Time-Warner Powers Media Sector And Market Higher
Who says that Time Warner (TWX) isn't responsive to investor criticism? Short of going all the way and spinning off their cable operations (what Carl Icahn really really wants), they are doing their utmost to keep their other shareholders happy: making loads of cash and giving it back to investors in the form a nice little $12.5bn share buy-back (double what it used to be!). This is lifting not only TWX's valuation, but also the media sector's valuation as a whole. And lest there was any doubt, that sector's valuation was in dire need of lifting -- it had been the second-worst SPX performer YTD. My favorite media long from last week, Cablevision (CVC), seems to have responded well to the latest news that the board of that company is actually telling management to "batten down the hatches and prepare for the $3bn special dividend issue". The stock is up 6.5% from last week's lows around $24.25 and, while the announcement is sure to displease CVC's bondholders (the company might need to borrow more money to fund the payout), CVC's shareholders, especially those who bought, as I suggested, after the Dolans withdrew their bid last week, don't mind the excitement -- the stock keeps going up!
Speaking of going up, what a difference a few days make. As suggested previously, the market needed energy stocks (XLE) to stop going down, and a spark from tech and financial land, before it made its way higher after blowing through the 1205 SPX resistance level. The SPX has rallied hard -- 3% in 3 trading days really! -- to go from short-term oversold to short-term overbought! The good news out of WMT earlier this week, helped the MVRX (the Morgan Stanley Retail Index) to rally 7% (!) from extremely oversold levels (from 142 on Thursday to 152 today!). Not bad for a great start of the 4Q rally. After October's terrible returns across the board (especially since energy stocks retreated significantly), performance-chasers -- mutual funds and hedge funds alike, who are basically flat for the year -- would be extremely motivated to buff up their returns for the year. This practice is dangerous and leads to stretched valuations in higher-beta YTD winners such as GOOG. Yesterday, I suggested not buying the stock above $380, and if possible, lightening up on the name if you've owned it for a while -- it is still a great company, but that is to be differentiated from a great stock (the latter is dependent on price!).
On a slightly different note, yesterday's FT article by Stevie Roach of Morgan Stanley left me slightly perturbed. Helicopter Ben (yes, the 99.9% likely new Fed chairman as of Feb 2006) has had a distinct tendency to underestimate the impact of the level of U.S.'s indebtedness and deficit in the past. If Stevie is right, the Fed might be fighting only one battle (and that might be the wrong one!) -- i.e. inflation. What they should be also worried about is what happens when the world stops sending their surplus savings to gluttonous America. Higher U.S. interest rates and weaker dollar? Hard landing? It may not look like it's happening right now, but I can't help thinking that we are standing on very thin ice when it comes to the U.S. markets, in any shape or form. The Fed has been bailing us out for a long time now -- the question for the future remains: can they afford to do it if the world's other big economies start consuming their extra savings rather than giving it to the U.S. for next-to-nothing in return.
Speaking of going up, what a difference a few days make. As suggested previously, the market needed energy stocks (XLE) to stop going down, and a spark from tech and financial land, before it made its way higher after blowing through the 1205 SPX resistance level. The SPX has rallied hard -- 3% in 3 trading days really! -- to go from short-term oversold to short-term overbought! The good news out of WMT earlier this week, helped the MVRX (the Morgan Stanley Retail Index) to rally 7% (!) from extremely oversold levels (from 142 on Thursday to 152 today!). Not bad for a great start of the 4Q rally. After October's terrible returns across the board (especially since energy stocks retreated significantly), performance-chasers -- mutual funds and hedge funds alike, who are basically flat for the year -- would be extremely motivated to buff up their returns for the year. This practice is dangerous and leads to stretched valuations in higher-beta YTD winners such as GOOG. Yesterday, I suggested not buying the stock above $380, and if possible, lightening up on the name if you've owned it for a while -- it is still a great company, but that is to be differentiated from a great stock (the latter is dependent on price!).
On a slightly different note, yesterday's FT article by Stevie Roach of Morgan Stanley left me slightly perturbed. Helicopter Ben (yes, the 99.9% likely new Fed chairman as of Feb 2006) has had a distinct tendency to underestimate the impact of the level of U.S.'s indebtedness and deficit in the past. If Stevie is right, the Fed might be fighting only one battle (and that might be the wrong one!) -- i.e. inflation. What they should be also worried about is what happens when the world stops sending their surplus savings to gluttonous America. Higher U.S. interest rates and weaker dollar? Hard landing? It may not look like it's happening right now, but I can't help thinking that we are standing on very thin ice when it comes to the U.S. markets, in any shape or form. The Fed has been bailing us out for a long time now -- the question for the future remains: can they afford to do it if the world's other big economies start consuming their extra savings rather than giving it to the U.S. for next-to-nothing in return.
posted by Ivan at 11/02/2005 11:47:00 AM
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