The Big Picture for the Week of November 28, 2004

Anyone have any thoughts about what is next for US capital markets? To borrow from an old joke about economists, if you put ten different equity strategists in a room you’d get eleven different opinions. There is ample historical precedent for equities to rise in price when there seems to be no reason for a rise. As more experts get confounded by a market that should not be going up, more capital will flow in and life prices more for a while. That being said, nothing has changed with regard to the composition of the wall of worry. It makes sense to continue to diligently study the dollar, the deficits, and so on because there is a good chance that these problems will at some point hurt US markets. Ongoing study will allow a better understanding of how to invest around current and future events. For example the dollar hitting multi year lows against the Korean won has different implications for investing in Korea than investing in other countries whose currencies are hitting multi year highs like Switzerland or Australia. If today’s concerns never materialize, well that great just don’t bet on it. There is an article in Business Week dated Dec 6 about value fund managers that have high cash positions because the managers are having trouble finding names to invest in. The brings out one of the many many reasons why I don’t like open end funds. Let me say up front that this is not about the managers but the world they operate in. The article mentions five funds with cash positions ranging from 20% to...

Trader Wizard

Trader Wizard Congratulations to Bill Cara on the Barron’s write up! This type of attention, as I have written before, is good for the entire...

Whats Working Now

Not to sound like Jonathan Hoenig (who I think brings a lot to the table), but I thought it would be worthwhile to talk a little about what has been working lately. A few weeks ago I mentioned that I was increasing equity exposure and beta in the portfolios I manage. I further said I was adding more low beta, high yielding foreign stocks and adding beta with domestic names. The core strategy was that the dollar will get weaker bond yields will go up and owning foreign stocks and bonds, increasing exposure to commodity based economies would provide outperformance. The counter straetgy was that I don’t expect great things from the US markets but if I am wrong the high beta I have added should provide enough alpha for me to keep up with the market. It has worked out incredibly well, you can call it luck or skill I don’t care. The bottom line is I have slightly outperformed the market with about 15% still in cash, the cash position helps reduce the beta. While I have increased beta, I still don’t want to have a beta greater than the market just now. I believe both of these themes will continue to work and I would build a new account around most of these same names today. Here’s a rundown of the areas I have bought recently, I will avoid naming some of the less liquid names so no one thinks I am pumping and dumping. In higher beta I added Dell, before the earnings (lucky), a software name that is up about 5%, and a smaller...

Frustrating Morning

The futures point to a higher opening. I touched briefly on the history of Black Friday yesterday, so a lift would not be surprising. There is a lot going on in the world today with the dollar and some chatter about China doing something its US treasury holdings. I read that Chinese officials are denying any selling but it might be useful to hear a little more detailed information. CNBC is talking about purple Ugg boots and whether Black Friday should be a national holiday. Simon Hobbs, from CNBC Europe, will probably be all over the dollar story on European Closing Bell. (Hey Spongebob is on the floor, wahoo!). A lot of bloggers and other market participants express frustration with CNBC and today is my turn. They dumb down almost everything they talk about, the target audience must not be people in the business. Fox News is starting a stock market channel, which I believe may be a catalyst for my tryout next month, perhaps that will be a little better? I will say Bloomberg TV offers more insight but the data on the screen is seems poorly formatted. A good question to ask is if the US stock market continues to do well with the ever weakening dollar and all the problems is does any of it matter? Many people think deficits and a weak currency don’t matter. I have written before that I am concerned about these issues and more but US stocks keep going up. That is after all the bottom...

Happy Thanksgiving

Just a couple of random thoughts before I go cook a turkey: The dollar is continuing lower today. It has a 1.32 handle against the Euro, a 1.14 handle against the Swissi (thanks to DD for posting the correct spelling!), and it is well below 1100 against the Korean Won which is a multi year low . The US equity market had a decent rally Wednesday, albeit on very light volume, in the face of this dollar event. Will this ever matter? I would think eventually it has to but maybe not. The Bush administration seems content so maybe the market should be content too. The US stock market is always up on Black Friday (the day after Thanksgiving which always is a big Christmas shopping day). While I don’t plan to trade the event I will be curious to see if it happens again. Earlier this week I mentioned that Bill McClaren thought the ASX would drop 300-400 points after making a major reversal. Since then that market has rallied 2% in three trading days which is a lot for the Australian market. If Bill thinks a correction is coming I’m not going to disagree, but I wonder if it can rally some more before that happens? European markets are mostly higher, Russia is standing out a loser today due I’m sure to what is going on in the Ukraine. Am I the only one that thinks that news footage from the Ukraine covering the contested election looks like its from the 1980’s? Lastly, thanks to all of you that read my commentary, put up links and say...