Wednesday Worries – Yentervention, Euro Style

by Phil - February 8th, 2012 5:16 am

78.50 on the Dollar!

The Yen finally got back to 77 and EUR/CHF back to 1.21 so my theory that the BOJ has given up on the Dollar and moved to boosting the Euro is playing out nicely.

This does not make me more bullish (expecting falling Dollar to boost the markets) because, in the grand scheme of things, this is kind of like now there are two kids building a sand wall on the beach instead of one – sure it will last longer than the wall just one kid was building but, eventually, the tide will get it anyway or, as Jimi Hendrix said more poetically: "Castles made of sand, fall in the sea, eventually." 

Once you start messing around with Forex markets, you are messing with major macro forces that are hard to control.  Japanese banks have $7.5Tn of Japanese bonds at 1% – what happens to the value of those bonds if the BOJ does push the Yen down 10%?  Who takes that $750Bn hit?  What if rates go up to 2% – what's the value of the bonds then?  Who will bail out the Japanese Banks when they have a multi-Trillion Dollar (several hundred Trillion Yen) hole in their balance sheets?  Do Japanese spreadsheets even have room for Quadrillions?  They are going to need it!  

Then there's this Bloomberg article on the Central Banks, who have doubled their balance sheets since 2006 to $13.2Tn but, magically, have caused no inflation (according to Ben Bernanke – not according to people who actually buy food and stuff).   China is now sitting on $4.5Tn of other people's TBills (mostly ours) and that's up $1.5Tn in a year.  The ECB is right behind them with $3.6Tn and another $1Tn supposedly coming in the next EFSF round and the Fed has $2.9Tn plus whatever nonsense they are running off book.   

So, how is it that WE are the bad currency here?  If the Dollar is a problem, then China, who's GDP is only about $8Tn (optimistically, possibly $5.5Tn depending on who's measuring) is almost as insane as Japanese bankers and maybe more so as they are betting on our country's ability to pay and maintain the value of the Dollar (already a fail, right?).  I suppose no one can ever recognize losses and just carry more and more junk…

Tags: AA, AMZN, BA, BTU, CHK, F, FAS, FXE, GE, GOOG, GS, HPQ, ISRG, IWM, KO, MO, PFE, SKX, SPX, SVU, TZA, USO, XOM

Posted in Immediately available to public | Join Member's Chat - 274 Comments Here »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

Tempting Tuesday – Again

by Phil - January 10th, 2012 8:21 am

Well here we go again.  

Once again it's Tuesday and once again it's a primary and once again we are meant to believe everything is right in America as the Futures take the markets back to levels not seen since last August.  As we discussed last week and as noted by David Fry this morning: 

 Throughout the week Fed governors will be making speeches: Dennis Lockhart (2 speeches), Charles Evans (2 speeches), Esther George, John Williams, Charles Plosser and Jeffrey Lacker. This is part of their transparency mission and/or a campaign to pump-up investor confidence. You choose.

Yesterday we made our breakfast money shorting the Dow off the 12,350 line and today we already had a double dip at the Dow off the 12,450 line but, on the whole, it would have been easier to drink the Kool-Aid and go long.  

Unfortunately, I'm a Fundamental Investor and not a TA guy so, impressive as this run may seem, it doesn't match up with the data and, so far, it's neither matching up with Q4 earnings or Q1 outlooks.  We HOPE the Fed will go for QE3 (Friday's Fed speak indicated that and more today) and we HOPE Europe is fixed and we HOPE China doesn't implode – is this a sound investing premise?  Let's see how things have been going in the last Quarter:  

Up 15% in all of our indexes and led by the Transports, which are up 21% – even with oil up 25% over the same period which once again proves our theory that trucks and airplanes must poop oil when they run – which explains the non-inverse correlation between Transports and Fuel Costs that those of us who took Econ 101 may be familiar with.  

