tag:blogger.com,1999:blog-89145506900479458382024-03-13T10:08:38.755-05:00Bull Bear Trader<br><i><b>"Profit from your knowledge!"</b></i>
<br><br>The Bull Bear Trader discusses market events and news with an interest in understanding risk and return in both bull and bear markets. Discussion topics include trading and hedging strategies, derivatives, risk management, hedge funds, quantitative finance, the energy and commodity markets, and private equity, as well as an occasional investment opinion.Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.comBlogger622125tag:blogger.com,1999:blog-8914550690047945838.post-24030219240581223572009-11-20T11:25:00.004-06:002009-11-20T11:34:59.786-06:00TIM Report: Market Sentiment Still Bullish in US, Down Globally, with TJX, BAX, and DKS as longs, DRYS, GS, and POT as shortsAccording to the recent TIM (Trade Ideas Monitor) report for the week of November 13-19, 2009, the TIM Sentiment Index (TSI) increased 0.85 points to 55.29, staying within bullish territory (see <a href="http://www.bullbeartrader.com/2009/11/tim-report-market-sentiment-down-but.html">last week's post</a> and the <a href="http://www.youdevise.com/tradeideas/index.php">youDevise website</a> for additional information on the TIM report, a reading above 50 is bullish). On the other hand, the TSI Worldwide Index dropped 4.61 points to 47.13, falling in bearish territory. Only two sectors were bullish, with seven bearish, and one neutral. Total new long ideas as a percentage of all new ideas sent to investment managers by way of the TIM fell to 62.89% from 73.61%.<br /><br />As for individual securities in the U.S. and North America, TJX Companies (TJX), Baxter International (BAX), and Dick's Sporting Goods (DKS) were stocks with long broker sentiment, while DryShips Inc. (DRYS), Goldman Sachs (GS), and Potash (POT) had short broker sentiment. In general, the information technology and energy sectors had long broker sentiment, while the telecommunications services, industrial, and consumer staples sectors had short broker sentiment.Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-71701813686673325922009-11-13T08:16:00.004-06:002009-11-13T08:24:19.187-06:00TIM Report: Market Sentiment Down, But Still Bullish, with STT, AAPL, and AMZN as longs, FDO, TOL, and ESV as shortsAccording to the recent TIM (Trade Ideas Monitor) report for the week of November 6-12, 2009, the TIM Sentiment Index (TSI) fell 1.05 points to 54.44, staying within bullish territory (see <a href="http://www.bullbeartrader.com/2009/11/tim-report-market-sentiment-moved.html">last week's post</a> and the <a href="http://www.youdevise.com/tradeideas/index.php">youDevise website</a> for additional information on the TIM report, a reading above 50 is bullish). The drop in the TSI Worldwide Index was much larger, falling 5.60 points to 51.74, but still staying in bullish territory. Eight of the ten sectors were in bullish territory with the remaining two bearish. Total new long ideas as a percentage of all new ideas sent to investment managers by way of the TIM increased 0.41 points to 73.61%.<br /><br />As for individual securities in the U.S. and North America, State Street (STT), Apple (AAPL), and Amazon.com (AMZN) were stocks with long broker sentiment, while Family Dollar (FDO), Toll Brothers (TOL), and Ensco International (ESV) had short broker sentiment. In general, the information technology, utilities, and telecommunications services sectors had long broker sentiment, while the materials and consumer discretionary sectors had short broker sentiment.Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-15934149148701735842009-11-06T08:06:00.004-06:002009-11-13T08:15:42.125-06:00TIM Report: Market Sentiment Moved Bullish, with RIMM, X, and BAC as longs, WFC and AMR as shortsAccording to the recent TIM (Trade Ideas Monitor) report for the week of October 30-November 5, 2009, the TIM Sentiment Index (TSI) rose 5.65 points to 55.49, moving into bullish territory (see<a href="http://www.bullbeartrader.com/2009/10/tim-report-market-sentiment-bearish.html"> last week's post</a> and the <a href="http://www.youdevise.com/tradeideas/index.php">youDevise website</a> for additional information on the TIM report, a reading above 50 is bullish). The TSI Worldwide Index also increased 7.55 points to a bullish 57.34 reading. Nine of the ten sectors were in bullish territory with only one bearish. Total new long ideas as a percentage of all new ideas sent to investment managers by way of the TIM increased 5.64 points to 73.20%.<br /><br />As for individual securities in the U.S. and North America, Research In Motion (RIMM), US Steel (X), and Bank of America (BAC) were stocks with long broker sentiment, while Wells Fargo (WFC), and AMR Corp (AMR) had short broker sentiment. In general, the consumer discretionary, energy, and materials sectors had long broker sentiment, while the consumer staples had short broker sentiment.Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-22811567106493853822009-10-30T09:47:00.006-05:002009-10-30T10:01:43.649-05:00TIM Report: Market Sentiment Slightly Bearish, with VFC, ORLY, and FSLR as longs, LVS, MU, and NVDA as shortsAccording to the recent TIM (Trade Ideas Monitor) report for the week of October 23-29, 2009, the TIM Sentiment Index (TSI) is borderline bearish at 49.83, after the North American index fell 1.17 points (see <a href="http://www.bullbeartrader.com/2009/10/tim-report-profit-taking-results-in.html">last week's post</a> and the <a href="http://www.youdevise.com/tradeideas/index.php">youDevise website</a> for additional information on the TIM report, a reading above 50 is bullish). The TSI Worldwide Index actually increased 1.76 points, but was also still just below the break-even point at 49.79 points. Four sectors were in bearish territory, four were neutral, and two were bullish. Total new long ideas as a percentage of all new ideas sent to investment managers by way of the TIM increased 2.15 points to 67.56%.<br /><br />As for individual securities in the U.S. and North America, VF Corp (VFC), O'Reilly Automotive (ORLY), and First Solar (FSLR) were stocks with long broker sentiment, while Las Vegas Sands (LVS), Micron Technology (MU), and NVIDIA Corp (NVDA) had short broker sentiment. In general, the consumer staples and consumer discretionary sectors had long broker sentiment, while the energy, utility, and telecommunication sectors had short broker sentiment.Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-89740414261694513172009-10-23T08:52:00.011-05:002009-10-23T09:10:53.405-05:00TIM Report: Profit Taking Results In Less Bullish Market Sentiment, with IR, TEX, and FCX as longs, RIMM, WYE, and STJ as shortsAccording to the recent TIM (Trade Ideas Monitor) report for the week of October 16-22, 2009, increased profit taking resulted in drops in market sentiment in the U.S., with the TIM Sentiment Index (<span class="blsp-spelling-error" id="SPELLING_ERROR_0">TSI</span>) was down 8.32 points in North America to a significantly lower, but still bullish 51.01 (see <a href="http://www.bullbeartrader.com/2009/10/tim-report-brokers-more-bullish-with_16.html">last week's post</a> and the <a href="http://www.youdevise.com/tradeideas/index.php"><span class="blsp-spelling-error" id="SPELLING_ERROR_1">youDevise</span> website</a> for additional information on the TIM report, a reading above 50 is bullish). The <span class="blsp-spelling-error" id="SPELLING_ERROR_2">TSI</span> Worldwide Index was down 5.57 points, falling into bearish territory at 48.03. Eight sectors were in bearish territory, with two bullish. Total new long ideas as a percentage of all new ideas sent to investment managers by way of the TIM decreased 5.81 points to 65.41%.