jp's wonderful world of golf (and stocks)

firing on all cylinders

2007-04-16T13:40:00.000-07:00

check this pie chart out. GS, JSDA, ATI, RIO all really working today! My AAPL play still seems to be stalled out, but nice entry point on Friday.

wrong about the fed statement

2007-03-21T14:02:00.000-07:00

I have spent some more time parsing the Fed statement this afternoon, and I think I was wrong earlier. My previous post's thesis was: "fed still worried about inflation, not accommodative yet." However, comparing the January and March fed statements shows a key removal. The passage about "further policy firming" is gone. This is no accident.

It looks like Fed cuts, which most of us have been hoping for, are close on the horizon. If there is some gut checking going on over the next few trading sessions, I think they will be buying opportunities.

By the way, though, everybody knew that the Fed was done raising... so the rally today has nothing to do with that. If you look at the data, you'd be crazy to raise. That is absolutely not a surprise.

surprised by this move

2007-03-21T12:12:00.000-07:00

Everything is solidly higher after the Fed statement this afternoon. It doesn't make much sense to me -- the Fed acknowledges that troubles in housing are ongoing rather than stabilizing, but this isn't news. I'd be worried if they didn't see troubles as "ongoing." Moreover the Fed is still primarily concerned by inflation. It sounds like a hawkish statement to me.

I will be selling into this rally.

Ben won't save us yet.

2007-03-21T10:30:00.000-07:00

Markets are taking a deceptive breather here before the storm of the Fed meeting, happening imminently. In the choppiness of options expiration week I set up two long bull spreads on GS and AAPL. The former is well positioned to make serious money buying underperforming and distressed debt assets from struggling subprime lenders. The latter is at the beginning of a truly impressive product cycle: AppleTV, Leopard OS, iPhone, etc. All of these products look set for a home run.

That said the spectre haunting the market today is the credit crunch. As I've posted before, declining access to credit from consumers is going to be the thing that spirals this economy into recession. The way to avoid this is for the Fed to ease. It seems clear to me that a contraction of credit and liquidity from the consumer markets would be fairly devastating for everything from corporate profits to asset prices.

If Ben had raised last summer, he could probably safely cut rates now, or at least introduce some friendly language ... but since inflation is still high and labor markets tight, he is boxed in.

It will be interesting to see what happens at 2:15.

random thoughts on the S+P

2007-03-13T12:04:00.000-07:00

My downside target for the S+P is 1325, written on my whiteboard the day after the Dow -500 crash a couple of weeks ago. Let's see how close I get.

My random thought here though is that holding the companies in the S&P500 in a static way is sort of a losing proposition. Almost none of the large cap companies in the index 20 years ago are still in the index... so what are you really buying? I think its the methodical rotation that is the value. Momentum stocks that are just starting to get huge get added to the index and you are a buyer there. Stocks that are getting killed and aren't working get removed from the index and you are a seller.

I wonder if someone has looked at a trading strategy in which you long stocks that enter the S&P and short stocks that leave it, over a certain well defined time period. You never actually hold the stocks that stay in the index.

here's the leg down

2007-03-13T11:54:00.000-07:00

Subprime lending is moving into catastrophe mode and taking the rest of the market with it. I'm eagerly awaiting the capitulation but using today's weakness to build a bull put spread on Altria, my defensive name that should rally first after the damage is done.

The short trade in NFI, LEND, NEW (now delisted!) is over -- the whole world is short these guys; there are no shares to lend out.

Since this economy depends so heavily on the consumer, anything that threatens his profligate spending should be viewed with serious concern. A blowup of the subprime guys will definitely impact lending. This market should be down hard.

In the long term the bull case/goldilocks scenario remains. Plenty of guys are waiting for lower interest rates to make capital purchases and the labor market is still very tight. This leg down will be a terrific opportunity to move capital from the sidelines.

underestimating the credit crunch?

2007-03-12T11:56:00.000-07:00

I was thinking over the weekend about the subprime crisis. Why is it imploding now? And what does that mean for the overall economic picture?

Then I came across Susan Bies' comments about the coming wave of subprime defaults. The picture started to make sense to me. The subprime crisis really started in 2003 and we are just seeing the tip of the iceberg as asset prices come in. Its easy to loan people money to buy assets that keep rising in value, even if they have no income. But when they stop rising, the cracks show.

I believe that this is the beginning of the end of the liquidity glut that pushed risk spreads to historically low levels. We will probably see something of an overcorrection, which means that consumer debt will be harder to get for some time in the future. Mortgages and car loans have been fueling the consumer for some time. If we see rising risk premia for even marginal consumers it could have a severe impact on growth.

I doubt that a subprime implosion will have much of an impact on balance sheets, but I think this could put our expansion at some risk. We're already looking like we're in the latter part of the cycle. This credit crunch slowdown is probably what the inverted yield curve has been pricing in for the past 18 months.

A vigilant Fed could bring the consumer back with a couple of quick rate cuts. I think we'll need to show some more cracks before Bernanke can act. I am staying defensive here.

not over yet...

2007-03-06T16:21:00.000-08:00

Nice looking and seductive rebound today. I mostly sold into it. I'm still in "circling the wagons" mode, meaning that I took the opportunity to exit some of my metals/commodities positions (AUY, EMU, RIO).

It may seem like the correction is over, but I don't think we've have the capitulation yet. One 500 point down day does not clear out all the marginal buyers and we still need to do that. My downside target for the S+P is 1325. Today we did not break support at 1,400. We still have further down to go.

I noticed a great short opportunity on NEW late in the day but didn't pull the trigger for fear of more short squeeze to the upside. I wish I had been selling into pressure at $6 because it ended up just north of $5 a share. What can you do! I should probably just take it off my screen because it'll end up biting me later.

In any case, feels like a dead-cat bounce here. Brace yourself for the downside.

NEW short pays out huge

2007-03-05T11:15:00.000-08:00

New Century Financial imploded today, down over sixty percent! My puts struck @ 10 are now solidly in the money. This company has looked doomed for quite some time. Their balance sheet is a disaster, and they came out last week saying they would delay their annual report. And today, the criminal charges and investigations were announced, effectively destroying the stock.

