Investors “bum-rush” the market on this last day of November, exchanging over 4 billion shares, almost twice the regular volume, just on the Big Board (NYSE) alone. This is definitely the hallmark of institutional buying and selling; money managers leave their marks on many stocks today.
Yet all the buying and selling fails to inspire much movement in the major indices. The market closes flat despite the deluge of economic data that continues to reiterate the…..soft landing – yes, you guessed right – scenario.
What about the dollar? Well it continues its descent against the Euro and the British Sterling – actually drops to a 14-year low against cable (sterling). U.S. exporters and multinationals may cheer the tumbling greenback but it’s safe to say many Americans – the ones that have passports that is - won’t be traveling overseas this holiday season.
Bonds actually see better action, buoyed by weak manufacturing data. The benchmark 10-year note rallies to yield to a 10-month low – more bad news for the dollar. Falling yields suggest the Fed is more likely to cut short-term interest rates than raise them, which is what the dollar needs right now.
Nevertheless, November has been good to Wall Street. The three major indices post gains for the month:
Worst-known mgr 4.25%
Nasdaq 2.75%
S&P 1.65%
Dow 1.17%
The Dow and the S&P have now posted their longest monthly winning streaks - six months - since August 2003, according to Bloomberg, something bulls will be really proud of.
All hail the Vista. MSFT releases the new operating system to business customers today, though you wouldn’t know this by the reaction of the stock price. You and I can expect to get our hands on the system from January 30. Wonderful! Now that Vista is out, what does MSFT do now? Going after Sony with the 360, or Apple with the Zune, is not the answer.
MSFT needs to get crazy innovative again because there is a danger lurking ahead. Web 2.0 is gaining momentum and many of the applications that made Mr. Softee rich, such as Word and Excel, are migrating from the PC to the internet.
Google already offers free web-based word-processing and spreadsheet programs to facilitate seamless collaboration. All this is probably old news to MSFT. But the problem with MSFT is that it likes to watch from the sidelines, until it is almost too late to catch up. If it's not careful, competitors will do to it what it did to Netscape with Explorer: nullify and void. Redmond, Washington, do you copy?
Thursday, November 30, 2006
Tuesday, November 28, 2006
London Bridge is Falling Down
You want proof of “globalization”? Well, get this. Some US investors may be long-faced about the fall of the greenback but it seems British investors are up in arms about it – many UK large caps are exposed to the dollar through US investments. On a day when the major US indices barely breathe gain after yesterday’s bloodbath the FTSE, which is the UK’s index of the 100 biggest companies, is down for the sixth straight session.
If international investors are pulling money out of US equities in droves because of the dollar’s decline, one of the ‘excuses’ given for yesterday's market tumble, I can’t think of anywhere better than UK equities to put this money. The sterling, the British currency, is riding high against the greenback right now.
However, this doesn’t seem to be the case, at least going by the performance of the FTSE since the dollar lost it on Friday. So don’t let the weakening dollar keep you awake tonight again; the pain may be harder to swallow on the other side of the Atlantic.
If international investors are pulling money out of US equities in droves because of the dollar’s decline, one of the ‘excuses’ given for yesterday's market tumble, I can’t think of anywhere better than UK equities to put this money. The sterling, the British currency, is riding high against the greenback right now.
However, this doesn’t seem to be the case, at least going by the performance of the FTSE since the dollar lost it on Friday. So don’t let the weakening dollar keep you awake tonight again; the pain may be harder to swallow on the other side of the Atlantic.
Monday, November 27, 2006
Is Wal-Mart to Blame for the Market Thump?
The country’s biggest retailer reports a tepid fall in store sales. The stock market tumbles. Is there a connection between these two events? Did you think yes? Well you are wrong if you did. The fact is Wal-Mart’s problems are just that; Wal-Mart problems.
In October, when the giant retailer announced a flat rise in same-store sales, competitors begged to differ with better figures. I bet today’s announcement of a decline in same-store sales in November, apparently the first monthly decline for Wal-Mart in 10 years, will not be mirrored by competitors.
This is not a piece on Wal-Mart but today’s retreat on Wall Street has little to do with the firm’s announcement. After all, many people do not shop at Wal-Mart and the giant retailer does not sell everything under the sun.
If Wal-Mart is really not the scapegoat for today’s market tumble, can it be the decline of the dollar? I don’t think so. The greenback tumbled on Friday, and Wall Street’s already taken it on the chin. Actually, a weak dollar is good for US exporters and multinationals - when profits are repatriated from operations overseas.
So the dollar’s collapse should be good news at least for large caps. Oh, by the way, the dollar actually strengthens against the Japanese Yen today. Furthermore, markets across the water in Frankfurt, London and Paris also tumble. So the weak dollar is not the right culprit for today’s market decline.
Now if it’s neither the dollar nor Wal-Mart, what is responsible for rattling investors? Maybe the rise in oil prices played a part but it’s mostly plain old profit-taking. After months of running up there’s a belief that the market needs a correction to prevent stocks from getting overpriced.
So investors take some money off the table. Since the fourth quarter has historically been good for stocks some of that money will find a way back into the market soon.
In folio news, SLV is the only stock that holds its head in the bloodshed today. I’ve touted the values of SLV as a good diversifier of folio risk for a while now. It has a negative correlation with some folio stocks and very little positive correlation with others.
This means SLV moves mostly in opposite direction to other stocks and even the market. PG is another stock that behaves this way. Every portfolio should have stocks like PG and SLV. They’re like a bullet-proof vest: you may not think much of it until it saves your life.
In October, when the giant retailer announced a flat rise in same-store sales, competitors begged to differ with better figures. I bet today’s announcement of a decline in same-store sales in November, apparently the first monthly decline for Wal-Mart in 10 years, will not be mirrored by competitors.
This is not a piece on Wal-Mart but today’s retreat on Wall Street has little to do with the firm’s announcement. After all, many people do not shop at Wal-Mart and the giant retailer does not sell everything under the sun.
If Wal-Mart is really not the scapegoat for today’s market tumble, can it be the decline of the dollar? I don’t think so. The greenback tumbled on Friday, and Wall Street’s already taken it on the chin. Actually, a weak dollar is good for US exporters and multinationals - when profits are repatriated from operations overseas.
So the dollar’s collapse should be good news at least for large caps. Oh, by the way, the dollar actually strengthens against the Japanese Yen today. Furthermore, markets across the water in Frankfurt, London and Paris also tumble. So the weak dollar is not the right culprit for today’s market decline.
