Fund my Mutual Fund

I did not bother with posting the normal analysis of the monthly (un)employment report yesterday; it's really the same old story - some months it will be a bit better, some months a bit worse - the market will overreact either way as if one data point is changing the course in this economy. I continue to see no reason to change my view of a double dip recession and the only reason its not just one continuous dip is the enormous amount of money stolen ... err borrowed... from our grandchildren to pump up GDP figures later in the year. Just about a year ago the Bush rebates sent out some $100B in money we don't have to consumers (also taken from the grandchildren) along with another $60-$70B to businesses (that we don't have) and that pumped up GDP enough to make the quarter positive. Hence NO RECESSION! (at least at the time - remember we were going into an election; in retrospect by latter 2008 economists 'called' the recession as starting in Dec 2007 ) This year we're going to make the Bush stimulus look like peanuts by doing something over 4x as large - much of it will hit later this year and 1st half 2010. We'll stick our head in the sand and say "green shoots" because while the private economy is a mess, chopping down money trees let's us pretend things are just dandy. Sometimes a picture is worth a thousand words.


All this is just labels and definitions ... the reality is on the ground - the recession will continue even if GDP spikes to positive; while technically it will be a double dip (in my estimation) as we move into mid 2010, it will just be one long bad recession - the worst we've seen since the 1930s. Folks, a year ago people were calling for recovery - the same who are telling you everything will be ok now... Obama's team told us 8% unemployment is what we'd top out at. Thankfully no one on financial TV or in government is actually judged on performance. This WAS the longest recession we had post World War 2, MANY months ago. And it continues. It might be interrupted by the water hose of money we throw at it (that we don't have) but that is the only reason it won't technically be a 3 year recession. Sit down and think about that for a moment as you consider our dynamic "innovative" economy where the interest of workers are akin to toilet paper. The whole idea of the sacrifices workers make in this system is the tradeoff with dynamism of business and a bevy of jobs that this creates in new places as it destroys old ones. Just like "trickle down economics" that's proven to be a myth the past few decades in my opinion. The main change the past 30 years has been a huge transfer of wealth to the top since the early 80s.

As for yesterday's report employment report just take my previous post from a month ago and change the numbers [Jun 5, 2009: Real May Unemployment Report Reaches 13.4%] If you are new to the blog, in a sentence or two we've changed the way we account for unemployment since the late 1990s - both parties are guilty as changes have been made under direction of both. We cannot compare our unemployment rate today to how it was measured in the 70s or 80s since we've changed how we measure. Anyone who says unemployment is not as bad as the double dip recession of late 70s/early 80s is not looking under the surface - it is far worse. I've gone back and tried to re-adjust the numbers to an accurate gauge to have it apples to apples and its somewhere in the 13-14% range now. (estimated)

But I want to delve deeper into a few figures ... we are of course in a very bad CYCLICAL place in the economy. However, I've outlined in multiple posts in my Economic Forecast / Track Record tab - some of my longer term thoughts on the STRUCTURAL changes happening globally. I believe many Americans standard of living will lower (and to a lesser degree some advanced European countries although their workers have much higher levels of protection) as the Earth flattens and capital can go anywhere. [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?] But Americans will be worse off since in the "socialist" countries there is more of a push to stop inequality of wealth and their "transfers of wealth" go from top to bottom. In the US our "transfers of wealth" go from middle to top (Reverse Robin Hood) When anyone argues this they are ... in an ironic twist - called a socialist.

We've already seen many of the blue collar scorched, many now working at 30, 40, 50% of the wage rates they used to in their old jobs - many are now being 'transformed' from jobs making things to jobs providing services; and reaping the financial... uhh, benefits. White collar like to say 'well just get an education, and you won't be in that spot' - check back in 10-20 years when many white collar will be in the same space and that dogma will look foolish. Ask the architect who is trying to compete with his peer in Romania where the cost of living is 60% lower than in the US and hence homebuilders can pay 60% less of a wage. Sound improbable? That's not a forecast - that's a story I read 3 years ago. Extrapolate from there.

