The window-dressers made a little push in the closing hour to cement the best quarter for the market in many years, but overall it was a day of profit-taking. We did manage to close over 919 on the S&P 500 to give us our fourth straight positive month, but just by the skin of our teeth. Volume was light, and it sure looked like a lot of folks were already starting the summer holiday.
Things should be very slow in the next couple days. Quite often the thin holiday trading has a positive bias, but with the markups, the big quarterly gain and the wild Russell rebalancing this year, I'm expecting to see more defensive action.
Even though the indices ended red, we didn't do too much technical damage. We are still above key support levels at the major moving averages and the lows of the month, but the bounce over the last few days is steadily losing momentum.
We'll see if the hot-money boys can create any pockets of action the next couple days. I'm not expecting much, but what is the Fourth of July without a firecracker or two?
Tuesday, June 30, 2009
The Calls For A New Global Currency Are Ridiculous
The complaints by Russia, China, India, Brazil and others about the dollar's role as the world's reserve currency as political posturing and nothing more. There is no near-term alternative to dollar liquidity worldwide and can't be for quite some time to come.
The world is swimming in dollars. The Federal Reserve is the de facto central bank to the world. You need look no further than the myriad "swap lines" the Fed gave to foreign central banks to boost their dollar liquidity in the wake of the credit crisis.
The many nations that have benefited from the largest consumer market in the world - yes, the U.S. - have little choice but to recycle their foreign exchange back to the U.S. as a consequence of the "circular flow of trade." Any deviation from that, even on the margin, means a dollar crash and an associated interest rate spike in the U.S., killing off the very consumer that provides the world's great exporters, from China to Belgium and many more, the revenue they would like to direct to some other "reserve currency."
As for the practicality of creating a new world currency, history is a useful guide here. It would be like trying to impose a widely used global language ... remember the Esperanto movement of decades past?
To add a little insult to injury to our more "cosmopolitan" trading partners, just as English is the true language of global business, the dollar obviously greases global trade. It took Europe more than 40 years to create the euro, opening the European Common Market with the Treaty of Rome in 1957, moving on to develop the pegged currency system of the European Exchange Rate Mechanism (ERM) that broke apart in 1992 and then the formation of the euro that began circulating in 2000.
There were many iterations and numerous stops and starts along the way. In fact, the euro almost never happened after it was voted down by Danish citizens in the mid-1990s. Britain still has not joined the party.
The creation of the euro, which in my opinion is a very unstable currency, was fraught with difficulties and it has yet to anchor itself to the world forex markets in the same manner the deutschemark was once the anchor currency of Europe.
China's yuan is not freely convertible and Russia's ruble is not worth the paper it's printed on unless commodity prices support it, leaving the dollar as the world's king currency.
By the way - and some would argue with me on this point - a gradual depreciation of the dollar, in my opinion, is not such a bad thing - it would prove the Fed's reflationary efforts are taking hold. It would also help boost American exports and import a modest bit of inflation, which is required during these deflationary times.
A sharp rise in the dollar's value would be bad, since it is the equivalent of a tightening of Fed policy. A strong dollar restricts export growth, combats inflation (which really isn't the problem right now) and slows the domestic economy, something we are simply not ready for...
The world is swimming in dollars. The Federal Reserve is the de facto central bank to the world. You need look no further than the myriad "swap lines" the Fed gave to foreign central banks to boost their dollar liquidity in the wake of the credit crisis.
The many nations that have benefited from the largest consumer market in the world - yes, the U.S. - have little choice but to recycle their foreign exchange back to the U.S. as a consequence of the "circular flow of trade." Any deviation from that, even on the margin, means a dollar crash and an associated interest rate spike in the U.S., killing off the very consumer that provides the world's great exporters, from China to Belgium and many more, the revenue they would like to direct to some other "reserve currency."
As for the practicality of creating a new world currency, history is a useful guide here. It would be like trying to impose a widely used global language ... remember the Esperanto movement of decades past?
To add a little insult to injury to our more "cosmopolitan" trading partners, just as English is the true language of global business, the dollar obviously greases global trade. It took Europe more than 40 years to create the euro, opening the European Common Market with the Treaty of Rome in 1957, moving on to develop the pegged currency system of the European Exchange Rate Mechanism (ERM) that broke apart in 1992 and then the formation of the euro that began circulating in 2000.
There were many iterations and numerous stops and starts along the way. In fact, the euro almost never happened after it was voted down by Danish citizens in the mid-1990s. Britain still has not joined the party.
The creation of the euro, which in my opinion is a very unstable currency, was fraught with difficulties and it has yet to anchor itself to the world forex markets in the same manner the deutschemark was once the anchor currency of Europe.
China's yuan is not freely convertible and Russia's ruble is not worth the paper it's printed on unless commodity prices support it, leaving the dollar as the world's king currency.
By the way - and some would argue with me on this point - a gradual depreciation of the dollar, in my opinion, is not such a bad thing - it would prove the Fed's reflationary efforts are taking hold. It would also help boost American exports and import a modest bit of inflation, which is required during these deflationary times.
A sharp rise in the dollar's value would be bad, since it is the equivalent of a tightening of Fed policy. A strong dollar restricts export growth, combats inflation (which really isn't the problem right now) and slows the domestic economy, something we are simply not ready for...
Monday, June 29, 2009
I Guess The Market Really Opens On Wednesday This Week....(And It's Closed Friday..)
Volume was quite light today but the buyers held the market up nicely as the second quarter winds down. Although the action was generally quite good, there wasn't any strong theme that stuck out today.
Oil and commodities started off leading the day but they weakened a bit and retailers and financials stepped up. It was a fine day for the bulls, but there wasn't a lot of energy behind it and gave the impression that we are just holding steady while we wait for the quarter to end.
Technically the indices aren't doing anything wrong. We still are bouncing off some key support levels and there isn't any big rush yet to lock in gains. We are not cracking yet and you have to respect that.
Oil and commodities started off leading the day but they weakened a bit and retailers and financials stepped up. It was a fine day for the bulls, but there wasn't a lot of energy behind it and gave the impression that we are just holding steady while we wait for the quarter to end.
Technically the indices aren't doing anything wrong. We still are bouncing off some key support levels and there isn't any big rush yet to lock in gains. We are not cracking yet and you have to respect that.
BRIC Nations Still Calling For A New World Reserve Currency (I Guess They're Serious...)
The ongoing calls for a new world reserve currency, made by China, Russia, India and Brazil, among others, are newsworthy.
While nearly impossible to achieve in the short run, this jawboning against the dollar has had negative consequences for the greenback, and more battering could be on the way. The problem, though, is that few legitimate alternatives to the dollar exist. Not to mention that the very countries calling for a new reserve currency make most of their money dumping cheap imports into the U.S.
While I am not a protectionist, why doesn't the Obama administration publicly remind the dollar-bashers that our open markets provide them with excess foreign reserves and unfettered access to our financial markets? It is hardly a reciprocal relationship and could be less so if they continue to complain about making money off us while trying to siphon money away from us.
The dumping of dollars would be a process of "mutually assured destruction," as it was with the arms race and nuclear proliferation during the Cold War. I suspect this is all talk and political posturing: The countries, acting as if their economies are superior to ours, are entirely dependent on the U.S. consumer for their newfound wealth.....
While nearly impossible to achieve in the short run, this jawboning against the dollar has had negative consequences for the greenback, and more battering could be on the way. The problem, though, is that few legitimate alternatives to the dollar exist. Not to mention that the very countries calling for a new reserve currency make most of their money dumping cheap imports into the U.S.
While I am not a protectionist, why doesn't the Obama administration publicly remind the dollar-bashers that our open markets provide them with excess foreign reserves and unfettered access to our financial markets? It is hardly a reciprocal relationship and could be less so if they continue to complain about making money off us while trying to siphon money away from us.
The dumping of dollars would be a process of "mutually assured destruction," as it was with the arms race and nuclear proliferation during the Cold War. I suspect this is all talk and political posturing: The countries, acting as if their economies are superior to ours, are entirely dependent on the U.S. consumer for their newfound wealth.....
Friday, June 26, 2009
End Of Month Games
Although the major indices didn't do much today, there was some absolutely crazy action under the surface in individual stocks due to the rebalancing of the Russell indices. Nasdaq volume was huge at over 3.6 billion shares. Not only did we have some good old fashion markups in some big-cap momentum stocks but there are dozens of extremely thin small-caps that have moves on giant volume due to the Russell rebalancing.
Watching this action really makes you wonder about the "efficient" market and the value of passive index investing. The movement in many of these stocks had absolutely no relationship to their values. It is just wild scrambling by funds to make sure they had enough shares.
Look at the action in extremely thin stocks like ZN, CHBT, ISRL and many more. The ETFs are already inefficiently priced enough and this system of rebalancing turns it into a complete farce.
Unfortunately the folks who passively hold the indices aren't even aware of how these big spikes in new additions to the indices come out of their pockets. You now have the Russell 2000 holding shares of Zion at $13.30 when just yesterday you could have bought it for $7. If Zion reverses, that money comes right out of the pockets of the folks who hold the index.
Many of these moves will be reversed very quickly, so there is opportunity if you have a tolerance for a high level of risk and are able to find some shares to borrow. I just hope we won't have to hear how these big moves are legitimate and aren't a form of manipulation.
We still have two more trading days left in the quarter but I suspect that trading will cool off quickly next week. The games have been played and now the positioning for the third quarter will start to kick in.
It is extremely important that you not read too much into this action. It has nothing to do with the economy or fundamentals. This action isn't telling us anything other than it is the end of the quarter and time to adjust the books.
It did help technically to have this strength on good volume but you can't forget the context. The market has not cured itself of the weakness of the last couple weeks. It has had a respite and it may continue to improve, but nothing has happened yet to turn the tide back up.
Watching this action really makes you wonder about the "efficient" market and the value of passive index investing. The movement in many of these stocks had absolutely no relationship to their values. It is just wild scrambling by funds to make sure they had enough shares.
Look at the action in extremely thin stocks like ZN, CHBT, ISRL and many more. The ETFs are already inefficiently priced enough and this system of rebalancing turns it into a complete farce.
Unfortunately the folks who passively hold the indices aren't even aware of how these big spikes in new additions to the indices come out of their pockets. You now have the Russell 2000 holding shares of Zion at $13.30 when just yesterday you could have bought it for $7. If Zion reverses, that money comes right out of the pockets of the folks who hold the index.
Many of these moves will be reversed very quickly, so there is opportunity if you have a tolerance for a high level of risk and are able to find some shares to borrow. I just hope we won't have to hear how these big moves are legitimate and aren't a form of manipulation.
We still have two more trading days left in the quarter but I suspect that trading will cool off quickly next week. The games have been played and now the positioning for the third quarter will start to kick in.
It is extremely important that you not read too much into this action. It has nothing to do with the economy or fundamentals. This action isn't telling us anything other than it is the end of the quarter and time to adjust the books.
It did help technically to have this strength on good volume but you can't forget the context. The market has not cured itself of the weakness of the last couple weeks. It has had a respite and it may continue to improve, but nothing has happened yet to turn the tide back up.
AAPL's Undervalued Right Now
AAPL's not nearly as expensive as it seems. After running higher since late May ahead of major product announcements, Apple stock has pulled back and has been consolidating its gains. Given the highly successful launch of the new iPhone 3GS, though, the company will likely handily beat estimates when it reports earnings in July.
I think the stock could tack on another 20% or so in the coming weeks and months, and only at that point -- depending on the upcoming earnings report -- will the stock be fairly valued.
Apple stock looks expensive on the surface, with a P/E of about 25 on both trailing and forward earnings. Furthermore, a quick look at consensus estimates would suggest the company isn't growing at all! Of course, that could not be further from the truth.
Apple's valuation metrics are greatly skewed by the very large amount of cash on the company's books -- representing about a quarter of the company's current market capitalization -- and by the fact that the company is deferring a great amount of sales and profits from sale of the iPhone.
Apple has generated a tremendous amount of free cash flow over the last few years, and unlike many companies that buy back stock regardless of market conditions or price, Apple's board of directors has steadfastly refused to play that game. That's served the company well in light of the market crash, and at the end of March the company had almost $29 billion in cash sitting on its books. That represents about $32 per Apple share.
After subtracting that from the company's valuation, and also subtracting the interest income earned from that cash (although that isn't very much at all given the very low level of current interest rates), the P/E is a much more reasonable 20 times earnings (based on this year's consensus estimates).
This still overstates the company's valuation, however, because of the company's deferral of profit under the subscription method of accounting. If Apple were to account for iPhone sales the same way its competitors do, Apple's P/E would be closer to 14 times earnings, assuming that we exclude the cash and that non-GAAP earnings total about $8 a share.
That level of earnings equates roughly to the amount of cash flow that Apple is currently generating. And don't forget that Apple is spending about a billion dollars a year on research and development, which is expensed against current earnings!
In summary, Apple stock offers investors a great growth story in an environment where real growth is hard to find. When you look under the hood, the stock is not nearly expensive as the traditional metrics indicate, giving it room to run another 20% or more.
Long Apple
I think the stock could tack on another 20% or so in the coming weeks and months, and only at that point -- depending on the upcoming earnings report -- will the stock be fairly valued.
Apple stock looks expensive on the surface, with a P/E of about 25 on both trailing and forward earnings. Furthermore, a quick look at consensus estimates would suggest the company isn't growing at all! Of course, that could not be further from the truth.
Apple's valuation metrics are greatly skewed by the very large amount of cash on the company's books -- representing about a quarter of the company's current market capitalization -- and by the fact that the company is deferring a great amount of sales and profits from sale of the iPhone.
Apple has generated a tremendous amount of free cash flow over the last few years, and unlike many companies that buy back stock regardless of market conditions or price, Apple's board of directors has steadfastly refused to play that game. That's served the company well in light of the market crash, and at the end of March the company had almost $29 billion in cash sitting on its books. That represents about $32 per Apple share.
After subtracting that from the company's valuation, and also subtracting the interest income earned from that cash (although that isn't very much at all given the very low level of current interest rates), the P/E is a much more reasonable 20 times earnings (based on this year's consensus estimates).
This still overstates the company's valuation, however, because of the company's deferral of profit under the subscription method of accounting. If Apple were to account for iPhone sales the same way its competitors do, Apple's P/E would be closer to 14 times earnings, assuming that we exclude the cash and that non-GAAP earnings total about $8 a share.
That level of earnings equates roughly to the amount of cash flow that Apple is currently generating. And don't forget that Apple is spending about a billion dollars a year on research and development, which is expensed against current earnings!
In summary, Apple stock offers investors a great growth story in an environment where real growth is hard to find. When you look under the hood, the stock is not nearly expensive as the traditional metrics indicate, giving it room to run another 20% or more.
Long Apple
Thursday, June 25, 2009
QE Markup!
The buyers started to stumble in the final hour but regrouped just in the nick of time to take us out near the highs of the day. Even if you were looking for some end-of-the-quarter window dressing to kick in, the move today was surprisingly strong. Breadth was quite good at around four gainers to every one loser and every major sector finished in the green.
What helps the bulls on a day like this is that the bears just stand aside and let the bulls do what they please. We have three trading days before the quarter comes to an end and there is no way to predict how much they will try to run things up before then. With the indices showing a gain for the quarter, a lot of money mangers need to make up some performance and chasing high-beta stocks is usually the way to do it.
What helps the bulls on a day like this is that the bears just stand aside and let the bulls do what they please. We have three trading days before the quarter comes to an end and there is no way to predict how much they will try to run things up before then. With the indices showing a gain for the quarter, a lot of money mangers need to make up some performance and chasing high-beta stocks is usually the way to do it.
Wednesday, June 24, 2009
Losing Steam Or Gathering Steam?
For at least 3 months now we have had positive bias to trading on Fed interest rate announcement days. That tendency, combined with a slightly oversold market, jump-started the buyers out of the gate this morning. Breadth was very positive, and quite a few broken-momentum stocks saw some good size bounces.
However after the initial move higher we stayed in a very tight trading range in front of the announcement. The Fed news contained nothing at all surprising, and after a very little whipsaw it produced a rather mild sell-the-news reaction.
Overall, at the end of the day it looked like nothing much more than just a technical bounce. The S&P 500 managed to hold right above key technical levels just over 900, but it wasn't a very energetic finish to what started off looking like a very strong day.
The biggest positive for the bulls at this point is the possibility of some more window-dressing action as the quarter winds down. That combined with the close over the 900 level may keep the bears on the sidelines for a bit longer. However, this is not the same market that recovered so well quickly and easily back in April and May. We have had more distribution, and the shorts are much more likely to be looking for opportunities on further strength.
Going into more detail, and after starting the day strong, the stock market sold off sharply midday following the FOMC's latest policy statement. The major averages climbed higher towards the end of the session, but the Dow still ended modestly lower and the S&P 500 only managed a slight gain... The Nasdaq was a leader for most of the day following ORCL's better-than-expected fourth quarter results and upside first quarter earnings per share guidance after the close last night. Other large-cap tech stocks also fared well, including AAPL, INTC and CSCO....After a couple slow days in terms of noteworthy, material news items, there were a few market-moving events today, including the FOMC's Policy Statement release. The major averages were putting in solid gains prior to the release, but the market moved decidedly lower afterwards. While the statement said that the pace of economic contraction is slowing, it also stated that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period of time. The Fed left the fed funds rate unchanged at 0.00% to 0.25%, as expected... While growth remains the Fed's policy concern, the wording of the June directive can be characterized as balanced since it provides the Fed the leeway to move as it sees fit based on incoming economic data and changes in the financial markets... The FOMC also stated that its Treasury purchase program size remains unchanged. That pressured Treasuries and took the benchmark 10-year Note from positive ground to negative ground and pushed its yield up more than 10 basis points to 3.69%... There was also some key economic data out today. Durable goods orders for May showed a surprise 1.8% increase and durable goods less transportation increased a better-than-expected 1.1%. New orders for durable goods increased 1.8% in May and were up 1.1%, excluding transportation. That was good news from the standpoint that each number easily topped the consensus estimates, which called for a 0.9% decline in total orders and a 0.5% decline, excluding transportation. Shipments, though, were still weak as they declined -2.1% to $169.9 billion... Shortly thereafter, May new home sales data were released, which showed an annualized rate of 342,000 units, below the 360,000 unit consensus. Given the revisions to the prior month, new home sales were down 0.6% month-over-month versus an expected increase of 2.3%. Stocks initially sold off following the new homes data, but quickly rebounded and resumed their strength... In terms of leading sectors, material stocks (+0.8%) were strong today despite considerable weakness from MON, which reported third quarter results that topped consensus expectations. However, the company typically carries high expectations, and it only reaffirmed its guidance, which may have been viewed as a disappointment to participants... Energy stocks finished flat as oil and gas refiners (-3.5%) undercut the sector. Drillers (+1.1%) were strong, though... Looking ahead to tomorrow morning, there are a couple more economic releases that will garner some attention. At 8:30 AM ET, initial claims are scheduled to be released with current expectations at 600,000, and the final first quarter GDP number will be released, expected to remain at -5.7%.
However after the initial move higher we stayed in a very tight trading range in front of the announcement. The Fed news contained nothing at all surprising, and after a very little whipsaw it produced a rather mild sell-the-news reaction.
Overall, at the end of the day it looked like nothing much more than just a technical bounce. The S&P 500 managed to hold right above key technical levels just over 900, but it wasn't a very energetic finish to what started off looking like a very strong day.
The biggest positive for the bulls at this point is the possibility of some more window-dressing action as the quarter winds down. That combined with the close over the 900 level may keep the bears on the sidelines for a bit longer. However, this is not the same market that recovered so well quickly and easily back in April and May. We have had more distribution, and the shorts are much more likely to be looking for opportunities on further strength.
Going into more detail, and after starting the day strong, the stock market sold off sharply midday following the FOMC's latest policy statement. The major averages climbed higher towards the end of the session, but the Dow still ended modestly lower and the S&P 500 only managed a slight gain... The Nasdaq was a leader for most of the day following ORCL's better-than-expected fourth quarter results and upside first quarter earnings per share guidance after the close last night. Other large-cap tech stocks also fared well, including AAPL, INTC and CSCO....After a couple slow days in terms of noteworthy, material news items, there were a few market-moving events today, including the FOMC's Policy Statement release. The major averages were putting in solid gains prior to the release, but the market moved decidedly lower afterwards. While the statement said that the pace of economic contraction is slowing, it also stated that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period of time. The Fed left the fed funds rate unchanged at 0.00% to 0.25%, as expected... While growth remains the Fed's policy concern, the wording of the June directive can be characterized as balanced since it provides the Fed the leeway to move as it sees fit based on incoming economic data and changes in the financial markets... The FOMC also stated that its Treasury purchase program size remains unchanged. That pressured Treasuries and took the benchmark 10-year Note from positive ground to negative ground and pushed its yield up more than 10 basis points to 3.69%... There was also some key economic data out today. Durable goods orders for May showed a surprise 1.8% increase and durable goods less transportation increased a better-than-expected 1.1%. New orders for durable goods increased 1.8% in May and were up 1.1%, excluding transportation. That was good news from the standpoint that each number easily topped the consensus estimates, which called for a 0.9% decline in total orders and a 0.5% decline, excluding transportation. Shipments, though, were still weak as they declined -2.1% to $169.9 billion... Shortly thereafter, May new home sales data were released, which showed an annualized rate of 342,000 units, below the 360,000 unit consensus. Given the revisions to the prior month, new home sales were down 0.6% month-over-month versus an expected increase of 2.3%. Stocks initially sold off following the new homes data, but quickly rebounded and resumed their strength... In terms of leading sectors, material stocks (+0.8%) were strong today despite considerable weakness from MON, which reported third quarter results that topped consensus expectations. However, the company typically carries high expectations, and it only reaffirmed its guidance, which may have been viewed as a disappointment to participants... Energy stocks finished flat as oil and gas refiners (-3.5%) undercut the sector. Drillers (+1.1%) were strong, though... Looking ahead to tomorrow morning, there are a couple more economic releases that will garner some attention. At 8:30 AM ET, initial claims are scheduled to be released with current expectations at 600,000, and the final first quarter GDP number will be released, expected to remain at -5.7%.
Tuesday, June 23, 2009
Technical Analysis Obsession
Some out there are obssessed with technical analysis, so here's some: Given the damage done yesterday, the market did a poor job of snapping back today. Once again we couldn't even manage to hold onto a little rally attempt late in the day. That was one of the main drivers when the market was acting well a couple weeks ago and now the late-day buyers are lacking the confidence to chase higher and generate a squeeze.
The biggest positives today were gold mining, steel, coal and energy, which were moving mainly on renewed weakness in the dollar. The bounce in oil was actually quite limited in view of how weak the dollar was. Retailers and semiconductors were the laggards while financials and homebuilders churned. AAPL fell again; I think it's a compelling buy up to $145....
The momentum plays have died out completely over the past week and today's action did nothing to revive them. In fact many of the things that were strong today like agriculture and coal look like good potential short setups rather than the start of sustained reverses to the upside.
Technically the big level on everyone's radar is 900 on the S&P 500. As well as being a big round number, the 50-day and 200-day simple moving averages have converged there. We were unable to trade back over that level today, but I think we'll pop back over it in the next few days and trigger some buy-stops.
I suspect the bears will then be waiting to reload some shorts but that they may not stick around too long with the end-of-the-quarter window dressing fast approaching. It should be a good battle, but the bears are gaining the advantage.
Keep in mind that the trend may be turning down and traders may be focused much more on selling strength rather than buying weakness. Without some of the pockets of momentum that were working so well a little over week ago, the long side is turning into nothing more than some quick flips. Buy AAPL.
long AAPL
The biggest positives today were gold mining, steel, coal and energy, which were moving mainly on renewed weakness in the dollar. The bounce in oil was actually quite limited in view of how weak the dollar was. Retailers and semiconductors were the laggards while financials and homebuilders churned. AAPL fell again; I think it's a compelling buy up to $145....
The momentum plays have died out completely over the past week and today's action did nothing to revive them. In fact many of the things that were strong today like agriculture and coal look like good potential short setups rather than the start of sustained reverses to the upside.
Technically the big level on everyone's radar is 900 on the S&P 500. As well as being a big round number, the 50-day and 200-day simple moving averages have converged there. We were unable to trade back over that level today, but I think we'll pop back over it in the next few days and trigger some buy-stops.
I suspect the bears will then be waiting to reload some shorts but that they may not stick around too long with the end-of-the-quarter window dressing fast approaching. It should be a good battle, but the bears are gaining the advantage.
Keep in mind that the trend may be turning down and traders may be focused much more on selling strength rather than buying weakness. Without some of the pockets of momentum that were working so well a little over week ago, the long side is turning into nothing more than some quick flips. Buy AAPL.
long AAPL
Buy Banks Now
I see lotsa stuff out there about a banking collapse; short the banks! Don't think that'll work now, and not just because of the two-year auction that went so well. I am staking out the positive bank ground, as I believe the end-of-quarter rally could be upon us, based on the money in -- there is plenty -- and the incredible negativity that will not let up.
What's the fundamental reason or reasons for this foolishness? Why buy here, right now? Because the pace of deterioration is moderating, which I regard with great comfort. There's something going on that's not in the numbers that makes me feel there could be some upside surprises: the deposit competition. It seems like it is going away. Every time we get one of these moments where there is stress, (and this time there was ALOT of stress), there are banks that start paying ultra high interest for hot money to fund their books.
The FDIC is cracking down on these free riders of the system. That could produce spectacular "turn the lights on, make money" kinds of results - which were seen in the early '90s, etc. Sure, there isn't a lot of lending going on yet - bank reserves at the Fed are sky-high. I see it will come with the house-price stabilization that is becoming obvious even to the bears. We will then, as nonperformers start to peak, and deposit competition goes away, be able to build models for earnings. That's what's been lacking more than anything in the bank stocks.
One obvious risk is commercial real estate. If it is as bad as the bears say, then the residential mortgage bottom won't matter. But I kind of shake my head at that, as this system has been under stress for an awfully long time, and we haven't seen much of any commercial real estate stress yet. I am wondering it if this won't turn out to be much ado about nothing....
Always - always - keep an eye out on California. If the bottom has truly been reached in California real estate, as I think it has, you can only imagine what it means for the models of BAC, WFC, and, to a lesser extent, JPM (Washington Mutual). Sure, it'd be great to see the refis and the mortgage originations be stronger here, but, as is often the case, people are just trying to game the market. I think those who are holding off will be back.
The thesis is what it is; the bears are pressing their bets because the names are so, so volatile. JPM bounces between 30 and 40 like a pinball. (Dated reference!) But the short bet, to me, looks like a sucker's bet, and I would move on going into the next quarter....
What's the fundamental reason or reasons for this foolishness? Why buy here, right now? Because the pace of deterioration is moderating, which I regard with great comfort. There's something going on that's not in the numbers that makes me feel there could be some upside surprises: the deposit competition. It seems like it is going away. Every time we get one of these moments where there is stress, (and this time there was ALOT of stress), there are banks that start paying ultra high interest for hot money to fund their books.
The FDIC is cracking down on these free riders of the system. That could produce spectacular "turn the lights on, make money" kinds of results - which were seen in the early '90s, etc. Sure, there isn't a lot of lending going on yet - bank reserves at the Fed are sky-high. I see it will come with the house-price stabilization that is becoming obvious even to the bears. We will then, as nonperformers start to peak, and deposit competition goes away, be able to build models for earnings. That's what's been lacking more than anything in the bank stocks.
One obvious risk is commercial real estate. If it is as bad as the bears say, then the residential mortgage bottom won't matter. But I kind of shake my head at that, as this system has been under stress for an awfully long time, and we haven't seen much of any commercial real estate stress yet. I am wondering it if this won't turn out to be much ado about nothing....
Always - always - keep an eye out on California. If the bottom has truly been reached in California real estate, as I think it has, you can only imagine what it means for the models of BAC, WFC, and, to a lesser extent, JPM (Washington Mutual). Sure, it'd be great to see the refis and the mortgage originations be stronger here, but, as is often the case, people are just trying to game the market. I think those who are holding off will be back.
The thesis is what it is; the bears are pressing their bets because the names are so, so volatile. JPM bounces between 30 and 40 like a pinball. (Dated reference!) But the short bet, to me, looks like a sucker's bet, and I would move on going into the next quarter....
Monday, June 22, 2009
Stocks Slammed Today
Small-caps and momentum stocks suffered their worst action since the final meltdown back in February. The major indices were ugly as well, but they really didn't reflect the carnage under the surface. The recent trading favorites were dumped like overripe onions, and the technical damage was quite notable in many cases like BIDU and CME.
The big technical level that everyone is watching right now is 900 on the S&P 500 -- not only is it a nice round number, the 50-day and 200-day simple moving averages are converging right now. I thought we might see a better attempt to hold that level, but the dip-buyers had absolutely no juice today.
The next area of technical support is the May lows around 878 or so, but the damage is already being done with the action today, and the trend shift is under way. I'm still looking for some reprieve as the end of the quarter approaches, but the chances of a quick and easy recovery like we saw in May following a dip are very remote.
It is not a good sign that there was no interest at all in buying the weakness today. They couldn't wait to jump in just a couple weeks ago, but today the buyers had no conviction at all. At this rate we'll end up oversold and ready for a bounce fairly soon, but the character of this market started to change last week, and today just verified that the euphoric "the worst is over" celebration is coming to an end.
The big technical level that everyone is watching right now is 900 on the S&P 500 -- not only is it a nice round number, the 50-day and 200-day simple moving averages are converging right now. I thought we might see a better attempt to hold that level, but the dip-buyers had absolutely no juice today.
The next area of technical support is the May lows around 878 or so, but the damage is already being done with the action today, and the trend shift is under way. I'm still looking for some reprieve as the end of the quarter approaches, but the chances of a quick and easy recovery like we saw in May following a dip are very remote.
It is not a good sign that there was no interest at all in buying the weakness today. They couldn't wait to jump in just a couple weeks ago, but today the buyers had no conviction at all. At this rate we'll end up oversold and ready for a bounce fairly soon, but the character of this market started to change last week, and today just verified that the euphoric "the worst is over" celebration is coming to an end.
Friday, June 19, 2009
The Late-Day Rally Reappears Today
After struggling most of the week, we had a real mix of action today. Once again the indices were acting weak after some strength at the open, but for the first time all week the dip-buyers managed to spike us back up in the final hour. We fizzled out a bit in the last few minutes, but the late-day run was something we have been missing lately.
Under the surface there was some surprisingly strong action in individual stocks. Big-cap technology, with the exception of RIMM, did very well, and many of the recent momentum plays came back to life.
The pattern of the market has been to keep on going once we bounced back from the brink of a breakdown. So far the S&P 500 has bounced just about perfectly from technical support, but it hasn't gained much traction. It's been the feeling of a few respected people out there that this time the recovery wouldn't be quick and easy like it was in May, and, in fact, they are looking for the lows of this week to be broken. We'll see.
The scenario that I think bears watching is a break below this week's lows, which shakes out some bulls, and then a bounce into the end of the quarter as money managers press to add some relative performance to their returns.
We had a period prior to the March low where nothing at all worked. Then in the last month or so there was some extremely euphoric action. Going forward I look choppier action and a much greater mix. We will have some good long opportunities, but there are going to be more shorts also.
long RIMM
Under the surface there was some surprisingly strong action in individual stocks. Big-cap technology, with the exception of RIMM, did very well, and many of the recent momentum plays came back to life.
The pattern of the market has been to keep on going once we bounced back from the brink of a breakdown. So far the S&P 500 has bounced just about perfectly from technical support, but it hasn't gained much traction. It's been the feeling of a few respected people out there that this time the recovery wouldn't be quick and easy like it was in May, and, in fact, they are looking for the lows of this week to be broken. We'll see.
The scenario that I think bears watching is a break below this week's lows, which shakes out some bulls, and then a bounce into the end of the quarter as money managers press to add some relative performance to their returns.
We had a period prior to the March low where nothing at all worked. Then in the last month or so there was some extremely euphoric action. Going forward I look choppier action and a much greater mix. We will have some good long opportunities, but there are going to be more shorts also.
long RIMM
Thursday, June 18, 2009
Reasons Why PALM May Be A Buy Here
Just about everyone had written off PALM; many investors, I think, are reconsidering the stock. The Palm Pre is a great product - it just needs more apps. It may not be a better piece of hardware overall than iPhone or Blackberry, but it doesn't need to be. It just needs to be competitive and gain a market-share niche.
Product reviews have been excellent. It effectively combines AAPL's touchscreen technology with a RIMM-type keypad. And Pre is competitive, in terms of features, with iPhone and Blackberry products (quality of camera, battery life, etc.).
Sprint’s All-Everything Plan offers, by far, the best overall value in the market for 3G phone plans. This will sustain Pre sales going forward. So, a good phone plus a cheap plan will most likely beget big sales. The Pre completely sold out on the weekend of June 6-7; the majority of outlets had completely run out of the product by 12:00 p.m. on Saturday. About 80,000 units were sold, and most analysts believe the company probably would have sold 150,000 if they hadn't run out.
PALM has als just hired a new, widely respected CEO. Plus it will likely make a VZ launch in 6 months, which would greatly expand its potential market.
Shifting gears a bit, the company is attractive as a strategic acquisition candidate. The short interest is at over 29% of the float. There's clear potential for monster short squeeze. Also, the top-10 holders of the stock control 77% of the shares outstanding. I perused the list and these are strong hands. Thus, the effective float for this stock is tiny. This magnifies the potential for a massive short squeeze.
Virtually nobody has believed in these guys; almost everybody had written them off. Perhaps, until now. There's little doubt that analysts are going to have to go back to the drawing board on this one. Huge EPS and price-target revisions could help drive the stock.
One thing to factor in is that PALM has been losing money for many years, and its cash position is weak. In order to ramp production, shipments, and marketing, PALM is likely to do a modestly dilutive secondary share offering in the near future. However, institutions are going to want in on this one, so raising capital at this juncture should be no problem.
Based on a quick estimation -- a conservative estimate of the market share they could eventually gain, and the amount of shares they're likely to issue -- this stock should probably be worth $45-$55. The stock could reach $25 by July, and perhaps $35 by the end of 2009, depending on market conditions. A massive short squeeze could send this stock even higher.
Plus, a strategic acquisition is a distinct possibility. Traditional handset players, such as Nokia, Sony-Ericsson, Samsung, LG, or Motorola are probably highly interested, as they're currently behind the curve in terms of 3G. Indeed, it could be reasonably argued that several of these companies need to make this acquisition because 2G technology is becoming obsolete; they may get shut out of the market if they cannot establish a serious presence in the 3G market within the next 12 months. It's unlikely that many of these companies are going to be able to do this without a strategic acquisition, and Palm is the only truly viable choice. If these companies don't move quickly, they literally risk dying on the vine.
In addition, it's kind of mind-boggling the strategic possibilities that PALM could offer DELL, MSFT or even CSCO - companies that might want to stake a claim in this incredibly important space.
I just don't think PALM could be acquired for less than $45, which implies a valuation of around $6 billion. Indeed, the strategic implications for all of the aforementioned potential acquirers are huge, and it's quite possible that a bidding war could erupt. If that happens, it could boost the value of the stock considerably further.
Position: Looking to build a position in PALM very soon
Product reviews have been excellent. It effectively combines AAPL's touchscreen technology with a RIMM-type keypad. And Pre is competitive, in terms of features, with iPhone and Blackberry products (quality of camera, battery life, etc.).
Sprint’s All-Everything Plan offers, by far, the best overall value in the market for 3G phone plans. This will sustain Pre sales going forward. So, a good phone plus a cheap plan will most likely beget big sales. The Pre completely sold out on the weekend of June 6-7; the majority of outlets had completely run out of the product by 12:00 p.m. on Saturday. About 80,000 units were sold, and most analysts believe the company probably would have sold 150,000 if they hadn't run out.
PALM has als just hired a new, widely respected CEO. Plus it will likely make a VZ launch in 6 months, which would greatly expand its potential market.
Shifting gears a bit, the company is attractive as a strategic acquisition candidate. The short interest is at over 29% of the float. There's clear potential for monster short squeeze. Also, the top-10 holders of the stock control 77% of the shares outstanding. I perused the list and these are strong hands. Thus, the effective float for this stock is tiny. This magnifies the potential for a massive short squeeze.
Virtually nobody has believed in these guys; almost everybody had written them off. Perhaps, until now. There's little doubt that analysts are going to have to go back to the drawing board on this one. Huge EPS and price-target revisions could help drive the stock.
One thing to factor in is that PALM has been losing money for many years, and its cash position is weak. In order to ramp production, shipments, and marketing, PALM is likely to do a modestly dilutive secondary share offering in the near future. However, institutions are going to want in on this one, so raising capital at this juncture should be no problem.
Based on a quick estimation -- a conservative estimate of the market share they could eventually gain, and the amount of shares they're likely to issue -- this stock should probably be worth $45-$55. The stock could reach $25 by July, and perhaps $35 by the end of 2009, depending on market conditions. A massive short squeeze could send this stock even higher.
Plus, a strategic acquisition is a distinct possibility. Traditional handset players, such as Nokia, Sony-Ericsson, Samsung, LG, or Motorola are probably highly interested, as they're currently behind the curve in terms of 3G. Indeed, it could be reasonably argued that several of these companies need to make this acquisition because 2G technology is becoming obsolete; they may get shut out of the market if they cannot establish a serious presence in the 3G market within the next 12 months. It's unlikely that many of these companies are going to be able to do this without a strategic acquisition, and Palm is the only truly viable choice. If these companies don't move quickly, they literally risk dying on the vine.
In addition, it's kind of mind-boggling the strategic possibilities that PALM could offer DELL, MSFT or even CSCO - companies that might want to stake a claim in this incredibly important space.
I just don't think PALM could be acquired for less than $45, which implies a valuation of around $6 billion. Indeed, the strategic implications for all of the aforementioned potential acquirers are huge, and it's quite possible that a bidding war could erupt. If that happens, it could boost the value of the stock considerably further.
Position: Looking to build a position in PALM very soon
Quite A Lackluster Day
Although the indices mostly finished in the green, another weak finish marred the very uninspired action. The bounce had little life to it, and buyers were missing the confidence that had served them so well until this week.
Given how well dip-buying has worked you have to expect a few tries, but it has been so weak that it makes it look like just a matter of time before we roll over again and the selling accelerates. But that's just a feeling, and of course could be dead wrong.
The most notable action today was not in stocks but the strength in the dollar and weakness in bonds. That helped financials but hurt oil and commodities.
Option games culminate tomorrow, but many are increasingly concerned about the technical picture of this market. Perhaps that alone will keep the market steady.
It certainly seems like a time for increased caution. We have survived for a long time due to the kindness of dip-buyers and they no longer look like they are nearly as anxious to help out. But again, that perception could just be the end-result of options games being played this week. If a "bad" scenario arises, however, that will leave a lot of stuck bulls, who potentially will be the sellers who push us down further.
RIMM earnings are out and are slightly ahead, but the initial reaction is negative. Expectations may have been too high and now the after-hours players, at least, are selling the news. Tomorrow could be a different story however.
long RIMM
Given how well dip-buying has worked you have to expect a few tries, but it has been so weak that it makes it look like just a matter of time before we roll over again and the selling accelerates. But that's just a feeling, and of course could be dead wrong.
The most notable action today was not in stocks but the strength in the dollar and weakness in bonds. That helped financials but hurt oil and commodities.
Option games culminate tomorrow, but many are increasingly concerned about the technical picture of this market. Perhaps that alone will keep the market steady.
It certainly seems like a time for increased caution. We have survived for a long time due to the kindness of dip-buyers and they no longer look like they are nearly as anxious to help out. But again, that perception could just be the end-result of options games being played this week. If a "bad" scenario arises, however, that will leave a lot of stuck bulls, who potentially will be the sellers who push us down further.
RIMM earnings are out and are slightly ahead, but the initial reaction is negative. Expectations may have been too high and now the after-hours players, at least, are selling the news. Tomorrow could be a different story however.
long RIMM
Stock Buybacks; Stock Issuances; JPM
Is it ever really a good idea to buy back one's own stock? Probably not; can't think of even one good, compelling financial reason to do it. But what we have now is just the opposite: companies issuing stock to shore up their balance sheets, even at what many consider "depressed" valuations. In many cases, these companies don't have a choice. Banks -- issuers of lines of credit that need to be rolled over from time to time -- are being very heavy handed, "forcing" even the best companies to de-lever.
This is a win-win for companies such as JP Morgan, which has been involved in almost every major equity secondary out there. They will reap substantial income from the underwriting fees, and suddenly their clients become much more creditworthy. JPM's probably a great stock to own over the next few years....
Position: Long FAS (JPM is the biggest component)
This is a win-win for companies such as JP Morgan, which has been involved in almost every major equity secondary out there. They will reap substantial income from the underwriting fees, and suddenly their clients become much more creditworthy. JPM's probably a great stock to own over the next few years....
Position: Long FAS (JPM is the biggest component)
Wednesday, June 17, 2009
A Change In Market Character? Or Just Intense Options Pressure? (As Usual...)
For the technicians, after two days of selling, the S&P 500 did an almost perfect bounce off its 50-day simple moving average around 906. Unlike many of our prior bounces, the buying today didn't possess much vigor. The shorts weren't squeezed this time, and the momentum chasers didn't rush to join the charge. It just looked like a pretty standard oversold bounce, and we even fizzled in the final hour and ended up with a flat day for the indices.
Could it be that the best test of whether or not this market is ready to roll over harder will come on a bounce attempt? My own pea-sized brain keeps telling me RIMM's report tomorrow is pretty important, short term. If the dip-buyers weren't as aggressive and the shorts had more confidence, then we'd possibly be looking for some downside in the near term. The evidence today seems to suggest that this might be the case.
I'm wondering if we are are undergoing a change in market character. However, I don't think the market will be anywhere nearly as bad as it was back in February. Obviously the key is simply to pick good stocks. Simply betting on the index here and in the short-term future may not be the way to go. Gold finished the day strong, and it'll be supremely interesting to see where that price level goes.
Could it be that the best test of whether or not this market is ready to roll over harder will come on a bounce attempt? My own pea-sized brain keeps telling me RIMM's report tomorrow is pretty important, short term. If the dip-buyers weren't as aggressive and the shorts had more confidence, then we'd possibly be looking for some downside in the near term. The evidence today seems to suggest that this might be the case.
I'm wondering if we are are undergoing a change in market character. However, I don't think the market will be anywhere nearly as bad as it was back in February. Obviously the key is simply to pick good stocks. Simply betting on the index here and in the short-term future may not be the way to go. Gold finished the day strong, and it'll be supremely interesting to see where that price level goes.
Tuesday, June 16, 2009
Today The Markets Ignored Good Housing News
Today’s housing data was clearly good news. A 17.2% increase in housing starts is a hugely positive data point. This was led by a massive 62% gain in construction of residential apartments. And there was even a 7.5% rise in single family homes. And building permits, which are a reliable leading indicator of activity, were up significantly – and for the third straight month. Of course, the naysayers can always think of some excuse to pooh pooh this data. However, it is my view that under current circumstances, homebuilders are very unlikely to be building and applying for permits unless they are pretty certain about the final demand.
Many people will have trouble believing these numbers – perhaps because many live in areas where there is no such normalization occurring in the housing market. And clearly there are many areas that are still in decline – especially in the bubble regions and the regions (like the rust belt area) that are in a longer term secular decline. There are no shortage of anecdotes that bears can cite in support of the view that things are getting worse, not better. However, anecdotes are anecdotes. People can cite anecdotes of contraction in various regions when the economy is growing at a vibrant rate. That is irrelevant. The problem is that housing markets are local. And in many localities things are normalizing. Indeed, across wide swaths of the country, there was never a housing bubble to begin with, so there is no need to recover from a crash.
National statistics are national statistics. You can accept them or you can choose to join the conspiracy theorists that believe that the government is cooking the books to hide the fact that the economy is still in freefall. Believe what you will!
For those that believe that statistics are worth analyzing, it may be of interest to note that for housing construction to have a positive impact of GDP, all that has to happen is for it to grow at about 0.1%. Indeed, I estimate that basically zero growth in housing over the next 12 months would translate into a 1% increase in GDP, which is huge. That occurs because the contraction of housing construction ceases to be a drag to growth. Today’s numbers indicate that an even more optimistic outlook is possible.
Many commentators are talking about mortgage rates at 6% as being terrible for the economy. Yes, they exaggerate. Sure, 6% is not as good as 4.7%. But it is very good in historical terms. And, with respect to the housing construction industry, if people’s personal economies are stabilizing, as it appears that they are, 6.00% to buy homes or apartments that have declined sharply in value looks pretty good. Rumors of the demise of the American dream are premature, in my opinion – indeed, you can’t kill it precisely because it is a dream. The anecdote driven speculation about a permanent change in psychology in the American populous is, for the most part, fantasy. Life goes on. Young people that have a job, and feel relatively secure, are looking to buy. They don’t care if mortgage rates are at 6% or if they are at 8%. They want their own place. Period. (I know I did way back then..)
Now, let’s get back to financial markets. It matters not that the news be great. What matters is the reaction. And clearly, the market is tired of reacting bullishly to good news. It is now reacting poorly to so-so or bad news and it is acting indifferently to good news. Yesterday’s reaction to marginally negative news was indicative of a market that is a bit “exhausted” after repeated failures to clear the 950 area. And today’s reaction to good news confirms this view.
A market that is transitioning technically from a positive to a neutral bias implies that it will take considerable amounts of positive fundamental news flow for the market to firm up and renew its bullish uptrend. I am expecting an important flow of positive preannouncements in the next couple of weeks as well as a continued flow of positive economic data in the US and abroad. Will it be enough turn the tide?
I think this very much depends on the technical floor that is established in this “neutral” phase, and how quickly it occurs. Will the market find a new base at around the 900-910 level or will it go to 870-880? I certainly don't know; I am agnostic.
I believe that activity in foreign markets will be a major wild card factor in the next 3-4 sessions. Trading overseas can set the early tone in the mornings. They are also pretty good indicators of risk aversion, the movement of marginal money and the tenor of the “animal spirits.” If Asian and European markets are able to bounce in the next few sessions, this will be extremely important for US markets in my opinion. The converse is just as true. If foreign markets keep plunging, it is unlikely that the US market in its current technical state can buck the trend.
I maintain my 100% core long positions. However, I will not hesitate to use leverage to play defense. The short-term outlook is complicated, as usual.
