November 12, 2011 Stocks
Continuing issues with sovereign debt, bailouts, and political instability continue to plague Europe keeping the American economic situation below the fold. ECB, Fed, IMF, and other alphabet agencies will continue massive easing programs into the future. These liquidity additions bode well for western stock markets, America’s in particular. Stocks are an ideal parking place for idle cash. As mentioned previously, be cautious. When the elephants head for the door they will all go at once. Stay long gold. The adventuresome can short the Euro.
October 24, 2011 Stocks
The Dow Industrials broke out strongly bullish on Friday and confirmed today. First resistance area should be about 500 points away. The fundamental bearish picture for global economies has not changed since summer. However, markets are driven by hope and liquidity and both of those are at work. Watch for major central bank easing and continual bullish news to drive markets higher.
CRB also made a bullish breakout indicating the deflationary pressures in commodities are gone for the moment. This is not good news for consumers as prices for food, fuel and daily necessities will be rising.
While the trend for the near term is up for stocks, it is a dangerous market. When the bear re-emerges it will likely be ugly. Keep tight stops under any positions and preserve capital at all costs.
Hold your gold, buy on breaks.
August 22, 2011 Gold
Recent spectacular price action in gold ($1886) may have gotten ahead of itself a bit. In addition, we have the central bankers of the world meeting in Jackson Hole this week to hear the wisdom of Bernanke.
We may see additional upside near term in stocks as market mavens and insiders anticipate QE3 which will be bullish for stocks when it comes. This may result in some near term weakness in gold as recent gains consolidate and bankers try to panic weak holders. Expect some jawboning for the Euro as insiders try to sucker buyers with talk of a new currency and Euro restructuring.
This is why gold is going higher because it is the ultimate hedge against government currency games. Readers of this site should be sitting pretty with investments in farm land, commodities, and gold. The underlying trends of world debt, currency depreciation, and financial deflation have not changed.
Relax, enjoy the gains, and fear not.
July 28, 2011: Stocks and the Fed
If you wonder what role the Fed plays in banking, finance, and markets you might be interested in this bit of news. Between December 2007 and July 2010, the Fed parcelled out $US 16.1 TRILLION in emergency loans to financial entities all over the world. Almost half of this – a total of $US 7.75 TRILLION – was loaned to four US banks. They were Citigroup, Morgan Stanley, Merrill Lynch and the Bank of America. In July 2010 total US stock market capitalisation was $US 15 TRILLION. The Fed provided about half of that.”
July 21, 2011: Still on the Brink
Markets are said to discount the future. Bull markets are said to climb a wall of worry and this one sure has. Every hopeful pronouncement from establishment sources has been priced into the market plus some. Accounting earnings (see GE) have been sustaining this move since 2009.
It is getting crazy out there, but what to do?
- If you have profits in the stock market, start taking them.
- Keep close stops under all your positions.
- Gold has had a huge rally, and it will continue in spite of iffy inflation news and bear jawboning.
- Don’t start believing in forever rallies.
- Capital preservation continues to be the name of the game.
- Pull a significant portion of your capital out of the markets.
- Keep your head while others around you are losing theirs.
Sooner or later the Fed will run out of hot air and hot money to fuel speculation in stocks. A repeat of 2008 would seem likely, but it may not happen for a year.
March 18, 2011: On The Brink
Earthquakes in Japan, New Zealand, and elsewhere followed by tsunamis and assorted man made disasters in the middle east scream from the headlines. Recessions stubbornly hang on despite trillions of Dollars in Keynesian stimulus, and hopeful headlines in the world’s news media. For months stock markets have been rising in the face of falling Dollars and rising prices.
This is not a normal investment environment. Market selloffs, rallies on minimal news, soaring Japanese Yen prices, and the unwinding of carry spreads that enrich financial insiders. These are road signs investors ignore at their peril. Early stages of inflation are normally bullish for stocks and we have seen a year of incredible money creation., which sooner or later lead to currency destruction.
Recent events are road signs. Reality is screaming at us. The first rule of investing is capital preservation. See more on investing below. The road signs say it is time to preserve capital and get to the sidelines. Go to cash, go to gold or silver. As I have said before go to tangibles like land and earth assets. Quantitative Easing will eventually ruin our currency. Politicians are in denial. Insiders think they are in control. Japan is proof there is no such thing as control.
Get out, get liquid. To modify an old expression gold is king. Should I be wrong it will cost you commissions. But better safe than sorry. Act now.
June 7, 2009: Investing in Today’s New World
Investing is the art of profiting from uncertainty. Today there is more uncertainty than anytime in modern history. Previously, I have written about investing and some rules and thoughts about succeeding in markets. However, the times, they are a changing. We are embarking on a new normal.
In the past we could always be bullish on America, we did not have to worry about the Dollar, employment, or whether the economy was going to grow. America was the economic engine of the world. Inventors created new industries to invest in. Ordinary working folks made money and lived better than any people in history. Investors could concentrate on the micro environment knowing that the macro ‘big picture’ was secure.
Now we worry about where to invest, but we also worry about the future of the country. The Dollar is not safe, recession, inflation, deflation threaten. Deficits stretch into the future of our grandchildren. Government is a larger factor in the investment environment than ever with increasing deficits, regulations, and politically driven meddling in commerce.
What to do? Where do you invest the nest egg? Preservation of capital is job one. Discipline is job two.
Wall Street is turning into a giant bank controlled slot machine, that is no longer an investment but a game of chance. Off shore investing is recommended on the theory you should buy into a fund and put your money where opportunity is in some distant hot spot. Do you know anything about investing in China, India, Korea, Africa, South America? Does your fund manager? Really?
