Invest with an Edge II

WE'VE MOVED!!

2008-03-12T15:10:00.002-05:00

To serve you more efficiently, this blog is relocating to www.allstarinvestor.com effective immediately. Please update your bookmarks. Cheers to all and have a super day.

Click here for direct link.

A Closer Look at the Gold Miners ETF – GDX

2008-03-10T14:14:00.005-05:00

Last week we noted the following data point regarding the commodity futures market: Bianco Research estimates the total value of present open interest in domestic commodity futures is about $425 billion.

We commented how the $425 billion estimate wasn't even as big at the market cap of a single company; Exxon Mobil. That got us thinking. I asked the following: What is the market cap of the biggest publicly traded stocks in the gold mining sector - Barrick Gold, Goldcorp, and Newmont Mining? The answer: $42 billion, $29 billion, and $22 billion respectively. What might that tell us?

I took it one step further. Let's analyze our favorite gold and silver mining ETF – the Market Vectors Gold Miners ETF, symbol GDX. It is comprised of a diversified group of companies involved in the mining of gold and silver. It is a broad mix of small-, medium-, and large-cap names. It has global exposure, led by Canada, United States, and S. Africa.

The requirements to be eligible for the fund are a market cap exceeding $100 million, average daily trading volume of at least 50,000 shares, and listed on the NYSE or Amex, or quoted on the NASDAQ.

There are 34 companies represented in this ETF. The TOTAL MARKET CAP of all companies combined is $190 billion. The top 11 companies in this ETF make up $163 billion of the total, or 86% of the entire cap. The weight of these top 11 stocks as a percentage of the ETF is approximately 73%.

For comparison purposes, there are six individual companies alone in the S&P 500 with larger capitalizations than all of the stocks combined in the ETF. They are in descending order:

Exxon Mobil 441.9B
General Electric 317.2
Microsoft 260.3
AT&T 208.8
Proctor & Gamble 202.5
Wal-Mart 196.6

In getting my arms around the market cap of the mining sector, I came to the following conclusions. Any significant interest or institutional buying could propel these shares much higher, as there isn't a whole lot of stock around in the first place. For example, a Berkshire Hathaway with $47 billion in cash, or a Microsoft with $19 billion in cash (before a Yahoo acquisition), could take down big chunks of the ENTIRE sector combined!

What if the California Public Employees Retirement System (Calpers) decided to over-weight the mining sector? This is a fund with over $250 billion in assets, or if a Texas Teacher Retirement System Fund (TRS) – a $100+ Billion fund, wanted a bigger stake in gold or silver companies? The cap of all these stocks combined is tiny compared to the large pools of money that exist out there!! You could buy 23 of the 34 smallest stocks in the Gold Miners ETF (GDX) for a grand total of $27 billion at today's prices!

Think of it this way, IBM recently announced a $15 billion share buy back. They will issue debt at today's rock bottom rates available to A+ type companies, and buy back the shares using debt, a common practice. Perhaps they could issue more debt, and buy some gold shares? What about an Intel, holding $15 billion in cash alone, they could go on a shopping spree, maybe they might want to diversify away from semiconductors? And yes, Google could spend some of their $14 billion cash hoard on a few gold & silver companies; maybe a better investment than Sergey Brin buying and modifying a 747 jet aircraft for his personal use.

The small market cap in the gold and silver sector is one to drool over, isn't it?

A One Stop Shop for Silver & Gold

2008-03-05T16:22:00.003-06:00

Looking for an alternative to GLD or SLV? Then look no further than the PowerShares DB Precious Metals Fund (DBP). DBP is a simple way to play both gold and silver at the same time. The shares move according to the “The Deutsche Bank Liquid Commodity Index – Optimum Yield Precious Metals” index. This index is composed of futures contracts on gold and silver, with the index weights presently at 78.53% gold and 21.47% silver. If you desire a one stop holding, this is the one for you. Note, average daily volume is around 40,000 shares and the annual expenses of this ETF are approximately 0.79%.

Pumping the Commodities!

2008-03-03T10:21:00.002-06:00

CBSMarketwatch picked up some Schloegel comments regarding the hottest sectors on the move right now. Click here to read the article. The real question is; are the commodity type names going parabolic and setting up for a monster correction? That is the question of the day, week, and month. Good luck and happy trading!

Multiple Threats

2008-02-29T14:56:00.003-06:00

Ben Bernanke testified twice on Capitol Hill this week. "We are facing a situation where we have simultaneously a slowdown in the economy, stresses in financial markets and inflation pressure coming from commodity prices abroad," he said. "Each of these things represents a challenge."

A challenge indeed. One day in the future, Gentle Ben will be considered a hero, or a goat. He does not have an easy job.

Well, I suppose we here at AllStarInvestor.com don't have an easy job either. We are judged on a daily, if not minute by minute basis. How come? The stock market is nearly a 24-7 occupation.

The scoreboard changes moment by moment. It's a unique system, where you know exactly where you stand, good or bad, each waking moment of the day. There is no where to hide. That is why we love this business! We are held accountable. Every action and reaction is scrutinized.

We strive to make a difference each day. Think about it: The capital markets offer the wonderful ability to make a big impact on the lives of others. Of course, you have to wonder how the folks at mortgage related firms, banks, and other financial institutions view their role in the recession we have and how accountable they feel to their constituents.

Ben Bernanke shoulders a heavy burden and will have a say in how our economy does over the next 5 to 10 years. High inflation, slow growth, the U.S. dollar declining, a credit crisis, financial institutions going bankrupt....it's a mess out there, and Bernanke must guide the super tanker that is the U.S of A through the turmoil. We wish him luck. In the meantime, we'll attempt to point our portfolios in the right direction.

The three securities we featured the other day are solid long term ideas. You don't have to sweat the day to day noise of the stock market, and you can seek to achieve the equity return over time. Sometimes that is the best course of action. Why get caught up in the 24x7 zigging and zagging of the global capital markets?

Good Luck.

A Triple Play

2008-02-27T10:51:00.003-06:00

The good folks at Forbes.com today asked us for some ideas for long term investing. We are always happy to oblige. This exercise allows us to step back and to take a view of the "big picture." As growth minded individuals, we took the opportunity to package a three security portfolio that would give us a terrific odds at a successful outcome on a global basis. Our consideration moved us to recommend a growth fund, a value fund, and an international fund. We wanted exposure to broad asset classes, low correlation, go anywhere type managers, experienced operators, and low fees. We are extremely pleased with the outcome. I've included the text of exactly what was forwarded to Forbes today. I hope you enjoy.

MXXIX – Marsico 21st Century Fund: MXXIX is an aggressive growth no-load mutual fund. It’s a go anywhere type fund, and typically holds between 35 and 50 securities. It has a top quartile ranking from Lipper in 1, 3, and 5 year time periods, with a 21.3% annual rate of return for the five years ended January 31, 2008. This compares favorably to the S&P 500 annual return of 12.0% in the same time period.

YACKX – Yacktman Fund: Lead managers, Don and Stephen Yacktman, are classic value-type investors. They like to wait for the market to come to them and typically don’t chase stocks. This fund is an ideal candidate for the value component of your portfolio. The benefit with YACKX is bear market and downside protection. For example, this fund was up 11.4% in 2002 when the S&P 500 was down –22.1% that year. In the past six months through Jan 31, 2008, this fund was in the top 5% of all funds in its category. That’s the type of performance you want in difficult environments!

DIM – WisdomTree International MidCap Dividend Fund: DIM is one of a smorgasbord of offerings from the fairly new WisdomTree family of ETFs. There are two key benefits of DIM. Number 1: Its unique focus on international dividend paying stocks, ideally positioned between large and small stocks. Number 2: DIM is screened by a fundamental overlay that focuses on earnings and dividends. It’s not a pure market cap schematic. This fund has a low expense ratio of 0.58%, and has a cumulative return of 27.9% since inception (06/16/06), versus the MSCI EAFE benchmark of 21.6% in the same time period thru Jan 31, 2008.

A Narrow Range

2008-02-25T13:54:00.002-06:00

Stocks have been moving sideways in a narrow range over the past three weeks. The January 22 lows have held for now.

From the "for what it's worth" category: TrimTabs estimates that individual investors have pulled $60 billion from stock funds this year. If you define this group as dumb money, then I'd wager you are a bull.

Next we have insider buying and selling data. The daily dollar-based ratio of insider sales to buys has been in the bullish zone all year. Apparently insider selling is down 90% from a year ago. If you consider insiders having the pulse of the economy and of their own shares, you'd again be considered a bull.

