Many stocks near 52-week lows are great bargains now. Downside is finally reaching a short-term bottom now that tax-loss selling for 2007 is wrapping up. Caution is still warranted as not all stocks near 52-week lows are considered worthy of purchasing.
Continued caution is still warranted for home builders, mortgage insurers, and airlines and transportation companies dependent on cheap financing and low energy prices.
Retailers can be selected cautiously given how beaten down they are.
International firms and cyclicals with high international exposure are still favored areas for purchasing beaten down names right now.
Friday, December 21, 2007
Foreign ownership of US Assets continuing to increase
Foreign investment vehicles from Asia are continuing to gobble up US assets. A Singapore investment fund has recently announced a large stake in Merrill Lynch. This follows large investments by China, Dubai, and Australia in our country within the last year.
National barriers continue to blur. Soon people will be asking why U.S. taxpayers are paying for a large military to defend foreign owned assets when much of the U.S. will be owned by foreign interests soon at the rate at which foreign capital is being recycled back into the country.
National barriers continue to blur. Soon people will be asking why U.S. taxpayers are paying for a large military to defend foreign owned assets when much of the U.S. will be owned by foreign interests soon at the rate at which foreign capital is being recycled back into the country.
Time for Year End Rally
Many stocks have been decimated this year and with Christmas around the corner, we should see a short-term move higher through the first week of January. Whether the trend continues past the first week of January is the big question.
Outside of housing and the financial markets, the US economy continues to show strength.
Demand for employees with strong skills are still greatly in demand.
Outside of housing and the financial markets, the US economy continues to show strength.
Demand for employees with strong skills are still greatly in demand.
Tuesday, December 18, 2007
Financial stocks remain near record lows
There is continued concern that the credit defaults for subprime borrowers will spread to higher quality borrowers who are getting squeezed by the increased costs for debt obligations plus basic needs such as food and gasoline.
This concern is weighing on higher quality financial firms along with the lower quality names.
As a result of this concern, stocks such as Bank of America (BAC) now yield over 6%.
If one already owns financials, I would not be selling these stocks at these low levels, but holding on for the long-term.
End of year tax loss selling is only exacerbating the reduction in share prices for these higher quality names.
The stock market will not be able to recover without a recovery in the financial stocks.
As a result, any recovery in the overall stock market is unlikely until mid-year 2008.
For those with patience and the ability to withstand volatility, the large financial, industrial, and retail companies provide good entry points at this price level.
This concern is weighing on higher quality financial firms along with the lower quality names.
As a result of this concern, stocks such as Bank of America (BAC) now yield over 6%.
If one already owns financials, I would not be selling these stocks at these low levels, but holding on for the long-term.
End of year tax loss selling is only exacerbating the reduction in share prices for these higher quality names.
The stock market will not be able to recover without a recovery in the financial stocks.
As a result, any recovery in the overall stock market is unlikely until mid-year 2008.
For those with patience and the ability to withstand volatility, the large financial, industrial, and retail companies provide good entry points at this price level.
Agricultural commodities strong
Agricultural commodity prices have remained high with strong global demand and poor weather in Australia and South America.
These prices are expected to hit the grocery store shelf sometime over the next year.
Making money in the stock market from this trend has not been easy. Agricultural equipment and fertilizer stocks are at very high prices and P/E ratios making them unattractive from a value perspective.
The Agriculture ETF (DBA) remains the best play in this space.
These prices are expected to hit the grocery store shelf sometime over the next year.
Making money in the stock market from this trend has not been easy. Agricultural equipment and fertilizer stocks are at very high prices and P/E ratios making them unattractive from a value perspective.
The Agriculture ETF (DBA) remains the best play in this space.
Thursday, December 13, 2007
Slowdown extending into economy
In September, the slowdown looked isolated to housing and consumer finance.
Since then, weakness has spread into commercial finance, autos, consumer retail, transports- truck and rail, domestic manufacturing, drug companies, and discretionary purchasing such as elective surgeries, designer goods, and travel.
Weakness looks like it will spread. Already 2008 earnings expectations are being reduced across the board for many companies. This bodes poorly for the stock market.
Long-term investments should weather the storm fine.
Short-term investments can expect continued weakness and volatility.
Since then, weakness has spread into commercial finance, autos, consumer retail, transports- truck and rail, domestic manufacturing, drug companies, and discretionary purchasing such as elective surgeries, designer goods, and travel.
