A final note as the market ticks down to the close, thanks for visiting.
Thanks to the newcomers.
Thanks to the folks who have been coming by since we started the blog in 2007.
Because we don't have the time to moderate comments, thanks for taking the time to email your thoughts, suggestions, disagreements and recipes.
In what has become a bit of a tradition we wait until Dec. 31 to post JibJab's latest.
"So Long to Ya, 2010"
Friday, December 31, 2010
A final note as the market ticks down to the close, thanks for visiting.
We may be seeing a turn toward the megacaps as the bull gets older, the period of Russell 2000 outperformance may be about to end, with GE's move foreshadowing the change.
From Schaeffer's research:
Trading Tools: General Electric Set to Finish 2010 Near Fresh Highs
Short- and long-term traders have tame expectations for GE
With 2011 just hours away, I thought it was appropriate to look at General Electric Company (GE), which is in the midst of a year-end sprint. During the past several weeks, GE has staged a rally along its 10-week and 20-week moving averages, and is now within a stone's throw from annual highs.
Like most stocks, GE took a huge hit in May with the "flash crash," and then again in July as the market hit what Ryan Detrick dubbed a "four-year cycle low." However, despite the year's hiccups, GE has added over 20% in 2010, and is resting above strong technical support heading into the new year.
However, GE hasn't just piqued my interest; long-term option players have also targeted the Dow heavyweight lately, as evidenced by its multiple appearances in the Schaeffer's Most Active Options filter on Thursday.
Traders took a liking to GE's January 2012 20 call on Thursday, with over 2,400 contracts changing hands. However, this activity was not necessarily bullish, as nearly all of these calls crossed at the bid price, suggesting that they were likely sold. Open interest at this LEAPS option increased by 1,585 contracts overnight, confirming that a fresh batch of short positions were added here...MORE
The stock is number three on the list while trading down 1/2% at $4.74.
From Dow Jones, click through:
From Reactions Magazine:
There are lessons to be had for the insurance and reinsurance industry in Nassim Nicholas Taleb's new book, says Reactions contributing editor Garry Booth.
Read more: [Nassim Nicholas Taleb]
Nassim Nicholas Taleb, celebrated author of the Black Swan: The Impact of The Highly Improbable and, before that, Fooled By Randomness: The Hidden Role of Chance in Life and in the Markets, has got a new book out.
Like its predecessors, The Bed of Procrustes: Philosophical and Practical Aphorisms, will resonate strongly with risk practitioners in the insurance and reinsurance business.
Perhaps more importantly, this time Taleb’s philosophy is served up in bite sized chunks, so we could all get around to reading it. (Be honest, you haven’t read it, but how many times have you cited the Black Swan yourself, or nodded sagely when someone else dropped it in to the conversation?)
Taleb has a healthy disregard for financial services people and the journalists that write about finance, describing them variously as imbeciles, empty suits and philistines. But this new work wasn’t written as a collection of aphorisms simply to help unimaginative dunces like us “get it”.
Taleb says he is also rescuing the aphorism from the triteness with which it has become associated – the sort that is woven and framed on the wall of that Bed & Breakfast in Brighton perhaps?...MORE
So much of what he says could be aimed directly at the insurance underwriter, the broker, the modeler, the investor, the corporate risk manager, and the chief executive.
In fact, try attributing each of these examples to any of the aforementioned people above:
To bankrupt a fool, give him information.
In science you need to understand the world; in business you need others to misunderstand it.
An erudite is someone who displays less than he knows; a journalist and consultant, the opposite; most others fall somewhere in between.
It is as difficult to avoid bugging others with advice on how to exercise and other health matters as it is to stick to an exercise schedule.
Randomness is indistinguishable from complicated, undetected, and undetectable order; but order itself is undistinguishable from artful randomness.Here at The PseudoProfound Group we believe...
Jan. 20, 2009
Technical Analysis: S&P Black Swan Formation
We looked at a couple of these little critters, SharesPost and SecondMarket in mid-2009.
This one could be a big deal, what with the hype created by secondary (typing the word I can't get over how un-'33 act it sounds) trading of Facebook.
Xpert Financial Inc., with high-profile backer Tim Draper behind it, is to unveil its private company stock exchange on Friday with a vow to revolutionize the secondary market.
The San Mateo company, which changed its name this month from XChange, says it won approval from the Securities and Exchange Commission to operate an online electronic trading operation similar to the Nasdaq.
The startup has raised almost $3 million from Draper and other angels and expects to see trading kick off in the first quarter. Draper is founder and managing director of Draper Fisher Jurvetson, but invested in the company outside of the firm.
The startup made waves in February 2009 when it first took money from Draper but was slow to get off the ground. Chief Executive Thomas Foley (pictured) says it remained in stealth as it worked with the S.E.C. Xpert is presently seeking an institutional round of capital that Foley says targets several million dollars.
He adds that the S.E.C. approval gives Xpert an immediacy that the other marketplaces, SharesPost and SecondMarket, lack. The company’s business plan is to trade not only private company shares in the secondary market, but to give startups the option to raise money by issuing shares directly, as they would in a private placement with venture capitalists or other investors....MORE
Here's the latest from Barron's Hot Research:
By Sandler O'Neill + Partners ($32.00, Dec. 29, 2010)
We are maintaining our Hold rating on shares of Allstate and increasing our price target to $32 from $31. We value Allstate shares by applying a price-to-book multiple of 85% to our one-year forward (fourth-quarter 2011) estimated book value of $37.89 to reach our $32 price target.Also at Hot Research:
Allstate (ticker: ALL) is an interesting stock.
First, it is -- perhaps -- the only large public insurer where there is a fundamental story to be told. Not much is really happening in our view at companies such as Chubb (CB), Travelers (TRV), or Ace (ACE). Allstate, on the other hand, should be enjoying an improving personal-lines marketplace. It should be enjoying higher earnings from its pricing efforts in its home-insurance and independent agent channel. It should be enjoying more stable earnings from its life-insurance unit with the more stable financial markets.
Second, it looks inexpensive on a price-to-book value basis. At 90% of book value versus its large-cap public peers at 95%, Allstate's shares look inexpensive versus its peers.
