Archive for April, 2009
The Real Estate Market
Posted by Jody Eisenman | Filed under Uncategorized
During the market decline, the real estate market played second fiddle to the banks. The reason for this is mainly because the banks were perceived to be in such bad shape and are so central to our economy, that most of the efforts of the economy tended to deal with what was in front of them. The theory was, if the banks fail, what’s everything else worth? Now that it appears that the banks may be stabilizing (in fact, JP Morgan managed to price a $3 billion 10 year bond at 6.3% without government assistance), focus is now moving to other areas.
The general consensus is that the commercial real estate market, especially in the shopping mall area, has not even come close to bottoming. In fact, since most mall owners have leveraged themselves in a manner similar to the banks, these companies are going to have massive refinancing problems going forward. This past week, General Growth Properties, the second largest shopping mall owner filed bankruptcy. General Growth owns high profile malls such as Faneuil hall and the South Street Seaport. What is curious is the reaction of the other large REITS (real estate investment trusts). For example, Simon Properties (SPG), which according to Yahoo Finance has an incredible $80/share in debt, has doubled from 24 to almost 50 in the last five weeks. Vornado (VNO), which has similar debt, has gone from 27 to 46. Why has this happened? The thinking is that these companies can actually benefit from the bankruptcy of their competitor by picking up properties on the cheap. Is this realistic? I don’t know, but General Growth simply could not get the credit to refinance its’ properties. If they couldn’t, why would the banks lend to anyone else?
I believe that much of the rise in these prices has been due to short covering. I suspect that this is true for many other financial stocks as well. For the first two months of this year, stocks were in a virtual unending free fall. All the “easy money” was being made on the short side of the market. Now the shorts have gotten squeezed, and the stock prices have risen rather dramatically in the last six months. How long can this continue? As I said previously, I believe the worst is probably over for the stock market. However, I’m sure we are going to get a retracement at some point. The S & P 500 closed at just below 870, and I do believe that 900 will be somewhat of a battleground. Thus, it would not surprise me to see some sort of pullback, perhaps as soon as this week. I continue to believe that this remains a traders’ market.
The Stock Market Continues to Climb
Posted by Jody Eisenman | Filed under Uncategorized
Despite the dreary economy, the market continued its’ rally last week with a very strong close into the weekend. Buoyed by positive news from Wells Fargo, the financials led the entire market higher. The Dow now sits at 8083, which is its’ highest close since February 9, or about 2 months ago.
Here are the respective closes for the DJIA on the 9th day of the last few months:
Date DJIA Close
01/09 8599
02/09 8271
03/09 6547
04/09 8083
The S & P 500 closed above the important technical level of 850. Both 800 and 850 were important levels to be overcome. I view 900 as the ultimate test. Although the market looks incredibly strong here, logic tells me that 900 will be tough to overcome, at least now. I would expect that if we get that high, we will have a pullback to at least the 800-850 area. Of course, any economic news such as unemployment, the bank stress tests and the possible (if not probable) auto bankruptcies could have major effects in the trading markets. For right now, though, the bulls finally seem in control.
Several stocks broke out of their trading ranges last week as well. Some of the most prominent names include Alcoa, Bank of America, Wells Fargo and American Express. This did not surprise me. It was too easy to make money on the downside for so long. What inevitably happens is that the weakest stocks (which tend to be the most heavily shorted) usually have the largest gains when the market turns. Short sellers begin to panic, and their buying spurs stocks higher. I believe you are have been seeing this for the last 5 weeks, but it seems to have accelerated Thursday. I would have two cautionary notes. First, the credit markets remain tight. If these markets do not open in a meaningful way, I can’t see the market continuing to rally much longer. Second, the federal deficit continues to explode. Remember, when you borrow money, sooner or later you have to pay it back.
A Review of the Last Several Weeks Shows that We May Have Seen the Bottom
Posted by Jody Eisenman | Filed under Uncategorized
The stock market has now rallied off of its lows during that last month. From a low on the DOW at 6440, we are now up over 20% to about 7800. The NASDAQ year to date has traded even better, and is only off fractionally for the year. I believe that we have seen the lows for awhile based on the following:
- The market, which seemed to go into a selling frenzy on any bad news, now seems to shrug it off. Corporate earnings this quarter are expected to be weak but stocks continue to climb.
- Earlier this week, both George Soros and Nouriel Roubini reiterated their bearish stance, and the market held.
- The financial stocks which led the market down now seemed to have stabilized and are trading better than the broad market even on weak days. Even Meredith Whitney is sounding like the banks may be stabilizing here.
- The government is finally taking steps to regulate the multi-trillion dollar credit default swap market. This should go a long way to restoring confidence.
To be sure, we are not out of the woods yet. Unemployment continues to rise, and corporate bankruptcies are increasing as well. However, I believe that better days are ahead.
