Sunday, December 12, 2010

Read Barrons and WSJ this Weekend

For me at least, this weekends Barrons and WSJ opined on many sectors/areas of interest for me; Extreme exuberance, low volatility, rare earths, China's oil and gas industry, solar inverters and wind energy/components.  I have also recently posted my concerns in the area of rare earths, solar energy and China oil and gas, but a new name came up that I have traded in the past, American Superconductor.

American Superconductor relies on one, yes one Chinese supplier for 80% of their revenue.  That company is Sinovel, and in their latest filings they reported production vastly outstripping sales and wind energy farms sitting idle in China because they are not connected to the grid. 

If you are long this stock take heed, but these articles are speaking some larger truths, we have some serious imbalances forming due to the nature of how the Chinese manage their economy and the reliance some companies fortunes are tied to them (MCP, REE, AMSC), and if we build it, they will come mentality that is creating excess inventories in some hot industries that rely on Government largess to grow (PWER).  Power One's margins are twice that of the largest Inverter company SMA, and inverter prices are expected to fall up to 20% next year into the teeth of falling subsidies.  This is hardly a growth story for a growth stock.

Finally, the WSJ noted that margin is at extreme levels ($300 billion) and every time it reaches these levels a significant retracement occurs.  Also of note is the use of leveraged ETF buying on top of the use of margin, that is a recipe for disaster.

Be careful out there.

1 comment:

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