Wednesday, February 17, 2016

2/17/16 The Beat Goes On



DJIA +195 points.
S&P500 +1.3% and back above 1900 (to 1921).  EEM (emerging markets)
+1.65%.  EWZ (Brazil) + 3.13%.  RSX (Russia) +2.83%.   VT
(world stock market) +1.58%.


Trying to board this
train?  Good luck!

88 comments:

  1. Know what you are saying! Thought about doing some buying this morning, but didn't, so now it is really hard to do with everything up, some a lot. I used to try and force trades and buy into days like this, but have learned that it hurts more than it helps, even though it might be the right thing to do today.

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  2. I think UGAZ is finally ready to have at least a small bounce. Bought some more at $1.25 now and placed a sell limit at $1.5

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  3. There is actually one stock in my portfolio that is down today. 10% down. Can you guess which one?

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  4. Since I have a lot of other exposure to oil, I decided to take profit on my HLX position, selling at $3.20 the shares I purchased last week at $2.75. I'll try to be a trader this year, as opposed to being a stubborn investor...

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    1. Too soon!

      I'm biased tho I bought a little uwti today

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    2. TOF, nobody really knows what is going to happen with oil tomorrow or one week from now. It could go up or down. My strategy now is to have core medium-term investments in undervalued areas (such as oil) while at the same time reserving some capital to trading and taking profits whenever they reach $500 per trade.

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    3. True. I got a gift after hours and took it on UWTI. Like you said nobody really knows...

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  5. That statistic about the 1% moves since 1930, etc., was from Ryan.

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  6. Wow - just noticing the base metal stocks. Some like TCK and FM.TO have doubled in the last month.

    And could still be 5-baggers if this is real and they get back to trading where they were just a couple of years ago.

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    1. My gut is that's not happening any time soon, but helluva move huh? You see HMY?

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    2. I thought your gut was telling you something else right now!

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  7. Hadn't seen HMY. Wow, that was quite a move. Guess it was a good by two years after we started talking about it, haha

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  8. Anyone have time to check out DVN offering?

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  9. TCK. I can't believe none of us took a chance on it. We talked about it right at the bottom. Doubled now.

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  10. A lot of people seem to be calling the current bounce a short term bounce within a bear market and a short covering rally. Haven't heard anyone say the downturn is over and we are beginning the next let go new highs.

    This is consistent with every pullback we've had the last 5 years, and they've all turned out to be good buying opportunities.

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  11. US crude oil inventory at 82 year highs. Easily digested?

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  12. GM did the same thing as this, according to an article I read recently:

    "Bombardier transferred a good chunk of the R&D carried out for the CS-series to COMAC, a Chinese SOE, in return for a lump cash payment.
    This meant that the potentially lucrative Chinese market was lost: COMAC already has 185 orders for the C919, all from Chinese carriers."

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  13. IDX - Man, I forgot to keep watching this one....

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  14. Alaska abnormally warm this winter, hasn't reached normal cold low temps of -50F

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  15. Mike, it seems like there is no such thing as taking profits "too early" in this market, right? :)

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  16. BB - Just curious what do you see as the primary reasons we can go to new highs in the next year?

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  17. It seems like NG is set to re-test its December lows...

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  18. BXE - Stinking again, as if Canada has turned the page on it's energy industry and has focused on Bombardier and Blackberry.

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  19. DVN- Yep. Same exact thing happened with PXD.

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  20. AAPL - Wonder how much of this Smart Phone business is attributable to illegal activity such as terrorism and child pornography? I think it should be small although AAPL's CEO might be involved thus doesn't want to allow investigations that might lead to stopping some crime despite by law they must comply with court orders?

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  21. EWS - Pretending to break out of downtrend?

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  22. Mike,

    the reasons I think we get to new highs are:

    1. No recession in 2016 - I think this is 90% sure. We made get a small quarterly contraction in GDP due to inventory levels as you talked about, but I don't see a major recession at all.

    2. Supportive monetary policy - central banks are keeping rates low for the year and we may see further QE

    3. Pent-up economic demand - we had under-purchasing of houses, cars, etc. the last 8 years and that can only last so long. People want to have houses, children, etc. and that will continue to drive demand.

    4. Job growth and wages are improving - I see this as hurting profit margins somewhat, but I believe the new demand from people with higher wages offsets this.

