The S&P 500 finished nearly unchanged but it was a very messy day. The TXN/NSM tie-up boosted the tech sector, which has been the biggest laggard lately, but the rebalancing of the Nasdaq-100 caused all sorts of gyrations. GOOG acted very poorly, and AAPL recovered well but still finished solidly in the red.
We also had a weak dollar and a big move in gold that caused some rotation. Gold stocks have not been on the active trading radar much lately, but they came to life today as the SPDR Gold Shares (GLD) broke out of a pretty good base. It certainly has to make you wonder about the health of the market if gold is assuming a leadership role.
Once again, the indices reversed and failed to gain upside traction intraday; however, they continued to hold steady. While the bulls haven't been able to add much upside in the last few days, the bears haven't been able to make any progress either. After five days of flat action we have worked off much of the overbought conditions but momentum is slowing and leadership narrowing. The bulls need to pick up the pace again if they want to keep the bears off balance.
It is very sloppy action with quite a bit of random movement.
Tuesday, April 5, 2011
Monday, April 4, 2011
More Thoughts
I guess the TXN/NSM merger makes sense, but the price is way, way too high. It's an interesting merger, for sure, given complementary product lines (analog parts, Texas Instruments strong in mobile phones while Nat Semi is pushing into app processing for smartphones). Both have fabs to fill, so there can be some manufacturing cost synergy.
Other analog names will lift, but some are less likely to be targets. Especially MXIM and LLTC, which are great companies but are perpetually very expensively valued.
Euro Concerns Take a Break
Default is utterly predictable.
Seems to be little worry about Europe today, but this soon shall pass. The Wall Street Journal reported on Irish negotiations for a lower rate on bailout loans, but these seem to be little more than a miniature Band-Aid on the wound. Seems to me the financial burden on the Irish taxpayers and economy that default is inevitable. Absent a legal default, the economy will go underground, and tax revenue will fall far short of projections.
Same is happening in Greece, where today Der Spiegel reports that the IMF is admitting that its debt will need to be defaulted upon. IMF denies, naturally.
In last week's report, employment among women rose 247,000, while only 4,000 men were incrementally employed.
One of the quirks of last week's employment report is that the resurgence in hiring is mainly benefiting women. Employment among women rose 247,000, while only 4,000 men were incrementally employed. This could be a function of weakness in traditionally male occupations, such as construction, and strength in traditionally female jobs. Education and health care added the most positions at 45,000.
In the near term, any job is a good job, but longer term, the causes of this imbalance will need to be identified and rectified.
Higher corn prices means more planting and more fertilizer use.
Speaking of oil and oil substitutes, I'm hearing of fears of corn shortages coming, which of course will drive up prices further. Buyers at ethanol plants are building inventory because of these supply fears, which exacerbates the shortages. That plus rainy conditions may delay planting until mid-April.
Higher corn prices means more planting and more fertilizer use.
Inflation/dollar debasement is likely to remain an issue until the Fed starts raising rates.
Oil is approaching that magic $110 -- magic only because it is a round number -- at which point, people will start worrying about a run to $120.
My guess is that Libya suddenly resolves itself -- the rebels don't have the resources to fight a protracted war, but the world won't let Gadhafi win. When Libya settles down, oil will naturally sell off. I think the surprise will be that after that selloff, it will resume its upward ascent. There is a risk premium in it at the moment, to be sure, but the broader driver is inflation/dollar debasement, which is likely to remain an issue until the Fed starts raising rates.
A recovery - a real recovery - in the labor markets might actually signal a slowdown in corporate earnings growth - and a selloff in the stock market...But as long as that piece of paper/collection of electrons one calls a stock is simply a claim on earnings, and as long as companies are growing profits, the market can and will work its way higher.....
Other analog names will lift, but some are less likely to be targets. Especially MXIM and LLTC, which are great companies but are perpetually very expensively valued.
Euro Concerns Take a Break
Default is utterly predictable.
Seems to be little worry about Europe today, but this soon shall pass. The Wall Street Journal reported on Irish negotiations for a lower rate on bailout loans, but these seem to be little more than a miniature Band-Aid on the wound. Seems to me the financial burden on the Irish taxpayers and economy that default is inevitable. Absent a legal default, the economy will go underground, and tax revenue will fall far short of projections.
Same is happening in Greece, where today Der Spiegel reports that the IMF is admitting that its debt will need to be defaulted upon. IMF denies, naturally.
In last week's report, employment among women rose 247,000, while only 4,000 men were incrementally employed.
One of the quirks of last week's employment report is that the resurgence in hiring is mainly benefiting women. Employment among women rose 247,000, while only 4,000 men were incrementally employed. This could be a function of weakness in traditionally male occupations, such as construction, and strength in traditionally female jobs. Education and health care added the most positions at 45,000.
