Watching China

Home Page RSS Syndication from SeekingAlpha.com Markham Lee submits:

Today's WSJ had an interesting, stunning, disturbing or frightening (depending on your mood or interpretation) graphic comparing the last three major market slumps of the past 100 years:

Graphic courtesy of the WSJ  

The thing I found most interesting about the above is the fact that there were often multi-year bull runs during the past two protracted bear markets prior to this one, because when we look back on history we often think of past bear markets a one big slump, and assume that if we're in the midst of a multi-year bull market than we simply can't be in bear one. A theory that is blown out of the water when we look back and see that the markets went on a bull run from '34 - '37 (similar trends were seen in the 70s and during the early part of the depression), despite the fact that the country was in the midst of the great depression. The obvious implication is that we may look back on the current era and realize that the bull run of '03 - '07 was nothing more than a brief "bull-blip" during what was primarily a bear market.

Complete Story » Michael Shedlock submits:

In Elliott Wave terms the S&P 500 is in wave 3 of 3 down. I will attempt to explain this in terms those not familiar with Elliott Wave can understand. Here goes:

Wave 3's are long and strong and unrelenting. They can be in either direction. When wave 3 is headed up, everyone is waiting for a pullback to get in. That pullback never occurs.

Complete Story » Vinny Catalano submits:

If you are looking for a reason why stocks are plunging, here's one major reason.

Today, again at 2 PM (eastern time) announcements re: settlement of the massive Lehman Bros. credit default swaps will occur. According to one trading desk source of mine, the equity markets are far more concerned on this point than are the debt markets. Earlier this week, the settlement of Fannie (FNM) and Freddie (FRE) CDS' were announced.

Complete Story » Erick Schonfeld submits:

Complete Story » Felix Salmon submits:

The bad news is that Hank Paulson seems to have run out of ideas. The good news is that, with no bright ideas of his own, he's turning to the bright ideas of Gordon Brown: first direct equity injections into troubled banks, and now a blanket government guarantee on bank debt, as well as insuring all deposits.

I like this idea, because it's more likely to bring down Libor than any other plan I've heard. TED's at 446bp this morning: banks simply aren't lending to each other at the benchmark 3-month maturity. And one of the reasons is that three months from now takes us into January, which is after a big upcoming funding crunch:

Complete Story » Felix Salmon submits:

Vipal Monga today mentions something I was unaware of: The Lehman CDS auction today is not the end of the story when it comes to settling those trades. All it does is set the price: Settlement doesn't happen until October 21, the week after next. In other words, to the degree that there's nervousness over counterparties being unable to meet their CDS obligations, it's going to remain through not only this weekend but also the weekend afterwards.

In fact, the actual settlement price is one of the few things we already know, more or less: It's going to come in somewhere between 10 cents and 20 cents on the dollar. The huge list of things we don't know, by contrast, is going to remain unknown until after October 21. Michael Edwards has a good column up at Seeking Alpha today:

Complete Story » John Jansen submits:

Prices of Treasury securities are registering mixed changes in overnight trading. “Mixed changes” in this environment is somewhat puzzling and even a bit troublesome.

The U.S. market has always represented the ultimate safe haven venue, yet this morning according to my screen at about 700AM New York time, the yield on the 2 year note was actually several basis points higher than where it closed late yesterday. Indeed, the yield on every Treasury issue is higher than the level at which it finished in late trading yesterday.

Complete Story »

In an interview with CNBC this morning, "adventure investor" Jim Rogers spoke about the current crisis, saying that eventually the banks and businesses that are sound will take over access from those that are unsound, "and then we will start over."

Asked why markets have not responded to government efforts, Rogers said, 

Complete Story » James Picerno submits:

It all looks so easy on paper, but in real time, using real money, making strategic investment choices is hard. Especially during a banking crisis that threatens the broader global economy.

