Nick Murray says “The ability to distinguish between volatility and loss is the first casualty of a bear market.”
I turned to one of my favorite passages of his masterpiece Simple Wealth, Inevitable Wealth this morning as turmoil from overseas and the commodity markets made its way through the headlines. Nick relays a great anecdote about how much money one investor personally “lost” during the last Russian Ruble crisis in the summer of 1998…
Yes, that’s right, it’s six billion two hundred million dollars. A very large sum of money, wouldn’t you say? Now what, you ask, does it represent?
It is roughly how much Warren Buffett’s personal shareholdings in his Berkshire Hathaway, Inc. declined in value between July 17 and August 31, 1998. And now for the six billion dollar question. During those forty-five days, how much money did Warren Buffett lose in the stock market?
The answer is, of course, that he didn’t lose anything. Why? That’s simple: he didn’t sell.
In July and August of 1998, I was doing time at a brokerage firm on Long Island as a summer intern. The brokers were panicking and the partners began yelling at them to get off margin and help maintain order in the Asia Pacific technology stocks in which the firm made markets. It wasn’t working, from what I could surmise. The simultaneous meltdown of several Far East currencies and then the toppling of the Ruble proved too much for US markets and eventually the contagion found its way here.
People forget that, in the midst of the massive late 1990’s bull market, we had this two-month bear market episode in which the S&P 500 dropped by a quick 25 percent. The giant Nobel laureate-run hedge fund, Long Term Capital, imploded as a result and Greenspan was forced to slash rates overnight while the New York Fed arranged a Wall Street-subsidized bailout. Things got back to normal by the end of the fall, but, for a minute there, the panic was palpable and it eventually slammed everyone.
I bring this up because there are some parallels between then
Statement still says "considerable time" but slight change to language. Says they will be "patient" raising rates.
It's a bit bullish but nothing that should sustain a move up. Let's watch 2% lines (strong bounce) to see if they get taken or, otherwise, we'll see if 1% gains (weak bounce) can hold.
The US Federal Reserve is dumping its forecast of low interest rates for a "considerable time" in a strong signal it expects to tighten monetary policy by the middle of 2015.
In new language designed to reassure markets that rate rises are not imminent, the rate-setting Federal Open Market Committee says it can be "patient" in judging when to start hiking rates.
The decision to drop "considerable time" despite global market turmoil shows the Fed's confidence in strong US growth and its desire to prepare financial markets for tighter monetary policy next year.
But in a carefully weighted statement that prompted three dissents – passing by 7 votes to 3 – the FOMC said it regards the new guidance as consistent with the old version. It strongly suggests the Fed is looking towards June 2015 as the timing for a first rate rise.
Further offsetting the change of language, the FOMC forecast a slower pace of rate rises in 2015 and 2016, partly closing a yawning gap with market expectations.
Instead of expecting interest rates of 1.25 – 1.5 per cent by the end of 2015, the FOMC now expects rates of 1 – 1.25 per cent. That suggests four quarter point rate rises next year instead of five. Instead of rates at 2.75 – 3 per cent by the end of 2016, the Fed now expects rates at 2.5 per cent.
The statement prompted two dissenters who thought it was not tough enough and one who thought it was too strong.
The chart above comes from Matt Phillips at Quartz and is a good reminder of why you shouldn’t invest in stupid sh*t. Obviously any asset can decline in price – blue chip stocks, your house, etc – nothing is immune. But don’t go out looking for additional trouble when the world is perfectly capable of handing you losses on the regular stuff.
Recall Bitcoin's ugly chart for the year (source).
Mortgage credit is too tight. They should have changed that a long time ago. —Jamie Dimon, CEO JPMorgan
Today’s rule is an important step forward in creating an environment where good lenders and good borrowers can work together without reservation. —Julian Castro, HUD Secretary
Geez, I can’t decide who is dumber when it comes to repeating the same mistakes: the profits-at-any-cost crowd on Wall Street or the do-anything-for-votes politicians in Washington, DC.
I can’t decide; they’re both dumber than dirt and often in bed when it comes to lining each other’s pockets.
What I’m talking about today is the new regulations for mortgage qualification a.k.a. “qualified residential mortgage” (QRM) rules.
Some background first.
After the 2008 financial crisis and subprime mortgage implosion, governmental agencies led by the Federal Housing Finance Agency enacted a series of tougher rules to clean up the overly easy mortgage qualification process.
