Collapses, Corruption & Bailouts, Oh My!

Financial's and banking failures, the auto manufacturer's collapse, the Madoff debacle; I'm just waiting for one more shoe to drop and judge the market's reaction to it.  The recent settling of the markets (primarily due to the holidays) has been constructive in order for the indexes to put in a bottom.

At +492,000 Jobless Claims came in much better than expected with today's report.

Caterpillar (CAT)

Caterpillar (CAT 43.77), Ascending Triple Top Breakout, 12/17/08, p.o. of 58. I am watching for a push through $45.70 before taking any action.

Steve Jobs is Dead

No, not really.  That is the stuff of rumors and the very headline Microsoft would like to see while Apple shareholders would not.  While I wouldn't want to see Jobs go it is inevitable that he will and that Apple should get on with it sooner than later.  They need to shed themselves of this cult of personality created over the years.  The stock would come under pressure in the short term and considering their strong balance sheet, good product lines and market shares may present a nice buying opportunity.

Valleywag Blog

Gizmodo

Close Rydex Inverse 2X S&P 500

Close out any hedges, RSW.  The indexes aren't scary right now and down just 5 from the point the hedge was put on.

Q3 GDP at -.5% Afterall

The finalized Q3 GDP number was released today to be -0.5% coming in line with previous expectations.

BRCM (16.98)

Broadcom is looking pretty confident and trying to put in a bottom.  I'd love to see the stock now settle a little above its upturning 50 dma which is currently around $15.60.  We could be setting the stage for a leg up considering the 50 dma could turn to the upside coinciding with a possible breakout above $18.  

Perfect scenario: the stock trades within the 17 to 18 range for another couple of weeks allowing confidence to buildout a nice base.  At that point we'd be looking at an inclining 50 dma and a set up for a push through $18.  A move above 18 on heavy volume would be an all-clear.

AutoNation (AN 8.93)

Despite a possible White House bailout there is too much uncertainty surrounding this industry.  I'll let the entire position go for now and revisit.  I won't even mind buying it higher so long as some of the risk is mitigated.

AutoNation (AN 9.50)

AutoNation will find support at $8.10, incidentally right where the pre-market has it priced.  I'll show it the door if 8.10 can't hold.

Just short of posting it I'd thought that the White House would step up and provide the funds for the bailout out of the TARP money.  I think it's likely that they do but how the auto stocks will ultimately react is up in the air.  Seeking alpha but managing beta.  I've a very itchy trigger finger.

No Auto Bailout

The bailout for the US auto industry is seeing stiff opposition in the Senate.  Bloomberg article.

The US markets will be in for a rocky ride Friday as Asian markets are currently in the midst of a selloff with the Nikkei down over 5% and the Hang Seng down almost 7%.  

This failed bailout may be the stimulus that forces the markets to retest the bottom in short order. For the DOW that would mean nearly 7500, the NAZ, about 1300 and the S&P almost 740.  The RSW hedge put on at the close Thursday may help stifle the declines I expect.

What happens to our AutoNation position? There is too much uncertainty at this point and with an expected drop in the stock coming I'm going to be looking for the door.  

Is There Anything to Buy?

We'll watch these:

• Dollar Tree (DLTR 40.86); look for it to clear 42.20 on heavy volume (+4 mm)
• EZCORP (EZPW 16.35); operates over 400 pawn shops or payday loan businesses. Good economic climate for this sector. Good top line growth, strong balance sheet. They are currently expanding with the purchase of another 11 pawn shops in Nevada on the heels of a large acquisition last month of Value Financial Services. I'm looking for it to reach it's all-time high of $18.80 and hopefully offer up an entry point if the stock acts right.
• Caterpillar (CAT 42.20); Construction is down, the cost of steel is down, the stock has been beat down and spending on the US infrastructure may be on the rise.

Madoff

Bernie Madoff!  What the hell were you thinkin'? News like this regarding "investment professionals" will do nothing but further disenfranchise the American stock investor.

Rydex Inverse 2X S&P 500 ETF

The Indexes have reversed on the P&F.  Into hedge (RSW) right here, S&P 876.

URBN Getting Ripped

StreetInsider.com: Urban Outfitters Inc. (Nasdaq: URBN) 15% LOWER; Analysts note the company made cautious comments on sales trends in their 10-Q

And this is why you need an exit strategy with every position, even big winners.  With URBN it was time to book profits with a break below $20.

AutoZone (AZO $128.62)

Automotive replacement parts serve as a hedge against a slow or falling new car market.

Increased y/y revenues but lower earnings.  AZO is in the midst of a stock repurchase program. I'd like to see a break above 127 on heavy volume.  Lampert owns 40%.

AutoNation (AN 10.05)

Archiving some pertinent AutoNation news:

• 11/21/08 BusinessWeek: Gates discloses 10% stake
• 12/5/08 Tampa Bay Business Journal: Gates raises stake to 12.2%
• 12/8/08 Fox Business: Mike Jackson, "There will be a deal."
• 12/10/08 Miami Herald: Mike Jackson tells us why a bailout is needed

Carbon-based Life Forms

This is what it's all about.

Some day you'll wake up and discover that everything is worth nothing if you've done nothing with everything.  You must contribute.  You must figure out your way to a legacy.  Don't just breathe and consume.  Don't just take up space.  Don't just die another carbon-based life form. Maybe it's contributing your time.  Maybe it's advice. Maybe money. Whatever it is find your Carbon Way.

Auto Bailout

The "bailout" for GM, Ford and Chrysler has just passed the House.

Is the Sky Falling?

