The Kirk Report

That Was Ugly

Make no mistake about it - that was one ugly trading day. We closed at the lows amid a number of crosscurrents along with uncertainty and confusion surrounding the delay in the PPI. Stocks traded heavy throughout the session, which is typical of market that is too overbought. To make matters worse, our key market tells (chips, biotechs, financials) are rolling over at the key levels of resistance. Unfortunately, trading volume on both sides of the equation remain tepid so it is impossible to have any confidence that the market is providing us with a clear short-term buy or sell signal. As they say, if reading the market were easy, we'd all be billionaires by now! See you tomorrow.

DHB Industries

DHB Industries (DHB) is clearly the stock of the day. The stock established a new high after the maker of body armor announced a new deal last night. The U.S. Army has ordered $239.4 million in body armor, which brings total defense orders to $381 million for the last eight months and the company's backlog to $415 million. Those are nice numbers for a company that has trailing annual sales of only $260 million. To make matters even better for those long the stock, a number of investment websites (i.e. Motley Fool & RealMoney) are putting fuel on the momentum fire by touting the stock every chance they get. With everyone looking for the next Taser (TASR), you have to at least put this stock on your radar.

It Takes Time to Cook The Books

The release of the May producer price index has been delayed indefinitely, the Labor Department just reported. The PPI was originally scheduled to be released Friday, then was rescheduled to Thursday afternoon to avoid conflicting with the funeral of former President Ronald Reagan. A spokesman for the Bureau of Labor Statistics or BLS said the report would be released no earlier than next Tuesday. As many of you know, the BLS has been having trouble with the PPI releases this year and the calculations they use have frequently been criticized due to a new industrial classification system.

Low Returns in a High-Risk World

I believe Jesse Eisinger's article in the Wall Street Journal is having some affect on the mood of the market today. Here is a brief excerpt:

The Fed not only filled the punch bowl, it also spiked it with Ecstasy. Alas, all punch bowls eventually get pulled. Risk has its price, and the price is rising. The problem with the return of risk is that we are living in a world where assets are expensive and investors and companies are ill-prepared.

Thanks to lax monetary policy, blind orangutans could have managed money last year. The broad outlines are familiar to anyone who follows the markets closely. Here is one well-aired but nevertheless astonishing stat: 92% of all the stocks in the S&P 500 index rose last year. That was the biggest percentage of gainers in any year since 1980, which is as far back as S&P goes. The riskiest -- the most indebted, most vulnerable companies -- paid off the best.

That was fun. It was like the best of the '80s and '90s, rolled into one: Junk bonds and tech stocks boomed. Treasurys rose and commodities skyrocketed. Wall Street was cool again. Stock analysts could start (well, start to think about) enrolling their kids in Upper Eastside kindergartens again.

But too much capital is chasing too few good ideas. It isn't just stocks. There is no asset class that looks attractive now: Mainstream stocks, small-cap stocks, Treasurys, corporate bonds, junk bonds, real estate, cash, emerging-market assets, commodities all are either expensive or yield little.

For the stock market to average double-digit returns in the next decade, justifying their lofty valuations, earnings and dividends will have to rise much more quickly than they have during the past several decades. Alternatively, investors could rationally be prepared for much lower returns. But if those things aren't true, stocks will fall or stagnate.

For the full article which requires a subscription, click here.

Stocks are Trading Heavy

Stocks remain under pressure, but the final hour will be an especially important gauge on the bull's conviction. The only sector under accumulation today is telecom while concentrated weakness can be seen in gold, semiconductor, oil services, energy, railroads, internet, networking, disk drive, software, biotech, brokers, iron & steel, & housing.

Using Margin

Due to one of my previous posts, some of you have asked about using margin. The SEC has a calculator on its website for figuring the risk of margin calls as well as a thorough explanation of margin loans.

Oil Prices: A 5 Year Perspective

There is little doubt that the price of oil has put in a short-term top. However, that is not to say the rally in price is over in the long-term. Martin Hutchinson takes a look at some scenarios in which an oil price of $80 per barrel is possible, at least on a 5 year view. READ

Follow the Smart Money?

Given today's bullish sentiment polls, I found the recent survey of the wealthiest 1% of the population quite interesting. The survey based on those who make more than $325,000 per year or have a net worth greater than $5.9 million has discovered that the richest Americans are very defensive & conservative with their own investment portfolios. This is in stark contrast to recent reports showing a growing use of high-risk margin strategies in undercapitalized retail accounts at major online brokerages. READ

Stocks Selling Near Book Value

John Dorfman, my favorite columnist at Bloomberg, is out with his latest article which looks for stocks that are selling for a low multiple of book value. Among his findings include General Motors (GM), AT&T (T), Loews Corp. (LTR), Seacor Holdings (CKH), Winn-Dixie Stores (WIN). READ

The Calm Before the Market Storm?

Is the Fed now between a rock and a hard place as my friend Bill Fleckenstein currently believes? I don't know, but when I read the latest writing from Fleck at MSN Money, it is easy to see what could go wrong in the days ahead. Perhaps his views are only meaningless bearish banter, but at a minimum, I don't think you can easily ignore it. READ