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David Merkel |
| Not Shorting, But Trimming |
12/2/2005 12:19 AM EST
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Yesterday, Cody asked if anyone was shorting into the rally. I didn't do that, but I did my first trades in a while in my broad market strategy. Ryerson Tull (RT:NYSE) hit my price target, so I sold it. For those who played along with me from the first time I mentioned it six months ago, you got a pretty nice gain. Time to move on, in my opinion, but there may be a little more on the table.
Aside from that, I did some of my ordinary rebalancing (risk control) trades. I trimmed some Toyota Motors (TM:NYSE), Cemex (CX:NYSE), and Methanex (MEOH:Nasdaq), and bought some Gold Kist (GKIS:Nasdaq) to rebalance to target weights.
For those unfamiliar with my risk control disciplines, and how they probably add a couple percent to my returns each year, while reducing risk, you can read the second article in my series, "Become a Smarter Seller." It's a fundamental and simple method for maintaining portfolio balance in portfolios where the companies have strong balance sheets.
Still, I am left with the question of where to go with my proceeds. Cash is getting a little high, and I'm not sure where I will redeploy it. When I do redeploy, I will let you all know.
Position: Long TM CX GKIS MEOH
A very good (and chilly) Friday morning from New York. Futures are a bit higher but hovering below fair value this morning. S&P futures are up 1.20, Nasdaq futures are up 2.50 and Dow futures are up 6 points. But those numbers really don't matter too much, because everything hinges this morning on the employment report coming at 8:30 a.m. EST. Consensus is for growth of 210,000 jobs and an unemployment rate of 5%. Hourly earnings are expected to grow 0.2% and the average workweek is expected to be at 33.8.
Some chatter this morning about the pending Ford (F:NYSE) restructuring plan, which would close five North American plants and slash 7500 jobs. The news is likely to hit late this month or early in 2006. If true, the biggest hit would come to the Atlanta metro area, which could lose both its General Motors (GM:NYSE) Doraville plant and the Ford Hapeville facility. Stay tuned on this one because there will be a lot of money thrown around by cities looking to lose jobs and key employers.
Have a great day and weekend.
Position: None
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Barry Ritholtz |
| Sticking With the Under Yet Again on NFP |
12/2/2005 7:32 AM EST
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By now, you know the drill:
The Consensus for Non Farm Payrolls data for November is 225,000, with a range from 180,000 to 275,000.
We have yet to see the full impact from Katrina in the data, with BLS noting that tracking down missing employees has skewed their econometric model.
This NFP may even show the new hires from New Orleans who were relocated and employed elsewhere. If any recent month has the potential to surprise to the upside, it's November.
No matter, I am sticking with the under -- if for no other reason than history; Those of you who have been paying attention to the
recent holiday sales data may also conclude that these aren't the numbers associated with strong hiring and a robust economy.
Position: None
Nonfarm payrolls added 215,000 jobs in November, basically in line with forecasts. It's certainly a solid number, but below the growing optimistic view of the possibility of a 250-plus number. Revisions were mixed as October was revised down, but September's data was revised upwards by over 80,000.
The unemployment rate stayed steady at 5.0%.
Bond yields are inching lower and stock index futures are holding steady in slightly positive ground.
Position: None
Jobs still growing steadily. Consumer still spending steadily. Margins expanding steadily. GDP growing steadily. Energy declining steadily. Despite devastating hurricanes and all that. Notice a pattern?
I got sick of writing "steady as she goes" when talking about the economy like six months ago. But there's just no better way to put it: Steady as she goes.
Speaking of "no better" -- have to be cautious when things seem as good as they can get.
It's Friday and I'm thinking to splurge on a double shot espresso. Why not?
Position: None
Goldilocks employment data. Too strong and Cramer would be screaming about the Fed pumping up rates. Too weak and Kass would be screaming about the impending recession. Two hundred thousand plus is just about right for continued growth without higher rates.
Position: Still long bullishness
I think Cody and I live in two different economic worlds: Both are real, yet both have very different connotations.
Call it the headline vs. the underlying data interpretation difference.
This week's headline data were very optimistic: holiday sales up 22%, durable goods very strong; new home sales plus 13%, GDP revised to a huge 4.3%, core inflation mild, nonfarm payroll plus 215,000.
The below-the-headline data dump was far less encouraging: Retail sales data were mixed, huge promotional pricing is likely to pressure margins. New home sales data were less than the margin of error and according to Census Bureau Statisticians, was statistically insignificant; regardless, history shows double-digit monthly new home sales gains are followed by negative growth next month.
