I was out last Friday, so I didn't have the opportunity to comment on the best week we've had in a while. The market was off on Monday (the 9th), but on Tuesday we posted a dramatic recovery, followed by three more up days. 676 points gained on the Dow in four days! That's over 10%!
What sparked the rally? Well, on Tuesday Citigroup announced that they had their best quarter since 2007. As the market took off on this news, I began to get phone calls and e-mails laced with incredulity. That's it? That's all it took? We've been living through all this, and one company, one that's been struggling to stay afloat, that's fallen from over $27 to under a buck in the last year, says that they're having a not-so-bad quarter, and the market takes off? Moreover, it required an influx of BILLIONS of dollars of Federal money and outside investor capital to do it, and the market thinks that's great?!?
Not quite. The market was way oversold. Like, oversold to epic proportions. All we needed was a spark to start the fire, and the one little piece of good (or maybe just not-so-bad) news was the spark. After a slight breather early this week, the market climbed as high as 7,571. That's over 1,000 points in 7 trading days. Granted, once we hit that high of 7,571, the market has trended back down for the past two days. And we haven't been living without intraday volatility either. Regardless, we ended up for the week for the second week in a row. I don't know how long it's been since I could say that.
We're not out of the woods though. The economy is still struggling, and likely to be weak for some time. It will likely look darker still in a few months. Which begs the question: "If we think the economy is going to remain weak, and will probably look even weaker in the near future, is now the time to sell?" In a word: No. Now is the time to posture a portfolio for the coming recovery. Stocks may get cheaper in the short run, but figuring out where that bottom is will only be done in hindsight. In the long run, this is probably one of the best opportunities to buy stocks that any of us will ever see. I'm not saying to push all your chips to the middle of the table and go all in, but that there are opportunities everywhere to buy great companies while they're on sale. This is the stock up sale, and it's not the generic canned beans on aisle 5. It's the good stuff. The stuff we wouldn't ordinarily buy because it's always too expensive.
It may be scary to be investing when the conventional wisdom says that the stock market is a losing proposition, but I've found that conventional wisdom is rarely wise. Most investors underperform the market because they are only comfortable buying in when it's at its high, and don't want anything to do with it when it's at the lows.
Friday, March 20, 2009
Friday, March 6, 2009
Another week, another 7%, BUT...
As awful as last fall was in the market, I truly am more frustrated by the current environment. The market continues to drift downward, dragging everything with it. I can understand the financials being hit (Citigroup is now a penny stock!). I can understand the autos being hit (GM is at 75 year lows). I can understand economically sensitive sectors being hit (homebuilders, luxury goods, etc). But solid companies that continue to earn money are falling right along side of them. Why? It's not because they are bad companies, or that people are panicking and selling out. It's simply because there are no buyers.
The economy continues to languish, with no end in sight. Our representatives in Washington keep coming up with more ways to spend our money. So what do people do in times of uncertainty? They hoard cash. Never mind that the best return they can hope for is barely above zero (at least it's positive!). The cash hoarding will continue until there is a catalyst that entices investment. What might that be?
Positive news of any kind would be a GREAT catalyst, but I don't see anything on the horizon. Lately any news that has been less bad than expected has had at least momentary positive effect. I would suspect that simple exhaustion might give us some upside, or at least a relief rally. By this I mean that investors simply get frustrated earning 0.20% on their cash and begin thinking that stocks selling for less than the value of their assets look awfully attractive.
At present, (many) stocks look as cheap as they ever have. There is tremendous value in a lot of these companies, and it is being ignored out of fear and frustration.
And now for a little good news: despite being down about 7% for the week, both the Dow and the S&P 500 closed up today, with the Dow climbing roughly 150 points in the last half hour of the day. That may be pretty significant, as most traders do not like to be exposed going into a weekend.
The economy continues to languish, with no end in sight. Our representatives in Washington keep coming up with more ways to spend our money. So what do people do in times of uncertainty? They hoard cash. Never mind that the best return they can hope for is barely above zero (at least it's positive!). The cash hoarding will continue until there is a catalyst that entices investment. What might that be?
Positive news of any kind would be a GREAT catalyst, but I don't see anything on the horizon. Lately any news that has been less bad than expected has had at least momentary positive effect. I would suspect that simple exhaustion might give us some upside, or at least a relief rally. By this I mean that investors simply get frustrated earning 0.20% on their cash and begin thinking that stocks selling for less than the value of their assets look awfully attractive.
At present, (many) stocks look as cheap as they ever have. There is tremendous value in a lot of these companies, and it is being ignored out of fear and frustration.
And now for a little good news: despite being down about 7% for the week, both the Dow and the S&P 500 closed up today, with the Dow climbing roughly 150 points in the last half hour of the day. That may be pretty significant, as most traders do not like to be exposed going into a weekend.
Friday, February 27, 2009
Washington makes me worry.
Last week Obama unveiled his spending plan, which turned out to be (surprise!) full of pork. This week he made it worse, rolling out a budget that increases taxes significantly, and reduces the value of deductions for mortgage interest and charitable contributions (which effectively raises taxes even more). There has yet to be a pronouncement from his administration that has had a positive impact on the markets.
The market continues to search for something to spark a turnaround, but Washington is not providing it. This morning it was announced that the government investment in Citigroup would be converted into common stock. Citigroup stock is down 37% on that news. That's 37% for the day. Other financial services companies were also battered by the news, with Bank of America falling about 25% today, and AIG, which within the last 12 months traded as high as $52, selling for about 43 cents a share. GE slashed its dividend to 10 cents a share from 34 cents. This was somewhat expected, and market reaction to the news has been relatively uneventful (the stock was already trading down prior to the announcement).
The biggest drag on the market today was the revision of the GDP numbers for the fourth quarter of 2008. While a downward revision was expected, the number came in much worse than predicted. The decline in GDP was the worst since the beginning of 1982.
Given all the above, why on earth would anyone want to buy stocks? The reality is that because of all the above, now is one of the best times I've ever seen to buy stocks. Stocks are cheap. Might they get cheaper? Sure. But that does not negate the fact that they are cheap now. Granted, not every company is worth owning. I wouldn't want to buy any financial services company right now. Is there money to be made in financial services stocks? I'm sure there is, but the risk in those stocks is incredibly high. The payoff may be astronomical, but I'd much rather invest in something with significantly less risk and a more predictable outcome.
Companies are still making money. People are still buying burgers, putting gas in their cars, drinking soda, taking prescriptions, using personal care products (toothpaste, soap, deodorant, etc.), and unless you raise your own vegetables, mill your own flour, and butcher your own meat, you're probably still going to the grocery store. There is a level of economic activity that is required just to meet the needs of daily life. That level of economic activity results in additional economic activity. All of that economic activity has a value, and I believe its value is higher than that being assigned by current stock market valuations.
The market continues to search for something to spark a turnaround, but Washington is not providing it. This morning it was announced that the government investment in Citigroup would be converted into common stock. Citigroup stock is down 37% on that news. That's 37% for the day. Other financial services companies were also battered by the news, with Bank of America falling about 25% today, and AIG, which within the last 12 months traded as high as $52, selling for about 43 cents a share. GE slashed its dividend to 10 cents a share from 34 cents. This was somewhat expected, and market reaction to the news has been relatively uneventful (the stock was already trading down prior to the announcement).
The biggest drag on the market today was the revision of the GDP numbers for the fourth quarter of 2008. While a downward revision was expected, the number came in much worse than predicted. The decline in GDP was the worst since the beginning of 1982.
Given all the above, why on earth would anyone want to buy stocks? The reality is that because of all the above, now is one of the best times I've ever seen to buy stocks. Stocks are cheap. Might they get cheaper? Sure. But that does not negate the fact that they are cheap now. Granted, not every company is worth owning. I wouldn't want to buy any financial services company right now. Is there money to be made in financial services stocks? I'm sure there is, but the risk in those stocks is incredibly high. The payoff may be astronomical, but I'd much rather invest in something with significantly less risk and a more predictable outcome.
Companies are still making money. People are still buying burgers, putting gas in their cars, drinking soda, taking prescriptions, using personal care products (toothpaste, soap, deodorant, etc.), and unless you raise your own vegetables, mill your own flour, and butcher your own meat, you're probably still going to the grocery store. There is a level of economic activity that is required just to meet the needs of daily life. That level of economic activity results in additional economic activity. All of that economic activity has a value, and I believe its value is higher than that being assigned by current stock market valuations.
Friday, February 20, 2009
No Confidence.
