November 28, 2007

Has been difficult measuring these companies based on PE multiples. Nobody understands or knows earnings. Use the more appropriaet div discount model.

Treasury buyers now are setting themselves up for significant capital losses.

TIPS are trading at nearly a zero spread to treasuries.

Stock type returns with little or no risk. Corporates, close end bond funds, etc. However equities provide better protection vs inflation.

Div Yld on market was close to 4%

November 26, 2008

No market for IPOs - US Power Generating Company has pulled its planned $500 million initial public offering, citing market conditions in regulatory filing Tuesday.

Cleantech has several factors in its favor, he argues. These include continued concerns about climate change and energy independence, as well as the potential for greater support from the incoming Obama administration. As for oil prices, Mr. Milunovich says that “practical peak oil is real” and predicts that oil prices eventually should move back up.

Asset allocation has been thrown out the window.

November 25, 2008

Private Equity Wine outfits:

What we do know is that the bear market is entering its 14th month and with a peak to trough decline of 52%, is the most severe downturn since the great depression, according to Thomas J. Lee, U.S. equity strategist at J.P.Morgan.

While the magnitude of the declines are the same, the duration of the bear market this time around is 14 months versus an average of 19 months in the past. “One reason to expect a longer duration is simply that we are at the front end of this recession,” he told clients.

Retracements, temporary price reversals that take place within a larger trend, are useful to watch since bear markets typically shed 73% of the points gained in the prior bull market, the strategist said. In the Great Depression, however, the Dow Jones Industrial Average shed 107% of the gains in the prior nine-year bull market.
Applying that figure to today’s market implies 720 for the S&P 500, which Mr. Lee considers the low end of the range. As a result, he recommends buying at that level and selling around 1125.

Many stocks are selling at or near book value. Think about the significance of that for a moment. Equity in the company is valued near what the company could sell its tangible assets (minus liabilities) for in a fire sale today. Companies that have a lot of cash on hand (and little debt) will be in a great position to take advantage of the downturn either by protecting against a slowdown or by buying out competitors without the need for extensive financing.

As you will notice from our asset allocation model we recommend that long-term value investors be bullish right now in this depressed market. As any student of finance will tell you, the return on an investment is inextricably linked to the risk the investor is willing to take on. Clearly, the stock market has plenty of risks associated with it, but its valuation is much less risky now than it was one year ago and the return that one can reasonably expect to make from the equity market is vastly improved over one year ago.

Valuations today are more pessimistic than the Great Depression.

Interbank lending is up and improving.

The Federal Reserve took two new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion.

The central bank will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the Fed said in statements today in Washington. The Fed will purchase up to $100 billion in direct debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks and up to $500 billion of mortgage-backed securities backed by Fannie, Freddie and Ginnie Mae, the statement said.
Aid for Housing - “This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally,” the Fed said. Separately, under the new Term Asset-Backed Securities Loan Facility, the Fed will lend up to $200 billion on a non-recourse basis to holders of AAA rated asset-backed securities backed by “newly and recently originated” loans, such as for education, automobiles, credit cards and loans guaranteed by the Small Business Administration, the Fed said. The Treasury will provide $20 billion of “credit protection” to the Fed in the lending program, using funds from the $700 billion financial-rescue package. The Treasury said in a statement that the facility may expand over time and cover other assets, such as commercial and private residential mortgage- backed debt.

ABS Program - Under the new lending program, known as the TALF, the New York Fed will auction a fixed amount of loans each month for a one-year term. Assets will be held in a special-purpose vehicle to be created by the Fed. The program will stop making new loans on Dec. 31, 2009, unless the Fed Board of Governors extends it.
Lenders providing credit under the TALF “must have agreed to comply with, or already be subject to,” executive- compensation restrictions in the October bailout law, the statement said. The Fed will start buying the direct debt of government- sponsored enterprises -- Fannie, Freddie and a dozen federal home loan banks -- through primary dealers in government debt from next week. The purchases of mortgage-backed securities will be done through asset managers, and officials aim to begin the effort by year-end. Purchases of both types of debt “are expected to take place over several quarters,” the Fed said.

