rovo's Market Journal -- 2011

[rovo]

Ford grossly missed earnings expectations this morning when they reported $0.30 per share vs. expectations of $0.48. It is still early and the reasons for the miss are not fully apparent. On the plus side I think they announced they are now $1.5B debt positive, mneaning they have more cash than the total of their debts. We will probably get more info announced during the conference call.

Ford posts lower profit, pays down debt8:28a ET January 28, 2011 (MarketWatch)
NEW YORK (MarketWatch) -- Shares of Ford Motor Co. fell as much as 7% in premarket trade Friday, after the auto maker said its fourth-quarter profit tumbled 79%, partly on a charge related to a big debt payment.

Ford said its fourth-quarter net income fell to $190 million, or 5 cents a share, from $886 million, or 25 cents a share, in the year-ago period.


Adjusted income in the latest quarter totaled 30 cents a share.

Revenue dropped to $32.5 billion, from $34.8 million.

On average, analysts expected Ford to earn 48 cents a share on revenue of $29 billion, according to a survey by FactSet Research.

During the latest quarter, Ford took a previously disclosed $960 million charge for completion of debt conversion offers.

Ford said it reduced outstanding automotive debt by more than $1.9 billion during the quarter, and by a total of $14.5 billion in 2010.

Ford Motor Credit Co. said its pretax earnings in the fourth quarter fell to $572 million from $714 million.

Shares of Ford fell $1.24 to $17.55 in premarket trades on Friday. Ford closed Thursday with a gain of 2.3%, bringing its one-year rally to 63%.

Full-year sales rose by $4.6 billion to $120.9 billion, riding a wave of buying interest across the sector that helped Ford notch back-to-back annual market-share gains for the first time since 1993.

Looking ahead to 2011, Ford said it expects its full-year U.S. total market share "to be equal to or improved from 2010."

"Full-year automotive structural costs are expected to be higher, as the company increases production to meet demand and makes further investments in new products, technology and growth," Ford said in a press released. "Commodity costs also are expected to be higher this year, reflecting increased global demand."

Ford posted a 6.7% increase in December U.S. sales and claimed the biggest full-year improvement for any full-line manufacturer in the industry with its 19.4% surge in 2010.

The big year illustrates how far Ford has come from the 2006-to-2008 period, when it lost about $30 billion during the brutal industry downturn.

The Dearborn, Mich.-based auto maker's total profit for the year reached $6.6 billion, an increase of $3.8 billion from last year.

[rovo]

GDP data below expectations but the market seems to have shaken off the impact.

U.S. economic growth accelerates to 3.2% rate8:59a ET January 28, 2011 (MarketWatch)
WASHINGTON (MarketWatch) -- The U.S. economy, fueled by gains in consumer spending, grew at a faster pace in the fourth quarter, raising hopes that it's on self-sustaining path, government data showed Friday.

In its first estimate of growth in the fourth quarter, the Commerce Department said gross domestic product rose at a 3.2% annual rate between October and December, faster than the 2.6% pace in the prior three months.

Economists had expected a stronger 3.5% growth rate, however. See MarketWatch economic calendar.

In an important milestone, the level of GDP in the fourth quarter exceeded its previous peak.

This means that the economy has now moved from a recovery phase into an expansion phase of the business cycle

For all of 2010, the economy increased 2.9%, marking the biggest annual increase since 2005.

Still, the Federal Reserve concluded earlier this week that the economy isn't growing at a sufficiently strong pace to make a "significant improvement" in the unemployment rate.

The U.S. central bank decided to keep in place a $600 billion bond-buying program designed to bring down long-term rates and push investors to take more risks and spark more activity. See more on the Federal Open Market Committee and monetary policy.

Consumers, typically the mainstay of the economy, fueled the faster pace of growth In the fourth quarter: Their spending increased at a 4.4% annualized rate -- after having averaged 2.2% over the first three quarters of the year.

Shoppers were out in force over the holidays, and auto sales were also strong.

Spending on durable goods rose 21.6%, while spending on nondurable goods gained by 5% and spending on services increased 1.7%, according to the Commerce Department.

Consumer spending added three percentage points to GDP.

