Archive for August, 2007
Friday, August 31st, 2007
Investors will be listening closely when Fed Chairman Ben Bernanke speaks in Jackson Hole, Wyoming today. The market is waiting for any discernible hint of an upcoming rate cut, as an affirmative indication could lead to a market rally. However, while opinions are mixed about Bernanke’s handling of the subprime lending crisis, I believe he’ll do the right thing and stay put on rates for now.
In general, a rate cut could be interpreted as a move to bail out institutions who exposed themselves to excessive risk via asset-backed securities. Unfortunately, the best move is likely to let the process of natural selection run its course in the market. This means letting those funds that were overexposed eat their losses or, even worse, sink. After all, there is a reason why higher returns come with higher risk.
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Wednesday, August 29th, 2007
Four off-balance sheet conduits which State Street (NYSE:STT) controls are under the microscope, as concerns about credit risk continue to linger. The conduits issue asset backed “commercial paper”, a short term investment vehicle which investors can purchase to stake a claim on future cash flows (similar to mortgage backed securities). However, instead of being backed entirely by sub-prime mortgages, the securities are backed by a combination of credit card, auto, and prime mortgage debt. Standard & Poor’s continues to assure investors that State Street’s debt ratings are unaffected by the conduits.
This news, combined with news about STT’s Limited Duration Bond Fund (which holds sub-prime asset backed securities) contributed to a 4% decline in share price yesterday.
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Monday, August 27th, 2007
Money manager Ken Fisher recommended several stocks he was bullish on in the August edition of Forbes magazine. Having some experience with software I thought I would take a look at Amdocs (DOX), a provider of software and services to major telecommunications companies. In a nutshell, Amdocs sells integrated CRM software that enables the likes of AT&T and Sprint Nextel to manage customer billing, ordering, and support.
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Thursday, August 23rd, 2007
Without a doubt, the subprime lending fiasco has been one of the largest market events of the decade. However, I found myself hard pressed to give a brief, easy to understand explanation of the issue when asked about it. So, I put together a quick primer for our readers below.
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Wednesday, August 22nd, 2007
Bank of America bailed out the nation’s largest mortgage company, Countrywide Financial, today in a $2 billion equity deal. In addition to almost $12 billion borrowed from an assortment of other banks, the deal served to fortify the lender’s financials and fund ongoing operations. For many investors, the move was positive, as it signaled renewed faith in a market hard hit by fallout from loose lending practices. The S&P closed up 1.17% while the Dow and Nasdaq gained 1.11% and 1.25% respectively.
Posted in Large Cap Stocks | 2 Comments »
