Sunday, December 9, 2007

Thumb Sucking can be painful!

Thumb sucking. That's what I have been doing rather than decided to buy or not a couple of stocks. Thought about FDS and TECH each near their recent lows at $60 and $63 but was debating other stocks (MCO and QGEN, LMNX, etc). Next thing you know FDS is $65 and TECH is $69 not to mention MCO has jumped over 10%. not huge moves but a lot for just a few days.

As a libertarian free market type, I find the government intervention plan to "save" the mortgage industry and consequently the financial industry morally offensive. Nothing like violating the sanctity of contract and the mortgage holder's property rights by deciding that adjustable rates won't rise. If the private parties involved choose to modify the terms that's ok because its their decision -- the government getting involved just distorts everything.

As an investor and employee in the financial industry, I like the idea of stability and an end to the snowballing effect of foreclosures. The question is whether this marks the end or just a pause in the decline -- i.e. are we around March/April of 2001 (pause) or October of 2002 (end).

If its the end, then paying up a bit for MCO or FDS or TECH isn't so bad but if this is just a pause then we need to show some patience.

One thing is for sure -- sentiment is very bad right now. Hedge fund exposure to stocks is low and a lot of stocks -- financials are oversold. That means the market is going up.

Met with a wall street strategist recently who made the case that investors are crowded into stocks in certain sectors -- those with high international exposure like energy, materials and industrials. Its all a play on the secular theme of china driving demand and setting prices for all kinds of materials and infrastructure products. China is likely to see a slowdown in 2008 or in 2009 (post olympics) due to the monetary policy that China has in place. A slowdown in China will coincide with a pickup in US growth thanks to the fed's cutting rates. He argued that financials and consumer discretionary would be the best performing areas. I can certainly see that happening but I would point out he is a secular bear on financials -- he merely sees a cyclical rebound next year in the midst of long term struggle.

He also argued that emerging markets stocks would pull back next year -- performance has been too good and too many are too complacent about it continuing. My asian fund managers -- Matthews agrees -- they are conservatively positioned in undervalued securities -- that is hurting performance on the upside but will protect capital on the downside. I think everything the strategist said is likely to happen -- not sure when but I suspect it gets started around May of next year -- just seems like that is when the market has made changes the last couple of years. Not sure what actions I am going to take in my portfolio.

If financials do well next year, I think FDS's multiple will expand again and I think the pressure on DFR could loosen but that's very little exposure for me relative to what I have in energy and asia. might need to take some profits in the asian funds. I think health care -- especially LH could do better next year if attention shifts back to the US and so that could help me too.

not a big fan of any consumer discretionary stocks --own none right now. MCO could be my financials play.

more later.

No comments: