Friday, February 29, 2008

Tough Friday

Not much holding stocks up right now. The oversold conditions that drove stocks up during the past week has worn out. The rally did allow me to get a better entry point for the Ultrashort Russell 2000 ETF (TWM). Beyond that, I'm not buying right now. Although Bernanke, Paulson and friends are doing their best to prop stock prices up, I'm convinced we need to let the market do its thing. Any intervention will be temporary and will make things worse later.

I'm not excited about the anti-free trade protectionist talk being displayed by presidential candidates. Politicians don't realize that things have changed in the global economy. We can't just insulate ourselves anymore and rely on our own resources. The US, which used to account for about half of global GDP, is now more like 1/3. Competition is much greater now, and the US must be able to adapt. The easy thing to say right now is "stop shipping jobs overseas." The US needs to re-think our priorities. We need to be the leader in technology, science and medicine. We can't focus on those manufacturing jobs. Our unions and workers are demanding too much, and its choking the big manufacturing companies (Ford, GM).

I also think we can be the leader in alternative energy technology. We are behind in that race as other countries are leading the way. But we have the resources and technology to take the lead if we have the will. If oil continues its climb, this will happen.

Beyond that, keep an eye on things, do your research and identify stocks and the entry point you're looking for. No hurry.

Tuesday, February 26, 2008

Consumers Paying the Price

Inflation has been one of the issues concerning me most. It appears that the consumer is going to be hit with substantial food price inflation (even after last year's rise). Add high fuel costs and the fact that most people's largest investment, their house, has been dropping in value, its a tough time for consumers right now.

PPI is up 7.4% year over year. It is going to be very hard for Bernanke to sell another rate cut. Over the past six months, they've been able to shuffle numbers and say that inflation was kept in check which allowed for rate cuts. Now, there's no telling what will happen to rates. Although Bernanke must be under big pressure politically to help the markets. This is an election year, and Bernanke want's to get in good with the new president so he can keep his office.

Boeing (BA) looks fairly attractive here. The next few years should be solid as they roll out the 787's. I also continue to like oil service stocks. Noble (NE), Schlumberger (SLB), and also take a look at National Oilwell Varco (NOV). They provide cranes and other services to offshore rigs which is a booming market right now.

Disclosure: Author owns NE.

Tuesday, February 19, 2008

Uncovering Credit Suisse

Credit Suisse announced write-downs of 2.8 billion today, on what they call "pricing errors" of their assets by their traders. Whats troubling to me about this is that they reported earnings less than a week ago, and no mention of this? You can't tell me they just came up with it this morning. This is a company that has been praised for its ability to avoid CDO and sub-prime problems. I'm not that concerned if they took some losses, but more concerned with their transparency here. Maybe these balance sheets are that much of a mystery, and in that case, how could investors have much confidence going forward in the next couple of quarters? As someone looking to buy the stock, I'll actually benefit from this uncertainty as the stock will probably be marked down even further.

This also comes on the heals of Qatar disclosing that they are building a position in the stock last week. I wonder how they are feeling on the news of this report?

Thursday, February 14, 2008

Market Drifting

The market appears destined to drift for awhile. We aren't necessarily in overbought or oversold conditions right now. Bernanke's testimony didn't do a whole lot for stocks. If he would have proclaimed that things were settling down, the market would have shot up. But risks remain ahead. There is still no sign of a bottom in housing nationwide.

Credit Suisse (CS) is a stock I've been watching for quite awhile, but haven't pulled the trigger on yet. They've appeared to navigate the past couple of quarters better than most, and definitely better than rival UBS. There will be headwinds for banks in 2008, but Credit Suisse is pretty well positioned. In a time when many banks are cutting dividends, they just upped theirs. The stock is trading below 1.5 times book value. The nice thing going for banks right now is that expectations have been lowered drastically, meaning it will be more likely for them to outperform.

Wednesday, February 13, 2008

Some Portfolio Changes

Some interesting things going on in the market right now. We're seeing some strength from retail numbers, and Buffett's investment helped investor sentiment. I'm interested in a few new moves in the blog-tracker portfolio:

I'm selling the Short-Financial ETF, for a 23.77% gain. I think money is going to start flowing back into financial stocks, but it will be gradual.

I'm also selling the Short ETF's for the Dow. DOG gained 6.72% and DXD gained 8.93%. Large cap stocks will probably outperform small cap.

So, I'm going to short the Russell 2000 index. Symbol TWM.

I'm going long Japanese Yen, as a hedge against the carry trade potentially reversing. Symbol FXY.

I'm buying ishares emerging market index fund. Symbol EEM.

I'm adding to current holding Noble Corp. Symbol NE. The outlook remains strong for them, and I feel they have advantages in two key areas 1)Deepwater and 2)International (non Gulf of Mexico) markets. They also trade cheaper relative to competitors despite higher profit margins and stronger growth.

