Wow. The market slowly started to rally on the news of a Treasury Secretary had been settled upon late Friday afternoon. That rally built upon itself until the programs kicked in (back above 7800 on the Dow) and then they screamed into the close soaring 200 pts in the last 10 minutes again. Again, this is not the action of a healthy market. This is like the gambler that puts his last $100 on 9 at the roulette table instead of using that cash to buy a bus ticket out of Vegas.
I think they could have named Barney The Dinosaur Treasury Secretary yesterday and the markets would have rallied. The market was acting very strangely all day, every time they tried to sell off the market, it stopped right at break-even. Someone clearly had a very, very large buy program in place to buy every dip. As I said on Thursday - Fridays during option expiration can be very strange trading days. In fact, there were enormous put options outstanding under 800 on the S&P. More than a few people in the know have suggested that it was cheaper for someone to push the market higher on Friday (and ensure those options expire worthless) than to absorb the losses the puts would have caused. It's an interesting theory at least.
The irony of this move was that just 1 hour before the close all of the talking heads on CNBC and CNN were saying "No one wants to be long going into the weekend". In fact, the market swings have become so swift and so violent that the commentators often can't keep their stories fresh with the data. Often you'll hear someone on MSNBC say something like "stocks are off on concerns about Citibank" and then they'll check the markets and the Dow is up like 200 points. Hilarity ensues.....
With regards to the proposed Secretary of the Treasury - Mr. Geithner - I don't have a clear read on him yet. However, it should be noted that he was widely viewed as the Fed Governor that spearheaded the decision to let Lehman Brothers fail. This decision is viewed by many (including myself) to have contributed to the current market turmoil. If you extrapolate that decision to other issues facing the markets right now (Citibank, GM/Ford/Chrysler) I think it is safe to say that the risk of bankruptcy for some or all of these companies actually goes up under Mr. Geithner (although in all likelihood the issues at Citibank, GM/Ford/Chrysler will be long behind us by the time Mr. Geithner takes over).
In fact, the Wall Street Journal reported today that "Members of General Motors Corp.'s board of directors are willing to consider "all options" for the ailing auto maker, including an eventual filing for bankruptcy protection, a stance that puts them in rare disagreement with Chairman and Chief Executive Rick Wagoner, people familiar with the matter said".
Citibank's status on Monday morning will likely determine the near-term trend.
Cheers!
Saturday, November 22, 2008
Thursday, November 20, 2008
To Quote Michael Scott from The Office - No, No, NO, NO, NO!!!
The velocity of the market moves are catching everyone off guard. We are living through historic times in the markets, but the great difference between today and the closest comps we have for these markets (81, 74, 29-33) is the great access to information and the technology that has sped up trading in the markets.
Let's use 1981 as an example. If you were concerned about a stock's prospects in 1981, you'd do some research and eventually make a call to a broker at Shearson to have him sell your shares. Today's electronic order formats make it possible for professional and semi-professional traders to buy and sell that same stock 10 times in the blink of an eye.
Today, the markets were up about 100pts on a rumor of an auto bailout agreement in the Senate. In the midst of that reporting, an email is sent to an on-air reporter at CNBC and he say's that the House views the Senate deal as a "non-starter" and the markets instantly reverse. Simply stunning.
The next 8 days could be very, very volatile with option expiration tomorrow (there were a lot of weird option trades today - it looked like people betting for a huge snapback rally) and a very thin market as the Thanksgiving Holiday approaches.
We've broken through any meaningful support and the markets look to be racing to the next support levels of 7,000. Again, people keep saying "if the S&P earns $75 next year we're trading at 10 times earnings which isn't bad". Right, but it's not cheap either - I think 2009 earnings might be as low as $55 (or lower if things don't get fixed in a hurry) and we could trade at 8-10 times that number. Again, this would be a nightmare scenario, but I think there is a plausible argument for Dow 5,000 next year. I still think it's less than a 40% chance, but I thought that we had less than a 5% chance of breaking through 5,000 about 3 months ago.
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Just to provide a little insight into the level of fear in the markets, the 3-month t-bill (the equivalent of a 3 month CD with the US Government) was yielding 0.015% today. In effect if you invested $100,000 in US t-bills today you'd earn $15 - yeah, you read that right - $15 in 3 months.
