Showing posts with label stocks. Show all posts
Showing posts with label stocks. Show all posts
Tuesday, April 23, 2013
Monday, August 8, 2011
US Stocks Plunge In Sixth Biggest DJIA Decline In History; DJIA Falls 634.76
By Brendan Conway Of DOW JONES NEWSWIRES AUGUST 8, 2011,
NEW YORK (Dow Jones)--U.S. stocks tumbled in a Monday rout that sent the Dow Jones Industrial Average plunging to the sixth biggest point drop in its history, reflecting a toxic brew of investor fears over government debt and the chances that the economy will slide into another recession.
The Dow Jones Industrial Average sank 634.76 points, or 5.55%, to 10809.85, falling beneath 11000 for the first time since November and adding to last week's steep losses. The blue-chip measure ended exactly on session lows in the biggest single-day point and percentage loss since Dec. 1, 2008.
Monday was the stock market's first trading day since Standard & Poor's downgraded the federal government's credit rating late Friday. Investors fled risk assets far and wide. They traded 9.71 billion shares in New York Stock Exchange composite volume, the fourth largest single-day total in history.
Most-active December gold futures soared to a record settlement of $1,713.20, up $61.40. U.S. Treasurys were a winner despite the credit downgrade, with the yield on the 10-year note falling to the lowest levels since January 2009.
"Everybody is looking for whatever they perceive as a safe haven, even if it's just plain illogical," said David Kelly, chief market strategist for J.P. Morgan Funds. "Things are pretty dismal right now."
Major stock indexes cascaded lower throughout much of the session, as S&P downgraded clearing bodies, entities such as Fannie Mae and Freddie Mac and lowered outlooks for companies including Warren Buffett's Berkshire Hathaway following S&P's downgrade of U.S. credit to double-A-plus from triple-A late Friday.
The Standard & Poor's 500 stock index tumbled 79.92 points, or 6.66%, to 1119.46, the 10th decline in 11 sessions. Financial components fell 10% while S&P 500 energy stocks slumped 8.3%. Not a single component of the 500 stocks that make up the broad index finished in positive territory. The Nasdaq Composite slumped 174.72 points, or 6.9%, to 2357.69.
The Russell 2000 index of small-capitalization stocks fell the most in a single session in its history, plummeting 63.67 points, or 8.91%, to 650.96. Small caps tend to make more exaggerated moves and are generally viewed as riskier than the widely held shares of large companies.
The fact that Monday's swoon came right on the heels of the Dow's biggest weekly point loss since the financial crisis in 2008 set up many market participants for forced sales and margin calls, traders said. That made some of the losses self-perpetuating. It also raised the prospect of capitulation, the point when losses snowball and sentiment craters, helping markets find a bottom.
"There is a lot of forced liquidation," said Lorenzo Di Mattia, manager of Sibilla Global Fund, and such actions "might last another day perhaps."
In one early sign that Monday's action would be volatile, the New York Stock Exchange invoked the little-used Rule 48 before the start of trading. The procedure lets market makers refrain from disseminating price indications ahead of the bell, making it easier and faster to open trading in the stock market.
Bank of America plunged $1.66, or 20%, to 6.51, to lead blue-chip decliners, stung by both a steep selloff in financial stocks and by word that American International Group is suing the company, along with a host of other prominent financial institutions, as it seeks to recover losses on mortgage-backed securities. AIG's stock fell 2.52, or 10%, to 22.58.
Gold miners and precious-metals exchange-traded funds bucked the broader trend as they followed the precious metal higher. AngloGold Ashanti rose 20 cents, or 0.5%, to 42.01 and SPDR Gold Trust gained 5.37, or 3.3%, to 167.12. Newmont Mining gained early but ended down 28 cents, or 0.5%, at 54.13.
President Barack Obama did little to assuage investor fears Monday afternoon as he said that the S&P downgrade should provide a "renewed sense of urgency" to tackle the deficit. Indexes hit fresh lows while the president spoke, and again afterward.
Worries about the strength of the global economy loomed just as large, if not larger, than credit matters for many investors. Fears of a slowdown have reverberated in recent weeks.
"The market is probably more concerned with the economic risk than with the S&P credit rating," said Bernie McDevitt, vice president of institutional trading at Cheevers & Co.
- DJIA plunges more than 634 points, closing at lows in first trading since S&P downgrade late Friday
- "Panic" selling is seen; President Obama cites "renewed sense of urgency" to handle deficit, cannot quell market worries
- S&P's follow-on downgrades stoke further worries; Russell 2000 stages its biggest-ever single-day point drop
NEW YORK (Dow Jones)--U.S. stocks tumbled in a Monday rout that sent the Dow Jones Industrial Average plunging to the sixth biggest point drop in its history, reflecting a toxic brew of investor fears over government debt and the chances that the economy will slide into another recession.
The Dow Jones Industrial Average sank 634.76 points, or 5.55%, to 10809.85, falling beneath 11000 for the first time since November and adding to last week's steep losses. The blue-chip measure ended exactly on session lows in the biggest single-day point and percentage loss since Dec. 1, 2008.
Monday was the stock market's first trading day since Standard & Poor's downgraded the federal government's credit rating late Friday. Investors fled risk assets far and wide. They traded 9.71 billion shares in New York Stock Exchange composite volume, the fourth largest single-day total in history.
