We ran some comments about an article by Motley Fool about the housing crisis and the general state of the market this morning. Today, the market seems to be in pretty good mood, and we don’t trust it for a second. It’s only off from its peak by less than 1500 points…
It is a curious market. There is really plenty, plenty of bad news around:
- The housing market is in it’s worst slump in decades
- Credit is in short supply, lending conditions have tightened considerably
- The whole US financial system has been shaking, and we really don’t know if there is more to come
- Consumer confidence is at a 25 year low
- The US dollar has plunged way below purchasing parity (comparing the same basket of goods, like the simplified Mac Index from The Economist, will show the dollar is severely undervalued against most currencies), and might very well fall further
- Energy and commodity prices are booming
- Inflation is creeping up
- The US public deficit is ballooning, being pinched between low tax receipts (as a consequence of the recession) and tax cuts, it can hardly do anymore
- US monetary policy is already very expansionary, especially when the inflation picture is taken into consideration, and can hardly do a lot more (and, as we argued this morning, it might be a lot less effective than many people hope).
Should we go on? Perhaps not, you want to enjoy your weekend, we understand. So do we. But one cannot close one’s eyes for reality, even if it’s an unpleasant one.
We do not see any immediate winners, with the exception of InterOil (depending on the outcome of Elk4 and the Merrill Lynch loan), and EFUT, which is dancing to another tune (but its sales are still pretty cyclical, it’s second half is usually way better than the first half).
What about Trina (TSL)? Well:
- We think it’s still very cheap at approximately 10-12 times 2008 earnings (depending on which estimate you take)
- It’s pretty recession proof, it has sold out most of it’s 2008 production already, and rising energy prices and subsidies must give it further protection
- It is, however, in a very volatile sector, the solar sector. Sell-offs often do not discriminate the good from the bad. We’re happy we called to take some money off the table above 44
There are two possibilities now:
- Either it will break it’s 200 day moving average at 45-46, in which case it will probably move up further
- Or we keep hitting that without a convincing break-out, and another round of selling in the general market and/or the solars in general will take us lower.
Things will depend on quarterly earnings which will be due next month. In the previous one, Trina tempered expectations somewhat, stating some gross margin decline would be likely. And things will depend on the general market, and that makes us a little nervous.
Two ways to play it.
- no position at all, and buy after a convincing break-out or a retreat
- half a position as a longer-term investment, and buying more if the above applies.
We’ll keep looking for more!