I'm starting to feel like a real pessimist these days--always predicting a stock market crash that hasn't come yet. But it's scary to me that the stock market can go up for months and months like this on no volume. Stock market rallies are supposed to occur on heavy volume with all the big money buying in. That's not what has happened since August 2010. It has "floated" higher and higher on no volume, thanks largely in part to the Federal Reserve's QE2.
But there have been signs of cracks in the walls lately. Some of the high flying stocks and commodities have gone parabolic and already begun to sell off--creating what Bill O'Neill referred to in his books as a "climax top."
Let's look at a few other reasons why this market may correct (or even crash) this month (May 2011).
1) Historical: Dow Jones, May 1940 -21.55%. The worst May in recorded history for the Dow and it only took 8 trading days to decline that much. It occurred in the 11th year after the 1929 market crash. We are in 2011--the 11th year following the 2000 market crash. Coincidence? Take a look at a NASDAQ chart since 2000 and compare it to a Dow Jones chart from 1929 through 1940. Similarities? (Hint: Yes!)
2) Lunar: Most people dismiss the lunar cycle and how it relates to the stock market, but I saw some interesting movements last year and decided to track it. It's not always predictable, based upon lunar cycles, but two trends have emerged. The first is that the market's biggest gains have always come in the quarter leading up to the New Moon. It's not even a contest compared to the other parts of the lunar cycle. If you had bought the S&P 500 seven or eights days prior to the New Moon and sold it on the day of the New Moon, you made money every time. The other trend is that market corrections always begin just after the New Moon. We don't always have a correction, but when we do have one, that's when it begins. Oh, by the way, we had a New Moon on May 3, 2011.
3) Biblical: Okay, so this one is very controversial and I am not a follower nor a believer of Harold Camping, the man who predicted judgement day on May 21, 2011. But there are enough other people who perhaps believe this or at least fear it until that day comes and goes. By itself, I don't think it's a strong enough reason for a market crash, but we're piling onto other reasons at this point. It could contribute.
4) Newsworthy: The market always peaks on good news. What news could have been better than the death of Osama Bin Laden? If the market sells off from where it is today, it will have peaked on Monday morning, May 2nd, right after we heard about the raid that took out Bin Laden on Sunday night. Coincidence, of course, but if you look back at market peaks in the past--they always somehow coincide with very good news stories. More importantly, the Monday rally fizzled out. If nothing else, that's a good indicator that even the best news can't keep the market going higher.
I was wrong in August and wrong in November about a market peak. I'm not saying I'll be right. I am saying beware.
Wednesday, May 4, 2011
Saturday, November 6, 2010
Why The Federal Reserve's Plan Will Fail
While the extent of the rally has been a little unexpected, the stock market's movement this year has not been surprising. It was basically predicted by Robert Kiyosaki in his article way back at the beginning of the year ("Doing the Dead Cat Bounce"). Even the great Mr. Kiyosaki was wrong about the timing. He thought the entire thing would play out by the end of the year, I believe. It has not, but it will over time.
I've been expecting a market decline for some time now. History, technical analysis, and fundamentals are all aligning to predict this decline. It hasn't begun yet and we've seen a remarkable rally since the end of August, but I believe the market is on borrowed time.
The reason why the market has rallied is almost universally recognized at this point. At the end of September, a hedge fund manager got on CNBC and said that we're in a win/win situation. Either the economy improves, and the market rallies. Or the economy doesn't improve, and the Federal Reserve prints more money, and the market rallies. Either way, we all win. Well, the past month's data has shown that both the economy has improved somewhat AND the Federal Reserve plans to print more money in an attempt to create inflation/devalue the U.S. dollar. The result?--a breathtaking rally in the U.S. stock market and basically every commodity on the planet.
So what's next? How can we lose? We've got inflation, an improving economy, people spending money. What can go wrong?
The Federal Reserve already told us what is going wrong. Their statement released last Wednesday paints a grim picture of the U.S. economy. Slow growth, higher unemployment, no job growth, stagnant wages, low inflation (the last one's a joke). And how does the market react? Up another 250 points or so on the Dow Jones Industrial Average. Why? Because the Fed is printing money.
The problem is--they can't print fast enough. Sure they can create inflation--over time. But the U.S. Dollar Index has declined 15% or so since July already. How fast does the market really think those printing presses can go? High estimates of the Fed's "QE2" show that they could, perhaps, pump (print) $120 Billion per month into U.S. markets over the next several months. $120 Billion sounds like a lot of money, and it is. But let's compare that to how much money changes hands worldwide on a daily basis. Take a look at your favorite large cap stock. Apple, Exxon Mobil, JP Morgan, Goldman Sachs. How much money is traded in that one company's stock every single day? How many millions or billions? How many stocks, ETFs, commodities, options, currencies get traded every single day? Now how many countries have stock markets? $120 Billion a month doesn't sound like such a big number anymore, does it.
The Federal Reserve would like to create inflation. Guess what?--they have! Cotton, gold, oil, wheat, silver...you name it. All way up. Many at record highs. What's left to buy? What's left to go up? Not much.
If a worldwide recession, depression, or even just a small pause in growth occurs in the near future, securities have no where to go but down. The Federal Reserve will be powerless to prevent it. They can't print enough money. QE2 will be a drop in the bucket. They're throwing a handful of sand on the beach.
If you're like me, you've been critical of the Fed, angry that they've created inflation and diluted the value of the dollar. Gas has gone up at the pump. Coffee costs more at the grocery store. It's frustrating, but it's going to end (temporarily at least). Inflation is over for now. The Fed is out of ammunition. There's nothing left in their arsenal and they know it. QE2 is more symbolic than anything else. When deflation hits, at least Mr. Bernanke can say that he saw it coming and he tried to stop it. He's a powerful man, and the Fed does have quite a bit of power. Too much, in my opinion. It won't be enough. It never has been before. Why should this time be any different?
I've been expecting a market decline for some time now. History, technical analysis, and fundamentals are all aligning to predict this decline. It hasn't begun yet and we've seen a remarkable rally since the end of August, but I believe the market is on borrowed time.
The reason why the market has rallied is almost universally recognized at this point. At the end of September, a hedge fund manager got on CNBC and said that we're in a win/win situation. Either the economy improves, and the market rallies. Or the economy doesn't improve, and the Federal Reserve prints more money, and the market rallies. Either way, we all win. Well, the past month's data has shown that both the economy has improved somewhat AND the Federal Reserve plans to print more money in an attempt to create inflation/devalue the U.S. dollar. The result?--a breathtaking rally in the U.S. stock market and basically every commodity on the planet.
So what's next? How can we lose? We've got inflation, an improving economy, people spending money. What can go wrong?
The Federal Reserve already told us what is going wrong. Their statement released last Wednesday paints a grim picture of the U.S. economy. Slow growth, higher unemployment, no job growth, stagnant wages, low inflation (the last one's a joke). And how does the market react? Up another 250 points or so on the Dow Jones Industrial Average. Why? Because the Fed is printing money.
The problem is--they can't print fast enough. Sure they can create inflation--over time. But the U.S. Dollar Index has declined 15% or so since July already. How fast does the market really think those printing presses can go? High estimates of the Fed's "QE2" show that they could, perhaps, pump (print) $120 Billion per month into U.S. markets over the next several months. $120 Billion sounds like a lot of money, and it is. But let's compare that to how much money changes hands worldwide on a daily basis. Take a look at your favorite large cap stock. Apple, Exxon Mobil, JP Morgan, Goldman Sachs. How much money is traded in that one company's stock every single day? How many millions or billions? How many stocks, ETFs, commodities, options, currencies get traded every single day? Now how many countries have stock markets? $120 Billion a month doesn't sound like such a big number anymore, does it.
The Federal Reserve would like to create inflation. Guess what?--they have! Cotton, gold, oil, wheat, silver...you name it. All way up. Many at record highs. What's left to buy? What's left to go up? Not much.
If a worldwide recession, depression, or even just a small pause in growth occurs in the near future, securities have no where to go but down. The Federal Reserve will be powerless to prevent it. They can't print enough money. QE2 will be a drop in the bucket. They're throwing a handful of sand on the beach.
If you're like me, you've been critical of the Fed, angry that they've created inflation and diluted the value of the dollar. Gas has gone up at the pump. Coffee costs more at the grocery store. It's frustrating, but it's going to end (temporarily at least). Inflation is over for now. The Fed is out of ammunition. There's nothing left in their arsenal and they know it. QE2 is more symbolic than anything else. When deflation hits, at least Mr. Bernanke can say that he saw it coming and he tried to stop it. He's a powerful man, and the Fed does have quite a bit of power. Too much, in my opinion. It won't be enough. It never has been before. Why should this time be any different?
Sunday, August 29, 2010
Dow's Final Days Above 10,000
After a volatile summer in U.S. equities, the stock market finally looks exhausted--it has fought the hard fight for months and gotten nowhere. A 1 1/2 month rally from early July through mid-August was wiped out completely in a matter of weeks. Now we are entering the always dangerous months of September and October--historically the most difficult months of the year for the stock market. Technical analysis shows us to be at the beginning of another major downtrend, and I fear this is one we will not soon recover from. The Dow Jones Industrial Average is currently above the all-important 10,000 level, but just barely. The trend will be lower--much lower. It may not be a crash, but more likely a slow, painful slide back down to March 2009 levels and, perhaps, even lower. It could take a few years, and it will take even longer for the 10,000 level to be reached to the upside once again. Everyone out there currently holding equities, mutual funds, ETFs--any investment tied to the stock market--should ask themselves this question: can I afford for my investments to lose half their value again, and is there anything I can do to avoid that fate?
Saturday, May 29, 2010
Stop Jim Cramer!
Ha ha, a play on the CNBC segment with Jim Cramer they call "Stop Trading! with Jim Cramer". Just take out the "Trading!" and "with" part, and you have a more logical title. Really this is just an attention getter--I hope it worked for someone. Not that anyone will likely read this blog, but if you are reading it and you do take what I have to say seriously, you could save yourself some pain and some money.
This is the 1st part of a 5 part series I have written about the future of world stock markets between now and 2013. The next 4 parts break it down by year. Read on...
Look, Jim Cramer is wrong but he's not the only one. He's just the most visible one. A former successful hedge fund manager/trader who has become a caricature of his former self. "Confessions of a Street Addict" is a phenomenal book and I put it up there with Michael Lewis's "Liar's Poker" in terms of an insiders look at Wall Street. But if you are listening to advice from that guy, you may as well be burning your money in a garbage can. You are better off making 1.29% in a savings account than you are investing in the stock market right now. Have you seen what has happened the past month and a half? Do you think the market is really going to rebound? It might, but it won't last.
There's no sense in elaborating and rambling on--just read on! Read the next 4 parts to this series. It will take you 15 minutes tops, probably much less time. If you think I'm full of it and have no clue, then go on with your life. If you feel like taking my warning to heart, you may thank yourself a few years from now...
This is the 1st part of a 5 part series I have written about the future of world stock markets between now and 2013. The next 4 parts break it down by year. Read on...
Look, Jim Cramer is wrong but he's not the only one. He's just the most visible one. A former successful hedge fund manager/trader who has become a caricature of his former self. "Confessions of a Street Addict" is a phenomenal book and I put it up there with Michael Lewis's "Liar's Poker" in terms of an insiders look at Wall Street. But if you are listening to advice from that guy, you may as well be burning your money in a garbage can. You are better off making 1.29% in a savings account than you are investing in the stock market right now. Have you seen what has happened the past month and a half? Do you think the market is really going to rebound? It might, but it won't last.
There's no sense in elaborating and rambling on--just read on! Read the next 4 parts to this series. It will take you 15 minutes tops, probably much less time. If you think I'm full of it and have no clue, then go on with your life. If you feel like taking my warning to heart, you may thank yourself a few years from now...
Prediction: 2010
I'm not going to spend a lot of time on 2010 because it's almost half over. Having said that, I think we've learned a lot lately from the way the market has acted so far this year. We've seen three phases: sell-off to start the year in January and February, then a remarkable and illogical rally that brought the market to new highs not seen since 2007 this April, followed by a sharp (yet very necessary) correction at the end of April and through May. I think we've hit a support level at around 1050 on the S&P 500, but it won't hold up for very long. After a brief rally, I see the correction continuing through the summer until a new rally emerges either in August or sometime in the fall. This will be a last gasp effort by the bulls to push the market to new highs. It will fail. There is simply no fundamental justification for a new bull market at this time. There are way too many issues that must be addressed over the next few years before the world will enter a new era of prosperity and market gains (likely coupled with major inflation). In any case, I'm not really a technical analysis kind of investor--I dabble in it, but I'm not an expert on it, so I'm not going to get any more specific than that with regard to 2010. I could be wrong and a last attempt at a rally could start sooner. If that happens, we could see a major correction at the end of the year. To summarize and generalize, in the end it will be more profitable to be a bear in 2010.
Saturday, May 15, 2010
Prediction: 2011
Another volatile week in world stock markets. Bailout in Europe leads to an excuse to cover short positions and a snap-back rally the first part of the week. This gave those of us who see a correction materializing the chance to get out of any long positions and re-position for the sell-off that is coming. A lot of world markets and many commodities are looking very weak right now. I wouldn't want to be long anything at the moment, other than gold, silver, and the U.S. dollar.
But that is the short term outlook. In the longer term, I see serious roadblocks and hazards emerging in the next 6 months and beyond. This will lead to the realization toward the end of this year that we are not out of the woods yet--not even close. 2011, unfortunately, will be ugly. I have zero faith that this recession is truly over, although many will have you believe that. "Time to buy back in, catch the train before it leaves the station, load up your mutual funds." It makes me ill when I hear such poor advice. Unless you are loading up on precious metals, don't bother. Stay in cash, sell and take profits--get out of the market by the end of this year, or you could see your positions cut in half in 2011. Yes, that's right, I said cut in half!
The market is not the place to be. Not the U.S., not China, not Europe, not Brazil. Not right now and not until the recession is truly over. If you read the next two posts, you'll see that I don't expect that to happen until the end of 2012 or even 2013. Do yourself a favor and let everything play out before you buy back into this market. If you've made a profit or recovered some losses in the past year's rally, good for you! Take profits, open up a money market account, buy a CD even though you're only making a couple percent. Do anything, just don't keep your money in the stock market--any stock market!
2011 will be rough. If there is going to be a market "crash" or major sell-off in the next three years, I believe it will occur in 2011. I have no confidence that it will take that long, though, and I would guard against a 2010 crash as well. Don't listen to the news. Don't believe the media's claim that the recession is over. Do not buy back in now. It's too late--this rally is over and 2011 is looming. Fear is an emotion that sometimes can't be trusted when it comes to investing. Right now it's time to trust your fear.
But that is the short term outlook. In the longer term, I see serious roadblocks and hazards emerging in the next 6 months and beyond. This will lead to the realization toward the end of this year that we are not out of the woods yet--not even close. 2011, unfortunately, will be ugly. I have zero faith that this recession is truly over, although many will have you believe that. "Time to buy back in, catch the train before it leaves the station, load up your mutual funds." It makes me ill when I hear such poor advice. Unless you are loading up on precious metals, don't bother. Stay in cash, sell and take profits--get out of the market by the end of this year, or you could see your positions cut in half in 2011. Yes, that's right, I said cut in half!
The market is not the place to be. Not the U.S., not China, not Europe, not Brazil. Not right now and not until the recession is truly over. If you read the next two posts, you'll see that I don't expect that to happen until the end of 2012 or even 2013. Do yourself a favor and let everything play out before you buy back into this market. If you've made a profit or recovered some losses in the past year's rally, good for you! Take profits, open up a money market account, buy a CD even though you're only making a couple percent. Do anything, just don't keep your money in the stock market--any stock market!
2011 will be rough. If there is going to be a market "crash" or major sell-off in the next three years, I believe it will occur in 2011. I have no confidence that it will take that long, though, and I would guard against a 2010 crash as well. Don't listen to the news. Don't believe the media's claim that the recession is over. Do not buy back in now. It's too late--this rally is over and 2011 is looming. Fear is an emotion that sometimes can't be trusted when it comes to investing. Right now it's time to trust your fear.
Saturday, May 8, 2010
Prediction: 2012
If this last week's action in world stock markets tells us anything, it's that you shouldn't listen to the media. While rosy reports came in from numerous companies, jobs report data looked fantastic, and Larry Kudlow, Jim Cramer, and other talking heads spoke about the re-emergence of the U.S. economy, stock markets tanked. Failure to use common sense to consider that the stock market was WAY overbought is leading to some horrible predictions. Like Mr. Cramer's insistence that the Dow Jones industrial average is going to 12,000. We'll see 8,000 before we see 12,000.
Which takes me to my prediction, this time for the year 2012. I'm worried about 2012. I truly hope that the U.S. in 2012 does not resemble Greece in 2010, but I honestly have no real confidence that things are going to be back to business as usual by then. In fact, 2012 could very well be worse than 2008, in the stock market and in the economy. Take a quick minute or two to read Robert Kiyosaki's article in Yahoo Finance: 2010: The Best of Times or the Worst? . Mr. Kiyosaki is not someone whom I would consider betting against. In my opinion, his predictions could not only come true, but could also carry over well into 2012. His next Yahoo article was entitled, "Doing the Dead Cat Bounce," also a must read.
I hate to even bring this up, because anyone who reads this will probably think I'm nuts, but I don't believe anyone really reads this anyway so here goes: December 21, 2012. Whether the Mayans actually predicted the world would end on this day, or they simply couldn't read their calendar after this date, I have no idea. Leave that up to the scholars to debate. All I know is that "Y2K" caused many people to panic, so why shouldn't people fear the Mayan prediction as well? Especially if we experience economic and political turmoil in the year 2012, leading up to December 21.
World stock markets are going to suffer over the next few years. Gold will likely see new highs. Why not just wait it out? Keep your hard earned money, your nest egg, your retirement account in cash or gold. Buy some Japanese Yen, perhaps. Just don't own any stocks. On December 22, 2012, buy back in. Do some buying on the Hong Kong exchange, open a brokerage account with Peter Schiff's company, buy some ETFs. You'll be happy you avoided another stock market erosion from 2010-2012 if you do this. Buy, hold, and diversify will truly be dead come 2012.
Which takes me to my prediction, this time for the year 2012. I'm worried about 2012. I truly hope that the U.S. in 2012 does not resemble Greece in 2010, but I honestly have no real confidence that things are going to be back to business as usual by then. In fact, 2012 could very well be worse than 2008, in the stock market and in the economy. Take a quick minute or two to read Robert Kiyosaki's article in Yahoo Finance: 2010: The Best of Times or the Worst? . Mr. Kiyosaki is not someone whom I would consider betting against. In my opinion, his predictions could not only come true, but could also carry over well into 2012. His next Yahoo article was entitled, "Doing the Dead Cat Bounce," also a must read.
I hate to even bring this up, because anyone who reads this will probably think I'm nuts, but I don't believe anyone really reads this anyway so here goes: December 21, 2012. Whether the Mayans actually predicted the world would end on this day, or they simply couldn't read their calendar after this date, I have no idea. Leave that up to the scholars to debate. All I know is that "Y2K" caused many people to panic, so why shouldn't people fear the Mayan prediction as well? Especially if we experience economic and political turmoil in the year 2012, leading up to December 21.
World stock markets are going to suffer over the next few years. Gold will likely see new highs. Why not just wait it out? Keep your hard earned money, your nest egg, your retirement account in cash or gold. Buy some Japanese Yen, perhaps. Just don't own any stocks. On December 22, 2012, buy back in. Do some buying on the Hong Kong exchange, open a brokerage account with Peter Schiff's company, buy some ETFs. You'll be happy you avoided another stock market erosion from 2010-2012 if you do this. Buy, hold, and diversify will truly be dead come 2012.
Sunday, May 2, 2010
Prediction: 2013
Having neglected this blog for too long, it is now time for me to begin crafting something I have been thinking about for a while. I am going to write a 5 part series on the future of world stock markets and what we can expect in the next 3 years and beyond. I am beginning with 2013 because I would like to allow the one or two readers who actually look at this blog to be able to read it from top to bottom. So I'm going to write this in reverse order--this will be part 5 of 5.
2013 will be a fantastic year. I truly believe that it will be the beginning of a lot of great things to come in the world economy with political reform, economic reform, energy reform, and all sorts of other needed change taking place. It will also mark the beginning of the greatest bull market of this generation and beyond. Unfortunately, it will come to fruition due to the pain we are about to go through in 2011 and 2012, but this pain will only make us stronger. Those who anticipate and react the fastest, make the right financial moves, and position themselves correctly will be ready to profit and succeed in the new world economy.
I don't need to write about the great bull market that is coming. Peter Schiff has already written about this in "Crash Proof" and Jim Rogers talks and writes about it all the time ("A Bull in China" is one example). These are not my ideas. I'm not an economist like Peter Schiff or a billionaire like Jim Rogers, but I know that they are men worth listening to. The timing, 2013, is not something they have written about specifically, to the best of my knowledge, but is my prediction of when this new bull market will begin.
In April 1942, the Dow Jones Industrial average bottomed below 100. At that time a new bull market began and the 100 level on the Dow was never seen again. I believe that in 2013 the Dow will bottom again. Below 6,500 just like 2009, perhaps. Maybe lower, or maybe a little higher. I don't know the exact number, but I believe it will bottom along with other world markets. As Schiff and Rogers advise, however, I would rather be long Asia at that time than the United States. China, Hong Kong, Singapore, gold, silver, oil, commodities in general. These are the places to be in 2013, but I'll let you read Schiff and Rogers to determine that for yourself.
2013 will be a fantastic year. I truly believe that it will be the beginning of a lot of great things to come in the world economy with political reform, economic reform, energy reform, and all sorts of other needed change taking place. It will also mark the beginning of the greatest bull market of this generation and beyond. Unfortunately, it will come to fruition due to the pain we are about to go through in 2011 and 2012, but this pain will only make us stronger. Those who anticipate and react the fastest, make the right financial moves, and position themselves correctly will be ready to profit and succeed in the new world economy.
I don't need to write about the great bull market that is coming. Peter Schiff has already written about this in "Crash Proof" and Jim Rogers talks and writes about it all the time ("A Bull in China" is one example). These are not my ideas. I'm not an economist like Peter Schiff or a billionaire like Jim Rogers, but I know that they are men worth listening to. The timing, 2013, is not something they have written about specifically, to the best of my knowledge, but is my prediction of when this new bull market will begin.
In April 1942, the Dow Jones Industrial average bottomed below 100. At that time a new bull market began and the 100 level on the Dow was never seen again. I believe that in 2013 the Dow will bottom again. Below 6,500 just like 2009, perhaps. Maybe lower, or maybe a little higher. I don't know the exact number, but I believe it will bottom along with other world markets. As Schiff and Rogers advise, however, I would rather be long Asia at that time than the United States. China, Hong Kong, Singapore, gold, silver, oil, commodities in general. These are the places to be in 2013, but I'll let you read Schiff and Rogers to determine that for yourself.
Saturday, March 20, 2010
Plunge Protection Team
This passage is taken from "What or Who is Driving up Prices?" from ETFGuide.com, as posted on Yahoo Finance yesterday:
"What's the PPT's job?
The Plunge Protection Team's job description is to prevent another 1987-like 'Black Monday' from occurring (the Dow fell 22.61% on 10-19-1987). How can that be done?
According to John Crudele of the New York Post, Robert Heller, a former member of the Federal Reserve Board, described the modus operandi of the PPT as 'buying market averages in the futures market, thus stabilizing the market as a whole.'
The existence of the PPT was verified by former-Clinton advisor George Stephanopoulos via an appearance on Good Morning America on September 17, 2000. At the time of Mr. Stephanopoulos' appearance, the Nasdaq (Nasdaq: QQQQ - News) was caught up in the dot.com bubble bust and had fallen 25% in less than six months, as did the Technology Select Sector SPDRs (NYSEArca: XLK - News).
What caused the 70% rally
TrimTabs founder and CEO Charles Biderman, added further evidence to suspicions many have had for a while. TrimTabs is a research firm that tracks money flows into the market.
Here's what Mr. Biderman had to say: 'We cannot identify the source of the money that pushed stock prices up so far so fast.' More specifically, the source of about $600 billion net new cash necessary to lift the market's overall capitalization by $6 trillion last year could not be identified.'
Biderman continues, 'We know that the U.S. government has spent hundreds of billions of dollars to support the auto industry, the housing market and the banks and brokers. Why not support the stock market as well? The money did not come from traditional players.
One way to manipulate the stock market would be for the Fed or the Treasury to buy a nominal $60 to $70 billion of S&P 500 stock futures each month for as long as necessary. Depending on margin levels, as little as $5 billion to $15 billion per month was all that was necessary to lift the S&P 500 by 67% (statement was made on January 6, 2010).'
Obviously the Plunge Protection Team was the culprit behind this entire rally. The ETF Profit Strategy Newsletter predicted the onset of this rally previously on March 2nd based on a composite of common sense indicators."
"What's the PPT's job?
The Plunge Protection Team's job description is to prevent another 1987-like 'Black Monday' from occurring (the Dow fell 22.61% on 10-19-1987). How can that be done?
According to John Crudele of the New York Post, Robert Heller, a former member of the Federal Reserve Board, described the modus operandi of the PPT as 'buying market averages in the futures market, thus stabilizing the market as a whole.'
The existence of the PPT was verified by former-Clinton advisor George Stephanopoulos via an appearance on Good Morning America on September 17, 2000. At the time of Mr. Stephanopoulos' appearance, the Nasdaq (Nasdaq: QQQQ - News) was caught up in the dot.com bubble bust and had fallen 25% in less than six months, as did the Technology Select Sector SPDRs (NYSEArca: XLK - News).
What caused the 70% rally
TrimTabs founder and CEO Charles Biderman, added further evidence to suspicions many have had for a while. TrimTabs is a research firm that tracks money flows into the market.
Here's what Mr. Biderman had to say: 'We cannot identify the source of the money that pushed stock prices up so far so fast.' More specifically, the source of about $600 billion net new cash necessary to lift the market's overall capitalization by $6 trillion last year could not be identified.'
Biderman continues, 'We know that the U.S. government has spent hundreds of billions of dollars to support the auto industry, the housing market and the banks and brokers. Why not support the stock market as well? The money did not come from traditional players.
One way to manipulate the stock market would be for the Fed or the Treasury to buy a nominal $60 to $70 billion of S&P 500 stock futures each month for as long as necessary. Depending on margin levels, as little as $5 billion to $15 billion per month was all that was necessary to lift the S&P 500 by 67% (statement was made on January 6, 2010).'
Obviously the Plunge Protection Team was the culprit behind this entire rally. The ETF Profit Strategy Newsletter predicted the onset of this rally previously on March 2nd based on a composite of common sense indicators."
Saturday, February 13, 2010
Trend
Looking at charts this morning, I'm only noticing one bullish chart in the entire world (okay, I haven't looked at every chart in the world, but I did get a snapshot): the U.S. Dollar.
Yes, the U.S. Dollar Index has a bullish chart pattern. And nothing else! What does that mean? That means get your money out of the stock markets because institutional investors and rich guys and girls are selling heavily right now.
The only safe haven I see right now is the U.S dollar and any vehicle that bets against stock markets--put options, short ETFs, or outright shorting.
That's the trend.
Yes, the U.S. Dollar Index has a bullish chart pattern. And nothing else! What does that mean? That means get your money out of the stock markets because institutional investors and rich guys and girls are selling heavily right now.
The only safe haven I see right now is the U.S dollar and any vehicle that bets against stock markets--put options, short ETFs, or outright shorting.
That's the trend.
Monday, February 8, 2010
Monday
Wouldn't be surprised to see a bit of a relief rally this week. World markets have generally sold off the past 4 weeks in a row. Could see a bounce. Some may test their 50 day moving averages and overhead resistance. This test will likely fail and the downtrend should eventually resume.
Saturday, February 6, 2010
Talking Heads
Back after a long absence--personal circumstances forced me to focus on other things, but I've been watching and trading world markets the entire time. My call for the bull market to end in October was off the mark. We got a head fake sell-off in October followed by bullish action in November and December (despite distribution the entire time) until the new bear market that began the second week of January. Now it's look out beloooooow!
I cannot even turn on CNBC for 5 minutes without getting upset these days. I never watch it and then I turn it on last night, thinking the "traders" on Fast Money and that options show would be warning people and advising a large cash position. Instead, I hear these "experts" talking about buying the dips, how earnings reports at Cisco are looking good, and tech is going to lead the way! What the.....?
I don't understand this at all. Bad advice all the way around. At the very minimum, recognize that the U.S. market has broken through support levels and the uptrend line. Add that to a 10 month rally in a bad economic environment, world market indices that have in some cases already broken below their 200-day moving averages, and massive distribution in everything except for bonds, the U.S. dollar, the Japanese Yen, and....that's it. What does that look like to me? A new bear market, that's what it looks like to me.
I cannot even turn on CNBC for 5 minutes without getting upset these days. I never watch it and then I turn it on last night, thinking the "traders" on Fast Money and that options show would be warning people and advising a large cash position. Instead, I hear these "experts" talking about buying the dips, how earnings reports at Cisco are looking good, and tech is going to lead the way! What the.....?
I don't understand this at all. Bad advice all the way around. At the very minimum, recognize that the U.S. market has broken through support levels and the uptrend line. Add that to a 10 month rally in a bad economic environment, world market indices that have in some cases already broken below their 200-day moving averages, and massive distribution in everything except for bonds, the U.S. dollar, the Japanese Yen, and....that's it. What does that look like to me? A new bear market, that's what it looks like to me.
Thursday, August 6, 2009
The Strategy
My strategy is based upon the principles discussed in my previous blog, “Market Analysis,” but the execution of it has been developed and tested over time. There is no wrong or right way to trade the market. There are only techniques. This is the one that has worked for me.
I do not have to determine the exact market top or bottom, but I’ve gotten pretty close anyway. On Wednesday, November 19, 2008, the market experienced a brutal sell off after roughly 2-3 months of decline. At the end of that day I wrote down the values of major market indicators. I thought that was the bottom. I was wrong.
From late November until early March, the market basically traded sideways. I was buying the entire time. When it launched a new rally in March, I was already almost 100% invested. I began to buy on margin.
I mention this because it illustrates a real world example that proves you don’t have to pick the bottom. You just need to be ready when the market begins a new rally. My strategy achieves this objective.
So what did I buy? I did make one mistake and that was to trust my own ability to time the bottom, within a specific time frame. I believed that the new rally would begin within 3 months. Again I was incorrect. Instead of launching a new rally in early February, it did not occur until early March. By purchasing options that expired too early, I missed out on some potential gains.
That mistake aside, I made a lot of positive moves. Focusing on Asia, I purchased Chinese ADRs that were poised to move higher. This strategy worked to my advantage. Purchases of commodity ETFs did not prove to be as profitable, but served a diversification purpose and allowed for inflation protection.
Which brings me to my final and most important topic: protection. Gains from stock and option purchases have proven the merits of this investment strategy, but only because the market has continued to rally. But what if the market rally had failed or some catastrophic event had occurred? How does one protect against the unknown?
The answer is two-fold: put options and stop loss orders. In order for this strategy to work, an investor has to protect against catastrophic loss. No gains can offset a drastic and immediate loss caused by an unpredictable event. An asset could plummet and it may not even be provoked by such an event. My personal preference is to use put options for large positions with long term potential. Stop loss orders are best used for short term trades. Sometimes a combination of the two is required. It depends on the asset.
The most important thing to remember when investing is that avoiding loss is more important than creating gains. Think about it—if you outperform the market by protecting against loss during the down periods and underperform the market during rallies, you will still come out ahead. This strategy not only seeks to outperform in bull markets, but will also lead to substantial gains in bear markets. If you can get even close to timing market bottoms and market tops, you can benefit from either scenario.
As I write in early August 2009, the market is still in rally mode and has yet to show signs of breaking down. I fully anticipate that the rally will continue for 1 – 2 more months. By October, the rally should end. Even if I am incorrect, I will still profit. If the rally ends early, my put options will protect against loss. If it continues to rally beyond October, I may miss out on the end of the rally. I would rather sell on the way up than the way down. I would rather buy before the rally begins than after. I would rather be early than late in all situations. That is my personal preference and the strategy that I believe will work best in the long run.
In addition to protecting against loss, the best strategies also seek to profit from bear markets. Taking short positions, buying short ETFs, and purchasing put options are all strategies worth employing in preparation for a bear market. Protection should be put in place in the opposite manner by purchasing puts, calls and continuing to use stop loss orders. An additional technique of purchasing foreign currencies could prove to be an added source of protection. The Japanese Yen and Swiss Franc are good examples of hard currencies worth owning in bear markets. Gold is almost always a good investment and useful protection against rising inflation rates.
I do not have to determine the exact market top or bottom, but I’ve gotten pretty close anyway. On Wednesday, November 19, 2008, the market experienced a brutal sell off after roughly 2-3 months of decline. At the end of that day I wrote down the values of major market indicators. I thought that was the bottom. I was wrong.
From late November until early March, the market basically traded sideways. I was buying the entire time. When it launched a new rally in March, I was already almost 100% invested. I began to buy on margin.
I mention this because it illustrates a real world example that proves you don’t have to pick the bottom. You just need to be ready when the market begins a new rally. My strategy achieves this objective.
So what did I buy? I did make one mistake and that was to trust my own ability to time the bottom, within a specific time frame. I believed that the new rally would begin within 3 months. Again I was incorrect. Instead of launching a new rally in early February, it did not occur until early March. By purchasing options that expired too early, I missed out on some potential gains.
That mistake aside, I made a lot of positive moves. Focusing on Asia, I purchased Chinese ADRs that were poised to move higher. This strategy worked to my advantage. Purchases of commodity ETFs did not prove to be as profitable, but served a diversification purpose and allowed for inflation protection.
Which brings me to my final and most important topic: protection. Gains from stock and option purchases have proven the merits of this investment strategy, but only because the market has continued to rally. But what if the market rally had failed or some catastrophic event had occurred? How does one protect against the unknown?
The answer is two-fold: put options and stop loss orders. In order for this strategy to work, an investor has to protect against catastrophic loss. No gains can offset a drastic and immediate loss caused by an unpredictable event. An asset could plummet and it may not even be provoked by such an event. My personal preference is to use put options for large positions with long term potential. Stop loss orders are best used for short term trades. Sometimes a combination of the two is required. It depends on the asset.
The most important thing to remember when investing is that avoiding loss is more important than creating gains. Think about it—if you outperform the market by protecting against loss during the down periods and underperform the market during rallies, you will still come out ahead. This strategy not only seeks to outperform in bull markets, but will also lead to substantial gains in bear markets. If you can get even close to timing market bottoms and market tops, you can benefit from either scenario.
As I write in early August 2009, the market is still in rally mode and has yet to show signs of breaking down. I fully anticipate that the rally will continue for 1 – 2 more months. By October, the rally should end. Even if I am incorrect, I will still profit. If the rally ends early, my put options will protect against loss. If it continues to rally beyond October, I may miss out on the end of the rally. I would rather sell on the way up than the way down. I would rather buy before the rally begins than after. I would rather be early than late in all situations. That is my personal preference and the strategy that I believe will work best in the long run.
In addition to protecting against loss, the best strategies also seek to profit from bear markets. Taking short positions, buying short ETFs, and purchasing put options are all strategies worth employing in preparation for a bear market. Protection should be put in place in the opposite manner by purchasing puts, calls and continuing to use stop loss orders. An additional technique of purchasing foreign currencies could prove to be an added source of protection. The Japanese Yen and Swiss Franc are good examples of hard currencies worth owning in bear markets. Gold is almost always a good investment and useful protection against rising inflation rates.
Market Analysis
Market timing is a mysterious art that many have attempted to master and most have failed. So why do I believe it is possible? Because most “experts” who attempt to master this difficult task go about it the wrong way. They tend to equate market timing with predicting the future. That is not what market timing is all about. Market timing is a discipline that requires patience, attention to detail, and flexibility, but not clairvoyance.
There are a few basic market truths that one has to recognize before attempting to time the market. One is that the big money is slow. Mutual funds, hedge funds, and all other types of large institutional investors control the direction of the market, but they always “tip their hands” because it takes them so long to get in and out of a position. The second truth is that the majority is always wrong. When mutual fund purchases are peaking, that is the time to jump ship. When redemptions are high, it is time to buy.
These are not novel concepts. Investor’s Business Daily founder William O’Neil talks about them in all of his books. Being able to read the signs is just part of the overall equation. The trick is how to take advantage.
The first step is to stop listening to “experts” and to do one’s own analysis. If the majority is always wrong, then that includes the majority of financial magazines, analysts, talking heads on television, etc. Economists are the worst people to listen to. Some of them even admit that they are horrible at market timing. Don’t confuse successful economists with successful investors. Most are one or the other, but not both.
The second step is to use your emotions to your advantage. Typically, the scariest moments in the stock market represent the best opportunities. When you feel happiest about the performance of your investments it is usually time to sell.
Finally, one has to realize that market timing is not about picking the very top or the very bottom of the market. It’s not necessary. The market peaked in October of 2007. You could have sold at Christmas and still missed most of the bear market sitting in cash. The market bottomed in March 2009. You could have bought everything in sight over the Christmas break, 1 year after you sold, and you would be in great shape right now. You don’t have to be exact. You just have to be in the ballpark.
Easy enough, right? Not exactly. Now we must address the greatest obstacle one has to overcome in order to be a successful investor in the years to come. We have to recognize and accept the fact that the United States is not the best place in the world to invest anymore. This is a difficult thing for people to accept for many reasons. One is patriotism. We feel good about investing in our own country. As citizens of the United States we are proud of our country, so why should we send our money overseas when it is needed here? Even if we recognize the need to be global investors, how do we do that? Most financial advisors based in the U.S. concentrate their efforts on analyzing U.S. companies. So we have to find another country and figure out which companies to invest in?
Now comes the easy part. Picking the right country to invest in is easy. Investing in that country’s economy is also very easy. You simply have to make the decision to become a global investor and not be a buy and hold investor. The rest will take care of itself. Here’s why:
1) The growth is in Asia. We know that, we hear that on the news, we’ve seen that for the past 10 years. Any talk of Asia being a bubble like the 1990s internet scenario is inaccurate. Asia’s growth is real and its investment gains are backed by fundamentals. In fact, most companies in Asia are undervalued when you look at their current stock prices. We’ve already narrowed it down to one part of the world to focus our investing.
2) Investing in another part of the world is easier now than it has ever been before. We have ETFs, ADRs, and mutual funds to choose from. I prefer to avoid mutual funds, but ETFs and ADRs are fantastic vehicles worth taking advantage of.
3) It is generally accepted that 50 – 70% of a stock’s movement is related to the overall market environment. If the overall market is going up, there’s a much better chance that your stock is going up.
So I’ve already answered most questions. One could buy an ETF that represents the growing Asian economy and not even worry about trying to be a stock picker. Or one could buy ADRs that represent stock in Asian companies, and concentrate on the fastest growing companies. Either strategy could work.
Obviously, that’s not the only way to invest and there are other areas worth looking into. Israel, Brazil, South Africa, Switzerland and many other countries are worthy of investment consideration. But, for the sake of simplifying investment decision-making, I have used Asia as the example. Hong Kong, China, Taiwan, South Korea, Singapore—take your pick.
One final note on market timing—it is not to be confused with technical analysis. Technical analysis using Fibonacci analytics or chart patterns may be useful for stock trading, but not for overall market timing purposes. What we are focusing on is volume accumulation & distribution, market sentiment, and actual market performance. Technical analysis is useful for choosing individual stocks to buy and determining entry and exit points. The Nicolas Darvas box theory and O’Neil’s IBD technical pattern strategies are very useful when it comes to buying and selling stock in market leading companies. For overall market timing, in my estimation, they are not applicable.
There are a few basic market truths that one has to recognize before attempting to time the market. One is that the big money is slow. Mutual funds, hedge funds, and all other types of large institutional investors control the direction of the market, but they always “tip their hands” because it takes them so long to get in and out of a position. The second truth is that the majority is always wrong. When mutual fund purchases are peaking, that is the time to jump ship. When redemptions are high, it is time to buy.
These are not novel concepts. Investor’s Business Daily founder William O’Neil talks about them in all of his books. Being able to read the signs is just part of the overall equation. The trick is how to take advantage.
The first step is to stop listening to “experts” and to do one’s own analysis. If the majority is always wrong, then that includes the majority of financial magazines, analysts, talking heads on television, etc. Economists are the worst people to listen to. Some of them even admit that they are horrible at market timing. Don’t confuse successful economists with successful investors. Most are one or the other, but not both.
The second step is to use your emotions to your advantage. Typically, the scariest moments in the stock market represent the best opportunities. When you feel happiest about the performance of your investments it is usually time to sell.
Finally, one has to realize that market timing is not about picking the very top or the very bottom of the market. It’s not necessary. The market peaked in October of 2007. You could have sold at Christmas and still missed most of the bear market sitting in cash. The market bottomed in March 2009. You could have bought everything in sight over the Christmas break, 1 year after you sold, and you would be in great shape right now. You don’t have to be exact. You just have to be in the ballpark.
Easy enough, right? Not exactly. Now we must address the greatest obstacle one has to overcome in order to be a successful investor in the years to come. We have to recognize and accept the fact that the United States is not the best place in the world to invest anymore. This is a difficult thing for people to accept for many reasons. One is patriotism. We feel good about investing in our own country. As citizens of the United States we are proud of our country, so why should we send our money overseas when it is needed here? Even if we recognize the need to be global investors, how do we do that? Most financial advisors based in the U.S. concentrate their efforts on analyzing U.S. companies. So we have to find another country and figure out which companies to invest in?
Now comes the easy part. Picking the right country to invest in is easy. Investing in that country’s economy is also very easy. You simply have to make the decision to become a global investor and not be a buy and hold investor. The rest will take care of itself. Here’s why:
1) The growth is in Asia. We know that, we hear that on the news, we’ve seen that for the past 10 years. Any talk of Asia being a bubble like the 1990s internet scenario is inaccurate. Asia’s growth is real and its investment gains are backed by fundamentals. In fact, most companies in Asia are undervalued when you look at their current stock prices. We’ve already narrowed it down to one part of the world to focus our investing.
2) Investing in another part of the world is easier now than it has ever been before. We have ETFs, ADRs, and mutual funds to choose from. I prefer to avoid mutual funds, but ETFs and ADRs are fantastic vehicles worth taking advantage of.
3) It is generally accepted that 50 – 70% of a stock’s movement is related to the overall market environment. If the overall market is going up, there’s a much better chance that your stock is going up.
So I’ve already answered most questions. One could buy an ETF that represents the growing Asian economy and not even worry about trying to be a stock picker. Or one could buy ADRs that represent stock in Asian companies, and concentrate on the fastest growing companies. Either strategy could work.
Obviously, that’s not the only way to invest and there are other areas worth looking into. Israel, Brazil, South Africa, Switzerland and many other countries are worthy of investment consideration. But, for the sake of simplifying investment decision-making, I have used Asia as the example. Hong Kong, China, Taiwan, South Korea, Singapore—take your pick.
One final note on market timing—it is not to be confused with technical analysis. Technical analysis using Fibonacci analytics or chart patterns may be useful for stock trading, but not for overall market timing purposes. What we are focusing on is volume accumulation & distribution, market sentiment, and actual market performance. Technical analysis is useful for choosing individual stocks to buy and determining entry and exit points. The Nicolas Darvas box theory and O’Neil’s IBD technical pattern strategies are very useful when it comes to buying and selling stock in market leading companies. For overall market timing, in my estimation, they are not applicable.
Saturday, August 1, 2009
Reasons to Buy
Why should you buy a stock? That's a question almost everyone tries to answer at one time or another. Jim Cramer will have you believe that you should buy because of undervaluation and fundamentals. I disagree.
One reason I love Nicolas Darvas' book How I Made $2,000,000 in the Stock Market is because it reads like a journal. He describes all the mistakes he made as an early trader and all of his frustrations. I can relate to that because I had similar problems when I began trading the market. How can this stock go down? It's already undervalued! The fundamentals say it should go up!
Darvas realized that this was an exercise in futility. To buy a stock purely for fundamental reasons is wrong. It won't make you money in the long run. There's only one Warren Buffett but there are hundreds, probably thousands, of stock traders who make money every year by trading the technicals, not the fundamentals. Yet every stock "expert" or advisor, like Jim Cramer, tells the amateur investor to buy the fundamentals. How strange.
The greatest advantage an individual has over an institutional investor is speed. You can get into and out of a stock much faster with only a little money invested than you can with millions. A mutual fund has millions; I have much less. I win the game of speed. I can jump in and out as much as I want. I can sell one day and buy back the next. It costs me the transaction fee. That's it. So why should I buy and hold only to lose sleep at night because the market is tanking? I'd rather sit on the sidelines or, better yet, short the market on the way down. ETFs make that very easy these days. Oh, and so do put options. There are so many possibilities for the individual investor. But to buy for the fundamentals is just plain wrong. Unless you're Warren Buffett, and I know I'm not.
One reason I love Nicolas Darvas' book How I Made $2,000,000 in the Stock Market is because it reads like a journal. He describes all the mistakes he made as an early trader and all of his frustrations. I can relate to that because I had similar problems when I began trading the market. How can this stock go down? It's already undervalued! The fundamentals say it should go up!
Darvas realized that this was an exercise in futility. To buy a stock purely for fundamental reasons is wrong. It won't make you money in the long run. There's only one Warren Buffett but there are hundreds, probably thousands, of stock traders who make money every year by trading the technicals, not the fundamentals. Yet every stock "expert" or advisor, like Jim Cramer, tells the amateur investor to buy the fundamentals. How strange.
The greatest advantage an individual has over an institutional investor is speed. You can get into and out of a stock much faster with only a little money invested than you can with millions. A mutual fund has millions; I have much less. I win the game of speed. I can jump in and out as much as I want. I can sell one day and buy back the next. It costs me the transaction fee. That's it. So why should I buy and hold only to lose sleep at night because the market is tanking? I'd rather sit on the sidelines or, better yet, short the market on the way down. ETFs make that very easy these days. Oh, and so do put options. There are so many possibilities for the individual investor. But to buy for the fundamentals is just plain wrong. Unless you're Warren Buffett, and I know I'm not.
Monday, July 20, 2009
Buy and Hold
I should probably clarify my position on the "Buy and Hold" strategy. I don't like it as the best way to make money in the stock market. Buy, hold, and diversify is the mutual fund industry's catch phrase. They want you to put your money in their funds and forget about it. That's a bad idea.
On the other hand, a lot of people work very hard at their jobs and pay good money to have a professional handle their investments. Unfortunately, professionals these days aren't always so professional (ie. Madoff and Stanford). So what do you do?
I say that you have to know where your money is. I think I heard Derek Jeter say that was the piece of advice he was given by Warren Buffet. It doesn't matter if you paid a professional to invest your money for you or not. You have to be involved, even if it means giving up your own time. It will be time well spent.
Not to say that everyone has to be an investing expert. I'm not, but I strive to be. I like being in control of my own investments. Not everyone does. But it's your money. Nobody cares more about your money than you. Not because you're necessarily greedy or selfish, but because it represents what you want to do in the future. When you can retire, where you can go on vacation, etc. That mutual fund manager you invested with has a different set of priorities. Did I do better than the other mutual funds in my category? Did I attract more money to the fund? But, unfortunately not, did I make money for my investors?
I think you have to get involved. You don't have to trade for a living or even for a hobby. But you have to know what you own and why you own it. I think it'll be worth the time you spend on it.
On the other hand, a lot of people work very hard at their jobs and pay good money to have a professional handle their investments. Unfortunately, professionals these days aren't always so professional (ie. Madoff and Stanford). So what do you do?
I say that you have to know where your money is. I think I heard Derek Jeter say that was the piece of advice he was given by Warren Buffet. It doesn't matter if you paid a professional to invest your money for you or not. You have to be involved, even if it means giving up your own time. It will be time well spent.
Not to say that everyone has to be an investing expert. I'm not, but I strive to be. I like being in control of my own investments. Not everyone does. But it's your money. Nobody cares more about your money than you. Not because you're necessarily greedy or selfish, but because it represents what you want to do in the future. When you can retire, where you can go on vacation, etc. That mutual fund manager you invested with has a different set of priorities. Did I do better than the other mutual funds in my category? Did I attract more money to the fund? But, unfortunately not, did I make money for my investors?
I think you have to get involved. You don't have to trade for a living or even for a hobby. But you have to know what you own and why you own it. I think it'll be worth the time you spend on it.
Saturday, July 18, 2009
Market Timing
People have it in their heads that market timing is impossible and they shouldn't try it. If you've read, and believe, Investors Business Daily founder William O'Neil, then you know he does not subscribe to that view. Obviously, the mutual fund industry wants you to believe that buy, hold, and diversify is the right strategy, even though it won't make you any money.
I've been struggling with market timing for years. It is definitely difficult to learn but worth studying, I believe. Not to say that I have it figured out, but having broken even over the last 12 months, I'm a lot better off than the S&P 500. I was off in my prediction of a market rally by about a month. By my calculations, it should have commenced in early February but it held off until early March. Trying to figure out a top to this rally is a bit more challenging, but I think that the Nasdaq's close above 1880 this week was a great sign.
I'm no fortune teller, but from reading the charts I think that the Nasdaq is going to run into serious resistance at about 2200, which means we could still see a significant rally from here. Keep in mind that the rally is already 20 weeks old, however, and could end at any time. I think 12 weeks is the maximum length of the rally from here and that by October it will be dead, if not before then.
How the U.S. dollar performs and the inflation trade plays out is also difficult to say. Will the dollar rally again when the market starts heading south? Will oil prices collapse again or hold up? I don't know the answers to these questions, but I would keep my inflation protection in place. Any questions on inflation protection, see Jim Rogers or Peter Schiff.
I've been struggling with market timing for years. It is definitely difficult to learn but worth studying, I believe. Not to say that I have it figured out, but having broken even over the last 12 months, I'm a lot better off than the S&P 500. I was off in my prediction of a market rally by about a month. By my calculations, it should have commenced in early February but it held off until early March. Trying to figure out a top to this rally is a bit more challenging, but I think that the Nasdaq's close above 1880 this week was a great sign.
I'm no fortune teller, but from reading the charts I think that the Nasdaq is going to run into serious resistance at about 2200, which means we could still see a significant rally from here. Keep in mind that the rally is already 20 weeks old, however, and could end at any time. I think 12 weeks is the maximum length of the rally from here and that by October it will be dead, if not before then.
How the U.S. dollar performs and the inflation trade plays out is also difficult to say. Will the dollar rally again when the market starts heading south? Will oil prices collapse again or hold up? I don't know the answers to these questions, but I would keep my inflation protection in place. Any questions on inflation protection, see Jim Rogers or Peter Schiff.
Tuesday, July 14, 2009
FDR or MVB
As a former history teacher, I love it when media types make comparisons between today and some event or person from history. Like the Obama = FDR comparisons. Or I've even heard Obama = Lincoln. Pretty high praise for someone who has been in office for six months. The Civil War era or Great Depression era this is not, despite what the talking heads will have you believe.
History is an excellent learning tool. If that were not the case, there would be no reason to study history. History is not necessarily important just because things happened in the past and we need to know about them. History allows us to draw from periods of human history and see how people dealt with issues, problems, and crises in the past. That's why I think history is important, at least.
We've been told so many times, by the talking heads, the story of how the stock market collapsed while Herbert Hoover was in office in 1929, leading to the Great Depression, and then Franklin D. Roosevelt came riding in on his white horse to save the country (10 - 12 years later anyway.)
Roosevelt was a popular president, no doubt. He would not have been elected president four times if he weren't (breaking the long-standing precedent set by George Washington of only serving 2 terms). I won't argue the merits of the New Deal--entire books have been dedicated to the subject. But I will point out that FDR wasn't the first U.S. president to ever have to deal with economic crisis, even though the talking heads will have you believe that. He wasn't even the last president to have to deal with economic problems. Almost all presidents, if they serve long enough, have economic problems to face. One of the most difficult periods in history occurred soon after the presidency of Andrew Jackson ended. His former vice president and successor, Martin Van Buren, was left holding the bag when the Panic of 1837 hit. It basically ruined the Van Buren administration and legacy. Chalk it up to bad timing, chalk it up to a lack of presidential power, chalk it up to Van Buren's incompetence--whatever you want to blame it on. In any case, the moral of the story is that FDR is a national hero and MVB has been basically forgotten, despite the many achievements throughout his lifetime.
I hate comparisons anyway. How can you compare today with the Jacksonian, Civil War, Great Depression, or any other era? You can draw some lessons, but so many things have changed since then. That's why I hate these direct comparisons with the 1930s. In this era of overcomplicating everything on television, the 1930s v. 2009 comparison has the opposite problem: it actually oversimplifies it. How wonderful.
Monday, July 13, 2009
Inflation Revisited
As if the economy didn't have enough problems, we now have to worry about massive inflation or even hyperinflation. Not that this is a new problem--it has been a problem for years. Peter Schiff talks about it all the time. But the question in my mind is: why? Why does the government support an inflationary policy?
I know that Schiff has a chapter in Crash Proof that discusses the government's rationale for supporting an inflationary policy. But for the average American trying to understand this and to put it into context, it doesn't make any sense. Why would our own government try to hurt its people? Why risk destroying the confidence of the entire American population, leading to outrage and possible uprisings if hyperinflation becomes a reality? I'm not an eternal optimist, but I'm not a conspiracy theorist either. So, in my mind, there must be some rationality behind the insanity.
The government's fiscal and monetary policies are outright reckless. I don't think anyone can justify them, other than the PhD economists who have no practical experience but sit around coming up with "brilliant" economic theories all day. Having a PhD economist in charge of government economic policy is equivalent to having a PhD military historian replace General Petreus to run the war in Iraq. Lots of academic experience; zero practical experience. How about putting someone in charge who built a business; deals with employees, stockholders, and customers? How does a PhD give you the experience and expertise to run anything? But I'm getting off track.
The problem is arrogance. These "brilliant" minds all think they've solved the problem of economic recessions/depressions forever. It's actually a simple fix: just print more money! That was the problem during the Great Depression right? If the U.S. had just printed more money in the 1930s (or "created liquidity" as the great minds would prefer to phrase it), then the Great Depression would not have been nearly as bad as it was. Or am I oversimplifying it? I tend to have that problem.
What about the 1970s? How come nobody refers to that decade when talking about the possible dangers that exist and potential consequences of our actions? So the 1930s can be used as an example, but what about all the other examples throughout history? 1920s Germany? Present day Zimbabwe? Do these examples just not apply because we're the big bad United States?
I'm not an economist, but I have a pretty good understanding of history. I also believe that it doesn't take a PhD in economics to see the dangers that loom. Like Ron Paul said, it doesn't take a genius to figure out that if you print more money it loses its value. The "brilliant" minds in Washington will have you believe that this is much too complicated a situation for the average American to comprehend. Let the PhDs, the politicians, and the talking heads handle it while drowning the taxpayer in debt and devaluing the currency we have to use to feed our families. Having a PhD means you spent a lot of time in school. It doesn't make you automatically right.
I know that Schiff has a chapter in Crash Proof that discusses the government's rationale for supporting an inflationary policy. But for the average American trying to understand this and to put it into context, it doesn't make any sense. Why would our own government try to hurt its people? Why risk destroying the confidence of the entire American population, leading to outrage and possible uprisings if hyperinflation becomes a reality? I'm not an eternal optimist, but I'm not a conspiracy theorist either. So, in my mind, there must be some rationality behind the insanity.
The government's fiscal and monetary policies are outright reckless. I don't think anyone can justify them, other than the PhD economists who have no practical experience but sit around coming up with "brilliant" economic theories all day. Having a PhD economist in charge of government economic policy is equivalent to having a PhD military historian replace General Petreus to run the war in Iraq. Lots of academic experience; zero practical experience. How about putting someone in charge who built a business; deals with employees, stockholders, and customers? How does a PhD give you the experience and expertise to run anything? But I'm getting off track.
The problem is arrogance. These "brilliant" minds all think they've solved the problem of economic recessions/depressions forever. It's actually a simple fix: just print more money! That was the problem during the Great Depression right? If the U.S. had just printed more money in the 1930s (or "created liquidity" as the great minds would prefer to phrase it), then the Great Depression would not have been nearly as bad as it was. Or am I oversimplifying it? I tend to have that problem.
What about the 1970s? How come nobody refers to that decade when talking about the possible dangers that exist and potential consequences of our actions? So the 1930s can be used as an example, but what about all the other examples throughout history? 1920s Germany? Present day Zimbabwe? Do these examples just not apply because we're the big bad United States?
I'm not an economist, but I have a pretty good understanding of history. I also believe that it doesn't take a PhD in economics to see the dangers that loom. Like Ron Paul said, it doesn't take a genius to figure out that if you print more money it loses its value. The "brilliant" minds in Washington will have you believe that this is much too complicated a situation for the average American to comprehend. Let the PhDs, the politicians, and the talking heads handle it while drowning the taxpayer in debt and devaluing the currency we have to use to feed our families. Having a PhD means you spent a lot of time in school. It doesn't make you automatically right.
Sunday, July 12, 2009
The Return
Finally back, after months of neglect from this investor. I have returned to my roots, I guess you could say, and concentrated on the technical analysis. Nicolas Darvas said he always made his most money when he was so far away from Wall Street that he couldn't listen to the "news" and rumors. Funny, I've done much better myself since I stopped watching CNBC and all the other financial television channels and just focused on the charts.
Hard to say where the market goes from here. It's hard to say where the market goes from anywhere, but the signals have been mixed lately. 4 weeks of declines, but on below average volume. Many stocks and indices breaking through their 50 day moving averages, but the 200s are holding up and some stocks still have promising charts. The Nasdaq has held true to the 1937 Dow pattern, unbelievably, so that points to a decline back to the lows sometime in the near future. The question is whether or not we have one more leg up before that happens. I prefer to have positions that will benefit either direction, for the time being. A good time for some type of hedging strategy.
From a fundamental perspective, it obviously still looks bad. The inflation trade will have to kick in at some point, but I have no idea when. Could be weeks, months, or years. The recent news about a surge in demand from China was interesting. Is their increase in consumer spending a benefit to their economy in the long run or will they get overextended like everyone else? My bet is on the former. They can certainly afford to spend money that they actually have. Meanwhile, the U.S. government continues to spend money that it doesn't have or, even worse, money that does not yet even exist.
Hard to say where the market goes from here. It's hard to say where the market goes from anywhere, but the signals have been mixed lately. 4 weeks of declines, but on below average volume. Many stocks and indices breaking through their 50 day moving averages, but the 200s are holding up and some stocks still have promising charts. The Nasdaq has held true to the 1937 Dow pattern, unbelievably, so that points to a decline back to the lows sometime in the near future. The question is whether or not we have one more leg up before that happens. I prefer to have positions that will benefit either direction, for the time being. A good time for some type of hedging strategy.
From a fundamental perspective, it obviously still looks bad. The inflation trade will have to kick in at some point, but I have no idea when. Could be weeks, months, or years. The recent news about a surge in demand from China was interesting. Is their increase in consumer spending a benefit to their economy in the long run or will they get overextended like everyone else? My bet is on the former. They can certainly afford to spend money that they actually have. Meanwhile, the U.S. government continues to spend money that it doesn't have or, even worse, money that does not yet even exist.
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