Most-active December gold futures soared to a record settlement of $1,713.20, up $61.40. U.S. Treasurys were a winner despite the credit downgrade, with the yield on the 10-year note falling to the lowest levels since January 2009.
"Everybody is looking for whatever they perceive as a safe haven, even if it's just plain illogical," said David Kelly, chief market strategist for J.P. Morgan Funds. "Things are pretty dismal right now."
Major stock indexes cascaded lower throughout much of the session, as S&P downgraded clearing bodies, entities such as Fannie Mae and Freddie Mac and lowered outlooks for companies including Warren Buffett's Berkshire Hathaway following S&P's downgrade of U.S. credit to double-A-plus from triple-A late Friday.
The Standard & Poor's 500 stock index tumbled 79.92 points, or 6.66%, to 1119.46, the 10th decline in 11 sessions. Financial components fell 10% while S&P 500 energy stocks slumped 8.3%. Not a single component of the 500 stocks that make up the broad index finished in positive territory. The Nasdaq Composite slumped 174.72 points, or 6.9%, to 2357.69.
The Russell 2000 index of small-capitalization stocks fell the most in a single session in its history, plummeting 63.67 points, or 8.91%, to 650.96. Small caps tend to make more exaggerated moves and are generally viewed as riskier than the widely held shares of large companies.
The fact that Monday's swoon came right on the heels of the Dow's biggest weekly point loss since the financial crisis in 2008 set up many market participants for forced sales and margin calls, traders said. That made some of the losses self-perpetuating. It also raised the prospect of capitulation, the point when losses snowball and sentiment craters, helping markets find a bottom.
"There is a lot of forced liquidation," said Lorenzo Di Mattia, manager of Sibilla Global Fund, and such actions "might last another day perhaps."
In one early sign that Monday's action would be volatile, the New York Stock Exchange invoked the little-used Rule 48 before the start of trading. The procedure lets market makers refrain from disseminating price indications ahead of the bell, making it easier and faster to open trading in the stock market.
Bank of America plunged $1.66, or 20%, to 6.51, to lead blue-chip decliners, stung by both a steep selloff in financial stocks and by word that American International Group is suing the company, along with a host of other prominent financial institutions, as it seeks to recover losses on mortgage-backed securities. AIG's stock fell 2.52, or 10%, to 22.58.
Gold miners and precious-metals exchange-traded funds bucked the broader trend as they followed the precious metal higher. AngloGold Ashanti rose 20 cents, or 0.5%, to 42.01 and SPDR Gold Trust gained 5.37, or 3.3%, to 167.12. Newmont Mining gained early but ended down 28 cents, or 0.5%, at 54.13.
President Barack Obama did little to assuage investor fears Monday afternoon as he said that the S&P downgrade should provide a "renewed sense of urgency" to tackle the deficit. Indexes hit fresh lows while the president spoke, and again afterward.
Worries about the strength of the global economy loomed just as large, if not larger, than credit matters for many investors. Fears of a slowdown have reverberated in recent weeks.
"The market is probably more concerned with the economic risk than with the S&P credit rating," said Bernie McDevitt, vice president of institutional trading at Cheevers & Co.
Sunday, August 22, 2010
New Normal: No jobs. Depression. Bankrupt nation. Deflation. Zeros. Junk.
(This article offers investment advice in addition to an economic forecast. I pondered whether I would edit the advice out, but then pondered legal problems associated with non-approved editing of copyrighted material. So, consider the advice at your own risk. The views contained in the following are those of the author of the article, not the owner/author of this blog. Peace.--jef)
Warning, bear market 2010: 11 'sells.' Only 6 'buys'
PAUL B. FARRELL Aug. 17, 2010 MarketWatch
ARROYO GRANDE, Calif. (MarketWatch) -- Yes, it's going to get worse, a whole lot worse ... Bill Gross warns this is the "New Normal. Forget 10% returns. Think 5%". ... Economist Larry Kotlikoff, author of The Coming Generational Storm, warns: "Let's get real. The U.S. is bankrupt. Neither spending nor taxing will help the country pay its bills" ... Economist Peter Morici warns: "Unemployment is stuck near 10%. Deflation coming. Stock market threatens collapse. The Federal Reserve and Barack Obama are out of bullets. Near zero federal funds rates, central bank purchases, a $1.6 trillion deficit have failed to revive the economy." ... Simon Johnson, co-author of 13 Bankers, warns: "We came close to another Great Depression, next time we may not be so lucky." Why? Because Wall Street's already well into the next bubble/bust cycle -- the "doom cycle."
Warning: More bad news ahead. Welcome to a bleak second half 2010, worse for 2011.
It's early morning: In comes economist Gary Shilling's new Insight newsletter, just before I head for the kitchen to make my wife's breakfast. Gary's "Mid-Course Checkup" doesn't raise my spirits. Sure, he's got bragging rights. His January forecasts are still on the money. But don't you just hate guys like him? Brilliant. Honest. Great track record. I guess that's why he's been a long-time Forbes columnist. Investors listen when he talks.
After cooking her breakfast I'm flipping through the L.A. Times' entertainment section, avoiding the business and financial pages. Didn't want to spoil my breakfast too. Suddenly, big headline stops me: "Buy, Sell, Hope." Hope? What's that? Good news about markets? You buy, you sell, you hope? Is "hope" America's last market strategy?
