« Daily Report for Sat, Jul 12, 2008 | Main | Daily Report for Mon, Jul 14, 2008 »
July 13, 2008
Week in Review #28 (2008-07-13)
The Financials (XLF) dropped another -6.02% this week, which means that in the ten weeks since May 3, the average WEEKLY loss in XLF is -4.05%. If you have been long financials over this period, your portfolio has been whipped. If you have been 100 percent invested on the long side, your portfolio has suffered greatly.
Interesting that Financial Entertainment TV is only just now getting around to talking about Bear Market, as in ‘maybe it is; maybe it isn’t’. But then, long-time members of this community know how to handle the sell-side shills of FETV. For the most part we ignore them and focus on prices plus our extensive and growing discourse.
Over 52 weeks, by the way, the XLF loss is -47.77%, which means that to make back this capital loss requires a gain of +192% +92%. As I wrote a week ago, that’s going to take some time, which is the principle behind why I have been predominantly negative in this blog for the past couple years.
I even got tired of pointing to the cause, which is the run-up in debt that Humungous Bank & Broker pushed clients into. But, I can’t seem to let it go that Mr. Moral Hazard who runs the US Treasury is largely to blame for promoting the market’s excesses and now coming up blank-faced and blink-eyed when asked by Rep. Dr. Ron Paul to testify as to whether or not Treasury has a strong USD policy in place.
As long as the Talking Head anchors keep their collective yap shut and let the testimony run, FETV can teach the independent trader a lot about these so-called leaders. It is a tough job, even for such a practiced artist like Henry Paulson, to suck and blow simultaneously.
In any case, some of those commercial and investment banks that supported Paulson’s Folly are no longer in business. They are now bank-rupt. Actually, if it’s ethics we’re looking at, some of them were bankrupt a long time ago.
I have read where commentators opine that this is just a normal Bear cycle. I say not! Never has there been such intense pressure by banks to expand credit and then to suffer the effects of capital destruction when borrowers failed to use that credit to build offsetting economic wealth.
To hide the problems, the Fed dropped the publishing of the M3 calculation, although I have yet to hear anyone in Congress ask if the Fed still calculates it and to testify what that number might be. Alas, as most of us knew at the time it was abandoned, M3 would have focused the market on credit expansion and the increasing gap with wealth expansion.
Then, to worsen matters, the Fed replaced liquid currency reserves on its balance sheet with illiquid investment holdings of failing banks. To an honest banker, that too makes no sense other than to serve as a facility to hide the problems and prolong the suffering of shareholders of these failing banks.
I suppose that these scoundrels in the leadership will ensure their legacy is protected by the typical rewriting of history that goes on in America by people in powerful positions.
All of this commentary is proof positive why I trade like I do: (i) focus first on risk, (ii) then focus on quality companies, and finally (iii) focus on price of the stocks and use trend and cycle studies to determine one’s Accumulation/Distribution mindset, and Buy/Sell tactical decisions.
At the end of the day, as long as you remain independent, objective, clear-headed, and use common sense, your portfolio will perform in the top quartile or higher of all investors, including those of the market insiders, like bankers and corporate officers and directors.
While you might not have avoided the full -21% decline in market prices since the cycle peak last October, many of you have.
Moreover, based on what I have read here, many of you were short the shares of companies like Countrywide, Bear Stearns, Wachovia, Merrill Lynch, Lehman, Fannie and Freddie. You profited from the falling market. And, when done legally, you never considered your shorting practices to be un-American.
In addition, many of you here have learned to appreciate the importance of trading prices, which is what investors in capital markets do. And for seeing that, your life has now changed for the better. Your portfolio performance will definitely improve. Moreover, from the commentary in the Discourse this weekend, I can see that many of you are helping others, which was my objective from the beginning.
I cannot thank you enough for your helping me, and for informing me. When you think of it; one hundred thousand sets of eyes is always going to see more than one set.
We all can contribute something to a better society, you know. A word here or an observation there; you would be surprised how it could suddenly turn on the lights for people who had never thought about such things.
The world may be growing smaller, but it’s still a big and daunting place when it comes to protecting and growing our wealth. For the past year, it’s been a dangerous place.
Consider how far the global stock market has fallen since mid-October. This chart of the Dow Jones Global Index shows the cycle peak at 320.33 in October and 255.86 presently, which is a loss of -20.13% worldwide in nine months. For example, for the S&P 1200 index of global large cap stocks, the total loss in equity is an astounding $6.5 trillion.
By helping any and all of you avoid those losses, at no cost except for your time, just think what this community is doing for social equity.
Global Economics Review
The macro-economic data continues to worsen, both in America and abroad.
Weekly International Economic Report .
Please check to see if the Report is dated July 11 or later.
This past week, the Bank of England held its monthly two day meeting. The Bank, caught between rapidly softening growth and high inflation, decided to keep its benchmark lending rate at 5.0%. This rate is the highest in the G-7. However, like the ECB, the UK’s latest inflation reading is far above its 2 percent inflation target at 3.3 percent.
The leaders of the Group of Eight countries held their annual meeting July 7 through July 9 in Hokkaido, Japan. Among the items discussed was the fallout from last summer's global credit market meltdown and the economic problems brought on by soaring prices for oil and basic food products. At the conclusion of the meeting, President Bush certainly did not distinguish himself for a remark that insulted his host.
Here are the key US economic reports and the Econoday analysis from last week.
US Economic Calendar.US Consumer Credit report for May. Consumer credit grew +7.8 billion, about +$800 million more than expected. Econoday opined: “Once tax rebates fizzle out and unless gas and food prices ease, consumers in future months are likely to turn more and more to credit to make ends meet”.At 10:00am ET Thursday, Fed Chairman Ben Bernanke and Treasury Secretary Paulson gave testimony to the House Financial Service Committee on financial market regulatory restructuring. Rep. Dr. Ron Paul did his usual competent grilling, but failed to get answers that are acceptable to the American taxpayer or independent trader. The markets sagged after the uninspiring and unbelievable performance of the two leaders of US monetary policy and regulation.
US Import and Export Prices for June. Econoday noted, “Readings across the import/export price report are near or at records, reflecting extremely elevated inflationary pressures rooted in oil prices that are testing the ability of businesses to absorb input costs. Import prices spiked 2.6 percent in June, this compares with +2.6 percent in May, +2.8 percent in April, and +3.1 percent in March. The year-on-year is +20.5 percent. Import prices for petroleum spiked 7.4 percent in June, just on the low end of similar gains in prior months with the year-on-year rate up 78.6 percent. Excluding petroleum, import prices spiked 0.9 percent in June vs. +0.7 percent in May and even higher readings in prior months with the year-on-year rate at +7.3 percent.
Moving to the export side, prices jumped 1.0 percent in June vs. 0.4 percent gains in the two prior months. The year-on-year rate is +8.6 percent. Here food prices, that is agricultural prices, are the culprit, up 2.2 percent in June alone for a year-on-year rate of +33.0 percent. Excluding agricultural goods, export prices jumped 0.9 percent for a year-on-year rate of +6.4 percent.”
US international trade report for May. Econoday noted: “Year-on-year, overall exports were up 17.8 percent in May while imports were up 12.5 percent.”
U Michigan Consumer Sentiment index for July. Econoday noted: “Consumer spirits remain severely depressed while consumer expectations for inflation remain extremely elevated, in what is more bad news for the economic outlook.” Somehow, this report firmed the USD for a bit.
How is next week’s calendar looking?
US Economic Calendar.US Producer Price Index for June. Inflation at both wholesale and retail level is a serious concern.US Retail Sales for June. US Retailers ($RLX) continues to get hammered, so the data is not likely to come out looking good for June.
US Consumer Price Index report for June. Econoday notes: “The May CPI spurted 0.6 percent based on oil-related price increases, following a 0.2 percent increase the month before. The latest number was above the market forecast for a 0.5 percent gain. The core rate also firmed but not as much with a 0.2 percent boost.” This report is not expected to improve.
