A FLat To Down AND VERY BORING Week Comes To A Close Leaving Us Praying For A Real Trend To Actively Invest
July 13, 2008
It was a down week for stocks and even though I gave the market only a side glimpse as I watched the overall stocks within the market–I know the trend is already sideways to down, it was quite clear that the few really nice charts that were left are starting to die like they have done so well of doing this year and that (something that could become more bullish later on) many of the big-cap oil, steel, metal, and chemical stocks all showed signs of possibly topping. Even if they have not topped, the fact is many of these have been running since 2001, 2002, and 2003. So if you are thinking of buying a new breakout, try to look at a longer-term weekly arithmetic chart before you go long that shorter-term intraday 60-minute logarithmic chart breakout. A little history and perspective will save you a fortune in learning cost, in the long-run.
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Another Hedge Fund Bites the Dust
July 13, 2008
Trader Mark submits:
We talked about this subject a few times - guys in hedge funds taking huge risks; and as long as they are successful for a few years they generate what I term generational wealth (the type of wealth that lasts for your grandkid’s grandkids). Then they blow up. [Mar 28: Founder of Long Term Capital Failing Again]. They say it’s a once in a 500 year event; a black swan. Somehow these black swans happen every 4-6 years, where hordes of hedgies blow up because they don’t manage risk - but don’t worry about small details like that.
Investors get pennies on the dollar (or in this case $0). They could not even sell if they wanted to because they are "frozen" as the hedge fund manager deems must happen (see below for an example) A few years later they are given money to manage again… because they are just that smart. As if anyone who does not take crazy leveraged risks could not print money for 2-3 years. It’s an amazing situation; I assume others who actually manage risk deserve a chance too… but I guess I live in a fantasy world. On to the latest story…
Another Hedge Fund Bites the Dust
Earnings Preview: Monday through Wednesday
July 13, 2008
Trader Mark submits:
As we do each earnings period, here are the names I’m watching as earnings season begins in earnest Tuesday. Nothing we own in the first batch this coming week. Thursday is the monster day of the week with a ton of interesting companies reporting.
Monday
Genentech (DNA) - the new sexy place to hide out in this market: healthcare
Earnings Preview: Monday through Wednesday
Housing: Barron’s Calls a Bottom
July 13, 2008
Barron’s magazine’s cover story boldly calls a bottom to the ravaged housing market.
Chip Case (of S&P/Case-Shiller fame), whose knowledge of the housing market goes back decades and is based on the voluminous collection of data, is among those who think home prices may be nearing a bottom. Case notes, among other things, that new housing starts fell to 975,000 in April from a peak rate of 2.27 million in January 2006, and that three declines of similar magnitude — from more than two million to less than one million — have occurred in the past 35 years. "Every time this has happened before, housing-market activity has rebounded within a quarter and caught experts by surprise."
Housing: Barron’s Calls a Bottom
Market Quiz: 5 Must-Know Headlines
July 13, 2008
Asset management firm on its way down (LM, rated SELL)
July 13, 2008
Legg Mason is one of the leading asset management companies.Its fund manager is the legendary Bill Miller who had beaten the markets for 15 years straight.
Why short?
1.stocks
Bill Miller is very bullish on the economy and had loaded up on financials like C,JPM,ML,FNM,COF,AIG.His top holding also include Aetna,UNH,Sears,Amazon,EBay all of which I am bearish on.
http://quicktake.morningstar.com/fundnet/Holdings.aspx?Countr…
Another way of looking at it is the fund has 20% + representation for financials and consumer services.Both of them are going to be destroyed.A major negative is the near total absence of materials and energy(0%-seriously !)
http://quicktake.morningstar.com/fundnet/Portfolio.aspx?Count…
2.bonds
As if this is not bad enough the fixed income division followed a high risk(oh oh) approach by buying into (close your eyes this is going to be painful to watch) mortgage backed structured investment vehicles.
From a recent Bloomberg article
http://www.bloomberg.com/apps/news?pid=20601213&sid=aKfMf…
"Western Asset’s tendency to buy higher-risk debt and avoid U.S. Treasuries backfired in the credit crunch. In its Core Plus fund, the managers had moved more than half of the assets into mortgage-backed bonds last year, and shifted more than 10 percent to high-yield bonds.“By anybody’s standard, this is the most extraordinary credit crisis we’ve seen since the Great Depression,” said James Hirschmann , Western Asset’s CEO, in an interview. “Everything but U.S. Treasuries has been hit quite hard.”
