The countdown continues as the Federal Reserve lower the interest rate past most expectations to a level between 0 and .25. This is a strategy that appears to be similar to the one taken by Japan during the economic period that was similar to ours years ago. What does this do to the markets:
It dramatically pushes down the rate of return on a money market fund and Treasury bills. There are very few ways rates in these assets and one is lowering interest rates and the other is the increased buying of rates by the public usually due to economic concerns of the market. If you recall, when I noted that the markets would be experiencing a rough time I sent readers here to these assets mainly due to safety reasons. Now the fed's actions want to force us to put our money to use elsewhere, mainly the stock market because it doesn't make sense to stash them in money markets and T-bills because we won't make any money!
The only things that makes me a little skeptical is that we are experiencing rough economic times and I don't think the average investor will flock to stocks right away. I think there is still alot of fear out there and people will take little to no returns as compared to big losses from holding stocks. The one thing I am now completely bullish on is GOLD, as the fed's action of moving rates to zero is equivalent to pulling out the printing press in the middle of the street and giving money freely to anyone who is asking.
Tuesday, December 16, 2008
Sunday, December 07, 2008
Too Legit To Quit...
Yeah I am taking it back to the old school and hitting you up with a little MC Hammer. Back in the day, Hammer had a little assistance from his buddy neon Deon Sanders with this anthem To Legit Too Quit. And with the latest bailout money being tossed around for the auto industry it seems like Congress is saying that Ford, GM and Chrysler are to legit (or to big) to quit! And we have stronger evidence this weekend, with a report written by the Wall Street Journal that indicates that the Big 3 get big dough from a bailout plan that is currently in the works. What does this sound like?!? Well it sounds an awful lot like the bailout deal that was struck for financial firms on Wall Street. However, there is a slight difference and that difference is there are definite strings that it appears will be attached to the Big 3. How odd Congress didn't choose to place these same type of strings on the 700Billion dollars that was given to the Wall Street firms but hey who's counting, right!?!
My job is to capitalize on this new development, dubbed the Auto Bailout and figure out how we can make a trade on it. I am going to argue that you may see some of a bounce in Ford and GM's stock but there is still too much risk in investing in these commpanies, because just like AIG, the only financial firm to have signficant strings attached to their bailout deal, strings in your deal mean that the common stockholders get crushed in the process. They get sent to the back of the payment priority line and have nothing to look forward to in owning the stocks for the next few years as the government moves into the pivotal number 1 slot of receiving its payments first. Say goodbye to fat dividend payments to common shareholders. So whats the trade YOU ASK!
I say buy the beaten down auto parts makers!!! BUY: Lear (LEA), TRW Automotives (TRW), Johnson Controls (JCI), and Borg Warner(BWA) because of this reason:
A buy on auto parts manufacturers make sense here because we have a high probability that the auto bailout will be approved. While it is unsure whether the bailout will wipe out shareholder value for GM and Ford...it definitely gives the auto part makers a huge boost in the short term because their worst case scenario, which was priced into the stock, its now of the table because the Big 3 are saved for the time being. In plain English, no bankruptcy means these guys actually survive and that should be great news for the stocks!
And I am adding these bad boys to the STOCK TRACKER to see how this trade would work out.
My job is to capitalize on this new development, dubbed the Auto Bailout and figure out how we can make a trade on it. I am going to argue that you may see some of a bounce in Ford and GM's stock but there is still too much risk in investing in these commpanies, because just like AIG, the only financial firm to have signficant strings attached to their bailout deal, strings in your deal mean that the common stockholders get crushed in the process. They get sent to the back of the payment priority line and have nothing to look forward to in owning the stocks for the next few years as the government moves into the pivotal number 1 slot of receiving its payments first. Say goodbye to fat dividend payments to common shareholders. So whats the trade YOU ASK!
I say buy the beaten down auto parts makers!!! BUY: Lear (LEA), TRW Automotives (TRW), Johnson Controls (JCI), and Borg Warner(BWA) because of this reason:
A buy on auto parts manufacturers make sense here because we have a high probability that the auto bailout will be approved. While it is unsure whether the bailout will wipe out shareholder value for GM and Ford...it definitely gives the auto part makers a huge boost in the short term because their worst case scenario, which was priced into the stock, its now of the table because the Big 3 are saved for the time being. In plain English, no bankruptcy means these guys actually survive and that should be great news for the stocks!
And I am adding these bad boys to the STOCK TRACKER to see how this trade would work out.
Wednesday, November 26, 2008
Is there a Superman to our Markets
Now I know we would all love to look up in the sky and see Superman flying in to save the day but what we need is a dose of reality to face these markets. And instead of relying on one person which is what Wall Street usually hopes for, the President - elect may be taking the best approach of them all. With most people completely discounting the words of the current president, George Bush, everyone is turning to the guy who isn't the current president to make presidential decisions before he hits the office. Obama is going against the grain and this must be his motto at this point. The prevailing model has often been 1 man running- the- show and that one man gets the credit like in the days of Alan Greenspan or more recently as we've relied on Ben Bernanke and Hank Paulson. Well, this time around President - elect Obama appears to be naming a Super Team to handle this Super Crisis! Obama is naming people on both sides of the economic aisle in an effort to determine a way to bring us out of this mess.
Now my orginal story is trapped on another computer but here is the direction I was going while I was putting that together, what do we do from here. Here are snippets of what I am thinking and I will include my pre-written thoughts a few days from now:
Access Current Economic Environment: I have to admit that I am early or wrong in thinking that the recent economic declines would begin to push demand for regular goods high (i.e., inflation) while the government prints money uncontrollably. Well we have seen that the economic indicators are far worse and that is leading to a rapid decline in every good across the board which is more like deflationary pressures on our economy.
What Solves The Situation: One thing the market is looking for is clarity about what the future will look like and they haven't been able to get that from the Lame Duck President George Bush. I think Obama's team has taken a delicate but decisive approach and released 3 straight days of news that is addressed directly at the economy...something I would expect from our current President. And notice what the results have been, a strong response from the markets even with more bad news coming out. That is a very solid sign when bad news is coming out but the markets are "shrugging them off".
What am I going to do: I am taking an aggresive approach and dividing my world into 2 segments. My retirment world and my investing world is what I call them and here is the part that you are most concerned with. In my retirement world, I have sat on the sidelines with no cash investment in stocks for the last few months because of the uncertainty out there. I believe we may have taken the right approach as the markets have gone down further and tests lows not seen since roughly 2001-02. But the market has been bounced off of these levels and in my opionion I may shift back into the markets if and when we near those levels again.
In my investing world I am searching for the worst of the worst and trying to find opportunities for long term and short term investments. For instance I like the stocks that will benefit from the roughly 1 trillion dollars that we are currently throwing at the markets. So I am weeding through the financial sector, beaten down stocks, and then I am going to the other side of the spectrum and looking for those least affected by all of this.
Financial:
How about looking at Citigroup (C), at this point they appeared to be dying like a patient with a bad heart but they have been give recesitation by the government. This means dying is not a option and I would buy on any dips in this stock...of course I have a thing for 52 week lows, which means below $4!
Also, how about Discover Financial (DFS), who is stuck in the middle of all this credit crunch. They are exposed to credit consumers as they hold consumer debt, but have a transaction processing network and stand to gain from the legal battles with Visa and Mastercard. With recent run-un, I would again wait until this drops below it 52 week low and begin forming a base at around $6.50.
Limited exposure to credit consumers: There are transaction processors that are indirectly affected by the credit crunch but this group is not directly affected. The likes of Visa, Mastercard, and others may be interesting plays. Again I would take an agressive approach and buy at 52 week lows which is $43 and $113 respectively.
Just simply beaten down:
Sirius - this is trading @ 14c, can it go any lower
Jeffries - an investment bank still standing
Big Lots - discount retailer, and logic says consumers may start turning to this sector
Apple/Research in Motion - they make stuff ppl want
Radisys - 2 straight quarter of solid results and no huge move in the stock...only time they will figure it out
Give consideration at 52 week lows!
The Trend is your friend:
SSG - This ETF shorts the semiconductor sector. A great hedge as we expose ourselves to the sectors like technology, but if the market continues to go down we have a friend. Look at $140
S&P Financials - Is this too beaten down, maybe not because the TARP money will not be used to bail buy bad assets which means they will need to be written off. So short this sector!
Retailers - Short retailers, simply no one has any money to buy a damn thing! Even luxury retailers Saks, Coach are claiming they have to give discounts to lure "affluent" customers...I guess the trickle down effect doesn't work in this market
STAY TUNED! More to come
Now my orginal story is trapped on another computer but here is the direction I was going while I was putting that together, what do we do from here. Here are snippets of what I am thinking and I will include my pre-written thoughts a few days from now:
Access Current Economic Environment: I have to admit that I am early or wrong in thinking that the recent economic declines would begin to push demand for regular goods high (i.e., inflation) while the government prints money uncontrollably. Well we have seen that the economic indicators are far worse and that is leading to a rapid decline in every good across the board which is more like deflationary pressures on our economy.
What Solves The Situation: One thing the market is looking for is clarity about what the future will look like and they haven't been able to get that from the Lame Duck President George Bush. I think Obama's team has taken a delicate but decisive approach and released 3 straight days of news that is addressed directly at the economy...something I would expect from our current President. And notice what the results have been, a strong response from the markets even with more bad news coming out. That is a very solid sign when bad news is coming out but the markets are "shrugging them off".
What am I going to do: I am taking an aggresive approach and dividing my world into 2 segments. My retirment world and my investing world is what I call them and here is the part that you are most concerned with. In my retirement world, I have sat on the sidelines with no cash investment in stocks for the last few months because of the uncertainty out there. I believe we may have taken the right approach as the markets have gone down further and tests lows not seen since roughly 2001-02. But the market has been bounced off of these levels and in my opionion I may shift back into the markets if and when we near those levels again.
In my investing world I am searching for the worst of the worst and trying to find opportunities for long term and short term investments. For instance I like the stocks that will benefit from the roughly 1 trillion dollars that we are currently throwing at the markets. So I am weeding through the financial sector, beaten down stocks, and then I am going to the other side of the spectrum and looking for those least affected by all of this.
Financial:
How about looking at Citigroup (C), at this point they appeared to be dying like a patient with a bad heart but they have been give recesitation by the government. This means dying is not a option and I would buy on any dips in this stock...of course I have a thing for 52 week lows, which means below $4!
Also, how about Discover Financial (DFS), who is stuck in the middle of all this credit crunch. They are exposed to credit consumers as they hold consumer debt, but have a transaction processing network and stand to gain from the legal battles with Visa and Mastercard. With recent run-un, I would again wait until this drops below it 52 week low and begin forming a base at around $6.50.
Limited exposure to credit consumers: There are transaction processors that are indirectly affected by the credit crunch but this group is not directly affected. The likes of Visa, Mastercard, and others may be interesting plays. Again I would take an agressive approach and buy at 52 week lows which is $43 and $113 respectively.
Just simply beaten down:
Sirius - this is trading @ 14c, can it go any lower
Jeffries - an investment bank still standing
Big Lots - discount retailer, and logic says consumers may start turning to this sector
Apple/Research in Motion - they make stuff ppl want
Radisys - 2 straight quarter of solid results and no huge move in the stock...only time they will figure it out
Give consideration at 52 week lows!
The Trend is your friend:
SSG - This ETF shorts the semiconductor sector. A great hedge as we expose ourselves to the sectors like technology, but if the market continues to go down we have a friend. Look at $140
S&P Financials - Is this too beaten down, maybe not because the TARP money will not be used to bail buy bad assets which means they will need to be written off. So short this sector!
Retailers - Short retailers, simply no one has any money to buy a damn thing! Even luxury retailers Saks, Coach are claiming they have to give discounts to lure "affluent" customers...I guess the trickle down effect doesn't work in this market
STAY TUNED! More to come
Wednesday, November 19, 2008
Bonds May Be Safe Alternative
Write now I stand by my earlier posts and believe bonds may be the best short term alternative. This markets is wilder than a rollercoaster going up 5% one day and down 7% the next. Further proof that people may follow our direction and head to safer ground was found is this article here posted by CNN:
http://money.cnn.com/2008/11/19/markets/bondcenter/credit_market/index.htm?postversion=2008111917
http://money.cnn.com/2008/11/19/markets/bondcenter/credit_market/index.htm?postversion=2008111917
Thursday, November 13, 2008
Bailout / TARP Abandoned
Here goes another I told you so. The bailout money allocated to buy distressed assets was abandoned by the Treasury Department. I wrote here early, that this program was flawed for so many reasons. The biggest reason: "There was no way they could value the bad assets, manage them, or dispose of the assets correctly!!!"
Fundamentally I agree with the fact that a bailout is needed but I have noted that the government needs to address both the supply and demand side of our economy. On the Supply side, I don't mind the Treasury department injecting cash into banks but I do think that one of the strange things is that but private investors like Warren Buffet are brokering better deals then the GOVERNMENT is. Part of the problem is no oversight or poor oversight because these banks are not lending to the public! This would begin to address the demand side, however the banks are getting the cheapest money ever made available and using it to MAKE INVESTMENTS like buying other banks...SEE PNC Bank's acquisition of National City.
What the Government Should Require:
- All common stock dividends should be taken away
- Force banks to lend to consumer
- Punitive terms of the banks (firing managers)
- Goverment must get Main Street bank on their feet through mortgage adjustments, incentives for homebuyers to acquire homes, addressing unemployment, and some sort of stimulus (tax cuts/credits)
Where do we go from here:
The markets will continue to trend lower for remain in a trading pattern. When I first spoke of actions to take to address the direction of the markets I recommended most folks get a majority of their money out of the market and into bonds. Then the Dow Jones Industrial Average (basket of the 30 large stocks representing the US economy) was trading around 9000 and my guess was that we would head lower and test recession like lows. The last time we could compare lows like this was in roughly 2002-2003 when the market hit lows of roughly 7700 (I believe). My assumption is that this will be the prudent time to begin to reallocate your portfolio back into the market. Again that is an assumption because I don't really think that this last time can be effectively compared to now. We are facing a local recession, rising probability of a global recession (in most areas except for China), and if these conditions exist we could be facing a depression due to deflationary pressure. This could be the one area that I initially got wrong...I thought we would be facing inflationary pressures or rising costs but that appears to be far down the line. Right now deflation is running wild and that is evident is the sharp decline of prices across the board. Gas is down from $4.00 to now roughly $2.00 and everything is falling with it, stocks included. If this trend continues deflation could lead to an extended recession and Dow 7700 may not even be a legitimate floor for the market.
Fundamentally I agree with the fact that a bailout is needed but I have noted that the government needs to address both the supply and demand side of our economy. On the Supply side, I don't mind the Treasury department injecting cash into banks but I do think that one of the strange things is that but private investors like Warren Buffet are brokering better deals then the GOVERNMENT is. Part of the problem is no oversight or poor oversight because these banks are not lending to the public! This would begin to address the demand side, however the banks are getting the cheapest money ever made available and using it to MAKE INVESTMENTS like buying other banks...SEE PNC Bank's acquisition of National City.
