Market Thought… keep thinking

October 4th, 2008

Depression. That is the word, the thought and theme of almost every article I have read this past week… and I read A LOT of articles.

So, are we heading into a Depression?

The only other time the United States, and the world, was in a depression was obviously during the Great Depression. Since no investor was alive to really experience the event, fears are high because the ‘no one knows anything’ mentality is taking full swing. I started refreshing my knowledge on the Great Depression, and I have to say, Wikipedia gives a pretty good summary of events. (Glad we have Bernanke at the helm.)

No question the begining of our current economic situation is awefully similar to the Great Depression, but the key difference is the action already taken by the Fed, Treasury, Congress and current level of globalization. Stark differences from the govermental policies and Fed Reserve action lead the economy in the 1930 to spiral out of control. We are currently watching our current leaders not follow those similar mistakes, and impliment academic theories in attempts to prevent the downward spiral. (Far better then doing NOTHING.)

IMO, market prices at the moment are cheap, dirt cheap, in relation to the current rule of thumb valuation metric. Wether those techniques include PE, PEG or pretty much any discounted cash flow valuations method. We also have a very high level of fear, highly indicative of market bottoms. Unfortunately, we also have a level of uncertainty not precedented over the last 80 years.

On top of the uncertainy the market is seeing a level of deleveraging probably never seen before. This only facilitates lower stock prices. When will the forced deleveraging selling stop? I do not know, but I am strongly considering taking advantage of solid companies.

I do not think we enter a depression due to the actions already taken, and current level of globalization. Current market prices are very attractive, but because of hedge fund forced selling volatility will remain high.

The spike in the VIX is not indicative of ‘V’ type bottom, as I suggested before, but I do believe it represents a low point for stocks. During the 2000-2002 bear market, toward the bottom, the VIX remained high, and the market went sideways for a few months as the economy flushed out the negatives.

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IMO, a similar market action will take place here, but the stock market will take its ques from the credit markets. As the credit markets improve, so will the prospect of economic growth, and the stock market will improve.

GE… a closer look

October 4th, 2008

Where to even begin… A 10yr chart to GE reveals the company has seen the $20 level only three other times in previous cycles, and each time quickly bouncing from it.

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In the late 90s, GE just touched 20 and quickly bounced:

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In the previous bear market from 2002, GE quickly bounced from 19 twice:

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Currently GE is at a situation where a quick breach of 20 will most likely take place again…

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GE Capital is a drag on earnings at the moment, and if/when credit markets ease up, the cost of borrowning will reduce and benefit GE. The industrial side may see a slow down due to the global slow down, but still, GE is very attractive here. It is a cheap stock, and as good as it gets with respect to a strong company, that is yielding +5% as you wait for things to improve.

Market Thought… action sucks

October 3rd, 2008

I am not liking this action at all.  I sold off all equities, yet again, but kept my entire GE position.  The stock is simply too cheap, and when the credit markets ease up, its estimates should rise again. (Keep in mind, I am not kidding myself on the infrastructure side of the biz… it should see a hick up due to the global recession.  What ever the case, GE should NOT be below 20. period.)

No Bubble in Commodities

October 3rd, 2008

Thanks to the Ag names getting crushed yesterday, a lot of chatter about commodities bubble bursting is going around. Even Cramer equated Commodity names to the previous Tech bubble.  This suggestion is simply crap.

Commodity names are making a sick amount of money. Their cash flows are very real, and their estimates are reasonable due to the price of the commodities to which their products are pegged.

As the world economy slows, so will the consumption of these commodities, hence the underlining price will decline.  Will they decline quicker then they rose… I do not know. (I have not traded commodities, except oil, so I do not assume to know those markets.)

Oil on the other hand is a different beast all together.  With oil, we know we have reached a peak in global production, and despite the slow down the usage has not retracted as much as I thought it would.  When I shorted oil, my major tell was within the Emerging Market names, as well as most commodities collapsing except oil.  The reason it had resiliance in its collapse is because its fundamental supply issue is much better known then other commodities.  The only thing that will bring down oil below $80-85 a barrel is the use of alternative energies that will allow oil not to be used.