The market delivered a resounding vote of "no confidence" this week. Obama signed the spending bill on Tuesday, and the market did not respond with any enthusiasm. As I write this, the Dow Jones Industrial Average is down 5.8% for the week. For the past fifteen minutes, however, it has been struggling to end the day on a positive note.
The spending bill (note that I'm not calling it the "stimulus") is just that: government spending. As we reviewed a synopsis of the provisions, we could not help shaking our heads in dismay. It really is just a laundry list of items on which some segments in the government have wanted to spend money for years. They just needed an excuse to push things through, and what better than "economic stimulus"? Adding billions, perhaps trillions of dollars to the expenditure side of the government budget in the name of "stimulus" is not prudent management of our money. There is a very real cost to this plan.
This week's market decline is not solely attributable to the spending bill. There is a cloud of fear hanging over the market that the government is going to nationalize one or more of the big banks. If that occurs, expect a very distraught stock market. Nationalization is essentially the government taking ownership out of the hands of individuals - equity will be wiped out, the value owned by shareholders will become zero.
The market continues to sort out the realities of the current economic environment. The activity in the market this week did not look to me like a panic sell off, but rather just a lack of interest on the part of buyers. Remember, for every person selling a stock, someone else has to take the position of the buyer. When buyers are hesitant, prices come down, and continue to fall until they are low enough to spark interest. We started getting more interested earlier in the week, and began a little bit of targeted buying. As we see opportunities, we will continue to increase equity exposure in a calculated manner. Stocks look cheap, but volatility will be with us for a while.
The spending bill (note that I'm not calling it the "stimulus") is just that: government spending. As we reviewed a synopsis of the provisions, we could not help shaking our heads in dismay. It really is just a laundry list of items on which some segments in the government have wanted to spend money for years. They just needed an excuse to push things through, and what better than "economic stimulus"? Adding billions, perhaps trillions of dollars to the expenditure side of the government budget in the name of "stimulus" is not prudent management of our money. There is a very real cost to this plan.
This week's market decline is not solely attributable to the spending bill. There is a cloud of fear hanging over the market that the government is going to nationalize one or more of the big banks. If that occurs, expect a very distraught stock market. Nationalization is essentially the government taking ownership out of the hands of individuals - equity will be wiped out, the value owned by shareholders will become zero.
The market continues to sort out the realities of the current economic environment. The activity in the market this week did not look to me like a panic sell off, but rather just a lack of interest on the part of buyers. Remember, for every person selling a stock, someone else has to take the position of the buyer. When buyers are hesitant, prices come down, and continue to fall until they are low enough to spark interest. We started getting more interested earlier in the week, and began a little bit of targeted buying. As we see opportunities, we will continue to increase equity exposure in a calculated manner. Stocks look cheap, but volatility will be with us for a while.
Friday, February 13, 2009
The market really dislikes uncertainty.
Tell me what you're going to do, and I can plan for it. If it's something that is going to have a negative effect, I won't necessarily like it, but at least I know that I can plan for it. If you tell me that you're going to do "something", but won't elaborate, then you make me nervous.
And that's what occurred this week. On Tuesday Timothy Geithner, the new Treasury Secretary, gave a rather lengthy speech in which he essentially said.... nothing. The outcome of his speech was a roughly 4% drop in the market. I believe it would have been better if he hadn't given a speech at all.
We've also got this stimulus package that got voted on today that cannot help but be laden with pork. The last report I heard stated that it was over 1,000 pages long, spends close to $800 billion, and was not delivered to those voting on it until midnight last night. It will be "interesting" to see what all is in it. It's a shame that no one had time to read the thing before voting on it!
We need a stimulus package, but I don't have high hopes for the one they voted on today. I fully expect that the economy will recover, don't get me wrong. But I fear the spending that is likely built into this bill (I obviously haven't read it yet!). This spending must be paid for somehow, and it will end up getting paid for by you, me, our kids, grandkids, and possibly even their grandkids (a bit of hyperbole here, but you get the point).
The economy showed some signs of life, with an unexpected pickup in retail sales last month. I wouldn't get too excited about that though - one month's numbers do not a trend foretell. I expect that unemployment (currently at 7.6%) will continue to rise for a while. Things may well feel worse than they do now, and the general mood may become even more pessimistic. That should be expected as we head toward an eventual recovery.
Once the mood has begun to change, it will likely be too late to begin buying stocks. The market generally turns in advance of the economic recovery, and as such we believe that investors should be increasing exposure to equities. It may not be comfortable doing so, as we expect that the volatility will continue for some time, but this may prove to be the best opportunity to invest in decades.
And that's what occurred this week. On Tuesday Timothy Geithner, the new Treasury Secretary, gave a rather lengthy speech in which he essentially said.... nothing. The outcome of his speech was a roughly 4% drop in the market. I believe it would have been better if he hadn't given a speech at all.
We've also got this stimulus package that got voted on today that cannot help but be laden with pork. The last report I heard stated that it was over 1,000 pages long, spends close to $800 billion, and was not delivered to those voting on it until midnight last night. It will be "interesting" to see what all is in it. It's a shame that no one had time to read the thing before voting on it!
We need a stimulus package, but I don't have high hopes for the one they voted on today. I fully expect that the economy will recover, don't get me wrong. But I fear the spending that is likely built into this bill (I obviously haven't read it yet!). This spending must be paid for somehow, and it will end up getting paid for by you, me, our kids, grandkids, and possibly even their grandkids (a bit of hyperbole here, but you get the point).
The economy showed some signs of life, with an unexpected pickup in retail sales last month. I wouldn't get too excited about that though - one month's numbers do not a trend foretell. I expect that unemployment (currently at 7.6%) will continue to rise for a while. Things may well feel worse than they do now, and the general mood may become even more pessimistic. That should be expected as we head toward an eventual recovery.
Once the mood has begun to change, it will likely be too late to begin buying stocks. The market generally turns in advance of the economic recovery, and as such we believe that investors should be increasing exposure to equities. It may not be comfortable doing so, as we expect that the volatility will continue for some time, but this may prove to be the best opportunity to invest in decades.
Friday, January 23, 2009
The Inauguration is Behind Us
On Tuesday, the world paused for a few hours to celebrate the inauguration of Barack Obama. Regardless of one's political leanings, it was a momentous event and an unrivaled spectacle.
For weeks, some had been saying "the market will take off during the inauguration". I was one who suspected that the hype surrounding the event might be self-fulfilling, driving the market up (at least temporarily), but even the historic event did not help the market this week. The reality of the economy and its effects on company earnings weighed on stock prices all week long.
The market was closed in observation of Martin Luther King, Jr.'s birthday on Monday, and trading was pretty slow during the hours leading up to the inauguration. We speculated that many had put trading on the back burner in order to watch the events in Washington, at least on TV (or internet feed, as the case may be). But almost as soon as Obama's speech was finished, the market came unglued, with the Dow falling over 4% for the day by the time the market closed.
I can only imagine what's been running through his head as he completes his first week as President. He inherited an economic mess, and one that took many years, several political administrations, and a lot of fiscal mismanagement at all levels from government to individual to get to the state it's in. Can he fix it? No. No one man can fix what's wrong with the system. The only thing he can do is put forth good ideas for Congress to deliberate, and wield the veto pen against bad ideas that Congress sends to his desk.
So how do we fix it? I believe the first step is to recognize the excesses of the recent (and not so recent) past. Spending at all levels of government is out of hand. But the blame cannot be pinned on the government alone, nor can the government alone be responsible for the recovery. In general, Americans spend far more than they earn at a personal level. That is not sustainable, and the results of exhuberant consumerism have come home to roost. We need to learn to live within our means. As we do this, we have to recognize that we all helped get the system into the mess it's in, and we're all going to have to play a part in getting it back out.
For weeks, some had been saying "the market will take off during the inauguration". I was one who suspected that the hype surrounding the event might be self-fulfilling, driving the market up (at least temporarily), but even the historic event did not help the market this week. The reality of the economy and its effects on company earnings weighed on stock prices all week long.
The market was closed in observation of Martin Luther King, Jr.'s birthday on Monday, and trading was pretty slow during the hours leading up to the inauguration. We speculated that many had put trading on the back burner in order to watch the events in Washington, at least on TV (or internet feed, as the case may be). But almost as soon as Obama's speech was finished, the market came unglued, with the Dow falling over 4% for the day by the time the market closed.
I can only imagine what's been running through his head as he completes his first week as President. He inherited an economic mess, and one that took many years, several political administrations, and a lot of fiscal mismanagement at all levels from government to individual to get to the state it's in. Can he fix it? No. No one man can fix what's wrong with the system. The only thing he can do is put forth good ideas for Congress to deliberate, and wield the veto pen against bad ideas that Congress sends to his desk.
