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Wednesday, March 24, 2010

GM's EN-V to use Valence Batteries

Today in Shanghai General Motors, GM, said its EN-V concept car will use batteries made by Valence Technology Inc (VLNC - Quote and charts). As reported here, GM and its Chinese partner SAIC will showcase the "Electric Networked-Vehicle" launched Wednesday in their joint pavilion at the Shanghai Expo, which opens May 1 and runs for six months.

The EN-V, pronounced "envy," us a two-wheel, two-seat all electric car with a top speed of only 40 kilometers per hour (24 mph) has a small footprint designed to be driven in congested city streets.
"By 2040, GM says, there will be 1.2 billion cars on Earth, and 60 percent of humanity will be living in cities. For megacity countries like China, the explosion in use of conventional automobiles has already turned into a nightmare of smog, jammed roadways, and nonexistent parking."
This is great news for shareholders of Valence Technology, which has a factory to build its batteries in China:
"The 1.5 meter by 1.5 meter (about 5 foot by 5 foot) EN-V appears to build on GM's earlier work with Segway Inc. in developing the PUMA, or Personal Urban Mobility and Accessibility, vehicle. It will use the same types of battery cells as the Segway and the same battery supplier, Valence Technology Inc., said Christopher Borroni-Bird, GM's director of advanced technology vehicle concepts."
For commentary on Valence including my recommended buy and sell levels, read "Kirk's Investment Newsletter."

Disclaimer: I have been accumulating Valence in my newsletter explore portfolio and personal portfolios. From buying and selling to take advantage of its volatility, I have good profits already in VLNC with a "break-even" price well below today's price. In an attempt to increase my overall return, I plan to continue to trade around this core position to get my original investment out and then generate cash from the volatility with the remaining "profit shares." I expect Valence to be a very volatile stock so risk control is essential. For more, see Kirk's Two Investment Letters.

More Articles:

Friday, March 19, 2010

ECRI on Inflation & Economic Recovery

Here is a good video of the Economic Cycle Research Institute's (ECRI) managing director, Lakshman Achuthan, speaking on CNBC's Squawk Box this morning to discuss ECRI's outlook for inflation and economic (GDP) growth.
================================================ ================================================
Summary of key points
  • The recovery is real and new jobs will come soon.
  • ECRI's FIG says inflation is in a cyclical upturn but inflation is not YET a problem.
  • "Simmering Inflation Pressure is a good thing" compared to a year ago when we worried about an economic collapse.
  • Compared to ECRI's FIG, the FED's inflation estimates use more "rear view" indicators which may explain why they kept rates too low after the last recession which may have led to the housing bubble.
  • ECRI's FIG turned up far before the Fed increased rates after the last recession and we all know what happened to the housing market.
  • ECRI's WLI says GDP growth will "throttle back" some from its recent 6% (5.9%) level but the recovery is real and we will not have a double dip this year.
  • The FED may get "bailed out" from keeping rates so low if economic growth throttles back later this year as ECRI expects but they won't try to predict their indicators.
More information:

Friday, March 12, 2010

Hyperinflation Possible By Year 2015 Says NIA

The National Inflation Association, or NIA, says hyperinflation is "possible"by 2015 and Ron Paul is the "only hope to prevent US Hyperinflation." Below are some excerpts from the NIA website:
The U.S. government this week reported a record monthly budget deficit for February 2010 of $220.9 billion. Total tax receipts for the month were only $107.5 billion compared to outlays of $328.4 billion. The total U.S. deficit for the first five months of fiscal year 2010 was $651.6 billion, with tax receipts of $800.5 billion and outlays of $1.45 trillion. The deficit was up 10.5% for the first five months of fiscal year 2010 over the same period in fiscal year 2009.

We are now at a point where if the U.S. government taxed Americans 100% of their income, the tax receipts generated would not be enough to balance the budget.

Likewise, if the U.S. government cut 100% of its spending including defense, but kept paying Social Security, Medicare and Medicaid, we would still have a budget deficit.