<br /><br />As for individual securities in the U.S. and North America, <span class="blsp-spelling-error" id="SPELLING_ERROR_3">Ingersoll</span>-Rand (IR), <span class="blsp-spelling-error" id="SPELLING_ERROR_4">Terex</span> Corp (TEX), and <span class="blsp-spelling-error" id="SPELLING_ERROR_5">Freeport</span> <span class="blsp-spelling-error" id="SPELLING_ERROR_6">McMoRan</span> (<span class="blsp-spelling-error" id="SPELLING_ERROR_7">FCX</span>) were stocks with long broker sentiment, while Research In Motion (<span class="blsp-spelling-error" id="SPELLING_ERROR_8">RIMM</span>), Wyeth (WYE), and St. Jude Medical (<span class="blsp-spelling-error" id="SPELLING_ERROR_9">STJ</span>) had short broker sentiment. In general, the utilities and consumer staples sectors had long broker sentiment, while the information technology, health care, and energy sectors had short broker sentiment.Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-85578832347655329062009-10-16T15:21:00.003-05:002009-10-16T15:40:00.459-05:00TIM Report: Brokers More Bullish, with GWW, ORLY and PFE as longs, CHK and SWY as shortsAccording to the recent TIM (Trade Ideas Monitor) report for the week of October 9-15, 2009, market sentiment in the U.S. became even more bullish. The TIM Sentiment Index (TSI) was up 3.87 points in North America to 59.32 (see the <a href="http://www.youdevise.com/tradeideas/index.php">youDevise website</a> for additional information on the TIM report). The TSI Worldwide Index was down 0.96, but remained bullish at 53.60 (a reading above 50 is bullish). Six sectors were bullish, while three were bearish and one was neutral. Total new long ideas as a percentage of all new ideas sent to investment managers by way of the TIM increased 2.69 points to 71.22%.<br /><br />As for individual securities in the U.S. and North America, WW Grainer Inc (GWW), O'Reilly Automotive (ORLY), and Pfizer (PFE) were stocks with long broker sentiment, while Chesapeake Energy (CHK) and Safeway (SWY) had short broker sentiment. In general, the information technology, financial, and energy sectors had long broker sentiment, while the utilities had short broker sentiment.Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-14807040303019543242009-10-02T09:33:00.004-05:002009-10-02T09:54:38.398-05:00TIM Report: Brokers More Bullish, with PAG, BYI, and CHKP as longs, MGM and CTXS as shortsAccording to the recent TIM (Trade Ideas Monitor) report for the week of September 25 - October 1, 2009, market sentiment became more bullish. The TIM Sentiment Index (TSI) was up 2.11 points in North America to 53.16 (see <a href="http://www.bullbeartrader.com/2009/09/tim-report-bullish-brokers-sentiment.html">previous post</a> and the <a href="http://www.youdevise.com/tradeideas/index.php">youDevise website</a> for additional information on the TIM report). The TSI Worldwide Index was also up, increasing 3.83 points to 51.42. Six sectors were bullish, while three were bearish and one was neutral. Total new long ideas as a percentage of all new ideas sent to investment managers by way of the TIM increased 3.50 points to 65.55%.<br /><br />As for individual securities in the U.S. and North America, Penske Automotive Group (PAG), Bally Technologies (BYI), and Check Point Software Technologies (CHKP) were stocks with long broker sentiment, while MGM Mirage (MGM) and Citrix Systems (CTXS) had short broker sentiment. In general, the consumer staples, financial, and telecommunications sectors had long broker sentiment, while the utilities, health care, and industrial sectors had short broker sentiment.Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-38425506640698582032009-09-25T11:49:00.006-05:002009-09-25T12:02:17.680-05:00TIM Report: Bullish Brokers Sentiment Falling, with KG, AIG, and ETFC as longs, YUM, PCS, and AKS as shorts<span class="Apple-style-span" style="border-collapse: separate; color: rgb(0, 0, 0); font-family: 'Times New Roman'; font-size: medium; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><span class="Apple-style-span" style="font-family: Arial,Helvetica,sans-serif; font-size: 13px; line-height: 20px;">According to the recent TIM (Trade Ideas Monitor) report for the week of September 18-24, 2009, bullish broker sentiment continued to decrease. The TIM Sentiment Index (TSI) was down 1.74 points in North America to 51.05, slightly bullish (see<span class="Apple-converted-space"> </span><a href="http://www.bullbeartrader.com/2009/09/tim-report-bullishness-moderating-with.html" style="color: rgb(11, 56, 97); text-decoration: underline;">previous post</a><span class="Apple-converted-space"> </span>and the<span class="Apple-converted-space"> </span><a href="http://www.youdevise.com/tradeideas/index.php" style="color: rgb(11, 56, 97); text-decoration: underline;">youDevise website</a><span class="Apple-converted-space"> </span>for additional information on the TIM report). The TSI Worldwide Index was down 5.14 points to 47.58. Total new long ideas as a percentage of all new ideas sent to investment managers by way of the TIM decreased 6.31 points to 62.05%.<br /><br />As for individual securities in the U.S. and North America, King Pharmaceuticals (KG), American International Group (AIG), and E*Trade Financial (ETFC) were stocks with long broker sentiment, while YUM Brands (YUM), MetroPCS Communications (PCS), and AK Steel Holdings (AKS) had short broker sentiment. In general, the information technology, health care, and financial sectors had long broker sentiment, while the materials and utilities sectors had short broker sentiment.</span></span>Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-393405595941682222009-09-22T09:01:00.005-05:002009-09-22T09:15:19.899-05:00First Coverage: Market Sentiment Still BullishFirst Coverage's weekly market sentiment report is still pointing to a bullish market (<a href="http://www.firstcoverage.com/weekly_sentiment.php">First Coverage</a>). This week has seven sectors rated bullish, with three, including basic materials, consumer goods, and energy (oil and gas) rated neutral. The weekly sentiment change has basic materials moving more bearish from last week with a 10.9% decline in sentiment (although still neutral), while health care has become more bullish. The financial sector has also failed to roll over, indicating that the sell-side has still not yet gone bearish, even with the big run-up in this sector over the last six months. Stocks generating the greatest bullish sentiment shifts include Thoratec (THOR), ConAgra Foods (CAG), Potash (POT), Dell (DELL), and Netflix (NFLX). Those stocks generating the greatest bearish sentiment shift include Vulcan Materials (VMC), Bio Ref Labs (BRLI), Iteration Energy (ITX), Bill Barrett (BBG), and PNC Financial Services (PNC).Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-18005260992593651952009-09-22T08:20:00.004-05:002009-09-22T08:31:17.716-05:00Six New China Sector-Specific ETFs Being PlannedGlobal X Funds has filed a prospectus with the SEC to offer six new ETFs that will be designed to follow six different sectors within the Chinese economy (<a href="http://www.indexuniverse.com/sections/newsinfocus/6575-china-sector-etfs-a-seven-em-country-etfs-proposed.html">IndexUniverse</a>). The six sectors/categories include consumer, energy, financial, industrial, material, and technology. The plan is for the funds to be 80% invested in ADRs and Global Depository Receipts, with the remaining 20% invested in swaps and various options contracts. The fund hopes to replicate the underlying FTSE sector-specific indexes with a 95% accuracy after fees and expenses. While there are many funds that follow the broader Chinese economy, the new ETFs will be some of the first to allow investors to focus on a specific sector within this region. The fact that such sector-specific ETFs are being offered for the Chinese economy also tells you something about demand and interest for investing more directly within this growing and increasing influential market.Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-54601830308147628052009-09-21T09:15:00.014-05:002009-09-21T10:08:48.057-05:00Could Quant Fund Underperformance Signal That A Correction Is Near?