Alpha Apprentice

The Invisible Hand of Foreclosure Prevention

2009-02-18T09:11:00.001-06:00

“These are complicated instruments” they say. We have thousands of bits of mortgages spread over billion dollar pools known as CDOs. Trying to value, or more importantly reconstruct, a mortgage is like trying to build a sandcastle in a hurricane. Let’s accept the premise that the current system is broken beyond repair - and move forwards. While Congress was busy grandstanding, I was trying to figure out a solution.
When a company needs money to purchase assets, it can go to the bond market and issue debt. This debt trades at some value and can usually be bought back below par. Imagine a company issues $50MM at par, and the very next day, a black swan visits Wall Street causing a crash. On this day, the bonds start trading at 80 cents on the dollar. Barring some debt indentures, this company can now repurchase its own $50MM of debt for only $40MM. When the home owner needs money to purchase assets, he or she goes to the lender. Regardless of the economic situation, the home owner is always asked to pay back his debt at par plus accrued interest. There is no reason this practice should continue.
Merrill Lynch sold its mortgage debt portfolio for 22 cents on the dollar. I can imagine almost every single home owner will to pay 23, or more, cents on the dollar for their own mortgage, or for that tranche of their mortgage.
Mortgages should be traded on an exchange where home owners can buy securities that they can later tender in for their mortgage. If we had this system, there would be no issues with transparency, no guessing of values, and stabilize foreclosure rates due to mortgages being under water.
We can use parts of the options trading model to help do this. Each mortgage type will trade within its own category. The following list is not exhaustive but should help clarify my plan.
• By Length of Mortgage (10,15,30 year)
• By Type (Fixed vs. Arm)
• By interest rate ( 5.75%, 5.875%, 6.00%, etc…)
• By FICO Score of Borrower (In 10 point Increments)
• By Geographic region (Midwest vs. Northeast – or maybe even more specific)
• Conforming vs. Jumbo
It would be hard to argue that one 30 year, 5.00% fixed conforming mortgage from a Midwest borrower with an 800 FICO score should be valued different from another. Therefore, if today such a mortgage was trading at 95 cents on the dollar, the individual who was responsible can be rewarded. At the same time, California sub-prime home owner would a choice between foreclosure and trying to repurchase their mortgage below Face Value, preventing mass foreclosures. Lenders could write in specifics to which securities they will allow as tender for the mortgage to protect themselves.
The current system is broken and should not be continued in the future. Let’s replace it with a transparent system that will allow the market to price the value of this debt, like it does so with corporate debt.

Back in Business

2008-12-29T11:27:00.002-06:00

Hello everyone,

I know it has been a while since I have last posted some thoughts. I have been busy with school and building a more professional website.

My next home will be www.Sentimist.com

I will be sharing this website with a fellow investor, Tomasz Dzien.

We plan on posting our thoughts regularly while also offering educational sessions.

Let me also take this time to offer some more current thoughts.

Currently, I am SHORT Best Buy (BBY), First Solar (FSLR), and the Nasdaq 100 (PSQ).

Today's poor retail numbers indicate to me that retailers will continue struggle just to survive. At the same time, I believe that lack of access to credit coupled with very low energy prices are axing alternative energy. My general market outlook is negative. I believe that Technology is the ultimate discretionary spending made my corporations-which is why I am long the PSQ.

More to come.

Oil Plummets Again- This time to $91

2008-09-16T08:29:00.002-05:00

Oil is clearly crashing. This sell-off in oil has been more fierce than anyone thought likely. Oil seems to have been hit by the perfect storm.

Luckily, I recommend that short about $50 ago

DUG is currently at 47.60, which is 46% higher than my original call.

Oil looks right now looks to be easily headed to $80. I think it will near it but I would prefer to take some money money off the table because the inventory reports will come out today. It is likely that Hurricane Ike did affect short term supplies.

I would also like to add that its prudent to buy companies severely affected by high oil prices such as FDX, PG, and KMB

Lehman (LEH) Files for Chapter 11 - Can't find a Buyer

2008-09-15T13:59:00.001-05:00

Here are the thoughts of Brad Hintz

Lehman Brothers Holdings was not sold. Barclays pulled out of the negotiations, apparently concluding that conservatism is the best course of action in today's uncertain credit market conditions, and Bank of America found a better partner in Merrill Lynch.

The US Treasury decided that it will not provide credit support of a Lehman Brothers acquisition beyond the funding support what it is already being provided through the Fed discount facilities. Therefore, The Street spent part of the weekend making preparations for a worst case outcome. ISDA has produced a legal document in an attempt to facilitate the orderly unwind of the Lehman derivatives book in preparation of a potential bankruptcy filing by the firm.

Having survived the weekend without being acquired, LEH apparently concluded that an attempt to open for business this morning in New York was futile. Even with a strong liquidity position and access to the Fed discount window, management realized that it would not be able to raise more equity capital given its stock price and that issuance of long term debt would be problematic. We believe its ratings were about to be taken down by Moodys and it was unlikely that counterparties would accept Lehman settlement risk; therefore, the company would be forced to pre-fund its trades.

And although the $600 billion balance sheet of the firm would provide plenty of sources of immediate cash if the firm began to liquidate its securities inventories, management apparently concluded that the plan Lehman Brothers presented last week was impossible to complete with LEH's stock price more than 90% down and an orderly liquidation strategy would only prolong the inevitable. So the firm filed Chapter 11 this morning.

Oil Nears $100

2008-09-11T10:00:00.001-05:00

Oil Continues Slide
10:30a ET September 11, 2008 (Briefing.com)

Oil futures made a brief spike into positive territory before receding back into negative ground. Oil is currently down 1.0% to trade near $101.50 per barrel. Curde is now up just 5.8% year-to-date. Oil exploration and production companies are currently down 2.1% this session, the worst in the energy sector (-1.4%). However, oil and gas refiners (+4.8%) are faring quite well. Many refiners are curtailing operations as hurricanes threaten their facilities, which eases demand for crude oil. That scenario helps build crude inventories, but makes gasoline and other consumable fuels shorter in supply. Softer fuel prices bode well for stocks since they reduce input and operating costs. However, uncertainty related to the global economy and the threat of continued weakness in the financial sector (-3.2%) has promoted traders to act largely independent of oil prices during recent sessions.

Taking more Profits on this Momumental Day

2008-09-08T12:08:00.006-05:00

Google GOOG: 427

I want any short positions based on my recommendation to be down to 25%. We had a very dramatic move from GOOG and a bounce is inevitable.

First Solar FSLR: 222

Home Depot HD: $30.10

Jim Cramer is now bullish on HD. I still love this stock for another 2 years but we have seen about a 50% run from the bottom.

HUGE NEWS: US Government takes over mortgage giants

2008-09-07T20:05:00.001-05:00

US Government seizes control of mortgage giants Fannie Mae and Freddie Mac WASHINGTON (AP) -- The Bush administration's seizure of troubled mortgage giants Fannie Mae and Freddie Mac is potentially a $200 billion bet that it will help reverse a prolonged housing and credit crisis.

The historic move announced Sunday won support from both presidential campaigns, but private analysts worried that it may not be enough to stabilize the slumping housing market given the glut of vacant homes for sale, rising foreclosures, rising unemployment and weak consumer confidence.

Officials announced that both giant institutions were being placed in a government conservatorship, a move that could end up costing taxpayers billions of dollars. Treasury Secretary Henry Paulson said allowing the companies to fail would have extracted a far higher price on consumers by driving up the cost of home loans and all other types of borrowing because the failures would "create great turmoil in our financial markets here at home and around the globe."

Mark Zandi, chief economist at Moody's Economy.com predicted that 30-year mortgage rates, currently averaging 6.35 percent nationwide, could dip to close to 5.5 percent. That's because investors will be more willing to buy the debt issued by Fannie and Freddie -- and at lower rates -- since the federal government is now explicitly standing behind that debt.

"Effectively, the federal government has now become the nation's mortgage lender," he said. "This takes a major financial threat off the table."

Futures on all major stock indexes rose about 2 percent in electronic trading Sunday night, another sign of investor relief about the takeover plan

The companies, which together own or guarantee about $5 trillion in home loans, about half the nation's total, have lost $14 billion in the last year and are likely to pile up billions more in losses until the housing market begins to recover.

The Treasury Department said it was prepared to put up as much as $100 billion over time in each of the companies if needed to keep them from going broke, in exchange for senior preferred stock. Treasury will immediately be issued $1 billion of such stock from each company, which will pay 10 percent interest. Further purchases of preferred stock will be triggered if quarterly audits find that the companies' capital cushion is below prudent standards.

The government, which will receive warrants representing ownership stakes of 79.9 percent in each company, is hoping that its moves will reassure nervous investors that they can continue to buy the debt of the two companies.

In a statement, President Bush said, "Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth."

Democratic presidential nominee Barack Obama issued a statement agreeing that some form of intervention was necessary, and promised, "I will be reviewing the details of the Treasury plan and monitoring its impact to determine whether it achieves the key benchmarks I believe are necessary to address this crisis."

Republican presidential nominee John McCain also voiced support while his running mate, Alaska Gov. Sarah Palin, said that Fannie and Freddie "have gotten too big and too expensive to the taxpayers. The McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help."

The conservatorship will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie, a move taken at the same time that Congress greatly expanded the power of the Treasury Department to make loans to the two companies and purchase their stock.

The executives and board of directors of both institutions are being replaced. Herb Allison, the former head of the TIAA-CREF retirement investment fund, was selected to head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp, was picked to head Freddie Mac.

Paulson was careful not to blame Daniel Mudd, the outgoing CEO of Fannie Mae, or Freddie Mac's departing CEO Richard Syron for the companies' current problems. While both men are being removed as the top executives, they have been asked to remain for an unspecified period to help with the transition.

Fannie and Freddie both purchase home loans from banks and then repackage those loans as mortgage-backed securities which they either hold on their own books or sell to investors around the globe. This process provides banks with more money to make more home loans, greatly expanding home ownership.

The impact of the government takeover on existing common and preferred shares, which have slumped in value in the last year, will depend on how investors react to Paulson's assertion that they must absorb the cost of further losses first. Under the plan, dividends on both common and preferred stock would be eliminated, saving about $2 billion a year.

After the Treasury Department's announcement, credit rating agency Standard & Poor's downgraded Fannie and Freddie's preferred stock to junk-bond status, but reaffirmed the U.S. government's triple-A rating.

The Federal Reserve and other federal banking regulators said in a joint statement Sunday that "a limited number of smaller institutions" have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were "prepared to work with these institutions to develop capital-restoration plans."

The Fed released a letter from Fed Chairman Ben Bernanke to James Lockhart, the director of the Federal Housing Finance Agency, in which the Fed chief said he concurred in Lockhart's decision to take control of Fannie and Freddie saying the action "will help ensure the safe and sound operation of the enterprises."

Analysts were split on how much the takeover could eventually cost taxpayers although they all agreed the up-front costs will be substantial, possibly hitting $100 billion as the Treasury is called upon to bolster the capital cushions at both institutions.

However, if the plan does the trick of stabilizing the housing market and home prices stop falling and rebound, then the assets of both Fannie and Freddie should rise in value and the government should be able to sell off the companies and recoup its investments.

But it could take a long time to work through that process given all the headwinds facing housing at the moment from the plunge in home prices to soaring defaults on mortgages which are dumping more homes on an already glutted market. The weak economy has pushed unemployment to a five-year high of 6.1 percent, further reducing demand for homes.

"I think the government will end up having to put in far more money then they are planning right now (given all the problems facing housing) but the important thing is the agencies have been taken over by the government," said Sung Won Sohn, an economics professor at California State University Channel Islands. "That means there will be less panic in financial markets."

Under government control, the companies will be allowed to expand their support for the mortgage market over the next year by boosting their holdings of mortgage securities they hold on their books from a combined $1.5 trillion to $1.7 trillion. Starting in 2010, though, they are required to drop their holdings by 10 percent annually until they reach a combined $500 billion.

In addition, officials said the Treasury Department plans to purchase $5 billion in mortgage-backed securities issued by the two companies later this month, the first of a series of purchases planned by the government in an effort to bolster for these securities, which was badly shaken a year ago when the credit crisis first erupted with soaring defaults on subprime mortgages.

Paulson said that it would be up to Congress and the next president to figure out the two companies' ultimate structure and the conflicting goals they operated under -- maximizing returns for shareholders while also being required to facilitate home buying for low- and moderate-income Americans.

"There is a consensus today ... that they cannot continue in their current form," he said.

Members of Congress will be watching in the coming months to see how the takeover works, but more housing legislation appears unlikely until next year given the few weeks remaining both Congress quits to hit the campaign trail.

