Friday, December 19, 2014

12/19/14 The Black Swan/ A Remarkable U-Turn

With regard to Emerging Markets, it's likely the 'black swan' arrived (and has since departed) in the form of a collapse in crude.  Tuesday's open may have marked a low in the sector.  RSX (Russia) spiked down to 12.50, a remarkable one-month decline of -40%.  EWZ (Brazil) touched a 6-year low.  EEM (Emerging Markets) successfully tested its early 2014 low.

There are several reasons to think the worst is over for EM:

(a) Investors (myself included) invariably fail to recognize black swans.  Asset prices will usually reflect all of the risks and rewards we are able to foresee or 'imagine.'  What trips us up is (i) a consistent lack of imagination + (ii) the failure to consider all possibilities (ie, there will always be category of events we casually dismiss by adding 'and there are probably a few things I haven't thought of').  No one (publicly, that I know of) predicted a -40% decline in oil prices to under 60 this year.

(b) Emerging markets assets display high relative correlation to the price of crude.

(c) IMHO, Tuesday was a very low-risk entry point into EM.

(d) As you all know, I suffered two weeks of consecutive losses (all minor hits, to be sure- but two weeks of even minor losses add up!) trying to time a low in the BRIC sector purely based on negative sentiment.

(e) The nadir arrived Tuesday morning around 0715 pst in the form of capitulation (on my part).  Let me share a post I drafted (but never published) just minutes before making a U-turn (for context, I've included the two comments made prior to the unpublished draft):

Tuesday, December 16, 2014 7:21 AM

Global markets continue to sell off this morning.  The media (a business that depends on volatility and sensationalism) is attributing investors’ anxiety to Russia’s decision to raise interest rates to 17% (a 650 basis point increase).  The move succeeded in temporarily stabilizing the ruble, but the bounce appears short-lived. 
 
Global indexes were deeply in the red earlier this morning.  US indexes have recovered from an opening gap down, and are now off just -0.1%.
 
I have no take on whether indexes recover, or whether they continue to sell off.  It doesn’t really matter.  All trades had a one-day time frame, and with the exception of CAF (the Shanghai Composite rose +2.3%) all positions are moving against me.  Discipline dictates I close immediately for minor losses. 
 
Is a collapse in oil prices good or bad?  It’s clearly taken down with it a majority of asset classes.  Global markets may well recover today and go on to new highs (which is my favored scenario).  However, the possibility of a ‘flash crash’ is now on the table. 
 
The ability to change one’s outlook on a dime?  Generally not well regarded in most pursuits, but essential when trading.  Do you ever find yourself taking the wrong exit or driving east when you should be heading west?  The sooner you acknowledge your error, the better.  That’s one way of explaining why I take losses immediately when I’m wrong.  Hope is not a strategy.

---------------------------------------------------------------------------------------------
Monday, December 15, 2014 12:19 PM


(a) Germany, France, and the UK off an additional -2%+ following last week's precipitous declines.
(b) Brazil's Ibovespa -2% (and recovering from an earlier -3.5%).  Mexico -3.6%.  Argentina -7.9%.   RSX (Russia) off an additional -11%.
(c) DJIA -50 to 17230 (but well off a -165 plunge earlier in the day).  SPX @ 1996 (bouncing off a 1982 print this morning).
(d) Gold off -25, GDX (miners) -5.63%.
 
In my opinion, we have panic.  I buy panic.  It's not always a successful strategy, but my experiences sweeping up with Alice after the ambulances go have generally been positive.  If not when blood runs through the streets, when would you buy?
 
I may be wrong, and global markets crash over the next 24 hours.  I don't think they will.
---------------------------------------------------------------------------------------------
Monday, December 15, 2014 7:32 AM
 
It may be crazy, but I'm reopening positions in Emerging Markets at the 1030 window.  EEM -0.5%, EWZ (Brazil) -3%, RSX (Russia) -6%.


(f) I've often pointed out that successful trading includes (i) the ability to change my take on a dime + (ii) an understanding of my psychology ('knowing thyself').  So what happened Tuesday morning?  I had orders to close RYWVX (Rydex 2x Emerging Markets) at the 1030 am est trading window.  (I was also ready to close positions in RSX, EWZ, GREK [Greece], PBR [Petrobras], and CAF [China 'A' shares]).  Two minutes prior to execution, my mind flashed back to March 9, 2009.  That was the day, of course, the DJIA and SPX marked the beginning of the current bull.  I canceled orders to close the Rydex position at 0728 pst.  That's about as close as I come to a 'cliffhanger' when trading! 

(g) Make no mistake- I still believe US indexes are overdue for a 'significant' correction.  I'm less concerned about a pullback in EM.  And of course, my outlook can change in any direction, at any time!

158 comments:

  1. It's been rough, that's putting it mildly.

    ReplyDelete
  2. Copper - If these guys don't need tons more copper then why are they out there in Pakistan unearthing the ruins of ancient civilizations? What's up with that, seems like extreme overkill on the DD if they're out there researching the early beginnings of the apple iphone or something.

    ReplyDelete
  3. Great commentary 2nd. Thanks for sharing. What a wild week for everything.

    Picked up a little more DSKY at $17.35. Keeping it really small though. Still holding WYNN and waiting for the right time to switch back into FCAU. Kind of thinking we see a test of $11.

    ReplyDelete
    Replies
    1. I'm kinda thinking we may even see $8.50 during some kind of spectacular crash immediately following Bundesbank's refusal to allow the ECB QE that's been promised repeatedly by Draghi for years now.

      Delete
  4. USG - Does this one appear expensive, could be ready for some upside? Not looking to hit a home run necessarily, just something unlikely to fall through it's asshole (I've had enough of that).

