Halloween came early this year. On Friday, we’ve almost closed down the shops, i.e. NYSE, to go home early. Before the opening, the markets have promised us a good beating, pointing to a lower low. The Dow reached 500 pts drop intraday but then recovered and dropped “only” 312 pts at the close. Much of the blame this week was on the weakening economy, hedge fund selling for redemption, and jitters about the global depression… sorry, recession.
The Dow ended the week off 5.35% to 8378.95, which is 40.85% down from its October 2007 record of $14,164. The S&P500 fell 6.78% during the week to 876.77, its lowest close since April 2003. And the Nasdaq fell 9.3% on the week to 1552.03, down 45.7% from its Oct. 31 multiyear high of 2859.12.
The dollar may provide a clue when the bottom may appear. The majority of the positions people are being forced to unwind have been financed with dollars. The hedge funds redemptions contributed to the 6.5% increase in the dollar against the euro this week alone, so a slowing in the dollar may give us a clue. Many funds have a November 15 notification deadline for year-end redemption requests, so money may be flowing back into the markets after that date. We do expect a short term rebound. The S&P 500 is 25% below its 50-day moving average, something that’s only happened five times since 1928. Each time the S&P 500 has typically rallied at least 14%, according to Bespoke Group. Many companies are now priced like never before, especially in the technology sector. In the contract-manufacturing industry, stocks have shrunk to nearly unheard of price/earnings multiples. Sanmina SCI (SANM) now trades for 4.3 times forward earnings, Jabil (JBL) trades for 6.5 times, Flextronics (FLEX) trades for just 3.4 times next year’s estimates. The stocks are priced as if the entire industry is bankrupt.
Other news:
- Around the world – Russia’s exchanges were closed early on Friday and won’t reopen until Tuesday. The Russian market is down 76% for the year. Other emerging markets have also suffered big losses: Brazil is off 50% and China is down 56%.
- Currency – the Japanese yen hit a 13-yr high of 90.35 against the U.S. dollar, as the carry trade continued to unwind. The Russian ruble fell to a two-yr low despite Moscow’s efforts to support it with billions; the Mexican peso fell to a record low against the dollar. Brazil, which has seen the real lose one-third of its value in August, flooded the market with dollars. South Korea’s won plunged to a 10-yr low against the dollar. Gold futures rose 2.2% Friday but fell 7.3% on the week to $730.30 an ounce.
- Goldman Sachs will cut 10% of its work force
- Chrysler is slashing 25% of its white-collar jobs
Thursday, October 30, 2008
Sunday, October 19, 2008
Weekly Recap - October 19, 2008
In one of my favorite classes at the GSB, “Power and Influence in Organizations”, Tanya Menon divulged the secret of happiness right from the start of the first class. I felt like I got my money worth. The secret of happiness is “low expectations”, therefore limiting the downside.
Now we have the same low expectations for the markets as well. To us, the quants at the GSB, that means lower prices today. The market is on sale, and instead of running to buy some more, the investors are running for the exits. The most quoted person this week was Warren Buffett, who said again and again “Be fearful when others are greedy and greedy when others are fearful.” The expectations bar is set pretty low because now its benchmark is the Great Depression!
In my previous email, I made the case for the next stage of investors’ panic – capitulation. And we see some of that now in the market. IBD reports that shareholders yanked a net $104.4 billion from stock and bond mutual funds in September, because they received their statements and were staring at declines of 20-40% in their account balances. In an bout of overreacting, they project the same losses in the future, and they don’t like what they see. Panic sets it and they pulled the plug. This starts to look like capitulation. That also means we’re very close to a bottom, if we did not already reach it.
Some data for the week
DJIA – closed at 8852, up 401 pts, or 4.8%
Nasdaq – closed at 1711, up 62 pts, or 3.8%
S&P 500 – closed at 941, up 41 pts, or 4.6%
Credit crisis continues to choke the economy. Retail sales fell 1.2% in September, factory activity shrank and consumer confidence suffered it sharpest drop in more than five decades. There were some bright spots when Google(Ticker: GOOG), Johnson & Johnson (Ticker: JNJ) and Coca-Cola (KO) reported strong earnings showing some economic resilience.
While we see evidence that credit woes are having a more serious impact on the economy, there are also encouraging signs. The London interbank offered rate (LIBOR) on three-month dollar loans between banks fell eight basis points to 4.42% on Friday, and 40 basis points for the week. Some pundits say that it will fell sharply this week, as banks resume lending. There is a report cited that JP Morgan loaned $15 billion into the interbank market.
New home construction sank 6.3% last month to an annual rate of 817,000 units, the lowest since the 1991 recession. Applications for building permits, a gauge of future building, fell 8.3% to a rate of 786,000, matching a 17 ½ year low. This is not all bad news, because it means that the building inventory will start to come down.
Other news:
Consumer Sentiment Plunges – The Reuters / Univ. of Michigan confidence gauge dived to 57.5 in mid-Oct from 70.3 in Sept. That’s just above June’s long-time low, and the sharpest 1-month decline since the survey began in 1952.
Credit Card Charge-Offs Soar – Moody’s said balances written off as not being repaid shot up to 6.82% in August, up 48% from an year earlier. The July charge-off rate was 6.36%. Moody’s expects charge-offs to continue to rise through ’09, surpassion peaks in past recessions.
Inflation Pressures Fading – September consumer prices were flat, while core costs, ex food and energy, rose 0.1%. Core inflation held at an elevated 2.5%, but producer price data showed a rapid retreat far up the pipeline.
Now we have the same low expectations for the markets as well. To us, the quants at the GSB, that means lower prices today. The market is on sale, and instead of running to buy some more, the investors are running for the exits. The most quoted person this week was Warren Buffett, who said again and again “Be fearful when others are greedy and greedy when others are fearful.” The expectations bar is set pretty low because now its benchmark is the Great Depression!
In my previous email, I made the case for the next stage of investors’ panic – capitulation. And we see some of that now in the market. IBD reports that shareholders yanked a net $104.4 billion from stock and bond mutual funds in September, because they received their statements and were staring at declines of 20-40% in their account balances. In an bout of overreacting, they project the same losses in the future, and they don’t like what they see. Panic sets it and they pulled the plug. This starts to look like capitulation. That also means we’re very close to a bottom, if we did not already reach it.
Some data for the week
DJIA – closed at 8852, up 401 pts, or 4.8%
Nasdaq – closed at 1711, up 62 pts, or 3.8%
S&P 500 – closed at 941, up 41 pts, or 4.6%
Credit crisis continues to choke the economy. Retail sales fell 1.2% in September, factory activity shrank and consumer confidence suffered it sharpest drop in more than five decades. There were some bright spots when Google(Ticker: GOOG), Johnson & Johnson (Ticker: JNJ) and Coca-Cola (KO) reported strong earnings showing some economic resilience.
While we see evidence that credit woes are having a more serious impact on the economy, there are also encouraging signs. The London interbank offered rate (LIBOR) on three-month dollar loans between banks fell eight basis points to 4.42% on Friday, and 40 basis points for the week. Some pundits say that it will fell sharply this week, as banks resume lending. There is a report cited that JP Morgan loaned $15 billion into the interbank market.
New home construction sank 6.3% last month to an annual rate of 817,000 units, the lowest since the 1991 recession. Applications for building permits, a gauge of future building, fell 8.3% to a rate of 786,000, matching a 17 ½ year low. This is not all bad news, because it means that the building inventory will start to come down.
Other news:
Consumer Sentiment Plunges – The Reuters / Univ. of Michigan confidence gauge dived to 57.5 in mid-Oct from 70.3 in Sept. That’s just above June’s long-time low, and the sharpest 1-month decline since the survey began in 1952.
Credit Card Charge-Offs Soar – Moody’s said balances written off as not being repaid shot up to 6.82% in August, up 48% from an year earlier. The July charge-off rate was 6.36%. Moody’s expects charge-offs to continue to rise through ’09, surpassion peaks in past recessions.
Inflation Pressures Fading – September consumer prices were flat, while core costs, ex food and energy, rose 0.1%. Core inflation held at an elevated 2.5%, but producer price data showed a rapid retreat far up the pipeline.
Sunday, October 12, 2008
Company of the Week - October 12, 2008 - Axsys Technologies
Company of the Week: Axsys Technologies, Inc.
Axsys Technologies, Inc (Ticker: AXYS) makes lenses and systems that help see incoming missiles through dark, cloudy skies, or peer down on troops in distant battlefields. It sells them faster than it can make them.
Sales for the second quarter came in at $60.3M, up 40% from a year ago. The backlog of orders grew to a record $174.1M. Earnings per share of $0.54 was also up 54% from a year ago.
Company’s exposure to the fast-growing infrared market position it for long term success. Infrared imaging is a $5B a year market globally, with about 80% of that being military spending. The Pentagon is increasingly fond of pilotless drones, which can safely and stealthily prowl over battlefields and insurgent bases. It more than doubled use of such drones in 2007, logging more than 500,000 hours in Iraq and Afghanistan.
Axsys is split into two divisions. The Imaging Systems Group makes optical and motion-control components that are sold to other contractors and incorporated into larger systems. Sales there made up 65% of total revenue in the last quarter. Infrared lenses were a high-margin, fast growing product in that group. The Surveillance Systems Group division designs and makes stabilized and non-stabilized camera systems for air, sea and land mounts. Sales grew 94% over the first six months of 2008 compared with a 33% increase for Imaging Systems.
The U.S. government is the top end user, with direct sales accounting for 3.6% of revenue in 2007. But 66.4% of the year’s revenue came from subcontractors that incorporated Axsys’ parts into larger systems and weapons platforms.
The company is ramping up engineering to develop new products and improve existing ones. It’s developing laser range finders and new radar sensors.
Its competitors are Flir Systems (FLIR), L-3 Communications Holdings (LLL) and Raytheon (RTN). All are subject to the same lumpiness inherent in weapons systems contracts. They all face the same uncertainty around future military spending in the next presidential administration. But most military budget analysts think that whoever wins, spending on sensors and vision technologies will continues.
For the entire fiscal year, the company said to expect sales of between $237M and $241M, up from the previous guidance of $224M to $228M. The company expects EPS to come in between $2.09 and $2.15, up from previously expected range of $1.88 to $1.92. Analysts surveyed by Thomson Financial expect $2.13 per share for the year, which is a 61% increase from 2007.
Axsys Technologies, Inc (Ticker: AXYS) makes lenses and systems that help see incoming missiles through dark, cloudy skies, or peer down on troops in distant battlefields. It sells them faster than it can make them.
Sales for the second quarter came in at $60.3M, up 40% from a year ago. The backlog of orders grew to a record $174.1M. Earnings per share of $0.54 was also up 54% from a year ago.
Company’s exposure to the fast-growing infrared market position it for long term success. Infrared imaging is a $5B a year market globally, with about 80% of that being military spending. The Pentagon is increasingly fond of pilotless drones, which can safely and stealthily prowl over battlefields and insurgent bases. It more than doubled use of such drones in 2007, logging more than 500,000 hours in Iraq and Afghanistan.
Axsys is split into two divisions. The Imaging Systems Group makes optical and motion-control components that are sold to other contractors and incorporated into larger systems. Sales there made up 65% of total revenue in the last quarter. Infrared lenses were a high-margin, fast growing product in that group. The Surveillance Systems Group division designs and makes stabilized and non-stabilized camera systems for air, sea and land mounts. Sales grew 94% over the first six months of 2008 compared with a 33% increase for Imaging Systems.
The U.S. government is the top end user, with direct sales accounting for 3.6% of revenue in 2007. But 66.4% of the year’s revenue came from subcontractors that incorporated Axsys’ parts into larger systems and weapons platforms.
The company is ramping up engineering to develop new products and improve existing ones. It’s developing laser range finders and new radar sensors.
Its competitors are Flir Systems (FLIR), L-3 Communications Holdings (LLL) and Raytheon (RTN). All are subject to the same lumpiness inherent in weapons systems contracts. They all face the same uncertainty around future military spending in the next presidential administration. But most military budget analysts think that whoever wins, spending on sensors and vision technologies will continues.
For the entire fiscal year, the company said to expect sales of between $237M and $241M, up from the previous guidance of $224M to $228M. The company expects EPS to come in between $2.09 and $2.15, up from previously expected range of $1.88 to $1.92. Analysts surveyed by Thomson Financial expect $2.13 per share for the year, which is a 61% increase from 2007.
The Neuroscience Behind the Investor Panic
The Science behind the Investor Panic
More likely, the neuroscience behind it. In the past five years, neuroscience has made breakthroughs in understanding how the human mind works.
When investors dump mutual funds in panic, it raises questions about the decision of their purchase. From a biological perspective, these investors refuse to face the emotion, which builds up and explodes in an impulsive decision. With an MRI, we can watch a live brain make a risk-and-reward decision. Two seconds before we start thinking about the facts, there is a feeling part already weighing in. The successful traders focus on what the other people are doing now and are likely to do later, where the weak players focus on prices.
How to deal with panic? Face the fear of losing it all and ask how likely that outcome is.
More likely, the neuroscience behind it. In the past five years, neuroscience has made breakthroughs in understanding how the human mind works.
When investors dump mutual funds in panic, it raises questions about the decision of their purchase. From a biological perspective, these investors refuse to face the emotion, which builds up and explodes in an impulsive decision. With an MRI, we can watch a live brain make a risk-and-reward decision. Two seconds before we start thinking about the facts, there is a feeling part already weighing in. The successful traders focus on what the other people are doing now and are likely to do later, where the weak players focus on prices.
How to deal with panic? Face the fear of losing it all and ask how likely that outcome is.
The Psychology of Fear - weekly recap
These days there is no other subject in people’s mind but the economy. For the past weeks, I’ve been taking calls from friends who, concerned about the economic situation, decided to “do something about it”. A friend is buying few extra guns, extra canisters with gasoline, canned food, water, tent, and other supplies in case “there will be a civil war”. Not a joke, I swear. Others are looking for comfort, for reassurance that this too shall pass and we’re returning to a normal life. Now, notice, these are people who don’t know who or what Dow Jones is, nor their personal lives have been impacted in any way by this crisis in a sensible way. They still have their jobs. True, they see their 401(k) shrinking faster than you say “bailout” but still … the gallon of gas is still $3.752 (average, in Chicago), the gallon of milk is about $3.52 … the unemployment rate is 6.15; it will likely increase in the coming months close to 7%, but is still a far cry from 25% of the Great Depression.
Should we be so concerned?
To me this is a reverse of the 2004 – 2005 euphoria, when everybody and their grandmother were rushing to buy a condominium in Florida, Nevada or California, only to flip it over the next day for a quick profit. There were waiting lists for the ‘unlucky’ ones who did not get in on the first try. I now see the same thing, only in reverse. When everybody is so panicked about the economy that it makes for a good conversation anywhere, and at any time, it may not be too bad of a time to think about getting back in. No, I am not calling a bottom; I don’t know when is going to happen. But it seems that we’re getting ahead of ourselves by succumbing to panic.
Let’s look at some facts.
The stocks are down 40% for the past 12 months and far surpass the average bear-market slide of 30% since 1940. They seem to be running ahead of any recession, by pricing in pretty horrible times ahead. The Dow is down almost as the 45% downslide in the 1973-1975 recession, and its 12-month decline far exceeds the 24% it lost in the period leading up to and during the 1981-1982 recession.
The prices look much more reasonable today. The S&P 500 trades at 11.6 times the profits that analysts expect them to earn next year. The index trades at 17.1 times the companies’ most recent earnings. That’s only slightly below the market’s 60-year average P/E multiple of 17.8. Granted, the current P/E is still high compared to the low P/Es of previous major recessions. During the ’74, ’80 and ’82 recessions, the S&P’s trailing P/E dropped to between 6.8 and 7.2.
These are not reasons to get out of the stock market. Think about the following: $1 invested in stocks from February 1966 through May 2007 would have grown to $16.58 in that period, which calculates to a 7% annual return. By contrast, investors who were out of the market in the five best days (five!) each year during that span were left with only 11 cents. Stay invested, my friends!
The “deer in the headlights” feeling
How do we explain the irrational price of Anheuser-Busch (BUD) shares? BUD is set to be acquired by InBev (INB) for $70 a share in cash, with a closing this quarter that looks on track. The stock closed Friday at $58.50. What gives? Maybe the expectation that the deal will not close in these economic conditions. Possibly, but unlikely. So this irrationality, or as behavioralists would say, an ‘anomaly’, would give you a 20% upside to the bid price, or an 80% annualized return.
The market is moving now on fear, not facts. That is the only resemblance with the Great Depression. The government’s actions are tough, swift and the markets will soon move in the right direction. Regardless of how much further it might (or might not) drop, the stock market now abounds with so many bargains it’s hard not to step on them. Out of 9,194 stocks tracked by Standard & Poor’s Compustat research service, 3,518 are now trading at less than eight times their earnings over the past year – or at levels less than half the long-term average valuation of the stock market as a whole. Nearly one in 10, or 876 stocks trade below the value of their per-share holdings of cash – an even greater proportion than Ben Graham found in 1932.
For example, Charles Schwab Corp (Ticker: SCHW) holds $27.8 billion in cash and has a stock market value of $23.26 billion. Nam Tai Electronics (Ticker: NTE), a Chinese contract maker of consumer electronics and other goods, has $271.85 million in cash and a market value of $266.23 million. GSI Group (Ticker: GSIG), a supplier of precision motion component products, has a market cap of $102.13 million and a cash position of $183.27 million. And these are companies which have more cash than market cap. But there are plenty with solid cash position as a percentage of market cap. To name a few here: Microsoft (MSFT) 11.6% cash as % of market value, Apple (AAPL) 26.4%, Motorola (MOT) 29.9%, Electronic Arts (ERTS) 30.2%, Loews (L) 30.2%, RealNetworks (RNWK) 81%, InterActive Corp (IACI) 65%, etc.
Back to psychology. Many of us, it seems, are in the grip of what psychologists call “the disposition effect”, or an inability to confront financial losses. (By the way, in behavioral finance, this effect also describes the tendency of investors to ride losers, and sell winners.) The natural way to moderate the pain of losing money is by refusing to recognize exactly how badly your portfolio has been damaged. A few weeks ago, investors were gasping; now, they seem to have gone numb, judging by the unexpectedly low number of calls to financial advisors and investment consultants. Stupor may have set in, and if that’s the case, the next stage will be ‘capitulation’, when the investors ‘let go’ and sell in panic. That will be the signal that the markets are ready to rise again. However timing the bottom is dangerous. It may be better to get in somewhere near the bottom, than wait for it and miss it.
Good luck!
Sources: The above data draws from Barron’s, Wall Street Journal and Investor’s Business Daily and also from several sources cited by these newspapers.
Should we be so concerned?
To me this is a reverse of the 2004 – 2005 euphoria, when everybody and their grandmother were rushing to buy a condominium in Florida, Nevada or California, only to flip it over the next day for a quick profit. There were waiting lists for the ‘unlucky’ ones who did not get in on the first try. I now see the same thing, only in reverse. When everybody is so panicked about the economy that it makes for a good conversation anywhere, and at any time, it may not be too bad of a time to think about getting back in. No, I am not calling a bottom; I don’t know when is going to happen. But it seems that we’re getting ahead of ourselves by succumbing to panic.
Let’s look at some facts.
