Stimulating a New Stock Market Bottom
Stock-Markets / Investing 2009 Feb 23, 2009 - 11:00 AM GMTBy: Oxbury_Research
Apparently, Americans don't enjoy paying their neighbor's mortgage. Who saw that coming? Actually, although I believe this fact to be true (and I will address it in this article) I don't think it mattered as much what was in the stimulus, as the sad fact remains that we simply don't have the earnings, confidence, and unfortunately jobs , that we need to bring this market back immediately.
In the meantime, look for me spilling my brain's reactions to current events as well as the indecisiveness and confusion that is replacing (or, more accurately, supplementing) the pessimism we have seen over the past year, followed by a few tech ideas that might spark your interest.
Interactivity comes to Oxbury
Before we go any further, I would like to draw attention to some of the comments I received on my last article. First, I applaud all of our readers who have given their insightful comments, critical or otherwise, as the investing process should be a two-way street of professionals who are sharing ideas and looking to make some cash. I read each and every one.
As briefly as possible, I would like to respond specifically to three of our readers.
To John L. – Thank you for pointing out the apparent positions issue. What occurred is an accidental replication of a template used to e-mail our faithful readers, which I did not immediately recognize. To be clear, there was no intended deception, I do hold a position in oil-based funds. Additionally, I will be adding to this position on every downturn with the expectation that profits will come… perhaps not in two months, but certainly within two years.
To Henrik U. – Look up the proper usage of the words “former” and “latter”. Switching them makes your argument viable, and I somewhat agree. In the meantime, don't try to pick apart the definitions of “saving” and “hoarding”. I write for the slightly above-average educated investor who knew exactly what I meant without condescendingly regurgitating economics books.
To Harry N. – Beautiful poem, thank you for creeping me out.
Paying off your mortgage? Check out OPM.
I never thought I'd say this, but I'm glad I woke up to CNBC this morning. Anyone who caught the pre-market show observed Rick Santelli going off on the world, and shortly thereafter, Mark Haines giving it to Donna Edwards this morning when she dodged a great, great question. Giving it to her verbally , you perverts.
To keep it brief, “Screaming Rick” Santelli went absolutely nuts this morning, and I loved it. He began loudly polling the traders on the floor regarding (among other things) whether they would like to pay for their neighbor's mortgage or spend that money on young people who can “carry the water rather than drink the water”. Although dangerously imbalanced most of the time, I really, really enjoyed Rick's rant because at the heart of it was the sentiment of the people – Why should we pay for others' mistakes?
There are many answers. Granted, it may not be fair to pay for bad mortgages with “OPM” (other people's money), but it's one of the few resolutions that doesn't involve a middle finger and years of waiting. However, there is a glaring problem with this concept – one that was powerfully and passionately made by Mark Haines, and made a Maryland Congresswoman regret waking up this morning.
Mark made the point I was preparing to make this week for me when he asked Edwards “who will get the profits if these home prices go up?” In other words, as the taxpayers begin bailing out those borrowers who cannot currently afford their mortgages, and over time their homes (which should not really even belong to them) increase in value, who will reap those rewards? The answer, of course, is currently those undeserving homeowners, but Edwards dodged the question like bullets in The Matrix.
It was uncomfortable for everyone involved, and it made great television.
However, at the root of the issue is a prominent truth – the taxpayers footing the bill for this endeavor are not simply helping those less fortunate… they are, additionally, providing those homeowners with a huge profit opportunity if their home increases in value over the next given number of years.
This does not sit well, and rightfully so. Though it does offer an immediate booster shot, its future implications need to be addressed.
A bull, a bull, my kingdom for a bull
“I don't want to know what I should have done, I want to know what I should do now .” ~ Almost Every Investor Who Has Ever Lived
The Dow closed at a six-year low today. That is not good. The only aspect that can be looked upon favorably is the fact that the S&P has about twenty-five or so more points to play with before it's at new lows.
So, more than ever, investors are preparing for another meltdown but are no less exhausted and devoid of patience as they watch their portfolios turn into mush. I'm looking more towards individual stocks over broad market indices until I see what happens with these lows.
As an example of this, I want to mention a word about a few tech companies that we all know and love. Dell, Apple, and our friend IBM.
Fundamental information, technical stocks
Let me get IBM out of the way first. I'm going to wait to buy this thing until I see whether we hold the lows. I would like where it is now (plus it pays a dividend…currently…) if I genuinely were convinced we're headed up immediately from here. But I'm not. So I'm not.
Dell and Apple sell products that are similar but at the same time very different. Apple appeals more to the younger and/or art-and-media-centered groups as well as owning the huge iPod market. Dell is producing PCs and laptops we're used to seeing (especially in corporate environments), and has mp3 players, but no longer ones that bear its own name.
I'll be honest – I think Apple is a better company. However, I'm not looking to work at the company, I'm trying to make a few bucks off of their stock. Therefore, I am looking more towards Dell right now. The price is simply better.
No, I'm not talking about $8 versus $90 per share, I'm talking about the price relative to earnings and prospects going forward. P/E ratios don't cut it for some people, and there's a bunch of great reasons for that. However, when one is trading at 16.8 times earnings (Apple) and the other is trading at 5.9 (Dell), a little switch goes off in my brain. It says “if this company will be around in a few years, and sells a viable product (both are true), then buy it.”
Oh, there's another little switch that notices when, since July of last year, the CEO has purchased over $200 million of the company's stock. And hasn't sold a share. He bought most of these shares in the neighborhood of $21 per.
I hope to be able to recognize some more buys as the next few weeks show their colors. Hopefully that color is not a new shade of red.
John K. Whitehall
Analyst, Oxbury Research
John has a solid decade of experience in the financial markets: from developing and implementing long-term investment strategies for high net worth clientele to intraday trading of equities, Exchange-Traded Funds, options and currencies.
Oxbury Research originally formed as an underground investment club, Oxbury Publishing is comprised of a wide variety of Wall Street professionals - from equity analysts to futures floor traders – all independent thinkers and all capital market veterans.
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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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