NIA believes it will be impossible for the U.S. to have a balanced budget ever again.

If the Federal Reserve raises the federal funds rate up to just 2% during the next year, NIA believes the interest rate on our public debt could rise to 5% and our annual interest payments will likely rise to $500 million or 23% of projected 2010 tax receipts of $2.165 trillion.

We find it shocking that the White House is projecting an interest rate on our public debt in 2014 of only around 4%.

If the Federal Reserve doesn't raise the federal funds rate to above 5% in the short-term, in our opinion, an outbreak of double-digit inflation is inevitable.

NIA believes the real rate of U.S. inflation to already be approximately 5%.

By 2014, it is possible the Federal Reserve will be forced to raise the federal funds rate up to above 10% and the public portion of our national debt could exceed $15 trillion. Therefore, in 2014 we could see the interest payments on our national debt reach $1.5 trillion, about triple what is currently being projected and 43% of the government's projected tax receipts that year of $3.455 trillion.

NIA believes hyperinflation is possible by the year 2015. Besides the rising interest payments on our national debt, another major catalyst for hyperinflation will be social security payments, which adjust to the CPI-index. As the government's CPI-index rises, so will the social security payments that it owes. This could cause a death-spiral in the U.S. dollar. Inflation is still the last thing on the minds of most Americans, but soon it will be their primary concern.
For full articles, see the NIA website for
I should note that I don't agree with NIA that we will get hyperinflation (inflation over 10%) FOR SURE if Ron Paul is not elected president of the United States in 2012, but their concerns are worth paying attention. Even if Ron Paul is elected president as a third party Libertarian, the US House and Senate would still be controlled by democrats and republicans so we'd probably have gridlock where nothing would be done. We'd need to get Libertarians like Ron Paul into majority positions of both house and senate to break the cycle and I see the odds of this happening as near zero.

I also think we could avoid hyper inflation with something like "stagflation" were we get moderate to high (2 to 10%) inflation with low economic growth due to high unemployment and globalization keeping a lid on wages. Changes like delaying the age one can collect Social Security and higher taxes can also help but those changes will be painful to those who have not positioned their portfolios for this.

Make sure you read my other related articles:
and

Wednesday, March 10, 2010

Ed Hyman & Nouriel Roubini Differ Over Shape of Economic Recovery

Ed Hyman and Nouriel Roubini, often called Dr. Doom, differ on the shape of the economic recovery. Hyman says we will have a "V shaped" recovery while Roubini clings to his belief that the recovery will have a "U" shape and could have a "W" shape.

Q

Q2-08

Q3-08

Q4-08

Q1-09

Q2-09

Q3-09

Q4-09

Q1-10

GDP Growth

3.3%

(0.5%)

(5.4%)

(6.4%)

(0.7%)

2.2%

5.9%



Ed Hyman has an excellent record at predicting the economy.

You have to take what "Dr Doom" says will happen with a grain of salt. It was just a year ago that Roubini said DOW 5,000 was possible and the best the S&P500 could hope for as a rally to 720. See my March 09, 2009 article:
  • Nouriel Roubini, Dr Doom, Thinks DOW 5,000 is Possible
    In the best case, Roubini sees the S&P500 (closed today at 676.53 - Charts) at 720, a gain of 6.4%. In the worst case, Roubini thinks there could be another 20% left in the decline with the S&P500 falling as low as 500 to 600 with the DOW down to 5,000 or 6,000.

Dr. Doom was wrong but fear sells so he continues his pitch.

The following excerpts I got via email today from Nouriel Roubini as he tries to sell his services.
While maintaining his core projection of protracted U-shaped growth in the United States, Roubini argued that the risks of a double-dip recession in the United States are rising. The following content is excerpted from that analysis, the full version of which is still available just for clients on Roubini.com.

