Bill Cara’s Blog for March 11, 2010 [See post-close report]

Interesting missive from my news feed today.

"Friday the 12th, market on PBoC watch after hot inflation data
A swath of inflation data from China was released overnight and the numbers made for mixed reading. Headline CPI at 2.7% was within the PBoC's stated 3% target but also the strongest reading since October 2008. Chinese officials downplayed the deviations, citing base effects (with the Lunar New Year holiday falling on different months in 2009 and 2010) New Loans were stronger than expected at CNY700B , but significantly below the eye dropping January reading of CNY1.39T (a figure which clearly prompted nervousness amongst policymakers in China) Finally, while M2 posted a 10 month low at 25.5%, this number is still way outside the PBoC's stated full year expectations of around 17%, which according to some observes, implies further tightening down the road.

Clearly the figures can be interpreted in a number of ways. But what cannot be disputed is that the PBoC's two reserve ratio hikes of this year in January and February took place on the 12th of the month (at around 6am and 5am respectively) . The market may not be so surprised this time around, but Friday the 12th of March is date worth saving."

http://wallstcheatsheet.com/breaking-news/economy/...

There are four main parts to his argument:

• GDP drives economic activity.
• Local party bosses have an incentive to game the system
• Real estate speculation
• Overbuilding of industrial and commercial real estate

Let’s take these arguments one by one.
1) GDP drives economic activity

In most industrialized countries, GDP is what Chanos calls a residual: it is the result of economic activity. But in China, GDP growth is seen as sacrosanct, and Beijing sets a GDP growth target every year. Local party bosses act to ensure that they meet this target.
2) Local party bosses have an incentive to game the system

Since GDP growth is explicitly stated as a public policy, local political bosses have an incentive to make sure that they contribute to the country’s efforts to meet the GDP target growth rate. In practice, this means that local municipalities can, for example, meet revenue targets by selling off land to developers. Party bosses have an incentive to sell as much land as possible, regardless of whether doing so creates too much supply.
3) Real estate speculation

One of the main arguments advanced against Chanos’ China thesis is that real estate speculators in China have to have more equity than do their American counterparts. The implication is that China won’t suffer from a meltdown of real estate. But this argument, while possibly correct, misses Chanos’ larger point. Speculators in Beijing buy up multiple apartments, seeing them as a store of value, akin to commodities like gold or palladium.

Implicit in this practice is the notion that there is a greater fool down the line. Treating real estate as a store of value, rather than an investment that produces real or imputed monthly cash flows in the form of rent defies economic logic.
4) Overbuilding of commercial and residential real estate

Perhaps the most interesting statistic cited by Chanos is that there is 2.6 billion square meters (30 billion square feet) of non-residential construction under development across China. To put this number in context, that is enough square feet to give every person in China a 5 foot by 5 foot cubicle. The inference here is that non-residential construction supply will outstrip demand for a very long time. Basic economics says that if supply exceeds demand, prices (rents) will trend down.

The other consideration here is the annual maintenance expense for these tens of billions of square feet. Not only will rents go down over time as demand fails to meet supply, but maintenance expenses for vacant office buildings and industrial parks very quickly adds up and acts as a drag on the economy. Capital used to maintain unoccupied buildings does not grow an economy.

http://www.youtube.com/watch?v=99HNFCn5RP8&feature...

BUCY - Downgraded to Neutral @ Broadpoint

Reference yesterday's post on the put/call ratio hitting 0.35 at close on Tuesday:

The CBOE equity put/call ratio finished at 0.50 yesterday.

Chanos is talking his own book.

Grym,

I don't think I am qualified to be a judge in the matter. What can I possibly know about how Chinese, or anyone for that matter, gather and massage data...

It doesn't really matter to me anyway since my trading decisions are derived from comparison of information and price action, not from information alone. If they say "everything's a-OK' and price refuses to budge higher, what else do I need

Triple RSI buy signal.

Eight (8) leveraged bear ETF's are giving Triple RSI buy or accumulation signals but most are illiquid, trading well under 100k shares on a daily basis.