    ReplyDelete
    Replies
    1. Plus, figuring the popularity of renting as opposed to owning it's been my experience rental homes tend to consume surprising quantities of drywall and carpeting.

      Delete
  5. I found this discussion about Germans, lol, kinda funny but true based on my experiences:

    "True story. I was at Zion NP and had just hiked up to Angel's Landing. An extremely hard hike (check out YouTube vids). Back on terra firma I passed an elderly German tourist asking a (female) ranger about the trail difficulty. She replied, "strenuous". He thought for a moment and responded, "I meant for a male". She took a moment then repeated that it was rated as strenuous. He looked at her in apparent frustration and said in complete earnestness, "for a GERMAN male". "

    ReplyDelete
    Replies
    1. That's almost as bad as an Asian student inquiring about exam difficulty. Haha.

      Delete
  6. ARCI - Everything under the sun all rolled into one neat package. You've got your prolific repeating appliance business to grab rental home market share of replace abused and neglected appliances, green carbon credits for the environmental consequences, no doubt positioned for the solar revolution, tax breaks on appliances for housing of the elderly and/or homeless, energy efficiency, you name it!

    ReplyDelete
  7. FCAU - Resuming coverage:
    "Resuming coverage: Moving to Neutral from Underperform
    We resume coverage of FCA with an upgraded rating to Neutral and a new PO of
    €10.0. The next major event for FCA is the Ferrari IPO, expected in mid-2015. Our
    upgraded PO reflects a positively revised appraisal of Ferrari’s standalone
    valuation, carried out in conjunction with our Luxury team. Additionally we raise
    2015E EBIT 14%, reflecting a solid Q3 and improved NAFTA margin assumptions.
    Additional valuation support likely comes from interest cost reduction potential and a
    solid US backdrop.
    Valuing Ferrari at €8bn, supportive to valuation
    In conjunction with our Luxury Goods analyst, Ashley Wallace, we have set an €8bn
    Ferrari valuation based on 2.8x 2015e EV/sales. We believe this is justified due to
    1) Ferrari’s unique brand and ‘true luxury’ status, 2) Ferrari’s prospective above
    average revenue growth (vol & ASP growth); and 3) the rather defensive nature of
    Ferrari’s revenues, exhibiting similar cyclicality to the EU Luxury Goods.
    Capital intensity is higher for Ferrari vs Luxury and the 15.8% EBIT margin vs
    Luxury at 20.6% is testament to this. However, 1) optionality to grow units from 7k to
    10k, and 2) the potential to grow margins to 17.5% in 2018E deserve some
    valuation recognition. In combination, these could potentially result in Ferrari EBIT
    50% higher, in theory.
    Refinancing debt a source of earnings growth
    Post FCA’s recapitalisation we see FCA year-end 2014 net debt of €8.13bn.
    However FCA’s net interest of €2.02bn remains a burden. We see scope for FCA to
    reduce annual interest by €600m 2014 to 2018E, providing a kicker to EPS growth.
    Price Objective of €10.0, Neutral rating
    Our PO of €10.0 implies 2015e P/E of 12.2x and EV/sales of 0.30x. However, in
    2017 interest costs benefits should be materially lower to the tune of c. €500m vs
    2014 and at this point the P/E multiple at our €10 PO would fall to 7.9x."

    ReplyDelete
  8. I plan to close all positions by the end of today's session. Investor psychology transitioned quickly over the past three days from 'panic' to somewhat shy of 'exuberance.' Whereas I buy panic, I sell exuberance. We're headed into a seasonally strong period, and I believe further gains are in store. However, my foremost objective right now is capital preservation. I went more or less 'all in' on Tuesday (after beginning to scale in on Monday), and the portfolio is now up +12% for the week. That's not to say I made a killing. As clearly documented, I suffered multiple hits the prior two weeks trading in and out of the BRIC sector. This week's gains erases those losses and then some. I simply came out ahead.

    ReplyDelete
    Replies
    1. Well done. Is ATACX the fund you were considering buying and holding earlier in the year?

      Delete
    2. Good work 2nd. Hard to go all-in with the selling we've had recently.

      Delete
  9. Bailed out of DSKY at $17.3x. If it ain't working in this environment I don't really want it right now.

    ReplyDelete
    Replies
    1. No worse than concrete, agregate did well though. Don't worry, something big and potentially ugly (or not) will eventually move the stock.

      Delete
  10. Almost at close, and my portfolio is green although still ripped to shreds. Green hardly ever happens though, so should I feel good despite the violent gang raping I've been receiving?

    ReplyDelete
  11. FCAU - "in 2017 interest costs benefits should be materially lower to the tune of c. €500m vs 2014 and at this point the P/E multiple at our €10 PO would fall to 7.9x."

    So this debt translates to approximately equal with the profit gained per vehicle.

    ReplyDelete
    Replies
    1. The biggest concern I have with FCAU at this point is the Euro. It's basically in free fall and I think this would have a big effect on the stock if it falls much farther (further?).

      Delete
    2. Doesn't it stand to reason the euro should be one of the weakest global currencies around? So this stock apparently isn't well positioned as I'd imagined, but will see if they leave the currency issues out of the report. I bet they do, because most thesis I read and hear are full of holes b/c they're based not on good DD but what the investor prefers to believe.

      Delete
    3. A lot of factors at play. FCAU generates most of their profits in North America, 2nd most in APAC, and a loss in Europe.

      http://www.fool.com/investing/general/2014/10/29/fiat-chrysler-earnings-profits-rise-on-strong-ram.aspx

      So, if the Euro drops, these profits will be reported as more Euro's, so their profits will be better and the stock higher in Euro's. IN dollars, where we trade, the stock will be discounted back down by the higher dollar.

      So, the net could actually be positive or negative. The other thing I wonder is which stock market will be the primary one for pricing FCAU going forward. The Euro/Milan listing has more volume, but it is picking up in New York and looks like about 25% of trading nowadays.

      Delete
    4. Looks like the recall for FCAU has been expanded:
      http://www.cnbc.com/id/102276885

      I think BB has a good point with this comment:
      " The other thing I wonder is which stock market will be the primary one for pricing FCAU going forward. The Euro/Milan listing has more volume, but it is picking up in New York and looks like about 25% of trading nowadays."

      This was my main concern regarding the Euro...the stock in Italy could rip higher but we might not feel the benefit of it...maybe I'm over analyzing it.

      Delete
    5. Spanish news feeds on Google seem to have dwindled recently, has Spain gone dark or what?

      Delete
    6. Wonder how a slowing oil industry might impact pickup truck sales? A boost for other construction would help keep things rolling along.

      Delete
    7. So does FCAU's recent performance compare satisfactorily with GM's? I'm thinking maybe some of F's business was pulled forward, ahead of the aluminum pickup but I guess the aluminum truck should be found durable (what up with additional cost of insurance?).

      Delete
    8. But wait a second... If the debt is denominated in gyro units and the value of the gyro falls then that should result in a substantial benefit, no?

      Delete
  12. One final trade to end the week. Opened a small position in UGAZ @ 7.28 in the extended hours session. NGas futures have plunged -20%+ in the past month (perhaps related to the plunge in crude, but anyone who claims to understand the reason can safely be ignored), which has taken UGAZ down correspondingly by -60%+. The drop in UNG today alone was -5.6% (UGAZ -16%), both on well above-average volumes. Another capitulation play. If I'm wrong, I'll stop out quickly Monday morning.

    ReplyDelete
  13. SSYS and GOOGL - Here are a couple ideas.

    ReplyDelete
  14. The BBC comes out with another great miniseries: The Honourable Woman, a spy thriller starring Maggie Gyllenhaal. Available for streaming on NFLX.

    ReplyDelete
  15. EPA published coal ash standards today, right? Not classified as hazardous waste though....

    ReplyDelete
  16. LEU - This is USEC emerged from bankruptcy. Wonder who's cleaning up the toxic nuclear mess left behind? BTW, John Boehner and Mitch McConnell 's fingerprints are all over this disaster.
    http://ecowatch.com/2013/05/22/countdown-to-nuclear-ruin-at-paducah/

    ReplyDelete
  17. Replies
    1. I've mentioned this one before previously, and don't recall seeing any response. I guess there's no interest.

      Delete
  18. I see there was some fairly large volume on candlesticks today, typical of a trend change. A few hammers here and there as well.

    ReplyDelete
  19. BC - This chart is hanging in there, so perhaps financing of frivolous freshwater fun is going gang busters?

    ReplyDelete
  20. "One final trade to end the week. Opened a small position in UGAZ @ 7.28 in the extended hours session. NGas futures have plunged -20%+ in the past month (perhaps related to the plunge in crude, but anyone who claims to understand the reason can safely be ignored), which has taken UGAZ down correspondingly by -60%+. The drop in UNG today alone was -5.6% (UGAZ -16%), both on well above-average volumes. Another capitulation play. If I'm wrong, I'll stop out quickly Monday morning."

    2nd - Definitely seems like panic to me. I made up my mind maybe 3 months ago (can't remember exactly when) not to trade nat gas until the fall of next year for 4 reasons:
    (1) Last winter was one of the coldest on record and the comps vs that will be very tough
    (2) I suspected that at some point, probably after the first blast of cold air, people would say "it's last year all over again", at which point it was time to sell because of (1) above
    (3) Nat gas export terminals won't be coming on board until next year at the earliest
    (4) I compared the bottoming period in natty to the bottoming period in gold and oil about 15 or so years ago and it jived with a "disappointment" period after the initial spike off the bottom (ie spike being 1 year ago in nat gas).

    I'm probably wrong on it but that's my takeaway. I love trading UGAZ, though. It has accounted for 10% of my gains this year.

    ReplyDelete
    Replies
    1. Hadn't noticed the fall in nat gas. Nagas is a hard commodity to figure out pricing in that a lot of it is produced as a byproduct of other energy (like silver is in mining), so much of it comes to market regardless of supply/demand dynamics. There is very little dry natural gas drilling going on now in North America because of the prices.

      But you sure can get some nice spikes in the price of nat gas if you time it right. People can't turn their furnaces off in the winter and will pay whatever price if gets that cold. Haven't looked, but perhaps they are forecasting a mild winter now and that is pressuring prices.

      Delete
    2. BB, sounds like you're unconcerned with pricing of natty(since you didn't notice the huge drop) but if you own an energy producer I argue that it's quite important.

      Delete
    3. There are other metrics involved that should be monitored as well, such as the amount and rate of debt your oiler is stacking up, cost for transporting the product to market, cost controls concerning increasing production, etc. It's not acceptable to increase production at any price simply for the sake of increased production, that's a foolish strategy and a great way to lose money. Also, it's important to comprehend the hedging strategy management has implemented, if any.

      http://www.naturalgasintel.com/data/data_products/daily?region_id=canada&location_id=CDNNOVA

      Delete
    4. Here's a pretty good overview of the metrics involved, one very important piece of information has been completely overlooked by this author that I can think of and have mentioned numerous times previously.

      http://seekingalpha.com/article/2767785-bellatrix-orange-capitals-14_3-percent-stake-a-positive-catalyst?uide=1087471&uprof=45

      Delete
  21. Seems to be a fair assessment to me, not sure why they don't like NLY though, it's the lowest rated.:

    "BofAML forecasts the 10-year yield to rise only slightly by YE15. Our economists
    also see muted growth around the world and a stronger dollar. This backdrop
    means continued high demand from global capital for US office assets as it
    struggles to find returns elsewhere. JLL continues to see a 10:1 ratio of capital to
    assets on the market for sale. This should maintain the bid for high quality real
    estate in 2015, and support higher valuations."