What the Government Should Require:
- All common stock dividends should be taken away
- Force banks to lend to consumer
- Punitive terms of the banks (firing managers)
- Goverment must get Main Street bank on their feet through mortgage adjustments, incentives for homebuyers to acquire homes, addressing unemployment, and some sort of stimulus (tax cuts/credits)
Where do we go from here:
The markets will continue to trend lower for remain in a trading pattern. When I first spoke of actions to take to address the direction of the markets I recommended most folks get a majority of their money out of the market and into bonds. Then the Dow Jones Industrial Average (basket of the 30 large stocks representing the US economy) was trading around 9000 and my guess was that we would head lower and test recession like lows. The last time we could compare lows like this was in roughly 2002-2003 when the market hit lows of roughly 7700 (I believe). My assumption is that this will be the prudent time to begin to reallocate your portfolio back into the market. Again that is an assumption because I don't really think that this last time can be effectively compared to now. We are facing a local recession, rising probability of a global recession (in most areas except for China), and if these conditions exist we could be facing a depression due to deflationary pressure. This could be the one area that I initially got wrong...I thought we would be facing inflationary pressures or rising costs but that appears to be far down the line. Right now deflation is running wild and that is evident is the sharp decline of prices across the board. Gas is down from $4.00 to now roughly $2.00 and everything is falling with it, stocks included. If this trend continues deflation could lead to an extended recession and Dow 7700 may not even be a legitimate floor for the market.
Saturday, October 18, 2008
Cash Is King...
I know people always ask the question what are you doing right now?!? And that is a difficult question because many of us out there are so confused. So I always tell everyone to remember one of the most important rules that we have here at Urbanomics and that is "keep your ear to da streets". Read, read, and when you're tired read some more. Find out what smart people with big money are doing. For example, let's take our friends over in the hedge fund industry who many wonder what they are doing with their cash during these tumultuous times. I began to do my research looking to hear how these kings of cash are managing their money. Thanks to the Wall Street Journal we got an insight into the management of 3 of the industries best, Steven Cohen, Israel Englander and John Paulson. The reason why we are off on this search is to either confirm my initial sprint to cash and short term bonds or to rethink where I may have gone wrong.
To make a long story short, The Wall Street Journal reported the hedge fund managers have come to a similar conclusion we made here and Urbanomics by deciding to take a TV timeout and MOVE their funds to "money-market funds and other short-term securities". There recent reallocation is summed up here in the following points:
Everyone should tread very carefully and wait for extreme undersold levels in some of the best companies in their industries or stocks trading at irrational levels. I often like to analyze historical price patterns to determine where support levels exist. A few names that have come to mind at this point are:
National City (NCC) - After reviewing the historical price and charts, I loved this stock at $1.25 and 1.75 with the first target being the 52 week low. Three weeks ago I picked up NCC when it approached the 1.75 and from that point on it has been a thing of beauty. I sold a majority of my stake when it crossed $3 and the rest last week after the announcement of the merger with PNC Bank.
Visa (V) and Mastercard (MA) - Now you may question why I would mention these names when I took a moment in previous posting to blast Capital One (COF). Well V and MA are a little different in they just process transactions and have limited exposure to the credit risks of having actual bank customers. They may and are projecting a decrease in the number of transactions they will process but the trends are in their favor. We live in a world that is moving away from cash and onto plastic. And what's even more dynamic is they continue to see a dramatic increase in debit transactions. These transactions are essentially cash like transactions because the customer swipes their debit card, which takes money out of their bank account, to pay for goods.
I have seen support at the price level of 47 for V, but the initial public offering (IPO) price of around 44 would allow you to own this stock as if you were an initial owner a year ago!!!
MA is a little more difficult and looking at charts, I would expect to see support at the price level 145.
Discover Financial (DFS) should also benefit from its ownership of the PULSE network which handles debit card transactions, however like other pure credit card companies like COF a slowdown in the economy will like affect this industry. DFS also see brighter days after the recent settlement with V and MA for antitrust practices. I would expect to see initial support and levels near the 52 week low of 7.50.
Disclosure: I own or am actively looking to add shares of the firms mentioned above at the recommended price points. As noted above, NCC has been sold last week.
To make a long story short, The Wall Street Journal reported the hedge fund managers have come to a similar conclusion we made here and Urbanomics by deciding to take a TV timeout and MOVE their funds to "money-market funds and other short-term securities". There recent reallocation is summed up here in the following points:
- Steve Cohen’s SAC Capital Advisors will leave 1/2 of their $14 billion money markets until year-end.
- John Paulson's Paulson & Company’s is moving a large chunk of their $35 billion into cash.
Everyone should tread very carefully and wait for extreme undersold levels in some of the best companies in their industries or stocks trading at irrational levels. I often like to analyze historical price patterns to determine where support levels exist. A few names that have come to mind at this point are:
National City (NCC) - After reviewing the historical price and charts, I loved this stock at $1.25 and 1.75 with the first target being the 52 week low. Three weeks ago I picked up NCC when it approached the 1.75 and from that point on it has been a thing of beauty. I sold a majority of my stake when it crossed $3 and the rest last week after the announcement of the merger with PNC Bank.
Visa (V) and Mastercard (MA) - Now you may question why I would mention these names when I took a moment in previous posting to blast Capital One (COF). Well V and MA are a little different in they just process transactions and have limited exposure to the credit risks of having actual bank customers. They may and are projecting a decrease in the number of transactions they will process but the trends are in their favor. We live in a world that is moving away from cash and onto plastic. And what's even more dynamic is they continue to see a dramatic increase in debit transactions. These transactions are essentially cash like transactions because the customer swipes their debit card, which takes money out of their bank account, to pay for goods.
I have seen support at the price level of 47 for V, but the initial public offering (IPO) price of around 44 would allow you to own this stock as if you were an initial owner a year ago!!!
MA is a little more difficult and looking at charts, I would expect to see support at the price level 145.
Discover Financial (DFS) should also benefit from its ownership of the PULSE network which handles debit card transactions, however like other pure credit card companies like COF a slowdown in the economy will like affect this industry. DFS also see brighter days after the recent settlement with V and MA for antitrust practices. I would expect to see initial support and levels near the 52 week low of 7.50.
Disclosure: I own or am actively looking to add shares of the firms mentioned above at the recommended price points. As noted above, NCC has been sold last week.
Thursday, October 16, 2008
What's In Your Wallet...
Its for damn sure not a Capital One credit card and I can tell you that. Now I have nothing against Cap One but they may be cutting back on their crazy commercials pretty soon. The reason why is because I have been posting for awhile now that our economy is showing signs of the dreaded "R" word recession. Yup, I am proud of myself today as I used the "search" feature on the site to determine when was the first time I began identifying a spiraling trend of distress for the average American and found out that my postings almost bring us back to exactly a year ago!!! Check it out: http://urbanomics.blogspot.com/2007/10/welcome-to-good-life.html
Notice, a year ago I began mentioning the developments of financial institutions currently plummeting or no longer in existence as a public companies.
And for you lazy folks, here is a quick excerpt from OCTOBER 24, 2007:
Let's see, we have major financial companies, Bank of America, Merrill Lynch, Citigroup, and Wachovia Bank all getting hammered by the weakness in the credit markets and the mainly through the bad investments that were made. Add to that the mortgage crisis in the US which has led to homeowners everywhere defaulting on their homes. All the companies in these areas, which were once living the "Good Life" are singing the blues and laying people off. Then there is that pesky thing called energy...it currently sits at levels that are unthinkable. Oil is reaching levels of roughly 90 dollars a barrel and predicted to continue to rise. Now maybe I am too young to really know what I'm talking about but there has been the "R" word thrown out by some analysts and that would be RECESSION and from what I am seeing in the markets I don't think that some of the whispers are too far off.I am no mathematician but poor financial markets + bad consumer debt + rising foreclosures + declining property values + layoffs = something is wrong (possibly RECESSION). I am not comfortable with the volatility in the market because as companies are beating earnings or being upgraded they go up and then immediately the market brings them right back down due to all the negative news.
Now you see why I say if I am able to logically come to this conclusion over roughly a year ago where were the geniuses in the Federal Government who are supposed to put policies in place to navigate us through these difficult times! Good question, but we really want to know where do we go from here and the likely answer is probably down or sideways. I haven't put that much thought into it but logic now tells you that the perfect storm has been created. All forms of creating wealth have been completely taken to the woods and shot and now there is not much left to do but clean up the mess. This is what I mean, some may argue there are three main avenues for wealth creation in the United States: Real Estate, Investments, Entrepreneurship. These three avenues have been taken out in the following order:
Real Estate - The first area to get hit and many felt the pain from real estate brokers to new homeowners. The worst may not be behind us unless something to do something to stabilize foreclosures. This decline in real estate lead to the decline in Investments.
Investments - The crumbling real estate market blazed a path of destruction that has hit the stock market with breathtaking speed. Banks, investment banks, insurance companies and other institutions have been impaired. This is leading to the decline of the American economy and entrepreneurship.
Entrepreneurship - The impact of the real estate market and now the stock market is leading to layoffs and a slowing down of the economy. There are less investments to start businesses and every day workers like you and me are cutting back on our spending. This will now impact businesses and franchisees across the country. The next decline in my mind will be Retailers, Consumer Services, Restaurants, and Travel and Leisure sectors. I say this from experience as I am not eager to travel, cut back on my credit card spending, limited eating out, and even if my clothes don't fit they will have to be good enough for now.
This means that the pain in the stock market, your 401K portfolio is not over. We will now see companies start to feel the effects in these sectors:
Credit Cards - Capital One
Retailers - Saks, Nordstrom
Restaurants - Brinkers International
Travel and Leisure - Hotels, Airlines
Short these sectors as the recession will now enter a downturn.
Notice, a year ago I began mentioning the developments of financial institutions currently plummeting or no longer in existence as a public companies.
And for you lazy folks, here is a quick excerpt from OCTOBER 24, 2007:
Let's see, we have major financial companies, Bank of America, Merrill Lynch, Citigroup, and Wachovia Bank all getting hammered by the weakness in the credit markets and the mainly through the bad investments that were made. Add to that the mortgage crisis in the US which has led to homeowners everywhere defaulting on their homes. All the companies in these areas, which were once living the "Good Life" are singing the blues and laying people off. Then there is that pesky thing called energy...it currently sits at levels that are unthinkable. Oil is reaching levels of roughly 90 dollars a barrel and predicted to continue to rise. Now maybe I am too young to really know what I'm talking about but there has been the "R" word thrown out by some analysts and that would be RECESSION and from what I am seeing in the markets I don't think that some of the whispers are too far off.I am no mathematician but poor financial markets + bad consumer debt + rising foreclosures + declining property values + layoffs = something is wrong (possibly RECESSION). I am not comfortable with the volatility in the market because as companies are beating earnings or being upgraded they go up and then immediately the market brings them right back down due to all the negative news.
Now you see why I say if I am able to logically come to this conclusion over roughly a year ago where were the geniuses in the Federal Government who are supposed to put policies in place to navigate us through these difficult times! Good question, but we really want to know where do we go from here and the likely answer is probably down or sideways. I haven't put that much thought into it but logic now tells you that the perfect storm has been created. All forms of creating wealth have been completely taken to the woods and shot and now there is not much left to do but clean up the mess. This is what I mean, some may argue there are three main avenues for wealth creation in the United States: Real Estate, Investments, Entrepreneurship. These three avenues have been taken out in the following order:
Real Estate - The first area to get hit and many felt the pain from real estate brokers to new homeowners. The worst may not be behind us unless something to do something to stabilize foreclosures. This decline in real estate lead to the decline in Investments.
Investments - The crumbling real estate market blazed a path of destruction that has hit the stock market with breathtaking speed. Banks, investment banks, insurance companies and other institutions have been impaired. This is leading to the decline of the American economy and entrepreneurship.
Entrepreneurship - The impact of the real estate market and now the stock market is leading to layoffs and a slowing down of the economy. There are less investments to start businesses and every day workers like you and me are cutting back on our spending. This will now impact businesses and franchisees across the country. The next decline in my mind will be Retailers, Consumer Services, Restaurants, and Travel and Leisure sectors. I say this from experience as I am not eager to travel, cut back on my credit card spending, limited eating out, and even if my clothes don't fit they will have to be good enough for now.
This means that the pain in the stock market, your 401K portfolio is not over. We will now see companies start to feel the effects in these sectors:
Credit Cards - Capital One
Retailers - Saks, Nordstrom
Restaurants - Brinkers International
Travel and Leisure - Hotels, Airlines
Short these sectors as the recession will now enter a downturn.
Sunday, October 12, 2008
Jim Rogers ~ Market Expectations
When trying to gauge how low the markets can go, I often do a couple of things, and that is to try to find out what is the worst cause scenario and an have an expert tell me in their words. When their are folks like Larry Kudlow telling the people to buy into a falling economy I like to hear the other end of the spectrum so that I can come to my own conclusion. So my interest in understanding how bad the economy is took me to statements recently made by famed investor Jim Rogers. Here are recents comments compiled from Bloggingstocks, Moneymorning, and CNBC:
"I'm extremely worried," he says. "I have been for a while, but I just see things getting much worse this time around than I expected." To Rogers, a longtime Fed critic, Bernanke's decision to ride to the market's rescue with a 75-basis-point cut in the Fed's benchmark rate only a week before its scheduled meeting (at which time they cut it another 50 basis points) is the latest sign that the central bank isn't willing to provide the fiscal discipline that he thinks the economy desperately needs. "
"Conceivably we could have just had recession, hard times, sliding dollar, inflation, etc., but I'm afraid it's going to be much worse," he says. "Bernanke is printing huge amounts of money. He's out of control and the Fed is out of control. We are probably going to have one of the worst recessions we've had since the Second World War. It's not a good scene."
Rogers looks at the Fed's willingness to add liquidity to an already inflationary environment and sees the history of the 1970s repeating itself. Does that mean stagflation? "It is a real danger and, in fact, a probability."
Where he expects the pain to be most intense is on Wall Street. He says he hasn't covered his short positions on the investment banks or Citigroup (C, Fortune 500) and won't for a while. "Those things are going to go way, way, way down," says Rogers. "The investment banks are down now because of the problems in the credit market. Wait until the effects of the bear market come along. If you just go back and look at other bear markets, investment bank stocks have gone down enormously. We haven't gotten to that stage yet. It's going to bring their balance sheets under duress. This is going to get much worse. But that's where there have been excesses for the past decade or so. And whenever you have a bear market come along the great excesses of the previous period are the ones that get cleaned out the most."
Markets do not trust the governments' plans to keep struggling banks alive and investors will only calm down when the companies with bad assets are allowed to go bankrupt, legendary investor Jim Rogers, CEO of Rogers Holdings, told CNBC on Friday.
"The way to solve this problem is to let people go bankrupt," Rogers said. "Then you will hit bottom and then you start over. The people who are sound will take over the assets from the people who aren't sound and we will start over. This is the way the world has worked for a few thousand years."
The current rescue plans, which will force governments to issue more debt, print money and flood the markets with liquidity, will flare up inflation after the crisis is over and will create worse problems, Rogers warned. "We're setting the stage for when we come out of this of a massive inflation holocaust," he said. And the plans are unlikely to fend off a severe economic downturn, as the crisis starts affecting all walks of life. "We had the worst excesses we had in credit markets in world history. We're going to have to take some pain," Rogers said.
Economies who did not take part in the subprime bonanza are likely to suffer along with Wall Street and the developed economies as the crisis unfolds, he warned. "What about all the people in countries that minded their manners, saved their money, didn't get overextended and now all of a sudden they're being asked to bail out a bunch of guys on Wall Street who were incompetent at best and some of them crooks?" "I thought it outrageous that anybody has to step in a bail out a bunch of 29 year olds driving Maseratis," he said. There are not many safe havens in the volatile markets, he said. "I have an enormous amount of cash and I've been using it to buy more Japanese yen, more Swiss Francs, more agricultural products… there's a liquidation phase going on, where everything is being liquidated. They're selling everything in sight."
"In a period like this the way you make money coming out of it is to own the things were the fundamentals have not been impaired," Rogers added.