In essence investors are so scared of taking any risk they are willing to take practically a zero rate of return in exchange for a just getting their money back in 3 months. The irony of this move is that I'd argue that the US is demonstrably worse credit risk today than we were just 6 months ago when rates were much higher. I think that over the course of the next few years this will reverse itself meaningfully when global investors begin to question our ability to repay our debts. But that's another nightmare for us to deal with on another day.
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Oil - In the midst of all of the global panic, we've lost sight of a major collapse in oil prices. In July oil was $147, today it closed at $48.25. Basically, down $100 a barrel in FOUR MONTHS! This is an enormous collapse and the economic and politically ramifications will be significant.
Economic - cheap oil is, unfortunately, still the grease that moves the global economy. I'm still a believer in higher oil prices in 2009-2010 (weaker US dollar and a resurgent Asian economy), but $48 oil will help every industrial company's bottom line. Think of a company that has huge oil inputs on the costs side that raised prices all summer to catch up with oil prices. Do you think they are cutting prices now? Not a chance. This should bolster many companies in the coming months.
Political - I'm out of my league talking about the politics of oil, but suffice to say that the Middle East, Russian and Venezuela are much calmer places when oil is $100 a barrel. At $48 a barrel, they are stressed out and at $30 a barrel turmoil is sure to ensue.
I still contend that the natural price for oil is in the mid $60's, but we overshot on the high side, and we are going to overshoot on the low side.
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Finally, just when you think you've had a bad day, imagine what this guy's day is going to be like first he gets a speeding ticket and then.......oops!
Cheers.
Let's use 1981 as an example. If you were concerned about a stock's prospects in 1981, you'd do some research and eventually make a call to a broker at Shearson to have him sell your shares. Today's electronic order formats make it possible for professional and semi-professional traders to buy and sell that same stock 10 times in the blink of an eye.
Today, the markets were up about 100pts on a rumor of an auto bailout agreement in the Senate. In the midst of that reporting, an email is sent to an on-air reporter at CNBC and he say's that the House views the Senate deal as a "non-starter" and the markets instantly reverse. Simply stunning.
The next 8 days could be very, very volatile with option expiration tomorrow (there were a lot of weird option trades today - it looked like people betting for a huge snapback rally) and a very thin market as the Thanksgiving Holiday approaches.
We've broken through any meaningful support and the markets look to be racing to the next support levels of 7,000. Again, people keep saying "if the S&P earns $75 next year we're trading at 10 times earnings which isn't bad". Right, but it's not cheap either - I think 2009 earnings might be as low as $55 (or lower if things don't get fixed in a hurry) and we could trade at 8-10 times that number. Again, this would be a nightmare scenario, but I think there is a plausible argument for Dow 5,000 next year. I still think it's less than a 40% chance, but I thought that we had less than a 5% chance of breaking through 5,000 about 3 months ago.
********************************************************************
Just to provide a little insight into the level of fear in the markets, the 3-month t-bill (the equivalent of a 3 month CD with the US Government) was yielding 0.015% today. In effect if you invested $100,000 in US t-bills today you'd earn $15 - yeah, you read that right - $15 in 3 months.
In essence investors are so scared of taking any risk they are willing to take practically a zero rate of return in exchange for a just getting their money back in 3 months. The irony of this move is that I'd argue that the US is demonstrably worse credit risk today than we were just 6 months ago when rates were much higher. I think that over the course of the next few years this will reverse itself meaningfully when global investors begin to question our ability to repay our debts. But that's another nightmare for us to deal with on another day.
**********************************************************************
Oil - In the midst of all of the global panic, we've lost sight of a major collapse in oil prices. In July oil was $147, today it closed at $48.25. Basically, down $100 a barrel in FOUR MONTHS! This is an enormous collapse and the economic and politically ramifications will be significant.
Economic - cheap oil is, unfortunately, still the grease that moves the global economy. I'm still a believer in higher oil prices in 2009-2010 (weaker US dollar and a resurgent Asian economy), but $48 oil will help every industrial company's bottom line. Think of a company that has huge oil inputs on the costs side that raised prices all summer to catch up with oil prices. Do you think they are cutting prices now? Not a chance. This should bolster many companies in the coming months.
Political - I'm out of my league talking about the politics of oil, but suffice to say that the Middle East, Russian and Venezuela are much calmer places when oil is $100 a barrel. At $48 a barrel, they are stressed out and at $30 a barrel turmoil is sure to ensue.
I still contend that the natural price for oil is in the mid $60's, but we overshot on the high side, and we are going to overshoot on the low side.
