New Highs Coming?

Today is March options expiration, so don’t expect a lot of action. Options expiration days (the third Friday of the month) tend to be pretty dull. 

Still, it’s been a pretty good week for stocks. The S&P 500 moved up through two important resistance points – 1,150 and 1,165. 1,165 is a post-crisis high. And if you check a chart, you have to go back to late-2005 to find the next resistance point at 1,200. (The S&P 500 attempted to find support at 1,200 during the crash in 2008, but I don’t see that as particularly significant – investors were literally grasping at straws then.)  

 

Ironically, individual investors aren’t on board. Total inflows into diversified equity funds for U.S. stocks were negative in February. Bond funds and foreign funds showed gains.   

 

Also, ETFs had a positive inflow of $5 billion. That suggests that investors may be taking matters into their own hands and opting for a lower cost investment vehicle.   

 

I expect that we’ll see more individual investors enter the market as stocks push higher. It’s unfortunate, but individual investors tend to be a little late for the party.   

 

The war of words between Washington and Beijing over the relationship between the dollar and the yuan is heating up. China has sent an envoy to Washington to try and put a stop to the rhetoric.   

 

Two noted economists have also taken up the fight. Nobel economist Paul Krugman supports the notion that the yuan is artificially undervalued. He also advocates discouraging savings in the U.S. to keep demand strong.   

 

Morgan Stanley’s Stephen Roach believes the yuan’s value is irrelevant – the U.S. should be working to encourage China to spend more of its savings. He also advocates more savings for Americans to offset “…a major surplus savings imbalance…”   

 

“What the world needs is a shift in the mix of saving…” says Roach.  

 

It seems to me that the truth lies somewhere in the middle. Yes, Americans need to save more. But the undervalued yuan plays a role in China’s ability to amass foreign reserves.   

 

Europe is doing its flat-out best to undermine its own bailout plan for Greece. Germany wants the IMF involved, France is adamantly opposed. Greece just wants lower borrowing costs.  

 

It sounds a bit like Congress to me!   

 

I’ve gotten some mail about Maguire Properties (NYSE:MPG) I’d like to share:    

 

Kane M. writes: Thanks for the MPG tip.  Made 28% in 2 days.  Being a scaredy cat, I took profits before getting burned and missed the rest of the fun – oh well easy come easy go.  Could you please summarize one more time how you identified this company?  I misplaced that newsletter from last week wherein you had a website looking at volatility.   

 

The website Kane is referring to is good ole Yahoo! Finance. Specifically the Daily Top % Gainers list. This list simply shows the stocks that are making the biggest gains on a daily basis.   

 

Here’s a link the Daily Profit issue that discusses the Top Daily Gainers list and how I used it find Maguire https://wir.local/article/maquire/5263   

 

Also, please note that there is a complete archive of Daily Profit at www.wyattresearch.com.   

 

Louis S. was a bit more skeptical about Maguire: I’ve read your newsletter with great interest and I’m a bit worried that you advise to invest in a company in that state (I noticed that you speak a lot about oil in this article – and this is very informative – but not very much about the company itself)   

 

I didn’t provide much analysis for Maguire in the most recent recommendation. I was much more detailed back in September when I recommended it the first time.   

 

But to answer Louis’ question as to why I would advise a recommendation in a company in that state, to make money!   

 

Seriously though, problems with commercial real estate have been in the background of the economic recovery since the beginning. The bears have continually pointed to the $1.4 trillion in commercial real estate loans that must be refinanced in the next 3 years as a sure sign that the stock market and economy are teetering on the brink of another crash.   

 

To me, surprise is an important element to a crash. And commercial real estate is not a surprise. In fact, private equity has been rounding up finds to go after commercial real estate since last fall. There’s value in commercial real estate.   

 

As for Maguire in particular, the company was over-leveraged in one of the most over-valued real estate markets in the country – southern California. And the company was one of the first to walk away from properties that were seriously underwater.  

 

The company was/is focused on preserving properties that were still making money and not throwing good money after bad.

 

Ultimately, I don’t believe banks want to own office buildings and parking garages. Maguire’s actions are probably added motivation to banks to restructure debt.   

 

Finally, Maguire’s market cap is currently $124 million. It owns some very attractive properties in Los Angeles and generates over $500 million in revenue. To me, there’s value there.