Thursday, March 27, 2008

Not So Fast....

After almost 1,000 points were gained in rapid fashion, the last 2 days have again beaten down financials and thrown ice water on tech. This is still much more typical of a bear-type market than irrational exuberance. It again calls in to question the bull etiquette and the possibility of short-covering as a short-term explanation.

Lehman has had its second "rumor bath," dragging it down almost 10% after almost doubling from it's first crash last Monday down to $24. Much like Bear, they insist they can borrow or sell about a trillion dollars, plus, combined with new Fed policies, have no chance of going under. I don't know about the first part, but the second might be true. We may have missed the boat on Lehman a week ago.....

However, the ship may still be sinking at companies like WaMu, National City, and UBS. Projections are for another $18 billion in writedowns for the Swiss bank, and they can't be bailed out by the Fed. The other 2 might simply be bankrupt, and will either be bought out or fail.

Lennar came out with another round of gross earnings today, a loss of $.56 and decreased sales of 64%. This was rewarded with a 3% gain. While the time to buy may be when there's blood on the streets, their CEO reiterated the year ahead looks bleak. I disagree with a CNN report today that the time to buy homebuilders is when P/E ratios are high as a low P/E indicates strong earnings. No one was looking at these companies in 2002 when they had cranked out 20 years of increased quarterly earnings and their P/Es were 3! It was only after their boom that they were allowed a higher multiple and now, a multiple of infinity since there are no earnings.

Be patient out there. All the pundits who tried to push you into XLF have lost you 10% of your money in 2 days....I will continue to work on strategy but remain miserly with my cash pile at the moment.


Anonymous said...

Hey Ax how about a comment on some of the political candidates reaction to the "mortgage crisis". I would like to know your thoughts.

I found it interesting(not really) to see CNN bash McCain for his statement of not wanting the govt to bailout some negligent homeowners. Additionally, CNN boast of Obama and Clinton's big govt hands on approach (with tax payer money).

At the same time they(CNN) continue to run sob stories of people with interest only loans who are now in a pinch.

Let me know your thoughts and where you think responsibility and accountability should lie.

And of course what you think all this will do to the market.

AX said...

The reason there was so much backlash over the Bear bailout is the use of Fed (taxpayer) money while homeowners go belly up. As I've said in this blog, they are mutually exclusive events and equally nauseating to me. However, politically, the Dems will harp on saving these "poor people" who are now also delinquent on their home equity loans...look for financials to take a secondary hit once it becomes clear the Dems will win.