So how do we fix it? I believe the first step is to recognize the excesses of the recent (and not so recent) past. Spending at all levels of government is out of hand. But the blame cannot be pinned on the government alone, nor can the government alone be responsible for the recovery. In general, Americans spend far more than they earn at a personal level. That is not sustainable, and the results of exhuberant consumerism have come home to roost. We need to learn to live within our means. As we do this, we have to recognize that we all helped get the system into the mess it's in, and we're all going to have to play a part in getting it back out.
Friday, January 16, 2009
Calm, cool, and collected...
That's how Chesley "Sulley" Sullenberger, the pilot that landed US Airways Flight 1549 was described in one report today. Sulley's plane was crippled after it flew into a flock of geese while en route from New York to Charlotte. The cool-headed pilot averted a complete disaster, landing the plane in the Hudson River, avoiding a deadly crash in a populated area, and assisted in the successful evacuation of all 153 passengers and crew safely from the plane. Reports state that he was the last to leave the sinking airliner, after twice searching every row of the cabin to assure that no one was left on board.
The above obviously has nothing to do with the financial markets, but I believe that Sulley's story is appropriate for this week's blog entry. It's a reminder of what can be done when those in charge take their responsibilities to heart without regard for their personal outcome. Unavoidable disasters can be survived, and the actions taken can serve as reminders for "the way it should be".
The financial markets have been in their own version of a crippled flight for the past several months. Our pilot and co-pilot, Hank Paulson and Ben Bernanke, are trying to safely land the plane and get everyone to safety. But it seems that instead of helping us into the lifeboats, Congress has been intent on putting hurdles in the way, pointing fingers at the pilots, and trying to snatch a couple extra packets of peanuts for themselves on their way out of the plane. However, it seems that in the past few weeks they've finally come to the conclusion that they are going down with the plane if they don't start helping out.
I am pleased that the finger-pointing is decreasing, and the attempts to get things fixed are seemingly more constructive, rather than mere political ploys. That said, I am concerned about the eventual outcome. As I stated in the last entry, all this will have to be paid for somehow, and it isn't going to be comfortable when that happens.
The markets spent this week paying attention to earnings. Alcoa is the traditional lead-off man in earnings season, and often sets a psychological tone for the markets as earning season begins. And the tone set was not pretty. As companies have begun announcing their fourth quarter and full year 2008 earnings, the results have been pretty bleak. The estimates for the coming year are being reined in (predictably), and in some cases company management is choosing not to divulge their expectations for the coming year. In the latter cases, my presumption is that they just cannot foresee just how things are going to play out in an economy as weak as this one may become.
That said, we are seeing more value out there now than we have in years. We are slowly re-entering the market, and will be adding to equity positions over the coming weeks and months. We do not expect a rapid recovery in the broad market, but rather somewhat range-bound trading for the foreseeable future.
The above obviously has nothing to do with the financial markets, but I believe that Sulley's story is appropriate for this week's blog entry. It's a reminder of what can be done when those in charge take their responsibilities to heart without regard for their personal outcome. Unavoidable disasters can be survived, and the actions taken can serve as reminders for "the way it should be".
The financial markets have been in their own version of a crippled flight for the past several months. Our pilot and co-pilot, Hank Paulson and Ben Bernanke, are trying to safely land the plane and get everyone to safety. But it seems that instead of helping us into the lifeboats, Congress has been intent on putting hurdles in the way, pointing fingers at the pilots, and trying to snatch a couple extra packets of peanuts for themselves on their way out of the plane. However, it seems that in the past few weeks they've finally come to the conclusion that they are going down with the plane if they don't start helping out.
I am pleased that the finger-pointing is decreasing, and the attempts to get things fixed are seemingly more constructive, rather than mere political ploys. That said, I am concerned about the eventual outcome. As I stated in the last entry, all this will have to be paid for somehow, and it isn't going to be comfortable when that happens.
The markets spent this week paying attention to earnings. Alcoa is the traditional lead-off man in earnings season, and often sets a psychological tone for the markets as earning season begins. And the tone set was not pretty. As companies have begun announcing their fourth quarter and full year 2008 earnings, the results have been pretty bleak. The estimates for the coming year are being reined in (predictably), and in some cases company management is choosing not to divulge their expectations for the coming year. In the latter cases, my presumption is that they just cannot foresee just how things are going to play out in an economy as weak as this one may become.
That said, we are seeing more value out there now than we have in years. We are slowly re-entering the market, and will be adding to equity positions over the coming weeks and months. We do not expect a rapid recovery in the broad market, but rather somewhat range-bound trading for the foreseeable future.
Friday, January 9, 2009
Trading volume is back to normal
Trading in the past two weeks was pretty light, and as I said last week, the action was not something that could be relied upon as an indicator of investor sentiment. This week things got back to normal, at least in terms of trading activity. And the result was a bit less exhuberant than many were hoping for.
The Dow was down almost every day this week, declining 4.8%. Although this is a bad start to the new year, I see some positives in the underlying activity. While the broad market has declined, we are seeing mixed results in individual names. Looking back over the past few months, company specific news didn't matter - even good news would result in a selloff. Investors were viewing good news as opportunity to get out of a stock, resulting in plummeting prices for companies that were doing just fine.
It appears that the situation is changing a bit, and investors are beginning to pay attention once again to what is going on with specific companies. Good news is once again driving stock prices up instead of being viewed as opportunity to sell. I believe this is a positive sign for the markets - investors are beginning to behave more rationally.
The economy continues to weaken, but it is as we expected. The economy still has some challenges in the coming months, as we saw today with the unemployment report coming in at 7.2%. I would not be surprised to see 8% or higher in the next couple of months.
That said, we believe that much of the "shock" is behind us. The general feeling is "we all know it's bad, let's get on with it". And that is a good sign. People aren't looking to lay blame anymore, but rather to find a solution. When the focus is on solution rather than mere survival, things are more likely to begin to normalize and turn back toward the positive.
Given the above, we believe that it is time to start re-building portfolios. We began slowly adding equity exposure over the past month, and will continue to do so over the next several months. We remain cautious, as there are a number of challenges to overcome, but we are more optimistic regarding equities than we have been for the past few months.
The Dow was down almost every day this week, declining 4.8%. Although this is a bad start to the new year, I see some positives in the underlying activity. While the broad market has declined, we are seeing mixed results in individual names. Looking back over the past few months, company specific news didn't matter - even good news would result in a selloff. Investors were viewing good news as opportunity to get out of a stock, resulting in plummeting prices for companies that were doing just fine.
It appears that the situation is changing a bit, and investors are beginning to pay attention once again to what is going on with specific companies. Good news is once again driving stock prices up instead of being viewed as opportunity to sell. I believe this is a positive sign for the markets - investors are beginning to behave more rationally.
The economy continues to weaken, but it is as we expected. The economy still has some challenges in the coming months, as we saw today with the unemployment report coming in at 7.2%. I would not be surprised to see 8% or higher in the next couple of months.
That said, we believe that much of the "shock" is behind us. The general feeling is "we all know it's bad, let's get on with it". And that is a good sign. People aren't looking to lay blame anymore, but rather to find a solution. When the focus is on solution rather than mere survival, things are more likely to begin to normalize and turn back toward the positive.
Given the above, we believe that it is time to start re-building portfolios. We began slowly adding equity exposure over the past month, and will continue to do so over the next several months. We remain cautious, as there are a number of challenges to overcome, but we are more optimistic regarding equities than we have been for the past few months.
Friday, January 2, 2009
And we start the new year with a BANG!
Today was the first trading day of the year. If it's any indication of how the rest of the year will go, then things look bright! The Dow Jones Industrial Average closed up 258 points, or 2.9%. The first trading day put the market over 9,000 again for the first time since November 5th. But I wouldn't count on this great start as an indicator...
The first trading day of 2009 fell on a Friday, after a holiday, during a week of vacation for many people. Trading has been really light for the past two weeks. With Christmas Eve on a Wednesday, Christmas on Thursday, New Year's Eve the following Wednesday and New Year's Day yesterday, the trading activity has not been something that anyone should look to for an indication of sentiment or a precursor of what's to come.
But there has been some good news. Mortgage applications are at their highest level in two years. That doesn't mean that all those applications are being accepted, but it does point to some activity in the housing market. Although I believe housing prices may have a bit further to fall, the uptick in mortgage applications may be a sign of some coming relief.
The coming year is going to be challenging economically for the US as a nation, and for the global economy as a whole. We are likely to see increased unemployment, slowed earnings growth, and further corporate bankruptcies. We will eventually come out of this recession, but when we do, I would not expect rapid economic expansion. There will be a number of ongoing challenges related to the financing of the bailouts, and my guess is we are going to see higher tax rates, not just for the "wealthy", but also reaching back down the income ladder to the middle class.
The first trading day of 2009 fell on a Friday, after a holiday, during a week of vacation for many people. Trading has been really light for the past two weeks. With Christmas Eve on a Wednesday, Christmas on Thursday, New Year's Eve the following Wednesday and New Year's Day yesterday, the trading activity has not been something that anyone should look to for an indication of sentiment or a precursor of what's to come.
But there has been some good news. Mortgage applications are at their highest level in two years. That doesn't mean that all those applications are being accepted, but it does point to some activity in the housing market. Although I believe housing prices may have a bit further to fall, the uptick in mortgage applications may be a sign of some coming relief.
The coming year is going to be challenging economically for the US as a nation, and for the global economy as a whole. We are likely to see increased unemployment, slowed earnings growth, and further corporate bankruptcies. We will eventually come out of this recession, but when we do, I would not expect rapid economic expansion. There will be a number of ongoing challenges related to the financing of the bailouts, and my guess is we are going to see higher tax rates, not just for the "wealthy", but also reaching back down the income ladder to the middle class.
Friday, December 19, 2008
Surprises, bailouts, and the future costs
For all that happened this week, the market ended relatively unchanged. On Tuesday, the Fed cut rates (again, surprise, surprise), from 1% to a range of 0 - 0.25%. Okay, so the cut wasn't a surprise, but the scale of it surely surprised me. Going into Tuesday, all the talk was that they would cut by 50 basis points. That in itself would have been big, slashing rates in half. But dropping it all the way to zero....
The stock market reacted very positively out of the box, skyrocketing 360 points to end the day up 4.2%. But it didn't last. Ongoing arguments about auto maker bailouts, TARP overhauls, general unrest and distrust in Washington, and other "noise" combined to take away all of Tuesday's gains over the successive 3 trading sessions. The week ended down, albeit very slightly (about 50 points on the Dow).
Inflationary pressures are easing, with overall US consumer prices showing a record decline for the second month in a row. Energy prices are obviously a big part of that, with gasoline in most parts of the country now selling below $2 per gallon. In fact, the price of gasoline declined 29.5% in November alone. Core CPI, which tracks changes in consumer prices without food & energy, was unchanged last month for the first time in 25 years (according to the Wall St. Journal).
The auto maker bailout looks like it is going to happen. This afternoon the White House announced a $17.4 billion package for Chrysler and GM. Ford has stated that it does not need short-term assistance. However, the deal requires that the companies show that they are "viable" by March 31st. If they cannot, the loans are immediately called and the funds must be returned. I would not expect that this is the end of the auto maker discussions. Much, if not all, is going to be left to the incoming administration to work through.
The government is doing what it deems necessary to prevent further economic erosion. And much of what is being done is indeed necessary, both psychologically and financially. The issue we have with it is that at some point the tap must be shut off (but when?), and more importantly, the bill is going to have to be paid (but by whom?). Paying for what has been done is not likely to be easy. It will likely result in higher taxes, not just for "the wealthy", but across the board. Moreover, the drag of taxation and the expense of the government's current activities could weigh on the economy for some time to come.
If you have any questions, feel free to contact me at nsnodgrass@evanstonadvisors.com
The stock market reacted very positively out of the box, skyrocketing 360 points to end the day up 4.2%. But it didn't last. Ongoing arguments about auto maker bailouts, TARP overhauls, general unrest and distrust in Washington, and other "noise" combined to take away all of Tuesday's gains over the successive 3 trading sessions. The week ended down, albeit very slightly (about 50 points on the Dow).
Inflationary pressures are easing, with overall US consumer prices showing a record decline for the second month in a row. Energy prices are obviously a big part of that, with gasoline in most parts of the country now selling below $2 per gallon. In fact, the price of gasoline declined 29.5% in November alone. Core CPI, which tracks changes in consumer prices without food & energy, was unchanged last month for the first time in 25 years (according to the Wall St. Journal).
The auto maker bailout looks like it is going to happen. This afternoon the White House announced a $17.4 billion package for Chrysler and GM. Ford has stated that it does not need short-term assistance. However, the deal requires that the companies show that they are "viable" by March 31st. If they cannot, the loans are immediately called and the funds must be returned. I would not expect that this is the end of the auto maker discussions. Much, if not all, is going to be left to the incoming administration to work through.
The government is doing what it deems necessary to prevent further economic erosion. And much of what is being done is indeed necessary, both psychologically and financially. The issue we have with it is that at some point the tap must be shut off (but when?), and more importantly, the bill is going to have to be paid (but by whom?). Paying for what has been done is not likely to be easy. It will likely result in higher taxes, not just for "the wealthy", but across the board. Moreover, the drag of taxation and the expense of the government's current activities could weigh on the economy for some time to come.
If you have any questions, feel free to contact me at nsnodgrass@evanstonadvisors.com
Friday, December 5, 2008
Normal is being redefined
This was a week that could have been worse, given all the data that came out. Sure, we had a rough day on Monday, with the Dow giving up 680 points, but with all the negative information coming into the market this week, I see the relative lack of volatility (well, relative to recent history at least!), as a somewhat positive sign.
And here's an even more positive sign. When I logged on to the online version of the Wall St. Journal today, the highlighted headline wasn't about the jobs data (533,000 fewer jobs in November, the highest job losses since 1974). The focus article wasn't about Chrysler hiring bankruptcy counsel (they did), the arguments over a proposed auto industry bailout, or even anything regarding finance or economics. The title of the article? "How Southern Football Reflects Nation's Shift".
Which brings me to the topic of this week's blog posting. "Normal" is being redefined. In discussion with a number of clients we've explored this idea, and the more I see articles like the one referenced above, the more I believe that the concept of what is "normal" is changing. The realignment of expectations is occurring faster than I expected. What I mean by this is that what was previously considered "out of the norm" is now considered almost commonplace. For example, the Dow Jones Industrial Average climbed 259 points today, representing a 3.1% move. Six months ago that would have been newsworthy. In the first eight months of 2008, only 5 trading days had moves of 3% or more. Since September 15th, we've had 31 that met that qualification (more than half of the trading days).
And people aren't just readjusting "normal" in terms of the market. People are becoming accustomed to the idea of one of the weakest economic cycles we've seen in years. They don't like it, but they're becoming used to the idea. A month or so ago, the fear of how bad it might get caused people to panic. Today, people still aren't comfortable, but the fear has largely been replaced by a sense of "well, it's coming, I can't avoid it, so I'll just have to deal with it".
In some ways, this is healthy. Dealing with it changes habits. The lavish night out with the spouse may have occurred more frequently last year, but given the current environment, frugality is more common. Spending habits get changed, credit gets used less, or at least more judiciously. This is the healthy part, at least for the individual. For the economy, it makes things worse, at least in the short run. My reduction in spending is someone else's reduction in income.
So where does this realignment take us? Toward an end to the mess. Maybe not quickly, maybe not without bumps along the way, but it gets us closer to the end. When the volatility is presumed to be normal, then eventually the fear subsides, the emotion is quelled, and eventually, the volatility itself will be lessened. I've been wishing for a series of 50 point days back to back - when we see those, I believe we can begin looking for the old norms to come back into the market.
But in the meantime, I suggest taking a look at what "normal" means to you. Have you changed your concept of "normal"? Are you doing it inadvertently, or is it something you are purposely doing in reaction to the current environment?
We welcome your comments and questions. Please feel free to contact me at nsnodgrass@evanstonadvisors.com
And here's an even more positive sign. When I logged on to the online version of the Wall St. Journal today, the highlighted headline wasn't about the jobs data (533,000 fewer jobs in November, the highest job losses since 1974). The focus article wasn't about Chrysler hiring bankruptcy counsel (they did), the arguments over a proposed auto industry bailout, or even anything regarding finance or economics. The title of the article? "How Southern Football Reflects Nation's Shift".
Which brings me to the topic of this week's blog posting. "Normal" is being redefined. In discussion with a number of clients we've explored this idea, and the more I see articles like the one referenced above, the more I believe that the concept of what is "normal" is changing. The realignment of expectations is occurring faster than I expected. What I mean by this is that what was previously considered "out of the norm" is now considered almost commonplace. For example, the Dow Jones Industrial Average climbed 259 points today, representing a 3.1% move. Six months ago that would have been newsworthy. In the first eight months of 2008, only 5 trading days had moves of 3% or more. Since September 15th, we've had 31 that met that qualification (more than half of the trading days).
