly, those options gave buyers numerous chances to sell over the three days at much higher prices.

Think about it. Retail tends to be long only, which makes you predictable. Change your habits or continue to be taken advantage of.

This strategy requires a high beta (high risk) stock, and there are plenty, you must be willing to wait until the last minute to buy and sell (within days of expiration), and you must be willing to lose it all (so don't bet the house just money you're willing to let go). We ran hypotheticals for a few months before committing capital.

By the way, we prefer to invest here, not trade, but occasionally we engage in short term strategies we feel offer exceptional risk adjust returns.

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Wednesday, March 17, 2010

Another Interesting Day

This market just wants to keep going up. We just wrote about Cliffs (NYSE: CLF), GE (NYSE: GE), and Hartford (NYSE: HIG) and there was plenty to see, hear and read today. CLF was up about $3, GE said the future looks great and the dividend is back in sight, and HIG is paying back the TARP.

We like all three of these stocks, but the prudent thing to do is put on a hedge or two. We like buying a few short term puts, not a lot, but a little. For example, if I had $10k at risk on the long side, I might spend $500 on puts on names like HIG, CLF or FCX. 10% out of the money and a month to expiration. That way, we don't eat in to our profits on the long side, but if anything crazy happens we'll limit our losses.

That's not a lot to pay for insurance.

disclosure: long HIG, CLF, GE FCX

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Tuesday, March 16, 2010

Stocks Of Note

So here's what I'm watching right now. First let me say what I said last quarter, this quarter is going to be good and guidance will beat. I'm watching Dow Chemical (NYSE:DOW), GE (NYSE:GE), Hartford (NYSE:HIG), Cliffs (NYSE:CLF), and of course Citi (NYSE:C).

DOW has tried 30 a few times and I think it'll stick this month. I'm also betting the dividend will be increased within 6 months. GE has been quite impressive late in the day the past week and it's just about at its 52 week high. I think it's ready to take it out and make new highs. The economy is on the mend and there are few better places than GE when that happens.

HIG is volatile as usual and I think we're one more good announcement from the short side giving up. If this gets over 30 look out, next stop book value. Be advised, there seems to be a lot of short timers trading this stock, including a ton of options activity. CLF has been one of the most impressive stocks on any exchange. Given where we are in the business cycle and the iron ore price outlook, this looks like it's going to 90.

Finally, Citi is the subject of more rumors and guess work than I've ever seen. PaperGains readers were alerted about the opportunity here when the stock was at $3.25 a month ago. Now everyone wants a piece. Citi is going higher, no doubt, we're just waiting to learn exactly what they're going to do with their capital structure.

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Wednesday, March 10, 2010

Our Two Favorite High Drama Names, C & DNDN

Wow, look at Citi (NYSE: C) go. Who would have thought 30 days ago C would trade over 4 bucks? Well we did actually and we told our readers we liked the stock. C traded over 1 billion shares today and there were monstrous bids out there again. Everyone suspects C has a plan to repair their balance sheet (i.e. buyback and cancel shares). Currently the options market is pricing in a 25% probability of the March 4 calls expiring in the money.

Everyone is talking about the stock and those who are still on the sidelines will eventually buy in at higher prices. We like it as a long term buy and not a trade. The franchise is strong and they generate a ton of cash. We just have the one issue to resolve - all those shares. Maybe C ought to think about issuing more callable, long term debt and using the proceeds to buyback common stock. Swap out one form of long term capital for another.

And how about Dendreon (NASDAQ: DNDN). What a strong move up over the past 2 weeks. I think the shorts finally see the light. Provenge is going to be approved and this thing is going higher when that happens. Also, regulators are finally doing something about the manipulation in that stock. In case you haven't heard, a special investigator is not only investigating the highly suspicious drop and then rise in the stock last Apr, but they're investigating the regulator who was suppose to investigate this last year!

Turn on the lights, so that we might all see what's going on.

disclosure: long C, DNDN

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Monday, March 8, 2010

So Called Analyst/Talking Head Looked Foolish

One of the few times I actually watched "Fast Money" today and had to watch a so called technical analyst on the show make a fool of himself and the show. Those of you who saw know what I'm talking about, but for those who didn't, here it is.

