Archive for the ‘Foreclosures’ Category
Tuesday, April 21st, 2009
The market this morning decided to give back some of its recent gains. This certainly should have been expected and it’s a question of how much will the market retract? Actually, a pullback will be a healthy sign that we have reached the bottom set in early March and that the market with the economy has a brighter future for the rest of the year.
The large merger deals announced by Pepsi and Oracle and a great earnings report by Eli Lilly Company did nothing to help the market. Also, Bank of America announced surprisingly good earnings this morning though the bank stated credit defaults were still rising. None of that good news mattered.
The stock market reaction today is a clear sign that it is ready for a pullback. It could be short and sharp, but it should only be a pullback and one that should be bought not sold. Having cash on the sidelines waiting for it to finish its pullback, and having a hedge against this fall has ‘not’ been a benefit in the recent rise, but the market will now give you an opportunity to enter the market at better prices and exit your short positions.
It would be prudent to wait a few days to let the market work.
Good Trading
Steve Peasley
Posted in Currency, Current News, Foreclosures, GDP, Hope, Important, Industry Analysis, Uncategorized, banks, commodities, jobs, recession, stimulus package, stock market | No Comments »
Monday, April 13th, 2009
Earnings reports for the first quarter picked up speed this week with the first big blue chip company Alcoa reporting poor numbers after hours on Tuesday and Wells Fargo reporting surprising record profits this morning. The market sold off Monday and Tuesday in anticipation of a tough earnings season but Alcoa, with its bad numbers, held up well on Wednesday because those bad numbers were expected. Some analysts actually upgraded Alcoa based on future numbers. The phenomenon of bad numbers or bad news not affecting the market or individual stocks is well documented. It is simple to understand but difficult to anticipate. When investors expect something in the future they price it in today. So bad earnings for the first quarter has been expected and thus if we get them it should not affect the market. Of course there is a large exception to this quirk of the market and that is if the earnings come in worse or better than expected. The devil is always in the details; Alcoa’s bad numbers were expected so the stock did not fall, but Wells Fargo’s good earnings were not expected so it went up sharply with the entire market this morning.
So what can you do about the daily gyrations of the market and individual stocks? Take a bigger picture perspective. Is the economy at its worst? When will the economy find its feet? When will the housing market start to improve? What is happening in interest rates, inflation, deflation and the money supply? After stepping back, your conclusion should be that we are in a very deep economic hole. It is deeper than most others and stock prices have collapsed over the past year.
The market expected this deep hole and it appears it is now expecting some kind of recovery. Always, stock prices lead the economy both down and up. It appears we need to be buying stocks not selling them. The market is one of the strongest leading economic indicators we have.
However, don’t expect the market just to move in one direction. We had a very steep downturn for the first two and half months of the year after a very bad 2008. Then we have had a steep rise in three weeks. Both moves were too violent to be sustainable. Expect a pullback of the recent rise. That pullback should give you an opportunity to exit any short positions and start to add long positions. Use any weakness. We had it this week.
It is time to be buying! The bottom is in and will hold. Retesting may happen but my guess, and it is a guess, is that a retest of the recent bottom will only be a half hearted effort, maybe retracing 50% from this steep up move. Resistance on the up side is at 8,000 on the DOW and 800 on the S&P 500. It looks like it is being broken to the up side. The charts are fairly clear about this resistance and this week has shown us that the market will struggle in this area. It struggles in this area because, we the investors and traders, see it on the charts and make it happen by our reactions. Charting is nothing more than watching human nature at work.
Still it is time to buy on any weakness. The market is on sale. It has been rare that it has been this inexpensive. Are you going to wait too long and be one of the last ones to enter, thus missing the upside? If you are in, stay in. If you are out, buy. We will be buying. We have been doing so very slowly waiting for some weakness to be more aggressive. We will exit the last of our short positions and buy more aggressively if we get the expected pullback. Earnings season is going to make it interesting which is another word for difficult. Don’t let fear paralyze you.
There is an old saying, “the market crawls up a wall of worry”. Are you worried? If you are, buy. Just don’t be too aggressive!
Good Trading,
Steve Peasley
Posted in Currency, Current News, Financial Outlook, Foreclosures, Hope, Industry Analysis, banks, commodities, inflation, jobs, recession, stock market | No Comments »
Friday, March 6th, 2009
The big economic statistic of the week was today’s unemployment rate for February. The expectation was for a poor jobs report and an unemployment rate to exceed 8%. What we got was exactly what was expected. The market breathed a sigh of relief in the morning but it’s Friday and the day is early. Expect unemployment to reach about 10% nationwide before it starts to improve. It will continue to rise even when we see evidence that the recession is waning. There is no evidence of that yet, but it will end despite what many think. The Depression word should not be part of the discussion. Could we go into a depression? Yes, but the probability is slim.
