Tuesday, June 26, 2007

Some Observations

And the volatility continues... It has been something that traders can count on during the past few days. It's mostly due to the fact that there is little moving this market, and people are very unsure about how to play it. Some interesting observations:

-Blackstone (BX) is trading below its IPO price. This could be a sign that the M&A market is drying up. Also, investors aren't excited about potential tax changes that could hurt Blackstone.

-Commodities dropping; specifically oil and gold. The fed is concerned about high commodity prices and what they could do to inflation. This could affect their decision on rates.

-The housing market continues to look weak nationwide. There are still some strong pockets, but the major markets are seeing some decline.

-Mortgage and credit issues could be of most importance if rates are raised. Banks are going to be looking for their money and if rates are higher, it could cause trouble.


One thing to remember is that we are now operating on almost a completely global market, with many key players. This carries a lot of significance and changes in other countries need to be regarded with more weight.

An interesting article from Bloomberg regarding the Chinese market can be read here.

Wednesday, June 20, 2007

Blackstone IPO

The much anticipated Blackstone IPO will hit the market later this week. This will finally allow the "main street" investor to get his hands on one of the biggest and best private equity firms out there. Sounds great, right? I can't help but be skeptical here. Blackstone has been one of the major players of the M&A boom that has driven this bull market. If the upcoming outlook were so great, then why would ownership want to give up a stake? It seems like a case of ownership being very happy with what has transpired in the past few years, and they're going to use that great reputation to pull off another deal, the IPO.

price the same, and move the Blackstone and other private equity partnerships have come under fire because of legislation that has been introduced to curb their favorable tax treatment. This has caused Wall Street to wonder if the valuation will be lower than anticipated. So what do they do? They keep the IPO price the same, and move the IPO date up. I have no problem with not moving the price. The taxation legislation may not even occur, and their valuation shouldn't necessarily be changed on something that isn't for sure. However, I am a little leery about moving the date up. Its as if they are trying to "get their money and run" before things get any worse. They also could be anticipating a rate hike which could scare off future M&A activity and lessen the potential value of their company.

Overall, I think the IPO will be well received, as there isn't much for publicly traded companies like theirs. Everyone has wanted to get their hands on this type of investment over the past few years, and will probably buy this stock up out of the gate.

Tuesday, June 19, 2007

Another ETF

I'm adding another ETF to the portfolio, SPDR Industrials fund (XLI). I feel it is really well positioned, and is diversified to capture growth. Its largest holding is General Electric (GE), whom I like for their exposure to green energy. Also holds United Technologies (UTX) and Textron (TXT), which I like for their exposure to the vastly growing private jet market.

Again, I'm a fan of these funds because they allow you to diversify into sectors easily, while taking less risks than loading up on individual stocks.

Monday, June 18, 2007

Little Action

Not much driving the market today. Crude oil climbed to its highest levels in a year, and oil stocks have continued their advance.

Very little in the way of economic data out. Homebuilders brought out poor results, but that was to be expected.

Fairly light on volume today as well. After the past week of volatility, the change up was due.

Most commentary I'm seeing is bullish short-term.

Friday, June 15, 2007

Lining Up

Everything lined up for the rally to continue today. Inflation numbers came in better than expected, and this was huge. Consequently, bond yields dropped, and stocks have risen pretty steady across the board.

The volatility this week has been interesting, and it can be contributed to conflicting views coming out on interest rates and inflation, as well as lots of options activity. We should settle in a little more next week, and this will provide a good indicator of where we'll be heading over the summer.

At this point, I'm still a little cautious. I'm thinking we'll still see some volatility, and this will allow investors to make some money. So if you've done your research, you can catch some swings.

Have a great weekend!

Wednesday, June 13, 2007

Wednesday - Moving Up

Stocks made a big reversal today, with the major indexes finishing up 1 to 1.5 percent. A couple of things here:

A) Bond yields backed off. Investors were getting very cautious with the recent trend, and applauded this move.

B) The Fed came out with some statements. They said they see "moderate growth." This is probably the best thing they could have said. If things had accelerated too much, investors would be expecting a rate hike. They are talking about consumer spending staying up. I think this is driven more on high-end retailers, rather than across the board.

C) This is options expiration week, and we typically see increased volatility. Look at yesterday, down 130, today up 180.

