November Wrap-Up

$115 not weird, that’s what I’m coming up with once they start firming up ’08 forecasts (assuming those righ orders don’t cancel). I ran those numbers through and they will triple revenues in ’08 and more than 2/3 of their rigs are owned and I’m assuming that they didn’t know that they would be getting triple rates when they began building these things so lease costs (assuming there are) should be very manageable.

Since they seem to need very few additonal people to generate additional revenues (cost of revenue at $1.7Bn virtually the same as it was at $800M, same with SG&A). They’ve had no increase in long-term debt either, or any othe liabilities for that matter!

Cash is up $160M so far this year and last quarter they earned 66% of what they did all of last last year, which was triple the previous year!

Gosh I love this company!

If I could understand the nature of their contracts I’d be 100% behind them – can they be cancelled or modified or will they actually get those rates for the next 3 years regardless?

We’re working on it this weekend but I think next weekend is more realistic at the moment.

It’s a lot harder than you would think to coordinate all this stuff!

Nope, as far as I know they’re just taking names at the moment.

PFE/MRK – I hope you can read this NY Times article which analyzes how scrwed various industries are who pledged their support to the Republicans in echange for all sorts of political favors.

http://select.nytimes.com/2006/12/02/opinion/02edsall.html

The Repubs didn’s just ask for support for the last 14 years, they went as far as to ask their supporters to NOT support the Democrats, starving the party of funds and Pharma was one of the biggest lackeys.

It’s nothing a hundred million dollars won’t fix but, until they get their contributions lined up, expect to hear a lot of saber rattling from the Dems who have a pretty big axe to grind.

One good example they site is the trucking industry, who in 1990 used to split contributions 50/50, giving $750K to each party, now still give the Dems $750K but gave the Republicans $4.38M last year.

The way this backfires for the Republicans is that the Dems have built up a very strong alternate fundraising base and have learned to run lean and mean campaigns so all this extra cash that their new friends from Oil, Tobacco, Rallroads, Miners, Wal-Mart (LOL) etc. will suddenly be sending them in wagons will be found money and will tip the balance way against the Republicans, who will suddenly get the old “times are hard” speech from their old buddies.

Meanwhile, the Republicans are going to have a hard time sitting down with Greenpeace, George Soros, Solar Energy, Labor (ROFL) and other Democratic mainstays and hitting them up for donations so this may be the start of a long march to obscurity for the powers that were.

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In another great NYT editorial they point out the massive and continuing mishandling of the Katrina crisis where people are still homeless and the government just lost a lawsuit where a Federal Judge found that “FEMA’s aid application process was so convoluted and confusing as to be unconstitutional.”

http://www.nytimes.com/2006/12/02/opinion/02sat1.html?_r=1&oref=slogin

He likened it to a Kafka story, implying that the Administration purposely discouraged people from getting the aid they deserved. Effectively it seems that the government is so unbelivably evil that they came up with that idiotic credit card shceme specifically to foster the inevitably abuses by a small number of people so that they could showcase them and cause the general population to have less sympathy for the victims while they screwed them over.

Who says these guys can’t come up with a good strategy when they want to? Is it a pure coincidence that the net effect of the Government’s total mishandling of this disaster was to force thousands of people to relocate to Houston to prop up the local housing market, provide cheap, non-immigrant labor, spend money in the local economy and add to the need base (more Federal funds flow to Houston) of the President’s home town?

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Right Jac – remember my admonition from the other day “It is not your job to save the market!”

I’ve found that most people who follow the site are not great at the in and out game. That’s not surprising as it takes a lot of time and practice to jump those trains at just the right spot.

That’s why I’m moving towards more spreads to help people make good, safe(ish) plays that don’t require perfect timing (or staring at a screen all day, as many people work) to make some good money.

While shorting the open has been a gold mine the past two weeks, it would have bankrupted you for the first two weeks of the month so I hate to make sweeping statements like that as many people take them to heart.

If I were to gamble on one thing every day it would be that oil will hit a low between 1 and 2 pm and rise from there at least until 2:30 – I’d say that has happened 85 of the last 100 days but, again, kind of tricky to time just right and would require disciplined money management to profit from it (and, of course, the second people realize a large block is doing it they will squash it).

