Monday, February 28, 2005

Turning point indicator?

Back in the 90's, Merrill Lynch fired a more conservative Internet analyst and hired Henry Blodget over a $400 call on Amazon and the attention it got, then watched the Internet bubble implode. [and Blodget cost them a ton in fines..]

In the late 90's, George Soros hedge funds threw in the towel and started buying the tech stocks they had been avoiding, only to watch them plunge not too long thereafter.

Julian Robertson, on the other hand, stayed with the value bent in his funds, faced criticism, lost assets and ultimately closed up shop, right as the tech bubble imploded and his value stocks turned the corner.

Merrill Lynch recently cut back their commodity trading just as the commodity market hit bottom. Commodities markets haven't looked back since.

So these kinds of moments when heads roll, long held tactics change, entire departments are fired can sometimes signal something much larger.

Thus, could the below be a sign that the real estate bubble is finally cresting?

A Prominent Wall Street Bear Calls It Quits excerpt from WSJ.

"One of Wall Street's most high-profile bears during the stock market's bull run in the 1990s -- and more recently a big bear during the real-estate boom -- is going into hibernation, this time for good.

David Shulman, the former chief equity strategist at Salomon Brothers, will retire from his position as senior REIT analyst at Lehman Brothers Holdings Inc. on March 11.

Mr. Shulman had been bearish on the stocks of REITs, or real-estate investment trusts, for the past couple of years -- and wrong, as the stocks delivered annual returns of more than 30% in each of those years and trounced the broader market. And Mr. Shulman isn't shuffling off into the sunset quietly: He still thinks REIT stocks are too expensive."

"Mr. Shulman joined Lehman Brothers to cover REITs in 2000. His resignation comes less than a month after he published his most bearish note on the sector, an outlook for 2005 titled "More Than a Real Estate Mania." In it, he likened selecting REIT stocks for a top-picks list to "rearranging the deck chairs on the Titanic" and predicted the widely tracked Morgan Stanley REIT index would fall 18% this year."

Sunday, February 27, 2005

Jim Rogers not interested.

Jim Rogers on Cavato on Business (CNBC) this weekend predicting that 2005 would be a down year in the US stock market, and 2006 probably worse. His reasoning was that the last 2 years have seen a lot of stimulus from Washington, which is now over, leading to a slowdown in the economy.

Saturday, February 26, 2005

Richard Russell on oil?

Richard Russell publishes Dow Theory Letters (address: La Jolla, California. Where do I get that gig? And note to Richard - web site layout needs work, IMHO, home page looks like a site map) and though I don't keep up with his work much, I think he's had a reasonable record over time, and was one of those people warning about the bubble of the 90's.

My impression (and I could be wrong) was that he was focusing mostly on gold these days ('because it's the only true money'), so it's interesting to see him talking about oil. This article has a some of his commentary and a chart showing a technical target of 64 for the price of oil.

[My internal debate over whether oil is the new gold (inflation hedge, currency alternative) and tech (demand growth story) all wrapped up in one continues..]

Thursday, February 24, 2005

Stratfor on China.

From interviews on CNBC and Barrons:

Stratfor analyst George Friedman suggesting China might be in for a significant slowdown, and possibly a third Asian meltdown. (Japan 1990, East Asia 1996, China 2005-6?)

China has $600 billion in non-performing loans according to S&P, Stratfor thinks it might actually be closer to $1 trillion. They have $650 billion in reserves, Stratfor thinks that's slightly exaggerated, so their bad debts may significantly outweigh their reserves. In addition, there are parallels to Japan in the the real estate / building booms, likely overcapacity in it's industry, misallocated loans, and aging populance. In addition, in China there's seething discontent in rural areas. A number of Chinese companies have recently been shopping for investments overseas, a possible hint of capital flight to safer havens.

Note: A China bubble is something Peter Thiel also suggested. And Jim Rogers said look for a crash in China before investing.

Wednesday, February 23, 2005


Jean-Marie Eveillard, a value manager with a very good track record, was interviewed in the March issue of SmartMoney magazine and disclosed his fund is in the process of buying Korean stocks.

PS. He currently runs the First Eagle Global Fund, but he is retiring soon.

Internet Bubble Part Deux.

Peter Thiel founded and sold it to Ebay (note "to Ebay", not "on Ebay") a few years ago for some very good money. So he's an Internet guy who made money and actually kept it.

He's quite a skeptic about Internet stocks now as he thinks we're in a second Internet bubble, and he recommended shorting Internet stocks at the start of the year. In addition, he thinks that Google is taking the "King of the Internet Stocks" title from Ebay, and so he is a little more positive on Google than things like Ebay, Yahoo, Amazon, et. all.

Read more here.

Tuesday, February 22, 2005

Right next to China.

Mark Headley of Matthews Asian funds suggested on CNBC today that the market people should be paying attention to is South Korea as there's a 'whiff of recovery in the domestic economy' and that it's now turned the corner after a couple of difficult years.

