Crocs anyone?

Clearly more work is needed but a friend forwarded this to me today.(From the Crocs (CROX-US) quarterly)

As the Company continues to re-evaluate its operating plans for 2009 and beyond, it has undertaken certain restructuring and right-sizing activities to address the potential for continued decreases in revenues. The Company's ability to continue as a going concern is dependent upon achieving a cost structure which supports the levels of revenues the Company is able to achieve. There can be no assurance that any actions taken by the Company will result in a return to profitability. As discussed in the previous paragraphs, the Company faces various uncertainties that raise substantial doubt about its ability to continue as a going concern.


I don't know the company but I do know the product and I can say that as with nearly all fashion, things come and go. Judging by the pounding this stock took it seems the market agrees and and now they are having trouble getting up off the mat, maybe a good short candidate. The stock behaves very well technically also, which makes sense if the momentum guys are on board. Maybe short with a stop just above the 50d average, and hope for a slide when Christmas sales disappoint. Life is tough when you are a one trick pony!

Disclosure: no positions

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Ahhhh, the holidays

Ahhh the holidays. It strikes me that people are too complacent heading into the new year. Or in monetary terms, the pricing of risk is wrong as valuations are too high to justify the risk of a stock market decline. Why not take some money off the table in the hopes of buying it back more cheaply next year?

I'm working on some other "thought pieces" and will publish more soon. In the meantime, have a safe and happy holiday!

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Glass-Steagall, Act II?

This is a little uncanny. I wrote on Dec 15 that perhaps we should consider splitting banks and brokerages. This headline appeared today:

Senators propose reinstatement of Glass-Steagall Act

Source: CNBC

U.S. Sens. John McCain, R-Ariz., and Maria Cantwell, D-Wash., proposed reinstating the Depression-era act that forced banks to split investment- and commercial-banking operations. "Under our proposal, 'too big to fail' banks would be forced to return to the business of conventional banking, leaving the task of risk-taking or management to others," McCain said. John Douglas, former general counsel of the Federal Deposit Insurance Corp., said "trying to split them up is crazy." CNBC (16 Dec.) , San Francisco Chronicle/The Associated Press (16 Dec.) , The Wall Street Journal (16 Dec.) , Bloomberg (16 Dec.)

Granted it's not the first time this issue has come up. And more importantly, how does one make money on this concept?

Junior golds are having a correction today after yesterday's spectacular run-up. Hopefully it's nothing more than pre-Christmas jitters or end of year blues.

More to follow...


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High VOLTAge!

nothing like good results in a hot gold market! Volta (VTR.T) is on a tear - I don't like Africa but this might make me change my mind!

-Volta intersects 136m @ 1.66g/t on the KMZ Zone at Kiaka Projecdt in Burkina Faso

Disclosure: no position

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Rainy Day!

Nice results from Rainy River (RR.V) too, market likes it!

Rainy River Resources Ltd. (TSX VENTURE:RR) (the "Company" or "Rainy") announces continued success in the 11 latest holes drilled at its Rainy River project located in the southwest corner of northern Ontario. Significant results from the ODM17 Zone include 48 metres grading 4.29 g/t gold in Hole NR09-406 (including 10.5 m of 16.73 g/t). This hole also indicated a continuation down plunge of the 433 Zone, intersecting 25.5 metres of 6.04 g/t gold 260 metres below an intersection of 18.0 metres of 7.61 g/t gold (including 10.5 metres of 12.59 g/t) in Hole NR08-250 reported May 27th 2008. In addition, the Company has made a potential new discovery 100 metres stratigraphically above the 433 Zone where hole NR09-408 intersected 1.5 metres of 122.3 g/t gold.



Disclosure: no position

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Farallon is On!

At first glance, drill results from Farallon (FAN-T) look compelling and market is liking it:

5 m of 36% zinc, 2.9% copper & 13 m of 20 grams of gold/tonne in the North zone

Disclosure: no position

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Miscellaneous Musings

I think it's brilliant that banks are paying back the TARP funds. As a bank operator, it's not hard to see why. So long as the government is involved, no one is going to earn excessive salary and bonus. And as one astute industry commentator put it, "No one goes to Wall Street to save the world". In other words, the money is everything, and without the ability to pay big dough to performers, the bank would be confined to a lifetime of mediocrity. Also, that is the way the system was supposed to work. The government stepped in as a lender of last resort, and now that the private sector is willing take over those obligations the government should move as quickly as possible in the other direction. The bigger question remains long term about what to do with the banks. Having entities that are too big to fail is an ongoing systemic risk and (I can't believe I'm about to say this) perhaps we should consider breaking up these entities? Maybe combined banking and brokerage ownership wasn't such a good idea after all? However let's move on.