I've exited this trade with a handsome 500% gain.

As such, it is officially the best trade that I've ever put on. My previous record was back in 2001 when I put a big long bet on MSTR (MicroStrategy) and it doubled. (Thanks to Sam Choi for that one.)

I think you could short NEW all the way to $0, but for now, I'm out.

crash!

2007-02-28T11:41:00.000-08:00

My sincere apologies for being out of the loop for so long. My lack of posts has corresponded nicely with a severe lack of discipline as well, and I was caught yesterday extremely long in some highly leveraged positions. I played the bottom right, called the Bernanke relief rally last night, and exited today up about 12%. Not enough to completely contain the damage, but a lot better than last night.

Here's my take on where we go from here:

* Recession Fears. There are plenty of signs that we're in late cycle at the moment - Greenspan is dead right about this. We've got an inverted yield curve (and have for quite some time). The dollar is weak and getting weaker. Corporate profits are stabilizing and capital expenditure is slowing. Companies can't productively spend the money that they're making.

* Subprime Loan Implosion. This market is ready to implode. Customers are faced with skyrocketing mortgage bills, sometimes having to pay 75% more in premiums than before. Freddie Mac is not buying these anymore. With subprime debt harder to get for customers, the low end of the real estate market tightens up considerably. Housing will be hard pressed to turn if people can't get mortgages anymore.

* Goldilocks is priced in. One of the reasons that we had a spectacular move in the S&P from last August until now is that we went from expecting one more rate hike to expecting cuts from the Fed. This changing expectation correlates perfectly to the rise in equities on a graph. Now, we've got cuts on the horizon, but uncertainty as to when and how much. Everyone knows about "goldilocks" now and if any evidence comes in to the contrary, we'll get hit. This goes back to my post earlier in the year talking about massive jitters if rate cuts don't materialize.

All of the above points argue solidly for a more accommodative policy from the Fed. However, by passing on the rate hike last year, Bernanke has much less room to move. Since his hands are tied, we'll need to wait for things to get really bad (e.g. a subprime collapse) before he has a cover to ease. This spells a lot of turmoil in the markets over the next few weeks.

With this in mind, I'm going to safety mode. I've exited most of my speculative trades and I'm moving into low multiple stocks and high yielding stocks. (This is Cramer's advice.) Adding to GS here and opening up MO here as well. I still like the metals and will go hard into them if they correct significantly. I think gold is a good hedge against a weak dollar if the market starts to anticipate a rate cut (negative for the dollar), so I'm still long AUY and looking for entry points.

MA over? USO on the move.

2007-02-09T10:27:00.000-08:00

Mastercard came out today with great numbers, but lowered guidance. As with many earnings plays this season, it is getting killed. The CEO's comments were slightly vague as to why margins might be lower in 2007. I can only speculate that it is increasing competition from Visa and online merchants that are putting pressures on the company. Otherwise, MA would have pricing power and could keep things rolling next year. I think this story is dead for the time being.

In the spirit of going with what is working now, commodities are moving extremely nicely. I am adding to my USO position in the wake of the breakout over $60. I am also looking for an upside breakout in OIH, which has been flat to trending up recently. I like it here. I'm also still long RIO and GLD. Allegheny's chart (ATI) is looking strong and I may move in here as well.

UA - no catalyst, double down on USO breakout

2007-02-02T11:24:00.000-08:00

I've reconsidered my UA long trade and exited today with a small loss. The miss was due to investment in growth, yes, but lack of upside surprise also removes the catalyst for the stock to go higher. The story isn't there at the moment. I still like the stock overall but I think its dead money for now and there will be a better entry point.

I like the oil breakout here, and I think we have another 10% move to the upside on the way. I've increased my long.

UA on weakness

2007-02-01T11:29:00.000-08:00

UnderArmour, the red-hot sports apparel manufacturer got hit today because they missed Wall Street profitability estimates. I looked at the report though and I liked what I saw, despite the miss. Revenues were solidly higher and growth seems to be accelerating. There might be some downward pressure on margins because of the new businesses and apparel lines that they are entering. But this should be temporary and I think the strength of the brand will propel the company solidly higher.

I stepped in here on weakness and will continue to do so.

Nice move in USO

2007-01-31T10:37:00.000-08:00

Nice move in the oil patch yesterday, up 5%! That is the largest move in one day in 16 months. Oil just kept going up, breaking through key resistance levels. I am still long here and will add on dips. I think oil moves solidly higher.

My gold position is also doing nicely. I like being in the commodities right now, since equities look toppy and earnings reports are coming in mixed.

long oil, long GPS

2007-01-29T12:06:00.000-08:00

Moving into a USO long position today. It looks like we've hit some resistance on the downside here around $45 and I like the chances for an upside move.

Also, I opened a longer-term speculative position on a PE buyout of GPS (Gap Stores). I bought a bunch of Jun 2007 calls at $22.50 for $0.35 each. If GPS gets taken out before then, you are looking at $2-3 upside, which is basically a 10:1 shot. I like those odds!

Not stepping in yet

2007-01-23T09:45:00.000-08:00

A little dead-cat bounce perhaps after some brutally down days, and crushing weakness in the techs. I think we will see a day or two of strength here after some ostensibly encouraging earnings reports (TXN). However I'm not yet ready to buy with any conviction. I'm opening a new position in DNA as my healthcare play of choice, since I think biotech will get a lot of attention in 2007, and it's a great story. DNA has been executing but has had a lid on it due to fears about the new Democratic congress, and general outperformance in tech. Now that tech is weaker, this money's got to go somewhere. I think it'll be biotech.

In metals, RIO is doing extremely well today and looks strong going forward. I sidelined RIO a bit too early and have missed a nice upside move. Since RIO is one of the only things solidly working in this market, I will look to reopen when it comes in.

Lastly, YHOO reports after the close today. They have rolled out the new Panama advertising system to about 30% of their advertisers, to generally positive reviews. They should have enough data to give meaningful guidance for 2007, and I think Semel will raise it. Switching to a more rational pricing system is an obvious change, and they should have strong indications of how it will perform. Even if Semel does not raise guidance here, I think the downside is limited. Most everyone thinks that Yahoo can't execute at all and the pessimism is rampant. Tepid numbers would not harm the stock too much.