*********************************************************************
Finally, just when you think you've had a bad day, imagine what this guy's day is going to be like first he gets a speeding ticket and then.......oops!
Cheers.
Wednesday, November 19, 2008
That's Wasn't a Pretty Day.
1) Markets - As I noted at mid-day, the markets were flirting with breaking down and they finally couldn't hold those old support levels. A lot of fast money bought the market last week on Thursday when we bounced sharply off the 8250 level. The retest held for a day, and then we began the slow gradual grind back down. This is a classic cycle in deep bear markets - rally up 10% one day and then lose 2% a day for the next 10 days.
Allow me a moment for a little tutorial on technical trading strategies. Let's say you have $100 to buy stock in the S&P 500. When the S&P started to bounce on Thursday, you might allocate 25% when the market first held, another 25% when the market was 2% off it's lows, another 25% at 5% off the lows, etc... until you are fully invested. Then you establish floors and set standing orders to sell the market if it falls to certain levels. This either locks in your gains or prevents losses depending on where you put in the floors. A lot of people had trading floors in around 8,200 in the Dow and when we took that level out more and more orders hit the floor. For an idea of where we might be headed take a look at the NASDAQ over the last couple of days since it broke support. We may bounce again sharply b/c of option expiration and the weird trading that occurs during Thanksgiving week (extremely light volume leads to weird swings) but the charts say we are going much lower and the fundamentals don't look any better.
The next levels that people are pointing to are down another 12-20% (7k Dow, 680 S&P 500, 1100 NASDAQ).
Wouldn't it be nice if we could all agree to stop watching the markets and go back to the business of business?
2) Automakers are getting no love - I really felt that a bailout of some form would come from Washington, but nothing seems to be on the horizon. The Screamer from Short Hills (aka - Jim Cramer) has said that without a bailout the Dow is going to 6,000. That's going to make some people more than a little nervous.
While I'm on the subject of bailouts - any bets on who is next to ask for a big bailout? I think it's even money between GE (yes, my beloved GE - I'm long this puppy since 1994 - what a shame) or Commercial Real Estate.
If you think the car companies can come up with some scary numbers, wait until a group of giant mall operators comes to Congress saying that without a bailout they will be forced to shutdown 17,000,000,000 sq ft of commercial space, putting 780 million people out of work (please ignore the fact that only 300 million people live in the US - we can't let facts get in the way of our plea for bailout C-A-S-H).
3) Personal Budgeting - This is a good time of year to be especially aware of loose spending habits and to try to gain control. As many of us have found out over the years any attempt to lose weight is most successful when achieved through healthy diet and exercise. It's not fun or easy (trust me -- running around Clayton in a 25 mph wind when it's 22 degrees out is the definition of NOT FUN), but it works.
When looking to cut credit card debt or avoid debt all together, the same is true. It's not easy or painless, but look for areas that have flexibility and cut back there first. I think everyone is going to have to be more cognizant of not just how much they are spending but how they are spending as banks look to improve their profitability through fees and higher interest rates.
Having said all this, the Bank of China will probably announce a new stimulus plan to give away 50" HDTV flat screens to anyone with a $40 digital converter box coupon and the market will soar 6,000 points (Normally, I charge for that kind of snark, but in the spirit of Thanksgiving that one's on the house).
For those with tri-focals the towel dispenser says "Please try to touch "no touch" sensor without touching it". Oh, that's precious.
Cheers!
Allow me a moment for a little tutorial on technical trading strategies. Let's say you have $100 to buy stock in the S&P 500. When the S&P started to bounce on Thursday, you might allocate 25% when the market first held, another 25% when the market was 2% off it's lows, another 25% at 5% off the lows, etc... until you are fully invested. Then you establish floors and set standing orders to sell the market if it falls to certain levels. This either locks in your gains or prevents losses depending on where you put in the floors. A lot of people had trading floors in around 8,200 in the Dow and when we took that level out more and more orders hit the floor. For an idea of where we might be headed take a look at the NASDAQ over the last couple of days since it broke support. We may bounce again sharply b/c of option expiration and the weird trading that occurs during Thanksgiving week (extremely light volume leads to weird swings) but the charts say we are going much lower and the fundamentals don't look any better.
The next levels that people are pointing to are down another 12-20% (7k Dow, 680 S&P 500, 1100 NASDAQ).
Wouldn't it be nice if we could all agree to stop watching the markets and go back to the business of business?
