Shanghai Composite Cracks 52-week low

As we predicted might happen, the Shanghai Composite Index dropped below its 52-week low before recovering to close up 1.5%. This doesn't bode well for the Chinese economy as we approach the Summer Olympics, the supposed 'Crown Jewel' of 2008, the Year of the Rat.

On March 7th, in response to the Oracle of Omaha's utterance of the word 'recession', we wrote: "So, Warren Buffet's use of the 'R' word on CNBC could still reverberate much, much more, perhaps around the Globe, maybe even, oh.. Asia?!"

http://psychologyofthecall.blogspot.com/2008/03/munch-fear-screaming-out-loud-in-equity.html

We asserted many times over the last 6 weeks that the Chinese economy is in decline. The inability of the individual Chinese investor to sell short Chinese stocks, coupled with the growing swell of anti-Chinese government sentiment around the world is pressuring Chinese markets into retreat. Again we reiterate our short recommendations on FXI and BIDU and implore you to pay careful attention to this dynamic and dangerous combination of financial and geo-political events.

On Monday the Shanghai Composite Index closed at 3,296, a mere 25 points above the 52-week low. It seems likely that the Index will break 3,271 very soon, possibly tonight. Coming a matter of weeks ahead of the Beijing Olympics, this cannot be considered a good omen for the Chinese people or their economy.

We advise extreme caution with Chinese stocks and reiterate our short recommendations on FXI, JRJC and BIDU.

The Psychology of this Week's Data

We offer you the most market moving earnings and economic data for the remainder of the week; please position yourself accordingly. We anticipate TREMENDOUS VOLATILITY during the week of April 14 - 18, with the overall bias being lower. Be especially prepared for Wednesday.

The markets are deep and dynamic, so avoid getting brain washed by any one camp fire, bear or bull. Although if you do chose to be bear or bull forever, you will learn to exhibit great patience and make money, circling more and trading less. Position trading is what these camps rely on. George Soros is a great example with his British Pound short windfall of one billion dollars in one day in 1992. Bubbles and climactic sell offs are wonderful events for these two camps. The perma-bears, like Mr. Stephen Roach, a man I met while at Morgan Stanley in one of the late, great World Trade Center Towers, seem so wrong when the market rises, but everyone flocks to them when the market collapses. But you must realize that the "perma-camps" will always eventually be right, as long as they stay their course. We respect the perma-bears (Roach,Soros) and perma-bulls (Kudlow) alike at the Psychology of the Call, and because the free market system has two sides, men like Roach, Kudlow, and Soros deserve some attention.

We look to Wednesday, April 16th with GREAT ANTICIPATION. This is the day after the INTC report and it will see a slew of economic and earnings releases. Are the markets efficient and have they discounted all this data already? They'll sure be tested today. Consumer Price Inflation CPI comes at 8:30 ET.

http://www.briefing.com/Investor/Public/Calendars/EconomicReleases/cpi.htm

Housing Starts, Building Permits will be posted at 8:30 ET as well. These data sets have been depressed and we don't see that changing just yet. We look for the housing crisis to recover in bits and pieces. Just like the market of stocks, not the stock market as many would have you believe. We see strong foreign currencies stepping in to buy prime high-end real estate at HUGE discounts, both on a principle basis and currency translation impact. The Euro dollar will step in and bail out a lot of real estate investors come Autumn/Fall. Please remember our prediction. Here's a chart of the Euro/US: dollar:

http://finance.yahoo.com/currency/convert?from=EUR&to=USD&amt=1&t=5y

We reiterate our belief the Euro will be a FIRE STARTER for US real estate as well as blue chip stocks like Goldman Sachs (GS) perhaps.

9:15 ET brings Industrial Production and Capacity Utilization:

http://www.briefing.com/Investor/Public/Calendars/EconomicReleases/indprd.htm

This data has been trending down lately as well, but we predict improvement in manufacturing before the Europeans step in to buy our coastal and prime city (Manhattan & Chicago) real estate.

10:30 ET brings Crude Oil Inventories.

http://www.wtrg.com/daily/crudeoilprice.html

With crude hitting $112.00 last week, this data will just remind and reinforce traders that the hurricane season is approaching. Perhaps an opportunity to make money on the short side? 2005, the year of Katrina and other major hurricanes was a horrific season and a freak occurrence. Since it's all still fresh in people’s minds, and crude oil did spike to $76.00 soon thereafter, we feel the contrarian trade is to short crude. If crude were to climb to the $120.00-$130.00 range going into the Olympics, we would strongly recommend shorting crude oil in the futures market.

We whole heartedly wish the Chinese people a successful Olympic Games, but we have to call it as we see it today; a geo-political disaster. We believe once the 2008 Olympics begin, crude could begin its fall to the $80.00 level. At least a 25% premium is built into the Chinese economy chugging along at the same pace, and we predict the Chinese economy will falter before or after the Olympic games due to political unrest, rampant inflation, and cries for human rights from within China, Tibet, and European countries like France, Italy, and Germany. This is the type of Psychological Financial Fusion we addressed in the beginning. The ‘cheap’ Chinese Yuan is causing great problems for European manufacturing, but especially the steel industry. Europeans may not boycott the Olympics, but they could penalize Chinese imports through tariffs and other political legislation measures available, so exhibit caution.

Market moving earnings after market close come from Wells Fargo (WFC), International Business Machines (IBM), and eBay (EBAY).

We look to Thursday, April 17th with tremendous volatility continuing. 8:30 ET brings us the Initial Claims for Unemployment and the Philly Fed Index:

http://www.briefing.com/Investor/Public/Calendars/EconomicReleases/phil.htm

We will make a quick prediction here: employment could improve because of Spring Break, so a head fake of sorts, and since the "Philly Fed Kick Started Stocks" last time in a piece we wrote, we hope for the bulls sake, that happens again!

Thursday is more about earnings: after market close brings us United Technologies (UTX), American Express (AXP), and Google (GOOG).

We look to Friday, April 18th as a "naked" economic day in terms of data. So the open will be dictated by earnings from UTX, AXP, and GOOG. We suspect a very volatile day with a downward bias. The earnings after market close come from Caterpillar (CAT), and Citigroup (C).

Thanks for reading the Psychology of the Call. We wish you a comfortable, healthy, and profitable week.

The Psychological Financial Fusion in the Upcoming Week's Economic and Earnings Data

Good Monday Morning to all our readers, wherever you may be! We hope you're enjoying and learning from our fusion of qualitative, quantitative and technical analysis with every passing week. We will continue to stress the importance of psychological (qualitative) analysis over quantitative data. We give great respect to technical analysis (charts) as well; and we will at times fuse the three methodologies together in order to create some sort of synergistic effect (3+2+3= ..10).

In addition we still incorporate another layer of qualitative "top down" analysis that weighs geo-political factors, which have dominated the media of late. Although this phenomenon is not new, it is new in the sense that never before have humans witnessed so many free markets/democracies, so much new wealth, and so much pull/strain on natural resources. Therefore we believe the price of Crude oil and other commodities related to food stuffs is fair, just, and verifiable to a large degree. We hope you understand the importance of the geo-political environment when committing even a single dollar to any investment from 2008 well into the future. Having a broader view of global perspectives will help you target greater opportunities, both in quality and quantity. So perhaps the term "psychological financial fusion" is even more complex than we first explained; we see the phrase becoming more widely accepted and used by the talking heads going forward, especially in light of world economies adjusting and attempting to digest the US dollar crisis. A mention of Vimpel Communications (VIP) later in the piece will elaborate on how to profit from this developing paradigm shift in market mechanics. We see the weak US dollar being a blessing and not a hindrance to Corporate America in the not too distant future. Perhaps we'll see massive buying in the high end real estate markets by the Euro or other strong foreign currencies. We underline and reiterate our optimism for the US stock and bond investor by the time the leaves turn various colors and begin to fall.

The Week ahead presents the perfect storm of data for this qualitative, quantitative, and technical fusion to occur. Some financial sites & advisors lead you to believe P/E ratios are the main reason to buy or sell a stock: they are dead wrong. We do believe technical analysis is critical to set entry and exit points, but feel qualitative and "top down" analyses are far superior in deciding where, why, and finally what specific stock to buy, sell, or sell short.

We simply won't tolerate third grade division (P/Es) alone in evaluating something as complex as investor sentiment. Never underestimate the importance of geo-political forces and macro economics (top down) as the causes for price swings and thematic cycles. Swings and cycles (up or down) are understood and expected by learned, experienced traders and catch fools off guard. We've met and read many a fool referred to as an "expert", some of whom had been trading for years, but sadly their experience resulted in their relying solely on stagnant quantitative (accounting) knowledge. Our supporters must arm themselves with more than backward looking data, and all accounting, even GAAP, is never forward-looking.

Sometimes a stock price fluctuates 20% or more without any quantifiable data, i.e. earnings. So, maybe the psychology of anticipation of good or bad earnings causes these swings. Or perhaps geo-political or macro economic issues wag the price tail, catching most of the number guys off guard. We use these swings (volatility) as clues and opportunities to enter/exit trades, and build or break positions (long or short). We never explain volatility away by past accounting data, rather by adding two or three methodologies together, giving the psychological/qualitative and technical analysis components a lot more respect. Volatility is something you must embrace and welcome as a best friend, not an enemy. Volatility is the reason free markets exist, so permanently pessimistic men like George Soros should be studied with a grain of salt. We are staunch supporters of the "free market system" with an Adam Smith laissez-faire philosophy as our guiding principle. We believe in no government regulation with dovish (low) fiscal and monetary policies.

For those needing a quick explanation: Fiscal policy is a very important financial element influenced by the sitting President. The House and Senate debate and pass this legislation.

http://dls.state.md.us/top_pgs/org_str/org_opa.html

Think about it as the percentage of taxes you must pay on wages from work and income from investments (stocks, bonds, real estate). So if these percentages are raised, the government has more money to spend, and if these percentages are lowered, the individual citizen is empowered. Monetary policy relates to measures that expand or contract the money supply, specifically through tools like fed funds rate, discount rate and discount window.

http://en.wikipedia.org/wiki/Monetary_policy

The theory states that when short term bank rates are lowered the business cycle is stimulated and economic expansion occurs, and when rates are raised the opposite (contraction) results. So after reading our prior article "The 2008 Animal Tug of War", would you prefer a Donkey or Elephant living in 1600 Pennsylvania Avenue? Or perhaps neither? Maybe a Libertarian or Independent candidate emerges more to your liking ...

General Electric (GE) bled the whole market Friday. Did you see that hammer coming? We wrote about it in the Upcoming Earnings Psychology one week prior, and again in the Thursday Intra Day Psychology; we hope you were paying attention. Is your mutual fund manager or broker advising you to set 20% cash aside at all times? We sleep soundly, knowing our supporters enjoy greater leverage (cash) when market shocks occur; whether they rip prices up or tear prices down. Please be prepared for price swings to go either way, up or down, that's the reason we stress the second Commandment so often: Cash is King. Taking advantage of volatility can only be done when you have the ability to fire a shot, long or short (Commandment ~8~), but when you're always fully invested, that is dangerous, foolish, and condemned by our team.

Also, learn to pare down positions before the weekend; therefore we recommended booking the 16%-20% gain in GRMN, which resulted in 7 trading days. Congratulations to all who listened. The markets will be around next Friday, next month, and next year, so never force trades. We want our readers to become predators in the deep and dynamic market, like sharks that patrol the Great Barrier Reef in the Coral Sea off Australia. We want you to become educated, feared, and patient predators, not the perpetually hunted halibut. Circling your target over and over will make for easier and wiser kills/trades/profits. You should incorporate "psychological fusion" in your stock selection process; the use of qualitative, quantitative, and technical analysis together, with greater emphasis on qualitative logic on what to buy/sell and technical analysis (quantitative) on when to buy/sell it.

Think about it, why did Vimpel Communications (VIP) fall $1.24 (3.83%) to $31.15 on Friday? Did their business model inside Russia change because of GE's report and outlook? We know better.

"Psychological financial fusion" will be a theme as we build out this portal; we hope you learn and eventually profit from it.

The Eleven Commandments of Trading

We want all of our trusted supporters to enjoy the weekend, beginning with our April 1st commentary, posted just 11 days ago when the market was up 400 points. We purposefully used this image of the coronation of a "Bull" as a slightly satirical commentary.

“So should you be jumping in head first with a ‘Buy, Buy, Buy’ mentality? Well, no; the wounds are too fresh to be jumping in just yet. But bear in mind that there are a few stocks that still maintain a sold position above their 200dma and we would consider trading them now. Perhaps Intuitive Surgical (ISRG) is a stock to consider?

“All in all, we suspect it would be wise to fade/ignore the well "dressed" bulls today and remember that it’s still very early in the formation of a market bottom. You can always buy a multitude of "theme stocks" if we have in fact touched bottom. But you can a short a multitude of "false" stocks if the fledgling trend begins to lose volume and break (there are always two sides to the market, as we state in Commandment #8 in the left margin).

We usually look back at Index bottoms and recall how "boring" the sentiment became before a new bullish trend set in, we assume boring is not being tossed around Institutional trading desks today.

http://finance.yahoo.com/q/bc?s=%5EGSPC&t=1y&l=on&z=l&q=c&c=

------- These insights were very forward-looking, and we take pride in our analyses. We wish every one of you in over 60 countries a peaceful and comfortable weekend and please do come back tonight for the "The Psychology of the Upcoming Week's Data."

The Psychology of the Call team.

We offer you the 11 Commandments again


1. Never trade more than 10% of your total capital/account value in any one position.
2. Cash is King.
3. Cut losses to 15% maximum whenever possible. If your psyche is shaken, step away and don't trade for 1 week.
4. Take and enjoy profits of 30% or more.
5. Never fall in love with a stock and never force trades or over trade; remember commandment #2.
6. Never accept excuses from management, period.
7. Use technical and fundamental data & psychology/sentiment from the conference call to select trades.
~8~. There are two sides to the market, long & short; take advantage of that leverage.
9. Understand the significance of the macro geo-political economic environment.
10. Unforeseen events/shocks will happen, inverting the market upside down (remember commandments #1 & #2)
11. All of the above are void without reading the Psychology of the Call.

Psychology of General Electric (GE) Q1 2008 Call

First, we want to take credit for warning our readers in Thursday's Psychology (http://psychologyofthecall.blogspot.com/2008/04/thursdays-intra-day-psychology-as-you.html) that GE is a very important S&P component and will have a market impact.

The conference call was shocking. It was filled with great frustration from Wall Street analysts and management kept saying "we don't mean to give excuses". We urge our readers to listen to the question and answer session. You'll realize why Commandment #6 is so important and realize that GE's management is guilty. The recent credit problems and fall out were unavoidable for GE's finance units, but their results were worse than most analysts expected. Now we have proof of the "dead cat bounce" that occurred on April Fool's Day; we hope you listened to our advice and didn’t get completely caught off guard. Remember the prudent allocation of 50% stocks (long&short) 30% iShares Lehman ‘TIP’s, and 20% cash.

Trade Update

On Thursday April 3rd we recommended shorting device maker GRMN ($54-$55). Although we still feel our initial thesis is in place, we want our readers to take the 20%+ profit and enjoy the weekend. In addition, we remain confident in our suggestion to aggressive portfolios that short positions in FXI, BIDU and JRJC will be rewarded. On Tuesday April 1, Hank Greenberg shared his opinion on the current market and we posted it here because we valued his comments. Perhaps it's time to read them again. http://psychologyofthecall.blogspot.com/2008/04/hank-greenbergs-opinion.html

Psychology of the Genentech Inc. (DNA) Q1 2008 Call

Most notable recent analyst rating changes for Genentech (DNA):
February 25th, Rodman & Renshaw upgraded from mkt perform to out perform.
December 6th, three ratings changes:
Jeffries & Co. downgraded from buy to hold.
Leerink Swann downgraded from outperform to mkt perform.
Cowen & Co. upgraded from neutral to out perform. An interesting mix. Since there is a "tug of war" amongst Wall Street analysts and DNA, we will pay special attention to the exchanges of these four analysts and management during the Question and Answer session.