Western asset mgt is the fixed income division of Legg Mason.
3.There is still money to be made
Everybody knows GM is going to be bankrupt.FNM is in the news for all the wrong reasons.All the easy money is already gone.This stock had not collapsed till now because everybody is expecting Bill Miller to work his magic.
4.A bear market has three phases according to a article I read in financial sense-the first phase is denial,the second phase is characterized by a string of bad news and search for the elusive "bottom" and finally capitulation.I think most people are still in denial of how serious the problem is and are averaging down into oblivion through Systematic investment plans and such like.People are flocking to buy iphones in the States when they are paying for gas and food by pawning stuff or by using stimulus checks.I am young so I haven’t lived through a real bear market but from what I read a true bear will be characterised by total revulsion when the subject of stocks are brought up.Many banks and asset management companies will go bankrupt.Indymac is just one of many to come.My point is we are only in the first phase of a prolonged bear market.Asset management companies which flounder at the very start of a bear market are unlikely to survive it.This is because returns will only get worse as the bear progresses into the second stage.This fall in AUM will finally trigger a run since this business is dependant on faith in the manager.This is going to be severely tested going forward.Even assuming there is a turn around(which is very unlikely) the funds will suffer because a large majority of Americans will experience wealth destruction is some form or the other.That is there would be little money for companies to manage.
With a portfolio which is sure to bleed whether it is bonds or stocks,a bullish fund manager and a severe bear market underway LM is a stock suited for short selling.
Asset management firm on its way down (LM, rated SELL)
Infosys Technologies Ltd (INFY) is a BUY
July 13, 2008
INFY has announced its first quarter numbers. It has posted 4.24% growth in its first quarter consolidated net profit of Rs 1,302 crore as against Rs 1,249 crore in previous quarter.Net profit numbers are above markets’ expectations while sales in line with estimates. Consolidated net sales shot up by 6.87% at Rs 4,854 crore from Rs 4,542 crore QoQ. Earning Per share for the first quarter stood at Rs 22.71 versus Rs 21.79. The company has added 49 clients and 3,192 employees in Q1. Guidance FY09 revenues guidance revised to Rs 21,278-21,622 crore FY09 EPS guidance at Rs 99.34-101.06 Q2 net profit seen at Rs 5,229-5,272 crore Q2 EPS guidance of Rs 23.50 23.95 Infosys says pricing environment is stable for first quarter. Exchange rate for FY09 guidances taken at 43.04 per dollar. Dollar revenue guidance has not increased.
Infosys Technologies Ltd (INFY) is a BUY
Asset Class Performance in 2008
July 13, 2008
Hickey and Walters (Bespoke) submit:
Individuals who have only been invested in equities this year are no doubt suffering. Below we highlight the year-to-date performance of various asset classes in 2008. The results clearly show the importance of asset allocation. While the S&P 500 is down 15.82%, Treasuries are down just 44 bps, and commodities like gold and oil are up significantly. With the amount of ETFs out there that track all asset classes, there really is no excuse to not be diversified.
click to enlarge
Asset Class Performance in 2008
Are American Companies Now Up For Grabs?
July 13, 2008
Daniel Shepard submits:
Inbev, a Belgian brewing company is currently trying to take over Anheuser-Busch (BUD) at $70 per share or $50 billion dollars. The deal when first announced on June 11th, was for $65 a share. Anheuser-Busch, put up a strong obejction and the potential deal quickly got acrimonius. Inbev last week raised the price to $70 and Anheuser-Busch has now indicated it will enter into friendly talks with Inbev
There probably aren’t that many more companies that are more "American" than Anheuser-Busch, the maker of Budweiser and it would be a shame to see it fall into foreign ownership.
Are American Companies Now Up For Grabs?
Can the Dow and S&P Last 15 Rounds?
July 13, 2008
Fritz Hottinger submits:
If the first 2 weeks of trading are any indication, these next 6 rounds (two quarters) will be a very bruising indeed, with steeper drops to come. Using other analogies, the ping pong ball still has not reached the bottom of the stairwell. And though she is now on stage, the fat lady has not yet sung.
Back in October, we cautioned about 4 Horsemen of the Apocalypse appearing on the horizon, posing a threat to our stock market. They were Fed Policy, Economic Data, Corporate Quarterly & Annual Reports, and Political Events. Well, they each have arrived - - - and from all appearances, they will not soon depart. In general, stock markets are fed by 4 forces: economic growth - profit growth - interest rates - inflation.
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