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Small regional banks have sizzle

2010-02-09T18:06:33Z

As always I start my quest for the next great stock by taking the new high list on Barchart and sorting for frequency. I then take the top 10 and look for something interesting. Yesterday when all the major banks were getting hit on the chin the smaller and regional banks seemed to be doing better. Sandy Spring seems to be that small bank I'm looking for.

SANDY SPRING ( SASR ) is a bank holding company for Sandy Spring National Bank of Maryland. The bank is community oriented, and conducts a full-service commercial banking business through community offices located in Montgomery, Howard, Prince George's and Anne Arundel counties in Maryland. Looks like they are in a very strategic geographic region.

The analysts are beginning to take note and Janney Montgomery Scott, FBR Capital and Robert W. Baird have all recently upgraded their recommendations on this stock. In the last 7 days there has been 5 upward EPS revisions and the consensus is that there will be an increase in revenue of 6.7% plus an EPS improvement from a 28 cent loss this year to a profit of 83 cents. Nice EPS improvement.

On the technical side Barchart has 4 of the 5 short term technical indicators as a buy with one hold for an 80% short term rating. The stock had 13 new price appreciations the last month for a 48% price gain.

Now I'm not sure which banks are going to survive but I do know that the industry as a whole will survive. The industry is just too vital to the economy and the way we all do business everyday not to have a place in our communities. Small community banks will survive and Obama has promised to make that happen and give them support.

I'm taking a flyer on this one and adding Sandy Springs ( SASR ) to my VMSLO portfolio. This is the more risky of my 2 model portfolios but it goes in the risky portfolio because the trading volume recently has been below 100K shares per day.

Jim Van Meerten is an investor who writes on financial matters here and on Financial Tides. Please make a comment below or email JimVanMeerten@gmail.com

Disclosure: I hold no positions in SASR at the time of publication.

Shorting the Blood Supply - Go LONG Cerus

2010-02-09T12:47:39Z

Shorting is a state of mind - and I know someday there will be a crisis with the blood supply in the US, or in a developed nation, that rivals the problems of the 1980s and HIV contamination. How do you play this? Cerus (CERS).

Cerus makes something called the INTERCEPT System, a blood pathogen inactivation system that enables blood banks to essentially accept blood from anyone. Blood pathogen inactivation is the formal term for blood cleaning - cleaning of any pathogens, such as West Nile, H1N1, HIV and so on, that could be transmitted from donor to recipient. At present, the INTERCEPT System works only to produce blood platelets and is approved in many nations in Europe with Germany being the latest where Cerus is rolling out the product. In the US the company is negotiating with the FDA for a Phase III trial to obtain approval here.

Platelets are a big market but small beer compared to the $3.5 billion whole blood market - and yesterday Cerus announced its US, Phase I trial of the INTERCEPT System to treat whole blood was a success, hitting its primary endpoint, a critical first step for approval for the product. Most analysts did not think INTERCEPT would work when treating whole blood.

To quote the company press release, "The randomized, single-blind, controlled, multi-center Phase 1 clinical trial of the INTERCEPT red blood cell system included 27 healthy subjects at two clinical trial centers. Each subject received two transfusions of the subject's own red blood cells, one INTERCEPT-treated, and the other a control not treated for pathogen inactivation. The primary endpoint of the clinical trial, a mean INTERCEPT red blood cell recovery of greater than 75 percent at 24 hours post-transfusion, was met. The INTERCEPT red blood cells had a recovery of 88% compared to 90% for control red blood cells, and both INTERCEPT-treated and control red blood cells met the criteria for red blood cell recovery recommended by the U.S. Food and Drug Administration. The half-life of the red blood cells was also evaluated, and INTERCEPT-treated red cells were within the established reference range of 28 to 35 days. The half-life of INTERCEPT red blood cells was 33 days compared to 40 days for control red blood cells according to the preliminary analysis. The investigators plan to submit data from the study for presentation at an upcoming scientific congress."

At the same time the company announced a partnerhsip with France's blood transfusion agency, the Etablissement Francais du Sang (EFS). The two entities will jointly develop, with considerable cost sharing, INTERCEPT for whole red blood cells.

Cerus is light years ahead of potential competitors in platelets and whole blood - competitors who may also become potential acquirers. I can only assume the stock opened strong - I am writing this before the open - but this microcap, if it is able to follow the Phase I trial with successful follow up trials that lead to an approval - is grossly undervalued at $2 a share. Even without whole blood, current sales forecasts and the adoption of the technology to treat blood platelets make the $2 valuation ridiculous. I have followed the company and written about it in my service, ChangeWave Shorts, and like the way management has managed the company's progress, country by country, trial by trial. Take a look.

Disclosure: I am quite long Cerus.

Hot air from Washington causes marekt collapse

2010-02-07T19:10:54Z

I just returned from a week in Orlando at the Money Show. The speakers were terrific and I came back with a lot of good ideas that I'll share in the coming weeks. I'm not sure what happened to your portfolio but I came back to a lot of triggered stop losses. My Wall Street Survivor portfolio is down 1.97% for the month which puts me back in 6th place behind this months winner so far, Tobin Smith who has a 1.56% gain.

Most speakers at the Money Show had different opinions on the market, how to play it and what's in store for the next 6 months but one thing they all agreed on was that earnings, the economy and job numbers are not being properly factored into this market. Things are improving but every time someone in Washington opens their mouth the hot air deflates the market. Is the hot air deflating your portfolio?

Let's take a step back and see how the market did. As usual I'll use Barchart for my data.

Value Line Index -- I use this index because it contains 1700 stocks making it broader than the narrower Dow 30 or the S&P 500 -- this week down by .95%

1 - Barchart's technical indicators signal a 40% sell signal -- 3 buys, 2 holds and 8 sells
2 - The index closed Friday below its 20, 50 & 100 day moving averages for the first time in many months

Barchart's market momentum indicator -- approximately 6000 stock are used -- the percentage of stocks closing above their daily moving averages for various time frames -- above 50% good but below 50% bad -- this week all 3 looked bad

1 - 20 DMA -- only 20.08% closed above
2 - 50 DMA -- only 35.45% closed above
3 - 100 DMA -- only 45.78 closed above

Ratio of stocks hitting new highs to stocks hitting new lows for various time periods -- 1.0+ bullish, 1.0 neutral, below .99 bearish -- this week all 3 time frames were very bearish

1 - 20 day ratio of new highs to new lows -- 278/3660 = .08
2 - 50 day ration of new highs to new lows -- 152/1733 = .09
3 - 100 day ratio of new highs to new lows -- 74/962 = .08

Summary -- The market is reacting very negatively to the hot air spewing out of Washington. The improving economy, job numbers and earnings are being overshadowed by the threats coming out of the White House. Isn't it ironic that Obama took all the campaign handouts from Wall Street, the banks and hedge fund managers and now spends his time demonizing them and telling the common folk how he will punish them. This week I'll trim non-performing stocks from my portfolios but I'll hold up replacing them till I see a little bit of support in the market numbers.