2) Automakers are getting no love - I really felt that a bailout of some form would come from Washington, but nothing seems to be on the horizon. The Screamer from Short Hills (aka - Jim Cramer) has said that without a bailout the Dow is going to 6,000. That's going to make some people more than a little nervous.
While I'm on the subject of bailouts - any bets on who is next to ask for a big bailout? I think it's even money between GE (yes, my beloved GE - I'm long this puppy since 1994 - what a shame) or Commercial Real Estate.
If you think the car companies can come up with some scary numbers, wait until a group of giant mall operators comes to Congress saying that without a bailout they will be forced to shutdown 17,000,000,000 sq ft of commercial space, putting 780 million people out of work (please ignore the fact that only 300 million people live in the US - we can't let facts get in the way of our plea for bailout C-A-S-H).
3) Personal Budgeting - This is a good time of year to be especially aware of loose spending habits and to try to gain control. As many of us have found out over the years any attempt to lose weight is most successful when achieved through healthy diet and exercise. It's not fun or easy (trust me -- running around Clayton in a 25 mph wind when it's 22 degrees out is the definition of NOT FUN), but it works.
When looking to cut credit card debt or avoid debt all together, the same is true. It's not easy or painless, but look for areas that have flexibility and cut back there first. I think everyone is going to have to be more cognizant of not just how much they are spending but how they are spending as banks look to improve their profitability through fees and higher interest rates.
Having said all this, the Bank of China will probably announce a new stimulus plan to give away 50" HDTV flat screens to anyone with a $40 digital converter box coupon and the market will soar 6,000 points (Normally, I charge for that kind of snark, but in the spirit of Thanksgiving that one's on the house).
In light of all the gloomy news I thought this picture might lighten your mood....
For those with tri-focals the towel dispenser says "Please try to touch "no touch" sensor without touching it". Oh, that's precious.
Cheers!
The markets are back at key levels...
The Dow has been garnering all of the headlines of late, but the NASDAQ finally broke down below support two days ago and is setting a pretty ugly tone for the market.
NASDAQ June 4 1997 - 1404
NASDAQ Nov 19 2008 - 1420
The S&P 500 has not closed below 848 and has bounce 3 times off the 830 level, but we are at 827 right now. If the markets stay under this kind of pressure for the remainder of the day it could set up for an interesting end of the week (Friday is option expiration which generally adds to volatility).
NASDAQ June 4 1997 - 1404
NASDAQ Nov 19 2008 - 1420
The S&P 500 has not closed below 848 and has bounce 3 times off the 830 level, but we are at 827 right now. If the markets stay under this kind of pressure for the remainder of the day it could set up for an interesting end of the week (Friday is option expiration which generally adds to volatility).
Tuesday, November 18, 2008
Welcome to the North Country...
Failure to roll-up windows will result in delays in getting to work........
Wouldn't You Like to Get a Bailout, Too?
1) Bailouts R US - When I first heard this story last week, I assumed that it had to be a joke. In essence, a taxpayer advocacy group (www.taxpayer.net) got a copy of the application to get a piece of the bailout.
Here is the application......
Trust me it's worth looking at this thing. 2 PAGES!!! I had to fill-out a longer form to buy a NY State fishing license this year. Has anyone ever filled out a banks application for a loan? How long was that application -- 200 pages, but the Treasury can get all the info they need on a two pager?
The Treasury assures us that there is a lot more too getting the money than this application, but I'm not sure that anyone has any idea what they are doing. This form looks like some MBA flunky drafted it while Facebook was down for routine maintenance one night. The level of incompetance demonstrated by Congress and the Treasury is simply stunning.
2) Markets - The Dow had a nice little reversal (up 300 pts in the last hour again) on very little news. I suspect that some program trades kicked in to account for BUD's acquisition by InBev (since BUD went away, funds that track the S&P 500 had to redistribute their $$$ into other stocks to rebalance). This buy program perked up stocks some and then everyone was afraid to miss another 10% rally off the 8,200 level so a few more people bought into the close. I'd note however, that the S&P and NASDAQ have both violated previous closing lows and are not acting well. We'll see....
3) The latest news on the economy has been jaw dropping. It's hard to know how much weight the big investment banks still carry, but Goldman Sachs published a note tonight with a couple of scenarios for the economy - either case - "Just bad" or "Ashlee Simpson Singing Bad" - would show Q4 GDP down 5-8%. These are numbers that we haven't seen since a bunch of college kids beat the mighty Soviets on a frozen pond in Upstate NY (Do You Believe in Miracles? YES!!). I've said for some time that this recession feels alot more like 1981 or 1974 than 1991 or 2002. The rest of the world seems to be coming around to that line of thinking.
Cheers!
Here is the application......
Trust me it's worth looking at this thing. 2 PAGES!!! I had to fill-out a longer form to buy a NY State fishing license this year. Has anyone ever filled out a banks application for a loan? How long was that application -- 200 pages, but the Treasury can get all the info they need on a two pager?
The Treasury assures us that there is a lot more too getting the money than this application, but I'm not sure that anyone has any idea what they are doing. This form looks like some MBA flunky drafted it while Facebook was down for routine maintenance one night. The level of incompetance demonstrated by Congress and the Treasury is simply stunning.
2) Markets - The Dow had a nice little reversal (up 300 pts in the last hour again) on very little news. I suspect that some program trades kicked in to account for BUD's acquisition by InBev (since BUD went away, funds that track the S&P 500 had to redistribute their $$$ into other stocks to rebalance). This buy program perked up stocks some and then everyone was afraid to miss another 10% rally off the 8,200 level so a few more people bought into the close. I'd note however, that the S&P and NASDAQ have both violated previous closing lows and are not acting well. We'll see....
3) The latest news on the economy has been jaw dropping. It's hard to know how much weight the big investment banks still carry, but Goldman Sachs published a note tonight with a couple of scenarios for the economy - either case - "Just bad" or "Ashlee Simpson Singing Bad" - would show Q4 GDP down 5-8%. These are numbers that we haven't seen since a bunch of college kids beat the mighty Soviets on a frozen pond in Upstate NY (Do You Believe in Miracles? YES!!). I've said for some time that this recession feels alot more like 1981 or 1974 than 1991 or 2002. The rest of the world seems to be coming around to that line of thinking.
Cheers!
60% of Doctors Would Not Recommend a Career in Medicine...
This is a little off-topic, but this story caught my eye today. The lack of vision in the healthcare industry is at least partly to blame for this trend. Doctors today are burdened by so much mundane record keeping, that it leaves precious little time to actually treat patients.
I don't see an easy fix to this situation, but when 60% of Doctors would not recommend their own profession it is a pretty stinging indictment of our current model.
I don't see an easy fix to this situation, but when 60% of Doctors would not recommend their own profession it is a pretty stinging indictment of our current model.
Hewlett News Turned the Futures
I try to avoid commenting on specific companies, but Hewlett Packard's earnings release seems to have turned the futures around pretty sharply as CNBC and the rest of the financial media are running the "HP GUIDES HIGHER" tagline.
Well, that's only a half of the story.
It is true that their estimated earnings per share are expected to be slightly higher for next year (up from $3.85 to $3.88 to $4.03). Up about 1 - 4% over the old number, not bad in this environment.
But let's look a little deeper.......HP lowered their Sales number by $5 to $8.5 BILLION for next year, but they expect to make more money? Huh?
Here's the devil in the details.....Earnings per share are calculated by taking a company's net income and dividing net income by the number of shares outstanding. In September of this year HP announced a plan to repurchase $8 billion of their own stock. If they completed this repurchase, it would reduce their shares outstanding by over 10%.
Thus, this "INCREASE IN GUIDANCE" is just math slight of hand. Reduce the denominator 10% and your result will go higher even if the numerator goes down 5%.
The markets are all rallying on this news, but I'd expect smart people to see through this fairly quickly.
Well, that's only a half of the story.
It is true that their estimated earnings per share are expected to be slightly higher for next year (up from $3.85 to $3.88 to $4.03). Up about 1 - 4% over the old number, not bad in this environment.
But let's look a little deeper.......HP lowered their Sales number by $5 to $8.5 BILLION for next year, but they expect to make more money? Huh?
Here's the devil in the details.....Earnings per share are calculated by taking a company's net income and dividing net income by the number of shares outstanding. In September of this year HP announced a plan to repurchase $8 billion of their own stock. If they completed this repurchase, it would reduce their shares outstanding by over 10%.
Thus, this "INCREASE IN GUIDANCE" is just math slight of hand. Reduce the denominator 10% and your result will go higher even if the numerator goes down 5%.
The markets are all rallying on this news, but I'd expect smart people to see through this fairly quickly.
Monday, November 17, 2008
What Do Mark Cuban and American Pension Funds Have in Common?
