KGF Financial Journal

Some Sandridge Charts

2011-10-27T22:44:00.000-04:00

I've been doing a little research on whether I think the Sandridge rally can continue. Unfortunately I'm not convinced we are breaking through much higher without some material news. By material I'm talking a big new asset sale announcement, or production growth above expectations.

Enjoy the charts:

Below is the Sandridge daily range. The fact that it's had days with a range over 15% recently is pretty scary and it keeps you on your toes. Either have to be prepared for the pain, or trade in and out.

Here is the SD Daily Bar for 2011 YTD. Notice the big gap up early in the year from 9 to 10 followed by a gap down from basically 10 to below 9. This is potentially setting up for a big battle if the fundamentals get it back there. The recent downtrend has been broken by closing above the most recent highs.

Below are the Moving Averages along with the SD pricing:

Apple Q4 Earnings Spreadsheet

2011-10-26T00:11:00.001-04:00

Financial Statement Ratio Analysis- AAPL							Gross Changes						% Changes
Your Company, inc.
2009
	10/19/2010	1/19/2011	4/21/2011	7/19/2011
	9/25/2010	12/25/2010	3/26/2011	6/25/2011
	Historical	Historical	Historical	Historical	Historical	Projected		Historical	Historical	Historical	Historical	Projected		Historical	Historical	Historical	Historical	Projected
	Q3 2010	Q4 2010	Q1 2011	Q2 2011	Q3 2011	Next Quarter		Q4 2010	Q1 2011	Q2 2011	Q3 2011	Next Quarter		Q4 2010	Q1 2011	Q2 2011	Q3 2011	Next Quarter
Profitability Analysis							Profitability Analysis						Profitability Analysis
Sales	$20,343,000	$26,741,000	$24,667,000	$28,571,000	$28,270,000	$36,338,109	Sales	$6,398,000	($2,074,000)	$3,904,000	($301,000)	$8,068,109	Sales	31.45%	-7.76%	15.83%	-1.05%	28.54%
Cost of Sales	$12,831,000	$16,443,000	$14,449,000	$16,649,000	$16,890,000	$21,194,767	Cost of Sales	$3,612,000	($1,994,000)	$2,200,000	$241,000	$4,304,767	Cost of Sales	28.15%	-12.13%	15.23%	1.45%	25.49%
Gross Profit	$7,512,000	$10,298,000	$10,218,000	$11,922,000	$11,380,000	$15,143,342	Gross Profit	$2,786,000	($80,000)	$1,704,000	($542,000)	$3,763,342	Gross Profit	37.09%	-0.78%	16.68%	-4.55%	33.76%
Income from Operations	$5,447,000	$7,827,000	$7,874,000	$9,379,000	$8,710,000	$12,171,682	Income from Operations	$2,380,000	$47,000	$1,505,000	($669,000)	$3,461,682	Income from Operations	43.69%	0.60%	19.11%	-7.13%	39.74%
Net Income	$4,308,000	$6,004,000	$5,987,000	$7,308,000	$6,620,000	$8,992,872	Net Income	$1,696,000	($17,000)	$1,321,000	($688,000)	$2,372,872	Net Income	39.37%	-0.28%	22.06%	-9.41%	35.84%

Gross Profit Margin	36.9%	38.5%	41.4%	41.7%	40.3%	41.7%	Gross Profit Margin						Gross Profit Margin	4.3%	7.6%	0.7%	-3.5%
Operating Profit Margin	26.8%	29.3%	31.9%	32.8%	30.8%	33.5%	Operating Profit Margin						Operating Profit Margin	9.3%	9.1%	2.8%	-6.1%
Net Profit Margin	21.2%	22.5%	24.3%	25.6%	23.4%	24.7%	Net Profit Margin						Net Profit Margin	6.0%	8.1%	5.4%	-8.4%
Debt Ratios							Debt Ratios						Debt Ratios
Total Assets	$75,183,000	$86,742,000	$94,904,000	$106,758,000	$116,371,000	$130,661,614	Total Assets	$11,559,000	$8,162,000	$11,854,000	$9,613,000	$14,290,614	Total Assets	$800,745	$824,215	$844,116	$844,116	$130,661,614
Total Liabilities	$20,722,000	$23,795,000	$24,327,000	$26,859,000	$39,756,000	$46,360,048	Total Liabilities	$3,073,000	$532,000	$2,532,000	$12,897,000	$6,604,048	Total Liabilities	$138,656	$142,666	$142,240	$142,240	$46,360,048
Total Owners' Equity	$54,461,000	$62,947,000	$70,577,000	$79,899,000	$76,615,000	$84,301,565	Total Owners' Equity	$8,486,000	$7,630,000	$9,322,000	($3,284,000)	$7,686,565	Total Owners' Equity	$662,089	$681,549	$701,876	$701,876	$84,301,565

Debt to Assets	27.6%	27.4%	25.6%	25.2%	34.2%	35.5%	Debt to Assets						Debt to Assets	17.3%	17.3%	16.9%	16.9%	35.5%
Debt to Equity	38%	38%	34%	34%	52%	55%	Debt to Equity						Debt to Equity	21%	21%	20%	20%	55%
Investment Return							Investment Return						Investment Return
Net Income	$4,308,000	$6,004,000	$5,987,000	$7,308,000	$6,620,000	$8,992,872	Net Income	$1,696,000	($17,000)	$1,321,000	($688,000)	$2,372,872	Net Income	$0	($0)	$0	($0)	$0
Total Assets	$75,183,000	$86,742,000	$94,904,000	$106,758,000	$116,371,000	$130,661,614	Total Assets	$11,559,000	$8,162,000	$11,854,000	$9,613,000	$14,290,614	Total Assets	$800,745	$824,215	$844,116	$844,116	$130,661,614

Return on Investment	5.7%	6.9%	6.3%	6.8%	5.7%	6.9%	Return on Investment	14.7%	-0.2%	11.1%	-7.2%	16.6%	Return on Investment	0.0%	0.0%	0.0%	0.0%	0.0%
Stock Price	$ 309.49	$ 338.84	$ 350.70	$ 386.90	$ 404.00	$473.54
Shares (000)	929,281	929,281	929,281	936,645	939,517	942,000
Market Cap	287,603,176,690	314,877,574,040	325,898,846,700	362,387,950,500	379,564,868,000	446,070,315,103
EPS	$4.64	$6.46	$6.44	$7.80	$7.05	$9.55
PE	16.69	15.27	15.00	15.27	14.56	15.36
Price/Sales	3.53	3.34	3.41	3.61	3.51	3.83
Average PE	15.36
Current Price	397.77				14.33
Implied Move	19.05%
PEG Ratio					0.28	0.32

