(a) String out enough rope to dying bulls to herd them into the office around 9 am. (b) Take it down 50 points or so to entice dip buyers into opening new positions. (c) Sell off hard into the afternoon.
2nd - All it took was 2 days to reverse about a good chunk of my gains this year. Still up 27% for the year but this week was a doozy. I'm still having a hard time thinking longer than just a few days at a time...I tend to see those gains and run with them then switch my thinking too quickly.
So I have a new target for the downturn. I'm thinking we will see 940 to 970. I'm thinking a 20 to 25% correction should just about do it. At the 1,000 level I will consider legging into longs in case I overestimate the potential downside. In the meantime, I'm going to make a list of long term buys. What long term trends do you all have in mind that will provide us for good investment opportunities? I know a lot of people are on the agriculture / commodities train. So I'm thinking MOS/MON/POT as starters. What else?
The last time I saw Miles was '81 at Hill Auditorium in Ann Arbor. If you can call it 'seeing' him. Dimmed lights and/or total darkness the entire concert. Between solos, you could only place him by the glow of a lighted cigarette.
That's right. :) I only sipped a small dose so far, as I am writing up a conference paper about the cache replacement algorithm I recently developed at Oracle, and I don't want the reviewers realize that I was drinking Nadurra while typing. :)
Can it really be the case that everyone is waiting for a 20-30% correction (I've seen this number thrown around the Web for a few months now) and we get exactly that? Supposedly, the market never does what people expect it to do. But this time, the desire of seeing a 30% correction will prevent anyone from really buying until such a correction realizes, and once it does, MANY people might jump into this market.
On the other hand, all the traders that are waiting for a 30% correction have already sold their positions and are salivating now at the prospect of reloading these positions much lower. So whose selling will keep driving this market lower?
I'm still bullish mid-term. I think the sell-off takes place in short order (as opposed to grinding down lower).
As an anecdote, I will note that several of my co-workers were crowded around my screen around 230 pm pst yesterday. All were fully-invested (and have been since they opened their 401ks). None were active traders. All were quite taken aback.
I think we need the kind of panic low we got Thursday to truly cause the kind of selling we need to go higher. The sellers we need to see had no time to show up yesterday.
David - That's just the thing...everyone was expecting a 20% to 30% correction for about 10 months now...ever since July 2009. We never got it. Shorts got crushed. Everyone and their mother is afraid to short. That's why we get it...no?
Large speculative excesses always end with spectacular plunges, since they draw in the "slow-acting" public at the very top, and it takes either a long time or a large plunge to shake that public out. Several of my friends have finally switched their 401k plans from bonds into stocks a few weeks ago. THAT'S who will be the sellers that take S&P below 1000.
teamonfuego, I did post on CC, the day I was banned from there, that the 3 months of constant gains in the stock market did fit very well with Vadym's scenario of the final spike up that sucks in many of the reluctant longs and kills off all the shorts. Shark also wrote that it is impossible for J6P to feel so good about themselves for so long, especially for the last 3 months when we had no 3 down days in a row! So the timing of this correction was just right, with as few bears on board as possible.
So 2nd > You're just going to go with the ultra longs? The potential returns you can get from individual investments makes it too tempting to pass up on for me. I mean, just take a look at some of those huge gains you could have gotten out of PIR, WNC, SCSS, etc. Those were rallies on the back from the brink of disaster thesis. Then again, in looking at my returns on WATG, for example, in just 2 days, I can see the counterpoint.
So on the next bottoming phase what do you guys think is the new thesis that investors will key in on? I think risk will be clearly shaken from the markets. So that trade is dead in my mind. That means anything heavily indebted is screwed. I will avoid MTW, BEE, ACAS, and so many others in that category. I can't think it through clearly yet what will be the new category that catches investors' attentions...
My thinking is still that we get a bounce next week...enough to sucker in more people that thought they timed the 10% correction perfectly. Enough to not completely scare the newbie longs out of their positions. Enough to scare off the shorts and make them cover. Then we get the real leg down. I think the bounce makes it to 1,150 and maybe even as high as the 50 DMA.
Along the lines of what your saying TOF, is a saying I've heard before. "The second phase of a bear market is not to reward shorts, but to wipe everyone out."
I was also raving on this site about the decline in Adjusted Monetary Base (AMB) preceeding EVERY major market decline since January 2009. As of last week, AMB had declined 4 times in a row. This Thursday, a fifth decline has occurred. I don't think we had 5 declines in a row since this whole mess started unwinding in 2007.
You can enter a custom time range of 2 years on this site:
and see for yourself how the sell-offs in March 2009, in June 2009, and in January 2010 were all preceeded by noticeable declines in the AMB. The most recent decline in AMB trumps them all.
Now, the March 2009 rally started after AMB put in its low in February 2009, the July 2009 rally started after AMB put in its low on July 1, and the February 2010 rally started after AMB put in its low on January 13. So I think it is safe to say that this correction will keep going AT LEAST until Fed steps in and hikes up AMB (essentially, by doing a cash infusion into big banks, giving them more chips to speculate with). We are currently two weeks away from the next AMB update, so buckle up for the next 2 weeks at least.
humm, I expect a surreal monday, w/o much volatility...everyone still trying to figure out if this is real great depression part deux or the start of the next great bull run.
as always, I'm still 60/30/10...and hanging on by my fingernails.
David - I remember you posting that on CC...only issue I have with this is that the 5 year chart shows a HUGE spike in October 2008. If we traded off of that we would have lost a lot of money in the short term, no?
TOF -- I never said that the reverse is true, i.e. that we can go long when AMB goes up. But I found when AMB went DOWN, the stock market's decline followed. And I said at the start the I am restricting my observations to 2009-2010.