Helicopter Ben Bernanke delivers two Capitol Hill speeches this week. Wednesday he delivers a semi-annual testimony before the House Financial Services Committee. Thursday he continues in front of the Senate Banking panel. Based on what I read in the Fed minutes released last week, the Federal Reserve is increasingly alarmed as to the weakness in the economy and the on-going credit crunch. Despite persistent and high readings on inflation, it sounds like the Fed plans to continue its easing policy, esp in light of the bearish commentary contained in the minutes. Therefore, Wall Street will be closely monitoring Bernanke's remarks later this week.

Tomorrow's economic news will be January PPI and February Consumer Confidence, followed Thursday with the initial GDP reading for Q4, 2007. Stay tuned....

A Plan for Social Security

2008-02-19T07:17:00.002-06:00

Read a terrific interview in Barron’s yesterday with Joe Rosenberg, Chief Investment Strategist at Loews, a New York conglomerate controlled by the Tisch family. The point blank question was for his views on the government bond market. Response: “I see no value whatsoever. With the two-year Treasury yielding under 2%, you might as well keep your money in cash or go out and enjoy it, because you are not getting a return on an after-tax basis.”

Ok, that was a lay up, but the fact is, I’ve seen NBA players miss lay ups. The response to the next question was even better.

Ques: You have some ideas on social security?

Answer: “If the government thinks it can fund Social Security with 4% government bonds, it’s dreaming. It’s a great time to start funding Social Security with stocks. The government ought to take advantage of the low yield on Treasuries be selling debt at 3% or 4% and buying the S&P 500, which has an earnings yield of 7%. Large corporations and states fund their pensions with equity. Why shouldn’t the federal government?”

Now you have to appreciate a guy who has a strong opinion. I couldn’t agree with him more, especially since I am a 40 year old working stiff who thinks the likelihood of the social security trust fund solvent in 25 years is a thousand to one long shot at best.

Plus, we have a smart guy talking about the earnings yield of the stock market! We’ve opined in these pages in the past about the attractiveness of stocks over bonds when comparing the earnings yield. Joe talks about a 2% treasury on the short end of the curve, but we’ve discussed a 3.65% 10-year Treasury as having little value, especially relative to the S&P 500.

Joe makes a strong argument for long term equity investing, and reinforces the notion that now is not a time to panic out, but to stay committed to your long term wealth accumulation plan. In fact, he argues that the present environment is one of opportunity versus risk, and the winning trade will be in equities, and not fixed income.

Speaking off opportunity, the cover story of this week’s Barron’s issue (titled: Giddyup) was a spotlight on Wells Fargo Bank and why Warren Buffett had purchased additional shares recently and how his stake had grown to 9+%. Here again, we have a large institutional type investor buying shares of a financial stock, when almost universally, we read about the terminal condition of banks and consumer oriented companies. Why would smart money man Warren Buffett invest in a so-called near death bank stock? Incidentally, one of Joe Rosenberg’s “picks” discussed in his article was about a bullish bet on Target (TGT), a stock in another massively out of favor sector. So we have two credible individuals buying shares in unappealing sectors at the moment, are you willing to bet against them?

Re-Testing the Low - Is it Necessary?

2008-02-15T15:57:00.003-06:00

There is chatter about a re-test of the January 22, 2008 lows. Mark Hulbert writes a nice article about the re-test theory and how many practitioners believe it. His analysis found that many newsletter writers are unwilling to declare the lows are in for the year, and how that is good! Hulbert is taking a contrary view here, in the sense that since his research points to many don't believe a low is in and a re-test is necessary - which translates into these very same newsletters are then, by definition, bearish to slightly bearish, and invested accordingly. If you are expecting lower prices, then you are either short, in cash, or hedged to a certain degree. Therefore, your opinion can change two ways, one from bearish to bullish, or from bearish to depressionary.

My take, we are in a global boom, and the odds of depression are very low. Therefore, the direction of those bearish is more likely to change to bullish, or at least a move to neutrality. Therefore, the next trades for those particular investors presently expecting lower prices are to either buy back their short positions, or to invest their cash in long positions. In some sense, this creates a sort of backstop for the market, since other evidence supports other broad groups of investors presently in bearish modes as well.

A Busted Deal or an Opportunity?

2008-02-13T09:15:00.008-06:00

Penn National Gaming (PENN) offers a unique investment opportunity at current prices. They have a private equity buy-out on the table for $67.00 per share at something called a "fully financed" transaction led by Fortress Investment Group (FIG) and Deutsche Bank AG (DB). The terms of the deal are such that Penn shareholders will receive $67.00 in cash for each share of Company common stock they own. If the merger is not consummated by June 15, 2008, the per share merger consideration will be increased by $0.0149 per day. There is also a provision that pays Penn $200mm if the deal falls through.

Ok, the background on Penn Natl Gaming: PENN is the 4th largest casino operator in the U.S. They have annual revenues of approximately $2.5billion. They have a focus on slot machine entertainment. The Company operates nineteen facilities in fifteen jurisdictions, including Colorado, Florida, Illinois, Indiana, Iowa, Louisiana, Maine, Mississippi, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania, West Virginia, and Ontario. In aggregate, Penn National’s operated facilities feature over 23,000 slot machines, approximately 400 table games, over 1,731 hotel rooms and approximately 805,000 square feet of gaming floor space. In the past week, they opened a brand new facility called Hollywood Casino in Harrisburg, Pennsylvania to rave reviews.

The ques: Why is the stock trading for $49 when there is a deal that is set to be consummated in June at $67? One word...debt, well maybe two words, credit crisis. Fortress, Deutsche Bank, and another private equity firm in on this leveraged buyout, Centerbridge Partners, must have the capability to obtain financing, and the ability to off-load some of the debt to third party investors. This is the nature of the LBO - the tool is to finance a takeover by raising large amounts of debt at competitive prices. If pricing is unfavorable, then it becomes harder to justify the Return on Investment (ROI). The market is placing a legitimate amount of skepticism on the deal getting done.

However, here are some things to consider:

This past weekend, Peter Carlino, Chairman and CEO of PENN, was interviewed on site at the opening of the Hollywood Casino in Harrisburg. He was asked point blank to comment on the progression of the transaction. Answer: "To my knowledge, very well....This is a fully financed transaction, like Harrahs. We had locked-in financing from the outset. Financing with virtually no escape from the banks."

Note, Carlino mentions the Harrahs deal, which was recently completed in January. That was a $17billion purchase (significantly larger than the Penn offer) by Apollo Group and Texas Pacific Group (TPG) and banks in on the deal were Bank of America and Deutsche Bank.

Note, Deutsche Bank announced earnings a week ago, and lo and behold, they did not report any write-downs related to sub-prime or other mortgages. Last October, they did report $2.2 billion in write-downs, but the latest report mentions strong risk management exercised during the overall credit crisis. CEO Josef Ackermann was quoted, "Unlike many of our competitors, we are in very good shape and at times like these, when financial markets are more risk-averse, we are set to gain from a flight to quality." The banks ability to dodge the subprime crisis also allowed it to raise their dividend 13%, which is unusual relative to some other banking institutions doing the exact opposite.

Here's a re-cap: Fortress (and others) offer $67.00 per share for Penn (a premium of 37% over today's price). The bond market swoons on sub prime and other related problems. In the meantime, the board agrees to sell, and PENN shareholders approve the deal. Fortress agrees to pay $200mm if they back out. Harrahs Entertainment, the largest casino operator in the US, gets taken out in a private deal for $17billion in January 2008. One of the banks assisting the Harrahs package is Deutsche Bank. They had trouble selling some of the junk bonds, but the deal got done. Fast forward to June 2008, will the debt market get better? Will the "locked-in fully financed" deal get done? Is this a speculative risk worth taking? Would I be comfortable holding PENN if the deal does not take place? You be the judge.

Good Luck.

What Do We Know?

2008-02-11T14:02:00.001-06:00

AIG (American Intl Group) is in the news today, off -11% or so as its auditors have called into question the value of some Credit Default Swaps (CDS's) listed on their Dec 31st balance sheet. The iShares Financial Sector ETF (IYF) is down -1.8% today, but still up +9% from its lows three weeks ago! One might ask: How is that possible? If there is blood in the streets, and another large financial firm is on the tape with more credit crunch news, why are financials up 9% from their lows? AIG is approx 4.6% of this particular ETF, by the way. Retailers and financials, some of the hardest hit sectors in the economy, are exhibiting short-term strength. We will continue to watch closely, as they could be signaling a change in market leadership.

Note: The biggest holding of IYF is none other than Bank of America (BAC), which will be added to the Dow Jones Industrial Average next week!

AP Poll Says We are in a Recession

2008-02-11T13:07:00.000-06:00

61% of the public believes the economy is in recession. Click here for the story. So, if the public knows, what does the stock market know? Isn't the stock market well ahead of broad public sentiment? A market strategist at Bear Stearns says, "Stocks don't do well because the economy or earnings are strong; they do well because the environment turns out better than expected." So, if the stock market and the general public know we are in recession, the challenge will be to figure out what's really anticipated, and therefore priced. This also means understanding the odds and resulting outcomes when things are better or worse than expected. Sounds like a challenging and dizzying game that gets repeated on a daily basis. Is there a Cray Supercomputer big and fast enough to help in our worthy cause?

Take retailers, for example. They are up more than 10% from their lows a few weeks ago. Is the consumer recession already priced, and a continued accommodative Fed will avert a real drawn out recession, and therefore, the worst is over for the retailers. Or, what if the drastic rate cuts in January caused short sellers to cover, only if momentarily, and the 10+% pop off the lows is temporary, as the economy nosedives into a severe recession, and it lasts longer than most expect? Things aren't so crystal clear now, are they?

All in all, the fact that sentiment surveys (including the one above from the AP) are so despondent is a good sign for the bulls. The one unique notion of this market is that you can't have universal agreement that the market is going to decline and it comes to fruition because when everyone is on one side of the ledger, the other outcome usually comes in. (Think New York Giants as heavy underdog, and the New England Patriots as huge favorites). The question is, what is unexpected? Think of the litany of reasons as to why we are in big trouble: economy is in recession, the sub prime mess is bad, the credit crunch will take time to mend, the dollar is weak and going to get weaker, the election will be a pitched battle, earnings will disappoint, budget deficits are going to get worse, etc etc...these stories have had more black ink spilt on them than necessary...so the astute investor knows they should spend their time seeking clues as to the surprise, the unexpected outcome, and its ramifications. That's what we'll be doing. Good luck and have a pleasant week.

Adverse Feedback Loop

2008-02-08T14:58:00.000-06:00

Janet Yellen and other Federal Reserve officials made some interesting statements this week. I copied and pasted a paragraph from her speech below. The key point is her comment about a negative feedback loop. I do think there is something to be said about the psychology of the markets, as one does wonder about the constant drum beat about "how bad things are," and whether or not investors act on that information. If you are told on a daily basis that things are bad, whether the facts may show something completely different, you may begin to believe "the noise," as I like to call it. However, the cascade effect impacts us all - as folks talk themselves into thinking the economy is in recession - they react by unwinding their portfolios; this selling begets selling. I can see where the feedback loop gets stuck in reverse and the market, economy, and life in general can get mired in the negativity.

Speech to the Chartered Financial Analysts of Hawaii
Honolulu, Hawaii By Janet L. Yellen, President and CEO, Federal Reserve Bank of San Francisco
February 7, 2008, 7:25 PM Hawaii Standard Time, 12:25 AM Eastern February 8

To sum it up, for the next few quarters, I see economic activity as weighed down by the housing slump and the negative factors now impacting consumer spending. It remains particularly vulnerable to the continuing turmoil in financial markets. My comments haven’t even touched on possible slowdowns in business investment in equipment and software and buildings. I see the growth risks as skewed to the downside for the near term. In circumstances like these, we can’t rule out the possibility of getting into an adverse feedback loop—that is, the slowing economy weakens financial markets, which induces greater caution by lenders, households, and firms, and which feeds back to even more weakness in economic activity and more caution. Indeed, an important objective of Fed policy is to mitigate the possibility that such a negative feedback loop could develop and take hold.

Silver Compliments Gold Nicely

2008-02-06T10:44:00.000-06:00

Why Gold?

Weak U.S. dollar

A commodity play

A budget deficit play

Inflation play

Supply/demand imbalances

A hedge to your proto-typical equity allocation

A traditionally non-correlated asset

Credit crunch, derivative mess, mortgage meltdown

Govt stimulus package

Fed easings, etc etc

Substitute the word SILVER for GOLD. Why put all of your eggs in one basket? The way to diversify into silver is through SLV - the streetTRACKS Silver Trust. The shares are consolidating recent gains, and pulling back off of new highs, so a decent entry point is at hand. Good Luck.

Q4 2007 Earnings Down -20.7%; Think Again!

2008-02-05T16:18:00.001-06:00

Corporate profits for Q4, 2007 are shaping up to appear downright UGLY. Compared to the year ago period, Thompson Financial says S&P 500 earnings will be off more than 20%. You have to look under the hood to get more details. If you strip out financials, and their massive write-downs, the result is a robust +11% gain.

In the third quarter of 2007, overall profits were +4.5%, excluding financials, they were +3%. The technology sector was extremely strong in Q4, showing the best pop among major sectors, +26% versus the year ago period. After tech's big gains, we have Energy coming in with +19%, Healthcare +17%, and Utilities +13%.

Get set for a tepid first half of 2008, but the Fed rate cuts and a recovery in the financials should support huge gains in S&P 500 earnings in the back half of the year.

ISM Whopper Sends Yields Lower!

2008-02-05T09:22:00.000-06:00

Today's ISM Survey sent bond yields back into a recession tailspin. Here's the report:

The Institute for Supply Management reported that its index of service sector business activity declined to 44.6 in January from a revised reading of 54.4 in December. Economists surveyed by Thomson Financial/IFR had expected a slight slowdown but had still expected growth, with a median estimate for the index of 53.

It was the first time the service sector reading has contracted since March 2003. A reading above 50 indicates expansion, while below 50 indicates contraction. Price increases have slowed while costs are up, said Nieves, who is also senior vice president for supply management at Hilton Hotels Corp. Survey respondents cited recession fears taking hold and high energy prices dragging down profitability. ISM said only three service industries reported growth, while 14 showed contraction.

The 10 Year is approaching 40-year lows again. Mortgage rates are tied to the 10 Year, as well as Libor rate, and this will surely grease the wheels of the refinance engine again. Folks forget that Fed rate cuts have a lag effect, and kick into gear about 6-9 months after the fact. The first cut was back in August, so we are only on the bleeding edge of the impact kicking in. What is worth noting is the violent move off the lows all financial related shares have made over the past two weeks. The jury is still in deliberation - trying to determine if the worst is over and if financial related firms might be the next bull market leaders. We'll be watching closely.

The G Men

2008-02-04T08:44:00.000-06:00

Ok, time to roll forward with the Super Bowl Indicator, as the heavily favored New England Patriots LOST to the New York Giants. My data tells me the super bowl indicator is "right" approx 80% of the time, so with a Giants win, that means we can expect the market to recover and finish positive by year end. YOWSA!

And last and not least, i dug up some "January Barometer" facts..and the fifty years between 1950 and 2000, the Jauary Baometer had an accuracy rating of 92.5%; therefore, as goes January, so goes the year...and the lousy January points us towards a difficult year! Take that Mr. Super Bowl Indicator!!

On tap this week: Super Tuesday is tomorrow. Big states CA, NY, and IL join 20+ other states in primary voting. We'll have a ton of earnings annoucements, markets in Asia closed later in the week for Lunar New Year (Year of the Rat?), the European Central Bank will be on the tape with interest rate news on Thursday, as will the Bank of England. The U.S. economic calendar is very light this week, so it will be a a time for backing, filling and building a base. All in all - make it a super week. Good Luck.

So Many Analogies

2008-01-29T15:44:00.000-06:00

Every time the U.S. employment rate has risen by at least 0.3% in a month, as it did in December, a recession has occurred.

Prior to the onset of a recession, there's typically at least a 25% one-year rise in weekly unemployment claims. The increase in claims in December was less than 7%.

The average decline in the S&P 500 from a pre-recession peak to a trough since 1945 has been 25%, just a few percent more than the index has lost from the 2007 peak to its intraday low last Wednesday. So maybe the market has already discounted a recession?

Every one of the 23 times since 1987 that the weekly AAII poll has shown bears over bulls by a 2 to 1 ratio, the market was up 12 months later, by an average of 21%.

So, where does that leave us? We have conflicting signals. The positive is that since the one day reversal last week and the 600 point swing on the Dow, we have been moving higher. Most pundits talk of the recovery as short covering, a bear market bounce, nothing to get excited about. This is classic wall of worry stuff. Even capitalist-minded IBD (Investors Business Daily) can't even come out and say that they are watching for a follow through rally, and that today would have been Day #5 of a rally attempt. If IBD is skeptical, that tells us something.

Good Luck.

Fed Model: The Market is 51% undervalued!

