The stock market is beginning 2008 with its worst January start since 1991. After the closing bell today, Intel (INTC) announced that profits rose 51 percent on higher sales, but revenues missed analysts' forecasts.
Intel is down in after market trading.
Once again, investors need to exercise caution when it comes to Wall Street's advice. In recent months, wave after wave of experts have touted technology and healthcare as the best places for new money.
In a slowing economy, technology is a risky place to overweight one's assets, particularly when the consumer has pulled back, and corporate spending eventually follows.
With the Democrats gaining popularity nationwide, I wouldn't touch healthcare with a 10 foot pole.
Value investors can use Wall Street research as contrarian indicators since many sectors with "Underweight" ratings often present the best values.
For example, S&P currently has "Underweight" ratings on two sectors;
Financials
Consumer Discretionary
As I comb through the individual stocks in each of the two sectors, I am finding many high quality stocks trading at or near their respective book values. When stocks trade at book value, it is important to also look at Return on Equity and Intrinsic Value. When all of these numbers point to potential returns of 75-100% over the next five years, I get very interested.
For the time being, the stock market has very little good news to fuel a major turnaround. One possible exception could be the Fed meeting scheduled for January 29 and 30.
The Fed needs to be careful since the market is already very nervous. My guess is the market will get a 0.5% cut rate with a promise of more as the economy dictates. Any rate cut more than 0.5% will spook the markets, and leave investors with the thought that the Fed is in a panic.
On the positive side, the yield curve steepened in 2007 after being inverted in 2006. Historically, a steeper yield curve has been very positive for the financials, in particular, the banks.
The DJIA plunged more than 277 points after Citigroup (-2.12 to $26.94) posted the biggest quarterly loss in its history and cut its dividend by 40%. In addition, Citigroup wrote off $18 billion in mortgage defaults.
CitiGroup also announced it was attempting to secure $14.5 billion from some Arabs, Koreans, and the Japanese to shore its depleted capital base. If this doesn't work, CitiGroup may want to try to get funds from the Salvation Army. I heard they had a good Christmas.
Here is a list of super intelligent dummy's who are seeking capital from Muslim Arabs and a few other countries that owe us for our outsourced jobs. Go figure!
Citigroup- seeking capital from Arabs.
UBS- seeking capital from Arabs, and the Government of Singapore.
Morgan Stanley- is seeking capital from the Communist Chinese.
Merrill Lynch- is seeking capital from Kuwait, Singapore, Korean, and Japan.
Bear Stearns- is seeking capital from... whoever will give them the money.
Doesn't make you wonder how seemingly intelligent people can do so many dumb things? Wall Street constantly gets into trouble when they get greedy, and do things they know are wrong in order to generate more profits.
I guess being smart requires common sense, while being super intelligence can help you solve a calculus problem. Henry Ford only had a 4th grade education, but had the common sense to hire super intelligent people who were good at engineering.
Corporate America needs to hire Junior College graduates, or College graduates with no more than a 2.5 GPA as their CEO's. This way they will get people with loads of common sense who can hire MBA's with no common sense. It worked for Henry Ford, and it can work for corporate America too.