Alternative strategy -- At the Money Show I ran into 2 of my all time Wall Street heroes -- Robert Stovall and Paul Kangas. Both these guys are going strong and still giving us all some productive and sane advice. Since it's Super Bowl Sunday it might be time to give a return visit to Mister Stovall's Super Bowl indicator. He's observed that the winner of the Super Bowl predicts the performance of the market for the rest of the year. If the NFL wins he can look forward to an up market, if the AFL wins the market will perform poorly. Don't laugh; the indicator has been correct for 34 of the last 43 Super Bowls. Before you go to bed tonight the Bowl game winner will be determined and you'll know how to play the market. I'm not taking sides, I just want to know whether to go long or short.

Jim Van Meerten is an investor who writes on financial matters here and on Financial Tides. Please leave a comment below or email JimVanMeerten@gmail.com
Disclosure: I have no positions in the stock in my Wall Street Survivor portfolio

A Bad Jobs Report - Time To Short?

2010-02-05T13:42:23Z

The jobs report came out today and it was far worse that economists' expectations. Roughly twenty thousand jobs were lost against a consensus forecast of a 10,000 gain; revisions showed 1.2 million jobs more jobs than previously reported were lost from April 2008 to March 2009; the number of discouraged workers and dropping out of the work force (so to speak) increased by roughly a quarter of a million. The unemployment rate was 9.7%.

Other data from the household jobs report - something a bit different announced at the same time - showed a gain of people in households working and the net result was confusing.

Ignore the unemployment rate - the issue is the number of people working for that generates national income, the heart of spending and GDP. The work force continues to shrink every month, skewing unemployment numbers - but this is the data point you need to watch. And that keeps falling - statisticians just loss another million point two jobs - and with the decline in the labor force participation rate comes a decline in national income.

So yes, it is time to short barring other issues such as foreign debt, the dollar trade and so on. The jobs report tells me the foundation of a double dip - in the real world - is in place, which means reduced corporate profits and are valuation of the market. So at a minimum there are no tailwinds supporting the market.

Where to start? Where the optimists live -- high end consumer discretionary spending and retailers -- who needs a boat (BC), a motorcycle (HOG), a jewel (TIF) - , who posted good yesterday that were misleading. More later.

Why We Feel The Way We Do

2010-02-03T21:27:06Z

I usually write about stocks, market segments, the economy - today the mood of the nation got to me and I have spent the day positing - to myself, I work alone - various reasons we are the way we are, feel the way we feel, all vital to an understanding of why the economy will remain sluggish, at best and the markets will face headwinds. At best.

And I think I hit on an answer but in the true spirit of blogging wanted feedback from anyone and everyone. So I ask everyone who reads this to respond - and in a day or two I will follow up with answers to the questions below. Please, no scatological comments about Pelosi or Beck, no digital Hyde Park corner tirades. Think, and respond.

Here goes.

We are the wealthiest nation in the history of the planet. We enjoy the greatest supremacy in military power in the history of the planet. We are, arguably, the most politically free people in the history of the planet. More than two thirds of the people in the country think we are going in the wrong direction and ninety one percent think the economy is getting worse. Why?

We are borrowing money, collectively, as individuals and in the form of our government, more than any people in the history of the planet. Why?
Twenty five percent of our children eat because of food stamps. Why?

More than twenty percent of our citizens are out of the work they want - unemployed, dropped out of the work force, partly employed. Why?

One sixth of the population lacks health insurance. Why?

Interest rates available from the central bank are effectively zero yet most small and medium sized businesses without overly substantial collateral cannot get a loan. Why?
Our elections are by far the costliest the world has ever seen yet more than 90% of incumbents routinely get elected. Why?

The government has just spent in excess of one trillion dollars to stimulate the economy and the central bank has printed more than one trillion dollars in new money yet, in the real world, the job market continues to shrink and there is, essentially, no economic growth. Why?

One think tank believes without stimulus GDP would have fallen more than seven points rather than grow more than five points. Yet there is doubt about the ability of the Congress to pass another stimulus package, Why?

The military can plant a bomb inside someone's pocket from ten thousand feet and can deliver Pepsi - cold - to the mountains of Afghanistan. But it cannot subdue less than ten thousand illiterate tribesmen. Why?

We put a man on the moon forty years ago but cannot afford to do it again. Why?
We have an overabundance of domestic energy supplies - coal and natural gas - yet import more energy than any other nation uses. Why?

We claim to have a progressive tax rate but the average American household pays a higher percentage of their income in taxes - income, sales, property, other - than the average American millionaire. Why?

China abuses, strangles and executes its people, manipulates its currency to maintain exports, destroying tens of millions of jobs around the world, periodically threatens the world when Tibet or Taiwan become a headline, steals intellectual property as if it were Halloween candy and supports rogue regimes going nuclear in North Korea and Iran yet we call them a friend. Russia has made a great transformation from authoritarian dictatorship to quasi-free state, given up an empire peacefully, and is now willing to sign a treaty to radically reduce its nuclear arsenal yet we remain wary of them and they are not part of our economic universe. Why?

Adam Lambert was the best performance artist and had the best natural voice of any contestant ever on American Idol. His premier album was not as well received as his performances on American Idol. Why?

There is one answer to all of these Whys. What is it?

Dendreon - To Short or Not to Short

2010-02-01T14:48:54Z

I "made my bones" with a bullish and complicated call on Dendreon (DNDN) several years ago, predicting it would get a thumbs up from an FDA panel for its advanced prostate cancer treatment Provenge, Only one other biotech analyst with a public audience agreed with me - and the panel, sure enough, voted yes. The panel meeting itself was a mess and it was clear the FDA staff was going to fight like hell to make sure Provenge did not get an approval. I told my subscribers to get out - the stock had run from $4 and change to as high as $27 - and a few weeks later the FDA said no, we need more data.

Since that time, Dendreon has released data from a subsequent trial that shows it met its primary end point for the trial, giving bulls their way and driving the stock to $30 and change - it is now around $28. The company is expecting an FDA decision - and approval - on or near May 1. Analysts peg Provenge sales at around one billion by 2018. The puts the current market cap is $3.25 billion.

Shorts would love to cream this stock. Bulls would love to see a great big spike if and when the FDA grants an approval. What is more likely? Some thoughts.
• My original bullishness was based on the need for the FDA to approve some form of cancer immunotherapy in order to launch a new technology into the marketplace, the composition and biographies of members of the panel and the location of the regulatory process - inside the biologics group at the FDA, not CDER, the hard core cancer people who are more concerned, at times, with statistics than human life. The CDER people won the first round - but there is a new and respected FDA administrator and new trial results to consider.

• The problem with the trial data submitted for the initial panel meeting was size - very small trial - and structure - the company blended results to get their final data in a way not valid for FDA statisticians.

