Using that logic, since July 1st, the S&P 500 has moved nearly 3,000 points, and almost 5,000 points since January 1st, yet for the year it is almost completely flat, just up 0.1%.
Wednesday, December 7, 2011
Wed 12.7.11
For my quick hitter today, I provide a chart from Ron Griess of the ChartStore, which illustrates how many points the S&P 500 has moved this year. As an example, if the S&P 500 moves up 15 points on Monday and down 10 points the next day, then it has moved 25 points, but on a net basis has only moved 5 points.
Using that logic, since July 1st, the S&P 500 has moved nearly 3,000 points, and almost 5,000 points since January 1st, yet for the year it is almost completely flat, just up 0.1%.
Using that logic, since July 1st, the S&P 500 has moved nearly 3,000 points, and almost 5,000 points since January 1st, yet for the year it is almost completely flat, just up 0.1%.
Tuesday, December 6, 2011
Tues 12.6.11
For today's comment I bring in Wall Street's bullish 2012 estimates and briefly discuss everyone's favorite topic...Europe
If you remember, a month or so ago, when they announced the 50% haircut on European debt, I noted that there would be some unintended consequences if they did not consider this haircut a "credit event", which would have triggered credit default swaps. Well, the ISDA ruled this was not a "credit event" because it was "voluntary" (sort of like someone holding a gun to your head, then asking you to voluntarily give them your wallet). Now the unintended consequences are beginning to materialize as investors are asking for a much higher return from European countries, as they can't "hedge" their position with credit default swaps. This is across the board, at both the stronger countries (Germany, Belgium) and the weaker countries (Spain, Italy).
Also, I want to point out that with yesterday's announcement from S&P that they were putting Eurozone countries on credit watch, this could mean big problems for Euro banks which are far larger (assets as a % of GDP) then American banks. Cutting the countries sovereign ratings will increase bank funding costs, at a time when people are already nervous of the safety and soundness of these banks in Europe. Once again, starting to play out like it did in 2008 in US...
Here's a quick snapshot of Wall Street's S&P 500 2012 target. Once again, the analysts are bullish, and all of them believe if Europe can have a moderate downturn that we could see some real price improvement next year. Couple of things to note.....1st point, there isn't that much disparity in the operating EPS from the analysts, but the biggest factor in the 2012 target is the forward P/E multiple they place on the earnings. For instance, BASML has a lower operating EPS than GS, but their price target is 100 points higher. My 2nd point is that although this isn't reflected in the chart, this is each analysts base forecast, but when you look at their bearish estimates, S&P target moves down to 900 - 950 for almost all of the ones that provided this detail. So, once again, as long as the US can keep chugging along, Europe can get its act together and China doesn't have a "hard landing", we could see 3 straight years of price appreciation (assuming we end this year in the black).
If you remember, a month or so ago, when they announced the 50% haircut on European debt, I noted that there would be some unintended consequences if they did not consider this haircut a "credit event", which would have triggered credit default swaps. Well, the ISDA ruled this was not a "credit event" because it was "voluntary" (sort of like someone holding a gun to your head, then asking you to voluntarily give them your wallet). Now the unintended consequences are beginning to materialize as investors are asking for a much higher return from European countries, as they can't "hedge" their position with credit default swaps. This is across the board, at both the stronger countries (Germany, Belgium) and the weaker countries (Spain, Italy).
Also, I want to point out that with yesterday's announcement from S&P that they were putting Eurozone countries on credit watch, this could mean big problems for Euro banks which are far larger (assets as a % of GDP) then American banks. Cutting the countries sovereign ratings will increase bank funding costs, at a time when people are already nervous of the safety and soundness of these banks in Europe. Once again, starting to play out like it did in 2008 in US...
