October 20th, 2008
Today, Oracle announced a plan to buyback $8 billion worth of stock in addition to an existing plan to buyback $9.3 billion of stock.
No timeline was given for the $17 billion deal and shares of Oracle rose 6.7 percent today. Trading activity was pretty normal, just about 400,000 shares above the three-month average of 42.1 million shares per day.
I must admit, news of this nearly doubled buyback shocked me a bit. In today’s market, where everyone is hoarding cash, here comes Oracle announcing a huge deal to buyback common stock. If the board believed the stock was overvalued they wouldn’t buy it back and if the company is willing to take a cash hit of $17.3 billion in this market, they must know something we don’t know. It would seem as if the insiders are giving investors the green light. But, what are the insiders doing with their own money?
Well, I decided to see what the insiders are up to and according to yahoo, for the past six months they have been doing nothing but selling! I saw a total of 26 transactions, 26 sales and zero purchases. In fact, the top dogs have unloaded over 3.73 million shares.
Looks like the green light just turned yellow.
Digging a little bit deeper, I found an article which suggested that some Oracle insiders pledged their shares in the firm as collateral for margin accounts. So, perhaps many of their sales had little to do with the value of Oracle’s shares and more to do with the dwindling value of their individual portfolios. When the margin calls came, they had to sell something and I guess that something was Oracle.
Regardless of the mixed signals, Oracle has weathered the recent economic crisis better than most stocks. In the past year, shares of Oracle have fallen about 14 percent, which is very good considering the fact that the S&P 500 has lost 34 percent over the same period.
Wonder if we can trust the insiders to manage Oracle’s investments better than they manage their own?
Tags: buyback, oracle
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By profsilver -- 1 comment
October 17th, 2008
Wow, what a difference a week makes.
Last Friday, October 10th, shares of Morgan Stanley closed at $9.68. Today, October 17th, shares of Morgan Stanley closed at $19.24. That equates to just under a 100 percent return in one week.
This week has been a crazy week and with all of it’s flip-flopping, the Dow managed to end the week in positive territory. So, in a week which saw the Dow gain 5 percent, what about this week pushed Morgan Stanley to double up? Well, when you zoom in on Morgan Stanley, it wasn’t the week that made the difference, it was just one day.
On Monday, Mitsubishi UFJ Financial Group closed a $9 billion deal for a 21 percent ownership stake in Morgan Stanley. Mitsubishi, the largest financial group in Japan, purchased preferred stock (the vast majority of which is convertible).
News of this deal hit before the market opened on Monday, causing Morgan Stanley’s shares to open almost $6 higher than the previous Friday’s $9.68 closing price. The day’s trading range was pretty wide: $12.66 - $19.06.
Even with the good news on 10/13, this one week wonder has to be put into perspective. Considering that shares of Morgan Stanley closed at $65.81 one year ago today, perhaps I should have started this post with “Yikes! What a difference a year makes.”
Take a look at this chart: http://finance.yahoo.com/q/bc?t=1y&s=MS&l=on&z=m&q=l&c=&c=%5EGSPC
Tags: mitsubishi, morgan stanley
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By profsilver -- 0 comments
October 17th, 2008
This morning’s New York Times ran an op-ed piece entitled “Buy America. I Am.” The author is none other than the legendary Mr. Warren Buffett.
The piece was laced with quotables. Below, you will find a list of those quotes, followed by my opinion on each. :)
Buffett: “I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: ‘Put your mouth where your money was.’ Today my money and my mouth both say equities.”
Silver: If you don’t like to opine, what’s with the op-ed in the New York Times? Equities…what equities? ;)
Buffett: “Be fearful when others are greedy, and be greedy when others are fearful.”
Silver: Fearful or greedy? I’ll choose neither and opt for realistic. When something looks too good to be true, it is. In other words, if you see (or if you are promised) sky-high returns with little to no risk or gravity-defying growth, the investment is either illegal or destined to collapse.
Buffett: “Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.”
Silver: True, when your holding period is forever, cash equivalents are indeed a terrible asset. But, in a shaky market cash=stability. Some people just don’t have the stomach for bailouts, crashes and such, especially when costs are running high and details are running low.
Mr. Buffett has a marvelous track record and his strategy is pretty basic, but he is not to be confused with the average investor. He has billions to invest and billions to spare. His favorite holding period is forever and did I mention that he has billions to spare?
While ultimately, I agree with Mr. Buffett, I would not recommend jumping head first into equities. The stock market is unpredictable but, in the long-term it will move higher. But, the definition of short-term and long-term varies from person to person and the term “equities” is far too vague for me to make any moves. Every person has to set their own terms before acting…that is, unless Mr. Buffett wants to opine on a specific stock or two. :)
Tags: new york times, warren buffett
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By profsilver -- 0 comments
October 16th, 2008
Last fall, a student stopped by my office and told me he thought Apple’s stock was going to rise. He had a few thousand to invest and he asked me if he should buy Apple. At the time, the stock was trading around $172 per share.