Third, its overall results are not that bad. Its operating return on equity was about 10% last quarter. We expect the company to report about a 9% operating return on equity in 2011 which isn't that bad compared with many other insurers.
Nevertheless, we remain cautious on Allstate's shares.
First, we are unconvinced by Allstate's third-quarter results that it has the fix for its troubled home-insurance and independent agent channel. We have basically given up on its troubled non-standard auto-insurance business rebounding. The non-standard business has been in decline for years. Its life-insurance operation is probably a stable or declining business in the future based upon what little we know of the current strategy.
Second, we think earnings expectations are too high for next year. Our 2011 earnings-per-share estimate of $3.60 is lower than consensus of $3.88. Perhaps this is more a criticism of analysts' expectations, but we think the stock will have trouble moving sharply higher if it keeps missing earnings expectations.
Third, the fourth quarter is not over, but it is not looking terribly good. We know from Progressive's (PGR) results that October was a difficult month for weather-related catastrophe losses. December isn't looking terribly good either.
Fourth, we anticipate investment marks will be negative for most insurers (including Allstate) due primarily to the difficult municipal bond market. To Allstate's credit, the company has been warning of a problem for some time and it has been reducing its municipal-bond investment portfolio.
Nevertheless, Allstate's investment leverage is higher than most of the property-casualty insurers we follow, and that means that its book value will likely be impacted more than most of the property-casualty insurers we follow.
We recognize that most of our concerns are short-term in nature. Fourth-quarter book value marks will be reported in a couple of months along with any potential fourth-quarter earnings disappointments due to weather in the back end of the year. It is also quite possible that analysts' expectations will decline to a more reasonable level soon.
-- Paul Newsome
-- Edward Shields
Why Finisar Should Acquire Oclaro
Cree's Brighter Outlook
CNBC titled the piece with the more suggestive (and ominous):
Will Rising Bond Yields Set Back the Stock Market?
While some traders fear rising bond yields could crimp stocks' gains, some bond strategists do not expect interest rates to rise beyond the range of the past year.
"We look at 2011 as a trading, not trending year," said William O'Donnell, who heads rates strategy at RBS. He expects the 10-year yield to stay in a range of 2.75 percent to 4 percent, the top of its 2010 range."I know the economy is percolating along. Our economic staff does not think it's sustainable at the pace we've seen in the last couple of months," he said. Some of the worries are a possible, further 7-10 percent decline in housing prices, high unemployment and now, rising gasoline prices, he said.
Higher rates caught the attention of stock traders once more this week, as a thinly traded bond market saw rates ricochet higher and lower, around two Treasury auctions Tuesday and Wednesday.First, the Treasury's 5-year auction Tuesday suffered from seriously weak demand, kicking off bond selling and triggering a resulting inverse move higher in yields.
Treasury yields then relaxed going into Wednesday, as buyers moved in, and finished the day lower after a strong showing at the Treasury's $29 billion 7-year auction.
The 10-year ended Wednesday with a yield of 3.37 percent, well below Tuesday's 3.48 percent close, and very near where yields began a volatile trading day Tuesday morning. The 10-year yield again edged higher to 3.4 percent Thursday, after a much stronger-than-expected Chicago purchasing managers' report.Peter Boockvar, equities strategist at Miller Tabak, said aside from this week's action, the recent backup in rates since November is indicative of more to come."I think the violence of the move is pretty telling. It's not like this is a small market. It's a multi-trillion dollar market, trading like an internet stock, which is pretty amazing. It tells me there's a definite change here," he said. "The main theme in 2011 is that it's the bond market more than anything that will determine how equities go. There's nothing that can spoil a party in equities more than higher interest rates."
Wells Fargo Advisers chief equities strategist Stuart Freeman, however, does not see rates as an issue for stocks going into next year. "If you move up to 4 percent or even 4.25, perhaps that's something that's going to be more of an issue," he said. He expects the 10-year to be at 3.5 percent at the end of 2011, but he says that level could be surpassed if the economy proves stronger than expected....MORE
The folks at Bloomberg seem to understand just how sharp Faber is.
It was thanks to his bottom calling in February 2009, two weeks and 9% early, that we were able to call the turn within 24 hours of the March 9 bottom.
From our March 3, 2009 post "Marc Faber: Stocks Poised to Rally":
Mr. Faber's comments were originally reported on February 23, the S&P 500 opened that day at 773.25. In the intervening week, the market was down over 9%.
From Bloomberg via MoneyNews:
Investment guru Marc Faber, publisher of The Gloom, Boom & Doom Report newsletter, sees better times ahead for the stock market.
That may surprise many, given that stocks dropped to fresh lows this week as the government wrestled with bank bailouts and rumors of nationalization in the financial sector.
But Faber tells Bloomberg that the economy and markets have slumped so badly that they should soon rebound — at least a little bit...MORE
Marc Faber, who advised investors to buy U.S. stocks in March 2009 as the Standard & Poor’s 500 Index began a rally of as much as 86 percent, said U.S. Treasuries are a “suicidal” investment.
Government bonds are likely to decline, said Faber, who publishes the Gloom, Boom and Doom report. After bottoming in December 2008, the 10-year Treasury yield rose as high as 3.9859 percent in April on government measures to stimulate the economy. Concern about a second recession in three years sent yields lower through October.
“This is a suicidal investment,” Faber said in a telephone interview from St. Moritz, Switzerland. “Over time, interest rates on U.S. Treasuries will go up. Investors will gradually understand that the Federal Reserve wants to have negative real interest rates. The worst investment is in U.S. long-term bonds.”...MORE
How's this for a pull-quote:
...Mr Pettis said China must slow from the blistering growth rates of 8pc to 9pc over recent years as it reaches the limits of its investment-led export model. "It will be very bad for commodity exporters," he said.From the Telegraph:
A study by Fitch Ratings concluded that global commodity prices would fall by 20pc if China's growth slows to 5pc next year. China is now the global price setter for oil, coal, and base metals. It was has snapped up 30pc of global copper supply this year....
HSBC's manufacturing index fell from 55.3 to 54.4 in December, the first drop in five months. The slowdown suggests that the authorities are at last gaining traction in their ever-more zealous efforts to stop over-heating, though many analysts say the credit bubble has already gone too far to avoid trouble next year.