Here's a quick snapshot of Wall Street's S&P 500 2012 target. Once again, the analysts are bullish, and all of them believe if Europe can have a moderate downturn that we could see some real price improvement next year. Couple of things to note.....1st point, there isn't that much disparity in the operating EPS from the analysts, but the biggest factor in the 2012 target is the forward P/E multiple they place on the earnings. For instance, BASML has a lower operating EPS than GS, but their price target is 100 points higher. My 2nd point is that although this isn't reflected in the chart, this is each analysts base forecast, but when you look at their bearish estimates, S&P target moves down to 900 - 950 for almost all of the ones that provided this detail. So, once again, as long as the US can keep chugging along, Europe can get its act together and China doesn't have a "hard landing", we could see 3 straight years of price appreciation (assuming we end this year in the black).
Mon 12.5.11
Looks like it's risk-on today as European investors cheer the news that Merkel and Sarkozy are meeting to discuss a plan for stability in the EU (didn't we just go through this same thing 2-3 weeks ago??) EU leaders are considering a plan that would bring stricter budgets to each of the countries in the EU (read: austerity measures), leveraging of the EFSF (European Financial Stability Facility) to a maximum of 1 trillion Euro of first loss guarantees on sovereign debt and an IMF (International Monetary Fund) bailout of b/w $100 - 200B Euro. While I believe it's good that they are starting to actually look at measures to stop the contagion, I have a couple of reservations, in particular with the IMF bailout. For one, the US comprises 20% of the IMF's budget, and I think politically, it would be very difficult to go along with a bailout of Europe when we still have persistently high unemployment (albeit somewhat improving) and although we have some economic growth, it doesn't necessarily "feel" like we are in a growing economy.
Day 4 of my rally into the year-end thesis: We currently have a backdrop of improving retail sales (3-4%), modestly improving employment picture, and an uptick in consumer sentiment. Institutional investors are still weary and are on average 60-70% in equities, so they are desperate to move the needle higher before December 31st, a typically strong month for stocks. Offsetting these positives that are earnings at a cyclical peak, negative income numbers, weak volume on rallies, a dysfunctional government, and an ongoing global deleveraging, but I think these bearish points will take a back seat until next year....
Day 4 of my rally into the year-end thesis: We currently have a backdrop of improving retail sales (3-4%), modestly improving employment picture, and an uptick in consumer sentiment. Institutional investors are still weary and are on average 60-70% in equities, so they are desperate to move the needle higher before December 31st, a typically strong month for stocks. Offsetting these positives that are earnings at a cyclical peak, negative income numbers, weak volume on rallies, a dysfunctional government, and an ongoing global deleveraging, but I think these bearish points will take a back seat until next year....
Friday 12.2.11
The jobless rate declined to 8.6 percent, the lowest since March 2009, from 9 percent. Non-farm payrolls climbed 120,000, with more than half the hiring coming from retailers and temporary help agencies. Also, they revised October from 80,000 to100,000 in new jobs created.
With today's good jobs #, we are going to hear a lot of political posturing from both sides, but mostly the President, so my comment today focuses on market performance of Presidents in their 3rd Year of the 1st Term. The first chart below from Global Macro Monitor illustrates that since WW II, every President has had the S&P 500 rise in their 3rd Year of their 1st term. This throws more fuel into my thesis that the market is going to rally into the year-end, and Obama will end up having the S&P 500 in the black by the end of this year.
Another proof point that investors have pointed to concerning a December rally, is that the S&P 500 appears to be tracking the 1971 analog, also the third year of a first term President. Ironically, 1971 was also a year of similar currency turmoil as President Nixon officially ended the gold standard and the Breton Woods international monetary system in the middle of August. During a massive run on gold, then Treasury Secretary John Connally and Under Secretary for Monetary Affairs Paul Volcker advised the President to let the dollar float, effectively making it a fiat currency. This caused panic in the global markets until other countries let their currencies go.
History is rhyming here with our own Euro crisis and sovereign debt crisis. Let’s hope we get a similar spike up as we did in 1971 and 1991 and Santa brings us a nice rally to end the year.
Thurs 12.1.11
Kevin's note today reiterates what I have been saying about yesterday's intervention from the central bankers....that it only fixed the liquidity problem, and not the solvency problem for the European sovereigns.
On a more positive note, since it's December 1st, I thought I would share a chart from ThomsonReuters which illustrates that since 1971, on average December has been the best month for equities, at least according to the MSCI World Index, which includes both developed and emerging markets. It really gets to the psyche of investing, in that investors love to rally into the year-end, in hopes of beginning the new year on a high note.
On a more positive note, since it's December 1st, I thought I would share a chart from ThomsonReuters which illustrates that since 1971, on average December has been the best month for equities, at least according to the MSCI World Index, which includes both developed and emerging markets. It really gets to the psyche of investing, in that investors love to rally into the year-end, in hopes of beginning the new year on a high note.
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Wed 11.30.11
The equity market is on tear today (currently up over 3%) and traders have all turned bullish. In yesterday's blurb, I noted that if European central bankers would announce some measures to stop the contagion, and we had a decent jobs #, then watch out for a solid rally to end the year.....well, today all the global central banks (Federal Reserve, Bank of England, European Central Bank, etc.) agreed to lower the pricing on liquidity swaps (eg temporary dollar loans to banks) by a half % point. What this has done is to add liquidity into the banking system in Europe by increasing the access to US dollars. What started in Europe as a solvency problem, has begun to make its way into a liquidity problem (similar to what happened during the 'credit crunch' in US in 2008). What this measure does is to add liquidity (e.g. credit) into the banking system in Europe. Then we had an outstanding ADP jobs report which blew away expectations, so now "risk is on" and the market is moving higher.
The one thing to note is that this move by the central bankers doesn't in any way solve the fact that their countries are over leveraged (eg too much debt), but it does give them more time to resolve this issue. Then, China came out and reduced its reserve requirements by 0.5%, which is a measure to loosen monetary policy (e.g. drive GDP growth).
I look for a continued rally in equities going into the year-end, with your cyclicals outperforming (eg Caterpillar, Deere, FedEx, any mining stock, e.g. 'Rio Tinto' etc.). Investors will put the European sovereign debt issue on the back-burner for now, but it will come back, I just look for it to be back on investors minds after earnings in Feb 2012. Until then, hopefully we can enjoy this rally.
The one thing to note is that this move by the central bankers doesn't in any way solve the fact that their countries are over leveraged (eg too much debt), but it does give them more time to resolve this issue. Then, China came out and reduced its reserve requirements by 0.5%, which is a measure to loosen monetary policy (e.g. drive GDP growth).
I look for a continued rally in equities going into the year-end, with your cyclicals outperforming (eg Caterpillar, Deere, FedEx, any mining stock, e.g. 'Rio Tinto' etc.). Investors will put the European sovereign debt issue on the back-burner for now, but it will come back, I just look for it to be back on investors minds after earnings in Feb 2012. Until then, hopefully we can enjoy this rally.
Tues 11.29.11
One item I thought was interesting from Oppenheimer, especially after last week's blood bath.....From 1990 - 2010, the fourth quarter has produced gains on average near 5%....that nets a return higher than the cumulative return of the first, second and third quarters.....Santa Claus rally in the cards??? I think if Europe can even resemble like it won't blow up, and they announce some measures to stop the contagion, and we get a decent jobs number on Friday, look for a nice rally to end the year.....
Thurs 11.10.11
No comment today, so just my take.....First off, the market is looking green today as Italian bond yields have dropped below 7%, and investors look to take advantage of yesterday's huge sell-off. However, investors are starting to circle France, as the spread b/w French 10-year bonds and German bunds is rising to a high of 170 basis points. The higher the market prices France's bonds, the more worried investors become, thereby increasing the bond yields, eventually making higher future borrowing costs a "self-fulfilling prophecy". However, France has more levers than other European countries, including eliminating tax loopholes for businesses, and cutting spending, although this would not be viewed favorably by its citizens. But, enjoy today's rising stock market, and tomorrow Veteran's Day.
Wed 11.9.11
Kevin didn't put out a Comment today, so all you will get is my quick bantering. Today's short theme is Italy. The problem with what has happened with Italy is that to quote Ezra Klein -- it's too big to fail, and too big to save. If Italy goes, then there's no reason to save Greece. Here's Ezra Klein's quote from today's Washington Post
The problem, put simply, is that Italy is both too big to fail and too big to save. It’s the eighth-largest economy in the world. At $2 trillion, it’s about seven times as large as Greece’s $300 billion economy. France and Germany’s banks alone have $600 billion in exposure to Italian debt. But Barclay’s says Italy is “now mathematically beyond the point of no return.” Silvio Berlusconi might be out, but changing governments does not change arithmetic. And so the question is simple, and stark: If there wasn’t the will to really save Greece, where would the will -- and the money -- come from to save Italy?
Here's the Barclays Bullet Points that Ezra Referenced: 1) At this point, it seems Italy is now mathematically beyond point of no return
2) While reforms are necessary, in and of itself not be enough to prevent crisis
3) Reason? Simple math--growth and austerity not enough to offset cost of debt
4) On our ests, yields above 5.5% is inflection point where game is over (note from aw: yields are above 7% and approaching 8%)
5) The danger:high rates reinforce stability concerns, leading to higher rates
6) and deeper conviction of a self sustaining credit event and eventual default
7) We think decisions at eurozone summit is step forward but EFSF not adequate
8) Time has run out--policy reforms not sufficient to break neg mkt dynamics
9) Investors do not have the patience to wait for austerity, growth to work
The problem, put simply, is that Italy is both too big to fail and too big to save. It’s the eighth-largest economy in the world. At $2 trillion, it’s about seven times as large as Greece’s $300 billion economy. France and Germany’s banks alone have $600 billion in exposure to Italian debt. But Barclay’s says Italy is “now mathematically beyond the point of no return.” Silvio Berlusconi might be out, but changing governments does not change arithmetic. And so the question is simple, and stark: If there wasn’t the will to really save Greece, where would the will -- and the money -- come from to save Italy?
Here's the Barclays Bullet Points that Ezra Referenced: 1) At this point, it seems Italy is now mathematically beyond point of no return
2) While reforms are necessary, in and of itself not be enough to prevent crisis
3) Reason? Simple math--growth and austerity not enough to offset cost of debt
4) On our ests, yields above 5.5% is inflection point where game is over (note from aw: yields are above 7% and approaching 8%)
5) The danger:high rates reinforce stability concerns, leading to higher rates
6) and deeper conviction of a self sustaining credit event and eventual default
7) We think decisions at eurozone summit is step forward but EFSF not adequate
8) Time has run out--policy reforms not sufficient to break neg mkt dynamics
9) Investors do not have the patience to wait for austerity, growth to work
Tues 11.8.11
Just a short note from Kevin today. As everyone starts to really question if we could have contagion in the Euro, and some investors are pointing out that China could come to their rescue, since so much of China's GDP is from exports to Europe.
Although China is on track to become the largest economic power in the next 30-50 years, The one thing that I want to point out this morning is that they are still a very poor country, as noted by their GDP per capita. Their total GDP is higher, but when you consider how low their GDP per capita is compared to other countries, it really drives the point that China is not really at a point where they can bail out the Euro.
Although China is on track to become the largest economic power in the next 30-50 years, The one thing that I want to point out this morning is that they are still a very poor country, as noted by their GDP per capita. Their total GDP is higher, but when you consider how low their GDP per capita is compared to other countries, it really drives the point that China is not really at a point where they can bail out the Euro.
Mon 11.7.11
Sorry, the comment is a little late. Kevin once again focuses on the one economic statistic that everyone should focus on....in the US 2/3 or 66% of our economic activity is based on consumer spending. This is unlike any other country in the world. This slide illustrates that the US's GDP is based on consumer spending considerably more than on exports. Look at the next to last on the bottom left hand slide, you see Hong Kong / China which rely almost entirely on exports for their GDP. This is why China doesn't want to reset the yuan, yet, b/c although they are growing at a rapid pace, they still are a younger economic country that relies on a cheap currency to export goods. If the US would focus on strengthening the dollar, we would see a tangible decline in commodity prices, including food and oil/gas (even with China's appetite for these items). If the price of commodities decline, then consumers will have more $ in their pockets and presumably will go out and spend it on other items.....resulting in higher economic growth and ultimately jobs
Source: Wolfe Trahan
Source: Wolfe Trahan
Monday, October 31, 2011
Mon 10.31.11
Saw this from Oppenheimer that puts into perspective how much of a rally that October experienced. Even with today's sell-off, it would put this month as one of the best months ever.
