Unless mgt has a product or OEM win to announce, I do not expect LTRX to have another press release until 3rd Q results are released-so another 3 months. In the interim, going to wait for insider buying, broader market weakness to run its course and commentary from other MTM companies.
Since I already bought alot in the $1.80s, the next time I'll look to buy lower. The stock gets stupid cheap in the $1.50s.
I'm out of all my HL and SLW at very decent % profits. Also out of WOR and QLGC. Also took out some PCTI, when it was above $8.50.
Of recent purchases, only under water on CLD-although LTRX may get some pressure in the next few days.
Obviously in the news again, but the implications beyond the financial are much worse. Given recent rhetoric by the new leadership (basically communist), Greece may well be a Russian "Trojan Horse" within the EU and NATO. Greece may just "blackmail" the EU and NATO to get the financial terms they want or they will go into the Russian sphere-giving Russia a free hand in its western geographic expansion (through veto power of Russian sanctions and other EU efforts to constrain Russia), and Mediteranian ambitions if Greece kicks out NATO navies in its bases and hands them over to Russia.
Net/net, the "news" out of Europe is going to get much worse in the coming weeks/months as:
1)Greece does its extortion thing
2)Banks, many of which are in poor shape and in need of capital will incur "runs"
3)Countries, above and beyond Greece are forced to restructure-Norway, Belarus, Ukraine to name a couple
If the FED continues to be "frugal" with $s, US macro-econ data will continue to soften-the result of the US losing the currency war.
I continue to raise cash-better bargains can be had later-after further sell offs and after the FED reverses course and starts to ease.
You may have noticed that FCF took up non-performing loans by 25% in the 4th Q vs the 3rd-I'm staying away. In general, not buying much of anything until the FED cries "uncle" and start to "ease"-whether it is announced or not.
FED easing would be characterized by:
1)Monetary base moving up
2)FED balance sheet expanding
3)M2 near 10% annual growth as measured by 10 week moving average
4)M1 velocity up 10%+ from recent all-time lows
Until then, the only bank that floats my boat would be ONB in the mid 12s.
As posted in Barron's over the weekend, the consensus EPS for the Dow 30 for 2014 is 1123, for 2015 1124. Market is paying close to 16X earnings for zero growth. PE should be 10-11, so the market could sell off by 33% and still only be fairly valued. Do I think there will be that much of a sell off? No, but I do think there is one of 15-20% for the broader averages. At that level, and perhaps two poor jobs numbers, the FED-data dependent as they are-will "have" to ease. If they don't ease, then the sell off takes another leg down. In the interim, banks are going to see their net interest margin get narrow and loan growth slow.
In my view, there will be a few days in the coming months, where buyers that have lots of cash will be able to buy their target stocks down 10-15% intraday as those that have to sell, "dump" without regard to value-the "grab for liquidity" self reinforcing selling loop that I have been writing about for several weeks. Other than playing small ball in few stocks, I have continued to be a net seller of stocks and raising cash.
New Home sales for Dec were reported the other day at 481,000 seasonally adjusted. You know what the actual number was? 34,000. The government, since May has had to revise down new home sales 7 months in a row-seasonally adjusted. Bottom line, the BO administration is "juicing" its assumptions about the strength of the economy.
Elsewhere, Gallop Poll and others have been reporting that US businesses are going out of business faster than forming-a trend that hasn't happened in decades. The monthly "jobs" number has in its calc a "birth/death" model of business formation. If birth/death assumptions are too positive, then job growth is too high. Independent measures have been actually looking at individual state data on business births and deaths and drawing much different job data conclusions. Calculations are coming in that jobs have been over stated by 3.6 million or 600,000/year or 50,000/month the last 6 years. Trimtabs echos this data, because they look at social security remitances to the federal government and they have been flat to down the last 8 months and shown 2% growth y/y at times at best since 2009.
Bottom line, the federal government is lying to the US by design or by default, about the strength of the economy. Seasonal adjustments and other "assumptions" are biased to the positive, again by design or by just not wanting to be rigorous to try to kindle "animal spirits". Instead, the BO socialist agenda is crushing business formation, capX and investment-all the while major problems, financial, social, foreign policy, etc continue to grow.
Good results, good guidance-EPS actually understates income is in includes amortization expense because of the acquisition.
