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 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 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 Forrest

Chesapeake Energy is one of the most widely reported on stocks in the market, but this still doesn’t mean that the media is getting the story right. I have been a CHK stock owner for some time now and all it has brought me is pain, but I fear not because I believe in the story management has to sell. I have bought CHK at $70, $55, $45, $30, and $15 so needless to say I have not exactly been right on the timing of the story, but none the less I keep buying the more and more as it goes down and now is as good an entry point as you are going to get. First, some information on the company, Chesapeake is the largest independent producer of natural gas in the country and has pretty much staked it future on natural gas locked up in shale rock formations in four different basins. The Barnett, Fayetteville, Marcellus, and Haynesville shale plays represent their growth in production going forward.

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By Forrest Lowell

The financial news world has been extraordinarily singularly focused in the last 6 months on basically a hand full of stocks.  I think this has been at the expense of sound companies making long term structural changes in their business model that will keep them competitive in the emerging new economy.  I think one of these companies poised to consolidate and expand control over their industry is Microsoft.
MSFT has moved from 15 to 18 during the recent bull market bounce but it seems utterly left out of any discussion in the news media.  This is an opportunity to capitalize on the singular focus in bank stocks by really taking a step back and looking at the big picture, trying to find the companies that going to lead the real economy back into expansion.  Microsoft has several things going for it that makes it an attractive stock over the next 2-4 years.

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By Forrest Lowell

News Flash! The American economy is worth 7% more now than it was 24 hours ago! Of course the economy is not worth more today than yesterday; 20,967 more people are unemployed, thousands more just defaulted on their mortgage, millions of homes went unsold, 10’s of millions of square feet of commercial property continue to be unrented, and the tax payer just lost another trillion dollars. All in all I would say it was a pretty crappy day, unless of course you owned anything with a ticker symbol, then you think today was fantastic. But one needs to ask themselves if anything has changed.

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By Forrest Lowell

Everything was going very well with the bear market rally until congress decided to become principled, which I will get to later.  But that being said this is an absolutely perfect time to realize that the rally is for real and you can buy the financials for something like 20% less than they were on Tuesday.  As soon as the current news cycle is over and congress reverts back to being incompetent the technical rally can continue.  You have been presented with an opportunity to see a dress rehearsal of the rally to come.  You have the opportunity to do what has very rarely happened before; you can see the market’s rally, have an unrelated issue undue the rally, and then position yourself based on previous observations.  If congress will just get out of the way the march to S&P 900 can continue.  In a stroke of luck I heard about the plan to tax the bonuses at 90%, and at that point I realized if they actually got it past the house the markets would be really displeased.  This allowed me to buy SRS at 57 and I sold it Friday afternoon at 70, but that trade is over.  With the proceeds from that I am going put my faith in the incompetence of congress once again and assume their attention span is that of a Chihuahua on cocaine.  The rally is going to resume this week, I am not sure if it is going to be Monday morning or not but the story of AIG is getting old, and once that is out of the way, hello S&P 900!

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