Investorsbuzz

Where is the Market Heading?

admin — Wed, 26 Aug 2009 12:48:54 +0000

It is starting to get a little difficult to say which way markets will be heading now, after the greatest rally in equities since the 1930s. While earnings have surprised to the upside and economic data has improved, it remains yet to be seen whether companies can continue to grow their earnings just by cutting costs while the consumer is not consuming in the US, and whether the world economy can ultimately achieve the growth rate again it had before the crisis any time soon. The sudden drop of the Dow from the intraday high of 9620 yesterday to 9539, which still is the highest close since Nov 4 according to CNBC, together with reports from the White House Budget Office that the economy is in worse shape than expected and , are making investors a little wary on whether the uptrend will continue in the next days or whether stocks will give back some gains. Also the comments from the Yale professor Rober Shiller don’t help, the professor doesn’t necessarily think house prices have bottomed, as there was also a false turn a year ago and this could happen again. And oil has suddenly droped around 3 percent yesterday, and since stocks and oil have generally moved in tandem, it wouldn’t be surprising to see stocks drop a little as well today. I don’t expect a significant drop however, but rather a more or less sideways move for the week, with a high probability for further gains. The unemployment figures expected tomorrow could spark a sudden move to the up or downside however, if the numbers significantly differ from expectations.

Selling the Rally

admin — Thu, 16 Jul 2009 07:17:30 +0000

I highly doubt the sustainability of three day rally, it was driven by low to medium volume and it doesn’t look like a rally based on significantly improved fundamentals. I think we will not go much higher from here in the short term and I wouldn’t be surprised to see a 2-3% pullback from here by tomorrow (no new lows however, we have reached the bottom), despite the 7.9% growth in China , exceeding the median forecast from the bloomberg survey of 7.8. Only a week ago the sentiment was all bearish due to high unemployment numbers, now with some good earnings partly due to cost cutting we are all out of the woods again? We still have record foreclosure filings, and a jobless recovery is not a recovery that we want.

Taking a break

admin — Tue, 07 Jul 2009 19:56:43 +0000

Ok, let’s pause and look back about what is actually going on here. After a crazy rally from the March lows in the 30 to 40 percent range, we have been moving more or less sideways for the last couple months. While investors have been sceptical about the extent of the rally and were expecting some pullback, the investors’ overall sentiment was rather positive as many believed we have reached the bottom of the bear market. But with the new higher than expected unemployment numbers this week, it seems we have been pulled back to reality after weeks of seemingly endless euphoria. Sometimes I get the impression that the stock market is manic depressive. We moved from infinite despair to tremendous optimism within days and weeks. Now the mood has changed again, investors are starting to worry again. Will the US consumers ever spend again like they have in the recent years or will they save as they are traumatized of the aftermath of the spending spree so many have engaged in? How can we possibly have a consumer led recovery while so many people are unemployed? Now voices for a second stimulus are getting louder, although many investors do not see increased economic activity as sustainable and are concerned about the increased government deficit.

I also have doubts that a second stimulus will have the desired effect any time soon, and that a recovery led by increased demand from other countries that are not export nations would be more promising. Of course the problem is we are in a world wide recession and it seems nobody is really having lose sitting wallets. The question really is when will we return to growth again, 6months, 12 months, or will we be stuck in a secular bear market lasting 10 years with regular ups and downs but no clear upward direction? I hope it is not the latter. At least we currently don’t have to worry about inflation with the lack of growth we are experiencing momentarily.

Financial Crisis Continues On

admin — Wed, 20 May 2009 10:59:48 +0000

This financial crisis is like a nasty wound that doesn’t want to heal, and now it is affecting the entire body respectively economy. This week the economic numbers from the US are once again worse than the average numbers predicted by economists.

Housing starts 550K fell 16 percent last month, Intitial Jobless claims 589K, UK GDP shrinks 1.5%

And the forecasted effects on the economy are corrected downwards along with the worsening economic data as well. The European Comission forecasts a contraction of 2.8 percent for the UK economy in 2008, which would be the biggest contraction since world war II. As inflation is not a concern anymore and the outlook darkens there will most likely be another drop in the benchmark rate of the ECB in the near future, currently standing at 1.5 percent. As the traditional monetary tools such as monetary easing and quantitative easing show only limited effectiveness, governments around the world are looking for new methods to alleviate the problems of the economy, ranging from efforts to losen the credit markets and bloster lending to business and consumers by buying toxic assets on banks balance sheets through the creation of a bad bank, although it seems as if there is too much of this crap around and nobody really knows how to price these assets.

But hey, as long as we don’t have a terrorist attack with a biological weapons that wipes out half of humanity, we don’t all go blind or our women have no children, and we have no Zombies or Terminators showing up I guess we can still relax (I guess I watch too much TV)!

Stock Market Rally to Last?

admin — Wed, 20 May 2009 10:57:45 +0000

The rally continues now for like 5 weeks, question is: is this rally sustainable, or is it a wolf in sheep’s clothing? Wells Fargo and JP Morgan give us the impression the banks have the worst behind them and all the nationalization talk is over. But will stocks continue to rally? I don’t think we will test a new low that is lower than early March, therefore I would say we have hit the bottom. However, I still expect some bad news and more banks raising capital or failing, or if we are lucky, we will have just consolidations happening as opposed to bankruptcies.

The U.S. Producer price index has fallen, not really supporting an increase in consumer demand. But hey, maybe it is just a little too early. What worries me more is that housing prices continue to fall and new house starts are down (Bloomberg). This will lead to more foreclosures and further losses in residential loans. Job losses continue to increase, while not at a pace as fast anymore as in the previous months, the jobless claims are rather high. Unemployed people will not buy houses, will consume less in general and many will probably not be able to pay their credit card bill, leading to more losses for banks from consumer loans. And if banks continue to have troubles, they will likely not be lending much, which will continue to stiffle economic growth. Stiglitz, the nobel prize winning economist, is rather negative (Bloomberg). So is Dr. Doom, but that is no surprise.

Citigroup’s loss is lower than expected on new accounting rule (Bloomberg). You need more than one quarter of good news to convince me however that Citi is now a good investment. The accounting rule change will decrease the losses going directly through P&L, but if credit losses remain high, it will not eliminate the risk of the banks capital base being eroded, as the losses still go through equity. The question is however, as Jim Cramer highlighted, will there now be strong banks like Wells Fargo, that could potentially buy weak ones? If so the US financial industry might not be doomed to collapse after all. I, being an optimistic person in general, do hope and believe so, and I have increased my exposure to the financial sector. Instead of betting on single names, like I have done with our troubled Swiss bank UBS, I am now betting on the entire industry through ETFs. However, building in a hedge is advisable (or diversifying in gold and other safer havens), since I am still sceptical. There are improvements (in terms of getting less worse) and some good news, but also there are still considerable risks. We shall see what the release of the stress test results bring starting next week until beginning of May.