Some may view the sun as rising while others see it setting. Before you send me your rant that the pain has just begun and I am foolish to believe the recent market upswing is anything but a short term reprieve, let me share a few thoughts.Today Wachovia Corp (NYSE: WB) reported a loss of $1.30 a share compared to the average analysts' guess of $1.27 a share. WB lost almost $9 billion, is cutting the dividend and will layoff 6,400 employees. All bad news -- and still the the stock and the DJIA are up!
At the same time, oil is trading down about $4 a barrel during the busiest driving time of the year because people are actually conserving gas. The market is working. It should also be noted that after the Bush administration spent over seven and a half years stating various preconditions to establishing relations with Iran, last week they decided to send an envoy and start a dialog. It may be good or bad politics depending on your view -- but it is only good for the stabilization of oil prices.
The Federal Reserve Board led by chairman Ben Bernanke has held fast to the current 2% Fed rate and made it clear on several occasions that the rate will hold. This is a clear sign the Fed intends to have a bias toward inflation for the time being (although that can change) and is more likely to raise rates, and this should prevent further erosion of the dollar. I do not have any idea when or if inflation will start to erode our economy but a period of consistent interest rates sets the right course and stable interest rates and a stable dollar are a good thing.
There are many more signs that the market is turning. This should not be viewed as a Pollyanna attitude on my part that we have already seen the worst or things will not take another downturn. If the Dow started back down and approached 10,000 it would not shock me, but I think that it would take something we are not aware of now to do that.
This morning United Parcel (NYSE: UPS) reported a 21% loss in the quarter and a negative outlook and the stock is up.
UnitedHealth Group Inc. (NYSE: UNH) 2Q profit falls and the report from the AP is exemplary of the type of attitude I see from the long players (like me): "Shares of managed-care provider UnitedHealth Group Inc. jumped 9 percent Tuesday after the company reported sharply lower second-quarter earnings because of lawsuit settlements and a tough economy, but still beat Wall Street expectations" (my emphasis).
I am not declaring that the recent market bounce is the beginning of a positive stock market run but I do believe the groundwork is being set for improvement in the markets. While there are plenty of places you can and will read about gloom and doom, I am changing my outlook to positive and have already reported that when the "boys of summer" appear for spring training next year there will be many investors who will look back on this summer as a missed buying opportunity.
I called it last week with Will Bush throw a change-up at Yankee Stadium? Bush threw out that ball and extended a hand to the Iranians at the same time -- and the tide has turned.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of UPS.
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Reader Comments (Page 1 of 1)
7-22-2008 @ 3:00PM
luckychucky said...
You cite several instances of companies reporting losses, yet whose stock on a short term basis has nonetheless gone up despite the bad news. It seems to me you're citing evidence which indicates the exact opposite of what you trumpet. To most any rational observer these are clear signs of a market out of touch with its fundamental weaknesses, inevitably due for a correction back in line with reality on the ground.
7-22-2008 @ 3:05PM
Sheldon L said...
One more reality "Lucky"...
The market can move up on short covering but it can also move down on sales from margin calls. People/Institutions can also sell stock positions even though they think they are not over valued just to cover expenses or accumulate cash forcing the market to over shoot the mark.
There are plenty of values in the market. Also I remind the pessimists that I made a point several times that the market can be at or near a bottom and still drop. Reality has sunk in plenty. The market is not full of bullish investors.
And finally you only addressed one of the positive issues I raised.
7-22-2008 @ 9:32PM
luckychucky said...
Well, let's analyze your article. It's fairly brief, running the length of the middle column of a single advertising-choked browser page. It consists of 9 paragraphs, summarized below.
Paragraph 1: Wachovia took a loss but its stock has risen nonetheless.
Paragraph 2: For today, oil is down $4 from its $90-ish rocket rise.
Paragraph 3: Bernanke hints that he might stop wantonly printing currency, for a change. (of course choking the money supply can only be good for equities investors...)
Paragraph 4: Disclaimer that the market could still crash of course, because in the punditry business it's always the best policy to always cover your behind with weasel words - just in case.
Paragraph 5: UPS reported a loss but its stock has risen nonetheless.
Paragraph 6: United Health reported a loss but its stock has risen nonetheless.
Paragraph 7: You're not saying it's a bottom. But it could be a bottom. (see Paragraph 4).
Paragraph 8: A refernce to George Bush as proof of something I can't quite fathom. A reference another menaingless twist in his administration's entirely conjured dog_and_pony show about Iran.
Paragraph 9: Your credentials.
7-22-2008 @ 9:36PM
Sheldon L said...
Lucky...and your point is? No's 1, 5, 6 Three MORE stocks among dozens reporting that went up because investors are looking beyond the next quarter. 2. Oil is down $4 in one day and is down almost $30 per barrel from its high in less than two weeks -- very significant. 3. Thinking currency stablization is meaningless makes your comment somewhat meaningless. 4. No disclaimer -- a caution about the unknown. I stand my ground based on what we know. A word of caution about the unknown is always warrented; read The Black Swan. 7. The bottom is not an exact number, economics is not science -- back to Black Swan. 8. The presidents actions and sometimes thelacn there of, have a mjor impact on the market and a about face is worth noting.
7-22-2008 @ 10:44PM
Mr. noitall said...
You know I have to disagree with you Sheldon. So some stocks are up today, even though they reported bad news. How many times have we seen this recently? I would say plenty, this one day or one week move means nothing. I'm beginning to think that all we are seeing is some market manipulation that's desperately trying to keep the averages up, like Dow above 11,000.
I say the dollar continues to drop, 2% interest rates are a joke. I've said all along that oil isn't going up, the dollar has been going down. Nothing the FED has done indicates they are serious about fighting inflation. They are in complete bail-out mode. The dollar won't get stronger or stabilize with out some kind of real action.
The real estate market has only just begun it's decline, I expect prices to drop much more, and I don't think they will return to 2006 levels for decades. ( I'm talking real term levels, not inflation adjusted ). The big problem with real estate is that, over time it's always gone up, so we all just got too over confident this time and really started to believe that we couldn't lose betting on real estate, so too many people bet too much on this "sure thing" this time. Big mistake, we really did it this time.
7-24-2008 @ 8:26AM
Sheldon L said...
Mr. N.
Real Estate will be turning around in less than two years. Not with any drama but a change in direction and the bottom fishers are out today. We are putting togther an opportunity fund as I type.