    5. Valuations for many stocks are reasonable to very cheap, especially assuming 1 -4 are true.

    It may be the type of year where the broad markets don't do a whole lot because there are some expensive large caps like FB, AMZN which could come down and they are in many indexes, but many stocks and sectors otherwise do very well.

    FINVIZ shows 526 stocks with sub-10 p/e's, 1353 stocks with p/b under 1 and 703 stocks with a yield over 5%. I would expect the valuation on many of these will increase unless we have a strong bear market and, because I really don't think we get a big bear, I'm pretty sure we see lots go up.

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    1. Awesome thanks. The main concern, other than technical reasons (ie market below 200DMA and 200DMA downward sloping) is the market's overall valuation is quite high in light of declining earnings. I'm showing $106 earnings for the S&P 500 and that is down from 113 (and last quarter we had about 4.5-5% decline). I'm not expecting oil to rebound much at all and if that's the case then the whole concept of throwing energy earnings out is suspect to me. So if we have another decline in earnings to say 100-102 or even if it stays flat then I think the market multiple would be lower than the historical average of 16.5...maybe 15.5? That leaves things at 1,550 to maybe 1,650.

      If this is all true then it's going to be tough to fight an uphill battle against a declining market, at least in the near term. At some point these things will diverge and I would expect to see really cheap stocks outperform. I just think we're not there yet. Also I think there are a lot of sectors that are still very expensive. I keep looking at the restaurant sector which I guess people are viewing as defensive (which if you look at prior market drawdowns they often get hit the hardest so I don't get that) and there are some pretty crazy valuations in there. JACK was a great example, which just got obliterated (PNRA is another, trading at 32x EPS with only 5% growth). I know there are some sectors that are cheap (ie autos) but they are still underperforming so that tells me the market is not done going down...if they were starting to outperform over a few weeks then I'd be thinking it might be time to buy.

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  23. A lot of the more fundamental, value investor types are thinking the same as me, that we are just going through a bit of slowdown, but nothing major and markets will continue higher. Don't know if you had a chance to read the Howard Marks letter, but I think it was pretty appropriate:

    https://www.oaktreecapital.com/docs/default-source/memos/what-does-the-market-know.pdf

    I set a trap at the beginning of this memo, and I want to spring it now. In the first paragraph, I wrote, “We’ve seen bad news and prices cascading downward.” You probably glossed over it. But is it true? Leaving aside China and the markets’ gyrations, have we really been seeing negative news on balance? Isn’t it just that people are fixating on bad news, ignoring good news, and tending to interpret things negatively?


    He also has a good discussion about selling to try and buy back lower and how hard that is for most people to do.

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    1. Thanks. I'll take a look at it. Some other guys like Tepper and Druckenmiller, on the other hand, with better track records, are quite cautious.

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  24. I grabbed a little TLT at the close today. Should have picked some up earlier in the day but it is what it is. I figure even if the market goes higher in the near term, TLT should do well because of worldwide low/no rates and risk aversion.

    I keep reading about how China might not be as bad as feared but then when I read about all of the fraudulent reporting and bad debt at the banks and think about how much bad debt the banks don't tell us about it really does make me wonder if things could actually be much worse than people fear. The world gobbled up a ton of debt to fund things that relied on China's growth on the back of low interest rates. Reminds me of the subprime / housing fiasco. No idea how far reaching it gets but I could see it affecting the markets for a while.

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  25. The only thing that keeps me from getting super bearish is low oil and sentiment is pretty bad. But sentiment seems to change so fast.

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  26. I agree some sectors are quite expensive like restaurants, but retail is very cheap. Also financials, energy, industrials, some tech, lots of individual stocks. All are cheap for reasons, but there always is reasons for stuff to get cheap. Hard to believe that BAC should be at a 7 p/e regardless of what rates do and rates have to (should?) go up at some time.

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  27. Re Tepper, haven't really seen much on him this year, but news the last couple days:

    http://finance.yahoo.com/news/hedge-fund-billionaire-david-tepper-230207890.html

    "Loaded up on Energy" and "Tepper's largest position is 3 million shares — call options — of the SPDR S&P 500 ETF."


    Maybe it really is time to start buying energy - can't argue with his success.

