Commentary 10/14/2011

Commentary 21st Disconnect between stock prices & Cos

With the recent “crash” in the stock market, those who follow Wall Street’s shenanigans would’ve noticed the massive disconnect between the Marco and Micro economic climate. It’s strange how economists will say we are on the edge of a recession and the CEOs say things are just a bit slower. How can this be?

Equity markets are “supposed” to be driven by the earnings of the underlying companies that these stocks are supposed to represent. It’s therefore a surprise that the market sold off so aggressively while companies reported record earnings in the second quarter of this year ( Q2 2011). Furthermore the cash positions held by these companies have been at record levels for 10 consecutive quarters; according to S&P companies hold almost $1 trillion in cash

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On the Macro-economic side of things firms hoarding cash instead of putting that money to work, building new plants or hiring more workers is not good for the US economy. However, companies have been able to cope with a changing consumer and 9% unemployment. They have been able to deal with that and create record earnings without taking on too much risks or spending the cash that they have. Companies are essentially doing more with less. On the other hand large, multinational companies are benefiting from growth outside of the United States. In 2010, 46% of all the sales from S&P 500 companies were from outside of the United States, according to S&P. And that number is expected to continue to grow. It makes these companies even more resilient against what happens in the U.S.

Unfortunately, in 2011 we saw unrest in North Africa as well as the earthquake and tsunami in Japan, Prior to both of these events, we were talking about 3%+ GDP growth. Unrest in North Africa and the Middle East led to a huge spike in gas prices and when oil prices rise unexpectedly, both consumers and businesses get spooked. Gas prices hit consumers directly in their wallets, and decreased consumer spending is one of the main reasons the economy has gotten off to such a slow start this year.

Investors were in a panic selling zone, and while the stocks have hit the floor of valuation, speculators continue to throw the proverbial baby out with the bath water. However if they would take the time to listen to the CEOs of the companies they continue to short sell then maybe we would be sitting nice and comfortable at Dow 12500.

Week in Review 10-14/10/2011

Date of publish: 14/10/2011

For Financial week: 10-14/10/2011

Written by Matthew McCreath

Week in Review 

Stocks had their steepest drop in two weeks, as fresh European sovereign-debt worries helped knock the market off a 2 ½-month closing high. The tone soured before the opening of U.S. trading after a representative for German Chancellor Angela Merkel said Europe's leaders would be unable to address every sovereign-debt problem at a euro-zone summit on Oct. 23. The Dow Jones Industrial Average on Monday lost 247 points, or 2.13%, to 11397, closing near the session's lows and wiping out all of Friday's gains. The loss pushed the blue-chip index back into negative territory for 2011. The S&P 500-stock index shed 24 points, or 1.94%, to 1201, and the technology-oriented Nasdaq Composite declined 53 points, or 1.98%, to 2615.

Shares rose sharply but failed to recapture steep losses in the previous session, as conflicting reports on Europe's debt crisis whipped the market around during Tuesday's final trading hour. The Dow seesawed from steep losses to big gains in a volatile session before finishing up 180 points, or 1.6%, to 11577. The rally came after the blue-chip index dropped 247 points Monday. The S&P 500-stock index gained 25 points, or 2%, to 1225, led higher by strong gains for financial and energy stocks. The Nasdaq Composite rose 43 points, or 1.6%, to 2657. The market received a jolt higher in the final hour of trading after the Guardian reported France and Germany agreed to increase the size of Europe's rescue package to more than €2 trillion ($2.7 trillion). But the report was almost immediately contradicted by Dow Jones Newswires, which reported European officials are still debating the size of the euro zone's bailout fund.

Stocks dropped as a gloomy assessment of the U.S. economy from the Federal Reserve added to a sharp fall in technology stocks after Apple’s earnings disappointment. The Dow Jones Industrial Average fell 72 points, or 0.6%, to finish at 11504. The S&P 500-stock index lost 15 points, or 1.3%, to 1210, and the Nasdaq Composite shed 53 points, or 2%, to 2604. The Dow spent much of the day in positive territory but quickly sank after the release of the Fed's "beige book" report of domestic economic activity showing investors pared back risk in line with the central bank's cautious take on the economy.

Stocks rose Thursday, zigzagging from losses to gains throughout the session after a series of conflicting headlines on European sovereign debt. The Dow finished up 37.16 points, or 0.3%, to 11542, while the S&P 500-stock index added 5.51, or 0.5%, to 1215. The Nasdaq Composite fell 5 points, or 0.2%, to 2599. Stocks whipped from positive to negative throughout the session. They moved higher midday after French President Nicolas Sarkozy and German Chancellor Angela Merkel issued a joint statement pledging European Union leaders would have a bailout plan in place by Wednesday. Those leaders also called for immediate talks with the private sector over Greek debt. Earlier, stocks had fallen after reports a Sunday European summit could be postponed because of disagreements over how to deploy cash in the Continent's bailout fund.

