Investment Capitalist

Ivanhoe Energy, for having figured out how to dramatically alter the energy equation of bringing Bitumen (Oil Sand) to market in a cost effective and very ingenious manner that is patent protected, environmentally friendly, and has been tested by all the major producers with investment in Oil Sands, the market seems to not have noticed.

The stock has been under accumulation for a couple years now, but it is still news dependent. Nevertheless, she’s making me wonder what the runaway breakout price for crude is before oil-sands begin to look like an acceptable solution to America’s energy needs?

If we see crude get through $125, people will certainly begin to notice. Plus, the longer crude prices stay up in triple digits, the long term rolling averages used to price baskets of crude will begin to rise as well. This certainly has a trickle down effect in many areas.

Right now, energy stocks appear to be where tech stocks were in 1997: just about to enter their 2 year climax.

FC Stone Group (FCSX) is up huge on blowout earnings. I indicated in the April 2 post that the fundamentals here are absolutely incredible, the volatility in the markets is the equivalent of a major gold rush, and they are shielded from the mortgage market because none of their trading partners are exposed to anything but the commodity sector, primarily as producers and hedgers. Their numbers today not only further confirmed this perspective, management really showed investors how much talent is at the top of this company.

From the April 2 level, FC Stone is up approximately 33%. There is much more upside but the only short-term issue is the gap underneath. I wouldn’t normally recommended holding on a gap of this size but with this particular stock, rather than trading out, I would prefer suggesting setting up a collar around the position to protect some of these gains. If your desk allows it, either buy some puts or sell some calls or both, but probably against a small percentage of the position. 

Disclosures: None

SLM: Sallie’s showing great bid support after a 4-point run from where the entry was. It’s probably tempting to sell for $19 something you just bought for $15 about ten days ago. I know, “compound it out and that’s a fortune”. The problem is that it hasn’t been a year and this is a volatile market. Assume you picked up a line around $15.50 avg. and the size is 25,000. Regardless of the size of your total trading line, when your position runs almost four points in a week, selling around 5,000 shares in the $19 range and then adding another 7,500 shares around $18 gives you the benefit of allowing more flexible ranges as the position evolves. Trade around the core.

HOC: Been a great trading stock for long-term, multi-month moves. The correction which started last July appears complete. As the macro factors dominate the long term trend in the energy complex, short term factors such as external liquidity events (e.g. Bear Stearns) will dominate the near term volatility. Look for a contraction in the short term volatility to indicate a resumption of the long-term trend. Then a little technical analysis for timing your position development: subjective technical analysis (i.e. non evidence based) is hot air. Holly Corp’s stock isn’t though. An initial approach here in the $47 range is protected somewhat from too much further downside.

Several names have experienced ginormous moves since the bloody end of March, so if some of you traders over-extended in terms of your position size, throw out a few sell orders on a ladder and let them work for you at various price and size levels. This will prevent the position from triggering risk flags as the dollar gains push the position beyond your limits. Trade around your core. If your execution costs are preventing you from working your positions appropriately, it’s time to shop for a better rate. Drop me an email and I can make some recommendations privately.

Chinese energy stocks have been looking very sick lately. Are they signaling possible trouble ahead in the energy complex? Or is this another signal all together? The other scenario would be a possible spike in oil prices and the Chinese are massive importers with very few consolidated energy companies in the spirit of Exxon and Shell. Hmm…

Oh and if you’ve been wondering why the titles of my blog posts have been strangely referring to a specific number of stock recommendations which usually never correlate with the actual number of recommendations, there’s a perfectly reasonable explanation and it’s not the ADD. It’s a little experiment to see how search engines and blog aggregators pick up the posts, and the effects the titles may (or may not) have on the total traffic that each post generates.

Disclosures: none

I’ve been slammed with emails from people wondering why no global macro commentary on the recent action. My response has been: “It’s far too late for commentary now. There’s nothing to do or change based on the market operation that was put in place when everyone else was screaming bloody murder”. In other words, as suggested, reload those positions and trade around based on your own personal leverage amounts. Each proprietary desk and each individual trader will have very different looking books.

But I will throw out a few of my absolute, back up the trucks, is this a real print, load the boat buy picks:

SLM:  Come on, below $18 is a steal. Watch for it to close Tuesday’s gap for adding or establishing positions.

FCSX: This is one of my favorite trading stocks and I know it well. It’s certainly not the most liquid stock and were someone forced to sell a large position around the time when Bear was in a free fall, there’s going to be blood on the street. But there is no exposure to this company and their profits are going to explode because this volatility is like a gold rush for them. Beautiful fundamentals.

FTO: A 50% retracement on a long-term uptrend that when looked at on a monthly logarithmic scale, it’s barely visible! But I think there’s more downside so look for a print in the low $20’s to jump on this one. Maybe even try to get off a short in the mid $30’s.

