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Are stocks cheap ?

Well the top 3 headlines at the hour on Bloomberg are:

1) Treasuries Rise; 3-Month Bill Rates Fall to Lowest Since 1950s
2) Lehman Drops After Fuld Says Fed Eased Cash Concerns
3) Oil, Gold Rise to Records as Dollar Fuels Commodities

And yet the Dow is up for the day, and S&P hardly reacted (compared to Asia and Europe)... I thought we were in for a rough day, but it was a huge rally compared to my expectations !!.... are there people out there who think stocks are cheap...
 
LEH is at 6 P/. Historically, in bad times good stocks have gone to 4 PEs as well.

Though, selective buying can be done short term - yeasteday BSC closed at 8 PE and LEH at 4 - This much of gap can't be explained...

Now...Therefore, I would long select stocks for very short time. Keep finding good firms at PE < 8
1 year +... Short commodities (Oil is at 110 - it has to come down. there are no supply side pressures) and also fed will finally start increasing rates
Also, long some $
3 year+... Go to Chile or India and buy Large caps

My 20 cents ($ is cheap so just thought to increase the quantity :))
 

Sanket Patel

i do stuff
LEH is at 6 P/. Historically, in bad times good stocks have gone to 4 PEs as well.

Though, selective buying can be done short term - yeasteday BSC closed at 8 PE and LEH at 4 - This much of gap can't be explained...

Now...Therefore, I would long select stocks for very short time. Keep finding good firms at PE < 8
1 year +... Short commodities (Oil is at 110 - it has to come down. there are no supply side pressures) and also fed will finally start increasing rates
Also, long some $
3 year+... Go to Chile or India and buy Large caps

My 20 cents ($ is cheap so just thought to increase the quantity :))

I don't think the Fed is going to be raising interest rates anytime soon. As is, we're about an hour or so away from the announcement. With the possibility of a 100bp cut, raising interest rates is out of the question.

I'm not sure if I would short oil just yet - I agree that there isn't much supply side pressure. But, it is spring and soon to be summer - which will result in a higher demand for oil. And going about 7-8 months into the future, hurricane season will be starting up.
 
The very fact that oil is pegged against the dollar won't make it tumble down so easily... when oil was at 90$ there were sentiments similar to those we have now "it won't sustain those levels ...but it did and did it in style "... now when it has shown the audacity to cross 100 (rather 110 ) similar feelings prevail i am not sure about 3 yrs down the line but for the year ahead i'll place long bets on oil+gold & short on S&P......
A 100 bps rate cut possibility and failures of these big financial institutions may be just the beginning of what lies ahead :cry: ...
 
I don't think the Fed is going to be raising interest rates anytime soon. As is, we're about an hour or so away from the announcement. With the possibility of a 100bp cut, raising interest rates is out of the question.

I'm not sure if I would short oil just yet - I agree that there isn't much supply side pressure. But, it is spring and soon to be summer - which will result in a higher demand for oil. And going about 7-8 months into the future, hurricane season will be starting up.

Sir, I fully understand that fed has to cut rates for now. If you please pull up charts for what happened in 04-05? Fed increased rates 13 times. After rates bottom out - fed has to control inflation - else US will fall in stagflation for sure. And I am expecting such reversal in rates in Q1'09. (These are my 2 cents)

Oil is not governed by season anymore - if it was then; the 07 chart for oil would have been different. Please, give me one logic why oil should go up?
 

Sanket Patel

i do stuff
Sir, I fully understand that fed has to cut rates for now. If you please pull up charts for what happened in 04-05? Fed increased rates 13 times. After rates bottom out - fed has to control inflation - else US will fall in stagflation for sure. And I am expecting such reversal in rates in Q1'09. (These are my 2 cents)

Oil is not governed by season anymore - if it was then; the 07 chart for oil would have been different. Please, give me one logic why oil should go up?

Well, like I said we are nearing summer - the peak driving season. This will lead to an increased demand for oil. This is naturally going to put upward pressure on oil. Additionally, if you factor in geopolitics, you there is embedded in the price of oil, a sort of "fear premium" given the current turmoil in the Middle East. Additionally, seasonality is definitely a factor in oil prices. Just take a look a few years back, hurricanes Katrina and Frances. This past couple h-seasons have been relatively mild, but weather remains and will remain a stochastic factor. Investors would be foolish not to consider the weather. I'm not saying oil is largely governed by weather, but weather is by and large a significant risk factor.

