The Libor Led Rally*

Just I'm not sure I just lay around on the bed until they show the overnight LIBOR and 3 month LIBOR on the scrawl on BLOOMBERG.

EPIPHANY TIME!!!!!

STONEY IS MOVING INTO SILVER!!!!!!

I've been in a real quandary the last view days with my high net worth clients. Well their not really high net worth, they're holding on for dear life with stocks like Ebay and Rimm... and they're not really my clients they are friends and family members but it sounds better the other way... The truth is I've been working a 5 year out thesis and really struggling with the Deflation - Japan scenario when they jumped in and tried to halt market nature and the obvious inflationary implications of all this stimulus. My TIPS idea has sort of gone over everyone's head... it just seems boring, who wants to sit five years out of the market and clip coupons or whatever... So I've had my thinking hat on and i sort of hate gold for a lot of reasons one of which is my wife's penchant for buying it and obstinately working with it- she used to make jewelry until the base price of the metal left the $400's and leapt into the $800's... no more working from home! Not only that but Gold brings out the crazies and the get rich quick schemers in everyone including myself so in times past when I have bought gold it's always been tiny USG or an outfit down in Tanzania... small cap stuff.... bogus...

This morning I have had a real breakthrough. Yesterday I took a tiny position in MOO and exchange traded fund my first. I did not awake with hives this morning for giving up the stock selection and research to a market vector team... and so on the hunt I've been thinking about the big picture and how silver might play a roll in it.

It goes without saying that we have had a rout of global wealth reduction. Economists are pointing to all sort of upsides to this- our health, ability to rent all seems better when no one has two nickles to rub together... But what if we had some silver nickles?

On the surface wealth destruction = deflation... falling house prices, falling commodities... we've seen that but everything is certainly not cheaper in the stores you still have to haggle.

So recession yes, but which kind? Will have a deflationary recession or inflationary recession?

I'm just a basic guy in this sense... the fed prints money and keeps rates low that's going to = inflation at some point, it has to. I'm not sure how much of that makes it's way into the general economy and how it will effect us all, the corresponding retreat of the dollar which usually shoots these metal prices up is not happening, just the opposite is which makes it tricky... but we have to block out the dollars move for twofold reasons- one there is a certain flight to quality going on, even our lousy quality and two, the euro zone is behind us and in the grasps of the meltdown more so than us now... these will abate...

Big Ben Bernake did not get his " helicopter " nickname for nothing... his views are well known. he knows how to print money to avoid a deflationary spiral and clearly he sees this as the biggest danger a la the Great Depression.

In his famous 2002 speech known as the
"Helicopter Speech" Ben told all:

"The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation."

Let those words sink in folks.

September has given us a reading of 4.94% for the CPI which is down a bit from earlier readings. If you are investing in stocks or paper that yield less than that you are in essence losing purchasing power- you've been bitten by inflation. Treasuries yield less than 3%, so that's not going to attract any real money except for panic money.

All of this brings me to SILVER. I'd say load up and stuff it under the mattress except it's hard to get a hold of-- retailers have a shortage right now-- Why silver and not gold... well as stated I have a bias against gold, the Gold investor is an annoying type... the age old comparison is that all the gold ever mined is still around today or buried under some temple in Egypt... you know the tale... 4 Billion ounces laying around at all times... With silver most of it mined is then used in a variety of ways. Some estimates say over 44 billion ounces have been mined but only half of that still exists hanging around our necks and wrists and sitting on our plates as silverware and of course as change. Basic industry tends to absorb more silver that is mined each year... so in a time when financing is tough and mines are moving slowly, it's safe to say Silver is being absorbed and used faster than it's being mined and THAT's a good investing set up.

All of this brings us to the SLV which is the ishares Silver Trust. The chart is interesting and bottoming and perhaps just perhaps it does not need gold to ascend to work out. If you figure that silver is undervalued now because of the big panic rush into gold as a " safe haven " then one could really get a nice % return here from two scenarios- the economy healing itself and various tech businesses using more.... and the above mentioned inflation problem which would appear to be next years problem. If we have monetary inflation and perhaps not commodity; if steel stocks stay locked down but our dollar dips, we will surly be in the right spot to benefit.