The most interesting thing about the above chart set is the uniformity of the moves up in the majors but I think it's the NYSE and the Russell which PROVE beyond a shadow of a doubt, that this market is traded by robots.  Look at those two charts – they are practically tick by tick matching – even to the point where the Russell is almost exactly 1/10th of the NYSE.  Sure, you could assume some similarities in two broad indexes but this is 6 full months of daily moves that are in lockstep.  That's just not natural on the order of…

Tags: AA, DIA, NFLX, SPX, SPY, USO

Posted in Immediately available to public | Join Member's Chat - 223 Comments Here »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

Monday Market Movement – Strap in for a Wild Week!

by Phil - January 9th, 2012 7:33 am

This chart from the NYTimes pretty much says it all:

The average annual inflation-adjusted return for the S&P 500 has been in decline since the late 90s, the decline only paused in the 00s and that fooled us into thinking it was a recovery but we only stopped getting worse for a while.  Meanwhile, real personal income has been in decline since Nixon lifted the gold standard in the early 70s and that, like our real GDP adjusted for inflation, should certainly not be the "envy of the World" – even if we assume it still is.

$20Tn was pumped into our $60Tn Global Economy since the 2008 crisis and that is not including "stealth" stimulus like the estimated $8Tn handed out by our own Fed to their Bankster buddies as well as tens of Trillions handed our around the World by other Central Banks.  

Like the late 70s, my expectation is that we will see a bottoming of real stock returns over the next few years as the inflation train pulls into the station.  The markets will do great on the surface but, underneath, they are not going to be able to keep up with the massive inflation that is likely to begin as the flood of money being used to "fix" the global banking system begins leaking out into the Global Economy.  

Speaking of fixing the global economy – Merkozy are holding a press conference this morning to craft a "master plan" for rescuing the euro over the next three months. The two leaders gather in Berlin to flesh out a new rulebook for fiscal discipline negotiated at a Dec. 9 summit that seeks to create a “fiscal compact” for the 17-member euro area.

The German and French leaders have sponsored a plan to install new guidelines by March. A crisis that began in Greece more than two years ago has moved to the euro area’s core, and leaders are struggling to persuade investors they can contain the risk and assure the euro’s survival. “They urgently need to formulate and clearly communicate a vision for a sound and stable euro area that deserves the name fiscal compact,” said Thomas Harjes, senior European economist at Barclays Capital.

Meanwhile, the Euro fell to an 11-year low against the Yen and a 16-month low against the Dollar this morning ahead…

Tags: DIA, SPX, SPY, SQQQ, TLT, UUP

Join Member's Chat - 206 Comments Here »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

Warren Buffett’s Secret to Making 100% a Year

by Phil - February 26th, 2011 10:51 am

I love the Berkshire Hathaway annual report!  

Especially Warren Buffett’s letter to shareholders.  The report gives us a great view of the overall economy from a man who has his finger in every pot and his letter to investors gives us a very good insight as to how things are going in the various sectors his operations cover.  Most importantly, what I have learned in my own 40 years or reading Mr. Buffett’s reports (my Grandfather was a shareholder) is what should shape any long-term investing strategy:  Patience and performance.  

I often preach to members the joys of letting gains compound and our $25,000-$100,000 Virtual Portfolio, which is currently at $27,531 (up 10%) after 4 weeks, is an exercise in how to quickly compound small gains over the course of a year.  Primarily, we try to follow Warren Buffett’s Number One Rule of Investing, which is: Don’t Lose Money.  Buffett’s Rule #2 is: See Rule #1 and like us, it’s not that nothing Warren Buffett ever buys loses money – it’s just that he doesn’t ever buy things he isn’t willing to stick with UNTIL they make money.  Sure we take a few losses along the road but, by being selective in our entries, we don’t discard stocks that we carefully selected just because the market temporarily disagrees with our valuations.  

In our $25,000 Virtual Portfolio, it’s only been a month so we’ve only closed our winners so far and they were SPWRA with a 100% gain (these are option trades), INTC with a 40% gain, NFLX with a 42% gain, EDZ with a 75% gain, XLF with a 15% gain, VIX with a 50% gain, USO with a 53% gain and XLE with a 5% gain.  In 19 trading day we have made 28 virtual portfolio moves (counting each leg) and, as I said, netted a 10% return to date.  Interestingly, we’ve been playing it very cautious as we still have over $18,000 of virtual cash on the sidelines, hoping for a sign to get a little more aggressive next week.  

How, you may wonder, are we going to get to $100,000 by December with just $27,531 in February?  THAT is the lesson Warren Buffett has to give us and that lesson is COMPOUNDING RETURNS!  Since 1965, Berkshire Hathaway has returned an overall gain of 490,409% to it’s shareholders.  $10,000 handed…

Tags: BRK B, BRK.A, Buffett, EDZ, GE, GS, INTC, KO, NFLX, SPWRA, SPX, SSO, USO, VIX, WFC, XLE, XLF

Posted in Immediately available to public | Join Member's Chat - 46 Comments Here »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

Which Way Wednesday – 1,333 or Bust!

by Phil - February 16th, 2011 8:38 am

1,333.

That’s the number Art Cashin is looking for on the S&P as our breakout line.  I’ve been using 1,332 but Art is right as the bottom on the S&P in March, 2009 was 666.79 so, tecnically, 1,333.58 is a 100% gain on the S&P off that low, not 1,332, which was my lazy rounding off 666.  “Everyone’s got this psychological area of 1,333 [on the S&P 500]—they want to prove that we can double where we were from the panic lows,” Cashin told CNBC. “So later in the week, the bulls are going to circle the wagons and take another shot at it and that will tell us whether it’s a rest and recoup or not.”

Well, that pretty much sums things up.  Have a good day everybody…  

We had a good day yesterday with our bullish positions really starting to fly and our $25,000 Virtual Portfolio is up to a virtual cash position of $26,240 in day 12 with a fairly even mix of winners and losers in our still too-bearish mixture.  The mixture on the Nasdaq yesterday was also bearish and you wouldn’t know it from their down 5-points finish (0.17%), but declining volume yesterday was 1.35Bn vs. just 637M of advance.  

Fortunately (by some amazing coincidence that could not possibly have anything to do with IBanks masking their selling by pumping the top of the Nas while selling the rest), this 2:1 bearishness in volume did not scare off the after-hours crowd, who immediately popped the Nasdaq futures from 2,382 to 2,391, right back to Monday’s highs as if 2 days of selling never happened.  

The Dow is just as excited with 80 points worth of gains since 3:30 yesterday and the S&P is, of course, right up on their 100% line, as are the Transports (see Dave Fry’s chart), which we’ll be watching as they test the 95 mark on IYT.  I had mentioned to Members in Chat yesterday that the Transports were the key to breaking the S&P over the line and we discussed FDX’s amazing action in yesterday’s post that seemed like a Gang of 12 effort to manipulate the Transports ahead of Cashin’s predicted run at 1,333 – NO MATTER WHAT!

We agreed and we were so bullish on yesterday’s dip that we even bought NFLX!  Now that is bullish!  Just a short-term in and out but you…

Tags: DE, IYT, JPM, NFLX, SPX, SPY, USO

Join Member's Chat - 193 Comments Here »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

Which Way Wednedsday – On the 50% Line – Again

by Phil - August 4th, 2010 8:26 am

Wow, what a ride! 

Here we are back on the 50% retracement line at 1,121 on the S&P.  As Barry Ritholtz points out, it’s the 5th time we’ve been here and, as I said yesterday, Barry says "Its going to take a lot of something — good earnings, liquidity, sentiment, breadth, momentum, psychology, quantitative easing, something – to move higher from here."  Also great on Barry’s site today is a very neat summation of the housing crisis and his take on Timmy G’s NY Times Op Ed column, which I need to add my own .02 to. 

