Wednesday, March 14, 2007
In Tribute to Today's Strong Close
Transcribed Conversation in Praise of Cows
While it is so that you
can eat a pig from nose
to asshole and beyond,
the cow is usefuller:
the beef, beefsteak, broth,
are healthy, and the milk,
the fine glue from the hooves,
the leather and the horns,
Oh you can take one horn
and blow it and call up
whole armies of believers!
Poems Seven. Alan Dugan. Seven Stories Press. New York. 2001.
-----------------------
This book was a National Book Award Winner. I don't typically read much poetry, but when Tower Books closed shop, I made some purchases in their "awards" section at attractive prices. The poetry in this book is hard-edged. I literally opened this book to this poem, and it seemed to coincidental to pass up. I hope that you enjoy it.
Good night.
While it is so that you
can eat a pig from nose
to asshole and beyond,
the cow is usefuller:
the beef, beefsteak, broth,
are healthy, and the milk,
the fine glue from the hooves,
the leather and the horns,
Oh you can take one horn
and blow it and call up
whole armies of believers!
Poems Seven. Alan Dugan. Seven Stories Press. New York. 2001.
-----------------------
This book was a National Book Award Winner. I don't typically read much poetry, but when Tower Books closed shop, I made some purchases in their "awards" section at attractive prices. The poetry in this book is hard-edged. I literally opened this book to this poem, and it seemed to coincidental to pass up. I hope that you enjoy it.
Good night.
Gary K
Some positive comments. He thought it was bullish because volume was heavy and it undercut the lows, but moved higher. He's resetting the counter....and looking for a follow through day from day 4 - 10. Monday, being the soonest. He's still waiting for confirmations: finger in wind, ear to ground. His track record has been pretty good.
We'll see.
We'll see.
Why Do People Torture Themselves in the Stockmarket?
Larry asks a simple but important question : Why do people torture themselves in the stockmarket? Here's a few observations, feel free to add more.
Your return on assets includes your return for your time. You are a big part of your portfolio. If you have $100K in the bank and no other assets and you make $50K a year ($44K after tax), then you've earned a gross return of 44%. Sure it's an oversimplification, but that's the gist of it. Whatever you save and put in your account would essentially be your net return.
I believe that there is no imperative to always be in stocks all the time or even in stocks at all. Investing in your business, in real estate, buying loans, putting your money in CD's or buying bonds...there are plenty of places to put your money. You can put it in my account if you want!
I really try to keep the J. Altucher's story very close in my psyche.
- Inculcation: We are taught that the market is safe, and it is the best vehicle for Americans to both invest and save for the future--witness the SEP IRA plans, 401(k) plans, 403(b) plans, IRA's.....We have accessible vehicles and they drive right to the market.
- Excitement: There are enough high fliers to tantalize one's imagination that quick and easy riches can be made.... eyes glaze over, daydreaming of your Maserati's color preoccupies your time, and you try to figure out if you should pay your mortgage off with your gains or buy an new home.
- Perception of Ease: Nothing could be easier than finding stocks! Buy technical analysis books, subscribe to a stock picking service, surf the web for clever sites with trade by trade suggestions. It's like printing money (until the press hangs up and eats your money.)
- Status: The stock market is emblematic of wealth and status for many Americans--there's a certain cachet about having money in the market.
- Social: There's a social aspect--this blog, other blogs (radio/TV shows), and however we choose to interact with those media. You connect with the message, the personality.
Your return on assets includes your return for your time. You are a big part of your portfolio. If you have $100K in the bank and no other assets and you make $50K a year ($44K after tax), then you've earned a gross return of 44%. Sure it's an oversimplification, but that's the gist of it. Whatever you save and put in your account would essentially be your net return.
I believe that there is no imperative to always be in stocks all the time or even in stocks at all. Investing in your business, in real estate, buying loans, putting your money in CD's or buying bonds...there are plenty of places to put your money. You can put it in my account if you want!
I really try to keep the J. Altucher's story very close in my psyche.
Some Distillations
I hate the word granular. There was a prospective client that would use that word--incessantly. "Let's get more granular on that, tell me...." I'd love the word had our team won the business. We didn't. We essentially negotiated non-stop for 6 months with weekly flights to Philadelphia to meet. I spent my first and only Las Vegas vacation negotiating contract language for the the first 3 hours of each day enduring withering glances from my husband. We were taken to the altar and then cast aside.
I think that there are a few guideposts to keep in mind post sub-prime blow up and whether or not it is a contained contagion. But here are a few of the granular issues that are really as important as (if not related to) this issue:
I think that there are a few guideposts to keep in mind post sub-prime blow up and whether or not it is a contained contagion. But here are a few of the granular issues that are really as important as (if not related to) this issue:
- Liquidity: Liquidity is bound to be impaired. We can do LOTS of speculation on what it will do to consumer spending, but I think that we can say with certitude it WILL EFFECT the number of new homes sold.