2008-01-23T14:13:00.000-06:00

Ok folks, with today's plunging 10 Year Treasury Bond down to the 3.31% level, I again worked the levers on the Fed Model. With the S&P at 1300, for its earnings yield to approach the same yield of the 10 Year Treasury, the S&P 500 price would have to be 2530. This is also based on today's estimated operating earnings of the S&P 500 over the next four quarters of $83.70. A 2530 level would also mean a 95% gain from current levels. Put that in your pipe and think about it. Good luck.

Stock Market Swoons Lead To....

2008-01-23T10:45:00.000-06:00

Big gains. My friends at the Market Analysis, Research and Education Group (MARE), a unit of Fidelity Management & Research Co, sent me a report that compared the five worst Januaries since 1926. The average total return for these five Januaries was -6.8% as measured by the S&P 500. However, subsequent to the five worst January returns since 1926, the stock market generally recovered to post positive returns 12 months later.

The average one year return in the subsequent twelve months was 12.3%, while the two year total return was 26.0%. There was one two year return with a -8.1% result, which happened during the WWII years in 1939 and 1940. Recall, Germany invaded Poland in September of 1939, and not surprisingly, the market was already discounting global dislocations earlier that year! Funny how the market works, huh?!!

Bottom line, your goals and objectives should not have changed at any point in the last few days due to market fluctuations. If you think they have, it is only because you are reacting to fear and greed.

VIX Reaching Panic Levels

2008-01-22T09:05:00.000-06:00

As noted last week, we've been watching for signs of capitulation; margin calls, bear market headlines, special one hour television programs dedicated to bear markets, magazine headlines, the whole shebang, and we are getting it and then some.

If you are a long term investor, seeking to grow your wealth, hoping to beat inflation and taxes, the way to success is through equities. Unique buying opportunities come around every now and then, and today is one of them. It's funny and perverse in the investment business, folks think about selling stocks after they have declined 20%, but when searching for bargains in the "real world," they wait for the after Christmas sales and other so-called big mark down events, but when it comes to the stock market, they buy when it's high and sell low. Perverse, huh?!?!

The time is now to get involved, if you have cash, you deploy it, thinking in 3, 5, or 10 years, that your stocks will perform better than bonds and cash. Don't forget, the market sometimes likes to re-visit past lows and put in a double bottom, so watch closely to see how the market trades and we don't want it to get ahead of itself. History of market bottoms tells us that they usually re-test lows, and then expand from there. So this mornings lows might be re-visited. Don't forget, you can't pick the exact bottom, so you wade in, add systematically, and as we put in a bottom over the next few months, you will look magnificent over the next few years. Good luck.

Guns are a Blazin

2008-01-17T16:59:00.000-06:00

We finally had some capitulation today. The market rolled over, all ten S&P sectors were down greater than 1% today. The VIX, our trusty measure of volatility, approached the 30% level. This is what we have been waiting for. If you get a big down open tomorrow, and then a monster rally, you need to buy it. This strategy has worked in the past and should work again. Please review the chart above. The VIX is finally approaching 30, we're not there yet, but certainly today's trade scared a lot of people. That's what creates a bottom. Good Luck.

If You Sell Stocks, What Do You Do With The Money?

2008-01-16T09:48:00.000-06:00

Ok, so the big question is: if you sell your equities, where do you go with the money? Think again in the big picture: stocks, bonds, or cash?? I think sooner or later, folks will realize the stock market offers the best long term value for your money. If your goal is to beat taxes and inflation, by default, stocks win.

Ok, so the asset allocation decision regarding where to go if you sell your stocks, has me pondering the Fed Valuation Model. Click here for what it is.

I also went to the McGraw Hill S&P site to determine the next four quarters earnings expectations. As reported S&P earnings forecasted for the next 12 months = $83.70. Therefore, with the S&P 500 currently trading at 1371, the market PE ratio = 16.37. The Fed Model, however, reverses the PE, and it becomes an earnings yield calculation, a E/P if you will. The calc is as follows: 83.7 / 1371 = 6.1%

It's straight forward from here, you compare the earnings yield of the S&P 500 to the 10 Year Treasury Yield, which stands today at 3.66%. Therefore, stocks are vastly undervalued compared to bonds. You can buy the 10 Year Treasury and lock in 3.66% today, or you can step out on the risk curve, and embrace the volatility of the stock market, in the hope you achieve something closer to 6% or better returns from equities. My suspicion is that over the next ten years, an investor will do better in stocks versus bonds. The key, you don't blink when things get tough, as they are right now, and consider investing a marathon and not a sprint. Good luck.

You Can Run, & Where to Hide?

2008-01-15T13:24:00.000-06:00

The S&P 500 is off -5.4% YTD, and the Nasdaq Comp is -8.8% YTD. The healthcare and biotech sectors are holding up well. IHF (Healthcare Providers) is flat ytd, as is PBE (Biotech). What does this mean? It means investors who must hold equities have been rotating into defensive sectors. However, bear markets have a nasty way of crunching most, if not all stocks and sectors. The chart of IHF is OK for now, but worth watching extremely closely.

Lastly, anyone really know where the saying, "You can run, but you can't hide" came from?

AAII Survey

2008-01-15T09:59:00.000-06:00

The news is coming fast and furious these days, and as I type, we are experiencing a 10-1 day, meaning we have 10 declining stocks for every one advancing issue on the market today. The down volume on Nasdaq is at 93% versus up volume of 7% as I type! I can't seem to find any "news" regarding the negative PPI report today (positive for inflation), as the market is completely obsessed with weak retail sales and other "bearish" news items.

What is getting discounted is the "bad economic news." The evidence? The weekly American Association of Individual Investors (AAII) Bulls/Bears Survey. As of Jan 11, 2008, the percentage of "Bears" = 58.9% and the percentage of "Bulls" = 19.6%. The typical extreme pessimism zone starts when the bulls only number approx 49%, and we are awfully far away from that number. This is a contrary indicator, meaning we are far out-numbered by the bears, and therefore, the market has discounted a recession, or other negative events. Perversely, since most are now bearish, this presumes most investors have already sold their equity positions, and by definition, they are now bearish, and consequently have sold equities, are holding cash, or have gone short. The contrarian idea means that the next logical move is for bears to slowly become bullish again, and by definition, will have to buy back, or cover their shorts, and the market will turn and begin to climb again.

Ned Davis Research did a study on this data set, and concluded anytime bullish reading are below 49%, the average annual gain of the S&P 500 is 17.2% twelve months later.

In addition, the levels of bullishness/bearishness indicated in this survey were most similar 17 years ago. They show us that investors haven't been this bearish since the 1990/1991 recession and Gulf War period.

20 Tips for a Positive New Year

2008-01-15T09:52:00.000-06:00

Jon Gordon, publisher of a terrific book called "The Energy Bus" - sends a weekly email that I typically share with my colleagues. It is packed with good ideas, but doesn't drone on and on about feel good/positive thinking stories. It is on point and a quick read. Click here for his 20 tips for a positive year. This guy makes sense, and he has solid ideas for both your work AND home environment. I hope you like his Tips for 2008!

Buy the Dips on the QQQQ

2008-01-07T13:49:00.000-06:00

The chart above says it all. In our nearly five year bull market, every time the Nasdaq 100 tested the 50 week average, or dipped temporarily below it, it was a terrific buying opportunity. The question today: Is this time different? As we roll into the new year, there is plenty of fear and skepticism building, as evidenced by the put/call ratio, vix level, newsletter sentiment, etc etc....and history has shown that it usually rewards investors who buy when others are running for the exits. Let's see if history repeats itself. Note, the spring 2006 decline was scary, but by the time you acted, it was probably too late to sell. We could yet have a sudden 5 or 10% more downside, but we could easily reverse quickly and sprint higher once again. So, how are you going to play it? Good luck.

The Demand for Gold

2008-01-02T12:56:00.000-06:00

Sean Brodrick writes today in Money and Markets about why he thinks the price of gold will trade higher this year. Thankfully, he doesn't address the common notions of inflation and a weak dollar as justification for gold trading higher. I think the media is sometimes wrong when attempting to describe the precious metal sector in this fashion. What Sean does well here, is to simply assess the supply and demand attributes to the gold bullion market. The key point to focus on, and refreshing not to belabor the intrinsic demand from India, China, and other emerging markets (again, we get tired of hearing that), is the demand generated by "investment" products per se, and not individuals searching for jewelry or coins. Here's the quote:

"Force #2: New Demand From Gold Investment Vehicles. Worldwide demand for gold as an investment rose to 138 metric tonnes in the third quarter, up a stunning 618% from the 19.2 tonnes in the year-earlier period!

