Archive for June, 2009

Cadiz (CDZI) & politics: If you smell a rat, chances are, it is a rat

Saturday, June 6th, 2009

Wah! I was hoping that I wouldn’t have to write something this week since I was enjoying my time at the LA Traders Expo. However, I came home tonight and started surfing the day’s charts and saw something I found to be abnormal, or for those of you who have been following my blog I would say it’s on the Holland Ware-side of weird.

It was the chart of Cadiz, Inc. (CDZI). What? You’ve never heard of it? Fie on you! Well…me neither.  But it certainly piqued my interest.

“Founded in 1983, Cadiz is a publicly held renewable resources company that owns 70 square miles of property with significant water resources and clean energy potential in eastern San Bernardino County, California. The Company is engaged in a combination of organic farming, solar energy and water supply projects. “

Since it went up fifty percent in price today on a very suspicious candlestick chart, I decided to take a look at the company. Will I find another Holland Ware type of scenario where all is not what it seems to be?

The answer is: Not only do I think so but I sure hope that California voters consider how much they’re being hosed by this supposedly “green” company. The company, headed by British-born Keith Brackpool, who, by the way, never says anything for the record but speaks through his attorney mouth-piece Scott Slater, has been a major contributor to California politics for years including Los Angeles mayor Antonio Villaraigosa, ex-governor Gray Davis, and current governor Arnold Schwarzenegger via top aide Susan Kennedy.

He says that he wants to do “green” things, but if he can’t coerce the state into renting his land for an aquifier, solar, or wind-type of proposition, he said that the land is open for development. What a creep! (If you don’t believe me, read the links below.)

This company is not on the up and up. It’s aquifiers have come into question and even California Senator Dianne Feinstein thinks that there’s something wrong in her letter to the Secretary of the Interior.

Here are the the links to the other top websites, plus you’re welcome to do your own research:

Ron Kaye LA

Arnold Unspun

First Amendment Coalition

Forbes:  In the dumps

Water Industry News

I’m not sure where this is all going, but it could well end up in a high-crane shot:

From an IMDB description of the movie “Chinatown”:

“Los Angeles detective Jake Gittes is hired by a woman claiming to be a Mrs. Mulwray to spy on her husband. Shortly after Gittes is hired, the real Mrs. Mulwray appears in his office threatening to sue if he doesn’t drop the case immediately. Gittes pursues the case anyway, slowly uncovering a vast conspiracy centering on water management, state and municipal corruption, land use and real estate, and involving at least one murder.”  [Underline mine.]

This might be a case where life imitates art. If indeed the above movie description does parallel reality, then let’s hope that the last clause of the last sentence doesn’t…gulp!

Addendum made on 6/7 at 3:20 PT:  I forgot to mention that CEO Keith Brackpool and CFO Timothy Shaleen were granted 60,000 and 30,000 shares of Cadiz stock respectively on 5/22/09.  Both Brackpool and Shaleen sit on Cadiz’ board.


Dr. Kris at the LA Trader’s Expo

Wednesday, June 3rd, 2009

I was at the Pasadena Convention Center today to look over the site of the workshop I’m giving tomorrow. Although the exhibit hall and the workshops don’t begin until tomorrow, the few ballrooms that had presentations were packed. I think this is going to be a big event, folks! It’s also free to attend, although there are some paid presentations. Alas, I’m not one of them!

But I will be presenting in a large, airy room (Ballroom C) with a HUGE screen. It’ll be like being at the drive-in but without the back seat. The Convention Center is newly renovated and is quite stunning. It’s right next to the ice-skating rink which is particularly groovy as it has live organ music on the weekends and large curved windows that make it bright during the day. So, if you get burned out on stocks, futures, and options, you can take to the ice to cool your jets.

My workshop is at 1:15pm on Thursday (tomorrow) and I’ll be speaking on how the addition of a market timing scheme greatly improves the return as well as significantly lowering the risk of a portfolio based on Modern Portfolio Theory. Not only will the retail investor be interested in this new investment tool, but I believe professional money managers might find it particularly attractive. The second part of my talk will focus on a way to make a stable, low-risk return even in volatile markets–this strategy is much better than a money market!

So if you’re in the neighborhood, please do drop in and say hi.

Oh, and seeing as how I’ll be attending the show for the rest of the week, I probably won’t be posting until Monday.

*Click here for more info on the LA Trader’s Expo.

MANDA & Channeling Stocks Updates

Tuesday, June 2nd, 2009

If anyone’s been wondering why I haven’t updated these portfolios it’s because there hasn’t been any activity in either one until recently.

Channeling Stocks Update
Yesterday, the lower channel of long holding OSI Pharmaceuticals (OSIP) in the Channeling Stocks Portfolio was broken and the position was closed out at a loss at the end-of-day price of $30.31. There’s only one stock left–Huaneng Power (HNP), a long position. (This paper-traded portfolio was for illustration purposes only and is being closed out.)

MANDA Update
However, M&A activity seems to be picking up after many dormant moons. This is good news for the MANDA Portfolio which has been reduced to only five holdings—or four, actually, since TriNet completed its acquisition of human resources firm Gevity (GVHR) yesterday at the deal price of $4.00 per share. Including a five cent dividend, the trade returned over 7%.