As part of a diversified investment program own things that people will pay for down the road. Things that produce products or cash value. Farmland, ranch land, oil wells, mines, water rights, anything that people have needed in the past and will need in the future. Basic building blocks that any economy will need.
Invest in what you know. If you don’t know, learn. The stock market is a market of stocks. Invest in things you are familiar with. Invest in companies you can see and touch. Invest in new product, new patents, not proformas. Don’t buy something just because it is cheap. Houses are cheap, land is cheap, but they both may get cheaper.
Make a plan and follow it. You make money when you buy. When you sell you are merely closing the transaction. Don’t invest in something because someone you know says it is a can’t lose deal. Run! Know the market you are investing in. Know the price, know the price history.
Be disciplined with your investments. If it goes wrong sell it. Don’t hope for the best. Salvation may be a long time and a big drop in price away. Only risk a certain percentage of your investment capital and no more on any one deal. It is not necessary to diversify into something you know nothing about simply to spread your investment dollars. That is broker talk
Adapt to the new normal.
Winning as an investor
Originally published: January 1, 2009
We have lived though the opening acts of investment history. The sort of history no one ever thought we would see again, having grown complacent by a bull market begun in 1982. But in the shambles of disaster lies opportunity. Opportunity that will be seen by few.
The crash of ’29 is ancient history. It would not happen again, its lessons learned. Or so we were told. Safeguards were put in place, market players were now an educated investor class with professional managemnt. No more speculation, no more rolling the dice, just reasoned, rational investing. So much for the illusions of our modern age.
We have seen massive losses, or as an anonymous wag put it ‘haircuts.’ If only it were that simple. Bad haircuts grow back in a short time, but 30% or 40% portfolio losses, and billions of Dollars in lost capital do not grow back like shorn lockes. So now what?
Investing is an art, not a science. The tools of finance such as ratio analysis, economic cycles, and what not are just that tools. The trick is to know which tools to use and when to use them. You must be an impartial observer of life and business around you. Distill facts from opinion.
Recessions, or booms for that matter, do not come unannounced. Like driving on a highway there are direction signs, warning signs, exit signs, on ramp signs, and advertising signs. All sorts of signs.
If you follow them all, you will never get anywhere. If you ignore them all you will get lost. The same thing applies to investing. Investing is in some ways like a lion hunting a meal. Observation, tracking, stalking, approach, attack, all tempered by experience. If the lion is fortunate there is a meal. If the investor is fortnuate there is a profit.
Concentrate on the art of investing not on the science.
Winning as an Investor, Part 2
Origninally published January 2, 2009
Ask questions
So what does that mean the art not the science? As Joe Friday used to say, “the facts mame, just the facts.” Facts are indisputable. OK, but there are a lot of facts out there. Facts can be made to support the bull or the bear argument. So like the fictional Sgt. Friday, spot the clues!
Some in the media are saying a bottom is in place, a rally is coming. Just today MarketWatch reported the CBOE’s VIX index is showing expectations of volatility have declined from record highs to levels unseen since October 2nd. This is a fact that might support expectations of a rally. Is this a clue? A call to invest? Maybe, but then everyone knows what happened on October 10.
Not to pick on anyone in particular, but Art Cashin of UBS Financial Services was on CNBC the other day talking about a rally he sees coming. Cashin has been around forever and is widely followed, but his is a learned opinion, but still, just an opinion. One of many available every day on CNBC and in the financial press.
Ever notice how the experts are always telling you to buy? Did you hear anyone telling you to sell last fall? Last summer? Did you see any brokerage houses putting sell recommendations out there on the Dow, or the Standard & Poors 500? If you did, would you have listened? Ask yourself the question.
Many of the experts you see quoted in the media are brokers, fund managers, or bankers. They all have product to sell, they are talking their positions. Nothing especially wrong with that, just don’t expect them to be looking out for you.
Distilling actionable intelligence from the chattering experts and market noise is part of the art of investing. When you listen to CNBC or read expert opinion ask your self where is their skin in the game? Do their interests correspond with yours?
Winning as an Investor, Part 3
Originally posted January, 2009
A dose of dilema
The last few posts illustrate my thoughts on the art of investing. The dilema of the markets is perfectly illustrated by a January 1 MarketWatch article on the diverging views of father and son.
The son believes a rally is possible in the second half of 2009. The father who has been in the investment business for 55 years is not so sure. After 1929 the market rallied, falling some 50% in 1931, then falling again in 1932.
Who is right? No one knows. That is the dilema of investing. If you wait for broad agreement among opinion leaders we will be much closer to a top than a bottom.
I tend to agree with the father. My feeling is all the bad news is not yet ‘out there’ in the market. We have learned much from the great depression. The Fed and the government are priming the money pump so hard the handle may come off. Lack of money in the system is not a problem.
A problem we face, to coin a phrase, is fear of flying. Money is cheap, but having seen first hand the crushing effect of negative leverage (see housing and newspapers) no one is borrowing. New Years eve reporting shows people having survived the crash are feeling more optimistic. More and bigger stimulus programs will be enacted, and optimism will grow going into the third quarter of 09. Optimism is at some point bullish.
Another problem standing astride the bullish case is the law of unintended consequences. Wrecklessly expanded home lending ultimately caused a train wreck. What will the consequences be down the road of the trillions of Dollars of stimulus being pumped into the financial system?
Have we truly seen the bottom? Who knows. One thing is for certain. You will not see the all clear signal in a buy recommendation from Merril Lynch, Wachovia, Ben Bernanke, Chris Dodd, or Barney Frank.
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