Friday, June 15, 2012
06/15/12 Minute by Minute
I've noticed recently that commentators (not to mention the general population) have further compressed their already short attention spans to the point where most feel compelled to post opinions several times a week. In comparison, it was common twenty or so years ago to develop an argument that would 'stand' for periods of weeks to months while market movements proved or disproved the underlying thesis.
A good example would be my own purchase of 'northbound tickets' at Monday's close. A sharp sell off on Wednesday was all it took to derail my thesis?
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Bam! Just like that the P&F target on the S&P is 1,490. Yesterday it was 1,180.
ReplyDeletehttp://stockcharts.com/def/servlet/SharpChartv05.ServletDriver?chart=$SPX,PETCDANRBO[PA][D][F1!3!!!4!20]&pnf=y
I'm sure some of you guys will agree & disagree with Fleck:
ReplyDelete"I have been in the investment business for more than 30 years now, so I have grown accustomed to seeing lunacy, naiveté and just plain stupidity more often than one would think possible, given that investing is supposed to be about being smart.
It seems extraordinarily obvious to me that the economy is, in essence, broken because of the stock and housing bubbles we have experienced, and that the Federal Reserve is trapped. It also seems clear that at some point we will have a funding crisis (bond yields will leap and/or the dollar will tank) due to excessive government borrowing. (Click here for more on this funding crisis.)
However, that's not going to occur until certain attitudes shift, so I can see why this is taking some time to unfold. What I cannot understand is how folks don't recognize the fact that, since the economy has been unable to create jobs for three years now, it isn't going to start magically generating them now.
Nor do I understand why there is such denial about inflation. The everyday cost of living has been increasing steadily, and at an increasing rate. Just because house prices have collapsed and certain products that folks buy, especially those heavily laden with technology, are cheaper does not change the fact that we are experiencing inflation, and that the environment is really one of stagflation. It is obvious, as are the consequences.
Nevertheless, to a large degree in the investment community, Goldilocks rules.
Déjà eww
The mindset seemed familiar to me, and about a week ago I was thinking of past moments in time where the obvious was there for all to see but maddeningly few seemed to see it. What popped into my head was the spike in first payment defaults leading up to the housing crisis. When that started occurring, as early as August 2006, it spelled the end of the housing bubble (while at the same time proving it was bubble behavior, since people were missing their first payments).
I actually decided to search my subscription site, www.fleckensteincapital.com, for references to "first payment." Lo and behold, one of the headlines that popped up was "Goldilocksters see oil prices as bullish, up or down," which ran on Jan. 11, 2007 (that is, more than a year before Bear Stearns' liquidity problems came to light). Here are some key excerpts:
"I wanted to share an email from my insider friend in the subprime arena, whom I've quoted so liberally. It's sort of incongruous to read his thoughts on a day when subprime and other financials were going wild, but this (first payment defaults) is a problem that I guess won't matter until the day it matters -- and then boy is it going to matter.
ha...of course you will agree or disagree...meant to say adamantly agree/disagree.
Deletecontinued...
ReplyDelete"He wrote: 'We had a loan that was FPD (first-payment default) on a home in So Cal. It is a very nice high-end town that had a section of new homes built, but it was in the low end of town. Normal homes sold for $1 million in value. In this new seven-home development, (homes) sold for $1.3 million to $1.5 million each. The homes you had to drive through to get to this place were worth $400,000 to $500,000. The market topped out, and now most of the seven homes are vacant -- worth no more than $900,000. Thus, all the lenders are sitting on losses of $400,000 to $600,000. This is just one of many that are happening daily.'
"'The commentary I am getting from field and legit brokers is that fraud is an out-of-control locomotive. Stated-income loans are now finished for all the unemployed people around. We will quickly see cash-out loans curtailed. This vicious cycle has yet to play out. We are in the second inning of the unwinding.'"
Note that I received that email on a day when subprime and other financial stock prices were rallying big time, the market completely oblivious to what lay ahead.
Selling yesterday's news
Just as folks were late in figuring out the severity of the housing crisis, I think they still tend to be late in facing current realities. Case in point: For most of this week, it was as if markets in Europe and the U.S. had suddenly realized that the government in Greece was in disarray; that we were about to have a socialist running France; and that Spain, Portugal and Italy are each a teetering financial house of cards, even though none of that should be "news," especially to supposedly sophisticated market participants.
In the old days, markets tended to discount events (that is, they reflected expected negative outcomes through lower asset prices, or vice versa). If that were still the case, markets should have declined into last weekend's European elections as they anticipated the results, as well as other problems. But what we saw were markets that appeared not to have discounted the seemingly obvious news.
I have commented on this phenomenon a number of times over the past 10 years: that only after an important event happens (which was usually pretty obvious) does Mr. Market have a heart attack. I don't really know why that is, although I think a lot of it has to do with how the government's money printing has warped the markets by causing people to expect to be bailed out.
You can see a million trees and still not recognize the forest
Where our current path is taking us has been predictable for quite some time, and I think that continues to be the case. Unfortunately, we have elected officials who are completely incompetent, if not criminal, and the Fed is even worse. None of that is going to change until change is forced upon us (i.e., them) by a crisis. So while events seem to play out at a glacial pace, where we are headed couldn't be clearer."
Ummm...NOK anyone? $7 Billion cash, $9 Billion market cap. I know they're cash flow neg but it's probably a buy now.
ReplyDeleteYes, I agree wholeheartedly with Fleck.
ReplyDeleteI also understand his use of the words and phrases below:
Delete(a) maddening
(b) stupidity
(c) extraordinarily obvious (why not just 'obvious')
(d) However
(e) Cannot understand, do not understand
Is the global economy on the mend? I don't see it. Have conditions somehow improved due to a renewed concerted commitment by central bankers to contain fallout from Greek elections? I don't see it. Will corporate profits continue to improve in the face of slower growth/outright austerity and high unemployment rates? I don't see it.
ReplyDeleteA sustained rally from here is not out of the question. However, a sustained rally is also likely to include a shakeout at some point, which may present attractive entry points into buy candidates.
DeleteIn other words, even with a rally on Monday I wouldn't rule out a retest of 1250 within the next few weeks.
DeleteThere are many examples of Fleck's observations re lag time outside the trading realm.
ReplyDelete(a) It often takes months to years to terminate an employee even after it's obvious he/she needs to go.
(b) Bad marriages may not result in divorce for years.
(c) Trials frequently drag on for years prior to conviction and sentencing.
We got some great news on health insurance...we had to price out health insurance because my coverage with my old employer ends this month. Luckily we called up our Blue Cross agent and today was the last day they were offering the plan we got which includes only a $900 deductible for our whole family for $390/month. Our budget was for $750/month.
ReplyDeleteBy the way, if you guys want to see two solid movies we saw "The Descendants" and "The Grey" this past week. Both Redbox specials. Excellent movies. "The Descendants", I'll admit, was a tear jerker. Excellent movie.
390/month is a bargain, bro.
Delete2nd - Fleck brings up really good points and his overall macro take is probably right. But I always wonder how much he's leaving on the table. I mean I highly doubt I'm alone in having made a good deal of money over the past 3 years being long all the while these problems he talks about have festered underneath the surface. It would take another Great Depression and probably beyond to lose all of those gains and even then I would be out and cut my losses at a certain point.
ReplyDeleteIn my own trading I have almost always missed on out opportunities because my macro thesis got the best of me and got in the way of trading. This past week is a perfect example...I have gotten negative on the economy and markets and the 3 stocks that I held at one point (MITK, JRCC, BVSN) but got scared out of because of my macro thinking went up 25%, 20%, and 20%, respectively. Those are years of gains in one week. Let's say we're right about being bearish and get short. What's the most we can make? 100%? And that's if the stock goes to $0 which doesn't happen often and certainly not quickly.
That is why it probably always makes sense to just focus on long opportunities. Obviously you will take your lumps from time to time and clearly learning to have patience and wait for things to set up is VERY CRUCIAL. Oh, and minimizing your losses is clearly critical.
The key clearly is PATIENCE. If we were to go through a period like 1973-74, where it took almost a year and a half to find a bottom, every dip buying opportunity probably was met with pain. But then again, I'm quite sure there were rallies that presented great opportunities, just like we saw in the past 2 weeks, to make gains that amounted to a years worth of gains.
DeleteFirst off, Fleck is a gold bug, so you have to remember that when guys like him talk. They don't tend to be the most open-minded (and I'm being kind).
ReplyDeleteWorld Economic growth will be 4%+ this year, so try and find stocks which are positioned to take advantage of this. Worrying about macro stuff is almost always a waste of time (except in 2008/2009). It pretty much always gets worked out and things move on.
Another thing to do is look at the Berkshire Hathaway annual results. They still made 5% a year in 1973 / 1974 by picking good stocks and set themselves up for many really good years after this.
BB- If someone who worries about macro stuff all the time was able to sidestep 2008/09 because of his incessant worrying, then I would say he has bragging rights to 'proof of concept.'
Delete2nd, I really don't know how Fleck did in the 2008/2009 market, but you just have to be careful listening to the gold bugs. They seem to always be predicting the end of the world and gold is the only answer. Not saying they can't be right sometimes, but just question the value of their advice when it always seems to be the same.
DeleteIf you look at outside the 2008 / 2009 crisis, there have been many macro / end of the world issues - the 1987 crash, the 1998 Russian crisis, the Gulf War, the Japanese Tsunami, etc. and in hindsight, they all look pretty minor. Even the 2008 financial crisis, if you did nothing and just rode it out, you'd be back to pretty much your high-water mark now (dividends included).
In my opinion, worrying about macro problems is a low-value use of time, when you could be using that time to look at charts or stock fundamentals. If reading guys like Fleck works for you, that's great. I just know too many people who are kept out the market by guys like Fleck who keep looking at the negatives instead of what is going right.
2nd,
ReplyDeleteMy other comment on this is regarding "the market" versus "stocks" and why I think putting too much thought into "the market" doesn't work.
When I talk with people, the guys who look at "the market" are the ones who get shaken out easily, sell because things are going down ("things are getting worse, you know") or there is bad news (I remember a friend selling everything because of something bad George Bush was doing and then the market took off and he didn't get back in for years) and generally end up doing poorly.
If you look at stocks, you take the opposite attitude. I know company ABC is good, so if it goes down, that's fine, I'm just going to wait for a good opportunity to buy. Look at Jesse with the solars - he's believes they will do well and is now looking for buy opportunities now that they are way down.
In my investing experience, other than 2008 when everything got trashed, there have always been good stocks or industries to buy. Even in the 2000 - 2002 period where the market dropped 50%, there were lots of stocks which did very well, as long as you avoided the tech stocks which were crashing and the overvalued large caps.
I totally agree BB...however, I don't think it hurts from time to time to stand on the sidelines if risk gets too high. While Buffett may have done well in 73/74 I guarantee that there are times like in the late 90's when he raised a good deal of cash and waited for better opportunities. For me that time is now and over the next few months. I will definitely keep looking for stocks that were unjustly beaten down like NLS under $2 or MITK under $2 etc but I think with what is going on around the world in terms of a global slowdown, it's not time to put the pedal to the metal.
DeleteFor me it's not about Greece...we all know that country is the equivalent of a fly on a cow's ass. India, China, the US, Europe, Canada (by the way, what's up with your stock market up there? i'm assuming it's bc of the energy companies?), and Brazil are all experiencing slowdowns that you can not deny. While growth may be projected at X% worldwide, we all know that these slowdowns have a way of being self reinforcing. In 2010 and 2011 when we had the flash crash and the August crash, respectively, we still had thriving Chinese and Indian economies that showed no signs of slowing down and Europe was still in the black in terms of economic growth. That is definitely not the case now. I'd prefer to see signs of stabilization in those countries before feeling comfortable about buying and holding something for more than a day or two but that's just me. To me it seems like buying those countries right now is kind of like buying solars 6 months ago on the way down...they seemed really cheap and then the bottom fell out. If we waited for confirmation of a bottom then we would have avoided the pain as cheap got cheaper.
Anyway guys...happy father's day!
By the way, this is the perfect example of how a stock might bottom:
ReplyDeletehttp://1.bp.blogspot.com/_xlGBqqM0muE/Smy--VIhdKI/AAAAAAAACKo/f0lJFMeIMfY/s1600-h/depressionbottom.PNG
Look familiar? It's the 1929 crash. Guess which one looks most similar to this now? HINT: It rhymes with Fat Ass.
KKD?
Deleteha!
DeleteGold forecast for next week: Range bound between June 6 intraday high ($1,642.4) and June 8 low ($1,556.4), with a bias towards remaining above the psychological $1600 and a potential for retest of resistance around $1642
ReplyDeleteIs that your forecast, CP?
DeleteIt's my summarized version of Colonel Possum's metals forecast:
Deletehttp://eurekaminer.blogspot.com/
This is what I see on the charts. Of course I had to read about it first. I should do my own analysis, write it up then post it and see if you guys come up with the same conclusion since I'm pretty sure you guys think about the market as much as I do.
ReplyDeletehttp://www.screencast.com/t/1guagTGw5Ib
My Markman readings actually point this out. He shows an inverse H&S, which I've been reading about all over the place but I didn't want to consider it until we actually reached resistance. His chart is on $SPX and he has a measured target of 1404 which he calls a lower low. I'm not so good on stockcharts but I'm showing a triple top around 142.50 but then I have a little trouble setting up the lines on stockcharts. Markmans biggest concern is that we closed a little higher than he liked before the elections.
hey fellas - hope you guys had a good weekend. i had a great one. played basketball this morning and then spent the whole day with my family and my wife's extended at the beach. once again june gloom took over half way through the day but the perfect 1st father's day for me.
ReplyDeletemy bro in law who i'm good friends with owns a computer hardware / software web biz that does about $10 to $15 Million in revs a year and he said they're seeing some really strong demand for western digital products and that he has heard from his contacts that they're killing it with some of their new products. He's very bullish on the stock and said that his company is starting to buy shares of them in their company investment account. he said they think it will go back up to $40 to $45 soon. i checked and MACD is just crossing over to a buy signal and RSI is trending up. Looks like a buy to me.
i also think FSLR is a really good buy just based on the chart. that big ole thrust from a few days ago is a major buy signal. i want to do some more fundy analysis on it tonight. i also think nat gas is a major buy right now. that big move up with a very strong signal in my mind and it cleared out a ton of pessimism. boil/ugaz should do quite well.
also, i really like
Thanks for the info.
DeleteWhat do I think? Red open. No 'reason(s)' available at this point, it's just what I 'see' when I ponder Monday's open.
ReplyDeleteReasons as they cross my mind.
Delete(a) Election results already priced in last Thursday and Friday.
(b) Now that it's over, what's next? Ouch.
(c) Coalition? What coalition?
(d) Final tally> the media ----ed up!
Delete2nd - I really don't see how we will avoid a rough patch over the next several months/year. I understand that the market is on a short term buy signal but the risk level is way too high for me with the slowdowns we're seeing across the board in the US, Canada, India, China, Europe, Japan. And the potential for a really nasty shock in Spain and Italy is going to be too much for the market at some point. The market is cheap based on earnings, no doubt, but I see a flat to down 10% earnings year coming up and if the worst is down 10% then what multiple you think they will pay for earnings? My guess is 11-12 times...11-12 x $95 = 1,045 to 1,140.
DeletePossible outcomes.
ReplyDelete1. OGRe warning! Monday AM watch for an opening gap reversal. Gap up over ST resistance and then a sharp reversal back within the range.
2. Sell the news without a gap or worse, gap down.
3. Gap and run.
4. Steady buying above resistance.
5. More of the same sideways chop.
Give me #1, #2, #3 or #4......and super size the fries please.
The question as always for the day trader is at what point do you confirm 1, 2, 3, or 4...for me fundamentals rule the day and they suggest longer term weakness. does the technical trader that sees short term bullish divergences in the RSI readings and price action in SPY also agree that if that is bullish then the divergence between RSI and price action on the weekly chart is bearish? does that same trader that sees the short term MACD crossover as bullish also note that the MACD crossover on the weekly chart a few weeks ago was bearish and not confirming a bottom? again, i think longer term weakness is at hand.
DeleteI can't really say what happens long term, but what I'm reading at Bloomberg still is not an answer, so these outcomes are for the immediate short term and the OGRe is Monday morning.
DeleteTwiggs says the money flow is signaling the correction is over but that we test the previous support (the one we are barely above. In the meantime Landry suggested Friday we have a possible OGRe set-up Monday AM so beware of a gap up and then a reversal. That scenario would likely be the least expected.....aka 'sell the news'.
If I had to guess at overall direction I would say you are likely correct, one election doesn't solve the Euro crisis and from what I've read it is still a very serious world wide financial stress.
I have followed Robert Rodriguez on and off for a while. He managed FPA capital which had very good returns for years. I think he averaged around 15%. Anyway back in Feb he had an interesting interview here:
ReplyDeletehttp://www.advisorperspectives.com/newsletters12/Bob_Rodriguez_on_the_Dangers_in_Todays_Markets.php
Here are some things I find interesting:
"You have advised investors to be patient and cautious with respect to equities and fixed income. Are there any asset classes that you believe are attractively priced now, sufficient to provide the margin of safety that you mentioned at the beginning of “Caution: Danger Ahead?”
For what I would call a generalized investment fund, I view the equity markets as marginally attractive. As I tried to explain in the speech, we have just gone through the longest decline in P/E ratios in over half a century. Many are saying the stock market is attractive, because over the last 50 to 70 years the average P/E was 15 to 16 versus 12 to 13 now; therefore we have a discount. I would argue that to compare historical P/E ratios over this period is inappropriate, given the fundamental structures of our system are so dramatically different in terms of leverage.
I try to remind people that at the beginning of the depression in 1929, US debt-to-GDP was 16% after 11 straight years of surplus. And at the beginning of 1942, World War II, after fighting depression for 12 years, we were at 41% debt-to-GDP, and we didn't have any off-balance-sheet entitlement liabilities.
What we are looking at today is so far removed from any of these periods that I don't think it is an appropriate comparison. If you have a company with slow growth expectations, peak margins and business volatility, what type of P/E is given it? Typically, it is a lower P/E.
This is analogous to what we are going through currently with slow economic growth, peak margins and a volatile business outlook. From day one of this of this recovery, I have argued that it would be substandard. The Federal Reserve’s estimates have been off by 100%.
We are holding a high cash level in FPA Capital Fund; it is up around 31% to 32%. Some could argue it should be higher. Our managers have been selling three- to four-times as much as they have been buying this year. The cash builds up. At some point in time, there is going to be a dislocation in the stock market. It is during those times that we get an opportunity to deploy capital where the margin of safety is high and the expected rates of return are substantial, which is what we did back in 2008 and early 2009.
I believe Ben Bernanke should be replaced. He supported the unsound monetary policy of Greenspan from 2001 to 2003, and he didn't have a clue about the building real estate bubble in2005 and 2006, per the Fed’s minutes. When I was giving a speech in 2007, “Absence of Fear,” I argued that subprime credit was the canary in the credit coal mine and we had a major problem. And he said, “No. Subprime is such a small area, there will be no contagion.” A year later he was taking extraordinary actions.
I look at the monetary policies being enacted in this country and by the ECB and I am worried. I don't know how we will get off of all of these large asset purchases. They are a narcotic. The ECB with its LTRO three-year loans to banks is no different than a drug pusher because it allows bad practices to continue.
I don't see how the US deals with this at this stage of the game. There is no precedent for what we are going through. The idea that we will muddle through is pretty much a consensus expectation, because if you say you are going to muddle through then you can go on about your daily routine of managing money."
continued:
DeleteWhen you said that you don't see how the US can do what it needs to do, are you referring specifically to how the Fed can contract its balance sheet?
Yes. Because I have studied history, and when you have price controls, such as Nixon had back in the early 1970s, what do you get? You get dislocations in the system. You have inappropriate capital investment. When the controls end, guess what? You get inflation. It happened after World War II, and it happened after the Nixon price controls. Jimmy Carter tried it for a little bit too.
Everybody looks around and says, “Hey, price controls are not a good thing to have.” Well, we have a form of price control today. It is the repression of interest rates by the Federal Reserve. By keeping rates down, through Operation Twist, they are interfering with the normal movements of the capital market. There are unintended consequences occurring right now, whether it is in pension plans, insurance companies, banks or managed money. At 2%, dividend yield looks attractive versus a 1.9% 10-year bond yield. But I would argue that the policies of the Fed will create unintended consequences that are not positive.
I advise my associates on the fixed-income and equity sides that there are excesses building in the system again because of these unusual and unwise Fed policies, and that we have to extract a higher margin of safety before committing capital. Many in the investment field are chasing returns now, as has happened before on numerous occasions. I don't see anything different today than in any other period – especially among professional managers.
"I am sure from your background that you remember the Gramm-Rudman-Hollings balanced-budget act. I had the opportunity to have dinner with Warren Rudman in 1996. I told Senator Rudman that I just wrote to my clients that the first time we are going to be able to attack Social Security will likely be in 2005, and after that it will probably be 2013. This was in 1996. And Warren Rudman said to me at that time, “I don't disagree with you. We are running simulations. We are looking at probably sometime between 2003 and 2008 when things start to get messy.”
DeleteAnd this was before the hyper-expansion and debt growth in the US.
As we've gone through this debt explosion, the pendulum of my focus has been swinging more toward this area because of its likely negative impact i upon trends in the United States and worldwide. In a company, the higher the leverage, the less margin of safety you have. As financial leverage continues to increase in our economy, in order to risk capital, I need to have a higher margin of safety, through considerably higher yields for bonds, or lower P/E ratios for equities. "
This probably explains why people won't pay more for earnings than 13 times...and why it could possibly end up shrinking to the lows from the 1970s/80s, which i believe hit around 7 to 8 times. hopefully earnings will be $150 by then!
Now that it seems like Greece is not exiting Euro immediately, the following article is probably relevant:
ReplyDeletehttp://seekingalpha.com/article/619341-how-greece-will-drag-down-europe-and-refuse-to-leave
Now I can witness the overnight dramma in real time: as I was eating lunch, the $USD futures zoomed up from 81.70 to 82.05, and all futures turned red.
ReplyDeleteI even made up a portfolio of gold/silver miners listed in London, and I watched that list turn from uniformly green to uniformly red...
tof- Thank you for posting the Bob Rodriguez interview. A common sense kind of guy I can identify with.
ReplyDeleteHere's another good quote:
DeleteLet’s turn to the macro issues. I understand your process for picking securities is bottom-up, but you are also well regarded for your macro thoughts. Jeremy Grantham has said the profit margins are freakishly high while Blackrock's Bob Doll thinks that current high profit margins are here to stay. What are your thoughts on that issue?
I would side with Jeremy Grantham. As I said in my recent speech Caution: Danger Ahead, approximately 73% of the improvement in profit margins was a function of two things: lower labor expense and the decline in interest cost. I believe the odds are low that the interest-cost benefits that corporations have achieved are sustainable for the longer-term. In terms of labor costs, you witnessed in Q3 and Q4 of last year erosion in labor productivity. Part of the growth in employment that you are seeing right now is because there is a lack of productivity improvement, which I believe will lead to higher labor expense. Unless corporations can pass this increase on, it raises a question about the sustainability of profit margins.
As a value manager, when you see an extreme outcome like what we have presently in profit margins, you have to treat the assumption that “this time is different” as a dangerous statement. Many, many investors have been burned by that one.
Another one:
DeleteIf we are to reestablish fiscal balance, you are going to have to take hits now. It's just like your dad coming home from work saying, “My hours have been cut back. I can’t earn this money. We are going to have to make some cuts right now. I am not going to bet that my income is going to be up two or three years from now.”
That is the decision we have to make. Every study I have looked at says you get far more bang for the buck longer term if you attack your expenses earlier in the game, as opposed to tax increases. Otherwise, you pass a point where the necessary expenditure cuts are so onerous that you get into the classic death spiral – very much what Greece is in right now.
We have an example of someone who made the hard decisions. All we have to do is look north of the border to Canada. If you look at the Canadians in 1993, they were in the exact same fiscal position as the United States is today. They had their credit downgrade. Within four to five years they had balanced their budget, and within 11 years they had taken their debt-to-GDP from approximately 70% to 72% down to approximately 30%.
That is one of the reasons why the Canadian dollar is now trading at a premium as opposed to a substantial discount to the US dollar. Canada took approximately seven dollars in expenditure cuts per dollar of revenue increase. Dave Walker is proposing three dollars of expenditure cuts versus one dollar of revenue enhancements.
But Congress can’t even come up with even a few pennies. It is an absolute unmitigated disgrace. I don't see how financial markets, equities or bonds, do well longer-term if you continue to erode the fiscal integrity of our financial system.
Finally:
DeleteWhat questions do you think financial advisors should be asking themselves right now?
The one that is the most topical is, “How do I invest my client's money right now to get them a return?” Unfortunately, the era of small returns is here. My focus is on principal protection. If you protect your client's capital, they live to fight another day.
I had an advisor in our office – not an investment adviser but a research advisor. I asked this person, who was traveling all over the world, where would you be going right now? He said he’d go into utility stocks with 4% yields. I said really? You would put your capital at risk in this kind of environment for a 4% dividend yield? He said, “If you don't, you are not going to beat inflation.” I said I know the risk I am taking if I deploy capital at 0% to 1%, and I can quantify that risk in my mind. But in other investments, even though they provide you a slightly higher current return, I can't quantify what I would call the investment risk.
I think the upcoming election in the US will be very interesting. In Canada, the politicians always talked about cutting spending and the deficit, but never did anything until the election in 1993 when the voters through the polls and their votes told the politicians to fix this, regardless of the short term pain.
DeleteIt did work, but I wonder if Americans are ready for this yet.
TOF,
ReplyDeleteI really question how much effect operation twist is having on rates. I think rates would be low regardless and the general public seems to be bidding rates down as much as Operation Twist - just look at Germany with their even lower rates. People can say Germany has a better budget situation, but it is still the US$ they flock to when things get really rough.
Re the Canadian market, it is over half weighted to the energy and materials (mainly gold) sectors. Because of that, it's been a great decade up until last year, especially with the Canadian Dollar appreciating as well, but has really taken a hit since then. We are still down 23% from last February.
Because of this, the Canadian market is not really a good overall stock benchmark, but it is a good proxy for how commodities are doing.
long 5k shs fslr at 14.2avg
ReplyDeleteI'm going to counter the negativity:
ReplyDeleteWien Unbowed By U.S. Shares Slump Joins Birinyi Seeing Rally
http://www.bloomberg.com/news/2012-06-10/wien-unbowed-by-u-s-equities-slump-joins-birinyi-seeing-rally.html
yeah i saw this the other day. i did notice that Birinyi said he's tempering his enthusiasm for the bull market which was surprising. although he did also say “It ain’t over. Historically, in the last stage of the bull market it’s a very strong rally. The last stage is the one where everyone is in the pool. This is still a market where even in the first quarter of this year, there was a lot of skepticism and reluctance and that hasn’t changed.”
Deletegotta love the whole its still good but i'm cautious take...hedges your call in case it goes down or up. laz said earlier in the year that he sees a 1995 style market with no big pullbacks and said he didn't see a 10% pullback this year. i think now that we had that he had to change his playbook a bit. he likes to draw analogies to prior years which in my book is a bit dangerous. anyway, i usually prefer listening to laz over wien because wien is a perma bull. not a bad thing but you have to know who you're listening to.
in my book there is one guy that is the perfect contrarian indicator and that is barton biggs. he announced to the world that he was getting bearish about 2 weeks ago. perfect timing. he has called bulls at tops and bears at bottoms over the past 4 years more than anyone i've seen.
WDC - Great info, looks like a great entry here as well except the gaps up end of December bother me, maybe just a psychological thing? I should place a GTC bid @ $27.50
ReplyDeleteCrude looks good here to me again, someone mentioned last week they thought it could fall more but I forgot the reasoning... My thick head doesn't always absorb.
MITK - Looks like this one's gonna keep moving up, something changed?
Good morning guys. Getting caught up from a long, long weekend.
ReplyDeleteYou haven't missed anything other than tof's +5% in one hour on FSLR.
DeleteI think Jesse's call on TAN might work if FSLR does what I think it could do.
DeleteWDC @ 30.29...
ReplyDeleteBVSN - LOL, still going strong.
ReplyDeletePZZI - Jesse had mentioned this one. I guess it's another POS that's gonna run as well, I just can't imagine why...
i've followed PZZI for about 6 months or so now. it's a major momo stock. just not enough vol for me. i want liquidity in this market which could drop on a dime out of nowhere.
DeleteVGK @ 41.18...
ReplyDeleteBought a little more FAZ at $24.6.
ReplyDeleteif we get a close above 1,350 for a couple of days or a move above 1,360 on one close then i'm out of FAZ.
DeleteXLE @ 64.67...
ReplyDeleteEEM @ 38.87...
Hussman's report kind of strange this morning - maybe he's becoming a TFM as well?:
ReplyDeleteOur estimate of the prospective return/risk tradeoff in the stock market remains in the most negative 0.5% of historical instances. That said - and this is important - if market internals improve meaningfully over the next few weeks (measured across individual stocks, industries, sectors and security types), our estimate of the market's prospective return/risk profile would improve, despite what we view as rich valuations and a new recession.
Yeah I've read this in several of his newsletters...basically he has realized that there are clear short term trading opportunities created in the market that he has missed out. my suspicion, given his horrible performance, is he gets bullish on the one time when the dip buyers get wiped out.
DeleteCould be a last bear turning bullish type situation, especially given his prior high level of conviction.
DeleteHussman a bull? No freaking way. I read his commentary last night and also noted his willingness to trade long should his reading of market internals improve. However, he's been posting a variation of that comment for months.
DeleteLandry: On the Wrong Side of the Tracks?
ReplyDeleteWell, the market broke out of its short-term range. This action has it "jumping" the railroad tracks to the upside. It also has the Ps above short-term resistance. So, is this the all clear? No. So far, the trend remains down and the market only appears to be pulling back.
So, what do we do? Look to load (or re-load) on the short side now that the market has pulled back. However, keep in mind that short side is rarely fun. The market will usually go down as promised but not without a fight. So, make you're your honor your stops just in case one of the shake outs turns into something much larger.
Very interesting commentary out of the BMO Quant guys this morning:
ReplyDelete A key measure of counterparty risk (the banking system) is the U.S. 2-year swap spread.
Moves in the U.S. 2-year swap spread have had a correlation to moves in the S&P 500 of 60–70% over the past two months.
o Counterparty risk is dramatically receding.
This is bullish – Figure 1 top.
Another less stable, but slightly better current fit with the S&P 500 is simply U.S. 10-year treasury yields.
o Yields continue to edge lower, a non confirm of the Thursday/Friday rally in the S&P 500.
This is bearish – Figure 1 bottom.
We pay heed to both signals, realizing that with reduced concerns on the banking system, the
S&P 500 can rally back toward major resistance starting at 1360, but without the support of
higher treasury yields, the rally can fizzle, like it did in April, when the treasury market
remained firm (the “Unconfirmed” signal in Figure 1).
It is a complicated, but important, message.
o It is very impressive that counterparty risk is receding at a time when stress on the
Spanish bond market is reaching new highs (5-year CDS just broke out to a new high of 620 bps this morning). One can not ignore this bull statement.
o One cannot ignore the treasury market either, where 10-year yields have dropped to a six-session low this morning.
I'm a raging irrational bull. I went long this morning basically to fade a sell-off that couldn't get off the ground. I think prices are headed higher in this game where reality is suspended and anything goes.
ReplyDeleteliterally every single trader blog/site i have seen is talking about the inverse head and shoulders pattern and how well it has done over the past 3 years. my suspicion is this one fails for the first time in a while.
DeleteYuck. It is a nice looking potential bottom, but not what you want to read.
DeleteOn the other hand, the value stock-oriented guys I follow are making positive noises about the large number of opportunities they are seeing in the market which is generally a good sign that the market will go up.
At the top of Slope of hope:
DeleteReversal IHS Patterns (by Springheel Jack)
http://slopeofhope.com/
http://stocktwits.com/compliance/1653?href=http%3A%2F%2Fallstarcharts.com%2Fthis-is-how-bottoms-are-formed%2F
So far it's #5 with a regular size fries. Had a sort of reverse OGRe gapping down then reversing up, now kinda-sorta down again. Who wrote that the market will do the most obvious thing in the least obvious way?
ReplyDeleteSo I guess the Euro cancer wasn't solved over the weekend. Greece is momentarily only the topic of who will form a government with whom while Spain moves center stage with high yields. Shocking isn't it?
http://www.ritholtz.com/blog/2012/06/unless-except/
Don't forget that TLT peaked in December 2008 and actually went down 16% by the time the market bottomed on 3/9/09. The S&P went down 25% during that time. Correlations aren't always perfect. We could get a dropping dollar, bonds, and market at the same time.
ReplyDeleteCould, but that was a time of exception fear and a sell everything mentality - I don't see a repeat of that anytime soon.
DeleteMUX is at $3 now -- nice! I was upset for a little while that in mid-May, at THE bottom for gold miners (according to BC), I purchased 100 contracts of MUX calls (when MUX was trading at $2.30) instead of AUMN calls (when AUMN was trading at $3.40).
ReplyDeleteAs you guys were saying, whatever happens in Europe is irrelevant in the long term to the stock price of gold miners. That is, in the long term, the price of gold miners is affected by the price of gold, which in term is affected by the budget deficits of US and to a much less extent of Europe. Nothing on those fronts have changed, and thus nothing has changed about the fundamentally bright outlook for gold miners...
In the spirit of today's "minute by minute" lead post, I should have titled my post "year by year". :)
DeleteLet's watch the $USD, David. Reversals always happen when you least expect them, and the short dollar/long miners trade could zoom at any time. Just remember to take gains off the table once in awhile!
DeleteF*ckin MITK man.
ReplyDeleteAt least you're cussing about a missed opportunity. There are thousands of investors in a coma still cussing about a life-changing loss.
Deleteyeah i'm over it. just enjoy cussing. it's cathartic.
Delete"The European Union is the world's biggest trader, accounting for 20% of global trade".
ReplyDelete"U.S. exports to the EU accounted for 21 percent of overall U.S. exports in 2008."
"The EU and the US economies account together for about half the entire world GDP and for nearly a third of world trade flows."
"In 2010, 22.5 percent, or $412 billion worth, of U.S. exports in goods and services went to the European Union. A sharp economic downturn in Europe means demand for U.S. products and services is likely to decline significantly."
So what does this mean?
Less exports. Higher dollar which makes U.S. goods more expensive world wide which also = less exports. Less exports = less employment, income and corporate profits. Hence the negative action in exporters like CAT.
http://www.bloomberg.com/news/2012-06-18/europe-crisis-imperils-u-s-sales-from-chemicals-to-pcs-economy.html
DeleteI really like FSLR here for a variety of reasons. They are down 90%+ from their highs, the stock seems to have bottomed out in the $12 to $15 range. Earnings are still going to be strong this year at $4.00 to $4.50 per share (meaning it's trading at 3 times earnings), cash flow from operations is expected to be $800 to $850 Million (versus a market cap of $1.4 Billion ish). And everyone is bearish on the stock. I spent several hours last night researching this stock and I feel very comfortable with a position in it. Jesse is right on this one in my opinion. The stock could easily go up 100% from here and be very cheap.
ReplyDeleteThe knock against them I would see is a lot of solar sales rely on government subsidies and governments are quite strapped now and this is an easy area to cut spending on.
DeleteAm I missing something, because I'd love to buy a stock with valuations FSLR has?
http://www.bloomberg.com/news/2012-06-17/solar-boom-heads-to-japan-creating-9-6-billion-market-energy.html
DeleteBB - Per their conference calls that I listened to last night they have made it a point to avoid any markets that were reliant upon govt subsidies. there is still longer term risk that some of the semi companies come in and squeeze them out of their market (i think barrons or some other investor publication had an article about samsung coming in and competing with them) but they have found several niches to operate in that they are turning a profit on. remember that the solar industry, while clearly under pressure, is HUGE and growing.
Deletehttp://www.bloomberg.com/news/2012-06-18/solar-makers-climb-after-japan-announces-subsidized-rates.html
DeleteCC - There is also positive news out of India. While it might benefit domestic players more, any positive news can be a major catalyst for a stock like FSLR that has nothing but terrible sentiment for a long long while.
DeleteIf a player in the sector moves it tends to lift all boats. I think our domestic NG is clouding our vision. The rest of the world doesn't have that option and with the current global fiscal mess it is only a matter of time before inflation rears it's ugly head. Best to take that time to marshal as much cheap/free energy as possible, especially in developing markets.
DeleteDollar - Considering the dollar is up by a wide margin, this rings my "risk-off" bell.
ReplyDeleteDitto for T's.
Crude remains negative as well, further adding to concern.
Hopefully SPX can make it to 1350 or even 1360 or perhaps more, and prove so many other indicators are lagging.
I feel like I should be buying some TZA...
CP - How has OBV fared in this bounce and most recent potential breakout in the markets? Is it confirming the move?
DeleteThe problem, CP, is you're being rational. Do the opposite of what you feel like doing, and you'll (initially) feel worse, but likely make money ;)
ReplyDeleteWe've all seen this freaking movie too many times. There is no reason to want to buy in right now. So buy in.
DeleteLook, I can't explain it. I just think we're getting ready to rock, similar to last night's futes. This morning's sell-off was a diversion created to shake out the weak hands. Sure, I could be wrong- but that's always the case.
Deleteyou're absolutely correct. just buy the panic and sell within a couple of months then wait for the panic and repeat...it has been the playbook for the last several years. the law of diminishing returns will kick in at some point. we're at 0% rates in the US. Japan has been at zero for how long? and how many easings have they done over the past 20 years?
DeleteIn the very short term just keep an eye on the 50 DMA. it tends to provide some resistance after the market bounces up from its first test of the 200 DMA. if that level falls by the way side it's very bullish.
DeleteColin Twiggs pegged ^NDX 2580 as the threshold for 'confirmation.'
ReplyDeletehttp://www.incrediblecharts.com/tradingdiary/trading_diary.php
Currently at 2598.
man i've got to see this guys performance...this was from one week ago:
Deletehttp://www.incrediblecharts.com/tradingdiary/2012-06-12-markets.php
"Monday's engulfing candle [R] on the S&P 500 warns of reversal to re-test support at 1270. Respect of the zero line (from below) by 21-day Twiggs Money Flow would indicate strong medium-term selling pressure. Failure of support would offer a target of 1200*."
I know, I know. But you know what? He reminds me of me!
Deletetof- Yeah, I like the way traders are all basing 'decisions' off the 50DMA.
ReplyDeleteGoing long OAKMX at the close, which is about to rise through its own 50DMA.
be careful bro
DeleteThanks. I like the cautionary signal- it seals the deal _)
Deletewe're up 6.3% intraday low to high in 10 trading days.
DeleteAt the end of the day, it comes down to my take. I read opinions all day, and 'allow' myself to be swayed by all arguments. Then I decide. If I go with any take other than my own, I'm screwed.
Delete+6.3%> Exactly. No one expects further upside.
DeleteEven I don't expect it. So I (dis)respect the crowd and 'expect' it.
DeleteSeriously, if I were to hear my own spiel at a cocktail party I'd probably smile a little and move on...
ReplyDeleteFinal hour shake out.
ReplyDeleteHow's OBV? - LOL, this is the indicator I was referencing when I opened my most recent long positions.
ReplyDeleteOkay so anyway, I see SPX RSI(7) is now above 50 on the weekly and 66.66 on the daily.
FSLR - There's always more than one side to every story, did you guys know the Japanese Prime Minister gave the go-ahead to restart two nuclear reactors this weekend?
So yeah, it makes sense that Japan would also throw some good-faith money at the tree huggers in order to placate them and take some of the sting out of having to restart nuclear reactors?
Just a little taste of the other side of the story...
"How's OBV? - LOL, this is the indicator I was referencing when I opened my most recent long positions."
DeleteI mean it kind of looks like it is negatively diverging but I could be wrong.
I must have overlooked an earlier reference to OBV. What is it?
DeleteWhen to short? Okay, let me know if/when you guys hear Cramer give the all's clear buy signal bait. I'll wait a couple days after to pick up some celebratory TZA just in time for the hook setting ceremony.
ReplyDeleteI figure by then, at least one RSI(7) will have cycled through 70, probably the daily chart.
On Balance Volume - Well, it's still higher than this January when we were last in the 1340 region?
ReplyDeletehttp://stockcharts.com/h-sc/ui?s=$SPX&p=W&b=5&g=0&id=p45588470438
That's a good point. I was looking at the peaks and noticed no breakout. i was also looking at the daily and noticed a divergence. I don't use OBV so I really have no idea what it's saying.
DeleteCan I say it again? F*ckin MITK!
FTK taking another nose dive. Keep an eye on that one. It is a great trading stock.
ReplyDeleteI think if this $22 area level holds for BTU then we will get a big up day soon.
ReplyDeleteIYT today is very positive for the markets. Would like to see oil go up with it to know for sure it's sustainable strength and not strength on back of weaker oil. But it's still a positive in my mind and probably a predictor of a breakout in the markets above the 50 DMA
ReplyDelete1344.78 is the 50% retrace off the bottom, right?....
ReplyDeleteOn the /ES I have 1,341 as the 50% retracement. Guess where we closed today.
DeleteSENSEX - Already cycled through RSI(7) on the daily, now we need to see if RSI(7) remains above 50 for at least a few sessions?
ReplyDeleteTVIX - Ouch, glad I wasn't long volatility!
ReplyDelete2nd - Did you take the plunge at the close today?
ReplyDeleteHell yes! If anything changed at the last minute, I would have posted a comment.
DeleteI'm basically all-in, and ready to get my a-- kicked for being wrong. I'm also ready to celebrate being right.
DeleteOAKMX closed up +0.09% to 45.15, which is insignificant. So it's still below the 50DMA (45.59), but above the 50-day EMA (45.14)!
Deletenice man. good luck.
DeleteRupee - Took a turn for the worse, now 55.825 and briefly kissed 56. 52wk low remains 56.51
ReplyDeleteStill some solid negativity on FSLR on Stocktwits/Twitter:
ReplyDeletecollegefb81
What a fluke $FSLR $TSL $GTAT today has been, all down 5+% from HOD even tho mrkt comin back, $TSL in red, lol! industry dead
nod2003
Comparing $GTAT to $FSLR is like comparing $GOOG to $YHOO.
MJTiffany
The rug is gonna get pulled out from under $FSLR soon
collegefb81
$FSLR fallin to its next leg down here, it'll im sure finish green, but how hard its fallin since hod, who knows maybe get to red! lol
TuomoKallio
First Solar's Japanese-Fueled Rally is Misguided http://t.co/2Zaqu6Eo $FSLR
KeithMcCullough
short squeeze stocks like $GMCR $FSLR $NFLX having low-volume green days; usually signals tail ends of a beta move
Seeking Alpha @SeekingAlpha
First Solar's Troubles Mount http://seekingalpha.com/a/eajx $NRG $FSLR
Mad Money On CNBC @MadMoneyOnCNBC
Cramer's Stocks to Avoid http://bit.ly/JXkgaV $ACAT $BBY $DECK $FB $FOSL $FSLR $GMCR $MS $REP $RIMM #StockPicks
Lets see if they can drop NLS down to $2.8
ReplyDeleteJoe Terranova on Fast Money is talking trash to the people that are negative...that guy is another contrarian indicator.
ReplyDeleteBB - check this company out: AMNF - it's right up your alley. It's a pink sheet company. Solid rev and cash flow growth:
ReplyDeletehttp://financials.morningstar.com/income-statement/is.html?t=AMNF®ion=USA&culture=en-US
they pay a 6% dividend and that dividend has gone up 100% over the past 5 years. Last quarter they did $0.02 EPS (15% growth) on solid rev growth of 14%. And this was before commodity costs dropped pretty significantly which should have a nice positive impact on their bottom line. I love these types of companies. I believe I've seen their pesto sauce in my local store but I'm not positive.
MGA - Here's one for consideration, have a look.
ReplyDeletenew post
ReplyDelete