Of course, tighter lending standards and higher down payments squeezed a lot of marginal buyers out of the real estate market, and that meant fewer dollars for big banks that package the loans and members of the National Association of Realtors that sell the homes.
The drop in income bothered them so much that they formed a big organization called the Coalition for Sensible Housing Policy to push the noble goal of helping first-time homebuyers with a return to the good old days of easy credit.
Big surprise. The lobbying efforts (and no doubt large political contributions) paid off. The 20% down payment requirement has disappeared and Fannie Mae and Freddie Mac will now guarantee some loans with down payments of as little as 3%.
Bye-bye credit standards.
These new QRM rules make it possible for mortgage applicants to do away with pesky things like good credit and a down payment.
“The QRM rule is a win-win for consumers, Realtors and the housing finance industry,” said Steve Brown, the president of the National Association of Realtors.
I don’t know about the consumers, but Brown is absolutely right about the new QRM rules being…
As we predicted, we opened down half a point and then raced all the way up to our strong bounce lines before tumbling back to give up all of those gains and more – a major technical failure for the markets but a huge profit for anyone who followed our trade ideas in the morning post.
Dow (/YM) Futures 17,000 to 17,350 for a $1,750 per contract gain
S&P (/ES) Futures 1,965 to 2,010 for a $2,250 per contract gain
Nasdaq (/NQ) Futures 4,120 to 4,180 for a $1,200 per contract gain
Russell (/TF) Futures 1,130 to 1,155 for a $2,500 per contract gain
I called the top in our Live Member Chat Room at 11:42 and, since we had made a public pick in the morning, I also tweeted out the note to take profits for our followers (and on our Facebook page, of course). That's how we pick up a little spare change in the Futures while we wait for our bigger positions to play out.
In fact, we also cashed in a couple of our bearish positions on DXD and SQQQ that were up significantly on yesterday's drop, leaving us a little bit less bearish ahead of the Fed – just in case they actually do something today that boosts the markets. We don't really expect it, but not taking 100% gains off the table is just foolish – we can always find new hedges to cover our longs with.
As you can see, our Short-Term Portfolio finished the day up 96.5%, a gain of $22,310 from Monday's close so of course we wanted to take some off the table. Our cash position has increased by $46,500, which was one of our primary goals (getting to mainly cash) into the holidays, which are just 7 days away now. All in all – perfectly timed this year!
We're still bearish but it's more of a long-term bearish with some…
Last week we started a series of letters on the topics I think we need to research in depth as we try to peer into the future and think about how 2015 will unfold. In forecasting US growth, I wrote that we really need to understand the relationships between the boom in energy production on the one hand and employment and overall growth in the US on the other. The old saw that falling oil prices are like a tax cut and are thus a net benefit to the US economy and consumers is not altogether clear to me. I certainly hope the net effect will be positive, but hope is not a realistic basis for a forecast. Let’s go back to two paragraphs I wrote last week:
Texas has been home to 40% of all new jobs created since June 2009. In 2013, the city of Houston had more housing starts than all of California. Much, though not all, of that growth is due directly to oil. Estimates are that 35–40% of total capital expenditure growth is related to energy. But it’s no secret that not only will energy-related capital expenditures not grow next year, they are likely to drop significantly. The news is full of stories about companies slashing their production budgets. This means lower employment, with all of the knock-on effects.
Lacy Hunt and I were talking yesterday about Texas and the oil industry. We have both lived through five periods of boom and bust, although I can only really remember three. This is a movie we’ve seen before, and we know how it ends. Texas Gov. Rick Perry has remarkable timing, slipping out the door to let new governor Greg Abbott to take over just in time to oversee rising unemployment in Texas. The good news for the rest of the country is that in prior Texas recessions the rest of the country has not been dragged down. But energy is not just a Texas and Louisiana story anymore. I will be looking for research as to how much energy development has contributed to growth and employment in the US.
Apple Inc. (AAPL) halted online sales of its products in Russia due to “extreme” ruble fluctuations, showing how the currency’s swings are rippling out to international businesses.
The iPhone and iPad maker stopped sales from its Web store as Russia’s currency lost as much as 19 percent today, with a surprise interest-rate increase failing to stem a run on the currency. The ruble briefly sank beyond 80 per dollar, and bonds and stocks also tumbled.
