 Posts tagged with: Daily Profit |
They say March comes in like a lion and goes out like a lamb. We’ll see about that. March started with a strong rally that’s added +50 points, or 4.4% to the S&P 500. That’s as good a monthly performance as you’ll find. Perhaps too good...
Stocks have come so far, some are now wondering, what’s left? And after today’s ADP Employer Services employment report showed that private companies cut payrolls by 23,000 in March. That’s a far cry from the gain of 40,000 economists were expecting from this report. And it raises the fear that Friday’s release of the Labor Department’s Nonfarm Payroll report will come in far short of the expected 190,000 jobs growth.
Of course, the government’s report will include census workers, so it’s likely to better than the ADP report. But still, the market is left waiting for jobs growth.
*****There is some good news out today. Applications for mortgage loans rose for the first time in three weeks to the highest level since October. Most believe that the homebuyer tax credit is having minimal effect on home purchases now. So we may be seeing real demand pick up that can be sustained after the tax credit expires in April.
Also, Bloomberg is reporting that Bank of America (NYSE:BAC) is hiring. Unfortunately, most of the new jobs will be overseas as the company looks to expand into new markets.
This morning, I find myself wondering how long investors can continue to support cash raising activities. That’s probably not the best way to pose the question. Perhaps after I set the stage, the question will make more sense.
Yesterday, Greece started selling 7-year bonds to raise cash to cover its debt issues. The yield was to be 6%. But then, Greece got greedy and tried to drop some 12-year notes on the market.
Now, Greece was warned not to try and add supply to its offering because the market wasn’t ready for it. So I don’t know what Greece was thinking when it decided to ignore this advice and float the 12-year notes. But Greece will pay the price. Nobody wanted the 12-year notes. Investors only bought about half of what was offered. That drove the yield on the 7-year notes to 6.3%.
That may not sound like a big deal. But Greece has to pay that extra 0.3%. And with $6.7 billion in of new 7-year notes, that 0.3% works out to $210 million. That’s not pocket change. And Greece has to raise around $2.4 billion per month to cover its deficit. And of course, it has to pay that money back..
Friday was a repeat of Thursday. Stocks made a nice move higher in the morning and then lost in the afternoon. This type of intra-day reversal often opens the door to the sellers to take stocks significantly lower. But that didn’t happen.
Instead, we just saw the S&P 500 test the 1,165 support/resistance point two more times. This action suggests the rally still has some upside potential, even though it’s moved in practically a straight line since early February.
*****Now that all parties appear to have agreed upon an aid package for Greece, it will start raising the $71 billion it needs to get through the year. Greece is selling 7-year notes at 6% interest.
Surprisingly, European economic confidence rose to its highest level in two months in March even as Greece was twisting in the wind. Despite all the drama, some form of aid to Greece was forthcoming. And the recent weakness of the euro appears to have helped export economies like Germany...
The S&P 500 moved back down for retest of 1,165 support/resistance point yesterday. That important level held, but it’s interesting to see what lead to the retest.
Basically, yesterday’s decline was the result of currency values. The U.S. dollar rose against the euro as more signs of dissension in the European Union added uncertainty to the future of the euro.
The root cause of the dissension, the ongoing debt issues in Greece and now in Portugal, is somewhat irrelevant. Greece will get the bailout loans it needs. And whether they come cheaply from the IMF or a bit more expensive from the EU central bank, they will come.
The overriding issue is that Germany is demanding IMF involvement. Other European countries see this as an internal matter for the EU to solve. From that perspective, we can see the Greek debt solution as a chance for the EU to demonstrate its cohesion.
That was quite a show Maguire Properties (NYSE:MPG) put on yesterday after it reported 4th quarter earnings. It opened down, around $2.50 a share, and then marched steadily higher for the rest of the day to close at $3.54.
Maguire’s cash reserves are rising after it walked away from a few underwater properties and sold a couple others. Investors seem to be saying the stock is on more solid ground now – volume was monstrous.
While I’d love for Daily Profit readers to have participated in yesterday’s gains, I stand by my recommendation to take your profits on the stock before earnings. Earnings are a big uncertainty. Maguire could just as easily have dropped yesterday. There’s always risk when investing, and perhaps more so with a stock like Maguire. It would have been irresponsible of me not to have you take profits before earnings.
*****Portugal’s credit score was dropped one level, to AA- . The country was also given a "negative" outlook based on mounting debt problems. Portugal ran a 9.3% budget deficit last year and is trying to cut it to 8.3% this year. GDP growth will be a paltry 0.7%
Today is March options expiration, so don’t expect a lot of action. Options expiration days (the third Friday of the month) tend to be pretty dull.
