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Have You Seen This?

Have You Seen This?

                     

Something’s bothering me.

 

I’ve been writing a weekly column here at Investors Insight since July. In my very first article, I mentioned the burgeoning bull market for biotech stocks. That was July 23. Emergent Biosciences (NYSE:EBS) was one of the stocks I mentioned.

 

Even despite the recent carnage, it’s up 15%.

 

On August 19, I mentioned a solar stock, Canadian Solar (Nasdaq:CSIQ), that ran 16% in the two days after that article.

 

Last week, I said it was time for a surprise interest rate cut. The very next morning, Bernanke obliged.  

 

I’ve made a couple bad calls, too. Now that we’re in a global recession, inflation isn’t the problem I thought it would be.

 

But right or wrong, I’ve managed to elicit a grand total of 2 comments from you, dear reader.

 

I know there are people out there. I can see that my articles have been read 4,217 times. I know from the interactive chat I hosted on the Discussion Forum that there’s an intelligent, savvy group of readers here at Investors Insight.

 

So I can’t help but think, that after 4,217 views, someone must have walked away from one of my articles thinking “Hmm. That’s a good idea” or “Wow, that Growth Report guy’s about as smart as a box of hair.”

 

But you’d never know it from the comments I get. I promise, if you leave a comment, I’ll read it and respond. (Though I’ll warn you in advance, if you say I’m smart as a box of hair, my response will probably be nonsensical gibberish.)

 

Glad I got that off my chest.

 

                             “We Should Chat More Often…”    

 

OK. So two things are bothering me.

 

Since I last wrote with that perfectly-timed call for a rate cut, the Dow Industrials peeled off 700 points, made a wild 1,019 point swing and then launched 936 points.

 

Clearly, we should stay in touch more. And I’ve got just the way to do it.

 

I just started writing a daily e-letter called Daily Profit. Plus, I launched a new website to support the letter called 24/7 Investor. (the URL is a clever www.247investor.com.) All together, it’s 24/7 Investors Daily Profit.

 

So this week, I’m going to reprint yesterday’s letter and give you the opportunity to sign up for it if you like it. I don’t need your social security number or shoe size to sign up. Just an email address to send it to you is fine. The Daily Profit is so new, we don’t yet have a sign up box available at 24/7 Investor. But you can get on the mailing list here www.bigideainvestor.com.

 

 

Thanks for reading.

 

Your Daily Profit

 

October 14, 2008

 

******Record Day for Stocks

******Global Recession?

******Earnings, Part 2

 

Dear Investor,

 

*****Now that was a good old-fashioned rebound. The Dow Industrials jumped a record 936 points, or 11%. The NASDAQ was up 195 points.

 

Of course, with the bond market closed for Columbus Day, stocks pretty much had a free pass yesterday.

 

Despite the nice point totals, I still have to wonder if these gains will stick over the long term. Volume wasn’t particularly heavy.

 

Like I pointed out yesterday, the emergency G-7 meeting over the weekend failed to produce any concrete plans of action. And Paulson is still mulling what to do.

 

Buying bank stocks is a start. But the U.S is still far behind England when it comes to moving quickly to restore some semblance of stability to financial markets.

 

Recall that the U.K. has guaranteed inter-bank loans, set interest rates for such loans, made cash available to banks and is even taking majority stakes in three troubled firms.

 

Meanwhile, Paulson is “seriously considering” a few things. All I can say is they better hurry. Monday’s euphoria will fade.

 

*****Even if Paulson follows the U.K.s lead to the letter, it doesn’t mean the U.S. economy returns to growth. There are a number of headwinds that will likely keep the pressure on the economy and stock prices.

 

As you know, my number one worry is unemployment. The unemployment rate is currently 6.1%. And since it’s pretty much a consensus that the U.S. is in a recession. Estimates for unemployment are rising to between 7% and 8%.

 

Obviously, those numbers would be the worst since the early 90s. And there’s no way stocks will stage a comeback so long as unemployment is rising.

 

Forecasts for commodity prices are coming down. One analyst notes that copper is still three times higher than it was in 2001. And Goldman Sachs analysts are now saying that oil prices could drop into the $50s. Steel prices are also coming down.

 

And that’s not all. One analyst says corporate IT spending will fall 5%, or $170 billion in 2009. That’s not a good sign for tech stocks. If you remember the Nasdaq bear market from 2000-2002, that’s exactly what happened then, too.

 

Corporations cut spending and the likes of Intel (Nasdaq:INTC) and Microsoft (Nasdaq:MSFT) get killed. Intel reports earnings this afternoon, and what the company says will be very important for the future direction of the Nasdaq.

 

It will be interesting to see how consumer oriented tech stocks like Apple (Nasdaq:AAPL) fare.

 

*****Most economists are calling for the worst global recession since 1982. The IMF puts growth at 3% for 2009. Harvard Economics professor and former chief economist for the IMF Kenneth Rogoff says we should knock 2 points off that estimate.

 

So while stocks may look like a bargain right now, there’s plenty of reason to think earnings estimates for 2009 are coming down. S&P 500 analysts are currently expecting record 3rd and 4th quarter profits.

 

Profits dropped 7.5% in the second quarter. But analysts are still expecting a 22% jump to a record $222 billion for the third quarter and to post another record $241 billion for the 4th quarter.

 

Needless to say, a lot of market strategists say those numbers are too high. And with lower earnings, stocks won’t look as attractive as they do right now.

 

*****I’m still a bit haunted by what Lehman CEO Richard Fuld said in his Congressional testimony last week.

 

“Until the day they put me in the ground I will wonder," Fuld said. "I do not know why we were the only one.”

 

He means Lehman Brothers was the only investment bank that was left to fail. AIG, Freddie Mac and Fannie Mae were rescued. The Fed stepped in to broker deals for Bear Stearns and Morgan Stanley.

 

Only Lehman was left to fail. Yesterday, Germany’s financial regulator said Lehman’s bankruptcy cost $300 billion outside the U.S. Apparently, Paulson didn’t think those losses were worth protecting against. Sounds to me like he had a personal vendetta with Lehman’s Fuld. And that’s clearly no way to run financial policy.

 

Best Regards,

 

Ian Waytt

Editor

Daily Profit

 

 

 

 





Posted 10-15-2008 10:17 AM by Ian Wyatt