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I typically don't dwell too much on the Opinion section of the Wall Street Journal. Since Karl Rove became a frequent contributor, this is a page that I generally can't bypass quickly enough. In Wednesday's paper, however, in the dreaded Karl Rove spot on the page, was a piece by John Chambers and Safra Catz. As a follower of tech stocks, I immediately recognized the names of, respectively, the chairman and CEO of Cisco Systems and the president of Oracle. These are business people with serious credibility who are not usually associated with any extreme political positions. I stopped to read further. Their article, "The Overseas Profits Elephant in the Room" revisits some territory that has been covered by a number of bloggers recently. Basically, they contend that U.S. companies have a trillion dollars stashed overseas in their foreign operations but U.S. tax policy makes it prohibitively expensive to bring that money back to the U.S. where it could be used p...

It seems gloom sells better than optimism so the financial blogosphere is rampant with stories predicting a double dip recession. In addition, it seems the phrase of the year is "new normal" which has been attributed to PIMCO's Bill Gross. The phrase is a snappy description of his prediction for below-par market returns for years to come. I recently read an interview with Wharton professor Jeremy Siegel and he has quite a different opinion. You may remember him as the author of  "Stocks for the Long Run" and numerous other books. He is also interviewed and quoted liberally in many financial publications including the Wall Street Journal and at sites like the TheStreet.com Here are Mr. Siegel's reasons for optimism: PE Ratios -- Mr. Siegel points out that consensus forecasts are around $70 a share on the S&P 500. He thinks it might even be higher. The long-run average PE is roughly 15. Fifteen times 70 is 1,050. Friday, the S&P 500 closed at ...

Back in June of 2008 I wrote a post that featured the opinions of well-known Citigroup strategist Tobias Levkovich. At the time he was declaring that it was time to buy banks. He was 9 months early in that call. What does he have to say these days? It seems that Mr. Levkovich is reasonably positive on the state of the U.S. economy. He is projecting GDP growth a hair over 1% in the 3rd and 4th quarters of 2009 and 2.1% in 2010. As indicators that modest growth is in store, he points to the following developments: Companies have cut back production and orders to an excessive extent. Though demand remains weak, companies are now finding it necessary to increase production. There has been improvement in the credit markets Yields of junk bonds have dropped by 10% Banks received government guarantees for their loans and have stabilized. The need to cut inventories is waning and demand remains stable Levkovich's main point, however, revolves around the supply - demand equation. Among...

Merrill Lynch just released their latest installment of the RIC Report, the periodic update from their Research Investment Committee led by well known investment strategist Richard Bernstein. Among other things, the report makes the point that "extreme volatility always signals a change in leadership". We are certainly seeing extreme volatility these days with the VIX hitting records left and right. To determine who the new leaders will be, it is necessary to identify who the former leaders were and why they attained leadership. The RIC Report specifies the following: Our theme continues to be that every growth story of the past 5-10 years has been based on the credit bubble. Whether it is China, Emerging Market infrastructure, energy, commodities, residential real estate, hedge funds, or private equity funds, the similarity they all share is that they are extremely capital or credit intensive and had easy access to cheap capital. The days of easy access to cheap capital are ...

Friday, Warren Buffet wrote an op-ed piece in the Wall Street Journal saying he was buying stocks for his personal portfolio. Some say this was a major reason why markets rose on Friday though they fell back to a modest loss by the end of the day. Buffet made the point that stocks are now cheap and that he likes to buy when everyone else is fearful. The Wall Street Journal followed up with an article that looked at several measures that are commonly used to divine whether stocks are over-valued, fair-valued or under-valued. They provided the following graphic titled "The World is Cheap". As can be seen in the three charts above, these indicators have fallen to levels not seen since the 1980's. In all three charts, the lower the reading, the more stocks can be considered to be under-valued. The article referenced at the bottom of this post provides a bit more detail on each chart. And a few more charts won't hurt -- Well, there is plenty of evidence that stocks are ge...

Periodically Citi releases their report entitled "Comments on Credit". This issue is particularly pessimistic. The report features the Citi Financial Conditions Index (FCI), a proprietary index that is a composite of a number of financial measures. The index is a weighted-average of six variables, including option-adjusted corporate credit spreads, equity values, the money stock, the trade-weighted dollar, mortgage rates and energy prices. It is stated in terms of standard deviations from a mean value. A reading of plus one sigma, for example, would suggest financial conditions are imparting a strong tailwind to aggregate demand that could promote inflationary imbalances and therefore may be a signal that monetary policy is overly accommodative. A reading of minus one sigma is suggestive of financial drag on the outlook that may point to undesirable slowing and rising unemployment. So where does the index stand today? Here is the money quote from the report: "At more tha...

Can the problems impacting the financial sector impact technology companies? You bet they can! We know there is a credit crunch and that the economy is slowing. This is translating into falling revenues and a drop in new orders. Tech company management is hunkering down. So are consumers. IT budgets are stagnant or falling and cost cutting will be the order of the day. Below we look at some specific ways that the tech sector will be reacting to this situation. Surprisingly, there are some impacts that may turn out to be net positive for certain tech companies. As expected, though, there are also some seriously negative impacts. Positive Impacts -- 1. Increase in cloud computing - companies may look to avoid buying data center equipment and will instead look for a "pay-as-you-go" model. Beneficiaries Amazon (AMZN), Google (GOOG), eventually Microsoft (MSFT) 2. Increase in usage of open source products - generally cheaper to acquire and implement than the licensed products fro...