Exchange-traded funds that hold physical gold — GLD and IAU in the U.S., GOLD in Australia, GLD in Johannesburg, GBS in France and Britain — held approximately 741 metric tonnes of gold at the end of November — up from just 39.4 tonnes in 2003.

The huge rush of gold buying by the ETFs is helping drive the market — the easier it is for investors to buy gold, the more they buy, and the higher the price goes."

The relative change of demand for gold by investors during the period 2003 to 2007 is stunning! We're talking a change from 39 metric tonnes to the tune if 741. WOW! Now that's a trend that could easily continue for some time, especially as demand for ETFs continues to explode. In addition, in a world of flattening capital market yields, investors will continue to seek alternative investment ideas as opposed to traditional allocations to stocks, bonds, and cash. This will be fun to witness as the year unfolds. Stay tuned.

What if You are Wrong?

2007-12-28T15:34:00.000-06:00

Every time you make an investment in 2008, ask yourself the following question: What if I am wrong?

As we look forward to the next five years, we need to ensure we are always and everywhere operating with balanced ideas and temperament.

Our dialogue at Invest with an Edge starts and ends with the following: Having a Core Strategy and a Counter Strategy - just in case you are wrong!

One way we like to think about the capital markets and investing is the following: You can have a core set of beliefs, ideas, notions, and strategies. You can and would implement based on your core beliefs. However, what if your core strategy (or belief) is wrong, blows up, discontinues to work? In this case, you better have a back-up plan. That back up plan is what we refer to as a “counter strategy.” In some sense, this is the nature of diversification, but as you can guess, we do not believe in asset allocation and diversification just for the sake of it. Your core and counter strategy can still be opportunistic, and not spread out far and wide, because the far and wide asset allocation approach usually doesn’t stand a chance of beating the market over time and delivers mediocre results.

For example, you could be an aggressive investor, and your core set of beliefs is that we are in a day and age of progress, innovation, productivity…and you are going to build and design a portfolio that is technology heavy. It could contain semiconductor, software, and hardware type names…but maybe innovation also means biotech stocks, alternative energy, medical device companies, etc etc….these are clearly aggressive growth type companies, probably significantly tilted towards growth as opposed to value names. Bottom line, this is your core belief, and you hope to achieve substantial returns investing this way.

My question: what if you are wrong? Or, what if you are right, but wrong in the short term? The market has a nasty way of disappointing almost every investor, over time, and time and time and time again. Right? We’ve all been there. That investor better have something that might do well if his tech heavy portfolio lags, and that might mean owning financials, commodities, retailing, etc.

So, how should we address this situation in a simple way? The best way in our mind is to purposely mix a few specific strategies together in one global equity type portfolio. Let me address one thing – this is geared toward that 10% type long-term equity return. I am not taking into account fixed income, or a quasi balanced type approach. This is an equity only portfolio for funds earmarked for growth. There is a time and place for fixed income, but in this example, I am addressing the “equity return” objective.

Nonetheless, we combine an active sector, style and international rotational investing approach, with classic and longer-term/fully invested growth, value, and international funds so that we have the best of all worlds covered. First, it’s a global portfolio - we are neither taking a big bet for or against the U.S., or for or against non U.S. equity markets. Second, we run active rotational models as a core strategy, seeking to own what’s working and avoiding the laggards. However, our counter strategy is long baseline diversified equity funds – representing strategic & fully invested growth, value, and international asset classes. We think this type of portfolio stands the best probability to beat the market over time. All we are hoping to accomplish is that mythical goal of beating the market over time, and anything we can do to raise the probability that we can, we will implement!

They key point though, is that we are looking 5 to 10 years out, and we are willing to accept the volatility that comes with equity investing, and we make no guarantees or even statements about what the rate of return might be in that 10 year time frame. We will be subject to what the market serves up. Indirectly, it is a bet on capitalism and a bet that the equity markets will continue to perform better than bonds, enabling us to stay ahead of inflation and taxes. The key though, is simultaneously having core and counter strategies working for you at the same time.

Now, admittedly, there are numerous ways investors attempt to game the capital markets. However, that is precisely what makes the market tick! Also, some investors are faced with the limitations of the universe of funds available to them in retirement accounts or 401k type plans . In addition, this strategy is not a simple process - it is not easy to implement and to follow. It requires time and energy.

Therefore, one might think about a long-term portfolio that might look like this. S&P 500, MSCI EAFE, and a rotational strategy. The allocations to each are dependent upon personal circumstances and what not.

This is an important discussion for all investors and why I post it as my last post for 2007 - how to optimally manage a portfolio, especially since each and every one of us has some retirement objective in mind and some sort of lifestyle that is one day very important to us. If we seek to maximize our results against the benchmark, all the while considering that what we are doing could be wrong, then we will most likely succeed and our dreams will come true!

Good luck!

John

Beset by People Wanting to Get out of the Market

2007-12-20T13:48:00.000-06:00

Another blog post that is quite the read....in some ways, rebutting the comments from yesterdays entry from Prieur du Plessis. Click here to read something from Victor Niederhoffer. An excerpt:

9. When considering the hornet's net of worries that the stock market has been exposed to each year over the last 100 as we have documented on Daily Spec, are these troubles that much more significant? And if they are, have they been discounted, and what happens when troubles are more or less than usual relative to the market move? A quantitative approach hear would be apt.

A well written article. Enjoy!

A Shockingly Bullish Statement....

2007-12-19T16:03:00.001-06:00

from a guy across the pond. His name pops up from time to time in John Mauldins' musings. He hails from South Africa, and his name is Prieur du Plessis. The WSJ blog picked up on this incredibly rookie-like statement. Click here for the WSJ piece. Here's the actual excerpt:

Prieur du Plessis, in his Investment Postcards from Cape Town blog, says it hasn’t looked this bad in all his years. “Not since buying my first stocks in 1968 have I experienced the stock market outlook to be as murky as we are experiencing today,” he writes. “The fears are well documented and, in short, include lingering concerns about the financial system, a US economy on the doorstep of recession, and mounting inflation worries.”

Why do I call this a "rookie-like" comment?? The part that gets me is this: "The fears are well documented." I bolted out of my seat and almost wanted to load up on S&P calls when I read that. Why? Simple - the stock market discounts all known information - as it trades well in advance of facts, pricing in today what will happen in 6 months. Frankly, the market outlook is always and everywhere murky, it's never ever easy, a sure thing, something so crystal clear that we can invest today with 100% confidence in the outcome. However, the market is terrific at discounting the future, and the level of bearishness and the cacophony of noise surrounding recession, subprime, inflation, the dollar, etc etc., is such that it is more likely the surprise will be these things aren't as bad as once thought, and the investor out or short the market will get caught looking the other way. Therefore, the path of least resistance could be higher, as those short or in cash are forced to cover or get long as things ultimately turn out much better than once feared. This is perverse thinking, but that's exactly how it works on Wall Street. Again, the key point is the "known information" part...markets move on new information...so we'll watch and wait for new information and see how it impacts our positions. Good luck.

An Efficient Market?

2007-12-11T16:36:00.001-06:00

Why the angst on Wall Street today? If the futures market was pricing in a 53% chance of a 25 bp fed funds rate cut, that means 47% were calling for something else. We can keep this whole analysis simple - that's close enough for 50/50 for me. Therefore, the market should have neither gone up a lot or down a lot, since theoretically, the discounting nature (efficiency) of the market had both outcomes priced on either side, close to a 50/50 type bet, although except for something extraordinary, such as a rate hike, or 75 bp cut or more. Therefore, neither side should have been enthused, nor dismayed. But we read and hear all sorts of dismay and disgust with the Fed, and all of a sudden the market declines 2% in less than a few hours.....Good luck efficient market theorists..surely didn't pan out today for you!

Volatility Means - I'm Losing my Shirt!

2007-12-06T09:49:00.001-06:00

Caroline Baum has been writing for Bloomberg for as long as I can remember. I recall viewing her articles straight off the Bloomberg machine in Woodside, California a decade ago. She has a neat way to call it like it is, and I always like to hear what she has to say. Click here for a link to her most recent article. She points out that the word "uncertain" pops up in times of distress.

She states, for example, during good times central bankers don't pepper their official statements and speeches with references to uncertainty, which makes me think uncertainty is a euphemism for ``things are worse than we imagined.'' It's an excuse, in other words: a way to paper over a bad forecast. Recently, she dissects speeches where the word is used quite frequently.

In fact, in a similar vein, I discussed the word "volatile" last August in a post here as well.

Which leads me to the following...