<span class="blsp-spelling-error" id="SPELLING_ERROR_0"><span class="blsp-spelling-error" id="SPELLING_ERROR_0"><span class="blsp-spelling-error" id="SPELLING_ERROR_0">Quant</span></span></span> funds who bet on high-quality stocks, while at the same time shorting those stocks that are over-priced, have been under-performing the stock market (<a href="http://online.wsj.com/article/SB125329818935223601.html"><span class="blsp-spelling-error" id="SPELLING_ERROR_1"><span class="blsp-spelling-error" id="SPELLING_ERROR_1"><span class="blsp-spelling-error" id="SPELLING_ERROR_1">WSJ</span></span></span></a>). This under-performance has come in part as a result of poor balance sheet stocks being pulled along by the momentum train of the last few months. The performance gap has even widening recently as short squeezes have pushed weak stocks higher, just as those with brighter prospects have done worse. Some feel that the under-performance of higher quality stocks may be an indication that the recent move is running out of steam, and that the market may be due for a correction. Breadth and other overbought/oversold indicators continue to flirt at times with high levels and cause concern among the bulls - but then again, they did so one month ago as well. Nonetheless, a correction, even if mild and short-term, could be in the cards as it seems an increasing number of participants have started watching and waiting for their overbought biases to be confirmed, including some of those who continue to be long in the market. Time will tell, but the next month could be interesting, and telling, as we move into October.Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-33706417476314906962009-09-18T14:14:00.006-05:002009-09-18T14:37:00.589-05:00Moody's Believes Basel II Changes Are Positive for CreditworthinessMoody's issued a special comment paper focusing on Basel II amendments already introduced, as well as statements from the Basel Committee on Banking Supervision (<a href="http://www.risk.net/oprisk-and-compliance/news/1533988/moody-s-basel-ii-crd-changes-positive-banks-creditworthiness">Risk.net</a>). T<em></em>he paper highlights enhancements relating to a bank's trading book, securitization, and counterparty credit risk. In particular, the recommendations involve strengthening Tier I capital, introducing tougher liquidity standards, including counter-cyclical provisioning, discussing systemic risk provisions (which is becoming popular in the United States), and including leverage ratios as a supplementary measure. Moody's also believes that proposed Capital Requirement Directive changes to the quality of capital and securitization were also a positive step. In addition, the paper mentions that <span style="font-style: italic;">“One important amendment calls for stricter operational requirements for credit analysis for banks holding securitisation exposures. We believe that the increased requirement for credit analysis for banks holding securitised exposures is going to be an important element of improved risk management, and should ensure that only banks with the necessary information and analytical tools hold securitised products.” </span>Of course, it could also mean that less securitization takes place. While this may be the intended result, the unintended consequence of reducing the efficient flow of capital, or not allowing those who want to off-load or bear risk access to the vehicles they need, will also need to be considered further - either now or later.Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-80887082484875807932009-09-18T13:48:00.005-05:002009-09-18T14:04:58.783-05:00State Street Offers New Preferred Share ETFState Street Global Advisors launched a new ETF with investments in non-convertible preferred stocks (ticker PSK, <a href="http://www.indexuniverse.com/sections/newsinfocus/6559-third-preferred-stock-etf-launches.html">IndexUniverse</a>). Similar ETFs already on the market, PGX and PFF, are up 20% and 33% YTD, respectively. The preferred shares in the fund are rated investment grade and have minimum trading volume requirements. The ETF has an expense ratio of 0.45%. The PSK exchanged traded fund would be attractive to investors that are looking for income, potential capital gains growth, and safety given that preferred shares pay a fixed dividend, can appreciate like normal common stock, and are higher on the food chain compared to common stock in the event of bankruptcy.Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-61994464061585751932009-09-18T12:42:00.005-05:002009-09-18T12:52:38.544-05:00TIM Report: Bullishness Moderating, with DRYS, KR, and X as Longs, S, AIG, and GS as ShortsAccording to the recent TIM (Trade Ideas Monitor) report for the week of September 11-17, 2009, market sentiment moderated after being bullish last week. The TIM Sentiment Index (TSI) was down 1.86 points in North America to 52.78 (see <a href="http://www.bullbeartrader.com/2009/06/tim-report-short-ideas-increase-32.html">previous post</a> and the <a href="http://www.youdevise.com/tradeideas/index.php">youDevise website</a> for additional information on the TIM report). The TSI Worldwide Index was down 3.89 points to 52.72. Total new long ideas as a percentage of all new ideas sent to investment managers by way of the TIM decreased 0.86 points to 68.36%.<br /><br />As for individual securities in the U.S. and North America, DryShips (DRYS), Kroger (KR), and U.S. Steel (X) were stocks with long broker sentiment, while Sprint Nextel (S), American International Group (AIG), and Goldman Sachs (GS) had short broker sentiment. In general, the utility, energy, and consumer staples sectors had long broker sentiment, while the information technology sector had short broker sentiment.Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-73278052041480710832009-08-26T09:24:00.005-05:002009-08-26T09:39:46.309-05:00Hedge Funds Increased Their Stakes In Financials During Q2Hedge funds increased their stakes in financial stocks during the second quarter according to the Goldman Sachs Hedge Fund Trend Monitor (<a href="http://online.wsj.com/article/SB125122572253257735.html">WSJ</a>). Specifically, ownership in financials increased 55% from Q1 to Q2, growing to $70 billion - representing 3.7% of the sector's market capitalization. Bank of America (BAC) and JPMorgan (JPM) were some of the more popular financial holdings within hedge funds, with Regions Financial (RF) and Citigroup (C) also becoming new long positions for some funds. While the net short position of financials also rose slightly, 8% to $63 billion, the large increase in long exposure has resulted in hedge funds being net long the financials by the end of Q2 (<a href="http://online.wsj.com/article/SB125122572253257735.html">WSJ</a>). Although hedge fund redemption request have decreased, reducing the need for forced selling, it is unclear if hedge funds on average will maintain their net long positions in financials after the nice run these stocks have made since the March market lows.Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-55082984035034692292009-08-21T10:11:00.006-05:002009-08-21T10:23:00.432-05:00TIM Report: Brokers Still Cautious, with MDSO, BJ, and AA as Longs, FSLR, BRCD, and LVS as ShortsAccording to the recent TIM (Trade Ideas Monitor) report for August 20th, the TIM Sentiment Index (TSI) in North America was 50.37, down 1.76 points, right near the critical 50 mark (see <a href="http://www.bullbeartrader.com/2009/08/tim-report-brokers-cautiously-bullish.html">last post</a>, and <a href="http://www.bullbeartrader.com/2009/06/tim-report-short-ideas-increase-32.html">previous post</a> and the <a href="http://www.youdevise.com/tradeideas/index.php">youDevise website</a> for additional information on the TIM report). The TSI Worldwide Index was down marginally. Total new long ideas as a percentage of all new ideas sent to investment managers by way of the TIM decreased 3.15 points to 62.53%.