There's been some debate among economists over whether this pickup is sustainable. Indeed, consumers dipped into their savings in the quarter, as the savings rate declined to 5.4% from 5.9% in the third quarter.

Details

Outside of the consumer sector, inventories were a significant drag on growth.

However, this was largely offset by a positive contribution from the trade sector.

Final sales for domestic product, considered a measure of domestic demand because it excludes inventories and trade, jumped at a 7.1% rate in the fourth quarter after rising a slim 0.9% in the third quarter.

Investment in equipment and software increased at a slower pace in the fourth quarter.

Business investments rose at a 4.4% annual rate in the quarter, down from a 10% gain in the third quarter. Investments in structures rose a tiny 0.8%, and investments in equipment and software grew by 5.8%, downshifting from 15.4% in the prior quarter. Business fixed investment added only 0.4 of a percentage point to growth.

Inventories increased by $7.2 billion in the fourth quarter, down sharply from $121.4 billion in the third quarter. The deceleration in inventories subtracted 3.7 percentage points from growth.

Net exports added 3.4 percentage points to growth, however, as imports declined. It marked the first positive contribution from trade to GDP this year.

Investments in housing rose at a 3.4% annual rate in the fourth quarter, a reversal after a steep 27.3% drop in the third quarter.

Government spending fell at a 0.5% annual pace, with spending by state and local governments down 0.9%. Federal spending dipped 0.2%, including a 2.0% drop in the volatile defense spending category. Government spending subtracted 0.1 of a percentage point from growth.

Underlying inflation continued to moderate in the fourth quarter. Although the headline personal consumption expenditure index accelerated to a 1.8% increase in the fourth quarter from 0.8% in the third quarter, the core rate slipped to 0.4% growth from a 0.5% pace in the third quarter.

[livinincali]

Unfortunately F lost the 50 day moving average and first support level at 17-17.10. It still could rally later today and close over that level but I wouldn't be surprised to see selling accelerate if it doesn't get back up there soon. 15.50 is now the target. There was no way I was going to get into F with a short before earnings, it just was looking too strong but the TA seems to have been right by flashing various warning signs that it could be topping. Of course I along with everybody else thought it would likely allow one to get out without taking so much damage. It been a bloodbath for stocks that missed earnings this quarter for any reason. I guess we were priced to perfection and there must be some hedge funds that we're really levering up into some of these stocks. There's really no way to explain it other then being forced to get out because of a margin call.

[lovetobike]

Positive news for POT - and I just learned that they are going to a 3:1 stock split in Feb.

www.mineweb.com/mineweb/view/mineweb/en/page72102?oid=119359&sn=Detail&pid=504

[yclept]

Bum day! Took away all gains from the last four days and left me in the hole $200 for the week. I guess today was the sparrow's day to fall.

[livinincali]

Bum day! Took away all gains from the last four days and left me in the hole $200 for the week. I guess today was the sparrow's day to fall.

Today took me by surprise somewhat but based on how overbought the market had become and the sky high optimism based on various measures we knew this day would show up someday but we didn't know when. Based on recent history Feb 1st should be an up day for the market and will likely present an opportunity to get out on a bounce but it wasn't that long ago that the bears got destroyed waiting for that pullback. Might not be surprising to see this market show no mercy to the bulls.

[yclept]

Actually, I think the situation in Egypt had more to do with the market fall today than anything else. Monday, much will depend upon the action there over the weekend, but I expect the market response to be short-lived. If the army sides with the people and protects them from the police, Mubarak will most certainly go. Then the market will wrestle with the longer term question of what will (in terms of a government and its attitude towards the US and Israel) come next. If the army reinforces Mubarak, then from the market's point of view it will be a short term non-event, but with the uncertainty inherent in a fuse that has been snuffed, but for how long.
I think it will work out okay. This is not an Islamic revolution. It is a popular insurrection against a repressive regime. I don't think the people of Egypt would tolerate replacement of one dictator by a Sharia form of government that would be equally repressive. My opinion is that they are going to have to work it out themselves. The US is tapped-out both militarily and economically. Russia, which has far less interest in intervention is similarly strained (they lose more soldiers every day in the Caucasus than the NATO forces lose in Afghanistan) and their economy is similarly stressed. I guess if anything goes totally amiss, it will be up to Israel to bomb the hell out of Egypt -- not a pleasant prospect for them or any other interested party.
I think Monday afternoon may represent a good buying opportunity for value stocks, especially if the downward market action today is continued Monday. Market action today leveled out after noon and there were several large spikes up and then back down after hours. I think the average investor who lost a lot today will throw in the towel on Monday, to insure he catches the bottom of this move.
There will probably be a week or so of rough sledding for those of us short gold.
Sorry to have gone so political in this post, but politics does move markets, and I think it was the major contributor today.

[lovetobike]

A couple of my Ag stocks didn't seem to care what was going on in Egypt - the other responded. here's the update:

DE: -2.28%
AGU: -1.47%
POT: +0.01%
MOS: +1.41%

[ModE98]

Seeking Alpha article on F, for any interested...
seekingalpha.com/article/249420-ford-the-rubber-meets-the-road?source=email_watchlist

[lovetobike]

Mod - I read through the comments and the one about all of the older engineers retiring with the only option to hire new grads is enough to make me consider selling out. I teach at a University and texting in my classes is rampant. If I were to try to control this, I would do nothing during class but police texting. When I have 100-200 students in a class, confiscating cell phones is not an option. I have a friend who has hired some of the undergraduate engineers for the research lab associated with our campus and he says the caliber has dropped considerably and they are looking elsewhere for there new hires. I don't know if he'll be able to find them.

These students don't "get" that they are going to be faced with making the future hard decisions, creating the newest innovations to keep our country going, etc. They find college "hard" yet they get an outline of the class notes beforehand, practice problems, practice quizzes, and we grade inflate the crap out of them because we've been told that the President wants our university to be a "Student Friendly" university. If the students don't get their demands, they b@#$ch on their student evaluations and the University takes them quite seriously -- unless a prof is a researcher bringing in tons of grant dollars and if a prof is doing that, they aren't teaching undergrads. I barely have time to get my content figured out before I walk into a class with all of the "pre-prep" crap I'm expected to have ready for the students before I walk into a classroom.

What is scary is that our University has been ranked the number one University that employer's look to for new hires. Maybe we are squeaking out more prepared students that I'm aware of - I really hope so. But I also read that one of the criteria was that we make them go for 16 weeks instead of 15 weeks like the rest of the Universities/Colleges in the country. Oh, and back to the cell phone use, believe it or not but a lot those call are from the kids "helicopter" parents who can't let their kids go and become grown ups. You wouldn't believe the number of parents who call prof, upper admin to complain when their "perfect" little Johnny or Jane doesn't get the grade that they "know" s/he deserves. In my opinion, 90% of our education problems (secondary education thru college) is from the parents. yet we keep pointing fingers at the schools, teachers, funding etc. No folks, the parents need to support the teachers, set up their discipline structure such that the kid is more scared of the punishment at home than the punishment given at school if s/he acts up, and model to the kids that school is the priority.

I apologize for the diversion. God help us all once this next wave of retirees leave the work force.

[ModE98]

lovetobike... we are probably doomed to Banana Republic status within 20 or so years, as China and some others in the Far East begin to rule the world. They put full emphasis to education and have high standards... no excuses. Here come the new engineers and intellectuals of the next century or two (if the world does not become totally "unglued" before this one is out).

[rovo]

I can't speak for all disciplines of engineering but over my career as an Electrical Engineer, primarily computer hardware and software for industrial control, I've seen what appears to be a lack of knowledge and "caring" for designing good products.

I returned to R&D after a 10 year stint as a divisional VP and the state of the products was deplorable. In one case a motor would not turn off completely when commanded to do so. It turns out there was a minor software error and when I confronted the responsible engineer about the error he said he was aware of it but didn't feel like fixing the problem as it was too mundane for him. This guy was a generation and a half younger than myself and was only interested in working on stuff he considered cool. It just boggles my mind how an engineer would let a known problem exist in a product, especially a potentially lethal problem. This engineer left the company shortly after our conversation and the last I heard was working as an engineering supervisor for a military products firm.