• The new trial results - different trial - published by Dendreon last year hit the endpoint by a seemingly health amount to some, a spit to others - and the question will be is this good enough and how did they construct the data to reach this endpoint? The trial was not well constructed - it was not poorly constructed either. I am more concerned about how the company constructed the results. The FDA is very unforgiving - -and they should be - with companies that obfuscate or overly manipulate data.

• Why the skepticism? Because DNDN management is outrageously aggressive and insensitive to the FDA and I am openly skeptical of how they constructed the data. And given what I know of the FDA, that agency will be even more skeptical given management's approach to the approval process. The dunderheads - that is a nicer word than moron - at DNDN are already putting out Provenge sales projections - not a smart move and something the FDA frowns on for drugs not yet approved. Roche/Genentech can get away with something similar when discussing Curis' (CRIS) new Hedgehog pathway drug because they are an understated company and they are providing dates for hitting the marketplace if approved, not sales numbers. Dendreon is not Roche and this can only serve to anger the FDA.

• Why any bullishness? The FDA really does need to approve a cancer immunotherapy, a treatment that uses the patient's immune system to attack the cancer cells and Dendreon is the nest bet right now. It is clear that the treatment works very well on a subset of patients and the challenge in the future is to determine how to identify the characteristics of this subset before treatment. If I were FDA commissioner I would send my statisticians to the back of the classroom and do everything I cold to get the drug passed this spring.

• There is a political component to this approval - there were serious protests and legal action by prostate cancer victims when the FDA overturned the panel decision. This will have an impact on FDA actions.

Bottom line: 65/35 for approval.

Some other things to consider about valuation:

• Provenge is not a lifesaver - it extends life a bit more than 4 months longer in patients receiving the current standard of care. And it is going to be horribly expensive given comments by DNDN management and the cost of preparing the treatment. Provenge is not a drug - a patient has blood drawn, it is sent to a factory, the blood is treated with Provenge and the treatment is sent back to the physician and injected into the patient. It is very capital in intensive and expensive to produce. It will be a while before reimbursement is set in the US and it is very possible it will not be approved for reimbursement in most European countries.

• Unlike many new cancer drugs on the market or in trial, such as Curis' Hedgehog pathway treatments, Provenge is not easily extensible to other tumor types. Moving Provenge to another patient set - such as breast cancer - requires new research and development work and wholly new trials and those will take many years.

• Based on history, DNDN management will over-sell the potential of the drug and disappoint investors.

Does that make the stock a buy or the options?

• For a day or two or maybe a month - but longer term the approval of Provenge and aggressive sales success are already priced into the stock. If Provenge gets approved and the stock moves like OSI did on the approval of Tarceva, it will settle in at five times sales. I focus on Tarceva because it is a very promising cancer treatment, is expensive and the core technology is not easily extensible. OSI now sells for five times sales - in part because of an ill-fated acquisition - but five times sales is a fair valuation for a cancer treatment company. That gives DNDN a five billion dollar market cap in 2018 - long time from now - and that translates into a $45 stock price. In 2018.

So, is DNDN a short or a buy?

• For a trader, and if the 65/35 potential for approval is correct, it is a potential winning trade for a few days - and options traders know this, premiums are high.

• For the investor, the current valuation has future success baked in and if the stock migrates to five times sales and those sales are a billion in 2018. You are looking at less than 6% appreciation per year. That number speaks for itself given the risk of the FDA saying no.

• For the short seller, you can get killed - or make a killing - and take a look at puts, despite their potential of expiring worthless, they do not generate margin calls the way a traditional short position does when things go wrong. One potential trade is a binary trade - a way out of the money call, a way out of the money put, each with a potential of more than

The iPAD - The Supposed Losers are Actually Winners

2010-01-30T21:46:19Z

The discussion and debate about winners and losers created by the iPad is amusing - the Street has already identified the suppliers and is focusing on Amazon as a potential loser. Sorry, wrong victim. In fact, Amazon is a big winner in the announcement of the iPad.

Amazon (AMZN) wants to be the intermediary between a customer - a reader - and the writer/publisher of a book or other material. They started by enabling writers to self-publish, on demand and even bought a company to help them with the process. Then the Kindle. Then Kindle for the iPhone. And after that, Kindle for Windows. Last piece of first generation Kindle is software for the Mac. The money to be made is the 65%-70% Amazon keeps from the sale of a Kindle book, magazine or blog. Not in designing, manufacturing and selling a piece of hardware. Those are the kind of margins that will increase Amazon's overall gross margin; more and more sales of Kindle hardware will reduce gross margin.

Amazon's move was brilliant - jumpstart the market, force others to compete. And now the most recognized consumer technology brand in the world - a company that does not waste space by putting its name on signs above its stores -- Apple (AAPL) - is piling in and on. Which is great news for Amazon. Why? Apple is not in the publishing business - other than some exclusives for iTunes - it is in the hardware business, using iTunes to generate customers for the iPod, the iPhone and the Mac. So Apple really wants Amazon to be a successful publisher while Amazon really wants the iPad to be successful, that will sell a lot of books.

So, loser Amazon is winner Amazon.

The second loser that is actually a winner is a whole segment - textbook publishers - one of the purest publicly held plays being McGraw Hill (MHP). Kindles are not textbook friendly - no color, no serious graphics. iPads are and will be. Won't this displace traditional? Yes - but not traditional textbook publishers. The biggest cost in textbook publishing is the cost of printing the books. That can go away. The biggest problems in publishing textbooks is the need to update them, especially in science, to keep abreast of change. This is a major hassle - and expensive. But not for an electronic text. Best thing about e-publishing textbooks? No used textbook market - if you update a book every year, and a book is trapped on a dedicated device, there is no used textbook market. Go Steve Jobs go --- that is what the folks in the textbook industry should be yelling, right now.

Another sets of losers are actually winners - the textbook guys.

Anybody else? Any loser really a loser?

Yes - Barnes & Noble (BKS), Books a Million (BAMM) and Borders BGP)- they are not financially or culturally built to compete against digital titans Amazon and Apple with their own readers. And Apple's entrance into the market will accelerate the shift away from hard copy books, and traditional book retailers has the most to lose. I expect Borders and Books a Million will disappear and Barnes and Noble will be the last large book retailer standing. The Nook will do little to help B&N - ChangeWave surveys show there is extreme interest in the iPad and a multi-use device that is also a very good book reader will crowd out most if not all alternatives.

Bottom line: the iPad is not bad for publishers, it is good for them. The iPad and electronic distribution of books - especially expensive to produce textbooks - because it is a cost dis-intermediator. The iPad is not bad for Amazon, rapid sales of hardware will increase demand for Kindle books sold via the existing iPhone app that will work on the iPad - I hope so, I am publishing two novels as Kindle and print on demand books in the coming months - and for Amazon, publishing and distributing is where the margin is, not in selling hardware. Yes, the iTunes store will put a dent in Amazon sales but Amazon can match Apple keystroke for keystroke as a simple interface to buy intellectual property and there is more than enough room for both.

