Wednesday, January 31, 2007

Fed Makes January a Winner

S&P's 1.4% Move Gives January Barometer Watchers Hope

The Federal Open Market Committee (FOMC), met, deliberated and in the end, did nothing, which turned out to be highly favorable to investors. Keeping the key Fed funds rate at an historically-low 5.25, the Governors acted wisely while keeping a watchful eye on inflationary pressures.

Trading on the major indices following the release of the Fed report was nothing short of jubilant and moved the S&P 500 into healthy positive territory on the final day of the month. Since December 29, the final day of trading in 2006, the S&P 500 index has gained 20 points, good enough for a positive reading on the January Barometer of 1.4%.

Today's boost bodes well for stocks the remainder of the year. While the January Barometer is based on nothing more than hyperbole, it is still one of the most closely-watched indicators on Wall Street.

As reported here last week, the January Barometer has been accurate in predicting the full year 85% of the time since 1970. Whether or not it's a self-fulfilling prophecy (traders believe in it and act accordingly) is still an open question, but if you ask anyone in the business whether or not they'd like the market to be up in January, you'd likely get nearly unanimous consent.

The other big news of the day included the government's reading on the 4th quarter of 2006, saying that the economy grew at an annualized 3.5% (a rate of growth that's about as stable and non-inflationary as one could ask) and Google's (GOOG) quarterly report which was in line with analyst expectations, but sent the stock reeling in after-hours trading. After adding 7.18 during the regular session - pushing the price to an astounding 501.50 - the selling commenced with great vigor upon the in-line announcement.

Google admirers liken ordinary results to heresy, expecting nothing short of miracles from the #1 search company. As of 5:30, Google had given back all of the day's gains and then some, down 9.70. Expect Google to gap lower in the AM, though the valuation will still be expensive. The p/e ratio hovers around 60 at current price levels.

For the record, the Dow added 98 points, the NASDAQ was up 19, the S&P 500 gained 9.42.

Tuesday, January 30, 2007

Confidence Boost

The markets surely needed a lift and they got one today from the Conference Board, which reported their Consumer Confidence Index for December at 110.3 , the highest level since May of 2002.

The mostly upbeat report was tempered by the coincident Expectations Index, which declined to 94.5 from 96.3. Included in the report was the statement:

"This month's slight increase in confidence was solely the result of an improvement in the Present Situation Index, fueled primarily by a more favorable job market," says Lynn Franco, Director of The Conference Board Consumer Research Center. "Looking ahead, however, consumers are not as optimistic as they were in December. All in all, the Index suggests a moderate improvement in the pace of growth in early 2007."

Wall Street responded on cue, with the three major indices jumping well into positive territory around 11:00. Highs for the day were reached at that early point, with trading for the rest of the session vacillating in a narrow range.

The Dow gained 32.53 points; the NASDAQ was up 7.55; the S&P 500 added 8.20.

High among the anxiety points were corporate earnings, which for the most part had been lackluster. The prevailing mood wasn't helped much by Dow component 3M (MMM), which reported 4th quarter profits of $1.57 per share, including 47 cents from the sale of its drug business and 4 cents a share of stock option expenses.

With the quarter essentially in line, what spooked investors was the outlook from the conglomerate, calling for 2007 earnings between 4.60 and 4.75 per share, well below Wall Street's outlook of 4.99. Shares of 3M took a 5% hit on the day.

Drug maker Merck (MRK) also disappointed, posting 4th quarter earnings of just 22 cents, as opposed to 51 cents in the year-ago period. The company included charges of 7 cents for restructuring and 21 cents for the purchase of a small biotech company, Sirna Therapeutics. Shares lost 60 cents, or 1.6% on the day.

What had to have been the biggest move of the day was in the energy sector. Continued cold weather and an announcement of production cuts from an OPEC minister sent oil higher by $2.96 to close at $56.97. Natural gas rose 80 cents, or 12% to $7.74 per 1000 btu.

Not surprisingly, stocks in the energy sector led all others on the day. Breadth was solidly on the plus side, with gainers swamping losers nearly 2-1.

The Federal Open Market Committee (FOMC) releases guidance tomorrow after 2:30 and is widely expected to announce no change in interest rates, a stance they have held since August of 2006.

Monday, January 29, 2007

Waiting for the Fed

The action on the US equity markets today was comparable to an amateur production of a Samuel Beckett play: minimalist, but with a certain impatience to it. Without any blockbuster earnings reports and no economic news of note, traders chose a wait-and-see approach as the Fed meets tomorrow and issues their declaration (most likely no change) on interest rates Wednesday.

Despite moderate volume, the major indices barely moved. The Dow gained 3.76, the NASDAQ added 5.60, while the S&P 500 lost 1.56 to close at 1420.62, barely ahead of the 2006 finish (1418.20). As I mentioned at the end of last week, unless there's a big rally or sell-off tomorrow or Wednesday, the January Barometer will not provide any direction going forward.

Since most markets are averse to indecision, the likely direction is down. There isn't enough good news and with earnings season closing quickly (2 weeks), there's going to be a dearth of news, leaving investors to their own wiles - usually not a good thing, "idle hands" and all that considered.

Stocks are valued pretty richly at present, posing opportunity for profit-taking at the least, outright fear of a crash at the worst. No stretch of imagination can perceive this market as cheap or reasonable.

The word a lot of analysts like to use is frothy, as in a heady mug of beer. And we all know what happens to excess froth. It either gets blown off the glass or oozes down the sides. Neither metaphor is particularly good for equity investments.

So, we wait. For nothing, for now.

Saturday, January 27, 2007

Mortgage Info, News, Tools and Calculators

Housing sales have been slowing nationwide. According to the latest figures from the National Association of Realtors, new and existing home sales fell by the largest percentage in more than 15 years in 2006.

What that means for prospective home buyers are lower prices, so now might be a good time to purchase a home. At the same time, mortgage rates have been rising with almost no indication of going down. The next six months may be the proverbial sweet spot for home buyers.

Buying a home is a very straightforward process that can be handled by any expert real estate agent. Finding the right mortgage, however, takes some work, as there are a slew of products available and finding the mortgage that's right can save you a lot of money.

Researching and finding current rates is easy. Rates for 30 and 15-year fixed and adjustable, 5-year ARM and Home Equity are updated daily at

Additionally, the site offers current mortgage news, wealth building guides, credit repair information and a slew of useful real estate tools, including FREE downloadable Microsoft Excel® spreadsheets.

The spreadsheets are outstanding. Once downloaded onto your computer, you can use them to understand and calculate the intricacies of:

  • Fixer-uppers (Will you make a profit once you've fixed it up and sold it?)

  • 10-year projections for income property

  • Calculate the breakeven occupancy on an investment property such as an apartment or office building

  • Compare different seller financed offers

  • Estimate how much you could borrow on that commercial property.

  • ...and more, all FREE.

There are also online calculators for practically every situation, such as:

  • How large a mortgage loan can you afford?

  • Amortization Schedule

  • Early Mortgage Payoff Calculator

  • Annual Percentage Rate (APR) Calculator

  • First Time Homebuyer Calculator (Rent vs. Buy)

  • Home Equity Loan Calculator

  • Mortgage Tax Deduction Calculator

  • How long would it take for you to become a millionaire?

  • ...and others, again, all FREE.

If you're buying or selling a piece of property, or are a real estate investor seeking news, information or solutions, is a resource worthy of a place in your bookmarks.

Friday, January 26, 2007

Week Ends Slightly Weaker on Mixed Bag

A late-day rally restored some respectability on the Dow and the S&P 500, but both indices fell back to break-even or worse for 2007.

In particular, the Dow briefly dropped into red for the year and ended the day - and week - just 23-and-change from the 2006 finish. The S&P fared a bit better, losing less than 2 points during the session, but it is perilously close to the 1418.30 close of December 29, 2006 - less than 4 points - at 1422.18.

The last day of what turned out to be a tumultuous week left the major indices split from where they began. The Dow and NASDAQ lost ground while the S&P gained a bit, and that seems to be par for the course. The much-anticipated January Barometer reading may turn out to be inconsequential as there are currently too many unresolved issues - bonds, Fed action, earnings, oil, conflicting economic readings - to place much emphasis on any kind of reading it may produce.

At best or worst, depending on your outlook, outside of a huge 3-day rally or sell-off, January is going to finish close to where it started. That gives traders essentially no guidance, just what we're getting used to from the markets, the military, the government and even a host of football prognosticators.

Friday's 15.54 loss on the Dow was driven by a confluence of diversity. Dow component Caterpillar (CAT) missed earnings forecasts but issued encouraging 2007 guidance. After the close last night, Microsoft (MSFT) beat estimates and this morning, fellow component Honeywell (HON) merely matched expectations.

Other market-moving news included Durable Orders rising 3.1% in December, the Commerce Dept. said new home sales rose at a 4.8% rate in December to 1.12 million, marking the highest level since April, but as the day wore on oil continued to price higher, closing above $55/bbl. once again.

It really is a mixed bag out there. Caveat Emptor Sellers too.