Holiday Quarter
Current PE						$442.00
Current Price/Sales						$435.44
Average Price/Sales						3.48

Netflix Falling on Hard Times

2011-09-19T20:32:00.000-04:00

"The market can stay irrational longer than you can stay solvent." This is why I was never able to get short netflix. While I believed in the short thesis from $180+ based on the ridiculous valuation and unsustainable business model, the market decided at one point it was worth $300. Now at $143 and throwing hail mary's I'm not convinced they will be any more successful than Blockbuster the next few years. When you don't have the pricing power to increase from $10-16 you must have some other competitive advantage. Can you control costs? In their case; no; it turned out that Starz was unwilling to let them get another cheap deal, which brings into question if they will be able to keep content quality high enough to maintain customers. While there are currently no other competitors on equal footing with them at the moment, that doesn't mean there are strong barriers to entry. Corporate America is flush with cash right now, and the moment that one of the big guns feels the ROE is worth an investment, they will jump in.

Unfortunately for the short thesis, those high cash balances can be potentially scary as well. Someone like Apple (not saying they will, but they could for about 1/10 of their current cash) could scoop them up at a premium to the market and wipe out those short gains.

Here's what all the fuss is about their current activity:

http://mashable.com/2011/09/19/netflix-qwikster-twitter/

Tablets

2011-08-23T22:54:00.000-04:00

One of the best features of our modern society is the ability to continually be informed and learning at all moments of the day. There is very little time where I would consider myself unplugged from the world. I wake up, check the stock futures and news for the day. Next I shave and take a shower, alright, you've got me, there's about 10 minutes I'm out of contact. But the truth is I'm already running things through my head so these aren't usually relaxing moments. Like a computer that is booting up it's important to start running closer to full speed. Next up is a 40 minute ride on the bus to work. This is either used to read up on economic events on my blackberry or read financial books. Work is work, but you will notice while waiting for an elevator that everyone is on their smartphone reading something. I like to have lunch at my desk so I can catch up on the mornings events.

The moment that work ends I feel a strong need to catch up on everything from the day and start to figure out if I need to come up with some new stock strategies. If the market is blowing up, I can be reading up on companies for the long-term. Even if it's 1-20 whether I like a company it is good to remember a company for the future so there isn't wasted time on overlap.

In the past there were stories of Michael Milkin reading companies SEC filings on his way to work with a miner's hat on so that he could read it in the dark. Now we have tablets and smartphones. There is no better use of time on a bus than using a table to read 10Ks. It is truly amazing how many factors you can find in a 10k that make you not want to invest in a company. Time to get to work because the guy on the other side of the trade has already read it and digested it. In a dog eat dog world there is no time to rest. Get after it.

The VIX

2011-08-19T00:09:00.000-04:00

Historically over the past 21 years the VIX has not been able to stay above 40. It has spent 159 days above this level in 21 years, equating to around 2% of the time. However, 124 of those days came after the Financial Crisis in 2008. So in a normalized fashion we've had approximately 2 days per year over 20 years where fear perks up to these levels. From 1990 to 1997 in fact we did not once cross these levels. That is understandable for a market that had very few setbacks.

So looking at the current volatility in which we have already had 3 days in the past week at these levels, it will subside. It may not be tomorrow or next week, but the likelihood of another sustained panic is extremely low.

Using Volatility in Your Favor Right Now

2011-08-10T18:12:00.001-04:00

Let me start with the basics. A deep in the money call will have a lower percentage of its valued derived from time premium than one that is either less in the money or out of the money.

Example: Stock ABC is trading at $14.00 today. The January 2013 $12.50 call is at $3.00 while the $17.50 is $1.25. Of the $3 on the $12.50, half of it is made up of time value, while all of the $17.50 is time value.

The cost of that spread is $1.75 (3-1.25), giving it an expiration breakeven point of $14.25, and a max gain of $3.25 above $17.50. Under this scenario we will have assumed normal volatility. However below, consider the volatility having gone from 40 to 70. Under this scenario the spread may look like this:

$12.50 call selling for $3.50 while the $17.50 is $2.25. In the money calls are less affected by volatility because they have some actually fundamental value in them. An out of the money call is totally made up of time value, and higher volatility gives it a greater chance of reaching the money. So in the current market where volatilities are at levels not seen since the financial crisis, out of the money calls have actually gone up in value even as the underlying stock has dropped.

I have seen far out of the money options increase 50-60% even as the stocks have tanked. For example, one stock was 14.50 last week and the January $25 calls were .30. A week later the stock had cratered to $8.90 but that same option was .54.

Now for a real life example. Bank of America is a stock I would not touch right now, but it makes a good example. It closed at $6.77 today, close to 52 week lows. If you are in the camp that thinks it will come out fine down the road and return to its typical $12 to $15 range, you may want to jump right out and start buying the stock. However, if you wanted to put a smaller amount of capital in play with some significant upside, you could do a Jan 2013 $7.50/$10 spread. The $7.50s are 1.97/2.07 while the $10s are 1.22/1.23. So the cost of that spread is approximately .80. If BAC is $10 or above at expiration you make $1.70 for every transaction...yes that's greater than 200%.

The other way that money can be made on this is when volatility starts to drop the $10s should drop more than the $7.50s. In times where the VIX is 20 instead of 45 those options would likely be more like 1.75 and .80, or .95 per spread. So if you are a believer in the stock coming back up, the decrease in volatility will help you in the medium term.

The last major scenario I'm going to suggest right now is the most conservative. Selling in the money calls on your stock. In this same BAC scenario lets say you want to buy 1,000 shares for $6,770. If you sell 10 2013 $5 calls for $3.15 your cost becomes $3,620. What does this mean? It means at a cost of $3,620 you will have a break-even of $3.62 on the stock at expiration (yes, this means the stock can almost be cut in half and you're still fine), and if it holds $5 you will get called away for $5,000 for a return of $1,380 (minus commissions) for a return of 38.1%.