US Industrial Production report for June. Econoday notes: “Industrial production in May unexpectedly fell but the decline was primarily due to a drop in utilities output. But the bottom line still is that the manufacturing sector is flat. Overall industrial production fell 0.2 percent in May, following a 0.7 percent decline in April. The May production decrease was below the consensus forecast for a 0.1 percent uptick.” Let’s see what happened to IP in June.
US Housing Starts report for June. Econoday notes: “Housing starts in May resumed a downward slide. Starts fell 3.3 percent, following a 2.0 percent rebound in April. The May pace of 0.975 million units annualized was down 32.1 percent year-on-year and was a little worse than the consensus forecast for 0.985 million units. The May decline was led by an 8.0 percent drop in multifamily starts as single-family starts fell another 1.0 percent. Permits also decreased - by 1.3 percent in May, following a 5.4 percent pick up in April. May's 0.969 million unit pace for permits was down 36.3 percent year-on-year. By region, the decline starts were led by a monthly 25.0 percent drop in the Midwest with the West and South also showing decreases of 10.3 percent and 4.4 percent, respectively. In the Northeast, starts rebounded 61.5 percent.” It may take a year or more for this industry to turn around. Interest rates staying down, oil prices falling, and personal incomes growing will be the keys.
US Equity Markets Review
DJIA stockcharts.com chart
Mostly because of Friday, this week was yet another bad one for the Bulls.
But there were 4 of 10 sectors that lifted in price. There were 22 of 30 Dow components that were down, and one was flat, however, so the Bulls cannot be overjoyed.
The DJIA index dropped -1.67% to 11101. The S&P 500 lost -1.85% to 1239.49.
Only Health (IYH +1.57%), Consumer Staples (XLP +1.35%), Basic Materials (XLB +0.63%) and Utilities (XLU +0.25%) managed gains over the week, and they were small compared to the losses in Financials (XLF -6.02%), Consumer Discretionary (XLY -4.60%), Energy (XLE -3.32%) and Semi-conductors (SMH -1.78%).
NASDAQ Composite ino.com chart
NASDAQ Composite stockcharts.com chart
The NASDAQ Composite dropped -0.28% W/W vs -3.03% and -3.76% the prior two weeks and -2.0% the week before that. Besides, the week would have been a winner except for the loss of -0.83% on Friday.
The Russell Small Cap index actually gained +1.38% from 665.78 to 674.95, including a gain of +0.67% on Friday.
The key now is to see if the Fed statement will goose the Financials (and with it the Consumer Discretionary) stocks, and how the Techs respond.
Here is the list of the ten highest-weighted non-financial stocks in the NASDAQ Composite. Put them in a watchlist (see Google Finance Portfolio) and watch them like a hawk. If you want, add a couple like SNDK and ADBE:
AAPL MSFT GOOG QCOM RIMM CSCO INTC ORCL GILD EBAY
Daily RSI-7 for the Nasdaq 100 Big-10
Weekly RSI-7 for the Nasdaq 100 Big-10
Monthly RSI-7 for the Nasdaq 100 Big-10
The US equity market Sector ETF Summary
This week, there were 4 sectors up and 6 down, which was 2 better than a week earlier and 3 better than a couple weeks ago. So, maybe the immediate worst is over? I think so, but then my DJIA=11,000 target was hit at about 10,970 on Friday.
Here’s the SPY Monthly, Weekly and Daily data charts:
SPY Monthly data:
SPY Weekly data:
SPY Daily data:
The tables I now show are for eleven GICS Sector Index Funds (ETF’s), including two for Technology (XLK and SMH), for a total of ten GICS sectors. They cover the full spectrum of the US equity market.
Table 1: Cara ETF List is sorted by price performance Week over Week (W/W), i.e. 1W%N.
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
You can do this table yourself by entering the following string into the Summary window at Billcara2.com and then clicking on the link for Performance. SPY XLE XLB XLI XLY XLP IYH XLF XLK SMH IYZ XLU . You can also add more ETF’s – up to 30 in total.
For a list of components to many ETFs, go to the AMEX.com web site, and click on ETF’s.
10 (energy: XLE)
15 (basic materials: XLB)
20 (industrial: XLI)
25 (consumer discretionary: XLY)
30 (consumer staples: XLP)
35 (healthcare: IYH)
40 (financial: XLF)
45 (technology, semiconductor: SMH)
50 (telecom: IYZ)
55 (utilities: XLU)
Individual Sector ETF Review
Sector 10 (energy: XLE, IYE, VDE, OIH, PBW and IXC)
Here’s the XLE Monthly, Weekly and Daily data charts:
XLE Monthly data:
XLE Weekly data:
XLE Daily data:
Table 2: Senior oil & gas equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Crude Oil ($WTIC +0.37/bbl to 145.66) cooled off a bit after a couple weeks of stunning gains.
A week ago I wrote here after those humungous gains: “But traders are now thinking these gains to top-line prices are unsustainable. XLE lost -1.84% to close at 84.90. Thursday’s (last trading day in the week) loss was -1.53%. Margin requirements for many of the NYMEX energy contracts were raised this week.”
Ergo: this week the Energy ETF (XLE) dropped -3.32% to close at 82.08.
Big Oil (US style anyway) was clobbered with Chevron (CVX) plunging -6.5% and Exxon (XOM) down -3.2%.
Canada’s EnCana (ECA) was hit -6.7% due to the rise in NatGas inventories.
The stock winners this week were SU (+4.9%), and PTR (+2.4%).
I believe that lower Crude Oil prices could fuel the summer rally in equities (except the Energy stocks).
Oil & Gas Exploration & Production -Canada
Sector 15 (basic materials: IYM, XLB, IGE and VAW)
Here’s the XLB Monthly, Weekly and Daily data charts:
XLB Monthly data:
XLB Weekly data:
XLB Daily data:
Table 3: Senior metals and steel equities:
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Basic Materials (XLB +0.63% to 39.70, was up due to Friday’s rise of +1.30%. Friday was a $USD play. It plummeted and the precious metals rallied.
But, the economy is a great leveler. For the past couple weeks I have been noting that the Papers and Chemicals have fared badly. A week ago, I added the Steels and Base Metal Miners to the scrap pile.
This week, though, the Steels did rather well: PKX of South Korea was up +8.1% and Mittal (MT) lifted +5.9%. Alcoa Aluminum (AA +5.7%) issued a better than expected report.
DOW (-7.0%) and TCK (-3.9%) were losers.
The table source data for GGB does not recognize the share split. I’ll try to remove it, just like CFC is no longer accurate.
Sector 20 (industrial: IYJ, XLI, VIS, and IYT)
Here’s the XLI Monthly, Weekly and Daily data charts:
XLI Monthly data:
XLI Weekly data:
XLI Daily data:
Table 4: Senior capital goods makers and transportation:
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
The Industrials (XLI -0.78% W/W) had a losing week, closing at 33.15. The loss on Friday was -1.04%. But, these results are improved over recent weeks.
GE (+1.4% a week ago was up +2.8% this week). ERJ, the Brazilian aircraft maker, was up +10.9%. Lower fuel prices ought to generate more sales orders. ERJ and BA were getting trashed with record-setting oil prices, but now it may be that the bloom is off the energy rose, which will help the makers of fuel users and those companies that are huge consumers.
There were some infrastructure companies that didn’t fare too well this week: TXT -3.8%, FLR -2.9% and ABB -2.7% were losers.
Sector 25 (consumer discretionary: XLY, IYC and VCR)
Here’s the XLY Monthly, Weekly and Daily data charts:
XLY Monthly data:
XLY Weekly data:
XLY Daily data:
Table 5: Senior consumer discretionary equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Consumer Cyclicals (XLY -4.60% closing at 26.76) were hammered. There was a loss of -1.36% on Friday, which was next worse to Financials as I had predicted before the day began.
The big Cara 100 losers here were JCP (-16.2%) and GOL (-8.1% W/W after dropping -17.8% and -12.0% the previous two weeks). I am looking for a Cara 100 replacement. Clearly the airline business is a disaster with record high oil prices, and I would have not been long any of those stocks for at least a year, but I had been thinking the South American market might pull this one through. Maybe not; the stock is down -71.9% over 52-weeks. I can’t afford to stick around.
