Barchart.com's Chart of the Day - Power Solutions International (PSIX) for Nov 12, 20

[Thierry Martin]

Stock futures crept up slightly higher on Friday morning, which indicates that the market could be in store for a rebound after two straight days of losses. The recent downturn has followed concerns of the Federal Reserve?s policy statement made on Wednesday that lead some investors to believe they might begin pulling in the reins on their stimulus program. The stimulus program, which totals $85 billion per month in bond purchases, has contributed to the 23% advance of the S&P 500 this year. Some are more skeptical of the Fed?s statement. Todd Schoenberger, managing partner at LandColt Capital, said, ?It seems the Fed is recycling its statements because the status quo remains, without a single clue as to when it will taper its current bond buying program. However, considering the macro data released since the previous meeting has been moderately weak and expected to improve over the next couple of quarters, it?s appropriate to predict the Fed will stay with the current $85 billion per month bond purchase program.?

Nissan Motor Co. announced that they were cutting their earnings forecast and planning on moving around leadership roles in efforts to deal with quality issues and more trying conditions in certain markets than originally expected. In the most recent July through September quarter, the company posted profits of $1.1 billion in net profit. This was a 2% increase over last year. Quarterly sales were up 16% to $25.4 billion. Nissan President and Chief Executive, Carlos Ghosn, said that they attribute the weaker-than-expected performance on many troubles. One of the strongest was a weakness in sales in emerging markets and extremely expensive recalls. Ghosn, said, ?Our slow performance required immediate action to be taken.? This was in reference to the immediate shuffle of top executives. Their chief operating officer, Toshiyuki Shiga, will be moved to a vice chairman position and they will appoint three new executives as COOs. ?I can tell you nobody is taking this as a kind of punishment. Everybody recognizes there is a need to rejuvenate. This is a good chance to start,? Ghosn said when speaking of the executive moves.

Wal-Mart (WMT) is hoping to get a leg up on other holiday retail businesses by pushing holiday shopping nearly a month early than usual. WMT is going to allow shoppers to purchase items online at special holiday prices starting today, shortly after midnight. There will be nearly 300 items available at special holiday pricing on Wal-Mart?s website, according to the company. Joel Anderson, president and CEO of Wal-Mart.com, said, ?It?s been a tough year for the average American family. It?s our job to be able to help our customers.?

That?s all for the day. Have a great weekend, loyal readers!

[Thierry Martin]

Buying a house is a terrible way to profit from the recovery in the housing market.

Houses are illiquid assets. They carry high transaction costs. And they are loaded with expenses such as insurance, maintenance and taxes.
When you think about it, a house looks a lot like an "anti-dividend": Investors pay a lot of money to own them.

There's a better way to cash in on the recovery in housing. This leading homebuilder provides incredible leverage against the ongoing recovery in housing without the burdens of buying a house. And with shares recently dipping 28% while earnings estimates continue to surge, this is a rare chance to buy on a pullback. Take a look at the recent pullback in the chart below.

[Thierry Martin]

Random Thoughts



The Ps were a little soft but didn't come unglued, losing 1/3% on the day. So far, they only appear to be pulling back from their recent breakout. I'm not going to get too concerned here as long as they stay well above their prior breakout levels, circa 1725.

The Quack was also down a smidge. So far, its breakout remains intact but it has lost some momentum shorter-term, trading around where it was 2 weeks ago.

The Rusty was hit a little harder. It ended down just over ?%. So far, it too only appears to be correcting. However, this weakness here is more indicative of what has been happening internally lately. Although most sectors remain in uptrends-like the market itself-many individual stocks have been losing steam as of late. And worse, the debacle de jours continue to mount. Boyd Gaming (BYD) in the Resorts & Casinos was one of the latest victims. This action is typical of what I've been seeing lately-a sector that has been doing well on the surface with stocks getting hit beneath.

As I preach, determining your next course of action is a game of clues.

The good is that most sectors like the overall market, remain constructive. And, foreign markets are hanging in there.

The bad is that there are a few sectors such as Biotech that are stalling.

The ugly is the continued aforementioned debacle de jours. Hopefully, (and I know you should never use the word hope in this business) this isn't the tip of the iceberg.

[Thierry Martin]

The Chart of the Day is Lorillard Inc (LO). I found the stock near the top of the New High List when I sorted it for frequency. Not only did the stock gain 34.54% last year but it also paid a 4.34% dividend. Since the Trend Spotter issued a buy signal on 9/6 the stock is up 16.99%.