Last quick note, there are 32 firms currently rating/covering DNA: 11 have a Strong Buy, 10 Buy, and 11 say Hold. We hope you enjoy the DNA of this Call:

CC started at 4:47 PM ET with Kathy, VP of Investment Relations; joined by VP Ian Clark, Sue Hellman, President of Product Development, and David Eberman CFO.
Two minutes (2 m) Ian went over individual drug sales results, Avastin mentioned a lot.
4 m Avastin and lung cancer mentioned; AVAIL data later this year.
5 m Herceptin, patent use limited to late stage cancer
5 m 50 s: Tarceva
6 m Rituxan Q4 inventory affected sales
7 m Zolaire mentioned
8 m Lucentis sales down; main factors were unapproved uses of Avastin
Solid Q and look forward to growth ahead
9 m Dr. Sue Hellmann went over different ongoing studies
11-12 m notable FDA activities ahead. Avastin submission expected for further applications/uses in 2nd half of this year,
13 m Rituxan mentioned, encouraged by data, AAPR, Phase II for colorectal cancer will be enrolling patients soon; 2 more studies will be announced later in '08
13 m 50 s Asthma and Zolaire mentioned, October presentation this year in Europe
14 m Rituxan submission mentioned
15 m Q2 Lupus study trial will be announced. We thought Sue sounded somewhat doubtful the study will work; study results within 1-3 weeks, high clinical efficacy hurdle mentioned. we see no down side here, only upside surprises, that's our psychology of this call, remember, stocks discount public information, and DNA was very transparent with shareholders here.
16 m Lucentis study gone over, she sounded MUCH more confident in these results; she stressed words like "confident"; safety results encouraging, no signs of strokes.
17 m go-no-go decisions mentioned
18 m CHALLENGING FDA ENVIRONMENT MENTIONED, we will "follow the science and do what's right for patients”.
19 m AACR data that will be presented, ASCO will have MANY PRESENTATIONS, PH 3 Avastin data, safety results of Avastin, and many others. Here's a link for our readers; please scroll down to May 30th ASCO, Chicago:

http://www.asco.org/ASCO/Meetings/Calendar+of+Events

20 m CFO David Ebersman read the financial results.
25 m free cash flow $800M
26 m shares purchased at around $72/share, pleased with Q1 results, and believe in solid growth in 2008. Many uncertainties remain and forecasting 2008 is difficult, non gaap eps 2008 between $3.35 and $3.45; Q2 could be an important Q for us, and will impact on how we see 2009 and 2010.

Question/Answer (Q/A)

28 m Chris Raymond from Robert Baird Q for Ian: walk through, describe marketing literature/material, talking points, tools sales reps have that there is a breast label for Avastin A: Good question, "one hand tied behind your back", we don't expect full marketing material until late May or early June, difficult period from a promotional point of view.
Follow up Q from Chris, so right now all it is the label basically A: Yep yep ...
29 m Joel from Lazard Q: slide 36 addressed, will we see phase II study at ASCO A: it will be limited to Phase I for ASCO
30 m Steve from Morgan Stanley Q for Ian: WHAT IS GOING ON WITH AVASTIN, we are now three straight quarters without any growth A: Two broad upside dynamics in growth, lung cancer gradual progression, not exponential take-off, some confusion in market place today, we're working our way through that, there will be growth but gradual, Avastin for breast cancer only 4-5 weeks in Q1, "remain optimistic" we are not in full promotional mode yet, as addressed with Chris from Robert Baird
32 m Kathy from Bank of America, Q on Rituxan use A: Difficult for us to track on quarterly basis, we break it out more on a yearly basis.
34 m Samuel Kim from BMO Capital Q was withdrawn
34 m Eric from Merril Lynch was fired up Q:" YOU GUYS SOUNDED A LITTLE HEDGY" on the Rituxan Lupus data A: laughter, I'm sorry I sounded hedgy, that wasn't my intention; we're excited, huge unmet need, but in the absence of randomized controlled data, it should be seen as speculative, Lupus, not our expectation to file after first data, unless REALLY DRAMATICALLY POSITIVE stressed, we felt Sue answered the question well, but we also feel the end point and FDA are problems; but the upside potential here is tremendous.
37 m Michael King from Rodman and Renshaw Q: would you publish studies before meeting, A: absolutely, they will be published and micro dissected both at medical meetings and in literature. Follow up Q: SLE prior to approval to Explorer and LUNAR trial A: no way of getting reimbursement
38 m analyst name unclear, Q from UBS: SLE and PPMS, can you quantify clinical benefit we should be looking for in these trials A: Sue gave a quick but thorough explanation
39 m Jason Cantor from RBC Capital Q: regarding two Rituxan studies, A: expect top line data without further discussion from any of these trials.
40 m Jason followed up and tried to pry information (San Antonio) A: yes and no, yes we will have data in San Antonio, and no we don't need to see full data to make the call.
41 m Shiv Kapoor from Ferris, Baker Watts (FBW) Q: new molecules in Phase II studies, how do you make Phase III go-no-go decisions A: Sue answered thoroughly, in general terms...
42 m Megan Ho from Goldman Q: ASCO Rituxan (lung caner) small molecules A: laughter at 43 m, hesitation of who should answer the question (Ian was pointing at Sue), first line non-small cell lung cancer feel really good about the Avastin data (ASCO), looking forward to it, second and third line things look more crowded
45 m Ian: clearly market is getting more crowded, for our readers, "crowded" means "competition or saturation", not good.
45 m Mark from Bear Stearns (he under-scored still working at Bear) Q: about safety abstract updates Rituxan and Avastin A: Sue gave a long winded, thorough answer, she instructed him to "follow up with Kathy", Mark said thanks.
47 m Eric Schmidt from Cowan Q on AVAIL/Avastin/ASCO/Roche: A: we don't know the survival data, too late for ASCO, don't know survival for AVAIL, a Roche issue.
48 m Jeffrey from Sanford Bernstein Q on royalties: A: $35M exchange rate benefit, "unusual thing due to currency effect"... The worst question yet!!
50 m Bill from Leerink Swann Q: challenging regulatory environment (slide 37), how do we interpret your comments, do things have a rightward push A: Susan, I wouldn't interpret it that way, we're trying to be more pro-active, we've learned from set backs, also the new FDA amendment pact just piled more work, I can't predict everything, we've done a decent job.
53 m Jim of Lehman Q: FDA agreement on end point, Bilag scores, assessment of Lupus, how do you avoid having Bilag in the label, requirement for payers, seems cumbersome to clinicians, reimbursement front A: Sue said FDA and DNA have definitely agreed upon end point on Explorer, while Bilag is a complex scoring system, it is a clinical trial scoring system, Lupus (needs more aggressive therapy) more likely clinical parameters will be used than Bilag scores. Ian A: I agree... you're dealing with a disease where there is no indicated product at all, at the moment we don't see that being a likely hurdle.
55 m CC ended with Kathy's closing words

The CC definitely had emotionally charged moments, specifically at the 30th and 34th minute marks. Morgan Stanley and Merrill Lynch analysts sounded very frustrated. We thought the most forward-looking questions came from Bill of Leerink Swan and Jason Cantor of RBC Capital; the worst came from Jeffrey of Sanford Bernstein.

Genentech's management is effectively maneuvering in the red tape of the FDA, and some argue policing drugs is very necessary. The double stranded helix Watson and Crick discovered and won a Nobel Prize for has definitely been sewn. We feel Genentech is the most likely candidate to cultivate and harvest these 47 year old seeds. For investors seeking exposure to biotechnology, Genentech is the cream of the crop. We would wait for the Lupus studies to be announced within days and, since management sounded pessimistic on this front, buy shares on that potentially terrific pull back. Chicago's May 30th ASCO conference looks to be very positive for investors.
Please obey the 11 Commandments of Trading and remember that entering and exiting positions is all about The Psychology of the Call.

ALERT

In an exclusive CNBC interview with Maria Bartiromo at 4.15 ET today former Secretary of the Treasury John Snow said "we're in the midst of a credit crunch, it's not over", and that he believes we're "headed for a serious down turn."

Thursday's Psychology

As you know, we opted to focus on earnings rather than economic data this week. Our team analyzed Alcoa Inc (AA) Monday and Bed Bath & Beyond (BBBY) Wednesday. Scroll down to view the analyses.

Conference calls for Genentech, Inc (DNA) and General Electric (GE) are on tap after today’s market close and tomorrow before market open respectively. GE is the most powerful signal of the macro economy and major S&P component and has the potential to cause volatility tomorrow with its earnings report and CC. We will post our analysis within 2 hours of the conclusion of the CC. (Live links for all of these CCs are in the left margin.)

We’ll be listening closely to the psychology of every exchange between analyst and manager. There’s much more to stock valuation than simple P/E ratios and other past performance data. That’s why we updated this article for all of our readers in no fewer than 59 countries to enjoy: Grazie, Danke, Merci, Dziekuje, Bevlakisha, Kahm sa hamnida, Arigatou gozaimasu, Spasiba, Thank You!

S&P 500 Index: Third Grade Math versus High School Economics & Psychology

A fundamental measuring stick of stock market value is the ratio of the price relative to the latest 12 months' earnings, or the Price Earnings ratio (P/E). History shows that in bear markets the S&P 500 P/E ratio can dip below 10. There was one instance, in 1974, where the P/E of the S&P 500 dropped to 8. On the flip side, bull markets can drive the Index P/E to above 25.

The S&P 500 P/E Ratio is calculated by dividing the trailing 12 months' of earnings of the 500 companies by the cash price of the Index. You probably know that a market P/E of 18 or higher is usually considered a sign of overvaluation; and when the P/E dips below 10, the market is historically considered undervalued.
Today's S&P P/E is at 16; the cash Index stands at 1,370 with trailing earnings per share (eps), equivalent to $85.00 for the 500 companies. That’s third grade math, pure and simple.
Here's the full list of companies of the S&P 500: notice the sector concentration, especially the ‘financials’:

http://en.wikipedia.org/wiki/List_of_S%26P_500_companies

Now, the $64,000 question for an investor is: What will earnings be in the next 12 months? $93.00, $76.50, or flat at $85.00? And more importantly, is there a science we can use to predict what that number might be? Successful investing addresses the future, not the past.

In our opinion the latest S&P 500 earnings reflect the weak U.S. dollar. So what are the ramifications of a stronger dollar going forward? One of our Professors once asked to see a show of hands of ‘Accounting’ and ‘Finance’ majors. He drew a horizontal line on the chalk board with a small vertical line dividing it in half. Pointing to the left side of the line he told the Accounting majors that they were students of the past, then pointing to the right side he congratulated the finance majors because, in his words, "they were studying the future, the difficult task of forecasting".

Will future increases in U.S. unemployment lead to lower wages and greater S&P profits? The report today showed a more positive employment picture. (http://www.msnbc.msn.com/id/24045145/) Keep in mind these numbers are still being pressured from the auto, finance, and housing sectors; one report does not a trend make.

Did the brilliant Scottish economist Adam Smith predict a bull market in 2008 more than two centuries ago? In his masterful 1776 opus Wealth of Nations, Smith believed corporate profits would increase during rising unemployment: As presented on Wikipedia: "Smith argues that the profits of stock are inversely proportional to the wages of labor, because as more money is spent compensating labor, there is less remaining for personal profit. It follows that, in societies where competition among laborers is greatest relative to competition among employers, profits will be much higher."

So does last Friday's April 4th 76,000 increase in the number of unemployed workers, (now above 5.1% on an annual scale), signal a boom for S&P profits going forward? We believe this argument is valid.

Now add the synergies of the weak U.S. dollar and strong foreign currencies to that rising unemployment: neoclassical Adam Smith, perhaps? Are you aware the U.S. dollar printed a fresh low versus the 15 nation Euro today?

http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=AP&date=20080410&id=4160094

A trusted friend at the Goldman Sachs corporate NYC offices feels the U.S. dollar will continue to be weak. He also believes that it's possible that U.S. exports will be competing head to head versus Chinese exports soon. That would be a very bullish scenario for the S&P index in 2008.

We ask our readers to respect the Price to Earnings ratios (P/Es), Price to Sales multiples (P/S), Quarter over Quarter (Q/Q) and Year over Year (Y/Y) Revenue and Earnings Per Share (EPS) growth rates. BUT never forget market mechanics always work in a forward-looking direction, often fooling herd mentality at thematic turns. Which way do you believe the S&P will go in 2008?

On the other hand, if the dollar were to strengthen markedly - say more than 20% versus the Japanese Yen and Euro - and stabilize, then Institutional funds may sell the S&P index and look elsewhere for better value, maybe in biotechnology names like Genentech Inc (DNA), who has a Conference Call scheduled for today.

http://www.gene.com/gene/news/press-releases/display.do?method=detail&id=11107

Or maybe the funds would go to other geographies altogether. Have you ever considered buying American Movil (AMX)? Many breezed through third grade division, while finding high school psychology & economics more challenging.

The Psychology of the Call team wants you to be armed with all sciences at all times, without ever thinking the exact science of math is the Holy Grail to your $ucce$$.

Thank you for your Thursday attention.

You Have an Old Friend in the Dow Jones Transport Index

Good Thursday morning. The Dow Jones Transportation (DJT) Index is a blue-ribbon forecasting tool monitored by many wise traders and investors. The DJT Index was created by Charles Dow in 1884, at a time when railroads were just as big as the Internet Superhighway today, perhaps even bigger. The Index as initially formulated was made up of 11 stocks, of which nine were railroads.

http://en.wikipedia.org/wiki/Dow_Jones_Transportation_Average

Interestingly, the S&P 500 Index is the most often quoted leading indicator of the U.S. economy, yet the DJT Index is 67 years its’ senior. This Yahoo "maximum" time frame chart doesn't even go back to its beginning in 1884:

http://finance.yahoo.com/q/ta?s=%5EDJT&t=my&l=on&z=l&q=l&p=&a=&c=%5EGSPC

Today's DJT Index is made up of 20 stocks of which only four are railroads: Burlington Northern (BNI), CSX Corp (CSX), Norfolk Southern (NSC), and Union Pacific (UNP). The other 16 stocks are airlines, trucking, and shipping (have you ever heard of Alexander Baldwin [ALEX])? If you believe in a free market system, free-trade and increased globalization going forward, maybe ALEX won't leave you on dry land...

With trade exploding due to the democratization of more and more third world countries, transport costs are on the rise and require monitoring. With diesel breaking all time highs in the spot market of late, is it any wonder why the transport Index is a rational leading indicator?

Although Corporate Financial executives (CFOs) are attempting to find the perfect model of operation and efficiency, with oil at $110.00 a barrel, their jobs have become stressful and difficult. We feel for them. On the flip side, many of their peer executives must worry instead about retaining customers and increasing market share. A barrel of crude oil has risen 67% in the last 52 weeks, although some economists argue that 20% of that move is risk premium or speculation. Regardless, a 67% rise in any cost is NOT good for the consumer -needless to say - and isn't it the consumer that drives the economy in the end? (And at the beginning, as well!)

http://www.wtrg.com/daily/crudeoilprice.html

The DJT Index is a corner stone of market history. While you can buy thousands of stocks that are not part of the actual DJT Index, just about every stock you end up with is at the mercy of transport costs. If you share our optimism in mankind’s future innovations, such as wind, solar, or any other type of ‘green’ energy, you’re still left at square one; the delivery of these efficiencies from point A to point B. So, please give some more respect to the DJT Index. After all, it is has stood the test of Time, the ultimate, truly inexorable judge. We thank you for your attention to the Psychology of this Call.

Psychology of the Bed Bath & Beyond Inc. (BBBY) Q4 2007 Call

Most notable recent analyst ratings changes:

April 9th (today) before market open, Piper Jaffray downgraded from neutral to sell.
January 18th UBS upgraded from neutral to buy. We will pay special attention to these two analysts Q/A exchange.

Replay link: http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=97860&eventID=1581843

The CC started at 5:07 PM ET with Ron Kerwin, senior VP of investor relations. The safe harbor statement was read; he was very confusing in explaining the difference in fiscal quarters and weeks.

Second minute (2nd m): Co Chairman & Co founder Leonard Feinstein read the prepared results.
3rd m: nonrecurring revenue in Q4 2006 of $.07 mentioned, “we are not immune to the challenges in the macro economic environment that persist”. His tone was very mechanical.
5th m: during fiscal 2007 added 66 new BBBY stores, now 881 stores in 49 states, fiscal Q4 added 22 stores. Christmas tree store mentioned. 1,300 domestic store goal, want to open 50-55 locations in U.S & Canada in fiscal 2008, China mentioned as well. Dozen sites planned in Canada. Other international opportunities sought. Expect to open 12 Christmas tree stores in 2008, despite head winds..
7th m: Steven Temares (Steve) CEO, challenging macro economic environment mentioned twice. Times are challenging, but we hope to widen gap between us and competitors. State of the art distribution center opened for Christmas tree shops.
9th m: controlling costs mentioned, long term prospects positive. We felt his delivery was more upbeat and optimistic than the two previous execs, "enthusiastic", although he didn't give specific reasons to believe the macro economic environment will improve. Mentioned the 50-55 store opening goal in 2008.
11th m: Number of BBBY stores will decrease over the past year.
12th m: Canada mentioned, Toronto as an aggressive expansion plan again, mentioned dozen sites purchased in Canada. Steve said "we are not satisfied."
13th m: 52 week year in 2007 mentioned, fiscal year differed from last year’s by 1 week less. 14th m: comparable same store sales decreased by 0.4% in Q4 2007, compared to increase of 5.2% last year.
14th m HOUSING AND MORTGAGE industry down turn mentioned as problematic, states of Arizona, California, Florida, and Nevada, sales noticeably weaker.
16th m: SG&A will continue to deleverage, due to slower growth and net sales, remain cautious.
17th m: "prudence" mentioned in exercising cost management going forward.
19th m: Ron back, 50-55 new stores planned for 2008, Ron's rushed delivery left us scratching our heads.
20th m: flat to negative due to housing crisis, continued pressures on gross margins due to costs and a continuation in the mix of a trend in hard line goods. Low interest rate income from a year ago.
23rd m: low double digit declines in eps in '08, to mid teen percentage. 1st Q estimate of $.26-$.30
24th m: balance sheet cash addressed, as of 3-1-'08.
25th m: failed auction rate securities liquidity problem "temporary", this will be reviewed quarterly. Failed auctions in securities. Of $550M cash, $327M par value are auction rate securities.
27th m: next CC Wednesday, June 25th. Please call Lisa, Ken or I for any questions in their corporate offices; his delivery sounded like a 40 meter NFL sprint. CC ended with no Question and Answer session.

Bed Beth & Beyond (BBBY) did not have a question and answer session with analysts, and we feel that is a huge transparency problem for shareholders. Although management said that analysts could call Lisa, Ken and Ron after the CC, we found that ridiculous. Many shareholders today are very concerned with BBBY's results and demand a more open forum. Our question to BBBY management is: Why such a hurried CC, 27 minutes TOTAL? And why dodge live questions?

Even though BBBY is in a difficult operating environment with the housing slump, we feel management is NOT Wall Street friendly or transparent. These are two negatives that could hurt share valuation. Management addressed the liquidity problem in their auction rate securities in the final minute of the CC; we found that to be under handed at best and not answering a single question regarding such a pressing issue on the live CC is troubling.

Note to readers: follow analyst Neely J.N Tamminga from Piper Jaffray, as that analyst correctly down graded BBBY this morning. And be careful with UBS analysts Colin McGranahan and Uta Werner, who upgraded BBBY from neutral to buy January 18th, not a peep out of them. We urge our readers to listen to the CCs. You should become aware of management's delivery/tone and get to know your analysts better.

Thanks for supporting our efforts for greater Corporate accountability and CC transparency. The Psychology of the Call team.

Greenspan's Genius Stands in the Balance of Free Markets

Former Federal Reserve Chairman Greenspan has been on a mission lately and we hope it reverberates throughout the 2008 election run. Since his retirement in 2006, his legacy has been scarred by today's housing bubble and his dovish/low interest rate policy from 2001 to 2003. From the Wall Street Journal to the Financial Times, to a live interview with Maria Bartiromo on CNBC Tuesday April 8th, his campaigning would be considered aggressive for most 52 year olds, and Greenspan has three decades on those boomers. There's an explanation for the 82 year old’s rational exuberance, and we want our readers to grasp it.

The Financial Times published a Greenspan article this week entitled, "The Fed is blameless on the property bubble." We read the article and agree with Greenspan's arguments. He admits that his Fed was very "leave it alone/laissez-faire" with monetary policy. It would be good if Adam Smith, was to rise up and teach all of the political leaders the philosophies in ‘The Wealth of Nations’. Or, if not, perhaps Greenspan can still save us from excruciating future regulatory pains.

It wasn't Greenspan's mortgage company that signed a single home loan, nor was it his Investment Bank that created & traded in the subprime ARM pit. None of his underlings went to jail or served a single day of community service. Welcome to the politics of money and banking; embrace it while it's here...

In an interview with the Wall Street Journal, Greenspan said, "I was praised for things I didn't do. I am now being blamed for things I didn't do." We think the piece is misnamed: "Greenspan Goes on Defensive". We think Greenspan is in the 'offensive' huddle, and well into the last drive of the game. Shame on us for ever saying a bad word about Greenspan and shame on anyone who utters a bad word about the man going forward. Even his paradoxical laissez-faire view while advocating the Gold standard may still one day be accepted as, well...

http://online.wsj.com/article/SB120760341392296107.html?mod=todays_us_nonsub_page_one

Although Greenspan admits to opening the door to "irrational speculation" in the credit and real estate markets, he never forced one boomer to flip their California condo or home. Here's the Wikipedia link for Greenspan if any doubt remains: (http://en.wikipedia.org/wiki/Alan_Greenspan). Feel free to collaborate with Wikipedia on any errors or omissions.

A couple of recent Greenspan quotes:

"The [wrong] evaluation of this period -- and how to avoid the problems associated with it -- will give you the wrong answers and the wrong policies.”

"I am reasonably certain that I am right here." If proved wrong", he says, "I will change. I do not have a vested interest in holding wrong ideas."

Now understand that Bill Gates believes in giving people a second chance. Can you think of anyone more hurt and qualified to advise us out of the current crisis and future crises? We can't. We feel the politics of the 2008 elections will bring heated debates and push for greater transparency in the credit and real estate markets. We’re not opposed to hearing Greenspan's opinions in the future. In fact we would welcome more of his ‘free market’ wisdom.

We do NOT want a Donkey or an Elephant in the White House who seeks to regulate the financial sector, and we surely don't want to vote for any animal who admits that regulations are part of their platform. IF we begin regulating the financial sector because of one event, we could erase all free markets by 2050.

In a free market system there must be losers, and that's why free markets humble most investors eventually. Sadly though, this time the wheel landed on the most widely held asset -REAL ESTATE- therefore very few missed this indiscriminate hammer.

One of our green eyes is smiling because the government did take aggressive monetary and political action, while the other brown eye is crying because of the potential ramifications of regulations ahead. We don’t want to see ANY government regulations. The free market system is a much better corrective mechanism than anything proposed by lobbied Washington politicians.

Here's what stands in the balance: The Psychology of the Call team feels that every red blooded American and foreign reader who embraces the free market system must understand Greenspan's Genius: According to the Wall Street Journal: "The scrutiny of Mr. Greenspan's record has taken on urgency now that the Bush administration and congressional Democrats are skirmishing over how to overhaul U.S. financial regulation. If Mr. Greenspan's critics prevail, then financial companies will likely face tighter oversight and less freedom in the products they offer. If Mr. Greenspan's views carry the day, the trend toward self-policing will continue. A repudiation of Mr. Greenspan's monetary policies could tempt the Fed to raise interest rates relatively quickly after the current crisis passes, and even attempt to deflate future bubbles with higher interest rates."

We welcome "self-policing" in the financial sector and so should you. Our free market system is in the eye of a deadly storm. It is standing trial during the 2008 Presidential election. No one should attempt to pin a tail on the financial sector. We won't support any animal, Donkey or Elephant, if they want to use police-dog tactics and wag our free market system around. Free markets will never evolve with increased regulation. They will only be choked and capital will be forced to greener pastures, perhaps Euro zone and Japan.

Finally, we don't think Greenspan was being "defensive" with the Wall Street Journal. We strongly believe Greenspan's genius must be read, explained, copied, pasted, printed, emailed and understood. It is a message of admittance, wisdom, second chances, and prime expertise.

We’re putting our necks on the guillotine: Whoever Greenspan backs for President in 2008 must win for our financial markets to exist as we know them; or forever Rest In Peace with Adam Smith and his ‘Wealth of Nations.’

The Psychology of the Call team wants to thank every reader and supporter in no fewer than 59 countries for letting us to be ourselves, yet again

Psychology of the FOMC Minutes

Here's our psychology or the FOMC minutes released today at 2.00 PM ET: The Fed's sentiment is getting worse. Some members foresee a "severe" economic slump, with economic activity to "shrink" in the first half of 2008. They mentioned that "calibrating" policy was difficult in the face of inflation and a weak dollar.

http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20080408&id=8452700

Our team interpreted the FOMC minutes as a negative for the stock market, and a positive for bonds.

They stress "uncertainty", and uncertainty is the worst word for stock investors. They also mentioned housing prices declining more steeply than expected. Even though it’s MOTS (more of the same), the Fed is standing still, like a deer caught in head lights. That's not good for bulls and remember it's "Trend Setting Tuesday", so today's close may well be the theme for the week.

Our readers would be wise to stick with an asset allocation suited for a very volatile market with a downward bias. We reiterate once more that you have 50% in stocks (long and short), 30% in the iShares Lehman ‘TIP’s, and 20% in Cash. Please remember to use every tool at your disposal. Never rely on one methodology, always obey the 11 Commandments, and listen to the Conference Call. Our Alcoa CC analysis was posted just yesterday and you can find it by scrolling down.

Thanks for reading the Psychology of the Call.

The Week's Conference Call Psychology

We opted to focus on earnings rather than economic data this week. The reason is simple; none of the reports slated for the upcoming week are potentially market moving except for the FOMC's minutes, which will be released today at 2:00PM ET. The minutes will give investors a better idea of what was discussed during the Fed meeting.

It would be wiser to focus on conference calls (CC). We analyzed Alcoa Inc (AA) yesterday and you can find that post by scrolling down the page. Bed Bath & Beyond (BBBY) have a CC on Wednesday, Genentech, Inc (DNA) on Thursday, and General Electric (GE) on Friday. You can find live links for all of these CCs in the left margin.

We’ll be listening closely to the psychology of every exchange between analyst and manager on the CCs. We believe that there’s much more to stock valuation than simple P/E ratios and other past performance data. That’s why we wrote this special weekend piece for all of our readers in no fewer than 58 countries to enjoy: Grazie, Danke, Merci, Dziekuje, Bevlakisha, Kahm sa hamnida, Arigatou gozaimasu, Spasiba, Thank You!

S&P 500 Index: Third Grade Math versus High School Economics & Psychology A fundamental measuring stick of stock market value is the ratio of the price relative to the latest 12 months' earnings, or the Price Earnings ratio (P/E). History shows that in bear markets the S&P 500 P/E ratio can dip below 10. There was one instance, in 1974, where the P/E of the S&P 500 dropped to 8. On the flip side, bull markets can drive the Index P/E to above 25.

The S&P 500 P/E Ratio is calculated by dividing the trailing 12 months' of earnings of the 500 companies by the cash price of the Index. You probably know that a market P/E of 18 or higher is usually considered a sign of overvaluation; and when the P/E dips below 10, the market is historically considered undervalued.

Today's S&P P/E is at 16; the cash Index stands at 1,370 with trailing earnings per share (eps), equivalent to $85.00 for the 500 companies. That’s third grade math, pure and simple.

Here's the full list of companies of the S&P 500: notice the sector concentration, especially the ‘financials’: http://en.wikipedia.org/wiki/List_of_S%26P_500_companies

Now, the $64,000 question for an investor is: What will earnings be in the next 12 months? $93.00, $76.50, or flat at $85.00? And more importantly, is there a science we can use to predict what that number might be? Successful investing addresses the future, not the past.

In our opinion the latest S&P 500 earnings reflect the weak U.S. dollar. So what are the ramifications of a stronger dollar going forward? One of our Professors once asked to see a show of hands of ‘Accounting’ and ‘Finance’ majors. He drew a horizontal line on the chalk board with a small vertical line dividing it in half. Pointing to the left side of the line he told the Accounting majors that they were students of the past, then pointing to the right side he congratulated the finance majors because, in his words, "they were studying the future, the difficult task of forecasting".

Will the increase in U.S. unemployment lead to lower wages and greater S&P profits? Did the brilliant Scottish economist Adam Smith predict a bull market in 2008 more than two centuries ago? In his masterful 1776 Wealth of Nations opus, Smith believed corporate profits would increase during rising unemployment: As presented on Wikipedia: "Smith argues that the profits of stock are inversely proportional to the wages of labor, because as more money is spent compensating labor, there is less remaining for personal profit. It follows that, in societies where competition among laborers is greatest relative to competition among employers, profits will be much higher."

So does Friday's April 4th 76,000 increase in the number of unemployed workers, (now above 5.1% on an annual scale), signal a boom for S&P profits going forward? We believe this argument to be valid.

Now add the synergies of the weak U.S. dollar and strong foreign currencies to that rising unemployment: neoclassical Adam Smith, perhaps?

http://en.wikipedia.org/wiki/Neoclassical_economist

In addition, a trusted friend at the Goldman Sachs corporate offices in NYC feels the U.S. dollar will continue to be weak. He also believes that it's possible that U.S. exports will be competing head to head versus Chinese exports soon. That would be a very bullish scenario for the S&P index in 2008.

We ask our readers to respect the Price to Earnings ratios (P/Es), Price to Sales multiples (P/S), Quarter over Quarter (Q/Q) and Year over Year (Y/Y) Revenue and Earnings Per Share (EPS) growth rates. BUT never forget market mechanics always work in a forward-looking direction, often fooling herd mentality at thematic turns. Which way do you believe the S&P will go in 2008?

On the other hand, if the dollar were to strengthen markedly, say more than 20% versus the Japanese Yen and Euro, and stabilize, then Institutional funds may sell the S&P index and look elsewhere for better value; perhaps biotechnology names like Genentech Inc (DNA), who has a Conference Call scheduled for Thursday, April 10th at 3:45PM ET

http://www.gene.com/gene/news/press-releases/display.do?method=detail&id=11107

Or maybe go to other geographies altogether. Have you ever considered buying American Movil (AMX)? Many breezed through third grade math while finding high school psychology & economics more challenging.

The Psychology of the Call team wants you to be armed with all sciences at all times, without ever thinking that the exact science of math alone holds the key to your investment success. We thank you for your attention.

Alcoa CC Pyschology Q1 2008

The CC started at 5:03 PM ET with Greg from IR reading the safe harbor statement. (http://biz.yahoo.com/cc/9/91099.html)

Chuck CFO at 2 minute mark (m): global fundamentals strong, but drag on margins is the weak dollar; the weak dollar was mentioned two more times by the 3rd m.
6th m: portfolio has changed dramatically recently.
8th m: cost pressures from the currency translation. Chuck sounded very matter of fact and confident.
9th m: higher costs have and will hurt results, depressed levels mentioned; Russia a positive going forward. Softness in automotive was offset in aerospace and forgings business.
10th m: expect strength in aerosopace and weakness in the automotive sector.
11th m: addressed Cash Flow statement.
12th m: current market details addressed: lower growth explained; although China, India, Russia, and Taiwan remain strong.
15th m: end markets addressed; second straight year decline in North America; Europe soft as well. Aerospace is the silver lining. Detroit 3 had an 18% decline.
16th m: European truck demand positive, but North American decline is not projected to change until the year end.
17th m: tighter credit conditions in U.S. mentioned.
17th m: CEO Alain introduced Klaus COO
18th m: PhD Klaus began; sounded like a thinker more than a WS Executive, "I'm excited to be a full time Alcoan."
Tightness of supply addressed 20th m; mega trends addressed; numerous opportunities ahead for Alcoa.
21st m: more people living in cities, ramifications addressed.
22nd m: theme growth rates addressed. Klaus was very calm and relaxed.
25th m: growth pipe line explained while looking at a slide.
26th m: China mentioned
27th m: Klaus just returned from Beijing and had discussions with government officials
30th m: mentioned last CC and pointed to a slide, comparing the past to today.
We give Klaus credit here, as execs on CCs rarely remind of previous projections
31st m: very well positioned for future growth
32nd m: Klaus expects China and Russia to improve, but slower than expected in Russia
33rd m: positioned to increase market share in the defense industry
34th m: only cash creates real shareholder value, stated very powerfully, "I am confident".
35th m: Alcoa advantages: talent, customer intimacy, technology, purchasing, and operating system.
37th m: summarized his presentation; very comfortable, but somewhat too relaxed in our opinion.

