Beyond a lonely 10, all stocks are down

If you look at some of these New York Times interactive charts that show relative performance of stocks within a sector, you'll notice something remarkable: all the dots on the chart for most sectors are below 0% gain for the year. In fact, in some sectors it is so bad that +% and even 0% doesn't even show up on the axis!

This made me want to run a simple screen for YTD price gain > 0. I was fully expecting to get *nothing* back! Well, it's close. There was only one company > 30B market cap whose stock made money in the past year (WalMart). For market cap > 5 billion, only 10 companies out of all the stocks in the world made positive gains. Here is the "Lonely 10" screen. What other year does only 10 stocks make money? If you try and run similar screens, be sure to filter out bond funds and UltraShort funds. Basically long equity investors got slaughtered, and most of the downward spiral occurred in the past 2 months.

Company Name	Symbol	52w Price Change (%)	Institutional Percent Held	Market Cap
Wal-Mart Stores, Inc.	WMT	11.66	38.90	214.72B
General Mills, Inc.	GIS	3.87	77.14	20.55B
Rohm and Haas Company	ROH	32.33	80.17	13.86B
UST Inc.	UST	19.53	75.31	10.22B
Southwestern Energy Company	SWN	19.79	88.90	8.34B
Nationwide Financial Services, Inc.	NFS	14.43	21.78	7.04B
Barr Pharmaceuticals, Inc.	BRL	18.06	77.49	6.96B
AutoZone, Inc.	AZO	0.45	95.00	6.64B
People's United Financial, Inc.	PBCT	7.40	69.47	5.93B
Sociedad Quimica y Minera (ADR)	SQM	17.99	12.06	5.25B

UltraShort Bonanza

Some new ETFs have become available over the past few years that provide investors an easy way to hedge without dancing with options, and to profit handsomely off of downward moves in the market. These are the ProShares UltraShort series. These ETFs are designed to provide a return equal to -2 times an index they track. So if the S&P500 goes down 5% for example, the UltraShort S&P500 will go up 10%. On extreme down days such as today during a period of heavy volatility, these funds are getting crazy single day returns. Here is a list of some of the UltraShort funds and their corollaries:

Index	Long (% today)	UltraShort (% today)
S&P 500	SPY(-5.45%)	SDS (+11.32%)
Nasdaq 100	QQQQ (-2.76%)	QID (+5.58%)
FTSE China 25	FXI (-10.72%)	FXP (+21.34%)
Dow 30	DIA(-5.40%)	DXD (+10.31%)

In times of less volatilty, these funds can be used as a hedge. This article details some basic hedging techniques that such funds enable.

VIX volatility index tops 80

The VIX index is predicting that the S&P500 will move up or down over 20% in the next 30-days.  The only problem is no one knows which direction the move will go.

Bargain Basement

The massive lows of late mean bargain basement prices for long-term investors. The problem is that fear could drive another 20% drop, and who wants to jump into that? For the brave however -- those that feel that they can catch flying knives -- here are some picks that seem like attractive values:

High Yield

• E - Eni @ 38.5 - 9.88% div - found large deep sea oil field off of Angola - 0.5 book
  
• BCS - Barclays @ 17.3 - 9.88% div - supported by UK government; picked up scraps of Lehman - 0.7 book

Materials

• PCU - Southern Pacific Copper @ 11.5 - 20% div - commodity darling fallen victim to hedge fund unwinding - 2.5 book
• RIO - Vale @ 11.1 - 2% div - near monopoly on iron, though there is plenty of iron on earth

Others

• MCHP - Microchip @ 22.8 - 5.8% div - PIC controller maker; offer to acquire Atmel AVR and ARM chip line - 4.6 book
• NYX - NYSE Euronext @ 27.7 - 4.33% div - completed acquisition of of AMEX, 3rd largest option market - 0.7 book - Warning: Cramer's 2007 loser is down 75% and NDAQ is stealing trade share.
  