Mr. Geithner tries to give us that "something" Barry and I are looking for by boldly stating: "Welcome to the Recovery," writing that "uncertainty is understandable, but a review of recent data on the American economy shows that we are on a path back to growth."  He continues:

While the economy has a long way to go before reaching its full potential, last week’s data on economic growth show that large parts of the private sector continue to strengthen. Business investment and consumption — the two keys to private demand — are getting stronger, better than last year and better than last quarter. Uncertainty is still inhibiting investment, but business capital spending increased at a solid annual rate of about 17 percent. 

• Exports are booming because American companies are very competitive and lead the world in many high-tech industries.

• Private job growth has returned — not as fast as we would like, but at an earlier stage of this recovery than in the last two recoveries. Manufacturing has generated 136,000 new jobs in the past six months.

• Businesses have repaired their balance sheets and are now in a strong financial position to reinvest and grow.

• American families are saving more, paying down their debt and borrowing more responsibly. This has been a necessary adjustment because the borrow-and-spend path we were on wasn’t sustainable.

• The auto industry is coming back, and the Big Three — Chrysler, Ford and General Motors — are now leaner, generating profits despite lower annual sales.

• Major banks, forced by the stress tests to raise capital and open their books, are stronger and more competitive. Now, as businesses expand again, our banks are better positioned to finance growth.

• The government’s investment in banks has already earned more than

…

Tags: EWJ, Geithner, Jobs, SPX, SPY, USO

Join Member's Chat - 247 Comments Here »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

Charts From the Future: 5% Rule Update

by Phil - July 25th, 2010 11:15 am

Yawn!

As I said in our last 5% Rule Update, way back on May 5th, I’m not a big fan of TA.  We have our 5% rule and it serves us well enough but that’s a statistical analysis, not a technical one.  The only TA I put a lot of stock in is Fibonacci Retracements but that, also, is really statistical science and has nothing to do with trying to predict the movement of squiggly lines on a chart. 

The 5% Rule does NOT tell you which way the market is going.  It does tell you where the resistance points will be.  Of course, knowing that and knowing what kind of bounces to expect and knowing where a proper breakdown or break-out occurs is kind of useful and, when it coincides with the tea leaves that are read by the "real" TA guys – you can really have something good to go by! 

Unfortunately, the 5% Rule is not really a RULE because it requires a cynical background in statistics, especially regarding aberrant values or "outliers" and a general understanding of market history as well as current market events because all need to be taken into account in order to give you accurate "consolidation levels" from which we base out chart movement.

The great Harry Houdini used to enjoy amazing audiences with demonstrations of the supernatural, especially when he would pull back the curtain and reveal the frauds that others were passing off as reality.  That’s how I feel about TA - we can use these very simple scientific "tricks" to project the movement of the market and others can paint their charts and dress them up in whatever language they wish to make it unique but, to me, it still all boils down to the fundamentals with the underlying movement governed by normal regression patterns influenced by capital flows and sentiment. 

Whatever you want to call it, here’s our chart from May 5th, where I said: "So what lies ahead?  Most likely a retrace back to 1,100 (25% of our run) but if that holds and we consolidate a bit, I will be downright bullish.  I will also be impressed if we hold 1,145, which was our last breakout line but, for now, we have a 3.75% drop from 1,218 but a poor bounce yesterday indicates we are likely to get down to a 5% pullback from 1,218 to 1,157 and…

Tags: 5% Rule, Fibonacci, SPX, SPY, technical analysis

Posted in Education | Join Member's Chat - 9 Comments Here »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

DARK HORSE HEDGE 7/11/10

by ilene - July 12th, 2010 1:39 am

DARK HORSE HEDGE 7/11/10

By Scott Brown of Sabrient, with Ilene of Phil’s Stock World 

A holiday-shortened week combined with little news provided the backdrop for a light volume positive week with the major indexes posting 5% gains.  Earnings season begins Monday July 12, starting off with Alcoa Inc. and followed by dozens of other companies.  The S&P is bumping up against several technical resistance lines.  After falling over 13% since the April highs, last week’s recovery pushed the SPX to 1077. 

On the chart below, our trend line drawn through the April highs and June rebound-highs indicates that the SPX is right at trend-line resistance.  The 50-day Moving Average also looms just above as another possible resistance area. 

[Chart by Free Stock Charts]

The 14-day RSI at 42.4 remains below a more bullish 50, and the 12-26-9 MACD at -13.6 remains shy of a bullish signal line at zero.  Factoring in the lack of volume in last week’s 5% rebound (and possible lack of conviction), the chart-evidence leads us to believe that the market isn’t ready to continue the uptrend in the short-term.  Notice all four positive days last week had volume below the 50-day Moving Average. Greater declining volume on Thursday and Friday isn’t particularly encouraging.

Analysts are projecting that second-quarter earnings of S&P 500 companies rose 42 percent, according to S&Ps Silverblatt.  Investors will again be watching the earnings and revenue figures along with guidance as concerns over a double-dip recession remain.  The Dark Horse Hedge maintains a SHORT tilt in our Long/Short approach to achieving higher Alpha (return over benchmark return) and Sharpe Ratios (return for each unit of risk taken) with a low Beta (correlation to market move and direction--i.e. we’re striving for less correlation to market movement).  

We will be watching the trend lines and technical signals this week to add new posititons.  If the market struggles and can’t penetrate the trend line, we will likely recommend adding 2 SHORTS and 1 LONG position.  In contrast, if the market reacts well to early earnings announcements and can break through the trend line, it is likely that the RSI and MACD will confirm a move through the 50-day Moving Average and provide reason to go to a BALANCED position by adding 2 LONGS.

We are continuing to hold our previously entered (July 1, 2010) short and long positions:…

Tags: Dark Horse Hedge, earnings, Sabrient, SPX, Stock Market, trend lines, volume

Posted in Phil's Favorites | No Comments »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

Testy Tuesday – Bottom Busting or Big Bounce?

by Phil - June 29th, 2010 8:27 am

Wheeee, what a ride!

Finally all our very boring sitting around at 75% cash makes us feel smart as the market makes what we hope is that final blow-off bottom to re-test our lows.  I already sent out an Alert to Members this morning so a lot of this is old news to them but nothing has changed since 4:30 so here’s a quick reprise – What we are mainly seeing in the futures this morning is 2 major factors that are driving the markets lower:

1) Japan, where too strong Yen (88.6), -0.1% industrial output, -1.7% exports, rising unemployment (just 5.2%) AND lower houshold spending (-0.7%) numbers sent the Nikkei down 1.25% today to 9,570.  If you think about it though, pretty much all of that is a strong Yen issue because it lowers demand for the exports (making them more expensive) and then factories slow down and people get laid off and household spending drops from that PLUS the fact that it’s now cheaper for them to buy imports so they can buy the same stuff at lower prices. 

So, overall, nothing people shouldn’t have expected but ugly to read about.

2) China, where the Shanghai fell 4.27% today to 2,427, which is a lot because they are a 10% limit down market on individual stocks so you can bet the selling isn’t done if the AVERAGE was down 4.27%.  The Hang Seng was ugly too, falling 2.3% to 20,248.  What sent China off a cliff was kind of silly.  The Conference Board, which is a NY-based research firm had reported that Chinese economic indicators rose 1.7% in April – something at the time (June 15th) we thought sounded a bit high.  Well, funny thing is it turns out the people at the Conference Board must have been high on something because it turns out they made a "calculation error" and the correct number was just 0.3%.

There is a third factor in play and, earlier this morning I thought it was too silly to be considered but, apparently, you can panic retail investors over pretty much anything.  On Thursday, there are $547.5Bn worth of bank-loans from last year’s special liquidity program that are due to roll over and there are rumors circulating that the ECB won’t renew the facility at all.  The ECB has, in fact, already promised to replace it with rolling 3-month loans at the…

Tags: AAPL, CAT, OIH, PFE, SDS, SPX, TBT, TZA, VIX, XLB, XLF, XOM

Join Member's Chat - 359 Comments Here »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg