Money Never Sleeps

The Stock Market Horror Show

2009-06-07T18:59:00.003-04:00

Let's just close our eyes (figuratively speaking of course) and ponder one of a myriad of potential outcomes for the stock market through the end of the year. We want to be clear that this is not a prediction, just a simple exercise that exists within the realm of possibility. Feel free to add your own if you are so inclined.

If we assume that stock market is really just a cruel mistress at heart, one would assume that the market is likely to work against the vast majority of people. At this point it seems safe to say that we have had a huge rally and a pullback would be necessary and expected. Unfortunately this view has been in place for weeks now as the rally approaches its three month anniversary. A pullback would be welcome, a pullback would be expected, which is why we have had NO real pullback yet.

It would make sense that most have missed the rally, paralyzed by fear and then run over by a stampede of never ending bulls. Those that have missed the rally are waiting for the long awaited pullback to get back into this market.

Fund managers are rumoured to be forced into the market at the end of the day in a fit of panic buying because they cannot get a pullback and they must keep up with their primary benchmark, the S&P 500. The volume has been lackluster for weeks now which would seem to imply that perhaps the mutual fund managers are not actually jumping in with both feet here, but the panic buying story does make an easy to read headline to explain a non-stop rally...

So we know that the rally has been relentless and many investors are waiting patiently for the first pullback, and there will be one, there is always a pullback... eventually. Let's just say that someday the market does experience a pullback of 5%. Perfect, those on the sidelines step on the field and get in this market for the next rally. But, what if that 5% pullback quickly becomes a 10% pullback? Do the new investors double down or jump ship?

If the pullback does start to accelerate a bit the perma bears could emerge from their underground bunkers to make bold predictions that we are going to new lows. The experts will tell you not to fear, it is very normal to "retest" the lows. Bottoming is a process they say.

Now after being burned by the 5% pullback, investors may decide to wait for a retest of the previous lows, 666 on the S&P on March 6th to be exact. With the S&P back at 900 everyone is convinced that if the market ever slides below 700 again they will throw all of their ammo at it.

It would be so easy to buy a successful retest near 666 on the S&P. Perhaps it doesn't get there, close, but the pros jump the gun leaving all of the average investors waiting at the train station with nowhere to go once again. A new rally begins, this one for the duration. Investors struggle to get back into the market, worried about unemployment, the economy and the doomsday depression scenarios from their favorite experts, authors, professors and pundits.

This scenario is of interest to us because those that buy without waiting for a pullback could get burned. If you buy the first 5% pullback you could get burned. If you wait for a retest of the bottom that never happens you get burned by missing the rally. This storyline is intriguing due to its ability to screw so many at one time while leading to higher returns that many will miss!

We cannot tell you if the more than 40% rally over the course of about three months is a bear market rally or a new bull market trend, cyclical, secular, whatever you like. Do your own work and trade accordingly. All we know for sure is there will be a story to tell and we cannot wait to read about it.

Godspeed.

Must Read on Why Home Prices May Continue to Decline

2009-06-07T14:22:00.003-04:00

Robert Shiller, professor of economics and finance at Yale, wrote a piece for the New York Times (available here ) detailing why home prices may continue to decline in the months and years ahead.

Shiller was ahead of the curve in pronouncing the housing market a bubble ready to burst just like when he began to express concern over the stock market as tech went to epic levels. Many believe that housing is key to the economic turnaround. Jim Cramer for one believes we are on the verge of a bottom in housing right now. Perhaps Cramer and Shiller may need to compare notes.

It is going to be very difficult to mount a decent recovery without a major improvement in housing on the horizon. The next great concern is that the economy bottoms but the recovery is so slow, so weak that it still feels like a recession and we quickly slip back into recession. This scenario makes a lot more sense if Shiller is right on the housing market. This also might help explain why President Obama's team is looking to ramp up the stimulus as opposed to cutting back on some of the spending as encouraged by his opponents who believe we have already started to see economic improvement.

It is clear the economy has yet to bottom and start to improve, but the positive sign right now is that we have started to get less bad. There is much work to be done to turn this ship around and there will be even more work required to keep it moving in the right direction.

Jim Cramer Calls Out The Bears

2009-06-02T20:33:00.004-04:00

Today on Mad Money in front of a live studio audience Jim Cramer gave it to the bears. Cramer has proudly declared that we are in a new bull market. Cramer wonders why all of the bears are not getting ripped apart by the media for continuing to call this a bear market rally. And to be honest, it is a damn good question.

Since Jim Cramer won't say it we will, Nouriel Roubini, a member of the bear market all-stars, is this still a bear market rally?! At what point is a bear market rally a bull market? That is the problem with titles, labels and fun nicknames.

We argued loudly back in early April that whether this is or is not a bear market rally, the label is irrelevant. The key is to make money. If you listened to Roubini and others who are still bearish you have missed a rally of over 40%. Do you realize the majority of the gains in the stock market comes from just a few big days, a few big weeks? Congrats you just missed 40% and who is picking on Roubini etc?

The reason this rally has been so powerful is that so many missed it. Over the past year we experienced several selling panics, lately we are experiencing a buying panic as people throw in the towel waiting for a pullback that seems to never come before getting back in.

The important thing to remember is why you missed the rally. After only a few weeks, the consenus, the experts were in unison in calling this thing a bear market rally... and yet here we are coming up on the three month celebration with NO meaningful correction.

Unless we are going back to the ominous lows of 666 on the S&P sometime soon, a lot of experts have some explaining to do. And be careful when they jump on the bull bandwagon, if everybody is on, it is probably time to get off again...

We are already starting to see it... all of the experts are trying to one up each other by putting a higher target on how high this rally can go before it stops (see CNBC). Reminds me of when everyone kept coming out with lower and lower targets for the market just a few short months ago... I don't recall seeing S&P 500... S&P 400...

Finally... General Motors is Delisted

2009-06-02T20:17:00.003-04:00

General Motors aka Government Motors has officially been delisted from the NYSE. What took them so long?! If you are wondering where the quote went, GM is no more, now that the stock is on the pink sheets you will need to type in GMGMQ.

Sadly, today General Motors was also removed from the S&P 500 Index as reported yesterday... It will be removed from the Dow Jones Industrial Average on the 8th.

Banks Continue To Raise Capital

2009-06-02T19:01:00.002-04:00

As was suspected back in late March, Goldman Sachs sold $1.9 billion of its stake in the Industrial and Commerical Bank of China in order to boost capital reserves and prepare to pay back the TARP.

The ability to raise capital by the banks has been incredible in such a short amount of time especially since the results of the stress tests were released. Reuters has the rundown of the banks who announced $18 billion in capital raises just today!

While the idea of finally paying back the TARP is great news for the taxpayer, there are two other risks in the short term.

1) I believe the Treasury still plans to take the TARP money back from the major financials but then lend it out again to other firms still in need! Hopefully the new firms will also pay it back in a timely fashion.

2) The extreme dilution is pressuring financial shares right now, just imagine if financials were still rocketing higher with the rest of the market...

And The Winners Are...

2009-06-01T18:25:00.003-04:00

General Motors will be replaced in the Dow Jones Industrial Average with Cisco (CSCO) on January 8th.

General Motors will be replaced in the S&P 500 by Devry (DV) tomorrow.

Devry is already up over 5% after hours on the news.

As noted here and here we had a few ideas, but we were dead wrong on this one. We expected to be dead wrong on the Dow pick because our goal was to make a logical addition, but the Dow has a history of adding something that is performing well. No need to take into account the various sector weightings, let's add more tech!

Many on the street seemed to be pushing for Cisco to get the nod, whether that had any influence who knows. Hopefully the Dow didn't top tick the recent run in tech like they did by adding Microsoft and Intel back in '99. They added Bank of America (BAC) to the Dow in February of 2008 - that worked out well!

Citigroup (C) was also removed (replaced by Travelers [TRV] a financial) which was a brilliant idea. It will be interesting to see how TRV and C compare going forward, being removed from the Dow could actually be a positive for Citigroup.

So Much For Sell in May...

2009-05-31T16:51:00.003-04:00

The S&P 500 closed out the month of May pretty strong with gains of over 5% for the month on top of the huge gains experienced in March and April. While we were a little skeptical of the month of May, everything was just fine and dandy!

Keep in mind that we are still in a historically weak period of the year for the market so do not jump to conclusions based on the gains in May. The volume has come in quite a bit and volatility is subsiding. The market is essentially stuck in a range at the moment. The market high for the month of May actually occurred back on May 8th, went down and drifted upwards into the end of the month.

Keep an eye on which side of 875-930 the S&P can close on, that may determine the next trend.

As for the week ahead, the always interesting (although never truly accurate) jobs number will be released on Friday morning. Revisions are always interesting to take into account, the most important thing for the bulls is for the jobs numbers to continue to be "less bad".

Mixed Signals from the Transports on the Economy

2009-05-29T18:57:00.004-04:00

According to Jim Cramer on CNBC earlier today for his Stop Trading segment, transportation stocks are rising and he views that as "incredibly important" for the economy. He interprets the action to mean instead of getting less bad, we are actually getting better.

Cramer may want to take a look at the latest trucking data from the American Trucking Association. This data tends to be a leading economic indicator. The bad news is that truck tonnage decreased over 13% year over year falling to the lowest level in over seven years.

The transport stocks are predicting an economic turnaround but the leading data on trucking does not support the theory - what does that say about the strength of the transports rally?

More Dow Debate on Who Will Replace GM

2009-05-29T18:44:00.003-04:00

Fast Money takes up the debate today on who will replace General Motors in the ever popular but poorly constructed Dow Jones Industrial Average. We would like to reiterate once again that the real play is which stock will be placed in the S&P 500 to replace GM.

Today's list includes some of the usual suspects courtesy of BNY ConvergEx Group:

Goldman Sachs (GS)
Cisco (CSCO)
Wells Fargo (WFC)
Apple (AAPL)
Google (GOOG) - once again, the Dow is a price weighted index, probably not the place for a $400 per share stock!!!!!

Cisco got the most love from the desk, but after a few hundred votes, Apple is winning the fan vote, probably votes from Apple shareholders. Can't blame them, but our guess is they don't go with tech. However, with no actual rules, it is kind of a crapshoot as to which stock will be the winner. The people in charge don't tend to make the best or most logical decisions with the index and stocks that are removed actually tend to do better than stocks that are added! So Citigroup should be praying to the market gods that they get kicked out with GM!

S&P actually announced several changes to their indices earlier this morning, nothing about GM days before bankruptcy, but they did add FMC Technologies (FTI) so bravo to those that thought FTI was a potential S&P 500 stock - right stock, wrong reason but hey the stock closed up almost 7%!

Is Volatility About to Pickup?

2009-05-29T18:29:00.003-04:00

Let's hope so because this trading range is beyond boring. According to Bloomberg, a new survey predicts that the Vix, aka the volatility/fear gauge, which we discussed here, will hit 40 before 20. Currently the Vix is near 30. The consensus seems to be for the spike to occur later in the year after a slow summer - bummer.

Unfortunately only 100 investors were involved in the survey, but 74% predicted an increase in volatility to 40 is more probable than a decrease to 20. If that is true, then expect the market to sell-off, nothing crazy, but a decent correction which we really have not seen since the rally started March 6th.

The reason this article is of interest is with such consensus from the few investors involved in the survey, the conclusion is probably incorrect. If that is the case, and the Vix does see 20 before 40, that would be interpreted as bullish. Something to keep an eye on for sure.

Why is GM Still Trading?

2009-05-28T18:05:00.003-04:00

Despite being on the brink of bankruptcy in the next few days, Government Motors.. uhh.. General Motors (GM) continues to trade above $1 which has Jim Cramer asking why have we not suspeneded trading yet?! Seriously, who is buying this stock today? We would love to know.

The next important question is when will GM be replaced in the Dow Jones Industrials Average and which stock will be added? CNBC has a nice rundown of the possibilities. The article features a very non-scientific survey with the predicted winner being Apple (APPL) followed by Abbott Labs (ABT). Hopefully the selection committee will not jump on the ever popular Apple which would only jinx future performance for the beloved stock, there is already plenty of technology exposure in the Dow as it stands currently.

In our opinion, the addition should be made in the area of financials or healthcare. Our pick in the financials space goes to Wells Fargo (WFC). Second financial pick would be Goldman Sachs (GS) which would be fitting since they secretly run the world.

In the healthcare space the Abbott Labs pick makes a lot of sense followed by Amgen (AMGN). We think there is an outside chance of adding a discretionary stock, Amazon (AMZN) would probably be a mistake but another remote possibility is Target (TGT).

As noted in the CNBC article, the elimination of GM would be a perfect opportunity to also eliminate Citigroup (C)! Citigroup is currently trading under $4 and in case you didn't know, the Dow Jones Industrials Average is a price weighted index as opposed to the market cap weighting used by the S&P. This means that due to their low prices, GM and Citigroup have almost NO influence on the Dow at this point. At over $400 a share it also questions the CNBC voters who believe Google should be added to the Dow... probably not going to work...

Speaking of the far superior, market weighted index, the S&P 500, GM will also need to be replaced in this index. The stock that gets added to the S&P could see a decent pop on the news given the amount of money that is allocated to track the S&P Index and its underlying holdings.

