Bespoke Investment Group

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Collapse! The Commemorative Game of the Financial Crisis

A few weeks ago we noted that we had just received a big delivery of an item we had made.  Without further ado, behold Collapse! -- The Commemorative Game of the Financial Crisis.

Collapse! is a commemorative game that takes a light hearted approach to the very serious events of the financial crisis.  The game allows players to relive the tension, anxiety, and second guessing characterized by this crazy period in history.  As the global financial system began to crumble in 2007, it became frighteningly apparent just how precarious its foundation had been all along.  While the bankruptcy of Lehman is often cited as the cause of the collapse, the reality is that under a different sequence of events, the pressures would have built up differently, causing something or someone else to bear the blame.  There was no one cause.  Instead, a thick web of diverse but interconnected culprits was revealed, with each playing their own important role.
 
In the game of Collapse!, each of the 54 blocks represents one of the factors or events that helped create the crisis or hasten its escalation.  What better way to relive the financial turmoil than to grab some family or friends and try to build your own financial fortress that's too big to fail!  After stacking the blocks (the included instructions provide a useful frame), players take turns pulling them out one by one until the entire structure collapses!  Read the phrase on the block that caused the Collapse! and reminisce about the "bad old days."

The 54 blocks in each commemorative game fit nicely into a sleek wooden box that makes an excellent display at your office, your home study, or even your child's toy room.  Collapse! makes for a great gift, collector's item, or history lesson, so order yours today!

 

Blog Switch

After a nice run for nearly 3 years on Typepad, we've decided to move Think B.I.G. to a Squarespace platform.  From here on out, all of our posts will be at www.bespokeinvest.com.  If you have this site bookmarked in your favorites or on RSS feed, please be sure to switch over.  There is a new RSS feed button at www.bespokeinvest.com.  We hope you like the new site!

Default Risk For Financials Shoots Up

During the financial crisis, we created an index that tracks credit default swap prices for the major banks and brokers across the world.  This essentially measures default risk for the financial sector.  After declining significantly for the past 9 months, the index has spiked in recent weeks to its highest level since last September.  As shown below, the downtrend line in the index has also been broken on the run-up as well.  In just a couple weeks, the fear has picked up quite a bit.

 

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What Is Getting Hit Hardest?

We broke the S&P 500 into deciles (10 groups of 50 stocks) based on stock performance in 2009 to see if the big winners from last year are the ones getting hit the hardest on the recent pullback.  As shown below, they definitely are.  The 50 best performing S&P 500 stocks in 2009 have averaged a decline of 9.5% since 1/19.  Each successive decile from best to worst in 2009 gets better in terms of performance since 1/19.  The 50 worst performing S&P 500 stocks in 2009 are only down an average of 2.9% since 1/19.  The winners during the bull run are being sold with authority.

Below are the worst performing S&P 500 stocks since the January 19th top.  US Steel (X) is down a whopping 32%, followed by Cliffs Natural Resources (CLF), Massey Energy (MEE), Freeport-McMoRan (FCX), and QUALCOMM (QCOM).  All of the names listed above are down more than 20%.

Ugly Tape

After trading up nearly 1% in the morning, the major markets have tumbled in afternoon trading.  This type of action, when the market trades sharply down even though economic reports and earnings reports both beat estimates handily, is not good.  There's simply no way to sugercoat it.  Since the start of the pullback, earnings and economic numbers have remained strong, so the market is signalling that the indices got ahead of themselves based on what's in store for earnings and the economy in the future.  The long-term uptrend is also getting very close to breaking down.  If the uptrend breaks, investors will need to reposition their portfolios, which ultimately puts even more pressure on share prices.  At any point, something can spark the market back to the upside, but for now, the short-term trend is down.

 

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Contributions to Real GDP Growth in Q4

Below we highlight the breakdown of contributions to the 5.7% Real GDP Growth in Q4 (YoY).  Consumption and inventories were big contributors to growth, along with exports due to the weak dollar.  One area that didn't contribute to the 5.7% GDP growth was government.  In fact, government's contribution to Q4 GDP actually acted as a drag, as the marginal contribution from the Federal side was more than offset by the drag of state and local governments.  Click here to visite the BEA website.

