Europe’s woes are back with a vengeance. Apple reports tonight. Its results will be good, but not stellar.
Apple shouldn’t be weak on fundamentals. Its P/E is a modest 16.3 (modest for a high-growth stock). But the company trades on emotion and buzz. When that ebbs (as it has lately), then the stock falls. Last week, I got out of Apple. I’ll buy it back if it drops much lower.
Europe’s mess is front and center, again. The only solution is to allow countries to escape the Euro’s noose, return to their own currencies and devalue them. Devaluation would provide a boost to exports, and hence employment, which austerity (the stupid present policy) does not and cannot. (Thank you Germany.)
Meantime, reports the New York Times, Spain officially slipped back into recession for the second time in three years on Monday, after following the German remedy of deep retrenchment in public outlays, joining Italy, Belgium, the Netherlands and the Czech Republic. In the Netherlands, Prime Minister Mark Rutte handed his resignation to Queen Beatrix on Monday after his government failed to pass new austerity measures over the weekend.
Here’s Business Insider’s chart on Spain and Europe. Depressing.
Unemployment in the U.S. remains awful. From today’s James Suriowiecki column in the latest New Yorker:
The talk in Washington these days is all about budget deficits, tax rates, and the “fiscal crisis” that supposedly looms in our near future. But this chatter has eclipsed a much more pressing crisis here and now: almost thirteen million Americans are still unemployed. Though the job market has shown some signs of life in recent months, the latest figures on new jobs and on unemployment-insurance claims have been decidedly unimpressive. We are stuck with an unemployment rate three points higher than the postwar average, and the percentage of working adult Americans is as low as it’s been in almost thirty years. What’s most troubling is that so much of this unemployment is long-term. Forty per cent of the unemployed have been without a job for six months or more-a much higher rate than in any recession since the Second World War-and the average length of unemployment is about forty weeks, a number that has changed very little since 2010. The economic recovery has now lasted nearly three years, but for millions of Americans it hasn’t yet begun.
Read his entire column here.
The business of shorting stocks you don’t like. My best short was Lehman Brothers. My most recent best short is Radio Shack:
My only other short (at present) is Chesepeake Energy, which I view as a cockroach stock, a source of continuing bad news stories. though it’s down, it’s not way down from where I sold it, yet.
The good news is that like all cockroach stocks, it keeps making bad news. The latest is from Business Insider:
Chesapeake CEO Sold Well Stakes Just As His Company Was Divesting From The Same Properties
Chesapeake Energy CEO Aubrey McClendon sold out of two company-controlled well interests just as the company was divesting in those properties, Reuters’ Anna Driver and Brian Grow report this afternoon.
The revelation raises questions about whether the transactions, which netted the company $6.5 billion in proceeds, were timed and structured to benefit McClendon’s or Chesapeake’s interests, they write.
“I can imagine a scenario where Aubrey is suffering some financial distress and might want to get a deal done – and it’s not the best price for the company,” Joseph D. Allman, oil and gas industry analyst for JPMorgan, told Reuters.
Last week, Driver and Grow reported on the alleged conflict inherent in how McClendon was taking advantage of Chesapeake’s Founder Well Participation Program.
That program gives McClendon the right to purchase a stake of up to 2.5 percent in all the wells the company drills in a given year.
Since 2008, according to Chesapeake proxies, the well stakes have cost McClendon $725 million.
In their initial report, Driver and Grow wrote that McClendon was borrowing against his own stake in the program, using well assets like platforms, hedging contracts and business data as collateral for loans used to buy more shares in wells.
And the loans were being issued by a company that has also lent to Chesapeake, which could have potentially impacted the company’s borrowing rates, the pair reported.
“Chesapeake would not be able to shut in the well due to poor economics (i.e., $1.90 natural gas) without compromising the CEO’s VPP transaction,” Tim Rezvan, an oil and gas industry analyst with Sterne Agee, who had downgraded Chesapeake shares last week on news of McClendon’s loans, told Reuters. “It could present a conflict of interest between CEO Aubrey McClendon and VPP participant Aubrey McClendon.”
