Sunday, December 30, 2007

10 Things That I Will Not Miss About 2007

This content originally appeared on’s RealMoney Silver on Dec. 20.

Another year has passed. I hope that you are all a year healthier, wealthier and wiser. As I have done for each of the past five years, and back by popular demand, I would like to share with you the "10 Things That I Will Not Miss About 2007" -- and do not want to see or hear ever again.

Here we go (in no particular order).

1. "They’re trying to make me go to rehab, I said, 'No, no, no.'" Amy Winehouse, Britney Spears and Lindsay Lohan all checked into and out of (and sometimes back into) substance abuse programs this year. Why not? It seems like the optimal thing to do.

The entire world keeps downloading their songs (and movies) through Apple's (AAPL) iTunes despite their misdeeds. It seems like these pop idols are just auditioning for the reality series "Celebrity Rehab With Dr. Drew," which will premiere on Viacom's (VIA) VH1 on Jan. 10, 2008.

As much as the Mitchell Report on performance-enhancing drug use in Major League Baseball may have been flawed, nevertheless, fans of baseball have turned against the slugging and pitching juicers like Barry Bonds and Roger Clemens. The same can be said of Marion Jones and Floyd Landis in their respective sports.

To the singers, actors and athletes who abuse substances and expect our adoration, I say, "No, no, no."

2. Crude oil going to $100. Eventually, crude oil will get there, however, it might not happen just yet. The incessant prognostication, pontification and speculation surrounding crude oil hitting $100 a barrel is nauseating.

Do some homework and own oil services companies such as Schlumberger (SLB) or Diamond Offshore (DO) because no matter if crude oil is $80 or $100 or $120, we still need to get more of this stuff out of the ground.

3. Scott Boras can't play bridge. Scott Boras has the premier baseball player of our generation, Alex Rodriguez (A-Rod), as his client. A-Rod plays on the biggest stage in baseball, Yankee Stadium. A-Rod had an option to stick around for three more years at a huge salary that even dwarfs those of the bank CEOs who lose billions of dollars.

So what does Boras do? He instructs his client to opt out of the contract. I am talking about a real contract, not contract bridge. So what does A-Rod do? He calls a real bridge player, Berkshire Hathaway (BRKA) CEO Warrant Buffett.

The Oracle of Omaha then dials up some of his buddies at Goldman Sachs (GS) . You know Goldman Sachs, it is the only financial institution on the planet in which the members of its staff earned their bonuses the old-fashioned way, by making money for shareholders.

Goldman Sachs happens to be a partner with the New York Yankees in the YES network. Goldman Sachs, Warren Buffett and the Steinbrenners know when they have a stronger hand and arrange for a contract extension at the original terms that the Yankees offered to A-Rod, less what the Yankees were supposed to receive from the Texas Rangers.

Scott Boras has met his match and holds no trump cards. I think that Max Bialystock could have given A-Rod better advice.

4. Judge shows. It started out with Judge Wapner. That was fun. It was original.

Now on the air we have Judge Judy Sheindlin, Judge Marilyn Milian, Judge Joe Brown, Judge Greg Mathis, Judge Cristina Perez, Judge Glenda Hatchett, Judge Maria Lopez, Judge Alex Ferrer and Judge Lynn Toler. Pardon me if I missed a few.

You can channel surf and watch courtroom shows back to back for hours on end. If you don't believe me, then take a day off and try it. I have had enough of these silly judge shows.

All is not lost, though. Here is an idea that I will offer to my friends Jim Cramer of General Electric's (GE) CNBC and Cody Willard of News Corporation's (NWS) Fox Business News, as long as I get the creative credit and a paid co-producer role: Judge Jim or Judge Cody. I would even put on a uniform and play bailiff.

Here is how it would work:

Voiceover: Real stocks! Real investors! Judge Jim is in the courtroom! Welcome to "Investors' Court." Long Louie bought Sharper Image (SHRP) on Broker Blowhard's research recommendation. He is suing for bad gift ideas.

Of course it goes both ways. Maybe we hear this:

Voiceover: Real stocks! Real traders! Judge Cody calls the court to order! Welcome to "Traders' Court." Short Sally shorted Google (GOOG) based on Hedge Fund Harry's newsletter. She is suing for short-sighted advice.