In the near term, any job is a good job, but longer term, the causes of this imbalance will need to be identified and rectified.
Higher corn prices means more planting and more fertilizer use.
Speaking of oil and oil substitutes, I'm hearing of fears of corn shortages coming, which of course will drive up prices further. Buyers at ethanol plants are building inventory because of these supply fears, which exacerbates the shortages. That plus rainy conditions may delay planting until mid-April.
Higher corn prices means more planting and more fertilizer use.
Inflation/dollar debasement is likely to remain an issue until the Fed starts raising rates.
Oil is approaching that magic $110 -- magic only because it is a round number -- at which point, people will start worrying about a run to $120.
My guess is that Libya suddenly resolves itself -- the rebels don't have the resources to fight a protracted war, but the world won't let Gadhafi win. When Libya settles down, oil will naturally sell off. I think the surprise will be that after that selloff, it will resume its upward ascent. There is a risk premium in it at the moment, to be sure, but the broader driver is inflation/dollar debasement, which is likely to remain an issue until the Fed starts raising rates.
A recovery - a real recovery - in the labor markets might actually signal a slowdown in corporate earnings growth - and a selloff in the stock market...But as long as that piece of paper/collection of electrons one calls a stock is simply a claim on earnings, and as long as companies are growing profits, the market can and will work its way higher.....
Thoughts
Atlanta Fed's Lockhart is the first Fed talking head on the wires today advising the general public to, gasp, spend: "A less consumption-dependent economy will help rebalance the country's external accounts—the trade and current accounts. It's unlikely and even undesirable that there be a drastic shift away from consumption, so less American consumption will not fix the global imbalances.[sic]" In other words: 1) max out your credit card 2) .... 3) profit.
No Inflation? In 1996 Slick Willie Raised $42.5 Million In Campaign Receipts; In 2011 Obama Plans To Raise $1 Billion....
A curious factoid: back in 1996, Bill Clinton rasied a total of $42.5 million in campaign receipts. In 2011, Barack Obama is expected to raise up to $1 billion to run his reelection campaign. A nearly 25-fold increase. Ironically, the 15 year CAGR on the price for the presidency follows the price of silver almost tick for tick. Coincidence?
No Inflation? In 1996 Slick Willie Raised $42.5 Million In Campaign Receipts; In 2011 Obama Plans To Raise $1 Billion....
A curious factoid: back in 1996, Bill Clinton rasied a total of $42.5 million in campaign receipts. In 2011, Barack Obama is expected to raise up to $1 billion to run his reelection campaign. A nearly 25-fold increase. Ironically, the 15 year CAGR on the price for the presidency follows the price of silver almost tick for tick. Coincidence?
Index Tug Of War
The indices didn't do much today, but given how extended we are, it was a victory for the bulls just to hold us steady. Breadth was slightly positive and there were a few pockets of momentum, but overall it was mostly a day of consolidation. It looked like the bears were ready to press a bit late in the day but the bulls jumped in and took off on the lows. As you might expect, volume was light.
The bears are going to look at this action and say that momentum is slowing and buyers are getting tired. The bulls are going to respond by saying that they deserved a rest and that this is just a pause to set up for further upside.
News is hitting after hours that TXN is buying NSM for a big premium. That is igniting the semiconductor sector, which has been a big laggard lately. The news will catch some bears by surprise and may give us a squeeze in the morning.
The market is still technically extended, but the bears are having an extremely difficult time trying to kill this momentum.
The bears are going to look at this action and say that momentum is slowing and buyers are getting tired. The bulls are going to respond by saying that they deserved a rest and that this is just a pause to set up for further upside.
News is hitting after hours that TXN is buying NSM for a big premium. That is igniting the semiconductor sector, which has been a big laggard lately. The news will catch some bears by surprise and may give us a squeeze in the morning.
The market is still technically extended, but the bears are having an extremely difficult time trying to kill this momentum.
Friday, April 1, 2011
Thoughts
Apple Breaks 50-Day
Why the Rally in Financials?
Let me give you a few reasons:
1. catching up;
2. a technical breakout of some short-term downtrends;
3. some momentum players joining the party; and
4. Dudley's dovish comments.
P.S. -- With a large financial exposure, Berkshire should benefit in the fullness of time.
Birth/Death Boost
According to the BLS websites, the better-than-expected jobs growth was prompted by a big move up in the BLS birth/death model, which created 36,000 more jobs (to 117,000) than a year ago.
The Other Side of the Jobs Coin
All did not come up roses in today's jobs report.
The weakness in the wage data is conspicuous -- average weekly and hourly earnings didn't budge. At the same time, average weekly hours were flat at 34.3.
This is bad, as wages are not keeping up with steadily rising inflation (especially of an energy kind).
In a setting in which jobs are being created too slowly, and with limited wage growth in the face of rapidly rising prices for food, gasoline and other goods, consumer confidence will remain subdued.
