Archive for January, 2008

Fed Cut:s and Markets Go Down

Thursday, January 31st, 2008

The Fed cut 50bps yesterday and the market initially reacted positively, going up over 100 points. Then, S&P came out with downgrades of some financials and the markets turned down.

The chart above (courtesy of Helene Meisler) shows the S&P500 Index. You can clearly see the resistance line that the markets will have to cross before it can move forward in a sustained manner.

Generally, when we get a big downward move like we did in January, you have a bounce back rally. That rally is followed by a retest of the lows (at least once) which shakes out all the weak hands. We are likely going to retest those lows and rally again.

We’ve been selling into this rally and we have a number of Stop Limit order in place. We have also purchased some shares in our favorite sectors and industries given the low prices, and if they go down again (the strong sectors do not always correct in the same manner on the retest, so you have to add to positions when prices are good or you miss opportunities) we’ll add more shares.

A bear market is a tough place. It takes proper execution of a plan to maneuver the ups and downs, and I believe we are doing that. Even in a market where the S&P 500 is down 20% from its high in October, you can take advantage of that by selling lower rated holdings and buying leaders in favored industries so that when they recover you have bought them cheap and are reaping the rewards of being in the market and weathering the storm in the right sectors.

Hang in there – we are in for more of this bumpy ride.

Mark

Durable Goods Orders Likely to Spook Fed

Tuesday, January 29th, 2008

The Fed meets tomorrow and the stock and bond markets are pricing in a 50bp cut in the Fed Funds rate.

Unfortunately today, we have a Durable Goods Orders number released by the government that is stronger than anticipated and stronger than its been in five months. The durable goods number is a proxy for business spending, so if business spending is strong (as the CEO’s of many companies have said in the press releases accompanying their quarterly financials) then the Fed has less pressure to lower rates to fight a potential recession.

Its unknown whether the Fed will lower rates the anticipated 50bp or maybe just 25bp. The consumer is in trouble with subprime loans going belly up and non-subprime delinquencies rising, the big banks are in trouble with dumb lending practices and stupid investments, so they likely will continue with the 50bps, but the odds are less today than they were yesterday.

Mark

In the Key of G: "What a Long Strange Trip It's Been…"

Monday, January 28th, 2008

For those of you unfamiliar with the verse in the title, its from the classic Grateful Dead song that perfectly describes 2008 so far.

The year- and month-to-date have seen significant market selloffs in all segments, including Ag and Energy. Gold has held its own.

As we are looking at what to do in situations like we have in 2008, we are selling Tech and buying Ag, Energy and (on selloffs) gold.

It has been a stressful and difficult time so far, but our favorite sectors continue to have strong earnings and increased earnings estimates. Bunge, Potash, Haliburton, Transocean, Schlumberger…all have earnings that are growing in the 20% to 30% range. Additionally, as we increase exposure to these companies we are doing so at absurdly low valuations, making them great long-term investments.

I know its tough to hear the news about the 20% decline in the stock market, but much the decline is an overreaction. By taking advantage of this and buying the companies that have strong secular growth stories behind them and getting the earnings growth at cheap valuations, our clients will continue to outperform the market in the long-term.

Hang in there. I suspect that the market will selloff after the Fed announces a rate cut on Wednesday. It will probably be less than the market hopes for and we’ll see a decline. It will be short lived and an opportunity for us to buy our favorite companies in our favorite sectors for great long-term returns.

Mark

USDA Ag Demand Estimates

Tuesday, January 15th, 2008

If you haven’t read the latest USDA World Agricultural Supply and Demand Estimates, and you are curious if the Ag trend I’ve talked so much about is going to end anytime soon, then use this website to get your copy:

http://www.usda.gov/oce/commodity/wasde/index.htm

What you’ll find is that the carryover and estimated production for grains is falling, with carryover for Wheat at at 60 year low, and other grains in similar tight supply-demand situations.

We will see the Ag trend continue and it may be one of the few sectors to weather the turbulent stock market of 2008.

Mark

Ugly Day, Mixed Technicals

Tuesday, January 8th, 2008

The chart above is of the VIX, or volitility index. When we get into ugly markets like thus far in 2008, I like to check on the VIX to see if we are approaching a turn. I’ve talked about the Oscillator I follow in recent posts, but I haven’t mentioned the VIX recently.

If you see the two lines that poke above 30, those were the turning points in the corrections in August and November. The VIX ended today a bit above 25, which may indicate that market participants have not yet entered a state of panic. Panic lows are great buying opportunities, and I’d say we are approaching a rally.

The oscillator I follow is showing that the NASDAQ is definitely oversold, and that the NYSE has entered oversold territory.

I mentioned in a December post that we were going to be building cash in client portfolios and as the year-end rally progressed, we did just that. We will probably be putting some of that cash to work in the next couple of days since the technicals show we should be putting in a bottom soon and getting an oversold rally. We will also likely use the rally to make some sales that we weren’t able to execute before year-end as we reposition portfolios for a slowing economy.

We will be increasing allocations to the health care sector and other areas with solid earnings growth that won’t be negatively impacted by a slowing economy. We’ll also continue to build positions in Ag, energy, biotech, gold, defense, and selected tech names with > 25% earnings growth projected.

Hang in there, take a Tums, and be ready for an active year in the market!