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Thursday, October 27, 2011
Thurs 10.27.11
It looks like due to the European bailout, we are "risk-on" again. Well, it looks like there's a good reason to join the bulls on this, as it shows that Europe doesn't have the same political problems that the US has, or if they do have these problems, they will at least work with each other for the better good. I still have my doubts that European banks will be able to go out into the market and raise 106 billion euros of capital, but all that matters is that for the time being, we can quit focusing on Europe and start focusing back at the US structural problems (eg no job growth)
Also, it will be interesting to see what the ISDA says about whether this triggers an event thereby making credit default swap payments. If this triggers CDS, we should know pretty quickly who's holding the risk.
Also, it will be interesting to see what the ISDA says about whether this triggers an event thereby making credit default swap payments. If this triggers CDS, we should know pretty quickly who's holding the risk.
Wednesday, October 26, 2011
Wed 10.26.11
Forget the noise and look to jobs if you want to see this economy flourish. I still believe Europe's problems will eventually take the US Dow back down into the 10,000's, but I'm all for this bullishness that we are seeing in the US markets.....my problem is that this smells like a bear rally, and not a bull rally, but only time will tell. There's a lot of excess liquidity out there and some investors are willing to take a chance as the so-called "safe havens" are yielding practically nothing, but once again I'd be wary....
Tuesday, October 25, 2011
Tues 10.25.11
Found this piece of research from InvestTech Research interesting. Going back to 1960, had you only invested in the S&P 500 from Nov 1st - April 30th, you would have captured 97% of the S&P 500's absolute market's performance
| Here are the specifics of seasonality: Imagine we start with two $10,000 accounts, and use them to make investments in an S&P 500 Index fund. One account invests in one 6-month period, the other invests in the remaining 6-month period. Account A is invested from November 1st through April 30th each year, while Account B is invested from May 1st through October 31st. Here are the numbers: • Account A portfolio grew from $10,000 to over $438,967. That is a 42-fold increase. • Account B portfolio barely doubled to $22,659. By selecting the seasonally strong period from November through April, you capture 97.1% of the available performance over the past 52 years. (Note the November-April seasonality fared poorly in 2007 and 2008). >  Source:InvesTech Research, October 21, 2011 Technical and Monetary Investment Analysis, Vol11 Iss11 |
Thursday, September 29, 2011
Thurs 09.29.11
Nice, upbeat commentary this morning. Equities are way in the green today with investors playing the risk-on trade after today's revised GDP and lower jobless claims. Banks in particular, which have been the most volatile of late, are rallying the hardest, with big money-center banks Citigroup and JPM each up over 4.5%. Also, large industrial cyclicals, such as Caterpillar are also having a strong day, up 3.5%. As predicted, there's going to be some "window dressing" today and tomorrow and mutuals funds sell losers and buy winners from their portfolios. As long as something bad doesn't come out of Greece, expect today to keep its rally and not lose the momentum tomorrow (last day of qtr).
Tuesday, September 27, 2011
Tues 09.27.11
Equities are on a tear right now, with the Dow and S&P up 2.2%. I think Kevin states it perfectly in his last sentence when he notes that if Europe can clean its act, then investors will begin to take more risk and get back into equities. The one area of caution I will note though is that last week's fall was primarily heavy volume all on the downside from institutional investors. Although yesterday's rally was broad-based, it was on much lower volume and the NYSE Up/Down Volume was only 69%, which compared to a greater than 90% on Wed and Thursday of last week. Still, I'll take a nice bounce back rally after last week's brutal market.
