Archive for April, 2008
Money Madman
by Phil's Favorites - April 27th, 2008 7:05 pm
You know, that would be Jim Cramer; here’s an article on him which I found very interesting. For the full article, click on the title.
Money madman who declares capitalism is crazy
Host of prime-time TV investment show says the neocon free market is to blame for the crisis.
CNBC host Jim Cramer. Photograph: Lisa Carpenter
Excerpts:
"To celebrate international Earth Week, the television empire NBC has asked America’s favourite share tipster to infuse his daily Mad Money broadcast with a green theme. As the minutes tick down to showtime in his chaotic New Jersey studio, Jim Cramer is anxious for props.
‘Do we have jungle music?’ he demands. ‘How about a pith helmet? Can you find me a pith helmet? It’s like an upside down round thing - and it’s hard!’…
"Capitalism is supposed to be regulated," he says, citing the need to protect the public against dodgier hedge funds and sub-prime mortgage brokers. "The marketplace is really stupid, rapacious at the margins. It’s a remarkably inefficient and brutal world."
Citing rocketing food prices while crops are diverted to ethanol production, he compares the US Treasury secretary, Henry Paulson, to the 19th century British prime minister Lord John Russell, whose free market policies were blamed for exacerbating the Irish potato famine in the 1840s.
Cramer reserves his greatest ire for the Fed’s Ben Bernanke, who, he maintains, was complicit in fuelling the housing boom. "Anybody who looks at his legacy will see he’s laissez-faire, laissez-faire, laissez-faire," says Cramer. "If you go back and look at his speeches in 2004, 2006, he was very much in favour of the kind of exotic home equity mortgages which are now part of a $400bn morass."
There were 14m homes sold in the US between 2005 and 2007, Cramer points out, of which a large chunk were on sub-prime mortgages. In the meantime, the Fed kept raising interest rates.
"Where was Bernanke? Did anyone sound the alarm on the rapacious strategies of the mortgage brokers? No - because they thought the market was terrific and the market could handle it," says Cramer, gathering a head of steam. "The market was so out of control that it almost destroyed capitalism as we know it but these guys thought it was just fine because the market’s never wrong.
‘It’s that hubris - that belief in the market, that Ayn Rand ‘Fountainhead’ nonsense that became our mantra in our country. It’s embarrassing!’
With hindsight, Cramer admits that…
How to Buy a Bank (and other beaten down stocks)
by Phil - April 27th, 2008 5:49 pm
A couple of members have asked about bank investing so let’s talk about that.
One of the reasons I tend to get very good results is because I listen to the Media but not the way many of you do. I listen to the media and when I see them catching onto a trend, like Cramer/Macke pushing solar every day (on NBC/GE, the "green" network) I get suspicious. When I see the banks get savaged by bad news, then sold off to five year lows and THEN attacked by the media, especially when some so-so analyst like Meredith Whitney is suddenly raised to the rank of financial messiah - THAT’S when I make my contrary bets.
I don’t, of course, just arbitrarily go negative - a lot of people now think GM sucks and they do! But when Kirk Kerkorian said he had a plan to bail them out and the stock went to $37 in mid ‘05, reversing a clear downtrend that had cut half their value since 2004, I was one of the only people to cry Shenanigans (and got death threats and called a communist for my troubles). We all did well on Apple when that got beat up and Google as well but that’s because they ARE good companies and the only reason they sold off is because the bears and their hyenas whip the media into a frenzy and stampede the mob out of good stocks for no reason. Learning to identify this behavior is the key to that almost mythical concept of buying low and selling high.
After I read through the hate mail I got after my first quick repudiation of Whitney’s call that CitiGroup was going to fall another 50% from their March lows around $20 (a stance, admittedly I took without feeling I had to check my figures on because her assumptions were so ridiculous), I then felt compelled to lay out the positive case for C that weekend, when I had some time to double-check my assumptions. I won’t rehash it here and I’m not going to go into that level of detail for other banks I like but just understand that we take an LTP play like this simply on the basis that a firm like C, who is 60% off their highs in one year, simply isn’t going to go down to 0.
CitiGroup is, of course, already up 20% from where I took my stand but, even now, the…
Spotting A Breakout!
by OptionSage - April 27th, 2008 2:21 pm
By February 2006, Apple had increased approximately 6-fold in the space of two years. The stock made an attempt to rally above $72 but failed. A scary decline ensued as the stock fell to the $58 level, but ultimately found support at its 200-day moving average. Then it rallied sharply to the $72 region once again, before enountering stiff resistance. Another bounce back up in May 2006 resulted in an intra-day spike above the $72 region, but ultimately a close below $72. And that last failure for Apple was the start of an even more scary decline. For two and a half months in May, June and early July, the stock slid until its July earnings report catalyzed a bullish reversal.
Within weeks the stock had powered higher, but didn’t have enough momentum to reach the $72 level and retraced close to $62. Another surge higher and finally in September of 2006, the stock broke above long-term resistance at $72.
In both May and September, the stock price spiked above the $72 level. The difference between the spikes was simply that in May the stock spiked intra-day above the resistance level but ultimately closed below it, while in September the stock closed above resistance. Moreover, subsequent to the bullish September close, the stock re-tested the old resistance level, failed to close below it and began a surge higher. The breakout had indeed occurred!
Why discuss the movement of Apple in 2006? Well, a principle that can work very well is knowing that traders of a particular stock tend to trade it the same way again and again. By spotting the patterns of the past and recognizing similar activity in the future, a great deal of money may be made!
For example, the gang at Stock and Option Trades have been following Apple daily for many years now and had seen the pattern before. As a result, it was easy to call the breakout when the stock finally spiked above the $130-$132 range recently, where it had twice failed in February. Note the similarities between the failed breakout in late February plus the actual breakout in March and the previous action in 2006. In late February, the stock popped up above the $130 level intra-day, but significantly, closed below that level. In March, the stock closed above resistance, re-tested resistance just as it had done in 2006 and began its March higher.
Within days of the breakout, the stock had run up $10, leading the gang to comment:
"Apple led the…
Collection of Thoughts on Dollar
by Phil's Favorites - April 27th, 2008 11:49 am
This article, on the Dollar, was posted on Seeking Alpha by Eli Hoffmann.
Dollar Doldrums Will Soon Be History - Barron’s
Barron’s says the U.S. dollar could gain 15% vs. the euro over the next year.
How so?
While the Fed is more-or-less at the end of its rate-cutting cycle, European central banks are still on the precipice of their credit crisis. As the spread in interest rates begins to narrow — and as fickle investor sentiment makes an abrupt about face — the dollar should rise, it says. Commodity stocks and overseas earners like Mosaic (MOS) and Halliburton (HAL) will likely fall as commodities prices fall and foreign earnings become less lucrative. Other stocks with much to lose from a rebounding dollar include Apache (APA), Freeport-McMoran (FCX), Southern Copper (PCU) and Bunge (BG)…
Barron’s has been unwavering in its case for lower commodity prices.
Here’s a sampling of some pretty diverse opinions about the dollar and where it’s headed:
- Kathy Lien thinks the amount of reserves held in euros will rival dollar reserves within the next 10 years.
- Michael Shedlock agrees with Barron’s: He anticipates a dollar bounce, but notes traders will have to be flexible.
- Blogger Seven Days Ahead thinks there’s no stopping the euro.
- Robert Tabloid thinks we’ve got it all wrong: All fiat currencies will continue to go down in terms of buying power.
- Bespoke refrains from making any forecast, but takes a hard look what investors can expect in commodities and oil if the dollar were to actually start going up.
Note Seeking Alpha’s super-useful Currency ETFs and ETNs and Commodity ETFs and ETNs selectors.