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    1. Looks like the sum of those energy positions make up 2% of his assets. Not exactly loading up. Love the headlines these guys write.

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    2. Also, I believe the 3 Million shares is what the options were convert into if held to maturity. I've seen this mentioned before on his and Soros' portfolios.

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    3. Hwha, yeah, rediculous. Shows why you always have to dig and verify and can't trade off news.

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  28. VLKAY looks interesting down here...

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  29. Just flipping through a TD report this morning and they calculate that 10 of the 17 major miners are above NAV assuming $1,200 gold. So, doesn't seem like they are particularly cheap relative to the metal price and people buying gold miners are assuming higher than current gold prices.

    They've had a great bounce this year on rising gold, but would rather see this really washed out with almost all of them below NAV which would say no hope left in this sector.

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    1. Maybe this is the real run in gold and I miss it (and that's OK), but I still think there is one final crushing push to the downside

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  30. I don't know why, but the daily 8% moves either way in CLR/WLL etc. blow me away.

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  31. Aluminum - I've been reading about how EV vehicle frames, body panels and other structural components are being constructed of aluminum as opposed to steel.

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    1. Isn't that the same for all cars?

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    2. Haven't look in a while, but when I was in AA, I remember aircraft was a big part of their demand and auto demand was also increasing.

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  32. Another though on why I think the markets are good this year - In the fall, 2011, they had done net nothing for a couple years like now, but the economy was chugging along like now and sentiment was bad like now. And then 2 years later, the market was up 50%.

    I think we have a similar set up now. Maybe not 50% upside, but same setup with frustrating stock market, improving economy, job market, poor sentiment. Just need some positive catalysts to get things started and could be a big move. Look how quickly the markets jump on every bit of Oil price positive move.

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    1. I'd expect gold would be kicked to the curb at least for some period of time as fear subsides and possibly even, OMG! :O, rates lift.

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  33. Underfunded teachers pension fund anxious to see new state budget plan. You'd think this wouldn't be an issue given "record low" unemployment?

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  34. Merger/Arbitrage spreads are widening:

    http://www.mergerinvesting.com/pendingmergers

    Another factor showing fear in the market

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    1. This is tough on banks underwriting the M&A, right? I'm not clear on if this translates to actual losses or temporary cash squeeze.

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    2. Reduced M&A would. These are already announced deals, so most will happen. Not sure if M&A activity has gone down recently.

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  35. I was looking at the Russell 2000 closer and it does appear to be much cheaper than its been in a while. I might start buying some IWM over time

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  36. I bet AAPL is providing the FBI info privately, not admitting this publicly.

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  37. SWN - Some hedge fund guy just bought this one last week supposedly, might've been Tepper not sure.

    Sure seems like these HF guys are shorting, not buying....

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  38. TTM Nano is lowest price vehicle by far. India imports 80% of their crude?

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  39. To Kill A Mockingbird - One conspiracy theory people seem to believe in...

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  40. VRX - Began trending up shortly after word came out Ackman sold some noe word is he bought again price is falling.
    Government playing favorites?

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  41. WGL - Washington Gas Supports Marylands Natural Gas Infrastructure Expansion and Reinforcement Act Business Wire.

    This is a little disappointing from the perspective I was anticipating fossil fuels expansion is coming to a screeching halt given government mandated perpetual power panels, was anticipating propane by delivery truck would be the only remaining option. Oh that's right I nearly forgot, government is flat broke!

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  42. My buy limit order on UGAZ at was triggered today at $1.04. Placed a sell limit order on this bunch at $1.24. UGAZ can't decline in a straight line for too long, right?

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  43. Decided to do some more arbitrage investing and bought into CUS.DB.C

    Will provide a 15% return before June (65% annualized). Has been approved by Canadian Court, waiting on hart-Scott-Rodino non-competition approvals, but HSR only challenges less than 2% of cases and denies about 1 in 500, so not a major concern.

    Kind of a safe way to make some reasonable income while waiting for this market to finish shaking out.

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    1. If you can trade Canadian stocks, you can. I don't think it can be done with OTC stocks.

      JST is another one I did which trades in the US. It's at $5.29 and getting taken out at $6.00, probably around May/June for a 14% return. They've signed a "definitive Agreement and Plan of Merger", so normally would only be 3% or 4% below price, but these guys have backed out before and who knows if you could take them to court like you could in North America, so people aren't convinced. But it's a good company (at least people on Seeking Alpha who work with them say that), the stock is super cheap and I think the buyers know they are getting a great deal.

