Economic Fundamentals Improving November 7, 2007
Posted by Andy Robinson in : News , add a commentAnother little piece of news that confirms my burgeoning optimism is the Labor Dept report on productivity and wage growth. It hasn’t moved the market this morning, but the surge in productivity (4.9% last quarter) is crucial to avoiding recession. Equally important is that labor costs have eased slightly, which will help calm inflationary fears and allow for more easing if necessary.
Commodities Rally Getting Tired November 6, 2007
Posted by Andy Robinson in : Market Research , 1 comment so farI think we’ll touch $100/ barrel oil, but simply because the traders are hyping that benchmark like it’s a foregone conclusion. Therefore money will chase crude until it reaches that mark then sell off steeply. But what does this mean for normal investors? Simply that now is not the time to load up on energy funds or commodities ETF’s. If you’ve owned them for long enough, take some of the gains off the table. I am still long-term very bullish on silver (the exchange traded fund has increased in value 33% since I recommended it August 23rd), but over the next 6 months it will give back some of its gains along with most other commodities. Gold in particular is near the end of its spectacular run.
Job Growth Strong November 2, 2007
Posted by Andy Robinson in : News , add a commentThe October payroll numbers were released 20 minutes ago and support the bullish argument for this quarter. Payrolls grew by 166,000 and unemployment stayed the same as last month at 4.7%. This bodes well for consumer spending, which has softened slightly due to the decline in housing prices, but will still thrive as long as jobs and wage growth remains strong. I don’t think we need to be unduly worried by the big stock market drop yesterday. Fundamentals are fine and there’s a lot of money sitting on the sidelines waiting for the 4th quarter rally. Once it looks like it’s starting, we’re going to move up fast because the fund managers and hedgies don’t want to be left behind. This is a good entry point to deploy any cash (if you have any on the sidelines). I’ve been all in for about two months.
Market trips on earnings and consumer spending November 1, 2007
Posted by Andy Robinson in : News , add a commentWith the Dow down over 230 points (as of 10:20 am) investors might get spooked about today’s grim headlines. But consumer spending only softened a tiny bit (0.3% growth rather than the expected 0.4%). Also Exxon missed profits and Citigroup and Bank of America got downgraded. With a time horizon of even 3 months, and mine is considerably longer than that, today’s dip has got to be considered a boon to investors. Although it may annoy me to see Bank of America (which I own) to tumble nearly 4% today, I am not concerned about analyst downgrades. Downgrades tend to be more reactionary to current market conditions than an accurate look into the future. Warren Buffet did not make his fortune buying stocks in favor with Wall Street. He bought names when they were cheap and everyone else was a seller.
Quarter Point Cut October 31, 2007
Posted by Andy Robinson in : News , add a commentAs expected, the Federal Reserve cut federal funds rate by a quarter percent. This should not have any drastic effect on stock prices in the short run due to the fact that this cut was widely expected and priced into the market. It was also the right move given the circumstances. If they’d kept rates firm, investors could have just cause to be concerned that the Fed isn’t being proactive enough in staving off inflation. If we’d cut half a percent, the dollar would have tanked again. Looking a bit further out, there’s enough reason to be confident in equities right now. Earnings have been mostly strong and GDP growth of 3.9% in the fourth quarter was more robust than expected. I am fully invested currently and wish the longs the best of luck in the fourth quarter!
Rally mode begins October 28, 2007
Posted by Andy Robinson in : Market Research , add a commentThe boys from Motley Fool have broken down the stats in their post Now is the Best Time of the Year to Invest. I tend to think that this year’s fourth quarter will stay true to form. We’ve rallied hard and given some of the gains back, so we will likely start the next leg up to new highs soon. The only thing that might throw a spanner in the works is if the Federal Reserve doesn’t kowtow to Wall Street and stands pat on the fed funds rate in it’s meeting on the 31st. I expect that they will cut rates a quarter or half percent which will probably start the rally of financials. I just bought some Bank of America before the closing bell on Friday at $48.03 because I expect them to rebound to about $55 or more by the end of the year.
Buffett interested in South Korea October 25, 2007
Posted by Andy Robinson in : Market Research , add a commentI’ve been leery of emerging markets and warning against the wisdom of owning countries like China since my June post. However, since then, emerging markets (particularly China) have continued to see strong stock market returns and would indicate that my warnings were unjustified. This is a situation, however, where I don’t think the rewards currently justify the risks. It is not always necessary to pay a huge price for terrific growth prospects. Warren Buffett is currently visiting South Korea and has expressed interest in their stocks because the valuations are about equivalent, and probably less, than domestic stocks. And this is with much higher growth prospects based on the dynamic economies in the region.
Will $90 oil kill the market? October 22, 2007
Posted by Andy Robinson in : Market Research , add a commentThe Yahoo Finance article $90 oil won’t kill the bull gives a good look at the differences between the US economy now and back in the late 70’s. In today’s dollars, the price during the 70’s crisis was around $75-80, which we’re well past now. But the biggest difference between then and now is that oil now has a much lower impact on our economy. People spend a much lower percentage of their income on oil, so it won’t take as large a bite out of consumer spending. Also, our economy is much more service and technology based than manufacturing, so it takes less oil to produce the same number of GDP dollars. But one big difference is that now no politicians (knock on wood) will be stupid enough to put in place price controls. When you put a ceiling on prices, it will always lead to supply shortfalls as market forces are not allowed to do their work by decreasing demand.
Where the market’s heading October 19, 2007
Posted by Andy Robinson in : Market Research , 1 comment so farPredicting the economic reality and the market direction is a hazy crystal ball indeed, but here is my opinion for what it’s worth. I cautioned of the possibility of a market top in my July 18th article and took a little cash off the table. We subsequently pulled back roughly 10%, after which I said (Aug 16th) that it was time to start deploying some of that cash. We have since rebounded quickly to the market highs.
Profiling Electronic Data Systems October 17, 2007
Posted by Andy Robinson in : Company Profile , add a commentI’m adding Electronic Data Systems to my list of stock picks today (ticker EDS). EDS is an Information Technology company (founded by Ross Perot) that offers both technology infrastructure services and applications to large multinational companies and government departments. They are nearing the end of a restructuring and cost-cutting period, and earnings should start to benefit soon from the cost-cutting and the investments they made to get into higher-margin niche business lines. This is a terrific value play and any investor with a couple year time horizon should be richly rewarded. Full disclosure, I don’t own any shares at this time. The intraday stock price at the time I’m recommending this company is $22.62.