Out Fox The $treet

The fallacy of the recent stock market gains are that all stocks have seen substantial gains this year. In reality, a lot of the small-cap, growth stocks struggled to achieve market returns. Typically these high beta stocks would outperform the market during strong periods, but the slow growing economy doesn't help these stocks. With the economy picking up based on the strong Q3 GDP growth, 2014 could be the year where the market rotates into growth stocks. Too often, investors confuse a rising interest rate as negative for stocks. Read the full article at Seeking Alpha. Disclosure: Long GSVC and GLUU. Please review the disclaimer page for more details. 

According to this Bloomberg report , Brazil expects to continue cutting the interest rate by 50 basis point intervals for the time being. The Selic rate is already at a historical low of 8.5% after five rate cuts. Yes, you read that correctly. From the chart below, the interest rate has averaged 16% since 1999. An incredibly high level when you consider the rates in the US or Germany. Heck, the 10 yr Treasury in Italy and Spain doesn't even match 8.5%. The amazing part is that the Bovespa trades closer to 3 year lows than highs. Shouldn't the significantly lower rates spur growth and investment demand? Well that use to be the theory but investors appear less forward looking than in the past. Just as the higher rates in 2011 hurt growth these rates should fuel growth. Unfortunately any gains are likely to lead to a spike in the markets followed by sharply higher interest rates. The drastic cuts by the government are going to lead to volatile times. The nex...

Brazil's central bank slashed interest rates yet again making the sixth rate cut in under a year. Rates were lowered a dramatic 75 basis points making the rate 9%. Yes, that is correct. The rate in Brazil still remains one of the highest rates in the world even after 350 basis points in cuts since August. The rate peaked at 12.5% The reason for the cut was an anemic GDP print in Q4 of only 0.3%. Inflation has also dropped with expectations now at only 4.4% for 2012. This could provide cover for even more cuts this year. Amazingly, the interest rate could fall below levels last hit in July 2009 of 8.75%. Even possibly lower. Heck, I'm not sure I understand why Brazil has such a insanely high rate. It doesn't have GDP growth faster than China or India so why are interest rates higher? Anyway, guess that is besides the point. Eventually these rate cuts should help spur the economy. Stocks in our models such as home builder Gafisa (GFA) and wireless provider NII Holding...

It wasn't surprising that Brazil slashed interest rates for the 5th time tonight, but it was a little surprising to see a 75 basis point cut. One needs to understand though that Brazil still maintains one of the highest interest rates in the world after this cut to 9.75%. This even after 275 basis points of rate cuts in the last 6 to 7 months. After a 2.7% GDP print for 2011, its just natural that the interest rate would drop from such lofty levels. What is ironic is that the original surprise cut back in August last year was so criticized. Just imagine now if the central bank hadn't started so soon. This economy might be headed to a recession if not for the fast action. One also needs to understand that interest rate cuts take up to 9-12 months to have an impact on the economy to a great extent. The original cut was only some 7 months ago. Though this does further highlight the typical problem with rate cuts. The Brazilian central bank has already made 5 rate cuts before t...

After a horrible 2011, this Brazilian homebuilder has had a surprising start to the new year. Gafisa (GFA) was virtually left for dead as 2011 ended, but the market has probably gotten the biggest shock to see Gafisa rally big time. Similar to the move in Brazilian wireless provider NII Holdings (NIHD) , the chart below shows a much improved technical position from the start of the year.  Not only has the downtrend been broken, but the stock shows signs of breaking out to the upside. Looks like roughly a $1 higher at $7.5 will be the key resistance level. With all the interest rate cuts in Brazil towards the end of 2011, it really shouldn't be a big surprise that Gafisa at the very least has regained momentum. Looks like much more room to run as well as the stock has only returned to mid November levels. Stone Fox Capital (position sizes as of 2/17/12) Stone Fox Capital holds an allocation of 3.6% in $GFA in his Opportunistic Arbitrage Long Only ...

This is the 2nd article in a series focusing on whether now is the time to invest in emerging markets. The first article which focused on India concluded that while some appealing stocks were at very discounted levels, investors need to wade into the stocks carefully, in order to not catch the proverbial falling knife. This article focuses on the largest Latin America economy, Brazil. It faces similar problems, where high inflation led to numerous interest rate increases by the central bank, leading to a slowing down of the economy. The major difference, though, is that Brazil has already been aggressive-- with three rate cuts of 50 basis points each-- while India is still pondering whether to cut rates. The country also has two potential catalysts, with the World Cup arriving in 2014 and the Summer Olympics in 2016. Both events will require large infrastructure spending that should benefit not only the economy, but a lot of the stocks traded in the U.S. Read the full article at...

