Here is yet another aspect of the earnings bubble popping before your eyes. Companies not related to the housing/mortgage industry beginning to see their earnings crutch slip out from under them.
No shit......pull up the SPY chart and whatever the reason someone bought everything in sight (sometimes .05 and .10) above ask that pulled in the momo.
I am soooo tired of the ability to take up a market simply because they can...not for any fundamental reason but for the sake of inflating it so they have more room when the next shoe drops. So obvious that has been going on for weeks now. These rallies have no volume to them but when it falls the volume picks up.
Anyway....they just gave themselves another 1% when they downgrade the bond ins. tomorrow...on a friday no less.
Guys, The market is up despite very bad news on the unemployment claims. Going up on bad news is just about the most bullish signal there is. I also note that not only was there the Newsweek cover, but this week's New Yorker has a piece on Hyman Minsky.
giacutter writes:
Finding out that Bristol is holding bad mortgage paper is like cutting into your birthday cake and finding a dead rat inside.
giacutter | 01.31.08 - 12:15 pm | #
Gary writes:
. . . after you've had your first piece.
Gary | Homepage | 01.31.08 - 12:17 pm | #
Copy that.
What the hell is a drug company doing investing hundreds of millions in sub-prime? Don't they employ researchers anymore? Or only realtors?
dryfly-Most of the pharmas are sitting on so much cash they don't know what to do with it, so they, like everyone else went shopping for yield. And there are some great biotechs they could buy with terrific pipelines. Sigh...
This just means cash-rich corporates (and there are a lot of them out there), will be keeping less cash on their balance sheets and buying back more of their stock going forward.
Michael S-Time will tell. Be very careful on the short side right now. Short interest is the highest since 2002. Does that mean housing prices will go up or there will not be a recession? Not at all, but for now the bulls are in control.
Bulls definitely in control for the moment. No better example than Pulte Homes. Can somebody explain why, based on their conference call today, their stock would jump 15% today?
CR, I'd love to hear your take on their conference call and what the good news was...???
Short-Homebuilders are the one thing I'm short right now (though not happily). The world did just fine before there were any public builders and will do fine in the future without them. The demographics are against them (unlike pharma and biotech).
The economy requires banks, so they will not be permitted to fail. Most industrial companies are cash rich and will come through just fine.
The stock market tends to bottom 6 months before the economy does, so unless you believe we're in for a more than historically average recession, there is some sense in starting to buy stocks now. As for the home builders, that industry still has a couple of years of pain to endure, but with a price/book of 0.6 the worst may actually be priced in now. A guy named Buffett has made a fairly good living picking through the market's throw-aways when he could buy them at less than 70 cents on the dollar. I'm not prepared to go full boat here by any means, but it is tire kicking time.
Bzzz, wrong answer. Short-covering by hedge funds or other large players is more likely.
The media love to attribute stock market gyrations to a specific "event" or rumor. Taking out the emotion, lets look at some top stocks up big since this AM:
SPF (standard and pacific) up 28% (!)
PHM (pulte homes) up 15%
WCI (condo builder) up 14%
MBI up 9%. Good but not what I would call great given relative higher gains by builders.
Now ask yourself, why would Standard and Pacific, a homebuilder known to be near bankruptcy, be up nearly 30%? Explain to me how MBI not being downgraded would even affect them.
No, clearly this is just more hedge-fund driven volatility. Strap on the seat belts, it is going to get worse ...
If all of these companies are still swimming in cash, I'd suggest they stuff it under the mattress. In recessions having cash stockpiles is kinda important, especially when it begins to flow only one way.
my short positions are appropriate for this sort of crap....I wish i could pile it on however I can't outspend 'em so...
I'm merely venting at the ability to manipulate so blatantly....it was never so obvious in the past...you had to really look for it..Now it's just a simple as placing an order for 1000 SPX contracts (at market price) and then watching the damage occur (like last weds.)
My puts expire in April/May/June so I have adequate time to realize those...now if these damnable banks would just get it over with.....
I mentioned a couple of days ago bad paper was everywhere. It's gonna be a while before all the doors are open on "Lets make a deal". Did we get the prize or the donkey ? The donkey is most likely worth more...
Now ask yourself, why would Standard and Pacific, a homebuilder known to be near bankruptcy, be up nearly 30%? Explain to me how MBI not being downgraded would even affect them.
No, clearly this is just more hedge-fund driven volatility. Strap on the seat belts, it is going to get worse ...
central_scrutinizer | 01.31.08 - 1:00 pm | #
Tinfoil hat time,...someone is "painting you a picture"? Is there anyone with enough money to try to manipulate this stock? Shades of the pre-1929 pools!
Totally agree with your slant. Crap stocks seems to do great right before an impending hedgie blow-up. HOG is up 2 bucks for christ sakes!!! IF ever there was a stock targeted for disposal...
Tom said: "So when do us regular folk get let in on the reason for the big rally?"
Anytime you want. All you have to do is get the pertinent data. I keep telling people that if they just go to the effort of doing that they'll know as much as anyone else, but I'm about to give up.
At current levels you can buy the SP500 at a dividend yield equal to the T-bill rate.
T-bonds are yielding about 3.6%, but the earnings yield on the SP500 is about 250bp higher (based on peak earnings).
For anybody who knows anything about long-run valuations and returns, this is a screaming, pound-the-table value play.
Exactly. Corporate profits are at historic highs, and about to reverse direction dramatically. This will happen because consumer spending is about to plummet, with business spending doing the same with a lag, and earnings from financial-fantasy investments are about to not only disappear, but take some real earnings with them.
I looked through today's WSJ and found 25 negative articles. These are the headlines:
A1 Investors Flock to Gold
A2 Economy Slowed Sharply
A3 S&P Ramps up Mortgage Downgrades
A3 State Subprime Probe Takes a New Tack
A10 Izusu to End Distribution of Autos in North America
A11 High Food - Ingredients Costs Take Toll on Kraft, Kellogg
A12 Casino Developer Seeks Rescue
A12 Fed Officcial Is on Shaky Ground (bank regulation)
A12 Tensions Rise in Lending Probes
A12 Subpoena Deepens Countrywides Woes
A13 Japan's Lethargy Faces Next Chief of Central Bank
B1 Car-Industry Woes Push Key Supplier To Financial Brink
B1 CEO Pinching Penney in a Slowing Economy
B1 Farmers Wonder if Boom in Grain Prices Is a Bubble
B3 Dell Closing U.S. Kiosks For Shift to Store Sales
C1 How the Crunch Has Hit Corner Of Muni Market
C1 UBS's Mortgage Woes Increase
C1 Bond Insurers' Bad News Reverses a Rate-Cut Rally
C2 More Subprime Pine in Store
C2 Two Japanese Banks Report Declines o Mortgage Hits
C1-2 Trading-Scandal Fallout
C3 Deal Journal: Buyout Backlog: Are We There Yet?
