by Bryce

Executive Summary

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By Forrest Lowell

Sticking with my theory that bad jobs numbers are good for the market, I am setting up for a decent jobs number that will send the market down. When hopes are high there can only be disappointment. The good news was put into the market today and I really think all there is bad news to come on Friday. If the jobs number is worse than expected then I think there could be significant profit taking and a large down turn in the market. Now that the rally is nearing in on 8 weeks I think there is also significant pressure on market for a sizable correction and perhaps Friday is the start of it.

I was lucky enough to sell most of my position in CHK this afternoon on fears that the earnings would be a buy on the rumor sell on the news. Chesapeake was a little late to the game in deciding that they were going to cut production and how far they were going to cut it. They burned thru quite a bit of cash and are going to have to continue to monetize assets while prices are at very depressed levels. The headline number was very poor because they were forced to write down oil and gas properties that they acquired last year but are now worth considerably less at these natural gas levels. Thankfully their hedges are still working to their favor and they had a considerable gain on realized positions there. There is some risk going forward that their hedges are going to start to run out and they will be forced to sell their production at market levels. I am in the wait and see mode now for CHK, I am optimistic that by the time their hedges run out there will be enough production cuts across the industry that the supply and demand will be more in line with each other. The advantage that natural gas has is that the natural rate of decline for mature fields is something on the order to 10% vs. 4-5% for oil. This means that the industry is very able to quickly decrease production by just not drilling anymore wells. Of all the natural gas players CHK has the most aggressive hedges and still have assets to monetize to keep them afloat. But until the price of natural gas gets back into the $7-8 per million BTU no one makes money in the industry, some just lose it quicker than others. Disclaimer

Before the bell on Monday morning is perhaps going to be the most important earnings report of the season so far, Bank of America is expected to report earnings of 5 cents per share. There are several reasons why I think recent history proves this number is significantly too low.

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By Forrest Lowell

I am not talking about in the next year or two or even ten years out, but rather 25 to 30 years in the future when I go to retire. There is no possible way with the deficits we are running today and the huge unfunded liabilities (trillions of dollars!) of Social Security and Medicare that taxes are not going to go higher. Couple that with a hopefully successful career in the business world which will move me into higher tax brackets in the years ahead and there is no rational explanation not to fully contribute all the possible money you can to the Roth tax structure. Good hedge funds always have some short positions to cover any singular event where their investment strategies are wrong, having money in a Roth tax structured account is a hedge against future tax increases. Just imagine how smart you are going to feel when you retire and you are in the new 60% tax bracket… but you paid the taxes on part of your retirement money today at 25%! You will definitely pat yourself on the back and say job well done.

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by Bryce

We have recently witnessed the steepest rally since the Great Depression. The market averages are up in excess of 25% in a month and continue to behave well under less than favorable news. While this is great from an investment perspective, I would just like to point out a few facts/opinions as it is easy to be caught up in all the recent optimism when in actuality things haven’t improved much. The facts below were provided by The Economist, April 11-17th 2009 edition.  (more…)

By Forrest Lowell

I think there is a better than even chance that General Motors will file for bankruptcy this weekend. This obviously means the common shares are going to go to 0 and the bond holders are going to take a major haircut. If I wasn’t already fully invested in this current rally I would be a buyer of Ford. I think they are going to take market share from both GM and Chrysler and have the government do the dirty work of breaking the unions. The last point is the most important, the unions have to be broken, but I don’t think in the way that most people believe. The current workers might be a bit overpaid but the real problem is the retirees and their benefits. Something has to be done about the 3 thousand dollars per car that is spent on retiree healthcare costs. There has to be a solution this problem, I am not sure what the solution is but no matter what it is, it is going to benefit the carmakers. Granted it might be on the backs of the taxpayers, but regardless you can profit by owning the surviving car makers. On a fundamental level I also feel that Ford is ahead of the curve in introducing new vehicles that consumers actually want, both fuel efficient and including all the “cool” gadgets the new generation of car buyers is going to demand. This whole theory is a very high risk trade but I think it is coming to a resolution one way or another very soon. Disclaimer.

by Matthew.

The exciting rally of the last few weeks persisted in part because the government and the Fed’s announcements of optimism and detailed plans to shore up the American financial system have given investors a sense of confidence. Confidence in America’s political stability and the rule of law in protecting economic transactions has long been a pillar that held and still holds up the American economy. It is a mistake to allow that pillar to fall into disrepair.

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By Forrest Lowell

What has happened to the people that were so convinced the S&P 500 was headed to 450? In late February Goldman lowered their estimates for earnings of S&P companies to $40/share. Putting a recession type multiple on that of 10-12 times, gives an S&P level of $400-$480. Right now the S&P is trading at around the $840 so it seems to be vastly over valued right now. I think there are a couple of reasons that the market is ignoring this scenario. First, earnings estimates have been wildly inaccurate over the past few quarters and most analysts are using an abundance of caution with their numbers so as to not get surprised to the downside. Hopefully we will get some clarity on the earnings estimates as they start to roll out these next few weeks. If the reported earnings are at the levels predicted or even lower I think the current bull market is over. I believe the analysts want to be surprised to the upside so that they can say the worst is over. If they are correct however, that means their worst case scenarios have come true and that is not a bullish case.

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by Keith

Yesterday I posted my thoughts on how I felt the market would drop for several reasons. The most relevant to this post was the release of job numbers. As expected, layoffs increased and unemployment is now at 8.5%. Despite an initial drop, the market did not react negatively to this news by finishing in positive territory. I find it frightening the recent trend in the market to shrug off negative information. This is especially disconcerting since unemployment numbers are traditionally one of the last numbers to buck the trends in a recession. Clearly investors feel that actions currently in place by the movers and shakers has “fixed” the situation, and are comfortable investing in the long term. Clearly we must act accordingly and focus on long term investment, since the short term implications of this are highly uncertain.