The spectre of Chinese monetary tightening has now become the most neuralgic issue in the world economy. There are fears that Beijing may knock away the central prop of global recovery if it misjudges the delicate task.
Capital Economics said Chinese growth has been even stronger than suggested by official data, reaching 10pc in the fourth quarter based on freight levels, electricity use, and building footage. This blistering pace is no longer viewed as benign since it implies that China will have to brake harder.
The central bank has nudged up reserve requirements for banks five times and raised a range of interest rates, including a surprise move over Christmas to lift the one-year lending rate to 5.81pc. Beijing bared its fangs again on Thursday, pushing the money market rate to a three-year high of 6.25pc. Tightening fears has triggered a 12pc fall in the Shanghai stock market since early November. ...MORE
We see our old pal Inner Mongolia Baotou Steel Rare Earth Hi-Tech Company Ltd. is only fifth in the allocations.
We have so many posts on rare earths that it is easier for the reader to use one of the 'search blog' boxes, keyword rare earth.
From Technology Metals Research:
On December 28, 2010 the Chinese Ministry of Commerce announced the allocation of rare-earth export quotas to individual companies operating in China, for the first half of 2011. Including a provisional allocation of a small export quota likely to be awarded in March 2011, the total allocation for H1-2011 is 14,508 t of rare-earth materials. As previously mentioned at TMR, there was some initial confusion in the subsequent press reports on the numbers associated with the announcement – or more specifically comparisons with H1-2011 figures.
The individual allocations of quotas are listed in the table below, divided into lists for Chinese- and foreign-owned companies. The two lists are sorted from highest-to-lowest allocation. It can be seen that the rare-earth enterprises operated by Rhodia (Baotou Rhodia Rare Earth Company and Liyang Rhodia Rare Earth New Materials Company) and Neo Material Technologies (Zibo Jiahua Advanced Material Resources Company and Jiangyin Jiahua Advanced Material Resources Company) received between them the majority of quota allocations for foreign-owned companies, operating in China.
The original announcement was published on the Ministry’s Web site, in the Chinese language (naturally). Associated English language versions, picked up and reported on by the mainstream media, neglected to include some interesting details on how the allocations were made to the individual companies.
Allocation of rare-earth export quotas to individual companies in China, for H1-2011. Source: Chinese Ministry of Commerce Exporting Company: Chinese-Owned Allocation (tonnes) Baotou Huamei Rare Earth Hi-Tech Company 954 Inner Mongolia Baogang Hefa Rare Earth Company 750 Leshan Shenghe Rare Earth Technology Company 750 China Minmetals Corporation 747 Inner Mongolia Baotou Steel Rare Earth Hi-Tech Company 740 Shandong Pengyu Industrial Company 709 Gansu Rare Earth New Materials Company 689 Yiyang Hongyuan Rare Earth Company 594 Sinosteel Corporation 584 China Nonferrous Import-Export Company Jiangsu Branch 493 Jiangxi Golden Century Advanced Materials Company 432 Guangdong Rising Nonferrous Metals Group Company 431 Xuzhou Jinshi Pengyuan Rare Earth Materials Company 410 Jiangxi South Rare Earths Hi-Tech Company 401 Ganzhou Chenguang Rare Earth New Materials Company 374 Grirem Advanced Materials Company 333 Ganzhou Qiandong Rare Earth Group Company 329 Funing Rare Earth Industry Company 327 Jiangsu Geo Quin Nano Rare Earth Company 251 Changshu Shengchang Rare Earth Smelting Company 196 Guangdong Zhujiang Rare Earth Company 166 Ganxian Hongjin Rare Earth Company 102 Exporting Company: Foreign-Owned Allocation (tonnes) Baotou Rhodia Rare Earth Company 867 Zibo Jiahua Advanced Material Resources Company 805 Jiangyin Jiahua Advanced Material Resources Company 481 Yixing Xinwei Leeshing Rare Earth Company 440 Liyang Rhodia Rare Earth New Materials Company 324 Huhhot Rongxin New Metal Smelting Company 296 Baotou Tianjiao Seimi Rare Earth Polishing Powder Company 251 Baotou Santoku Battery Materials Company 127 Baotou Huaxin Smelting Company 93 Pingyuan Sanxie Rare Earth Smelting Company* 62 Sub-Total: Chinese-Owned 10,762 Sub-Total: Foreign-Owned 3,746 Total for H1-2011 14,508
* The quota allocated to Pingyuan Sanxie Rare Earth Smelting Company is provisional, and will only be allocated once its infrastructure improvements have been inspected and approved by a local regulatory agency in March 2011.
Thursday, December 30, 2010
NASA's STEREO-B spacecraft is monitoring a vast hole in the sun's atmosphere--a "coronal hole." It's the dark region denoted by arrows in this extreme ultraviolet image taken during the early hours of Dec. 30th:From io9:
Coronal holes are places in the sun's atmosphere where the solar magnetic field opens up and allows solar wind to escape. A stream of solar wind flowing from this coronal hole should reach Earth on Jan. 2nd or 3rd--the first solar wind stream of the New Year! High-latitude sky watchers should be alert for auroras....MORE including a great pic of the monster.
The northern lights could be headed south to a night sky near you
The spectacular lights of the aurora borealis are rarely seen outside the Arctic Circle, but fierce solar activity might soon send them southward. The continental US, Japan, and even Mediterranean Europe may all get a taste of the northern lights....MORE
Oddly enough just yesterday I picked up Gary Weiss' "Born to Steal"* for the first time in five years.
Today the New York Post reports:
Mobbed-up stock scammer pleads guilty to gambling charges
Quarterly report, page 24:
The effective income tax rate was 29.7% for the nine months 2010 compared with 30.3% for the nine months 2009 and 29.7% for third quarter 2010 compared with 30.8% for third quarter 2009.
The Internal Revenue Service (the “IRS”) is in the final stages of its examination of the Company’s U.S. federal income tax returns for 2007 and 2008. The Company has received notices of proposed adjustment from the IRS primarily related to certain foreign tax credit and transfer pricing matters that could result in an additional tax liability of about $600 million, excluding interest and potential penalties. We believe the adjustments are not justified and intend to pursue all available remedies. The Company cannot predict with certainty the timing of resolution; however, the Company does not believe the resolution will have a material impact on...