Each January, we offer an historical chart of how the major asset classes fared on a calendar year basis, starting with the recently ended year and going back several years. Here's what we published this past January--see table at end of post. Looking at this history leaves the impression that one can easily sidestep danger and favor the winners over time. In fact, looking at the past and managing portfolios in real time are equivalent only in the sense that both are focused on investing. But one and only one is immensely difficult, and the reason has as much to do with managing emotions as it does with informed financial analysis.

Complete Story » The Moneygardener submits:

On Thursday I doubled my original position in Canadian oil integrated oil and gas firm Husky Energy (HUSKF.PK). I bought Husky at $33.85 where it was trading at a P/E ratio of 7.0 and a dividend yield of 5.9%. This purchase likely brought Husky up to about a 6-7% weighting in my non-registered portfolio.

Buying oil when the U.S., and possibly the world is going into a recession has its risks, but I believe most of those risks are already priced into this stock. At a 5.9% yield, I am not concerned about Husky's one to two year forward earnings outlook. With its low pay out ratio the company should be able to maintain the dividend if oil stays at reasonable levels.

Complete Story » Kathy Lien submits:

For the first time since March 2003, the Dow Jones Industrial Average broke 8000 at the open of the US markets. However just as quickly as stocks dropped 600 points, it recovered more than half of its losses in the first 15 minutes of trading and actually moved into positive territory 35 minutes into the trading session. The capitulation followed by the major short squeeze suggests that we may have seen a near term bottom. This type of volatility drove the VIX index to a record high of 70.

Currency Traders Waiting for the Buying Opportunity

Interestingly enough, we have not seen much of a reaction in the currency market. This suggests that the capitulation is only in stocks and traders are waiting for the bounce to get in. The day is early so many things can change and equities could sell off again, but for the time being, it appears that the buyers of EUR/USD, GBP/USD and USD/JPY are sitting on the sidelines waiting to get in. If stocks start bottoming out, carry trades could actually bounce today. No one will want to be short carry ahead of the G7 and G20 meeting this weekend – we expect a bounce.

Complete Story » Roger Nusbaum submits:

Yesterday, sort of early in the day I sold the rest of [[SDS]] when the market was about flat. I also sold another stock (not so widely held) along with it as a partial offset to being wrong on the sale, and for the tax loss.

The cash level is now very high but still,anyone who has used inverse products during the bear market has probably come to view them quite fondly as either a crutch, emotional support or an old friend (lol). So I sent an old friend packing yesterday with the market down 37% from its high.

Complete Story » Dividends4Life submits:

The big news this week has been Bank of America's (BAC) dividend cut and the continued financial meltdown. On Wednesday, Merrill Lynch lowered their 2008 profit forecast on General Electric Co. (GE) to $1.96 and cut its price target to $23. Murmurings on the street are that GE could join BAC and cut its dividend, which is currently over 5% - high by historical standards.

Even when the sky appears to be at its darkest, there are those still stand tall! Albeit, their numbers are not what we have seen in past weeks, but here are a few select companies that recently raised their cash dividends:

• Teekay (TK): Boosts Quarterly Dividend 15% to $0.316/Share (5.60%)
• Acme United (ACU): Increases Quarterly Dividend 25% to $0.05/Share (5.60%)
• First Financial Northwest (FFNW): Raises Quarterly Dividend to $0.085/Share (3.51%)
• United Technologies (UTX): Boosts Dividend 20.3% to $0.385/Share (2.85%)
• Apogee Enterprises (APOG): Ups Quarterly Dividend 10% to $0.0815/Share (2.86%)

After running these companies through my D4L-PreScreen.xls model, TK with a NPV of MMA Differential of $32,960 and a dividend yield of 5.60% could warrant an additional look.

Complete Story » Felix Salmon submits:

This is the Age of the Bailout. And everybody knows how bailouts work: The government steps in and makes whole any holders of fixed income instruments, be they bonds or deposits or even subordinated debt. That's what happened with Bear Stearns, after all: anybody who wrote credit protection on Bear while it was spiralling into insolvency wound up making a fortune.