[yclept]

Ha!

last I heard was working as an engineering supervisor for a military products firm

If that's the case, then I can guarantee you that MIL I-45208 tore him a new one. Whether he cared or not, he learned to care!

It's funny because my last interaction with new engineers was totally positive. I found the degree of knowledge they had from school to be enviable. They had actually studied topics that I had had to assimilate on my own on the job, such as the incorporation of electronic controllers -- things that didn't really exist when I was in school in the mid 60s. They knew more about the devices, knew better how to incorporate them, program them, debug them -- well, suffice to say, compared to them I was an antiquated idiot. I'll grant you my last job with other engineers was in the nineties before mobile phones were handy or ubiquitous and the internet was still in its infancy, so I had no experience with the distracted former students that lovetobike is talking about. They call it "multitasking", but I think it's really only "distracted"!
Jobs I had after the mid nineties were strictly manufacturing -- I was the only person in the last place who had a degree in engineering, and we weren't doing any engineering. Which isn't to say that there wasn't a lot of knowledge about metals, welding technology, machining (and yes, by then it was almost all CNC) amongst that workforce. They just weren't degreed engineers. We were building big equipment that other people had designed!

A funny thing at the end of my work days was that it was almost impossible to find an old fashioned machinist. One who could make good parts with a big manual mill (granted with digital read-outs). All the kids coming out of trade schools and junior colleges didn't know how to fixture for big parts, they'd never seen a facing cutter larger than an inch in diameter (let alone a 12" cutter); they couldn't determine how deep a cut could go over a varying width surface without wasting time or alternatively breaking off carbides; they couldn't determine "from the song" how much vibration was tolerable before they would get chatter in the part. They were used to the idea that you wrote the program, clamped the part in the machine and walked away to have a smoke while the machine made the part -- fine for little stuff, but not for the equipment that makes big stuff.

With respect to engineering graduates, it would be interesting to know if the percentage going on to pass the EIT and PE tests has changed between the old days and now. If they're passing the PE, they must know something!

[yclept]

I take it back, I did work with another engineer at the last place. For awhile we had a young mechanical from MIT (how he ended up at our place is beyond me, but he was kind of a "get-my-hands-dirty", "artsy-craftsy" kind of guy, and I think he liked the fact that we were actually making impressive stuff). He stayed with us a few years and learned about heavy manufacturing. It was great having him around, one of the few people to whom I could say "let's do it like this" without having to explain a bunch of "whys" -- he knew exactly where I was coming from and if he had a better way to do it would just counter my proposal with what was usually a better idea. On the rare occasions where his idea wasn't better, it was usually due to safety considerations and I'd have to tell him a little story about a time when something like this "got away from us". Sometimes I could even point to the 6" deep gouge in the concrete floor that represented the former mishap! Fortunately at that place, none of them represented a loss-of-life, or even serious injury, but it had been luck that they didn't -- you only get so many of those, one mustn't count on being lucky!

[IPAfan]

I've recommended this stock before, and will hopefully continue to recommend it going forward. I've been long ENH for probably a bit under a year now, and am up a little over 30% on the position. The discount to net asset value has closed by a bit since I opened the position. The company trades just a hair below its tangible equity per common share.

This insurance company has proven to manage its underwriting well, and has provided an excellent combined ratio since its inception. The company has earned excellent returns on equity, and has provided solid absolute returns in a time that's been poor for the market. Endurance seems to consistently grow its book value in the 15-20% range so the company should provide good returns at this price if it can continue to grow at this rate.

The company just bought back all of the shares of one of the founding investors in the company. I'm a bit disappointed to see Richard Perry leaving the party (he's an excellent investor and has been here since the start) but I suspect he's just realizing a nice profit, and selling one of his largest positions. The buyback amounts 15% of the shares of the company, and the buyback was done at about an 8% discount to the NAV per share.

I still think that it can be quite profitable to buy this company now, and sell it when the PPS gets to 1.3X NAV. Perhaps Richard Perry knows something I don't. However, I think that buying back shares should help the company focus on niche insurance lines that let it write business that keeps the CR in the 80s.