<br /><br />As for individual securities in the U.S. and North America, Medidata Solutions (MDSO), BJ's Wholesale Club (BJ), and Alcoa (AA) were stocks with long broker sentiment, while First Solar (FSLR), Brocade Communications (BRCD), and Las Vegas Sands (LVS) had short broker sentiment. In general, the materials, telecommunication services, and energy sectors had long broker sentiment, while the consumer staples, industrials, and consumer discretionary sectors had short broker sentiment.Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-43007103660454196592009-08-18T09:42:00.010-05:002009-08-18T11:16:32.932-05:00Transparency Will Need To Go GlobalThe tremendous growth of the Chinese economy and stock market has many wondering how long it will take before China once again regains it spot as the top economy (<a href="http://www.businessinsider.com/learn-chinese-in-the-next-few-years-or-it-will-be-too-late-2009-8">The Business Insider</a>). When looking at purchasing power parity, some analysts are expecting that China will regain the crown as the top economy by 2015, after 125 years of the U.S. holding the number one spot. Yet for China and any other global market or economy to be a long-term destination for investment, further transparency and disclosure will no doubt be necessary. Just yesterday I discussed some recent academic research that found investors tend to trade foreign equities more often than their domestic counterparts (<a href="http://www.bullbeartrader.com/2009/08/investors-trade-foreign-equities-more.html">Bull Bear Trader</a>). In short, the authors of the study found that the level of trading is higher for stocks in markets for which there are weaker investor protections, or for markets that have lower disclosure standards. The portfolio turnover or churn rate was higher as the quality of information and level of familiarity decreased.<br /><br />This information appears to not be lost on some international markets. <a href="http://www.wealthbriefingasia.com/article.php?title=Investor_Demand_For_Product_Transparency_In_Asia_Has_Surged___-_Research_&id=18977">Wealth Briefing Asia</a> reports that as investor look across the globe for alternative investments, they will demand more in-depth information on investment products in the wake of the recent financial crisis. To meet this need, services are already being offered to help investors discover transparent managers, and regulatory bodies are increasing requirements for transparency within various markets. Both the demand and the will seem to be in place, yet more will have to be done, with such transparency continuing down to the company level as investor seek assurances regarding future investments. This is happening in Japan, where after two decades of poor returns, Japanese investors are beginning to challenge management teams that are not delivering for shareholders (<a href="http://www.ft.com/cms/s/0/39835168-8ac4-11de-ad08-00144feabdc0.html">Financial Times</a>).<br /><br />Therefore, as investors continue to look for alternative investments and ways to diversify globally, international markets will need to increase transparency as the economic links between the U.S., China, Japan, Europe, Brazil, India, and Russia, among others, continue to grow. In doing so, markets will be able to lower equity turnover rates (<a href="http://www.bullbeartrader.com/2009/08/investors-trade-foreign-equities-more.html">Bull Bear Trader</a>), thereby reducing volatility and allowing them to attract the type of long-term investment and capital necessary to grow their markets. Whether China continues to rises to the level of market leadership is still to be seen, but even if the U.S. retains it top position, a more transparent market in China and elsewhere will help all markets given that full decoupling has not happen, and will most likely never fully occur in the new global market place.Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-49733586425694608332009-08-16T09:30:00.008-05:002009-08-17T10:48:47.353-05:00Investors Trade Foreign Equities More Often Than Their Domestic CounterpartsThere has been significant research in the past looking at the phenomenon of "<span style="font-style: italic;">home bias</span>," or investing a larger portion of your wealth in a domestic market, despite the benefits of increasing international diversification. Less research has been done on how these home bias investors <span class="blsp-spelling-error" id="SPELLING_ERROR_0">rebalance</span> between domestic and foreign exposure. Previous research has also produced somewhat conflicting data regarding foreign equity turnover rates, ranking them from having only slightly faster levels of turnover, to foreign equity turnover rates 10 times greater domestic equity turnover rates - although in many cases the data samples were limited to just a handful of countries.<br /><br />Recent research by <span class="blsp-spelling-error" id="SPELLING_ERROR_1">Kalok</span> Chan and <span class="blsp-spelling-error" id="SPELLING_ERROR_2">Vicentiu</span> <span class="blsp-spelling-error" id="SPELLING_ERROR_3">Covrig</span> examined portfolio <span class="blsp-spelling-error" id="SPELLING_ERROR_4">rebalancing</span> as measured by the churn rate of mutual funds from 29 different domestic countries - with investments across 48 foreign countries (see their paper, "<a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1362053">What Determines Mutual Funds' Trading in Foreign Stocks?</a>"). The results were based on annual holdings of stocks from the years 1999-2004, with churn rates based on changes of equity holdings in consecutive years. Based on past research, it was not surprising that their results found that the level of stock trading is more active for the stocks of companies in less developed countries. In fact, the trading of mutual funds in foreign stocks was higher than for domestic stocks in 24 out of 29 countries. When digging deeper to determine the reasons for the increased turnover rates, the authors found that the level of trading is higher for stocks in markets for which there are weaker investor protections, or for markets that have lower disclosure standards. In general, the churn rate was higher as the quality of information and level of familiarity decreased. The authors found these results to:<br /><blockquote>"<span style="font-style: italic;">.... be consistent with the hypothesis that the investors <span class="blsp-spelling-error" id="SPELLING_ERROR_5">rebalance</span> more often the holdings of stocks about which they know less and are less familiar with</span>." </blockquote>As might also be expected, the churn rate was higher in a foreign market if the market had performed well, with the rate increasing as the level of familiarity decreases. Similar to other markets, it seems that investors are likely to take profits after a market has run-up, and are much more likely to do so if the market is foreign, less transparent, and has a lower level of familiarity.Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-70168241653878752402009-08-14T14:19:00.011-05:002009-08-14T16:29:39.516-05:00Does Enterprise Risk Management Add Value To Firms?In their research paper "<a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1440947">The Value of Enterprise Risk Management</a>," Robert Hoyt and Andre Liebenberg attempt to uncover whether there is firm value in implementing Enterprise Risk Management (ERM). As the authors discuss, ERM has generated considerable interest from the media in recent years as organizations begin implemented enterprise-level risk management programs, and consulting firms and universities look for ways to offer support, guidance, courses, and services related to ERM. Rating agencies have also begun to consider ERM in the rating process, and regulators are taking notice. The ideas of enterprise and system-wide "systemic" risk are also now being given serious consideration at the economic system level.<br /><br />Put simply, ERM is focused on the idea that instead of managing and examining individual and separately managed silos of risk, firms are now looking at managing risk in a more integrated, enterprise-wide fashion. It is believe that doing so will help to avoid duplication of risk management expenses by exploiting natural hedges, and allow firms to better understand the aggregate risk. ERM programs also have the benefit of allowing firms to better inform outsiders (investors, regulators) of their risk profile, compared to firms that are more operationally complex. It is expected that such added visibility has the benefit of decreasing earnings and stock price volatility, increasing capital efficiency, and increasing enterprise risk awareness - allowing for more holistic operational and strategic decision-making. But enough flowery language. Does it work, and will it increase shareholder wealth?<br /><br />[<u>Note</u>: I have offered university-level ERM courses in the past, and will do so again in the near future. Unfortunately, up until now there has not been an empirical study regarding the impact of ERM programs on firm value. Needless to say, I was interested in the results of the research.]<br /><br /><span>First, a little research background. For the study, the authors focused their attention on U.S. insurers in order to control for regulatory and market differences across industries. Financial institutions and insurers have been some of the first industries to adopt ERM, so this focus makes sense. Without going into further specifics of their modeling and analysis (please refer to the paper), the authors found:</span> <span></span><span style="font-style: italic;"><br /></span><blockquote><span style="font-style: italic;">"ERM usage to be positively related to factors such as firm size and institutional ownership, and negatively related to reinsurance use, leverage, and asset opacity. By focusing on publicly-traded insurers we are able to estimate the effect of ERM on <a href="http://en.wikipedia.org/wiki/Tobin%27s_q">Tobin’s Q</a>, a standard proxy for firm value. We find a positive relation between firm value and the use of ERM</span>." </blockquote>In fact, beyond just adding value, the ERM premium was 16.5%, and found to be both statistically and economically significant, as well as being robust to a range of alternative specifications of both the ERM and value equations. In summary, it appears that added risk management disclosures inherent in ERM add value to the firm. As a bonus, by adding additional risk management transparency, firms are likely to reduce the expected cost of regulatory review, along with the amount risk capital that is allocated for less productive/profitable uses, each of which no doubts helps to increase firm value. Certainly something the proponents of ERM believed, but now there is some initial evidence to back up the claims - at least for insurance companies.<br /><br />Of course, as investors, knowing that ERM adds value to a firm is good, but now it is necessary to determine which firms are in fact using ERM. Even the authors mention that identifying firms engaging in ERM is a challenge. Nonetheless, absent official disclosures, a search of financial reports and news wires (as performed by the authors) can help to locate candidates for study. Even with relatively strict filtering of data, the researchers were able to identify 117 out of 275 insurance firms that met the requirements of being classified as firms engaging in some type of ERM. As regulators begin to require additional transparency regarding risk management activities, such identification will become easier, and hopefully profitable to investors.Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-61066360989699265502009-08-14T11:54:00.003-05:002009-08-14T12:14:54.465-05:00TIM Report: Brokers Cautiously Bullish, with CBEY, TWTC, and WSM As Longs, ALGT, TLAB, and ACI As ShortsAccording to the recent TIM (Trade Ideas Monitor) report for August 13th, the TIM Sentiment Index (TSI) in North America was 52.13, down 2.42 points, but still over the critical 50 mark (see <a href="http://www.bullbeartrader.com/2009/08/tim-report-sentiment-crosses-into.html">last post</a>, and <a href="http://www.bullbeartrader.com/2009/06/tim-report-short-ideas-increase-32.html">previous post</a> and the <a href="http://www.youdevise.com/tradeideas/index.php">youDevise website</a> for additional information on the TIM report). The TSI Worldwide Index averaged 53.40. Total new long ideas as a percentage of all new ideas sent to investment managers by way of the TIM remained high at 65.68%, but down slightly.<br /><br />As for individual securities in the U.S. and North America, Cbeyond (CBEY), TW Telecom (TWTC), and Williams-Sonoma (WSM) were stocks with long broker sentiment, while Allegiant Travel (ALGT), Tellabs (TLAB), and Arch Coal (ACI) had short broker sentiment. In general, the utility, telecommunication, and consumer staples sectors had long broker sentiment, while the financial, material, and consumer discretionary sectors had short broker sentiment.Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com1tag:blogger.com,1999:blog-8914550690047945838.post-25629658402239916022009-08-14T06:00:00.001-05:002009-08-14T06:09:02.464-05:00In Case You Missed Them - Some Links of Interest (8/14/09)Below are some links of interest for 8/14/09, just in case you missed them. Some have already been posted to<span class="Apple-converted-space"> </span><a href="http://twitter.com/bullbeartrader" style="color: rgb(11, 56, 97); text-decoration: underline;">Twitter</a>.<br /><ul><li>U.S. foreclosure activity hits a new record in July, increasing 7% from June and 32% for the year (<a href="http://www.ft.com/cms/s/0/2761e976-87ff-11de-82e4-00144feabdc0.html?ftcamp=rss">Financial Times</a>). The increase is being blamed in part on a lifting of previous foreclosure moratoriums. </li></ul><ul><li>Retail sales fell 0.1% in July, even with the Cash for Clunkers program being considered - although August may include more data (<a href="http://online.wsj.com/article/SB125016650493828937.html">WSJ</a>). There were large declines in housing-related retailers and electronic stores. Stripping out autos, retail sales dropped 0.6%. Yet, there were some gains. Auto and parts sales increased 2.4% in July. In addition to autos, health and personal care stores, restaurants and bars, clothing, and mail order and Internet retailers were also up.</li></ul><ul><li>The Federal Reserve plans to conclude its purchases of $300 billion in U.S. Government debt by the end of October (<a href="http://online.wsj.com/article/SB125010030365826549.html">WSJ</a>), in what may be both an admission that the Fed believes that the worst is over, and also a way to begin allowing long-term rates to move up, even as it plans to keep short-term rates near zero for the foreseeable future.