Gold currently costs over 80X silver... I would like to go back in the history books and find how this ratio has played out over the years and what the mean ratio is... I would bet these times have allowed the Gold price to swell and left Silver laying about. ~stoney
 
Folks it's that tricky little APWR... they came out with some Q&A from a shareholder meeting. Nothing but the obvious we have cash we are cash positive no plans to raise equity will begin to look into buying stock, etc...
This may be enough... I know China, what are you thinking... it's like a drug, I guess but I've left a limit order in at $6.10 remember yesterday we were desk humping this name all day, I can't put my finger on it but it's acting like it wants to go up... anyway it sliced through $6 today on eh volume lets hope it pulls in a tiny bit and we get filled and we can take this up to at least $8.50 I would think which would be a pretty good % return... who knows maybe more, it's fallen a lot....
~si
 
GOD I HATE MYSELF... I'M GOING TO PAY $6.50 for what was $5.70 all day yesterday with the same 5 day technicals........... UGH.... This what happens when you are a scardicat and afraid of everything Chinese...... even the food. Damn. Not off to a good start. Late for a workout too... a lot of nice charts all of the sudden if you aRE willing to keep them at 5 day!

PETS

AGU

SGMS

APWR

ADM

These are the one's I'm looking to establish large sized positions in.... ADM seems the safest with a lot going for it... don't want to be before AGU's earnings but I think I do SGMS... So I would start with SGMS & ADM today, I will send that email into thje hedge fund and see why the heck they never got in touch yesterday... ~ stoney
 
Alright that's what happens when you have low volume advances.
My gut yesterday that held me back so much would of been feeling a lot of round trips today.
There is another round of forced hedge fund selling looming, the timing here is tricky... it would be easy to sit out but the market will most likely have a few more enormous up days to lock us in. Too much cash is on the sidelines, we haven't gotten enough people in the pool yet. The problem of course is earnings and 4th QTR outlook and how the market may want to focus on that for a while.

And that sucks because LIBOR is coming down the ingredient we needed to ignite a rally. Lets start with the good news institutions are buying. The amount of selling by them has lessoned and the buying has increased.. we DID MAKE A TURN- THE BUFFET TURN... we could smash below but I feel after the elections. The senate coming back and passing another stimulus bill one aimed at consumers is I hope enough to get us back to 10,000 area . Another BIg boost for the market would be if they would allow companies to bring their cash home without a penalty... this is the easiest and biggest bang for the buck that any gov could pull off... that would really get us going... The LIBOR rate now implies a certainty to a 50 bp cut.... the banks folks can MAKE A LOT OF MONEY IN THAT ENVIRONMENT. They will be forced to lend. So amazingly even after this dizzying stretch of fake lurches and market savers... there still are some other potential catalysts for a market rally to continue.

Did you see that silver exchange fund today folks!!!
$9.50 yesterday $10.00 and the metal was up in the face of a gold free fall... the disparity between golds price and silvers price is there... This SLV is interesting... I got to tell you though they are just as many freaks and paranoid dudes playing the silver market as the gold... conspiracies galore.... the stocks of these companies are GOING DOWN because they can't get funding and more importantly they are SHUTTING DOWN MINES because of the low price of silver... that's the exact reason the actual price of the metal will now will go UP and why this fund is so cool-- as I understand it - they carrie the actual bars; they are storing the goods... this is not an basket of miners!.... Check the chart out SLV.... ~si
 
(ADSK) CEO Carl Bass thinks the government must go further in letting companies bring their foreign cash home at a reduced tax rate. This so-called repatriation of money would relax U.S. tax rules to allow American corporations to inject billions into U.S. banks that are now deposited offshore. The benefits would be twofold, Bass says. It would pump liquidity into the American financial system and could help refill Uncle Sam's depleted coffers. The CEO has significant incentive to tap Autodesk's overseas funds. Nearly three-quarters of Autodesk 's almost $1B in cash is held in offshore banks. Many American corporations with overseas subsidiaries, including a lot of leading Silicon Valley companies, such as Hewlett-Packard (HPQ) and Symantec (SYMC), carry hefty cash balances abroad. The companies are required to pay taxes to the foreign governments in the countries in which they do business, but usually at rates much lower than those charged in the U.S. Bass contends that, with fewer restrictions, he and his peers could use the cash to hire American workers, acquire start-ups and buy back shares. Additional cash could help offset the deflation in stock as a currency for deals amid crushed share prices, Bass argues. Paul Wick, managing partner of J&W Seligman and head of its technology group, and who's fund owns Autodesk shares says, You would see a huge wave of mergers and acquisitions," "It's just a huge opportunity." Bass thinks repatriation measures will get added attention once a new administration takes office.
 