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Sector Earnings Beat Rate and Stock Performace

The current earnings per share "beat" rate this earnings season is 73% for all US stocks.  Below we highlight the percentage of companies in each sector that have beaten estimates.  As shown, only three sectors have a higher beat rate than the overall market -- Materials (76.7%), Consumer Discretionary (83.7%), and Technology (87%).  Two of the three sectors that are beating estimates at the highest clip are also the two sectors that have gone down the most since earnings season started.  Materials is down the most at -11.37%, while Technology is down 7.72%.  Based on this, either investors aren't paying any attention to the strong earnings, or they think that it can't get much better than this, hence sell the news.  It's probably a little bit of both.  However, guidance has been especially strong as well this earnings season, so the jury is still out on whether the earnings cycle will now turn down.

 

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GDP Rises to Highest Level Since 2003

While the ultimate pace of the economic rebound continues to be debated, GDP in the fourth quarter rose 5.7% (expectations were for growth of 4.6%), which was the fastest pace in six years.  Granted, this growth follows an even bigger decline of 6.4% in the first quarter of 2009, but at least it's a start.  Judging by the performance of equities in the fourth quarter, and the earnings reports we've seen so far, we already knew the fourth quarter was strong, the big question is whether or not this growth will continue in Q1.  Based on what we've seen so far in terms of guidance, companies seem to have a positive outlook.

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Percentage of Stocks Above 50-Day Moving Averages

As shown below, the percentage of stocks above their 50-day moving averages in the S&P 500 has dropped to 35%.  This is the lowest level seen since mid-2009.  Clearly breadth has gotten weak on this pullback.  No sectors have more than 50% of stocks above their 50-days, and Consumer Discretionary has the highest reading at 48%.  Materials is the weakest sector with a reading of 10%.

 
 
 

 

 

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Bespoke on Fox Business Today (1/28) at 2:30

Bespoke's Paul Hickey will appear on Fox Business Network today (1/28) at 2:30 PM ET to discuss our current market outlook. 

10-Day A/D Line For Materials At Most Oversold Level Since October 2008

The 10-Day A/D Line for the S&P 500 Materials sector is currently more oversold than at any other point since October 2008.  It is also currently showing the eleventh most oversold reading since 1990.  In the chart below, we highlight each of those occurrences (all occurred after 2000) with a red dot.  In the week following the prior ten most oversold readings, the Materials sector has averaged a gain of 2.9% with positive returns 70% of the time.

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Dow Breaks Another Support Level

As shown in the chart below, the Dow has just broken below its support level at the 10,100 mark.  This support was formed by the peak in the index in mid-October.  Some commentators have been blaming the drop on more tax proposals in Obama's State of the Union speech last night.  But even if you think this is the cause of the decline, it shouldn't really scare you too much since the proposals still have to be passed into law.  There have been many tax proposals during the rally that haven't even come close to passing.  In the current political environment, it's going to be hard for Congress to implement anything that will be interpreted as a hit to the economy, especially in an election year.  So if the market is falling because of tax proposals, it's likely to be short lived since the likelihood of actual passage is low. 

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Best Performing Stocks on Earnings

It's been a great earnings season from a numbers standpoint, but it has been a pretty bad earnings season in terms of stock performance.  But some stocks have done well.  Below we highlight the 25 companies that have gone up the most on their report days this earnings season.  As shown, TSCM has had the best earnings-day peformance with a gain of 28.17%  Cramer had a good day!  PLXT is the only other company that has gone up more than 27.32% on its report day.  Other notables on the list of earnings winners include VMW, CREE, ROK, EDU, and STX.

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It's Been a Good Year For Ford

While Ford (F) was typically considered among the most dysfunctional automakers less than three years ago, look who's laughing now.  As major players like GM and Toyota can't get out of their own way, both operationally and in terms of their stock prices, their losses have been Ford's gain.

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