A Few Ideas by David Nichols
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A Few Ideas by David Nichols
THURSDAY a.m.
July 3, 2003
A Few Ideas
by David Nichols
Today is the start of the long 4th of July weekend on Wall Street, except for the minor fact that the markets will be trading for a half-day today.
Rather than getting too lathered up about the market action, as it won't be too significant, I want to give you a few ideas this morning that you can perhaps find some time to research over the long weekend.
I'm not saying you should rush out and do these things immediately, but I want to perhaps plant a notion or two in your head, especially if you're sitting on a large portfolio with assets allocated to bonds, stocks, etc.
It may be time to start rotating out of bonds, and into gold. As far as slow, patient capital allocation, this could be the "money trade" over the coming years. Bonds have been on the biggest bull run (bubble?) of any financial instrument in history, with yields plunging from 20% in the early 1980s to the current 1%. Since bond prices move inversely to yield, this has been a huge move.
And while bond speculation continues to be officially sanctioned by the Fed, a 1% yield speaks for itself. There's not a whole lot of room left. And with government deficits soaring, debts of all kinds climbing, and all sorts of wild credit excesses being fomented, the logical conclusion is that the value of the U.S. dollar is going to get whacked. The move down in the dollar could go much further than anybody can imagine.
The way to combat dollar destruction is with gold. Plus, there's a gold ETF coming out sometime this year that will allow individuals to buy physical gold just like a stock. That too could be a boon for gold demand, I think.
Anyway, I encourage you to start your own research on this important topic. There isn't any need to go crazy and start loading gold bricks into your bunker, along with Costco-sized cans of chili. But a slow and steady shift in this direction could end up making a big difference for you.
Super Short Squeezes
I got a great note about US Gypsum from a subscriber, thanking me for bringing up this idea as a long candidate. He wrote to tell me he was up $140,000 on this stock,as he had done some work on his own and agreed it was an interesting opportunity, and purchased a big slug of stock at $5 per share. Congratulations!
He also asked me for more such super squeeze ideas. So here goes.
There's a very similar opportunity to USG happening now in the manufactured home/RV segment. One of the bigger companies in this area -- Fleetwood Enterprises (FLE) -- is currently sporting a short interest representing 47% of the float. More importantly, it looks like the shorts -- who have been right on this stock, mind you -- have been hanging around too long, and are now in a position to get squeezed to the upside.
Another key parallel to USG is that Warren Buffett has started shopping in this area, recently buying Clayton Homes for $1.7 billion. As we've learned, he's not wrong very often. This puts a special type of pressure on the shorts, from a fundamental standpoint. Insiders have also been loading up at FLE, which is a good sign too.
I asked Judy Alster, Sr. Editor of 21st Century Investor, to write up a piece on Fleetwood as a starting point for your research. You'll find this below.
As far as the chart goes, it's in an interesting spot from a long-term view. If it pops over the weekly line, then the shorts are going to know they have a potentially bigger problem developing. A good plan may be to start averaging in more aggressively if such a squeeze sparks to life over this resistance line.
Have a great long weekend.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Unchanged at 0.7% full of negative sentiment.
SHORT-TERM: Remains in an advance phase but with the VIX now down at 21.14, a mere 0.13 from its rally closing low the hourly advance phase will have to either force a breakout or reverse.
MID-TERM: Progressed by 1 point in its decline phase to 27%.However, as discussed previously, with the tank congested caught in a uniquely narrow congestion band this oscillator is giving us a neutral (0) reading on our Confidence Diffusion Index (CDI) so while the needle has rolled into a decline phase we don't have a sell signal yet.
LONG-TERM: Remains unchanged at 95/5 and barring the unexpected will close its 4th week at this congested level.
BOTTOM LINE: The massive flow of liquidity into the market from the sidelines has provided fuel when Sentiment Fuel had already been exhausted. Basically as long as the VIX remains caught between 21 and 25 (the most volatile component of the calculation on the tank) we have to respect the broad market uptrend. If the VIX breaks down to 19 or so then we'll be looking at a blowoff top. If the VIX breaks above 25 then the odds favor a more significant retracement.
What Do Fleetwood and USG Have in Common? . . . quite a bit.
by Judy Alster, Sr. Editor, 21st Century Investor
We've seen high short interest before, heaven knows -- but 50 days? Forty-seven percent of outstanding shares held short? From what we can see, Fleetwood Enterprises, Inc.'s financials (NYSE: FLE) are no worse than many companies with no short interest at all. What gives?