MZZ traded average 195k last 10 days and hit RSI 7 day of 10 (also a capitulation play) a couple days ago.

Yesterday 3pm price was 18.83. Add 5% of 10 day ATR (3 cents), 18.86 buy limit order. Sell stop will be 17.86, max pain opts expiration is 23 for March so that will be my sell limit on the other side.

GL/Good trading/do your own homework.

out @ 18.68. Stock moving up the 10 day ATR in the first 30 minutes always makes me nervous due to a) amateur half hour at open and b) that big of move early.

buys on 2/24, 2/25, average cost 17.79.

Kangaroo tail on 2/24. A buy limit order @ 17.32 would have been the correct order instead of the hap hazard entry I made.

5% profit. Max pain 19 for March.

Update: that 19 level was like a magnet.

No position.

Update 2: note to self. Work on exit points. LOL

Also bought VRNM, cellulosic ethanol play just cleared and held 200 dma, waiting for government to give loan guarantee 50/50 partner with BP

bsi could you explain the buy limit order for me, does that mean when the price reachers 70.65 it triggers a buy?

Nice trade! I have zero patience...I sold out at a $0.10 loss on that even though my entry was lower than yours...

I used to ring the bell at the first sign of profit in a trade or sell at the first sign of a loss. Using RSI and other indicators along with options helps get me in at a better price and helps me to hold the position longer.

FWIW.

Washington pressure, meeting with different reps. tomorrow in Iowa.. been basing for over 1 1/2 years.. buying at selected points.. disclosure - long..... http://www.monsanto.com/pdf/investors/2010/03_10_1...

Thanks. That's about what I figured ;-)

Thanks, Vad. That's about what I figured ;-)

I think it also depends on your time horizon. This seems like a good entry point for a longer term time horizon.

Sorry to pester you, where do you generate the ATR (ie. where can I get application that would calculate this for me?) Thanks for your help

but will enter AONE today... trying to get a handle on the ' lock-up ' shares and the IPO boys..

Whether UNG continues to crash and disappears (or maybe reverse splits soon) or it actually manages to recover, UNG straddles for March and April are posted at http://shockedinvestor.blogspot.com/2010/03/profit...

add to MDVN position, 13.30 buy stop/13.30 limt

open PALM position, 5.77 buy stop/5.77 limit

open CRK position, buy limit 32.55

good for day

do your own homework.

ALOHA!!

I am told by my youngest nephew who is in his last year of high school that he sees kids at his high school wearing t-shirts that say "OBAMA NATION" ...

Well, let me just say that Bush was no better and neither party has shown any leadership, innovation or quite frankly any "concern" over manufacturing jobs and exports otherwise we would not have the trade deficits we now have. Now this is not a problem that just started in the last couple years of Bush's reign or in the first 200 days of Obama's reign. Look at the US FED charts of MANEMP and you can plainly see that the peak in US manufacturing was 1980. The chart starts in 1940(70 years ago) and we are now at 1940 levels in terms of manufacturing jobs, so since 1980(30 years ago)there has been a steady loss of manufacturing jobs until we are now at post-Great Depression levels again. Now that is a horrendous record for both political parties ... just abysmal. I suspect a lot of those manufacturing job losses have been due to government regulations and lawsuits combined with union contracts that have added huge costs to US exports, whereby US producers, like Nike and even GM, have moved to China or other lower cost, less taxed and less regulated, countries. To attract manufacturers countries like Panama and Ghana offer a ten year tax exemption to build a factory. What is the incentive to open a factory in America? Obama needs to ask his economic advisers that question.

This leads me to the latest speech made by President Obama over at the US EXPORT-IMPORT BANK and their annual conference today, March 11th. In his State Of The Union address Obama said he wants to double exports in five years. Here are some highlights from Obama's speech to the US EXPORT-IMPORT BANK:

- "We have to rebuild our economy on a new, stronger, more balanced foundation for the future, a foundation that will advance the American people's prosperity at home, and support American leadership in the world," Obama said in prepared remarks at the U.S. Export-Import Bank's annual conference.