    ReplyDelete
    Replies
    1. I'm not sure what NLY does, but in a rising rate environment, you want stocks which trade on valuation and which will increase margins due to better spreads like banks and life insurers, but not those which are trading based mainly on their yield (which I think NLY does). Utilities and telco's are also risky if rates start to rise.

      Delete
    2. Overweight Apartment REITs: Improving pace of rent growth

      Delete
    3. I guess I don't understand how NWLI is collecting any interest spread by holding to maturity, but I do comprehend how NLY is accomplishing this (Much the same way as the FED does, concerning their MBS's).

      Delete
  22. Ya know, trading oil producers or oil itself might be a bit of a money pump for a while. I think it's doubtful oil collapses to $30 but likely will pull back from $59 several times, and remain in a range. Any tactical/strategical ideas for this?

    ReplyDelete
  23. BAS - Lifted 25% Friday, for example. ENSV got a 16% bump.

    ReplyDelete
  24. In 1971 your $1 would be worth $5.83 today:
    http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1&year1=1971&year2=2014
    Gasoline was $0.36, so for 1 US gallons, you were paying the equivalent of $2.09/gallon, correct?

    ReplyDelete
  25. http://seekingalpha.com/article/2769375-the-most-consistent-risk-reward-speculation-that-i-have-ever-found?ifp=0

    I think he might be on to something. We've 'discussed' the same in passing more than once.

    ReplyDelete
    Replies
    1. Yeah, no kidding and quite correct. There should be an ETF for this, LOL.

      Delete
    2. Looks like SRS recently did another reverse split.

      Delete
  26. Read another Ferrari review, it's not a 2nd place supercar.

    ReplyDelete
    Replies
    1. Not 1st place either, the Ferrari is 2nd place to the McLaren 12C because the 12C is faster around the track if you know how to drive and accelerates impressively at speeds over 100mph, whooshes out of turns like a Dyson.

      Delete
  27. JLL - Here's one that broke out in a big way, just stumbled on it.

    ReplyDelete
  28. UCO - Hard to believe this rose 10% yesterday, recency bias?

    ReplyDelete
  29. Is it true Congress voted last week to increase the amount of money an individual— not a business—can give to political party committees from $97,200 to $776,600?

    I guess Congress will be passing bills left and right now, considering this magnitude of incentive.

    ReplyDelete
  30. RUSL looks pretty good too. Anybody recall that ticker with software business in Ukrane, slipped my mind....

    ReplyDelete
    Replies
    1. EPAM, @ $32 But I jumped into BXE instead, sheesh....

      Delete
  31. Delta-9-THC is the end of Oxycontin, Oxycodone, Demerol, and other dangerous drugs.

    I bet this can relieve hemorrhoid pain as well???

    ReplyDelete
  32. SB - $4 here, a whole lot cheaper than it was 6 months ago.

    ReplyDelete
    Replies
    1. SALT - $2 now, is risk any lower than 6 months ago?

      Delete
  33. Global Warming - Wonder what happened to the severe hurricane season we were told yo anticipate due to heating of the Atlantic and gulf? Who stands to make the big money on anti-global warming and carbon credits? Aren't India and Chinese growth adding a 70% to carbon emissions?

    Aren't these hydrocarbons really just sunken trees and shrubbery of ancient forests that died and buried long ago?

    ReplyDelete
    Replies
    1. Also, isn't it a little scary to think some folks believe the Earth is just several thousand years old?

      Delete
  34. Does a 1 in 3 chance sound bullish?
    http://blogs.marketwatch.com/thetell/2013/12/30/sp-500-has-1-in-3-chance-of-rising-30-in-2014-j-p-morgans-thomas-lee/

    ReplyDelete
  35. CP,

    If you understand NLY and think it is good value, you should absolutely own it. I understand NWLI and really like it, so it is good for me.

    But generally speaking, you can only follow so much. I've done a lot of reading to understand insurance , but really don't get companies like NLY, but that's OK. I'd rather try to understand less companies better. Same with healthcare. There's lots of money to be made there, but i really don't understand the business models (says the guy from the socialized medical care country), so easier to just stay away.

    Every stock is going to go through its tough times. By understanding it well, you know better whether to buy more or sell or just hold. Without good knowledge, we tend to make bad decisions.

    ReplyDelete
    Replies
    1. Well okay then, good luck with your strategy.

      Delete
    2. Hey, it works for me. Matches my disposition and aptitude I think. I've been actively stock investing for 14 years and have had only 1 losing year (2008) and I've outperformed the market by 10.3% per year average.

      Insurance companies are especially good for me as I took actuarial science in University, wrote a couple of the actuarial exams and completed the LOMA designation, and I also worked at an insurance company for 6 years and sold to them for another 3 years.

      Delete
    3. Yes, it's possible to outperform if you can buy for example FCAU at $9 and ride it to $13 then back to $10, you've gained $1/share. Buying at $13 and riding it to $8 isn't gonna work out too well though, and should be avoided if possible.

