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Posted
Apr 25 2008, 01:46 AM
by
Jon Markman
Rating:
Every frat house manager knows that if you want to end a party, you take away the keg. And that’s pretty much all you need to know about why the stock market is so sluggish this year.
The banks have sharply cut back on the credit they’ve allocated to hedge funds, making less money available to purchase stocks and bonds of all stripes. Less borrowing = less buying power. It's pretty simple.
The latest evidence of this action has come from reporters at the Financial Times, who say they’ve discovered that the most leveraged funds are now borrowing no more than five times their asset base -- down from at least 10 times their base six months ago. That means a $100 million hedge fund that was buying up to $1 billion worth of stocks a year ago now can only buy less than $500 million worth. That's a big difference.
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Posted
Mar 20 2008, 12:09 AM
by
Jon Markman
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The big question on investors’ minds this week is whether the market has reached a major bottom following the Federal Reserve’s sensational attempt to rescue troubled brokerage Bear Stearns and slash short-term interest rates. It sure looked that way to many Tuesday after the big stock indexes soared by 4%. But Wednesday not so much, as stocks forfeited three-quarters of their gains.
So here’s the plain facts: You can only get a major bottom in stocks if the impulse to sell has been exhausted and if investors respond to lower prices with a powerful, sustained wave of buying. And the actions this week suggest that neither has occurred. Selling was clearly not exhausted Tuesday because sellers came roaring back Wednesday.
(Update: The market's gain on Thursday shows investors are hope the worst is over. But it hardly proves that stocks are cheap enough.)
The verdict is therefore clear: A major bottom in the market hasn't yet arrived. To understand why, consider what got folks excited Tuesday. The bailout of Bear Stearns might seem positive on the surface but it loses its allure when you stop and ponder the implications of the fact that the fifth-largest brokerage in the nation lost 95% of its value in a few weeks' time. And the three-quarter point cut in interest rates means the Fed believes the economy is in terrible shape. As if to put an exclamation point on this issue, on Wednesday Merrill Lynch, UBS and Lehman Brothers, all of whom had business models with similarities to Bear Stearns, were on the hot seat -- sinking in value by up to 11.5% and closing at lows. Investors thus collectively decided more shoes will drop, and the Fed cannot bail them all out at once.
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Posted
Jan 04 2008, 11:35 AM
by
Jon Markman
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Whenever your job is getting you down, just be glad you aren’t a financial journalist who has to make annual predictions that live forever on the web. Since the advent of MSN Search and Google, there is no hiding my most unfortunate calls in the drawer anymore. It’s all out there. So as an addendum to my 2008 forecast, which you can read right here, here’s how my '07 predictions fared.
1. Bull market, year 5. Well, sort of. I forecast an S&P 500 gain of 13% on 2007. We got 3.5%. The Nasdaq 100 did go up 19%, though, so let’s average them out and call it good.
2. Goldilocks lives! I forecast modestly rising inflation, modest job growth and below-trend U.S. economic growth of 2.6%. This was right on, as annualized growth came to 2.8% in 2007.
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Posted
Dec 20 2007, 03:10 AM
by
Jon Markman
Rating:
In my MSN Money column today, I detail the views of two veteran investment fund managers and analysts who have turned urgently bearish on U.S. equities. But there are many others prominent analysts who I respect that share the same point of view. I'll detail their thoughts over the next few days.
Yesterday I spoke to Bert Dohmen, who has provided advisory services to clients through investment newsletters such as the Wellington Letter for more than two decades. An expert in Fed policy and market timing, Dohmen says that investors should beware of that a “huge, huge” top has already formed. He believes the United States is already in a bear market and a recession that will last for at least a year.
Dohmen first urged clients to exit the market in mid-July, then reinforced his view with “get out now” messages in late October and again a week ago. “The bull market was over in July, and the big brokerages were just pulling wool over people’s eyes when they manipulated trading in a few large-cap stocks to push the indexes to a ‘false’ new high in October,” he contends.
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Posted
Dec 03 2007, 12:56 AM
by
Jon Markman
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One reason the market jumped sharply higher last week was the market’s snap judgment of a comment by Donald Kohn, vice chairman of the Federal Reserve Board. Initially, like most other people in the financial world, I only read an excerpt of his remarks and accepted the common view that he sounded concerned about the potential for the recent subprime mess to have seriously negative effects on the U.S. economy.
However, this week end I had an opportunity to actually review the speech, and got a much different impression of his thoughts. Click here to read it yourself at the Fed’s website.