[rovo]

Friday's rout took me from a 6% gain for the month to a slight loss for the month. Huge swing and it sucks. Oh well, let us see what today has in store for us. At this point a break even January would be better than where the port is right now.

[yclept]

Rovo,

Repeat after me: aum, eggs and baskets --- aum, eggs and baskets --- aum, eggs and baskets --- aum...

Yclept, guru of eggs and baskets; much practice attained a couple of years ago with Cemex. :-(

The jewel is in the lotus.

[yclept]

Beerfan,
I bought CRD/B which is an insurance company that one of my value screens pulled. I think this might be the first time I've ever owned an insurance company. I thought I'd mention it as a lot of your investment emphasis lately seems to be in that industry.
I looked at your ENH which looks similarly attractive from a value perspective. But technically ENH looks like it's already been running pretty hard the last 6 months or so, whereas CRD/B (I like to think) has been basing and resting for a sprint up!

[rovo]

Yclept: Repeat after me: aum, eggs and baskets --- aum, eggs and baskets --- aum, eggs and baskets --- aum...

I don't know about eggs and baskets but every position I hold went down on Friday. So, unless you mean I should have been in cash, my eggs were not all in one basket. The decline in Ford share prices was well less than half of my loss on Friday.

[yclept]

Sorry. I just assumed that since F went down so badly on Friday that it was responsible for most of the loss. Maybe I'm just gun-shy from the tremendous beating CX gave me a year or two ago when I let it get to too large a percentage of my port. The more it fell, the tighter I held on -- or even added to the position. Maybe I learned that lesson too well as nowadays I'm having trouble getting fully invested. I've upped my position size on some of the latest buys, and taken multiple positions of a few tickers, but am very reluctant to go whole-hog into anything. Combine those factors with me finding it harder to find attractive values anywhere, and the cash position keeps getting bigger.
As I mentioned above, I bought some CRD/B today, but my limit of 3.65 didn't let me get much of it (only 597 sh as opposed to the 2200 I was trying to snag) -- then it ran away from me.
Sigh.

[livinincali]

Looks like we got the standard first on the month rally today. That seems to be the foolproof monthly trade. Buy a couple calls on last day of the month and you'll get paid the next day. I made a mistake today by selling a couple calls too early and picking up a few puts. Bad idea on the puts but that first little wave down stopped me out of the calls in the morning and I thought the gap might have filled. In the end I just broke even. Should have given the calls a little more room on the stop, but oh well. Back in cash and expecting another major rally into February. People just can't seem to get enough equities.

Thinking about trying a TBT play but this thing still hasn't broken out of the range. My EUO trade is a bit underwater and I should probably just give up on this now but I'll give it a little more time. I'm also long SLV via AGQ again as it looks like it's got a solid bottom in.

Went long on TSYS for a technical play but it's not confirmed yet. Really needs to finally break the 50 and 200 day moving averages at 4.60 or so.

TTT is looking pretty good for beer, RSI is about to break over 50 and it's got a nice big bullish candle followed bya typical pullback, if it can get above 7.80 I expect it to rally hard. Play on this from a TA perspective is long with a stop at 7.40 or so.

F managed to bounce perfectly off of 15.50, it's weird to see a target like that actually hit so well, but the lack of strength on this bounce probably means it's going to retest 15.50 in the near term and if it doesn't hold 14.50 or so is the next target. That was out major break out spot on the way up and sometimes that's a good spot for a retrace. It also happens to be right around the 50% retracement of the 5 waves up from $10/sh back in July 2010.

ENH looks ok but it has a lot of the same topping signals we've seen in a lot of stocks recently. It has negative divergences on the MACD and RSI. Wouldn't surprise me to see this stock make a new high if the stock market rallies from here, which it should, but it will likely continue to exhibit negative divergences as it makes new price highs. ENH earnings are 2/9/11 and with virtually every stock selling off on the news it wouldn't surprise me to see ENH earnings set some kind of intermediate top, although I don't follow the company much and don't know what it's trading tendencies are for earnings.

[rovo]

I'm trying to get out of TQQQ at 169.80 and FAS at $31.82. These were both short term trades.

The value on the TQQQ equates to 57.20 on QQQQ. Both trades are looking iffy at this time.