Question & Answer session started at 39th m:
John Hill from Citigroup for COO Klaus Q: long term earnings power going forward without just relying on the obvious commodity affect. A: believe there is potential, we are in a favorable position, 40th m, defensive, "I just showed you the 2 slides". 41st m, some stuttering and apprehension, very defensive tone. 42nd m, laughed.

We definitely believe John is a forward-thinking analyst; our readers would be wise to follow him.

Mike JP Morgan Q for COO Klaus: If you were CEO, what would you change A: we have a team that works together, we sensed the good ol boy answer here, we felt he gave a "shallow fraternity response" 43rd m--44th m, we don't feel Klaus answered the question. 45th m, very defensive executive in background, almost jeering at the analysts.
47th m Harry from Lehman, Steph in for Harry Q: Capital Expenditures A: $3B level, Stephanie said okay. Follow up from Steph: share buy backs A: we will continue to buy back. We felt Stephanie's questions were below average, we hope to see Harry back on the next CC.
49th m Charles Bradford from Soleil Securities Q: Power outages on China A: More than 10 plants, some parts were frozen up; every effort to get plants on line, constraint of 550,000 tons.
CC ended in the 50th minute

In conclusion, our readers would be wise to distinguish between the good, but predictable slide presentation and the subpar (31%) question and answer session. Several key analysts who in the past couple weeks either initiated coverage or changed their ratings failed to even show up! We find that pathetic and ridiculous for investors and their representative Wall Street firms. So much for accountability and transparency. Where was Harry from Lehman brothers? His replacement Stephanie showed up for which we give her credit, but her questions were another issue.

Hats off to John from Citi; he asked the first and what we felt was the last forward-looking question of the conference call. John's rating and opinion must be followed.

There are currently 16 analysts rating/covering Alcoa, but only 5 of those asked a question (31%); some investors may take issue with that. In addition, Friedman Billings who down graded Alcoa on March 7th, and BMO Capital Markets who just last Friday, April 4th initiated coverage with a market perform rating did not ask one question. Makes you wonder whether Bear Stearns' CCs were more transparent, or whether some analysts failed us by not even asking one tough forward-looking question. We hope you support our efforts for greater transparency on Wall Street. Your CC comments are always welcome, as we do add your insights and archive for verifiability.

Although we like the look and feel of light weight aluminum cans over the bulky steel cans used in the 1970's; we feel Alcoa's Klaus has a monumental task of hoping the cyclicality of commodity prices swing his way. Predicting global supply and demand forces on commodity prices is too difficult to forecast. Alcoa is a prisoner of the global economy, and that is a difficult dynamic to control. 90% of the questions were directed and answered by the new executive COO Klaus. Either the Wall Street analysts believe he is the savior going forward or CEO Alain has lost credibility. You decide. Thanks for understanding the Psychology of this Call.

The Eleven Commandments of Trading

5 year chart of the S&P 500

The market is filled with stocks that rise in falling markets and fall in rising markets, that's why you must never be fully invested. Look at the chart above and remember that Indexes never come back up to form a "V" shape. We currently recommend an allocation of 50% Stocks (long and or short), 30% in the iShares Lehman "TIP", and 20% Cash. We wish our readers in all 58 countries (welcome Barbados and the Russian Federation) a happy and healthy weekend. Please come back Saturday night for the 'Psychology in the Upcoming Week's Data'. The Psychology of the Call team.

1. Never trade more than 10% of your total capital/account value in any one position.
2. Cash is King.
3. Cut losses to 15% maximum whenever possible. If your psyche is shaken, step away and don't trade for 1 week
4. Take and enjoy profits of 30% or more.
5. Never fall in love with a stock and never force trades or over trade; remember commandment #2.
6. Never accept excuses from management, period.
7. Use technical and fundamental data & psychology/sentiment from the conference call to select trades.
~8~ There are two sides to the market, long & short; take advantage of that leverage.
9. Understand the significance of the macro geo-political economic environment.
10. Unforeseen events/shocks will happen, inverting the market upside down (remember commandments #1 & #2)
11. All of the above are void without reading The Psychology of the Call.

Trading Alert: Agressive Portfolios should consider..

..shorting Garmin (GRMN) at today's levels of $54.00 We see the shares running into great competitive difficulty with AAPL and NOK. Please set a buy stop failure target at $58.00. We see many of the same competitive disadvantages at Garmin today as were seen Palm Inc. (PALM) back in 2003.

Psychology of the Mosaic (MOS) Q3 2008 Call

At 10:03ET, Christine from IR started the call.

5th minute (5 m) CEO Jim Prokopanko: “Good news story, still more to come", with a very convincing matter of fact tone.
6 m We are operating well despite higher costs, specifically for: phosphorous and potash
8 m Cash flows exceptional. Today Saskatchewan expansion announced, slide 4. I can assure you we will be responsible for bringing this new capacity online, (extremely confident delivery).
9 m SG&A slightly higher than expected.
10 m Executive Mike, we are optimistic, sounded rushed, completely different delivery than Jim, although data presented was fundamentally very optimistic, (mentioned slide 7).
11 m China, India mentioned, Biofuels mentioned
12 m Strong economic demand world wide.
13 m futures markets addressed; forward pricing mechanisms in the futures market/hedging strategies.
14 m Bottom line is markets are asking farmers to step on the accelerator world wide, and we still have plenty throttle left.
15 m Agricultural outlook for Mosaic is very positive. Corn stocks will decline to dangerously low levels in 2008.
16 m demand surge mentioned.
17 m competitive position continues to strengthen, sounded extremely confident, very convincing.
19 m CEO Jim back., demand is reason for our success.
19 m VERY IMPORTANT BULLET POINTS WHY MOS IS A GREAT COMPANY:
- MOS is only company that includes phosphate and potash.
- Proven reserves, best processing plants in the world.
- Ability to bring on capacity with incremental costs.
- MOS logistics/transport are the best.
21 m Cash flow is very strong, cash, cash, cash, very powerful delivery on the fact that cash will be used wisely.
22 m "we will use cash judicially in years to come."
23 m, "we are committed to executing for you, the shareholder”, VERY direct to shareholders