Inflation, or is it Deflation?
by Phil's Favorites - April 27th, 2008 12:25 am
Daniel Carroll, compares the financial crisis now to those in previous years and determines that every period is unique. Here’s his analysis, courtesy of Dan Carroll, of Vestopia.
Comments on Inflation; or is it Deflation?
You can’t read a newspaper article without reading comparisons to a past financial crisis. The conclusions will vary depending upon which time period is used for the comparison. I thought is useful to run through the similarities and differences with past crisis. The following table outlines the comparison between the current period and three prior periods: the Great Depression, the Stagflation of the 1970’s, and a recent but mild recession in 1992. I look at various key stats, particularly as they relate to the current hot button issue: are we headed for higher inflation?
Great Depression (1929-40)
Stagflation (1972-83)
Gulf War (1990-93)
Real Estate Bust (2007-?)
General Price Direction:
-Great Depression - Deflation (-25% or -7% per year through 1933)
-Stagflation - Inflation (+140% or +8-9% per year)
-Gulf War - Disinflation (+10%, or +3-4% per year)
-Real Estate Bust - ?
Fed Funds Rate:
-Great Depression - Raised
-Stagflation - Lowered
-Gulf War - Lowered
-Real Estate Bust - Lowered
Note: The Fed lowered rates in ‘72-73 to fight recession, raised them sharply in 1980 to end inflation. The Gov’t printed money in 1941 to finance war, which reinflated economy, after maintaining tight monetary policy throughout the Depression.
Unemployment Peak:
-Great Depression - 25% (1933)
-Stagflation - 10% (1982)
-Gulf War - 7.5% (1992)
-Real Estate Bust - 5% (Current)
Began with a Debt Crisis?
-Great Depression - Yes
-Stagflation - No
-Gulf War - Yes
-Real Estate Bust - Yes
Note: Interest rate hikes in 1980 to end inflation were the primary cause of S&L crisis during that decade, helped along by Congress in 1982.
Commodity Prices:
-Great Depression - Flat (after brief drop early)
-Stagflation - Up (+350% to 1982 peak)
-Gulf War - Flat/Slight decline
-Real Estate Bust - Up (+300% since 2002)
Real Estate Prices:
-Great Depression - Down
-Stagflation - Up
-Gulf War - Mixed - declines in certain markets
-Real Estate Bust - Down, severely in some markets (after bubble)
Currency Rates:
-Great Depression - Fluctuated (+0% vs GBP)
-Stagflation - Down (-43% vs DM)
-Gulf War - Flat (+2% vs DM)
-Real Estate Bust - Down (-40% vs Euro since 2002)
Stock Market:
-Great Depression - Down (-70% to 1933, -42% to 1940); bottom P/E: 8x
-Stagflation - Down (-37% to 1974, +50% to 1983); bottom P/E: 8x
-Gulf War - Up (+50%); P/E: 15-20x
-Real Estate Bust - Down (-15% to trough so far)
Peak-to-Trough EPS Growth:
-Great Depression: -27% (to 1933)
-Stagflation: +21% (to 1974)
Geopolitical:
-Great…
E*Trade Commentary
by Phil's Favorites - April 26th, 2008 6:55 pm
Positive commentary on E*Trade by Dean Laster, posting on Seeking Alpha.
E*Trade’s (ETFC) management is doing everything right to turn the company around, and their efforts will reap benefits for shareholders sooner rather than later. The stock has obviously taken a serious hit due to its careless investments in commercial mortgage-backed securities and other derivative products. The company has also done a great job disclosing the magnitude of future writedowns, namely $3 billion over the next two years, which in turn has painted a clearer picture of future performance. Joe Moglia, the CEO of TD Ameritrade (AMTD), recently mentioned on CNBC’s Fast Money that the defection of customers from E*trade has already taken place.
Despite the financial turmoil, management has shrewdly decided to focus on investing in its core competence. The company is continually investing in its trading platform; after having had an account with TD Ameritrade and Schwab (SCHW) I can attest to E*Trade having a superior trading platform. Another great initiative has been the firm’s global trading platform, namely the ability of a U.S investor to invest in stocks traded on a variety of global stock exchanges in local currencies. That strategy should become highly accretive to earnings once it gets more widely adopted. The company’s marketing strategies have been highly effective and have allowed the company to at least regain some of the customers who had switched to other brokerages.
Click here for more.
American Express Commentary
by Phil's Favorites - April 26th, 2008 6:32 pm
Here’s an article on AXP by Andrew Horowitz, courtesy of the Disciplined Investor.
American Express (AXP): False Sense of Security?
It is no secret that I am no big fan of the bank and financial sector, particularly the consumer credit divisions. The numbers out from American Express Company (NYSE:AXP), show that during Q1 they saw a 6% decrease related to credit card losses and reported a significant increase in total spending and credit usage by customers. So essentially, they are lending more money during a time when they are seeing a higher level of delinquencies and defaults. (Scratching head…)
Bloomberg.com: Worldwide
April 24 (Bloomberg) — American Express Co., the biggest U.S. credit-card lender, reported first-quarter profit that beat analysts’ estimates as income rose overseas. The company climbed more than 4 percent in extended New York trading.
Net income from continuing operations at the New York-based company declined 11 percent to $974 million, or 84 cents a share, American Express said today in a statement. That’s 4 cents better than the average estimate of 17 analysts surveyed by Bloomberg.
American Express, Capital One Financial Corp. and Discover Financial Services shares have dropped more than 25 percent in the past year on concerns rising U.S. unemployment will hurt consumers’ ability to repay debts. The damage at American Express was cushioned by a 30 percent rise in overseas profit to $133 million as customers spent and borrowed more.
The biggest dislocation I see is still in the future outlook as compared to the stock price for many of the constituents within the banking sector. With all of the downgrades along with the fact that we are seeing a historic rise in defaults, what is it that I am not seeing? BEFORE you answer that, whatever you do, don’t tell me that the worst has been priced already as that is not possible. There has got to be something else as there are reports, predictions and further “shoes” to drop from eco-space.
Chart Courtesy of E-Trade: 1 Year AXP:
Is Fed Causing A Food Crisis?
by Phil's Favorites - April 26th, 2008 4:54 am
Barry Ritholtz discussing the Fed causing the global food crisis, link to an article entitled "Why the Economy is Worse than we know. "
Is the Fed Causing a Global Food Crisis?
Excerpt: "The Federal Reserve’s irresponsible bailout of Wall Street’s most reckless players is having very significant repercussions, both in the US and abroad.
It starts with the US dollar, now off 40% from its highs earlier this decade. This has had a huge impact on commodity prices, and is the prime reason so many countries are considering dropping their peg to the US Dollar.
Overseas, price spikes in basic foodstuffs has led to riots and political unrest. Considering that in many regions of the world most of a family’s income goes to basic survival purchases such as food shelter and energy, it doesn’t take much in the way of price rises to lead to significant turmoil. According to Bloomberg, the average household in India spent 32% of its income on food last year. Compare that with 6% in the U.S., and 43% in Indonesia, or 36% for the Philippines.
Digging deeper into this situation is the cover story of the May 2008 edition of Harpers is titled "Why the Economy is Worse than We know" (pdf). It contains a review of the myriad ways the government has corrupted the way official statistics are reported for jobs, inflation, GDP, etc. (I have a brief mention in it)."
Click here to read the rest on Barry’s site.
Truck Nutz
by Phil's Favorites - April 26th, 2008 4:12 am
A little off topic, from Mish, for anyone up late at night having trouble sleeping. If something’s bothering you, this could take your mind off it.
Congress Threatens Oil Producers
Before we discuss Congressional threats on oil producers, let’s first consider the Florida legislature’s move to ban fake testicles on vehicles.
Senate lawmakers in Florida have voted to ban the fake bull testicles that dangle from the trailer hitches of many trucks and cars throughout the state.
