Ramblings of a Portfolio Manager or In defense of pigs…
That bulls and bears make money and pigs only get slaughtered is a well used maxim on Wall Street. This week it takes on a whole new meaning as an outbreak of Swine Flu threatens to derail the recent market rally. Will an influenza epidemic in Asia trim GDP growth enough to curtail its widely believed ability to pull the World out of the economic slump? Who remembers SARS? That was supposed to trim 50bps from Asian growth. It didn’t. Frankly, more people (assuming they are old farts like us) probably remember President Gerald Ford’s misguided Swine Flu inoculation program in the 70s than they do the SARS epidemic earlier this decade. Well, there you go, another comparison between this economy/market and that of the 70’s and we didn’t even intend to go in that direction! As earnings reporting season winds down, at least this will give the market something upon which to focus. Frankly, to us it looks more like a tempest in a pig sty than anything else but stay tuned…
Monday, April 27, 2009
Monday, April 20, 2009
Ramblings of a Portfolio Manager 4-20-2009
Ramblings of a Portfolio Manager-
You may be wondering why we write this on Monday after the close and not before the open. Looking back you will see that Politics has been the biggest mover of the market this year. Just look at the past weekend, talk of quasi nationalization/equity conversion of the bank debt and stipulations on repaying government debt made for a fun Monday and a 5.6% drop in the Russell 2000 index. We like to digest our weekend, put our toys away, and focus fresh on Monday.
Earnings season is underway and, so far, it seems that analysts have indeed lowered the bar sufficiently for most companies to beat. By and large, the reaction of stocks to the “surprise” has been positive and the market just completed its sixth week of gains, some of which it appears as of this writing was in anticipation of said “positive” surprises.
Speaking of toys, when my eldest son was 4 he threw all of his beach toys off a 10’ high seawall. After they hit the sand and failed to break, I asked him “now what?” How was a 3’ kid going to get those things back up without Dad’s help? This little parable might just be a metaphor for the months following this earnings reporting season. Once earnings season is over and investors come to believe that earnings have hit bottom, we need to ask “now what?” Will earnings bump along the bottom or will we start to see a resumption of growth? Well, we do have “Dad’s” help but is he going to keep some of those toys once he helps retrieve them? One thing’s for sure, if the market is indeed looking ahead as always, it’s in anticipation of having more toys to play with than it does now. And, like any small child, if it doesn’t get what it wants, watch out…
You may be wondering why we write this on Monday after the close and not before the open. Looking back you will see that Politics has been the biggest mover of the market this year. Just look at the past weekend, talk of quasi nationalization/equity conversion of the bank debt and stipulations on repaying government debt made for a fun Monday and a 5.6% drop in the Russell 2000 index. We like to digest our weekend, put our toys away, and focus fresh on Monday.
Earnings season is underway and, so far, it seems that analysts have indeed lowered the bar sufficiently for most companies to beat. By and large, the reaction of stocks to the “surprise” has been positive and the market just completed its sixth week of gains, some of which it appears as of this writing was in anticipation of said “positive” surprises.
Speaking of toys, when my eldest son was 4 he threw all of his beach toys off a 10’ high seawall. After they hit the sand and failed to break, I asked him “now what?” How was a 3’ kid going to get those things back up without Dad’s help? This little parable might just be a metaphor for the months following this earnings reporting season. Once earnings season is over and investors come to believe that earnings have hit bottom, we need to ask “now what?” Will earnings bump along the bottom or will we start to see a resumption of growth? Well, we do have “Dad’s” help but is he going to keep some of those toys once he helps retrieve them? One thing’s for sure, if the market is indeed looking ahead as always, it’s in anticipation of having more toys to play with than it does now. And, like any small child, if it doesn’t get what it wants, watch out…
Monday, April 13, 2009
Ramblings of a Portfolio Manager 4-13-2009
Ramblings of a Portfolio Manager-
Well, earnings season officially kicked off last week and, as far as high profile reports go, we have a sample of one, well, maybe one full and two halves to work from. Research In Motion actually kicked it all off on the Thursday before by blowing away all analyst estimates…of course the Company had already set the bar really, really low two months earlier so we’ll give them half credit. Then there was Wells Fargo giving some pre-announcement good news on Thursday morning. But we really don’t know how their actual balance sheet and income statement look yet so let’s say they are a half credit as well. Alcoa was the real test, so said the TV talking heads anyhow, and they reported slightly better than expected top line numbers Tuesday night. Of course that stock went into earnings reporting season in the high $7 range having already made the trip up from around $5 at its low. Was the run up in anticipation of better than expected results or was the stock just going along with the market for a ride? At least for now, investors are starting to look across the chasm for improvement in the second half.
Perhaps, things might be improving going forward. The statisticians and consultant nerds would tell us that our sample size isn’t large enough from which to extrapolate with any significance. This week earnings, especially from the banks, will come fast and furious, which will put the look-ahead theory to the test.
Well, earnings season officially kicked off last week and, as far as high profile reports go, we have a sample of one, well, maybe one full and two halves to work from. Research In Motion actually kicked it all off on the Thursday before by blowing away all analyst estimates…of course the Company had already set the bar really, really low two months earlier so we’ll give them half credit. Then there was Wells Fargo giving some pre-announcement good news on Thursday morning. But we really don’t know how their actual balance sheet and income statement look yet so let’s say they are a half credit as well. Alcoa was the real test, so said the TV talking heads anyhow, and they reported slightly better than expected top line numbers Tuesday night. Of course that stock went into earnings reporting season in the high $7 range having already made the trip up from around $5 at its low. Was the run up in anticipation of better than expected results or was the stock just going along with the market for a ride? At least for now, investors are starting to look across the chasm for improvement in the second half.
Perhaps, things might be improving going forward. The statisticians and consultant nerds would tell us that our sample size isn’t large enough from which to extrapolate with any significance. This week earnings, especially from the banks, will come fast and furious, which will put the look-ahead theory to the test.
Monday, April 6, 2009
Ramblings of a Portfolio Manager 4-6-2009
Ramblings of a Portfolio Manager-
This is the second installment of Ramblings, a work in progress. We hope that you find it informative and feel free to contact us with any questions or insights.
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