"I'm extremely worried," he says. "I have been for a while, but I just see things getting much worse this time around than I expected." To Rogers, a longtime Fed critic, Bernanke's decision to ride to the market's rescue with a 75-basis-point cut in the Fed's benchmark rate only a week before its scheduled meeting (at which time they cut it another 50 basis points) is the latest sign that the central bank isn't willing to provide the fiscal discipline that he thinks the economy desperately needs. "
"Conceivably we could have just had recession, hard times, sliding dollar, inflation, etc., but I'm afraid it's going to be much worse," he says. "Bernanke is printing huge amounts of money. He's out of control and the Fed is out of control. We are probably going to have one of the worst recessions we've had since the Second World War. It's not a good scene."
Rogers looks at the Fed's willingness to add liquidity to an already inflationary environment and sees the history of the 1970s repeating itself. Does that mean stagflation? "It is a real danger and, in fact, a probability."
Where he expects the pain to be most intense is on Wall Street. He says he hasn't covered his short positions on the investment banks or Citigroup (C, Fortune 500) and won't for a while. "Those things are going to go way, way, way down," says Rogers. "The investment banks are down now because of the problems in the credit market. Wait until the effects of the bear market come along. If you just go back and look at other bear markets, investment bank stocks have gone down enormously. We haven't gotten to that stage yet. It's going to bring their balance sheets under duress. This is going to get much worse. But that's where there have been excesses for the past decade or so. And whenever you have a bear market come along the great excesses of the previous period are the ones that get cleaned out the most."
Markets do not trust the governments' plans to keep struggling banks alive and investors will only calm down when the companies with bad assets are allowed to go bankrupt, legendary investor Jim Rogers, CEO of Rogers Holdings, told CNBC on Friday.
"The way to solve this problem is to let people go bankrupt," Rogers said. "Then you will hit bottom and then you start over. The people who are sound will take over the assets from the people who aren't sound and we will start over. This is the way the world has worked for a few thousand years."
The current rescue plans, which will force governments to issue more debt, print money and flood the markets with liquidity, will flare up inflation after the crisis is over and will create worse problems, Rogers warned. "We're setting the stage for when we come out of this of a massive inflation holocaust," he said. And the plans are unlikely to fend off a severe economic downturn, as the crisis starts affecting all walks of life. "We had the worst excesses we had in credit markets in world history. We're going to have to take some pain," Rogers said.
Economies who did not take part in the subprime bonanza are likely to suffer along with Wall Street and the developed economies as the crisis unfolds, he warned. "What about all the people in countries that minded their manners, saved their money, didn't get overextended and now all of a sudden they're being asked to bail out a bunch of guys on Wall Street who were incompetent at best and some of them crooks?" "I thought it outrageous that anybody has to step in a bail out a bunch of 29 year olds driving Maseratis," he said. There are not many safe havens in the volatile markets, he said. "I have an enormous amount of cash and I've been using it to buy more Japanese yen, more Swiss Francs, more agricultural products… there's a liquidation phase going on, where everything is being liquidated. They're selling everything in sight."
"In a period like this the way you make money coming out of it is to own the things were the fundamentals have not been impaired," Rogers added.
Thursday, October 09, 2008
Government, Policies, and Wall Street...
We often forget how government policies and Wall Street impact our lives.
One of the biggest adjustments in everyone's lives was the shift towards everday American's funding and managing their futures. Policies have created new instruments such as 401K plans, 529 plans, and individual retirement accounts to move Main Street America into funding and managing their family's future. In the past, you may have had a pension that rewarded your hard work and productivity but now that is often not the norm. All three instruments mentioned above empower you and I, as investors, to take full advantage of what the stock market offers. However, the downsides to these instruments are there are often limited investment choices, cumbersome rules, and not enough financial planning advice. This is very evident as we see sharp declines in the current market. 401K plans, 529 plans, and individual retirement accounts are the very things that were created to ensure our cushy retirement and reduce the burden of the rising costs for college.
Due to the fact that these instruments are so important to so many people, you would like to believe that we would be equipped with all the "tools" to make safe, sound, and educated investments. However, there are a few potential conflicts that lay underneath the surface:
Limited Investment Options - 401K plans are managed by your employer and often there is a slight conflict because an employers main goal is to manage costs and meet quarterly earnings projections. An area that is often adjusted for costs is the management and availability of "OPTIONS" given to you and I to make the necessary choices to fund our retirements. Hank Paulson often talks about needing the necessary tools to assist the country in getting out of this crisis. Well I want to throw one OPTION out there, why not give each of us unlimited OPTIONS to manage our retirement portfolios. I have a standard brokerage account and the options available to the investing community are different that the limited choices in my 401K plan. I have the ability as an investor to make money or simply hedge my portfolio during periods when the market is down...however those choices are not made available to me in my 401K plan. And if you are wondering can it be done efficiently...the answer is yes as Exchange Traded Funds (similar to mutual funds) can be used for that purpose.
And to assist us with these new OPTIONS, I would recommend that additional financial education be given to assist American during periods where there may be many questions. Of course, you can always turn to websites and blogs like this for everyday questions.
Million Dollar Question - Why do you have this view?
Well I have noticed that as an investor, when I began blogging almost two years ago about the beginnings of a RECESSION, I shifted my portfolio to a direction that was heavily weighted in Technology and Dividend companies and recommended that you do the same. However, I didn't have the option in my 401K plan and often in my IRA account to make this type of decision. And things were not yet as such a difficult state as they are now, so I left my accounts unchanged because moving to cash accounts (Money Markets and Treasury Bills) would have been to drastic. But when the market turned negative very quickly, I did not have the OPTION to use Exchange Traded Funds to benefit from funds that make money when the market is negative. At a minimum level, I would like to use these funds to hedge against what I have just witnessed for the last month. And how critical is the availability?!?
Well I want to offer an example: Most of our portfolios are in line with the markets and are down roughly 30-40%. Look at my PORTFOLIO TRACKER and over the span of 1 and 1/2 days I recommended picking up the Exchange Traded Fund, DXD. DXD goes up every time the Dow Jones goes down and it doubles the amount that you make during that period. So the markets each day were down on average 5-10% and buying the DXD could have returned in excess of 20% while the stock market was declining! This is a great hedge until the markets return to normal, however, you do not have that option in your 401K plan but I do as an investor. As government uses this opportunity to reform a hard look should be given across the board at ways to improve the process.
One of the biggest adjustments in everyone's lives was the shift towards everday American's funding and managing their futures. Policies have created new instruments such as 401K plans, 529 plans, and individual retirement accounts to move Main Street America into funding and managing their family's future. In the past, you may have had a pension that rewarded your hard work and productivity but now that is often not the norm. All three instruments mentioned above empower you and I, as investors, to take full advantage of what the stock market offers. However, the downsides to these instruments are there are often limited investment choices, cumbersome rules, and not enough financial planning advice. This is very evident as we see sharp declines in the current market. 401K plans, 529 plans, and individual retirement accounts are the very things that were created to ensure our cushy retirement and reduce the burden of the rising costs for college.
Due to the fact that these instruments are so important to so many people, you would like to believe that we would be equipped with all the "tools" to make safe, sound, and educated investments. However, there are a few potential conflicts that lay underneath the surface:
Limited Investment Options - 401K plans are managed by your employer and often there is a slight conflict because an employers main goal is to manage costs and meet quarterly earnings projections. An area that is often adjusted for costs is the management and availability of "OPTIONS" given to you and I to make the necessary choices to fund our retirements. Hank Paulson often talks about needing the necessary tools to assist the country in getting out of this crisis. Well I want to throw one OPTION out there, why not give each of us unlimited OPTIONS to manage our retirement portfolios. I have a standard brokerage account and the options available to the investing community are different that the limited choices in my 401K plan. I have the ability as an investor to make money or simply hedge my portfolio during periods when the market is down...however those choices are not made available to me in my 401K plan. And if you are wondering can it be done efficiently...the answer is yes as Exchange Traded Funds (similar to mutual funds) can be used for that purpose.
And to assist us with these new OPTIONS, I would recommend that additional financial education be given to assist American during periods where there may be many questions. Of course, you can always turn to websites and blogs like this for everyday questions.
Million Dollar Question - Why do you have this view?
Well I have noticed that as an investor, when I began blogging almost two years ago about the beginnings of a RECESSION, I shifted my portfolio to a direction that was heavily weighted in Technology and Dividend companies and recommended that you do the same. However, I didn't have the option in my 401K plan and often in my IRA account to make this type of decision. And things were not yet as such a difficult state as they are now, so I left my accounts unchanged because moving to cash accounts (Money Markets and Treasury Bills) would have been to drastic. But when the market turned negative very quickly, I did not have the OPTION to use Exchange Traded Funds to benefit from funds that make money when the market is negative. At a minimum level, I would like to use these funds to hedge against what I have just witnessed for the last month. And how critical is the availability?!?
Well I want to offer an example: Most of our portfolios are in line with the markets and are down roughly 30-40%. Look at my PORTFOLIO TRACKER and over the span of 1 and 1/2 days I recommended picking up the Exchange Traded Fund, DXD. DXD goes up every time the Dow Jones goes down and it doubles the amount that you make during that period. So the markets each day were down on average 5-10% and buying the DXD could have returned in excess of 20% while the stock market was declining! This is a great hedge until the markets return to normal, however, you do not have that option in your 401K plan but I do as an investor. As government uses this opportunity to reform a hard look should be given across the board at ways to improve the process.
Wednesday, October 08, 2008
Dark Knight ~ The Economy
Or should I saw dark nights and days are hovering above the economic horizon (the only idiot that can't see this is Larry Kudlow...who thinks this is just a blip in an economic "Goldilocks" rally) What do I mean by this...well I won't act like the politicians and keep telling you about my record on how I got this right (but if interested see my last post)! Because at this point in the game, pats on the back won't do because I believe we are in a seriously bad spot right now in the economy. I am going to continue to break course from my usual buy and hold mantra and say that we are in turbulent times and with the actions taken by the federal government make it difficult to take a historical perspective and apply it to today's situation. The fact of the matter is things are changing very rapidly...in ways that we haven't seen before and even your smartest people are having trouble getting this right.
Backdrop:
And I know that you are often told if you are young investor then just weather the storm and it will be alright. But as a 20 something that has seemed to be ahead of the curve of the direction of this unbelieveable storm that is now upon us, my interpretation is to head to safer ground until the storm passes. Why because we've been ahead of the game a few times now: I have written posts using logic and my very basic understanding of Econ 101 to identifiy the potential for a housing bubble...then we were ahead of the curve when we combined the everyday realities ofsoaring energy and food prices to point out that the average person on MAIN STREET (i hate this term) was already feeling the effects of inflation!
The Federal Reserve finally caught on and to their credit took some action to combat the inflationary pressures of soaring food and energy prices, however, one problem was still left unaddressed and that was the housing bubble. Limited action was taken to help main street solve the mortgage crisis which spilled over into Wall Street. Wall Street felt the effects through deteriorating mortgage backed securities and a rising waves of credit default swaps (basically insurance to investor when toxic securities began to crumble). You may call it karma but our inability to help main street has seriously crippled wall street. In my last post, I tried to highlight this problem and indicate that I believe that even with a much needed bailout package we haven't truly explored all of our options to begin to resolve this crisis and a 360 degree approach my be needed. To make a long story short, I believe the Fed now sees the need for some of the points that were raised in the last post, such as stepping in and being an intermediary for short term lending to companies (basically being a bank & lending companies money b/c the banks don't to and can't do it right now).
If you weren't aware companies are having trouble getting short term loans (for supplies, payroll, etc) and many get their loans through a market called commercial papers. We have previously raised a point in the previous post that the Fed may need to "act" as a direct lender and today, the Fed, concerned that the commercial paper market has dried up look to breathe life back into this market by basically providing companies with short term funding.
Current Environment:
I believe the storm is just setting in because of the aggressive and unprecedented steps that the Fed (some listed above) has had to take along with the most recent words from the Fed Chairman, Ben Bernanke. I know you don't think words are important but when one of the most financially informed persons on the earth believes that the economic outlook has "worsened", economic activity is likely to be "subdued", and the financial turmoil may "lengthen weak economic performance" we must all take heed. I am hear to tell you that the Fed Chairman never wants to scare us but he must paint an accurate picture...and when he uses words like subdued economic activity then we are probably going to experience some serious economic pain for a period of time.
Supporting Evidence:
~ Fed Chairman's recent words
~ Today's global rate cut by the US and other major central banks
~ Commercial paper markets (corporate short term funding) has dried up and the Fed has announced that is will step in and create a market to revive this much need source of funding
~ The economic slowdown and financial crisis is spreading GLOBALLY
~ The bailout will take time help financial firms solve their liquidity problems
~ Rate cuts along with other things historically push INFLATION higher
Problem Solving (Only my recommendation):
~ If you are an older person nearing retirement, you are in a very difficult situation and I don't have many solutions here
~ Middle aged people and people with children: you have a few other responsibilities that will need your immediate attention, so capital preservation will be very important (see below).
~ Young people, I am going against the grain and telling you to be concerned and focus on capital preservation also! Move 401K balances, IRAs and brokerage accounts into safer grounds and due to inflationary concerns that appear to be surfacing I would reallocate your portfolios in this order (if possible):
Backdrop:
And I know that you are often told if you are young investor then just weather the storm and it will be alright. But as a 20 something that has seemed to be ahead of the curve of the direction of this unbelieveable storm that is now upon us, my interpretation is to head to safer ground until the storm passes. Why because we've been ahead of the game a few times now: I have written posts using logic and my very basic understanding of Econ 101 to identifiy the potential for a housing bubble...then we were ahead of the curve when we combined the everyday realities ofsoaring energy and food prices to point out that the average person on MAIN STREET (i hate this term) was already feeling the effects of inflation!
The Federal Reserve finally caught on and to their credit took some action to combat the inflationary pressures of soaring food and energy prices, however, one problem was still left unaddressed and that was the housing bubble. Limited action was taken to help main street solve the mortgage crisis which spilled over into Wall Street. Wall Street felt the effects through deteriorating mortgage backed securities and a rising waves of credit default swaps (basically insurance to investor when toxic securities began to crumble). You may call it karma but our inability to help main street has seriously crippled wall street. In my last post, I tried to highlight this problem and indicate that I believe that even with a much needed bailout package we haven't truly explored all of our options to begin to resolve this crisis and a 360 degree approach my be needed. To make a long story short, I believe the Fed now sees the need for some of the points that were raised in the last post, such as stepping in and being an intermediary for short term lending to companies (basically being a bank & lending companies money b/c the banks don't to and can't do it right now).
If you weren't aware companies are having trouble getting short term loans (for supplies, payroll, etc) and many get their loans through a market called commercial papers. We have previously raised a point in the previous post that the Fed may need to "act" as a direct lender and today, the Fed, concerned that the commercial paper market has dried up look to breathe life back into this market by basically providing companies with short term funding.
Current Environment:
I believe the storm is just setting in because of the aggressive and unprecedented steps that the Fed (some listed above) has had to take along with the most recent words from the Fed Chairman, Ben Bernanke. I know you don't think words are important but when one of the most financially informed persons on the earth believes that the economic outlook has "worsened", economic activity is likely to be "subdued", and the financial turmoil may "lengthen weak economic performance" we must all take heed. I am hear to tell you that the Fed Chairman never wants to scare us but he must paint an accurate picture...and when he uses words like subdued economic activity then we are probably going to experience some serious economic pain for a period of time.
