Another low volume August trading day is behind us. Markets in the US responded rather well to economic data but falling oil prices and gold prices are beginning to take over in importance. Oil was down again and gold followed suit. There was generally still a mixed market most of the day. After what we have been seeing for longer than many care to remember we'd consider a mixed day a partial win. Here are today's unofficial closing bell levels:
Amid an unprecedented decline in the housing market and a significant slowdown in consumer spending, Home Depot (NYSE: HD) is in the unenviable position of being a housing-dependent retailer. Not surprisingly, analysts are skeptical ahead of the company's second-quarter earnings report, which is slated to hit the Street next Tuesday, August 19, ahead of the opening bell.
According to Thomson Financial, analysts are expecting HD to report a profit of 61 cents per share for the recently concluded quarter. During the past year, the company's performance in the earnings spotlight has been mixed. First Call reports that Home Depot has exceeded earnings estimates in two of the past four quarters, and fallen short of the Street's mark in the other two reporting periods. Its second-quarter report a year ago was one of the upside surprises; HD beat expectations by five cents per share last August.
However, it doesn't look like brokerage firms are banking on another Street-beating quarter. There have been 3 downward revisions to HD's estimated annual earnings, compared to just 1 upward revision (per First Call). Meanwhile, the average 12-month price target on the shares is $29.53. This target is a premium of 8.6% to the stock's closing price Thursday, but it represents a discount of more than 23% to HD's current annual high. In other words, analysts' expectations for the stock are rather low.
After seven months of tracking my 2008 picks -- Wham! -- I went from beating the indices and Berkshire Hathaway (NYSE: BRK.B) to being humbled by the market. However difficult it is to display your failings, once again I will share all. This is the low point since I posted the original story Chasing Value: Final list -- 8 stocks for 2008.
Only Reliance Steel & Aluminum (NYSE: RS) remained in positive territory, down from five stocks that were up in the last report. Sometimes, the reasons for the downslide were more obvious than they were in the cases for my picks. The cutting in half of Valero Energy Corporation (NYSE: VLO) has been reported often, as the largest independent oil refiner in North America has had its profit margins squeezed.
Loews Corporation (NYSE: L) has been hurt by its insurance interests and helped by its holdings -- a 51% stake in Diamond Offshore Drilling, Inc. (NYSE: DO) that has been doing well as the world remains desperate for more oil and natural gas.
Those investors/readers who are of the persuasion that the U.S. stock market is about turn the corner should heed the words of caution from legendary banker Bill Seidman.
"There's always a chance of a large bank failure," Seidman told Newsweek. Seidman chaired the Resolution Trust Corporation, the federally-created liquidator for the last banking crisis in the 1980s.
Keep an eye on the big banks
A large bank failure would quickly extinguish what little momentum the market has established from mid July to early August, during which the Dow Jones Industrial Average has risen from about 10,850 to 11,734. Economist David H. Wang said he will not attach a more-positive descriptive to the 884-point move, because he "doesn't want to create unreasonable, and unjustified, expectations."
"First, our technical analyst friends would say the recent move up is still well within the range of a bear market correction," Wang said. "Second, from a fundamental standpoint, we still have major headwinds."
Sy Harding, long-known for his work in cycle analysis, takes a look at the history of Presidential Election Cycle and what this portends for the next few years.
Interestingly, he explains how and why this cycle will impact the direction of the stock market in coming years regardless of which candidate becomes the country's next President. Here's his long-term assessment from his Street Smart Investing.
"As Paul Harvey once said, 'In times like these it helps to recall that there have always been times like these.' Yet the world hardly ever comes to an end. The future arrives. The cycles continue. Sunny weather still follows stormy weather, winter still follows summer, spring still follows winter -- every time.
"For investors there's nothing more important than recognizing that business, the economy, and markets also move in cycles, not endless straight lines. Recessions follow boom times, bear markets follow bull markets, bull markets follow bear markets -- every time.
