by phil - March 15th, 2013 8:32 am
We have broken on through to the other side!
We chased our pleasures here, dug our treasures there but can you still recall the time we cried? (See Tuesday's title if you are confused) Apparently, no one remembers the time we cried as it's now been 10 sessions since the Dow had a down day and forget the Dow – look at the Russell – almost at our 20% line.
Our 20% line would still be breaking over the range of our new Big Chart levels (again, Tuesday's post explains it all) before we even get a chance to draw them. Actually the new goal would be 1,000 so 5% higher from here but certainly within reach at this point.
Yesterday was the first day in a long time that we didn't like the market action – it had the real feel of a pump and dump with new highs being made on very low volume during the day and then massive dumping of share on Mutual Fund suckers at the end of the day.
We couldn't even get our dip in oil and today we only caught a very small move down before the diving Dollar (82.50) pumped oil all the way back to $93.50, where it's a tough short into the weekend (but we still like the USO ($33.60) puts and SCO ($39.30) longs). Gasoline, on the other hand, was our bull play in the morning Alert to Members for the energy complex and the /RB futures flew up from our early morning from my projected $3.12 floor, all the way back to $3.15 at the close and now $3.167 at $420 per penny per contract!
AAPL is flying pre-market as the new Samsung phone may not be the iPhone killer it's been hyped up to be. Not only that but it's not even going to be delivered until May at the soonest – an old Microsoft trick we used to call "vaporware" and the staged demo left many feeling that a lot of the "features" were not ready enough to even be shown to reporters on an actual phone.
We had a big discussion this morning about Samsung, AAPL, TA vs FA and the eternal search for the TRUTH in early morning Member Chat so I'm not sure what's left to cover actually…
by phil - March 14th, 2013 8:34 am
Isn't oil trading fun?
Just this morning I was able to tweet out a trade idea from early morning Member Chat at 4:47 to remind our followers that oil Futures (/CL) were a nice short idea at the $93 mark. Less than two hours later, at 7:26, we decided to take the money and run at $92.15 – which was good for an $850 per contract gain – enough to buy about 300 Egg McMuffins!
We were long on oil Tuesday Morning at $92 and our target for shorting was $93 but, as I said in the morning post: "hopefully, they'll go a little higher than that and we can add short positions using SCO or USO in Member Chat as things can turn very ugly next week as the thieves try to wriggle out of the contracts they signed today." We got a $1,000 upside trade followed by the $1,000 per contract drop from $93.47 (right on schedule, after inventories) back to just below $92.50 and then we got a run back to $93 again on Wednesday ($500 per contract profit), where I again laid out our reasons for shorting them again at $93, which was good for another $1,000 per contract gain and then this morning's $850, which was good for $4,350 PER CONTRACT's worth of gains in just two days.
Now, I'm not telling you this to point out how great I am at calling Futures trades – I'm telling you this to point out what a MASSIVE SCAM energy trading is and how something should be done to stop this farce, which is ROBBING the World's citizens of over $850Bn a year!
I often say to our Members: "We don't care IF a market is fixed as long as we can understand HOW it is fixed and place our bets accordingly," but that's not really true with oil trading, as this criminal enterprise (which I have written about for years) is more harmful to our everyday life than every hurricane, earthquake or terrorist act that has ever been committed on this planet – and they do it to us EVERY DAY OF EVERY YEAR!
by phil - March 13th, 2013 7:52 am
As it's sort of the anniversary of the big crash, we were discussing my historic bottom call when I was on TV doing LiveStock with Tim Sykes that afternoon and we ended up making 13 bullish calls that were up 469% AVERAGE just 6 months later. Not that it took a genius to pick the stocks (GE, DIS, XLF, AMZN…), that was like fishing in a barrel using a nuke – everything was going to go up – the real trick is pulling the trigger – that's the hard part.
It doesn't happen very often but this is why we like to stay around half cash in our main portfolios – you never know when a huge opportunity will present itself. It's also why it's so valuable to have those downside hedges.