The stocks are down 40% for the past 12 months and far surpass the average bear-market slide of 30% since 1940. They seem to be running ahead of any recession, by pricing in pretty horrible times ahead. The Dow is down almost as the 45% downslide in the 1973-1975 recession, and its 12-month decline far exceeds the 24% it lost in the period leading up to and during the 1981-1982 recession.
The prices look much more reasonable today. The S&P 500 trades at 11.6 times the profits that analysts expect them to earn next year. The index trades at 17.1 times the companies’ most recent earnings. That’s only slightly below the market’s 60-year average P/E multiple of 17.8. Granted, the current P/E is still high compared to the low P/Es of previous major recessions. During the ’74, ’80 and ’82 recessions, the S&P’s trailing P/E dropped to between 6.8 and 7.2.
These are not reasons to get out of the stock market. Think about the following: $1 invested in stocks from February 1966 through May 2007 would have grown to $16.58 in that period, which calculates to a 7% annual return. By contrast, investors who were out of the market in the five best days (five!) each year during that span were left with only 11 cents. Stay invested, my friends!
The “deer in the headlights” feeling
How do we explain the irrational price of Anheuser-Busch (BUD) shares? BUD is set to be acquired by InBev (INB) for $70 a share in cash, with a closing this quarter that looks on track. The stock closed Friday at $58.50. What gives? Maybe the expectation that the deal will not close in these economic conditions. Possibly, but unlikely. So this irrationality, or as behavioralists would say, an ‘anomaly’, would give you a 20% upside to the bid price, or an 80% annualized return.
The market is moving now on fear, not facts. That is the only resemblance with the Great Depression. The government’s actions are tough, swift and the markets will soon move in the right direction. Regardless of how much further it might (or might not) drop, the stock market now abounds with so many bargains it’s hard not to step on them. Out of 9,194 stocks tracked by Standard & Poor’s Compustat research service, 3,518 are now trading at less than eight times their earnings over the past year – or at levels less than half the long-term average valuation of the stock market as a whole. Nearly one in 10, or 876 stocks trade below the value of their per-share holdings of cash – an even greater proportion than Ben Graham found in 1932.
For example, Charles Schwab Corp (Ticker: SCHW) holds $27.8 billion in cash and has a stock market value of $23.26 billion. Nam Tai Electronics (Ticker: NTE), a Chinese contract maker of consumer electronics and other goods, has $271.85 million in cash and a market value of $266.23 million. GSI Group (Ticker: GSIG), a supplier of precision motion component products, has a market cap of $102.13 million and a cash position of $183.27 million. And these are companies which have more cash than market cap. But there are plenty with solid cash position as a percentage of market cap. To name a few here: Microsoft (MSFT) 11.6% cash as % of market value, Apple (AAPL) 26.4%, Motorola (MOT) 29.9%, Electronic Arts (ERTS) 30.2%, Loews (L) 30.2%, RealNetworks (RNWK) 81%, InterActive Corp (IACI) 65%, etc.
Back to psychology. Many of us, it seems, are in the grip of what psychologists call “the disposition effect”, or an inability to confront financial losses. (By the way, in behavioral finance, this effect also describes the tendency of investors to ride losers, and sell winners.) The natural way to moderate the pain of losing money is by refusing to recognize exactly how badly your portfolio has been damaged. A few weeks ago, investors were gasping; now, they seem to have gone numb, judging by the unexpectedly low number of calls to financial advisors and investment consultants. Stupor may have set in, and if that’s the case, the next stage will be ‘capitulation’, when the investors ‘let go’ and sell in panic. That will be the signal that the markets are ready to rise again. However timing the bottom is dangerous. It may be better to get in somewhere near the bottom, than wait for it and miss it.
Good luck!
Sources: The above data draws from Barron’s, Wall Street Journal and Investor’s Business Daily and also from several sources cited by these newspapers.
Monday, October 6, 2008
Weekly Recap - October 6, 2008
It’s the Economy! Duh!
I like the title of one of this week’s Barron’s articles: ‘One Problem Down, Many, Many to Go’. We all cheered when the bailout bill passed this week, but it did little to calm the markets. All it did was to allow the investors to focus back on the economy, which, I may add, stinks.
