Nationalization = Communism?

It is a strange sight to see the Dow Industrials trading at 6,700. That’s still a level from 1997. And it still indicates that people don’t want to own stocks. At this point, it seems to be as much about available capital for investment as a willingness to invest. 
Valuations are low, the Dow is trading with a p/e of around 20. But that’s still not as low as it’s been during past recessions.

Anecdotal Evidence

Stocks finished lower yesterday after Obama’s speech. The lows were hit early in the day and stocks managed rally to positive territory before finishing slightly in the red. 
What to make of this? Not much, unfortunately. Ultimately, I think it was a reaction to Tuesday’s overzealous rally. Tuesday seemed to be about short-covering after the S&P 500 held above its November lows at 741. 
While Bernanke’s testimony before Congress on Monday was far more significant than any specifics Obama mentioned Wednesday night, neither event seems to be affecting stocks much. Except for HMO stocks. They’ve been killed this week as Obama is making a push for healthcare reform.

LEAPS, Krugman and Microsoft

Seems like every day we dial the clock back another year or two. Friday, stocks closed at levels not seen since 2000. Yesterday, it was 1997. By the end of the week, we might be in yet another different decade. 
But I doubt it.
I think there’s little question that if you’re buying quality stocks at these levels, you will be rewarded. We’ve discussed quite a few stocks in past issues of Daily Profit that should be good buys for at least a trade. 
And if you’re interested in taking on a little extra risk for the chance at some outsized gains, you might consider LEAPS. LEAPS stands for Long-term Equity Anticipation Securities. They’re options that are good for up to three years out. With the markets trading at such low levels, LEAPS could pay off handsomely.

Whitney Speaks Again

More depressing forecasts for the big banks from the best big bank analyst out there, Meredith Whitney. You may recall it was Whitney who forecast the dividend cut at Citigroup (NYSE:C) back in October 2007. That was three months before Citigroup actually cut its dividend. Whitney should also be credited as one of the few analysts to see the financial meltdown coming.

The New FDR

*****Apparently we’ll hear more about the bank bailout plan over the next couple of days; In the meantime, President Obama will sign his massive tax and spending bill into law today. 
The bill is being called the biggest piece of legislation since FDR. We’ll see how the market likes it. It occurs to me that passage of this stimulus bill was very much in doubt until the amended version passed the House on Friday. It may be that we still get some upside in the stock market now that it’s passed.

Short-covering rally or the real deal?

So, on Friday I made the rally call. The Dow Industrials were up 217 points. Now, after a conversation with TradeMaster strategist Jason Cimpl, I’m a little nervous about stocks following through. 
Jason believes Friday’s rally was short-covering. His indicator? Oil. 
Oil prices fell Friday, while stocks rallied across the board. As you know I expect stocks to rally in anticipation of the stimulus bill and then next banking measure. It is my opinion that investors perceive these initiatives as help for the economy in recovering from recession. Not a cure-all, just help. 
If investors see light at the end of the tunnel, oil should rally too. After all, production has been cut. And despite growing reserves, oil will rally when it appears the economy will get back to growth.

Q4 Earnings on Steel: AKS, NU, X + Bank Nationalization

It seems we’re getting just enough decent earnings reports to keep things interesting. And of all the unlikely suspects, US Steel (NYSE:X) is near the top of the list. 
It goes almost without saying that steel should not do well in a global recession. But US Steel beat Q4 revenue expectations handily. (Earnings per share is not comparable due to a bunch of one-time items.)

President Obama

The news reported there were 1.4 million people on the Mall to watch Obama get sworn in. And there had to have been that many more in the city. It was nuts. We’re slowly returning to normal today. 
Despite the painfully cold weather, the crowds were energized by Obama’s speech. I wish I could say the same for the stock markets. The Dow Industrials lost 330 points to close below 8,000 for the first time in two months. Seems like just Friday I was mulling the potential for the Dow to retest those November 20 lows…

Economic Recovery?

No, the U.S. economy is not getting better. It’s getting worse. Daily Profit has been saying that unemployment will go higher and that we will see many more bankruptcies, especially in retail. But that doesn’t mean it’s any easier to take in the bad news.

The Fed’s About Face

It’s been my contention that oil prices will remain range-bound for the foreseeable future. And the 60 Minutes story I relayed on Monday supports that belief. If oil’s move to $147 was based on more speculation (and manipulation), than it was on true supply and demand issues, then it’s going to be a while before enough demand returns to push oil prices significantly higher.