Cara's Commentary & Community Chat, Tuesday, Jul. 14, 2009

Good morning.

CTSH - Deutsche Securities Initiates Coverage with a Buy. PT = $32

PT Raised:

GOOG - from $440 to $490 @ Oppenheimer. Outperform
JNPR - from $19 to $21 @ Jefferies & Co. Hold
JNPR - from $23 to $27 @ Brean Murray. Buy

Ditto

July 14 (Bloomberg) -- Goldman Sachs Group Inc. posted record earnings, beating estimates, as revenue from trading and stock underwriting reached all-time highs less than a year after the firm took $10 billion in U.S. rescue funds.

Second-quarter net income was $3.44 billion, or $4.93 a share, the New York-based bank said today in a statement. That surpassed the $3.65 per-share average estimate of 22 analysts surveyed by Bloomberg and compared with $2.09 billion, or $4.58 per share, in last year’s second quarter.

http://www.bloomberg.com/apps/news?pid=20601087&si...

Goldman is down slightly premarket at 148.74

opening positions.

So I'm looking at the opening of GS this morning and - I'm guessing the "massive earnings surprise" this morning is already built into the price of the stock. Huge volume though. I wonder who is selling? I'm guessing its not the public.

baz22 - I'm thinking the money on the sidelines has to come from China and will otherwise Bernanke starts diluting China. Cat and Mouse...

"Tomorrow will be all about the market reaction to the Gold Man’s earnings report and forward guidance. Expectations are sky high; if the stock gaps up on good news, and subsequently erases opening hour gains, caution will be warranted."

Obviously this was written yesterday. So GS didn't gap up and sell off, it just sold off. Does lessening the need for caution, increases the potential for a rally? Shake out the weak hands first then leave them in the dust... no gap up for them to sell, trap them and shake them out, buy their shares then rally without them. Maybe if we see GS begin to gain strength, this will be a good indicator for a broad rally into OP-EX?

Same story for XLF...

Not convinced we're going down (actually, that we're not going up) today.

"Not convinced we're going down (actually, that we're not going up) today."

Huh?

somehow i like the new google finance interface..
looks cleaner and neater...

CP- There is a difference btw thinking 'we go down' and thinking 'they just might take it up.'

Sold my in the money calls on BA at $5.7 that I purchased last week at $4.6.

Still holding WEN from 3.96 and SPNG from .106 (ouch).

TOF - Agreed, they're shaking out the weak hands....

that's part of the reason I finally went long last week in my LT investing account. We had a 10% correction and people are still expecting a crash. Ain't gonna happen barring some outside unknown factor because we've already had 2 crashes (Oct/Nov and Mar).

Mark - let me know what you do. I almost went with LEN but the Chinese drywall issue had me concerned. It was between them and TOL based on the analysis I posted a few weeks ago regarding which one has the best balance sheet. I think LEN has greater upside but with this drywall concern, I'd rather go with TOL.

Mark- If I were to spot teamonfuego at a table, I would say he's the roller right now, and I would be careful betting against him. Until he sevens-out I think 930 is on. He has all his chips stacked on the pass line, which in this case becomes the riskier bet. I'll stick with the single-roll plays.

It appears physical gold/silver sales are being stifled by suspending production again...

Unprecedented demand, a shortage of blanks, and restrictive policies and regulations continue to exacerbate what is almost becoming a chronic shortage of gold and silver coins authorized by the U.S. Mint.

So far this year, the mint has sold 700,000 ounces or 700,000 gold bullion coins, compared to last year's total sales of 860,500 ounces of gold or 1,172,000 bullion coins.

Thus far this year, silver bullion coin sales total 14,899,500 compared to last year's total sales of 19,583,500.

While gold and silver producers have repeatedly gone to government officials to get them to authorize an increase in the number of refineries which can produce the blanks and the facilities that can mint the coins, industry sources say they feel they have been stonewalled by mint officials who refuse to budge.

http://tinyurl.com/mt8lpx

I hear what you're saying and you could definitely be correct, but how much of that is already priced in the markets and how much of the worldwide government stimulus is already priced in the markets? that's what we have to ask ourselves.

has anyone done any research on this company? They seem like a pretty stable company based solely on stock price and earnings throughout this cycle. They're paying a 16% dividend.

How is SPNG working for you TOF, still in it?