According to the fed fund futures market, the odds of a December 2011 rate increase has doubled to almost 65% now.
Who Will Replace Warren Buffett?
Warren Buffett's replacement is Warren Buffett.
"Contemplating any business act, an employee should ask himself whether he would be willing to see it immediately described by an informed and critical reporter on the front page of his local paper, there to be read by his spouse, children and friends."
-- Warren Buffett
"We can afford to lose money -- even a lot of money. But we can't afford to lose reputation -- even a shred of reputation."
-- Warren Buffett
"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."
-- Warren Buffett
To be direct, this week was a foul moment for Berkshire Hathaway (BRK.A/BRK.B), Warren Buffett and the now-disgraced David Sokol.
While most of the business media has given Sokol the benefit of the doubt, with the exception of CNBC's Joe Kernen, who properly and boldly acknowledged on "Squawk Box" that Sokol ran in front of the Berkshire-Lubrizol (LZ) merger, most investment and legal professionals recognize that Sokol's actions skirted the law -- no matter how he rationalized his Lubrizol investment.
The principal question concerning investors in Berkshire Hathaway is this: Who is now the best candidate to replace Warren Buffett?
My answer?
Warren Buffett's replacement is Warren Buffett, that's guaranteed.
As a result of this week's event, the Oracle isn't going anywhere. In fact, in the months ahead, I expect Buffett to adopt an even higher profile and to be more active in the acquisition arena.
It's the Buffett way, the way in which he will react to the grave disappointment in Sokol's actions.
And that is a positive for Berkshire Hathaway's stakeholders.
Ironically, as a result of the Sokol fiasco, the Buffett premium could expand, not contract, in the face of the renewed certainty that the Oracle is going to be around for a while longer.
As a newly minted Berkshire Hathaway shareholder, I fully expect the company's share price to move ever closer toward its estimated year-end 2011 intrinsic value of approximately $180,000 a share, or nearly 50% above its current share price.
Why the Rally in Financials?
Let me give you a few reasons:
1. catching up;
2. a technical breakout of some short-term downtrends;
3. some momentum players joining the party; and
4. Dudley's dovish comments.
P.S. -- With a large financial exposure, Berkshire should benefit in the fullness of time.
Birth/Death Boost
According to the BLS websites, the better-than-expected jobs growth was prompted by a big move up in the BLS birth/death model, which created 36,000 more jobs (to 117,000) than a year ago.
The Other Side of the Jobs Coin
All did not come up roses in today's jobs report.
The weakness in the wage data is conspicuous -- average weekly and hourly earnings didn't budge. At the same time, average weekly hours were flat at 34.3.
This is bad, as wages are not keeping up with steadily rising inflation (especially of an energy kind).
In a setting in which jobs are being created too slowly, and with limited wage growth in the face of rapidly rising prices for food, gasoline and other goods, consumer confidence will remain subdued.
According to the fed fund futures market, the odds of a December 2011 rate increase has doubled to almost 65% now.
Who Will Replace Warren Buffett?
Warren Buffett's replacement is Warren Buffett.
"Contemplating any business act, an employee should ask himself whether he would be willing to see it immediately described by an informed and critical reporter on the front page of his local paper, there to be read by his spouse, children and friends."
-- Warren Buffett
"We can afford to lose money -- even a lot of money. But we can't afford to lose reputation -- even a shred of reputation."
-- Warren Buffett
"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."
-- Warren Buffett
To be direct, this week was a foul moment for Berkshire Hathaway (BRK.A/BRK.B), Warren Buffett and the now-disgraced David Sokol.
While most of the business media has given Sokol the benefit of the doubt, with the exception of CNBC's Joe Kernen, who properly and boldly acknowledged on "Squawk Box" that Sokol ran in front of the Berkshire-Lubrizol (LZ) merger, most investment and legal professionals recognize that Sokol's actions skirted the law -- no matter how he rationalized his Lubrizol investment.
The principal question concerning investors in Berkshire Hathaway is this: Who is now the best candidate to replace Warren Buffett?
My answer?
Warren Buffett's replacement is Warren Buffett, that's guaranteed.
As a result of this week's event, the Oracle isn't going anywhere. In fact, in the months ahead, I expect Buffett to adopt an even higher profile and to be more active in the acquisition arena.
It's the Buffett way, the way in which he will react to the grave disappointment in Sokol's actions.
And that is a positive for Berkshire Hathaway's stakeholders.
Ironically, as a result of the Sokol fiasco, the Buffett premium could expand, not contract, in the face of the renewed certainty that the Oracle is going to be around for a while longer.
As a newly minted Berkshire Hathaway shareholder, I fully expect the company's share price to move ever closer toward its estimated year-end 2011 intrinsic value of approximately $180,000 a share, or nearly 50% above its current share price.
Channel Stuffing At GM Hits Record: 574,000 Cars In Dealer Inventories, Despite No Interest Loans, Highest Car Discounts...
Earlier today GM announced disappointing sales numbers, with March car sales rising only 9.6% compared to expectations of 20%. Indeed, this number tends to be quite volatile: ultimately it is a function of how easy it is to get loans for purchases and, more specifically, the impact various incentives offered by its captive financing units. Why it was very disappointing is, as was reported a month ago, GM is once again back to its old gimmick of offering no interest loans, and rising discounts to the highest amount among US carmakers: "General Motors Co. is offering buyers interest-free financing on some 2011 models after the company increased discounts and incentives to lead all major automakers’ U.S. sales gains last month." As of yesterday desperate car buyers who can't rub two dimes together, can drive to the local unemployment office in the luxury of their brand new Chevy Imapala, or alternatively pick a just as worthless Chevy Malibu, HHR WAgon, Traverse SUV, as well as a Silverado, Colorado and Avalanche pickups, which are now offered at either 72 or 60 months of interest-free loans. "The 60-month deal also applies to the Buick Enclave and GMC Acadia SUVs and Sierra pickups." That pretty much covers the entire line up. And that's not all: "GM raised discounts 12 percent from a year earlier to an estimated $3,732 per vehicle last month, the most among major automakers and 45 percent more than the average, according to researcher Autodata Corp."
But what is most disturbing is that as the chart demonstrates, GM has now taken its indirect channel stuffing art to the level of a science, with what I believe is a record 574,000 cars held in dealer inventory. No surprise then that GM's Johnson sees no effect from Japan production on car production: after all the company will needs years just to clear existing inventory, and guess what that means for prices and for the viable competition, primarily in the face of Ford.....
But what is most disturbing is that as the chart demonstrates, GM has now taken its indirect channel stuffing art to the level of a science, with what I believe is a record 574,000 cars held in dealer inventory. No surprise then that GM's Johnson sees no effect from Japan production on car production: after all the company will needs years just to clear existing inventory, and guess what that means for prices and for the viable competition, primarily in the face of Ford.....
Remarkable Strength
A sharp intraday reverse with about 90 minutes to go in trading took some of the steam out of what was looking like classic "first day of a new month" action. We still finished in the green but well off the early highs. Breadth was sold with banks taking the lead after lagging for the past week. The biggest sore spot was chips and technology with AAPL acting poorly in particular.
There was plenty of chatter about the rise in crude oil, but it is difficult to understand at what point it will matter to this market. We've completely ignored it all week but some of the late selling seemed to be related to nervousness over its steady climb.
There was no shortage of negatives out there for the bears to growl about. Probably the most worrisome, in addition to oil, is increased talk that quantitative easing is going to come to an end and interest rates will start to rise. We have had low rates and a friendly Fed acting as a tailwind for the market for a very long time and some folks seem to be recognizing that it isn't going to last forever.
Despite the laundry list of negatives, the market has exhibited remarkable strength as it pulled off another V-shaped bounce just when it looked like a downtrend was doing to intensify. I don't think even the most bullish bull would have predicted that the market would recoup nearly all of its losses from the low in mid-March in just two weeks. There were all sorts of very good reasons, both technical and fundamental, why that shouldn't have happened, but once the momentum was running we didn't look back.
The conditions in this market continue to be supportive of these straight up moves. I don't know if it's the Fed or computerized trading or something else that causes them, but the one thing that has been painfully obvious is that you shouldn't fight them.
Seasonality turns negative next week and we are still technically extended, but it has been a waste of time lately to even consider what negatives might cause this market to pause.
There was plenty of chatter about the rise in crude oil, but it is difficult to understand at what point it will matter to this market. We've completely ignored it all week but some of the late selling seemed to be related to nervousness over its steady climb.
There was no shortage of negatives out there for the bears to growl about. Probably the most worrisome, in addition to oil, is increased talk that quantitative easing is going to come to an end and interest rates will start to rise. We have had low rates and a friendly Fed acting as a tailwind for the market for a very long time and some folks seem to be recognizing that it isn't going to last forever.
Despite the laundry list of negatives, the market has exhibited remarkable strength as it pulled off another V-shaped bounce just when it looked like a downtrend was doing to intensify. I don't think even the most bullish bull would have predicted that the market would recoup nearly all of its losses from the low in mid-March in just two weeks. There were all sorts of very good reasons, both technical and fundamental, why that shouldn't have happened, but once the momentum was running we didn't look back.
The conditions in this market continue to be supportive of these straight up moves. I don't know if it's the Fed or computerized trading or something else that causes them, but the one thing that has been painfully obvious is that you shouldn't fight them.
Seasonality turns negative next week and we are still technically extended, but it has been a waste of time lately to even consider what negatives might cause this market to pause.
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