The Internal Revenue Service (the “IRS”) is in the final stages of its examination of the Company’s U.S. federal income tax returns for 2007 and 2008. In connection with this examination, the Company has received notices of proposed adjustment from the IRS primarily related to certain foreign tax credit and transfer pricing matters that could result in an additional tax liability of about $600 million, excluding interest and potential penalties. The IRS could raise similar issues for the 2009 and 2010 tax years. We believe that the Company has properly reported taxable income and paid taxes in accordance with applicable laws and that the IRS proposed adjustments are inconsistent with applicable income tax laws, Treasury Regulations and relevant case law. We believe the adjustments are not justified and intend to pursue all available remedies. The Company cannot predict with certainty the timing of resolution; however, the Company does not believe the resolution will have a material impact on its results of operations or cash flows.
Here are the top 10 technical charting developments that happened during 2010 as selected by our crack staff of technical analysts. See if you agree...
10. Apple surpassed Microsoft in market capitalization on May 26th and gained over 50% on the year.Apple is currently valued around $298 billion, while Microsoft's market cap is around $239 billion. Both recorded around $65 billion in sales for the prior year. No prizes for guessing which is growing the fastest.
9. Shanghai Composite continues to show relative weakness.While the S&P 500 zoomed to new highs in December, the Shanghai Composite ($SSEC) peaked in early November and moved lower in December.
9. Shanghai Composite continues to show relative weakness.While the S&P 500 zoomed to new highs in December, the Shanghai Composite ($SSEC) peaked in early November and moved lower in December.
HT: Investment Postcards from Cape Town
Global oil wealth to rise by 2trn barrels
New technology in the future could boost the world's proven oil resources by nearly two trillion barrels....
Although the current global oil reserves in place are estimated at 14 trillion barrels, only about 1.2 trillion can be recovered, said Khaled Al Buraik, executive director of the government-controlled Saudi Aramco.
HT: Next Big Future who also directs us to:
Speaking at a seminar in Riyadh, Buraik said the quantity of oil extracted so far worldwide does not exceed one trillion barrels.
"Advanced technology in hydrocarbon production could add around two trillion barrels to the existing proven crude reserves in the near future," he said in his address, published by Saudi newspapers on Monday."The real challenge for scientists and engineers is how to access to nearly 11.8 trillion barrels to meet the growing world needs of hydrocarbon in the future...what is needed now is more effort by scientists and specialists in this field to invent new methods and very advanced technology."
Buraik said such efforts are needed to cater for a rapid rise in global oil demand, expected at around 40 per cent in the next 20 years. He said the rise in demand would be a result of technological developments and increase in the global population to nine billion in 2030 and 11 billion in 2050.
Saudi Arabia controls nearly 265 billion barrels of proven oil, accounting for nearly 22 per cent of the world's total extractable crude wealth.
Other oil heavyweights include the UAE, with around 98 billion barrels, Kuwait, with 101 billion, Iraq with 115 billion and Iran with over 120 billion barrels.
We last checked in on their big ideas in 2008's "IBM Reveals Five Innovations That Will Change Our Lives in the Next Five Years: Solar technology will be built into asphalt, paint and windows".
ARMONK, NY - 27 Dec 2010: Today IBM (NYSE: IBM) formally unveiled the fifth annual "Next Five in Five" – a list of innovations that have the potential to change the way people work, live and play over the next five years:HT: Future Pundit
• You'll beam up your friends in 3-D
• Batteries will breathe air to power our devices
• You won’t need to be a scientist to save the planet
• Your commute will be personalized
• Computers will help energize your city
The Next Five in Five is based on market and societal trends expected to transform our lives, as well as emerging technologies from IBM’s Labs around the world that can make these innovations possible.
In the next five years, technology innovations will change people’s lives in the following ways:
You'll beam up your friends in 3-D
In the next five years, 3-D interfaces – like those in the movies – will let you interact with 3-D holograms of your friends in real time. Movies and TVs are already moving to 3-D, and as 3-D and holographic cameras get more sophisticated and miniaturized to fit into cell phones, you will be able to interact with photos, browse the Web and chat with your friends in entirely new ways.
Scientists are working to improve video chat to become holography chat - or "3-D telepresence." The technique uses light beams scattered from objects and reconstructs a picture of that object, a similar technique to the one human eyes use to visualize our surroundings.
You'll be able to see more than your friends in 3-D too. Just as a flat map of the earth has distortion at the poles that makes flight patterns look indirect, there is also distortion of data – which is becoming greater as digital information becomes “smarter” – like your digital photo album. Photos are now geo-tagged, the Web is capable of synching information across devices and computer interfaces are becoming more natural.
Scientists at IBM Research are working on new ways to visualize 3-D data, working on technology that would allow engineers to step inside designs of everything from buildings to software programs, running simulations of how diseases spread across interactive 3-D globes, and visualizing trends happening around the world on Twitter – all in real time and with little to no distortion.
Batteries will breathe air to power our devices
Ever wish you could make your laptop battery last all day without needing a charge? Or what about a cell phone that powers up by being carried in your pocket?
In the next five years, scientific advances in transistors and battery technology will allow your devices to last about 10 times longer than they do today. And better yet, in some cases, batteries may disappear altogether in smaller devices.
Instead of the heavy lithium-ion batteries used today, scientists are working on batteries that use the air we breath to react with energy-dense metal, eliminating a key inhibitor to longer lasting batteries. If successful, the result will be a lightweight, powerful and rechargeable battery capable of powering everything from electric cars to consumer devices.
But what if we could eliminate batteries alltogether?
By rethinking the basic building block of electronic devices, the transistor, IBM is aiming to reduce the amount of energy per transistor to less than 0.5 volts. With energy demands this low, we might be able to lose the battery altogether in some devices like mobile phones or e-readers.
The result would be battery-free electronic devices that can be charged using a technique called energy scavenging. Some wrist watches use this today – they require no winding and charge based on the movement of your arm. The same concept could be used to charge mobile phones. for example – just shake and dial....MORE, including video.
See also "The Battle for Control of Smart Cities"
Lifted in toto from Infectious Greed:
From Paul Sankey's much-cited update report on his "end of the oil age" thesis, the following graph is his take on a speedy decline in lithium-ion battery prices in the coming decade. Sankey argues that this will make all-electric cars are competitive sans subsidy by ... 2020.
It's still interesting -- assuming climbing lithium prices don't blow the whole argument up.
- 2020 is still a ways off.
- This is a mix of manufacturing efficiencies and technology improvements, not a newfound Moore's Law of batteries.
My eyes were getting a bit blurry looking at all the forecasts out there, much less figuring out how to make money off those that might be right; will I be reduced to prop bets on a Lindsey Lohan relapse? Puhleeeze.
Then a reader sent me this week's Deal Journal Mean Streets column:
Mean Street: GM, Netflix, Chris Christie–Predictions for 2011
Where’s a good end-of-the-world crisis when you need one?...MORE
As I draw up my predictions for 2011, I’m afraid the coming year will end up pleasant and distinctly uneventful like say 1996 or 2006.
That’s good news for most Americans and stock market investors, eager to forget the tumult of the past three years.
But it’s bad news for me trying to invent headline-grabbing 2011 predictions to wake you from your post-Christmas stupor.
Looking back at my 2010 predictions there were a few good eye-openers like controversial AIG CEO Robert Benmosche getting CEO of the Year honors. Of course, most turned out entirely wrong.
GM did get its IPO off. Chrysler didn’t hit the skids. Thanks to the Abacus hearings, Goldman Sachs was not quickly forgotten. And the 10-year Treasury isn’t yielding anywhere near 5%.
But my calls on the rebound at AIG and on the S&P500 finishing the year at 1300 are looking pretty good. And I’ll take credit for calling President Obama’s move to the center, even if it was later than I foresaw.
Now, onto 2011 -– and remember, Caveat Lector!
GM and Ford will be among the worst performing U.S. stocks in 2011. Forget a Chrysler 2011 IPO.
Any sector that Wall Street is so overwhelmingly bullish on today is destined to disappoint tomorrow. By the summer, higher gas prices, continued industry overcapacity and a newly restive UAW will overwhelm Detroit’s profits once again.
Speculative highflying stocks including LuluLemon, Netflix and Salesforce.com will finally get their comeuppance.
Common sense caught up with the Crocs rubber shoe –- and eventually will catch up with yoga gear and streaming DVDs. It can’t be a good sign that Netflix, Salesforce and LuluLemon insiders are all dumping shares as year-end approaches.
In a further blow to Wall Street, 2011 will be another year without big and dumb M&A deals.
Where is an AOL-Time Warner merger or a TXU LBO when Wall Street bonuses really need them? In 2011, takeover activity will pick-up, but CEOs will continue to resist “industry-changing” “transformational” deals despite the urgings of their fee-hungry bankers.
In the deal shocker of the year, Henry Kravis and George Roberts will cash out by selling KKR to Blackstone.
Following the messy back-door IPO, the KKR founders will finally decide it’s better to quit than fight the slow decline of private equity. An extra billion or two in Kravis’s pocket will make selling out to Steve Schwarzman just barely bearable.
By year-end, even Ron Paul will hail Fed Chairman Ben Bernanke as America’s greatest ever central banker
The Fed will wind down its QE2 program just as the economic recovery picks up speed and the risk of widespread deflation recedes. Even Bernanke’s harshest critics will concede that since the collapse of Lehman, he has gotten just about everything exactly right.
Last Friday I received my copy of the presentations from September's European Lead Battery Conference in Istanbul. Most of the presentations were written for a technically astute audience and don't offer much in the way of concrete guidance for investors, but an overview presentation from Ricardo PLC, a global leader in engineering solutions for low carbon, fuel-efficient transportation, included three slides that merit serious investor consideration and show why I'm convinced cheap will beat cool for the next decade of vehicle electrification. I've posted a copy of the Ricardo presentation here.
The first slide is a simple timeline that answers the eternal question "When are the technological wonders we read about on a daily basis likely to become profitable business reality?"
Lead-acid batteries have been the dominant energy storage technology for the last century and the global manufacturing footprint is immense. As vehicle electrification becomes more commonplace and energy storage requirements increase, leading lead-acid battery manufacturers including Johnson Controls (JCI), Exide Technologies (XIDE) and Enersys (ENS) are seeing a pronounced shift in demand patterns. Users who once bought inexpensive first-generation flooded batteries are now buying premium second-generation AGM batteries. Concurrently, lead-acid technology innovators like Axion Power International (AXPW.OB) are finishing development and testing of third-generation devices that will bring the power and cycle-life of lead-acid batteries up to a level that's comparable with NiMH batteries at a reasonable cost. The bottom line for investors is that lead-acid battery technology is rapidly improving and barring a seismic technological shift, manufacturers can only get more profitable over the next decade as global demand for cost-effective mass-market energy storage products surges.
Nickel Metal Hydride, or NiMH, has been the battery chemistry of choice for HEVs since Toyota (TM) introduced the Prius in 1997. Over the last decade HEVs have earned an enviable reputation for efficiency and reliability. Unfortunately, the "M" in NiMH batteries is the rare earth metal lanthanum, which is only produced in small quantities and primarily mined in China. While material supply constraints have not limited NiMH battery production in the past, China has recently announced plans to limit rare earth metal exports in the future. Therefore looming supply constraints will limit the scalability of current HEV technology and most observers believe future HEVs will have to accommodate a lateral substitution of advanced lead-acid batteries and accept a slight weight penalty, or accommodate an upgrade substitution of lithium-ion batteries and suffer a substantial cost penalty.
