Best/Worst 10 Industries for the last 3 months

Here's a view of top and bottom industries for the last three months. Formatting is a little iffy, but........

T H U R S D A Y , N O V E M B E R 1 3 , 2 0 0 8 3 month Top Performer DJ US Electricity Index (7530) Last: 136.41 Percent Change: -2.84% Select the performance time period to sort the best and worst performers listed below: 1-week 1-month 2 months 3 months 6 months YTD 1-year 2 years 3 years 4 years 5 years 10 Best Performing Industries Industry Name Percent Change (over time selected) DJ US Electricity Index 8.13% DJ US Aerospace & Defense Index 4.22% DJ US Water Index 3.90% DJ US Forestry Index 0.00% DJ US Brewers Index -4.70% DJ US Nondurable Household Products... -11.96% DJ U.S. Household Goods & Home Cons... -18.28% DJ US Waste & Disposal Services Ind... -19.92% DJ US Fixed Line Telecommunications... -20.13% DJ US Beverages Index -20.36% 10 Worst Performing Industries Industry Name Percent Change (over time selected) DJ US Full Line Insurance Index -89.24% DJ US Mortgage Finance Index -80.69% DJ US Platinum & Precious Metals In... -79.42% DJ US Tires Index -71.71% DJ US Nonferrous Metals Index -68.65% DJ US Aluminum Index -68.10% DJ U.S. Industrial Metals & Mining... -67.59% DJ U.S. Iron & Steel Index -66.71% DJ US Mobile Telecommunications Ind... -66.66% DJ US Coal Index -66.38%

Something for Underneath your Hat: Faber

Christophe

Villedary (click on image)

If you were to put anything under your hat today, I would recommend that you partake of this gem of a broadcast from Bloomberg. It has both Marc Faber and Charlie Maxwell in it ~~ http://tinyurl.com/3g359f:

In listening to this broadcast, I felt that a few of my ruminations as I try to make sense of all of this 'stuff' were affirmed . . .

• the probability of "L-bottom" recession;
• that CB's efforts are small relative to the scale of of the asset deflation;
• the scale of our commodity consumption and the linkage to that of China's;
• that deflation would be with us prior to inflation.

I also appreciated his reflection on comparing S&P earnings yields with that of junk bonds (rather than traditional corporate bonds). While I have far to go in terms of thinking facilely about asset allocations, I'm becoming more comfortable with understanding the movements among asset classes in addition to the effects of currency disparities. That comfort is centered on nothing more than a rudimentary (if that understanding), but even having cognition of these issues puts me a little further up on the learning curve than I used to be.

A Cornucopia Post!

Cvilledary@aol.com


I received a link to this artist's work via e-mail. It is the second one that I've received. I thought that I would feature some of this French artist's work. I liked them. His contact information is above, and you can click on the picture and be transported to his website.

I've a cornucopia of things today to share with you. But I'll try to be brief.

The Election: The McCain campaign aides seem to be eating their young in the worst sort of teeth gnashing, flesh ripping and bone crunching sort of way with what they are doing to Sarah Palin.

Personally, I thought that McCain's choice was poorly thought out. I tried to be open minded about his pick (I felt it my duty as a voter to give due consideration to both candidates), but I could not find much traction in climbing that hill. Rather than choosing someone to truly complement the ticket, he found an anvil and jumped overboard.

It was surprising that there was so little coverage of Biden. But what I REALLY MISSED was not having Molly Ivins' voice.

Fit by Fifty: I've completed my 12th week. It's hard to believe that three months has already passed. Yeah! Here's my heart zone training summary by week. My Z-factor is the effort.

I will be earning on average 500 points a week each week now that I've completed my base. I needed more than 2 months to complete the base.

Ella-Rose: English Setters are a pain in the ass! These dogs are built to run all day long. My little Houdini! And when they run their ears stop working. Baby steps. Baby Steps. Both Greta and Daisey were problematic. The acclimation period is tough on everyone! She swims. She herds goats. I think that Sugar gave her some lessons on the latter. She's a strong swimmer though, so I suspect this is something that she enjoyed doing in her former life.

Stock stuff: I found a couple of charts to share with you. I found them by doing a 3x relative volume on FINVIZ. Something for YOU to look at if you like. They are charts that caught my eye. I posted it on Real Money and Rev Shark (the blog that I post on) mentioned that he had a position. I felt that my eye was a bit validated. I did want to share it with you:

Here's EMS (click to make larger):


I've done no due diligence, nor do I have a position.

Do listen to Tim Wood this week on Financial Sense On line. You can download the audio file here. Tim thinks that we will retrace some portion (50-75%) of the Dow's run from 12.13.74 through the top in October 2007. In 1974, the DOW was 570. A 50% retrace is 7385+/-. A 75% retracement is 3692--5539 is someplace in between. He's been pretty right about stuff. I don't see any easy fixes, and I'm still in the deflation camp.

Colin Twigss--If you like charts, then do read his stuff. I find his writing and his charts both clear and understandable. He speaks of th liquidity trap of placing rates so low that savers pull money out of banks....then banks call loans...then death spiral.

That's it for today. I hope you do something restorative this weekend.

Put it under your hat

As we awake this a.m., we see that the world has had a follow through day to the downside. I suppose the temporary euphoria leading up to our country's national election has not been replaced with the realization that the worlds' economy is a mess.

There's a reason for my hat picture. It has to do with the saying of "Put that under you hat." Not too long ago, there was no cognition (though the facts were there) that the world, in addition to the US, was slowing down. Now the facts are inescapable and the market is going through its process of price discovery.

While some will argue that the macro picture does not mean much, and that you should watch fundamentals and/or watch technical analysis, I just don't agree with it.

First, with respect to fundamentals, witness what is happening to the banking stocks. NO ONE has currently figured out the fundamentals of these stocks because of the obliqueness of their assets and liabilities. Dick Bove just three months or so ago was saying that bank stocks were fine that these write downs were "balance sheet losses" and did not affect cash flow. I never understood his comment as a bank's assets (unlike a manufacturer's assets) are designed to be repaid. And....if they are not repaid, it kinda sorta affects cash flow. If you make it a practice to follow analysts, you are destined to lose money.

Second, with respect to Technical Analysis, the technicals tell you part of the story. A stock may have risen far beyond any reasonable fundamental underpinning. It doesn't mean that it will not rise further, but you have to be able to assess the risk. I think that some fundamental information, flawed though that it may be, is helpful in filling in the blanks. However, armed with some sense of the backdrop to all of this fundamental and technical stuff, the macro view if you will, you are better equipped to see 'potential' for misrepresentations (to the upside or downside) of the stock price against its 'true' value. (HMO pricing power, and fuel surcharges on the rails are two examples of fundamentals that were ephemeral, but lobbed out by every analyst who said they loved these sectors. I knew differently--and simple logic was all that was needed to prevail). Remember Musashi: Become ware of what is not obvious.

