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Friday, March 29, 2024

Friday Already?

Wow, this week flew by!

We should always have 4 day weeks – I find I get plenty done in a 4 day week and a lot more done in a 3-day weekend…  What a busy week it was too, but we'll save that for the wrap-up.  Let's see what's going on today.

Sanyo is being investigated by Japan's SEC for some pretty major accounting fraud.  Apparently they booked only $500M of $1.5Bn in losses from subsidiaries and put the rest under a rug that GS walked right over when they became one of the company's largest shareholders.  The stock dropped 21% this morning in Tokyo trading, costing Goldman a cool $200M+ on their Billion dollar holding (this is why we should always be diversified!).

Sanyo's shares also face the risk of being delisted if accounting problems are found, analysts say. "We can't deny the possibility of a share delisting," Credit Suisse analyst Koya Tabata said in a report. In the past, companies such as Livedoor Co. have been delisted by the Tokyo Stock Exchange for inaccurate financial statements.

Despite this Enron-sized scandal the Nikkei climbed to another half a point, possibly because of a deal between the London and Tokyo Stock exchanges to move towards a 24-hour system (one of my predictions for 2007).  If you feel like you're missing something now in overnight trading – wait until your whole virtual portfolio is live 24/7!  Plays I like based on this news are SBUX, Red Bull and No-Doze…

The Hang-Seng pulled back slightly in reaction to poor Dow numbers but we expected that and sold FXI calls yesterday so that's all according to plan!  Australia continues to post new highs as commodities come back but India took a big hit as Pakistan tested some nuclear missiles under their new treaty.

Europe has now gone an entire week doing nothing of note!  Italy's Prime Minister had a temper tantrum and quit but now he says he might come back " if, and only if, he gets guarantees of full support from all coalition parties."  If this works for him, maybe Bush will try it too!

Last night I mentioned that the Paulson's Presidential Working Group surprisingly concluded that there was nothing wrong with hedge funds, especially if we keep them very exclusive, so they are raising requirements to kick out those losers who don't have $2.5M of liquid assets.  The President's group has decided the problem with hedge funds isn't that they manipulate the markets and corrupt the process by moving large blocks of capital under the radar and colluding with their peers – the problem is that "middle class" investors were able to benefit…

Let's not underestimate the impact of this report, cutting loose "small" investors is no loss to the funds, they like the private club atmosphere and they just got the green light to kick out the undesirables.  More importantly, there was no talk of increasing regulation which explains the manic manipulation we're seeing again in the commodity markets despite a snowballing downturn in housing that threatens to grind the economy to a halt.

Well, if you can't beat them and you're too poor to join them, I guess we may have to start betting with them!  Let's hope we can hold our levels to finish the week:

If we can't hold on here, we are going to have to take some solid covers into the weekend!

Iran will sustain oil over the weekend, we took some small entries yesterday and we'll hold off on adding more unless our targets firm up as tops.  We took mainly longer contracts so we have lots of time to work into the position but we need to add cover here as well.

I'm not going to rant about how ridiculous oil pricing is as we are going to go with the flow today but I will just point out that the BP Statistical Review of World Energy lists 7.6 Trillion barrels of RECOVERABLE reserves.  With global consumption at 82Mbd, let's say 100Mbd, that's 76,000 days or 208 years worth of oil! 

The dollar story is still unwinding and the WSJ has a nice summary of the week's action.  Gold needs to put up or shut up at $700, much like the SOX, the Transports and the Nasdaq, they were much higher last spring so we're not impressed with these levels yet.

Nonetheless, we will be adding a gold sector watch to the oil sector watch we published yesterday.  I will do an extensive report over the weekend on the members site but here's a few for everyone:

 

We've been in and out of NAK and MRB for the past 2 years and both are part of my regular 401K holdings but lately they've been on a tear, NAK in particular as it released a very good report on it's principal development project.  Both still have room to go as gold heads higher.

GG shrugged off a PRU upgrade and headed lower with the metal yesterday but earnings are on 3/8 and analysts have set a very low bar after they missed last Q by 26%.  Analysts are fairly negative on them but I think the Apr $30 calls for $1 make a fair gamble.  In the big picture GG seems to have overpaid for Glamis' production but the real story is the Pensaquito development, which is bigger than expected.

MFN at $11 is a nice long-term play (all these are providing gold holds $660) as they are in very early stages.

NEM is sitting on resistance at $47.50 where it may be held down but I like the Apr $50s for $1.

I will gladly pay $4.40 for AUY Jan '09 $15 since I can sell April $15s against it for $1.  No hurry on the sale though as we may be breaking $15 on 3/20 earnings.

AZK at $3.57 is just ramping up production and is my first selection for the CNBC challeng as they just popped through the $500M level.

================================================================

I'm going to cover with some positive oil plays into the weekend:

CNE sold off way too much for a company paying a 5% dividend and a p/e around 10.  Aug $12.50s were trading with no premium yesterday at .70  and the stock isn't a bad buy and hold at $12.83.

PBR, which we do hold puts on, is challenging the 50 dma at $96.50.  Apr $100s for $1.85 are playable with a 25% stop.

RDS.A was only stopped by the 200 dma yesterday.  They got clobbered on Jan 2 as Russia kicked them off a major project and oil prices dropped in January but they've been buying back lots of shares and the July $70s are $1.80 and worth holding through a test of $67 but get out otherwise.

Let's keep an eye on the VPU Utility ETF, they're a little heavily weighted to EXC and DUK but the whold sector grinds steadily higher and the fund pays a 2.5% dividend, which gives us a good entry point every quarter as it pulls back the month they go ex-dividend.  DUK had a split-off a Spectra which tanked the index in Jan (I know, stupid) so it really should be higher than it is right now.  I'd like to see it pull back a bit but the long contracts are VERY cheap for an index that has gained $1.50 a month with great regularity for 2 years.

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Richard Manoogian of MAS was on CNBC making some good points about the lagging effect of declining housing starts as it takes almost 6 months to finish a home so the layoffs don't come for 6 months after the building permits start to fall.  This does not bode well according to this chart:

Housing Starts Chart

Gosh that's a big drop!

Mortgage rates are at a 6-week low so let's keep our eye on the builders…  Maybe time to look at some possible short plays:

BHS is still flying high and I like the Apr $40 puts for $2.60 and selling the Mar $40 puts if it starts heading the wrong way on us.   

MDC made a nice comeback from $39 in September but got firmly rejected from $60.  Jun $50 puts are pretty cheap at $1.50.

I wish NVR had options as they are going to have a hard time holding $700 but at $722 they still make a nice short as $750 makes an obvious stop to set.

We already have the PHM Mar $30 puts but I'm going to pre-roll into the Apr $30 puts for $1 too.

SPF Apr $25 puts for .60 make a nice entry.  We already closed the March $25 puts with a double at .30 earlier this month.  If the stock bounces off $27.50, there is just a .45 spread between the March and April $30 puts as well.

WCI flew up 50% since Carl Icahn got involved but earnings on 2/27 will remind investors why they all bailed out in the first place.  The $22.50 puts are expensive at $1.20 and I'd rather take a small gamble on the $20 puts at .30.

Barry Ritholz posted an excellent image showing we are now firmly in year 2 of housing crisis denial:

Janhousing

I should make a similar collection for peak oil, or oil crisis, or Iran crisis, or Nigeria crisis, or China demand, declining production, summer driving, cold weather….

Have a great weekend,

– Phil

 

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