No, "Buy Sell Hope" was a grabber headline. A story about moviemakers buying film rights of bestsellers hoping to sell lots of movie tickets to millions who bought the book. Doesn't always work. A metaphor: Economic theories often fail. The focus: Julie Roberts's new film "Eat Pray Love," based on Elizabeth Gilbert's 8 million copy bestseller, a book filled with New Age advice rivaling the best of Eckhart Tolle and Deepak Chopra.
But that gave me a bright idea: Let's blend the two. See if we can brighten some of Shilling's gloomier forecasts and recommendations for 2010-2011 with some of Gilbert's upbeat advice ... imagining "Pretty Woman" Julia, the Eat-Pray-Love lead, doing a voice-over for Gilbert. So here we go: First, Shilling's 6 "buys," then the 11 "sells," 17 strategies for 2010. He admits some mixed results, but he's "sticking with them for the second half" and on into the coming dark days of 2011. I'm sticking with Julia:
What a combo: Warnings from Gary Shilling's "Buy-Sell-Hope" Insights newsletter. Plus Girl Scout Cookie advice from our Eat-Pray-Love guru, with "Pretty Woman" Julia Roberts' voice-over. Let's top it off with one more of her jewels: "The Bhagavad Gita, that ancient Indian Yogic text, says that it is better to live your own destiny imperfectly than to live an imitation of somebody else's life with perfection. So now I have started living my own life. Imperfect and clumsy as it may look, it is resembling me now, thoroughly." Get it? The market, the economy, the whole world may crash ... but will you crash with it? Or will you still be the "best you?" Will you fulfill your destiny?
Warning, bear market 2010: 11 'sells.' Only 6 'buys'
PAUL B. FARRELL Aug. 17, 2010 MarketWatch
ARROYO GRANDE, Calif. (MarketWatch) -- Yes, it's going to get worse, a whole lot worse ... Bill Gross warns this is the "New Normal. Forget 10% returns. Think 5%". ... Economist Larry Kotlikoff, author of The Coming Generational Storm, warns: "Let's get real. The U.S. is bankrupt. Neither spending nor taxing will help the country pay its bills" ... Economist Peter Morici warns: "Unemployment is stuck near 10%. Deflation coming. Stock market threatens collapse. The Federal Reserve and Barack Obama are out of bullets. Near zero federal funds rates, central bank purchases, a $1.6 trillion deficit have failed to revive the economy." ... Simon Johnson, co-author of 13 Bankers, warns: "We came close to another Great Depression, next time we may not be so lucky." Why? Because Wall Street's already well into the next bubble/bust cycle -- the "doom cycle."
Warning: More bad news ahead. Welcome to a bleak second half 2010, worse for 2011.
It's early morning: In comes economist Gary Shilling's new Insight newsletter, just before I head for the kitchen to make my wife's breakfast. Gary's "Mid-Course Checkup" doesn't raise my spirits. Sure, he's got bragging rights. His January forecasts are still on the money. But don't you just hate guys like him? Brilliant. Honest. Great track record. I guess that's why he's been a long-time Forbes columnist. Investors listen when he talks.
After cooking her breakfast I'm flipping through the L.A. Times' entertainment section, avoiding the business and financial pages. Didn't want to spoil my breakfast too. Suddenly, big headline stops me: "Buy, Sell, Hope." Hope? What's that? Good news about markets? You buy, you sell, you hope? Is "hope" America's last market strategy?
No, "Buy Sell Hope" was a grabber headline. A story about moviemakers buying film rights of bestsellers hoping to sell lots of movie tickets to millions who bought the book. Doesn't always work. A metaphor: Economic theories often fail. The focus: Julie Roberts's new film "Eat Pray Love," based on Elizabeth Gilbert's 8 million copy bestseller, a book filled with New Age advice rivaling the best of Eckhart Tolle and Deepak Chopra.
But that gave me a bright idea: Let's blend the two. See if we can brighten some of Shilling's gloomier forecasts and recommendations for 2010-2011 with some of Gilbert's upbeat advice ... imagining "Pretty Woman" Julia, the Eat-Pray-Love lead, doing a voice-over for Gilbert. So here we go: First, Shilling's 6 "buys," then the 11 "sells," 17 strategies for 2010. He admits some mixed results, but he's "sticking with them for the second half" and on into the coming dark days of 2011. I'm sticking with Julia:
1. Buy Treasury Bonds: Stay with this big winner. Stockholders hate them, but this is a safe haven in the coming deflation storm on into 2011. Long maturities. Zero-coupons. Lower commissions. That's "Insight." Now imagine Eat-Pray-Love's Julia's voiceover: "There's no trouble in this world so serious that it can't be cured with a hot bath, a glass of whiskey and the Book of Common Prayer." Okay, guys would prefer an NFL game with his buddies and a Bud. Winners all around.
2. Buy Income-Producing Securities: Still viable. Stock market's gone nowhere for 12 years, says Shilling. Pick selective income-producers: utilities, drugs, telecoms, hi-grade munis, preferreds, etc. Buy direct or ETFs. Then Julia reminds us: "God never slams a door in your face without opening a box of Girl Scout cookies."
