Even though Android is now a monster that cannot be stopped, I have a few new and old thoughts on the newest AAPL sensation, the iPad, as well as on AAPL itself.
Is it possible that the iPad could be a market share category killer like the iPod was? And maintain something like an 80% plus market share?
Did you know that even while many analysts estimates (for AAPL) seem less attainable all the time (a primary concern of mine), the consensus growth for EPS is only 17.3% and revenues only 16.5%?
The iPad will see much stronger enterprise acceptance than the iPhone.
Stiff competition will emerge with ultra compelling designs, but my early estimate (through 2013) is that the rest of the "field" will be fighting for half of the pie as AAPL will have the other half.
As stated some time back, the iPad will be a tremendous sales tool in the field. Moreover, those without one will fear a lower close rate.
The iPad is the Swiss army knife of electronics. It combines entertainment, lifestyle management and business/computing mobility. It's a lifesaver on a vacation as it's multiple devices in one. Heck, it's a great remote control. For those with Comcast you must try the Xfinity app for the DVR controls.
How many per house? Will the iPad (and/or tablets) be like cars where the industrial world owns about 2 per household, or is this a multi-product item like TV's where they are found in the majority of the rooms?
Amazingly, we are not yet seeing this product cannibalize Mac's and Macbook's. Unlike many others, I do see this occurring in time but this might not be a major negative as the iPad lifecycle is much shorter - resulting in multiples of product turnover vs. Mac's.
All of this sets AAPL up for additional catalysts and revenue streams from content distribution/management and more surprises from a product standpoint.
All of this is causing me to re-think my long held AAPL target for the low-mid $400's. Central to this is my belief that AAPL could and should trade at or above a PEG ratio of 1 after stripping out cash. Even at a PEG of 1, that is far from a premium valuation for one of the premium growth stocks on the planet. Currently AAPL's PEG (less cash) is .7, so a move to 1 would put AAPL firmly at my old target. A move to 1.15-1.25 would put AAPL's shares well into the $500's.
For comparison, and disallowing for cash, FFIV's PEG is at 1.7 and AMZN's at 2.7 -- vs. AAPL at .85.
Friday, December 31, 2010
Thoughts
Daily Mail Doubt
The Daily Mail was the source of the IMAX/SNE rumored deal.
It was also the source of the speculation that APC would be acquired. I wouldn't be surprised to see Anadarko sell off now.
Imax Claims Ignorance
IMAX says it's unaware of any developments that would account for its share price increase.
Nasdaq Leaders Are Underperformers
The Four Horsemen of the Nasdaq -- AAPL, AMZN, GOOG and NFLX -- are conspicuous underperformers today.
Run, don't walk, to watch "Inflation Island" on the ECB Web site.
China's monthly manufacturing PMI is set to be announced on Saturday -- stay tuned!
Run, don't walk, to read Paul Krugman's New York Times editorial, "The New Voodoo."
The Daily Mail was the source of the IMAX/SNE rumored deal.
It was also the source of the speculation that APC would be acquired. I wouldn't be surprised to see Anadarko sell off now.
Imax Claims Ignorance
IMAX says it's unaware of any developments that would account for its share price increase.
Nasdaq Leaders Are Underperformers
The Four Horsemen of the Nasdaq -- AAPL, AMZN, GOOG and NFLX -- are conspicuous underperformers today.
Run, don't walk, to watch "Inflation Island" on the ECB Web site.
China's monthly manufacturing PMI is set to be announced on Saturday -- stay tuned!
Run, don't walk, to read Paul Krugman's New York Times editorial, "The New Voodoo."
Don't Assume
It's a wrap. We had a nice little jig in the final minutes of trading, but 2010 is now in the books and, good or bad, we can forget about it and turn our attention to producing a very prosperous 2011.
The action this week was pretty typical of holiday trading: light volume, an upside bias and some excellent pockets of momentum. I found it a bit worrisome that many of the big-cap leaders acted poorly and that traders were so intent on trading some of the most speculative names, but it is tough to read a whole lot into the action during the last few days of the year. Taxes and portfolio rebalancing can have disproportionate impacts and, as we saw, aggressive trading creates some odd action under the surface.
The first few days of a new year are often positive as new money is contributed to retirement accounts and mutual funds -- but this isn't always the case. After an exceptionally strong finish in 2004, for example, the market went straight down after a positive open on the first day of trading in 2005. So, even though seasonality tends to favor the upside, don't be too overconfident about that new money driving us higher.
The action this week was pretty typical of holiday trading: light volume, an upside bias and some excellent pockets of momentum. I found it a bit worrisome that many of the big-cap leaders acted poorly and that traders were so intent on trading some of the most speculative names, but it is tough to read a whole lot into the action during the last few days of the year. Taxes and portfolio rebalancing can have disproportionate impacts and, as we saw, aggressive trading creates some odd action under the surface.
The first few days of a new year are often positive as new money is contributed to retirement accounts and mutual funds -- but this isn't always the case. After an exceptionally strong finish in 2004, for example, the market went straight down after a positive open on the first day of trading in 2005. So, even though seasonality tends to favor the upside, don't be too overconfident about that new money driving us higher.
Thursday, December 30, 2010
Thoughts
Chicago PMI and Stock Weakness
When the PMI exceeds 65 for the first time in a cycle, stocks tend to pull back.
Stocks today are slightly lower despite the highest (68.6) Chicago PMI number in 12 and a half years and a jobless-claims print below 400,000.
There is an historic precedent for equity weakness following similar prints. In looking back at the six times the Chicago PMI exceeded 65 for the first time in a cycle and since 1972, all one-month (-0.4%), three-month (-4.3%) and six-month (-2.7%) periods following these readings have averaged negative returns on the S&P 500 index. While the investment returns were skewed by the Crash of 1987, the median returns were not very good either.
Run, don't walk, to read Peter Schiff's piece on the inevitability of lower home prices in the Wall Street Journal.
The short interest as a percentage of the float on the S&P 500 has dropped to the lowest level in four years.
While the majority of strategists, money managers and commentators are bullish, it's interesting to note, according to Bespoke, that few are bearish.
The short side has become a lonely place.
First Trust Advisors Chief Economist Brian Wesbury got it right in 2010.
Credit Suisse lowers its fourth-quarter estimates for Morgan Stanley and Goldman Sachs.
Move over Iomegans, let the Shen Zhous take over.
When the PMI exceeds 65 for the first time in a cycle, stocks tend to pull back.
Stocks today are slightly lower despite the highest (68.6) Chicago PMI number in 12 and a half years and a jobless-claims print below 400,000.
There is an historic precedent for equity weakness following similar prints. In looking back at the six times the Chicago PMI exceeded 65 for the first time in a cycle and since 1972, all one-month (-0.4%), three-month (-4.3%) and six-month (-2.7%) periods following these readings have averaged negative returns on the S&P 500 index. While the investment returns were skewed by the Crash of 1987, the median returns were not very good either.
Run, don't walk, to read Peter Schiff's piece on the inevitability of lower home prices in the Wall Street Journal.
The short interest as a percentage of the float on the S&P 500 has dropped to the lowest level in four years.
While the majority of strategists, money managers and commentators are bullish, it's interesting to note, according to Bespoke, that few are bearish.
The short side has become a lonely place.
First Trust Advisors Chief Economist Brian Wesbury got it right in 2010.
Credit Suisse lowers its fourth-quarter estimates for Morgan Stanley and Goldman Sachs.
Move over Iomegans, let the Shen Zhous take over.
Typical
We had a flight to garbage today. It is classic holiday trading action once again, with the hot money very active in highly speculative stocks. Small-cap China names are dominating the momentum action. Stuff like CHGS, XING, CDII, CPSL, CNAM and CHNR are attracting the momentum money, while the quality leadership names like AAPL, GOOG, CRM, FFIV and CMG are acting poorly.
Breadth is positive but there isn't any clear sector leadership. Energy and coal are exhibiting some relative strength while gold and regional banks lag. Once again it's a market for daytrading junk stocks. If that isn't your game, there isn't much to do right now.
I'm still concerned that this very frothy action in speculative junk is a sign that we have a dip coming soon, but seasonality is helping to hold us steady.
Breadth is positive but there isn't any clear sector leadership. Energy and coal are exhibiting some relative strength while gold and regional banks lag. Once again it's a market for daytrading junk stocks. If that isn't your game, there isn't much to do right now.
I'm still concerned that this very frothy action in speculative junk is a sign that we have a dip coming soon, but seasonality is helping to hold us steady.
Wednesday, December 29, 2010
Thoughts
Wednesday was another dull, light-volume, moving-steadily-higher day.
Iomega Redux?
History may not repeat itself, but it certainly rhymes.
"The more things change, the more they are the same."
-- Alphonse Karr
In the last tech bubble, it was Iomega and the Iomegans.
In the rare-earth bubble, it's SHZ and the ShenZhous.
History may not repeat itself, but it certainly rhymes.
Heads You Win, Tails You Win?
The same commentators who told us that low interest rates were good now claim that higher interest rates are good.
Getting little conversation in the media was yesterday's failed/disappointing auction by China's finance ministry of 91-day bills.
Iomega Redux?
History may not repeat itself, but it certainly rhymes.
"The more things change, the more they are the same."
-- Alphonse Karr
In the last tech bubble, it was Iomega and the Iomegans.
In the rare-earth bubble, it's SHZ and the ShenZhous.
History may not repeat itself, but it certainly rhymes.
Heads You Win, Tails You Win?
The same commentators who told us that low interest rates were good now claim that higher interest rates are good.
Getting little conversation in the media was yesterday's failed/disappointing auction by China's finance ministry of 91-day bills.
Recap
A downside spike in the closing minutes took the luster off the indices, but it was yet another day of typical holiday trading. There continued to be some downright crazy action in rare-earth and mining stocks like SHZ, XING, REE and TC, but the big-cap leadership was mixed at best.
This speculative frenzy in a lot of "junk" stocks, along with the lack of big-name leadership, is not very healthy, but for the opportunistic trader, this can be a very good trading environment. The key is to appreciate that the action is the function of positive end-of-the-year seasonality and thin holiday trading. Don't plan on long-term relationships with the stocks that are the star of the show this week.
I suspect we're going to see more crazy pockets of momentum tomorrow.
This speculative frenzy in a lot of "junk" stocks, along with the lack of big-name leadership, is not very healthy, but for the opportunistic trader, this can be a very good trading environment. The key is to appreciate that the action is the function of positive end-of-the-year seasonality and thin holiday trading. Don't plan on long-term relationships with the stocks that are the star of the show this week.
I suspect we're going to see more crazy pockets of momentum tomorrow.
Tuesday, December 28, 2010
Thoughts
Run, don't walk, to read about a 2012 forecast of $5 gasoline by former Shell Oil CEO John Hofmeister.
GM Is at a New High
General Motors is now trading at a new high.
Weak Auction
The note auction today was quite weak.
Nightmare on Main Street
Today's release of weakening home prices exhibited the largest drop since December 2009.
The double-dip is almost here, as six cities set new lows for the period since the 2006 peaks. There is no good news in October's report. Home prices across the country continue to fall." says David M. Blitzer, Chairman of the Index Committee at Standard & Poor's. "The trends we have seen over the past few months have not changed. The tax incentives are over and the national economy remained lackluster in October, the month covered by these data. Existing homes sales and housing starts have been reported for both October and November, and neither is giving any sense of optimism. On a year-over-year basis, sales are down more than 25% and the months' supply of unsold homes is about 50% above where it was during the same months of last year. Housing starts are still hovering near 30-year lows. While delinquency rates might have seen some recent improvement, it is only on a relative basis. They are still well above their historic averages, in both the prime and sub-prime markets.
-- Case Shiller release today
Freddy Krueger would be pleased with today's release of weakening home prices, which was worse than expectations, exhibiting the largest drop since December 2009.
The breadth of the decline was convincing, with 18/20 cities experiencing a month over month drop in prices.
The bulls on housing, who have looked for stability in prices for some time, have been wrong but remain optimistic. They continue to maintain that most of the home price decline is behind us and that the moribund state of the residential real estate markets will turn based on jobs growth, underproduction of homes, continued growth in population and in household formations, the benefit of ownership vs. renting and historically low mortgage rates.
These are all valid arguments in normal times and over history have typically marked a turning point in the housing cycle.
However, we are not in normal times.
I see an avalanche of foreclosures by spring 2011, mortgage rates rising, limited improvement in payroll growth and screwflation directed toward the middle class all serving as a headwind to an improving real estate market next year.
My conclusion is that housing has hit a bottom in activity -- it can't get worse -- but not a bottom in price.
My best guess would be that home prices drop by another 3% to 5% in 2011 and that industry volume will scrape along the bottom for most of the year.
A more "normal" recovery awaits in 2012-2013.
Oil Vey
Crude oil continues to rip, approaching $92 a barrel.
A continued headwind.
I would be getting out of retail stocks right now.
GM Is at a New High
General Motors is now trading at a new high.
Weak Auction
The note auction today was quite weak.
Nightmare on Main Street
Today's release of weakening home prices exhibited the largest drop since December 2009.
The double-dip is almost here, as six cities set new lows for the period since the 2006 peaks. There is no good news in October's report. Home prices across the country continue to fall." says David M. Blitzer, Chairman of the Index Committee at Standard & Poor's. "The trends we have seen over the past few months have not changed. The tax incentives are over and the national economy remained lackluster in October, the month covered by these data. Existing homes sales and housing starts have been reported for both October and November, and neither is giving any sense of optimism. On a year-over-year basis, sales are down more than 25% and the months' supply of unsold homes is about 50% above where it was during the same months of last year. Housing starts are still hovering near 30-year lows. While delinquency rates might have seen some recent improvement, it is only on a relative basis. They are still well above their historic averages, in both the prime and sub-prime markets.
