WHY I BOUGHT A COMPANY THAT IS IN BANKRUPTCY TODAY & A RECENT IPO THAT I AM WATCHING LIKE A HAWK
I'll start with the one I took a position in today. I initiated a small position in DPTRQ today. This is a highly volatile bankruptcy play in a company that used to be a significant player in the energy industry. There have been actions taken since the beginning of this year to preserve shareholder equity. It is never easy to tell whether these types of restructurings will end up favoring shareholders...meaning that shareholder equity will end up being preserved as an end result of the action taken. It is not in the hands of management and up to the courts to decide. I do, however, trust what the market is telling me more than anything else. As of today, the market seems to be saying that shareholders will win. In fact, the market has been saying shareholders will win since the beginning of the year. Only at the beginning of the year it was whispering it. As of today, it is screaming it. The following is a quote from the CEO on March 20th "We are very pleased to have identified significant additional sources of value for our stakeholders (read: WE ARE THINK WE HAVE FOUND A WAY TO KEEP SHAREHOLDERS FROM GETTING COMPLETELY SCREWED), and we believe the additional time to allow proposals to develop is well justified," CEO Carl E. Lakey said. "Delta's sale process has received significant interest from a variety of companies and investors (read: WE HAVE DISCOVERED SOME REAL SOURCES OF FINANCING), and this extension is intended to facilitate the ability of those bidders to consider structuring alternatives that may preserve certain tax attributes. (read: THOSE WHO WANT TO PARTICIPATE HAVE TO MAKE SURE THEY ARE NOT GETTING SCREWED BY US LIKE SHAREHOLDERS HAVE SO FAR. THEY ARE BEING DILIGENT)" Prior to this on January 20th, the company pursued DIP financing for north of $50 million in an effort to continue operations. The events of January 20th led to the initial spike in the stock from roughly .10 cents per share to near .35 cents over several days. This type of a financing is a sign that the company is interested in a restructuring...NOT a dissolution of shareholder value, followed by a fire sale of assets. The situation isn't as clear cut as another bankruptcy play I took part in a couple years back in GSIG, which is why I am not taking on a large position. I am keeping the position small so that in the event I am incorrect, it will be no more than a couple percent of the total portfolio. If I am right, the gains have the potential to be substantial,...
THE REACTION AMONGST INVESTORS TO GOLDMAN’S MEGA-BULLISH CALL IS AN EYE OPENER
I read a brief report with respect to the Goldman generational bullish call on equities this morning. Whether all of the data, charts and figures end up culminating in a bull market that is going to make money rain down from the heavens like we're all dancing on a silver pole is just a sideshow. This report will be forgotten in a matter of weeks as a new flood of information captures the attention of investors. The most interesting aspect of the report is the reaction to it. The immediate reaction is exactly what you would figure: distrust, suspicion and trickery. Why would an investment bank that has been directly or indirectly had a hand in all of the economic ills of the past decade want to create wealth for the muppets that happen to hold an account there let alone those of us who do not? This level of skepticism with regards to Wall Street reminds me very much of what I saw in the late 90's and early 2000's in the equity markets. Only now it has been thrown on its head and reversed. You see in 1999 whenever any analyst would publish a bearish report on a stock the sentiment was that they are trying to get me out of my position. They want my shares. They don't see the light. Bearishness was met with outrage, which was followed up by all kinds of facts and figures with respect to the power of the internet platform and B2B commerce and revenues from vast optics infrastructure being built in the ocean and the power of buying any brand of pet food with the click of a button. The same passionate skepticism that embraced any bearish argument in 1999 is only matched by the skepticism that greets anything long-term bullish now. Facts and figures are immediately dragged out to refute bullish claims. The analysts want my cash is the sentiment now as opposed to my shares which was the sentiment then. Now investors want to protect their precious cash that is yielding 2%. 12 years ago they wanted to protect their shares that were promised gains of 100%. Now investors want to drag out bearish data that has been seasoned and cooked on the market grilling of recent memory. 12 years ago they were dragging out bullish data that was lathered and washed in the most bullish period in a generation. The conditioning that investors have experienced over the past 12 years has had a profound effect on the ability to think openly and rationally about the potential of the equity markets, especially those of developed economies. It...
