Tuesday, September 18, 2007

Beetlejuice!

Beetlejuice! Beetlejuice! Beetlejuice!

In the movie (1988) you could say the above three times and summon Michael Keeton playing Betelgeuse. I'm not sure what happens if you say it now. Clearly, something should be said three times.

I would say that I was positioned neutrally ahead of this. About 60% cash, 30% long and a 10% impetuous, foolish short which I quickly covered with no real harm done. EGO and WGDFF, my gold stocks have done quite well.

I don't think that the Fed being so compelled to move is good. Yeah, I've heard the the same stuff that you have about the stock market soars when the Fed starts cutting. Is that true when the Fed is cutting to prevent the banking system from grinding to a halt or to keep homeowners from jumping out of the window. The PREMISE for this rate cut to be positive has to be that it will provide stimulus to the economy. Here's what I think for what it's worth:

  • The Fed cut provides triage to the financial system and homeowners. I do not think that this will be stimulative.
  • The dollar is toast--it fell today so look for higher commodity prices.
  • Higher commodity prices put the kabosh on the consumer in many ways.
  • Food inflation which hits everybody's pocketbook is only going to get worse.
  • If the economy is in danger to the extent that the Fed thinks to bring about this double bowed gift (1/2 point decrease in Fed Funds and 1/2 point decrease in Fed discount), then look for pressures on corporate earnings. Earnings will decrease but stock prices are rising! John Hussman is going to love that given that he thinks that things are already overvalued.
Having said all of that, I think that as the dollar strengthen from whatever bottom that it is or will make, our stock markets will be attractive.

I also think that this massive movement had the explosive feel of a short covering rally (I still remember the fellow on CNBC saying he would short hand over fist into last weeks's rally. He must be crying now.) Surely some boats were floated that were not deserving.

I sold my 800 FIG shares into this strength. It shot up and I closed out at $19.40. It settled at $18.91. Oh, it may go higher, but I bought this on a technical basis, so I was happy to exit it and lock in some gains. I also sold the last 200 shares of my UNG today.

I noted that USAP went up 15.5% today. They had a big short position--you might want to watch it. I'd watch it for a potential short.

I hope that your day was good. Certainly, if I were more fully invested, I would have had a greater gain, but I've been happy with my portfolio performance relative to my risk exposure. I've trade 1 account that amounts to about 1/3 of my total portfolio and I squeezed out an 18% gain over the last 30 days. It has been arduous trading. That percentage was 25% until I had a couple of unfortunate Friday and Monday. Easy come, easy go. But it really never is easy!


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8 comments:

Anonymous said...

LEISA,

AMEN,AMEN,AMEN TO YOUR THOUGHTS

VAVOLINE6

Anonymous said...

Leisa,

The right thing to do here is to position yourself for a rising stock market for the next 12-18 months. Check with your technical friends. Up days like this are the launching point for rallys.

The dollar has nothing to do with equity prices. Since 2003, the dollar has dropped like a rock, and the S&P went vertical at the same time. If they have ever historically tracked each other, its coincidental.

Anonymous said...

leisa-

the only market "analysis" that seems to work for me these days is to try playing against investor psychology, and i have to agree with the above post, at least for the ST...the fence-sitters need to buy-in before the market is "ready" to go down...

2nd_ave

Anonymous said...

Anon-2 says,

"The right thing to do here is to position yourself for a rising stock market for the next 12-18 months. Check with your technical friends. Up days like this are the launching point for rallys."

I think Leisa will rely on the wealth of knowledge she has gained through her own approach to assessing, tracking and participating in the equity markets. To me, her actions demonstrate a near instictive quality that I believe has served her well. :-)

As for me, I have my doubts that the action today (9/18) will launch a sustained rally. The volume was NOT impressive at all and I saw no significant rotation out of defensive stocks. Plus, the 50 bp Fed cut does not send me an all clear signal like it does to the CNBC talking heads. Actually, it does just the opposite...it gets me thinking about what I don't know about how bad things may get...it also gets me thinking about the equity markets post the last 50 bp cut that kicked-off an easing cycle...think 2001-2002. And while I'm thinking about these types of things, I wonder how far the dollar will drop and how long it will be before the dollar rises above 80 again...which in turns gets me thinking about how much pressure will build for interest rates to rise...and whether the rise will be gradual or explosive...think 1987.

You seem quite certain about a rising market over the next 12-18 months. I call that clear vision. Unfortunately, my vision is being blurred by recent market history circa 2001-2002. To refresh your memory, the surprise 50 bp cut on 1/3/01 resulted in a STRONGER up day than today, followed by 3 down days, followed by an approx 3 week steady rise that ultimately failed and led to a 20% correction over the next 2 months.

Wall Street got what it wished for today. Now we have to ponder the saying, "be careful what you wish for."

Glenn

Anonymous said...

Glenn,

Think 1998. Lowering interest rates during a flattening market that is caught up in the (asian) liquidity crisis.

Anonymous said...

MacroMan puts it succinctly:

"Let the good times roll.......hangovers are for suckers, worriers, and the sad bastards who don 't live under the warm embrace of friendly central banks.

Damn the torpedoes, full speed ahead!"

Leisa♠ said...

Anon 8:11 p.m.--That may very well be the right thing to do. I don't know. Nobody does really. But times such as this are the ones that I struggle with. Expected fear was confirmed. Now the question is did the market price it right.

The trouble with looking at 3 previous data points is that it is such a small sample I do think that so long as earnings hold up then all will be well. But I don't think that the housing slowdown--which is monumental--as winnowed its way to corporate earnings.

Any of this seems like betting on the come--and I suppose that is what investing is. And whatever comes could be divergent from what you bet on and that means a little (or a lot) of kaching out the door.

I dithered around on Monday looking at some FMD $40 calls that were cheap. I elected not to get them. I closed my FMD out last Friday at $37.10--I had a 20% gain. I just didn't want to hold into the decision. But. . .. oh well, "but's" don't get you anywhere. Sometimes its best not to overthink things!

Valvoline--thanks

Glen--oh, my instincts are only good on odd days in months that end in "r"!

2nd-ave--yes, it is all psychology until reality comes thundering down. What I truly wish for is a contemporary short interest reading--I think that statistic is always one of the most telling when one sees explosive moves.

They just announces CPI. Another good day for the market.

Anonymous said...

Looking through the CPI numbers, I see that real average hourly earnings is up a strong 0.5% for August and 4.4% annually. This will result in strong consumer spending for the next few months and is consistent with the trend for this datapoint.

Core CPI is up 0.2% and 2.4% annualized. The Fed tries to maintain a 2.0% percent window over core which supports this rate cut and to leave them a little breathing room for another cut if necessary.