Friday, December 14, 2007

A Return to Regularly Scheduled Program

I believe that my brain cells have rejuvenated themselves. Bathed in fever and pain, they did not work very well. Cogency and coherency were the first victims. Until the last couple of nights where I actually got a good night's sleep, I didn't realize how sleep deprived I had been. Mark and I agree that "this" was one of the worst maladies we've had. Thankfully, neither of our children became ill--largely due to the fact that NOT spending time with us is something that they practice regularly. I was most concerned about my daughter who had college exams this week.

Santa Claus came early to my home. A friend sent me The Black Swan which I look forward to reading. I'm woefully behind on my reading given that my eye-brain connection was cut with impunity. Rather that feel the "need" to go back through my periodicals, I just tossed them. It was a freeing moment.

Roger Nusbaum has overtly stated that he thinks a bear market may be upon us. You can read about it here. The post is titled "Send in the Bears." The funny thing about bear markets, is that they are very much like recessions: They can only be seen clearly through a rear view mirror. I note that more and more commentators are now mentioning recession coupled with steeper odds.

While there is still much discussion about recessions and bear markets, it's worth noting again that it has to be worrisome that there is so much financial dislocation in the market. Remember that the financial markets are the lubricant for the financial engine. Well the oil drain plug has been removed and the engine is quickly running low on oil. Vince Ferrell, Jr. of Scotsman Capital Management stated that this was the greatest credit event in his lifetime. I believe that. As I wrote this, I decided to visit Scotsman's website. They are value investors, and you can find some information there that may be worth your time. I find Vince Ferrell to be one the most gracious and informed guests on CNBC. If he ran for office, I'd vote for him!

I feel like this dislocation has been under reported from its inception. For such a great event such as this, the opportunity for some really good EARLY financial investigative journalism was lost. This lack of credible coverage has cemented my view regarding mainstream financial media--which is that of providing us with watered down pablum. Here's my speculative account. It had touched just past $23K before I got cutsey with it with some ill made decisions (YHOO/RIMM puts in addition to what you see below)! My initial goal for this account was $20K by year end. At this rate, I'll be lucky to hold onto $20K.

Retirement accounts are mostly cash. So what you see here is the bulk of what I have "invested". One of the greatest reasons for my being mostly cash is due to the timing of when I received my qualified money. It was in January of 2006, and I felt then that we were getting close to a top in the cycle. I didn't feel compelled to keep it invested--particularly if I were buying at the top of a cycle.

I know, for I've read them, the admonishments of very bright minds and successful investors about staying fully invested. In a true bear market, few things escape, and even the most well diversified portfolio will fall to the its perils. I think that one of the most important things that an individual investor can learn how to do is hedge for those eventualities. And hedging requires as much consideration and diligence as crafting a portfolio. The inverse ETF's making such hedging more accessible to individual investors.

I don't feel compelled to stay fully invested particularly when I feel like the risks are high on a relative basis. I say relative basis for there is always risk in the market. But I sincerely believe that the economic cycle has topped, and the financial markets' distress is (to me) the clearest tell of that. For the life of me, I do not understand why it is glossed over by many.

That dim view does not mean that there are not still opportunities. There will always be opportunities. That sounds so simple, but it is deceptively powerful statement. If one thinks that there will NOT be further opportunities, one may be tempted to be hasty and reckless in action rather than patient and deliberate. I've been hasty and reckless with the poor results to show for it. You have too I'm sure at some point. I'm cultivating patience and deliberateness, and the mantra of "there will always be opportunities" is very foundational to that cultivation. I do not find holding cash a problem. It means that I have firepower for when opportunities present themselves. I'd rather wait for them to be more plentiful with a higher risk/reward ratio.

10 comments:

Anonymous said...

Leisa:

As unfortunate as being ill can be it sometimes gives us the opportunity to not be able to do the things we normally do.

Then we find that some of the things that we normally do are not really as important as we thought they were.

One of the things I have learned after going such a situation is that I can be away from daily goings of the market without having anxiety attacks... I not only know that there are times to go for a walk but I have learned to TAKE them so that I do not make "rash" decisions.

Best to you and all...

Anonymous said...

