"Yes, the Federal Reserve has continued its program of quantitative easing, but here, I am convinced that we understand the data-generating process by which QE has impacted stock prices – namely, by creating an ocean of zero-interest money that acts as a “hot potato,” encouraging investors to seek riskier securities until all assets are so overvalued that their prospective returns compete with zero-interest money. At that point, the zero-interest money (which has to be held by someone) is just passively held, and acts as no further stimulant to prices."
I take this as a suggestion that as long as the Fed is buying MBS securities, new zero-interest money is being put out into the market, which will bid up risk assets. So the small decline we've seen in gold and silver since September 14 is not an indication of the fact that QE3 is not going to help PMs. It is simply an indication of the fact that PM investors put all the zero-interest money (which they were ready to allocate to PMs over the next few months) into PMs *ahead* of the FOMC announcement as soon as Bernanke hinted at QE3 in his Jackson Hole speech, and until they get more of that money from the Fed, gold and silver will not be bid up.
Another week, another time Hussman falls further behind the market with his fund down 0.5% and the SPY up 0.4%. If you look at the YTD chart for HSGFX compared to the S&P 500, you'd think you are looking at at S&P 500 inverse fund.
I still say Hussman does not have a feel for the current market at all and would not be basing any of my current decision making on his ideas. There will come a time when his approach comes back into synch with the market (unless he is a 1 hit wonder who got lucky by starting his fund when the market was overvalued, but value-type stocks were undervalued), but for now, I'd be looking other places for ideas.
I think one thing which is making people too cautious about the market is the fact that it has come up so much since the March, 2009 trough. The reality is that it was such a viscous bear market that a large bounce off the bottom would be expected.
Just got a new report from BMO which shows this and how measuring from the previous peak market, we are actually having a very slow market recovery and there is still a lot of upside room:
Despite prices more than doubling since its March 2009 low, S&P 500 performance cycle-todate has actually lagged other cycles, on average, since 1970. For instance, our analysis shows that the S&P 500 is typically 14% higher than its prior price peak at this stage of an average bull cycle (i.e., 43 months since a price trough). However, the current market trajectory remains about 7% below the October 2007 peak for the S&P 500. As such, the current cycle ranks ahead of only the 1973-1974 and 2000-2002 cycles where it took roughly five years for a full S&P 500 price recovery. Therefore, the market appears to have plenty of room to move higher over the next year or so based on historical evidence, in our view.
Overseas Shipholding Group (OSG) -47% premarket after saying financial statements for the last 3 years "should no longer be relied upon." The company is evaluating strategic options, including a Chapter 11 bankruptcy filing.
There were an awful lot of negative opinions in my mailbox today. Don’t fully understand why. I am standing by my views expressed Sunday morning in the WIR, and I can see that Europe’s banks and miners are doing well this morning.
-------------------------------------------------------------------------------- I bring it up only b/c it's an 'indicator' of sentiment. Source should be obvious.
There was talk here Friday(I think it was Friday) about a dead cat bounce. I think this is it. If the Q's get below Friday's low I'll be short again. (covered this AM).
Bought a few Nov $20 calls in FB at $1.05 this morning on a potential pop going into earnings (i.e, will most likely sell on any pop into earnings).
However, I've officially become a convert to the potential for FB longer term. The one area of opportunity I think they have is charging people a monthly fee for storing photos....kind of like a Dropbox model. Charge $5 per month for # of photos above a certain amount. While we are clearly not the core customers there are still tens of millions of users that use the site religiously and would be willing to pay for this. Lets say its 50 million people paying $5 per month...that's $3 Billion per year in add'l revs. My thinking is the laws of large #'s make this company worth a lot more than $40 Billion so if earnings are a miss and the stock drops to $15 I think it's a huge longer term buying opportunity.
Perhaps BB's daughter can she some light on the youngins feelings on FB. I know my wife posts pictures to the site regularly and is sharing stuff with family / friends regularly.
