S&P 500: 1473.99
The market is flat for the week, however, there are still a lot of volatility - it dropped by more than 2% on Tuesday and then gained everything back and more on Wednesday. Looks like investors don't really know how bad the subprime crisis is, and they just followed the herd buying or selling securities. The economic data (orders to factory, personal income and spending, and purchase manager index) all show signs that the US economy is still strong. Bush and Bernanke also said that "It's not the government's job to bail out speculators, or those who made the decision to buy a home they knew they could never afford.'' This solidifies my point that Bernanke would disappoint Wall Street about lowering rate. If the Fed keeps bailing out mortgage companies, those companies would keep making risky loans knowing that the government will bail them out. The mortgage business went out of hand in the last few years, and the tightening rules enforced were just a regression to the mean.
Friday, August 31, 2007
Week Aug 27 - 31
Monday, August 27, 2007
Week Aug 20 -24
The S&P 500 rose around 2% this week despite the subprime worries. IMO the subprime effect is largely priced in to the market already. After all the US and world economy are strong right now, unemployment is low, housing data is beginning to show improvement as new home sales finally went up. Investors and fund managers who bought CDOs deserved to lose money on this crisis. It was obvious to them the party couldn't last forever. The Fed is not going to drop rate either because the economic condition is still good. HK stock is even crazier, rising almost 9% for the week. Just as I thought the sell off was overdone and the market has recovered quickly. Now stocks went from cheap to not so cheap in just a week. The volatility is as great as I've seen (at least HK stocks). My view to the market still haven't change: always stay fully invested because it is difficult to time the market.
QDII's effect is over-hyped. HK market volume isn't just going to increase by how much mainland Chinese invest in HK stocks. Because of market effect, as the demand for stocks go out of hand, other investors are going to sell their stocks. If for example mainland Chinese put in $20B per day in HK stocks, the market volume is not going to increase by $20B. Foreign investors are going to sell their stocks on profit taking. So I believe that the QDII effect is exaggerrated by the media. The most important factor affecting stock prices is still the companys' fundamentals. It is true that the policy helps strengthen HK's position as the world's financial center because more trading = more efficient market = more firms willing to issue equities via HKEX = larger market, but how much does it going to affect stock prices in general?
Week July 23 - 27
S&P dropped 4.9% this week. Worst week in 5 years. Wow this is happening sooner and quicker than I thought. The earnings aren't that great but it is not that depressing either. So what justified the selling? The credit market. Banks can't sell Chrysler's 12b loan, they have to sell the bonds at a higher yield (which means lowering the bond's price). This is foreseeable but how does that relate to my stocks? In my portfolio, only FMXL.pk has a high debt/equity ratio. All other companies have a clean balance sheet. So in a downturn, my stocks can probably absorb the shock better than most of the other companies. My stocks are pretty undervalued right now I believe, but I don't have new money to get in the market!
My portfolio dropped from +10% at around 2 weeks ago to -7%. A drop of 17% from top to bottom...wow! One good thing happened is that I didn't panicked this time as opposed to March. I guess I have a bigger stomach now. I am still confident my stocks can outperform the market.
NTRI: Dropped 20% in 2 days because 3q guidance was lower than the target. People completely ignored the strong 2q they posted. Even at the lower range of the 3q which I think is unlikely going to happen because management said that the estimate is convervative and they have a history of sandbagging their guidance, their YOY profit would still rise 22%. With no debt, no way the company's value justifies a 20% drop. NTRI's quarter is actually quite similar to that of AAPL's (strong 2q and relatively weak 3q), but AAPL's stock rose 9%? It doesn't make sense at all. With P/E of under 18 right now, it is now cheaper than ever IMO. When will people start giving credit NTRI deserves?
TDW: Dropped 8% because earnings didn't meet the street. YOY EPS rose 26% which is not impressive but not bad either. Management was pretty stupid as they gave empty optimism to investors prior to earnings release and then couldn't beat the estimate. Something concerns me: there was a class lawsuit brought on by its employee? Talk about employee morale. This is something I miss, I need to check that in future as well. Right not their P/E is 10.75, pretty close to a 5 year low. I think it is a buy right now despite the supply exceeding demand problem some analysts were worrying about. TDW is still the industry leader, they know what they are talking about.
More earnings next week! Stay tuned!
Week July 16-20
The market is down about 1% because of Friday's drop. This is expected because the earnings report aren't that impressive. There is more and more evidence to believe that the economy is not doing well. As the earnings report period proceeds, I don't think we are going to have a good quarter. The market could drop about 5% as stock prices are becoming overpriced in general. With buyouts slowing down and GDP not growing, there are less catalysts to boost the stock market. However, I am still confident in my stocks (well maybe not FMXL.PK).
0% down? Mortgages which you pay a little up front then the bank charges you significantly more some time in future and they expect you can afford it? The housing slump is so stupid and so foreseeable which makes me think that finance experts aren't so smart after all. I guess they should open a Economics book that teaches positive economics and personal interest. But then it was hard to profit from it because of the saying "The market can be irrational longer than you can stay solvent."