Many people will have trouble believing these numbers – perhaps because many live in areas where there is no such normalization occurring in the housing market. And clearly there are many areas that are still in decline – especially in the bubble regions and the regions (like the rust belt area) that are in a longer term secular decline. There are no shortage of anecdotes that bears can cite in support of the view that things are getting worse, not better. However, anecdotes are anecdotes. People can cite anecdotes of contraction in various regions when the economy is growing at a vibrant rate. That is irrelevant. The problem is that housing markets are local. And in many localities things are normalizing. Indeed, across wide swaths of the country, there was never a housing bubble to begin with, so there is no need to recover from a crash.
National statistics are national statistics. You can accept them or you can choose to join the conspiracy theorists that believe that the government is cooking the books to hide the fact that the economy is still in freefall. Believe what you will!
For those that believe that statistics are worth analyzing, it may be of interest to note that for housing construction to have a positive impact of GDP, all that has to happen is for it to grow at about 0.1%. Indeed, I estimate that basically zero growth in housing over the next 12 months would translate into a 1% increase in GDP, which is huge. That occurs because the contraction of housing construction ceases to be a drag to growth. Today’s numbers indicate that an even more optimistic outlook is possible.
Many commentators are talking about mortgage rates at 6% as being terrible for the economy. Yes, they exaggerate. Sure, 6% is not as good as 4.7%. But it is very good in historical terms. And, with respect to the housing construction industry, if people’s personal economies are stabilizing, as it appears that they are, 6.00% to buy homes or apartments that have declined sharply in value looks pretty good. Rumors of the demise of the American dream are premature, in my opinion – indeed, you can’t kill it precisely because it is a dream. The anecdote driven speculation about a permanent change in psychology in the American populous is, for the most part, fantasy. Life goes on. Young people that have a job, and feel relatively secure, are looking to buy. They don’t care if mortgage rates are at 6% or if they are at 8%. They want their own place. Period. (I know I did way back then..)
Now, let’s get back to financial markets. It matters not that the news be great. What matters is the reaction. And clearly, the market is tired of reacting bullishly to good news. It is now reacting poorly to so-so or bad news and it is acting indifferently to good news. Yesterday’s reaction to marginally negative news was indicative of a market that is a bit “exhausted” after repeated failures to clear the 950 area. And today’s reaction to good news confirms this view.
A market that is transitioning technically from a positive to a neutral bias implies that it will take considerable amounts of positive fundamental news flow for the market to firm up and renew its bullish uptrend. I am expecting an important flow of positive preannouncements in the next couple of weeks as well as a continued flow of positive economic data in the US and abroad. Will it be enough turn the tide?
I think this very much depends on the technical floor that is established in this “neutral” phase, and how quickly it occurs. Will the market find a new base at around the 900-910 level or will it go to 870-880? I certainly don't know; I am agnostic.
I believe that activity in foreign markets will be a major wild card factor in the next 3-4 sessions. Trading overseas can set the early tone in the mornings. They are also pretty good indicators of risk aversion, the movement of marginal money and the tenor of the “animal spirits.” If Asian and European markets are able to bounce in the next few sessions, this will be extremely important for US markets in my opinion. The converse is just as true. If foreign markets keep plunging, it is unlikely that the US market in its current technical state can buck the trend.
I maintain my 100% core long positions. However, I will not hesitate to use leverage to play defense. The short-term outlook is complicated, as usual.
Why Are We Looking To Those Who Never Saw The Storm Coming For Answers Now?
Lots of people out there who have differing opinions than mine on the markets, the economy, etc. Just a few observations: Home sale prices, including foreclosures, as we now do, makes the decline in home price data look far worse than past recessions. More importantly, in 2007 FAS 157 was put in place - this was the mother of all negative changes in accounting policy and effectively a change of calculation for bank capital - not good. Point being, changes in calculations, policies and market rules happen and we have to react to them and assess the impact on the system. Economists could (and do ) debate these sorts of issues all year, but I'll stick with the data we've got and hold my view on where this recession ranks so far vs. prior ones. Time will obviously tell if we double-dip or how strong the recovery cycle will be........
Another point I'd like to make is every - yes every one - bank is insolvent if you can create a run on it. So leverage was most likely too high at 25:1, but at 15:1 it's still insolvent if there's a run. So unless we want banks to only loan the capital they can have on hand - and end up with usury rates again - we need to consider that the banking system is a system built on trust, faith and key rules. If major changes occur that negatively impacts trust and faith, the value and liquidity of the system will almost certainly be jeopardized. Believe me, we definitely DO NOT want a banking system based on banks or lending institutions only lending the capital on hand...
Also, during much of the 1930s, banks used m2m accounting. In July of 1938 the Fed announced a suspension of m2m and asserted that bank assets should be valued on long-term safety and soundness. Around this time they also instituted the uptick rule. Not coincidently, it wasn't long before the markets started acting much healthier and investor confidence was restored. We've been here before, and frankly it's sad we didn't remember the lessons of the past - in more ways than one. Hopefully we'll go at least another 70 years or so before we repeat them again....
Another point I'd like to make is every - yes every one - bank is insolvent if you can create a run on it. So leverage was most likely too high at 25:1, but at 15:1 it's still insolvent if there's a run. So unless we want banks to only loan the capital they can have on hand - and end up with usury rates again - we need to consider that the banking system is a system built on trust, faith and key rules. If major changes occur that negatively impacts trust and faith, the value and liquidity of the system will almost certainly be jeopardized. Believe me, we definitely DO NOT want a banking system based on banks or lending institutions only lending the capital on hand...
Also, during much of the 1930s, banks used m2m accounting. In July of 1938 the Fed announced a suspension of m2m and asserted that bank assets should be valued on long-term safety and soundness. Around this time they also instituted the uptick rule. Not coincidently, it wasn't long before the markets started acting much healthier and investor confidence was restored. We've been here before, and frankly it's sad we didn't remember the lessons of the past - in more ways than one. Hopefully we'll go at least another 70 years or so before we repeat them again....
"Technical" Damage Done Today?
After the crappy-ass action on Monday, the dip-buyers made a minor attempt this morning but were unable to generate any buying enthusiasm for any length of time. It seemed like once we took out the Monday lows, for all you technicians out there, selling picked up and even a tepid late bounce attempt was aggressively turned back. Breadth was better than 2 to 1 negative and volume picked up for the second day in row.
Things to watch? One might be to gauge the vigor of dip buying. Another would be to monitor any pockets of aggressive momentum....Both don't look so hot right at the moment. Obviously the dip-buyers had some chances to do what they have done so well since March but didn't execute. The small-cap momentum was nonexistent today and actually was working in reverse in many cases.
I'm looking for a bounce attempt first, but I'm not sure if it'll hold. How many out there are looking to sell and/or short into strength? Is now the time to cut some longs? It's certainly possible the dip-buyers could bail us out once again, but it may be more difficult this time 'round.
Things to watch? One might be to gauge the vigor of dip buying. Another would be to monitor any pockets of aggressive momentum....Both don't look so hot right at the moment. Obviously the dip-buyers had some chances to do what they have done so well since March but didn't execute. The small-cap momentum was nonexistent today and actually was working in reverse in many cases.
I'm looking for a bounce attempt first, but I'm not sure if it'll hold. How many out there are looking to sell and/or short into strength? Is now the time to cut some longs? It's certainly possible the dip-buyers could bail us out once again, but it may be more difficult this time 'round.
What To Expect Tomorrow Regarding Financial Regs
Here's what I think one should expect to happen/be announced tomorrow:
Expansion of Fed's powers to regulate large market participants; Some fear it will give the Fed, not responsible to Congress, too much power....
Administrative power to break up systemically important companies, especially those in insurance.
Creation of new financial regulator responsible for overseeing consumer related financial products, for strong investor protection.
Also look for the Treasury to propose new rules requiring loan originators to retain some of securitized loan credit on books, stricter accounting, and standardized contracts.
Not surprisingly, already there are complaints that rules will reduce market participation which helps make credit accessible. Treasury likely to contend new rules will establish firm footing. We'll see what happens........
Expansion of Fed's powers to regulate large market participants; Some fear it will give the Fed, not responsible to Congress, too much power....
Administrative power to break up systemically important companies, especially those in insurance.
Creation of new financial regulator responsible for overseeing consumer related financial products, for strong investor protection.
Also look for the Treasury to propose new rules requiring loan originators to retain some of securitized loan credit on books, stricter accounting, and standardized contracts.
Not surprisingly, already there are complaints that rules will reduce market participation which helps make credit accessible. Treasury likely to contend new rules will establish firm footing. We'll see what happens........
Monday, June 15, 2009
Big Selloff On Light Volume (But Does That Matter?) Today; Feeble Bounce By EOD...
Once again, the bulls managed a bounce late in the day, but it was very small and certainly didn't have the vigor of other such last-minute runs. Breadth was extremely poor, the point loss was significant and there were no safe havens or pockets of momentum today. I saw a few things recover a bit as the day wound down but there was no rush to catch the dip today.
The last time the dip-buyers were so weak was a month ago on May 12 and May 13. We find some support very soon thereafter and pockets of momentum quickly resumed. I suspect a lot of folks are looking for that to happen again and although there was some very severe selling it didn't have a panicky feel to it.
We have had too much momentum for too long, so on a day like this the action is driven more by a lack of buyers than by aggressive sellers. We did fall back below 925 on the S&P 500, but didn't breach it with any real conviction. It is still trading range-type action and the big picture hasn't changed much. We still have substantial underlying support but the indices aren't going anywhere.
My main focus is the pockets of momentum action. There have been some very strong ones lately but they completely dried up today. Back in May they came back to life after a two-day rest and hopefully we'll see that again. We are being tested and we haven't failed yet, but it is not the time to be undisciplined with your trading...
The last time the dip-buyers were so weak was a month ago on May 12 and May 13. We find some support very soon thereafter and pockets of momentum quickly resumed. I suspect a lot of folks are looking for that to happen again and although there was some very severe selling it didn't have a panicky feel to it.
We have had too much momentum for too long, so on a day like this the action is driven more by a lack of buyers than by aggressive sellers. We did fall back below 925 on the S&P 500, but didn't breach it with any real conviction. It is still trading range-type action and the big picture hasn't changed much. We still have substantial underlying support but the indices aren't going anywhere.
My main focus is the pockets of momentum action. There have been some very strong ones lately but they completely dried up today. Back in May they came back to life after a two-day rest and hopefully we'll see that again. We are being tested and we haven't failed yet, but it is not the time to be undisciplined with your trading...
Friday, June 12, 2009
Not A Bad Day - Many Were Expecting (And Continue To Expect) A Selloff
The Iran election results triggered the typical late-day spike a bit too early, and the bulls didn't have the ammo today to hold us up with the weekend lurking. It ended up being another mild day for the S&P 500, which was almost exactly flat for the week, (there's a ferocious battle going on between 920 and 950) but there was some interesting action under the surface.
Oil and commodity stocks pulled back today, but they were the big winners this week. But more interesting to me were the continued pockets of very hot speculative action in some small-cap groups like biotechnology and China-related stocks.
Although the indices didn't make a lot of headway, there was a solid bid under the market. The bears were unable to gain any downside traction at all, and the buyers stayed ready to pounce on the most shallow of pullbacks. On the other hand, the bulls were equally inept at hanging on to gains and squandered a breakout move on Thursday when the S&P 500 moved over 950.
The end result is that we are right back smack in the middle of the same trading range we were in a week ago. There were some troublesome rollovers in big-cap momentum stocks today, and the small-cap momentum narrowed quite a bit, but technically the market still has not done anything wrong.
It concerns me that some of the leading stocks are losing traction, but for the most part there haven't been any major technical breakdowns. It still looks more like consolidation within an uptrend rather than something more dire, but we have to stay very watchful for the day when the dip-buyers finally run out of gas.
Oil and commodity stocks pulled back today, but they were the big winners this week. But more interesting to me were the continued pockets of very hot speculative action in some small-cap groups like biotechnology and China-related stocks.
Although the indices didn't make a lot of headway, there was a solid bid under the market. The bears were unable to gain any downside traction at all, and the buyers stayed ready to pounce on the most shallow of pullbacks. On the other hand, the bulls were equally inept at hanging on to gains and squandered a breakout move on Thursday when the S&P 500 moved over 950.
The end result is that we are right back smack in the middle of the same trading range we were in a week ago. There were some troublesome rollovers in big-cap momentum stocks today, and the small-cap momentum narrowed quite a bit, but technically the market still has not done anything wrong.
It concerns me that some of the leading stocks are losing traction, but for the most part there haven't been any major technical breakdowns. It still looks more like consolidation within an uptrend rather than something more dire, but we have to stay very watchful for the day when the dip-buyers finally run out of gas.
NYSE Prohibited Taking Liquidity Today
The NYSE seemed to be having a major liquidity event today. Taking liquidity (market orders) was prohibited by 2:20 CT for the rest of the day and only limit orders (Providing liquidity) were allowed.
Here is the most recent.
02:59pm 12 Jun 09:
Market oddlot and PRLs in Matching Engine One (Update)
As a follow-up to today's issue with Matching Engine One, we have found that market oddlot orders and oddlot portions of partial roundlot orders (PRLs) are not executing in the affected symbols (listed below). However, oddlot orders and PRLs with limit prices are executing properly in these symbols. For the remainder of the day, customers should cancel unexecuted market oddlot orders and the oddlot portions of partial roundlot orders in the affected symbols, and submit only oddlot orders and PRLs with limit prices.
Here is the most recent.
02:59pm 12 Jun 09:
Market oddlot and PRLs in Matching Engine One (Update)
As a follow-up to today's issue with Matching Engine One, we have found that market oddlot orders and oddlot portions of partial roundlot orders (PRLs) are not executing in the affected symbols (listed below). However, oddlot orders and PRLs with limit prices are executing properly in these symbols. For the remainder of the day, customers should cancel unexecuted market oddlot orders and the oddlot portions of partial roundlot orders in the affected symbols, and submit only oddlot orders and PRLs with limit prices.
Thursday, June 11, 2009
For A Change, It's The Bears Who Come On Strong At The Finish....
The recent pattern of the market has been for the market to look shaky at midday and then for a late buying surge to squeeze us higher into the close. Today we had an inverse. After the better-than-expected bond auction, we popped to highs at midday and then saw the selling accelerate in the final hour.
Breadth was still positive, and there was no shortage of momentum in some of the low priced "junk" stocks, but I noticed quite a few pullbacks in some of the recently hot stocks like AMZN, TNDM, FSLR, GOOG, V and GS.
Pharmaceuticals, oil, commodities, steel and coal were the main upside driving forces today, but it was a tricky day with some anxiety to protect gains. There's still a lot of hot money anxiously looking to chase some big movers, but it seemed a bit more skittish today.
Once again, the S&P 500 failed to hold the breakout at 950, but the major indices are all well within recent trading ranges and have not incurred any technical damage. The 950 level is quite a battleground - the "fiercest" I've seen in quite a while.
We'll see if the bears can build on this late-hour weakness, but I don't expect dip-buyers to go away very quickly. They will need to fail a number of times before they stop being so aggressive. The little weakness is not going to shake them much at all.