SNP: Chinese stocks have been getting routed hard and there is plenty of blood on the streets to warrant a deep and exhaustive examination of buying opportunities. This is the first significant correction this decade, although there were two other major pullbacks but nothing of this magnitude. It looks like a liquidity issue to me as the Chinese A and H shares have gone out of whack.

IBN: ICICI Bank, recent IPO, extremely volatile and high risk. Great buy under $40 from a fundamental perspective. I would worry about credit market exposure so keep it small.

 Tech stocks have popped up on several radars so here are a few names I like quite a bit:

Akamai (AKAM), Ciena (CIEN), Agilent (A), AVX,

I wish I had the time to write as much as some of you wanted me to.

Disclosures:  None

There’s enough talk on the blogosphere regarding Bear, and yes those that bought Puts last week made a killing, but I believe we have our emotional climax bottom in the financials. And behavior in many stocks that have been high on our sector list not only held up in this last shake to the downside, but a few even rallied on strong volume. Let’s bang em out quickly because any long ideas would be found in the same list I’ve been screaming BUY on.

BB&T (BBT) is priced where a long position would have limited downside. I don’t see the regional banks and financial intermediary’s like BBT looking like the next Bear Stearns, other than maybe National City (NCC). The only reason the red flag goes up with National City is because the behavior in NCC puts is similar to how BSC puts were trading late last week. Month’s way out started trading deep out of the money puts before the meltdown.

So the trick is probably to look for another one likely to have to be bailed out. Lehman emphatically illustrated their multitude degrees of readiness with excess liquidity, but wasn’t Schwarzman telling the markets rumors of Bear’s liquidity problems were untrue? Is that a case of losing confidence in a financial house that acts more like a hyper-leveraged hedge fund?

Yes. Anyway, deep out of the money April Puts are trading multiple times their open interest. So there is a lot of either hedging or massive short building on Lehman. Can you imagine knowing that Bear was having liquidity problems because you are one of two dozen banks providing liquidity? There is a tremendous amount of money your proprietary trading desks can clean up.

Let’s go back to BB&T. The following chart should show those of you that care about the technical’s a compelling picture. Those of you that swear by the numbers only, just know the technical supply/demand picture confirms the fundamentals and accumulation as close to $30 as possible is a good move.

Late last week, an entity floated on Eurex by the Carlyle Group went thermal (i.e. busted like Bear). I’m beginning to wonder if the recent IPO’s by the major PE shops are one of the links on this domino board.

Here’s something very interesting, on Feb. 14^th, the FT reported a renegotiation of the deal between CITIC of China and Bear.

Under the terms of the deal struck in October, Citic agreed to pay $1bn for securities that would convert to about 6 per cent of Bear Stearns and the US investment bank would eventually pay the same amount for about 2 per cent of Citic.

Ouch. Could Citigroup be next to devalue itself after taking tens of billions of Arab and Chinese money? I knew these dollars were “sterilized” but I never imagined this would be the mechanism. Seems strangely like the crash of Japan in the late 80’s. I don’t know, maybe a couple dozen deep out of the money puts in forward months?

This next chart shows Citigroup and National City overlaid with Citi on the right in red and green and National on the left in blue.

Would the next rally in C present a great shorting opportunity in Citi, which is an 800-lb version of National? Perhaps a “bail out” of Citi in the low single digits is on the horizon?

If JP bought Bear for $2, why is it trading at $4.80? I hardly think anyone is going to step in and “outbid” JP Morgan, as this is a bailout orchestrated with the Federal Reserve.

I can see a potentially strong and fast tradable surge in Goldman (GS) from the $150 level to $180-$190. It’s a very nice range and a good technical picture:

Just for kicks, I wanted to show you what technical analysis is actually good for. As a gauge of the overall supply & demand picture, there is nothing better than a long-term chart. In the case of JP Morgan (JPM) below, this is a monthly chart dating to 1988. Never has this stock come out from being accumulated. Even when the stock and the broader market entered periods of sustained declines, the accumulation line (in red below prices) looks like a perfect rising mountain side.

And if JPM buying Bear Stearns for $2 a share isn’t reason enough for you, the chart above tells a beautiful tale to those whose eyes are trained to recognize the indications.
Disclosures: NONE

The Fed defended a critical technical level in the broad markets today; without the slightest doubt that he was trying to have the greatest positive impact on stocks. The Plunge Protection Team was out in full force, shotgun spraying liquidity into multiple asset classes. It took at least 25% of the Federal Reserve’s balance sheet to try and shore up the American side of the mess, and about $45B from the Europeans. That’s a lot of mortgage held by people in cities that may never have even seen the American mid-west on TV, let alone know their tiny mountain municipalities are exposed to this junk.