What's a safe place for stable wages long term? Apparently public co. CEOs. They are rock stars who do little wrong and have a skill set so rare that they deserve 300x the wage of the average American. Even though that same skill set only gets them 7-20x as much as the median worker in say "socialist" lands in Europe. But if we dare question it, we are again - socialists ourselves (codeword for unAmerican). So instead, as the middle class gets gutted we have to look upward and wait for the "trickle down" economics to provide prosperity - been a decade now... it will come sooner or later, I am sure. Where else? Places we are creating unsustainable long term costs - i.e. healthcare and government jobs (or quasi government i.e. education). These are areas we've talked about for nearly 2 years now - they are "stable" because we are kicking the can down the road on the costs, building bigger and builder long term obligations but growing these areas in many cases exponentially. To wit, look at the shock in this story in the Wall Street Journal that teachers (gasp) actually are being hit by the worst recession since WWII. You mean when states are underfunded by billions there is a cost (eventually?)

• In a sign of how severe the employment downturn is getting, even schoolteachers, an occupation once viewed as recession proof, are feeling the pain. That contrasts with annual growth of about 3% over the past 15 years in the education field.
• Ms. Frommer, 25 years old, said in college she was told teaching was among the steadiest jobs around. Now "there is no job security anymore," she said. Ms. Clutter: "You always think of teaching as a safe profession. Once you get in, you're there, you'll be able to retire," she said. "Not so much right now."
• Layoffs from other sectors are sending workers to seemingly more stable professions like teaching and health care.

Anyhow it's all relative ... those places will be 'safe(r)' for an undetermined time until the average citizen wakes up and realizes where all his money is going. At some point average Joe will figure out his tax rates are going up while his wages stagnate, but those his tax dollars support live in a mostly parallel universe - mostly unaffected by the reality of the economy (unless we get 70 year floods like we are experiencing now). Just sniff around your local papers and I'm sure you can read about the municipal worker who has retired at age 55 with a $70, $90K yearly pension (p.s. can't blame them - that's the system of handouts we've created, they milked the system for what its worth). This is basically a parallel to our auto companies (promises made that cannot be made) but across the country in a much larger swath - and it can last much longer than the auto companies before meeting the same fate, because the taxpayers money (and our borrowing from creditors) are apparently without bound. So as I love to say, "momma raise your kid to be a government worker!" It will be an oasis from the storm on our shores, until the common man private workers finally says NO MORE.

**********************

Some think I'm a permabear - nah; I was already thinking about the "recovery" at the end of last year [Dec 15, 2008: The "Recovery"] ... the problem is its going to make the "jobless" recovery of 2002-2003 look like 'good times'! We have to wait for our financial overlords to create a new bubble - and only then can we turbocharge job creation for millions whose jobs have been permanently pushed away to other countries (structural changes), and/or their job was only existing in the first place by PREVIOUS bubbles of the past 10 years. In the Dec 15th piece, I listed a few categories of "prosperity" we created by the "shopping / house building / financial innovation" economy we transformed into as we got rid of non useful things like "making stuff". With them are many jobs that will take a long time to come back, if ever... (#8 of course is the most 'safe' but things are so dire even some of them are threatened)

1. Automotive (16M yearly auto sales was based on house ATM)
   
2. Newspaper/media (structural change as advertising moves online)
   
3. Mortgage Brokers (based on house ATM, easy credit)
4. Realtors (based on house ATM, easy credit)
   
5. Investment Banking (based on house ATM, easy credit)
   
6. Misc Financial of all types (house ATM, easy credit)
7. Retail (house ATM, easy credit)
8. State and local government jobs (house ATM, easy credit)

So what is the common private worker who is not a CEO, a nurse, or a government worker facing in the meantime? That's why I want to pull out some of the statistics about this poor soul from yesterday's report.

Let's look at the average work week - the data below is in order of most recent data first so June, May, April, and then March

1. 33.0 hours
   
2. 33.1 hours
3. 33.2 hours
4. 33.2 hours

So we've now fallen to the shortest work week ever since statistics have been kept (1964). Sit down and think about that as well - worse than the late 70s, or early 80s recession in which the government tells us unemployment "was higher" per their rejiggered statistics. 2nd derivative non improvement.

So for those still working, (even if not a full week) how is their wage growth going? Especially interesting in a world the Federal Reserve is throwing money from the heavens to get speculators out of savings and into ... well, speculation. Hopefully of the commodity kind! Driving up prices of things Joe 6 Pack needs to live - i.e. food, and energy. (which we now take as a signal the world economy is coming back!)