"There are two cycles, one of intermediate-term duration, the other longer-term, which can be of significant importance to investors. The first is the annual seasonal cycle.
Today the Dow Jones Industrial Average bounced back from yesterday's poor showing. It ended the trading day at 11,397.56, that's plus 266.48(+2.39%) returning more than it had lost only 24 hours ago.
There are plenty of prognosticators explaining why this happened and so I am not going to join the crowd this afternoon with my own version. Leave it to say we are in a period of uncertainty where investors and traders alike are a bit jumpy. We did have a 5.4 magnitude earthquake today in Southern California, only fitting for this type of market.
In the meantime I have been wondering how to take advantage of the lousy situation in the financial sector of the market. How can I maximize my gains and control risk at the same time? I guess we are all trying to do this, but few will appreciate my contrarian, 'no guts no glory' approach.
I think you have to be buying banks and investment companies and I have decided that ten is the right number. Sir John Templeton (RIP) is the catalyst for this notion. I am already on record (Serious Money: More signs the market has bottomed) that this is the time to be selectively buying and 'my pal Warren' said as much at the Berkshire Hathaway (NYSE: BRK.A) annual meeting when he suggested the financials have seen the worst of the storm.
In this series, we take a look at the 25 stocks on the S&P 500 Index (SPX) that have turned in the worst performance during the past decade -- what went wrong, and what happens next.
Be honest -- when was the last time you dropped off a roll of film to be developed? If your response dates back to the 1990s, the unpleasant fate of Eastman Kodak Company (NYSE: EK) probably doesn't need too much explaining. The way we take pictures and use paper has shifted drastically in the past decade, and Eastman has struggled in its attempts to keep up (with more "struggling" than "keeping up" involved, nearly every step of the way).
What went wrong? At No. 11 on our list of SPX dawdlers, EK shed 80% of its value during from June 30, 1998 through June 30, 2008. The stock tapped an all-time high near $95 in early 1997; during the decade in question, the shares peaked at $88.94 in July 1998. It was to be the first in a long series of lower highs for EK as it cascaded down the charts.
Eastman Kodak entered 1998 with an aggressive turnaround plan. The elimination of 20% of EK's payroll was meant to help stem the tide of diminishing profits and market share for the one-time leviathan of photography; the company was floundering in the face of heightened competition from the likes of Fuji. EK also unloaded a chain of retail stores and non-core businesses, but a gradual increase in profits couldn't mask disappointing sales growth.
In this series, we take a look at the 25 stocks on the S&P 500 Index (SPX) that have turned in the worst performance during the past decade -- what went wrong, and what happens next.
General Motors Corporation (NYSE: GM) enjoyed the title of "world's largest automaker" nearly uninterrupted since 1931, with only a few irregular years marring its perfect record. Last year, GM found itself edged out not by its cross-town rival Ford (NYSE: F), but by its Japanese foe Toyota Motors (NYSE: TM).
A slowdown in auto sales is still pressuring companies across the sector, but Toyota's fuel-friendly economy cars -- such as the Yaris, Camry, and Prius hybrid -- have heightened the brand's appeal among consumers wary of high fuel prices. By contrast, GM manufactures the Hummer, flagship vehicle of suburban Earth-haters everywhere.
What went wrong? At No. 12 on our list of SPX laggards, GM shed 79% of its value during the 10-year period that concluded on June 30, 2008. The stock peaked at $94.63 in April 2000 before embarking on a lengthy downtrend.
"We see the growing risk of a watershed decline very soon," warns Martin Weiss, editor of The Safe Money Report. For those looking to speculate on a downside move, or to hedge an otherwise long portfolio, the advisor looks at several inverse ETFs which benefit from a drop in stocks.
"With a new, potentially bigger wave of the credit crisis sweeping Wall Street, and with the latest energy price surge gutting corporate profits, the U.S. stock market is poised to suffer a far sharper and deeper decline.
