Jul

29

Podcast: A Higher Low in the Making?

Pete @ 9:37 PM | | 5 Comments 

WSJ described today’s action as: “The Dow Jones Industrial Average bounced higher by 270 points Tuesday thanks to strong gains in financial stocks, including a surge of more than 14% in component Bank of America. The rally reclaimed the losses experienced in a steep selloff Monday that had also been paced by banking and brokerage shares. Merrill Lynch jumped 8% after it disclosed more credit-related write-downs and plans to sell more stock late Monday. The rally was aided by a another sharp decline in crude-oil prices. The front-month contract on the Nymex fell $2.54 a barrel, or 2%, to settle at $122.19, its lowest settlement since May 6.”

The market is schizophrenic. We’ll take a look at some charts and market sentiment indicators in today’s podcast. My special guest is my client Rex. Sorry if the volume is not so balanced today.

  • Right click ON THIS LINK and select “Save Target/Link As…” to save the MP3 file to your computer.

Articles mentioned in today’s podcast:

  • Hedge Fund Veteran Sees A Shakeout Ahead (includes video)
    He said hedge funds are ultimately a great investment despite the risk with which the vehicles are traditionally associated. “The reality is the vast majority of hedge funds frankly are considerably less risky than owning a large, diversified portfolio of common stocks,” Duff said. “Perception and reality aren’t always the same.”
  • Hedge Fund Manager Describes Rock Bottom
    One by one, John Devaney sold his treasures, hoping to forestall what was in the end inevitable. He sold his Renoir and his Gulfstream, his home and his helicopter. Even his cherished yacht — gone. But on Wednesday Mr. Devaney, who made and then lost a fortune trading mortgage investments, finally called it quits. He shut his hedge fund, and told his investors that all their money was gone too.

Charts mentioned in today’s podcast:


S&P 500 Index, Daily Chart


S&P Financials Sector SPDR, Daily Chart


Crude Oil, Pit Trading, Daily Chart

Objective Market Sentiment Survey

The InVivo Objective Sentiment Survey tracks the number of buy and sell signals generated by InVivo Universal Stops amongst the constituent stocks of the S&P 100 and NASDAQ 100 indexes.


IniVivo Objective Sentiment Survey

Other stories worth watching from the market sentiment perspective:

  • Economist Cover Headline “Unhappy America”
    Nations, like people, occasionally get the blues; and right now the United States, normally the world’s most self-confident place, is glum. Eight out of ten Americans think their country is heading in the wrong direction. The hapless George Bush is partly to blame for this: his approval ratings are now sub-Nixonian. But many are concerned not so much about a failed president as about a flailing nation.
  • A Deposit-Protection Primer
    It has been two weeks since IndyMac Bank was seized in the third-largest bank failure in U.S. history, and even much healthier banks still are getting calls from customers worried about the safety of their money.
  • Merrill Writedowns Could Be Watershed For Banks
    Merrill Lynch’s latest effort to shed its subprime debt could set the standard for a final round of writedowns in the financial sector.
  • Home Prices Fall in May, Erasing Four Years of Gains
    Prices of U.S. single-family homes plunged at a record pace in May from a year earlier, with each of the 20 regions monitored showing annual declines for a second month, according to the Standard & Poor’s/Case Shiller home price indexes reported on Tuesday.
  • Cayman-Registered Hedge Funds Exceed 10,000
    At the end of June, there were 10,037 hedge funds and fund-of-hedge-funds registered in the offshore tax haven, up from 9,413 at the end of 2007, according to the Cayman Islands Monetary Authority (CIMA).
  • Tough Times For Hedge Funds
    According to a survey by trade publication EuroHedge, there has been a sharp slowdown in launches of European hedge funds. New European funds raised a total of $10.8 billion, down from $15.5 billion for the first six months of 2007 and the lowest first-half figure since 2004.

The Peter Lynch Moment

We talked about Chuck E. Cheese, CEC Entertainment, Inc. (NYSE:CEC) in today’s podcast.