Also, when you see what I'm going to call 'outlier' information -- early information that abrades against the consensus view--it makes sense to 'put it under your hat'. Think about it. Be informed by it. Build a thesis around it with respect to sectors and stocks within sectors that will be helped/hurt by it. Then wait like a spider to see the fundamental and technical confirmation of your thesis.

News of China's slowdown becomes more widely reported every day, now. Helene Meisler on Real Money mentioned something about 8 months ago that always resonated with me (but before the topping and fall of the Shanghai market): that China had already completed the bulk of its building for the Olympics. Quite reasonable, but the wider media was not reporting it, but rather sticking to the worn stories.

As we move through these murky waters of trying to find a bottom, your putting things under your hat and watching and waiting patiently like a spider will serve you well. I promise you that the wealth of information under your hat is likely to outstrip that of what you hear in the popular media. Having a good system for organizing and referring to you hat system info is also a good idea. I cannot say that I have any tips on that.

Fire it Up; Ready to Go

One of my transport colleagues sent me this link: http://www.youtube.com/watch?v=1vlM3x-GoCA

It is of Obama's speech in Manassas. I've not watched any of Obama's speeches, but I have to say that in looking at this, it was clear to see his ability to outreach to others. Whatever your politics, it is a moving speech. It is also a reminder of our personal responsibility (which you will understand if you see the video) for what we bring to any venue in our lives: our relationships, our work environment--even our relationship with ourselves.

We can choose to be a positive force or a negative force. I'm not trying to sound preachy, but rather remind of the power of our intentions and what we project outward. I believe that what we project outward does come back to us.

Our future is not in the hands of our politicians--but in our own. As citizens, it is our responsibility to be a positive force of change--that means supporting your causes and putting your shoulder to the wheel of your causes to move them forward. Carping from the sidelines is never a productive option.

I have a very simple philosophy. If I'm finding that I'm railing against something, I step back and ask "How can I change this?" If I'm not willing to step in and work for change, then I've not earned any right to bitch about it. And if one channels their carping energies into working for change, you'd be surprised what you can accomplish. I think that simple philosophy has enabled me to make meaningful change in the organizations that I've worked with.

I'd caution that it does not work with people. You cannot change people, but you can change how you view their actions. Most times, the things that are irritating to us about others are OUR issues, not so much their issues. (Unless of course they are hurting you physically, emotionally, or financially). So when irritated with/by others, it's best to look within and cultivate patience and understanding. These are more precious than gold, and I wish my stockpiles of bother were higher.

A. M. Post

I watched a little of the election results. The time change works hard on this body--it never used to be noticeable until the last two years. Though I started yawning at 8:30, I went to bed around 11:30. My eyes no longer wished to cooperate.

I did turn the clock radio on around 2 a.m. and I heard McCain's concession speech, as well as Obama's victory speech. Some notables were that both Ohio and Virginia, both strongly Republican presidential voters (though we frequently have Democratic governors), and New England has not one Republican senator House Seat (Thanks Glenn!).

I have just one hope: That our country will come together and put their collective shoulders against the massive wheel that needs to be moved. And I would make that statement regardless of who was elected last night.

PM Post

As so much about the market is psychological, I wonder about the rather dramatic bear markets of 2000-2002 and the current bear market upon us and their collective effect on the psychology of the baby boomers. I think it is fair to say that as credit contracts (through reduction in home equity values as well as real contraction) combined with higher unemployment, that we will see less employee AND employer contributions to 401(k) plans. Further, we have wholesale implosion of hedge funds (through their own liquidity contraction).

From where will the money come to fuel the stock market's next rise? The rocket fuel for the last blast is mostly spent. I see rumblings now about this or that emanating from the 'new' administration. Overall, though, I'm having a difficult time seeing the rocket fuel--but perhaps it will simply be from Treasuries?

GDX was up 13.76% today. I have one mining stock: TGB. It has recovered meagerly from its swan dive! I'm still underwater, but hanging on. I sold WX today. Perhaps another future lament. I also sold UYG. I had nice gains over a very short period of time in both of them (20% & 34%, respectively). These were both in a SEP IRA account, that I returned fully to cash. Remember EGO? I'm not in it any more, but it was up 23=% today. You might want to take a look at some gold mining stocks! (Pehaps an insurrection is being priced in!)

UPW and SSO turned green today. I still have FSIN and SSRX, but these are very small positions--as were WX and UYG. I consider any gain to be sort of like a dividend!

I hope that you had a good day. Tonight will be interesting no matter what happens. Seeing the market's reaction will be interesting too!

Morning Post

I'm listening to Gary K. He's not thrilled with the market action. No leadership. Pitiful volume. He does note that the airlines are getting a bid. In general, he's viewing this rally with a wary eye.

I'm still of the opinion (and GaryK mentioned as well) that this market is like none that any have ever seen. As you know, I've put little stock in any pundits. I do not consider GaryK a pundit, but I guess he really is. But he has proven himself the most objective and accurate market observer that I've seen.

I mentioned that I had a Chinese take out of three stocks: SSRS, FSIN, and WX.

WX has done very well. The others are 'eh'! The volume could be a little better here. But the volume no where is very good.

Remember EBS, my pick some time ago that hit my stop at 9.68 or something ridiculous--to the penny and then went back up?

HEre it is

It went off without me.

The futures are wild this morning. Today will certainly be an interesting day. I hope that you take time to exercise both your privilege and your responsibility to vote. And, if you are unhappy with the outcome, it is worth asking what you could have personally done on behalf of YOUR candidate to have enabled a different outcome.

'Familiar Dogs' and Used Books'

It has been a busy day. I ran with all three dogs today. Yep. I had Ella-Rose on a 6' tether, and my other two girls on 26' retractable leashes. Ella did not pull at all. She has wonderful leash manners.

I'll tell you what is a little beyond weird. One of the reasons I became enthralled with her is because she looks so much like Lucy. ---------------Break Away----------------

I began writing the above last evening. I looked up Llewellin English Setters, and I realized that for many years I have been operating under a terrible delusion. Well, two really. First, I've always spelled Llewellin as Llewllyn. Second, I mistakenly thought that these were tri-colored dogs. We were told that Lucy was a Llewellin Setter. Mark just informed me that the person who told us this was a 'third party". He grew up with Llewellin's and declared Lucy to be one. So her lineage is suspect. She was from pedigreed stock, I do know that because she came from a friend of my Mom's who bred these dogs. He had a litter and my father asked for a pup for my stepmom's (my mother had died and my dad had remarried) daughter's family. I'm not sure how we came into getting a dog in addition to them (perhaps my dad asked, and I said, "Sure".) We paid for her shots (though I do not think my dad even did that for the other dog). Naturally, we did not get any papers for her. The other dog went to live a life of hell--kept inside, not allowed to run and ultimately causing much trouble (terrorized by young kids) before running off and never to be seen again. They were many states away, so intervention on my part was not an option.