Weakness looks like it will spread. Already 2008 earnings expectations are being reduced across the board for many companies. This bodes poorly for the stock market.
Long-term investments should weather the storm fine.
Short-term investments can expect continued weakness and volatility.
Continued headwinds
The writedowns of financial assets continue creating strong headwinds in the US economy.
Credit has tightened dramatically and interest rates for loans relative to US treasuries are high.
Yesterday a global consortium of government financial ministries got together to add $40 Billion to the global financial system to increase liquidity.
Unfortunately I do not see an end to tight lending standards until asset prices stop declining and foreclosures peak.
This will probably not occur until late 2008 or 2009.
Credit has tightened dramatically and interest rates for loans relative to US treasuries are high.
Yesterday a global consortium of government financial ministries got together to add $40 Billion to the global financial system to increase liquidity.
Unfortunately I do not see an end to tight lending standards until asset prices stop declining and foreclosures peak.
This will probably not occur until late 2008 or 2009.
Friday, September 28, 2007
Strong US Economic Data
It looks like the US economy is not doing as bad as economists had feared.
Consumer spending numbers for August were strong, jobless claims continue to drift lower, and construction spending and manufacturing data also look strong.
Strong areas of economy: technology, healthcare, energy, agriculture
Weak areas of economy: home construction, autos, finance, consumer discretionary
Will the Federal Reserve lower interest rates again in October? The market is betting "Yes". I am beginning to not be so sure. If the economic numbers look good, the Fed may pause here.
Stay tuned...
Consumer spending numbers for August were strong, jobless claims continue to drift lower, and construction spending and manufacturing data also look strong.
Strong areas of economy: technology, healthcare, energy, agriculture
Weak areas of economy: home construction, autos, finance, consumer discretionary
Will the Federal Reserve lower interest rates again in October? The market is betting "Yes". I am beginning to not be so sure. If the economic numbers look good, the Fed may pause here.
Stay tuned...
Thursday, September 27, 2007
Time to Bargain Hunt!
As it is the end of the year for mutual funds, many funds have been dumping their losers to take tax loses and loading up on the big movers to "window dress" and make their portfolios look better. This has created a situation where there are many bargains in the market.
This morning I purchased additional shares in Cemex SA (CX). The stock was recently trading at one-year lows on concern over the US housing market. In reality this company is a global cement play that is doing very well in emerging markets outside of the US. This company has very strong cash flow that will be only slightly affected by the weakness in US housing.
Other good sales are in domestic and foreign banks and brokerage firms that have been trashed by the subprime concerns. Two of my holdings that are down over 20%, but look very attractive and are up today include E*Trade Financial (ETFC) and Allied Irish Banks (AIB).
Real Estate Investment Trusts (REITs) also are looking more attractive with the Federal Reserve having lowered the Fed Funds rate over a week ago, making REIT yields more attractive relative to cash. With construction costs up, those companies with real estate in urban locations on the east coast and west coast where land is in short supply should continue to do well.
Three ideas for today.
This morning I purchased additional shares in Cemex SA (CX). The stock was recently trading at one-year lows on concern over the US housing market. In reality this company is a global cement play that is doing very well in emerging markets outside of the US. This company has very strong cash flow that will be only slightly affected by the weakness in US housing.
Other good sales are in domestic and foreign banks and brokerage firms that have been trashed by the subprime concerns. Two of my holdings that are down over 20%, but look very attractive and are up today include E*Trade Financial (ETFC) and Allied Irish Banks (AIB).
Real Estate Investment Trusts (REITs) also are looking more attractive with the Federal Reserve having lowered the Fed Funds rate over a week ago, making REIT yields more attractive relative to cash. With construction costs up, those companies with real estate in urban locations on the east coast and west coast where land is in short supply should continue to do well.
Three ideas for today.
Thursday, September 06, 2007
Subprime exposure update
A lot has happened in the financial markets since April when I predicted the subprime mortgage market to explode. I was correct that the effects would ripple through the stock market, but incorrect about the exposure of some leading banks. Lehman Brothers and Bear Stearns exposure to the subprime mortgage market is greater than I had anticipated, creating a deeper decline in these stocks. These stocks are currently trading at less than 10x 2007 and 2008 earnings which would normally be considered cheap. Unfortunately earnings estimates are declining which does not bode well for their stock prices. In addition liquidity in the financial markets is drying up rapidly which will ultimately create much lower earnings for these companies.