Thursday, September 22, 2011
Thurs 09.22.11
It appears that the Fed is "out of bullets", and at this point we need fiscal policy (e.g. govt) vs. monetary policy. The Austerians who are trying to run Washington through scare tactics, and who almost had the US default on our obligations, want us to cut spending and reduce our deficit now. My take is this would be better served when the economy has gained its footing and is in a full-on growth mode. We need spending from both the private sector and the government right now. As long as Europe can be contained, the US will not go back to 2008, but we need spending and job growth.
Here's a quote from Barry Ritzholt, which I find is how I feel about the current fiscal policy from our government.
Don't expect a policy response from the Austerians. These misguided politicos are in charge in D.C., despite having gotten the past few economic cycles precisely backwards. During the last expansion (2003-07), instead of raising taxes and cutting spending — managing the deficit, creating a better private/government spending ratio — the hypocritical deficit peacocks in the USA did the exact opposite. We cut taxes during (2) wartime, created yet another entitlement program, and raised yet other government spending during private sector economic expansion.
Here's a quote from Barry Ritzholt, which I find is how I feel about the current fiscal policy from our government.
Don't expect a policy response from the Austerians. These misguided politicos are in charge in D.C., despite having gotten the past few economic cycles precisely backwards. During the last expansion (2003-07), instead of raising taxes and cutting spending — managing the deficit, creating a better private/government spending ratio — the hypocritical deficit peacocks in the USA did the exact opposite. We cut taxes during (2) wartime, created yet another entitlement program, and raised yet other government spending during private sector economic expansion.
That approach makes much more sense in the current environment of consumer de-leveraging, weak private sector job creation, modest capex investment, and low growth. Instead, we suffer from the opposite:
Based upon a fundamental misunderstanding of the works of John Maynard Keynes, they are once again out of phase. Now, the same crowd is looking at raising taxes and reducing government spending when an already frail economy cannot support it.
Excess government stimulus during expansions and austerity during (or immediately after) contractions is simply misguided economics, bad politics and awful policy.
Tuesday, September 6, 2011
Tues 09.6.11
Not much more I can say than what Kevin has noted. Look for equities to be deep in the red today. Also, here's a couple of charts I found from dshort, which outlines how historically September has been the worst month for the market. Last year, we had a big jump in September due to QE2, but this year, unless we announce some massive jobs bill, will continue its downward trend.
Mon 09.05.11
Right now, I am burrowed in my house, waiting on Tropical Depression Lee to pass (as my good friend Michael can attest, there's never a better time for a bloody mary then when a tropical system comes through). The past couple of weeks, I have repeatedly stated that the market would be very volatile, due to Congress being on vacation, the market awaiting Washington's response to create jobs, short-selling ban on financials in Europe (which is like trying to put a band-aid on a waterfall) and Europe continuing to kick the can down the road. Well, after last Friday's dismal jobs report, Obama has begun working the circuit with a Labor Day speech in Detroit, specifically discussing jobs and getting the economy jump started. But, tomorrow, expect the market to move its focus back to Europe.
Monday, September 5, 2011
Fri 09.2.11
There really isn't much more I can say than what Kevin from Morgan Keegan has noted. I was just telling a friend of mine that the bond market is banking on the fact that the Fed will begin selling short-dated treasuries and purchasing long-dated treasuries, but I hadn't heard that this is called "Operation Twist". The bond market appears to be frontrunning this expectation, as the 10 and 30 year yields have both declined, while the 2 year yield has remained unchanged. On the equities front, I'd look for a lot of red today, and hopefully when Congress gets back from their 3 week vacation hiatus on Tuesday, they'll be ready to come through with real job growth plan. None of this green jobs, I'm talking New Deal type job growth, that will spur economy....
Thurs 09.01.11
My quick take though is that investors are waiting on the jobs # tomorrow. The ADP report earlier in the week was not bad, but not good, either, so as long as we don't have a not bad jobs # tomorrow (consensus is non-farm payrolls increase 70k, but not sure if this will include or exclude the striking Verizon workers), we should continue to see the market move in an upward direction. After the jobs report, investors will be closely monitoring any new jobs/stimulus coming out of Washington.
