// TRADER DK

Can We Trust This Rally?

2009-01-05T17:44:00.000-08:00

Wall Street's rally was short-lived as the markets returned to grim
reality Monday.
Dylan Ratigan, the moderator of CNBC's "Fast Money" TV show, noted the
markets fell for the first time in five days.

Still, Guy Adami was optimistic, saying the S&P looks technically
fine. Karen Finerman said today's market is not much different from a
week ago. She said the economy is deteriorating further, and she's
worried about a "bad" jobless number on Friday.

Joe Terranova agreed, saying people are going to sit back and wait in
this "cautious investing environment." "You've got to get some
conviction beyond Friday that we can stay above 8,900."

Ratigan said there appears to be an "obsession with risk and unknown
variables for months to come." That means there's a lot more reason
for investors to sit back and take limited risk as opposed to trying
to jump back in, he said.

Jeff Macke said that line of thinking leads you to a trader's market,
in which investors will be taking gains in companies that they
wouldn't be expecting moves in.

Ratigan asked Terranova on his thoughts on crude oil, which was up for
the third consecutive day. Terranova said today's rise was tied to the
fact that U.S. government saying it is going to purchase 12 million
barrels of oil on the open market.

Terranova said oil is not going to surge above $100 a barrel. Rather,
he said, it's going to be one of tactical trading in which investors
see a little bit of rally alternating with a little pullback.

Terranova said he didn't think the current Israeli incursion into Gaza
as something investors use to go long on oil. That's because the
conflict is part of something that has been going on politically for
three decades, he said.
On the other hand, he said there is a good fundamental reason to get
behind natural gas as a result of Russia's quarrel with Ukraine over
natural gas prices. "That's certainly a more tradable theme than oil,"
he said.

Ratigan asked the panel to comment on the dismal auto sales in
December, with General Motors(GM Quote - Cramer on GM - Stock Picks),
showing a 31% drop and Chrysler a 53% drop. Terranova said people
simply are not going to go out and make a "risky" purchase. Finerman
said the auto stocks are headed lower because "the debt is telling you
they're going under."

Ratigan then read a list of 2009 surprises from Byron Wien, of Pequot
Capital Management. They include the S&P rising 30% to 1,200, gold
heading up to $1,200, oil rising to $80 a barrel, a serious downward
slide in the dollar and NY state threatening bankruptcy.

The forecasts drew skeptical comments from the panelists. Adami and
Finerman had their doubts about gold heading up to $1,200,while
Terranova questioned the slide in the greenback.

Ratigan asked Arthur Laffer, the noted supply-side economist, to
comment on reports of Obama's stimulus plan, including a proposal for
a huge tax cut for individuals and businesses.

Laffer said there has to be tax rate reductions for tax cuts to be
meaningful. He also did not see much of a stimulus in Obama's proposed
tax rebates for previous taxes paid.

He said the stimulus package is going to hurt the economy because it
will result in a higher tax burden for the populace.

Ratigan talked with chartist Carter Worth, from Oppenheimer, to get
his take on the new year. Worth said he expects the S&P to trade in a
30% range for the year. In this kind of market, he said investors will
be selling into rallies and buying stocks that are being sold off.

$189,156.00 per household USA in debt

2008-11-15T10:54:00.000-08:00

Taken from mint.com

Most Americans have debt. Mortgages aside, 43% of US households spend more than they earn in a year. It is no wonder that the median household has a balance of over $2,000 on their credit cards. The average balance is over $8,000, but that is skewed by a small number of less-than-thrifty individuals.

The US government also spends more than it earns. Whether this is an extension of its electorate or the setting of a bad example, the country as a whole is in worse shape than the sum of its parts.

We could go on about the trillions of dollars in debt, but numbers that large can feel really abstract. So, let’s take the nation’s spending down to the household scale. The median household pulls in $50,233 per year, the federal government around $3 trillion. Some basic arithmetic will put them in scale.

Now let’s look at our lenders. The majority of the Uncle Sam household debt is owed to the people of the United States. We can let this slide for now and focus on the foreign lenders, who represent one quarter of the total debt.

Below are the top seven foreign lenders, visualized as credit cards, while the image at the top shows the total of foreign lending. All numbers have been brought down to the U.S. median household scale. Just imagine your household with these balances and you will have a better perspective on just how large these debts really are.

The End of Wall Street's Boom

2008-11-15T10:51:00.000-08:00

The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in Liar’s Poker, returns to his old haunt to figure out what went wrong.

Photoillustration by: Ji Lee

To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. The essential function of Wall Street is to allocate capital—to decide who should get it and who should not. Believe me when I tell you that I hadn’t the first clue.

700 Bill Government Bailout

2008-09-25T08:45:00.000-07:00

With total U.S. non-government debt of close to $40T, if only 10% of all outstanding loans default we're still looking at a $4T price tag. In time, some say, Paulson's $700B will look like duck soup.

To put the problem into perspective, let’s just consider some base statistics.
The publicly issued debt of the Unites States was, until very recently, a massive $5.3 trillion. The total debt, including non-public IOU’s and unfunded obligations including social security and Medicare, is now a staggering $50 trillion! The total annual wealth generation, or GDP of America, is some $14 trillion.

Contrast those figures with the current debt problem ascribed to the reckless pursuit of predatory lending. Incidentally, predatory lending was made illegal in most states until overridden by President Bush to protect Wall Street profit opportunities.