Supporting Evidence:
~ Fed Chairman's recent words
~ Today's global rate cut by the US and other major central banks
~ Commercial paper markets (corporate short term funding) has dried up and the Fed has announced that is will step in and create a market to revive this much need source of funding
~ The economic slowdown and financial crisis is spreading GLOBALLY
~ The bailout will take time help financial firms solve their liquidity problems
~ Rate cuts along with other things historically push INFLATION higher
Problem Solving (Only my recommendation):
~ If you are an older person nearing retirement, you are in a very difficult situation and I don't have many solutions here
~ Middle aged people and people with children: you have a few other responsibilities that will need your immediate attention, so capital preservation will be very important (see below).
~ Young people, I am going against the grain and telling you to be concerned and focus on capital preservation also! Move 401K balances, IRAs and brokerage accounts into safer grounds and due to inflationary concerns that appear to be surfacing I would reallocate your portfolios in this order (if possible):
- Gold (as fears continue this is a global safe house and great inflation play)
- Treasury Inflation Protection Securities (this security give you the Treasury yield and accounts for the rise in inflation)
- Treasury and Money Market Securities (safest investment out there, but inflation will eat away at your savings, eventually)
- Bonds (even bonds have lost money but obviously a better option than stocks)
- Smart Dividend and Value Stocks - At this point I am recommending this only for your brokerage account and don't go for the highest yielding firms b/c they may be the first to cut their dividend (i.e., Bank Of America), which means that stock will then fall sharply. Look for the the stocks that will continue to pay a dividend and increase their payments (Kinder Morgan - Jim Cramer pick, Enterprise Partners - Urb pick, GE - Urb pick are names that will help you pay yourself during this tough economic period)
I'm Out!
Thursday, October 02, 2008
Bailout ~ What This Means To You / Plus Other Solutions?
Alright, I have been very busy in the last few weeks and I can't believe that I haven't had an opportunity to write about what has been going on lately. It took a good friend to send me his write-up about what has been going on for me to get myself in gear and update you on what is up with the country, economy, and your portfolio. I had written a post on what the Bailout of 700 Billion dollars means to me as an investor and now I would like to trade hats and tell you what this means to me (and you) as consumers.
The first theme I would like to address is, if I could see the downturn of the housing market in February 2006 (http://urbanomics.blogspot.com/2006/02/huff-puff-blow-houses-down.html), why didn't the government see this coming. And if I could see the developments of a recession coming (http://urbanomics.blogspot.com/2007/10/welcome-to-good-life.html), why didn't the government acknowledge the recipe for a recession. This is what I wrote in the second post:
I am no mathematician but poor financial markets + bad consumer debt + rising foreclosures + declining property values + layoffs = something is wrong (possibly RECESSION). I am not comfortable with the volatility in the market because as companies are beating earnings or being upgraded they go up and then immediately the market brings them right back down due to all the negative news.
This theme is raised because in October 2007 I saw poor fundamentals developing and I believe the government had the opportunity to see these fundamentals and take action - mainly against housing and foreclosures! Limited action was taken against this crisis and no bailout plans were developed, so as a consumer this $700 Billion dollar plan is slightly one sided and leaning to aid the financial institutions as opposed to Main Street.
The next theme is who came up with the price tag! I am talking about this $700 Billion dollar amount and why do taxpayers have to foot the bill. This amount is a huge sum that may not be enough. Let's look at how much money has already been injected in the financial markets: $200 Billion for Fannie and Freddie, $85 Billion for AIG, billion dollar backstops for other firms and finally billions being injected into the financial markets to increase liquidity frequently. Once you total the sum, it easy tops a Trillion and this bill is ultimately footed by taxpayers! Not a good equation.
So if you are a regular person on Main Street you quickly recognize that this bill is focused on Wall Street and doesn't address all of the problems that the everyday person is experiencing and has been experiencing for a very long time. I would have preferred a bill targeted at both helping people (subprime, adjustable rate mortgages, high gas prices, declining jobs) and Wall Street (liquidity and toxic assets) equally!
So what are solutions other than a $700 Billion Bailout:
- Well how about the proposal posted by MKinya below, it advocates the government buying these assets and possibly selling the assets to Main Street investors. (JGOTTI RESPONSE: This could be a possibility, however I wouldn't see why investors/taxpayers would want to buy these assets when the government just bought them with their own money. In addition, these assets are so complex that if Wall Street can't understand and price them, then I would be hesitant to buy them, because I am not a well informed investor...and if there were well informed investors (or some argue there are) they would have stepped in and bought these assets already...instead of the government having too)
- How about a package that takes care of consumers. We could inject money into consumers who would use the funds to buy goods, pay bills, invest, save or pay on their mortgages. All these things help spur the economy and add to the liquidity for financial firms.
- How about a package that assists people distressed with the possiblity of foreclosures and adjustable rate mortgages combined with the possibility for the government could buy foreclosed property. A measure like this would stabilize the declining rate of foreclosures, keep people paying fixed amounts they can afford, stabilize home prices for people across America, and spur growth for investors on the sidelines who are now willing to buy in a stabilized housing market.
- How about having the Treasury/Federal Reserve stop or limit the endless pumping of money into these major banks to jumpstart liquidity. Major banks are not lending directly to each other and definitely not lending to consumers so a different practice may be needed and that could be to have the government become a direct lender (buypassing these huge banks) and funding liquidity into regional and small banks that will jumpstart liquidity and ensure that consumers are getting the loans they need.
- How about allowing the Market freely resolve its own issues. Some argue that this is needed as a cleansing or purging if you wish of what has taken place. The excesses or greed on both Main Street and Wall Street need to be brought back down to normal. Further, we might be seeing that as deals continue to get done to acquire banks that have been severely affected such as Washington Mutual and Wachovia. Deals got done at discounted prices to buy the assets of these firms. Even Lehman Brothers and AIG assets are quickly being swallowed up by the markets. What this tells me is that there is capital for deals to get done however the value of some of these firms where in excess and now that the purging is taking place they are being acquired at current market values (taking into consideration the toxic debt they hold). And possibly the same is happening on Main Street as housing prices continue to fall...and they will fall until investors on the sideline have determined that those (toxic) inflated prices have been reduced to what the market truly values them at.
Ultimately I truly believe that all of these measures need to be incorporated into a package to address all of the true issues that are out there. We need a package that helps consumers, distressed mortgage owners, major banks, small regional banks, investors, and the government and the best path is to take the best from all of these points and addressing the issues from all angles.
Thanks
The first theme I would like to address is, if I could see the downturn of the housing market in February 2006 (http://urbanomics.blogspot.com/2006/02/huff-puff-blow-houses-down.html), why didn't the government see this coming. And if I could see the developments of a recession coming (http://urbanomics.blogspot.com/2007/10/welcome-to-good-life.html), why didn't the government acknowledge the recipe for a recession. This is what I wrote in the second post:
I am no mathematician but poor financial markets + bad consumer debt + rising foreclosures + declining property values + layoffs = something is wrong (possibly RECESSION). I am not comfortable with the volatility in the market because as companies are beating earnings or being upgraded they go up and then immediately the market brings them right back down due to all the negative news.
This theme is raised because in October 2007 I saw poor fundamentals developing and I believe the government had the opportunity to see these fundamentals and take action - mainly against housing and foreclosures! Limited action was taken against this crisis and no bailout plans were developed, so as a consumer this $700 Billion dollar plan is slightly one sided and leaning to aid the financial institutions as opposed to Main Street.
The next theme is who came up with the price tag! I am talking about this $700 Billion dollar amount and why do taxpayers have to foot the bill. This amount is a huge sum that may not be enough. Let's look at how much money has already been injected in the financial markets: $200 Billion for Fannie and Freddie, $85 Billion for AIG, billion dollar backstops for other firms and finally billions being injected into the financial markets to increase liquidity frequently. Once you total the sum, it easy tops a Trillion and this bill is ultimately footed by taxpayers! Not a good equation.
So if you are a regular person on Main Street you quickly recognize that this bill is focused on Wall Street and doesn't address all of the problems that the everyday person is experiencing and has been experiencing for a very long time. I would have preferred a bill targeted at both helping people (subprime, adjustable rate mortgages, high gas prices, declining jobs) and Wall Street (liquidity and toxic assets) equally!
So what are solutions other than a $700 Billion Bailout:
- Well how about the proposal posted by MKinya below, it advocates the government buying these assets and possibly selling the assets to Main Street investors. (JGOTTI RESPONSE: This could be a possibility, however I wouldn't see why investors/taxpayers would want to buy these assets when the government just bought them with their own money. In addition, these assets are so complex that if Wall Street can't understand and price them, then I would be hesitant to buy them, because I am not a well informed investor...and if there were well informed investors (or some argue there are) they would have stepped in and bought these assets already...instead of the government having too)
- How about a package that takes care of consumers. We could inject money into consumers who would use the funds to buy goods, pay bills, invest, save or pay on their mortgages. All these things help spur the economy and add to the liquidity for financial firms.
- How about a package that assists people distressed with the possiblity of foreclosures and adjustable rate mortgages combined with the possibility for the government could buy foreclosed property. A measure like this would stabilize the declining rate of foreclosures, keep people paying fixed amounts they can afford, stabilize home prices for people across America, and spur growth for investors on the sidelines who are now willing to buy in a stabilized housing market.
- How about having the Treasury/Federal Reserve stop or limit the endless pumping of money into these major banks to jumpstart liquidity. Major banks are not lending directly to each other and definitely not lending to consumers so a different practice may be needed and that could be to have the government become a direct lender (buypassing these huge banks) and funding liquidity into regional and small banks that will jumpstart liquidity and ensure that consumers are getting the loans they need.
- How about allowing the Market freely resolve its own issues. Some argue that this is needed as a cleansing or purging if you wish of what has taken place. The excesses or greed on both Main Street and Wall Street need to be brought back down to normal. Further, we might be seeing that as deals continue to get done to acquire banks that have been severely affected such as Washington Mutual and Wachovia. Deals got done at discounted prices to buy the assets of these firms. Even Lehman Brothers and AIG assets are quickly being swallowed up by the markets. What this tells me is that there is capital for deals to get done however the value of some of these firms where in excess and now that the purging is taking place they are being acquired at current market values (taking into consideration the toxic debt they hold). And possibly the same is happening on Main Street as housing prices continue to fall...and they will fall until investors on the sideline have determined that those (toxic) inflated prices have been reduced to what the market truly values them at.
Ultimately I truly believe that all of these measures need to be incorporated into a package to address all of the true issues that are out there. We need a package that helps consumers, distressed mortgage owners, major banks, small regional banks, investors, and the government and the best path is to take the best from all of these points and addressing the issues from all angles.
Thanks
Alternative Bailout Solution - Reader Response
This analysis was provided by a good friend and reader MKinya:
They are about to pass or look like they will probably pass a bill to pay out 700 billion dollars to bailout Wall Street. While I don’t really know how much the taxpayer should take on to pay for this ordeal, I do think that there is a solution that will work out for quite a few people.
How about after the government putting up the money - however much it is - offering the general public a piece of the action on any profit to be made by the deal. This would be in the form of raising money much like the same way campaigns raise money. Tell the American people that if they want to invest in the bailout (which there may be quite a few of us out there willing to bet that this will end up being a profitable investment like most other bailouts the government has undertaken).
The idea would be that after the government spends the 700 billion dollars then they should set up a way for Joe six pack to invest ($25 -$10000). Maybe even $25 dollar stock with a maximum of $10000 investment. The investment Joe six pack gives the government would go back to the treasury and reduce the taxpayers liability in the bailout. Just like any other investment it is voluntary and there is a possibility of losing money. What this does is that the people who are willing to put up the money can then also make money out of the deal. If the investors don’t put in the whole 700 billion dollars then whatever shares are left go back to the taxpayers (They have already put up the $700 billion)
They are about to pass or look like they will probably pass a bill to pay out 700 billion dollars to bailout Wall Street. While I don’t really know how much the taxpayer should take on to pay for this ordeal, I do think that there is a solution that will work out for quite a few people.
How about after the government putting up the money - however much it is - offering the general public a piece of the action on any profit to be made by the deal. This would be in the form of raising money much like the same way campaigns raise money. Tell the American people that if they want to invest in the bailout (which there may be quite a few of us out there willing to bet that this will end up being a profitable investment like most other bailouts the government has undertaken).
The idea would be that after the government spends the 700 billion dollars then they should set up a way for Joe six pack to invest ($25 -$10000). Maybe even $25 dollar stock with a maximum of $10000 investment. The investment Joe six pack gives the government would go back to the treasury and reduce the taxpayers liability in the bailout. Just like any other investment it is voluntary and there is a possibility of losing money. What this does is that the people who are willing to put up the money can then also make money out of the deal. If the investors don’t put in the whole 700 billion dollars then whatever shares are left go back to the taxpayers (They have already put up the $700 billion)
Tuesday, September 23, 2008
$700 Billion - Wall Street Hits the Jackpot
Yeah Baby!!! That's what I always imagined I would scream if I hit the jackpot in Vegas or if I won the lottery and now that is what Wall Street is screaming. $700 Billion is the amount that Wall Street is looking to claim for their winnings. Now they won't call it winnings but let's try to look at how this situation looks from my perspective. I have sat back, trying to not judge how the situation is being handled and I just want to determine what this means for me as an investor.
As an investor, the first thing that I would say is that a $700B move like this tells me that the Henry Paulson, head of the Treasury department is serious about this issue. It would signal that he believes that liquidity is drying up for financial insitutions and this bailout package allows them to right their balance sheets. My next observation is that if these companies are allowed to remove these toxic assets from their balance sheets they will see a few quarters where these assets will need to be marked down...if Mark to Market Accounting still exists and then they would have sparkling balance sheets with no direction to go but up. This leads to my next conclusion that the best investment for the short term will be the Financial Sector and you will see that through an addition to my STOCK TRACKER PORTFOLIO through the exchange traded fund, UYG.
Since I wrote this post much has changed and I will write from the prespective of Main Street, however this was written from the view of what this bill means to me as an investor.
As an investor, the first thing that I would say is that a $700B move like this tells me that the Henry Paulson, head of the Treasury department is serious about this issue. It would signal that he believes that liquidity is drying up for financial insitutions and this bailout package allows them to right their balance sheets. My next observation is that if these companies are allowed to remove these toxic assets from their balance sheets they will see a few quarters where these assets will need to be marked down...if Mark to Market Accounting still exists and then they would have sparkling balance sheets with no direction to go but up. This leads to my next conclusion that the best investment for the short term will be the Financial Sector and you will see that through an addition to my STOCK TRACKER PORTFOLIO through the exchange traded fund, UYG.
Since I wrote this post much has changed and I will write from the prespective of Main Street, however this was written from the view of what this bill means to me as an investor.
Wednesday, September 17, 2008
Bailout Nation ~ Who is protecting your portfolio?
Right now we are experiencing a Bailout Nation! I wanted to quickly point out that I believe that Larry Kudlow of CNBC is a joke. He screams unrelentlessly about Free Market Capitalism and then abruptly reverses course when the Federal Reserve steps in and takes action to Regulate the erratic markets at this point. I do understand that some of these companies are tooooo big to fail but isn't one of the underlying principles of free market capitalism - moral hazard. Moral hazard is knowing that you will fail if you participate in very risky activities, because no one will feel sorry for you taking those miscalculated bets.