Now if it’s neither the dollar nor Wal-Mart, what is responsible for rattling investors? Maybe the rise in oil prices played a part but it’s mostly plain old profit-taking. After months of running up there’s a belief that the market needs a correction to prevent stocks from getting overpriced.
So investors take some money off the table. Since the fourth quarter has historically been good for stocks some of that money will find a way back into the market soon.
In folio news, SLV is the only stock that holds its head in the bloodshed today. I’ve touted the values of SLV as a good diversifier of folio risk for a while now. It has a negative correlation with some folio stocks and very little positive correlation with others.
This means SLV moves mostly in opposite direction to other stocks and even the market. PG is another stock that behaves this way. Every portfolio should have stocks like PG and SLV. They’re like a bullet-proof vest: you may not think much of it until it saves your life.
Friday, November 24, 2006
Oil Pushes Wall Street Off the Edge
The biggest news of the day – the precipitous drop in the value of the dollar against other major currencies – may have had some negative effect on the market but it is not what actually pushes the major indices into the red. It is the rise in the price of crude that does.
The few investors who bother to trade today were already sulking over the inflationary effect of a weak dollar – higher prices for imported goods - when suddenly, OPEC puts the nail in the coffin with unofficial talk of further oil production cuts at the December meeting of the cartel.
A weakening dollar and a rising price of crude are the worst of both worlds for Wall Street since both fuel inflation, and thus engender higher borrowing costs for firms in terms of increased interest rates. From all indications the greenback will remain weak over the coming year so the only hope for investors is for oil to trend lower in 2007.
For the week, the folio beats the S&P in gains. Again! The last time the S&P topped the folio, which came into being in the second week of September, was the week ended October 6 – six weeks ago!
Worst-known +0.92%
Nasdaq +0.59%
S&P -0.02%
Dow -0.51%
Who are the stars that help the folio shine this week? Here they are:
SLV has occupied the number one spot for as long as the folio has beaten the S&P. I initially had doubts about holding SLV with IGE – they have a positive correlation of about 0.39 - and even stopped putting more money into it for a while. However, the increasing prospect of the dollar remaining weak through 2007 has given me second thoughts.
Though gold is a more popular hedge against a weakening dollar, and thus inflation, I prefer to hold SLV because I suspect many Central Banks will unload some of their gold reserves next year as gold rises in response to the weakening greenback. Since many of these banks don’t hold reserves of silver, the white metal won't suffer from supply-side pressures as much as the yellow metal.
Also, with regard to the folio, SLV is negatively correlated with more stocks in the folio than IGE is. In other words, SLV acts as a better diversifier of portfolio risk than IGE does. So not only has SLV been the star stock so far, it likely to remain so in the coming year. Of the precious metals, silver is where the smart money is.
The few investors who bother to trade today were already sulking over the inflationary effect of a weak dollar – higher prices for imported goods - when suddenly, OPEC puts the nail in the coffin with unofficial talk of further oil production cuts at the December meeting of the cartel.
A weakening dollar and a rising price of crude are the worst of both worlds for Wall Street since both fuel inflation, and thus engender higher borrowing costs for firms in terms of increased interest rates. From all indications the greenback will remain weak over the coming year so the only hope for investors is for oil to trend lower in 2007.
For the week, the folio beats the S&P in gains. Again! The last time the S&P topped the folio, which came into being in the second week of September, was the week ended October 6 – six weeks ago!
Worst-known +0.92%
Nasdaq +0.59%
S&P -0.02%
Dow -0.51%
Who are the stars that help the folio shine this week? Here they are:
| Stock | RTD(this week) | Rank | RTD(last week) | Rank |
| SLV | 13.32% | 1 | 12.89% | 1 |
| EBAY | 9.15% | 2 | 9.54% | 2 |
| IGE | 6.52% | 3 | 6.19% | 3 |
| MSFT | 5.97% | 4 | 5.58% | 5 |
| EEM | 5.95% | 5 | 5.65% | 4 |
SLV has occupied the number one spot for as long as the folio has beaten the S&P. I initially had doubts about holding SLV with IGE – they have a positive correlation of about 0.39 - and even stopped putting more money into it for a while. However, the increasing prospect of the dollar remaining weak through 2007 has given me second thoughts.
Though gold is a more popular hedge against a weakening dollar, and thus inflation, I prefer to hold SLV because I suspect many Central Banks will unload some of their gold reserves next year as gold rises in response to the weakening greenback. Since many of these banks don’t hold reserves of silver, the white metal won't suffer from supply-side pressures as much as the yellow metal.
Also, with regard to the folio, SLV is negatively correlated with more stocks in the folio than IGE is. In other words, SLV acts as a better diversifier of portfolio risk than IGE does. So not only has SLV been the star stock so far, it likely to remain so in the coming year. Of the precious metals, silver is where the smart money is.
Wednesday, November 22, 2006
Bears Sidelined in Comatose Rally
When the cat is away, the mice will play! Today’s muted market gains on way lower-than-average volume suggest many bears have hit the road, thereby leaving the bulls to play. It is likely that today’s rally will extend to Friday, since Wall Street is all gung-ho about “Black Friday”. Nevertheless, up or down market action on Friday will be lackluster.
Profit takers must have taken exception to my extolment of ADBE’s virtues yesterday because they’re all over the stock today. ADBE is beat down 1.74%, thereby giving up over half of yesterday’s 3% gain. Bless the profit takers! I often like to see some consolidation after such run-ups; otherwise there’s always the danger that a stock will become overpriced.
There’s still a vacancy for a financial stock. I’m apt to avoid the big boys – Citigroup (C), JPMorgan Chase (JPM), and Bank of America (BAC) – because they're exposed to the vagaries of the yield curve through their commercial banking businesses. But if BAC snaps up Barclays PLC of the UK as rumored, I’d have to take a hard look at the stock.
Barclays is a British blue chip with many tentacles – Barclays Bank, Barclays Capital, and Barclays Global Investors to name a few – so a successful tie-up with BAC should lessen BAC’s overdependence on commercial banking. Perhaps more importantly, it will help BAC gain a foothold in Europe and Africa, where rival Citi has had successes. I’m watching the space.