Rather than "Llewellin" designating a color specification, it delineates a lineage specification. While perusing the various pages, I saw a beautiful female who was being retired from littering whose breeders were looking for a good home. While it would be terrific to open one's home to a dog such as this, spaying an older female dog, particularly one that has had previous litters, subjects them to a higher incidence of mammary tumors. I had this with Chloe and my SIL had it with Sadie. They were benign, but still, it is a threat.

So I spent most of my evening visiting the websites of various Llwellin breeders and marveling at these beautiful dogs. I also saw one that looked identical to my Daisey! But the main impetus for my writing this post is to remark about Ella-Rose's similarity to Lucy and secondarily to tell you some of my used-book finds.

This year we took in two kittens from my neighbor's surprise litter (they took her in to be spayed and she was pregnant). One of the kittens, Wyatt, looks almost identical to Herm, who disappeared last year around this time after leaving on a hunting expedition and not returning. So seeing Wyatt (who we call 'Little-Herm") is a daily freshening of Herm's memory. I'm pretty confident that Wyatt's Dad and Herm's father were the same cat given how striking the markings are.

With Ella-Rose, the 'feeling' is the same. Seeing her is like reawakening our memories of Lucy. Ella Rose is a different personalitied dog altogether, but at certain angles of the turn of her head, she looks identical to Lucy--and the body markings at any angle are identical. As I was at my computer yesterday, I looked down at her--and could see the famiiar countenance of Lucy--curled up in her old age and sleeping the day away. It is very evocative.

Yesterday, I let Ella Rose off of her lead to play with the other dogs. She ran to the dogs and then did a left turn to the great beyond behind my home. I lost sight of her quickly, and became terrified that she would keep running. I could hear Tim's chickens next door, and new that she had flushed them where they were feeding in the bottom. I got my mountain bike out so I could cover some territory to look for her. Thankfully, she followed my anxious calls and ended up on the other side of Tim's gate in the goat pasture. She had traveled through the swamp, and her legs and under belly were brown--just like Lucy who spent hours hunting back there. In fact, that is how the UPS man remembers Lucy--a beautiful dog with legs covered in mud!

I rarely see people who are so familiar in that way--but I can imagine how odd it would be to lose a close family member and see someone with a near-identical visage and how familiar they would be to you.

Onto my books. While in Sylva, I ran into a used bookstore that happened to be open fro 20 more minutes! (We got there at 7:40 p.m.). I'm suspecting that Sylva is a thriving college town with its proximity to Western Carolina Univesity. Accordingly, there were many interesting books. Here's what I acquired:

The Vedanta Stutras (Part 1)
History as a System and other essays toward a philosophy of history, Jose Ortega y Gasset
Man and Crisis, Jose Ortega y Gasset
Dao De Jing (featuring the recently discovered bamboo texts) translated by Roger T. Ames and David L. Hall
Pontius Pilate, Ann Wroe (a finalist in the Samuel Johnson Prize)
Shu Ching, Book of History, Clae Waltham
The Moral Philosophy of William James, edited and with an introduction by John K. Roth
Peter the Great, Robert K. Massie (it won a Pulitzer Prize I since learned).
The Helen Corbitt Collection--Recipes.

My purchases totalled $30. I gave her $40. All of the books are donated, all of the workers are volunteers and all proceeds are on behalf of the library.

There is something about walking into a used book store (I go to the vintage cookbooks, which in this store was very thin! and the philosophy and religion section) and searching the stacks for something that calls out to you. I wishe that I had more time in this store, but I came away with plenty to read to be sure.

Shelter Dog Shuttle

I have returned from my two day odyssey to secure Ella Rose (formerly Lacey). Here's a pic of my new girl.

Except that her nose is a bit shorter than Lucy's and that she is smaller, the dog looks identical.

Here's the border collie. That I do not have a decent picture is a testament to the fact that over a 7 hour drive, this dog napped all of 40 minutes if that. she was very anxious to pilot and copilot--bascially, be in the mix of everything. Here's Sugar:


Our drive was on terrific roads through beautiful landscapes. We stayed at the Dillsboro Best Western. A very nice BW situated on the Tuckaseigee river. Here's a couple pics from river side

The real surprise is that both Daisey and Macey act as if nothing were different. They have been unbelievably wonderful. Not a snip nor a snarl. She's also good with dogs.

I adopted her from the Jackson County Humane Society. It felt good to bring this beatufiful dog into our life and give her a loving home. It was also great to give Sugar a ride. She will make some family very happy. She has much love to give.

Chocolate and other things of consequence.

Valrhona is a chocolate provider. I like the Grand Cru from Madegascar. It's a 66% cocoa (bittersweet). It's a lovely chocolate. It's important for you to be exposed to different stuff!

I buy a large bag each year each year to make wonderful chocolate desserts. I also get a big box of high quality milk chocolate too. Together it is about 22 lbs of chocolate.

I sold my last bit of DUG today. I did some Chinese takeout: FSIN, SSRX and WX. Small positions. No stop loss. I do not plan to trade these, but hold them.

My UPW is about .60 from being profitable after falling as much as 22%. Yes, I hung on--but it was in accordance with my plan. This was a hedging position for certain puts that I had. Now those utility puts are gone (at a nice gain). My loss, then was already more than funded .

My son goes to the doc tomorrow. I'm afraid he may be dissappointed---he's thinking that he'll be out of his sling. We'll see. Then we hit the road. Hopefully the market will do nothing too screwy. But I've not much exposure.

Hartford. For those of you who were reading back in April of 2007, I pulled HIG out as the poster child for an insurance company that would be caught up in the systemic risk issues. Yes, wallowing around in minutia of 10-K's has served me well. BUT....I was very early to that trade. It was so obvious that the insurance companies had exposures and Wall Street discounts, right? Just on paper. It took more than 16 months for that fact to inculcate itself into the bee of the brain of Wall Street.

So....if it takes so long for the downside to be realized, then one may reasonably expect that the obverse happens. I'm happy to do as Gary K says, probe. I'm familiar with a great many companies. I bought a few that I'm familiar with today. And, if I want particular exposure to a sector or broad market index, the ETF's are a great way (for me) to do that.

If you do not have a plan for deploying capital, perhaps spending a little time crafting one would make sense. And consider probing. It's time to invoke Musashi:

• Learn to see everything accurately.
• Become aware of what is not obvious.
• Be careful even in small matters.
• Do not do anything useless.

I'll add a Leisa corollary to that: Thinking without doing is not worth much.

Cigna was clobbered today. Down 22%. Wall Street finally understood that there was no organic growth to be had and that insurers are not recession proof. Again, a long digestion before this thing was blown out of the back end of Wall Street's expectations. I need to remember that the digestion period is quite long at times! Best to wait patiently like a spider. I'm getting better at that.

I'm unlikely to get a post out tomorrow. But to get in the spirit of things, I offer a couple of photos sent by a blog friend.