1. 0.0%
   
2. 0.1%
3. 0.1%
4. 0.2%

That's right - after slowing drastically the past few months, we've finally flatlined. 2nd derivative non improvement. Remember 0.1% monthly wage growth = 1.2% annual, and 0.2% = 2.4% annual. You can figure out what 0.0% annualizes too. This is what happens when a fixed amount of jobs is chased by an increasingly amount of people, laws of supply and demand. Economics 101. Desperate people need to work, and they will undercut others to get that job. And let's not forget outside of wage stagnation we have workers losing 401k matches, being asked to take a greater portion of healthcare costs, losing other benefits, et al.

Now let me clear on this point, I don't expect the current rate of 0.0% to 0.1%/monthly wage gains to stay this low for the next 5-10 years - my "wage arbitrage" point is going to be very long term and specific to certain groups. Hence the aggregate won't be as bad as specific job niches in the long run - thats a structural change I see coming. But in the near term competition among the desperate is going to be a cyclical wage pressure. What would be amazing is if the US sees wage deflation in the quarters to come - thankfully we're not Japan. (cough)

At this point, let me take you into the life of median Joe... median Joe makes $18.53/hour. Unfortunately his work week has dropped from 38ish hours to 33 hours. Therefore, median Joe makes about $32K a year, instead of his potential in a normal economy of $36K. I assume after taxes, FICA, all that jazz - Median Joe is probably making somewhere around $20-$25K / year. Median Joe probably does not read my blog, because to actually have enough money to invest - you have to do a lot better than median. I also don't believe that the 50% of workers who make less than Median Joe are reading my blog - but not to worry they are out there, trying to survive in our thriving service based economy. I personally worry about median Joe, if Uncle Ben and his merry band "succeeds" and does an adequate job of giving speculators enough juice to get commodities through the roof in mid 2010 forward.

And here is the dirty secret, most people don't really follow "inflation" very closely - they can 'see it' in things they buy, but it's hard to quantify - i.e. notice how small those bags of chips are getting? Even if the price is the same? That's inflation - but only to you. Not the government. Less product for same price. Salary on the other hand - everyone watches closely... you know your salary, its easily quantified. Master plan? Chop enough money trees to create inflation - since people only focus on their salaries, they will feel GREAT about how their wages will go up... not realizing the cost of goods is increasing at the same or higher rate. But since most people can't quantify the inflation in aggregate, but can quantify their salary - they will be appeased. For a while anyhow...until they start to see bread costing $3 a loaf etc. Just remember the dogma - inflation is good, it is not regressive nor the worst tax possible for those in the lower tranches of society. (median Joe and below) Anything that hurts savers and helps borrowers... is a wonderful thing in the land of Cramerica. A country run by those who have no connection to Median Joe (or lower). Go team inflation.

Number of workers long term unemployed - half a year or more? (I just began tracking this last month)

1. 4.4M (June)
   
2. 3.9M
3. 3.6M (April)
   

For that last point, remember to clap your hands when continuing jobless claims being to drop (they already started the past few weeks) as workers exhaust extended benefits. Ignore the fact this number is dropping because people are losing that safety net, and pretend they are finding jobs and hence suddenly the rolls are dropping . (for example see the next section to postulate where these people are going in our imaginary state of prosperity) Also ignore the welfare rolls that are rising as an indication of where those people are REALLY landing. [Jun 22, 2009: WSJ - Numbers on Welfare See Sharp Increase]

**************

Just for kicks we always like to look at the birth / death model. Newer readers - this is simply a number that is "guestimated" by the government ... since they have no idea how many small business are born or die each month they stick their thumb in the air (ok I am sure it's more complicated than that - perhaps 3 fingers are in the air) and estimate. Want to see the past 4 months in the WORST recession in the post World War 2 period? (please don't laugh too loudly)

1. +185,000
   
2. +220,000
3. +226,000
4. +114,000

So again, as this economy contracts - in perhaps some of the worst months we've seen in 70 years, small businesses across America are flourishing and a hiring binge is breaking out. I count almost 3/4 of a million jobs above just in 4 months! Wow - dynamic and powerful. Dirty secret? Oh if we showed even zero growth above you could see the unemployment rate would jump. And if instead of zero growth we actually showed contraction in the birth death model... you can just imagine what the unemployment rate would go to. But remember... keep your head firmly in the sand and keep reaching for the stars. -Casey Kasem.