The U.S. mortgage holdings are some $14.8 trillion, including some $3 trillion of commercial mortgages. Local government debt is some $3 trillion. But, even these gigantic figures pale in comparison beside the $20.4 trillion of consumer and corporate debt. Therefore, the total of non-Federal Government debt is some $38 trillion!

Of course, not all of it will default. All things being equal, possibly only a small proportion will fail, at least initially. But today, all things are not equal. We know that we are heading into a recession. This means that increasing amounts of debts will default.

The main problem is that predatory lending incurs a high default rate. So if only 10 percent of outstanding loans default, the Government will have to raise some $4 trillion, or more than 5 times what Congress is being asked. It will increase the U.S. Government public debt by some 80 percent.

Goldman Sachs: Buffett's Buys Stake Signals Bottom?

2008-09-24T08:39:00.000-07:00

I don't know if I've told readers this before....(ok maybe almost a hundred times)....but I love dividends.

In a market such as this, where volatility rules the day, dividends are the solstice in my investing activities that reminds me why I enjoy being paid to wait. Even if the market drops 20%, I'm not nearly as exposed to losses as indexed investors when my portfolio yields a hefty 4% of tax efficient dividends. Not only that but my tax-efficient cashflow is growing anywhere between 5-8% per year at a minimum and in depressed markets I'm simply adding to already undervalued shares with the prospects of a stress-free retirement with unlimited possibilities to keep my occupied.

Warren Buffett knows the value of cashflow, both personal and corporate. In the news yesterday, Goldman Sachs (GS) announced that Berkshire Hathaway (BRK.A), Buffett's investing vehicle, will purchase $5B worth of perpetual preferred shares with a 10% dividend being paid in return for exclusive use of this capital injection. Not only does Berkshire get a dividend nearly double that of Canadian bank issued perpetuals, but the holding company also receives warrants to purchase $5B of common stock at $115 during the next five years.

This effectively sets a floor price on the common stock of GS and gives them a much needed credibility boost in a market of much uncertainty. Buffett has already established a comfortable margin of safety in his investment even if the warrants are never exercised. With extensive experience in unwinding derivative positions in General Re Securities back in 2002, Buffett is likely to begin exerting significant pressure on Goldman management behind closed doors right away to limit its exposure to "toxic waste."

If Goldman balks at the move, the market will likely see Buffett exercising the warrants on the common in a move to send a clear message to both the market & company that he means business.

Buffett doesn't invest with any intention of losing money and he's given Goldman Sachs a rare opportunity to clean up their act with a vote of confidence from an investor revered as the best in the world. He buys for the long-term and has learned from past mistakes to take opportunities he can create in his favor to better position Berkshire for the future.

The Oracle of Omaha has been busy buying in recent days and weeks, and I find comfort in this behavior as I myself have seen these market troubles as opportunities to buy quality companies at much cheaper valuations that I would have otherwise expected.

Scott asked me earlier this morning, "Who better to navigate this minefield than Warren and Charlie?" and an investor has to wonder if we're better off simply buying Berkshire B shares (BRK.B) at this time of market uncertainty then attempting to navigate the cluttered minefield of exposed companies on our own.

As a keen student of Buffett and other value investors I've learnt a great deal that starts with the basic foundation of how to be successful when investing. I follow my Value Rules, buy quality companies that pay me a dividend and when I have an adequate margin of safety I buy some more. I might not always get the cheapest price than other investors, but over the long-term I believe I'm much better off buying a company that pays me every quarter to invest in their business. Over time I can reinvest those dividends into more shares of the same company or others and accelerate the compounding nature of my investments for the long-term.

Here's one thought for readers: Buffett's the milkman and he never forgets to deliver.

link: http://seekingalpha.com/article/97158-goldman-sachs-buffett-s-the-milkman-and-he-always-delivers

Bubble Markets

2008-08-18T17:04:00.000-07:00

As to bubble theory: With stocks, the total supply of shares is always held by someone, and the total quantity doesn't often change very quickly. The more recent buyers and sellers determine the more recent prices, and as preferences change, those prices can shoot upwards. Momentum players add to that and make a bubble. The dot-com bubble is the most recent example.

With houses, much the same situation is in play. The supply of houses is long term, they are not "consumed". People's preference changes and they pay more or less, and bubbles can ensue.

With goods and services that are produced and consumed over a short period of time, such as oil, this is NOT the case. Neglecting futures contracts for the moment, the actual good is transferred and used up. If the price is too high, oil supplies in storage and even on shipping tankers in the ocean start filling up with oil, because no one is paying the "market clearing price." (google that and learn) If the price is too low, the market clears and then shortages develop, and people end up lining up at gas stations hoping there is enough for everybody today. Such markets do not develop bubbles to the same extent. The futures market, due to it's nature, can create a temporary bubble, but it is always short lived as the contracts eventually expire and actual delivery and use is demanded. So the very short-lived price is strongly effected by things such as rumors of war, but the trend over several months is affected almost exclusively by supply and demand, not bubble think.

Interestingly, while this is true for oil, it is much less true for gold. Gold is not "used up" and can experience bubbles.

In summary:
Bubbles are possible with: Houses, Stocks, Gold
Bubbles are much less possible with: Oil, Food

When investing in the latter (oil and food), use supply and demand theory, which is fairly simple and reliable. Watch the stockpiles (are the stocks growing? if so the price will come down. Are the stockpiles shrinking? If so the price will go up).