COULD BOND INVESTORS LATE ARRIVAL BE THE CONTRARIAN INDICATOR EVERYONE HAS BEEN SEARCHING FOR?
I discussed in my last post how bond investors are not the smart money on Wall Street, but perhaps quite the opposite. Here is an illustration about their late arrival to rallies over the several months. Namely the October highs in 2011 and now recently. Whether this means that we put in an intermediate term high here is debatable. I surely won't be selling my longs based on this piece of evidence alone. However, it does deserve consideration within your secret box of market indicators and propaganda. click chart to...
MAYBE BOND GUYS AREN’T SO SMART AFTER ALL
There are certain beliefs that have always been ingrained within the fabric that makes up Wall Street. One of them is the myth of the "smart money". It is fun to think that there is always a group that gets it right, no matter the condition or circumstance. A group of men who hold the world's financial secrets inside of their Ipads or laptops. They communicate with each other on secured lines so that nobody will be able to access the secrets of their vast money making operation. They capitalize on the mistakes of the rest of us to their own benefit. The problem with the myth of smart money is that nobody can tell you who these people are. It constantly changes based on which hedge fund manager, trader or guru of the moment is having the best performance over a 1, 3 or 5 year period. Those who were considered smart money a decade ago are almost all gone, with the exception of a few individuals. Unless there really is a secret society of market savants that know what the Dow or Crude Futures are going to do before the Dow or Crude Futures know what they are going to do, I would venture to say that smart money is really just hot money. Which brings me to subject of this latest missive: Bonds investors are dumb. Yeah, I said it. Let's look at this logically, from a very ABC standpoint. We have a group of investors who are controlling enormous amounts of wealth and looking for a place to allocate that wealth. They have found a hiding place in what is rumored to be the safest asset in the world: US Treasury bonds, notes and bills. They allocate their wealth into these instruments at what are historic low rates of return. They sit in this asset class through thick and thin causing yields to flat line along the bottom of a multi-month range near all-time lows. Only recently, following a near 30% rally in a competing asset class (S&P 500) since October do they realize that their investment may be suffering from a retardation in the rate of return and they decide to begin allocating away from instruments that while safe provide little in the ways of upside and abundant risk in the near term. Does this sound like the smart money that bond investors are rumored to be? It sounds to me like a group of investors who have missed out on one of the greatest rallies in stock market history. I don't care whether you think this rally is built on the crack of a bum's...
THIS IS THE KIND OF STOCK YOU WANT TO BE LONG IN A BULL MARKET
I see traders and investors pointing out stocks on a daily basis that they see as buys for one reason or another. Unfortunately, when you look at a snapshot of the company, in the form of a chart, it looks like a distant cousin of the Addams Family. Scary, pale, without much character and a blank look on its face. That is what I see in many of the names that investors tend to become obsessed with. The obsession is mostly due to one valuation metric or another, a key product or a recommendation. These considerations all seem to trump whether the company looks aesthetically pleasing in terms of price action. It has been my experience that the best investment opportunities come when beauty is offered along with brains. In other words, fundamentals and technicals come together to create a symphony of profit potential. Valuation is damned if the price doesn't line up beautifully to confirm your fundamental homework. The new product that seems so promising is garbage if the price doesn't want to cooperate. An analyst upgrade or a recommendation by your favorite market pundit is a fart in the wind if the stock can't look itself in the mirror due to the horror of its price action. Tonight I discovered a prime example of the type of company that deserves serious consideration within a bull market. The risk is clear. The trend is even more clear. And the strength is crystal. It is a company that deserves to be on the watchlist of short-term traders as the price action and patterns are extremely clean. It is also a company that deserves to be on the watchlist of longer-term investors as these types of trends have some very real potential over the long run. In other words, they don't dissipate overnight. The company is ALLT. It is an Israeli telecom company that does business in Africa, Asia and the Middle East. All the parts of the world that are growing at a breakneck pace, in other words. A nice tight float of 22 million shares. A roughly $600 million market cap. Short interest of less than 2% of the float so you know that the volume we are seeing is not simply demand meeting supply in the form of short sellers invading. I haven't studied the company fundamentally beyond the above mentioned. And I don't need to. Here is the chart: click chart to...