They're both in a world of trouble.
A) I won't spend too much time on the Cuban SEC case. Mr. Cuban is a knucklehead as an owner and literally fell into his money (selling Broadcast.com - yeah what the heck was that - for billions at the top of the dotcom bubble), but he's been pretty good at seeing tops in the markets. Two things jump off the page with regards to this case -
1) $750k? You're worth $2 billion and you make a blatant trade the day before a PIPE is priced to save $750k? That's either stupid or arrogant or both.
2) How in the world did it take the SEC FOUR YEARS to gather enough evidence for this case?? The guy is a 6% holder and he sells the stock the day before the PIPE prices and it takes 4 years to prove that he had inside info?!?!?!? I think the SEC might need a bailout too.
Cuban has probably learned from the lessons of Martha. Tell the truth, pay the fine, and go back to being the worst fan in the NBA. If you lie about trading under oath, you'll go to jail. That won't happen here.
B) Pensions are getting crushed. The 100 largest US pensions were slightly overfunded (had more assets than projected liabilities) at the start of 2008. Pensions are currently underfunded by about 7% and that number is expected to continue to fall through the balance of the year.
"In October, pensions faced a record asset value loss -- more than $120 billion -- and after adjustment for liability gains, surrendered a total of $59 billion, dropping pension funding to 92.7%, a 12-percentage-point decline from the funded ratio at the beginning of the year."
Pension accounting is perhaps the least understood aspect of financial analysis, but suffice to say that this firm that focuses on US Pensions, estimates that earnings will take a $40 billion hit in 2009 from underfunded pension liabilities. I don't think this is factored into 2009's earning forecasts. This will be another headwind facing the stock market in 2009.
C) GM is apparently the third rail of economic blogging. I'll avoid making any judgements on the validity of a bailout because I can really only comment on the financial viability of the Big 3 (which is really, really bad) but I thought I'd pass along some new news on the GM front as they are delaying making incentive payments to dealers in an effort to conserve cash.
Mr. Market is right back around this 8,250 level. The last time we were here (WAY, WAY back on WEDNESDAY!) stocks sold down under 8,000 before soaring almost 1,000 points. Even traders are starting to feel a little fatigued by this action. I'm a little concerned by the lack of coverage of this latest sell-off - if we close at new lows and no one notices, it might cause a rapid retracement (or they might try to buy the bounce again and make 10% in a day!). Crazy times.
A) I won't spend too much time on the Cuban SEC case. Mr. Cuban is a knucklehead as an owner and literally fell into his money (selling Broadcast.com - yeah what the heck was that - for billions at the top of the dotcom bubble), but he's been pretty good at seeing tops in the markets. Two things jump off the page with regards to this case -
1) $750k? You're worth $2 billion and you make a blatant trade the day before a PIPE is priced to save $750k? That's either stupid or arrogant or both.
2) How in the world did it take the SEC FOUR YEARS to gather enough evidence for this case?? The guy is a 6% holder and he sells the stock the day before the PIPE prices and it takes 4 years to prove that he had inside info?!?!?!? I think the SEC might need a bailout too.
Cuban has probably learned from the lessons of Martha. Tell the truth, pay the fine, and go back to being the worst fan in the NBA. If you lie about trading under oath, you'll go to jail. That won't happen here.
B) Pensions are getting crushed. The 100 largest US pensions were slightly overfunded (had more assets than projected liabilities) at the start of 2008. Pensions are currently underfunded by about 7% and that number is expected to continue to fall through the balance of the year.
"In October, pensions faced a record asset value loss -- more than $120 billion -- and after adjustment for liability gains, surrendered a total of $59 billion, dropping pension funding to 92.7%, a 12-percentage-point decline from the funded ratio at the beginning of the year."
Pension accounting is perhaps the least understood aspect of financial analysis, but suffice to say that this firm that focuses on US Pensions, estimates that earnings will take a $40 billion hit in 2009 from underfunded pension liabilities. I don't think this is factored into 2009's earning forecasts. This will be another headwind facing the stock market in 2009.
C) GM is apparently the third rail of economic blogging. I'll avoid making any judgements on the validity of a bailout because I can really only comment on the financial viability of the Big 3 (which is really, really bad) but I thought I'd pass along some new news on the GM front as they are delaying making incentive payments to dealers in an effort to conserve cash.