- "There's no question that as we compete in that global marketplace, we've got to look out for our workers. But to look out for our workers, we've got to compete in the global marketplace. Because it's never been as important an opportunity for America,"

- "Ninety-five percent of the world's customers and the world's fastest-growing markets are outside our borders."

- "China moving to a more market-oriented exchange rate would make an essential contribution to that global rebalancing effort," Obama said, steering clear of calling China a currency manipulator as many U.S. lawmakers contend.

- He also touted talks that begin next week on the Transpacific Partner, a proposed regional free trade agreement that would initially cover the United States, Singapore, Chile, Peru, Australia, Vietnam and Brunei. "I believe (those talks) will result in a new standard for 21st century trade agreements that aren't just good for workers, businesses, and farmers, but consistent with our most cherished values," Obama said.END

Okay so accordingly this whole "export" issue Obama wants to tackle after both parties have sat around for 30 years watching manufacturing dwindle to Great Depression levels is to assist "small and medium size" businesses compete more in global markets. So who does Obama turn to for advice on small businesses?

Obama also tapped Boeing Co's president and chief executive, Jim McNerney, and Xerox Co chief executive Ursula Burns to lead the President's Export Council, a group founded in 1973 by former President Richard Nixon for the private sector to give its trade views.

As many of you know I have mentioned that I have been a small business owner for many decades. My first small business I started was in Perth, Western Australia at age 17. I am a member of the NFIB, National Federation Of Independent Business, which focuses on regulatory issues facing small businesses. Now why doesn't Obama have the NFIB as one of his economic advisers? Here are some headlines from my NFIB REVIEW that I get ...

- Small businesses face up to a 600% increase in state payroll taxes as states attempt to fund huge increases in unemployment benefits. Unemployment taxes will rise in 35 states this year.

- As small businesses struggle to find credit, some entrepreneurs have asked the Small Business Administration to start direct lending.

- The congressmen all voted against the House version of the health-care bill, but have indicated they may support the current Senate iteration. "We have an extremely active membership in Tennessee," said NFIB's Michelle Dimarob. "We are reminding our members that this bill is very much financed on a lot of tax increases, fees and mandates on small businesses."

- NFIB's Small Business Optimism Index fell by 1.3 points to 88.0 in February, with weak sales being the top complaint from small-business owners. Very few owners felt that growth opportunities were solid enough to warrant expansion.

I never see the NFIB cite China's currency peg as an obstacle for US small businesses. The NFIB does cite numerous legislation and taxation coming from Washington DC and States though. We small business owners are constantly having to fight against government intervention.

Okay ... so can the usual blame be laid on China's currency peg? Why did a great deal of US business move out of America? Was it China's fault? Did Nike move factories to China because of the currency peg? Is it China's fault that US manufacturing jobs have been on a long steady decline since 1980?

Here is the problem, direct from Obama's speech to the US EXPORT-IMPORT BANK:

He(Obama) said he was creating a new Export Promotion Cabinet drawn from government departments including Treasury, State, Commerce and Agriculture to focus on the goal of doubling exports. The group is to meet for the first time in April.

My prediction is all that Obama will "double" in the next five years is the size of the US government and taxes.

LINK: http://www.reuters.com/article/idUSTRE62A1JQ20100311

I realize that as a small business owner I cannot sit around and wait for Obama or the NFIB to get me customers or to increase my exports. Obama does not even know I exist and I venture to guess he cares little about my plight as a small business. So far his actions speak louder than his words. During the last CTA Conference I flew to Nassau to meet with a distributor there who could market my product to the big hotels there like Atlantis. That is what small business owners must do in America ... make our own "opportunities", because government can not make opportunities. Government can only tax those who produce. What sort of successful economic model would come from expanding government and its debt with more taxes? The solution is the opposite of what our government has been doing for the past 30 years.