From Bill's most recent Week In Review:

"From Tuesday through Friday next week, the trader desk notes will be published by Patrick Veech and Geoff Goetz."

I think today's Trader Notes, which I also thought were excellent, are not from Korvus, They reflect the quality of Cara Trading Advisors.

Correct me if I am wrong.

Right now, I would say its "unfavorable" with a favorable outlook. Valuation looks silly. Company seems legit. Is management? Are shares still being diluted? Those are the big questions.

I'm in at $.107 yesterday. I bought a week or two at $.12 and sold at $.13. I think this has some more upside room but it's a risky one.

TOF, do you understand their business? I was briefly in NLY which seems similar and also has an unbelievable yield. HTS is similar. I've been burned too many times when buying high yield that I'm now very cautious, so any insight you can share would be welcome.

long drys good call les a few days ago

So my two cents - based on the technicals, I think TOL looks oversold for sure. I think, like oil, it's probably good for a rebound trade right now. All the homebuilders have been pounded down pretty hard lately and my guess is they'll spike up harder than the general market if the S&P rallies any distance.

I just can't do it though. Here are my risks - and they're mostly macro risks:

The shadow inventory of foreclosed homes not on the market is massive and undocumented.
TOG says, long rates are going to climb, which reduces home price affordability
Foreclosure moratoria have given us a "false bottom" in home prices
Investors and first time buyers (the weakest participants) are the only ones in the market today
option-ARM resets are still ahead of us
1 in 10 mortgages are non-performing. Unemployment is climbing, which will increase this.
High end homeowners are just now starting to capitulate, and TOL is a high end homebuilder

My sources are T2 Partners, who gets a lot of material from Mr. Mortgage (Mark Hansen).
They have a new preso dated July 3 which has some amazing charts.
It is entitled: "An Overview of the Housing Crisis, and Why There is More Pain to Come"

http://www.zerohedge.com/article/whitney-tilson-wh...

I'm actually waiting for the bounce in builders so I can reload my individual company shorts.

FD: I'm short XHB

Hi All - Took a flyer on this one today. New results on 2nd phase drilling of Au occurrance in Wyo. is favorable and management is top drawer on the technical front. Happy Trading

MBA purchase application data released tomorrow

Housing Starts Friday

Remember from WIR - consumer credit crumbling

But housing starts rebounded. Expect meager, yet positive result for June.

How it's played? It's not yet baked into price, so TOF may be on to something.

There's a person named les on Vad's site who was talking about building a drys position late last week. Will the real les please stand up!

I didn't do it cause my alert wasnt set right, late night with wine and woman from Uruguay (total hottie) but MGM made an awesome looking higher-low this am and went bonkers.

First chart is 3 year weekly. Note the proximity to the long standing trendline, the RSI moving up from under 30 and SStochs turning up. Any move slightly lower to mark a double bottom or slightly lower low will give a bullish divergence with the RSI.

The daily needs little explanation. The price boundaries are clear. Both RSI and SStochs need a little bit longer

If all goes to plan, VIX moves down to touch the lower boundary of the pattern, which will align with the uptrend line on the weekly. It would also provide a bullish divergence between price and RSI on the weekly, with the first trough below 30. One of the classic RSI buy signals.

Hope its useful stuff
Ciao
Ad

here is the spreadsheet I put together a few weeks ago...nothing fancy about it. To me the single most important factor in determining if the builder will survive and ultimately thrive is Debt to Equity. TOL has by far the best ratio. By the time this all shakes out TOL may be one of two big ones that is left standing a la GS / MS.

Thanks for the spreadsheet TOF, G

Here is a report from Zacks on ANH. They rate it a 2 (which is a Buy) and show the average broker recommendation as Strong Buy.

TOF

Thanks for that spreadsheet. I didn't see NVR on that list, and I don't have the time right now to do the comparisons, but I'd bet that they would fare well in that list of yours.

TOL is a builder of upper middle to upscale homes, and builds in many markets. NVR builds primarily up and down the East coast and caters to the lower to low middle market.

If and when the home building sector comes back, I'd suspect that it will start at the lower end of the market. The jumbo loans are just now facing pressure with increased job losses affecting more higher paid employees.

TOL, while well managed, may find itself in the position of having to build in a lower price target than what they're accustomed, and that can lead to brand deterioration.

