No Consensus On Market Direction For Remainder of 2009
(Via BeSpoke Investment Group)
BeSpoke put up a poll the other day asking respondents where they thought the Dow would end in 2009. The results show no consensus on market direction for the remainder of 2009. There are so many disparate views about the market right now: new bull market, bear market rally, cyclical bull market, L-shaped recovery, etc…
If you think you know something the market doesn’t, now is a good time to put together a portfolio that will profit when the market comes around to your view.
Financial Firms Anxious To Sublet Office Space
It’s a complete buyer’s market.
- Brian Rance (subscription required), US Managing Partner, Freshfields Bruckhaus Deringer, a law firm
According to a Wall Street Journal article (subscription required) today, a record 8.9 million square feet of high quality, class “A” office space is available for sublet in midtown Manhattan. In Greenwich, Connecticut, hedge fund land, financial firms have put 380,000 square feet up for sublet - about 10% of all the mid and high end commercial space in town. The asking rents are well below what the firms locked in years ago during the boom.
Remember: Commercial real is next (see, for example, “The Other Shoe” (subscription required - e-mail me for a link), Barron’s Cover Story, May 4 2009).
We Know These Women Don’t Eat Carl’s Jr. So What’s With The Ridiculous Ads????
Rolling my eyes….. This so reminds me of the Mike Judge’s movie Idiocracy.
Technical Analysis: The Golden Cross
Technician Michael Kahn has a piece up on Barron’s Online today on the Golden Cross (“Will Stocks Turn To Gold?” (subscription online), Michael Kahn, Barron’s Online, July 1). The Golden Cross is when the 50-day moving average moves above the 200 day moving average and is supposed to be a reliable buy signal. John Mauldin was ranting about some technician going on about the importance of the Golden Cross the other day.
In today’s piece, Kahn says the Golden Cross was triggered on the Nasdaq yesterday, suggesting the turn from bear to bull market. But a chart I made myself on BigCharts suggest the cross happened a few weeks ago in early June.
The Golden Cross buy signal was triggered last Wednesday (6/24) on the S&P 500.
Anyways, the Golden Cross and it’s cousin The Black Cross have not always been reliable indicators. In fact, the Black Cross gave a false sell signal on the Nasdaq back in the summer of 2006.
However, the Black Cross was correct in signalling the shift to a bear market on both indexes at the end of 2007. For example, here’s the chart for the S&P 500.
Anyways, this is something technicians are keying in on right now. In the end, John Mauldin said it best on whether this indicator turns out to be correct this time around: “It means nothing until it means something, and we won’t know what that something is for some time.”
Why All The Haters On Apollo Group?
Apollo Group (APOL), owner of The University of Phoenix, continues to hit the cover off the ball - but many commentators seem to prefer to focus on the negative.
Let’s start with the positive. Apollo grew enrollments by 22% year over year to 420,700. Revenue has grown 23% over the last 12 months and net income 37%. This company is clearly firing on all cylinders.
Even so, valuation is still compelling. The stock is currently trading around $70 and they’re going to earn a little more than $4 a share in the year ending August 31, 2009. They’ve got about $6.50 a share in net cash and short term investments on their balance sheet. Back that out and we’re talking about a 15 multiple on this year’s earnings.
Critics focus on potential regulatory changes by the Obama administration. In an article yesterday (“Can Apollo Make The Grade?” (subscription required)), Barron’s wrote:
Although it’s not clear how detrimental potential legislation could be at this time, it is an overhang that will be present in the coming months. And if federal funds are funneled toward community colleges, this too could hurt Apollo’s enrollment.
Other commentators mention risks because of Apollo’s dependence on Title IV loans from the US Department of Education.
These are reasonable concerns but I believe they are already factored in and have been holding the stock back. On balance, Apollo’s sterling fundamentals make it a compelling stock in my opinion.
Disclosure: Top Gun is long shares of Apollo Group (APOL).
Mauldin: The Market Doesn’t “Know” Anything
I walked into the office yesterday evening and there was someone on CNBC talking about how the 50-day moving average of the S&P 500 rising above the 200-day moving average was telling us the market was getting ready to rise and the recovery had started. I listened to his babbling for another 2-3 minutes and couldn’t take it anymore.
We keep getting told that the market is telling us “something,” usually that the recession is going to end. For some reason, people keep repeating the bromide that the market looks out about 6 months. To that I politely say, rubbish.
Riddle me this, Batman. Did the market see the recession in October of 2007? We were already in recession and the S&P 500 was making new highs! Where was the market prescience? Did it see the 25%+ drop in January of this year? And I could go back and cite scores of examples where the market “missed” the future turning points over the past ten decades.
……
“In the short run,” St. Graham said, “the market is a voting machine. In the long run it is a weighing machine.” The voting is based on current sentiment, but what the market weighs in the long run is earnings. The market tries to forecast future income streams. And it gets it wrong as often as it gets it right.
Let’s look at this yet another way. This is an important concept, and it should be a component of your economic BS detector. The CNBC host talked in breathless terms about the importance of the 50-day average moving above the 200-day average. It means nothing until it means something, and we won’t know what that something is for some time.