So while everything is on sale right now, don't sit around and be scared. Put the volatility in your favor. Might not be a bad idea to use both strategies on different stocks. Pick a couple to do deep ITM covered calls, and a few out of the money spreads that could pay off big time. You risk less capital on the out of the money plays, so if they don't pay off the solid 30-40% covered call plays will keep you afloat as long as the whole system doesn't collapse.

Xerox

2011-07-30T10:41:00.000-04:00

Xerox does look to be a good play for the conservative portion of your equity holdings. A good high level recap was done here: http://www.cnbc.com/id/43916704?__source=yahoo%7Cheadline%7Cquote%7Ctext%7C&par=yahoo

The stock closed Friday at $9.33 with a market cap of 13.09B and has a dividend of 1.8% annually. With that pledge to buy back shares with up to 75% of their free cash flow over the next five years

There are currently around 1.4 billion shares outstanding; so if they are even able to buy back 25% of shares over the next five years they are left with around 1.1B shares. Also taking their dividend payouts over the next five years (if they don't raise it) that's another $.85 per share.

What this means on a back of the napkin calculation is if Xerox doesn't even have any growth and maintains these cheap levels of $13B market cap (7.5 forward PE), an investor that holds for these next 5 years would be holding a $12 stock and have collected $.85 in dividends, with very limited risk to the downside.

Running Out of Time

2011-07-26T19:43:00.000-04:00

11 days ago we were running out of time and needed to see a credible plan in the next 36-48 hours. Now we have a threat of a veto of a plan that could pass? I dare you to use that veto and just watch how fast things melt down.

Solid Outlook

2011-07-21T21:18:00.000-04:00

Travelers reported its first quarterly loss since 2004 today due to high catastrophes in the April and May period. However, the outlook was much more positive than I expected. Pricing has been improving across all business insurance markets, and audits have actually been yielding additional premium this year. What this means is the actual exposures have been greater than projected 12 months prior; hopefully a return to normalcy has begun.

Gas Prices

2011-06-25T09:19:00.000-04:00

The pace of gas price drops has picked up a little. $3.50 next week?

Fuel Gauge Report

Weird, Wild, ATP

2011-06-18T13:05:00.003-04:00

Oil started off the year at 91.59 and ATP was at 16.74. After a huge spike and now return to the level around $93 ATP is at 15.69. What these higher prices did is give ATP an extra boost of cash flow and an opportunity to hedge future production at higher levels. They got their Deepwater permit to drill which means within an estimated 6 weeks they will be bringing on a hefty production increase (somewhere around 25-30%). The problem has been and will continue to be their balance sheet. Increasing production is great, but leveraging to the hilt to get there puts the pressure on. An oil crash again, or any issues with current producing wells can really put them behind the eight ball. At the end of last year, CFO Al Reese spoke of how it was the best capitalized he had seen the company in sometime. Since then they have tapped into $100M loan and most recently announced a preferred offering to net them another $105M. I believe they will again need to find some external financing in 2011 to fund the necessary CAPEX to continue to grow the company. So the real question becomes this: will all of this debt payoff down the road into profits and the ability to fund future development opportunities? If they are able to execute the production growth necessary they will definitely have a good chance.

I am not going to go in depth into the pros and cons of the company here, but the funny thing in all of this is that an oil company no longer is moving on the price of oil. I did a comparison of ATP vs. the US Oil Fund (USO) and WTI, and the truth is absence any other news of significance ATP may trend with oil, but it may not. This stock appears to be trading based on technicals, manipulation, and hope. Usually I look for catalysts to unlock shareholder value. In this company once a catalyst has occurred it is about to selloff. ATP made a huge run up in the winter in anticipation of receiving a Deepwater permit. Once they finally received it they sold off pretty quickly. At the end of last year ATP was moving up as people saw a nstrong chance of an oil rally. If you look below ATP was at 15.95 when oil was at 108.79 on May 4th while it was at 19.34 on 2/17 when oil was 85.05 WITHOUT having their deepwater permit. So let me get this straight: investors believed a deepwater drilling company was worth 19.34 with $85 oil and no current drilling to to increase production, but only 15.95 with $108 oil and drilling occurring? The other big potential catalyst is production in Israel which is potentially huge, but also a big question mark down the line. The initial exploration drilling is expected in 2nd quarter 2012. This stock may move up more on the anticipation of good drilling results rather than the actual results.

With the recent drop in oil prices this has two effects: fundamentally bad for the company as they receive less for their unhedged production, and do not have the ability to hedge future production at those really high prices. However, this is potentially good for the stock price. If oil gets back into the $80s traders may come into this stock as there will be potential for another oil run up again. I expect the next well to go on production in early August (the company stated early Q3). A great time to hedge will most likely be sometime in July with oil in the $80s and the future catalyst of the new well. I'm looking for the stock to make a nice move up in the next few weeks as anticipation grows. The high short interest also likes to whack the stock down after it has had a nice run. This already occurred, so now it's time to bring the stock back up before they can knock it down.