Then there's durable goods. This week, Morgan Stanley's Steven Roach reported from China that U.S. officials are pressuring the Chinese to buy more U.S. goods -- so the easiest way to do that is Boeing's (BA:NYSE) Jetliners. Lo and behold, Boeing has a few big sales to China. Outside of this political pressure, the rest of the durable goods numbers were disappointing.
We've already discussed the absurdity of relying on only those items not going up in price as a measure of inflation.
As to nonfarm payroll, it was not bad -- slightly below consensus and still laden with lots of construction jobs and low-paying fast food positions. Trailing three- month average is 92,000 per month.
As to GDP, we saw consumer consumption hit an all-time high as a percentage of GDP. That's thanks to borrowing and spending -- not actual production. If you think debt-laden spending is a sign of a healthy economy, well, sold to you.
The bottom line is that those who believe in variant perception are being given an opportunity to prove they eat their own cooking. The disconnect between the headlines and the underlying data is big and getting bigger. CNBC does a great job at providing the backbeat to the dance.
And that spells opportunity sometime in the not-too-distant future.
Position: Long realism
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Cody Willard |
| Reality (Still) Says Steady |
12/2/2005 10:58 AM EST
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Barry and I are close friends, but we haven't seen eye to eye on this economy for as long as I can remember. Barry, you've been lamenting the economy and the supposed lack of job growth since at least last April.
Back last June, we had a similar debate. In the time since, employment has steadily increased by an average of more than six figures a month (according to the bureaucrats who measure such things).
While we're at it, Barry, I'm still waiting for you to explain how the booming personal income receipt data weren't indicating steady job growth from last July. Please include the facts that the economy has added more than half a million jobs (again, according to our bureaucrats' measurement tools) in just the few months since then.
You can keep your "realism." At some point that "realism" will happen to coincide with a downturn in the economy. Good luck getting the timing right this time, because you've been way off with these macro laments for a long time. Realism indeed. I'll stick with reality. It is what it is, man.
Position: None
I can't disagree with Jim's article on healthcare speculation, especially on Stryker (SYK:NYSE) and Zimmer (ZMH:NYSE) and the rest of the ortho guys, as the government will definitely be pumping some headwinds into that sector. I've been amazed by the speculation in big-cap biotech too. Amgen (AMGN:Nasdaq), Genentech (DNA:NYSE), and Gilead especially are getting priced with no room for error. The growth stories in these names are intact through 2006 certainly, but I sense there is a lot of generalist money who abhor big pharma right now and are stashing some money into these names for safe keeping. If this economy keeps marching in the right direction, I believe these names will lag the indices as they will be a source of capital. And heaven forbid if something goes wrong, as there's a lot of air to come out -- remember, biotech makes drugs to treat disease too, just like big bad pharma. Though the comparison obviously isn't perfect, the buyer is the same.
As far as big pharma goes, yes, that sector looks like a mess and there are structural questions to be answered. But as an investor, I am only looking for some of the structure to be fixed or at least addressed in the near term and a bit of money to flow to these 10-12 times p/e pharma names. If/when Pfizer (PFE:NYSE) wins their U.S. Lipitor patent suit, the sector should do well.
Position: Short BBH and DNA, Long PFE and MRK
Note: much of this post is strictly for wonks only, because it is about an academic-style paper from a Fed economist. I generally don't go in for the advanced modeling, because it is often a lot of garbage in, garbage out. Theories are unrealistic, or the data is dirty; that sabotages most academic economics.
That said, I want to draw your attention to the following paper by Robert F. Martin, The Baby Boom: Predictability in House Prices and Interest Rates. Here's the skinny: absent behavioral change (big assumption), housing prices will fall 30% in inflation-adjusted terms over the next 30 years as the baby boomers retire.
The paper does suffer from fitting the data to the last 40 or so years in the U.S., which in my opinion limits the forecasting power in the U.S. Data-mining is a risk here, but I give this paper a little more credence than some, because he took his model and applied it to some other countries and got a reasonable fit.
The graphs at the end are worth a look, even if you don't agree with the conclusions. It gives you a feel for the possible effects of the baby boom retiring. That said, my view is that the average baby boomer will work into his late 70s as a necessity. Baby boomers haven't saved; the only significant investment that most of them have is a heavily leveraged house. And, as you might guess, the ability to extract value from that will be limited if many want to sell or reverse mortgage their homes.
Hey, maybe we can sell the housing stock in this country to wealthy foreigners? Oh wait, they're already taking down a huge chunk of our mortgage and agency bonds already. Well, who can tell, they may want more.
