It was a week filled with merger-and-acquisition news that, despite some poor earnings reports and semiconductor weakness, managed to drive the Dow to even more record closes.Private equity struck deals for DaimlerChrysler's ( DCX) Chrysler Group and Alliance Data Systems ( ADS), while Reuters ( RTRSY) agreed to a buyout, and on Friday, Microsoft ( MSFT) said it will acquire aQuantive ( AQNT). For the week, the Dow added 1.6% to record territory of 13,556.53, and the S&P 500 added 1.1% to 1522.75, but the Nasdaq, on the semiconductor weakness mentioned above, dipped 0.2% to 2558.45. 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 Rev Shark on how to get into a fast-moving market, Cody Willard on Riverbed as an Internet-video play, Steve Smith on how much options influence stocks and Tony Crescenzi on the sudden yield-curve shift.
Rev Shark's Blog: Frustrated by the Go-Go Market? Some Tips
Originally published on 5/14/2007 at 8:08 a.m. "Sometimes thinking too much can destroy your momentum."
-- Tom WatsonThe most difficult thing about this market is that is so easy to find good reasons for why it should stop going up. Even some of the most confident bulls were happy to see the pullback last Thursday and said it felt right that we have some sort of correction given the record-setting run in the DJIA. The problem for investors is that even if a pause or pullback seems highly logical and reasonable, we just aren't seeing it and when we do weaken -- like we did last Thursday -- the buyers waste no time jumping in and driving us right back up again. The hardest thing to do is to not think too much but to just trust the momentum to continue to run. Although that sounds dangerous and lacking in prudence, it has been the smart thing to do and folks like Jim Cramer have been right to urge sticking with the uptrend and not looking for reasons that it is going to suddenly end. So what do you do if you have idle cash on hand and you are growing increasingly frustrated watching this market go straight up? Do you just jump in, buy anything and hope you aren't too late to the party? No, you can't allow yourself to be sucked into the market by the emotion. You have to stay selective with buys and not make them simply to be in the market. On the other hand, you have to recognize that this momentum can easily continue and that you can make some money by playing the game. You just have to have the right mindset and approach. I suspect there are a lot of folks who are playing the long side right now while they keep their finger not far away from the eject button. That is why when we dip like we did on Thursday it feels like such a complete meltdown. The buyers complete dry up at the first sign of trouble and then dive right back in, like they did on Friday morning, when it looked like the market had found support. It is going to be particularly interesting to see how the market acts this week with most of the major news flow past and we start moving into a seasonally weak time of the year. Option expiration could serve to hold things up but the news catalyst seem likely to slow. There is no question about it that this is an extremely tricky market to trade right now. The momentum game is certainly working but it is becoming more and more dangerous by the day. We need to stay particularly vigilant and make sure we don't get caught by a nasty mood shift. We have a stable open on the way. The Chrysler takeover is helping the mood but Europe is mixed and Asia strong. The Hang Seng Index, which is a cap-weighted index of Chinese stocks traded in Hong Kong, is up 2.50% this morning and other Asian indices are strong as well. Oil and gold are up. At the time of publication, De Porre had no positions in stocks mentioned, although holdings can change at any time.
Cody Willard's Blog: Running With Riverbed
Originally published on 5/18/2007 at 10:12 a.m. I've
Steven Smith's Blog: Option Theory
Originally published on 5/15/2007 at 5:20 p.m. I received an email this afternoon from a reader asking for an explanation of Jim Cramer's
Tony Crescenzi's Blog: Six Reasons for the Sudden Yield-Curve Shift
Originally published on 5/16/2007 at 4:53 p.m. In February, the yield spread between three-month Treasury bills and 10-year Treasury notes -- at -60 basis points -- signaled almost 50% odds of recession. That has almost disappeared, with the spread now at just -4 basis points. The narrowing has been particularly sharp in recent days, moving from -25 basis points last Tuesday. Technical factors seem to be playing a large role, although most of the move has been because of a sudden drop in T-bill rates, which have fallen significantly below the fed funds rate. The last time this occurred was on the eve of the Fed's last rate-cut cycle. Six reasons are behind the sudden shift in the yield curve. 1. Faded pessimism over the economic outlook. When the yield curve reached its maximum inversion on Feb. 28, pessimism about the economic outlook was at its peak. Recession fears have faded since then, particularly because worries about spillover from the subprime mortgage market have simmered down. 2. Big increases in international foreign exchange reserves. International reserves have been growing sharply for several years, and growth has recently accelerated. Although central banks are diversifying out of dollars, they remain large buyers. In China's case, its increase in international reserves has been massive, increasing $1 trillion over five years and $134 billion in the first three months of 2007 alone. In Brazil, reserves have soared over the past year, to $122 billion at the end of April compared to $55 billion a year earlier. More than half of that increase has occurred over the past four months. Brazil's holdings of Treasuries have jumped by $40 billion over the past year, with sharp increases occurring in both February and March. 3. Big increases in cross-border deposits. Vast amounts of monies are moving across borders, evidence of massive levels of global liquidity. Data from the Bank for International Settlements show that cross-border deposits totaled $25 trillion at the end of the third quarter of 2006 (most recent date available), up 18% vs. the previous year. Much of the increase has been concentrated in dollars, leaving more money available for investment in Treasuries. 4. More carry-trades, including a jump in borrowing of the Swiss franc. Data from the Bank for International Settlements indicate a surge in lending by Swiss banks to the Cayman Islands. According to the data, lending of Swiss francs to offshore entities increased by $51 billion in last year's second quarter and $66 billion in last year's third quarter, much higher than the previous record of $6 billion. 5. Pre-flight-to-quality trading. As equities have been advancing with unusual frequency, some investors might be deciding to park cash in zero-maturity assets. Asian investors, flush with dollars, might be particularly leery about China's domestic stock market, where speculation among its nation's populace has been dramatic. 6. Parking of deal-making money. Before deals are closed, capital for them might be finding their way into zero-maturity assets. Missing from the fundamental perspective is any evidence of rising rate-cut odds in either the Eurodollar or fed funds futures market. This is intriguing, given that the T-bill yield has fallen 51 basis points below the 5.25% fed funds rate, the most since the Fed's last rate-cut cycle, which ended in June 2003. Just two months before that cycle started, when the Fed delivered its first of many rate cuts, the spread was just 6 basis points. It widened to 125 basis points days before the rate cut. Therefore, the current move in bills suggests increased bets on the chances of a near-term rate cut. I'm putting the odds of a rate cut at the August Fed meeting at about 30%, which is higher than the market's given odds of 15%. The chance of a cut has grown because first-quarter gross domestic product was so weak and because consumer spending started the current quarter on a very poor note. The weekly chain-store data weigh heavily in my view on whether an important shift will occur at the Fed.