This fund family runs a number of Asian focused funds with solid track records.

Saturday, February 19, 2005

Least researched stocks = high returns?

I crave unique investment insights, and I'm especially interested in them if they're against the grain. So I find this article fascinating.

The concept: a portfolio of some of the stocks that were least researched on Morningstar's site provides on average above market returns in the following year.

Friday, February 18, 2005

Oil & energy.

Oil and energy are an important part of the market, and rather than duplicate posts, if you're interested in energy and oil I'll refer you to my other blog Land of Black Gold .

Thursday, February 17, 2005

Bill Miller - Sunny Side Up.

Bill Miller of Legg Mason Value Trust, fresh off beating the S&P500 for 14 years straight, pens a remarkably positive 4th quarter update in which he drops a few familiar names and slays a few popular dragons (account deficit, falling dollar).

A one line summary: "I am quite optimistic about 2005."

Wednesday, February 16, 2005

Yield curve puzzle.

There's lots of speculation over why long term bond yields aren't budging despite the Fed moves and why the yield curve appears to be flattening, especially since the yield curve is one of the best predictors of growth or recession in 9-12 months.

Is the bond market predicting an economic slowdown or that we are nearing the end of the current up-cycle? [Credit spreads near lows though, which doesn't support this idea.] Is foreign central bank bond buying as they try to hold down their currencies driving down these yields? Is there some type of blow up [ala Long Term Capital] in the wings? Is the 'carry trade' driving it down? Does it reflect the fact that bond investors believe the Fed has control of inflation?

The most interesting speculation I have read recently comes from Stephanie Pomboy of MacroMavens, interviewed [$] a few weeks ago in Barrons:

"Q: That's why interest rates will remain stable?
A: It strikes me that the yield curve might be sending you the signal that basically this is an economy that just can't handle significantly higher long rates. We've gotten to this point on the back of consumers' borrowing, and they are extremely extended and while employment is picking up, it's still not sufficient. I always picture that scene from A Few Good Men where Jack Nicholson says: "You can't handle the truth!" And I'm thinking we just can't handle higher rates. I mean that's it.

Q: The economy has a very low threshold of pain for higher rates?
A: I think it takes less and less of an increase in rates to snuff out economic activity, and it seems like a statement of the obvious. I mean, we've got more and more levered, of course, and it would take less and less of an increase in rates to slow this whole consumption engine down. Consumer credit or cheap credit is the stuff that keeps this economy moving. Raise the price of that, and we're going to move a lot slower. I think that is in part what the yield curve is saying is that this is an economy that's built on a continued supply of cheap credit, and if we want to keep moving forward, we can't let long rates move significantly higher."

Monday, February 14, 2005

Up 25% in 2005?

Ken Fisher made a nice couple of calls in Forbes magazine sidestepping much of the stock market bubble of recent memory. He uses a unique methodology: He examines where most predictions are clustering and avoids those areas of consensus. He focuses instead on the possibilities that people feel aren't likely, as he believes that the real future lies somewhere in those. His bottom line: The market does what people least expect.

On Forbes on Fox this weekend he made a bold prediction for this year's stock market returns. Based on statistics on prior first year presidential terms from the last century, which have been either negative or up greater than 10%, with an average return of 28% in positive years, he's predicting 25% in 2005.

Sunday, February 13, 2005

Jim Rogers - Investment Legend, World Traveler.

Jim Rogers on CNBC, FoxNews, and in his recent books:

1.) Is hot on China. They have made tremendous progress, the people are very hard working, they are embracing capitalism with gusto, but.. he says you must wait until they hit the inevitable air pocket and you see the headline "Crisis in China" of some sort, at which point he will probably be buying. He believes that the 21st Century will be China's, and he believes this so strongly that his infant daughter is learning Chinese and English.

2.) Is hot on commodities. He believes we are in the beginning of a cycle that favors commodities of all sorts: oil, sugar, soybeans, copper, etc. His commodities index fund is one of the best (I believe the best) performing indexes since it's inception in 1998. These moves can be 18 years or so in length, according to his studies of previous cycles.

3.) Is not hot on India. Based on their tremendous infrastructure problems (NY Times seems to agree - registration required), inclination toward bureaucracy, cultural and political bent, and internal infighting, he thinks China will be a much stronger play.

Friday, February 11, 2005

Oil and SP500.

Jim Cramer notes on his radio show that oil now makes up 8% of SP500, versus two years ago when it was 5%. His theory is it goes up to 10%. He also pointed out the breakouts in the Canadian oil stocks.

Not your usual China plays.

Donald Straszheim of Straszheim Global Advisors on CNBC recommending a China play consisting of overweighting those companies who are taking advantage of China opportunities versus those who don't. Eg. Wal-Mart WMT over Target TGT, Yum Brands YUM over Wendys WEN, Godzilla vrs The Incredible Hulk. (Godzilla's next door, after all.)