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Posts Tagged ‘Infrastructure’

Changing Intermediate-Term Stance on Market from Bullish to Bearish (SPY, DIA, QQQQ)

November 19, 2009 2 comments

I brought up some long term technical issues regarding the market in my post from October 30th and although we broke over the downward trend line, I am now changing my overall intermediate-term stance on the stock market from slightly bullish, to moderately bearish.  I will outline my reasoning below:

Unemployment and continued joblessness
The unemployment number have been slightly improving of late but they cant seem to stay under the 500,000 mark. The number of continuing jobless claims are falling faster but Jon Ogg from 24/7 Wall St. aptly points out that the number needs to fall to 400,000 from the current 5,611,000 for the unemployment to stop growing.

We haven’t even felt the real pain from unemployment yet
Thus far, the majority of the unemployed have been receiving jobless benefits under the American Recovery and Reinvestment Act which provides extra unemployment assistance  so that they can continue to spend and contribute to the economy. This runs out in January, 2010 (only a bit more than a month from now) and nobody is even talking about it (more on this here).

Holiday retail sales may do well after having consumers save for it all year, but this is almost certainly a case where current demand will be coming from future purchasing power. Retail and discretionary sales are down hugely so far in 2009 and instead of getting better, it’s very likely to get substantially worse in 2010. Are people really going to have the same gusto to spend when they have homeless relatives staying with them at home? This is very troubling to me because of the potential negative feedback loop it could cause with additional layoffs.

Congress hates Americans
Whatever happened to all that infrastructure and education spending that was going to create jobs? Oh that’s right, congress and Nanci Pelosi had to pay off all of their supporters and donors before the real economy got any money. Too bad there isn’t much left that hasn’t been appropriated already…

All I see when I watch hearing is a bunch of stunningly uninformed (or plain stupid) grandstanding by our representatives in Congress and it doesn’t seem like the issues of financial regulation, energy independence or health care overhaul are going anywhere.  The government has succeded in changing the playing field and rules of the game, unfortunately, the new playing field and rules seem to change whimsically on a quarterly basis. I believe that all the the uncertainty created by the Government is a large contributor to the lack of investment in capital and workers because there is no way to effectively forecast and plan.

Reading Obama’s tea leaves

By now I’m sure many of you have noticed that President Obama has been pretty on the money with a lot of his recent ‘hunches’ and ‘expectations’ of the economy and the unemployment situation. He talked about how job losses would likely continue in 2010 and a few days later the unemployment numbers came out with the first reading above 10% since the 1980’s.

President Obama also recently broke with the presidential tradition of being the economies cheerleader by saying “It is important though to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the US economy in a double-dip recession”.

I think that the only reason he mentioned the deficit was to give lip service to the Chinese (who had been pressuring him over the falling Dollar) while he was on tour in Asia, but the fact that he brought the phrase “double-dip recession” into things was a little scary. This is especially eerie because of all the things that could put us into a double-dip recession, our deficit is probably not even in the top three. My interpretation is that President Obama is hinting at a double-dip recession in GDP in 2010 and using the deficit as cover.

I feel that people would need to be very greedy and imprudent for the market to be pushed up much from here. Just some food for thought…

– Michael J. Burns

Disclosure: I am net long the market with slight exposure to gold though GLD

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B SHAW @ 28.20

October 16, 2009 1 comment

Today, I bought the Shaw Group (SHAW, formerly SGR) at 28.20.

Shaw got slammed today by a triple team of two downgrades (to Neutral from Buy), a Nuclear Regulatory Commission report about a Westinghouse (of which SHAW owns a 20% stake) reactor saying it needed some more work, and pressure as the market reacted to GE’s and BAC’s unconvincing earnings reports.  This morning, the stock was down almost 10%, and I saw that as a buying opportunity.

Despite the government standing in its way at every step, I feel the time is right for Nuclear. It is the only fuel source that can be effectively used in a large scale, for very few pennies per KWH, and emitting no greenhouse gases.  Europeans, and the French in particular, have been using nuclear for decades, and get a significant amount of their electricity from uranium.  While there are waste disposal issues, they are not insurmountable, and the plants have operated accident free.  While many view Shaw’s minority stake in Westinghouse as a negative, I view it as a positive as it makes Shaw, which is primarily an infrastructure company, well positioned for when the Nuclear Regulatory Commission (NRC) begins issuing permits.

I will admit some luck in the timing of my purchase, as barely an hour after my purchase, Shaw issued a release concerning the NRC’s report on the Westinghouse reactor saying that the issues that were raised are surmountable, and they remain on schedule to have the first reactor installed and turned on by 2016.  This caused their stock to rise by a percent and takes away a lot of the uncertainty that was swirling around.

The stock is priced at about a PE of 14 given analyst estimate of fiscal 2009 EPS of $2.00.  This compares favorably with the PEs of their infrastructure peers like MDR (PE: 20), and nuclear peers like ES (PE: 26).  During the times I have held the stock before, around $28 seems to be the sweet spot for accumulation, and the numbers corroborate that fact as I explained above. I will be holding the stock waiting for a price in the low-to-mid 30s, although should other news materialize I will of course adjust that target.

Shaw will report Q4 and Fiscal 2009 earnings at 5 pm EST on Thursday, October 29th.  Analysts expect FY09 earnings of $2.00 and Q4 of $.47.

Disclosure: Long SHAW, no position in ES or MDR.

-AH

High Speed Rail

October 5, 2009 Leave a comment

I have said it before, that Clusterstock produces some great articles, and they have produced one: here.

It concerns High-Speed Rail, currently a big issue here in California, and something that should be a big issue around the country as we struggle with the problems of transportation gridlock and our energy mix.

I’m bullish on rail infrastructure stocks, as there are many projects that are a go as soon as money becomes available. High Speed rail will need significant infrastructure investment in electricity generation (short-term: Natural Gas, longer term: Nuclear (Shaw Group (SHAW)), Solar (FSLR, TSL, STP)), electricity transfer, steel for the rails (NUE, X, AKS), concrete for the infrastructure (MDR, UDS). In addition, investment will flow to the traditional HSR manufacturers, like Bombardier and Siemens (SI), for carriages and design assistance. All we need is a government with some balls to declare eminent domain to get the land, and tell the conservative naysayers to get stuffed. Unfortunately that is what is lacking right now.

Disclosure: No positions in any of the stocks listed.