Market Review - November 23rd, 2008

My post here pretty much summed up the way the market has been this year
http://betterbizbooks.blogspot.com/2008/11/it-is-official-2nd-worst-performance-of.html

But, focusing on this weeks movement I think the following:

1) S&P 660-700 was a price range I was starting to hear a few weeks ago but I was hearing too much "fair value" when the S&P 500 price levels hit 800, which told me that we had ALOT of downside risk remaining. Given that S&P500 EPS estimates are 15%-20% too high, in my opinion, shaving 15%-20% off of S&P500 price levels gets us to 640-680 on the S&P 500. That is my target range for when the market MIGHT get near a bottom. Frankly, at this point it is a guesstimate but one I'd put ALOT more credence in then most Wall Street Pundits these days.

2) Anyone see the way the financials performed this week? I commented about it but, after that, it just got WORSE and WORSE and WORSE....

http://betterbizbooks.blogspot.com/2008/11/s-500-and-bank-stocks.html

Here is a two week chart of the 2 largest banks in the U.S. and Citigroup. You can see how we had some major declines in major financial stocks this past week. Given that the financials have LED this decline they gets me a bit spooked re: the near-term future.



3) I had to book a trip to Vegas for January of 2009 (bachelor party so, twist my arm, I had to go :) ). I'll update everyone re: what I see when I get back but this is what I noticed from afar.

- Airfares are TOO EXPENSIVE. Gas has come down NOTABLY but airlines continue to charge LUDICROUS fares and their times STINK. I am going American one way and Southwest another to drop the cost to $300 from Dallas. Oh, and my free miles couldn't find a flight worth a crap to use them on

- I got a room for $70 a night vs. $150 published on major websites. This is Thurs/Fri/Sat. The longer I waited the more the rooms in Vegas kept coming down.....

4) Any financial review/post not commenting on the auto companies would be crazy. Without MAJOR re-structuring the U.S. auto industry doesn't deserve any $$$. It would be throwing good $$$ after bad $$$.

Dan Ross
http://www.BetterBizBooks.com

Ever hear of a "Minsky Moment" - Here is what it is...

Source: http://en.wikipedia.org/wiki/Minsky_moment

A Minsky moment is the point in a credit cycle or business cycle when investors have cash flow problems due to spiraling debt they have incurred in order to finance speculative investments. At this point, a major selloff begins due to the fact that no counterparty can be found to bid at the high asking prices previously quoted, leading to a sudden and precipitous collapse in market clearing prices and a sharp decline in market liquidity. Anyone thinking subprime mortgages/CDOs/ABS as well? (collateral debt obligations and asset backed securities = CDO & ABS). The Minsky moment comes after a long period of prosperity and increasing values of investments, which has encouraged increasing amounts of speculation using borrowed money.

A Minsky moment is a phenomenon named after economist Hyman Minsky, which describes what happens when an economy simply can't afford its debt anymore.

To put this into current, economic terms:
Lower home and stock prices leads to less consumer spending.
Less consumer spending leads to smaller trade deficits.
Smaller trade deficits lead to less foreign capital inflows.
Less foreign capital inflows lead to higher interest rates. Japan didn't need foreign capital in the 1990s.
Higher interest rates cause property and stock values to plunge.
Plunging values leads to less consumer spending.
Less consumer spending ... haven't we been here before?
Repeat cycle until broke.

Dan Ross
http://www.BetterBizBooks.com

Chinese Products Getting PUMMELLED

And deservedly so.......

Lets go through some history

Dog food with melamine in it awhile back.

Then it was toys exported with lead paint.

Now it is milk with melamine, candy with melamine & infant formula with melamine. Over 20 dairy companies now have been found guilty of doing this. This is NOT some limited issue.

The real questions is "Are Chinese products safe?" It is going to temporarily hurt exports, hurting chinese exporters.....and for a DAMN good reason. While cheaper costs attract businesses there if consumers won't buy a darn chinese product there will be ZERO benefit of producing in China. The first guy over china's product safety was SENTENCED to death over a year ago and apparently the problems with their countries product safety continue.

"Melamine, which is high in nitrogen, is used to make plastics and fertilizers and experts say some amount of the chemical may be transferred from the environment during food processing. But in China's case, suppliers trying to boost output are believed to have diluted their milk, adding melamine because its nitrogen content can fool tests aimed at verifying protein content.
Melamine can cause kidney stones, leading to kidney failure. Infants are particularly vulnerable. Melamine has been associated with contaminated infant formula and other Chinese products containing milk protein. On Wednesday, the Chinese government identified 15 more Chinese dairy companies as producing milk products contaminated with melamine, bringing the total to 20 companies. At least 100 batches of milk powder have been found to contain the chemical, according to data on the food safety administration's Web site."

Dan Ross
http://www.BetterBizIdeas.com

Get bullish on Alternative Energy Stocks

The federal government has no other choice but to put forth a massive bailout plan.

When the fed does this the value of the dollar is going to decline, which will cause the prices of commodities (oil in this case) to go higher.

This will cause a long-term demand for alternative energy products. This isn't some short-term fad.

I expect solar stocks to start taking off here in the next few weeks. I'll post some charts later tonight showing how they are bottoming out and set for a take-off.

The price of oil was trading at a low of $91.11 a barrel on September 17 and it closed at $108 or so on Friday, Sept 26th. That's a gain of 18% in a week or so.

Dan Ross
http://www.BetterBizIdeas.com

SPX 500 ready for a downturn?? Yikes, I was right....

On August 21st I posted the following thoughts re: the SPX 500 and its future direction....

"Guys, the market is rolling over, sentiment is getting very negative...... Today is NOTHING. SPX is 1268 and the July lows were 1200....... "

Here is a chart today of the SPX 500 ...take a look at the decline since then! WOW.....This unwinding of risk & liquidity crunch has been staggering....

http://stockcharts.com/charts/gallery.html?$spx

Dan Ross
http://www.BetterBizIdeas.com

WAMU CEO out.....HUGE win for regional banks...

So I have been out on vacation the last few days and my phone has been getting lit up with txt messages from friends/buddies re: Fannie Mae/ Freddie Mac, WAMU, etc and they are curious re: my thoughts about it. To be honest, I was COMPLETELY out of the loop on this as I was enjoying my time off.

I read this commentary re: WAMU and its CEO getting axed yesterday and it really rang a bell with something that Jim Cramer talked about re: how the FDIC's new strategy is going to be a HUGE win for regional banks.

Here is something to chew on. From something I read.....not Cramer....

"Kerry Killinger was one of those lucky guys in the right place at the right time. He built WAMU by buying distressed thrifts out of the last S&L crisis. It was a lucky streak of acquisitions. Essentially he had acquired a bunch of rain buckets which collected the mortgage refi bounty resulting from the lowest bond yields in history. He never effectively integrated those acquisitions. When the drunken refi mortgage party ended, he couldn't pull himself away from the tap and charged headlong into subprime to keep the party going. It was a disaster in the making."

Now hear Cramer's take on the FDIC and their changing strategy re: banks.

http://www.thestreet.com/story/10435631/1/cramers-mad-money-recap-fdic-to-the-rescue.html

While in Vegas the end of last week and early this week I noticed that Zion's bank (one of their subsidiaries) had taken over a large Henderson NV bank via the same method in the link above. So we now have TWO examples of regional banks buying deposits cheaply and getting bigger. We just have to hope that these folks HIRE or already have people that can integrate all these systems/banks together.

For the record, Cramer likes BB&T, a bank that he considers a conservative regional lender with a sound balance sheet that should be allowed to buy these guys on the cheap throughout FL and the SE.

Dan Ross
http://www.BetterBizIdeas.com

The economy keeps on growing...

From http://www.tippingpointstocks.com/

"a recession is two consecutive quarters of negative GDP growth. When the first quarter results showed a gain, not negative growth, the refrain from the bears was that the economy's current problems, credit liquidity and housing, were too recent to be reflected in Q1 numbers. "We're in a recession, all right, but the government numbers will take time to catch up," they said.
So when preliminary Q2 numbers came out at a POSITIVE 1.9%, the bears were somewhat befuddled. And they really didn't like it when the forecasted numbers for yesterday's GDP was raised from 1.9% to an expected annualized growth rate of 2.7%. You can only imagine the bears' dismay, then, when the Commerce Department raised the Q2 estimate even further than expected — to 3.3%. And the stock market erupted on the news, with the Dow Industrials gaining 1.6% yesterday."

Interesting alright...VERY interesting.....

" The economy, despite all odds, continues to grow, at an expanding rate.And the stock market has reflected almost none of this, as it remains distracted by housing and credit market concerns. Those concerns remain a market issue, not because of the depth of those problems, but because of investor concern that we haven't heard the complete story yet. The market can handle just about anything except uncertainty. Once the magnitude of the housing problem and the credit problem are on the table, you can expect the market to rally."

