The week's slew of important economic data seemed to take a back seat to growing geopolitcal concerns, especially in Iran and China. And overall, escalating worries were reflected in the markets.
The major indices floundered through the final five days of the first quarter and ended the week in the red. The
Dow Jones Industrial Average
finished the week down 1%, the
slid 1%, and the
dropped 1.4% for the week.
The week brought testimony from
Chairman Ben Bernanke, the Chicago Purchasing Managers Index and personal income, spending and inflation data. The data-rich week also brought more profit warnings, a Justice Department probe into homebuilder
, and an announcement from
that it had uncovered misconduct in an investigation into its accounting.
Oil prices climbed higher, with crude rising 5.6% for the week to close Friday at $65.87.
bloggers were all over the market action, and we'd like to share the best of their commentary this week with readers of the
. 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
on the cheapness of Broadcom,
on the bulls' and bears' give and take and
on the negative message in the new-homes report.
Click here for information on
, where you can see all the blogs -- and reader's comments -- in real time.
Cody Willard's Blog: The Real Reason Broadcom's So Cheap
Originally published on 3/28/2007 at 11:27 a.m.
Pretty good article in
today that points out how cheap
has gotten to be, though I think it dismisses the most important reason why it's so cheap. Even as most of the major indices have rallied back to new highs, Broadcom's still down about 50% from its highs of last April.
The primary reason the stock's been trading so poorly is that sector-wide inventory glut that so much of the semiconductor industry started to recognize coming down the pipe last year.
If you recall, it was when Broadcom's own management started changing their commentary from "We can't stay up with demand" to "We're comfortable with our inventories" that I started pulling in the reins and talking about that glut. Broadcom and nearly every other semi company on the planet subsequently had to guide lower and, in some cases, scale back production to let the glut work through.
Broadcom's also been hit hard because of the ridiculously large multibillion dollar option-backdating scam that management put over on shareholders. How many other cockroaches are set to scramble and shoes set to drop? Of course, I wonder if it would really matter to anyone at this point whether it's $1.5 billion or $2.5 billion that these guys misled investors about. Both numbers put the numb in number, if you know what I mean.
Finally, Broadcom's recently been hit after that disastrous
( MOT) warning last week. Moto's a major Broadcom customer, but as many an analyst note on my desk pointed out last week, Broadcom's biggest biz with them is supplying set-top boxes, where Moto's actually showing some success. (How bad are things at Moto when I -- without thought -- put "actually" into that last sentence? But I digress...)
I'm not keen on betting with managements that are having problems keeping track of billions of dollars in shareholder value, and I'm not planning to buy Broadcom mostly for that reason. The fact is, though, it is cheap and expectations are low, and that makes me think that if Broadcom can even hit the estimates for the last half of this year, the stock's headed higher.
At the time of publication, the firm in which Willard is a partner was had no positions in the stocks mentioned, although positions can change at any time and without notice.
Steven Smith's Blog: Tussle and Flow
Originally published on 3/29/2007 at 4:44 p.m.
Today's round was a half-hearted tussle that I'll give 10-9 to the bulls. But I think we're now about 4 rounds in since the brawl started in late February, and my scorecard has the bears leading 4 rounds to 2.
My prediction is that we'll see another week of grappling and rope-a-dope as both sides conserve energy heading into the first-quarter earnings season. My money is still on seeing lower prices, but my downside bet is getting smaller and Wednesday for
TheStreet.com Options Alerts, I established a bullish butterfly in the
as a low-cost way to play a move up to the 1450 level.
The VIX ended flat at 15 and is starting to drift back into a lower range of 14-16. This would mean that the move above 20 earlier in the month was a spike, and so far is corresponding with the March 14 low in the S&P 500. Another bullish sign is that the put/call ratio remained above 1.10 all day today. Its 20-day moving average is now up to 0.89, a fairly high reading -- and therefore bullish in a contrary way.
Buyout rumors generated much of the above-average option activity in names such as
with its April and May $20- and $22.50-strike calls trading 1,700 and 2,400 contracts, respectively. Implied volatility rose by 22% to 3 on the day.
saw some residual call-buying following Wednesday's rumors that
might be interested in buying the chocolatier. Hershey options' implied volatility has gained 25% in the past three trading days.
On the other side of the nutritional divide, vitamin and nutrition company
( NTY) has made it know that it will accept bids until April 15 (tax day) for the sale of its business. Most of the speculation is taking place in the May $55 calls, which traded 1,560 contracts today. Open interest in that strike has tripled to 5,200 contracts in the past week. With the stock trading around $52.50, those calls are trading around $1.90 and implied volatility actually declined today. Sounds like one should take the under and short those calls on the assumption the company won't receive anything more than a 9% premium bid.
Tony Crescenzi's Blog: Worries and Negativity in New-Homes Report
Originally published on 3/26/2007 at 11:25 a.m.
Polar opposite to Friday's report on existing-home sales is today's report on new-home sales. Recall that in Friday's report on February existing-home sales, sales increased by 3.9% to a 6.69 million pace, 390,000 higher than expected. In today's report on new-homes sales, sales fell 3.9% to 848,000, about 150,000 lower than expected and the lowest since June 2000.
Although the new-home sales report is more current than the report on existing-home sales (new-home sales are counted upon contract signing, whereas existing-home sales are counted upon the closing of a sale), it still makes sense toconsider the figures on existing-home sales, since any strength from past months could still have borrowed from future new-home sales. After all, existing-home sales account for about 85% of all home sales and hence deserve a heavy weighting as a gauge of sales activity.
Weather-related influences may have occurred in February, as evidenced bythe fact that more people were out of work because of the weather than at any time since 1994, according to the Bureau of Labor Statistics in its most recent employment report.
Whatever the cause, and despite relatively stable home sales on the whole(new- and existing-home sales), the inventory situation is still problematic. For existing homes, inventories increased by 209,000 despite strong sales, pushing inventories about 1.2 million above normal. For new homes, inventories increased 8,000 to 546,000, about 200,000 above normal. The inventory-to-sales ratio increased to 8.1 months from 7.3 months in January, the highest reading since January 1991.
Oddly, the average price of a new-home sale was a record $331,000, up 7.5% from January. The increase could well reflect problems in the subprime and alt-A sectors, which have forced borrowers in these categories to consider lower-priced homes. It may also indicate that increased foreclosure rates are putting downward pressure on lower-priced homes.
Both of these factors would push up the average price. The median price fell only 0.3%; this suggests that sales activity at the lowest end of the borrowing spectrum has been affected and that pricing near the median has not changed much, and higher-priced homes may have increased as a result of bonuses and the like.
One factor that could result in an understating of sales going forward is that sales have been overstated in recent months. Sales had been overstated because the new-home figures fail to account for cancellations. At some point, the sales figures will be understated, because statisticians will not return to properties that they thought were already sold.
A factor weakening sales during the month likely included the weather, whichas I stated earlier caused an unusually large amount of people to be out of work in February. The impact is apparent in the weakness in sales figures for the Northeast and the Midwest, where the percentage declines were the greatest.
Another factor could well be the difficulty that some are having in obtaining financing. Failing to support this, however, are the
recent data on bank lending, which showed strength in February and March.
Bad press almost certainly drove people away from the housing market, and itappears to be affecting consumer sentiment more generally, as evidenced bylast week's plunge in the weekly consumer sentiment index produced by
. It matched its biggest decline since 1985.