Gentlemen, start your gavels!

5. Junk email. Last year, I was so concerned for that poor Nigerian prince who emailed me when he could not get his $5 million out of the bank. Then again, because I was so inundated with emails from his other several hundred princely paupers, I decided that it was best to charge $3 million as an upfront fee to help them in their endeavor to free up their lost money.

I had no takers.

Well, as it turned out, those princes must have solved their problems, because I don't hear from them anymore. Now I have a bigger problem, though. It has to do with -- how shall I put this? -- my manhood.

I did not think that after siring six children that I had such a problem, but it appears that some people think otherwise because I receive dozens of emails a day for cheap mail order pharmaceuticals like Pfizer's (PFE) Viagra and Eli Lilly's (LLY) Cialis.

To those spammers, when it comes to size, I would be worried about positions in Pfizer and Eli Lilly, both of which I would not be long.

6. ADP payroll report. Annually, I name the most overexposed metric of the year. For 2007, Automatic Data Processing's (ADP) National Employment Report gets the nod.

The self-serving ADP report, which is released two days before the monthly Bureau of Labor Statistics report, has a poor track record of predictability and accuracy.

I am tired of listening to the press coverage that the ADP report receives. What is even worse is the Pavlovian response (both buying and selling) that is triggered when the report is released.

7. Election polls. Bill Clinton was a virtual unknown at this point in the 1992 campaign. He won the election. The media has now started to coronate his queen as the next President of the United States. Along comes another Razorback, Mike Huckabee, and polls begin to change.

Let me remind people that Iowa caucuses and New Hampshire primaries and Zogby polls do not decide who will be the next President. In fact, our constitution provides for a general election and an arcane process of selecting a Prez and his/her trusty sidekick the Veep.

So please take your polls and shove 'em.

8. Naming market tops and bottoms as if they were sport stadiums. The duct-tape bottom? The Blackstone (BX) top? I am sick and tired with these nom de markets.

How about we sell naming rights to bull markets and bear markets to companies? Even better, we should sell naming rights for a particular quarter.

How does the Baidu (BIDU) Third Quarter of 2008 sound to you? Maybe that would draw some buying interest for NYSE Euronext (NYX) stock.

9. Overused commercials. Sometimes too much of a good thing can be bad. If I have to hear one more of Anheuser-Busch's (BUD) Bud Light "Real Men of Genius" commercials on my car radio, I am going to crash my vehicle into a brick wall. The first few were entertaining and original, but now they are downright moronic.

MasterCard (MA) is one of the great investment stories of 2007 and should continue to return value to shareholders in 2008. Those "Priceless" commercials, however, are just too painful to watch anymore.

The "Cavemen" series of commercials for Berkshire Hathaway's (BRKA) Geico yielded a failed TV show. (Technically, it is on hiatus.) With the TV writers on strike, maybe it's time to give Geico's gecko his own show.

10. The Fed is cutting rates to bail out hedge funds. It certainly sounds good if you want to be politically correct in an economic sense, however, the Fed is only responsible for monetary, not fiscal, policy.

Furthermore, the Fed is interested in economic growth and financial market stability; it could care less about the profitability or "going concern" status of an individual entity, unless that would cause a systemic event.

If you want to better understand the Fed's responsibilities, take at look at its own publication on its purposes and functions.

I am the first to criticize the FOMC for its short-sighted actions and lack of responsible communications, but thinking that the Fed, or the FOMC, is focused on bailing out hedge funds is absurd.

My best wishes for a happy and healthy holiday and New Year season to all of you and your families. Thank you for your personal notes and professional advice during the past year. I hope our RealMoney team has made this year a profitable and enlightening one for our subscribers. Last but not least, thanks to our tireless contributors and editors who work so hard every day to produce this fine product.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of AAPL, SLB, DO, GS, GOOG and MA --- although positions can change at any time.

Friday, November 09, 2007

Six Flags Roller Coaster RIde May Be Over.

Six Flags (SIX) is creeping ever lower. The company reported disappointing guidance and will take a charge of about $30 million. The next stop for SIX is bankruptcy. SIX was inducted into my list of worst managed companies in the United States. Here is a thought. Eddie Lampert buys up the $2.5 billion of debt for pennies on the dollar, takes control of the company in bankruptcy court, sells the amusements off to other operators for scrap metal and then owns the prime SIX real estate for well below market value.

