Archive for the ‘The Wide Angle’ Category

The Wide Angle – January 28, 2008

Monday, January 28th, 2008

Tags: Diamonds (DIA), Spiders (SPY), NYSE Euronext (NYX), NASDAQ (NDAQ)

9 am ET…January 24…2008 — The Big Picture, in Sharper Focus

The January Effect… for GARP Investors

A number of investment theories proliferate at this time of year…though after this month’s volatile market and steady decline, the January Effect provides a reasonably reliable barometer. The prevailing theory is “How goes January, so goes the year”. A corollary states that it is really the first five trading days that serves as a harbinger of the year.

Either way, one or both of these measures have applied for each of the past ten Januaries… whether it meant an up or down year. For example, the last time both measures correlated, each was up and the change for the year was 16% in the same direction. In 7 of the past ten years, the month end January has correctly foretold the direction of the market by year end, at least as measured by the Dow Jones Average.

With an average change of 10% over the last ten years, this translates into a forecast of the Dow at 11,900 (2007’s close of 13,265 less 10%). This means if the Dow is down by the end of January, which is likely based on the January Effect, it will close down for the year in general, and a reasonable forecast would be 11,900. The table following illustrates the raw data.

Relating this to our Presidential Rankings table (click here for link to that article)…this results in a gain in the Dow while Bush was in office of 12%, placing him in a tie for 14th place with John F. Kennedy. Of course, there will still be another 20 days until inauguration of the next President. The next milestone for Bush is Jimmy Carter’s Presidency, # 15, during whose Administration, the Dow fell 1%. That would be a Dow of 10,500 or about 2,700 points lower than today.

This needs not be a profitless forecast for investors, however. Diamonds (DIA: $122.19), Spiders (SPY: $133.04), NYSE Euronext (NYX: $75.65) and the Nasdaq Stock Market (NDAQ: $42.98) are all possible trading vehicles to express your investment point-of-view, and each moves in a tandem direction with market sentiment. The following graph illustrates —

The above acronym, GARP, stands for Growth at Reasonable Price. Not much has been written about GARP lately. This is likely to change. Bear markets, as the one we are in, are about the only time an investor can find a bargain. That’s when value is created. To paraphrase Donald Trump, ‘your profit is based on where you buy, not where you sell’.

The challenge, of course, is developing some criteria to help assure the bargain you’ve spotted doesn’t turn into a long term loss.

Let us hear your thoughts below:

The Wide Angle – January 22, 2008

Tuesday, January 22nd, 2008

Last month, in the Corporate Americana series, the performance of the Dow Jones Average was mapped out in relation to the Presidents of the USA on the basis that this served as a reasonable proxy to measure the country’s collective confidence and economic outlook under each Administration. Each President was then ranked from the best stock market performance as measured by the Dow (Calvin Coolidge was #1, up 247%) to the worst (Hoover, down 80%).

At the time this table was prepared (December 7th), George Bush ranked # 11 with the Dow up 29% since his inauguration on January 20, 2001 to 13625. The reason for using the Dow Average on the barometer for the political economy was that it is the longest running index available, created in 1897 by Charles Dow and Ed Jones. Updating that table to Friday’s Dow’s close, at 12099, has reduced the gain since inauguration to 14%, and bumping Bush down to # 13.

 

 

We posed the question to our readers whether such a performance valuation for Bush was consistent with economic reality — that a flattish assessment, á la Jimmy Carter, down 1%, might not be a more realistic expectation. That would mean a drop in the Dow of another 3000 points.

We further postulated what the Dow would be, using the performance benchmarks of some other past Presidents, such as Nixon and Hoover. Updating this to the Dow’s closing last Friday, January 18th, here is the forecast ~

A President Carter Performance Valuation, down 1% from the Dow Average when Bush was inaugurated means a Dow closing at 10474, or down another 1625 points from here by January 20, 2009;
A President Nixon Performance Valuation, down 26%…Dow at 7829 or down another 2751 from here by January 20, 2009;
A President Hoover Performance Valuation, down 80%…Dow at 2116 or down another 8464 points from here by January 20, 2009.