I wanted to scream, “NO!!!!” But, as a professor it is my rule (and probably a real rule in some document I never read!)not to give stock picks or investment advice. Instead, I walk students through examples to show what they would need to happen for this to be a good decision.
First, I had to ask him how much money he had, what rate of return he wanted to earn and how long he was looking to hold on to the stock. The answers: $10,000, IDK and IDK.
The last two questions are very important and you should know at least one of them before investing! Here’s what I went through with the student, first about money and second about risk.
About money: With $10,000 all invested in Apple at $172 per share, you could afford 58 shares. For every $1 per share increase in the price of Apple you can make $58. To make a 10 percent return, you would need Apple’s shares to rise over $17 per share.
About risk: I can’t recall what Apple’s beta was last October but, today it is close to 3.0. That means, Apple’s stock is three times as risky (from a systematic perspective) than the overall market.
What this combination meant to me: expensive and very risky. I would never recommend putting all of your money into one stock, particularly one with such a high price and high risk, especially with no set goal or investment horizon in mind.
Needless to say, he left my office feeling a little less certain about Apple. So, what happened? Well, for the next two months, Apple’s stock fluctuated between $150 and $203, before closing the year at $198. Since then, Apple has fallen as low as $85 and today, it closed just under $102.
In January, my student was probably cursing me, now he’s thanking me.
While I thought Apple was too expensive then, it is much more attractive now. My short list of likes on Apple: no preferred stock, no long term debt, $3.5 billion in profits last year and potential to help PC owners see the light of MAC.
Apple’s fiscal 2008 ended in September, so soon we will see how the most recent year treated Jobs & company.
Either way, always set some type of goals prior to investing and please don’t put all of your eggs into one basket!
Tags: apple, MAC, PC
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October 15th, 2008
The Fed’s latest Beige Book reads like a tragedy.
The book is published eight times each year and summarizes economic conditions in each Federal Reserve District (there are twelve). The Beige Book contains a ton of data. In a nutshell, economic activity weakened across all Districts. Below, I have summarized the results from several components.
Consumer Spending and Tourism: Weakened in nearly all Districts.
Business Spending: Weakened in most Districts.
Nonfinancial Services: Weakened in most Districts.
Manufacturing: Lower in most Districts.
Real Estate and Construction: Weakened or remained low in all Districts.
Banking and Finance: Tightened credit in all Districts that reported data for the category.
Agriculture and Nartural Resources: Favorable in most Districts that reported data for the category.
Prices and Wages: Inflation pressures eased in most Districts, wage pressures remained limited in all Districts (with the exception of skilled labor in a few markets).
Pretty grim. To makes things worse, the contents were released shortly after the Commerce Department’s report that retail sales fell 1.2 percent in September. Analysts expected a drop of 0.7 percent.
This disastrous data set the stage for a tumultuous afternoon. The news was definitely bad but, much of it shouldn’t have been that great of a shock. But, the markets reacted violently: the Dow shed almost 8 percent, while the Nasdaq lost 8 percent and the S&P 500 lost 9 percent.
These crazy swings are definitely inappropriate but until there is enough information (on the bailout and the central bank’s actions to rejuvenate the credit markets) to react appropriately, the wild days will continue. Although, the volatility seems to have no end I think we may be re-approaching the bottom. I’m looking to the credit markets for more clues!
Tags: beige book, dow, economic data, Federal Reserve
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By profsilver -- 0 comments
October 14th, 2008
Today was another wide ranging day for U.S. market indexes. Nasdaq was the hardest hit, losing 3.5 percent while the Dow lost 0.82 percent and the S&P lost 0.53 percent.
Today was relatively calm, so in my search for all of the action I decided to take a look at the top five most active issues: SPY, QQQQ, XLF, C and NCC.
Three of the top five most actives are ETFs. The Spider tracks the S&P 500, Cubes track the Nasdaq 100 and XLF tracks S&P stocks from the banking, diversified financial, insurance and real estate industries.
Spiders and Cubes traded at 1.65 and 1.67 times their average volume, respectively. I think today’s high volume of index ETFs shows that investors are still scared. Not scared to the point of selling out or sitting out, but scared enough to choose an index over individual stocks. However, Citi and NCC traded at 1.98 and 3.87 times their average volume, proving that speculators just won’t quit! NCC is rumored to be looking for a buyer and picked up almost 35 percent today. I didn’t see any headlines specific to NCC, maybe a deal is near or there is speculation of such. In response to the rumors, NCC’s spokeswoman said, “We simply don’t comment on rumors and speculation.” That sounds familiar…
Speaking of volume and speculators…many investors use information on historical prices and volume to predict future price movements. I’d like to know if they are right, so starting next week I am going to begin a series called Techie Tuesdays.
“Techie” is my short form for technical analysis. Every other Tuesday, I will write about one stock and share some tools of the techie trade (i.e. charting, moving averages) to evaluate the stock and track its performance.
Feel free to submit a stock for inclusion by leaving a comment!