Please pay close attention as we are entering a time when many claim they believe that the government should be hands off, however they are stretching their power to reaches never seen. The Federal Reserve and Treasury Department are taking unprecendented "predatory" acquisitions of private firms for the 'good of the people'. Well let's examine this for a second:
1. The government is not the business of taking over companies (its not even in their charters)
2. The average person is footing the bill
3. As more of this risky businesses are bought out you begin to lose sight over what requirements are used to save a company
4. Popular myth - the short sellers are not the only one's driving down the stocks of financial companies. Guess what, every time the goverment takes over a company and essentially wipes out shareholder interests (insteading of loaning them the money) this feeds the frenzy of short sellers. There is no downside risk as a shortseller
5. As you continue to the bailouts, the government's reserve of funds will continue to be depleted and that sparks more fears than even storied Wall Street franchises going under.
I want to point out that I am not anti Free Markets nor anti -government. I actually am very pro Free Markets but one the variables that has over history been a thorn in the side of Free Market Capitalism is GREED and right now you are seeing that in every facet of the investment community. Greedy consumers were taken advantage of by greedy mortgage bankers, who were fed money from greedy investment bankers and firms, who were all crushed by greedy "speculators" who are shorting the hell out of all these stocks. And I will end that the government continues to fuel this greed and transfer wealth through predatory acquisitions and non-transparent transactions such as the Bear Stearns deal.
Now I love Free Markets but we may have to all agree that some checks and balances and increased scrutiny is actually good for every...to keep the greed in line!
Please pay close attention as we are entering a time when many claim they believe that the government should be hands off, however they are stretching their power to reaches never seen. The Federal Reserve and Treasury Department are taking unprecendented "predatory" acquisitions of private firms for the 'good of the people'. Well let's examine this for a second:
1. The government is not the business of taking over companies (its not even in their charters)
2. The average person is footing the bill
3. As more of this risky businesses are bought out you begin to lose sight over what requirements are used to save a company
4. Popular myth - the short sellers are not the only one's driving down the stocks of financial companies. Guess what, every time the goverment takes over a company and essentially wipes out shareholder interests (insteading of loaning them the money) this feeds the frenzy of short sellers. There is no downside risk as a shortseller
5. As you continue to the bailouts, the government's reserve of funds will continue to be depleted and that sparks more fears than even storied Wall Street franchises going under.
I want to point out that I am not anti Free Markets nor anti -government. I actually am very pro Free Markets but one the variables that has over history been a thorn in the side of Free Market Capitalism is GREED and right now you are seeing that in every facet of the investment community. Greedy consumers were taken advantage of by greedy mortgage bankers, who were fed money from greedy investment bankers and firms, who were all crushed by greedy "speculators" who are shorting the hell out of all these stocks. And I will end that the government continues to fuel this greed and transfer wealth through predatory acquisitions and non-transparent transactions such as the Bear Stearns deal.
Now I love Free Markets but we may have to all agree that some checks and balances and increased scrutiny is actually good for every...to keep the greed in line!
Tuesday, September 16, 2008
Market Meltdown - AIG/Morgan Stanley
I wanted to lead off with AIG and I hope that you had the opportunity to follow along last night when we made the following comment:
" AIG is now in focus and I will take the course of action that I should have taken with Lehman. AIG should be shorted as you see in my STOCKTRACKER PORTFOLIO because they also need cash and the Fed is in no position to lend it out. AIG is considered to big to fail but if I am JP Morgan and Citigroup why should we post $75Billion dollars by ourselves to pay for their mistakes. Even more importantly, AIG's ratings were downgraded tonight and that raises more implications where AIG has to come up with cash really quickly to pay contractual obligations that arise from ratings decreases."
Folks to emphasize the speed at which things are changing, I wanted to point that I learned about these latest developments last night after 545pm central and traded AIG during the aftermarket hours once I got home from work... and sold short AIG for $4.87. Between then and the opening of the market this morning we gained over 50%-80% in less than roughly 14 hours on timely information because the stock dropped to levels between $1.60 - $3.00. Jim Cramer has reminded us that BEARS AND BULLS MAKE MONEY...and PIGS get SLAUGHTERED, so I (bought to cover) the shares for a profit. AIG like most stocks then began to trade on rumors that it could get the funds it needed and moved up quickly to levels between $3.60-$4.40s. Well knowing the information that we obtained last night, all private equity firms had stepped away from the table and AIG was standing by itself unless it received help from the Fed. So I decided for the second time in less than 24 hours to short AIG... AGAIN I think the stock will fall because of the following:
1. There is not enough time for a buyout or AIG to sell assets - which would cause the stock to rise
2. Private companies have walked away and we know they will not fund the $75 Billion - which would have caused the stock to rise
3. The Fed has promised not to provide any more funding - which could cause the stock to rise
It appears our thinking was correct b/c NY Governor Patterson came out on CNBC urging that AIG needing additional capital quickly (Pt. 1), private equity walked away which brought the Fed back to the table (Pt. 2), and because AIG needs so much money and is considered too big to fail...the Fed WILL provide $85 Billion but they are requiring almost complete control of the company to ensure that all $85 Billion and more is returned to the Fed (Pt. 3) Well all these reasons point to the share price plunging because all scenarios leave the stockholders screwed. This stock may be trading below $1 tomorrow.
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Morgan Stanley Breaking News
The street seems to have moved it sights to Morgan Stanley. Is there a RUN ON ALL BANKS!!! Late night reports say that MS is seriously considering whether the firm should remain solo or seek a merger with some large bank out there. There is alot of concern out there as the stock continues to swing back and forth. However, it appears that MS is watching all of this closely and does not want to make the same mistake that Lehman Brothers made.
" AIG is now in focus and I will take the course of action that I should have taken with Lehman. AIG should be shorted as you see in my STOCKTRACKER PORTFOLIO because they also need cash and the Fed is in no position to lend it out. AIG is considered to big to fail but if I am JP Morgan and Citigroup why should we post $75Billion dollars by ourselves to pay for their mistakes. Even more importantly, AIG's ratings were downgraded tonight and that raises more implications where AIG has to come up with cash really quickly to pay contractual obligations that arise from ratings decreases."
Folks to emphasize the speed at which things are changing, I wanted to point that I learned about these latest developments last night after 545pm central and traded AIG during the aftermarket hours once I got home from work... and sold short AIG for $4.87. Between then and the opening of the market this morning we gained over 50%-80% in less than roughly 14 hours on timely information because the stock dropped to levels between $1.60 - $3.00. Jim Cramer has reminded us that BEARS AND BULLS MAKE MONEY...and PIGS get SLAUGHTERED, so I (bought to cover) the shares for a profit. AIG like most stocks then began to trade on rumors that it could get the funds it needed and moved up quickly to levels between $3.60-$4.40s. Well knowing the information that we obtained last night, all private equity firms had stepped away from the table and AIG was standing by itself unless it received help from the Fed. So I decided for the second time in less than 24 hours to short AIG... AGAIN I think the stock will fall because of the following:
1. There is not enough time for a buyout or AIG to sell assets - which would cause the stock to rise
2. Private companies have walked away and we know they will not fund the $75 Billion - which would have caused the stock to rise
3. The Fed has promised not to provide any more funding - which could cause the stock to rise
It appears our thinking was correct b/c NY Governor Patterson came out on CNBC urging that AIG needing additional capital quickly (Pt. 1), private equity walked away which brought the Fed back to the table (Pt. 2), and because AIG needs so much money and is considered too big to fail...the Fed WILL provide $85 Billion but they are requiring almost complete control of the company to ensure that all $85 Billion and more is returned to the Fed (Pt. 3) Well all these reasons point to the share price plunging because all scenarios leave the stockholders screwed. This stock may be trading below $1 tomorrow.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Morgan Stanley Breaking News
The street seems to have moved it sights to Morgan Stanley. Is there a RUN ON ALL BANKS!!! Late night reports say that MS is seriously considering whether the firm should remain solo or seek a merger with some large bank out there. There is alot of concern out there as the stock continues to swing back and forth. However, it appears that MS is watching all of this closely and does not want to make the same mistake that Lehman Brothers made.
Monday, September 15, 2008
The Aftermath...
I wanted to develop this post in response to a great comment from a reader, LLROOMTEMPJ:
"here's a stupid question for you. Now that lehman has filed for chapter 11, why would buying lehman now with an understanding that it may go back up in the future be a stupid idea?Is there no return from bankruptcy? Weren't there some airlines that filed chapter 11 that bounced back?i'm really an idiot, but if you could teach me, or direct me to some resources that would help me to make sense of things, it would be much appreciated."
My response: I wanted to say thanks for reading Urbanomics and I will answer you question to the best of my ability. You are correct Lehman has officially filed for Chapter 11 bankruptcy. I believe that buying Lehman now is not a sound decision because to my knowledge this firm as we know it will cease to exist.
Our first indication is that Lehman did not include any of their viable businesses that can still continue operate in its chapter 11 filing. It has businesses that act as brokers - dealers as well as Neuberger Berman (an investment advisory firm) that were specifically left out...because they still have VALUE. These viable businesses will be sold or liquidated to provide for more cash. I imagine other things like the headquarters (real estate) will be liquidated also. I believe that this decision is key because chapter 11 can give Lehman or more importantly Lehman's creditors the ability to reorganize of sell all the assets of the company and we already see the rush to sell those assets mentioned above quickly for their highest value. Unlike retailers, manufacturers, or airlines...Lehman does not have a lot of assets to sell to generate money to pay back all of the money it borrowed from banks (or creditors) so it must sell the businesses that make Lehman money (similar to how an airline might sell its planes) and with each sale of these assets Lehman begins to disappear.
Secondly, reorganization is unlikely because Lehman's biggest asset is it's NAME. People must trust the name to lend it money so that Lehman can make more money. There will be little trust in a company that has failed at managing your money if it came back.
Lastly, buying the shares at this point is not a sound decision because stockholders get no love in the PRIORITY of recovering money during bankruptcy. Anyone holding the stock will receive nothing and only creditors (usually banks who let Lehman borrow money) get PRIORITY. Once the stock is delisted, or removed from the stock market, it can still be traded but terms of the reorganization would terminate your shares...and leave you with NOTHING.
Hope this helps.
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Today's Aftermath:
The only other thing I wanted to point out is that my long shot recommendation on Lehman was purely a high risk - high reward play. There were only two options BANKRUPTCY OR BUYOUT! And after reading my own post the other night I should have listened to myself and known that if the Fed has already promised not to assist in the process that it was a longshot.
AIG is now in focus and I will take the course of action that I should have taken with Lehman. AIG should be shorted as you see in my STOCKTRACKER PORTFOLIO because they also need cash and the Fed is in no position to lend it out. AIG is considered to big to fail but if I am JP Morgan and Citigroup why should we post $75Billion dollars by ourselves to pay for their mistakes. Even more importantly, AIG's ratings were downgraded tonight and that raises more implications where AIG has to come up with cash really quickly to pay contractual obligations that arise from ratings decreases.
"here's a stupid question for you. Now that lehman has filed for chapter 11, why would buying lehman now with an understanding that it may go back up in the future be a stupid idea?Is there no return from bankruptcy? Weren't there some airlines that filed chapter 11 that bounced back?i'm really an idiot, but if you could teach me, or direct me to some resources that would help me to make sense of things, it would be much appreciated."
My response: I wanted to say thanks for reading Urbanomics and I will answer you question to the best of my ability. You are correct Lehman has officially filed for Chapter 11 bankruptcy. I believe that buying Lehman now is not a sound decision because to my knowledge this firm as we know it will cease to exist.
Our first indication is that Lehman did not include any of their viable businesses that can still continue operate in its chapter 11 filing. It has businesses that act as brokers - dealers as well as Neuberger Berman (an investment advisory firm) that were specifically left out...because they still have VALUE. These viable businesses will be sold or liquidated to provide for more cash. I imagine other things like the headquarters (real estate) will be liquidated also. I believe that this decision is key because chapter 11 can give Lehman or more importantly Lehman's creditors the ability to reorganize of sell all the assets of the company and we already see the rush to sell those assets mentioned above quickly for their highest value. Unlike retailers, manufacturers, or airlines...Lehman does not have a lot of assets to sell to generate money to pay back all of the money it borrowed from banks (or creditors) so it must sell the businesses that make Lehman money (similar to how an airline might sell its planes) and with each sale of these assets Lehman begins to disappear.
Secondly, reorganization is unlikely because Lehman's biggest asset is it's NAME. People must trust the name to lend it money so that Lehman can make more money. There will be little trust in a company that has failed at managing your money if it came back.
Lastly, buying the shares at this point is not a sound decision because stockholders get no love in the PRIORITY of recovering money during bankruptcy. Anyone holding the stock will receive nothing and only creditors (usually banks who let Lehman borrow money) get PRIORITY. Once the stock is delisted, or removed from the stock market, it can still be traded but terms of the reorganization would terminate your shares...and leave you with NOTHING.
Hope this helps.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Today's Aftermath:
The only other thing I wanted to point out is that my long shot recommendation on Lehman was purely a high risk - high reward play. There were only two options BANKRUPTCY OR BUYOUT! And after reading my own post the other night I should have listened to myself and known that if the Fed has already promised not to assist in the process that it was a longshot.
AIG is now in focus and I will take the course of action that I should have taken with Lehman. AIG should be shorted as you see in my STOCKTRACKER PORTFOLIO because they also need cash and the Fed is in no position to lend it out. AIG is considered to big to fail but if I am JP Morgan and Citigroup why should we post $75Billion dollars by ourselves to pay for their mistakes. Even more importantly, AIG's ratings were downgraded tonight and that raises more implications where AIG has to come up with cash really quickly to pay contractual obligations that arise from ratings decreases.
Sunday, September 14, 2008
Lehman Brothers/Merrill Lynch/AIG
Three words just used to describe the state of what's currently happening in the financial markets: HISTORIC, DISTURBING, and ENORMOUS.
Credit is given to CNBC for breaking Sunday's developments in these three firms. I will update this posting tomorrow but in short summary:
1. Lehman will declare bankruptcy
2. Merrill Lynch has been forced by the Federal Government to sell itself...and Bank of America will be the acquirer
3. AIG is dire needs to acquire capital and is considering selling some of its assets
More to come!
Credit is given to CNBC for breaking Sunday's developments in these three firms. I will update this posting tomorrow but in short summary:
1. Lehman will declare bankruptcy
2. Merrill Lynch has been forced by the Federal Government to sell itself...and Bank of America will be the acquirer
3. AIG is dire needs to acquire capital and is considering selling some of its assets
More to come!
Saturday, September 13, 2008
Lehman Brothers - Should I buy?
Now I hardly ever write about just one stock because I usually don't get caught up in one story. For instance if you ask me what's on my Wall Street playlist I could list a number of chart bangers like long ESIO, short BIG, long RSYS, long STV, long CLCT, long PBR, long BNI, long CSX, long FDX and a host of other names in a few minutes.
But I wanted to take some time out to comment on Lehman (LEH). Lehman is in a very tough position as it stock keeps plummeting to all time lows (down roughly 95%). They have well respected business lines like the investment banking and money management divisions. However, the trouble lies in their real estate and mortgage portfolio where they are unearthing a large portfolio of risky investments.