When investing in the former (houses, stocks, gold) you will find prices much less predictable; bubbles will occur; people will change their minds constantly. Thus, invest in the former.

Trading Rules

2008-07-22T21:14:00.000-07:00

1. Trend recognition simply by eyeballing basic price charts. Look for classical chart patterns. Draw trendlines. Pay no attention to technical indicators. Be honest in interpreting what you see. If its not entirely clear at first glance what the trend is, then there probably isn't one and you should avoid that market.

2. Trend following. Trade trending markets only. Rise above the noise (short term volatility) by keeping positions small.

3. Precise and prompt entry upon seeing trade signals. Take all signals but be mindful of correlation risks.

4. Fuzzy exits - wait for original pattern to be invalidated before exiting. Do not bail out at the first sign of trouble. Give your trades a chance to perform.
5a. Avoid incessant pyramiding. This is the surest way to turn winners into losers. Better to ride a small position and capture a big trend than to run a big position and keep getting stopped out along the way. (The 2+1 rule = Do 2 "units" on entry. When trade works, wait until new price level is insulated from original entry point, then add 1 "unit". After that, STOP. No more).
5b.Never add to losing positions. This is how inexperienced traders implode. Constant practice of 5a also helps develop habit of strict adherence to 5b. If the original trade is not working, chances are that it was wrong to begin with so why add to it?

6. Trade many (uncorrelated) markets. In addition to the benefits of diversification, this will increase your chances of latching onto a developing trend. Do not develop a preference for any one market over another. Treat them equal. Avoid cognitive biases.

7. Trade purely on chart patterns. Recognise that you will never have full knowledge of fundamentals and trading decisions based on partial facts is no better than useless. Logic and reasoning can also lead to inertia in the face of difficult markets.

8. Reduce risk by at least half on the day of an adverse overall portfolio P&L spike (added on 12Apr08). This acts as a kind of safety release to protect against fuzzy exits blowing us up. [For more on this, use the Search Blog box for "P&L Spikes"]

Water and Credit Card Play

2008-07-18T01:26:00.001-07:00

Keep these on your radar.

1. Energy Recovery, Inc.
(Public, NASDAQ:ERII) -
about: Energy Recovery, Inc. is a global developer and manufacturer energy recovery devices utilized in the water desalination industry. The Company operates primarily in the sea water reverse osmosis (SWRO), segment. SWRO uses pressure to drive salt water through filtering membranes to produce fresh water. The Company’s primary product, the PX Pressure Exchanger (PX), is an energy recovery device employed within SWRO desalination systems. The PX device utilizes the principle of positive displacement and isobaric chambers to achieve an efficient transfer of energy from a high-pressure waste stream, the reject stream, to a low-pressure incoming feed stream, effectively recycling energy that otherwise would have been lost. The Company launched PX-260 during the year ended December 31, 2007.
* ipo 7/11
* water play. about
* has customers world wide
* i'd wait for it to start breaking out for confirmation

2. Asset Acceptance Capital Corp.
(Public, NASDAQ:AACC
about: Asset Acceptance Capital Corp. is engaged in purchasing and collecting defaulted or charged-off accounts receivable portfolios from consumer credit originators. Charged-off receivables are the unpaid obligations of individuals to credit originators, such as credit card issuers, consumer finance companies, healthcare providers, retail merchants, telecommunications and utility providers. The Company purchases and collects charged-off consumer receivable portfolios for its own account. From January 1, 1998 through December 31, 2007, it had purchased 853 consumer debt portfolios. On April 28, 2006, Asset Acceptance Holdings, LLC completed a stock purchase transaction of Premium Asset Recovery Corporation (PARC). Under the terms of the agreement, Asset Acceptance Holdings, LLC acquired 100% of the outstanding shares of PARC. Asset Acceptance, LLC purchases and holds portfolios in all asset types except for healthcare. PARC purchases and collects on portfolios primarily in healthcare.
* makes money off credit card debt. these guys buys buys in bulk accounts from banks/credit cards that have people not paying their debt for a highly reduced cost. they make money on the spread.
* credit card play
* i would wait until financials has bottomed or volume in this guy starts picking up because it's following the banks right now.

Possible Short Term Bounce in Financials Coming?

2008-07-15T20:54:00.000-07:00

Today, securities regulators issued an emergency rule on Tuesday to limit certain types of short selling in major financial firms, including Fannie Mae and Freddie Mac.

The rule is the latest effort by the U.S. Securities and Exchange Commission to clamp down on market manipulation that some blame for the sharp declines in financial stocks and the demise of investment bank Bear Stearns in March. The rule will go into effect on Monday, July 21, and last through July 29, although it could be extended to last up to 30 days. The SEC said it will consider rules to address short selling issues across the entire stock market. The emergency rule applies to 19 financial firms including Lehman Brothers, Goldman Sachs, Merrill Lynch, Morgan Stanley, JPMorgan Chase & Co and Citigroup Inc.

To take advantage of this trade if a possible short covering + bounce in financials is coming is the ProShares Ultra Financials (UYG) ETF. Prior to June 24, 2008, the fund had never traded more than 50 million shares in a day. From June 24 to July 10, it traded more than 50 million shares 3 times. It’s traded more than 50 million shares each of the last 4 trading days, including a record breaking 105.3 million shares today.

