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RealMoney's Best Blogs

David Morrow

Once again, RealMoney's bloggers were all over the market action, and we'd like to share the best of their commentary this week with readers of the TheStreet.com. These posts best capture the intent of these blogs, which is to provide intelligent discussion on the issues each writer sees as most pressing that day.

Let's take a look at Jim Cramer on commodifying your home, Rev Shark on underperforming fund managers, Cody Willard on hedging the Vista bet, Tony Crescenzi on how the dollar rose, and The Street Research Team on Yum!'s rich taste.

Click here for information on RealMoney.com, where you can see all the blogs -- and reader's comments -- in real time.

Cramer's Blog: Commodify Your Home

Originally published on 12/6/2006 at 9:25 a.m.

If it weren't so personal, if it weren't so your home, you would understand for certain why Toll Brothers(TOL Quote) and the rest of the cohort keep climbing.

I mean it. So many of us own homes that we feel the sting much more personally than we would if it were PVC pipe -- still very much in glut, by the way, so be careful of PW Eagle(PWEI Quote) -- that we can't possibly believe that Bob Toll knows what a bottom looks like. Today there's another article about how homes have lost 20% to 30% of their value in once-hot areas. Heaven forbid.

But if I were to tell you, for example, that stocks had dropped 20%-30%, you would say, "Maybe they are cheaper." How about steel? "That might clean the glut." How about semiconductors? How about sweaters? Men's suits?

There's nothing personal about those price drops, and we buy them.

You get the picture. It's only because we own one of the darned homes already that we are flummoxed.

I urge you to think of homes as just another commodity where the glut's being worked off. That's how to see it. That's why they are buying the homebuilders.

Period. End of story.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider PW Eagle to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

At the time of publication, Cramer had no positions in any of the stocks mentioned.

Rev Shark's Blog: When Fund Managers Underperform

Originally published on 12/7/2006 at 9:34 a.m.

"The worse you're performing, the more you must work mentally and emotionally. The greatest and toughest art in golf is "playing badly well." All the true greats have been masters at it."

-- Jack Nicklaus

Merrill Lynch comments this morning that a record number of fund managers are underperforming their benchmarks as we approach the end of the year. That probably isn't particularly surprising news given the moaning and groaning that has been going on in the money management community for some time now, but it is an issue worthy of some examination.

The first question is why. Keep in mind that the vast majority of fund managers are long only. These managers have no choice but to buy stocks so they either have been sitting on too much cash or buying the wrong things. The most likely problem is that they have been buying the wrong things at the wrong time. Many were probably caught holding energy stocks too long in May and then failed to rotate into the big caps like Coca-Cola (KO Quote), Microsoft (MSFT Quote), IBM (IBM Quote) and the like that have led us off the bottom in July.

What has probably been the most difficult aspect of the recent rally for many fund managers is that it has been led primarily by mega-cap stocks. Only recently have the small-caps and higher-beta names really started to join in. Unfortunately, if you didn't ride Microsoft or Cisco (CSCO Quote), it's been much tougher to find equivalent gains elsewhere.

This market has not rewarded stock picking based on strong fundamentals. The managers who have done best are the ones who invested based on liquidity. In fact, a case can be made that the popularity of ETFs has artificially boosted many of the mega-caps that make up most of the weight in the ETF. If you buy the RTH, for example, 16% of it is allocated to Home Depot (HD Quote). The result is that smaller stocks within the group that may deserve a premium don't receive it because the group as a whole is being boosted. This means good stock picking is not nearly as important as is being in the most liquid names in the hottest sectors.

The big question for us is what this underperformance means for the market as we finish the year. Typically if managers want performance they chase high-beta stocks and hope they will move up faster than the broad market and allow the manager to gain some relative performance.

The problem is that many of the high-beta names are already so extended that prudence simply doesn't support such action. Most managers, even those who are lagging, have a certain amount of discipline in their stock selection that precludes them from simply throwing money at anything in the hope it will have superior relative strength.

I believe many managers will forego the high-beta game and instead be looking for sector rotation as a means of trying to gain some relative performance. If they can catch a hot sector into the end of the year, that is less dangerous than trying to chase a high-beta stock like Research In Motion (RIMM Quote).

At the time of publication, De Porre had no positions in stocks mentioned.

Originally published on 12/6/2006 at 9:43 a.m.

Well, in a shocker of non-shockers, at least in this trader's eyes, it seems like there's already some Vista-driven impact in the PC cycle. As the computer manufacturers are picking up orders into year-end, CIBC and others have noted that PC-related semiconductor companies are ordering more tools and other equipment.

