Wednesday, January 14, 2015

1/14/15 Copper

(a)    Opening FCX (Freeport-McMoran) around 19.  Changing hands @ 50% off its 52-wk high on plunging copper prices.
(b)   Oil starting to find its footing.  Reopening positions in XLE (Energy), OIH (Oil Services), PBR (Petrobras), and RSX (Russia).
(c)    Reopening a position in GDX (miners) @ 20.65.

(d)   May elect to open positions in the S&P500 and/or EEM (Emerging Markets) should morning weakness present decent entries. 

164 comments:

  1. Jeez the move in AA is amazing. I'm down about 7% after I bought what I thought was a dip. Decided to double down here in the $14.8x area.

    ReplyDelete
  2. I'm starting to get interested again. I have to run but if this weakness holds I'll look to jump in. like the AA trade too. Ciao.

    ReplyDelete
  3. It's tough, trading long side in a downtrend.
    CENX seems to be testing 200SMA here.

    ReplyDelete
  4. SHould have waited on my CBI purchase as well - down 3% already.

    Oh well, there's a saying "let your first purchase be your worst", so hopefully that is the case here and I'm smart enough to add lower. It was about a 1/3 position, so lots of room.

    ReplyDelete
    Replies
    1. I'm trying to reconcile today's action with the ECB stimulus that was deemed legal. $US is down slightly so could be capital is preparing to rotate toward Europe?

      Delete
    2. That macro stuff is so complicated and pretty much impossible to know what is going on for me (just watch House of Cards!)

      In my opinion, we are not close to a major bear market, so you want to look for things to buy as we go through this weak period, to ride up when the market improves. It may be a rocky few months, so no rush, but I do think we see higher highs this year.

      Delete
  5. At 3:30 AM EST, the European courts back the ECB bond-buying program so the politicians and government officials deem the Keynesian spending as legal and necessary. The courts rule that the ECB operated legally and within its authority with the OMT (Outright Monetary Transactions) program. The ruling is non-binding but clearly paves the way for the full-blown QE announcement next Thursday, 1/22/15.

    ReplyDelete
  6. I ended up getting out of everything and just moving to cash. I need to make better sense of this market and wait for it to set up better from the long side. I've turned left on my route from A to B and have been going down the wrong road for too long without stopping myself. Not sure what my YTD losses are but they're approaching 10% on the back of this AA + CBI move.

    This is exactly what I was anticipating after having a great year last year. I was actually anticipating it happening starting mid year last year because I had been doing well but I got lucky and ended up having a good second half as well. Knowing how the markets work, ie giving back huge chunks of gains after big wins, its inevitable that this pullback was coming and my suspicion is it will be worse for the market than most people are thinking. We have had a hell of a run. To give back 20% wouldn't be that surprising in the big picture. Either way I'll just sit and wait for panic or a better idea of what's working consistently.

    ReplyDelete
    Replies
    1. I don't think we give back 20%, but it's certainly wouldn't be unreasonable. Seems like we are going through a rocky period, but it could be as simple as hedge funds being too aggressive into a new year (especially, given the 5 year of the decade and the 3rd year of the presidential cycle). Or it could be profit taking on stuff from last year where people didn't want to pay taxes - the large caps (SPY) are down more than microcaps (IWC) YTD and small caps (IWM), and normally it would be the other way around given the beta in small companies.

      But, no rush to do anything here. Waiting for things to shake out is not a bad strategy in a market like this.

      Delete
    2. Yeah it's just a hunch. I'd rather have a clear head in a market drop than not. If not then at least I'll have some time to look at things objectively.

      Delete
    3. We're almost 5% down from the alltime highs. It's often started to bounce in this range the last couple years, other than last October.

      Personally, I think the market is downshifting to a lower, but still upward speed and the market leadership is changing and this is causing a bunch of turmoil. But this is just my theory for now, so I'll have to see how it plays out.

      Delete
    4. I will say that this is probably an ideal spot for the market to rally. There was a slight cut underneath the lows from December. So it could be a fakeout low. Oil is rallying and gold miners (ie fear) are selling off again. All right at major resistance/support areas.

      Delete
    5. I actually picked up a little TNA on that support area and flipped it for my first profitable trade in a while. Looking at it objectively, this would be a logical point for at least a very short term bounce.

      Delete
  7. CENX - Wow, wow, wow.... What happened to aluminum.... happens to?

    ReplyDelete
  8. House of Cards, yeah CP great show.

    PAL anyone .15

    Just got back and looked at FCX, wow. Copper was down 8% earlier. I'm 98% cash!

    Only sector that seems to hold green consistently is health care, we lose that and nothing.

    This article has a great chart on how the collapse of oil in 2008 preceded equity fall.

    http://seekingalpha.com/article/2817446-boom-goes-the-dynamite-oils-price-crash-is-going-to-rip-the-global-economy-to-shreds

    ReplyDelete
    Replies
    1. I have a really hard time buying into this article at all. Basing predictions on something with a sample size of 1 will get you into trouble.

      This article reinforces my thinking that consensus thinks the fall in oil is bad. It's not.

      Delete
    2. TOF, yeah good point on sample size. I prefer lower oil prices too, but there is going to be a great loss of jobs in the oil sector, high paying jobs. This has been a bright spot in employment the last few years.

      How it all plays out in the market we will just have to wait and see and make bets along the way.