Sen. Charles Schumer, D-N.Y. said the intervention was sparked by worries within the Bush administration that foreign governments would stop holding Fannie and Freddie's debt. "This was the prudent course to take," he said.

Senate Banking Committee Chairman Chris Dodd, D-Conn., announced his committee would hold hearings on the takeover to address a number of unanswered questions so that the American people will know "if this unprecedented proposal will help keep mortgages affordable, stabilize the markets and protect taxpayer interests."

Lockhart said that all lobbying activities of both companies would stop immediately. Both companies over the years made extensive efforts to lobby members of Congress in an effort to keep the benefits they enjoyed as government-sponsored enterprises.

Sunday's actions followed a series of meetings Paulson had with Bush and other top administration economic officials with Bush relying heavily on the judgment of Paulson, who was the head of investment giant Goldman Sachs before he joined the Cabinet in 2006.

"It is really an assent to Hank's direction, guidance and judgment," said a senior administration official, who spoke on condition of anonymity to discuss behind-the-scenes deliberations.

Associated Press Writer Ben Feller in Washington contributed to this report.

http://biz.yahoo.com/ap/080907/mortgage_giants_crisis.html

Google Launches a Browser: Attack on Microsoft

2008-09-02T09:52:00.002-05:00

On the surface, we designed a browser window that is streamlined and simple. To most people, it isn't the browser that matters. It's only a tool to run the important stuff -- the pages, sites and applications that make up the web. Like the classic Google homepage, Google Chrome is clean and fast. It gets out of your way and gets you where you want to go.

Under the hood, we were able to build the foundation of a browser that runs today's complex web applications much better. By keeping each tab in an isolated "sandbox", we were able to prevent one tab from crashing another and provide improved protection from rogue sites. We improved speed and responsiveness across the board. We also built a more powerful JavaScript engine, V8, to power the next generation of web applications that aren't even possible in today's browsers.

Google released a comic book to explain how this new browser is different.

Taking Profits in Glass: Owens-Illinois (OI)

2008-09-02T09:20:00.005-05:00

This stock has been straight up for the last 3 days. With this recent decline in Natural Gas, the stock should be saving millions in raw material costs on a daily basis. However, this market giveth and taketh very quickly. Time to realize some profits.

Current Price: 45.70

I also think we should take some profits in GOOG and FSLR

Historic Day for Oil, Down Over $9

2008-09-02T08:12:00.005-05:00

Oil prices crumble as global economic outlook dims
Tuesday September 2, 8:51 am ET
By Pablo Gorondi, Associated Press Writer

Oil prices fall as global demand concerns resurface after hurricane worries subside Oil prices tumbled more than $8 Tuesday to levels last seen five months ago as investors shifted their focus from hurricanes in the Gulf of Mexico to slowing global demand.By afternoon in Europe, light, sweet crude for October delivery was down $8.06 a barrel to $107.40 in electronic trading on the New York Mercantile Exchange. The last time prices hovered in that range was in early April before a historic run-up above $147 per barrel. Earlier in the session prices had dropped as low as $105.46

"The market continues to be weighed down by worries of a global economic downturn and slowing oil demand in developing markets," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore. "Action by OPEC and supply side concerns should put a backstop to any sharp price drop."
The Organization of Petroleum Exporting Countries is scheduled to meet Sept. 9 in Vienna and has indicated it may take action to defend the $100 a barrel level.
Ahead of Gustav, there was some disruption to oil supplies as oil companies shut down production and evacuated facilities. Altogether, about 2.4 million barrels of refining capacity was halted, roughly 15 percent of the U.S. total, according to figures from Platts, the energy information arm of McGraw-Hill Cos. The Gulf Coast is home to nearly half of the nation's refining capacity.
It could be a day or more before oil and natural gas companies can assess the damage to their drilling and refining installations. Louisiana Gov. Bobby Jindal said as much as 20 percent of oil and gas production that was stopped because of Gustav could be restored by this weekend, stressing that it was a rough estimate.
Traders are also keeping an eye on other storms brewing in the region.
Tropical Storm Hanna was predicted to come ashore in Georgia and South Carolina late in the week and could regain hurricane strength later in the day. Tropical Storm Ike formed late Monday in the Atlantic Ocean and may become a hurricane in the next 36 hours as it approaches the Bahamas.
"September is the peak of the Atlantic hurricane season. After Gustav, there are two more now on the radar screen. The storms are likely to provide some upside risks to the oil futures market," Shum said.
In other Nymex trading, heating oil futures fell 20.8 cents to $3.9839 a gallon, while gasoline prices lost 20.44 cents to $2.6498 a gallon. Natural gas for October delivery fell 68.7 cents to $7.256 per 1,000 cubic feet.
In London, October Brent crude fell $2.97 to $106.44 a barrel on the ICE Futures exchange.
http://biz.yahoo.com/ap/080902/oil_prices.html

Mercifully, Gustav caused considerably less damage than everyone feared. Even though the current price of oil still has a hurricane premium thanks to Hannah and Ike, oil has fallen to a new multi-month low.

This is the vindication I was looking for: Oil will easily break $100 by October.

DUG is up 2.57 (7.43%) to 37.18.

Category 2 Gustav Slamming Louisiana

2008-09-01T11:19:00.001-05:00

Hurricane Gustav is bearing down on the Louisiana coast. It has weakened to a Category 2 hurricane with winds of 110 mph but that doesn't change too much in terms of impacts affecting southern Louisiana.

Watch the latest hurricane forecast.

As of 10 a.m. CDT, Gustav made landfall near Cocodrie, Louisiana. It was centered about 70 miles southwest of New Orleans and about 100 miles southeast of Lafayette, Louisiana. It is moving to the northwest at 15 mph and it will continue in this direction all day today moving into western Louisiana by tonight.

View the Gustav Tracker.

View the projected path.

The northern half of Gustav is now spinning over southeastern Louisiana. In fact, the northern half of Gustav's eyewall is scraping along the marshy coast of southern Louisiana passing south of Houma and eventually south of Morgan City.

Spiraling rain bands will continue to push onshore this morning and will produce tropical storm-force sustained winds (occasionally sustained hurricane-force winds) and easily gust over hurricane force.

The very dangerous water-level rise will continue to grow higher and higher this morning with a 8 to 12 foot surge in the vicinity of landfall. Here's a look at the expected storm surge.