Wow a lot of research this morning - my head is about to explode.

I've come away with a few thoughts.

(1) watching carefully ORLY... two weird looking guys that cover retail were in barrons and this of their picks pricked my ears because I had already digested some similar research love on this name. It's all about timing do you get in before or after the Nov earnings? There are arguments both ways... Advanced Auto warned and some of the verbiage from the conf call was general stuff that will effect ORLY... we'll get to that later. The big story is a buyout that they pulled off and as such I'm apt to think that one might want to be in before management talks about synergies.... Found buyers today @$22... one of them might be me later!

(2) I read the whole BLK conference call. Laurence Frank is the best, he just flows with the facts and knowledge he is a very smart man. Here are some thoughts on the credit situation , I'll post them below
and let me wrap up by highlighting the early thought process.... I know the hedge fund is weighting for my ADM email after all if I liked it at $19.00 I must love it today @ $18.50... waffling here, the numbers don't lie this is a stk that will make their earnings going out, they are in good position... but there have been negative farming vibes all around... I think somewhat unjustified.... ORLY, BLK, ADM.... & SGMS which is the lottery play are on my hot list as well as FUEL SYSTEMS FSYS & SLV, the Silver index fund. lets see what kind of positive damage we can do today with these names. ~ stoney
 
A good indication how we are beginning to see some thawing, as a result of the global transformation from national, from the central banks and the monetary authorities to recapitalize our banking systems globally, we are beginning to see some thaws, LIBORs from last week is down a 100 basis points.

We still have about another 125 basis points of reduction in LIBOR to get it more normalized. But we have accomplished a good 40%, 45% of the renormalization of LIBOR and that’s only just a beginning. We need to continue to grow and see yield spreads in bonds narrowing.

Without citing names, two of our largest banks in the United States, one of them is trading 500 over the five year treasury. In other words, they are funding five year liabilities at seven and three quarters. There is another large bank, one of our top five banks in the United States are just funding five year debt at six and three quarters.

If you add on a normalized return on asset, you add another 125 basis points, so you are seeing to lends any money up in the five year, whether it’s a nonconforming mortgage, whether it's a student loan, whether it's a small business loan, they need to get above 8% or 9% to make it profitable and this is what's causing the stress in main street.

So, we are seeing this breakage finally in LIBOR. We have not begun to see breakage in the credit markets beyond five years and the reason why I’m saying five years, as you know, the FDIC is ensuring, new bank paper three years or less. And so, the five year area which is very critical for small business loans, for the mortgage industry.

We are still seeing very high interest rate and I’d recommend that everyone pays attention to the funding rates of these large national banks in the US and other players as to what their funding rate is, to see if there is a true thawing in our capital markets to allow us to have a better main street market.

The last thing I’d like to just alert everyone is that is in the high yield area. High yield area triple B Index as of this morning is 950 basis points over comparable treasuries. So, we are talking close 13% for double Bs, and we are talking a spread of 14.25 for the high yield index over treasuries.

So, we are talking about interest rates that are obscenely wide, they represent in many cases some very good value, but this is just an indication of the stresses in the marketplace and we all have to just take note of that and when these markets start unthawing, I believe we’ll start seeing a better economy and hopefully with that unthawing, we are going to see better flows and a better equity market going forward.

Let me get into the specifics without talking about the world and but I do believe we needed to talk about where BlackRock is positioned in the world. As Ann Marie suggested, our AUMs fell about 12% to be exact, we fell by $169 billion, which is an awful painful number, a $109 billion of that was market, between market and FX, which is another way of market in my mind, and then $63 billion was liquidity, which I'll get into in a minute and $6 billion was long dated assets, which was in my mind a very large surprise for us but if you look into the details, about a $9 billion client terminated us because of a merger.

They merged into another insurance company and they managed the assets internally. This is something that we are aware of for six to nine months. We are hoping to have a portion of its being managed internally and they decided to keep it all internally. So, away from that one problem, overall, we were fine. And I'll go into some of the other outflows, some of it was international equities, where the retail business in Europe has been very, very hostile and we have actually done very well in a very hostile environment.