V, U and W

A slew of poor economic data over the past two weeks suggests that the U.S. economy is headed for a U-shaped recovery—at best—in 2010.
Kirk: With 5.9% growth in Q4-09, hasn't a U shaped recovery already been eliminated so all that is left are V and W shaped recoveries?
The macro news, including data on consumer confidence, home sales, construction and employment, actually suggests a significant downside risk even to the anemic levels of growth which RGE forecast for H1. The U.S. faces continued challenges in H2—particularly as historic levels of fiscal stimulus fade—and appears far too close to the tipping point of a double-dip recession.
Kirk: More stimulus is on the way including money to buy appliances and "Cash for Caulkers."
This is not the conventional wisdom. Heated debate continues to rage in the United States on whether the economic recovery will be V-shaped (with a rapid return to robust growth above potential), U-shaped (slow anemic, sub-par, below trend growth for at least the next two years) or W-shaped (a double-dip recession). The V camp includes distinguished research groups and individuals such as Ed Hyman’s ISI, Larry Meyer’s Macroeconomic Advisors, the research group of JP Morgan, Michael Mussa and others. The U camp includes—among others—Roubini Global Economics, Goldman Sachs’ U.S. economic research group, PIMCO and Ken Rogoff. As early as August 2009, I worried in a Financial Times op-ed about the risk of a double-dip recession even if our RGE benchmark scenario characterizes the risk of a W as still a low probability event (20% probability) as opposed to a 60% probability for a U-shaped recovery. Others concerned about the double-dip risk include also David Rosenberg, Gary Shilling and John Makin.

Ed Hyman and I debated whether the recovery would be U or V-shaped on a February 22 conference call attended by over 2,200 listeners. Since that call, a slew of new U.S. macro data have come out. They have been almost uniformly poor, if not outright awful.
Remember it was just a year ago that Roubini said DOW 5,000 was possible and the best the S&P500 could hope for as a rally to 720 while we posted ECRI's article saying that an economic recovery was ahead.



DOW JONES INDU ^DJI - More charts
S&P 500 - More charts

See
The good news is ECRI and Ed Hyman do not predict a double dip recession in 2010.

Tuesday, March 09, 2010

China Will Not be Adding to Gold Reserves but Says Gold Not a Bad Asset

Yi Gang, China's head of the State Administration of Foreign Exchange also know as "SAFE" told reporters US Treasuries remain important to China but they would not be adding to their gold reserves. Yi Gang said:
"The U.S. Treasury market is the world's largest government bond market. Our foreign exchange reserves are huge, so you can imagine that the U.S. Treasury market is an important one to us."
Gold quote and charts
Gold currently $1,117 per oz.

Reuters reported:
Speaking during the annual session of parliament, Yi expressed the hope that China's presence in the U.S. Treasury market would not become a political football. China, he stressed, was not in the game of short-term currency speculation.

"It is market investment behavior, and I don't want it to be politicised," he said. "We are a responsible investor, and we can surely achieve a win-win result in the process of investing."
The Wall Street Journal said China's gold reserves were 1,054 tonnes at the end of 2009. A metric tonne is a unit of mass equal to 1,000 kg (2,204.6 US poundslb) or approximately the mass of one cubic metre of water at four degrees Celsius.

Yi Gang disapointed gold investors by saying he didn't think gold was a great investment for those with a 30-year time horizon.
"Gold is not a bad asset, but currently a few factors limit our ability to increase foreign-exchange investment in gold."
and
"It is, in fact, impossible for gold to become a major investment channel for China's foreign exchange reserves. I have 1,000 tonnes now, and even if I doubled that holding, according to current prices, that would be about $30 billion."
The Wall Street Journal article continues:

Currently, China is the world's sixth largest official holder of the metal at 1,054 metric tons, data from the World Gold Council from the end of 2009 shows.

That accounts for 1.5% of the country's total reserve holdings, a small amount compared with the largest gold holder, the U.S., where gold holdings account for 68.7% of total reserves.