Phil,

I’ve found that most people who follow the site are not great at the in and out game. That’s not surprising as it takes a lot of time and practice to jump those trains at just the right spot….That’s why I’m moving towards more spreads to help people make good, safe(ish) plays that don’t require perfect timing (or staring at a screen all day, as many people work) to make some good money. — Yes.

Good, it’s too difficult to keep up with your ins and outs, and I would appreciate long-term safeish plays and also education as to how to do this on your own. How did you learn what you know, btw?

Ilene

Ilene, Barry, I2 et al – I’m going to set up sample portfolios and track them and they will be posted at lease EOD rather than weekly.

The problem with the spreadsheet and no staff is I have bitten off more than I can chew so, by collecting a little money for the site, I can make those that want to follow this sort of thing very happy by keeping trades updated in comment and with hard copies at each day’s end.

It will be a work in progress though as it’s never been attempted before and I’m kind of leaning towards setting up several sheets, rather than just one for all types of trades.

We will also be eventually (by spring) setting the comments up for intra-day alerts that will be a big help to people who can only check in once in a while and I think clearly deliniating positions as either “intraday” or “day trade(ish)” vs. “short-term” “long term” and “income producing” should help people right away by knowing whether they have time or inclination to follow them or not.

I’m thinking of elaborating on trading policies and getting a little more preachy re. money management so my sample accounts will have an allocation of cash and a unit allocation for trades.

IE: We allocate 5% of our option budget for each postion which will equal 100 units per position.

We enter, for example 10U XOM $75 puts for $1.

It drops to .50 and we DD with 5U XOM $75 puts for .50 (basis .75)

It drops to .30 and we DD with 15U XOM $75 puts at .30 – now this is complicated because we are buying A LOT more contracts here – let’s say that we bought 10 and 10 but this time we are buying 50, reducing the basis to .42

XOM goes up to .45 and we sell 15U (35 contracts) for .45, a .03 profit.

It continues to .60 and pulls back to .50 where we sell 5U (12 contracts) more for a .08 profit.

It drops down to .30 again but there are still 10 days left so we DD again (+ 10U), reducing the basis to .37.

It hits .45 and we take 10U off the table for another .08 profit and ride the rest to .75 where we close with a double on 10U.

Thats’s about as simple as I can make it but feel free to suggest other ways to do it better! Not everyone starts with the same amounts but that’s how I run a volatile position and you can see why I don’t spend my entire day trying to keep everyone up to date on 40 open positions.

When I comment in the dailies it’s usually because I feel strongly about a top or a bottom in the trade but it would require quite a team to post every move (if it wasn’t for electronic trading, this would not even be possible).

The amounts I post to spreadsheets are sometimes averages of 5 or 6 moves, like the XOM example and all that work yielded (since it went bad fast and never gave me a chance to build into it) was roughly a 75% overall gain on 20% of 5% of my account (0.75%).

This may not sound very sexy to you but if you multiply that by 50 trades a month, that’s a nice overall improvement to the portfolio!

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As to buying vs. anticipating, I have rules for entering trades and rules for exiting trades – I do need to clarify them and I often break them myself (which is usually a bad idea anyway!).

I can’t make trades for people and, as I am not a “professional financial advisor” I can’t do anyting other than tell you what I would do at which point you should consult your professional financial advisor as to risk tolerance, timing, entry and exit strategies etc….

Without learning more about you, your overall portfolio, your financial postion, you mother’s maiden name, your swiss bank account number, your hopes, your dreams, your aspirations etc. – obviously all I can do is tell you what works for me.

One thing I realized is that people were coming here and just trading oil, which is crazy as oil is just 20% of my portfolio. The reason we talk about it a lot is because most of the other picks behave themselves and go up like they’re supposed to so what is there to talk about?

Oil is fun and volatile and still up over 300% for the year on my picks, despite the recent, very unpleasant run (I was an oil bull early last year!) so we talk about them but new people come out of left field every day and get the wrong idea about what we’re doing and it is just not as much fun for me so I decided smaller is better but smaller will never support itself with ads so, like Tom, I have decided either this will work as a paid site or I will just move on to another project.