Not only were materials weak, but anything to do with global growth such as infrastructure hit a wall today even with the market up .5%. Oddly utilities and consumer discretionary had a strong day. FirstEnergy (FE) in the Net Payout Yields (NPY) model closed right at the 52 week highs hit in mid May. Amazon (AMZN) soared 5.5% after closing at a new 52 week high yesterday. It has now bounced from below $180 in mid August to nearly $240 now. Global growth stocks such as materials, infrastructure, and emerging market stocks were very weak today.  Coal, copper, and crane stocks were smashed even with global markets up. What is this telling us? Maybe that global destruction is off the table, but global growth is still a concern. Investors appear headed for high dividend paying stocks as the NPY model was up nearly 1% while the Opportunistic model stocks were relatively flat. Have treasuries finally hit bottom now that a Lehman type collapse for Greece appears off the table? Sure b...

After the markets closed tonight, Brazil cut interest rates 50 basis points to 12% from 12.5%. Wow! Guess I haven't paid enough attention to the Brazil economy as I was not expecting an interest rate cut much less a 50 basis point cut. Many an investor would probably be surprised to realize that Brazil interest rates remain as high as 12% after a big rate cut. Apparently this move caught investors off guard as the expectation was for a 25 basis point cut if at all. With inflation running around 7%, I'm surprised as well though inflation rates should moderate as material costs maxed out earlier this year. Year over year numbers will eventually subside as 2012 rolls around. This bodes well for emerging market stocks that have been rocked this year due to interest rate increases due to rapidly rising inflation fears. Some economists think China might be done raising interest rates as well which could usher a major rally in Chinese stocks that have underperformed for well ove...

The Opportunistic Levered (Arbitrage on Covestor.com) model had another rough month. The model was again hit by fraud concerns among Chinese companies and emerging markets stocks fell due to concerns over inflation pulling down growth. Over the 29 months of tracking this model, it has had numerous months of 10% plus swings. Unfortunately some cases were to the downside. In those cases the stock holdings just got more attractive in the process. Even with China fraud scares, the three stocks owned in this model still appear to be worth more than our original purchase prices not to mention multiples of that. The size of declines in some of the stocks in this model caught us off guard. It didn't surprise us that June was weak, but the level of weakness in several sectors such as industrials and emerging markets such as China caught us off guard. Bottom Performers The bottom performers were again lead by the China stocks in the model. ChinaCache International (CCIH) and Lihua Int...

According to this report if accurate, Gafisa (GFA) got a good deal to close the offering just below the closing price on Sao Paulo at $12.5 reals. Of course the general market has been very strong and GFA has been held down because of this deal so it shouldn't be too surprising that it priced so close to the close. Guess it's too late but my currency conversions aren't coming up as close to the closing US price. Hmm.... Took a gamble yesterday and apparently we'll win out with this pricing. Some of the details of why we're very bullish on this stock. About 20 percent of the proceeds from Sao Paulo-based Gafisa’s sale will go to acquisitions and 35 percent will be used to buy land for construction projects, the company said on its Web site. Gafisa canceled a planned share sale last year. The projected sales value for new projects started in 2010 will climb to as much as 5 billion reais from 2.3 billion reais a year earlier, following a “strong improvement in marke...

After just trimming our positions in Gafisa (GFA) on the 17th, we jumped back into a full position in the Growth Portfolio on the drop to the 200EMA. Also, added it to the Opportunistic Portfolio for the first time. The drop from $15 to $14 didn't last long. Our average purchase price was around $14.13 and the stock is now around $14.77. The stock has mainly been weak due to an expect secondary offering possibly after the close tonight. It might dip again tomorrow in the am but any weakness should be bought. GFA is a leading Brazillian homebuilder with decades of growth ahead.