</li></ul><ul><li>Unemployment duration just keeps getting longer, even in good times (<a href="http://benbittrolff.blogspot.com/2009/08/unemployment-duration-baby-boomers.html">The Financial Ninja</a>). This is increasing the need to emergency unemployment compensation (second <a href="http://benbittrolff.blogspot.com/2009/08/emergency-unemployment-compensation.html">The Financial Ninja</a> article). </li></ul><ul><li>Hotel occupancy fell 7.5% to end the week at 65.9%. RevPAR (Revenue per available room) for the week decreased 16.5% (<a href="http://www.calculatedriskblog.com/2009/08/hotel-revpar-off-165-percent.html">Calculated Risk</a>). Given that peak travel time is passing us by, this is not good news. </li></ul><ul><li>When looking at quarterly report for Regions Financial, one wonders if the company is insolvent, even though the government says it is well capitalized (<a href="http://www.bloomberg.com/apps/news?pid=20601039&sid=a04oVutXQybk">Bloomberg</a>). Of course, that has not stopped investors from valuing the company near $6 billion. Meanwhile, looking at CDS market, 5-year protection written on Region's tier-2 debt is trading at spreads of 722bp over swaps (<a href="http://blogs.reuters.com/felix-salmon/2009/08/13/when-insolvent-banks-are-worth-billions/">Reuters - Felix Salmon</a>). What this implies (to Salmon) is "<span style="font-style: italic;">that bonds are the new stocks, and stocks are the new call options</span>." Bonds are now giving you a high return for high risk. On the other hand, stocks run the risk of being wiped out entirely in return for the leveraged possibility that your investment could multiply in value in a matter of months. Of course, none of this seems to bother the stock or its investors. In the face of the Bloomberg story, the stock was up 7.9% Thursday, along with a 3.1% increase in the KBW Bank Index - much to the amazement of Michael Panzner (<a href="http://www.financialarmageddon.com/2009/08/a-sight-to-behold.html">Financial Armageddon</a>).<br /></li></ul><ul><li>Weak retail sales data caused an early correction in the futures market Thursday morning, but the market still rallied back on essentially no news (<a href="http://pragcap.com/is-this-market-resilient-or-complacent">The Pragmatic Capitalist</a>). This comes as rail data was also weak (second <a href="http://pragcap.com/rail-data-continues-to-reflect-the-down-economy">The Pragmatic Capitalist</a> article). Is the market resilient or complacent? Is the move just short-covering and/or hedge fund managers trying not to get left behind?</li></ul><ul><li>Based on available trading data, there seems to be a disconnect in short interest volume readings. The BATS short volume reading is accounting for over 46% of total volume, much more than the short interest data disclosed by the NYSE and Nasdaq ( <a href="http://www.zerohedge.com/article/bats-exchange-releases-short-volume-part-increasing-disclosure-suprising-results">Zero Hedge</a>).<br /></li></ul><ul><li><a href="http://bespokeinvest.typepad.com/bespoke/2009/08/most-and-least-heavily-shorted-russell-1000-stocks.html">Bespoke Investment Group</a> has a list of the most heavily and least heavily shorted Russell 1,000 stocks. Chipotle Mexican Grill (CMG), and not surprisingly, AIG, top the most shorted list. CMG is still up 46.35% YTD. Of interest is that the average 2009 change for the most heavily shorted stocks, i.e., more than 20% of float, is 26.23%, almost double the gain for the overall market.<br /></li></ul><ul><li>In general, as the market has been moving up, the short interest ratio on the S&P 500 has been dropping, signaling a possible topping formation (<a href="http://www.thedisciplinedinvestor.com/blog/2009/08/13/short-interest-ratio-drops/">The Disciplined Investor</a>).<br /></li></ul><ul><li>The <a href="http://pragcap.com/will-oil-kill-the-stock-market-rally">Pragmatic Capitalist</a> worries that a weak hurricane season could cause crude oil prices to fall, dragging the stock market with it.</li></ul><ul><li>The Coppock Curve technical indicator is continuing to rise and act bullish (<a href="http://www.tradersnarrative.com/coppock-curve-continues-to-give-all-clear-signal-2845.html">Trader's Narrative</a>). Then again, the S&P 500 would have to fall 200 points below 780 for the curve to stop climbing, so we could get the much talked about August/September correction before continuing to move higher later in the year, as some are expecting.<br /></li></ul><ul><li>The ratio of insider buying to selling transactions is 10 to 136 ($60.1 million buys to $1,146 million sells). <strong></strong><strong></strong>There have been over $2.1 billion in insider sales over the last two weeks (<a href="http://www.zerohedge.com/article/last-weeks-insiders-transactions-1-buys-60-million-136-sells-over-115-billion">Zero Hedge</a>).</li></ul><ul><li>Looking at inter-market returns YTD, crude oil is the best performer in 2009 - up almost 60%, followed by the Nasdaq - up 27% YTD, and the CRB Commodity Index - up 15% YTD (<a href="http://blog.afraidtotrade.com/intermarket-returns-ytd-plus-comparison-graphs/">Afraid to Trade</a>). The S&P 500 has risen 11% during the same period.<p></p><strong></strong></li></ul><ul><li>In what seems to be daily hedge fund data, the <a href="http://www.ft.com/cms/s/0/b3156f1a-87a0-11de-9280-00144feabdc0.html?nclick_check=1">Financial Times</a> takes its turn reporting how traditional strategies such as equity long-short and convertible arbitrage continue to be the best hedge fund strategies for the year. Emerging market and fixed income arbitrage strategies are also doing well. Dedicated short sellers, not surprisingly, are getting killed. As the market continues to trend, black-box commodity trading advisers (managed futures) are once again generating interest after what has been a difficult year (<a href="http://www.reuters.com/article/reutersEdge/idUSTRE57B48J20090812">Reuters</a>). Anyone seen a SuperFund commercial lately?<br /></li></ul><ul><li>Looking at a recent 13-F, the John Paulson portfolio is heavily weighted towards three sectors: gold, financial stocks, and health care (<a href="http://pragcap.com/john-paulsons-huge-reflation-bet">The Pragmatic Capitalist</a>). This basically results in three bets on seemingly different macro themes, possibly betting on re-inflation (gold, health care), while at the same time speculating on a recovery (banks).</li></ul><ul><li>Researchers <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1400370">Mokoaleli-Mokoteli, Taffler, and Agarwal</a> test whether sell-side analysts are prone to behavioral errors when making stock recommendations, as well as the impact of their investment banking relationships on judgment. The authors find that new buy recommendations on average have no investment value, whereas new sell recommendations do have value, although it takes time for the information to be assimilated by the market. Interesting research, and somewhat intuitive - or at least it should be. It looks like buy recommendations involve selling, and sell recommendations involve selling, ......., just different kinds (<a href="http://www.bullbeartrader.com/2009/08/both-buy-and-sell-recommendations.html">Bull Bear Trader</a>).<br /></li></ul><ul><li>The <a href="http://marketsci.wordpress.com/">MarketSci blog</a> provides a nice breakdown of the quant analysis blogosphere into three components - situational analysis, mechanical strategies, and academic thinkers - and provides references for each.<br /></li></ul><ul><li>New <a href="http://www.morningstar.com/" style="color: rgb(11, 56, 97); text-decoration: underline;">Morningstar</a><span class="Apple-converted-space"> </span>5-star stock: SunPower Corporation (SPWRA).</li></ul>Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-25684608333146233502009-08-13T21:06:00.007-05:002009-08-14T06:30:59.432-05:00Buying And Selling Analysts RecommendationsIn their paper "<a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1400370"><span style="font-style: italic;">Behavioural Bias and Conflicts of Interest in Analyst Stock Recommendations</span></a>," <a href="http://www.wiley.com/bw/journal.asp?ref=0306-686X&site=1">Journal of Business Finance and Accounting</a>, authors Mokoaleli-Mokoteli, Taffler, and Agarwal tests whether sell-side analysts are prone to behavioral errors when making stock recommendations, as well as the impact of their investment banking relationships on judgment. The authors find that new buy recommendations on average have no investment value, whereas new sell recommendations do have value, although it takes time for the information to be assimilated by the market. They also find that new buy recommendations are distinguished from new sells both by the level of analyst optimism and conflicts of interest (no surprise there). Of interest, successful new buy recommendations are characterized by lower prior returns, while successful new sells do not differ from their unsuccessful counterparts in terms of these measures.