Fleetwood manufactures recreational vehicles, including motor homes, travel trailers, folding trailers and slide-in truck campers; it also makes and sells manufactured housing. On May 1 the company made a preliminary announcement that didn't pull any punches: Its RV business would be well up for Q4 and fiscal 2003, it said, and fiscal year combined sales would be respectable -- but housing would be down for both periods. "Our Manufactured Housing Group continues to battle complex and difficult industry conditions," Fleetwood said. " . . . we do not expect to see a meaningful industry recovery for at least a year. We will continue to control costs, but we don't expect to reach breakeven in the Housing Group at these revenue levels."
Note that it was precisely on May 1 that short interest started shooting up.
A lot of short interest tends to provide built-in price support for a stock, because if the price starts edging up, shorts have to buy the stock back at market prices to avoid potentially limitless losses, which bumps the price up even more. The more short interest, the longer (and more frantically) the shorts keep buying, and the more the price can rise. It's called a short squeeze.
Now, you recall one of the things that attracted us to once-bankrupt USG Corp. last year at $7.35 a share was its extremely high short interest coupled with the fact that it was a sector mammoth just waiting for the asbestos cloud to blow over. That cloud is now dissipating and USG closed recently at $19.85 -- almost triple our recommendation price. The other thing about USG that caught our eye was the fact that Warren Buffett, who needs no introduction, had bought the company amid much derisive laughter when it was in the sub-basement. The laughter has now turned to universal envy, as it almost always does soon after Buffett steps in at the bottom and buys a company. And what is Buffett buying right now? Clayton Homes -- a leading producer of manufactured housing for $1.7 billion. Is there a better way to put a stamp of approval on the manufactured housing industry than by having Warren Buffett buy into it? As we've often said, sometimes the shorts are right, but we don't think they're right about Fleetwood Enterprises. For one thing, you wouldn't believe the massive amount of insider buying that took place at Fleetwood this March and in the second half of last year. Don't the shorts do their homework? And just a few weeks ago, Superior Real Estate renewed its dealership credentials with Fleetwood, stating plans to use Fleetwood's homes for a number of projects in northern California. And then there's that industry endorsement from Warren Buffett.
Fleetwood traded recently over $8 and has lately been moving steadily up. A little more good news could send the shorts really screaming for cover, and Fleetwood's stock could end up looking a lot like USG's.
July 3, 2003
A Few Ideas
by David Nichols
Today is the start of the long 4th of July weekend on Wall Street, except for the minor fact that the markets will be trading for a half-day today.
Rather than getting too lathered up about the market action, as it won't be too significant, I want to give you a few ideas this morning that you can perhaps find some time to research over the long weekend.
I'm not saying you should rush out and do these things immediately, but I want to perhaps plant a notion or two in your head, especially if you're sitting on a large portfolio with assets allocated to bonds, stocks, etc.
It may be time to start rotating out of bonds, and into gold. As far as slow, patient capital allocation, this could be the "money trade" over the coming years. Bonds have been on the biggest bull run (bubble?) of any financial instrument in history, with yields plunging from 20% in the early 1980s to the current 1%. Since bond prices move inversely to yield, this has been a huge move.
And while bond speculation continues to be officially sanctioned by the Fed, a 1% yield speaks for itself. There's not a whole lot of room left. And with government deficits soaring, debts of all kinds climbing, and all sorts of wild credit excesses being fomented, the logical conclusion is that the value of the U.S. dollar is going to get whacked. The move down in the dollar could go much further than anybody can imagine.
The way to combat dollar destruction is with gold. Plus, there's a gold ETF coming out sometime this year that will allow individuals to buy physical gold just like a stock. That too could be a boon for gold demand, I think.
Anyway, I encourage you to start your own research on this important topic. There isn't any need to go crazy and start loading gold bricks into your bunker, along with Costco-sized cans of chili. But a slow and steady shift in this direction could end up making a big difference for you.
Super Short Squeezes
I got a great note about US Gypsum from a subscriber, thanking me for bringing up this idea as a long candidate. He wrote to tell me he was up $140,000 on this stock,as he had done some work on his own and agreed it was an interesting opportunity, and purchased a big slug of stock at $5 per share. Congratulations!
He also asked me for more such super squeeze ideas. So here goes.
There's a very similar opportunity to USG happening now in the manufactured home/RV segment. One of the bigger companies in this area -- Fleetwood Enterprises (FLE) -- is currently sporting a short interest representing 47% of the float. More importantly, it looks like the shorts -- who have been right on this stock, mind you -- have been hanging around too long, and are now in a position to get squeezed to the upside.
