http://www.247investor.com/ en Copyright 2010 2010-02-08T19:00:40-05:00 http://www.247investor.com/expert_investment_advice/archive/rooting_for_the_underdog/ http://www.247investor.com/expert_investment_advice/archive/rooting_for_the_underdog/#2442 What a great Super Bowl game! I have to admit, I was pulling for the Saints, but mainly because of what the Saints mean for that city. I’m sure we all remember the horrible aftermath of hurricane Katrina. The very existence of New Orleans was in question. The Saints considered moving, and I recall suggestions that only the French Quarter be saved and made into a corporate convention amusement park. Of course, that would have been an absurd commercialization of a proud and rich heritage. That New Orleans has come back to resemble the city it was before Katrina is nothing short of miraculous, and now the people of New Orleans have a Super Bowl trophy to crown their achievement. Congratulations, New Orleans and the Saints. *****It’s tempting to extend the metaphor of New Orleans to the United States as we rebuild after the financial crisis. Of course, I have no doubt that we will recover. But there will likely be no single event that crowns the recovery like the Lombardi Trophy does for New Orleans. And besides, we’re investors. It is our desire to be properly positioned for a growth in stock valuations, all the while avoiding the pitfalls of overvalued stocks and worsening economic conditions.  Clearly, investors have been pondering the potential of weaker economy as some stimulus policies end, Europe faces debt problems and China moves to slow its economy. Bloomberg reports that investors pulled $9 billion out of global equity funds during the last week of January. And investors have bet heavily on an extended sell-off as evidenced by huge volumes of put option activity. At the same time, 73% of S&P 500 companies have beaten 4th quarter earnings expectations. That’s the best performance since 1993. Strong earnings, coupled with the recent 7.3% decline, have left the P/E for the S&P 500 at 18, down from 24. The forward P/E, based on future earnings expectations, is below 13. Expert Investment Advice 2010-02-08T18:00:40-05:00 http://www.247investor.com/expert_investment_advice/archive/unemplyment_falls_and_so_do_stocks/ http://www.247investor.com/expert_investment_advice/archive/unemplyment_falls_and_so_do_stocks/#2440 Yesterday’s decline reversed the rally we enjoyed to start the week. The S&P 500 is now below support at 1071. Is that a death knell? No. But it’s not good, either. Mounting debt problems in Greece, Spain and Portugal are spooking investors. Oil prices are lower as investors worry the global recovery isn’t gaining momentum. The Labor Department reported that companies cut 20,000 in January. New unemployment claims also rose. But somehow, the unemployment rate fell to 9.7%. I’m not going to call that a "damn lie", but statistics don’t always tell the whole truth. ***We’ve noted frequently in Daily Profit that we can expect to see some pretty wild swings in the data as the housing market and unemployment rate bottom. One month’s positive data gets revised lower, and then the next month’s negative data gets revised higher. There’s no doubt the economy is improving, but is it happening fast enough? And perhaps more importantly, where will the base-line be? An unemployment rate around 4%-5% used to be the norm. We’re certainly looking at a higher base for unemployment over the next few years. GDP growth will be lower. Investors will probably support lower P/E ratios and levels for the major indices. That’s not a disaster, but it does mean you’ll need to be focused on value and not afraid to take profits when you have them Expert Investment Advice 2010-02-05T15:59:13-05:00 http://www.247investor.com/expert_investment_advice/archive/the_case_for_coal/ http://www.247investor.com/expert_investment_advice/archive/the_case_for_coal/#2438 It’s quite a conundrum. America spent around $475 billion for foreign oil in 2008 (2009 numbers are not complete yet, although the total is certainly projected to be lower). It’s clear that electric powered battery technology for cars would allow us to keep more U.S. dollars at home, improve the trade deficit and provide manufacturing and other jobs, too. We have enough sunlight, wind, natural gas, and coal to generate the power it would take to transition to domestically supported power generation. The long-term benefits are obvious. Wind and solar installations have an upfront cost, but pay for themselves over time. Natural gas and even coal are domestic resources that can and should be leveraged to allow us to be more energy independent.  