Still, it’s been a pretty good week for stocks. The S&P 500 moved up through two important resistance points – 1,150 and 1,165. 1,165 is a post-crisis high. And if you check a chart, you have to go back to late-2005 to find the next resistance point at 1,200. (The S&P 500 attempted to find support at 1,200 during the crash in 2008, but I don’t see that as particularly significant – investors were literally grasping at straws then.)
Ironically, individual investors aren’t on board. Total inflows into diversified equity funds for U.S. stocks were negative in February. Bond funds and foreign funds showed gains.
Also, ETFs had a positive inflow of $5 billion. That suggests that investors may be taking matters into their own hands and opting for a lower cost investment vehicle.
The S&P 500 is trying to push past a key resistance point at 1165. The Consumer Price Index was unchanged for February. The lack of pricing pressure supports the Fed’s monetary stance. As the Nomura Securities chief economist David Resler told Bloomberg, "Inflation is certainly no imminent threat to the U.S. economy…We see the Fed on hold through this year."
Resler’s expectation for interest rates is a bit of a departure. Most economists think rates will rise later in the year. But any interest rate hikes will be dependent on jobs growth. Unemployment claims fell by 5,000 last week. That’s an improvement, but we still need to see payrolls increases. We won’t get that number for a couple of weeks...
Happy St. Patrick’s Day! In honor of the holiday, the stock market is in the green. The Fed reiterated its pledge to keep interest rates low for an extended time. The promise of cheap money is clearly helping to support stock valuations.
Also helping move prices higher, and supporting the Fed’s stance, is the 0.6% drop in the Producer Price Index. The drop was led by food and fuel prices. Excluding those, the so-called "core" rate climbed 0.1%.
*****You wouldn’t know fuel prices were lower looking at the price for a barrel of oil. Despite the relative strength of the U.S. dollar, oil has staged a month long rally that’s got it within spitting distance of its 52-week highs. And I expect we’ll be seeing those highs in the very near future.
Senate Banking Chairman Christopher Dodd is all set to put his latest banking regulation bill up for a vote. The bill would put an end to proprietary trading, lend transparency to hedge fund trading and derivatives, and give the Federal Reserve the power break up companies if they pose a "grave threat" to the economy.
Dodd’s proposal would also create a nine-member "Financial Stability Oversight Council" of regulators, led by the Treasury Secretary. According to Bloomberg, "…the council can make recommendations to the Fed to impose "strict" rules for capital, leverage, liquidity and risk management to make it difficult for firms to grow so big and complex that they endanger the financial system. It could require the Fed to regulate non-bank financial firms that threaten financial stability, ensuring that "the next AIG would be regulated" by the Fed…"
NYSE:MPG |
The AP is reporting that China has trimmed its holdings of U.S. Treasury’s by $5.8 billion in January. I’m sure members of the doom and gloom economic faction will point to this as solid evidence that the U.S. is losing its ability to fund spending and is inching ever closer to default.
In my opinion, this line of thinking is completely unrealistic.
China still holds $889 billion in T-bills. It’s clearly not "dumping" American debt. And as I discussed last week, there is evidence that China is moving to more direct investments in the U.S.
China’s state-run investment company, the China Investment Corporation (CIC), is already involved in a buyout offer for shopping mall owner General Growth Properties (NYSE:GGP) through Brookfield Asset Management (NYSE:BAM).
And according to a Financial Times article from this morning, China’s not the only country who’s getting involved. Sovereign wealth funds from Qatar, Canada, Australia and Abu Dhabi may be getting in on the bid for General Growth Partners.
Stocks continue their upward climb. As TradeMaster’s Jason Cimpl told us earlier in the week, the S&P 500 has kept its date with 1,150. And it looks poised to move higher.
The retail sales data from February is positive. Despite two crippling blizzards on the East Coast, sales still rose 0.3%. And if you strip out autos, sales were up 0.8%.
Normally, it makes no sense to ignore auto sales because they are obviously an important gauge of consumer spending, but in light of the recalls from Toyota (NYSE:TM), it’s reasonable to assume that some auto sales were simply postponed due to the uncertainty.
Sales were especially strong for electronics and at restaurants and bars. Sounds like consumers are celebrating their new iPhone purchase over a beer. That’s probably led to a surge in drunk-texting.