-- Case Shiller release today
Freddy Krueger would be pleased with today's release of weakening home prices, which was worse than expectations, exhibiting the largest drop since December 2009.
The breadth of the decline was convincing, with 18/20 cities experiencing a month over month drop in prices.
The bulls on housing, who have looked for stability in prices for some time, have been wrong but remain optimistic. They continue to maintain that most of the home price decline is behind us and that the moribund state of the residential real estate markets will turn based on jobs growth, underproduction of homes, continued growth in population and in household formations, the benefit of ownership vs. renting and historically low mortgage rates.
These are all valid arguments in normal times and over history have typically marked a turning point in the housing cycle.
However, we are not in normal times.
I see an avalanche of foreclosures by spring 2011, mortgage rates rising, limited improvement in payroll growth and screwflation directed toward the middle class all serving as a headwind to an improving real estate market next year.
My conclusion is that housing has hit a bottom in activity -- it can't get worse -- but not a bottom in price.
My best guess would be that home prices drop by another 3% to 5% in 2011 and that industry volume will scrape along the bottom for most of the year.
A more "normal" recovery awaits in 2012-2013.
Oil Vey
Crude oil continues to rip, approaching $92 a barrel.
A continued headwind.
I would be getting out of retail stocks right now.
Themes
For the second day in a row, the indices closed with only minor changes on very light volume. Under the surface, however, there was some classic holiday trading. Yesterday it was the rare earth metals that attracted the hot money. Today it was silver miners in particular, but gold and other metals did very well, too.
Once the theme was identified, the money piled in and produced some very nice moves. That is what you need to focus on to make trading during the slow holiday periods worthwhile.
There just wasn't much of interest outside of the miners. The indices continue to do a very nice job of holding up but, once again, some of the key leadership names such as GOOG, PCLN, CMG and DECK acted poorly.
The combination of leadership names that do nothing and pockets of extreme speculation in stocks that mostly don't have earnings is not a very healthy, but it isn't surprising for this time of year. Seasonality is helping to hold the market together, but I wouldn't get too comfortable with the assumption that this market is not going to have a bout of profit-taking before the year ends.
Once the theme was identified, the money piled in and produced some very nice moves. That is what you need to focus on to make trading during the slow holiday periods worthwhile.
There just wasn't much of interest outside of the miners. The indices continue to do a very nice job of holding up but, once again, some of the key leadership names such as GOOG, PCLN, CMG and DECK acted poorly.
The combination of leadership names that do nothing and pockets of extreme speculation in stocks that mostly don't have earnings is not a very healthy, but it isn't surprising for this time of year. Seasonality is helping to hold the market together, but I wouldn't get too comfortable with the assumption that this market is not going to have a bout of profit-taking before the year ends.
Monday, December 27, 2010
Thoughts
The Dallas Fed Manufacturing Index for December dropped to 12.8 from 16 in November.
There was a good two-year U.S. note auction (2 basis points below expectations with a reasonable bid to cover.)
"Never make predictions, especially about the future."
-- Casey Stengel
In an excellent essay published over the past week, GMO'S James Montier makes note of the consistent weakness embodied in consensus forecasts.
Attempting to invest on the back of economic forecasts is an exercise in extreme folly, even in normal times. Economists are probably the one group who make astrologers look like professionals when it comes to telling the future. Even a cursory glance at Exhibit 4 reveals that economists are simply useless when it comes to forecasting. They have missed every recession in the last four decades! And it isn't just growth that economists can't forecast: it's also inflation, bond yields, and pretty much everything else. If we add greater uncertainty, as refl ected by the distribution of the new normal, to the mix, then the difficulty of investing based upon economic forecasts is likely to be squared!
For 2011, consensus estimates for economic growth, corporate profits, stock price targets and interest rates are grouped in an extraordinarily tight range. I have chosen to use Goldman Sachs' forecasts as a proxy for the consensus.
Here are Goldman Sachs' principal views of expected economic growth, corporate profits, inflation, interest rates and stock market performance:
* 2011 GDP up 3.4% (global GDP up 4.7%);
* 2011 S&P 500 operating profits of $94 a share;
* year-end S&P 500 price target at 1,450 (a gain of about 15%) ;
* 2011 inflation of 0.5%; and
* the 2011 closing yield on the U.S.10-year Treasury note at 3.75%.
Looking beyond 2011, it appears that the consensus further expects that the domestic economy is well on its way toward delivering a smooth and self-sustaining and normal historical recovery that (from start to finish) should last about four years. The clustering of that consensus suggests that any short- or intermediate-term variant outcomes could be destabilizing to the markets, both to the upside and to the downside.
"Those who cannot remember the past are condemned to repeat it."
-- George Santayana
Looking at history, there was no better example of misplaced optimism than in the period leading up to the Great Decession of 2008-2009, providing a vivid reminder of the poor forecasting ability and investment risks associated with the crowd's baseline expectations and the value of a surprise list that deviates from that consensus.
Only the remnants anticipated anything near the magnitude of the fall in the world's economies and capital markets, despite what appeared to be clear and accumulating evidence of economic uncertainty and growing credit risks (and abuses). The analysis of multi-decade charts and economic series convinced most (along with other conclusions) that home prices were incapable of ever dropping, that derivatives and no-/low-document mortgage loans were safe, that there was no level of leverage (institutional and individual) too high and that rating agencies were responsible in their analysis. Importantly, they also failed to see the signposts of an imminent deterioration in business and consumer confidence that was to result in the deepest economic and credit crisis since the early 1930s.
From my perch, many of those who are now expressing the most extreme levels of optimism were the most wrong-footed two years ago and experienced not inconsequential pain in the last investment cycle. (Perhaps the recovery in equities was so swift in time and sizeable in magnitude that memories simply have been erased to the risks that are still omnipresent today.)
Back then and, to a lesser degree, today, many investors appear similar to victims of Plato's allegory of the cave, a parable about the difficulty of people who exist in a world shaped by false perceptions to contemplate truths that contradict their beliefs. This is why so many investors were blindsided by the last downturn and, from my perch, continue to remain conditioned to wearing rose-colored glasses.
In the famous simile of the cave, Plato compares men to prisoners in a cave who are bound and can look in only one direction. They have a fire behind them and see on a wall the shadows of themselves and of objects behind them. Since they see nothing but the shadows, they regard those shadows as real and are not aware of the objects. Finally one of the prisoners escapes and comes from the cave into the light of the sun. For the first time, he sees real things and realizes that he had been deceived hitherto by the shadows. For the first time, he knows the truth and thinks only with sorrow of his long life in the darkness.
-- Werner Heisenberg, Physics and Philosophy
I'm wondering if one of the most notable takeover deals in 2011 might be MSFT launching a tender for YHOO at $21.50 a share. With the company in play, NWS might follow with a competing and higher bid. The private equity community then may join the fray. I'm thinking MSFT ultimately prevails and pays $24 a share for YHOO.
Currently, Yahoo! is universally viewed as a dysfunctional company, and few expect that Microsoft has an interest in the company. But a deal could be profitable and advantageous (more critical mass and immediate exposure to the rapidly growing Chinese market) to Microsoft:
* Microsoft is hemorrhaging cash in its Internet operations (estimated $2.5 billion of losses in the last 12 months). Yahoo! will immediately contribute $1.25 billion-plus of cash flow. (Applying a normal multiple, 6x to 9x creates $8.5 billion of value to Microsoft from Yahoo!'s current earnings before interest, taxes, depreciation and amortization).
* Yahoo! boasts net cash of $3.4 billion.
* Yahoo!'s public holdings total $9.5 billion of value (AliBaba.com and Yahoo! Japan).
* Yahoo!'s private holdings total $6.0 billion.
Yahoo owns 40% of private AliBaba through two assets:
1. A call option on Chinese search via Microsoft joint venture. Based on the value of Baidu, if Yahoo gets a 10% share of $50 billion Chinese search market the value is $5 billion - the value to Yahoo is about $1 billion for each 10% of search share (40% of 50%).
2. 40% of AliPay. This is the elephant in the room. Current AliPay payments are about two thirds of PayPal, but the company is growing much faster than PayPal and its market potential is far greater. PayPal is currently worth $18 billion - making AliPay valued at $12 billion. Yahoo!'s 40% is worth $5 billion now but will easily be $10 billion in three years.
By means of background, on Feb. 1, 2008, Microsoft offered $31 a share, or $45 billion, to acquire Yahoo! in an unsolicited bid that included a combination of stock and cash. At that time, Yahoo!'s shares stood at $19 a share, and Microsoft was trading at $32 a share. (Today Microsoft trades at $27 a share, and Yahoo! trades at $16 a share.)
Yahoo! rejected the bid, claiming that it "substantially undervalued" the company and was not in the interest of its shareholders. In January 2009, Carol Bartz replaced Yahoo! cofounder Jerry Yang, and six months later Microsoft and Yahoo! entered into a search joint venture.
I'm also thinking there is a peaceful regime change in Iran.
There was a good two-year U.S. note auction (2 basis points below expectations with a reasonable bid to cover.)
"Never make predictions, especially about the future."
-- Casey Stengel
In an excellent essay published over the past week, GMO'S James Montier makes note of the consistent weakness embodied in consensus forecasts.
Attempting to invest on the back of economic forecasts is an exercise in extreme folly, even in normal times. Economists are probably the one group who make astrologers look like professionals when it comes to telling the future. Even a cursory glance at Exhibit 4 reveals that economists are simply useless when it comes to forecasting. They have missed every recession in the last four decades! And it isn't just growth that economists can't forecast: it's also inflation, bond yields, and pretty much everything else. If we add greater uncertainty, as refl ected by the distribution of the new normal, to the mix, then the difficulty of investing based upon economic forecasts is likely to be squared!
For 2011, consensus estimates for economic growth, corporate profits, stock price targets and interest rates are grouped in an extraordinarily tight range. I have chosen to use Goldman Sachs' forecasts as a proxy for the consensus.
Here are Goldman Sachs' principal views of expected economic growth, corporate profits, inflation, interest rates and stock market performance:
* 2011 GDP up 3.4% (global GDP up 4.7%);
* 2011 S&P 500 operating profits of $94 a share;
* year-end S&P 500 price target at 1,450 (a gain of about 15%) ;
* 2011 inflation of 0.5%; and
* the 2011 closing yield on the U.S.10-year Treasury note at 3.75%.
Looking beyond 2011, it appears that the consensus further expects that the domestic economy is well on its way toward delivering a smooth and self-sustaining and normal historical recovery that (from start to finish) should last about four years. The clustering of that consensus suggests that any short- or intermediate-term variant outcomes could be destabilizing to the markets, both to the upside and to the downside.
"Those who cannot remember the past are condemned to repeat it."
-- George Santayana
Looking at history, there was no better example of misplaced optimism than in the period leading up to the Great Decession of 2008-2009, providing a vivid reminder of the poor forecasting ability and investment risks associated with the crowd's baseline expectations and the value of a surprise list that deviates from that consensus.
Only the remnants anticipated anything near the magnitude of the fall in the world's economies and capital markets, despite what appeared to be clear and accumulating evidence of economic uncertainty and growing credit risks (and abuses). The analysis of multi-decade charts and economic series convinced most (along with other conclusions) that home prices were incapable of ever dropping, that derivatives and no-/low-document mortgage loans were safe, that there was no level of leverage (institutional and individual) too high and that rating agencies were responsible in their analysis. Importantly, they also failed to see the signposts of an imminent deterioration in business and consumer confidence that was to result in the deepest economic and credit crisis since the early 1930s.
From my perch, many of those who are now expressing the most extreme levels of optimism were the most wrong-footed two years ago and experienced not inconsequential pain in the last investment cycle. (Perhaps the recovery in equities was so swift in time and sizeable in magnitude that memories simply have been erased to the risks that are still omnipresent today.)
Back then and, to a lesser degree, today, many investors appear similar to victims of Plato's allegory of the cave, a parable about the difficulty of people who exist in a world shaped by false perceptions to contemplate truths that contradict their beliefs. This is why so many investors were blindsided by the last downturn and, from my perch, continue to remain conditioned to wearing rose-colored glasses.
In the famous simile of the cave, Plato compares men to prisoners in a cave who are bound and can look in only one direction. They have a fire behind them and see on a wall the shadows of themselves and of objects behind them. Since they see nothing but the shadows, they regard those shadows as real and are not aware of the objects. Finally one of the prisoners escapes and comes from the cave into the light of the sun. For the first time, he sees real things and realizes that he had been deceived hitherto by the shadows. For the first time, he knows the truth and thinks only with sorrow of his long life in the darkness.
-- Werner Heisenberg, Physics and Philosophy
I'm wondering if one of the most notable takeover deals in 2011 might be MSFT launching a tender for YHOO at $21.50 a share. With the company in play, NWS might follow with a competing and higher bid. The private equity community then may join the fray. I'm thinking MSFT ultimately prevails and pays $24 a share for YHOO.
Currently, Yahoo! is universally viewed as a dysfunctional company, and few expect that Microsoft has an interest in the company. But a deal could be profitable and advantageous (more critical mass and immediate exposure to the rapidly growing Chinese market) to Microsoft:
* Microsoft is hemorrhaging cash in its Internet operations (estimated $2.5 billion of losses in the last 12 months). Yahoo! will immediately contribute $1.25 billion-plus of cash flow. (Applying a normal multiple, 6x to 9x creates $8.5 billion of value to Microsoft from Yahoo!'s current earnings before interest, taxes, depreciation and amortization).
* Yahoo! boasts net cash of $3.4 billion.
* Yahoo!'s public holdings total $9.5 billion of value (AliBaba.com and Yahoo! Japan).
* Yahoo!'s private holdings total $6.0 billion.
Yahoo owns 40% of private AliBaba through two assets:
1. A call option on Chinese search via Microsoft joint venture. Based on the value of Baidu, if Yahoo gets a 10% share of $50 billion Chinese search market the value is $5 billion - the value to Yahoo is about $1 billion for each 10% of search share (40% of 50%).