Thursday, January 25, 2007

Roller Coaster Won't Stop

Just when I think there's some direction to this market (in the last two weeks I've been of both opinions, bullish and bearish), the following day obliges a reconsideration of my position. So, I, like the market, am still in flux, with my year-end prediction of a lackluster 2007 in equities still very much intact.

Today's disaster was presumably precipitated by poor participation in the government's bond auction, sending yields on the 10-year to highs not seen since last August. A poor reading on existing home sales - an 8.4% drop for 2006, the biggest decline in 17 years - added to money flow woes and sent investors fleeing for safer bets.

Treasuries are unwaveringly an ambiguous condition, with the yield curve nearly flat and partially inverted. 2-year notes are yielding 4.97%, while at the other end, 30-year bonds are at 4.96% That's about as flat as it gets and one should assume that bond traders are just as confused as their stock-trading brethren.

The problem, from a stock trading perspective, is that yields are rising, signifying a tightening economy and that's bad for stocks. That's almost believable, today. Tomorrow will surely be another story.

The whole cycle is pointing in a negative direction depending on which measures you watch. If profits are being squeezed, price pressure will ensue, and that's unmistakably inflationary. Bond yields will rise as a coolant, and stocks will fall. Rinse, repeat, ad nauseum.

I'm not about to buy into the argument that the economy is on the verge of recession or collapse. There are certainly issues to be resolved, not the least of which happen to be political (fiscal policy and Iraq), but they seem to be churning slower than grandma making the butter.

Resolution to the nation's political and economic malaise would supply some impetus for extension of the rally, though we could be on the edge, with a major correction just weeks or even days ahead.

A 1500-2000 point decline on the Dow would probably shake out weak hands and do more good than evil. Today's 119-point shave nearly wiped out the gains of the previous two sessions (145 points). I'd expect more of the same tomorrow, but, as previously expressed, the opposite has usually occurred thus far in 2007.

We're all still on pins and needles on the January Barometer watch. The S&P 500 lost almost all advantage, losing 16.23 today and leaving it just 5 points into the green for 2007.

It looks as though we won't know much of anything until the very last day of the month, this coming Wednesday. Even then, if it's close on either side of break-even, it may be meaningless and the confusion will continue. As we dip and dive, shuck and jive though the first month of the year, the one thing for certain is that nothing's for certain.

Wednesday, January 24, 2007

Dow Powers to New Record, eBay Piles On

Thanks to oodles of cash and some better-than-expected earnings reports from a handful of companies, the Dow Jones Industrial Average cruised to a new closing high today of 12,621.77, putting the fears that January would be a downer of a month pretty much to rest.

By adding nearly 88 points today on top of Tuesday's 56-point gain, the Dow is a cool 148 points on the plus side for 2007. While that's only a 1.2% bump, it's likely to be enough to keep January positive, which is a huge emotional buffer for the markets. So long as companies keep reporting earnings close to in line or better than expectations, the month will end on a high note, portending good things for the rest of the year.

The so-called January barometer actually tracks the S&P 500, and, according to the highly-regarded Stock Trader's Almanac the adage, "As goes January, so goes the year," is usually on-the-money. According to a February 1, 2006 report by U.S. News and World Report's Paul J. Lim,
85 percent of the cases since 1970, a positive gain in the S&P 500 in January has led to a positive year for stocks

With the S&P up 22 points or roughly 1.5%, we seem to be in safe territory, bearing in mind that there are only 5 trading days left in the month.

If one was to take out the days of the January Effect - the last trading day of the year and the first week of trading in the new year - a period notorious for dumping stocks - we're in very, very good territory. That's because the S&P bottomed at 1409.71, roughly 8 1/2 points below last year's close. But, that's enough of beating a worn and nearly dead horse. Suffice it to say we're setting up for another solid year of gains on the markets.

After the close, auction behemoth eBay released 1st quarter results and stunned investors with a dazzling report. Profits were 24% higher than last year's same period. Net income rose to $346.5 million, a healthy gain from the $279.2 million in Q4 2006. The 25 cents per share was well above analyst estimates of 19 cents.

Shares were bid up 1.38 prior to the release and added another 3.93 in after-hours trading. That's almost an 18% gain in one day. Not bad. The beat goes on...