"Think of the impact a probable hundred thousand, or more, union employees being thrown out of work would have on our economy."

How is that any worse than the millions of non-union employees who have already been "thrown out of work"?

March 11, 2010 (Crain's) — Federal banking regulators are seeking bidders for as many as seven troubled local banks, including Rockford-based Amcore Bank.

Bids for Amcore are due April 15 to the Federal Deposit Insurance Corp., Crain’s has learned. Amcore, which has been buried under mounting real estate-oriented loan losses, at yearend had $4.1 billion in assets and 66 branches in northern Illinois and Wisconsin, including 24 in Chicago’s suburbs.

Sources say that the FDIC has begun the process of auctioning up to six other, smaller local banks, but their identities could not be verified.

SPY is now at an RSI7 of 87. The last few times it hit above 75 the market pulled back. Risk seems high on the long side in the short term...

Bought a little more today at $4.00. Should this company get an uplisting to one of the major exchanges this would trade at around $10, which I believe is it's current valuation given earnings and cash flow.

couldn't help myself. It was down 14 cents in first 30 minutes and up 2 cents in the last hour. Volume about 1/3 of 10 day average.

Sell limit 9 (which is the March max pain opts) with a sell stop/limit order @ 5 so it's about a 50 cent risk vs 3.50 upside.

Do your own homework.

Senator Ted Kaufman of Delaware is calling for major reform of our financial systems, not just 'tinkering on the edges' (of course he is a politician):

"Given the high costs of our policy and regulatory failures, as well as the reckless behavior on Wall Street, why should those of us who propose going back to the proven statutory and regulatory ideas of the past bear the burden of proof? The burden of proof should be upon those who would only tinker at the edges of our current system of financial regulation. After a crisis of this magnitude, it amazes me that some of our reform proposals effectively maintain the status quo in so many critical areas, whether it is allowing multi-trillion-dollar financial conglomerates that house traditional banking and speculative activities to continue to exist and pose threats to our financial system, permitting banks to continue to determine their own capital standards, or allowing a significant portion of the derivatives market to remain opaque and lightly regulated.

To address these problems, Congress needs to draw hard lines that provide fundamental systemic reforms, the very kind of protections we had under Glass-Steagall. We need to rebuild the wall between the government-guaranteed part of the financial system and those financial entities that remain free to take on greater risk. We need limits on the size of systemically significant non-bank players. And we need to regulate effectively the derivatives market that caused so much widespread financial ruin. It is my sincere hope that we don’t enact compromise measures that give only the illusion of change and a false sense of accomplishment. If we do, then we will only have set in place the prelude to the next financial crisis."

For his complete statement: http://tinyurl.com/ygdjef5

"you must run the market back up to calm the public. You cannot sink the market again as long as the interest rates remain low."

Whole construct assumes someone can do whatever he pleases with market. Run it up, tank it, hold it... It's simply not so.

Mechanics of interaction between news/fundamentals on one side and prices on another are very different from your model.

Hi Kaimu , I am not a small business man , rather a would be investor. Last Saturday , I read on page three of the financial Times an article on Germany and its industrial production. In this article , they talk about Germany's manufacturing. I wonder has a much smaller amount of Germany's manufacturing base been exported than ours in the U.S.A. OVER THE LAST THIRTY YEARS. " Germany's reliance on manufacturing to spur economic growth was highlighted yesterday by an exceptional spurt in industrial orders, reported as parliamentarians showed fiscal discipline by trimming 5 . 6 billion euros from this year's federal budget.
Industrial orders leapt by 4.3 per cent in January according to the Berlin economics ministry . It was the largest monthly increase since June 2007 , underlining how German manufacturing is powering the recovery in Europe's largest economy- helped by the weaker euro. " Bob.

To add to your list of non surprises:

Huffpost reported on the top ten handout states yesterday "The District of Columbia, which received $2,755,612,462 in federal assistance, benefited more than any other state in per capita spending: about $4,656.06 per person."

http://tinyurl.com/yardq33

Hammer1

I normally don't discuss my viewpoints about the markets because 1) no one gives a damn about my opinion (nor should they)since they are probably no better nor worse than anyone else's and 2) opinions are generally not tradeable. But I have a couple thoughts to share.