Position: None
Barry/Cody: I've been following your insightful exchange with great interest. Frankly, you both make some great points. But as I read the exchange, I couldn't help but think that your disagreement is an excellent illustration of the Wall of Worry that bull markets seem to climb. As long as there are nonbelievers, there is the potential for new money to come into the market.
Of course, if you are right, Barry, then this Wall of Worry will ultimately tumble on a lot of bulls.
Not that anyone asked, but I really don't have much of an opinion either way. There's so darned much data out there that just about any view can be adequately supported.
On another note, I am hearing that large private homebuilders are revising their 2006 estimates downward.
Position: Just more grist for the mill
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Barry Ritholtz |
| Never Confuse Economic Analysis With Trading |
12/2/2005 11:57 AM EST
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Let's be clear: there is a huge difference between discussing long term macro-economics and intermediate-term trading. Indeed, macro issues should color your long-term views, but certainly not your short-term or intermediate trading. And the many times I have flipped bullish and bearish -- despite the increasing structural problems -- attest to that.
As to specific data:
It takes 150,000 new jobs per year just to keep up with population growth. So noting that job growth has been 90,000 per month for the past three months, or 175,000 for the past year, is hardly more robust than merely a growing population.
Booming personal income data? Real income has actually gone down the past four months.
And if we combine the two, we see new job creation has been in the lower-paying, lower-benefits positions. As a nation, we have been losing industrial and technology jobs and replacing them with lower paying retail and service (restaurant) jobs. Machinists and programmers vs. greeters and flippers are not the ideal way a country expands economically.
Position: Long a pressing lunch data
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Guy Lerner |
| Surging Liquidity |
12/2/2005 11:59 AM EST
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JJC: Do you think the surging liquidity worldwide is a reflection of money leaving once hot areas like oil/ energy and housing or complicit central bankers, or both? I know that is a big question, and regardless of the answer, the end result is the same ... there is money sloshing around.
I agree with your thesis that there is liquidity out there despite the rising interest rate environment. But the question is not so trivial, because if increasing liquidity was due to organic growth vs. stimulative growth (i.e., central bankers creating paper assets) is the outcome likely to be different, or we should focus our attentions in certain areas vs. others?
When you see how gold is doing against all major currencies and how it has dissociated itself from the dollar, I think that suggests the latter phenomenon (i.e., stimulative growth) is going on.
Position: None
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Cody Willard |
| Steady Is As Steady Does |
12/2/2005 12:18 PM EST
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So Barry, 175,000 jobs added a month over the past year isn't "steady" somehow? Semantics, I guess, sorta like me and Gates on "heels" and "toes".
And you still aren't answering the personal income receipt question, which is as factual as our bureaucrats can get, as it's based on actual tax receipts rather than on some endlessly hedonicized numbers.
And while you continue to lament the macro economy and job growth, the facts of booming earnings, revenue growth and GDP growth sure do seem to indicate that (using your very words) something "ideal" is going on in the way this country is expanding economically.
Position: Long cake but not eating it too.
Cody,
We can go back and forth on this forever, but perhaps we are best served by recalling what the writer Anais Nin wrote:
"We don't see things as they are, we see them as we are."
Position: Long Nin
I've been getting a bunch of emails wondering what's going on at Panacos (PANC:Nasdaq). I believe there are two interrelated issues. I'll start off by saying my thesis on the stock remains the same, but I believe management has done a less-than-good job at managing the optics at this juncture spurring a loss in confidence.
The founders: First, Allaway, the COO, initiates a selling program right after they raise a bunch of money in the secondary. Are you kidding me? If you want to sell some stock, do it in a controlled fashion (i.e. the deal). I understand the intent on wanting to average over time, but the execution looks downright JV, or for my Canadian friends, bush-league (did I say that right?). On top of this though, the selling program would probably never have been discussed if he waited until after the company announced the drug/drug interaction data and the bioequivalence data. This data, when it comes and if it is fine (as it needs to be), just tells the world Panacos is ready to move into more broad-based clinical trials that will determine if we have a drug.
Then the CSO departs. It makes sense that a basic research guy who is playing number two to Allaway wants to spread his wings somewhere else where his utility and importance is greater, and hey, he's already made a few million on his founder stock. But again, timing here delivers that nagging pain of a hard kick in the groin. Could the management team cajoled him to wait two or three months? Probably, but what do I know...
So you have these events right in front of a relatively straightforward but important catalyst for the stock, and what happens? A lockup comes off with shares for sale. It is no surprise that the buying interest has dried up and unfortunately, we are left to wait -- drift at sea until the data either saves us or sinks us now.
So what to do? I actually bought a bit more stock today. I think this will pass, but just like Rigel yesterday, we can't possibly know everything especially with these one-hit wonders. I think that is why I call it a portfolio.