I'm buying Biogen (BIIB) and Gilead (GILD) as well.

That's it for now.

Disclosure: Long NE, DXD

Tuesday, February 12, 2008

The Rush to Blame

One thing that bugs me about our culture today is our need to quantify everything. If something happens, someone must be blamed for it. This market we're in is no different. If the market is going down, it must be somebody's fault, right? No. Markets need corrections to be healthy. People are always losing sight of the big picture. So the Fed continues to cut rates, and the government gives us a stimulus check. But are they really needed? Yes, there have been problems in the credit and mortgage businesses. Lenders made bad loans, and they should pay the price. People made poor decisions in getting into houses they can't afford. They should not be bailed out for that. And this recent movement by the media encouraging people to walk away from their houses? Yikes.

Look at Buffett for example. He's had enormous success over the years. He's told anyone who asks what the secrets are to being a successful investor. But no one really listens. Investors love to get tied into day to day price movements. So of course he's buying when he can get his hands on assets at significant discounts. As investors, we should try to ignore the noise, and focus on the fundamentals. Look for strong companies with potential to grow earnings that are trading at discounts because of overall weakness in the market. Have a great day.

Friday, February 8, 2008

Oil Will Rebound

Oil stocks have finally reversed the downward trend. They've been falling on fear of a global economic slowdown, and the lack of demand that would bring. I don't think this will be the case. The growing emerging markets haven't showed signs of slowing, even though their markets have corrected. The downside risk for oil stocks is that a pessimistic US market will assign them lower P/E multiples because of the illusion of lower demand, not the lack of demand itself.

Materials and resource stocks will continue to do well if the market holds up. If a bear market takes over, there will be few stocks that can perform very well. I'd continue to look at Oil, Natural Gas (which could get bigger in the US as it burns cleaner), gold and metals, and water.

I'd be a buyer of Schlumberger (SLB) here. The stock has been given a 20% discount. A nice article was written on Barron's online this morning. They are the best oil services company out there and the outlook for that buisness should be strong for the next few years.

Tuesday, February 5, 2008

Good News for Global Markets

I'm listening to the Manitowoc (MTW) conference call this morning. They reported a great quarter, and are saying 2008 will be even better. The key points that I was listening for were all discussed. According to the CEO, demand for their cranes in expanding global markets has shown no sign of slowing. None. Demand looks strong until at least the end of the decade. India, China, and the Middle East (specifically Dubai) are all purchasing cranes and building infrastructure as fast as they can.

This to me is great news for the global economy. Looking at crane demand is a great way to look ahead as cranes are bought for future projects, and estimates for these products can look ahead more than others.

As far as the stock market goes, I see stocks dropping near term. Sentiment is still so negative, and that will take some time to subside. In the mean time, I'm sticking to core positions and waiting for stocks I like to become more attractively valued.

Monday, February 4, 2008

Quite an Upset

The Super Bowl turned out quite surprising, with the Giants pulling off the big upset. Will this help the markets? Well, it will put people in New York in a good mood, but beyond that, I don't see a connection. I see the market struggling to find direction for a little while. Corporate earnings will give us the most data now. I think the theory of "slower growth in the first half of 2008, and picking up later in the year" is starting to look like what may be happening.

In earnings calls, the executives appear to be bracing for a US slowdown, and thus are keeping expectations lower. This helps investors believe it or not. The multinationals are also saying there is no sign of an overseas slowdown, which is also positive. Keep in mind that the US is only 25% of the world market, which is less than in previous years. So if the rest of the world is doing well, its likely to hold our market up rather than the US drag the world market down. When the US market was 1/3 or more of the global economy, it had a bigger effect. As investors we have to look at the big picture now more than ever.

Friday, February 1, 2008

Microsoft-Yahoo Thoughts

I knew Bill Gates pledged to give away billions of dollars, but this isn't quite what I had in mind. To me this in another move of desperation by Microsoft. They haven't been able to compete creatively with the Google's and Apple's of the world. Quite frankly, neither has Yahoo, so maybe its a good match. It was just like when Microsoft overpaid for a minuscule portion of Facebook. Google's CEO says social networking sites are having trouble monetizing. It just baffles me that with all of Microsoft's resources, they can't compete with Google in the creative realm.

For Yahoo shareholders, its kind of a bailout. They saw there company going backwards for awhile, and the share price dropped. I still think they could have turned it around, but maybe joining with Microsoft will do the trick.

Microsoft had to do something, because they have too much money and power to continue to not compete in the search world. I'd say Google is still the best stock to own here, and I'd buy if it continues lower amongst market volatility. And how about a Google-Apple merger? That would be interesting.