Stocks finished with a solid gain as financials took the bulls’ reins ahead of tomorrow’s expected interest rate reduction. However, tech shares lagged behind, pressured by VMware missing on the top line, and majority owner EMC offering cautious comments. Elsewhere, Eli Lilly, Zimmer Holdings, Dow Chemical, Valero Energy, and 3M Company topped the Street’s profit views, American Express matched, but US Steel missed on the bottom line. Even the beaten-down solar stocks like First Solar (FSLR) and Suntech Power (STP) caught a bid as little guy traders dip their toes back into the water ahead of the Fed. Breadth was positive while the volume contracted from the previous day’s volume.
1270 – Support, the 1/23/08 low
1523 – Resistance, the 12/11/07 high
1440 – 50-day simple moving average
1487 – 200-day simple moving average
Top/Bottom Sector Performers vs. S&P 500
Dow member 3M Company (MMM $78) posted 4Q profits ex-items of $0.19 per share, two cents above the Street’s estimate, on a 7% rise in sales to $6.2 billion. Excluding divestitures, sales were up 11%. Its healthcare division led growth, while the industrial conglomerate posted a double-digit revenue increase in the industrial and transportation group. 3M reiterated 2008 profit guidance. Shares overcame early weakness and moved to the upside.
Fellow Dow member American Express (AXP $48) said 4Q EPS fell from $0.75 to $0.71, matching the Street’s view, but a 10% rise in net revenues to $7.4 billion came up short by over $400 million. AXP saw “clear signs of a weakening economy and business environment in December.” The credit card issuer said additions to reserves were appropriate, given the economic backdrop, and the company expects slower earnings growth in 2008. Shares, which have been beaten up in recent months, remained slightly higher.
Valero Energy (VLO $61), the nation’s number one independent refinery, reported 4Q EPS from continuing operations tumbled from $1.53 a year ago to $1.02 amid a decline margins. But results exceeded the Street’s view of $0.62 per share, and shares posted a steep gain. VLO anticipates a normal seasonal pattern in which gasoline supplies fall, demand grows, and margins rise heading into the summer driving season.
Goldman Sachs on Pulp, Monsanto and Energy and Petroleum (E&P)
“Initiating on Latin American pulp & paper with an Attractive coverage view
Our bullish view is based on an above-consensus forecast for pulp prices (we expect
the cycle to be stronger for longer than stock prices imply), an estimated EBITDA
growth of 24% per annum in 2007-2009, the likelihood of consolidation in the
Brazilian pulp sector during 2008, and the defensive qualities of stocks in this sector
in periods of high volatility.
Over the past 2 weeks, Monsanto’s share price came under pressure in sympathy
with the broader market meltdown and shaken confidence in the ag space. However,
we find no change in Monsanto’s terrific fundamental outlook. In fact, our
commodities research group recently revised upward its 6-month forward corn price
forecast by nearly 50% to $6.50/bushel and following discussions with our farmbelt
contacts, we are even more confident that near-term earnings visibility is exceptional
and Monsanto is going to once again produce inspiring earnings result in 2008.
We continue to have an Attractive coverage view of E&P stocks. Last week’s trading
represented the first major pullback in natural gas-focused E&Ps, which have
generally outperformed since September. We see 35% potential upside to our
12-month target prices. We believe higher-than-expected natural gas prices will be a
key catalyst for outperformance. ”
Byron Wien on Gold, Oil and Cotton
From the Roundtable, hosted by Wally Forbes on Jan 8th, 2008, here’s an excerpt from Byron Wien, Pequot Capital Management’s Chief Investment Strategist: (note the market changes since then). He is one of my favorite writers.
” I’m as cautious right now as I’ve been in some time. Certainly since 1999. I think where I disagree with the two previous speakers is that I think what’s going on here is more serious than people recognize.