And people aren't just readjusting "normal" in terms of the market. People are becoming accustomed to the idea of one of the weakest economic cycles we've seen in years. They don't like it, but they're becoming used to the idea. A month or so ago, the fear of how bad it might get caused people to panic. Today, people still aren't comfortable, but the fear has largely been replaced by a sense of "well, it's coming, I can't avoid it, so I'll just have to deal with it".
In some ways, this is healthy. Dealing with it changes habits. The lavish night out with the spouse may have occurred more frequently last year, but given the current environment, frugality is more common. Spending habits get changed, credit gets used less, or at least more judiciously. This is the healthy part, at least for the individual. For the economy, it makes things worse, at least in the short run. My reduction in spending is someone else's reduction in income.
So where does this realignment take us? Toward an end to the mess. Maybe not quickly, maybe not without bumps along the way, but it gets us closer to the end. When the volatility is presumed to be normal, then eventually the fear subsides, the emotion is quelled, and eventually, the volatility itself will be lessened. I've been wishing for a series of 50 point days back to back - when we see those, I believe we can begin looking for the old norms to come back into the market.
But in the meantime, I suggest taking a look at what "normal" means to you. Have you changed your concept of "normal"? Are you doing it inadvertently, or is it something you are purposely doing in reaction to the current environment?
We welcome your comments and questions. Please feel free to contact me at nsnodgrass@evanstonadvisors.com
Wednesday, November 26, 2008
A Week to be Thankful for
The mood on The Street has been a bit more upbeat this week. The S&P 500 has advanced 20% since last Friday's bottom ending with the first four day up-streak since April. Much of this holiday glee has been attributed to another $800 billion aid package from the U.S. Government.
The Fed plans to purchase up to $600 billion of debt issued or backed by Fannie, Freddie, Ginnie Mae and the Federal Home Loan Banks. In addition, with the help of the Treasury, the Fed may provide up to $200 billion in financing to investors purchasing securities related to student loans, credit-card debt, car loans and small-business loans. The hope is that this will not only provide additional liquidity to these areas, but also indirectly lower mortgage rates and help put a spark back in the housing market.
A real test of this new found optimism may be retail sales estimates from the upcoming Black Friday. This will be used as a barometer to gauge the success of the holiday shopping season. Given the resilience the market has shown this week and the already bearish estimates for Friday, even a modest showing from shoppers may giver further legs to the market's recent gains.
We wish you and your family a happy Thanksgiving. As always, feel free to contact us with any questions or concerns.
Sean and Adam
smansell@evanstonadvisors.com
aerickson@evanstonadvisors.com
The Fed plans to purchase up to $600 billion of debt issued or backed by Fannie, Freddie, Ginnie Mae and the Federal Home Loan Banks. In addition, with the help of the Treasury, the Fed may provide up to $200 billion in financing to investors purchasing securities related to student loans, credit-card debt, car loans and small-business loans. The hope is that this will not only provide additional liquidity to these areas, but also indirectly lower mortgage rates and help put a spark back in the housing market.
A real test of this new found optimism may be retail sales estimates from the upcoming Black Friday. This will be used as a barometer to gauge the success of the holiday shopping season. Given the resilience the market has shown this week and the already bearish estimates for Friday, even a modest showing from shoppers may giver further legs to the market's recent gains.
We wish you and your family a happy Thanksgiving. As always, feel free to contact us with any questions or concerns.
Sean and Adam
smansell@evanstonadvisors.com
aerickson@evanstonadvisors.com
Friday, November 21, 2008
Good News?
Hello Everyone. This is Sean.
In filling in for Nate this week, I decided to take a stab at finding the silver lining in yet another tumultuous week on Wall Street.....................
In preparation, I did an article search on the Wall Street Journal website for "good news." First hit on the list: Obama. Given the election coverage, I can't say I was all that surprised. Regardless of political affiliation, it appears that Wall Street is looking to the President-elect for direction. Today's end of day rally (494 point rise in the Dow Jones Industrial Average, 47 points on the S&P 500) was attributed to news that the NY Fed President Timothy Geithner will be nominated as President-elect Obama's Treasury secretary. An economist and Fed veteran, Mr. Geithner adds experience as the central bank's liaison to Wall Street and was a major participant in discussions regarding Lehman Brothers and AIG. There are plans to introduce the entire economic team on Monday.
Uncertainty is one of the many factors affecting this market. As announcements of other appointments (especially the economic team) become known, they should reduce some of the uncertainty surrounding the next administration's policy. If the economic advisors the Obama team leaned into during the election are any guide (Volcker, Buffet, Summers etc.), the market should view positively the depth of experience and leadership his appointees bring to the table.
Though the news coming from the economy may not be positive. There is "hope" (forgive my audacity) :) surrounding the new leadership to tackle the tough decisions ahead.
Given the holiday next week, we expect decreased trading volume. In the past, this has meant a "slow" or less volatile market. Given the current state of affairs, we might see a bumpy ride instead.
We continue to look for value and opportunity in the equity markets and invite that you contact us with any questions or concerns.
-Sean Mansell
smansell@evanstonadvisors.com
nsnodgrass@evanstonadvisors.com
In filling in for Nate this week, I decided to take a stab at finding the silver lining in yet another tumultuous week on Wall Street.....................
In preparation, I did an article search on the Wall Street Journal website for "good news." First hit on the list: Obama. Given the election coverage, I can't say I was all that surprised. Regardless of political affiliation, it appears that Wall Street is looking to the President-elect for direction. Today's end of day rally (494 point rise in the Dow Jones Industrial Average, 47 points on the S&P 500) was attributed to news that the NY Fed President Timothy Geithner will be nominated as President-elect Obama's Treasury secretary. An economist and Fed veteran, Mr. Geithner adds experience as the central bank's liaison to Wall Street and was a major participant in discussions regarding Lehman Brothers and AIG. There are plans to introduce the entire economic team on Monday.
Uncertainty is one of the many factors affecting this market. As announcements of other appointments (especially the economic team) become known, they should reduce some of the uncertainty surrounding the next administration's policy. If the economic advisors the Obama team leaned into during the election are any guide (Volcker, Buffet, Summers etc.), the market should view positively the depth of experience and leadership his appointees bring to the table.
Though the news coming from the economy may not be positive. There is "hope" (forgive my audacity) :) surrounding the new leadership to tackle the tough decisions ahead.
Given the holiday next week, we expect decreased trading volume. In the past, this has meant a "slow" or less volatile market. Given the current state of affairs, we might see a bumpy ride instead.
We continue to look for value and opportunity in the equity markets and invite that you contact us with any questions or concerns.
-Sean Mansell
smansell@evanstonadvisors.com
nsnodgrass@evanstonadvisors.com
Friday, November 14, 2008
Down...Again...
I'm sure everyone is getting tired of me talking about the market going down. I certainly am!
Down Monday, down Tuesday, and down again Wednesday. The first three days cost the Dow 660 points, or 7.4%. Thursday started out looking much the same, and by lunch time the Dow was trading below 8,000 again, a decline for the first half of the day of about 315 points. And then the switch got flipped. The second half of the day was pure rally, climbing 870 points out of the hole, and closing up 554 points on the day.
Going into the weekend, some of Thursday's gains were "reclaimed" by the market at the open this morning, but in the next hour the Dow tried to climb back to positive territory. The steam ran out after that first hour, and by lunch we were down over 300 again. I went into a meeting just after lunch, and when I came out the market was in the black! But alas, it was not to be. Two minutes before market close, the Dow stood at 8,892, struggling to get to 8,900. In the last two minutes, it fell 395 points... will the volatility never end?!?
The market's gyrations were not the only news for the week though. And none of the news has been good. Henry Paulson's speech to Congress on Wednesday was the official announcement of the Treasury's change of direction for the TARP funds (the $700 billion rescue plan). The plan was originally sold as a purchase of troubled assets from financial institutions. In fact, that's what TARP stands for: "Troubled Asset Relief Program". However, instead of buying the troubled assets, they are now going to use the money to buy preferred stock of banks. They are basically using the funds to recapitalize the banks. This is not necessarily bad, but it's not what they said they were going to do with the money, and a number of the Congressmen are not happy.