Like currently, we have just 50 DIA puts as a hedge in our Income Portfolio but that's because it's new and it's well-hedged and we are mostly in cash and we don't have a lot of profits to protect at the moment and, if the market begins to crash – we'd be happy to take small losses and get back to cash or DD into better positions (as we initiate 1/4 positions in general anyway). But, back in Jan of 2008, we were at the top of a massive run and back then, in that Long-Term Portfolio, we had 250 DIA puts protecting our positions. We had started with 50 DIA puts but the market kept going up so we rolled them and doubled them and rolled them and doubled them and THEN there was a big crash and the puts saved our assets.
That post evolved into "How to Solve the Housing Crisis Tomorrow" on April 16th of 2008 so yes, we at Philstockworld considered it a crisis long before the MSM did. In fact, I sold my real estate data business at the end of 2004 – that's how early I called it! Anyway, a year later, still nothing was done and I wrote "For Timmy G: How to Solve the Housing Crisis TOMORROW" and props to Mr. G for inviting me and a few other bloggers to meet in Washington where, as noted by Steve Walman:
Phil Davis, who made clear
by phil - March 12th, 2013 8:18 am
Day to day
Hour to hour
The gate is straight
Deep and wide
Break on through to the other side – Doors (of Perception)
Up and up the market goes, where she stops, no one knows.
We already had to roll up our DIA hedges in our new Income Portfolio yesterday as they had dipped (the June $135 puts) from $1.90 to $1.40, costing us $2,500 of our virtual profits already or, as a bearish optimist would say, setting us up to make a nice amount on the way back down as we plow another .55 into a roll to the $138 puts (as we couldn't fill our initial target of the $139s).
No matter how bullish we are (and all of our Income Portfolio positions are bullish so far), it's always prudent to have some hedges. When you are at a possible top in a range – it is more important than usual and we're sitting on the top of a 20% move from S&P 1,300 (last Q2) to the 1,560 that we're moving in to test in Q2 of 2013.
We're down to our last two red boxes on our Big Chart and if it wasn't expiration week, we would have already redrawn the lines to reflect our new trading range but we're still expecting a 2.5% to 5% pullback before breaking on through to what would be our 20% lines.
On the Russell (the leading indicator at the moment) that would be 1,000, along with NYSE 10,000, Nasdaq 3,600, S&P 1,700 and Dow 17,000. If the math seems confusing versus our current figures, it's because the Bigger Big Chart set those targets for a 5-year recovery back in March of 2009 (see our July 2010 update: "Charts from the Future" for a good explanation of how we use our 5% Rule) and we work our numbers backward from there, with the occasional adjustments for Dollar activity.
Using those lines, all our numbers change and our goals will become our "10% Up" lines – the top of our new expected range – and then we're forced to redraw all our lower numbers accordingly and our Must Hold lines become -10% from the top at Dow 15,300, S&P 1,530 (already over), Nas 3,240 (just over), NYSE 9,000 (over) and Russell 900 (over). As noted last Thursday, 15,200…
by phil - March 11th, 2013 8:20 am
Look at this!
Our Big chart covers a 3-month period and our first quarter is already winding down and look how ridiculously UP it has been so far. First it went up, then it went up some more, then we paused in February and then we went up and up again so far in March. For the bears, this is like looking at a roulette wheel that has come up black 6 times in a row and they bet red because it HAS to go red sooner or later.
That's called the "gambler's fallacy," the belief that if deviations from expected behaviour are observed in repeated independent trials of some random process, future deviations in the opposite direction are then more likely.
The reality is, in a random outcome (which the stock market generally is on a short-term basis), the odds of any single day or week being up or down are going to be 50:50, irregardless of what happened the week or weeks or months or years before.
But, even worse for the bears, the market is not completely random. It can be affected by outside factors. In this particular case, we have the Fed pouring $85Bn a month into the economy and that drives a demand for equities and rates are low so bonds are out of favor (driving a demand for equities) and the Global Economic Outlook is iffy so commodities are not strong (driving the demand for equities) and neither Asia nor Europe look as strong as the US (driving the demand for US equities – especially the Russell, which does less business with Europe and Asia).