Now let's fast forward to my interest in LEH. I am attempting to make a calculated bet here knowing all the pieces that have fallen into place in the last year. Bear Stearns, Fannie, Freddie, and numerous banks allow me to come to my own ODD conclusions of how this may play out. Well I do know a little about the financial industry and Bear Stearns, Fannie and Freddie were all to important for someone to just sit around and let go under. But the problem is that Wall Street and our government preach FREE MARKET CAPITALISM and this doctrine is supposed to allow the market of investors to decide the fates of these firms without interferences. Now here comes the glitch, the markets spoke and nearly drove all these firms to a state of BANKRUPTCY!!! So our government went against the FREE MARKET PRINCIPLE and stepped in and negotiated the Bear Stearns deals which lead to JP Morgan Chase buying that company out at a ridiculous price and more importantly the government assumed the liability of the risky assets that did Bear Stearns in. Then you have the Freddie and Fannie debacle, which are public companies but they are also government sponsored entities. If this doesn't make any damn sense to you either then raise your hand. Freddie and Fannie are owned by stockholders and when the stock began free falling the FREE MARKETS were telling us that there was lots of doubt around the financial health of these firms. Once again, going against FREE MARKET PRINCIPLE the government bailed out these firms by basically injecting the firm with loads of cash...and leaving the stockholders left holding an empty bag. Now many argue and I will agree that Fannie and Freddie couldn't be allowed to fail because they are too vital to our economy...backing roughly 1/2 of the country mortgage investments. I agree with these critics but then question why you would ever let a government entity of such importance ever trade PUBLICLY!!!
Knowing this lets move to Lehman. Lehman is just as important as Bear Stearns and signals to our country, economy and the global markets that our financial system is in BIG Trouble. The only problem is after bailout of Bear Stearns, Freddie and Fannie...the government can't afford to use MORE TAXPAYER money to rescue bad investments like it did with the other three firms. This point is very critical because it is what many believe is stopping Lehman from being acquired. Now bring the Federal Government back into the equation...because of the importance of Lehman (and what it means both locally and globally) the WANT a deal done to acquire Lehman. And WHAT THE FED WANTS THE FED GETS.
After analyzing this crazy turn of events I am taking a huge speculative bet and going LONG on Lehman's shares. Yup, I would take a little bit out of the piggy bank and buy Lehman because of the following reasons:
1. The Fed wants a deal done b/c Lehman signals financial disaster
2. The Fed will not use taxpayer money to buy bad Lehman assets (this will not cause the stock to become worthless like Freddie and Fannie)
3. Some parts of Lehman's business are actually worth buying
My shrewd calculations tell me that a deal gets done b/c the Fed says so and the stock with not become worthless b/c the government will not be injecting the cash. Very important b/c this is what left Freddie and Fannie shareholders crying. With some actual value still left in the company like Neuberger Berman, the headquarters it has to have some intrinsic value. My last support of evidence is the Bear Stearns collapse. The deal was initially negotiated by the Federal Government for $2 a share, which was the equivalent of handing a Lamborghini with a tiny scratch to a potential buyer for say $5,000...and the buyer was JP Morgan. Long story short, the government was forced to raise the value of the deal to roughly $10 a share. Now all things being the same...could Lehman go for $10 a share!!! I am willing to make that bet, however the only thing I struggle discounting is that RISKY BAD DEBT that the government won't buy...what's going to happen to it and who's left holding that worthless piece of investment (note: its looks like the Fed is strong-arming all major investment banking firms to pitch in and buy the bad debt). All that being said it I think an acquisition gets done, it may not be $10 but it should be higher than $4...right?!?
But I wanted to take some time out to comment on Lehman (LEH). Lehman is in a very tough position as it stock keeps plummeting to all time lows (down roughly 95%). They have well respected business lines like the investment banking and money management divisions. However, the trouble lies in their real estate and mortgage portfolio where they are unearthing a large portfolio of risky investments.
Now let's fast forward to my interest in LEH. I am attempting to make a calculated bet here knowing all the pieces that have fallen into place in the last year. Bear Stearns, Fannie, Freddie, and numerous banks allow me to come to my own ODD conclusions of how this may play out. Well I do know a little about the financial industry and Bear Stearns, Fannie and Freddie were all to important for someone to just sit around and let go under. But the problem is that Wall Street and our government preach FREE MARKET CAPITALISM and this doctrine is supposed to allow the market of investors to decide the fates of these firms without interferences. Now here comes the glitch, the markets spoke and nearly drove all these firms to a state of BANKRUPTCY!!! So our government went against the FREE MARKET PRINCIPLE and stepped in and negotiated the Bear Stearns deals which lead to JP Morgan Chase buying that company out at a ridiculous price and more importantly the government assumed the liability of the risky assets that did Bear Stearns in. Then you have the Freddie and Fannie debacle, which are public companies but they are also government sponsored entities. If this doesn't make any damn sense to you either then raise your hand. Freddie and Fannie are owned by stockholders and when the stock began free falling the FREE MARKETS were telling us that there was lots of doubt around the financial health of these firms. Once again, going against FREE MARKET PRINCIPLE the government bailed out these firms by basically injecting the firm with loads of cash...and leaving the stockholders left holding an empty bag. Now many argue and I will agree that Fannie and Freddie couldn't be allowed to fail because they are too vital to our economy...backing roughly 1/2 of the country mortgage investments. I agree with these critics but then question why you would ever let a government entity of such importance ever trade PUBLICLY!!!
Knowing this lets move to Lehman. Lehman is just as important as Bear Stearns and signals to our country, economy and the global markets that our financial system is in BIG Trouble. The only problem is after bailout of Bear Stearns, Freddie and Fannie...the government can't afford to use MORE TAXPAYER money to rescue bad investments like it did with the other three firms. This point is very critical because it is what many believe is stopping Lehman from being acquired. Now bring the Federal Government back into the equation...because of the importance of Lehman (and what it means both locally and globally) the WANT a deal done to acquire Lehman. And WHAT THE FED WANTS THE FED GETS.
After analyzing this crazy turn of events I am taking a huge speculative bet and going LONG on Lehman's shares. Yup, I would take a little bit out of the piggy bank and buy Lehman because of the following reasons:
1. The Fed wants a deal done b/c Lehman signals financial disaster
2. The Fed will not use taxpayer money to buy bad Lehman assets (this will not cause the stock to become worthless like Freddie and Fannie)
3. Some parts of Lehman's business are actually worth buying
My shrewd calculations tell me that a deal gets done b/c the Fed says so and the stock with not become worthless b/c the government will not be injecting the cash. Very important b/c this is what left Freddie and Fannie shareholders crying. With some actual value still left in the company like Neuberger Berman, the headquarters it has to have some intrinsic value. My last support of evidence is the Bear Stearns collapse. The deal was initially negotiated by the Federal Government for $2 a share, which was the equivalent of handing a Lamborghini with a tiny scratch to a potential buyer for say $5,000...and the buyer was JP Morgan. Long story short, the government was forced to raise the value of the deal to roughly $10 a share. Now all things being the same...could Lehman go for $10 a share!!! I am willing to make that bet, however the only thing I struggle discounting is that RISKY BAD DEBT that the government won't buy...what's going to happen to it and who's left holding that worthless piece of investment (note: its looks like the Fed is strong-arming all major investment banking firms to pitch in and buy the bad debt). All that being said it I think an acquisition gets done, it may not be $10 but it should be higher than $4...right?!?
Thursday, September 11, 2008
Price Points and Conditional Trades
How to take advantage of this choppy market - set strong price points and don't pay attention. What, you are wondering how I can say don't pay attention to what's going on with those stocks. Easy, because paying attention will make you want to buy the stock sooner. Now unfortunately I don't own all of these stocks but notice the success that we have had setting very aggresive, almost unreachable price points. And the secret to not paying attention is: Using conditional trades (If this happens, then take this action), these are trades that are triggered by a specific event. So for instance, I told my account that when ESIO falls below 13.90 to place an open order to BUY at the 13.81. By doing this type of trade I don't have to watch the stock every day and it forces me to be patient and wait for the right moment.
Here are price points that I have developed for recent stocks mentioned on Urbanomics:
ESIO 13.81
NYT 13
BIG - short @ 33.50s
Notice that the price points have filled recently and gains have been achieved. In these markets... if you get gains of over 5% in less than a week, SELL and create another conditional trade to fill again. In the past month I have used this to BUY ESIO and SELL SHORT BIG, both filled and have returned gains of over 5%. I have sold into those quick gains and hope to both stock return to those levels. ESIO is pushing higher so I may have to wait for this to decrease(possibly sold to early) and BIG almost returned back to our levels listed above which would have been perfect for us...but since then BIG has cooled and we will wait for a possible rally and we will short the damn stock again.
Here are price points that I have developed for recent stocks mentioned on Urbanomics:
ESIO 13.81
NYT 13
BIG - short @ 33.50s
Notice that the price points have filled recently and gains have been achieved. In these markets... if you get gains of over 5% in less than a week, SELL and create another conditional trade to fill again. In the past month I have used this to BUY ESIO and SELL SHORT BIG, both filled and have returned gains of over 5%. I have sold into those quick gains and hope to both stock return to those levels. ESIO is pushing higher so I may have to wait for this to decrease(possibly sold to early) and BIG almost returned back to our levels listed above which would have been perfect for us...but since then BIG has cooled and we will wait for a possible rally and we will short the damn stock again.
Tuesday, September 09, 2008
My Dougie
Said she likes My Dougie, I'm Fresh!
If I just lost you then you need to check out this track by artist Lil Wil...in honor of the legendary Dougie Fresh (http://www.youtube.com/watch?v=TqeGZpHCURo). Down in Dallas, they have given this legend a new life with the younger generation as "My Dougie" is used to describe someone's style...Fresh. I hope the readers here at Urbanomics appreciate our blogging and hopefully you like our Dougie. And the reason why we think our style is fresh is because we hope to bring a difficult subject, INVESTING, and try to explain it to you in a very simple way.
To invest I've learned that you must have a certain style or swagger. The reason I say this is because with so much going on with the markets and in the news, you must remain calm and make informed and logical decisions. As we have written here before, to assist in that process I recommend that you take notes of things that you read and hear. Then perform additional research to assist you in deciding what to do. If you were following the news you would have heard about some of the following stories:
Lehman Brothers - One of the largest investment banks is struggling to raise capital as losses from investments continue to pile up.
Apple/Steve Jobs - Apple is unveiling a new iPOD touch, but all that is on the mind of investors is Steve Jobs and whether he is healthy.
Oil - Oil has dropped to levels of roughly 100$, and will OPEC allow it to drop any lower.
Fannie/Freddie - I love Alan Greenspan's (former Federal Reserve chief) comment that these entities were structurally flawed because they socialize losses and privatize gains! This is so true, when they are struggling the government bails them out, but when they were profitting the only people gaining were the private investors owning the stock.
Lastly, I have often talked about price points and how important they are when investing and getting your stock selections at a great price. My Dougie has helped me patiently wait and here are some of the stocks that I liked but I had to wait for great price points.
Electro Scientific (ESIO) - I have been patiently waiting for levels of 13.80s
Big Lots (BIG) - Big Lots has benefitted from the hard times as more people turn to discount retailers. This stock is not a result of my screening, just a informed decision that makes sense. They hit a 52 week high at 34.88 and I think they will decline from those lofty levels. With stimulus checks running out and higher costs hitting most retailers they appear to be a great short opportunity. I believe Walmart, Target and most recently 99 Cents (http://www.cnbc.com/id/26622876) are being affected by this. Big Lots is a great short above levels of 33.50$.
CSX Corp (CSX) & Fedex (FDX) - I have been saying for awhile I like the transportation sectors as oil prices continue to decline. Now I haven't identified a solid price point but this may need to be done as FDX is already raising their guidance which is causing the stock to rise. I am hoping to see the effect of declining oil prices to benefit these sectors.
I'm out, Get your URB on!
If I just lost you then you need to check out this track by artist Lil Wil...in honor of the legendary Dougie Fresh (http://www.youtube.com/watch?v=TqeGZpHCURo). Down in Dallas, they have given this legend a new life with the younger generation as "My Dougie" is used to describe someone's style...Fresh. I hope the readers here at Urbanomics appreciate our blogging and hopefully you like our Dougie. And the reason why we think our style is fresh is because we hope to bring a difficult subject, INVESTING, and try to explain it to you in a very simple way.
To invest I've learned that you must have a certain style or swagger. The reason I say this is because with so much going on with the markets and in the news, you must remain calm and make informed and logical decisions. As we have written here before, to assist in that process I recommend that you take notes of things that you read and hear. Then perform additional research to assist you in deciding what to do. If you were following the news you would have heard about some of the following stories:
Lehman Brothers - One of the largest investment banks is struggling to raise capital as losses from investments continue to pile up.
Apple/Steve Jobs - Apple is unveiling a new iPOD touch, but all that is on the mind of investors is Steve Jobs and whether he is healthy.
Oil - Oil has dropped to levels of roughly 100$, and will OPEC allow it to drop any lower.
Fannie/Freddie - I love Alan Greenspan's (former Federal Reserve chief) comment that these entities were structurally flawed because they socialize losses and privatize gains! This is so true, when they are struggling the government bails them out, but when they were profitting the only people gaining were the private investors owning the stock.
Lastly, I have often talked about price points and how important they are when investing and getting your stock selections at a great price. My Dougie has helped me patiently wait and here are some of the stocks that I liked but I had to wait for great price points.
Electro Scientific (ESIO) - I have been patiently waiting for levels of 13.80s
Big Lots (BIG) - Big Lots has benefitted from the hard times as more people turn to discount retailers. This stock is not a result of my screening, just a informed decision that makes sense. They hit a 52 week high at 34.88 and I think they will decline from those lofty levels. With stimulus checks running out and higher costs hitting most retailers they appear to be a great short opportunity. I believe Walmart, Target and most recently 99 Cents (http://www.cnbc.com/id/26622876) are being affected by this. Big Lots is a great short above levels of 33.50$.
CSX Corp (CSX) & Fedex (FDX) - I have been saying for awhile I like the transportation sectors as oil prices continue to decline. Now I haven't identified a solid price point but this may need to be done as FDX is already raising their guidance which is causing the stock to rise. I am hoping to see the effect of declining oil prices to benefit these sectors.
I'm out, Get your URB on!
Monday, September 08, 2008
A Millie
is one of the hottest tracks out there right now, and for the hip hop impaired Lil Wayne is referencing his deep pockets on his latest album, The Carter 3. Then Jay Z came along and did a freestyle titled A Billie, so you do the math and guess how deep Jay Z's pockets might be. Now take A Billion and multiply it by 200!!! And whose pockets are those?
Yup, 200 Billion represents the estimated total that the could be used to "save" Freddie Mac and Fannie Mae...each possibly receiving 100. And who is responsible for those deep pockets none other than (unknowing) executives like you amd me! The Treasury department made the call this weekend to take over the two entities and bring a little some sense of reassurance that the end of the world is not approaching. And please believe me that as stock prices of these two entities headed for zero, the government could not let let them fail or else the American economy as you know it would have collapsed!
What does this mean...or more importantly what is the market telling you this means. Mr. Market right now is telling you by today's action that it is a solid move because he is hoping that this helps the mortgage rates to go down. If rates drop, consumers may be more likely to actually repay their loans, decrease the future foreclosures, and maybe even people from spur some consumers to think about taking out loans and buying houses. Who does this help, namely your banks and your and a long shot is the homebuilders.
So remember just awhile ago when I mentioned taking cover and waiting the storm out in safe investments like money markets and treasury investments, well now I am telling you to start reallocating your investments. I am leaning to Financials and Large Caps to benefit from this recent news. Why because as you start to calculate various probabilities, many analysts have reduced the likelihood of a catastrophic financial institution failing. Now don't get me wrong there will be banks that continue to fail but less likely it will be a BIG DOG.
Yup, 200 Billion represents the estimated total that the could be used to "save" Freddie Mac and Fannie Mae...each possibly receiving 100. And who is responsible for those deep pockets none other than (unknowing) executives like you amd me! The Treasury department made the call this weekend to take over the two entities and bring a little some sense of reassurance that the end of the world is not approaching. And please believe me that as stock prices of these two entities headed for zero, the government could not let let them fail or else the American economy as you know it would have collapsed!