As I wrote here a week ago, “High fuel costs are killing many of these stocks. Some of them, including Cara 100’s ought to be reviewed in the light of potential business failure.”
Ebay (EBAY) was up +4.5%.
Sector 30 (consumer staples: XLP, VDC, RTH and IYK)
Here's the XLP Monthly, Weekly and Daily data charts:
XLP Monthly data:
XLP Weekly data:
XLP Daily data:
Table 6: Senior consumer staples equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
This week, Consumer Staples (XLP +1.35% W/W) reversed field, closing at 26.76. There was even a small loss (-0.33%) on Friday. Traders were seeking a safe haven.
BUD (+7.8%) and WAG (+6.1%) were the winners, while the old standby’s Starbucks and Whole Foods Market took big hits. SBUX dropped -9.6% (-45.9% over 52-weeks) and WFMI lost -7.4% (-46.7% over 52-weeks). Same old. Same old.
If, as and when the People are cash strapped, it’s likely going to show at the cash registers of these two companies. This situation will reverse, and the cycle bottoming process will give traders a good opportunity to Buy stock at very low prices.
Sector 35 (healthcare: IYH, XLV, VHT, IXJ, and IBB)
Here’s the IYH Monthly, Weekly and Daily data charts:
IYH Monthly data:
IYH Weekly data:
IYH Daily data:
Table 7: Senior healthcare equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
“In keeping with the safe-haven move into Consumer Staples and Healthcare sectors, the (IYH) gained (a lot)” Actually, I wrote that a week ago. But it’s still true.
This week IYH gained +1.57% W/W to close at 62.77, making it the #1 performing sector one more time.
Once again (it will not change as long as the Financials are getting hammered), the losers were insurance-related stocks like UNH (-3.5%), WPT (-2.6%) and AET (-2.5%).
Note that a week ago I wrote here: “When the Financials turn around or recover a bit, you should anticipate similar moves in stocks like UNH, WPT, and AET.” If this were Monte Carlo (where my wife was this month while I slaved over a Bahamas G&T), I’d say put your money down on these three on Monday.
But, this is not Monte Carlo. As my wife says, “In your dreams.”
The leader on my list was MBT, which was up +2.6%.
Sector 40 (financial: IYG, IYF, XLF, VFH, IXG, VNQ, RWR, IYR, and ICF)
Here’s the XLF Monthly, Weekly and Daily data charts:
XLF Monthly data:
XLF Weekly data:
XLF Daily data:
Table 8: Senior financial company equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
As I wrote here a week ago, “You recall a couple weeks ago that Morgan Stanley reported the worst was over for the Financial sector. I replied, “Maybe, but the source is far too conflicted for me to pay the least bit of attention.””
As I wrote at the top, “The Financials (XLF) dropped another -6.02% this week, which means that in the ten weeks since May 3, the average WEEKLY loss in XLF is -4.05%. If you have been long financials over this period, your portfolio has been whipped.”
This week the losers were LEH (-36.9%), which is now down –79.8% over 52 weeks. MER also dropped -11.3% and GS -9.2% this week.
I figure from the latter that the ‘Gold’man must be in negotiations with the Treasury head and the Fed head to take over either LEH or MER. Pure speculation on the move of ex-GS CFO John Thain into Merrill and the better fit there, tells me maybe it’s a GS and MER hook-up. But the Street says GS and Wachovia Bank (WB). Maybe Morgan Stanley and Lehman would make a better fit (for diversified operations) since MS and MER are almost identical.
In any case, the Morgan Stanley analyst who offered up his “I’m ok; the Street’s ok” gem has cost clients literally hundreds of billions. But don’t count him out of the year-end bonus sweepstakes at MS though. He probably has it tape-recorded that “somebody made me do it.”
Fannie and Freddie being saved by taxpayer money (even though the people who write the check will feign shock at this suggestion) is probably enough to goose Financials one more time, although I can’t figure out how two wrongs makes a right on Wall Street.
Sector 45 (technology: IGM, IGV, IGW, XLK, VGT, IYW, IGN, IXN, MTK and SMH)
Here’s the SMH Monthly, Weekly and Daily data charts:
SMH Monthly data:
SMH Weekly data:
SMH Daily data:
Here’s the XLK Monthly, Weekly and Daily data charts:
XLK Monthly data:
XLK Weekly data:
XLK Daily data:
Table 9: Senior technology equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Tech (XLK -0.40% W/W closing at 22.26) was down, but hardly a weak performer. On Friday, the loss was -0.76%. Look for the positive action here on Monday, I think.
A week ago I wrote here, “I recognize that the broad market is over-sold here and due for a rally. Could it be a summer rally?” Any day now, I figure. Looks to me like September could be hurricane season for NY.
This week, the Tech winner was QCOM (+7.3%) while the losers were CTSH (-11.5%) and INFY (-10.5%).
The Semi-conductors (SMH -1.78% W/W) was another loser.
Intel (INTC) was flat. The Value Line report on Friday looks good. But, SanDisk (SNDK -10.2% W/W as well as -7.5%, -9.1%, -11.9% and -13.0% the prior four weeks) is now down -67.9% over 52-weeks. Really, you don’t want to be sitting in this one on the ride down. It’s a long elevator down, but after the reversal, it will be a quick ride up too. Watch this one closely.
As I wroe here a week ago, “If the bottom looks near, and the broad market ready to rally (if!), you could consider some SNDK put writes and call purchases, with offsetting premiums. But, your bias would have to be positive for the upcoming share price.”
You see, I’m not encouraging you to stand on a railway track. Your portfolio couldn’t handle the mess. But, if your timing on re-entry is good, this could be a big winner for you. The drawback is that Consumer Discretionary stocks have to rally too, and that will take money ringing up the cash registers. You see, SanDisk makes a lot of the chips that are embedded in consumer electronics like mp3 and digital camera memory, for instance.
Sector 50 (telecom: IYZ, VOX and IXP)
Here’s the IYZ Monthly, Weekly and Daily data charts:
IYZ Monthly data:
IYZ Weekly data:
IYZ Daily data:
Telecom (IYZ -0.22% W/W) closed at 23.00, a loss of just 5 cents.
Maybe its string of many bad losing weeks in a row is over for now. Verizon (VZ) -2.1% W/W was a loser again, but AT&T (T) was flat W/W.
If the Financials do ok next week, that will probably mean that bond yields will fall, and the competitive yield on the T and VZ will be more attractive. It’s a shot.
Sector 55 (utilities: IDU, XLU, and VPU)
Here’s the XLU Monthly, Weekly and Daily data charts:
XLU Monthly data:
XLU Weekly data:
XLU Daily data:
Utilities (XLU +0.25% W/W), closing at 40.48, after being up +0.77% a week ago. They did lose -0.78% on Friday.
Note that my simple little RSI-7 system doesn’t work too well for Utilities, Healthcare and Consumer Staples. Just a heads-up.
