February 2016

[admin]

This comes from Zacks:

This week, as earnings season winds down and analysts revise their estimates (mostly lower), the S&P 500 is shaping up (or down) to post negative 8% earnings "growth" in Q1. That marks the fourth consecutive quarter of year-over-year declines and the largest drop yet. 

Much of this decline is related to the bear market in oil. But even without the Energy sector, Q1 estimates on December 31 were expected to be +1.5%. Now, ex-Energy, they are -3.5%. 

And Q2 is already coming in negative on the estimates picture at -2.9%. What I started saying last autumn is that "as long as the forward estimates are in jeopardy, the valuation re-set must go on."

As you might have noticed, we were already skeptical about this 3 day rally that took S&P 100 points higher. Looks like a technical bounce from heavily oversold conditions.

[admin]

Even Cramer is expecting:

Let the bad times roll, Jim Cramer told his Mad Money viewers Thursday. After a big three-day rally, Cramer said investors should expect a multi-day decline to follow. But not to worry, he said, because that only means we can buy some great stocks on the cheap. Now's the time to roll up your sleeves and figure out what to buy, Cramer continued, and that job has been made easier by a strong earnings season. Adding to the momentum, comments from the Federal Reserve indicating flexibility on interest rates, a weakening U.S. dollar

Jim Cramer's 'Mad Money' Recap: Time to Start Buying Cheap Stocks - TheStreet

Multi-day is a rather elastic concept though, this seems to be day 2

[admin]

We have a feeling the ELLI shares are getting a little ahead of themselves, approaching all-time highs and basically at or exceeding all sell-side target prices. The stock has rallied more than 30% in a week, it's due for a breather

We sell our 500 shares at $82

[admin]

We're rolling over the two outstanding VIX July futures (short) at $23 into VIX Sept futures $23.10

We're even gaining some while giving us two more months to play with.

[admin]

While we're worried about lots of stuff (see earlier entries, or here), the imploding shale sector and the consequences for rising bad bank loans isn't really one of them, at least not as far as their potential for causing another financial crisis. Here is Zacks:

Energy Loan Portfolios are Small – the biggest U.S. banks generally have less than 5% of their total loan portfolio in Energy (and Europe is in that range as well). Recall too that, within the oil sector, most loans are asset-backed meaning that banks can make a claim on property if needed (unlike most subprime loans). If energy loan losses were a huge problem on bank balance sheets, you would probably see non-performing loans going up throughout Europe – but they’re actually going down.

[admin]

Here we explain why we like the shares of Ellie Mae (ELLI) so much but nevertheless took profits at $82:

• Yet another blow-out quarter from one of the best companies around.
• Growth doesn't look like petering out anytime soon.
• However, after a very steep runup, we do have some minor valuation concerns.

Should You Still Buy Ellie Mae? - Ellie Mae, Inc. (NYSE:ELLI) | Seeking Alpha

[admin]

And the rough times in emerging markets continues..

The South African economy is 'in crisis' says the country's finance minister Pravin Gordhan. The comments came ahead of his Budget speech, in which he cut the country's growth forecast for 2016 to 0.9%, down from 1.7%. He conceded the economy is struggling with shrinking growth, 25% unemployment, and widespread poverty. The South African currency, the rand, which has halved over the past five years, fell as he was speaking.

South Africa's economy 'in crisis' - BBC News

The real declined after Brazil’s debt rating was lowered to two levels below investment grade by Moody’s Investors Service, which cited the government’s failure to reduce its fiscal deficit amid deepening political turmoil.

Real Declines After Brazil's Debt Downgraded to Junk by Moody's - Bloomberg Business

[admin]

New article about an old familiar stock:

• The company has cornered genetic modification of tobacco with over 200 patents, enabling it to produce both very low and very high nicotine level cigarettes.
• This IP provides several interesting and possibly large monetization opportunities.
• However, the company must first overcome the hurdle of ramping up production in order to eliminate losses and the need for additional financing.
• While there is progress on that front, it's slower than hoped.

22nd Century's Unique Cigarettes Create Growth Opportunities - 22nd Century Group, Inc. | Seeking Alpha

We're not yet buyers, basically because of the last item, things moving slower than hoped, but this remains interesting for the longer-term.

[admin]

Something from Zacks that is hard to disagree with:

Confidence Tuesday was a big fat dud with the Consumer leg of the stool slipping to 7-month lows and the State Street Investor Index dropping again as European equity exposure and sentiment plummet. These are not good trends on top of the weak ISM/PMI surveys. 

While there is little solid evidence for the recession hand-wringers to get worked up about, I am still calling for new lows in the stock market correction to realize a bigger "P/E re-set". As long as the "E" is coming down, the "P" is still too high given this math: S&P 1900 / $115 = 16.5X. 

And a big strategist (besides Reity) who agrees with me is the chief of the $240 billion Guggenheim who still sees a rocky first half for stocks. But wait, it gets worse: Scott Minerd, the best "bond king" of the past 3 years, is now calling for the 10-year Treasury yield to fall to 1%! 

If the 10-year does that, it means two things: First, there’s a ton of fear out there that will be exhibited as a flight from equities to bonds. Second, the yield curve could be severely flattening on its way to a potential back-bend. An inverted yield curve almost always portends recession.

While we have no immediate recession fears, at least for the US, the international climate is really sobering, to put it mildly.

[admin]

We're buying 500 shares InterOil (IOC) at $25.97