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Buzz Bits: Dow, Nasdaq Make Gains

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Earnings Report - MV News

  • Pacific Sunwear (PSUN) reports 4Q EPS in-line of $0.37 on revs of $458.2 mln vs. $441.8 mln cons.
  • Aeropostale (ARO) reports 4Q EPS of $1.00 vs. $0.99 cons on revs previously announced of $506.8 mln.



We're 66! - Kevin Depew - 1:34 PM

  • Weird, only a couple of days ago people in the housing industry were suggesting an outright depression unless the Fed lowers rates.
  • Today we get a PPI print that leaves little to the imagination and companies with absolutely no ability to pass through costs to consumers, rates move higher, and the market is up.
  • Just goes to show that even when you know, you never know.
  • Stagflation is simply the transition from inflation to deflation. Kroger is one of the poster children for how companies operate in that environment:
    "Lower prices and increased customer service in the face of more than 125 new Wal-Mart Supercenters built across the U.S. last year led to a 36 percent rise in profits from 2005 at Cincinnati-based Kroger Co., chairman David B. Dillon said Tuesday."
  • Interesting take from Minyan Barry Ritholtz on yesterday's market action.
  • If High Life is the "champagne of beers," what's the beer of champagnes?
  • Actually, Toddo, if Syracuse wins the NIT you'll only be able to chant "We're 66! We're 66!"... unless Florida A&M agrees to a bonus game.



Goldilocks For Gold? - Lance Lewis - 10:17 AM

Stagflation: an inflationary period accompanied by rising unemployment and a lack of growth in consumer demand and business activity.

Stagflation is historically just about the best environment possible for gold. Let's look at today's data:

The March NY Empire Index collapses to 1.9 from 24.4 in the prior month.

The Feb PPI rises to 1.3% (the core doubles to 0.4%) vs. -0.6% in the prior month.

Not that inflation will stop the Fed from trying to ease at some point (or the Labor Department from revising it away in tomorrow's CPI), but as we have pointed out numerous times, the equal-weighted CRB hasn't made two new all-time highs since August (when the Fed paused) for no reason. Inflation is a problem.

The Fed is in a box, trapped between rising inflation and the housing bust, and that's a recipe for stagflation at best. This sort of environment is just about as bullish as one can have for gold.

Note that gold has already begun to shine to some extent by holding up better than the equity market. When stocks blew through their recent lows yesterday, gold did not even retest its own low for the move since the global risk reduction trade began three weeks ago.

While all asset classes have appeared to have been somewhat correlated over the past three weeks as risk has been cut back across the board, we continue to expect gold and its shares to break away from this correlation, as the market slowly begins to recognize that this is not "Goldilocks" but instead "Goldilocks For Gold."

position in gold shares


Lightening up in Aunt Fannie paper... - Bennet Sedacca - 9:56 AM

I just re-read (for the 3rd time) Boom Boom's commentary on the GSE's.

I have stated here before I would rather own GNMA (full faith and credit backing of Uncle Sam) versus FNMA (an 'implied' backing) as the spreads are pretty tight between the two.

In a nutshell, if I understood him correctly, Bernanke said that he thought

  • GSE's needed to be reduced in size from a portfolio perspective.
  • He doesn't understand why GSE paper trades so much better than bank paper.
  • They are not too big to fail.


Well, that is my cue to exit stage left as the curve is inverted and spreads are tight, to boot. Plus, I have been adding to equities on weakness.

I still have all of my FNMA ARM's as a bearish bet on housing ( my coupons average over 7%), but I may toss those as well. The problem is that decent size in GNMA at great levels are tough to come by.

So I am not saying they will fail, just that their spreads only have one way to go. Up. And that spells poor performance which I don't tolerate very well for those that know me...

Position in GNMA, FNMA, FHLMC, Treasury bonds/notes/bills



TXCO Update: Salvage Some Value? - Adam Michael - 8:38 AM

One of my favorite energy stocks, The Exploration Company (TXCO), is down almost 20% this week on news of problems in the company's Glen Rose Porosity play. The company reported the following as part of their press release on Monday:

"The Company incurred a quarterly net loss of $4.4 million, $0.13 per share, compared to net income of $2.8 million, $0.09 per share, in the year-earlier period. The loss primarily resulted from higher depletion rates due to engineering adjustments on six Glen Rose Porosity wells placed on production in quarters three and four, which did not perform as originally projected. These wells have been evaluated and are scheduled for re-entry in 2007."

Apparently, TXCO has been trying some new engineering adjustments to improve the recovery of their Glen Rose Porosity wells. These adjustments backfired, so the company will revert back to drilling its Glen Rose Porosity wells like it did before the problem occurred. I can't fault TXCO for trying new ways to obtain higher oil recoveries out of each oil well and am happy to hear this is more of a one-time operational problem than a reservoir problem.

The company plans to use a workover rig to go back and re-enter the "problem wells" using the older (proven) drilling methods, so TXCO may end up salvaging some value here. This will have no impact on the current Glen Rose drilling program which has two rigs actively drilling.

I expect more details to be released in TXCO's 10K which is due out in the next few days. One of the reasons I believe the market punished the stock so bad in the past week was due to the fact that the company does not presently conduct quarterly conference calls. This would have helped the company explain exactly what was going on. I am hopeful this will change going forward as it helps to have a medium where investors can ask more detailed questions to management in an open forum.

I have been a fan of TXCO because of the cash flow generated by its Glen Rose Porosity play which helps fund the San Miguel Oil Sands and Pearsall Shale resource plays (where the real upside is). The Glen Rose Porosity play appears to be intact, and the Oil Sands and Pearsall plays seem to be moving forward although at a slower pace than I had hoped for. I believe the recent decline has provided for an attractive entry point for one of the more exciting domestic energy companies.

No positions in stocks mentioned.

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