Diamonds and Dogs
January 4, 2012
Cabot Oil & Gas
The Marcellus shale gas explorer is not only the diamond of the day, but was also the best performing stock within the S&P 500 last year rallying over 100%. Cabot is up 4% today after announcing a 2 for 1 stock split and a 33% hike to their dividend. Imagine how well Cabot could do if natural gas prices actually went up. Cabot is off to a good start to be named the best performing S&P 500 stock once again.
Acme Packet
Acme Packet is blowing up like Acme Dynamite today (a reference to Road Runner). The network Infrastructure provider is down 19% following disappointing earnings and lowered sales and earnings guidance for the rest of their calendar year. The company is blaming the poor guidance on reduced spending from their top customers AT&T and Verizon. Acme's bad news may be good news for competitor Cisco Systems. Cisco is up 2% to a new recent high today.
June 30, 2011
Slippery Oil, Slippery Politicians
As the days wind down to the end of QE2, or the governments' desperate attempt to stabilize the economy by keeping rates low, a new easing tactic may have been born. Last week the US and other developed nations agreed to release 60 million barrels from the Strategic Oil Reserves around the world, with the US contributing 30 million barrels. With no ammo left to keep rates low, the powers to be feel that bringing oil prices lower by adding to the supply, will ignite the economy and also keep inflation low. Here is the burn though, in less than a week, oil prices are higher than when the announcement was made. The idea that 60 million barrels of crude, or less than one days' world usage, would keep prices low is symbolic at best. The threat of further government intervention into the capitalist markets might keep prices muted, but ultimately supply and demand rules the day. History shows that politicians do more harm to economies than good.
June 20, 2011
Noted economist Lawrence Lindsey recently opined in the Weekly Standard that the Fed had painted itself into a corner. In a nutshell, Mr. Lindsay suggested that the borrowing cost for the US government is now at 2.5% as the Fed keeps interest rates negative to spur growth and save the big banks. For the past 3 decades, the government's borrowing cost has averaged 5.7%. Debt is now at $14 Trillion dollars and expected to grow to $25 Trillion by 2020. With the debt rising exponentially to $25 Trillion, and "normalized" cost to service this debt 3 percentage point higher, the yearly cost of higher interest rates in 2021 could be about $800 billion. $800 billion in additional interest costs per year. That would wipe out all of the Ryan proposals cuts by itself. It is 20X the amount that the Congress struggled to cut ($37 billion) in March. The Fed has no place to go and that is the case for interest rates. Painted into the proverbial corner, the Fed cannot raise rates, no matter what happens to inflation, no matter what happens to seniors on a fixed income, and no matter what happens to savings. This is potentially a chapter from Japan that we do not want to read. Stocks finished a quadruple witching Friday in the plus, barely and without tech stocks.
June 8, 2011
The stock market continues to falter as we head into summer. The markets have been down for 5 consecutive weeks and the first two days of this week. The bearish drop has not been dramatic, as the drop from the highs is still about 5%. It feels more like the drip, drip, drip of a Chinese water torture.
Interesting, and telling, fact of the day is that for the past 80 years, 55% of the total return of the stock market has come from dividends. Pure growth plays can add zest to a portfolio and make for great cocktail talk, but over the long hall, reinvesting dividends is where the investment game is won or lost. Finally, the banks and financials cannot get out of their own way. Partly, as Jamie Dimon of JPMorgan alluded to in a call to Fed Chairman Bernanke today, the costs and regulations (in the 1000's) are keeping bank profitability down. Also overlooked is the competitive effect of hedge funds, private equity, and international money players are having on the profits of the large multi-national banks. The big banks are in a squeeze and until the Fed's back off or long-term interest rates shoot up, the pressure for profits will continue
May 31, 2011
We have gotten through May without too much damage. Similar to last year, May has been a rough month for investors as stocks fell for the past four weeks and will close negative for the 31 days. For the year, stocks are still strongly in the plus column as corporate balance sheets and corporate profits have come in better than expected. With 0% interest rates as the wind behind their sails, stocks are the go-to investment choice so far this year. Throw in a third year of a presidents' first term, which outperforms by 2X, and stocks seem compelling. On the negative side, European financial turmoil, Middle East unrest, and higher oil prices are a drag. Additional fallout from the Japanese nuclear disaster (the earthquake is now 4X as costly as Hurricane Katrina) and a potential dramatic interest rate spike weigh on all investments. So where do we go from here? Sideways may be the most logical choice for the next 2-3 months as positives negate negatives. Interestingly, at the end of June we will see the expiration of QE2, or the Fed's last ditch effort to keep rates negative (due to effects of inflation) and desperately search for a catalyst to growth in the economy. Light up the barbeque and settle in for what could be an uneventful summer for stocks.
Diamonds and Dogs market commentary is a journal of daily observations on anything that happens to be of interest to our author. Obviously, our primary focus is the stock market and world economic events, but for this page we have no defined topics. We want this page to be dedicated to the interests, concerns, and possibly to the financial gain of our clients and friends. All comments contained herein are for informational purposes only, and should not be considered as a solicitation to buy or sell any security. The firm does not guarantee the accuracy or completeness of the information or make any warranties regarding results from it's usage.