Going into more detail, the stock market made its way to fresh 2009 highs before paring its gains in afternoon trading. Despite the weak close, stocks were still able to log solid, broad-based gains with advancing issues outnumbering decliners by 3-to-2 in the S&P 500... The session's advance was strongest among utilities stocks, which climbed 2.0%. Gains were also impressive among energy stocks, which finished 1.8% higher... The advance by energy stocks came as crude oil prices extended their recent run, thanks partly to an improved 2009 global oil demand forecast from the International Energy Agency. Oil prices settled 1.8% higher at $72.60 per barrel, a fresh closing high for the year... A weaker U.S. dollar also provided a boon for oil, as well as other commodities. With the greenback shedding 1.1% against a basket of major foreign currencies, the CRB Commodity Index tacked on 2.0%... Weakness in the dollar intensified after an auction of 30-year Bonds carrying a yield of 4.72% was met with a bid-to-cover ratio of 2.7. The results kicked up buying among Treasuries, sending the benchmark 10-year Note higher and the Note's yield lower. Ahead of the open the 10-year Note had been yielding nearly 4%, but it closed with its yield below 3.9%. The 30-year Bond saw its yield pull back to 4.7%... Higher borrowing costs associated with higher yields have caused concern that an economic rebound could get choked off, with particular challenges for the housing industry. According to Bankrate.com, the overnight average for a 30-year fixed mortgage stands at 5.74%, up from last week's 5.35%... Economic data had little impact on trading this session. According to the latest Advance Retail Sales Report, both total retail sales and retail sales less autos increased 0.5%, which marked the first increase in three months. Total sales were in-line with expectations, while sales excluding autos were actually stronger than expected... Still, such discretionary spending is expected to be challenged in coming months as workers struggle to find employment. As such, continuing claims climbed to a new record high. However, some are encouraged by the continued decline in initial weekly jobless claims....
Breadth was still positive, and there was no shortage of momentum in some of the low priced "junk" stocks, but I noticed quite a few pullbacks in some of the recently hot stocks like AMZN, TNDM, FSLR, GOOG, V and GS.
Pharmaceuticals, oil, commodities, steel and coal were the main upside driving forces today, but it was a tricky day with some anxiety to protect gains. There's still a lot of hot money anxiously looking to chase some big movers, but it seemed a bit more skittish today.
Once again, the S&P 500 failed to hold the breakout at 950, but the major indices are all well within recent trading ranges and have not incurred any technical damage. The 950 level is quite a battleground - the "fiercest" I've seen in quite a while.
We'll see if the bears can build on this late-hour weakness, but I don't expect dip-buyers to go away very quickly. They will need to fail a number of times before they stop being so aggressive. The little weakness is not going to shake them much at all.
Going into more detail, the stock market made its way to fresh 2009 highs before paring its gains in afternoon trading. Despite the weak close, stocks were still able to log solid, broad-based gains with advancing issues outnumbering decliners by 3-to-2 in the S&P 500... The session's advance was strongest among utilities stocks, which climbed 2.0%. Gains were also impressive among energy stocks, which finished 1.8% higher... The advance by energy stocks came as crude oil prices extended their recent run, thanks partly to an improved 2009 global oil demand forecast from the International Energy Agency. Oil prices settled 1.8% higher at $72.60 per barrel, a fresh closing high for the year... A weaker U.S. dollar also provided a boon for oil, as well as other commodities. With the greenback shedding 1.1% against a basket of major foreign currencies, the CRB Commodity Index tacked on 2.0%... Weakness in the dollar intensified after an auction of 30-year Bonds carrying a yield of 4.72% was met with a bid-to-cover ratio of 2.7. The results kicked up buying among Treasuries, sending the benchmark 10-year Note higher and the Note's yield lower. Ahead of the open the 10-year Note had been yielding nearly 4%, but it closed with its yield below 3.9%. The 30-year Bond saw its yield pull back to 4.7%... Higher borrowing costs associated with higher yields have caused concern that an economic rebound could get choked off, with particular challenges for the housing industry. According to Bankrate.com, the overnight average for a 30-year fixed mortgage stands at 5.74%, up from last week's 5.35%... Economic data had little impact on trading this session. According to the latest Advance Retail Sales Report, both total retail sales and retail sales less autos increased 0.5%, which marked the first increase in three months. Total sales were in-line with expectations, while sales excluding autos were actually stronger than expected... Still, such discretionary spending is expected to be challenged in coming months as workers struggle to find employment. As such, continuing claims climbed to a new record high. However, some are encouraged by the continued decline in initial weekly jobless claims....
A Little Bit About BAC; Plus A Little Bit On "Toxic" Bonds....
Meredith Whitney has been oh-so-correct about the financial institution meltdown that started in '07 and ended this spring. But now she's pushing it too far, putting BAC's 2010 earnings at .20. $0.20???? That's crazy - it's more like $2.50. I respect her for being loud and correct for so long, but she's very wrong now.....
As for these so-called "toxic" bonds, today's WSJ states they are a problem. CNBC talking heads, of course, are stating they are a problem. Too bad for the talking heads that these bonds are screaming north, given that housing depreciation has stopped. How can these people not know this? And why should these banks sell these bonds when many are not even unfairly valued anymore? Why not hold on?
Remember, 2005-2007 are the real problems. Home-equity bonds should be valued at zero. But first mortgage should be kept on the sheets!
As for these so-called "toxic" bonds, today's WSJ states they are a problem. CNBC talking heads, of course, are stating they are a problem. Too bad for the talking heads that these bonds are screaming north, given that housing depreciation has stopped. How can these people not know this? And why should these banks sell these bonds when many are not even unfairly valued anymore? Why not hold on?
Remember, 2005-2007 are the real problems. Home-equity bonds should be valued at zero. But first mortgage should be kept on the sheets!
Wednesday, June 10, 2009
The Same Late-Day Buy Program Is Run Again
We probably shouldn't be surprised that the market bounced back very strongly once again in the final hour. We have done it so consistently that traders are going to help it happen. What is surprising is that it keeps working so well even though everyone is painfully aware of it. Typically, traders keep trying to jump in front of a regular pattern until they anticipate it to such a degree that it doesn't work.
I suspect that this pattern is working so consistently well because it is generated primarily by giant program trades that are more powerful in the short term than anything in the market. The program buying feeds on itself, squeezes shorts and entices the hot money back into the market.
So after a gap-and-failure up this morning and then another run-and-gun close this afternoon, the net effect was that the indices finished with mild losses and are still firmly mired in the recent trading range. Breadth was negative, and some of the small-cap momentum slowed, but there was still some speculative action to find in solar energy, oil shippers, auto parts and select China names, but it was a bit less frantic than in the last couple days.
Obviously the bears can't get their claws into this market, but the bulls aren't quite able to charge through overhead resistance either. The good news is that within this trading range action, there is some good trading to be found. Traders have enough confidence to not just quickly flip for small gains, and they are generating some follow-through in places; this creates opportunity even if the indices churn.
The bears are due to win this final hour battle one of these days but today wasn't it. We have to continue to respect the bulls, or maybe the respect should go to their computer programs that seem to be stuck on "buy."
Going into more detail, the major indices started the session with solid gains, but drifted into the red before gradually paring losses into the close... Part of this session's weakness came as concerns that rising oil prices and higher borrowing costs associated with rising Treasury yields could stymie an economic rebound... Oil prices eclipsed the prior session's 2009 closing high by finishing 1.7% higher at $71.14 per barrel. Crude prices also registered new intraday highs for 2009 by climbing to almost $71.80 per barrel shortly after weekly oil inventories showed a surprise draw... Treasuries fell under renewed selling pressure amid news that the Russian Central Bank will cut its Treasury holdings, and a $19 billion auction of 10-year Notes proved disappointing. In turn, the 10-year Note shed some 20 ticks this session, which pushed its yield up above 3.9%. That means the yield on the benchmark Note has increased by approximately 80 basis points in less than one month... The disappointing auction and rise in yields drove selling in the broader market, which left only the utilities sector (+1.6%) in the green. However, as the market pared its losses into the afternoon, materials (+0.1%), telecom (+0.2%), and energy (+0.7%) were able to climb back into the green and log gains... Financials saw the worst loss by declining 1.6%. Consumer discretionary stocks slid 1.0%, despite an upwardly revised earnings outlook from home improvement retailer HD... Investors continue to look for signs that economic growth is actually taking root and, in turn, were uninspired by comments from the Fed's Beige Book that signs of economic decline are slowing, while several districts indicated that their expectations have improved... News that the overall trade deficit widened to $29.2 billion in April from $28.5 billion in March also had little impact on trading. The latest number was in step with the consensus estimate, but reflected the ongoing economic difficulties around the globe. Moreover, the April figure was a bit above the first quarter average, so it will factor negatively into second quarter GDP forecasts....
I suspect that this pattern is working so consistently well because it is generated primarily by giant program trades that are more powerful in the short term than anything in the market. The program buying feeds on itself, squeezes shorts and entices the hot money back into the market.
So after a gap-and-failure up this morning and then another run-and-gun close this afternoon, the net effect was that the indices finished with mild losses and are still firmly mired in the recent trading range. Breadth was negative, and some of the small-cap momentum slowed, but there was still some speculative action to find in solar energy, oil shippers, auto parts and select China names, but it was a bit less frantic than in the last couple days.
Obviously the bears can't get their claws into this market, but the bulls aren't quite able to charge through overhead resistance either. The good news is that within this trading range action, there is some good trading to be found. Traders have enough confidence to not just quickly flip for small gains, and they are generating some follow-through in places; this creates opportunity even if the indices churn.
The bears are due to win this final hour battle one of these days but today wasn't it. We have to continue to respect the bulls, or maybe the respect should go to their computer programs that seem to be stuck on "buy."
Going into more detail, the major indices started the session with solid gains, but drifted into the red before gradually paring losses into the close... Part of this session's weakness came as concerns that rising oil prices and higher borrowing costs associated with rising Treasury yields could stymie an economic rebound... Oil prices eclipsed the prior session's 2009 closing high by finishing 1.7% higher at $71.14 per barrel. Crude prices also registered new intraday highs for 2009 by climbing to almost $71.80 per barrel shortly after weekly oil inventories showed a surprise draw... Treasuries fell under renewed selling pressure amid news that the Russian Central Bank will cut its Treasury holdings, and a $19 billion auction of 10-year Notes proved disappointing. In turn, the 10-year Note shed some 20 ticks this session, which pushed its yield up above 3.9%. That means the yield on the benchmark Note has increased by approximately 80 basis points in less than one month... The disappointing auction and rise in yields drove selling in the broader market, which left only the utilities sector (+1.6%) in the green. However, as the market pared its losses into the afternoon, materials (+0.1%), telecom (+0.2%), and energy (+0.7%) were able to climb back into the green and log gains... Financials saw the worst loss by declining 1.6%. Consumer discretionary stocks slid 1.0%, despite an upwardly revised earnings outlook from home improvement retailer HD... Investors continue to look for signs that economic growth is actually taking root and, in turn, were uninspired by comments from the Fed's Beige Book that signs of economic decline are slowing, while several districts indicated that their expectations have improved... News that the overall trade deficit widened to $29.2 billion in April from $28.5 billion in March also had little impact on trading. The latest number was in step with the consensus estimate, but reflected the ongoing economic difficulties around the globe. Moreover, the April figure was a bit above the first quarter average, so it will factor negatively into second quarter GDP forecasts....
Some Ancillary Names In The Smartphone World In Which To Potentially Invest
At today's prices: STAR; SWKS; ADI; BRCM; QCOM; SNDK; ADCT
Here Are Some Reasons Why AAPL Could Go Much, Much Higher
Could AAPL's stock price go up more than 4x from here? It 's more plausible than you may think. It's my contention that at its software development conference, Apple took some important, albeit baby, steps towards a very exciting destination.
To begin, important iPhone tech upgrades keep it a step above the rest of market in terms of quality. Price slashing on iphones (at $99) represents a major market-share grab. Also, further upgrades of notebook computers and slashing of prices. Again, a market-share grabber.
One aspect of the conference many may be missing the importance of is the Snow Leopard Operating System (or OS) release by September, with a $29 upgrade for Leopard users. This OS is so superior to MSFT products that it will continue to drive market-share gains for Mac products for some time.
Incorporating these baby steps into an earnings model, I get pro forma earnings of about $11 and free cash flow (or FCF) of about $13 for fiscal year 2010. Note that these estimates are within striking distance of the estimates of several street analysts.
Applying a conservative FCF yield of 4.5% on the 2010 FCF, the stock should be trading at around $289. Assuming a 5-year earnings per share (or EPS) growth of 18%, and applying a price/earnings to growth (or PEG) multiple of 1.5 to 2010 pro forma earnings, produces a price target of $297. Now add in the approximately $30 per share of cash on the balance sheet, and you have a stock that, only accounting for the factors that have been announced, could well be well above $300 by the end of 2009....
Additionally, there will be no more AT&T exclusivity. This is the factor preventing AAPL from capturing the lion's share of the 3G market. Also, a new product that opens many possibilities is the touchscreen tablet. Another one is a iPod Touch with camera and video capabilities.
And very importantly, the upcoming invasion of the Chinese market. First with iPhone, then with Mac. I read many who have lived in China, and they all rave about and have witnessed the power of the Apple brand there. The potential is mind-boggling. Apple is an aspirational brand with which all young people want to be associated (which is very important there).
And now the elephant in the room: Steve Jobs' comeback to announce any or all of the above. Please note: Jobs' return will be in late June. How unlikely is it that his comeback will not be accompanied by an announcement of a major new initiative? Very.
Now incorporating these developments into an earnings model could easily produce a price target of $400+ by the end of 2010. The following, I must admit, take some major leaps moving forward:
1. Introduction of touchscreen PCs and notebooks in 2010-2011. Mac instantly doubles its market share of the PC market.
2. 2012: Apple's first truly integrated home/business computing, communications and telecom device, complete with video phone, next-generation gaming, high-definition TV, and so on. This features voice and facial recognition and an Apple version of Microsoft's recently unveiled Project Natal concept. Revolutionizes telecommunications and computing....
3. Release of “teaser” versions of its OS to compete directly with Microsoft. Superior product captures 50% of market. Premium versions of OS and software products only available on Apple hardware.
If any one of these 3 possibilities comes to pass, Apple very well could go to $700 to $1000 by 2012. If all 3 occur, one could argue for the equivalent of $1,200 to $1,400 by 2015 (obviously there will be some stock splits along the way). Indeed, it is possible for the valuation to go even higher if Apple achieves global “cult-brand” and “cult-stock” status -- not an unlikely scenario in my view.
Factoring in only current announcements, Apple could be well on its way to $300+ by the end of 2009. Based on this outlook and some likely short-term catalysts in the pike, I believe $200 by late July is quite possible.
Looking forward to late 2009 and early 2010, some pretty major catalysts are virtually certain to materialize that could take the stock to $400+ by the end of 2010.
Looking further out, Apple seems to have a major edge in technologies that are going to revolutionize computing, entertainment, gaming and telecommunications, and in the closely knit integration of these technologies in our daily lives at home and at work. Indeed, it is virtually certain that in the next 5 years, we are going to experience the first wave of a revolution in the way we live. The only real question is: Which companies will capitalize?
Apple is extremely well positioned to become the dominant global player in this brave new world.
Obviously there's nothing certain about any of this. However, the very fact that, from an analytical point of view, we can very plausibly speak of Apple at $1000 is something to ponder. And ponder again.
With the stock currently in the $140s, I like that risk-reward ratio.
Position in AAPL common; long calls; looking to add many more longer-dated calls (than 7/09) and more common
To begin, important iPhone tech upgrades keep it a step above the rest of market in terms of quality. Price slashing on iphones (at $99) represents a major market-share grab. Also, further upgrades of notebook computers and slashing of prices. Again, a market-share grabber.
One aspect of the conference many may be missing the importance of is the Snow Leopard Operating System (or OS) release by September, with a $29 upgrade for Leopard users. This OS is so superior to MSFT products that it will continue to drive market-share gains for Mac products for some time.
Incorporating these baby steps into an earnings model, I get pro forma earnings of about $11 and free cash flow (or FCF) of about $13 for fiscal year 2010. Note that these estimates are within striking distance of the estimates of several street analysts.