<br /><br />Interesting research, and somewhat intuitive - or at least it should be. New buy recommendations involve selling, and sell recommendations involve selling, ......., just a different kind.Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-9944491380981383482009-08-13T06:45:00.001-05:002009-08-13T06:46:05.778-05:00In Case You Missed Them - Some Links of Interest (8/13/09)Below are some links of interest for 8/13/09, just in case you missed them. Some have already been posted to<span class="Apple-converted-space"> </span><a href="http://twitter.com/bullbeartrader" style="color: rgb(11, 56, 97); text-decoration: underline;">Twitter</a>.<br /><ul><li>Imports were up in June, in part due to a spike in oil prices. Exports were also up in June. On a year-over-year basis, exports are off 22% and imports are off 31% (<a href="http://www.calculatedriskblog.com/2009/08/trade-deficit-increases-in-june.html">Calculated Risk</a>).</li></ul><ul><li>The duration of unemployment chart is getting scary, and at record levels (<a href="http://www.tradersnarrative.com/really-scary-chart-duration-of-unemployment-2841.html">Trader's Narrative</a>). Can you say jobless recovery?</li></ul><ul><li>Statistics indicate a recovery with no jobs, no pay increases, and therefore no increases in tax receipts for struggling state and local governments (<a href="http://www.washingtonpost.com/wp-dyn/content/article/2009/08/11/AR2009081100988.html?hpid=topnews">Washington Post</a>).</li></ul><ul><li>As of April, less than 13% of the largest 1,100 hedge funds had reached their high water mark, while more than 18% were more than 30% off their peaks (<a href="http://online.wsj.com/article/BT-CO-20090810-712017.html">WSJ</a>). Even after the recent market run, more then 70% of hedge funds have not recovered from 2008 losses, making it difficult for firms to generate extra fees, pay bonuses, and retain talent.</li></ul><ul><li>Natural gas hedges that locked into higher prices helped a number of companies report better than expected earnings, but this could be harder in the future if speculators have a more difficult time participating in the market going forward (<a href="http://online.wsj.com/article/SB125003373396024123.html">WSJ</a>). This is certain to affect "cash-flow certainty" for companies, affecting not only their ability to manage risk, but their ability to provide some level of stability to consumer energy prices. </li></ul><ul><li>Even if the efficient market hypothesis does not get in your way, it is not that simple to technically and fundamentally trade your way to being "really" rich, ......., but "merely" rich is possible (<a href="http://www.abnormalreturns.com/2009/08/potholes-on-the-road-to-riches/">Abnormal Returns</a>).</li></ul><ul><li>If revenue growth is to have a V-shaped recovery, shouldn't CapEx spending increase? <a href="http://www.zerohedge.com/article/v-shaped-revenue-recovery-combined-l-shaped-capex-growth">Zero Hedge</a> looked at the data. Not only is CapEx spending not increasing, it is continuing to fall. </li></ul><ul><li>The Baltic Dry Index has been down nine of the last ten trading days (<a href="http://benbittrolff.blogspot.com/2009/08/china-baltic-dry-and-v-shaped-recovery.html">The Financial Ninja</a>). There is suspicion that China has pretty much completed their commodity restocking.</li></ul><ul><li>World stock market capitalization is up another $4 trillion in July (<a href="http://mjperry.blogspot.com/2009/08/world-stock-markets-gain-trillion-in.html">Carpe Diem</a>).<br /></li></ul><ul><li>Are option flash orders the next big thing to worry about (<a href="http://online.wsj.com/article/SB125011050709126957.html">WSJ</a>)? Maybe not (Daily Options Report, <a href="http://dailyoptionsreport.com/blog/post/beware-of-options-flashers/">here</a> and <a href="http://dailyoptionsreport.com/blog/post/flash-and-dash/">here</a>).</li></ul><ul><li>Has the no volume bear market rally finally ended? The <a href="http://pragcap.com/has-the-no-volume-bear-market-rally-ended">Pragmatic Capitalist</a> believes so, and lays out the case why. The 50% move in the S&P 500 is somewhat typical for a secular bear market rally - declining volume, low quality asset gains, little leadership, and the move has been swift. With no volume confirmation, negative seasonal trends, no real catalysts in view, and extreme bullish sentiment, the market may be ready for a correction.</li></ul><ul><li>Don Fishback ran some numbers and found that the average return of the S&P 500 during earnings season was -0.11% (<a href="https://www.donfishback.com/blog/2009/08/12/performance-during-earnings-season/">Don Fishback's Market Update</a>, HT <a href="http://twitter.com/marketsci">marketsci</a> tweet). So why are stocks and index options more expensive going into earnings season? It could be explained by how far each period's returns deviate from the average. In fact, market returns during earnings season do not really resemble a bell curve.</li></ul><ul><li>During the second half of July, the NYSE experienced a 10.27% decline in short-selling positions not closed out, while the Nasdaq had a more than a 5% fall in short interest (<a href="http://online.wsj.com/article/SB125004186718724677.html">WSJ</a>).</li></ul><ul><li>In a challenge to iShares, Vanguard has filed a registration statement with the SEC to offer seven bond index ETFs, illustrating in part current trends, and how investors are looking more towards corporate bonds (<a href="http://www.bullbeartrader.com/2009/08/vanguard-to-offer-new-bond-index-etfs.html">Bull Bear Trader</a>). While some investors are simply chasing returns, others are looking for new ways to diversify away from equities.</li></ul><ul><li>The natural gas ETF, UNG, has decided to not issue new units on worries of new stringent CFTC rules (<a href="http://online.wsj.com/article/SB125012568600127849.html">WSJ</a>). The shortage of shares may continue to cause the fund's value and price to diverge.</li></ul><ul><li>Actively managed quantitative strategies currently account for 9% of all U.S. equity AUM, as automation is becoming a competitive necessity (<a href="http://www.finalternatives.com/node/8816">FINalternatives</a>).</li></ul><ul><li>A forthcoming academic paper from SUNY professors Greg Gregoriou and Razvan Pascalau suggests that the optimal number of underlying hedge funds within a fund of hedge fund portfolio may actually be as low as 6-10 (<a href="http://allaboutalpha.com/blog/2009/08/11/fund-of-hedge-funds-diversification-the-importance-of-life-cycle/">All About Alpha</a>). Among other conclusions, the paper demonstrates empirically that the number of hedge funds included in a FoF has a negative and significant impact on the volatility of returns, while having less of an impact on actual returns.</li></ul><ul><li>Bob Prechter of Elliott Wave International is quite sure the next wave down will be bigger and the March lows will break (<a href="http://www.ritholtz.com/blog/2009/08/prechter-wave-5-is-a-bitch/">The Big Picture</a>). </li></ul><ul><li>After calling the bottom in March, Doug Kass is bearish again (<a href="http://www.thestreet.com/story/10569021/1/kass-a-summary-of-my-bearishness.html">TheStreet.com</a>) since cost cuts and fiscal stimulus are limited, cost cuts threaten the consumer, the net worth of individuals has been damaged, the credit shock will continue, the outcome of the Fed monetarist experiment is uncertain, a housing recover will be muted - there are no other drivers right now, commercial real estate is just now entering its downturn, municipalities may not provide the necessary economic stability, and taxes will be rising, along with health and energy bills, further hurting the consumer.