      Delete
  9. Our Current 2015 / 2016 Industry Forecasts
    1) 30% decline in E&P spending for 2015E.
    2) 40% decline in US land rig count (715 rigs) – Potential for 900 rig count
    drop (if oil remains at today’s levels into 2H-15). The lower the rig count falls
    the better it is for 2016 oil production. We assume the bulk of rig count
    declines are in the 1H-15 with the rig count beginning to flatten in 2H-15.
    3) Oil Service diversifieds 2015/2016 EPS assumptions – N.Am: 30% decline
    in revenues, ~900bps margin decline (Q4-14 to Q4-15). International revenues
    flat to down 10% depending on region, margins flat to down 200bps.
    4) Oil service pricing declines – We expect the greatest declines for US land rig
    dayrates of roughly 20%-30%, logistical costs (trucks/rail) and sand/proppant
    (15% declines). US pressure pumping will be more impacted by falling fleet
    utilization than price declines given no “net” price increases from ‘12-bottom.
    5) Offshore rig demand to dramatically slow – Expect dramatic declines in
    offshore floater utilization. Of the 111 floaters (semi’s and drillships) up for
    contract renewal in ‘15 we expect 60%-70% to become idle for extended
    periods. Uncontracted newbuild rigs will be delayed. Lack of available shipyard
    space for stacking will become a significant issue and dynamically positioned
    floaters will not be able to be efficiently stacked ($100k/d cost vs $30k/d norm).
    6) Cutting 2015/2016 Estimates – Oil Service Diversifieds: cutting ‘15/’16 EPS by
    another 20%-25% (total of ~50% since Nov-14); Land drillers: 45%-60%.
    7) Price targets – cutting targets another 5%-20% across the sector.

    ReplyDelete
  10. Current Stock & Oil Price View:
    1) Oil remaining at $45-$55/bbl WTI into 2016 easily implies another 25%-
    35% stock price downside – If oil remains at today’s levels into the 2H-15
    and 2016 we see additional stock price downside particularly for HAL/BHI and
    SLB. However, we believe land drilling stocks and WFT are already reflecting
    lower oil prices (stocks currently near 2008 lows).
    2) New paradigm for oil prices, however oil will move higher from today’s
    levels – The critical question is what is the new norm for oil prices at least over
    the intermediate term? We believe that oil is likely to be back at the $65-
    $75/bbl level in 2016. However, oil prices of those levels will not be high
    enough to drive activity levels as seen in 2014. We believe we need to see oil
    prices of at least $85/bbl to drive a full recovery. However, any substantial
    increase in oil prices would only again start US shale oil drilling activity.
    3) Earnings and rig count lagging indicators – In terms of stock prices it does
    not matter where earnings bottom - the only key is the direction of oil prices.
    4) Every cycle holds its own unique surprises for oil, finding the bottom in
    stock prices – What we do know with certainty is that no oil forecasts can
    capture “all” of the variables. In every cycle something surprises the markets.
    When the market assumes oil prices are going higher, it goes lower and when
    the market believes oil is going lower, it instead goes higher. Expect the
    unexpected. Ultimately we believe that large swings in oil prices provide longterm
    investors opportunities. The challenge is picking the bottom and based on
    what we see today, we believe that stock price trough is 1H-15.

    ReplyDelete
    Replies
    1. 5) Prefer oil service diversifieds – Halliburton (HAL/BHI) remains our top pick,
      followed by Schlumberger (SLB) and Weatherford (WFT). We remain negative
      on the offshore drillers. We believe the equipment companies offer a relative
      “safe-haven” near term, but less relative stock price upside in a recovery. In our
      view, the land drillers offer the most upside in a recovery and are nearing 2008
      lows.
      See our full Q4-14 Earnings "Ch

      Delete
    2. Congrats on being all in cash!

      I saw a chart today comparing the drop now to that in the 1980's and we are following a very similar path price wise. That was not an indicator of bad things to come. The 2008 oil price decline was due to financial speculation and a financial crisis. This drop is due to economic productivity. There will be some economic adjustments made, but overall, a completely different set of circumstances to 2008.

      Delete
  11. "I don't think we give back 20%, but it's certainly wouldn't be unreasonable. Seems like we are going through a rocky period, but it could be as simple as hedge funds being too aggressive into a new year (especially, given the 5 year of the decade and the 3rd year of the presidential cycle). Or it could be profit taking on stuff from last year where people didn't want to pay taxes - the large caps (SPY) are down more than microcaps (IWC) YTD and small caps (IWM), and normally it would be the other way around given the beta in small companies."

    Its definitely a unique period for the market in that a lot of guys with really good track records underperformed last year and have started the year with a really rough stretch.

    ReplyDelete
  12. T3d, over 5 million open jobs now according to the JOLTS report (http://www.bls.gov/news.release/jolts.nr0.htm)

    The energy jobs were good paying, but the money saved by consumers should flow into other products and services. Ideally, we'll see construction pick up as those jobs are similar in skill and pay to energy.

    Was a report out this week that Chrysler is looking to hire 500 electricians to revamp an auto plant in Windsor this year, so stuff like this.

    ReplyDelete
  13. Funny, but USO (OIl price ETF) is the top "stock" on my screen today. That's sure a change in the market.

    ReplyDelete
  14. WY - Never stops going up.
    Black market narcotics available for sale in Maryland.

    ReplyDelete
  15. (a) Copper futures currently -5%. FCX (Freeport-McMoran) plunged as much as -16% (to 17.85) from last night’s close on 4x normal volume, and has now recovered to 18.4x. That’s the kind of capitulatory move I want to see.
    (b) Crude is now +5%.
    (c) The $USD is beginning to drop. I plan to reopen a position in RYWVX (Rydex 2x Weakening Dollar) at the close.
    (d) OIH/XLE each slightly above this morning’s basis.
    (e) RSX +4% from this morning’s basis.
    (f) GREK (Greece) doing well, now 13+.
    (g) I opened RYTNX (Rydex 2x S&P500) and RYWVX (Rydex 2x Emerging Markets) @ the 1030 am est window. Each trading near its opening basis based on current bids for SPY and EEM.
    (h) The one downer? GDX off -1% from this morning’s basis.

    ReplyDelete
    Replies
    1. Note that most trades made into capitulation can be anticipated to 'move against you' while the selling exhausts itself. There is absolutely no way to 'know' when/where the selling stops. No guarantee even now that the selling won't reassert itself tomorrow.

