Thursday
Apr102008

Withdrawal Pains

It seems like just last year that individual investors without seven figure incomes were trying with little success to get into hedge funds.  Today, they can't get out of them.  In an article in today's WSJ, Greg Zuckerman highlights that in addition to institutions and the wealthy, smaller investors are finding that requests for withdrawals are being refused as funds institute their lock-up policies.  It's also probably safe to assume that given their large asset pools in the line for the exits, the institutions and the clients with the most assets will be the 'women and children', while the smaller investors will be the most likely to go down with the ship while paying management fees to the bitter end. 

Whether it's the above example of hedge funds, the lock up of the Auction Rate Securities (ARS) market, or the issue we cited with the ETF DCR yesterday, when presented with an investment opportunity, investors should know not only what they are investing in, but also understand what limits they will have on their funds.

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Thursday
Apr102008

Historical S&P 500 P/E Ratio

For those interested, below we highlight the historical trailing 12-month P/E ratio of the S&P 500 since 1942.  The green and red shading represents bull and bear markets of the S&P 500.  Bull markets are rallies of 20% that were preceded by a decline of 20% and vice versa for bear markets.  Generally you see P/E expansion during bull markets and P/E contraction during bear markets.  However, the most recent bull market saw P/Es contract from high levels, and during the recent correction, P/Es have expanded.  The current trailing 12-month P/E of the index is 20.5 versus an average of 15.90 since 1942.

Spxpe410

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Thursday
Apr102008

Energy Stocks Up 8 Days In A Row

The S&P 500 Energy sector has been up 8 days in a row for a gain of 6.59%.  Over the last 20 years, the sector has been up 8 days in a row 9 other times, and it has gone higher on the 9th day 67% of the time for an average gain of 0.24%.  Over the next week, however, the average change turns to -1.76% as investors lighten up on shares.

Energystockstreak

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Wednesday
Apr092008

Stick With Sashimi -- Rice Prices Soar

Now that rice riots across the globe are making headlines, we thought we'd post a historical chart (non-inflation adjusted) of the commodity since 1988.  Since bottoming at $3.43 in 2002, rice has risen 503.5% to its current price of $20.7 for 100 pounds.

Riceprices

Wednesday
Apr092008

Dow Member Earnings Reports

All 30 Dow stocks will report earnings by May 20th, and below we highlight just a few of their earnings statistics that Bespoke Premium members have access to for all US stocks.  For each stock, we highlight its expected report date, its EPS estimate for the current quarter, the 4-week change in that estimate, the percentage of the time it has beaten EPS estimates since 2001, and the average 1-day percent change in response to earnings since 2001.  Premium subscribers arm themselves with this data for stocks they own in order to be prepared on report days.  Knowing how stocks typically report or how they react to good or bad reports gives users a one up on other investors. 

We highlighted in green those Dow stocks that have beaten quarterly estimates more than 80% of the time since 2001.  Stocks highlighted in red have beaten estimates less than 50% of the time.  GE and MCD have the lowest EPS "beat" rates, but they generally report right inline with estimates.  In the Dow, JNJ and UTX both have EPS "beat" rates above 90%, and they have also averaged gains on the first trading day following their reports.  UTX averages the best returns on report days, while INTC averages the biggest declines.

As we mentioned earlier, Bespoke Premium members have access to a full calendar of stocks expected to report in the coming weeks.  Along with this info, the calendar gives the percent of the time the stock beats revenues, the percent of the time it raises guidance, and the average gap and open to close changes on report days.  Members also have the ability to sort the calendar of more than 2,000 stocks to find ones that beat or miss estimates or go up or down the most on earnings.  Click here to subscribe and access our Earnings Season Calendar as well as our numerous other products.

Dowearnings

Wednesday
Apr092008

DCR (Inverse Oil) Down 26%

Dcroil1_2Oil is trading up more than $3 today to $111.68.  DCR is the MACROshares inverse oil note that trades on the AMEX.  When oil goes up, DCR goes down.  When oil goes down, DCR goes up.  Today, however, DCR is down more than 26% even though oil is up just 3.12%.  What gives?