Three micro caps are building business that should do well for years:KTCC, LTRX and PCTI.
PCTI and LTRX can have "lumpy" quarters because PCTI can be at the mercy of Telco CapX spending and some of LTRX"s business is project based which can vary from quarter to quarter.
For PCTI, because so many companies that sell into Telco's have already reported soft to fair numbers-ERIC was another one today-I've concerned PCTI could have a below expected 4thQ result and/or 1stQ guidance. But over time, PCTI is building a very good business, so I'm a buyer on weakness.
KTCC, with their two largest customers, IGT and SMT, whose businesses have been in decline, have been reporting soft numbers for close to a year. Those two clients are less and less as a % of the total business so their continued weakness or rebound will not have such a "lumpy effect on KTCC's results. KTCC is well managed and well positioned with the recent acquisition proving to be another good move as was the metal fab house bought in the summer of 2013-if I remember correctly. I own alot already, will look to buy more on weakness, just as I do with LTRX and PCTI.
Iranians, have a sense of history and it includes their "glory" days-about 600-500 BC-of the 1st Persian Empire. Leadership, since Iatollah Khomeia, have been looking to return Iran to that past glory. In recent years, they have become very successful as the BO administration withdraws the Persian Empire expands. Influence or outright control goes from Western Afghanistan in the East all the way to the Mediteranian Sea. With a beachhead in Yemen and increasing influence over eastern Iraq, The new Persian Empire is encircling Saudi Arabia-territory the 1st Persian Empire did not control-they also want Israel as that geography was in the 1st Persian Empire.
SA, in my view, is going to fall-the House of Saud is a historical abberation-it will not stand the test of time. Within SA, there are about 3 million #$%$, of a total Muslim population of 25 million. Iran is a #$%$ country and if my memory is correct there are alot more #$%$ in the ME than there are Sunnnis.
The process of the fall of the House of Saud, will be dramatic and be accelerated over the next two years as Iran wants to move as fast as it can under a weak US president and a US population that has little sympathy for SA.
This is bullish for oil as the expanding Persian Empire will blackmail the west over oil as it moves against Israel to recapture historical territory. Of course, Israel will not give up without a fight, but they simply do not have the population and the support of the West to last against Iran's proxy's Hamas, Hezbollah and Iran directly.
Buy NA oil assets, when WTI and perhaps Brent get into the $30s.
Continuing on this them, I think it is Iran and the expanding Persian Empire-from west Afghanistan to Lebanon with a base now in Yemen are now surrounding SA and will force SA, along with the Russians into a deal-maybe sooner than May, but no later than August. Iran is going to be the big dog in the ME and will force SA to do a deal from promises not to support the #$%$ minority in SA-but they will anyway. Iran, will gain nuclear capability sometime this year.
SA, quietly will ask US's help, so we may send a naval force past the Straights of Hormuz as a show of force to support SA. That presence of our navel forces, will get a bid into the oil market as Iran will sable rattle our flotilla.
Still looking for a sell off in stocks first, perhaps sending oil to the 30's. If that is later in the year, like April, then the time risk will be minimized as I see a "deal" no later than the May-Aug time frame.
Going to add CLD as 2015 theme as BTU's results show western coal-powder river basin-shipments up y/y and expected to be up in 2015 as:
1)RR shipping problems abate
2)PRB coal takes market share away from east of the Mississippi coal
CLD has only PBR mines and it the industry low cost producer. Started buying recently under $8.50, 2nd batch a $7.75, third batch under $7 today.
China has gotten into the currency war game. Their currency is down 7.5% y/y but more importantly that decline has accelerated since the end of Nov. The Yuan was 6.1350/$ the end of Nov, now it is 6.2550/$-the last two day down from 6.1950. China is losing market share to the Japanese and are looking to get it back-Japan's exports to the US were up 23.7% y/y for the month of Dec-triple the % of China's.
China will be exporting deflation to the US as their PPI prices have been falling for 34 months in a row. In recent days, the $ is making new highs vs: Euro, Can $, Aussi $, British $, close to multi-year highs vs the Yen, 7 Mo high vs the Yuan etc, etc.
The FED is going to have to stem the strength of the $. They will blink and add liquidity, it is just a matter of how much pain will they inflict on the real economy before they act.