It is the third largest manufacturer of cigarettes in the United States. LO is the oldest continuously operating tobacco company in the U.S. Newport, theirs flagship brand, is a menthol-flavored premium cigarette brand and the top selling menthol and second largest selling cigarette in the U.S. The product line has five additional brand families marketed under the Kent, True, Maverick, Old Gold and Max brand names. These six brands include 44 different product offerings which vary in price, taste, flavor, length and packaging.

[Thierry Martin]

Recently, I wrote about the Nevadan wrinkle in the housing crisis where distressed homeowners are letting their horses go wild to make their mortgage payment.

Now neighboring California is facing a Chihuahua glut, where evicted homeowners are handing over their pets to animal shelters. The diminutive Mexican canine enjoyed a boom in popularity in recent years, thanks to movies like Beverly Hills Chihuahua and Legally Blonde.

Celebrities, like Paris Hilton, have also helped promote the breed, flaunting one in front of the paparazzi. Animal shelters in the Land of Fruits and Nuts have been so overwhelmed they have had to ship the ultra cute, but utterly useless animals to pounds as far away as Toronto.

Will the unintended consequences of Greenspan?s low interest policy never end? Give the poor Chihuahua?s a break!

[Thierry Martin]

?Those near 10% annualized yields in stocks and bonds are a thing of the past,? said Bill Gross, the managing direct and co-chief investment officer of the Newport Beach, CA based bond giant, PIMCO.

[Thierry Martin]

We?ve spent the last three weeks commenting on gold, so we?re going to do our best to refrain from going there this week, and instead focus on a few other corners of the investment universe.

Let?s start with high yield, an asset class we?ve done well with since the market bottomed in 2009 and about which we?ve written numerous times ever since.
In short, we still like it.

Here?s a chart of the iShares iBoxx High Yield Corporate Bond Fund (NYSE:HYG), the bellwether ETF of its class, with an average day?s turnover in the vicinity of $400 million.

[Thierry Martin]

With each passing quarter, Wall Street analysts tweak their forecasts and price targets, trying their best to predict what a company's sales and profits will look like three or six months from now.

That myopia has led them to miss out one of the greatest long-term success stories in the U.S. economy.

It isn't found in the engineering labs in Silicon Valley or the canyons of Wall Street. Instead, it's in places like Iowa, Nebraska, Texas and Pennsylvania. That's where our nation's most dynamic export opportunities have emerged on vast tracts of arable land. Consider this stat: The U.S. exported $29 billion in corn, wheat, soybeans, apples, pistachios and many other farm products in 1985. A decade later, that figure had doubled, and by 2010, surpassed $115 billion.

[Thierry Martin]

Quote of the day

Joshua Morgan Brown, ?Economics is extremely important to understanding the world in which we live, but the linear application of it can be deadly with actual money on the line.? (The Reformed Broker)

Chart of the day



Warren Buffett?s favorite market indicator shows the US stock market is overvalued. (FT Alphaville)

Markets

[Thierry Martin]

Berkshire Hathaway's cash position is back up to $40 billion. The media's take is that he has so much cash that he doesn't know what to do with it.
I think he knows exactly what to do with it - nothing.

I've been following Buffett for fifteen years and have read almost everything notable he's ever said or written. I think there are three primary reasons he is content with letting cash build for the moment and not buying anything:

1. He doesn't have to. Warren doesn't feel compelled to "play" any given themes or keep up with a particular benchmark for any specific short-term period of time. He judges his and Charlie's success based using several metrics, one of which is book value - did he grow the underlying value of the business itself or not? The company will not pursue deals or transactions that do not help accomplish this objective, period.

2. Markets are not cheap. Like other notable value investors, Berkshire does not see a plethora of great opportunities owing to the tremendous rise in virtually every investable asset class and sector. Buffett is known to buy panic. His crisis-era transactions - buying the country's largest railroad in 2009, extracting enormously profitable convertible preferred deals from GE, GS and BAC, etc - have been so insanely successful that he can sit back and simply collect the profits and bide his time. Warren and Charlie run into burning buildings with their wallets out, they don't scan the real estate listings for mansions
during a bull market.

3. He could pounce at any time. The next big dislocation in the stock market probably comes as a result of something the Fed ends up doing - whenever that is. A gradual end of QE won't necessarily be fatal to the economy, but it could be short-term detrimental to the stock market, it could even cause a massive correction or cyclical bear market (most of which last less than a year) . Warren looks forward to events like these while most investors live in fear of them. That's why he is who he is and we are not.