Applying a conservative FCF yield of 4.5% on the 2010 FCF, the stock should be trading at around $289. Assuming a 5-year earnings per share (or EPS) growth of 18%, and applying a price/earnings to growth (or PEG) multiple of 1.5 to 2010 pro forma earnings, produces a price target of $297. Now add in the approximately $30 per share of cash on the balance sheet, and you have a stock that, only accounting for the factors that have been announced, could well be well above $300 by the end of 2009....
Additionally, there will be no more AT&T exclusivity. This is the factor preventing AAPL from capturing the lion's share of the 3G market. Also, a new product that opens many possibilities is the touchscreen tablet. Another one is a iPod Touch with camera and video capabilities.
And very importantly, the upcoming invasion of the Chinese market. First with iPhone, then with Mac. I read many who have lived in China, and they all rave about and have witnessed the power of the Apple brand there. The potential is mind-boggling. Apple is an aspirational brand with which all young people want to be associated (which is very important there).
And now the elephant in the room: Steve Jobs' comeback to announce any or all of the above. Please note: Jobs' return will be in late June. How unlikely is it that his comeback will not be accompanied by an announcement of a major new initiative? Very.
Now incorporating these developments into an earnings model could easily produce a price target of $400+ by the end of 2010. The following, I must admit, take some major leaps moving forward:
1. Introduction of touchscreen PCs and notebooks in 2010-2011. Mac instantly doubles its market share of the PC market.
2. 2012: Apple's first truly integrated home/business computing, communications and telecom device, complete with video phone, next-generation gaming, high-definition TV, and so on. This features voice and facial recognition and an Apple version of Microsoft's recently unveiled Project Natal concept. Revolutionizes telecommunications and computing....
3. Release of “teaser” versions of its OS to compete directly with Microsoft. Superior product captures 50% of market. Premium versions of OS and software products only available on Apple hardware.
If any one of these 3 possibilities comes to pass, Apple very well could go to $700 to $1000 by 2012. If all 3 occur, one could argue for the equivalent of $1,200 to $1,400 by 2015 (obviously there will be some stock splits along the way). Indeed, it is possible for the valuation to go even higher if Apple achieves global “cult-brand” and “cult-stock” status -- not an unlikely scenario in my view.
Factoring in only current announcements, Apple could be well on its way to $300+ by the end of 2009. Based on this outlook and some likely short-term catalysts in the pike, I believe $200 by late July is quite possible.
Looking forward to late 2009 and early 2010, some pretty major catalysts are virtually certain to materialize that could take the stock to $400+ by the end of 2010.
Looking further out, Apple seems to have a major edge in technologies that are going to revolutionize computing, entertainment, gaming and telecommunications, and in the closely knit integration of these technologies in our daily lives at home and at work. Indeed, it is virtually certain that in the next 5 years, we are going to experience the first wave of a revolution in the way we live. The only real question is: Which companies will capitalize?
Apple is extremely well positioned to become the dominant global player in this brave new world.
Obviously there's nothing certain about any of this. However, the very fact that, from an analytical point of view, we can very plausibly speak of Apple at $1000 is something to ponder. And ponder again.
With the stock currently in the $140s, I like that risk-reward ratio.
Position in AAPL common; long calls; looking to add many more longer-dated calls (than 7/09) and more common
Tuesday, June 9, 2009
The Uptrend Continues, For The Most Part
If you just looked at the DJIA or the S&P 500, you would think it was a very dead day. We didn't even have much of a swing for a change in the final hour but under the surface there was some very frisky action.
Volume was a bit light but breadth was solidly positive with about 3,450 gainers 2,250 losers. Semiconductors led to the upside following good guidance from Texas Instruments, and a weak dollar boosted energy and commodity stocks, but it was some of the low priced and thinly traded stuff that saw very aggressive action.
There certainly is some pretty solid technical action; even though the S&P 500 did little today, it has consolidated very nicely and is forming a good-looking base. There aren't any major technical flaws in this market and no reason to look for a sudden collapse. You have to stretch a bit if you want to find negatives.
The bears might argue that the small-cap action is frothy and indicates that traders are too complacent. A lot of junky stocks without fundamentals are running big. That is a reflection of people worried that they are missing out.
Another bearish argument is that semiconductors have typically rallied near turning points in the market over the last few years. Whenever the chips start to breakout, the overall market has turned back down soon thereafter.
Neither argument makes me want to rush out and load up on shorts. The upside trades are working and while it is pretty easy to argue that the market has gotten ahead of itself, we don't have any obvious weakness. One of the hardest things to do in the market is to stick with momentum when it starts to feel unreasonable -- but it is even more dangerous to over anticipate a turn.
The trend is our friend and it is still up.
Going into more detail, it was a quiet close for a change, with light volume (as usual). Amid light trading volume the stock market ascended into the afternoon, but petered out some of its gains into the close. Still, semiconductor stocks and materials stocks were able to finish markedly higher... Semiconductor stocks traded with sharp gains for the entire session, helping the Semiconductor Index climb 4.5%. Their upward move came after TXN raised its second quarter forecast. That announcement came just one week after the chief executive from AMAT made pessimistic comments about the semiconductor industry... The materials sector closed 2.3% higher, better than any other major sector in the S&P 500. Its advance came as commodity prices climbed amid a falling U.S. dollar, which dropped a sharp 1.4% against a basket of major foreign currencies... The dollar's decline was particularly helpful to crude oil contracts. Oil prices advanced 2.7% to settle at a 2009 closing high of $69.92 per barrel. That helped oil equipment stocks climb 2.1% and oil drillers close 2.5% higher... Financial stocks (+0.5%) finished in mixed fashion following the Treasury's announcement that 10 of the 19 largest U.S. banks will be allowed to repay TARP funds. BBT, USB, BK, AXP, NTRS and GS are among the companies that have received permission to repay TARP funds to the Treasury. Diversified banks tacked on 0.6%, but diversified financial services companies slipped 0.2%... A $35 billion auction of 3-year Treasury Notes with a yield of 1.96% attracted a bid-to-cover ratio of 2.8. The benchmark 10-year gyrated in the wake of the announcement, but settled a few ticks higher with a yield of 3.86%. Stocks were hit with some selling pressure following the announcement, but the downward move was lost in the stock market's intraday gyrations... Trading volume was exceptionally light this session, with slightly more than 1 billion shares traded on the NYSE.
Volume was a bit light but breadth was solidly positive with about 3,450 gainers 2,250 losers. Semiconductors led to the upside following good guidance from Texas Instruments, and a weak dollar boosted energy and commodity stocks, but it was some of the low priced and thinly traded stuff that saw very aggressive action.
There certainly is some pretty solid technical action; even though the S&P 500 did little today, it has consolidated very nicely and is forming a good-looking base. There aren't any major technical flaws in this market and no reason to look for a sudden collapse. You have to stretch a bit if you want to find negatives.
The bears might argue that the small-cap action is frothy and indicates that traders are too complacent. A lot of junky stocks without fundamentals are running big. That is a reflection of people worried that they are missing out.
Another bearish argument is that semiconductors have typically rallied near turning points in the market over the last few years. Whenever the chips start to breakout, the overall market has turned back down soon thereafter.
Neither argument makes me want to rush out and load up on shorts. The upside trades are working and while it is pretty easy to argue that the market has gotten ahead of itself, we don't have any obvious weakness. One of the hardest things to do in the market is to stick with momentum when it starts to feel unreasonable -- but it is even more dangerous to over anticipate a turn.
The trend is our friend and it is still up.
Going into more detail, it was a quiet close for a change, with light volume (as usual). Amid light trading volume the stock market ascended into the afternoon, but petered out some of its gains into the close. Still, semiconductor stocks and materials stocks were able to finish markedly higher... Semiconductor stocks traded with sharp gains for the entire session, helping the Semiconductor Index climb 4.5%. Their upward move came after TXN raised its second quarter forecast. That announcement came just one week after the chief executive from AMAT made pessimistic comments about the semiconductor industry... The materials sector closed 2.3% higher, better than any other major sector in the S&P 500. Its advance came as commodity prices climbed amid a falling U.S. dollar, which dropped a sharp 1.4% against a basket of major foreign currencies... The dollar's decline was particularly helpful to crude oil contracts. Oil prices advanced 2.7% to settle at a 2009 closing high of $69.92 per barrel. That helped oil equipment stocks climb 2.1% and oil drillers close 2.5% higher... Financial stocks (+0.5%) finished in mixed fashion following the Treasury's announcement that 10 of the 19 largest U.S. banks will be allowed to repay TARP funds. BBT, USB, BK, AXP, NTRS and GS are among the companies that have received permission to repay TARP funds to the Treasury. Diversified banks tacked on 0.6%, but diversified financial services companies slipped 0.2%... A $35 billion auction of 3-year Treasury Notes with a yield of 1.96% attracted a bid-to-cover ratio of 2.8. The benchmark 10-year gyrated in the wake of the announcement, but settled a few ticks higher with a yield of 3.86%. Stocks were hit with some selling pressure following the announcement, but the downward move was lost in the stock market's intraday gyrations... Trading volume was exceptionally light this session, with slightly more than 1 billion shares traded on the NYSE.
Some Observations On AAPL
Apple had a great WWDC and I think more catalysts loom...
Frankly, given the magnitude of the home run for AAPL at the Worldwide Developers Conference, it's surprising the company didn't end up higher by $5 yesterday or today. Probably every sales estimate for the iPhone is too low now. This lowered price point is a huge boom for future distribution agreements as it still gives T a nice chunk of recurring revenues and retention but allows higher margin sales and double or triple the customer base as the VZ's and others come online.
The 3G S looks so good that everybody that already has an iPhone is probably going to want that one....One subtlety to the "aggressive" OS price point is that while selling phones for lower prices "might" hamper margins, the software margins will swamp any and all of that effect. Moreover, I'll take double (or triple) the phone sales and a much more pervasive halo effect over a couple points of initial iPhone margin all day long.
It sure looks like the iPhone is set to target the enterprise market with abandon. As for OS implications, I think this is a powerful attempt at trumping whatever MSFT Windows is going to do. I believe this sets up further enterprise penetration, which is wide open for AAPL currently on the computing side. In fact, the battle is moving from MSFT vs. AAPL to... AAPL vs. everyone that has yet to buy one. This helps get consumers off the fence who have purchased iPhones, and may be hesitant to purchase Mac's thus far.....like me. Frankly, I think it is just huge for brand loyalty. This is hard to measure but incredibly important.
Finally, this keeps the now much larger AAPL customer base "unified". This strengthens customer transitions, sets up cross selling ops, etc...
Overall, the event was beyond expectations and those who talk of compressed margins and "having to slash prices" to move product are totally missing the beat here. Frankly, having Steve Jobs show up would have been overkill.
AAPL survived the "sell the news" impulse; I think that probably means the coast is clear for a steady ascent in the stock price. It's a function of time, of course; but estimates, free cash flow and the stock price are all moving considerably higher....I own some common and (for me) alot of calls, but I'm wondering if I'm giving myself enough time with the calls, as they're mostly Julys...I'm certainly going to try to gobble up some more calls that expire towards the end of the year, just to be safe.
Frankly, given the magnitude of the home run for AAPL at the Worldwide Developers Conference, it's surprising the company didn't end up higher by $5 yesterday or today. Probably every sales estimate for the iPhone is too low now. This lowered price point is a huge boom for future distribution agreements as it still gives T a nice chunk of recurring revenues and retention but allows higher margin sales and double or triple the customer base as the VZ's and others come online.
The 3G S looks so good that everybody that already has an iPhone is probably going to want that one....One subtlety to the "aggressive" OS price point is that while selling phones for lower prices "might" hamper margins, the software margins will swamp any and all of that effect. Moreover, I'll take double (or triple) the phone sales and a much more pervasive halo effect over a couple points of initial iPhone margin all day long.
It sure looks like the iPhone is set to target the enterprise market with abandon. As for OS implications, I think this is a powerful attempt at trumping whatever MSFT Windows is going to do. I believe this sets up further enterprise penetration, which is wide open for AAPL currently on the computing side. In fact, the battle is moving from MSFT vs. AAPL to... AAPL vs. everyone that has yet to buy one. This helps get consumers off the fence who have purchased iPhones, and may be hesitant to purchase Mac's thus far.....like me. Frankly, I think it is just huge for brand loyalty. This is hard to measure but incredibly important.
Finally, this keeps the now much larger AAPL customer base "unified". This strengthens customer transitions, sets up cross selling ops, etc...
Overall, the event was beyond expectations and those who talk of compressed margins and "having to slash prices" to move product are totally missing the beat here. Frankly, having Steve Jobs show up would have been overkill.
AAPL survived the "sell the news" impulse; I think that probably means the coast is clear for a steady ascent in the stock price. It's a function of time, of course; but estimates, free cash flow and the stock price are all moving considerably higher....I own some common and (for me) alot of calls, but I'm wondering if I'm giving myself enough time with the calls, as they're mostly Julys...I'm certainly going to try to gobble up some more calls that expire towards the end of the year, just to be safe.
Monday, June 8, 2009
Yet Another Upturn Late In The Day
Once again the last-hour frenzy kicks in and dishes out some major pain to any bear who dared think that the market might rest for longer than a few hours. Of course we reversed back down sharply in the final minutes just to make it even more difficult.
It is hard to believe that there isn't some sort of program trading manipulating the market given the intensity in which we turn, but we also must have some extremely skittish shorts helping to accentuate the move when they scurry to cover yet again. The idea that Paul Krugman is somehow responsible for triggering the action is downright naive and it is a shame that Bloomberg would even suggest it. This market has had so many late-day moves like this that it doesn't need a reason.
There is still some very strong momentum in "junk" stocks. It was bit narrower than it has been, but it is obvious that the hot money is going to stick around when we have these sort of wild swings at the end of the day to prop things up.
I'm sticking with my longs; just waiting to see what happens. I'm encouraged by today: not that long ago we'd have rolled over and been down 250 on the Dow. It is very tough not to think of all the reasons why the market might rest or correct a bit, but the underlying support is undeniably strong. You can be a skeptic but you should also be opportunistic and try to find the longs you can play while the sentiment supports them. At some point we will be wondering what happened to the momentum so we might as well enjoy it as much as we can for now.
It is hard to believe that there isn't some sort of program trading manipulating the market given the intensity in which we turn, but we also must have some extremely skittish shorts helping to accentuate the move when they scurry to cover yet again. The idea that Paul Krugman is somehow responsible for triggering the action is downright naive and it is a shame that Bloomberg would even suggest it. This market has had so many late-day moves like this that it doesn't need a reason.
There is still some very strong momentum in "junk" stocks. It was bit narrower than it has been, but it is obvious that the hot money is going to stick around when we have these sort of wild swings at the end of the day to prop things up.
I'm sticking with my longs; just waiting to see what happens. I'm encouraged by today: not that long ago we'd have rolled over and been down 250 on the Dow. It is very tough not to think of all the reasons why the market might rest or correct a bit, but the underlying support is undeniably strong. You can be a skeptic but you should also be opportunistic and try to find the longs you can play while the sentiment supports them. At some point we will be wondering what happened to the momentum so we might as well enjoy it as much as we can for now.
Friday, June 5, 2009
"Better Than Expected" Jobs News Already Priced In?
One of the most notable things about the market this week was the persistence of the buyers. Every single minor pullback was bought and there was no easy way to add long exposure unless you were willing to pay up. Traders were very aggressive in small-cap biotechnology and a number of China names, but there was good momentum in many other groups with mixed fundamentals like auto parts.
Oil and commodity stocks dished out some major volatility this week. After collapsing on Wednesday, they bounced back big on Thursday and then fell again today. The dollar strengthened and that took gold down sharply.
The most worrisome development is the continued weakness of bonds. Interest rates are going up and it is hard to imagine that there won't be some major negative fallout should that continue. So far the technical action of the market doesn't indicate any major concern, but when we do see a correction you can bet it will be blamed on stagflation concerns.