C6 MBIA Sags After News Of Probe
C14 Euro Closes as High on Dollar
D1 I'll Buy Your House If You Buy Mine (house bartering)
I didn't list every single negative article, but focused on those that were of a more general or diagnostic nature (in my opinion).
If you toss out the political and lifestyle stuff, it is a lot of stuff.
The point is the main stream media is coving things in significant detail.
This trend has been visible in the last week to me -- the msm 4 months ago was quite bullish.
The people reading CR aren't the only people that are reading about bad news.
History does us no good at this point in time I'm afraid. Value is inherent in the eye of the beholder. Just because you say the sun will rise in the west does not make it so.....however you might have quite a few people watching the western horizon in the morning.
It's akin to saying "this stock has to go up because it is down %50"
That is the psychology the market and it's participants are working out right now. Is it really down 50% from it's peak value or was it's valuation flawed from the start?
SEBASTIAN: "For anybody who knows anything about long-run valuations and returns, this is a screaming, pound-the-table value play."
As someone who is more bullish on US stocks than almost any other stocks (except Japan), I agree with your sentiment. However, it's not "pound-the-table" stuff yet--unless you are talking about specific sectors (like financials or consumer discretionary).
Remember, home builders had record earnings yet never traded at market P/E ratios. Many fell into that bear trap based on the appearance of value. In reality, there was NO positive cash flow ever with the home builders during the boom. A red flag that was ignored by value hunters. The source of the record profits for the home builders was an unsustainable and fictional increase in the value of their holdings.
The financials (30%+ of S&P 500 profits) are now experiencing the same reversal of fortune.
There is nothing new here. Simple overvaluation is all, IMO.
I looked through today's WSJ and found 25 negative articles. These are the headlines:
Seems to me like the WSJ is behind the power-curve. Bullish when conditions represent bearish concerns (4 months ago) and are now uber bearish when everyone is coming together for bailouts and loss mitigation.
The easiest answer I have seen is that you have to go to the opposite of the media. Remember when there was the "Home Sweet Home" newsweek cover in June 2005, THAT WAS THE PEAK, and they just started covering an asset bubble and how it was the new economy!
Everyone and their brother can't stop covering the recession, it's starting to be overdone media wise.
Going up on bad news is just about the most bullish signal there is. I also note that not only was there the Newsweek cover, but this week's New Yorker has a piece on Hyman Minsky.
Nuff said...
Aheadofthecurve | 01.31.08 - 12:23 pm | #
Hope I dont run out of space here, but wrote this last week and it seems to fit the topic
It is often said that history does not repeat, but it does rhyme. Therefore in assessing what the long-term effect of the Fed's recent surprise rate cut will be it is useful to look at what has happened in the past.
The most similar instance I can think of was on January 3, 2001. Then as now, the economy was clearly slowing and recession was starting to appear on the radar screen of both pundits and policy makers. The stock market had topped out back in March of 2000, and the S&P 500 was at the open of that day off 16% from its highs. The junkiest sector of the market at that time was Tech, which was well into the dot.com meltdown by that point. The Nasdaq was off 55% from its highs. In a surprise intermeeting move, the Fed cut rates by 50 basis points.
So what happened in reaction to the cut? Well, the garbage got a big lift. That day the Nasdaq opened at 2,225, and closed at 2,617, and awesome 16% rise in a single day! It was not through with its bounce, though, and over the next few weeks it continued to rise, eventually topping out a 2,859 on January 24, an additional 9.3% rise from the January 3rd close.
The S&P 500 had a similar -- if more muted -- reaction, rising 5.0% on the day of the cut, and gradually working its way another 1.9% higher by January 30th when the bounce petered out. The final bottoms in both indexes were not reached until the fall of 2002, with the Nasdaq falling 58% from the top of its bounce, and the S&P falling 42% from the top of its bounce.
The response this time has been far more muted, but the pattern is similar. Today, the sector that is of the most concern -- the equivalent of the Nasdaq back then -- are the Financials. On Tuesday, the Financial ETF, the XLF rose from an open of 24.21 to a close of 26.05, a rise of 7.6%. Prior to the move, the XLF was off 34.8% from its high back in May.
Keep in mind that this time the Fed announcement was made before the market opened, as opposed to during market hours back in 2001, and the futures rallied significantly before the market opened on the news. Through the close yesterday, the XLF has rallied and additional 7.1%. The S&P was actually down slightly on the day of the cut (although up 2.8% off the lows of the session) and is 3.2% higher than Tuesday's close.
Thus if you buy the analogy of the Financials (and Homebuilders) today being the equivalent of the Techs back in 2000-2001, we can expect to see the current bounce in the market, and particularly in the most troubled part of the market, continue for another week or two. However, then the fun is over and we suffer more pain.
It seems to me to be a good idea to use this bounce to get out of some of what has bounced the most. In particular, some of the firms most exposed to the mortgage mess. These include Washington Mutual (WM), Citigroup (C), Bank of America (BAC) (thanks to its pending merger with Countrywide, in particular), PMI Group (PMI) and MGIC (MTG). I would also advise avoiding, or shorting, the homebuilders such as Beazer (BZH), Standard Pacific (SPF), Ryland (RYL) and D.R. Horton (DHI).
Bear markets do not last forever, and the market will bottom out before the economy does. This time around the market was not starting out with valuations that were as out of whack as at the top of the dot.com bubble. Relative to interest rates, stocks already look pretty cheap, particularly if earnings outside of the Financials do not totally fall apart.
Therefore, I don't think the bear market will be as bad as last time around. However, I don't think it is over yet. After this bounce we will likely see significant pain for a few more months. Come April or May, however, we could have a great buying opportunity.
MAB: "What time horizon do you consider "long-run" when you say valuations are below trend??"
Long-run to me would be, say, 10 years. Anyway, I don't think I said valuations are below trend. I'm not sure what that means anyway (what's the trend?). Instead, the way I look at it, US equities are starting to get attractive because their valuations (say based on P/E or P/S or even P/B) are low compared to the rest of the world. This is especially true if you were a foreigner (since the US$ has declined quite a bit). As Sabastian pointed out, earnings yield are decent right now. Even if you adjust for peak earnings, things aren't overvalued IMO...
I can be wrong but the way I see things, financials & consumer disc are on the attractive side; while materials and energy (along with other cyclicals, including consumer discretionary cyclicals like autos, airlines and industrials) are unattractive.
Before I mislead anyone, I'm just a newbie and I'm a stockpicker (or at least trying to become one) so don't blindly listen to my sector calls. I have less confidence in my sector calls than individual company calls...
Dirk-Your post is very interesting. I would point out that in 2001, the market may well have been in the process of stabilizing when Sept 11 happened. It was also the beginning of a new administration (God help us) and not an election year. Also the dot.com stock valuations were absolutely astronomical; you can argue over whether today's valuations are cheap or not, but they way below what they were in 2000.
That said, I don't like the homebuilders, because of the huge inventory overhangs and the demographics. They are the new kids on the block, like the dot.coms were, and just like most of the dot.coms we can easily do without them. What niche building is needed can be done by local guys.
The bamks are different, since the economy can't get along without them. The Fed cuts are a huge help to them and there is little doubt in my mind they will get whatever is necessary to survive. That said I am not ready to jump on most of them yet, other than the most conservative ones.
What I find really attractive are the global industrial companies-take GE. Its stock has gone nowhere in 4 years, yet it pays a divy of 3.6%, which is higher than you can get in treasuries or CDs. 3M is similar. They are helped greatly by the weak dollar, as well. Those seem like ones to buy and put in a drawer now. If they go down a bit, you get paid to own them. On the other hand, the upside potential is big. I'd add PFE and a MRK after its recent beating.
I'm uncomfortable using current treasury yields as a basis for valuations. Currently, all treasuries (except the 30yr) have a negative yield prior to taxes. To me, treasuries are being priced purely on fear. Less than 6 months ago 2yr & 10yr yields were over 5%. That seems more realistic.
Did inflation decrease in the last year? No! Inflation actually increased to the highest rate in 17 years. Are the markets irrational now? Maybe. But we have serious systemic threats to our banking system as many on this blog have pointed out.
"materials and energy (along with other cyclicals, including consumer discretionary cyclicals like autos, airlines and industrials) are unattractive."
i dont know much about autos and airlines, but i know a fair amount about resource companies and they are about as cheap as they get relative to the underlying commodities in which they deal. some of them were a lot cheaper 6 days ago, but they are still easy to own. i've read a bunch of research reports on mining and energy co's and the only consistent point across nearly all the reports is the analysts opinion that the underlying commodity pricing is heading down in '08. This forms the basis for all their valuation calls of things be 'fairly valued' or just a little cheap. The extraordinary thing about all this, is that the market can give you an exact price for all these commodities out several years and you can trade it if you want. If you plug in the actually traded commodity strip prices the earning/cash flow estimates become absurdly cheap. 6 days ago, i got to buy fcx at 6.9x 2008 research estimated earnings, based on a copper price that doesn't exist. The price based on the real strip was closer to 6x. From my own grapevine, there are some pretty big spec short positions in the LME and if this 'recesssion' turns out to be a fakeout with regards to emerging markets and global commodity demand, you are going to see some moves that will knock your socks off.
MAB- I agree with you on treasuries. Right now the yields suck and the upside potential on price is close to nil. So, I think money will leave treasuries. But when it does, where will it go? RE? I doubt it. Commodities? Maybe a little. But I think most will go to stocks, especially those with yields that are as good as treasuries, but have upside potential.
But after that happens, then stocks will be less cheap and I will have to re-evaluate.
michael schumacher said: "...It's akin to saying "this stock has to go up because it is down %50"
That is the psychology the market and it's participants are working out right now. Is it really down 50% from it's peak value or was it's valuation flawed from the start?..."
Clearly, there were vastly over-stated earnings in the tech-stock bubble, too. However, using peak earnings as a stable measuring point also worked for identifying favorable valuations at the 2002-03 market lows.
Again: The recent SP500 low represents the best buying opportunity on a value basis since 2003, 1994 before that, and 1991 before that.
Finally, as always, not because I say so, but because the historical data does.
Seb comes straight at you from the CFA course sales brochure...
Using relative valuation stat's shows how the shrewd can arbitrage asset prices and live the hi-life, utilizing OPM while caring little about society at large...
Straight from the pages of
Thats my thinking too. I just don't think stocks in general will be very interesting over the next few years. I've been following and/or own all of the names you mentioned. Dead money mostly, but good dividends and a reasonable chance for appreciation going forward. I'm a bunt single hitter though.
This housing/banking bust really scares me. I have little faith in the Fed or our politicians. I suspect losses will get much larger and be much more widespread. Not a good environment for stocks, imo.
MAB: "Did inflation decrease in the last year? No! Inflation actually increased to the highest rate in 17 years. Are the markets irrational now? Maybe. But we have serious systemic threats to our banking system as many on this blog have pointed out."
To the shock and horror of many here, I actually "believe" in the official inflation numbers Inflation is NOT a threat. The deflationary forces are far more powerful than any inflationary force at work. There is nothing out there that is more powerful than the housing deflation right now. Even in countries like China, where inflation is rampant, there are huge deflationary threats from an almost inevitable collapse in stocks and real estate.
Given that I don't perceive inflation as a threat--the market view is similar to mine--the bond yields make sense. The inflation bulls have been wrong for years (the only thing that saved them is the fact that cheap money has propped up commodities, not to mention almost any other asset including art, collectibles, emerging market debt, penny stocks, and so forth).
I think where you will be right is for the long-term (as opposed to the near-term). Bonds have been in a huge 20-year bull market and this is going to end. Not now but after any slowdown/recession. Then we will likely see bond yields start to rise. This long-term rise in bond yields is one reason I believe US stocks will only post 5% to 8% returns for the next few decades, as opposed to the 10%+ in the last two decades...
dunham,
industrials as a group are not really leveraged to US consumer spending. They are a play on the worldwide infrastructure which is directly a bet on the emergence of 2 billion people onto the economic scene.
The biggest deficiency in the emerging world is infrastructure. There was an article in either the NYT or bloomberg today on the failing of south africas electricity grid, because they have grown so fast they can't keep up with energy demand. China is in the same boat. Unlike finance, or even a lot of high tech, these things are hard to build and take lots of time. There will be no new fab cranking out zillions of chips to take advantage of a spike in memory demand. To build a major league power plant, mine, railroad, grid etc, is a big time engineering project to which there are no real shortcuts. All those massive dollar reserves are going to buy something and this stuff is just the ticket.
david, MAB-A number of my acquaintances work for GE Power systems in Schenectady, NY, near where i live. Their order backlog is around 9 months and after shrinking for decades they are hiring over 500 engineers and techs this year.
Why you ask? Look no further than the snowstorms that have paralysed China this week and led to power outages all over the country. And severe power shortages in South Africa that have shut doan the gold mines despite record gold prices.
i have a cost avg of 8.26 on 50000 shares of csco , on the day of the 02 low...(sld at 13.35)
not once did i think about earnings as the reason for the purchase.
the data says so because the chart's show what happened, not because earnings troughed...
in 02-03, there was no way out of the malaise, other than war and i/o's
why not measure procductivity gains?
how about avg work week earnings?
how about avg indebtedness from the median worker?
How about time off for the median worker(other wise known as quality of life)
seb... either works for the mututal fund industry, aei , hoover institution, are other conservative think tank...
listen to his fairy tale at your own risk....
he said the same thing 160 points ago.
DAVE_IN_CT: "
i dont know much about autos and airlines, but i know a fair amount about resource companies and they are about as cheap as they get relative to the underlying commodities in which they deal."
