S&P 500 Yield > 10-Year Treasury Note Yield

Yields signaling the bottom for stocks?  I think so.

Wow!  This is amazing!

S&P 500 dividend yield = 3.57%
10-Year US Treasury Note yield = 3.54%

If that isn't signaling the near of a bottom then I am not sure what does.  One must ask themselves, "where is the real risk?"

I can either:

[A] Buy overpriced 10-year Treasuries that are barely a bit higher than average inflation numbers

or

[B] Purchase equities at dislocated prices that are now giving way to the S&P 500 trading at 17 times next years earnings and yielding a dividend greater than the 10-year.

The argument to this conclusion would be that dividends will be slashed by most firms in the index thus lowering the dividend yield.  And this is true.  However, the flip side to this argument is that the 10-year treasury, along with most other govies, are overbought.  And I think they are.  In fact, at one point last week T-bills had a negative implict yield - in other words, bond investors were paying the government to hold their funds.

With all of that said, I pick option "B" as listed above.  With the S&P stocks trading at such low multiples, the selling will soon stop and the heavy buying will commence.  Hang tight people.

Mission Accomplished! Market Stages Late Day Rebound

If you read my blog yesterday, you would have seen that I said we would have a rebound today.  As I pointed out in my post,  Tuesdays have behaved rather well for long-only investors.  Unfortunately it appears to be short-lived as Wednesday has played out to be the worst trading day of the week.  We shall see how it plays out.

With all of that said, I think we buck that trend tomorrow.  I see us setting a base to move higher as we reach the "holiday effect" part of the year.  I am a believer in the "holiday effect" - investors usually bid up prices because the holiday season brings a renewed sense of optimism.  

Other notes from today's trading session:

1) Rumor 1 - TD Bank and PNC Financial may be getting ready to announce a secondary equity offering.  Current holders of these name should beware.  EPS dilution may be on the horizon.  The official announcement of a secondary offering will almost be certainly followed by a decrease of 7-10% in the equity price.

2) Rumor 2 -  Famed hedge fund manager-turned-Sears CEO Edward Lampert is is said to be exiting large positions due to the poor performance in his hedge fund.  Only 24 months ago, "Fast Eddie" was proclaimed as the next Warren Buffet.  Don't get me wrong...I still think Eddie is a superstar but building a legacy that closely resembles that of the "Oracle from Omaha" may be a bit much. Besides, have you been to a Sears lately?  Its like being in a cemetery.

3) Signs that we are close to the bottom can come in many different sizes and shapes.

a. Unusual "market commentators" make reference to the poor economic condition:

[ESPN] ANN ARBOR, Mich. -- Rich Rodriguez loves to win -- and he hates to lose as much as anyone.  Michagan's coach, though, tries to keep as much perspective as he can.  Rodriguez has his wife and kids around him after practices, at the team hotel and on bus trips to the stadium. His office door is always wide open, allowing visitors to say hello.

Heading into his first Michigan-Ohio State game -- where the Wolverines are expected to extend their dubious record with a ninth loss -- he tried to deliver a message to fans who have lost touch.  

"It's amazing some of the things that people would say [on a message board] or yell at you of a personal nature," Rodriguez said Monday. "You almost want to tell them, 'Get a life.'  

"There's a whole lot bigger problems. Look at the economy." 

   

b. New investment instruments begin to hit the market and the sheep begin to chase the "new" thing that serves as the alternative to equities: 

[EMII.COM]Russian investment firm Alfa Capital will start a fund for its high net worth clientele investing solely in diamonds, Wealth Bulletin reports.

The proposed fund is part of an expanded line of products for Alfa's wealthy clients, including investment vehicles dedicated to art collectibles, vintage wine and fashion.

The firm is expected to launch the diamond fund in the spring of 2009. The fund, which will have minimum investment of €1 million, will invest in securities of Russian and foreign diamond mining companies. The estimated yield of the fund would be 15-17%.

Thats about it for tonight.  As I mentioned in previous posts, I will try to do a better job posting my thoughts on the blog.  Good night and good luck from Dallas!  And always remember: The bulls will prevail.

Is Tuesday the best day of the week to trade?