In order to raise some cash for the Growth and Hedged Growth Portfolios we sold roughly 50% of our positions in both Gafisa (GFA) and Foster Wheeler (FWLT). Both stocks have traded weak of late with GFA dropping below its 20 & 50 EMAs and FWLT being unable to get above the 20EMA even with such a strong tape. Long term though we still like the macro situation for both stocks. Short term we let the charts tell us that the action might turn bearish. GFA is doing an offering next week so that explains the weakness on that stock. With FWLT, its difficult to see why it remains so weak. The news seems bullish and it continues to trade at much cheaper levels then a competitor like Jacobs Engineering (JEC). Foster Wheeler ( FWLT ) estimate changed at Barclays. FWLT 2011 EPS estimates introduced at $2.50, 2010 maintained at $2.30. Reiterate Overweight rating and $38 price target.

Stone Fox Capital is invested heavily in Gafisa (GFA) which is a large home builder in Brazil. Brazil is a market that supposedly has a 7M deficit in housing units something that bodes well for long term demand. The below interview is with the CEO of a division that GFA now owns. Tenda is the largest low income builder and I believe that GFA owns 60% (Now if I only had time to verify).

Over the last couple of trading days we've sold roughly 30-40% of our holdings in both Gafisa ( GFA ) and Millicom ( MICC ). Both stocks have risen substantially in the last week and at the times of selling they both were more then 25% above the 20EMA. That's usually a good sign of being overbought on the short term. Typically signally a sideways or downward movement next.

At Stone Fox, we're not huge technial analysts, but this market has gotten to the point that pays to check them out. Gafisa ( GFA ) has been one of our favorite picks so a while due to booming demand in Brazil for homes due to GDP growth and a huge lack of housing. As of close today, GFA as a very interesting technical setup. We're looking at a rare situation where the 20 EMA and 50 EMA are convering on the 200 EMA from opposite directions so this is about to make a very bullish or bearish move. At a closing price of $16.52, GFA now sits on the bullish side above all the moving averages with the 50 EMA now within reach of making a bullish cross of the 200 EMA. Unfortunately, the 20 EMA has come back down and any turn south could threaten to make this bullish scenario today very bearish. With the underpinnings of the world economy starting to show growth again and China being bullish on all things commodity related it seems so unlikely that a stock like GFA would suddenly turn b...

Quick update: Bought Gafisa (GFA) on the dip to $16.08 just around the 200EMA. See post on seekingalpha.com for more detials. Added to Growth Fund. Bought United States Natural Gas (UNG) just above $14 on the 10% pullback today. The disconnect between oil and natural gas is very high. If the economy is in fact going to recover, then UNG is the better play at these levels. Huge cutback in drilling combined with more industrial use could squeeze the prices higher. Added to both ther Growth and Hedged Growth Funds.

Zacks posted a bullish report on Gafisa (GFA) picked up by the wires. GFA is one of our favorites for the Growth Fund because of the shortage in Brazilian homes. This homebuilding stock has also been a favorite investment of Sam Zell. The report by Zacks was very bullish for the company, but oddly they provided a conservative guidance for the stock with a target of only $16. Typical of conservative firms like Zacks and S&P is that they completely provided low multiples for high growth stocks. A 10 PE? Are they serious? The historical PE for the SP500 has been around 15. This stock is a decade or so away from being SP500 like. So really, a 10 PE??? Ironically the stock soared 12% on Friday to $15.66 or close to the target already. Clearly signs that Zacks has lowballed yet again. We are reiterating our Buy recommendation on Gafisa S.A. (NYSE: GFA - News ). We have been encouraged by the stimulus package and the new value-added tax relief recently announced by the Brazilian gover...

More encouraging signs that CEO and BODs think the market has reached a bottom. Mergers are starting to fly in from even the beaten down sectors like homebuilding. FundMyMutualFund highlights the details of this merger so I won't go into the details. We sold the Centex (CTX) in the Growth fund on the 20% bump. Over the last year it's been costly to hold onto shares of buyout targets The American Homebuilding sector hasn't been a favorite sector of ours though we've had a few shares of CTX and Toll Brothers (TOL). This sector is likely to have a slow few years due to high inventories and the negativity on the housing bubble. The more promising sector is international were demographics is much more pormising. The better plays today were Gafisa (GFA - Brazil) and Homex (HMX - Mexico). Both shot up on the news with GFA being up nearly 10% which I don't really understand. Guess they are somewhat related being in the same sector, but the markets in the US and Brazil are ...