The nationalization trend in Latin America is starting to show up on Wall Street earnings reports. In the long term, this will have the impact of dragging down the entire market in the region and all the outside business operations associated with it.
The most recent examples include ConocoPhillips net income dropping off 94% due to the confiscatory activities of Hugo Chavez's government in Venezuela. HNR (Harvest Natural Resources) also reported a loss after not being able to recognize equity earnings from Venezuela.
It can only be expected that this trend will get worse moving forward into 2007. Investors should consider slowly moving out of their Latin American investments over time; and take a close look at natural resource stocks they hold which may be significantly impacted by the policies of Hugo Chavez in Venezuela, Evo Morales in Bolivia, and Rafael Correa in Ecuador.
Venezuela charge hits ConocoPhillips earnings
http://biz.yahoo.com/bizj/070725/1496115.html?.v=1
Wednesday, July 25, 2007
Wednesday, July 18, 2007
Dark Pools - Is Consolidation Coming?
The number of dark pools have doubled to over 40 since the start of last year. The success of these alternative trading venues shows excellent prospects for this industry; but the sheer number of firms is a sign that some consolidation will occur. Obviously all 40 firms will not be successful as independent entities in the long term.
The most likely survivors are those backed by large brokerage consortiums. LeveL and Bids have reached an average combined daily trading volume of 50 million shares. LeveL was created by Citi, Credit Suisse, Fidelity Brokerage, Lehman Brothers and Merrill Lynch late last year. Bids was launched in spring and backed by twelve brokerage firms, including Citi, Credit Suisse, Lehman and Merrill Lynch. Notice that some firms have backed more then one single Dark Pool electronic trading venue.
There is an expectation of increased regulatory scrutiny of Dark Pools because they operate outside the scope of the public market, and may undermine individual investors causing them not get the best prices for their trades. This may add increased oversight and costs that will help drive consolidation in the Dark Pool industry.
Similar to how the multitude of ECNs consolidated over time, the expectation is that a similar set of mergers will occur with the Dark Pool firms.
Trading volumes rise in dark pools
http://www.financialnews-us.com/index.cfm?page=ushome&contentid=2448328357
The most likely survivors are those backed by large brokerage consortiums. LeveL and Bids have reached an average combined daily trading volume of 50 million shares. LeveL was created by Citi, Credit Suisse, Fidelity Brokerage, Lehman Brothers and Merrill Lynch late last year. Bids was launched in spring and backed by twelve brokerage firms, including Citi, Credit Suisse, Lehman and Merrill Lynch. Notice that some firms have backed more then one single Dark Pool electronic trading venue.
There is an expectation of increased regulatory scrutiny of Dark Pools because they operate outside the scope of the public market, and may undermine individual investors causing them not get the best prices for their trades. This may add increased oversight and costs that will help drive consolidation in the Dark Pool industry.
Similar to how the multitude of ECNs consolidated over time, the expectation is that a similar set of mergers will occur with the Dark Pool firms.
Trading volumes rise in dark pools
http://www.financialnews-us.com/index.cfm?page=ushome&contentid=2448328357
Monday, July 9, 2007
Shanghai Index Double Top
It certainly appears that the Shanghai Index has formed a traditional double top. The first top being the peak, and the second top being an unsuccessful attempt to drive beyond the original peak. The index is now down 13% from its height and appears to be diving through the support level.
http://finance.yahoo.com/q/bc?s=000001.SS&t=6m&l=off&z=m&q=l&c
Not a compelling technical picture for any bulls touting the Chinese market. I expect the situation will only go downhill from here.
http://finance.yahoo.com/q/bc?s=000001.SS&t=6m&l=off&z=m&q=l&c
Not a compelling technical picture for any bulls touting the Chinese market. I expect the situation will only go downhill from here.
Thursday, July 5, 2007
Is It Time To Look At HomeBuilder Stocks Again?
Who wants to catch the falling knife?
The stocks are hitting 52w lows hard.... is all the bad news priced into these homebuilder stocks now? The P/E on many of the builder stocks is now under 10. All have recently reported dismal quarters. These firms are carrying a real burden in a huge amount of land based debt and bloated inventory. Using historical multiples to valuate homebuilders may be difficult when these firms are showing recent losses; valuating the firms on the basis of expected annual revenue does not improve the picture.
Is all the bad news priced into these stocks?