So, rather than a roulette wheel, what the bears are doing is watching a pool fill up with water and the Fed has an $85Bn hose feeding it and bonds are transferring to stocks for another $11Bn a month and money is moving from commodities to stocks at about $3Bn a month and more people are working and 401K money is pouring in and sideline money is pouring in and corporations are buying back their own stocks… Well, you get the picture.
The bears are standing around the pool and watching the water rise and essentially betting it will start to sink – simply because it's risen a lot recently. If YOU were betting water in a pool would stop rising then you'd probably…
by phil - March 8th, 2013 8:06 am
Up, up and away!
Super market is on the march in March after a flatline February, which is now starting to look like some healthy consolidation after a 1,000-point pop in the Dow in January. As I noted yesterday, 14,400 is where we expect to get our next round of resistance but, after that, we've got clear sailing all the way to 15,200.
The Dow is doing so well that the Dow 36,000 boys are getting interviews again. As noted by Jim Glassman:
We don't have to agree with 36,000 to see some sense in the premise. Yes, p/e's are low and the assumptions that growth will remain slow may be misplaced – especially when Corporations themselves are sitting on over $2Tn in cash and using some of it to buy back their own stock at record levels. That coupled with M&A and privatization (DELL) is taking more and more shares off the market at the same time as demand for them are growing and Corporate Profits (/e) are posting new records each quarter.
What if the economy actually improves? What if the US goes back to it's historic 3.5% annual growth and Europe stops being a drag and Japan finally stops deflating (printing 100 Trillion Yen seems to be helping so far) and the…
by phil - March 7th, 2013 8:21 am
What have you done for us lately?
That's the question investors have for the Dow as we continue onward and upward to record highs. Our own Big Chart has a target of 14,400 for the senior index and making and holding that line will finally get us to roll our targets higher – per our 5% Rule, which has been right on the money since 2009 so no sense in ignoring it now, is there?
I mentioned in yesterday's post that the Dow today is not the same Dow as we had in 2007 so, in general, comparisons are silly but we have to play the hand we're dealt and keep in mind that any index that is based on 30 stocks that are now selected by a Rupert Murdoch company is certainly nothing any serious investor should be basing decisions on.
What we can take very seriously is S&P 1,440 – long gone already along with our targets on all our other indices save the Nasdaq, which has been dragged down by AAPL's 40% drop, costing that index 8% or about a 250-point handicap and it's STILL just under that 10% line.
In fact, the NYSE is about to test a critical 2.5% line at 9,000 and 1,550 is the 12.5% line on the S&P and the Russell is closing in on 17.5% over it's own Must Hold line (940) so a lot of thing lining up for the big cross that will officially put us up and over the top and will raise our Must Hold lines up to those 5% lines as the market confirms it's next leg higher.
So it's the Dow that is WAY behind and needs to catch up and, to see if it has the gas to get going – let's look at the individual components and see if they are likely to let us move higher or if they themselves are toppy after a 10% run for the year.
Tom Luongo put up this useful chart showing who has contributed the most and the least to the Dow's rally this year. Not surprisingly, in the price-weighted index, it's IBM getting the lion's share as that stock has gone from $190 to $208 – up $18 and adding about 140 points to the index (8 points per Dollar is about right). Here's a fun fact, had AAPL been put…
by phil - March 6th, 2013 7:55 am
It's a brand new all-time high for the Dow, which is not, of course, the same Dow as we had in 2007 but let's not sully our victory with facts, right?
OK, lets: In Feb 2008, MO and HON were replaced by BAC and CVX, then AIG was replaced by KFT that September and in June, 2009, C and GM were replaced by CSCO and TRV and then KFT was replaced by UNH last September.
MO was a great drop, it's half of where it was in 2008 (was split off), HON is up 10 points but AIG is down 200, C is up 10 GM is a whole new company so hard to judge now and KFT split up so at least a 190-point drop from the Dow Components that were dropped since we made our highs and that would have cost the Dow at least 1,600 points had they not been ALTERED – more than 10%.
And what did the new components do for the Dow? BAC was a poor choice, dropping 30 since 2008 while CVX made up for it with a 33-point move up. CSCO has gone nowhere but TRV was a 40-point winner since inclusion and UNH is about the same so let's call it 40 points added by new components for 320 Dow points (roughly 8 points per Dollar) but now we're talking about a 1,900-point swing between the old Dow and the New Dow so let's not be too impressed with matching the 2007 high when the deck has been stacked so heavily in the Dow's favor.