Overall though, I am not stepping firmly into this market just yet. I think there is quite a bit of downside through the bleak days of February, especially if a rate cut gets taken firmly off the table.

three and out

2007-01-18T09:40:00.000-08:00

Three earnings disappointments. AAPL came out with absolute blowout numbers, but the stock goes down because the guidance for Q2 was below expectations. MER is up a bit, but not enough to recover the volatility compression in the options. Same deal with CAL.

Back to the drawing board. It may not make sense to trade long options during expiration week going forward.

continental, merrill and apple

2007-01-16T11:46:00.000-08:00

Three earnings reports coming this week, around Wednesday. Here are my strategies for each:

* CAL. Up strongly today and I don't want to buy into this rally here. If AMR and LUV report disappointing earnings tomorrow, I think CAL will get hit and present a buying opportunity. If not, I am comfortable letting this one go. I am not interested in chasing.

* MER. Merrill is poised to post a strong number here and I am buying weakness. I opened a position today and will build it tomorrow if it is still soft.

* AAPL. Opened a position on Friday that is solidly in the money today. I will add some more if there is weakness tomorrow, expecting a blowout quarter.

rally mode

2007-01-11T10:00:00.000-08:00

Core holdings portfolio is very strong today! Google, Goldman Sachs, Mastercard, Level III are all moving solidly higher. Lowe's and USG are participating too.

Two moves of note:

1. sidelined RIO because of overall commodity weakness. I want to wait until they hit bottom before moving in there.

2. Closed out all AAPL positions. I would like to re-enter before earnings one last time, then revisit in March on weakness.

Two areas that I'm thinking about going forward:

1. LOW and USG are both levered to housing. One is a retail play and one is a raw materials play. I may try to exit one of these in the coming days, for diversification.

2. Cheap oil. There should be some interesting ways to play plummeting oil right now. Maybe back into KMB for a while?

3. ATI looks nice right now. It's a commodity play in a solidly booming industry (airlines), and it is off its highs. I may move in here.

AAPL does not disappoint!

2007-01-09T18:56:00.000-08:00

My call yesterday was pretty dead on for AAPL! The phone came out, and we got our $8 upside move. I closed everything out late in the day for a big score. Not as big as if I had left my entire position on the table. But if there was no phone it would have been game over for the Rhombus Team. That would be undisciplined. Overall, it was a great trade!

Oddly enough now that I'm cashed out I feel a little strange, like there is something missing from my life.

Going forward, I like AAPL ahead of Q4 earnings on the 17th. Between now and then, AAPL will probably come in and retest some lows. The phone is a massive leap forward for technology and it is a ridiculously amazing product. But, in actuality, it will barely move the company's earnings for 07. And there are all sorts of issues with adoption - Cingular only, super-high price point, etc. I think it will blow any estimates away, but between here and June there may be uncertainty and panic about whether a $500 phone can actually sell.

Those panicky times will be buying opportunities.

MacWorld

2007-01-08T15:14:00.000-08:00

Seems like forever ago that I opened up my "run to Macworld" trade. AAPL has done a lot of moving in both directions but ended up today around $86. I closed out the bulk of my position this morning with a nice profit. I set up a 95/100 Jan bull spread in case there is a phone tomorrow. I think the downside is limited. The upside could be $8-10, since estimates don't include a phone at all.

Jobs' keynote is at 9am, so stay tuned. Either way I will close out the position and re-enter next week ahead of earnings.

Then a much deserved break from owning Apple options!

AAPL exit plan

2007-01-04T11:32:00.000-08:00

Apple is looking great so far into Macworld. Today we are holding $85 nicely. If we stay here, we could see a run to the close and gap up tomorrow getting close to resistance at $90. I am looking to unwind the bulk of my speculative position in Jan 85s by the EOD Monday, so I'm selling into strength whenever possible. I'll sell aggressively anywhere above $90.

I have been doing a lot of research into Apple's iTV and iPhone product announcements for Macworld next week. I think they are both game changers. Personally, I would buy both as soon as I could get my hands on them (although it might be tough to give up the Blackberry). With that in mind, I am going to leave some of my more speculative Jan 95s on the table through Jobs' keynote and sell into any strength that comes out of the announcements.

ideas for 2007

2007-01-02T11:34:00.000-08:00

2007 looks to be a great year for markets, if we do get some rate-cutting by the Fed. The big question that markets will likely have is when the rate cutting cycle will begin. This could introduce some uncertainty (and volatility) into things in the early part of the year.

With that thesis in mind, here is a summary of what we'll be doing over the next few sessions to get positioned:

* GS. Phenomenal earnings, best of breed investment bank, lower interest rates and a rising stock market should keep GS flying high this year.

* RIO. Growth in emerging markets will keep demand for raw materials (steel/iron ore) high.

* JNJ. Defensive play. Any weakness in the dollar or panic about the soft landing should propel this issue higher.

* MA. Tremendous organic and secular growth in Mastercard's business should provide great upside for this stock. I think it will be beaten down over concerns about the strength of retail... but this is not levered as heavily to retail as most people think. That means buying opportunities.

* USG. Strong fundamentals because of home remodeling, which happens when the housing market slows down. USG also looks cheap here and could be taken out by PE guys or Mr. Buffett.

This will be our model portfolio so far. There is space for speculation which happens orthogonally to these positional movements. I am also still looking for a good technology play for 2007, and any ideas would be welcome. AKAM and NVDA did well in 06 so they may continue to do so. CSCO also looked strong during the December selloff. Updates will be posted here.

apple recap

2007-01-02T11:25:00.000-08:00

Welcome to 2007! Last week was an intense one for AAPL, and the drama made for some great trading opportunities. Shortly after the rumors about falsified documents came out on Wednesday, we bought in long at about $78. The next day, the FT repeats the story and the stock is knocked down again to $80. Another buy-in opportunity and we went more long. It was a great trade, because Friday the uncertainty cloud was lifted and AAPL moved straight up to our resistance point at $85. We sold a little there but are still long ahead of Macworld.