For several years, dreamers, politicians and environmental activists have shamelessly portrayed lithium-ion batteries as a silver bullet solution to the planet's energy storage needs. From Ricardo's perspective, however, large-format lithium-ion batteries are just beginning to emerge from the prototype stage and enter the early commercialization and demonstration stage. Nissan (NSANY.PK) and General Motors (GM) have recently introduced the Leaf and the Volt and publicized ambitious plans to expand EV production. Those plans, however, will depend on mass-market acceptance of expensive products that haven't been adequately tested under real world conditions by people who just want reliable transportation. I've always believed the ramp rate for plug-in vehicles would be slower than the historical ramp rate for HEVs because users will inevitably have problems with dead batteries, range limitations and other performance issues. As the problem stories spread through the grapevine, the only possible outcome is reduced demand. Ricardo believes it will take at least six years before EVs begin to make the transition from the bleeding edge of early commercialization and demonstration to the leading edge of mass production. I think ten years is more likely....MORE
Following up on yesterday's "Noble Energy Has More Upside on Huge Gas Find (NBL)", here's the other side of the story. A Barron's Take:
Do Well By Avoiding Noble Energy Shares
By TERESA RIVAS
Upside from the firm's Israel gas reserve is already priced into the stock.
Shares of Noble Energy are leading an energy sector rally today, following positive news about the company's Leviathan gas reserve, 80 miles off Israel's shore.
Noble (ticker: NBL) said this morning that the gas reserve contains about 16 trillion cubic feet of natural gas, in line with the company's estimates. The gas is located in about 5,400 feet of water, and is the largest energy discovery in the country to date, with the potential to turn Israel into a gas-exporting nation.
Noble and its partners in the project, including units of Israel's Delek Group Ltd., have been exploring the site since October.
Noble's stock jumped $2.92, or 3.44%, to $87.90 in midmorning trading on the news. However, we think that investors who jump in now would be paying a high price for success.
At this point, there is no doubt that high expectations are already baked into the stock, which hit a fresh 52-week intraday high in today's trading, and the shares are richly valued. Noble trades at 22.7 times earnings, well ahead of its five-year historical average of 14.6 times. Even on a forward-earnings basis, at 20.3 times, it's no bargain.
When Sterne, Agee & Leach analyst Michael McAllister initiated coverage of the stock, he noted that the fact that "successful execution of large-scale international projects [is] currently priced into the stock" as one of the main reasons for his Hold recommendation.
Nor can such a premium valuation seem justified when Noble's long-term growth rate is 7%, compared to the industry average of 13.3%. Analysts project earnings per share will grow just 5.7% next year from 2010, and the stock is already bumping up against the Street's average target price of $88.
Before today's news, Morgan Stanley analyst Stephen Richardson wrote in a research note that while confirmation of Leviathan's contents would likely offer a pop, ultimately "valuation and broader fiscal questions surrounding oil and gas in Israel are likely to act as an overhang for performance," hence his Equal Weight rating....MOREThis Point-Counterpoint is worth a couple minutes:
Wednesday, December 29, 2010
English to come. From Pierre's website:
Sortie mi-janvier 2011.
C'est mon premier livre qui concerne le présent et qui parle du futur. Les autres touchaient des manuscrits du passé, ou bien parlaient des Anges. Avec ce livre sur Blythe Masters, vous allez découvrir une autre sorte d'ange, un Ange tellement puissant qu'il peut ruiner n'importe quel pays du tiers monde en 30 secondes, juste en passant quelques coups de fil.HT: Max Keiser
Blythe Masters est la femme la plus puissante vivant sur cette planète aujourd'hui. Sa célébrité dans le monde bancaire vient du fait qu'elle a reinventé les "credit default swap" qui ont transformé le papier en or, et dont l'usage intense par les banques a fini par ruiner Wall Street le 29 septembre 2008 tout en déclenchant la plus grande crise économique de l'Histoire moderne. Le Guardian de Londres l'a surnommée "La femme qui a inventé les armes financières de destruction massive".
Blythe Masters est le visage séduisant de la crise, celui que le grand public paradoxalement ne connaît pas. Pourtant, elle est le centre, le point fixe d'un système financier ruiné, obligé de se réinventer pour tenter de remonter la pente....
Some of our posts on Ms. Masters:
"Woman Who Invented Credit Default Swaps is One of the Key Architects of Carbon Derivatives, Which Would Be at the Very CENTER of Cap and Trade"
I was struck by the irony that she would be running JPM's carbon trading ops at the same time she headed up the coal traders:
JPMorgan increases stake in China's Yanzhou Coal to 11.13% Loses Money on Coal Trade (JPM; YZC)
JP Morgan Buys MORE Yanzhou Coal, Upping Stake to 13.23% (JPM; YZC)
In October the Journal had a piece on Blythe:
J.P. Morgan Commodities Chief Takes the Heat
On July 21, J.P. Morgan Chase & Co. investment-bank chief Jes Staley was on an airplane when he punched out an email to Blythe Masters, his embattled head of commodities.
"I will not give up on you and your vision," he wrote, reassuring her.
Mr. Staley's note came after a series of setbacks for Ms. Masters. One of J.P. Morgan's most powerful executives, the 41-year-old Ms. Masters is charged with turning around the commodities operation and building it into the biggest on Wall Street. And though the blunt executive has been given many resources, her division recently has suffered defections and miscues while falling far short of expectations in 2010.
"I think she is feeling a little heat," said a person close to her.
Barring a remarkable turnaround, commodities will end the year far behind a $1.78 billion revenue goal. Part of the problem was a loss on a bad coal bet in the second quarter. The third quarter improved, with a gain of about $154 million in revenue through Sept. 30. But commodities is up only about $189 million in revenue for the year, said a person familiar with the results.
That disappointing performance comes after a costly and bold effort to build the commodities division, one of the bank's biggest bets. Since 2008, the bank spent more than $2 billion buying commodities-trading operations, including Bear Stearns, parts of UBS Commodities and, most recently, assets from RBS Sempra Commodities in 2010.
Globally, trading of commodities has been rising for years, largely due to the expectations for higher demand for fuel and food from emerging markets. As a result, individual investors and hedge funds have included commodities in their portfolios as an asset class, and Wall Street firms have expanded their operations to cope with the demand.
The bank's push into commodities roiled a lucrative sector dominated by Goldman Sachs Group Inc. and Morgan Stanley as J.P. Morgan poached executives from rivals and boosted its work force from roughly 125 in 2006 to 1,800 today. That makes the commodities desk the biggest on Wall Street that trades everything from power to silver.
Yet it remains trailing its top two rivals in market share. According to people familiar with the situation, the unit has duplicative systems and overlapping technical and support staff, despite 100 job cuts this year. Company executives, acknowledging the problems, are addressing them, the people say.
"The danger for J.P. Morgan is taking on a very high overhead which can hurt them if results fail to achieve goals," said George Stein, managing director of New York commodities executive-search firm Commodity Talent.
Falling short on goals will continue to attract scrutiny. If results dip below $1 billion in 2011 Mr. Staley intends to re-evaluate the business with Ms. Masters, said a person familiar with his thinking. In a statement, Mr. Staley said, "Blythe has built this business from the bottom up in only four years and today we have the scale to serve all of our clients' needs."
Ms. Masters has had a meteoric rise. Born in Oxford, England, she grew up in a family of means that lost money. Educated at Cambridge University's Trinity College, Ms. Masters started with the bank as an 18-year-old intern on the London commodities desk. While still in her 20s, she was among a team that sold regulators and investors on the use of newly invented credit-default swaps to shift risk off the bank's books. At 28 she became a managing director, the youngest woman to achieve that status in the firm's history.
Chief Executive James Dimon came to know Ms. Masters while she was chief financial officer of the investment bank from 2004 to 2006. Mr. Dimon, a numbers junkie, would meet with her regularly, and she proved that she had a grasp of details and could defend her positions forcefully, said a person who worked with both executives. He approved her appointment as head of commodities in late 2006 with instructions to reduce volatility in the group.
Revenues doubled between 2006 and 2009 as Ms. Masters increased the unit's reliance on client revenue over proprietary trading. A business that had a couple of hundred clients in 2006 now has 2,500.
Ms. Masters routinely became the face of J.P. Morgan in Washington, where she frequently represented the industry on everything from potential curbs on commodities trading to the financial regulatory overhaul. "I don't believe they could have sent a more thoughtful advocate," said Robert Holifield, staff director for Senate Agriculture Committee Chairman Blanche Lincoln (D. Ark.)....MORE
The largest for Siemens USA that is.
Boone Pickens' order for 667 turbines from GE was larger but it now appears that he wasn't all that serious about wind, unlike Mr. Buffett's David Sokol.
The key point to know about MidAmerican Energy is how vociferously they dislike cap-and-trade while putting together the largest utility-owned alt-energy asset pool in the country. Links below.
First up Bloomberg for the overview:
Buffett’s Energy Unit Orders 258 Siemens Wind Turbines
MidAmerican Energy Holdings Co., the power unit of Warren Buffett’s Berkshire Hathaway Inc., will expand wind-generation capacity by purchasing 258 turbines from Siemens AG and acquiring a project under development in Iowa.The Bloomberg story quoted a spokeswoman for MidAm as saying that alt would account for "around a quarter" of the company's generation capacity, it is actually 1,284.3 megawatts of wind generation or 26%.
The turbines will be located in five Iowa counties next year and have a combined capacity of 593 megawatts, enough power for 190,000 homes, MidAmerican said today in a statement on its website. Fifty-two of the turbines will be at the Laurel Wind Project, a planned facility about 50 miles northeast of the state capital of Des Moines that MidAmerican will buy from RPM Access, according to the statement. The purchase price wasn’t disclosed.
MidAmerican, which Berkshire bought in 2000, sells electricity in the Great Plains and the U.S. West and operates a pipeline that transports natural gas from Wyoming to California. Siemens will manufacture the turbines at its factories in Fort Madison, Iowa, and Hutchinson, Kansas, the Munich-based company said in a separate statement....MORE
Pacificorp has substantial hydro assets although they will be tearing down some Klamath river dams so the salmon can frolic.
The brains of the turbines, the nacelles, will be produced in Hutchinson Kansas at a plant which opened Dec. 3.
I've often wondered why Kansas didn't do more turbine manufacturing, a quick look at the history of aviation in the state is an eye-opener and to this day Cessna makes Wichita the largest manufacturing center for private aircraft in the country.
That said the blades are being manufactured in Iowa.
Another interesting point about MidAmerican is that despite the push on wind they haven't raised base electricity rates for their Iowa customers since 1995.
These are some of the smartest operators in the industry.
As I said in "Who Cares What Warren Buffett Thinks About Global Warming? (BRK.A)":
Mr. Buffett is known in the popular media for his personal net worth. Just as mind-boggling is his company's position in both energy and insurance, at first glance on opposite sides of the green fence but actually a self contained hedge.
MidAmerican produces power with coal, natural gas and wind. The natural gas pipes* are National Critical Infrastructure.
The highest possible ratings the agencies give to the reinsurance operations (and Warren's disinclination toward silly pricing) allow them to pick and choose when they will make available their monstrous capacity. At a price. Remember why Allstate was going to raise Florida premiums 42% last month? Global Warming.
What Warren hath wrought: Heads I win, tails I win, if it lands on its edge I win, if gravity is momentarily suspended I win. Genius.
Here are some prior posts on MidAmerican, cap-and-trade, the Warren and Charlie show and Siemens, for more use the 'search blog' box:
Berkshire Hathaway's Munger on Cap-and-Trade ("Monstrously Stupid Right Now...Almost Demented"); Warren and Charlie on Wind and Solar (BRK.A)
Berkshire Hathaway's MidAmerican Energy on Waxman-Markey: "We Don't Much Care For It" (BRK.A)
"Siemens Reports Big Jump in Orders" (SI)
I'll See Your Eco-imagination and Raise: "Siemens Predicts Sales of Green Technology Products to Reach $55 Billion" (SI; GE)
Siemens; ABB lifted to conviction buy at Goldman: ABB, Siemens, Schneider to Gain From Demand for Smart Grids, Goldman Says (SI; ABB)
Siemens Sees Strong Profitability, Decides to Open a Bank (SI)
And many more, use the search blog box, keyword Siemens.
For more on Siemens vs. General Electric see:
The stock is up 2.97% at $87.50.
As a pup I could spot an undervalued Exploration&Production company with one whisk of my slide rule.
I also tended to find myself holding the acquiree in a buyout whereas these days it is uncanny how often I've been recommending the purchaser.
This is a big deal. From Bloomberg via the Houston Chronicle:
Leviathan is a monster: Noble says Israel discovery is largest in its history
Noble Energy Inc. said drilling test results in its Leviathan field off Israel’s coast confirm a “significant” find of at least 16 trillion cubic feet of natural gas.Avner might be worth a look, it may have just become an income play.