As David Fry notes on his Dow chart, it's all about QE and ZIRP but those are facts and he makes reference to Zero Hedge, who had a table outlining other economic conditions that have changed a lot since the October 2007 high:
Dow Jones Industrial Average: Then 14164.5; Now 14164.5
Regular Gas Price: Then $2.75; Now $3.73
GDP Growth: Then +2.5%;
by phil - March 5th, 2013 8:34 am
Full speed ahead and damn the torpedoes!
When Admiral Farragut was in Mobile Bay (Gulf of Mexico) in the last great naval battle of the civil war, he faced a harbor full of mines and his lead ship, the Tecumseh hit a mine (called a torpedoe at the time) and sank. Other ships began to turn back but Farragut was lashed to the rigging on the perch of his own command ship and gave the order for the fleet to ignore the danger and blitz the harbor – leading the North to a decisive victory in an act of guts and faith.
There are many men who would have turned back facing a mined harbor and the war would have waged on and maybe the North wins anyway and maybe they lose – we'll never know. There are also many men who bravely face the odds and "go for it" – and most of them are as dead as Custer – BUT, the ones who make it are heroes, aren't they?
"He who fights and runs away, lives to fight another day" is a more relevant quote for stock market investing as the heroes are few and far between and the path is littered with the bodies of men who have "gone for it" before you.
Andy Zaky is one of those bodies and we were discussing his fate in Member Chat last night and this morning as his AAPL fund has gone belly up and it's no secret that our own AAPL positions are also hurting with the stock at $420. Had AAPL turned up this month, Zaky would have been a hero and everyone would know his name and sing his praises for the next 100 years (like John Paulson's day in the sun shorting housing at the right time – since then, not so much) but it didn't and the fund had to be liquidated.
In our case, we rolled our "so far, so wrong" AAPL positions out in time and down in strike as we do still like AAPL but, unlike Zaky, we are willing to give them more time to turn around, rather than making a series of shorter and more aggressive bets. We had pursued the same strategy in the Fall and our AAPL bets were back to even in January, prompting me…
by phil - March 4th, 2013 7:22 am
"When the partnership I ran took control of Berkshire in 1965, I could never have dreamed that a year in which we had a gain of $24.1 billion would be subpar, in terms of the comparison we present on the facing page." – Buffett
That's how Warren Buffett begins his annual letter to shareholders, apologizing for only making $24Bn against a $252Bn market cap that has the companies shares trading at new all-time highs of $152,750 a share.
It is because Buffett doesn't care about the PRICE of his stock – he cares about the VALUE of his company and the VALUE of Berkshire has not increased as much as the PRICE of the S&P, which Buffett gives the benefit of the doubt as an indication of the value of 499 of his competitors. In doing so, he sets a very Conservative benchmark as a goal but that's what good CEOs do – they strive to be the best, not just to beat some arbitrary benchmark.
Like other companies we won't name, Berkshire has, at various times, been in and out of favor with investors but, on the whole, the stock's PRICE followed the usual pattern of giving up 50% of it's gains at certain points, only to then rocket on to new highs as the VALUE of the stock is once again realized by fickle investors and analysts.
Warren Buffett makes his living identifying stocks that are incorrectly valued and, as I noted to our Members in looking over our first dozen picks in our new Income Portfolio – so do we!
One thing of which you can be certain: Whatever Berkshire’s results, my partner Charlie Munger, the company’s Vice Chairman, and I will not change yardsticks. It’s our job to increase intrinsic business value – for which we use book value as a significantly understated proxy – at a faster rate than the market gains of the S&P. If we do so, Berkshire’s share price, though unpredictable from year to year, will itself outpace the S&P over time.
That's essentially the philosophy of our Income Portfolio – we pick out stocks that are WORTH more than their PRICE. It's not a difficult thing to do once you realize that 99% of the analysts and TV pundits and bloggers and other financial writers are IDIOTS! Then you can learn…