wow -- not only does the fed cut 50bps but the market takes off. Just because you get the first part right doesn't mean you would get the second part (market reaction) right too.
I think this should increase the odds that DFR survives and if that happens the stock should over time make its way back to the mid teens -- unless their book value has dropped (as I had speculated about a few weeks ago) due to any price declines in their mortgages. We shall know when they report Q3 results.
Key to the fed cut is NOT to focus on the financials that might get a little better but rather to focus on the strong areas that are about to get ridiculous. I spent some of the weekend reading about oil services like SLB (schlumberger) -- a stock that was up like 5% today. I wouldn't have bought except for on a pullback but it bugs me that I sold the OIH at 126 last summer. In a moment of panic about volatility I sold my shares and never bought back in even after it was clear the bottom had been reached. I could have easily bought back in around 155-160 during the last month but was focused elsewhere.
Given the strength of those stocks (slb is up a lot more than the oih), its hard to even think about buying them here. I thought about going into a whole description of Cramer and how to use him but not tonight. He is the reason I bought the OIH in the first place -- his bullish call has been great except for last summer where he got nervous about the oih and told everyone to sell saying it was going below 100. I think the low was around $116 or so and then it was straight up to the 180s. ugh!!!!
You have to be really bullish on the cycle to buy here but there are reasons to be bullish -- its just too hard to get the oil out of the ground in the places where it is (unfriendly). The energy industry underspent on cap ex for 20 years after the last boom busted in the early 1980's. Every exec in that industry has made it to the top because they didn't buy in to boom times -- they made it to the top because they knew how to cut costs and do consolidating mergers, etc. Now an upcycle comes along and no one has really believed in it yet. Obviously people believe in it more now than in 2003 when I was buying my vanguard energy fund shares. Yet most investors and companies have been expecting the cycle to end at any time.
I read some reports about day rates for certain drillers flattening out -- no longer rising -- sign that supply is catching up with demand. The amazing thing about the energy industry now is the decline rates -- in US natural gas, the industry is experiencing 30% decline rates on new wells which means you have to find 30% more natural gas each year to maintain production levels. Amazingly the industry has been doing this enough to create a falling gas price (at least some point this year not necessarily this week).
So while oil is going to new highs not sure that everything energy related is. Merrill posited that SLB had exceptional earnings last quarter and the rest of the industry was mixed.
I will keep watch and perhaps add to my energy holdings during the next time everyone assumes the cycle is about to end.
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What if any information or analysis have you developed on the issue of the effect of this cut on the value of the dollar? I noted this morning that the Squawk Box crew seemed pretty down on the move by the fed and openly speculated on it prompting a run on the dollar. My "gut" reaction to this is that it was too large a cut at a time when the dollar is struggling and that it's a move that might very well spark an inflationary spiral.
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