Dave, I don't know what your time frame is but I've been bearish on commodities for a while. I have to say, I have been wrong throughout that time as well. I think you are a short-term trader whereas my opinion is more of a long-term view.
Anyway, I disagree with your view that commodity stocks are cheap. Commodities are cyclical and a theory that I subscribe to says to sell when P/E is low and buy when P/E is high. Commodity stocks look cheap because the underlying commodities--and hence earnings--are high. To make matters worse, a lot of the run-up in commodities is due to the "China-to-da-moon" theory, which may or may not turn out to be true.
None of this means I'm right; I can still see people making a ton of money (usually you make more money near the top of a speculative bubble than near the bottom). But there is very little fundamental reason to say commodity stocks are cheap UNLESS you are pretty certain that commodity prices won't collapse.
I think the easy money in commodities has been made. For example, oil went up roughly 5x from $20 to $100. Well, the chance of it going up 5x now, from around $100 to $500 is pretty slim IMO.
Most value investors generally shun commodity-type investments. But if you have the skill to pick a top and bottom, you'll make a killing. People have made fortunes off the swings in cyclicals like GM. Similarly, commodity stocks can work out but likely not for the long-term...
I'm comfortable with your outlook of 5% to 8% returns from stocks in the next few decades. Short term I'm bearish though. The solvency of our banking system spooks me.
As for inflation, a housing bust will have no affect on CPI. Actual housing costs were removed from CPI measurements over a period from 1983 to 1987. Owner's equivalent rents replaced actual housing costs and have been dis-inflationary due to the housing boom.
1yr, 3yr & 5yr moving averages of inflation are all rising. I believe accomodative fed policies and out of control politicians will further increase these trends.
You are right about the mbia spreadsheet problem. They just have values in that column, so it is impossible to tell exactly how they managed to get their writedown over 100%.
As far as the reasonability of the spreadsheet, the writedowns are concentrated on a few of the issues. I think you would really need to get into the details to get an idea of where they are going.
The ABK site has listings of the underlying securities that can be downloaded. Not that I am going to spend much time on this.
zig:
yeah, almost bought the stock this morning just as a shot, but i talked myself out of it just so i could stick to my knitting so to speak.
there are easier fish to fry.
i was hoping that ackman's diatribe would be accompanied by a good piece of research complete with real scenario analysis. the fact that it is so lame leads me to believe he has seen the writing on the wall and it was a hail mary to get out. i think a few people might have smelled the fear and lit him up.
Sebastian's World said: "seb... either works for the mututal fund industry, aei , hoover institution, are other conservative think tank...
listen to his fairy tale at your own risk....
he said the same thing 160 points ago."
Better yet, get the data on valuations and returns and see for yourselves, that way you don't have to trust anyone's fairytales.
Power to the little people, through superior knowledge and critical thinking skills.
"But there is very little fundamental reason to say commodity stocks are cheap UNLESS you are pretty certain that commodity prices won't collapse."
But that's just it, the stocks are already priced for the collapse but the market is telling you that its not going to happen.
I don't need a rally in the commodities to make money on these things just a realization of the future's strip. If I was a chicken I could short the strip as a hedge, but there is a little voice in my head which says if the consensus opinion is collapse, then that has already been expressed in short positions and if that has to unwind we might see a prices in underlying actually head north. if that happens i will get paid twice.
just as an aside, the small cap miners are dead in the water. this is a really good sign, because the best of these moves generally have the big cap liquid stocks move first with the small caps only picking up as the idea starts to become accepted.
its fun talking your book especially on a good day. i'm sure there will be plenty of bad ones in the future to compensate.
RE: MBIA. Let's assume for one second that this IS actually the case (not that I believe this for a moment). What about all the other monolines? All the available evidence strongly suggests that they are insolvent. So best case scenario, one is solvent, all the rest are BK.
What the hell is a drug company doing investing hundreds of millions in sub-prime?
Excellent question. My guess is they were trying to improve return on some excess cash they had sitting around. Makes me wonder what AAPL is doing with the $18Bln they have on the balance sheet.
They must have been on drugs when they invested.
So when do us regular folk get let in on the reason for the big rally?
The problem is contained to the pharmaceutical industry.
Stocks rise on word MBIA to keep AAA rating.
U.S. Stocks Rise, Trimming January Decline; MBIA Shares Climb - Bloomberg.com
Sebastian and O-Joe, are you out there?
Here is yet another aspect of the earnings bubble popping before your eyes. Companies not related to the housing/mortgage industry beginning to see their earnings crutch slip out from under them.
Finding out that Bristol is holding bad mortgage paper is like cutting into your birthday cake and finding a dead rat inside.
Tom-
No shit......pull up the SPY chart and whatever the reason someone bought everything in sight (sometimes .05 and .10) above ask that pulled in the momo.
I am soooo tired of the ability to take up a market simply because they can...not for any fundamental reason but for the sake of inflating it so they have more room when the next shoe drops. So obvious that has been going on for weeks now. These rallies have no volume to them but when it falls the volume picks up.
Anyway....they just gave themselves another 1% when they downgrade the bond ins. tomorrow...on a friday no less.
. . . after you've had your first piece.
a spokeswoman for the New York-based drugmaker ...
always consult your physician before drinking the bongwater. side-effects may include large writedowns and bloggers making fun of you.
Stocks rise on word MBIA to keep AAA rating.
Did they say how they are going to do it?
Guys, The market is up despite very bad news on the unemployment claims. Going up on bad news is just about the most bullish signal there is. I also note that not only was there the Newsweek cover, but this week's New Yorker has a piece on Hyman Minsky.
Nuff said...
If recession lasts for more than 6 months, please contact your physician.
Holy smoke! The Great SKF Crash of 2008 just keeps on going.
giacutter writes:
Finding out that Bristol is holding bad mortgage paper is like cutting into your birthday cake and finding a dead rat inside.
giacutter | 01.31.08 - 12:15 pm | #
Gary writes:
. . . after you've had your first piece.
Gary | Homepage | 01.31.08 - 12:17 pm | #
Copy that.
What the hell is a drug company doing investing hundreds of millions in sub-prime? Don't they employ researchers anymore? Or only realtors?
squib
My guess is it's not just Bristol Myers. It's going to get ugly when it turns out that every blasted company on the stock exchange is infected...
Not when you can throw an inordinate amount of "tax receipts" and other "collateral" exchanged by the Fed for cash.
The market is up on someone speculating that MBIA "might" keep it's ratings.
I "might" win the lottery tomorrow....
so as to say yet another "rally" on a calculated PR stunt.
Just like Ross "might" buy one of them before they are downgraded.
bullshit news and rally
dryfly-Most of the pharmas are sitting on so much cash they don't know what to do with it, so they, like everyone else went shopping for yield. And there are some great biotechs they could buy with terrific pipelines. Sigh...
My best guess as to what this will mean: their stock will go up.
did Bristol Myers have a rogue trader too??