*****Retail sales from January have now been revised lower two times, from an initial reading of +0.5% to the current +0.1%. Funny thing about this rally – economic data is consistently revised lower, and no one cares. The only exception I can think of is 4Q 2009 GDP, which was actually revised slightly higher.
Economic data has been improving. But it says more about the bullishness of investors that they are consistently overlooking negative data. That gives me more confidence that we will be seeing new highs for the major indices soon.
For the past year, the fate of commercial real estate in the U.S. has been a popular talking point for economic bears. Something like $1.4 trillion in commercial real estate loans comes due in the next 3 years.
Given that a good portion of these properties are underwater, and the fact that banks are still reluctant to lend, the concern that many of these loans won’t get refinancing seems valid.
Already, we have seen companies simply walk away from properties that are losing money, turning the keys over to the banks that hold the mortgages. Maguire Properties (NYSE:MPG) has done it. And we’ve seen BlackRock (NYSE:BLK) and Tishman Speyer Properties abandon Manhattan’s Stuyvesant Tower when the value fell from $5.4 billion to $2 billion.
For shareholders, these moves make sense because it’s better than throwing good money after bad. For Maguire, it was a matter of life or death for the company.
Still, it’s a concern because someone has to step up and buy the impaired real estate from the banks. Otherwise, bank balance sheets are saddled with even more toxic assets, capital bases fall, lending dries up and the whole financial crisis gets repeated again.
Interestingly, it may be the Chinese who help the U.S. out of this commercial real estate problem.
There are several items of positive news on the wire today. Italy’s prime minister and former European Commissioner President Romano Prodi has declared that "[f]or Greece, the problem is completely over…I don’t see any other case now in Europe. I don’t think there is any reason to think the euro system will collapse or will suffer greatly because of Greece."
I know, you’re probably thinking "yeah, right." And I admit, the contrarian in me is asking "what about Spain and Portugal?"
There are clearly issues with the European Union, given the disparity in economic strength between countries like Germany and Greece or Spain. But we have similar disparities here in the U.S.
I’m not ready to believe the debt problems in Europe are gone. But Prodi’s announcement will probably alleviate investors’ concern somewhat. That, in turn, could help the euro make up some ground against the U.S. dollar.
I suppose it’s fitting that futures should be down on the morning of the one-year anniversary of the stock market bottom last year. Perhaps stocks will put in a similar reversal today, but even if they don’t, I think we can take a little selling in stride.
Oil prices are down a bit today as the dollar strengthens. We should note that the dollar and oil have moved higher in tandem lately, proving that there is more to the strength in oil prices than its relationship to the U.S. dollar.
Expectations for the global economic recovery and a subsequent rise in demand for oil are part of it. But I also think that investors are slowly realizing that there is very little upside for production levels in non-OPEC countries.
A recent article about Mexico bears this out. If you don’t know, one of the world’s biggest oil fields, Mexico’s Cantarell, used to produce 2 million barrels of oil day just a few years ago. Now, it doesn’t even give up 500,000 barrels a day.
In January, Mexico posted a 2.65% drop in year-over-year oil production. And January’s production total was the highest in 9 months.
It’s hard to believe that just a year ago, the Dow Industrials were trading around 6,500. It’s easy to look back and see this as an obvious buying opportunity, but it sure didn’t feel that way at the time.
Of course, I was recommending stocks in SmallCapInvestor PRO, because valuations were incredibly low. But I was mitigating the risk by taking profits quickly.
For instance, we took profits on SXC Health Solutions (Nasdaq:SXCI) in April with a 19% gain. That stock has gone on to post some fantastic gains. Conversely, we made a quick 33% on Arena Pharmaceuticals (Nasdaq:ARNA) between March 3 and March 11, 2009. That stock is now much lower than our exit price…
Nasdaq:SX |
This morning’s payroll data came in better than expected. After economists warned that February snowstorms may have depressed payrolls by as much as 100,000, the 36,000 job losses reported for last month sounds like good news. Well played, sirs, well played.
Now bullish economists are pressing their advantage with statements like this: "We’ve got positive jobs growth in there, we just can’t see it".
Ok, I’ll admit, I’m having a little fun with the economists on this. It’s good news that the unemployment rate is holding at 9.7%. And the fact that economists are close to unanimous in expecting jobs growth this year is also a positive.
*****For some anecdotal evidence of job growth, Bloomberg reports that technology services company Accenture is adding 50,000 workers. Of course, just 9,000 will be hired in the U.S. And the hiring will "spree" will run through August. But still, a year ago, I think we’d all have been happy to know that companies would actually hire people again.
