January 19, 2011

Why U.S. Stocks Will Rise in 2011

I think it is highly likely that the U.S. stock market will continue to put up significant gains in 2011. The reason is nothing complex. In-fact, it is just a simple phenomenon that has been going on since the 2009 lows in equities and continues to lift asset prices at this moment. It is quantitative easing and the Federal Reserves commitment to attain significant dollar inflation. Anything else one hears to the contrary is just chicanery.

But before we delve into this and the future let us look at a similar economic situation and how stocks performed in those years. In the depression immediately following the crash in 1929 banks were failing, assets were deflating and commercial credit was collapsing.

But what happened to stocks all through the 1930s despite high double digit unemployment? Stocks went up!

The big catalyst that allowed for the rise in stocks was that we went off the gold standard in 1933. This depreciated the dollar significantly and you can even see it in the CPI below.

click to enlarge

The same thing is going on now with the dollar and equities as it did in the 1930s. Bernanke has even admitted publicly that the goal of QE is to raise stock prices.

Final Thoughts
The macro picture hasn't changed much this past year and likely won't for some time. The FED will continue to try and prop up the debt bubble by rolling cheap money. Stagflation remains one of the best case scenarios. Money will run to the best assets while the bad assets continue to deflate. So, I see major commodities like oil and agriculture continuing to do well while real-estate remains flat. And of course metals like gold and silver will do well. This is all nothing new of course but I think it is going to be the status quo for many, many months to come.

December 24, 2010

Silver Analysis

Even after this run-up I see some very bullish signals setting up in the price action recently.

Fundamentally, the bullish case also remains as Ben Bernanke and the FED has pledged to keep rates low for some time and also because they have embarked on QE 2. I think it is very likely we will see QE 3,4,5 etc. eventually. Especially considering Japan is still back at a zero interest rate policy and doing even more QE here now 20 years later. There's also a lot of stories going around on JP Morgan's possible short covering going on and just how big some of these traders positions are. Whether or not there is a massive short squeeze taking place or about to take place I'm not sure but it certainly would just add to the bullish case.

Silver Chart Analysis

There was a much larger consolidation from May through August that came before the big run we've experienced recently. This recent one is a lot smaller and tighter. Old resistance has been retested successfully where the arrow points. There was major resistance at those levels. Another bullish thing is there has been a flurry of hammer and small doji candles here around trend support. In the past months there would be hammers off trend support right before big runs.

Some potentially bearish technical things about the chart are that trend support was broken. Silver was trending very well for months but that cracked. After such a run though trend support widens so this isn't a hugely bearish signal. It is more of a neutral one at this point.

In final, if silver can push up a bit from here and hit 29.57 I see significant upside. If it fails to follow through I'll switch and be short biased.

December 10, 2010

Stock Below NCAV

Thomas Group (TGIS) has a market cap of $4.14 million and from the November 12th quarterly report there is $4.18 million in net current asset value. The stock had an unusual volume spike on 12-01 and printed $2.99. The price is currently at $1.90. It is pretty speculative to me as a long term hold but I think it is worth looking at over the next couple days for a trade.

full disclosure: no position

November 10, 2010

Quantitative Easing 2 Explained Video

This funny Xtranormal cartoon has been making its way around the internet.

October 26, 2010

Gold Technical Analysis

Gold is pushing up around resistance in the 1,000's. This area it is approaching has been rock solid resistance as you can see from the first chart. A technician that uses normal trend lines and not an internal trend line will fail to read this market correctly in my opinion. That first line is way to high and was a result of momentum and emotions in the market. The arrows show a range that it tends to trade in. A resistance level it finds easier is in the second chart with the top resistance line.

Of course to clear all this resistance though it is going to have to take out all these spike tops. The grand daddy chart is last. You don't want to miss this.

This chart below is the chart to be looking at on gold.

This chart sends a powerful signal. It is saying that it is more than likely that gold the commodity will continue higher. Let me rephrase that. Very likely. Let me explain what I see.

The bottom red line is golds support trend line. In lamens terms the price keeps bouncing off of it and it goes higher. This is bullish and good for buyers. Price was consolidating off that trend line. The interesting and important thing here is the triangular consolidation that has taken place.

I want to wait a week or two to see what happens as gold tests its former highs. Any congestion would be bullish. If it breaks out I think it still would be a good idea to put on a position or with stocks or ETF's. There is a possibility that this could be a failed signal. In that case it would be a good short on a move to the low 900's. But the technical picture right now is buy, especially on a new high in the low 1,000 area. I'm not sure how the fundamentals support a major run. I feel like the best time to play it is if we see hyper-inflation. I can't ignore market forces though with the technical analysis. China and other foreign countries who hold US debt could up to something?

full disclosure:no positions in gold commodities or stocks at time of writing

October 23, 2010

China Rare Earth Metals Mining Stocks

The past week or so there has been a macro play on China tightening supply of rare elements. The mining sector in general has been extremely hot this year of course off the back of metals like silver and gold rising. This latest news which I imagine is further driving speculation of supply issues has boosted the share prices of a lot of mining stocks.

