Friday, November 30, 2007
As badly as banks performed, technology did a little worse in November. Tech is still playing defense, investors are losing interest after it's rapid runup. The best performing group was non discretionary (i.e. P&G (PG) and Altria (MO) which makes Philip Morris). Away from sexy techs into boring necessities which should weather a slowdown better. The VIX is around 23, down a bit. Over 20 suggests high volatility. Be ready for more bumps in the road.
Some groups have not participated, selling near recent lows. MLPs (master limited partnerships) have been in a 290-310 range for a few months. Today they're up 2 to 297. REITs (real estate) have been hit hard, many offering high yields of 6-10% or more. Junk bond funds investing in speculative quality bonds have been hit hard in the current credit situation. Traditionally their yields are 4 points (400 basis points) above the treasury rate. Now it's easy to find 11% yields, a good 7 points above the 1o year Treasury rate. The last 2 groups especially will be under tax loss selling pressure in the coming weeks. But those yields are getting very nice for those willing to accept the extra risk.
Thursday, November 29, 2007
Federal Reserve Chairman Bernanke tonight hinted another interest rate cut may be needed to bolster the economy. That may add a couple hundred points to the Dow tomorrow. However Dell (DELL) reported earnings after the market close that disappointed investors, causing the stock to sell off 10%. I think tomorrow will be another up day after the hint about a rate cut. Dow futures are already up 75 in overnight (for us) trading. High volatility will continue.
One interesting news item was an oil spill from a pipeline run by Enbridge, one of the master limited partnerships. The MLP index measuring the group fell back 2 to 295, it's flirting with the recent low. That news affected many in the group not to mention helping push oil prices up after the recent pullback.
Wednesday, November 28, 2007
Wednesday's jump was also the biggest one-day percentage gain for the Dow since April 2, 2003. The broader Standard & Poor's 500 index climbed 40.79, or 2.86 percent, to 1,469.02, logging its best two-day point gain since April 19, 2001. The Nasdaq composite index shot up 82.11, or 3.18 percent, to 2,662.91, giving the technology-dominated index its largest two-day point gain since March 4, 2002.
Asian markets are following through, up 1-3% tonight. The dollar strengthened, the yen rose to "only" 110 while the Euro slipped slightly to 1.48+. Dollar's strength probably follows the strong market. Oil fell to around 90, jut a couple weeks ago it was pushing 100. Of course, this remains a high price for our economy to digest.
The market is now overbought, short term buyers who made money will sell to lock in profits. In addition, short sellers may have bought stock back to cover their short sales. Such purchases will not last. This is how volatility works. Stand by for more big swings in the rest of this week.
Tuesday, November 27, 2007
This may be just an oversold rally, let's see how it plays out.
Monday, November 26, 2007
Asian markets followed the lead in NY, down 2-3%. Shanghai at 4900 is down about 20% from over 6000 just a few weeks ago. It looks like uncertainty continues to rule the markets.
Here are 4 AP stories hitting the market today:
(1) A consortium led by Virgin Group, wants to take over Northern Rock, the battered mortgage lender, & wants to re-brand Northern Rock as part of Virgin Money business. The consortium would repay 11 billion pounds ($22.7 billion) of the 25 billion pounds ($50 billion) the Bank of England has loaned Northern Rock on completion of the transaction. The remainder of the money would be paid "in due course," Northern Rock said.
(2) HSBC Holdings (HBC), Europe's largest bank, will bail out two troubled funds it manages by transferring $45 billion of their assets onto its balance sheet. Additionally it will also inject $35 billion into the two funds,
(3) Citigroup (C), bracing for big credit-related losses in the fourth quarter, is looking to lower costs which could mean another round of job cuts at the nation's largest bank.
(4) E-Trade Shares (ETFC) fall after news potential buyers are debating mortgage portfolio's cost.
The retail news after Black Friday was considered "good" but the negative news from the financials is too much for the markets. Uncertainty continues to be the word everybody is talking about, not good. This is shaping up as another tough day as traders can not get uncertainty off their minds..
Sunday, November 25, 2007
Friday, November 23, 2007
Thursday, November 22, 2007
I keep thinking about the weak dollar. The dollar keeps hitting new lows, tough to figure out. The Yen is "up to" 108+, last month it was around 115. Then they said 113 was very high. The Euro is over $1.48. Today, the head of Airbus said they're being hurt very badly by the cheap dollar (planes by Boeing cost less while theirs cost more). That's good for US business but gets complicated in a worldwide economy. Each multinational company will have it's own reaction to the weak dollar as many have divisions in other countries. In the coming months, we will learn more about how US companies are impacted by the weak dollar.
Enjoy today's holiday!
