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Brain Purge - Links For Friday

Posted on | November 21, 2008 Time: 1:58 am |

For today’s Brain Purge, as with last week’s addition, I find myself spinning the electronic globe for any signs of inflection. At this point, inflections in sentiment are just as important - if not more - than outright good news.

Fundamental Buyers Twiddlin’ Thumbs ‘n Holdin’ Cash

There’s not much out there to grab hold of; the lone salve continues to be the valuations of U.S. equities. But until buyers come in from the sidelines and vote on those valuations, true asset prices aren’t being discovered. I hammered out a post mid-day yesterday noting that Alcoa and Freeport-McMoRan were both trading at Ben Graham-worthy levels. I believe they ended the day down 16% and 13%, respectively, over twice the rate of decline in their core underlying commodities.

Who can blame the sideline capital for sitting on their cash? Fiduciary responsibility alone requires that most money managers wait things out until volatility subsides somewhat. (See my earlier post “Inside the Numbers Redux” for data hinting at their absence from the market)

Russia Dipping Into Reserves

Russia has announced a $20 billion stimulus package to “support the rouble” and potentially backstop bank loans. In a speech before his Congress-folk, Putin said he would hunt down and kill inflation with his bare hands…The $20 billion may be a drop of water in a hot frying pan considering that over $21 billion was depleted from reserves last week in support of the currency.

Online Brokers See Opportunity

Dr. Brett Steenbarger had an interesting post up discussing the online brokers. He notes that trading volumes are up at E-Trade (ETFC), Schwab (SCHW), and TD Ameritrade (AMTD), even though assets are dropping. I’d be wary of E-Trade given their relatively poor loan portfolio, but I like Schwab’s prospects in this environment.

Schwab has a strong institutional program with registered investment advisors, and I think that group will see good growth in AUM as investors get disgusted with mutual/hedge funds. Also, whenever we finally do rebound, I expect volumes to be markedly higher than we’ve seen for much of the recent leg(s) down. Brett’s TraderFeed site is a good place to ramble around and read for a while; he looks at markets broadly and incorporates a lot of behavioral finance musings along the way.

Argentina Re-Capitalizes Itself

The nation’s senate just approved the nationalization of $24 billion in assets held within 10 pension funds set up after the sovereign crumble of seven years ago. The President says it’s for the protection of the people. Everyone else in the world knows differently - but if it prevents another round of defaults, I wonder how much international scoffing we’ll really see.

Early Friday Pulse Check

Asian markets have made nice rebounds this morning, and bond markets are making a bit of a retreat from major scare-land (Naked Capitalism)

VIX Study

A fascinating post up at VIX and More discusses the “spread” between the VIX and the VXV, and how the ratio could be a good barometer for systemic risks. A much more thoughtful barometer than my Goldman Sachs check, but I wonder how many participants are in the VXV markets.

Thoughts for Friday

I ran across 10 names in the S&P 500 normally under my radar, and all of them were trading for less than 75% of book value. And as a matter of habit I toss out things like goodwill from the outset; while not tangible book values, they are pretty close.

For anyone out there who hasn’t capitulated yet, don’t get sucked into the engines after waiting it out this long. As scary as being long may appear right now, I would be much more afraid of being short U.S. equity markets.

Ryan Barnes

disclosure: author does not hold positions in the companies mentioned.

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