Bonds & Yields Review
Table 10: US Treasury Yields
| Maturity | Yield | Yesterday | Last Week | Last Month |
|---|---|---|---|---|
| 3 Month | 1.48 | 1.59 | 1.77 | 1.87 |
| 6 Month | 1.94 | 1.92 | 2.01 | 2.10 |
| 2 Year | 2.58 | 2.41 | 2.52 | 2.81 |
| 3 Year | 2.51 | 2.34 | 2.44 | 2.78 |
| 5 Year | 3.27 | 3.07 | 3.27 | 3.47 |
| 10 Year | 3.95 | 3.80 | 3.98 | 4.07 |
| 30 Year | 4.53 | 4.41 | 4.53 | 4.70 |
| Maturity | Yield | Yesterday | Last Week | Last Month |
|---|---|---|---|---|
| 2yr AA | 2.39 | 2.30 | 2.62 | 2.38 |
| 2yr AAA | 2.32 | 2.14 | 2.50 | 2.30 |
| 2yr A | 2.54 | 2.57 | 2.73 | 2.61 |
| 5yr AAA | 2.86 | 2.55 | 3.09 | 3.02 |
| 5yr AA | 3.01 | 2.78 | 3.26 | 3.03 |
| 5yr A | 3.08 | 3.05 | 3.19 | 3.25 |
| 10yr AAA | 3.66 | 3.68 | 3.80 | 3.70 |
| 10yr AA | 3.60 | 3.62 | 3.75 | 3.70 |
| 10yr A | 3.63 | 3.66 | 3.77 | 3.87 |
| 20yr AAA | 4.70 | 4.60 | 4.62 | 4.49 |
| 20yr AA | 4.62 | 4.55 | 4.63 | 4.44 |
| 20yr A | 4.62 | 4.65 | 4.69 | 4.53 |
| Maturity | Yield | Yesterday | Last Week | Last Month |
|---|---|---|---|---|
| 2yr AA | 4.27 | 4.22 | 4.11 | 4.34 |
| 2yr A | 4.73 | 4.60 | 4.55 | 4.69 |
| 5yr AAA | 5.10 | 4.97 | 5.15 | 4.98 |
| 5yr AA | 5.38 | 5.21 | 5.41 | 5.42 |
| 5yr A | 5.89 | 5.72 | 5.66 | 5.43 |
| 10yr AAA | 5.35 | 5.47 | 5.78 | 5.68 |
| 10yr AA | 6.02 | 6.09 | 5.96 | 6.17 |
| 10yr A | 6.11 | 6.01 | 5.96 | 5.87 |
| 20yr AAA | 6.55 | 6.39 | 6.39 | 6.35 |
| 20yr AA | 6.95 | 6.79 | 6.79 | 6.33 |
| 20yr A | 6.81 | 6.65 | 6.64 | 6.61 |
Bond prices were crushed on Friday after word went around that the Fed and Treasury were going to lighten the load for Fannie and Freddie. Yields went up and prices down. Same old. Same old.
For the week, the yields for the US Treasury 2-year, 5-year ($FVX), 10-year ($TNX) and 30-year ($TYX) gained +6 basis points, was flat, lost -3 bp, and was flat, respectively. In other words, the bond market was confused. Too may mixed signals.
The yield on T-Bills dropped -29 bp as traders scrambled to cash and short-term Treasury paper on Friday.
The T-Bill yield dropped to 1.48%, which is putting much pressure on the Financials as traders are going to stop buying them and the Banks and Broker-Dealers need more liquidity. Should liquidity dry up even more, heaven help your bank. Hopefully you don’t get caught like oh so many people at IndyMac who knew that FDIC only protects up to $100,000, but they left their cash in the bank that was imploding week after week.
Maybe it’s easy come, easy go? To me that would be painful.
Kaimu would say something about a T-Bill yield approaching 1%. He’s say the Fed and the market is scared enough to make the value of money almost worthless.
The 20-year TLT closed at 92.20, up +0.14% (just 13 cents), following a loss on Friday of -1.38%, and the TIP lost -0.45% to 107.61, following a loss of -0.90% on Friday.
Bond investors are worried about what the Fed and Treasury are concocting for Fannie and Freddie. They also ought to be concerned about the US PPI and CPI data next week. Could be a perfect storm for rising yields on all but T-Bills, which might fall even more.
Here is the $USB 30-year Treasury Bond chart.
Interest rates and bond yields.
Interactive Daily data charts:
Interactive Chart of Interest rates and bond yields.
US Bond Funds -- Interactive Monthly Data Charts
SHY Monthly data series chart:
IEF Monthly data series chart:
TLT Monthly data series chart:
AGG Monthly data series chart:
LQD Monthly data series chart:
TIP Monthly data series chart:
US Bond Funds -- Interactive Weekly Data Charts
SHY Weekly data series chart:
IEF Weekly data series chart:
TLT Weekly data series chart:
AGG Weekly data series chart:
LQD Weekly data series chart:
TIP Weekly data series chart:
US Bond Funds -- Interactive Daily Data Charts
SHY Daily data series chart:
IEF Daily data series chart:
TLT Daily data series chart:
AGG Daily data series chart:
LQD Daily data series chart:
TIP Daily data series chart:
Table 11: Interest-sensitive securities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
The Wall Street Journal reported today that “the Treasury is expected later today to make a statement supportive of beleaguered mortgage giants Fannie Mae and Freddie Mac, according to people familiar with the matter. The exact language couldn't be learned but is expected to be a statement of facts designed to reassure markets.” Maybe the statement is out by the time I get around to publishing this WIR.
A little too late, anyway. But the initial market reaction will likely involve higher bids for the Finacials.
A week ago, I wrote: “This week, FNM and FRE were summarily trashed, respectively, -10.74% [after losing -12.64% the prior week] to $18.78, and -21.75% [after losing -18.19% the prior week] to $14.50. The 52-week losses are –71.91%, and -76.52%, respectively. That would require a subsequent gain of +344% and +426% to make back. The moral is don’t lose it in the first place.”
This week however Fannie and Freddie were at the core of the financial problems of America. Fannie Mae (FNM) plunged -45.4% W/W to $10.25, including -22.4% on Friday. Freddie Mac (FRE) did the same, collapsing -46.6% to $7.75, although the Friday loss was just -3.1%.
The 52-week losses as of today are -84.2% for Fannie and -87.1% for Freddie.
Needless to say there were mega-million dollar compensation packages the managers received! They couldn’t even file financial statements with the SEC and were rewarded. This only happens with the likes of America’s business oligarchs. Tied to vested interests in Washington, they do what they are told and are paid handsomely. Like Russia, it’s the public that suffers when business and government sleep in the same bed.
Consumer Finance -USA -- Interactive Weekly Data Charts
Consumer Finance -USA -- Interactive Daily Data Charts
Commodities Review
The $CRB lost -2.31%, which followed a gain of +1.71%, to close at 461.43, so there has been a loss over two weeks, while most traders have assumed just the opposite.
A week or more ago, I stated: “The NYMEX has started raising margin requirements. This will impact speculation.” Count on it.
Interactive Chart of Weekly CRB Commodities Index:
Interactive Chart of Daily CRB Commodities Index:
Oil Review
$WTIC (US Light Sweet Crude called West Texas Intermediate) gained +0.37/bbl and +0.25% to close the week at 145.66/bbl.
“How many remember $51/bbl in January 2007?”
The 50d MA for $WTIC is now at 131.67 (amazing!!), and the 200d MA is 105.20!
Imagine; it was just a short time ago that I thought we’d never see the current price above 100, nevertheless today’s price! But these are contract markets that involve excessive speculation at times, despite the rhetoric that says speculation is not a factor.
I think the speculating mind-set will chill for a while, though.
Here is the e-miNY Dec-07 Crude Oil chart.
Interactive Chart of Weekly Crude Oil:
Interactive Chart of Daily Crude Oil:
Gold & Precious Metals Review
For the past three weeks, $GOLD gained +2.30/oz, +27.60/oz and +30.60/oz. This week the gain is +27.00/oz +2.89%) to 960.60. The $USD suffered a significant pull-back. I attribute this to the lack of confidence of the market in Mssrs Bernanke and Paulson -- Paulson in particular.
The 50-day MA for $GOLD is now 898.94, and the 200d MA is 874.04.
When you see that the price charts had shown a sidetracking of current prices into a rising MA, which was a warning sign for the gold Bulls, maybe you can appreciate why their phones, faxes and computer-based newsletters started heating up a couple weeks ago. So far, the hard money crowd has scrambled to protect its interest, and certainly Bernanke and Paulson have helped. But that will likely change after the huge increases in production costs are reported, so don’t get too caught up in the hype. Besides, if interest rates do rise, and money stays tight, these negative cash flow companies will be looking at dilution, which is always a price killer in markets.
Jock Gunter and Tony Garson of Team Cara wrote me this week about the dilemma of the Juniors in this industry. I will replay it untouched.
