Losing Money Isn’t a Crime

Jonathan Macey writes in today’s Wall Street Journal – an essay whose title, “Losing Money Isn’t a Crime,” is spot-on (h.t.Viewing the remainder of this article requires a Subscription

Apple at $500 Billion

It's in the news, so I can't help but point something out. Earlier today I saw the following story about Apple entering the $500 billion market cap club.Viewing the remainder of this article requires a Subscription

What exactly does Zynga do?

From Yahoo Finance:

Zynga Inc. develops, markets, and operates online social games on the Internet, social networking sites, and mobile platforms. The company offers poker games, word games, and board games.

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Follow up on EK

On Friday afternoon, after it plunged 60%, I bought EK. I am usually not prone to buying individual companies in my opportunistic portfolios for clients unless we're buying a basket, sector portfolio, or some special situation. EK fell into the third category.Viewing the remainder of this article requires a Subscription

Buying an individual stock

For the first time in a long time, I bought an individual stock in a global opportunistic portfolio focused on ETF's - but it's not for lack of discipline. The portfolio we discuss in this newsletter is an opportunistic portfolio, and sometimes the opportunities are in individual names.Viewing the remainder of this article requires a Subscription

Can’t look away

Up 300, down 300. It seems almost pointless to point out that the percentage swings on a daily basis, let alone intra-day basis, are so extreme that anyone trying to trade in the pockets is getting stopped out.Viewing the remainder of this article requires a Subscription

Financials are leading the way

Bank of America is once again a single digit stock. With continued uncertainty with its mortgage holdings, earnings that are not organic but rather accounting gimmicks, and unknown exposure to sovereign debt, BAC is just an example of the financials as a whole, and investors are moving away.Viewing the remainder of this article requires a Subscription

Some highlights…

The week was chock full of news, so  quick recap might be in order:

	Monday Open	Friday Close	Change
S&P 500	1343	1316	-2.01%
Gold	1545	1590	2.91%
Oil	95.59	97.58	2.08%
10 year yld	2.95	2.91	-1.36%

Our role as investors is always to look forward.Viewing the remainder of this article requires a Subscription

Portfolio Summary – Update to our service!!!

In an effort to bring more actionable ideas to the forefront, we are going to publish a weekly Portfolio Summary. This summary will include an ETF portfolio so that readers can have access to and can track which ideas we implement and how. We purposely do NOT include portfolio weightings. This portfolio is for information purposes only and does not constitute any investment recommendations. Each week, we will provide a summary of the most recent portfolio, with the recent changes implemented. Positions are subject to change at any time, without notice. These articles will be filed under the  Strategy/Allocation category and can be accessed by searching for “Portfolio Summary”.

Lastly, past performance is not indicative of future returns.

Now that the introduction is out of the way, here’s what the current portfolio looks like:

Theme	Ticker	Purchase Price	Last Price	Gain/Loss %
Agriculture	CROP	26.91	27.21	1.11%
Short euro	EUO	17.28	17.19	-0.52%
Short yen	YCS	20.41	16.20	-20.63%
Japan, hedged	DXJ	34.72	36.09	3.95%
Energy – Natural gas	FCG	21.15	22.60	6.86%
Energy – Coal	KOL	46.06	49.50	7.47%
Energy – Nuclear	NLR	20.83	22.68	8.88%
Short S&P 500	SH	42.348	41.35	-2.36%
Short treasuries	TBT	38.73	36.69	-5.27%
Precious Metals – Gold miners	GDX	40.46	61.44	51.85%
Precious Metals – Gold	GLD	104.66	145.05	38.59%
Precious Metals – Palladium	PALL	43.59	76.23	74.88%
Precious Metals – Platinum	PPLT	159.12	177.56	11.59%
Utilities	XLU	32.11	32.10	-0.04%

Most recent transactions:

• Sell silver (SLV)
• Increase gold mining stocks (GDX)
• Initiate position in utilities (XLU)

WFC and XLF

I haven’t liked the banks in a long, long time. Earlier, I wrote about how the markets will struggle to sustain any bounce if the financials don’t participate. And now, I see that Wells Fargo, WFC, is trading down 1.5%. I haven’t seen any news, but I anticipate that soon, the markets will get around to seeing the moves in WFC and JPM and pull back. The banks are still storehouses of uncertainty and I’m staying away. No position in either direction.

Break-point

I have been negative on a lot of asset classes for a long time, but it was always part of a larger process of getting back to some normalization (earnings, geopolitics, etc.). I have been hesitant to call a top, because quite honestly, I am not sure anyone can do that effectively. With that in mind, I feel like we are close to a breaking point on multiple levels. Walk with me through today’s news, none of which is actually new to our readers, but the combination may finally hit investors in a new light:

• All’s NOT well in Libya. Pictures of burning oil fields, a lot of misinformation, etc. If nothing else, oil supplies are threatened. Not new, but a piece.
• Meanwhile, in Iran, Reuters had this headline: “U.. OFFICIAL EINHORN SAYS BELIEVES IRAN SEEKS TO REACH THRESHHOLD OF NUCLEAR WEAPONS CAPABILITY”. Iran is testing the waters, maybe even provoking a little. How will the world respond? Again, nothing new, but coming with Libya and the rest of the Middle East turmoil it might finally make sense to investors.
• Finisar (FNSR) is down 35% as I write this. Why is this important? It’s a small company, with limited exposure. Except, they’re the guys who make some of the switches for fiberoptics cable around the world. They’re very active in China, and had this to say on the conference call:
  “[Earnings were] impacted by the full three months of the annual price negotiations with telecom customers that typically take effect on January 1, the 10-day long shutdown at certain customers for Chinese New Year in February, the adjustment of inventory levels at some telecom customers, particularly for products which had previously been on allocation and long lead times, including WSS and ROADM line cards, and a slowdown in business in China overall.”
  Slowdown in China? Well, that got everyone thinking. If China slows down, why is copper up? For weeks, we have been telling readers that China is slowing down, their numbers are fake, and that hyperinflationary fears on the back of endless Chinese buying are overblown. Maybe now investors will start realizing that in a debt deflation cycle, commodity inflation is not the big threat – lack of pricing power is.
• As if China’s slowdown won’t have enough of an economic impact, ZeroHedge reported that Bill Gross dumped 100% of his government holdings. Now, I am short treasuries and continue to believe they offer return-free risk – the worst kind, but having PIMCO front run pretty much every other bank and asset manager is a big deal. The guys at Blackrock are probably pretty worried about not having a bidder when they finally need to get out also.
• Lastly, I encourage everyone to read James Montier’s new piece on GMO’s site: https://www.gmo.com/

That is without mentioning the fact that oil is 30% higher than 6 months ago and is now flowing down to the consumer who’s seeing it in higher gas prices.

None of those pieces of information are new on a macro level. However, sometimes investors need to hear things multiple times before they understand the full implications. And I believe that we’re close to the break point, the point at which investors comprehend and then price assets accordingly. It would mean a revaluation of all industrial commodities down (China will no longer be the marginal buyer as it slows), equities down (as the E in P/E goes down and pulls down P with it), and bonds down (as government debt will no longer be the safe haven).

Relevant ETFs: TLT, TBT, GLD, SLV, SPY, SH, IWM, RWM, USO,

Quick note

As the markets hover down around 1-1.5%, I just want to point out the the financials are not providing any strength, nor are the recent performance leaders such as NFLX. In fact, it’s these same companies that are leading us down…

In the meantime, anyone who got into the commodity rally late (against my advice), and bought into CORN or similar ETF is going to face major headwinds as spec positions get routed:

Relevant ETF/stock: NFLX, XLF, CORN

All talk – Updated

I’m just watching these for now, but the mean-reversion investor in me can’t help but think that this performance divergence can’t last forever. I’m talking of course about NFLX and NOK. Both widely discussed recently, both confounding anyone trying to step in front of their respective trends, both looking like the news is supporting ever more extreme valuations.

Here’s NOK’s weekly chart first:

Broken, but how much downside is left?

On the opposite side of extreme, NFLX weekly chart:

Talk about a classic situation where you should have let your winner run.

For reference, over the past 1 year, NFLX has outperformed NOK by roughly 300%. I’m not ready to take the mean-reversion trade – yet. The fundamentals are already supporting the trade (as one barometer, NFLX is trading at a P/E over 80, while NOK is trading at under 13), but the headline risk remains too large at this stage.

But soon…

Relevant stocks: NOK, NFLX

(For educational purposes only. No positions in mentioned securities at time of writing, but positions can change at any time. Past performance is not indicative of future returns. Not a solicitation to buy or sell any security.)

This is an update to my earlier post: Crossing Wall Street posted this great chart of NFLX price vs. earnings calibrated so that they cross at a P/E  of 40:

Light volume, everyone is waiting

At least one wait is over: The Verizon iPhone is out, looks good, already rumors of the next generation coming out in June. No opinion whatsoever on the technology, but I do think there’s an element of buy the rumor sell the news in Apple and Verizon. But honestly, there are other things I’m more focused on.

The market is flat, but oil and silver are up 2%. I can’t complain since energy and precious metals are my biggest concentrations. Supervalu (SVU) is off by 11+% and everyone is interpreting the numbers in his/her own way: if you want to see inflation, you’ll look at the statements that discuss the increase in cooking oil prices, if you want to see deflation you’ll hear that even with promotional sales, SVU could move enough product. In the end, I don’t think this is a big “tell”. The better run supermarkets are moving products and holding prices relatively steady, even passing along some increases (take a trip to Costco on a Saturday to see some flow).

On the other side of the Atlantic, investors await the Portuguese bailouts that are coming. Australia in the meantime is facing storms of all kinds, natural and a decrease in net exports. Why? My thinking is that the Chinese lies about growth will prove false, and the coming Chinese slowdown will continue to pressure the AUD downward, along with industrial commodities. Should be net dollar positive.

The tomorrow, we also have the USDA report. Should be fun.

Can the market rally without the financials?

Or maybe a better questions is whether the financials can rally without securitization?

In a Massachusetts verdict, the court ruled that banks could not foreclose on homes for which they did not own the mortgage. Now, that could be huge. It means that securitization will need to be re-examined and repriced. It also means that homeowners have more time to fight foreclosure when it does happen. I’m not sure it’s a net benefit to the economy in the long term, as homeowners who fall behind now have increased protection and market clearing will take that much longer, but it does reduce the big banks’ power which might be a balancing positive. Not sure how it plays out, but it certainly doesn’t sound good for the big financials.

BAC, JPM, and WFC are all down 2-3%, while the XLF is down about 1.5%. With that headwind, and bad employment numbers, I’m just surprised we’ve held up so far.