Wednesday, February 4, 2009

Who was left holding the bag?

As I was watching the tape on the market today, I noticed Bank of America (BAC) was down to a new low. As a little time passed, Fannie Mae (FNM), AIG and Citi (C)came across the tape. Adding in, LEH, BS, FRE and GE, there is easily a trillion dollars in loss in market cap on this small group of stocks. In fact, $1 trillion is most likely a very marginal loss. Citi traded for as high as $57 in December 2006. Interpolating their current price of $3.56 and their market cap of $19.42 billion, Citi alone represents a loss of $291.5 billion. I know the float on Citi was expanded when it was attempting to bail itself out in 2007 and 2008, but this almost $300 billion isn't that far off.

AIG was traded for as much as $100.25 back in 2000. Its current price is $1.03 and its current cap is $2.77 billion. It is easy to figure roughly $265 billion lost here. BAC traded for $55.08 in November 2006. Its current price is $4.77 and its cap value is $23.88 billion. This is another $250 billion loss. So, these 3 financials have shown a drop in cap value of $806 billion, literally the entire TARP or stimulus program being debated right now.

At the peak of the market, back in 2000, MSFT, CSCO, INTC and GE all had cap values in the $600 billion range. To say their value was conservatively around $2.4 trillion combined wouldn't be too far off. INTC traded for $75.83 in August 2000. At its current $14 price, its value is $77.86 billion. It is clear that INTC has bought a lot of its stock back, as this implies a $344 billion loss and a $421 billion top price. I recall the quadrupling of INTC stock between late 1998 and mid 2000 in the blow up of the tech bubble and now we are well below the 1998 price. Pretty sorry performance for a must own stock isn't it?

My point of all of this is someone owed these stocks all the way down. It is quite likely much of this stock was owned by different people than owned it for much of the gains on the way up, thus were left holding the bag. It is clear now that the way you own stocks is you have to find what the next game is and get on it as soon as possible and short the last game. Shorting is dangerous, but it isn't as dangerous as being long the high rollers of the last bull.

If this philosophy is true, then the stocks you don't want to own this time are GOOG and AAPL to name a couple. I would venture GS is another that is probably a poor stock to own. There has been much urging on CNBC that the listener get on these stocks as soon as they can possibly find the money to buy them, which tells me the holders of these stocks are urgently looking for buyers or bag holders to get them out of them. I read the public never in history has made any money out of a stock market bull run and this one appears to be no exception. We are now looking at over 50% of the past 20 years being above the current price and more money goes in on the way up than goes in when the market is down. It is probably time to look over the worn over stocks like MSFT and INTC (I saw a video with Marc Faber and he was bullish the old 1990's tech leaders longer term) and keep an eye on them. MSFT is down to less than 1/3 its peak value. The exception is GE, which I believe is in business only because of political connections and Fed intervention and has been doomed for a good decade due to their financing arm.