Our votes for possible additions to the S&P go to Visa (V), assuming they have been around long enough to qualify, followed by Ross Stores (ROST) and then Western Digital (WDC).

The Dow pick is very challenging given that there are "no rules for component selection." S&P actually has some requirements that are followed. It is hard to imagine that General Motors meets any criteria these days, it is only a matter of time.

The Depression Definition Debate Continues

2009-05-23T19:36:00.005-04:00

Another gentleman has stepped into the ring to debate the true definition of the word "depression." Richard Posner, author of "A Failure of Capitalism" argues that we are currently experiencing a depression by his definition:

"The word itself is taboo in respectable circles, reflecting a kind of magical thinking: if we don't call the economic crisis a 'depression,' it can't be one." Posner recognizes how woolly the word is and offers his own definition. "I would define it as a steep reduction in output that causes or threatens to cause deflation and creates widespread public anxiety and, among the political and economic elites, a sense of crisis that evokes extremely costly efforts at remediation."

We offered up our thoughts here on how we would begin the discussion of whether this is or is not a depression. We acknowledge the limits of a word which has no technical definition and admit that the correct label cannot be applied until after the fact. While some would argue that making the call after the event has clearly ended offers no real value we would approach the debate in a different fashion. As we said in our last paragraph on our original discussion on the definition of a depression, the label is useless, and only serves as a tool for the media, a headline, a debate. In reality it is just word.

Whether we are experiencing a severe recession or a minor depression, the title does not dictate which action to take. The title does not resolve the issue. A label does not ease the pain or frustration. In fact, depression is a strong word that carries with it a new level of anxiety and fears of a time of dark history that many thought would never be repeated.

We have a vision of what depression is and a real understanding that we never want to experience it again. The debate on defining a depression is only semantics, leave it to the historians and the academics. In the meantime, there is much more important work to be done and great minds should be focused elsewhere.

Or maybe the guy just wanted to get some good press and sell some books, if so, mission accomplished. Perhaps capitalism is alive and well after all. A book about the failure of capitalism trying to capitalize on the very tenants of capitalism. Ironic isn't it?

Cramer on ... Mutual Funds?!?!

2009-05-22T19:05:00.003-04:00

Earlier this week on Mad Money, Jim Cramer discussed American Funds Growth Fund of America which has posted excellent year to date performance relative to it's peers. The interesting thing is that there are actually five other funds in the American Funds family that have better year to date performance than Growth Fund of America! It was clear from this episode that Cramer was actually fairly clueless about the American Funds and how they work so let's analyze a little bit and show some rigor that was lacking in Cramer's thesis.

Cramer's basic take is that since the fund has performed so well it will attract new assets as investors chase the leaders and ditch the laggards. Cramer then goes on to state that the fund will utilize that new cash to add to their largest holdings. In the short term this is a positive catalyst for those stocks.

While this theory likely holds true for the majority of mutual funds, American Funds is not your typical fund family. American Funds is not the type of fund to attract the fast money given their long term investment strategy. This family thrives on minimizing losses during periods of decline and have a long track record of accomplishing just that. The fund has never been afraid to hold a large cash position unlike many funds that are usually close to fully invested at all times. Currently Growth Fund is holding over 13% of their assets in cash! Down from over 17% just a few short months ago.

Cramer credits the leadership of Rothenberg and Crawford as portfolio managers of the fund. What makes this fund truly unique is that Rothenberg and Crawford are only responsible for a portion of the assets. The fund actually features 11 total portfolio managers (and a host of industry specific analysts who trade their best ideas) who are able to make independent decisions and invest their portion of the assets as if it was their own mutual fund. This gives each portfolio manager the autonomy to invest when the time is right and only put money towards their highest conviction ideas as opposed to two guys trying to monitor almost 300 stocks!

Cramer lays out the case that the fund will likely see an influx in cash soon which will benefit the stock prices of the fund's top five holdings:

Google (GOOG)
Oracle (ORCL)
Cisco (CSCO)
Apple (AAPL)
Microsoft (MSFT)

Now here comes some rigor that might even make Cramer proud.

At the end of April, American Funds Growth Fund of America reported almost $123 billion in assets down from almost $180 billion as of December 31st. During the past four months assets have decreased roughly 30%, allowing the funds to deliver great returns off a much smaller base. Although assets declined 30%, their cash position actually declined a greater amount, 37%, indicating that some cash was actually put to work on the buy side during 2009. So the question is what did they do with it?

If you look at the entire family of funds for American (not just the Growth Fund of America) it turns out that during the first quarter they made the following changes to their aforementioned top holdings across all of their equity funds in total:

Google - decreased shares held by 4%
Oracle - decreased shares held by over 4%
Cisco - decreased shares held by almost 12%
Apple - increased shares held over 50%
Microsoft - essentially flat for the quarter

Hmm.. doesn't seem like the type of fund family that uses cash to add to their largest holdings.

Looking specifically at Growth Fund of America again - during 2007 the fund saw assets increase over 26%!! Likely due to outperformance helping them gain popularity among investors. The interesting thing is that although the assets increased 26%, their cash position actually went up over 40%! Once again, doesn't sound like new assets means new purchases for this family.

The truth of the matter is this - American Funds has cash, tons of cash. If they get an increase an assets they are not going to turn around and throw it at the market. American Funds buys value, they don't chase performance, when the price is right, they will be in there just like they were the last few months.

This seems like a very misguided thesis to make money in the five tech stocks above so tread carefully. Not trying to be Cramer Haters, even Jim would encourage you all to do your own homework.. so we did.

Leading Indicators

2009-05-21T18:46:00.004-04:00

While we criticized the excessive optimism over the leading indicators report last month, today's release for the month of April was actually positive 1%, still negative for the past 6 months though. The stock market rally played an important role in boosting this indicator. This is the biggest monthly jump in leading indicators since November of 2005 according to CNBC.

As noted in this article, this is the first uptick in leading indicators since June of 2008. Although we did have a positive month reported earlier in the year... until it got revised down to negative. It will be interesting to see next month whether the positive results are revised at all...

This data continues to support the theme that the economy is getting less bad which has been the basis for the stock market rally which began in March. Next concern is when a true economic bottom hits what will the recovery look like? Too slow or too much inflation could spell trouble for the market so stay tuned...

Update on Market Volatility

2009-05-20T18:34:00.004-04:00

As noted here and here, the media is jumping on the decline in the Vix Index, a measure of fear in the market, as a major source of optimism. As we wrote back in April, people continue to intrepret the Vix Index incorrectly.

If the market goes up the Vix goes down, plot the two on a chart and you will see a very inverse correlation between the two items. Therefore, the Vix does not predict the future but reflects what is currently going on in the market.

The real key in April that hinted that perhaps the rally had more room to run was the fact that the Vix had fallen but not as much as expected in relation to the rally in the S&P. Now we have the opposite problem. The Vix has gone back to the levels of September of 2008. The S&P on the other hand is still below it's high for the year (943 on January 6th) and below it's high for the month (930 on May 8th).

This seems to point towards a bit too much complacency. In September of 2008 you had a 1250 S&P and 25 Vix. By October you had a 840 S&P and a Vix near 80. A falling Vix has not been a great buy signal but rather a by product of a rising market. The Vix gave a buy signal when it was at 80 and had doubled in only a few short weeks. That was a buy signal. A drop from 80 to 30? Not a buy signal.

The drop in the Vix currently is just a reflection of the 39% rally in the S&P from high to low over the past two months. Tread carefully...

Revisiting Buy and Hold

2009-05-18T18:27:00.003-04:00

Interesting article over at CNBC today titled "Bye-Bye To Buy And Hold."

The interesting thing is that headlines like this tend to be a contrary indicator as opposed to being beneficial to investors looking for guidance to get their portfolios back on track. One could make the argument that now could be a great time to buy and hold. The important variables to consider are WHAT to buy and for HOW LONG?

When you look at the rolling 10 year average return in the S&P it turned negative in 2008. At the market peak the average return was near 20%! At 20%, it was a horrible time to buy and hold forever. History has shown investors are much better off buying into a lost decade of stock returns as opposed to buying during one of the greatest decades of all times in turns of returns.

The real issue here is one we have brought up before - it is NOT the death of buy and hold. It is the death of buy and hold in the simplistic form that it is currently understood by the masses. Buy and hold has always been about buying and holding a quality company at a GREAT PRICE. The price you pay is so vital to your long term performance.

As we mentioned here, most stocks over time have lost money, but the top 25% have been responsible for all the gains, further demonstrating how important it is to buy and hold the right stock as opposed to buying and holding ANY stock.

If the first key is to buy a good stock at a great value then it should also hold true that when the price of the stock no longer shows good value, and actually becomes extremely overvalued as many did in the late 90's, stocks do need to be sold at some point in order to book a profit. It is amazing how often the art of selling is ignored when it comes to investing advice. It is okay to sell, it is okay to take a profit. You cannot spend an unrealized gain, at some point you will need to book a profit.

The truth is that it NEVER made sense to buy a stock and leave it in the drawer and check back in 10 years. People thought that was the case and you can clearly see the results now. We have seen stocks give back decades of gains in a very short period of time. The rules have not changed, they are still the same. Buy low, sell high.

Investing is not easy, that is why the Forbes billionaire list is not full of everyday people who practiced buy and hold for many decades. Investing takes patience, research and constant monitoring.

Letting a gain turn into a loss is one of the cardinal sins of investing. Everyone has begun to rethink their investment strategy and many will likely shift to a more conservative posture at the exact wrong moment.

Ten years from now the average annual returns in the market are more likely to be significantly above the numbers posted during the last decade. A cute, catchy three word saying is not enough to generate substantial market returns. Keep in mind that everything runs in cycles and when investors begin to declare the death of buy and hold, it may be time to lean optimistic for the upcoming decade.

Berkshire Hathaway Buying Into Bear Market Lows?

2009-05-15T18:51:00.002-04:00

While many were anticipating Berkshire Hathaway's portfolio holdings as of the end of March 31st, it turned out to be a non event after the close today. CNBC has the full rundown here.

Increased Johnson & Johnson
Increased Wells Fargo
Increased US Bancorp
Increased Nalco
Increased Union Pacific
Decreased Carmax
Decreased UnitedHealth

Summary version is this - Warren Buffett's firm did not go on a stock buying spree during the first quarter of 2009 which included the low for the year so far on March 6th when the S&P touched 666. Interesting given the piece Warren Buffett authored back in October of 2008 encouraging investors to buy American for the long term. He claimed to be doing the same with his personal wealth, and by personal wealth he means the 1% that is NOT Berkshire Hathaway.

Part of the reason Berkshire Hathaway may not have been the best place to put money to work is Warren Buffett's desire to maintain an ample cash position so they will never have to rely on anybody. Additionally, perhaps the cash cushion was left just in case an even better opportunity comes along. For all of Buffett's discussion about buying fear over the past six months even he will admit today's values are NOT as cheap as those in 1974 and 1975.

Bottom line, ignore the talk, what matters is the action, the investments. At this point Berkshire Hathaway is heavy in cash, not making significant new investments but prepared for anything. Perhaps you should be too.

Bear Market All Star Nouriel Roubini

2009-05-11T21:38:00.003-04:00

Great video from CNBC's Fast Money today. It starts by praising one of THE bear market all stars, Nouriel Roubini, aka Dr. Doom, as the economic prophet. It then goes into a monster tirade by Jeff Macke (starts at 1:30) that says everything you need to know about Roubini.

Great economic call, but Roubini is not a trader nor an investor. That is why he is a professor, probably a damn good professor. And everyone seems pretty unanimous on the fact that the dude can straight up party like it is 1929.

Roubini's biggest mistake was using his status as an economic apocalypse guru to then try to make market calls. If he had just stuck with the economy, which is clearly his strength, he would have been far better off. Was it just ego or what? Why was a market call needed, he was dead on the economy, he didn't need to go and make market calls. For the record, Roubini was one of the first to write off the current rally (+39.5% from the March lows) as another sucker's rally. Hopefully you did not sell or even worse, go short, because that was about three weeks ago. Time will tell, but the longer it goes the quicker it can take away Roubini's credibility.

Bear Market All Star Meredith Whitney

2009-05-11T19:23:00.002-04:00

Let's check up on Meredith Whitney, one of the bear market all-stars who runs the risk of being too damn popular and fading away like the previous stars. She had an extended appearance on CNBC earlier today. She seemed to imply that she actually called the furious rally in bank stocks since the March low but is that really the case? Or do the stars get the benefit of the doubt??

Back in early April, Meredith Whitney advised laying off the shorts and NOT buying into selloffs. Hmm.. that doesn't sound like a buy call now does it? Meredith Whitney clearly made a good call on getting out of the shorts... but this was APRIL 6th.. one month after the bottom. The financial sector was already up 50% on it's way to being up over 100%!!

We would actually argue that she made no grand buy call in early March (if you have evidence to the contrary feel free to share). The bigger issue to think about is this - if you listened to her bearish calls and went short financials you could have made a lot. But wouldn't you have made a lot more if she had told you to buy March 6th? Now THAT would have been a killer call. She didn't make that call but the fame continues, the question is for how long? At what point will she declare the financials safe for long term investment? More importantly, will it be too late?

Most Stocks Lose Money Over The Long Term?

2009-05-11T18:43:00.003-04:00

An article from Money Magazine has some interesting statistics for all you buy and hold investors out there.

According to researchers at Dimensional Fund Advisors

From 1980 to 2008, the top-performing 25% of stocks were responsible for ALL of the market gains during the period
The other 75% of stocks in the U.S. recorded annual losses near 2%

Another dagger for buy and hold. Buy and hold in the simple form it is currently applied by so many investors can be extremely dangerous for your portfolio. The key is not buy and hold, even Warren Buffett would tell you that, the key is to buy and hold the RIGHT stock at the RIGHT price. Unfortunantly this task is a bit more difficult than buy and hold anything over the long term. This explains why Warren Buffett is Warren Buffett and you.. are NOT.

So if you want to make money over the longer term, you need to pick the top stocks right? As the article states, that is also a risky game because if you failed to own the top 10% of stocks in terms of performance your annual return would have been cut from 10.4% to only 6.6%.

God Told Him To Sell Stocks?

2009-05-09T13:00:00.002-04:00

Here is an interesting Saturday video for you... Rev. Michael Beckwith claims that he heard a voice that told him to sell all of his stocks back in September of 2007, just weeks before the market put in a major top. First Obama is a trader, and now apparently so is God.

Sadly, God has yet to give the all clear to get back into the market so perhaps the 40% rally off the March lows is a bear rally for all the suckers out there.

The video also goes into investing in socially responsible firms. That really makes little sense when you think about how the market works. Lets say you despise Exxon Mobil, a favorite target since they make tons of money and are behind crude oil as a major source of energy.

Do you realize that when you decide to buy stock in Exxon Mobil that Exxon does not receive a single penny from that investment?! When you buy stock that is currently trading in the market you are always buying the stock from somebody else. Every time you BUY a stock, someone else SOLD it to you.

On an unrelated noted, it is always good to remember that when you buy, someone else is selling and you might want to take a second to think about why that person is willing to sell to you?

Back to the point, wouldn't it make more sense to make money on Exxon Mobil stock, take that profit and then go fight the good fight? Invest in a private company that has some exciting alternative energy? What do you really accomplish by refusing to invest in a big oil company or Altria, maker of cigarettes? If you don't want the stock, someone else will. Wouldn't it make more sense to make the money off the sin stocks and then turnaround and do something good with it that truly makes a difference? Some of those sin stocks can make some serious money doing whatever it is that you disagree with and it is unlikely that traders will ever turn down a chance to make a buck in a stock that looks to be going up.

Good intentions, but probably not the best method of execution...

ADP vs BLS Employment Figures

2009-05-06T18:56:00.004-04:00

Earlier this morning, ADP released their monthly National Employment Report. The reported job losses of 491,000 were significantly better than the expected loss of 643,000 jobs.

There is much debate over whether ADP is a good indicator for tracking employment trends. Over time, the average difference between the ADP figures and the monthly numbers from the Bureau of Labor Statistics (BLS) are very small. However, in any given month ADP has been wildly off the BLS figures decreasing the credibility and acceptance of ADP's numbers in the market.

Unfortunately ADP's main goal is to track the BLS data (after plenty of seasonal and annual revisions). When you look at the the data that ADP has access to, the real question is why doesn't ADP just focus on reporting their own monthly data on employment?

ADP has access to 400,000 U.S. business clients employing 24 million people. ADP claims to provide payroll services for 1-in-6 private employees across a broad spectrum of industries and firm sizes.

The BLS figures released monthly by the government have never been the most credible, reliable source of information given the revisions and the difficulty in accurately reflecting such a complex set of data.

ADP should set out to use their unique data to stand out as a reliable source of information reflecting the trends in the private sector. The BLS does a poor job, but it is better than nothing. ADP should let the BLS do what it does and set out with its own proprietary data that increases and enhances our understanding of the underlying trends in the economy.

We don't need a forecast for BLS, most have shown it cannot be done consistently and/or accurately, but we do need credible, timely and reliable information for the state of jobs in our economy.

Ben Bernanke Sees Economy Bottoming

2009-05-05T18:13:00.004-04:00

Federal Reserve Chief Ben Bernanke testified before a Congressional Committee earlier this morning. Bernanke noted that the economy will likely turn up later this year, but unemployment should remain elevated.

We agree that it is important to be realistic about what "recovery" means and that people understand that job recovery will lag economic recovery.

We must take some issue with all the press coverage over Bernanke's call on the end of the recession given that he was unable to publicly declare the country in recession until well after the fact!

However, Bernanke does point out the growth rate of recovery is likely to be below average which will still feel very slowwww. There is always the danger of a double dip where the economy slips into another recession if the recovery runs out of steam.

The biggest issue now is going to be public perception. It is possible that the recovery may not live up to the psychological expectations which could undermine the recovery, the optimism and the always important consumer sentiment.

Buffett Update on CEO Candidates

2009-05-02T13:12:00.003-04:00

Buffett clarified today that all potential CEO candidates for Berkshire Hathaway are currently working inside Berkshire Hathaway as of right now and are ready to step in when the time comes. This clears up some of the rumors that we posted in March regarding the possibility of Byron Trott, who recently started up BDT Capital Partners, as a potential successor.

Buffett Bullish on Banks

2009-05-02T13:05:00.002-04:00

This weekend is all Buffett, all the time, as the Berkshire Hathaway annual shareholder meeting gets underway. Here are some fun quotes from CNBC this morning:

"I would love to buy all of US Bancorp or I would love to buy all of Wells Fargo, if we were allowed to do it."
But, Buffett has no desire to turn Berkshire Hathaway into a bank holding company so he will likely stick with his substantial equity positions.
"If had put all my net worth in one stock, that would be the stock."
-Buffett referring to Wells Fargo which was under $9 at one point, currently WFC trades above $19

Forecaster Predicts Recession Will End This Year

2009-05-01T02:13:00.001-04:00

The managing director of the Economic Cycle Research Institute, Lakshman Achuthan, predicts the economy will bottom out by year end according to CNN. The article claims the group has a near perfect record of predicting, let's hope the streak continues...

The same indicators that are pointing towards the bottom for the economy in the next few months also turned down several months ahead of the official start of the recession in December of 2007. As the article points out, the bottom of the economy does not lead to an instant recovery. It could be a below average recovery which will still feel quite slowwwww. It will take much longer to get GDP back to trend growth.

Their model appears to be pretty extensive but looking at recent data on leading indicators and truck tonnage, it does not bode well for the next quarter or two in terms of the economy.

The article asks the question, "but how do you have a recovery if job losses continue?" Well, seeing as job creation and the unemployment rate are lagging indicators, it would make sense for these items to continue to decline and bottom well after the end of the recession, just as it has in previous recessions.

The end of the recession is the key debate right now especially in terms of the market rally we have experienced which is either a sucker's rally or a future predictor of an improving economy. The bigger debate should be what the recovery looks like, barely positive GDP growth would still have a recessionary feel to it.

There are lots of experts out there so the question is do you believe this guy... or bear market all-star Nouriel Roubini? It's probably safe to say that many will disagree with the bottom call coming in the next few months which makes it an interesting call at a minimum. Hard to see the optmism looking forward unless there is an unknown out there that is going to change the game.

S&P 500 Accelerates in April

2009-04-30T18:13:00.004-04:00

At the beginning of April there was much apprehension after the huge gains that we saw in March after the S&P bottomed early in the month of March. Many were doubting the market's ability to make it through the bulk of earnings season and continue the rally. Well April is over and the results are in from over 60% of the S&P 500... April's gains were even better than March with the S&P up over 9% for the month! As we pointed out at the end of March, April historically has been a bullish month. May on the otherhand.. not so much.

Bloomberg breaks it down but here are the fun facts:

Best month since March 2000 (the same month that the S&P hit it's all time high)
Financials increased 22% for the month
Almost 70% of companies reporting earnings beat expectations, highest level of beats since the end of 2006
Profits have topped analysts' estimates by 13%
According to the Wall Street "experts" tracked by Bloomberg, the S&P will rise another 7.7% to end the year at 940. (The market high intraday for the year was 943 on January 6th)

Not an overly bullish forecast from the 11 Wall Street analysts in the survey but you will likely see the market either up a lot more than 7.7% from here or a lot less than 7.7% cause the "experts" just aren't that good at picking the year end number! It is really a useless exercise at the end of the day.

As we begin May, the new question is should you sell in May and go away? Some seem to be arguing that this May is different. If that is truly the consensus view, then be careful. After the extreme gains in March and the follow through in April it is unlikely you will see those kind of gains continue through the end of May.

Stock Market Celebrates Obama's 100th Day

2009-04-29T18:17:00.003-04:00

The market rally continued to new highs today putting the market's gains at over 32% from the March 6th low through today's intraday high. Stocks opened strong after a dismal GDP release which showed a worse than expected (aka economists were too optimistic) decline of over 6% in the first quarter, similar to the drop in the fourth quarter.

The market reaction was positive because consumer spending was better than expected, government spending wasn't as strong as expected (probably a timing issue) and inventory levels were reduced significantly which is promising looking forward. Stocks finished off their best levels of the day after the Fed release this afternoon.

Speaking of the Fed, remember the last FOMC statement on March 18th? The Fed announced that they would be buying $300 billion worth of longer-term treasuries. That day the 10 year yield dropped from 3% to 2.5% in anticipation of lower rates going forward. As of today the 10 year has regained all that was lost and closed today at 3.10%.

Today's Fed announcement noted that $300 billion in purchases are still on the table and will be put to use by autumn so keep an eye on those rates to see if rates will start to drift back lower. The problem is there has been a real bubble in treasuries due to the extreme flight to quality over the past 6-12 months. As the stock market improves, treasury bonds are sold and treasury yields will rise. If the market's strength continues this will make it increasingly hard to keep rates low.

While many are arguing what Obama did or did not accomplish in his first 100 days, the trader in chief can still claim that he called the market bottom with his comments on March 3rd. The debate for all you political fans out there is whether the rally was because of or in spite of Obama... we're not going there but play nice!!

Lots of technical and sentiment indicators are arguing for a short term pullback right now but on the other hand, there may be too many people waiting which would only extend the action. Looking forward to a legitimate pullback to get a real sense of how strong the rally off the March lows really is...

IBM Raises Dividend, Increases Buyback

2009-04-28T18:19:00.003-04:00

Earlier today IBM increased their dividend 10%, identical to the dividend increase by Procter & Gamble earlier this month. The firm also authorized an additional $3 billion to be utilized in their stock buyback program. IBM now has $6.7 billion available to repurchase shares. AND they might even do some hiring with five new centers opening during the quarter.

Impressive move in this environment with so many firms struggling to increase dividends recently. As we noted previously, buybacks fell off a cliff as market prices continued to decline, now it will be interesting to see how quickly and how much IBM actually puts to work in the coming months buying back stock.

Bottom line - it's not ALL bad news... just the majority.

Mike Huckman Breaks Down The Swine Flu

2009-04-27T18:25:00.003-04:00

On Fast Money today, Mike Huckman gives you all you need to know (from an investing and trading perspective) on the Swine Scare. We are paraphrasing but the gist was that 36,000 die in the U.S. every year due to the typical flu... so far NO ONE in the U.S. has died due to the swine flu, but of course we don't want to minimize the numerous deaths in Mexico. Furthermore, Huckman notes that at this point these are very short term trading opportunities not a reason to own any of the health related stocks over the long term just because of the swine flu.

Definitely something to keep an eye on to make sure it remains mild and contained but keep in mind both negative and positive stock reactions in the short term are probably an overreaction so be smart...

Huckman also mentioned Dendreon which is a shameless attempt by our blog to gain additional web traffic just by the sheer mention of the name of this beloved stock with it's cult like supporters!!

So Much For Earnings Killing The Rally

2009-04-23T18:57:00.003-04:00

As we noted here and here, earnings estimates had become too negative as we kicked off earnings season and were a decent contrarian indicator in the short term. Hopefully the dire headlines of the potential for earnings to disappoint and derail the rally did not scare you out of stocks early. Stocks are actually up about 4% since Alcoa kicked off earnings a few weeks ago.

Bespoke Investment Group has the breakdown so far:

430 US companies and 156 S&P 500 companies have reported results for the first quarter
The number of firms beating expectations has steadily increased to 57% from 50% at the end of last week
Last quarter 55% beat expectations
Of the 156 S&P 500 companies to report, 67% have beat expectations

It's only 30% of the S&P so far, but the point is clear, don't believe everything you read.

Morgan Stanley Reports Results

2009-04-22T18:28:00.003-04:00

As we mentioned first right here, today Morgan Stanley reported results and as expected, they changed their first quarter to Jan/Feb/Mar and allowed December to get lost in the shuffle. Unlike Goldman Sachs, Morgan Stanley was actually fairly transparent... to a point.