3. Buy Consumer Staples and Foods: Less volatility than S&P 500. Hey, you gotta eat, brush teeth, wash your clothes. Good bet in good and bad times. Julia agrees: "In a world of disorder and disaster and fraud, sometimes ... the meal is the only currency that is real."
4. Buy Small Luxuries: Stay aboard. Yes, discounts, house brands, frugality's in. But still, we all want the best of the little things, "cheap chic," say Gary and Fred. Not Julia's Girl-Scout cookies, treat yourself with favorite chocolates, wine, cigars.
5. Buy The Dollar: Should continue to rise. Bet on futures, puts, ETFs on the dollar index. Julia is patriotic and spiritual: "Faith is belief in what you cannot see or prove or touch. Faith is walking face-first and full-speed into the dark."
6. Buy Eurodollar Futures: Unbelievable winner, and more to go. And if you're traveling, Julia tempts with this mouth-waterer: "Please go to this pizzeria. Order the margherita pizza with double mozzarella. If you do not eat this pizza when you are in Naples, please lie to me and tell me that you did." Yes, it's all in your head.
Okay folks, that's it, only six Insight "buys." Here's what our Eat-Pray-Love guru might add when you buy-sell-hope: "You have every right to cherry-pick when it comes to moving your spirit and finding peace in God. You take whatever works from wherever you can find it, and you keep moving toward the light." Yes, even with these 11 "sells."
7. Sell U.S. Stocks in General: Declines likely to continue. In May, Insight warned the recovery was "Four Cylinders, One Firing." Only inventory was firing. Missing? Jobs. Consumers. Housing. Slow growth. All in "secular bear that started in 2000 and has years to run." Yes, years. Can you still be happy? Yes, says Julia's guru: "People universally tend to think that happiness is a stroke of luck, something that will maybe descend upon you like fine weather if you're fortunate enough. But that's not how happiness works. Happiness is the consequence of personal effort. You fight for it, strive for it, insist upon it." Harder in a recession, but you just do it.
8. Sell Homebuilder & Selected Related Stocks: More weakness ahead. And it will get worse. Millions mortgage-holders under water, can't sell, can't refi. Families in stress. Solution: Eat-Pray-Love and listen: "Real, sane, mature love--the kind that pays the mortgage year after year and picks up the kids after school--is not based on infatuation but on affection and respect."
9. Sell Selected Big-Ticket Consumer Discretionary Equities: Still vulnerable: Autos, appliances, hospitality. Rebates gone. Postponing purchases. Save, get frugal, flow with reality. Julia: "Every day a person is presented with not two or even three but dozens of choices ... our modern world has become a neurosis-generating machine of the highest order." Stop, make time to eat, to pray, to love.
10. Sell Banks and Other Financial Institutions: Remain vulnerable. Including Fannie, Freddie, regionals, small banks. More regulations. By 2014 bank portfolios have $800 billion mortgages coming due, two-thirds underwater. Huge impact on capital. Sell. What would Julia say: Eat in moderation, love, pray a lot.
11. Sell Consumer Lenders' Stocks: More declines in credit cards, etc. Americans save more, cut their borrow'n'spend binge. Reduce stress says Julia: "The only thing the mind hears all day is clanging bells and noise and argument, and all it wants is quietude. The only place the mind will ever find peace is inside the silence of the heart. That's where you need to go." You too.
12. Sell Low & Old Tech Capital Equipment Producers: Falling trend. Mega excess capacity. Capital spending dropping says Insight. Julia worries that you're holding onto the past: "You must find another reason to work, other than the desire for success or recognition." Your passion "must come from another place."
13. If You Plan to Sell Your House, Second Home or Investment Houses Any Time Soon, Do So Yesterday: Too much inventory, and fear. Warning: Down another 20%. Julia says you will survive because "somewhere within us all, there does exist a supreme self who is eternally at peace." That's your true home.
14. Sell Junk Bonds: Rally's overdone, warns Gary. Slow growth recovery, deflation fears, "lethal for many junk bonds." The "New Normal" cuts returns in half. We chase junk. Bigger risks. Julia: "That's your problem. You're wishing too much, baby. You gotta stop wearing your wishbone where your backbone oughta be." Accept the New Normal. Stop chasing deals like a teenager in heat.
15. Sell Commercial Real Estate: Got ahead of itself. Hotel occupancies down. Office vacancies up. Refinancing trouble looms. Maybe short REITs and ETFs. Julia knows our "world is so corrupted, misspoken, unstable, exaggerated and unfair, one should trust only what one can experience with one's own senses." Are you trusting Wall Street? Or your own life experiences?
16. Sell Most Commodities: Soft economy, soft commodities. Insight warns of "unattractive investments in coming years of weak demand, excessive capacity and soft prices." China's a big importer, aggressively tying up global supplies. Risky bets. So imagine you're lost and listen to your Eat-Pray-Love guru: "When you're lost in those woods, it sometimes takes you a while to realize that you are lost. For the longest time, you can convince yourself that you've just wandered a few feet off the path ... Then night falls again ... you still have no idea where you are ... you have bewildered yourself so far off the path that you don't even know from which direction the sun rises anymore." Are commodities taking you off your path?