Just one person's opinion, as always.

PPT is serving. how will the end of today's match look like?

jmorris1950 - Have you reviewed the instructions with the RSI tool Bill has provided (Accessible from top of this page)? There, you should find a link (blue color?) to the instructions.

If this doesn't suffice, speak up once more....

Nice charts Ad, thanks for posting.

bankchamp, thank you. Do you have an opinion yourself - thinking that with a moniker like that you're perhaps better able to judge this type of company.

I'm guessing they're all basically playing the yield curve, using leverage to convert mortgage yields up to the 16% div.

What are the risks? Non payment of mortgage, early repayment from refi at lower rate? NLY claim they only buy Fannie/Freddie paper, so no default risk - not clear what ANH buy.

Just seems a little too good to be true.

Medvedev is talking a new world reserve currency at the G-8 meeting. Maybe this has been keeping gold from the surge to $1000.

http://www.bloomberg.com/apps/news?pid=20601087&si...

"When it gets dull and you start thinking about forcing a trade, I've noticed it helps to have this taped up somewhere."

I've found the forehead is the best place to tape this.

I have it etched inside my glasses....otherwise....duh.

Dave - I'll take a look at Tilson's notes when I get a chance (assuming Tilson is the same as T2).

I've read the notes from Mr. Mortgage and can't say I disagree for the most part. However, I've seen significant inventory reductions on the homebuilders balance sheets, rising cash levels, lower debt levels, and in the case of TOL, a very good debt/equity ratio. This tells me TOL can weather the storm no problem and reap the fruits of their labor on the other side. Timing is the key though, but I think the risk/reward here is pretty good when looking out over 3-5 years.

With that being said, a 20% move up in 2 weeks and I'm outta here!

Todd - I hear your comments about TOL and I think they're fair ones. However, "component" prices have come down pretty significantly so they will be able to build at lower profitable prices going forward. And I always like buying the best. My dad used to work for TOL and he always told me they bought the best supplies even though they were more expensive. So if it was good enough for him its good enough for me...

Re the above discussion on homebuilders...Mitch has some interesting thoughts and charts that may help. It seems he thinks we're still about 7 years from the bottom...but again that's a national data point. Obviously individual markets will vary. For myself, I'm not skilled enough to know the specific details so I'm just staying away.
s
http://globaleconomicanalysis.blogspot.com/

EDIT - While one chart shows it may be 7 years to the bottom, later on Mish says he thinks it will come in the 2010-2011 time-frame and will not rebound but "remain weak for another 10 years".

Example...

bought more at .085...average is down to .099

No positions, just an observation.

Last night? You mean they didn't send you post-dated notes for the whole week?? Tell them to stop holding out (Grin)

This is gambling. Not investing. (It's also a bet on teamonfuego.)

shark- What did you say about his Mama? ;)

2nd
My SDS (paid 57.26 yesterday) is under now added more at 56.50
thats all for me

Market waited for Intel to report. Obviously Intel was able to keep their own printing press up and running... They earned it though, believe me.

The guys/gals running/maintaining the production equipment earned every penny, the potential for job loss can provide strong motivation and they can move lots through the line at lightening speed when they want. It actually makes the equipment more reliable as well, when you stop tinkering around and concentrate on pushing lots through. AMD used to accomplish this with carrots as opposed to a whips.

solid earnings...

Bought back my WEN in after hours at $4.42 that I sold at $4.38 today...

Pierre's recent write-up on Intel said that resistance was $17.50. Wondering if I should sell my long position at market open or ride the wave. Any thoughts? TIA

Why not sell half your position after-hours @ 18 and change? If it hits 19 tomorrow morning, you're still holding. If it sells off, well, you sold half at 18.

vinod- Index trading near 915 after hours. I would expect profit-taking to kick in tomorrow morning, into which you might sell a little SDS?

vb- The Deep South bred some great ones. Marshall Tucker.

http://www.youtube.com/watch?v=VEOV5vWfSgI&feature...

This was announced yest by GG, but i didn't see it here so here is an except:

http://tinyurl.com/kmz9lf
"Silver Wheaton Announces Goldcorp's Penasquito Mine Achieves Mechanical Completion"

FIRST CONCENTRATE SHIPMENT STILL TARGETED FOR THE SECOND HALF OF 2009

<< TSX: SLW NYSE: SLW >>

VANCOUVER, July 14 /CNW/ - Silver Wheaton Corp. ("Silver Wheaton") (TSX, NYSE:SLW - News News) is pleased to announce that, as reported by Goldcorp Inc. ("Goldcorp") in a press release dated July 13, 2009, construction of the first sulphide process line (Line 1) at Goldcorp's world-class gold-silver-lead-zinc Penasquito mine in Zacatecas, Mexico is now complete and commissioning work is advancing on schedule. Production and shipment of first concentrates are still targeted for the second half of 2009.

After a ramp-up period, Penasquito is forecast to produce an average of approximately 30 million ounces of silver annually over an initial 22 year mine life, of which Silver Wheaton is to receive 25% or in excess of seven million ounces of silver annually.

Could it be we've been selling off lately so better than expected earnings could provide impressive upside impact and an appearance that the market pricing mechanism is alive and well? Do I remember reading somewhere that some analysts believe earnings estimates are a bit understated this quarter?

Perhaps I'm guilty of wishful thinking? Naaaahh, couldn't be...

Looks like YUM's report wasn't all too palatable, down after hours...

wow 2nd, Thanks! I'd forgotten about Marshall Tucker!!!! and yes, this one rings home. I might even have to put this one to facebook for the old classmates.

vb

What does everything think of this?? how many dogs would you have to fly and at what price to make money??

http://news.yahoo.com/nphotos/Pet-Airways/ss/event...

2nd - Well I must admit to taking it in the shorts a bit and could use some relief about right now. Fortunately I was able to hold myself back to some degree. The big mistake I made was not cutting losses short as soon as support levels were smashed. Oh well, it'll be okay as long as we climb a bit before careening over the next waterfall.

Funny, it seemed like Bill's verbage lost some of it's negative tone about the same time I decided to scale back in....

Who knows, at least I'll be catching (riding) the bottom once again if I can stand the pain. Sleep? No problem!

2nd, VB- Thanks for keeping me in mind. I know this is hard to believe but my basis is now...12.61. I might trim some as it is now 120% in size. I'll be meeting with my oil guy tomorrow and see if I can get a little info. I do like all of the negativity about it now. TBT now 2% to the good.

2nd- Yep, work is really busy right now. This project will carry me through 2011.
Fingers are crossed.

Madoff Begins Life Sentence at Federal Prison in Butner, NC
The Butner Federal Correctional Complex, located about 45 miles northwest of Raleigh, includes two medium-security facilities, a low-security facility and a hospital, according to the Bureau of Prisons Web site.Among the well-known criminals being held at Butner are:

•John Rigas, founder of Adelphia Communications, and his son, Tim, the company's chief financial officer. They were convicted on multiple charges of securities fraud, conspiracy to commit bank fraud and bank fraud.

•Jonathan Pollard, the American convicted of spying for Israel more than two decades ago.

•Omar Abdel-Rahman, also known as the "blind sheik," who was sentenced to life in prison in 1995 for his role in a plot to kill Egyptian President Hosni Mubarak and blow up New York City landmarks, including the United Nations. He was sentenced to life in prison in 1995 and moved to Butner in 2007.
At the 3,400-inmate prison, Madoff will wear prison-issued clothing, initially be in isolation and then have a cell mate, according to those who have served time in the U.S. system. He will earn pennies a day doing menial work.
Yearly salary of $3.65 this is not fair?

Butner,NC by the way, is the best one - Madoff won't have it so bad. (decent health care for a prison), which he will need as time goes by...

vb

I think he recognizes the action for what it is, and is buying in for $500.

VB- It's OK, we're all friends here... So how much time was it?

Sounds like it's privately owned, but yes, there is demand for this type of service. Most commercial airlines only carry two or three dogs at a time which for big events like Westminster is not enough. There are hundreds of dog shows, agility trials, herding events, gun dog, earth dog and coursing dog events all over the U.S. EVERY weekend and most are in the warm summer months where USDA regulations prevent shipping dogs when it's over 80F because dogs are shipped in cargo. This doesn't count shipping dogs for commercial reasons (sales to pet shops, etc.) which could keep an airline busy from Pennsylvania, Missouri and some of the southern states with weak regulations busy full time.