The precise amounts McClendon earned on the deals from today’s stories are not known.
That’s because the company has not disclosed gains McClendon realized from individual transactions under the program.
Chesapeake’s proceeds from the two transactions were worth $6.5 billion, according to Reuters. In a company filing on one of the deals – a March 2011 sale of land oil and gas wells in Arkansas to BHP Billiton worth $4.75 billion – McClendon and his affiliates were said to have received the same deal terms as Chesapeake, Reuters reports.
The company said nothing about McClendon’s personal stake in the other deal – the sale in 2008 of land and wells in Oklahoma to BP for $1.75 billion, according to Reuters.
Driver and Grow allege that Chesapeake only selectively discloses McClendon’s transactions under the Well Participation Program.
“After Reuters asked Chesapeake last week about McClendon’s benefit from selling his share of wells alongside the company, Chesapeake amended its preliminary 2012 proxy to mention the fact that McClendon has sold well interests,” they write. “It left the amounts earned blank, and the proxy indicated that it would divulge data only from 2011, not prior years.”
The company has flatly denied any conflict of interest and argues it has disclosed everything required of it under SEC statutes. It recently set up an entire website to respond to the allegations made in Driver and Grow’s stories.
Now check out the fabulous life of Aubrey McClendon. Click here.
Favorite latest New Yorker cartoons.
Harry Newton who is eyeing more stocks for shorting. Meantime, the hihg-yielding mortgage REITs are holding up nicely, especially AGNC dn TWO.
Harry,
Yesterday you wrote that Apple's earnings would be disappointing. I posted on here yesterday evening that I disagreed and felt the earnings would be positive and strong. It's just now reported that Apple blew past estimates, the earnings are terriffic.
If you recall, our bet was that if I was correct about APPL that you had to move back to Australia and stop giving Americans bad financial advice. If you have any integrity left, you'll stick to that.
APPLE RULES!
this man is nothing more than a fraud and a front runner, beware of him and his shilling
Read the Reuters article. It says that he sold properties when CHK sold them, which isn't exactly surprising as he was a partner with them.
CHK produced 11.8 mm barrels of oil and liquids in 2009, and raised that to 31.7 mm barrels in 2011.
In 2012 fully 60% of their revenues will come from oil, even though 80% of their asset base is nat gas.
In the last 5 years, CHK went from producing 3.9% to 9.3% of daily U.S. natural gas production, AND they reduced debt by ~ $ 2 billion last year.
You're depending on reporters to do your investment analysis. Read the annual report. It's at-
http://www.chk.com/Investors/P…
Their latest presentation is at- http://www.chk.com/Investors/P…
when you buy a stock you gotta trust the CEO. There's too much cockroachy going on here…
With all due respect, if you make an investment, and all you do is read the newspapers, how can you possibly expect to make money? I gave you the links to educate yourself, as opposed to vapid pontification. READ!
Consider the difference between the carried interests in hedge funds vs. the co-investment that is burning McClendon. The hedge fund guy earns 2%/year, plus 20 % of the upside and NONE of the downside. No negative press.
McClendon loses his butt by virtue of putting up loans from third parties- NOT Chesapeake money- plus likely some of his own funds, for a 2 1/2% participation and suddenly this is worse than getting an utterly free ride. Look at the production that CHK has generated, and it is utterly plain that the only problem is a low commodity price and investors being peeved about it. LOOK AT THE NUMBERS.
The cockroaches are the dumb investors who seek to find scapegoats for a bum call on commodity prices.
Compare UPL's price action vs. CHK. Ultra has practically no oil exposure, and is fully exposed to nat gas, doesn't operate its Marcellus properties and has greater leverage. That simply isn't the case with CHK.
That said, non-thinking trend following is the order of the day, and your short may make money. But, IMHO, CHK is an absolute no-brainer as a long term investment.