The market spike today is very deceiving. Everyone seems to be screaming that the “percentage gains” were eye popping. In reality, what’s really eye popping is these percentage gains still have only managed to erase the losses from the prior two trading sessions. Freddie Mac (FRE) was up double digits and would still have to rally 50% just to get back up to the February lows. In other words, that was one hell of a plunge we took and it’s obvious once again the Fed watches critical technical levels. Yes, even Bernanke looks at the occasional chart because it’s all really about behavioral finance, isn’t it?

Here’s something that’s got me scratching my head: Five year T.I.P.S. went into a negative yield. That means smart money is suggesting inflation protection is worth a negative yield. Is that bizarre or what? Something more bizarre is the fact that Steve Schwarzman’s Blackstone Group (BX) was up on Monday’s close while the market closed on its lows. They do have a very well connected board that was probably privy or in some cases, consulted on the Fed decision, as this was a multi-lateral operation by central banks.

The bears are gonna come swinging back in a couple of days. There is nothing more of a tell tale sign for a bear bounce then the sheer size of the rally before anyone was able to blink. So although the idea of patient and drawn out accumulation of a financial, and perhaps housing sector, portfolio stands. It is and will remain a long-term operation. But you hopefully took some gains and reduced the cost basis on those positions. If one takes advantage of the current market volatility to ad very small incremental gains to a core position as it is being accumulated, the little gains add huge points when you compound it out.

Closer inspection of individual names suggests this thing’s got a lot of potential if we actually see a follow through early on Wednesday. If not, forget it, we’re going to correct a bit of Tuesday’s move. And since the financial s are the most powerful movers, and this is where one’s intense gaze should have been for the past several weeks, this is where it should stay hence.

Citigroup’s (C) January 21 low of $22.36 is above Tuesday’s close by about 4%. That should put things into perspective a bit.

Stocks in similar long-term patterns as Citi, which did not break their multi-year lows are excellent medium term trading opportunities. Comerica (CMA) is a perfect example. $37 to $55 is the range in play. I bet CMA will test $38 then run higher.

Short term though, it is likely to be the sickest stocks that will rally hardest and farthest.

Here’s an interesting technical set up that speaks volumes, literally:

Credit Suisse’s volume on Tuesday was one of the highest days in a very long time. This is indicative of exhaustion. In other words, the rally could fade quickly if it isn’t already done with.

Eaton Vance is an excellent medium term long. The reversal creates a bear trap and the chart looks like a long-term growth track from a textbook. Perfect. $30 is an incredible value for Eaton Vance (EV). This is a company that manufactures cash! Their free cash flow is off the charts and they run very lean. This company is set up to withstand the current headwind. This is the kind of defensive play one should look for in current environments. But humility is also a virtue and I’d be very happy with a quick 33% gain if I were you.

Take a look at this chart of Wachovia. The time scale is Quarterly. The point of focus here is on volume. Look at the wholesale liquidation of this stock over the past several quarters:

I think the long-term owners have cashed out. Let’s see if this company makes it through this current credit turmoil alive. I don’t think the Fed is going to bail all of the banks out. This won’t end without a few whales getting taken out behind the shed and shot. But like I said, the sickest will rally hardest and farthest.

Bank of America (BAC) displays here a good example of her relative strength and overall health, even with the indigestion of swallowing Countrywide.

Any weakness (hopefully says 9 out of 10 traders that missed this rally) would be an opportunity to “mind the gap”, as they say in London’s tubes before the stampede takes hold and moves you through the train. Same goes for BB&T (BBT).

Volume climax anyone? Changing of the guards done with? The stock has changed hands folks. Look at Bear Sterns (BSC) below:

Cowen Group (COWN) is a stock that is growing aggressively in Asian markets through strategic acquisitions recently. At a PE of 9, with little (if any) business in residential mortgage, this is a value play that’s been incorrectly thrown out with the bath water.

A couple of regional banks to keep an eye on for a pullback are Citizens (CRBC) and Fifth Third (FITB). Both of these stocks are priced very cheap and are offering yields around 8% to 9%. Free cash flow is good, their PE and Price to Book ratios are very attractive as acquisition targets.

There’s absolutely no way to predict how the market is going to behave in the near term. This is where the “chaos” meter spikes off the charts. Pure random noise. But one can, if one so chooses, to react based on certain “tactical” guidelines. I would prefer to see some retracement early in the trading day, a base to develop over several hours, and then a continuation on Thursday and Friday for another 10% to 15% from here. These short term bear market rallies are hands down the best market environments to trade the bull side. The problem is that it would also require sitting on one’s hands for several days, weeks even, keeping the powder dry. Since most full time traders can’t sit out from the market for sustained periods, there is a tendency to give gains back. Ah the beauty of student life.
Disclosures: None

The massive gap to the upside is a bitter-sweet move for those with long-term investment horizons around the financial stocks that have been mentioned here in the past two weeks. Bitter-sweet because although it should show good profits for long positions, it also places a big, nasty gap right below current prices. And being that the market has been trending south for a defined downtrend, I can’t imagine this being one of those “gap and go” scenarios. In other words, we’ll probably see prices drift into the gap and at some point, the sellers are going to start hitting bids.

