Use access key #2 to skip to page content.

Am I bearish, or just right? / Rates are up / These companies are on a roll / Get your own freaking phone

Recs

35

July 24, 2008 – Comments (14) | RELATED TICKERS: MO , NUE , SYT

There has been a lot of talk about how negative the tone of a lot of the CAPS bloggers has been lately.  While I think that we are likely to see a short-term rally in the major indices through Labor Day (or that they will at least remain flat through then), I remain EXTREMELY pessimistic on the current state of the U.S. economy, particularly the U.S. dollar. 

Does that mean that one can't make any money by investing in the stock market (not short selling)?  Absolutely not.  I think that it is important for bloggers to bring what they believe are solid investment ideas to the table, rather than just crying about how bad everything is.  In my opinion, tons of money can be made over the next several years by investing in the right places, which I still strongly believe are commodities (including oil, natural gas, ag), multinational U.S. companies with solid business outside of the United States or that are heavily involved in exporting, and foreign companies.  Wait you say, this is the same stuff that you've been touting for months and that has been working for the past year?  That's right.  While it is very likely that these things will take a breather for the remainder of the summer, I am absolutely convinced that after that breather the sectors that have worked in not so distant past will rally again.

Why am I so pessimistic on the U.S. dollar?  Jim Jubak, a well respected investor / journalist who is neither a gold bug nor a perma-bear sums up the problem with the dollar extremely well in his latest column: The huge threat to the US economy.  Here are a few excellent quotes from it:

-  "In the days since the crisis at Fannie and Freddie turned red-hot, the council that advises Saudi Arabia's king has recommended revaluing the Saudi currency, the riyal, which is pegged to the U.S. dollar, by up to 30%. That could be a first step toward switching the riyal from a price pegged to the dollar to one pegged to a basket of world currencies.

A similar advisory body in Abu Dhabi has suggested abandoning that country's dollar peg for its currency. A third oil-rich Middle Eastern country, Kuwait, ended its currency link to the dollar last year.

More ominously, because the threat is more immediate, some of the world's largest sovereign wealth funds, including that of China, are edging away from the U.S. dollar at an increasing speed. China's State Administration of Foreign Exchange, which holds the majority of China's $1.6 trillion in foreign currency reserves (mostly in dollars), has been holding talks with European private-equity companies about investing in their latest round of funds. That would shift dollars in to euros."

-  "The U.S. government is caught in a terrible bind.

On the one hand, if the government doesn't stand behind Fannie Mae and Freddie Mac, many overseas investors will see it as equivalent to the U.S. government defaulting on its debt. If the U.S. government walks away from Fannie and Freddie, these overseas investors will worry that the U.S. government will walk away from the other U.S. debt they own and from the dollar itself. There's already a suspicion among overseas investors that the U.S. government will try to solve its dual problems of a massive government debt and a massive trade deficit by letting the dollar tank. On the other hand, if the U.S. government does back Fannie Mae and Freddie Mac, it runs the danger that overseas investors will simply add Fannie and Freddie's $5 trillion in mortgages and guarantees to the $9.5 trillion the U.S. government already owes. By that calculation, a bailout would increase the debt level of the U.S. by 53% overnight."

-  "And if the U.S. doesn't come up with a credible plan? To protect their own interests, overseas investors will increase the rate at which they're moving away from the U.S. dollar.

In the short run, that means a cheaper dollar -- good for U.S. exports but bad for U.S. consumers who will have to pay more dollars for everything this country imports, including oil. In the longer run it means underperformance by U.S. stocks and bonds because overseas investors will want to hold fewer of them. It means higher interest rates because the U.S. government will have to pay more to get overseas investors to overcome their reluctance and buy our debt. And it means slower economic growth from higher interest rates and an increased cost of capital to U.S. companies that want to expand their businesses.

What's happening at Fannie Mae and Freddie Mac wouldn't matter so much, of course, if the U.S. didn't owe so much to the rest of the world. But it does. The sooner we realize that the two most important jobs a debtor has are successfully managing creditors and getting out of debt, the better off the U.S. will be."

This situation is no joke my friends.  What the government has done in its handling of the economy, particularly with the national debt and with Fannie / Freddy is absolutely criminal.  The same goes for Alan Greenspan's actions at the Federal Reserve. 

--------------------------------------------------------------------------------

Here's another fun statistic.  According to Bankrate.com, the 30-year average US fixed mortgage rate rose to 6.5% yesterday, its highest level since April 2002.  This definitely is not going to help the housing market and it will prevent the Fed from raising interest rates any time soon.

--------------------------------------------------------------------------------

Quick Hits

-  Smokers Fire Up Philip Morris' Profits:  Despite reporting an amazing quarter, PM's stock fell by over 1% yesterday.  To me this is an attractive entry point for the stock of a company that is performing exceptionally well, post-spin-off.  As an added bonus it currently pays a dividend of 3.6% (I love dividends).  This is just the sort of company that will flourish in a falling dollar environment.

NUE Set Up Well for Coming Quarters:  Zacks recently published a small piece on how Nucor's recent sell-off is a buying opportunity.  Goldman Sachs published a similar note earlier this week, stating that it believes investors are over-reacting to a potential slowdown in the global economy and that continuing strong demand trends in emerging markets are putting a strain on the global steel supply.  Goldman believes that any slowdown in the U.S. will more than be offset by growth abroad and that NUE will continue to report solid earnings for the foreseeable future.

Syngenta Half Year Results 2008: Strong performance, positive outlook: SYT is up over 3% so far in a down market today after reporting tremendous quarterly results.  If the ag boom continues, as I strongly believe it will, SYT will continue to thrive.

--------------------------------------------------------------------------------

Oops

Brett Favre might want to invest in his own cell phone

What an idiot.

14 Comments – Post Your Own

#1) On July 24, 2008 at 11:36 AM, TMFDeej (99.40) wrote:

If you've actually made it this far and decided to read the comments that are attached to this post, boy oh boy are you in luck.  I have a special bonus feature for you.  Normally I don't share or pass on annoying forwards, but this description of the current mortgage mess is one of the funniest things that I have read all year.  It is a MUST READ.  Enjoy.

http://www.businesspundit.com/sub-prime/

Deej

Report this comment
#2) On July 24, 2008 at 11:42 AM, kdakota630 (29.50) wrote:

Excellent summation of the terrible bind the U.S. ecomomy currently is.  I try to explain that to people all the time, but never do as good a job as you did there.

Report this comment
#3) On July 24, 2008 at 12:06 PM, FoolishChemist (97.01) wrote:

Loved the subprime primer. lmao.

Report this comment
#4) On July 24, 2008 at 12:41 PM, DemonDoug (81.90) wrote:

Deej, as always, I think you are just right in terms of bear/bull.  I think we've got about another 20-30% to go (to dow around 9,000) before we hit a more real bottom - and that's without panic selling.  If we get a panic or a run on the market, I wouldn't be surprised to see some of alstry's predictions come true.  But with the PPT I just don't see the Dow going below 5,000.

Based on this blog post and yesterdays blog post, I'm looking into putting a very large percentage of my cash savings (which grew in large part during the bull market between 03-07) into PM.  I've been worried about the dollar for some time now, and I don't trust gold and gold investors as much as I do a company with a track record (and now future growth potential) like PM's.  I've already got a fair amount invested in it, but I'm looking to make it somewhere around 20-30% of my entire portfolio.  Jubak is right, and the entire government has been completely mismanaged by inept people that the stupid american populace voted into office in 00 and 04 (he wasn't my president then, and isn't now, and never was).  We're like a company that was doing fairly well, then got a new CEO who just played favorites and nepotism and really hurt the country.

As far as NUE, I don't know steel investing enough to have that kind of confidence in it.  I get the feeling that China will be slowing it's growth, as all developed countries now are.  There might be more downside.  Remember, US Steel languished for over a decade with stagnant-to-falling stock prices before the recent housing boom.  I think you were also being bullish on Cemex, which I think is the best cement company out there, but the entire building industry is contracting right now, and I would not want to be anywhere near that entire investment area of falling napalm bombs.  (I keep trying to think of more clever devices other than "knives" for falling stocks and sectors.)

SYT looks good, would like it a bit cheaper.

Favre is really screwing himself to the wall, and unless he decides to just sit it out and retire, he is severely tarnishing his reputation.  So many things about that situation are just stupid.  Did he really think the packers would ever let him go to the vikings?  are you kidding me?  and then using the company cell phone?!?

One of the things that I hear with a certain sports radio personality is that in the NFL, and in all sports but particularly the NFL, you need to have good judgment.  Your actions off the field show what kind of character and judgment you have, and Favre's prima donna sideshows the past few off-seasons, and especially this one, along with the interview he did with greta van susteran, just show that he is one big whiny brat.  The packers gave him multiple opportunities to unretire, and he didn't go for it.  These actions show the irresponsibility of someone who, not shockingly, throws dumb interceptions, often at the worst times, to lose big games.  (See: last pass he ever threw which was caught by a member of the NY Giants.)  I also question his commitment to football.  He was waffling all-offseason.  Football is not a game for people who's heart is half in it.  It kind of looks like he just wants to play without putting in all the work.  That's fine if you are a defensive end, and you are basically one-on-one the whole game, but it's totally different for a QB who needs to work on timing, rhythm, playcalling, cadence, etc.  Even for a 17 year veteran, you still need to keep those skills sharp.

btw the subprime primer has been around for well over a year, but it's still real funny. :)

Report this comment
#5) On July 24, 2008 at 1:14 PM, TMFDeej (99.40) wrote:

Thanks for the comments everyone.  I can't believe that the subprime primer was out for a year before it popped up on my radar screen.  It is absolutely hilarious.