Blue Chips

• SPY @ 90 - 3%
• CVX - Chevron @ 60 - 4.33% div - 1.5 book
  
• KO - Coca Cola @ 44.2 - 3.44% div - 4.4 book
• MMM - 3M @ 54.7 - 3.66% div - 3.0 book

Concerns: global slowdown, plummeting profits, dividends slashed, general misery... Remember that Cash is King!

Fed Slams Beige Book on Market Elation

The US Federal Reserve regularly publish a "Beige Book" reporting the state of economic activity in each of its 12 regions. In the latest report, prepared last week but released today, the news was grim across the board and the markets reacted with the 2nd largest downward move ever...

2008
Jan 16 Report	Feb	Mar 5 HTML 286 KB PDF	Apr 16 HTML 182 KB PDF	May	Jun 11 HTML 144 KB PDF
Jul 23 HTML 261 KB PDF	Aug	Sep 3 HTML 164 KB PDF	Oct 15 HTML 135 KB PDF	Nov	Dec 3

Economist Cover Metric

Sometime during the market downtrend of 2000-2002, I came up with a new metric based on inputs I was seeing: "If the cover of the Economist has a really grave picture such as someone peering over a cliff, jumping without a parachute, or anything like that, it is time to stay on the sidelines of the market." Well, the last two covers have fallen into this category. The first was the whirlpool of banks sinking down, the second was an investor peering over the cliff. The third, most recent one is of the world falling through the atmosphere, ignited in flames:

Sep 20th 2008	Oct 4th 2008	Oct 11th 2008
See contents	See contents	See contents

Previous examples of when this would have been sapient advise are in late 2007:

Jul 7th 2007	Aug 18th 2007
See contents	See contents

And there was another cover series, if distant memory serves, that had a man in a parachute and one peering over a cliff that predicted the dot-com bust and the subsequent recession of 2001-2002. Can't find those exact covers that inspired the metric, but certainly this one of being chained to the bottom of the ocean would fit:

Mar 24th 2001

See contents

One could argue that selling in the midst of flames is bad timing, and that the markets will bounce back vibrantly as they did today. There is also a large amount of data that shows that the 18 months after a crash are not fun times and that the market slowly dwindles to the lows of the initial crash and beyond...

Now the question is what sorts of Economist covers trigger a buy signal?!

Iceland goes bust

Iceland banks have become insolvent. The Icelandic Krona was amidst collapse, and trading was frozen on their equity and currency markets. When it was predicted the polar ice caps would melt soon, perhaps few knew that it would happen economically first.

TED Spread Indicates Fear

The TED spread between T-bills and 3 month LIBOR is one indicator showing the immense fear in the markets. LIBOR did drop significantly last night from 6% to around 2%. Regardless, Japan had its second 10% down day in a row, and US markets were down 20% for the week.

World Markets fall off a cliff

Tranches in the trenches

The government bailout focuses so much on how complicated these mortgage-backed securities are. That they are, but that doesn't mean we should enter the going-out-of-business sale, throw up our hands, open our wallets, and say "sell us the items that aren't moving and name your price". These instruments *can* be understood, and it all starts with a new word that was used only by hard-core financial engineers and "quants" until last week: tranches.

Oil spikes up $11 in one day to $139/barrel

A combination of dollar hedgers rushing to buy oil and sellers pulling back supply resulted in a record single-day rise in oil prices today (in dollar terms). The general market tumbled on this and the reports of higher jobless numbers with overall unemployment now at 5.5%.

More Earnings in the Pipe - 08'Q1

Some upcoming earnings to watch:

   Semi-darlings: NVDA, MRVL.

   And Energy power houses: XOM, CVX.

Companies tied directly to the consumer remain the most exciting.

