Capital Ideas & Analysis

The way things are looking I will predict that we close up today but not up by a whole lot. I then predict tomorrow is down based on the movement we saw in ISRG and RIMM when they spiked up after earnings. The Fed cut was the markets spike on great earnings. The next day is always up but not by much. Furthermore, it hits a high and closes below that high. The following day is down and looks to be the good buying point. I’ll be buying WB and CELG on this presumed weakness.

I thought the LEH call was fantastic. They really let people in, and gave clairity to the situation. MS, not so much. They opened up, but talked more about their book than the actual environment.

Both said that credit and credit spreads “significantly impacted them”. Liquidity was mostly the issue, according to them. Derivatives were outstanding and fixed income was a disaster. LEH, unlike MS, let us in on how much sub-prime is on their books. They have 6.3 billion, and 230 million in non-investment grade. MS believed that it will take a quarter or two to get the credit markets fully back and LEH sees it taking about 3 months. Other than that, they both talked about level 3 assets, with LEH having 8% and MS with 3% but predicting 4% of the level 2 will become level threes. They both said they did well in wealth management and MS said that retail investors gnerally got out. Then they differed greatly in my opinion.

LEH said corporate bonds are very attractive now and we should be seeing buying here. LEH said they are benifiting from the volitility, where as MS said it was an opportunity to separate themselves from competition. LEH also commented on deals are getting done, but the big ones are struggling as of right now. Thus they see strategic buyers coming it, using more stock than cash vs. the past year. LEH also benifited more from non-US markets and said their India exposure was helping out quite a bit. LEH’s exosure to this area is 53% of income vs MS’s 48%.

Overall, MS was disappointing and I am not a buyer of MS after this. not sure about LEH but I see it as the second best in the space with GS still more impressive to me. We shalls see tomorrow if that still stands.

Random Musings: I think TROW and BEN are buys off of this information.

The US is not more leveraged than the rest of the world. Yes we have 10 trillion in debt, which is more than anyone else. However, our economy is also 13.1 trillion. As a percentage, that is 76%. The rest of the developed world? UK has 424%,Germany is 145%, Japan is 273%, France is 183%. China, not as developed but is important, has 30%. What I believe is important to this is that this proves debt does not equate into a strong or weak economy.

(I’ll ad my sources later the link is not working right now for whatever reason)

I don’t want a lot of housing starts. I wished for it to be lower. The inventory is very excessive and now that the Fed is lowering rates into the mid-low 4% range this becomes the largest danger for falling home prices. Home prices–especially in California and Florida–should go lower and just about need it. That being said, keeping the inventory higher (for whatever lame reason they can come up with) is only going to extend the problem. Hopefully they wont build as many next month.

CPI comes in -0.1% and confirms not only the PPI but the Fed cutting rates. This becomes further evidence that a little over a year ago the Fed stopped raising rates and the impact on inflation is now kicking in. Using this logic we should start to see inflation pick up about a year from now. Global inflation is a concern and I see this cycle of lowering to stalled rates lasting 8-10 months.