The Best Shorts in A Flailing Market

2010-01-30T19:38:44Z

What are the best shorts in this flailing market? Depends on whether you do charts or fundamentals - I do fundamentals with a light taste of charts - so this is about fundamentally weak companies that can no longer benefit from tailwinds provided by a technically driven market rally.

Where to look? First, unduly high Wall Street expectations for fundamentals. Second, companies in segments that are going to take a hit when the economy takes its double dip or has meager growth in the second half of the year. Third, companies with weak balance sheets. Fourth, companies inside bubbles about to pop - or ETFs for segments that are bubblicious and ready to blow for any number of reasons.

Undue Street Expectations: The Street is overly fond of the banks - yes, the stocks are flat or have dipped for the past three months but Wall Street profit estimates - and target prices - are out of line with reality. Not to mention $1.5 trillion in toxic assets seem to have been forgotten. I agree with uber analyst Meredith Whitney - I have since she turned me onto the problems with the big banks in the green room at Fox Business in the fall of 2007 - that bank profits will disappoint in the second half of the year due to economic stagnation, increasing consumer credit defaults, increasing foreclosures - one analyst sees up to seven million in the next 30 months, mostly from prime borrowers, and decreased trading profits.

Over the past few days earnings announcements - notably Citigroup's (C) and Capital One's (COF) - made it clear the banks are again managing quarterly earnings instead of doing whatever they can to shore up balance sheets. Both reserved less than they had in the past yet also expressed serious concern about the quality of consumer credit throughout the year. Wells Fargo (WFC) also did not reserve as much as it should have given the rapidly deteriorating quality of its commercial real estate portfolio.
My concerns are independent of the factors that have hit bank stocks recently - potential new fees ($90 billion) and tough regulations that will restrict leverage, the scope and operations and certain profitable activities such as proprietary trading. Banks are also being forced to take some of their off balance sheet assets and put them on the balance sheet. Wells has to do this with more than $100 billion in assets - don't cringe just year, they have more than another trillion, with a T, off balance sheet. Capital One surprised itself and analysts by the amount of off balance sheet assets they needed to put on.

One last wrinkle - and this will hit Bank of America (BAC), purchaser of Countrywide Financial, and Wells Fargo, purchaser of Wachovia which had purchased Golden West - that comes from the Freddie Mac and Fannie Mae. They are now gong through the documentation of mortgages that have fallen into default - and forcing banks to repurchase these mortgages. Freddie Mac hit banks for back $2.7 billion in the first nine months of 2009, Fannie Mae $4.3 billion. 2009. This is gong to accelerate the next eight to twelve quarters, a big drain on earnings.

The Impact of a Double Dip/Low Growth Second Half: Retailers and many consumer discretionary stocks outperformed the market last year - and are still seen by some as holding great value. Sure, right. Consumer spending from 2000-2008 was driven almost 100% by expanding credit - incomes were flat, spending went up, and a couple of trillion of spending power came from credit cards and home equity loans. We now have declining national income - not to mention declining household spending - and trillions in credit lines have been pulled back. Without job growth - big time job growth that lifts national income - the consumer will not be back enough to justify current valuations.

The key here is not the statistic always bandied about - the unemployment rate - but the actual number of people working multiplied by their average wages in a week. This, plus interest income and some other items constitute national income. You may read the country lost 450,00 jobs and the blow dried pundits now paid to be smiling and optimistic will say that is lot better than six months ago. True. But the real number that impacts national income and spending is that number plus the number of people dropping out of the work force. When you put these numbers together you have more than thirteen million people not working who were working a couple of years back. And that is a lot of lost spending power.

While many turn to the retailers as the biggest potential victims, sorry folks, it is the high end adult toy makers. No jokes please - I mean boats and motorcycles and spas and high end clothing. That means companies like Brunswick (BC), Harley Davidson (HOG), Steiner Leisure (STNR), Liz Claiborne (LIZ) and Saks (SKS). And in 2011, many of the people who typically buy products from these companies face higher taxes. The weak balance sheets here...oh, I am getting ahead of myself.

Weak Balance Sheets: There are some frightening balance sheets out there and companies yet to issue new shares, roll over debt and in still in need of a lot of financing are facing major problems in 2010. Morningstar put out a list of "low cushion cash flow" stocks based on debt, cashflow and the need to refinance soon. The leader on their board with a B- credit rating is Royal Caribbean (RCL) - and no one needs to take a cruise, do they?

Finding weak balance sheets is easy - matching that problem with creditor reluctance to provide new financing and weak cashflow is the next step. You can a whole slew of these weaklings among the home builders. These dogs have been held up unconscionable federal tax rebates - multiple billions over the past three years - and the days of this largesse is over. Arguably the company in the worst shape is Hovnanian (HOV) for they also concentrate on high end homes that can be built but are not selling due to a lack of demand and virtually no jumbo mortgages to be had.
Lennar (LEN) also has a scary balance sheet.

Retailers, in general, are very tightly managed and have great flexibility in reducing costs through inventory and staff reductions. That being said, Macy's (M) balance sheet is almost surreal given its cashflow - and Macys is at the top end of the full purpose department store segment, a weak segment at the best of times.

Bubblicious Companies: This is easy - China is one big asset bubble driven by state banks lending as fast and furious as possible, building unwanted condos, unneeded steel mills and so on. Where to start? ETFs that track the domestic companies, not the exporters - the most liquid is the PGJ - and the entire segment of Chinese solar companies such as LDK Solar (LDK) or First Solar (FSLR). They are all overvalued, who knows that they are really selling versus booking versus shipping, and the renewable energy bubble is, well, a bubble. Combine a China bubble with a renewable energy bubble and you get double bubblicious.

Who is in charge - Wall Street or Washington?

2010-01-30T17:26:02Z

I like to analyze the market by using a combination of fundamental and technical analysis. Normally using that combination keeps me on the right side of the market. Lately the market seems to act irrationally every time a President or other politician opens their mouths. Somewhere back in a high school civics class I thought I remembered a teacher saying the purpose of government was to make and enforce laws and provide the common services that public and private companies couldn't provide.

These days the main purpose of the government seems to be to control the capital and equity markets, lower your taxes by limiting your bonuses, spend money they don't have on stimulus packages that don't create new jobs ( which increases the deficit) and scare the heck out of the stock market whenever it seems things are going great.

So far the scoreboard for the middle class is you are either unemployed or taking home less money because you've lost your bonus, the balance on your 401K or IRA is half of what it was 2 years ago, your house is underwater because the value is down but the mortgage balance isn't and if you need a loan to tide your small business over till the recession ends no bank will loan you money.

Yes Obama has made good on his promise to lower the tax bill of the middle class but he forgot to tell us he would do it by lowering the numbers on your W-2.