There are many but here is a few.
25%+ of new car loans have paper (loans) on them of 73-84 months-6-7 year loans those folks will be under water the life of the loan and the car may not even last that long.
33% of used car sales are with sub prime paper.
"0%" interest is available on 5-yr loans
What am I trying to say. Auto sales, both new and used, are artificially high.
20% or $1.4 trillion of Eurozone bonds outstanding are trading at negative interest rates-total market about $7 trillion. $2.9 trillion of Japan debt trading at negative interest rates. So, about $4.3 trillion of government debt around the world is trading is trading at negative interest rates. All the while:
1)Budget deficits continue with some getting larger year in and year out
2)Total government debt is increasing
3)Unfunded liabilities are increasing
In a normal market, countries with the above "1-3" characteristics would have to pay interest and higher interest and debt rolls over to compensate investors for the worsening credit risk
When interest rates normalize, inflation + 2-3% real return, all assets that are dependent on debt financing for their valuation will get crushed. JPM in an internal commentary, says the music will continue to play for another 2 years.
My analysis is that when inflation gets to 3% sustained in the US and the Eurozone, the bond vigilantes will have their way. That could be 18-36 months, much of it depends on oil prices and policy responses, both monetary and fiscal. Central banks are in a catch-22 situation. They want inflation higher, so current debt can be serviced more easily, but to get there new debt has to be taken on and bought by the markets at artificially low rates, to support economies at unsustainable levels. The #$%$ hits the fan, when inflation get to target levels+ and interest rates then have to normalize because QE and other easings will have to be withdrawn.
What is going on now fiscally, monetarily, macro-economically is a false prosperity that will not stand the test of time. How it lasts will depend on how long central banks can keep interest rates artificially low. My view at this time is the music will keep playing as long as inflation remains below 3%-perhaps 18-36 months. Once it gets above 3% sustained in the US and the Euro-zone, then QE programs will have to end. Interest rates will normalize with real yields getting, at least to 2-3% above inflation. You do the math. Bonds, stocks, real estate will get crushed! That will start a self-reinforcing negative sales loop as debt against those assets will have to liquidated in mass write-offs and bankruptcies. Governments will be starved of tax revenues as welfare spending soars-governments will fail. Depression for 5-10 years as all the false prosperity of the last 40-50 years has to be wiped out.
Still in the interim, a final bull market in stocks will occur-I have been writing about S&P 500 to 2500 in a couple years. If I get the timing and the events correctly, there will be a big sell off in the 1sH of 2015, that will be followed by FED easing-which will start the 2 year or so bull market move up. The FED will have to "ease" because the US simply will not be able to maintain 2%+ GDP growth, with the $ strong (continuing loss of mfging jobs), and with job losses due to falling oil prices and the 3/1 multiplier effect of each energy job lost.
In my view, the game now is a game of "chicken" vs the FED. I think they will have to ease. The question becomes, how much pain does the US economy and stock markets have to endure before the FED acts.
FED QE after WWI financed the "junk bonds" of Europe (their sovereign debt) to rebuild their economies after the war. The post WWI prosperity of the US and Europe was a false prosperity because our exports, their imports were made with money they did not have-except for the "money" created by the US FED. The great depression was caused by the end of QE-the world economy fell back to its natural level it would have been post WWI. FED QE-the FED 's original charter said they could not own or buy governments bonds-that rule changed allowed the concept of deficit spending which did not exist, in size, before-politicians could not resist. Keysian economics was born.
Another tidbit. Before June of last year very little Euro zone debt has a negative yield. In June, the ECB started changing banks negative interest rates. Now, with all their other moves, including last weeks's QE announcement, 20% or $1.4 trillion of the $7.0 trillion Euro-zone debt outstanding is in negative territory.
We may just get negative rates in the US in the coming months. How high do gold and silver go then, if US banks start charging large deposit customers money to keep money at the bank? In the meantime, as the $ gets stronger, the US is importing deflation increasing the chances the US will experience negative interest rates.
