Buzz Bits: Dow, Nasdaq Gain Ground
Your Daily Buzz & Banter highlights.
It's Not the Direction, It's the Velocity - Kevin Depew - 2:28 PM
Going through the Goldman Sachs (GS) conference call now - I should say a typical Goldman "Secret Agent Man" conference call covering all kinds of generalities, where nothing is "unusual" or an "outlier" or "any different than it usually is" - the one thing that stood out is something that relates the importance of the velocity of money in a finance-based economy.
Various professors on Minyanville have tried numerous times to illustrate how important the velocity of money is to our economy. Meredith Whitney of CIBC (and Citigroup (C) dividend-questioning fame) asked, "In what circumstances could you fathom a, not just, not double-digit growth, but a negative growth scenario in FIC (fixed-income and credit)?"
Goldman CFO David Viniar said, "an environment like November that lasts through the entire year 2008. Clearly, we would not see growth in FIC revenues if that happened, because basically, what happened, because of the lack of liquidity, because of the volatility, clients down on the sideline. There was just not a lot of activity, and for us, and we've said this before, that's really what drives our revenues, really, in all of our businesses, but in FIC as well. It's not the direction of interest rates, the direction of commodity prices, directions of currencies, its activity levels. And in the month of November, there was a big lack of liquidity in the markets, and very little activity."
Watch For Falling Knives - Sean Udall - 2:15 PM
While I'm not going to make a big bold bottom call... I will say that investors should look at buying something.
Into these large drops where stocks are gapping lower every day you have to be careful not to chase the knives. However, it is prudent to pick a favorite name or two that is just absolutely getting the woodshed treatment and put a long or two on the books (or add).
This kind of selling ends when it ends and is sometimes hard to time. Also, sometimes market bottoms can come in layers with many different stocks or sectors hitting lows well before others. Also some stocks will spike very hard on the way back up, so being early is better than not being long at all.
A few names I think either represent good odds of leading to the lows or have enough value that being early will be well rewarded are: Akamai (AKAM), AVX Corp. (AVX), Vishay Intertechnology (VSH), Ciena (CIEN), Jabil Circuit (JBL), Arris Group (ARRS) and F5 Networks (FFIV).
Position in AKAM, CIEN, ARRS and FFIV.
XAU/Gold Ratio - Lance Lewis - 1:56 PM
Note that the XAU/Gold ratio (in white in the chart below) has now fallen slightly below 0.20 to .1985 and is just shy of the panic weekly closing low in the XAU/Gold ratio back in August.
Click here to enlarge.
As you can see in the chart above, buying gold shares any time the XAU/Gold ratio has plunged to or below 0.20 over the past 20 years has resulted in profits for gold bulls shortly thereafter, as the XAU (in red) has typically found an important low when this 0.20 ratio has been hit.
Position in GLD, gold shares.
Playing Defense Among Net Revisions - Ryan Krueger - 9:41 AM
Over the past four weeks, most would not be surprised to learn there have been over 200 net analyst revisions lower for Financial stocks and over 100 net revisions lower on Consumer Discretion.
The two 'defensive' sectors I have been viewing as increasingly vulnerable - Consumer Staples and Utilities - after being bid up strongly with dollars rotating in and preparing for the recession (which I'm not sure we'll even get) have seen a grand total of 0 and 4 net revisions. From my perch, their relentless rallies-despite questionable if not vulnerable fundamentals- have them priced with more risk than defense should be.
If I was looking to play exceptional defense I certainly wouldn't drop back into a soft 'prevent' zone with those two. I'd attack from the corners of the economy that are pressing some of the same inflation numbers we're all so concerned about: Energy and Health Care. These two sectors actually have quietly seen 48 net revisions higher over the past 4 weeks while few have had enough time to pay attention to what is going right while they prepare for what might go wrong.
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