I established one of my largest positions in PM prior to and right after its spin-off from MO.  Perhaps it is because people hate smoking so much, but everyone always seems to underestimate big MO and now its international counterpart.  I don't know if we will ever see knock-your-socks-off sorts of returns from it, but I expect it to be a very solid performer for a long time.

I did write a bullish piece on CX a while ago.  It was after I had completely sold out of it several months earlier and was considering hopping back in.  Man I sure am glad that I didn't.

Deej

Report this comment
#6) On July 24, 2008 at 2:04 PM, loriyacht (31.59) wrote:

That bit about the ME countries leaving the dollar is the scariest thing I've read here in a long time.   I've been wondering if they would do it, now you're saying that they are beginning to make moves in that direction.

So here's my question..  if oil is not priced in dollars any longer, why does the rest of the world need dollars?  Currently, they use the dollars we send them to buy oil (and a lot of our stock/companies), but no one will need very many dollars any longer.  Sounds bad for us, real bad.

Report this comment
#7) On July 24, 2008 at 2:31 PM, GS751 (27.66) wrote:

DeeJ Good post but how do u put pictures into your caps blog posts.

Report this comment
#8) On July 24, 2008 at 3:14 PM, TMFDeej (99.40) wrote:

Thanks GS.  It's magic :).  Actually all you need to do is type

< img src = " link " >

Without any spaces other than between img & src.  The "link" refers to the address of the picture that you want to post.  Right click on any picture that you want to use and copy its address from the "properties."

Deej

Report this comment
#9) On July 24, 2008 at 3:14 PM, TMFDeej (99.40) wrote:

Thanks GS.  It's magic :).  Actually all you need to do is type

< img src = " link " >

Without any spaces other than between img & src.  The "link" refers to the address of the picture that you want to post.  Right click on any picture that you want to use and copy its address from the "properties."

Deej

Report this comment
#10) On July 24, 2008 at 4:05 PM, dbhealy (39.62) wrote:

oh man, the subprime primer was glorious!!

Report this comment
#11) On July 24, 2008 at 11:17 PM, Upperman33 (27.57) wrote:

"In the longer run it means underperformance by U.S. stocks and bonds because overseas investors will want to hold fewer of them. It means higher interest rates because the U.S. government will have to pay more to get overseas investors to overcome their reluctance and buy our debt. And it means slower economic growth from higher interest rates and an increased cost of capital to U.S. companies that want to expand their businesses."

Now quite. When the Fed starts to raise interest rates, that will cause the dollar to strengthen.

Report this comment
#12) On July 25, 2008 at 2:15 AM, jester112358 (28.73) wrote:

This primer should be require reading for all mortgage holders.    Very funny and factual.

 Good advice on the Ag stocks and steel and PM.   I'm long SYT, PM MT, and AKS in my real portfolio.  Also, BG, Bunge, which I also bought a few months back just reported incredible profit numbers and has pulled back considerably providing a good entry point.  All are guiding higher (some like POT a lot) for 2009.

Report this comment
#13) On July 25, 2008 at 6:15 AM, TMFDeej (99.40) wrote:

Thanks for the comments, Upper.  The dollar might strengthen if the Federal Reserve begins to raise interest rates, but I personally believe that the economy is so messed up that they will be unable to for a long time, perhaps as long as a year.  It never raises rates in a rising unemployment environment like this...at least not since Volker and Bernanke has proven that he's definitely Volker.  Besides if we are raising rates, others are going to as well.  Brazil just raised rates by 75 basis points yesterday while the Fed just sits on its hands.  Add to this the fact that many foreign countries are losing confidence in the dollar.  Ultimately currency valuations, like anything else in life, is all about supply and demand.  If people lose confidence in the dollar and the Fed continues to print money to help fix the credit crisis the dollar will fall and significantly underperform most foreign currencies.  It blows my mind that anyone thinks otherwise.  If I was a foreign country, I know that I wouldn't want my currency pegged to the dollar or have significant dollar reserves.  Some is fine, but why wouldn't one want to spread out their risk by using a basket of currencies.  The answer "that's they way it has always been" isn't a good one.

Deej

Report this comment
#14) On July 25, 2008 at 6:16 AM, TMFDeej (99.40) wrote:

Thanks jester.  I was rothlmaf or however the heck that silly acronym goes when I saw that thing.

I'm glad to see that you agree with me on my positions.

Deej

Report this comment

Featured Broker Partners


Advertisement