Signs of Recovery -- 2008 Q1 Earnings Recap

Earnings season is in full swing, and one of the surprises is how much some companies have been able to massively grow their profits while most financial news coverage focuses on the doom and gloom. It seems that for well-run companies, this localized down turn has been a bonanza. Here is a sample of some of the companies that have reported incredible gains in profits in year-over-year this quarter:

Tech

• Baidu (BIDU) +100%
• Google (GOOG) +30% +46% (sales)
• Apple (AAPL) +36% +43% (sales)
• IBM +25%
  
• VMWare (VMW) +5% +69% (sales)

Semi

• TSMC (TSM) +49%
• Texas Instruments (TXN) +29%
• Broadcom (BRCM) +22%
• Xilinx (XLNX) +10%

Networking

• Juniper (JNPR) +66%

Energy

• BP +63%
  
• Shell (RDS.A)  +25%
  
• ConocoPhillips (COP) +17%

Chemical

• ADM +42%
  
• Du Pont (DD) +26%

Finance

• Mastercard (MA) +100%
• Visa (V) +28%

Consumer

• Johnson & Johnson (JNJ) +40%
• CocaCola (KO) +32%
• Yum Brands (YUM) +31%
• MacDonalds (MCD) +24%
• AT&T (T) +22% 

Industrial

• CSX +63%
  
• Honeywell (HON) +22%

Costco and WalMart ration rice sales to small businesses

Have a small Chinese food restaurant and need to stock up on rice at Costco (COST) or Sam's Club (WMT) for your growing business? Well as of yesterday, both stores imposed rice rationing restrictions, and your purchases will be limited to 80 pounds per visit.

Stimulus Package Signed

The Economic Stimulus package was signed into law today. Perhaps the most significant aspect of this is that the size of conforming loans has been increased from ~$400,000 to over $700,000. The increase appears to be retroactive for loans funded in 7/2007 and will expire 12/2008. This should create a refinance rush like we haven't seen before with Jumbo loans in California across the country getting converted to cheap conforming money. Rates have already risen 0.25% which is to be expected considering the increased demand anticipated.

Yahoo up 70% on hostile bid by Microsoft

Having just bid up Facebook to $10 billion and Aquantive to $6 billion last year, Microsoft decides to go for the gusto and take a stab at purchasing Yahoo, the long obvious internet bargain sale. The hostile bid weighed in at $45 billion dollars. The mere 4.5x premium over Facebook shows that internet titans come and go.

The Apple Drops -- Fed Slashes 0.75% in emergency relief

The markets remain in madness. Days ago, Apple announced its earnings -- amazing growth numbers of 44% year over year. Unfortunately their guidance of 29% future growth was just not good enough. The stock plummeted 20% over the next two days.

Meanwhile, the Fed came out with a historic 0.75% emergency rate cut. Mortgage rates went crazy for about 36 hours, and rates on conforming 30-year fixed dropped to an amazing 5.1% level. Mortgage rates have since corrected and stand at a still-low 5.5%.

Cisco Effect, Intel Effect, and Recession with a big "R"!

One of those "never posted" entries back in October was to be "the Cisco effect". Cisco had a Q4 2007 earnings announcement that blew away the estimates. They had grown their earnings by something like 25% -- an incredible number for a company of their size. But hidden in the earnings announcement was a foreboding warning of a slowdown in purchase orders from large banking customers. The next day, the market slammed Cisco stock to the tune of 10%, and the market as a whole got dragged down with it. Just last week, Intel dropped 12% in a day on weak earnings and pulled down the entire market. Professional paid-for indicators went negative 2 weeks ago -- suggesting that everyone pulled out of stocks entirely. Not bad advice in retrospect! We are clearly in the midst of a Recession -- perhaps the first of 2-3 quarters. The only thing that hasn't hit yet are the type of layoffs that grow unemployment to the 6% level. Investment opportunity for 2008? Cheap foreclosure real estate! Sell your stocks and look for a house on the cheap if you can afford it...

Oil hits $100 a barrel

Oil prices reached $100 a barrel today, further driving concerns over inflation and a weak dollar.