Second-Quarter Bargain Hunters

Today is a new day and, despite the news overnight about UBS and Deutsche Bank taking $23B dollars in combined write downs, the stocks are on fire. The financials across the board are on fire today. Lehman’s announcement yesterday to raise as much as $3B dollars in capital in convertible preferred shares was increased to $4B dollars because the deal was so oversubscribed. As much as three times oversubscribed! What does that mean? There were more buyers than shares for sale or in essence demand for as much as $9B dollars of Lehman’s convertible preferred shares. As a result, they increased the offering. This morning, a friend of mine emailed me to tell me that Verizon just had $10B dollars in demand for a $3B dollar debt deal.

Why is this happening? What has changed in 24 hours? Not much economically speaking, but institutions and hedge funds have an appetite -- and today is the beginning of the 2nd quarter, which means it’s time to put money to work. Where would it make the most sense? Right now the financial sector looks like the biggest beneficiary of those funds, as Wall Street reacts favorably to another morning of record writedowns. Is the worst behind us? No one can know for sure and many are concerned about the next “bubble” to burst in credit card debt. On the other hand, valuations are near or at historic or five year lows. If you invest with the long-term in mind, now might just be the perfect time to buy.

The first quarter was a disaster for financials, technology, retailers -- you name it! Commodities like gold and oil were on fire. Take a look at them today. A complete reversal! Gold down below $900 an ounce, trading at $883 an ounce as we speak – a level not seen since February 15th. Will it be short-lived? Your guess is as good as mine, but one thing is for sure: too much momentum money has been invested in those commodities and, if inflation fears subside and equity investors feel a burst of confidence, they will leave the commodities and go to the bargains. Right now this market looks like it is at bargain prices. When I asked one of my guests today on my 9AM show whether I was too bullish about the market, he said maybe not. You can’t be too bullish about the economy but the market often recovers six months before the economy recovers. Do you believe the economy will recover in the 4th quarter? If you do, now may be the time to buy. I am not a financial analyst, but this market is telling you something. Time will tell!!!!