Fagan Associates Archive for July, 2009

The market looks a little wobbly here and a 200-300 point give back would not surprise us. Remember, the market (as measured by the Dow) is  at 9,051 right now. Thats more than 2,000 points higher than it was in early March.
Durable goods orders this morning were weaker than expected and much of today’s action can be attributed to that number. Europe was strong overnight with the Dax up 2.2% and DJ Euro Stock Index up 1.4%.
Its almost August and volume is likely to lighten so volatility may spike but as we have stated for a bit we believe the market enters 2010 higher than it is now. For now, replace companies, funds and bonds that you don’t like with ones you do if the market hiccups and concentrate on enjoying whatever decent weather comes our way.

Last night Manny Ramirez (he of the 50 game performance enhancing drug use suspension) hit a pinch hit grand slam homer in the 6th inning to propel the Dodgers to a win. The ball entered the left field stands amidst a throng of spectators in “Manny Land”. Oddly enough, the Dodgers earlier had distributed bobbleheads of Manny to paying spectators.
ESPN responded with a statistic of how many major leaguers had homered on a night when their bobblehead or figurine had been given out.
What does all of this have to do with investing you might ask? (and rightly so)
CNBC and ESPN have a lot in common- heck CNBC will run half time reports during the trading day. Frequently, we wil hear statistics like “the market always goes up the 3rd Tuesday during a 5 Tuesday month in months that begin with J”. It is our contention at Fagan Associates that much of what happens from a media perspective destroys what smaller investors should be trying to accomplish.
We focus so much on the extraordinary and the minutia that sometimes we lose track of some investment basics. Buy solid investments, make more money than you spend, don’t accumulate credit card debt etc.

Barney Frank is rattling on about something or other. Ben Bernanke sits with hands crossed looking into space waiting eagerly to answer a question (will one ever come?).
The markets continue to trade higher with the Dow sitting at 8885 or so as we write this.
Much has been made about the stimulus and its potential effect on the economy both now and as we are obligated to pay for it. Health care progress (or regress take your pick) looms as a major expense. There seems to be a lot on an American investors’ plate now and much of it would seem to be negative for the market.
Results however from a myriad of companies have pushed this market higher (Caterpillar, Intel and Johnson & Johnson over the past week)
The market is gonna do what the markets gonna do over the next week or month (probably not the exact words that Wall Streeters might use) but we do believe that stocks will trade higher over the coming 12-18 months. Keep your cool both as the markets move higher and also as the inevitable pullback occurs. Identify names of companies that you find attractive and accumulate them on weakness.

Stocks continued to give ground grudgingly as investors wonder whether the “green shoots” theory has turned into “brown roots.”  Over the past nine weeks we have maintained that a correction, the cause of which is unforeseeable of perhaps up to ten percent, could come at any time but would allow investors an entry point.  However, after a period of consolidation or of correcting as noted above, we believe that this rally still has legs.  We find it encouraging that the economic, corporate and consumer data has been coming in at or above expectations, indicating to us that the fifty-five plus percent drop from the top as registered by most major indices had priced in a severe recession.  Investors eagerly await second quarter earnings due out in earnest this week to help them decide whether this has been a bear market rally or a new cyclical bull market.  Once again, we would encourage equity investors to add to positions on fear and weakness rather than strength but also recognize that due to the fact that many investors remain skittish, the choppiness in the stock market could last through the third calendar quarter.

Yesterday, businessman and ex-baseball star, Lenny Dykstra declared bankruptcy. It is reported that he listed assets of $50,000 and liabilities of over $10 million. Dykstra had grown a reputation in the investment community and his newsletter “Nails (his nickname) on the Numbers” was once promoted by thestreet.com.
We loved Dykstra’s baseball career. He was a hustler (that term also might be applied to his investment career) who always seemed to give it his all. As Mets’ fans, we fondly remember his .295 batting average and 77 runs scored in the Mets last championship season of 1986. Heck, we’ll also forgive him for winning a World Series with the Phillies. We have a hard time however, forgiving him for some of his antics as an investment advisor.
Dykstra once claimed to have 90 straight profitable options trades. His deep in the money call strategy was difficult for investors to understand much less profit from. We always doubted the grandiose return claims and string of profitable trades claims made by his newsletter. Imagine the odds of 90 winning trades in a ROW!
We will miss (and have missed) Dykstra “the player” as he is the antithesis of today’s baseball player. Dykstra played hurt, he played hard and his teams won. At games’ end, his uniform was dirty and his fans always felt that winning mattered most of all to Lenny Dykstra.
We will not miss Dykstra the “investment newsletter writer” as hs is dangerous for the investment community. His fame prompted investors to send him their hard earned money and opened doors of media access to him. For a while, he was on CNBC with some frequency.Investors wanted to believe (that was a Mets battle cry too) in the glitz, the hype and the downhomeness of this ex-baseball player and straight shooter simplifying Wall Street and conquering the investment world. The truth of the matter is that investments require patience and perseverence. We would have liked to have trusted Dykstra (just like the tooth and credit fairies) and seen him thrive but instead are left with a bad taste in his mouth (and its not his trademark chewing tobacco)

A much anticipated consolidation of the recent rally, be it bear market or a new secular bull, which appeared to have begun two weeks ago, continued this past week.  Over the past eight weeks we have maintained the belief that a correction, the cause of which is unforeseeable of perhaps up to ten percent, could come at any time but would allow investors an entry point.  However, after a period of consolidation or of correcting as noted above, we believe that this rally still has legs.  We find it encouraging that the economic, corporate and consumer data has been coming in at or above expectations, indicating to us that the fifty-five plus percent drop from the top as registered by most major indices had priced in a severe recession.  We would encourage equity investors to add to positions on fear and weakness rather than strength.

After a solid up day yesterday, the markets are slated to open some 100 points lower on the Dow Jones Average this morning.

This schizophrenic behavior is likely to contine for the foreseeable future as the economy teeters between a full fledged recovery and a recession that lasts and lasts. Today’s job losses totalled 467,000 and the unemployment rate climbed to 9.5%. The unemployment number was the worst number since 1983 and the job losses were worse than anticipated. This bad news pushed futures down.

Remember that unemployment is a lagging indicator - our belief is that the market is headed for a period of consolidation until the economy shows signs of improving not simply NOT worsening.

Happy 4th of July to all.