Theme for contemplation - Edgar Allen Poe's "Masque of the Red Death"
This just means cash-rich corporates (and there are a lot of them out there), will be keeping less cash on their balance sheets and buying back more of their stock going forward.
Michael S-Time will tell. Be very careful on the short side right now. Short interest is the highest since 2002. Does that mean housing prices will go up or there will not be a recession? Not at all, but for now the bulls are in control.
Aheadofthecurve,
Bulls definitely in control for the moment. No better example than Pulte Homes. Can somebody explain why, based on their conference call today, their stock would jump 15% today?
CR, I'd love to hear your take on their conference call and what the good news was...???
Did they say how they are going to do it?
REBear | 01.31.08 - 12:23 pm | #
According to the call they plan to (among other things) offload some of their risk onto the reinsurance market.
It wasn't clear whether they're going to try to find a real reinsurer this time, or just create their own again.
This makes no sense to me. Maybe your drugs would be cheaper if you didn't invest in housing and spend so much on ads!
The people who run our corporations are morons.
Short-Homebuilders are the one thing I'm short right now (though not happily). The world did just fine before there were any public builders and will do fine in the future without them. The demographics are against them (unlike pharma and biotech).
The economy requires banks, so they will not be permitted to fail. Most industrial companies are cash rich and will come through just fine.
Best of luck trading this market
If they're morons why are they so rich?
what does wealth and intelligence have to do with one another?
Case and point: our president.
The stock market tends to bottom 6 months before the economy does, so unless you believe we're in for a more than historically average recession, there is some sense in starting to buy stocks now. As for the home builders, that industry still has a couple of years of pain to endure, but with a price/book of 0.6 the worst may actually be priced in now. A guy named Buffett has made a fairly good living picking through the market's throw-aways when he could buy them at less than 70 cents on the dollar. I'm not prepared to go full boat here by any means, but it is tire kicking time.
Stocks rise on word MBIA to keep AAA rating.
Bzzz, wrong answer. Short-covering by hedge funds or other large players is more likely.
The media love to attribute stock market gyrations to a specific "event" or rumor. Taking out the emotion, lets look at some top stocks up big since this AM:
SPF (standard and pacific) up 28% (!)
PHM (pulte homes) up 15%
WCI (condo builder) up 14%
MBI up 9%. Good but not what I would call great given relative higher gains by builders.
Now ask yourself, why would Standard and Pacific, a homebuilder known to be near bankruptcy, be up nearly 30%? Explain to me how MBI not being downgraded would even affect them.
No, clearly this is just more hedge-fund driven volatility. Strap on the seat belts, it is going to get worse ...
If all of these companies are still swimming in cash, I'd suggest they stuff it under the mattress. In recessions having cash stockpiles is kinda important, especially when it begins to flow only one way.
"I'm in pharma because I was afraid of the financials and reinsurers. this way I'm not exposed to the cerdit market turmoil."
my short positions are appropriate for this sort of crap....I wish i could pile it on however I can't outspend 'em so...
I'm merely venting at the ability to manipulate so blatantly....it was never so obvious in the past...you had to really look for it..Now it's just a simple as placing an order for 1000 SPX contracts (at market price) and then watching the damage occur (like last weds.)
My puts expire in April/May/June so I have adequate time to realize those...now if these damnable banks would just get it over with.....
MS
dryfly | 01.31.08 - 12:26 pm |
I mentioned a couple of days ago bad paper was everywhere. It's gonna be a while before all the doors are open on "Lets make a deal". Did we get the prize or the donkey ? The donkey is most likely worth more...
Chris
Now ask yourself, why would Standard and Pacific, a homebuilder known to be near bankruptcy, be up nearly 30%? Explain to me how MBI not being downgraded would even affect them.
No, clearly this is just more hedge-fund driven volatility. Strap on the seat belts, it is going to get worse ...
central_scrutinizer | 01.31.08 - 1:00 pm | #
Tinfoil hat time,...someone is "painting you a picture"? Is there anyone with enough money to try to manipulate this stock? Shades of the pre-1929 pools!
central scrutinizer-
One of my all time favorite albums..
"the charming Mary from Canoga park"
Totally agree with your slant. Crap stocks seems to do great right before an impending hedgie blow-up. HOG is up 2 bucks for christ sakes!!! IF ever there was a stock targeted for disposal...
Gotta love it though....
John Stark wrote:
Because of various rent-collection privileges that stem from the principle-agent problem in corporate governance.
Tom said: "So when do us regular folk get let in on the reason for the big rally?"
Anytime you want. All you have to do is get the pertinent data. I keep telling people that if they just go to the effort of doing that they'll know as much as anyone else, but I'm about to give up.
At current levels you can buy the SP500 at a dividend yield equal to the T-bill rate.
T-bonds are yielding about 3.6%, but the earnings yield on the SP500 is about 250bp higher (based on peak earnings).
For anybody who knows anything about long-run valuations and returns, this is a screaming, pound-the-table value play.
S.
Sebastian,
Real PCE is trending down. Do you believe that this will turn around?
Consumer spending is the engine.....
Sebastion,
I'm not so sure. Corporate profits are at historic highs. Your peak earnings include financial profits based on bogus valuations.
We are way above historic valuations here for stocks, bonds and real estate. Are there good buys here, sure. But all stocks have beta.
MAB,
Exactly. Corporate profits are at historic highs, and about to reverse direction dramatically. This will happen because consumer spending is about to plummet, with business spending doing the same with a lag, and earnings from financial-fantasy investments are about to not only disappear, but take some real earnings with them.
Today's Print WSJ
I looked through today's WSJ and found 25 negative articles. These are the headlines:
A1 Investors Flock to Gold
A2 Economy Slowed Sharply
A3 S&P Ramps up Mortgage Downgrades
A3 State Subprime Probe Takes a New Tack
A10 Izusu to End Distribution of Autos in North America
A11 High Food - Ingredients Costs Take Toll on Kraft, Kellogg
A12 Casino Developer Seeks Rescue
A12 Fed Officcial Is on Shaky Ground (bank regulation)
A12 Tensions Rise in Lending Probes
A12 Subpoena Deepens Countrywides Woes
A13 Japan's Lethargy Faces Next Chief of Central Bank
B1 Car-Industry Woes Push Key Supplier To Financial Brink
B1 CEO Pinching Penney in a Slowing Economy
B1 Farmers Wonder if Boom in Grain Prices Is a Bubble
B3 Dell Closing U.S. Kiosks For Shift to Store Sales
C1 How the Crunch Has Hit Corner Of Muni Market
C1 UBS's Mortgage Woes Increase
C1 Bond Insurers' Bad News Reverses a Rate-Cut Rally
C2 More Subprime Pine in Store
C2 Two Japanese Banks Report Declines o Mortgage Hits
C1-2 Trading-Scandal Fallout
C3 Deal Journal: Buyout Backlog: Are We There Yet?