CEC Entertainment, Daily Chart

  • According to Reuters CEC is rated by Wall Street analysts a 2.29 which equates to an “Outperform”.
  • CEC Entertainment Q2 earnings beat Wall Street
    Chuck E. Cheese kids’ restaurant chain parent CEC Entertainment posted better-than-expected quarterly results as an enhanced marketing plan and efforts to increase the number of birthday party reservations and fundraising events paid off, boosting its shares 9 percent.

I will spend the rest of this week answering email and reader comments. Thanks for the patience.

Questions and Comments

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  1. Mike (via email) on July 30th, 2008 11:52 AM

    Naked Pragmatism: A few years back we did the big cross-America road trip which in our case consisted mostly of Montana. Of course Canadians justifiably laugh in mock derision when Americans talk about big states like Montana, but for us they really are quite large. Montana is famous down here for having almost no speed limit. Even given that, driving across that state at top speed still takes at least 12 hours.

    I got to choose the audiobook for this portion of the trip and I selected something called The History of Philosophy. You would think such a dry topic would ensure I’d fall asleep at least once or twice and put the car in the ditch, but I was loving it the whole time. So that’s how that portion of my life got started.

    The last section of that book deals with the most recent philosophical movement – the pragmatism movement both started and wildly popularized in America. I should read more books on pragmatism and modern philosophy as my views now are thoroughly polluted by the ill effects this movement has conjured especially in the last years in the markets.

    You, Pete, and perhaps special field reporter B do a much more thorough job scanning the significant financial news items of the day than I do. When I make the broad generalization that these index fund managers in the news due to horrible performance all seem to suffer from arrogance and hubris brought about by their philosophy of naked pragmatism, this conclusion stems from what I read. Go ahead and find me the article on the fund manager who isn’t driven by the mantra of “whatever produces the highest return is the best position to take regardless of any and all information to the contrary”. Sure, no one states such honesty directly, but their actions speak more loudly and their actions have resulted in news articles trying to explain their bad performance.

    When you were talking about one such knucklehead’s use of a ‘quantitative method’ for validating his indicator, I was less than surprised to hear you tell of his ignorance at the difference between the scientific method and a quantitative method. Whenever I witness anyone in the media of apparent requisite perspective talk about applying a simple scientific method approach to a problem, the pundits and the talking heads in the room start braying with fervor indicative of an attack on their core belief system. “Objectivity is for losers! Whatever works is always the best way! Do what works – damn the consequences! God Bless America!”

    Obviously I’m of the opinion that we need a new paradigm shift in our philosophy in this country. Like I said, I need to read a few more books to determine just what that philosophy should be. God knows what kept the recent mindset going strong for so many years was the banking bull market of the last twenty years that you mentioned as well as the dreaded peak oil scenario. Forces this great are going to be rather difficult to overcome if not fade. Perhaps the true new path of philosophy lies with the mindset of the enlightened trader. “To know the way of the enlightened trader is to know the true path of freedom.” All right, that needs editing and won’t fit on a banner on an aircraft carrier so I’ll keep working on it.

  2. Mike (via email) on July 30th, 2008 11:53 AM

    A year from now, let’s all revisit the Chuck E Cheese empire to see how that Peter Lynch movement play out!

  3. Teresa on July 30th, 2008 11:55 AM

    Rex wrote to me last night after the podcast, that Zack’s has a *strong buy* rating on CEC. So I’d say that the news is starting to get out.

  4. Christopher on July 30th, 2008 7:32 PM

    Just sharing after hearing your podcast - I’m partial to the rendition of “I’m Still Here” by Shirley MacLaine from the move “Postcards From the Edge. See it at YouTube.

    Enjoy!

  5. Teresa on September 22nd, 2008 3:42 PM

    Rex just called to reiterate his three rules of success: 1. It takes money to make money, 2. You must choose the right vehicle, and 3.And then, use the Stops.