UPDATE 7/18/2008:
WOW. UYG ran 35% from the time I called it. I recommend taking profits and waiting for financials to bounce with long term holders than short covering.

Bullish on Dollar?

2008-06-23T22:53:00.001-07:00

What an unexpected start to the trading week. Today the US dollar advanced strongly against many currencies on the back of weaker-than-expected Eurozone data, and it wasn’t just any Eurozone data; it was the widely watched German IFO survey. Business confidence in Germany, Europe’s largest economy, deteriorated significantly in June and reached the lowest level since December 2005, with the business confidence index falling to 101.3 in June from 103.5 in May. The market had expected a reading of 102.5. Even though the headline index has worsened, the business climate indicator for the construction sector improved, but that isn’t going to make the European Central Bank happy.

The ECB is scheduled to raise interest rates in July and won’t be pleased if business confidence falls. Another Euro-unfriendly economic release today was the Eurozone PMI index which showed both manufacturing and services falling below the key 50 reading.

Speculators Net Long Dollar

For the first time in almost 18 months, IMM (International Monetary Market) currency speculators are placing their bets on a US dollar rally. According to the latest futures data, net long dollar positions (against the Euro, Swiss franc, yen, British pound, Canadian dollar and Australian dollar) stood at $2.58 billion in the week to June 17, flipping from the previous week’s short position of $2.65 billion. Adjustments could take place this week after the Fed rate announcement this Wednesday as that would give traders a glimpse as to whether the Fed is seriously considering raising rates in the near term.

You can access the latest Commitment of Traders data for all futures contracts here.

Forex Trading

The Euro fell by the biggest amount against the US dollar in more than a week, hitting an intraday low around 1.5470. Its nearest support is around 1.5440. The Euro is likely to be shielded from aggressive shorting interest ahead of the US FOMC meeting this Wednesday. USD/CHF rose to a high of 1.0490 where it met resistance. Further topside gains will depend on today’s performance of the US stock markets and oil prices. GBP/USD fell 170 pips to a low of 1.9585 after Rightmove said today that the average asking price for a home fell 1.2% from May to 239,564 pounds.

There is a lot of event risk this week, so it would be better for traders to take intraday profits rather than hold out for the week.

Economic Calendar for Tuesday:

* French consumer spending 0645 GMT
* Swiss UBS consumption indicator 0800 GMT
* Former Fed chairman Greenspan speaks 1230 GMT
* US S&P/Case-Shiller house price 1300 GMT
* US consumer confidence 1400 GMT
* Japan merchandise trade balance 2350 GMT

Betting on the Housing Rebound

2008-05-25T13:55:00.000-07:00

Everyone has been waiting for the housing to bottom and looking for plays. Although some are interested in getting into stocks such as KBH, LEN, an PHM, I disagree. The housing bubble took years to inflate and it will take years and much longer to recover. However, there's another market that appears stronger and that is home builders equipment stocks such as Home Depot and Lowes. Currently, people do not want to buy homes but what they do want to invest in is remodeling. People are aware that they will not get a chance to remodel their hopes at a cheaper time than this. Cheap building costs and low property tax values based on current low market values of homes make it attractive to remodel.

Over the long haul, HD and Lowes may be good long term value plays if they continue their downwards fall. According to Ockham Research, they have LOW rated a Hold "because—from a
valuation perspective—the stock looks slightly undervalued compared to historically normal price-to-sales and price-to-cash flow. Given normal circumstances we would anticipate the stock would fetch between $26.70 and $34.10, given current revenue and cash flow. However, the
stock will likely continue to struggle with the housing market weakness through the next quarter or two. If LOW and HD fall much further, the home improvement retailers will likely be a good long- term value play, as the housing crisis will not last forever.

Crude Awakening - Speculation or Fundamental?

2008-05-22T22:03:00.000-07:00

I write two point of views, whether the soaring Crude prices is driven by speculation or by pure fundamentals of reaching a peak in oil

1. SPECULATION
A pure manipulation, thats all, that too fueled by brokers and banks from money borrowed from Fed. Its a lengthy article, but read on, it's good.
http://www.marketwatch.com/news/story/wall-street-blame-runaway-energ...

Following is the abstract:
1. The way traders push up prices is surprisingly simple. They buy in European futures markets, which don't have the limits that U.S. markets do. That drives up U.S. prices where they may already have positions.

2. The Goldman problem. During a three-year span ending in 2006, between $100 billion and $120 billion in new speculative money entered the energy markets, according to a congressional report. Investment in commodity index funds surged more than 500% to $80 billion during the
same period.

3. Don't forget the brokers and banks. Commercial and investment banks have launched huge energy trading desks. Among them are Bank of America Corp., Morgan Stanley, and Goldman Sachs Group Inc. These desks aren't much different from their hedge fund brethren. A study by
the International Research Center for Energy and Economic Development concluded "the proprietary trading desks of these and other large investment banks are actually hedge funds in drag, just as Enron was.

4. Last week, J.P. Morgan Chase & Co.'s investment banking co-head, Bill Winters, said that one of the unexpected benefits of the acquisition of Bear Stearns Cos. (BSC:The Bear Stearns Companies Inc was that its energy trading desk was "surprisingly strong."

5. The hubris and insensitivity of energy trading is best personified by Goldman Sachs. A Goldman commodities analyst famously predicted in March 2005 that oil would reach $100 a barrel. At the time, a barrel was trading about $55. The prediction led to a lot of ridicule, but it
also drove up prices in the short term, and ultimately came true. It also led to speculation that Goldman was trying to goose the market because it had a huge position in oil derivatives.

6. Now, Arjun Murti, the same analyst who made the earlier prediction at GS is back, promising $200 oil this year. Murti is again talking about demand, but again, world consumption doesn't suggest the price should double. Saudis confirmed today that demand has not increased hence no need to bump up production when Bush asked for it.

7. Unswayed by Goldman's treatise, Congress, the Federal Trade Commission and the Commodity Futures Trading Commission are all looking to rein in the trading. A House panel is investigating speculation and will hold hearings in May and June. A Senate bill sponsored by Michigan Sen. Carl Levin seeks to put limits on U.S. trades in overseas markets.

Long story short, GS is the big dog here and Fed is the source. When all these financial institutions cried wolf over credit crunch, freaking Fed opened its doors to brokers to play with free Fed money. Since March 17, Oil and commodities have gotten out of control. GS also profited from shorting its own core business where his investors lost billions, that investigation is
ongoing.

2. Fundamental
There's a very interesting article that clearly explains the fundamental point of view of peak oil so there's no need for me to repeat. I highly recommend this article. Here's an excerpt:
"Oil will not just "run out" because all oil production follows a bell curve. This is true whether we're talking about an individual field, a country, or on the planet as a whole. Oil is increasingly plentiful on the upslope of the bell curve, increasingly scarce and expensive on the down slope. The peak of the curve coincides with the point at which the endowment of oil has been 50 percent depleted. Once the peak is passed, oil production begins to go down while cost begins to go up."
-Taken from http://www.lifeaftertheoilcrash.net/

AgFeed Industries, Inc. (FEED) - Technical Analysis

2008-05-20T22:12:00.000-07:00

On Monday, May 19, FEED neared the 15.66 support followed by a surge of volume. Today, we saw it pull back and level off 16. Near double bottom play with low risk by setting stop below the support. Resistance is at 20 with the potential to break out if global inflation arises as crude reaches near highs and more natural disasters erupt in the world.

(1) Point and Figure (PF) chart shows FEED retracing nearly every move up or down by at least 50% with higher bottoms. It is holding at a trend line at 16. BUY
(2) Slo Sto is approaching a bottom (oversold) and tomorrow's action might give the red line intersecting the black line buy signal. BUY
(3) MACD is bottoming and should trend upward. BUY
(4) Bollinger Bands: FEED went to two standard deviations over the Bollinger moving average to two standard deviations below. BUY
(5) Williams %R is close to a bottom, oversold. BUY

Bottom line: This stock is clearly in an upward trend. With a large percentage of the stock held by insiders there will be a demand for available stock, thus higher prices.

Hewlett-Packard Co. (HPQ) Earnings

2008-05-20T21:43:00.000-07:00

Hewlett-Packard Co. (HPQ) on Tuesday reported a fiscal second-quarter profit of $2.1 billion, or 80 cents a share, on $28.3 billion in sales.

In a separate call with analysts, Hurd acknowledged the difficulty facing HP in the United States, where the company's second-quarter sales were unchanged from a year ago.

"The best thing that I can tell you about the U.S. is that it's a very spotty market and we try to maintain caution around it," Hurd said.

With 70% of revenues coming from overseas its appears as though HP had 11% organic revenue growth. BUT, when you back out the currency gains "revenue in the Americas grew 2%, revenue in Europe, the Middle East and Africa grew 6%, and revenue in Asia Pacific grew 7%." Without a falling US dollar, this company is just another struggling US tech company. Expect future quarters to be substantially worse unless the dollar falls or international revenue growth starts to multiply.

Solar Industry - TE Shortage?

2008-05-18T10:31:00.000-07:00

A little on-line research will turn up many facts about Tellurium (Te)production issues. There are some discrepancies but for the most part they are minor. Te is a by-product of copper mining. About 1 ounce of tellurium is recovered from 500 pounds of copper. Te is not mined outright as the worldwide demand is too low to support Te as a pure mining operation. The three main uses of tellurium are for hardening steel, in thermoelectric coolers and now solar cells. The worldwide production of refined Te is about 135 metric tons in 2007. There are about 21000 metric tons of reserve. Consumption is split between steel and thermoelectric cooler production.

Several sources verify that FSLR uses about 8 grams per 60 watt panel. This works out to about 135 tons of Te to needed produce 1GW. Their need represents an increase in demand presumably above worldwide capacity. FLSR claims that it has tapped into a large source of Te and that supply issues are not a problem----that remains to be seen. Dig a little into VNP and you might get come up with a different conclusion. Perhaps they have figured out a way to cheaply mine Te from ferromanganese crusts on the ocean ridge. Or since the average human body contains about 700 micrograms of Te perhaps they will be grinding and extracting Te from corpses and cadavers ;-) FSLR also will have to use thinner layers of Te to make the supply last. John Benner of the NREL said in a 3/2007 presentation that given Te usage of about 6 grams per meters squared of panel puts the wordwide production limit at about 3GW per year (based upon USGS Te production data) and given process improvements to using reduced thicknesses of Te at most 20GW per year. And BTW, his report ignores the emerging DVD/optical memory use for Te that will eclipse all the other uses combined.

So you might conclude that this is a resource limited technology that will reach saturation of capacity in just a few years barring no increases in supply.

MGM Share Buyback and Insider Activity

2008-05-15T19:16:00.000-07:00

On May 14, 2008, MGM announced its approval of a 20 million-share stock repurchasing program after the market close. The very next day, MGM Mirage SVP Punam Mather exercised options for 2,500 shares of common stock, according to a Securities and Exchange Commission filing.

"In a Form 4 filed with the SEC Wednesday, Punam Mather reported exercising the options on Monday for $12.74 apiece and then selling all 2,500 of them on the same day for $50.50 apiece." -Forbes

Am I missing something or does this seem planned?

The Yahoo Mess and ICahn

2008-05-15T19:04:00.000-07:00

"Technology and Energy sectors made the biggest gains leading the
Nasdaq (up 1.5%) and the S&P (up 1%) Thursday as the May Options
expiration window winds to a close. Oil prices, still the brightest
mark for the Energy sector stayed around $124, although they were
unable to reach new peaks much past $126 a barrel.

It's an Oil price era in Stock and Futures trading right now and the
commodity folks have been rejoicing the last couple of months
virtually non-stop. Concerns over high oil resonate through many
facets of the economy, with the biggest being the story of inflation.
As high oil funnels itself through each and every sectors of the
consumer business the increasing cost of manufacturing, transport and
services will all have to be pushed onto the consumer, thus sparking
increased inflation. Definitely an issue the Fed doesn't want to have
to dive right into after seemingly only months ago steering the US
away from a full blown recession by dramatically cutting Interest
Rates.

In other news, technology related, Carl Icahn (shareholder activist/
corporate wheeler-dealer) took a large stake in Yahoo (YHOO) and is
prepared to enter into a proxy battle with current management. It is
clear, several large shareholders were unhappy with the way the whole
Yahoo-Microsoft (MSFT) situation went that the pressure was applied in
order to unseat the current board at Yahoo, which for one will be more
open to a buyout. The $33/share offer from Microsoft was substantial,
and on the brink of completely overpaying, for the struggling Yahoo
Internet outfit. On the one hand, the Internet is the future and
Internet advertising is leading that future, but on the other, Yahoo
is a struggling horse in the advertising game and can't seem to find
any ways of putting together its huge customer base into meaningful
and exciting new services. Carl Icahn thinks he can help though, and
his track record for displacing management rings throughout Wall
Street (see Motorola (MOT) for an example). Icahn is going to nominate
his board members that will be more open to deal and hopefully get
shareholders a fair price above $30/share. With Yahoo currently
trading under $28 there's a potential there for an easy profitable
trade, if Icahn is able to do as he wants.

Getting Microsoft back to the table will not be easy, as Microsoft's
own shareholders jumped ship sending the stock to drift lower as the
weeks to the potential alliance dragged on and on, so it is clear the
deal isn't the most favourable from within the Software Giant's rank
and file. Microsoft however, is desperate for an Internet presence and
it can't seem to find the functionality and scale of web software and
web services on its own. Windows Live is frankly unheard of in tech
and user circles, Office Live, hasn't made any sort of dent and the
Advertising division is losing money hand over fist as Google (GOOG)
dominants Internet Search. Microsoft's biggest fear in this space has
to be Google Apps (Google's free word processing, spreadsheet and
presentation tools hosted on the web), and as such they have got to
think that Yahoo's Internet service experience and scale will allow
them to have viable online software tools when the game really
changes.

Icahn will definitely use these points to re-open dialogue, and this
along with Yahoo's profitable advertising initiatives should get Steve
Ballmer talking again, which might at the end of the day reward those
patient Yahoo shareholders."

Apple's (AAPL) Market Cap

2008-05-13T21:51:00.000-07:00

After today's close, AAPL's market capitalization surpassed Bank of
America. Recently, it has surpassed Toyota Motor Corporation, as well
as JP Morgan Chase. The list of companies that have smaller market cap
than Apple is quite impressive:

Cisco, Telefonica, ConocoPhillips, Intel, Pfizer, Coca-Cola,
GlaxoSmithKline, Novartis and many other very impressive names. If
AAPL's surge continues for a few more weeks, it will soon surpass IBM,
then Google, Johnson & Johnson...

To see Apple among the twenty most valuable companies in the world is
nothing short of remarkable. I remember we were all discussing this
last November, when we were more-or-less in the same situation,
cracking $190 for the first time. Today, though, it is even more
meaningful. The big reversal of January caused many other companies to
lose value, while Apple quickly regrouped and surged ahead (for
reasons we all know very well - the fundamentals).

The current economic mess is holding back many of the top twenty
corporations, and that is certain to give AAPL a chance to leap over.
This Christmas season, unless there are new surprises like last
January, we just might see AAPL surpass MSFT and get into the top five
(or three).

Some might say: "one can always dream"; this doesn't sound so far-
fetched, though.

HPQ and EDS Deal

2008-05-13T21:47:00.000-07:00

Toni Sacconaghi, an analyst at Bernstein Research, notes that since 2002, EDS has generated annual revenue growth of just 0.4% versus 8% for HP. And he notes that gross margins at EDS are around 15%, versus 24% for HP. “Given that we do not believe HP will be able to materially improve either revenue growth or gross margins,” he writes, “the acquisition is likely to result in some multiple compression over time even though the deal is accretive and HP has the opportunity to boost EDS’ operating margins from current levels.” Sacconaghi also notes that EDS is heavily weighted to the U.S., with only a third of the company’s workers outside the country. He says that appears inconsistent with HP’s stated goal of building global capacity in its services business. Sacconaghi suggests that for $13 billion, the company could have instead bought Satyam (SAY) or Cognizant (CTSH), which have higher growth and fatter margins. He keeps his Market Weight rating on the stock.

Louis Miscioscia, Cowen: “Now is a good time to buy given the recent hit due to the announced deal with EDS,” he writes. “We would not have recommended that HP acquire EDS, and are concerned about opportunity costs, but we do believe that HP can make it work, that is with a lot of heavy lifting. Financially the deal is about a push, strategically this should actually help HP’s positioning in services and finally operationally one has to decide if Mark Hurd can run EDS better than EDS running itself. We think he can.” He keeps his Outperform rating.
Richard Gardner, Citigroup: “We would be aggressive buyers of HPQ shares on today’s pullback,” he writes. Gardner says the sell-off is “a clear overreaction.” Gardner says that HP faces slower industry growth, more stable component pricing and a more stable dollar going forward, but that “these factors are more than fairly reflect in consensus estimates” and the stock price.

Doug Reid, Thomas Weisel Partners: Reid writes that he is “incrementally more negative on HPQ” for three reasons: EDS’s “comparatively weak” margins and revenue profile and “significant integration risk.” He maintains a Market Weight rating.
Richard Krugele, Needham: He contends that “investor sentiments appear to be overdone.”
Scott Craig, Bank of America: Likewise, he says that “the stock price decline over the past 2 days…is an overreaction and a good buying opportunity for the stock.” He says that the deal “makes strategic long-term sense, even if the price paid is a little aggressive.” He says the reasons investors are nervous about the deal include lack of detail on potential cost and revenue synergies and “EDS’s challenging history.”

LDK - Q2 FY08 Thoughts

2008-05-12T20:33:00.000-07:00

After reviewing the financials I have a few thoughts:
What the analysts do not like:
1. Q2 looks to have a GM of 23-27%
2. Inventory over one year to be processed- 21 Mil (reduction of roughtly 20% from end of Q1)
3. Taxes increased to $8.5 million from 500K.

What analysts do like:
1. Prepayments increased 65% from $141 mil to $231 Mil.
2. Sales FY 08 increase from 960 mil to 1.08 to 1.18 BIL.
3. Cash on hand increase a tad over 10% from $83 mil to $93 mil.
4. Inventory on hand increase from $349 mil to $519 mil. meaning delivery shortages are not likely to happen.
5. Total current assets increase 40%
6. R&D dropped significantly from 1.6 mil to 370K
7. They are paying their taxes...
8. Foreign currency benfit of $5 mil
9. General admin expenses increase 20% from 9.5 mil to 11.1 mil.
10. Nice bump in Government subsidies up over 100%.
11. Most important: Plant is on track and will be producing 100 to 350 MT of Poly by end of the year increasing the GM.

All in all, LDK is positioned extremely well for the future and continues to exceed expectations. FY 2008 It apprears that 2.20 per share is attainable. At a PE of 25 to 30, I think 60 to 75 by year end is very realistic not taking into account the buy-back of shares.
------------

After reviewing the conference call and the numbers:

The current cost of PS is $200/Kg.
They roughly sold 105 MW in qtr 1 and produced $233.4 Million in revenue with an average sell amount of $2.22 per watt.
They need about 8 grams/watt of Polysilicon.
This equates to 840,000 Kg's of PS at a cost of $200/kg.
So the costs of PS = $168 million.
1 - $168M /$233 = about 28 % gross margin.

From the CC lets advance 3 years:
The future costs of PS will cost them $35/Kg to produce with the new plant.
Let's say that at the end of 2009/ beginning 2010 they ship at a rate of 1.8 GW/year.
How much PS will they need?
The amount of PS will drop to 6.5 grams per watt.
So they need about 12 Million KG of PS per year, which is a lot of material.
This equates to about 15,000 Tons the magical new PS production capacity.

Bottom line:
The 1.8 GW will give revenue about $3.6 Billion/year ($2/Watt).
But the PS will only cost LDK $35/Kg to produce = $420 million/year. The gives a gross margin value of: 88%.

If you crunch those numbers LDK could net of $1.5 - 2.2 Billion or an EPS of $13-20 per share/year.

Market Bouncing Again

2008-03-23T21:26:00.000-07:00

After BSC's buyout at $2 a share, the market has bounced off again for a few days similar to the event a month ago when the feds had to pull an emergency cut. The outcome? Investors will sell this pop on the next bad news. Financial stocks FNM, FRE, LEH made huge bounces including GE.
As many already know, the sub-prime crisis is not over. The mortgage rates have not reset and they're still high despite the fed rate being slashed point after another. I see us testing the bottom once again before any foreseeable, sustainable uptrend.

Bank Stocks on the Roar

2008-02-03T12:18:00.001-08:00

Ever since the emergency fed rate cut a few weeks ago, bank stocks have been roaring. I'm not going to bother listing all the banks and their performa but here's a prime example with WM - Washington Mutual.

Stock Date-Price Date-Price % Increase
WM 1/17/08-12.46 2/1/08-21.82 60%

What cause this Roar? People have been clamoring a number of reasons for this sudden surge.