Goldman's initial press release was a disappointment because it did not actually state that they had changed their fiscal year which forced them to change the first quarter from Dec/Jan/Feb to Jan/Feb/Mar. Morgan however, had the following right after the first paragraph of the press release:

"The results for the current quarter are compared with the results of the first quarter of the prior year, which have been recasted on a calendar basis due to a change in the Company's fiscal year end from Novmeber 30th to December 31st"

Not only did Goldman fail to disclose openly in their press release that the fiscal year had changed, Goldman also compared the results from first quarter 2009 (Jan/Feb/Mar) to the results from first quarter of 2008 (Dec/Jan/Feb). Hardly apples to apples! Morgan Stanley recast their results from 2008 so they compared first quarter 2009 (Jan/Feb/Mar) to first quarter 2008 (Jan/Feb/Mar). That is exactly what Goldman should have done, but they did not. The question is why did they do that and why does no one care?

To make matters worse Goldman booked huge losses into December which were not included in the results and probably booked huge trading profits during March which was then included in the quarter. If you were skeptical you might think December was the proverbial kitchen sink where any and all losses were declared to boost the actual quarter that was reported.

Morgan Stanley, however was not perfect. Goldman did report results just for the month of December so if you read the entire press release you can see the losses that were generated for the month. Morgan Stanley did not break out the results for December only in the press release. You have to be just a little curious as to how that month looked and if Morgan dumped significant losses into that month since they did not even report it.

CNBC's David Faber makes the case today that despite Morgan Stanley reporting worse than expected losses the news was probably NOT as bad as it seems. Faber said the reason for a lot of the losses were due to credit spreads. Trading, as you would expect, looked pretty good.

The overriding issue is according to Goldman Sachs because they became a bank holding company they were required to change from a fiscal year to a calendar year. Same rules applied for Morgan Stanley. The issue is why were the two firms able to report their quarters in two different formats?! As has been the case with all financials this quarter, things continue to not add up.

Bear Market All-Stars - Who Will Blink First?

2009-04-22T02:13:00.002-04:00

You know their names. Whether you agree or not you stop to listen or read when they make comments. They are omniscient. They broke away from the crowd and made prescient calls at critical times. Several of them were named as contestants in Time Magazine's Most Influential People List for 2009. They are... the all-stars of the bear market, the A list includes:

Nouriel Roubini, professor at New York University's Business School
Meredith Whitney, former banking analyst at Oppenheimer, recently established Meredith Whitney Advisory Group, LLC
Nassim Taleb, author of the Black Swan
Peter Schiff, President EuroPacific Capital

You have to wonder if they are dealing with an inherent problem of stardom. They are too damn popular. People hang on their every word. They have all gained prominence by being early to call out the crisis, but the real question is can the stars of the bear market also call the turn? History suggests this could be a difficult task.

Think of the stars of the last great bull market. Henry Blodget, Abby Joseph Cohen, Ralph Acampora, insert name here... Those stars faded, and you have to wonder if the current stars may lose some of their luster when a recovery emerges. The sad truth is you are only as good as your last call on Wall Street, all that matters is what have you done for me lately?

Maggie Mahar, author of Bull!, detailed the struggle internally for Ralph Acampora when he decided to meet his boss and discuss his concerns during the great bull market of 90's:

"Abby is the queen, and I'm the king. The problem is, at some point, one of us is going to blink. You know this market can't last forever. And I'm enough of a competitive son of a ***** that I want to get out before Goldman. But if I turn negative, people will get very upset."

Nouriel Roubini was out today with fresh comments defiantly labeling the current run in stocks a "suckers rally". Roubini's initial work focused on his area of expertise, economics. Being an expert in economics does not necessarily make you a stock market expert. Roubini may run the risk of being right on the economy but by trying to call the market as well he runs the risk of destroying his own credibility. It is possible for the market and the economy to diverge at times and you have to wonder if his fame is encouraging him to reach just a bit.

At some point, he will need to get positive, start to see the light at the end of the tunnel and he will have to say no that is not an oncoming train. That is a glimmer of hope. So the question is, will he do it? Can he even be expected to do it or will he overstay his welcome in the bear cave?

Earlier today Clusterstock joked that some believe Meredith Whitney deciding to go independent and establish her own research firm was some sort of contrary indicator for the financial sector as a whole. Interesting, yet risky, decision on her part, intriguing debate at a minimum. As we have seen over the past month, financials can turn in a hurry! She runs the risk of now not only losing her personal credibility but also that of her new firm with her name on it if she fails to anticipate the turn.

The last critical point to consider for our bear market experts is the calls that made them famous were ahead of the curve and against the crowd. They stood alone in the minority and they were proved right. At this point, they all remain fairly negative but they now belong to the majority. They are a victim of their own fame and risk being caught up in it. Psychologically they are afraid to leave the comfort of their own notoriety at the risk of being wrong and alienating their followers. When they first made their calls, there was no risk. If they were wrong no one would ever care or call them out. They had the freedom to act and think independently. But now, their reputation is on the line and they have to know deep down inside that all they have gained over the past year can be lost over night when the streak of great calls end.

Everything eventually comes to an end, all stars burn out or fade away, economies recover and new bull markets emerge, led by a new core of overnight geniuses. The only question is who are they and when will they shine?

Dow Stocks Year to Date

2009-04-21T02:13:00.000-04:00

Below is a chart showing all 30 Dow stocks and their performance year to date. As you can see, only 5 stocks are positive for the year, lead by IBM (which reported earnings after the bell Monday). Technology continues to lead the market higher with three of the top 10 Dow stocks coming from that sector.

The financials in the Dow are mixed with Citi and Bank of America at the bottom of the list yet JP Morgan and American Express are in the top tier of Dow performers.

(mis)Leading Indicators

2009-04-20T18:56:00.003-04:00

Today's headline:

"Economic indicators and survey show recession easing"

Not exactly, that is a bit of a stretch. The facts are that leading indicators for the US economy declined again in March and have been negative for the past 9 months. January's results were also revised from positive to negative. Furthermore the 6 month decrease of 2.5% was much worse than the 1.4% decline from the previous 6 month period. Does that sound like a recession that is easing?

It is likely that you may start to see the rate of decline begin to slow but that still does not point towards an actual bottom for the economy. While it is positive that the rate of decline is slowing we will need to see stabilization and a turn towards recovery at some point and that point appears to be several months away at a minimum.

The Positive Side of a Black Swan

2009-04-19T18:28:00.003-04:00

Today many are discussing Nassim Taleb, author of The Black Swan, including Barry Ritholtz over at The Big Picture, and his 10 rules to black swan-proof the world. Mr. Taleb may be reaching here a bit as his article appears to discount his own best-selling work to some degree. While his tips are great, they are unlikely to be put to use and may miss a much bigger theme.

First, a black swan is not limited to negative events such as 9/11. They can be positive events such as the creation of the Internet and the effect that it had on the economy and of course the markets.

The financial crisis we are currently experiencing and the impact it has had on the global markets as well as the economy are truly breathtaking and have helped to make Taleb a star in the world of gloom and doom. But we wonder if Taleb is overstaying his welcome.

What is known is that the economic recovery has a long way to go until we achieve some level of normal and until jobs can finally stabilize and perhaps even start increasing some day. This is known. But as Taleb would be the first to point out, it is the UNKNOWN which will drive the future. It is the unlikely yet high impact events that will dictate the future recovery.

The question Taleb should be focused on is the possibility of a positive black swan somewhere on the horizon. We have just experienced a 50% decline in the S&P. The percentage was not unprecedented but the speed and the breadth were alarming to many. Just like Taleb's example of 9/11 perhaps the odds of further declines and additional doomsday scenarios are now being overestimated while the odds of this reality are significantly lowered after what we have just experienced.

After 9/11, people were afraid to fly, afraid of tall buildings. Extra measures were put in place that made a low probability event even more unlikely, but for the public, the fear that gripped us fooled us into overestimating the probability of such a horrendous event occurring again (knock on wood, nothing of this nature has occurred on U.S. soil since that somber 2001 day).

There is clearly uncertainty over how and when the economy, and especially the financial industry will emerge from the current bleak environment. The point is that the answer could be in the unknown category. There is no need to try and predict what "it" is, that is the point, it is unpredictable. More importantly, you do not need to predict it, but you do need to understand that the probabilities may no longer rest on the negative side. The surprises in the world, whatever they may be, are more likely to rest in the positive side, for that is what is least expected.

The Week Ahead

2009-04-19T14:02:00.003-04:00

As expected, most media outlets are out with articles taking a look at the week ahead, here's the theme:

"Wall Street: Plan for a Storm"

"Flood of Earnings Will Test Market's 6-Week Run"

"Does This Market Rally Have Legs?"

There is a healthy dose of skepticism for this rally which has already been quickly written off by most as a sucker's rally. Problem is the more you hear from the crowd that this is a sucker's rally the less likely it is to be correct. Keep in mind at the top of the market in October of 2007, the crowd was not in unison in sounding the warning bells that the market was a sell so at the bottom it would make sense to see the majority be left standing behind as the suckers once again.

There still remains cause for concern in the short term that argues for a pullback, but those same things were arguing for a pullback for the past week, it is difficult to discard the upward momentum in this market regardless of how you wish to label it.

But one point to consider is this - there is a huge difference between a sucker's rally and a pullback in an uptrend. The market could easily pullback 5-10% and still remain perfectly healthy. The real question is are you buying the dip or are you looking for the market to give back ALL of the gains from this rally and go back to new lows? More importantly, at what point are you wrong? When does a sucker's rally turn you into the sucker left behind? Trade and invest how you please, but have an exit strategy either way so you don't get burned.

Cramer Goes Crazy (again)

2009-04-17T18:42:00.004-04:00

Jim Cramer has had enough with index investors, you know NOTHING!! The video is tame by Cramer's standards, but worth a watch anyways.

There is an inherent problem with index investing, Cramer is correct. Over long periods index investors can really suffer and it is really not the great idea people think when it comes down to execution. The history books are clear that over long periods of time the stock market can generate returns of 8-10% on average per year. The reality is a MUCH different scenario.

When you study historical returns, going year by year, you will see that in the majority of years the market does not go up 8 or 10% in a year. You are more likely to see years with gains of 15-20% balanced with smaller gains of 3-5% or losses of 15-20%. A long term average of 8-10% significantly understates the actual volatility experienced in the market and can be deceiving for individual investors.

There is a place for cash in a portfolio, there is a time for cash and bonds. There is a time to sell, instead of just blindly buying and holding. Warren Buffett is the most famous proponent of buy and hold but he is only willing to buy at prices that offer exceptional long term value. He does sell stocks, he has tons of cash and the patience to watch it sit there.

In response to Cramer's rant, which Cramer did not wait around to listen to, the guest makes the case that it is bigger than investing in the S&P, it is asset allocation including bonds and international diversification. Diversification does not save you when a crisis hits. Last year the correlation for pretty much every asset class went to one and EVERYTHING went down in unison, even most classes of bonds were hurt (except treasuries!).

If anything good can come out of the current crisis it is revisiting the old rules and questioning the experts and the advisors. There was a lot of hoopla over CNBC's 20th anniversary today. The best answer to what has changed in the past 20 years came from Barton Biggs on Fast Money today. We're paraphrasing but Mr. Biggs was amazed at how much has NOT changed in 20 years. Same game different day, to be a successful investor you have to understand the history of the market.

The Great Recession

2009-04-17T02:13:00.000-04:00

While others debate whether or not we are experiencing a depression, TIME has an interesting article to gauge the nation's sentiment and the subtle changes taking place in consumer psychology.

Here are some of the interesting numbers:

*Most people think the pain will be lasting and the effects permanent yet only 14% believe this is the beginning of a long-term decline

Before the Great Depression the Roaring 20's had generated optimism for future prosperity and the 90's were characterized by irrational exuberance. The pure joy and excitement of these times were not as lasting nor as permanent when reality was revealed - why should this experience end any differently?

*Nearly half say their economic status declined this year

Does that imply that just over half would characterize their economic status as either the same as last year or actually improved since last year? This calls into question a quote in the article which states that "Unlike any other downturn since the 1930s, this one has affected everyone, either the fact of it or the fear of it."

The problem with polling is that many consumers have a tendency to say the economy is horrible but they are doing fine personally. Along the same lines as the majority of people believing they are above average drivers, the numbers just don't work.

*57% think the American Dream is harder to achieve

Depending on how one defines the American Dream, there are still opportunities to work hard and make your own way in the greatest country in the world. In fact, due to the difficult job market, many may be forced to find their entrepreneurial spirit in order to succeed. Some of the next generation of breakthrough ideas and future blue chip companies may be born during America's darkest hour.

*61% expect to spend less than they did before

Consumers are well known for their propensity to vote one way, but spend another. Scared consumers do not spend. As consumer confidence improves we may find that some of the 60% in this category actually end up spending like the other 40% in the group. The consumer dictates the strength of this economy, as the jobs recover, wages increase, confidence returns and spending can start anew.

*31% of people earning less than $50k (roughly half of US households are in this salary range) per year have been out of work at some point

If roughly 30% of 50% of US households say they have been out of work that implies that perhaps 15% of the total population has been out of work at some point. This is almost twice the current unemployment rate which shows the failures of our current measures of unemployment in this country. There is also the issue of the underemployed, the part time workers and the discouraged unemployed who no longer are counted in the unemployed numbers.

*20% of people say they are depressed

According to depression.com 16% of Americans will experience this condition during their life so this survey would imply that depression levels are not extremely elevated at this point.

*27% have raided retirement or college savings to pay bills

This trend does not bode well for the long term future but to the detriment of the broader economy, the savings rate has finally picked up from essentially zero.