The Two Edged Sword of Discipline

Golden Age

Giclee Print

by Pihua Hsu
item #: 11728536A

While I'm happy to report that my accounts are in good shape and at their highest balance, the BUT is this: They should be much higher.

There's a huge difference between seeing and taking advantage of an opportunity (buying a position be it stock or option) and MANAGING that position (limiting losses/maximizing profits). That's a general statement, certainly. In truth, it is hard to look back with the benefit of the future having unfolded and judge a decision when the future is murky. Harder still when you have a psychotic market and you've got money on the line. In this context, it is hard to levy an objective judgment on what one could or should have done in the miasma of uncertainty from the perspective of certainty.

But every investor is faced with uncertainty and must find successful ways to manage that uncertainty in order to maximize profits and minimize losses. Essentially, that translates into have a good process (discipline) and sticking with it. A consistent process founded on sound principles will yield better results than being willy-nilly. For example, you will displease the gods of Probability should you play black jack, and sometimes take a hit on 16 and at sometimes pass. You either always do it OR never do it. It's called being consistent, and consistency is always founded on discipline.

As this blog is for heuristic purposes I want to tell you how I committed a double blunder on my HERO. I bought 2000 shares of HERO two days ago. As I indicated, I felt that I had a decent risk/reward. One of my disciplines is that I never buy a stock ahead of earnings. (Well almost never!). I generally look at when a company reports prior to buying. I did not this time. That was Blunder 1.

HERO happened to report yesterday a.m. They beat, but frankly, the outlook for some of these drillers is not all that good. I watched the stock, and I did not feel that the price action was indicative of a really strongly desired stock. I had a very nice gain, and I took it. My 'nice' gain could have been a really extraordinary gain as there was at least $2.05 more in that trade. When you buy a stock at $4.9, two bucks is a rather sizable percentage gain.

I spent a good bit of the day kicking myself. I should have tranched my sales in thirds--something I generally do. Blunder 2!. I'm not excusing that. I strayed off my discipline. But I assuaged my disgust (yes, I really was disgusted), with the knowledge that had I really been following my discipline, that I wouldn't have bought it to begin with! (Oh the things we rationalize to keep us from looking like a dumb ass!).

---

---

I will be out all day tomorrow. We begin our two-day odyssey to secure Lacey. As it turns out, a Border Collie from this shelter needs a ride to Richmond, which is just 20 minutes from where I live. Now how strange is that?

The weather promises to be beautiful: high sixties and clear. I'll take my camera and bring a few shots back of the Great Smokey Mountains. The futures look promising, but I don't think that any are fooled by our prospects economically either here or in other parts of the world. So many are calling for a bottom process. A bear market rally is not part of a bottoming process insofar as I understand bear markets. Seems more of a relief rally.

But, these present opportunities in which we can either participate with prudent positions and vigilant risk management or stand aside and watch. I've just enough exposure to feel like I'm participating with UYG, UPW, and SSO. I still have some DUG having sold DIG yesterday.

HERO will likely be $10! But, if my discipline is to not buy before earnings, and to look at both charts and fundamentals, I'll either find an entry or find another opportunity. In fact, holding the thought that there are ALWAYS opportunities in the market to find at better risk/reward than chasing an extended stock is also a good discipline to both hold and more importantly to practice.

I hope that you have a good day.

HERO

Hmmm.....I committed a rookie mistake; I bought ahead of earnings. Nice gap up. I sold into it for a nice gain.

P. S. --Though I should have TRANCHED my sells, which is my discipline that I did not follow.

Lucky 13--Revisit

We've not revisited this "Lucky 13". They've only suffered a 26% decline through the close of yesterday--helped immensely by ROH's takeover bid! Click on the label to find the series of posts for this group.

The lesson: Gimmicky but catchy investment strategies all get washed up on the same beach when the liquidity tide heads out quickly.

I think for the average investor, they get so caught up in all the tricks, tips and tools of the trade, that they forget that the economic backdrop and the overall place in the cycle go a long way toward increasing your probabilities of having a successful outcome on a position taken.

I say that with this hard-won knowledge: It's hard to get folks to agree on where we are in any cycle. If you've been following economic commentary, it's only been within the last three months that we have the majority of folks agreeing that we are going into a recession.

Which reminds me.....Brian Westbury, who thought everyone was full of patooky who were dour on the economy is not being trotted out very much.

Holy Guacamole!

I have my small double long exposures in DIG, SSO and UPW, accordingly I didn't feel like I was missing the party! I also have DUG, which was my hedge to some of my double longs. This may sound nutty to you, but I don't like to be in and out of positions over the course of the day. There are so many gap ups and gap downs overnight that I prefer to stay in my positions (in the anticipated direction of the gap) with an obverse hedge, so that I'm not killed if the market gaps the opposite of where I'm leaning.

You could rightly ask, "Well why don't you just keep a smaller position in the direction that you think that it will go?" It's a perspicacoius and wholly reasonable question. This is where "Know thyself" comes into play. It's hard for me to chase up positions. It's actually easier for me to sell positions that are down. It's a personal flaw, but sometimes you have to trick yourself.

I bought some HERO today. I've been in and out of this stock with mostly good results. Here's a chart that looks like many oil service companies!


It's worth noting, that in the not too distant past, Barron's had an article that HERO might go to $60. I do not buy stocks based on analysts or media people's expectations of price. If you look at most stocks that have fallen from grace, you will still price estimates FAR ABOVE the current price.


One of the things that the Barron's article had noted were the insider buys. Well, all of those folks lost a good bit of money. HERO's chart is NOT one that would indicate a buy by any stretch of the imagination, as it is still in a down trend. However, at 4.84 - 4.91, I felt that even if it went to zero, I'd not get killed! (Plus, I still have DUG).

Given that so much of the unrelenting selling, I think that the market would just go up in absence of sellers--forget about buyers. It seemed to be a good risk reward. I also entered UYG today at $7.67. Same thing--risk reward seemed reasonable. I think that a goose from the Fed and any good news (even if it is absence of bad news) may clear the deck of snarky and tenacious shorts.

Prior to today, and even during today, my UPW and SSO were solidly in the double digit down range. That first digit being a 2. At the close of the day, SSO was still double digit, but it now starts with a 1. UPW is in single digit loss range. My puts, though, helped buffer that. I'm still up for the year marginally in one account and 30% in another. But, it only takes one material mistake to undo all of that!

I hope that you had a good day.

From my friend, G. C. Selden

I absolutely adore Selden's Pscychology of the Stock Market. And though I refer to it many times, I always find that picking out a passage never fails to reinforce something important.

It is generally more difficult to distinguish
the end of a stock market
boom than to decide when a panic is
definitely over. The principle of the
thing is simple enough, however. It
was an oversupply of liquid capital that
started the market upward after the
panic was over. Similarly it is exhaustion
of liquid capital which brings the
bull movement to an end. This exhaustion
is shown by higher call money
rates, loss of the excess of deposits over
loans in New York clearinghouse
banks, a steady rise in commercial paper
rates, and a sagging market for
high-grade bonds.