As for the rates, perhaps a increase in 09 like you said, but I am saying the rates are likely to go lower in the short term. As for the 04-05, that is when the economy was growing rapidly - almost overheating. We are somewhat in an antithetic state right now. Even with the current rates intended to ease credit concerns and stimulate growth, the effects will not be immediate. I would expect the first signs of rate increases to surface mid to late 09.
 
Oil is not governed by season anymore - if it was then; the 07 chart for oil would have been different. Please, give me one logic why oil should go up?

"As the 2007 Atlantic hurricane season officially came to a close on November 30, with some fanfare with Olga past the end of the season into December, NOAA scientists are now carefully reviewing a set of dynamic weather patterns that yielded lower-than-expected hurricane activity across the Atlantic Basin. As a result, the United States was largely spared from significant landfalling storms. However, several noteworthy events took place, including two back-to-back Category 5 hurricanes hitting Central America and the rapid near-shore intensification of the single U.S. landfalling hurricane."

2007tropical_season.jpg


Quoted from http://www.weather.com/newscenter/tropical/



Watch the data below and then have a look at the graph attached which I pulled out from the bloomberg term in doc attached below(a seasonality graph showing the prices of past 4 yrs 2004-07 for the official hurricane season Jun1 to 30 Nov typically).Also don't forget to keep in mind the cycle of hurricanes ...(min Jun Max Sep min Nov)

http://weather.unisys.com/hurricane/atlantic/2007/index.html
(have a look again at the graph of 07 .... mind the dates )
Hurricane-5 DEAN 13-23 AUG
Hurricane-5 FELIX 31 AUG-05 SEP
*You may find the data for other years too on the site above.

The very fact that 2007 never experienced the hit of hurricanes was the reason why the Hurricane factor was on a backfoot. Most of them grew weak in a matter of time and what overtook was the fall of the dollar which is taking oil to record highs.There was a pretty good correlation of oil with the "hurricanes" that actually hit(details above). The logic is sweet and simple that you cannot completely negate the fundametal .. when supply is affected the price shall go up at a constant demand.

Factor 2 which strongly dominated oil in 07 was the dollar.There were days when a red candle in the dollar 5 minute chart meant a green in WTI..so until and unless the dollar regains strength(Do we have any second opinions on this till the year end...) or ppl using cookin oil to drive their vehicles,china and India banning the use of oil (i mean the demand goes down :)) ... i believe the oil shall stay up ......

Something that has not affected the other because it has not shown it's true strength never means you can be complacent.... stands true for the hurricanes too :D

A few interesting stories FYI
http://www.bloomberg.com/apps/news?pid=20602099&sid=a_Mk2HvY2Lo0&refer=energy

http://www.alertnet.org/thenews/newsdesk/N29503179.htm

BBC NEWS | Business | Oil giants count cost of hurricane season
 

Attachments

  • seasonality graph.doc
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thanks for such a detailed response.
i duly regard seasons as important - i was just trying to make a point that oil is more into the trading and political grip now. in Asia, Russia has reduced supply just to increase oil prices. look at how it has come down yesterday to 102 USD. my simple point is what will be the governing factor 'trading activity' or 'seasons'. global economics has become too complex offlate to follow sound logic it seems. seasons do make sense in less volatile times.
 
i was just trying to make a point that oil is more into the trading and political grip now
I tend to agree with this point but nobody can go against sanity except insanity..i mean if seasons are bad they will hit the price and so have they done all through ... As far as the political and the trading issues are concerned had i been a shrewd politician or a clever market manipulator what do u expect me to do ? The most expected thing which is to bring oil down or option two to swing it in the most unexpected way .. break the backs take the money from the weaker hands , profit heavy and exit ? but do u think is it the right time to exit ? .. oil hovering around 100-110 when so many big fishes must be sitting with millions of barrels in their kitty ... If i be on their side i would hit the "profit book" button at the most unexpected time .. when u r actually used to those high prices .... I am not sure if I am right or not , it's just what I think and I am also not sure if somebody reads this post and oil falls down below 90 :D 'cos the strategy :smt024 has been exposed ;).. kiddin . The last post was only w.r.t. to your point as to why 07 wasn't affected by hurricanes to that extent.
 
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