Date	USO	WTI	ATPG	ATP Chg	% Chg	USO Chg	% Chg	Different	ATP vs. Oil
6/17/2011	36.63		15.69	DOWN	-0.38%	DOWN	-2.11%	0	1.73%
6/16/2011	37.42		15.75	UP	1.81%	DOWN	-0.43%	1	2.24%
6/15/2011	37.58		15.47	DOWN	-3.13%	DOWN	-3.89%	0	0.76%
6/14/2011	39.1		15.97	UP	2.63%	UP	2.20%	0	0.44%
6/13/2011	38.26	97.2	15.56	DOWN	-4.19%	DOWN	-2.07%	0	-2.11%
6/10/2011	39.07	99.3	16.24	DOWN	-2.81%	DOWN	-2.67%	0	-0.15%
6/9/2011	40.14	101.95	16.71	UP	2.83%	UP	0.73%	0	2.10%
6/8/2011	39.85	100.77	16.25	DOWN	-1.52%	UP	2.05%	1	-3.56%
6/7/2011	39.05	99.18	16.5	DOWN	-2.48%	UP	0.13%	1	-2.61%
6/6/2011	39	99.07	16.92	DOWN	-3.70%	DOWN	-1.66%	0	-2.04%
6/3/2011	39.66	100.28	17.57	DOWN	-1.73%	DOWN	-0.05%	0	-1.68%
6/2/2011	39.68	100.41	17.88	UP	0.79%	UP	0.40%	0	0.38%
6/1/2011	39.52	100.3	17.74	DOWN	-4.00%	DOWN	-2.42%	0	-1.58%
5/31/2011	40.5	102.7	18.48	DOWN	-0.59%	UP	1.99%	1	-2.58%
5/27/2011	39.71	100.58	18.59	DOWN	-1.06%	UP	0.28%	1	-1.34%
5/26/2011	39.6	100.18	18.79	UP	2.40%	DOWN	-0.83%	1	3.22%
5/25/2011	39.93	100.78	18.35	UP	0.71%	UP	1.65%	0	-0.94%
5/24/2011	39.28	99.13	18.22	UP	5.20%	UP	2.11%	0	3.09%
5/23/2011	38.47	97.06	17.32	DOWN	-0.74%	DOWN	-2.53%	0	1.79%
5/20/2011	39.47	99.15	17.45	UP	0.52%	UP	1.02%	0	-0.51%
5/19/2011	39.07	97.99	17.36	UP	0.12%	DOWN	-1.09%	1	1.20%
5/18/2011	39.5	99.52	17.34	UP	1.70%	UP	2.46%	0	-0.76%
5/17/2011	38.55	96.4	17.05	DOWN	-0.70%	UP	0.10%	1	-0.80%
5/16/2011	38.51	96.91	17.17	DOWN	-0.58%	DOWN	-2.36%	0	1.78%
5/13/2011	39.44	99.21	17.27	DOWN	-0.35%	UP	0.41%	1	-0.75%
5/12/2011	39.28	98.53	17.33	UP	2.30%	DOWN	-0.18%	1	2.48%
5/11/2011	39.35	97.88	16.94	DOWN	-0.99%	DOWN	-4.21%	0	3.22%
5/10/2011	41.08	103.39	17.11	UP	3.32%	UP	0.51%	0	2.81%
5/9/2011	40.87	100.32	16.56	UP	1.66%	UP	5.15%	0	-3.49%
5/6/2011	38.87	96.87	16.29	UP	0.31%	DOWN	-1.14%	1	1.45%
5/5/2011	39.32	99.89	16.24	UP	1.82%	DOWN	-9.11%	1	10.93%
5/4/2011	43.26	108.79	15.95	DOWN	-3.57%	DOWN	-1.86%	0	-1.71%
5/3/2011	44.08	110.6	16.54	DOWN	-3.61%	DOWN	-1.89%	0	-1.72%
5/2/2011	44.93	113.03	17.16	DOWN	-3.49%	DOWN	-0.49%	0	-3.00%
4/29/2011	45.15	113.39	17.78	UP	4.28%	UP	0.71%	0	3.57%
4/28/2011	44.83	112.38	17.05	UP	0.65%	DOWN	-0.42%	1	1.07%
4/27/2011	45.02	112.31	16.94	DOWN	-1.05%	UP	1.21%	1	-2.27%
4/26/2011	44.48	111.72	17.12	UP	1.00%	DOWN	-0.11%	1	1.12%
4/25/2011	44.53	111.68	16.95	UP	0.24%	DOWN	-0.09%	1	0.33%
4/21/2011	44.57	111.72	16.91	UP	1.26%	UP	0.79%	0	0.47%
4/20/2011	44.22	110.84	16.7	UP	2.33%	UP	2.96%	0	-0.63%
4/19/2011	42.95	107.18	16.32	UP	0.49%	UP	0.16%	0	0.33%
4/18/2011	42.88	106.7	16.24	DOWN	-2.81%	DOWN	-1.90%	0	-0.91%
4/15/2011	43.71	109.17	16.71	DOWN	-0.54%	UP	0.99%	1	-1.53%
4/14/2011	43.28	107.73	16.8	UP	0.90%	UP	1.24%	0	-0.34%
4/13/2011	42.75	106.6	16.65	DOWN	-2.75%	UP	1.06%	1	-3.81%
4/12/2011	42.3	105.75	17.12	UP	2.15%	DOWN	-3.07%	1	5.22%
4/11/2011	43.64	109.5	16.76	DOWN	-4.50%	DOWN	-3.34%	0	-1.16%
4/8/2011	45.15	112.27	17.55	UP	2.63%	UP	2.64%	0	-0.01%
4/7/2011	43.99	109.82	17.1	DOWN	-1.72%	UP	1.43%	1	-3.15%
4/6/2011	43.37	108.38	17.4	DOWN	-1.19%	UP	0.63%	1	-1.82%
4/5/2011	43.1	107.82	17.61	DOWN	-0.11%	DOWN	-0.37%	0	0.26%
4/4/2011	43.26	108.14	17.63	DOWN	-0.90%	UP	0.21%	1	-1.11%
4/1/2011	43.17	107.55	17.79	DOWN	-1.77%	UP	1.34%	1	-3.11%
3/31/2011	42.6	106.19	18.11	DOWN	-1.79%	UP	2.26%	1	-4.05%
3/30/2011	41.66	103.8	18.44	DOWN	-1.39%	DOWN	-0.41%	0	-0.98%
3/29/2011	41.83	104.34	18.7	DOWN	-0.05%	UP	0.99%	1	-1.04%
3/28/2011	41.42	103.54	18.71	DOWN	-1.58%	DOWN	-1.80%	0	0.22%