There is no way gold could be a meaningful percentage enough to count.
China doesn't disclose the exact composition of its reserves but the consensus is about two-thirds are invested in dollar backed assets. Yi Gang said SAFE has diversified its holdings beyond the dollar with investments in the euro, yen and some emerging market currencies.
"The foreign exchange reserves are mainly invested in bonds issued by governments and government agencies of the developed and developing countries with high credit ratings, assets issued by companies and international organisations, funds and so on."
More information:



Thursday, March 04, 2010

ECRI Says No Recession This Year, But Recessions Will Be More Frequent so Buy and Hold is Dead

Lakshman Achuthan, the Managing Director at the Economic Cycle Research Institute (More about ECRI) says that the current recovery is the Rodney Dangerfield of recoveries — it’s not getting any respect. He also predicts more frequent recessions than in past years, but no recession this year.
=========================================

=========================================
Buy and Hold is dead:
"Buy and Hold is dead because if you have frequent recessions, that means you have downturns in the market and buying and holding is a real bad strategy."
GDP Growth Rate:
We are going to have an "easing in growth by mid year."
This means we won't keep growing at 5.9% but the economy will keep growing so no recession, at least for this year (2010.)

More information:

US Treasury: Rate Quotes


Wednesday, March 03, 2010

FNSR: Finisar up 571% Over Past Year

A year ago today I added to my Finisar (Ticker FNSR Chart and Quote) holdings at 24¢ (This is $1.92 at today's split adjusted price)

See PDF file: Finisar Mar 3 Buy Alert at 24¢

Today Finisar is $12.89!! (or $1.61 at the pre-split price)

The Gain is (12.89-$1.92)/$1.92x100% = 571%!

What were you doing a year ago? Buying or selling?

Going forward, I still like Finisar and hold it in both new personal and newsletter explore portfolios.

Excerpts from the March issue of "Kirk Lindstrom's Investment Letter" about Finisar:

On Feb 9 Finisar said it expects to report revenues of $166 to $167M for its fiscal Q3 ended January 31, 2010. Its prior revenue guidance was $148 to $158M. In the absence of a material adjustment, Q3 revenues will set a new record for Finisar surpassing the previous combined sales for Finisar and Optium of approximately $163M for the fiscal quarter ended July 31, 2008, just prior to the merger of the two companies and the market melt-down. Based on these projections, Finisar expects to be at the upper end of its original guidance for Q3 on a non-GAAP basis of 30%-32% for gross margin and 6%-8% for operating margin. Sequential revenues will be up about 14.3% over Q2-2010 and 32.1% over last year, Q3-2009! This is the great performance I expected and expect to continue. It is why I bought so many shares of Finisar during the downturn.

6%-8% operating margin on $166 to $167M revenue implies earnings between $10.0M and $13.4M or 15¢ to 21¢ per share.

Finisar should continue to grow operating margin as the costs from merging with Optium end and the new efficiencies take hold. Margins will also improve with volume which I predict will continue to grow at a high rate for many years, subject to gyrations of the economic cycle.

I think FNSR could easily do $1.00 per share in 2011 where a PE of 20 for their growth would be very reasonable. Add in some exuberance as others jump on the bandwidth-wagon and a PE of 40 would be a good target to take major profits at. I find it amazing that FNSR is still cheap with a PE of only 13.5 on FY 2011 earnings. FY2011, only months away, is when we will get FY2012 earnings estimates that should be significantly higher. I expect we will see $20 in a year, if not sooner.

Click table to see full size image

My only regret is I didn't buy even more!

I actually bought Finisar shares 6 different times at prices lower than today.

After buying when very low, I took some profits when it soared. Then I bought some back on a correction. Now I and am back to taking profits, a little at a time, as I hope it continues higher.

If Finisar corrects enough, I may buy shares back again unless my opinion on Finisar changes and I sell all shares.

Disclaimer: I own FNSR in my personal and newsletter portfolios. I may trade around a very profitable core position at any time. I often have buy and sell targets in my newsletter where I announce "Auto Buys" and "Auto Sells" (limit orders with your broker) ahead of time.

Note: A day later I bought some GE at $6.76. See
Give it time to load as it is pdf on a slow server.

Click for full size image courtesy of stockcharts.com

Current FNSR Chart and Quote


Tuesday, March 02, 2010

George Soros Says Gold is in Early Stage of Asset Bubble

George Soros believes gold is in the early phase of an asset bubble. Just as NASDAQ staock were a good buy in 1998, Mr.Soros thinks gold is a good buy now.

Make sure to read

From Soros signals gold bubble as Goldman predicts record at the Financial Post:
"When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment," Mr. Soros said at the World Economic Forum's annual meeting in Davos, Switzerland, in January. "The ultimate asset bubble is gold," he said.

In a Jan. 28 Bloomberg Television interview, the 79-year-old billionaire recalled that former Federal Reserve Chairman Alan Greenspan warned of "irrational exuberance" in financial markets three years before the technology bubble burst in 2000. The Standard & Poor's 500 Index rose 89% in the period.

Buying at the start of a bubble is "rational," Mr. Soros said.
According to a Feb. 16 Securities and Exchange Commission filing, the $25 billion "Soros Fund Management LLC" increased its investment in the SPDR Gold Trust GLD (Quote and charts) by 152% in the fourth quarter. GLD is the world's largest exchange-traded fund for gold.

Click for full size image courtesy of stockcharts.com

See recent articles:
Chart of Gold vs GLD

Quotes and Charts for
Gold and GLD



DOW Gold Ratio Remains in Downtrend

At 9.17, the Dow Jones Industrial Average measured in how many ounces of gold it takes to buy the 30 stock DOW is up 30.4% from its 17-year March 6th low of 7.03. Despite that impressive gain, the DOW-Gold ratio remains 79.5% below its 1999 peak of 44.77.
Here is a chart showing the current Dow to Gold Ratio, the ratio of the price of the Dow Jones Industrial Average to the price of gold. When measured in ounces of Gold, the DOW has been in a secular bear market since peaking in late 1999 at nearly 45.

chart courtesy of www.sharelynx.com (Click for full size image)

The markets, measured by the S&P500 (S&P500 Charts) and DIJA (DJIA Charts), may have recovered to new highs in 2007, but the DOW:Gold ratio told a different, truer story of just how unhealthy the US economy was.
  • Back in 1999, it took nearly 45 ounces of gold to buy the DJIA.

  • On Friday March 6 of 2009 the DOW-Gold ratio hit a low of 7.03

  • As of today (March 2, 2010) it only takes 9.17 ounces of gold to buy the DOW

  • Gold quote and charts
The scary part is the DJIA-to-Gold ratio got down near 1 in the early 1980s and was just under 0.2 in the early 1800s.

This 200 Year Dow/Gold Chart shows the DOW/Gold ratio from 1800 through August 2008.
chart courtesy of www.sharelynx.com (Click for full size image)

With the DOW:Gold ratio now at 9.17, it is trading below the green zone in the second chart. The ratio is oversold, but nothing says it can't get more "oversold."

CDs have been a "safe haven" for those wishing to preserve assets and get a small inflation adjusted return. See "Very Best CD Rates with FDIC" for a list of the best rates and terms.

US Treasury rates are so low, that they are paying less than long term inflation. See:
Disclosure: I own a very small amount of gold hidden in the house for bribes if we see Armageddon. For income plus inflation protection, I own and recommend in my newsletters TIPS, TIPS mutual funds and Series iBonds.

For more information, see:
Question: Which way do you think the DOW-Gold ratio is headed?


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Since 9/30/98 inception, "Kirk's Newsletter Explore Portfolio" is UP 390%
vs. the S&P500 UP only 51% vs. NASDAQ UP only 57% (All through 12/31/11)
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(remember this 2012 performance is with 1/3 in fixed income!)



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