Question/Answer Session
24 m Ed Rodriguez from GS, Q: spot market price question A: We've been executing and nothing has changed in the last 6 months, we haven't changed pricing strategy.
25 m follow up Q: Domestic market prices A: demand is very strong, pipe line is well stocked, prices will be higher given the impact from international demand.
26 m David Silver from JP Morgan Q: regarding Indian market, analyst was very relaxed and prepared. A: You're right to notice there has been a change in behavior in India, their high rock/phosphate prices have driven them to secure supplies early on, and they took an early contract of potash.
Follow up from David Silver Q: corn vs soy split do you see an 86M acre corn year? How do you guys interpret domestic business A: Soybean to corn ratio has changed,
30 m certainly signals today are different, we may see a likelihood of more corn acres
31 m Mike from Greenwich Q: sulfur issue, analyst confused, much laughing in back ground from what we believe his board room, seemed like a Friday type of atmosphere going on, management sent him a signal with a "Hello Mike" before answering his question.
33 m Don Carson from Merrill Lynch Q: Sustainability of phosphate, global supply expansion issue, A: In terms of sustainability we are confident,
35 m Saudi project 2011 it will come on, joint venture plants in Morocco
36 m, we have a few high cost plants shut down, and we have no intentions of starting them up right now. 37 m follow up Q: addressing cost issues A: You're right, cost performance did improve; mining more tons of phosphate than expected, benefits will continue.
38 m Mark from Credit Suisse Q: Ocean freight forward explanation A: We don't do a significant amount of business there, nothing meaningful.
39 m Brian from Citi Q: costs of ammonia and sulfur. A: Good question and good observation (complimented analyst), we don't see cost issues affecting MOS.
Cristen McDuffy Goldman Q: debt balance A: Off shore inventories particularly in Brazil; follow up Q: Capital expenditure for the Quarter: A: $90M,
43 m follow up Q: next Quarter (4th) Capital expenditure wanted, A: It will go up substantially.
44 m Charles from Morgan Stanley Q: sulfur price movement question A: We expect elevated sulphur pricing, strong world demand, outages, plants concurrently coming down.
45 m, Good old days coming back within 18-24 months sub $100, we see $50-$100.
47 m North American crop gets planted in two weeks, farmers are very efficient.
50 m Bob from Scopus Q: Tax rate A: Low 30's follow up Q: debt free in 2009, how will you use balance sheet VERY FORWARD LOOKING ANALYST AND QUESTION A: We will maintain a very disciplined approach, high return rate projects only, 52nd minute - a buy back is possible, or dividends...
53 m follow up from David Silver JPM Q: Argentina details wanted, government A: 54 m you asked about four questions, don't know if I'll answer all of them, first time management sounded upset, maybe tired, sounded as though Argentina's price controls are out of Mosaic's hands; a frustrating part of doing business with certain countries governmental policies.
CC ended at the 57th minute

Our psychological take away from the call is:
Mosaic is in the right place at the right time. Management did sound very confident and we see their confidence being rooted in one place: demand is high for their products as countries like China and India are emerging. Demand for agricultural fertilizers will only increase unless there is a global slow down. And that worries the Psychology of the Call team. Shareholders would be wise to expect MOS to either announce a share buy back or dividend in the near future. IF MOS announces a share buy back over dividend, then we would buy in ASAP. IF MOS announces a dividend, perhaps that signals slowing global growth from their perspective, and Wall Street prefers capital expenditures, R&D, share buy backs over dividends, which usually signal stagnation.
Please follow David Silver from JP Morgan and Bob from Scopus, two very extremely well prepared & forward-thinking analysts!
Thank you for reading our Psychology of the Mosaic Call.

Reader Feedback/Commentary/Transparency

"I listened to the same CC and basically agree with your points.The point you missed emphasizing is that MOS expects there to be a major positive shift in what the crop survey said would be the corn plant acres and actual plant acres.I really believe that IMPLIED was a MOS belief then that all fert supply would be GONE, there would be a major fert supply crisis in farmerville and ultimately Canpotex will tell the Chinese to take a hike( where were your perceptive analysts on this crucial issue ?)."

The Coronation of the Bulls?

As the market moves lower we would ask you to read our post from April Fool's Day:

http://psychologyofthecall.blogspot.com/2008/04/trend-setting-tuesday-on-1st-april.html

Psychology of Friday's Data

Today saw the release of the Unemployment Report for February, the most timely and broad indicator in the U.S. Earlier this week we suggested that you always obey the 11 Commandments and avoid over concentration in any one fund, sector, stock, or manager.

"Remember to accept what the market gives you with humility and good cheer, especially when staring at the bloodiest hammer of them all; the first Friday of the every month's Unemployment data. Don't get Fooled!"

Sound advice.

Chinese Shanghai Trading Alert

We want to ALERT our readers to the fact that the Shanghai Index is hovering around its 52 week low. For aggressive traders we recommend shorting FXI (an ETF) and BIDU at current levels ($142.00 and $282.00 respectively as of 4/2/08).

We will not be buying any Chinese equities at present. Since China does not allow short selling, we urge you to monitor this market over the next several days and bear in mind, the Beijing Olympics loom. For all new Psychology of the Call readers unaware of the Eleven Commandments of Trading, we want to remind you that it's VERY important to put in place the mechanisms that will prevent anything other than minimal loss of capital. Our failure target on FXI is $158.00 and $304 on BIDU, so MAKE SURE to use "buy stop orders" in both cases that would limit the loss in FXI at 11%, and 8% in BIDU. (Commandment #3 requires you to cut losses at a 15% maximum, but our analysis of underlying factors suggests 11% and 8% for FXI and BIDU respectively).

MSN reports Greenberg's Interview (as we did 7 hours previously)

Ex-AIG CEO Greenberg sees more credit turmoil: CNBC http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20080401&id=8424775

Hank Greenberg's Opinion

After Tuesday's market close at 4.35 ET in an exclusive interview with Maria Bartiromo on CNBC, Hank Greenberg, former Chairman and CEO of AIG, the world's largest insurance and financial services corporation, referred to today's market action as "a dead cat bounce" full of short covering. When asked if he would be a buyer here his answer was an emphatic "No" and to back it up he cited the high probability of more problems related to housing, BSC and other issues on the horizon. He does not share the optimism exhibited by other financial commentators.

It's gratifying to see that such a highly regarded financial luminary agrees with our take on the day and the market in general (see this morning's article, directly below).

Trend Setting Tuesday On 1st April

Wall Street has fooled many investors in 2008, but the $64,000 question is: will it continue to do so this week? The recent demise of Bear Stearns (BSC) revealed the unforgiving side of bad risk management and the carnivorous side of its peers, particularly JP Morgan (JPM). A slew of Ivy League degrees and mathematical modeling software added up to $2.00/share on a late Sunday night 2 weeks ago. And now that offer has increased by 400%? But could today's April 1st rally finally be different...

Market breadth this morning is incredibly bullish. Meanwhile crude oil continues to retreat from $110.00 (http://www.wtrg.com/daily/crudeoilprice.html)

The March ISM came in at 48.6, which is slightly better than the 47.5 expected. The "prices paid component" (PPM) came in at 83.5 versus 75.5 in February, signaling a greater than 10% rise in inflation month over month. This is Chinese type data! One huge positive was that "inventories" shrank from 45.4 in February to 44.9 in March. This may seem like only a small amount, but when coupled with the recent pull back in crude prices, it’s the sort of data that will put a smile on the face of forward-thinking bulls.

The Fed has tweaked the Fed funds rate and signaled that it will try everything possible to stave off financial panic. The equity risk premium today favors equities more than at any other time in U.S. market history and as a result, the strong Euro will eventually be used to buy U.S. blue chips at huge discounts.

So should you be jumping in head first with a ‘Buy, Buy, Buy’ mentality? Well, no; the wounds are too fresh to be jumping in just yet. But bear in mind that there are a few stocks that still maintain a sold position above their 200dma and we would consider trading them now. Perhaps Intuitive Surgical (ISRG) is a stock to consider? (Let us know what you think by adding a ‘Comment’ below.)

All in all, we suspect it would be wise to fade/ignore the well "dressed" bulls today and remember that it’s still very early in the formation of a market bottom. You can always buy a multitude of "theme stocks" if we have in fact touched bottom But you can a short a multitude of "false" stocks if the fledgling trend begins to lose volume and break (there are always two sides to the market, as we state in Commandment #8 in the left margin). We usually look back at Index bottoms and recall how "boring" the sentiment became before a new bullish trend set in, we assume boring is not being tossed around Institutional trading desks today.

http://finance.yahoo.com/q/bc?s=%5EGSPC&t=1y&l=on&z=l&q=c&c=

That having been said, please trade wisely, realizing the S&P at 1,364 is still 36 points, or 2.6% away from a "failure target" level for many seasoned bears. Setting forward-looking technical resistance points during break away days becomes critical to making money. 1,400 on the S&P may turn out to be an irresistible trading level for new and old shorts; if it even prints in the face of Friday's oft bloody unemployment hammer.

Many Institutions opted to wait for Trend Setting Tuesday to vote "stocks over bonds", delaying the "window dressing" effect by one day and faking out the herd. The herd has been head faked at many a turn in 2008 and this won't be the last time, that’s for sure.

Today's bulls may well twist off their horns and act like bears before the summer heat sets in. But we have to reiterate our feelings on the ramifications of extremely strong foreign currencies, specifically the Euro as a potential fire starter going forward. That's the Psychology of the bull and bear argument as we see it.

Thanks for understanding the Psychology of this April fool’s Call.