Tags: citigroup, cubes, dow, ETF, nasdaq, National City Corp, spiders
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By profsilver -- 0 comments
October 13th, 2008
The days are so crazy, I have to write long after the markets close for fear of being outdated!
Pointwise the Dow posted its largest one-day gain ever, closing at 9,387.61. Bravo, bravo!!! Alas, even after today’s earth-shattering performance, I am not convinced.
I am waiting for the day when stocks stop trading as a market and start trading as individuals again. What do I mean? Well, let’s take a look at the Dow Jones Industrial Average. The index which contains 30 blue-chip companies rose 11 percent. Of the 30 components, 29 closed higher today. The Dow’s largest gainer was General Motors, which packed on 33 percent.
I did some digging and here’s what I found: Today’s headlines for General Motors read GM sales up in Latin America, Africa, Middle East… GM to close Wisconsin SUV plant…GM CEO says working to address liquidity crunch. Maybe, I need a Wall Street lesson on reading between the lines, but did I miss something here? Even if GM had been oversold, I am at a loss for what sparked a 33 percent run-up.
I think today was just a case of general optimism. Maybe its because the Treasury Department opened up (just a little bit) about the $700 billion rescue plan for the U.S. and the Eurozone countries are pitching in $2 trillion to stave off global financial ruin.
The news that these governments were willing to participate in a creative, and now collaborative, effort to stave off a world crisis is good but it wasn’t that good. When the talk subsides and the action begins, they may make a believer out of me. And that’s going to take awhile.
Tags: dow jones, general electric, general motors, Wall Street
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By profsilver -- 1 comment
October 11th, 2008
The most terrible days on the market are referred to as Black Monday and Black Thursday. In accounting and finance, “in the black” is a good thing. So, for me this label is a bit counterintuitive. After all, the biggest shopping day of the year is called Black Friday because huge sales on this day push many retailers from the red (losses) into the black (profits).
I think red is more fitting and right now we are approaching the middle of what I will call Red October.
Historically speaking, October is a pretty tough month for stocks. The two largest crashes on record both occured in October. First in 1929 and much later in 1987.
Putting this week’s steep decline aside, five of the ten largest daily percentage drops in the history of the Dow Jones Industrial Average came during October. In fact, the largest three were all recorded in October.
What is it about October? To tell the truth, I don’t have a clue. We are only eleven days into this October and the Dow has already plunged 22 percent.
The bright side is that historically, the three months following October have the highest average rates of return. This tells me that October is a month of overreaction. Overreactions get corrected, so if you have money in the market this October, seriously consider your options (and if you really need the cash right now) before selling out.
True your account balance may look lower today than yesterday or last year but, cashing out at the bottom goes against the point of investing.
Bottom line: October will only be red if you sell out.
Tags: 1929, 1987, crash, dow, Stock market
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By profsilver -- 0 comments
October 10th, 2008
Did anyone see Jennifer Lopez at the NYSE today? I know a lot of people who were looking for her!
J.Lo is actually a Wall Street term for what looks like a rounding bottom in a pattern of stock prices. The pattern suggests a shift from bearish to bullish. Unfortunately, there were no signs of J.Lo at the NYSE, or any other exchange for that matter.
Most of the day’s talk circled around the market’s bottom and if we have reached it yet. Asian and European markets tanked, setting the stage for another decline here in the states. But, for a brief spell this morning, the Dow went into positive territory and the screams of ecstatic traders could be heard from outside of the NYSE.
Too bad the euphoria was short lived. The Dow swung over 1,000 points and ended the day 128 points lower. It was a down day but that kind of loss is minor compared to damage done from Monday to Thursday. The Dow’s close was 500+ points above the day’s low of 7,882.51. That tells me some bulls are beginning to test the waters again.
Unfortunately, I don’t think we have reached the bottom yet. It’s not too far off but, when we do reach it I don’t expected to see anything round. I hope to see a quick rebound to reasonable territory.
So, in regards to both J.Lo sightings…sorry :(
Tags: dow, jennifer lopez, nyse
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By profsilver -- 0 comments
October 9th, 2008
Today marks the one year anniversary of the all-time high for Dow Jones Industrial Average. The past year has seen plenty of ups and plenty more downs. The Dow closed today at 8,579.19 which is about 39 percent off of its closing value of 14,164.50 on October 9, 2007.
Today’s decline was the largest decline since October 1987. People are afraid to officially declare this week’s string of losses a crash but, if this isn’t crashworthy, I don’t know what is.
Historically, the good thing about a crash is that it is always followed by a rebound. I believe this case is no different. The markets will eventually regain their footing. In the meantime, there are some companies that do not deserve to get dragged down with the rest of the market and I will continue to encourage bargain hunters to start shopping.
While today’s market saw plenty of long faces, this face wears a big smile. Today is another anniversary….as of today, my mom and dad have been married for 37 years.
Maybe investors should take a lesson from my parents. If you really believe in something don’t sell out! Weather the storms, continuously invest, and later on reap the rewards.
Tags: dow, market anniversary, stocks
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