View the current Hurricane watches and warnings and tropical storm watches and warnings.

Remember, don't only focus on the landfall location. Tropical storm-force winds extend 200+ miles from the center and hurricane-force winds extend 70 miles from the center. Wind, surge, and rain impacts will be far reaching. After landfall, the focus will shift from winds and surge to flooding rains and isolated tornadoes.

Tropical Storm Hanna was centered about 40 miles north of the Southeast Bahamas as of 11 am ET. Maximum sustained winds have yet again increased to 60 mph.

A hurricane watch has been posted for a portion of the Bahamas.

View the Hanna Tracker.

Hanna will slide southwest today before making a turn toward the northwest some time on Tuesday. This will take it on a course that will move it over the southeastern and central Bahamas during the next few days.

View the latest projected path for Hanna.

Tropical Storm Hanna has already begun to churn the ocean waters off the Southeast coast. On Sunday afternoon, numerous rescues by lifeguards were carried out along the North Carolina coast and lifeguards along the Georgia coast reported several rip currents. Please be mindful of the dangerous surf during this holiday weekend.

Though Gustav is still on people's minds, coastal residents of Georgia, South Carolina, and North Carolina should all monitor the track and development of Hanna. By Friday, it may be nearing the Southeast U.S. coast.

Elsewhere in the Atlantic Basin, a tropical wave and broad low pressure area has been deemed Tropical Depression 9. It is located halfway between the Lesser Antilles and Africa. Thunderstorm activity has remained with the depression over several hours now.

It may become a tropical storm by later today. It will initially head west-northwest then west over the course of this week. It is forecast to become a hurricane later this week.

There is another tropical wave that has just emerged from the African Coast that has potential for development in the next couple of days.

http://www.weather.com/newscenter/hurricanecentral/update/index.html

Stocks jump on better-than-expected GDP, jobs data

2008-08-28T12:38:00.000-05:00

Stocks jump on better-than-expected gross domestic product reading, decline in jobless claims NEW YORK (AP) -- Stocks extended their advance Thursday after a better-than-expected reading on the nation's economy and a drop in jobless claims. The Dow Jones industrial average rose nearly 200 points.

Stocks gained as oil prices, up in early trading, reversed course.

The Commerce Department said gross domestic product rose at an annual rate of 3.3 percent for the April-June period, as a weaker dollar helped boost U.S. exports. That exceeded the government's initial estimate of a 1.9 percent increase as well as economists' forecast of a 2.7 percent gain.

The growth marked the economy's best performance since the third quarter of last year, when GDP rose at a 4.8 percent pace.

Investors closely watch GDP to determine whether the economy is picking up momentum after being pounded by housing woes and a debilitating credit crisis. The economy grew at a weak rate of 0.9 percent in the first quarter and actually shrank in the last three months of 2007.

Also Thursday, the Labor Department said the number of newly laid off people seeking jobless benefits fell for the third straight week. The number of claims dropped to a seasonally adjusted 425,000, down 10,000 from the previous week. That was slightly better than the 427,000 expected by analysts surveyed by Thomson/IFR.

But economists consider claims above 400,000 an indicator of a slowing economy. Companies have cut jobs every month this year as they grapple with rising energy costs and tighter credit.

"We didn't get a whole lot of new information," said Charlie Smith, chief investment officer at Fort Pitt Capital Group in Pittsburgh, referring to the reports. He noted that trading remains light ahead of the long Labor Day weekend.

"Exaggerated reactions tend to happen when you have thin trading," he said.

In midday trading, the Dow rose 192.81, or 1.68 percent, to 11,695.32 after rising more than 115 points over the past two sessions.

Broader stock indicators also rose. The Standard & Poor's 500 index advanced 14.51, or 1.13 percent, to 1,296.17, and the Nasdaq composite index rose 23.48, or 0.99 percent, to 2,405.94.

Bonds fell as investors moved into stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.81 percent from 3.77 percent late Wednesday. The dollar rose against other major currencies, while gold prices rose.

Investors are also watching oil prices as Tropical Storm Gustav churns toward the Gulf of Mexico on a course that could collide with oil and gas platforms. But strength in the dollar helped drive down the price of oil.

Light, sweet crude fell $2.82 to $115.32 on the New York Mercantile Exchange.

The decline in oil made energy stocks one of the few areas of weakness Thursday.

Devon Energy Corp. fell $4.96, or 4.7 percent, to $101.82, while Hess Corp. fell $2.64, or 2.5 percent, to $104.50.

In corporate news, Sears Holdings Corp. said its second-quarter profit fell 62 percent as weak consumer spending continues to hamper store sales. The retailer earned $65 million, or 50 cents per share, in the three-month period ended Aug. 2. That compares with $173 million, or $1.15 per share, in the year-ago period. The stock rose $3.80, or 4.4 percent, to $90.78.

Tiffany & Co. jumped $3.88, or 9.8 percent, to $43.49 after reporting that its second-quarter profit doubled as sales rose by double-digit percentages in Asia and Europe.

Investors have been looking to retailers' results for information not only about the companies, but about consumers' ability to spend. Several upbeat reports Wednesday from retailers helped buoy Wall Street's confidence in the economy.

Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange, where volume came to 385.5 million shares.

http://biz.yahoo.com/ap/080828/wall_street.html

Hedge Fund Tracking: Lone Pine Capital's 13F (Stephen Mandel Jr.)

2008-08-22T14:37:00.001-05:00

Full Credit for this Post should go to Market Folly

http://marketfolly.blogspot.com/

The Hedge Fund 13F Tracking series continues. If you've missed them, I've already covered Jeffrey Gendell's Tontine Partners here, Bret Barakett's Tremblant Capital here, Peter Thiel's Clarium Capital here, and John Griffin's Blue Ridge Capital here. Next up, we have Lone Pine Capital, managed by Stephen Mandel Jr. Lone Pine is an $8 Billion fund that has returned over 25% annually ever since its inception in 1997. Why is Mandel worth following you might ask? Well, he served as a consumer/retail analyst for Tiger Management back in the day for legendary investor Julian Robertson. Robertson's proteges/right-hand men have been nicknamed the "Tiger Cubs" and many have started their own funds. So, not only has Mandel learned from one of the best, but he has put up some very solid returns himself. Mandel is well versed in the ways of finding undervalued companies and his funds typically like to sniff out solid companies with good management that are trading below their intrinsic value. Just this past year 1 of his funds was up 34% before fees while another was up 32% before fees. His track record speaks for itself. And, not to mention, he learned from one of the greats in Julian Robertson. However, as I wrote about here, Lone Pine has had a rough 2008, where their Lone Cedar Fund was -5.38% year to date (as of the middle of July '08). By analyzing their 13F, maybe we'll be able to see where they are slipping up.