The one thing I’m particularly proud of Ann Marie discussed is our operating income of $209 was very strong and is an indication of despite the hostile market environment, BlackRock has been able to incrementally add revenues be it BlackRock Solutions or other types of assignments to be additive to our operating platform and that's been offset by $0.58 loss in our non-operating income.

Let me talk about the liquidity business at BlackRock. First of all, while we were on this conference call, the Federal Reserve has announced a new facility for liquidity funds. This is something that the industry has been working on diligently now for the last three weeks. This is a very big event. In my mind, this is going to help commercial paper.

This is the first thawing that I really see in terms of helping the commercial paper market unravel itself. This is creating a conduit facilities, in which we’ll be able to, if necessary, sell commercial paper into the conduit, but conduit will repackage the commercial paper into ABCP which is a legal asset that the Federal Reserve can acquire and buy, and then, but it provides liquidity, if necessary to the liquidity funds.

Why this is so important? Because of the fears of illiquidity; because of the fears of outflow that we witnessed last quarter, which we are starting to see reverse this quarter. Money market funds have refused to extend any commercial paper beyond a day or few days. This has put enormous, enormous stress on the commercial paper market, enormous stress on corporations funding, their liquidity needs and this facility in our mind is going to be one of the a great event in terms of creating the unthawing the commercial paper markets.

It will allow people like BlackRock and other money market funds to start extending our purchases of CP, if we think that's an appropriate investment to do. We believe that duration is the appropriate duration to have for commercial, for our money market funds and it gives us the flexibility.

We are not reliant on illiquidity in the marketplace. We can now take on more responsibility of trying to unglue the marketplace. We could take on commercial paper, way beyond one day if we want a 180 day or whatever, we could buy that paper now knowing that we’ll ultimately have some form of liquidity at the backend.

So, we look at this as a very big facility. As I said, we have been working on it very strongly and I just wanted to emphasize that because it just broke, while we are on this call. So, having the large outflows, all the large outflows was in the prime rate funds and then rates adjusted, our average assets are much higher than our expired assets.

Most of the outflows occurred in last three weeks, certainly right after the reserve fund broke the dollar and after the Lehman Brothers bankruptcy, which caused tremendous disruptions in the industry. The industry lost over $400 billion net that’s after the run up in government funds. BlackRock and a few other firms had about similar outflows; we are getting to the other names, if you ask me, why we had these significant outflows? We were one of the biggest winners in terms of growth in the money market industry.

- Laurence Fink ceo BLK from conference call.
 
here is the essence of the Fuel Systems Story from smallcapinvestor.com they are an free email service, not as hype-filled as most-

When it comes to reducing the world's dependence on fossil fuels, there are abstract theories and then there are practical tools. Fuel Systems Solutions Inc. (Nasdaq:FSYS) falls squarely into the latter category, and as a growing number of car and bus manufacturers discover how its equipment helps vehicles run more efficiently on cleaner sources of fuel, investors are reaping the benefits.

Shares of the Santa Ana, Calif. small cap closed at $31.89 on Monday, up 123% from the start of the year, reflecting both a growing investor interest in all things green as well as Fuel Systems' proven track record of selling and installing gear that turns traditional internal combustion engines into flexible pieces of equipment that can run on cleaner-burning fuels such as natural gas, propane and biogas.

Fuel Systems' last several quarters have outperformed expectations, most recently in its second quarter, when it reported a 50% spike in revenue over the year-ago quarter, which President Matthew Beale said underscored "the rapidly expanding demand for alternatives to petroleum to fuel vehicles."

Fuel Systems' revenue rose to $98.3 million from $65 million in the three months ended June 30, 2008. Net income rose to $4.6 million from $0.3 million in the same time. Four analysts who track this company project net income will shoot up to $1.45 per share in 2008 and $1.82 per share in 2009 from $0.58 per share last year The consensus is for revenues to surge to $365.8 million this year and $427.1 million in 2009 from $265.3 million last year.

John Quealy of Cannacord Adams, who has a $53 price target on the stock, noted in a recent research report that unlike some clean energy stocks, which have risen on hype alone, Fuel Systems has the strong underlying fundamentals to support its valuation. Along with rapid growth in sales and earnings, gross margin in the latest quarter reached 29.1%, well above his forecast 24.3%, Quealy said.

