cstauffer

Fuel Systems Rockets Higher: Wish We Had More Exposure

We exited our FSYS on today's spike, after trimming our positions in the mid-thirties a while back. In the low 20's this company was an unappreciated and under owned. It has now been discovered, but is richly priced.

Has anyone gotten interested in Westport Innovations (WPRT)? This company is not yet profitable like FSYS, but Westport's technology and joint venture with Cummins may make Westport much more scalable.

Treasury Slashes Q4 Borrowing Plans

Wow! That might have the makings of a movie. Throw in a couple of conspiracies and a Jack Bauer character or two and you have a blockbuster. :)


On Nov 03 11:29 AM Mad Hedge Fund Trader wrote:

> ljs I know what keeps Obama awake at night. Let’s say we spend our
> $2 trillion in stimulus and get a couple of quarters of weak growth.
> Then once the effects of the stimulus wear off, we slip back into
> a deep recession, setting up a classic “W.” Unemployment never does
> stop climbing. This happened to Roosevelt in the thirties. So congress
> passes another $2 trillion reflationary budget. Everybody gets wonderful
> new mass transit upgrades, alternative energy infrastructure, and
> bridges to nowhere. But with $4 trillion in spending packed into
> two years, inflation really takes off. The bond market collapses,
> the dollar tanks big time, gold goes ballistic to $5,000, and silver
> explodes to $50. Ben Bernanke has no choice but to engineer an interest
> rate spike, taking the Fed funds rate up to a Volkeresque 18%. Housing,
> having never recovered, drops by half again. This all happens in
> the 2012 election year. Obama is burned in effigy, a Mormon is elected
> president, and the Republicans, reinvigorated by new leadership,
> retake both houses of congress. We invade Iran. Crude hits $500.
> This is not exactly a low probability scenario. Remember Jimmy Carter?
> This is why junk bond yields are still stubbornly high at 12.5%,
> and credit default swaps live at lofty levels. Are the equity markets
> pricing in this possibility? No chance. The risk of Armageddon is
> still out there. Personally, I give it a one in three chance. Pass
> the Xanax.

'Dollar Up Stocks Down' Will Likely Change Soon

As an "investor" it truly amazing me how much focus people put on trying to determine whether the "market" is overvalued or undervalued at any given time. It is hard enough to get a handle on the true earnings or earnings quality of one company. One can reasonably ascertain a current valuation and compare it to an assumed intrinsic value for an individual company, however to try and do that with the broad market of 500 or 3000 stocks is really a fool's game.

I agree with Roger, it really does not matter much to an investor who is inherently focused on individual securities whether or not the broad market is under-valued or over-valued. What matters is whether you are purchasing those individual securties at suffiently attractive valuation in order to give yourself the opportunity to generate exceptional returns over the next 3-5 years. I often hear people talking about the "lost decade" for stocks based upon the returns of the indices. However, it is not very difficult at all to find companies whose stocks are up 400, 500 and even 1000 percent over the last 10 years. Gaming the market is for traders in my opinion. Investors need something to value and that is much easier to do with individual companies as opposed to the broad market.

Down Fridays

I think that you will find that many hedge funds do indeed have an October 31 fiscal year end. There is absolutely no data related reason that caused the sell off over the last I was mistaken on the $30 billion figure, it was reported to have been $3.7 billion which was liquidated in its entirety during the days that the market first began to sell off.

I agree that the fact the mutual funds have an October 31 fiscal year end would have very little to do with the abrupt sell off.


On Oct 31 04:31 PM logicalthought wrote:

> First of all, hedge funds end their years on 12/31; it's the mutual
> funds that use 10/31, and if anything, the mutual funds would be
> more likely to "window dress" and spend money to mark up their year-end
> holdings, rather than let them get crushed.
>
> Second, Galleon had $3 billion in positions, not $30 billion, and
> had supposedly unwound almost all of them earlier in the week.<br/>
>
> I think there's now a different, more negative tone to this market,
> and you can see it in the broken charts of the financials, the transports,
> the Nasdaq and, perhaps, in the S&amp;P 500. I have no idea what
> happens Monday, but I think the S&amp;P will see the low 900s (if
> not lower) by year-end.