1. Shorts Covering
As the doom and gloom begins to worsen, a less risk in the downfall of the price of stocks begins to unfold. The only scenario that would cause conditions to deteriorate would be the federal reserve not providing liquidity within the exchange of cash. Now we all know that the feds do not want to see major banks that are somewhat, a symbol of US's status in the world fall despite their mistakes in undertaking risk in the sub-prime.

2. Institutions Buying
As we all know, many institutions sold their positions prior year end for tax purposes. From this sell off lead to other funds and investors to close their positions and keep cash for the time being. This notion can be probably derived by the fact that bank earnings were set to release in January, and I do not think there was one investor in wall street that knew these numbers would look horrible. As such, institutions probably had their mind set on infusing investments after the earnings and what better opportunity when the global market was in panic followed by an emergency fed rate cut.

Despite this mini rally that we are currently experience, I do not believe it's the beginning of a bull market. Although I do agree that we are off the lows, I would not be surprised if we saw another bear run before seeing a bull market. If we see any rumors running about bond insurers filing bankruptcy, expect profit taking and major dip.

Gaming Stocks

2008-01-22T20:42:00.000-08:00

I'm not referring to the popular video gaming stocks everyones been blasting for Q4 2007, I'm referring to casino gaming stocks. Casino stocks have been hit as much as as the NASDAQ. Within the past few months LVS, WYNN, and MGM have built stellar casinos in Asia's "Las Vegas" and till this day, there has been no evidence of a slowdown, yet it's been beaten up. Why? It's the flow of the market. From these past months, the market has been going through cycles of beating down stocks that have run up. First came the financials, 2nd casino, 3rd tech, and 4th energy. I believe this is the result of funds hedging their positions. Could Au be next? I like casino gaming stocks for 2 reasons.

1. Although people are less likely to gamble more during a recession, I do not believe it will be significantly lower. In a recent interview of the governor of a certain state, he stated that had noticed a small slowdown in . Honestly, I never believe what individuals with assets more than a million have to say on public television. Who knows, he could have made a statement for stocks to fall so that he could purchase at a lower price. I've witnessed it many times on broadcasts, with CEOs dimming their outlook and buying back their shares the following quarter, or a top investment bank firm saying that GOLD is too high and that they are selling to take profits only to repurchase on the dip the next day. The risk and reward associated with gambling remains static despite a slowdown in the economy. In addition, any slowdown in their revenue growth will be more than fulfilled by the revenue gained overseas in Macau.

2. From the past 2 years, many people from China and Hong Kong have obtained enormous amounts of wealth from the stock market boom. Although Asians tend to be frugal with their money, ironically, they love to gamble. Just visit Las Vegas and you'll see that more than 35% of casino revenue probably comes from the Asian population. As such, I foresee an exponential number of people from Asia Pacific visiting Macau providing a revenue booming for LVS, MGM, and WYNN.

I'm keeping MGM on my watch list.chart source - bigcharts.com

Above, is the 2 year chart on MGM. You can see that it's testing the 60 support and note the sell off in November. Note, The Wall Street Journal reported that, “Dubai World increased its stake in casino operator MGM Mirage to 6.5% after agreeing to buy five million shares from a foundation founded by MGM controlling shareholder Kirk Kerkorian.”

Asia Goes Red - Buying Opportunity?

2008-01-21T23:15:00.000-08:00

Martin Luther Day is supposed to be a day of honor for King's accomplishments in the civil rights movement for blacks. Ironically, markets around the world are RED with indices such as BSE down as much as 10% .

Shanghai (two days): -12%
Japan's Nikkei 225 (two days): - 10.2%
Hang Seng (two days): -13.7%
DJIA futures: Down 650 points
U.K. FTSE 100 (two days): -8.6%
German DAX 30 (two days): -12.4%

I see this as a perfect buying opportunity for beaten down stocks with strong fundamentals. One of the stocks that I am keeping an eye on is CHL - China Mobile.

First some facts:

CHINA Population 1,321,851,888 (July 2007 est.)
USA Population: 301,139,947 (July 2007 est.)
1 in 3 Americans own a cell phone
"China Mobile added 68.1 million users in 2007 for a total of 369.3 million, while Unicom said on Jan. 18 it added 1.36 million subscribers last month for a total of 160.3 million" -Bloomberg
Expected 2008 China GDP = 9%
Expected 2008 US GDP = 1.2%
CHL - China Mobile has a P/E of 30
T - AT&T has a P/E of 19.

In the past 5 years, although China has boomed, much of the population is still in a state of poverty. The majority of the population in China are peasants but as the country continues to develop, the first thing these peasants will purchase is not a television, not clothes, not an ipod, but a cell phone. Unlike United States, where we were stuck with land lines for decades, China will be skipping that generation as it will be less costly to shoot up a satellite for better coverage than build towers throughout the vast and rural lands of China.

I see CHL going low as $60 within the next few weeks but perceive the downside risk as minimal and its upside and outlook for the next few years outweighing the risk. As such, Jan'09 $90 call options years forward with a hedge on Feb '08 $65 puts look attractive here.

First Post

2008-01-20T10:38:00.000-08:00

This will be my first post and my entry into the blog world. I will use this blog and update it with my perceptions of the market and evaluate my past thoughts. The blog will serve as a medium of measuring my growth as time passes.