Bill –
I think Tony Garson’s submission on juniors in today’s market is a fine contribution to the discourse of the last few days. He’s happy to have it posted on the blog, if you think it makes sense. It might be put in a context of something like what’s below. Perhaps best submitted in your name, if you (and he) think what I’ve drafted makes sense. Tony said he’d be seeing you on Monday:
Long-term colleague and senior mining finance analyst Tony Garson, senior mining finance analyst (introduced to caraistas at PDAC ’08) was kind enough to comment on the question of what kind of juniors might best be considered for trading or investment in current market conditions:
“The main consideration in any resource base is grade of ore.Bill, essentially Tony is interested in juniors provide data on the economics of planned production. This means that 43-101 compliant resource definition is not enough. Only scoping, pre-feasibility, and bankable feasibility studies generate data on economics. As examples of interesting candidates he mentioned HudBay Minerals (cap. 1.57B) and Lundin Mining (cap 2.2B). Both have profits, and HudBay is cash-flow positive. In a sense, Tony is focused on juniors who have fairly graduated from the category.
It’s like the Rocks-Scissors-Paper game we played as kids.
A consistent grade beats them all
Commodity prices interacts with grade but in fact price and grade are synonymous
Engineers/geologists try to prove that the grade is enduring by drilling a zillion holes in the ground and computer modeling the intercepts
Consistent high grade deposits can weather just about any storm
Lower grade deposits compensate by utilizing other factors
Therefore lower grade copper-moly-gold porphyry deposits compensate their lower grade by producing at very large daily volumes of throughput. Some of these daily rates can be in excess of 100,000 tons of material per day vs say 1000 to 5000 tons/day for higher grade vein deposits.
The feasibility study attempts to find the optimal mix of grade-price-throughput that will provide the minimum acceptable return on capital invested in the project-ie the hurdle rate. This is expressed as the Internal Rate of Return of the project (IRR).
The project utilizes a discount rate that reflects the risks attached to the project, expected returns on capital and governmental risks. The project also provides a sensitivity analysis in order to determine the robustness of the project under extreme conditions much like a wind tunnel investigation.
The stock market is a different animal. Speculators don’t care too much about the fundamentals-they speculate that others will buy them out at ever increasing prices.
But no matter what, there comes a point when even speculators have had enough
Speculators are like a flock of birds in a tree-they can be spooked by one rifle shot
When they leave the market, share prices can collapse.
The bad girls and the good girls are taken away in the same paddy wagon.
Prices may collapse to the minimum hurdle rate or even drop substantially below its perceived hurdle rate and required net present value.
That is when we consider the stock to be oversold and if we do our homework, we may be able to ID these over sold stocks and reinvest.
These over sold stocks will not recover until the speculators or takeover seniors fly back to the tree. That’s our job to find these stocks before the speculators return.
I use my own cash flow models of various metal ore types to help in determining under sold or over bought values. Of course there are macro economic events that will also influence the timing decision.
Hope that helps-----the subject is expansive (and can be expensive too)
Regards
Tony Garson
________________________________________________________________________
/Jonathan Gunter
In the market this week, $XAU, GDX and XGD gained +3.29%, +3.48% and +3.81%. But a week ago, these indexes dropped -2.96%, -2.89% and -1.68%, respectively. Also, the gains on Friday alone were +4.03%, +4.37% and +4.65%. So except for a couple hours on Friday, these indexes have been losers. If you want to day trade by the hour, so be it, but if you are a typical business person, moving about during the day, you shouldn’t hope to do well. These markets can and do turn on a silver-plated dime.
I could say ‘heart-beat’ but this market has no heart—just a confused brain as the newsletter writers and promoters whip up their stories as if they actually know how to trade. Not!
Caveat emptor.
Interactive Chart of Weekly Gold EOD Continuous Contract Index:
Interactive Chart of Daily Gold EOD Continuous Contract Index:
Interactive chart of recent trading for the Gold Bullion index.
Spot silver chart for the week
This week, $SILVER gained +0.45/oz or +2.45%, closing at 18.82. The gain on Friday was +2.72%. Traders were panicked over the $USD and the Fed/Treasury/Fannie/Freddie. Don’t count on that pressure this week.
As I say, long term, I think $SILVER will trade well above $21.44, which is the cycle high. As I say, “But not right away. For now, we are in a mini-deflation for speculative prices (ie, non economic prices) because the banks have no money and are seeking $USD from anybody, including from silver crazies.”
For $SILVER, the 50d MA is now 17.26, and the 200d MA is 16.44.
Interactive Chart of Weekly Silver EOD Continuous Contract Index:
Interactive Chart of Daily Silver EOD Continuous Contract Index:
Interactive chart of the Silver Bullion index.
A week ago, amid the precious metals rally, I wrote: “This week $PLAT lost -32.00/oz to close at 2030.40. The loss a week earlier was -6.50/oz. Over four weeks, there have been big losses in Platinum.” Well, as Gold jumped +2.45% this week, $PLAT gained +0.83% (16.80/oz) to close at 2047.20. There was a loss all week and a gain of +2.44% on Friday.
The 50-day MA is 2048.78 and the 200-day MA is 1793.70.
Spot platinum chart for the week
Interactive Chart of Weekly Platinum EOD Continuous Contract Index:
Interactive Chart of Daily Platinum EOD Continuous Contract Index:
Interactive chart of the Platinum metal index.
A week ago, $PALLADIUM lost -4.65/oz to close at 466.55/oz. The prior week’s loss was -8.00/oz. This week, there was a loss of -5.15/oz (-1.10%) to close at 461.40. Not all precious metals are in rally mode.
The 50-day MA is now 450.77 and the 200-day MA is 424.16.
Spot palladium chart for the week
Interactive Chart of Weekly Palladium EOD Continuous Contract Index:
Interactive Chart of Daily Palladium EOD Continuous Contract Index:
Interactive chart of the Palladium metal index.
This week, $COPPER contracts lost -20.90 (-5.29%), closing at 374.00.
The 50-day MA for $COPPER is now 373.57 and the 200-day MA is 354.33.
I have been saying, as you know: “Even though the current price is well above the 50-day MA, I still think the 200d-MA is going to be a battleground for copper traders.” Guess what? The price is sitting right on the 50-day MA.
Interactive Chart of Weekly Copper EOD Continuous Contract Index:
Interactive Chart of Daily Copper EOD Continuous Contract Index:
Interactive chart of the Copper metal index.
Table 12: Senior gold equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
When I remarked a week ago about the rally in the Goldminer stock group indexes: “ With just a two-day rocket launch of the major stocks in this group, I think this is an end-of-quarter hedge fund play,” I didn’t infer that the rally could not go on for a couple days longer. So what that the indexes rallied between +3.3% and +3.8% this week; the moves on Friday alone were from +4.0% to +4.7%, and that was a special circumstance.
We’ll have to watch this play out.
The 50d MA for $XAU is 182.32, and the 200d MA is 180.91.
To watch the moves in precious metal miners, you will have to monitor the individual stock charts, preferably in real-time, as follows:
NEM ABX AU GFI GG HMY AUY KGC BVN
Interactive Daily data
Interactive Weekly data
MDG LIHRY AEM BGO IAG EGO RGLD GOLD CDE GRS
Interactive Daily data
Interactive Weekly data
SSRI SIL NG KRY UXG GRZ TSE_HRG TSE_GUY TSE_AGI
Interactive Daily data
Interactive Weekly data
NXG GSS MNG DROOY MFN RNO RANGY MRB CLG
Interactive Daily data
Interactive Weekly data
Here are the key Silver miners and the SLV ETF:
SLV SIL CDE HL PAAS SSRI SLW MGN
Interactive Daily data
Interactive Weekly data
Here are the Weekly and Daily Data charts of the indexes:
Interactive Chart of Weekly U.S. Goldminers Index:
Interactive Chart of Daily U.S. Goldminers Index:
The U.S. goldminer share trust ETF trades under the ticker symbol GDX.
Here are the U.S. Goldminer ETF (GDX) index Weekly and Daily data charts:
GDX Weekly data:
GDX Daily data:
The Toronto Exchange-listed goldminer iUnits S&P/TSX Capped Gold Index ETF trades under the ticker symbol TSE:XGD. Yes, just like GDX on the AMEX, you can trade XGD on Toronto.
