My 2 cents on Facebook

I just can’t resist making a minor comment in the flood of articles (from the WSJ): “The interest, amounting to several billion dollars in an equity offering likely to be no more than $1.5 billion, is a sign of investor fascination with the closely held social-networking company despite a dearth of available information about its operations and financial condition.”

So investors are flooding into a high-flying company with virtually no information other than the name, in a structure that is disadvantageous to shareholders on every level, etc. etc. etc. Is Facebook a genius selling its equity into the high of this rally or is it a sign of better times to come? All the frustrated investors that didn’t get a piece of Google are no anxious that they might miss this chance. Fear of missing the upside tends to signal a top, not a bottom.

Adobe (ADBE)

I don’t usually write about individual company earning reports, but this one was special for me. Before we begin, let me mention that I don’t have any position in the stock, and am not discussing its investment potential per se.

What I am interested in is whether this is actually a sign of the times. Is the web making everyone a publisher and if so, what does that mean for the publishing industry as a whole? Is ADBE just one of the beneficiaries in a publishing-obsessed culture?

Twitter and Facebook, WordPress (and blogs in general) and Youtube, etc. have made everyone a publisher. Individuals, hobbyists, professionals, households, and corporations are all putting thoughts, information, CONTENT online and spreading it to the world. Google adwords is helping some monetize their publishing efforts, but overall, money doesn’t equal time any longer. As people spend more time creating information for free, the supply side of the information dynamic has blown away traditional publishing houses by driving down top line growth. Content used to be king. Then distribution. Now, just the tools for publishing.

I’ not really sure what the implications are going forward, and I have my own opinion on what happens when there is no privacy and room for foibles (WikiLeaks is a perfect example, namely, in the name of transparency, the day-to-day gossip and minutia will become threatening and force people to close-up, either through intuition or policy), but the business case is just as interesting. What happens to companies that do not publish? Can individuals afford to NOT control their on-line persona? Is the next step for individuals to spend ever greater efforts in marketing and controlling their publications? It should therefore not be that surprising to us that about.me just got bought out. The real question is who’s next.

OK, there are other things to look at

There are some funky moves happening in commodities and it will take time, perhaps even years, for all the dirty laundry to be aired and balance sheets to be cleared. At the center, of course, is JP Morgan (JPM) which has been rumored as getting squeezed in silver, while at the same time holding a dominant position in copper. One thing is for sure, there are big players afraid of revealing their hands.

Look at copper:

And now at silver:

And here’s just one of dozens of articles on JPM: this one from ZeroHedge.

Now if silver is going to squeeze higher, would that make copper the easier position to unload to cover any margin calls? Is JPM actually short, or just short against forwards from clients? In other words, is JPM getting squeezed on a timing issue or is it taking a prop directional position?

I have a long position in the precious metals and continue to see opportunity for them to be stores of value in a volatile time, but I’m not a big fan of the industrial inputs as I see a major slowdown coming. This might would put fundamental pressure on copper, which could result in a magnified move if indeed JPM gets squeezed as (if?) their silver:copper spread goes crazy.

Tech, PPI, and retail sales – do the numbers add up?

From Marketwatch:

NEW YORK (MarketWatch) — Treasury prices fell further Tuesday, pushing yields up again, after a pair of reports showed U.S. retail sales and wholesale prices last month were stronger than economists had anticipated.

The data should comfort the Federal Reserve that the economy is indeed improving, though analysts expect policy makers to maintain the central bank’s bond-buying program and target lending rate. Their rate decision and monetary-policy statement are due at 2:15 p.m. Eastern time.

Retail sales rose 0.8% in November and the PPI rose 0.8% and yet…BBY is down 14% on a huge top line revenue miss, coupled with a bad outlook. So consumers were either buying everywhere EXCEPT Best Buy, which is pretty unlikely given its dominance in the electronic space, or something in the numbers doesn’t add up. Nasdaq has been underperforming the S&P recently, and the question is which is the tail doing the wagging?

GM

I’ll say it: it’s selling off and will continue. Who’s buying it? High of the day was 36, it’s already at 34.50. It will trade below its IPO price within a couple of day, and then we can get back to business.

Maybe it’s Cisco…

Maybe today’s markets are down because of Cisco (CSCO). I say maybe because so many other things are in play today that it’s tough to assign “pure” causation.

• Ireland is on watch and borrowing costs continue to rise. If a new rescue fund isn’t set up soon, we could see an Irish default. Euro can’t catch a bid without cleaning up the uncertainty, and it’s down below 1.37 again, and I believe on its way much lower.
• DXY (USD index) is up above 78, so maybe the unwind of short dollar-long equities is taking place as well. Yes, the euro is the big drag on DXY, but the dollar-yen is now above 82 and heading higher.
• Phil Falcone’s Harbinger Capital is unwinding.
• And I still haven’t heard what happened with that missile in the Pacific.