Down Fridays

Hedge fund fiscal year end with large unrealized gains over the preceding 6 months means that they most likely felt compelled to lock in those gains ahead of the GDP report in case it came in short. Let's not also forget that the Galleon hedge fund, which I believe was $30 billon was unwound over the last seven trading days or so. On balance, earnings and the economic numbers over the last two weeks did not change the outlook of the economic recovery for better or for worse.

Market: Spooked Today, But Panic Attack Is Likely Temporary

Oh, by the way on the banks going under, big surprise! Earlier this year we heard that over a 1000 banks were going to be seized, I think we just went over 100 a couple of weeks ago. This was a brutal recession, unemployment will stay stubornly high, banks will continue to fail and consumer spending will be lackluster for the foreseeable future. Most of us who are reasonably constructive on the market are not basing that premise on everything being back to normal next year, that's not going to happen. However, many stocks are still quite cheap and are profitable and growing. Many stocks are cheap because traders were focused on the quick hit with junk like many financials and consumer stocks, while good solid industrial, staple and energy stocks have been neglected. This is not a market where you can buy the S&P 500 and do well; one must pick his or her spots and not wait till the stock is overvalued to sell.


On Oct 30 10:37 PM Archman Investor wrote:

> Not even worth a real comment here. Just more of the same from the
> author who rationalizes every piece of news as good for his asset
> gathering buddies.
>
> BTW another half dozen banks just went under tonight.
>
> Yeah, everything is good.

Market: Spooked Today, But Panic Attack Is Likely Temporary

I am frankly very glad that the sentiment on these boards and many others is so negative. This snap back bull market that we have had since March will not end with so many people scared or willing to be scared whenever the market goes through a profit taking period such as we are experiencing recently. I am really not sure what it is that people want at this point in the recovery coming off such a significant downturn. I certainly do not expect robust top line growth and I certainly would expect a significant portion of positive economic activity to have been "stimulated" by the stimulus.

Is the Current Economic Growth Sustainable?

Not rose colored at all! In fact, I was beside myself in criticizing Bernanke, Paulson, and virtually all market strategists and economists between Spring of 2007 and the end of 2008. However, we now have come through the crisis and we are emerging from the recession. Those who allow themselves to get mired in the should of, could of, would of types of debates have missed and are missing terrific investment opportunities. The economy will recover with much help from stimulus, the markets will again go back to focusing on fundamentals, however in the meantime investors who can block out the noise and look forward will most likely find the best investment opportunities of their entire lives. I know I found such opportunities 9 months ago in both equities, corporate and municipal bonds.

Back on subject, we will come out of this recession and history will write that the stimulus and quantitative easing averted a depression and protracted deflationary spiral.


On Oct 30 12:51 PM tunaman4u2 wrote:

> I need some of what you're smoking... must be great stuff... does
> it also come with rose colored glasses?

Is the Current Economic Growth Sustainable?

It is very interesting to me that the same individuals who were critical of the stimulus program and the Federal Reserve's quantitative easing programs are now the one's who are criticizing the economy's growth as "artificial" and unsustainable. This does not reconcile for me because had we had capitalistic destruction run its course undeterred, without the extraordinary measures that we have seen from the government and Fed, we would not have had any growth at all and more likely would have had continued contraction, much higher unemployment and we would be mired in a deflationary spiral.

Of course most of 3Q's growth is attributed to stimulus, that is the very point of stimulus isn't it? Now, as a result, we have signs of returning consumer confidence, the bond markets are functioning and the stock market is recovering. Job losses are less bad and bank's are returning the TARP monies. The stimulus measures have done exactly what they were designed to do and more will kick in over the next year. We now need private business to do its part.

Bucyrus: From Tepid to Bullish

I have to agree on the valuation concern. I sold BUCY in the low 30's based upon a mid-teen forward PE and the prospect of their results lagging any recovery given their extended sales cycle. I made this same decision on several other long cycle companies and they have begun to disappoint, however BUCY has remarkably come through this quarter much better than expected.