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David – Spreadsheet line is in the body of this post as well as in the 2nd comment of the day. Picks are pretty much daily and will be available on the paid site only as of (probably) Dec 11th.

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MOT – this is the end of the market that scares the analysts as they think it will canabalize sales of high-margin phones but AT&T and BLS did very well for many years selling $15 princess phones to everyone in America so we’ll have to see how this shakes out.

ESV I like a lot! I’m trying to decide how to play it but expect something by tomorrow morning.

CHL – as I said earlier in the week, I only buy Chinese companies when they are very cheap and CHL isn’t quite there yet but I’ll be keeping an eye on the $40 line.

RTH – not yet but too much more warm weather and we may have to!

AEOS was not that bad – why pick on them? JOSB is my favorite at the moment and FD once they stop falling. Both are in the post I am currently working on.

Don’t worry size – although many have tried, no one has yet found a way to shut me up when I want to talk about something!

SBUX – I hope they drop to $30 so I can take leaps but they are just about ready to turn I think. They have a beat coming up on 1/31 so we do need to get in by the 12/15 before the earnings premium goes through the roof.

They were only in-line last Q on 20% sales growth which is pretty scary but I think it’s just growing pains. Still I’m hoping for a juicy downgrade or a market correction to drag them down so I can get a discount, rather than a reasonable price, which is where they are now.

In a market vacuum – they should bottom out at about 33.50ish but it won’t take much to dunk them another 10% if it’s timed right.

I don’t THINK it will get away from us with more than 50% of the retailers disappointing (but it is the SBUX end of retail that’s doing well) but anything can happen if Cramer gets his way tomorrow.

Also, I strongly object to Sharper Image being classified as a retailer in the same way I object to GM being classified as an auto company – it’s a disaster that throws off the curve for everyone! Pier 1 is not much better and they scare people out of the home furnishing category as it doesn’t seem to occur to people that maybe just no one want’s their particular stuff…

Lots of energy stocks in MDY, that plus utilities make up 19% of it. Then you have financial services at 17% and they are underwieght in media, telcom and consumer goods (6.5% total) so they are the perfect index for the same old, same old rally that we’ve been having all year.

Of course you see a break-out and I see a possible double top but, if I’m wrong, I’m going to be very wrong (which is why I’m in cash becasue I really have no idea which way it will go) so it’s a play to keep an eye on.

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PFE – LOL, I’ve stayed away from them despite their strength because of my concerns about the Dems (I think I talked about this earleir today) and NOW they may finally get me to buy. This industry needed a good sell-off and this could be it!

We could luck out on this as “Cramer notes that drug stocks are having a post-election rally and are screaming “buy, buy, buy!” with the exception of Pfizer, a “challenged company” which has fired a lot of people to “create an upside surprise by lowering its bar.” That was from the 11/30 recap in SA!

I’ll be looking at puts so remind me in the morning to check on a possible play but it’s more likely it’ll go too fast to chase, even with Cramerites jumping in thinking they’re getting a deal…

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BBY and CC – they are stocks so I don’t like them right now…

Actually CC I am still nervously holding both as we picked BBY up on the 14th and got nicely ahead so I decided to hold out into earnings despite the week’s drop. On the whole, I regret not selling at 50% up.

CC we just got the leap on the 27th and I sold calls against them so I don’t care if they go down a bit.

PLCE – I took that trade on the 13th because they delayed results over options shenanigans, not because I don’t like the buisness, which is why I kept an itchy trigger finger. In fact, I took half of that first day with a 23% gain, allowing me to ride out the bounces down to the 20th where I lost faith coming into the retail announcements.

That’s the reason I walked away rather than buy more as they rose back to $68, I don’t think, in the end, the options will be such a big deal, the company’s a huge grower and I think they’ll have a great holiday so they may make a good long-term play but you need to be prepared for some pain just in case the options issue is bigger than we think.

At $55 I’d jump in as that would be too cheap and I would be thrilled to load up the truck at $45 but I wouldn’t fight the market buying it here.