While there are indeed some equities that still warrant investors’ attention — and two are mentioned in today’s edition of Ronin’s Daily Views, IF you can overlook the rhetoric from the media and the government, and recognize the stock market may be headed lower, you might be doing your portfolio a favor.

Consider the selling of the Diamond Trust (stock symbol DIA, last Friday’s closing: $120.57). This is a trust that represents about 1% of the Dow Jones Average. It is in near-perfect correlation to the price movements of the Dow Average. Here’s the graph.

 

 

Let us hear your thoughts below:

The Wide Angle – January 9, 2008

Wednesday, January 9th, 2008

Sea Change

With results in from both Iowa and New Hampshire, it isn’t too early to begin forming conclusions about the 2008 General Election. This looks like a Sea Change Election Year. There haven’t been many. The last was 1980 when Ronald Reagan defeated Jimmy Carter. The Sea Change Election before that, 1968 when Nixon defeated Humphrey and prior to that 1952 when Eisenhower replaced the FDR administration.

There is only one characteristic that distinguishes between a Sea Change Election Year from the ordinary General Election: The Electorate is signaling a Change of Direction. Both Primaries point to such an event and this is what makes the 2008 Election more exciting than usual…and perhaps, a bit more intense. Voter turnout surpassed the 70% level in both States. Historically, voter turnout has been decreasing since 1968’s 61% voter participation.

The Republican and Democratic winners in Iowa, Huckabee and Obama respectively, are seemingly different but with a number of similarities. Each is their party’s youngest. Each is also the least angry…maybe because of their ages…and while each is less experienced in national politics relative to their competitors, this is a Sea Change Plus.

New Hampshire’s results do not alter the Iowa template. Hilary nudged ahead of Obama relying on old-time political Democratic Machinery, and with all that, got less than 6,000 more votes than Obama. This is a fact. The editorial staff here doesn’t call that a Come Back, but more of a Respectable Exit. McCain similarly relied on the old machinery used in 2000, when he also won the Primary. Huckabee’s # 3 showing among the Republican Presidential contenders does not diminish his presence on the national stage.

Here’s the wide Angle – staring in February 2006, all national polls began consistently indicating that Americans thought the Iraqi War a mistake. What Iowa told us is that a candidate’s national electability will be a function of his or her distance from that war and New Hampshire validates that the usual political machinery cannot trump that sentiment.

The decision between Obama and Huckabee, should those be the country’s final choices, may well turn out to be which candidate is perceived to represent the mentality of a Third Party without actually having to start one.

Before leaving the past, let’s revisit 1980. Jimmy Carter had to be an easy opponent. Iran was holding over 100 Americans hostage, interest rates and inflation were both over 20%. Nevertheless, before you join the ‘Trash Jimmy Carter’ crowd, know this factoid:

One of President Carter’s last acts as President, by Executive Decree no less, was to get the Federal Government out of the brewing business by deregulating brewers. Yes, folks, at cocktails parties, you would be factually correct to state that the mini-brewery industry is a legacy of the Jimmy Carter Presidency.

Here are three regional brewers in this space, and public companies to boot…and note the years these companies were founded. Make note of the economic benefits to the American Economy — $400 million in Revenues that would not exist if it weren’t for Jimmy Carter, over 1,000 jobs and $600 million in aggregate stock market values.

Samuel Adams (SAM: $35.15). Founded 1984; Revenues of $320 mm, 433 employees

Red Hook Ale (HOOK: $6.35). Founded 1981; Revenues of $40 mm, 134 employees

Pyramid Breweries (PMID: $2.25). Founded 1986; Revenues: $48 mm. 480 employees

A few mini-breweries stand out that are private. For devotees of Fat Tire Beer, it is brewed by New Belgium Brewing in Colorado. Also worthy of note is the brewer of Pete’s Wicked Ale, the Gambrinus Company of Texas.

Let us hear your thoughts below: