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The Money Map Advantage
Thursday, January 19, 2006
By Horacio Marquez
Email – #26
** Iran Tensions, an Intel Miss and a Japanese Scandal Equal an Unexpected Breather
Thanks to Morgan Stanley for upgrading our Tenaris (NYSE: TS) recommendation today – the recommendation is up 9.29% today alone, reaching an all-time high, as we predicted a couple of months ago.
Also, we learned yesterday that the Fidelity Magellan Fund (FMAGX), the largest mutual fund in the land, with more than $50 billion in net assets under management, owns Mitsubishi UFJ Financial (NYSE: MTU) as one of its top-10 holdings.
And Fidelity Magellan’s disclosure is welcome news, because the fund’s lead manager, Harry Lange, is a very experienced international investor, and also because Fidelity Magellan typically looks to make solid long-term investments. With its humongous size, it cannot afford to switch positions as fast as its much smaller competitors, which results in a turnover rate of 6% (vs. a turnover of 75% for its competitors). Hence, it is good to know that large positions in these stocks are in strong hands for the long term.
Now, with respect to the market: The market bias is decidedly positive – especially international markets. And that is precisely the reason for the recent market turbulence. Let me explain…
Recently, Merrill Lynch released its findings of global fund managers, which showed that these large investors have put money to work aggressively. Therefore, my long-held market views seem to be becoming much more the norm amongst fund managers: The multiyear global economic expansion is alive and well, and with the end of Federal Reserve interest rate hikes in sight and a softer U.S. dollar ahead, valuations in cyclical stocks globally will rise.
So, the market got a little ahead of itself, discounting some of the probable parties if the Fed decides to pause interest rate hikes at its January 31 meeting. I give that possibility a 40% chance, with a pause more likely at their March 28 meeting, once Ben Bernanke is firmly at the helm.
The market is expectedly more volatile with the developments in Iran and Nigeria (which propped oil prices and oil stocks), the Livedoor scandal, the Intel miss, and tomorrow’s upcoming options expiration. The Intel miss was “conveniently” interpreted by the Street as a system-wide phenomenon, rather than the company-specific event it really is: Intel’s waning market share is due to losing its technological leadership, rather than a catastrophe in the PC market. AMD and others are taking market share away, and there is some mild weakness in PC sales ahead of Microsoft’s release of the new Vista operating system.
Therefore, some highly leveraged investors – who, like us, bought aggressively into year-end – might have wanted to take profits in Japan and Brazil ahead of options expirations, and some others were caught with margin calls and were forced to sell in the midst of these unrelated events.
Of all of these events, the only ones with lasting legs are the woes in Iran and Nigeria, in that order. Iran seems to be playing the old Arafat game: Increase belligerent speech in order to obtain concessions. By doing this, the unrest they create does increase the price of the oil they export, so it is in their own interest to keep bringing this situation to the brink. But not to the extent that it costs them sanctions from the UN, or their place in power, through an invasion of their territory by Western forces. Hence, we can expect this rowdy behavior to keep arising and dying out from time to time.
The West has indeed strong direct and indirect pressure points to force more civility from Iran: UN sanctions and pressure through Iran allies, and strong trading partners, Russia and China. Reason is on the West’s side. Iran’s claim of absolutely needing to enrich uranium for electricity generation is not credible: They could very well adopt nuclear technology for this purpose that does not require uranium enrichment. Given Iran’s past statements, allowing them to obtain WMDs is not only inadmissible from a moral and strategic standpoint, but it would create a needless arms escalation in the region, which would entail larger future security costs for the rest of the region’s countries – and for the U.S.
The conclusion is that market selloffs due to Iran and Nigeria must be bought, as is confirmed today, unless escalation spirals out of hand. I have two strong potential candidates for buying that are in the front burner, waiting for the appropriate levels and technical signals. Stay tuned.
Enjoy and profit,
Horacio Márquez
Market Watch
NASDAQ
1528.95
0.00
SP 500
813.88
0.00
DJIA
7749.81
+89.84
As Of 6:12AM 3/26/2009
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