Well it's the weekend again and time to take a look on what the market did. As usual I go to Barchart for my data and I look at the Value Line Index because it is contains 1700 stocks and is broader than the narrower S&P 500 or Dow 30.

Value Line Index -- 1700 stocks -- down 2.3 % for the week. That makes us down 3 weeks in a row and down for the month by 2.89%. Remember we were up in November by 3.74% and December up by 7.01%. Is that a correction or change of direction?

1 - The Index closed below it's 20 & 50 day moving average but still managed to trade above its 100 DMA
2 - Barchart's technical indicators gives the Index a 24% sell signal with 4 buys, 2 holds and 7 sells

Barchart market momentum -- approximately 6000 stocks -- the percentage of stocks trading above their daily moving averages for various time periods --short term reversal but still up for the long term

1 - 20 DMA -- only 23.87% above
2 - 50DMA -- only 43.56% above
3 - 100 DMA -- 51.43% above

Ratio of stocks hitting new highs to stocks hitting new lows for various time frames -- 1.0+ bullish, 1.0 neutral, under .99 bearish -- looks bad for all 3 time frames

1 - 20 day new high/new low ratio -- 382/2092 = .18
2 - 65 day new high/new low ratio -- 211/516 = .41
3 - 100 day new high/new low ratio -- 148/374 = .48

Strategy for the next week -- The economy according to the Conference Board's Leading Economic Indicators seems to be mending, fundamentals of the companies that made it through the recession seem to be improving but the market is showing signs of nervousness from the political instability that Washington is creating. I'm going to sit on the side lines and trim a few non-performing stocks this week but not replace them till I see more support in the market.

I'm taking the week off and going down to the Money Show in Orlando to hear what the big boys are saying. The list of speakers is impressive: Steve Forbes, Howard Gold, Jim Jubak and two of my all time favorites Paul Kangas and Robert Stovall. There will be educational seminars by Jamie Dlugosch, Kelly Wright, Tobin Smith and Louis Navellier I'm really looking forward to talking to Jim Rohrback, Ken Kam, Michael Shulman, Nicholas Vardy and the always entertaining Jon Markman. If this sounds like a commercial, it's totally unsolicited. I've attended and spoke at 3 of these and really enjoyed each time. See you there.

Well, I've put off the bad news till last. My Wall Street Survivor portfolio is in the toilet. The S&P 500 was down 3.72% for the month but I'm down 7.09% mainly because I'm margined out. Hats off to Anthony Mirhaydari for calling the market sentiment properly and being up 3.72% while I came in 8th place out of 8.

See you at the Money Show.

Jim Van Meerten is an investor who writes on financial matters here and on Financial Tides. Please leave a comment below or email JimVanMeerten@gmail.com

Dump the Depot

2010-01-28T20:10:45Z

Office Depot (ODP) is being cut for my Marketocracy S&P 500 portfolio. I've got some rules that I follow religiously and ODP violates them all. Very simply put my investments must meet some basic criteria:

1 - They must have current price appreciation in recent trading sessions
2 - Barchart's technical indicators must show a positive buy consensus
3 - The stock must be trading above it's 20, 50 and 100 day moving average
4 - The analysts should have a consensus of increasing sales and earnings projected for the future

Well how do the criteria stack up?

1 - In the last month the stock has closed lower 8 times and lost 20.76%
2 - Barchart's technical indicators have 12 of 13 sell signals
3 - The stock is trading below it's 20, 50 and 100 day moving average
4 - Analysts predict lower sales, operating profit and net earning for next year
5 - The nail in the coffin -- Analysts consensus is a 5 year compounded EPS loss of -24.9%

Recommendation - Despite some other sites having a hold recommendation I'm dropping ODP like a hot potato. They are too many companies out there making money for me to invest in a wing and a prayer.

Jim Van Meerten is an investor who writes on financial matters here and on Financial Tides. Please leave a comment below or email JimVanMeerten@gmail.com

Disclosure: no positions at the time of publication

On the sideline for the second day

2010-01-28T17:17:23Z

I just ran an hourly chart on the Value line Index - an arithmetic index of 1700 stock followed by Value Line. The index shows trading below its 20, 50 and 100 hourly moving averages.

The index is trading at 2235.80 with resistance at 2267.55 and support at 2214.83.

My advice is to trim stocks trading below their 50 day moving averages but I'd not replace them until I see some support in the market.

Jim Van Meerten is an investor who writes on financial matters here and on Financial Tides. Please leave a comment below or email JimVanMeerten@gmail.com

willing to bet

2010-01-28T05:07:30Z

Dollars to donuts

Yes, I will bet.

I have known, FINE SINGLE parents, that have ask NOTHING,, from ANYBODY,, but to be able to raise the kids they bore.

And , I know sleazy worethless,,, so and so's
that have ask that we support them

And we do.

It is the LAW

It does not matter,, man or woman. A woman wants a child,, BIOLOGICALLY, whether or NOT, she is right for the job as a PARENT.

SOMETIMES, it is the MAN,, that steps up to the PLATE.

And this SORRY,, GOVERNMENT,, that wants to so stauchly support a WOMAN, needs to FINAlLLY,, GET IT'S head OUT OF IT'S ASS.

YOU HAVE TAXED THE WRONG ONES

MORONS

AND,, this is what keeps this country STRONG?

No, it is the SOLDIERS,, underneath,,,

with little say in what goes on.

Try,, just try

to live without them.

In the end,, they will vote.

no chance in Hell

2010-01-28T04:47:06Z

There is absoltely, NO CHANCE, this MORON president will EVER get it right.

What made this country STRONG?

It's TAX, on the single working stiff.

It does, and will continue to.

It RAPES, the poor, the unwilling, to ADMIT, the FAILURES of the system,, because,, , they are just one.

I am here to tell you,,,,,,

the just one,,

is about to OVERRULE you

You are STUPID, and you deserve it
I Have paid your SALARY, for too long.

And, I will do what I can to REMOVE you and your money grubbing cohorts,, from office

Want to do SOMETHING,, to help the people?

Shut the FU** up,,and REMOVE government.

Then, the world, people, and free markets,,, have a chance.

Buy Berkshire Hathaway Before it Breaks Out

2010-01-27T23:16:12Z

Buy Berkshire Hathaway Before it Breaks Out

After closing the largest deal in its history by acquiring railroad company Burlington Northern Santa Fe Corp. (BNI), Warren Buffett's Berkshire Hathaway completed a 50-to-1 stock split of its Class B shares on Jan. 21 to accommodate the deal.

And Tuesday came the announcement that Berkshire Hathaway (BRK.B) would replace BNI on S&P 500 Index (SPX), which will be one of the biggest additions to the benchmark index in years.

Due to its more than $3,400 per share price tag prior to the split, BRK.B had been excluded from the index because it didn't have enough trading volume to meet the index's standards. But the stock split resulted in shares priced in the $70 range, and more than 14 million shares change hands on the day of the split.