But getting to the point of energy independence is a difficult path. *****It’s easy to look at that $475 billion figure and say if we invested that into the power generation economy, we’d have efficient battery technology for electric cars and plenty of new manufacturing jobs. However, that simple conclusion totally ignores the economics of wind and solar generation. First Solar (Nasdaq: FSLR) is one of the most successful American solar companies. Based in Tempe, Arizona the company sold nearly $2 billion of its thin-cell solar panel equipment over the last year. Demand is so strong, that First Solar is expanding its manufacturing capacity to 1,802 megawatts by 2012 (a megawatt can power about 800 homes). Sounds great. Should provide a lot of jobs, at least in Malaysia, where most of First Solar’s plants are. There should be no doubt that one of the keys to any solar company’s success is cost. Solar equipment has to be produced at a cost that allows it to be competitive with current energy sources. In China, the minimum wage works out to $141 dollars a month. In Malaysia, there is no minimum wage. Here in the U.S., minimum wage will pay you $1,320 a week. I think we can all agree that even that comparatively high wage isn’t particularly attractive to American workers. And it should also be clear that the success of solar energy depends on cheap manufacturing costs. Expert Investment Advice 2010-02-04T20:06:35-05:00 http://www.247investor.com/expert_investment_advice/archive/the_forecast_for_2010_looks_like_volatility/ http://www.247investor.com/expert_investment_advice/archive/the_forecast_for_2010_looks_like_volatility/#2436 Wow. Two strong rallies to kick off February. It’s great to see some buying interest after January’s sell-off. But I would caution that 2010 will be more volatile than the final 9 months of 2009, when stocks were on a one-way trip higher. You could argue that stocks are overvalued based on index P/E levels. The trailing P/E for the S&P 500 is 21. At the same time, companies are once again beating earnings estimates. Business is better than analysts expected. The forward P/E for the S&P 500 is 14. That’s based on analysts’ expectations of 2010 earnings. If analysts are once again low-balling the numbers, then the S&P 500 may actually be cheap. But if unemployment continues to weaken, or if banks don’t loosen up lending, or if the housing market doesn’t improve, then perhaps stocks are expensive. Expert Investment Advice 2010-02-03T18:07:57-05:00 http://www.247investor.com/expert_investment_advice/archive/when_you_hear_hoof_beats/ http://www.247investor.com/expert_investment_advice/archive/when_you_hear_hoof_beats/#2434 It sure was nice to see stocks make a nice move higher yesterday. Especially after I came out yesterday and said Dow 10,000 and S&P 500 1,071 were support points. It’s also interesting that this advance came on the first day of February. Recall that the positive GDP surprise came on Friday, the last trading day of January. Investors were not interested in buying stocks in January. But now that it’s February, the buyers are back. It might seem strange, but mutual funds and other institutional investors don’t base their buy and sell decisions solely on making money. They have to play the percentages. And that sometimes means taking profits when the economic data supports better earnings and higher stock prices. Is that what took stocks lower in January? Maybe, although it’s a little too soon to say the upside trend has been re-established. But sometimes, when you hear hoof-beats, it’s best to think horses not zebras. Expert Investment Advice 2010-02-03T12:39:21-05:00 http://www.247investor.com/expert_investment_advice/archive/how_to_talk_to_a_nincompoop/ http://www.247investor.com/expert_investment_advice/archive/how_to_talk_to_a_nincompoop/#2433 "Gold isn’t that inexpensive. And who says it’s guaranteed to return to old highs?" HTTTAN: Who says?! How about the laws of economics! My teenage son even understands this: the more you print of something, the less each one is worth. And as the dollar continues deteriorating, gold will continue rising. And gee, Wally, they can’t print gold. Adjusted for inflation, gold’s peak at $850 in 1980 would equal about $2,300 today, more than double its current price. Guaranteed? Of course not. Where would I find a guaranteed investment? But I’ll put the 5,000-year history of gold ahead of anything that is touted as "guaranteed" in the popular press. Expert Investment Advice, Gold & Mining Stocks 2010-02-02T21:58:23-05:00 http://www.247investor.com/expert_investment_advice/archive/earnings_this_week/ http://www.247investor.com/expert_investment_advice/archive/earnings_this_week/#2432 There’s no doubt that there are investors who believe that current valuations