It is very easy to find fundamental reasons for why this market should not continue to chug steadily higher, but fighting the favorable price action is a very tough way to make money. There are obviously a lot of folks who would like to buy stocks lower but they aren't getting a chance. They are unlikely to go away quickly and should continue to provide support. The bulls may need a rest but they are still firmly in control.
Oil and commodity stocks dished out some major volatility this week. After collapsing on Wednesday, they bounced back big on Thursday and then fell again today. The dollar strengthened and that took gold down sharply.
The most worrisome development is the continued weakness of bonds. Interest rates are going up and it is hard to imagine that there won't be some major negative fallout should that continue. So far the technical action of the market doesn't indicate any major concern, but when we do see a correction you can bet it will be blamed on stagflation concerns.
It is very easy to find fundamental reasons for why this market should not continue to chug steadily higher, but fighting the favorable price action is a very tough way to make money. There are obviously a lot of folks who would like to buy stocks lower but they aren't getting a chance. They are unlikely to go away quickly and should continue to provide support. The bulls may need a rest but they are still firmly in control.
Thursday, June 4, 2009
Certainly No Fear Today
The saying goes that the only thing to fear is fear itself, but there sure doesn't seem to be much of it around today. The buyers were happy to chase things higher once again. I'm amazed at the big moves in some of these small-caps. Once again, there was wild action in low-priced biotechnology stocks and the bounce in oil and commodity stocks was fast and furious.
Weak retail sales and rising interest rates were ignored and there doesn't seem to be much fear over what tomorrow morning's jobs report might hold. Stocks are going up and overwhelming fear is being left behind.
The major indices are in very strong uptrends and we have to respect that above all else.
Weak retail sales and rising interest rates were ignored and there doesn't seem to be much fear over what tomorrow morning's jobs report might hold. Stocks are going up and overwhelming fear is being left behind.
The major indices are in very strong uptrends and we have to respect that above all else.
My Humble Opinion - This Market Is Going Much Higher, And Here's Why
One reason is that finally we are experiencing coherent policy actions by governments and central banks around the world.
I think that there can be little doubt that this has occurred. While there are still policy measures that are yet to be announced, I believe this factor has pretty much played itself out. At this point, the risk of governments messing things up may be fairly equally balanced against any further upside from policy initiatives.
I think we're seeing, for lack of a better phrase, a dramatic turn in the economic growth dynamic. I think we'll continue to see very strong momentum in the economic data through June and possibly July. Economists' and analysts’ numbers are still too low, and so the surprises throughout the second quarter will continue to be to the upside.
Indeed, several are actually going to show positive growth! The blue-chip economists haven’t figured this out yet. This is going to be a shocker and will keep the rally going.
Consensus economic views are far too bearish.
This is still the case. The media is filled with pundits talking about the “certain collapse of the dollar,” “currency debasement that will inevitably lead to inflation,” and “crushing debt levels.” Most of the arguments in favor of these apocalyptic views are based on discredited ideological precepts that have become urban legends and have very little empirical evidence to support them.
Simply put, things are not nearly as bad as the consensus thinks. Over time, many are going to develop doubts about the bearish consensus. Many will start to wonder whether the celebrity Cassandras really have it all figured out.
Further, many are going to be surprised to find that behind the confident proclamations of doom, there's precious little substance to back it up.
The final stage of this rally will be characterized by a breakdown of the bearish consensus and the development of narratives throughout the financial press that would have been unthinkable just a few weeks ago.
As such, valuations are inexpensive. Equity prices have massively overshot to the downside and were extremely undervalued in March. Valuations had reached a point that reflected “irrational despondence,” and will only begin to enter into a "normal" range when the S&P 500 crosses above 950. The midpoint of the “normal” valuation range is 1,100. I think the S&P may reach 1100; possibly even 1350.
Not only are we experiencing policy actions, but they are actually being implemented. In this regard, there are 2 key variables that are going to have huge effect on the economy and financial markets.
First, the massive fiscal stimulus in the form of rebate checks, tax breaks, and massive government spending is going to start hitting the economy in a big way starting in June, and will accelerate throughout the year; I believe the biggest impact will actually be felt between June and September, when individuals and businesses begin to alter their behavior patterns in anticipation of the stimulus. In particular, businesses will start ramping up in terms of stocking inventories, buying equipment, hiring, etc. Thus the impact of fiscal stimulus will be felt even before the government actually disburses the funds.
Second, and by far the most important, the massive “liquification” being engineered by the Fed and the US Treasury through various programs such as TALF and others will galvanize the economy. These programs will only really get going between June and September. These massive injections of liquidity are going to dramatically bring down spreads in the corporate debt market, which will allow companies to rollover and renew their credit facilities and access credit at very affordable prices, thereby unfreezing credit-dependent economic activity. I’m not talking about adding long-term debt here. I’m talking about credit lines for working capital, import-export finance, etc.
The liquification is also going to reduce borrowing costs for many firms and individuals. This will act as a massive “tax break.” Individuals can free up between $100-250 per month in mortgage costs; businesses will also save money due to lowered interest costs, and the funds can be deployed for investment.
The market hasn’t yet realized the dramatic impact these Fed and Treasury programs are going to have on economic activity. Again, although the major liquification will occur from June 2009 thru March 2010, financial markets will likely have discounted the impacts in the form of dramatically lower spreads and higher equity prices by June or July.
Another reason is that cash positions remain extremely high. However, I predict this will change, insofar as these are symptomatic of high levels of risk aversion. As risk aversion declines, cash positions will decline as well, and equity allocations will rise.
As the VIX reverts from high levels above 40% toward normal levels below 20%, this is a clear indication of a dramatic decline in risk aversion. This will almost certainly be followed by a decline in another risk-aversion indicator: cash allocations.
Please note that rising long-term government bond yields, along with a declining dollar, could also indicate declining risk aversion and reduced cash allocations. The financial press may initially interpret these bearishly as signals of potential inflation and/or a loss of confidence. However, if accompanied by a contraction in private-market credit spreads, these will, as a strong confirmation of the decline in risk aversion, be a bullish sign.
The massive flow of cash into equities will be a primary driver of the market. When this sort of stampede gets started, valuations will, to some extent, cease to matter.
As a result, performance anxiety ensues. Many have predicted that the shift in risk preferences is permanent, and that cash levels will remain high. I don’t think so.
In my view, the average American is simply not going to be able to resist getting back into the market to try to “make back” the losses they suffered in 2009. The average American won’t be able to resist feeling that the Jones’s might get ahead of him, and has been trained to commit money to stocks in a constant and steady fashion. It’s deeply ingrained into the culture, and culture doesn’t change in 6 months. Americans will tend to revert to their trained habits, and are going to feel very uncomfortable being out of the market.
Institutions similarly simply aren’t going to be able stay on the sidelines, either. Cash positions doom them to underperformance. And for institutions, losing money is far preferable to underperforming.
Hedge funds also have extremely high cash levels. Hedge funds aren’t paid 2% to 20% to hold cash. Soon they’ll be throwing in the towel and aggressively entering “at the market” buy orders.
Another technical reason is the rampant bearish consensus. This countertrend rally has been characterized by rising put/call ratios and increasing short interest. In addition, for several weeks there has existed an almost universal consensus amongst analysts -- and technicians in particular -- that the sharp rise since March has been “unhealthy,” and that the market “needs” a correction.
First, the idea that the market “needs” a pullback is nonsense. The market doesn’t “need” anything. And it certainly doesn’t need to behave in a fashion that technicians are comfortable with. On the contrary, the market will tend to move in ways that confound the consensus.
Second, the market didn't pause much on the way down, so why should one expect it to pause on the way up? The technical principle of symmetry would suggest that the recovery will mirror the fall.
Another point: How is it that if a market overshoots to the downside in an “unhealthy” manner, it becomes “unhealthy” for the market to correct this overshoot as quickly as possible? It defies logic. Simple common sense suggests that, if a market reaches extremes to the downside, then it’s “healthy” for the market to correct these excesses as quickly as possible. (To bring the analogy back into its original context, is it “unhealthy” to a gravely ill patient to recover suddenly and quickly?)
This is exactly the kind of recovery that's happened. What’s happened thus far, is the market has merely corrected an oversold condition reflecting “irrational despondence” toward a level that reflects a more rational assessment. And in my view, the speed with which the market corrects excesses is a good indicator of its health and resiliency.
So, if the consensus is as bearish as I suggest, why is the market going up? The answer: Short-term traders are in cash and/or are betting against the market. Long-term institutional money is moving in -- regardless of the personal views of the managers -- for reasons related to how the industry is structured.
It's my view that eventually, the long-term institutional money that needs to get fully invested is going to overwhelm the traders. And soon, these traders will be reversing positions and going long. At that point, the melt-up kicks into full gear.
Add one more: earnings revisions. Historically, earnings revisions have lagged market prices. However, with earnings revisions trending strongly from a low base, this should provide a favorable wind behind the market’s sails for quite a few weeks to come. Many analysts -- in order to gain publicity and redeem themselves from having missed the rally thus far -- will be making dramatic revisions to EPS estimates and target prices. One needs to get out in front of this trend.
How Far Can the Rally Go?
Based on normalized earnings, a “normal” range of valuation for the S&P 500 would be between 950 an 1,350. That means this market has a great deal of room to run before it starts looking “overvalued.”
In any event, valuation isn’t the main factor to look at now. In a strongly trending market, when valuations are within “normal parameters,” valuation becomes a secondary or tertiary consideration.
There are 2 things that matter right now: First, the flow of fundamental news is extremely positive. Second, cash allocations are at all-time highs. As cash starts to move back into equities through institutional mechanisms, there will be virtually nothing that can stop this market.
Fundamental Risks
There’s one main risk that rises above all the others: A precipitous rise in long-term government-bond yields to a level significantly above 4.00%. This would signal a loss of confidence in the ability of the US government to execute its fiscal and monetary stimulus program. I don’t believe that such a development would be fundamentally warranted at the present time. However, this is more a matter of psychology than fundamentals. Thus, it's an unquantifiable risk. If this happens, all bets are off.....
The other major risk to my outlook is the obvious one: I could be wrong.
Conclusion
The market is recovering from an unusual and vicious financial crisis; this is a time in which market participants, after having been petrified, are starting to come to grips with the fact that Great Depression II is probably not going to happen.
This is also an extraordinary time - one in which vast numbers of market participants are wrongly over-allocated to cash. As investors adjust their asset allocations to account for new realities, the rally in financial markets will be extremely powerful.
Indeed, because of the large cash allocations, there’s the danger that at some point, things could get out of hand on the upside. Because of the effects of massive inflows by institutions that invest mechanically and are essentially insensitive to fundamentals, the market could overshoot to the upside, failing to properly account for the risk (as opposed to the certainty) that things could get materially worse in 2010.
However, we’ll worry about the risk of bullish overshoot later. For now, the financial crisis is over. And for now, I believe this market is going higher - much higher.
I think that there can be little doubt that this has occurred. While there are still policy measures that are yet to be announced, I believe this factor has pretty much played itself out. At this point, the risk of governments messing things up may be fairly equally balanced against any further upside from policy initiatives.
I think we're seeing, for lack of a better phrase, a dramatic turn in the economic growth dynamic. I think we'll continue to see very strong momentum in the economic data through June and possibly July. Economists' and analysts’ numbers are still too low, and so the surprises throughout the second quarter will continue to be to the upside.
Indeed, several are actually going to show positive growth! The blue-chip economists haven’t figured this out yet. This is going to be a shocker and will keep the rally going.
Consensus economic views are far too bearish.
This is still the case. The media is filled with pundits talking about the “certain collapse of the dollar,” “currency debasement that will inevitably lead to inflation,” and “crushing debt levels.” Most of the arguments in favor of these apocalyptic views are based on discredited ideological precepts that have become urban legends and have very little empirical evidence to support them.
Simply put, things are not nearly as bad as the consensus thinks. Over time, many are going to develop doubts about the bearish consensus. Many will start to wonder whether the celebrity Cassandras really have it all figured out.
Further, many are going to be surprised to find that behind the confident proclamations of doom, there's precious little substance to back it up.
The final stage of this rally will be characterized by a breakdown of the bearish consensus and the development of narratives throughout the financial press that would have been unthinkable just a few weeks ago.
As such, valuations are inexpensive. Equity prices have massively overshot to the downside and were extremely undervalued in March. Valuations had reached a point that reflected “irrational despondence,” and will only begin to enter into a "normal" range when the S&P 500 crosses above 950. The midpoint of the “normal” valuation range is 1,100. I think the S&P may reach 1100; possibly even 1350.
Not only are we experiencing policy actions, but they are actually being implemented. In this regard, there are 2 key variables that are going to have huge effect on the economy and financial markets.
First, the massive fiscal stimulus in the form of rebate checks, tax breaks, and massive government spending is going to start hitting the economy in a big way starting in June, and will accelerate throughout the year; I believe the biggest impact will actually be felt between June and September, when individuals and businesses begin to alter their behavior patterns in anticipation of the stimulus. In particular, businesses will start ramping up in terms of stocking inventories, buying equipment, hiring, etc. Thus the impact of fiscal stimulus will be felt even before the government actually disburses the funds.
Second, and by far the most important, the massive “liquification” being engineered by the Fed and the US Treasury through various programs such as TALF and others will galvanize the economy. These programs will only really get going between June and September. These massive injections of liquidity are going to dramatically bring down spreads in the corporate debt market, which will allow companies to rollover and renew their credit facilities and access credit at very affordable prices, thereby unfreezing credit-dependent economic activity. I’m not talking about adding long-term debt here. I’m talking about credit lines for working capital, import-export finance, etc.
The liquification is also going to reduce borrowing costs for many firms and individuals. This will act as a massive “tax break.” Individuals can free up between $100-250 per month in mortgage costs; businesses will also save money due to lowered interest costs, and the funds can be deployed for investment.
The market hasn’t yet realized the dramatic impact these Fed and Treasury programs are going to have on economic activity. Again, although the major liquification will occur from June 2009 thru March 2010, financial markets will likely have discounted the impacts in the form of dramatically lower spreads and higher equity prices by June or July.
Another reason is that cash positions remain extremely high. However, I predict this will change, insofar as these are symptomatic of high levels of risk aversion. As risk aversion declines, cash positions will decline as well, and equity allocations will rise.
As the VIX reverts from high levels above 40% toward normal levels below 20%, this is a clear indication of a dramatic decline in risk aversion. This will almost certainly be followed by a decline in another risk-aversion indicator: cash allocations.
Please note that rising long-term government bond yields, along with a declining dollar, could also indicate declining risk aversion and reduced cash allocations. The financial press may initially interpret these bearishly as signals of potential inflation and/or a loss of confidence. However, if accompanied by a contraction in private-market credit spreads, these will, as a strong confirmation of the decline in risk aversion, be a bullish sign.
The massive flow of cash into equities will be a primary driver of the market. When this sort of stampede gets started, valuations will, to some extent, cease to matter.
As a result, performance anxiety ensues. Many have predicted that the shift in risk preferences is permanent, and that cash levels will remain high. I don’t think so.
In my view, the average American is simply not going to be able to resist getting back into the market to try to “make back” the losses they suffered in 2009. The average American won’t be able to resist feeling that the Jones’s might get ahead of him, and has been trained to commit money to stocks in a constant and steady fashion. It’s deeply ingrained into the culture, and culture doesn’t change in 6 months. Americans will tend to revert to their trained habits, and are going to feel very uncomfortable being out of the market.
Institutions similarly simply aren’t going to be able stay on the sidelines, either. Cash positions doom them to underperformance. And for institutions, losing money is far preferable to underperforming.