Morning Post.

I heard yesterday a couple of times this statement which gave me pause: The stock market is forecasting a very serious recession.

Our blog friend, NG, also notes this in the comments section which I think deserves highlighting:

I was listening to a credit fund manager today...

He said that the credit market is currently discounting that 90% of high yield bonds will default. He went on to say that such a rate of default was not even achieved during the 1930's depression.

At such levels by historical norms, this would equate to a DOW of no more than 5000. So either the credit market is right or the equity market is right and the credit market is overreacting.

To the first comment of the market's forecasting ability, I have a one word response: NOT! I do not believe, and I will NEVER believe that the market is a very good prognosticator of anything but rather a barometer of the market participants' current emotion. Accordingly, it makes sense to me now, having seen a full cycle (except for recovery), why markets go up higher than you think (optimism) and why they go down further than you thinking (fear). Somewhere in between there is some rationality.

Some may gasp at that statement, and it may be wrong. But if one is to take issue with it, one has to answer this question: If the market is in delevering, and delevering by its nature means forced selling of assets, then how is that a prognostication of anything? In my simple head it is cause and effect (credit contraction=liquidation). If the market had been prescient, then so many would not have been locked in the jaws of this massive delevering shark.

To be sure, credit is the lubricant of business. So it is fair to say that the contraction in credit, IN ADDITION to the unwinding of the currency arbitrage (carry trades), will have a deleterious effect on economies of the world. Not only are companies delevering but consumers.

Accordingly, the credit markets SEEM to have a better handle on the risks in the credit markets. But let's face it, they were were not so hot in pricing risk in the thick of the CDO orgy. Otherwise, the credit markets would not have allowed a less than 200 basis point spread between these toxic instruments and treasury bonds. Were these market participants any less affected by the optimism? No. They drank from the Kool-aid cup, too. So, I'm going to say that the credit market's collected viscera is gripped by the same fear as market participants.

I remember during the last bubble. I was not a conscious watcher of the markets. Not a whit. But I do remember scratching my head at the calls for "the new business model". The new business model valued sales growth over profitability growth. I would just scratch my head, because I knew that ultimately, a company has to be profitable to survive.

Certainly the appetite for stocks was so voracious, that one could float any sort of crap and have it gobbled up. The band always gets tired at some point and has to take a break. And when the music stops, then the whirling dervish dancers (creditors + investors) catch their collective breath and have an "Oh Shit" moment. (Those are never pleasant). Damage assessment and retrenchment begin immediately.

An astute investor does not dance, but rather maneuvers with great purpose and extraordinary alacrity through the crowd of dancers. Naturally, s/he has one eye to the exit. I don't claim to be an astute investor. I've not mastered the maneuvering, though I've successfully had my hands over the ears to not hear the music. At some point one has to declare, "This is nuts, but there is money to be made!" I'm still working on trying to hold my reticence in abeyance while seizing opportunities. But, that is part of my development.

So we have this final phase to watch for, the bottoming and subsequent resumption (hope!) of the next bull market. I cannot believe that a bottom is formed out of this violence, but rather, it will be formed out of dullness. Until some normalcy comes into the credit markets, potentially, we will be at the continued the mercy of of the great unwinding. Again, the tide charts mean little in a Tsunami.

I'm also mindful of Selden's comment that the news is always the most bullish at the top and the most bearish at the bottom. I'm also mindful that the news has been consistently getting worse--and for those subscribing to this aphorism were those who thought that Bear Stearns was the bottom. Bear Stearns was only the beginning.

Employment numbers and the unemployment rate have the ability to take this market down. But I'll make this prognostication: We'll see the same amount of "the worst is behind us" on these numbers throughout the next year. I think that we'll see the consumer hunker down for a good long time--years. Why? Think of the bolus of baby boomers who just saw their wealth obliterated? So the most affluent age group, is the one that has the most to fear now: reduced housing and portfolio wealth coupled with Social Security and Medicare uncertainty.

Not a difficult conclusion to come to.

The Hour of Dour: 3-4 p.m.

PM Post

Here's Minnah in her customary spot by my computer. She was spayed today (and Wyatt neutered). I just brought them back home. Macy and Daisey had to check them out. Naturally they are sore.

Great craziness in the markets today. Bullish calls are not being rewarded. Rev Shark on Real Money says that bear markets eventually just wear you out. I know that I'm tired.

I sold the last of my AIT and AMMD puts today. They are November puts, and though I'm not bullish, I'm looking for a bounce.

I spent a little time looking at charts today. It's really remarkable how far some of these can fall. If we really are winding some 25 years of excesses, perhaps support levels going back to 2003 or so are too optimistic? I don't know.

I've been cleared to secure Lacey. Likely to be a long drive Friday/Saturday.

Transports, Tsumani's, Tide Charts and Balanced Equations

As I left today for my dog transport, I saw one of the prettiest rainbows I've seen in a long time. Market shamanism? Will we get a reprieve from this constant barrage of mini world market stock crashes? Whose to know? But it sure is a nice thought.

Here are some pics from today's crew. Herbert is the Yoda-looking fellow. He was a very nice shotgun passenger. It was important to him to be next to me as close as the console allowed. The next two dogs were very nice. The husky/shephard was a male and he rode in another vehicle with Thora, a rottie mix. Thora was a very strong dog. The maltese was in a crate in my backseat along with Fabio. His picture was not available on pet finders. He was a lovely retriever/lab mix--with long black silky fur.

The final dog is Mattie--is she not a cutie pie? She was young and in a crate.
I drove from Richmond to Springfield. It is about an 90 minute drive. With the summer driving season behind us, the northern corridor of 95 is much more manageable. All dogs slept. Not a peep! In fact, I've never had a drive where dogs have whined/barked uncontrollably for long periods of time. Thank goodness. I never did well with whiney babies either.


Last evening, I filled out an application to get Lacey. Lacey is in Sylva, NC. According to the Google map that is 428 miles from my home. That is about a 7 hr drive give or take. She was rescued from a kill shelter. They get 7 days, and then their time is up. Animal rescue groups, to include breed-specific rescues, often keep tabs on these animals. Lacey, though clearly an English Setter, did not get picked up by a breed-specific rescue, but rather from a local rescue group. You'd be surprised about the number of private individuals that open their homes and their hearts to foster animals until a permanent home can be found.

I listened to Financial Sense Online today. Frank Barbera was on. I like him and Tim Woods alot. He's looking for a massive rally soon. But the market has been confounding on a daily basis, and seems to not want to behave. I don't think that technicals mean much when we are undergoing massive deleveraging. Sort of like tide charts in the midst of a tsunami--do the tide charts really matter? I would say no.

I'm still of the mind that we are in for a protracted period of difficulties. As I was driving today, I wondered about the plus side that balances the minus of this equation. Money does not evaporate. For every loss; there is a gain. I didn't get very far with that musing.