“Our online store in Russia is currently unavailable while we review pricing,” Alan Hely, a spokesman for the Cupertino, California-based company, wrote in an e-mail today. “We apologize to customers for any inconvenience.”
When a wise market guru says "buy when there's blood in the street," or "be greedy when others are fearful," you may already be thinking to yourself that if it were so easy, you'd be set for life. Ben Carlson agrees and focuses on a failed attempt by Brett Arends to call the bottom in Russian stocks. In March. When stocks were down 78%.
Since then, the Russian stock market lost another 40%.
Be fearful when others are greedy and greedy when others are fearful. So easy to say but much harder to pull off in real-time.
People can always become greedier or more fearful. Case in point — the Russian stock market. In early March, MarketWatch columnist Brett Arends laid out the case for investing in Russian stocks, specifically Russian small caps:
Heaven help me, I’m going to invest in Russia.
I’m not going to overthink it. I’m not going to let people talk me out of it. I am going to throw some of my money into the Russian stock market—and then forget about it for a few years…
First comes production. Then comes income. Spending and savings follow. All the rest is debt…….unless you believe in a magic Keynesian ether called “aggregate demand” and a blatant stab-in-the-dark called “potential GDP”.
I don’t. So let’s start with a pretty startling contrast between two bellwether data trends since the pre-crisis peak in late 2007—debt versus production.
Must see: Phil visits with Money Talk's Kim Parlee on Business News Network. In this great interview, Phil talks about his target price range for oil and presents an options trade idea that he is calling the "Trade of 2015."
Analysts at Oppenheimer initiated coverage of Twitter Inc (NYSE: TWTR) Friday by issuing a Perform rating and setting a $36.00 price target. Twitter is a global social networking platform with over 280 million active users.
While Oppenheimer analysts fully recognize the strength in Twitter as a company, they believe that Twitter’s stock is appropriately priced at current levels. “While TWTR is the best Internet platform for real-time content discovery, we believe that the stock’s current valuation of 10x 2015E sales, a 52% premium to peers, fully reflects future prospects based on current growth rates.”
Between November and December 2014, Twitter insiders have sold more than $...
Those who took advantage of markets at Fib levels were rewarded. However, this looked more a 'dead cat' style bounce than a genuine bottom forming low. This can of course change, and one thing I will want to see is narrow action near today's high. Volume was a little light, but with Christmas fast approaching I would expect this trend to continue.
The S&P inched above 2,009, but I would like to see any subsequent weakness hold the 38.2% Fib level at 1,989.
The Nasdaq offered itself more as a support bounce, with a picture perfect play off its 38.2% Fib level. Unlike the S&P, volume did climb in confirmed accumulation. The next upside c...
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Stocks have needed a reason to take a breather and pull back in this long-standing ultra-bullish climate, with strong economic data and seasonality providing impressive tailwinds -- and plummeting oil prices certainly have given it to them. But this minor pullback was fully expected and indeed desirable for market health. The future remains bright for the U.S. economy and corporate profits despite the collapse in oil, and now the overbought technical condition has been relieved. While most sectors are gathering fundamental support and our sector rotation model remains bullish, the Energy sector looks fundamentally weak and continues to ran...
Stocks got off to a rocky start on the first trading day in December, with the S&P 500 Index slipping just below 2050 on Monday. Based on one large bullish SPX options trade executed on Wednesday, however, such price action is not likely to break the trend of strong gains observed in the benchmark index since mid-October. It looks like one options market participant purchased 25,000 of the 31Dec’14 2105/2115 call spreads at a net premium of $2.70 each. The trade cost $6.75mm to put on, and represents the maximum potential loss on the position should the 2105 calls expire worthless at the end of December. The call spread could reap profits of as much as $7.30 per spread, or $18.25mm, in the event that the SPX ends the year above 2115. The index would need to rally 2.0% over the current level...
I officially bought 250 shares of EZCH at $18.76 and sold 300 shares of IGT at $17.09 in Market Shadows' Virtual Portfolio yesterday (Fri. 11-21).
Click here for Thursday's post where I was thinking about buying EZCH. After further reading, I decided to add it to the virtual portfolio and to sell IGT and several other stocks, which we'll be saying goodbye to next week.
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Well PSW Subscribers....I am still here, barely. From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.
First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices. Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment. Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer. For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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