Since I am relatively new to your blog and you are on your way to full recovery I am looking forward to an increase in dialoque.

Anonymous said...

L-

BREADTH HORRIBLE AGAIN TODAY. Almost 3:1 neg. We are "lucky" to only be down a scant 100 given today's and yeasterday's readings. They have to be plugging a few big names in order to pull this off. If this keeps up for a couple of days I would watch out. I have seen this movie too. (Pardon to Elton John)

Cat

Leisa♠ said...

Update: When I wrote my blog entry this a.m., I wrote to Vince Ferrell expressing how much I enjoyed seeing him on CNBC. He always comes across as knowledgeable, graceful and objective--he is one of the best guest anchors that they have. Well he sent me a very nice response back.

Golfer: Thank you for your nice comments.

Dr. Bob: No apology necessary. I did own shares and did the "anchors away cast" on them when they were dangerous to breaking support. When it broke support. In fact, today I dumped all of my "speculative" crap except RTK in my Speculative account.

My Feline Friend: I halfway expected that today would close up--Friday and all that and folks closing out their shorts. I think that they took some on! I think that our ursine friend will visit. Slowing economy and increasing inflation is not a good mix. I suppose Larry Kudlow will have a positive spin that I'll decline to watch!

Anonymous said...

I think you will see another interesting spike in Gold/XAU, L. Sure seems we are headed that way. THIS time do not go long miners. Go long miners/short gold. I cannot articulate this. This is definitely "feminine intuition". :)

Tabby

Anonymous said...

Leisa:
I have only started reading your blog a few weeks ago having seen your comments on the Bill Cara blog. I too am very concerned about the immediate future. I work for a public accounting firm and have a number of conduit companies as clients. They are in terrible straits as they cannot find buyers for their products past next February. What is to happen if asset based finance ceases to be available to the average commercial borrower, especially since banks are cutting back on lending for obvious reasons. This has not gotten the play in the press it deserves. I am also perplexed by the lack of realistic stories presented on the business channels and magazines..Are we missing something here? Are we crazy and the rest of the world sane?

I uses an investment manager at UBS who thinks this will blow over inthe second quarter of 08' because of the elections. I instructed him to put me into the inverse ETF's two months ago and they are holding their own right now.

Anyway, this has gone on too long as it is. I will continue to read your thoughts on this blog as they echo my own.

Best regards,
Barry Patrich

Anonymous said...

Actually, upon reading to the very end of the Motley Fool article, I now realize that the author (a CFA) actually liked FMD and he said it sounded "very, very cheap". But that was published last week when the price was $19.93. Value investing isn't working in this environment. Not that anything is....

Leisa♠ said...

Dr Bob: Yes, I read the article and it was positive. I expected FMD to rebound which is why I picked it up around $16.30 (after closing my larger position 14 pts previously!). I sold that position once it looked like the deeper waters were beckoning. The entire sector is just pooh-pooh. Though, I'd not be surprised to see someone scoop them up. I'll keep an eyed on them. They went down to $13.5x or so today.

Barry: Thanks for stopping in. With regard to bad news, I don't think that you are going to see it on mainstream TV until we are wallowing in the misery of it--just witness the CDO debacle. You have your ear to the ground with your clients--always trust that first!

Ah, the joys of asset based lending. I've filled out many a collateral sheet! That's a mainstay credit line for many small/middle market business. They will get squeezed (I think I had a post on this not too long ago)unmercifully when the bank underwriters start to get Ebeneezer -like.

Tabby--I'm minerless currently. You're having feminine or feline intuition?! [g]

Anonymous said...

Things rarely play out the same way twice. I called the 8/16 bottom as you know (and the recent top and selloff as well)but my "gut" is that the relative return is all we get this time around. Not exactly thin soup but not the 50% gift we got in August.

Get better.

Purrfectly Fine

russell1200 said...

I have been swamped with business related Holiday parties.

I like R___ well enough, but I got tired of blanket statements from him that were not backed by any data. That he is calling for a bear market now could hardly be called going out on a limb.

He still seems to believe in the beta - correlations fairy, and that makes it a little hard for me to get real interested.

Of course you still have that TA thing going...but you don't act so earnest.