The exit strategy will be a phased one. The next resistance point is a soft one around $90, where it held support in the face of shorts in late November. We will be selling a little of our position there.

It should be nonstop good news and rumors from here through Macworld next Tuesday, so I think there will be nothing but upside. We will be selling into strength wherever it materializes, with the goal to be completely unwound ahead of Macworld. If Jobs does not release a phone I think we will see some panicking, and the upside if there is a phone is limited.

Apple reports Q4 earnings on the 17th, conveniently after Macworld and just before options expiration. If AAPL gets knocked down because of the product announcements, I think there will be tremendous upside ahead of the reports. When I visited best buy, the salesman noted that they sold out of every shipment of macs that came in. Not only that, but the ipod case looked like an earthquake had hit it. Anecdotal evidence, to be sure. But I like the risk/reward if we're back in the 80s after the expo.

dead wrong!

2006-12-21T15:37:00.000-08:00

If you thought I was not posting because I jumped off the balcony after this week, you would be very close to right. Disastrous action this week:

* AAPL fell off a cliff. Broke through $85 on the downside, holding now around $83. I backed up the truck and bought more on anticipation of a great quarter and a blowout set of announcements. It should be all good news from here - a calm restatement around the options stuff, talk of Christmas iPod sales, MacWorld buzz and finally earnings announcement on Jan 17. We should run from here. I am calling a bottom.

* ORCL. Disappointing quarter, and I went long. I still like the risk/reward on the trade but it didn't work out.

* RIMM. Didn't get the risk/reward I was looking for (call options were very pricey), so I sat this one out. And of course it moves higher!

I am taking donations.

ORCL and RIMM earnings this week

2006-12-17T17:47:00.000-08:00

This week, Oracle and Research in Motion both report earnings. Big options volume ahead of the reports. Here are my ideas:

* ORCL. Oracle was hit this week with reports from Lehman that database revenues would disappoint investors this quarter. The data apparently come from customer surveys. Personally I don't have much confidence in this, as databases remain very important to the web industry as a whole. The report however did provide a nice haircut and profit taking move to the downside over the past week. This leaves ORCL in a great risk reward position. Expectations may be dampened enough that a weak report will not trigger much of a downside move in price. I like the risk/reward going long ahead of earnings tomorrow.

* RIMM. Research in Motion is likely poised to report blowout numbers after releasing the popular BlackBerry Pearl this quarter. Analysts are probably being conservative in their estimates of Pearl sales. The downside here is that RIMM has moved up so much that all the good news may be in the stock; any weakness would be severely punished. Palm Inc. reports on Tuesday, so investors may be looking at Treo sales as indicative of what RIMM may be capable of delivering. I think this is apples and oranges - if there is any downside move in RIMM because of what Palm does, I would consider it a buying opportunity.

Summary: long ORCL, cautious on RIMM unless Palm gives us a way to get into it cheaply.

New ways to play a Santa Claus rally

2006-12-14T16:13:00.000-08:00

I've been doing some research today on some new ways to play a Santa Claus rally. After freeing up some capital today I have some buying power to deploy. Here are some ideas:

* JNJ. I have been looking at rotating into healthcare at the end of this big tech push towards Christmas. JNJ looks like it is breaking out here and I see nothing but upside. I may pull the trigger on a small part of my position tomorrow.

* AAPL. I am still hugely bullish on AAPL, even with the strange (options-related?) trading activity today. Everybody was up, but Apple was down. Maybe profit taking on the big move yesterday. But since AAPL is way above the $85 strike, I think bulls will try to push this stock above $90 in tomorrow's session. If it doesn't happen I've got plenty of buying power to step in on the dips (unlike last time).

* LOW. Lowe's is a great way to play housing weakness. Low interest rates mean cheap equity loans for remodeling. Low housing prices mean people will be sticking around and getting a new kitchen rather than selling their houses for new construction.

That's it for now. I still like Mastercard on any weakness, and I think GS is going to do really well as the bulls start to pile in over the next few sessions after options expiration tomorrow.

taking some profits

2006-12-14T10:21:00.000-08:00

Taking some profits today on a nice up day. I closed out the last part of my options position in Exxon Mobil (XOM) with a nice gain. I was a bit of a hog with this trade; things got a little out of control last week. I bought more XOM on the dips and today I exited with a healthy gain. The right play would have been to take a bit off the table at the 52-week highs.

I've also closed out a bit of Research in Motion (RIMM). Not the entire position. I felt I was too exposed to tech here and the Q4 tech rally seems to be losing steam.

In other bad news, my Boston Scientific (BSX) play didn't materialize at all and I'm completely underwater in those options.

And GS didn't move at all on blowout numbers. It is basically pinned at $200 for options expiration week. I think it should rally to year end and be comfortably in the $220s shortly. As I wrote in my analysis earlier I think this could be a $240 stock.

The highlight of my portfolio at the moment is a hugely successful position in Apple Computer (AAPL) ahead of Macworld. I'm staying long this one until Jan 5 when the stock should be trading in the triple digits!

Picks for the end of the year

2006-12-11T16:39:00.000-08:00

Avid JP golf + stock readers, my profound apologies for leaving you hanging through the big rally in November. I've been engaged in moving my household up to beautiful and exciting Sunnyvale, CA. And it has been a little bit destructive for the old portfolio! Not enough rigor spells doom + gloom. But no worries, I think we are well positioned to profit from any year end rally.

As I write this, here are my holdings:

Apple Computer (AAPL), Google (GOOG), Goldman Sachs (GS), Halliburton (HAL), Lowe's (LOW), Mastercard (MA), NY Stock Exchange (NYX), Research in Motion (RIMM) and US Gypsum (USG).