for stocks and an improving economy offer money-making opportunity. It’s also true that there are plenty of investors who feel the exact opposite and are selling stock. And for the last three weeks, the sellers have been winning. The fact that stocks couldn’t hold a 1% gain after a stellar 4Q GDP number on Friday is a little worrisome. That was a lay-up for the bulls, and still, stocks finished the day with losses. Volume has been stronger on the down days lately, and the S&P 500 is now well below its 50-day moving average, a common measure of support. I expect we’ll see stocks bounce before Dow 10,000 is breached to the downside. But at the same time, there’s nothing magical about Dow 10K. Just because it holds on the first test or two doesn’t make it an important line in the sand. The Dow is just 30 stocks. Far more important is the S&P 500. And interestingly, there is an important support point at 1064 on the S&P 500. And 1071 actually lines up with Dow 10,000 nicely. Expert Investment Advice 2010-02-01T17:22:53-05:00 http://www.247investor.com/expert_investment_advice/archive/low_rates_to_continue/ http://www.247investor.com/expert_investment_advice/archive/low_rates_to_continue/#2431 I managed to catch part of Treasury Secretary Geithner’s testimony yesterday. I actually thought he represented himself pretty well. I can appreciate his stance that AIG really was to big to fail. But that notion that the New York Fed had to make sure all of AIG’s credit default swaps were paid still doesn’t make sense. Geithner’s explanation was that if AIG did pay off debts like the $25 billion that went to Goldman, AIG would get downgraded and it would become more expensive to unwind the company. Maybe I’m wrong, and I haven’t checked to be sure, but I’m pretty sure AIG’s debt was downgraded. And do you even need a rating for a company that’s 80% owned by the government? Bottom line: I still think former Treasury Secretary Paulson made sure Goldman Sachs got paid and it really stinks that tax payers get taken advantage of like that. Unfortunately, it’s unlikely anything will come of it. *****The Fed reiterated its pledge to keep interest rates low for an extended period. No surprise there, but investors liked the news. Stocks finished the day with a nice rally. Still, it’s not like the Fed is keeping the liquidity spigots wide open. The Fed plans to end its mortgage-backed securities purchases. With so many stimulative monetary policies in place, low interest rates will probably be the last thing to get changed. *****China is also d oing its part to soothe investors. According to Bloomberg, China’s banking regulator has told lenders to "....step up scrutiny of property loans while pledging to satisfy "reasonable" financing needs..." Expert Investment Advice 2010-01-28T19:13:23-05:00 http://www.247investor.com/expert_investment_advice/archive/the_other_oil_play_you_simply_cant_ignore/ http://www.247investor.com/expert_investment_advice/archive/the_other_oil_play_you_simply_cant_ignore/#2430 Expert Investment Advice, Oil & Gas Stocks 2010-01-28T17:14:52-05:00 http://www.247investor.com/expert_investment_advice/archive/watch_em_squirm/ http://www.247investor.com/expert_investment_advice/archive/watch_em_squirm/#2429 I plan to be unavailable for a few hours, starting around 10 a.m. this morning. I want to hear the members of the New York Fed try and defend their actions regarding the AIG (NYSE: AIG) bailouts in front of Congress. The New York Tines published some of the prepared testimony of the principal players. I try to keep a level head, but I’m reaching for my pitchfork and torch right now. *****Recall that the New York Fed orchestrated what ultimately became an $85 billion bailout. A good portion of that cash was paid directly to other companies with which AIG had entered into the now famous credit default swaps. These were essentially insurance contracts on mortgage backed securities held by banks and underwritten by AIG. A full $25 billion in AIG bailout money went to pay off Goldman Sachs (NYSE: GS). Here’s a section from the New York Times (Mr. Baxter s the general counsel for the NY Fed):   Mr. Baxter explained that the New York Fed felt compelled to pay out A.I.G.’s counterparties in full to unwind tens of billions of dollars in derivative contracts because "there was little time, and substantial execution risk and attendant harm of not getting the deal done by the deadline of Nov. 10." That was the date when A.I.G. was scheduled to report its earnings and could face downgrades from credit ratings agencies. A downgrade would have led to more collateral calls and even greater liquidity problems for A.I.G., Mr. Baxter said. Expert Investment Advice 2010-01-27T17:16:49-05:00