Cardinal Moons

http://astrocycle.net/Oct_08.php

I heard this mentioned on CNBC. I thought I had referenced it here, but I could not find the post. I think that I posted it on RM. But you can check it out here.

Addition Consideration

I don't go shopping much, as I think it best not to tempt my magpie tendencies. Look at this beautiful girl. She reminds me of my beautiful Lucy. Her name is Lacey. She's a Llewellyn English Setter who was found as a stray. She has already been spayed. She's being fostered in Sylva, NC.

Mark and I are going to talk tonight, but I believe we will try to give her a home.

Nikkei

As I went to bed last evening, I noted that the Nikkei was closed to getting a 7 handle. It got one last night--Asian markets tanking roundly, and our own US futures looking pretty sour.

I'm up drinking coffee with my son. I awoke in the wee hours of the morning with an allergy attack. Somewhere between Benadryl and coffee, I will find some comfort. Certainly none to be had from the market.

I was a little outdone with myself because I unloaded 1/2 of my SSO. I think that I'll be happy with that decision this morning.

Utilities ETF's: XLU, VPU

XLU		% of Holdings		VPU		% of Holdings
AMER ELECTRIC POW CO	AEP	3.85		AMER ELECTRIC POW CO	AEP	2.74
DOMINION RES NEW	D	6.15		DOMINION RES NEW	D	4.64
DUKE ENERGY CP HL CO	DUK	4.97		DUKE ENERGY CP HL CO	DUK	3.73
ENTERGY CP	ETR	4.84		ENTERGY CP	ETR	3.95
EXELON CORPORATION	EXC	12.17		EXELON CORPORATION	EXC	10.11
FIRSTENERGY CP	FE	5.41		FIRSTENERGY CP	FE	4.27
F P L GROUP INC	FPL	5.99		F P L GROUP INC	FPL	4.31
PUB ENTRPR GP	PEG	5.06		PUB ENTRPR GP	PEG	3.97
PPL CORP	PPL	4		PPL CORP	PPL	3.31
SOUTHERN CO	SO	7.03		SOUTHERN CO	SO	4.54
		59.47				45.57

I did a comparison of XLU and VPU. Notice that XLU has 59.5% of its holdings in the top 10, while VPU only has 45.5%. EXC is the largest holding in both. They report tomorrow. I have some UPW. I'd like for EXC to surprise to the upside!

I Capitulated

Not on the market, but on my Real Money subscription.  I missed my blog buddies terribly while I was on vacation.  Plus, there was a renewal offer in my box that was at an advantaged rate of more than 50% what they wanted to charge me for just auto-renewing.  It's a poor way to treat subscribers.  But it was low enough, that over the year it represented a small daily charge.

I did lighten my SSO--I've not feel for this market, and I don't want to give up hard won dollars by becoming careless.  I've still some long exposure, but just less.

A Small Gloat and a Warning

Prior to going on vacation, I went back and read some of my posts. Largely, it was part of my "look back" to see if I were adding any value to to the blogosphere. I'm just a nobody--and ordinary person trying to make sense of things--but I got it righter than most.

Could I have traded it better? Yes. Could I have traded it worse? Yes. I've concluded that I'm a better observer than a trader. But, it is only my money which is my responsibility.

But rather than end this post with hand clapping and back slapping, I've been reminded that crashes come from deeply oversold technicals, NOT overbought. So be wary. Being deeply oversold is not necessarily the place from which one gets long or short.

I'm Baaaaaaaaaack

That toe that I stuck in the water a couple of weeks ago is feeling like piranha bait! At least I kept 1/2 part of my DUG, and I have some puts (AMMD, AIT, PSSI). But my UPW and SSO are not treating me well, and I'll need to make a decision tomorrow about keeping them or not. Huge daily swings (for good or naught) on a double inverse, hurt. I have to take the good with the bad, though, and they've helped more than they hurt.

I'm listening to Gary. He's through with his 'exploratory' and back to 100% cash.

We had a wonderful time with my B/SIL. I'll post some photos through Flickr, but here is the house that fell onto it's foundation--the creepiest thing about this photo is that without my knowing WHERE this house was, I told my husband "turn here". Twilight Zone indeed, as this is what we say within 45 seconds.

I made a mistake in my last post....IT IS NOT the home that was in Nights of Rodanthe--I misunderstood that the house in that movie was merely being used as a 'pointer'. Sorry.

My animals were joyful (euphorically so) to see my husband and I.

I did not read one word of the deflation articles. I needed a break, and I decided to be a GOOD guest rather than a nerd.

Hatteras

We are enjoying beautiful weather down here. Though when we were coming down on Sunday, there was a fierce northeasterly wind blowing and storm surge high enough to take out part of the road @ Rodanthe My B/SIL were 2 hours ahead of us, but they had to wait an hour to pass--some had to wait 4 hours. Mark and I sailed through, so we were only an hour behind.

One of the oceanside homes in Rodanthe (where "Nights in Rodanthe" with Richard Gere and Diane Lane was filmed) collapsed into the water. I've not seen it yet. The road was closed again last evening for a bit when high tide came back around as well as further nort in Buxton. We are staying in Avon.

We looked at the sound yesterday, and I've never seen such a fiercesome body of water in my life. Frightening really. We also saw an SUV cut off on it's own little island--hopefully they were able to get it out. Today is calmer, but not good fishing.

I've been keeping up with my exercise. I ran 2 miles yesterday and rode my bike for an hour today. Riding into the wind ensures some efficacious pedaling and heart rate load! The hot tub sure does feel good on aching muscles and joints.

I've had 1/2 an eye on the markets. I've some UPW/SSO--I also came into the weekend with some DUG--which DUG a little hole! But it was essentially a hedge against UPW/SSO, so I came out slightly ahead! Market has been up/down/up today I see. It's nice to get a break from that as well.

I saw a bit on CNBC where K. Kerkorian said that he had lived one year too long. Or was that Carl Icahn....I get these old billionaire activists confused. However, if one were to adopt me, I'd be the best daughter he could ever hope for, and I'd remember exactly which billionaire he was.

I'm really having alot of fun. I'm trying to be a good guest by taking care of our meals while we are here. Last night we had grilled porterhouse steaks--and they were fanastic--though there is always a worry in (wo)manning a grill that one is not used to. It is not a cut that I normally get, but a combination of the two that I do get (rib/strip). I see that I've been depriving myself. (We try not to eat too much red meat). Grilled asparagus and baked potatoes with some baked bread slathered with goat cheese.

I had a wonderful Bordeaux (2000 Frosnac; I forget the Chateau) which was very nice. (A ,$20-25 wine bought with a $5 coupon at Total Wine about 5 years ago!). So 4 of us ate a spectacular dinner for about $60 where it would have cost us about $250-300 (to include tip) had we gone out. I just cannot justify spending that kind of money on stuff that is passing through! I'd rather buy a better wine than I would normally enjoy, and cook dinner myself! And....do try an Australian Shiraz---The Greg Norman at BJ's Wholesale is terrific. Shiraz is the NEW Cab--like brown is the new black, though I'm not sure about this season. Perhaps black really is black!