I had some positions in Exxon Mobil (XOM) earlier this week, which I closed out. I moved out of XOM and made a speculative short-dated options play on GS. I think these guys will have a blowout number. If they can manage $6 a share per quarter, that implies a valuation of $240-275 per share at a peer-justified multiple of 11 or 12. I think tomorrow before the close they will announce such a number. It's been a great quarter for trading and also not bad for M+A activity either. Best of all, I think 2007 is going to be great for traditional underwriting activity too. So I like GS here. I didn't play this with Dec calls (I could have) but instead January calls. Last time it took a little while for the bulls to pile in. It could be a similar situation this time, especially if a Santa Claus rally materializes.

a nice looking pie

2006-11-06T08:21:00.000-08:00

Feels like a pretty good week in store. Lots of great earnings plays and plenty of free time to trade!

impact on interest rates

2006-11-03T10:55:00.000-08:00

A corollary to my last post is that interest rates probably will not be going down anytime soon. This has a negative impact on my Wells Fargo long position. I may look to reduce exposure in the coming days.

so much for "top of the cycle"

2006-11-03T10:46:00.000-08:00

Today's revised employment numbers are quite a shock. No more slowing economy and soft/hard landing talk. Now, we see increased wage pressures and super-low unemployment. I think we are in a great position here - low interest rates, structurally low inflation, falling commodity prices and a good labor market.

To that end I am using these dips as buying opportunities. I mentioned a week or so ago that I'd like to be more long but could not justify it. Here, I can justify. Some new positions to mention:

* RIO. This is a recommendation from Jim Cramer's show. He identified this industrial metals play (copper, nickel, etc.) and I think it's a great pick. It trades with a Brazil discount that will likely disappear as the political instability plays out over the next few weeks. And, it's a great way to play scarcity in these metals.

* Goldman Sachs (GS). Finally, an entry point for this best of breed investment bank on its way to $200.

* NVIDIA. I do think NVDA's shares are pricey here. But there is a buying opportunity here because the shares have been hit by options cost restatements. This has no impact on the long term business prospects or earnings going forward. These guys are well positioned to take advantage of the video gaming story that is developing thanks to Electronic Arts' blowout quarter. (EA might be a good long -- I am doing some research on it today.)

no more GOOG talk

2006-10-26T17:09:00.000-07:00

OK last post this afternoon... a wise friend counseled me last night not to talk about GOOG anymore on this blog because of my impending employment with them. So officially you won't hear me blog about it anymore. I can't trade it anyway so it shouldn't matter.

MSTR going to $150

2006-10-26T16:58:00.000-07:00

I just ran the analysis on MSTR. They reported a blow out quarter after hours today - $77M in revenue for the quarter. These guys have a 85% gross margin and roughly fixed quarterly costs of $50M.

All of this points to a $310M top line number for FY2006 and about $357M for FY2007. Based on my numbers this yield a $4.58 and $7.50, respectively. Growing at 15% I think MSTR deserves a 30 multiple or so. This would yield a price target of $137-$225.

Seems like a long to me, even given that the stock is trading after hours at $121. Plenty of upside left.

would like to be more long here

2006-10-26T16:36:00.000-07:00

Market looks good right now! Everything's rallying nicely and we see lots of buying on dips. I have two major problems though at the moment that are constraining me in cash. First, the upcoming election should unnerve markets at least once over the next nine trading sessions. Second, I just don't know what sectors I want to deploy my money in.

The second problem is the larger one. I'm already making strong gains in retail, home building and technology sectors. I don't want to increase positions here. I would like to add a defense and oil services play (Halliburton) or a Pharma play, but these stocks will be first on the chopping block with a Democratic house.

So the best I could come up with today was back into Wells Fargo. I like WFC here because the bond market thinks the Fed will start cutting in Q2 2007 rather than Q3 like before. Low short term rates are good for the banks and WFC is the best of breed here.

I may try to pick up a little more tech tomorrow. I'm looking at MicroStrategy and NVIDIA.

Trimming GOOG here

2006-10-25T08:58:00.000-07:00

Yes, GOOG is going much much higher. But not in a straight line. I have a strong feeling that the Democrats are going to take back the House (possibly the Senate). This will roil the markets. Higher taxes, the threat of a long protracted impeachment, and other specters loom over the horizon. It's not good for anybody.

Keep in mind, I'm not a huge fan of the current administration. But I am worried that the Democrats will mistakenly think they have a mandate from the people. And they will interpret that mandate as a license to push protectionist, isolationist failed policies back into the political discourse. This is worrying for American economic competitiveness.

The Democrats might also interpret a House win as license to begin investigating all aspects of the Iraq war. I think there is a lot to investigate here! But its also not productive. We're there and we have to build a democracy in Iraq. No other choice at the moment. As the Economist puts it, I am worried about a long period of "navel gazing".

So I'm reducing my exposure to GOOG here. I'm selling into strength today. (What a trade!)

As I mentioned before I'm starting work at GOOG in a few weeks. Thus I will need to stay away from trading GOOG in the near future. Might as well get used to it.

earnings mistake on ALK

2006-10-25T08:53:00.000-07:00

I must confess I made a huge mistake on Monday: Alaska Airlines. The mistake wasn't going long with Nov 40 calls ahead of an atrocious earnings call. The mistake was that I didn't blog about it before hand. The reason that I do this is so that I can justify my own trades in writing before I execute. This time, I didn't do it. There wasn't any rigor behind my ALK long than an ebullient recommendation by Cramer and some nonsense about American Airlines and Continential reporting blowout quarters. Sure, its pin action. But Alaska isn't best of breed. And I've flown Alaska and it is not the greatest experience in the world. They still run McDonnell Douglas MD 80 planes! I hadn't been on one of those beasts since I was five years old.

Thankfully it was not too costly. Nonetheless, I won't be repeating it again.

unbelievable upside move in GOOG

2006-10-23T09:00:00.000-07:00

I hope everyone got a chance to see Cramer dancing around with GOOG written on his forehead on Thursday. I was in Miami over the weekend and I did the same thing. What a quarter! And it's up another 15 points today.

My Dec 470 calls were originally purchased at $10. They are now trading at about $26. Not bad! There is still plenty more upside here.

Unfortunately I will be joining the Google team shortly and as such I won't be allowed to make derivative transactions. I will need to exit this position over the next few days for that reason.

on the money after all

2006-10-18T14:57:00.000-07:00

With Yahoo closing at $23 today, it turns out my analysis was right on the money after all. I closed out my position this morning at around 10:30am which I'm pretty happy with. Given the initial overreaction on the positive side I think this trade worked out reasonably well.