For those thinking about putting on a thick iron gauntlet and catching the falling blade, I would consider taking a look at some of the stronger homebuilder candidates. Ryland (RYL), Toll Brothers (Tol), and KB Home (KBH) may have the edge on some of the others due to improved inventory situations and financial restructuring. Beazer (BZH), Lennar (LEN), DR Horton (DHI), and Centex (CTX) appear to be more risky candidates. Hovnanian (HOV) is questionable due to their high debt load and impairments. This recent article outlines some of these concerns regarding HOV starting on page 3.
Builders Have Further to Fall
http://www.thestreet.com/_yahoo/newsanalysis/homebuildersconstruction/10365737.html&cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA
Beazer is in chaos recently after the firing of their Chief Accounting Officer on top of their operational issues:
Fall of the House of Beazer
http://www.fool.com/investing/general/2007/06/29/fall-of-the-house-of-beazer.aspx
The recent perspective of Citigroup on homebuilders is:
Homebuilders Slide After Citgroup Downgrade
http://biz.yahoo.com/ap/070702/housing_sector_snap.html?.v=1
Sometimes downgrades are sign that it is time to buy-in. There is a suddenly a large amount of negative press for homebuilders; some recent examples include:
Builders Still Have Further To Fall
http://www.thestreet.com/s/builders-have-further-to-fall/newsanalysis/homebuildersconstruction/10365737.html?puc=_tscs
Home Inventories, Land Investments Hold Risk for Builders
http://www.marketwatch.com/news/story/home-inventories-land-investments-hold/story.aspx?guid=%7BF78DAD98%2DC79E%2D4E76%2D88C0%2D0CDF4BA83E0A%7D&siteid=yhoof
Suddenly it is nearly impossible to find a positive article about homebuilders. Does this mean that it is time to buy; when fear is paramount and "blood is flowing in the streets" for builders?
However as a cautionary tale - Before you rush to call your broker to place a buy order - Here is today's example of a bad call from early in 2007. This article is from a "real estate expert" on the Street.com in February states that homebuilder stocks would have "as much as a 50% pickup over the next six months" and the time to buy is "now". Of course since February, homebuilder stocks have sunk like the Titanic.
It's Time to Buy Homebuilder Stocks
http://www.thestreet.com/newsanalysis/investing/10340429.html
Is all the recent negative press a sign that it is time to consider jumping back into homebuilders. Does the press have it wrong or right. Is it time to try to catch this falling knife?
The stocks are hitting 52w lows hard.... is all the bad news priced into these homebuilder stocks now? The P/E on many of the builder stocks is now under 10. All have recently reported dismal quarters. These firms are carrying a real burden in a huge amount of land based debt and bloated inventory. Using historical multiples to valuate homebuilders may be difficult when these firms are showing recent losses; valuating the firms on the basis of expected annual revenue does not improve the picture.
Is all the bad news priced into these stocks?
For those thinking about putting on a thick iron gauntlet and catching the falling blade, I would consider taking a look at some of the stronger homebuilder candidates. Ryland (RYL), Toll Brothers (Tol), and KB Home (KBH) may have the edge on some of the others due to improved inventory situations and financial restructuring. Beazer (BZH), Lennar (LEN), DR Horton (DHI), and Centex (CTX) appear to be more risky candidates. Hovnanian (HOV) is questionable due to their high debt load and impairments. This recent article outlines some of these concerns regarding HOV starting on page 3.
Builders Have Further to Fall
http://www.thestreet.com/_yahoo/newsanalysis/homebuildersconstruction/10365737.html&cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA
Beazer is in chaos recently after the firing of their Chief Accounting Officer on top of their operational issues:
Fall of the House of Beazer
http://www.fool.com/investing/general/2007/06/29/fall-of-the-house-of-beazer.aspx
The recent perspective of Citigroup on homebuilders is:
Homebuilders Slide After Citgroup Downgrade
http://biz.yahoo.com/ap/070702/housing_sector_snap.html?.v=1
Sometimes downgrades are sign that it is time to buy-in. There is a suddenly a large amount of negative press for homebuilders; some recent examples include:
Builders Still Have Further To Fall
http://www.thestreet.com/s/builders-have-further-to-fall/newsanalysis/homebuildersconstruction/10365737.html?puc=_tscs
Home Inventories, Land Investments Hold Risk for Builders
http://www.marketwatch.com/news/story/home-inventories-land-investments-hold/story.aspx?guid=%7BF78DAD98%2DC79E%2D4E76%2D88C0%2D0CDF4BA83E0A%7D&siteid=yhoof
Suddenly it is nearly impossible to find a positive article about homebuilders. Does this mean that it is time to buy; when fear is paramount and "blood is flowing in the streets" for builders?