      Also, now I have a little better understanding of how you gained knowledge of the insurance industry so I can appreciate your perspective much better so that helps but it appears to me that EM's have been struggling of late, quite the opposite of what you've been anticipating it appears, so I guess my point is although you may have a great understanding of one aspect of markets doesn't necessarily project that understanding across markets. I have to think if insurance is great during times of economic growth then perhaps it sin't so great during times of economic contraction, seems like a fair assumption to me.

      You've consistently maintained that Europe and elsewhere are great investments but what I see are economies slipping into recession. These events naturally tend to make me ask questions and attempt to understand more deeply so I'm not blindsided one morning and stuck with huge losses.

      I'm pretty sure you can comprehend my concerns, ignorance isn't bliss. The reason for my interest in mREIT's has been b/c I discovered how the FED has been operating to avoid losses on their books and I kinda tucked myself under their wing, so to speak. Timing wasn't necessarily great but watching the action I've learned more, primarily that money tends to flow into mREITs when risk/return elsewhere are unattractive, almost like a hedge of sorts.

      Anyway, it's surprising with the great amount of studying and reading you've done over many years in addition to your area of expertise in general, the mREIT model I'm sure doesn't completely escape you b/c I can't imagine that, more likely you choose to ignore it.

      Anyway, thanks for the conversation. It appears to me the market did a little happy dance after Yellen admitted the FED can't raise rates, and the mREIT's regained some composure as a result. I'm pretty sure you didn't notice due to the mysterious business model.

      Delete
  36. JNK - If you owned this you'd be harvesting a near 6% dividend and would be down a whole 6% if you'd managed to buy the recent top.
    Compare that to owning BXE, you've been obliterated if you didn't (wisely) take your loss early.

    Dumb, dumb, dumb..... Asleep at the wheel.

    ReplyDelete
  37. JDST - Might be worth watching here.

    ReplyDelete
  38. "All is well, emerging markets are recovering"

    "Although recent economic statistics suggest the U.S. economy is starting to grow faster, data from most European countries suggests their growth remains anemic and numerous countries are slipping into recessions. Latin and South America appear to be a mixed bag of moderately healthy economies and very sick ones. Despite heroic stimulation efforts by its government, Japan has fallen into recession. But the true global wildcard is China, where the latest economic data raises serious questions about its underlying growth. Concern over China’s growth is tied directly to questions about the health of the country’s financial system."

    ReplyDelete
  39. So this young man who lives in NYC develops a website capable of linking together price advantages for travelers by exploiting the broken links airlines have created to take advantage of their routing monopolies. I'd been able to accomplish a bit of this as well, during the time I'd been traveling but of course I'd only identified the cheaper way to travel between my particular destinations (often by going the opposite direction, such as going through Chicago to reach Atlanta, for instance).

    This guy's system is automated and capable, his web site is generating 200,000 hits per day, and I'm just now hearing about it.

    Makes you wonder why Google, Yahoo or Yelp don't all have a feature like this this already, doesn't it?

    ReplyDelete
  40. Okay, so there's no doubt the market is a forward-looking mechanism (by maybe 6 months, it appears?) and forecasts tend to be in hindsight, thus markets are ahead and we have this confirming but otherwise useless report from the hindsight crowd:

    "The impact of the slowing global economic growth despite the recent fall in oil prices is reflected in the most recent 2015 oil demand and price forecasts of OPEC, the International Energy Agency (IEA) and the Energy Information Administration (EIA). The IEA reduced its demand estimate for the fourth time in the past five months. It cut 2015 demand by 230,000 barrels a day to an increase of 900,000 barrels a day. OPEC cut its demand forecast for both 2014 and 2015, with the latter being reduced by approximately 100,000 barrels a day. The EIA is now forecasting an average price for world crude oil next year of $68 a barrel; down from last month’s forecast of nearly $84. The domestic oil price is now forecasted to be $63 a barrel, compared to November’s projection of $78. Given the dynamics of the global economy and world oil markets, many people wonder whether even these estimates will prove to be too high. "

    ReplyDelete
  41. Perhaps this is the next legislated success story for us to attempt participating in?
    "Deepwater Wind, an offshore wind developer that is majority-owned and funded by the D.E. Shaw Group, a $34 billion New York hedge fund with several of its managers sitting on the wind-farm company’s board of advisers, has proposed a $1.5 billion wind farm to be located 30 miles east of Montauk on the tip of Long Island. "

    ReplyDelete
    Replies
    1. FAN ETF could be a decent entry near here. Maine and NY are signing on the dotted line for offshore wind farms, Connecticut has more plans as well.
      How about the West Coast, are there huge wind farms going in?

      Delete
    2. I heard a few months back that solar energy was at par with fossil fuels energy, so these renewable energy plays must be experiencing a temporary setback based on fear and this could be a great entry opportunity, the pullback we were hoping for.

      I think it would be great if some portion of this type of power was directed towards bootstrapping the renewable energy industry, like fossil free(not derived from natural underground decayed trees and shrubbery) electricity for solar manufacturing for instance. That would help prove the technology is viable. These wind farms could trade the free electricity for carbon credits going forward, those carbon credits could finally put serious wind in these sails.

      Delete
    3. FAN - On 2nd thought, this one seems to have rolled over along with numerous others.

      Delete
    4. Hmm, maybe carbon credits prove to be just a bunch of hot air? Never underestimate government to at least attempt to add to tax revenues though, take Japan for instance placing their economy into recession by taxation. Their attempt at paying off the national debt by taxing consumer essentials such as feminine hygiene products to name one, sorta illustrates the level of captains genius we can anticipate and exploit if we're on the ball.

      Delete
  42. CP,

    Re FCAU, I don't mind riding it back to $10 if it's going to be 20 dollars in 3 years, which I think it will be.

    as for mortgage reits I don't think we have them in Canada. I did try reading the financials of one of them once, but got confused and thought it wasn't worth the effort for that market.

    my strategy really is, to buy a set of stocs across multiple markets, where I perceive the risk reward to be in my favor. Generally more of them work out for me then don't and I end up being happy with my returns.