Here are the Weekly and Daily data charts for the TSX Goldshares (XGD) index:
Interactive Chart of XGD Weekly data:
Interactive Chart of XGD Daily data:
Forex Review
This week the $USD lost -0.78 -1.08% to close at 71.94. These are volatile and dangerous markets.
The 50-day MA is 72.96 and the 200-day MA is 74.70, so the current price is below both.
The US inflation data might be on the high side this week, prompting the Fed to take preventative medicine in the form of a higher rate. We’ll see.
Interactive Chart of Weekly U.S. Dollar Index:
Interactive Chart of Daily U.S. U.S. Dollar Index:
The Euro ($XEU) gained +2.42 +1.54% W/W, which is a lot, closing at 1.5935.
The Euro 50day MA is 1.5594 (and no longer falling) and the 200day MA is 1.5055.
Interactive Chart of Weekly Euro Dollar Index, priced in USD:
Interactive Chart of Daily Euro Dollar Index, priced in USD:
The Pound gained +0.39% W/W, closing at 1.9889.
The 50-day MA and 200-day MA are at 1.9690 and 1.9983, both of which fell during the week.
Weekly British Pound Index:
Daily British Pound Index:
Weekly Japanese Yen Index:
The Japanese Yen ($XJY) gained +0.51%, closing at 94.14. It ought to strengthen as money comes out of stocks and debts are repaid in Japan.
The Yen’s 50-day MA is 94.56 and the 200-day MA is 92.95. The current price is now sitting just below the 50-day MA.
Daily Japanese Yen Index:
The Loonie (Cdn Dollar) gained +0.98% W/W, closing at 99.01. This could be a reaction to the lost of a huge number of jobs in Ontario (24,000 this month I think), and the belief by traders that the Bank of Canada will ease up faster than the Americans.
The 50-day MA and 200-day MA is at 99.06 and 100.15 respectively, which means the current price (99.01) is still bearish, ie, below both.
Weekly Canadian Dollar Index:
Daily Canadian Dollar Index:
Here is the China Yuan (CNY) chart.
International Equity Markets Review
There were ups and downs this week throughout the global equity markets, but nothing too serious. For a clue as to how Europe might open in the morning, let’s watch the Asia-Pacific markets late in the session today.
UK FTSE down from 5412.80 to 5261.6
German DAX down from 6272.21 to 6153.3
Aussie All-Ords down from 5170 to 5067.8
Shanghai Composite up from 2669.89 to 2856.6
HK Heng Seng up from 21423.82 to 22184.6
India’s BSE 30 up from 13454 to 13469.9
Japan’s Nikkei 225 down from 13237.9 to 13039.7
I added 16 country index charts from StockCharts.com (with their formal approval btw as long as I don’t publish too many) because I think it is important to be watching these markets move through a trend juncture together, and in relation to currency and commodity strength or weakness.
I also made some additions to the country-based ETF tables as I intend to focus more on ETF’s in 2008. In time, I will also set up tables and track the domestic market prices. This will come after we switch to the Drupal platform and get away from MT and TypeKey, which drives me nuts.
As I say, “the world is now a very small one in capital markets and international business. No longer are corporations just American, British, French, German, Italian, Canadian or Japanese. Most do business internationally. We need to observe their businesses and capital market prices on a global basis.” So this week, I am harping on the fact that international regulators will not easily accept the notion that the Fed is the top level global regulator of banks and brokers, which is a silly notion being promoted by US Treasury Secretary Henry Paulson while he still works at the White House.
I re-ran this because it still applies. The testimony given a Congressional committee this week by Paulson seems to me like a power play that the Europeans and Japanese will not accept.
Here is the latest session data for the exchanges of the Americas.
Here is the latest chart for the Brazilian Bovespa stock exchange in Sao Paulo.
Brazilian Bovespa stockcharts.com chart
Here is the latest session data for the Toronto Stock Exchange composite index.
Toronto 300 stockcharts.com chart
Toronto CDNX stockcharts.com chart
Europe
Here is the latest session data for the bourses of Europe.
Here is the latest session data for the London stock exchange FTSE.
FTSE 100 stockcharts.com chart
Here is the latest session data for the German DAX.
Here is the latest session data for the French CAC 40.
Here is the latest session data for the Milan Italy stock exchange MIBTEL.
Italian Milan Index stockcharts.com chart
Here is the latest session data for the Swiss market index.
Swiss Market Index stockcharts.com chart
Asia-Pacific
Here is the latest session data for the Asia-Pacific stock exchanges.
Here is the latest chart for the Japanese Nikkei 225 index.
Tokyo Nikkei 225 Index stockcharts.com chart
Here is the latest chart for the Singapore index .
Singapore Straits Times Index stockcharts.com chart
Here is the latest chart for the Shanghai Composite index .
Shanghai Composite Index stockcharts.com chart
Here is the latest chart for the Hong Kong Hang Seng index .
Hong Kong Hang Seng stockcharts.com chart
Here is the latest chart for the India BSE 30 index .
Mumbai BSE 30 Sensex Index stockcharts.com chart
Here is the latest chart for the Australian All Ordinaries index .
Sydney All Ordinaries Index stockcharts.com chart
Russia (RTS) stockcharts.com chart
Table 13: International equities via an ETF perspective (in $USD)
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
International ETF’s had another bad week. Except for Hong Kong (EWH), which gained +0.67%, all were down. The worst were France (EWQ -3.80%), Russia (TRF -2.96%), UK (EWU -2.83%) and India (IFN -2.68%). The IFN has had a miserable few weeks, dropping -7.31%, -8.79% and -4.93% the prior three weeks.
Japanese equity market ETF: EWJ
Here is the Japanese (EWJ) equity market ETF Monthly, Weekly and Daily data charts:
U.K. equity market ETF
Here is the United Kingdom (EWU) equity market ETF Monthly, Weekly and Daily data charts:
EWU Daily data:
Canada’s equity market
Here is the Canadian (EWC) equity market ETF Monthly, Weekly and Daily data charts:
US Equity Markets Review
The DJIA (-1.67%), the S&P 500 (-1.85%), and the NASDAQ Composite (-0.28%) all were down again this past week. But the Russell 2000 Small Cap index, which had been hammered -4.64% the prior week, was up +1.38% this week.
Except for Friday’s very negative session, the rest of the week wasn’t all that bad. The RSI and Stochastics are quite over-sold. There could be a turn here, but for how long and to what extent I would have to ask Bernanke and Paulson. :-)
A dozen NASDAQ stocks to watch.
Here is the Monthly data chart of the Interactive Chart of Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Here is the Weekly data chart of the Interactive Chart of Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Here is the Daily data chart of the Interactive Chart of Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Table 14: Dow 30 List
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
You can do this table yourself by entering the following string into the Summaries window at www.billcara2.com and then clicking on the link for Performance.
AA AIG AXP BA C CAT CHV DD DIS GE GM HD HON HPQ IBM INTC JNJ JPM KO MCD MMM MRK MSFT PFE PG T UTX VZ WMT XOM
Here are the links to interactive Dow charts from Billcara2.com that I broke into groups of ten, which you can add technical indicators for as well. (list one) (list two) (list three)
Value Line Report(s) this past Friday
This week, Value Line reported on four companies, General Electric (GE), Hewlett-Packard (HPQ), IBM (IBM) and Intel (INTC). GE and Intel have long been Cara 100 companies (a quality of company rating; not a stock rating). IBM has been close and Hewlett-Packard probably not far behind. Today, IBM made the list, and UBS was dropped.
General Electric [GICS 20, Dow 30, Cara 100]
(GE: Value Line Report Jul. 11: next one is due Oct. 10)
Hewlett-Packard [GICS 45, Dow 30]
(HPQ: Value Line Report Jul. 11: next one is due Oct. 10)
IBM [GICS 45, Dow 30, Cara 100 (new July 13-08)]
(IBM: Value Line Report Jul. 11: next one is due Oct. 10)
Intel [GICS 45, Dow 30, Cara 100]
(INTC: Value Line Report Jul. 11: next one is due Oct. 10)
In a Bear cycle, long-term oriented traders need to study companies like at least three of these four to determine the possibility of fitting them into a core strategy for the next Bull.