November 24, 2008

That's something that hadn't happened since 1958.
- the dividend yield on the Standard & Poor's 500 stock index touched 3.57% at 1:13 PM Eastern time, exceeding the 3.54% yield on the benchmark Treasury 10-year note, according to Bloomberg News.

mispriced - implies the consumer price index will rise just 0.64% annually for the next 10 years. Indeed, that lack of difference also reflects the low level of expected future inflation, Kass adds. That also is reflected in the so-called TIPS spread (the difference between regular and inflation-indexed notes), which implies the consumer price index will rise just 0.64% annually for the next 10 years. Adds Dominic Constar, interest-rate strategist at Credit Suisse, the convergence of stock and Treasury yields suggests that corporations, including banks, have been slow to cut payouts "as the economy teeters on a deflationary abyss."

The three-month T-bill yields barely above 0%. The one-year note offers less than 1%.
But frazzled Main Street investors shouldn't blindly shadow the supposed "smart money." When the panic trade ends (Friday's markets offered a glimmer of hope), the pros will seek some degree of risk and will pull money out of Treasurys. Treasury prices will move lower, leaving potential capital losses for those who don't flee government paper as fast.

Rough week Nov 17 - 21st:

November 21, 2008

Grand Canyon Education braved the public markets Thursday, becoming the first company since Aug. 7 to go public in the United States. In doing so, it broke the longest drought for initial public offerings of stock in decades.

No companies are expected to go public in the United States by the end of the year, according to Dealogic. It’s a trend that has been especially troubling to the venture capital industry, making it hard for them to cash in on their investments.

Before Grand Canyon, the last public offering on a United States exchange was 104 days ago, when Rackspace Hosting, a San Antonio Web hosting company, took the plunge. Its stock has fallen more than 50 percent since then, despite being priced at the bottom of its expected range, as Grand Canyon was.

Since Rackspace hit the market, 29 initial public offerings have been withdrawn, according to data from Thomson Reuters. With the global markets continuing to take a beating, more companies, both in the United States and abroad, may scrap their plans to ring the opening bell.

The number of U.S. workers filing new claims for unemployment benefits soared again last week to its highest level in 16 years.

Christopher Cox's SEC eliminated the Uptick Rule on July 6th, 2007. Since the rule was done away with, the S&P 500 is down 51%.






If you're looking for signs of stabilization in the credit markets, the high yield market is not a good place to start. Based on data from Merrill Lynch, high yield bonds are yielding nearly 1,800 basis points more than comparable Treasuries. In the last month alone, spreads have risen by more than 200 basis points, and since bottoming in the Summer of 2007 at 241 basis points, they are up 645%. To put this in perspective, with the 10-Year US Treasury now yielding 3.4%, a high-yield borrower would need to pay roughly 21.4% per year to take out a ten-year loan.

November 20, 2008

Release of October PPI showed the largest month-over-month decline on record (-2.8%), which easily beat the prior extreme from October 2001 of -1.6%. With today's Producer Price Index showing costs dropping at a record rate, all comparisons of the current period to the 1970s pretty much go out the window.
Not the point of picking at the bottom, but picking value.

Only one/two bear markets that are now worse than 2008- coming out of the bear in 1932 is one of them.

The following chart shows the value of the S&P 500 from January 1871 through July 2007:










Now, we've got something! Using the logarithmic scale lets us see the true magnitude of the great bear markets for U.S. stocks since 1871. Our table below provides the data for each:





2 Yr Treasuries yielding less than 1%, which has never been seen.

S&P 500 is at 11 yr low.

In the latest 7-Year Asset Class Forecast from Jeremy Grantham and GMO (published October 31 - before the latest leg down in the market), the firm anticipates a 12.2% annual return from U.S. 'high quality' equities with active management, and approximately 11% from international developed markets.