So yes, Cisco mentioning a challenging environment going forward is probably part of the problem, but it’s not the only one.

BAC, Pimco and the great shakedown

If this is right, no wonder BAC is heading south in a hurry. Pimco has played the settlement and putback game before and been very successful at it, but this might just be a big step up. It works like this – Pimco buys all the MBS securities it can get it’s hands on, and goes on margin to buy more. Then they complain to BAC, the new owner of Countrywide, that the loans weren’t serviced properly and that it must buy them back. Brilliant? Dangerous? Yes.

BAC down 2.3%, pulling XLF down with it. Even GS is off its highs and I wouldn’t be surprised if that gets dumped and goes negative by days end.

AAPL earning out

Stock trading under 300 after being halted.

We’re updating!!

Over the next couple of weeks you’ll be seeing some updates to our site, to our daily digest, and to resources. Some changes will be cosmetic, like an upgrade to our newsletter design, while other changes will be more content based, like a “10 o’clock update” on market moves. As with all of our updates, the goal is to provide more timely, actionable investment and trading ideas. We look forward to receiving any feedback you may have.

Bankruptcy filings up 11%

This does not a recovery make.

U.S. consumer bankruptcy filings rose 11% in the first nine months of this year, versus the same period in 2009, the American Bankruptcy Institute said Monday, citing data from the National Bankruptcy Research Center.

Read the article here.

This should put continued pressure on the retailers and credit card companies. For starters, check out the chart for Amex:

For a look at how the economy is really doing – CAG

While everyone was waiting and watching an incredibly boring session pre-Fed, then a 30 minute interlude of head fakes, the real story today was ConAgra.

CAG cut their fiscal year outlook due to consumers buying less of the high margin products and higher cost inflation. This is a continuation in the theme we’ve discussed where luxury at every level is going to get discounted. Premium milk brands at DF were our focus a few weeks back, but it’s happening at every level. On the flip side, generics should be relative beneficiaries and companies positioned as low-price brands.

This also made me come back to the restaurant business, which one of (in not THE) largest employer in the country. Consumers cutting back spending – not good for restaurants. Higher price inflation in everything from corn to cheese – not good for restaurants. In the meantime, investors in YUM don’t seem to notice, but I think they soon will. Restaurants might be like retail in 2007-2008 – when investors start heading for the exits, there will be a lot of spilled milk.

So while the Fed continues to be the focus of attention, I think the real story today is CAG. At its heart, the news from the company confirms what most people already know – this isn’t a recovery by any standards and everyday costs are rising while assets (homes being our collective largest investments) are declining.

For the record, at the time of this writing I have no position in any of the stocks mentioned, but that is subject to change. This is not investment advice in any way, shape, or form, and readers are encouraged to do their own research.

Spoiled milk

The markets seem to be in a cheery mood, as does everyone on TV; so why am I still down? Spoiled milk.

Dean Foods came out with earning earlier today, and it wasn’t pretty. The company posted a profit of $44.79 million, or 25 cents per share, on revenue of $2.95 billion. That compares to a profit of $64.14 million, or 38 cents per share, on revenue of $2.67 billion during the same period last year. We’re talking a 30% drop in profits. The stock is down roughly 7% as I write this, but that’s not why I’m down (I have no position in the stock at the time of writing). I like looking at consumer staples for messages, and this one is loud a clear – consumers aren’t buying the brand name milk! They’re buying generic. They’re not buying less of it, just buying the cheaper version. That’s the problem, by the way, of selling commodities. When pressured, demand will flow to the lowest priced substitutes.

Anyway, if it was just DF, I’d hear the message, but not give it too much credibility. But Proctor & Gamble (PG) had the same message waiting. Earnings fell 12% from a year ago. Are people really switching out of their premium-brand toothpaste for the store brand generics?

DF already broke down a few months ago, so the market shouldn’t be THAT surprised. Could it go lower? Obviously. But in my mind, PG, which has held up well is even more vulnerable. It hasn’t participated in the recent rally, and its bretheren like JNJ, had a crappy month when the rest of the market was pricing in who-knows-what.

What’s next? Switching to generic drugs? Is there no end to the sacrifice? For all the inflation talk out there, these companies are sending us a message from the consumer. Spending is coming in, savings rates will rise, luxury and “wants” will be pressured, while “needs”-spending will flow to the lowest cost producers, pressuring margins and (I guess – eventually) valuations.