3/25/2011	42.18	104.89	19.01	UP	0.58%	UP	0.31%	0	0.27%
3/24/2011	42.05	105.04	18.9	UP	1.34%	DOWN	-0.14%	1	1.48%
3/23/2011	42.11	105.21	18.65	UP	1.41%	UP	0.43%	0	0.98%
3/22/2011	41.93	104.53	18.39	DOWN	-1.76%	UP	1.95%	1	-3.71%
3/21/2011	41.13	102.36	18.72	UP	2.24%	UP	0.39%	0	1.85%
3/18/2011	40.97	101.06	18.31	UP	4.63%	UP	0.69%	0	3.94%
3/17/2011	40.69	101.47	17.5	UP	5.17%	UP	2.55%	0	2.62%
3/16/2011	39.68	97.99	16.64	UP	0.30%	UP	0.74%	0	-0.43%
3/15/2011	39.39	97.23	16.59	DOWN	-4.10%	DOWN	-3.72%	0	-0.39%
3/14/2011	40.91	101.2	17.3	DOWN	-4.95%	UP	0.54%	1	-5.49%
3/11/2011	40.69	101.14	18.2	UP	1.90%	DOWN	-1.71%	1	3.62%
3/10/2011	41.4	102.73	17.86	DOWN	-5.45%	DOWN	-1.55%	0	-3.91%
3/9/2011	42.05	104.39	18.89	DOWN	-1.67%	DOWN	-0.61%	0	-1.05%
3/8/2011	42.31	105.06	19.21	DOWN	-2.24%	DOWN	-0.14%	0	-2.10%
3/7/2011	42.37	105.37	19.65	DOWN	-1.26%	UP	0.09%	1	-1.35%
3/4/2011	42.33	104.34	19.9	DOWN	-2.21%	UP	2.79%	1	-5.00%
3/3/2011	41.18	101.92	20.35	UP	0.74%	DOWN	-0.51%	1	1.25%
3/2/2011	41.39	102.27	20.2	UP	0.90%	UP	2.25%	0	-1.35%
3/1/2011	40.48	99.63	20.02	DOWN	-1.43%	UP	3.29%	1	-4.72%
2/28/2011	39.19	97.1	20.31	UP	2.16%	DOWN	-1.23%	1	3.40%
2/25/2011	39.68	96.52	19.88	UP	7.87%	UP	1.82%	0	6.05%
2/24/2011	38.97	95.83	18.43	UP	3.95%	DOWN	-2.09%	1	6.03%
2/23/2011	39.8	96.04	17.73	DOWN	-2.15%	UP	3.40%	1	-5.56%
2/22/2011	38.49	92.65	18.12	DOWN	-3.57%	UP	5.86%	1	-9.42%
2/18/2011	36.36	85.03	18.79	DOWN	-2.84%	UP	0.83%	1	-3.68%
2/17/2011	36.06	85.05	19.34	UP	2.49%	UP	1.49%	0	1.00%
2/16/2011	35.53	83.8	18.87	UP	3.45%	UP	0.40%	0	3.06%
2/15/2011	35.39	83.13	18.24	DOWN	-2.82%	DOWN	-1.37%	0	-1.46%
2/14/2011	35.88	83.66	18.77	UP	3.70%	DOWN	-0.47%	1	4.17%
2/11/2011	36.05	84.39	18.1	UP	1.57%	DOWN	-1.34%	1	2.91%
2/10/2011	36.54	85.44	17.82	UP	0.34%	UP	0.11%	0	0.23%
2/9/2011	36.5	85.59	17.76	DOWN	-1.55%	DOWN	-0.38%	0	-1.17%
2/8/2011	36.64	85.85	18.04	DOWN	-0.55%	DOWN	-0.05%	0	-0.50%
2/7/2011	36.66	86.3	18.14	UP	1.51%	DOWN	-1.82%	1	3.33%
2/4/2011	37.34	87.87	17.87	UP	1.13%	DOWN	-1.97%	1	3.10%
2/3/2011	38.09	89.42	17.67	UP	0.91%	DOWN	-0.24%	1	1.15%
2/2/2011	38.18	89.78	17.51	UP	1.51%	UP	0.29%	0	1.22%
2/1/2011	38.07	89.54	17.25	UP	1.71%	DOWN	-1.40%	1	3.11%
1/31/2011	38.61	90.99	16.96	UP	3.92%	UP	2.74%	0	1.18%
1/28/2011	37.58	88.15	16.32	DOWN	-3.60%	UP	4.56%	1	-8.17%
1/27/2011	35.94	84.45	16.93	DOWN	-1.63%	DOWN	-2.47%	0	0.84%
1/26/2011	36.85	86.15	17.21	UP	0.94%	UP	1.60%	0	-0.66%
1/25/2011	36.27	85.08	17.05	DOWN	-1.10%	DOWN	-1.79%	0	0.69%
1/24/2011	36.93	86.74	17.24	UP	10.23%	DOWN	-1.55%	1	11.78%
1/21/2011	37.51	88.22	15.64	DOWN	-1.64%	DOWN	-0.16%	0	-1.48%
1/20/2011	37.57	88.56	15.9	DOWN	-1.91%	DOWN	-2.52%	0	0.60%
1/19/2011	38.54	90.85	16.21	DOWN	-2.93%	DOWN	-0.49%	0	-2.44%
1/18/2011	38.73	91.38	16.7	DOWN	-1.59%	DOWN	-0.49%	0	-1.10%
1/14/2011	38.92	91.53	16.97	UP	0.77%	UP	0.70%	0	0.07%
1/13/2011	38.65	91.39	16.84	DOWN	-0.24%	DOWN	-0.87%	0	0.64%
1/12/2011	38.99	91.85	16.88	DOWN	-0.18%	UP	0.28%	1	-0.46%
1/11/2011	38.88	91.11	16.91	UP	2.48%	UP	1.86%	0	0.62%
1/10/2011	38.17	89.24	16.5	UP	1.10%	UP	1.33%	0	-0.22%
1/7/2011	37.67	88.07	16.32	DOWN	-5.06%	DOWN	-0.03%	0	-5.03%
1/6/2011	37.68	88.37	17.19	DOWN	-1.15%	DOWN	-2.18%	0	1.03%
1/5/2011	38.52	90.3	17.39	DOWN	-0.74%	UP	1.16%	1	-1.90%
1/4/2011	38.08	89.39	17.52	UP	3.55%	DOWN	-2.48%	1	6.03%
1/3/2011	39.05	91.59	16.92	UP		UP		0	0.00%
								49
ATP To WTI Correlation
0.01