So, shares of Warren Buffett Inc. are now affordable for the average investor, but does that mean you want to go out and buy BRK.B now?

Well, if the charts are any indication (and they are), then the answer is an unequivocal yes!

Berkshire Hathaway (BRK.B) About to Take Off

The stock split was the catalyst for an upside breakout in BRK.B from a rectangle pattern.

An upside breakout is a bullish signal that occurs when the price of a financial instrument breaks out through the top of a trading range. This technical event indicates that prices will rise explosively over a period of days or weeks as an almost vertical uptrend appears.

But a lot depends on the duration of the trading range from which the breakout occurred, because this can provide an indication of the strength of the breakout. The longer the duration of the trading range, the more significant the breakout.

For BRK.B it took nearly six months to form, and six months is considered a long enough time for an explosive breakout. And after the stock broke out, it immediately filled the gap and did a back test of the pattern.

Shorting the State of the Union

2010-01-27T13:39:41Z

I love my country - the chaos, the hurly burly of democracy, the hard work of quiet people on Main Street, the great big heart, as shown by our private donations to Haiti at a time of near 20% unemployment and underemployment. We forgive wayward politicians, and athletes, let our children make more decisions than virtually any people on earth and unlike other nations, except Britain and its former colonies (I guess we are one) stand for something. A true city on a hill. But right now, the city itself is in political chaos - and a bit broke.

It is time to short the US - for a couple of years - until our crisis gets so severe Congress commits mass seppuku and replacements arrive and get something done. Perhaps Gandalf will come to us from Middle Earth and leads us to better times. I am betting on Gandalf. Yes, I am letting Obama off the hook - you always let rookies off the hook, don't you - and unless Congress changes dramatically his rookie mistakes are going to become sophomore and junior year mistakes and the nation will suffer. I am long the US, long term - I am a Buffett kind of guy and laugh when I think of any truly long term problems in the US compared to other developed nations (more on that in a later column). But short term, well, here are ten reasons to short the US, metaphorically and in the market, in the next 1-3 years.

1. Economic Growth: We will see misleading - and therefore worse than meaningless - GDP numbers on Friday due to flawed data and inventory accumulation. In the real world, we are already entering a double dip recession and once this is over unemployment - real unemployment, which means those who have dropped of the work force, those looking for work and those looking for more than part time work - will continue near the 20% level for at least another two years.

2. Private Sector Debt: The Fortune 500 is borrowing - and no one else. Small business cannot get money, directly or via credit cards, and consumers continue to de-leverage. And will do so for five to ten years - maybe more - as debt levels retreat to those of the early 1990s. De-leveraging drives reductions in consumer spending and asset values. Get used to it. And with this consumer discretionary stocks will stall or take a pounding - including retailers - look at shorting the XRT.

3. Public Debt: Large and rapidly growing deficits and public debt at the federal and state level will eventually lead to a rise in interest rates and to the crowding out of other spending as government services debt - that will not happen for a while but will start near the end of this year or early in 2011. And please, don't blame the Dems - the party of fiscal rectitude, those red state guys, doubled the debt while they controlled the White House and Congress, financing a war off balance sheet, led by a cheerleader in chief who told people to go shopping rather than tighten their belts after 9/11. Historically red staters spend more on their key constituents than the Dems - so if they grab power, nothing will change. Plenty of ETFs around to short T Bills.

4. Housing: Ain't comin' back my friends. The bullishness and optimism on Wall Street about housing is surreal given all the date one needs to forecast housing values, mortgage defaults, foreclosures and new home starts is in the public domain or can be bought with some soft dollars not used for travel and entertainment (excuse me, that would be illegal!). You can find the data somewhere else - or read some older columns - but housing prices are going to fall for another couple of years (nationally) as foreclosures hit 6-7 million in the next 30 months as well as the 600,00-800,000 homes foreclosed but not yet listed are added to housing inventory. Not to mention more than third of Americans would sell their homes tomorrow if the price were right. Add tightened credit standards, no market for jumbo mortgages anywhere in sight, the end of the home buyer tax credit in April, the slowing down of Fed purchases of agency debt in April. This constitutes a witches' brew that creates headwinds that will last until foreclosures peak and those homes hit the market - late 2011 to mid 2012, and foreclosures will not hit historical norms until a year or two fate that date. Avoid or short the homebuilders via an ETF -- the XHB - or an individual company with a weak balance sheet.

5. Consumer Spending: The New Normal is not going to be normal as reduced national income due to unemployment, reduced consumer spending power due to tightened credit, reduced wealth due to falling home and stock market values and reduced confidence due to all of the above create a new culture of a "new Frugal." We have never been good at being a frugal nation - but have been frugal in spurts and we are already seeing the beginnings of one. It would take a thousand words or more plus data to prove the point so just go the mall and ask people questions -I do- or look at your own spending. What to short? Weak retailers and restaurants, either in overcrowded segments (Saks) or weak balance sheets (Macys).

6. The Banks: Banks are the kink between financial markets and the Main Street economy. They are also the lubricant - when they are lending - of a growing economy. US banks, using time honored but now discarded accounting standards, are, as a group, insolvent. They are hoarding cash because deep in the recesses of little offices, they know they are insolvent if they had to dump toxic assets on the market. They are also looking at reduced activity due to the economy and new taxes and regulations, therefore lower profits and when interest rates rise - Federal Reserve interest rates - their spreads will contract, also hitting profits. Consumer delinquencies continue to be at historical highs yet this past earnings season the banks managed their earnings and actually reduced their loan loss provisions. And did I mention the rapid rise in defaults in commercial real estate? And Obama is not done with them. What to short? The big money center banks, mot the investment banks, and check out some regionals with huge exposure to commercial real estate.

7. Congress: You could probably short Congress - metaphorically - for a century and never lose money. To steal a line from the movie Charlie Wilson's War (very true to the book by the way), "Why does Congress say one thing and do another?" he is asked and he answers "Tradition, I guess." But even by the low standards Congress sets - and should set, we are a democracy which means they are supposed to react to bad and good news, not create it - this Congress is laughable. Polarization between left and right when all the country wants is some practical intelligence residing in the political middle has frozen the indecisive (most of them) and the cowardly (those up for re-election this year). If you want to read a great piece by an acquaintance, Steve Pearlstein, Pulitzer Prize winning columnist for the Washington Post, check out his column today on the State of the Union address hw would deliver tonight. What to short? Nothing, really. It's just damned depressing.

8. Obama: He has done a fair job for a rookie and given the pile he was handed - two wars with no end game or plan, a he federal deficit and dent, a broken economy, broken financial markets and so on. His mistake? He believed his own campaign promises and some lousy advice from his economic advisors and made the economy a secondary priority after passing a filled stimulus bill that so far has cost us $200,00--$400,000 for every job supposedly saved or created. But he has failed to lead - and will probably do so again - his instinct is to organize and drive, not pull - and we need someone pulling the train right now. What to short? Again, nothing. Or everything.