Certainly, with Microsoft's (MSFT Quote) corporate Vista out only for a handful of days, it's much too early for either bulls or bears to claim any victories. But an uptick in the trend has certainly snapped into place, for now. And I expect we'll see more upside to the PC sales-trend over the next two to three years.

I've been thinking about how best to hedge my Vista-cycle bet, and my mind keeps boomeranging back to one name in particular: Dell (DELL Quote). This company has seemingly alienated and frustrated every customer it has ever had (including me). Dell's market share, in a secular growth phase for the past 20 years, now seems positioned for a secular decline right back down to the single-digits from the current 16%.

Let's examine that dynamic in this anecdotal way. I picture buying Vista, and I get excited. Then I picture buying a Vista computer from Dell. And I start to dread the idea. How about Hewlett-Packard (HPQ Quote)? Tell me where to send my money to Hewlett-Packard; I love its machines. Even a Vista-enabled Lenovo would get me excited because it really does make machines with little details that cater to the corporate businessperson. (Not that this particular hedge fund manager is in any way a corporate businessman, mind you!)

Indeed, I've seen estimates being raised for PC growth at some analyst shops in the past few days because H-P is showing such notebook strength in the marketplace. Dell? Yeah, right.

So I will likely buy some Dell puts as a hedge to my PC-related Vista longs, which I'll also be adding to soon.

One last thought to ponder in regard to hedging a portfolio: As a longtime mentor always tells me, "You should be so lucky as to always lose money on your hedges." Here's hoping Dell doubles in a wild Vista-driven bull phase in PC stocks, even as I buy puts in the name. If even a loser like Dell can participate in the cycle, then the other, better names are likely to really boom.

At the time of publication, the firm in which Willard is a partner was net long Microsoft, although positions can change at any time and without notice.

Originally published on 12/8/2006 at 12:49 p.m.

The U.S. dollar has rallied sharply and treasuries have weakened from earlier levels, coincident with comments from Treasury Secretary Henry Paulson, which were delivered in an interview on CNBC. There are a number of factors at play.

First, the sense following this morning's release of November payroll data was that the data did not change the widely held view that the relative growth rates between the U.S. and abroad would continue to favor a weaker dollar. This view was enough to push the dollar to its lowest point of the year against the euro. The move probably drew in new dollar shorts, of which there is already a very large camp. Last week's CFTC data show a 6:1 ratio of euro longs to shorts. When the dollar failed to fall further, the large short base covered its dollar shorts.

Second, there is talk that the ECB was "checking rates," which is the expression used by traders to denote the possibility that the central bank will transact in volumes large enough to spook currency speculators.

Third, there is talk of a large transaction against the dollar index, perhaps in the scale of $6 billion to $7 billion.

Fourth, there is talk of a $5 billion liquidation of a European, euro-denominated, fixed-income portfolio, with the proceeds swapped back into dollars. This is occurring in late trading in Europe, which has amplified the impact on the dollar.

Fifth, Treasury yields increased following Paulson's comments, which showed much more urgency to the timetable on China's forex reform. Paulson said that his message to China is that there is more risk in going too slow on forex reform than in moving too fast and that the world won't tolerate a slow pace of reform for too long. The faster China moves to a flexible exchange-rate regime, the fewer dollars it will have to buy in order to keep its currency from rising. The fewer dollars China buys, the fewer Treasuries it will buy. While this logic had a predictable impact on Treasuries, the dollar would be expected to fall on speedier reforms. The fact that it didn't is probably because of the factors cited above.

Through it all, the dollar rally and the Treasury market make sense given today's payroll data, as the data reduce the chances of a Fed rate cut. In fact, the reaction in stocks, bonds, commodities and the dollar all fit with the data, reactions that I expected on data such as today's in my preview note.

Stock Talk Blog: A Rich Taste at Yum!

Originally published on 12/5/2006 at 10:45 a.m.

They didn't come right out and say it, but the timing and magnitude of today's 100% dividend hike at Yum! Brands (YUM Quote) appears to be driven by the negative press surrounding an E. Coli outbreak at a few of the company's Taco Bell restaurants.

Yum! was on pace to not boost its quarterly dividend until May, and it had just declared a payment 20 days ago. Its strategy has worked so far, with the stock up 2% from its session lows.

At current levels, Yum! yields 1.9%, which is at the high end of the range for restaurant stocks and slightly ahead of the S&P 500.

With the boost, the company is now on track to pay out 41% of expected 2006 earnings of $2.90 a share. Management also has a $500 million buyback on the books.

That said, around $62, Yum! already trades at 21.3 times expected full-year earnings. On the other hand, for closer to 17 times earnings, you could buy McDonald's (MCD Quote) or Darden Restaurants (DRI Quote), both of which are growing faster than Yum!.

In keeping with TSC's editorial policy, David Peltier doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.