C6 MBIA Sags After News Of Probe
C14 Euro Closes as High on Dollar
D1 I'll Buy Your House If You Buy Mine (house bartering)
I didn't list every single negative article, but focused on those that were of a more general or diagnostic nature (in my opinion).
If you toss out the political and lifestyle stuff, it is a lot of stuff.
The point is the main stream media is coving things in significant detail.
This trend has been visible in the last week to me -- the msm 4 months ago was quite bullish.
The people reading CR aren't the only people that are reading about bad news.
we are wayyyyy passed peak earnings.
History does us no good at this point in time I'm afraid. Value is inherent in the eye of the beholder. Just because you say the sun will rise in the west does not make it so.....however you might have quite a few people watching the western horizon in the morning.
It's akin to saying "this stock has to go up because it is down %50"
That is the psychology the market and it's participants are working out right now. Is it really down 50% from it's peak value or was it's valuation flawed from the start?
I'll take the latter
MS
SEBASTIAN: "For anybody who knows anything about long-run valuations and returns, this is a screaming, pound-the-table value play."
As someone who is more bullish on US stocks than almost any other stocks (except Japan), I agree with your sentiment. However, it's not "pound-the-table" stuff yet--unless you are talking about specific sectors (like financials or consumer discretionary).
Short Courage,
Remember, home builders had record earnings yet never traded at market P/E ratios. Many fell into that bear trap based on the appearance of value. In reality, there was NO positive cash flow ever with the home builders during the boom. A red flag that was ignored by value hunters. The source of the record profits for the home builders was an unsustainable and fictional increase in the value of their holdings.
The financials (30%+ of S&P 500 profits) are now experiencing the same reversal of fortune.
There is nothing new here. Simple overvaluation is all, IMO.
Siv V,
What time horizon do you consider "long-run" when you say valuations are below trend??
Today's Print WSJ
I looked through today's WSJ and found 25 negative articles. These are the headlines:
Seems to me like the WSJ is behind the power-curve. Bullish when conditions represent bearish concerns (4 months ago) and are now uber bearish when everyone is coming together for bailouts and loss mitigation.
The easiest answer I have seen is that you have to go to the opposite of the media. Remember when there was the "Home Sweet Home" newsweek cover in June 2005, THAT WAS THE PEAK, and they just started covering an asset bubble and how it was the new economy!
Everyone and their brother can't stop covering the recession, it's starting to be overdone media wise.
Going up on bad news is just about the most bullish signal there is. I also note that not only was there the Newsweek cover, but this week's New Yorker has a piece on Hyman Minsky.
Nuff said...
Aheadofthecurve | 01.31.08 - 12:23 pm | #
Hope I dont run out of space here, but wrote this last week and it seems to fit the topic
It is often said that history does not repeat, but it does rhyme. Therefore in assessing what the long-term effect of the Fed's recent surprise rate cut will be it is useful to look at what has happened in the past.
The most similar instance I can think of was on January 3, 2001. Then as now, the economy was clearly slowing and recession was starting to appear on the radar screen of both pundits and policy makers. The stock market had topped out back in March of 2000, and the S&P 500 was at the open of that day off 16% from its highs. The junkiest sector of the market at that time was Tech, which was well into the dot.com meltdown by that point. The Nasdaq was off 55% from its highs. In a surprise intermeeting move, the Fed cut rates by 50 basis points.
So what happened in reaction to the cut? Well, the garbage got a big lift. That day the Nasdaq opened at 2,225, and closed at 2,617, and awesome 16% rise in a single day! It was not through with its bounce, though, and over the next few weeks it continued to rise, eventually topping out a 2,859 on January 24, an additional 9.3% rise from the January 3rd close.
The S&P 500 had a similar -- if more muted -- reaction, rising 5.0% on the day of the cut, and gradually working its way another 1.9% higher by January 30th when the bounce petered out. The final bottoms in both indexes were not reached until the fall of 2002, with the Nasdaq falling 58% from the top of its bounce, and the S&P falling 42% from the top of its bounce.
The response this time has been far more muted, but the pattern is similar. Today, the sector that is of the most concern -- the equivalent of the Nasdaq back then -- are the Financials. On Tuesday, the Financial ETF, the XLF rose from an open of 24.21 to a close of 26.05, a rise of 7.6%. Prior to the move, the XLF was off 34.8% from its high back in May.
Keep in mind that this time the Fed announcement was made before the market opened, as opposed to during market hours back in 2001, and the futures rallied significantly before the market opened on the news. Through the close yesterday, the XLF has rallied and additional 7.1%. The S&P was actually down slightly on the day of the cut (although up 2.8% off the lows of the session) and is 3.2% higher than Tuesday's close.
Thus if you buy the analogy of the Financials (and Homebuilders) today being the equivalent of the Techs back in 2000-2001, we can expect to see the current bounce in the market, and particularly in the most troubled part of the market, continue for another week or two. However, then the fun is over and we suffer more pain.
It seems to me to be a good idea to use this bounce to get out of some of what has bounced the most. In particular, some of the firms most exposed to the mortgage mess. These include Washington Mutual (WM), Citigroup (C), Bank of America (BAC) (thanks to its pending merger with Countrywide, in particular), PMI Group (PMI) and MGIC (MTG). I would also advise avoiding, or shorting, the homebuilders such as Beazer (BZH), Standard Pacific (SPF), Ryland (RYL) and D.R. Horton (DHI).
Bear markets do not last forever, and the market will bottom out before the economy does. This time around the market was not starting out with valuations that were as out of whack as at the top of the dot.com bubble. Relative to interest rates, stocks already look pretty cheap, particularly if earnings outside of the Financials do not totally fall apart.
Therefore, I don't think the bear market will be as bad as last time around. However, I don't think it is over yet. After this bounce we will likely see significant pain for a few more months. Come April or May, however, we could have a great buying opportunity.
MAB: "What time horizon do you consider "long-run" when you say valuations are below trend??"
Long-run to me would be, say, 10 years. Anyway, I don't think I said valuations are below trend. I'm not sure what that means anyway (what's the trend?). Instead, the way I look at it, US equities are starting to get attractive because their valuations (say based on P/E or P/S or even P/B) are low compared to the rest of the world. This is especially true if you were a foreigner (since the US$ has declined quite a bit). As Sabastian pointed out, earnings yield are decent right now. Even if you adjust for peak earnings, things aren't overvalued IMO...
I can be wrong but the way I see things, financials & consumer disc are on the attractive side; while materials and energy (along with other cyclicals, including consumer discretionary cyclicals like autos, airlines and industrials) are unattractive.
Before I mislead anyone, I'm just a newbie and I'm a stockpicker (or at least trying to become one) so don't blindly listen to my sector calls. I have less confidence in my sector calls than individual company calls...