Worse yet, Congress is now pushing for a bailout of the auto industry using the TARP funds. GM, Ford, and Chrysler that are about to collapse. In fact, DeutscheBank analysts set their price target for GM at $0. Those analysts are saying that GM is going to have to file bankruptcy. GM itself has stated that at the current burn rate, they'll be out of money early next year. Do these companies need a bailout? While the bankruptcy of any or all of them would result in hundreds of thousands of jobs lost, allowing them to continue to operate under the status quo would only delay the inevitable, and cost taxpayers real money. That would not be an investment, it would be a further drag on the economy.
Many of the politicians talking about it have said that they would tie bailout funds to "green" cars, essentially forcing the auto manufacturers to build more efficient vehicles. That makes a great sound byte, but it wouldn't fix the problem. The small vehicles (the little fuel efficient cars)have no profit in them, and the hybrids are too expensive in terms of technology for widespread adoption. Either way, the manufacturer would not make enough money to dig themselves out of the hole they are in.
So why the big bounce on Thursday? There have been a number of reasons put forth, including the G-20 meeting this weekend (the hope for another coordinated round of...well... anything to fix this mess!). I believe that it was pent up demand for stocks. The Dow got below 8,000, and people saw opportunity. The same thing happened a month ago. Stocks got to absurdly cheap levels, and buyers stepped in. Once the buyers begin to outnumber the sellers, the frenzy starts. On Thursday, was there anything different in the world at 3 PM versus at noon? There was no good news, no announcements, nothing. In fact, any news that was coming out was to the negative. But buyers perceived cheap prices, and stepped in. I believe that this is what we are going to see for a while now. A lot of volatility, with the market really doing nothing but moving sideways.
If you have any questions, e-mail me at nsnodgrass@evanstonadvisors.com
Down Monday, down Tuesday, and down again Wednesday. The first three days cost the Dow 660 points, or 7.4%. Thursday started out looking much the same, and by lunch time the Dow was trading below 8,000 again, a decline for the first half of the day of about 315 points. And then the switch got flipped. The second half of the day was pure rally, climbing 870 points out of the hole, and closing up 554 points on the day.
Going into the weekend, some of Thursday's gains were "reclaimed" by the market at the open this morning, but in the next hour the Dow tried to climb back to positive territory. The steam ran out after that first hour, and by lunch we were down over 300 again. I went into a meeting just after lunch, and when I came out the market was in the black! But alas, it was not to be. Two minutes before market close, the Dow stood at 8,892, struggling to get to 8,900. In the last two minutes, it fell 395 points... will the volatility never end?!?
The market's gyrations were not the only news for the week though. And none of the news has been good. Henry Paulson's speech to Congress on Wednesday was the official announcement of the Treasury's change of direction for the TARP funds (the $700 billion rescue plan). The plan was originally sold as a purchase of troubled assets from financial institutions. In fact, that's what TARP stands for: "Troubled Asset Relief Program". However, instead of buying the troubled assets, they are now going to use the money to buy preferred stock of banks. They are basically using the funds to recapitalize the banks. This is not necessarily bad, but it's not what they said they were going to do with the money, and a number of the Congressmen are not happy.
Worse yet, Congress is now pushing for a bailout of the auto industry using the TARP funds. GM, Ford, and Chrysler that are about to collapse. In fact, DeutscheBank analysts set their price target for GM at $0. Those analysts are saying that GM is going to have to file bankruptcy. GM itself has stated that at the current burn rate, they'll be out of money early next year. Do these companies need a bailout? While the bankruptcy of any or all of them would result in hundreds of thousands of jobs lost, allowing them to continue to operate under the status quo would only delay the inevitable, and cost taxpayers real money. That would not be an investment, it would be a further drag on the economy.
Many of the politicians talking about it have said that they would tie bailout funds to "green" cars, essentially forcing the auto manufacturers to build more efficient vehicles. That makes a great sound byte, but it wouldn't fix the problem. The small vehicles (the little fuel efficient cars)have no profit in them, and the hybrids are too expensive in terms of technology for widespread adoption. Either way, the manufacturer would not make enough money to dig themselves out of the hole they are in.
So why the big bounce on Thursday? There have been a number of reasons put forth, including the G-20 meeting this weekend (the hope for another coordinated round of...well... anything to fix this mess!). I believe that it was pent up demand for stocks. The Dow got below 8,000, and people saw opportunity. The same thing happened a month ago. Stocks got to absurdly cheap levels, and buyers stepped in. Once the buyers begin to outnumber the sellers, the frenzy starts. On Thursday, was there anything different in the world at 3 PM versus at noon? There was no good news, no announcements, nothing. In fact, any news that was coming out was to the negative. But buyers perceived cheap prices, and stepped in. I believe that this is what we are going to see for a while now. A lot of volatility, with the market really doing nothing but moving sideways.
If you have any questions, e-mail me at nsnodgrass@evanstonadvisors.com
Friday, November 7, 2008
A new President has been elected
For a moment, all eyes left Wall Street and focused instead on the election. At first, it looked like the market liked what was happening, as the Dow soared on Tuesday in anticipation of the election cycle finally being over. But the excitement was short-lived, at least as far as the markets are concerned.
After climbing over 300 points on election day, Wednesday and Thursday were a dramatic reversal, with each day registering losses of 486 points and 443 points respectively. So what happened? Why the huge decline after all the celebration surrounding the election?
Since the election is over (finally!), the focus shifted back to the economy. And the economy is in bad shape, and looks to be getting worse. Nonfarm productivity growth fell to 1.1% from 3.6% in three months. New claims for unemployment benefits rose. 3.8 million people are currently drawing unemployment benefits, the most in 25 years. Hours worked declined, an indicator that layoffs may be pending. Even so, labor costs were higher than expected. Unemployment numbers released Friday gave even more evidence that things are slowing down. The ISM (Institute for Supply Management) index is an indicator of service sector activity. The index declined to 44.4, below expectations that it would come in at 47. Anything below 50 is seen as indication that the economy is contracting.
The market did rebound 2.85% today (Friday), ending the week down 382 points. As we've said before, we believe that the market angst is going to be with us for a while. However, it is likely to be a bit manic depressive, with its moods swings dependent on what data has hit the market most recently (and more importantly, how the data was interpreted).
If you have any questions or comments, please e-mail me at nsnodgrass@evanstonadvisors.com
After climbing over 300 points on election day, Wednesday and Thursday were a dramatic reversal, with each day registering losses of 486 points and 443 points respectively. So what happened? Why the huge decline after all the celebration surrounding the election?
Since the election is over (finally!), the focus shifted back to the economy. And the economy is in bad shape, and looks to be getting worse. Nonfarm productivity growth fell to 1.1% from 3.6% in three months. New claims for unemployment benefits rose. 3.8 million people are currently drawing unemployment benefits, the most in 25 years. Hours worked declined, an indicator that layoffs may be pending. Even so, labor costs were higher than expected. Unemployment numbers released Friday gave even more evidence that things are slowing down. The ISM (Institute for Supply Management) index is an indicator of service sector activity. The index declined to 44.4, below expectations that it would come in at 47. Anything below 50 is seen as indication that the economy is contracting.
The market did rebound 2.85% today (Friday), ending the week down 382 points. As we've said before, we believe that the market angst is going to be with us for a while. However, it is likely to be a bit manic depressive, with its moods swings dependent on what data has hit the market most recently (and more importantly, how the data was interpreted).
If you have any questions or comments, please e-mail me at nsnodgrass@evanstonadvisors.com
Friday, October 31, 2008
Are you tired of me talking about volatility?
It seems that all of my posts to the blog have been about the incredible level of volatility we'ver been experiencing. Trust me, I long for the day I can submit a posting stating that the week was uneventful!
Yes, it was another volatile week. On the surface of things, it doesn't look too bad. Down 203 Monday, up 890 on Tuesday, down 74 on Wednesday, up 190 on Thursday, and up 141 on Friday. Tuesday was obviously a big day, the second highest point move on the Dow in history. But the rest of the week looks sort of...well...boring.
In reality, it was far more volatile than it looks. The swing from low to high on Monday was over 450 points, most of it in the last 15 minutes of trading! Wednesday was likewise a very volatile day, covering almost 475 points from low to high. This kind of intraday volatility has become the norm, as traders attempt to rapidly digest every bit of news that hits the wires, and try desperately to either profit from it, or curb their losses.
Aside from the market, there was a fair amount of news this week. The Fed cut interest rates another 50 basis points, dropping the Fed Funds rate to 1.0%. GDP came in negative, showing a decline of 0.3% in the third quarter. In addition, personal consumption (a measure of consumer spending) contracted 0.3%, and personal savings rose, indicating that people may be trying to build a cushion in case things get worse. The Personal Consumption Expenditures (PCE) index rose last month, indicating that consumers are spending more money for the same goods than they were the month prior. Versus last year, PCE is up 4.2%. All in all, the economic data was not very good, but that's what we've all been expecting.
