29. November 2009 by Dan Walkow, CFA, CMT.

The recovery rally in markets around the world, since the lows last March, has been technically-driven and not a result of earnings growth. It has been a case of the market adjusting for less-bad than expected.

What now?

For the next up-leg of the market we need to see earnings growth as Paul Lim explains in the New York Times. He says:

IN the first leg of a bull market, when optimism and euphoria are ascendant, investors are willing to bet that the economy will improve and that corporate profit growth is just around the corner. This faith manifests itself not just in rising share prices, but also in rising price-to-earnings ratios.

But hope can take the market only so far. Earnings — the “E” in the P/E ratio — must soon recover and become the catalyst for rising prices if this rally is to last. All reports so far, however, show that earnings are still falling.

It may very well be that, with the rapid rise in markets, we are now a bit ahead our ourselves here, as we may need earnings to catch up to the market.

A digestion period should not come as a suprise.

Read more here.

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29. November 2009 by Dan Walkow, CFA, CMT.

Tyler Cowen, a professor of economics at George Mason University, lays a warning on the line regarding the huge overbuild in China. Trees do not grow to the sky, especially when propped up with artificial stimulants and loose monetary policies.

Worth a read here.

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26. October 2009 by Dan Walkow, CFA, CMT.

The U.S. Standard & Poor’s 500 Index is about 40 percent overvalued and headed for a drop as central banks pull back on securities purchases that pushed up asset prices, according to economist Andrew Smithers.Declines are also likely because banks will need to sell more shares to raise capital and restore their financial health, the economist and president of research firm Smithers & Co. said in an Oct. 23 interview at Bloomberg’s Tokyo office. A 40 percent tumble from the S&P 500’s price at the end of last week of 1,079.60 would take the gauge to 647.76, below its March low.

Smithers is not some pollyanna and his views merit condsideration. Read more here.

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11. September 2009 by Dan Walkow, CFA, CMT.

US mutual fund investors sold over 4 billion dollars of equity mutual funds over the last week. What did they do with the money? Invested it in bond funds of course, to the tune of 12 billion.

At the same time the US stock market, as measured by the Standard & Poors 500, rose 4% over the same period.

Investment returns on bonds are at multi-year lows yet retail investors would rather take miniscule investment returns so “THEIR INVESTMENT IS SAFE” or is it?

In my opinion investing in bond mutual funds could be one of the more risker trades at this junture. As the economy recovers, along with the demand for capital, interest rates will rise thereby pressuring bond prices and bond mutual funds in particular lower and perhaps much lower. NO SAFTEY HERE EXCEPT FOR VERY SHORT TERM BONDS.

Conversely when you study the Commitment of Traders Report (COT) it also shows that retail investors are fleeing the market while at the same time it shows that professional traders and investors are becoming more bullish. This makes sense. If retail investors are leaving the market but it keeps going up then somebody is buying more than enough to soak up the selling but enough to move the market forward by more than 4%.

Someone is wrong here and my money is on the institutional side as the opposed to the retail investor. This market wants to go higher!

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25. August 2009 by Dan Walkow, CFA, CMT.

This is a buyer beware post on ETF’s. Recent capping of some Exchange-Trades Funds such as the United States Natural Gas Fund has led to these funds to trade at a premium much like a closed end mutual fund which trades at a premium or discount to Net Asset Value. Premiums or discounts can  be as much as 20% or more and arise due to speculators bidding up or discounting a fund on speculation alone. This capping of ETFs is a recent phenomenon and bears watching. Buyers Beware. Full Story Here.

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20. August 2009 by Dan Walkow, CFA, CMT.

As the fasted growing economy in the world China is important but one must keep some perspective. China accounts for only 1.48% of FTSE All World Index, a measure of global stock market capitalization. The United States is still the 100 pound gorilla accounting for 41% and the rest of the world ex China and the US 57.52%.

The other thing to keep in mind on the Chinese stock market is that it, for all intensive purposes, is closed to the rest of the world. Domestic trading fuels the Chinese market giving a casino like atmosphere where high volatility is the order of the day.

So does China matter. Sure but if China sneezes it does not mean the rest of the world will catch a cold.

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14. August 2009 by Dan Walkow, CFA, CMT.

Barton Biggs is well know as one of the deans in the investment management business. He is not right all the time but his comments and thoughts are well worth taking into account.

For a rundown on what Barton thinks regarding the investment scene check out this interview at Time here.

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10. August 2009 by Dan Walkow, CFA, CMT.

 there are risks of an asset bubble from surging money flow. In a city-state that lives by the pulse of the stock market, the surprise was that Yam’s comment was relegated to the inside business pages of the leading English daily — the South China Morning Post. Forget bear-market rallies, the hot story now is the new issues bonanza. But should these warnings get more attention?  More here.

More evidence the global liquidity rally is getting long in the tooth. DGW

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7. August 2009 by Dan Walkow, CFA, CMT.

I was recently intervied on TALK 1410AM Vancouver by morning host Dave Brindle. Asked what I thought of the current market here is what I said.

Walkow Live on TALK 1410AM with host Dave Brindle

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5. August 2009 by Dan Walkow, CFA, CMT.

In recent posts I have been interested in some of bubble like activities showing up in China and giving some thought to the ramifications of another China meltdown. Here is an insider’s view of what is going on:

Chinese stock and property markets have bubbled up again. It was fueled by bank lending and inflation fear. I think that Chinese stocks and properties are 50-100% overvalued…. Read more here.

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