Wednesday, November 21, 2007
Tuesday, November 20, 2007
Tomorrow, last day before the holiday, should be a quiet day. But, all bets are off. VIX (volatility index) is 26, a very high level. Wednesday & Friday may be very volatile. One day, the problem is oil, now at 98 again. The next it's mortgage worries. The next day has reduced forecasts for retail sales. I think the weak dollar is hurting. It's getting difficult to keep track of all the problems.
Countrywide (CFC) was the focus at the end. After the ugly news about the government mortgage agencies (FRE & FNM) earlier, they denied they have bancruptcy problems. I'm looking for another volatile day tomorrow.
Monday, November 19, 2007
I worry about the weaker dollar. The Euro is $1.46 while the Japanese yen is up to 110 (now they're forecasting 100). This is a very complex issue especially for multi nationals since they are affected in many ways. But I'm afraid on balance the weaker dollar hurts the US economy & the stock market.
I remain positive for some banks, housing related issues REITs, MLPs & the Dividend Aristocrats in the S&P 500 index. This remains homework time preparing for better buying opportunities. Remember, Chicken Little didn't prove right.
Sunday, November 18, 2007
I first learned about MLPs (master limited partnerships) only 6 months ago. They are a slightly different type of investment, offering units not shares & paying distributions rather than dividends. Their track record is tracked on the Alerian MLP index (^AMZ at Yahoo Finance):
The last 12 months started off with a major move from 260 (a plateau) to around 335. Then, the index went thru a bumpy flat period followed by a large sell off to around 300 in early August. Since then it's been in the 290-310 zone. In the last couple of weeks, it slipped back, looks like it will test the low again around 290. I like these companies. Demand for building more pipelines in the US seems unlimited in the coming years. Analysts figure growth as yield plus their growth rate. In other words, if the unit yields 6% plus the distribution is expected to grow at a 5% rate, they project investment growth of 11%. The distributions are tax efficient, unfortunately being a limited partner also means a limited amount of tax hassle.In Asia, it's already Mon, their stock markets are mixed. We have a short trading week because of the holiday, but expect high volatility. The Dow looks like it may test the lows of its 13-14K trading range.
Friday, November 16, 2007
Thursday, November 15, 2007
Dow futures are down 30, a very early signal tomorrow may be a another tough day here. Use the time of declining markets for homework, to select good value stocks for investment.
This is good time to mention MLPs (master limited partnerships), a recent favorite of mine. This group has emerged in the last 10 years or so to medium size. The businesses sell units (not shares) and pay distributions. Their distributions provide a good yield (around 6-7%) & are tax free. However, they also represent tax hassle. Income, 10-20% of the distribution, is reported on a K-1 form in March (i.e. late) plus income is divided among the states where it does business. Computer tax packages can handle the numbers, but it does add complications to taxes. As partnerships, they are generally not allowed in IRSs & other retirement accounts. For the venturesome, seeking income & growth, these may be interesting.
I started learning about these about 1/2 a year ago, & like them. Their index is the Alerian MLP index which is 299, up from 100 at the end of 1996. That's a nice run. The comparable index including distributions is about 650, even nicer. There is a lot to learn about these investments, a good place to start is search for:
master limited partnerships primer
A few brokerage firms have excellent 50+ page reports. There is a lot to learn about this area, I will continue discussing it in the future. This read is an alternative to more & more writedowns.
Wednesday, November 14, 2007
Let's see what tomorrow brings.
Tuesday, November 13, 2007
After the big rise in today's US markets, Asian markets are following through with gains of 2-3%. Everybody feels good, or at least now. US futures in Asia are showing little change even though Asian markets are strong.
Monday, November 12, 2007
Two of my favorite stocks are Caterpillar & 3M (a member of S&P's dividend Aristocrats group), multinational Dow stocks which should do well going forward. They have low P/E ratios and decent dividend yields, good stocks to keep in mind if they decline.
Asian markets are mixed but down a little tonight. Tomorrow may be another tough day here.
Sunday, November 11, 2007
NAS stocks were slammed hard late in the week. Meanwhile gold is 835 while oil pushes 100, a price that will bleed thru to economies around the world. Already (Sun evening), Japan, Hong Kong & Korean markets are lower 2-3%`each. The US stocks markets will be open on the semi-holiday of Mon. Get ready for another rough week, keeping in mind that lower prices bring more attractive buying opportunities.
Friday, November 9, 2007
The VIX index (volatility) is up to 28, very high indicating that 1-2% daily moves in the Dow are more likely. While not good or bad, this could keep the nervous types from jumping back in. Look for a bumpy ride again next week.
This morning Merck announced that they will set aside almost $5 billion for Vioxx law suites. That's considered "good" because it allows them to get on with the business & forget the past. OK! Bigger news was that Wachovia took another $1B hit on it's loans in October (note that's just October). The market is getting tired of more ugly stories from the banks. But they will continue for awhile. Chances are most will take a "big bath" in this quarter to "clean" the books making it easier to start the new year fresh. I don't mean to be knocking banks because I like them & their yields. However more tough stories will be coming in coming weeks.
