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Tuesday, January 22, 2008
Stocks Finish Near Session Highs on Rebound in Financial, Homebuilding and Retail Shares
Stocks Cutting Losses Substantially on Strength in Financial and Retail Shares
BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Retail longs, Gaming longs and Semi longs. I took some more profits in my (TLT) long and added to my (GOOG), (AAPL) and (ISRG) longs today, thus leaving the Portfolio 100% net long. The overall tone of the market is negative today as the advance/decline line is lower, most sectors are declining and volume is heavy. Investor anxiety is high again. My (TLT) long, which had been a large position several months ago, is now a small one. Today’s overall market action is bullish. Small-caps and cyclicals are substantially outperforming today. The total put/call hit a very high 1.57 and the VIX spiked to a very high 37.6(highest since October 2002) today. E*Trade Financial(ETFC) said customers logging into their accounts at any one time today hit a five year high. Mortgage rates continue to plunge with about 50% of conventional mortgages now able to be refinanced, according to CNBC. Plunging mortgage rates is a huge positive that continues to be mostly ignored by investors and the press. Despite today’s aggressive Fed move, the 10-year TIPS spread, a good gauge of inflation expectations, is falling to 2.2%, down from 2.38% one week ago. Fed fund futures now imply a 78.0% chance for another 50 basis point cut at the Jan. 30 meeting and a 22% chance for another 75 basis point cut. I strongly disagree with those that say the Fed’s actions don’t matter. We are going to see a significant amount of stimuli in a short period of time, which will move the Fed closer to being “ahead of the curve,” rather than behind it. With today’s market rebound and recent losses overseas, the S&P 500 is beginning to significantly outperform many global markets. I continue to believe developed markets will outperform emerging markets and commodities substantially over the next five years. It is very interesting to note that despite today’s key reversals in many stocks, almost nobody thinks today’s action marks an important low, which is another large positive. Nikkei futures are indicating a +500 open in Japan Asia tonight. I expect US stocks to trade modestly higher into the close from current levels on short-covering, lower energy prices, less economic pessimism and bargain hunting.
Today's Headlines
Bloomberg:
- The Federal Reserve cut the benchmark interest rate by three quarters of a percentage point, its first emergency reduction since 2001, after stock markets tumbled from Hong Kong to London.
- The European Central Bank and the Bank of England may have to follow the Federal Reserve and cut interest rates.
- The Bush administration today left the door open for a larger stimulus package than the $150 billion plan the president already has outlined to avert a recession.
- Ambac Financial Group(ABK), the first bond insurer to lose its AAA credit rating because of subprime mortgages, is considering “strategic alternatives” after posting its biggest-ever loss. The shares soared as much as 52% on optimism the company may be sold.
- DuPont Co.(DD), the third-biggest US chemical maker, said fourth-quarter profit rose as increase sales of seeds and chemicals in emerging markets more than made up for weak demand from domestic homebuilders and automakers.
- Fastenal Co.(FAST) the largest US retailer of nuts, bolts and other fasteners, rose the most in more than five years in NY treading after posting fourth-quarter earnings that outpaced analysts’ estimates.
- Countrywide Financial(CFC), the US mortgage lender being purchased by Bank of America(BAC), rose as much as 17% in NY trading as concern eased that the takeover may be revised or aborted.
- Investors should buy US stocks in the ongoing market sell-off, according to UBS AG and Bank of America(BAC) strategists, because share prices already reflect a slowdown in earnings growth.
- Roche Holding AG, the world’s biggest maker of tumor treatments, agreed to buy Ventana Medical Systems(VMSI) with an increased offer of $3.4 billion, ending a seven-month effort to acquire the US cancer test manufacturer.
- The CEO of the NYSE does not “see any evidence” that the
- The Bank of China, the nation’s second largest lender, on Tuesday denied reports that it might post sharply lower profits or even a loss in 2007 due to investments in securities linked to
- The International Swaps and Derivatives Assoc. said global losses on credit-default swaps will be nearer $15 billion than the $250 billion forecast by PIMCO’s Bill Gross.
- Google Inc.(GOOG), owner of the world’s most popular Internet search engine, is the best US company to work for, according to a Fortune Magazine survey.
- Crude oil fell to a six-week low in NY on worries over global demand, record production, a rising US dollar and less investment fund speculation.
- First Quantum Minerals Ltd., owner of the Kanshanshi mine in the Democratic Republic of Congo, said production of the metal will jump 37% this year as new mines build up to full capacity.
Wall Street Journal:
- Bill Clinton, the former US president, will gain about $20 million as he wraps up his business relationship with billionaire Ron Burkle’s Yucaipa Cos.
- Clinton, Obama Exchange Harsh Words In South Carolina Debate.
NY Times:
- Online Reviews of Hotels and Restaurants Flourish.
- US housing-market turmoil has set off a multitude of lawsuits as homeowners sue mortgage lenders, mortgage lenders sue banks, banks sue loan specialists and investors sue everyone.
US News:
- 4 Ways Consumers Will Feel the Fed Cut.
TimesOnline:
- Hedge funds to set up industry watchdog.
Bull Radar
Style Outperformer:
Small-cap Growth (+3.03%)
Sector Outperformers:
Banks (+5.46%), Retail (+5.32%) and I-Banks (+4.09%)
Stocks Rising on Unusual Volume:
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