Friday, November 02, 2007

Wild Market Swings and a Look At 2007 Daily Results

After some recent wild market swings, I felt like torturing some numbers. So, I decided to take a look at some of the big up and down days that the market has endured this year. Using the S&P500 (SPX) as the basis for the analysis, YTD inclusive to November 1, 2007, here is what I ascertained

  • 116 positive days – Total simple aggregate return was 72.18%; simple average daily return was 0.62% per day
  • 95 down days – Total simple aggregate return was -65.11%; simple average daily return was -.69% per day
  • 23 days with returns greater than 1% - Total simple aggregate return was 34.24%; simple average daily return was 1.49% per day
  • 24 days with returns less than -1% - Total simple aggregate return was -43.69%; simple average daily return was -1.82% per day
  • 4 days with returns greater than 2% - Total simple aggregate return was 9.99%; simple average daily return was 2.50% per day
  • 8 days with returns less than -2% - Total simple aggregate return was –21.02%; simple average daily return was -2.63% per day
  • Total net simple aggregate price return for days with return plus/minus 1% is -9.45%
  • Total price return for the SPX for the year is 6.36%

So what can we infer about the price action of the SPX from this data? While the magnitude of down days is greater than that of up days the market still remains higher as the quantity of up days is greater than the quantity of down days. Thus the down days are more taxing than up days but are harder to come by.

Panic tend to come in days of selling rather than during days of buying. i

How does this compare historically?

In 2007, 55% of trading days ended higher while 45% of trading days were in the red. From 1950 through 2006 the SPX ended higher on 53.6% of trading days.

As stated above the average up day returned 0.62% while the average down day returned -0.69%. From 1950 through 2006 for the SPX the average up day was up 0.62% while the average down day was -0.64%.

The SPX has advanced 6.36% so far in 2007 after the November 1 drubbing of -2.64%. This compares to the simple average annual return of 9.37% for that index. Of course 2007 has nearly 2 more months to go.

Thus, for all the chest thumping, foot stomping, shoe banging and emotional outbursts exhibited by bulls and bears alike this year, the simple fact is that the SPX is trading in a manner which is quite typical on an historical basis.

While the data just looks at 2007 versus historical data, I believe that this analysis can be expanded to look at individual years for which we can further parse out and query in multiple ways. Given the chance I will endeavor to do so.

Wednesday, October 31, 2007

Garmin Should Be Bought On Weakness As The Tele Atlas News Is A Positive Event

Garmin (GRMN) reported EPS of 89 cents this morning beating already lofty expectations of 82 cents. The stock is selling off despite these results.

I can attribute this sell-off to one of three reasons. First, the old whisper number game is being played and despite GRMN reporting 78% growth in EPS was obviously not enough for the fast money crowd. Second, the stock was due for some profit taking.

The third reason is actually a reason to be buying the stock in here. GRMN announced concurrently with its earnings report the company’s intention to purchase Tele Atlas for EUR 2.3 billion or USD $3.3 billion which represents an approximate 15% premium to the bid made by rival TomTom for Tele Atlas. Recall that a few weeks ago Nokia (NOK) agreed to buy Tele Atlas’ digital mapping competitor Navteq (NVT) for $8.1 billion. The NOK/NVT deal would have left GRMN as the odd man out in terms of having a vertically integrated digital mapping source. GRMN was sold heavily on that news. Now that GRMN is in the game for Tele Atlas, the immediate reaction is to sell the acquirer. Since TomTom is not likely to go away quiet, investors may be concerned that GRMN would have to pay significantly more that $3.3 billion if a bidding war erupts. However, GRMN is far better positioned than TomTom to finance the acquisition and I think will be triumphant at the end of the day. TomTom shares are significantly lower in Europe as investors confirm that GRMN is now in the drivers’ seat for Tele Atlas.

In conclusion, the earnings plus the Tele Atlas news is a positive for GRMN and the stock should be bought on weakness, especially as it is down double digits in early trading today.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of GRMN --- although positions can change at any time.

Friday, October 26, 2007

Know Your Components of ETFs

I really enjoy David Letterman and am not much of a Jay Leno fan. Maybe it is an East Coast / West Coast thing. Or maybe it’s because I was a real Johnny Carson fan and Letterman is cut from Carson’s mold. One of my favorite bits on Letterman is “Know Your Cuts of Beef.” In than spirit I have my own version today – Know Your Components of ETFs.

This comes out of a conversation with an old friend who from time to time will closely follow my recommendations. He asked me yesterday where I thought Google (GOOG) was going. I said I have a target of $750- $850. This is based on both a top down and bottom up analysis which I performed with my research team. My friend said that he owned the Internet HOLDRs (HHH), an ETF comprised of internet stocks. To his surprise, I informed him that GOOG was not represented in the HHH. I explained that HHH was mostly comprised of Ebay (EBAY), (AMZN), Yahoo (YHOO) and Time Warner (TWX). HHH was introduced and launched many years before GOOG came to market and is a fixed portfolio. Since he thought he had GOOG exposure but had none; he wanted to keep exposure to EBAY and YHOO; and, wanted to cut back on exposure to TWX, AMZN and the other residual stocks in the HHH comprising about 15% of the portfolio he immediately sold some (but not all) of his HHH and used the proceeds to buy GOOG.

The lesson - Know Your Components of ETFs.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of GOOG --- although positions can change at any time.

Thursday, October 25, 2007

Facebook Will Not Save The Decline of the Microsoft Empire

Here are my thoughts on the Microsoft (MSFT) investment in Facebook. 20 years ago the company’s operating systems burst on the scene and helped to launch the desktop computing revolution. In the process it became a virtual monopoly. MSFT was the hunted and the rest of technology was the hunters. Now 20 years later, Google (GOOG) and Apple (AAPL) have emerged to be the leading edge of technology as MSFT is still trapped in its windows mindset. MSFT is now the hunter and no longer the hunted. The Zune is a joke. XBOX is an industry laggard. Any attempt to cut in on iPhone by MSFT will likely be a failure. The leadership at MSFT is rusty at best. Bill Gates is too focused on social issues and playing cards with Warren Buffett. The small investment in Facebook will not generate any meaningful benefit to MSFT. In the end, buying MSFT based on this news is a giant mistake.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of AAPL and GOOG --- although positions can change at any time.

Thursday, October 04, 2007

Disney And Its ABC Network Are The Big Winners In The New TV Season

So far, in my opinion, ABC (a division of Disney (DIS)) gets my vote for delivering the best new shows of the television season. We (my wife and yours truly) really enjoy watching Dirty Sexy Money and Big Shots. Both shows are quirky, avoid the formulaic model churned out by network TV, are not retreads and don’t have Law and Order or CSI in the title. The Disney Channel release of High School Musical 2 at the end of the summer was a formulaic hit which will generate secondary revenues for DIS in the months to come. ABC also premiered Cavemen this week which we unfortunately missed but plan to catch up on and watch in the future. Two new shows premiered this summer which I also highly recommend. The first one is also an ABC show, Greek. Our kids like to watch Greek with us, especially when I interject my experiences at Pi Kappa Alpha at the University of Pennsylvania. Greek appears on the cable ABC Family channel. The other summer entry is Damages which is on the FX (a NewsCorp/Fox (NWS)) cable channel. Damages is enthralling and is something I would expect on the big screen or HBO. The show has not yet ended its season run however there will be opportunities to catch the entire series at a later date when FX repeats the shows or it gets released on DVD. Speaking of HBO, the new season of Curb Your Enthusiasm is superb and for those of you desiring a more mature, sexually explicit and intellectual selection all in one, check out Tell Me You Love Me.