Profit takers must have taken exception to my extolment of ADBE’s virtues yesterday because they’re all over the stock today. ADBE is beat down 1.74%, thereby giving up over half of yesterday’s 3% gain. Bless the profit takers! I often like to see some consolidation after such run-ups; otherwise there’s always the danger that a stock will become overpriced.
There’s still a vacancy for a financial stock. I’m apt to avoid the big boys – Citigroup (C), JPMorgan Chase (JPM), and Bank of America (BAC) – because they're exposed to the vagaries of the yield curve through their commercial banking businesses. But if BAC snaps up Barclays PLC of the UK as rumored, I’d have to take a hard look at the stock.
Barclays is a British blue chip with many tentacles – Barclays Bank, Barclays Capital, and Barclays Global Investors to name a few – so a successful tie-up with BAC should lessen BAC’s overdependence on commercial banking. Perhaps more importantly, it will help BAC gain a foothold in Europe and Africa, where rival Citi has had successes. I’m watching the space.
Tuesday, November 21, 2006
And Adobe Marches On
It seems Wall Street has already closed shop for the long weekend. The indices essentially vacillate around the flat line as investors get no economic data to chew on. Volume is also lower than normal; another signal that many investors stay on the sidelines.
However, oil spikes on news of weather-related disruptions to the Trans-Alaskan Pipeline (TAP), which transports about 4% of the US’s daily oil consumption, and some unscheduled refinery shutdowns. Don’t expect the spike in crude prices to last though, since inventories are still higher than levels at this time last year - Katrina contributed to shortages last year. This is why investors really shrug off the spike in oil prices.
A batch of economic data tomorrow will give investors probably the last chance to really play this week since Friday’s market action will be short – market closes at 1300 ET.
ADBE has really caught fire this month. Today it spikes 3% and then puts in another 52 basis points (0.52%) in after-hours trading. What is driving investors crazy about ADBE? It’s the upcoming release of Creative Suite 3 (CS3), which debuts in Spring 07.
The creative suite bundle of products is the numero uno money maker for ADBE – over 50% of the top line – and CS3 will be the latest version so its significance cannot be overestimated. Apparently there’s pent-up demand for CS3, in particular, because of better inter-operability with Macs.
However, ADBE is more than just a “quick buck” firm. Its fundamentals are strong, and are getting stronger by really any measure but just on ROE, it has averaged about 34% over the past three years – compared to 20% for MSFT, its arch-rival and nemesis. ADBE is one to hold for the long-term.
This firm is going to make a killing as more video and digital content in general migrate to mobile devices over the next few years. I don’t know why it took the comments of an analyst for investors to see what lies under ADBE’s hood. The engine that is ADBE is humming.
However, oil spikes on news of weather-related disruptions to the Trans-Alaskan Pipeline (TAP), which transports about 4% of the US’s daily oil consumption, and some unscheduled refinery shutdowns. Don’t expect the spike in crude prices to last though, since inventories are still higher than levels at this time last year - Katrina contributed to shortages last year. This is why investors really shrug off the spike in oil prices.
A batch of economic data tomorrow will give investors probably the last chance to really play this week since Friday’s market action will be short – market closes at 1300 ET.
ADBE has really caught fire this month. Today it spikes 3% and then puts in another 52 basis points (0.52%) in after-hours trading. What is driving investors crazy about ADBE? It’s the upcoming release of Creative Suite 3 (CS3), which debuts in Spring 07.
The creative suite bundle of products is the numero uno money maker for ADBE – over 50% of the top line – and CS3 will be the latest version so its significance cannot be overestimated. Apparently there’s pent-up demand for CS3, in particular, because of better inter-operability with Macs.
However, ADBE is more than just a “quick buck” firm. Its fundamentals are strong, and are getting stronger by really any measure but just on ROE, it has averaged about 34% over the past three years – compared to 20% for MSFT, its arch-rival and nemesis. ADBE is one to hold for the long-term.
This firm is going to make a killing as more video and digital content in general migrate to mobile devices over the next few years. I don’t know why it took the comments of an analyst for investors to see what lies under ADBE’s hood. The engine that is ADBE is humming.
Wednesday, November 15, 2006
Emerging Markets on a Tear
I thought by now investors would know better not to decipher minutes of the Federal Open Market Committee (FOMC) meetings each time they are released. Maybe I don’t really understand English, but there is never a clear giveaway to bulls or bears in these minutes.
But some investors continue to react feverishly. Were it not for a sell-off soon after the minutes emerged today the indices were on course to match or even top yesterday’s gains, based on the prevailing “soft landing” in 07 scenario reinforced by the economic data released so far this week.
Nevertheless, buyers outnumber sellers to take the indices higher on strong volume support. The consolidated number of shares that change hands reaches almost 5 billion, similar to yesterday’s tally. Based on the volume over the past two days there is definitely widespread support on Wall Street for the current market rally. It is by no means losing steam.
From all indications the US economy – as measured by Gross Domestic Product (GDP) - is poised to slow down in 07 to a level in the 2% - 2.4% range versus 2.5% - 3% forecast for this year. Meanwhile Europe, and even slow motion Japan, is forecast to grow faster than the US in 07. But emerging markets (EMs) will be in a league of their own. This must be one reason why EEM has posted gains each session since last Wednesday.
According to the World Bank many EMs will next year grow between 4% and 6%, with outliers like India - 7% and China - 10%. To be sure, EMs have grown faster than mature markets – US, Europe and Japan - for a long time now but these days many US companies with international operations now derive a higher proportion of their revenues from EMs. When PG reported its FY2007 first quarter results last month, revenue from non-US operations topped 50% for the first time in the firm’s history. This is a growing trend amongst US large caps.
What does this all mean? I believe against next year some rotation into EMs or US firms with large non-US operations is called for. The manager never invests in large caps without exposure overseas – this is why I picked COST over Target - but this week I increased my direct positions in “foreign” stocks from 28% to 30% - EFA down to 21% from 22%; EEM up to 9% from 6%. It is likely to remain 30% through next year. The US may sneeze in 2007 but the rest of the world won’t catch a cold.
But some investors continue to react feverishly. Were it not for a sell-off soon after the minutes emerged today the indices were on course to match or even top yesterday’s gains, based on the prevailing “soft landing” in 07 scenario reinforced by the economic data released so far this week.
Nevertheless, buyers outnumber sellers to take the indices higher on strong volume support. The consolidated number of shares that change hands reaches almost 5 billion, similar to yesterday’s tally. Based on the volume over the past two days there is definitely widespread support on Wall Street for the current market rally. It is by no means losing steam.