That said I believe that YHOO is forming a nice bottom here. We've got the New York Times effect plus the rally attempt on horrific news plus new expectations that YHOO might actually ship Panama soon. I will be looking at Yahoo over the next few weeks to see if any buying opportunities emerge.

I don't play takeovers but it seems to me that Yahoo would be a phenomenal addition to the Microsoft stable.

Note: Apple Computer reported blow out earnings after the bell and is trading up about 5% after market.

high risk, low reward

2006-10-18T09:12:00.000-07:00

Well both Intel and Yahoo were little changed on their numbers today. Intel is slightly up -- with weakness from yesterday, I'm about even on the position (I bought a little yesterday morning on the dip). Yahoo is slightly down. Although their numbers were horrific and they were downgraded across the street, Semel announced Panama for Q1 2007 and that took a lot of the downside out.

Continuing to play the numbers game, I opened a GOOG 470 Dec call today. Based on Google's revenue growth I think they will report around $2.70 a share. The consensus estimate is $2.42 which seems like sandbagging to me. If you annualize the $2.70 this implies that GOOG is trading at about 38x earnings at the moment. Cheaper than Yahoo! If this multiple goes to 50 as is warranted by this growth monster, GOOG becomes a $500-550 stock.

yahoo and intel earnings plays

2006-10-16T10:46:00.000-07:00

I love earnings season! I've taken some time out this morning to do some analysis and place some bets on upcoming Q3 reports for the following companies:

* Intel (INTC). Intel has been beaten down from highs of $27 per share primarily because of increased competitive pressures from AMD. But the new Intel Core Duo is rapidly gaining traction among the computer elite. I think that Apple is going to report a monster number for Q3... and that means good things will be happening for Intel on Tuesday. And it's not just a one off good quarter - Intel should raise guidance for the next year and that means that the price should be going way up. Right now Intel has a multiple of around 20 or so. The combination of the Windows Vista release, new gaming consoles and exploding Macintosh sales should be able to boost earnings and even justify a 30 multiple as well.

* Yahoo (YHOO). Yesterday after talking to my buddy who works at Yahoo, I was convinced that this stock had bottomed. An extremely negative article was publishing in the New York Times about Yahoo, which is a Cramer bottom signal. But then I started to do some analysis on the numbers and frankly, I think this stock has a tremendous amount of downside left.

Yahoo's revenue guidance is in the $1.15B range. This revenue number is considerably below the past two quarters in which they delivered $1.5B at the top line. The last time they reported numbers near this it would have been a loss if not for one time interest and investment income (sales of GOOG stock). This time around, Yahoo can't pull one of these accounting tricks to produce big numbers. On 1.1B of revenue I see approximately a $660M gross profit. Assuming that their R+D and admin costs are fixed, this actually is about a break even result. If Yahoo can produce some cost savings they will be able to eke out a small profit, maybe $100M or so. In my book that is $0.05 or $0.06 EPS. The street estimates are still $0.11 per share -- I don't understand how this is possible. Maybe I'm missing something. But I'm putting my money where my mouth is on this one and going short.

The bottom line is that I bought some October 25 puts on Yahoo because I think they will really disappoint tomorrow.

adding to my positions here

2006-10-13T10:56:00.000-07:00

Feels like a nice calm before the breakout here. I'm buying some more TOL on weakness, some more SBUX here and opening a new position in Microsoft.

Why Microsoft? Well I'm definitely no fanboy -- in fact, I don't use any of their products. But that's because I'm in the position not to. Most people aren't. New versions of Windows (Vista) and Office are coming out next quarter. XBox 360 sales are strong since the PS3 looks so weak. I also like some of the things they are developing under the banner of "Unified Communications." They are tackling the VoIP space with some very innovative products.

Bottom line is that Microsoft has a virtually unassailable competitive position in the operating system and office productivity markets. With new product cycles starting, this should mean increased earnings. And right now, the multiples are just so low. With consumer staples selling off and these funds looking for a home, I think MSFT is the place to go.

well that sucked

2006-10-11T10:27:00.000-07:00

Ouch, not a good start to earnings season! DNA reports solid earnings but still eases two percent this morning. Infosys reports a solid quarter and only trades up a small amount. Incidentally my call options strategy for INFY showed some bizarre results... even though the stock was up, it traded solidly down as expected volatility got eliminated.

Fundamentally, I'm not liking the tone of the markets here. I think its time to get solidly into safe haven plays like financials and stocks levered to cheap oil. I'm going to continue to move into homebuilders.

Note that I closed out my GOOG position today, since I am worried about what the market's reaction to earnings next week will be. I also think there will be some underlying jitters about the YouTube deal. For now, I'm staying on the sidelines hoping GOOG will rechallenge its $380-390 support levels before hitting new highs before the end of the year. If there is any sign of flagging growth in the online advertising market for Q3, I think the stock will take a massive beating.

genentech wobbles

2006-10-10T18:31:00.000-07:00

Uh oh... genentech (DNA) reports a great quarter, but the stock is slightly down in after-hours trading. Not sure what to make of this. Apparently revenue growth on some of the more established drugs was less than stellar. But it was made up for in spades by strong Lucentis sales. I'm not sure why the stock would be down on this news -- it seems as though Lucentis and Avastin provide DNA massive upside in the medium-term and justify the multiples.

It may be that the market has started pricing in these big upside surprises. If that's the case, Q3 is going to get ugly for the longs.

earnings plays!

2006-10-10T11:26:00.000-07:00

Ah Q3... lots of opportunities for short-term speculation. Here are my long plays today:

* DNA. Consensus estimates for Genentech are only $0.53 per share! They came in at 52 cents per share last quarter. This estimate is quite conservative. I think strong sales of Aventis (for off-label uses) should provide considerable revenue growth and an upside surprise here. I am playing this with October calls struck at 85 (at-the-money). I may exercise and turn this into a position if things go nicely this afternoon as I do not have a biotech/pharma play at the moment.

