(21 Jan) Thursday's market continued to act like Rocky - taking the flurry of punches of bad news, seemingly ready to go to the mat when, all of a sudden, the head clears and we're up - still groggy - but ready to go to the next round.
I think this underscores a couple things.
First, when the information first is seen, it's like, "omigod - what can this mean?" and then the stock - in the case of earnings - or the market - in the case of economic reports - proceeds to fall. The first hour or so of activity is usually driven by emotions created by the overnight news and not so much by thoughtful action. What then happens during the market day is that the information is analyzed more carefully and the realization is that this isn't really "news", it's just the result of the bad stuff we've been going through and already know about. This takes a lot of the sting out of the info. Experienced investors and traders then look at the value and quality of the issue/market in terms of - NOT where it is - but, much more intelligently - where it's likely to go.
The other point I feel it makes is that the market doesn't want to stay down. While we've approached the lows of last November a few times, we have yet to really be in danger of penetrating them. This "behavior" is also representative of market bottoms and the gathering of the forces that will bring it "back to the light."
About that real estate
Housing starts and building permits continued to decline in December, hitting record lows dating back 50 years. Most of the problem is with two of the usual suspects, California and Florida.
Home builders across the country continue to clear out excess inventory by focusing their work crews on finishing homes that were already under construction. Further, as you may have noticed, December weather was worse than usual. There may continue to be a slight reduction in housing starts in the months ahead, but there's just not that much room left for future major declines.
According to Dr. Brian Wesbury, if you look at the new home building rate as it is today, the average house would have to last 236 years before it got replaced. That's roughly the age of Jefferson’s Monticello! A nice place - but I'm not sure if most homes can last quite that long. Typically, the “replacement rate” is about 70 years. In other words, building is well below the long-term sustainable pace in order to work off excess inventories.
In summary...
Please do not look at market performance - good or bad - as your primary determinant of how you invest. Identifying personally important goals, establishing individually appropriate asset allocation mixes to achieve each and then doing little or nothing in response to news of any sort is much more likely going to stand you in good stead over time.
Don't worry about what's "working" now - the fad or fear of the moment. Bear markets such as this are part and parcel of the ebbing and flowing of efficient markets - always have and will be. We've had 13 of these things since I first showed up on the planet. That's about one every five years and the average - average - amount of the drop has been 30%. This time does not seem any different to me.
Adjust/adapt/amend your perceptions. If you're to be successful in investing in the stock market - with whatever choices you select - you have to understand that this very success is based upon historically-based probabilities. It has nothing whatever to do with the remotely likely catastrophes the financial media has - and has always in these times - put forward.
What is key is an inherent faith in the future. Living in the US, I don't know how you can't just default to that. If you don't have that faith, stay in bonds and the like and just understand that your assets cannot expand at anything remotely close to the rate of stocks - based on those same historical probabilities.
You know my view - the future's so bright, I have to wear shades...
Thursday, January 22, 2009
Tech stocks and banks
(21 Jan) The markets did their own variation of the "Little Engine that Could" on Wednesday.
After spending the first few hours huffing and puffing and not really going anywhere, just before mid-day, traction was finally made and off we went. The markets were able to gain back almost all that they lost on Tuesday.
The techs
Looks as if the tech folks didn't have the Grinch come to see them at the end of last year. IBM showed a 12% gain for the last quarter and is looking for a pretty good year this year. Since it's part of the Dow Jones and about every other major large stock index, when they go up - everybody gets to go up too.
Apple put up record profits and revs for its first quarter. Apparently, people are buying the beejeezus out of IPhones, IPods and the Macs. Whatever. The traders assume that if some of these guys seem to be doing well, then a bunch of the others are likely going to do well too, so let's buy them...
As for the banks
Well, it's interesting to me that the CEOs of two of the banks in the news of late decided that it was a fine idea to go out and buy some of their own stock. The BankAmerica CEO shelled out for 200,000 for his own account with 5 directors each taking personal positions as well. On the other hand, the CEO of JP Morgan picked up 500,000 of his shares. The latter to me is much more meaningful.. Not just cuz the numbers of shares are more - it's also that the JPMorgan stock is over three times more expensive... On e move for show - the other, for dough.
A couple other banks reported profits for the fourth quarter and the year, respectively. That gave the traders all warm fuzzies so that sector did an about march today with the banks being up double-digits across the board.
Let's not forget the short sellers
Not a little of the fuel for this bounce came as people had sold short a number of these issues on the hope that they would continue to crater. Well, imagine their chagrin when they saw these positions going against them - big time. They came racing in to buy at whatever the price was so they didn't get crushed.
Buyers and short-covering is generally a great combination for moving higher.