REIT's are down with the rest of the market. There is fear of adverse effects from a slowing economy, but I like the fact they have hard assets (properties) and better ones have excellent track records of paying increasing dividends. Many have high yields, going higher.
The financial news can be depressing in these times and probably will continue for at least a few months. This is the time to study and prepare for buying opportunities, for very smart investing.
Thursday, November 8, 2007
Financials including banks had a fairly mild day. But Washington Mutual yields about 11% and Countrywide is coming under a dark cloud again. Big bank stocks hung in there as sellers finally gave up after 1 EST. It's hard to remember the last time a bank reported good news!
Wednesday, November 7, 2007
I like companies with excellent track records. Despite recent stories, some banks have done well and offer nice dividend yields. REIT's, master limited partnerships (MLPs), and selected stocks offer nice yields which will become even more attractive if the market slips further.
I've liked REIT's (real estate investment trusts) for a long time. Most have moved up nicely since early in the decade. In the past, yields have been 10-12% for higher yielding stocks. Today some offer yields around 7-8% as prices have pulled back this year. Most REITS own properties, typically apartments, malls, shopping centers, offices, etc. many specialize in one area of the country. Large ones are going international, buying properties in Europe, Japan, Mexico, etc. While this is a relatively new business compared with big companies going back over a century, some are able to point to records of 10-20 years. REITS are getting hit by worries in credit markets, but should be examined as ong term investments with nice yields. Good ones will survive rewarding the smart investor.
Tuesday, November 6, 2007
Monday, November 5, 2007
China stocks took a big hit. Petro China after becoming the first trillion dollar company was down 12% on NYSE. I sense they are trying to tell us something which may not be good. Tonight will be a good time to watch Asian markets on cable networks to learn more about their problems, probably related to worries about their business with the US.
Today the stock market started out. Premarket Dow was down 100, but losses have been cut back at midday. Credit worries starting with Citi spread to other major financials & the rest of the market. The advance/decline ratio is over 3-1, not good. This week is shaping up as a tough week for the stock market.
The big news in Asian markets is China, the Shanghai market is near record levels. It's helpful to keep in mind that their investors are not sophisticated, their rapid rise will have it's day of reckoning. Today China stocks on NYSE are down big led by Petro China ADRs, off 10%. Petro China is in the news for becoming the first trillion dollar company. US investors should folow overseas markets to learn how they influence ours.
Asian markets react to their local business there and their exports to countries led by the US. Sub prime problems in the US affect them because their financials have invested in them forcing write-downs like in the US. Keeping an eye on these markets is important for an investor here to be a very smart investor.
Sunday, November 4, 2007
When investing for the long term, the best indication for the long term future is the record of the long term past and referred to as track record. Many companies have track records demonstrating excellent long term growth, some for over 100 years. The easiest measures to follow are sales, EPS and dividends. Now with internet resources available to all, it is easy to get this information.
One excellent guide which is not well known was recently put out by Standard & Poor's. They are probably best know for the S&P 500, an index most people follow which includes 500 of the biggest and best know corporations in the US. A couple of years ago, they came out with a subset which attracted my interest, S&P 500 Dividend Aristocrats. In this elite group are members of the S&P 500 with a track record of “25 consecutive years of increased cash payments based on ex-dividend dates from January1.” Membership is very limited, only 56 qualify (such companies as Exxon, Citgroup and IBM are not included)! Many have paid higher dividends for 30 – 40 or 50+ years, a solid record of long term growth. With these track records for dividends, there is strong indication their growth will continue. But companies are not all equal.
Included are some of the biggest banks, drugs, insurance companies, foods, beverages & retailers, all with different prospects and outlooks. But starting with this list, it should not be difficult to narrow it to a few in which an investor sees continuing high growth rates for the future. S&P 500 Dividend Aristocrats is the type of list I like for getting very smart investing ideas.
As you can tell,I am basically a fundamental person looking at long term trends and values. But I also follow technicals or charts. The Dow had a great run recently, but maxed out in July at 14K. Since then it's had a very bumpy ride with a substantial increase in volatility. The performance of high volatility can be expected to continue as banks are adversely affected by mortgage and bad loan problems, housing in the US market is in a major recession and oil approaches $100 a barrel with implications for higher inflation rates in the future. In addition overseas markets, especially the fast growing Asian ones, run the risk of being adversely affected by a slowdown in the US market. While this does not look like a good time for investing, it is the time to study beaten up industries and stocks to identify which ones will ride out the storm. Bargains are coming, this is the time to prepare for opportunities to buy for very smart investing.