- Economy/Consumer: If the majority of jobs created in this last recovery is reliant on the burgeoning homebuilding industry (as I understand that it is), and we know that industry is impaired, then it is reasonable to deduce that unemployment claims will rise. Calculated Risk has done a remarkable job in detailing his thoughts on the effects on the employment numbers. Job losses will result in consumers tightening up their spending. Plus, for those with rate resets, even if they are PRIME borrowers, that payment increase will take a bite out of their pocketbooks.
- Other Markets: As you can tell by their reaction, there are not too many "safe-havens". As I understand it, there are two types of risk:
- market risk--we just saw that--that risk is endemic to all markets
- USD risk--it seems like there are other ways to hedge that bet rather than being in foreign stock ETF's. I don't pretend to know, but I think that there has been a bit of "safe-haven" pedaling regarding foreign markets.
- Commodities: These have been volatile. I think that the markets have spoken, and they are saying that THEY depend on the US consumer (such a burden the consumer bears!) to stay healthy and grow. Expect commodities to downturn if the consumer buckles. Many of the emerging markets are commodity centric. Yeah, yeah, I've heard the global infrastructure story, but the global markets are telling us something different for now. At least that is how I understand it.
A Couple of Lessons Learned and How the Market Discovered My Genius
The market instability since February 27 (that's the top as some such as MarkM on Bill Cara's blog and GaryK have called) is a bit of a surprise to me. Why? Because to my mind, these things were self-evident throughout 2006. I fully (fool-y) expected the market to catch up with my cognition sooner (Fall). I made bets--unprofitable ones I might add--that the financials would suffer. I had puts on IYF, WFC, MS and BAC. They went kaput.
Lesson: Think for yourself; form your hypothesis(es); maintain a neutral bias until the market recognizes your genius.
My second lesson was that I did not act boldly in these last couple of days. Remember our Zurich Axiom: Always play for meaningful stakes? I know that hindsight is 20-20, but I should have trusted my judgment over the last two days and plunged my toe in the water with my options on MS and WFC. I'm not intentionally engaging in coulda, woulda , shoulda--it's counterproductive, and it invokes biases that are linked to hindsight--but rather honest reflection. I had done the research. What I had failed to do was quantify the risk/reward AND I let the overhang of past indiscretions undermine my confidence.
Lesson: Quantify your risk reward, play for meaningful stakes.
I'm reminded of some "mindfulness" reading and the importance of "being in the moment". I still have some psychic overhang from my mistakes on being "early". But what this week has provided for me is this: This is the first downturn that I anticipated, understood and prepared for. I've crossed a threshold, and I know that will give me appropriate confidence in the future.
I'm also reminded of gratitude. I'm grateful to the tireless, knowlegeable professionals listed on my info mosaic and who write prolifically and generously share their knowledge. I'm grateful to the blogger commenters here and on other sites that share their perspectives. One needn't agree with another's perspective/opinion, but I promise you if you take a moment to understand his/her kernel of truth your own perspective will be enriched.
I will say that probably the greatest thing that I've learned is that in the investing world, the cold hard truth has sharp jagged edges that tears the fabric of comfort that envelopes Wall Street. So people who speak it are actively demonized (just watch that insufferable Mark Haines' treatment of folks like Peter Schiff if you have any doubts). Any worries that you might have are eased by nebulous assurances. You're hearing it on the tubes now. The absolute master of this charade is Abbey Joseph Cohen of Goldman Sachs. She's good--and I don't believe a word she says.
We will certainly see new events unfold today. Japan was down 3% overnight. I noted that as soon as FXY began to lift yesterday (mid-morning), the market went down in lockstep.
As I write, the US futures look flat. I think that if this ends up being a girly-man decline, we will have this residual uncertainty on whether or not we have experienced the four year correction. But that uncertainty provides "content" for all of the media outlets!
Lesson: Think for yourself; form your hypothesis(es); maintain a neutral bias until the market recognizes your genius.
My second lesson was that I did not act boldly in these last couple of days. Remember our Zurich Axiom: Always play for meaningful stakes? I know that hindsight is 20-20, but I should have trusted my judgment over the last two days and plunged my toe in the water with my options on MS and WFC. I'm not intentionally engaging in coulda, woulda , shoulda--it's counterproductive, and it invokes biases that are linked to hindsight--but rather honest reflection. I had done the research. What I had failed to do was quantify the risk/reward AND I let the overhang of past indiscretions undermine my confidence.
Lesson: Quantify your risk reward, play for meaningful stakes.
I'm reminded of some "mindfulness" reading and the importance of "being in the moment". I still have some psychic overhang from my mistakes on being "early". But what this week has provided for me is this: This is the first downturn that I anticipated, understood and prepared for. I've crossed a threshold, and I know that will give me appropriate confidence in the future.
I'm also reminded of gratitude. I'm grateful to the tireless, knowlegeable professionals listed on my info mosaic and who write prolifically and generously share their knowledge. I'm grateful to the blogger commenters here and on other sites that share their perspectives. One needn't agree with another's perspective/opinion, but I promise you if you take a moment to understand his/her kernel of truth your own perspective will be enriched.
I will say that probably the greatest thing that I've learned is that in the investing world, the cold hard truth has sharp jagged edges that tears the fabric of comfort that envelopes Wall Street. So people who speak it are actively demonized (just watch that insufferable Mark Haines' treatment of folks like Peter Schiff if you have any doubts). Any worries that you might have are eased by nebulous assurances. You're hearing it on the tubes now. The absolute master of this charade is Abbey Joseph Cohen of Goldman Sachs. She's good--and I don't believe a word she says.
We will certainly see new events unfold today. Japan was down 3% overnight. I noted that as soon as FXY began to lift yesterday (mid-morning), the market went down in lockstep.
As I write, the US futures look flat. I think that if this ends up being a girly-man decline, we will have this residual uncertainty on whether or not we have experienced the four year correction. But that uncertainty provides "content" for all of the media outlets!
Tuesday, March 13, 2007
Monday, March 12, 2007
Loan Losses All Banks_Release 03.12.07
Below is the net loan losses released today. You can find it at FRED:
My expectation is that we will see this still-historically-low number move higher each month.
[click to make larger]
My question is this....Given the now-repudiated lending standards + the enormity of recent debt issued, is it not reasonable to expect that we would blow out all historical numbers? My knee-jerk answer to that would be yes. So....why all of this complacency? There's an interesting mix of variables--each of them quite different from earlier years to now: interest rates (higher v. lower now); asset prices (most likely lower relative to qualifying income v. higher relative to qualifying income now); sub-prime lending (lower v. higher now); liquidity (lower v. higher now? ); alternative loans (lower v. higher now). Depending on how these variables weight then v. now, it would appear to me that we ought to see a parabolic rise in loan loss reserves.
My expectation is that we will see this still-historically-low number move higher each month.
[click to make larger]
My question is this....Given the now-repudiated lending standards + the enormity of recent debt issued, is it not reasonable to expect that we would blow out all historical numbers? My knee-jerk answer to that would be yes. So....why all of this complacency? There's an interesting mix of variables--each of them quite different from earlier years to now: interest rates (higher v. lower now); asset prices (most likely lower relative to qualifying income v. higher relative to qualifying income now); sub-prime lending (lower v. higher now); liquidity (lower v. higher now? ); alternative loans (lower v. higher now). Depending on how these variables weight then v. now, it would appear to me that we ought to see a parabolic rise in loan loss reserves.
Sunday, March 11, 2007
Investment Model Criteria
Though I am assuredly under invested in the market, if I had to state what my "investment model" is it is being overweighted in sectors that are "harmonic" with where we are in the economic cycle. Currently, my investment model is full hand-wringer mode!
I'll accept right up front that even knowing where we are in the business/economic cycle is difficult. I can think of no recession in my adult life for which there was a consensus opinion regarding: (1) Has a recession started?; (2) Are we still in a recession; (3) When will the recession end; (4) Whether we are in a "growth" recession......
In this space I have repeatedly lauded George Dagnino. I use his service, and it has probably given me the greatest foundation in understanding the "madness" around in the media, as well as provide a backdrop for understanding the opinions of others. He also does very detailed work to help his subscribers understand where we are in the cycle. Here is George's diagram. I URGE you to read and print out his document on sectors and business cycles. I can think of no one better document that will give you a solid foundation in understanding how your portfolio exposures at various points in the business cycle may inhibit your investment performance.
Jim Cramer--yes, I know all of the criticisms--but when he' not acting manic, actually has some keen insights. He talks about these in his book. I still recommend George's book Profiting in Profiting in Bull and Bear Markets to give you the fullest view and to enhance your investor education. BUT, if you print out the document I reference above, you will have gained 90% of the ACTIONABLE information in that book.
Why do I stress actionable information? Think about all of the information that you receive. YOUR responsibility is to systematize that information and act on it. Further, that information needs to be dynamic--meaning it needs to change as circumstances change. Does your investment model do that?
What I like about George's service (forgive my sounding like a commercial, I don't mean to sound that way, but his service is the best and only example that I know of; accordingly, I'm laying this out as a benchmark more so than a recommendation per se.) is that it fulfills that requirement.
