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At Ford, Bulls Are Taking the Wheel

It does not make any sense to buy this company at a market cap close to $30 billion. Do not forget they have been issuing shares an will continue to do so, so that the per share price is almost meaningless. Yes it is low compare to the all time high in the 30s, but they have issued so much since then.

Present valuation implies that the company should make $4 to $5 billion per year on a normalized basis. This is highly unlikely in an industry with overcapacity of about 15 million cars on a worldwide basis.

They will need government help if there is a double dip.

Hedge Fund Unwinding Is Still Driving This Train

Big numbers that are not put into context.
a) Given the size of the hedge fund industry losses are significantly smaller than long-only mutual funds,.
b) In addition, hedge funds have been reducing leverage for at least a year
c) Most of them have planned on withdrawals to the point that they are rumored to about $500 billion in cash.

Everybody is expecting a meltdown from hedge funds, it may fail to materialize. If you did not sell already, then you are late to the party and it is stupid to recommend people to sell here.

Dow Jones in Perspective

Good chart if you can live more than 100 years -- The perspective does not make much sense. It is similar to Dow 36,000

CPFF, TAF, TARP, Bailouts and All That Jazz

The incremental approach is not working - They really need to come in with force and in a coordinated manner.

There is ineptitude in both sides of the Atlantic.

It is interesting to notice how the super-bullish Levkovich is not bmost bearish according to an article in Bloomberg. I guess ineptitude is not a public servant-only attribute.

Monday Outlook: Ascendant Fear

The Fed need to act as a credit clearing house at least in the short term. In addition, lowering rates and buying corporate cash bonds would send a strong message.

The problems seem to be going over their head here.

Hank Paulson, Buy-Sider

This is very simple. Banks and IB will pump up the assets to sell Uncle Sam an then they will dump them. This will be another classic fraud but on US.

The Economist On the 'Limitations' of Central Bankers

Tim,

The value of money is the inverse of the prices of everything that can be bought with that money -- under this definition, we have had a huge inflation over the last decade. That is a fact. My money buys now, fewer shares, less of an appartment, etc.

Central bankers are at the end of the day political animals and they want to be praised for growth regardless of the fact that it may be growth that leads to a crises that sets you back. The tipical behaviour of an Emerging Markets banker would fit that description easily -- but now, the description of the Fed fits it as well.

Government and corporations want the average Joe to feel good and believe there is no inflation, so we have the six-headed monster of "core" inflation as we do not need to eat or drive our cars. One conclusion is that starvation leads to lower inflation! It has the added benefit that it lowers social security liabilities, so the government would be happy as well...

The Fed is happy to encourage another bubble in order to keep the unsustinalbe situation of an overextended consumer going. Whether now or in the enxt event, the music will stop. I believe the sooner we correct the imbalances, the better. I find the Fed utterly irresponsible.

Regards

The Next Bear Market is Anybody's Guess

What happens in the credit markets... ...does not stay in the credit markets. You now have spreads widening by more than 100 bps in high yield, subprime and so on.

Talk to people in banks and you will hear stories of risk managers taking over positions and people starting to panick. The easy credit window is shutting down. That is why the Chrysler deal put additional covenants and increased spreads very quickly... ...smart guys, so that it would happen before the lights go off.

I understand that equities are so far ignoring the credit markets, but they can do it for so long only. Unless credit markets turn arround soon, equities are set to at least stay flat.

One site with a lot of info that I like is markit.com -- Just look at the ABX indexes or the high yield index. The BBB ABX 2007-02 has a 500 bps coupon or slightly more than double the coupon of a year ago. And the AA has a 192 bps coupon. Good luck with a long position here.

John Hussman: Unfinished Cycle or New Economy?

Saying that nobody has ever been succesuful is like saying that nobody outperforms the market -- We all know that is not true. At the core here is whether you believe that markets are efficient -- no markets are not efficient. Otherwise a Warren Buffet or Peter Lycnh would not have existed.

John does not twist the facts, actually I think he just lays them there and you can take your own conclusion. Which in my mind are very clear.