Tuesday, January 23, 2007

Yahoo! We Have a Winner.... Well, Maybe

It didn't take long for investors to sniff out a buying opportunity. Just one day after shedding 88 points, the Dow tacked on 56.64, putting the Dow almost 70 full points into the green for 2007. Reverse logic prevailed upon traders once again, as rising oil prices (+2.46, 55.04) were attributed for much of the gain. Exxon-Mobil (XOM), the one oil stock on the Dow, busted out for a 1.59 gain. The oil biggie, along with Boeing (BA +1.76), Caterpillar (CAT +1.76) and United Technologies (UTX+2.05) were the only Dow components to record gains of more than a point, but it was more than enough to offset fractional losses in 12 of the 30 Dow stocks. UTX surged on their earnings announcement, reporting profits up 38% from a year ago.

Over on the tech-heavy NASDAQ - which gained less than a single point - a mid-day sell-off accounted for the tepid closing value. The index was up nearly 19 points, but gave almost all of it back as fidgety traders awaited earnings news from Yahoo.

The news from Yahoo was not surprising nor was it encouraging. The search-and-portal company reported earnings of .19, down from .46 a year ago. Excluding certain one-time charges, they came in at .16, ahead of analysts' putrid expectations of .13.

The big shave from last year's numbers were rather expected, though it didn't stop the sellers who knocked .46 off the share price during regular market hours prior to the announcement and had nipped another .74 in after-hours trade shortly after 5:00 Eastern. However, by 5:30, trading reversed course and the stock added 1.44 on news of encouraging reports from the rollout of its new ad platform, code-named Project Panama.

With the stock trading at 26-29 and change, and earnings for the full year 2006 of a mere 49 cents, Yahoo will be hoisting around a trailing p/e of 45-50, should the stock remain at or near current levels, and that looks dubious at best. Additionally, analysts were not impressed with Yahoo's outlook for the current quarter or all of 2007, both below expectations.

Noting these minimalist readings, CEO Terry Semel's head could (and should) be on the chopping block. His tenure has been marred by the emergence of Google taking over the top spot in search and a 30% drop in share price over the last 12 months. The company also has significant image problems, not the least of which being its age. As one of the internet pioneers, the company, as a public entity, recently turned 10, regarded as ancient among internet users.

Without a little more pep in its step, regardless of how the after-hours trade shakes out, Yahoo may continue to be among the net stocks' laggards for the near term.

Next up: eBay

Monday, January 22, 2007

Suddenly, January's No Sure Thing

There was not much in the way of jubilation on Wall today. Rather, like the weather, investors have tuned cold on stocks they seemingly could not get enough of just a few sessions ago. The buoyant feelings that usually complement a new year have given way to doubt and indecision. Stocks soured. The Dow lost 88 points, closing a scant 14 points above the 2006 finale.

The tech side didn't fare any better, dropping 20 points on the day. The hangover from last week's deflating comments from analysts covering the likes of Apple, Intel, Cisco, Motorola and others had a continuing effect on the day's trade.

But the real news was in the Dow components. Pfizer, while beating earnings expectations, announced a restructuring, calling for a 10% workforce reduction and the closing of some plants. Boeing was downgraded and both stocks took a hit. Pfizer lost only about 1%, but investors bailed on Boeing, dropping the aircraft manufacturer by 3 points (3.42%). With the Dow leading the way, the rest of the market marched to the sour notes. Declining stocks led advancers by a nearly 2-1 margin on both the NYSE and NASDAQ.

One could say that this kind of dip was overdue, but whether its a one-off or indicative of a longer term trend is not readily apparent. The markets - despite fairly benign economic data - are in a trendless phase, though if a consensus were to be had, it would likely point lower. Right now, earnings are the horse pulling the cart, or rather, the cart pushing the horses... and they're currently heading for a nearby ditch.

Some optimism may come from Yahoo, which reports on Tuesday, and eBay, on Wednesday, though savvy investors aren't likely to pin much hope on either. Yahoo has been a consistent underperformer and eBay is besieged by doubt over the wisdom of upcoming fee increases, their shuttering of operations in China and the effectiveness of new initiatives such as eBay Express.

Shares of eBay have been under some pressure of late, down more than 10% since mid-November. Analysts are seeking an attainable .28 per share for the just-completed 4th quarter, though the future for the company seems very much up in the air. If the company doesn't begin producing better margins and profits, management may take aim on some top executives, notably Bill Cobb, President of eBay North America and quite possibly CEO Meg Whitman, one of tech's most vilified personalities.

Friday, January 19, 2007

Markets End Week Meekly

As the short week drew to a close, the markets exhibited signs of life, but barely. Mixed signals from corporate earnings, economic reports and political tensions kept movement to a minimum. The Dow dropped a scant 2.40 points, while the Nasdaq ended its recent losing streak by adding 8.10.

