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
Wednesday, November 26, 2008
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.
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