Sunday, June 21, 2009

A Tale of Two Indices

I present these two charts for your consideration. Can you guess why?




The first chart is the US Home Construction Index to which much is attributed when the constituents thereof begin to show some life (read green shoots).  The second chart is the Fixed Line Telecommunications Index….  I would suggest that we could see some multi-year languishing in the former based on the latter.

Sunday Morning “Stuff”

I continue to believe that the inflationista v. deflationista smackdown continues to be one of the single most important conflicts in the market today.  The resolution of that conflict—and the simple of unfolding of time will reveal the winner—will create two distinctive pools of winners and losers.

Puru Saxena was on Financial Sense Online.  He gave a very cogent explanation as to why he did not believe that we were going to have hyperinflation—pointing to several periods, the Great Depression being one of them, as well as to the Japanese example.  The velocity of money seems to be crawling at a snail’s pace—and supply without movement = constipation and economic discomfort.

Peter Schiff is the penultimate poster child of avoiding one trap but falling into another.  Though he ably (and with much ridicule in the beginning) called the financial crisis when it was unpopular to do so, he believed that the results of all of the government’s reactions to it (e.g. the printing of money) would lead to hyperinflation. Positioning accordingly with investments in commodities (at their peak) he suffered the same investment losses had he just stuck his head in the sand as many other investors do during bear markets.

None of us can lose sight of the very real fact that we can be right about one thing and very wrong about another.  Should you successfully navigate through treacherous terrain littered with quicksand, that success does not mean that you’ll not get bitten by a deadly snake after safe passage. 

While the financial institutions have had ample help by the government in getting their capital bases in order after monumental losses on the asset side of the house, the balance of the population gets no such help.  Our investment losses and debt burdens are distinctively ours to bear.  Debt can only get serviced through the liquidation of assets and/or the application of an income stream (wages).  Until asset prices for homes and investments improve, liquidation runs a risk of leaving a gap between the liquidation proceeds and the debt. 

There’s so much nonsensical talk about green shoots.  If we are to believe the lessons of the past bear markets, then we must wrangle with this:  there was not a time where the market failed to respond to good news.  It is true that the market STOPPED responding poorly to bad news.  However, the complement needed to have a melancholy bottom reflecting true despair to the point that it was immovable to even good news never came to pass.  I believe that my observation is accurate, but if not, I would welcome being corrected if this view is distorted.  It’ is something that I think about.

While life is complicated, it is often unnecessarily so.  Often, simple answers must be coaxed out by asking simple questions.  As I’ve asked in this space against the backdrop of much nonsense about “global liquidity”, “the emerging market consumer”, and all manner of effervescent phrases about how things would go up, and up AND UP, is this: 

What do you have to believe to be true?

. . . . to support whatever your allegation is regarding ‘facts’, or ‘reality’.  A simple listing of what you have to believe to be true to support advanced nonsense (which is always wrapped in a robe if credibility) will be enough to shake you out of a euphoric stupor.  It works for the obverse as well if melancholy has unshakably set in—so I’m not trying to pick sides.  It’s also worth noting that a simple answer of “I don’t know” to such a question posed is perfectly acceptable and always true, for none of us can ‘know’ the future.  Anticipating and betting on the wrong outcome can be dangerous to one’s portfolio as Schiff demonstrates.

While there is a polarity of the inflationista/deflationista conflict that confers a different ugly set of circumstances for either outcome, there is an in between place of hedging one’s risk—setting up a Swiss flag in some small space between the inflatinista/deflationista camps (but out of the direct line of fire).  John Hussman is a master of this strategy, and if you do not read him, you should.  He has a measured approach that most notably measures returns over an entire market cycle.  Short term comparisons of his performance v. the market indices are irrelevant as he is managing risk and return over longer periods—to include the great down drafts.  Hedging is the perfect antidote to uncertainty.




Sunday, June 14, 2009

Sunday Morning ‘Stuff’

I looked at my sidebar and see that YTD, I only have 59 posts. I used to do that in a month. Before I had my own blog, I used to yap a bit on the blogs of Bill Cara, Roger Nusbaum, Real Money, Tim Knight, and Barry R. I still post on Real Money, and I've recently started posting on TK's blog again. He's such a following there was just a handful some years ago as was BC's.

Yesterday, I reviewed my year to date performance—specifically my win/loss.  I do not do that regularly.  I’ll be frank, in 2005 I probably would have vomited had I seen the number.  There is a compulsion to bet large—treating the market as a Lotto.  It’s too easy to think that way, and parts many (including me) with their dollars. 

I’ve been doing a much better job of holding onto my dollars.  But I wanted to share it with you.  This is 2009 performance to date.



The above represents my maturation as an investor.  I’ve kept my stock exposure low—the above is performance using no more than 15% of my portfolio committed at any time. I believe that performance really is about controlling losses.  I’m regretful that it took me so long to understand that.

Further, I know that I don’t manage my gains very well. But that is part of the continued maturation.  But the real source of pride (that’s a hateful word) is that my win/loss ratio is where it is.  The above numbers (% gain/loss) is inclusive of fees, and exclusive of dividends.

I’m currently 87% cash.  I sold my WH into the orgy fest of buying on Friday.  It may very well be an example of selling too soon, but I’ll took my 54% gain and ran.  I’m missing out on the .43 dividend that will pay out.  But I figure my dividend was front loaded.