Macro Look

2011-06-18T12:40:00.000-04:00

Below I'm going to take a look at where I feel the market is going in the near future. I will quickly get Greece out of the way: We all know if they can kick that can down the alley for the next year or so the market will get a bounce. Clearly major changes and restructuring will be required for the Euro zone as the economies simply can't run smoothly with the austerity in place, but the debt can't be paid back without these measures. Quite the Catch-22 that no amount of added liquidity will fix. Giving them more loans effectively just pushes the problem down the line. They can not issue public debt as the costs in the form of extreme interest rates has jacked up the cost of borrowing to unsustainable levels. Then there is the matter of those who are backing the Greece Debt. These swaps continue to rise in price, and all of the firms that have stepped in to guarantee their debt stand to lose a huge amount of money. No one learned their lesson in 2008, so we have similar issues. This is how a country as small as Greece is able to wreak so much havoc. And again, the big fear is that this could trigger debt contagion throughout the Euro Zone. If Greece is let to fail, the other countries that are only in slightly better stead may find it extremely difficult to finance themselves through if no one wants to step in front of the next big locomotive. Once the banks realize just the size of their problems if Greece fails, they will be forced to raise more capital or find themselves in need to be bailed out. Who is going to bail these banks out? I don't believe anyone, and therefore credit markets may dry up much more than people want to admit.

Well that was a pleasant view of things. And again, it is that potential panic which has many of the bulls on edge. On to market direction now: the VIX has given us the signal that unlike the last couple years the market drop or correction has been much more civilized than usual. In 2008 the VIX spent a majority of the year over 30. Even after

Below is the VIX over the past 3 months. As you can see the huge spikes that typically accompany panic are lacking. The Japanese earthquake is why the VIX was so high in March, but that typically warrants a lot of call selling and put buying, thus increasing the volatility measure.

Below is the 5 year VIX Chart. As you can see we are nowhere near where we were during 2008 after the Financial Crisis began, and we're still below where we spent the whole summer last year.

These observations lead me to one of two conclusions. The first is that when the market was nearing a top above 12,500 instituions and retail investors decided it was a good time to hedge prior to any issues occurring. Therefore even after the drop began the hedges were in place so there wasn't a big scramble and spike in prices to buy protection. The other is that this is still just viewed as a small correction expected for this time of the year, and there is no reason to hedge when we are at the bottom about to start a new uptrend. I tend to believe it is a bit of a combination of both. Personally I hedged a while ago, and when I decided to put on a couple short-term hedges I closed them out really quickly. If I had been overly concerned then those hedges would still be in place.

Another big question is whether this is just a soft patch in the recovery or it signals a reversal which may lead to another bear market. The economic data has undoubtedly been dissapointing, but we have a few things on our side. Japan will be continue to rebuild themselves and the major supply side disruptions that we have seen will improve going into the second half of the year. US factory activity and manufacturing has recently dipped, but if you don't have the raw materials to build a product, then you must cut hours. In the new age of JIT inventory this is a logical consequence of a major earthquake to a huge supplying nation. Another positive is the impression of a tighter monetary policy with the end of QE2. While the Fed won't stop cold turkey, they will be lessening their activity. The dollar has also been strengthening in the short-term at the expense of other nations. We have a huge deficit problem of our own, but this is not an imminent threat. We will never miss an interest payment and default on our debt. I can not see the US deciding to skip an interest payment for a couple days even if the debt ceiling has not been raised. Something else will not be paid, but there is no way treasuries will default. Some of the Middle Eastern chaos seems to be out of the news as well, which has dropped the "fear premium" in oil markets. Drivers have also limited their miles on the road a bit once gas prices went north of $4.00. Even though gas prices have begun to drop consumers are not about to start cruising around town. It looks like WTI is heading back to the $80s, and if Brent can get into the low $100s then the "gas tax" should decrease. Average oil in the $3.25-$3.50 range will ramp up hiring again. It was clear to me that there was a nice pickup in the employment picture in the 1st quarter. Once all that extra money had to be shipped out across the pond to pay for our extreme energy bills, hiring hit a soft patch. I believe that soft patch will go away within the next few months. Unemployment claims came down to 414,000 this week. If this number can get back below 400,000 the recovery should begin to gain steam.

Here is a good article discussing Oil and Recessions.

The US is a major consumer driven country that relies on heavy spending to keep its economy going. It is a fine line to walk to keep up this spending while staying out of too much debt trouble. Especially when people's homes are underwater and they do not have the equity in their homes like prior generations did. I have one of the more bearish views of housing and don't believe it will bottom for at least another 3-5 years. The oversupply of homes is quite remarkable. In the past there were lots of young homeowners starting families. These days it is very difficult to actually get to that point in life. Students graduate with thousands of dollars of student loans, they can not find jobs when they graduate, and now they are seeing for the first time in generations that homes may not actually be a great investment. Renting is the safe play and the truth is most banks wouldn't give them a loan anyway with a $30,000 a year job and $80,000 in debt. Add on to the housing problem higher gas and it is easy to see just how close we can be to holding on to our money. Retailers and all suppliers have higher costs these days due to the increase in raw materials costs, but they are too afraid to pass these on to the consumer as they might lose them altogether. Nothing gets a company's stock to drop faster than margin compressions and lower forecasts. Beating on revenues but missing on earnings sends a "Strong Sell" signal. Look at Cisco; they have been consistently at least meeting earnings expectations and initiated their first dividend this year. The stock has been trading near a 52 week low consistently over the past month. It is very difficult to stem the tide once it begins to head that way.

So what does all of this mean exactly for the market's direction? I believe we have skated by on the edge of a double dip recession, and think we will exit our soft patch by August. The market may continue to flounder around in the 11,000s for the next couple months, but there is still room to rise. Next year will also be an election year and those typically tend to be good year's for the market. There are suddenly a decent number of bargains out there that didn't exist a little while ago. Companies that have exhibited strong sales, innovative new ideas, and stellar balance sheets are trading at forward PEs well below historical averages. Apple's forward PE is in the 11s and no one is questioning their growth for next year. These are also conservative estimates. I am long at this point going forward and don't plan to add any hedges until we have bounced back off of these current levels.

Review

2011-06-17T20:44:00.000-04:00

Tomorrow I plan to go over a macro view of where I see things potentially going the next few weeks. Since we are at a fulcrum between a correction or a deeper bear market I'm only trying to look out to potentially the end of July. We should know by then which way we are going. Last year's 17% decline set up QE2 and the nice run we had until May of this year. If oil can keep declining a bit more the chances of the recovery picking up steam substantially increase. The "oil tax" as I call it above $3.00 has a very sharp dropoff in economic activity. There is a psychological difference for both businesses and consumers when they are forced to drop a large sum of money each week just to get to work vs. what they are more comfortable with. The perception of declining oil is also likely to get people to relax a bit and decide they don't need to tighten the purse strings too much.