LESSONS IN BEHAVIORAL FINANCE AND PORTFOLIO CONSTRUCTION UTILIZING PIMPOLOGY 101
2012 has surely been a much different experience for most investors than last year. 2011 draws up two distinct images when I look back on the first half of the year and the second half. Looking back on 2011, the first half of the year was essentially a guy trying to get out of bed after engorging himself with a dozen greasy donuts and a bean burrito. It just wasn't happening. Every attempt to get up was met with resistance. The second half of 2011 was a midget doing the rain dance on a stage lined with dynamite. From one day to the next, you didn't know if the market would end up falling through the floor or flying through the roof. In the meanwhile, it bounced everywhere in between. 2012 thus far has been much different. After being bullish from late-September 2011 into December, I became bearish towards the end of the year and acted on it through a good deal of short exposure. This was based primarily on some very reliable sentiment measures that were blinking off the charts with bullishness. Here's the thing with sentiment indicators that a lot of actors in the markets miss: They don't work during bull markets. That's the bottom line. When a market shifts into full on bull mode they expand the range of what you and I deem as being "normal". You aren't smart enough to know where that range will normalize. That is really all there is to it. Listen, they work great during mild bull phases or for attempting to find bottoms during standard pullbacks. They even work fairly well in bear markets that don't get out of control a la 2008. Runaway bull markets turn them into trash. Remember when everyone was going nuts over the AAII (I think it was) numbers coming in at the most bullish in X number of years during the first half of January? Where did that get those who believed the markets were saturated with bulls? Your job is to be able to decipher when a market is moving into that type of bull market that will turn formerly beloved sentiment indicators into flaming turds being thrown out of the window of a Cadillac El Dorado. I quickly realized during the second week of January that I had been played. I covered all my shorts on January 10th. Several days after I put out my first post regarding a long equity position in many months. This was followed by more posts relating to small cap companies that looked attractive on both a fundamental and technical basis. As a result of my...
NO LONGER HAPPY WITH BEING IN THE MISSIONARY POSITION, THE MARKET FLIPS
Now everyone can rest their heads well tonight. We got a pullback. The market is no longer satisfied with being in the missionary position and is looking to broaden its horizons. Aficiondos of wild markets unite...your time has arrived. Those of you who have been keeping up with my thoughts should have, at the very minimum, been mentally prepared for this. Hopefully there are those who managed to profit from or avoid this all together. The signs were all there and they were abundantly clear for anyone who chose to listen. From the manner in which the volume kicked up on the reversal last week. To the breakdown in commodities, namely the precious metals. To the generational trajectory that was hit on the dot in the Nasdaq. What now? We certainly could have a bit more downside left. Not much, however. Perhaps 150-200 more points on the Dow and roughly 50 on the Nasdaq Composite seems about right from today's closing levels. I took the opportunity today to rotate from portfolio positions that have been underperforming into the outperformers over the past couple months. GSIG, while being fundamentally sound and possessing substantial upside from here, just hasn't been putting in the performance of some of the other names. It's up about 2% since I mentioned it on January 18th. Not even close to the double digit percentage gains in some of the other companies in the portfolio. I trimmed a bit from GSIG today and added to SPRT. Since gapping up after reporting earnings on February 9th, SPRT got as high as 3.80. It has now pulled back to 3.15 and seems to be in a good position to increase exposure. I'm not considering any new positions at this point. Have a good mix within the portfolio of companies that have significant opportunity due to restructuring/cost efficiency/partnership efforts. No reason to tinker too much with something that seems to be functioning optimally at this juncture of the uptrend. I have a lot going on this week. I will be diving into some deeper market analysis over the...