      Delete
  16. Everyone's thinking onshore oil, but what if maybe offshore is the place to be? BP was so close with the sea monster that ate their rig, is something going out there we don't know about and folks are barking up the wrong tree? CVX announced a big find, right? Yeah sure, promises come and go, unfulfilled.

    ReplyDelete
  17. Too funny. I've had 0% 2 day return.

    ReplyDelete
  18. I've been busy the last few weeks shamelessly relieving myself of cash in exchange for very over priced and hyped audio components and cabling.

    ReplyDelete
  19. I'm putting the screws to MOG now.

    ReplyDelete
  20. Adding DBC (Commodities Index) on strength @ 17.44. I’m making an exception to my usual rule against chasing prices for the simple reason DBC is finally heading North after a 7-month waterfall decline!

    ReplyDelete
  21. Seems like Calpers is taking profits?

    ReplyDelete
  22. I just realized why we're stalling here:
    Adam Parker from Morgan Stanley was bullish at the end of last year

    Seriously, though, check out this from December:
    http://online.barrons.com/articles/outlook-2015-stick-with-the-bull-1418449329

    "Wall Street’s top strategists expect the S&P 500 to rally 10%. Bond yields could head higher, too."
    "The strategists’ 2015 targets for the S&P 500 range from a low of 2100 to a high of 2350, with a mean of 2208"

    So going into last year higher bond yields was the consensus. Now no one sees lower stocks. Just in terms of sentiment it's not surprising to see this pullback here to start the year.

    ReplyDelete
  23. It's amazing how much cheaper insurance companies are than the rest of the market and compared with the 2007 peak. Take a look at a company like AIZ...it trades at significant discounts to book, sales, earnings, and cash flow relative to the 07 peaks. Combined across all 4 metrics the valuation is about 33% cheaper. Part of the reason is they have bought back a HUGE amount of their shares:
    121 Million shares in 2007
    73 Million shares today

    AET is about 6% cheaper than the 07 peak
    AXP is about 10% cheaper " "

    In looking at the S&P components the majority of the discounts are coming in the financial / insurance area...for obvious reasons with the interest rates down so much. So the question is are we entering into a prolonged period of low interest rates like Japan (sub 2% 10-year for 16 years now) in which case can the company still earn enough to warrant a good return?

    ReplyDelete
    Replies
    1. AIZ is a very good company that I've owned in the past. They do home insurance for mortgage companies and the extended warantees you get at best buy and funeral insurance, etc.

      Smart management, good at managing profitability, but not really a growing business, so they keep paying a dividend and buying back shares to increase the EPS.

      I sold it back in late 2013/early 2014 when it got up to book value as I was consolidating my insurance holdings, but didn't realize it had fallen back below book value.

      I think you know this, but with insurance companies, you have to read the financial statements and look at the book value ex-AOCI. AOCI could be high for many insurers as they will have bond capital gains as rates have fallen over the last few years. (let me know if you want more info on this)

      One of the reasons I like NWLI is their accounting is done in a more conservative manner than pretty much every other insurer out there sa they carry investments at amortized cost instead of market value.

      Delete
    2. yeah can you fill me in on AOCI more? I mean I know what it means but do you screen for insurance companies and then look at their full financials? do they prepare two sets of balance sheets or is AOCI listed in the footnotes generally?

      Delete
  24. I like insurers for 2015 as they are cheap relative to the market and their historical valuations, have been profitable the last number of years, even with low rates and are managing their business accordingly. If we do get a rate rise, I'm pretty sure you'll see them (and banks) revalued higher as this helps their interest income.

    ReplyDelete
    Replies
    1. ...says the guy who is 40% in financials this year, plus another 17% in asset managers, so probably around 50% really

      Delete
  25. Don't know if you read Eddie Elfenbein, but he has a good long term track record, so worth reading: HIs comment on long term successful stocks:

    "You’ll also notice several insurance stocks. I’m often impressed by how many great long-term winners have been insurance stocks."

    http://www.crossingwallstreet.com/archives/2014/08/the-dull-stock-portfolio.html

    ReplyDelete
    Replies
    1. Thanks for this. I actually remember reading this post. I read his blog every day actually. Good stuff. I've wondered what his returns would be if he applied his methodology to smaller caps.

      Delete
  26. "Wall Street’s top strategists expect the S&P 500 to rally 10%. Bond yields could head higher, too."
    "The strategists’ 2015 targets for the S&P 500 range from a low of 2100 to a high of 2350, with a mean of 2208"

    I wouldn't read too much into this - seems to be pretty much the same every year. I think the strategists know 10% is kind of average, so stick close to this

    ReplyDelete
  27. "That macro stuff is so complicated and pretty much impossible to know what is going on for me (just watch House of Cards!)"

    It's common practice for corporations to purchase currency hedges for this purpose.

    The concept is pretty simple really; it's important to know b/c if oil falls 50% due to supply/demand issues for instance, the producers will take a hit and if long, so does your position

    As another example, b/c if I were to borrow a large sum denominated in a currency that drops by 50% then half my debt could be erased by such a move. The concept doesn't seem terribly complicated to me.

    In the case of FCAU for instance, if this debt was denominated in euros and the ECB was to stimulate and/or the SNB stopped supporting the euro the euro should weaken (I think europe needs this to hand their workforce a paycut) and thus the debt FCAU holds would become less of a burden. If the opposite occurred, the debt would be more difficult to service.

    I think you need to understand these factors, success is often legislated. For instance, look at coal, it's struggling due to government's decision to make consuming it too expensive, as well as the opening up of competing energy sources.

    ReplyDelete
  28. MOG sent me some tickers yesterday on a variety of different plays. I'll sanitize them and pass them along this afternoon.

    MUX...No debt but only 18M in cash????

