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Comments Following The Close~May 14, 2008
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5/14/2008
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Stocks gave up the better part of their intraday gains as the afternoon close approached, but all 3 major indexes managed a positive session. The Dow, up 161 at its best, closed up 66. The NASDAQ pulled out a gain of 2 points, after being up as much as 25 points, while the S&P advanced 6 with a session high of plus 12.
The news today was on the inflation report. This morning the Labor Dept said inflation for April as measured by the Consumer Price Index rose 0.2 %, while the core price index rose just 0.1 %.
Now, after watching energy prices go nuts so far this year, and food prices do the same, the Labor Dept report had overall energy prices unchanged in April as gasoline prices dropped 2%, (honest, the Labor Dept said this) fuel oil costs jumped 4.4% and natural gas prices climbed 4.8%.
Bloomberg News has a story that explains that the decrease in energy costs were after adjustments. It seems the Labor Dept does these seasonal adjustments, and as gasoline price increases in April '08 were lower than usual during other April's, they adjusted the price rises to show a decline at the pumps.
With that in mind, the Labor Dept probably says food costs drop in January as everybody goes on diets after the new year, its to hot to eat a big meal in the middle of summer, and health care costs are lower in summer when flu season is over. I'm sure you can come up with other stellar examples yourself.
In the equal opportunity to pick on everybody category, Merrill Lynch is now requiring its stock analysts to have an underperforms rating on at least 20% of the companies they follow. They also may not have more than 70% of their stocks rated as buys, and neutral ratings must be capped at 30%. So, the most optimistic analyst recommendations will be capped at 20% underperforms, 30% neutral, and 50% buy. To be fair to Merrill, there really aren't that many sell recommendations out there, only about 6% of all recommendations by Wall Street analysts, while Merrill analysts have about 12% of their recommendations as sell.
And the intent of the recommendation caps is to increase the number of sell recommendations so as to lure more business from hedge funds and short sellers, people who can profit from stocks that go down in value. So, we're back to making recommendations based on the business it will bring in, rather than getting business on the strength and accuracy of the analyst recommendations themselves. This is pre-2000 type research. Remember when a very prominent Merrill analyst got into trouble for recommending a stock that he described in his private e-mails as junk?
Wall Street doesn't learn its lessons very well.
Jim Daley
Citizens First Trust Company
VP & Chief Investment Officer
352.751.2194
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Comments Following The Close~May 13, 2008
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5/13/2008
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Stocks closed mixed today, with the Dow giving back a bit of yesterday's advance, off 44 points, while the S&P slipped down just .54 of a point, and the NASDAQ actually rose 6 points. Why the disparity?
Well, among the Dow Industrials are Citicorp, JPMorgan and Bank of America, all of which fell more than 2% today. BoA was rumored to be going to cut its dividend by 30%. JPMorgan is laying off, yet still increasing, staff in a reshuffling as it takes over Bear Sterns. Citi just can't get out of harm's way.
Then we have Hewlett-Packard's proposal to buy Electronic Data Services. This is the old Ross Perot company, which got sold to General Motors, which spun off stock in the subsidiary and called the stock GM-E, then spun the stock completely out and EDS promptly lost billions on out-of-control costs on negotiated government contracts. EDS has a checkered past, and a lot of analysts think Hewlett Packard is paying too much. Hewlett isn't without big baggage of its own. It bought Compaq Computer and lost billions on that deal, then the showdown with Carly Simon, its female CEO, being forced out amid shadowy spying/snooping charges. But, hay, that's big business these days.
Wal-Mart also is a Dow component. It reported better than expected earnings this morning, but the stock sank. Seems Wal-Mart isn't too cheerful about the next quarter or so as it explained in its earnings forecast.
The Dow has been around for over a hundred years, so its longevity gives it a very large weight as far as direction and what it tells us about investor sentiment goes. But it is only 30 issues. The S&P does a much better job, since there are more than 500 issues in the S&P, but like the little brother, it gets slighted in the limelight. We mention both, because we want to see both trending in a similar fashion. So far this year, the Dow has outperformed the S&P in total return, This is not always the case. But when someone says "How's the market?", the quick response is not what the S&P is doing, it's what's the Dow doing..
Jim Daley
Citizens First Trust Company
VP & Chief Investment Officer
352.751.2194
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Comments Following The Close~May 12, 2008
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5/12/2008
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Good news today sent stocks upward. Bad news was not the catalyst that its been, and it was a refreshing relief.
Apple announced today the its online retail stores are out of stock when it comes to the iPhone. That's a sure sign that a new model is about to be launched, most likely in early to mid June. AT&T, the exclusive distributor in the US still has some, just in case you want to buy an 'older' model. BlackBerry is also about to introduce a new model, BlackBerry Bold, available through AT&T. That announcement was made today.
Then the Wall Street Journal announced that Hewlett-Packard is about to acquire EDS, the world's second biggest computer services provider.
Wal-Mart a a whole slew of other retail stores had nice gains today as the price of oil fell, then rose, then fell. This is a bit early, but as oil fell a whole $2 a barrel, speculators say consumers are going to have lots more to spend now that oil prices/gas prices are starting to slide. I'd wait on this one before betting the ranch on a turnaround.
That's pretty much how things acted today: big jumps on little news bits. But the direction was nice to see. The Dow rose 130 points, the S&P added 15 and the NASDAQ gained 43 points.
One thing we know for sure, markets don't go in one direction forever, or even for long. To avoid a whole class of investments because 'the market' looks like its going down is a bit irrational. It may be unnerving, which is a good enough reason not to own stocks if losses or down markets keep you awake at night, but with a bit of patience the returns are much, much better than 'safe' investments. You have to decide which is best for you, patience or safety. No one but yourself can make that call for you.
Jim Daley
Citizens First Trust Company
VP & Chief Investment Officer
352.751.2194
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Comments Following The Close~May 9, 2009
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5/9/2008
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Another day, another dollar....in the price of a barrel of crude. Over $126 today, in case you're counting.
Stocks dropped on the news that American International Group has to raise about $12.5 billion in new capital to cover after incurring a $7.5 billion loss in its latest quarter. That's also their largest ever quarterly loss, and it came from writing down sub-prime loans, assets, and derivatives tied to them. In a related story today, AIG said its private equity and hedge fund returns fell 84% this past quarter because of a gridlock in credit markets. In the understatement of the year, AIG said those funds were "a real laggard."
In a sign of consumer cutbacks, we imported far fewer goods in March, resulting in the first decline in imports in more than a year. that caused our trade deficit to narrow, to the lowest level of the year, even with oil prices so high. The trade deficit with China was the smallest in two years.
So, stocks had a backdrop of less than encouraging news to overcome, and they didn't. The Dow fell 121 points, the S&P lost 9 points and the NASDAQ lost 6. Not bad, given how far they could have fallen.
Since we mentioned Bill Miller and Legg Mason, with all fairness we should mention a competitor of his, a fellow named Jim Kelso of Morgan Keegan, which is a subsidiary of Regions Bank. Jim had great returns for three years in a row by betting heavily on bonds with below-average investment grade ratings. Then came the plunge. His seven funds lost an average of 67% over the last 12 months. Investors started to pull out of his funds, then more investors wanted their money back, and he wound up having to sell, forced into selling, at very reduced prices. His largest fund went from $1.23 billion in 2006 to $104 million just recently.
Again, not to pick on Jim, or Morgan Keegan, or Regions Bank, but this illustrates a problem with investing in mutual funds. When things turn south, and a run starts on a mutual fund, you better be the first out the door or you're left holding the bag. A manager starts to liquidate his most liquid assets first, trying to get the best prices he can to meet redemptions. He'll many times hold the investments that have performed worst, hoping for a comeback, which doesn't necessarily come in time. It happened to Janus back in the dot-com crash. It can happen to any fund. And if you're not closely following the market, or can't identify these types of runs, mutual funds may not be your best investments when push comes to shove.
Jim Daley
Citizens First Trust Company
VP & Chief Investment Officer
352.751.2194
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Comments Following The Close~May 8, 2008
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5/8/2008
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Stocks spent most of the day bobbing up and down, not exactly know which direction to go, changing direction often, just keeping traders on their toes. By the end of the session the Dow had advanced 52 points, the S&P recovered by 5 points and the NASDAQ rose 13 points. Given the sell-off yesterday, we're glad the day ended on the positive side.
There weren't any really big stories to capture interest today. Wal-Mart and Costco reported better than expected sales gains for April, and retailers in general had mixed results. If you were a low cost retailer, you generally did well. If you had a lot of sales, you pretty much did well. If you were a mid-level retailer, kept sales at a reasonable level, you didn't move as much merchandise. Shoppers were after bargains last month, or lower prices. Also, if you were selling anything that didn't necessarily have to be purchased, you had lower sales. Consumers were putting off buying what they can, and focusing more on the essentials.
May and June may be different. The stimulus checks could turn things around. Not all that money is going for groceries, gas and bills. When you don't feel good, a little luxury purchase makes you feel better, Like a big screen TV.
One economic release that should be monitored closely is that March wholesale inventories unexpectedly fell. On its own, this is not a good signal, because when companies cut inventories, they are slowing up on placing new orders for goods and that sends manufacturing and service activity down. The brighter side of the report was that the decline was led by declines in oil, automotive and furniture. Durable goods inventories increased, while non-durables such as oil fell enough to push total inventory down. As for autos, there's a strike going on that is depressing inventory. GM is offering $200 million to help American Axle settle a 10 week strike that is effecting some 30 GM factories that have either had to shut down or are partially shut due to lack of parts from American Axle.
Talk about the cost of goods going up.
Jim Daley
Citizens First Trust Company
VP & Chief Investment Officer
352.751.2194
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Comments Following The Close~May 7, 2008
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5/7/2008
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Today started off well, and then stocks kind of went south.
This morning before the opening the Labor Department reported that worker productivity unexpected rose in the first quarter as labor costs declined. The combination of the two have a big impact on inflation, and both acting as they did should mean inflation is being held down.
Even a drop of 1% month/month and 20% year over year in pending home resales didn't have much of an early impact on stock prices. It does suggest that housing is still in trouble, with a growing glut of unsold homes which are holding down or further depressing home values.
What did seem to tank stocks as the day wore on is a new requirement by the Securities and Exchange Commission to require Wall Street investment banks, firms like Merrill Lynch, Goldman Sachs, Morgan Stanley, JP Morgan, et all, to more fully disclose their capital and liquidity levels, and this may force these firms to reveal and take addition losses on written down asset holdings. This is direct result of the Bear Sterns trouble and force 'bailout' by JP Morgan. The SEC has been taking a lot of heat about lax oversight. The SEC can throw off more heat when it wants than it ever has to take. And in this instance, it just did.
Aside from a comment I heard yesterday, "Don't stop me if you've already heard this" the price of oil set another new record high today over $123 a barrel, and in after hours trading it is approaching $124.
Lastly in the good news of the day, U.S. consumer borrowing jumped more than twice what was expected. Total consumer borrowing rose at an annual rate of 7.2% in March, with the increase in consumer credit more than doubling. Consumer credit is increasing as credit card debt is increasing. Consumers are no longer tapping the equity in their homes as easily, as lenders are not as willing to lend on falling home values. But the consumer has a card in the pocket, use that. Trouble is, the interest rates on credit card debt is much higher than other debt, loan sharks excluded, and credit debt is becoming increasing overdue.
Today, the Dow fell 206 points, the S&P lost 26 and the NASDAQ dropped 45. The focus was on the negative items. The good news, and good earnings reports, were overlooked. But we've had a nice run up, so we give some back. In a selfish vein, a sell-off this week means I can buy more with my 401k contribution on Friday.
Jim Daley
Citizens First Trust Company
VP & Chief Investment Officer
352.751.2194
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Comments Following The Close~May 6, 2008
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5/6/2008
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Stocks continued to rally today, with the Dow gaining 54 points, the S&P advancing 11 points and the NASDAQ rising 19 points. Oil crossed over the $122 mark before pulling back to just under $122.
Legg Mason was an established, well respected Mid-Atlantic brokerage firm in years back. It morphed from brokerage to mutual fund manager on the success of a fellow named Bill Miller. Bill managed to beat the annual return of the S&P for something like 15 years in a row. That's a phenominal record. But a couple of years ago, Bill stumbled, and the S&P index started to beat him.
Bill's Legg Mason Value Trust took some big positions in a few stocks, and if they did well, so did the Fund. Bill wasn't about to change his style just because his record of outperformance finally got broken. But then last year it happened again. And this year, performance isn't any better. And now his 5 year record is being tarnished by the underperformance of the past three years.
When you are charged with managing someone's else's money, you can't take the same risks as you might with your own money. Stretching for performance has been proven time and again to backfire on those who do. I'm not trying to pick on Bill Miller or his fund, But I am trying to suggest that way outside the norm of outperformance leads to underperformance a lot of times in subsequent periods. You don't always have to just hit home runs. You need to focus on what you are tring to achieve and stay disciplined. Take smaller victories, and more of them, rather than going for broke as they say.
Jim Daley
Citizens First Trust Company
VP & Chief Investment Officer
352.751.2194
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Comments Following The Close~May 5, 2008
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5/5/2008
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After watching the price of oil fall last week, we witnessed the rebound and then some today. A barrel of oil in the futures pit gained about $3.65 ($4.05 at its highest point today) to close at $119.97. Its highest price point was at $120.36. Interestingly, in another news story earlier in the day, gasoline prices had dropped by 1 cent a gallon over the weekend due to last week's drop in the price of crude. Price breaks don't last as long as they used to anymore.
Another story about gasoline prices had more than 200 economists signing a petition rejecting the idea of gas-tax suspension proposals made by two presidential contenders. That could have set a record for the first time so many economists agreed with each other.
Stockholders of Yahoo! probably don't agree with the company's CEO, who wanted more money for his company that Microsoft wanted to pay to merge with them. Microsoft called off the proposed merger after it looked like Yahoo wanted more than $6 billion over the $44 billion Microsoft was willing to pay. We can't say if this was good for Microsoft or not, but at least one CEO finally said "No" to so freely spending shareholders money. There are a number of companies currently in trouble because 'price was no object' standing in the way of doing a deal. Many times price turns out to be not so much a deal breaker, as it is a whole company breaker.
Given all that good news today, stocks took a downward drift in price. The Dow closed 89 points lower, while the S&P lost 6 points and the NASDAQ fell 13. Energy stocks did well, but retail and financials got hit. And a slight sell-off isn't unexpected. It's not wanted, but the market has been strong of late, so a bit of profit taking is normal.
Jim Daley
Citizens First Trust Company
VP & Chief Investment Officer
352.751.2194
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Comments Following The Close~May 2, 2008
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5/2/2008
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Jobs data and an upward spurt in the price of oil dominated today's market news.
The Labor Department said this morning that U.S. payrolls declined by 20,000 people in April, while the forecast was for a decline of 75,000. And, the unemployment rate dropped to 5%, even with fewer workers on the payroll.
How, you ask, that the number of people working falls, and so does the unemployment rate? It seems that the number of people working part time jumped by about 310,000 in April. In March, if you were unemployed and looking for work, you were part of the unemployment statistic. In April, if you took a part time job, you are now considered as working, and no longer unemployed, and no longer in the unemployed statistic. So even though the number of people working dropped, the number of people looking for work dropped more because they took a part time job. They'd rather have a full time job, but the government says part timers count just as much as full timers. Less people considered as looking for work explains the difference.
Crude oil had a price bounce today, up almost $3 a barrel. That helped the energy sector stocks, which in turn helped the overall market. The Dow gained 48 points today, while the S&P rose 4 points. There was weakness in the tech sector, after Sun Microsystems reported an unexpected loss, and the NASDAQ lost 4 points. When the closing bell rang today, stocks had posted a now three week in a row advance, the first since last October. The big question for traders next week is 'is this a bounce, or is this a trend." We hope its a trend upward.
Have a fun, and safe, weekend. Enjoy the 7th Annual BBQ Bash while supporting the Charter Schools.
Jim Daley
Citizens First Trust Company
VP & Chief Investment Officer
352.751.2194
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Comments Following The Close~May 1, 2008
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5/1/2008
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We had a one day delay following the Federal Reserve's interest rate reduction of yesterday afternoon. Given that the stock market as measured by the Dow was up 180-odd points yesterday afternoon at its high, then closed down 12 points, today the Dow gained 190 points to get us back to where we were. The S&P 500 did a lot better. It was off 5 yesterday and gained 24 today, for a net 5 point gain from yesterday's high, while the NASDAQ just about added 45 points to yesterday's high.
Why did stocks do so well today? Because commodities and futures didn't. There seems to be a relationship between the two. If stocks are going down, the fast money is looking for a place to make a profit and falling stock prices don't make fortunes. So look for an alternative. Buy and drive up the price of gold, oil, metals, pork bellies, rice, whatever. When commodities had the biggest decline in more than 5 weeks today, stocks had a good day. Oil fell, the dollar gained against other currencies (so if you owned other currencies which went up as the dollar fell, a rising dollar took down the price of other currencies) metals fell, gold hit a four month low (so much for selling all that gold jewelry at the top of the market). Today was a traders market, not an investor's market.
In economic news today, there wasn't all that much enthusiasm for what was reported. Initial jobless claims came in higher than expected, continuing claims are at the highest in the last four years and April and May are shaping up to be big layoff months. Consumers spent more in March than expected, but if you take out the effects of inflation, they spent less than expected, but fractionally more than in January and February. Manufacturing in the US didn't grow at all in March and in a sign of the times, Home Depot says it is not only slowing expansion of its stores, but its actually closing some, and laying off a bunch of employees in the process.
What to do? Focus on the longer term, and don't worry so much about the day to day ups and downs of the market. Look out six months, a year. If things are looking better then than they do now, is you see solutions to today's problems, that's good. If everything looks too good, if profits look like they're guaranteed, that's not good. Trouble is coming. This is the natural cycle of the market. If the market is up, have a plan in case it goes down. If it's down, have a plan for the turnaround, it's coming.
If this isn't your strong suit, or you don't want to do this, hire someone to do it for you. Just do something other than worry about what you can't control. Have a plan, be disciplined, and enjoy the things you like to do, which might just be the short term trading of stocks. Just remember that traders are not long term investors, and the long term investors generally do much better with much less effort. More thought, less effort.
Jim Daley
Citizens First Trust Company
VP & Chief Investment Officer
352.751.2194
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