[yclept]

Just to reinforce my boni fides as "probably-not-all-there", this morning I bought 300 EGPT @ 17.84. Right now it's sitting at 18.15, and I've put a limit sell GTC on it for 18.45. So far so good.
Obviously I'm not looking for this to score big, but I am hoping for it to score fast!
Wish to hell I was able to snag the full amount of CRD/B that I was trying to get yesterday. Right now it's up 9.3% from my buy -- whoops, make that 10.13%! It's just so hard to work with this low liquidity stuff.

Edit: EGPT -- it's up, it's down, it's up, it's down -- I'm beginning to think I threw a rattler into a hot frying pan, and it wants to bite me in the worst way, but it also wants to get out of that pan. I'd like to throw more wood on the fire, but I'm too busy shaking the pan to keep the rattler in the center. Haven't had this much fun in a long time!

[rovo]

I was looking at EGPT yesterday but it looks a little better today. I THINK things are actually calming down a bit in Egypt. It may not look like it but I do believe things will work out OK.

[rovo]

QQQQ has gone horizontal since about 12:30. The Bollinger Bands are very tight on the 1 minute chart and contracting on the 15 minute chart. I don't think it will close in the current trading range of 57.06 to 57.12. Something has to give but I don't know which way it will go when it breaks out. If I had to guess I would say the breakout will be upward since today's trend is up.

[livinincali]

QQQQ has gone horizontal since about 12:30. The Bollinger Bands are very tight on the 1 minute chart and contracting on the 15 minute chart. I don't think it will close in the current trading range of 57.06 to 57.12. Something has to give but I don't know which way it will go when it breaks out. If I had to guess I would say the breakout will be upward since today's trend is up.

Should get another move up to complete a 5 wave move up. Might not be a ton of upside because the 3rd wave extended but at least some upside. Then we'd expect to see some kind of pullback and depending on how that pullback takes shape we can try to decide what the structure is. Based on what's happened in recent months today should be the kick off to another decent rally in February, but you never know this could just be some kind of short capitulation top.

[yclept]

Boy, did I blow that. Went in to take a shower and came out to find that EGPT sold at my limit of 18.45. Right now it's sitting at 18.905. Oh well, no sense crying over spilled milk. I didn't really have any good reason to want to own it anyway.
(18.45-17.84)/17.84 = 3.4% in a couple of hours.
(18.905-17.84)/17.84 = 6% C'est la vie! C'est la guerre!

[klewcm]

I'm beginning to think I threw a rattler into a hot frying pan, and it wants to bite me in the worst way, but it also wants to get out of that pan. I'd like to throw more wood on the fire, but I'm too busy shaking the pan to keep the rattler in the center. Haven't had this much fun in a long time!

yclept, Thats quite a visual !

[mtntigger]

Feb 1, 2011 12:44:53 GMT -5 rovo said:

I'm trying to get out of TQQQ at 169.80 and FAS at $31.82. These were both short term trades.

The value on the TQQQ equates to 57.20 on QQQQ. Both trades are looking iffy at this time.

Thank goodness I saw your note before the power went out at my house. I was able to put in an order and sold mine at the high today. Yeah, yeah, I know, you've told me to be patient but I really wasn't comfortable holding FAS right now with all the talk here and the DOW hitting 12,000 again.

[rovo]

I figured it was a new month and would clean house of all my lingering short term trades. I closed out FAS and TQQQ in both accounts and reduced my holdings in ATW from 4K to 2K since it was near the 52 week high. All of the closed trades were profitable.

I still have 2K of HI to sell from a swing trade while I intend to stay with the 15K long term. Also, WHX (5K) will be sold off if I can find the correct time (price) to do so.

So now I'm at 32% cash and I don't know what to do with it. I guess I'll just look for good chart set-ups and see what happens.

I'm going to hold onto GLL for a bit longer and see what happens with GLD. If I'm going to lose money on this trade then it will only be a few percent. I'm in the red at this point but only by a small amount.

Cash account sold 2K FAS +2.72% and 500 TQQQ +0.15%.
Tax exempt sold 1K TQQQ +3.00% and 2K ATW +22.17%