Rare earth minerals have a plethora of uses from fuel, to computers, and even lasers. This company called China Direct Industries CDII does magnesium mining and has rights on zinc mines. The balance sheet has $49 million in net tangible asset value against a current market cap of just $50 million.

full disclosure: no position in CDII

October 17, 2010

Cheap Stock Parlux Fragrances (PARL)

PARL has net current asset value of around $89 million and a market cap right now with the stock at $2.47 of about $50 million. A big bulk of NCAV is in inventory.

There was some significant volume in the stock on Friday and it is testing up against this long standing range it has been in since last year. The stock has been stuck between about $1.50 and $2.40s a share. Price action wise I think it is more likely to pull back the next couple days than start running higher. I may buy it a lower price. We'll see. I've just got it on a watchlist now.

full disclosure: no position

September 23, 2010

Silver Leaf Resorts Looks Cheap Again

Silverleaf Resorts (SVLF) has gone back down below net current asset value. It's brother in the industry Bluegreen (BXG) is down a lot too and below NCAV but I didn't like BXG's last quarterly.

SVLF has $127.8 million in net current asset value and is trading at a market cap of only $39.4 million at the moment with the stock at $1.04.

full disclosure: long SVLF @ 1.04

September 5, 2010

Health Care Bill Stocks Breakout Play

Near Net Current Asset Stock & health care stock Forward Industries FORD products include soft-sided carrying cases, bags, clips, hand straps, protective face plates, and other accessories for medical monitoring and diagnostic kits, cellular telephones, and bar code scanners. I read in the annual report that diabetic products were 75% of sales in 2009. With more people now being covered by the government all these people who are or are about to get type II diabetes should add to that segment.

I believe the market cap was just over NCAV. Net current asset value is $22.2 million and current market cap is around $22.5 million. The stock is volatile though and was up 19% Friday so it could actually dip below. They have a great balance sheet. The bulk of quick assets are in cash. I am sure there are a lot of other health care reform stocks out there as well that will benefit from the government subsidies if you will. This is just one that caught my eye because of the huge volume last week. MDF is an interesting chart too.

The stock is in a clear uptrend and seems to be possibly a failed double top on this wide ranging day spike. The only concerning thing is how much of an appetite is left after this run but being around NCAV seems positive in this regard. Hard for me to pick a spot technically to enter because the stocks momentum looks strong here. I might play it of continuation or a pull-back to new support at around 2.60. It's actually a better investment and hold type of play probably on health-care. Luckily one of the few long-term investments I still have is a healthcare mutual fund that I've held for some years. I sold my Stryker SYK about a couple years ago.

full disclosure: no position at time of writing

Healthcare Stock Vision Sciences VSCI

VSCI is a healthcare company that makes endoscopes for medical and industrial uses. VSCI has a market cap right now of $48 million. The balance sheet isn't as deep value as I usually look at but it is good.

Balance Sheet
Looking at the balance sheet we have current assets of 8,806 - inventory of 3,915 = $4.89 million.

$4.891 mil / $2.720 million in current liabilities = healthy quick ratio of 1.79

Also, there is $3.5 million in net tangible assets. The balance sheet looked good enough to me.

Income Statement
They had good sales growth year over year in 2009. Fiscal 2010 looks like negative sales growth. This first quarter of their fiscal 2011 revenue was down 21%. Urology and bronchoscopy sales were both up and ear nose and throat sales and repairs etc. (guessing that is industrial segment) were down.

More from the first quarter they just reported
  • ENT and TNE sales decreased 63% to $0.4 million from $1.2 million
  • Urology sales increased 28% to $0.9 million from $0.7 million
  • Bronchoscopy sales increased 113% to $0.4 million from $0.2 million and
  • Repairs, peripherals, and accessories sales decreased 33% to $0.3 million from $0.5 million,

It looks like they haven't been profitable on the bottom line annually for atleast a couple years. Looks like there was positive EPS of $.57 in 2007 annually(2008 fiscal?).

Some Thoughts
It looks like this healthcare companies biggest problems have been gross margins. Morningstar shows a 37% gross profit margin in 2004 and it's just been slowly declining since.

The old CEO resigned in November of 2009 and was replaced with an interim CEO who was on the board since 2005. I'm not sure if this has changed as of late right now though.

The interim CEO Warren Bielke has bought 300,000 shares of stock just this year. Some $320,000 worth.

Morningstar says American Funds Smallcap World 529A has a 3.3% stake.

More Observations
The stock price went from $1.50 in late '07 to $6 in early '08.

The conference call for Q1 2011 was on August 12th. Interestingly the stock ran 28% after the conference call on the 12th through late August. I haven't read the transcript of that call yet. I didn't see it on Seeking Alpha. The audio looks to be here. The thing is though the call may not have actually been significant as far as the way the stock traded. It might just be correlation without causation. I would like to know if they have any guidance on revenue or earnings though.

One thing that stands out is the stock traded 590,000 shares on July 23rd and a whopping 1,109,200 shares July 26th! The stock has three month average trading volume of only 68,000. That was some unusually heavy volume. I believe that the last time the stock traded over 1 million shares intraday was in September of 2007.

full disclosure: no position but I have it on my watchlist