2. 40% of AliPay. This is the elephant in the room. Current AliPay payments are about two thirds of PayPal, but the company is growing much faster than PayPal and its market potential is far greater. PayPal is currently worth $18 billion - making AliPay valued at $12 billion. Yahoo!'s 40% is worth $5 billion now but will easily be $10 billion in three years.
By means of background, on Feb. 1, 2008, Microsoft offered $31 a share, or $45 billion, to acquire Yahoo! in an unsolicited bid that included a combination of stock and cash. At that time, Yahoo!'s shares stood at $19 a share, and Microsoft was trading at $32 a share. (Today Microsoft trades at $27 a share, and Yahoo! trades at $16 a share.)
Yahoo! rejected the bid, claiming that it "substantially undervalued" the company and was not in the interest of its shareholders. In January 2009, Carol Bartz replaced Yahoo! cofounder Jerry Yang, and six months later Microsoft and Yahoo! entered into a search joint venture.
I'm also thinking there is a peaceful regime change in Iran.
Fleeing From Quality
The indices ended with just minor changes on the day, and we had the lightest full day of volume this year, but we still had a holiday atmosphere. The dip-buyers jumped on the gap-down open created by some monetary tightening in China, and strength in banks kept the indices up.
It was the action under the surface in speculative "junk" that gave the trading its holiday feel. Lots of biotechnology and mining names with no revenue and/or no earnings led the charge. Biotechnology names like DAR, RPRX and BPAX attracted interest, and the rare-earth mineral plays, like AVL and REE, were particularly hot.
This sort of action can make for some good trading, but it is definitely a warning sign. When market players are chasing such poor quality and dumping things like AMZN, NFLX, GOOG, FFIV, etc., that tells you we are in the late phases of a upside run.
If it weren't the last few trading days of the year, I'd be much more concerned about a top, but this is not the time when the sellers can take control. The end of the year and the first few days of the new year are typically controlled by the buyers, but then it becomes much more dangerous. I don't like to anticipate, but I will be keeping that in mind, especially if we continue to see such aggressive actively in speculative junk.
It was the action under the surface in speculative "junk" that gave the trading its holiday feel. Lots of biotechnology and mining names with no revenue and/or no earnings led the charge. Biotechnology names like DAR, RPRX and BPAX attracted interest, and the rare-earth mineral plays, like AVL and REE, were particularly hot.
This sort of action can make for some good trading, but it is definitely a warning sign. When market players are chasing such poor quality and dumping things like AMZN, NFLX, GOOG, FFIV, etc., that tells you we are in the late phases of a upside run.
If it weren't the last few trading days of the year, I'd be much more concerned about a top, but this is not the time when the sellers can take control. The end of the year and the first few days of the new year are typically controlled by the buyers, but then it becomes much more dangerous. I don't like to anticipate, but I will be keeping that in mind, especially if we continue to see such aggressive actively in speculative junk.
Thursday, December 23, 2010
Thoughts
Bond prices are breaking down.
Two Ways to Play Bond Disintermediation
There are two ways to play the disintermediation in bond fund holdings:
1. by shorting fixed income; or
2. by shorting BEN
It is interesting to note that the yield on the five-year U.S. note doubled in November as outflows forced selling.
Margin Debt Surges
This is worrisome.
Two Ways to Play Bond Disintermediation
There are two ways to play the disintermediation in bond fund holdings:
1. by shorting fixed income; or
2. by shorting BEN
It is interesting to note that the yield on the five-year U.S. note doubled in November as outflows forced selling.
Margin Debt Surges
This is worrisome.
Subdued
If anyone needs evidence to support why the market should have more holidays, today would work quite well. Volume was extremely light, breadth slightly negative, and it was deadly dull. If we were closed, no one would have noticed the difference.
Normally, the days in front of holidays will have some pockets of upbeat action, but this market has become so extended, there just wasn't much left for the hot money to really move. It will be thin all of next week also, so I'm hopeful we'll have better holiday spirit in spots.
The bigger picture remains unchanged. The major indices are all within a few points of their annual highs, and the bears are unable to make any progress at all. The argument that market players are just too complacent is very easy to appreciate, but it just hasn't mattered. That may be due in part to positive end-of-the-year seasonality, but there just isn't any negative price action yet to indicate that the bears may finally have some success.
Normally, the days in front of holidays will have some pockets of upbeat action, but this market has become so extended, there just wasn't much left for the hot money to really move. It will be thin all of next week also, so I'm hopeful we'll have better holiday spirit in spots.
The bigger picture remains unchanged. The major indices are all within a few points of their annual highs, and the bears are unable to make any progress at all. The argument that market players are just too complacent is very easy to appreciate, but it just hasn't mattered. That may be due in part to positive end-of-the-year seasonality, but there just isn't any negative price action yet to indicate that the bears may finally have some success.
Predictions? What's Looking Particularly Good To Me Right Now...
Here at year end, C calls, YHOO calls and MEE calls look increasingly attractive. February 2011 calls on YHOO at 17 or 18 are appealing as a deal play or just as a general turnaround play. The stock is cheap. MEE, almost for sure, will be bought. Probably in the first quarter; and I'd have to think at least at $60, if not much higher.
In the first quarter, energy and financial stocks, I think, will dominate the S&P 500 index. While a quickening in world economic growth in 2011 will lift the oil and gas sector, I expect that banks and other representatives of the bear market will be the real surprises in the first quarter. Together, both groups have the potential to lift the S&P 500 back to its all-time high in the first half of the year.
As part of that process, I expect that C will finally trade into double digits. I'm no technician, but the stock has just lifted above its 50-week moving average for the first time since June 2007 and has set its sights on the 2009 high at $5.43. I look for the upside to accelerate once that resistance level is overcome, with a stronger barrier between $12 and $16 marking the 2011 highs.
long C
In the first quarter, energy and financial stocks, I think, will dominate the S&P 500 index. While a quickening in world economic growth in 2011 will lift the oil and gas sector, I expect that banks and other representatives of the bear market will be the real surprises in the first quarter. Together, both groups have the potential to lift the S&P 500 back to its all-time high in the first half of the year.
As part of that process, I expect that C will finally trade into double digits. I'm no technician, but the stock has just lifted above its 50-week moving average for the first time since June 2007 and has set its sights on the 2009 high at $5.43. I look for the upside to accelerate once that resistance level is overcome, with a stronger barrier between $12 and $16 marking the 2011 highs.
long C
Wednesday, December 22, 2010
Wal-Mart: Outlier or Cautionary Sign?
Wal-Mart's stock appears to be in the process of breaking down.
The question: Is Wal-Mart's stock an outlier (representing "old" retail), or do Wal-Mart's weakening shares foreshadow a drop in retail as a whole.
Yahoo! on the Cheap
Cheap spec idea: Yahoo! February 17 calls at $0.67.
Defined risk, a lot of potential upside.
Don't believe for a moment the rise in home prices reported this morning as the Northeast region's prices increased by over 2% month over month and greater than 9% year over year.
This is likely the byproduct of the foreclosure moratoriums during the last month, not a function of a healthy real estate market.
These home prices will turn down on a cessation of the moratoriums.
A large drop in crude oil inventories is spurring a further rise in the price of crude.
Crude is now trading near $91, close to the high last reach 26 months ago.
Existing-home sales a tad weaker than consensus.
House price index was +0.7% vs. expectations of -0.2%.
Applications for new mortgages dropped by 2.5% last week and refinancing applications declined by a whopping 25%.
But markets are ignoring the speed of the mortgage rate rise and its impact on housing turnover and refinancings.
Should interest rates continue their ascent, focus will shift to the moribund state of the U.S. housing market.
It is interesting to note in a Wall Street Journal report how concentrated the ownership of commodities is, as this usually ends badly.
Wal-Mart's stock appears to be in the process of breaking down.
The question: Is Wal-Mart's stock an outlier (representing "old" retail), or do Wal-Mart's weakening shares foreshadow a drop in retail as a whole.
Yahoo! on the Cheap
Cheap spec idea: Yahoo! February 17 calls at $0.67.
Defined risk, a lot of potential upside.
Don't believe for a moment the rise in home prices reported this morning as the Northeast region's prices increased by over 2% month over month and greater than 9% year over year.
This is likely the byproduct of the foreclosure moratoriums during the last month, not a function of a healthy real estate market.
These home prices will turn down on a cessation of the moratoriums.
A large drop in crude oil inventories is spurring a further rise in the price of crude.
Crude is now trading near $91, close to the high last reach 26 months ago.
Existing-home sales a tad weaker than consensus.
House price index was +0.7% vs. expectations of -0.2%.
Applications for new mortgages dropped by 2.5% last week and refinancing applications declined by a whopping 25%.
But markets are ignoring the speed of the mortgage rate rise and its impact on housing turnover and refinancings.
Should interest rates continue their ascent, focus will shift to the moribund state of the U.S. housing market.
It is interesting to note in a Wall Street Journal report how concentrated the ownership of commodities is, as this usually ends badly.
Bullish Day
The bulls managed yet another positive day, which gives the S&P 500 a record of 14 wins and 2 losses so far in December. It was just another day of slowly grinding higher without a worry in the world. We had a little mid-afternoon weakness, but it didn't last long, and the buyers had us back near the highs at the close.
Breadth was only slightly positive on the Nasdaq and volume understandably slowed, but the price action had few flaws. It certainly was another good day for the bulls, but momentum slowed, and it was very tough to chase new buys. The market is just a bit too extended now to aggressively do much chasing, especially with the added volatility created by lighter volume.
Tomorrow, which is the last day before the holiday break, has a good track record, but it would be much more interesting if the market hadn't run up so much without a rest. It is going to limit the areas of upbeat holiday trading and could easily turn into a day of profit-taking if the bulls don't have better energy.
Be ready for some random, light-volume trading action tomorrow.
Breadth was only slightly positive on the Nasdaq and volume understandably slowed, but the price action had few flaws. It certainly was another good day for the bulls, but momentum slowed, and it was very tough to chase new buys. The market is just a bit too extended now to aggressively do much chasing, especially with the added volatility created by lighter volume.
Tomorrow, which is the last day before the holiday break, has a good track record, but it would be much more interesting if the market hadn't run up so much without a rest. It is going to limit the areas of upbeat holiday trading and could easily turn into a day of profit-taking if the bulls don't have better energy.
Be ready for some random, light-volume trading action tomorrow.
Thoughts For Tuesday, 12/21/2010
There is visible and unencumbered pent-up demand for automobiles in the U.S.
The autos can't seem to get out of their own way. I wonder what it will take for people to realize how cheap these stocks are. The government got a good price for GM, but so did the people, and it only takes a couple large buyers to sweep this one.
Congressional Seat Changes
The Census Bureau announced which states will gain congressional seats and which states will lose them.
Texas, with four additional seats, is the biggest winner.
New York and Ohio will each lose two seats.
The autos can't seem to get out of their own way. I wonder what it will take for people to realize how cheap these stocks are. The government got a good price for GM, but so did the people, and it only takes a couple large buyers to sweep this one.
Congressional Seat Changes
The Census Bureau announced which states will gain congressional seats and which states will lose them.
Texas, with four additional seats, is the biggest winner.
New York and Ohio will each lose two seats.
Market Recap For Tuesday, 12/21/2010
The S&P 500 has been up for 13 of the 15 trading days thus far in December, and it is acting like it is never going to go down again. Volume is slowing but breadth is improving, and the key leadership stocks such as AAPL, NFLX and CRM are acting better. It is a relentless uptrend that is beating up the serial top callers despite all their good arguments about why a reversal is going to occur at any moment.
If volume slows the closer we get to the holiday, the risk of a higher level of volatility will increase. That can cut both ways. It can shake you out of some good positions, but it can also provide for some favorable entry points and quick flips if you stay vigilant.
In the old days (before the crash in 2008), we actually tended to have more volatility within the uptrends, which is good for active traders. Since March 2009, the uptrends have been amazingly lopsided. You just don't see a lot of easy entries, and it is a real bear killer because they don't even get the chance for very minor gains.
That is the environment we are in. With the holidays fast approaching, and end-of-the year portfolio shuffling occurring, there will probably be some opportunities.
If volume slows the closer we get to the holiday, the risk of a higher level of volatility will increase. That can cut both ways. It can shake you out of some good positions, but it can also provide for some favorable entry points and quick flips if you stay vigilant.
In the old days (before the crash in 2008), we actually tended to have more volatility within the uptrends, which is good for active traders. Since March 2009, the uptrends have been amazingly lopsided. You just don't see a lot of easy entries, and it is a real bear killer because they don't even get the chance for very minor gains.
That is the environment we are in. With the holidays fast approaching, and end-of-the year portfolio shuffling occurring, there will probably be some opportunities.
Monday, December 20, 2010
Emotions in a Fickle Market
It is interesting to note the continued strength in bond prices and the continued weakness in the handful of high-octane stocks that led 2010's market advance.
Wasn't it just a few weeks ago that the breathless commentary in the media was on the subjects of avoiding bonds and the need to accumulate the market leaders?
Moral of the story?
Don't get wrapped up in emotion as it regards investing and trading.
The lead article in The New York Times Business Section today discusses the rising role of temporary workers in the workplace.
It is interesting to note the continued strength in bond prices and the continued weakness in the handful of high-octane stocks that led 2010's market advance.
Wasn't it just a few weeks ago that the breathless commentary in the media was on the subjects of avoiding bonds and the need to accumulate the market leaders?
Moral of the story?
Don't get wrapped up in emotion as it regards investing and trading.
The lead article in The New York Times Business Section today discusses the rising role of temporary workers in the workplace.
Santa
It may be a bit premature, but today sure felt like traditional holiday trading. The indices were mixed, we didn't close very well, volume was thin and the action a bit jerky in places, but there were plenty of movers, especially among select small-caps. There is this positive underlying tone to some of the action that tends to occur during the holiday, and we saw some signs of it today.
Key leadership names like AMZN, GOOG, PCLN and AAPL looked quite shaky early, but they came back later in the day and closed OK. The major indices, with the exception of the Dow, all closed at the highs of the year, but they were already at those levels, so it didn't take much to keep them there. Gold, oil, coal and commodities were the leaders despite some strength in the dollar, while semiconductors and steel lagged.
Once again the serial top-callers were disappointed. There sure seems to be a lot of them around, which may be one of the reasons this market refuses to roll over. Too many market players are trying to anticipate the top, and they keep having to cover when the market refuses to crack.
Key leadership names like AMZN, GOOG, PCLN and AAPL looked quite shaky early, but they came back later in the day and closed OK. The major indices, with the exception of the Dow, all closed at the highs of the year, but they were already at those levels, so it didn't take much to keep them there. Gold, oil, coal and commodities were the leaders despite some strength in the dollar, while semiconductors and steel lagged.
Once again the serial top-callers were disappointed. There sure seems to be a lot of them around, which may be one of the reasons this market refuses to roll over. Too many market players are trying to anticipate the top, and they keep having to cover when the market refuses to crack.
Saturday, December 18, 2010
Thoughts For Friday, 12/17/2010
The one constant in 2010 (and in many previous years) is that optimism (on the part of strategists and investors) expands when share prices rise, and pessimism rises when share prices decline.
Case in point: the bond market.
Shorting bonds may be "the trade of the decade."
Susquehanna reiterates Yahoo!, with a $20 price target.
Over the past two weeks, our country's leadership has taken the easy route and has demonstrated that there will be no meaningful movement in cutting our burgeoning deficit -- once again, trading off near-term growth at the cost of intermediate-term pain. The bond vigilantes smell blood, recognize this inertia and are now exacting a price to be paid in much higher interest rates. (The rapidity of the recent rate rise is but one of the accumulating factors that will likely weigh on stocks in the weeks/months ahead.)
Higher interest rates are already taking a toll on the still-depressed housing market. Applications for new homes and refinancings are again heading lower (over the last three to five weeks), as the rate on the 30-year fixed mortgage has abruptly climbed back to seven-month highs. This rate rise comes at a bad time as mortgage-gate has delayed the foreclosure/sale process until early 2011, which will likely result in an outsized and steady supply of inventory for sale in the months ahead.
Rising mortgage rates and an avalanche of supply are a toxic cocktail for housing.
Meanwhile (consistent with rising stock prices), the bullish talking heads' chorus of smooth and self-sustaining economic growth has grown ever louder, ignoring the warning signs of worsening payrolls growth, the temporary nature of the stimulus, a continued buildup in household savings, a banking system that is still in a healing mode, the potential for "beggar thy neighbor" policy decisions, Chinese inflation out of control, the sinking ships (of Japan, Ireland, Greece and Spain), the specter of corporate profit margin erosion (evolving from higher input costs), rising tensions between Iran and Israel, and a worsening housing market.
To summarize, as 2010 concludes, I continue to maintain the notion that, in light of the many unresolved macroeconomic issues, selectivity, discipline and caution should still be an investor's mantra.
In the uneven economic environment I envision, stockpicking and a flexible and bolder opportunistic trading approach (based on shorter-term catalysts) seem to be the likely ingredients to superior returns.
We should all be mindful, however, that, with few exceptions, many (if not most) observers -- and that includes Ben Bernanke -- missed the 2008-2009 downturn, despite the clear and accumulating evidence of economic uncertainty and growing credit risks (and abuses). The analysis of multi-decade charts and economic series convinced most (along with other conclusions) that home prices were incapable of ever dropping, that derivatives and no-/low-document mortgage loans were safe, that there was no level of leverage (institutional and individual) too high and that rating agencies were responsible in their analysis. Importantly, they also failed to see the signposts of an imminent deterioration in business and consumer confidence that was to result in the Great Decession and credit crisis of the last decade.
Many investors seem to be similar to victims of Plato's allegory of the cave, a parable about the difficulty of people who exist in a world shaped by false perceptions to contemplate truths that contradict their beliefs. This is why so many investors were blindsided by the last downturn and, from my perch, continue to wear rose-colored glasses.
In the famous simile of the cave, Plato compares men to prisoners in a cave who are bound and can look in only one direction. They have a fire behind them and see on a wall the shadows of themselves and of objects behind them. Since they see nothing but the shadows, they regard those shadows as real and are not aware of the objects. Finally one of the prisoners escapes and comes from the cave into the light of the sun. For the first time, he sees real things and realizes that he had been deceived hitherto by the shadows. For the first time, he knows the truth and thinks only with sorrow of his long life in the darkness.
In all likelihood, the U.S. economy will muddle through, though that may not be the case in Europe) It remains my view that the anticipated anemic slope of domestic economic growth in 2011-2012 exposes the improving economic cycle to policy or exogenous surprises and influences.
Every cycle poses new challenges to growth, and the current cycle is (very) different this time. As I have frequently chronicled, so many nontraditional headwinds represent challenges to the U.S. economy and stock market. Most important, the weight of the structural disequilibrium in the U.S. jobs market coupled with a still-struggling housing market mired by an unprecedented shadow inventory of unsold homes are some of the more conspicuous and unfortunate byproducts of the credit crisis of 2008-2009 and represent important impediments to a self-sustaining domestic economic recovery that the crowd appears to see with increasing clarity.
Arguably, over the past few months, investors' "heads we win, tails we win" response to news is becoming increasingly reminiscent of the period approaching prior market peaks, providing to me (again) a clear reminder of the wisdom of Santayana, who once observed that "those who cannot remember the past are condemned to repeat it."
Case in point: the bond market.
Shorting bonds may be "the trade of the decade."
Susquehanna reiterates Yahoo!, with a $20 price target.
Over the past two weeks, our country's leadership has taken the easy route and has demonstrated that there will be no meaningful movement in cutting our burgeoning deficit -- once again, trading off near-term growth at the cost of intermediate-term pain. The bond vigilantes smell blood, recognize this inertia and are now exacting a price to be paid in much higher interest rates. (The rapidity of the recent rate rise is but one of the accumulating factors that will likely weigh on stocks in the weeks/months ahead.)
Higher interest rates are already taking a toll on the still-depressed housing market. Applications for new homes and refinancings are again heading lower (over the last three to five weeks), as the rate on the 30-year fixed mortgage has abruptly climbed back to seven-month highs. This rate rise comes at a bad time as mortgage-gate has delayed the foreclosure/sale process until early 2011, which will likely result in an outsized and steady supply of inventory for sale in the months ahead.
Rising mortgage rates and an avalanche of supply are a toxic cocktail for housing.
Meanwhile (consistent with rising stock prices), the bullish talking heads' chorus of smooth and self-sustaining economic growth has grown ever louder, ignoring the warning signs of worsening payrolls growth, the temporary nature of the stimulus, a continued buildup in household savings, a banking system that is still in a healing mode, the potential for "beggar thy neighbor" policy decisions, Chinese inflation out of control, the sinking ships (of Japan, Ireland, Greece and Spain), the specter of corporate profit margin erosion (evolving from higher input costs), rising tensions between Iran and Israel, and a worsening housing market.
To summarize, as 2010 concludes, I continue to maintain the notion that, in light of the many unresolved macroeconomic issues, selectivity, discipline and caution should still be an investor's mantra.
In the uneven economic environment I envision, stockpicking and a flexible and bolder opportunistic trading approach (based on shorter-term catalysts) seem to be the likely ingredients to superior returns.
We should all be mindful, however, that, with few exceptions, many (if not most) observers -- and that includes Ben Bernanke -- missed the 2008-2009 downturn, despite the clear and accumulating evidence of economic uncertainty and growing credit risks (and abuses). The analysis of multi-decade charts and economic series convinced most (along with other conclusions) that home prices were incapable of ever dropping, that derivatives and no-/low-document mortgage loans were safe, that there was no level of leverage (institutional and individual) too high and that rating agencies were responsible in their analysis. Importantly, they also failed to see the signposts of an imminent deterioration in business and consumer confidence that was to result in the Great Decession and credit crisis of the last decade.
Many investors seem to be similar to victims of Plato's allegory of the cave, a parable about the difficulty of people who exist in a world shaped by false perceptions to contemplate truths that contradict their beliefs. This is why so many investors were blindsided by the last downturn and, from my perch, continue to wear rose-colored glasses.
In the famous simile of the cave, Plato compares men to prisoners in a cave who are bound and can look in only one direction. They have a fire behind them and see on a wall the shadows of themselves and of objects behind them. Since they see nothing but the shadows, they regard those shadows as real and are not aware of the objects. Finally one of the prisoners escapes and comes from the cave into the light of the sun. For the first time, he sees real things and realizes that he had been deceived hitherto by the shadows. For the first time, he knows the truth and thinks only with sorrow of his long life in the darkness.
In all likelihood, the U.S. economy will muddle through, though that may not be the case in Europe) It remains my view that the anticipated anemic slope of domestic economic growth in 2011-2012 exposes the improving economic cycle to policy or exogenous surprises and influences.
Every cycle poses new challenges to growth, and the current cycle is (very) different this time. As I have frequently chronicled, so many nontraditional headwinds represent challenges to the U.S. economy and stock market. Most important, the weight of the structural disequilibrium in the U.S. jobs market coupled with a still-struggling housing market mired by an unprecedented shadow inventory of unsold homes are some of the more conspicuous and unfortunate byproducts of the credit crisis of 2008-2009 and represent important impediments to a self-sustaining domestic economic recovery that the crowd appears to see with increasing clarity.
Arguably, over the past few months, investors' "heads we win, tails we win" response to news is becoming increasingly reminiscent of the period approaching prior market peaks, providing to me (again) a clear reminder of the wisdom of Santayana, who once observed that "those who cannot remember the past are condemned to repeat it."
Market Recap For Friday, 12/17/2010
The action today had a holiday feel to it. It was slow-going for a while, but when it became evident that the bears weren't going to do anything, the buyers moved in and produced some pockets of decent gains. The indices were mixed, volume was mediocre and breadth was nothing special, but the bulls were left to their own devices and managed some good moves in biotechnology, steel, precious metals and oil. Retail and drugs were the laggards, but there wasn't anything very aggressive to the downside.
The bulls have seasonality working for them, and I suspect the bears are feeling rather discouraged after the recent little bout of weakness failed to develop into anything more. There continues to be many good reasons for being cautious, but the price action just isn't confirming the bears' argument. You can have the most compelling arguments in the world for the market to act in a certain way, but, if prices don't agree with you, then you are wrong. Maybe the market will come to agree with your arguments at a later date, but I prefer to wait for the price action to actually shift before acting.
The bulls have seasonality working for them, and I suspect the bears are feeling rather discouraged after the recent little bout of weakness failed to develop into anything more. There continues to be many good reasons for being cautious, but the price action just isn't confirming the bears' argument. You can have the most compelling arguments in the world for the market to act in a certain way, but, if prices don't agree with you, then you are wrong. Maybe the market will come to agree with your arguments at a later date, but I prefer to wait for the price action to actually shift before acting.
Thoughts For Thursday, 12/16/2010
Spanish bonds don't look so fly.
Today's auction of 10- and 15-year Spanish securities was weak and resulted in yields almost 150 basis points higher than a month ago. I suppose the bulls will point out that the auction failed to dent the rise in European stocks or in U.S. futures as a plus. We will see.
As important, the December Europe PMI came in at 55 (down from 55.4 in the prior month). The December manufacturing PMI was 56.8, well above November's 55.3 and the expectation of 55.2, while the December service sector PMI was 53.7, below November's 55.4 and compared to the consensus at 55.2.
The rally in gold has led equities on the way up over the past few months.
With the recent retracement (breakdown?) in the price of gold, might it lead equities on the way down?
The employment component of the Philly Fed Manufacturing Index was flat, and shipments began to weaken.
While the Philly Fed Manufacturing Index came in at 24.3 and was well above expectations of 15, the components were not as impressive.
Today's auction of 10- and 15-year Spanish securities was weak and resulted in yields almost 150 basis points higher than a month ago. I suppose the bulls will point out that the auction failed to dent the rise in European stocks or in U.S. futures as a plus. We will see.
As important, the December Europe PMI came in at 55 (down from 55.4 in the prior month). The December manufacturing PMI was 56.8, well above November's 55.3 and the expectation of 55.2, while the December service sector PMI was 53.7, below November's 55.4 and compared to the consensus at 55.2.
The rally in gold has led equities on the way up over the past few months.
With the recent retracement (breakdown?) in the price of gold, might it lead equities on the way down?
The employment component of the Philly Fed Manufacturing Index was flat, and shipments began to weaken.
While the Philly Fed Manufacturing Index came in at 24.3 and was well above expectations of 15, the components were not as impressive.
Market Recap For Thursday, 12/16/2010
After several days of deterioration in market internals, many market players were leaning bearish and looking for the indices to finally pull back more aggressively. It looked like we might be in trouble in the early going, but we found support, and then once we traded above the opening lows, the buying become more aggressive.
Big-cap momentum names bounced back strongly, and the market was able to shrug off weakness in gold, oil and commodities. Damage to MA and V due to some proposed new rules on fees stayed contained, and banks managed to finish in the green. Leadership was in the retail sector, but a rebound in technology also helped quite a bit.
We have to give the bulls the benefit of the doubt here, and if they can build on this bounce Friday, they will really have the bears on the ropes once again.
Big-cap momentum names bounced back strongly, and the market was able to shrug off weakness in gold, oil and commodities. Damage to MA and V due to some proposed new rules on fees stayed contained, and banks managed to finish in the green. Leadership was in the retail sector, but a rebound in technology also helped quite a bit.
We have to give the bulls the benefit of the doubt here, and if they can build on this bounce Friday, they will really have the bears on the ropes once again.
Wednesday, December 15, 2010
Thoughts
A December Surprise?
An Associated Press report that "Iraq authorities have obtained confessions from captured insurgents who claim al-Qaida is planning suicide attacks in the United States and Europe during the Christmas season" has likely hurt the markets in the last hour.
A senior U.S. intelligence official confirmed that the threat was credible.
The Media Is Not the Message
Nearly every single talking head in the business media offers the identical tactical strategy and ideas.
Industrial Production Shows Some Upside
Industrial production was slightly better than expected, rising by 0.4% vs. consensus for a 0.3% increase.
Importantly, the strength was broad based.
Foreign investment in our financial assets weakened dramatically, but this is a volatile series.
Mortgage Data Dropping
The U.S. housing market faces renewed challenges from rapidly rising interest rates.
Refinancing applications and applications for new mortgages dropped for the fifth consecutive and third consecutive weeks, respectively.
Based on this morning's data, the U.S. housing market faces renewed challenges from rapidly rising interest rates, and so does the retail outlook (and consumer confidence), which is underpinned by the cash from refis which are an important source on personal consumer spending plans.
I continue to be of the view that the swiftness of the rate rise will challenge the smooth and virtuous self-sustaining thesis in the year ahead.
Our country's leadership has taken the easy route and has demonstrated still further that there will be no meaningful movement on our burgeoning deficit. The bond vigilantes smell blood, recognize this inertia and are demanding a price to be paid in much higher interest rates.
Despite the Fed Chairman's protestations (and the cheerleading of Wharton's Dr. Jeremy Siegel), QE2 has likely bombed - so far.
As Bill King wrote last night, the Fed and many investors are victims of Plato's allegory of the cave, a moral about the difficulty of people who exist in a world shaped by false perceptions to contemplate truths that contradict their beliefs. This is why, as Bill scribes, "so many people missed the greatest financial and economic crises since at least Reconstruction."
In the famous simile of the cave, Plato compares men to prisoners in a cave who are bound and can look in only one direction. They have a fire behind them and see on a wall the shadows of themselves and of objects behind them. Since they see nothing but the shadows, they regard those shadows as real and are not aware of the objects. Finally one of the prisoners escapes and comes from the cave into the light of the sun. For the first time, he sees real things and realizes that he had been deceived hitherto by the shadows. For the first time, he knows the truth and thinks only with sorrow of his long life in the darkness.
-- Werner Heisenberg, Physics and Philosophy
Meanwhile the talking heads' chorus of smooth and self-sustaining economic growth has grown ever louder (in the powerful bull), ignoring the warning signs of worsening payrolls growth, the temporary nature of the stimulus, a continued buildup in household savings, a banking system that is still in a healing mode and a worsening housing market (among other issues).
We should be mindful that, with few exceptions, most observers (and that includes Ben Bernanke) missed the 2008-2009 downturn despite the clear and accumulating evidence of economic uncertainty and growing credit risks (and abuses). The analysis of multi-decade charts and economic series convinced most (along with other conclusions) that home prices were incapable of ever dropping, that derivatives and no-/low-document mortgage loans were safe, that there was no level of leverage (institutional and individual) too high and that rating agencies were responsible in their analyses. Importantly, they also failed to see the signposts of an imminent deterioration in business and consumer confidence that was to result in the Great Recession and credit crisis of the last decade.
An Associated Press report that "Iraq authorities have obtained confessions from captured insurgents who claim al-Qaida is planning suicide attacks in the United States and Europe during the Christmas season" has likely hurt the markets in the last hour.
A senior U.S. intelligence official confirmed that the threat was credible.
The Media Is Not the Message
Nearly every single talking head in the business media offers the identical tactical strategy and ideas.
Industrial Production Shows Some Upside
Industrial production was slightly better than expected, rising by 0.4% vs. consensus for a 0.3% increase.
Importantly, the strength was broad based.
Foreign investment in our financial assets weakened dramatically, but this is a volatile series.
Mortgage Data Dropping
The U.S. housing market faces renewed challenges from rapidly rising interest rates.
Refinancing applications and applications for new mortgages dropped for the fifth consecutive and third consecutive weeks, respectively.
Based on this morning's data, the U.S. housing market faces renewed challenges from rapidly rising interest rates, and so does the retail outlook (and consumer confidence), which is underpinned by the cash from refis which are an important source on personal consumer spending plans.
I continue to be of the view that the swiftness of the rate rise will challenge the smooth and virtuous self-sustaining thesis in the year ahead.
Our country's leadership has taken the easy route and has demonstrated still further that there will be no meaningful movement on our burgeoning deficit. The bond vigilantes smell blood, recognize this inertia and are demanding a price to be paid in much higher interest rates.
Despite the Fed Chairman's protestations (and the cheerleading of Wharton's Dr. Jeremy Siegel), QE2 has likely bombed - so far.
As Bill King wrote last night, the Fed and many investors are victims of Plato's allegory of the cave, a moral about the difficulty of people who exist in a world shaped by false perceptions to contemplate truths that contradict their beliefs. This is why, as Bill scribes, "so many people missed the greatest financial and economic crises since at least Reconstruction."
In the famous simile of the cave, Plato compares men to prisoners in a cave who are bound and can look in only one direction. They have a fire behind them and see on a wall the shadows of themselves and of objects behind them. Since they see nothing but the shadows, they regard those shadows as real and are not aware of the objects. Finally one of the prisoners escapes and comes from the cave into the light of the sun. For the first time, he sees real things and realizes that he had been deceived hitherto by the shadows. For the first time, he knows the truth and thinks only with sorrow of his long life in the darkness.
-- Werner Heisenberg, Physics and Philosophy
Meanwhile the talking heads' chorus of smooth and self-sustaining economic growth has grown ever louder (in the powerful bull), ignoring the warning signs of worsening payrolls growth, the temporary nature of the stimulus, a continued buildup in household savings, a banking system that is still in a healing mode and a worsening housing market (among other issues).
We should be mindful that, with few exceptions, most observers (and that includes Ben Bernanke) missed the 2008-2009 downturn despite the clear and accumulating evidence of economic uncertainty and growing credit risks (and abuses). The analysis of multi-decade charts and economic series convinced most (along with other conclusions) that home prices were incapable of ever dropping, that derivatives and no-/low-document mortgage loans were safe, that there was no level of leverage (institutional and individual) too high and that rating agencies were responsible in their analyses. Importantly, they also failed to see the signposts of an imminent deterioration in business and consumer confidence that was to result in the Great Recession and credit crisis of the last decade.
Options Ex The Reason For The Poor Trading?
For the second day in a row, the indices covered up some very poor action under the surface. Unlike yesterday, the major indices actually finished in the red but did come close to reflecting the extent of the selling that took place. The key leadership stocks continued to act poorly, with names like BIDU, FFIV and LVS acting particularly poorly.
Breadth wasn't all that bad, especially on the Nasdaq, and volume wasn't very heavy, but by the end of the day, only biotechnology and pharmaceuticals were showing any gains. The pockets of momentum that have made for some good trading lately have disappeared, and there were no clear bullish themes to be found. We have some random upside movers but nothing that looks like emerging leadership so far.
This market has been running on slowing momentum for a while and it was only a matter of time before we finally corrected a bit. That is what is happening now. As far as corrections go, this one is pretty mild so far, but we don't want to be too quick to assume that it is over with. Plenty of stocks still have some major air pockets under them and could see some momentum pick up to the downside if the bulls don't go back to work soon.
The bulls are still in good position and could recover quickly, but the action under the surface of the market is problematic.
Breadth wasn't all that bad, especially on the Nasdaq, and volume wasn't very heavy, but by the end of the day, only biotechnology and pharmaceuticals were showing any gains. The pockets of momentum that have made for some good trading lately have disappeared, and there were no clear bullish themes to be found. We have some random upside movers but nothing that looks like emerging leadership so far.
This market has been running on slowing momentum for a while and it was only a matter of time before we finally corrected a bit. That is what is happening now. As far as corrections go, this one is pretty mild so far, but we don't want to be too quick to assume that it is over with. Plenty of stocks still have some major air pockets under them and could see some momentum pick up to the downside if the bulls don't go back to work soon.
The bulls are still in good position and could recover quickly, but the action under the surface of the market is problematic.
Thoughts For Tuesday, 12/14/2010
"There's not the least thing can be said or done, but people will talk and find fault."
--Don Quixote
For the seventh day in a row, Spanish bonds are weaker.
In fact, the yield on the Spanish 10-year note on this week's $3.3 billion offering is now within 13 basis points of its all-time high yield -- which was last recorded in 2001. Those bonds are now yielding 5.53%, which compares with Irish 10-year yields at 8.28% and Greek yields of 11.85%.
An auction of 18-month Spanish bills yielded 3.72% yesterday, vs. 2.66% at a similar sale last month.
From my perch, we are now at the point where the recent acceleration in the rate rise could jeopardize the U.S. stock market or, at the least, present a challenge to further gains.
If the ascent in yields doesn't moderate shortly, I find it difficult to see stocks making much more progress, and the risk of a correction will be heightened.
There was virtually no difference between today's FOMC statement and that of a month ago.
I suspect some observers will emphasize that in order to sell its QE2 strategy, the Fed might have understated its description of the trajectory of domestic economic growth in the first part of its statement.
The drop in fixed-income prices is accelerating.
Over the last week, our leadership has taken the easy route and has demonstrated still further that there will be no meaningful movement on our burgeoning deficit. The bond vigilantes smell blood, recognize this inertia and are demanding a price to be paid in much higher interest rates.
Meanwhile the talking heads' chorus of smooth and self-sustaining economic growth has grown ever louder, ignoring the warning signs of worsening payrolls growth, the temporary nature of the stimulus, a continued buildup in household savings, a banking system that is still in a healing mode and a worsening housing market (among other issues).
I'm not sure at all that the Fed's QE2 policy is working. Rather, it is extending our addiction to artificially low interest rates.
--Don Quixote
For the seventh day in a row, Spanish bonds are weaker.
In fact, the yield on the Spanish 10-year note on this week's $3.3 billion offering is now within 13 basis points of its all-time high yield -- which was last recorded in 2001. Those bonds are now yielding 5.53%, which compares with Irish 10-year yields at 8.28% and Greek yields of 11.85%.
An auction of 18-month Spanish bills yielded 3.72% yesterday, vs. 2.66% at a similar sale last month.
From my perch, we are now at the point where the recent acceleration in the rate rise could jeopardize the U.S. stock market or, at the least, present a challenge to further gains.
If the ascent in yields doesn't moderate shortly, I find it difficult to see stocks making much more progress, and the risk of a correction will be heightened.
There was virtually no difference between today's FOMC statement and that of a month ago.
I suspect some observers will emphasize that in order to sell its QE2 strategy, the Fed might have understated its description of the trajectory of domestic economic growth in the first part of its statement.
The drop in fixed-income prices is accelerating.
Over the last week, our leadership has taken the easy route and has demonstrated still further that there will be no meaningful movement on our burgeoning deficit. The bond vigilantes smell blood, recognize this inertia and are demanding a price to be paid in much higher interest rates.
Meanwhile the talking heads' chorus of smooth and self-sustaining economic growth has grown ever louder, ignoring the warning signs of worsening payrolls growth, the temporary nature of the stimulus, a continued buildup in household savings, a banking system that is still in a healing mode and a worsening housing market (among other issues).
I'm not sure at all that the Fed's QE2 policy is working. Rather, it is extending our addiction to artificially low interest rates.
Market Recap For Tuesday, 12/14/2010
The market was a real mess today. We had very odd crosscurrents with key stocks like CRM, FFIV, PCLN, BIDU and AAPL acting poorly while things like WHR, AIG and BP led.
The FOMC decision held no surprises, but as I suspected, it still served as a catalyst for some crazy swings. Breadth is positive, and the indices are solidly in the green, but the underlying action contains pockets of very poor action.
The FOMC decision held no surprises, but as I suspected, it still served as a catalyst for some crazy swings. Breadth is positive, and the indices are solidly in the green, but the underlying action contains pockets of very poor action.
Tuesday, December 14, 2010
Thoughts For Monday, 12/13/10
I'm worried partisan politics will cut into business and consumer confidence and economic growth in the last half of 2011.
Will the market move sideways in 2011?
"The first thing we do, let's kill all the lawyers."
-- William Shakespeare, Henry VI, Part 2
Increased hostilities between the Republicans and Democrats may become a challenge to the market and to the economic recovery next year. As the 2012 election moves closer, President Obama will probably reverse his seemingly newly minted centrist views.
"The day the Fed came into being in 1913 may have been the beginning of the end, but the powers it caused took a long time to become a serious issue and a concern for the average Americans."
-- Ron Paul, "End of the Fed"
On the other side of the pew, as Chairman of the Subcommittee on Domestic Monetary Policy, Congressman Ron Paul's fervent criticism of monetary policy and the lack of transparency of the Fed may lead to further friction between the parties.
We are at, or are approaching, a bullish extreme.
Will the market move sideways in 2011?
"The first thing we do, let's kill all the lawyers."
-- William Shakespeare, Henry VI, Part 2
Increased hostilities between the Republicans and Democrats may become a challenge to the market and to the economic recovery next year. As the 2012 election moves closer, President Obama will probably reverse his seemingly newly minted centrist views.
"The day the Fed came into being in 1913 may have been the beginning of the end, but the powers it caused took a long time to become a serious issue and a concern for the average Americans."
-- Ron Paul, "End of the Fed"
On the other side of the pew, as Chairman of the Subcommittee on Domestic Monetary Policy, Congressman Ron Paul's fervent criticism of monetary policy and the lack of transparency of the Fed may lead to further friction between the parties.
We are at, or are approaching, a bullish extreme.
Market Recap For Monday, 12/13/10
The market has been amazingly resilient lately, but it finally succumbed to a little profit-taking in the last 90 minutes of the session. The S&P 500 still managed to close in positive territory, so it wasn't exactly a huge rush for the exits, but the IWM, which has been leading lately, reversed a bit more aggressively.
Though the mood has been upbeat, the recent market rise has come on increasingly suspect internals. Volume hasn't been anything special and breadth has not been able to push to the 2-to-1 positive levels you normally associate with a strong trend. However, shorting this market has been an exercise in futility. The market keeps drifting higher and dip buying had been very consistent until late this afternoon.
There is a lot of anecdotal evidence being tossed around by the bears that market players are so bullish that it must be a contrary indicator. The action has been very sanguine lately, but I'm not convinced that it is so excessive that it will set the stage for a major pullback. We definitely could use a rest, but the dip buyers will likely be lurking at first. They will need to be slapped down a couple times before the bears have a real chance at gaining any downside momentum.
It appears that the bears may finally have a chance to put a few points on the board, but they are so far behind at this point that it is going to take much more than a down day or two to really turn the tide.
Though the mood has been upbeat, the recent market rise has come on increasingly suspect internals. Volume hasn't been anything special and breadth has not been able to push to the 2-to-1 positive levels you normally associate with a strong trend. However, shorting this market has been an exercise in futility. The market keeps drifting higher and dip buying had been very consistent until late this afternoon.
There is a lot of anecdotal evidence being tossed around by the bears that market players are so bullish that it must be a contrary indicator. The action has been very sanguine lately, but I'm not convinced that it is so excessive that it will set the stage for a major pullback. We definitely could use a rest, but the dip buyers will likely be lurking at first. They will need to be slapped down a couple times before the bears have a real chance at gaining any downside momentum.
It appears that the bears may finally have a chance to put a few points on the board, but they are so far behind at this point that it is going to take much more than a down day or two to really turn the tide.
Saturday, December 11, 2010
Thoughts/Week In Review
YHOO is entering the local marketing arena
If Yahoo can provide a differentiated product, it could attract more users to the site
Verizon's support for Android could soften as it gears up for the potential iPhone launch, putting downward pressure on Motorola's market share ...
Can Apple's Mac App Store Mirror the Success of the iPhone App Store?
I think INTC could be a $30 stock on notebook growth
Since Netflix's streaming catalog is still a small fraction of the overall Netflix's movie catalog, we could see average prices increase on the price hikes for DVD rentals ...
Though companies like Netflix and Hulu have a very minimal subscription fee, their TV content is limited for the time being but growing quickly ...
In light of the flood of government debt to finance budget deficits from the US and Europe, demand for interest rate products that market participants use for hedging or speculation could outstrip many current forecasts ...
long NFLX
If Yahoo can provide a differentiated product, it could attract more users to the site
Verizon's support for Android could soften as it gears up for the potential iPhone launch, putting downward pressure on Motorola's market share ...
Can Apple's Mac App Store Mirror the Success of the iPhone App Store?
I think INTC could be a $30 stock on notebook growth
Since Netflix's streaming catalog is still a small fraction of the overall Netflix's movie catalog, we could see average prices increase on the price hikes for DVD rentals ...
Though companies like Netflix and Hulu have a very minimal subscription fee, their TV content is limited for the time being but growing quickly ...
In light of the flood of government debt to finance budget deficits from the US and Europe, demand for interest rate products that market participants use for hedging or speculation could outstrip many current forecasts ...
long NFLX
Friday, December 10, 2010
Thoughts
The persistency of buying has continued throughout the day as investors are emboldened and on a mission.
The University of Michigan number completes a series of more unambiguous positive economic reads for the week.
The consumer confidence index from the University of Michigan rose to 74.2 , well above consensus forecast of 72.5.
This release completes a series of more unambiguous positive economic reads for the week.
The University of Michigan number completes a series of more unambiguous positive economic reads for the week.
The consumer confidence index from the University of Michigan rose to 74.2 , well above consensus forecast of 72.5.
This release completes a series of more unambiguous positive economic reads for the week.
Toothless Bears
After the market gapped up to a new high and then reversed substantially on Tuesday, a number of market players thought we might be in for some further selling. We did hesitate a little, but there was some amazingly strong underlying support, and the bears just could not gain any downside traction at all. The slightest weakness was bought, and an amazing number of stocks just ran away completely to the upside.
What has been most interesting about the action is how sanguine the bulls have been and how toothless the bears are. There just isn't any worry or concern right now about Europe, jobs, rising interest rates, high gas prices, the slow economy or any of the other many negatives we can list.
Part of what is helping is positive seasonality. Many fund managers are lagging their benchmarks, and they are desperate to add some relative performance before the end of the year. Also, with some sort of tax deal likely in Washington, despite the political circus, there is much less pressure to lock in capital gains before rates rise next year. The tax deal could still fall apart, so we need to watch that, but too many people want this deal done for it not to happen.
The action today is a particularly good example of trends that tend to persist much longer than most people think is reasonable. It is quite easy to look at this market and think "We need at least a little rest," but the market just doesn't think like we do. It is a contrary beast that always does it best to make things difficult for us.
It is not at all unusual to have some bouts of selling as the year winds down and as market players reposition and/or lock in some gains. However, seasonality favors the bulls, and this market sure is acting like it plans to enjoy the holiday season.
What has been most interesting about the action is how sanguine the bulls have been and how toothless the bears are. There just isn't any worry or concern right now about Europe, jobs, rising interest rates, high gas prices, the slow economy or any of the other many negatives we can list.
Part of what is helping is positive seasonality. Many fund managers are lagging their benchmarks, and they are desperate to add some relative performance before the end of the year. Also, with some sort of tax deal likely in Washington, despite the political circus, there is much less pressure to lock in capital gains before rates rise next year. The tax deal could still fall apart, so we need to watch that, but too many people want this deal done for it not to happen.
The action today is a particularly good example of trends that tend to persist much longer than most people think is reasonable. It is quite easy to look at this market and think "We need at least a little rest," but the market just doesn't think like we do. It is a contrary beast that always does it best to make things difficult for us.
It is not at all unusual to have some bouts of selling as the year winds down and as market players reposition and/or lock in some gains. However, seasonality favors the bulls, and this market sure is acting like it plans to enjoy the holiday season.
Thursday, December 9, 2010
Thoughts
It was a slow, range-bound day for most of the market.
The financial sector shined.
"I believe in a long, prolonged, derangement of the senses in order to obtain the unknown."
- Jim Morrison, The Doors
30-Year Auction Notes
The auction went well.
Another iPhone promotion -- this time BBY appears to be giving them away.
The one constant in 2010 (and in many previous years) is that optimism (on the part of strategists and investors) expands when share prices rise, and pessimism rises when share prices decline.
That helps to explain why the crowd usually outsmarts the remnants.
Case in point: the bond market.
Throughout the last six months, I have called shorting bonds "the trade of the decade."
I laughed out loud most of the day listening to the breathless commentary that the U.S. bond market should now be exited.
With the yield on the 10-year having risen from about 2.35% in late summer to 3.35% this week and the TLT dropping from 110 to 92, one could justifiably ask, Where the hell have these people been?
long AAPL
The financial sector shined.
"I believe in a long, prolonged, derangement of the senses in order to obtain the unknown."
- Jim Morrison, The Doors
30-Year Auction Notes
The auction went well.
Another iPhone promotion -- this time BBY appears to be giving them away.
The one constant in 2010 (and in many previous years) is that optimism (on the part of strategists and investors) expands when share prices rise, and pessimism rises when share prices decline.
That helps to explain why the crowd usually outsmarts the remnants.
Case in point: the bond market.
Throughout the last six months, I have called shorting bonds "the trade of the decade."
I laughed out loud most of the day listening to the breathless commentary that the U.S. bond market should now be exited.
With the yield on the 10-year having risen from about 2.35% in late summer to 3.35% this week and the TLT dropping from 110 to 92, one could justifiably ask, Where the hell have these people been?
long AAPL
Steadying
Although the action is a bit slow, the major indices continue to do an excellent job of holding near the highs of the year. Banks were the star of the show today, but the weaker dollar lent an assist and helped oil, gold and commodities to reverse after a couple days of weak action. Chips were strong early but fizzled late in the day, and big-cap technology was mixed with AMZN and AAPL in the red.
It is hard to find fault with a market that is holding up so well, but the complacency and the lack of energy in places are a little troubling. It is easy to find reasons to worry and be skeptical, but until there is poor price action to confirm a more pessimistic attitude, the best thing we can do is to focus on the upside opportunities that are still popping up, although with less regularity.
It isn't easy to navigate at this juncture, but the bulls are still in control and deserve the benefit of the doubt. There are a few negatives to consider, but nothing substantive enough to affect the price action.
long AAPL
It is hard to find fault with a market that is holding up so well, but the complacency and the lack of energy in places are a little troubling. It is easy to find reasons to worry and be skeptical, but until there is poor price action to confirm a more pessimistic attitude, the best thing we can do is to focus on the upside opportunities that are still popping up, although with less regularity.
It isn't easy to navigate at this juncture, but the bulls are still in control and deserve the benefit of the doubt. There are a few negatives to consider, but nothing substantive enough to affect the price action.
long AAPL
Wednesday, December 8, 2010
Thoughts
AIG has been halted, news pending.
Mediocre 10-Year Auction
Bid to cover was 2.92, and strong holders put in indirect bids of 44%.
The 10 year auction was mediocre.
Gold Down $30
According to Business Insider, Mastercard.com was attacked this week.
Digging Ourselves Into a Deeper Hole
We continue to add on to mounting deficits in order to ensure economic growth.
From my perch, we continue to dig ourselves into a deficit hole as short-term decisions are being favored over long-term decisions. The Fed's solution is to just print more and more money (another $600 billion on top of the first $1.7 trillion).
And our fiscal response is to continue to add on to mounting deficits in order to ensure economic growth.
Increasingly, we are addicted to artificially low interest rates, and our future is likely to be filled with rising and maybe even uncontrollable inflation, higher interest rates, a weaker currency, uneven economic growth and a lower standard of living for the average Joe (screwflation) all these are, in the fullness of time, valuation-deflating influences for the U.S. stock market.
It's no wonder why I view shorting bonds as the trade of the decade.
Mediocre 10-Year Auction
Bid to cover was 2.92, and strong holders put in indirect bids of 44%.
The 10 year auction was mediocre.
Gold Down $30
According to Business Insider, Mastercard.com was attacked this week.
Digging Ourselves Into a Deeper Hole
We continue to add on to mounting deficits in order to ensure economic growth.
From my perch, we continue to dig ourselves into a deficit hole as short-term decisions are being favored over long-term decisions. The Fed's solution is to just print more and more money (another $600 billion on top of the first $1.7 trillion).
And our fiscal response is to continue to add on to mounting deficits in order to ensure economic growth.
Increasingly, we are addicted to artificially low interest rates, and our future is likely to be filled with rising and maybe even uncontrollable inflation, higher interest rates, a weaker currency, uneven economic growth and a lower standard of living for the average Joe (screwflation) all these are, in the fullness of time, valuation-deflating influences for the U.S. stock market.
It's no wonder why I view shorting bonds as the trade of the decade.
Not All That Great
The major indices all ended the day in positive territory, but it wasn't easy. The NYSE had 1179 gainers to 1837 decliners, but strength in banks, oil and chips offset the weakness in small-caps and commodities.
The dip buyers weren't particularly energetic and volume was quite light (but it was enough to keep the bears from pressing). The bears appeared to be a little complacent, but that is understandable given how little success they've had lately.
This sort of action is a healthy way to consolidate recent gains and relieve overbought technical conditions, but I'm not convinced the bulls are going to be able to really get this trend hopping again without more rest.
The indices are holding well and there still is no reason to be bearish, but there are a few chinks in the armor and the buyers are slightly hesitant.
The dip buyers weren't particularly energetic and volume was quite light (but it was enough to keep the bears from pressing). The bears appeared to be a little complacent, but that is understandable given how little success they've had lately.
This sort of action is a healthy way to consolidate recent gains and relieve overbought technical conditions, but I'm not convinced the bulls are going to be able to really get this trend hopping again without more rest.
The indices are holding well and there still is no reason to be bearish, but there are a few chinks in the armor and the buyers are slightly hesitant.
Thoughts For Tuesday, 12/7/2010
On Structural Unemployment
A rise in cyclical unemployment appears to be morphing into structural unemployment in the U.S.
We can trace a number of reasons behind the movement that favors temporary workers:
* The severity of the 2008-2009 downturn coupled with the reduced accessibility of credit has made small businesses cautious.
* The economic recovery of late 2009/early 2010 has been shallow (by historical standards), and growth expectations have diminished -- slower growth in output translates to a reduced pace of hiring.
* As businesses deleverage and become more cost-efficient, temporary workers represent a way to avoid the higher costs of permanent employees.
* Temporary hiring enables a business to maintain staffing flexibility, allowing it to adjust more quickly to workload fluctuations and rapid changes in business conditions.
* Limited or no need for employer contribution to workers' compensation insurance or unemployment, no employer liability for Social Security or Medicare taxes and no need to provide job benefits, including health insurance or retirement plans.
* Increased economic and policy uncertainty.
* A wedge of political and regulatory uncertainty.
* Rising health care costs.
* The likelihood of ever more populist initiatives favoring employees at the expense of employers.
* The need for more specialized workers for shorter periods of commitment.
What are some of the ramifications of this new era of temporary job growth?
* less buoyant and dynamic domestic economic growth;
* a less consistent rate and more unstable trajectory of domestic economic growth;
* sustained and higher-than-historic corporate profit margins;
* less of a potential corporate commitment to permanent growth initiatives in hirings and in new capital plans;
* less inflows into the domestic stock market through 401(k) plans and other retirement programs;
* dampened consumer confidence; and
* greater demand for renting over home ownership.