The moral of the past two days
Well, I don't know about moral exactly but it's something to keep well in mind, in any case. One day does not a trend make. The markets will always - always - change day-to-day. To try to anticipate them is to try to catch mercury in your hands.
The only things you can count on getting from reacting to the daily market moves are (1) a lifetime requirement for a Maalox drip and (2) a personalized neck brace as a result of all the upping and downing you'll endure.
Invest in quality. Give it time. Don't listen to the news.
After spending the first few hours huffing and puffing and not really going anywhere, just before mid-day, traction was finally made and off we went. The markets were able to gain back almost all that they lost on Tuesday.
The techs
Looks as if the tech folks didn't have the Grinch come to see them at the end of last year. IBM showed a 12% gain for the last quarter and is looking for a pretty good year this year. Since it's part of the Dow Jones and about every other major large stock index, when they go up - everybody gets to go up too.
Apple put up record profits and revs for its first quarter. Apparently, people are buying the beejeezus out of IPhones, IPods and the Macs. Whatever. The traders assume that if some of these guys seem to be doing well, then a bunch of the others are likely going to do well too, so let's buy them...
As for the banks
Well, it's interesting to me that the CEOs of two of the banks in the news of late decided that it was a fine idea to go out and buy some of their own stock. The BankAmerica CEO shelled out for 200,000 for his own account with 5 directors each taking personal positions as well. On the other hand, the CEO of JP Morgan picked up 500,000 of his shares. The latter to me is much more meaningful.. Not just cuz the numbers of shares are more - it's also that the JPMorgan stock is over three times more expensive... On e move for show - the other, for dough.
A couple other banks reported profits for the fourth quarter and the year, respectively. That gave the traders all warm fuzzies so that sector did an about march today with the banks being up double-digits across the board.
Let's not forget the short sellers
Not a little of the fuel for this bounce came as people had sold short a number of these issues on the hope that they would continue to crater. Well, imagine their chagrin when they saw these positions going against them - big time. They came racing in to buy at whatever the price was so they didn't get crushed.
Buyers and short-covering is generally a great combination for moving higher.
The moral of the past two days
Well, I don't know about moral exactly but it's something to keep well in mind, in any case. One day does not a trend make. The markets will always - always - change day-to-day. To try to anticipate them is to try to catch mercury in your hands.
The only things you can count on getting from reacting to the daily market moves are (1) a lifetime requirement for a Maalox drip and (2) a personalized neck brace as a result of all the upping and downing you'll endure.
Invest in quality. Give it time. Don't listen to the news.
Tuesday, January 20, 2009
Challenges and opportunities abound
(20 Jan) So, we have another changing of the guard and, as a result, now it's all different and yet it's all still the same.
I was thinking as I watched the speech that it's really a great thing that our transfers of power are so smooth and decorous - even if it is only on the outside. There are many places - including a couple where I have been - that such transitions are a lot more noisy and much more "rancorous." Neither of the latter being in a good way, shall I say.
Just one of the many blessings of living where we do.
The markets forgot to cooperate
Apparently missing the fact that today was being touted as a day of change, all the major US indexes were lower today - continuing a trend that's, unfortunately, been in effect since election day last November. The Dow, off 4% today, finished below 8000 for the first time in a while. 8000 is just a number but I'm sure someone will try to parlay some significance into it. It was the biggest election day drop on record.
The main dragger Tuesday continued to be the financial stocks, especially the money-center banks. Those things might as well be radioactive the way they're being dumped and no one stepping up to buy. BankAmerica, Wells Fargo, Citigroup and JP Morgan all saw their share prices drop around 20%. Nobody said it would be pretty at the bottom.
Corporate earnings expectations for this year are also being reined in even more as the economic slowness makes the tea leaf readers believe companies won't be able to keep up over the year.
Treasury instruments dropped for the second day as bond traders believe that record amounts of debt will have to be sold to totally kill this recession.
On top of all this, even though oil is off about $3.60 a barrel in the past month, the national average gasoline price is up 17 cents. There are really two reasons. The first is that the oil being refined now was bought at higher prices that haven't worked their way into the system yet. The other is that refiners have cut their production back anyway as the number of miles being driven across the country is way off.
The sun will come out tomorrow
To paraphrase the definition of crazy, you can't keep doing the same thing over and over and expect different results. Idealism has to take a back seat to pragmatism in order to get us back on top our collective games again. You can't fund "programs" without money.
Based on what I heard this morning and suggestions made before that, I'm confident we can do this. But, we're now past the rhetorical part and into the "what do we do now, coach" part.
We'll see what type specifics are going to be brought into play by the new administration to deal with all this craziness. Successfully managing a campaign is way different from running the largest economy in the world.
If you ask me - our future's so bright, I have to wear shades...I totally believe that.
Subscribe to:
Posts (Atom)