With 159,000 job cuts in September, the worst decline since March ’03, and a total 9-month job loss of 760,000, the jobless rate is now at 6.1%, a 5-yr high. The ISM manufacturing index dived 6.4 pts in September, to 43.5, the lowest in 7 years. ISM’s service-sector index signaled little sector growth. Auto sales plunged amid economic woes, tight credit and high gas prices.
The ‘financial flu’ spread to Europe, which saw several bank bailouts. EU leaders planned a summit to address the crisis. For the week, the euro dived, the pound and Swiss franc also fell, as did the Australian dollar and Brazilian real.
Recap of the week
How deep is this global recession?
After Wednesday’s bailout approval, investors turned their attention back on the economy and punished the Dow with a 348 pts punch, while the Friday morning gain of 313 pts quickly vanished into a 157 pts loss. It doesn’t seem that the investors believe that passing the TARP – the Troubled Asset Relief Program, how the bailout is called – helped, and that many other “Paulson tools” are needed to ‘fix’ the economy.
777.7
The stocks suffered their worst week since September 11, 2001. The S&P500 ended the week down 114, or 9.4%, to 1099. It has fallen 12% in two weeks, and is 30% off its peak a year ago. The Dow fell 818, or 7.3%, to 10325. The Nasdaq Composite Index tumbled 236, or 11%, to 1947. The Russell 2000 slipped 85, or 12%, to 619.
The Buffett Way
Eight days after tossing $5 billion Goldman Sachs’ way in return for a preferred issue that yields 10% a year, Mr. Buffett, or Berkshire Hathaway to be precise, put another $3 billion in a similar issue of GE. Mr. Buffett has bought into companies when their stocks were rather thoroughly beaten down (Goldman was selling at less than half its peak of $250 a share a year ago and ditto GE, some $20 below its 12-month high of 42).
Cash is king these days!
I like the title of one of this week’s Barron’s articles: ‘One Problem Down, Many, Many to Go’. We all cheered when the bailout bill passed this week, but it did little to calm the markets. All it did was to allow the investors to focus back on the economy, which, I may add, stinks.
With 159,000 job cuts in September, the worst decline since March ’03, and a total 9-month job loss of 760,000, the jobless rate is now at 6.1%, a 5-yr high. The ISM manufacturing index dived 6.4 pts in September, to 43.5, the lowest in 7 years. ISM’s service-sector index signaled little sector growth. Auto sales plunged amid economic woes, tight credit and high gas prices.
The ‘financial flu’ spread to Europe, which saw several bank bailouts. EU leaders planned a summit to address the crisis. For the week, the euro dived, the pound and Swiss franc also fell, as did the Australian dollar and Brazilian real.
Recap of the week
How deep is this global recession?
After Wednesday’s bailout approval, investors turned their attention back on the economy and punished the Dow with a 348 pts punch, while the Friday morning gain of 313 pts quickly vanished into a 157 pts loss. It doesn’t seem that the investors believe that passing the TARP – the Troubled Asset Relief Program, how the bailout is called – helped, and that many other “Paulson tools” are needed to ‘fix’ the economy.
777.7
The stocks suffered their worst week since September 11, 2001. The S&P500 ended the week down 114, or 9.4%, to 1099. It has fallen 12% in two weeks, and is 30% off its peak a year ago. The Dow fell 818, or 7.3%, to 10325. The Nasdaq Composite Index tumbled 236, or 11%, to 1947. The Russell 2000 slipped 85, or 12%, to 619.
The Buffett Way
Eight days after tossing $5 billion Goldman Sachs’ way in return for a preferred issue that yields 10% a year, Mr. Buffett, or Berkshire Hathaway to be precise, put another $3 billion in a similar issue of GE. Mr. Buffett has bought into companies when their stocks were rather thoroughly beaten down (Goldman was selling at less than half its peak of $250 a share a year ago and ditto GE, some $20 below its 12-month high of 42).
Cash is king these days!
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