"Freedom is just another word for nothing left to lose" Janis Joplin

Trapped in a Bear Fund

2007-12-05T11:17:00.000-06:00

Read an article at cbsmarketwatch today whereby the author mentions getting hit with email regarding bear funds and asking if now was the time to buy. Click here for the article. This is classic investor behavior. After a significant decline for the averages in November, we find investors now believe a bear market is here, and consequently, are losing their grip on discipline and now buying bear funds, although probably too late! Now is not the time to change your long term plan...especially in light of a market that has been hit with bad news after bad news, and is still up 4% for the year on the S&P 500. This tells me the discounting nature is working well, and we are close to bullying forward and attacking the old highs. There will be calm after the storm, but you have to get out in front of it and buy before fact. The subprime mess will end, the credit crisis will subside, and the angst and fear amongst investors will ultimately change to optimism..but by then, it will be too late to buy! Good luck sorting it all out.

Held Hostage - Vice Chair Kohn Remarks

2007-11-29T13:27:00.000-06:00

WOW....just catching up to the actual comments from Fed Vice Chairman Donald Kohn. Some very important statements here:

We should not hold the economy hostage to teach a small segment of the population a lesson

Central banks try to avoid the creation of a moral hazard...but to those who lend, borrow, or run money should bear the consequences of their decisions.

Key here is "However, in my view, when the decisions do go poorly, innocent bystanders should not have to bear the cost."

Since the moral hazard issue is now off the table, in this blogger's view, the Fed can use all the tools in their toolbox to prevent contagion, and to help those "innocent bystanders" as well as the broad economy. This is bullish for stocks. We'll see if Gentle Ben affirms these comments tonight.

Yowsa!

November Swoon Over? Time to Expect Santa Claus?

2007-11-28T12:47:00.001-06:00

Today's gap lower of the Volatility Index and the spike in the equity averages might mean the correction is over. The market experienced a sharp 4 week decline of about 10% on many broad indices, and the strong move since yesterday certainly feels like it has legs. We are moving into that time of year where the market typically experiences a year end rally, plus the small cap or January effect has found its way into the month of December too. See below for the definition:

The January effect (sometimes called "year-end effect") is a calendar effect wherein stocks, especially small-cap stocks, have historically tended to rise markedly in price during the period starting on the last day of December and ending on the fifth trading day of January. This effect is owed to year-end selling to create tax losses, recognize capital gains, effect portfolio window dressing, or raise holiday cash. Because such selling depresses the stocks but has nothing to do with their fundamental worth, bargain hunters quickly buy in, causing the January rally. The strength of the effect varies depending on company size and other factors.In the last couple of years, after the January effect became widely known to the public, it has become less pronounced and has started shifting to December causing a rise in stock prices, known as a Santa Claus rally and the December Effect.

Beat the market, any market, any time!!

2007-11-23T10:58:00.000-06:00

I think some of my colleagues place unusual things on my desk, secretly hoping I diligently read them through and through - all the while hoping I proceed to the blog, unleashing a spotlight of scorn and contempt on the ridiculousness and folly of what we receive as junk mail sometimes.

Yes, I have one that is a keeper today! The headline reads: BEAT THE MARKET, ANY MARKET, ANY TIME!

What I like most about this one...is that they devised approx 9 different investor types, placed them in bold headlines, and declared how a certain strategy will deliver out-sized gains no matter which one you follow.

Conservative Investors - safely enjoy annual returns of 88.45%
Long-Term Investors - profits of 173% are possible
Aggressive Investors - get in and out fast...key trades for profits of 200% or more in weeks
Speculative Investors - the risk is greater, but the return could be more than 760% in months
Short Sellers - discovering the secrets of 19 and 44% in as little as 2 months
ETF Investors - imagine seeing impressive 47% returns
Option Traders - enjoy returns of 100% or more in weeks
Natural Resource Investors & Retirement Investors round out the list....

Plus, this guy named Bart DiLiddo says, "Only with VectorVest OnLine market timing system can you make profits 99.46% of the time. It has never failed and never will!"

Gee whiz, ain't it cool that "conservative investors" can "safely" get 88% type returns, espcially in a day and age when CD's yield 5%, the 10-Year Treasury is 4%, and US Govt Money Market Funds pay 4.75%. If you're an aggressive or speculative investor, you stand to achieve returns even greater than the "conservative and safe" 88%...how bout that!!

CAUI.OB re-visited

2007-11-20T16:59:00.000-06:00

My expose about this Las Vegas based uranium exploration company was dead on. Click here for the fine reporting about CanAm Uranium (CAUI.OB). I hope the 4.9mm investors who got the "mail piece" did not succumb to the sales pitch! Check out the chart above...holy toledo batman...she's going through the floor!!!!!

Seaweed?!

2007-11-14T16:17:00.001-06:00

LULU got busted today by the NY Times for not having seaweed in their yoga clothes! Gasp!! The stock has been hammered of late, but it's not alone. The market meltdown that we've experienced since Oct 31st has been sudden and swift. The Nasdaq 100 declined over 10% in four days!! Many trading services and other info sources show a huge flight out of the market, or into defensive sectors. Of course, that is also evident in the VIX shooting back up towards levels hit this past summer. It'll be fun to see how the capital markets act as we run towards the holidays and the end of the year. Good luck.

Spilt Milk

2007-11-09T10:04:00.000-06:00

From CNBC today: "It's kind of like spilling grape juice on the couch, and you'd rather tell mom and dad first before they find out, hoping the punishment is not as great." But the bad news keeps coming, with Wachovia on the tape today with write downs...apparently yesterday it was better than expected bad news, but today it is surprisingly worse since this is new "bad news." Follow that?? Good luck.

Fed in a Bind

2007-11-08T11:41:00.000-06:00

Gentle Ben Bernanke was on the Hill today, testifying to the Joint Economic Committee. The text of the speech pointed to downside risks remain in the economic outlook, but upside risks to inflation given higher commodity prices and a weaker dollar. What this means is what traders fear the most, can the Fed lower rates to stimulate growth while not causing inflation to shoot higher? Today, the market is emphatically answering "NO," while the market sells off. The market now fears a Fed sandwiched between the rocks, with no where to go. They cant fight back against the slowing economy and fallout from the housing crisis with rate cuts, for fear of stoking higher prices and runaway inflation. Therefore, they are stuck in a bind, can't do a thing, and the result could be an economy that falls off a cliff. The stock market will take a hit if that is the end result. Good luck.

Jobs Report Friday: What is Good News or Bad?

2007-11-01T13:38:00.000-05:00

Tomorrow brings the monthly jobs report. The expectation is 80,000 new jobs created. If the actual number is greater or less, I have no idea how the market will react. This is an instance where good or bad news can be translated just about any possible way. Yesterday's Fed Funds benchmark rate cut as well as corresponding discount rate cut were welcomed by Wall Street. Today, the spin is different. Traders are gaming the wording in the release where the Fed statement said; "the Fed judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth." The take-away is no more rate cuts. My guess is that this is the Fed acting judiciously, with their moral suasion sword cutting a wide path today, talking the market down, attempting to put fear and concern into any speculative investment schemes. However, the bond market is rallying, and the futures market now places a 74% chance for a rate cut at the December meeting. So, I think the analysis here is: It's not what the fed says, it's what they do!

So, we'll see what tomorrow has to offer for the stock market. We have a heavy volume distribution day at hand, and bull markets can sustain periodic distribution days, but we don't want to see many distribution days racked up back to back. Good luck.

Dry Bulk Shipping a Crowded Trade

2007-10-30T15:18:00.001-05:00

Saw DRYS (Dry Ships) cross the screen today, on heavy downside volume. This IBD 100 super duper stock extraordinaire, was down over 12% today. I punched in the symbol and viewed a weekly chart..and was quite surprised to see the enormous move in one year or so. See above. I suppose the rumor mill of the day was economic related, folks probably questioning whether or not a recession is ahead, and then the scenario where day shipping rates plunge if the global economy teeters. I am only guessing here, for it could be profit taking after a substantial move. Momentum works both ways folks, AND, the market can remain irrational longer than you can remain solvent. Good luck.

AAAE.OB has $25k, how nice! Hm......

2007-10-29T16:53:00.000-05:00

The story I published last week about something better than Uranium...well, today a 10k was filed on AAAE.ob, and from the 10k I found this tidbit:

ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Our plan of operation for the twelve months following the date of this annual report is to continue to review other potential acquisitions in the resource sector. Currently, we are in the process of completing due diligence investigation of various opportunities in the base metal sector.

As well, we anticipate spending an additional $25,000 on administrative fees, including fees we will incur in complying with reporting obligations. Total expenditures over the next 12 months are therefore expected to be $50,000.