When AMB jumped in October 2008, I remember Don Coxe was saying that the market will surely turn around, since liquidity injections always take the market up, and such an unprecedented injection will *definitely* result in a market rally. He also said that there is usually a lag of 6-9 months between large liquidity injections and market response. The rally happened a little sooner than that.
markie, funny you said that. I am coming in on wed night , to pick up some more things but Only staying through tuesay. taking my dog to lake tahoe friday night. i can hardly wait , wanna go to tahoe?
i ended up with a mish mash of stocks at the end of the day. I sold faz and made a little cash but ended up buying sd? david rec? and more I call it (what the f...) (watg?)
extremely wreckless behavior on my part. so, hope the sunshines on monday otherwise I am toast
I am rooting for TOF's scenario of a bounce to 1150-1170 on S&P and then a second leg down below 1000. Except that I think this bounce can take its time to unfold, say several weeks.
I'll buy some SPY puts at 1150 and then some more at 1170, if we get there.
vb -- if you bought WATG at $8 and SD at $6.25, you got pretty good deals. If your position sizes are small, then I would forget about them and hold them until they double. If your position size is large, I would sell 1/2 of it at S&P 1150 on the way up and the other 1/2 at S&P 1150 on the way down.
I figured that if I am offered a chance now to buy some more WATG at $5.10 or $5.25, then to me these prices would look the same. As such, I changed the sell limit order I had on WATG puts from October $5 ones for $0.4 to July $5 ones for $0.25. The latter ones will give me a much better annualized percentage gain for the collateral I am setting aside.
Guys - In looking at every single recovery period in history (38, 70's, 80's, 90's, 00's), the first test of the 200 DMA produced a bounce. Some of them broke through the 200 DMA slightly, even up to 4% below it. But they all ultimately bounced higher. In 1939, it broke through about 4% lower, then bounced quite a bit to make a lower high, then it crashed lower about 20% before bouncing higher.
In 1975, the market slowly crept down toward the 200 DMA and bounced right off it. In 2004, the market made a series of lower highs and lower lows, piercing the 200 DMA then bouncing about 5% higher before making another move low below the 200 DMA and below its previous low.
If I had to choose one of those three, I would say the 1939 period is the most likely outcome for these markets.
yep, I sure took a major beating this past week. and to top off all the fun my order to sell FAS in AH didn't go thru so now I'm stuck, stupid 3X sized position, until Monday a.m.
JB - If history is any guide, you should be able to unload those for a profit in the coming week/weeks. But don't hold for long b/c the odds of a bounce off the 200 DMA most likely will be met with lower prices
We now have a new piece of information. The fact that the market traded sharply lower to somewhat near Thursday's low suggests that the slide is legitimate (i.e. real trading).
It also sets up the indices, most sectors, and a plethora of stocks as First Thrust and/or Bowties down.
However, it's a darned if you do and darned if you don't oversold environment. If you try to short, the market will bounce from oversold. If you don't, then oversold becomes even more oversold.
I think the best action is to begin nibbling on the short side. After a bounce we might consider getting more aggressive.
Everyone have a great weekend. This will likely be the last Newsletter until Monday, May 17th.
So if we don't talk between now and then, best of luck with your trading next week.
Just listened to the HEK Con call. Pretty interesting conversation on the Ngas side. A little soft on hard projects, but it really goes to the heart of what we all talk about here. Well worth the 1/2 hour even if your not interested in the co.
JB- I'd be surprised if you don't get an easy out early Mon. I suspect problems will/might come after a little pop.
I'm not so sure I like this message....what's he saying?
Fed chief tells graduates: don't worry, be happy By JEANNINE AVERSA | AP Economics Writer • Published May 08, 2010
WASHINGTON – Your parents were right. Money can't buy you happiness.
That was the message from the Federal Reserve chairman on Saturday to graduates of the University of South Carolina. "We all know that getting a better-paying job is one of the main reasons to go to college. ... But if you are ever tempted to go into a field or take a job only because the pay is high and for no other reason, be careful!" Ben Bernanke said in his commencement address. "Having a larger income is exciting at first, but as you get used to your new standard of living and as you associate with other people in your new income bracket, the thrill quickly wears off," he said. The Fed released his prepared remarks before he gave the speech. Studies found that just six months after winning a large lottery prize - even in the million of dollars - people reported being not much happier than they were before winning, Bernanke said. Bernanke's advice blended what economics and social science have to say about personal happiness. When you boil down all the studies and fancy formulas, it sounds a lot like what your parents told you. Other findings: Happy people tend to spend time with friends and family. Happy people tend to do what they love for a living or a hobby. Happy people tend to feel in control of their lives. Happiness research is useful for policymakers, too, Bernanke said. The Fed's goals include promoting economic growth and employment. Richer countries tend to report higher levels of satisfaction because they tend to be healthier, have more leisure time to pursue hobbies and have more interesting work, Bernanke pointed out. Richer countries tend to have few citizens in deep poverty, he added. Sometimes being unhappy is a good thing. "It is possible that doing the ethical thing will make you feel, well, unhappy," Bernanke told the graduates. "In the long run, though, it is essential for a well-balanced and satisfying life."
Clearly the Fed chair has enough money and doesn't need to win the lottery. Don't you love it when people with more than enough tell those with less how happy they should be? I'm worried about what he may really be trying to say.
ff - isn't ben just saying "hello socialism"....i would expect that nonsense from a limousine lib like pelosi, but it is a bit scary hearing it from the fed chief
TOF- HEK was a blank check corp (SAC) started by Dick Heckmann. (US filter/K2 and is a friend of X+3B). Initial funding of 600M. First acquisition was China Water. Minority interest in some specialty pipe co's mostly ex-US filter guys. Entered and agreement with ETP to treat frac water in 3 of the biggest shale plays. Debit free and about 250M in cash. Listen to the Con. call. Very interesting. This is really a jockey /Ngas/China play.
I opened @ 4.88 and added up and down. Sold on Mon. @ 6.11. Reuters has 2 buy recommendations and a PT of 8. Schwab has it as an F which I consider a very strong recommendation :)
Do your homework on this. It's not any sort of chart/TA etc. play...But I see you do that very well.
Mark - Thanks for the info...few questions: Who is X+3B? Also, what is US filter? Do the guys running the show on this company have a history of successfully managing a business? Where did they get all of this money?