She is coming over tonight - I'll ask her. I know previously she had stated FB is becoming less popular with her group and Twitter was picking up, but I'll see.
Great idea, while she's there ask her if she's got a feeling for which way Treasury rates are likely to move going forward? ;) I really need some useful help positioning my portfolio!!!
From Bespoke via Jeff Saut (http://www.raymondjames.com/inv_strat.htm):
In 1987 the P/E ratio of the S&P 500 peaked at an above average valuation of 23.4 just as the market was topping out. Following the crash, the P/E ratio bottomed out at 14.4. This year stocks are far from overvalued and are actually below average (see chart). So far in 2012, the S&P 500’s peak valuation was 14.9, which is just half a point above the post-crash valuation in 1987.”
Brett Arends has an interesting article over the weekend about timing the market: It’s Time to Time the Market. http://online.wsj.com/article/SB10000872396390443624204578060550181314438.html Ritholtz: "After giving the usual reasons why market timing doesn’t work, he mentions an approach that is similar to my own: Using valuation and sentiment to make tactical adjustments (Incidentally, “Tactical” is the new buzzword amongst brokers and others who are not really using it properly)."
Long term, Arends argues, stocks and bonds are not cheap:
“Over the past 80 years, according to data from New York University’s Stern School of Business, bond investors have earned an average of just over 2% a year, adjusted for inflation. The only way an investor would earn anything similar over the next decade would be if inflation were negative.
Stocks, too, seem pricey. Over the past 130 years, U.S. stocks on average have traded at about 17 times mean earnings for the previous 10 years—a measure known as the “Shiller Price/Earnings Ratio” after Yale economics professor Robert Shiller, who tracks the data. Today the market is about 22 times those earnings, a level associated with frothy markets such as 1929, the mid-1960s, and most of the period from 1995 to 2008.
Another measure, “Tobin’s q,” also suggests stocks might be in dangerous territory. Tobin’s q, named for the late Nobel economics laureate James Tobin, measures stock valuations against the cost of replacing companies’ assets. Right now the reading is 0.92, about 50% above the long-term historical average. Stock returns from these levels have usually been subpar.”
In early May, I purchased 23 contracts of October $2.50 calls on AUMN at around $2. These calls were assigned to me over the weekend. I just sold the 2300 shares I got and instead purchased 30 contracts of April $5.00 calls at $0.60 and placed a buy limit order for 20 more such calls at $0.50. I feel that AUMN has made a local bottom over the past couple of weeks and should surge up soon.
FB- I remember I used to get a ton of emails when stuff was posted there. I don't think I've gotten one in months. I agree with JB though. If they can figure out on line gaming, that would do it.
YRCW - buying pressure seems to be mounting... RMCF - Taking it on the chin but I still like the stock. Could be a nice bargain as a result of a short term panic.
On 3-Oct how many people do you think they would see a $5.30 price for JRCC? David and I were buying at what $2.10? And we (or should I say I) were scared when it moved down to $1.90? sheesh.
The most important chart setup I have seen over the course of watching stocks much more closely since 2008 is the double bottom. I can't tell you how many times I've seen this but it's been a TON. For any company or sector that is in the middle of a bear market, this is the pattern I have seen over and over again and it clears the way for MASSIVE gains after a bottom:
(1) Long period of bearish trading...i.e., downtrend for at least several months if not several quarters or years (2) Steepest decline and worst pain is felt at the end as the chart points almost vertically down. Think of the alternative in a bull market where this is a blowoff top. This is the exact same thing. (3) A significant bottom is made and then there is a furious rally. (4) The rally fizzles out typically when the RSI(14) on the daily chart is between 60 and 70. (5) There is then a nasty pullback to as far as the prior bottom over the course of 2 to 6 weeks. (6) After this pullback pretty much all longs are cleared out and sell out at losses, sentiment is extremely bearish and no one wants to buy. This sets the stage for a massive rally.