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  44. Also picked up some ECA just now at $3.17.

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  45. Ryan Detrick, CMT ‏@RyanDetrick 1h1 hour ago

    AAII bulls now lower than in March 2003 and March 2009. Here's the chart with the SPX in there as well.

    GREAT CHART IN THIS TWEET, BUT I CAN'T COPY IT HERE.

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    1. Another example of how bad sentiment is. Just give the market some good news (maybe OPEC cutting prodution) and I think we could see a good move to the upside.

      I'm also reading housing construction is looking very good for 2016. If that is the case, could help a lot too.

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    2. Agree from the perspective experts eventually run out of bad calls.

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  46. CLMT - "A big part of our fuels refining story this year will involve our ability to lower our feedstock cost by processing increased volumes of heavy Canadian crude oil at our Superior and Montana refineries. While many crude oil differentials have evaporated in recent quarters, the WCS-WTI differential remains intact, with WCS priced $12 per barrel below WTI on a 2016 year-to-date basis. We expect this differential to remain structurally advantaged over the next several years, given a combination of continued production growth out of the Canadian oil sands, coupled with limited pipeline off-take capacity from the region."

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  47. Here's one that's kind of an arbitrage play:
    http://www.benzinga.com/news/16/02/6425464/geoinvesting-says-sale-of-fl-mobile-by-nq-mobile-could-add-6-50share-in-value-cou

    http://www.prnewswire.com/news-releases/nq-mobile-inc-enters-into-a-binding-agreement-to-sell-fl-mobile-inc-300133798.html

    Offer expires in a few days. Full disclosure: I own some nq...tiny position


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    1. Can't read the first article.

      What's the thing they are selling? I looked quickly through their news and they seem to have a lot going on

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    2. Yeah this was the one with muddy waters 3 years ago. They claimed fraud and it sounds legit but this FL mobile is legit and they're selling it for 2x their market cap

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  48. LQ - Not looking so bad?
    WY - I was surprised today but DE news of slow construction maybe caused the response.

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  49. AEP - I thought we decided utilities were too expensive about a year ago?

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  50. TA - Holy crap, was $6.80 a few days ago.

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  51. Nissan Ultima - 270 horsepower available Man, I was impressed by the new 1969 250hp Chevelle muscle car I owned decades ago.... Now this?

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  52. BB- Are there any restrictions on the arb play? Or just buy as much as we want?

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    1. No restrictions on size.

      More risk than KCLI as KCLI was pretty much a guarantee, but these have very small risks that they won't go through and, if they don't, the losses will be high as all the arb people dump their shares. It's good to either buy 3 or 4 arb situations to spread the risk or to keep the positions reasonably sized.

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  53. 2008 Financial Crisis Redux?
    It started with concerns over U.S. bank exposure to energy loans and now it has spread like wildfire to Europe. The issue - falling commodities prices. Concern has escalated as investors start to price-in the possibility, or likelihood, that a v-shaped recovery in oil prices is not likely in the foreseeable future. This means that many of the young energy companies that secured financing at $100 oil will fail. To the extent that European and U.S. banks have energy loans in their portfolios, defaults and losses stand to bruise balance sheets and threaten credit and liquidity. At worst, investors fear that energy defaults could be the new version of the 2008 subprime situation.

    It’s hard to blame investors for fearing the worst. The 2008 financial crisis is still fairly fresh in our memories and it’s tempting to apply the same logic: banks start to write-off non-performing energy loans; credit gets cut off because banks are insufficiently capitalized and illiquid; banks fail or get bailed out. 2008 financial crisis redux.

    You can get a sense of just how fearful investors are about bank liquidity by looking at credit default swaps (how much it costs to insure a bank’s debt). Germany’s biggest bank, Deutsche Bank, has seen the cost to insure its debt soar by over 180% over the past three months, bringing it back to 2011 levels (when Europe’s sovereign debt crisis was at its height). Another household name, Credit Suisse, has seen the cost to insure its debt double.

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    1. I wasn't aware of European banks getting hit hard on this energy decline. Do any of your guys own European banks?

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