The upside in tech was despite Motorola's (MOT) dismal earnings - 25 cents per share vs. 47 cents a year ago - as deals on popular cell phones continued to whittle away at margins. Gross income was 17% above last year's figures.

The company announced shortly after its earnings release that it would cut 5% of its workforce - about 3500 jobs - and investors cheered, boosting the stock by half a point.

General Electric (GE), a Dow component, also reported 4th quarter results prior to the market open, and delivered a healthy 64 cents per share, more than double last year's 30 cents. The bad news, which sent GE's shares down nearly a point, was that it was restating earnings from 2001 though the 3rd quarter of 2006, due to interest rate swaps in its commercial paper operations.

With just 8 trading days remaining in January, the Dow is 102 points to the positive for 2007, keeping alive hopes for a winning January and setting the tone for the year. It's amazing how many analysts and brokers are guided by the January effect and will follow their nose dependent solely on how the markets perform in just the first month of the year.

The Nasdaq may be a closer call, though today's close puts it 36 points over last year's finish. Further weakness from the likes of Yahoo or eBay, both of which announce results next week, could spawn more selling in tech.

Google announces on January 31, after the close. Amazon reports on February 1.

Thursday, January 18, 2007

House Puts Kibosh on Big Oil

In the final legislative action of Nancy Pelosi's much-publicized first 100 hours of the 110th Congress, House members voted 264-163 in favor of a sweeping bill that cut tax breaks to oil companies and imposed sanctions that would recoup royalties that the government says it is owed.

In total, the bill could salvage as much as $15 billion from the pockets of the big US-based oil companies, particularly, Exxon-Mobil, Chevron and ConocoPhillips. The bill was debated in a highly partisan session, with Republicans claiming that the measure would cause gas prices to rise and Democrats heralding a new direction in energy policy.

Whether the Senate will follow suit is yet unknown, but the majority vote in the House was not enough to override a near-certain presidential veto.

Earlier in the day, Wall Street continued its assault on all things tech, sending the Nasdaq lower by 36 points, the largest point drop since November 27, 2006. The Nasdaq has lost nearly 60 points over the last three sessions, a trend that has been tied to disappointing projections from companies such as Intel, Cisco and Apple.

Next up on the earnings parade is Motorola, anticipated to announce quarterly earnings of 25 cents per share before markets open. Around the same time, Dow component General Electric will report. 64 cents is the anticipated per share figure.

The Dow was off a marginal 9.22, with the S&P losing 4.25. Light sweet crude for February delivery was pounded lower again, briefly dipping below $50/bbl. on the NYMerc before closing at $50.48.

Wednesday, January 17, 2007

Dow Streak Halted Despite Good News

The Dow, higher at midday, lost steam in the afternoon and finished nearly flat, down just over 5 points for the session in moderate to heavy trade.

After three straight record-setting days, the Dow - and the Nasdaq and S&P 500 - simply ran out of gas, especially after the release of the Fed's Beige Book which showed sustained growth in all regions and some indications of wage pressure. That was viewed negatively on Wall Street and the selling ensued in earnest.

Once again, the reverse logic of a surging economy re-igniting inflation fears (and possible resultant interest rate hikes) sent traders into outright selling mode.

On the tech front, Intel's (INTC) continued poor performance (see yesterday's post) led the technology indices lower. The Nasdaq was the worst performer of all the majors, dropping 18.36. Coupled with Intel's disappointing quarter, Cisco Systems (CSCO) was downgraded for the third time in the past two days. Cisco lost 1.06; Intel dropped 1.26.

Earnings and the CPI report will be the major movers tomorrow, as earnings season gets into full swing. Inflation fears are probably overdone right now, as the Fed will likely wait well into any expansion to raise rates. With many economists predicting a slow first half of the year, investors are prone to take a break as January winds into February.

The oil effect was noted today as crude prices firmed. Weather reports are calling for cold days ahead for the Northeast and the price of the slippery stuff grudgingly climbed to close at $52.24.

Just after the close, Apple released earnings that trounced the estimates. The company reported profits of $1.14 per share for their fiscal 1st quarter, well beyond the 78 cents per share analysts predicted. The numbers were a 75% improvement over the 65 cents per share in the year-earlier period.

The company reported quarterly revenue of $7.1 billion, up from $5.75 billion in the same quarter last year. Investors missed the boat completely, as Apple (AAPL) traded down more than $2 prior to the announcement. Play that on your i-Pod. Ouch!

Tuesday, January 16, 2007

Intel's Earnings Not So Chipper

Revenue slightly lower, profit down sharply; oil drops again

Even though the Dow powered ahead to a new record close (12,582.59), shares of one component are likely to push the index lower when trading resumes on Wednesday.