For extra snickers - Leisure and Hospitality, and Contruction - yes Construction have been the birth death job "leaders" the past 4 months. Even as we see major contraction in anything we read about retailers, homebuilders, Las Vegas, et al. Anyhow...

Since I am talking my yellow weeds book, let's take some independent thoughts via Bloomberg

• Americans’ wages are starting to buckle under the strain of mounting unemployment, threatening to erode the consumer spending essential to an economic recovery. Earnings per hour climbed at a 0.7 percent annual pace on average over the last three months, the smallest gain since records began in 1964, figures from the Labor Department showed today in Washington.
• The median time all individuals were out of a job grew to 17.9 weeks in June, the longest on records dating to 1967.
• “When we do get a recovery, it won’t be much of one,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. “There’s no bargaining power for workers. Discretionary income is just cratering, and this will have a profound effect on the economy.” (LaVorgna has actually been one of the CNBC regulars who actually has some feet to stand out, with some solid calls over the past few years)
• “The only wage growth we are getting is through government transfer payments, and that can’t go on,” said Deutsche Bank’s LaVorgna. “Even that isn’t enough.” (we highlighted that last week in [Jun 26, 2009: US Savings Rate Surges to 6.9%; Spending Up Too but Government Assisted] but the one spot I disagree with Joe is that it can't continue. Joe, it can! Yes we can! Stimulus 3.0 is coming next year Joe - our money trees are endless, our currency is not an issue, and the world awaits to give us more money. Even our unborn grandchildren cry out from the future for us to take from them - we deserve it Joe!)
  
• Employers are not only being stingy with raises, they are also cutting back on hours, causing the average weekly paycheck to drop to $611.49 in June, down 0.5 percent since February. The squeeze is unlikely to end soon, because there are 14.7 million workers who have been without a job for an average 24.5 weeks, the longest since records began in 1948.
• “Employers don’t have to pay workers so much because there’s a queue of people waiting outside to get a job,”... “It’s reducing workers’ ability to negotiate higher wages. We’re looking at a couple of years of really slow wage growth, possibly even lower than inflation.”
• Industries including manufacturing, wholesalers, retailers, utilities and leisure and hospitality cut average hourly earnings last month, today’s report showed.
• “Scattered reports of outright wage deflation are becoming more widespread,” Ian Morris, chief U.S. economist at HSBC Securities USA Inc. in New York, said in a note to clients. “Workers appear willing to take the wage cuts, which makes this recession very unusual.”
• "The labor market is still in shambles," said economist Harm Bandholz of Unicredit Markets & Investment Banking in New York

Here is the kicker....

• All growth in jobs in the U.S. over the last nine years has now been wiped out, and the economy currently has fewer jobs than in May 2000, according to the policy institute.

But not to worry, employment is a LAGGING indicator and Main Street is really quite irrelevant to the joys of Wall Street. (unless Wall Street is in need of a bailout, and then Main Street is very handy to have around) In fact, as we cut more people, profits can only go up - since workers are just a big expense. On this count, I am hoping companies can fire another 40-50M Americans because than profits should really shoot up - we might get Dow 36,000 after all. Who would buy things if we get rid of these 40-50M "cost centers"? Well we could just to 10 trillion government transfers annually with borrowed money - this would also allow Americans more time to shop with all that extra free time. And we always can sell things to the Chinese - which are going to support Europe, US, Japan, Brazil, Russia, and Antarctica with their stimulus. That last point sounds facetious but that's what the market is believing. Decoupling 4.0.

Look folks, I can only talk to you about the reality on the ground - I know the computers and institutions keep running into "consumer discretionary" stocks on each data point because that's what they are trained to do. When the economy is about to recover you go buy these things because that's the playbook. They've done it about 5x now since early 2008 - wrong each time. Does it matter this is a structural change in the US economy? Nah - just buy these stocks that rely on the US consumer and smile for CNBC. Meanwhile, I'll continue to be deemed the pessimist (I prefer realist) and tell you what I believe not only is happening, but what I believe will happen in the future. For 2 years, I've gotten the economy dead on... by being the "pessmist" (realist). I see no reason to change my thoughts go forward because I see historical changes happening - although I'll clap like a seal too when government transfer payment gloss over the reality (just as the Bush rebate check did a year ago) to get us to positive GDP later in the year.