Except, the moral hazard trade -- buying banks' bonds, basically -- hasn't worked this time. WaMu's bondholders suffered default, as did Lehman's. In Iceland, even depositors might end up losing money. And I think there's a fair chance that the stock market's action Thursday was related to precisely this effect.

Complete Story » Dobromir Stoyanov submits:

One of the components of every stock analysis I have done at my blog has always been to show the effects of dividend reinvestment over a ten year period of time. The results are truly amazing as the dividend income with reinvestment almost always outpaces the dividend income without reinvestment.

The main pro of re-investing your dividends is that you get the power of compounding in your favor. You are essentially getting “free shares” by investing the total dividend income into more stock. If you have also picked a solid stock that tends to increase the payments to stockholders every year you are essentially turbo charging your portfolio for the long run and should expect to receive even faster annual dividend raises.

Another reason for re-investing dividends is that one could dollar cost average their dividend income into more stock by spreading their purchases over a period of time, which also decreases risk.

The past decade was definitely a good time to be re-investing your dividends in Realty Income (O).

Complete Story » Phil Davis submits:

As anticipated in yesterday’s morning post, we did not break 9,500 on the morning rally.

Complete Story » Hickey and Walters (Bespoke) submit:

September month-end short interest numbers were released after the close yesterday, and unsurprisingly, the decline in short interest in the Financial sector was huge.  The SEC and Chairman Cox implemented the "No Short" rule to "protect the integrity and quality of the securities market and strengthen investor confidence."  While it was probably wrong to implement the ban in the first place, it's infinitely more wrong to implement the ban and then eliminate it before their goal was attained. 

Over the last few weeks, when the ban was in place, shorts clearly covered as shown in the chart below.  Yesterday, when the "No Short" ban was lifted before the "integrity and quality of the securities market" was protected and "investor confidence" was strengthened, all those shorts that covered were given the all clear to rush back in.  There's rational thought coming from the short community, and irrational thought coming from the SEC.

Complete Story » Marketing Charts submits:

Internet advertising revenues for the first six months of 2008 were $11.5 billion, setting a new half-year record that represents a 15.2% increase over the first half of 2007, according to recently released data from The Interactive Advertising Bureau [IAB] and PricewaterhouseCoopers.

The IAB Internet Advertising Revenue Report also shows a Q2 increase of 12.8% over the same period in 2007 and shows a slight decline of 0.3% from the first quarter.

Complete Story » Markham Lee submits:

In "well duh" news, recent comments by Treasury Secretary Henry Paulson suggests that the U.S. is considering implementing a bank recapitalization that is very similar to the British one, namely the exchange of cash infusions for preferred shares:

(From the FT): "The US could soon follow the UK down the path of using public money to recapitalise weakened financial institutions in return for preference shares.

Complete Story » Michael Pettis submits:

Thursday, after listing the several bad days in a row we have had on the local stock markets, I suggested that we would soon be testing 2000 again.  It happened sooner than I expected.  Friday the market had another awful day, with the SSE Composite losing 3.0% to close the day at 2013, although at its low late in the morning the market actually traded well below 2000, to touch 1963.

 

Complete Story » Hickey and Walters (Bespoke) submit:

Below we highlight the 2008 S&P 500 price targets of the major Wall Street strategists.  At the start of 2008, the average year-end price target was 1,632.  Currently, the average stands at 1,391. 

The S&P 500 is currently trading 34.59% below the average price target at a stunning 909.92.  Even after lowering price targets significantly from the start of the year, none of them saw this kind of decline coming, and neither did we.

Complete Story » Charting Stocks submits:

Despite Amazon.com (AMZN) Music’s phenomenal showing in its first year and RealNetworks' Rhapsody’s (RNWK) gains in part due to expanded advertising and partnerships, iTunes remains the best fee-based digital music destination according to Ipsos’s fifth annual TEMPO Digital Music Brandscape study (via Retailer Daily).

click to enlarge

Complete Story » Geoff Gannon submits:

It might not feel like it, but yesterday marked the Dow’s return to normal.

Normal valuations that is.

Complete Story » Markham Lee submits:

I meant to write about this a few days ago but the situation had me so irritated I was having difficulty writing cogent thoughts about it, in any event here are some facts, figures, news items and commentary related to Lehman Brother's (LEHMQ.PK) collapse.

First, here is a look at the contrast between their internal struggles and what they said publically:

Complete Story » James Picerno submits:

Quote of the day, or year, if not the decade, depending on how all this plays out: In any case, Carl Weinberg, chief economist at High Frequency Economics, cuts through the fog and goes right to the heart of the challenge, in a quote from today's New York Times:

The core problem is that the smart people are realizing that the banking system is broken. Nobody knows who is holding the tainted assets, how much they have and how it affects their balance sheets. So nobody is willing to believe that anybody else isn’t insolvent, until it’s proven otherwise.

Complete Story »

Down more than 11% in early trading, the Nikkei shed 9.6% to plunge to the 8,000-level (closing at 8,276). N225 futures barely managed to preserve that level, dropping 1,180 points to 8,020.

Yet again, the JP financial press, citing a Nikko/Citi strategist, points to (preemptive) selling by hedgies. Combined de-leveraging and de-risking by HFs is delivering a crushing blow. The Nikkei is now down over 50% since its peak last year, falling 27% in just this month of October.

Complete Story » Paul Carton (ChangeWave Alliance) submits:

The financial events of the past few weeks have led to a reflexive recoiling on the part of U.S. consumers.

The latest ChangeWave consumer survey – conducted in late September – shows another major leg downward for U.S. consumer spending. At the same time, confidence in the economy has dropped to exceptionally low levels.

Complete Story » David Merkel submits:

Some people don’t like the concept of blame.  They view it as useless because it wastes time in looking for a solution.  I will tell you differently.  Blame is useful because it identifies offenders, which is the first step in eliminating the problem.  The trouble is that few have the stomach to get rid of the offenders.

So, as I traveled home from prayer meeting with my children last night, we listened to a radio show discussing the current credit crisis.  This was a good discussion, unlike many that I hear.  But the discussion (on NPR) eventually focused on “who should we blame?”  Okay, here is my incomplete version of who we should blame:

Complete Story » Robert Freedland submits:

'Egg on my face' anyone?

After spending the last five+ years on my blog repeating endlessly the mantra of 'listening to my portfolio', what did I do?  The darndest thing about my blog is that I have to do all of these dumb things so publicly!  My portfolio was down to one position, my Covance (CVD) stock and I knew that I had these 'permission slips' to be buying shares.  So with the first sign of a bit of strength in the market the last couple of days, I was in there full bore, moving back up to my minimum of five holdings.

Complete Story » Jason Schwarz submits:

Financial advisors across the nation have been trying to clean up the mess that Jim Cramer made. We had clients crying because of the panic he created. Our phones have been ringing off the hook. His market call on the Today Show this week for investors to completely liquidate out of the stock market is the most irrational market commentary I have ever heard. At a time when a seasoned market veteran should be preaching the benefits of diversification and patience to overcome the tough times, this guy sounded more like a rookie -- telling everyone to sell out after the S&P 500 had already dropped 30% for the year. Did he ever consider that adherence to such a strategy would collapse the entire investment system as we know it. This call might have been legitimate six months ago, but now?

His irresponsibility has no right being on television. He is doing a disservice to the very people he portends to help -- the novice investor. From his platform, he has the opportunity to instill confidence in a system that is better off now than it was a year ago. Just ask Warren Buffett. We now have the $700 billion package to prop up the mortgage security market -- just like Cramer said we needed. We have interest rates down to 1.5% -- just like Cramer said we needed. On top of that we have the Fed stepping in to buy billions in commercial paper. These structural changes provide a rebuilt foundation upon which our financials can actually reap the benefits of capitalism. Capitalism doesn't work without a market. Now we have a market. And Cramer decides to bail! Over the ensuing months he must be held accountable for this one.

Complete Story »