Earnings Season: Like Goin' to Vegas

As earnings season was in full force over the past week, investors were taken for a ride on a bucking bull.

I had a lot of fun and made a little money at the craps table, er, I mean, playing options of companies releasing earnings.

Early in the week, I took a bullish stance on Intel; they pleased the street and I came out ahead. Later, I also placed a bullish bet on eBay, but their earnings were not lauded by analysts (though I liked the release; more on that in another post). Thankfully, a 15% OTM put on SunPower (SPWR) just touched the moneyline, making my options worth something. (Side note: I'm very short-term bearish on solar stocks; I'll post about that later too.) On Thursday, I made two bets, on E*Trade and Citi, which both ended up being slightly profitable; however, I passed on the biggest surprise of the week, the company that owns the internet, Google.

I was looking at Google options but ultimately decided it would probably be like throwing money away. After all, the level I was looking at $490 or $500 calls) were $50 out of the money - I thought that they would surely expire worthless, even if the report was good.

I was wrong, and it hurt. The $60 contract of $500 April calls sold for between $2,500 and $4,700 on Friday. Lots of wealth changed hands in the way-out-of-the-money contracts; what was selling for dollars or pennies on Thursday was worth 50-100x as much Friday. However, as a (self-proclaimed) long-term investor, I have to look past such fanciful missed opportunities and focus on the future.

Lots of companies still have to report their quarters over the coming weeks. I will post individual thoughts, analysis, and predictions concerning the coming days, or even specific companies.

What did I promise again? A bearish writeup about solar stocks, individual earnings predictions... I'll also tease and say I'm going to write about the attractive value of PetroChina - keep checking back all week for the frequent updates.

Companies reporting that I'm eyeing up this week:

Monday: BAC, NFLX
Tuesday: MHP, OXPS, YHOO, VMW
Wednesday: UPS, AMZN, AAPL, CMG, NTRI
Thursday: POT, PEP, OXY, COP, MSFT, WDC, DECK
Friday: HMC

I'm expecting good news from some, and bad from others. Let's crank up the guessing machine.
"I trade with TradeKing: $4.95 stock and options trades, plus lots of tools. It's simply the best way to invest. Click here to find out more.

We're in a Recession, and on the way to $60 Oil.

As the markets continue to slide (now hitting their lowest levels in almost a year today), commentators and analysts are afraid to say "recession."

If you turn on CNBC or read a business newspaper, you'll see the terminology of choice - "possibility of recession" or "on the path to recession."

I want to be the first person (that I know of) to go on record saying this: The United States is currently in a recession.

What does that mean?

Well, if the recession started around the 2007's Q4, then we may be in for a bad earnings season. However, many of the blue-chip companies important to our markets and economy have extensive international operations, where growth is strong. (IBM pre-released that they will have a very strong quarter.) Also, a weak dollar aids companies with extensive overseas operations, so while you may not get to vacation in Europe this year, the bottom lines of many conglomerates will swell (or, at least, not crumble, if the domestic economy is weak).

Looking back, markets usually perform worst right when the economy is in recession - that may explain the 10-15% losses in major indexes over the past three months. Of course, if our markets emerge with just a 15% slap-on-the-wrist, we should consider ourselves lucky. If the markets endure another 10% haircut over the next few months, I think everyone will agree that we're in a recession even if the economic data isn't on the books yet.

What's good about a recession? It encourages competition and efficiency. One can easily argue that many of our core industries have been in a recession of their own for a while - American carmakers have been hemorrhaging money and laying off workers for years, while many mortgage and housing companies have already gone bankrupt. When industries struggle, the strong survive. When American companies and industries strengthen, they will be better suited to compete against rivals in Europe and Asia, eventually leading to prosperity a few years down the road. The "Jobless Recovery" following the recession of the early 2000's created a 5-year golden era for the American markets and economy.

Plus, another benefit of a recession will be a massive decline in the price of oil. Sure, there are fundamentals that should provide support for oil at a historically-high level, but that level is NOT $90/barrel. The price of oil is no longer driven solely by fundamentals; now, the emotion and whims of traders, coupled with news, creates buying frenzies of selling panics. If it is declared that the US is in a recession, I think that we could see $60 oil. The actual impact on the worldwide demand for oil will probably be negligible, but psychologically, news of a recession would be very significant. I wouldn't have the guts to bet against the price yet, but if we see $60 or $50, it would present a great buying opportunity.

Though things are looking grim, I'm buying. I increased my position 50% in Buffalo Wild Wings, a stock that's fallen over 50% because of one slightly week quarter. (People will eat wings even if the economy is retracting 1%/year instead of growing 2%.) No debt, lots of cash, tremendous growth, and a superior product are all reasons to invest in Buffalo Wild Wings. Check out articles in my archive; all of the analysis is still valid today.

I also bought Intel after the bell today below $20/share. It's truly a irrational world when the media focuses on a 2 cent miss instead of the 51% increase in profits. Why should a solid company lose 15% of it's value for THAT? Especially as the economy is looking grim, a show of good corporate growth should be rewarded by investors, not thrown to the curb. As long as there's nothing awful on the call, investors should hopefully start acting rationally and Intel may pop back up to it's closing level today.


So, I want to go on record making two predictions, which admittadly, may not end up being factual:

• It will later be shown that as of January 2008, the United States is in a mild recession
• Oil will dip to $60/barrel sometime in 2008

Bold? Maybe. Only time will tell.


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