-
Fund Managers Cheer Up, If Only A Bit
Tweet Share on Facebook January 21, 2009 Comment (1)In its January survey of fund managers Merrill Lynch says investors are still bound by the global recession and expected weakness in the year to come, but their terrible mood did improve a bit when it comes to the threat of deflation and profit expectations. "Investors are talking a more positive story, especially with regards to the U.S., but the fear factor remains," said Gary Baker, Banc of America Securities-Merrill Lynch Head of EMEA Equity Strategy. "They have firepower to act, but are unconvinced by the modest recent equity rally, suggesting it is a bear market rally in both sentiment and markets. Global sector allocations remain resolutely defensive." Some highlights (bold is mine):
On global growth: Merrill: "For the second month running 88% of our panellists believe that the world is in recession- there is no debate on the issue, a net 91% of respondents believe that we are in a world of below trend growth and inflation (even higher than last month). However, perhaps surprisingly in light of continuing poor data from series such as the OECD leading indicator, expectations of global economic growth, while still negative, have picked up compared to recent months. A net -24% believe things will improve compared to -36% last month and -60% in October."
On valuations: "Panellists continue to view equities as undervalued (a net 30%) in absolute terms, albeit less so than the last 3 months. In keeping with views on long term interest rates bonds are viewed as overvalued by a net 46% up from 42% last month and only 14% in November. Little of this view is reflected in any shift in investment stance. Asset allocators have raised cash weightings trimmed overweight positions in bonds (a net 11% from 21%) and become slightly less underweight equities (28% versus 34%). Concerns on a value trap still appear to be tempering conviction levels in equities."
-
Palm's Pre Is A Huge Bet
Tweet Share on Facebook January 20, 2009 Comment (13)On a day when stocks are selling off hard on further concerns in the banking sector, Palm shareholders are likely asking a few questions of their own. Specifically, is the hype surrounding the Palm Pre, its new handset, for real? With shares up more than 150 percent for the lucky few who picked them up early on this year, the answer is still "Maybe." There's no escaping that Palm has to claw its way back from a very distant third place behind Research in Motion and Apple, and it won't be easy to create a meaningful challenger for the iPhone. A few reactions to Palm's recent good fortune:
Paul McWilliams at Next Inning sees challenges still to come:
PALM's biggest challenge, outside of its weak balance sheet, is to develop an applications designer community to support its new operating system with useful applications. I believe this strategy, which is exactly what Apple (AAPL) has implemented with great success already, is going to be the key differentiator in the smartphone handset market going forward. However, en route to that, PALM has plenty of other short-term challenges, of which its balance sheet is only one. Two others that I think should be considered follow:
By coming out with a new operating system, Palm has all but made obsolete its entire existing product line. Of course, we could argue that the existing line had minimal value since revenues for the November quarter dropped nearly in half to $191.6M from the $349.6M reported for the same quarter in 2007.
By giving Sprint (S) the exclusive on the handset, PALM is at least temporarily hooked into the number three player in the U.S. and thereby limited the Pre's volume potential. While I have a lot of respect for some of the people in the Sprint handset group and particularly like the new Samsung Instinct it introduced in a similar exclusive deal, it will take more than Sprint's volume to turn the ship around at PALM.
Analysts have questions too. Today, JP Morgan analyst Paul Coster downgraded Palm on its recent surge. From the AP:
"(Following) strong month-to-date outperformance, we are not prepared to add to positions in the stock ahead of a series of execution challenges, and in the face of weaker consumer spending," wrote Paul Coster in a note to investors. He downgraded Palm to "Neutral" from "Overweight. "In this market, we can only stomach so much risk," the analyst added. Palm's shares are up significantly since the start of the year, from around $3 at the end of December to $7.91 on Friday.
Still: Coster notes, "We believe Palm has authored possibly the best (operating system) in the handset market" and said it could cause a "major disruption."
-
Direxion Leveraged ETFs Win Fans
Tweet Share on Facebook January 20, 2009 CommentLeveraged ETFs are among the more exotic options for traders right now, and it looks like they're proving more popular at a time when market volatility continues to rage. From the WSJ:
The funds "have gotten extremely fast pick-up in terms of trading and people talking about them," says Soren MacBeth, who runs the Web site StockTwits.com, which collects Twitter posts about investing.
Mr. MacBeth says after just a few weeks the Direxion funds have regularly cropped up among the 10 most discussed stocks on his Web site on any given day.