Disclaimer: no position in any stock mentioned. Not investment advice and should be used for informational purposes only.

BP – The clock has already started

What happens if BP goes bankrupt in the next few months? Setting 20 billion aside in a private deal with the White House surely won’t survive a judges review. What about paying out small claims to thousands if not tens of thousands of shrimp boat captains and motel operators? Will they be clawed back? How can they not be? What will that do to the small business owner? And what about all of their bilateral trades? I am not sure people realize just how many trading shops that could ensnare.

I am not a bankruptcy attorney and this is not my area of expertise, but I did trade through a number of counter-party bankruptcies and I know how hairy things can get. I can see it now – Florida vs bondholders vs shareholder lawsuits vs their NYMEX FCMs and banks vs gulf residents – a legal battle royal if their ever was one.

No judgments here – only a question.

BP oilspill and why I’m not a buyer

It’s just not worth the risk.

The BP oil spill will end up being the largest environmental crisis we’ve ever faced. It makes Three Mile Island look like a walk in the park. With estimates doubling or more on every level: barrels per day, cost, political capital, etc. it’s surprising BP has actually held up this well so far.  Some are now calling for using nukes to cauterize the hole (the Russians have done it before), and while I have no idea if the plan will work, I’m pretty sure it will have huge environmental and political implications for the administration that decides to do it.

In the meantime, BP represents a large portion of dividends on the FTSE. I read the statistic somewhere that it represents 1/7 of the yield, but can’t find the source now… So the British pensioners who own the stock are probably pissed at the company and by association pissed at the US for holding BP responsible. Tough luck for them.

Closer to shore – who wants to buy real estate on the gulf with the prospect of a nuclear bomb contaminating the water? Answer: no one. And Citibank knows it. So instead of foreclosing on homeowners they are generously offering to let them stay in their houses and deal with more immediate issues. Guess what, if you are still paying your mortgage to Citibank and you live in one of the zip codes they mention, you might feel like a sucker when everyone on the block stops paying their mortgage. Pretty soon, all the banks will follow suit and those homeowners will get a free place to live, subsidized by everyone else.

So BP set up a $20 billion fund in escrow – praying to anchor politicians expectations and hoping to cap their liability. Forget it. Everyone wants their piece of the BP pie. London might be smart to force BP to bring some money back home so that they can seize it before the US government does. How’s that for pre-emptive strikes?

So for now, with value players starting to move in, Bill Gross buying $100 million in bonds (sounds like a political token to me since PIMCO moves $100 million in a single trade), etc. I’m staying away. Maybe I’ll miss the upside of a bargain, but the risk of sitting through bankruptcy restructuring doesn’t seem worth it at these levels.

The Hard Trade or Greece Redux

In November 2009, amid fears that the dollar would crumble and with calls from central banks around the world to diversify assets, I discussed “the hard trade” of buying the US dollar against both the euro and yen – now, I stand by that investment. Since then, the currency markets continue to be a main focus for signals of stabilization, relative returns, etc. Greece and Portugal were just canaries in our global coalmine, and I have often written about them (pessimistically).

I continue to view Greece as a canary for the euro and the structure of the European union, but today I want to explore a new direction. The question I find myself asking is: when will Greece become a value play, if at all? 2-year Greek bonds are yielding roughly 13%. Is that enough to compensate for the risk of default? When everything looks so obvious, I often have to stop myself from buying into the mania – and that is where I am with Greece. Yes, the situation continues to worsen. Yes, the rioting in the streets looks bad on TV. I anticipate continued capital flight from the country. And yet…shouldn’t all this information already be priced in to the markets? Mind you, I’m not calling a bottom, or trying to catch a falling knife; rather, I’m exploring whether and when there will be potential in the space.

(Source: StockCharts.com)

Maybe the fall is not completely done…

Maybe I’m a bit early…

Maybe there’s no easy way to play it…

Or maybe…

There isn’t a Greece ETF trading in the US (although they appear so quickly, who knows if there will be one by the time I finish writing?). However, there are a few ADRs that look interesting, such as National Bank of Greece (NBG) and Hellenic Telecommunications Organization SA (OTE). Both stocks have recently been shunned by investors and reporting requirements are limited, but let’s at least recognize that there is some contrarian potential here:

(Source: StockCharts.com)

(Source: StockCharts.com)

With recent significant spikes in volume, it’s difficult to imagine that there are sellers left, or people who haven’t heard the news and already taken their stand. Going long anything Greek certainly seems difficult these days, but the hard trade is often the best.

(Disclosure: I have no position in neither NBG nor OTE, but I have exposure to short euro and yen positions. This is in no way a recommendation to buy or sell any security! These positions are subject to change at any time.)