Stocks rose following another batch of corporate earnings and ahead of this weekend's European Union summit on the sovereign-debt crisis. The Dow gained 226 points, or 2%, to 11768, near session highs during the final trading hour of the day. The gains put the Dow on pace for its fourth straight weekly gain, marking its longest winning streak since January. The measure is up more than 1% this year. The S&P 500-stock index advanced 20 points, or 1.6%, to 1235. The technology-oriented Nasdaq Composite advanced 32 points, or 1.2%, to 2630. Investors remain fixated on how European leaders will combat the debt crisis that has spread to many regions across the euro zone. 

Commentary: CFA vs Common Sense 14/10/11

Date of publish: 10/14/2011

For Financial week: 10-14/10/2011

Written by Matthew McCreath

 Commentary: CFA vs. Common Sense

     I've always wondered this, why is it that a qualified analyst can come on CNBC and I an unqualified viewer can say that he/she is talking utter foolishness. How is this possible? What does he/she have that I can’t learn for myself? Can the average Joe perform better in the financial markets than a licensed portfolio manager? Are you better off paying a professional to run or advise you how to run your money, or can you go it alone?

     It is important to note that there are many hard-working financial professionals out there; people who not only work hard to deliver the best results for their clients but also the best service possible. It is also important to realize that advanced tools can be just as important as instinctive (or acquired) genius. Most financial services firms give their brokers and advisors access to powerful databases and advanced financial planning tools that can help predict future needs or market swings and recommend optimal strategies for any client.

     The most fundamental problem with financial advisors is that they are salesmen first and they are paid as a result. If you want to surpass your advisor in knowledge and aptitude, the most important thing to do is read. There is no end in the learning process for an investor, and likewise no end to what can be learned.

     There is no shortage of reading material when it comes to learning about markets, companies and industries. An investor can learn a lot about a company simply from freely-available reports, business publications, as well as various articles found freely on the internet. If the average Joe hit the books while they hit the golf course, it doesn't take long to catch up.

     Many people find investing to be a mystery, an inconvenience or simply do not want to take on the responsibility of managing their own money. I think many people are not only able to match the abilities of their advisors but outperform them and should take more responsibility for their money. 

Week in Review 14/10/11

Date of publish: 14/10/2011

For Financial week: 10-14/10/2011

Written by Matthew McCreath

Week in Review 

     Stocks soared, on Monday, as investors put their faith in a resolution to Europe's debt crisis and the ability of U.S. companies to power through an uncertain economy. The Dow Jones Industrial Average jumped 330 points, or almost 3%, to 11433, its biggest one-day surge in two months.  Monday's gains came after German and French leaders said they were determined to present a "comprehensive package" by the end of October that would include a plan to recapitalize euro-zone banks as needed and address the Continent's debt crisis.

     U.S. stock benchmarks ended a low-volume session close to the flat line Tuesday, with investors unwilling to make big bets ahead of an unofficial start to the earnings season and Slovakia’s vote on the euro zone’s bailout fund. The Dow Jones Industrial Average finished the day 17 points, or 0.2%, lower at 11,417. The S&P 500 Index inched up 0.65 point, or 0.1%, to 1,196. Utilities and telecommunication shares were hit the hardest, while technology stocks outperformed among its 10 industry groups. The Nasdaq Composite Index   climbed 17 points, or 0.7%, to 2,583.

     Stocks finished with strong gains, Wednesday, amid optimism about plans to recapitalize euro-zone banks. The Dow Jones Industrial Average advanced 103 points, or 0.9%, at 11519. The Standard & Poor's 500-stock index climbed 12 points, or 1%, to 1207, and the Nasdaq Composite advanced 22 points, or 0.8%, to 2605. With the gains, the Dow is up 5.6% this month, the fifth-best start to October since 1900, and is down just 0.5% on the year. During Wednesday's session, the Dow rose 209 points, putting it into positive territory for the year, before dropping in the final hour. The European Commission Wednesday set out its plan to shore up European banks in the face of the region's sovereign-debt crisis. In addition, Slovak lawmakers regrouped to broker a deal that would remove the remaining obstacle to enhancing the euro zone's government bailout fund.