Exchange-traded funds resemble open-end mutual funds but trade on an exchange like a stock. Direxion's largest ETF, Large Cap Bull 3X Shares, which aims to offer investors a return equal to three times each day's percentage-point change in the Russell 1000 stock index, has $237 million in assets and average daily trading volume of 8.2 million shares, according to fund researcher Morningstar Inc.
I touched on leveraged funds in U.S. News' ETF investing guide, and took a look at the leverage question in ETF Investing: 5 Pitfalls to Avoid:
Leverage can be deceptive. Leveraged ETFs, designed to double or triple market moves (for example, if the Dow jumps 5 percent in a day, a two-times leverage fund would return 10 percent), have one big flaw: They're meant to track only a single day's trade, making them unsuitable for buy-and-hold investors. Mariana Bush, an analyst at Wachovia, recently tested various scenarios for three-times leverage funds and found returns over a set period could be gains or losses of more than 15 percent depending on daily volatility—even when the index tracked by the security returned 5 percent between the buy and sell date.
Basically, if you aren't day trading, these vehicles probably aren't for you. Still, if you're looking for a short-term thrill leveraged ETFs appear to some appeal among a surprising number of investors.
-
Roubini: Credit Crisis Losses Could Hit $3.6 Trillion
Tweet Share on Facebook January 20, 2009 Comment (6)At a conference in Dubai, NYU's Nouriel Roubini said credit crisis losses could hit $3.6 trillion, up from $1 trillion worth of writedowns and losses estimated by Bloomberg to have already roiled the global financial system.
Bloomberg reports Roubini says that if losses are really as large as he fears “it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.” He also warns the disease is spreading to Europe, where the Royal Bank of Scotland Group faces an estimated $41 billion loss. Roubini also said the global slowdown will keep oil prices in the $30-$40 a barrel range this year, and he predicted commodities would fall another 15-20 percent from current levels.
Banking losses overseas are indeed becoming far more dangerous, as possible losses mount at institutions that invested heavily in U.S. mortgages, as well as other asset classes that have been badly damaged by the global economic downturn including the sovereign debt of emerging market nations.
-
Will Obama Be Better Than Bush For Stocks?
Tweet Share on Facebook January 20, 2009 CommentA little market history for you this morning care of the Dow Jones Wilshire 5000, the broadest measure of U.S. stocks. President Obama may have a troubled economy to deal with, but as the Bush team exits the White House they've set the bar low for the performance of equities compared to the past four administrations.
From Wilshire Associates:
Annualized Total Return DJ Wilshire 5000
President First Term Second Term Total
Ronald Reagan 12.1% 16.1% 14.1%
George H.W. Bush 14.5% ----- 14.5%
Bill Clinton 17.7% 13.5% 15.6%
George W. Bush* 1.0% -5.5% -2.3%
*With the exception of President George W. Bush, the dates are inclusive of each President’s term. The data for President Bush (43) is as of Friday, January 16.
-
CF Industries Bids $2.1 Bil For Terra
Tweet Share on Facebook January 16, 2009 CommentIt's well below freezing in Sioux City, Iowa today but a lot of portfolios in the hometown of fertilizer maker Terra Industries look scorching today after Deerfield, Ill.-based rival CF Industries made an unsolicited $2.1 billion all-stock bid for the company that could kick off a wave of consolidation in the agricultural chemicals sector. The $20-a-share bid is a 23 percent premium over Thursday's closing price, and Terra shares jumped accordingly today. CF says the deal could equal $100 million in cost savings over two years, and analysts say the deal could improve pricing power for the entire industry. Analysts react:
BMO Capital Markets: "At first glance, the share exchange ratio being offered does not seem unreasonable and is consistent with a recent high achieved in October 2008. The combined entity has the potential to have a sizeable position in the North American (nitrogen fertilizer) market."
Citigroup: "We view the proposed merger structure as a win-win transaction for shareholders of both companies due to the anticipated synergies, 100% stock deal that allows for continued participation by TRA shareholders, and welcomed consolidation in a globally fragmented market."
-
Circuit City Liquidates, Best Buy Bounces
Tweet Share on Facebook January 16, 2009 Comment (16)Shares of Best Buy are up almost 9 percent this afternoon after its closest rival, Circuit City, said it would liquidate all of its 567 U.S. stores. There's not much good news in the story, especially for Circuit City's more than 30,000 employees, but once some $2 billion worth of inventories are sold off the retail landscape is going to look noticeably different.
