Monday, October 03, 2011

Now it gets interesting

* As I mentioned yesterday, the markets were right on the edge of a technical cliff and if things remained dicey in Europe it could spell trouble.  Well, Europe appears to be a complete mess and that led stocks sharply lower again in the US.  We've now closed below key technical levels for the first time.  In each of the previous sell-offs we've bounced off these levels intraday and closed around 1120 on the S&P 500.  Today was different because we never got that bounce and stocks have continued to sell-off after the close.

I'm a big believer in reviewing an investment's fundamentals and making decisions based on those fundamentals.  However, in Wall Street terms that makes me the guy doing math with an abacus and writing letters in script to be sent via pony express.  Today's market is all about the program traders and the programs are not going to react well to this new data. 

* Also, out tonight Goldman upped their prediction of US recession to 40% but that could have been skewed by the rumor that Goldman employees are going bonus-less this year.  They also predict MORE Fed easing (because clearly that has fixed everything so far) and recessions in both France and Germany.  Good times.

* One of my most visited posts back at the height of the meltdown dealt with the NYS Teachers' Retirement fund holdings that had taken a bath on certain positions.  I predicted at that time that the poor performance of the retirement fund would lead to increased contribution rates for local employers (schools) which would ultimately contribute to local budget crunches.

Well, here we go again.  I took a look at the TRS holdings as of 6/30/11 which included roughly 1,930 stocks in their equity portfolio valued at $41.4 billion.  While the fund has a wide range of holdings (close to 2,000 stocks) the top 25 holdings represent roughly 30% of the total equity holdings or $12.2 billion as of 6/30/11.  A couple of interesting facts assuming nothing has changed since June:

1) Apple is on the verge of becoming the fund's largest holding with a current value of $995 million UP $103 million over the past 3 months while the market has fallen 16%.  ExxonMobil is currently the largest holding in the fund at $1.01 billion but another down day in the market, coupled with the prospect of an Iphone5 launch tomorrow means it's likely Apple will be the top holding by the end of the week.

2) The fund's top 25 holdings have seen their values fall by $1.4 billion since June 30th.  The biggest losers include household names like ExxonMobil (down $145 million), General Electric (down $127 million), JP Morgan ($141 million), Citigroup ($152 million), and Bank of America ($158 million).

Again this is just a snapshot in time and it most likely doesn't represent the actual results (I expect the fund sold some of these shares during the sell-off) but if this trend doesn't reverse districts are likely to be facing rising pension contribution rates again this year which will make the budget process for school districts very challenging next year.


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