Joined Jan 1, 1970
509 Blog Posts

A Dose of Reality, Please!

Leave it to the asshat analysts…..

S&P consensus forecasts are still lofty. Recent info from Bloomberg showed per share earnings of about $64 (2009) and $80 (2010). Do people realistically think earnings will grow 25% y-o-y in 2010? LOL!

If you compare what S&P 500 margins were during the recession of the early 1980’s, EPS estimates should be more like $38 for 2009, —-or, 40% below current consensus estimates. But on the other hand, we have the Obama stimulus package…. 

Do we have a lot of room to drop? Uh, ya.

Just saying……………

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Wicked Good Wednesday!

This market is destined to be one of the worst in the history of capitalism. But as for you, and the rest of us here, my friend, there is hope…and money to be made in the IBC blogosphere.

If your long term view on the market is still bearish, you can continue to short the S&P, with peace of mind, via SH. Why not SDS, you ask? Because of ETF fuckery, oh silly one. That’s right. The double leveraged doo-dahs, like SDS, are ministers of death—for bulls and for bears. Since early this blessed year, I’ve been positioning SH as a core equity holding in all my portfolios. Because it is intended to simply be the inverse of the S&P 500 Index, you can hold it, knowing that you won’t have to suffer the egregious tracking error, as you will with it’s voluptuous double-D cousin, SDS. As you may have already learned through trial and error, SDS should be day traded or swing traded. Short term stuff, indeud. The same holds true for QID, SKF, SRS and the new kids on the block like FAZ, ERY, etc. Use them to add alpha to your account—or, not.

Due to sector rotation, there’s usually a bull market somewhere. At least that’s my mantra. Your (and my) job is to find it, exploit it, and live to tell your neighbors about it, while sipping on fine cognac.

As bad as things might seem, right now, as the market melts down, there are actually stocks advancing. (Say what?) Today I bought IAG. Yesterday it was WMT, ORC and CHE. Btw, IAG and CHE are in the PPT top 10 stocks, as highlighted by The Chart Addict. If you must be a contrarian and go long right now, you must look for stocks that are trending and showing relative strength—and that means looking at stocks or ETFs trading above their 50 and 200 day MAs, as a rule.


ANDS, BWLD , EBS, EGO, EGY, ETQ , GMCR , GOLD , GPD , HANS , HMY , HOTT , KGC , LINC , LNCE , NFLX , OSIR , PEGA , SCO (dbl short oil), STEM (penny stock/biotech action), THRX , and ZN.

Most of these are healthcare/biotech or mining related. Other than that, not much else is drawing my interest in going long stocks.

I am still liking our greenback via UUP. …. and gold. Odd, no?

Currently, my investment model favors intermediate duration fixed income and cash over other assets, including, of course, stocks. (Can you say, “B-O-R-I-N-G” with emphasis?). Hey, sometimes you win by not losing, Buckwheat.

However, as far as stocks go, the model favors healthcare/biotech, consumer non-cyclicals and utilities over other sectors, and Latin America over all other emerging markets.

Happy trading!

P.S. Don’t forget to try out “The PPT“. For the pittance of a serf’s daily wage, you can have the privilege of tapping into a robust tool that is ripe with ideas, modeled after and distilled, from The Fly’s calculator brain—sans all that cussing. Plus, The PPT will never insult you, call you an asshat, or throw cans of corn at your nether regions. So, what’s not to like?

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Position Update

Equities:     30% 

9%     SH

5%     DOG

4%     RWM

5%     IAG

2%     WMT

3%     OCR

2%     CHE

Fixed:     28%

11%     LQD

11%     TFI

6%      TIP 

Currencies: 16%

11%     UUP

5%      FXB

Commods: 17%

9%     GLD

8%      SLV

Cash:     9%         

What a day. I let the market take out my stops in FXI, EEM and HYG today. Loaded up on gold via GLD and IAG (a value play on the gold miners). Also increased my position in SLV and added DOG, RWM for hedges on  WMT, OCR and CHE. Also, like the dollar here so added more UUP, cut back on FXB and added a little LQD and TFI to boot.

Funny how Obama signs the stimulus bill and the market tanks. Oh, well. We saw that coming. You….did see that coming, didn’t you?

Market at risk for new lows soon (I know, I sound like Devildog. Forgive me.) Sorry.

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Downgrade Coming?

It’s revenues have been flat over the past several years, and some analysts are forecasting a decline in their top-line over time, due to the recession. At the same time, company expenses have been increasing—at a record pace. Earnings have declined the past eight years and retained earnings have been in a deficit, with no improvement in sight.

In addition, the company is bleeding cash, forcing it to increase recent borrowings by 7-fold from Q2 to Q3 last year! On top of that, the net increase in liabilities on it’s balance sheet have now increased almost 5-fold….in the Q3 fiscal quarter alone! That doesn’t even take into account Q4, which won’t be reported until March 12, nor the current quarter-to-date in which borrowings are looking like they are keeping pace with previous quarters.

To make things even more challenging, a vibrant, new (but inexperienced) CEO was put in place in January, along with a whole new management team, with a whole new philosophy on how to turn the business around. Namely, they plan to keep borrowing money and increase capital investments in core, as well as non-core businesses, with that borrowed money. They also plan to increase product prices to their best customers, and reduce prices for marginal customers and even give away free products to attract new customers. Their hope is that all this activity and investment will stimulate growth, improve the bottom line and eventually increase the stock price. However, even some of their own accountants and financial advisers, have cautioned them that this stategy is risky and there is a high probability of it failing because it is not focused on the real issue: growing top-line revenue and reducing it’s burgeoning debt.

Currently, this company (unbelievably) still has a AAA-rating. But if you own the bonds, I’d recommend you dump them, soon. If the rating agencies don’t downgrade the company, the market will. Eventually the credit rating on their bonds, will be downgraded, via the magic of the market’s price discounting mechanism. Once this happens, the company will have a very hard time raising capital, and it’s cost of capital will increase. To date, it’s creditors have been very patient and have been getting paid, but there is trouble brewing even with the creditors, as they are facing financial challenges of their own at this time, and their desire to keep lending money to this company is questionable. The wellspring of cash might be drying up for this company.

Should this company be downgraded, or not?

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