TOF- X+3B was a client of mine. Started an Investment Bank in SF that was sold to BAC.
This is Heckmanns bio and explains what US filter is:
Mr. Heckmann founded United States Filter Corporation in 1990 and was its Chief Executive Officer. Through a series of acquisitions, United States Filter Corporation grew from annualized revenues of approximately $17 million in 1990 to over $5 billion in 1999, when it was acquired by Vivendi S.A. of Paris, France in March 1999 for approximately $8.2 billion, including the assumption of approximately $1.8 billion of debt. After the sale of United States Filter Corporation, Mr. Heckmann served as Chief Executive Officer and Chairman of the Board of Directors of K2 Inc., or K2, a manufacturer of sporting goods equipment, until his retirement from K2 on August 8, 2007. K2 was acquired by Jarden Corporation on August 8, 2007. During his tenure as Chairman and Chief Executive Officer of K2 beginning in November 2002, K2 (which was in workout status at that time) more than doubled revenues, which grew from approximately $582 million for the year ended December 31, 2002 to approximately $1.4 billion for the year ended December 31, 2006 and tripled net income which grew from approximately $12.1 million for the year ended December 31, 2002 to approximately $37.7 million for the year ended December 31, 2006. Mr. Heckmann has extensive experience with business acquisitions. While he was with United States Filter Corporation, it consummated over 150 acquisitions, ranging up to $1.7 billion in value. Mr. Heckmann was directly involved in locating targets and conducting business diligence with respect to a significant number of United States Filter Corporation's and K2's acquisitions. During Mr. Heckmann's tenure at K2, K2 consummated over 20 acquisitions."
Mark, can you please give us an update on the NGas fundamentals? Does your MOG still think that we may still see NGas above $5 before fall comes around? What's up with that record storage level? What can cause injections to ease up so that we don't run into the same fears of storage overfilling in the fall?
If injections keep up and we end up with record storage in the summer once again, then last year's situation will repeat, with October futures at $2 and January ones at $5, which will result in a horrible contango once again and a death to all NG holders (i.e., me).
David- I just shot off an e-mail to MOG. Once I hear back I'll comment and add a few thoughts of my own. We will need to watch the potential for contango closely, and perhaps bail on UNG and focus on the producers. I'd also listen to the HEK con-call. They talk about this also.
TOF said, "Guys - In looking at every single recovery period in history (38, 70's, 80's, 90's, 00's), the first test of the 200 DMA produced a bounce. Some of them broke through the 200 DMA slightly, even up to 4% below it"
Do you have a chart of that that you can post using http://www.screencast.com and its Jing screen shot function? Thanks in advance if you can, its fast and free.
Example: Here is a chart of 10yr gov't bond spread over bunds in Euro zone.
Mark - HEK is interesting. It seems like an awfully high valuation and a lot of premium to pay for such a new business. I like the business model that it is in, but even if it somehow managed to grow to 30% of US Filter, the return is "only" going to be about 3 times the current level. Hmmm...
What are the market potentials for each of their businesses?
T3d - I'll have to look into that screencast service when I get a chance...busy working on a client proposal today. You can just pull up a chart in Yahoo and look at how the Dow reacted in each rebound phase and add the 200 DMA and 50 DMA to see how the index responded to it.
Mark - Even if you back out the $250 cash the company is valued at $350 Million. They aren't yet generating profits so that cash will continue to dwindle. I see if you add up cash, cash equivalents, CDs, Marketable securities, and equity investments, their total balance went down about $10 Million in Q1 alone. Did they buy something in Q1?
I like the concepts of the businesses they are in though. However, even $350 to $400 Million is a big premium to pay for a startup. It's probably worth it though, given the credibility of management and the long term potential of their businesses. It's all about execution.
TOF- I wont quibble over the #'s...I can't!! :)...I'm sure your correct. I guess the question is how does one value a SPAC? Obviously Heckmann's name alone was enough for the initial investors, @ about 9 bucks a share plus warrants.
I don't like the fact it is in the Russell 2000 int. though. Muddies the waters.
Your correct this is mostly a jockey play, as I said, and the timing might come out of Washington any day. Listen to the Co. call. It's worth the 1/2 hour.
The attraction to HEK is the problems with frac water, which are substantial and everyone is looking to solve, esp the big boys in exploration and drilling in the shales. According to my public utilities contacts frac was supposed to increase NG 40% and it increased it 400%, which is why we see so much NG and drillers are pulling rigs. The frac water is hot and it increases bacterial growth that then clogs the well, so they use benzine to kill the bacteria which then needs to be removed...which is HEK's gig. Otherwise we end up with flammable water tables....not good. HEK went in 50/50 with energy Transfer Partners for the pipeline and treatment facilities from the Haynesville shale to Texas. That would be the expenditure TOF was seeing.
"The key starting point to understand is that there is not just one Greece. The whole planet is Greece. Every government you look at today, and you hide the name, they look like Greece, even worse.
From the U.S. to U.K .to Japan. I mean there are very, very few countries, maybe it could be counted on one hand, who you could say are reasonably solvent as governments. What happened is the market many times tends to ignore fundamental deviations.
Like, for example, valuation-wise you could see Nasdaq going to crazy valuation in the late '90s. Then, finally, people wake up and react to something they should have reacted to many years before.
Likewise, last year the markets rallied despite many fundamentals [that] were very ugly. And today the logic, this year, finally the market is trying to attack the weakest countries."
HEK, my observations on the call. I think the company is interesting.
Someone ask what the margins are, instead of answering the question the speaker deflected with similar to filter. He knows the answer why not just state it instead of making someone hunt for what the margins are/were at filter? I would prefer them to be more open.
The last questioner wanted to know about when some project is going to get started. The speaker said we "hope" to get a contract and than start design work in the summer. Let's get a contract first.
With just the h2o pipeline business, the biggest risk is if the environmentalist win and block the use of fracing, a very real possibility.
