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Phil
September 1st, 2014 at 5:11 am

Good morning! 

I hope everyone is having a nice holiday weekend.  We're just hanging out which, as you can see above, means I have a lot of time to read.  My goal for today is to update our Buy List with new positions.  

Asia had a good day, up about half a point despite a China PMI miss and despite the fact that Hong Kong is coming under China's thumb:

• Beijing's Ruling on Hong Kong Sparks Protests
  

  Pro-democracy protesters in Hong Kong said police used pepper spray against demonstrators outside a news conference given by a top Chinese official on Beijing's decision on how the city should elect its leader.

  • Beijing Rules Out Free Vote in Hong Kong
  • Back to the Drawing Board for Election Reform?
  • Photos | Taiwan Groups See Red Flag
  • Video: Battle Explained | Video: 'Darkest Day'

•  
  

  Beijing Abandons Pragmatism
  

  China's World: Deng Xiaoping understood Hong Kong's distrust of Communism and let the city keep its British-style courts and administration. Today's Chinese leadership shows far less inclination for such pragmatism.

And this:

Yuan's Fall Hurts Chinese Profits


Chinese companies are reporting profit hits from the weaker yuan, after borrowing billions of dollars from the U.S., Hong Kong and elsewhere abroad—and the problem is likely to continue.

Nonetheless:

China Factory Output Slows


China's economy sputtered on in August with manufacturing output slowing, according to two measures, as the effect of stimulus measures earlier this year fades

• China Home Prices Fall

?

• Japan Capital Spending Falls
  

  Capital spending by Japanese companies fell by 1.8% in the April to June period from the previous quarter, reflecting a slump in demand after the first sales tax increase in 17 years took effect.

Hong Kong, Shanghai Shares Rise


Hong Kong's Hang Seng Index and shares on the mainland traded higher Monday, brushing off weak Chinese manufacturing data earlier this morning.

• Live: Markets Pulse

Japanese Teen Girl Wins Air Guitar World Championships

Europe, on the other hand, is down a bit, only about 0.25% and the same sort of negative news that no one seems to worry about:

Ukraine Loses Ground to Separatists


Government forces lost more ground to Russian-backed separatists in heavy fighting in eastern Ukraine a day after European leaders threatened to impose more sanctions on Moscow.

German Second-Quarter GDP Slip Confirmed


Germany's economy contracted in the second quarter after a robust start to the year, the Federal Statistics Office confirmed, putting pressure on policy makers to move ahead with measures to boost the economy.

• Alternative for Germany Party Takes Its First Seats in a State Parliament
  

  The euroskeptic AfD clinched its first seats in a German state parliament Sunday, taking a larger-than-expected 10% of the vote in Saxony's legislature.

ECB Expectations May Be Overdone


Mario Draghi's speech last week has fanned expectations of a fresh round of ECB action next week. But the ECB already has its hands full implementing policies it announced in June.

Getting to the Core of the ECB's Inflation Problem


Headline euro-zone inflation is down again, but core inflation is proving resilient. The euro zone risks falling prey to a panic over deflation.

Prices Threaten Europe Recovery


Europe's struggle to prevent ultralow inflation from derailing an already fragile economic recovery grew even more challenging as consumer prices weakened to a five-year low in August.

Ruble Hits New Low

Euro-Zone Consumers Turn Downbeat

So BUYBUYBUY, I guess – as it's the same old bad news we've been getting all year.  Deteriorating conditions around the World completely being ignored as stimulus pumps up the US Economy.  This isn't LIKE 2008, this IS 2008, when Bush's stimulus gave us a false rally and record highs right before a massive crash bought on by banks in other countries finally failing as the flaws in the system could no longer be denied.  

While I'm worried about that stuff, it did take a long time to hit us and we did get some pretty clear warnings (Iceland, Northern Trust, Lloyd's) from overseas and, at home, as early as 2007 FRM stopped buying sub-prime loans (because they saw it coming), New Century Financial went bust, BSC liquidated 2 sub-prime hedge funds, American Home Mortgage went BK and Fitch cut Countrywide to junk.  That was all 2007 stuff that we ignored right here at home.

The markets topped out in Oct of 2007 and, of course, the drop from S&P 1,600 to 1,440 (10%) into November was considered a huge dip-buying opportunity and those dips were rewarded with a run back to 1,520 (5%) but then – SURPRISE! – we fall to 1,320 into Jan and then back to 1,440 and then down to 1,250 and then back to 1,300 and THEN things got ugly and, from July 2008 to October, we fell from 1,300 to 850 (35%), pretty much non-stop.  

More dip buyers at 850, back to 1,000, then down to 666.  Of course the 850 dip-buying was about expected Government intervention, which was blocked by the GOP (TARP 1) but then we got it but faith was lost and we fell again anyway.  

The greatest way to get rich in a crisis like that was to STOP LOSING MONEY at about 20% and wait PATIENTLY for things to settle down.  When things settle down after a 50% drop, you can afford to miss the first 10% of the recovery – keep that in mind.  There's no need to time a bottom, our speculative bottom plays made fantastic amounts of money without needing a lot of cash or commitments.  

Our 13 trade ideas from March 6th were all straight-up plays (no margin) and $1,000 bet on each one ($13,000) returned $69,000 by Sept 10th and God knows what longer-term (I never did the math) but a couple of the were 142 shares of GE at $7, 318 shares of BAC at $3.14, 62 shares of DIS at $16, 16 shares of AMZN at $62.50, 1,538 shares of HOV at $0.65…  

So they weren't all tricky option plays but to this day I can't believe how hard it was to convince people to pull the trigger on those stocks at those prices.  Don't cast stones, when your account is down 50% – it's hard to make good decisions.  

That's why I now favor more conservative strategies.  As Buffet knows, the greatest market opportunities come, not from chasing rallies, but from being able to take advantage of downturns.  It's a long-term game that requires a lot of patience – but well-worth playing!