Leviathan is “easily the largest exploration discovery in our history,” said Charles Davidson, chief executive officer of the Houston-based explorer with a controlling interest in the field, in an e-mailed statement today. The other principle Leviathan partners are Israeli companies Delek Drilling LP, Avner Oil & Gas Ltd., Ratio Oil Exploration 1992 LP.
Leviathan is almost double the size of the Tamar field off Israel’s Mediterranean coast discovered in 2009 by Noble and its partners. “The Leviathan discovery has further confirmed our geologic models and interpretation of this basin, and validates that it contains significant natural gas resources,” the statement said.
The Leviathan field is estimated to cover about 125 square miles (325 square kilometers), and will require two or more appraisal wells to better estimate its total gas reserves, Noble said....MORE
From John Taylor's Economics One blog:
A few weeks ago Paul Ryan and I wrote an article proposing changes in the Federal Reserve Act. One change would require the Fed to focus on "the single goal of long-run price stability within a clear framework of overall economic stability.” Since then some have argued that changing the dual mandate in this way would not have prevented the recent highly discretionary monetary policy, which, in my view, has on balance been counterproductive. For example, Greg Mankiw writes on his blog that “If the Fed's mandate were different, monetary policy today might well be the same. That is, with inflation now below its target, the Fed could be pursuing QE2 even if it were operating under the proposed mono mandate.” Similarly, in today’s Wall Street Journal Marc Sumerlin writes that such a change would “actually be supportive of the Fed’s current program.”Yes, that John Taylor. He of the Taylor Rule, recipient of the Bradley Prize, etc.
But there are several reasons to believe that QE2 would not have happened had Fed officials not been able to refer to a dual mandate in the Federal Reserve Act as justification for the intervention. First consider this bit of emprical evidence: There have never been so many references to the dual mandate by Fed officials as in the past year or so. If the dual mandate was not a factor in justifying and embarking on QE2, then why did Fed officials find the need to refer to it so much as justification for QE2 in the past year? In contrast, during the 1980s and 1990s, Federal Reserve officials rarely referred to the dual mandate (even in the early 1980s when unemployment was higher than today), and when they did so it was to make the point that achieving the goal of price stability was the surest way for monetary policy to keep unemployment down. Now, as Paul Ryan and I put it, “Advocates of aggressive Fed interventions cite the ‘maximum employment’ aspect of the Fed’s dual mandate.”...MORE
We've looked at the astounding level of corporate profitability a couple times, links below.
If we get a margin squeeze and throw in a dollop of PE multiple compression we will have the quintessence of a secular bear market.
From Pragmatic Capitalism:
Good news can in some ways be self defeating. Unfortunately for the millions of unemployed in the United States the global recovery has been accompanied by surging input costs. With weak end demand these costs are being largely eaten by corporations. Thus far margin expansion has been the key factor in the profit rebound. With troughing unit labor costs and rising input costs we’re likely to begin seeing margin compression as we head into 2011. With meager revenue growth that’s not necessarily a net negative, but it will create a continuing defensive position for corporations and likely result in a tepid hiring process. S&P elaborates on the margin compression of 2011...MORENov. 20
Update to "President Obama Has Been Very Good for Business
President Obama Has Been Very Good For Corporate America
From Barron's The Striking Price column:
The high-flying rare-earth company is starting to generate strong trading volume among buyers of both puts and calls.
Molycorp (ticker: MCP) is becoming a star in the options market.
The rare-earth elements stock is starting to generate strong options trading volume, extending its stock-market darling status into the more nuanced world of puts and calls. Though there are signs of investors hedging the high-flying stock, trading patterns indicate expectations that Molycorp trades higher yet.
Already, Molycorp has gained more than 240% in 2010, defying well-reasoned skeptics who said shares had surged too high, too fast.
Options trading patterns show investors are buying calls, including the January $50 and $55 calls, which increase in value if the $50 stock passes those prices. Investors are also hedging Molycorp in case the strong stock momentum falters. The January $50 put and the February $50 put, for example, have been attracting buyers. Those puts increase in value if the stock falls below $50.
Though there is good reason to hedge the gains of any stock that has more than doubled in value in less than a year, that approach has been a money-losing endeavor in the case of Molycorp. We shared a recommendation from J.P. Morgan to hedge Molycorp in late November that didn't work out as planned. (See The Striking Price, "A Rare Play On Rare Earth," Tuesday, Nov. 23.)
Molycorp's stock defies reason, and gravity. The company's fundamentals do not match the enthusiasm for the rare-earth stock, but that is apparently a minor detail for a company that offers investors a chance to profit from the rare-earth phenomenon.
The company's management knows how to whisper the sweet-nothings investors love to hear.
Last Tuesday, Molycorp announced a joint venture with Japan's Hitachi Metals Ltd. The companies will produce rare-earth alloys and magnets for the computer, health care, communications and alternative energy industries.
Though the deal will be signed in April, investors have already aggressively bid Molycorp's shares higher as the deal suggests Molycorp is becoming a producer of goods, and not just a rare-earth mining company.
The joint venture news follows recent reports that Molycorp would reopen Mountain Pass Mine, one of the world's top rare-earth mine in the 1980s and 1990s that was closed in 2002 because of environmental concerns.
"Stock volume patterns are only modestly positive, but the stock has almost a cult following now," says Larry McMillan, president of McMillan Analysis Corp., a money-management and trading advisory firm.
Indeed, Molycorp's options traded almost three-times average volume on Monday. A total of 25,211 options traded. Most of the volume was calls as 14,642 bullish calls traded, compared to 10,569 bearish puts. The stock gained $4.09 Monday, closing at $45.75, just below its high of $50.29. The stock is trading now at a 52-week high.Also at The Striking Price:
Sooner or later, gravity asserts its power over all high-flying stocks, and options, but there is usually ample time to detect trouble. These stocks usually do not crater in one fell swoop, but in a stutter step.
Keep an eye on options volumes for sentiment clues. A sharp rise in put buying would indicate rising bearishness that could be based on expectations of pending news, but for now the trend is your friend.
A Bear Trade On Micron Tech