Saturday, March 21, 2009
Bear Markets don’t end when people are wildly speculating and the media is in a you-must-buy-now frenzy, a week off of a 12-year low. Bear Markets end when nobody wants to own stocks anymore.
Bottoming will be a process. It will not be a rally on good news. Bear Markets bottom on Bad News and keep rallying – the “Wall of Worry”.
The key skill is the ability to interpret how the Big Boys are deploying their money and following what they do.
The Bull Market of 2003-2007 started to unravel as key individual sectors were sold by Big Money. Each time one of these sectors topped and rolled over, that removed support for the Broad Market Indexes, like the S&P 500 ($SPX).
Mortgage Finance ($DJUSMF) started it all, topping in last 2004
Home Construction ($DJSHMB) topped in June 2005
Commercial Real Estate ($REIT) in January 2007
Retail ($DJWUR) and Global Real Estate ($DWGRST) in May 2007
Construction ($DJUSCN) in March 2008
It got to the point where the only stocks holding up the markets were a handful of technology companies (Apple, RIMM, Google and BIDU) and some Basic Materials companies.
In January 2008, these Technology stocks topped and then the Materials ($DJUSBM) companies topped in March and June of 2008.
Then the markets crashed and the rest is a history lesson.
My point to this is that you could see this coming. If you were doing your homework every day, you could have protected capital like I did during the Bear.
It was the topping of Real Estate-related sectors and the enormous differential in the cost of owning versus the cost of renting that led me to sell my house in November of 2005. I have been renting ever since.
It was the topping of the NASDAQ and Commodities that let me know that the last market leadership was gone and it was time to get defensive in stocks.
You will need to do the same homework to figure out when the markets are bottoming, to see what is holding up the best and has the best chance of leading in the next Bull Market.
Look at how different Markets and Sectors performed in the 2000-2003 Bear Market. The S&P 500 ($SPX) got killed, Small Caps ($SML) held up. That told you to looking to own Small versus Large in the next Bull Market.
Look at how different Sectors held up – Basic Materials (XLB), Energy (XLE), Consumer Discretionary (XLY) and Healthcare (XLV)
They were telling you that Big Money was not willing to sell them, even as the overall markets were getting crushed. They were telling you that they were going to lead the next Bull Market.
Real Estate ($DWGRST) was actually up during the 2000-2003 Bear!
I keep relative strength readings on key asset classes. Asset classes tend to lead or lag for periods of 5 – 7 years.
You want to own what is leading. You want to own what is working. Leaders lead for several years and trends run farther than you think they can or will.
You need to forget about past leadership and focus on what will work in the future!!
You tell me where you think Big Money is looking to put their money. Here are the charts. A rising line means outperformance for the first symbol versus the second (SPY:RSP) -
Cap-Weighted (Large) versus Equal Weight (Small)
Large is outperforming Small.
Large led from 1994 - 2000
Small Led from 2000 – 2007
Large has led from 2007 - Present
US versus International
US led 1994 – 2000
International led 2000 – 2008
US has led since
US versus Emerging Markets
US led 1996 – 1998
Emerging Markets led 1998 – 2008
US has led since
You don’t need to understand this stuff. You just need to know that I understand this stuff.
I have no clue how far these trends of outperformance run, but I have the systems to measure them and will know when they reverse and it is time to deploy money elsewhere. It is more of an art than a science, but that is an expertise that I bring to the table.
The focus of Wall Street is to keep you “fully invested” at all times, so they can get paid their fees. The goal of the Financial Media is to get you all excited and drive transactions.
My goal is to protect money on the way down and make money on the way up. The linear 12% advancement is in hibernation. We are now in a violent trading market similar to 1933-1945, NASDAQ 2002 - Present and the Nikki 1980 – Present.
The sooner you figure this out, the better you will able to navigate the markets (I’ll post on this soon).
Wednesday, March 18, 2009
Yesterday I wrote the following –
“The goal of QE (Quantitative Easing) is to be considered irresponsible when it comes to future inflation, so I would expect to see some statement that lets everybody know that Helicopter Ben has taken to the skies and is about to carpet bomb the country with new money.”
Today was a $1.15 trillion bombing run by Uncle Ben.
Let me be perfectly clear – this was not a good thing, this was the Fed panicking. After all the bs Bernanke spouted in front of Congress and 60 Minutes the last few weeks regarding the strength of the economy, you would expect him to be raising rates. The Government is now fixing the price of assets like Bonds and Real Estate.
What investor in their right mind would buy a Mortgage Security yielding 4%? Oh that’s right, the
Before it is over, these numbskulls will load $7 – 10 trillion of worthless debt off of the balance sheets of banks and onto the balance sheets of the US Taxpayer. The goal of the Fed is to then inflate the real value of the debt away. The US is a dead man walking…
I also wrote the following yesterday –
“I expect wild gyrations in price tomorrow and I think there is a real possibility for multi-day to multi-week moves to occur in the US Dollar/Euro, Long/Short Gold and Long/Short Treasuries. I will have stops in place to participate in whichever direction the Big Money Crowd decides to deploy money.”
I had stops in to buy the following –
Gold (GLD at $88.10)
US Treasury 20-year Bonds (TLT at $101.40)
Double Short US Treasury (TBT at $48.50)
Double US Dollar (UUP at $26)
I got stopped into GLD and TLT when the Post-Fed bonanza hit at 11:15.
GLD closed today at $93.09
TLT closed at $104.37
I sold my FXE (Euro) today, because there was not place to put a stop in and defend my position.
I think the markets are overbought and will look to add Bonds and Gold/Gold Stocks.
The markets are in a confirmed rally and we’ll see how it goes.
I’ll post something comprehensive on QE over the weekend.
Tuesday, March 17, 2009
The only issue will be how the Fed handles Quantitative Easing (QE) (inventing money).
If they decide to say something like “we are going to buy bonds tomorrow”, then you will most likely see the Dollar fall, Interest Rates implode and Gold launch.
If they say nothing specific and just make another general reference to the potential of buying bonds at some point in the future, then you may see the Euro fall, Gold fall and Interest Rates rise.
The goal of QE is to be considered irresponsible when it comes to future inflation, so I would expect to see some statement that lets everybody know that Helicopter Ben has taken to the skies and is about to carpet bomb the country with new money.
I expect wild gyrations in price tomorrow and I think there is a real possibility for multi-day to multi-week moves to occur in the US Dollar/Euro, Long/Short Gold and Long/Short Treasuries. I will have stops in place to participate in whichever direction the Big Money Crowd decides to deploy money.
I got stopped out of my short in financials (FAZ). I lost $37 on the trade. You can be wrong, just do not stay wrong! I will look to reload in FAZ in the low 30’s to high 20’s.
I have been very Equity-averse this year. I just don’t trust the bs coming out of Washington and the mouths of the CEO of companies (GE, GM, Citi, Bank of America). The longer they are allowed to flat out lie to the investing public and get away with it, the less of a chance the market has to make a sustained, multi-year rally.
Did you see the news release today, where the Government told us that “New Housing Starts” were up some gigantic percentage? Did you know that a huge chunk of the new starts were conversions from Condos to Apartments? Did you know that those count as “New Housing Starts”? Me either.
So all of those vacate high-rise condos that now dot most cities are being converted into apartment buildings, because nobody wants to buy the condos. Each new apartment conversion is considered a new home. What a joke…
Monday, March 16, 2009
I added more to my short financial position today and now have FAZ at an average of $38.07.
Sunday, March 15, 2009
Volume measures fear and greed in Big Money Investors. Stocks rallying on diminishing volume is not a sign of conviction.
Commodity Stocks have barely bounced.
International markets are gross - Germany (DAX), England (FTSE), France (CAC) and Japan (Nikki).
I started shorting Financials on Friday. I will add one short position a day this week.
Stewart – “My mother is 75. And she bought into the idea that Long Term Investing is the way to go. And guess what?”
Cramer – “It didn’t work.”
“CNBC could be an incredibly powerful tool of illumination for people that believe that there are two markets – one that has been sold to us as long term – put your money in 401ks, put your money in pensions and just leave it there, don’t worry about it, it’s all doing fine.
Then there is this other market – this real market that’s occurring in the back room, where giant piles of money are going in and out, and people are trading them and it’s transactional and it’s fast. But it’s dangerous, it’s ethically dubious and it hurts that long term market.
So it feels like to us – and I’m speaking purely as a layman – it feels like we are capitalizing your adventure, by our pension and our hard – and that it is a game that you (CNBC) know, that you know is going on, but that you go on television as a financial network and pretend isn’t happening.”
“It is this idea that the Financial News Industry is not just guilty of a sin of omission, but a sin of commission. That they are actually in bed with this idea…
The idea that you could have on the guys from Bear Stearns and Merrill Lynch – the guys that have leveraged 35 to 1 and then blame mortgage holders… that’s insane.
You are pretending that you are a doe-eyed innocent.
I understand that you want to make finance entertaining, but it’s not a f***ing game.”
“You knew what the banks were doing and you were tauting it for months and months. Your entire network was. And so now to pretend that this was some sort of crazy, once in a lifetime tsunami, that nobody could have seen coming, is disingenuous at best and criminal at worst.”
“What do you feel like is the role of CNBC? Whose side are they (CNBC) on?
Is their audience the Wall Street traders that are doing this for constant profit, on the day to day - the short term…
These guys at these companies were on a Sherman’s March through their companies, financed by our 401ks and all the incentives at their companies were for short term profit. And they burned the f***ing house down, with our money and walked away rich as hell. And you guys knew that that was going on.”
“But isn’t that part of the problem, selling this idea that you don’t have to do anything? Anytime you sell people the idea that – sit back and you’ll get 10 to 20% on your money – don’t you always know that that’s going to be a lie?
When are we going to realize in this country that our wealth is work? That we’re workers. And by selling this idea of “hey man, I’ll teach you how to be rich”. How is that different than an info-mercial?”
Stewart – There are literally shows called “Fast Money”!
Cramer – …There’s a market for it.
Stewart – There’s a market for cocaine and hookers. So what!
Stewart – What is the responsibility of the people who cover Wall Street? Who are you responsible to?
It Didn’t Work
The Stock Market directly tracks the performance of the economy. As orders for economic products and services rise, so do stock prices.
Since the mid 1990’s, a significant part of stock price appreciation has been tied to the creation of credit and the products and services purchased on credit.