We have always used commercial operations and shipped through their special services. Delta, Northwest and a few others have pet programs like Delta Dash to expedite handling because of heat stress and weather requirements in summer and winter months.

An airline specifically for dogs and cats could bypass some of these regs because they fly in the cabin and move pets from the terminal directly into the cabin instead of moving them like luggage in a cart on the tarmac then into the cargo section in the belly of a commercial flight.

Think of what it's like when you are sitting in the plane and the air jets aren't on. Now imagine you don't perspire and you cool your body by air moving across your tongue....but the air is hotter then hell. This is deadly to dogs. Now imagine you are flying a $1500 puppy or an irreplaceable herding dog that replaces six men on horseback and is worth anywhere from $10,000-$30,000 USD. You bet there is demand for a dogs/cats only airline.

Most airline employees are not specially trained (some are) and I've had to threaten airlines with legal action and that I would break through their security to get my dog off the tarmac if they didn't act immediately (which they mostly do afterward). I also knew of one incident where the Purina Herding Champion (worth every penny of $30,000) arrived upside down in her crate.

In short, this is a great idea.

Dave- Sooooo why am I working 16 hrs/day? My wife 8hrs, and keeping up our respective household duties?

TBT is coming back to you my friend.

the ' Tour ' phone is doing very well... temp. set-up seems to suggest rimm will advance to $ 75.00 over the next month..

"Honey..!?"

Shrunk the kids future?

GS jammies, those must be the Chinese jobs made from TARP with that toxic flame retardant that renders children penny-less (actually in-debt, worse than penny-less) on contact?

If you didn't see tonight's show, check the tape tomorrow on Comedy Central.
See Cramer and 'Nails' look like the morons (crooks) they are (IMO for legal reasons).
The comedy? A Comedy network reports real news while the MSM touts total BS.

Then Colbert has an African woman on that knows how to kick ass and get men's attention....withhold sex. Might I suggest starting in Washington and Wall Street ladies? PLEASE? That would be the very best. All that money and no place to spend it....what poetic justice.

At the very least we might have an export product, politicians and banksters.
They can carry a 'journalist' under each arm....
I suspect they can all find girlfriends in Argentina or take a 'wide stance' in Afghanistan.

I just had an epiphany. While napping tonight after watching the "Goldman Sachs" Meredith Whitney interview, I just put together something she said. Let me summarize.

MW said that the banks were going to modify a huge number of mortgages this quarter. She was excited. She said this was a game-changer. Why is that?

The new law passed on May 20th allows servicers to rewrite mortgages without getting sued. It also provides $18 Billion to incentivize them to do so." Here's the impact:

a) modding a past due loan brings it current, allowing the bank to lower loss provisions
b) they get paid for each modded loan
c) modded loans can be repackaged and sold to Ginnie Mae

Never mind that recidivism is high - by the time they relapse, the loan is in the hands of Ginnie. And if Obama has his way, they'll allow loan mods on loans up to 125% underwater. And of course the banks love this, because its the underwater loans that will go bad first - so mod them, pack them off to Ginnie, and it's better than PPIP, because they're sold to Ginnie at face value.

This whole process will allow banks to WRITE UP all their toxic MBS to FACE VALUE, and all the redefaults will happen under the auspices of GNMA (Uncle Sam), and the banks will be PAID $18 Billion split amongst the 4 big banks for their efforts.

And we thought PPIP was a scam? They're going to fall all over themselves to get this done. It's a total no lose deal for them. As MW said in her interview, "This is HUGE. This is a game changer. Bigger than the Chrysler bankruptcy. This is the Mother of all Mortgage Quarters."

Watch the interview. There are places in the interview where MW answered the interviewers questions, and then she looked at them to see if they got it. They didn't. Its not their fault, this is complicated stuff, and almost impossible to get in real time. The first time I heard it, my head spun. But you can see on her face that she figured it all out, and that SHE GETS IT. And she's dying to tell someone.

Not surprisingly, taxpayers get the downside. No wonder nobody cares about PPIP. This program does the same thing, but via the back door.

* modded homeowners become long term renters that can no longer walk away
* banks get to remove bad loans from their books, pretty them up, and sell them to GNMA
* banks get paid each time they do this - totaling $18 BILLION
* banks can now write up their flock of MBS 15 points
* GNMA will be the trash can for modified (and soon-to-be toxic again) loans
* people who MIGHT default will get mod offers as well, prospectively

http://www.cnbc.com/id/15840232?video=1180792150&p...