If memory serves me I remember reading that XOM wrote into the contract when buying XTO that if Washington bans the use frac technology XOM can walk with no penalties.
Mark knows the most about his company here, but I prefer to wait, monitor and see how things develop. Yes if the execution goes well I'll lose out on the pop, but at least I'll have an better idea of its terms. It seems pretty clear that getting a contract will be the catalyst. It all depends on ones risk profile.
I don't know if it's environmentalists, but people's water (out of the faucet) in some places is flammable. That's uh...not good.
If they deal with the benzine or find another method for killing the frac heat bacteria, and everyone and their mother is looking for such an idea, then fine. If not, UNG will be quite the buy.
If we ARE seeing the economy pick up and we're using more resources, then how come oil isn't going up or at least holding with the loss os off-shore possibilities for the time being? I know USD is going up in comparison to euros, but you would think that supply shortages would at least keep pace. Wait...I'm remembering something.... "Don't confuse the issue with the facts".
Interesting conversation. I'm sure you have all listened to a lot more con-calls than I have, but I thought it was pretty straight forward and a little expansive into areas that are ground breaking. I liked the comment that the area in question WAS very difficult. Heckmann answered 90% of the questions.
But as a straight trade, I'd have to agree with T3D. Unless Washington drops a bomb shell like one questioner suggested, watching and striking fast might be the safest play.
I'll think about it more tomorrow, but after watching the power point presentation at the Roth conference, I suspect HEK should see at least 40M EBIDTA on the pipe line alone.
Mark, there are many positives, I just pointed out what I think may be weak spots.
I'm not trying to be critical just objective, but we all have biases. I remember in a graduate class statistics course with Professor Heinberg he made us do something I thought was really strange at the time. Each week he made the class read some PHD's paper that was being consider for their respective journal (he was on the committee that determined which ones were to be published)in their field of expertise and critique them. I and many in class felt that we were inadequate at having to do this.
Midway through the course he explained that the reason he had us do this was to always question what is being said or written and that regardless of someone's qualifications they could be wrong and their thinking flawed from a blind spot or something else. So my comments comes from this perspective and has kind of always stayed with me since for good or bad.
One of my favorite Professor's from my college days. He was shot down in Europe doing WW2 and a prisoner of war for about 15 months.
Damn, man. You cannot beat a Nadurra buzz. Driving while buzzed on Nadurra might actually be legal.
ReplyDeleteTyping, anyway.
My take on Monday-
ReplyDelete(a) String out enough rope to dying bulls to herd them into the office around 9 am.
(b) Take it down 50 points or so to entice dip buyers into opening new positions.
(c) Sell off hard into the afternoon.
2nd - All it took was 2 days to reverse about a good chunk of my gains this year. Still up 27% for the year but this week was a doozy. I'm still having a hard time thinking longer than just a few days at a time...I tend to see those gains and run with them then switch my thinking too quickly.
ReplyDeleteSo I have a new target for the downturn. I'm thinking we will see 940 to 970. I'm thinking a 20 to 25% correction should just about do it. At the 1,000 level I will consider legging into longs in case I overestimate the potential downside. In the meantime, I'm going to make a list of long term buys. What long term trends do you all have in mind that will provide us for good investment opportunities? I know a lot of people are on the agriculture / commodities train. So I'm thinking MOS/MON/POT as starters. What else?
Following a 20-25% correction, does it really matter what you buy?
ReplyDeleteCramer made his fortune buying the '87 crash.
Personally, I would be back playing the ultralongs in the trading account. The buy-and-hold would only need to be total market.
The last time I saw Miles was '81 at Hill Auditorium in Ann Arbor. If you can call it 'seeing' him. Dimmed lights and/or total darkness the entire concert. Between solos, you could only place him by the glow of a lighted cigarette.
ReplyDeleteThat's right. :) I only sipped a small dose so far, as I am writing up a conference paper about the cache replacement algorithm I recently developed at Oracle, and I don't want the reviewers realize that I was drinking Nadurra while typing. :)
ReplyDeleteCan it really be the case that everyone is waiting for a 20-30% correction (I've seen this number thrown around the Web for a few months now) and we get exactly that? Supposedly, the market never does what people expect it to do. But this time, the desire of seeing a 30% correction will prevent anyone from really buying until such a correction realizes, and once it does, MANY people might jump into this market.
ReplyDeleteOn the other hand, all the traders that are waiting for a 30% correction have already sold their positions and are salivating now at the prospect of reloading these positions much lower. So whose selling will keep driving this market lower?
You could be the Hemingway of algorithm writers...
ReplyDeleteGood point.
ReplyDeleteBut then, who's been buying this rally?
I'm still bullish mid-term. I think the sell-off takes place in short order (as opposed to grinding down lower).
As an anecdote, I will note that several of my co-workers were crowded around my screen around 230 pm pst yesterday. All were fully-invested (and have been since they opened their 401ks). None were active traders. All were quite taken aback.
I think we need the kind of panic low we got Thursday to truly cause the kind of selling we need to go higher. The sellers we need to see had no time to show up yesterday.
"The sellers we need to see had no time to show up yesterday."
ReplyDeleteGood point. :)
SPX is trading up 6 points right now? That's not panic.
ReplyDelete'Taken aback?' 'Shook' is the word I was looking for. Very evident in their facial expressions.
ReplyDeleteJust as obvious was the relief when the DJIA 'recovered' several hundred points.
ReplyDeleteThe smartest of the 'sellers we need to see' showed up today.
ReplyDeleteThe rest of them will show up next week.
David - That's just the thing...everyone was expecting a 20% to 30% correction for about 10 months now...ever since July 2009. We never got it. Shorts got crushed. Everyone and their mother is afraid to short. That's why we get it...no?
ReplyDeleteIf I were fully-invested right now, what would it take to 'really' shake me down?
ReplyDeleteA sell-off below 9500 within a week would do it.
Alternatively, ANY move below 8500.