Another key parallel to USG is that Warren Buffett has started shopping in this area, recently buying Clayton Homes for $1.7 billion. As we've learned, he's not wrong very often. This puts a special type of pressure on the shorts, from a fundamental standpoint. Insiders have also been loading up at FLE, which is a good sign too.
I asked Judy Alster, Sr. Editor of 21st Century Investor, to write up a piece on Fleetwood as a starting point for your research. You'll find this below.
As far as the chart goes, it's in an interesting spot from a long-term view. If it pops over the weekly line, then the shorts are going to know they have a potentially bigger problem developing. A good plan may be to start averaging in more aggressively if such a squeeze sparks to life over this resistance line.
Have a great long weekend.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Unchanged at 0.7% full of negative sentiment.
SHORT-TERM: Remains in an advance phase but with the VIX now down at 21.14, a mere 0.13 from its rally closing low the hourly advance phase will have to either force a breakout or reverse.
MID-TERM: Progressed by 1 point in its decline phase to 27%.However, as discussed previously, with the tank congested caught in a uniquely narrow congestion band this oscillator is giving us a neutral (0) reading on our Confidence Diffusion Index (CDI) so while the needle has rolled into a decline phase we don't have a sell signal yet.
LONG-TERM: Remains unchanged at 95/5 and barring the unexpected will close its 4th week at this congested level.
BOTTOM LINE: The massive flow of liquidity into the market from the sidelines has provided fuel when Sentiment Fuel had already been exhausted. Basically as long as the VIX remains caught between 21 and 25 (the most volatile component of the calculation on the tank) we have to respect the broad market uptrend. If the VIX breaks down to 19 or so then we'll be looking at a blowoff top. If the VIX breaks above 25 then the odds favor a more significant retracement.
What Do Fleetwood and USG Have in Common? . . . quite a bit.
by Judy Alster, Sr. Editor, 21st Century Investor
We've seen high short interest before, heaven knows -- but 50 days? Forty-seven percent of outstanding shares held short? From what we can see, Fleetwood Enterprises, Inc.'s financials (NYSE: FLE) are no worse than many companies with no short interest at all. What gives?
Fleetwood manufactures recreational vehicles, including motor homes, travel trailers, folding trailers and slide-in truck campers; it also makes and sells manufactured housing. On May 1 the company made a preliminary announcement that didn't pull any punches: Its RV business would be well up for Q4 and fiscal 2003, it said, and fiscal year combined sales would be respectable -- but housing would be down for both periods. "Our Manufactured Housing Group continues to battle complex and difficult industry conditions," Fleetwood said. " . . . we do not expect to see a meaningful industry recovery for at least a year. We will continue to control costs, but we don't expect to reach breakeven in the Housing Group at these revenue levels."
Note that it was precisely on May 1 that short interest started shooting up.
A lot of short interest tends to provide built-in price support for a stock, because if the price starts edging up, shorts have to buy the stock back at market prices to avoid potentially limitless losses, which bumps the price up even more. The more short interest, the longer (and more frantically) the shorts keep buying, and the more the price can rise. It's called a short squeeze.
Now, you recall one of the things that attracted us to once-bankrupt USG Corp. last year at $7.35 a share was its extremely high short interest coupled with the fact that it was a sector mammoth just waiting for the asbestos cloud to blow over. That cloud is now dissipating and USG closed recently at $19.85 -- almost triple our recommendation price. The other thing about USG that caught our eye was the fact that Warren Buffett, who needs no introduction, had bought the company amid much derisive laughter when it was in the sub-basement. The laughter has now turned to universal envy, as it almost always does soon after Buffett steps in at the bottom and buys a company. And what is Buffett buying right now? Clayton Homes -- a leading producer of manufactured housing for $1.7 billion. Is there a better way to put a stamp of approval on the manufactured housing industry than by having Warren Buffett buy into it? As we've often said, sometimes the shorts are right, but we don't think they're right about Fleetwood Enterprises. For one thing, you wouldn't believe the massive amount of insider buying that took place at Fleetwood this March and in the second half of last year. Don't the shorts do their homework? And just a few weeks ago, Superior Real Estate renewed its dealership credentials with Fleetwood, stating plans to use Fleetwood's homes for a number of projects in northern California. And then there's that industry endorsement from Warren Buffett.
Fleetwood traded recently over $8 and has lately been moving steadily up. A little more good news could send the shorts really screaming for cover, and Fleetwood's stock could end up looking a lot like USG's.
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