Archive for October, 2009
Third Quarter Earnings Week
Posted by Jody Eisenman | Filed under Uncategorized
The market finally started to show signs of weariness recently, as the Dow Jones Industrial Average struggles with the magical 10,000 mark. Meanwhile, aided by a recently weak US dollar, Gold continues to trade above $1000 per ounce. Roughly 1/3 of all the stocks in the S and P 500 report earnings this week, and these reports will go a long way to determining market direction for the near future.
In a continuation to an amazing story, another major individual with connections to Bernie Madoff was found dead this morning. Investor Jeffry Picower, who has been rumored to have profited massively from Madoff, was found dead this morning in his swimming pool. Prior to his demise, Picower was being sued for $7.2 billion by the trustees representing the investors in the Madoff fraud. According to Forbes magazine, Picower was worth in excess of $1 billion dollars. Picower was accused of “requesting” returns from Madoff each year, such that he withdraw over $7 billion according to Irving Picard, the trustee for the liquidation of the estate. The Madoff story apparently has several more chapters to go.
A Tale of Two Streets
Posted by Jody Eisenman | Filed under Uncategorized
“It was the best of times, it was the worst of times”. So begins Charles Dickens nineteenth century classic, “A Tale of Two Cities”. I think about this when we look at the comparison between the investment community (Wall Street) and the working community (Main Street). While the stock and bond markets soar as if we were in the greatest of bull markets (at least since March), the rest of America continues to struggle. Here are a few examples:
1. The Credit Markets: As investors pore money into bonds at an incredible pace, yields are dropping on almost every type of interest bearing paper. On the other hand, the credit card companies and the banks have cut back on credit available. In addition, companies like Master Card and American Express have raised interest rates on outstanding balances to over 20% in some cases. Thus, the people who are in debt and can least afford it, are also paying astronomical prices. Clearly a case of haves and haves not.
2. The Stock Market and the Economy: Generally speaking, the stock market should somehow reflect the economy. Since most stocks, at least those in the S and P 500 are valued at some measure of earnings, then an improving economy should translate into higher stock prices. However, while stock prices have soared over 50% since March, the economy has not really shown viable signs of recovery. The unemployment rate was 8.5% in March when the stock market bottomed. Today, it is 9.8%, yet the S and P 500 has gone from a low of 666 to a current level of 1091.
3. The Real Estate Market: On the one hand, real estate investment trusts have rallied dramatically. On the other hand, foreclosures are soaring, and there is a looming problem in the commercial markets of upcoming balloon payments that will need to be refinanced. In addition, getting a mortgage today is much tougher then it was before the recession.
So, although investors have profited handsomely through this rally, I do not believe this has really “trickled down” to the average working Joe. Sooner or later, this will converge. Either the economy will recover, or the stock and bond markets will come back to Earth. Lets hope it’s the former.
The Dow Breaks 10,000
Posted by Jody Eisenman | Filed under Uncategorized
In a move that many viewed as inevitable, The Dow Jones broke 10,000 yesterday on the upside. The last time we were at these lofty levels was in October of last year, when we went falling through it to eventually bottom at 6440. As I have discussed previously, the run up off those lows has been nothing short of spectacular. Even more impressive is the NASDAQ, which has risen to 2172 off a low of 1265 in March, a gain of over 70%. Truly amazing.
The gain was been so dramatic that the breadth has caught virtually everyone by surprise. Since March, the pullbacks in this rally have been short and sweet. I do expect a pullback somewhere, and this psychological level is as good a spot as any. However, the way money has been flying into equities makes it seem as if the declines last year are a forgotten memory. There are still many supposed “experts” who have not participated in this rally, and a few more unfortunates who have been short and suffered severe losses. With almost 3.5 trillion dollars still sitting in money market funds currently, there is still plenty of potential buying power out there. On the other hand, Citi and Goldman Sachs reported somewhat disappointing quarterly results, so both are down a few percentage points this morning. I continue to believe that as long as the credit markets remain strong (roughly eighteen times more money has moved into bonds this year compared to stocks) the stock market could stay strong. How high we go before a meaningful pullback is anyone’s guess.