Large speculative excesses always end with spectacular plunges, since they draw in the "slow-acting" public at the very top, and it takes either a long time or a large plunge to shake that public out. Several of my friends have finally switched their 401k plans from bonds into stocks a few weeks ago. THAT'S who will be the sellers that take S&P below 1000.
ReplyDeleteThe reason I focus on the DJIA is b/c that's the index J6P follows. If you read the news, which index number are they following? It's never the SPX.
ReplyDeleteteamonfuego, I did post on CC, the day I was banned from there, that the 3 months of constant gains in the stock market did fit very well with Vadym's scenario of the final spike up that sucks in many of the reluctant longs and kills off all the shorts. Shark also wrote that it is impossible for J6P to feel so good about themselves for so long, especially for the last 3 months when we had no 3 down days in a row! So the timing of this correction was just right, with as few bears on board as possible.
ReplyDeleteAt 8500, I would no longer be thinking 'I could have locked in gains 25% higher.' I would be thinking 'We're headed back to 6500.' And I would be out.
ReplyDeleteSo 2nd > You're just going to go with the ultra longs? The potential returns you can get from individual investments makes it too tempting to pass up on for me. I mean, just take a look at some of those huge gains you could have gotten out of PIR, WNC, SCSS, etc. Those were rallies on the back from the brink of disaster thesis. Then again, in looking at my returns on WATG, for example, in just 2 days, I can see the counterpoint.
ReplyDeleteSo on the next bottoming phase what do you guys think is the new thesis that investors will key in on? I think risk will be clearly shaken from the markets. So that trade is dead in my mind. That means anything heavily indebted is screwed. I will avoid MTW, BEE, ACAS, and so many others in that category. I can't think it through clearly yet what will be the new category that catches investors' attentions...
Hey Guys- Now, before I get caught up, beer please??
ReplyDeleteMy thinking is still that we get a bounce next week...enough to sucker in more people that thought they timed the 10% correction perfectly. Enough to not completely scare the newbie longs out of their positions. Enough to scare off the shorts and make them cover. Then we get the real leg down. I think the bounce makes it to 1,150 and maybe even as high as the 50 DMA.
ReplyDeleteYou'll need a six-pack just to 'catch up.'
ReplyDeleteInteresting comments.
ReplyDeleteAlong the lines of what your saying TOF, is a saying I've heard before. "The second phase of a bear market is not to reward shorts, but to wipe everyone out."
I don't disagree. I'm hoping for a 3-digit bounce on Monday.
ReplyDeleteI know. I'll have to catch up while your sleeping :)
ReplyDeleteThe bounce would essentially cause bears to disembark. Leaving empty cars for the 'real' bears.
ReplyDelete(Not referring to our friend David, of course, who has a sleeping car in the back.)
I was also raving on this site about the decline in Adjusted Monetary Base (AMB) preceeding EVERY major market decline since January 2009. As of last week, AMB had declined 4 times in a row. This Thursday, a fifth decline has occurred. I don't think we had 5 declines in a row since this whole mess started unwinding in 2007.
ReplyDeleteYou can enter a custom time range of 2 years on this site:
http://research.stlouisfed.org/fred2/graph/?chart_type=line&s[1][id]=BASE&s[1][range]=5yrs
and see for yourself how the sell-offs in March 2009, in June 2009, and in January 2010 were all preceeded by noticeable declines in the AMB. The most recent decline in AMB trumps them all.
Now, the March 2009 rally started after AMB put in its low in February 2009, the July 2009 rally started after AMB put in its low on July 1, and the February 2010 rally started after AMB put in its low on January 13. So I think it is safe to say that this correction will keep going AT LEAST until Fed steps in and hikes up AMB (essentially, by doing a cash infusion into big banks, giving them more chips to speculate with). We are currently two weeks away from the next AMB update, so buckle up for the next 2 weeks at least.
humm, I expect a surreal monday, w/o much volatility...everyone still trying to figure out if this is real great depression part deux or the start of the next great bull run.
ReplyDeleteas always, I'm still 60/30/10...and hanging on by my fingernails.
have a great weekend boys (and vb)
(Not referring to our friend David, of course, who has a sleeping car in the back.)
ReplyDeleteThat's right! You know me by now. :) I am going to hold those damn S&P puts until they either double/triple or expire!
JB- You too man. I've got community service tomorrow night at the rentals.
ReplyDeleteVinods here!?...where???
ReplyDeleteDavid - I remember you posting that on CC...only issue I have with this is that the 5 year chart shows a HUGE spike in October 2008. If we traded off of that we would have lost a lot of money in the short term, no?
ReplyDeleteI'm waiting for Vinod to respond to my invitation.
ReplyDeleteI just did a quick calc and the carnage here would have now been around 60-70K.
ReplyDeleteHey- that's real damage.
ReplyDeleteTOF- Sorry, but a friggin 27% return YTD is outstanding. Nice work.
ReplyDeleteYep- I was about 45% long going into last Friday. Looking back, that wasn't the best risk/reward ratio, was it?
ReplyDeleteNuff beer. I'll be catching up more quickly now :)
ReplyDeleteJust wondering, while I watch my too cool TV, how the hell old is Meg Whitman anyway. Yikes.
ReplyDeleteDamn, looking at that picture from over 20 years ago, you do wear designer jeans 2nd.
ReplyDeleteTOF- Regarding your comment about lowering earnings estimates, I saw today that S&P upgraded V from a buy to strong buy.
ReplyDeleteI'll take that as a compliment. But there's no way in hell you can associate me with designer jeans.
ReplyDeleteThat's thirty years ago, man.
ReplyDeleteDid they have designer jeans in 1980?
ReplyDeleteHa! You should. But the play on designer jeans was yours :)..remember?
ReplyDeleteYou don't remember the girls in the Ditto jeans? That interesting seam in the back...
ReplyDeleteAbout the only thing Ive still got from 30 years ago is hair! :)
ReplyDeleteNor have I ever dated a girl who wore designer jeans.
ReplyDeleteDesigner genes.
ReplyDeleteSo What...So...