Dirk-Your post is very interesting. I would point out that in 2001, the market may well have been in the process of stabilizing when Sept 11 happened. It was also the beginning of a new administration (God help us) and not an election year. Also the dot.com stock valuations were absolutely astronomical; you can argue over whether today's valuations are cheap or not, but they way below what they were in 2000.
That said, I don't like the homebuilders, because of the huge inventory overhangs and the demographics. They are the new kids on the block, like the dot.coms were, and just like most of the dot.coms we can easily do without them. What niche building is needed can be done by local guys.
The bamks are different, since the economy can't get along without them. The Fed cuts are a huge help to them and there is little doubt in my mind they will get whatever is necessary to survive. That said I am not ready to jump on most of them yet, other than the most conservative ones.
What I find really attractive are the global industrial companies-take GE. Its stock has gone nowhere in 4 years, yet it pays a divy of 3.6%, which is higher than you can get in treasuries or CDs. 3M is similar. They are helped greatly by the weak dollar, as well. Those seem like ones to buy and put in a drawer now. If they go down a bit, you get paid to own them. On the other hand, the upside potential is big. I'd add PFE and a MRK after its recent beating.
Dirk, Siv. V.,
Good points Dirk.
I'm uncomfortable using current treasury yields as a basis for valuations. Currently, all treasuries (except the 30yr) have a negative yield prior to taxes. To me, treasuries are being priced purely on fear. Less than 6 months ago 2yr & 10yr yields were over 5%. That seems more realistic.
Did inflation decrease in the last year? No! Inflation actually increased to the highest rate in 17 years. Are the markets irrational now? Maybe. But we have serious systemic threats to our banking system as many on this blog have pointed out.
Just thoughts.
"materials and energy (along with other cyclicals, including consumer discretionary cyclicals like autos, airlines and industrials) are unattractive."
i dont know much about autos and airlines, but i know a fair amount about resource companies and they are about as cheap as they get relative to the underlying commodities in which they deal. some of them were a lot cheaper 6 days ago, but they are still easy to own. i've read a bunch of research reports on mining and energy co's and the only consistent point across nearly all the reports is the analysts opinion that the underlying commodity pricing is heading down in '08. This forms the basis for all their valuation calls of things be 'fairly valued' or just a little cheap. The extraordinary thing about all this, is that the market can give you an exact price for all these commodities out several years and you can trade it if you want. If you plug in the actually traded commodity strip prices the earning/cash flow estimates become absurdly cheap. 6 days ago, i got to buy fcx at 6.9x 2008 research estimated earnings, based on a copper price that doesn't exist. The price based on the real strip was closer to 6x. From my own grapevine, there are some pretty big spec short positions in the LME and if this 'recesssion' turns out to be a fakeout with regards to emerging markets and global commodity demand, you are going to see some moves that will knock your socks off.
MAB- I agree with you on treasuries. Right now the yields suck and the upside potential on price is close to nil. So, I think money will leave treasuries. But when it does, where will it go? RE? I doubt it. Commodities? Maybe a little. But I think most will go to stocks, especially those with yields that are as good as treasuries, but have upside potential.
But after that happens, then stocks will be less cheap and I will have to re-evaluate.
dave_in_ct,
with consumer spending slowing down, don't you think that the industrials will start showing weakness in the next 3-6 months?
i don't think industrials are "priced" for a slowdown in demand at this time?
michael schumacher said: "...It's akin to saying "this stock has to go up because it is down %50"
That is the psychology the market and it's participants are working out right now. Is it really down 50% from it's peak value or was it's valuation flawed from the start?..."
Clearly, there were vastly over-stated earnings in the tech-stock bubble, too. However, using peak earnings as a stable measuring point also worked for identifying favorable valuations at the 2002-03 market lows.
Again: The recent SP500 low represents the best buying opportunity on a value basis since 2003, 1994 before that, and 1991 before that.
Finally, as always, not because I say so, but because the historical data does.
S.
Seb comes straight at you from the CFA course sales brochure...
Using relative valuation stat's shows how the shrewd can arbitrage asset prices and live the hi-life, utilizing OPM while caring little about society at large...
Straight from the pages of
DisInfoMerica
Disinformation - Wikipedia, the free encyclopedia
And CFA- Certified Fu**** A**holes
Ahead of the curve,
Thats my thinking too. I just don't think stocks in general will be very interesting over the next few years. I've been following and/or own all of the names you mentioned. Dead money mostly, but good dividends and a reasonable chance for appreciation going forward. I'm a bunt single hitter though.
This housing/banking bust really scares me. I have little faith in the Fed or our politicians. I suspect losses will get much larger and be much more widespread. Not a good environment for stocks, imo.
MAB: "Did inflation decrease in the last year? No! Inflation actually increased to the highest rate in 17 years. Are the markets irrational now? Maybe. But we have serious systemic threats to our banking system as many on this blog have pointed out."
To the shock and horror of many here, I actually "believe" in the official inflation numbers
Inflation is NOT a threat. The deflationary forces are far more powerful than any inflationary force at work. There is nothing out there that is more powerful than the housing deflation right now. Even in countries like China, where inflation is rampant, there are huge deflationary threats from an almost inevitable collapse in stocks and real estate.
Given that I don't perceive inflation as a threat--the market view is similar to mine--the bond yields make sense. The inflation bulls have been wrong for years (the only thing that saved them is the fact that cheap money has propped up commodities, not to mention almost any other asset including art, collectibles, emerging market debt, penny stocks, and so forth).
I think where you will be right is for the long-term (as opposed to the near-term). Bonds have been in a huge 20-year bull market and this is going to end. Not now but after any slowdown/recession. Then we will likely see bond yields start to rise. This long-term rise in bond yields is one reason I believe US stocks will only post 5% to 8% returns for the next few decades, as opposed to the 10%+ in the last two decades...
dunham,
industrials as a group are not really leveraged to US consumer spending. They are a play on the worldwide infrastructure which is directly a bet on the emergence of 2 billion people onto the economic scene.
The biggest deficiency in the emerging world is infrastructure. There was an article in either the NYT or bloomberg today on the failing of south africas electricity grid, because they have grown so fast they can't keep up with energy demand. China is in the same boat. Unlike finance, or even a lot of high tech, these things are hard to build and take lots of time. There will be no new fab cranking out zillions of chips to take advantage of a spike in memory demand. To build a major league power plant, mine, railroad, grid etc, is a big time engineering project to which there are no real shortcuts. All those massive dollar reserves are going to buy something and this stuff is just the ticket.
david in ct.
That seems like a sound argument. Plus, its not a "fast money" trade which suits me just fine.
david, MAB-A number of my acquaintances work for GE Power systems in Schenectady, NY, near where i live. Their order backlog is around 9 months and after shrinking for decades they are hiring over 500 engineers and techs this year.