What’s going on in the housing industry is going to have long-term implications. You have probably two million unsold homes out there and I think that industry is going to be in the doldrums for at least two years. That means that all the people working in industries ancillary to the housing market, like the homebuilders, the mortgage brokers and so forth, are going to have tough times. Many of them are going to be laid off.
I think the credit situation is extremely serious. Not only are the money center banks suffering huge writeoffs and significant executive turnover as a result of it, but they are also going to have to shore up their balance sheets and they’re probably going to require foreign capital in order to do that.
In addition to that, when they get financially solidified I think they’re going to be very careful in making loans. So I think it’s going to be hard to borrow money when people or institutions or corporations get the enthusiasm to do that.
I also think that America is not quite the place it once was. This is a global environment and America is losing ground. I think people underestimate the unusual position America was in after the end of World War II where we had enormous scientific talent, we had enormous manufacturing capability and the rest of the world was in economic shambles.
Today the rest of the world is in terrific shape. Some countries, particularly China, have infrastructures superior to ours and a scientific capability that rivals ours. We still have the greatest universities in the world, but many of the students coming to train here are going back to their home countries after graduation.
My view is that people underestimate the seriousness of the energy situation. We are only finding oil at a rate equivalent to replacing the oil production that erodes every year as a result of the existing wells getting tired.
In addition to that, China and India are consuming less than two barrels of oil per person per year while we consume 26 barrels, Western Europe consumers 13 to 15 barrels, Japan, Korea the same amount. As China and India increase their consumption, even if the two and a half billion people there only increase their consumption a quarter of a barrel of oil per year, there’s no way the world can meet that demand. So I think the price of oil is going a lot higher. I also think that we have to recognize that we’ve been running a trade deficit now for a decade — a serious trade deficit for a decade — and that foreign holders of dollars have become increasingly impatient. I traveled around the world twice last year. I was in the Middle East twice and in China and India and I can tell you that while they are not going to sell any U.S. bonds, they may slow down their buying of them. Our demand for the kindness of strangers to finance our deficits is going to continue inexorably. So I think that’s leading to a serious situation.
I’m getting older now, so I only invest in sure things. I don’t invest in things that only “might” work out. So let me give you five sure things.
Gold is going to $1,000 an ounce probably this year. I forecast that it would go to $800 an ounce last year.
Oil is going to probably $125 a barrel. I forecast that it would go to $80 last year. The dollar is going down for the reasons that I said because large holders of dollars are going to diversify into other assets and other currencies.
Cotton is going to be the commodity of choice because the world’s standard of living is increasing and the places where it’s increasing fastest are warm and they don’t wear wool, they wear cotton. Cotton is something nobody wants to grow. They want to grow corn instead. So, while the demand for cotton is increasing, the acreage devoted to it is decreasing and that’s all you have to know.
Finally, I think the Chinese are going to revalue the renminbi (yuan) even more than the seven percent that they did last year.
As far as stocks are concerned, I think that my investment ideas follow some of my thesis. Our portfolio is very heavily overseas, but we’re in the agricultural area with Potash Corp (POT) and a lot of energy stocks.
Large caps such as Schlumberger (SLB). Smaller caps such as National Oilwell Varco (NOV) and Ultra Petroleum (UPL). In technology, Qualcomm (QCOM). Finally, in adult education we think that a lot of people will be laid off and they’ll be trying to improve their skills so we would buy the Apollo Group (APOL). ”
BILL GROSS ON WHY GOVEMENT SPENDING IS NEEDED TO BOOST THE ECONOMY
From PIMCO Managing Director Bill Gross’s monthly market commentary for February 2008:
” The $150 billion “return to sender” deficit plan advanced by Bush and the Congress, for instance, amounts to just 1% of GDP and is labeled temporary. It will be of marginal benefit to long-term prosperity. To understand why, consider that the productivity of our economy ultimately depends on its ability to 1) innovate, and 2) save and invest, and that there is little of either in this stimulus package. Some have even suggested – and with my somewhat grudging concession – that this package will help the Chinese economy more than ours… To provide a stable recovery path, government spending needs to fill the gap – not consumption. Public works programs, badly needed infrastructure repairs, as well as spending on research and development projects should form the heart of our path to recovery. Assistance for homeowners? That too…
Approaches to monetary policy must change as well. 1% short rates were so effective 5 years ago that they not only bolstered demand but created a housing bubble of Frankensteinian proportions… My point is that Chairman Bernanke must recognize the reduced benefits and obvious dangers of a déjà vu trek to 1% short rates. Those yields produced 5% 30-year mortgage rates to the homeowner for a 2-3 month period in 2003 and they could do so again, but bubble creating, inflation inducing damage to the U.S. dollar would be the likely result now. …
A well constructed, more than temporary, fiscal/monetary stimulus plan is what is required to rejuvenate a U.S. economy reeling from a low punch delivered by a private market economy gone too far. Its “Rosemary’s Baby” took the form of a shadow banking system based on leverage and the fateful conclusion that a finance-based economy alone can deliver prosperity. It cannot. As Keynes theorized and then [New York Times op-ed columnist Paul] Krugman affirmed, when private demand falters, it becomes the responsibility of government to fill the breech. Because it likely will not do so effectively until after a new Administration is elected in late 2008, the U.S. economy and its somewhat coupled global companion will sleepwalk for some time, and a resumption of prosperity, as we knew it, will be dependent on reforms of monetary and fiscal policy resembling the 1930s more than our past decade. Better late than never. “
French trader was forced to work 30 hours a week
Jerome Kerviel last night blamed his $7 billion losses on unbearable levels of stress brought on by a punishing 30 hour week.
Kerviel was known to start work as early as nine in the morning and still be at his desk at five or even five-thirty, often with just an hour and a half for lunch.
One colleague said: “He was, how you say, une workaholique. I have a family and a mistress so I leave the office at around 2pm at the latest, unless I’m on strike, when I leave earlier. But Jerome was tied to that desk. One day I came back to the office at 3pm because I had forgotten my hat, and there he was, fast asleep on the photocopier.
“At first I assumed he had been having sex with it, but then I remembered he’d been working for almost six hours.”
THE NEWEST INVESTMENT BOOKS TO BUY IN 2008
Trader Vic on Commodities: What’s Unknown, Misunderstood, and Too Good to Be True (Wiley Trading) (Hardcover)
Hedge Fund Due Diligence: Professional Tools to Investigate Hedge Fund Managers (Wiley Finance) (Hardcover)
Secrets of Swiss Banking: An Owner’s Manual to Quietly Building a Fortune (Hardcover)
Beating the Market, 3 Months at a Time: A Proven Investing Plan Everyone Can Use (Hardcover)
Equity Valuation, Risk and Investment: A Practitioner’s Roadmap (Wiley Finance)
Create Your Own ETF Hedge Fund: A Do-It-Yourself ETF Strategy for Private Wealth Management (Wiley Finance) (Hardcover)
Hedge Funds Of Funds: A Guide for Investors (The Wiley Finance Series) (Hardcover)
Invest Like a Dealmaker: Secrets from a Former Banking Insider
Winning With Options: The Smart Way to Manage Portfolio Risk and Maximize Profit
My Life as a Quant: Reflections on Physics and Finance
DATING BOOKS AND THE ART OF SEDUCTION
How to Succeed with Women by Ron Louis
The Art of Seduction
Never Be Lied to Again: How to Get the Truth In 5 Minutes Or Less In Any Conversation Or Situation
Taoist Yoga and Sexual Energy; Internal Alchemy and Chi Kung
The Definitive Book of Body Language
The Layguide: How to Seduce Women More Beautiful Than You Ever Dreamed Possible No Matter What You Look Like or How Much You Make
The Professional Bachelor Dating Guide – How to Exploit Her Inner Psycho
How to Become an Alpha Male
NLP: The New Technology of Achievement