ReplyDeletehttp://www.youtube.com/watch?v=3JHpmy7RV9Y
It's was a joke, man....
ReplyDeleteUh-oh. Mark has to be quaffing Scotch now.
ReplyDeleteOK. Family time. Catch up with you guys tomorrow.
ReplyDeleteAll right CP, this is getting serious. Don't make me post "Pants On The Ground." :)
ReplyDeleteTOF -- I never said that the reverse is true, i.e. that we can go long when AMB goes up. But I found when AMB went DOWN, the stock market's decline followed. And I said at the start the I am restricting my observations to 2009-2010.
ReplyDeleteWhen AMB jumped in October 2008, I remember Don Coxe was saying that the market will surely turn around, since liquidity injections always take the market up, and such an unprecedented injection will *definitely* result in a market rally. He also said that there is usually a lag of 6-9 months between large liquidity injections and market response. The rally happened a little sooner than that.
Tweet Tweet
ReplyDeletecp please fly on home!! we miss ya
VB- I was just looking for videos of "The Chickens Have Come To Roost." We might have to fly you up north soon. :)
ReplyDeletemarkie, funny you said that. I am coming in on wed night , to pick up some more things but Only staying through tuesay. taking my dog to lake tahoe friday night. i can hardly wait , wanna go to tahoe?
ReplyDelete! 'flying to sf'
ReplyDeletemaybe cp will fly to sf with me. wouldn't that be fun???????
ReplyDeletei ended up with a mish mash of stocks at the end of the day. I sold faz and made a little cash but ended up buying sd? david rec? and more I call it (what the f...) (watg?)
ReplyDeleteextremely wreckless behavior on my part. so, hope the sunshines on monday otherwise I am toast
I am rooting for TOF's scenario of a bounce to 1150-1170 on S&P and then a second leg down below 1000. Except that I think this bounce can take its time to unfold, say several weeks.
ReplyDeleteI'll buy some SPY puts at 1150 and then some more at 1170, if we get there.
vb -- if you bought WATG at $8 and SD at $6.25, you got pretty good deals. If your position sizes are small, then I would forget about them and hold them until they double. If your position size is large, I would sell 1/2 of it at S&P 1150 on the way up and the other 1/2 at S&P 1150 on the way down.
ReplyDeleteI figured that if I am offered a chance now to buy some more WATG at $5.10 or $5.25, then to me these prices would look the same. As such, I changed the sell limit order I had on WATG puts from October $5 ones for $0.4 to July $5 ones for $0.25. The latter ones will give me a much better annualized percentage gain for the collateral I am setting aside.
ReplyDeletea little birdie told me that VINOD was Lurking here
ReplyDeleteVINOD!! Heloo and Welcome to 2nd avenue's underground cafe!! I am for one, very glad you are here!!!!
Guys - In looking at every single recovery period in history (38, 70's, 80's, 90's, 00's), the first test of the 200 DMA produced a bounce. Some of them broke through the 200 DMA slightly, even up to 4% below it. But they all ultimately bounced higher. In 1939, it broke through about 4% lower, then bounced quite a bit to make a lower high, then it crashed lower about 20% before bouncing higher.
ReplyDeleteIn 1975, the market slowly crept down toward the 200 DMA and bounced right off it. In 2004, the market made a series of lower highs and lower lows, piercing the 200 DMA then bouncing about 5% higher before making another move low below the 200 DMA and below its previous low.
If I had to choose one of those three, I would say the 1939 period is the most likely outcome for these markets.
yep, I sure took a major beating this past week. and to top off all the fun my order to sell FAS in AH didn't go thru so now I'm stuck, stupid 3X sized position, until Monday a.m.
ReplyDeleteJB - If history is any guide, you should be able to unload those for a profit in the coming week/weeks. But don't hold for long b/c the odds of a bounce off the 200 DMA most likely will be met with lower prices
ReplyDeleteLandry-
ReplyDeleteRandom Thoughts:
We now have a new piece of information. The fact that the market traded sharply lower to somewhat near Thursday's low suggests that the slide is legitimate (i.e. real trading).
It also sets up the indices, most sectors, and a plethora of stocks as First Thrust and/or Bowties down.
However, it's a darned if you do and darned if you don't oversold environment. If you try to short, the market will bounce from oversold. If you don't, then oversold becomes even more oversold.
I think the best action is to begin nibbling on the short side.
After a bounce we might consider getting more aggressive.
Everyone have a great weekend. This will likely be the last Newsletter until Monday, May 17th.
So if we don't talk between now and then, best of luck with your trading next week.
vb-
ReplyDeletehttp://realestate.yahoo.com/promo/7-cities-with-great-real-estate-deals
Orlando is on the list.
Vinod!
ReplyDeleteI've been waiting to take you up on your offer of hookers and fried clams!
hope you're right TOF. it wouldn't be that big of a worry but somehow i justified to myself a 3x normal position size.....yikes!
ReplyDeleteJust listened to the HEK Con call. Pretty interesting conversation on the Ngas side. A little soft on hard projects, but it really goes to the heart of what we all talk about here. Well worth the 1/2 hour even if your not interested in the co.
ReplyDeleteJB- I'd be surprised if you don't get an easy out early Mon. I suspect problems will/might come after a little pop.
Did talk with X+3B yesterday. He bought more HEK on Fri. and added to a bunch of MLP's (LINE/KMP/SUN etc.).
ReplyDeleteHEK- They did talk about the outstanding warrants. About 60M. FWIW the strike on most of those is 14.
ReplyDeleteHey Mark - What's up with HEK?
ReplyDeleteI'm not so sure I like this message....what's he saying?
ReplyDeleteFed chief tells graduates: don't worry, be happy
By JEANNINE AVERSA | AP Economics Writer • Published May 08, 2010
WASHINGTON – Your parents were right. Money can't buy you happiness.
That was the message from the Federal Reserve chairman on Saturday to graduates of the University of South Carolina.