It seems to me that like in the late 90s many want to believe in Santa and a new era... ...do it at your own peril. The fact that some stupid continues to be stupid, does not make it smart. Gravity force does not dissapear when you see a rocket going up...

How Much Lower Can the ABX Go?

A few additional thoughts are:
-- Rating agencies are always slow to recognize the deterioration of any credit (I bet this is one of those cases)
-- Market levels are an unbiased predictor of a paper's rating. In this case, it is basically saying that the AAA paper is in reality a single A.
-- Mark-to-market losses are just starting to hit, when they do then risk managers and others take control of the situation with a liquidation at any level following. We are far from that yet.

How Much Lower Can the ABX Go?

I think you post a fair question and the shortest answer is anybody's guess.

The ABX HE refers to Home Equity. If you assume that home prices will continue to go down, then the negative equity that many borrowers are facing might continue to deteriorate which translates into larger loses for HE loans. The amazing thing is that even mild price declines in houses bring loses in the ABX to staggering leves.

This is just the beginning of a credit crunch process that got started in housing, it is now continuing in High Yield and Leveraged Loans and will move into investment grade paper, etc. Bottom Line: This is a re-pricing process that has just started.

Even AAA ABX paper may face loses -- Remember a rating is just an estimate of the probability of defatult and in order to calculate actual losses should a default occur, then the number to look is a the "Loss Given Default" (which is going to be significantly higher than a 5 or 10% for a Home Equity related paper).

Yes today it may be just one guys liquidation, but in reality this is just a bear market for ABX.

16 Reasons To Be Bullish On This Market

Earnings yield higher than bond yields.

Well that should always be the case as a fixed income instrument is significantly less risky than equity -- whether it is UST or AA paper. I am actually amazed how people are fixated with this.

Also, earnings are high on historical basis which basically says that it is unlikely that future growth will continue at the pace that the bulls are projecting -- otherwise people will end up working for free at some point.

In addition, UST yields are low due to a list of price insentitive buyers (i.e. central banks) most of which told us that tell will look for other assets and other currencies. The low end of the 10 year yield is now a solid 5%, with the potential to get close to 6% in an inflation uptick. And corporate spreads continue to widen -- just check swap spreads, ITraxx, or anything else including Emerging Markets.

The argument reads more like the new era we have heard many times in the past -- whether in 1929, 2000 or 2007...

Bulls Likely To Keep Rally Going For Another Quarter

Just in case you have not been reading the news, from Al-Waleed to KKR, numerous hedge funds, Chinese companies, etc. you name it but everybody seems to be rushing to issue equity before the window closes.

And even a company like Ford is issuing shares in therii tender offer for the convertible preferred they issued in 2002 -- More equity because they sense that June automotive sales at 15.6 million units (annualized) is providing a signal of harder times ahead?

Bulls Likely To Keep Rally Going For Another Quarter

The market now more than ever expects the US consumer to carry on -- I believe the consumer is facing pressure from three fronts:
-- Higher oil prices
-- Lower house prices
-- Tighter credit

In addition we have inflation to continue to feed through the headline number -- it seems the Fed is now looking it as well. I guess Ben also drives and eat.

And finally, the M&A boom will slow down significantly. Yes the private equiyt guys have cash to put to work, but the debt part of it will either be more expensive or less available. Remember, banks hold $250 billion of bridgge loans in their books and praying for a high yield issuance to take them out. The PE guys also have deals that need the HY maket to close -- you saw KKR today quickly realizing that the landscape changed and agreeing to debt limitation covenants in Europe.

The market may continue to go up, but if you buy based on last quarter earnings it is like driving looking at the rear mirror... ...do it at your own risk.

Short Interest Hits New Record High On NYSE

I do not think that short interest numbers provide much information nowadays -- the proliferation of derivatives that may be linked to short positions in stocks and not necesarily to short positions in the market makes it difficult to figure out the meaning of the numbers.

In addition, convertibles, market neutral funds, etc. creat a short position while creating a long one at the same time with no price implication when it gets unwound.

There are enough equities arround for everybody that wants one -- i.e. no short squeeze or melt-up.