They were at the segment where they bring in their technical analyst and he talks about trades he's putting on or thinking about putting on. He actually said he was looking at trading Genentech, former symbol "DNA". Here's a news flash; they were bought out and the stock doesn't trade anymore. What a joke!

You can still see the symbol, but it doesn't trade. He actually talked about the stock "...breaking out..." from its trading range. This is absurd. How do people stand it. I believe the company was purchased over a year ago!

By the way, I watch that show about once a week just to remind myself how bad people like that are.

Do your own research and/or speak to an adviser who knows what he/she is doing.

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Poll 1 Mar-7 Mar

This was a very predictable poll. When asked whether or not the new short sale uptick rule would be effective, 100% said no.

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Wednesday, March 3, 2010

New Poll And Request For Names

Take part in the new 'Uptick' poll. Information can be very powerful and we share information here, so we have another call out. Send us the names of stocks you feel very strongly are manipulated and/or in the clutches of hedge funds and other unscrupulous traders. We will share this information with our readers and track them for you here.

Likely candidates aren't stocks where you just don't like the behavior, but stocks with very high short interest, high volume relative to the float, in the news often, very active message boards, and high volatility.

Post a comment here with the ticker or email PaperGains
.

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Ignore Takeover Rumors

Takeover speculation is usually a negative for investors, as it draws in more traders and the stock becomes detached from fundamentals. I would much rather see a stock I own trade on its on good prospects rather than on some rumor.

Take for example Hartford (NYSE: HIG). Every so often traders float take over rumors about the company and the stock trades round and round. It eventually falls after people realize it isn't going to be taken over anytime soon. I believe if these rumors didn't exist, stocks like HIG would move up on its on and stay up.

Looks like just another way for short timers to make money on the way up and the way down.

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Tuesday, March 2, 2010

Yet Another Attempt To Raid Dendreon!

These people are relentless. Instead of just moving on, there's a sinister group of short sellers and manipulators out there that won't give up on Dendreon (NASDAQ: DNDN). The tactics they use are now known to everyone, including the SEC, although the SEC seems helpless to do anything.

For those that didn't catch the action, some clown put out a bogus report about DNDN having to jump through an extra hoop that could cause delays. The stock was down about $2 before the FDA denied this. The stock then turned around and was up more than $2.

The only reason the stock didn't get hammered is because investors know we're getting close to May day and had to be and have to be expecting the bashers to come at DNDN with everything.

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Monday, March 1, 2010

Headed Back Up?

We think the market is poised to move back up and in a big way. Investors may just be waking up to the fact that they have no place else to put their money. We've recovered from our holiday spending, tax refunds are in the mail or bank, and those saving accounts aren't doing anything. March and April are typically good months and earnings are still on the rise and the economy is on the mend.

Stocks like Cliffs Natural Resources(NYSE: CLF) and Intel (NASDAQ: INTC) are at or near 52 week highs. Both are stocks we've talked about here. Stocks like these are leaders in the markets and tend to signal where we go.

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Wednesday, February 24, 2010

Huge Bids On Citi

Here's a short note on Citi (NYSE: C) yet again. Has anyone else noticed the huge bids on C. Multiple times I've noticed bids to buy 10+ million shares through out the day. This has happened on multiple days. That's a lot of shares. I've read a lot lately about this person and that person buying C and it seems to be ongoing.

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Some Stocks Just Aren't Worth The Risk

Look out below for Stec (NASDAQ: STEC), they had a predictable 4th quarter, but forecast a horrendous 1st quarter. The stock got killed after hours and who knows where it lands in the AM. The signs were there for anyone looking. High beta, small float, and extremely high short interest. Looks like Fuel Systems (NASDAQ: FSYS)!

Don't underestimate the ability of hedge funds to push down stocks they already have a large short position in. STEC's short interest was near 50% and the float was only about 26 million shares. That tells me that 'they' were going to knock this stock's block off regardless of what they had to say. Also, they did have very bad news.