The men who hold high places must be the ones to start, to mold a new reality, closer to the heart. - Rush, Closer To The Heart And so Reality now sets in... Markets rallied last week on the announcement the Treasury and the Fed had developed a plan address the problems at U.S. financial institutions. Now, the reality of how things are done in Washington takes over and the momentum is bound to slow. If there was complete agreement on the Paulson plan, perhaps we could be hopeful for a quick adoption of the legislation required to put it into law. As we see below, there may be agreement on the broad necessity of doing something but there is anything but agreement on the details. We will look at the major groups of protagonists and list the issues that will be points of contention. By our count there are 16 issues that will have to be resolved before the plan becomes law. The legislators -- The Wall Street Journal reports that legislators are working to put their own stamps on the rescue...

In case you haven't noticed, the last couple of days in the market have caused some serious chart damage. As recently as last week, bloggers and analysts were suggesting that the bottom was in and major averages were in rally mode. Looking at the charts after today's action, the question might more accurately be: how low will we go? Take a look at the following chart of the S&P 500. The index failed to make a serious push above its 50-day moving average. All of a sudden, it has fallen, or more accurately plunged, below the lows of January and March. Those lows now become serious resistance levels. It's no stretch of the imagination to think we'll soon be down in the area of the July lows or worse. The chart of the Dow Industrials is very similar to that of that of the S&P 500 so we won't present it here. Whereas we recently wondered whether there was a "stealth rally" playing out on the NASDAQ, it is now clear that there wasn't. The chart below...

Oil down, stocks up. Seems a simple formula. Dollar up, Euro down. It's easy to play this game, isn't it? Let's see, what other games can we play? Banks pay fines for sleazy behavior in auction rate securities market, pay billions to wronged investors and take more junk onto their balance sheets. Financial stocks close the week with a gain. Huh? Ok, so maybe this stuff isn't so simple after all. In actuality, as the market has moved steadily upward we have continued to receive numerous conflicting signals. This week initial claims came in higher than expected, extending the trend of the last few months showing a deteriorating job market. This contributed to lower than expected wage costs when the productivity numbers were released. Speaking of which, productivity increased, something not usually associated with a recessionary economy. Other conflicting signals can be found thanks to the currency markets. Tech has been a strong sector in the recent rally and exports seem...

"And I'd like to leave this game a winner... But tonight I'll take what I can get" -- Dashboard Confessional Despite news of Merrill Lynch raising more capital and another bank failure, financials owned this past week. The sector gained a strong 4%. Other sectors weren't so lucky. The major averages barely budged though the Russell 2000 managed an 0.8% gain. Oil strengthened on the week but finished at about $125 per barrel, still low by recent standards. Economic news was mixed. ISM manufacturing came in at 50, better than expected and indicating flat growth which, after all, is better than contraction. GDP came in at 1.9%, lower than expected but still indicating an expanding economy. Jobs showed a seventh straight month of declines though not as bad as expected and unemployment went to 5.7%, higher than expected. Small caps kept the ball rolling in the stock market this week. Without the decent showing in the Russell 2000 we wouldn't have seen the continue...

If you only look at the Dow or the S&P 500, one might be tempted to say that stocks didn't do much this week. In actuality, there was a lot of movement in the broader market. This week saw a divergence between the large-cap stock indexes and the small cap indexes. The Dow finished down 1.1% and the S&P 500 finished down 0.2%. This is in contrast to the NASDAQ which finished up 1.2% and the Russell 2000 which finished up a big 2.5%. Events that moved markets this week included further drops in the price of oil, bad earnings reports from Ford and American Express and weak housing data. Many stocks are beating what are turning out to be extremely pessimistic earnings estimates. For the majority of companies, however, forward guidance has been cautious which has, in some cases, driven sell-offs. Against this backdrop, many stocks were able to continue the momentum of the previous week's rally but red flags remain. Our technical analysis of the market follows. Looking at dai...

Some numbers to consider from today's trading: NASDAQ Composite up 2.28% NASDAQ 100 ($NDX) up 2.43% PowerShares QQQ (QQQQ) up 2.38% ProShares has a couple of ETFs that track the NASDAQ 100 on the long side and on the short side. One would have expected the double long ETF to move up nearly 5% and the double short ETF would have moved down nearly 5%. What we saw instead is the following: ProShares Ultra QQQ (QID) up 3.54% ProShares Ultra-Short QQQ (QID) down 3.74% Does this mean that ProShares was not able to deliver the expected returns and failed to track their underlying indexes properly? Or does it mean that investors did not completely buy into today's rally in the NASDAQ and, as a result, did not sell off the ultra-short ETF or bid up the ultra-long ETF as much as expected? I see this happen periodically. Is it a tell? Is it an indication we can't trust today's rally? Stayed tuned. Strongest Technical Performance in ProShares ETFs -- In the meantime, what can we de...