It’s been easy to make profits if one is willing to display rationale and common sense in the face of all the doom and gloom talk out there. Buy Gold and Short the Dollar? Some morons on respectable web sites are posting this kind of talk STILL (albeit in the “comments” section of other peoples articles and not the websites themselves).

Where were these folks five years ago when that trade was to have been recognized? I bet they were just beginning to sell their dot com stocks in the low pennies after paying in the high triple digits! Oh I love the public. So full of hot air.

So let’s take a look:

Blackstone (BX), BB & T (BBT), Fortress (FIG), Ultra Financials (UYG), Ultra Real Estate (URE), JP Morgan (JPM), American Express (AXP), Bank of America (BAC), Wells Fargo (WFC), and Lehman (LEH) are all posting high single digit percentage gains.

There’s no question that it would be appropriate to take some profits and bring the cost basis down on the above stocks. Remember, this is a long-term market operation in the financial stocks mentioned over the past few weeks, and while this is the beginning of that operation, there will be fits and starts. So patience is a virtue. The gap underneath will close, much like the way Bear Sterns (BSC) has pretty much closed the 6 point (10%) gap already.

The Fed did exactly as it should and injected $200 Billion directly where it was needed by accepting Agency paper as collateral for loans to the financial sector. This is what Wall Street wanted to see but I imagine later in the day, everyone will begin to realize that this move will likely bring at least a temporary moratorium regarding further rate cuts.

So this story is certainly not over yet, and more will come later when some of the dust settles.
Disclosures: NONE

By LARA SETRAKIAN
TEHRAN, Iran, March 7, 2008 —

Last week the Iranian government gave ABC News special access into its international art collection, a distinguished group of works amassed during the reign of the shah of Iran.

Ironically,the collection, estimated to be worth $3 billion, has spent most of the last 30 years locked in a basement vault, while Iran has become an Islamic republic that eschews any ties to the secular world.

From a renowned Jackson Pollock drip painting “Mural on an Indian Red Ground,” to DeKoonings’ “Light in August,” to pop works by Warhol, Lichentstien and Oldenburg, the collection is widely considered to be one of the finest 20th century Western art collections in the world.

The rare tour was an example of what’s called “track two” diplomacy: building cultural and social ties between Iran and the United States at a time when they’re officially at odds.

Museum director Habibollah Sadeghi, an artist, was appointed by President Mahmoud Ahmadinejad. He spoke to ABC News at Tehran’s Museum of Contemporary Art. Below are excerpts from the interview.

What are your future plans for this exhibit? Why not have it on display all the time?

Given [the tone of] society since the revolution, the museum needed to make the visual approach more compatible with our everyday social routine. Now we need more space. We are certainly hopeful to have a permanent museum to present Iran with this global contemporary art in a larger, more lasting space.

Would the museum ever sell works in the collection?

As is the case anywhere, museums, along with the local authorities, must make certain decisions. They sometimes sell, sometimes exchange. But our choice so far, has been to look at this as a steady opportunity to acquire. We are more shopper than seller.

During the war [with Iraq, 1980-1988] and the reconstruction era, [we] had less opportunity to complete our collection. We hope next year we will be able to buy pieces from the greatest contemporary painters in the world, continuing on our previous purchases of works by American and European painters. Then Iran, as a major collector of universal art, will be able to display its own perspective in the language and literature of contemporary art. We have told this to the [parliament] authorities and they have accepted gladly.

Do you have your eyes on any pieces in particular?

The method of purchase is based on the period and style of the painters to help round out our collection. We are considering buying new paintings produced after the American Pop Art era. We have identified between 50 and 80 paintings and hope to buy them from private collectors and other museums after our specialists decide which are the best and most appropriate for our collection, as we’ve done in the past.

We hope to buy up to 100 pieces from prominent painters in the United States and Europe next year. As we view other cultures respectfully, we expect that the others respect our history, our religious and spiritual and Islamic beliefs and culture.

Is it safe to say that you expect the collection … will always remain intact?

I don’t know whether the Metropolitan Museum in New York, or other museums, constantly talk about selling their work. I’ve heard in the media during the last three years about [our museum selling], and I’m not clear why that is. I believe this art belongs to mankind’s art collection and is not to be sold by our specialists. We are supposed to keep these global treasures. We would really like to show the works of the greats here, like Picasso, Matisse and others. Still, we will lend some of these pieces to other museums in the world so that others may enjoy these achievements of humanity.

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