    ReplyDelete
  29. I've been thinking a lot about this whole euro situation. I feel really strongly that we will see $0.90 EUR/USD (vs 1.16) in the near future. Under that scenario, wouldn't it make sense that real estate would do well as foreign buyers come in to snap up land there? Ideally I'd look to buy some banks or real estate companies located near the coasts. Any idea what real estate exposure SAN / DB etc have to this? I may buy up a little of both in anticipation of this move happening.

    ReplyDelete
    Replies
    1. Have US banks have performed well in periods the $US has appreciated?

      Delete
    2. That would be in the mid to late 90's. Not sure about prior periods...would need to look at other periods because in that period everything worked well and its too small of a sample size.

      Delete
  30. UUP looking good, FAZ too? Mortgage rates 3.66%, approaching record low.

    ReplyDelete
  31. I like this line of thinking...my only concern in the very short term is everyone is positioning for massive QE so we might get an initial sell the news event then a big rally.

    http://ibankcoin.com/mr_cain_thaler/2015/01/15/the-big-question-then-how-to-play-eu-qe/

    So in my opinion the best way to play this is to slowly leg into longs in europe with the understanding that you will most likely be underwater right off the bat.

    ReplyDelete
    Replies
    1. VOC 28% div, wonder how long that will last.

      I'm happy to watch from the sidelines here for now.

      Energy will be a good place to be going forward just have to get the timing which could be 3-6 months my guess. If you truly have a 3-5 year outlook could start scaling anytime now. However on this board, I only think BB has the discipline to sit that long. But I could be wrong about that as so many other things.

      Delete
    2. Considering I'm totally under water, I may have to wait years. Would like to know what MOG thinks, I guess producers were handed too much easy money and the damage is a self-inflicted bubble.

      Delete
  32. On my recent trades, I keep on seeming to miss by a day or two as the price swings kill me.

    ReplyDelete
  33. two tickers for the swiss mkt

    chspi

    chdvd

    neither show up at fido, but both at IB

    ReplyDelete
    Replies
    1. both stopped trading at 11:30 ET

      if they puke again tomorrow may jump

      Delete
  34. AFL is worth 59% less on a p/b + p/e + p/s basis vs the 2007 peak. Out of all of the big cap insurers this is the biggest discount I've found.

    ReplyDelete
    Replies
    1. I like that chart, it's not the only one I've seen recently with that setup.

      Delete
    2. Looks like large cup and handle setting up on the weekly chart. More work to do to complete the base of that formation. I love the valuation if I can somehow get my head around the interest rate / currency exposure.

      Delete
  35. Is it too much to ask that I can buy something that actually goes up instead of down? The strategy doesn't work for me when everything I own keeps moving down. DB/BXE(big time)/FCAU are all depleting my account.

    It makes no sense at all that I don't know what the macro reasons are for owning these, it's like I own them just to give my capital away to some else.

    ReplyDelete
    Replies
    1. Aren't you holding SPXS? that's doing well.

      you can always cut losses and sit it out until something better develops. I have always drawn a line in the sand on losses. Has kept me solvent and able to take advantage of the good times. I think of it as going on a trip. If u take a wrong turn u don't keep driving forever until u find the right way. You pull stop and pull out the map/GPS and make adjustments immediately (unless if you're stubbornly trying to prove to your wife that you have a good sense of direction!)

      Delete
    2. No, hell I sold it too quickly..... crap! Shoulda gone with TZA, considering FAZ but Us banks might rally with a stronger dollar, I think that's what happened in the 70's. Somewhere I was reading an explanation now can't locate it.

      Delete
  36. "Target Canada shuts it's doors." I think this is the same failure that US manufacturers will experience in China, for the same reasons.

    ReplyDelete
  37. TOF,

    probably AFL is relatively cheap to their history because a lot of their profits come out of Japan and people are concerned those will be repatriated in lower valued YEN. I have no idea if they do any currency hedging or denominating their debt in YEN to offset this.

    Re AOCI, yes, I would screen using a standard p/b ratio and then look at the financials - the latest quarterly report will do. They are pretty much all quite good as disclosing their BV per share and their BV ex AOCI per share, usually in the top summary. It's generally not as big a concern for the larger insurers, but I've seen situations where the AOCI was over 1/3 of the book value in the case of KCLI.

    The big concern with AOCI is that it is book value is never likely to be realized, so it shouldn't be included in the value of the company. Lets say an insurer writes a bunch of 30 year policies and calculates the premium based on paying an investment return of 2.5%, then buys a 30 year bond at 3%, so the extra 0.5% goes to profit for the company. If rates go down, the value of the bond goes up, so it looks like the insurer has a higher book value. But reality is, they will never sell the bond as it is need to pay the policies. If they did sell the bond and take the capital gain, they'd then have to reinvest the proceeds at a lower rate, say 2%, and then they couldn't meet their obligations.

    If you want to go really deep into an insurance company, they provide standard SEC filings, but they also provide statutory insurance level filings which go into detail about what investments they are holding and a bunch of other things. I've looked through the statutory holdings a couple times to clarify things, but generally find it not necessary. But given how you tend to take such large positions, you may want to do this.

    Probably the best source of info for investing in insurance I've come across is David Merkel - he has a blog on investing in general, but a big focus on insurance (he's an actuary)
    http://alephblog.com/category/insurance/

    ReplyDelete
    Replies
    1. Awesome thanks for the info. I'd have to imagine a major risk in the bond scenario you talked about is if they have a major event (e.g. hurricane etc) where a lot of their policies are exercised and the value of the bond that they are holding to offset the policies has gone below their purchase price, right?

      Delete
  38. Picked up some TNA for a trade at $71.24

    ReplyDelete
  39. CP,

    I think that the macro you are thinking about is more difficult than you are thinking:

    From Warren Buffet and bunch of other successful investors:

    http://25iq.com/2013/11/03/a-dozen-investors-talk-about-the-folly-of-macroeconomic-forecasting-and-the-importance-on-focusing-on-valuationmargin-of-safety-today/

    ReplyDelete
    Replies
    1. I think it's hard enough to figure out if a company or stock is going to do well, let alone what will happen in the broad macro picture. Sure, the macro affects a company's business, but in the long term, the company's management will work through this (if they are good) and the value of the company will come through.