9. The Market: The market is wildly overvalued given the trajectory of the economy - profits cannot hold up throughout the year - and is being driven by traders. The trade of the day continues to be dollar/commodities/China but more and more individual stocks are being rewarded or whacked based on fundamentals, a good thing for stock pickers but bad for the vast majority of money managers who know little more than the movement of the indices. What to short? Companies with weak balance sheets; the leaders in this market that will lead the market down, the banks; and over a two year period, the market itself.

10. The Doubters: Long term, the US is in far better shape than almost all developed nations except for some of the small British colonies with commodities and reasonable public policy - Canada, Australia, New Zealand. Our population is growing faster than any OECD country; our debt is not half as bad as Japan or some European nations; our higher education system is several orders of magnitude better than all but Britain and its former colonies (trust me, I have twins going off to college this September, have visited 17 and counting); and we have an economic system and culture that lends itself to growth, not stasis. What to short? Short the doubters - go long the companies that do what the good old US of A does best - go long biotech, go long selective chip stocks, go long the great brands and innovators, i.e. Apple.

After the State of the Union address tonight, the blow dried pundits (or the corpulent ones with no real hair) will be screaming at us. Ignore them. Ignore people who doubt our long term future -- craven fear mongers like Jim Rogers, who so admires the Chinese for all their honesty, transparency and dignity they show their own people - ratings hawkers like Glenn Beck, xenophobes like Lou Dobbs, cartoon like ideologues ranging from Robert Reich and Paul Krugman to Rush Limbaugh - ignore them all. The ten and fifteen year plan will work. How? Turn to another movie -Shakespeare in Love - for when crisis seems to overwhelm everything and the producer of the play is confronted with disaster and asked how will things work out, he answers "I don't know, it's a mystery."

I'm on the sidelines - Want to join me?

2010-01-26T20:01:52Z

This is just a quick note to tell you that I'm sitting on the sidelines right now until after I see how the market reacts on Thursday to the State of the Union address Wednesday evening. I've learned in the last few years how I can be lulled into a trance because I see market and economic signs that are either positive or negative, so I place my bet on that direction. Then someone opens their mouth on TV or at a press conference and I have months of gains wiped out in an instant. Long trades tank or short positions need to be covered because of a short term media generated blip. I'm not blaming Obama on this; it just happens. Press conferences by Bush, Greenspan, Obama and Bernanke have all caused me to take a hit. I blame no one but other panicky investors.

I do believe that in the long run, the only thing that counts is earnings. My accounting background makes me a fundamentalist at heart. Companies with increasing earnings eventually go up and companies with increasing losses eventually go down. It's that in between time that bothers me. The real numbers and the perceived numbers sometimes have a disconnect and it's during that period of disconnect that people get hurt.

My decision to procrastinate is a decision. I am cutting Factset Research (FDS) from my Wall Street Survivor portfolio. They seem to be having just that disconnect I'm talking about and I don't know why. Although the numbers and press look good the stock is taking a hit so I'm out. I'll think about replacing the funds but not before I see how the market reacts to the State of the Union address.

Jim Van Meerten is an investor who writes on financial matters here and on Financial Tides. Please leave a comment below or email JimVanMeerten@gmail.com

Short Any Reflex Rally, It is Déjà vu All Over Again

2010-01-25T13:33:30Z

Last week - déjà vu all over again.

The dollar was rising, so the market fell.

China is pulling back on stimulus, so the market fell.

Obama is going to tax the banks, so the market fell.

Obama is going to regulate the banks more than expected, so the market fell.

Ben Bernanke is not going to get confirmed, so the market fell.

Corporate profits are great but forecasts for 2010 are weak, so the market fell.

Unemployment claims rose unexpectedly, so the market fell.

Housing numbers were worse than expected, so the market fell.

The VIX was very low compared to the last two years, a sign of complacency, and so the market fell. And of course the VIX popped up.

The market breached the key support level of 11278/1128 on the S+P 500, so the market fell.

And, this weekend, everyone took a breath, and as I write this, S+P 500 futures are up more than 16 points or 1.5% in pre-market trading. Is this as reflex rally?

Yes - maybe - who cares? What is important is last week was a continuation of a trend that began in the fall of 2007 - the market responding to the banks or the federal governments and the Fed's actions concerning the banks. Around Halloween of 2007 Meredith Whitney spoke (I was, fortunately, sitting next to her at the time, you cannot imagine what you can learn having make up put on) and the banks began to break. Then Bear Stearns fell on St. Patrick's Day, Lehman in September and the market melted alongside this through February of 2009. Then the fake stress test results came out and the world - the Street - realized Uncle Sam and Uncle Ben would not let the banks fail and the March rally took hold. The rally faltered in late June, Ms. Whitney said the banks would earn plenty for the rest of the year - and disparaged 2010 - and the rally resumed. The banks stocks began to falter in late fall, six months before earnings were seen as potentially weak and as the Fed said they would begin withdrawing stimulus at the end of the first quarter.

Need any more proof? C'mon tell me this is not good enough? You can plow through all the data you want but step back a bit - there are two issues here. The banks themselves see potentially weaker earnings if there is no big upturn in the economy in the second half of the year. Second, the banks own words tell us new proposed federal taxes and regulations will whack profits.

Can a recovering economy counter this trend? What recovering economy? Can bank lobbyists counter the populist trend? Not this year. The double dip is already getting a head of steam - and uncertain banks earnings due to a lack of appropriate loan loss provisions means less lending to consumers and businesses and the important hybrid of the two - small businesses, the engine of job growth. And Obama has moved his campaign people back into the White House - and even many Republicans, catering to the tea party cranks on their right wing, are talking about more rather than less regulation aimed at the banks.

What does this mean for the typical investor? Nothing good despite the reflex rally taking shape this morning. The banks are going to see weak growth and flattening operating earnings - and many have not reserved enough for losses in the second half of the year. Capital One lost 12% on Friday for this very reason, the genius management team took a relatively small loan loss provision and then, in the same voice, said consumer delinquencies were likely to remain at abnormally high levels. Citigroup did the same schizophrenic earnings management routine a few days before. And with weak or uncertain earnings, combined with populist new taxes and regulations about to hit the banks, the bank stocks are going either sideways or down in 2010 and this will lead the market.

Prez shoots the market in the foot

2010-01-23T19:06:39Z

Every week after the market closes on Friday I go to Barchart and use the same methodology to gauge what happened to the market in the previous week and plan what my strategy will be for the next week. Things started out fine early in the week but then our Prez dropped a bomb when he demonized the banks and everything on Wall Street. Most of the middle class owns a mutual fund, has an IRA or a securities account and has a bank account and/or loans with a bank. The confidence that the middle class has in these institutions is the key to this economic recovery. The balance and direction of the stock market is tied to the confidence people have in the banks and securities firms. I find it hard that he did not know the consequence of his attacks. Enough of that let's see what kind of damage he did.