While I smirk inwardly.

In summary: As we approach the celebration of our country, which unfortunately has been hampered by political and "upper 0.5%" dogma & oligarchy (still a chance we can take the country back fellow peasants!) let me leave you with the very obvious conclusion as I've analyzed the data set above:



Mmmmm.... Kool Aid.

The market makers in Riverbed Technology (RVBD) just have to be laughing amongst themselves; they did very well Thursday. With a large drop in the first 30 minutes (down to $21.60) they must of snared a bevy of stop loss orders (including mine @ $21.90) - the rest of the day RVBD was on a 45 degree angle up to finish almost unchanged. I wrote

This is the first penetration of the 20 day moving average since March.

Not so much - as you can see below

As I warned

As always the closing price is more important than the midday, and we are prone to being "shaken out" of positions by taking intraday stops

And so it goes... sometimes you lose, sometimes you win when you play it so close to the vest.

So by the skin of its nose, the Riverbed Technology chart is still in positive shape and still has not broken the 20 day moving average on a closing basis since March.

Long Riverbed Technology in fund; no personal position

Long time readers will know I made a lot of outperformance in the coal space in late 2007 through mid 2008. While everyone was in oil, I was pounding the table in the stealth rally in coal. [Dec 6, 2007: Coal Stocks Quietly in a Bull Market]

One name that was a very strange combination was Walter Industries (WLT) which at the time was a combo 'housing/coal' stock (yes, I'm serious). [May 1, 2008: Walter Industries - the Most Fascinating Company] Now they've refocused the business just as a coal pure play - specifically metallurgical coal. (for steel)

As the "reglation" trade crowd gets its head handed to them the past 3 weeks - I bring up this name because today it is green, and it's been performing at a pace completely outside its peer group. I'm always looking for anomalies or outliers which usually means "someone(s)" with a lot more access to information than the rest of us, knows something. I'm not sure if this signifies some news specific to Walter coming or just a relative valuation trade, but seeing it green on multiple days when the rest of the coal group is down has me wondering if something is coming. Maybe someone is sniffin' around [Jul 18, 2008: Wilbur Ross Believes M&A Activity in Coal Will be Unprecedented in Next 12 Months]

Below is a 1 month comparison of performance of Walter versus some of the larger coal names

(click to enlarge)


[Jul 29, 2008: Walter Industries with Blowout Earnings]

No positions

For entertainment purposes only I present this 7 minute video - Dennis is well known in "financial blogosphere" along with anyone who actually watches CNBC for having quite possibly the least amount of financial acumen on the channel. Which is remarkable for someone who has been in financial journalism for 20 years - you'd think via osmosis alone he'd sound half as rationale as the 2 bit bloggers he does not read (although he spends the first 3 minutes of the rant below talking about the comments on blogs - he does not read). :)

Despite 20 years of experience, in early June ago we posted questions/comments he had presented to Jim Rogers along the lines "I haven't looked back at your history" and "How long have you been living in China?"

Oh Dennis Kneale, would it bother you THAT much to do some research on your guests? I know it's just a well paid TV gig that you can say whatever you want as long as it includes "buy stocks" and "I'm bullish" but can you at least give the appearance of doing homework. I mean, if you are not going to do "research" on Jim Rogers background ("I don't know how you were invested in the past" "So how long have you been living in China?") - who happens to be one of the most successful long term investors of a few generations

Thankfully, I believe that is my only Dennis Kneale reference on the blog aside from this one today. So aside from probably entering as many stock trades during his life as one of my dogs, he doesn't even do the reporting side (i.e. research) very well. Hence a perfect fit for financial infotainment... err, news reporting. A part of me believes CNBC loves this guy because he stirs up outrage for his actual presence... remember, CNBC has moved to "wrestling type" formatting as this most excellent article we highlighted earlier in the year showed. Barry Ritholtz agrees with me that this is the reason.

Maybe if Dennis spent more time researching markets, economics, stocks and the background of his guests, and less time googling himself and reading comments on the "internets" he might increase his acumen. But that's just me.

