Category: S&P

Red Light Greenlight

The stock market is in the midst of its fourth correction since July. The pullback is inciting some bearish commentators to rant against the validity of the summer rally, as though it were somehow “wrong” and is finally showing its true colors. We dispute the possibility of the market ever being “wrong” and assert that value is always in the eye of the beholder.

David Einhorn of Greenlight Capital argues that paying attention to the ‘Big Picture’ is important when making investment decisions on individual equities. Einhorn is not particularly sanguine about the state of the U.S. financial system or its global counterparts, but the new Financial Stability Improvement Act of 2009 might cheer him up a bit. The bill would require Wall Street to take responsibility for cleaning up future messes.

Speaking of the big picture, pullbacks have been mild this summer, but with the market now near important resistance at Dow 10,000, we recommend selling some inventory into strength and weeding the portfolio garden. Moreover, as part of the new normal, we think the educational system in the U.S. will be restructured. Apollo Group (APOL) is an educational outfit that also has problems with the SEC. We are bearish on the sector and “unprofile” the company.
  
The Best 4 Quants Model Portfolio finished last week at -3.2% vs. the S&P's -0.7%. This week the Best 4 Quants Model Portfolio was in cash while the S&P has lost 1.9%.  Since Inception 3/14/2003 the model has a return of +259.6% vs. the S&P 500’s +27.1%. The Best 4 Quants Model has no picks this week.

For those who do not follow the Best 4 Quants model portfolio, we offer our TSR Timing Model as general guidance on the relative safety of the current market. On 10/28/09 the timing model went from +200% to -25% invested.  Take a 12.5% position in SDS, which doubles the inverse of the S&P 500.    Full Article

The Old Normal

Observers such as legendary fund manager Mohamed El Erian believe that the financial crisis has precipitated a sea change that will take the West to a ‘new normal.’ That would be a problem. Meanwhile, however, Wall Street has returned to the Old Normal and is on track to reach record levels of compensation this year. On the anniversary of the collapse of Lehman Brothers, President Obama scolded The Street, but little is likely to change now that the government has underwritten an $18 trillion sub-prime mortgage to the financial establishment. Things could turn out badly in the end, which is why we recommend investing in companies with no debt, such as China Fire and Security (CFSG). We also like Bucyrus (BUCY), which has a P/E of 10 and makes coal mining equipment.    Full Article

September Blues

The stock market is experiencing the typical September blues, which occurs annually due to mutual funds selling losers for tax loss purposes. Funds are also booking profits after a strong rally.  Despite the bearish commentary in the media, we don’t think this is the end of the uptrend.    Full Article

The Long and Short of it

Creative destruction enhances the fortunes of opportunistic companies, but it can be a real ‘downer’ for those companies that do not adapt quickly enough to changing times. Deep recessions intensify the catabolic process, which means the losers will tend to fail spectacularly.    Full Article