The shaken confidence is to be expected after these events. These events will prove to be another day where the market makes us feel dumb temporarily, or very foreboding ones where management needs to hire some lawyers. My bet is I am dumb temporarily. In a few months we'll know if I am dumb on a more permanent basis on this stock.
Position: Long PANC
Watching this General Dynamics (GD:NYSE) come down, thinking it's getting interesting. Is there something I am missing?
Position: None
As I note in passing in a column that will be up soon, the Nazz is up 22% or so from its spring lows.
Can you imagine if we arbitrarily started our calendar year on May 1 instead of January 1? Everybody would be talking about the huge bull market in tech. Instead, we read all day every day about how poorly this market has acted this year.
A lil' something for all of our perspective pipes.
Position: None
Alright, bring it on. Two days ago, I said to sell Movie Gallery (MOVI:Nasdaq). JP Morgan comes out and rates it a buy today and sends the stock flying about 15% higher to $5.48 a share.
I have read the note, and it does not change my bearish thesis that Movie Gallery's ill-timed acquisition of Hollywood earlier this year, coupled with negative same-store sales and $80 million in annual interest payments to finance the Hollywood deal, will drive shares much lower in 2006.
In addition to losing market share to Blockbuster (BBI:NYSE), Movie Gallery likely won't be in compliance with its debt covenants in 2006, which will make it very difficult to raise money.
Today's move in the stock is a classic short squeeze, nothing more. While it's hard not to buy into it given how voracious the rally appears, nothing has fundamentally changed at Movie Gallery. For evidence, just look at the junk-rated bonds that are only 1.3% higher today to 76 cents on the dollar.
What would make me more bullish? Better movies, for one. But I believe the long-term threat of video-on-demand more than mitigates this anyway because consumers by nature want to get things delivered to them in the easiest possible format. Also, improving sales would be a good first step towards a recovery. But bad movies and competitive threats make that look like a long shot at best.
Position: None
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Cody Willard |
| Hard Work, Clean Livin' Week |
12/2/2005 2:49 PM EST
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All righty then, I'm going to limp into the close and collapse into the weekend, as I've got nothing left to give. What a week of rallies, macro data, micro data ... and after hour biz events.
I'm heading home having done little trading the last few days. Maybe it's just me, but I sure sense a lot of tension out there from both bulls and bears alike. Something to ponder this weekend, for me at least.
Position: None
It's not the Dow, the S&P or even the Nasdaq Composite.
For now, the NDX is calling the shots.
For the past week or so, I have been making a fuss about the resistance in the NDX, which begins at the 1710 level and goes up to 1735 (the December 2001 high). Call it a resistance channel from the highs of December 2001 and January 2002.
In fact, in yesterday's RealMoney column I noted that "this area from 1710 up to the December 2001 highs at 1735 is a big deal, and capable of giving the market further problems even during this seasonally strong period."
Granted, January 2002 seems like a long time ago. How or why would anyone remember such things? Well, we may not remember those highs, but the collective unconscious of the market remembers, and it is already making some noise about it.
Today's high of 1709.00 (according to one quote service), has now taken out yesterday's high of 1705.19, which in turn was less than a point above the Nov. 23 high of 1704.42. Note that today's high was just a little over a point shy of that resistance channel, which begins at the 1710 level. Maybe that's as close as it gets to this area for now. Maybe it pops through later today or next week. Whatever it does, the market is telling us that it hasn't forgotten about this level. It has now turned back the entire market (again). And not just the NDX, which has now pulled back below 1700, but it has turned back the Nasdaq Composite as well as the Dow and S&P.
Position: None
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David Morrow |
| Stocks Pause; Will Uptrend Resume? Please Vote |
12/2/2005 9:01 PM EST
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Stocks closed mixed on Friday but the outlook is still positive, with December being a traditionally good month for the market.
On Friday, the Dow Jones Industrial Average fell 35.06 points, or 0.32%, to 10,877.51. The S&P 500 rose 0.41 point, or 0.03%, to 1265.08, and the Nasdaq Composite was up 6.20 points, or 0.27%, to 2273.37.
The Dow lost 0.5% on the week while the S&P fell by 0.2%. The Nasdaq gained 0.4% for the week.
Nonfarm payrolls rose by 215,000 last month, about 5,000 more than forecast.
Crude oil also has rebounded, closing up 83 cents Friday to $59.30 a barrel, a three-week high, as cold weather returned in the Northeast.
So where do you think stocks are headed? Please vote in our RealMoney Barometer at the bottom of this page.
Position: None
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