      Delete
  40. "Sony Corp. says it is closing all 14 retail stores in Canada as it refocuses its business."

    First Target, now Sony. No-one seems to like Canada today!

    ReplyDelete
  41. Part of the reason I decided to go with the small cap 3X is I was looking back at prior cycles that featured a massive sideways move (i.e cyclical bear) and then a breakout move. Typically you would see a topping out period for 1-2 years after the peak with a drop of 13 to 17%. Well, the small cap index dropped 14.5% last year to the October lows and it has been in a sideways pattern for about 14 months. So in this scenario in the bigger picture I'd like to play the odds from the long side. Plus I don't think we're going to see a recession in fact odds are high that we see a boost to growth from lower oil and interest rates. I haven't had luck with individual securities so I'd rather go with an index. Having said all of this I could be out today for all I know. The entry point I had was good risk/reward...right around the lows from 1/6. I think it could potentially retest the 1200 area again but I have a stop in TNA at $70.4 just in case I'm wrong.

    I've gotten into a little trouble chasing shit this year. Need to maintain discipline to have better odds of success.

    ReplyDelete
    Replies
    1. I agree. My 2 tactical rules in trading are:

      1. Always have some cash to buy stuff
      2. Be patient and do not feel pressured into chasing stocks

      Lost too much money buying because I was afraid something was getting away from me.

      Delete
    2. If the trade is wrong, you have to take it off right away.

      Delete
  42. Awesome thanks for the info. I'd have to imagine a major risk in the bond scenario you talked about is if they have a major event (e.g. hurricane etc) where a lot of their policies are exercised and the value of the bond that they are holding to offset the policies has gone below their purchase price, right?

    > This has not been an issue the last number of years as the value of bonds has been increasing as rates decrease. In general though, insurance companies are quite good at matching assets to liabilities. And they will have reinsurance to help handle cat events like hurricanes.

    On the P&C side, I did work professionally with an Alabama insurance company and they had a policy with the big Euro-reinsures (Munich re I think) that limited their losses in the case of a hurricane to $3 million, so when Katrina hit and they had $30 million in losses, they still had a bad year, but the overall business was safe.

    On the life side, they have bonds coming due each year, so have good sources of cash flow, so can generally meet demands. In a difficult situation, they can sell bonds early or issue debt or sell some of their stock portfolio. You don't get many catastrophic events in life insurance though. The bigger risk with life insurance now is that if rates rise fast (say from 3% to 8%), the cost of life insurance will drop pretty quickly as the insurance companies can reinvest the new premiums at higher rates. So you could get a lot of policy terminations, which would mean they have assets they don't need, but have come down in value due to higher rates - this would be bad. If rates rise more gradually, the price of insurance does not change quickly enough for most consumers to do this and the insurance company gets the benefit of being able to invest the expiring 3% bond at 4% and because the insurance was based on the lower rate, the extra interest income goes to the bottom line.

    ReplyDelete
    Replies
    1. The question obviously then is what will take rates higher? Seems like we could be in for a long slog of lower rates given what is happening worldwide and with the lack of extra debt demand from consumers / businesses. Debt is being shunned thus rates are going down. I don't see a ton of obvious catalysts and valuation generally speaking is not enough of a catalyst.

      Delete
    2. The way I look at it is the insurance companies have done a good job of making money in low rate environments. They are cheap on a market basis, a historical basis, a p/b basis (for safety) and a p/e basis. If we get rising rates, that will get people talking and revaluing them quickly. If not, eventually something will eventually happen that will cause this value to be recognized. I'm not sure what it will be - industry consolidation, rising dividends, lack of cheap alternative stocks, big hedge fund guy buying, etc.

      I know you prefer to invest where there is a catalyst to get things going, and I like that too, but I'm also OK with just buying something I think is really good and waiting for a couple years for something good to happen. If you buy cheap stocks, good things seem to find a way of coming through.

      Delete
    3. Now the Fed is taking higher rates this year. I'm not sure either way, and even if they do, I'm not sure how much it will affect long rates which are the ones that really matter, but it is a potential catalyst for sure.

      Delete
    4. Don't worry, I encourage you to keep buying into the the strength.

      Delete
  43. (a) Yesterday's dog is today's outperformer: http://www.kitco.com/charts/livegold.html. GDX (miners) +6.2%! Closing GDX here, and will also close RYPMX (Rydex Precious Metals) end of day.
    (b) EEM (Emerging Markets) +0.5%, a notable divergence with US indexes in the red. RSX (Russia) -2%.
    (c) I closed RYWVX (Rydex 2x Emerging Markets) @ the 1030 est trading window @ 64.47 (a +3% gain over yesterday's 1030 opening basis of 62.64) based on early strength in EEM and EWZ (Brazil). Contemplating reopening the position at the close (EEM has pulled back significantly, and EWZ now in the red).
    (d) Crude giving back -4% (or about 80% of yesterday's gains)-> XLE -1%, OIH -2%.
    (e) Copper futures +2.53%. FCX unchanged.
    (f) GREK (Greece) -1.4%.
    (g) $USD +0.37%.

    In my opinion, investors are braced for a selloff, which tilts my posture toward leaning long an additional day. A short squeeze Friday would be ideal.

    ReplyDelete
  44. On a bullish note for contrarians: "In fact, the United States is the only major economy that is likely to buck the trend this year, while others are being held back."

    ReplyDelete
  45. "The economy is stable and is building momentum."