Once again, I'd like to give thanks to Alex Prywes for helping me gather and sort through the data of numerous hedge funds (including the one below). Thanks to Alex's help, we can now cover even more funds. And, on that note.... onto the 13F! The following are Lone Pine Capital's current holdings as of June 30th 2008, as released in their most recent 13F filing with the SEC. The positions in this most recent 13F were compared to last quarter's 13F and here are the changes made to their portfolio:

New Positions:
Entergy Corp (ETR): 3,518,632 shares. This position is 6.06% of Lone Pine's portfolio.
Weatherford Intl (WFT): 4,820,337 shares. This position is 3.42% of Lone Pine's portfolio.
Lorillard Inc (LO): 3,328,911 shares. This position is 3.29% of Lone Pine's portfolio.
Amazon (AMZN): 2,527,634 shares. This position is 2.65% of Lone Pine's portfolio.
Sears Holdings Corp (SHLD) Puts: 1,336,800. This position is 1.41% of Lone Pine's portfolio.

Added to:
America Movil (AMX): Increased position by 39.5%. Position is now 10.74% of their portfolio.
Sandridge Energy (SD): Increased position by 22.24%. Position is now 11.35% of their portfolio.
SAIC (SAI): Increased position by 16.38%. Position is now 2.45% of their portfolio.
Dicks Sporting Goods (DKS): Increased position by 15.8%. Position is now 1.48% of their portfolio.
XTO Energy (XTO): Increased position by 5.41%. Position is now 8.33% of their portfolio.

Reduced Positions:
CB Richard Ellis (CBG): Reduced their position by 9.62%. Position is now 2.94% of their portfolio.
Illumina (ILMN): Reduced their position by 9.97%. Position is now 2.69% of their portfolio.
Fastenal (FAST): Reduced their position by 12.5%. Position is now 3.78% of their portfolio.
Qualcomm (QCOM): Reduced their position by 13.88%. Position is now 7.26% of their portfolio.
Brookfield Asset Mgmt (BAM): Reduced their position by 16.4%. Position is now 3.26% of their portfolio.
Monsanto (MON): Reduced their position by 25.82%. Position is now 3.27% of their portfolio.
Mastercard (MA): Reduced their position by 29%. Position is now 2.48% of their portfolio.
Priceline (PCLN): Reduced their position by 30.75%. Position is now 2.34% of their portfolio.
Google (GOOG): Reduced their position by 39.30%. Position is now 7.39% of their portfolio.
Infosys (INFY): Reduced their position by 49.1%. Position is now 2.19% of their portfolio.
Visa (V): Reduced their position by 57.38%. Position is now 1.93% of their portfolio.
Sears Holdings (SHLD) Puts (2nd put position): Reduced their position by 79.73%. Position is now 0.21% of their portfolio.

Removed Positions (Positions Lone Pine sold out of completely):
Apple (AAPL)
Brookfield Asset Management (BAM) - 2nd listed position
CME Group (CME)
EMC Corp (EMC)
Nutrisystem (NTRI)
Southwestern Energy (SWN)
SRA International (SRX)

Positions with no change:
MSC Industrial Direct (MSM). Position is 3.26% of their portfolio.
Teradata (TDC). Position is 3.06% of their portfolio.
Eagle Materials Inc (EXP). Position is 1.66% of their portfolio.
Bunge (BG) Puts. Position is 0.85% of their portfolio.
Deltek (PROJ). Position is 0.24% of their portfolio.
New York Times (NYT) Puts. Position is 0.02% of their portfolio.

Top 10 holdings by % of portfolio:
1. Sandridge Energy (SD): 11.35% of the portfolio
2. America Movil (AMX): 10.74% of the portfolio
3. XTO Energy (XTO): 8.33% of the portfolio
4. Google (GOOG): 7.39% of the portfolio
5. Qualcomm (QCOM): 7.26% of the portfolio
6. Entergy (ETR): 6.06% of the portfolio (new position)
7. Fastenal (FAST): 3.78% of the portfolio
8. Weatherford Intl (WFT): 3.42% of the portfolio (new position)
9. Lorillard Inc (LO): 3.29% of the portfolio (new position)
10. Monsanto (MON): 3.27% of the portfolio

--------------------------------------------

Breakdown: Well, it's very evident where Mandel & Lone Pine's poor performance is coming from. As of June 30th, they had massive holdings in natural gas and oil players Sandridge Energy (SD) and XTO Energy (XTO). SD was their top holding by % value and XTO was not far behind as their 3rd largest holding. The selloff in natural gas, oil, and all related stocks has undoubtedly affected Lone Pine in a negative way. The selloff in those names started around July, leaving Mandel a very limited window of opportunity to sell. Unfortunately, we'll have to wait until the next round of 13F's in the coming quarter to find out what Mandel has done with his large natural gas positions. Considering that the filing reports holdings as of June 30th, and the major selloff began in July, we have no idea whether Lone Pine was massively hurt by the selloff, or whether they were one of the parties responsible for the selloff. But, no matter how savvy Mandel may be, there is no way he got through July unscathed. So, that looks to be one of the main areas contributing to the lackluster performance of his Lone Cedar Fund so far in 2008.

Next, I want to highlight that Lone Pine added to their America Movil (AMX) position by 39%, nearly doubling down on their shares. Obviously, Mandel still likes the company and was using the weakness to add to his position. His addition is interesting, considering numerous hedge funds completely removed their AMX position over the past quarter, including his 'Tiger cub' buddy John Griffin over at Blue Ridge Capital. AMX has long been a hedge fund favorite and has been a top 10 holding in many prominent hedge fund portfolios over the past year. But, with the recent developments in AMX over the last few months, many hedge funds have taken action. And, unlike his colleagues, Mandel was buying the shares that other fund managers were selling off. It will be interesting to see how this continues to play out, as the once hedge fund favorite AMX may be falling out of favor with numerous managers. Lone Pine, however, was adding with conviction, making it their portfolio's 2nd largest position.