Tapping into Geothermal

I accidentally stumbled over LSB Industries, Inc.(LXU) and through my research on the company I was pleasantly surprised that over half of sales come from manufacturing and selling geothermal and water source heat pumps and related HVAC supplies. The company is headquartered in Oklahoma City, but it has an international sales footprint. It is very profitable and is sporting a low 10X forward PE. Its ROA is 8.4 and ROE is 20.5. I find this company to be a conservative investment if one is looking to investing in the growing interest Geothermal.

The Evolution of U.S. Manufacturing

I have read Marc's latest book two times over the last month and it is truely inspiring in light of all of the hand ringing that is occurring today about just how terrible our economy is and will be for the foreseeable future. That fact is that our economy has modernized greatly over the last several decade. As an economy, we have moved up the food chain as a manufacturer and service provider. The problem that we have is that our economy has moved up that food chain faster than our workforce has.

When you think about all of the life changing and world changing accomplishments that have been born from our domestic economy over the last 100 years, you cannot argue that our greatest strength is not basic manufacturing or providing low level services. The concept is not much different than the "highest and best use" assessment that a real estate appraiser performs when he or she appraises a commercial property. Our economy's highest and best use is not manufacturing toys and clothes or assembling technology equipment. Our highest and best use is evident when one looks around the world and realizes that it is American ingenuity that brought the world a vaccine against polio and anti-biotics, the semi-conductor chip, the airplane, and the internet. Without American entrepenaurship the world would not have products and services from McDonalds, Nike, Google, Microsoft, Coke, Caterpillar, Boeing, Apple, Disney, GE, as well as Pfizer, Merck, Johnson & Johnson, Bristol Myers and Amgen. We have what the world wants. The more affluent the developing world becomes, the more money that they will have to buy our products and services. We have the brands, the franchises and the innovative edge to disproportionately benefit from the the economic success of the BRIC countries.

Are High Dividends Sustainable?

To all of you "oldsters" I would not recommend short-term trading. To the person who looks at equity investing as "loaning the company money", that is bond investing not stock investing. Don't take equity risk in order to get a bond like return. If you want income invest in a bond fund or buy individual bonds. Buying bonds earlier this year, particularly corporate bonds, would have provided you yields to maturity of between 7% and 12% in very high quality companies. If you are buying equities, buy them for their total return over a 3 -5 year period or longer. Buy dividend paying stocks with a history of an increasing payout ratio and buy the stocks at a low relative P/E. Another way to own equities with a good total return is to purchase a closed end or open end fund which owns dividend paying stocks and combines that strategy with covered call selling. Many of these funds are throwing off annual yeilds between 8-10% and you still have opportunity for appreciation.

The Hidden Depression of the 2000s

Very interesting article and collection of data. I have sensed for a while that a significant portion of our economic growth in the 2000's could be attributed to an increase in personal leverage given the stagnation of wage growth. What facinates me in all of this is what policy decision (tax, labor or otherwise) has lead to the stagnation of wages over the last 10+ years or more. One of the issues that strikes me is the change in the way inflation is calculated has changed a number of times over the last 30 years. In my opinion, that change in the way inflation is calculated served to under state inflation, thereby providing cover for employers to keep a lid on wage growth for decades. This disparity between wage growth and "real" inflation over many years has put significant pressure on households to maintain their standard of living. With a signficant number of households already in the catagory of two wage earner families the only way to bridge the gap between insufficient wage growth was increasing leverage.

Irwin Kellner shrugs off long-range estimates that peg the federal deficit at $9T over the next 10 years. "Somehow or other, unexpected developments have a way of changing what seems to be a certainty. In today's case, it could be such developments as stronger growth, greater productivity, innovation and technology."

I am also not a big fan of Irwin, however all gloomy pessimists should heed his message because he has history on his side on this one. Also, it is interesting to note that even John Mauldin made a similar statement during an interview when he was discussing that quantitatively we would need to see 9-10% GDP over a series of year in order to bring unemployment back down to around 5%. However, John qualified this statement by saying that he believes unemployment will come down to that level again sooner than most people believe even without the unrealistic 9-10% GDP growth because unforeseen innovations and new industries will develop which will create jobs that we cannot necessarily even conceive of today. He says that is why he is optimistic.