The road to perdition probably started with the Chrysler bailout because the company managed to survive and while the stockholders came out with nothing, the bondholders esp those buying 30 cents on the dollar did well. We've put off paying the Piper from the tech bubble and now the housing/finance bubble. Unintended consequences from trying to help have caused other areas to expand.

Now I'm wondering if the US has created a group of zombie companies, financial and other, like the Japanese and the economy bumps along. Or whether someone like Volcker emerges to step up to administer the stern medicine and institutions go into receivership/boughtouts, etc. I tend to believe like Jeremy Grantham and others that we've entered a period like the 70's where we'll have sharp cyclical markets, both bull and bear, but the net advance will be nil.

In any case, trade what you see, not what you believe and expect the unexpected. And watch for volume to confirm the trend.

GL.

The wealth transfer is absolutely staggering. The income from savings has been confiscated with zero interest rates and transfered to the banking system. The stealth wealth transfer is only a bit more subtle. Inflation is corrosive and immoral, period! But I expect a heavy dose of it over the next dozen years or so.

Anyone who invested in equities between 1966 through 1982 can bear witness. At the end of that 16 year period, you has at best 1/3 of your origional purchasing power. If I recall, the British malaise was even worse with confiscatory taxes and 15% inflation. You worked for perquisites instead of cash. "make mine a silver Bimmer please."

Before you can reach social equity, you must have a sound unit of account.

Rant off...

When an entity can trade with a 98% win rate over a 100 day time frame...along with the fact that the TARP receiving HB&B's account for about 30% of the trading volume...I think they might have a huge impact on the overall direction of the market, and with a little collusion could move it the direction they want.

Shorts out there don't want to take positions against these guys because they will get crushed no matter what the fundamentals are... I think that is what is happening now.

Suppose you could control 30% of a market...I bet you could devise a system and crush some market participants if you had a little help from others.

I know I should trade what I see...and not trade on what I think should happen but it is just frustrating to fight those thoughts of common sense. I guess I just need to think of my trading in a mechanical sort of way.

Thanks Vad, any advise is welcome. i did purchase your book by the way.

Hammer.. think of it this way: if you think they can do that and you figured out what they are doing, what else do you need to make money?

It's bad, Bill. With the most competitive MM funds having MERs higher than the portfolio can return, the companies are having to prop-up these MM funds every month to maintain the $1 ($10) NAV. As has been said, Canadians can obtain a better return than a 1-2-year GIC by holding their cash in a savings account. Managing a risk-free ladder has become a joke. And it's creeping into funds with a broader mandate! Bond fund's income is drying up at an alarming rate.

Just yesterday I finally bit the bullet and ditched an allocation in my retirement funds with a mandate to "invest in Global Soveriegn bonds, ex-Canada". This particular loser-manager, who ranks 111th/111 in the Canadian Global Bond peer group, YTD, completely missed the US$/Treasury rally which began mid-Nov 2009, and hasn't a clue of the fiscal superiority of non-European sovereigns(e.g. Malaysia, New Zealand, Brazil, etc), or how to manage currency risk, and, so, has been selling-off, underwater, the long Euro-bonds in the portfolio and switching to short-term Canadian cash (<0.25%). Presently it holds 30%!!! in useless cash, completely killing the income potential of the mandate. With a MER approaching 2% this is a guaranteed losing proposition.

Slowly, but surely, I'm wrestling control of my wealth management, from the dinosaur which is the Canadian Financial industry. No small credit is due to Bill and the other contributors here. Can't wait to read the prospectus of the Cara Fund. This market is ripe for some competition beyond iShares and Claymore.

duplicate

I remember this stock being mentioned before here. Can anyone share any thoughts on its operations and potential performance in the months ahead. The price is low, they didnt get FDA aproval for a drug they were working on but will adress the points raised, handed out bonuses confirming 2009 targets were maintained. A good long?.

Hammer, no doubt, it has been a market which very few have ever experienced. That, I believe, is why opinions and positions have changed on an almost weekly basis for over a year now. ' Fast Monkey ', ' Mad Monkey ', Seeking Alpha, etc.. I, personally, gave up trying to rationalize back in June, 09'.. The one thing I did do, however, was try to stay away ( except for a day-trade ) from the what the quants dominated ... I could rely more on the call/put ratios and the short interest in the less-played equities. That was, by no means, a saftey valve, but it did level the playing field a bit. When Fleck closed his short-only fund ( after almost 15 years ) in late 2008, I took that to heart. I do not post Most of the trades I do, as several are high risk. But, I try to plan on positions that will last from 1 - 3 (or more) weeks, and add when I, personally, decide the Indicators dictate so. In any trend, one will always have a chance to adjust positions at desirable points. Perhaps one of the very hardest things to accept is, after having sold at a (hopefully small) loss, there should be no reason not to get back in, if that equity warrants doing. Good luck, and get in there and kick some ass..!

2nd... I understand what you mean in a sense of challenging trading over last year or two, but I don't know if this period is so much different, really - market behavior wise, that is. I know it's being suggested frequently that trading has been all but impossible, but honestly - I see same old same old mostly.

Since we are on the subject, I'll throw in another (widely hated) article:

Trading climate: new or same old?

Reading a lot of "market is not a place for a reasonable investing/trading anymore" comments, I thought I'd chime in and offer my point of view.

The rest at http://blog.realitytrader.com/2009/08/trading-clim...

... http://www.reuters.com/article/idAFN11254666201003...

Hi Bill,

Thanks for your recommendation on attending PDAC. It was the first one I attended. Although I only attended the investers exchange, I had a great time and found it very informative. I managed to meet with a number of companies that I'm invested in, and found the ability to speak with representatives of the companies refreshing and ability some gain valuable insights (not to mention some free schwag). I plan on going again next year!

Looking forward to the ETF if/when it becomes available.

Hey 2nd_ave,

You got any nice songs that will see us busting into the clear tomorrow? Things like "I'm looking over a four leaf clover" or "A bright sun-shiny day" Or how about "Off we go, into the wild blue yonder"

Weird, I thought I read a comment from Bill about how tops in bull markets don't end with a gap lower after a top. Anyway, if this was said I'm curious as to whether or not this is true.

I also remember reading that bottoms never occur on Fridays. Well, this most recent bottom (early Feb) happened on a Friday on a supposed short covering rally.

Thanks for those little tidbits Bill. I'm not ready to tackle 500 pages of research but it was interesting to see these figures pointing to a rebound. PPI & CPI have bounced quite nicely.

One question to those in the know - what is a fixed asset investment? Housing, or a factory?

This is where GS suggest downward pressures likely to be felt. This, I assume, is likely to involve downward pressure on base metals like copper, and maybe a bit of downward pressure on FCX, which is pushing to return to recent highs?

Bill,

Sorry if my questions were not meaningful to you. I thought you wanted open discussion and they were meaningful to me. I had asked earlier why you said,

"I have very strong views that the global economy will stabilize in 2010 and begin to grow at a rapid rate starting in 2011. Natural resources will be a big play for wealth managers."

I realize you were on the road, busy and tired, but the recent double load of GS reports only added to my confusion. If the work of their people behind the scenes is of value in your opinion that's fine.

In my case I am too old and have too many unknowns to risk the last years of my and my wife's security on anything I can't totally trust.

I have nothing personally against most individuals at GS, Iraq, Iran or N. Korea, but when top level is untrustworthy I cannot risk my capital on information from any of them. That's too meaningful to me.

My impressions of the global economy may be colored by our local (13+% unemployment), state ($61B unfunded pensions), and national ($trillions in new debt) situations.

I will refrain from further questioning here.

Thanks,

Grym