I currently recommend one underweight the investment banking sector due to declining earning estimates, declining financial liquidity, and the major unknowns regarding the effect of the subprime market, debt unable to be sold for hedge fund buyouts, and potentially declining investment banking deal flow.
I currently recommend one underweight the investment banking sector due to declining earning estimates, declining financial liquidity, and the major unknowns regarding the effect of the subprime market, debt unable to be sold for hedge fund buyouts, and potentially declining investment banking deal flow.
Gold over $700 and Oil above $76
Today gold closed at $704.60 oz., a level not seen since mid-May.
In addition light sweet crude closed at $76.30 per barrel, a level not seen in over a month.
Precious metals and energy are in high demand in the developing world.
US supplies of crude oil and gasoline are significantly lower than normal.
People are also buying commodities in anticipation of a rate cut by the Federal Reserve this month which traders are predicting will create more growth and drive up demand for these commodities and overall inflation.
Overall the story is very strong for both precious metals and energy in a diversified portfolio.
In the energy sector, some of my favorite names are: ConocoPhillips (COP), Devon Energy (DVN), and Sasol Ltd. (SSL).
In precious metals, two of my favorite names are: Freeport McMoran Copper & Gold (FCX) and Yamana Gold (AUY).
In addition light sweet crude closed at $76.30 per barrel, a level not seen in over a month.
Precious metals and energy are in high demand in the developing world.
US supplies of crude oil and gasoline are significantly lower than normal.
People are also buying commodities in anticipation of a rate cut by the Federal Reserve this month which traders are predicting will create more growth and drive up demand for these commodities and overall inflation.
Overall the story is very strong for both precious metals and energy in a diversified portfolio.
In the energy sector, some of my favorite names are: ConocoPhillips (COP), Devon Energy (DVN), and Sasol Ltd. (SSL).
In precious metals, two of my favorite names are: Freeport McMoran Copper & Gold (FCX) and Yamana Gold (AUY).
Sunday, April 01, 2007
Hertz continues to climb
Hertz Global (HTZ), continues to make new highs. Friday's announcement of Enterprise purchasing National and Alamo to consolidate the car rental industry helped Hertz move up. Hertz is trading at 30x 2007 earnings estimates which is still quite high given the state of the economy today.
State of the markets - April 1, 2007
The US stock market is holding its own considering the headwinds currently with readings on higher inflation and the subprime mortgage mess. Valuations for US stocks are very reasonable for large-cap stocks today to buy good quality names at reasonable prices. Small and mid-cap stocks, in general, are trading at much higher valuations than in October 2006, and caution is warranted here. I believe that growth stocks have a high possibility of facing a correction this late spring to summer. Pick stocks carefully in today's market.
Vacation home ownership tip
There is a great article on TheStreet.com this weekend on the tax benefits of vacation home ownership: http://www.thestreet.com/funds/toponepercent/10346847.html
This article is especially valuable for those saddled with a costly vacation home that is rarely used but can be rented out.
This article is especially valuable for those saddled with a costly vacation home that is rarely used but can be rented out.
Tuesday, March 06, 2007
Sub-prime meltdown occurring
Sub-prime mortgage companies are getting hit hard this week after announcing growing defaults among borrowers, especially those who chose no verification of personal financial information. Stay away from this sector. The ripple effect is causing the blue-chip financials major pain. Bargains are showing up among the large banks, such as Bank of America (BAC), as well as Wall-Street firms such as Lehman Brothers (LEH) and Bear Stearns (BSC) whose exposure to subprime lending is minimal compared to other financial firms.
Yen Carry Trade Unwinding
The global financial markets have had a good-sized sell-off over the last week that started following the Bank of Japan raising short-term interest rates from 0.25% up to 0.5%. The sell-off was due to the yen carry trade unwinding. What is the Yen Carry Trade? The Yen Carry Trade involves people taking a loan denominated in Yen and charging less than 0.5% yearly interest, and then using the money to purchase US treasury bonds or riskier assets with the money to get a higher yield. Over the last year, Japan has raised short-term interest rates from 0% to 0.5% and the Yen has remained cheap relative to other currencies. However, over the past week, the Yen has appreciated 10% relative to other currencies, reducing the ability to people to borrow cheap Yen and invest them abroad at a profit.