I for one am of the opinion that the economy is growing (but slowing) and it is whipsawing around like no tomorrow. The U.S. gov't is attempting to inject liquidity into the markets like NO tomorrow while constantly walking the tightrope with preserving the U.S. dollar by keeping interest rates flat (not cutting them.) I think the next president will be the one inheriting a recession and the biggest budget deficit in the history of the U.S.

Dan Ross
http://www.BetterBizIdeas.com

Small Cap Returns in August

From http://www.smallcapinvestor.com/

"Small-cap stocks in China posted double-digit losses on average during August, while small caps in India were virtually unchanged in the month through Aug. 25, according to a Press Trust of India report that cited data from Citigroup Global. For the region as a whole, 80% of all Asian stocks posted negative returns, with a median loss of 8.1%."

I'll follow that up by saying I found MANY, MANY chinese stocks that were down 40%-60%. I have noticed quite a few chinese small cap stocks that were posting 100% - 200% growth rates (some organic growth....others through acquisition) slowing their growth rates to 10%-30%. As consolidation in their economy & overall economy are slowing many investors are growing wary of chinese small cap stocks.

I still think there are a TON of good stocks to be found and then traded from time to time. Some should be held for the long-term. I'll be posting a listing of some of interesting finds I have come across in the next few weeks.

Dan Ross
http://www.betterbizbooks.com/

Jim Rogers + Bill Gross & their thoughts on the economy..

He was in China (Shanghai I believe) talking at an investment conference.

The guy managed $$$ with George Soros. He is a HUGE bull of commodities and trades those + currencies quite a bit. He is VERY bearish on the dollar and doesn't recommend anyone buy the $$$ as a trade. ALOT of smart guys are saying this....

http://www.wealthdaily.com/newsletter.php?date=2008-07-01

By the way, if you want to see what another smart guy is saying re: the economy then read Bill Gross' letter to President Obama (his July Investment Outlook for PIMCO, the world's largest fixed income money manager.)

http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+July+2008.htm

Dan Ross
http://www.betterbizbooks.com/

Great Charts re: Nasdaq and SPX 500

Source: http://tippingpointstocks.com/

A few observations. The SPX 500 is testing lows from March whereas the Nasdaq hasn't. This is primarily due to the financials weighing down the SPX 500 quite heavily vs. the Nasdaq. It will be interesting to see if the SPX 500 breaks resistance and goes lower in the upcoming sessions.

Oh, and in case anyone didn't know. BAC (Bank of America) now has a 10.4% dividend yield as of today with the stock trading at $23 and change, well off its 52 week high of $52. Ken Lewis says he will leave the dividend unchanged but apparently investors aren't believing that right now.

Dan Ross
http://BetterBizBooks.com

Why to invest in micro/small caps

Rolf Banz made a famous study back in the early 1980s, called “The Relationship Between Return and Market Value of Common Stocks.” In this report Banz found that over the 50-plus years he studied, the smaller the company, the larger the average return. This held true for all the years he studied, regardless of whether the market ended the year up or down. If you had invested in the smallest companies over that period, you would have made nearly five times what you would have had you invested in the blue chips.

Dan Ross

http://www.BetterBizBooks.com

PR firms for Chinese Based Stocks

There are some good ones in here.....

CCG Elite is a PR firm for many leading-edge, profitable and fast growing Chinese companies

http://www.ccgelite.com/clients3.asp?id=1&id1=2

Dan Ross
http://www.BetterBizBooks.com

HUGE returns in Micro/Small Caps - Great Article

One resource I highly utilize quite a bit, as it is really good, is:

http://caps.fool.com

When I go there I look at:

1) Growth Rates - EPS and Revenue. I want 50% + and valuations in the 20%-30% + area
2) I look at the basic statistics (profile info) to find out the market cap, shares outstanding, etc. in case I need to determine P/S ratios or PEG ratios based on future earnings
3) I use a stock screener to look for certain criteria. This is GREAT when trying to find FAST growing small cap stocks that are undervalued.
http://caps.fool.com/Screener.aspx?source=ifltnvsnv0000001

The below article highlights some of the amazing small cap returns that have been found in the last 10 years. Are you trying to find the next hidden gem?

http://www.fool.com/investing/small-cap/2007/12/26/the-markets-10-best-stocks-revealed.aspx

Anyway, I hope everyone finds the links interesting

Dan Ross
http://www.BetterBizBooks.com