So does this translate into an investible idea? Perhaps. First, I would eliminate General Electric (GE) the parent of NBC and NBC Universal. Why did NBC lack patience with Studio 60 on the Sunset Strip? CBS is stuck in CSI mode and is still a company operated by and for Sumner Redstone. I would avoid CBS as well. DIS will bore you to death but it has delivered consistent positive returns to shareholders despite some of the boardroom drama the company loves to surface every few years. I would not exactly categorize DIS as a growth company but if I was looking to down shift some risk, DIS would be a top candidate. Finally, there is News Corp (NWS). I really like what Rupert Murdoch is doing with the Dow Jones (DJ) acquisition and how it fits in perfectly with his new concept, Fox Business Network (best of luck to my dear friend and colleague Cody Willard). NWS has a similar risk profile to that of DIS. In fact, if you overlay a 5 year chart of DIS over that of NWS, the two companies’ stocks nearly tracks each other. So, I would put NWS in the same category as DIS and would be indifferent to add either one if those conditions I discussed above were presented to me.

Thursday, September 27, 2007

Starbucks Downgraded - Short Thesis Playing Out

Andy Barish one of the best restaurant analysts who resides at Bank of America (BAC) downgraded Starbucks (SBUX) to a sell early this morning. Barish places a $23.00 price target for the coffee themed quick service restaurant which closed at $27.69 yesterday. Supporting his call he cites: slowing growth; EPS / margin / same store sales risk to the downside; and, a contraction of the earnings multiple. BAC 2008 EPS estimate for SBUX is $1.02 versus consensus of $1.06. When initiating my recent short in SBUX I also came to the conclusion that growth was slowing, that earnings estimates will soon be reduced and that the PE had further to decline. It is nice to be in Barish’s company. Expect Barish’s peers to follow his lead in cutting EPS and price targets for SBUX.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of BAC and short shares of SBUX --- although positions can change at any time.

Friday, September 07, 2007

Opportunity in First Israel Fund

The First Israel Fund (ISL) is off nearly 6% in above average volume. The sell-off eliminates the 4% premium that ISL had to its NAV and puts it slightly back into discount. However, the Israeli stock indexes were only off about ½% on Thursday and the markets are closed in Eretz Yisrael on Fridays and Saturday (Yom Shabbat). The largest holding in ISL is Teva Pharmaceuticals (TEVA). TEVA comprises about 10% of ISL holdings. TEVA received some good news today when it received a favorable court ruling allowing the company to produce a generic form of Wyeth’s (WYE) Protonix prescription heartburn medication. TEVA is off about 2/3% today and if the market was not weak I believe it would be trading higher. WYE is falling over 3%. Today is another great example of the cuffs not matching the collars and you have a nice opportunity to pick up ISL. Shabbat Shalom to all.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of ISL --- although positions can change at any time.

Thursday, August 30, 2007

HAIN is Celestial

Hain Celestial (HAIN) delivered a great report after the bell last night. The company earned 30 cents versus consensus of 28 cents for 4q07. For FY07 HAIN earned $1.17. Add to that good report a boost in FY08 guidance to a range of $1.38 - $1.42 versus current consensus estimates of $1.38. At the midpoint this implies 20% YOY growth. I am willing to pay 25 times earnings for HAIN. The merger of Whole Foods (WFMI) and Wild Oats (OATS) will draw more attention to HAIN from potential suitors. I am raising my price target for HAIN to $35 - $36 based on operations. On a takeover, the stock is worth $40 or more.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of HAIN --- although positions can change at any time.

Wednesday, August 15, 2007

We Need The SEC To Act In Order To Protect Shareholder Rights and Ensure Investor Confidence.

So where is the SEC these days? They are busy checking how the big investment banks are marking their mortgage and other asset backed positions. While that is going on here is what the SEC is also doing:

  • Eliminating the short sale up-tick rule to allow short raids on stocks. This rule was put in place in response to the 1929 crash. For what reason was it lifted now?
  • Standing aside while slum dunking of options on ETFs and stocks related to ETFs takes place.
  • Allowing unsubstantiated rumors to be spread to the financial media despite lack of validity or corroboration.

I fully respect the SEC’s role in the financial markets. What I am saying is that there are many other issues which that regulatory body needs to address in very short order to protect shareholder rights and ensure investor confidence.

Wednesday, July 25, 2007

Another Volatility Spike Has Occurred

With yesterday’s panic sell-off, the CBOE OEX Volatility Index once again surpassed its 200 day moving average by over 50%. This indicates another volatility spike condition similar to the one that I pointed out last month in this blog. Thus, it is time once again to look forward to a rise in the S&P 500 (SPX/SPY) over the next 20 trading days. While I was already long SPY from the last spike, I added to my positions with SPY call options.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares and calls of SPY--- although positions can change at any time.