"We all know that getting a better-paying job is one of the main reasons to go to college. ... But if you are ever tempted to go into a field or take a job only because the pay is high and for no other reason, be careful!" Ben Bernanke said in his commencement address.
"Having a larger income is exciting at first, but as you get used to your new standard of living and as you associate with other people in your new income bracket, the thrill quickly wears off," he said.
The Fed released his prepared remarks before he gave the speech.
Studies found that just six months after winning a large lottery prize - even in the million of dollars - people reported being not much happier than they were before winning, Bernanke said.
Bernanke's advice blended what economics and social science have to say about personal happiness. When you boil down all the studies and fancy formulas, it sounds a lot like what your parents told you.
Other findings: Happy people tend to spend time with friends and family. Happy people tend to do what they love for a living or a hobby. Happy people tend to feel in control of their lives.
Happiness research is useful for policymakers, too, Bernanke said.
The Fed's goals include promoting economic growth and employment. Richer countries tend to report higher levels of satisfaction because they tend to be healthier, have more leisure time to pursue hobbies and have more interesting work, Bernanke pointed out. Richer countries tend to have few citizens in deep poverty, he added.
Sometimes being unhappy is a good thing.
"It is possible that doing the ethical thing will make you feel, well, unhappy," Bernanke told the graduates. "In the long run, though, it is essential for a well-balanced and satisfying life."
Clearly the Fed chair has enough money and doesn't need to win the lottery. Don't you love it when people with more than enough tell those with less how happy they should be? I'm worried about what he may really be trying to say.
If you're there, WELCOME Vinod.
ReplyDeleteCraig
ff - isn't ben just saying "hello socialism"....i would expect that nonsense from a limousine lib like pelosi, but it is a bit scary hearing it from the fed chief
ReplyDeleteTOF- HEK was a blank check corp (SAC) started by Dick Heckmann. (US filter/K2 and is a friend of X+3B). Initial funding of 600M. First acquisition was China Water. Minority interest in some specialty pipe co's mostly ex-US filter guys. Entered and agreement with ETP to treat frac water in 3 of the biggest shale plays. Debit free and about 250M in cash. Listen to the Con. call. Very interesting. This is really a jockey /Ngas/China play.
ReplyDeleteI opened @ 4.88 and added up and down. Sold on Mon. @ 6.11. Reuters has 2 buy recommendations and a PT of 8. Schwab has it as an F which I consider a very strong recommendation :)
Do your homework on this. It's not any sort of chart/TA etc. play...But I see you do that very well.
Busy working on my austerity package for Patricia. Looking to raise cash for the eventual bottom.
ReplyDeleteMark - Thanks for the info...few questions: Who is X+3B? Also, what is US filter? Do the guys running the show on this company have a history of successfully managing a business? Where did they get all of this money?
ReplyDeleteThanks.
TOF- X+3B was a client of mine. Started an Investment Bank in SF that was sold to BAC.
ReplyDeleteThis is Heckmanns bio and explains what US filter is:
Mr. Heckmann founded United States Filter Corporation in 1990 and was its Chief Executive Officer. Through a series of acquisitions, United States Filter Corporation grew from annualized revenues of approximately $17 million in 1990 to over $5 billion in 1999, when it was acquired by Vivendi S.A. of Paris, France in March 1999 for approximately $8.2 billion, including the assumption of approximately $1.8 billion of debt. After the sale of United States Filter Corporation, Mr. Heckmann served as Chief Executive Officer and Chairman of the Board of Directors of K2 Inc., or K2, a manufacturer of sporting goods equipment, until his retirement from K2 on August 8, 2007. K2 was acquired by Jarden Corporation on August 8, 2007. During his tenure as Chairman and Chief Executive Officer of K2 beginning in November 2002, K2 (which was in workout status at that time) more than doubled revenues, which grew from approximately $582 million for the year ended December 31, 2002 to approximately $1.4 billion for the year ended December 31, 2006 and tripled net income which grew from approximately $12.1 million for the year ended December 31, 2002 to approximately $37.7 million for the year ended December 31, 2006. Mr. Heckmann has extensive experience with business acquisitions. While he was with United States Filter Corporation, it consummated over 150 acquisitions, ranging up to $1.7 billion in value. Mr. Heckmann was directly involved in locating targets and conducting business diligence with respect to a significant number of United States Filter Corporation's and K2's acquisitions. During Mr. Heckmann's tenure at K2, K2 consummated over 20 acquisitions."
Money is not hard for Heckmann to raise.
That help?
Mark, can you please give us an update on the NGas fundamentals? Does your MOG still think that we may still see NGas above $5 before fall comes around? What's up with that record storage level? What can cause injections to ease up so that we don't run into the same fears of storage overfilling in the fall?
ReplyDeleteIf injections keep up and we end up with record storage in the summer once again, then last year's situation will repeat, with October futures at $2 and January ones at $5, which will result in a horrible contango once again and a death to all NG holders (i.e., me).
David- I just shot off an e-mail to MOG. Once I hear back I'll comment and add a few thoughts of my own. We will need to watch the potential for contango closely, and perhaps bail on UNG and focus on the producers. I'd also listen to the HEK con-call. They talk about this also.
ReplyDeleteTOF said, "Guys - In looking at every single recovery period in history (38, 70's, 80's, 90's, 00's), the first test of the 200 DMA produced a bounce. Some of them broke through the 200 DMA slightly, even up to 4% below it"
ReplyDeleteDo you have a chart of that that you can post using http://www.screencast.com and its Jing screen shot function? Thanks in advance if you can, its fast and free.
Example: Here is a chart of 10yr gov't bond spread over bunds in Euro zone.
http://www.screencast.com/users/Telestar3d/folders/Jing/media/9b71e6a8-97b4-4902-936f-b5417af435aa
Thanks for the update on HEK Mark. Sorry to hear your knees are bone on bone, ouch.
Mark - HEK is interesting. It seems like an awfully high valuation and a lot of premium to pay for such a new business. I like the business model that it is in, but even if it somehow managed to grow to 30% of US Filter, the return is "only" going to be about 3 times the current level. Hmmm...