Kohn’s comments for the most part are pretty dry, as you might expect from a lifetime economist and survivor of the Fed wars. Far from sounding like a man anxious to jump on the bandwagon of more rate cuts, he says at one point: "Some broader repricing of risk is not surprising or unwelcome in the wake of unusually thin rewards for risk taking in several types of credit over recent years. … Consequently, we might expect a moderate adjustment in the availability of credit to these key spending sectors."
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Posted
Nov 11 2007, 03:49 PM
by
Jon Markman
If you've ever wondered how those big university endowments invest their money, here's your chance.
Harvard University's endowment, which recorded a sterling 23% return on its $34 billion portfolio through the middle of this year, just filed a report of its second-quarter holdings to the Securities and Exchange commission, as required by law.
The filing shows that Harvard is not putting much of its money on individual stocks, and has shied far away from the United States. Of its top 10 holdings, only two contain shares of companies and just one of those, Weyerhaeuser is based in America. Its top holding is a nearly half-billion-dollar position in the iShares Emerging Markets exchange traded fund, while its next four largest holdings are ETFs focused on Brazil, South Korea, Mexico and South Africa.
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Posted
Nov 06 2007, 04:53 AM
by
Jon Markman
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When you think about the surprising success of the Nasdaq 100 index this year, the first things that naturally come to mind are tech powerhouses like Google, Apple and Microsoft. But you’ve got a leave a little room for the love of biotech too, and my favorite name there is Gilead Sciences.
The immunology specialist has really proven immune to selling for most of its life in the public arena, as it is one of the most successful stocks of any type of the past 10 years, with 2,075% capital appreciation stemming from steadfast invention and marketing of biotech therapies.
Pushing shares to a new high in the past week, though, were positive vibes at the 58th Annual Meeting of the American Society for the Study of Liver Disease currently taking place in Boston. Just in case you couldn’t attend, or haven’t checked out the abstracts, let me be the first to inform you that folks got pretty excited about a previously little-known compound being tested by Gilead with the exotic name GS-9190. It's a polymerase inhibitor therapy for hepatitis C that suddenly shows a lot of promise.
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Posted
Nov 02 2007, 02:06 AM
by
Jon Markman
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Even though this site is published by Microsoft, there's no reason we can't mention its stellar earnings report last week. I've been urging subscribers to my Strategic Advantage newsletter service to buy the stock since June in anticipation of a strong third and fourth quarter, and we have not been disappointed as fundamentals have improved dramatically and shares are up 25%.
The key point: Mainstream investors of all stripes simply underestimated the impact of the new Xbox game Halo 3, rising PC sales in developing nations and the slow but steady purchase of the new Windows Vista operating system. Results were actually staggering, especially for an iconic firm which until recently seemed asleep at the wheel. Revenue soared 27% to nearly $14 billion, beating the consensus estimate by more than $1 billion. Earnings roared 23% higher, to $4.3 billion or 45 cents per share. For a company of this size, putting up growth in the 20%-plus range is no easy feat.
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Posted
Oct 31 2007, 04:43 PM
by
Jon Markman
Rating:
Stocks ramped higher in the wake of the Federal Reserve’s interest-rate cut on Wednesday with the sort of vigor most often seen when short-sellers are caught flat-footed. Sellers tried to get the upper hand a few minutes after the Fed decision was announced, and managed to knock the Dow Jones Industrials down for about 15 minutes. But soon after they were completely overrun by bulls -- and the rout was on.
Now it’s always interesting to me to see which stocks don’t go up on a day like Wednesday when breadth runs more than 5:1 in favor of buyers. Stocks that don’t feel the love on a day when the sun is shining usually do even worse -- or actually, to be honest, much worse -- when the clouds return.
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Posted
Oct 31 2007, 02:23 PM
by
Bradley Meacham
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Here's MSN Money Columnist Jim Jubak's take on the Fed's move:
If you were looking for the Federal Reserve to set a clear direction for Wall Street and the economy, think again.
Wall Street got the Fed rate cut it wanted and then couldn't decide if it was really happy about it. The stock market got exactly the quarter percentage point cut in short-term interest rates from the Federal Reserve that it had been hoping for. The argument on Wall Street was that the Fed had to cut because the U.S. economy was slowing and needed a rate cut to prevent it from slipping into recession. The Fed bought into that logic by stressing that the housing market correction was still intensifying and that financial markets were still in disarray. Another cut would help insure that the damage wouldn't take down the entire economy.
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