A CRACK IN ANOTHER PILLAR SUPPORTING THE MARKET BECOMES OBVIOUS
Over the past week I have been mentioning some of the important pillars of the current bull market that have suffered cracks. These cracks are by no means fatal. They are just indications that some reinforcing of the foundation needs to take place before we can attempt to move higher. I discussed one of the cracked pillars - the small caps (IWM) - last night. I've also discussed the Dow Transports, which caught a little more downside pressure in today's market action. Now we can add the SOX to that growing list of important market components that are creating a shaky foundation from which this rally will likely falter and grow into a muddled mess of sorts over the next couple of months. Here is a look at the SOX on a monthly and daily basis. I wanted to zoom out to give an idea of the important level that it is sparring with currently: click chart to enlarge The information that the SOX is relaying to us simply gives further confirmation of the choppy and disorganized nature of the market that is to come. The easy money was made in January and February. It will become more difficult from here. The edge, however, continues to be with the bulls. And that is exactly why I remain with little cash reserves and long a variety of small-cap names. Bottomline: I'm willing to ride out this chop in exchange for being invested in the bigger...
THE LANDSCAPE SUPPORTING THE MARKET SHIFTED THIS PAST WEEK. NOW WHAT?
The easiest way to spot a shift in the market is to look at the landscape that supports it and watch that landscape for changes. The more you try to make sense of the shift according to various fundamental paradigms and traditionalist thinking, the more you will draw blanks. You have to completely tune that shit out of your mind and look at all the various factors as a single functioning entity. When one or two components of that entity begin veering off in odd directions, you can bet that the entity will become agitated, even if it doesn't respond to the changes right away. And that is what we had this week, the entity that is the market witnessed numerous components within its structure begin veering off in directions that have shifted the landscape for the first time in 2012. Our job as investors is to attempt to determine what overall effect this shift will have on the entity and whether there is an opportunity to profit or at a very minimum, avoid loss, as a result. I outlined some of the shifts I was witnessing on Wednesday. As the week came to a close, I saw further signs that a shift has taken place that will likely result in change of character for the markets over the next few months. Suddenly, the Euro has weakened dramatically. Of course, the US Dollar has reversed course and is sitting right up against a major technical level on the US Dollar Index. The uptrend in both gold and silver has been broken. The reaction to the break on Thursday and Friday were not promising. The commodity sector looks increasingly weak as a result of the aforementioned facts. The Dow Transports look ready to breakdown. The Russell 2000 has already broken down. And generational trajectory points of enormous stature and importance are converging across major market averages. None of these facts changed into Friday's close. It translates into a market that is going to begin becoming a lot more deceptive than it has been since January. It translates into increased volatility and opportunity for gains from both sides of the coin instead of simply being long. It translates into a sideways range developing into April and May. What it means for you as an investor is that you may not want to be chasing the hottest growth names at this particular juncture. You don't want to be putting large amounts of cash to work in equities currently unless they are of the conservative variety. Hold onto whatever cash you have for better opportunities in the months ahead. I also wouldn't be...
WHAT’S YOUR FAVORITE POSITION?
I received an email in response to my post last night asking what long positions I was talking about in the last paragraph of the posting? I tend to focus on small-cap names in my own portfolio and the more aggressive portfolios that I manage. Since a lot of these names lack real liquidity, I like to stay away from disclosing trades in the names. I'd much rather settle on a simple review of a company as I have done several times since the beginning of this year. Here are the names I have reviewed over the past couple of months. I have positions of varying sizes in all of these stocks: - January 16th: PRGS reviewed at $18.68 per share. Here is the link to the review http://www.zenpenny.com/?p=3394 - January 18th: PTGI reviewed at $12.38 per share. Here is the link to the review http://www.zenpenny.com/?p=3412 - January 18th: GSIG reviewed at $11.02 per share. Here is the link to the review http://www.zenpenny.com/?p=3412 - January 29th: SPRT reviewed at $2.70 per share. Here is the link to the review http://www.zenpenny.com/?p=3451 - February 15th: NYX reviewed at $29.17 per share. Here is the link to the review http://www.zenpenny.com/?p=3580 NYX is a position I have added to conservative accounts. BAC is another position that I have added to conservative accounts over the past couple of weeks, although I haven't done a formal review of the name. NYX and BAC are both names with 5 year + time horizons. The small-cap names mentioned above have time horizons of anywhere between 6-12 months. Given my opinion of where the market is currently, I probably won't be taking on any new long positions unless I see the opportunity as being tremendous. Those types of tremendous opportunities do come along, which is why I perform a scan each night to see what is potentially out there. As always, if I have anything new to share, it will be on here as soon as my fingers can catch up to my...