Tuesday, July 24, 2007

Amylin Disapoints Analysts But Not Investors

When it appeared that yesterday’s results for Amylin Pharmaceuticals (AMLN) would be met with disappointment I expected to hunker down for another round of selling. Instead AMLN was higher from the opening bell and was one of the few strong stocks in a dismal tape. While sales of its blockbuster Byetta treatment missed analysts’ expectations by a small margin, AMLN other diabetes treatment Symlin appears to be growing faster than anticipated. AMLN has a long acting formulation, Byetta LAR and an obesity treatment, pramlintide in the pipeline which should provide some excellent future revenue streams if approved. I anticipate LAR to be available in 2009.

The market for diabetic pharmaceuticals and medical testing equipment is growing because of the unfortunate increase in diabetes diagnoses throughout the world and the increasing demand for at home medical testing (for diabetes and other conditions). AMLN is my favorite pharmaceutical play. Inverness Medical Innovations (IMA) is my favorite diagnostic name. A more pure diabetic diagnostic play would be PloyMedica (PLMD). The best source for diabetic research is my friend David Kliff of the Diabetic Investor.

For more information on diabetes, go to the American Diabetes Association website.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of AMLN and IMA --- although positions can change at any time.

Monday, July 16, 2007

Digested Gains in Yum Brands

I reversed my strategy on Yum! Brands (YUM) after devoting more thought to the company’s quarter which it announced last Wednesday. The quarter was not as good as the headline numbers because of the significantly lower effective tax rate. Furthermore, YUM’s restaurant margins declined due to higher food costs stemming from commodity prices. Thus, with YUM rising about 2% from my last buy point, I decided to take some profits on the stock. While I still think that YUM can get to $40 by the end of 2008 and love the growth in China, I think that the back half of 2007 could be more difficult than the company has forecasted. Furthermore the weakness in the restaurant stocks and better opportunities in other sectors – such as technology, metals, mining and machinery - lead me to use YUM as a trading vehicle but not as an investment.

No position in stocks mentioned

Sunday, July 01, 2007

Does Red Lobster Have to Resort to New Tactics to Attract Diners?

I love to take pictures of scenes like the one above. When Darden International (DRI) reported quarterly results in June, the company highlighted difficult comps and rising seafood prices for its Red Lobster concept. Does this mean that they have to change their marketing plan? Are they trying to lure in diners with cheap haircuts? Is this a joint venture with Staples (SPLS) or is SPLS just providing the scissors? It is none of the above but nevertheless, its worth a chuckle when you see that sign above.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC did not have any positions in the companies named above--- although positions can change at any time.

Wednesday, June 27, 2007

Schlumberger Gets Added to the Bar Mitzvah Portfolio

Schlumberger (SLB) is one of the premier oilfield service companies in the world. While I have held SLB for several months personally and for clients, the stock is turning into a much longer term holding than I originally anticipated. I am expecting 20% or more EPS growth for SLB in the next several years and consider it an excellent long term investment. Considering my projected annual growth rate in earnings of at least 20% for several years, SLB sells at a reasonable 21 times current year’s consensus and 18 times next year’s estimates. Put this together and you get a sub 1 PEG ratio stock which is a bargain. As a result, today I bought SLB for my children’s accounts (on the morning dip) thereby adding the company to the Bar Mitzvah Portfolio. SLB now joins Apple Computer (AAPL), Goldman Sachs (GS), Google (GOOG), McDonald’s (MCD) and Sears Holdings (SHLD) in the Bar Mitzvah Portfolio.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of AAPL, GS, GOOG, MCS, SHLD and SLB --- although positions can change at any time.

Tuesday, June 26, 2007

We Have Reached a Volatility Spike

My research indicates that a volatility spike has occurred in the markets. Only on 8 occasions since 2000 has the CBOE Volatility Index (VXO) exceeded its 200 day moving average by greater than 50%. The index closed at 18.23 today versus the 200 day moving average of 11.96.

Below is a table which I prepared analyzing how the S&P 500 (SPX) performed 5 and 20 days after a volatility spike in which the VXO exceeded 50% of its 200 day moving average.