Bloomberg also reports that the service industry hired 24,000 in February and 27,000 in January. 1,000 factory workers were hired in February after 20,000 in January. The biggest areas of weakness remain construction and financial, which lost another 64,000 and 10,000.
Of course, the construction and financial sectors probably added the most workers during the housing bubble, so it’s not a surprise that these two sectors are still adapting.
This must be a first. Citigroup (NYSE:C) CEO Vikram Pandit abandoned the attitude of entitlement that has characterized so many bailed out banks and simply said "Citi owes a debt of gratitude to American taxpayers…We look forward to helping them realize value on that investment."
Let’s not forget, too, that it was Pandit who volunteered to work for a $1 salary while Citi dug itself out of the hole. Meanwhile, other bank CEOs were fighting to keep their multi-million dollar compensation packages coming.
It seems like Pandit is the only one who realizes he’d be out of a job were it not for government bailouts.
*****Of course, it should be noted that several banks didn’t want to accept TARP money. They felt they would be fine and didn’t want to be restricted by TARP requirements. (That means they didn’t want to have to curb compensation.)
Personally, I don’t believe all these banks were fine, especially Bank of America (NYSE:BAC). If BAC was fine, why has it chosen to sell stock and warrants to pay TARP money back? Shouldn’t that TARP cash just be sitting in an account somewhere?
Payroll processing firm ADP reports that private employers cut jobs by 20,000 in February. That reading is in line with expectations. It also is more evidence that the rate of job losses is slowing, or stabilizing.
That’s an important first step for getting actual job growth and putting the economy on a clear path to recovery. But there’s a long way to go before fewer job cuts turns into actual net hiring.
Housing appears to be in "chicken and the egg" territory. Will an improved housing market help employment, or must employment first improve before housing can recover?
Given that much of the housing supply on the market is foreclosed homes, it would seem that affordability is a big issue. Not that prices aren’t cheap, but if you don’t have a job, you can’t buy a house. The only thing that will speed up the rate at which existing housing inventory is worked off is employment. So maybe the housing recovery is the egg.
NYSE:MPG |
In early February, stocks looked as though they were breaking down. We had just gotten through the Dubai debt problem. China was raising reserve requirements for banks to slow the rate of lending. And then the news about Greece’s debt problems broke.
The S&P 500 had dropped from January highs at 1,150 to as low as 1,044. That’s a 9% move, and if you recall it was enough to get investors a little nervous. In fact, some were even saying that the global economic rebound was done before it was even a year old.
It was about that time that I started including TradeMaster Daily Stock Alerts’ Jason Cimpl in our daily conversation here at Daily Profit. Jason is the technical analyst and trading strategist for TradeMaster Daily Stock Alert. In other words, he studies buying and selling activity in the financial markets in order to gain an early read on the market’s next move. He’s good at it, and his skill has earned him a few hundred loyal members to his trading service.
You may recall, Jason was bullish in early February. He told us he expected the S&P 500 to move back to 1,085 and eventually move as high as 1,120, where it is today. And of course, he made plenty of upside recommendations to his loyal readers. In fact, out of 13 trades initiated in February, TradeMaster Daily Stock Alert readers made money on 9 of them. That’s a 70% win rate. Total gains were 47%.
I will include commentary from Jason on a regular basis here in Daily Profit. And so you know, he’s expecting more upside. In his own words...
Somebody knows what do about the U.S. dollar rally we’ve seen lately.
A recent regulatory filing with the SEC on February 16 shows that George Soros’ Soros Fund Management has doubled its holdings in the SPDR Gold Trust (NYSE:GLD). Soros is now the 4th biggest investor in GLD. John Paulson’s hedge fund, Paulson & Co. owns the most GLD, with 31.5 million shares.
I discussed Soros gold investment in a recent Daily Profit. Soros believes gold is likely to become a "bubble asset." Low interest rates and concerns about the global economic recovery would be the driving catalysts. But as we know, bubbles occur when buying begets buying.
Gold is currently trading around $1,095 an ounce. Price estimates from Goldman Sachs and HSBC call for gold prices to rise to the $1,235 to $1,300 range. But I think Soros’ position suggests he thinks it could rise even higher than that.
And that’s the thing about bubbles. Once they start, it’s hard to say how high prices can run.
Now, as you know, I’m usually a fundamental investor. I like to buy reasonably valued companies that are taking advantage of important economic or consumer related trends. At the same time, I believe gold should be part of any portfolio, especially now.
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