Hedge funds also have extremely high cash levels. Hedge funds aren’t paid 2% to 20% to hold cash. Soon they’ll be throwing in the towel and aggressively entering “at the market” buy orders.
Another technical reason is the rampant bearish consensus. This countertrend rally has been characterized by rising put/call ratios and increasing short interest. In addition, for several weeks there has existed an almost universal consensus amongst analysts -- and technicians in particular -- that the sharp rise since March has been “unhealthy,” and that the market “needs” a correction.
First, the idea that the market “needs” a pullback is nonsense. The market doesn’t “need” anything. And it certainly doesn’t need to behave in a fashion that technicians are comfortable with. On the contrary, the market will tend to move in ways that confound the consensus.
Second, the market didn't pause much on the way down, so why should one expect it to pause on the way up? The technical principle of symmetry would suggest that the recovery will mirror the fall.
Another point: How is it that if a market overshoots to the downside in an “unhealthy” manner, it becomes “unhealthy” for the market to correct this overshoot as quickly as possible? It defies logic. Simple common sense suggests that, if a market reaches extremes to the downside, then it’s “healthy” for the market to correct these excesses as quickly as possible. (To bring the analogy back into its original context, is it “unhealthy” to a gravely ill patient to recover suddenly and quickly?)
This is exactly the kind of recovery that's happened. What’s happened thus far, is the market has merely corrected an oversold condition reflecting “irrational despondence” toward a level that reflects a more rational assessment. And in my view, the speed with which the market corrects excesses is a good indicator of its health and resiliency.
So, if the consensus is as bearish as I suggest, why is the market going up? The answer: Short-term traders are in cash and/or are betting against the market. Long-term institutional money is moving in -- regardless of the personal views of the managers -- for reasons related to how the industry is structured.
It's my view that eventually, the long-term institutional money that needs to get fully invested is going to overwhelm the traders. And soon, these traders will be reversing positions and going long. At that point, the melt-up kicks into full gear.
Add one more: earnings revisions. Historically, earnings revisions have lagged market prices. However, with earnings revisions trending strongly from a low base, this should provide a favorable wind behind the market’s sails for quite a few weeks to come. Many analysts -- in order to gain publicity and redeem themselves from having missed the rally thus far -- will be making dramatic revisions to EPS estimates and target prices. One needs to get out in front of this trend.
How Far Can the Rally Go?
Based on normalized earnings, a “normal” range of valuation for the S&P 500 would be between 950 an 1,350. That means this market has a great deal of room to run before it starts looking “overvalued.”
In any event, valuation isn’t the main factor to look at now. In a strongly trending market, when valuations are within “normal parameters,” valuation becomes a secondary or tertiary consideration.
There are 2 things that matter right now: First, the flow of fundamental news is extremely positive. Second, cash allocations are at all-time highs. As cash starts to move back into equities through institutional mechanisms, there will be virtually nothing that can stop this market.
Fundamental Risks
There’s one main risk that rises above all the others: A precipitous rise in long-term government-bond yields to a level significantly above 4.00%. This would signal a loss of confidence in the ability of the US government to execute its fiscal and monetary stimulus program. I don’t believe that such a development would be fundamentally warranted at the present time. However, this is more a matter of psychology than fundamentals. Thus, it's an unquantifiable risk. If this happens, all bets are off.....
The other major risk to my outlook is the obvious one: I could be wrong.
Conclusion
The market is recovering from an unusual and vicious financial crisis; this is a time in which market participants, after having been petrified, are starting to come to grips with the fact that Great Depression II is probably not going to happen.
This is also an extraordinary time - one in which vast numbers of market participants are wrongly over-allocated to cash. As investors adjust their asset allocations to account for new realities, the rally in financial markets will be extremely powerful.
Indeed, because of the large cash allocations, there’s the danger that at some point, things could get out of hand on the upside. Because of the effects of massive inflows by institutions that invest mechanically and are essentially insensitive to fundamentals, the market could overshoot to the upside, failing to properly account for the risk (as opposed to the certainty) that things could get materially worse in 2010.
However, we’ll worry about the risk of bullish overshoot later. For now, the financial crisis is over. And for now, I believe this market is going higher - much higher.
Wednesday, June 3, 2009
Some Trades I'm Thinking About Pulling The Trigger On...
AMR July 7 calls at .15 and JBLU July 5 calls at .25; I believe a probable cap on crude at 70, with the settling of prices towards the low 60s may be the final obstacle to these stocks "taking off." Cost structures have been dramatically lowered in the industry. Volumes and yields are poised to rise meaningfully; and H1N1 is out of the way..........
Another One - BAC
I feel BAC is still quite undervalued, even with more dilution surely coming. I'm looking for about $28 to $30 billion in operating profits from their collection of assets. To reiterate, even with coming dilution the stock is cheap.
long BAC
long BAC
AAPL Remains Strong
AAPL remains strong, and many are thinking (hoping?) a sell-the-news 'event' is coming. I'm not so sure about that. Some smart people I'm reading are going out on a limb and stating that the $140+ area is a "no resistance" zone. Even a recent upgrade mentioned technical analysis, which is rare. Anyway, the iphone is still in its early days, AAPL's monster lead in flat screen touch technology will only get bigger and AAPL is still selling at exceedingly low levels of net cash.
long AAPL calls; looking to buy alot more
long AAPL calls; looking to buy alot more
Buyers Stampede In Late In The Day
Not that it did my stuff any good, but once again the bulls show up in the final hour of trading and squeeze the shorts just when things were looking particularly precarious. Breadth didn't improve all that much when we bounced, and that made it look like program buying, but the tenacity of the dip-buying, coupled with the tendency for big spikes in the final hour, is going to make any bears uncomfortable very fast.
Technically, the S&P 500 recovered its breakout level of 931 at the close, but even before the bounce, the correction has been shallow and on lighter volume. The charts were a bit toppy, and we needed a consolidation. This action is not that bad overall.
The most negative thing about today was that the biggest losers were in recent leadership groups. Energy, commodities and agriculture all saw intense selling.
The momentum didn't fail as completely as it did last time the market pulled back sharply, and that may be an indication of stronger underlying support.
These last-hour moves always feel like manipulation, but even if they are, you aren't going to make money fighting them. It certainly helped out the bullish cause today and is keeping the overall trend to the upside intact.
Technically, the S&P 500 recovered its breakout level of 931 at the close, but even before the bounce, the correction has been shallow and on lighter volume. The charts were a bit toppy, and we needed a consolidation. This action is not that bad overall.
The most negative thing about today was that the biggest losers were in recent leadership groups. Energy, commodities and agriculture all saw intense selling.
The momentum didn't fail as completely as it did last time the market pulled back sharply, and that may be an indication of stronger underlying support.
These last-hour moves always feel like manipulation, but even if they are, you aren't going to make money fighting them. It certainly helped out the bullish cause today and is keeping the overall trend to the upside intact.
Tuesday, June 2, 2009
Things Cooled Off Today - And That's Good
It was a very mild and boring day of action for the indices, but that is what we needed after the frantic buying Monday and at the close on Friday. Yesterday was a clear technical breakout of from the trading range, and day like today is a product of the flippers taking some quick gains. The good news is that there continues to be very strong underlying support as the folks who have been underinvested for the move are lurking about and waiting for their chances.
Still, I don't think there's anything "wrong" with this market, but if you want to be heavily long, you have to have confidence in the "chase" trade. We'll see. Hopefully a few days of more placid action will reset things and make for more calm. Today was a good start.
Still, I don't think there's anything "wrong" with this market, but if you want to be heavily long, you have to have confidence in the "chase" trade. We'll see. Hopefully a few days of more placid action will reset things and make for more calm. Today was a good start.
A Message From My Broker
I'm obviously aware of what has transpired in the world and the markets the past few years; and I'm also quite aware of GM's missteps (big ones) over the past 25 years or so. Given that though, it's still faintly shocking to see this message from my broker:
Important Information
Effective June 2, 2009 the General Motors Corporation no longer trades under the symbol GM on the NYSE. The new symbol GMGMQ may begin trading today on the Over-the-Counter Bulletin Board (OTCBB) and/or the pink sheets market.
Amazing.
Important Information
Effective June 2, 2009 the General Motors Corporation no longer trades under the symbol GM on the NYSE. The new symbol GMGMQ may begin trading today on the Over-the-Counter Bulletin Board (OTCBB) and/or the pink sheets market.
Amazing.
Monday, June 1, 2009
Just Getting Around To Reading Today's Journal And...
Was anyone else as astonished as I was to read the caption under the picture near the top of page A14 in the Wall Street Journal and learn that there is a paying job in this country with the title "White House director of recovery for auto communities"?
Huh? Who pays the tab for that salary? Detroit real estate brokers? The Kafka estate?
Amazing.
Huh? Who pays the tab for that salary? Detroit real estate brokers? The Kafka estate?
Amazing.
A Great Day, But Keep Your Focus And Don't Become Overconfident
The crazy action in the last few minutes on Friday had a lot of people thinking that it was manipulated action that would be quickly reversed. Maybe it was a manipulation, but it sure wasn't reversed today. In fact, it probably helped create the big move today as those who were caught by surprise scrambled for long exposure when we didn't have a quick reversal this morning.
Technically speaking, the action doesn't get much better than this. Breadth was stellar at better than 3 to 1 positive and volume picked up substantially, particularly on the Nasdaq. Gold, silver and pharmaceuticals -- all defensive -- were weak but the biggest negatives were underperforming financials and bonds that fall sharply once again after a brief bounce on Friday.
After the close, JPM confirmed that it is looking to raise equity to repay TARP. Potential equity offerings helped keep the lid on that group.
Many stocks now present the classic dilemma of having very strong momentum but also being extended. It isn't easy at all to pay up when you have a stock with two or three big bars, but the fear of being left behind is driving many stocks straight up.
The most important thing is to stay disciplined and not let all the blather about how great the market is keep you from taking some gains and staying vigilant. Obsessing over how stupid the bears are and how wonderful the market is acting is a good way to get in trouble. Overconfidence has killed more traders than double super-special pizza pies.
Going into more detail, stocks spiked today in broad-based buying. Thanks to a concerted, broad-based buying effort amid pleasing economic data, the S&P 500 climbed to fresh highs for 2009 and managed to close above its 200-day moving average for the first time since December 2007... There wasn't any individual catalyst for the upward push, just pleasing economic data in the U.S. and abroad... Personal spending for April declined a moderate 0.1%, which was better than expected and an improvement from the previous month, while personal income for April showed a surprise 0.5% increase in the face of loose labor conditions... Construction spending for April also registered an unexpected increase by climbing 0.8% month-over-month... The ISM Manufacturing Index for May came in at 42.8, which was largely in-line with expectations, but up from the prior month. Though the reading indicates manufacturing activity continues to contract, the pace of contraction is decelerating... Meanwhile, upbeat PMI data in both China and Europe supported foreign indices, and even looped back to the U.S. to help extend the surge that U.S. stocks saw in the final hour of trading last week... Given the impressive gains in the U.S. and abroad, the Dow Jones World Index climbed 2.6% Monday... Retailers in the S&P 500 saw some of the best gains. They spiked 6.1%, which helped the consumer discretionary sector climb 4.6%. The sector was also helped by a 6.4% advance by automakers, even as GM confirmed all previous suspicion by announcing that it will enter bankruptcy with the help of the U.S. government, which is investing $30 billion for a 60% stake in the company... As a result of the filing, GM will lose its long-held position in the Dow. CSCO will replace GM in the index on June 8, which is also when TRV will replace C... Strength in blue-chips helped the Dow cut into its year-to-date loss, which now stands at less than 1%... Industrial stocks climbed 4.7%, more than any other major sector. Tech tacked on 3.3%, helping the Nasdaq Composite outperform the other headline indices and close above its 200-day moving average for the fifth consecutive session... The broad-based buying effort helped nine of the 10 major sectors in the S&P 500 finish higher. Telecom (-0.4%) was the only sector to finish lower, but financial stocks (+0.5%) and health care stocks (+0.5%) also lagged the broader market... Commodities also logged an impressive session as the CRB Commodity Index spiked 3.1% to log its best single-session advance by percent in two months. It was helped along by rising crude oil prices, which logged another 2009 closing high by finishing pit trading 3.2% higher at $68.40 per barrel... Treasuries were knocked around again. The benchmark 10-year Note shed 58 ticks, which pushed its yield up to 3.68%. The 10-year Note had been down more than two full points during the session.
Technically speaking, the action doesn't get much better than this. Breadth was stellar at better than 3 to 1 positive and volume picked up substantially, particularly on the Nasdaq. Gold, silver and pharmaceuticals -- all defensive -- were weak but the biggest negatives were underperforming financials and bonds that fall sharply once again after a brief bounce on Friday.
After the close, JPM confirmed that it is looking to raise equity to repay TARP. Potential equity offerings helped keep the lid on that group.
Many stocks now present the classic dilemma of having very strong momentum but also being extended. It isn't easy at all to pay up when you have a stock with two or three big bars, but the fear of being left behind is driving many stocks straight up.
The most important thing is to stay disciplined and not let all the blather about how great the market is keep you from taking some gains and staying vigilant. Obsessing over how stupid the bears are and how wonderful the market is acting is a good way to get in trouble. Overconfidence has killed more traders than double super-special pizza pies.
Going into more detail, stocks spiked today in broad-based buying. Thanks to a concerted, broad-based buying effort amid pleasing economic data, the S&P 500 climbed to fresh highs for 2009 and managed to close above its 200-day moving average for the first time since December 2007... There wasn't any individual catalyst for the upward push, just pleasing economic data in the U.S. and abroad... Personal spending for April declined a moderate 0.1%, which was better than expected and an improvement from the previous month, while personal income for April showed a surprise 0.5% increase in the face of loose labor conditions... Construction spending for April also registered an unexpected increase by climbing 0.8% month-over-month... The ISM Manufacturing Index for May came in at 42.8, which was largely in-line with expectations, but up from the prior month. Though the reading indicates manufacturing activity continues to contract, the pace of contraction is decelerating... Meanwhile, upbeat PMI data in both China and Europe supported foreign indices, and even looped back to the U.S. to help extend the surge that U.S. stocks saw in the final hour of trading last week... Given the impressive gains in the U.S. and abroad, the Dow Jones World Index climbed 2.6% Monday... Retailers in the S&P 500 saw some of the best gains. They spiked 6.1%, which helped the consumer discretionary sector climb 4.6%. The sector was also helped by a 6.4% advance by automakers, even as GM confirmed all previous suspicion by announcing that it will enter bankruptcy with the help of the U.S. government, which is investing $30 billion for a 60% stake in the company... As a result of the filing, GM will lose its long-held position in the Dow. CSCO will replace GM in the index on June 8, which is also when TRV will replace C... Strength in blue-chips helped the Dow cut into its year-to-date loss, which now stands at less than 1%... Industrial stocks climbed 4.7%, more than any other major sector. Tech tacked on 3.3%, helping the Nasdaq Composite outperform the other headline indices and close above its 200-day moving average for the fifth consecutive session... The broad-based buying effort helped nine of the 10 major sectors in the S&P 500 finish higher. Telecom (-0.4%) was the only sector to finish lower, but financial stocks (+0.5%) and health care stocks (+0.5%) also lagged the broader market... Commodities also logged an impressive session as the CRB Commodity Index spiked 3.1% to log its best single-session advance by percent in two months. It was helped along by rising crude oil prices, which logged another 2009 closing high by finishing pit trading 3.2% higher at $68.40 per barrel... Treasuries were knocked around again. The benchmark 10-year Note shed 58 ticks, which pushed its yield up to 3.68%. The 10-year Note had been down more than two full points during the session.
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