For example, my simple little RSI-7 system gave a Buy Alert on June 30 for GE at the closing price of $27.66. The RSI-7 that day ended with values for the M-W-D of 27.26-16.04-30.34. Prior to the close that day you could have written the 6 and 1/2 month put (Jan-09) for $3.00 (it also closed Friday at $2.65). Your worst case is that you might buy the stock at $22.00. GE traded down at that price in 1997, which was 11 years ago. This is one of the highest quality companies in the world, admittedly with issues to face in its financial services unit.
I think GE will beat the Value Line 2008 and 2009 earnings estimate by 10 cents to $2.30 and $2.50. I cannot recall GE having a year where earnings didn’t grow, and that is what Value Line is projecting for this year. I think that could be a set up for a positive earnings surprise.
I also think there will be a dividend of $1.24 this year and $1.36 next year. Eleven years ago, the dividend was only $0.36 and the earnings (adjusted for splits) were just $0.86/share.
So, given that (if I don’t earn the $3.00 option premium on selling the put as found money), my cost basis is $22.00, the $2.50 earnings and $1.36 dividend works out to be a P/E of 8.8x and the dividend yield would be 6.18.
Now I have read a lot of expert books on fundamentals in my life (Graham and Dodd among the best), and nowhere do I see such ridiculously high metrics for either General Electric or any world best-of-class company like it.
My point is why wouldn’t you have bought GE at $26.69 on June 30 for the long haul, or written Jan-09 puts on that day. The stock is already up +3.6% to $27.66 and a $0.31 dividend will soon be paid.
In fact, I could see the stock possibly falling below $25 (but not 22) before the Bear is over, which would set up the exercise to you at $25, thereby setting your cost base at $22. Then in the next Bull, say within the first phase, by year-end 2009, I can see the PE of GE reverting to at least 14x on a then current estimated earnings of $2.50 for a price of $35. Say I take in four dividends totaling $1.36, my Total Return (TR) for maybe 12 to 16 months investment would be $13.00 + $1.36 = $14.36 divided by $22.00 = +65.3%.
We are discussing a liquid investment in the stock of a world class company. You tell me what percentile that performance would be amongst professional money managers. No, I’ll tell you. It would be in the top 1%.
So, let’s say the growth is just $10 (to 32) plus the $1.36 dividend = $11.36, the TR would be +51.6%. That performance would be, probably, still close to the top 1% of all money managers.
But are my targets of $32 and $35 out of line? If you check Yahoo Finance, you’ll see that the mean target price 12-months out, calculated from the estimates of 13 broker-dealers is $34.50 and the stock opened 2008 at $37.10, so my projections are reasonable.
Moreover, you will see in the Value Line report where the analyst is forecasting an annual TR to be somewhere in the range of 22% to 29%. If you happen to be somebody who says, “show me the money”, this is the money.
Getting back to the company, I often take shots at GE CEO Jeff Immelt, which are probably unfair. I happen to regard the man as a better manager than his predecessor Jack Welch, which is saying something because Jack is a manager who many consider to be the Manager of the Century. But Jack’s legacy involved a lot of garbage insurance units on the books and a corporate lending unit that quickly fell into the trap of the credit balloon. As I see it, and the Value Line analyst agrees, Immelt and team are repositioning the Company to regain the double-digit earnings growth of past years.
If you are a relatively long-term investor, don’t let the weak markets of today scare you from making what are good decisions on the basis of what we know today.
For the bigger picture, if you can take just 15 to 20 candidates from the Cara 100 or wherever, and pull the Value Line reports (go to the public library for the non-Dow 30 or buy the service) and any other report by a leading Wall Street firm on just those candidates. Study them thoroughly by using the time you otherwise would waste by watching GE’s FETV (CNBC) – another shot, but deserved – and you will soon get a sense of better timing for your Buys and Sells.
At the end of the day, you need to run your portfolio like a business. That takes lots of focus and allows very little distraction. But you can do it.
If you look at the VL analysts’ projected annual Total Returns through 2011-2013 for the other three companies, you will see that INTC is the highest. For these three companies, I presently have only Intel (INTC) in the Cara 100.
But as of today, that changes. I am adding IBM (IBM) and removing UBS. Long ago, I recommended selling the Financials, including UBS, but after watching the stock performance, I think the Company is now broken [Brazilian airline GOL may be another!]. I fail to see how UBS will regain its former glory as the world’s leading wealth manager. Like Citigroup (C), I think the Company has to be sliced and diced into smaller pieces and sold off.
IBM, on the other hand, is financially strong, well-positioned internationally, and knocking off returns for shareholder equity (high 20’s and growing) and total capital (high 40’s and growing) that should not be ignored. This one is a winner.
For Intel, 2009 is shaping up to be a much better year for this world leader in the semi-conductor industry. This company is so powerful financially and operations and marketing wise, it’s hard for competitors to gain a foothold unless the market segment is a small one. AMD certainly learned their lesson.
I recall writing a couple years ago that if there was one thing I could do for the Cara Community it would be to shout from a rooftop that Intel was a solid company and the stock should be in the core part of most portfolios. Yes, there was a tough start to 2008, but the March quarter showed that this company is a powerhouse.
As for Hewlett-Packard, the metrics are not bad. In fact, they are pretty good. I admit that CEO Mark Hurd has done a better job that I anticipated. Maybe he can do a better job of integrating Electronic Data systems into the Company than I anticipate. But EDS will help position Hewlett-Packard as a strong competitor in the global services business, with improving metrics going forward. Their earnings this year and next ought to be pretty good. But the dividend sucks. How many more years can they pay just 8 cents a quarter?
No, Hewlett-Packard will not make the Cara 100, although I really have little bad to say about it.
The Dow 30 Company links in chronological order of next reports. I added the Google Finance links, which are superb.