Today brought a flurry of M&A activity. The first M&A event occurred in the data storage universe involving a bidding war between NetApp (NTAP, formerly Network Appliances) and EMC Corporation (EMC) for Data Domain (DDUP). On May 20th, NetApp offered $25 per share for the company, but was one-upped today by EMC who offered $30 a share. Will NetApp make a counteroffer? And if so, by how much? Apparently, investors seemed to think they will since Data Domain’s stock closed at $31.58. I, however, did not buy into that logic since NetApp is going to have to come up with more than the $1.8 billion currently sitting on the table. That’s considerable coin. And no matter how much NetApp offers, EMC can probably outbid it since its pockets are much deeper.

In the second event, oil and gas services company Cameron International (CAM) agreed to acquire Natco Group (NTG) in an all-stock transaction valued around $780 million. Terms of the deal call for Natco shareholders to receive 1.185 shares of Cameron common stock per one Natco share. I generally shun stock swap deals because one never knows how they’ll work out, although if the swap appears attractively priced close to the merger completion date I might go for it. (The deal is expected to close sometime in the third quarter.)

The last event was also in the energy arena. Midstream energy partnership Hiland Partners agreed to be acquired by affiliates of major stockholder Harold Hamm. Like most master limited partnerships, Hiland is divided into two separate entities: Hiland Partners (HLND) is the limited partnership, and Hiland Holdings (HPGP) is the general partnership. Terms of the acquisition call for unitholders of Hiland Holdings to receive $2.40 per unit, or 3% above today’s closing price. Holders of Hiland Partners will receive $7.75 per unit, or 4.7% above the closing price. It wasn’t mentioned when the deal is expected to close but there’s an excellent chance that the July dividends will be distributed thus increasing the expected return. I picked up some of the limited partnership (HLND) for the MANDA Portfolio at the closing price of $7.40.

Both the MANDA and the Channeling Stocks holdings will be updated on the website over the weekend.

Disclosure: MANDA is a real portfolio and I do hold positions in the stocks mentioned, unlike the Channeling Stocks Portfolio which was designed for instructional use only.

Today’s rally: A bunch of bull or the real thing?

Monday, June 1st, 2009

Judging from today’s intensely bullish market action, it’s getting tougher and tougher to believe those who say that this is just a brief respite in a bear market. Unfortunately, I happen to be one of those grinches. More foreclosures as well as personal bankruptcies still loom on the horizon. Unemployment has been temporarily buoyed by the government hiring people to conduct the 2010 census and the fact that the Fed’s printing presses are operating on double-overtime leads to questions concerning inflation and a sinking dollar. And if all that isn’t enough to scare you, what would happen if the US consumer stopped buying foreign goods causing China to retaliate and stop buying our debt? I shudder to think…but none of these concerns seem to be troubling investors as they’re all tossing their hats into the bull ring.

Let’s look at some of today’s bullish chart action.

Bullish indications
The volatility index (VIX), a gauge of fear and uncertainty, has been sliding steadily and is now trading below its key psychological level at 30. Trading at 943, the S&P 500 just broke out of current levels. It’s free to rise until its next resistance point at 1000. Following a similar pattern, the Dow broke out today, too. Next stop is 9000. The only cause for concern is the Dow Transports. Although the index gapped up today and is currently at 337, it needs to break 345 before it can go higher.

The real bright spot is the Nasdaq. It opened above its previous high and took out minor resistance at 1800. Next area of congestion is at 1900 followed by major resistance at 2200.


A synthetic long play
One way to play this is to consider options on the Nasdaq 100 tracking stock, QQQQ, which is currently trading just above $36. The ask price for a September 36 call is $2.40 per contract. This means that instead of paying $3600 to buy 100 QQQQ shares, it will only cost you $240 to buy the option. (One options contract represents 100 shares of stock.)

Last Thursday we looked at how synthetics can be used to replace the underlying stock. A synthetic long consists of buying an at-the-money call and selling an at-the-money put both with the same expiration date. So, to make a synthetic long out of the above QQQQ call, we could sell one September 36 put at the $2.10 asking price. This gives us a net debit of 30 cents per share (or $30 per contract) to put on the trade. The break-even point here is $36.30 which means that the stock has to be above it at expiration (or anytime in between) for you to profit. However, if the stock falls below it, you’ll start losing money. Although this play is much cheaper than buying the equivalent stock position, there are margin requirements so be sure to check those out with your broker first.

If you want a longer expiration date, consider the December 36 synthetic long. The asking price on the call is $3.19 and the bid price for the put is $2.90, yielding a net debit of 29 cents per share. Personally, all things being equal, I’d go for the longer expiration date.

Sector notes
Almost every major sector ETF is trading well into the green with many breaking out of their current bases. This goes for foreign ETFs too, especially emerging markets and BRIC countries. All of the major currencies are rallying except for the peso, the yen, and the greenback. In fact, the US Dollar Index Bearish Fund, UDN, is breaking above $27 resistance.

Let’s hope all this good news indicated by the charts holds up for the longer term thus proving me wrong. Who said to sell in May and go away?