Sick of this…

October 2nd, 2008

Every article I read, every media outlet I turn to, all I see is negativity.  The horrors of the economy, but the worst of it are those ubber negative ‘end of world’ shmucks who just criticize every step of the way.

Things suck out there, they do, but I hate those back seat drivers who just complain about a situation and assume it will never get any better.

The House better approve this bill cause the market needs something.  We already had a scenario where the market were left on its own during a credit freeze, and it gave us the Great Depression.

Fuck that… I do not want to give up like that… accepting a do nothing approach is GIVING UP, and I do not give up, so my congress better not give up either!

Equities are already priced for a severe downturn, the market already expects it… so what are we going to do about it… accept defeat or win?

Trades…

October 2nd, 2008

Entered positions in:

GE (Will add even more if 20 is broken downward.  This recent capital requirement was not needed, they did it to satisfy the market.)

PBR (Peak oil is real, and prices will stay high until alternatives slow the use of crude. Will add more around 37.)

PWR (Did anyone even bother to see the PTC was passed yesterday, and the alternative space has one common theme… upgraded Power Grid. But multiple compression is a bitch to deal with. Will add more if below 20 is observed.)

Still waiting for downgrades on MA, also BNI. Valuations look good, but downgrades should be coming as the global economy has slowed. (IMO, these downgrades will be lagging.)

Market Thought… lets be rational

September 29th, 2008

After the ‘No’ vote the market began to show signs of a temporary bottom. The VIX to SP500 chart looks pretty interesting here…

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I am not saying that the markets will go straight up here, but imo, the chart is telling me around this level maybe a low point for stocks. Everyone and there mother already knows the fundamentals to the American economy is currently weak, and todays accelerated market declines are reflecting that weakness.

I just keep thinking… What new negative information are we going to findout in the next few weeks that we do not already know or are anticipating?

Keep in mind, I DO think the credit freeze will have really negative implications over the next few months, but I think stocks are discounting this negativity. The biggest indicator here is how inexpensive certain stocks of strong companies getting.

IMO, to start accumulating high quality common stock is not a bad idea. Look at strong players, top tier, players. I am accumulating GE common. Strongly considering MA, but would like to wait for the downgrades to hit (similar to what happened to Apple today), JPM common (mostlikely after they report or when/if it sees high 30s), PWR (as a growth stock gets killed due to multiple compression, but the wind is soooo on its back) and PBR (as I am a believer in peak oil).

Apple got a series of downgrades today in an anticipation of the global slow down, so analysts are now factoring the consumer slow down into their numbers. The markets will overshoot this negativity, and that is the time to act. (Not saying to get into Apple, just using it as an example… I am waiting on Apple for now.)

I would not go heavy on options for a bounce here, but common stocks like GE I already started to accumulate.

(I am still a trader here, and will not hesitate to unload when/if things get overbought. The economy is not going to quickly get out of this economic mess, and I will not kid myself otherwise.)

Just this once…

September 29th, 2008

I was hoping to be wrong with the market collapse prediction.

We (the American citizens) will loose far more than $700B in market capitalization via 401ks, IRAs, Pension Funds… etc.

F-n shame. With the No vote, and market collapse, I covered my short position.

Stock valuations are cheap, but that could be an indication of a severe recession the worlds is about to experience.

Market Thought… ho-hum reaction

September 29th, 2008

Despite the decline, the market is still waiting for approval of the bill.  Not a collapse, but a sizeable decline none-the-less.  (Most likely because financials can not be shorted.)

The market is acting like a repricing of equities is upon us.  MA and AAPL, to only name a few… but the general commodities as well, suggest a global slow down is upon us.  At the very least US recession that will cause much slower growth abroad.

I am causious here, but I must say stocks are looking juicy, even when repricing for lower growth.

Unfortunately we have still not hit a market bottom.

That Nervous Feeling

September 26th, 2008

I am getting that nervous feeling again.  If something materializes by Monday, good, we avert a sudden market drop. But we will not avert a declining market.

Use market strength today to protect.  I am shorting the SPY via March 09 Puts.