- John Mauldin, “The End of the Recession?”, June 26
The market is the reflection of the buy and sell decisions of all its participants. It reflects all their varying views, philosophies, ideologies, biases, fears and emotions in proportion to their size and activity. It is not omniscient; it is people:
The prices of stocks are affected by literally anything and everything that happens in our world, from new inventions and the changing value of the dollar to vagaries of the weather and the threat of war or the prospect of peace. But these happenings do not make themselves felt in Wall Street in an impersonal way, like so many jigglings on a seismograph. What registers in the stock market’s fluctuations are not the events themselves but the human reaction to these events, how millions of individual men and women feel these happenings may affect the future.
Above all else, in other words, the stock market is people. It is people trying to read the future. And it is this intensely human quality that makes the stock market so dramatic an arena in which men and women pit their conflicting judgments, their hopes and fears, strengths and weaknesses, greeds and ideals.
- Bernard Baruch, Baruch: My Own Story (Henry Holt & Co.: 1957), pgs. 84-5
Understand this and you’ll understand the essential nature of the market.
Greenspan: Inflation - the real threat to recovery
But I see inflation as the greater future challenge. If political pressures prevent central banks from reining in their inflated balance sheets in a timely manner, statistical analysis suggests the emergence of inflation by 2012; earlier if markets anticipate a prolonged period of elevated money supply. Annual price inflation in the US is significantly correlated (with a 3½-year lag) with annual changes in money supply per unit of capacity.
Inflation is a special concern over the next decade given the pending avalanche of government debt about to be unloaded on world financial markets. The need to finance very large fiscal deficits during the coming years could lead to political pressure on central banks to print money to buy much of the newly issued debt.
- Alan Greenspan, “Inflation - the real threat to recovery”, The Financial Times, June 25
The more likely explanation, however, is that Greenspan sold out. He sold out his convictions, his beliefs, his roots, for position, power and prestige. By flooding the economy with money, Greenspan ushered in a monumental boom that had many lauding him as a genius and a savior. Greenspan was God. He was the Maestro. Universally admired and loved, credited with creating a golden age of economics, it must have been intoxicating and Greenspan was likely seduced by the adulation.
But now, the roosters are coming home to roost. They always do.
- Greg Feirman, “Second Guessing The Maestro: Greenspan’s Reputation Under Fire”, Top Gun FP, April 8, 2008
What to make of Greenspan? The guy is probably the one person in the world most responsible for the current mess. As Fed Chairman from 1987-2006 he oversaw the health of the dollar, the world’s reserve currency, during a period of the most extravagant excess and decadence.
But he’s a smart guy and he understands what’s going on as evidenced by his recent FT op-ed.
Why didn’t he say more about this as Fed Chairman? Who is Alan Greenspan?
Also see:
“The Fallacy In Greenspan’s Self Defense”, Top Gun FP, March 12 2009
“Two Decades Of Easy Money”, Top Gun FP, April 30, 2008
“Second Guessing The Maestro: Greenspan’s Reputation Under Fire”, Top Gun FP, April 8, 2008
Cooper Union Endowment Dodges Stock Market Crash, Criticizes The “Yale Model”
The Yale model is probably “true over time. But in calendar ‘08, it’s exactly wrong. The less liquid you are, the more you’re getting hurt.
Cooper Union’s endowment is going to be flat or slightly up in its fiscal year ending today. In an article in today’s Wall Street Journal (“One College Sidesteps the Crisis” (subscription required)) that reviews how they did it, John Michaelson, who heads Cooper’s investment committee, criticizes the “Yale Model” of David Swensen which has been so highly praised in recent years, calling it “deeply flawed”.
Swensen, who advocated alternative investments like hedge funds, private equity and real estate, is a rock star. But his approach has not been sucessful of late with Swensen recently saying Yale’s endowment will be down 25% in the fiscal year ending today (for example, see this profile of Swensen: “Cash Me If You Can”, Portfolio Magazine, April 2009; also see “Ivy League Endowments Finally ‘Dumb’”, The Wall Street Journal, June 30).
Hertz CEO Is Really Bullish
We’ve seen continuous improvement every single week for the last 10 weeks in the US rent a car space on improving demand for the summer season.
We’ve been buying a lot of cars the last 8 weeks…. We’re scrambling to buy as many cars as we can.
- Mark Frissora, CEO, Hertz, this morning on Squawk Box
Hertz’s (HTZ) CEO was really bullish this morning after his company pre-announced better than expected 2nd quarter earnings on improving demand for rental cars. They forecast an 11.4% increase in car rental transaction days year over year for the 2nd quarter on top of 13.4% in the first quarter. He told CNBC that they’ve bought 16,000 US vehicles for $350 million in the last 8 weeks.
This is the first I’m really hearing from a CEO in an economically sensitive business whose seeing real demand improvement. Not sure I believe it but have to pay attention to it.
Hertz shares shot up 16% today on strong volume.
Republican Superstar Governor Sanford Admits Affair
After a mysterious five day disappearance, South Carolina Governor Mark Sanford admitted to having an affair with a woman in Argentina.
This is a huge disappointment to Republicans who rallied behind Sanford after he asked the Obama administration to spend some of the stimulus money on debt reduction and then refused to take the money when they refused (see, for example, “Why South Carolina Doesn’t Want Stimulus” (subscription required), Mark Sanford, The Wall Street Journal, March 21, 2009). He had been mentioned as a potential Republican candidate for the 2012 presidential election.
