Shiv139

Trouble Still Lies Ahead for Tech Sector

What are the cyclical opportunities for out-performance? When will the out-performance from secular growth sectors re-commence?

This article looks at out-performance opportunities at a sector level. The aim is to identify where we are in the economic cycle and use history as a guide to seek out the coming sectors of out performance, within the present economic cycle.

The article also applies the sector rotation rationale applicable to an economic cycle to a multi-economic-cycle level; the aim being to identify the secular (16 year; roughly 3 economic cycles) trends. The intent is to identify sectors which are in secular bull formations and which will lead during the next cyclical bull.

Sam Stovall's vision on sectors is used in identifying the typical flow through sectors during the course of an economic cycle.

The conclusions are - out-performance opportunities are in financials & IT. Secular sector to lead the next cyclical bull will continue being Energy after a cyclical correction.

Wall Street Breakfast: Must-Know News

Like the UK FSA, early Friday morning the SEC too has banned short selling for financial services. While stocks can still be shorted; naked short selling is history for now. You can see the full text of the SEC orders at www.sec.gov/news/press....

A significant rally is likely to develop in companies where naked shorts have been high. These would include GS, MS, C to name a few. The financial services sector has a positive catalyst in terms of the additional liquidity provided to the market and initial steps taken to address the solvency issues causing great concern on capital markets. It would take significant foolish guts to short the sector. So for this sector expect a strong rally on account of short covering.

Outside financial services, we can expect to see Energy and Metals recover too; though the exuberance might be muted compared with financial services. Technology is another area where naked shorts have built up since Dell cited concerns on growth. NOTE THAT THE BAN IS ONLY ON FINANCIAL SERVICES, BUT I EXPECT SYMPATHY TRADING IN OTHER SECTORS.

Since the short covering adjustment will be a one time event, it will make sense to adopt a trading position - i.e. use the rally to exit in a few weeks. For financial services, the risks to short term positions, long term positions and secular positions, while considerably reduced, remain elevated. The healing process has begun and much will happen between now and the end game; this will allow building value positions with lower levels of risk (because of better visibility).

Daily Market Outlook: Early Indications Are for a Modest Rebound

With the risks to solvency remaining high availability of liquidity does not answer the problems. Banks/institutions have a trust issue - can they trust a counter parties with the potential solvency risks. Central banks cannot eliminate this risk.
This solvency risk is only going to reduce through confidence building measures. Confidence will return once the insolvents are out of the market and the remaining banks/institutions well capitalized. Capital is required and no Private Capital is forthcoming because the risk is too high. So governments (not central banks) step in.
I am surprised that the SWF's have not stepped up to the plate. These massive budget surplus nations should have a vested interest in restoring confidence. Without confidence, the $ paper they hold could be significantly impaired in value. If a deficit nation steps up, the action does not necessarily provide a solution as increasing deficits will prove to be inflationary (unless of course the confidence building measure is a success and allows a profitable exit which will reduce the deficit). Since leverage is the issue, I would be far happier seeing budget surplus SWF's take action.
Active steps are being taken to solve the solvency issues (AIG/FRE/FNM); even BAC acquiring MER is a net positive. And yes, even the bankruptcy of LEH is good news. All of these help bring closure to solvency issues. Since it is early in the days of addressing this solvency issue; expect continued fireworks; but the healing process has begun. This together with liquidity will restore the economy to health. But it will take time. Healing has just begun.