Alcoa [GICS 15, Dow 30]
(AA: Google Finance file)
(AA: Yahoo Finance file)
(AA: StockChart chart)
(AA: Billcara2 chart)
(AA: ADVFN Financial Data)
(AA: Value Line Report Apr. 18: next one is due Jul. 18)
Dupont [GICS 15, Dow 30]
(DD: Google Finance file)
(DD: Yahoo Finance file)
(DD: StockChart chart)
(DD: Billcara2 chart)
(DD: ADVFN Financial Data)
(DD: Value Line Report Apr. 18: next one is due Jul. 18)
Merck [GICS 35, Dow 30]
(MRK: Google Finance file)
(MRK: Yahoo Finance file)
(MRK: StockChart chart)
(MRK: Billcara2 chart)
(MRK: ADVFN Financial Data)
(MRK: Value Line Report Apr. 18: next one is due Jul. 18)
Pfizer [GICS 35, Dow 30]
(PFE: Google Finance file)
(PFE: Yahoo Finance file)
(PFE: StockChart chart)
(PFE: Billcara2 chart)
(PFE: ADVFN Financial Data)
(PFE: Value Line Report Apr. 18: next one is due Jul. 18)
United Technologies [GICS 20, Dow 30, Cara 100]
(UTX: Google Finance file)
(UTX: Yahoo Finance file)
(UTX: StockChart chart)
(UTX: Billcara2 chart)
(UTX: ADVFN Financial Data)
(UTX: Value Line Report Apr. 25: next one is due Jul. 25)
Caterpillar [GICS 20, Dow 30]
(CAT: Google Finance file)
(CAT: Yahoo Finance file)
(CAT: StockChart chart)
(CAT: Billcara2 chart)
(CAT: ADVFN Financial Data)
(CAT: Value Line Report Apr. 25: next one is due Jul. 25)
Coca Cola [GICS 30, Dow 30]
(KO: Google Finance file)
(KO: Yahoo Finance file)
(KO: StockChart chart)
(KO: Billcara2 chart)
(KO: ADVFN Financial Data)
(KO: Value Line Report May 2: next one is due Aug. 1)
Wal-Mart [GICS 30, Dow 30, Cara 100]
(WMT: Google Finance file)
(WMT: Yahoo Finance file)
(WMT: StockChart chart)
(WMT: Billcara2 chart)
(WMT: ADVFN Financial Data)
(WMT: Value Line Report May 9: next one is due Aug. 8)
Disney [GICS 25, Dow 30, Cara 100]
(DIS: Google Finance file)
(DIS: Yahoo Finance file)
(DIS: StockChart chart)
(DIS: Billcara2 chart)
(DIS: ADVFN Financial Data)
(DIS: Value Line Report May 16: next one is due Aug. 15)
3M Company [GICS 20, Dow 30, Cara US 100 June 25-06]
(MMM: Google Finance file)
(MMM: Yahoo Finance file)
(MMM: StockChart chart)
(MMM: Billcara2 chart)
(MMM: ADVFN Financial Data)
(MMM: Value Line Report May 16: next one is due Aug. 15)
American International Group [GICS 40, Dow 30]
(AIG: Google Finance file)
(AIG: Yahoo Finance file)
(AIG: StockChart chart)
(AIG: Billcara2 chart)
(AIG: ADVFN Financial Data)
(AIG: Value Line Report May 23: next one is due Aug. 22)
American Express [GICS 40, Dow 30]
(AXP: Google Finance file)
(AXP: Yahoo Finance file)
(AXP: StockChart chart)
(AXP: Billcara2 chart)
(AXP: ADVFN Financial Data)
(AXP: Value Line Report May 23: next one is due Aug. 22)
Bank of America [GICS 40, Dow 30]
(BAC: Google Finance file)
(BAC: Yahoo Finance file)
(BAC: StockChart chart)
(BAC: Billcara2 chart)
(BAC: ADVFN Financial Data)
(BAC: Value Line Report May 23: next one is due Aug. 22)
Citigroup [GICS 40, Dow 30]
(C: Google Finance file)
(C: Yahoo Finance file)
(C: StockChart chart)
(C: Billcara2 chart)
(C: ADVFN Financial Data)
(C: Value Line Report May 23: next one is due Aug. 22)
JP Morgan [GICS 40, Dow 30]
(JPM: Google Finance file)
(JPM: Yahoo Finance file)
(JPM: StockChart chart)
(JPM: Billcara2 chart)
(JPM: ADVFN Financial Data)
(JPM: Value Line Report May 23: next one is due Aug. 22)
Microsoft [GICS 45, Dow 30]
(MSFT: Google Finance file)
(MSFT: Yahoo Finance file)
(MSFT: StockChart chart)
(MSFT: Billcara2 chart)
(MSFT: ADVFN Financial Data)
(MSFT: Value Line Report May 23: next one is due Aug. 22)
General Motors [GICS 25, Dow 30]
(GM: Google Finance file)
(GM: Yahoo Finance file)
(GM: StockChart chart)
(GM: Billcara2 chart)
(GM: ADVFN Financial Data)
(GM: Value Line Report May 30: next one is due Aug. 29)
Johnson & Johnson [GICS 35, Dow 30, Cara 100]
(JNJ: Google Finance file)
(JNJ: Yahoo Finance fle)
(JNJ: StockChart chart)
(JNJ: Billcara2 chart)
(JNJ: ADVFN Financial Data)
(JNJ: Value Line Report May 30: next one is due Aug. 29)
McDonalds [GICS 30, Dow 30]
(MCD: Google Finance file)
(MCD: Yahoo Finance file)
(MCD: StockChart chart)
(MCD: Billcara2 chart)
(MCD: ADVFN Financial Data)
(MCD: Value Line Report Jun. 6: next one is due Sept. 5)
Chevron Corp [GICS 10, Dow 30]
(CVX: Google Finance file)
(CVX: Yahoo Finance file)
(CVX: StockChart chart)
(CVX: Billcara2 chart)
(CVX: ADVFN Financial Data)
(CVX: Value Line Report Jun. 13: next one is due Sep. 12)
ExxonMobil [GICS 10, Dow 30, Cara 100]
(XOM: Google Finance file)
(XOM: Yahoo Finance file)
(XOM: StockChart chart)
(XOM: Billcara2 chart)
(XOM: ADVFN Financial Data)
(XOM: Value Line Report Jun. 13: next one is due Sep. 12)
Boeing Co [GICS 20, Dow 30. Cara 100]
(BA: Google Finance file)
(BA: Yahoo Finance file)
(BA: StockChart chart)
(BA: Billcara2 chart)
(BA: ADVFN Financial Data)
(BA: Value Line Report Jun. 20: next one is due Sep. 19)
AT&T [GICS 50, Dow 30]
(T: Google Finance file)
(T: Yahoo Finance file)
(T: StockChart chart)
(T: Billcara2 chart)
(T: ADVFN Financial Data)
(T: Value Line Report Jun. 27: next one is due Sep. 26)
Verizon [GICS 50, Dow 30]
(VZ: Google Finance file)
(VZ: Yahoo Finance file)
(VZ: StockChart chart)
(VZ: Billcara2 chart)
(VZ: ADVFN Financial Data)
(VZ: Value Line Report Jun. 27: next one is due Sep. 26)
Procter & Gamble Co. [GICS 30, Dow 30, Cara 100]
(PG: Google Finance file)
(PG: Yahoo Finance file)
(PG: StockChart chart)
(PG: Billcara2 chart)
(PG: ADVFN Financial Data)
(PG: Value Line Report Jul. 4: next one is due Oct. 3)
Home Depot [GICS 25, Dow 30]
(HD: Google Finance file)
(HD: Yahoo Finance file)
(HD: StockChart chart)
(HD: Billcara2 chart)
(HD: ADVFN Financial Data)
(HD: Value Line Report Jul. 4: next one is due Oct. 3)
General Electric [GICS 20, Dow 30, Cara 100]
(GE: Google Finance file)
(GE: Yahoo Finance file)
(GE: StockChart chart)
(GE: Billcara2 chart)
(GE: ADVFN Financial Data)
(GE: Value Line Report Jul. 11: next one is due Oct. 10)
Hewlett-Packard [GICS 45, Dow 30]
(HPQ: Google Finance file)
(HPQ: Yahoo Finance file)
(HPQ: StockChart chart)
(HPQ: Billcara2 chart)
(HPQ: ADVFN Financial Data)
(HPQ: Value Line Report Jul. 11: next one is due Oct. 10)
IBM [GICS 45, Dow 30]
(IBM: Google Finance file)
(IBM: Yahoo Finance file)
(IBM: StockChart chart)
(IBM: Billcara2 chart)
(IBM: ADVFN Financial Data)
(IBM: Value Line Report Jul. 11: next one is due Oct. 10)
Intel [GICS 45, Dow 30, Cara 100]
(INTC: Google Finance file)
(INTC: Yahoo Finance file)
(INTC: StockChart chart)
(INTC: Billcara2 chart)
(INTC: ADVFN Financial Data)
(INTC: Value Line Report Jul. 11: next one is due Oct. 10)
Wrap up:
As you know, trading forex can be a challenge, which is why I decided not to use our own traders for the service we made available to this community. The results for June were about as expected, but for the Monday June 30, we saw the use of leverage that was not acceptable to us, done to pull a losing position into a winning position. That tactic often goes the other way, and I became concerned and called for a complete review.
As I suspected, the results for the past couple weeks are poor and I will follow up with the trader, the broker, and the promoter. In the interim, I pulled the performance graph because I have some concerns about it. A statement will be made within 48 hours, after I have had a chance to personally confer with the people who followed my lead on this.
One thing is certain; I demand excellence in any business activity I pursue. I think that is apparent to the members of this Community. While this comment may have little to do with blogging on the market, it’s on my mind. I have spent two years preparing to roll out a professional service, and that is precisely what will be done…a ‘professional’ service.
About the blog, I am really very pleased that members of the Community have stepped up. On Friday I said I would be travelling, and I didn’t get a lot accomplished on Saturday either. So, I am pleased to say there has been a record set in the discourse this weekend with almost 400 comments. Thank you again.
After the new website and blog platform is introduced (soon), it will be an improvement in many ways, although little changed, which is the way you say you want it.
Have a good one. This week does promise more excitement.
Posted by Posted by Bill Cara on July 13, 2008 07:45:31 PM | Category: Cara Week in Review