Mr. Market is right back around this 8,250 level. The last time we were here (WAY, WAY back on WEDNESDAY!) stocks sold down under 8,000 before soaring almost 1,000 points. Even traders are starting to feel a little fatigued by this action. I'm a little concerned by the lack of coverage of this latest sell-off - if we close at new lows and no one notices, it might cause a rapid retracement (or they might try to buy the bounce again and make 10% in a day!). Crazy times.
Monday Update...
Well, Japan joined Germany in officially declaring a recession earlier today. For all of the talk about emerging economies like India and China, people often forget how important Japan and Germany are in the global economy. The US is by far the global GDP leader, but Japan and Germany are the next two largest economies in the world.
The Japanese and German economies slipping into recession is not a surprise, but it fits with the theme that our global economy is still extremely linked. Note that fewer and fewer people are using the "decoupling" word on TV (decoupling is the idea that Asian and European countries were growing on their own and not dependent on the US for growth - I don't think anyone is going to win a Nobel prize for that idea anytime soon).
1) Citigroup is looking to cut 50,000 (!!) jobs - It's not clear where these job cuts will come from but 50,000 white collar jobs is another big hit to the economy. Citi remains a giant franchise in disarray and their CEO (Mr. Pandit), seems to have little ability to inspire the troops.
2) Genworth Pulls a Fast One - Genworth and Hartford Financial both figured out a way to steal from the US Taxpayer....... I mean gain access to the TARP. Most people don't know Genworth, but they were the enormous insurance arm of General Electric that sold insurance and financial products. The stock has fallen from $30 a year ago to about $0.90 on Friday. Ah, Congress in with all their financial expertise must have prevented loopholes in the TARP, right?
Hartford Financial agreed to buy a small savings and loan company on Friday, then convert themselves into an S&L and poof! Now they were a DISTRESSED BANK not a distressed insurer and they can get access to the TARP.
Genworth, loved that idea so much they did the same thing over the weekend. It's unclear what Genworth paid to buy Interbank fsb but with just $1 billion in assets, they probably didn't pay very much. The stock has doubled since Friday on this news. So by making a small investment in a midwestern S&L this enormous insurance company now gets access to the TARP.
I'm looking to buy an S&L if anyone has one for sale.........
3) Tech Slowdown - There was a good piece in the NY Times that highlighted many of the issues that I've been hearing. October "was like turning a switch".... pretty accurate.
In the span of just a few weeks, orders for both business and consumer tech products have collapsed, and technology companies have begun laying off workers. The plunge is so severe that some executives are comparing it with the dot-com bust in 2000, when hundreds of companies disappeared and Silicon Valley lost nearly a fifth of its jobs.
October “was like turning a switch,” said Robert Barbera, chief economist at the Investment Technology Group, a research and trading firm. “Everything pretty much shut down.”
Thanks again to the WWNY for hosting me on Friday. I think the video is still online here.
Cheers!
Friday, November 14, 2008
The Markets Seem to Have Dodged the Retail Sales Bullet...
The retail sales data was the worst on record (since the data was collected in 1992) but Mr. Market seems to be holding his own right now.
There have three inflection points in nearly every trading day this month - 10am, 1pm and 3pm. There will be continued talk throughout the day about the G20 meeting and what packages might be announced this weekend, I expect that to lead to a bullish bias today. I'm not optimistic that anything meaningful will arise from this meeting.
Separately, yesterday's wild move got me thinking about intraday swings in the Dow. We have 16 of the 20 largest intraday swings in the Dow this year. Unbelievably the 9 largest intraday swings in the HISTORY of the Dow have occured in the LAST 6 weeks. Historic times.
There have three inflection points in nearly every trading day this month - 10am, 1pm and 3pm. There will be continued talk throughout the day about the G20 meeting and what packages might be announced this weekend, I expect that to lead to a bullish bias today. I'm not optimistic that anything meaningful will arise from this meeting.
Separately, yesterday's wild move got me thinking about intraday swings in the Dow. We have 16 of the 20 largest intraday swings in the Dow this year. Unbelievably the 9 largest intraday swings in the HISTORY of the Dow have occured in the LAST 6 weeks. Historic times.
Thursday, November 13, 2008
Nothing to See Here, Just Another 10% Swing Today....
Well, in fairly short order the market retested the old lows and all the technicians bought stock on command because that is what their models tell them to do. The computer models also forced more buying as stocks ground higher all day. If you'd bought the bottom today you could have made a tidy 10% in a day.