17. Sell Developing Country Stocks, Bonds: They depend on exports, are vulnerable to global weakness. China overheating. Risks in India, Brazil, Vietnam, etc. Wall Street pushes overseas investing, they love the commissions. Warning, go slow cautions Julia: "Time, when pursued like a bandit, will behave like one; always remaining one country or one room ahead of you, changing its name and hair color to elude you, slipping out the back door of the motel just as you're banging through the lobby with your newest search warrant, leaving only a burning cigarette in the ashtray to taunt you." The only real winner investing overseas is your Wall Street broker collecting all commissions you pay.
What a combo: Warnings from Gary Shilling's "Buy-Sell-Hope" Insights newsletter. Plus Girl Scout Cookie advice from our Eat-Pray-Love guru, with "Pretty Woman" Julia Roberts' voice-over. Let's top it off with one more of her jewels: "The Bhagavad Gita, that ancient Indian Yogic text, says that it is better to live your own destiny imperfectly than to live an imitation of somebody else's life with perfection. So now I have started living my own life. Imperfect and clumsy as it may look, it is resembling me now, thoroughly." Get it? The market, the economy, the whole world may crash ... but will you crash with it? Or will you still be the "best you?" Will you fulfill your destiny?
Saturday, June 12, 2010
Next bubble: Corporate bonds...and stocks
by Jonathan Stempel
NEW YORK | Jun 9, 2010
(Reuters) - Tulip bulbs. Florida real estate. The Nifty Fifty. Gold. Japanese real estate. The Internet. Housing.
History is littered with asset bubbles where investors piled into the next hot thing, only to lose much or all of their investments once the bubble bursts.
One leading strategist said the next bubble could be in something more mundane -- high-quality corporate bonds -- as investors burned after U.S. stocks fell by half from late 2007 to early 2009 flock to perceived safety.
And then, perhaps down the road, it could be the turn of some equities to become overheated again.
"Retail investors buying bonds today, at a time when the supply of corporate bonds is shrinking ... they're chasing a bubble," Tom Lee, chief U.S. equity strategist at JPMorgan Chase & Co, said Wednesday at the Reuters Investment Outlook summit in New York.
"We had a credit bubble, a mortgage and housing bubble, and that caused equities to collapse," Lee said. "I wouldn't rule out equities as the next area where bubbles could emerge, but I don't think it's going to start in 2010."
Many speakers at the Reuters Investment Summit have said individual investors remain cautious on stocks, despite a 13-month run-up that ended in April, saying net U.S. domestic stock fund inflows have been roughly nil.
In contrast, bonds are attracting bushels of cash. The intermediate-term bond fund Pimco Total Return, the world's largest mutual fund, has some $227.9 billion of assets, according to Morningstar Inc. And the average high-quality corporate bond yields 4.5 percent, a level last seen in 2004.
The love for bonds might not last, Lee said.
"Have Americans ever been satisfied with earning a steady rate of return?" he said. "What we have in American history, I think in capitalism, is rolling bubbles, whether it's real estate, commodities, land speculation, emerging markets, time shares.... Basically, savers chase the next bubble, and then when that bubble shifts, they will move to the next one."
"NO BRAINER" FOR STOCKS
Lee said prices on 10-year Treasuries and high-grade corporate bonds appear rich relative to the price-earnings ratio of companies in the Standard & Poor's 500 .SPX.
Treasuries trade at about a 33 multiple, or the number of years it takes to earn $1 from $1 of principal, while corporate bonds trade around a 20 multiple, he said. But more than half the S&P 500 stocks trade below a 10 multiple, he said.
"Corporate balance sheets are pristine today, so the bond multiples are justified," he said. "But the equity multiples are ridiculously low."
Lee said the average yield on corporate bonds is just 2 percentage points higher than the S&P 500 dividend yield, the smallest differential since 1967.
"Corporate bonds are already (trading) at 108" cents on the dollar, he said. "If they were at 130, what would you do if you were General Mills (Inc)? Buy back all your bonds, and issue new bonds at 3 percent. And then what does it mean for your stock? All of a sudden, maybe you de-equitize by 30 percent, because your cost of capital can justify it."
General Mills bonds have risen in price. Its 5.65 percent notes maturing in 2019, sold in January 2009 at 99.91 cents on the dollar, traded Wednesday at 111.76 cents, yielding 4.03 percent, according to the bond pricing service Trace.
Kirstie Foster, a spokeswoman for the cereal maker, declined to comment, citing a "quiet period" before General Mills reports quarterly results.
Lee said improved corporate credit quality historically heralds increasing stock prices and could do so again.
He expects the S&P 500 index to rise roughly 20 percent by year end to about 1,300, saying it could easily support a price-earnings multiple above 14, compared with about 12 now.
"I think you get the no-brainer to buy stocks for the next decade, unless you just thought we were going to have the world economy shrink," he said, "or if we're Japan."
NEW YORK | Jun 9, 2010
(Reuters) - Tulip bulbs. Florida real estate. The Nifty Fifty. Gold. Japanese real estate. The Internet. Housing.
History is littered with asset bubbles where investors piled into the next hot thing, only to lose much or all of their investments once the bubble bursts.
One leading strategist said the next bubble could be in something more mundane -- high-quality corporate bonds -- as investors burned after U.S. stocks fell by half from late 2007 to early 2009 flock to perceived safety.
And then, perhaps down the road, it could be the turn of some equities to become overheated again.
