Wednesday
Jul302008

Bespoke's Paul Hickey on CNBC Street Signs Today at 2:15 PM ET

Street_signs_4Bespoke's Paul Hickey will appear on CNBC's Street Signs today at 2:15 PM ET to discuss the implications of the recently announced record in US births.

Wednesday
Jul302008

100 1% Days

The credit crisis has been gripping Wall Street for just over a year now, and there has been no shortage of volatility since then.  Below we highlight the number of 1% days (up or down) for the S&P 500 over the last year (252 trading days).  We're currently right at the 100 mark, meaning about 40% of the trading days have been 1% days over the last year.  That's definitely a lot compared to the low volatility experienced from '04 to '07, but it's not extraordinary, as it has happened in every decade since the '70s.  For those interested, the peak since 1940 was 141 over the one-year period from 4/02-4/03. 

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Wednesday
Jul302008

This Day In History

Wired magazine has a daily feature on their website where they look at This Day in Tech.  Each day they highlight a notable event from the past that happened on the same day.  Today's entry comes from 1869 when the world's first oil tanker, The Charles, left the United States bound for Europe with about 7,000 barrels of crude.  How times have changed.  While it was only 7,000 barrels, the US was essentially the world's first exporter of oil.  Today, it's the reverse.  Oil tankers come to US ports full and leave empty.

Tuesday
Jul292008

May Case-Shiller Housing Numbers

Below we highlight a color-scaled look at the May S&P/Case-Shiller housing numbers released today.  For each city we highlight the month-over-month change, the year-over-year change, as well as how long it has been since the current reading was this low.

The West Coast and Miami continue to be problem areas, with month-over-month declines of 1% or more, and year-over-year declines of 20% or more. Las Vegas and Miami are down the most year-over-year at 28%.  While many are happy that 7 areas saw month-over-month gains, it's probably negative that there weren't more, given that the Composite index has seen month-over-month gains from April to May in every year except this year and '07 since '91.

Probably the most disheartening of the data is how much of the gains from '04 to now have been given up.  The Composite 10-City index is now at its lowest levels since June 2004, Vegas hasn't been this low since March 2004, and San Diego hasn't seen these levels since September 2003.  Detroit is the worst, with current prices now back to January 1999 levels.

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Tuesday
Jul292008

Oil vs Natural Gas

While oil and natural gas have both seen sharp drops since early July, the declines in gas have been twice as severe.  Since its high in early July, natural gas has declined by 33%, while oil has declined by a more modest 16.2%.  As a result, the ratio between the prices of oil and natural gas has risen back near its highs of recent years.  Based on their relationship since 1990, the average ratio between the two commodities has been 9.2, which is 33% below current levels.  While the two commodities are not completely fungible, this would imply that either oil still has further to fall or else the sell-off in natural gas has been overdone.

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Tuesday
Jul292008

Big News

Remember to visit our B.I.G. News page every day to stay up to date with the top business news stories that we're reading.  Click the button below to check it out.

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Tuesday
Jul292008

Changes in Market Cap for Biggest US Companies

Below we highlight some interesting tables on the recent changes in market caps of the largest companies in the US.  In the first chart below, we highlight the 25 biggest companies in the US, along with where they stood at the S&P 500's peak just before the credit crisis began last July 19th. 

Exxon Mobil (XOM) is still the largest company in the US even though it has lost about $93 billion in market cap since last July.  GE, MSFT and WMT rank a distant 2nd, 3rd and 4th, but they are the only other US companies worth more than $200 billion.  In the table, blue shading means the company's size rank hasn't changed, red means it has declined, and green means it has increased.  JNJ, IBM, BRK/A, AAPL and DNA are top 25 companies that saw some of the biggest increases in rank since last year, but the eye-openers are the declines in ranks.  The biggest fall from grace has been Citi, who has lost about $158 billion in market cap (from about $250 to $95 billion) and gone from a #4 rank to #27.  In dollar terms, C, GE, AIG, XOM and BAC have lost the most, while in rank terms, FRE, WM and NCC top the list.  Other noteworthy falls are LEH, who went from the 89th biggest S&P 500 company to #246, and MER, who has now lost more market cap than it is now worth since last July.

Instead of going into more detail, we'll let the tables do the talking:

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Tuesday
Jul292008

Stock vs. Bond Valuations

Equity investors just can’t catch a break these days. Back in March when Bear Stearns was taken under by JP Morgan, the trailing P/E ratio on the S&P 500 was 19.06, which translates to an earnings yield of 5.25%.  At the same time, the 10-year US Treasury was yielding 3.31%, which meant that relative to Treasuries, the S&P 500 was nearly 60% undervalued.  In the chart below, we show the historical valuation gap between stocks (S&P 500) and bonds (10-year US Treasury) since 1962.  When the gap is in the green zone, stocks are considered undervalued relative to bonds, while readings in the red zone indicate that stocks are overvalued compared to bonds.