What does this mean...or more importantly what is the market telling you this means. Mr. Market right now is telling you by today's action that it is a solid move because he is hoping that this helps the mortgage rates to go down. If rates drop, consumers may be more likely to actually repay their loans, decrease the future foreclosures, and maybe even people from spur some consumers to think about taking out loans and buying houses. Who does this help, namely your banks and your and a long shot is the homebuilders.
So remember just awhile ago when I mentioned taking cover and waiting the storm out in safe investments like money markets and treasury investments, well now I am telling you to start reallocating your investments. I am leaning to Financials and Large Caps to benefit from this recent news. Why because as you start to calculate various probabilities, many analysts have reduced the likelihood of a catastrophic financial institution failing. Now don't get me wrong there will be banks that continue to fail but less likely it will be a BIG DOG.
Wednesday, September 03, 2008
Which Direction Is Your Money Moving...
Okay here is the deal at least in my view, NOTHING HAS CHANGED. I am still pretty bearish on the overall market. I believe that it will at best move sideways for awhile. So this calls for a tactic that most people are scared of and that's staying on the sidelines. Yep, just sit back and wait for this collapse of the market to play out. I am still screening stocks but at this point there is so much scrutiny involved that I might as well be sitting on the sidelines myself. I have already told you a few months ago to prepare for battle by repositioning your retirement accounts (401K and IRAs) and brokerage portfolios for the long winter. Some of you may have listened and others just simply ignored my instructions. I have two 401k plans and in my older plan I sold my gains and moved into a defensive position: a money market account. My IRA account offered a better hedged and I moved my gains into Treasury Inflation Protected Securities or TIPS. They offer the current Federal Treasury rates, which are not big returns, but add the rate of inflation to your returns. And its no secret at this point that INFLATION has been picking up for a long time now. Just ask yourself, how much has the price of goods you buy gone up and I bet across the board...you say enough to feel it when you shop. At this point its about wealth preservation until things get better.
Those accounts had gains in them so I moved to safer ground as the markets decline plays out. However, the other scenario is my current 401K plan is dropping like Britney Spears career, but I have adjusted my holdings. And this is why I am not panicking...b/c I am still young. If you didn't have gains or are in the red...keep buying in as prices go lower because you are able to buy more shares than you were before. Lastly, in your stock portfolio you better have some dividend stocks to ride out this drought b/c they will create a floor if your stock begins to decline. The only stocks I am adding to my portfolio at this time are ones that are hitting my superman price! Remember that concept from earlier posts! I always create attractive levels that are difficult to reach and when they get near those targets I look to add positions.
I am following another set of stocks this month:
Electro Scientific Industries (ESIO) - This is a technology play that reached, "Superman" status...as Soldier Boy would say. I was patiently waiting for 13.80s after evaluating charts and buying patterns and the market has pushed this stock down to these levels. I bought small amounts at this point and will watch it closely.
Convergys (CVG) - Bucked the trends recently and is moving up nicely. Again to be honest its so difficult to not chase this stock. I liked it at the levels of mid 14s but it is moving. I will wait and again throw out the really great price of 12.90s as a Superman price.
CSX Corp (CSX) - If you couldn't tell I love the railroads and CSX has been on my eye as private equity firms continue to pressure managment to improving returns. Although shrewd, I love to hear that type of action because they often lead to the catalyst that we are looking for to move a stock. Not to mention, I already own BNI and I still love this industry for moving all those commodities that the world needs. And they have pricing power when gas is high and BENEFIT as gas prices come down to help improve margins. Jump aboard the CSX express. I love the lows today of 55 and am watching this closely. I don't have a superman price but stay tuned.
Disclosure: I opened a position ESIO
Those accounts had gains in them so I moved to safer ground as the markets decline plays out. However, the other scenario is my current 401K plan is dropping like Britney Spears career, but I have adjusted my holdings. And this is why I am not panicking...b/c I am still young. If you didn't have gains or are in the red...keep buying in as prices go lower because you are able to buy more shares than you were before. Lastly, in your stock portfolio you better have some dividend stocks to ride out this drought b/c they will create a floor if your stock begins to decline. The only stocks I am adding to my portfolio at this time are ones that are hitting my superman price! Remember that concept from earlier posts! I always create attractive levels that are difficult to reach and when they get near those targets I look to add positions.
I am following another set of stocks this month:
Electro Scientific Industries (ESIO) - This is a technology play that reached, "Superman" status...as Soldier Boy would say. I was patiently waiting for 13.80s after evaluating charts and buying patterns and the market has pushed this stock down to these levels. I bought small amounts at this point and will watch it closely.
Convergys (CVG) - Bucked the trends recently and is moving up nicely. Again to be honest its so difficult to not chase this stock. I liked it at the levels of mid 14s but it is moving. I will wait and again throw out the really great price of 12.90s as a Superman price.
CSX Corp (CSX) - If you couldn't tell I love the railroads and CSX has been on my eye as private equity firms continue to pressure managment to improving returns. Although shrewd, I love to hear that type of action because they often lead to the catalyst that we are looking for to move a stock. Not to mention, I already own BNI and I still love this industry for moving all those commodities that the world needs. And they have pricing power when gas is high and BENEFIT as gas prices come down to help improve margins. Jump aboard the CSX express. I love the lows today of 55 and am watching this closely. I don't have a superman price but stay tuned.
Disclosure: I opened a position ESIO
Thursday, August 21, 2008
I Am Investor
Now I am no Will Smith in I Am Legend, but by being one of the few non-believers of the rapid rise of the real estate market I often felt like I stood alone. This was often documented here at Urbanomics and my lone bad investment that reminded me to always stick to my judgement was in New Century Financial. So is being Legend easy, actually yes just pick up the Wall Street Journal. Yesterday's paper confirmed my recent post about INFLATION, which continues its rise and has reached its highest level in 27 years.
Next, we discussed Freddie Mac and Fannie Mae and their sharp decline. Freddie recently auctioned more of its debt as rumors continue to swirl about a possible government bailout. If the government steps in to bail out shares at very low prices current investors could basically be left with nothing.
Oil & Gas has rebounded today and saw gains of roughly 5%. This is largely due to the disruptions between Russia and Georgia. Our position in natural gas pipelines should fare well during these times.
The last point I will discuss is one that I believe will continue to play out in the retail sector. I believe that a number of the retailers benefitted from the economic stimulus plan and many had really good quarters. I have already highlighted retailer, Big Lots, who I think like Wal-Mart benefitted from this factor. Notice that Wal-Mart noted that they see future weakness and Target also see declines. I will closely watch the retailers and look to short players like Big Lots when they rebound and closely reach their 52 week high.
Next, we discussed Freddie Mac and Fannie Mae and their sharp decline. Freddie recently auctioned more of its debt as rumors continue to swirl about a possible government bailout. If the government steps in to bail out shares at very low prices current investors could basically be left with nothing.
Oil & Gas has rebounded today and saw gains of roughly 5%. This is largely due to the disruptions between Russia and Georgia. Our position in natural gas pipelines should fare well during these times.
The last point I will discuss is one that I believe will continue to play out in the retail sector. I believe that a number of the retailers benefitted from the economic stimulus plan and many had really good quarters. I have already highlighted retailer, Big Lots, who I think like Wal-Mart benefitted from this factor. Notice that Wal-Mart noted that they see future weakness and Target also see declines. I will closely watch the retailers and look to short players like Big Lots when they rebound and closely reach their 52 week high.
Tuesday, August 19, 2008
Wall Street Gold Medal
Going for gold might be replaced with the phrase 'Going for Phelps' one of these days. But if you are in the financial markets getting your Michael Phelps on has been difficult because the markets have been more volatile than a crazy ex-girlfriend. If you know where I am going with this she's up one day and then flying off the charts the next day in the other direction. The nice thing is I have been picking good girls lately as stocks and I haven't been whipped around as much as others have. If you followed our post just a month ago, I posted the steps to navigate these choppy markets --> http://urbanomics.blogspot.com/2008/07/navigating-choppy-markets.html.
One again the market has had two sharp day to the downside, however most investors feeling the brunt of that pain are people exposed to the financial sector. After recent articles spooked the investment community, investors have been selling off banks and Fannie and Freddie rather quickly. There have been articles that have highlighted that another big bank may go under due to the ongoing credit crunch. Then Barron's pointed out that there is a likelihood that the government may have to bail out Fannie and Freddie which could leave current stakes invested in the government sponsored agencies worthless. All this proves is that financials suck and will continue to suck for the forseeable future. Why people choose to ignore that fact is beyond me. In your 401K plan or in your IRA, I would stick with less volatile investments at this point like the Treasury Inflation Protection Securities (TIPS). This is still a solid pick because the Producers Price Index (PPI) was recently released and again inflation is steadily rising. And in my brokerage account I see myself steadily moving towards dividend yielding stocks, technology, transportation, and infrastructure plays.
And for a quick discussion on some of the stocks in my actual portfolio and/or in my stock tracker portfolio:
Collectors Universe (CLCT) - Although, you may want to smack this company like many others for spending without a conscious, they have announced a strategy to cut back on expenses now that their gem grading business is gaining traction. I hope that this business continues to take off like I observed after reading the last quarterly report and while we wait enjoy the 14% dividend this stock touts. I know the fear may be that the dividend will be cut due to such a high yield, but as long as the payments are made keep 'collecting' and participate in a dividend re-investment program (DRIP) to obtain more shares at these low prices.
Burlington Northern (BNI) - This transportation company has whethered the storm and continues to hold steady. Transports should benefit from the declining oil prices and stronger pricing power. I ain't selling until Buffet does.
Microsoft (MSFT) - Thank goodness the Yahoo mess is over and the world can move on and realize that MSFT is a world class technology company that continues to sit on an unbearable amount of cash. I would prefer that they start to increase the dividend amount so that I can get paid as I wait for great results from these guys. I would take dividends here and partipate in the DRIP.
Radisys (RSYS) - This stock reported great earnings and analysts raised the expected guidance for the next quarter by a whopping 9c! It holds steady on these tough days and usually outpaces the market on good days. It hit a bit of a rough patch after insiders sold in the last few weeks but the downside should ease and this stock should move higher.
EPD, ETE - This is a play on natural gas and I like the pipeline stocks in the future because there is good dividend insulation which should be re-invested for a great long term gain. The yield is around 7% here and is considered stable.
MOVE - This stock has rebounded from the dungeons of $2 after their earnings announcement and will move higher as real estate eventually rebounds way down the line from now.
China Digital (STV) - STV is like an ex-girlfriend and is more volatile than a Jerry Springer show. I think the international slowdown causes this stock to sag and the drop has been sharp. This stock rebounds when the market is positive and does so rather sharply. I would recommend adding to your positions slowly.
AK Steel (AKS) - I believe is still a solid company but get out of the way of the commodities. Its like trying to catch a falling knife and thats not too smart.
EWJ - Great play on the downturn in the international markets, especially Japan.
OPTR - Don't know a lot about this stock which met my screen. It was up sharply then retreated. I don't own this stock but would look to take profits after another quick run up.
One again the market has had two sharp day to the downside, however most investors feeling the brunt of that pain are people exposed to the financial sector. After recent articles spooked the investment community, investors have been selling off banks and Fannie and Freddie rather quickly. There have been articles that have highlighted that another big bank may go under due to the ongoing credit crunch. Then Barron's pointed out that there is a likelihood that the government may have to bail out Fannie and Freddie which could leave current stakes invested in the government sponsored agencies worthless. All this proves is that financials suck and will continue to suck for the forseeable future. Why people choose to ignore that fact is beyond me. In your 401K plan or in your IRA, I would stick with less volatile investments at this point like the Treasury Inflation Protection Securities (TIPS). This is still a solid pick because the Producers Price Index (PPI) was recently released and again inflation is steadily rising. And in my brokerage account I see myself steadily moving towards dividend yielding stocks, technology, transportation, and infrastructure plays.
And for a quick discussion on some of the stocks in my actual portfolio and/or in my stock tracker portfolio:
Collectors Universe (CLCT) - Although, you may want to smack this company like many others for spending without a conscious, they have announced a strategy to cut back on expenses now that their gem grading business is gaining traction. I hope that this business continues to take off like I observed after reading the last quarterly report and while we wait enjoy the 14% dividend this stock touts. I know the fear may be that the dividend will be cut due to such a high yield, but as long as the payments are made keep 'collecting' and participate in a dividend re-investment program (DRIP) to obtain more shares at these low prices.
Burlington Northern (BNI) - This transportation company has whethered the storm and continues to hold steady. Transports should benefit from the declining oil prices and stronger pricing power. I ain't selling until Buffet does.
Microsoft (MSFT) - Thank goodness the Yahoo mess is over and the world can move on and realize that MSFT is a world class technology company that continues to sit on an unbearable amount of cash. I would prefer that they start to increase the dividend amount so that I can get paid as I wait for great results from these guys. I would take dividends here and partipate in the DRIP.
Radisys (RSYS) - This stock reported great earnings and analysts raised the expected guidance for the next quarter by a whopping 9c! It holds steady on these tough days and usually outpaces the market on good days. It hit a bit of a rough patch after insiders sold in the last few weeks but the downside should ease and this stock should move higher.
EPD, ETE - This is a play on natural gas and I like the pipeline stocks in the future because there is good dividend insulation which should be re-invested for a great long term gain. The yield is around 7% here and is considered stable.
MOVE - This stock has rebounded from the dungeons of $2 after their earnings announcement and will move higher as real estate eventually rebounds way down the line from now.
China Digital (STV) - STV is like an ex-girlfriend and is more volatile than a Jerry Springer show. I think the international slowdown causes this stock to sag and the drop has been sharp. This stock rebounds when the market is positive and does so rather sharply. I would recommend adding to your positions slowly.
AK Steel (AKS) - I believe is still a solid company but get out of the way of the commodities. Its like trying to catch a falling knife and thats not too smart.
EWJ - Great play on the downturn in the international markets, especially Japan.
OPTR - Don't know a lot about this stock which met my screen. It was up sharply then retreated. I don't own this stock but would look to take profits after another quick run up.
Friday, August 15, 2008
Will Solar Shine In Your Portfolio
My initial guess is it will in the long term solar will continue to be a consistent source of alternative energy for America. Now to be honest this is such a difficult area to invest in because for me I don't have alot of information on how to separate the good solar companies from the bad. Today, I truly felt like I left a good opportunity on the table while I was doing my research yesterday. I am going to fault the great American gymnasts for slightly distracting me as I was reading a story that was HEADLINED on Yahoo's front page. It was describing a large deal for solar technology that is taking place in California. So I clicked on the following story:
TWO LARGE SOLAR PLANTS PLANNED FOR CALIFORNIA
After reading the story I followed in the footsteps of one of my investing mentors, Peter Lynch, and began researching some of the key companies mentioned (OptiSolar, PG&E, and Sunpower). My only problem was the Olympics didn't allow me to do a very detailed review of the article above. I read the article and decided that the PG&E was not going to be my main focus because they may benefit in the long term from a large exposure from solar technology they will be spending capital in the short term to get there. However, I was very interested in the companies providing the solar equipment to PG&E which would be OptiSolar and Sunpower. Now with a quick read of that article you its focus is mainly on OptiSolar and I decided to find the company website and determine if this was a public company or could provide an additional lead to an investment. Now what you didn't hear me mention was a review of Sunpower to determine if they were a public company. There lied my mistake because I overlooked the second company, which didn't have as much of a focus during the story, and missed a great opportunity to cash in on this news early.
So as I did some light research on this lovely Friday evening, I learned that Sunpower (the second company) was up 18% today on news that it looks to sign big deals like the one announced with PG&E. You win some and I guess you miss some.