Until we have new rules in place to curb short selling and clean up the naked short selling, we would rather avoid stocks that are in the cross hairs of hedge funds.

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Friday, February 19, 2010

Not Phased By The Fed Raising The Discount Rate

How is the Fed raising the discount rate bad? This talk about who knows what they'll do next and companies not investing. Don't be ridiculous. This is a good sign and falls in line with what we've been hearing from key companies. The economy is on the right track and we'd be buyers of any crazy sell off.

We still have our eyes on Sierra Wireless (NASDAQ: SWIR). It's down hard, but we think it'll go lower. Recall it was a member of the Model Portfolio, but we sold in Jan. We're also starting to take a hard look at Stec (NASDAQ: STEC). The sell off has been brutal in that stock, but it's a good company with a good product. Still watching both. One more, the National Bank of Greece (NYSE: NBG). The whole Greek tragedy thing is over done.

So what's the deal with China. Have you noticed that market has been quite weak for some time now.

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Tuesday, February 16, 2010

Are Fundamentals A Thing Of The Past?

Anther big up day in the market today with nice buying all around. So what changed from 3 weeks ago to today? Not a lot. Just a few weeks ago the market was in the tank and we were supposed to be worried, and now? Commodity related stocks are back in vogue see Freeport (NYSE: FCX), Cliffs (NYSE: CLF), US Steel (NYSE: X) and Alcoa (NYSE: AA). No fundamental change, just change in sentiment, or should I say change in what the models in the computers think.

With 60-70% of the volume being the result of high frequency trading, you can't always expect reason to prevail in the short and intermediate term! I keep hearing that we have to trade a different way now. I say don't trade, but invest instead. Here's something to think about. Most anything you went long a year ago is higher and most anything you went long 6 months ago is higher.

My point is that fundamentals aren't dead, but the noise makes you think otherwise. I find I do my best thinking and make my best investment decisions when I do either of the two; 1) turn off the tv and put down the paper, 2) do the opposite of what the 'talking heads' say/suggest I should be doing with my money.

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Thursday, February 11, 2010

Cheap Bet On Citi Or Money Wasted? Updated Again

We can't help ourselves over here with our bets on Citi (NYSE: C). We like the options market for this. The 2011 and 2012 calls look too good to pass up. We've concentrated in the 5s, 7 1/2s and 10s. Our strategy basically rests with our belief that the company is buying back shares and will continue to do so until the number of shares outstanding is under 10 billion along with the fact that during normal times banks are among the most profitable companies on the planet factors in to this also. By the way, those who still think Citi and BofA are going under, that scenario has been taken off the table. Yes, their balance sheet looks bad, but every realtor I speak to says housing is coming back.

I don't believe the housing market is really coming back, but I believe big bank owned homes are being slowly spoon fed to us which artificially supports prices. If banks put their entire portfolios on the market at the market price it would be like the 'for rent' and 'for lease' signs I see everywhere.

Those calls look cheap considering the upside. A few hundred dollars bet might return a lot of cheddar! Remember, options aren't for everyone, in fact they're just for a very few with a stomach for risk. The stock looks like a good play as well. At about 3 bucks the downside is minimal, but the upside is huge.

Looking for more proof that others see it our way. Look who's buying. Some of you are probably familiar with the name DFA, well they're buying too and a lot. Have a look here. They added to their already large position and now own about $173 million worth of Citi. JPM, CalPERS, and Susquehanna feel the same way. Although I don't put too much faith in to what CalPERS does.

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Wednesday, February 10, 2010

Stormy Days In The Markets

If you're a holder of Baidu (NASDAQ: BIDU) you're a happy camper. On the other hand if you're a holder of Sierra Wireless (NASDAQ: SWIR) then you're an unhappy camper. Recall SWIR is/was a member of the 2011 Model Portfolio, also recall that we sold it in January over $11. SWIR is still a great company and will make it back, but this was anticipated, as SWIR and Novatel (NASDAQ: NVTL) are never far apart for long.

So how about that BIDU. Less than a year ago it was just over $100, now it's moving in on $500. That one is too hot to touch.

A couple of more stocks which have us puzzled are Stec (NASDAQ: STEC) and Fuel Systems (NASDAQ: FSYS). Once high flyers, they've been beaten down. We've started sniffing around them, but these two are extremely volatile so we need to proceed with caution.

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Tuesday, February 9, 2010

Hartford and Lincoln

Please don't try to make sense of today's action. Hartford (NYSE: HIG) was down hard, while Lincoln (NYSE: LNC) was up big. Both received TARP and both had solid quarters, although HIG's quarter was huge. Just traders trading, no real reason. For those that don't know, HIG is a favorite of hedge funds and other short timers.

We think this presents a great buying opportunity for HIG. Think about this, book value near $40, forward PE 5.5, and one assumption they made that I think is rather conservative a 9% return on the S&P.

Short term this is a day traders dream. Long term, and investors dream.

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Monday, February 8, 2010

I'm Wondering About Citi

I look at all those shares (28 bil) and I look at the stock price (3.15) and I have to wonder, is Citi (NYSE: C) buying back in here? I ask that because the stock price has behaved strangely on some big down days for the market. It's actually stayed flat to up. Also, the company has to know they need to buy back and cancel a lot of shares.

The company is in a tight spot. They have to disclose material events, like large buy backs, but they can't very well come out and say we're buying back 10 billion shares because the stock would go through the roof. This depressed stock price represents a prime time opportunity.

Here's an idea, you can buy the 5s, 7 1/2s, and 10s calls for 2011 and 2012 on the cheap (few hundred bucks) and if we're right about the covert buy back, in a year if we're right - wow!

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Thursday, February 4, 2010

OUCH!

It's been a while since we've been beat like that. So what are we to think? Usually when we get a big down day like this, especially toward the beginning of the month, it's bad for weeks afterward. But usually the preceding weeks were big up weeks, so what now?

What really went on today was more computers selling. I say that because it looked like a year ago. Every asset class was down hard - metals, grains, equities, energy, fixed income, the sky and the stars too. Everything except the dollar and by proxy, treasuries. That's a sure sign that not much thought went in to the selling, which means someone's computer program did it.

How do we play this? We're taking this as an opportunity to put on some long term positions we've been looking at from a distance and adding to others. You know the names (HIG, DOW, etc.), we've talked about them enough. In six months we'll all look back and comment on what a great buying opportunity.

By the way, all this talk about the jobs report spooking the market, give me a break. Who cares if the jobs number is up or down 20, 30, 40k instead of zero. You don't really expect a bunch of economist to get the number right on the button. Things are getting much better and that's a fact. Companies are growing the top and bottom lines and are optimistic about the future.

By the way, if you're not leveraged, then days like today mean very little.

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Tuesday, February 2, 2010

Previous Poll 24-31 Jan

When asked, "Is it manipulation to buy or sell just to move the stock versus buying or selling to take part in the future movement?" 87% said "Yes" and 13% said "No". So there you have it. We're not surprised, as most people think the market is rigged these days!

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Saturday, January 30, 2010

A Place To Park Money During Turbulent Times

Looking for a place to park your cash during times like these? Looking for a way to water down some of the volatility? Have a look at some of these names and guess what they all have in common. BMY, BP, TEF, VZ, T, PBI, and FTR. Forgive me for not writing out the names, but I'm feeling lazy at the moment.

If you guessed yield, then you're right. All of these companies are yielding more than 5%. My two favorite on the list are Verizon (NYSE: VZ) and Bristol Myers (NYSE: BMY). Parking money in those two names is better than any bank account I can think of at the moment with 6+% being paid out.

For those who say the stocks could go down, they go up and down, but never down too far and never for too long. If you don't need the cash for 6 months or longer, then these names represent great alternatives to banks or CDs or money market funds. By the way, the 13+% yield on FTR is going away sometime soon.

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Friday, January 29, 2010

How Much More Proof Do You Need?!

People we are in a new trading paradigm. Throw out the short term strategies, as they're losers more than likely. Intel (NASDAQ: INTC), Microsoft (NASDAQ: MSFT), IBM (NYSE: IBM), AMAZON (NASDAQ: AMZN), General Electric (NYSE: GE), Hartford (NYSE: HIG) and the list goes on have all confirmed that the economy is heating up.

If that wasn't enough for you, then look at Q4 GDP - 5.7%! The market is dominated by traders and they're in a short mood right now. It's so easy to short these days because the feds haven't put the safety mechanism back in place yet.

We find it best to just use times like this to put on long term positions, but you have to wait for this downward spiral to play out. The first move down isn't the real move down. We've been burned in the past by buying into these pullbacks too soon, we now wait weeks before buying.

PG

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Friday, January 22, 2010

What a Week and What a Rout

Get used to the sideways action over the short and intermediate term. Traders rule the market now, so after a period of upward movement, expect moves down like this. Fundamentals don't seem to mean a great deal over extended periods and we've talked about that in the past.

The economy is coming along and most bellwether companies have had only good things to say, but the trade of the day seems to rule. We actually like the big banks here. BofA (NYSE: BAC) and Citi (NYSE: C). You could hold names like this and do quiet well over the next two years.

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Monday, January 18, 2010

The New Trade

Wondering how 'they' were able to turn the Intel news against us. You shouldn't be surprised by now, as we've been going on about this for a while. This has to do with options. To be more precise - the calls they sell to you and the puts they buy.

Once again, here's how and why it works.
1. They run stocks up until about a week before expiration.
2. They sell YOU a bunch of calls toward the end of the run up or on the initial pull back.
3. They buy puts during the same time on the cheap.
4. This works for 3 reasons, because retail leans long and because they are the same people responsible for the advertisement behind options and futures and because retail investors are emotional investors.

You see the same thing in the commodities markets. You're better off staying away from this until regulators get a handle, but if you can't resist, here's the new trade, as promised.

1. Never buy calls for a short term trade. Buy LEAPS or options with at least 6 months.
2. Buy calls no more than 50% out of the money, but 25% is more the target.
3. Only buy at least 2 weeks into the pull back and buy close to options expiration.
4. Sell after whatever big news breaks that you were waiting on.
5. Start betting on the downside buy buying puts as well (break those old habits).

Friday would have been perfect to buy options on those high beta names about 25% out of the money and at least 6 months from expiration.

This has become so predictable that we can build strategies around this. Funny that you hardly ever hear the 2 primary business news outlet talk bout what most people being interviewed must know.

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Thursday, January 14, 2010

So Predictable, Same Game Different Month

Look at most of those same high beta names like Potash (NYSE: POT), Mosaic (NYSE: MOS), Fuel Systems (NASDAQ: FSYS), Hartford (NYSE: HIG) and Trina Solar (NYSE: TSL) to name just a few. Inexplicably down in the days leading up to options expiration. This in the face of HIG saying their Q4 earnings would be at least twice the estimate. On the day they released that news, the stock was up big early and then just finished up.

Look for a post in the near future that tells you how to capitalize on this very predictable behavior the pros seem to run almost every month. By the way, you FSYS investors should be suffering from motion sickness.

PG

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Monday, January 11, 2010

Deciphering Alcoa

I like the numbers from Alcoa (NYSE:AA). The revenue number is solid and they actually predicted growth this year, versus a decline last year. The earnings number was light, but who really cares, as that's company specific. I'm more concerned with the overall market and I like what I heard/read.

The stock is down after hours because it was destined to fall after this huge run up. Note - when companies run up as much as AA did just before earnings, they almost always fall later. 'Buy the rumor, sell the news'.

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Friday, January 8, 2010

Where Are The Pre-Announcements?

It just occurred to me that I haven't heard one significant, negative pre-announcement for the 4th quarter. I think we're in for a good 4th quarter and good guidance. Think about the last few quarters. By now, there would have negative pre-announcements from at least half a dozen name brand firms across industries this time last year or 2 quarters ago.

Buckle up, I think we're going much higher. Look at names like Alcoa (NYSE: AA), US Steel (NYSE: X), Cliffs Natural (NYSE: CLF), and Dow Chemical (NYSE: DOW). These companies foretell where we're headed.

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The Banks Appear To Be In Favor Again

Everyone is talking up the banks now, BofA (NYSE: BAC), Wells (NYSE: WFC), and even Citi (NYSE: C). What changed besides the year? We noted BAC and C looked like good buys at least a couple of months ago. They're paying or have paid back the TARP money and BAC is even paying their bankers like it's 2007 again!

Given where the market has gone and the fact that BAC and C have lagged in our view, we think the analyst are behind the curve yet again.

By the way, what's the deal with the coverage on General Electric (NYSE: GE)? It was bashed last quarter. All the while analyst raised their estimates for this latest quarter and now everyone is buying. With the recovery well underway GE stands to benefit handsomely.

Note: We sold Sierra Wireless from the 2011 Model Portfolio. The latest big move up was too hard to ignore. $12.30 was a good price considering we paid somewhere around 3 or 4 bucks in March.

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Wednesday, January 6, 2010

Smells Like A Lot Of Short Covering

I believe what we're seeing are shorts taking their profits and professional longs who booked profits in November/December, taking up those long positions. I say that because even with the market flat to slightly down the past couple of days, the high beta stocks (many that we've talked about here-see history) that were beaten up in November/December are taking off.

I like it, but I'd wait and see what happens next week when options expire before celebrating just yet. This is a quick expiration, just about 2 weeks in to the month and the last 2 expirations haven't been kind to longs.

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Tuesday, January 5, 2010

Give Us A Break Meredith

Hasn't she had her 15 minutes? Her minutes have run in to someone other person's 15 minutes. She brought down Goldman Sachs' (NYSE: GS) estimates from 6 bucks to $5.50 and that apparently took the wind out of our sails. I long for the day when one voice doesn't move the market.

As I type this, I hear reporters saying 'economists' are calling for a double dip. They waste no time and pile right on.

The fact is, things look good going forward. We should remember that Meredith was also preaching doom and gloom while the banks were taking off and reporters just like mayhem.

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Monday, January 4, 2010

What A Day And What A Way To Start The Year

I don't know whether to cheer or be wary. I see many of the usual suspects taking off, Fuel Systems (NASDAQ: FSYS), Potash (NYSE: POT), Genworth (NYSE: GNW), etc.. These are among the most manipulated stocks out there and the people pulling the strings tend to run them up, then take the air out of our sails, then rock the boat until we capsize.

I'm not complaining, as I like up days, but I wouldn't chase the really big movers if this continues for a week or two. If you're in, then great, if not, I'd wait for the next pull back to get in, but then, what do I know.

Disclosure: long GNW from a buck

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Citigroup In The Spotlight And Ready To Move

I expect big things from Citi (NYSE: C) in 2010. If for no other reason than the fact that it lagged the market in 2009. Let's consider the facts. They're paying back the feds, they're making money, banks are among the most profitable companies on the planet, they - like the other banks are charging consumers an arm and a leg for everything, IPOs are coming back, people have short memories, and again, it was one of the worst perfomers in 2009.

Don't underestimate that last point. Typically stocks that lag that badly, perform quite well the following year. That's our stock to watch for the year.

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Sunday, January 3, 2010

2011 Model Porfolio Update


Here's the December update for our model portfolio. Remember, we plan on holding this until Jan 2011 or in that neighborhood. Also, recall that although we continue to list NYSE (NYSE: NYX), we did sell that one a month or two in and replaced it with GE(NYSE: GE). Also, Mosaic(NYSE: MOS) wasn't purchased on 26 Mar, but shortly after.

So the results speak for themselves, 97% return - 63% better than the 34% return of the S&P 500. The 4th quarter was a wash, but we expect the portfolio to do quite well this year.

My further 2 cents: best picks Dow Chemical (NYSE: DOW), Aflac (NYSE: AFL) and Sierra Wireless (NASDAQ: SWIR). Those 3 picks were way too easy. DOW and AFL were yielding about 7% when we bought them and SWIR was trading at cash. We also expect DOW to increase the dividend this year.

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The Vix

About This Blog

Where we rant and rave about the market and of course give our opinions on stocks we love or hate. We're not advisors and urge you to conduct your own due diligence.

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