+5 TD


+20 TD





















































Source: LakeView Asset Management, LLC

While the 5 days subsequent to this volatility spike was flat on average, 20 trading days after the spike, the SPX was up on average 3.93% and higher in 7 out of 8 occurrences. The worst performance 20 days hence was just -1.86% while the best was +9.58%. Thus, I conclude that it is time to back the boat up in index ETFs. I am currently playing this with Spyders (SPY), Ultra S&P500 (SSO) and Ultra Russell 2000 (UWM).

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of SPY, SSO and UWM--- although positions can change at any time.

Monday, May 21, 2007

Ignore the US Oil Fund ETF (USO), an ETF Failure

When it comes to exchange traded funds (ETFs) no two ETFs are alike. Also, not all are successful. For every S&P 500 Spyder (SPY) or Nasdaq Qs (QQQQ) there are several lightly traded ETFs. However, the one ETF that has failed investors consistently is the US Oil Fund ETF (USO). Investors have expected this ETF to trade in concert with the price of crude oil. However, nothing could be further from the truth. Unlike the Streetracks Gold ETF (GLD) which closely tracks the price of gold, the USO is a complex ETF which has failed to deliver. Since the USO relies on the use of derivative contracts rather than physical assets and gets caught up in the vagaries of the crude oil markets – such as price contango – the USO has a built in recipe for disappointment. If you want to use exchange traded instruments to take advantage of crude oil price movements then think twice. You are better off looking for an oil services or integrated oil stock that highly correlates with crude oil prices rather than playing around with the USO.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were short shares of SPY--- although positions can change at any time.

Friday, May 18, 2007

Stock Splits Are Likely to Decline in Frequency as Companies Favor Over $100 Priced Stocks

There is an interesting phenomenon in the financial markets which I believe will continue to gain traction and could have implications for investors for years to come. Now more than ever, companies are allowing their stock prices to trade and remain above $100 (or par) per share without splitting their shares to allow sub par prices.

For many years, I could only recall two companies which consistently had stocks which were priced above $100: Berkshire Hathaway (BRK/a, BRK/b) and Alleghany Corp (Y). Now I can name several of the core holdings for LakeView Asset Management, LLC which are above $100 with no indication that a split is forthcoming. These holdings are Google (GOOG), Sears Holdings (SHLD) and Goldman Sachs (GS). Many more companies are joining the ranks of over $100 priced stocks. With its recent move, Apple (AAPL) is well above $100 and despite the company having split its stock 2 for 1 on three occasions since 1987, I wonder whether AAPL will split its stock or become part of the new “century” stock issues.

While splitting a stock has no implication for an investor’s holdings or tax basis, it does have some secondary psychological effects upon investors and the markets. First, investors are trained to think in terms of round lots of shares 100, 200, etc. rather than dollar amounts when making an investment decision. Some investors would prefer buying 100 shares of a $45 stock than 1 share of a $450 stock such as GOOG even though GOOG is a better investment value than the other company’s stock. Second, bid / offer spreads will tend to widen in absolute terms but not in relative or percentage terms as the price rises. This becomes more apparent when the stock rises above $100. Third, the wider price swings in absolute terms for the century stocks will give an appearance of higher volatility and increased risk even though the price swings may be equivalent on a percentage basis. In other words, a $5 swing on a $150 stock seems more precipitous than a 50 cent move on a $15 stock. Finally, anyone who desires to enter into options related activity will require more capital since the minimum option contract for most stocks carries a multiplier of 100 shares per contract. This will scare away speculators and likely drive spreads and implied volatilities higher.

On the other hand there are some benefits to maintaining a high stock price and not splitting a stock. Higher stock prices will decrease speculative activity and likely keep shares in the hand of long term holders. Furthermore, higher stock prices can be excellent marketing tools for companies as the media attention that is paid to such issues provides greater brand recognition for a company and could enhance customer appeal.

I believe that we should expect to see an ever increasing population of stocks which will be trading above $100 in the years to come. This will be beneficial for long term shareholders but will require the undoing of a deeply rooted mindset that believes stock splits and lower stock prices are in investors’ best interests.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of AAPL, GOOG, GS and SHLD -- although positions can change at any time.