On another note, I have found a solar ETF (KWT) that could provide you with exposure to this growing sector without having to pick just one.
Buffet Note:
I should probably pay just as much attention to his recent additions in his portfolio but the more suprising news is the addition of an energy company, NRG Energy. This company is currently down 18% since that addition and now that this has been disclosed this stock will benefit from the Buffett Effect. NRG is up 5%, even as most energy firms are declining today.
TWO LARGE SOLAR PLANTS PLANNED FOR CALIFORNIA
After reading the story I followed in the footsteps of one of my investing mentors, Peter Lynch, and began researching some of the key companies mentioned (OptiSolar, PG&E, and Sunpower). My only problem was the Olympics didn't allow me to do a very detailed review of the article above. I read the article and decided that the PG&E was not going to be my main focus because they may benefit in the long term from a large exposure from solar technology they will be spending capital in the short term to get there. However, I was very interested in the companies providing the solar equipment to PG&E which would be OptiSolar and Sunpower. Now with a quick read of that article you its focus is mainly on OptiSolar and I decided to find the company website and determine if this was a public company or could provide an additional lead to an investment. Now what you didn't hear me mention was a review of Sunpower to determine if they were a public company. There lied my mistake because I overlooked the second company, which didn't have as much of a focus during the story, and missed a great opportunity to cash in on this news early.
So as I did some light research on this lovely Friday evening, I learned that Sunpower (the second company) was up 18% today on news that it looks to sign big deals like the one announced with PG&E. You win some and I guess you miss some.
On another note, I have found a solar ETF (KWT) that could provide you with exposure to this growing sector without having to pick just one.
Buffet Note:
I should probably pay just as much attention to his recent additions in his portfolio but the more suprising news is the addition of an energy company, NRG Energy. This company is currently down 18% since that addition and now that this has been disclosed this stock will benefit from the Buffett Effect. NRG is up 5%, even as most energy firms are declining today.
Friday, August 08, 2008
Automated Trades
Auto-mato used to call me Fatso, now they call me Brasco. And if you don't recognize that line, I'm sorry you are up on your Notorious BIG or Biggie history. Step ya game up!!! Well after a strong week I wanted to give you a quick update and I closed my position in Brooks Automation (BRKS). I recommended this stock just around two weeks ago and we had the opportunity to lock in about 8-10% in gains!!! I am not a pig, because pigs get slaughtered so I took the gains and ran. BRKS reported lower earnings but again in the mysterious world of earnings season the steet must have seen the turnaround potential in this stock.
This was a great test for me because I have laid down ground rules for trading and although very difficult I must learn to stick to these rules. Over time I will share these with you but for starters, I have some simple rules like taking profits in a position that quickly gained 5% in less than a week and 10% in less than a month in stocks that don't represent my core positions.
Have a great weekend and enjoy the OLYMPICS!!!
This was a great test for me because I have laid down ground rules for trading and although very difficult I must learn to stick to these rules. Over time I will share these with you but for starters, I have some simple rules like taking profits in a position that quickly gained 5% in less than a week and 10% in less than a month in stocks that don't represent my core positions.
Have a great weekend and enjoy the OLYMPICS!!!
Wednesday, August 06, 2008
July/Aug Earnings Season
Here are a few quick updates for trading during this earnings season:
Commodities - Trade these names quickly and look to sell the rips and buy the dips (thanks Fast Money for this phrase).
I am looking for oversold conditions and carefully buying these names. For instance, I have had a limit order out to buy the COAL ETF (NYSE: KOL) @ 42.90 in the event it reached to these fundamental levels which I considered cheap. I am not a technical chartist but I have found that these levels seemed reasonable, offered support and not to mention would require almost a 15% decline from recent levels. Well to say the least I hit my limit and will the recent pull back this morning I unloaded KOL for around a 2-3% gain.
Clayton Williams (CWEI) - Going back to the theme identified above, I am going into earning season and if I see a fundamental shift in the business model of one of the stocks we own its time to unload. I am sad to say that I have finally sold CWEI after its most recent earnings after holding on for over 2 years. From the depths of 30-40$ a share we watched this ride to over 100% gain. The earnings report available to everyone this morning before the actual call told the story. They had losses on derivatives, and some of the wells are costing more that what they had hoped...throw into the mix that the commodity sector is taking it on the chin...its time to sell this gem of a stock.
Commodities - Trade these names quickly and look to sell the rips and buy the dips (thanks Fast Money for this phrase).
I am looking for oversold conditions and carefully buying these names. For instance, I have had a limit order out to buy the COAL ETF (NYSE: KOL) @ 42.90 in the event it reached to these fundamental levels which I considered cheap. I am not a technical chartist but I have found that these levels seemed reasonable, offered support and not to mention would require almost a 15% decline from recent levels. Well to say the least I hit my limit and will the recent pull back this morning I unloaded KOL for around a 2-3% gain.
Clayton Williams (CWEI) - Going back to the theme identified above, I am going into earning season and if I see a fundamental shift in the business model of one of the stocks we own its time to unload. I am sad to say that I have finally sold CWEI after its most recent earnings after holding on for over 2 years. From the depths of 30-40$ a share we watched this ride to over 100% gain. The earnings report available to everyone this morning before the actual call told the story. They had losses on derivatives, and some of the wells are costing more that what they had hoped...throw into the mix that the commodity sector is taking it on the chin...its time to sell this gem of a stock.
Thursday, July 31, 2008
URB Recommendations - July 31
Brooks Automation (BRKS) - As you know my screens often gravitate me towards down and out of favor stocks on Wall Street and the latest is no exception. From what I have researched BRKS was in deep doo doo. Yep you heard me they messed up and the Securities Exchange Commission got in that azz and began a probe. It ended in a settlement and as usual no disclosure of wrong doing needed to be made. With this stock trading close to a 52 week low, I see this a catalyst that the worst may be behind Brooks. Remind me to review the recent quarterly reports and new releases to confirm this but I did take away that the settlement will not be applied to the earnings which is great news for new investors. I got an early jump but this may be a great stock to pick up around the lows.
Recommendation ~ I am adding this stock to my portfolio and stock tracker
Enterprise Product Partners (EPD), Enterprise Energy Transfer Entity (ETE), and Enterprise GP Holdings (EPE) - These are natural gas plays and I like them at these levels. I don't think there is a big catalyst here with natural gas declining but you have two things in your favor. EPD is an infrastructure play and as energy continues to be expensive pipelines will be needed to move gas around the country and the world. Second I have learned the super importance of dividend stocks which limit the downside risk.
Update ~ I own EPD, and have added EPD and ETE to the tracker
Stocks I am watching like a hawk:
Home Inc (MOVE) ~ I love at the 52 week low @ 2.06
Asset Acceptance Corporation (AACC) ~ I love around the lows of 9.41
Medcath (MDTH) ~ I love at the levels of 18
Avid Technology (AVID) ~ Watch this one closely
Electro Scientific (ESIO) ~ I am holding out for below 14!
Rick's Cabaret (RICK) ~ I will keep you posted this one has been moving lower
Big Lots (BIG) I AM SHORTING THIS BAD BOY @ AROUND $31;
AK Steel (AKS) ~ I hope you got this when it dipped into the 40s if not it has skyrocketed again into the 60s
Recommendation ~ I am adding this stock to my portfolio and stock tracker
Enterprise Product Partners (EPD), Enterprise Energy Transfer Entity (ETE), and Enterprise GP Holdings (EPE) - These are natural gas plays and I like them at these levels. I don't think there is a big catalyst here with natural gas declining but you have two things in your favor. EPD is an infrastructure play and as energy continues to be expensive pipelines will be needed to move gas around the country and the world. Second I have learned the super importance of dividend stocks which limit the downside risk.
Update ~ I own EPD, and have added EPD and ETE to the tracker
Stocks I am watching like a hawk:
Home Inc (MOVE) ~ I love at the 52 week low @ 2.06
Asset Acceptance Corporation (AACC) ~ I love around the lows of 9.41
Medcath (MDTH) ~ I love at the levels of 18
Avid Technology (AVID) ~ Watch this one closely
Electro Scientific (ESIO) ~ I am holding out for below 14!
Rick's Cabaret (RICK) ~ I will keep you posted this one has been moving lower
Big Lots (BIG) I AM SHORTING THIS BAD BOY @ AROUND $31;
AK Steel (AKS) ~ I hope you got this when it dipped into the 40s if not it has skyrocketed again into the 60s
Navigating the Choppy Markets...
Now I know there have been a few movies over time that have taken place out at sea but I won't waste your time pretending that I even know what some of those movies are. But there have been many right...where man tries to master the sea but it comes at a cost like lost crewmembers, near death experiences, and doubting your capabilities. But then out of nowhere comes the light that leads man into shore.
Well the stock market is a lot like the sea, investors are similar to the boats and crews out there, and I feel like I am often not only the captain of my ship but also the lighthouse that can assist other people out of the choppy markets. What has been on my mind lately is that I have not taken advantage of all of the opportunities out there but I have constantly tried to keep myself out of trouble while looking for areas to gain from a stocks occasional misalignment. This year you've seen me part ways with mediocre performing stocks that I probably never should have bought in the first place and also hold under performing stocks where I believe that there is room to grow. Most recently, I have parted with my gains in the oil sector with my Oil Services Holders ETF pick (ticker: OIH). And too many times I have taken hits on the chin and lost money through recent picks like Zhone Technologies and mistimed short sales of Small Cap, Emerging Markets, and Financial Services stocks. I am somewhat pleased with the status of my portfolio and will share some of the things that I have learned this year.
Cut Your Losses - When you happen to make stupid picks or the fundamentals start to look fishy...CUT your losses right away. I have continued to learn from analysts that it does not take much from a stock to tell you when it is sucking it up. Learn to not fall in love with your pick and set aggressive limits that will create a floor when your prized pick drops. These limits should range from 7-15% but take it from me it is sooooo hard to recover once you have a loser on your hands. If you think the stock is still a gem, then at least you can reevaluate it and buy it at a lower price.
Day Trades - Day trading is for people that trade stocks for a living. If you don't have time to watch these picks around the clock they can get away from you in a hurry. And not to mention you begin to out think your trade. I have in the last month made money on trades in the Oil and Financial ETFs only to see them evaporate because I was too busy working and didn't notice my shorter term gains washing away. I would say don't day trade, but it you do and you are up use limits again to protect the downside.
Earnings Season - If you read anything from me, READ THIS... stay away from trading stocks the week before and after they release earnings. This is the most volatile period and so many factors are considered that you will eventually get burned. For example, I bought GameStop (GME) last November and it tanked right after the earnings announcement...rapidly. I quickly sold my declining position only to see the market reanalyze the news on GME and it proceeded to rise higher and higher the weeks after, which would have made a great profit. Even better, I am currently in a stock picking contest and I bought Visa (V) before the earnings and watched it move higher, even during after hours. Then the next day this stock proceeded to get crushed and my quick profits were gone. Stay away from earnings season.
Homework - Jim Cramer calls it doing homework, I follow the Buffet mantra and say that you constantly research info about the stocks you own and evaluate whether the fundamentals have changed. If they have turned for the worse...BOUNCE! Remember Zhone, the management told us a MONTH before the earnings that it would miss, so do your homework and sell. I not only sold the loser, but made a back some money by shorting the stock.
Patience - After evaluating your stocks frequently, show restraint for the stocks where the fundamentals have changed. I have owned Radisys for second time and this has been one of the wildest rides in my investment career. The first time I bought this stock I watched it go up and then turn around and fall sharply. I did my work and felt that the fundamentals had no changed much. So I held on and watch it hit the 52wk high last year, where I promptly sold the stock so that I would be greedy. Now as you now I have re-recommended Radisys and since that recommendation I again watched it dropped. I thought I was soooooo smart because I bought it while it was approaching the lows of the year, however the stock kept dropping. And in the mind of Buffet, that means I am getting this stock at a discount...IF the fundamentals haven't changed. So I kept buying and the most recent earnings announcement was news to our ears. We watched Radisys report excellent earnings and the stock has been on a tear. It is my largest holding and I am pleased that analysts have raised next quarters guidance by an astounding amount, double what it currently is.
Well the stock market is a lot like the sea, investors are similar to the boats and crews out there, and I feel like I am often not only the captain of my ship but also the lighthouse that can assist other people out of the choppy markets. What has been on my mind lately is that I have not taken advantage of all of the opportunities out there but I have constantly tried to keep myself out of trouble while looking for areas to gain from a stocks occasional misalignment. This year you've seen me part ways with mediocre performing stocks that I probably never should have bought in the first place and also hold under performing stocks where I believe that there is room to grow. Most recently, I have parted with my gains in the oil sector with my Oil Services Holders ETF pick (ticker: OIH). And too many times I have taken hits on the chin and lost money through recent picks like Zhone Technologies and mistimed short sales of Small Cap, Emerging Markets, and Financial Services stocks. I am somewhat pleased with the status of my portfolio and will share some of the things that I have learned this year.
Cut Your Losses - When you happen to make stupid picks or the fundamentals start to look fishy...CUT your losses right away. I have continued to learn from analysts that it does not take much from a stock to tell you when it is sucking it up. Learn to not fall in love with your pick and set aggressive limits that will create a floor when your prized pick drops. These limits should range from 7-15% but take it from me it is sooooo hard to recover once you have a loser on your hands. If you think the stock is still a gem, then at least you can reevaluate it and buy it at a lower price.
Day Trades - Day trading is for people that trade stocks for a living. If you don't have time to watch these picks around the clock they can get away from you in a hurry. And not to mention you begin to out think your trade. I have in the last month made money on trades in the Oil and Financial ETFs only to see them evaporate because I was too busy working and didn't notice my shorter term gains washing away. I would say don't day trade, but it you do and you are up use limits again to protect the downside.
Earnings Season - If you read anything from me, READ THIS... stay away from trading stocks the week before and after they release earnings. This is the most volatile period and so many factors are considered that you will eventually get burned. For example, I bought GameStop (GME) last November and it tanked right after the earnings announcement...rapidly. I quickly sold my declining position only to see the market reanalyze the news on GME and it proceeded to rise higher and higher the weeks after, which would have made a great profit. Even better, I am currently in a stock picking contest and I bought Visa (V) before the earnings and watched it move higher, even during after hours. Then the next day this stock proceeded to get crushed and my quick profits were gone. Stay away from earnings season.
Homework - Jim Cramer calls it doing homework, I follow the Buffet mantra and say that you constantly research info about the stocks you own and evaluate whether the fundamentals have changed. If they have turned for the worse...BOUNCE! Remember Zhone, the management told us a MONTH before the earnings that it would miss, so do your homework and sell. I not only sold the loser, but made a back some money by shorting the stock.
Patience - After evaluating your stocks frequently, show restraint for the stocks where the fundamentals have changed. I have owned Radisys for second time and this has been one of the wildest rides in my investment career. The first time I bought this stock I watched it go up and then turn around and fall sharply. I did my work and felt that the fundamentals had no changed much. So I held on and watch it hit the 52wk high last year, where I promptly sold the stock so that I would be greedy. Now as you now I have re-recommended Radisys and since that recommendation I again watched it dropped. I thought I was soooooo smart because I bought it while it was approaching the lows of the year, however the stock kept dropping. And in the mind of Buffet, that means I am getting this stock at a discount...IF the fundamentals haven't changed. So I kept buying and the most recent earnings announcement was news to our ears. We watched Radisys report excellent earnings and the stock has been on a tear. It is my largest holding and I am pleased that analysts have raised next quarters guidance by an astounding amount, double what it currently is.
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