Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

The Front Pages vs. The Back Pages


We have made far more money comparing F/B's than we ever have with P/E's.

If anybody wondered about the existence of the Market Gods I often refer to, try typing "quietly hitting all-time highs" and then hitting send to your partners like this knucklehead did just a few weeks ago. I am now kneeling at the Altar of the Reverse-Jinx, with the offerings below.

Let me answer most of the questions quickly and completely with the following all-inclusive paragraph.

My firm became stupid last week

We got some good questions last week and wanted to provide the answers principally centering around one fundamental theme: What we owned the market spit out with extreme prejudice. What happened? What changed? There were three top stories for us last week. What follows are the newspaper's Front Page versus the Back Pages (F/B) during the exact same week, one of our favorite games to play. We have made far more money comparing F/B's than we ever have with P/E's.



Back Pages:

Cameco (CCJ), the largest uranium producer in the world, turned in a huge quarter, more than quadrupling its profits from a year ago. The use of nuclear energy is even being promoted by one of the founders of Greenpeace, Patrick Moore, who penned an op-ed piece in The Washington Post on the subject. Moore lauds nuclear energy as "the only large-scale, cost-effective energy source that can reduce [greenhouse gas] emissions while continuing to satisfy a growing demand for power," He also notes that it can now be done safely.

Rio Tinto PLC (RTP) reached an agreement with European and Asian steelmaking giants to raise prices by 19% for the iron ore RIO supplies them. Additionally, one of the world's largest cement producers, Cemex (CX), raised prices in Mexico, where the company is based. It is the second time they have raised prices this year.

Fluor (FLR) won a large contract to help Dallas utility TXU Corp (TXU) build a massive upgrade of its power-generation capacity for Texas. Jacobs Engineering (JEC) won four contracts the same week.

Our Thoughts:

One, commodities should not go up or down together, but they often do once the front page takes the ball. Two, our positions are based on an infrastructure problem not a supply problem, and that didn't get fixed last week.

P.S. as a bonus "tell" one of those big engineering contracts was to build in Ireland, a country that has figured out how to attract businesses not hassle them, and I think their banks might benefit from sharply higher deposits for a long time.

Front Page: "THE ECONOMY IS _____!" (pick any scary word, it was printed)


Back Pages:

First Cash Financial Services (FCFS), a pawnshop operator, reported first-quarter earnings of $0.23 a share, a 28% increase over last year, marking the 21st consecutive quarter of double-digit EPS growth. The company has also adopted an aggressive new store-opening plan and opened 20 new stores in the quarter. Additionally, an article appeared in the Chicago Tribune tracing higher gas prices to more trips to the pawn shops.

Aldila (ALDA), custom golf club maker, released strong results driven by increased revenues from golf shafts. "Our net income represents the best quarter the Company has had in its history. Gross margin, driven by higher average selling prices, increased to 47% for the first quarter of 2006 as compared to 42% for the same quarter of 2005. The Company's backlog of sales orders was higher."

Toyota Motors (TM) announced it would need to build yet another North American plant to try and keep up with growing demand for its products while its competitors are shutting down many of their own plants.

Our Thoughts:

The notion of a good or bad economy has eluded us our entire careers. We have always found it impossible not to find some of each. In the U.S., what we believe is changing is the chasm between the have's and the have-not's. Everybody knows it exists, but few agree with us on the rate of acceleration in the growth of EACH. We have been positioning ourselves in a consumer barbelled trade for some time, long on each extreme edge, and we want nothing to do with the disappearing middle. The front page paints this as an unavoidable and sad story. I cannot help but see it as tradable and understandable. As for the carmakers foreshadowing our nation's competitive position, we feel Kaizen vs. Complacency is still a mismatch which will be relentlessly exposed for many years by those more interested in working than being taken care of.



Back Pages:

While the U.S. was rioting about the immigration problem, the same week saw India's Infosys (INFY) quietly announce plans to spend $100 million this fiscal year on training and actively recruiting college graduates from the U.S. and Europe. The Sensex, which tracks 30 stocks on the Bombay Stock Exchange, has been Asia's top performing index over the past 12 months. In 2005 it rose 42%. For nine straight days through last Wednesday, the market closed at record highs. Then….. it plunged 22% in 3 days, including the largest one day loss in history launching it to the front page for a week. One the back pages, Tata Motors (TTM) announced plans to unveil a car that costs less than $2,500 for exploding demand. (That should help slow global fuel demand.)

Our thoughts:

I am not sure our competitive disadvantage could be better described than by watching in the same week our rioting about building fences, while others recruit talent and tear them down. I'm not a politician, just the opposite - a free-market capitalist. So I'll let others make the rules and argue about changing them, while I take the Sensex and lay the points. My good friend Jay Somaney has this market nailed if you ask me or look at his record, and we both agree it will be brutally bumpy but our headwinds are their tailwinds, long term. That doesn't make living through those weeks any easier, but you can be frozen and try and guess what happens tomorrow or you can schedule a trip and do your own homework and decide what is going to happen over the next 10 years. My partner and I are making a trip to India with Somaney, a.k.a. my Sensei of the Sensex, this summer.

Respect and Reload

I not only could be accused of cherry-picking, I am guilty. How did I arrange this list? All of the above were quotes from news stories released the same week that their corresponding ticker's quotes were telling a different story.

So, how do you know who's telling the truth? Ahh, that's for you to decide. For our money, we'll continue to balance the conviction born from original thinking with the flexibility to know when we're wrong. Do the fundamentals provide a foundation or do the technicals preview quicksand? Our firm's discipline is constantly mixing that strange brew. Therefore, in a wicked period like the week that was reviewed above we do NOT simply dig in our heels and point to the positives, and average down, claiming the "market is wrong" like many talking heads are so comfortable doing, picking "bottoms" day after day. The Market Gods want to find out who is the most comfortable being called stupid for a week, and perhaps much longer, and I have made more money volunteering for that job than I have disagreeing with them. We respect the tea leaves and understand the market is always right, and we are occasionally. So, despite our convictions we lighten into weakness which allows us to add to strength. Respect and Reload.

Oh, and for those officially worried about the end of the world, I have good news. I have at least one fundamental data point I will not question: I checked India, it's already tomorrow there.
< Previous
  • 1
Next >
Positions in ccj, flr, jec, rio, cx, fcfs, alda, tm, ttm, infy
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos