Another Day, Another Move Higher

After Monday's strong day for airline stocks, yesterday they saw a slight pullback. But other transports, namely the truckers and railroads, picked up the slack. The transports are going to be one of the first industries to rebound with the strengthening economy, especially into the upcoming holiday season as many companies are operating on bare-bones inventory levels. One perfect example of this is the action in FreightCar America (RAIL) yesterday, which surged after a solid earnings report, a better than expected outlook for the remainder of the year, and a backlog that continues to grow. The overall market moved higher yesterday after Monday's pullback, with a few sectors hitting new 52-week intraday highs, including biotech and networking, while energy and financials are helping to lead the way.

After Monday's tumble, crude oil prices (and many other commodities) moved higher yesterday, partially as a result of the weakening dollar. The euro hit a fresh 2009 high, topping $1.48 for the first time this year. The greenback was also weaker against every other major currency around the world in recent action. The greenback continues to be under pressure, which is helping to fuel the commodities rally. President Obama was on the "Late Show with David Letterman" last night and said that it would be another year before the employment situation in America really began to improve (it was also his seventh television appearance in two days). Higher commodity prices suggest a stronger economy as increased demand would lead to higher prices, but where is this increased demand stemming from if we will be in a "jobless recovery."

Also helping to lead the way higher yesterday afternoon were financial shares as the Fed began its two-day interest rate committee meeting, and all expectations are that the Fed (and its counterparts around the world) will keep interest rates low, helping to fuel an economic recovery. Inflation worries seem to be an afterthought, but it will be something that eventually has to be dealt with.

IPO Activity Stands Out

There is a boatload of IPO activity this week. I characterize the action as a boatload because let's be honest, the IPO market has been dead in excess of a year. By my calculations, there are about $3.0 billion in share sales about to arrive to market, with the highest profile ones being Shanda Games (GAME) and Artio Global Investors (ART). Bookrunners on these deals, such as Goldman Sachs all the way down to Deutsche Bank surely are making a cool buck or two.

Could one blame executives for tapping the equities markets in light of the rise in asset values since March? Heck, why not boost the cash coffers, though in the case of Shanda I still do not understand the logic (post IPO, it will have some $1.5 billion in cash, no debt, and no articulated strategy to put this cash to work). While going public was off the table in 2008, does going public now suggest a near-term market top?

Hmmm, could it be sort of in the same vein as the buyout binge that occurred in 2007, which in hindsight signaled a sense of irrational exuberance? Something to keep in the back of one's mind I suppose.

Economic Data

FHFA Home Prices

The FHFA reported its home price index for July. Prices rose by 0.3% month to month, whereas the Street was looking for prices to rise 0.5%. Prices hit their highest level since February. The results were mixed regionally, with relative strength in the Pacific. It was nice to see prices sustaining some growth but the improvements were lackluster. Homebuilder stocks were mixed yesterday after the news.

Comments

[Mad Hedge F...:]

ret The one absolute, take it to the bank, bet the ranch fact you can count on right now is that there is no value in the stock market. We are at a lofty 20 X earnings, and historically, when the market sported such a valuation, a 7% drop ensued in the following year. But what is history, but the ravings of an angry, frustrated old trader? Maybe having seen the best bargains in a century only six months ago, I’m spoiled. I have always been a tightwad. I must be the only guy around who flies his own private plane to garage sales for the sheer love of the deal. I just reviewed all of the stocks and sectors I liked at the beginning of the year, and a more picked over field you never saw. (Click here for my new year list at www.madhedgefundtrader... ) The list is long: FCX, FXI, BYDFF, BIDU, X, gold, silver, copper, crude, oil services, junk bonds (JNK), (HYG), emerging markets (EEM), BRIC’s, Korea (EWY), with shorts in long dated Treasuries (TBT), volatility (VIX), and the dollar (UDN), (ULE). Even tax exempt munis have been on a tear. Many of my core positions are up over 400%. The problem is that my more loyal, even fanatical followers have taken out paid subscriptions for up to two years, so I must keep dancing. Hence, the recent increase in book reviews, political pieces, or just outright frivolous stories. What you do here is deep research and list building, so when the window opens you can jump through with both feet, and without any reservations. I hate being out of the market. But I hate losing money even more.

Sep 23 09:32 PM