Systematic: His underlying system is that you weight your sectors based on (1) the overall trend in the market AND based on the underlying fundamentals of the economic cycle. These two items are key. You can have a terrific economy, but if there is an asset bubble waiting to burst (dot.com!!!), then you have great market risk--your weightings then change among cash/bonds/stocks. (It probably goes without saying, BUT....part of being systematic means that it has to be understandable to mere mortals.)
Dynamic: Based on the changes in the economic cycle and in the backdrop of the market, sector weightings are changed accordingly to (1) reduce risk for sectors that will be falling out of favor (financials v. commodities); (2) increase exposure to sectors that are gaining in favor (financials/bonds v. commodities); (3) allocation among cash, bonds, equities based on expected market risk.
Actionable The actionable part is that for each sector there are several stock picks which of course reduce individual stock risk within the sector.
The other thing that I have learned from George is "we move slowly". So exposures are either gradually increased or decreased over time. However, if there is a bow-wow in the bunch it is cut immediately.
If it is true that a stock's performance is predicated at least 50% based on being in the right sector, I have to believe that a portfolio management strategy that does not take this sector rotation into consideration to be somewhat deficient. Remember, too, that within this strategy one can have dividend/income, value and momentum sub-strategies. FOR ME this is a strategy that I understand--it provides a MODEL for me to evaluate the ocean of information that submerges us.
Remember, I'm not an expert and I'm not recommending one thing over another. However, I am an expert (through my business experience) in having to make decisions with conflicting and often-times ambiguous information. Isn't the market that way? I think so. Accordingly, for YOU to make decisions (or even to evaluate decisions made on your behalf) you need to have a model from which to frame your reference. If you do not have one, I'm recommending a resource. If you do have one, evaluate it for being
I'll accept right up front that even knowing where we are in the business/economic cycle is difficult. I can think of no recession in my adult life for which there was a consensus opinion regarding: (1) Has a recession started?; (2) Are we still in a recession; (3) When will the recession end; (4) Whether we are in a "growth" recession......
In this space I have repeatedly lauded George Dagnino. I use his service, and it has probably given me the greatest foundation in understanding the "madness" around in the media, as well as provide a backdrop for understanding the opinions of others. He also does very detailed work to help his subscribers understand where we are in the cycle. Here is George's diagram. I URGE you to read and print out his document on sectors and business cycles. I can think of no one better document that will give you a solid foundation in understanding how your portfolio exposures at various points in the business cycle may inhibit your investment performance.
Jim Cramer--yes, I know all of the criticisms--but when he' not acting manic, actually has some keen insights. He talks about these in his book. I still recommend George's book Profiting in Profiting in Bull and Bear Markets to give you the fullest view and to enhance your investor education. BUT, if you print out the document I reference above, you will have gained 90% of the ACTIONABLE information in that book.Why do I stress actionable information? Think about all of the information that you receive. YOUR responsibility is to systematize that information and act on it. Further, that information needs to be dynamic--meaning it needs to change as circumstances change. Does your investment model do that?
What I like about George's service (forgive my sounding like a commercial, I don't mean to sound that way, but his service is the best and only example that I know of; accordingly, I'm laying this out as a benchmark more so than a recommendation per se.) is that it fulfills that requirement.
Systematic: His underlying system is that you weight your sectors based on (1) the overall trend in the market AND based on the underlying fundamentals of the economic cycle. These two items are key. You can have a terrific economy, but if there is an asset bubble waiting to burst (dot.com!!!), then you have great market risk--your weightings then change among cash/bonds/stocks. (It probably goes without saying, BUT....part of being systematic means that it has to be understandable to mere mortals.)
Dynamic: Based on the changes in the economic cycle and in the backdrop of the market, sector weightings are changed accordingly to (1) reduce risk for sectors that will be falling out of favor (financials v. commodities); (2) increase exposure to sectors that are gaining in favor (financials/bonds v. commodities); (3) allocation among cash, bonds, equities based on expected market risk.
Actionable The actionable part is that for each sector there are several stock picks which of course reduce individual stock risk within the sector.
The other thing that I have learned from George is "we move slowly". So exposures are either gradually increased or decreased over time. However, if there is a bow-wow in the bunch it is cut immediately.
If it is true that a stock's performance is predicated at least 50% based on being in the right sector, I have to believe that a portfolio management strategy that does not take this sector rotation into consideration to be somewhat deficient. Remember, too, that within this strategy one can have dividend/income, value and momentum sub-strategies. FOR ME this is a strategy that I understand--it provides a MODEL for me to evaluate the ocean of information that submerges us.
