Top Gun FP Client Note: A Spectacular Rally

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NOTE: Every week I write a Client Note for my clients.  For a limited time, I am allowing non-clients to sign up and receive the Client Note.  You can sign up at the top right hand corner of the website.  Here is this week’s.
Unbelievable.  The S&P 500 surged through 1,000 yesterday.  That represents a 50% gain since the intraday March 6th low!
I am humbled by this market.  While we bought into the lows in late February and early March, I sold way too early and have been wrong about the last 200 points – and four months – in the S&P.
That said, I remember looking at the charts a few months ago and thinking that the absolute furthest this rally could run would be 1,000 on the S&P.  That’s because above those levels we start to move beyond the damage that was priced in during the crash last fall in the months of September, October and November.  If that isn’t major resistance, I don’t know what is.
I feel like we are now at levels where not getting worse is not going to be good enough anymore.  New buyers are going to need to see signs of genuine improvement in the economy and company fundamentals.  And, as I’ve been writing for months, there just isn’t much solid evidence that that is occurring.
On that score, consider Disney’s earnings for the period ended June 27, 2009 reported after the close last Thursday.  Overall revenues and operating income were down 7% and 20%, respectively, compared to the year ago period.  Revenues were off $287 million, 9%, and operating income $120 million, 19%, from the year ago period in their Parks and Resorts division.  “Parks and resorts have clearly been impacted by the weak economy,” said CEO Bob Iger.  Media Networks, which include ABC and ESPN, showed 2% and 13% declines in revenues and operating income, respectively.  “The local ad market remains soft,” said CFO Tom Staggs.
Housing is fast dividing into two markets: Sales of low- and moderately priced homes are picking up and values have stopped falling in some parts of the nation.  But on the upper end, sales remain mired in a deep slump and price declines are expected to accelerate.
“High End Homes Frozen Out Of Budding Housing Rebound” (subscription required), The Wall Street Journal, August 3, A1
One interesting development that was highlighted for me yesterday by a front page Wall Street Journal article is the divergence between the low and high end of the home market.  The low end of the market appears to have bottomed, or at least come very close to it, spurred by low mortgage rates, an abundance of bargain priced foreclosure and distressed properties, and the $8,000 federal first time home buyer tax credit.
The upper end of the market, however, appears to be following its own timeline.  It held up far better during the early parts of the bust and only recently has begun to show cracks.  While the supply of low end homes is being worked off, it continues to increase on the high end.  Volumes remain weak and prices appear to be falling off.
For example, out here in Sacramento three classic move up zip codes – Land Park’s 95818, East Sacramento’s 95819 and Arden Park’s 95825 – have seen a dramatic fall off in volumes in homes larger than 1500 square feet.  While these homes made up around 1.5% of Sacarmento County resales from 2000-2007, they have accounted for only 0.7% of county resales from 2008 through May 2009 (Source: “Sacramento area misses move-up homebuyers – they’re staying put”, Jim Wasserman, The Sacramento Bee, June 19).  “A lot of the higher end is still priced too aggressively,” said Charlene Singley, President of the Sacramento Association of Realtors.
E-mail me for a link to The Wall Street Journal piece and for graphics and more detail check out my blog post “Upper End Not Participating In Housing Bottom”, Top Gun FP, August 4.
Weekly Returns (7/27-7/31)
S&P: +0.84%
Wilshire: +0.85%
Top Gun: -0.76%
YTD Returns (through 7/31)
S&P: +9.33%
Wilshire: +11.66%
Top Gun: +7.64%
Greg Feirman
Founder & CEO
Top Gun Financial (
9700 Village Center Drive #50H
Granite Bay CA 95746
(916) 224-0113

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