From all indications the US economy – as measured by Gross Domestic Product (GDP) - is poised to slow down in 07 to a level in the 2% - 2.4% range versus 2.5% - 3% forecast for this year. Meanwhile Europe, and even slow motion Japan, is forecast to grow faster than the US in 07. But emerging markets (EMs) will be in a league of their own. This must be one reason why EEM has posted gains each session since last Wednesday.
According to the World Bank many EMs will next year grow between 4% and 6%, with outliers like India - 7% and China - 10%. To be sure, EMs have grown faster than mature markets – US, Europe and Japan - for a long time now but these days many US companies with international operations now derive a higher proportion of their revenues from EMs. When PG reported its FY2007 first quarter results last month, revenue from non-US operations topped 50% for the first time in the firm’s history. This is a growing trend amongst US large caps.
What does this all mean? I believe against next year some rotation into EMs or US firms with large non-US operations is called for. The manager never invests in large caps without exposure overseas – this is why I picked COST over Target - but this week I increased my direct positions in “foreign” stocks from 28% to 30% - EFA down to 21% from 22%; EEM up to 9% from 6%. It is likely to remain 30% through next year. The US may sneeze in 2007 but the rest of the world won’t catch a cold.
Tuesday, November 14, 2006
Microsoft to Apple: Watch Your Back
Market action today is weird. Volatility is a tad higher than yesterday, especially with the mixed economic data picture. But this was expected so nothing strange there. However, after trading around the flat line for most of the session, the indices suddenly spike up sometime around 2.30 pm ET.
Some observers put this down to market-friendly “fed speak”, following some comments by an active voting member of the Federal Reserve that suggests the fed will not be raising the funds rate anytime soon. Others note that it is “technical” action by the S&P that drove the buying frenzy.
The S&P broke through a resistance – or ceiling - around the 1390 level after several attempts, which means it is now likely to trade above this level going forward. This reportedly prompts heavy buying activity of S&P futures in the futures market, which rubs off on investors with money to burn.
The truth is probably somewhere in between the fed speak and the technical action though the latter seems more plausible to me since fed speak is now too common to have such an effect on the market. Nevertheless, the S&P will need to trade above 1390 for a couple of sessions to give the breakthrough some credibility and stamina.
Needless to say, the Dow and the Nasdaq both post ample gains in sympathy with the S&P. Volume is also high, so a lot more buyers than usual register their bullishness.
The Zune is here. MSFT’s “iPod killer” hit the stores today. Seriously, with Apple’s (AAPL) 75% market share and a five-year head start, inter alia, MSFT has its work cut out. However, despite being late to the party as usual I would not count Mr. Softee out. It destroyed Netscape when it came out with Explorer (Internet Explorer) and it has been giving Sony’s PlayStation a run for its money with the 360 (Xbox) video game console.
How would I know when the Zune starts to get on AAPL’s nerves in this MP3 battle? When AAPL starts to talk increasingly about how bad a job of catching up to the iPod the Zune is doing. Right now AAPL is not saying much because it doesn’t view the Zune as a threat.
Some observers put this down to market-friendly “fed speak”, following some comments by an active voting member of the Federal Reserve that suggests the fed will not be raising the funds rate anytime soon. Others note that it is “technical” action by the S&P that drove the buying frenzy.
The S&P broke through a resistance – or ceiling - around the 1390 level after several attempts, which means it is now likely to trade above this level going forward. This reportedly prompts heavy buying activity of S&P futures in the futures market, which rubs off on investors with money to burn.
The truth is probably somewhere in between the fed speak and the technical action though the latter seems more plausible to me since fed speak is now too common to have such an effect on the market. Nevertheless, the S&P will need to trade above 1390 for a couple of sessions to give the breakthrough some credibility and stamina.
Needless to say, the Dow and the Nasdaq both post ample gains in sympathy with the S&P. Volume is also high, so a lot more buyers than usual register their bullishness.
The Zune is here. MSFT’s “iPod killer” hit the stores today. Seriously, with Apple’s (AAPL) 75% market share and a five-year head start, inter alia, MSFT has its work cut out. However, despite being late to the party as usual I would not count Mr. Softee out. It destroyed Netscape when it came out with Explorer (Internet Explorer) and it has been giving Sony’s PlayStation a run for its money with the 360 (Xbox) video game console.
How would I know when the Zune starts to get on AAPL’s nerves in this MP3 battle? When AAPL starts to talk increasingly about how bad a job of catching up to the iPod the Zune is doing. Right now AAPL is not saying much because it doesn’t view the Zune as a threat.
Monday, November 13, 2006
Techs Power Ahead
In terms of economic data this week is going to be the busiest of the month. So I expect market volatility to be high. To me this is a signal that this week may not be a good one to get in and out of positions, since many stocks are likely to oscillate more to market sentiment than to firm-specific issues. It is a week to stay cool, calm and collected unless compelled by an external force – meaning firm-specific issues – to act otherwise.
In the absence of economic data today techs benefit mainly from positive analysts sentiment. So of the indices the Nasdaq gets off to the most auspicious start on regular consolidated volume around the 4 billion mark. The rest of the week matters more than today to Wall Street though. In the greater scheme of things today is just the calm before the week storm.
Today, the folio starts to trade with NHP, a health-care real estate investment trust (REIT). After several weeks of research NHP seems to me one of the best health-care REITs out there in terms of transparency, diversity of revenue base and operators, dependency on Medicare and Medicaid, and operating fundamentals.
I believe a health-care REIT is a better way to play the health-care sector than pharma, biotech or health-care operators. Pharma and biotech stocks tend to have wild price swings and top-lines often dependent on the success, or failure, of one or two drugs, just to name a few dislikes. Besides, the sectors are too esoteric for me.
As for health-care operators, I just feel it is better to own the landlord – the REIT that is paid rental income – than to own the tenant – the operator of properties leased from a REIT.
It seems investors have put the sudden resignation last week of ADBE’s CFO behind them. The stock resumes its uptrend today and may find support around the $40 level by the end of the week. After all, the firm has just entered a big product cycle, having just begun the shipment of Acrobat 8, its new internet formatting software.
Also, a new version of Creative Suite 3 (CS3), its software design tool – it includes the ubiquitous Flash technology - and ADBE’s most important product in terms of revenue generation is slated for release in May 2007. Expect ADBE to bring home the bacon going forward.