I've been advocating that a slowdown and, technically, a recession, was looming ominously for over a year and that defensive measures, positions and trades should reign supreme .  With all of the talk of another Great Depression, a worldwide collapse, and economic calamity I thought it time to gain some perspective.

It's been discovered now that the GDP was down .17% in Q4 of 2007 coupled with a Q3 2008 reading of -.25%.  Compare these reports with Q3 2001 of -1.4%, Q4 1990 (-2.99%) and Q1 1991 (-2.02%) and our current reports seem pretty tame.

The S&P is currently down approximately 45% from its high not unlike the decline of roughly 45%, peak to trough, following the 2000-01 slowdown and you can certainly draw parallels between the irrational exuberance of the internet bubble and the most recent real estate bubble. The S&P was off around 20% during the more orthodox and predictable 1990-91 recession bottoming in October 1990 preceding the Q4 1990 GDP report of -2.99% and the Q1 1991 reading of -2.02%, numbers that pummelled those of 2000 and 2008. The index went on to appreciate 25% by the end of Q1 1991.

I guess my point is this: it's futile to predict or gauge what will happen during this bout with a slow economy.  The economy has taken harder hits in the past yet the stock markets didn't react at the rate that we've seen in 2000 and 2008.  The great wealth effect of the world has created self-fulfilling prophecies.  The marketplace is now so complex, so dynamic, that the sheer magnitude and moving parts of the financial instruments, the immense scale of money flow is more culpable than bonafide economic activity.  It was simpler before the enormous marketplace - find demand, growth, and earnings and you can find ROI.  It was when research by way of EIC was simply Economy, Industry, Company.  You'd base your investments on companies that would perform in a given industry during a particular economic climate.  Now it seems to be EIC2 (squared); Economy, Industry, Company and Community (or Crowd).  And the community, the crowd, the cloud, well, therein lies the rub.  My thanks goes to Chris Skrinak, years ago, to opening my eyes on this.

So, is this going to be the worst financial crisis in our lifetimes? Worse than the oil shock of the 70s? Worse than the previous financial meltdown and real estate collapse of the 80s? Worse than Long Term Capital and the Asian Flu? Worse than the internet bubble? Worse than 9/11?

C'mon, is the sky really falling?  Or must you simply adapt, overcome and trade the market that we've been given?

Southern Company (SO 36.56)

Been keeping an eye on utilities.  Into a little Southern Company @ 36.47, underweighted.  

General Mills (GIS 61.73)

General Mills is simply not working for me.  Take the 5% loss and cut it loose.

Is Santa Coming?

Is this the beginning of the aforementioned Santa Claus Rally?

The indexes are making assaults on their resistance levels and the P&F charts are going double top breakout for all three today with price objectives of 10,600, 1890 and 1090.

• DOW closed at 8934 about 11 points (.1%) higher than my 8923
  
• NAZ, 1572, 18 (1.1%) short of 1590
  
• S&P, 910, 5 (.5%) short of 915

Sitting right on the resistance levels we'd indentified it will be interesting to see what happens now. Is Santa really coming?

Recent Successes

• Urban Outfitter's (URBN 20.68) support is $20.  A break below would warrant a sale of the position we'd taken at $13.76 on 11/20.
• Broadcom (BRCM 15.46), a break above $15.62 would be positive and even more so above $16.
• AutoNation (AN 10.16) has been very strong and hasn't taken a breath to allow another vest. It will run into trouble around $11.50-11.60.  I'm not identifying any point to get more  so, for now, just gotta' sit back, protect profits and watch.

Non-Farm Payrolls -533,000

The U.S. government reported that 533,000 jobs were lost and unemployment hit 6.7% in November, up from 6.5%. Read Forbes article.

Market Malaise

The US markets had a rough day yesterday:

• DOW -679.95
• S&P -80.03
• NAZ -137.50

Don't look at it as a buying opportunity. Don't look at an up day today as a buying opportunity. Outside of a few select names don't look at a bonafide buying opportunity until the resistance levels outlined yesterday are taken out.

Here's another article on the recession.

Take a Bite?

Our first entry into Apple (AAPL $89.50) was November 25, 2002, over 6 years and 1,300% ago. Due to the hype for so many years I've been apprehensive to enter again. Watching closely for a nibble. Apple is trading with a Current Ratio of 2 and just 6X cash. See their 10K.

Maybe we'll take a bite in the low 80s?

Pitfalls Everywhere

Pilgrims Pride files for bankruptcy protection citing higher supply (read grains) costs. We were looking at consumer staples and for companies that demonstrated financial stength with a product that consumers would seek out in a tough economy coupled with a brain trust of whales like Cohen so PPC popped up on our radar.

Here's a company on a run rate in '08 to produce nearly 16% revenue growth y/y but a gross profit that may have been cut in half and operating income that went negative. COGS simply soared representing 97.5% of revenues in the quarter ending 6/28/08 vs 88.8% in the same quarter of 2007. For a low margin business like chicken and eggs, the sky might as well have fallen.

Once again I'm glad that technical prowess staved off a purchase. Proof positive that buying from strength and not the bargain bin offers up the higher odds for success.

US in Recession

In a report released Monday, the National Bureau of Economic Research confirmed what many have long believed - that the nation is in a recession. According to the NBER, the official body that calls economic cycles, the U.S. has been in a recession since December 2007. Read CNN story

Imagine that. The writing has been on the wall for some time but fell short of any conclusions. My first mention of recession was 11/7/07.

AutoNation ($8.14)

AN has been acting a lot better since our last Add. In fact a triple top breakout was indicated on 11/28 and with a push through $8.67 I'd be a buyer again.