rsinvestor

What Would Lou Do?

This is truly a unique time for US equities. Usually one can find defensive groups that will be the recipients of funds taken out of the cyclical names. Nowadays it seems that while money is in fact leaving cyclicals, it is not finding its way into the traditionally defensive groups. All industries' stocks are weak, and getting weaker. All bullish stock picking should be temporarily suspended until futher notice.

Natural gas producer Chesapeake Energy (CHK) is down 14% to $16.60. In July, you would have paid (ouch) $74.

Without speculators, there would be nobody left in the market. Investors and hedge funds are heading for the doors, unfortunately. Mutual fund and hedge fund outflows are huge lately.

Widening Rich/Poor Gap Spreads Contradict Global Recovery

Actually, the contrarian view would be: the more articles like this that come out and spell doomsday, the closer we are to a bottom. I am not agreeing or disagreeing with your thesis (you make some good points), but a true contrarian sees all these "Headlines of Disaster", and starts buying.

And by the way, Capitalism is most assuredly not dead. The hiccups we go through every so often are a natural stepping stone to a more efficient form of capitalism. What doesn't kill it makes it stronger.

More Doom Ahead

Thanks for the recap of old news.

ECRI: Economy Falling at Fastest Pace in 60 Years

Just as Florida, California, and Nevada are trying to bottom out from their housing crisis, Detroit stands poised to take their place.

Is the Worst Over? Let's Keep Our Options Open

bosun.j --
Absolutely program trading caused the 15 minute swoosh yesterday at 12:45. Everyone and their granny had stops at S&P 839 (intraday low on 10/10). Those got taken out without hesitation. Then, out of nowhere, short covering seems to be the driver for the 11% swing up. Once traders realized that the "short the support breach" wasn't working, volume continued higher on the up move.

Five Key Quotes from Fluor on Energy and Commodities

With a 31% increase in end of quarter backlog vs. the same qtr last year, FLR is still generating business. Also, the current quarter saw $8.8 billion in new awards, vs $6bil in the year ago quarter. This tells me the business isn't slowing down at all, and in fact is increasing.

Trailing EPS is 3.365, and trades at a forward PE of only 11. FLR seems diversified enough to rebalance their mix of contracts to match whatever opportunities the slowing economy, world-wide, delivers.

Don't Let Bulk Shippers Sink Your Portfolio... For Now

The dry bulk companies mostly ship iron ore and coal, not oil. Furthermore "I just don't trust the dividend yield" is not exactly a screaming argument for staying away.

A better arguement would have been to advise against the shippers with high debt and having trouble paying back the loans. Look at DRYS who just filed to sell 25million shares, on top of the 45mil currently outstanding.

The Shallowest Generation

There are two types of people in this world, in general: Those who play by the rules because it's the right thing to do in the long run, and those who believe "if you ain't cheatin', you ain't tryin'".

Seriously, how much simpler can it be? As you point out, it is infuriating to find out that those of us who made sacrifices to live within our means must now pay for the loose-living, no-discipline lifestyles of others. I consider folks like those who bought houses/cars/TVs they can't afford to be gaming the system. They are hedonists that know the worst that will happen is that those things will be taken away. Now, our government has sent the message that we won't even take them away, we'll help you pay for it.

Crazy. And it's not just the boomers, it's also their children who learned from their parents.

Bad News for Housing

Todd,
I respect your opinion, but you haven't presented a whole ton of data to back it up. Just because 20% of home mortgages may be underwater, that doesn't say much about the market's expectations for a recovery. The truth is that many of those homes are hurting because the mortgages were too big to begin with. If you only put 5% or less down on a house, and buy it at the peak or near, you can expect to be underwater at some point.

From a technical standpoint, I think the home builders are at the bottom, and should be bought. During the last housing downturn, the residential construction stocks peaked 20 months before the S&P 500 (1998 vs. 2000). This time, the difference is 27 months, between mid-2005 and October 2007.

In 2000, the home builders bottomed and stabilized just as the general market was peaking. In 2007, the same group bottomed near the market peak, and has pretty much traded sideways since then, vs. a market down over 40%.

I don't know if we are allowed to post links here, but I did analysis on this group twice already this year:

www.rsinvestor.com/Hom...
www.rsinvestor.com/Hom...

Good luck,
RSInvestor

Things Could Be Worse...

OldLimey: "Probably right, but when money does start circulating properly again you'd better prey hard that the central banks can rein in the monetary base they've been busy exploding. If they can't (or won't), monetary inflation is inevitable."

I think inflation is a foregone conclusion. Just how bad it will be is anyone's guess.

Things Could Be Worse...

Global trade is very temporarily frozen because of the credit contraction. Once the credit starts flowing, businesses in all countries will march forth in true capitalist form to buy and sell based on their own best interest.

During the Great Depression, protectionism was mandated from the highest levels of government by tariffs to protect local producers. We have nothing like that now. In fact, major economies are coordinating efforts to avoid just that scenario. Give us credit for learning from some of the mistakes of the past.

This is a global contraction, nothing more. Just today the US produced it's first negative GDP figure of this cycle, yet the media have been screaming "recession" for over a year now. China is still growing at almost 10%, Brazil at 6%. The world ecomomies are slowing, but not dissappearing. Bubbles burst, but life goes on. The world still needs goods and services, and the US is still best prepared to provide them.

Dan

Mosaic Misses Earnings and Brings Down the Sector

According to Bloomberg, MOS forward PE is actually 2.89 after today's dismal decline, so there's your 3 PE target. I also own Dryships in the 20's, currently it's forward is 1.5PE, with a forward PEG of 0.02. That's not a typo. Fundamentals mean nothing right now, but they will someday.

U.S. Sector P/E Ratios

I appreciate the information. However, just using PE to determine relative valuations falls a bit short of the big picture. Especially when it comes to financials. The current interest rate environment sets the stage for financials to blow away (dismal) estimates in 2H 2008.

My thesis is based on the fact that their cost of money, Federal Funds rate and bond rates, are very low. Meanwhile, consumer interest rates have not dropped at all. A 30 year mortgage is the same today as it was 12 months ago, when the Funds rate was 300 basis points higher. This has to widen margins for banks still lending money.

On a price/book basis, the financials are attractive. I do agree, though, that strictly looking at earnings, financials are toxic.