I would also like to highlight a couple of new positions started by Lone Pine this past quarter. They added Entergy (ETR) in mass, making it their 6th largest holding at 6.06% of their overall portfolio. In the past, I've talked about ETR on the blog as a way to play both the rising demand in electricity as well as the nuclear space in alternative energy. In addition to starting ETR, they started Weatherford (WFT), an equipment and service provider in the oil and natural gas spaces. They brought this position up to the fund's 8th largest holding at 3.42% of their portfolio. Additionally, they started a position in Lorillard (LO), a cigarette manufacturer. They brought this name up to the 9th largest fund holding, at 3.29% of the portfolio. Mandel added ETR, WFT, and LO all with conviction over the past quarter, landing all three as top 10 holdings.

Turning to tech, we see that Lone Pine has sizable positions in hedge fund favorites like Google (GOOG) and Qualcomm (QCOM). However, Lone Pine was selling off some of their tech holdings during the past quarter. They sold 13% of their QCOM position, leaving it as the fund's 5th largest holding. Mandel got aggressive with Google (GOOG) though, selling nearly 40% of his position. Despite the selling, it still remains their 4th largest holding. That just goes to show how large of a position he had in GOOG. Additionally, he sold completely out of Apple (AAPL). Just last quarter, it was his fund's 5th largest holding. Now, he no longer even holds a position.

Lone Pine was also busy selling the payment processors Mastercard (MA) and Visa (V). They sold 30% of their position in MA and 57% of their position in V. You can't really blame them though, as they were sitting on some handsome profits from those positions. We'll keep an eye out to see if they add back to their positions now that MA and V trade at cheaper prices than they did 2 months ago. After all, the payment processors are big hedge fund favorites, having appeared in numerous funds' portfolios.

Overall, its easy to see where Lone Pine might be struggling this year. They've been rewarded with nice gains in some of their tech and payment processing holdings. But, those gains could have been easily nullified by the likely beating their natural gas and oil holdings took. If you are interested in further comparing Lone Pine's holdings, you can check out the analysis I did of their previous 13F here. Lastly, in a recent development, Lone Pine recently filed a 13G with the SEC, disclosing their minority stake in Hansen Natural (HANS), which I wrote about here.

And, you can view their most recent 13F as filed with the SEC here.

A little Vindication For My Bearish Oil Call

2008-08-22T14:12:00.002-05:00

Yesterday, Crude Oil hit $122/ barrel and today we have it trading at $114.63. That's already more than $7 lower from yesterday's high.

The rally we saw less than 24 hours ago was Russia-U.S. fear driven and not insight on demand building. Now that Tropical Storm Fay is looking less and less destructive while tension are easing in Georgia, we are seeing oil fall closer to a Supply/Demand equilibrium.

The sell-off in commodities is the reason I haven't recommended Foster Wheeler (FWLT) even at these level. This stock moves in tandum with oil, although earnings shouldn't. I won't fight the tape.
However, when FWLT falls below $45, the risk-reward ratio looks great.

Bill Gates Buys More Republic Services (RSG)

2008-08-21T10:51:00.003-05:00

For those unfamiliar with the company :

Republic Services, Inc. provides nonhazardous solid waste collection and disposal services for commercial, industrial, municipal, and residential customers in the United States. The company primarily engages in residential collection operations that include curbside collection of refuse from small containers into collection vehicles for transport to transfer stations or directly to landfills. Its commercial and industrial collection operations include the supply of waste containers of various sizes to construction sites and rental of compactors to large waste generators, as well as the provision of waste collection services to industrial and construction facilities on contractual basis. In addition, the company provides recycling services, including the curbside collection of residential recyclable waste to commercial and industrial customers.

Waste management (WMI) is currently trying to buy RSG for $6.73 billion dollars. RSG claims the bid significantly undervalues the company. At the same time, RSG is trying to purchase Allied Waste Industries (AW) for $6.07 billion.

Bill Gates Foundation, Cascade Investment LLC, has bought 3,080,991 shares for a total of $106,976,640 brining the average price to $34.72.

Cascade Investment now owns a total of 31,395,240 shares.

Boeing (BA)To Start Talk with Union

2008-08-21T10:12:00.003-05:00

Boeing (BA) will begin negotiations with its union machinists in order to avoid a potential strike as it hopes to make inroads against mounting pension and health-insurance costs, reported The Wall Street Journal. The International Association of Machinists and Aerospace Workers will seek improved policy on health care, pensions and job security.

Last I checked, the machinists are making around $21 on average and nearing retirement within a decade. More pay probably isn't as important as job security.

Last time there were major talks with the union was after 9/11 where they made large concession. Now they are again negotiating in a tough economy- I guess these guys have no luck at all. I think that completing deliveries is to important for BA not to make concession. I am also a believer in happier employees being more productive, so I expect the extra costs to be made up along the chain.

Crude Oil Finding a Bottom?

2008-08-20T11:51:00.005-05:00

UPDATE: OIL FUTURES: Nymex Crude Falls On Huge Stockpile Gain

(Updates prices and tropical storm forecast; adds background on U.S. crude imports)

By Gregory Meyer

Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Crude oil futures sank more than $1 Wednesday after government data showed U.S. crude stockpiles swelled by nearly 10 million barrels last week.

Light, sweet crude for September delivery was recently down $1.29, or 1.1%, at $113.24 a barrel on the New York Mercantile Exchange. The September contract expires Wednesday. More active October Nymex crude declined $1.26 to $113.28 a barrel. September Nymex crude was trading at $116.86 before the data release.

October Brent crude on the ICE Futures exchange was down $1.09 to $112.16 a barrel.

The U.S. Department of Energy reported domestic crude stockpiles rose by 9.4 million barrels in the week ended Aug. 15, more than 11 times the gain expected by analysts. It was the largest rise in barrel terms since March 2001 and percentage terms since April 2003.

The gains came after crude imports to the Gulf Coast increased by about 1.8 million barrels a day, to 7.2 million barrels a day. Tim Evans, an energy analyst at Citi Futures Perspective, said Gulf imports bounced back after Tropical Storm Edouard had curbed imports in the prior week.

Today we saw inventory build by almost 10 million barrels, the largest build since March of 2001. At the same time, we hear news that Tropical Storm Eduard is waning. But there is another storm forming on in the Orient: China.

You can see the optimism in the futures. Although we had a huge build in oil inventory, the futures are flat. Has oil halted its slide? Even energy stocks found a bottom last couple days. China will soon go back to full throttle and Oil is going back to $150. Goldman Sachs said so.