Look at the charts in the following: ANR WFR FSLR $NATGAS JRCC FIO SVNT BAC from Nov 2011
I believe YRCW has already passed this part in its chart. It reminds me somewhat of the recent trading in JRCC. The setup is almost the same in every single stock that bottoms. Typically there is a huge nasty downward slide after a long period of downward trend
sorry meant to continue...after the bottom is hit and a subsequent sharp rally and then sharp selloff follows, if you think about it from a sentiment standpoint, most of the selling pressure is gone. who else is left to sell?
AONE - Must've been some smokin' good news to experience a 64% rally (gained $0.05).
ReplyDeleteBuyout must be fully priced now?
DeleteFrom Hussman:
ReplyDelete"Yes, the Federal Reserve has continued its program of quantitative easing, but here, I am convinced that we understand the data-generating process by which QE has impacted stock prices – namely, by creating an ocean of zero-interest money that acts as a “hot potato,” encouraging investors to seek riskier securities until all assets are so overvalued that their prospective returns compete with zero-interest money. At that point, the zero-interest money (which has to be held by someone) is just passively held, and acts as no further stimulant to prices."
I take this as a suggestion that as long as the Fed is buying MBS securities, new zero-interest money is being put out into the market, which will bid up risk assets. So the small decline we've seen in gold and silver since September 14 is not an indication of the fact that QE3 is not going to help PMs. It is simply an indication of the fact that PM investors put all the zero-interest money (which they were ready to allocate to PMs over the next few months) into PMs *ahead* of the FOMC announcement as soon as Bernanke hinted at QE3 in his Jackson Hole speech, and until they get more of that money from the Fed, gold and silver will not be bid up.
Another week, another time Hussman falls further behind the market with his fund down 0.5% and the SPY up 0.4%. If you look at the YTD chart for HSGFX compared to the S&P 500, you'd think you are looking at at S&P 500 inverse fund.
DeleteI still say Hussman does not have a feel for the current market at all and would not be basing any of my current decision making on his ideas. There will come a time when his approach comes back into synch with the market (unless he is a 1 hit wonder who got lucky by starting his fund when the market was overvalued, but value-type stocks were undervalued), but for now, I'd be looking other places for ideas.
I think one thing which is making people too cautious about the market is the fact that it has come up so much since the March, 2009 trough. The reality is that it was such a viscous bear market that a large bounce off the bottom would be expected.
ReplyDeleteJust got a new report from BMO which shows this and how measuring from the previous peak market, we are actually having a very slow market recovery and there is still a lot of upside room:
Despite prices more than doubling since its March 2009 low, S&P 500 performance cycle-todate
has actually lagged other cycles, on average, since 1970. For instance, our analysis shows
that the S&P 500 is typically 14% higher than its prior price peak at this stage of an average
bull cycle (i.e., 43 months since a price trough). However, the current market trajectory remains about 7% below the October 2007 peak for the S&P 500. As such, the current cycle ranks ahead of only the 1973-1974 and 2000-2002 cycles where it took roughly five years for a full S&P
500 price recovery. Therefore, the market appears to have plenty of room to move higher over the next year or so based on historical evidence, in our view.
Don't know if anyone else follows OSG - ouch!
ReplyDeleteOverseas Shipholding Group (OSG) -47% premarket after saying financial statements for the last 3 years "should no longer be relied upon." The company is evaluating strategic options, including a Chapter 11 bankruptcy filing.
Oh man, I probably owned OSG at one time or another.
Delete[7:00am ET] Good morning.
ReplyDeleteThere were an awful lot of negative opinions in my mailbox today. Don’t fully understand why. I am standing by my views expressed Sunday morning in the WIR, and I can see that Europe’s banks and miners are doing well this morning.
--------------------------------------------------------------------------------
I bring it up only b/c it's an 'indicator' of sentiment. Source should be obvious.
I read it this way: "I can see that Europe’s banks and miners are bouncing well this morning."
DeleteAccording to Marketwatch, the DJIA is down -221.
ReplyDeleteIt's been corrected.
DeleteSure makes me wonder if someone wasn't playing a cute game of some sort.
DeleteCAT sure is taking off.
ReplyDeleteGGB - The $9 gap up was closed Friday, seems like it was just yesterday. There are another couple of gaps up, one from $7.94, June 29th
ReplyDeleteCAT - Good gosh, WTF?
ReplyDeleteF - Notice this one still hasn't failed the lower trend line.
ReplyDeleteCAT - Oct 16th $83.2 gap up was closed today.
ReplyDeleteCSTR - I used an Redbox machine for the first time last night, had to stand in line(two ahead of me) way out here in BFE.
ReplyDeleteBFE?
DeleteBum Fu@k Egypt.
DeleteNSPH all off @ 3.13. Nice.
ReplyDeleteNice trade, Mark! 7.5%.
DeleteGood work on that trade, sell the press release.
DeleteThere was talk here Friday(I think it was Friday) about a dead cat bounce. I think this is it.
ReplyDeleteIf the Q's get below Friday's low I'll be short again. (covered this AM).
Bought a few Nov $20 calls in FB at $1.05 this morning on a potential pop going into earnings (i.e, will most likely sell on any pop into earnings).
ReplyDeleteHowever, I've officially become a convert to the potential for FB longer term. The one area of opportunity I think they have is charging people a monthly fee for storing photos....kind of like a Dropbox model. Charge $5 per month for # of photos above a certain amount. While we are clearly not the core customers there are still tens of millions of users that use the site religiously and would be willing to pay for this. Lets say its 50 million people paying $5 per month...that's $3 Billion per year in add'l revs. My thinking is the laws of large #'s make this company worth a lot more than $40 Billion so if earnings are a miss and the stock drops to $15 I think it's a huge longer term buying opportunity.
Perhaps BB's daughter can she some light on the youngins feelings on FB. I know my wife posts pictures to the site regularly and is sharing stuff with family / friends regularly.
She is coming over tonight - I'll ask her. I know previously she had stated FB is becoming less popular with her group and Twitter was picking up, but I'll see.
DeleteGreat idea, while she's there ask her if she's got a feeling for which way Treasury rates are likely to move going forward? ;) I really need some useful help positioning my portfolio!!!
DeleteSpain - Rates are up today, thus SAN is in the red.
ReplyDeleteRTH - Is this one rolling over, or set for additional upside?
ReplyDeleteMCD - Gimme one of them kabucha(pumpkin) burgers! Ummmmm! Sounds good, doesn't it?
ReplyDeleteUNG - Bounce here soon?
ReplyDeleteFrom Bespoke via Jeff Saut (http://www.raymondjames.com/inv_strat.htm):
ReplyDeleteIn 1987 the P/E ratio of the S&P 500 peaked at an above average valuation of 23.4 just as the market was topping out. Following the crash, the P/E ratio bottomed out at 14.4. This year stocks are far from overvalued and are actually below average (see chart). So far in 2012, the S&P 500’s peak valuation was 14.9, which is just half a point above the post-crash valuation in 1987.”
Brett Arends has an interesting article over the weekend about timing the market: It’s Time to Time the Market. http://online.wsj.com/article/SB10000872396390443624204578060550181314438.html
DeleteRitholtz:
"After giving the usual reasons why market timing doesn’t work, he mentions an approach that is similar to my own: Using valuation and sentiment to make tactical adjustments (Incidentally, “Tactical” is the new buzzword amongst brokers and others who are not really using it properly)."
Long term, Arends argues, stocks and bonds are not cheap:
“Over the past 80 years, according to data from New York University’s Stern School of Business, bond investors have earned an average of just over 2% a year, adjusted for inflation. The only way an investor would earn anything similar over the next decade would be if inflation were negative.
Stocks, too, seem pricey. Over the past 130 years, U.S. stocks on average have traded at about 17 times mean earnings for the previous 10 years—a measure known as the “Shiller Price/Earnings Ratio” after Yale economics professor Robert Shiller, who tracks the data. Today the market is about 22 times those earnings, a level associated with frothy markets such as 1929, the mid-1960s, and most of the period from 1995 to 2008.