Madoff Feeder Fund Settles With the SEC
Nothing New From Bank of America
Bank of America didn't add any new incremental information in today's presentation.
Citi's weight in the S&P 500 will increase from 1.05% to 1.20% at the close today.
S&P announced that it will increase the float factor of C from about 80% to 100% at the close of trading today. In essence, this will increase Citi's weight in the S&P 500 from 1.05% to 1.20% -- resulting in the need for indexers to buy nearly 400 million shares of Citigroup.
The weighting of the other 499 companies in the S&P will be reduced by the value of the C add. This will result in about $1.7 billion of index selling.
With Citigroup and GM in progress, look for the Treasury to now focus on disposing its AIG position.
A reversal in oil and grain prices is following the reversal of gold today.
A rise in cyclical unemployment appears to be morphing into structural unemployment in the U.S.
We can trace a number of reasons behind the movement that favors temporary workers:
* The severity of the 2008-2009 downturn coupled with the reduced accessibility of credit has made small businesses cautious.
* The economic recovery of late 2009/early 2010 has been shallow (by historical standards), and growth expectations have diminished -- slower growth in output translates to a reduced pace of hiring.
* As businesses deleverage and become more cost-efficient, temporary workers represent a way to avoid the higher costs of permanent employees.
* Temporary hiring enables a business to maintain staffing flexibility, allowing it to adjust more quickly to workload fluctuations and rapid changes in business conditions.
* Limited or no need for employer contribution to workers' compensation insurance or unemployment, no employer liability for Social Security or Medicare taxes and no need to provide job benefits, including health insurance or retirement plans.
* Increased economic and policy uncertainty.
* A wedge of political and regulatory uncertainty.
* Rising health care costs.
* The likelihood of ever more populist initiatives favoring employees at the expense of employers.
* The need for more specialized workers for shorter periods of commitment.
What are some of the ramifications of this new era of temporary job growth?
* less buoyant and dynamic domestic economic growth;
* a less consistent rate and more unstable trajectory of domestic economic growth;
* sustained and higher-than-historic corporate profit margins;
* less of a potential corporate commitment to permanent growth initiatives in hirings and in new capital plans;
* less inflows into the domestic stock market through 401(k) plans and other retirement programs;
* dampened consumer confidence; and
* greater demand for renting over home ownership.
Madoff Feeder Fund Settles With the SEC
Nothing New From Bank of America
Bank of America didn't add any new incremental information in today's presentation.
Citi's weight in the S&P 500 will increase from 1.05% to 1.20% at the close today.
S&P announced that it will increase the float factor of C from about 80% to 100% at the close of trading today. In essence, this will increase Citi's weight in the S&P 500 from 1.05% to 1.20% -- resulting in the need for indexers to buy nearly 400 million shares of Citigroup.
The weighting of the other 499 companies in the S&P will be reduced by the value of the C add. This will result in about $1.7 billion of index selling.
With Citigroup and GM in progress, look for the Treasury to now focus on disposing its AIG position.
A reversal in oil and grain prices is following the reversal of gold today.
Market Thoughts For Tuesday, 12/7/2010
Today was one of the days in which the indices are very deceptive. It looked like we had some flat action at the close because not much happened. But the story is quite different if you look at the intraday action.
The day started with gap up to a new two-year high on the S&P 500 due to the agreement on taxes. That, however, was then greeted with steady selling. It appeared that we had a chance to regain our footing when President Obama started his press conference, but the longer he spoke, the more he made it clear that, although he agreed to the deal, he didn't like it very much and the market sold off into the close.
An intraday reversal at the highs when we are extended isn't the end of the world. In fact it is pretty logical. We are in need of some consolidation after the recent run, and once the S&P 500 finally broke to a new high, the buying pressure that was so intent on doing just that dried up. We used up a lot of buying power when we pushed to new highs, and now the bulls need to regroup before they can make another run.
The uptrend is still in place and there is no reason to suddenly turn into a growling grizzly -- but taking some gains and being patient at this point isn't a bad idea. It wouldn't be at all surprising to see a little more downside in the near term, but we have plenty of underlying support to cushion us.
Though many bears are hopeful, it is very unlikely that this market will suddenly reverse course and head straight down. The dip buyers are going to be lurking and there are plenty of folks who will be looking for some end-of-the-year trading to pad their returns.
The day started with gap up to a new two-year high on the S&P 500 due to the agreement on taxes. That, however, was then greeted with steady selling. It appeared that we had a chance to regain our footing when President Obama started his press conference, but the longer he spoke, the more he made it clear that, although he agreed to the deal, he didn't like it very much and the market sold off into the close.
An intraday reversal at the highs when we are extended isn't the end of the world. In fact it is pretty logical. We are in need of some consolidation after the recent run, and once the S&P 500 finally broke to a new high, the buying pressure that was so intent on doing just that dried up. We used up a lot of buying power when we pushed to new highs, and now the bulls need to regroup before they can make another run.
The uptrend is still in place and there is no reason to suddenly turn into a growling grizzly -- but taking some gains and being patient at this point isn't a bad idea. It wouldn't be at all surprising to see a little more downside in the near term, but we have plenty of underlying support to cushion us.
Though many bears are hopeful, it is very unlikely that this market will suddenly reverse course and head straight down. The dip buyers are going to be lurking and there are plenty of folks who will be looking for some end-of-the-year trading to pad their returns.
Monday, December 6, 2010
Thoughts
Losing Luster?
Gold is starting to act a bit funky.
RadioShack Discounts iPhone
Apple Insider reports that RadioShack is offering a discount for the iPhone.
I expect a series of populist initiatives by the current administration beginning by a frontal assault on mutual fund 12b-1 fees. The asset managers -- Franklin Resources, T. Rowe Price and Waddell & Reed -- are exposed.
The Internet becomes the tactical nuke of the digital age. Cybercrime likely explodes exponentially as the Web is invaded by hackers. A specific target next year might be the NYSE.
Gold is starting to act a bit funky.
RadioShack Discounts iPhone
Apple Insider reports that RadioShack is offering a discount for the iPhone.
I expect a series of populist initiatives by the current administration beginning by a frontal assault on mutual fund 12b-1 fees. The asset managers -- Franklin Resources, T. Rowe Price and Waddell & Reed -- are exposed.
The Internet becomes the tactical nuke of the digital age. Cybercrime likely explodes exponentially as the Web is invaded by hackers. A specific target next year might be the NYSE.
More Upside?
The market fell off the highs as selling picked up in the last 30 minutes of trading but, overall, market players remain surprisingly sanguine. The jobs report on Friday has been shrugged off, European sovereign debt issues are being ignored and no one seems particularly concerned about Ben Bernanke's rather pessimistic view of the economy.
Market players are seeking safety in precious metals and commodity names, but there isn't any major selling in key sectors right now. Breadth ended slightly negative and regional banks lagged a bit. Oil, retail and technology all come back from some early weakness.
The S&P 500 continues to flirt with its highs of the year but can't quite seem to push through. The market is a bit extended, and that makes it difficult to take out resistance. However, a bit more churning will probably give the market a sufficient base to make the new highs. When we are this close to a new high, we usually push through before the sellers become more aggressive.
There is a large number of extended stocks out there and we really could use a rest if we are going to finish the year on a strong note. However, the lesson this market has taught us is that if you wait for dips, you will likely become a bit frustrated.
There are plenty of bearish arguments out there, but they just don't matter right now. The trend is our friend and it continues to point upward. We are walking the high wire, and the risks to the downside are increasing but there are no signs of any rushed sales at the moment.
Market players are seeking safety in precious metals and commodity names, but there isn't any major selling in key sectors right now. Breadth ended slightly negative and regional banks lagged a bit. Oil, retail and technology all come back from some early weakness.
The S&P 500 continues to flirt with its highs of the year but can't quite seem to push through. The market is a bit extended, and that makes it difficult to take out resistance. However, a bit more churning will probably give the market a sufficient base to make the new highs. When we are this close to a new high, we usually push through before the sellers become more aggressive.
There is a large number of extended stocks out there and we really could use a rest if we are going to finish the year on a strong note. However, the lesson this market has taught us is that if you wait for dips, you will likely become a bit frustrated.
There are plenty of bearish arguments out there, but they just don't matter right now. The trend is our friend and it continues to point upward. We are walking the high wire, and the risks to the downside are increasing but there are no signs of any rushed sales at the moment.
Friday, December 3, 2010
Thoughts
Uncle Ben to the rescue once again!
The market has rallied because Fed Chairman Ben Bernanke, who is appearing on 60 Minutes on Sunday night, will not rule out bond purchases beyond the initial $600 billion.
I'd have a number of concerns about owning retail stocks.
The ISI report revealed that (a) the average of its two retailer surveys dropped (from 51.1 to 46.9), (b) its specialty retailer survey moved lower (from 51.7 to 46.7), (c) the pricing power within the surveys fell (31.8 to 30.2) and (d) their broadline retailers sales survey weakened (from 50.5 to 47.0).
A Positive Data Point
The ISM non-manufacturing report comes in line with other growth signals we have seen.
The non-manufacturing ISM was better than expected, the highest reading in six months and in line with the generally more unambiguous signals of economic growth we have seen recently. The components of the report were good, highlighted by strength in orders and employment (best in three years).
Don't Kid Yourself -- the Report Is Terrible
No use trying to sugar-coat the jobs report. It's bad.
I am reading the post-mortem from the jobs report, and, quite frankly, I find it filled with a bunch of excuses from the bullish cabal as to why it was way off mark.
Words like "aberrant" and "inconsistent with other data points" are some of the most common. And "continued fear and uncertainty of policy" is another rationale for the big disappointment.
That said, average weekly hours and average hourly earnings were flat.
That is downright horrible.
Ever the optimists, the bullish folks are spinning the report to say that it will ensure the likelihood of an extention of the Bush tax cuts, reduce the debate over quantitative easing and stop the recent interest rate rise -- all market-valuation constructive developments.
In reality, as Tony Crescenzi relates in his commentary, "The jobs data loudly remind investors that very strong structural headwinds such as deleveraging and global competitiveness stand in front of today's gusty cyclical tailwinds and that this will limit economic vigor."
Structural changes are aplenty in the "new normal," not the least of which is the "Decade of the Temporary Worker," which was manifested in strong temporary employment gains in November. (Though, again, the wrong-way bulls spin it as positive, as it has historically been a precursor to payroll growth).
Poor Jobs Report
The employment news is unequivocally negative.
Up there (in Canada), the monthly employment figures disappointed.
Are we, as a nation, without fiscal restraint? What is the downside to not addressing our fiscal imbalances? And when will the adverse effects be felt?
The market has rallied because Fed Chairman Ben Bernanke, who is appearing on 60 Minutes on Sunday night, will not rule out bond purchases beyond the initial $600 billion.
I'd have a number of concerns about owning retail stocks.
The ISI report revealed that (a) the average of its two retailer surveys dropped (from 51.1 to 46.9), (b) its specialty retailer survey moved lower (from 51.7 to 46.7), (c) the pricing power within the surveys fell (31.8 to 30.2) and (d) their broadline retailers sales survey weakened (from 50.5 to 47.0).
A Positive Data Point
The ISM non-manufacturing report comes in line with other growth signals we have seen.
The non-manufacturing ISM was better than expected, the highest reading in six months and in line with the generally more unambiguous signals of economic growth we have seen recently. The components of the report were good, highlighted by strength in orders and employment (best in three years).
Don't Kid Yourself -- the Report Is Terrible
No use trying to sugar-coat the jobs report. It's bad.
I am reading the post-mortem from the jobs report, and, quite frankly, I find it filled with a bunch of excuses from the bullish cabal as to why it was way off mark.
Words like "aberrant" and "inconsistent with other data points" are some of the most common. And "continued fear and uncertainty of policy" is another rationale for the big disappointment.
That said, average weekly hours and average hourly earnings were flat.
That is downright horrible.
Ever the optimists, the bullish folks are spinning the report to say that it will ensure the likelihood of an extention of the Bush tax cuts, reduce the debate over quantitative easing and stop the recent interest rate rise -- all market-valuation constructive developments.
In reality, as Tony Crescenzi relates in his commentary, "The jobs data loudly remind investors that very strong structural headwinds such as deleveraging and global competitiveness stand in front of today's gusty cyclical tailwinds and that this will limit economic vigor."
Structural changes are aplenty in the "new normal," not the least of which is the "Decade of the Temporary Worker," which was manifested in strong temporary employment gains in November. (Though, again, the wrong-way bulls spin it as positive, as it has historically been a precursor to payroll growth).
Poor Jobs Report
The employment news is unequivocally negative.
Up there (in Canada), the monthly employment figures disappointed.
Are we, as a nation, without fiscal restraint? What is the downside to not addressing our fiscal imbalances? And when will the adverse effects be felt?
Bullish Day
After two big days of gains, many market players were looking for a pullback. We even had a downright ugly jobs report, but the bears could not dig their claws into this market. They tried a couple times in the morning to push us down, but they finally gave up late in the day and we went out near the highs of the day with some decent gains.
The S&P 500 came within a couple points of a new high for the year but couldn't quite manage it. Breadth improved steadily all day, and by the close, only retailers were still in the red. Gold made a late charge and many of the metal stocks closed very strong.
Today was a very good illustration of the power of momentum. Market players were more fearful of being left behind than they were of top-ticking the market. They were concerned that if they didn't jump in, this market would never pull back and allow them to buy.
We've seen that sort of thing time and again over the past year and half, and it has produced these stunning "V"- shaped moves. The market simply won't let you in and there is little choice but to chase if you want to put capital to work.
There are lots of great reasons that this market should not being acting so strongly. The bears can give us some very compelling arguments, but the price action tells the real story -- and this action is telling us that buyers want in and they aren't worried about anything, including some dismal employment numbers.
