Some people have asked me what a typical newsletter looks like (although I offer a 7 - day free trial). In an attempt to show those interested what your getting when you subscribe, this will be the first and last newsletter that I will post here. This is Friday's newsletter (June 25th, 2010). I have omitted, for obvious reasons, any predicitons and stock recommendations from the newsletter. This is strictly reserved for subscribers.
3 more pople joined. I hope to see more people join the group
Friday, June 25th, 2010
On a day were regulatory reform was on the forefront of investor’s minds, the major indexes, for the exception of the DJIA, were able to snap out of a 6 – day losing streak. Small caps led the major indexes higher today with the Russell 2000 adding 1.9% for the day; the S&P and NASDAQ both added 0.25% and the DJIA was the laggard, closing UNCH to slightly down (on a % basis). Investors feared the new financial reform bill would “nickel and dime” Wall St in some of its key revenue segments, as it targeted derivates and prop trading at large institutions (institutions with capital north of $10B), yet did little to actually regulate Wall St itself. After a long night in Washington, congressional leaders were able to put together a 2,000 page bill that would “regulate” Wall St and prevent another AIG type collapse from happening again. The proposed bill included an amended Volker rule that basically states that large institutions need to separate proprietary trading activities (were banks have and still are generating the lion share of their revenues (earnings)), from plain vanilla banking activities (i.e. loans, swap transactions, etc). The bill surprised many on Wall St, because it actually still allowed Wall St to operate like it has been able operate in recent years but with higher capital requirements. The other segments (clauses) of the bill to us was a bunch of noise to cover (embellish) what little changes where actually made by the bill. It is our belief that no matter what type of a reform you put on the table to appease both Wall St and Washington, periods of massive bubbles and bust will re-appear in the future as long as the expansion of uncollateralized credit continues to grow. In other words, creditors that take on risky bets must be willing to eat up all potential losses that might arise from a risky transaction. A bailing of the creditors by a third party in the event that the “bet” goes wrong will only postpone the problem instead of solving it. Of course, this was left out of the bill, ergo our dissatisfaction and warning to subscribers (the bill proposes that creditors are only liable up the amount that they directly invest, not for the entire transaction. Furthermore, the bill does not disallow banks from engaging in risky transaction with its affiliates, i.e. other hedge funds. This means that banks can still engage in derivative transactions, just not internally witinh the bank. Think about it, what changes were really made?). Aside from this, today the Russell 2000 rebalanced; stocks are “dropped out” and added to the index, in an attempt that the index accurately represents changes in the market over time. Fortunately, the rebalancing did little to shake markets either way.
Commodities, financials and industrial goods were the best performing sectors, while tech and consumer good lagged the markets. XXXXXXXX-XXXXXXXXXX-XXXXXXXXX-XXXXXXXXX-XXXXXXXXX-XXXXXXXXXXX-XXXXXXXXXXXX-XXXXXXXXXXXXx-XXXXXXXXXX. As had been stated in last night’s newsletter, we expected markets to recoup some of this week’s losses today, as long as the University of Michigan sentiment number came in better than expected for the month of June. In fact, sentiment rose to a reading of 76 Vs the 75.3 consensus number, the highest seen in over 2 years, as consumers remain optimistic despite a slowing economy. Little attention should be paid to this number as it does not gauge (model) actual economic behavior (conditions); nevertheless, if sentiment is high, investors take it as good news.
Today, the SmartStocks portfolio yielded subscribers with a 2.7% gain. 3 out of the 4 stocks in the SmartStocks portfolio yielded subscribers with gains today. We bought XXXXXXXXXXXXX as had been outlined in yesterday’s newsletter. However, we did not buy XXXXXXXXXXXXX since the stock did not hit out entry price level of XXXXX(the stock traded as low as XXXXX, XXXX shy of our desired entry level of XXXXXX). Since this stock was not ranked as a high bet name, this “lenient rule” does not apply here. On Monday, we are not looking to buy/short any stock. We want to see how markets react on Monday after investors are able to properly asses and digest the financial reform bill. On this week weekly newsletter, we will recap this week’s events, their meaning and prepare you for the week ahead.
Should you have any questions, feel free to contact us via email and we will answer you within 24 hours of receipt.
The SmartStocks Team