Intel (INTC), a bellwether for technology, reported disappointing 4th quarter earnings after the close. The company disclosed earnings of $1.5 billion or .26 cents per share as opposed to $2.45 billion and 40 cents for the same period a year ago. Shares sold off nearly a full point in after-hours trading and the damage is not expected to be fully felt until at least the end of the current quarter.

Intel has been locked into a fierce price war with Advance Micro Devices (AMD) for well over a year, though some analysts believe it could be coming to an end as Intel has recently introduced newer chips with which AMD cannot compete.

The chip market has been very competitive, however, and Intel, the world's largest chip-maker, has been dealt much of the pain. The company is in the process of eliminating more than 10,000 jobs in a restructuring effort and is selling off or streamlining other parts of its operations.

As chips fall, consumers gain. Prices for laptops, desktops and other computer products have been driven down thanks to lower and lower costs for faster processing speeds.

In other market-shaking news, oil tumbled once again, with light sweet crude closing at $51.21 a barrel, a 19-month low. Warm weather has diminished the need for home heating oil this winter and reserves are at or near record seasonal levels. Lower prices for oil is generally seen as good news, and this was good enough to keep the rally alive another day.

Friday, January 12, 2007

Another New High for the Dow

The Dow Jones Industrial Average added 44.10 on Friday to reach another all-time closing high today of 15,556.08. The market moved forward on average volume, and all other indices closed in positive territory. What's becoming fairly evident in the percentage gains is that the Dow is beginning to lag the other indices (especially the Nasdaq), as today's top was almost exactly a 33% rise from the previous peak of 11,722.98 on January 14, 2000, 7 short years ago. Fibonacci, anyone?

Of course, some of us remember well what happened just months after that 2000 peak, but the scenarios are widely different. The 2000 peak and subsequent major correction came after an extended period of wild speculative activity with a great deal of new money coming into the market and a gain of well over 100% during the previous five years.

Nevertheless, coming off the March 11, 2003 bottom of 7524.06, today's overall gain checks in at a very healthy 107% in just less than four years.

The market should be close to a top, but there's so much money with a vested interest in this bull run that a correction in the near term seems less likely every day - and that's exactly why it's coming and coming soon.

Just like the sell-off of 2000, it's probably going to appear unannounced, but I'd lay money that it will be tied to a geopolitical event that will occur - or has already been set in motion - over time. The coming correction will not be as severe as others, but careful attention to this quarter's earnings numbers and corporate outlooks for the year may give more of an indication.

I'm only half certain that a correction will occur in the next 3-6 months, considering the momentum of this aging bull. I am convinced that keeping a lid on losses will separate the winners from losers in 2007, however.

Thursday, January 11, 2007

Light Crude Ignites Wall Street

Fears of a recession in the first half of 2007 - a subject of wide speculation - were put aside for today as one of the world economy's most deliberate drivers - crude oil - tumbled as the warm winter in the US Northeast (home to 1/5th of the US population) continued unabated into the second week of January.

Call it Al Gore's Unintended Consequence if you like, but the effects of Global Warming have been a prime mover of Wall Street's good fortune. In what can only be described as a non-virtuous cycle, in which the major precipitator (large industrial corporations which emit greenhouse gas) of Global Warming is currently the recipient of the short-term positive fallout (lower oil prices, fatter profits). The long-term consequences may not be so pretty, but that's a story for another day.

The price for a barrel of light sweet crude oil fell below $52 today, settling at $51.88, and Wall Street responded with a record high close on the Dow and massive gains on the other indices.

The Dow added 72.82, to close at 12514.98, 4 points better than the previous record closing high. The S&P 500 added nearly 9 points; the Nasdaq was up another 25.52, achieving a 6 1/2 year high.

With a the bulk of US corporations reporting quarterly results in the next two weeks, the January effect is beginning to look a little rosier than it has at any time this year. While it's still very early, the indications are moving in a positive direction. Before joining or continuing the party, bear in mind that volume was rather weak and the volatile situation in the Middle East could wreak havoc on today's oil price phenomenon.

Wednesday, January 10, 2007

Should you be a fool?

The Motley Fool, in an article entitled Companies you should buy right now is recommending the following stocks as buy and hold candidates. I have some difference of opinion, but here's a key quote from the article:

What makes a great company? That's the rub. There can be a lot of ways to measure greatness. eBay (Nasdaq: EBAY) and Southwest Airlines (NYSE: LUV), for example, have high net promoter scores. Coca-Cola and Nike (NYSE: NKE) have nearly unmatched brand and marketing savvy. Boeing (NYSE: BA) and 3M have long histories of innovation. Starbucks (Nasdaq: SBUX) and Genentech (NYSE: DNA) have strong corporate cultures and are among Fortune's 100 Best Companies to Work For.

The article was originally published Dec. 8, 2006 and has been updated for publication on Jan. 9, 2007. (Makes one wonder which ones were switched out)

Right off the bat, I have some concerns over anyone calling eBay a great company. As I explained in my stock of the day feature, the company has been mismanaged and made poor business decisions for years.

Southwest Airlines? The stock has ranged between 12 and 22 for 5 years and is currently in a holding pattern over 15. Perhaps the "Fools" expect us to hold stocks that fly under the radar of the S&P 500. Maybe we'll just walk away.

Besides being suspected of operating in many countries as a CIA front, Coca-Cola still has that brand appeal, but the world of soft drinks is evolving quickly, toward more eco-friendly and trendy offerings. Coke has hung in gallantly and is a leader, but where is the growth and price appreciation going to come from? I don't see it.

Nike? See above, though the stock has been a stellar performer. Since late 2002, share price has appreciated from 40 to 100. Even I can't knock a 150% return over 4 years.

Another star performer is Boeing, which has run from the high 20s in early 2003 to near 90. Those monster returns are not likely to recur. recommending stocks near their highs may be foolhardy, but hardly prudent.

What can I say about 3M besides that it's so old school. The stock hasn't budged since late 2003, so maybe it's time for a move. Like others here, it does pay a dividend. Are the Motley Fools suggesting that 2-3% returns are de rigeur?

I like Starbucks coffee and the company has a great culture, but American's appetite for $4 lattes may wane and competition is sure to take a bite. Starbucks also sports a p/e over 40, so it's no bargain. Shares have ridden up from 10 to 40 over the past 5 years, and that kind of performance (400%) is going to be hard to top. If there's a winner on this list, this may be it.

Probably the most recognizable name in biotech, Genentech is a leader in profit as well. The company is expected to return 2.68 per share in 2007. However, the price of the stock doubled in mid-2003, split in 2004, ran up to nearly 100 in 2005 and was flat in 2006. This is a well-entrenched company, but maybe a touch pricey with a p/e close to 50. Value may still matter to some.

Overall, what impressed me about these picks was how many were close to their highs after impressive runs over a long bull markets. The Fools might have better served their readers - in an article professing that investors trade too often - by advising to time their buys on these stocks or wait for a general market correction before taking a plunge. They didn't.

I'll keep an eye on these stocks and check back in 6 months, a year, and beyond. Obviously, I don't care much for these picks and will stake my reputation against the Motley Fools, a bunch with whom I've frequently found fault.

Here are the closing prices from January 9 on the Fool's picks:
eBay: EBAY 29.75
Southwest Airlines: LUV 15.81
Coca-Cola: KO 48.61
Nike: NKE 99.76
Boeing: BA 88.00
3M: MMM 77.68
Starbucks: SBUX 34.86
Genentech: DNA 84.69

Tuesday, January 9, 2007

Blue Chips give back, Nasdaq counter-rallies

The Dow Jones Industrials were down more than fifty points by mid-day, but rallied to close with a minor loss of 6.89. The Nasdaq fared better, adding 5 points and change, closing positive for the 4th time in 5 sessions in the young year. The wider NYSE index lost 17.22 and that's where our counter-rally begins.

The Nasdaq is higher for the year, with the Dow and NYSE composite lower. The figures today are telling, with gainers outpacing losers on the NYSE, though down volume was 55%, up volume, 44%. Over on the Nasdaq the opposite was true.

As sure as Donald Trump dislikes Rosie O'Donnell, this is a sign of cyclical profit taking and reinvestment. Volume on the NYSE was far ahead of the Nasdaq, suggesting that massive profits are being pulled out of big caps and the only play is into smaller, albeit riskier issues. Much of the money taken in profits is being put aside until the market can be more reliably read and quarterly earnings get into full swing over the upcoming two weeks.

A good site for tracking earnings and lots of other useful advice is Earnings Whispers who also sees the Nasdaq counter-rally as indicative of a topping pattern. Finally, somebody with brains (and a web site) who agrees with us.

Monday, January 8, 2007

In a Give and Take Environment, the Takers Will Rule

Entering the first full week of trading on the major US markets, investors are swamped with signals running the gamut from bullish to bearish to bust, putting the direction of the market unreliably up in the air.

It's not a pretty picture, but hardly one which the behemoth American economy cannot endure. The usual drivers of investment - Fear and Greed - have been seen shuffling about Wall Street with notable hangovers, especially Greed, which ended 2006 with a six-month long 17% buying binge on the DJIA.

Fear, which had been praying quietly at home for most of the 2nd half of last year, binged through the holidays on news of slow retail sales and the continued run-down in the construction industry.

So the two of them are planning a partnership of sorts for the early months of 2007 - lubrication for the skids - to keep everyone somewhat afloat on the money and credit mothership.

Greed says there are bargains out there and you don't want to miss out. Fear says your mortgage is tapping you out and you should retreat from the speculative market.

That's where the partnership stands, with both boys tossing signals of varying strengths of Doom, Gloom, Boom, Bust and Bonanza. And of course, it's January, so market watchers and witches of all stripes and hats will trot out the ancient adage - how goes January, so goes the year.

It's enough to drive a rational investor batty, the operative word being rational, begging the question: what's a reasonable strategy in an up and down market?

One word: allocation. One more: hedge. Um, forget it, here's a plan. If you've got more than 75% invested (25% cash), you're normal, but right now, overexposed. If you've been at that percentage for the past six months, you probably have some hefty profits and now would be a good time to relieve yourself of them before the market does it for you.

Converting some - not all - of your profitable investments to cash within the next few weeks makes sense. If the market sells off, you can buy back in at lower prices. If it continues rising, you still have the cash which should be invested in either CDs or if your appetite for risk is still unsated, dollars.

That's right. The greenback is likely to rise over the short term against the Yen, Pound and Euro due to three distinct forces: 1) Some expression of fiscal restraint and responsibility by the newly-installed Democratic majority in Congress; 2) The US economy will perform its peers in 2007 as their slowdown will be more painful than ours, and 3) Lower inflation and slightly tighter credit after years of excess.

My plan calls for shifting as much as 50% of the whole out of stocks and into a mix of fixed investments or currency trades. Since the chances for a meaningful correct some time soon are very good and getting better every day, you should take some of the profits, pare some losses and wait until January has an imprint - either up or down - before making any major strategic investment moves.

Keeping track of the market - just the Dow, since that's the one that counts for gauging purposes - we've had three days up and one down (Friday, Jan. 5), though the losses on that one day more than outdid the cumulative gains thus far. The Dow is down roughly 40 points in 2007, but it's far too early to discern direction. It's likely that the index won't give us a reading that we can use as an indicator until the 24th or 25th, but let's keep a sharp eye on it.

Thursday, January 4, 2007

Markets lift off the new year, stall out

Anxious traders got 2007 off the ground a day later than originally planned due to the death of former president Gerald Ford. The markets were closed on Tuesday, but made up for lost time on Wednesday morning, driving vigorously into the positive in early trade. The Dow reached an intra-day all-time high of 12,630.34, but stocks pulled back through the afternoon, especially after the release of the minutes from the Fed's December meeting. The Dow closed up just over 11 points higher. The Nasdaq was up a nominal amount, while the S&P 500 and NYSE Composite finished slightly lower.

The minutes revealed that certain members of the FOMC were concerned that the economy was still expanding at a pace that might induce inflation and traders saw this as a sign that the Fed may still be pondering rate increases.

This kind of reverse-engineered thinking normally occurs when the markets - and the economy - are at pivot points and questioning future direction. If stronger growth is actually on the horizon, that should be good for stocks, but the consensus opinion seems to think that rate increases would be a worse outcome, so it's back to head-scratching and crystal ball gazing.

The biggest news of the day and the stories that really moved stocks early were the forced resignation of Home Depot (HD) CEO Robert Nardelli and a sizable drop in the price of crude oil, which fell below $60/bbl. to end the day at $58.32.

While Nardelli will retire with a handsome severance package worth more than $210 million, the price of oil may not have such a rosy future. Despite repeated and continuing efforts to convince the public that crude supplies are extremely tight, production cuts by OPEC (1.2 million barrels per day announced in November and another 500,000 cut planned for February) and the warm winter in the US Northeast are pushing prices closer to 3-year lows.

With more than they usually need to consider, investors are facing a slow-growth economy (retail for December was not as good as expected), lower oil prices and a Fed concerned with inflation. Two of those three are good, and it can be argued that a cooling off period for the economy is not only welcome but overdue.

The real issue is valuation, which is at somewhat ridiculous levels for entire classes of stocks. Corporate profits have been exceptional during the long bull market and it would be foolish for investors not to take some of their gains off the table soon in hopes of getting back in later in the year.

From the looks of things, being out of this market in the first half of the year may be the wisest investment decision of all.