The other reason to watch this, is to see who is on the other side of your trade (not that he trades) but at least if you have a bearish sentiment you can see what the Kool Aid is on the other side of your positioning.

Either way, as you drown a few cold ones this weekend - please enjoy Dennis Kneale in full technicolor. Just don't watch it with your mouth full of food.





Bonus coverage - original rant here:

I am doing a lot of rearranging of furniture today... I have to say I am seeing a lot of charts rolling over hence I am moving quickly. Anything thats flashing even a yellow caution flag I am looking at very closely. Longtop Financial (LFT) is not giving me comfort - I only have a 0.2% stake left, but the chart is yelling short more than long to me right now. I am going to take a 8% loss on this tiny batch and head for the hills. This is another name we'll revisit in the future as I still like the story here.

I think this market has one more decent bounce in it next week, to fill the gap created this morning and that's going to be the gap to short (last hurrah)... unless we break S&P 900 right here. So either on that bounce or below S&P 880 I expect to turn much of this cash to the dark side. Remember, we've been stuck in the box (range) for 2 months - until proven otherweise we're just churning form 1 end of the box to the other - eventually we'll break out one way or the other and that's the time to pounce.

Until then, we're still quite net long (but "small") with a mountain of cash.

[Jun 12, 2009: Beginning Stake in Longtop Finanical]

No position

Like many groups, insurance was highly shorted in late winter - and once momentum jumped in the group, investors betting against the group were crushed. Further helping insurance firms specifically was the government riding to the rescue (TARP), ala commercial REITs, banks, et al. [Mar 12, 2009: The Next Big Bailout Choice - Insurance]

As I scan through stocks who are looking weak for potential short set ups - I am seeing a lot of weakness in this group all of the sudden. Even the best run like Metlife (MET) or Travelers (TRV) are acting poorly. I'm not sure what this is signaling, but I am pointing it out. I know Doug Kass for one, really likes this group on the long side but I think his rationale is longer term.

Here are 6 representative charts of varying quality companies

Highest quality



Middle of Pack

Speculative

[Mar 31, 2009: Lincoln Financial Implodes, Principal Financial Cutting Salaries]


No positions

The fertilizer names have been much weaker than the commodity space as a whole... today they are green in a sea of red on a Russian price increase, but really Potash (POT) just warned of yet another production cut just 2 weeks ago. [Jun 17, 2009: Potash with Another Production Cut Hammering Fertilizer Names] We have short attention spans.

I see a low risk short opportunity and I want to begin expanding my short exposure with some of my cash. I still find "reflation" to be a tired, crowded trade and I think technology has a great chance to join it soon. But all in good time. I have almost no individual short exposure right now so I am going to slowly build some as the "right shoulder" looks to be forming (slowly) in the head and shoulders pattern we discussed earlier this week.

Usually I'd take heed of a green stock in such a bad tape but this is news drive and the news can be forgotten by next week. If I'm wrong, I'm wrong.

For now I am going to sell out of both Potash (POT), and Mosaic (MOS) - together they are only 1% of the portfolio, and begin shorting Potash with a 3.5% stake. This chart from stockcharts does not agree with some other sources - but I am showing it to you for reference. What I am looking at shows the 200 day at $96, and the 50 day moving average at $98, so 2 layers of insurance. I am going to short here in the mid $95s and I'll stop out over $101 if and when.


Speaking of agriculture - what a horror show over at Monsanto (MON) since last earnings - these names are among the top hedge funds favorites the past few years, so the action is striking.

Short Potash in fund and personal account

We mentioned Discover Financial (DFS) a few days ago [Jun 29, 2009: Discover Financial Surges on Analyst Note] - it broke out of a range based on the analyst upgrade and has now pulled back somewhat since my post. I am going to create a starter position (1% stake) as this is one of only about 15 stocks on my entire watch list that is positive today - remember, I hold an inordinate amount of cash and just sold completely out of 1 position and a large batch of another.... hence it's just replacing part of that long exposure in terms of overall portfolio.

I will purchase today at $10.30 and give a generous stop loss of $9.60 (6.5% away) which is below the 200 day moving average in case the market really begins to break down. The 20 day moving average is $9.70s and 200 day right below so we have 2 layers of insurance - if both are broken, then the market has spoken and time to run for the hills.