"Retail investors buying bonds today, at a time when the supply of corporate bonds is shrinking ... they're chasing a bubble," Tom Lee, chief U.S. equity strategist at JPMorgan Chase & Co, said Wednesday at the Reuters Investment Outlook summit in New York.
"We had a credit bubble, a mortgage and housing bubble, and that caused equities to collapse," Lee said. "I wouldn't rule out equities as the next area where bubbles could emerge, but I don't think it's going to start in 2010."
Many speakers at the Reuters Investment Summit have said individual investors remain cautious on stocks, despite a 13-month run-up that ended in April, saying net U.S. domestic stock fund inflows have been roughly nil.
In contrast, bonds are attracting bushels of cash. The intermediate-term bond fund Pimco Total Return, the world's largest mutual fund, has some $227.9 billion of assets, according to Morningstar Inc. And the average high-quality corporate bond yields 4.5 percent, a level last seen in 2004.
The love for bonds might not last, Lee said.
"Have Americans ever been satisfied with earning a steady rate of return?" he said. "What we have in American history, I think in capitalism, is rolling bubbles, whether it's real estate, commodities, land speculation, emerging markets, time shares.... Basically, savers chase the next bubble, and then when that bubble shifts, they will move to the next one."
"NO BRAINER" FOR STOCKS
Lee said prices on 10-year Treasuries and high-grade corporate bonds appear rich relative to the price-earnings ratio of companies in the Standard & Poor's 500 .SPX.
Treasuries trade at about a 33 multiple, or the number of years it takes to earn $1 from $1 of principal, while corporate bonds trade around a 20 multiple, he said. But more than half the S&P 500 stocks trade below a 10 multiple, he said.
"Corporate balance sheets are pristine today, so the bond multiples are justified," he said. "But the equity multiples are ridiculously low."
Lee said the average yield on corporate bonds is just 2 percentage points higher than the S&P 500 dividend yield, the smallest differential since 1967.
"Corporate bonds are already (trading) at 108" cents on the dollar, he said. "If they were at 130, what would you do if you were General Mills (Inc)? Buy back all your bonds, and issue new bonds at 3 percent. And then what does it mean for your stock? All of a sudden, maybe you de-equitize by 30 percent, because your cost of capital can justify it."
General Mills bonds have risen in price. Its 5.65 percent notes maturing in 2019, sold in January 2009 at 99.91 cents on the dollar, traded Wednesday at 111.76 cents, yielding 4.03 percent, according to the bond pricing service Trace.
Kirstie Foster, a spokeswoman for the cereal maker, declined to comment, citing a "quiet period" before General Mills reports quarterly results.
Lee said improved corporate credit quality historically heralds increasing stock prices and could do so again.
He expects the S&P 500 index to rise roughly 20 percent by year end to about 1,300, saying it could easily support a price-earnings multiple above 14, compared with about 12 now.
"I think you get the no-brainer to buy stocks for the next decade, unless you just thought we were going to have the world economy shrink," he said, "or if we're Japan."
Tuesday, May 4, 2010
Congress Members Bet on Fall in Stocks
Congress Members Bet on Fall in Stocks
By JASON ZWEIG, TOM MCGINTY And BRODY MULLINS
Wall Street Journal
Some members of Congress made risky bets with their own money that U.S. stocks or bonds would fall during the financial crisis, a Wall Street Journal analysis of congressional disclosures shows.
Senators have criticized Goldman Sachs Group Inc. for profiting from the housing collapse. And Congress is considering legislation to curb Wall Street risk-taking, including the use of financial instruments known as derivatives and of leverage, or methods that amplify returns.
According to The Journal's analysis of congressional disclosures, investment accounts of 13 members of Congress or their spouses show bearish bets made in 2008 via exchange-traded funds—portfolios that trade like stocks and mirror an index. These funds were leveraged; they used derivatives and other techniques to magnify the daily moves of the index they track.
There's no evidence the legislators and their spouses used privileged information or failed to follow rules on disclosure. Congressional rules permit lawmakers and their families to invest in—or bet against—publicly held companies they oversee through committee assignments, as well as broader markets or indices. While some made money, others lost.
Some of these legislators have publicly criticized practices such as short-selling, or betting on a security to decline. In February, Sen. Johnny Isakson (R., Ga.) argued on the Senate floor that "we don't need those speculating in the marketplace to take unfair advantage of the values of equities that are owned by Americans all over this country for the sake of making a buck on a short sale."
On Oct. 8 and 9, 2008—as the Federal Reserve was bailing out American International Group Inc.—an account Sen. Isakson held invested more than $30,000 in ProShares UltraShort 7-10 Year Treasury and UltraShort 20+ Year Treasury, the records show. These are "leveraged short" funds, designed to gain $2 for each $1 drop in the daily value of U.S. Treasury bonds.
Sen. Isakson said his account is professionally managed by Morgan Stanley Smith Barney and he has no control over it. "They make those decisions and I report what they do," Mr. Isakson said. "I put money away in my career so I can hopefully retire one day."
Sen. Isakson said, "Short selling has a role to play in the market." He said he supports legislation to limit it but wouldn't prohibit it.
Such trading involving members of Congress or spouses "doesn't look real great when the economy is tanking and people are blaming the government," said former Rep. Joel Hefley (R., Colo.), once head of the House Ethics Committee. Still, he said, "You can't have people not using their best judgment on their investment portfolio."