Remember, I'm not an expert and I'm not recommending one thing over another. However, I am an expert (through my business experience) in having to make decisions with conflicting and often-times ambiguous information. Isn't the market that way? I think so. Accordingly, for YOU to make decisions (or even to evaluate decisions made on your behalf) you need to have a model from which to frame your reference. If you do not have one, I'm recommending a resource. If you do have one, evaluate it for being
Systematic
Dynamic
Actionable
Dynamic
Actionable
Friday, March 09, 2007
This Week's Perplexions
Friday evening seems to be happy hour at my home. So my husband is generally entertained or entertaining while I'm able to listen to Gary K without upsetting family harmony. Unfortunately, I spent about 20 minutes trying to find him as his show was pre-empted a couple of places on this Friday night. I found him at KBNP
The market eeked out a modest gain for today. Gary K is still quite pessimistic, and he is no perma-bear. I was not listening to him when he called the top in May of 2006. He's saying that the action is "the worst I've ever seen it," but he is quick to add, "and, if the market goes up on a follow through day of 100-150 ponts, we'll change our stance." He points out that volume this week has been weak, and the low volume bounce is what has him and other commentators, such as Rev Shark on RM, sitting on the fence. Gary believes that the market will tip its hand, but "if I had a gun to my head, I would say that we were headed for another leg down."
I like to listen to Jim Puplova's Financialsenseonline on Saturday mornings. He has a parade of guests and perspectives that I enjoy hearing. I will say, though, that they are a bit gloom and doom in their bias, but nevertheless, that can be instructive. Tim Wood is a technician, and he is looking for the 4-year cycle to execute this year, and is still looking for a fall. He, like Gary K, is not one to be biased downward DESPITE what the market technicals are foretelling. I certainly recommend listening to 03.10's broadcast. You can sort your mail and pay your bills while doing so.
I found the reaction to jobs report interesting. It was the weakest in two years, but the market reaction was fairly exuberant. I think largely because the ADP number of about 56K jobs was not realized. However, the revisions have been monumental, so I do not trust the report. Did you catch the 30+k increase in government employment?
I'm just not sure from where the upside lift for this market comes. I believe that there will be continuing downward pressure on new jobs, particularly with the job losses that will show up from housing. How can you have Walmart's numbers were weak, and I'm sticking with my thesis (no way provable of course) of undocumented workers first hit by unemployment in the construction sector will show up in curtailment of lower end spending instead of the unemployment. The people who have been telling us that the worst is over are not those with our best interests in mind, but rather with a "calm the masses" interests in mind. Interest rates are creeping up. That will only exacerbate mortgage concerns. Gasoline and oil are moving up. Corporate earnings are slowing, so I think that the current p/e ratios are high. But even mentioning p/e ratios, I'm still not sure that I understand what's in or out of the numbers in that calculation. So much stuff gets "x-ed" out, it takes lousy numbers and turns them into good numbers. It still hits the bottom line and affects organizational resource levels.
Bob McHugh [of "yawning jaws of death (broadening top)] states this very important point in J. Puplova's Sat. broadcast recently: "Recessions are never visible when they are happening." I know this to be true from my business experience. I'll entreat you to watch the office furniture folks for their next quarterly calls (Herman Miller-MLHR and SteelCase-SCS). Business furniture is a leading indicator of capital expenditure because the overall project lead times are long (6-12 mos) . So you want to look at the forward guidance, not the past and the amount of backlog reported. Note that looking at inventory for these companies is not a reliable indicator (if you're looking to divine trouble through inventory builds), because for the most part everything is custom made. The business mix may have changed, but for the barometer that I would be watching--backlog levels--those orders are never taken into inventory as it is 100% custom production. I've created a new page element called "Horizon Issues". That way I can put things on the list to watch or be mindful of. Of put these on it.
Now here's an interesting perplexion (I'm balling up a few things here, bear with me). Depending on what story is to be spun, there are different things that are trotted as as "things that matter" and then when the spin cycle reverses, suddenly these things do not matter. Remember when the market was going up and there was hand-wringing about a fall? The salve for the concerns was liquidity--central banks printing money, yen carry trade and the robust consumer. Gold is erratic, so who is to know what gold is "telling" us about inflation? If you are interested in hearing some sane comments on gold v. the market, do listen to Gary Dorsch on FSO this week.
With respect to retail sales (that were erratic depending on the retailer), I promise you that we'll hear the "Easter", "weather" parade of stories this spring season to explain the retail numbers (hits or misses) as we heard last year. In just the last month, we've heard that retails sales were lifted due to cold weather (and you know those were deeply discounted winter clothing people were buying) and dampened due to cold weather this month.
The yen carry trade which was lauded as a fountain of perpetual liquidity is now being downplayed. The current soft-pedaling of the carry trade that has been trotted out this week, particularly on CNBC, is quite strange to me. When the market was going up and the HW's (hand-wringers) were worried, the key word was liquidity, fueled by the yen-carry trade. Now it doesn't matter? This is a troublesome divergence, IMV.