2011-05-25T20:45:00.000-04:00

Big News!

http://finance.yahoo.com/news/SandRidge-Energy-Files-prnews-1171139108.html?x=0&.v=1

Maybe I should have loaded up the truck even more.

Prem

2011-05-16T22:07:00.000-04:00

Last night I had a dream that I was on a panel with Warren Buffett and we discussed how Prem Watsa will go down in history. Below is pretty much all you need to know about these two.

13Fs

2011-05-16T21:59:00.000-04:00

This has been one of my favorite week's of the quarter: 13F week. Where we get to see the moves that all of the major funds had made in the prior quarter. Getting confirmation that Prem Watsa hadn't sold any SandRidge was the final information I needed to add to my position after its recent pullback. The selloff in oil has a very small effect on them as 80% of their production is hedged. If oil prices stay low at the end of the quarter they will actually book a huge derivatives gain.

Here is a good site to view the 13F's:

http://whalewisdom.com/

Just picked up the symbol KTOS. Will do some research- anything of use will be posted.

Bringing it Back

2011-04-30T16:41:00.000-04:00

I've gone quiet for a while, but I plan to do some extensive research over the next 3-5 weeks. Bust out the party hats, because it's time to do some heavy reading.

True Punch

2011-04-18T22:20:00.000-04:00

Came up with a new portfolio tracking tool tonight and named it True Punch. I'm sure that this actually exists and has a more official term, but below is a brief explanation:

True Punch is how much a 1% move in the underlying stock in the portfolio will move the overall portfolio value. This is driven by the position delta. So if you have a large conservative position, such as covered calls, a 1% move in the stock may have a very small effect on the portfolio. Theta and time decay are the benefits of this position. A small aggressive position such as out of the money options for a potential post earnings pop may actually have a greater short term affect on the portfolio where every 1% move may result in a 3 or 4% move. If you've sold naked puts as well, then your true punch is even greater.

Leverage is defined as the size of the percentage move based on a 1% underlying move. So a 4% move based on a 1% underlying is 4.0 leverage. Total punch is the leverage amount x the portfolio holding percentage. True punch is the total punch per underlying divided by the total portfolio punch. See an example below:

Stock	Position Total	Portfolio %	True Punch	%Move/$	Value up $1	% Move	Leverage
AKAM	$ 1,814.55	10.14%	21.09%	2.52%	$ 1,910.25	5.27%	2.10
ATPG	$ 4,377.53	24.45%	33.25%	6.16%	$ 4,746.95	8.44%	1.37
SD	$ 4,025.88	22.49%	14.07%	8.60%	$ 4,244.01	5.42%	0.63
GFRE	$ 1,046.25	5.84%	5.80%	21.51%	$ 1,271.25	21.51%	1.00
GMO	$ 3,996.89	22.33%	11.85%	19.61%	$ 4,416.03	10.49%	0.53
RBY	$ 2,172.24	12.13%	6.96%	19.12%	$ 2,412.20	11.05%	0.58
CSCO	$ 469.63	2.62%	6.99%	6.00%	$ 545.25	16.10%	2.68

Another Quarter in the Books

2011-04-02T13:15:00.000-04:00

Well another quarter passed by and I have to say being in this market is still like drinking through a firehose. Everyday if you want to stay informed there is way more information out there than can be handled. Just now I planned on writing my quarter in review and was distracted by updating a revenue and expense model for one of my current 7 holdings.

At the end of last quarter it seemed that the market may have been close to a short-term peak, but yet the S&P was able to post over 5%. I managed to post a 27.1% return and did not feel that I had to take on a high level of risk at all to get there. The reality is this number is skewed by one holding, SandRidge running wild. It started the year at $7.30, reported earnings Q1 with a very bullish outlook for the year, and ran all the way to $12.80. All of the madness in the Middle East that shot oil prices up continue to fuel it's climb. My play on SandRidge was a $2.50/7.50 2012 bull call spread. It had a cost of $2.35 with a maximum value of $5.00 at expiration when I put it on back in November when the stock was $5.28. At this point in time the spread is worth around $4.30, and is pretty much a bond with a guaranteed yield at expiration. As long as the stock can hold $7.50 (a huge drop from the $12.96 close yesterday) I can exercise it for full value in just over 9 months. I can also defer my realized capital gains taxes until the end of the 2012 tax year and keep them at long-term this way.

I also bought 2013 $7.50 calls at a cost of $1.75 which are now north of $6.00. As part of my conservative nature I decided to hedge late in the quarter, and sell September $13s for $1.30 each, bringing the net cost of the spread to $5.50. Unfortunately I now think that I've jumped the gun on hedging as the stock appears to have the legs to run north of $15 by September. The nice thing is I am now protected to the downside a bit, and any quick dips won't hurt my portfolio. Some upside has clearly been capped however, and this will likely result in a rolling up and forward of the Septembers to probably January $15s for a slight hit.

Investing in ATPG is an experience like none other. The stock opened the year at $16.74 and closed the quarter at $18.11. However, in the month of March oil went from $99 to near $108, and they got their long awaited deepwater drilling permit which the shareholders were doing flips over when it happened. With those two great things happening the stock was down 9.5% in March, and this only related to a 52% correlation with oil prices. I decided months ago that despite the huge upside potential with a company like this, I'm going to follow rule number 1 on this one; don't lose money. I've got a $12.50/17.50 bull call spread going that expires in January. I'm not chasing $25 or $30 with this company; to make my money I need it to just hold its own. I also own some shares of which I've covered at the $22 level in September to smooth those returns over time, and give myself some cash now to harvest elsewhere. The challenging thing with this company is maintaining faith when shares drop 15% for no reason, and keeping the conservative mindset when it appears the top is going to blow off. When Noble received the first energy permit the stock moved from $19.80 to $20.30 at the close, and reached as high as $21.40 the next day. I was very tempted to buy back some of the top of my spread if it was about to fly to $30. I kept in mind however that my spread is still only at $2.70, and can almost double in 9 months just by holding its current levels. There is no reason to risk those plentiful returns to chase pipe dreams. I love the fact that I have so much time decay on my side and would love to keep this rolling into the next few quarters barring any unforseen events that take the stock down below a comfortable level.