Why you ask? Look no further than the snowstorms that have paralysed China this week and led to power outages all over the country. And severe power shortages in South Africa that have shut doan the gold mines despite record gold prices.
i have a cost avg of 8.26 on 50000 shares of csco , on the day of the 02 low...(sld at 13.35)
not once did i think about earnings as the reason for the purchase.
the data says so because the chart's show what happened, not because earnings troughed...
in 02-03, there was no way out of the malaise, other than war and i/o's
why not measure procductivity gains?
how about avg work week earnings?
how about avg indebtedness from the median worker?
How about time off for the median worker(other wise known as quality of life)
seb... either works for the mututal fund industry, aei , hoover institution, are other conservative think tank...
listen to his fairy tale at your own risk....
he said the same thing 160 points ago.
david: Sorry, I didn't see your post before I posted...
DAVE_IN_CT: "
i dont know much about autos and airlines, but i know a fair amount about resource companies and they are about as cheap as they get relative to the underlying commodities in which they deal."
Dave, I don't know what your time frame is but I've been bearish on commodities for a while. I have to say, I have been wrong throughout that time as well. I think you are a short-term trader whereas my opinion is more of a long-term view.
Anyway, I disagree with your view that commodity stocks are cheap. Commodities are cyclical and a theory that I subscribe to says to sell when P/E is low and buy when P/E is high. Commodity stocks look cheap because the underlying commodities--and hence earnings--are high. To make matters worse, a lot of the run-up in commodities is due to the "China-to-da-moon" theory, which may or may not turn out to be true.
None of this means I'm right; I can still see people making a ton of money (usually you make more money near the top of a speculative bubble than near the bottom). But there is very little fundamental reason to say commodity stocks are cheap UNLESS you are pretty certain that commodity prices won't collapse.
I think the easy money in commodities has been made. For example, oil went up roughly 5x from $20 to $100. Well, the chance of it going up 5x now, from around $100 to $500 is pretty slim IMO.
Most value investors generally shun commodity-type investments. But if you have the skill to pick a top and bottom, you'll make a killing. People have made fortunes off the swings in cyclicals like GM. Similarly, commodity stocks can work out but likely not for the long-term...
Siv V.
I'm comfortable with your outlook of 5% to 8% returns from stocks in the next few decades. Short term I'm bearish though. The solvency of our banking system spooks me.
As for inflation, a housing bust will have no affect on CPI. Actual housing costs were removed from CPI measurements over a period from 1983 to 1987. Owner's equivalent rents replaced actual housing costs and have been dis-inflationary due to the housing boom.
1yr, 3yr & 5yr moving averages of inflation are all rising. I believe accomodative fed policies and out of control politicians will further increase these trends.
HEY! Think about it.
Every F500 company probably has a sh*t sammich or two in their picnic basket.
Now downgrade the monolines.
What are those F500 corporate bonds now worth?
I'm glad it's contained.
David.....
You are right about the mbia spreadsheet problem. They just have values in that column, so it is impossible to tell exactly how they managed to get their writedown over 100%.
As far as the reasonability of the spreadsheet, the writedowns are concentrated on a few of the issues. I think you would really need to get into the details to get an idea of where they are going.
The ABK site has listings of the underlying securities that can be downloaded. Not that I am going to spend much time on this.
zig:
yeah, almost bought the stock this morning just as a shot, but i talked myself out of it just so i could stick to my knitting so to speak.
there are easier fish to fry.
i was hoping that ackman's diatribe would be accompanied by a good piece of research complete with real scenario analysis. the fact that it is so lame leads me to believe he has seen the writing on the wall and it was a hail mary to get out. i think a few people might have smelled the fear and lit him up.
Sebastian's World said: "seb... either works for the mututal fund industry, aei , hoover institution, are other conservative think tank...
listen to his fairy tale at your own risk....
he said the same thing 160 points ago."
Better yet, get the data on valuations and returns and see for yourselves, that way you don't have to trust anyone's fairytales.
Power to the little people, through superior knowledge and critical thinking skills.
Sebastia
Correction...not the mbia spreadsheet but ackman's bond insurer spreadsheet.
Ackman Devoured 140,000 Pages Challenging MBIA Rating (Update2) - Bloomberg.com
140,000 pages doesn't mean you are right. I suppose you cold say that he was right and that 80% of the market caps of the companies are gone.
To get that lat 20% might be a problem. I am bearish to neutral at these prices.
if anyone wants to get the raw data themselves from ambac, Global Structured Finance
"But there is very little fundamental reason to say commodity stocks are cheap UNLESS you are pretty certain that commodity prices won't collapse."
But that's just it, the stocks are already priced for the collapse but the market is telling you that its not going to happen.
I don't need a rally in the commodities to make money on these things just a realization of the future's strip. If I was a chicken I could short the strip as a hedge, but there is a little voice in my head which says if the consensus opinion is collapse, then that has already been expressed in short positions and if that has to unwind we might see a prices in underlying actually head north. if that happens i will get paid twice.
just as an aside, the small cap miners are dead in the water. this is a really good sign, because the best of these moves generally have the big cap liquid stocks move first with the small caps only picking up as the idea starts to become accepted.
its fun talking your book especially on a good day. i'm sure there will be plenty of bad ones in the future to compensate.
Why is a drug company investing in real estate???
WTF????
"Why is a drug company investing in real estate???"
Yield enhancement.
I think the treasury department took too much viagra and had no where to turn so they bought some MBS.
RE: MBIA. Let's assume for one second that this IS actually the case (not that I believe this for a moment). What about all the other monolines? All the available evidence strongly suggests that they are insolvent. So best case scenario, one is solvent, all the rest are BK.
"Stocks rise on word MBIA to keep AAA rating."
Did they say how they are going to do it?
I guess the same way they got the AAA rating in the first place. Just because.
Takeaway from Ackman's letter associated with the excel model.
Estimated losses for MBI are $12 and a half billion.
They curently have $6 billion in capital and claims paying ability of over $15 billion.
Therefore if Ackman is largely correct, they are history - no AAA - no new businss. However they would have enough money to cover their claims.
I don't know if Ackman is using nominal losses or economic value of losses.
Anyway, no matter.
Monolines will be on "watch" forever.
To downgrade them means liquidation of EVERY type of bond, muni, corporate, ALL of them into an illiquid market.
Anyone here think only Bristol-Meyers floated tainted bonds?
Likely ALL F500 corps. are in the same boat.
All the noise is for show. Nobody , SEC, NYgov, ratings agencies has to guts to pull down the house of cards.
This B-M article is the most dangerous news to date.
Bristol-Myers? Bristol-Myers? What's next, I squeeze my prell shampoo bottle and a mtg pops out?
Update: The wheels are coming off
http://www.denninger.net/letters/bfm370.pdf
Ackman, of Pershing square has the data showing MBIA to be in deep trouble, really deep trouble.
What the hell is a drug company doing investing hundreds of millions in sub-prime?
Excellent question. My guess is they were trying to improve return on some excess cash they had sitting around. Makes me wonder what AAPL is doing with the $18Bln they have on the balance sheet.