Tonight we'll have pork loin chops sauteed in oil and fresh garlic, and I'll finish it by poaching it white wine. Fresh turnips from my neighbor's father's garden and a garden salad. A Marlborough SB to accompany. Hope everyone is doing well. I'll be back on Thursday.

Investment Strategy a la X Files: Question Everything

I did my usual tour of Saturday morning information. I listened to Gary K, stopped by Financial Sense OnLine, read Ray Merriman's weekly geocosmics (he reminds that Mercury's retrograde shadow remains until the 31st!)!  I also visited Roger Nusbaum's Blog.  I've not been to Roger's blog in a while.  I used to be relatively active there, and I thought that Roger was always an even-handed commenter on the market.  He still is.

As I mentioned in an earlier post, I felt that we were perhaps coming to some sort of divergence between conventional wisdom and reason.  Accordingly, I'm going to dub this new era of thinking about the Market as the X Files era where we must indeed question everything.

Fear, uncertainty and doubt (FUD) are very powerful motivators in driving our behavior.  At some point in time you have to know when to put those FUD's behind you--or assess that the FUD probability risk factor (FUDprf) indicator is low enough for one to assume some risk. 

If I were a clever gal, I'd write a book called FUD Proof, An Innovative Guide to Investing in Uncertain Times.  Naturally, it would be a shameless rip off of Crash Proof...but .....

I'm somewhere between the space of abject fear and cautious optimism. I'm still going with my deflation prior to inflation theme.  And I think that it is useful to remember Marc Faber's observationi of the large lag time between economic reality v. the market's perception of economic reality. 

Hatteras Bound--Deflation Investigation in the Offing

On Sunday, my husband and I are Hatteras bound. My B/SIL are very generous to invite us down. We will stay Sunday through Wednesday. I'm on the fence as to whether or not I will take my daughter's laptop.

I am printing at the moment Paul Krugman's articles on Japanese deflation. I will take those down with me. I'm sure that the salt air will incite some insights.

Naturally I will be skipping over all of the economic equations!

From, The Pitfalls of Speculation (P 49)

Summing up, the man who speculates in a
business-like way trades only in standard properties
with whose history, physical condition,
earnings and prospects he has thoroughly
familiarized himself; forms for himself a careful
estimate of normal value and uses this
value as a gauge by which to decide when
prices are too low and too high ; takes into consideration
also the technical condition of the
market, and does not embark with bad company,
even at low prices ; is not misled by the
thrills of inflation, or the chills of depression;
operates, not for the purpose of gathering a
small profit from many transactions, but to
gather a large profit from a few; trades with
responsible middle-men, and, above all things,
is patient. In short, he maps out for himself
an intelligent and well-founded plan of operation,
contemplating all that may occur, and
having mapped it out, follows it.

Very few speculate in this manner, and
very few succeed.

Rambling a.m. Post

The chicken (rooster to be precise) is not to be evocative of how you should be investing in this market, but rather to tell you about a dish that I made last evening: Aji de Galiina (Hot-Pepper Chicken).

I've mentioned in this space before my great love of cooking. And I have a particular fondness for finding old cookbooks, and I do go through them page by page, cover to cover. One such find was the Great Cooks Cookbook (1974). It has luminaries such as James Beard and Jacquis Pepin among others, each master devoted to editing a chapter.

Last night's selection came from "Poultry and Game" by Felipe Rojas-Lombardi. He died in 1991 at the age of 46. He was an assistant to James Beard, and obviously at a tender age when he contributed this chapter to the book in 1974. He was a native of Lima, Peru.

The dish is a simple dish that consists of boiled chicken. Skin and flesh is separated from the bone. Roasted green chiles, onions, bay leaf, chili powder, garlic and basil combined in a fragrant saute to which the chicken--shredded flesh and chopped skin--is added. It is served over potatoes.

I did not roast chiles. I picked red and green chiles from the garden and sliced them very thinly. I then sauteed them over very low heat in some olive oil. They were very robust--deep in flavor and quite piquiant! My family enjoyed the dish very much as did I.

What struck me about the dish was both its economy, simplicity and flavor. Food and religion are not so much different. If one looks at the historical basis and the cultural manisfestations, the underlying themes are very similar. In food, a small portion of protein combined with a sustaining starch is a mainstay. Protein is a very expensive food stuff. Most Americans consume too much protein.

We talk so much about conserving our planet's precious resources, reducing protein consumption ought to be the cornerstone of that effort. It would reduce greenhouse gasses (cows produce mucho methane!), provide a more humane environment for livestock (cattle, pigs, and chickens), by allowing them to live in their normal social structure prior to their being humanely killed (as opposed to being force fed and put in overcrowded, stressful situations), reduce toxix animal waste run off, as well as being kinder to our own bodies.

So when I made this uncomplicated dish, I was reminded of the simple, self-sustainable life that many families/communities shared--along with the animals that nourished them. They lived off of the land--requiring toil and sweat; they took care of their animals who provided them with life-sustaining protein in the form of eggs, milk and meat; and they were economical and practical in their consumption of all things. They had to be.

Many will be returning to economy and practicality--and hopefully our sense of community and helping others will also be incited.

Some New Resources To Check Out

The market---geez. Enough said.

I ran across a couple of things today that I wanted to share. On RM, TradyLady shared this new website: J3 Services Group. They are much like the Nasdaq website, but have some downloadable information into Excel, which you know that I would like! (I'll have to update my side bar for them.)

Second, a blogger at Real Money mentioned this terrific graphic by the New York Times about bear markets. Do check it out. You will find it very informative.

DIG--am I so glad to have gotten out of that (but it was just for a quickie, not a long term relationship!). I sold it at $41; it closed at $26.

UPW--I picked up a few shares in this today, but I may be sorry.
SSO--Still have some that are now underwater.

I've put positions on AIT, TWI, PSSI and AMMD--so there is some foil for my longs. But, overally, I'm mostly cash.

I hope that you are faring well. This is a bitch of a market, and I've not heard one person say that it is like anything that they've ever seen.

Volatile Markets: ETF transaction delays and Options B/A Spreads

I wanted to make a few observations regarding the trading environment regarding ETF's and options.  None of this is advice, but merely my sharing with you my process experience, which is the point of this blog.

First on the ETF's.  While ETF's are a very convenient way to trade, you should be aware of three things particularly as they relate to the inverse ETF's (1x and 2x long/short. 

• Thing 1:  The openings of ETF's in volatile markets can be difficult.  You may notice very wide bid and ask spreads.
• Thing 2:  It may take as long as 25 minutes to get a fill on the open for either a buy or a sell order which means that you can get significant profit slippage or loss augmentation.  That happened to me twice within this past trading week.  In selling DUG last week, my sell went in at $80.  My fill came in at $74 and more than 20 minutes later.  Yesterday, I lost some points on getting my DIG purchase sold. 
  