It would be interesting to see surveys and consumer confidence numbers from the Great Depression because all of the data points we currently collect are beyond anything recorded in modern history. There are lots of facts and figures out there, the interpretation is key, although the sun is not yet shining, it may not be quite as dark as the media portrays. One downside to this tough environment is that 43% are now watching the news more which for better or worse is increasing awareness.

What we are currently experiencing is the epitome of black swan theory. Some argue what it will take to break us out of the slump. Perhaps an unknown, yet high impact event lies in the days ahead. There is comfort in low probabilities because if we have learned one thing, it is that anything is possible.

Tracking Market Volatility

2009-04-16T20:24:00.000-04:00

CNBC takes a look at the VIX, also known as the volatility index, a gauge of fear and risk in the stock market. They point out that since the stock market bottomed on March 6th and rallied through today, the VIX has now dropped over 30% while the S&P 500 has rallied about 30%.

It was interesting that the article noted that "some analysts view the drop as indicative of a more positive mood in the market..." NOT EXACTLY.

Between November 21st and January 6th, the S&P 500 rallied about 27% in a classic bear market rally. During that same period the VIX went from a high of 80.74 down to a low of 37.34, a stunning drop of over 50%! But was that a sign that the worst was over? NOPE. The market fell almost 30% during the next two months and the VIX bounced almost 40% of its low.

The VIX is not necessarily a future indicator, it merely acts in an inverse fashion to the S&P which is the index it is based on. However, the action in the VIX during this market rally, which many are quick to write off as just another bear market rally, has been interesting but for a different reason.

The real question is why the VIX has not fallen more given the extreme nature of the rally. We would argue that the VIX is signaling that there is still some fear and a reluctance to believe in the rally. If that is the correct view, that is a great sign for the markets going forward.

If the crowd truly believes that this is a suckers rally, the VIX should stay slightly elevated as traders continue to hedge and protect their investments. That shows that we are not at a point of excess optimism (although one sentiment indicator argues differently). Only in the last day or two has the VIX started to breakdown a little bit which again is a positive for the markets.

In the short term the S&P is approaching resistance and although volume was solid today, this rally is starting to look a little overbought for the moment. Once we get options expiration out of the way tomorrow it will be interesting to see how the market reacts next week. When the pullback comes it will be interesting to see whether the VIX is quick to jump back up for fear that this rally will end like the rest. It will be a good tell for the real strength behind this unstoppable market momentum.

Morgan Stanley Will Also Make December Disappear

2009-04-16T18:20:00.003-04:00

Like their brothers over at Goldman Sachs, Morgan Stanley will make the month of December disappear when they report quarterly earnings next Wednesday, April 22. Like Goldman, Morgan Stanley had a fiscal year that ended in November. Apparently due to both becoming bank holding companies they are required to adopt a calendar fiscal year (can anyone source that as true?!). Here is the lowdown from Morgan's press release back in December:

"On December 16, 2008, the Board of Directors of Morgan Stanley approved a change in the Firm's fiscal year end from November 30 to December 31 of each year. This change to a calendar year reporting cycle will begin January 1, 2009. As a result of the change, the Company will have a December 2008 fiscal month transition period, the results of which are expected to be separately reported in the Company's Quarterly Report on Form 10-Q for the new calendar first quarter ending March 31, 2009 and in the Company's Annual Report on Form 10-K for calendar year 2009."

So expect to see a lot of losses get placed in December and perhaps a decent quarter consisting of January, February and March. It will be interesting to see if Morgan follows Goldman and does not actually mention in the press release that the fiscal year is changed so year over year comparisons may be inaccurate and useless. Nothing to see here folks, move right along...

Sector Analysis - CONSUMER DISCRETIONARY

2009-04-15T02:13:00.004-04:00

Unlike energy shares, consumer discretionary stocks have tended to lag the broader market over the past two decades.

After topping out at over 16% of the S&P back in 1993 the consumer discretionary sector represented as little as 8% of the S&P at one point during a tumultuous 2008. As of March 31, 2009 the outperformance of discretionary stocks boosted the group to closer to 9% of the S&P.

Despite the recent outperformance starting with 2008, the consumer discretionary sector represents a significantly lower percentage of the S&P than the 20-year average of over 12%. Something to take into consideration at a minimum...

Bove Bullish On Banks

2009-04-14T22:10:00.000-04:00

Dick Bove, Rochdale Securities, remains bullish on banks with buy ratings for JP Morgan (JPM), Goldman Sachs (GS) and Wells Fargo (WFC).

So the question is do you want to trust Bove, Mike Mayo or the current financial queen, Meredith Whitney? Mayo and Whitney remain bearish on the banks. Banks have had an amazing run since March 6th, see earlier post.

Of course this is not the first time Bove has been bullish on banks... only time will tell...

Procter & Gamble Increases Dividend

2009-04-14T21:03:00.001-04:00

P&G raised their dividend 10% after the close today. The recession was not enough to stop P&G from raising its dividend for the 52nd consecutive year.

Impressive! More on dividends here.

The Goldman Goose

2009-04-14T17:52:00.003-04:00

At first blush Goldman Sachs (GS) reported impressive first quarter results. After reviewing the results, several writers noted some pretty interesting Goldman gimmicks.

Goldman's fiscal year ended November 28, 2008. Their first quarter covered the period December 27, 2008 through March 27, 2009. Uhm... WHERE IS DECEMBER?!

It appears that yesterday's press release failed to mention that Goldman changed their fiscal year to now end in December. However, the change was reported in their annual report released earlier this year:

"On December 15, 2008, our Board of Directors approved a change in our fiscal year-end from the last Friday of November to the last Friday of December. The change is effective for our 2009 fiscal year. Our 2009 fiscal year began December 27, 2008 and will end December 25, 2009, resulting in a one-month trasition period that began November 29, 2008 and ended December 26, 2008. Information on this one-month trasition period will be included in our Quarterly Report on Form 10-Q for the three months ended March 27, 2009."

In yesterday's press release they did report numbers for December only - a loss of $2.15 per share just for the month! This was also the month when the majority of the AIG payments would have taken place, so they were not even in the headline results reported for the quarter last night.

This small change makes all the comparisons between first quarter 2009 and first quarter 2008 (unrevised at December 2007 - February 2008) in the press release completely useless. Not only did Goldman drop a pretty rough month from the reported results, they were also able to include the results from the month of March which likely benefited substantially on the trading side given the market rally.

It is amazing that Goldman could decide on December 15th, halfway through a month they clearly knew was going to be difficult, that they would change their fiscal year to avoid reporting results for this month as part of their quarterly release.

The real question is where is mainstream media on this issue? No public outrage?? Anyone...? Bueller??

Sector Analysis - ENERGY

2009-04-14T08:24:00.001-04:00

Energy stocks have been the market darlings of the past few years as financials have become the black sheep of the investing world. Between 2000 and 2007, energy outperformed the S&P each year EXCEPT one (2003). Between 2004 and 2007, energy was the single best sector in three of those four years.

Although there is clearly a thesis to be made for rising oil prices on the backs of a future economic recovery and energy stocks are likely to play a clear role in the global demand that will one day return, it is going to be increasingly difficult to follow up that kind of outperformance. This doesn't mean energy stocks have to go down, it just means there is potential for returns from the energy sector to be less than what the market will return in the coming years.

Like the financials, energy is now reaching peak levels as a percentage of the S&P. As of January 30th, the energy sector represented over 14% of the S&P versus an average since 1990 closer to 9%. As of March, energy stocks have already drifted to 13% of the S&P.

As you will see from the chart below depicting energy as a percentage of the S&P since 1990, 1999 was the opportunity to buy energy stocks at only 5.60% of the S&P. That was the chance to pick up energy shares and enjoy years of outperformance relative to the market. Now we find energy at the opposite end of the spectrum near its highs as a percentage of the S&P.

Sure, it could always go to 15% or 16%, etc, but at a minimum the risk/reward for the energy sector as a whole is clearly tilted towards risk at this stage of the game.

Sector Analysis - FINANCIALS

2009-04-14T02:13:00.002-04:00

Today we are taking a look at the beleaguered financial sector. Over the past 2 1/2 years investors have been shocked at the underperformance across the board in the sector. Investors have asked why no one saw this coming?

Although you may not have been able to predict subprime, credit default swaps, bank failures or bailouts, there were warnings present as early as 2006 that made it increasingly unlikely for financials to outperform over the next few years.

At the conclusion of 2006, stocks in the financial sector represented over 22% of the S&P 500 Index. As depicted in the chart below, this was extremely above average, as the financial sector has averaged closer to 15% of the S&P over the past couple of decades. As the sector increased relative to the S&P 500 that means that financials were outperforming the broader market, their market caps were increasing, and they were stealing share of the S&P 500 from other sectors that weren't performing as well.

Today the financials represent less than 10% of the S&P 500 Index after significantly outperforming in 2007, 2008 and so far in 2009 (despite having a great March!). Back in 1990 the financial sector represented as little as 7.5%. During the 12 year period starting in 1995 and ending in 2006, the financials outperformed the S&P during 9 of those years! The financials are currently in their 3rd year of underperformance as THE worst sector.

If financials continue to decline as a percentage of the S&P and end 2009 as an underperformer for the third year in a row, there may be in opportunity for outperformance in the financials come 2010...

We will have more sector analysis later today with the trends currently developing.

source: Standard & Poor's

Earnings Estimates Continue To Decline

2009-04-13T23:06:00.002-04:00

Another report out today shows that earnings estimates for the first quarter continue to be revised sharply lower which from a contrarian point of view is encouraging at a minimum. Analysts have been far too optimistic for earnings ahead of and during the downturn and by the time earnings bottom out they will likely be way too pessimistic.

Year over year, earnings for the first quarter of 2009 are expected to fall almost 38% overall versus the results reported in the first quarter of 2008. When 2009 began, analysts were only expecting the decline to be around 12.5%, so it will be interesting to see whether analysts overshot to the downside or are still too rosey.

According to Thomson Reuters, this will be the first time in recorded history (since 1998) that all 10 sectors will report a year over year decline. Consumer discretionary is forecasted to be the worst of the sectors while healthcare is predicted to show the smallest decline.

Johnson & Johnson, Intel and the earnings call for Goldman Sachs (results released today) will kick us off tomorrow as earnings season finally gets into full swing!

Abby Joseph Cohen - Still A Headliner

2009-04-13T18:41:00.003-04:00

Abby Joseph Cohen, senior investment strategist with Goldman Sachs, was on CNBC this morning and the story has been on the list of top headlines over at CNBC for the entire day:

"Worst May Be Over For Stocks And US Economy, Cohen Says"

The obvious question is WHY is this a big story? Cohen says in the interview that Goldman (not her) is calling for S&P 900 by year end, less than 5% away from today's closing price. That is all fine and dandy, the real question is what is all the hoopla over Cohen's calls?!

Cohen gained prominence in the 90's bull market but turned into a permabull even as the market began to fall apart. During the 90's, Mario Bartiromo called Cohen "the queen of the bull market." Taking a look at some of Cohen's more recent CNBC appearances:

July 14, 2008 - Fair value of the S&P is 1400 based on a 6 - 12 month view. (The S&P never got above 1315 before essentially being cut in half over the next 8 months)
May 21, 2008 - "...but as we move out in the next few months, fair value is probably closer to 1500 on the S&P." (The S&P STILL has not seen 1500)
March 17, 2008 - Cohen was replaced in her role of making S&P forecasts, her prediction for year end S&P had been the highest among 14 different forecasts
December 4, 2007 - Economy will rebound in mid-2008, S&P will hit 1675 by the end of 2008 (The economy STILL has not rebounded and the S&P STILL has not seen 1675)

Her fifteen minutes of fame ended like ten frickin years ago, let it go... move on.

Goldman Sachs Reports Earnings Early

2009-04-13T17:59:00.002-04:00

Goldman Sachs was expected to release earnings tomorrow morning before the open but decided to release after the bell today and will follow up with a conference call tomorrow morning.

Goldman Sachs (GS) reported net revenues of $9.43 billion and earnings of $1.81 billion for the first quarter, beating market expectations. Trading and Principal Investments were strong, up almost 40% from the first quarter of 2008. Trading and Principal Investments had significant losses just last quarter.

Compensation and benefits were 18% higher than the first quarter of 2008 which was attributed to their higher revenues. The report also states that employment levels decreased about 7% in the first quarter of 2009.

In a separate announcement, Goldman confirmed rumors of a $5 billion public offering which will be used (in addition to their current capital) to pay back the $10 billion in TARP funds (if the government will allow it). The bigger question is why issue more shares and dilute current shareholders when you are sitting on over $100 billion in cash in the bank? Perhaps that will come up on the call tomorrow...

Is This Another Bear Market Rally? Does It Matter?

2009-04-13T06:16:00.001-04:00

There is increasing debate over whether the recent rally off the March 6th lows is indeed the start of a new trend or another bear market rally to sucker hopeful investors. To some degree it doesn't matter, if you benefited from the 28% in the past few weeks, take some profits regardless of what you want to call this. When you report your gain/loss to the IRS at the end of the year you don't have to indicate whether it was a bear market rally or not, nobody cares, all that matters is the performance.