Mark

Our Strategies Get Recognized

Monday, January 7th, 2008

Just thought you’d like to read the article about me (actually I’m barely more than a footnote in the article) on MSN Money’s website today:

http://articles.moneycentral.msn.com/Investing/StrategyLab/Rnd16/StratLabSummary.aspx?page=all

Also, here is the Press Release from MSN that went national this week:

StrategyLab Open: Stock Genius in Action

The Finalists have been Chosen…

The first round of the StrategyLab Open (SLO) has come to an end. The best of the best in the financial blogging kingdom have gathered here to compete for the chance to enter into MSN’s Strategy Lab competition: The gateway to stock picker stardom. Thousands of guru investors and financial bloggers from all over the United States have completed the grueling five-month competition. After intense deliberation, the minds behind SLO have decided on the five finalists…

About The Strategy Lab Open

StrategyLab Open is the home of the brand new MSN Money Strategy Lab Qualifying Tournament. The competition is hosted by InvestorPlace Blogs and Marketocracy, and gives regualar members of the investing community a place to show their “stuff.” We are looking for the next great undiscovered investing guru: Someone who can not only pick profitable stocks but someone who has a sound investment philosophy and can teach others through blogging.

Each one of the StrategyLab Open participants is given $1 million to manage for a period of five months. Contestants invest their mock-portfolio as they see fit and write about the decisions behind their buying and selling in their personal blog, which is hosted by InvestorPlace Blogs. Each contestant’s portfolio is maintained and validated by Marketocracy.com.

The winner of the StrategyLab Open is determined by a combination of overall portfolio performance and the quality of their corresponding blog posts. All entries are judged by an expert panel and the winner is selected based on the following criteria: 50% Portfolio Performance, 25% Quality of Blog Posts, 25% Investment Strategy.

Readers also have a part to play in picking the winner. Each blog post has a comment and voting section (Register to comment and vote) – and believe us, reader ratings go a long way toward picking the final winner. Not to mention that you can use the reader ratings to help find the advice that other investors have found extremely valuable.

Click here to start investing, blogging, and voting. Enjoy the StrategyLab Open – ride the train – no one wants to be left behind…

The Finalists

1). Sayed Shah of Stocky’s Picks – 49.02% five month return.

Sayed’s primary tool for picking stocks is Google search – which he uses to find details about a company’s operations, results, products, services, management and any thing related. He also scans through the corresponding company’s website, announcements, insider activity, major holders and previous results or significant announcements. Sayed uses simple technical analysis and doesn’t play with fancy software or services. He thinks that good judgment matters the most when it comes to picking stocks…

Sayed Shah’s Top Weighted Stocks:

· GLD – StreetTracks Gold Trust (SLO Related Article)

· PG – Procter and Gamble (SLO Related Article)

· GOOG – Google Inc. (SLO Related Article)

2). James Shao of MyIRA Picks – 45.88% five month return.

Throughout the contest, James always held several solar stocks and paid great attention to any relevant news. He truly believes that the Solar Sector will achieve unparalleled growth and earnings over the foreseeable future. James feels that this is due to the high demand in renewable clean energy.

Jam
es Shao’s Top Weighted Stocks:

· LDK – LDK Solar Co. (SLO Related Article)

· DRYS – DryShips, Inc. (SLO Related Article)

· EXM – Excel Maritime Carriers (SLO Related Article)

3). Vad Yazvinski of Vad’s Best Ideas – 34.18% five month return.

Vad had spent the last five years intensely studying the stock market. He has passed all three levels of the CFA (Chartered Financial Analyst) exam. In addition, he has also built a very solid and auditable track record on Marketocracy.com. Vad therefore has been selected as one of the top 100 virtual fund managers on the Marketocracy website.

He sums up his investment strategy as 50% event-driven and 50% value investing. He approaches investing from a very fundamental prospective. Vad believes that a stock is only worth as much as its cash flow can generate in the next 5 years.

Vad Yazvinski’s Top Weighted Stocks:

· MGI – MoneyGram International, Inc. (SLO Related Article)

· PTNR – Partner Communications Co. (SLO Related Article)

· GEOY – GeoEye, Inc. (SLO Related Article)

4). Keith Barton of Complete Stock Idjit – 34.28% five month return.

Keith started his career as a computer technician for a major brokerage house. By watching the industry from within (not a broker) he learned a very valuable lesson: Not all brokers are created equal. He thinks that the Stock market is similar to Las Vegas – where the “house” controls the odds.

Keith is a “common sense” investor. He uses his knowledge of current events, trends, and history, to suggest what may be appropriate for investing. During the SLO contest, his strategy was scarcity – natural resources and minerals used by both developing and developed countries to build products and infrastructure.

Keith Barton’s Top Weighted Stocks:

· AAPL – Apple Computer Corp. (SLO Related Article)

· BG – Bunge Ltd. (SLO Related Article)

· GLD – StreetTracks Gold Trust (SLO Related Article)

5). Mark Ballard of Mark’s Strateg
ies
– 34.32% five month return.

Mark watches the Federal Reserve with an incredulous eye. He knows that the markets are extremely sensitive to Fed movements and invests accordingly. Mark speculates that the continuation of interest rate cuts will drive up inflation and investors will eventually wise up and act accordingly.

Mark has a penchant for Agriculture stocks, gold, and energy – all sectors that benefit from inflationary forces.

Mark Ballard’s Top Weighted Stocks:

· POT – Potash Corp. (SLO Related Article)

· FCX – FreePT Copper & Gold (SLO Related Article)

· MON Monsanto Co. (SLO Related Article)