Why did I sell….I’ve been trying to stick with my buy low volatility and sell high volatility scheme with the qualifiers that

It’s nascent, highly probably that it is poorly informed, and likely that it is poorly executed.  Nevertheless, I’ll not let those things stand in the way.



I’ve highlighted for you the volatility narrowing periods.  This stock has a good opportunity to go much higher if the volume can support it.  I’m hoping that it will pull in and consolidate, at which time I may re-enter.  I feel that the LOW RISK entry and money has already been made. I’ve owned this stock for a little bit, having survived the dip to the depths (would that I had bought more!). I increased my position by 2/3’s in the last volatility narrowing and then 3 days later…POW!

Anyway, I like looking for these types of stocks. And this strategy has been successful for me. Here is Great Basin Gold.  It is in a channel and holding tight to the 10 EMA.  I’m not sure where this thing is going to break. It is an example of the Bollinger Bands in side the Keltner Bands.  There if it breaks upward—terrific.  If it breaks downward…Wahhhh!



Here’s UNG….The volume in UNG has been nothing short of phenomenal. I’m not sure if it is good or bad but we’ve seen the same  I’ve some UNG in my account and my I’ve a rogue SEP IRA of my husband’s that is in FSNGX (Fido mutual fund).


I believe that the Utilities are looking pretty interesting here in terms of volume and price patterns.  I bought some UPW on Friday.  I should note that often it is better to be in individual stocks that are going to move in the group rather than the group itself.  But I was lazy (read:  busy) and I did it the easy way.


With UNG being at a key inflection point, you might find that the gas utility stocks might be of interests. 

In my Kelt/BB filter, I found this stock—UTL.  You can read about them here on FINVIZ. I may buy a little on Monday.  I’m not clever enough to know what this flattish H&S formation could dole out---so there is a bit of a worry



Here are the other stocks that show up on the filter.  I’ve no opinion on them so much, and you KNOW that I do not make recommendations to buy or sell.  However, I do want to demonstrate for you some of the things that I’m considering/doing/abandoning to support the mission of this blog.    stock screen that has proved to helpful.




Ever since I loaded Windows Live (which has certainly made blogging with images etc so much easier) my Word has not worked.  In fact nothing worked to well and I had to do all sorts of restorative stuff.  Anyway, I broke down and I upgraded to MS Office Professional 2007 to replace my MS Office Professional 2000.  I got my money’s worth.  I also purchased the Visio—I needed a flowcharting program for my client work.  At least it is a business expense.

Now I’m off to work to meet my looming deadlines.

Celebrate the splendor and grace in your day (if you can find it!)

Thursday, June 11, 2009

Trolling in the Low Priced Waters—Crabs may be nipping at my toes!

Remember my PDRT and my dumb ass admission about not selling into it….they’ve declared bankruptcy—just days afterward.  My opportunity to sell at .35 now is an opportunity to sell at .02.  So never believe (and I don’t) that the stock price discounts all known information!  A good lesson in doing the hard thing (selling into a froth and locking in profits or the obverse) is often the right thing.



I’ve been deploying, with very good success, my buy low sell high mantra as it pertains to volatility.  By low volatility, sell high. I’ve been screening for stocks where the Bollinger is inside the Keltner Channels or some variant where the price is breaking above/below the Keltner channel.  I found SPRD on such a scan.  Day before yesterday, I elected to act on that find.  I put a buy in for a limit of $2.40…it was hit, and for a little while it was the high of the day.  I felt cheated! But, the darn thing took off. I sold .75 of my position at 2.88.  It went past $3.00, and I had remorse.  Those emotions!

Also in the Chinese wireless space is CNTF. Here’s a chart:



Some will remember my Acapulco Cliff diver cum mountain scrambler stock, WH which I’ve held steadfastly because I believed that fundamentals trumped technical action.


Of course, my position was small enough that I could do this and not be bothered.  I did not sell into this spike.  I’m just going to hold and perhaps add to this position over time.  The volume is constructive….but the volatility is high, and it is not for the faint of heart. 


Here’s another holding….Seemed like a low risk entry @ .76.


While I don’t normally troll in these waters, I’ve had the best luck with the “Stocks under a $1” crowd.  Here’s my final holding.  I find the volume interesting.  The chairman owns a good bit of this stock and has been selling.  Someone is buying….I have this stock at a whopping basis of just less than .20 per share. 




New Dragon Asia Corp., together with its subsidiaries, engages in the milling, sale, and distribution of flour and related products to retail and wholesale customers. It produces and markets wheat flour for use in bread, dumplings, noodles, and confectionary products. The company also provides various instant noodle products, such as packet noodles for home preparation, as well as snacks and cup noodles for outdoor convenience. In addition, New Dragon Asia offers soybean products, including soybean protein powder and soybean powder to food and beverage manufacturers. Its flour products are marketed under the ?Long Feng' brand name. The company sells its products principally through distributors in the People's Republic of China. New Dragon Asia also exports noodle products to South Korea, Australia, Malaysia, and Indonesia. The company was founded in 1999 and is based in Longkou, the People's Republic of China.

Seemed like a decent prospect to be in a stock that fed the hungry masses--though their sales performance has markedly declined (which is not generally a good sign). It's a flier to be sure.

My son graduated from HS on Saturday.  He is down at the beach…he’s not bothered to call.  I called for just 30 seconds to ensure that he was okay.  It sure is freeing to have him reach this important milestone!