When DCR began trading back in November 2006, oil was trading at around $60 per barrel.  DCR trades along with UCR, which is the MACROshares oil up note.  The net asset value (NAV) of UCR is the front-month oil contract price divided by three.  The NAV of DCR is $40 minus the NAV of UCR.

The reason DCR is down so much today is because there is an early termination clause in the structure of the notes.  If the front-month price of crude closes above $111 for three consecutive days, the termination clause takes place and the notes will stop trading at their NAVs on the 4th business day prior to the end of the quarter that the termination occurs.  Shareholders will receive distribution on the 3rd business day following the end of the quarter.

Going into today, DCR was trading at just over $9 per share, but its NAV was $3.82.  Remember, if oil closes above $111 for 3 consecutive days, the termination clause goes into affect and the shares are redeemable at NAV at the end of the quarter.  As oil trades above $111, the share price has moved lower and lower.  This trend should only accelerate as oil stays above $111.  Currently, DCR is down 26.33% to $6.76.

We sent our Premium subscribers a B.I.G. Tips report on this earlier today when oil was trading near $109, but there hasn't been much mention of this in the financial world.  It should garner more attention if the potential termination trigger becomes a reality.

The termination clause is mentioned many times in the prospectus for DCR, and MACROshares explicitly points out the risks involved in investing in the notes.  This should still remind investors to make sure they know exactly what they're investing in before they put money to work.

Wednesday
Apr092008

Economist Growth Estimates Down; CPI Up

Along with their recession odds estimates, Bloomberg released their monthly economist survey on GDP and CPI as well today.  As shown below, the median GDP growth estimate of the 62 economists surveyed is now 0.0% for both Q1 and Q2 of 2008 -- down from 0.10% and 0.50% in last month's survey.  Economists are still expecting a pickup in the last half of 2008 and Q1 '09. 

Medgdp1

Economists also raised their CPI estimates for all four quarters that they had estimates on last month.  GDP down and CPI up is not a good economic formula, but it should come as no surprise that these estimates have been lowered.

Medcpi

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Wednesday
Apr092008

US Recession: Economists Now Inline With Traders

Bloomberg released its monthly survey of economists this morning, and as shown below, the economists collectively say there is now a 70% chance of a recession in the US in the next year.  This is a big increase from the last two months when they put the odds at 50%.

Over at the prediction market, Intrade, the odds for a recession in 2008 have been much higher since the start of the year.  As shown in the bottom chart, traders of Intrade recession contracts have had the odds of a recession at or close to 70% since the beginning of '08, when economists were still at 40%.  Now, the two are right inline with each other.

Economistodds

Intraderece_3

Wednesday
Apr092008

Inverse Oil Trust vs the Price of Oil

One of the dangers of investing in new products is not fully knowing how they are structured.  One of these products that recently came to our attention is the MACROshares Oil Down Holding Trust, which is traded on the AMEX under the ticker DCR.  This security allows investors to make a bearish bet on Oil by going long the shares.

When DCR began trading back in November 2006, Oil was trading at $63.13 per barrel.  As the price of Oil has risen to more than $100 per barrel since then, DCR has obviously traded down.  However, the share price of DCR is currently trading significantly above its Net Asset Value (NAV)

Dcroil

Wednesday
Apr092008

Analysts vs. Thain

With the recent headlines regarding capital infusions to cover losses in the credit market, we found it interesting when we saw the following headline in this morning's Financial Times:

"Merrill To Use Its New Capital For Investment Outside Of US"

The article goes on to say that Merrill has raised "more than $4 bln more capital than it lost as a result of the subprime crisis."