    ReplyDelete
    Replies
    1. http://www.finviz.com/quote.ashx?t=wor&ty=c&ta=1&p=d

      Delete
    2. http://www.finviz.com/quote.ashx?t=tcbi&ty=c&ta=1&p=d
      http://www.finviz.com/quote.ashx?t=BXS&ty=c&ta=1&p=d

      Lookin' boooooollllliiiiissshhhhh, eh?

      Delete
  46. TM - "Toyota (NYSE:TM) is the pioneer in the FCV field and is building 1.5K Mirai vehicles for the Japanese government. Though taking a cautious approach to rolling out production, the world's top-selling automaker isn't ruling out selling hydrogen cars in all markets eventually."

    ReplyDelete
  47. FXF - Wasn't long this one yesterday, but wow..

    ReplyDelete
  48. Hey Guys. MOG's picks....

    Safe plays- CVX, EOG
    Good Permian play despite their hedging program- PXD
    Spec. takeover- TUWOY, CRNZF, KOS, CIE.
    Large cap E&P- HESS, OXY.
    Midcap- SM.

    ReplyDelete
    Replies
    1. I think we will have a long time to wait on these. Just a hunch though cuz I don't know anything about any of this stuff. I just have a rough idea of how much of the funny money went into the oil speculation and that should take a long time to unwind.

      Delete
    2. Thanks Mark

      I think what's going to happen is the cost to produce oil is going to trend up, and thus will be reflected by the price of oil. These guys will never actually make money.

      Delete
    3. Nice to know what an ex CEO likes/thinks

      Delete
  49. Saw this on the Quora website tonight - Quora is a surprisingly fun site where people post questions and answers about all sorts of things like "Were there really warriors in the middle ages who survived most battles and went through killing opponents with single slashes?"

    Anyhow, the good one for investing was:

    What is the most important data we should look before investment in the stock market?

    Answer:
    The importance of particular data for you depends on your investment style. Regardless of your style, never forget the three basic rules of investing:
    1. Nobody cares about your money as much as you do.
    2. Only invest in things you understand.
    3. You are responsible for what happens to your money, whether someone else manages it for you or not.

    ReplyDelete
    Replies
    1. Ah, I thought we cared about each other and that was the purpose.

      Delete
  50. Alright, so assuming the euro is going to rally from the 22th or before, what should the plan be? Some more color; and Greece must clean up their act or leave the eurozone and Germany is going to be in charge of the ECB.

    ReplyDelete
  51. A QE program, then, was no surprise. IN MY MIND SOMETHING ELSE IS IN THE AIR. Here’s my conjecture: At the coming ECB meeting, Mario Draghi announces the specifics of a large QE program and his resignation as he returns to Italy to serve as the Italian president. In his place, ECB Executive Board Member and Bundesbank President Jens Weidmann is named ECB president. The Germans gain control of the ECB, which is a victory for Chancellor Merkel and calms the anti-ECB forces building in Germany. The QE program is put in place under German vigilance, which gives it great international credibility.

    The French will be unhappy but the Dutch, French and Italians have served as ECB president so why not a German, especially as it will be German money providing the ECB‘s capital backstop. The EURO rallies as the steadfastness of Weidmann is appreciated and the Swiss will be able to sell their massive European sovereign bond portfolio to a willing ECB buyer for very nice rates and eventually ease the burden of owning far too many euros. The SNB would cut their enormous losses and be able to calm the anger of its Swiss citizens. THIS IS ONLY CONJECTURE BUT THAT IS WHAT PULLING THE PEG AND GOING TO 1% NEGATIVE RATES WAS TWO MONTHS AGO. Volatility anyone!?!?


    http://yragharris.com/2015/01/15/swissmiss/

    ReplyDelete
    Replies
    1. very risky times.

      Delete
    2. Maybe we can take some clues from Europe action with the assumption details have been pre-leaked. So far, it doesn't look good for DB.

      Delete
  52. This is my roadmap for the year and it means absolutely nothing but I'm just trying to map out my thinking for myself. I think it's going to be a very tricky year. I'm committed to paring down risk significantly and only using it at very opportune times. I have a feeling that this year is setting up for some fireworks after the 4th of July leading to a buyable bottom in October...maybe a 15 to 20% correction heading into that? For the next couple of weeks my gut feeling is we test the 200 DMA here tomorrow and then bounce around for a few days as people square up (ie buy) into the ECB meeting. Then there's a big sell the news event on 1/22 down to an intermediate low a week or so later. Maybe we get a 12% or so drop peak to trough. Then we rally to marginal new highs over the summer only to start a swifter move down in the fall. This is all in the context of a big consolidation period after a massive bull run the past 5+ years. My bet is we see a close around 1900 this year. Either way, I'm positioning myself for dip(s) of >10% and buying those.

    ReplyDelete
    Replies
    1. I agree it will be a tricky year. Lot of cross-currents all around the world, like the Swiss bank yesterday - another event absolutely no-one saw coming.

      I still think we end the year higher as we have a lot of things going for us - strong US economy, strong job market, more money for consumers via lower energy prices, still low rates, potential QE in EU, Europe getting its act together, 3rd year of the presidential cycle (Since 1940 the Dow has risen in 100% of third years, gaining an average of 22.3%).

      Good you have a roadmap to plan against. I really am struggling to get a grip on the shorter term market now.

      Delete
  53. RSX off @ 15 (+3.6% on the trade).

    ReplyDelete
  54. Looks like Gasfrac - that fracturing company that used fluids other than water has filed for bankruptcy. Lost a lot on that one (percentage wise - it was a flier, so small posiiton), but now looks lucky that I got out with any capital at all.

    ReplyDelete
    Replies
    1. No surprise really, an interesting idea but obviously not chosen by the industry. Saw that coming.

      Delete
  55. TASR - Wonder how disruptive the euro-terrorist roundup might become? TASR gonna pop?

    ReplyDelete
  56. XLE (Energy)/OIH (Oil Services)/DBC (Commodities) off on early strength-> +1.4%/+0.4%/flat, respectively. FCX (Freeport-McMoran) off for a -2.5% loss.