ReplyDeleteWhat are the market potentials for each of their businesses?
T3d - I'll have to look into that screencast service when I get a chance...busy working on a client proposal today. You can just pull up a chart in Yahoo and look at how the Dow reacted in each rebound phase and add the 200 DMA and 50 DMA to see how the index responded to it.
ReplyDeleteTOF okay that works for me no need for Jing. Tradestation only goes back to 1991 and I'm more interested in going back 80-100 years. Thanks.
ReplyDeleteTOF- I don't follow you. Sorry. With a market cap of 589M and 250M in cash how are you basing the valuation?
ReplyDeleteMark - Even if you back out the $250 cash the company is valued at $350 Million. They aren't yet generating profits so that cash will continue to dwindle. I see if you add up cash, cash equivalents, CDs, Marketable securities, and equity investments, their total balance went down about $10 Million in Q1 alone. Did they buy something in Q1?
ReplyDeleteI like the concepts of the businesses they are in though. However, even $350 to $400 Million is a big premium to pay for a startup. It's probably worth it though, given the credibility of management and the long term potential of their businesses. It's all about execution.
TOF- I wont quibble over the #'s...I can't!! :)...I'm sure your correct. I guess the question is how does one value a SPAC? Obviously Heckmann's name alone was enough for the initial investors, @ about 9 bucks a share plus warrants.
ReplyDeleteI don't like the fact it is in the Russell 2000 int. though. Muddies the waters.
Your correct this is mostly a jockey play, as I said, and the timing might come out of Washington any day. Listen to the Co. call. It's worth the 1/2 hour.
Really enjoy the feed back.
The attraction to HEK is the problems with frac water, which are substantial and everyone is looking to solve, esp the big boys in exploration and drilling in the shales.
ReplyDeleteAccording to my public utilities contacts frac was supposed to increase NG 40% and it increased it 400%, which is why we see so much NG and drillers are pulling rigs. The frac water is hot and it increases bacterial growth that then clogs the well, so they use benzine to kill the bacteria which then needs to be removed...which is HEK's gig. Otherwise we end up with flammable water tables....not good.
HEK went in 50/50 with energy Transfer Partners for the pipeline and treatment facilities from the Haynesville shale to Texas. That would be the expenditure TOF was seeing.
Younes: The Whole World Is Greece
ReplyDelete"The key starting point to understand is that there is not just one Greece. The whole planet is Greece. Every government you look at today, and you hide the name, they look like Greece, even worse.
From the U.S. to U.K .to Japan. I mean there are very, very few countries, maybe it could be counted on one hand, who you could say are reasonably solvent as governments. What happened is the market many times tends to ignore fundamental deviations.
Like, for example, valuation-wise you could see Nasdaq going to crazy valuation in the late '90s. Then, finally, people wake up and react to something they should have reacted to many years before.
Likewise, last year the markets rallied despite many fundamentals [that] were very ugly. And today the logic, this year, finally the market is trying to attack the weakest countries."
http://www.morningstar.com/Cover/videoCenter.aspx?id=336763
HEK, my observations on the call. I think the company is interesting.
ReplyDeleteSomeone ask what the margins are, instead of answering the question the speaker deflected with similar to filter. He knows the answer why not just state it instead of making someone hunt for what the margins are/were at filter? I would prefer them to be more open.
The last questioner wanted to know about when some project is going to get started. The speaker said we "hope" to get a contract and than start design work in the summer. Let's get a contract first.
With just the h2o pipeline business, the biggest risk is if the environmentalist win and block the use of fracing, a very real possibility.
If memory serves me I remember reading that XOM wrote into the contract when buying XTO that if Washington bans the use frac technology XOM can walk with no penalties.
Mark knows the most about his company here, but I prefer to wait, monitor and see how things develop. Yes if the execution goes well I'll lose out on the pop, but at least I'll have an better idea of its terms. It seems pretty clear that getting a contract will be the catalyst. It all depends on ones risk profile.
I don't know if it's environmentalists, but people's water (out of the faucet) in some places is flammable. That's uh...not good.
ReplyDeleteIf they deal with the benzine or find another method for killing the frac heat bacteria, and everyone and their mother is looking for such an idea, then fine. If not, UNG will be quite the buy.
Something else...
ReplyDeleteIf we ARE seeing the economy pick up and we're using more resources, then how come oil isn't going up or at least holding with the loss os off-shore possibilities for the time being? I know USD is going up in comparison to euros, but you would think that supply shortages would at least keep pace.
Wait...I'm remembering something....
"Don't confuse the issue with the facts".
Interesting conversation. I'm sure you have all listened to a lot more con-calls than I have, but I thought it was pretty straight forward and a little expansive into areas that are ground breaking. I liked the comment that the area in question WAS very difficult. Heckmann answered 90% of the questions.
ReplyDeleteBut as a straight trade, I'd have to agree with T3D. Unless Washington drops a bomb shell like one questioner suggested, watching and striking fast might be the safest play.
I'll think about it more tomorrow, but after watching the power point presentation at the Roth conference, I suspect HEK should see at least 40M EBIDTA on the pipe line alone.
Good stuff guys.
Mark, there are many positives, I just pointed out what I think may be weak spots.
ReplyDeleteI'm not trying to be critical just objective, but we all have biases. I remember in a graduate class statistics course with Professor Heinberg he made us do something I thought was really strange at the time. Each week he made the class read some PHD's paper that was being consider for their respective journal (he was on the committee that determined which ones were to be published)in their field of expertise and critique them. I and many in class felt that we were inadequate at having to do this.
Midway through the course he explained that the reason he had us do this was to always question what is being said or written and that regardless of someone's qualifications they could be wrong and their thinking flawed from a blind spot or something else. So my comments comes from this perspective and has kind of always stayed with me since for good or bad.
One of my favorite Professor's from my college days. He was shot down in Europe doing WW2 and a prisoner of war for about 15 months.
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ReplyDelete