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Buzz Bits: Dow and Nasdaq End Mixed

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Minyan Mailbag: Minefinders' Action - Lance Lewis - 3:05 PM

Professor Lewis,

What gives with Minefinders (MFN)? It announced the update on the reserves and costs, which probably was a little disappointing because of the magnitude of the cost increase from the previous study. But you have felt that MFN was a bargain based on the reserves you anticipated, which appear to be greater than expected.

Short interest shot up on the stock in January and they proved to be right at least temporarily. The company will have to cover at some point obviously. What is your current opinion on MFN--buy, sell or hold? Thanks.

-Minyan Barry

MB,

When you net the increase in P&P reserves with the slight increase in cash costs, you get about a 5% decline in MFN's NAV at $900 gold (which is was never trading anywhere near even before this news, which once again highlights how cheap the gold shares are right now on a historical basis).

As a result of this NAV decline (or NPV depending on how you look at it), two analysts lowered their price targets from a lot higher to a little less higher late yesterday (BMO) and this morning (Dundee). Yesterday's decline in the stock (5%+) more than discounted the decline in NAV. But it looked like people panicked this morning when the stock sank on the charts. Then the shorts came in (there's a big long gold/short the gold stocks trade among many hedge funds that are betting on deflation).

There's also a good deal of fear about rising cash costs at juniors given the 50% collapse in NovaGold (NG) when it said its cash costs were going to be dramatically higher than originally expected back in November. But MFN's slight increase in costs is nothing like what we saw with NG. In fact, depending on silver prices, MFN's actual cash costs net of silver revs will probably be negative. Basically, it just looks like people are panicking in MFN in a generally soft gold equity tape today, with shorts piling on and making it worse. I wouldn't be surprised if we closed higher than where we are now though given the way bids have come in mid-day.

It's a buying opportunity in a world class 5 mil ounce asset if you are bullish on gold and betting on the continued "existence" of the financial system. In other words, if you think the Fed will inflate to defend the system, then MFN down 6% is a gift, just as it was when it was last briefly at this price back in December.

- Prof. Lewis

Position in MFN.


They call it... - Todd Harrison - 2:20 PM

Contra-hour begins in the 'Ville with the critters looking for a thrill. My eyes continue to toggle between the financials (Bear (BSC) and Goldman (GS) trying to light the fuse), beta (not finding jig with the futures, a sign of supply), breadth (still 2:1 negative), the dollar (tame) and the clock (come on Cletus!).

I will note that alotta folks I speak with are trading reactive, getting bullish on upticks and bearish on downticks. That has the potential to turn a quiet day into a bloody fray so be conscious not to over-trade. Sometimes the ability not to trade is as important as trading ability, an axiom I often offer but one the bears repeating.

One more thang, as it's quiet. There is alotta debate as to whether we're in a recession or if this is a bear market. This makes for great media and, for sure, provides contextual nature with which to frame risk. The truth is that the story remains untold and speculation, either way, is just that--an educated guess.

Case in point, something Mr. Practical and "my brother" were discussing last night. Let's say, hypothetically, the government created a trust and took down the mortgage risk. That socialism (an entirely different discussion) would wax the dollar and jack asset classes (denominated in dollars). Agree with it or not, the "hands over eyes" prices would ramp higher.

Would that mean we're in a bull market? Depends on your lens. There are alotta folks who maintain we've been in a bull market, the 37% five-year drop in the dollar notwithstanding. Where you stand is indeed a function of where you sit. I don't "think" that happens, mind you, but I respect the potential that it could.

Gun to head, I'm in the camp that we need to take our medicine as a function of time and price. My sense is that this process has already begun and, upside spurts aside, we remain in the early innings. This is ultimately and eventually bullish after debt is destroyed and wealth is redistributed. Again, it'll take time but if we woulda accepted this after the tech bubble, we would be six years closer than we are now.

Anyway, gotsta hop. Watch Bear as reports hit the wire that the chatter is untrue and remember, Minyans--capital preservation, debt reduction and financial intelligence are the hallmarks of any sustained financial existence. Regardless of which scenario plays out.

Fare ye well.

R.P.


Tight stops in a nervous market... - Ryan Krueger - 12:40 PM

I buzzed a few weeks ago when my firm re-loaded our put spreads in Financials (XLF) and we did the same yesterday with Discretion (XLY) -- see the chart below. Each have plenty of reasons to rally -- and have -- right into resistance. My firm remains net long in other sectors so don't confuse this with being bullish or bearish, rather we are pairing supply with demand with the tightest of stops in here.


Click here to enlarge image


I'm willing to ramp up my own discretionary spending and perhaps change my mind as soon as my dog and I locate the $1million that has just been buried on every other street corner, if my understanding of the stimulus bill is correct. He's been preparing for subsidized digging his whole life.

To make sure that ideas are shared from both sides and to fall on my sword, I'll also share that we closed out a trade based on a set-up I believed lined up for many reasons: a small rally in niche retail to begin '08. Dicks Sporting Goods (DKS) took out our stops for a very small loss but speaks even louder and thought it worth sharing.

The firm just canceled plans to expand into Houston -- a market that was wide open and desperate for a store. I don't know if Dicks has plans integrated the Chicks or the Golf acquisition, but tight sell disciplines leave that for others to debate.

Position in XLY


In Praise of 4 Day Weekends - Jeff Macke - 11:59 AM

Greetings from New York where, I'm not going to lie, it's a wee bit quiet. If you'd told me we'd come into this morning and get the weakest consumer outlook in 15 years, rising inflation data, a miss from former Go-Go Mo-Mo darling Chipotle (CMG) and a warning from Best Buy (BBY), I'd have thought we'd at least get a nice trading opportunity out of the day.

No such luck. We're down fitty on the Dow and Volatility seems to have left for the slopes right after the open. The forecast here is for a lazy drift into the close and a kidney-bursting caffeine download for me, personally, prior to Fast Money. Here's what I'm watching as we shoosh in to the weekend:
  • Best Buy sets the table for what figures to be a grim slog through the misery patch when the retailers start reporting in the next two weeks. The Electronics king blamed soft traffic in January and says that Same Store Sales will be negative for the period. Someday I'll trade the retailers long again. Just not today.

  • Masking some of the unpleasant taste of Best Buy is Heinz (HNZ) which, for reasons known only to it and possibly the DNC, decided to pre-announce that earnings will be towards the top-end of its 2.60 - 2.62 range. Call it "2.615 to 2.62 per share" and save room for dessert.

  • Also beating earnings was Hormel (HRL), citing strong sales of Spam. Robust sales of ketchup and Spam can mean only one thing: it's Nascar season again!

  • Erin Burnett will be sitting in for Dylan on tonight's show. It is perhaps no coincidence that Mrs. Jeffmacke will be attending the show live.

  • What's a Ute?

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