    ReplyDelete
  57. CW - Not collapsing, ROP looks okay so far.

    ReplyDelete
  58. So if SNB isn't going to be buying eurobonds like a crazy rat then those rates should lift.

    ReplyDelete
    Replies
    1. I think there's a lot more at play here than just the SNB. I'd be very surprised if rates if this was all that was needed for rates to rise.

      Delete
    2. Okay, rates will continue falling.

      Delete
  59. Long SPXS at $22.11

    ReplyDelete
  60. Of all the market charts I look at, the one I think looks the best is IWC - Microcaps. They seem to have broken out of a year long downtrend. Could be a sign that the really small stocks are the place to be in 2015.

    ReplyDelete
  61. Long BIS at $43.5

    ReplyDelete
  62. Anyone got a spare tanker lying around? You can buy Brent oil for $50 and sell it for $60 a year from now

    http://www.ft.com/intl/cms/s/2/159cade8-9be0-11e4-a6b6-00144feabdc0.html#axzz3OsuoizPs

    ReplyDelete
    Replies
    1. How much does it cost to store?

      Delete
    2. I dunno how much it costs, but who makes 55 gallon barrels? How many rednecks do you think are out filling barrels with gasoline? :)

      Delete
  63. CBI - Not looking half bad, starting to warm up to this one. Wonder how Buffett feels about it? There seems to be emphasis building for oil and gas storage tanks, for one thing.

    ReplyDelete
    Replies
    1. WOR - A hunch, makes tanks too I think.

      Delete
  64. Gold sure is flying, considering it's unjustified in all aspects let me know when to short it.

    ReplyDelete
  65. GGN - Wheee..... Any idea what's lifting gold? Has the world gone mad or is the sky falling? I dunno what's causing this, some clues would be nice..

    ReplyDelete
  66. Took off SPXS and BIS for a loss

    ReplyDelete
  67. HMY is up 60% YTD - crazy. The Contra the Heard guys were on TV in December saying they would be looking to add a gold company or 2 to their portfolio's if they got the expected tax loss selling. Not sure if they did buy ($500 per year for a subscription). They are consummate bottom fishers and quite good at it, so maybe the real bottom in gold is in. They did buy HMY last December, so a year early and it was cheaper this year, but I think it was around $2.65, so doing fine still.

    ReplyDelete
    Replies
    1. Although TD points out correctly we say the same thing last year, so could just be a seasonal thing:

      "As a near-term trade, we continue to see four positive trends in explanatory factors
      that typically support higher gold prices. Importantly, we saw the same trade
      develop last year with the same factors through January–February. At present, we
      view this as a seasonal trade. "

      Delete
  68. Long JDST at $7.86. Back in TNA.

    ReplyDelete
    Replies
    1. Cashed out of TNA and JDST. Breakeven basically. Sticking with cash.

      Delete
  69. Must have been a lot of energy shorts in CNQ - up over 10% today on a $40 billion market cap with the little guyus not up that much

    ReplyDelete
  70. GT - Is this big ih&s a valid pattern? It might be a precursor for the 20 year bull market, where prices actually do go to the moon like trees or it could be false, fail and continue on to swirl around the toilet bowl for the next 5 years.

    Based on what we think we know, which is most likely? Sure, the bull case points out that EM's are putting the QE pedel to the metal but I don't see this making any impact in the price action lately. I'm not impressed. Oh, but PM miners are up about $0.02, for a 20% gain, lol, surely inflation is raging.

    ReplyDelete
  71. BWA - Mercedes Banz - "The M133's twin-scroll BorgWarner turbocharger produces up to 26 psi of boost."

    Also, BWA makes the turbo for the Ford eco-tech I believe.

    New emissions standards basically require small 4 cylinder paint shaker engines with turbo chargers to meet CO2 emissions. So the argument for BWA seems to make sense.

    So why have BWA insiders been selling, perhaps competition has dethroned their position?

    ReplyDelete
    Replies
    1. Mercedes Banz must be the Chinese knockoff, BTW.
      Goat meat becoming popular........... Okay, does this mean we're getting fancier, too poor to buy horsebeef, devolving backward, what's up with this we gotta have goat? I mean shit, goat tastes gamy like a damn wild goose or turkey.

      Delete
  72. GS - Hard to believe these guys aren't hitting earnings records, smells fishy doesn't it?

    ReplyDelete
  73. stt gs bac jpm wfc

    charts all look the same, eh

    ReplyDelete
    Replies
    1. that was @ you, cp, and pertains to ST

      Delete
    2. Thanks for pointing this out. I see a nice fake breakdown in XLF. Bought FAS at $109.6.

      Delete
  74. Long BAC at $15.14.
    Long PCLN at $1005ish
    Long NILE at $33.5ish
    Long THRM at 37.1ish
    Long BABA at 96.7ish
    Long CYBR at 36.1ish
    Long SAN at 9.63 - chart is almost identical to the BAC chart from 2011. This is my thinking on the European banks. They're going through a retest of the 2009 lows. Great time to try them.
    Long DB at $28.58

    Cash at about 25%.

    Sitting on about 40% cash.

    ReplyDelete
  75. What's the difference between the 25% cash you have and the 40% your sitting on....other than the fact that must be uncomfortable.

    ReplyDelete
    Replies
    1. One is mad money for immediate deployment and the other more difficult to access?

      I have to wonder if the recent volatility we've witnesses wasn't the Swiss government blowing out a nut.

      Delete
    2. haha. typo. i added some more stuff.

      Delete
  76. Perhaps airlines are rallying b/c everyone thinks Greece will finally leave the eurozone and will be a cheap opportunity to vacation in Greece?

    Wonder if the flights are all booked?

    ReplyDelete
  77. Musk wants to neuter artificial intelligence, sheesh.