Fuel Systems' stock already surpassed Quealy's target, topping out at $61.24 over the summer before it fell hard in late September and early October along with the rest of the market. Strong fundamentals aside, Quealy warns that this stock is likely to be volatile for some time and that anyone who decides to buy should be prepared for a rough ride, and potentially another sharp pullback.

Longer term, though, he is not worried and investors should not be too concerned either. Given the growing number of vehicle manufacturers and car and bus fleets that are using Fuel Systems' equipment to reduce their carbon footprint, the likely increase in demand from many parts of the world, potential for future regulations on fossil fuels, and current volatility in the stock may provide some good windows of entry.
 
The thesis behind ORLY, is that car parts is a very proven RECESSION PROOF BUSINESS.... people fix up old cars and hold back on new one's... I'm sure you've run across Investopedia I occasionally get redirected by google there. These are NOT analysts but the info is always pretty straightforward and this is a good summery of our friend O'REILLY!


Now that the U.S. seems to be in a recession, we need to be thinking creatively about which industries will hold up the best, and which ones may continue growing earnings and profiting from new trends.
When "recession investing" themes come to mind, budget-minded names like Wal-Mart (NYSE:WMT), Family Dollar Stores (NYSE:FDO) and Dollar Tree (Nasdaq: DLTR) are often tossed around as good beneficiaries of weak consumers. To be sure, all three of these stocks are positive for the year, quite the rarity as we know all too well.
Another industry with interesting prospects going forward is retail auto parts.

We all know these places, even if most of us only visit sporadically, typically in a frenzy over a cracked headlight or dead car battery. When discretionary income is tight, many people forego big ticket items, and a new car is right at the top of that list. This recession is also marked by extremely inactive and weak credit markets. As a result, even people with stellar credit are finding it hard to get auto loans, and the availability for median-level credit scores is somewhere between low and zero. The auto industry is in a well-publicized and nasty downturn as evidenced by U.S. auto sales declining by a staggering 30% in recent months.

Auto Parts' "Big Three"
The competitive landscape in this industry is defined by three large players - AutoZone (NYSE:AZO), Advance Auto Parts (NYSE:AAP) and O’Reilly Automotive (Nasdaq:ORLY). All three have more than 3,000 locations nationwide, and together they control greater than 40% of the market.
In addition to low earnings multiples and a strong value proposition in a recessionary economy, the auto parts retailers should also benefit from falling gas prices. The fall in crude has so far outpaced the drop in retail gasoline, but the price of the latter is still down more than 50 cents per gallon at the pump. These retailers love to see more miles driven, as it leads to increased wear and tear on our vehicles.

O’Reilly A Standout
Of the three leading companies, I see O’Reilly as the standout operator. While AutoZone and Advance have higher gross margins, O’Reilly has the higher internal growth (19% annualized since 1995) and a much lower price-to-book ratio (1.44) and debt/equity ratio (.044) than the other two. In a market where balance sheet strength is paramount, metrics like these become more valuable than even earnings multiples.

While the other two engaged in costly expansions and added to debt levels, O’Reilly went out and made a wonderfully strategic, all-cash buy of CSK Auto last spring. CSK's West Coast footprint is an ideal fit for previously Southeast- and Midwest-focused O’Reilly. The acquisition brings the potential for dramatic financial improvements to CSK, which generated a low 6% EBITDA margin in 2007.
By contrast, O’Reilly generated a much higher 16% EBITDA margin and stated in the most recent conference call that cost savings could be as high as $100 million starting in 2010.
Sales Growth Justifies Share Premium
Same-store sales are forecasted to be in the 2-4% range going forward, but results could be flat for the remainder of 2008 as comps at the CSK stores were running negative so far this year. Next year’s earnings forecast calls for $2.03 per share, or a 15% increase over this year’s EPS forecast. O’Reilly shares trade at a current P/E of 12 times, a bit of a premium to Advance and AutoZone’s 10-times multiples.
The premium does seem justified given that AutoZone reported just 0.6% same-store sales last quarter, while Advance Auto has already warned on profits for the latest quarter and is forecasting flat to negative comps. O’Reilly generated 3.4% comps (excluding CSK stores) in Q2 and is set to report earnings October 29...... stoney has Nov 4.... need to clarify this*)

As a final parting thought, this group of three companies outperformed the S&P 500 by greater than 50% during the last recession in 2001-02. In this case, history repeating itself could be a great thing for shareholder.
 
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