Boo!

On my (computer) desktop I have a quote widget from Yahoo Finance which I use to quickly know what each of the big ten sectors, via ETFs, are doing during the day. I also have an emerging market ETF on there, GLD (client holding) and a couple of currency ETFs.

Yesterday as the S&P 500 was up 2.58%, eight of the ten sectors were up more than 2.58%. The emerging market ETF was up 10%. As I look down the list of stocks that I either follow or own there are many that have had several 5-10% up days in a row, especially in the segments most beaten down.

If you have a long list of stocks and narrow ETFs that you watch then you know what exactly what I am talking about.

In looking below the surface of the broad market there have been plenty of mining and emerging market stocks that dropped 60-70% as the S&P dropped its 45%. The decline has been largely overdone in some of these areas (don't take that as meaning I think a bottom must be in). The partial snapback has been very fast, which is normal, and could help people who felt panic but did not succumb to it by selling a lot stock at the lows breath a little easier.

That some of these mining and emerging (or anything else you want to include) stocks and ETFs could go from down 60% to down 40% and then trade closer with the market (correlations are probably going to stay high for a while) seems plausible.

Take BHP Billiton (BHP) for example. It made a 52 week high of $95 in May and bottomed out below $29, a 78% drop, earlier this week. Since that Monday low it has rallied 32%. In the trailing 12 months it earned $5.50. The 2009 estimate is $6.22 and for 2010 it is $6.54. Should we give the estimates a 50% haircut? Even with a 50% cut in earnings the stock has a cheap valuation. I think a 50% haircut is a bit much but even so there is demand for the stuff BHP pulls out of the ground, assuming a 50% haircut more than, IMO, accounts for economic slowdown/slash price declines in commodities.

I am in no way suggesting this stock and I have no future plans with it. It is just an example that repeats with similar numbers in many stocks these days. John Hussman made a comment about a stock representing a future cash flow. The future cash flows of most companies have not been effected enough to justify the declines we have seen--this might be why BHP rallied 32% in a few days.

Obviously stocks over react in both directions all the time but it is a good bet that most of them will continue to have a positive cash flow. The fate of that future cash flow is the long term. The huge swings thus far and maybe the huge swings yet to come are the short term. If you think of yourself as an investor you should probably be more concerned with the long term.

Need to give a shout out to Eric Savitz, he mentioned Count Floyd over the weekend.