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November 11th, 2010 Michael McDonough Comments off

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The QE Trade Road Map From the Bloomberg Brief: Economics

November 3rd, 2010 Michael McDonough Comments off

When the Federal Reserve launched its unprecedented program of quantitative easing in early 2009, it was difficult to predict how various asset classes would react. Now, as the Fed considers a second round of asset purchases, the first program has left a blueprint of sorts behind that could be useful in predicting how markets might respond. The table here shows, as measured by R^2, how strongly the fluctuations in a variety of assets are correlated with the level of securities held by the Fed during the first six months of 2009. The table also displays the performance of these assets during the first half of 2009, as well as in the period since Fed Chairman Benjamin Bernanke’s Jackson Hole speech, where he laid out the case for additional quantitative easing.

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**This is an excerpt from the Brief published on 10/29/10**

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S&P Now vs. The Great Depression

July 6th, 2010 Michael McDonough Comments off

Recently I’ve come across several headlines comparing recent activity in the stock market to what occurred during the Great Depression, so I ran the numbers.  The attached chart tracks the S&P 500 20 months prior (t-20) to its respective high prior to the Great Depression and the recent recession; ‘t’ indicates the actual high.  You can then compare the performance of the SPX during both downturns on a monthly basis (t+1, t+2, etc…) from the highs.  I am no technical strategist, but other than the initial fall I fail to see any similarities between now and then.  During the Great Depression the S&P lost nearly 90% of its value over 34 months; the S&P is presently 33 weeks off of its high and is down only 34%, and even at the lowest level was down only 53%.  Surprisingly, it took the SPX until the early 1950’s following the Great Depression to recoup the losses the SPX has already regained since the start of the recent recession.  The bottom line is a more responsive central bank and coordinated government actions may have helped us escape the full pain of the 1920s, but we still have a long steep hill to climb before we move away from the danger zone.  Let’s not forget the effects from reversing fiscal stimulus and unprecedented monetary policy responses—that helped stave off deeper loses—are still unknown and could eventually weigh down the markets.    

Source: Bloomberg

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US Equities Outperforming The World

May 17th, 2010 Michael McDonough Comments off

As of this morning, not only have US equities (as measured by the MSCI)outpaced their global counterparts, but on a year-to-date basis it’s the only index still showing gains, albeit somewhat modest.  Interestingly, as of this week the spread between the MSCI US and MSCI World index reached its highest spread of the year, mostly due to losses in Latin America and emerging Europe. 

MSCI Indices:

Source: Bloomberg

 

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Potentially Good News For Jobless Bankers & Lawyers

March 9th, 2010 Michael McDonough Comments off

After a bit of a lull in 2009, M&A activity–a gauge toward GDP growth–has begun to gain some momentum this year.  Unsurprisingly, this uptick in M&A activity coincides with gains in business and professional services employment; a series that includes lawyers and bankers.

M&A Activity vs. Business and Professional Services Employment

Source: Bloomberg

The upward trend for M&A is generally expected to continue as companies  continue spending cash they have hoarded since the onset of the economic crisis. More M&A should continue to bode well for business and professional services employment,;try running a M&A deal without several teams of lawyers…  And of course without senior bankers,  and their hoards  of junior banker minions working almost non-stop to create a mountain of pitch books, there would be no deals.  So which companies will these bankers be targeting?  Below is a table from Gridstone Research that highlights the top 35 commercial and industrial companies with the largest cash, short-term investments and marketable securities positions:

Source: Gridstone Research

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Cantor Upgrades DryShips (DRYS) To ‘Buy’ From ‘Hold’

January 25th, 2010 Michael McDonough Comments off

From Cantor Report:

Cantor/DRYS: We Upgrade DRYS To BUY (From HOLD) On Valuation, Rig Exposure

* We raise our price target to $8 (from $7) based on our 7.0x
EV/EBITDA multiple to our new 2010 EBITDA forecast of $558 million
(from $544 million). Given the discrepancy between our target and
the current stock price, we upgrade DRYS to a BUY (from HOLD). Our
price target is also supported by our charter-adjusted NAV of
$7.80 per share.

* With nearly all of its dry bulk fleet fixed under period charter
contracts, we suggest the primary upside catalyst for the stock
over the near-term will be securing employment and financing for
the 5th and 6th drilling rigs.

* We raise our 4Q:09 EPS estimate to $0.27 (from $0.26). For 2010,
we now look for DRYS to report EPS and EBITDA of $1.05 and $558
million (from $1.00 and $544 million), respectively. Finally, we
introduce our 2011 EPS and EBITDA forecasts of $1.22 and $743
million, respectively.

* Our new estimates are based upon our revised dry bulk rate
forecast (see “The Ship’s Log – 4Q:09 Review and 2010 Outlook”)
published concurrently with this note.

* Management has stated its intention of growing the dry bulk fleet
through potential distressed transactions over the near-term, with
a focus on the Panamax and, to a lesser extent, Capesize vessel
classes. However, we believe the primary focus will be on fixing
drilling rigs 5 and 6 under charter contracts, as those charters
will likely be necessary before bank financing can be secured.


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The Markets Facing a Barrage of Uncertainties

January 22nd, 2010 Michael McDonough Comments off

As I mentioned in my US Week Ahead, any indications that Chairman Bernanke may not be reconfirmed could send ripples through the market. This morning I woke up to this headline “Senate Dems Not Sure They Can Get Enough Votes to Reconfirm Bernanke”. The market is still walking on broken glass after overcoming its biggest crisis since the great depression, and needs all the certainty it can find. But, the situation with Bernanke, questions around China, and President Obama’s proposed banking restrictions and health care reform are clearly too much uncertainty for the market to digest.

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More Evidence the Approaching IT Replacement Cycle will Exceed Analysts’ Estimates

January 14th, 2010 Michael McDonough Comments off

Recently, I wrote about how Dell, among some other companies, should benefit from an approaching IT replacement cycle, that I believe is being underestimated by many wall street analysts.  Well I came across this article today, which has the White House budget director blaming old computers for our government’s inefficiencies and ineffectiveness.  It would appear that President Obama is also jumping on the bandwagon being quoted in the article as saying, “Improving the technology our government uses isn’t about having the fanciest bells and whistles on our websites — it’s about how we use the American people’s hard-earned tax dollars to make government work better for them.”

In closing the budget director had this to say “It’s time to bring government into the 21st century,” he continued. “Information technology has the power to transform how government works and revolutionize the ease, convenience and effectiveness by which it serves the American people.”

Might we see a jump in government technology spending in the future? Maybe, but either way I am still bullish on the sector.

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Week End Update on my Global Macro Trading Strategies

January 8th, 2010 Michael McDonough Comments off

Here is an updated table containing my global macro trading strategies for retail investors.  **For the details behind my global macro trading hypothesis, please see my past article on this blog and at RealMoney.

Global Macro Trading Ideas

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GM’s New Battery Plant

January 7th, 2010 Michael McDonough Comments off

Hearing about GM’s new battery plant I started reminiscing about an article I wrote back in July of 2008.  Will this movement in the U.S. have the same impact it had on Japan?  We will have to wait and see.

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