    No way I could invest like 2nd. Just don't have mental toughness to step into fear like that. Same with you and TOF, no way I would feel comfortable with such a small set if stocks.

    ReplyDelete
    Replies
    1. Agree, nothing wrong with the approach. There are many different type of REIT's and of course their portfolio's differ widely so it's a stock picker's market even within the group so not a marketing job, it will take many hours of study to properly comprehend, it's not an impossible task I think.

      Buffett isn't in the habit of making mistakes, so I have to wonder if his reasoning for investing in GM involves future growth in the auto industry as a whole or something specific to GM? Also, we can be sure his time horizon isn't of short duration.

      Sloppy mistakes made by discounting the possibility of downside are expensive.

      Delete
    2. There are a number of legislated success thesis this year, from this week's gap up in the SPY following FED comments to the anticipated healthcare rally and I would also suggest the fracking/oiler story since the white house has endorsed and outspokenly promoted it, overseas.

      I haven't heard the white house promoting life insurance though that may be next on the agenda.

      Delete
  43. NRG - Another one where the ema's have rolled over. These charts are all over, not difficult to run across. FCAU's chart probably has rolled over too I have to guess and too bad it's all hosed up, maybe that's a good thing.

    AGCO - This chart has moved up considerably of late and volume is pretty high. Dunno what's up with that but really glad I didn't ride it down from $55, instead I rode BXE down some 60% or more.

    BXE BTW won't be selling much gas to the Canadian oil sands (non-dirty, perEU) producers if they cut back on operations due to low oil prices. And the pipelines going west from the really impressive eastern gas fields in the marcellus are nearly ready to begin operation, so Western Canadian companies are probably about to feel pain from that increased competition as well.

    Hard to ignore, but it's not looking positive for BXE No wonder all those positive SA articles painting the pretty picture keep showing up regularly but notice for some odd reason they all fail to mention the train in the tunnel. WUWT, pumpers?

    ReplyDelete
  44. New York has banned gas fracking, so there's another legislated success I forgot to account for. I guess any producers based in or with property in NY can no longer expand, right? Which are these, so we can confirm their share price action?

    ReplyDelete
  45. Re Buffet and GM, it is actually one of his fund managers, but the reason I own GM is:

    1. Make same # of cars as Toyota and Volkswagon, but company worth less than half of those 2
    2. Balance sheet cleaned up in bankrupcy
    3. Good market share in 2 key markets - USA and China
    4. Auto business is in growth mode after years of underperformance and cars are oldest on the road ever
    5. New vehicles are being well-received in the market

    And the other reason Buffet would like it is it is a straight-forward easy to understand business.

    I feel quite confident it will be a winner if you are patient. I have more FCAU, but do like GM too.

    ReplyDelete
    Replies
    1. And I'm sure Buffet is not planning to be a short term holder of GM. They've held it for over a year now (or close to it) and continue to add shares (40,000,000 in Q3). PLus Buffet pays his fund managers based on their outperformance over the S&P 500 on a 3 year average basis. One of the advantages these guys have is not having their performance pressured after a weak year.

      Delete
    2. Yep, I wouldn't mind owning GM A friend of mine thinks it's a good opportunity as well (I didn't know till this summer he also was looking at NLY even after getting killed in ARR.... I think he took a big hit on that panicky draw down ARR went through.

      As far as NLY goes, I'm of the impression IF rates run up the repeat draw down could occur so actually I'm not too hot on it right now. My friend though thinks markets have topped (as of mid summer), still he was contemplating GM.

      Apparently he really got slammed in ARR, I think he said he was holding 500k shares, LOL.

      Delete
  46. COWN - This chart looks really good.

    ReplyDelete
  47. PG was $78 in august, now it's $92

    Like the other P&G plants, the massive plant consumes electricity–800 billion killowatt hours, enough energy to run 40,000 homes. The P&G plant in Mehoopany is powered exclusively by Marcellus Shale gas drilled right on P&G’s own property. In fact, P&G is producing so much electricity by using Marcellus gas that they sell electricity back to the local utility grid–enough electricity to power 20,000 homes!

    ReplyDelete
  48. Spent the weekend driving to and from Marin, Napa, and Sonoma for Basketball games and researching/testing the 2 new FLAC streaming services available. Tidal and Deezer. I'll try and post my take latter today.

    ReplyDelete
    Replies
    1. FLAC - Sounds like old technology if this is the shield Britain used to protect itself from attack by Germany during WWII

      Delete
  49. Mixed picture this morning.

    (a) EEM +1%. EWZ (Brazil) +0.5%. FXI (China 'H' Shares) +1.86%, but CAF (China 'A' Shares) -1.94%. RSX (Russia) +2.96%. GREK (Greece) -0.2%.
    (b) The real surprise? UGAZ -24%. No typo. USO (Crude) -3.64%, LE (Energy) -1.85%, OIH (Oil Services) -2.64%.
    (c) I closed UGAZ for a -24% hit (no typo!). No worries, it was truly a small position. Any NGas futures traders who did not capitulate Friday, and hasn't capitulated today? Kudos. Although I have to assume they're close to wiping out their trading accounts!

    ReplyDelete
    Replies
    1. Do the UNG heart attack on the way down, UGAZ widow maker on the way up?

      Delete
    2. Anyway, the chart predicted a decline in oil prices:
      http://peterlbrandt.com/wp-content/uploads/2014/11/11.13_CL_W.jpg

      Delete
  50. Who makes the equipment that burns the natty? There's plenty to burn thus we need something to burn it in.

