Birchtree's Account Talk

[Birchtree]

Re: Birchtree's account talk

From the Bank Credit Analyst: Earnings per share for the S&P 500 increased at a 20% annual rate in the third quarter, the fastest in more than two years. What is most remarkable is that this acceleration occurred even as revenue growth was slowing. The recent divergence between earnings and growth is especially surprising because firms typically find it increasingly hard to contain costs this late in the cycle. Indeed, it is difficult to square the sharp rise in unit labor costs with the improvement in profit margins as revenue growth has slowed. Aggressive share buy backs are boosting earnings per share, but they do not fully explain the profit margin conundrum. Nonetheless, with the U.S. economy set to decelerate, both profit margins and earnings growth will moderate in the year ahead, albeit not so much as to derail the equity advance.

Don Hays says: We expect a big, big move and we expect it momentarily ( in secular terms), within the next two years. Small caps and the mid caps were playing catch up in a hurry. We actually think they will eventually be the leaders of the secular bull market. Snort.

 

[robo]

Re: Birchtree's account talk

When will it end? The next major cycle, the 7 year cycle, will not bottom until 2008, and only the 9 month cycle, scheduled to bottom about May'07 could have a restraining cyclical influence on the market. Otherwise any pull backs will be less than 4% - me thinks. Snort.

I'm thinking around 1340 to 1350 also. Should be good support on pull-backs and a buying op for your cash reserves my friend. Don will use up his last 10%. I think Japan has been leading so we could be getting close. Japan warned us in May! Some are thinking a 7% or more, but that would require some big unknown event in my opinion. However, it could go to the moon!

 

[Birchtree]

Re: Birchtree's account talk

The stock market rally left many hedge funds in the dust. With the year almost up, they might be feeling a tingle of desperation. Through the end of last month, the average long/short equity hedge fund had a 2006 return of 9.2%, according to a hedge fund index compiled by Credit Suisse. That return compared with total returns of 14.8% for the DJIA and 12.1% for the S&P 500. Many hedge funds missed out on the big increase in stocks that started this summer. For the three months that ended Oct. 31, the average long/short fund returned 3.9%, compared with the Dow's 8.6% return.

Many fund managers didn't believe the market would keep rising - or at least expected the market would suffer a typical bout of selling in the early fall that would allow them to buy at lower prices later. The time is now - pay to play. With a little more than a month left in the year, some hedge fund might be tempted to try to catch up by investing more aggressively. That could push the market higher still before year end - and draw more laggards into the chase. Chase'em boys that's what the Birch wants.

 

[Birchtree]

Re: Birchtree's account talk

The 20 week cycle is due in about 2 weeks around 12/12 - that would be more than enough time to work off the overbought condition of the market. The fortunate thing for the bulls is that any price top and ensuing pull back is not going to generate too much in the way of price decay, especially with the high MCSUM readings, as well as the very low volatility readings. The logical conclusion will probably be a simple trading range during any corrective phase that may occur at this juncture. However, if the MCOs are able to break above resistance you can forget about any short term price correction. during this 2 week period. Most MCOs are currently bouncing off their zero lines. The MCSUMs are suggesting that the current intermediate term rally phase will continue to the end of January to the beginning of February. The BPI is suggesting new all time highs for the Transports and it could be weighted on the airlines. BPI = buying pressure index.

 

[robo]

Re: Birchtree's account talk

Double your money by 2008. Don thinks 2600 S&P 500. Talk about manure my friend. You better back up a BIG TRUCK if he is correct!

 

[Fivetears]

Re: Birchtree's account talk

So... could we be seeing you take an 8 second spin on the S-Bull when this movement starts?

Don Hays says: We expect a big, big move and we expect it momentarily ( in secular terms), within the next two years. Small caps and the mid caps were playing catch up in a hurry. We actually think they will eventually be the leaders of the secular bull market. Snort.

 

[Birchtree]

Re: Birchtree's account talk

I don't want to rain on the parade on such a fine day, but...looking back at the previous I fund peak on 11/7 provides some interesting data.

I fund; $21.28-21.29=$0.01
C fund; $15.25-15.52=$0.27
S fund; $18.13-18.78=$0.65

From a contrary standpoint the I fund might be ready to play catch up or just sink back to under $21.00. The C fund will continue to push and push.

 

[Fivetears]

Re: Birchtree's account talk

But Birch, there was 2002.
After gaining 14.64% (Buy & Hold) October thru November, the C-fund plummeted 5.85% when December was said and done.
An additional loss of 4.16% followed that dive clear thru February 2003.
That's a 10.01% nose dive into the concrete pad. Ouch.

I know... I'll shut up and go eat some turkey.

Happy Thanksgiving

 

[Birchtree]

Re: Birchtree's account talk

The time period from 7/02 to 3/03 was a triple bottom formation. Any one that was doing a DCA during that time period ended up much further ahead because pricing was so good. That's the benefit of DCA - it can redeem many a mistake in judgement. You just have to pour good money down the rabbit hole - I've done it many times and will probably do it again.

