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Showing posts from May, 2009

Trade: Bought TerreMark Worldwide and Hartford Financial

Made a few purchases in our accounts today when the market was testing 890 which I think will be the low at least for now.

Terremark Worldwide (TMRK) is a new stock we've started following based on the $20M purchase of shares by VMWare (VMW). VMW is a very respected technology company and its impressive that they made an investment in TMRK. Its also important to note that the stock currently trades below that purchase price of $5. That purchase price was somewhat above the stock price at the time of the announcement as well. VMW wanted into this stock so we've followed. TMRK also reported nice Q1 results which surprised me to see that basically a hosting (ok, managed IT infrastructure services) company actually had a solid report. Actually reporting earnings which is impressive for a sector that typically only focuses on EBITDA. EBITDA can only take you so far. The other thing that impressed us was that TMRK provides the 'infrastructure' services for both usa.gov and da…

FCStone Monthly Metrics Seeing Stability

Finally seeing a bottom in the numbers for FCSX. As reported after the close last night, FCSX saw improvements in OTC volume and segregated assets. As a reminder, FCSX made the majority of its income in 2008 on the interest income from customer assets. Seeing that bottom is a promising sign. * OTC volume (in thousands) of 30.8 contracts, compared to 25.7 contracts in March 2009 and 78.5 contracts in April 2008; * Exchange-traded contract volume (in thousands) of 4,151.9 contracts, compared to 5,008.8 contracts in March 2009 and 9,512.3 contracts in April 2008; and
* Customer segregated assets (in millions) of $818.4 as of April 30, 2009, compared to $754.2 on March 31, 2009 and $1,556.4 on April 30, 2008.

Stat of the Day: Consumer Confidence Expectations Soar

Just as was reported on the 15th [Stat of the Day: Consumer Confidence Soars], the markets are again soaring because of good consumer news. This time its from the Conference Board which typically has more influence then the Michigan Survey on the 15th. Still the market should've expected a huge jump. The Index soared beyond estimates of 42.3 by a wide margin to nearly 55. What were those analysts thinking?

As the Michigan Survey showed, future expectations are soaring. Expectations were at 72 while the Present Situation came in at 29. So basically the Consumer Confidence number is going to continue to soar. Michigan expectations were at levels not seen since October 2007 and while not noted in this report I'd expect them to come close to that time frame. Its definitely higher then the number a year ago.

Retailers such as SHLD and TWB are soaring on this news while DKS is doing pretty good. Both SHLD and TWB are worth considerably more if the consumer returns.

The Conference Board…

Performance Review - May 22

Below are the results of the 3 primary portfolios offered by Stone Fox Capital. Each portfolio continues to beat the SP500 since inception as tracked by 3rd party marketocracy.com. See the links to the portfolios on the right hand side under the Portfolio Management column.

Hedged Growth

This fund continues to maintain its sizeable gains since inception on 10/1/08 of 26%. It has handily beat the market in down markets and slightly outperformed in up markets.


MTDQTDYTDSFCHG2.13%10.78%2.48%S&P 5001.86%11.61%-0.68%DOW1.34%8.78%-5.69%Nasdaq-1.47%10.69%7.29%


Net Payout Yield


MTDQTDYTDSFCNP3.28%15.31%0.85%S&P 5001.86%11.61%-0.68%DOW1.34%8.78%-5.69%Nasdaq-1.47%10.69%7.29%


Growth

The Growth fund continues to impress this year. It's outperformed every major average significantly and is nearly 24% above the SP500 YTD and over 42% the last 6 months. The fund is now up 6.2% since inception.


MTDQTDYTDSFCG9.00%35.21%23.09%S&P 5001.86%11.61%-0.68%DOW1.34%8.78%-5.69%Nasdaq-1.47%10.69%7.29%

The Missing Tween

The owner of the Justice and Limited Too brands that focuses on the tween girls category (7-14 year olds) has been crushed by the markets and the weak economy. Oddly though, Tween Brands (TWB) has been crushed much more by the markets then the likes of Childrens Place (PLCE), Gymboree (GYMB), and Pacsun (PSUN). Was it because of the the move to transition all of the Limited Too stores to the much better performing Justice brand? If so, the market was placing a huge execution discount on the stock.

