Archives for July 2012

Break Up the Banks!

This morning on CNBC’s Squawk Box, Sandy Weill made a truly shocking remark.  If you don’t know Sandy, he built Citi into the financial conglomerate it is today, putting together my old employer Shearson Lehman, Smith Barney, Primerica, Travelers and many, many more financial companies.  Sandy was supposed to be the heir apparent at AMEX when Shearson was called Shearson/American Express, but massive egos got in the way in the roaring 1980s.

One of the many causes of the 2007 – 2009 financial crisis was that the post Great Depression law, Glass Steagall, was repealed in 1999 by Congress and the president. That allowed banks to get back into the brokerage and investment banking areas, which sounds fine on the surface.  It also permitted them to create those esoteric alphabet soup of private products like CMOs, CLOs, CDOs, SIVs, etc., which not only could be leveraged, but also held on the banks’ balance sheets.  Remember when the daily discussion centered around the massive amount of write downs first with sub prime loans, then alt A loans and finally prime loans?  These loans were all packaged up in the alphabet soup products!

Anyway, one of the chief architects and proponents of repealing Glass-Steagall was none other than Sandy Weill himself!  He actually hired former Clinton administration Treasury chief Robert Rubin as Vice Chairman of Citi to begin the “lobbying” process of Congress.

Very “interesting” that after the capitalist system almost ceased to exist, the man behind a key enabler has done a 180.  Mea culpa?

http://video.cnbc.com/gallery/?video=3000105222&play=1

Market Getting Tired

Here is Monday’s segment we did on CNBC which remains our position today.

http://video.cnbc.com/gallery/?video=3000103231&play=1

Stocks have been on a nice little run this week with a dearth of news out of Europe and generally better than expected earnings from bellwether companies.  Keep in mind that the earnings “beats” are after Wall Street cut estimates over the past month and the general sentiment regarding earnings had become so negative that it should not be a surprise to see them bettered.  This is a common game each quarter with companies doing the opposite of what Wall Street does in the weeks leading up to the reports.

The market is beginning to show some signs of tiring as it trades in the upper half of the range from the April peak and June low.  The next few sessions should certainly give us clues what lies ahead the rest of July and which groups offer the best opportunity and the biggest risk.

On a personal note, happy 9th birthday to my favorite girl in the world!  I am not liking the fact that she is growing up so quickly!!

Have a great weekend!

Paul

Are Stocks Dead Money?

Here is the latest Street$marts:

http://www.investfortomorrow.com/newsletter/CurrentStreet$marts20120712.pdf 

Besides offering an essentially sideways forecast, which has been our thesis for a month, we also throw in another unusual economic indicator along with an interesting story from someone on the younger side!

CNBC’s Closing Bell TODAY at 3pm est

I am going to be on CNBC’s Closing Bell with Bill and Maria at 3:00pm est today discussing the market’s path over the rest of the summer and how “quiet” it has become as earnings season really cranks up this week.  Almost every article, tv segment and conversation about earnings has been so negative that it seems like much has been priced into the stock market.  Could a small upside surprise lie ahead? 

This lack of significant volatility is typical of election year summers (except for 2008), but that should change after the conventions later this summer.

Quietly Strong Selling Wave

Stocks have quietly seen a fairly strong selling wave over the past eight days.  Coincidentally (or not), that has been ever since the European Union announced their latest rescue attempt from European Stability Mechanism.  After that one huge rally day, stocks have not behaved well and after today (Thursday), they have given back the entire rally.

From my seat, the stock market is at an interesting juncture here.  I wouldn’t say “critical”, but the bulls need to step up here and make some noise.  Closing below the low we saw this morning, say 12450 on the Dow, would likely set off a quick and sharp multi hundred point drop before the next opportunity came for the bulls.  Right now, the bulls have fought off the bears for two straight days.  It’s for them to make some headway over the coming few sessions.

The latest Streetsmarts is out and if you subscribe to that letter (http://www.investfortomorrow.com/newsletter.asp), it should be in your inbox.  Otherwise, I will post it here over the weekend.

Have a great weekend!

Paul

Markets Pricing in Weak Earnings

Earlier this week, I did an interview with Fox Business about the possible increase in taxes when the Bush/Obama tax cuts expire in December.  Later in the segment, we discussed earnings season, which began this week with Alcoa, and how just one quarter off record earnings, investors are becoming so pessimistic.