If you are buying into this rally NOW, you might want to step back and say hey, it is okay to miss the bottom, let's see what kind of pullback we get and if the sellers come out in force or not. You don't get an award for catching the exact bottom, but you can lose significant sums of money when you try to guess the bottom and guess wrong like so many have over the past few months.

The rally since the bottom on March 6th through April 9th shares many similarities with the bear market rally off the November 21 lows. So far, the increase is similar, number of days is similar, breadth is similar. The main difference is higher volume (so far) on this rally and the VIX has not broken down like it did during the November rally. The VIX seems to be implying there is still some fear in the system, no one appears to be getting complacent which is another positive divergence.

While the current debate is centered on this rally being another bear market rally there are two major issues to consider. First, it should give you pause how many people have written this off as a bear market rally already. Only time will tell. After being burned once in October and again in November, there is reluctance to grab the bull by the horns because we are in a downtrend... until we're not. Second, while everyone is focused on THIS rally, it might be beneficial to take a step back and review the bear market decline that took place from January 6th through the March 6th bottom - forget the rally.

Let's take another look at the decline from January 6th's short term top to the bottom in early trading on March 6th to see what it can tell us about the current rally. The most glaring data point was the new lows which were 797 on March 6th. Contrast that with 1,120 lows for the 11/21 low and a mind boggling 2,477 lows on October 10th. Everyone wants to see capitulation and panic, if the selling on October 10th doesn't meet those qualifications...

On October 10th you had essentially 75% of stocks hit a new annual low with a significantly lower number of new lows on March 6th. This tells you that although the S&P hit a new low on March 6th, most stocks did NOT. This is where it is important to remember that there is no "stock market" but a market of stocks.

Many stocks had bottomed either in the October sell off or during the November decline. This is reminiscent of the top in October 2007 when the S&P hit an all time high while most stocks did NOT because many had topped out earlier and a narrow portion of the market was driving the headline numbers higher.

This activity is similar to the bottom put in by the S&P back in October of 2002. New lows actually peaked in July of 2007 and many stocks bottomed that summer. The S&P came back to retest and slightly break through to new lows in October of 2002 before igniting a cyclical bull market in a secular bear market. The staples, healthcare and energy sectors ended up bottoming in July while the rest of the sectors bottomed out in October and then it was off to the races.

It is too early to correctly label the current rally even though there is an urge to do so. Many will try, many will fail, some will get it right. Whichever call the "experts" are making, go back and see if they have already tried that call once before. There will only be one true bottom, that you can be sure of, but stop focusing on catching it and focus on being on the right side of trend whichever direction it emerges.

Sector Performance From the March Bottom

2009-04-13T02:13:00.000-04:00

Here is a chart showing how the various sectors have performed versus the S&P 500 since their intraday lows hit on March 6th. Financials are the clear winner of this rally followed by industrials and materials. The top sectors in 2008, staples and healthcare, have lagged the market during the rally as you would expect. Four of the nine sectors are currently outperforming the S&P since the lows, financials, industrials, materials and tech which is the best sector year to date.

Year to Date Sector Performance

2009-04-12T20:36:00.004-04:00

As of April 9th, technology stocks continue to be the market leader year to date. Despite the furious melt up in financials during the past month, the beleaguered sector remains the worst year to date followed by the industrials.

As you will see in the chart below:

Technology, Materials and Discretionary are the only positive sectors year to date

Technology, Materials, Discretionary and Energy are outperforming the S&P 500

Source: www.sectorspdr.com

Same Headline, Different Source

2009-04-12T18:02:00.003-04:00

The consensus continues to build:

"Wall Street: Bracing For Profit Shock"

See previous post here.

Other notable reports coming up this week:

Goldman Sachs (GS) Tuesday morning
JP Morgan (JPM) Thursday morning
Google (GOOG) Thursday afternoon

Painful Lessons for 529 Investors

2009-04-12T15:24:00.002-04:00

Another victim of the current crisis are the many parents and grandparents that took advantage of 529 Plans as a means to save for college costs since their inception in 1996 according to CNBC. 529 Plans are quite restrictive in terms of changing investments throughout the year making it difficult to reallocate your funds based on the market's volatility which has kept far too many plans stuck in equity investments hurting performance. On top of a weak stock market, the cost of education continues to rise at an alarming rate.

Like the boomers who kept their retirement funds too heavily invested in stocks even though they really could not afford the potential downside risk, most 529 plans are over invested in equities. As your child gets within 3-5 years of college, it is time to start taking some gains and getting more conservative with more bond investments and less in stocks so you can be sure the money will be there when Junior's first tuition bill comes due.

There are numerous calculators which can estimate how much you need to be saving per month based on the elevated inflation in college costs versus your child's current age. For most it may be difficult to fund enough into a 529 Plan to meet the goal so be prepared for financial aid and other savings when the time comes as mentioned in the article.

One final point, as important as a good education is, keep in mind that several of America's richest people did not go to college! Just kidding, the real final point is that the first focus of your long term savings needs to be retirement THEN college for little Jimmy and Susie. The reason? You cannot apply for financial aid when retirement age comes and you are ready to call it a day.

Will Earnings Kill The Market Rally?

2009-04-12T12:13:00.000-04:00

Another article out this morning on the potential for the market to have a difficult time digesting earnings season. As previously mentioned, this theme appears to be turning into the consensus which is always dangerous. Analysts are humans too, and are likely at some point to become too negative in their estimates just as they were too optimistic at the top. If those estimates are beat and guidance for the future is NOT worse than previously expected, individual stocks can march higher. Of course things are bad, everyone knows that. The issue is not how bad things are it is really only the difference between estimated results and actual results that will move the market.

The article makes the case that earnings derailed the November 21st - January 6th rally. We would actually disagree. The volume had dried up and various technical indicators seemed to show that the market was tired and had simply run out of gas. Earnings were a convenient excuse to send markets lower.

One concern is that some technical indicators are currently arguing for a pullback and once again, earnings could provide the fuel. Historically stocks have had a difficult time going up during earnings season so this earnings season will be a great test for the strength of this rally.

A pullback is healthy and could set the market up for more gains ahead. But, after the January 6th top, it was not a healthy pullback, it turned into a full on cascade of selling culminating in the March 6th bottom at the ominous S&P level of 666.

Some major firms reporting this week:

Johnson & Johnson (JNJ) Tuesday morning
Intel (INTC) Tuesday afternoon
General Electric (GE) Friday morning
Citigroup (C) Friday Morning

President Obama: Trader In Chief

2009-04-12T09:29:00.001-04:00

President Obama's call on March 3rd that stocks represented a "good deal" for those with a long term horizon continues to kill it in the short term, faring much better than Warren Buffett's article to the world making the case to buy U.S. stocks back in October. President Bush had a pretty good track record as an oil trader, buying the momentum and adding inventory to our reserves as oil made the trip to record highs during his second term.

Previous update - click here.

Updated chart as of Friday, April 10th:

Estee Lauder

2009-04-12T02:13:00.000-04:00

During the 1st quarter of 2009, Capital World Investors (aka American Funds, one of the largest and most respected mutual fund families) dramatically increased their stake in Estee Lauder (EL) according to recent SEC filings.

As of December 31, 2008, Capital World Investors reported a stake in Estee Lauder of 3.16%. As of March 31, 2009, the stake has now increased to 10.4%! Apparently they must have seen something they liked...

2.10% Dividend Yield
Strong Cash Flow from Operations
12x PE Ratio

In other news, their CEO is retiring July 1 and UBS downgraded the stock favoring Avon Products (AVP) as a trade down play given the economic environment.

Hey - we report, you decide...

New Investing Rules

2009-04-11T18:29:00.003-04:00

An article in the Washington Post makes the case for a new list of good investing rules for whenever the post crisis period begins. Perhaps the real answer is the old rules apply but not in the simple form most people have utilized them.

The second major point is perceiving the current environment as a once in a lifetime event. From the highs in October of 2007 to the lows in March of 2009, the market declined just over 50%. That is the biggest decline since.... well... March 2000 to October 2002. Probably not as far back in history as you thought. We also had a 50% decline in the 70's. Point is, these declines are actually normal. What wasn't normal was the above average gains achieved, especially in the late 90's. The gains in housing just a few short years ago were significantly above any historical precedent.

Buy and hold still works but not if you buy and forget. Warren Buffett encourages buy and hold but he is very particular about what to buy and meticulous about the PRICE to pay for that item. He could go years without a purchase, he sits back and waits for his pitch, that is his gift.

Warren Buffett would be the first to tell you that he wishes he had sold at some of the insane valuations experienced in the 90's. Buy and hold doesn't tell you when to sell, but you can't spend an unrealized gain so at some point selling has to be a part of the equation before you can declare victory.

Risk Tolerance - most people do underestimate their risk tolerance and it is times like these when they realize that (and of course it is too late by the time they realize it). When the market is going up compare your gains to that of the S&P. If you are earning significantly more than the market average, you may be assuming more risk than the market. Even if you seek to achieve the same returns as the market in a given year you have to understand the history of the market which as mentioned above includes some very steep declines.

You will generally hear statistics that say the market has averaged 8-10% per year over long term periods. But what this stat doesn't tell you is that it is actually very unlikely for the market to return 8-10% in a given year. You are more likely to have 15-20% gains balanced with years of declines of 10% or more. Sure the long term average smoothes out to a nice 8-10% but the short term volatility can make a huge impact on your perception of risk tolerance.

Market Timing - people like to lead you to believe that not only is it impossible to time the market, it also carries with it a certain negative conotation for those that attempt to game the market. Market timing is not about being perfect. You do not need to catch the exact top or the exact bottom to be successful, it's okay to be early. If you had sold off your stocks at any point in 2006 0r 2007 you would have the opportunity to get in now. Whether we have hit a bottom or not, there is less risk when the market has just declined 50% then after a huge run up.

Dollar Cost Averaging - brokers will usually prefer the invest it all at once strategy because unless it is a fee based account, there is no commission until the funds are invested. It is still a good strategy to work the money in but it doesn't necessarily have to be so systematic. You can set up a system that allocates a monthly investment but keep some behind separately to take advantage of an above average sell off.

Most importantly, do your homework, look at the historical results of the markets. Most investors look at the opportunity and try to figure out how much they can make. The more important question is how much are you willing to lose, how much volality can you handle? You don't need a plan for if you make more then you thought, but you do need to focus on the downside and the worst case scenario. A best case scenario will take care of itself.

Technical Indicator Goes Bearish

2009-04-11T02:13:00.002-04:00

In addition to the current overbought condition in the market, potential chart resistance and a 28% rally in a little over a month the bulls may have gotten a little ahead of themselves in the short term with their exuberance for the rally.

Bloomberg has the lowdown on an important sentiment indicator, the difference between bullish and bearish investors as measured by the American Association of Invidual Investors. Let's compare the extremes in this indicator with the recent short term tops and bottoms in the market.

Below is the Bloomberg chart of the difference in bulls and bears in the AAII survey. The green arrows represent lows or buying opportunities in the short term while the red arrows represent market highs and profit taking opportunities.

1st Bank Failure (this month)

2009-04-10T19:36:00.004-04:00

That makes 22 bank failures year to date. Still a relatively small piece of the pie, the 21st victim went under at the end of March.

10:40 PM Update: Add one more bank to the list for the 23rd failure of the year, closing in on last year's total of 25 and we're only in April.

Bear Market Rally Thesis Gains Popularity

2009-04-10T12:52:00.003-04:00

As the market began to rally off the March 6th lows it became clear many pundits would jump on the bandwagon and declare the worst over for the market. Now that the rally momentum has continued to take the market higher, the best rally of this bear market is being written off by the mainstream as just another bear market rally.

LA Times
NY Times

Nouriel Roubini, Dr. Doom!
George Soros

Smart guys for sure but with mainstream media jumping on the negative thesis it may be more prudent to try to be positive here and go against the conventional thinking. There are clearly a plethora of market and economic issues to deal with going forward but to what degree have those items already been discounted?

You can make the case that the market is currently in overbought territory and will have to challenge some resistance levels in the week ahead. The first meaningful pullback will give us a taste of whether the "buy the dip" crowd is alive and well. It will be interesting to see how quickly the fear comes back and how muchof the gains we retrace.

Bottom line: It is becoming too cool to be gloom and doom which makes it easy to make grand calls. Makes you think...

The House of Mouse Throws Out Pink Slips

2009-04-10T10:42:00.004-04:00

Say it ain't so! CNN reports that Disney continues to cut jobs at their theme parks, cutting 1,900 since February. Forbes makes the case to pick up some Disney shares for the kids.

Sorry Mickey, but due to the economy, we're going to have to let you go.

Goldman Sachs May Sell Stock To Repay TARP

2009-04-10T10:25:00.003-04:00

CNNMoney/Wall St Journal are reporting early this morning that Goldman Sachs (GS) may finally be getting around to the much rumored stock offering which would provide them additional capital to pay back TARP.

An announcement could be out as early as next week according to their sources. The company will report earnings for the first quarter on Tuesday morning and this issue is likely to come up on the conference call.

The question is at what point will the government allow the major banks to start repaying TARP since there is a concern about highlighting the strong and weak banks since not all are in a position to repay? Several smaller institutions have already paid back their TARP funds.

