Thursday, Jul 23, 2009
Green shoots galore
Bloomberg: U.S. Stocks Rally, Dow Tops 9,000 for First Time Since January
The Dow is over 9,000.
What, 9,000?
There's no way that can be right!!!
Posted by little professor @ 06:27 PM (1509 views) Add Comment
19 Comments
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1. paranoia blue said...
It is surreal, but great shorting fodder!
2. bellwether said...
3M has jumped 6.5% on a modest earnings beat, based largely on the cost cutting, and it seems the sale of swine flu masks. It's shares are now trading at $68.70.
This astonishes me. Let's assume that 3M are right and the economy is going to recover in the 3rd quarter - not that the 2000 staff laid off as cost cutting will help that!
Let's assume in fact that 3M will be back to peak profit within 2 years, a stretch even for the most bullish but lets assume it. Peak profit infers a dividend of $2 a share ie what was paid out 2007. So buying at $69 a share investors are banking that in the future, if it all works out as they hope, they might get a 2.9% yield on their investment.
I am seeing similar things with commercial property, where people are borrowing to buy a 5% yield from Barclays.
This is bubble buying which feels like value because the previous valuations were so ridiculous, eg in 2007 people were buying 3m for a 2% yield ie less than headline inflation.
3. flashman said...
Bellwether: 3M has built factories in more than 60 countries including India, China, Russia and Brazil. Many of their layoffs are because they are planning to move at least one of their major divisions abroad. The market expects that 70% of their business will come from overseas by 2012. If and when these foreign economies take off they are well placed to grow exponentially. The fundamentals you quote are firmly rooted in the domestic past which is why the market appears to be ignoring them.
See I'm taking this bullishness seriously. Mind you, none of it will help British house prices for at least four years
4. uncle tom said...
I think one needs to look at the way the market really works before assuming this is just a flash in the pan.
Business has taken a big knock, and the weak have gone down. That leaves the field less cluttered for those that remain. Moreover, we did not enter this recession with an over buoyant stock market - far from it.
We entered the recession with a market that had failed to trump it's highs of 1999, despite over 20% of inflation since, and the FTSE today is less than 2/3 of it's all time peak.
With a little homework, it is possible to pick some very good prospects. In broad terms, I am very comfortable with the outlook for oil and mining. I have already taken profits on the banks and home builders (including some 100% + gains this year..) for other stocks, one needs to avoid those with high debt obligations, unless their share price has already been totally trashed, and there is some credible hope of recovery.
So to sum up, the likes of BHP Billiton have a reasonably good prospect of offering a hedge against recession, and the re-balancing of global currency values, while the likes of Punch Taverns might (and probably will) - leave you wiped out..
5. Skeptical First Time Buyer said...
I think i'm with you uncle tom. I have high hopes for Schlumberger and Statoil Hydro.
For me, it seems likely, that there will be a recovery in global markets, probably driven more by Asia, but recover nonetheless.
Also while oil usage typically falls back in a recession, it doesn't stop, and it's not a free market, if the price goes too low, the big oil producers cut production. They have seen we are prepared to pay $100+ per barrel, and that is what they will make us pay.
Having saiid all that, there is still plenty of opportunity to loose money in this game, and I fear a lot of shares may fall back as countries decide they can no longer afford there stimulus packages.
6. techieman said...
UT - the BHP / Punch spread! - is that the old one two? Knockout!
7. enuii said...
Looks like an Aktiebolaget Krueger & Toll moment to me.
History IS repeating itself.
8. paranoia blue said...
enuii @ 6 [techieman @ 5] Spot on, again! Relativity rules K.O.
9. bellwether said...
Bullishness might be the right attitude but it needs to be put into a timeframe to mean anything beyond an endorsement for hope. Also while (a) technology (b) the human capacity to endure /innovate and (c) the determination of 2million people may be factors in recovery, as bare reasons they seem glib.
It is easy to see these factors can also be neglible or even negative. Technological growth is currently slowing not speeding up, and to accelerate it must take a quantum type leap, possible but necessary and not certain, in fact far from certain on shorter time frames, also even the inordinate technological growth which has happened over the past 30 years has added far less than people imagine, our standard of living is little improved and may have gone backwards with most houses needing 2 earners to cope.
A growing and increasingly ambitious population is ambitious for nothing but the priviliges we have, the luxury of cheap labour, the easy availability of ultimately limited resources.This is something which it takes little imagination to see might end badly.
It is good to see some bullishness on site and anyone who dimisses it outright is a moron, but it needs to be given some content, somekind of description of how it might work, beyond soon their will be free food, no illness and universal harmony. History suggests very strongly that things don't work that way.
10. bellwether said...
Flash recall you mentioned a few months back that most of the market action over the past couple of decades was rigged and that the increase day on day month on month was abnormal and ungrounded in investment reality. I doubted this but recently acknowledged the possibilty. Now you are suggesting that the price action on 3M is genuine. I accept I am somwhat perplexed by the bullish perspective, but are you being genuine on this or is it sport. Mind you perhaps doesn't matter
11. bellwether said...
UT@ 4 I can't decide how right this is. I've put maybe 20/25% in shares, focusing on stocks that have an advantage in their field, pay dividends and do things that are and will continue to be essential, with a side bet on US financials because as I've said before housing must be close to troughing there.
I struggle with putting more in, but also with not participating further. A struggle that inevitably increases as markets rally - I'm sure I'm not alone in this. Indeed this thinking rather than true recovery could drive stocks higher and maybe the guess would be right, maybe the fundamentals will catch up. Reality is mutlifaceted and mutuates so absolute certainty is not possible. To what extent are you invested?
12. flashman said...
bellwether: I didn't say that most of the market action over the past couple of decades was rigged. I said that it was probably rigged after 9/11 and again after the recent crisis. I also said that I was not certain of it. It doesn't take much imagination to think that the American government and their private helpers would think that it was a good idea to prevent a market crash after a major terrorist attack . It is a bit churlish of you to claim that my take on the 3M fundamentals is somehow in conflict with my belief in the possibility that the US government saw fit to act strategically in defiance of a threat to their economic preeminence. It would in fact be far harder to believe that they wouldn't consider doing so. Since I made the comment, several authoritative commentators have recently pointed in the same direction which appears to have swayed you. I recall that you were also disbelieving when I said that trading costs were very important. However, it turns out that trading costs were your undoing (sorry couldn't resist that one). To finish on this subject, I have to say that deliberately misquoting someone to undermine their stance is a rather lazy and aggressive tactic.
3M have had the foresight to leverage themselves for growth in fast developing overseas markets. They have yet to see the fruit of this work and you should realise that share prices are always based on hope and future possibilities. Do you think it likely that calculating a few simple fundamentals (which by design, originate in the past) will accurately foretell the future market direction of a company's share price or even the market in its entirety? You cant really believe that it could be that simple? The metrics that you quoted did not consider the strategic planning or skill of the 3M management. They also did not consider possible world trends. This is a classic example of 'the fundamentals' being almost worthless. Imagination, experience and a much deeper knowledge have to be put into the mix before even taking a stab at future pricing.
In your post @9 you claim that the pace of technology is slowing. On what basis do you make this claim? Don't you see any significance in the genome sequencing and nuclear fusion projects? Do you not acknowledge the importance of the worldwide fiber optic network or the recent universal access to computing power? I am a little incredulous that you dismiss these things so readily. You also claim that technology has had little beneficial impact on our lives. This subject would take a book, so I will just have to strongly disagree. I think you might have gone out on a limb there.
In your last paragraph @9 you inferred that my post was hippyish and light-weight
“but it needs to be given some content, some kind of description of how it might work, beyond soon their will be free food, no illness and universal harmony".
Out of deference to my enjoyment of your previous posts, I will resist the urge to go ballistic on this one. I sense an unwarranted anger and find your comment to be malicious and willfully inaccurate. It is possible (with the presence of malice) to misconstrue my post to claim that I said free food and no illness. Obviously I didn't say that. However, the universal harmony jibe is a downright fabrication, that I would have thought, beneath you.
As for time frame. My original post was a quick response and just a 'sketch' of my position. I indicated as much to you. I would have thought that a response of this nature deserves more courtesy than an unsolicited bullish post. I am in the process of formulating my 'bullish' position but I will say that the evidence is bombarding you daily. You were equally disbelieving of my comments (several months ago) that the City was bullish/confident and also of my bullish stance on the Pound. I believe that your understanding of the fundamentals was the source of your disbelief. Well the stock market soared and the pound recovered. Why did the fundamentals fail so badly? Can everything be explained away by saying its an aberration that will soon unwind to prove me right? Don't you think that is a bit 'one-eyed'? By the way, my opinions on the Pound and the markets were my past views and I have no opinion, as yet, on their future levels. Sometimes you have to suspend your disbelief and open your mind to the possibilities. I realise that this site is a home for bearish sentiment and perhaps it is rude of me to intrude. I am still bearish on house prices but perhaps that is not enough.
13. uncle tom said...
"To what extent are you invested?"
In equities, about 75%
14. denzil said...
Uncle Tom said he was
"In equities, about 75%"
Wow! I don't feel quite such a contrarian now. I've been around 75-80% for quite some time and it has worked out very well indeed.