Claude Resources raises $10M with RBC - a positive indicator on risk appetite for the juniors and for golds, but begs the question what RBC is doing wasting time on a $10M financing? Must be tough times at the big banks? Good call by Claude though, when it comes to raising money and someone is passing the cookie tray, take the cookies.

Lots of new highs in Canada yesterday, a sign that people continue to be optimistic despite the "impending doom" of a Canadian housing market crash (depending on who you listen to). One stands out among these, AlarmForce Industries (AF), granted it's on small volume. I don't know anything about the company other than the ads on the radio, but let me see if I understand the thesis here. People are feeling more affluent as the Great Recession fades therefore they will be more inclined to sign up for monthly alarm services right? Seems like an indicator of a market top to me, but then again I've been wrong before! I think most people are waiting to see what Santa brings for the New Year. Happy trading.



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Dubai, CAD$, Nat Gas and More...

Looks like Abu Dhabi will rescue Dubai after all. This is one of those rare moments when I allow myself the intrinsic satisfaction of knowing that I was right. Did I make any money on this development? Sadly no, but in this business there are many times when you are wrong. Therefore, in the interest of self promotion, I thought I would republish a comment I made on this blog on November 26:

Overseas markets are spooked by the Dubai news. Not sure why this is big news, when you build a city in the desert and islands in the ocean where previously there were none, you need a quite a few things to go right for the payback to work out on these projects. Dubai isn't as fortunate as its neighbours that have large oil revenues - much of Dubai's building spree was debt financed with predictable results. Perhaps one day Abu Dhabi steps in to the rescue, but to speculate on this I would be straying from my own areas of expertise.

Moving on, there are many other things happening in the market. Nothing like a weekend to clear the mind and get focused again.

I had started to write about the CAD$ falling this morning, but by the time I went to publish the CAD$ had actually gained on the day. That brings to mind one of my pet peeves with financial journalists who announce in big headlines "Stock Market Rallies", or "Profit Taking Sinks Stocks", only to see the markets reverse course and nullify their writing. I suppose I too am victim to this in fast moving markets, but the CAD$ weakening is something that I think could play out over the coming weeks/months. I am long USD$ mostly because everyone else isn't. As a Canadian, an interesting way to play this is the BIL (Spider 1-3 month T-bills ETF). Yield is next to nothing but the value (in USD$) rarely changes.

Markets are fired up by the Exxon takeover in the nat gas space - ECA up over 4% today and many of the other juniors and mid-caps also rallying. Makes me wish I owned more! Hats of to Martin King at First Energy - on August 31 he was pounding the table on why one should get long nat gas and was one of the most bullish guys out there. NYMEX was trading at $2.97 then, today it's at $5.27, up 77%. Good call Martin.

Amazon Mining (AMZ.V) halted the stock today to release some (arguably mediocre) drill results - stock is down about 5% on the resumption of trading. Maybe too much was baked in with the recent run-up? Nonetheless it's been a big winner so far this year.

Lots more going on as well, so much for quiet time before Christmas. Please feel free to leave a comment with what's on your mind. Cheers.

Disclosure: Long BIL.

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Duluth on Fire!

DM.T, Duluth Metals, up 69% today with the release of resource report that had apparently already been disseminated. Guess what folks, the market decided to reprice the stock. All ye longs rejoice!

Disclosure: no position (regretfully!)

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Santa Claus Rally

Latest thinking says we could get a little Santa Claus rally here. Trying to call the trend of the overall market though is a mug's game, and nowhere is this more evident than in this blog where I have already been humbled in recent days/weeks! Unfortunately the need to make the right call on the broader markets is self-evident even if one only plays individual stocks, as we are constantly reminded that total return comprises alpha AND beta components.

Back to Santa. 2009 has been infinitely better than '08 and most money managers are still so shell shocked they chose to do nothing rather than risk blowing the gains already in the book. Seasonally we are entering the time of year when large unexplained price swings are common. At least this year we don't have to contend with huge tax loss selling as most accounts are sitting on gains for year. We bounced off the 50d average in Toronto, which is a good sign (for the longs). A major IPO in the junior resource space was canceled recently, which is indicative of selective risk appetite out there.

I will close today with this quote (and I paraphrase):
"Never has so much data been so poorly analyzed by so many people" - Norman Fosback (from the book, Stock Market Logic)

Enjoy the weekend!