With the stress tests out of the way, Goldman is finally free to start utilizing some of their capital to pay back TARP. After they payback TARP, assuming they are one of the first to do so, Goldman can get back to increasing executive comp and start stealing some high quality talent from other firms that have to restrict bonuses as long as they are burdened by TARP.

Shhh! Don't Mention The Stress Test

2009-04-09T22:42:00.003-04:00

The Treasury has encouraged the banks not to mention the elephant in the room (the stress tests) during their first quarter earnings announcements which are due before the stress test results are out later this month. Not sure what the big deal is seeing as it is pretty clear ALL of the major institutions are going to pass! What is the point of giving a test that ensures everyone passes easily, where is the rigor in that?

The truth is the real life stress test was the market environment in October and November of 2008. The results were clear, the banking industry failed. Miserably. Without government intervention, well who knows, but the banks lacked the liquidity and the solvency to continue as a going concern under their current structure.

It would seem to be clear what went wrong and what needs to be adjusted going forward to weather storms of this nature in the future. The good news about the extreme nature of the past year is that it sets a new level for worst case scenarios. Hopefully that will be reflected in capital and reserve ratios and debt limits going forward otherwise...

The stress test was likely for the benefit of the public to perceive something being done as well as buying the administration time to develop a plan. In that respect the stress test probably was beneficial. It took time to get into this crisis and will take time to dig our way out.

Bulls on Parade!

2009-04-09T19:17:00.005-04:00

It's official, best rally of the bear market that started in October 2007. From the low on March 6th through today's intraday high, the S&P has rocketed 28.51%, beating out the rally of 27.37% from the November 21st low.

The rally off the November lows lasted 46 calendar days while the March rally is only on day 34, still ranking this rally as the third longest of this bear market.

Biggest difference between the November low and the March Low has been the volume. The current rally has seen average volume on the NYSE of 1.715 billion versus only 1.39 billion for the rally from November until early January. Volume killed the November rally but has not faded yet even on a holiday shortened week!

S&P is still down almost 6% year to date, Nasdaq is positive as technology and telecom stocks have been the market leaders year to date. Financials have been the best performing stocks since the March 6th bottom.

The real test will be how much of the gains are given up on the first legitimate pullback and whether volatility continues to breakdown...

Prostitutes Try To Prop Up Limp Economy

2009-04-08T19:21:00.003-04:00

Desperate times...

A group of Nevada prostitutes pleaded with lawmakers to impose a $5 tax on sex acts that are performed at legal brothels. Lawmakers in Nevada are desperate like the rest of the country but not THAT desperate and did not jump on this proposal. This badboy could add $2 million to the state budget! We don't know what else to say...

FDIC Chair Sheila Bair is Wonder Woman

2009-04-08T19:12:00.002-04:00

Sheila Bair is one of the most powerful (and influential) women in the world as head of the FDIC. It turns out she is also a writer of children's books about saving and investing in her spare time. First question is how the heck does she find the time during the greatest banking crisis since the Depression?! But we digress... Interesting article.

Warren Buffett's Berkshire Hathaway Loses AAA Credit Rating From Moody's

2009-04-08T18:44:00.004-04:00

After the bell, Moody's cut Berkshire Hathaway (BRK) to Aa2, down from Aaa. Interesting that Berkshire just happens to be the biggest shareholder in Moody's (MCO). Moody's explanation for the downgrade centered around the declines in the stock market and the effect it would have on one of Berkshire's reinsurance subsidiaries. Hmm.. declines in the stock market such as the massive declines in Moody's?! Could be some conflicts... There are also lingering fears regarding Buffett's age and succession planning, more here from us.

The AAA top rating is becoming a very elite group and soon may be extinct... Current AAA stocks as far as we know:

Microsoft (newest member, only since 2008)
Exxon Mobil
Johnson & Johnson
Pfizer (on negative credit watch)
ADP

Cramer Continues Outrage Over Proshares Products

2009-04-07T23:16:00.005-04:00

Jim Cramer continued his almost daily outrage over Proshares Ultra ETFs, especially the Ultrashort Financials (SKF) calling it "an ETF of mass destruction." Cramer believes the SKF is a tool for day traders and market manipulators, wait a second, Cramer is against day trading and market manipulation after making his money as a hedge fund manager?! If the SKF was around in his day he would have used it, and he would have made some mad money.

Cramer says that "there's something fundamentally wrong with aggressively shorting a passive basket of stocks" but when the market believes there are clearly FUNDAMENTAL weaknesses across the entire financial sector it would make sense to short the whole frickin sector! Cramer would be the first to tell you that half of a stock's move is usually determined by the sector. But in this instance Cramer believes you should seek out weak individual financials and short them which goes against his usual theme on the show which is avoid shorting/margin.

Cramer can point you to plenty of research that shows the SKF is ineffective over longer term horizons but if an investor bothered to visit http://www.proshares.com/ they would see pretty clearly in bold that they are designed to track their index for a single day. There has to be some individual responsibility on the part of investors to look at what they are investing in. This doesn't require reading a 100 page prospectus to realize that these are short term instruments.

The problem with Proshares is that the ETFs do exactly what they SAY they do but not what people EXPECT them to do. On average, the SKF is trading 25-30 MILLION shares per day so there is clearly a market for this product and plenty of people are using it for its intended purpose. The SKF was a great tool to make money with during a difficult 2008 and that should not be minimized.

Cramer has jumped on an easy target to show his rage in all of its glory but he could probably utilize his influence over investors on much bigger, more important issues.

Record Number Of Dividend Cuts But Is It REALLY That Bad?

2009-04-07T19:11:00.004-04:00

S&P reported today that for the first time in their tracking history (since 1955) dividend decreases outpaced dividend increases.

7,000 firms report dividend information to S&P according to the article, here are the interesting facts:

367 Reduced dividends in the first quarter... 367/7,000 = 5%
283 Increased dividends in the first quarter ... 283/7,000 = 4%

While we agree that year over year the huge increase in dividend reductions and the huge decrease in dividend increases is alarming, it still represents a very small percentage of the total which seems to imply most stocks did NOT reduce their dividend according to this data. That's actually good news.. wow.. sure would have been nice to provide a list of the 283 firms increasing dividends recently.

See more on dividend increases here.

Barton Biggs Calls For Another Big Rally

2009-04-07T18:30:00.003-04:00

Earlier today on CNBC, Barton Biggs, managing partner at Traxis Partners, called for a 1938 style bear market rally. Only time will tell, the only issue is the last time he made a call like this he missed the mark.

November 24th, Mr. Biggs made the case in the Financial Times that factors were in place that could lead to a huge rally. From November 24th until the early January highs for the S&P the market was only up 12%, not exactly what Mr. Biggs had in mind most likely. Biggs call came just one day after the S&P had rallied over 100 points from the intraday lows.

He was late to the party on his last call and now he is out again making news AFTER we have already rallied over 20% from the lows, best of luck to Mr. Biggs.

Jim Cramer Calls Out Mike Mayo

2009-04-06T23:13:00.002-04:00

Analyst Mike Mayo garnered some attention this morning for his negative research on the banking industry. In today's episode Jim Cramer takes an opposite view on some of the financials and actually calls out some of Mike Mayo's poor research last year on Lehman before they went bankrupt.

It is slightly amusing for Cramer to cherry pick and go after Mayo - Hello Pot, Meet Kettle! Cramer is often a victim when it comes to stringing together a montage of damaging video clips that make his advice seem worthless but hey if you are going to dish it out you better be able to take it right?

We agree with the overall theme behind Cramer's recent rant - do your own homework and do not put too much faith in one analyst, not even the queen, Meredith Whitney who also made some comments about the financials that were probably as close to positive as she can get.

Consumer Reports Names Best Brokerage Firms

2009-04-06T22:32:00.002-04:00

The results are in for Consumer Reports survey of the most satisfying brokerage firm services.

USAA
Vanguard
Edward Jones

The article notes that half of the 9,000 people in the survey said their investments plummeted... ONLY half?! Well played!

Hmm.. no major publicly traded brokerage firms made the list... just some well run private companies... Congrats!

IPO Market Showing Signs of Life?

2009-04-06T19:10:00.003-04:00

Hardly - but CNN Money points out some silver linings in the dismal IPO space as of late with the success of Changyou.com (CYOU), the first IPO in two months!!

As you can see from the 5 year chart of new public offerings, the peak was in 2007. Lucky or not that coincided with the top in the stock market. Now that the market has fallen precipitously since 2007 IPO's have dried up which could actually be a contrarian indicator. When you start seeing hundreds of new IPO's coming to market, beware.

Defining a "Depression"

2009-04-05T20:38:00.001-04:00

Barry Ritholtz over at The Big Picture blog asks an interesting question today with his post titled “What is a Depression?” It has become an increasingly important question as of late but there is no true definition technically. I look forward to reading the many comments which are sure to show up this evening at his blog as we all attempt to answer the question. We have a few additional thoughts on the subject:

NBER, for whatever reason, is responsible for looking at the longer term cycles and determining when a recession begins and when it ends. They have the added benefit of waiting until the tops and bottoms have been clearly identified and have no need to make a call in real-time. They look at several measures of the economy before they make the official call but when you break it down, a recession essentially begins when the economy peaks and begins to decline and the recession ends when the economic indicators have clearly bottomed and hit a sustainable low and turned up.

At some point a recession can become severe and the media will look to label it a depression. NBER is not in the business of calling something a depression so there is not much guidance on the subject.

One definition of depression in terms of the economy is:

A period during which business, employment, and stock-market values decline severely or remain at a very low level of activity.

It is important to look at a wide variety of indicators and not simply a level of decline in GDP before turning a recession into a depression. According to NBER, recessions have averaged about 17 months while they calculate the depression from peak to trough as lasting 43 months (with a follow up recession in 1938).

Time is an important element in the distinction of recession vs depression just as it is when determining a bull market, which cannot simply be a 20% increase. In terms of time a depression would need to be an above average recession so longer than 17 months, perhaps 30-40 months before beginning the depression debate. During this period you would expect to see GDP declines in excess of the average GDP decline during a recession.

Other indicators including unemployment would need to also be worse than a typical recession. It would take a combination of all these various factors being at extreme lows for an extended period of time in order to characterize the period as a depression.

We are currently in the 16th month of this recession, since WWII the average recession has been 16 months. It is doubtful that this month will be the trough. We have already seen the loss of 5 million jobs which equates to roughly 3% of the workforce. We lost significantly higher percentages of jobs in the ’57 recession, ’49 recession and the ’45 recession.

One final important point, it really is not important to correctly identify the nuances between recession and depression. While the media will debate and define as they see fit the definition does nothing to remedy the situation. Regardless of what you call it, the experience and the emotion of the period are unchanged. It is a very difficult environment for a wide variety of people. Many would make the argument that certain sectors and/or areas of the country are experiencing depression like periods and that should not be minimized. Hopefully this furthers the debate and continues the discussion on a very pertinent and interesting question.

Money Market Mutual Funds

2009-04-04T13:04:00.002-04:00

For all the bears hiding out in cash, Money Magazine has a rundown of the "Five Things to Know About Cash."

We take issue with some of the information on money market mutual funds in the article. While the article is correct that money market funds are NOT FDIC insured, your brokerage firm would be covered by SIPC. If a brokerage firm fails, SIPC coverage for your account is $500,000 total (only $100,000 in cash). But the interesting point that most people miss is that a money market mutual fund is a mutual fund... which is a security... so it is not limited by the $100,000 cash insurance.

As the article mentioned most brokerage firms now offer FDIC insured options for your cash. Unlike a bank, if you buy a CD through a brokerage firm you could actually buy 10 CD's from 10 different banking institutions and each CD would be covered up to $250,000.

A final note on the temporary insurance program put forth by the Treasury to stem the run on money market mutual funds - it was recently extended and will expire September 18, 2009. Most investors tend to forget that the temporary insurance program ONLY covers shares that were owned as of September 19, 2008. So if you have gone to cash since then you do not have unlimited protection although the fear of breaking the buck has subsided since the panic in October/November.

Here We Go Again, It's Bonus Time

2009-04-03T19:17:00.003-04:00

Apparently Freddie and Fannie did not learn their lesson from the AIG bonus outrage as they are reportedly going to issue over $200 million in bonuses in order to retain their talented pool of employees.

Should we schedule some hearings?

Job Losses Continue, Headlines Confuse

2009-04-03T18:40:00.003-04:00

As expected, significant job losses were reported for the month of March, including significant revisions for January which made January the worst month of the current recession in terms of jobs lost. Looking back at the prior two recessions the worst month of job losses came very close to the end of the recession although job losses continued even after the recession concluded. There is some great stats and analysis on today's report over at The Big Picture so we won't even try to compete!

It was interesting to keep an eye on the major financial headlines during the day. In early trading you had headlines saying the market was down because of the horrible jobs number. Uhm.. NO. The jobs number and the unemployment rate were just as bad as EVERYONE EXPECTED, therefore no surprise either way. But then later in the day the market turned higher, now the headlines switch to investors shaking off the horrible news. Mainstream media always has a burning desire to say the market is up/down due to _______.

It's just not that simple when you got that much money and that many people involved my friends...