Next week could be volatile again due to the election. There are a lot of issues in play during this election, and regardless of the outcome, the next administration has a mess on its hands.
The market had an overall positive week though, which is a welcome sign. I, however, would prefer a number of mildly positive days in a row rather than one or two big ones flanked by wild swings. Going forward, I continue to believe we may have seen the bottom, but I am not convinced that we won't see it again. I believe there will be continued volatility for some time, but that the volatility should be viewed as providing opportunity to purchase quality names at discount prices. I believe that individual stocks are likely to recover ahead of the broad market, so continued market doldrums may not be what is experienced by some investors.
If you have any questions, please feel free to contact me at nsnodgrass@evanstonadvisors.com
Yes, it was another volatile week. On the surface of things, it doesn't look too bad. Down 203 Monday, up 890 on Tuesday, down 74 on Wednesday, up 190 on Thursday, and up 141 on Friday. Tuesday was obviously a big day, the second highest point move on the Dow in history. But the rest of the week looks sort of...well...boring.
In reality, it was far more volatile than it looks. The swing from low to high on Monday was over 450 points, most of it in the last 15 minutes of trading! Wednesday was likewise a very volatile day, covering almost 475 points from low to high. This kind of intraday volatility has become the norm, as traders attempt to rapidly digest every bit of news that hits the wires, and try desperately to either profit from it, or curb their losses.
Aside from the market, there was a fair amount of news this week. The Fed cut interest rates another 50 basis points, dropping the Fed Funds rate to 1.0%. GDP came in negative, showing a decline of 0.3% in the third quarter. In addition, personal consumption (a measure of consumer spending) contracted 0.3%, and personal savings rose, indicating that people may be trying to build a cushion in case things get worse. The Personal Consumption Expenditures (PCE) index rose last month, indicating that consumers are spending more money for the same goods than they were the month prior. Versus last year, PCE is up 4.2%. All in all, the economic data was not very good, but that's what we've all been expecting.
Next week could be volatile again due to the election. There are a lot of issues in play during this election, and regardless of the outcome, the next administration has a mess on its hands.
The market had an overall positive week though, which is a welcome sign. I, however, would prefer a number of mildly positive days in a row rather than one or two big ones flanked by wild swings. Going forward, I continue to believe we may have seen the bottom, but I am not convinced that we won't see it again. I believe there will be continued volatility for some time, but that the volatility should be viewed as providing opportunity to purchase quality names at discount prices. I believe that individual stocks are likely to recover ahead of the broad market, so continued market doldrums may not be what is experienced by some investors.
If you have any questions, please feel free to contact me at nsnodgrass@evanstonadvisors.com
Friday, October 24, 2008
It could have been worse
When I flipped on my TV at 5 AM this morning, CNBC had a "Breaking News" icon flashing on the screen. Stock futures were trading limit down, a sign of the selloff turning to panic. As I stated in the blog this morning before the market opened, it was expected to be a wild ride.
Shortly before the market opened, S&P 500 Depositary Receipts (Spiders) were down about 9% in premarket trading. The guest analysts were calling for a huge blowout when trading opened at 8:30 our time (9:30 Eastern). We all sat watching our trade screens as the markets opened...slowly. Of the 40 or so stocks on my screen, only about 10 to 15 started trading at the open. Over the next 10 minutes or so, the rest started trading. The reason that they weren't trading was because of an imbalance of orders at the open - sellers wanted to sell, but buyers weren't saying what prices they'd be willing to but at. Then all of a sudden, it was all open, and trading. Down 200, 300, 400, 430, 440, 450. The slide was slowing down...where was the 1000 point crash they were calling for?
We spent most of the remainder of the day down about 350. Shortly after 1:00 Chicago time the market started climbing out of the hole, and by 2:00 we were down about 150 points. It held that range until the last 5 minutes or so, then slid back to end the day down 312 points. To some, the lack of a major selloff was a disappointment, as they are looking for a final flush out of sellers. This would (to them) signal a bottom.
But the story really isn't about today. It's the whole week. A number of people got excited on Monday as the market rallied 413 points. But the excitement was too early, as the market gave up about 745 points over the next two days. Thursday was somewhat uneventful as recent history goes, with a mere 172 point upswing. By the close of trading today, we had given up about 475 points for the week.
The losses have not been limited to stocks. Gold was trading below $700 today. Oil is below $70 per barrel (a blessing at the gas pump!). OPEC attempted to put a floor under oil prices today by cutting production by 1.5 million barrels per day, but the price of oil fell again anyway. Other commodities are also weak. Right now, nearly everyone is looking for a safe haven. The upside to this is that the US has been seen as the domicile of choice. This has resulted in the dollar strengthening versus the Euro.
We believe that we're going to continue seeing volatility for a while. We do not expect broad stock market stability in the foreseeable future. However, we do see opportunities in specific names, and we are cautiously entering into positions when appropriate. The opportunity is not as broad-based as some might think. This morning we ran a series of screens looking for stocks that met our criteria. Initial filtering produced a couple thousand names, but by the time we analyzed valuation, the list was cut to 20 names. Some of these may be purchased in the coming days, but it will depend largely upon what news is coming out, and how the market is reacting.
As always, if you have any questions, please e-mail me at nsnodgrass@evanstonadvisors.com
Shortly before the market opened, S&P 500 Depositary Receipts (Spiders) were down about 9% in premarket trading. The guest analysts were calling for a huge blowout when trading opened at 8:30 our time (9:30 Eastern). We all sat watching our trade screens as the markets opened...slowly. Of the 40 or so stocks on my screen, only about 10 to 15 started trading at the open. Over the next 10 minutes or so, the rest started trading. The reason that they weren't trading was because of an imbalance of orders at the open - sellers wanted to sell, but buyers weren't saying what prices they'd be willing to but at. Then all of a sudden, it was all open, and trading. Down 200, 300, 400, 430, 440, 450. The slide was slowing down...where was the 1000 point crash they were calling for?
We spent most of the remainder of the day down about 350. Shortly after 1:00 Chicago time the market started climbing out of the hole, and by 2:00 we were down about 150 points. It held that range until the last 5 minutes or so, then slid back to end the day down 312 points. To some, the lack of a major selloff was a disappointment, as they are looking for a final flush out of sellers. This would (to them) signal a bottom.
But the story really isn't about today. It's the whole week. A number of people got excited on Monday as the market rallied 413 points. But the excitement was too early, as the market gave up about 745 points over the next two days. Thursday was somewhat uneventful as recent history goes, with a mere 172 point upswing. By the close of trading today, we had given up about 475 points for the week.
The losses have not been limited to stocks. Gold was trading below $700 today. Oil is below $70 per barrel (a blessing at the gas pump!). OPEC attempted to put a floor under oil prices today by cutting production by 1.5 million barrels per day, but the price of oil fell again anyway. Other commodities are also weak. Right now, nearly everyone is looking for a safe haven. The upside to this is that the US has been seen as the domicile of choice. This has resulted in the dollar strengthening versus the Euro.
We believe that we're going to continue seeing volatility for a while. We do not expect broad stock market stability in the foreseeable future. However, we do see opportunities in specific names, and we are cautiously entering into positions when appropriate. The opportunity is not as broad-based as some might think. This morning we ran a series of screens looking for stocks that met our criteria. Initial filtering produced a couple thousand names, but by the time we analyzed valuation, the list was cut to 20 names. Some of these may be purchased in the coming days, but it will depend largely upon what news is coming out, and how the market is reacting.
As always, if you have any questions, please e-mail me at nsnodgrass@evanstonadvisors.com
We're in for a wild ride...
The market isn't open yet, but the futures market is trading limit down. What this means is that the futures exchanges are not allowing any further selling at prices lower than the limit until the stock exchanges open at 8:30 Chicago time.
Current indications are about a 9% selloff at the open. The "circuit breakers" that stop trading on the stock exchanges will stop all trading for an hour if the Dow declines by 1100 points (given current levels).
This is coming off of awful trading in the overseas markets overnight. Asian markets were off about 10%, and Europe was trading in a similar fashion.
There is some speculation that this is the result of hedge funds unwinding. However, this cannot be verified easily, as hedge funds are pretty opaque.
Many of the analysts speaking in the media are speculating this morning that this may be the final wash out. If it is, a big bounce is expected. It could come as early as this afternoon, or sometime next week. Whether they are right or not is something we will see in the very near future. Our belief is that the selloff is already overdone, and the current panic is setting up some very attractive prices. This does not, however, mean that it's time to jump in with every available dollar. The volatility is going to continue for quite some time, and there will be ongoing opportunities to purchase equities.