Friday, November 10, 2006
Investors Resigned to Their Fate on Dems
Yesterday, Wall Street reacted feverishly to the takeover of Congress by Democrats. Today, investors seem resigned to their fate. Volume is substantially down from yesterday. The absence of economic data contributes to a lackluster ending to the trading week.
However, the Composite put in a late run to muster a stellar 2.5% gain for the week. Techs are really trying to end the year with a bang after getting battered in H1. Next week will see a more energized market action as a slew of economic data hits the Street. The sell off yesterday was a warning signal to Democrats: roll back the tax cuts on dividends and capital gains and watch the Big Board go red for days.
ADBE comes under pressure as expected, albeit in a civilized manner, which suggests that Wall Street does not view the departure of the CFO as a “clear and present danger”. Needless to say, I use the pull-back to snap up some more ADBE shares.
The folio does it again this week. It seems to have settled into a pattern where it beats the S&P and the Dow in weeks when the market ends up, but still manages to hold on to some gains when the market thumps. The Nasdaq is such a tough nut to crack when the market does well. Here are the gains for the week:
Nasdaq 2.53%
Worst-known 1.88%
S&P 1.22%
Dow 1.02%
However, the Composite put in a late run to muster a stellar 2.5% gain for the week. Techs are really trying to end the year with a bang after getting battered in H1. Next week will see a more energized market action as a slew of economic data hits the Street. The sell off yesterday was a warning signal to Democrats: roll back the tax cuts on dividends and capital gains and watch the Big Board go red for days.
ADBE comes under pressure as expected, albeit in a civilized manner, which suggests that Wall Street does not view the departure of the CFO as a “clear and present danger”. Needless to say, I use the pull-back to snap up some more ADBE shares.
The folio does it again this week. It seems to have settled into a pattern where it beats the S&P and the Dow in weeks when the market ends up, but still manages to hold on to some gains when the market thumps. The Nasdaq is such a tough nut to crack when the market does well. Here are the gains for the week:
Nasdaq 2.53%
Worst-known 1.88%
S&P 1.22%
Dow 1.02%
Thursday, November 09, 2006
Investors Get Jittery over "Benign" Gridlock
Wall Street had wanted a divided legislature where a red Senate and a blue House checked and balanced each other on business related issues. What investors get today is a Democrat-dominated Congress. The reaction is a sell-off in stocks across the board, especially in sectors viewed by investors as likely targets of heavy scrutiny by Democrats – pharma, defense, oil, which is spared a rout only by the rally in oil prices.
However, there were some signs that the run-up this week was about to be snapped. As the indices rallied over the past three days, volume on the Big Board (NYSE) and on the Composite (Nasdaq), in particular, decreased progressively. A combination of higher peaks and lower volumes often indicates that a rally is losing steam.
Volume today is unusually high though, which suggests that tomorrow may see another sell-off, perhaps more restrained. Having said that, I don’t think the negative reaction to a Democratic Congress will last, after all there is still a Republican White House to deal with.
In folio action ADBE announces a management shake-up after the closing bell, which sends the stock further down. The stock is going to be under pressure from tomorrow until it’s clear why the CFO, who had held the post for only five months, suddenly resigned. The pull-back in ADBE will create a rare buying opportunity though. I may get my hands on some.
Wednesday, November 08, 2006
Vista Tops Election "Bounce"
The newswires catch fire on this post-election day. Straight out of the gates, the major indices had traded below the flat line until MSFT came to the rescue midway through the session. Mr. Softee announces that Windows Vista, the new operating system from the software giant, is done and dusted to be shipped to retail customers on January 30 and suddenly the market comes alive. Not even the fact that the Congressional gridlock that Wall Street yearns hangs in the balance could stop the rally.
The MSFT announcement doesn’t do much for the stock price in live action though. Investors have adopted a wait-and-see attitude until
So the question is: what firm-specific fundamental will move MSFT’s stock before
The projected earnings that analysts will price into MSFT’s valuation, and thus into the stock, will provide some upside support in the near-time. However, this means that by the time Vista starts to sell as expected by MSFT much of the impact on the stock will have been priced in, unless
With Zune I’m afraid I don’t think this will really do much for MSFT’s bottom line until it proves it can challenge the iPod’s dominance. Xbox itself is still losing money, though this is what MSFT expected. But with market leader Sony about to release PS3 and Nintendo also slated to unveil a new console for the holiday season, will Xbox ever get a chance to turn a profit?
PBW benefits noticeably from a rally in oil prices and election bounce. Political pundits see better days ahead for alternative energy technologies in the next Congress. I happen to agree with the pundits on this one, simply because the current Republican executive has voiced more support for green technologies than the ousted Republican dominated Congress.
For exposure to health-care, and by default exposure to the real estate sector, I’ve finally decided to go with Nationwide Health Properties (NHP) rather than Ventas (VTR). I’m already exposed to VTR through IWR, which coincidentally also has some health-care real estate investment trusts (REITs). I know this is double dipping in health-care REITs but eventually I intend to replace IWR with individual Mid-Caps. For now the ETF will do.
Hopefully, NHP will pull back over the next couple of days to present some buying opportunities. If everything goes to plan, the vacancy in the folio for health-care should be filled by this time next week.
Tuesday, November 07, 2006
Adobe Matches Microsoft Rapprochement
Wall Street strengthens hope of a deadlocked Congress with a mini-rally to top yesterday’s run-up. There is strong support on the volume front, as the number of shares that change hands rise considerably from yesterday’s tally, in particular, on the Composite (Nasdaq).
Although most investors have bet on legislative gridlock, there is less consensus on what the market reaction will be should a one-party majority emerge in both chambers. Anyway I think any adverse or sanguine market reaction will be ephemeral; attention will quickly switch back to economic data once the political circus ends.
ADBE and MSFT have gone at each other for years. So it’s not that surprising that hot on the heels of MSFT's recent thumbs up to Linux, the open-source system developed by Novell, ADBE announces reportedly the biggest software code donation to the Mozilla foundation. Mozilla developed Firefox, the open-source web browser that has slowly captured market share from MSFT’s Explorer. ADBE seems determined not to be outshone by Mr. Softee. It’s your move MSFT!