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VIX May Double as Stock Gain Slows, Rosenberg Says

looks like Rosenberg and I think alike! (see my Dec 7/09 post) -LoneRngr

By Rita Nazareth

Dec. 10 (Bloomberg) -- The benchmark index for U.S. stock options may almost double in 2010 on investors’ concern that the Standard & Poor’s 500 Index’s rally outpaced prospects for economic and earnings growth, according to David Rosenberg.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, has dropped 72 percent from its record high of 80.86 in November 2008, two months after Lehman Brothers Holdings Inc. filed for bankruptcy. The index, which measures the cost of using options as insurance against declines in the S&P 500, has risen 9 percent after reaching a 15-month low on Nov. 24, closing today at 22.32. The VIX has averaged 20.29 during its two-decade history, data compiled by Bloomberg show.

“We’ll be in a year of heightened volatility,” Rosenberg, chief economist at Gluskin Sheff & Associates Inc. in Toronto, said in an interview. “We’ll see periods in 2010 where the VIX will be north of 30 in a period of risk aversion as the economy and earnings very likely fail to hold up to expectations. I see more of a 30 to 40 range in the VIX.”

Rosenberg, 49, the former chief North American economist at Merrill Lynch & Co., the brokerage bought by Bank of America Corp., says investors are underestimating risks to the global economy.

“There’s just a general level of complacency in the marketplace right now,” he said. “The cost of buying insurance to guard against a possible decline in equity valuations is currently very low. That’s very low because most investors don’t believe they need it.”

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Reversal Time?

I have been speaking to a lot of people lately about specific TSX stocks, as everyone is asking the same question: Why is the stock down? What don't we know? Thus far my answer has been mostly "profit taking" or "end of year jitters", and I will keep with this explanation until I have reason to change it. No sooner did I make my bold proclamation on this blog for the TSX to hit 12,000 then the momentum abruptly died with no staying power to follow through. While I have mixed views on technical indicators, sometimes they can adequately capture the prevailing sentiment and as a result serve as a good guide to what is happening in the market. Pictured below is the TSX daily chart with the momentum reversal.

Whether the TSX can hold support at the 50d average will be a key test for the market, and so far today is not looking so good. Another troubling indicator is the rising wedge formation on the TSX, typically a bearish indicator. This same pattern presented itself on the Dow Jones average in the late spring this year just prior to a 9% reversal.

One doesn't have to look very far to find negative sentiment indicators out there, and whether the markets keep trending up or not it probably makes sense to take some profits.

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Wandering Markets

Markets are “wandering” is the best way to describe it. Gold is trying to claw back today after a sizable correction these last few trading days. The recent retracement in gold is potentially troublesome. For a few days last week it seemed that the market and economic recovery was definitely stalled as both the TIPS and gold rolled over. “Technically” speaking the breaks were not confirmed on the weekly MACD, but gave pause for concern that we could be finally starting the next down leg that market pundits have been warning about. With gold recovering it appears this was less inflation driven and mostly a USD strength move. All the same, I like the look of the VIX call options for portfolio insurance in the event that markets do melt down into the new year.

Junior stocks on the move – Coolbrands (COB.T) – management states the usual, “not aware why the stock is moving” and Talon Metals (TLO.T) on the announcement of permit acquisition from Lara Exploration. Natural gas also on the move, up 8% today.

Disclosure: No positions.

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Next Stop: TSX 12,000!

I realize that I risk embarrassing myself by putting a forecast like that out there, but the momentum today is frankly unbelievable. That's the funny thing about momentum, after all the negative news in recent days about Dubai and fears that the rally was coming undone, a day like today comes along and reverses much of the sentiment in one fell swoop. It is useful to remind oneself on a day like today that 2 to 3 months worth of gains can still be wiped out in less than a week. Having said all that, the mood here in Toronto is definitely "up" and therefore the shorts need to get out of the way. What makes it all the more unusual is that most portfolio managers (PMs) are sitting on their hands after a good year and they don't want to tinker for fear of blowing the gains already in the books. Strange times indeed.

Returning for a moment to the inflation/deflation argument, I had the opportunity recently to go through some of Robert Prechters' recent works arguing for strong deflation in the near term. While I have the utmost of respect for Robert Prechter and think that he is both a genius and an astute contrarian, I have a hard time believing that the markets haven't already priced in some of the coming defaults in the debt markets. In other words, while I believe in a lot of his reasoning, I think the exact cause of a coming downfall may not be the debt markets at all but some unknown factor that we can't even see today (ie. Dubai). The markets too are struggling with a new concept. After fears of deflation followed by inflation arose in late 2008, we now have a situation where we could see inflation followed by deflation. For now the usual indicators (namely the TIPS, gold, and oil futures curve) suggest only the former situation (inflation) coming to bear. Interesting as well to see the VIX index taming, suggesting that as far as the markets believe volatility is relatively benign.

On a different note, the strength of the yen is potential cause for concern. With years of deflation already underway and massive debt-to-GDP levels, it leaves the government few policy options available to reign in the yen. Unless of course the government engages in competitive devaluation, which would not be good for anyone.


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