Turning the Tide...
Friday, June 5, 2009 at 06:41PM I know I've been neglecting my duties and not updating this blog recently, but with final exams and graduation looming, I wasn't able to focus on the markets or, really, on anything else. I wish I could promise that was changing - that I'll be posting regularly - but I can't. With the bar exam coming up in a few weeks, I imagine that most of my time will be devoted to a meaningful and fulfilling task. Still, I wanted to provide my thoughts on the state of the financial system before they became stale.
The market is overpriced. Seriously overpriced. How did we make a recovery so fast? I literally started studying for exams, and saw the market increase 800 points. What's changed? What should I do in the future?
What's changed? The public-private investment plan (PPIP) is coming out at some point. The plan is insane and tantamount to welfare for the rich. That's not to say I think the plan won't work; I just wish I was rich enough to get the free money that PPIP gives you. (In case you're not fresh on the details, the PPIP program planned on promoting private purchases of residential and possibly commerical mortgage backed securities by provding government-backed loans to private parties who would then purchase the MBS' from banks) Still, the plan has been cutback recently in terms of funding to purchase securitized loans, and I've heard rumors that the plan was going to be eliminated entirely in terms of whole loans. This can't be it! It's not this easy! We can't have turned the tide from the rims of a recession, the greatest since World War II, to a bull market so fast.
But haven't we? The stock market is nearly back up to where it began in 2009. Treasury bonds are offering greater yields as inventors are less risk-averse and more willing to spend money in corporate and private securities. Apple is selling at $140 a share, and I've actually made money on my investment in a FAS, a leveraged, bullish, financial ETF.
What else has changed? I'm not really sure. Consumer confidence is up a bit, and I'm sure there are some other positive indicators out there. But what about all these structured derivaties? What about all the securitiziation? That hasn't changed. People are still losing jobs, and homes are sitll being foreclosed upon, brining home values down even further and incentizing homeowners to just leave their homes and let them be foreclosed. The stress tests the Obama administration conducted seemed scary - Citi bank could lose a $100 billion in the next two years on top of what it has already written down. So where's all this positive news coming from? No idea.
What should you do in the future? Short stocks. I think they're overvalued, especially the financials. I'm going to sell FAS within the next few weeks, and probably buy FAZ, a bearish, financial deriviative. I'm also thinking about buying some puts in Goldman and Apple. Apple is getting Steve Jobs back, which can't hurt the firm. It looks as though day-to-day managment will be in the hands of Tim Cook, but Jobs will at least improve morale at the firm. Additionally, Apple seems set to release a new version of the iPhone and possibly drop prices even more. All these things are good things, but I intend on shorting Apple. Here's why: Any new iPhone won't be as compelling as the last iPhone. 3G speed was really important on something that was arguably a laptop in your pocket, but video on my iPhone won't be. Nor will additional hard drive, or faster processing, or copy and paste. If Apple puts an incredible camera on the phone (5 MP, 3x optical zoom), that may compel some to change from their 3G to the new model, but absent that, people are happy with the 3G and won't rush to switch to a new phone (in a recession, especially). Additionally, the 3G phone allowed you to take advantage of rebates and corporate plans which discounted the monthly price of the phone, while the original iPhone did not. Thus, there was a financial incentive to switch to the new phone. Steve Jobs may be back, but Apple's going to need some new products to sell. The new iPhone shuffle doesn't look that great either. Finally, a lower price will encourage some to switch to the iPhone, but most users who were willing to pay $100 were also willing to pay $200 for the device.
Time is my enemy, so I am going to stop writing. But I'm bullish on Wal-Mart for basically the exact same reasons that I'm bearish on the market - if the recession continues, Wal-Mart will benefit.
Here's to hoping my next post isn't too far away...
Reader Comments (2)
Wonderful post... Very informational and educational as usual!
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