November 17, 2008

Banks and brokerages worldwide have shed almost 160,000 jobs since the subprime mortgage market collapsed last year, sparking a credit crisis

For the first time, Prudential Financial Inc. of Newark, N.J., has cut its shareholder dividend for 2008 - down by about 50% from the dividend paid out in 2007.

The Department of the Treasury’s decision not to use part of the $700 billion Troubled Asset Relief Program to repurchase bad mortgage assets is an improvement on the original plan, he said, noting that it is “extremely hard” to find a mechanism that would work.

All VIX related:

The number of workers who filed for first-time unemployment benefits increased by 32,000 to 516,000 for the one-week period ended Nov. 8 — marking the highest level since the Sept. 11, 2001, terrorist attacks, according to the Department of Labor.
Jobless claims above 400,000 are considered to be a sign of a recession.

November 10, 2008

China government announced a $586 billion, or four trillion yuan, plan to bolster its economy, and as the New York Times points out, that "could also help fight the effects of the global slowdown ... at a time when major infrastructure projects are being put off around the world." The sum "represents about 16% of China's economic output last year, and is roughly equal to the total of all central and local government spending in 2006," The Wall Street Journal adds. "New spending of even half that amount would be substantial next to China's six trillion yuan annual budget for this year."

Compared by some economists to the New Deal enacted by President Franklin Roosevelt some seven decades ago, the Chinese plan would "ease credit restrictions, expand social welfare services and launch an infrastructure spending program that would include the construction of new railways, roads and airports," the Washington Post reports. But it's all the more striking because Chinese officials have insisted for months that the country wasn't suffering the economic tribulations rippling across the rest of an economic world in which China has become such an integral part.

Dinexion – offering ETFs providing 3x leverage

Best way to gather a crowd in DC is to hand out money.

November 07, 2008

Jeremy Grantham (Chairman of GMO) has turned bullish. This guy is a bear man. Stocks are cheap like the 1987 levels.

Investment grade credit is cheap. Spread between investment grade bonds and Treasuries has widened to more than 5% points, a more normal spread would be 1 pt.

Calls sold against an existing stock position is called "overwriting," or "covered call writing." This classic conservative strategy makes sense as options volatilities are high, and many stocks seem stuck fluctuating between well-defined trading ranges. Moreover, the high volatility translates to pricier options, a good thing for the investor who is selling them.

The Chicago Board Options Exchange's Market Volatility Index (VIX) was recently at about 57, a relatively high level that is driving up the call premiums that call sellers are receiving.

Say you own Apple, and want to increase the yield of the stock, but do not necessarily want to sell the stock, at least not at the current price. Selling calls helps to generate some extra money.

With the stock at about $99, you could sell the November 110 calls for $2.40, or the November 115 calls for $1.33. If the stock price pushes past $110 or $115 before, or when the stock expires Nov. 21, an investor has to sell the stock. If the stock is not "called away" because the price never exceeded the stock price, investors keep the money for selling the premium.

The downside to selling covered calls is if Apple stock exceeds expectations. The call seller is left with some income, but he has conceded the upside to the holder of the call.

Many investors like to sell options when they are richly priced because they think the volatility will decline. This is true in normal markets, but be advised that the fourth quarter of 2008 is anything but a normal market. In fact, the historical volatility of many options is higher than implied volatility. When selling options, you want volatility to decrease, not increase. The high historic volatility of many options underscores the heightened volatility risk.

Capital Projects / Spur Infrastructure: Pennsylvania voters approved a $400 million bond issue for improvements to water infrastructure and waterways across the state. The referendum includes a variety of potential projects, including sewage overflow mitigation, new construction and upgrades of water and wastewater treatment facilities and sewer and drinking water line repair and replacement.
Potential beneficiaries could include Mueller Water Products (MWA) and Northwest Pipe (NWPX) for delivery of pipe to replace existing lines and use in treatment facilities, and Layne Christensen (LAYN) for construction of new treatment facilities and upgrades. We anticipate projects will be spread over several years.