However as a cautionary tale - Before you rush to call your broker to place a buy order - Here is today's example of a bad call from early in 2007. This article is from a "real estate expert" on the Street.com in February states that homebuilder stocks would have "as much as a 50% pickup over the next six months" and the time to buy is "now". Of course since February, homebuilder stocks have sunk like the Titanic.
It's Time to Buy Homebuilder Stocks
http://www.thestreet.com/newsanalysis/investing/10340429.html
Is all the recent negative press a sign that it is time to consider jumping back into homebuilders. Does the press have it wrong or right. Is it time to try to catch this falling knife?
Monday, June 4, 2007
The Plunge Continues - China
The rest of the world markets yawn as Chinese speculative bubble continues its plunge. Most global markets opened either flat or slightly down....
Chinese Stocks Take Big Fall
Chinese Stocks Tumble 8.3 Percent, Biggest Daily Drop Since February Plunge
BEIJING (AP) -- Chinese stocks plunged Monday following government efforts to cool a market boom, recording their biggest one-day fall since a February drop that triggered a global sell-off.
The benchmark Shanghai Composite Index tumbled 8.3 percent to 3,670.40, falling for the third time in four sessions since the government raised a tax on trading last week. The index had dropped 2.7 percent Friday. The Shenzhen Composite Index for China's smaller second market fell 7.9 percent to 1,039.90.
http://biz.yahoo.com/ap/070604/china_markets.html?.v=6
"There is the risk that this snowballs into a crash. Sentiment is so fevered that a bubble could burst," said Claire Innes, an economist in London with the consulting firm Global Insight.
Chinese Stocks Take Big Fall
Chinese Stocks Tumble 8.3 Percent, Biggest Daily Drop Since February Plunge
BEIJING (AP) -- Chinese stocks plunged Monday following government efforts to cool a market boom, recording their biggest one-day fall since a February drop that triggered a global sell-off.
The benchmark Shanghai Composite Index tumbled 8.3 percent to 3,670.40, falling for the third time in four sessions since the government raised a tax on trading last week. The index had dropped 2.7 percent Friday. The Shenzhen Composite Index for China's smaller second market fell 7.9 percent to 1,039.90.
http://biz.yahoo.com/ap/070604/china_markets.html?.v=6
"There is the risk that this snowballs into a crash. Sentiment is so fevered that a bubble could burst," said Claire Innes, an economist in London with the consulting firm Global Insight.
Wednesday, May 30, 2007
Chinese Market Plunges - barely causes a ripple outside of China
The recent correction of the Chinese markets today barely caused a ripple in stock markets outside of China. The main Shanghai Composite Index tumbled 6.5 percent to 4,071.27 Wednesday. The Shenzhen Composite Index for China's smaller second market fell even more, closing down 7.2 percent at 1,199.45. Most of the other world indexes closed up by more then 0.7% on average in response; largely ignoring the Chinese market plunge. This is another sign that the stock market bubble in China is irrelevant to the rest of the world. The stock market in China represents only a small fraction of the overall worldwide markets and the overall capitalization is minuscule on a comparative basis.
From a big picture perspective, the combined capitalization of the Chinese stock markets was US$786b at the end of 2006. The total for all the global equity markets is over $33Trillion; the NYSE alone is at over $23T (Sept 2006). The US represents over 1/2 of the global equity markets capitalization.
The Chinese government holds over $1.2T foreign reserves, and are increasing these reserves at over $12B per month. The Chinese product exports (not overall trade) are now at over $1.2T per year. While the Chinese national gross GDP was at about $2.6T; compared to the US at about $13.2T (notice that the US stock market capitalization is 2x bigger then the national GDP).
The size of the Chinese stock market is a small percentage (2.3% at best) of the overall world-wide equity markets (ignoring the size of the futures, commodities, options, bond, debt, and other markets), and just a fraction of the Chinese foreign reserves or export trade size. The overall stock market capitalization places the country in a distant sixth place slot for overall national equity market size. The stock market capitalization in China represents a mere 60% of their GDP.