"Our near-term forecast: A rapid fall - perhaps including a crash - to the market's 2003 lows: 7200 on the Dow, 770 in the S&P 500 Index, and 1100 in the Nasdaq Composite Index.
"That's too much, too fast for you to just 'ride it out' as many on Wall Street are recommending. oreover, it's too soon to say if those levels will be the final bottom; the market could fall even further.
"With the exception of of selected resource companies, we recommend unloading nearly all stocks. In addition, we suggest buying inverse ETFs, which rise in value when the market falls. Here are our highest priority recommendations:
"These four are inverse ETFs - exchange-traded funds that you can buy and sell just like any other ETF or stock, but with one critical difference: They go up in value when the market index they're tied to goes down. And we think they're ideal for this situation."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
If you were looking for another hard day of profit taking on a summer Friday, the markets escaped the hangman. A barely positive durable goods of big ticket items was enough to send the pessimists to the showers and gave the bulls a little more ammo. Throw in an oil ticker showing a drop of more than $2.00 to almost $123.00 per barrel and that's all that was needed. Look at bond yields and you'll see we gave back almost all of yesterday's move.
Arch Coal (NYSE: ACI) tripled earnings posted EPS of $0.78 vs. $0.64 estimates. The stock was up more than 3% in pre-open but was up almost 9% at $55.45 in the final minutes of the day.
Crocs Inc. (NASDAQ: CROX) led the garbage stocks after a very ugly earnings warning last night. It now sees sales for all of 2008 modestly lower than 2007 and is now only targeting a break-even result for 2008. Retailers were noted as keeping inventory re-orders at low levels, which is hard to blame them considering the ugly shoe fad has already started its workdown. Shares were down 44% at $4.99 after shares had already sold of more than 80% from 52-week highs.
There was very interesting post yesterday by Professor Mark Perry of the University of Michigan's School of Management. While we've all been coping with rising prices at the pump and at the supermarket, he's got another way to look at the numbers.
In truth, in spite of all the noise and fear, we've actually seen prices go down dramatically in a number of products. While we focus on food and energy prices, we've seen the following:
Computers have seen prices go down by 90% over the past 10 years.
TVs have experience a 76% drop over the same period of time.
Even autos have dropped by 3.4%
What to make of all this? Professor Perry looks at these drops in light of the fact that average hourly earnings have increased by 40% over the last 10 years. Or, in other words, Perry posits "...there are many, many products that are significantly cheaper today than ten years ago, especially after adjusting for increases in earnings."
So, why don't we pay attention to these dips that make it massively more affordable for me to set up my 73" Flat Panel TV screen?
While Prof. Perry credits the gradual nature of these price drops, I think it's human psychology. Behavioral finance has shown that in investing, we focus a lot more on losses than on gains. So too at the pump -- we're thinking about how much more a gallon of gas costs us than how much less a MacBookPro costs from a couple of years ago.
Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund
As expected, Ford Motor Co. (NYSE: F) posted dreadful results. But the numbers were even more awful than Wall Street feared, sending shares of the company plunging in premarket action.
The number three automaker -- at least for now --- posted a net loss of $8.7 billion, or $3.88 a share, for the second quarter including a $5.3 billion write down of its North American auto business and another $2.1 billion charge. A year earlier, Ford had a net profit of $750 million, or 31 cents per share. Revenue excluding special items fell to $38.6 billion compared with $44.2 billion during the year earlier period.
Excluding one-time expenses, the loss was $1.38 billion, or 62 cents. On that basis, analysts had expected a loss of 27 cents on revenue of $34.6 billion, according to Thomson Reuters.
Some may view the sun as rising while others see it setting. Before you send me your rant that the pain has just begun and I am foolish to believe the recent market upswing is anything but a short term reprieve, let me share a few thoughts.
Today Wachovia Corp (NYSE: WB) reported a loss of $1.30 a share compared to the average analysts' guess of $1.27 a share. WB lost almost $9 billion, is cutting the dividend and will layoff 6,400 employees. All bad news -- and still the the stock and the DJIA are up!
At the same time, oil is trading down about $4 a barrel during the busiest driving time of the year because people are actually conserving gas. The market is working. It should also be noted that after the Bush administration spent over seven and a half years stating various preconditions to establishing relations with Iran, last week they decided to send an envoy and start a dialog. It may be good or bad politics depending on your view -- but it is only good for the stabilization of oil prices.
Editor's Note:This post was written by Terry Woo, one of Minyanville's sharpest minds AND/OR brightest bulbs. For more perspective AND/OR insight, visit www.minyanville.com.
Crude oil is trading lower for a third day in a row.
Currently there's talk out there of demand destruction in other countries (i.e. China's slowing economic growth and slowing U.S. economy). But I don't think there has been enough coverage on financial television regarding Iran.
Remember crude's breakout when the world speculated Israel was preparing to attack Iran's nuclear facilities. And remember more upward pressure when Iran retaliated by test firing its long-range missiles.
As reported by CNN yesterday, Undersecretary of State William Burns is accompanying an EU delegation and will meet with a top Iranian nuclear official... something that hasn't happened in decades! It's a game changing event. That combined with North Korea (cooperating with the world in giving up its pursuit of nuclear weapons), I believe this is simply the Iranian risk premium being taken out of the price of oil.
Investors have watched the precipitous fall in the U.S. dollar over the past few years with trepidation. Investors in Israeli stocks trading in the U.S. have witnessed the once-lowly shekel dominate the dollar (and most other global currencies) over the past two years. It looks, at least from some uber-investors' perspectives, that the dollar may be set to reverse -- a boon for those companies with significant sales in the U.S.
Bloomberg has an article out this morning saying that bond guru, Bill Gross, the manager of the world's largest bond fund, the $129 billion Pimco Total Return Fund, has turned negative on the euro for the first time since its inception in 1999. According to the article, Gross's firm, Pimco, believes that according to purchasing power parity, a measure used to account for differences in exchange rates across countries, the euro is overvalued by 30%.
And Gross isn't the only one who is concerned that Europe may suffer a bigger slowdown than the U.S. in a world confronted with slowing growth and financial snafus. The same Bloomberg article says that according to a recent poll conducted by Bloomberg of global strategists, many think that the euro has seen its day and that the dollar is poised for a rally (hard to believe in the face of Fannie Mae and IndyMac).
Europe's Trichet-led Central Bank has signaled that it may be done raising rates. In fact, given the choice between fighting inflation and re-energizing a sputtering economy, some are betting that the ECB may need to actually lower rates. With a Fed-led plan to bailout the U.S. banking system and the bottoming out of the dollar, it looks like Gross and Co. are betting against the euro for years to come.
Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.
After seven months of tracking my 2008 picks -- Wham! -- I went from beating the indices and 
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If you were looking for another hard day of profit taking on a summer Friday, the markets escaped the hangman. A barely positive durable goods of big ticket items was enough to send the pessimists to the showers and gave the bulls a little more ammo. Throw in an oil ticker showing a drop of more than $2.00 to almost $123.00 per barrel and that's all that was needed. Look at bond yields and you'll see we gave back almost all of yesterday's move. 
As expected, 
Some may view the sun as rising while others see it setting. Before you send me your rant that the pain has just begun and I am foolish to believe the recent market upswing is anything but a short term reprieve, let me share a few thoughts.
Investors have watched the precipitous fall in the U.S. dollar over the past few years with trepidation. Investors in Israeli stocks trading in the U.S. have witnessed the once-lowly shekel dominate the dollar (and most other global currencies) over the past two years. It looks, at least from some uber-investors' perspectives, that the dollar may be set to reverse -- a boon for those companies with significant sales in the U.S.
Slow approach to raising bank capital loses the race against write-offs
Cramer on BloggingStocks: The SEC's waffling will be deadly
How Fannie and Freddie will fail