All 4 stocks recently reported Q1 numbers through the end of April and clearly TWB and PSUN had the worst numbers and they consequently have the lowest market caps. Both GYMB and PLCE reported pretty decent numbers and hence they have the highest market caps. But thats where the market quits making sense. PSUN has a market cap nearly triple that of TWB - $275M vs $100M - even though TWB posted better results actually recording an operating profits versus the $8M loss at PSUN. With comparable …

Sears Holdings Popping after Huge Earnings Beat

Unfortunately we missed the chance to buy at $50 before the close. Looks like the perfect double bottom on the chart. After Hours, Sears Holdings (SHLD) reported earnings of $.38 ex items with an analysts estimate of minus $.88. That's a whopping beat of $1.26. CEO Lampert seems to have this company back on track and the real story has never been earnings and retail. The huge buybacks and fund ownerships leaves the float very low hence the huge jump after hours to $57. See previous articles for more details on that issue.
SHLD is a big investment in our funds expecially the Growth and Net Payout. Its probably a great buy at these levels but disappointing to have missed it prior to earnings. I'd expect a run to new highs and that run has already taken place in AHs hitting $62. Lampert was buying back the last couple of years with the stock in the mid $100s so getting back to $60 is hardly the end of the road.
Net income attributable to Holdings' shareholders for the quarter o…

Stat of the Day: Disappointing Jobs Data

The weekly jobless claims continue to hang in the low 600K range, but the hoped for break into the 500s has to wait a while longer. A break below 600K in weekly claims would finally signal a serious change in direction. For now, the jobless numbers have definitely bottomed out, but its just bottoming along at the bottom. The numbers did peak at 670K in March so it's definitely dropped from the highs, but after such a huge run in the stock market we really needed that big drop to convince the market that the turn is for real. For now, this just gives the shorts more fuel to hang tough.


New Jobless Claims Slowing - CNBC
The U.S. Labor Department on Thursday said that initial claims for state unemployment benefits fell to a seasonally adjusted 631,000 in the week ended May 16, compared to a high of 674,000 in late March.Analysts polled by Reuters had forecast new claims at 630,000.Still, continuing claims—workers who remain on the rolls of the unemployed -- rose by 75,000 to a record 6…

Stat of the Day: German Investor Confidence at 3 Year High

The confidence numbers globally continue to soar much higher then expectations and much higher then the last couple of years. According to Bloomberg, The May report was dramatically higher then April. It's not that shocking to see a sharp rebound in investor confidence considering the rebound in the markets, but it is surprising to see how its soared to 2006 levels. Not that I know much about German confidence numbers, but in the US we've argued for a while that in 2007-2008 the markets were depressed more then earnings suggested. Alot of people discuss the prospects of returning to the 2007 peak in the market which we continue think won't be that difficult to reach.

To surpass the 2007 levels when global markets were still soaring higher shows how low confidence was at that time.

The ZEW Center for European Economic Research said its index of investor and analyst expectations, which aims to predict economic developments six months ahead, increased to 31.1 from 13 in April. …

Another Look at FCStone

FCStone (FCSX) is a compelling story that fell off the face of the market in 2008. They went from reporting a $78M profit in the year that ended in August 2008 to being worth hardly more then $30M. This was largely due to a trading account hit of over $100M that put serious doubts into the future of this company. FCSX has also taken a big hit from greatly reduced interest income due to the swooning short term interest rates.