 

[Birchtree]

Re: Birchtree's account talk

Short interest on the NYSE decreased for the first time since Feb.'06. The latest short interest reading still represents the third highest on record. In terms of sentiment, valuation, breadth, and momentum, we are still not close to even an intermediate term top in the stock matrket yet. Waiting to see if the MCOs are able to break above resistance next week. Should be interesting, because if they do, all bets are off on any sharp correction that may be nesting into the 20 week cycle due around 12/12.

 

[Birchtree]

Re: Birchtree's account talk

Ah the wall of worry is back with so many risks.

One should remain aware for a potential major double bottom near 80 on the dollar. The risk is the dollar bears are getting ahead of themselves.

The risk is that the best of the euro-zone cyclical recovery is behind it. A combination of higher taxes, higher interest rates and a stronger euro will likely undermine growth in the quarter ahead. This leaves the economy heavily dependent on capital expenditures and exports. Yet both of these sectors are flashing warning lights. In the third quarter, exports accounted for nearly 80% of Japan growth. The October trade balance, released on Nov. 21, was well below forecasts because exports were weak. Recently there have been signs that capital investment has weakened, despite surveys picking up strong intentions. Bank lending has also slowed. The wife is in no hurry to dump her international fund - no panic here.

 

[Birchtree]

Re: Birchtree's account talk

I think I'm just going to buy some more stock for the holidays. I have a semi-list already prepared and I don't care if I'm potentially buying on the top or not. What I buy this week will look cheap 30 days from now - I spent considerable dollars back at the July-August bottom into early September and I'm not sorry yet. I have two stock splits coming up the first week in December and I may add to those positions also. Be right and sit tight.

 

[Birchtree]

Re: Birchtree's account talk

I just bought 31 stocks on the 106 point intraday low - at least I think it was the intraday low. Here they are: KRO, KOP, RKT, SLE, ALY, BBG, CBI, LFB, FLO, VHI, CSX, HXL, GB, BW, NFX, KEX, WPP, WAB, HRS, GDI, CXG, CRI, AVX, RES, CNH, MDS, LMS, TKR, RDC, AKS, JAH. Some are new positions and some are continous builds for the long term. Might still have a little money left over for another day. Sock it to me - I want lower pricing. Snort.

 

[Birchtree]

Re: Birchtree's account talk

Just went in and bought another 10 wall flowers. Here they are: CVG, SXC, EP, PCR, TRN, OLN, IT, PVR, THE, CRK. I have to save some money for the next trip to the value pile.

 

[Birchtree]

Re: Birchtree's account talk

I just can't stop now - here are 6 more buys: AIT, CMC, ARM, SXI, MLI, HRL. This is a great opportunity for nice pricing - hope I don't get buried tomorrow, but I'm willing to run the risk and stay in front of that fast moving locomotive. Now there may be some doubters out there - but that doesn't bother me because it's my money. And I will reap the reward. Snort.

 

[tsptalk]

Re: Birchtree's account talk

I'm not sure I understand your investment strategy - How many stocks do you carry in your portfoilio? I'd say any more than 10 or 15 is overkill and you might as well be in a mutual fund. Commission aside, you only need about 6 to be nicely diversified.

 

[Birchtree]

Re: Birchtree's account talk

Hey Boss,

I've built my own fund over 30 years and still adding stocks that mostly pay dividends. I suspect there are now probably at least 190 individual stocks in the heap. I'll be doing some profit taking after the first of the year - taxes you know. I'm certainly having a good time - that was a great ride this fall and I fully expect more good times to come. Exploit the current weakness to get value pricing - no fear here.

 

[Birchtree]

Re: Birchtree's account talk

The problem is when you only have 6 stocks in a $1.2 million portfolio you leave yourself open to being killed on days like today - diversification adds a certain degree of protection. I'll still probably be down over $30,000 today, but that is tolerable and I spent more than that earlier today. How sweet it is.

 

[Birchtree]

Beware of Bull on the run.

Some irrascible participants don't care for my debonair and tendentious mannerisms. I'm thinking about one particular pedantic oversized ego - that's what happens....well never mind. It's basically childish.

Companies are sitting on large amounts of cash and as a percent of total market capitalization for the S&P is near a 20 year high. Large cap stocks should outperform small caps because growth is expected to moderate to about 7 percent in 2007. Larger stocks tend to perform better when earnings growth is slowing. Valuations for large caps are currently more attractive than smaller companies. Although in this last bull run the small caps did outperform the biggies. Today the score was evened up some. I'm ready to do some more buying if the correction continues - lead the way.

 

[Birchtree]

Re: Birchtree's account talk

This year's buyout boom means companies and private-equity funds are gobbling up corporate shares like never before. But the buyback boom is having a huge - and less noticed - impact.
In the third quarter, companies in the S&P 500 index bought back an estimated $110 billion of their own shares. When a company uses cash to buy back its own shares from investors, it effectively raises the value of those shares by reducing their supply on the market. The third quarter rash of buybacks came on top of $117 billion in the second quarter and $100 billion in the first . The combined $327 billion was up 33% from $245 billion in the first nine months of 2005.
Investors tend to look on buybacks favorably, often seeing them as an efficient way to return value to shareholders. Insofar as earnings per share are higher, and therefore price to earnings ratios are lower, there is a lot to like. That is especially true now, when companies have plenty of excess cash to distribute. Maybe they'll be buying today - I think I will.