• Thing 3:  Options on these ETF's may also carry wide bid/ask spreads.

Based on my observation, FAILING TO HOLD OVERNIGHT can put you out of
significant dollars if the market gaps in the predicted direction. My own strategy to deal with these swings overnight, is to carry a hedge (partial or full)--pairing DUG/DIG--unloading the profitable one when the directional has been met and a reversal is underway.   The hedge obviously is underwater, but it is increasing in value if I'm getting slippage on my sell order for the profitable position that I want to close because the direction is changing.  Naturally, the one that is kept is underwater on a absolute basis (but on a relative basis it was neutral if you had a 1:1 hedge).  So long as the direction that you are holding continues to be in harmony with the index, every dollar of loss that you recoup increases your account position. 

This may sound both complicated and even stupid, but FOR ME it equates to peace of mind and not panicking out of a position on volatile openings.  If you have qualified money that you are trading with, you also have to be attentive to the cash settlement times--so you may not be able to sell an unprofitable position prior to settlment if you do not have adequate cash in your account. 

With regard to option bid/ask spread on MANY stocks during last week's dislocation.  I had several put positions.  Admittedly, these put positions were NOT in very liquid options--and I knew that risk.  I had one put position on NPO that had a $5 b/a spread.  Yep.  And my HE puts didn't even have a bid!  Of course, I could fish around in the upper third of the range and get a hit.  But, I was VERY surprised, and I wanted to share that experience with you. Others noted some 'no bids' as well.  So keep this in mind if you are new to options.

Real Money Subscription

I've been a Real Money subscriber for several years. Today I canceled my membership which was renewing on October 27. Making the decision was not an easy one. I am an active participant in Rev. Shark's (Jim DePorre) blog, and many of the posters there I consider my virtual friends. I appreciate their friendship and their insights---both are priceless.

But Jim Cramer's (JJC) behavior over this market cycle goes beyond irresponsible. I do not wish to support in any way this site. A bit of cutting my nose off to spite my face, but if I've learned anything, I've learned this:

~~ Experienced investors/traders do not require a guru. They have first hand experience with navigating the market's capriciousness--that strange area between fundamentals and psychology in which stock prices gyrate!

~~Inexperienced investors/traders DO  MAY require a guru. It is likely, however, that they do not know how to judge a guru which puts them at the mercy of impostors. A real guru would say, close your eyes and look within and I'll help guide you. An impostor says open your eyes and ears; look and listen only to me. Such is where JJC operates. [post post comment: And, he failed to see any of this coming. Lauded WB and WFC failing to see their risks from and exposures to mortgages].

Within the last week, JJC has told investors to sell everything that they did not need in five years (panic sell at the bottom). Then on Sunday night, he was saying: "I am reverting to a downside target of 6,700 for Monday and then 4,700 for Tuesday in keeping with the hopeful '87 playbook. " If you followed him, your sphinctometer would have been pegged, or you would have thrown yourself out of the window.

That post did it for me. Of course the DOW could have plunged to those levels, but it went on to post its largest one day gain ever.

I closed some long positions. I have a few short positions and one long SSO position of a modest amount. One account is all cash after closing my HERO and DIG. Somehow, I ended up with a 30% gain in that account for the year, with the few positions that I've held over the last month (both long and short). No need to tempt the fates. I don't think that the market has settled into its long term posture yet. It's falling down, jumping up and sitting and fidgeting. It needs to fidget for a while, I think.

For the Record books

Getting to be a tiresome headline. I'm VERY happy for today's performance. I was seeing some real despair expressed.

G.U.L.P.

I'm going to try to grab my 15 minutes of fame by fashioning my own acronym for what is going on here: G.U.L.P. It stands for Great Unwinding of Liquidity Period--let us pray that is merely a 'period' rather than an era. It also works because it has a nice double entendre meaning--most investors positioned heavily long are likely gulping and blinking in disbelief.

To the left is an image of a dung beetle (Scarabaeidae). The female pushes little balls of dung in which she lays her eggs. The dung is a stockpile of nutrition and nourishes the hatchlings. The ancients were keen observers of nature, and the industry and efficacy of these efforts were not lost upon them. You can find a brief and interesting synopsis here.

While dung balls work very well for this industrious member of the insect family, I'm not sure how well it will work for the saving of our financial system. I see lots of dung balls being rolled about, and who is to know how many eggs are being laid and what great magnitudes of beetles will hatch? Get some bug spray.

On Real Money last Thursday or so, I posted a thought about a very likely recalibration of historical price to earnings ratios in light of this GULP. Prices are always about supply and demand. Liquidity is always in the background as it influences the level of demand and provides the elasticity in equations that map the price reaction. (I may have that totally wrong, but it made sense at the time I'm writing it!)

Demand + Liquidity = Higher Asset Prices (inflation). Demand without sufficient liquidity is brings about a tempering of prices (disinflation). And the grimmest specter of them all, declining demand coupled with severely contracted liquidity brings about deflation.

Why is deflation bad? Here is the Nikkei since 1985. I would also say that this chart is also a reminder of why buy and hold is not such a great idea either.



Here's a bit from Wikipedia, which states it much more simplistically than I ever could.

Deflation is generally regarded negatively, as it is a tax on borrowers and on holders of illiquid assets, which accrues to the benefit of savers and of holders of liquid assets and currency. In this sense it is the opposite of inflation (or in the extreme, hyperinflation), which is a tax on currency holders and lenders (savers) in favor of borrowers and short term consumption. In modern economies, deflation is caused by a collapse in demand (usually brought on by high interest rates), and is associated with recession and (more rarely) long term economic depressions.

It seems to me that as economic units (earners, investors, spenders, savers, etc) each of us has to make some sense about what the future is to bring for us. There are so many smart people saying "this" or "that" or something in between the two, that it certainly leaves one scratching their head (or impolite places like the baseball players). As a person of reasonable intelligence trying to navigate unreasonable complexity, I have rely on something that never fails to serve: common sense. I'll make a bold statement, too, that common sense may not necessarily be in line with prevailing wisdom.

I'm not in a position to detail where the fissures lie between common sense and prevailing wisdom, but I know that I have a personal responsibility to investigate. Prevailing wisdom is that you buy when there is blood in the streets. Well, a look at the Nikkei chart shows that if you do that, you'll become your own little rivulet tributary. Prevailing wisdom in this market all year was to buy the dips and sell the rips. Well, the waterfall dips have been many. I expect a huge counter rally, but does the news support a sustained rally?

You'll see in my tabs a link to Paul Krugman's articles on Japan. I plan to read these. I'm feeling like I have to read and digest deflation 'stuff', much as I had to read and digest systemic risk and structured obligation 'stuff'. It was worth my time then. I think that it will be worth my time now. And I'll share what I find and hope it will beof use.