The need for risk management and hedging in the commodities sector has never been greater. Once FCSX gets past the issues created by the huge trading loss, I'd expect FCSX to regain its luster that saw the stock trade above $50 last year. The company has stayed afloat in this turbulent times without the need for dilutive financings. Somehow FCSX has been more impacted in the stock market then the major banks like Bank of America (BAC) and regional banks like BBT or STI. FCSX has no exposure to the mortgage or commercial real estate market. Yes, they were hit b…

Trade: Trimming Back on ICICI Bank

While the elections may usher in huge change in India its likely to take years to develop. This jump of 30% in ICICI Bank (IBN) is way overdone and will likely consolidate giving us time to buy back lower. The move had made IBN the largest holding in the Growth portfolio. Selling 33% of the shares in the Growth portfolio at just over $30. The Sensex is up 17% which is unheard of for a mojor index. Wow!

Review of Kona Grill

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Now that the CEO that has successfully run this promising restaurant concept into the ground, Stone Fox Capital is ready to review a potentially larger position in this concept. Kona Grill (KONA) just opened its 22nd restaurant in Woodbridge, NJ. KONA has longed seemed a promising concept with its modern blend of an American grill with a sushi bar. They've been public for a few years now and they've largely been off the radar of Wall Street though they've had fast store growth and for a while strong comps. Lately the comps have fallen off the wagon posting -9.6% (yes thats negative) which was horrible considering that some of the competition actually posted positive numbers. KONA is definitely on the slightly upper end of casual dining so its not too surprising that they posted weak results but those results were jaw dropping. Mill Road Capital claims in the Q1 Conference Call (see SeekingAlpha transcript) that KONA had the worst comps in the 15 company universe they follo…

Kona Grill CEO Resigns, Shareholders Rejoice

Finally! Everybody has wanted the CEO gone for the last 1-2 years since Kona Grill (KONA) began underperforming. Whether this opens up KONA for a takeover by Mills Road (they offered $10 last year) or not will be seen soon enough, but it definitely can't hurt the performance of the company. KONA has a great concept, but bad management. Its yet to be seen whether this will turn change management b/c presumably the left overs are Jundt players. The new COO was hired by Jundt so while I'm much more bullish I'm still hesitant.

More later on KONA as the story develops.....

Strategists Plugs Africa and Millicom

In this interview, David Riedel, president of Riedel Research Group, spoke with Erin Burnett about the benefits of investing in Africa. Not familiar with this guy, but his thesis ties into ours on the continent. Millicom (MICC) has been a favorite of Stone Fox because of its exposure to Africa. The wireless market is just exploding accross the continent and MICC is the best way to play it.

Stat of the Day 2: Empire Strikes Back

More good news on the economic front overlooked today from the Empire Fed Manufacturing report. Another 'best since Oct 2007' reading for future expectations. The number was a remarkable 44 which is way above zero and considerably more bullish then any other reading in the index. Shipments were positive for the first time in months. Inventories remained considerably negative which is actually bullish because they'll need to restock in the near future.

The only major negative was a decline in orders. Though the number was still better then the March lows. The huge bounce in April probably contributed to the slack in May.


The New York Fed's "Empire State" general business conditions index climbed to minus 4.55 in May--its highest since August 2008--from minus 14.65 in April. In March, the index sagged to minus 38.23, its weakest since its launch in July 2001.the regional Fed's index on future business conditions rose to 43.8, its highest since October 2007.Th…

Stat of the Day: Consumer Confidence Snaps Back

According to the preliminary Michigan Surveys of Consumers, consumer expectations are at the highest level since Oct 2007. The consumer sentiment is at the highest levels since Sept 2008. That's pretty amazing considering the stock market was at 1,200 back in September and the housing and job markets have continued to plunge. Based on these numbers, I'd expect some more snap back in retail spending. For the first time in 20+ months, consumers actually see a brighter future. Now this doesn't always impact spending short term it ultimately will have an impact.

Surprising that the market is down so far today with rather upbeat news on the consumer front. Normally I'd not pay attention to this report because it doesn't always translate to consumer spending but expectations have reached a reflection point. When psychology turns it doesn't turn back that easily.