Value Line Index -- contains 1700 stocks so it is much broader than the S&P 500 or the very narrow Dow 30 -- 20 DMA is sensitive and signaling caution

1 - The Index was down 3.37% for the week and is down .61% for the month
2 - The Index closed below its 20 day moving average but is still above the 50 and 100 DMA
3 - Barchart's 13 technical indicators signal a short term 60% sell signal but an overall hold

Barchart market momentum -- contains 6000 stocks -- the percentage of stocks trading above their daily moving averages for various time frames -- 20 DMA also signaling caution

1 - 20 DMA -- only 33.90% trading above their DMA -- that's less than half!
2 - 50 DMA -- 55.50% trading above their 50 DMA
3 - 100 DMA -- 69.20% trading above their 100 DMA

The ratio of stocks hitting new highs to stocks hitting new lows for various time frames -- above 1.0 bullish, 1.0 neutral, below .99 bearish -- all 3 time frames bearish

1 - 20 day new high/new low ratio -- 484/2347 = .21
2 - 65 day new high/new low ratio -- 272/327 = .83
3 - 100 day new high/ new low ratio -- 208/229 = .91

Summary and strategy: The stock market has taken a blow to the gut given by the person who is supposed to be leading the recovery. He sees the key as new jobs but he is attacking the institutions that can lend the money and raise the capital to make those new jobs possible. This next week I will trim any stocks failing to maintain a price above its 50 DMA but will not be replacing in my portfolios until I see the Value Line Index recover above its 20 DMA. I don't spit into the wind.

Wall Street Survivor results: I took it on the chin this week. The market as measured by the S&P 500 down 2.09% month to date and the leader Anthony Miraydari is up 30.14% so far this month. I'm down in the 7th out of 8th place with a loss of 3.61% month to date -- maybe next week.

Jim Van Meerten is an investor who writes on financial matters here and on Financial Tides. Please leave a comment below or email JimVanMeerten@gmail.com.

Estee Lauder is more than make-up on a pig

2010-01-22T17:11:18Z

Sometimes a stock comes up on my Barchart screening for stocks hitting new highs just out of the blue. Estee Lauder (EL) might be more than just shear illusion and might actually be a thing of beauty. We all have heard the name and if you look in your wife's cabinet you will probably find the products. Before you think I'm sexist they also make Aramis; and I've been using those products since I was in college. So maybe I change my title to "Just make-up on a boar"

Estee Lauder Co. manufacturers and marketers of skin care, makeup, fragrance and hair care products. Brand names include Estee Lauder, Clinique, Aramis, Prescriptives, Origins, M.A.C, Bobbi Brown essentials, La Mer, jane, Aveda, Stila, Jo Malone and Bumble and bumble. The company is also the global licensee for fragrances and cosmetics sold under the TommyHilfiger, Donna Karan and Kate Spade brands. You can't walk through Nordstroms without being sprayed with one of their products.

I first noticed the stock because all of Barchart's 13 technical indicators signaled a 100% buy rating. The stock hasn't closed below its 50 day moving average since back in October of last year and has had a 30.77% price appreciation in the last 65 days.

On a fundamental basis analyst expect the stock to have a 5.3% increase in revenue next year and a 15.7% earnings increase. The best part is they expect that EPS increase to continue for the next 5 years at that same rate. There are 6 major buy recommendations and 9 analysts have increased their earning projections in the last week alone.

On other sites Wall Street Survivor readers give the stock a 5/5 Survivor Sentiment followed by a 4/5 fundamental rating and a 5/5 technical rating. Motley Fool CAPS members think the stock will out perform the market by a vote of 123 to 7 with the All Stars in agreement 40 to 15.

Warren Buffett always says he doesn't buy stocks he buys companies he understands and that he will want to hold for a lifetime. This company has seen a lot of competitors come and go and is still around to make us all appear a little bit above average.

Recommendation: Buy Estee Lauder below 55 with a stop loss no lower than 48.

Jim Van Meerten is an investor who write about financial matters here and on Financial Tides. Please leave a comment below or email JimVanMeerten@gmail.com

Disclosure: No positions in EL at the time of publication

The Banks - Yet Again, the Best Short of 2010

2010-01-22T04:26:14Z

A few days ago I wrote the banks were the best short opportunity based on fundamentals and political reality as it unfolds in 2010.

This week this opportunity became remarkably clear in a hurry.

This week many large banks announced great earnings, doubtful or weak forecasts and some had loan loss provisions so low as to border on the absurd - Citi actually reduced loan loss provisions, depending on how you look at them while telling analysts consumer loan delinquencies were a cause for concern in 2010. Say what? , Once again they were managing earnings rather than clean up their balance sheet.
And this week Obama bared his teeth with Paul Volker providing the tooth whitener - no more trading guys, not if you are a commercial bank. I find this a splendid idea - more on that in a later column - the proposal not just the result of the financial crisis but a direct shot at banks paying obscene bonuses while 20% of Americans are out of work, underworked or out of the work force altogether. This is after their institutions were saved by taxpayer money. An incredible tin ear, as I have written before. And now it is time for them to get their comeuppance.

So let me re-state why some banks are the slam-dunk shorts of the year.

• Their own earnings announcements show continuing problems with consumer credit, with Wells it was also commercial mortgages, none are reserving enough against future losses, especially Citigroup and all are talking about problems with consumer loans for the rest of the year. Their words, not mine.
• They are worried about consumers due to 20% unemployment and the possibility - I say it is a 90% probability - see my piece Shorting the Double Dip -- of a double dip recession in the real world.
• Hundreds of billions in off balance sheet assets are going to hit balance sheets in Q1. This is particularly true of Wells and Citi. These assets are of an unknown quality - then again, they are off balance sheet for a reason.
• As interest rates rise, profits from a very steep yield curve will shrink.
• And if the Obama/Volker plan goes into effect, no more profits from proprietary trading.
• Oh, yes, don't forget the $90 billion in bank fees.

Some geek can do the silly math about how much profit will be reduced at each major bank from this and that - the larger issue is long term, most banks will have their ability to generate profit from each dollar of capital lessened compared to the period of 1999-2009. Through reduced leverage and reduced or eliminated trading desks. Simply put, game over. It will take a lot more capital to generate the profits generated in the past. That means dilution or reduced profits per share and that means lower stock prices.

The biggest losers? The real hybrids - Citi, BOA (the proud owner of Merrill Lynch), and JP Morgan. The unscathed or winners? Goldman Sachs and Morgan Stanley, pure investment banks and trading shops.

If you disagree and are fantasizing about a Republican filibuster you are mistaken. Populist outrage is going to drive lots of behavior on Capitol Hill this year, not to mention the proposals have serious merit that some thinking red state types will appreciate, especially in the Senate. And if they do fight the Dems on this, there goes their chance to retake the House and win seven seats in the Senate. Obama and Volker have put them in box.