I have not had time to write up a full post about these things but some of the moves, new minimums, and fees by the banks on the credit card side is making me even more incrementally negative on the US consumer (and I suppose bullish for banks and credit cards) - we are now talking JPMorgan (JPM) requiring 5% minimum monthly repayment (versus 2% in the old days) on some accounts. These type of moves will be debilitating to the US borrower.

As an aside I still have a very small short on, in American Express (AXP) and the chart is shaping up nicely for further downside. So it could be a nice pair trade even if in the same sector, based on charts.


Outside of this the only pockets of strength I can see are the fertilizers based on a price increase in Russia, and a few solar names. Everything else is "1 off" - breadth is horrible.

Long Discover Financial in fund/short American Express; no personal position

I only have about a 0.4% stake in Illumina (ILMN) so I am going to take about a 8% loss on this last batch (stock is down about 10%) today on the earnings warning. The stock had just been flopping around listlessly so it was not a major position for us, thankfully.

A large gap has been created which is going to take time to work through and time is money. It's not exactly a "value buyers" dream down here either as it is still rich.... valuations like this are based on continued excellence in executation and ILMN's armor has been penetrated from that angle. The stock is down a lot less than in afterhours yesterday (when it down -20%) unlike Myriad Genetics (MYGN) which was obliterated yesterday and down far worse than the after hours the night before - so there is (relative) promise there.


From a portfolio perspective I don't have confidence to add to the position here with the chart set up, and I can't rely on valuation either so I'd rather just exit and come back later in the year when things are more clear. All they've really done is gone back to guidance at the beginning of the year, rather than that given in early spring - but either way, the damage is being done to the stock.

There is some language in their warning about disappointing funding from Obama's stimulus but if they were counting on that in their estimates I blame management.... I take a lot more serious the drop off in foundation spending since this is a big source of purchase for their products.

• Illumina Inc (ILMN) reported a lower-than-expected second-quarter revenue as customers delayed purchase of its arrays, and cut its 2009 revenue view, sending its shares tumbling 21 percent after the bell.
  
• Illumina, which makes tools for genetic analysis, said the delay in purchase decision by its customers has reduced revenue by about $10 million to $15 million in the first half of 2009. The life sciences tools maker reported preliminary revenue of about $161 million for the second quarter and lowered its 2009 revenue outlook to a range of $690 million to $720 million. In April, Illumina raised its 2009 revenue forecast to $700 million to $720 million.
• For the second quarter, analysts were expecting the company to post revenue of $172.6 million, according to Reuters Estimates. The company had forecast revenue of $168 million to $173 million for the quarter. Analysts were expecting 2009 revenue of about $717.7 million.
• The company cited the impact of reduced foundation funding in a few key accounts and order delays tied to stimulus funding under the American Recovery & Reinvestment Act, for the lower revenue.

But there is still some hope here on the foundation side - as long as orders are simply being pushed out rather than cancelled...

• Illumina expects the academic and research stimulus funding to have a positive impact in fourth quarter and in 2010, but not in the short term. "The program has caused order delays as customers wait to learn whether and to what extent they will receive incremental funding," the company said in a statement.

But in the stock market, the "fourth quarter" is an eternity and might as well be 2014. The average focus of investors timeframe nowadays is "tomorrow".

No position

Continuing with my "keep the stops close, don't ask questions" philosophy - I've been stopped out of about 90% of my Riverbed Technology (RVBD) - I placed my stop just under $22 ($21.90) and that just hit.

With these "untouchable" charts, once the momentum turns it can get ugly very fast so I am shooting and asking questions later. This is the first penetration of the 20 day moving average since March. Now we see how the stock acts at the 50 day (just north of $20) when and if. An aggressive trader might go short here with a stop over the 20 day ($22.50)

As always the closing price is more important than the midday, and we are prone to being "shaken out" of positions by taking intraday stops but I am playing it very close to the vest in a market that is up on reasons I don't agree with. When the next major correction happens, the news won't be very much different than the exact same reasons we ran up - just the attitude of the lemmings. (fear instead of greed)

Quick look at S&P500, we have that support of the 50 day exponential moving average right at 900. This is what we bounced off last week, and I'd expect something similar. A break below 900 foretells not so great things for bulls.

Long Riverbed Technology in fund; no personal position