The Reuters/University of Michigan Surveys of Consumers said its preliminary index of confidence for May ros…

Poll of the Day: Bespoke Investor Sentiment

It's always interesting to see what the sentiment of the active retail investors/bloggers is now that the market has had a 5% pullback. The market is just 1-2% above major resistance in the 870-875 level. Its unlikely a normal market would see a break of those levels after having such a hard time breaking above that level going back to October. Based on that I'd think at least 60-70% would expect the market to hold. After all, it was the inability to hold 870 that sent the market off the cliff all the way to 666. So what are the results?

According the poll as of making this post, only 12% expect the market to bounce from here. So 87% expect the market to go lower. Now nearly half or 43% expect only a 10% correction which would be around 840 Thats pretty reasonable, but a full 45% expect a least a 20% correction which equals a new bull market and even worse 27% expect a return to the lows at 666. Extrapolating the results I'd likely guess that the 43% only expecting a 10% dr…

Meredith Whitney's Move Called the Bottom

Looking back, this move by the Glamour Girl of the Financial World to create her own advisory firm was right at the bottom of the market. She has long to the harbinger of bad news for financial so I had speculated at the time that this was a sure sign of the bottom. Of course alot of people thought the same thing when she appeared on the cover of a mainstream magazine I believe back in October. Though some do claim that October was the internal bottom of the market as that was the day when the most stocks made new 52 week lows. The following lows in November and March were made with much less conviction. Guess in eccense she book ended the time period with those 2 moves.

ClusterStock has a little article highlighting her move and appearance on CNBC that day. Note the negative 600 points on the DOW that day. That was Feb 20th just weeks prior to the end of the bear market. Also, gotta love that Henry Blodgett posted the piece. He will go down as being a pivotal point in the irrational e…

Fast Money Halftime Negativity Fest

Watching this CNBC Fast Money video made me want to take the opposite side of the trade. These guys are very smart especially Gartner, but when everybody in the room on Wall St is on the same side of the trade your typically better off taking the other side of the trade.

The S&P500 pulled back close to the 20ema which isn't overly surprising. We added to some hedges at the end of last week including buying the SH (Short S&P 500) for the Hedged Fund. They typical pundit on CNBC still expects this market to roll over so it gives me more confidence to buy on any slight dip tomorrow. Looking to add back to GFA, DKS, RVBD, MS, HIG and start X. All of these stocks trade around the 20/50 emas with huge upside potential. These stocks were over extended but now they've pulled in for a great trade.

Performance Review

Quick review of the fund performances for each period versus the major indexes as reported on marketocracy.com


Hedged Growth
This portfolio is up 7.3% since inception versus the 18.6% loss of the S&P500. Outperforming the index by 25.9% and over 26.0% when eliminating the higher fees assumed on the site.



TodayMTDQTDYTDSFCHG
0.00%6.57%15.60%6.94%S&P 500
2.41%6.52%16.72%3.87%DOW
1.96%4.98%12.69%-2.30%Nasdaq
1.33%1.26%13.76%10.27%


Net Payout Yield
This portfolio is down 23.9% since inception versus the 31.0% loss of the S&P500. Outperforming the index by 7.0% since 3/1/07 when eliminating the higher fees assumed on the site.



TodayMTDQTDYTDSFCNP
-3.97%7.33%19.83%4.81%S&P 500
2.41%6.52%16.72%3.87%DOW
1.96%4.98%12.69%-2.30%Nasdaq
1.33%1.26%13.76%10.27%

Capital Growth

This portfolio is down 26% since inception versus the 29.2% loss of the S&P500. Outperforming the index by 3.2% and closer to 4% when eliminating the higher fees assumed on the site.