Republican Sen. Cary Baker, a gun shop owner from Eustis, Florida, called the adornments offensive and proposed the ban. Motorists would be fined $60 for displaying the novelty items, which are known by brand names like "Truck Nutz" and resemble the south end of a bull moving north.
Some might think that legislators have better things to do than debate "Truck Nutz". Not me. I would like to see state and national legislators spend more time debating "Truck Nutz", flag burning, baseball steroids, the nation anthem, and motherhood and apple pie on the general principle the more time they spend debating frivolous topics of no economic importance, the less likelihood they will do real damage somewhere else.
For example, please consider U.S. arms sales to OPEC at risk over oil.
Democrats in the U.S. Senate stepped up their attacks on OPEC oil producers on Thursday, threatening to block billions of dollars in arms sales to suppliers such as Saudi Arabia if they fail to take action to tame record oil prices.
Democratic senators Charles Schumer of New York, Byron Dorgan of North Dakota and others called on the White House to "jawbone" OPEC members to boost output or risk Congress blocking arms deals with Saudi Arabia, the United Arab Emirates and other OPEC members.
"The Saudis have to understand this is a two-way street," Schumer told reporters. "We provide them weapons, our troops provide them protection, and then they rake us over the coals when it comes to oil."
Last year, Democrats in the U.S. Congress pushed through a bill that would allow the federal government to sue OPEC for price manipulation. The White House has said it would veto the so-called NOPEC bill, and opponents have warned that OPEC members could retaliate by turning off the taps.
Leave it to Congress to threaten a major oil producer when prices are at record levels, brag about out troops on their soil when most of Saudi Arabia does not want them there, and…
Cool to be Frugal
by Phil's Favorites - April 26th, 2008 12:30 am
Thoughts on coolness from Mish. Do the parents out there reading this agree?
Cool to Be Frugal
Changes in behavior begin with changes in attitudes. And there’s no better place to build a proper attitude than in the youth of America.
Cool to Be Frugal
Professor Depew was once again on top of the changing attitudes story with point number 5 of Monday’s Five Things.
We ran across an interesting piece in USA Today this morning playing right into our theme of a growing wave of resentment against consumption and a disassociation from luxury goods and symbols of wealth.
According to the article, "Teens Turn to Thrift as Jobs Vanish and Prices Rise," rising costs of typical teenage indulgences are causing teens to do something they rarely do: be thrifty. As the article notes, "It’s even becoming cool to be frugal."
Let’s take a closer look at the article.
The stalwart retailers of teen apparel, such as Abercrombie, based in the Columbus, Ohio, suburb of New Albany, and American Eagle Outfitters Inc., are reporting sluggish sales, defying the myth that teen spending is recession-proof: It holds up longer, but can eventually fold.
It’s even becoming cool to be frugal.
Last week, Ellegirl.com, the teen offshoot of Elle magazine, launched a new video fixture called Self-Made Girl, which shows teens how to make clothes and accessories. The first video offers tips on how to create a prom clutch.
"It’s a little tacky in the economic unrest to tote a big logo bag," said Holly Siegel, the site’s senior editor. She said it’s no longer about teens "one-upping each other," but rather where they can get it cheap.
Economists say this teen spending slump could be the worst in 17 years, when teen frugality led to the demise of once-hot Merry-Go-Round Enterprises Inc. and ushered in an era of flannel shirts and torn jeans.
Sales at teen retailers open at least a year averaged a 0.5% decline last year, compared to a 3.3% increase in 2006 and a 12.1% gain in 2005, according to a UBS-International Council of Shopping Centers tally. Among the few bright spots is Aeropostale Inc., whose jeans are about 30% cheaper than Abercrombie & Fitch. Candace Corlett, principal at consulting firm WSL Strategic Retail, said low-price chains like H&M and Steve & Barry’s should do well.
"It is way cooler to get a super deal on that shirt rather than being able to spend the most money on something," said…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...