William Blair analyst Jack Murphy this an "historic" moment for Best Buy, and say the company "is poised to enjoy a material benefit from the recently announced liquidation of its largest pure-play consumer electronics competitor." Specifically, Best Buy's domestic sales for the firm's fiscal 2009 (ending February 2010) could see a seven-percentage-point gain from the demise of their chief rival, which equals an extra 55 cents for 2009 earnings per share. William Blair raised its earnings target accordingly to $2.55 from $2.
-
Can Obama Boost Wind Stocks?
Tweet Share on Facebook January 16, 2009 Comment (1)In his proposed stimulus package, Barack Obama is including some love for the wind sector.
Jefferies backs its "buy" ratings on European wind giants Gamesa and Vestas thanks to the inclusion of a multi-year extension of the production tax credits, plus some means of making such credits "refundable." It's not clear exactly how the plan would work, but the end result of a "refundable" credit scheme could be more expansion for the wind industry as the cost of reselling tax credits to investors would improve.
The wind sector has been hit hard by the credit crunch, with shares of ETFs like the First Trust Global Wind Energy (FAN) and PowerShares Global Wind Energy (PWND) falling by more than half in the last year. The credit change won't solve lending worries for the sector, but along with the possibility of increased investment (possibly some $10 billion to $20 billion from the proposed National Clean Energy Lending Authority, Jefferies says) the sector could be in for at least a bit of a thaw.
Jefferies says: "Clearly it is very early stages and final improvements/alterations to the wind incentive program in the US must still get through Congress and the Senate. However, we are increasingly optimistic as the incoming Obama administration seems to be re-affirming its campaign commitment to renewable energy."
-
Inauguration Trading: Don't Bet On A Democrat Rally
Tweet Share on Facebook January 16, 2009 Comment (1)In a long Q&A, TDAmeritrade's chief market strategist Stephanie Giroux says that while Democrats in power often mean better returns historically, the general climate of increased regulation and tougher taxes percolating in Washington as the economy suffers through a recession could crimp hopes of a Democratic rally. More below:
Q. Democrats haven’t controlled Congress and the White House since 1995. What impact will a Democratic administration have on the market?
A. Since World War II the S&P 500 has done better under Democratic presidents than Republican ones, although the best-case scenario for the market is when we have a Democratic president and a Republican Congress. With Democrats holding more power, there will probably be more regulation of financial services; in the wake of last year’s meltdown, many Republicans are also in favor of heightened market oversight. That does not bode well for financial service providers in general. Government-sponsored enterprises such as Fannie Mae and Freddie Mac could benefit from an Obama administration. And while large oil companies may lose some tax advantages under the Democrats, spending on energy alternatives in the form of solar, wind and ethanol will likely grow.
On the health-care front, hospitals and generic drugs could benefit as Democrats push reform forward, but pharmaceuticals, managed care and biotechnology could face new challenges. And as Obama seeks to end the war in Iraq quickly, the U.S. could put less money into armaments, new jet-fighter programs and new Navy vessels but maintain spending on homeland security.
Higher taxes on capital gains, dividends and income are likely to be needed to help relieve the debt load of the U.S. government as it rescues the country from financial crisis. Clearly, addressing the financial crisis and improving the economy will draw President-Elect Obama’s full attention and efforts. But ultimately, our economy and financial system are not broken. Following some structural fixes to make them strong again, money will flow back into the U.S., which has always been and remains a safe haven in the world economy. We’ve all grown accustomed to instant gratification. Now we need to be patient, as time is what it will take to heal the recent wounds.
-
Nintendo Wii Leads Gaming Strength
Tweet Share on Facebook January 16, 2009 Comment (1)Video games appear to be holding their own against the worst retail climate in memory. Nintendo sold nearly 10.2 million Wii game consoles in the U.S. last year, and nearly 10 million more Nintendo DS handhelds. That means Wii sales accounted for 55 percent of all video game console sales in the U.S., and Wii games took the four top spots in terms of sales, according to the latest figure from the NPD Group.
Holiday sales were even better. In December, Nintendo moved 2.15 million Wii units and 3 million DS systems. Year-over-year Wii sales are up 59 percent. Nobody, not Xbox PS2, or the Sony PSP even came close to cracking the 2 million mark.
advertisement
Follow U.S. News Money
Like Us On Facebook
advertisement
Subscribe
U.S. News Weekly
An insider's guide to politics and policy, available on the iPad or as a PDF download.