* INFY. Infosys is the leader in Indian IT outsourcing. Infosys was able to push through a significant price increase this quarter. I don't think analyst estimates are factoring this in. The consensus estimate is only $0.32 per share. Since they reported $0.31 per share last quarter, these estimates are also extremely conservative. I don't think they are factoring in the secular trend towards helpdesk/IT outsourcing or the price increases. Both of these things should solidly impact the bottom line and provide us a nice upside surprise. Unlike Genentech, I am strongly exposed to tech here and this will not become a long term position for me.

caution in front of the Google/YouTube buy

2006-10-10T10:22:00.000-07:00

Yesterday morning (before jetting off to wine country in wonderfully beautiful Santa Ynez) I further trimmed my Google options position ahead of the expected purchase of YouTube. The purchase was announced this morning at the expected 1.6B. I figured that there would be some jitters about the deal. First, you have the dilutive effect factored into any buyout of a loss making company like YouTube. Second, as a shareholder of GOOG I am concerned about lawsuits over all of the copyrighted content there. Google has deep pockets and I can't imagine that certain content owners will just let this infringement slide.

So far trimming the position looks like the right thing to have done. Google shares are down about 1% today.

I will however be stepping back in on any weakness. The YouTube purchase is great for Google long term, especially because it prevents a key competitor (read: Yahoo) from getting the dominant player in the online video space.

nice moves in Starbucks and Marvell

2006-10-05T12:36:00.000-07:00

Two nice moves today. First, Starbucks reported better same-store sales than were expected. I think this stock has lots of room on the upside as people start to recognize the compelling Starbucks growth story. The vision is there but we're still nowhere near saturation.

Secondly, a strong day for Marvell on a mostly down session gives me an opportunity to sell into strength and reduce my position. I think Marvell was a bad trade to start and as such, I am going to be eliminating it.

Here's my portfolio these days. Google calls are looking nice here!

AAPL Apple Computer, Inc. 74.96 -0.42 (-0.56%)
AIG American International Group, Inc. 67.32 +0.17 (0.25%)
F Ford Motor Company 8.34 -0.22 (-2.57%)
GOOG Google Inc. 414.15 -1.55 (-0.37%)
KMB Kimberly-Clark Corporation 66.25 +0.04 (0.06%)
SBUX Starbucks Corporation 38.51 +2.55 (7.09%)
TOL Toll Brothers, Inc. 28.66 -0.11 (-0.38%)
WFC Wells Fargo & Company 36.53 -0.10 (-0.27%)

cheap oil and nervousness about the democrats

2006-10-03T12:14:00.000-07:00

In preparation to rotate out of MRVL, I have started a new position in Kimberly-Clark (KMB). It looks like the Democrats will be winning the House in November based on the insane sexual depravity of one of the Republican members of congress. These guys just stink. I think the country is fed up with the hypocrisy and complete lack of progress from this Republican administration.

When that happens, we'll see a poisonous business climate because the Democrats will mistakenly believe that their populist rhetoric is actually what people want. And we'll get a very unfortunate backlash against pharma and oil companies, which is unwarranted.

In preparation for this I am going into a secular play, Kimberly-Clark, which also happens to be levered to cheap oil. If investors are worried about soft vs. hard landing, the Democrats won't be doing anything to allay those fears. If anything they will be stoking them towards the hard landing camp. This is good for seculars. A hard landing is also good for cheap commodities. In conclusion, I think KMB works on both of these levels.

marvell implodes

2006-10-03T10:14:00.000-07:00

Last night after the close Marvell Technologies (MRVL) preannounced another disappointing quarter. They already guided lower last quarter but things for Q3 are even worse than that guidance apparently. And they are plagued by options backdating investigations.

This is a stock that I probably should not have been in to begin with and I am paying the price. First of all, I don't have a complete understanding of their business and this is always a recipe for disaster. Second, it is a play on PC sales after Vista. Personally I don't think that a strong wave of PC buying will follow Vista's release. Vista is underwhelming. Most people will be far better served by getting a Mac or waiting a couple of quarters for the 1.0 bugs to get sorted out. It's not something that I feel will significantly drive PC sales.

Ultimately I got into MRVL because Cramer recommended it. That's just a bad reason. Cramer's brings a lot of ideas and discipline to the table. His constraints and timeframe are far different than mine. If I'm going get into a semiconductor play I need to get into a company that I really believe in. At sixteen and a half this looks like a buying opportunity for the longs. I don't have enough confidence in the MRVL story and the management team to pull the trigger here.

Asleep at the Wheel

2006-09-28T10:36:00.000-07:00

Yikes! I went long NVDA Oct 30 calls for mark-up week and then forgot to sell into strength yesterday morning! Hello? McFly? In about 24 hours the stock has retreated from 31, solidly in the money, to 29. This means a massive reversal of fortune for me... I won't repeat this mistake anytime soon.

More Rebalancing on Weakness

2006-09-27T09:54:00.001-07:00

Continuing the trend from yesterday, I'm taking advantage of weakness in some of my holdings to add to positions and continue to rebalance. I've added the following:

* TOL. I continue to like the homebuilders here. Despite lackluster numbers and a downward revision in home sales numbers for last month, they are rallying. It feels like these stocks have nowhere to go but up.

* WFC. It increasingly looks like a soft landing is in the cards. Inflationary pressures are being ameliorated thanks to cheap commodity and energy prices. It stands to reason that financials like Wells Fargo will be the beneficiaries of cheap short-term and long-term rates (core business model and mortgage originations, respectively).

* AAPL. I continue to like Apple Computer, even at these levels. Apple is going to be very strong going into back to school and Christmas seasons. I'm taking advantage of a small pullback to add to my holdings.

On a side note, I unwound most of my GOOG Jan calls at 420... one misstep by these guys and it would have torpedoed my gains for the year. I'm still very bullish but don't want to be the next Amaranth!

Rebalancing into financials

2006-09-26T09:46:00.000-07:00

One of my problems as an investor is my tendency to overweight tech just because I know so much about it. I'm very bullish on a lot of tech companies - AAPL, GOOG to name a few. Both of which I own.

Today I'm moving into financials, Wells Fargo (WFC) to be specific. I like WFC here because of lower short-term interest rates and the potential for income from mortgage refinancings and applications as we clear housing inventories. Short-term rates help the bank's natural business model. Mortgage originations will help drive revenue. With the 10 year at 4.5%, people who are in ARMs may choose to go to fixed rates.

