JPM as an hedge?

[Cardboard]

Something tells me that we are going to experience some weakness in the stock market in the not too distant future. I am a value investor, but I can't help myself thinking that many will just be too tempted to take some nice profits under a still uncertain outlook. Hedging at this time may not be such a bad idea. If the hedge is good, it will offset some portfolio losses and provide cash to redeploy in attractive opportunities.

 

JPM on a P/E basis looks awfully expensive. First quarter earnings were $0.40 or $1.60 annualized. Analyst estimates for this year are $1.49 a share and $2.73 in 2010. It does look better on a price to book standpoint if you compare their current market cap of $130 billion with their stated book value of $170, but that is before backing out $32 billion in preferreds and $48 billion in goodwill.

 

Technically, the JPM chart is a classic. It has made a wonderful half shaped inverted parabola since the low in early March. Looks to be stabilizing around $36 only to reverse sometime in June. Now, I don't believe that you can predict the future by looking at charts, but so many do trade based on that stuff that it must influence the future in the short run.

 

Also, remember that these guys bought WaMu and Bear Stearns after their collapse or about the worst crap imaginable in the financial sector. However, they have secured government guarantees and the integration seems to be working well. They also control the biggest pile of derivatives of all kinds on the planet.

 

Even if they don't hit some air pockets due to these, I have a hard time envisioning a huge upside to JPM share price in the next year or two.

 

Your thoughts? What shorts or other hedges are you considering at this time?

 

Cardboard

[benhacker]

JPM may be a great hedge, but betting against massive companies with moats and top rate management is just not something I'd do.

 

If you are hedging disaster end-of-the-world type sh1t, than JPM makes sense.  But just hedging a market decline, I would not do that.

 

But again, this is more of a long term assesment by me (no position, but if forced, I'd be long).

[scorpioncapital]

My thoughts are that hedging is a waste of time. It's like buying insurance and paying a premium to insure against a "bad thing" that isn't really bad. Who would pay for that, it's just money down the drain.

 

 

[jasonw1]

I think buying/reallocating money to KO and JNJ are better hedges for the next potential down market, if it happens. It gives you upside potential, while the downside/volatility is limited. 

 

 

[Guest JackRiver]

Now, I don't believe that you can predict the future by looking at charts, but so many do trade based on that stuff that it must influence the future in the short run.

 

Cardboard

 

Looks like you are conflicted.

 

Yours

 

Jack River

[ShahKhezri]

CB,

 

I'm right there with you.

[indirect]

Monish once said that hearing and watching WB is like a onion. There are layers upon layers. I remember him buying junk bonds by boatloads in 2002 including lvlt and was out with doubling of the money in months while SE asset and HW are holding. Over the last five yrs he was never vocally bearish like HW or others, however if you follow the money he was holding CASH. So simplest answer to your Q is cash which is a hedge.

[UhuruPeak]

Cardboard,

 

 

If this rally (the whole crisis frankly) has taught me something, it is that I don't understand the market's behavior - or rather, such powerful interests are at play right now that the market isn't allowed to behave like its normal irrational self.

 

My money is on the market going south again, I am still not convinced we have seen the lows.  I am not shorting at the moment (got burned every single time I tried that), but am 50% cash in my non-taxable accounts and 100% in my own 401(k) with wife's holding plenty of short term bonds and cash.  If the markets goes up, I lose some; if it tanks, I win some; meanwhile, I sleep soundly in accepting that I'm out of my league this time around.

 

 

Good luck to you and to others -

[Guest kawikaho]

Uhuru,

 

Last time I thought that was in 2000 after the market rallied quite alot like it has recently.  Then it began it's 2-3 year long decline.  I'm very much perplexed at the recent rally, but you can't fight the tape.  I had to deploy capital when the rally went beyond 30%, and bought some good companies with PE's below 10, e.g. Merck, and PG.  They are doing pretty well.