Tues 08.30.11
No comment from MK, but here's my quick take. Market is taking back some of the gains we had from yesterday, (S&P down almost 1% right now). This was somewhat expected, as yesterday's large positive move was on light trading volume and was led by the two sectors that have been beat up the most, Financials and Technology. This leads me to believe that the biggest driver of the moves in the stock market were short covering squeezes. On August 15, short interest in the NYSE rose over 1 billion shares compared to the end of July, and was the biggest bi-weekly increase since March 2009. Today we should give back some of yesterday's gains, but I wouldn't expect to see us give back more than half of yesterday's gains.
Mon 08.29.11
Just a short comment today from MK....not much on my end except to say that it should be another day in the black for the stock market. Optimism from the higher consumer spending, coupled with the details out of Greece that two of their banks are merging, so as not to require additional funding from the government, has all been well received.
Fri 08.26.11
The main driver of the downside move was the initial disappointment that Bernanke did not give any indication that the Fed would implement a new round of monetary stimulus in the coming months. I have attached a good article below that outlines the Fed Chairman’s comments.
However, this was largely expected by most professional traders and I do not expect any real significant sell-off in reaction.
Finally, I am expecting a very quiet afternoon trading session, as traders begin to close out positions for the week over the next few hours and turn their attention to heading home to prepare for the approaching hurricane.
However, this was largely expected by most professional traders and I do not expect any real significant sell-off in reaction.
Finally, I am expecting a very quiet afternoon trading session, as traders begin to close out positions for the week over the next few hours and turn their attention to heading home to prepare for the approaching hurricane.
Thurs 08.25.11
here's a graph I grabbed from Barry Ritzholt which I wanted to share. The gist of it is that historically the market moves in relationship to GDP. What the graph is showing is that in order for the market to continue to rise, we must see GDP increase substantially. 1 to 1.5% GDP growth will more than likely result in a pricing correction....so, hopefully Bernanke has something up his sleaves, and Obama has a solid jobs bill on the way...
Wed 08.24.11
Actually a day late....no comment published today.....but here's my take on what we're seeing.
The good news is that although the bond market is still pointing to a slowdown, it's not pointing to a recession (as noted by an inverted yield curve). On the equities side, I still don't believe we are through yet with all this volatility. I actually saw yesterday where BofA Merrill's head strategist believes the S&P will hit 1400 by end of the year (15% gain from yesterday). He believes it will be back-end loaded, but I just have a hard time seeing this, with everything going on in Europe and the lack of jobs in US. Banks are shedding jobs by the thousands right now, and if investors continue to question the banking system, we are going to have some more pain to come. My guess is that investors are positioning themselves for something big this weekend from the Fed at Jackson Hole, but I think they're going to be disappointed. The other problem I see is that we have all these factors that must all happen to help the stock market stabilize or rise: Europe not implode, China not slow down and unemployment to remain steady (and hopefully decline).....but if just one of these goes wrong, then the market will resume its downward spiral again. Worst case scenario won't hit the lows we hit in 2008, but it will be enough to scare more investors to the sidelines. Just my quick thoughts
The good news is that although the bond market is still pointing to a slowdown, it's not pointing to a recession (as noted by an inverted yield curve). On the equities side, I still don't believe we are through yet with all this volatility. I actually saw yesterday where BofA Merrill's head strategist believes the S&P will hit 1400 by end of the year (15% gain from yesterday). He believes it will be back-end loaded, but I just have a hard time seeing this, with everything going on in Europe and the lack of jobs in US. Banks are shedding jobs by the thousands right now, and if investors continue to question the banking system, we are going to have some more pain to come. My guess is that investors are positioning themselves for something big this weekend from the Fed at Jackson Hole, but I think they're going to be disappointed. The other problem I see is that we have all these factors that must all happen to help the stock market stabilize or rise: Europe not implode, China not slow down and unemployment to remain steady (and hopefully decline).....but if just one of these goes wrong, then the market will resume its downward spiral again. Worst case scenario won't hit the lows we hit in 2008, but it will be enough to scare more investors to the sidelines. Just my quick thoughts
August 18th
Not any good news out there today....10-year is at its lowest its ever been since the Great Depression, which is only good if you have equity in your house and are looking to refi....besides that, today's gonna be bad, so strap on your boots....other news Morgan Stanley downgraded world economic prospects on the ever increasing chance of a recession in Europe, along with a bumpy recovery in US, which they say both will impact China (especially since they rely on exports.....does this mean we see China turn from an export country to a "consumer" country, and let its currency increase in value....only time will tell, but I don't think China is smart enough to see the long-term benefit
Older Musings on the Market
So - it's obviously been a while since I last posted. I have still been avidly following the market, and from time-to-time, I have emailed to friends my thoughts on macroeconomic factors that were impacting the market. I am going to now include these (albeit late) on my blog. Hopefully, I'll be updating this more often, and maybe even bring some individual stock analysis periodically....but for now, we'll take what we can get.