From the math, the stock market is an insignificant (and non-critical) component of the overall Chinese economy. This minimizes the risk that a meltdown in the Chinese stock market would have any international impact.
From a broader economic perspective, most analysts expect the sizzling economic growth in China to slow a bit because the government is deliberately tapping the brakes. Most do not expect the slowdown to be very significant despite these efforts. There is still a huge demand in China for building materials, energy, raw materials, etc.... and the economy is still growing at greater then 9% per year. The economy in China remains strong.
The stock market situation in China however is another story. The local equity markets are in a speculative bubble that is doomed to burst; the question is when rather then if. The good news is that the size and capitalization of these stock markets are insignificant from a global perspective. The bad news is that the bubble pop will take a lot of unknowledgeable individual investors located in China down with it.
One recent article also looked at the Chinese market situation:
Greenspan's China-Stock `Contraction' May Not Spread
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQ281g_cfnWI&refer=home
Some quotes:
"That's the conclusion of a number of international economists and former government officials around the globe. They say China's economy shows little correlation with its stock market, foreigners are mostly excluded from owning shares and Chinese participation is limited to less than 10 percent of the population, reducing the effect of a bursting bubble."
``This is a relatively small casino,'' said Edwin Truman, a former director of the Federal Reserve's international finance division and now a senior fellow at the Peterson Institute for International Economics in Washington. ``Even the implications for the Chinese economy should be minor.''
"Total stock holdings in China account for just 25 percent of domestic wealth, and in Asia only Indonesia has a smaller market capitalization than China's 60 percent of GDP."
So in summary, the Chinese stock market melting down (which is likely to happen) is a non-issue from an international perspective; the Chinese economy having issues would be another story.
From a big picture perspective, the combined capitalization of the Chinese stock markets was US$786b at the end of 2006. The total for all the global equity markets is over $33Trillion; the NYSE alone is at over $23T (Sept 2006). The US represents over 1/2 of the global equity markets capitalization.
The Chinese government holds over $1.2T foreign reserves, and are increasing these reserves at over $12B per month. The Chinese product exports (not overall trade) are now at over $1.2T per year. While the Chinese national gross GDP was at about $2.6T; compared to the US at about $13.2T (notice that the US stock market capitalization is 2x bigger then the national GDP).
The size of the Chinese stock market is a small percentage (2.3% at best) of the overall world-wide equity markets (ignoring the size of the futures, commodities, options, bond, debt, and other markets), and just a fraction of the Chinese foreign reserves or export trade size. The overall stock market capitalization places the country in a distant sixth place slot for overall national equity market size. The stock market capitalization in China represents a mere 60% of their GDP.
From the math, the stock market is an insignificant (and non-critical) component of the overall Chinese economy. This minimizes the risk that a meltdown in the Chinese stock market would have any international impact.
From a broader economic perspective, most analysts expect the sizzling economic growth in China to slow a bit because the government is deliberately tapping the brakes. Most do not expect the slowdown to be very significant despite these efforts. There is still a huge demand in China for building materials, energy, raw materials, etc.... and the economy is still growing at greater then 9% per year. The economy in China remains strong.
The stock market situation in China however is another story. The local equity markets are in a speculative bubble that is doomed to burst; the question is when rather then if. The good news is that the size and capitalization of these stock markets are insignificant from a global perspective. The bad news is that the bubble pop will take a lot of unknowledgeable individual investors located in China down with it.
One recent article also looked at the Chinese market situation:
Greenspan's China-Stock `Contraction' May Not Spread
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQ281g_cfnWI&refer=home
Some quotes:
"That's the conclusion of a number of international economists and former government officials around the globe. They say China's economy shows little correlation with its stock market, foreigners are mostly excluded from owning shares and Chinese participation is limited to less than 10 percent of the population, reducing the effect of a bursting bubble."
``This is a relatively small casino,'' said Edwin Truman, a former director of the Federal Reserve's international finance division and now a senior fellow at the Peterson Institute for International Economics in Washington. ``Even the implications for the Chinese economy should be minor.''
"Total stock holdings in China account for just 25 percent of domestic wealth, and in Asia only Indonesia has a smaller market capitalization than China's 60 percent of GDP."
So in summary, the Chinese stock market melting down (which is likely to happen) is a non-issue from an international perspective; the Chinese economy having issues would be another story.
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