Are we in or about to enter a sustained bull run? Probably not, but equities still look the best bet at least into Q2 10.
15. bellwether said...
Flash absolutely no malice intended in the post and pleased to see bullish comments on here, the grey and pointless doom and gloom often says more about the posters personality than anything else.
I guess to an extent all our posts say something about our personality and having put the wind up me a bit with the bullish fare (and I agree it annoys me because it might be right,)I was simply looking to exact a little revenge. As an agitator yourself , the most valuable thing on a site like this, I know you can see the value of this.
Totally unwarranted caricature aside I am still struggling with the bull perspective, but critically I am struggling with and refuse to reject it outright. This kind of split perspective tends to cause psychic pain, which I guess is what makes us prefer one position to the other.
My difficulty with the reasons given for the bullish perspective , is that the same reasons as were tendered for dow 10,000 in 2000 and dow 14000 in 2007 - tech and decoupling and in truth they have not delivered on the fundamentals in a decade, by fundametals I mean they have not produced the promised wealth.
You were bang on with sterling, but that does not mean the fundementals are wrong, the fundamentals being will the UK maintain its position in global terms, or will its capacity to punch above its weight economically, which on a multi decade view is declining continue to decline.
16. bellwether said...
UT and Denzil, I admire the conviction and wish you well.
Denzil I sense you could be right about this running for a while yet, as investors might look to pile in not wanting to miss out, and momentum begets momentum. My basic view is bearish and while I do find it difficult to go against this basic tenent might be worth looking at buying a bit more. Incidentally with the exception of Tesco and BP been buying only US stock as I think there is a continued currency risk here that I don't feel exists to the same extent in the US where the housing bubble is close to deflated.
17. flashman said...
bellwether: The new paradigm b*llshit "10,000 in 2000 and Dow 14000 in 2007 - tech and decoupling", was indeed deeply irritating and I don't think anyone with a brain believed it ... but the markets live to fleece the gullible and it therefore had its purpose. These new paradigm arguments tend to be made at the top of markets and probably come from people who have devious intent, or who are terminally gullible. My comments are made nearer the bottom of the market and are anchored in a belief in the possibility for real growth. I am genuinely excited by the growth of several technologies. I was certainly not convinced in the same way, during the dot com boom
I have no problem with a stiff comeback. In fact I seriously enjoy it, especially when it comes from someone like yourself, who gives value. On the other hand being portrayed as the new str1 was probably too much even for a 'sportsman'. Maybe I was irritated by the possibility that it's true!!
I have a solution to the physic pain caused by uncertainty . I genuinely don't give a shit. I don't achieve this state of mind by sheer bravado. I alleviate uncertainty for a living (hedging strategies). Sadly I didn't do the work for Virgin but the sole reason they managed to stick one on BA by announcing profits was their successful fuel hedging. BA used a team of duffers. My finances are similarly hedged. Admittedly you need 'size' and leverage to do this because the main purpose of hedging is preservation and stability. Nevertheless, despite the leverage, there is little risk and this lack of risk helps me to have no emotional attachment to a position. If I just, straight invested, I'd be a bag of nerves.
My Sterling call was not impressive in any way. I know the mindset and plans of other traders and outfits. It's pretty easy to go along with it. Same thing about confidence in the City. Everyone knew that there were big profits in the pipeline and that some sectors had therefore been oversold. I am always astonished by how poor financial reporting is. They are always a couple of months behind. Why don't they just ask a few drinkers in a bar?
Lastly, I am not as bearish on the UK, as most posters appear to be. We have a more sophisticated, broad based economy than many realise and there is life in the old girl yet
18. bellwether said...
Cheers Flash, probably closes the chapter on this for just now but would be good to revisit. Would quickly add (by way of last word!) that a lot of what you say I find credible, yet contrary to what I think, so actually really interesting.
A difficulty is finding the scope to discuss eg i believe that technology is treading water and largely refining previous advances, but that is a discussion beyond my patience to type and anyones patience to read if I could type it.
I also feel that new technologies can tend to impoverish rather than enrich, eg I'm sure robots will reach a level where humans become increasingly redundant but I see this as terrible because in reality there will be no sharing of the wealth because there never is. Billions of people might become entirely redundant without work to enrich themselves finacially or dare I say it emotionally. I guess I kind of feel we have gone far enough as a race, and further progress (mental outgrowth) risks increasing unhappiness. A massive topic all the same
19. shipbuilder said...
Bellwether, I tend to find that most people's work is forced upon them , or at least the type of work, because of the way our society is structured. I think that new technology could be liberating, but as you say, the benefits from most advanced tend not to be shared.