     The financial sector led stocks lower, Thursday, following less-than-stellar results from J.P. Morgan Chase, while strength in technology shares limited the broader market's losses. The Dow Jones Industrial Average fell 41 points, or 0.4%, to 11478, after dropping as much as 141 points on Thursday. It marked the Dow's second drop in the last three sessions and biggest decline since Oct. 3. The blue-chip index still is up 5.2% this month and briefly moved this week into positive territory for the year before pulling back. It is down 0.9% this year. The S&P 500-stock index eased 4 points, or 0.3%, to 1204. Financial and industrial stocks registered the biggest declines, while technology stocks rose. Meanwhile, the Nasdaq Composite rose 16 points, or 0.6%, to 2620, marking its fourth straight gain. The technology-oriented index has gained 12% over the last eight trading sessions.

     Stocks rose Friday, driving the Dow Jones Industrial Average to its longest weekly winning streak in six months and pushing both the Dow and the Nasdaq Composite into positive territory for the year. The Dow industrials climbed 166 points, or 1.5%, at 11644, near the session high, en route to its first string of three straight weekly gains since the three-week period ending April 8. The S&P 500-stock index gained 21 points, or 1.7%, to 1224.58, with energy, material and technology stocks in the lead. The Nasdaq Composite advanced 48 points, or 1.8%, to 2668. Stocks rose amid strong U.S. retail-sales data, signs of progress in Europe's sovereign-debt crisis and stellar results from Google, all of which helped set the positive tone.

RIP Steve Jobs

I just read an article on ABC saying that Steve Jobs has died at 56. Its weird, I feel that even though his body has become lifeless, future generations will remember him every time they open their mac books, touch their iPad or listen to music on their iPods. Its corny, I know, but when you look at the legacy of Mr Jobs you look into one of the greatest pioneers, innovators and CEOs of our generation and he will be greatly missed. I send my condolences to the friends and family of Steve Jobs, we have all lost a great human being.

Stocks are cheap.. but they'll stay cheap

I just wanted to write something quick here. I'm watching kudlow report right now and one of the analyst just said "stocks are cheap but they have been cheap and they probably will stay cheap".
That statement just defines this market. Now I think the highs for the markets are in for the year but until we see a big solution in Europe the markets will just muddle along or continue to drift lower. Sad but true.

Week in Review 30/9/2011

Date of publish: 30/9/2011

For Financial week: 26-30/9/2011

Written by Matthew McCreath

Week in Review 

   

   Stocks jumped and blue chips staged their biggest percentage gain in more than a month, as investors bet that efforts will be taken to stem Europe's sovereign-debt crisis. The Dow climbed 272 points, to 11044, clawing back more than one-third of last week's losses. The S&P 500-stock index gained 27 points, to 1163. The Nasdaq Composite was the laggard, gaining 33 points, to 2517, after spending much of the day in negative territory.  Stocks closed near session highs following reports that a "special purpose vehicle" to help stem Europe's debt contagion was in advanced development. Those reports followed an ECB official's endorsement of a more aggressive bailout plan and another official's remark that the ECB can't rule out an interest-rate cut.

   A sharp afternoon downdraft prompted U.S. stocks to erase more than half of their earlier gains, as investors fretted over a report that highlighted a potential split in the euro zone over the terms of Greece's second bailout. The Dow finished the session up 147 points, to 11191, after surging as much as 325 points. The S&P 500-stock index gained 12 points, to 1175. The Nasdaq Composite closed up 30 points, to 2547.

   U.S. stocks snapped a three-day winning streak, sinking as a drop in commodities prices added to concerns about policymakers' ability to contain Europe's debt crisis. The Dow fell 180 points, to 11011. The S&P 500-stock index lost 24 points, at 1151, while the Nasdaq Composite shed 55 points, to 2492. The moves came on a day when Finland voted to approve changes to the euro-zone bailout fund, after leaders raised concerns earlier this month that they would demand collateral as a precondition for participation. Germany votes on the changes Thursday. The changes need to be approved by all 17 euro-zone members to take effect.

   Stocks erased a strong rally but still finished off their worst levels Thursday in thin, choppy trading as the Dow and S&P rebounded from afternoon lows. Stocks started the session sharply higher following several robust economic news and after Germany's parliament passed a crucial vote which approved the reforms to the EFSF. The Dow gained 143 points, or 1.30 percent, to finish at 11,154, rebounding from its afternoon lows. The S&P 500 rose 9 points, or 0.81 percent, to end at 1,160. The Nasdaq slid 11 points, or 0.43 percent, to close at 2,481.

   Stocks declined, setting the market up to close the worst quarter in years on a down note, with glum overseas economic reports weighing on investor sentiment. The Dow shed 156 points, to 10999, in Friday afternoon trading. The Dow has lost 10% for the quarter as of Thursday's close, the biggest percentage decline since the first quarter of 2009 and the worst point drop since the nadir of the financial crisis in late 2008. The S&P 500-stock index shed 18 points, to 1143, while the Nasdaq Composite slid 44 points, to 2438. Those two indexes also are closing out their worst quarterly performance in years.