BLOW BY BLOW REVIEWAN - GM and Carmax announcements undeniably point to a deeply troubled car market.
Another used car retailer released earnings last week. "Car-Mart admitted it is benefitting from higher-income customers feeling the economic squeeze and forgoing new car purchases in favor of a used automobile."
AN sells new cars and their market is disappearing. There is still the chance that Eddie Lampert could take them private (easier at $10 per share than it was at $14). That's one reason I want to exit. Another is that I doubt the puts will approach $2. That would mean the stock itself is approaching $8 ($10 strike minus the $2 option value). Shorts are piling in: short position rose from 10% to 12% in one month.
AGN - Puts expire in 3 weeks. I could see more pullback, so this is on day-to-day watch.
DUG - Yes, I went negative oil. And oil shot up ~5% and DUG still rose. Volume has been rising because many people (myself included) think that oil is going to pullback. I base this on a few variables:
1. Clear, concerted efforts to pull the price down. The Fed & SEC are trying to limit speculation, which will help.
2. Demand is down. US oil consumption has dropped 4% in the last 2 months. Apparently oil is elastic. Airplane flights and less car travel is changing the consumption landscape.
3. Supply is rising - At $130, lots of new supply is coming online
4. OPEC knows that we are heading back to oversupply. Libya and Saudi Arabia are not the only voices talking about reducing supply to keep prices high. The only question is can they manage to stop production when prices slow. It sounds almost contradictory, but Iran, Venezuela, Russia and others must pump as much oil as they can to sustain their economies. As prices dip closer to $120, they are encouraged to pump even more. The history of OPEC is the history of cheating by member states - producing above quota.
5. Summer ends soon - oil consumption will moderate. But capacity will stay high.
Rumors of an attack on Iran could make for problems, but those pass quickly. I think an actual attack would happen in November, after the elections and before the new US Commander-in-Chief takes charge.
DSX - Shipping. I will do a write-up on shipping another time. For now, my rational is
1. 10% dividend
2. Undervalued - they have a very small P/E given their massive growth expectations
ETFC - I think the drop is really in sympathy with all financials. Guilt by association.
Recall, however, that ETFC owned up to their mortgage and HELOC exposure back in September - 9 months ago. They had much more time to deal with the problem. And they seem to have been the only ones that have owned up to the problem (as opposed to C, MER, MS and others that continue to try and wait out the problem).
Meanwhile, they have poached a lot of business from Schwab and TD Ameritrade. They'll need them - people trade less in Bear markets.
It all comes down to showing an improvement in their loan portfolio.
In the near term, I do expect more down moves as other lenders show weakness and drag down the sector (IndyMac may go bankrupt, for example, & Morgan Stanley will get downgraded).
Interestingly enough, the Short position has fallen from 111M shares to 105M in 1 month. Of course, that may be why the price was above $4 last month.
Longer term, I am not very worried here:
1. Stock is already down 85%
2. Company is not on any rumor mill for bankruptcy, downgrades, or similar critical issues.
HOG - These guys are not a transportation company, they are a consumer product. Most people own Harley's as vanity items not for core transportation. It's an expensive luxury item too - requiring maintenance and insurance, at a time when most hog riders are cash strapped.
Some folks will argue that they are an oil play because motorcycles are more fuel efficient than cars. Several problems with that theory:
1. Not that much more fuel efficient
2. Other bikes are more efficient
3. They cost almost as much as a used car. Folks who are challenged to buy a car are not going to look at something almost as expensive
HOG is facing low demand, so they are shutting down several production lines.
Another core problem is financing, which has a double impact. First, delinquency rates are rising, meaning folks are returning their bikes to HOG. Second, they can't write new loans on new cycles.
Lastly, they have almost no International presence to bail them out.
MGM - Times must be difficult for Vegas: I have free offers being thrown at me every week.
MGM took a hard blow after getting downgraded by an analyst. They are a HOLD, which means SELL.
Not one aspect of their business is doing well, and it looks like Wall Street is noticing. Vegas is hurting and so is Macau (take note those of you who are banking on a strong China - even the Chinese are startingto show signs of exposure).
The chart looks ugly with more pain ahead. There are rumors now of bankruptcy because of the $13B City Center that looks like it won't even come close to being breakeven. A major writedown will occur in a few quarters. We have a September expiration (almost 3 months). So lets keep those puts for now.
MUR - A refinery. An oil retailer. A driller and oil producer. Every single one of these is a good business right now. What makes me favor MUR is that they sell gas at Walmarts. Recent news shows that consumers are buying much more cheap gas at Walmart - and that means MUR. I like the way they stayed above $90 for the past 2.5 months.
And they only have a 14 Forward P/E
NKE - I think storm clouds are ahead but they are not terribly overpriced, so I want to close out the position as soon as possible.
VMC - VMC is locked into long-term development contracts, and they are somewhat immune form current building demand.
They are not immune from the high cost of oil - asphalt is a big part of their business. Their margins are getting squeezed right now.
A second area of concern is new business. A large number of potential contracts are probably being deferred by both government and commercial developers.
A third and final problem for them is cement. Prices are dropping, further pressuring margins.
Resistance is strong at $60, which means that once it gets broken, the low 50s are next.
ZLC - this one puzzles me.
The competitors are hurting.
* Blue Nile announced US sales are slow
* Whitehall is declaring bankruptcy
I want to say that they may be rising because of the value of their gold inventory. Except that gold hasn't moved much in 6 months. With the exception of a 3 week spike in February/March, gold has traded around $880 an ounce +/- $40. And ZLC flushed its inventories the last 2 quarters by 15% - reducing their gold position.
Sales may be up thanks to the stimulus checks. But one-offs aren't going to save them. And they rely on too much private financing to make the sale: they actually use Citigroup and that must be starting to tighten.
To scare the shorts, management has announced a share buyback of $350M. They have the debt and have spent it already to reduce shares outstanding by ~9%.
But they are really short cash and I just don't see how long they can keep bleeding money.
In fact, I notice that short pressure is huge: 44% of shares are shorted and that's an increase of 4% since last month.