Bove Calls Bank of America An "Absolute Steal"

2009-04-03T18:28:00.003-04:00

Rochdale Securities analyst Dick Bove called BAC an absolute steal today. But Bove has a habit of stealing money from those unsuspecting investors who put faith in his research. Here is the money quote from Mr Bove in March of 2008 right after the Bear Stearns bottom was put in place:

"The last time an opportunity of this nature existed to buy bank stocks this cheap was in 1990," the analyst wrote. "The next time will be in 20 years. This is a once in a generation opportunity."

Actually the next time to get banks cheaper was July of 2008... and then October of 2008... and then November of 2008... and then March 2009... but hey eventually Bove will be right on the financials. Is it really prudent for Bove to call BAC a steal right after a 200% rally off the lows?!

Outrage Of The Day

2009-04-02T23:18:00.003-04:00

Come on Cramer!!! First Bloomberg, now you calling this a bull market because the rally has taken us up over 20% from the lows. As previously mentioned, this would be the third bull market in the past year by this very arcane definition. In October we were able to complete a bull market in less than a week by these standards.

We also take issue with Cramer saying the depression is now over, it's been rough but not THAT rough. That is an insult to the actual depression. Cramer has the handbook on the Great Depression on his set - may need to review it again.

The interesting thing about a depression and a bull market is there really is not a specific definition for either...

At least he showed some restraint and said wait for a pullback before you buy! buy! buy!!

It's crap like this that make the critics hate him with a passion which only encourages him...

Stocks Versus Bonds

2009-04-02T23:03:00.004-04:00

Interesting commentary over at Bloomberg showing that bonds have outperformed stocks more than you would expect over long time periods. This further demonstrates that a buy and hold approach is dangerous for any investor. Making money over the long term in the market is much more complex than buying and holding. First, you have to sell. When valuations reach extremes, selling has to be a part of the game plan, cash is king right? So how come that is rarely part of portfolio planning?

The other important feature investors tend to miss is the buy part. It is interpreted as buy anything at any price but price is the primary factor when investing. Warren Buffett is well known as the epitome of a buy and hold investor but he is EXTREMELY cost conscious and only invests from what he believes are long term values. This is what allows him to hold so long but even Warren has admitted some regret over not selling into the euphoria of the late 90's.

Buy and hold was sold to the public to get them in the game but it's just not that simple, sorry kids.

Dividend "Aristocrats" Disappearing

2009-04-02T20:33:00.004-04:00

Standard and Poor's annual list of stocks that increased dividends for 25 straight years or more is about to fall below 40 for the first time since '92 according to a new Bloomberg article. The list peaked at 64 in 2001.

But it is not all bad news, some firms are still increasing dividends. The article mentioned Abbott (ABT), 3M (MMM), Coca Cola (KO), Kimberly Clark (KMB) and Wal-Mart (WMT) as stocks likely to remain on the dwindling list.

You Have Nothing To Worry About

2009-04-02T20:22:00.002-04:00

Worst headline of the day:

"BofA CEO "optimistic" economy is close to bottom"

This is the same gentleman who was optimistic when the economy was approaching the top as well as the markets and was bullish of housing and decided to buy Countrywide ahead of the worst housing market EVER... hardly a quote to get excited about. He could be right this time but as they say, even a broken clock is right twice a day!

Buckle Up For First Quarter Earnings

2009-03-31T19:05:00.000-04:00

First quarter earnings kick off with Alcoa on Tuesday and CNBC has offered up the following headline:

"First Quarter Likely To Disappoint Investors"

Contrarian Indicator? We will find out in the next few weeks. Analysts were too bullish at the top and at some point will also be too negative on earnings. Should be interesting.

Buffett's BFF Banker To Take Over Berkshire?

2009-03-31T18:37:00.003-04:00

Nice rumor! Here is the original news.

Whitney Tilson is quoted as saying that the future successor is "going to be one of his existing operating managers." Not sure what makes him the expert but if you read the book it states the following:

"In the end he chose four candidates who were already successful and managing money; they now waited in the wings."

In our personal opinion that does not include Mr. Trott, but some existing managers at Berkshire will surely play a role given their outstanding long term investment performance. It is likely to be a combination of people, perhaps 2-3 that assume the roles and responsibilities of Mr. Buffett.

On a related note, we highly recommend the book Snowball for all of you Warren Buffett fans...

Stocks Finish March Strong

2009-03-31T18:20:00.003-04:00

Although the S&P closed off today's intraday highs, the gain for the month was 8.5%.

This is the best monthly performance for the S&P in percentage terms since October 2002. November of 2002 saw strong follow through with an increase of over 5%. Sadly December 2002 through February 2003 ended up being pretty rough...

Will the strength continue into April? Historically the month of April has been bullish. CNBC has a nice rundown of the historical numbers.

Some Stocks Increasing Dividends

2009-03-31T18:12:00.002-04:00

A follow up post on companies that have recently increased their dividends in this tough environment.

The new list includes:

Air Products (APD) increased from 44 to 45 cents
General Dynamics (GD) increased from 35 to 38 cents
Kimberly Clark (KMB) increased from 58 to 60 cents
Qualcomm (QCOM) increased from 16 to 17 cents
Wal-Mart (WMT) increased from 95 cents to $1.09

Buffett's Fav Investment Banker Starts New Firm

2009-03-30T18:41:00.003-04:00

Warren Buffett's BFF Investment Banker, Byron Trott, at Goldman Sachs is going out on his own with a new firm, BDT Capital Partners, according to WSJ/CNBC.

The good news about the turmoil in the financial industry is that many new firms will emerge to take the place of the failures. This also addresses the issue of where will they go?!

Dealbreaker Weighs In On Most Influential

2009-03-30T18:23:00.001-04:00

Here is what Dealbreaker had to say after checking out our early post.

Most Influential People

2009-03-28T13:22:00.004-04:00

CNBC's Mad Money wants YOU to vote JIM CRAMER as one of the 2009 Time 100 Most Influential! First, it is only March so perhaps it is a little early to call the most influential people of the year... But is Cramer really influential? Especially after the beatdown he took from Jon Stewart (I bet he gets some votes!)? Cramer is kind of a crapshoot because given the amount of advice he provides he is either a genius or an idiot depending on which ideas investors choose to act on. This may turn out to be more of a popularity contest seeing as The Jonas Brothers and Miley Cyrus are getting plenty of votes. Perhaps we should include the Pirates that are stealing ships while we're at it.

But on the finance side, who really deserves the honor? Notable candidates on the list include:

Lloyd Blankfein, CEO of Goldman Sachs (GS)
Warren Buffett, CEO of Berkshire Hathaway (BRK)
Ben Bernanke, Federal Reserve Chairman
Nouriel Roubini, Professor, "Dr Doom"
Timothy Geithner, Secretary of the Treasury
Jamie Dimon, CEO of JP Morgan (JPM)
Meredith Whitney, Financial Analyst
Sheila Bair, Head of the FDIC
Ken Lewis, CEO of Bank of America (BAC)
Charlie Gasparino, CNBC Reporter

Possible people that may have got missed from the world of Finance:

Nassim Taleb, author of "Black Swan"
John Paulson, hedge fund manager
Alan Greenspan, former Federal Reserve Chief, hey his actions are STILL influencing our current economic environment
Barney Frank, Democratic Congressman
Peter Schiff, President of Euro Pacific Capital
AIG Financial Products Division
Steve Schwarzman, CEO of Blackstone
Robert Schiller, Yale Professor, author

I can't even recall if Andrew Cuomo made the list - he is the Attorney General of New York. Perhaps one of the top hedge fund earners should get a mention?

Can I write in Dilbert? He's a genius.

21st Bank Failure of 2009

2009-03-28T13:02:00.003-04:00

A Georgia based bank was closed this weekend and the FDIC stepped in. This marks the 21st bank failure of 2008, compared with 25 total in 2008. While bank failures are clearly picking up they still remain an extremely small percentage of total banks although the public would probably believe otherwise.

According to the FDIC, they regulate over 5,100 banks which means between 2008 and the first three months of 2009 less than 1% of their banks have failed. More importantly, FDIC continues to pay out on all insured deposits.

Business Drops Off In March for Major Banks

2009-03-27T23:03:00.002-04:00

After meeting with the President today, the CEO's of Bank of America (BAC) and JP Morgan (JPM) were quoted as saying March was NOT as strong as January and February were. How is that possible?

The stock market had a huge month giving both firms ample opportunity to kill it on the trading side. There were hints of optimism on the economic front if you did not dig too deep into the data and given that banks can borrow for nothing and lend for something, the banking business should have continued its strength in March.

Or perhaps given the extreme rally in the financials, this was a great opportunity to reduce expectations as we approach the end of the quarter now that the negative feedback loop surrounding the banks has subsided for a few weeks.

Looking forward to quarterly earnings from the financials so we can get a little clarification on what is going on inside the major banks.

Gee, Didn't See This One Coming

2009-03-27T20:29:00.003-04:00

Nice work by dealbreaker! Bank of America (BAC) is going to get around this nasty "bonus" issue by significantly raising salaries! It was only a matter of time. You have to keep in mind that the geniuses in the financial services industry that created products of mass destruction that went unregulated can probably outsmart anything that Congress can enact. Good try Congress, any other ideas?

Goldman Sachs (GS) ain't stupid so they played it cool on executive comp in todays proxy release. Mr Blankfein's comp was down 98% from last year, seems a little extreme given that Goldman Sachs was "only" off about 60% in 2008 - at least they didn't go under. So if Goldman is the first to pay back TARP, does Blankfein get some bonus action?

Congress Loves To Hate AIG

2009-03-26T23:28:00.004-04:00

Unlike the earlier, misguided outrage over the AIG bonuses which pale in comparision to the total taxpayer funds used to prop up AIG, Congress has finally stumbled upon an issue worth investigating according to Fortune.

Taxpayer funds were put into AIG, AIG then used some of these funds to make good on their payments to their various counterparties including Goldman Sachs, Barclays and many others. No haircuts, no questions, paid in full. This relationship is what made AIG a systemic risk, they owed money and needed to pay up to the rest of the street.

This issue is a little more difficult to understand than the bonus outrage so I wonder if the public will take it and run with it again or not.

New Trading Strategy - Sleep In

2009-03-26T20:38:00.003-04:00

"U.S. stocks have their best intraday returns starting at 2 p.m. in New York as institutional money managers begin buying, according to an analysis by Bespoke Investment Group LLC."

The data appears to only go back to September in this article, still interesting though considering how many days closed AT the lows. The article looks at the recent rally since March 6th showing that early trading has actually improved and strengthened quite a bit while the end of the day has also remained strong. It appears the buy the dip crowd is back in full force as opposed to the sell the rip strategy that was dominating.

In addition to end of the day trading, we may also be experiencing some end of the quarter window dressing by the "smart money" - you wouldn't want to be the moron to report to investors that you were sitting on a mountain of cash during the huge rally over the past three weeks would you?

Barack vs. Buffett Update / Market Rally Continues

2009-03-26T18:46:00.003-04:00

The market rally continues, now the 2nd best bear market rally in the past year at almost 25% low to high from March 6th. Tech is the best sector year to date and is actually positive for the year versus the S&P which is off -7.79% as of today's close. Financials continue to lag the market but are the best performing sector during the rally of the past 3 weeks.

The Barack Bottom is faring far better than the Buffett bottom from October - here is in update to our original post:

Market is up almost 20% since President Obama called stocks a "good deal" for long term investors only 17 days ago.

Stock Buybacks vs. S&P 500

2009-03-26T18:31:00.003-04:00

Great post over at The Big Picture showing that as the market has fallen share buybacks have fallen as well.

So as stocks fell and valuations became more attractive, firms stopped repurchasing their stock. Makes sense to be conservative and hold onto your cash but the old argument had been that the best use of the firms balance sheet was to invest in their own stock! A big buyback was often rationale for sticking with a stock because the theory was there would be a floor under the stock as the company came into purchase if the stock dropped. It is clear that dividends might have been a better bet. It will be interesting to see CEO's come out and try to hype up new buyback plans AFTER huge rallies in their stock.

Share repurchases hit a peak in the third quarter of 2007... hmm.. the market peaked in October of 2007... hopefully the drop off in share buybacks is actually a positive for the market going forward.

Bloomberg, You're Better Than That

2009-03-24T23:22:00.005-04:00

The money quote from Bloomberg:

" The Standard & Poor’s 500 Index took seven weeks to fall 20 percent and give President Barack Obama a bear market. To reach a bull market, it needed 10 days. "

I don't believe in 10 day bull markets, whoever came up with the 20% rule for bear and bull markets is a moron. Time is an important element that is often ignored in the general trend of the market and 10 days is hardly enough to call a trend.

This is a bear market until its not, only with time will we truly know whether the 666 S&P lows hold and a new bull market did indeed emerge. If you follow this inept rule, this would be the third bull market we have experienced in the last year. I think it is safe to clearly label the last year of trading a well defined bear market.

But Where Are They Going To Go?

2009-03-24T23:15:00.002-04:00

One of the common arguments over the recent outrage over various bonus and/or retention bonuses is that the compensation is necessary to placate top talent but where else can these people really go? Well it seems there is ALWAYS room to hire top talent regardless of the environment.

Analysts leave UBS, Bank of America, Oppenheimer

More on the Bank of America Departures