Over the last several weeks, there have been several analyst calls saying that Merrill would need to raise more capital due to additional asset writedowns.  At the same time, CEO John Thain has said multiple times that the firm does not need to raise additional capital.  Now he is upping the ante by saying the company will use some of its 'increased' capital to invest in new opportunities. Obviously Thain and the analysts cannot both be right, but until Merrill Lynch reports earnings on April 17th, you can expect the stock to trade sideways as each side voices their opinion.

Tuesday
Apr082008

S&P 1500 Group Fundamentals

Each week we publish our rating system on S&P 1500 stocks for Bespoke Premium subscribers.  This system makes up our Bespoke Stock Scores database, and each stock gets a fundamental, technical and sentiment rating.  The ratings for individual stocks are based on how they stack up versus the other stocks in their group. 

Below we highlight the average fundamental ratios for the 24 groups that make up the S&P 1500.  Numbers highlighted in green mean the group is better than the average for the entire S&P 1500 and vice versa for red highlights.  No groups are currently better than average in all six fundamental categories, but five groups rank better than average in five of six categories.  These five groups are autos and auto components, capital goods, food and staples retailing, materials and retailing.  There are seven groups that are worse than average in four of six categories -- consumer durables and apparel, consumer services, health care equipment and services, pharmaceuticals and biotech, real estate, semiconductors and software and services.

To gain access to our Bespoke Stock Scores as well as a number of other in-depth research products, subscribe to Bespoke Premium today.

Groupfund

Tuesday
Apr082008

Summer Doldrums in April?

Whether it's global warming or the Mets home opener, today's market is experiencing a severe case of the Summer doldrums in April.  With an intraday range of 0.70% from high to low, the S&P 500 is trading in its narrowest range of the year.  Putting this in perspective, the average high/low spread for the S&P 500 so far in 2008 has been 2.1%, or three times today's range.  Hey, we're not complaining.

Spx_040808_2

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Tuesday
Apr082008

Commodity Price Forecasts

Even though commodities have rallied significantly in recent months, quarters and years, commodity analysts as a whole still think they're too pricey.  Below we highlight the median price targets for Oil, Natural Gas, Gold and Silver for the next four quarters and 2009, 2010 and 2011.  As shown, each chart is downward sloping from the current price.  The median analyst has an Oil price target of $88 for the end of 2008 and $80 by year-end 2011.  Natural Gas is expected to decline from $9.89 to $8.85 by year end and $8.00 by year-end 2011.   Gold and Silver are expected to fall, but much less than Oil and Natural Gas.  The median year-end 2008 price target is $900 for Gold and $16 for Silver.

Oilforecast

Natgasforecast

Goldforecast

Silverforecast   

Tuesday
Apr082008

US ETFs Furthest Above and Below 50-Day Moving Averages

Yesterday we highlighted the stocks in the Russell 1,000 that were trading the furthest above their 50-day moving averages.  Below we highlight the ETFs that are trading the furthest above and below their 50-days.  From our daily ETF Trends reports at Bespoke Premium, we gathered more than 200 actively traded US ETFs to find the ones most overbought and oversold.  As shown below, the Homebuilders ETF (XHB) is currently the most overbought at 12.44% above its 50-day.  Steel (SLX) ranks second at 11.51%, followed by OIL, DBO and Spain (EWP).

Etf50day_2

DCR is the ETF trading the furthest below its 50-day moving average.  It represents the inverse of Oil, and with the commodity approaching all-time highs once again, DCR has struggled in recent days (more on DCR later).  The Health Care Providers ETF (IHF) ranks second worst at -10% below, followed by India (INP), Malaysia (EWM) and Financial Preferreds (PGF).

Etf50daybelow_2   

Tuesday
Apr082008

S&P 500 Year End Price Targets

Since we last updated our strategist forecasts for the S&P 500, only HSBC has lowered estimates (from 1,600 to 1,450).  As shown below, the current consensus year-end price target is 1,519, which is 10.64% above the S&P 500's current level.  At the start of '08, the year-end price target was 1,632, which was 11.12% above its 12/31/07 close.  Strategists have pretty much lowered estimates at the same rate that the market has declined.

08pricetargets_2

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