    ReplyDelete
  78. (a) Crude is now +3.5%.
    (b) Will close RYEIX (Rydex Energy) and RYVIX (Rydex Energy Services) end of day. Based on current pricing for XLE and OIH, the positions should close +3.1% and +4.5%, respectively. I normally dislike the lack of flexibility inherent in mutual funds (which trade just once [or in the case of certain leveraged Rydex funds, twice] daily, but occasionally being forced to wait works in my favor (both RYEIX and RYVIX trade only end of day). Today is an excellent example!
    (c) Will also close RYTNX (Rydex 2x S&P500) and a repeat trade in RYWVX (Rydex 2x Emerging Markets) end of day for more modest gains.
    (d) RYWBX (Rydex 2x Weakening Dollar) will be a downer. Closing end of day for what looks to be a -0.7% loss.
    (e) DBC closed at breakeven.
    (f) Should I have waited before closing FCX? Sure, it's now trading significantly. However, I tend not to give individual stocks much leeway. When I'm wrong on short-term direction, I take hits quickly.

    ReplyDelete
    Replies
    1. Back to 100% cash, with the exception of a small position in GREK (Greece).

      Delete
  79. Long COH at 35.8ish
    Long AFL at 57.7ish.
    Long BITA at 63.1ish.

    Basically I have seen a lot of solid companies beaten down to very good buy points...all of these fit this bill. CYBR is the only speculative one in my opinion and it's my smallest position. I love NILE by the way. I think it's very cheap relative to NILE and they're buying back their shares very aggressively, from 18 million shares to 11 million shares in the past 10 years. They are also sporting a 17% short interest. I think they get bought out by TIF or another diamond jeweler eventually. It's inevitable.

    ReplyDelete
    Replies
    1. What are you thinking for holding period for all these buy's?

      Delete
  80. I think I'll wait for next week, don't really care for feel good Fridays. Although if JDST drops back I may bite b/c PM stuff always gets dumped Sunday night after leaving PM bugs with a weekend smile.

    ReplyDelete
  81. KEG - Remember this one? Now it's priced so just a few cents can be a nice gain.

    ReplyDelete
  82. HAYN - Nice hammer. Man I'll tell you what, this week sucked, again.

    ReplyDelete
  83. Peter Lynch on Investing: Video From 1994

    http://www.marketfolly.com/2015/01/peter-lynch-on-investing-video-from-1994.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MarketFolly+%28Market+Folly%29

    ReplyDelete
  84. Good bounce in the energy stocks today. Let's see if we can get some follow through as we've had a few fake bounces in this downtrend. It feels like we have made a bottom this time, but only time will tell.

    ReplyDelete
    Replies
    1. I'd like to see another 50% downside, to make it worth adding.

      Delete
  85. Prisons and schools can't have meat on their menu b/c of environmental impact. They have to have tofu made from switch grass instead, or what? Maybe WFM can cater it?

    ReplyDelete
  86. MY - Completes the Repayment of RMB1.0 Billion Medium-term Notes PR Newswire

    So what about windpower, what's up with these green stocks sucking so much? Seems like if government is serious about displacing fossil fuels they should be making sure they aren't operating at a loss and burning investor cash.

    ReplyDelete
  87. TOF- Got to be the most positions you've held in a loooooooong time.

    ReplyDelete
  88. Gold - Notice the big volume, just like all tops.

    ReplyDelete
  89. SCCO - Okay, so is copper demand suddenly increasing or decreasing?

    ReplyDelete
  90. DB - Supposedly, DB was whacked for ~ $100M with the Swiss currency lift.

    ReplyDelete
  91. FXCM - "Shares of FXCM Inc. FXCM, -15.06% plunged 88% ahead of Friday’s open before trading was halted, after the firm said it may be in breach of some capital requirements as significant client losses generated negative equity balances."

    Due to losses relating to the surprise SNB move. Notice insiders had sold a good portion of their stinky shares?

    ReplyDelete
  92. You guys didn't tell me about the Obama car program that just kicked in:
    http://empirenews.net/congress-approves-bill-that-will-offer-free-automobiles-to-welfare-recipients/

    ReplyDelete
  93. Mark, I actually sold DB and SAN and reallocated it to the others. I like both of those but I can't seem to get my head around their businesses enough to give me comfort in either. So I have AFL, BABA, BAC, BITA, COH, GREK, NILE, PCLN, THRM. 9 is the most I've ever held at one time. Came into the year wanting more holdings to force myself to stop looking at this shit so much. I'm still kicking myself for waiting for a 10% hit to do this but oh well.

    BB - I'm thinking of holding a few of these longer term, specifically AFL, COH, NILE and THRM. The others are trades for sure - if I wake up to a 5%+ move I would consider offing them. They are all beaten down badly in the past month or so. I'm surprised by how many stocks are extremely oversold that also offer good yields - this is part of the reason I'm pretty hesitant about the market because it seems like it has lost a lot of strength across the board which generally happens before big downturns. But I'm taking my chances and thinking we still have some upside given the economy looks healthy.

    I have a list of about 10 solid big cap companies that all offer a 3.5%+ yield that I contemplated loading up on because I'm looking to generate some passive income from my portfolio - if some of them stay down while the non income producing stocks in my portfolio rise I will probably swap into those. Those include COH, TUP, GM, F, WYNN, LVS, amongst others.

    ReplyDelete
    Replies
    1. Forgot...I also hold FAS.

      Even if we do head lower I'm thinking we get a bounce in all or most of these that I'm holding. Almost all of them hit sub 30 RSI's recently except for NILE and COH. COH has almost the same setup as TLYS, PIR and BBRY and it's pretty cheap. I'm still annoyed I didn't take the risk with TLYS and PIR and flipped them for penny profits instead of holding for 6 months for 40%+ profits.

      Delete
  94. This year has been big for BAC and other banks too, to the downside, what's up?

    ReplyDelete