The last global selloff in June 2006 was triggered by the first increase in Japanese interest rates from 0 to 0.25%
Japan's economy is coming out of a 15 year funk that should result in the Japanese Central Bank continuing to raise interest rates slowly and increasing the value of the Yen, reducing the ability for foreigners to borrow against the Yen to fund purchases abroad. This should have the effect of reducing asset inflation over the short-term. The Yen carry trade can be blamed for rampant increases in global real estate prices, commodities prices, and stock prices in emerging markets.
The last global selloff in June 2006 was triggered by the first increase in Japanese interest rates from 0 to 0.25%
Japan's economy is coming out of a 15 year funk that should result in the Japanese Central Bank continuing to raise interest rates slowly and increasing the value of the Yen, reducing the ability for foreigners to borrow against the Yen to fund purchases abroad. This should have the effect of reducing asset inflation over the short-term. The Yen carry trade can be blamed for rampant increases in global real estate prices, commodities prices, and stock prices in emerging markets.
Thursday, January 04, 2007
Energy Prices Down Big Today
Energy prices are down again today huge due to the above normal temperatures across the Eastern United States. Oil prices are down to $56+ per barrel, natural gas prices are below $6.50 per btu, and gasoline and heating oil are both trading lower as well.
My belief is that these price lows are temporary due to weather, a slowing economy, and a US dollar that is reflating in the short-term since the dollar has dropped significantly in December against most major currencies. A major energy trader on CNBC noted that oil supplies have been gradually decreasing in the US as the prices have been going lower. He noted that if demand should spike due to abnormally cold weather or due to a heat wave this summer, then prices could be much, much higher from where they are today.
The best market gains can always be made with contrarian bets. Today presents one of those contrarian opportunities if one is underexposed to energy and wishes to increase their commodity exposed and is not afraid of volatility over the next couple of years, particularly with many energy stocks trading at 2007 expected P/E ratios of below 10.
My belief is that these price lows are temporary due to weather, a slowing economy, and a US dollar that is reflating in the short-term since the dollar has dropped significantly in December against most major currencies. A major energy trader on CNBC noted that oil supplies have been gradually decreasing in the US as the prices have been going lower. He noted that if demand should spike due to abnormally cold weather or due to a heat wave this summer, then prices could be much, much higher from where they are today.
The best market gains can always be made with contrarian bets. Today presents one of those contrarian opportunities if one is underexposed to energy and wishes to increase their commodity exposed and is not afraid of volatility over the next couple of years, particularly with many energy stocks trading at 2007 expected P/E ratios of below 10.
Mutual Funds had Large Distributions in December
A friend of mine asked me for a few mutual fund recommendations for his IRA shortly after Thanksgiving. He took my recommendations and spread some of his money among those mutual funds. Last week I spoke to him and he said that he sold out of two of the funds because he noticed the share prices had dipped 10%, and the correction made him nervous. I asked him whether he had looked at the number shares owned in each of those funds and the total value of the money invested in each fund, and he hadn't. I told him that he worried for no reason and he should have called me before selling the funds. Here is why.
Mutual funds that have been successful disburse a portion of the fund for capital gains purposes in mid-December each year. In the case of a retirement fund, the gains get reinvested into the mutual fund, so one ends up with more shares of the mutual fund at a lower price. My friend was not aware of this and thought that his investment in the mutual funds that recently had distributions had actually declined rather than stayed even or even increased.
Always consult your financial advisor prior to selling a mutual fund because of a perceived loss that may not actually exist due to capital gains distributions.
So what are capital gains distributions? They are a distribution of profits from a mutual fund that result from the sale of securities in the mutual fund portfoliothat are taxed in a taxable account.
Mutual funds that have been successful disburse a portion of the fund for capital gains purposes in mid-December each year. In the case of a retirement fund, the gains get reinvested into the mutual fund, so one ends up with more shares of the mutual fund at a lower price. My friend was not aware of this and thought that his investment in the mutual funds that recently had distributions had actually declined rather than stayed even or even increased.
Always consult your financial advisor prior to selling a mutual fund because of a perceived loss that may not actually exist due to capital gains distributions.
So what are capital gains distributions? They are a distribution of profits from a mutual fund that result from the sale of securities in the mutual fund portfoliothat are taxed in a taxable account.
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