Thursday, November 20, 2008

What's Causing These Intra-Day Market Swings

I talked about whats moving the market in yesterday's post. I just wanted to pass along an opinion piece in the Journal today that basically says the same thing with a bit more detail. Its by Andy Kessler, and you can find it here.

From a technical standpoint, we appeared to break through the resistance levels near 8000 on the Dow with this morning's sell off. But we've since moved higher, and I wouldn't be surprised to again see more of the same action. Re-test market lows, and then bounce. Its been fairly predictable if you're looking for short-term patterns to trade off of.

Wednesday, November 19, 2008

Panic Selling a Good Time to Buy

Historically, these periods of panic selling have proven to be excellent times to buy stocks. Right now we are not only seeing panic selling, which actually took place mostly last month, but forced selling. I think its more forced selling right now. Hedge funds and mutual funds are seeing massive redemptions, and many margin calls for individuals. During these periods the fundamentals get largely ignored. I heard Jim Rogers talking about this being a big factor in the commodities sell-off, and why this is a nice time to buy. He said commodities typically bottom first, and do well during periods of economic weakness as there is low supply. I can agree with that.

I'm still not touching bank stocks. Like I've said before, these companies have eroded any competitive advantages they may have had, and this will impact their earnings for many years.

I'm looking at a few stocks here. Eaton (ETN) is an industrial electrical company trading at 5x earnings and less than 1x book value. They have improved their business and balance sheet to preform well not on a cyclical basis but secular. They're working hard on energy efficiency, and I see a lot of money being spent under the new administration updating our power grid and increasing efficiency. If you need any further convincing, Warren Buffett has been buying this stock.

Same holds true for Swiss giant ABB (ABB). I've held this stock awhile, and under $10, where it closed today, its a steal.

I'd also dabble in some companies with no debt. Although they aren't immune from weakness in the economy, they don't have to worry about funding their operations by borrowing money, which is tough to come by right now. I picked up some Google (GOOG) today (they're sitting on $14bil in cash and no debt). I'm also looking to buy a little bit of T Rowe Price Stock (TROW). Again, earnings will be difficult here as money is being pulled from their funds, but they have a great company, no debt, and the market always gives this stock a premium, which should help it to recover quicker than many other stocks. Plus, a 3% dividend.

Its not a great economy, but if you're willing to holding through some ups and downs, its a pretty good time to buy stocks. But avoid the urge to buy banks or other trouble companies.

Friday, November 14, 2008

The Problem With Big Government and Bailouts

Now that the bailout has has some time to sink in, we're seeing some of its effects. As expected, the government is providing little to no oversight and transparency into where the money is going.

-Excerpt from Washington Post article-

"In the six weeks since lawmakers approved the Treasury's massive bailout of financial firms, the government has poured money into the country's largest banks, recruited smaller banks into the program and repeatedly widened its scope to cover yet other types of businesses, from insurers to consumer lenders.

Along the way, the Bush administration has committed $290 billion of the $700 billion rescue package.

Yet for all this activity, no formal action has been taken to fill the independent oversight posts established by Congress when it approved the bailout to prevent corruption and government waste. Nor has the first monitoring report required by lawmakers been completed, though the initial deadline has passed.

"It's a mess," said Eric M. Thorson, the Treasury Department's inspector general, who has been working to oversee the bailout program until the newly created position of special inspector general is filled. "I don't think anyone understands right now how we're going to do proper oversight of this thing."

It was interesting to see the rush of all the companies who tried to get into the government program of buying companies common stock. Not just big banks, but insurance companies, regional banks, and other questionable industries. GE? I guess they have a finance wing. In my opinion, bailouts don't work. The government will continue to waste taxpayer money as long as we allow it.

Link to the complete article.

Thursday, November 13, 2008

Some Essential Reading

One of my favorite authors, Michael Lewis, writes for Portfolio Magazine, and has an excellent new piece out. If you're interested in how this whole mess began, this provides a nice viewpoint. Click here for the article.

Wednesday, November 5, 2008

Some Thoughts on the Election

A truly historic night in America. I don't need to recount the events, but I'd like to talk about what it means for investors and the market. The big positive here is the inspiration this victory is appearing to give many Americans. Confidence in the economy and our country has been waning, and its an essential element if we are to thrive.

It doesn't do anything to change the economic situation we are in however. There are many challenges ahead. I'm truly hoping the next administration realizes the problems with carrying massive deficits and encouraging Americans to do the same. It has happened before, and, like this time, it always ends badly. Obama's appointments to cabinet posts and other positions, specifically Secretary of the Treasury, and the next Fed Chairman, will carry monumental importance.

I see the market stabilizing and potentially rallying in the short term. The market hates uncertainty. Now that the big question mark is out the window, things can settle down a bit. But that can't change a tough economic environment. It will take some time before profits and the market can make substaintial moves.

Its the beginning of a new chapter. Its up to us how it plays out. So lets be optimistic and realize great success!