Below is the wild 3 month chart;

General Moly was down for the quarter from $6.46 to $5.38 but it was no worry to me as I had covered March $5s, which I rolled up to June's. I expect a favorable water rights announcment in the next couple weeks that may move it into the upper 5's. I wouldn't be surprised to see it close to $5 by June expiration if QE2 is yanked out and commodities take a little dive. The likely plays will be the following: let the calls expire worthless if it's below $5; roll forward to September $5s if it's in the upper $5s, or roll forward to $6s about 6 months out. None of these scenarios sounds all that negative to me, and it seems to be a very consistent, cash generating play for me at the moment.

Rubicon Minerals I had listed as an "Add if under $5" and when it dipped from $5.90 to below $5 in a flash I hopped on and picked up a quick 500 shares. I covered 300 of these shares at September $5, and 200 at September $7.50. With an implied volatility in the 80s this brought my net cost down to $3.91. Even after having to file an amended resource report agreement, the stock never went below $4.00. As they were able to publish the new report at a bit more conservative level, the stock appreciated back to $5.20 and appears to me to be set for a solid quarter. I could easily see $6.00 with gold prices in the mid $1400s by quarter end. I now feel very comfortable calling this a rule #1 stock for the time being; time decay is very much on my side. Protected 25% on the downside, this stock is set on cruise control.

Cisco has been my most disappointing play, but luckily for me it is currently making up <3% of my portfolio. I'm just going to hold this one and wait for it to get back in favor. Instituting a 1.4% yield dividend wasn't enough to get it moving, but they are still projecting year over year growth, and for a stock with a PE close to 10 and $39B in liquid assets, the bottom can't be that far from here.

I picked up a couple new stocks late in the quarter which I will discuss at a later time. One is a technology play to diversify out of commodities a bit, and the other is a contrarian value play. A forward PE of 3 with a current ratio of 6.7 was enough to get it on my radar.

I modeled out the prices at the end of the quarter for each of my holdings to determine how much downside risk I have, and I was very pleasantly surprised. In a circumstance with a May/June similar to last year I will still be up about 15% on the year; obviously down for the quarter but not in an overall negative location. I have capped off a lot of upside, but it is a tradeoff I'm willing to take at this time. The market is piercing new highs since the crash of 2008, and a slightly weak earnings season coupled with higher fixed costs due to energy could bring us back into the 11,000s. A flat quarter could net me around 8-10% due to time decay of my covered calls and spreads reverting back to my favor. I currently feel pretty decent about my overall positioning, but of course come 3 months from now the story may be a bit different. I would much rather write a $20 covered call on an $18 stock and see it go to $30 than buy that $20 call and see the stock trade down to $15. Everything is done on a case by case basis, but the key is to keep the casino weighted in my favor. Conservative modeling is another key to positioning and deciding comfort levels. As much as I enjoy pricing $110 oil into my revenue projections, it can give a false sense of security. But putting $90 in and making decisions will only lead to passing on a good play rather than buying an overvalued, risky security.

On that note, good luck in the second quarter.

Forest Through the Trees

2011-03-29T22:03:00.000-04:00

Great article about analysts, especially like the following line:

"These analysts are usually the type who can’t see the forest for the trees. They would rather talk about what next year’s corporate tax rate will be instead of whether the company’s core business is exploding or dying.
They love analysis paralysis. Heck, that’s part of the job description"

Forbes

On a lighter note:

- And GFRE was up 20% today; perhaps I should have taken a deep dive in today. Time will tell.

Gulf Resources- Value Play or Chinese Deathtrap?

2011-03-28T21:39:00.000-04:00

Gulf Resources has been on my radar for well over a year, and it's still not an easy call. It is currently trading at $5.52 with 2011 earnings projected at $1.84-1.90, or a forward PE of 2.91.

See this years projections from management at Full-Year Guidance. They currently have $68.5 million in cash, and $93.8 million in current assets, and only $14 million in current liabilities for a rock solid 6.7 current ratio. Year over year revenue grew from $110 million to $158 million, and is expected to grow to $195-198 million. The bromine market has seen strong growth in demand, and the Chinese government is committed to consolidating the industry, which is great for current producers. Deloitte was also hired recently to complete an internal controls assessment.

The negatives are that it is a small cap Chinese company, and took absolutely no questions after their most recent conference call. In their case the more transparency the better. Or if they can get a big fish value investment fund to take a hard look, and make a big investment to show others that they are on the up and up. A Baupost Group type fund making a $15-20M bet in this $191M company would probably be enough for a double in a relatively short amount of time. This was a double digit stock making only $1.20/ year, so it seems safe to extrapolate the potential to at least regain the lost equity with higher projections. Barring any unforseen black swan events, the margin of safety is huge right now. I will not try to catch the falling knife, but rather wait for a sign some fresh blood is ready to get back in. Institutional investors currently only make up around 21% of the fund, and I'd much rather see it close to 50% before seriously considering a new position.

Disclosure- No position in GFRE

ENER- Back Into the Scrap Heap

2011-03-06T16:48:00.000-05:00

While starting to research the ticker ENER, i quickly found something from last year's 10k that has me putting it into the scrap heap and moving on. Here's the short:

The Company utilizes a standard cost model to record inventory movements and periodically adjusts its inventory to actual costs. The control ensuring the accuracy of the adjustment to value inventory at actual cost in the financial statements did not operate effectively. The failure of this control results in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected.

So the fact that a material misstatement may not be detected means I don't have any interest in owning them. Even at a 52 week low I have no interest. The move from $85 below $4 was enough to look into, but there's plenty of fish in the sea.

Disclosure- No position in ENER

Mary Landrieu

2011-03-05T22:35:00.002-05:00

Mary Landrieu grilling Ken Salazar:

Government Appeal

2011-03-05T17:27:00.000-05:00

Government continues to delay permits because they truly have no interest in independence from foreign oil:

Government Challenge

SandRidge Presentation

2011-03-05T11:42:00.000-05:00

Here is the link to the most recent SandRidge Presentation.