Another measure, “Tobin’s q,” also suggests stocks might be in dangerous territory. Tobin’s q, named for the late Nobel economics laureate James Tobin, measures stock valuations against the cost of replacing companies’ assets. Right now the reading is 0.92, about 50% above the long-term historical average. Stock returns from these levels have usually been subpar.”
http://www.ritholtz.com/blog/2012/10/timing-the-market/
FIO - A one-quarter phenomenon?
ReplyDeleteAGO - Wow, this thing really trades, doesn't it?
ReplyDeleteJOEZ - Shakeout here?
ReplyDeleteIn early May, I purchased 23 contracts of October $2.50 calls on AUMN at around $2. These calls were assigned to me over the weekend. I just sold the 2300 shares I got and instead purchased 30 contracts of April $5.00 calls at $0.60 and placed a buy limit order for 20 more such calls at $0.50. I feel that AUMN has made a local bottom over the past couple of weeks and should surge up soon.
ReplyDeleteThanks guys...
ReplyDeleteFB- I remember I used to get a ton of emails when stuff was posted there. I don't think I've gotten one in months. I agree with JB though. If they can figure out on line gaming, that would do it.
YRCW - buying pressure seems to be mounting...
ReplyDeleteRMCF - Taking it on the chin but I still like the stock. Could be a nice bargain as a result of a short term panic.
HSY looks a bit puffed up to me, do you think so too?
Deleteclosed out my remaining 2 spy puts
ReplyDeleteclosed out my ONE remaining GOOG put.
ReplyDeletecoal stocks are just running, too bad i didn't hang on to those 7000 shares of ACI that i fat fingered bot last week
ReplyDeleteOn 3-Oct how many people do you think they would see a $5.30 price for JRCC? David and I were buying at what $2.10? And we (or should I say I) were scared when it moved down to $1.90? sheesh.
DeleteAll I can say is, that was loads of fun....
ReplyDeleteNo doubt.
DeleteNSPH- Well that one tread ruined the chart..maybe that was the idea???
ReplyDeleteThe most important chart setup I have seen over the course of watching stocks much more closely since 2008 is the double bottom. I can't tell you how many times I've seen this but it's been a TON. For any company or sector that is in the middle of a bear market, this is the pattern I have seen over and over again and it clears the way for MASSIVE gains after a bottom:
ReplyDelete(1) Long period of bearish trading...i.e., downtrend for at least several months if not several quarters or years
(2) Steepest decline and worst pain is felt at the end as the chart points almost vertically down. Think of the alternative in a bull market where this is a blowoff top. This is the exact same thing.
(3) A significant bottom is made and then there is a furious rally.
(4) The rally fizzles out typically when the RSI(14) on the daily chart is between 60 and 70.
(5) There is then a nasty pullback to as far as the prior bottom over the course of 2 to 6 weeks.
(6) After this pullback pretty much all longs are cleared out and sell out at losses, sentiment is extremely bearish and no one wants to buy. This sets the stage for a massive rally.
Look at the charts in the following:
ANR
WFR
FSLR
$NATGAS
JRCC
FIO
SVNT
BAC from Nov 2011
I believe YRCW has already passed this part in its chart. It reminds me somewhat of the recent trading in JRCC.
The setup is almost the same in every single stock that bottoms. Typically there is a huge nasty downward slide after a long period of downward trend
sorry meant to continue...after the bottom is hit and a subsequent sharp rally and then sharp selloff follows, if you think about it from a sentiment standpoint, most of the selling pressure is gone. who else is left to sell?
Delete6 yrs in jail for brokers who short customer advisement.
ReplyDeleteJust found another useful sentiment indicator for the gold market:
ReplyDeletehttp://www.kitco.com/kgs/goldsurvey_october19.2012.html
Gold should rally this week...
I concur, based on today's PM mining sector action.
Deletenew post
ReplyDelete