There was a plethora of economic statistics released this week and I don’t want to go over all of it, but it is prudent and enlightening to touch on a few data points. First, the ISM (Institute of Supply Management) report for February rose to 35.8% from January’s reading of 34%, a very slight improvement which may or may not be statistically important but any reading higher month over month is good though any reading below 50% is a shrinking economy. Construction spending fell 3.3% when expectations were for a fall of 1.6%. This report was for January. January factory orders were down 1.9%, much better than the expectation of a fall of 3.5%. Finally, retail sales in February rose. All these are backward looking numbers but they certainly paint a picture of a falling economy with hints of stabilization. The recent bad news is a direct result of the liquidity crunch that froze all economic activity in October and November before it started to loosen. Liquidity is still tight. We are far from being out of the woods but we can see the end of the forest as we slog our way forward.
If we look for any sign or spark of hope, it is in the news that seems to becoming less Draconian. Less bad news means we are still falling in economic activity, but the pace of the fall is slowing. A recent news article spoke to announcement of layoffs in February that appeared to be less in number than in January, but that was after a 14 year high in layoff announcements in the first month of the year. The consumer seems to be spending a bit more. Housing and refinancing is still very weak, but there are small signs of improvement in California where sales of existing homes was flat last month but rose the month before and inventory actually fell. However, new home construction is in the basement and digging a deeper hole. Foreclosures are increasing, but there is a plan released by the White House to help. It will take time to see any impact but frankly, foreclosures will continue to rise. In past loan work outs we have seen half of them return to the foreclosure process. I think much of this effort is wasted. Affordability is very good and interest rates low. Buyers are starting to come back but very slowly.
The market has fallen 25% since the first of the year. That 25% can be directly contributed to the lack of clarity and focus of the stimulus package. Despite the President’s smooth speeches, the constant drum beat of the evils of our system and actual policies that have been announced and passed have been just as toxic to the stock market as toxic mortgages are to the banks.
The hope the market had for the ’stimulus’ plan of $800 billion disappeared as the details showed it to be a multi year ’spending’ package packed with pork barrel spending. The public and the market see it for what it is not for what politicians try to spin it to be.
For our clients we have turned very defensive with high cash levels, larger short positions and equities that are anti or out of the market. We have a few long positions in the stock accounts but only in those companies that have a clear growth of earnings path and at the same time are extremely underpriced when compared to price to book, price to earnings and price to sales. In the mutual fund program we have very high cash levels, two bond funds, a double short mutual fund and very few long funds. These efforts have enabled us to far outperform the market though we still have loss value this year.
There will be a turn but we will wait for the bottom to show itself before moving into the market in any significant way.
Posted in Current News, Foreclosures, banks, depression, jobs, recession, stimulus package, stock market | No Comments »
Thursday, March 5th, 2009
 Bad statistics permeate the financial news; there is no let up in the depressing numbers. That in itself is going to lead to a bear market rally. Every one knows it’s bad. We are in a deep recession so any hint of good news is going to spark the market. This morning there is talk of China expanding its stimulus spending and there was another report that layoffs in February were not as high as they were in January. Finally, we are getting some details concerning the foreclosure mitigation package. These bits of information are minor points and not market movers of any consequences but they are signs that the market might have a short term bounce.
We still have plenty of bad news and we are going to have another bad payroll number reported on Friday for February. That kind of news will continue but the stock market is building much of that news into stock prices. At some point the bad news will cease affecting the market. At that point, whenever it might be, we wil
l begin the healing process for the stock market.
That day is nearing but not here yet. Still we will get a short term oversold rally.
Good Trading
Steve Peasley
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Posted in Foreclosures, banks, depression, recession, stock market | No Comments »
Thursday, February 19th, 2009
New home construction fell to a 50 year low as reported this morning. It could be worse than that as they only started counting 50 years ago. At the same time applications for mortgages last week spiked up by 40% or so over the week before, most of it for refinancing of course.
Today, Obama released his plan to save some people from foreclosure and the market didn’t really care much for it. So far the Obama Presidency has been a large disappointment from a stock market point of view. He does not really pay much attention to the industry, having repeatedly complained about the excesses of Wall Street. However, the stock market is a leading indicator of our economy. It is telling anyone who wants to listen that it does not see an economic turn around as yet.
It is time to be very cautious, holding significant amounts of cash on the sidelines with a few contra positions for protection. If you are going to own stocks, dividends are important as they will give you a cushion. Of course you need to be concerned that the companies you buy can maintain their dividend.
Most traders are waiting to see if the market will break the September lows. We are very close and it’s touch and go at this point.
Good Trading
Steve Peasley
Posted in Currency, Current News, Financial Outlook, Foreclosures, Industry Analysis, banks, housing, stock market | No Comments »