Long NVDA Oct 30 calls

2006-09-25T10:19:00.001-07:00

This morning, I went long NVDA with a small tranche of Oct 30 calls. My buddy Sam has profited handsomely by calling a bottom in this stock when he was out visiting me the last week of July. He went in at 19 and now it's trading at 30... nice 50% move!

I think there is some near-term upside there as our multiple is only at 33 (I think it will top out at 40). The stock will also run to end of quarter thanks to mark-up week. But I'll be getting out on Wednesday or Thursday. I think the market is too optimistic. These guys are not really as levered to the PS3 launch as people think, and there are still massive supply problems there. They may be a PC play but overall I'm not bullish on PC sales since the PC experience is getting worse and worse by the day.

Wish me luck... the calls are trading at $1.75 as I write this.

scope creep

2006-09-22T14:54:00.000-07:00

OK, this was supposed to be a golf blog but I'm going to expand it a little bit. Now I'll be talking about what stock trades I'm making. Because I think people care about it. Below you may find my portfolio as it stands today. I just went long on SBUX and TOL, here's why:

* SBUX. To quote Steve Ballmer, "I love this company!" Starbucks has gotten beaten up recently because their lines at the stores are too long! Talk about the definition of a good problem to have. They are aggressively expanding in markets like China where the upside is huge and saturation is a very long way away. I still think they have room to grow here. I still can't find a seat in my local Starbucks most times. Take the long-term secular growth potential plus the near-term upside from consumer's extra discretionary income from lower gas prices ("consumer isn't dead") and I think you have a winner. Entered at $33.

* TOL. Cramer thinks the homebuilders have bottomed and so do I. Interest rates are coming down and these stocks rallied today on slighly improved revenue numbers from KBHome. They are about 50% off of their peak and most of them trade close to book value. The head of Toll Brothers says he can liquidate all of his land holdings today for a healthy profit. Toll Brothers is best of breed and has a phenomenal brand. The home showcases that they put together are simply unparalleled - check out Desert Canyon in North Phoenix and you will want to sign on the dotted line right there.

Here's the rest of my portfolio:

AAPL Apple Computer, Inc. 73.00 -1.65 (-2.21%)
BMY Bristol Myers Squibb Co. 25.06 +0.35 (1.42%)
F Ford Motor Company 8.00 +0.24 (3.09%)
GOOG Google Inc. 403.78 -3.07 (-0.75%)
MRVL Marvell Technology Group Ltd. 18.87 -0.44 (-2.28%)
SBUX Starbucks Corporation 34.01 +0.00 (0.00%)
TOL Toll Brothers, Inc. 27.81 +0.65 (2.39%)

Note that I am long GOOG 420 Jan calls.

Back and better than ever

2006-09-01T15:11:00.000-07:00

Well today I hit the practice range for the first time since my trip back east a couple of weeks ago. My new favorite play to hit balls is up at Angeles National golf club in Sunland, California. Its tucked away up in the foothills about 30 mins away. The reason to go is that you can actually hit off of the grass there. Thanks to Jeff at Firefly for the recommendation.

In any case I was hitting strong and accurate with everything. My nine iron was a nice consistent 120 long and dead straight. Some problems with the driver and I still can't hit a consistently decent shot with the hybrid Titleist. My seven was easily going 150 which I'm happy with (given I'm hitting ancient pings, too).

Also starting to experiment with fades and draws with my sand wedge. Fades working nicely but the draws are a little harder!

great session.

2006-05-23T14:37:00.000-07:00

one of the best sessions at the range I've ever had. First of all, it's a beautiful day, with temperatures in the low 70s, clear, blue skies (thanks to the rain yesterday) and strong sun.

I was hitting the ball well too. The low irons were working beautifully. Distance was consistently long. The signs were worried I might hit them. I felt like I was making good ball contact too. Wedge was going about 100 yards. The seven was travelling 135. My loft issues were mostly under control. I didn't hit a single skull.

My 5 wood was going a comfortable 190. A few loft problems here, but the accuracy was impressive. Maybe it's because of the lack of wind?

The driver was kind of wild. I hit a few off of the heel of the club which I think was just the usual hip-leading problems. When I made contact, it was solid and travelled straight and long.

Just need to keep drilling the fact that the hip leads the shot, working on stance and grip, and remembering to supinate before contact.

Seven iron

2006-04-21T14:07:00.000-07:00

Spent most of my session today with the short irons, working on accuracy. The right thumb and left wrist supination are coming along well. It was a rough start since I've got a lot on my mind. I wasn't committing with the hips on the downswing. I was also doing a really bad job keeping the club on plane during the backswing. After I got more relaxed I was hitting some tremendous seven iron shots, about 135 or so, not skyhigh at all and consistently straight. Just keep the preshot routine consistent and mind the plane.

Driver loft

2006-04-16T15:31:00.000-07:00

Good day at the range again. Had nice control with the driver and five wood, and good distance, about 235 and 200 respectively. Still my shots are going way too high in some cases. This is probably just a case of the left wrist being prone. If I can get the shots down I can probably get 20-30 more yards out of both of them.

Right thumb

2006-04-15T18:46:00.000-07:00

Good day at the range today despite a somewhat rough start. I slotted back into the usual pattern of letting my hands lead the downswing. I also picked up a strange right hand grip on the club in which my right thumb would wrap completely around like holding a knife.

I managed to discover and fix both of these problems halfway through the session. A proper right hand grip and a full commitment to the downstroke with the hips was producing nice mostly straight shots.

I'm still having trouble with the angle of the club face on impact. My fade has nearly disappeared but still comes out ever so rarely. However I'm still hitting shots far too high. This is costing me significant distance and makes me vulnerable to wind and other obstacles. Next time I'll work on supinating the left wrist to get proper loft.

Distances: 80 wedge, 100 nine, 120 seven and 156 five. Lots of room to improve there!

first post

2006-04-15T18:43:00.000-07:00

Welcome to my golf blog. This is not really intended for anyone to read. It's really just a place where I can jot down thoughts about my game and how to improve it. I'm going to post mostly via blackberry from the driving range or from the course. If anyone does read this and find it interesting, I feel sorry for you. :)