D) I think investors are really hoping that this bull market isn't over, and are looking for any positive news to buy back in.

I'm still pretty strong on energy stocks, as I've been for the past couple of months. If we see more volatility, I see people moving into more defensive names. So, if we see a drop, I may trim some names in the portfolio like Echostar (DISH) and Garmin (GRMN).

Tuesday, June 12, 2007

More Downward Pressure

Investors are staying defensive, and stocks are being hurt by rising bond yields. If interest rates rise, which is looks like they might, it could seriously hurt the all the M&A activity that has driven this strong market. So many of the deals have been heavily debt-financed, and higher rates could really hurt the companies involved.

The big investment banks are showing positive numbers, most likely from all the deals they've been brokering last quarter. Lehman (LEH) and Goldman (GS) are both moving higher today, even though the market is trading lower.

I'm still in favor of the ETF's that are inverse to the market as a way to make money on any drops. (DOG) and (DXD) are short the DOW.

If rate volatility levels off and the Fed indicates that it won't raise rates, then I would see that as a good time to find some stocks to buy. In the near term, I'd stick with the momentum.

Friday, June 8, 2007

Reversal

The markets showed some resiliency today, with the Dow advancing 157 following the 400 point drop over the past three days. A drop in oil prices helped stocks, as well as some level trading in the bond markets.

Consumer confidence came in low, mostly due to higher gas prices. Next week will be very interesting to see if we can advance higher, or if we'll see more selling. I think any comments coming out of the Fed pertaining to interest rates will have the greatest effect.

Have a great weekend!

Thursday, June 7, 2007

Selling Continues

The selling is continuing today, and has been pretty steady. Investors are finally taking into the account of rising inflation, and the possibility of interest rates being raised. With interest rates higher, it lowers liquidity. Liquidity is what has led to the large amounts of M&A activity that has caused this bull market to begin with. So decreased liquidity could spell the end of the billions of dollars in buyouts and takeovers.

Increased rates will also put more pressure on consumers, which is the other area in which I have concern. The credit bubble that already exists could be squeezed if rates climb.

I was really intrigued by the "full house sell" issue by Morgan Stanley's Teun Draaisma. The last time they issued this, it was April 2002, and has only been issued 5 times since 1980, with a subsequent drop in the market each time.

I'll continue to keep an eye out for new picks, but am pretty hesitant to buy into this market until we see stability.

Wednesday, June 6, 2007

Healthy Sell Off

The last two days have been interesting. Bernanke says inflation is still in check, so we may not cut rates. Then Europe raises rates, and investors are responding negatively. So stocks fail to respond when China drops almost 20 percent in a week, but drop on interest rate fears?

I think that we are in decent shape, but the health of the economy has been overstated. The past week or two, all I could read about is how cheap stocks still are. That may still be true, but you cannot overlook the potential downside issues either. Inflation, credit and lending problems, budget deficits, and lots of cheap money.

In this climate, I think its good to stay defensive, while still looking for potential bargains, especially if we trade lower.

Monday, June 4, 2007

Wellpoint

I think Wellpoint (WLP) is looking to be in good shape. The health insurance company is in an industry that is poised to see large growth with the baby-boom generation retiring, and living longer than ever. They are a company that is similar, in my opinion, to United Heath (UNH), but are trading cheaper. In his last disclosure, Warren Buffett said he's been buying both of these companies.

I've followed United before, and while they are considered the tops in that industry, they have taken some heat in the past year, particularly with their CEO and alleged options scandals.

I like both companies, but favor Wellpoint because I see more room to the upside.

Friday, June 1, 2007

Continued Positivity

Lots of favorable news out today. The jobs report, personal income, auto sales, and pending home sales. Its always difficult to know exactly what the numbers mean, but when they beat estimates, its usually accepted well. Stocks have continued their nice run, even with the choppy trading in Chinese markets.

Portfolio holding Garmin (GRMN) has risen almost 10% in the past week. We've also seen some good results from Frontier (FTO), Apple (AAPL), and CNOOC (CEO).

Even if you're feeling somewhat bearish, like I have, its important to stay with the trend, whatever it may be. Money market fund balances have been decreasing, and that usually is a sign that retail or individual investors are starting to pour into the markets. This is helping to continue our pace, along with outrageous amounts of M&A activity.

I'm updating the portfolio results, so check the post in the upper right corner to see them.

Have a great weekend!