Traderbill's Financial Markets Weblog

…yesterday was the ‘eve,’ today is the Full Monty…tax date! For most Americans the most strenuous day on the planet.

 

Talk about stressful…we have the worst consumer sentiment since 1982, Business Inventories rising…and one cannot ascribe this to anything other than involuntary accumulation…although they started from a low level due to the Walmartization of America with ‘just in time’ inventories morphing to ‘just in case’ to ‘just a liability.’ At least inventory liquidation won’t be nearly as big as in prior recessions, prior being the operative word here, but there won’t be the light at the end of the tunnel of new jobs after they are drawn down. But the important thing is financing those inventories in the worst credit crisis of our lifetimes…despite what some bankers say…high rates are preferable to the current situation…at least you can get the money when you need it…heck, haven’t consumers been dealing with 20% interest on their credit cards for years now? If that isn’t a usurious charge, TB would like to know what is!

 

TB is still mulling over the mild reaction to Wachovia’s ugly earnings report yesterday…not to mention GE on Friday. What is puzzling is how the Dow was down just 23 on the Wachovia news after being pummeled by 256 points by the GE letdown? But the Dow or even the S&P 500 don’t even begin to tell the story.

 

What is shocking about GE is the fact that they misled investors by not issuing any kind of a warning which they certainly must have known was coming…and after Immelt had promised to ‘knock your socks off’ (who can deny that in fact they did?…more like blow them off though)…the tone on the conference call of some thoroughly peeved analysts told the story as the pelted Immelt with barbs.

 

On the other hand, as ugly as Wachovia was they moved up the release by four days…a wise move apparently as the market didn’t have to dwell on it over the weekend as it did with GE. But pondering (just one letter away from pandering) is a far cry from thinking…about the implications for the market.

 

Yesterday, despite the muted reaction in the broad indices note that only two had positive gains: Transports +0.4% and Energy +1.8% and if these aren’t strange bedfellows TB doesn’t know what is. A couple like utilities and Gold/Silver stocks were about unched and that was as good as it got. Call this a stealth selloff because virtually every major index, sans Energy which is really a sector, has broken below its 40 day moving average after most of the components did on Friday. But the sectors told a far worse story, especially Financials which fell 1.5% Monday following a 1.6% selloff Friday. Look at the components: Banks -2.7%; Insurers -0.8%; Brokers -2.8%! All of these were off the same or more on Friday. Worse yet, look at the KBW Bank Index (smaller regional banks) which fell 4.3% yesterday and 1.6% on Friday! The Philly Semiconductor Index, which has been fighting back from the lows took a 1.7% hit yesterday following -3.4% Friday giving up most of the gains and heading back towards the lows. Housing threw in the towel again and Healthcare including Biotech which was beginning to look promising caved too.

 

Now will someone please explain to me why Walmart is back near the highs? After a miserable Retail Sales report which shows that on an annualized basis sales are up just 0.7% over the past three months annualized and 0.6% over the past six months…which includes that big surge in Nov. due to the early Thanksgiving. Walmart is different you say…but different from Costco which has a much more favorable public image and treats its employees well and is more or less going sideways?

 

Now going back to financials, TB has mentioned Provident Bankshares (PBKS) which he bought early this year as a bank with a good franchise, that had been beaten up in the marketplace, and was supposed to show some upside…not to mention a dividend which due to declining price had grown to double digit figures. One of the strong suits of this stock was that for years they had raised the dividend by 1/2 cent each and every quarter…something you like to see as it shows confidence by management on delivering earnings. Shortly after TB bought it they took a huge write-down on their REIT portfolio, which sounded reasonable and TB felt that with REITS now off the lows…or were at the time…that that could end up being less than announced and thus offset some other loan charge-offs…he was wrong. Their earnings, also announced Friday were ugly too…and they announced a 40% cut in the dividend. BUT the stock rallied rather than sold off…the reason being there was a huge short position and some of the weaker ones covered…or at least as TB sees it…and he sold into it…and not for a gain…just thankful he is out. By the way TB found that the Baltimore Sun has been questioning management’s statements for some time now.

 

The point is that this is not a good time for financials, especially brokers and banks and while the former may have bottomed it appears the latter hasn’t and will continue to hold the brokers down.

 

What is most disturbing to TB is GE. How could a company that has had great earnings and credibility for decades, suddenly allow this to happen? Sure Welch was at the helm before, but Immelt has done a great job since taking over just before 9/11…a truly trying time for corporations. But why did they blindside us…even as the CEO himself was buying shares…usually a good sign? TB attributes it to the fact that GE is too diversified with the bad offsetting the good and vice versa. Did they understand their true exposure to credit…especially with GE Credit being a big part of the company? TB is trying to understand, not be critical as the analysts were…and why didn’t they spot the problems in the credit sector and plan accordingly…guidance…if the CEO says so it must be true…no need for thinking on it.

 

So we come back to the broad stock market and despite numerous attempts to rally we are still mired. The easy rallies from bottoms are proving to be merely countertrend and after how many times being struck across the face do we come to the conclusion that this time it is different? The worst part of this is earnings projections are way too high as they have extrapolated on past performance and ignored the effect of a series of record stock buybacks…and just what have those gotten for the shareholders? Zip!

 

 

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful.
Copyright TBD Capital LLC April 15, 2008