    ReplyDelete
  51. Good article on USA today with the trading themes that have stood the test of time:

    http://www.usatoday.com/story/money/markets/2014/12/22/motley-fool-financial-advice-old-books/20639853/

    ReplyDelete
    Replies
    1. One of my favorites:
      "Once I had a woman I could call my own
      Once I had a woman now my woman is gone
      Once there was a river now there's a stone
      You know it's evil when you're living alone "

      Delete
  52. SRS - Sure loses a lot of skin as a habit, everyday.

    ReplyDelete
  53. I predict that Millennials will succeed at changing the world, where hippies, boomers, x's and all before them failed. The laws of physics are about to be rewritten.

    ReplyDelete
  54. FLY says Supertankers are the place to be. Do you guys buy this idea? Seems like it would be easier to short oil if you think oil prices are headed lower.

    ReplyDelete
  55. Alberta delay's carbon tax: "The current regulations, which impose a levy of C$15 ($12.92) a metric ton for large industrial emitters that exceed limits, will be extended until June,"

    So I was right, there are plans to tax carbon. Sounds like a great way to slow your economy to a screeching halt if there are no lower cost alternatives such as cold fusion.

    Thus, if you had cold fusion (free energy) you would stop carbon emission dead in it's tracks and POO would go to zero (hurray for me!) or if you enacted a carbon tax, you would slow the economy by forcing more expensive alternatives such as burning wood.

    ReplyDelete
  56. NUE - Looks weak, we don't need energy or steel for this robust growth cycle.

    ReplyDelete
  57. "In Midland, Texas Today
    I met with a gentleman who is a high manager with a very large independent operator and came away less than happy.

    Bottom line is that these guys are going to start layoffs soon. Their only real decision will be about drilling to hold their premium acreage. Rig rates are about to tumble. Not long after will be foreclosures on new houses and repossessed cars etc. "

    ReplyDelete
    Replies
    1. That is a valid concern. There is no doubt going to be some fallout in the economy of the energy states. My hotel stock in Canada, hlc.to, has higher than average exposure to the resource provinces. This has been good the last few years with occupancy and rates above the rest of canada, but is a concern going forward.

      Delete
  58. the beauty of the market is there are a number of people willing to sell a stock for short term reasons with no intentions of holding for the long term gains. i'm a shorter term trader, but it seems that there's always a number of opportunities created by panic selling in great names. V, MA, PIR, BBBY, and WYNN all come to mind.

    ReplyDelete
  59. I suspected TA would benefit from lower oil. Should have listened to my gut feeling...

    ReplyDelete
  60. GMO- Any idea what was up a few days ago?

    ReplyDelete
  61. Replies
    1. I'm considering playing with AMD, my broker raised their PO.

      Delete
    2. I like the chart. What's the avg. PO?

      Delete
    3. ORI seems to be lifting as well.

      Delete
    4. Oops, they have it at UNDERPERFORM, $2.25 price target. Gonna stay away for now.

      Delete
    5. Seems this is untrue: "Bank Of America Raises Advanced Mirco Devices Price Target"
      But this is:"Bank of America reiterated its Underperform rating on Advanced Micro Devices, Inc. (NYSE: AMD) Friday and cut its price target from $3.25 to $2.25."

      Delete
  62. Any idea how much Canadian natty is consumed by processing oil sands? If no oil sand the excess natty, right?

    ReplyDelete
    Replies
    1. The oil sands use quite a lot of nat gas to heat the bituman for extraction. Oil sands projects almost never shut down as they really are just complex mining/processing environments and they are expensive and time consuming to stop and start. Plus, once it is built, they only need probably $40 oil to justify the ongoing running expenses.

      Delete
  63. So now the oil industry isn't hiring but more likely will lay off, this should moderate wage increases that some have kept saying may take a bite out of corporate profits.

    ReplyDelete
    Replies
    1. Hopefully it will be offset by other industries which benefit from lower energy prices hiring.

      Delete
  64. AGO buying the bond guaranty business from Radian for $800 million. No real details yet on what this really means, but my first though is it will be good fro AGO as you've probably got a distressed seller in Radian, so good pricing for AGO.

    ReplyDelete
    Replies
    1. From what I can tell from the AGO press release, they are getting $1.3 billion in equity for $810 million. Pretty good, increases book value, which AGO is typically valued on by 10% or a little over $3 per share. They are assuming the risk on $19.4 billion of insurance, but I feel comfortable with this given AGO's management and track record and they'll probably do even better than this. They are adding $450 million in capital to support this business, but that is just moving assets around and I think it is a separately incorporated subsidiary so the risks to the parent are thereby limited.

      Stock is up $1.00, so still more upside I think, but it may not come until people see the new financial statements.

      Delete
  65. Hey Mark,

    So still pluggin away at kitchen reno, but now my dryer stops working. I had a appliance guy come in and one of the heat breakers was gone, so he replaced it and said I should make sure the dryer vent line was clean. So took it apart and vacuumed it out and turns out there was a dead mouse and a half corn cob in the vent. If this stock trading doesn't work out, at least I'm getting some new skills

    ReplyDelete
    Replies
    1. Also a longer than normal vent or kinks in the vent can cause overheating. We had one once that must've been over 20ft long and would cause the dryer to overheat and shut off the heater, the terminals would burn off the heater element every few years and the paint on the rear of the dryer was discolored.

      Delete
    2. WOw. I looked at replacing the entire tube, but it is going to be a huge pain as the connection is right above part of the foundation and in a very tight space. Hopefully this works for a few years and I remember to clean again before it gets too bad.

      Delete
  66. If I look at USO (WTIC oil) calls, oil needs to be at $94 in Jan, 2017 just for at the money calls to break even. Guess a lot of traders think oil may bounce back pretty significantly.

    ReplyDelete
  67. CUBA - Was a pretty good one huh? I've been talking about it for a couple years now.

    ReplyDelete
  68. Looks like David Tepper is have a poor year, up 2% at end of November - http://www.institutionalinvestorsalpha.com/Article/3411914/Search/The-Morning-Brief-Big-November-for-Appaloosas-David.html?Keywords=Appaloosa

    I think it just shows how hard a market it has been considering he got the macro call of the S&P pretty good calling for a +20% year and it looks like we will finish +15%.

    The other more interesting thing is he is saying stocks are fairly valued now, but we could have a huge multiple expansion type year due to easy money in 2015 like we had in 1999.

    http://www.cnbc.com/id/102276863

    He may or may not be right, but he has an outstanding track record and his thoughts deserve serious consideration regardless of his 2014 performance.

    ReplyDelete
    Replies
    1. Not sure if he mentioned the $US but it's been trending upward. I suppose that could negatively impact EM's or not but we need an educated guess in order to execute comprehensive decisions I think?

      Delete
  69. GILD, been looking at that for the last two days, but think its a serious issue with no easy fix. Based on that, no bounce play for me, not worth it. FWIW

    http://247wallst.com/healthcare-business/2014/12/23/analysts-predict-big-value-trap-for-gilead-investors/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+typepad%2FRyNm+%2824%2F7+Wall+St.%29

    ReplyDelete
  70. MNTX - Has been doing some heavy lifting today.

    ReplyDelete
  71. FCAU - Hopefully FCAU's debt is denominated in a currency that isn't in an uptrend.

    ReplyDelete
  72. CLNE - Might be jumping on the ruling EPA must enforce ozone regulations, not authorized to delay new requirements?

    ReplyDelete
  73. BB - I agree about Tepper. He has underperformed the market several times but usually comes back with a bang after that...that's how he has gotten close to 40% annual returns. I would have to imagine its harder and harder to outperform with the larger amount of $$ he manages now.

    ReplyDelete
    Replies
    1. Good point. He does seem to follow a poor year with an exceptional one. So, another reason to pay more attention.

      Delete
  74. ENVI - It must suck to own this one.

    ReplyDelete
  75. http://l2.yimg.com/bt/api/res/1.2/6YR4fXJCDdGN221fd9_UFw--/YXBwaWQ9eW5ld3M7dz03NDk7cXVhbGl0eT03NQ--/http://media.zenfs.com/en/homerun/yahoo_finance_blogs_674/b917746819f18bb493ddf8caffb87dcf

    ReplyDelete
  76. Despite the dow punching out new highs week after week, my portfolio doesn't appear to be participating.

    ReplyDelete
  77. Regarding Tepper's comments, I think we do need to consider the possibility that multiples expand slightly while earnings rise 10% on the back of reduced oil prices and 4% or so economic growth with a rebounding Europe.

    I really like what Saut says about the markets though...that the market doesn't care about absolutes, it only cares about whether things are getting worse or getting better.

    ReplyDelete
    Replies
    1. I would think the shale oil flow decays faster than gas flow and if they can't make money they will cease drilling. Probably long the underlying at some point is the way to go considering SA is going to adjust prices so nobody can make money and once they're gone jack the price back up.

      Delete
  78. Love the last few lines of this:



    The mechanics of covering Wall Street change over the years, but not the veil of secrecy behind the market which market operators have always preferred to work. Wall Street, after all, is about secrets – especially trading secrets. Like a high-stakes game of poker, the good players feint and bluff and never show their cards, even when they lose. When money talks, Mark Twain wrote, the truth is silent. Knowledge can be converted on Wall Street into money. The value of knowledge is inversely diminished by the number of people who have access to it. In other words, the only reason to invest in the market is because you think you know something others don’t. A successful investment profits when the same bulb lights up in the heads of other investors. They also think they know something that someone else hasn’t yet divined and the party grows, with a line forming at the door and the cover charge rising. This is the central psychology of the market.

    … Trading Secrets, by R. Foster Winans

    ReplyDelete
  79. New highs and a wicked ih&s for $SPX..... So no urge for a little SPXS here? Wonder who the lucky guy was that paid $211.80 for SPY?

    ReplyDelete
  80. HII - How do you like the breakout, more convincing than FCAU's lack of ability to break out but hardly more convincing than oil's breakdown?

    HII is operating the most important shipyard there ever was.

    ReplyDelete
  81. MDW- Was there anything remarkable yesterday?

    ReplyDelete
    Replies
    1. Looks pretty cheap, huh? Saving cash so I can add to BXE at ~$0.60

      Delete
  82. BXE - Amazing, this one's kicking some comparative ass today

    ReplyDelete
    Replies
    1. And for the year has far outperformed SPXS on the downside. Really terrible pick, one of the very worst.

      Delete
  83. SPXS - This one isn't worth throwing some money at here because: _________

    ReplyDelete
  84. Say what? Twerking spreads diseases, such as ebola.

    ReplyDelete
  85. BB - You didn't say if your dryer is gas fired or not I assume it's electric. But, beware if it's gas, in that case your exhaust tube should be aluminum instead of vinyl b/c vinyl tends to easily puncture and probably cant take the heat that a gas dryer can generate. A leaky vent with a gas appliance means you're leaking carbon monoxide into your crawl space and in the case of a gas dryer it's at a positive atmospheric pressure, so beware!

    ReplyDelete
  86. SPXS - Bought some of this today, in preparation for a rude awakening.

    ReplyDelete