Saturday, February 5, 2011
J.P. Morgan Takes a Beating on Friday....does the math support it?
The blogging community and the press have been having a field day since hearing that J.P. Morgan has been named in a lawsuit filed by Irving Piccard, the Madoff Trustee. J.P. Morgan has been accused of being "thoroughly complicit" in the Madoff fraud and therefore took a hit in the market. I'm not going to get into the specifics or legality of this (I invite our partner Oscar, if he feels the need), but I did feel the need to address how the market reacted and what they are pricing in, at least initially, into the merit or potential payout from the lawsuit.
JPM closed Thursday at $45.46/share, or a market cap of $177,762.3 billion. Twenty four hours later it was at $44.59 (a loss of 1.91%) and closed at a market cap of $174,360.3 billion (-$3.4 billion decline). Just a little background, the S&P 500 Banking Index or the BIX was flat to up (+0.22%) on the day. Irving Piccard's lawsuit is asking for $6.4 billion from JPM. Based on initial reaction from the market, they have priced in that JPM will more than likely have to pay. The market believes that JPM either has a 53% probability of paying ($3.4 billion decline in mkt cap / $6.4 lawsuit = 53%) the full amount or that JPM could end up settling for almost half of the $6.4 billion.
Since the Madoff name is like the ebola virus in the financial industry, I feel that JPM will vigorously contend this suit. Settling would be an implicit admission of guilt. In addition, since they were just the banker of Madoff's security company I don't believe the courts would contend that they were "complicit in the fraud"and therefore have responsibility in such a scheme. IF there is a settlement I believe it would be way below either the market or Piccard is hoping to get.
Disclosure: Long JPM
JPM closed Thursday at $45.46/share, or a market cap of $177,762.3 billion. Twenty four hours later it was at $44.59 (a loss of 1.91%) and closed at a market cap of $174,360.3 billion (-$3.4 billion decline). Just a little background, the S&P 500 Banking Index or the BIX was flat to up (+0.22%) on the day. Irving Piccard's lawsuit is asking for $6.4 billion from JPM. Based on initial reaction from the market, they have priced in that JPM will more than likely have to pay. The market believes that JPM either has a 53% probability of paying ($3.4 billion decline in mkt cap / $6.4 lawsuit = 53%) the full amount or that JPM could end up settling for almost half of the $6.4 billion.
Since the Madoff name is like the ebola virus in the financial industry, I feel that JPM will vigorously contend this suit. Settling would be an implicit admission of guilt. In addition, since they were just the banker of Madoff's security company I don't believe the courts would contend that they were "complicit in the fraud"and therefore have responsibility in such a scheme. IF there is a settlement I believe it would be way below either the market or Piccard is hoping to get.
Disclosure: Long JPM
Courtesy of Floyd Norris from the NY Times:
Introductory Post
This blog is created so that myself and my other partners of the WR Trading Co can share our ideas, thoughts, stock tips, successes and failures in our investments, and anything else the partners want to discuss. I plan on using this to provide short, hopefully thoughtful insights into trends in the market and other musings I may want to address. As I and the other partners of our investment fund consider particular investments, I plan to provide detailed analysis on why we believe a security may be under or overvalued.
We will provide our security selections on the site for full transparency, so that everyone can join in the highs and lows that we encounter in this venture.
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