TodayMTDQTDYTDSFCG
0.00%10.69%37.32%25.01%…

Net Payout Yield: CSX

The railroad stocks like CSX (CSX) have been out of favor for awhile because of declining shipments. CSX though continues to maintain a 2.8% dividend while attractive, its not overwhelming in this environment where stocks move up or down by 20% sometimes in a day. We like to look at the Net Payout Yield as its been deemed more reliable in studies as a predictor of a stocks potential. View my old articles for more detail.The stock buyback portion of the Net Payout Yield makes this stock more enticing. For 2008, CSX bought back $1.5B of net stock. For a company with a current market cap of $12.1B thats an impressive amount. Unfortunately for Q109, CSX didn't purchase any stock with the turmoil in the markets. That leaves the trailing 12 month buyback at $1.2B or 10% of the current market cap for a whopping yield of 10%. Combine that with the 2.8% dividend and the Net Payout Yield is an impressive 12.8%. Obviously CSX will need to get back to buying up stock for this yield to remain …

Regions Financial Rebukes Treasury Findings

From the PR on Regions (RF) website, RF isn't too happy with the stress test results showing they need to raise $2.5B of additional capital. For the most part, RF has been relatively quiet during the whole turmoil in the financial markets. It's encouraging to see them put up a fight today. Heck, it's encouraging to see any financial company put up a fight. Specifically RF doesn't think the loan loss expectations for Commercial Real Estate made by the government reflect what they'll likely report down the road. 3x the current loss ratio does seem excessive. They also show how if RF was treated similar to other banks tested that they would need little to no capital.

The company questions why they should be forced to raise capital for a adverse economic scenario when Bernanke is positive about the 2nd half of 2009. Whats odd about these tests is that even if the adverse scenario happened it wouldn't be like RF would have zero capital. It would just place them below…

China on the Hunt for Distressed Assets

According to this NY Post article, China plans a massive North America tour with over 400 executives to research and view distressed assets. Noteworthy that they plan to spend almost as much time in Canada as the US. Hmm....

Hoping to take advantage of cheap prices on struggling American businesses, a group of 400 executives from state-owned and private Chinese companies will be visiting the US next month on the hunt for distressed assets.China's Ministry of Commerce is behind the tour, and is planning visits to New York, Washington, Chicago and Salt Lake City. The trip also includes stops in Toronto, Vancouver and Montreal.

Trade: Bought CSX

The market has been too crazy to keep up with posts. Both the Hedged Growth and Net Payout Funds bought CSX at the close yesterday - May 5th. The stock has a good 2.9% yield and over a 10% buyback last year giving it an incredible new payout yield approaching 15%. Of course, the buyback might be lower in 2009 lowering the yield, but we'd expect the rails to start benefiting from a recovery in the economy and growth in China. More to come later.

Is the Recession Over Already?

Just seemed like yesterday that the US economy was headed to a 2nd Depression, but now some people including Brian Westbury in this Forbes article think the Recession will possibly end this month. Its hard to argue his points though logic and the current media makes it difficult to believe that the Recession could really be over so soon. Didn't the financial system just about collapse? Hasn't our favorite professors talked over and over about zombie banks?

Brian is also forecasting a V shaped recovery which is clearly not of the norm. Even Bernanke spent today talking about a slow recovery of only 2% in 2010. That little growth a year after a major Recession ends sure doesn't sound like a V shaped recovery.

Lets explore some of his claims:

New claims for unemployment insurance are probably the very best single indicator of the end of a recession. The monthly average for claims normally peaks one or two months before the economy bottoms--and it appears to have peaked in March…

Big Player Buys into Commodities

A manager of close to $100B moves into overweight on commodities. AMP Capital moves into commodities b/c of the strength in China according to Bloomberg. Surprising that they are making the move into copper and oil after 50% runs. We agree that these sectors will be a great place to invest over the next 3-5 years. Just more proof that a lot big money has completely missed these runs. Freeport (FCX), Foster Wheeler (FWLT), Atwoods (ATW), and Alpha Natural Resources (ANR) are our favorite plays on the commodity boom. 2010 could be the first in a while that both China and the US show growth in the demand for copper. This at a time that gobal supplies have shrunk due to the recession with some $200B in projects delayed.

More from AMP:

AMP Capital Investors, which manages close to $100 billion, is plowing cash into commodities on expectation demand will strengthen with a China-led recovery in the global economy. The company yesterday switched from an “underweight” allocation in commoditi…