While the S&P 500 has declined by about 2% since March 17th, earnings have declined even faster.  This has resulted in an increase in the S&P 500's P/E ratio from 19.06 to 22.80. At the same time, the yield on the 10-year Treasury has also risen from 3.3% to 4.0%.  Therefore, even though the S&P 500 has declined, the valuation gap between stocks and bonds has actually declined by 30%.

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Tuesday
Jul292008

Merrill Management: Disregard Everything We Say

While they didn't come right out and say it last night, the message coming out of Merrill Lynch's management (MER) is clear: Disregard everything we say.  Below we highlight some of the comments that MER's CEO has made in 2008 regarding the company and its capital position.  In January, the company was "well positioned," and then in April the company still had "plenty of capital" for the "foreseeable future."  But by the end of April, the company went to the markets and raised $9.5 bln in capital.  After raising the $9.5 bln the company said, "We have no intention of raising any more capital."  So instead they sold their stake in Bloomberg and tried to sell Blackrock before the ratings agencies put the kibosh on that.

Less than two weeks ago, the CEO of MER said that in response to low ball offers for their fixed income assets, the company didn't "want to do dumb things...We have not liquidated stuff at any prices we could get."  Then last night the company comes out and sells $30 billion of its CDO portfolio for 22 cents on the dollar.  We can only imagine what the low ball offers were.

Since MER management has repeatedly gone back on its word through the course of 2008, last night's capital raise announcement was accompanied by a statement that management would buy 750K shares of stock.  While these actions are meant to sound like a vote of confidence in the stock, let's just remember that in today's prices, 750K shares of stock works out to about $18 million.  To put that in perspective, the company paid its top four current executives over $50 million in salary and bonuses for what they 'accomplished' in 2007.

Merrill_ceo_comments_3

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Monday
Jul282008

Bespoke's Financial CDS Index

Investors have been following the default risk as measured by credit default swap (CDS) prices of financial firms since the credit crisis began last year.  This cost to insure the debt of banks and brokers has been a telling sign of which firms are in the most trouble and which are weathering the storm the best.

To get a picture of the entire group of banks and brokers, we recently created a cap-weighted index of default risk for 15 global financial firms.  Following the levels and direction of this index shows how nervous investors are about the group.  Below we highlight a one-year chart of the Bespoke Financial CDS index.  As shown, the index rose significantly but didn't quite get to levels seen in March during its most recent spike.  Since the snapback rally that Financial stocks experienced two weeks ago after their 7/15 bottom, the index has declined about 15%, however.  Unfortunately, the index is still at very risky levels.

To track the Bespoke Financial CDS index on a regular basis as well as the stocks that make up the index, you have to be a Bespoke Premium member.  Click here to subscribe today.

Bespokecdsindex

Monday
Jul282008

Merrill Lynch: Another Leg Down?

While not yet below its intraday low of $23.64 on July 15th, Merrill Lynch (MER) became the first of the major brokers to break below its closing low from the mid-July 'bottom'.  Now the only question is, how many legs does this decline have?

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Monday
Jul282008

More of the Same

The average stock in the S&P 500 is now down 4.05% since last Wednesday's close.  Below we highlight the 25 worst performing stocks in the index since then.  As shown, the majority of the biggest losers come from the Financial sector, followed closely by Consumer Discretionary.  Technology is the only other sector on the list, and that comes from WFR, which went down following a weak earnings report.

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Monday
Jul282008

It's Raining BRICs

For several years, investors have been told to allocate at least some of their funds to international sources, as many provide stronger growth prospects than the US.  The most popular countries of the international investing theme have recently been the BRIC countries of Brazil, Russia, India, and China. While the BRIC countries outperformed significantly over the last few years, recent performance has been nothing to write home about.  In the chart below, we highlight the percentage decline from their peak readings in each country.  Of the five countries shown, the US is actually down less from its peak than all of the BRIC countries.

Brics

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Monday
Jul282008

Cuil a Threat to Google?

Google (GOOG) is trading down over 2% today, and while some of the decline is likely attributable to the market's general weakness, stories on just about every news service are discussing a new search engine which poses a potential threat to Google.  The search engine, named Cuil (pronounced cool), claims to have a search index that is up to three times greater than Google's.  We tried the search engine this morning and found that while it may search more pages than Google, the results are hardly superior. For starters, the website hasn't even worked for most of the morning.  While this could be due to a surge in traffic given the media coverage, you would think that a company that searches trillions of web pages daily would have the capacity to handle a large amount of searches following what had to be a planned media blitz.  When it comes to searches, the results were not any more impressive than what you get from Google or any other search engine, and the layout just seems hard to work with compared to what consumer are used to.

Monday
Jul282008

International Long Term Interest Rates

The charts below highlight the yields on selected international ten-year treasuries.  Interestingly, in the US and Canada, interest rates are still closer to the low end of the their range over the last two years, while yields in the rest of the world are near their highs of the last two years.

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