Where I find flaw in this China-Olympics theory is that the media makes it out to be that there are only 2 consumers in the world of crude, U.S.A and China. Everyone says that this decrease in demand is thanks to the slow down in China to clean up the air before the Olympics. Did everyone forget that the rest of the world, including emerging markets like Russia, Brazil, and India, have NOT slowed down because of the Olympics? To add, China did not close down production country wide but only in Beijing and a few other small factory and port cities. Beijing is less than 2% (1.7% by my math in 2007) of China's GDP.

While the rest of the world (92% of energy consumption) continues to consume at its pre-Olympic pace, Oil has fallen $35. Yet, CNBC won't stop talking about the impending hurricane of demand that will come from China. I disagree.

As I have already said, most of China is still consuming at its pre-Olympic pace too.

Let's do a little guestimation: China accounts for 8% of world oil consumption (1/3 as much as the U.S). Let's say Beijing consumption has slowed 50% (it didn't) By limiting traffic, it is estimated that daily only 1/3 of the 3.3 million vehicles will stay off the road. Non-discretionary consumption should stay flat. So, 2% of 8% is 0.16% of world consumption, or approximately 138K barrels a day of consumptions. Going back to our 50% decrease in consumption number, Beijing purposely decreased its Beijing consumption by 69K barrels a day. There goes the ramping up thesis. 40 factories here and there don't significantly raise that number in the context of world supply.

My point is that China's actions have not significantly, or even marginally, cut demand. However, in the same time frame, Crude Oil has fallen from $148 to $113. To say that the slowdown in China is because of the Olympics is a canard. Furthermore, China has curtailed gasoline demand by raising prices 17% in late June and OPEC has increased supplies.

The Chinese tried very hard to piece together their country before the world arrived. It is arguable that the super spike we saw in oil was because China tried to complete in months what they should have built in years. Now, I will argue that progress (and consumption) will slow from here. Growth tends to slow post Olympics in host countries.

13F Weekened

2008-08-15T09:43:00.002-05:00

13Fs are coming out soon and I'll spend the weekend compiling and condensing information.

Although 13Fs are lagging by about 6 weeks, they are at least very interesting and still informative.

A 13F is a compliance form filed with the SEC by investment managers with AUM of over $100 million.

Inflation Is In The Rear View Mirror

2008-08-14T11:12:00.002-05:00

http://www.bloomberg.com/apps/news?pid=20601087&sid=aoOKMz5QYK9w&refer=home

U.S. Economy: Consumer Prices Rise More Than Forecast (Update1)

By Shobhana Chandra

Aug. 14 (Bloomberg) -- U.S. consumer prices rose at the fastest pace in 17 years in July, limiting the ability of the Federal Reserve to lower interest rates as economic growth slows.

The cost of living climbed 5.6 percent in the year ended in July, the Labor Department said today in Washington. It was up 0.8 percent from the previous month, twice as much as anticipated. So-called core prices, which exclude food and energy, also advanced more than projected.

The surge last month reflected energy prices that have since declined, signaling July may represent the peak in inflation. Still, increases went beyond food and fuel, including gains in clothing, airline fares and education, likely intensifying discussions among Fed policy makers about how quickly to shift toward raising rates.

To play the contrarian, the increase in prices across almost all categories shows capitulation.

I think the market is rallying because this could be the peak of inflation. As I have been writing, I think that commodities have peak in the intermediate future. Also, I think that this inflation numbers represent a level of price increases that if commodity prices stay at this level will lead to margin expansion. This explains the run-up in all companies that have been hurt by raw material costs.

It is foolish to recommend Proctor & Gamble (PG), Clorox (CLX), CL (Colgate), and the like after this recent run up. However, when we see a pullback, they should be worth it.

Becoming Bullish again on Owens-Illinois (OI)

2008-08-13T12:04:00.002-05:00

Current Price: $40.00

The fears of raw materials (natural gas) compressing margins has proven to be overstated with the pullback in the commodities. Natural Gas hit a high near $13.50 at the time the conference call was taking place. Today, NG almost hit $8.00- this extreme pullback was almost unfathomable. However, OI hasn't rallied yet.

Looking at Crude Oil and the steel names, there maybe a short term bounce in commodities, but I do not see Nat Gas nearing those level anytime soon. Time to scale back in.

On top of the recent pullback, there has been insider selling recently within Owens-Illinois.
In August, insiders bought4,265 shares for $178,577. Not as large of a buy as I usually like to see but better than nothing.

The Financial Saga Continues....

2008-08-12T14:12:00.003-05:00

I haven't posted in the last couple days because I have been swamped at work but it can be summed up really quick.

The dollar rally results in a commodity crash. Dollar is rallying because of relative weakness of other countries. As oil crashes, the financial and the Dow have been rallying. On top of that, Jim Cramer thinks that we have hit a bottom on July 15th. I think we need to retest that low to be sure-this is not the time to buy. I will never buy into a rally this strong.

The market is telling me the financials are going down again. After a couple days of the super squeeze, the financials have failed to make new lows. Now, the golden boys, Goldman Sachs (GS) and J.P. Morgan (JPM) have been downgraded big by some of the biggest names on Wall Street.

I think that Wachovia (WB) is the stock that has over-rallied most.

The Financial UltraShort (SKF) is up 9.60% at the moment to $121.30

With the fallout of commodities, solar names have taken a hit too.

First Solar (FSLR) is down to $250.17, about $50 lower since my short call.

Quanta Services (PWR), Trinity Energy (TRN), Zoltek (ZOLT), and SPX Corp (SPW) have all been hit very hard by the solar fallout the results from the Crude Oil plunge. However, crude oil may be closer to a bottom than the top right now. The oil stocks have lead the commodity down, however, the stocks have been flatish last couple of days. Nonetheless, we now have a real top in Oil ($148-150).

Luckily, this commodity bust has caused a retail rally. Home Depot (HD - my first call for this blog) has called almost 35% from its low. Currently trading at $27.60. Another powerhouse I want to mention is Wal-Mart (WMT), which reported "disappointing" same-store-sales recently and taken a hit. The stock had fallen from its 52-week high and that was the perfect buying opportunity. It has already recovered from that large down day.

Lastly, I want to talk about infrastructure. These stocks have probably been some of the most hard hit stocks in the S&P 500. McDermott (MDR) is down about 15% after earnings, while Foster Wheeler (FWLT) and Flour (FLR) are near 52-week lows. These companies do much more than petrochemical projects and many projects are based off of $70-90 oil. These NEED to be bought- they are just too cheap at these levels.

Commodity Stocks Crescendo Fall- AGAIN

2008-08-08T09:19:00.003-05:00

Everything commodity related is being completely thrown out today, although, there is a bit of bottom fishing right now.

Crude Oil falls $3.97 to 116.21

Natural Gas falls $0.21 to $8.35

Gold, copper, silver, corn, and soy beans are also down.

The Oil & Gas UltraShort (DUG) continues to plow higher to 39.40

Here is a list of of commodity related stocks that I follow and their LOD prices

Potash (POT) hit a LOD of 169.00
Monsanto (MON) : $103.50
U.S. Steel (X): $135.23
Cleveland Cliffs (CLF): $85.33
AK Steel (AKS): $50.41
Freeport-McMoran (FCX): $82.01
Companhia Vale (RIO): $25.44
Transocean (RIG): $126.57

Interestingly, AGCO (AG) is up today even though agricultural and steel names are down. The market is telling me that grain prices are still high enough for demand to continue while the drop in steel can help accelerate, or at least maintain, the margin expansion story.

The margin expansion play may be the story behind the rally in Caterpillar (CAT) and Terex (TEX)

Also, Boeing (BA) continues to show strength after the Quarter. BA is up to $66.29- 2.29% today

Foster Wheeler (FWLT) and Quanta Services (PWR) Beat Earnings!

2008-08-06T10:11:00.004-05:00

NEW YORK, Aug 6 (Reuters) - Engineering and construction company Foster Wheeler Ltd (FWLT) posted better-than-expected quarterly earnings on Wednesday, but said its power plant business in North America was slowing.

The company also announced that Chairman and Chief Executive Officer Raymond J. Milchovich would retire next year.

Net earnings climbed to $160.8 million, or $1.11 a share, from $71.9 million, or 50 cents a share, a year earlier.

Excluding an $18.3 million asbestos-related gain, the company posted quarterly earnings of $142.5 million, or 98 cents a share, topping analysts' average forecast of 84 cents per share, according to Reuters Estimates.

Revenues rose to $1.7 billion from $1.19 billion.

Foster Wheeler said its engineering and construction group booked $538 million in new orders during the quarter, bringing its backlog of work to $1.8 billion at the end of June, up 26 percent from a year earlier.

But its power group added $191 million in new orders, sharply down from the $550 million booked in the year-ago quarter, as North American customers deferred prospective projects because of increased environmental scrutiny, rising costs and fears about the economy.

Backlog at the power group stood at $1.5 billion at the end of the quarter, up 10 percent from a year earlier.

"In our (global power group) -- consistent with our guidance at the end of the first quarter of this year -- we are seeing delays but not cancellations in some North American prospects," Milchovich said in a statement.

The company would seek to offset that slowness by focusing on markets outside North America, he added. (Reporting by Matt Daily and Euan Rocha; Editing by Lisa Von Ahn, editing by Dave Zimmerman)

http://www.reuters.com/article/marketsNews/idINN0641671120080806?rpc=44&pageNumber=2&virtualBrandChannel=0

Utilities contractor Quanta Services Inc (PWR) posted a better-than-expected quarterly profit, and forecast strong third quarter revenue.

For the second quarter ended June 30, net income was $40.5 million, or 22 cents a share, compared with $21.9 million, or 17 cents a share, a year ago.

Before items, earnings in the latest quarter were 26 cents a share.

Revenue rose 74 percent to $960.9 million.

Analysts on average were expecting earnings of 24 cents a share, before special items, on revenue of $903.0, according to Reuters Estimates.

Pro forma internal revenue growth was about 20 percent compared to the year-ago period, Chief Executive John Colson said in a statement.

In July, Quanta, which installs and maintains network infrastructure including electric power, gas, cable TV, and telephone and data lines, acquired Winco Inc, a helicopter services company.

For the third quarter, the company sees earnings of 23 cents a share to 26 cents a share on revenue of $1 billion and $1.04 billion.

It expects earnings from continuing operations, excluding items, to be between 27 cents and 31 cents a share.

Analysts were looking for earnings of 30 cents a share, before special items, on revenue of $967.0 million.

Shares of the Houston, Texas-based company closed at $30.66 Tuesday on the New York Stock Exchange. (Reporting by A.Ananthalakshmi in Bangalore; Editing by Bernard Orr)

http://www.reuters.com/article/marketsNews/idINBNG5472820080806?rpc=44&pageNumber=2&virtualBrandChannel=0

Notable Stocks of the Day 8/05/2008

2008-08-05T10:58:00.003-05:00

Boeing (BA) is rallying today on falling oil prices. The stock is up 5.04% to $64.45.

Black and Decker (BDK) has been trending fiercely up since about a week before the stock reported earning. After hitting a 52week low of 51.56, stock started moving up. Today, BDK is up 4.25% to $61.01. I keep wanting to recommend this stock on weakness and have not seen a big down day.

Wal-Mart (WMT) and other retailers are rallying with the decline in oil. WMT is up 2.40% to $59.84. I am very impressed with WMT on a operational level but the stock has failed to break $60.00 repeatedly. However, with the decline in oil and growing strength of today's uptrend, it may do so this time.

Otter Tail (OTTR) reported poor earnings and lowered guidance. The stock is down $9.20, or 21%, to $35.70. This decline shows how crowded and over-optimistic investors are about any alternative energy.

Oil Continues to Falter

2008-08-05T08:52:00.004-05:00

The Oil & Gas UltraShort (DUG) hits $39.89. This ETF is up over 20% since my call and I have to continue recommending taking more profits.

Overall, this commodity fallout has been viscious- many commodities are at 4-6 month lows. Commodity stocks have been just getting killed, even agricultural stock.

Here is a chart of Monsanto (MON)- just looks painful.

Today the commodity stocks are moving up, opposite of the trend, so we need to be careful about this being a fool's rally. I believe there is a very real possibility that commodities can overshoot their fundamental to the downside as they did to the upside if we keep hearing poor news about emerging markets. This means that exposure to steel stocks should continue to be cut.

Although, I am now becoming bullish on Natural Gas. This seems to be one of the most beaten up commodity sectors and I believe Nat Gas will become a more of an Crude Oil alternative due to the lower BTU price.

Chesapeake Energy is down about 40% in a matter of weeks.