Over on TheStreet.com, blogger Scott Rothbort, founder and president of LakeView Asset Management came up with following insight with respect to daily trading moves:

"...I was also asked for the daily trading moves for the SPX this year. With today in the books, here it goes:

Mondays: -11.46% 

Tuesdays: 12.86% 

Wednesdays: -35.58% 

Thursdays: 4.24% 

Fridays: -11.37%..."

Let's hope his data is right - should bode well for today's selloff.

Speaking of short-term market returns, I think tomorrow will be an up-day for us on the market.  My reasons:

1)  90% of stocks are under their 10 day moving average.  The selloff in the large cap space is way overdone at this point.  Too much negativity bringing down too many very good names.  Case in point:  Pfizer.  I will grant you that PFE is not the great company it used to be.  Expiring patents and a deteriorating pipeline lead a host of their problems.  But how can you disregard their consistent free cash flow numbers.  And how can anyone turn their back on a stock whose dividend yield sits north of 7 percent?  It's begging to be bought...

2)  Based on recent redemptions numbers, many so-called "smart money, long term investors" are throwing in the towel.  In fact, these deep selling spirals we are seeing are not "individual investors" but rather the "smart money" selling into further weakness.  October and November will be seen as the time that hedge funds sold massive positions to raise cash because they are either closing shop or managers/traders have become "gun shy."  These selloffs aren't due to the "Main Street E-Trade" investor hitting the sell button to trade out of their 100 shares of Apple.  It's coming from the hedge fund manager thats trying to avoid losing his yacht.

3)  VIX closed at 69.10, its highest level in 14 trading days.  The VIX has historically been a superb indicator of sentiment.  The higher it is, then the more likely people are "giving up" which means that its time to BUY!  

4)  We are getting awfully close to re-testing the 7900-8000 level on the DJIA before rallying towards the upper 8000s.  It would appear that in this market, traders are paying more attention to technicals than they are to fundamentals. Another case in point: last Thursday's price action. The market had an 800 point swing on no real news.  In this kind of market, irrational thinking trumps rational models.  I recommend investors either "buy" or "sit on their hands."  This is no time to throw in the towel!

5)   Almost every negative piece of news is in the market now.  No surprises await us.  At this point, we have just about seen it all.  Here's a quick list:

Lehman and Bear are out of business.  

The Russian markets are closed and have lost about 60% of their value. 

The Presidential election has come and gone.  

Hedge funds are blowing up left and right.  

Mayors of US Cities are asking for bailout funds.  

GM is on the brink.  

The commercial paper market was frozen (and is thawing right now).

Money markets almost broke the $1 threshold.  

Interest rates are closing in on zero.  

Warren Buffet is making his trademark "bold" bets.

AIG nearly went out of business.

Goldman Sachs called Citibank to see if Citi would buy them out.

And Citi said, "...thanks but no thanks..."

Is there anything else that will surprise us?  I submit to you: No.  

Thanks for reading, good luck trading, and stay invested because we all know that the bulls always win in the end.

Random Thoughts

I apologize for not posting as much recently.  The market has been tough and I have been plugged into my trading.  With that said, I wanted to take a minute and discuss a few items.

1. I think market gets close to hitting 11000 on the Dow before year end.  Much lower gas prices will have a significant increase in consumer spending and traveling.  

2. I was amazed to hear the Goldman contacted Citi about merging firms.  I didn't think GS would move to be swallowed up by another firm but WOW!  I think since the market has settled down slightly then I would expect that they should be okay.

3. Speaking of Goldman, Warren sure got some good terms on his deal with the GS.  The hefty 10% dividend and warrants certainly raised the cost of capital for GS - actually hurts the firm from a valuation standpoint.  

4. Thank goodness that the election is near.  I am so tired of seeing the commercials and getting hit by Robocalls during the day.  Good news for investors:  I think we may see a nice rally later this week.

5. I will increase my posting frequency over the next month.  Be sure to check out my twitter account as well.  (Twitter is a micro-blogging service that is starting to gain lots of traction - I highly recommend it)

6. I will leave you with a quote from the great Jason Calacanis :

Great entrepreneurs build value and market-share in down markets.  They go to work seven days a week and the breakout when other folks check out.

Good evening.