Rumors of an EBAY exit from China surface again, despite pronunciations to the contrary by management on the earnings call last month. Such an exit will suggest EBAY cannot compete in a tough but growing market. With growths in key developed markets at a plateau where will EBAY go if it can’t stand the heat in China? First Japan, now China?! Honestly, EBAY needs to ride out the Oriental express, not hop on and hop off.
Although most investors have bet on legislative gridlock, there is less consensus on what the market reaction will be should a one-party majority emerge in both chambers. Anyway I think any adverse or sanguine market reaction will be ephemeral; attention will quickly switch back to economic data once the political circus ends.
ADBE and MSFT have gone at each other for years. So it’s not that surprising that hot on the heels of MSFT's recent thumbs up to Linux, the open-source system developed by Novell, ADBE announces reportedly the biggest software code donation to the Mozilla foundation. Mozilla developed Firefox, the open-source web browser that has slowly captured market share from MSFT’s Explorer. ADBE seems determined not to be outshone by Mr. Softee. It’s your move MSFT!
Rumors of an EBAY exit from China surface again, despite pronunciations to the contrary by management on the earnings call last month. Such an exit will suggest EBAY cannot compete in a tough but growing market. With growths in key developed markets at a plateau where will EBAY go if it can’t stand the heat in China? First Japan, now China?! Honestly, EBAY needs to ride out the Oriental express, not hop on and hop off.
Monday, November 06, 2006
Wall Street Begs for Legislative Gridlock
Perhaps it’s a sense that the market sell-off last week was unjustified. Or maybe it’s the buyout frenzy that private equity firms orchestrate, which suggests that equities may still be historically undervalued. How about the consensus that Wall Street cherishes a deadlocked Congress, historically viewed as the most sanguine for business interests?
Any or all of these reasons could explain today’s run-up in equities, despite the rise in oil prices. Even bonds rally slightly in the home stretch. The major indices all close up to recover all of last week’s losses and then some. However, support on the consolidated volume side is slightly lower than the average posted last week, which suggests that some buyers remain cautious. Profit-takers will definitely be in action later this week; even in a bullish environment some gains are always consolidated.
Overseas, the rally in equities is replicated on major bourses in Asia, Europe and South America. World markets, like Wall Street, seem to be betting on a legislative gridlock in tomorrow’s mid-term elections.
The rising tide lifts all stocks in the folio. EEM is particularly impressive with a 2.4% run-up. It is helped by strong foreign purchases of Brazilian equities in October and today’s moderate rise in crude prices – EEM is 10% weighted in Brazilian stocks and 18% weighted in energy stocks. If foreigners are buying into Brazilian equities, it is likely they are also buying into other emerging markets, which bodes well for EEM.
I’m still on the hunt for health-care real estate investment trusts (REITS), the preferred gateway into the health-care sector. I’ve narrowed my choices down to two REITS – Nationwide Health Properties (NHP) and Ventas, Inc. (VTR). At this point NHP is in pole position because preliminary research shows it to be more diversified - in terms of operators and sources of revenue, more transparent, and less dependent on Skilled Nursing facilities and Hospitals - properties that derive the bulk of their income from Medicare and Medicaid. By the weekend a final decision will be made.
Any or all of these reasons could explain today’s run-up in equities, despite the rise in oil prices. Even bonds rally slightly in the home stretch. The major indices all close up to recover all of last week’s losses and then some. However, support on the consolidated volume side is slightly lower than the average posted last week, which suggests that some buyers remain cautious. Profit-takers will definitely be in action later this week; even in a bullish environment some gains are always consolidated.
Overseas, the rally in equities is replicated on major bourses in Asia, Europe and South America. World markets, like Wall Street, seem to be betting on a legislative gridlock in tomorrow’s mid-term elections.
The rising tide lifts all stocks in the folio. EEM is particularly impressive with a 2.4% run-up. It is helped by strong foreign purchases of Brazilian equities in October and today’s moderate rise in crude prices – EEM is 10% weighted in Brazilian stocks and 18% weighted in energy stocks. If foreigners are buying into Brazilian equities, it is likely they are also buying into other emerging markets, which bodes well for EEM.
I’m still on the hunt for health-care real estate investment trusts (REITS), the preferred gateway into the health-care sector. I’ve narrowed my choices down to two REITS – Nationwide Health Properties (NHP) and Ventas, Inc. (VTR). At this point NHP is in pole position because preliminary research shows it to be more diversified - in terms of operators and sources of revenue, more transparent, and less dependent on Skilled Nursing facilities and Hospitals - properties that derive the bulk of their income from Medicare and Medicaid. By the weekend a final decision will be made.
Sunday, November 05, 2006
Mind over Matter: Rotation
Once again it’s time to get into the mind of the manager; to examine my investment tactics and strategies.
The worst-known manager essentially follows the "dollar cost averaging" (DCA) principle. In DCA the same amount of dollars is periodically invested in a stock so it really doesn’t matter when it is purchased. If a stock is riding high at the time of purchase, your dollars get you less of it; if the stock is momentarily getting beat up in the market you pick up more of it.
So to a large extent DCA avoids the necessity to time the market to “buy low, sell high” – at least the buy part. Unless you are a day trader, which I am not, timing the market can be difficult.
Also, DCA is much better than periodically purchasing a set number of shares; it doesn’t make economic sense to buy the same number of shares when a stock is trading at $50 and when it’s trading at $20.
I build on the principle of DCA by having a pool of dollars to invest each month. But rather than invest an equal amount of dollars in each stock, I take the pool and slice it to take advantage of seasonal changes.
For instance in Q4 - the holiday season – consumers tend to spend more on tech products. So this quarter I’m likely to put more money in techs and discretionaries – MSFT, EBAY, ADBE, and COST – than in consumer staples – PG or health-care. When the weather is about to get colder or during the summer driving season - when demand for crude oil typical rises - more dollars will be rotated into IGE and SLV.
Furthermore, when the economy slows large caps like PG, EFA, MSFT will see more green than smaller caps and emerging markets – IJR, IWR, and EEM. Large caps do better when the economy slows because they have the market share and resources to weather a slowdown.
As an active investor, this strategy just suits me fine. Since the economy constantly changes it’s only right that the folio take advantage of these changes. So far the strategy has served me well. As of Friday, only ADBE and PBW had posted negative returns to date on a cost basis.
The worst-known manager essentially follows the "dollar cost averaging" (DCA) principle. In DCA the same amount of dollars is periodically invested in a stock so it really doesn’t matter when it is purchased. If a stock is riding high at the time of purchase, your dollars get you less of it; if the stock is momentarily getting beat up in the market you pick up more of it.
So to a large extent DCA avoids the necessity to time the market to “buy low, sell high” – at least the buy part. Unless you are a day trader, which I am not, timing the market can be difficult.
Also, DCA is much better than periodically purchasing a set number of shares; it doesn’t make economic sense to buy the same number of shares when a stock is trading at $50 and when it’s trading at $20.
I build on the principle of DCA by having a pool of dollars to invest each month. But rather than invest an equal amount of dollars in each stock, I take the pool and slice it to take advantage of seasonal changes.
For instance in Q4 - the holiday season – consumers tend to spend more on tech products. So this quarter I’m likely to put more money in techs and discretionaries – MSFT, EBAY, ADBE, and COST – than in consumer staples – PG or health-care. When the weather is about to get colder or during the summer driving season - when demand for crude oil typical rises - more dollars will be rotated into IGE and SLV.
Furthermore, when the economy slows large caps like PG, EFA, MSFT will see more green than smaller caps and emerging markets – IJR, IWR, and EEM. Large caps do better when the economy slows because they have the market share and resources to weather a slowdown.
As an active investor, this strategy just suits me fine. Since the economy constantly changes it’s only right that the folio take advantage of these changes. So far the strategy has served me well. As of Friday, only ADBE and PBW had posted negative returns to date on a cost basis.
| Stock | FirstBuy | LastBuy | RTD (11/03/06) |
| SLV | 9/12/06 | 9/12/06 | 12.97% |
| EBAY | 9/29/06 | 10/23/06 | 9.05% |
| IGE | 9/12/06 | 10/23/06 | 5.88% |
| EEM | 9/29/06 | 10/23/06 | 4.64% |
| MSFT | 9/12/06 | 10/23/06 | 4.52% |
| EFA | 9/12/06 | 10/23/06 | 3.18% |
| PG | 9/12/06 | 10/23/06 | 2.07% |
| COST | 9/29/06 | 10/23/06 | 1.83% |
| IWR | 9/29/06 | 10/23/06 | 1.36% |
| IJR | 9/29/06 | 10/23/06 | 0.30% |
| ADBE | 10/23/06 | 10/23/06 | -0.84% |
| PBW | 9/29/06 | 10/23/06 | -1.54% |
Friday, November 03, 2006
Wal-Mart Declares War on CostCo
What the numbers is going on at the Labor Department? The department says the number of jobs created by firms in October was 92K, versus expectations of 123K. So it’s a disappointment for Wall Street. But then the payrolls for August and September are revised upwards; the September numbers bumped to 148K from the 51K announced on October 6. What?! That’s almost triple the October announcement.
This huge discrepancy doesn’t really make the headlines as much as the absolute numbers but can someone remind the Labor Department that the markets do react to these numbers, especially at times like these when economic indicators continue to give conflicting signals. As someone commented on CNBC, investors already have a long list of risks to contend with; “statistical risk” should not be added to these.
Anyway the market ends a five-week winning streak. Geopolitical concerns induce a jump in oil prices that rattles investors already jittery from confusion about the strength of the economy. The Dow shows no green at all this week while the Nasdaq again gives up some of the stellar 4.79% gain made last month.
It’s been a dismal start to November for Wall Street. All hopes of a rally in equities now rest on stronger indications of higher consumer spending during the holiday season.
To boost sales over the holiday period Wal-Mart (WMT), whose sales stagnated last month, comes out of the left field with a decision to cut prices for many electronics. The decision knocks COST for six as many investors interpret the WMT move as the declaration of a price war. Many “big-ticket” items sold by COST are electronics.
COST already operates on ultra thin margins – less than 2.7% versus 5.9% for WMT. So this WMT move is undoubtedly a challenge for all discount retailers, even WMT itself. Honestly, I don’t really see much room for maneuver for COST in terms of price cuts.
Although COST is the nation’s largest warehouse discounter – it sells more than WMT’s Sam’s Club - it probably will have to hold its ground on prices, take some losses on the sales front this holiday season, and then recoup these losses from the membership fees it charges.
The market thumps for the week but the folio still manages to scrape a tiny gain, helped by IGE and SLV’s gains from the rise in oil prices.
Worst-Known +0.06%
Nasdaq -0.84%
Dow -0.86%
S&P -0.95%
From next week the market will be completely at the mercy of economic data. The earnings season will be "gone with the wind".
Oh, do I think the elections on Tuesday will dramatically impact the markets? No! Although there are more Republicans than Democrats on the Street the rich still set the rules in America, and the last time I checked Congress is still part of America.
This huge discrepancy doesn’t really make the headlines as much as the absolute numbers but can someone remind the Labor Department that the markets do react to these numbers, especially at times like these when economic indicators continue to give conflicting signals. As someone commented on CNBC, investors already have a long list of risks to contend with; “statistical risk” should not be added to these.
Anyway the market ends a five-week winning streak. Geopolitical concerns induce a jump in oil prices that rattles investors already jittery from confusion about the strength of the economy. The Dow shows no green at all this week while the Nasdaq again gives up some of the stellar 4.79% gain made last month.
It’s been a dismal start to November for Wall Street. All hopes of a rally in equities now rest on stronger indications of higher consumer spending during the holiday season.
To boost sales over the holiday period Wal-Mart (WMT), whose sales stagnated last month, comes out of the left field with a decision to cut prices for many electronics. The decision knocks COST for six as many investors interpret the WMT move as the declaration of a price war. Many “big-ticket” items sold by COST are electronics.
COST already operates on ultra thin margins – less than 2.7% versus 5.9% for WMT. So this WMT move is undoubtedly a challenge for all discount retailers, even WMT itself. Honestly, I don’t really see much room for maneuver for COST in terms of price cuts.
Although COST is the nation’s largest warehouse discounter – it sells more than WMT’s Sam’s Club - it probably will have to hold its ground on prices, take some losses on the sales front this holiday season, and then recoup these losses from the membership fees it charges.
The market thumps for the week but the folio still manages to scrape a tiny gain, helped by IGE and SLV’s gains from the rise in oil prices.
Worst-Known +0.06%
Nasdaq -0.84%
Dow -0.86%
S&P -0.95%
From next week the market will be completely at the mercy of economic data. The earnings season will be "gone with the wind".