Financial system shock is another fear that has been downplayed. Remember when the homebuilders and the s-p mortgage lenders were presumed to have bottomed? Well, they are still falling--precipitously this week. I'm not surprised, but think about the poor schmucks that thought they purchased the bottom some time ago (based on talking heads calling a bottom). Now, think for a moment what NO ONE is talking about.....any guesses? How about the contractors that have been borrowing to fund the building of these homes that are going to just sit. You have bank exposures there, and given that residential construction has been a big part of this recovery, don't think for a moment that there are not some bankers losing sleep at night.
It takes alot of courage, patience and discipline to go your own way in the investing world. What I've come to learn are these things:
The market eeked out a modest gain for today. Gary K is still quite pessimistic, and he is no perma-bear. I was not listening to him when he called the top in May of 2006. He's saying that the action is "the worst I've ever seen it," but he is quick to add, "and, if the market goes up on a follow through day of 100-150 ponts, we'll change our stance." He points out that volume this week has been weak, and the low volume bounce is what has him and other commentators, such as Rev Shark on RM, sitting on the fence. Gary believes that the market will tip its hand, but "if I had a gun to my head, I would say that we were headed for another leg down."
I like to listen to Jim Puplova's Financialsenseonline on Saturday mornings. He has a parade of guests and perspectives that I enjoy hearing. I will say, though, that they are a bit gloom and doom in their bias, but nevertheless, that can be instructive. Tim Wood is a technician, and he is looking for the 4-year cycle to execute this year, and is still looking for a fall. He, like Gary K, is not one to be biased downward DESPITE what the market technicals are foretelling. I certainly recommend listening to 03.10's broadcast. You can sort your mail and pay your bills while doing so.
I found the reaction to jobs report interesting. It was the weakest in two years, but the market reaction was fairly exuberant. I think largely because the ADP number of about 56K jobs was not realized. However, the revisions have been monumental, so I do not trust the report. Did you catch the 30+k increase in government employment?
I'm just not sure from where the upside lift for this market comes. I believe that there will be continuing downward pressure on new jobs, particularly with the job losses that will show up from housing. How can you have Walmart's numbers were weak, and I'm sticking with my thesis (no way provable of course) of undocumented workers first hit by unemployment in the construction sector will show up in curtailment of lower end spending instead of the unemployment. The people who have been telling us that the worst is over are not those with our best interests in mind, but rather with a "calm the masses" interests in mind. Interest rates are creeping up. That will only exacerbate mortgage concerns. Gasoline and oil are moving up. Corporate earnings are slowing, so I think that the current p/e ratios are high. But even mentioning p/e ratios, I'm still not sure that I understand what's in or out of the numbers in that calculation. So much stuff gets "x-ed" out, it takes lousy numbers and turns them into good numbers. It still hits the bottom line and affects organizational resource levels.
Bob McHugh [of "yawning jaws of death (broadening top)] states this very important point in J. Puplova's Sat. broadcast recently: "Recessions are never visible when they are happening." I know this to be true from my business experience. I'll entreat you to watch the office furniture folks for their next quarterly calls (Herman Miller-MLHR and SteelCase-SCS). Business furniture is a leading indicator of capital expenditure because the overall project lead times are long (6-12 mos) . So you want to look at the forward guidance, not the past and the amount of backlog reported. Note that looking at inventory for these companies is not a reliable indicator (if you're looking to divine trouble through inventory builds), because for the most part everything is custom made. The business mix may have changed, but for the barometer that I would be watching--backlog levels--those orders are never taken into inventory as it is 100% custom production. I've created a new page element called "Horizon Issues". That way I can put things on the list to watch or be mindful of. Of put these on it.
Now here's an interesting perplexion (I'm balling up a few things here, bear with me). Depending on what story is to be spun, there are different things that are trotted as as "things that matter" and then when the spin cycle reverses, suddenly these things do not matter. Remember when the market was going up and there was hand-wringing about a fall? The salve for the concerns was liquidity--central banks printing money, yen carry trade and the robust consumer. Gold is erratic, so who is to know what gold is "telling" us about inflation? If you are interested in hearing some sane comments on gold v. the market, do listen to Gary Dorsch on FSO this week.
With respect to retail sales (that were erratic depending on the retailer), I promise you that we'll hear the "Easter", "weather" parade of stories this spring season to explain the retail numbers (hits or misses) as we heard last year. In just the last month, we've heard that retails sales were lifted due to cold weather (and you know those were deeply discounted winter clothing people were buying) and dampened due to cold weather this month.
The yen carry trade which was lauded as a fountain of perpetual liquidity is now being downplayed. The current soft-pedaling of the carry trade that has been trotted out this week, particularly on CNBC, is quite strange to me. When the market was going up and the HW's (hand-wringers) were worried, the key word was liquidity, fueled by the yen-carry trade. Now it doesn't matter? This is a troublesome divergence, IMV.
Financial system shock is another fear that has been downplayed. Remember when the homebuilders and the s-p mortgage lenders were presumed to have bottomed? Well, they are still falling--precipitously this week. I'm not surprised, but think about the poor schmucks that thought they purchased the bottom some time ago (based on talking heads calling a bottom). Now, think for a moment what NO ONE is talking about.....any guesses? How about the contractors that have been borrowing to fund the building of these homes that are going to just sit. You have bank exposures there, and given that residential construction has been a big part of this recovery, don't think for a moment that there are not some bankers losing sleep at night.
It takes alot of courage, patience and discipline to go your own way in the investing world. What I've come to learn are these things:
- Educating myself and listening to divergent opinions are the underpinnings of my investor education. Understanding key market drivers is key to my educational foundation, and it will enable me to understand market risk and see when that risk increases or decreases. I've been able to do that with interest rates, sub-prime mortgages, homebuilders. I still see trouble ahead for ALL banks with significant mortgage exposure, and when that starts to get aired, you are going to see these financial institutions get hit.
- Courage is an absolute necessity: cultivating my own (informed) ideas about the movement of these drivers will insulate me from the spin created in the media. I'm finally beginning to trust my judgment about these things. It takes alot of courage to be outside the mainstream. However, there is an important caveat: It's one thing to see something coming, but do not make large bets until you see the writing on the wall. Being early is synonymous with being wrong. THAT, my friends, is the simple, but expensive, lesson that I have learned.
- Patience and discipline go hand in hand are two of the greatest virtues on top of your being a diligent and skeptical student of the market required. Patience will keep me from being "early".
- Flexibility will ensure that my biases are systematically tested. Listening to divergent opinions and thinking critically about each case and the risk/rewards will feedback into the "educating" part.
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AAAAAAAAARRRRRRRRRRGGGGGGGGGHHHH
Computer Goofiness:
This is the natural post to have post-computer goofiness.
While I have all of my data files, I'm unable to access my PST (data file) for Outlook. I was initially relieved when the tech guy said that all my data files were intact. But when I try to import my former data file, it says that the versions are incompatible. (Sigh). I've lost all of my addresses, e-mails---I guess that is one way to wipe the slate. For some reason the file that I have is not recognized once I reinstall Outlook.
Movie Recommendation:
Other People's Lives--It's German, so Nona and Russell could probably go to the movie without the aid of subtitles! It is a beautiful, beautiful movie. It's a little on the longish side (2+ hrs), but it is beautifully crafted, incredibly moving film. The story line is well written and combines art, ambition, love, betrayal, fear, loneliness, sacrifice and, above all, hope and transformation. The characters are both well drawn and well acted. The movie feels very intimate and even though the pace is slow at times there is always this underlying tension that grabs you and makes you feel as if you are part of the story. Anyway, I hope that you will see it.
Today's Rant:
As if my computer failing were not enough (yes, and I realize that in the perspective of real want in the world, this is nothing but a petty indulgence--I always keep perspective)....After the movie, I went with my friend to an adjacent Chinese restaurant. A really nice restaurant. She order soup and an appetizer and I ordered an entree. We ate our respective orders with no sharing. When we received the bill, there was a place setting charge of $2. When I inquired about it, the waitress said, "You will have to complain up front, they made me do it." The manager came over and rather gruffly explained that the charge was because when one person orders an appetizer and not a full meal, it was their policy to charge a place setting fee. We protested (and the charge was removed, but ungraciously), and I was really quite angry (though I was polite). I felt shafted. My friend's appetizer and soup cost as much as my meal. Not everyone wants to eat a full meal, and I frequently only get an appetizer as my dinner. I think a $15 per head revenue was pretty good take for them. For their wanting to get $16 per head, they now get $0 per head, because I will NEVER go back to that restaurant again. Such a misguided policy. My friend and I, she was the president of the company I last worked for, noted that these unintended consequences are part of misguided policies. So think about that in your work life.
This is the natural post to have post-computer goofiness.
While I have all of my data files, I'm unable to access my PST (data file) for Outlook. I was initially relieved when the tech guy said that all my data files were intact. But when I try to import my former data file, it says that the versions are incompatible. (Sigh). I've lost all of my addresses, e-mails---I guess that is one way to wipe the slate. For some reason the file that I have is not recognized once I reinstall Outlook.
Movie Recommendation:
Other People's Lives--It's German, so Nona and Russell could probably go to the movie without the aid of subtitles! It is a beautiful, beautiful movie. It's a little on the longish side (2+ hrs), but it is beautifully crafted, incredibly moving film. The story line is well written and combines art, ambition, love, betrayal, fear, loneliness, sacrifice and, above all, hope and transformation. The characters are both well drawn and well acted. The movie feels very intimate and even though the pace is slow at times there is always this underlying tension that grabs you and makes you feel as if you are part of the story. Anyway, I hope that you will see it.
Today's Rant:
As if my computer failing were not enough (yes, and I realize that in the perspective of real want in the world, this is nothing but a petty indulgence--I always keep perspective)....After the movie, I went with my friend to an adjacent Chinese restaurant. A really nice restaurant. She order soup and an appetizer and I ordered an entree. We ate our respective orders with no sharing. When we received the bill, there was a place setting charge of $2. When I inquired about it, the waitress said, "You will have to complain up front, they made me do it." The manager came over and rather gruffly explained that the charge was because when one person orders an appetizer and not a full meal, it was their policy to charge a place setting fee. We protested (and the charge was removed, but ungraciously), and I was really quite angry (though I was polite). I felt shafted. My friend's appetizer and soup cost as much as my meal. Not everyone wants to eat a full meal, and I frequently only get an appetizer as my dinner. I think a $15 per head revenue was pretty good take for them. For their wanting to get $16 per head, they now get $0 per head, because I will NEVER go back to that restaurant again. Such a misguided policy. My friend and I, she was the president of the company I last worked for, noted that these unintended consequences are part of misguided policies. So think about that in your work life.
Wednesday, March 07, 2007
Computer Goofiness
I was unable to get my computer to boot. I'm not sure what happened, if it were a disk going bad or software problems. But it has been hanging a bit recently.
Thankfully I was able to use my daughter's laptop to monitor the market. I'm not really active in the market except I have the following positions across various accounts:
HGRD
BAS
GDX
THE
MZZ
QID
Short XLC
My cash position is about 65%.
I'm reading John Bogles new book, The Little Book of Common Sense Investing. I'll write a review of it when I'm done. I also have Ken Fishers new book, and I'll post some comments about that as well when I'm done.
I want to start doing daily WSJ market snapshots. However, I do not have my Hypersnap software on this computer, so I cannot do so. Perhpas it will serve as a nice archive for you. I'm also going to move my trusee sales from Friday to Monday. I think that the volume on Monday's and Tuesday's is noticeable lower than on Friday, so I think that I'm skewing my sample.
Pray for my computer.
Thankfully I was able to use my daughter's laptop to monitor the market. I'm not really active in the market except I have the following positions across various accounts:
HGRD
BAS
GDX
THE
MZZ
QID
Short XLC
My cash position is about 65%.
I'm reading John Bogles new book, The Little Book of Common Sense Investing. I'll write a review of it when I'm done. I also have Ken Fishers new book, and I'll post some comments about that as well when I'm done.
I want to start doing daily WSJ market snapshots. However, I do not have my Hypersnap software on this computer, so I cannot do so. Perhpas it will serve as a nice archive for you. I'm also going to move my trusee sales from Friday to Monday. I think that the volume on Monday's and Tuesday's is noticeable lower than on Friday, so I think that I'm skewing my sample.
Pray for my computer.
Tuesday, March 06, 2007
Market Commentary--In General
I'm listening to Gary K to hear his comments. Remember, he is an honest market commentator in that he is going to say....I don't know if this is "it"--with "it" being the "big, bad bear market"...but he did call correctly the May 2006 top and the turnaround (on August 15, my birthday!). George Dagnino, also called the August turnaround as well as the previous top. George was also clear that the Fed would not cut as real interest rates were too low. George, too, was stating that he thought that we were moving into a top, but that tops were a process that happened over periods of times (weeks v. days).I conjured up the book cover of Seven Blind Mice. I've mentioned this before--every market commentator is going to have his/her own view of the market. Like the seven adorable blind mice of this book (please buy this book for a special pre-schooler in your life, you will love it visually as well as the story and s/he will as well) each are moving around over the market (the elephant of the story) and coming back with a different report leaving most of us dazed and confused.
Interesting Post for Your Review
http://www.chrisperruna.com/2007/03/05/history-experience-tell-all/
Chris Perruna has an interesting column that I would like to refer you to. He quotes two people:
Chris Perruna has an interesting column that I would like to refer you to. He quotes two people:
- I am going to repeat the quote that I wrote last Monday in the post titled General Market Update; from a fund manger from Oppenheimer Capital named Eugene D. Brody:
Here’s another quote from Victor Sperandeo (I highly recommend his book):
“…the median extent for an intermediate swing in the DOW during a bull market is 20 percent. This doesn’t mean that when the market is up 20 percent, it’s going to top; sometimes it will top earlier, sometimes later. However, what it does mean is that when the market is up more than 20 percent, the odds for further appreciation begin to decline significantly.”
“Thus, if the market has been up more than 20 percent and you begin to see other evidence of a possible top, it’s important to pay close attention to that information.”
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