I think people shouldn't underestimate the power of bloggers (real bloggers w/followings measured in hundreds of thousands, not my loyal but sparse readership) that spread the word that they were buying the markets when we tested the bottoms. Many of these bloggers are becoming what CNBC was during the dotcom era - their calls can move markets when they are well telegraphed.
I'll reiterate that healthy markets do not act this, swinging wildly up or down 5-10% a day. If you have access to good charts - check out the NASDAQ in March/April of 2000 when the NASDAW first started its historic breakdown. There were a number of violent swings that mirror the current action on Wall Street.
I think the perfect analogy for the markets right now is that of a fish. Watch a 35" pike sitting calmly in a weed bed and you have a sense for what the markets have been like for the last 80 years. Catch that same pike and pull him up on your dock - that same fish will flail violently as it fights for its life - that's the picture of our markets today.
We'll see if this can continue tomorrow.
On the flip side - the economy seems to be really falling apart at the seems. A quick summary of today's trouble signs.
Layoff’s coming to MTV.COM
Revver.com Has Some Trouble Meeting Payments
Confirmed: Helium.com HUGE Layoff (See CEO Comment)
Confirmed: AdReady.com Laid Off 25% Of Staff
Layoffs Coming To Wired.com (Oh No!)
Confirmed: SixApart.com Laid Off 8% Of Staff
Nordstrom's Sales Fall
I talked with a top-notch software sales guy today that heard a prospect tell him "I'd love to consider your product but buying anything right now is a job-killer". People are in complete lockdown and that's going to eventually be reflected in the valuations on Wall Street. Today's market seems to be pricing in a little 1-3% recessionary contraction, but I'm sensing a huge contraction in 2009 and that is not on any radar.
I think people shouldn't underestimate the power of bloggers (real bloggers w/followings measured in hundreds of thousands, not my loyal but sparse readership) that spread the word that they were buying the markets when we tested the bottoms. Many of these bloggers are becoming what CNBC was during the dotcom era - their calls can move markets when they are well telegraphed.
I'll reiterate that healthy markets do not act this, swinging wildly up or down 5-10% a day. If you have access to good charts - check out the NASDAQ in March/April of 2000 when the NASDAW first started its historic breakdown. There were a number of violent swings that mirror the current action on Wall Street.
I think the perfect analogy for the markets right now is that of a fish. Watch a 35" pike sitting calmly in a weed bed and you have a sense for what the markets have been like for the last 80 years. Catch that same pike and pull him up on your dock - that same fish will flail violently as it fights for its life - that's the picture of our markets today.
We'll see if this can continue tomorrow.
On the flip side - the economy seems to be really falling apart at the seems. A quick summary of today's trouble signs.
Layoff’s coming to MTV.COM
Revver.com Has Some Trouble Meeting Payments
Confirmed: Helium.com HUGE Layoff (See CEO Comment)
Confirmed: AdReady.com Laid Off 25% Of Staff
Layoffs Coming To Wired.com (Oh No!)
Confirmed: SixApart.com Laid Off 8% Of Staff
Nordstrom's Sales Fall
I talked with a top-notch software sales guy today that heard a prospect tell him "I'd love to consider your product but buying anything right now is a job-killer". People are in complete lockdown and that's going to eventually be reflected in the valuations on Wall Street. Today's market seems to be pricing in a little 1-3% recessionary contraction, but I'm sensing a huge contraction in 2009 and that is not on any radar.
Re-test and bounce....
The bears turned bulls were hopeful that today would be the day we retested old lows, so they could get more bullish.
We retested those lows around 1pm and almost immediately you could see the flow turn sharply. There are two theories on the power of crowds. One says if everyone is running in one direction, they must know something and you should jump in. The other theory says they are are all about to run off a cliff.
The fact that everyone is picking the exact same bottoms makes trading this market very easy (just do the opposite of the crowd). These bear market rallies tend to be violent so watch out if this gains steam.
Having said all of this, business in corporate America remains stunningly bad - I'll follow up with some data points later tonight.
We retested those lows around 1pm and almost immediately you could see the flow turn sharply. There are two theories on the power of crowds. One says if everyone is running in one direction, they must know something and you should jump in. The other theory says they are are all about to run off a cliff.
The fact that everyone is picking the exact same bottoms makes trading this market very easy (just do the opposite of the crowd). These bear market rallies tend to be violent so watch out if this gains steam.
Having said all of this, business in corporate America remains stunningly bad - I'll follow up with some data points later tonight.
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