While it certainly feels like a negative year in the markets, the major indices remain in the black for 2012.  In fact, the year is very closely following the typical presidential election year with a Q1 rally, springtime low and summer rally.  If this continues to hold, we should see a fall swoon to a bottom before the election and then robust year-end rally.

http://video.foxbusiness.com/v/1727305534001/heritage-capital-president-markets-pricing-in-weak-earnings

To view any and all previous spots in the media, please visit: http://www.investfortomorrow.com/InMedia.asp 

Paul

Stocks Slide on Tepid Jobs Growth Number

On Friday’s CNBC segment, I spoke about the range bound market with the potential for a fall swoon before the election.  But in any market, there are always opportunities and this time is no different.

http://video.cnbc.com/gallery/?video=3000101361&play=1

So far this week, stocks have not behaved well, but it’s far from a rout and the trading range continues. On Wednesday, we get a peak at the minutes from the Fed meeting and folks will take any scrap of comments that leads to QE3 coming.  As I have said since QE1 was launched, we will see QE2, 3, 4, 5 with the Fed’s balance sheet approaching $5 trillion.

FOX Business TODAY at 1pm

I am going to be on FOX Business’ Markets Now today at 1pm est discussing the markets’ reaction to the weak employment data along with our forecast for the Dow to year-end. 

Stocks lost roughly 1% on Friday, but you would think the market collapsed from the media’s portrayal of the day.  Listening to Mitt Romney, it sounds like we lost jobs and are heading into the abyss.  President Obama on the other hand gave a campaign speech in Ohio where it took him 11 minutes to even mention jobs and then he only spoke about how well the administration has done in creating jobs.  I think most of know that the truth is somewhere in the middle.

There are four more employment reports until the election and I think they will all fall in the modest category, somewhere between 10,000 and 200,000 jobs created each month.  While that is jobs growth, it is tepid at best and doesn’t keep pace with population growth.  Looking over the history of post financial crisis recoveries, all of this falls within the realm of normalcy.  As I have mentioned before, it is usually after the next recession where we make significant progress on the employment front. 

The next Street$marts should be out by Wednesday.

CNBC’s Closing Bell at 3:00pm TODAY

I am going to be on CNBC’s Closing Bell with Bill & Maria today at 3pm discussing the less than positive jobs report as well as the harsh market reaction and the potential response from Bernanke & Co.

As soon as I finish wrapping up my quarterly report to clients, I will publish the next Street$marts with some comments on the European Central Bank’s recent action and what the Supreme Court’s ruling on ObamaCare means for the economy and markets.

Have a great weekend!

Paul

3 Indicators That Can Tell You the Market’s Next Move

On Monday, I was in the city spending some time with my friends at Yahoo Finance.  As always, I thank them for their hospitality and Jeff Macke for the engaging conversation.

http://finance.yahoo.com/blogs/breakout/3-indicators-tell-market-next-move-115923205.html 

With the volume and velocity of information out there, trying to get a read on the stock market is like attempting to get a sip of water from a firehose. Thankfully Paul Schatz of Heritage Capital has three ways to check the health of the market and durability of its trends. They don’t work every single time but Schatz says these are great “tells” as to whether or not what’s happening from day to day is reality or a mirage.

1. High Yield Bonds (HYG)

More commonly known as “junk bonds,” high yield corporate debt has been one of the favorite plays for investors who want decent cash flow with slightly more safety than stocks. Historically low rates on U.S. Government debt have made junk bonds an attractive way to play in between bonds and equity.

That’s why junk is the canary in the coal mine according to Schatz. Risk appetites should be relatively consistent across the board. In other words, if stocks are rising, corporate debt should be moving higher as well.

“If the market rallies and high yield does not participate that’s worry sign number one,” says Schatz.

2. S&P 400 Mid-Caps (^MID)

The S&P400 is a measure of stocks not quite big enough to make the cut for the S&P 500 (^GSPC). Companies this size tend to be hit harder by economic fluctuations than those with larger balance sheets or more lines of business. This makes the mid-caps a way to gauge the real health of the earnings environment for corporate America.

“Traditionally in bull markets mid-caps lead,” Schatz says. When the S&P 400 isn’t leading, or at least playing along with a market rally, it’s time to take profits.

3. Dow Jones Transportation Index (^DJT)

As would be expected, the Transports are a collection of 20 American companies in the business of moving things from point A to point B. Railroads, airlines, and trucking basically. Even in a virtual age most traders regard the Transports, or “Trannies” as a good gauge of underlying economic activity.

By market tradition, real bull markets only come when both the Dow Jones Industrial Average (^DJI) and the Transports are breaking out together. At the moment there’s little risk of either happening, but Schatz suggests traders stay on the lookout.

“If the Dow Jones Transports can take out the April highs I think it’s a straight 5 – 10% shot higher,” he says. Though he concedes it’s a “long way to Tipperary” before they do.