Continued conflict, indirect or perhaps direct between SA and Iran is going to lead to an oil deal between them and the Russians by the middle of the year. The three just cannot continue to be financially brutalized by sub $50 oil. What else will happen by the middle of the year? The macro-economy of the Euro-zone will start to show signs of improvement by then as:
1)Loan growth will turn positive y/y
2)CPI measures will stop falling
3)Exports will strengthen
4)M3 growth will be up 50% y/y
At this time the Euro will stop falling to the $ as investors will move money out of the weakening US and move into the strengthening Euro-zone. Also, by this time the FED, quietly through open market operations, will have already been injecting liquidity into US, hence the world financial markets. However, while oil is low and the $ strong, the US economy's macro numbers will roll over as they have started to do so. I read that Texas, from 12/07-12/14 accounted for all US job growth. Since Texas produces about 3 mbpd and there is about a 3 to 1 multiplier for each energy related job-low oil prices, subsequent job losses and a strong $ will soften: income growth, housing stats, capX spending, auto sales and lower S&P 500 earnings estimates.
However, it is my view currently, that oil related names will be a buy sometime in the May to Aug time frame. A weaker $ and a "deal" between SA, Iran and the Russians will be the catalysts.
When it is known that the FED turns to outright easing and Washington adopts infrastructure spending plans, to respond to softening US stats, then most other stocks can be bought.
As posted many times, the FED has been tightening monetary policy for months:
2)Monetary Base shrinking since August
3)Velocity of money remains near all time lows
4)M2 growth sluggish
5)$ making new highs
Net/net, I think liquidity is drying up, so at some point in time there is going to be a major stock sell off-looking for the S&P500 to go into the 1700s.
What would reverse my view:
1)FED start supplying more liquidity as evidenced by
M2 growth close to 10%
Monetary base starts increasing
$ starts falling
Oil, copper, Baltic Dry Index and lumber start rising
What would really get me positive-that could push the S&P500 to 2500 in a few years? US and Euro-zone announce major infrastructure programs. With central banks buying sovereign debt, governments can go fiscally stimulative. The ECB's 1.1 trillion Euro program is more than the expected net government issuance of 800 billion Euro.
In short, I'm looking for the FED's restrictive policies to lead to a major sell-off. The policy responses, to get aggregate demand up, will be for:
1)The FED to reverse course
2)Both US and many EZ governments to put in place fiscal spending stimulation programs-knowing that new debt issuance will be bought by central banks. The temptation by politicians will be too great to maintain "austerity" when interest rates are low, aggregate demand soft, and the market clamoring for more government debt because central banks have bought and are holding a very large % of existing supplies.
For me though, the FED has to reverse course. Maybe they will increase rates 1-2X before doing so, but their liquidity injections will be the most important-the $ simply has to stop rising and commodities have to stop falling.
Chicago FED national activity index -.05 in Dec vs Nov .92-implies the US economy is slowing down. DE announces layoffs. Markit Flash PMI his 1-year low. Durable goods inventories are at all-time highs-will that prior production be consumed fast enough or will there be an inventory correction in mfging? New home inventories at a 5-year high and lumber prices have been falling-now close to $300 down from close to $400 the middle of last year. DXY hits another 11 year high.
I'm going to write again, world GDP, as measured in $s is in recession. For the S&P 500, earnings estimates have been coming down. If the market wants to bid up stocks to "front run" ECB QE, while earnings estimates are coming down, layoffs up, inventories high (in many industries), copper and lumber prices falling-I"m not a player-will continue to raise cash.
Strong $ has US Steel closing a tin mill plant. In addition to another plant, X has announced 4 plant closing in the last few weeks.
Until the FED, cries uncle, and starts getting into the currency war US mfgers are going to be squeezed, unemployment claims are going to rise-the world is in recession as measured by the $.
Perhaps the FED have started to notice $ strength-the DXY did make another 10+ year high at 94.50 today. M2, after the close was up 67 billion vs revised numbers from the week before. The 10 week moving average went from 3.64% to 7.62% annualized growth. Good, but in my view, M2 needs to go up $40+ billion /week for a couple months to get the US back into the currency war. Until then, we will be:
1) Importing deflation
2) S&P 500 earnings estimates will continue to fall
3) Risk of self reinforcing negative loop sell off
It is King Abdullah, vs my prior post of King Faud. In any case, he just died, the next King is 79 years old. Perhaps it means nothing, but at some point the Saudis will have a succession issue. Not bullish for oil just yet, but it will be.