According to The Journal's analysis of the disclosures, collected by the Center for Responsive Politics, few members of Congress made more than a dozen securities trades in 2008. Typical trades were for a few hundred or a few thousand dollars.
While some lawmakers trade for their own accounts, others delegate trading to a spouse, stockbroker or financial adviser. A few legislators keep their money in blind trusts and don't know how it's invested.
Jonathan Gillibrand, husband of New York Democratic Sen. Kirsten Gillibrand, made more than 250 transactions in options in his E*Trade account in 2008, when his wife was in the House, according to disclosures.
Almost all the trades were in put options, which convey the right to sell a stock or other instrument at a given price until a given date. At least 34 times, Mr. Gillibrand bought puts on stocks of home builders, including Beazer Homes USA Inc., Hovnanian Enterprises Inc., Meritage Homes Corp. and Ryland Group Inc. These were bets the builder stocks would fall; if they did, the puts' value would rise.
Mr. Gillibrand also bought call options on ProShares UltraShort Real Estate. Although call options are bullish bets, this trade, too, was a bet against the property market, because the ProShares fund is designed to rise $2 for each $1 fall in real-estate stocks. His profit or loss couldn't be determined.
Sen. Gillibrand, in an April 22 news release on White House financial-regulatory proposals, praised the effort to "rein in excessive risk and leverage in the pursuit of short-term profits."
"The senator was referring to activity by some institutions that were leveraging in excess of 20 to one, using taxpayer money on extremely risky short-term bets rather than long-term strategies that benefit the broader economy," said spokesman Matt Canter. Any comparison of those remarks with her husband's trading "is wrong," he said, adding that the senator "was not involved in his trading." Her office declined to make Mr. Gillibrand available for comment.
As previously reported by The Journal, in 2008 Rep. Spencer Bachus (R., Ala.) made roughly four dozen trades in shares of ProShares UltraShort QQQ and its options, according to disclosure records. This fund is designed to go up twice as much as the Nasdaq 100 stock index goes down.
Rep. Bachus makes his own trades through a Fidelity account. He is the ranking Republican on the House Financial Services Committee, which has legislative oversight over the capital markets.
"I don't trade on margin"—money borrowed from a broker to raise potential returns—Rep. Bachus said in an email, "and don't consider my investments leveraged to any risky extent." He added: "Never have I traded on nonpublic information, nor do I trade in financial stocks."
Rep. Bachus made roughly $28,000 on his trades in options and leveraged ETFs in 2008, according to a Journal analysis, a figure he called "essentially correct."
On July 14, 2008, Rep. Bachus said in a letter to Financial Services Committee Chairman Barney Frank that it was "quite apparent" the challenges facing mortgage companies Fannie Mae and Freddie Mac were caused partly by "short-seller activities." A spokesman for Rep. Bachus didn't respond to requests for comment on the letter.
Rep. Shelley Berkley (D., Nev.), a member of the House Ways and Means Committee, has been a critic of Wall Street. In a statement on the House floor Feb. 23, she said: "Representing Las Vegas, let me assure you, no casino on the planet behaves as irresponsibly and recklessly as Wall Street does. Wall Street ought to be ashamed, and take a lesson from the casino industry."
An account held by her husband, Lawrence Lehrner, shows 57 trades in 2008 in ETFs designed to gain $2 for each $1 drop in the value of a market index, the disclosures show. Between July 25 and July 29, 2008—four months after Bear Stearns Cos. fell—records show four trades in and out of ProShares UltraShort Financial fund.
On Sept. 16, 2008, the day after Lehman Brothers filed for bankruptcy, the account added ProShares UltraShort S&P 500, a fund that thrives when blue-chip stocks tumble.
It was sold over the next two days at a 5% profit, according to disclosures. The account earned a modest net profit of a little over $700 on the trades in leveraged funds in 2008, based on The Journal's analysis of trading records.
"All trades were done by a licensed money manager without any input from my husband or me," Rep. Berkley said. "This is exactly the way many people handle whatever monies they may have in the stock market. I know in our case, he operated wholly within the existing regulations." Her office declined to make her husband's money manager available for comment.
By JASON ZWEIG, TOM MCGINTY And BRODY MULLINS
Wall Street Journal
Some members of Congress made risky bets with their own money that U.S. stocks or bonds would fall during the financial crisis, a Wall Street Journal analysis of congressional disclosures shows.
Senators have criticized Goldman Sachs Group Inc. for profiting from the housing collapse. And Congress is considering legislation to curb Wall Street risk-taking, including the use of financial instruments known as derivatives and of leverage, or methods that amplify returns.
According to The Journal's analysis of congressional disclosures, investment accounts of 13 members of Congress or their spouses show bearish bets made in 2008 via exchange-traded funds—portfolios that trade like stocks and mirror an index. These funds were leveraged; they used derivatives and other techniques to magnify the daily moves of the index they track.
There's no evidence the legislators and their spouses used privileged information or failed to follow rules on disclosure. Congressional rules permit lawmakers and their families to invest in—or bet against—publicly held companies they oversee through committee assignments, as well as broader markets or indices. While some made money, others lost.
Some of these legislators have publicly criticized practices such as short-selling, or betting on a security to decline. In February, Sen. Johnny Isakson (R., Ga.) argued on the Senate floor that "we don't need those speculating in the marketplace to take unfair advantage of the values of equities that are owned by Americans all over this country for the sake of making a buck on a short sale."
On Oct. 8 and 9, 2008—as the Federal Reserve was bailing out American International Group Inc.—an account Sen. Isakson held invested more than $30,000 in ProShares UltraShort 7-10 Year Treasury and UltraShort 20+ Year Treasury, the records show. These are "leveraged short" funds, designed to gain $2 for each $1 drop in the daily value of U.S. Treasury bonds.
Sen. Isakson said his account is professionally managed by Morgan Stanley Smith Barney and he has no control over it. "They make those decisions and I report what they do," Mr. Isakson said. "I put money away in my career so I can hopefully retire one day."
Sen. Isakson said, "Short selling has a role to play in the market." He said he supports legislation to limit it but wouldn't prohibit it.
Such trading involving members of Congress or spouses "doesn't look real great when the economy is tanking and people are blaming the government," said former Rep. Joel Hefley (R., Colo.), once head of the House Ethics Committee. Still, he said, "You can't have people not using their best judgment on their investment portfolio."
According to The Journal's analysis of the disclosures, collected by the Center for Responsive Politics, few members of Congress made more than a dozen securities trades in 2008. Typical trades were for a few hundred or a few thousand dollars.
While some lawmakers trade for their own accounts, others delegate trading to a spouse, stockbroker or financial adviser. A few legislators keep their money in blind trusts and don't know how it's invested.
Jonathan Gillibrand, husband of New York Democratic Sen. Kirsten Gillibrand, made more than 250 transactions in options in his E*Trade account in 2008, when his wife was in the House, according to disclosures.
Almost all the trades were in put options, which convey the right to sell a stock or other instrument at a given price until a given date. At least 34 times, Mr. Gillibrand bought puts on stocks of home builders, including Beazer Homes USA Inc., Hovnanian Enterprises Inc., Meritage Homes Corp. and Ryland Group Inc. These were bets the builder stocks would fall; if they did, the puts' value would rise.
Mr. Gillibrand also bought call options on ProShares UltraShort Real Estate. Although call options are bullish bets, this trade, too, was a bet against the property market, because the ProShares fund is designed to rise $2 for each $1 fall in real-estate stocks. His profit or loss couldn't be determined.
Sen. Gillibrand, in an April 22 news release on White House financial-regulatory proposals, praised the effort to "rein in excessive risk and leverage in the pursuit of short-term profits."
"The senator was referring to activity by some institutions that were leveraging in excess of 20 to one, using taxpayer money on extremely risky short-term bets rather than long-term strategies that benefit the broader economy," said spokesman Matt Canter. Any comparison of those remarks with her husband's trading "is wrong," he said, adding that the senator "was not involved in his trading." Her office declined to make Mr. Gillibrand available for comment.
As previously reported by The Journal, in 2008 Rep. Spencer Bachus (R., Ala.) made roughly four dozen trades in shares of ProShares UltraShort QQQ and its options, according to disclosure records. This fund is designed to go up twice as much as the Nasdaq 100 stock index goes down.
Rep. Bachus makes his own trades through a Fidelity account. He is the ranking Republican on the House Financial Services Committee, which has legislative oversight over the capital markets.
"I don't trade on margin"—money borrowed from a broker to raise potential returns—Rep. Bachus said in an email, "and don't consider my investments leveraged to any risky extent." He added: "Never have I traded on nonpublic information, nor do I trade in financial stocks."
Rep. Bachus made roughly $28,000 on his trades in options and leveraged ETFs in 2008, according to a Journal analysis, a figure he called "essentially correct."
On July 14, 2008, Rep. Bachus said in a letter to Financial Services Committee Chairman Barney Frank that it was "quite apparent" the challenges facing mortgage companies Fannie Mae and Freddie Mac were caused partly by "short-seller activities." A spokesman for Rep. Bachus didn't respond to requests for comment on the letter.
Rep. Shelley Berkley (D., Nev.), a member of the House Ways and Means Committee, has been a critic of Wall Street. In a statement on the House floor Feb. 23, she said: "Representing Las Vegas, let me assure you, no casino on the planet behaves as irresponsibly and recklessly as Wall Street does. Wall Street ought to be ashamed, and take a lesson from the casino industry."
An account held by her husband, Lawrence Lehrner, shows 57 trades in 2008 in ETFs designed to gain $2 for each $1 drop in the value of a market index, the disclosures show. Between July 25 and July 29, 2008—four months after Bear Stearns Cos. fell—records show four trades in and out of ProShares UltraShort Financial fund.
On Sept. 16, 2008, the day after Lehman Brothers filed for bankruptcy, the account added ProShares UltraShort S&P 500, a fund that thrives when blue-chip stocks tumble.
It was sold over the next two days at a 5% profit, according to disclosures. The account earned a modest net profit of a little over $700 on the trades in leveraged funds in 2008, based on The Journal's analysis of trading records.
"All trades were done by a licensed money manager without any input from my husband or me," Rep. Berkley said. "This is exactly the way many people handle whatever monies they may have in the stock market. I know in our case, he operated wholly within the existing regulations." Her office declined to make her husband's money manager available for comment.
Thursday, April 15, 2010
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