Oh, do I think the elections on Tuesday will dramatically impact the markets? No! Although there are more Republicans than Democrats on the Street the rich still set the rules in America, and the last time I checked Congress is still part of America.
Thursday, November 02, 2006
Has Microsoft Lost the Battle Against Linux?
The market continues its reluctant “correction”. I say reluctant because it barely changes from yesterday’s close. This is hardly surprising, since investors typically hold fire before payroll numbers emerge on the first Friday of each month.
I think a conundrum that worries investors has emerged. Economic indicators continue to point to a slowing economy and rising inflationary pressures, albeit tempered, at the same time. So Wall Street can’t seem to ascertain whether the Fed’s first move from the current “do nothing” stance will be to raise interest rates to curb inflation or cut rates to prevent a recession.
That’s why an important indicator like payroll numbers, or the number of jobs created by companies, has taken center stage in the mind of Wall Street over the past few days. If the number of jobs created in October falls way below the consensus of 123,000, which to me seems like a huge leap from the 51,000 created in September, the market may sell off.
Companies often ramp up hiring in October through December, but aren’t many of these jobs part-time retail positions created to deal with holiday season spending or to cover workers that plan to go on extended leaves? Anyway, tomorrow can’t come soon enough for Wall Street.
I’ve never used Linux - the open-source operating system developed by Novell – but it must be giving MSFT a run for its money as the software giant surprises the market with an “interoperability” – I know it’s a mouthful – agreement with Novell. MSFT says in a conference that the two firms will still compete but co-operate in the best interests of “customers”.
I think this is a tactical move for MSFT, after all Linux, and open-source software in general, has been gaining popularity with consumers and grabbing market share from Windows. So how do you stop an adversary’s advance on your turf? Make him your friend!
Meanwhile I was caught off guard by EBAY’s 3.5% run-up today. I can’t seem to find any news behind this drive so the impetus appears to be that the stock has broken through a key resistance level of $32. From a technical analysis standpoint once a stock breaks through a resistance after several tries, it often finds support around this price, i.e., the resistance now becomes a floor price. EBAY has tested $32 over the past week so it is likely to find support around this price going forward.
For added support EBAY’s 5-day moving average (MA), which crossed the 10-day MA to the upside on October 19th, has trended above the 10-day since. When shorter MAs cross longer ones to the upside, a stock’s upward mobility is more credible.
I think a conundrum that worries investors has emerged. Economic indicators continue to point to a slowing economy and rising inflationary pressures, albeit tempered, at the same time. So Wall Street can’t seem to ascertain whether the Fed’s first move from the current “do nothing” stance will be to raise interest rates to curb inflation or cut rates to prevent a recession.
That’s why an important indicator like payroll numbers, or the number of jobs created by companies, has taken center stage in the mind of Wall Street over the past few days. If the number of jobs created in October falls way below the consensus of 123,000, which to me seems like a huge leap from the 51,000 created in September, the market may sell off.
Companies often ramp up hiring in October through December, but aren’t many of these jobs part-time retail positions created to deal with holiday season spending or to cover workers that plan to go on extended leaves? Anyway, tomorrow can’t come soon enough for Wall Street.
I’ve never used Linux - the open-source operating system developed by Novell – but it must be giving MSFT a run for its money as the software giant surprises the market with an “interoperability” – I know it’s a mouthful – agreement with Novell. MSFT says in a conference that the two firms will still compete but co-operate in the best interests of “customers”.
I think this is a tactical move for MSFT, after all Linux, and open-source software in general, has been gaining popularity with consumers and grabbing market share from Windows. So how do you stop an adversary’s advance on your turf? Make him your friend!
Meanwhile I was caught off guard by EBAY’s 3.5% run-up today. I can’t seem to find any news behind this drive so the impetus appears to be that the stock has broken through a key resistance level of $32. From a technical analysis standpoint once a stock breaks through a resistance after several tries, it often finds support around this price, i.e., the resistance now becomes a floor price. EBAY has tested $32 over the past week so it is likely to find support around this price going forward.
For added support EBAY’s 5-day moving average (MA), which crossed the 10-day MA to the upside on October 19th, has trended above the 10-day since. When shorter MAs cross longer ones to the upside, a stock’s upward mobility is more credible.
Wednesday, November 01, 2006
Earnings Fade into Distant Memories
It’s a bloody start to November. Earnings surprises continue to be on the upside but the bulk of S&P firms have now reported – as of last Friday 74% of 304 S&P firms had beaten the Street consensus. The earnings season really concludes this week so the attention of most investors shifts from earnings to economic indicators.
Now any bearish indicator is bound to spook investors. Today is a harbinger of things to come if indicators don’t hold up. The Nasdaq gives up 1.37% of the impressive 4.79% gained last month while the Dow heads south for the fourth straight session. Participation is strong as consolidated volume reaches almost 5 billion shares.
However, the killer chop could be Friday’s payroll numbers. If the numbers fall way below expectations the bulls will need to dive for cover.
ADBE stumbles into negative territory for the first time since I bought it. Not to worry. ADBE will definitely regain its footing in the quarters ahead as its slew of new products hit the market.
Only MSFT and SLV are spared in today’s market rout. SLV, just like gold, often benefits whenever the dollar weakens or is forecast to weaken; when the economy is slated for a slowdown; or when the oil price rises. Since the first two scenarios are all but guaranteed going forward, I expect SLV to trend upwards into much of 2007.
I suspect MSFT continues to defy gravity on expectations of the releases of Vista, Zune, Office, Server,..............
Now any bearish indicator is bound to spook investors. Today is a harbinger of things to come if indicators don’t hold up. The Nasdaq gives up 1.37% of the impressive 4.79% gained last month while the Dow heads south for the fourth straight session. Participation is strong as consolidated volume reaches almost 5 billion shares.
However, the killer chop could be Friday’s payroll numbers. If the numbers fall way below expectations the bulls will need to dive for cover.
ADBE stumbles into negative territory for the first time since I bought it. Not to worry. ADBE will definitely regain its footing in the quarters ahead as its slew of new products hit the market.
Only MSFT and SLV are spared in today’s market rout. SLV, just like gold, often benefits whenever the dollar weakens or is forecast to weaken; when the economy is slated for a slowdown; or when the oil price rises. Since the first two scenarios are all but guaranteed going forward, I expect SLV to trend upwards into much of 2007.
I suspect MSFT continues to defy gravity on expectations of the releases of Vista, Zune, Office, Server,..............
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