They are, however, making it clear that they stand with Russia in pursuit of a Global Multinational Currency. The new money will supplant the US Dollar as the world’s reserve currency. This will have a substantially negative impact on the US economic recovery. Forget double dips, this is a lot bigger than a housing crisis; this is a National Security Crisis. The Chinese have now indicated that they will allow their currency to trade freely and not in sync with the US Buck. For some reason, some saw this as an excuse to celebrate yesterday, but to me it’s another ominous sign that China is readying to devastate the US economy. They are now strengthening their currency, which may seem like it will spur consumer demand in China, but guess what: most of the stuff we all want and use is already made in China. That’s why they export a ton more stuff to us than we do to them. So, when their people have a stronger currency, why would they buy our goods, when they can just rely more on their internal production? On top of that, they have committed to buying Euro Zone bonds, some say they have been purchasing Euro to keep its strength, and this is a coordinated plan to keep the Euro Zone intact, and then extort them into making the Euro into a more Supernational Currency. The best way to force your will on a group is to own a bunch of their currency. See, just like China controls us, by virtue of their US Treasury holdings, they are now keenly focused on insuring a position of strength in the Global Currency markets. They have made it clear; they have severely curtailed their purchasing of US Government debt, and they have turned their focus to investing in the Euro Zone. Now, if they strengthen their Euro ties, team up with Russia and India, and continue to push the new Currency, they can peacefully take over. We have no leverage against them, we just have to sit on our hands and hope they don’t take their stance a step further. Not buying Treasuries is one thing, and we may well have to start raising rates considerably to incentivize future purchases, but if the Chinese take the next step and start to sell US agency Debt, the gloves are off, and we could be bracing for a Global showdown. Any sign of China selling US debt could cause a sickening downturn for not just stock markets. It could rock all markets and they could basically write the new rules. Military options are our only options, if they Chinese begin buying euros and selling US treasuries. And with the typically practical Chinese looking at a US monetary policy that is spend-print-borrow-repeat, spend-print-borrow-repeat, they could pick their spot to show up at a Treasury Auction, not as a buyer, but as a seller, and the whole US Ponzi scheme will be over. The Chinese currently hold all the cards. Be Careful friends, things are getting scary out there.
Bull’s Bag - Tuesdays with TJ
Well last week we started the first installment of Tuesdays with TJ, where our favorite buy side Sales Trader, Tom Jr., provided some Bullish commentary as a
contra-perspective on one of the Hot Shorts. The response was great, and unfortunately the pixie boy was on the money, firmly placing the Bull’s balls across the Bear’s nose. In keeping with TJ’s personal preference, the shorts took it on the chin, or in the shorts, however you wanna look at it. Well the Kack is back sporting a 1-0 lead on me, as his XLF call was spot on last week. The bears who were betting against the XLF came up on the short end of the stick, (pun intended) with XLF extending its gains for the week, turning in a 2% return for upside players. The bears still remain intently focused on US financials, but for week one, score one for the bulls. This week our focus is the Sunny Solar sector: The Bears think that FSLR is a raging short, But Tom Terrific feels the opposite. Here’s why: My XLF call was on the money, but even a broken clock is right twice a day. The ticking the bears all hear comes not from a clock, but a similar source. The macro time bomb pictured in each of their furry little heads, I agree, is quite haunting. I understand the issues with the Euro, Spain, Greece, Italy, Ireland, Portugal, printing money only works in the movies, sociopathic North Korean dictators blowing South Korean ships apart and the inevitable nuke launched from the Iran border, paint a horrid portrait. I get it; the world is an ugly place. The economic doomsday theorists pressing shorts fail to understand that at certain levels too many cooks (shorts) can spoil the broth (portfolio). The XLF call when the SPX hit support at 1045 made for a recipe in which any ingredient (stock) would have tasted delicious if consumed. You could have bought any sector, and made a nice gain as the S&P ripped 70 handles. SPX now taking a breather at 1113.20 and I think these levels could favor the bears.
JT was about to give me this weeks top 5 shorts, and I told John before I saw the names that I would probably agree with all of them, until I saw FSLR. Cantor Fitzgerald analyst Dale Phau (previously of Bear Stearns) initiated First Solar with a SELL rating and a $70 price target, which had some analysts that actually do work on their names up in arms. I am told his call is dead wrong, pricings been going up, and demand strengthening, despite that, even with subsidy cuts, from a long only hedge fund that I cover and another analyst that runs 1 billion and specializes in the space. Since that lazy Cantor initiation (it was $108 at the time) FSLR is up $14 points but I think there is still plenty of sunlight left to brighten any portfolio with FSLR shining within it!
I can’t let the Kackler steal the show again, so here’s why the Bears see a downside:
This Morning, I detailed the basis around some of the Bearish beliefs towards FSLR:"First Solar has been the bell weather of the Solar stocks, as the run in the sun seems to conincide with Oil prices, as the costs of Crude jumps so does the sentiment that alternative energy sources will be in demand. Thus the Solars seem to be moving in tight correlation with Crude prices. The trade oil up solars up seems to be a continuing theme. The shorts have been able to isolate a trade in FSLR where each time the stock has a 20% move to the upside on news or forward looking statements the shorts enter and play the stock to the 102-105 range. Right now at $120 and change, the sunny days seem to be over for the solar bulls"
Check out this chart, FSLR's share price moves almost perfectly in-sync with crude prices:
Bears also see a major flaw in FSLR's Euro exposure and subsidy support:
78% of their worldwide installs are in European Union states with 86% of revenues being in euro denomination. As a US company, they report in US dollars, so the Euro/$ exchange rate presents a massive risk with the European financial crisis. As the EU declines, EU rich subsidies will fall off. Without subsidy, current PV prices do not generate the financial return to attract the (usually 20 year) investment. The Solar market is highly politicized with subsidy markets facing change in financing rates and installation costs. Pricing is highly localized, as even First Solar admits that it sells its products at different prices in different locales, based on competitive dynamic and customer relationships. The bottom line is that the company is supported almost solely on Government policy (subsidies), and any change to these policies could have major negative implications on the company’s financial outlook.
In the long run, FSLR will benefit from a transition to an unsubsidized, consolidated market, but the current transitional phase will hurt the share price thanks to the weak euro and decreased subsidy funding. Look for the bulls to run screaming if the share price drops below historical $100 support.
HOT SHORTS
Here’s a recap of today’s Hot Shorts, as seen in the Morning Eye Opener.Click here for this morning’s Eye Opener, for some details on each ticker:
BIDU FSLR DO IFLG BANR
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