Current indications are about a 9% selloff at the open. The "circuit breakers" that stop trading on the stock exchanges will stop all trading for an hour if the Dow declines by 1100 points (given current levels).
This is coming off of awful trading in the overseas markets overnight. Asian markets were off about 10%, and Europe was trading in a similar fashion.
There is some speculation that this is the result of hedge funds unwinding. However, this cannot be verified easily, as hedge funds are pretty opaque.
Many of the analysts speaking in the media are speculating this morning that this may be the final wash out. If it is, a big bounce is expected. It could come as early as this afternoon, or sometime next week. Whether they are right or not is something we will see in the very near future. Our belief is that the selloff is already overdone, and the current panic is setting up some very attractive prices. This does not, however, mean that it's time to jump in with every available dollar. The volatility is going to continue for quite some time, and there will be ongoing opportunities to purchase equities.
Friday, October 17, 2008
300 is the new 30
Several times in the past week I've heard various pundits say "300 is the new 30". This is a reference to the Dow Jones Industrial Average and the level of volatility we have been experiencing. We have seen such dramatic movements in the market on a regular basis that a mere 300 point day up or down now seems commonplace.
Since we keep hearing this, we decided to take a look at just how much volatility there really has been. Since September 1st, there have been 34 trading days. On 28 of those days, we had intraday swings from low to high in excess of 300 points on the Dow. 17 of those were in excess of 400 points, and on 10 days we skipped right over 500 points and had intraday swings of over 600 points. We've had 8 over 700, 4 over 800, 2 over 900, and 1 topped 1,000!
What's more, the volatility has been more pronounced in the past two weeks. In the past two weeks (ten trading days) every single day had intraday swings in excess of 300 points. Seven of those days were in excess of 700 points. Monday of this week was the highest one day point move ever on the Dow, at over 900 points from open to close. Volatility has been unbelievable.
We believe that the economy is going to be rather difficult for the coming year or so. The stock market is usually a pretty good leading indicator of the economy, foreshadowing what's to come by 9 to 18 months. The current dramatic slides in the stock market suggest that the economy will continue to contract, and the contraction could be worse than many expect. However, there are signs that the market is bottoming out. "300 is the new 30" is one of those signs. When everyone begins to get used to bad being normal, it is often time for a turnaround. By contrast, everyone expecting good results from the stock market is usually a sign that a decline is imminent.
In an op-ed piece in today's New York Times, Warren Buffet stated that if things keep going the way they are, his personal portfolio (outside of Berkshire Hathaway) will soon be 100% equities. Until recently, it was 100% US Treasury Bonds. To quote the "Oracle of Omaha" in his NYT op-ed: "bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price." We agree. We are looking to purchase equities in the coming days and weeks. We are not yet ready to over-allocate to them, and our purchases will be made cautiously, but opportunities are becoming more apparent, and we will be taking advantage of them in the near future. Note, however, the emphasis on the word "cautiously". We do not believe that the market as a whole will be stable for quite some time, but prudent stock picking will result in a portfolio of good companies that should be positioned to ride out a rough economic period, and participate well in the eventual recovery.
Since we keep hearing this, we decided to take a look at just how much volatility there really has been. Since September 1st, there have been 34 trading days. On 28 of those days, we had intraday swings from low to high in excess of 300 points on the Dow. 17 of those were in excess of 400 points, and on 10 days we skipped right over 500 points and had intraday swings of over 600 points. We've had 8 over 700, 4 over 800, 2 over 900, and 1 topped 1,000!
What's more, the volatility has been more pronounced in the past two weeks. In the past two weeks (ten trading days) every single day had intraday swings in excess of 300 points. Seven of those days were in excess of 700 points. Monday of this week was the highest one day point move ever on the Dow, at over 900 points from open to close. Volatility has been unbelievable.
We believe that the economy is going to be rather difficult for the coming year or so. The stock market is usually a pretty good leading indicator of the economy, foreshadowing what's to come by 9 to 18 months. The current dramatic slides in the stock market suggest that the economy will continue to contract, and the contraction could be worse than many expect. However, there are signs that the market is bottoming out. "300 is the new 30" is one of those signs. When everyone begins to get used to bad being normal, it is often time for a turnaround. By contrast, everyone expecting good results from the stock market is usually a sign that a decline is imminent.
In an op-ed piece in today's New York Times, Warren Buffet stated that if things keep going the way they are, his personal portfolio (outside of Berkshire Hathaway) will soon be 100% equities. Until recently, it was 100% US Treasury Bonds. To quote the "Oracle of Omaha" in his NYT op-ed: "bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price." We agree. We are looking to purchase equities in the coming days and weeks. We are not yet ready to over-allocate to them, and our purchases will be made cautiously, but opportunities are becoming more apparent, and we will be taking advantage of them in the near future. Note, however, the emphasis on the word "cautiously". We do not believe that the market as a whole will be stable for quite some time, but prudent stock picking will result in a portfolio of good companies that should be positioned to ride out a rough economic period, and participate well in the eventual recovery.
Friday, October 10, 2008
It's over...
Well, for now at least. Tuesday may be a different story.
This was another long week, with every single day closing lower on the Dow Jones Industrial Average. Today looked like it was going to be awful. The Asian markets came unglued last night, and Europe followed suit early this morning. Several markets halted trading because the declines were so deep and rapid.
Our market joined the party this morning, promptly selling off about 700 points. Then, like other days this week, it recovered in rapid fashion, even going back into the black. But once again, the sellers took the lead, and the market traded down 300 - 500 points for most of the day. We were working to prepare a number of trades, and while we were placing them, the market started to trend upward. Just prior to close, it was trading up close to 200 points. Another day of massive swings, this time roughly 900 points from low to high for the day. We did end the day down, but only modestly (at least compared to recent activity) at 128 points lost. Eight down days in a row for the Dow.
But things are starting to look up a bit. IBM had positive news yesterday and GE had okay news this morning. But the earnings news from GE is not what has me interested. Jeff Immelt, the CEO, commented that the company has not had trouble accessing the commercial paper markets. This is a crucial piece of positive information. The commercial paper markets have been virtually frozen, which is part of what has kept investors nervous, as commercial paper provides much of the short term financing utilized by corporations.
Many of you will notice a number of transactions occuring in your portfolio today. We have been going through accounts in an effort to do a bit of "tweaking", adding a few shares here, removing a position there. The purpose is to reduce risk exposure and better position the portfolio for an eventual recovery.
Enjoy the extended weekend....on Tuesday the markets will be open again, and there is likely to be a fair amount of news hitting the wires in the next few days. We expect the volatility to continue, but we believe that we are much closer to seeing the end of the slide, if we have not already seen it.
If you have any questions, please feel free to email me at nsnodgrass@evanstonadvisors.com
This was another long week, with every single day closing lower on the Dow Jones Industrial Average. Today looked like it was going to be awful. The Asian markets came unglued last night, and Europe followed suit early this morning. Several markets halted trading because the declines were so deep and rapid.
Our market joined the party this morning, promptly selling off about 700 points. Then, like other days this week, it recovered in rapid fashion, even going back into the black. But once again, the sellers took the lead, and the market traded down 300 - 500 points for most of the day. We were working to prepare a number of trades, and while we were placing them, the market started to trend upward. Just prior to close, it was trading up close to 200 points. Another day of massive swings, this time roughly 900 points from low to high for the day. We did end the day down, but only modestly (at least compared to recent activity) at 128 points lost. Eight down days in a row for the Dow.
But things are starting to look up a bit. IBM had positive news yesterday and GE had okay news this morning. But the earnings news from GE is not what has me interested. Jeff Immelt, the CEO, commented that the company has not had trouble accessing the commercial paper markets. This is a crucial piece of positive information. The commercial paper markets have been virtually frozen, which is part of what has kept investors nervous, as commercial paper provides much of the short term financing utilized by corporations.
Many of you will notice a number of transactions occuring in your portfolio today. We have been going through accounts in an effort to do a bit of "tweaking", adding a few shares here, removing a position there. The purpose is to reduce risk exposure and better position the portfolio for an eventual recovery.
Enjoy the extended weekend....on Tuesday the markets will be open again, and there is likely to be a fair amount of news hitting the wires in the next few days. We expect the volatility to continue, but we believe that we are much closer to seeing the end of the slide, if we have not already seen it.
If you have any questions, please feel free to email me at nsnodgrass@evanstonadvisors.com
Subscribe to:
Posts (Atom)