With the senior indices so close to highs for the year, there will be very strong pressure to make at least a nominal high in the near term. It is the sort of goal that the bulls have a hard time resisting, so they'll make it happen ... and then the real battle will begin anew.
The S&P 500 came within a couple points of a new high for the year but couldn't quite manage it. Breadth improved steadily all day, and by the close, only retailers were still in the red. Gold made a late charge and many of the metal stocks closed very strong.
Today was a very good illustration of the power of momentum. Market players were more fearful of being left behind than they were of top-ticking the market. They were concerned that if they didn't jump in, this market would never pull back and allow them to buy.
We've seen that sort of thing time and again over the past year and half, and it has produced these stunning "V"- shaped moves. The market simply won't let you in and there is little choice but to chase if you want to put capital to work.
There are lots of great reasons that this market should not being acting so strongly. The bears can give us some very compelling arguments, but the price action tells the real story -- and this action is telling us that buyers want in and they aren't worried about anything, including some dismal employment numbers.
With the senior indices so close to highs for the year, there will be very strong pressure to make at least a nominal high in the near term. It is the sort of goal that the bulls have a hard time resisting, so they'll make it happen ... and then the real battle will begin anew.
Thoughts From Thursday, 12/2/2010
Goldman Sachs raises 2010 and 2011 S&P profit estimates to $84 and $94 a share.
Thus far, retail same-store sales are dominated by upside surprises.
Rumblings of Global Inflation
We're hearing expectations that Chinese exports will be more expensive in 2011.
Insurance Stocks Are Ramping
Static for Apple TV?
Apple Insider reports that some Apple TV users are having problems.
Fed's Plosser Speaks on the Recovery
Philly Fed President Plosser sees consumer spending as determining the speed of the recovery.
Philly Fed President Charles Plosser in a speech today is referencing the uneven and slow economic recovery. He sees the speed of the recovery a function of consumer spending, and he doesent see an acceleration from current growth rates without an improvement in payroll growth. He sees unemployment rate between 8% and 8.5% by the end of 2011.
Plosser expects cap spending improving, banks easing credit terms and housing/commercial real estate remaining weak.
Sustained deflation is not a concern of his but he remains skeptical that there will be much value added in QE2.
Here are some thoughts from Dan Greenhaus of Miller Tabak on tomorrow's important payroll report:
* Total payrolls should increase in November by 130K.
* Net firing at the state, local and federal level should total about 20K.
* The unemployment rate is likely to hold steady at 9.6% while hours worked should increase.
* Average hourly earnings should rise as well.
* Seasonal adjustments may put upward pressure on reported data.
Stock Traders Whistle Past Rising Oil
I find it remarkable how few are fearful of rising commodities prices.
Crude oil, at $88 a barrel, is but one example, and I find it remarkable, as well, how quickly the animal spirits have been revived for stocks.
Thus far, retail same-store sales are dominated by upside surprises.
Rumblings of Global Inflation
We're hearing expectations that Chinese exports will be more expensive in 2011.
Insurance Stocks Are Ramping
Static for Apple TV?
Apple Insider reports that some Apple TV users are having problems.
Fed's Plosser Speaks on the Recovery
Philly Fed President Plosser sees consumer spending as determining the speed of the recovery.
Philly Fed President Charles Plosser in a speech today is referencing the uneven and slow economic recovery. He sees the speed of the recovery a function of consumer spending, and he doesent see an acceleration from current growth rates without an improvement in payroll growth. He sees unemployment rate between 8% and 8.5% by the end of 2011.
Plosser expects cap spending improving, banks easing credit terms and housing/commercial real estate remaining weak.
Sustained deflation is not a concern of his but he remains skeptical that there will be much value added in QE2.
Here are some thoughts from Dan Greenhaus of Miller Tabak on tomorrow's important payroll report:
* Total payrolls should increase in November by 130K.
* Net firing at the state, local and federal level should total about 20K.
* The unemployment rate is likely to hold steady at 9.6% while hours worked should increase.
* Average hourly earnings should rise as well.
* Seasonal adjustments may put upward pressure on reported data.
Stock Traders Whistle Past Rising Oil
I find it remarkable how few are fearful of rising commodities prices.
Crude oil, at $88 a barrel, is but one example, and I find it remarkable, as well, how quickly the animal spirits have been revived for stocks.
Market Thoughts For Thursday, 12/2/2010
It is always nice to see follow-through after a breakout move, and that is exactly what we saw today. It wouldn't have taken much to trigger a little profit-taking after yesterday's surge, and we even saw a weak unemployment report, but housing was strong and investors appeared to shrug off jitters over Europe. The market ended up seeing steady buying all day, and no real dips of which to speak. Volume could have been better, and some of the big-cap technology action was poor, but banks and oil made up for it and retail managed a strong intraday reversal to the upside.
After today's session the major indices are a bit overbought, and there are plenty of extended stocks, so it wouldn't hurt at all if the market consolidated a bit. Because stocks have moved so far, so fast, we are likely to have a good supply of dip buyers to support us. I'm not looking for this market to suddenly collapse unless it's hit with some surprise news.
Speaking of news, we will see the monthly jobs report in the morning. Expectations are fairly high, so I wouldn't be surprised to see it serve as an excuse for some profit-taking, but I don't expect the dip buyers to let it last for very long.
Stocks are within a stone's throw of taking out the highs of the year, hit in early November, and it looks as though we have a very good chance of breaching that level, given the strong momentum.
After today's session the major indices are a bit overbought, and there are plenty of extended stocks, so it wouldn't hurt at all if the market consolidated a bit. Because stocks have moved so far, so fast, we are likely to have a good supply of dip buyers to support us. I'm not looking for this market to suddenly collapse unless it's hit with some surprise news.
Speaking of news, we will see the monthly jobs report in the morning. Expectations are fairly high, so I wouldn't be surprised to see it serve as an excuse for some profit-taking, but I don't expect the dip buyers to let it last for very long.
Stocks are within a stone's throw of taking out the highs of the year, hit in early November, and it looks as though we have a very good chance of breaching that level, given the strong momentum.
Wednesday, December 1, 2010
Thoughts
On the Banks
Regulators are reportedly telling banks to estimate their potential mortgage putback liabilities.
According to a Journal piece, regulators are instructing banks to produce an estimate of their potential mortgage putback liabilities.
The U.S. and the IMF
The U.S. will probably not help further with the European bailout. Expect stocks and gold to sell off a bit.
Reason for the Ramp
The U.S. would reportedly be ready to back larger European financial stability through increased IMF commitments.
The November ISM headline was slightly better than expectations -- the new orders/inventory spread narrowed. As well, the production component, thought still strong, dropped by a fair bit from the prior month.
Some slowdown in new orders might be in the wind. Residential construction activity still is bouncing along the bottom. While spending beat expectations, prior months revisions were negative.
Marc Chandler had a good nose in his remarks yesterday, as euro futures seemed buoyed by Trichet's comments that he might be rethinking the end of ECB bond purchases.
More Good News
The ADP number continues a series of unambiguously better economic figures over the last two weeks.
I continue to believe that our economy will surprise on the upside in the months ahead.
Our improving stead (over here) is in contrast to the growing and recognized abyss in certain regions in Europe.
While capital spending remains subdued and housing (plagued by mortgage-gate and a large phantom inventory of unsold homes) still resides in the basement, most indicators are improving -- including the regional district growth indices (Chicago's National Activity Index, Richmond Fed Manufacturing Survey and the Kansas City Fed Survey) -- the capacity utilization rate is well off its bottom, the ISM and ECRI's Weekly Indices are moving higher, personal income/spending growth is expanding, jobless claims/labor market trends are improving, inflation is quiescent, and other key barometers of expansion such as an upwardly revised third-quarter 2010 GDP of up 2.5% are better than consensus forecasts.
-- Doug Kass, The Edge
I continue to believe that our economy will surprise on the upside in the months ahead.
The wild cards? They seem recognizable, contained and controllable:
* The Korean situation is a clear wild card and presents headline risk, but, in all likelihood, the crisis will be resolved before long and will not impact the markets.
* China's growth rate is a short-term wild card for the markets, but, in the near term, I don't expect a surprise much beyond a slight deceleration in the country's growth rate.
* Politics, too, looks relatively predictable. Gridlock is the likely outcome, as neither party has expressed a willingness to move to the center and compromise.
* Nor does a major surprise appear likely from the Fed. Short-term interest rates are anchored at zero, and the Fed will move uninterruptedly on its stated QE2 journey.
While it remains uncertain whether the recovery will be self-sustaining and smooth, I recognize that no market is an island and that our improving stead (over here) is in contrast to the growing and recognized abyss in certain regions in Europe.
Meanwhile, as evidenced by PMI's released in India and China last night, the emerging world continues to emerge.
Away from the fundamentals, the technicals of our market also seem to be improving as the oversold condition builds up, put-buying continues, retail investors continue to flee domestic equity funds and the S&P has held at critical points on three separate occasions recently.
Regulators are reportedly telling banks to estimate their potential mortgage putback liabilities.
According to a Journal piece, regulators are instructing banks to produce an estimate of their potential mortgage putback liabilities.
The U.S. and the IMF
The U.S. will probably not help further with the European bailout. Expect stocks and gold to sell off a bit.
Reason for the Ramp
The U.S. would reportedly be ready to back larger European financial stability through increased IMF commitments.
The November ISM headline was slightly better than expectations -- the new orders/inventory spread narrowed. As well, the production component, thought still strong, dropped by a fair bit from the prior month.
Some slowdown in new orders might be in the wind. Residential construction activity still is bouncing along the bottom. While spending beat expectations, prior months revisions were negative.
Marc Chandler had a good nose in his remarks yesterday, as euro futures seemed buoyed by Trichet's comments that he might be rethinking the end of ECB bond purchases.
More Good News
The ADP number continues a series of unambiguously better economic figures over the last two weeks.
I continue to believe that our economy will surprise on the upside in the months ahead.
Our improving stead (over here) is in contrast to the growing and recognized abyss in certain regions in Europe.
While capital spending remains subdued and housing (plagued by mortgage-gate and a large phantom inventory of unsold homes) still resides in the basement, most indicators are improving -- including the regional district growth indices (Chicago's National Activity Index, Richmond Fed Manufacturing Survey and the Kansas City Fed Survey) -- the capacity utilization rate is well off its bottom, the ISM and ECRI's Weekly Indices are moving higher, personal income/spending growth is expanding, jobless claims/labor market trends are improving, inflation is quiescent, and other key barometers of expansion such as an upwardly revised third-quarter 2010 GDP of up 2.5% are better than consensus forecasts.
-- Doug Kass, The Edge
I continue to believe that our economy will surprise on the upside in the months ahead.
The wild cards? They seem recognizable, contained and controllable:
* The Korean situation is a clear wild card and presents headline risk, but, in all likelihood, the crisis will be resolved before long and will not impact the markets.
* China's growth rate is a short-term wild card for the markets, but, in the near term, I don't expect a surprise much beyond a slight deceleration in the country's growth rate.
* Politics, too, looks relatively predictable. Gridlock is the likely outcome, as neither party has expressed a willingness to move to the center and compromise.
* Nor does a major surprise appear likely from the Fed. Short-term interest rates are anchored at zero, and the Fed will move uninterruptedly on its stated QE2 journey.
While it remains uncertain whether the recovery will be self-sustaining and smooth, I recognize that no market is an island and that our improving stead (over here) is in contrast to the growing and recognized abyss in certain regions in Europe.
Meanwhile, as evidenced by PMI's released in India and China last night, the emerging world continues to emerge.
Away from the fundamentals, the technicals of our market also seem to be improving as the oversold condition builds up, put-buying continues, retail investors continue to flee domestic equity funds and the S&P has held at critical points on three separate occasions recently.
Big Day
Our pattern of gapping in the opposite direction of the prior day's close continued today, but this time the market was strong enough to push the S&P 500 through the 1200 level, which has been resistance for a couple weeks. Volume declined quite a bit, primarily due to some giant macro trade that hit at the close yesterday, so it was not a technical accumulation day. Breadth, however, was solid and the bulls held us steady all day.
After the initial gap up this morning, the market managed to get another leg higher on talk that the U.S. would provide aid for the European bailout. That was reported to be untrue by Dow Jones, but we held the gains and finished at about the same levels we hit at 12:00 p.m. EST.
While there were obviously some big point gains, it wasn't a day of crazy momentum. In fact, I don't see too many key stocks finishing at their highs, and many of the high-beta favorites such as NFLX, CSTR, BIDU and AMZN acted quite sedately.
The big question now is whether this pattern of suddenly reversing the prior day's close will continue. We are going to have some news overnight out of Europe as bailout discussions continue, so the risk is there. But the good thing about action like today's is that it creates a supply of underinvested dip buyers who are interested in jumping in on weakness.
I would have liked to see better volume today, but the ability of the S&P 500 to move back above 1200 is a positive. We should have some underlying support, and that is going to be very helpful as we encounter the positive seasonality that occurs in December.
long NFLX
After the initial gap up this morning, the market managed to get another leg higher on talk that the U.S. would provide aid for the European bailout. That was reported to be untrue by Dow Jones, but we held the gains and finished at about the same levels we hit at 12:00 p.m. EST.
While there were obviously some big point gains, it wasn't a day of crazy momentum. In fact, I don't see too many key stocks finishing at their highs, and many of the high-beta favorites such as NFLX, CSTR, BIDU and AMZN acted quite sedately.
The big question now is whether this pattern of suddenly reversing the prior day's close will continue. We are going to have some news overnight out of Europe as bailout discussions continue, so the risk is there. But the good thing about action like today's is that it creates a supply of underinvested dip buyers who are interested in jumping in on weakness.
I would have liked to see better volume today, but the ability of the S&P 500 to move back above 1200 is a positive. We should have some underlying support, and that is going to be very helpful as we encounter the positive seasonality that occurs in December.
long NFLX
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