</li></ul><ul><li>Money managers collectively have 18.5% of the long portfolios in the Financial sector, 16.8% in Technology (<a href="http://bespokeinvest.typepad.com/bespoke/2009/08/institutional-sector-weightings.html">Bespoke Investment Group</a>). Utilities and Telecommunications round out the bottom at 3.0% and 2.9% respectively. </li></ul><ul><li>S&P 500 YTD returns by sector (<a href="http://www.valueexpectations.com/blogs/sp-500-ytd-returns-sector">Value Expectations</a>). Technology, Consumer Durables, and Basic Materials are leading the way with 39.73%, 36.77%, and 32.82% average returns, respectively, while the Financial and Utility sectors are bringing up the rear at average returns of 10.81% and 5.87%, respectively. The Applied Finance Group's Value Expectations (VE) interface provides sector expectations for the S&P 500 (<a href="http://www.valueexpectations.com/blogs/sector-expectations-sp-500-august-2009">Value Expectations</a>).<br /></li></ul><ul><li>From the latest update of the four bear recovery comparison (check out the chart at <a href="http://dshort.com/articles/2009/road-to-recovery.html">dshort.com</a>), it appears that the S&P 500 lows in 1974 and 2002 market sustained recoveries. The Dow low in 1929 failed 11 months later. The current market is now 47% above the March 9 low, and has outperformed the 1974 and 2002 rebounds over the same period. Doug Short ask: Will the rally continue to show resilience? That is the question.</li></ul><ul><li>New <a href="http://www.morningstar.com/">Morningstar</a> 5-star stocks include Cisco Systems (CSCO), ExxonMobil (XOM), and Regions Financial (RF).</li></ul><ul><li>American Association of Individual Investors (<a href="http://www.aaii.com/">AAII</a>) sentiment survey results (as of Aug 6): Bullish 50% (rose above long-term average of 38.9%), Neutral 14.84%, Bearish 35.16% (rose above long-term average of 30.0%). It looks as if investors are jumping off the fence.</li></ul><ul><li>Even though the Dow Theory is giving bullish signals - since both the Dow Industrials and Dow Transports are moving above previous significant highs, signaling that the primary trend is bullish and stock price are likely to move higher - the signal may not have occurred since the corrections that followed the May and June highs failed to retrace even one-third of the rise since the March lows. As mentioned Monday, <a href="http://www.raymondjames.com/inv_strat.htm">Jeff Saut</a> just thinks it is a contrarian indicator.<br /></li></ul><ul><li>Points taken from the battle of the Dr. Doom's (<a href="http://www.bullbeartrader.com/2009/08/battle-of-dr-dooms.html">Bull Bear Trader</a>) and the recent Nassim Taleb interview on CNBC (<a href="http://www.bullbeartrader.com/2009/08/points-taken-from-recent-cnbc-tabel.html">Bull Bear Trader</a>).<br /></li></ul>Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-62930659144224235842009-08-12T15:40:00.001-05:002009-08-12T19:37:07.739-05:00The Battle Of The Dr. Doom'sThe battle of the Dr. Doom's on CNBC (<a href="http://www.cnbc.com/id/15840232?play=1&video=1212550433">CNBC Video</a>), between Marc Faber and Nouriel Roubini, was uneventful, but did provide some interesting comments. While Dr. Roubini views are pretty well known, even if he is currently a little less pessimistic, Dr. Faber's views may not be as well known, and are worth mentioning. Some observations from the Faber portion of the interview include the following:<br /><ul><li>There was a bull market in assets from 2002-2007, along with a weak dollar. In 2008, we had the opposite - a strong dollar, with all assets going down except for bonds. Now, in 2009, assets have rallied, especially in emerging markets as the dollar has weakened. </li><li>For the next couple of months we should see the dollar recover as assets correct downward.</li><li>The dollar will strengthen not because the U.S. economy is the best, but because it is the least cyclical. As the dollar strengthens, global liquidity will tighten. </li><li>As liquidity tightens, growth will begin to disappoint, and emerging markets will become vulnerable, especially after being a favorite of momentum investors who may flee the trade. </li><li>Nonetheless, even with slower economic growth, markets may still go up given that there are a number of worldwide central bankers who are nothing more than money printers and continue to feel the need to intervene when prices go down (except for crude oil). </li><li>To exit this cycle, we may still need a crisis to cause us to fully change behavior and clean the system. Therefore, a total breakdown of the system is likely ahead of us (even if 1, 5, or 10 years away) since we have not let those who caused the problems fail. We cannot continue to provide bailouts that do not help the average person.</li><li>Nonetheless, the Fed and other central bankers will most likely leave rates too low for too long, as household deficits continue to increase.<br /></li><li>Finally, when asked what would have happen if central banks would not have stepped in to stop the credit and market collapse, Faber believes that the market would have dropped more, but the system would be healthier, in part because the debt load on taxpayers would be less.<br /></li></ul><center><object id="cnbcplayer" classid="clsid:D27CDB6E-AE6D-11cf-96B8-444553540000" codebase="http://download.macromedia.com/pub/shockwave/cabs/flash/swflash.cab#version=9,0,0,0" height="380" width="400"><embed name="cnbcplayer" pluginspage="http://www.macromedia.com/go/getflashplayer" allowfullscreen="true" allowscriptaccess="always" bgcolor="#000000" quality="best" wmode="transparent" scale="noscale" salign="lt" src="http://plus.cnbc.com/rssvideosearch/action/player/id/1212550433/code/cnbcplayershare" type="application/x-shockwave-flash" height="380" width="400"></embed><br /></object></center>Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0tag:blogger.com,1999:blog-8914550690047945838.post-40680439956244710122009-08-12T14:05:00.011-05:002009-08-13T06:16:49.803-05:00Points Taken From The Recent CNBC Taleb InterviewNassim Taleb was interviewed on CNBC's Squaw Box Wednesday morning (<a href="http://www.cnbc.com/id/15840232?play=1&video=1212567075">CNBC Video</a>), along with Nouriel Roubini. Some observations from Taleb include the following (the first one still worth repeating, especially given the recent market moves and short covering, the remaining ideas being essentially repeats from other interviews/columns):<br /><ul><li>Short-term markets mean nothing. They are driven by the marginal buyer/seller.</li><li>The risk and problems that we had before - debt, poor leadership - are still there. </li><li>Converting private debt to public debt is just causing more problems. </li><li>Structural problems have not been addressed.</li><li>Too much reliance / susceptibility to forecast errors for the recovery, budget, and debt forecast. </li><li>Policy makers are still not working on the main problems and there cures, just the symptoms.</li><li>We are continuing to reward those who got us into our current problems.<br /></li><li>Nouriel Roubini is usually correct, except for wanting to reappoint Federal Reserve Chairman Bernanke (comment after some praise - to easy, just cannot help himself).<br /></li></ul><br /><center><object id="cnbcplayer" classid="clsid:D27CDB6E-AE6D-11cf-96B8-444553540000" codebase="http://download.macromedia.com/pub/shockwave/cabs/flash/swflash.cab#version=9,0,0,0" height="380" width="400"><br /><embed name="cnbcplayer" pluginspage="http://www.macromedia.com/go/getflashplayer" allowfullscreen="true" allowscriptaccess="always" bgcolor="#000000" quality="best" wmode="transparent" scale="noscale" salign="lt" src="http://plus.cnbc.com/rssvideosearch/action/player/id/1212567075/code/cnbcplayershare" type="application/x-shockwave-flash" height="380" width="400"></embed><br /></object></center>Bull Bear Traderhttp://www.blogger.com/profile/08111669522137520466noreply@blogger.com0