Your Tax Dollars At Work

ALOHA !!

The way I see it the US government along with the US FED have handed out way too many "guarantees and promises" all in a tidy box with a red bow on top named the AMERICAN DREAM.

If you break down the AMERICAN DREAM into its main component it is sheer DEBT. That's all us Americans can dream about? Well, we are certainly addicted to DEBT! When I first started buying real estate in the 1980s I bought a duplex and had to come up with 20% down minimum. Even if I did have the 20% down, then the rest was financed over 20 years. That means I am just buying a long "home" futures contract where I take delivery 20 years later. The US Congress decides to make this "contract" much more enticing by allowing a "write-off" of my mortgage payments against my current income taxes, which are supposedly "voluntary".

There ... I have a home, that I do not own, where essentially banks make a profit off me renting it from them until I take delivery some 20 years later. So who benefits most from the AMERICAN DREAM? Is it the poor sap who has to work hard for the next 20 or 30 years or is it the banker who does nothing but draws up the loan docs and sits around every month waiting to cash my check on money the banker never had in reserves but mouse clicked out of thin air? So who is really at risk? As long as the bankers can keep making loans and being the MIDDLEMAN in the MONEY MONOPOLY the World is beautiful.

Now lets move on ... What is FDIC? Isn't it just another government backed guarantee? Who does the guarantee benefit? Well, we are told it is for "us" ... us depositors who put our life savings in US Banks. If there is ever a problem with the bank and it goes bankrupt then we will get our savings back at no risk to us. Really though, as we are finding out now, the US Banks put up a very small portion of FDIC while WE THE PEOPLE are forced to insure ourselves through taxation. Same with SIPC ... more lures of guarantees so the stock market can proliferate beyond all bounds, where many of us depend now on our 401ks and day trading in order to have any retirement at all.

Then there is the ultimate PROMISE ... If we vote for DEMS and REPS we will be protected against any and all pain and live in a risk free World where all our needs will be cared for once we get older. All our needs will be cared for if we lose our jobs or if we get injured and can not work. There are a multitude of government "safety nets" all over the US TREASURY DAILY STATEMENT. In essence UNIONS are government sponsored safety nets for those who did not get a college degree.

Really with all these "guarantees and promises" we have been propping up failures for decades. We have been propping up the two party system which is clearly now seen as the failure it truly is. We have been propping up fraudulent banks and auto companies and railroads and unions. We have been propping up the worst and most immoral of businesses. Through these "guarantees and promises" we short circuit the capitalist market system that dictates which companies deserve to survive by their own innovation and ingenuity and fiscal strength and we have substituted the Financial Darwinism of the past with the markets of Financial Feudalism where we all serve the Kings Court and the businesses that most pay tribute to the HB&B Kingdom. In short we have disposed of true "competition" via the capitalist system and we now have Socialist Cronyism, not much different from the USSR and those who held the highest rank within the Communist party. Who most prospered in the USSR? This is why GS survives and LEH did not. Not because GS was better at inside trading than LEH, both were inside traders, but because GS was more politically and monetarily connected to the US government and the US FED and their controlled markets. Because GS had parlayed much more "agents" into critical positions than LEH, because GS was working more angles, but they could because they had more anglers. GS did not just trade futures they controlled them with their very own index and end user commodity reserves. What two banks will be left standing? It is no coincidence it would be the two who most own the US FED. Both JP Morgan and Goldman Sachs are indispensable "agents" for the POLITBANK agendas.

While Americans have been lulled into sedation by the numerous "guarantees and promises" we have been duped into thinking that somehow someone else will have to pay the BILL when it comes due and that each of us will somehow skate by life without any extremely severe mishaps. It is as if by virtue of being an American that you are guaranteed a risk free life, where even if you fail you can still live well compared to most other citizens of the World.

We have all been servants of the POLITBANK system for most all our lives whether we see it or not.

GOVERNMENT IS ONLY AS HONEST AS ITS MONEY ...

http://ronsen.blogspot.com/2009/07/crunch-time-for...

Hi All - Hope a few of you took the ride on this one with me since yesterday morning - up 71%. Happy Trading