…ah, to the old days where green acres was paradise and the place to be…but it is out of the box and never to be again. It has been replaced by ‘Green Valley’ the latest morph for Silicon Valley…never did call it the interim name Dotcom Valley though but it truly was for a while. The name changes are due to passing fads…silicon is out…have you looked at the Philly Semiconductor Index lately (at cycle lows and never really did participate in the rally)? Would have been out earlier had they not shifted manufacturing to Taiwan a decade ago. No need to even discuss the dot com’s…you know that flash in the pan all too well (Internet stocks are also down more than 2.5% over the past two days). So what is left for people like Kleiner Perkins, Caulfield etc.? GREEN…and nice cause it is the color of money! Do you really think these guys are sold on the environment? Tom Perkins who was featured on 60 Minutes last Sunday with his $200M plus 300 ft ‘windpowered’ schooner?…yep, the wind pushes it but the huge engines he has and needs them to run those computers and generate the enormous power to furl and unfurl those sails with five yardarms on five masts…but I digress as Tommy who was ousted from the HP board for indiscretions in his war with Carly and then Patty Dunn…needs more green to feed his habit…he says “I know I should care more about the poor but …well…yes…it’s ego…but love my big toys.” He won’t be alone as Wall Street bonuses plunge (Goldman excepted…at least so far), and that won’t help trickle down….although some of us may get trickled on! But wait! This is about green…and before you call TB a cynic let him make it clear that they at least have a better energy policy than this Administration which can be summed up in one word: switchgrass! (Dubya loves that word as if it will be our savior…as he believes ethanol will be…it will if we can still afford to eat…god forbid we should import efficiently produced ethanol from Brazil…and cheaper if they would eliminate the damned excise tax!)
Remember the Muppet Movie with Kermit’s song “It isn’t easy being green”? Well, now everyone, Dubya excepted, is concerned about global warming and reducing energy consumption. All the big companies in Silicon…oops, Green Valley…are installing solar to cut energy consumption and say it is making a big difference…in their costs. But the problem you have is now that the hype is in, is it still a good time to buy the companies they want you to that are offering alternative energy…with Crude near $100 a barrel…and options soaring and indicating we may be on the way to $200…reminiscent of when Penn Square went belly up taking Continental Illinois with it on the bet that crude would get to $50…it did but not for another 20 plus years! Or the Bass brothers cornering the market on silver which the CFTC killed by imposing trading limits. TB has said that speculating on the new new thing is always risky such as Suez Canal, Panama Canal, Eurotunnel, etc. If it helps your business by all means invest in it. Then there are the things like the steamship, telephone…and now possibly green which has enormous start up and production costs…unlike most of the things that the ‘valley’ is famous for. But rest assured the VC’s will make money off it…just make sure it isn’t yours. Remember VC’s like hedge fund and private equity managers make their money not so much on their investments but on OTHER PEOPLES MONEY! As Tom Perkins said: maybe four out of ten companies they invest in fail…it is all about having a huge source of capital and diversifying it…not chasing the new new thing.
As for yesterday’s market it was off to quite a start that turned quite rocky. It rallied as Bernanke began to speak…actually turned from negative to positive in Globex market as TB was writing his column EXCEPT and he made a big point of this: NASDAQ…the other indices turned positive but it remained in negative territory which he thought could be ominous. The Dow shot to +25 on the opening, then during Bernanke’s speech ranged from +17 to -50 oscillating three times over unchanged and TEN times during the entire session at one point being down 220 but the PPT (yesterday TB wrote PTT which doesn’t make sense for Plunge Protection Team, right?) came in during the final hour rallying it 215 points and back into the black then tailing off to close -34. But the NASDAQ never once was positive and while the PPT managed to pull it off the lows of down nearly 70 points they threw in the towel. The reason of course is it was impossible: nearly 25% of the NDQ 100’s 25% gain ytd had been due to three stocks: Google, RIMM, CSCO. All were hit as were the tech stocks on Cisco’s Chambers comments on reduced demand from business…so the stocks were dumped. TB believes you have to look at the companies that will still be in areas of interest…EMC, which TB owns, comes to mind as they make storage and also own most of VMWare which they spun off in August…yet compare the performance:
Change 11/8 Since Hi 10/31 Since IPO 8/13
EMC -9.9% -18.6% +8.5%
VMW -10.4% -24.4% +216.7%
Is something wrong with this picture? Speculation so you decide which is the riskier investment?
Also compare CAT and the hot DE…same business remember:
CAT closed below the 200 day m/a and has a P/E of 14x and a PE/5 yr growth of 1.2x…a value stock
DE closed near the high set a few days ago. P/E 21x and PEG of 2.16x…fully valued at least!
Deere is up 85% over the past 12 months while CAT is up just 24.6%
Google had the lowest close in 8 session a day after a record high on an outside day. It along with RIMM remain near the highs while CSCO gapped down yesterday to between 40 and 200 day m/a.
GE which recently broke its five year trading range to the upside is now back below $40 and even traded 29 cents below the 200 day moving average yesterday.
So the point is the HOT stocks took hits but most remain near their highs and thus very vulnerable, the large caps have been beaten down with all at or below the 40 day (i.e. PG), most between 40 and 200 (JNJ), and some below the 200 day (K). TB believes these are still too high as is multinational income on a weak dollar that is giving them what strength they do have. Not saying sell but is it time to buy?
ETF’s not looking good either due to use by many money managers and hedge funds. The India ETF (INP) which led the SENSEX on the way up was down more than 6% while the India was off just 1.3%
and off another 1.2% overnight. DVY, the Dow Select Dividend Index Fund is trading almost at a new low…even though biggest component Altria (MO) is near highs…TB owns DVY and bought it on the believe that growth would slow and dividends would be necessary…higher dividends…the message here appears to be that dividends are too low…WAY too low! Could be a value here so follow it.
GM and Ford both trading around 200 day m/a’s. GM shot below it while F bounced back and is close to the 40 day…could be the better buy of the two…based on success of Escape Hybrid…some also say as US auto sales slow, Toyota and Honda are too rich.
Haven’t commented on these for a while: Blackstone (BX) and Fortress Group (FIG) are again trading near their lows…surprised it isn’t lower but who is left to sell them?
Despite an incredible amount of hyping within Citigroup (C)…both on corporate and Smith Barnery side…friend have sent TB internal emails that try to put a more positive spin on it…stock hit a new low and close yesterday…almost a five year low except for Q2 of 2001!
Will end on a positive: Berkshire Hathaway (BRK/B)…which TB bought then sold on Buffett’s stupid, even he admits that, premature bet against the dollar…since 2000 (it didn’t really participate in the big rally) it has been the best performing stock until the last rally and now has regained that title again setting a new record high and although down a bit yesterday close to it…since 8/15 it is +23%!…too rich? A safety stock…one you don’t mind your clients seeing in your portfolio…better than C anyway.
TB can’t believe Mastercard (MA), he avoided the IPO nuy domvr yjrm odis +414% and 116% over the last year. Why did he avoid? Because of a huge lawsuit filed by American Express…yesterday Visa settled by paying a $2.5B fee plus court costs…yet MA remains near the highs…this will get uglier. Yet it trades at 38x earnings and 2x the PEG rate? Not for TB…Cramer loves it!
Hope this gives you a little better perspective on what is happening here…but what it is isn’t exactly clear. Take the time to look at your portfolios and see how many are like BRK/B or even F and how many are like C or GM…then decide what you want to do and if you are like TB and rich in cash…plan where you want to buy when you do come in
More trouble potentially for tax exempt money market funds that own 7 day adjustables as most do. IF the bond insurers get downgraded or worse, they could be forced to sell. Effectively this is the same as asset backed commercial paper but with a hard put every 7 days…meaning the brokers would have to take it in. Not saying this will happen but it is yet another unforseen problem. Meanwhile asset commercial paper outstanding declined again and is now down 25% since the peak…but that is clearly not enough. According to Bloomberg:
“ Nov. 8 (Bloomberg) — Standard & Poor’s said a collateralized debt obligation managed by State Street Corp. began liquidating its assets, prompting the ratings firm to slice
the investment vehicle’s ratings as much as 18 levels.
The ratings on the most senior class of Carina CDO Ltd. were lowered to BB, two levels below investment grade, from AAA, while another AAA class was slashed 18 steps to CCC-. The chance of material losses to noteholders is high, New York-based S&P said.
Carina is the first CDO to begin unwinding after a slump in the credit worthiness of the underlying assets, S&P said. Thirteen others have informed S&P of an event of default, a
precursor to liquidation. A widespread fire sale by CDOs, which backage asset-backed securities and resell them in pieces, may further exacerbate declines in subprime-mortgage securities.
“We believe the liquidation process has begun” for Carina, S&P said in the statement.
Investors are already concerned about forced assets sales by structured investment vehicles, or SIVs, which own about $300 billion of securities and have dumped more than $75 billion after
being unable to finance themselves. U.S. Treasury Secretary Henry Paulson was worried enough to push the nation’s largest banks to set up a fund to buy some of the assets.
The decline in the value of CDOs and subprime-mortgage securities prompted banks including Citigroup Inc., Merrill Lynch & Co. and Morgan Stanley to write down their holdings by at least
$30 billion.”
If you still think this is a good time to buy financial stocks…think again! Very hard!
Note that the Dow could close at lowest level since the 8/16 low and the Nasdaq 100 could hit a 6 to 9 week low…amazing after setting record just six sessions ago…what a difference a day makes…
Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and in no way reflect the views of anyone other than himself. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. No fee…nothing to sell…merely observations of events in the marketplace offering a non-mainstream viewpoint…sometimes…usually? Hope you find it useful.
Copyright TBD Capital LLC November 9, 2007