While we have enough funds on hand to cover our administrative expenses for the next 12 months, we will need additional funding for the review, acquisition and development of business assets. We anticipate that additional funding will be required in the form of equity financing from the sale of our common stock. However, we do not have any arrangements in place for any future equity financing.

Third Week a Charm for Uranium

2007-10-29T16:35:00.001-05:00

Uranium shares are on the move again. This time I do think it's for real. After getting clobbered this summer, Uranium shares are spiking higher as the yellow metal spot price is firming. Click here for the story. There are dozens of Canadian and Australian ways to play it, but the gorilla, of course, is Cameco (CCJ), but don't forget about Denison Mines (DNN), she's a $3 billion cap name that is marching strongly higher and exhibiting leadership traits. Right now, you can pick any of the legit players in the space and hang on for the ride (esp. if the Dines letter is gunning for them too right now, and he is, trust me, LOL!!) . The metals and mining group is en fuego, and the Uranium sub-sector is a way to participate, and even more so now that the market price is firming once again. Good luck!

Giant Bull Mkt in Molybdenum!!

2007-10-26T14:57:00.001-05:00

Yup,

that's the headline on today's monster 16 page report I received in the junk mail pile! There is a featured stock here, which is supposed to go from $1.25 to $10 within a month and $20 by year's end. Straight to the fine print: Market Movers is the newsletter, the stock is symbol AAAE.OB , and a shop named Capital Financial Media received $750k for this print advertising campaign, and will retain any amounts over and above the cost of production and distribution as a fee for its services. Readers are also strongly urged to independently verify all statements made in the "advertisement" and to perform substantial due diligence. Got that?! Good luck.

A conversation with myself

2007-10-23T15:26:00.000-05:00

I see this headline today:

Coach Declines on Slower Store Traffic
Tuesday October 23, 3:24 pm ET
Coach Shares Decline As Coach Says Traffic Has Been Weaker in U.S. Retail Stores

NEW YORK (AP) -- Shares of luxury bag and accessories retailer Coach Inc. fell Tuesday after the company said it was experiencing weak traffic in its U.S. retail stores.
Coach expects fiscal second-quarter same-store sales growth in the low single digits for North American retail stores, and believes factory stores will generate same-store sales growth at least in the mid-teens.

So, I think to myself, (after digesting Walmarts' and Caterpillars' latest news releases), that things must be getting bad out there, and it isn't just the low end with WMT, but now affecting the high end at COH. And then I think about next Wednesday's Fed Meeting...which means more conviction for a rate cut, and therefore, the slowdown that we are experiencing is temporary, and you dont want to fade the rate cut....Or, hey, it's a bifurcated mkt, I dont want a Coach handbag, but i gotta have an iphone! Tech is in; retail, financials out!

Then I think about statement after statement on these earnings calls; & the big picture theme throughout this earnings season is:

Giant Tug of War: US Consumer Weakness vs. Global Growth Juggernaut! CEO after CEO states: "Our domestic sales are sluggish (or down) due to weakening consumer demand, but we are extremely pleased with the growth in our international sales."

So, where does that leave me? LOL. Plenty of conflicting signals. We'll see where the market takes us. Good luck.

We've seen this before

2007-10-23T14:31:00.000-05:00

The raging wildfires across Southern California have occurred many times before, and will undoubtedly occur again in the future. It reminds me of the corrections that we have in the stock market from time to time. We've seen them before and they will occur again, and again, and again. LA Times sums it up nicely here. I find much in our daily lives is imitated by the stock market, or does the stock market mimic our daily existence? Either way, there are lessons to be learned, and although knowledge of history can be helpful, it can only be used as a road map, and not as a concise guide as to what might happen next. Good luck.

Big Bounce Coming

2007-10-19T15:48:00.000-05:00

Check out these stats from the NYSE:

Up Volume = 193,392,487 (5%)
Down Volume = 3,506,866,972 (95%)
Unchanged = 3,045,300 (0%)
Total = 3,703,304,759

That's about 18 to 1 ratio of down volume to up volume. The Bears will argue this is a complete disaster and you better head to the hills, while the Bulls will tell you that after a wipe out the size of today, there is no where to go but up. Some technicians argue all it takes is a 10 to 1 ratio to get the buyers back in business.

Maybe a better idea is to read the weekend Barron's edition and do the exact opposite of what they say:) Good luck.

Re-Visiting the CRB

2007-10-18T14:34:00.000-05:00

The CRB Index that I wrote about recently is sitting at all time highs, and appears to be ready to break higher again. See the chart above.

A way to play higher commodity prices is thru the iShares S&P GSCI ETF - symbol = GSG. The ETF is designed to track the S&P GSCI Index, which is composed of:

70% energy related, a combo of crude, brent, unleaded gas, heating oil, gas, and natural gas.

12% Agriculturals; wheat, corn, soybeans, cotton, sugar, coffee, cocoa.

10% Industrial metals; aluminum, copper, lead, zinc, nickel.

5% livestock; cattle, hogs.

3% precious metals; gold and silver

Investing is a Marathon, not a Sprint

2007-10-10T08:20:00.000-05:00

I shared comments about a recent marathon I ran in St. George, Utah with my running mates, and I thought you might enjoy the story as well. Regarding the marathon and its trials and tribulations, it certainly hits home when one makes the analogy to successful investing. To be successful, it takes lots of preparation, a well thought out plan, experience, patience, and courage to get through the difficult times. Here's the story, I hope you enjoy it.

St. George, Utah Marathon Report

Hi Gazelle’s,

If you ever want to run the St. George Marathon, here’s a re-cap of the event. Let me preface by saying it is “as advertised,” an outstanding event all around, well organized and streamlined, and the course is beautiful, almost like running on the moon. I’ll give you a general overview, and then my comments towards the end will contain more of a personal review of the run.

The event was this past weekend – it’s a Saturday marathon, which is neat as it gives you an extra day for travel/recovery, and/or a stop in Las Vegas. St. George is in southwest Utah, only 110 miles or so north of LV. As many of you know, easy to fly in and out of Vegas, and getting to St G is a snap, so the logistics are a piece of cake.

St G marathon is highly sought after. The field was limited to 6500 this year and it is a lottery type system. There were people entered from every state in the nation except for Vermont. The lottery results are announced in early May, so there is plenty of time to choose Plan B for a fall marathon if you don’t get in. Of course, Chicago blew out in record time this past year - well before the St G lottery results were known – so it may necessitate flexible thinking.

The course is point-to-point, starting approx 23 miles north of St G. You must take a bus from the finish line (between 4am – 5.30am) as the run starts at 6.45am. The start line vibe is terrific; they have massive bonfires all over the place. I think the avg. temp at start is something like the low 40’s, and this year was no different, as it was 39 degrees. The bonfires were absolutely necessary – as it was darn chilly. Irony here folks, esp. with the Chicago record highs this past weekend – as some of you know – I am a warm weather fan, and when I did the Milwaukee Lakefront marathon a few years ago (usually around same time of year as Chicago), I vowed never to run a marathon “North of the Mason Dixon Line” ever again as I cant handle running in super cold/windy/rainy weather, only unless it was either NYC or Boston. So I was actually chagrined to see the weather channel report of warm and humid conditions for Chicago, and I thought I was going to freeze my scheister off in the Utah desert!! Little did I know what was ahead for the Chicago crew. Just proves the frailty of the human condition and sometimes, you don’t always want what you wish for.

Back to St. G….the start is surreal, crackling of the fires, 6500 runners huddled around and keeping warm, lots of music, camaraderie, plenty of port o potties, and a wide open desert if you didn’t want to wait in a 10 deep line at the port o potty. Many folks waited until the last possible moment to leave the fire and join the race once it got started. They do have pace groups. Also, easy bag loading for your supplies and cold weather clothes, plus any clothes discarded in first 5 miles would be collected and taken to the finish line if you placed name and number on them.

The start elevation is 5200 feet, and the end is 2500 feet. Elevation is not a problem, and many St G veterans and the web site will tell you not to be concerned about the altitude. My take is mostly true, frankly, I didn’t give it any thought – my concern was more about my quads and the downhill pounding I was about to endure, not worried about my lungs.

The first ½ of the marathon is flat to slight decline, with one big uphill climb around mile 7 to 8, immediately followed with a steady ascent to mile 10…so this three mile stretch is where you wanted to be on your game, but not going too fast to blow you overall pace and fitness. Once cresting mile 10, and primarily past 13, it was fast and declining most of the way in, with an ascent thrown in here and there, one big one around 19 or 20, but overall: flat, fast, and set up for a negative split for those seeking to kick butt and take names. Plenty of water stations and support, but not a course set up for a support group or big crowds. The course is beautiful, with majestic scenery, red rocks, mountains, and a sunrise to warm the bones 45 minutes into the race.

The final three miles are through town, lots of crowd support here, and a long finishing chute to bring you to completion. Easy clothes bag pickup, massage tent, usual solid post marathon atmosphere with food, drink, and more camaraderie. I did notice some vacancy signs at a few of the hotels in town the night before, so not as bad as indicated when planning a trip to this marathon. All in all, a darn fantastic marathon event. I did Pocatello, Idaho at this time last year, and in many ways, not to take away from Pocatello’s fine offering, but this one beats it hands down. The bonfires at the start line mucho mucho important, plus the decline segments over the second half made it much easier to navigate the whole course and saves your quads for the end as opposed to Pocatello, where huge declines in first half, esp. right out of the gate, didn’t leave much oomph in the legs for a strong finish. St G is set up for a fast time, assuming you are prepared! Finally, you get the benefit of a Las Vegas sojourn, with includes great meals, spas, gambling, sports betting, music, shows, the whole nine yards...so a great way to celebrate a fine marathon and a summer of training with your fellow Gazelles.

As for my effort on this day, I can only say this: I kicked arse, took names, and killed the course! I ran a personal best of 3:08, 19 minutes better than my previous best, and a BQ time to boot.

I was geared up from the get go, mentally prepared and brimming with confidence after a summer of gazelle training. My last series of Yasso’s were at 6 minute per mile pace, and I ran a 10k segment of the Silicon Labs Relay a week before at 6.30 pace – so I knew I was well prepared. The run started right on time, but I was reluctant to leave the fire pit area, as it was just dark and cold out there! Once you clear the timing mats and ¼ mile down the road, it is close to pitch black. My first mile was the slowest of the day, running a 8:00 flat mile - navigating the packed street and shimmying around runners jockeying for position. I knew there were pace groups ahead, and my plan was to find the 3:10 group and take it from there. My BQ maximum was set at 3:20, but I knew I could do better. Mile 2 was a 7:30 pace, so I knew I was good for the first two at 7:45. I passed the 3:30 group somewhere after mile 2, and I had my next target of the 3:20 pace group somewhere down the road ahead of me and I knew I’d find them eventually. Funny thing is, I reeled in the 3:20 and then the 3:10, and for a while I was right behind the 3:00 until I backed off some in fear of not having some mojo near the end. Thoughts of the Pocatello blow up were in the back of my mind at all times. However, once cresting mile 10’s hill and knowing the big ascent was behind me, I was feeling strong, with no ill feelings or thoughts, and right then and there I knew it was going to be a special day. Crossing the ½ around the 1:36 time was good, I knew I wasn’t going too fast and didn’t have any notions of this being a bad day. Running for joy was clearly evident and the beautiful surroundings were keeping me in good spirits and at this point, I knew Boston was in the bag, and it was now a question of how fast was I really going to run this thing? When you are confident, anything is possible!

Ok, of course no marathon is ever easy, no matter what you fitness level is, professional or amateur alike. Somewhere around mile 14 or 15, concurrent with a large decline portion, my left big toe just felt like I was stepping on a knife with every step. Of course, our long training prepared us, and a similar sensation occurred out on Shoal Creek this past summer, and I prayed then, as I did now, that the pain would subside and if I could force it out of my mind, I’d be ok. Sure enough, once I got down to a flat segment, and running on the outside of my foot for a few miles, the pain subsided. Onward from there! My brother met me around the 18 mile mark, his plan to pace me for as long as he could – which lasted approx 3 miles- WTH?!?! – a guy who can pedal a bike for 100 miles easy, and then he peeled off, thinking that I was nuts running a 7.15 pace for 26 miles and he too lobbed a final, “you got this one brother and I’ll see you at the end!” I wasn’t all too talkative when I saw him anyway, still focused on the goal, still feeling fairly good, but knowing the true marathon doesn’t start until the 19 or 20th mile and the first sensations of pain were creeping in. Sure enough, finally entering the small and quaint St. George town limit with a 5k to go, I was starting to hit the wall. Having the 3:20 in the bag already, I was still calculating what my PB was going to be. However, having never pounded a 7:15 pace or better for 24 miles straight, I was coming unglued. The crowd support was helping, but as we all know, those last couple of miles are grit, determination, and a singular focus on the finish line. It was now, “keep moving” time. I dropped suddenly to a walk around 24.5 miles, and said, focus on the next street, the next visible marker, whatever I need to, and keep going – so a series of walks and runs got me to 25 and change, and then that final will power of knowing the finish was close got me revved up, and over the hump, and the my last energy cells were utilized to get me to the line. My sister in law met me in the finish area, I told her about my foot and the battle over the pain mid run, and she said, “Look down John.” Holy cripes, my left shoe was covered in blood. Later did I find out what a huge piece of skin came off the bottom of my foot, and my sock and foot were caked in blood. Guess what – didn’t matter, I was finally in the Boston Club and I was silently elated and delirious, yet absolutely exhausted after leaving everything I had on the course.

A special thank you to Gilbert, all of the Gazelles, and the Austin running community. There is nothing like conquering a marathon and the satisfaction that follows. Just nothing quite like it! See you guys around.

What is a Global Warming Industry?

2007-09-28T15:21:00.000-05:00

Just rec'd what i consider to be a sketchy type of small stock reco. I receive these junk mail items from time to time, and i take the time to read them, especially for entertainment purposes. Hitting the mailbox today is something called the Green Investor Report, with an exclusive report about the "only public company 100% focused on fighting global warming." I punch in the ticker GWSO on the pink sheets. Did a reverse split and name change this past summer. The first PR that i can find was about 2 weeks ago. Their website claims 61.7mm shares outstanding. Based on today's close of 2.46, the mkt cap is $150mm. Click the headlines, and we find this company operates in three places; 1) a patented GEM hybrid engine, 2) LETG solar energy technology, and 3) water purification technology. The newsletter states the "global warming industry" (whatever that is) will be $51 billion by 2015. Finally, this stock could soar by 500% or more.

The small print is always the best part. The Green Investor Report (GIR for short) was paid $1.1mm for various fees and costs for publishing and distribution of this newsletter. The advertisement was paid for by a third party shareholder of GWSO. GIR was not paid by GWSO, and GWSO and its management had no involvement in the distribution of GIR. GIR is not a registered investment advisor, but may hold shares of GWSO and may buy and sell the stock at anytime. GIR does not guarantee the accuracy of any information compiled from various sources.

If anything is unclear to you about this special opportunity, please re-read my entire blog post again. Good luck.

Gold Blasting Higher, Dollar Weakens

2007-09-28T10:36:00.000-05:00

Congratulations on your yellow metal trade. Click here for my previous post. You are making bank and a nice way to close out the quarter. Until the trend changes, no reason to fight the tape.

CRB Index - Does it Matter

2007-09-25T14:34:00.000-05:00

I may be dating myself, but the CRB Index was once cited as a main snapshot to understand inflation. The main components of the index are:

Energy (17%) - consisting of crude oil, heating oil, and natural gas.

Grains (17%) - corn, soybeans, wheat

Industrials (17%) - copper and cotton

Livestock (12%) - live cattle and lean hogs

Precious metals (16%) - gold, platinum, silver

Softs (21%) - cocoa, coffee, orange juice, and sugar.

The above chart is tellin'? Yes?

Another interesting tidbit...the Bureau of Labor Statistics incorporates "owners equivalent rent" as a component of its Consumer Price Index (CPI). CPI does not take into account home prices, but measures rent. This "rental" figure is a whopping 30% of CPI. So, think about it, the stunning home price increase over the past decade was not captured in CPI, and as more folks sought to own homes, they did not demand rental units. Therefore, CPI did not have any pressure due to a stable rental market. Now we might have the opposite effect going forward, as home prices fall, and more homeowners (subprime, adjustable rate holders, etc etc) are forced out, they will seek to rent again. Also, those previously contemplating home ownership are frozen out of the market too, and therefore they stay put...aka = Renting. Therefore, we have additional demand coming into the rental property market, which could mean a significant pressure on CPI since it represents 30% of CPI. How might this impact the decisions from policy makers in the months ahead? Good luck.

Bernanke Caves In

2007-09-19T16:24:00.000-05:00

So, the Bernanke put exists. The global stock market moved up strongly over the past 24 hours on the back of Bernanke's 50-50 rate cut. This clearly signals his style and mojo closer to Greenspan than he originally led on. There is no clear indication what might happen at the next meeting on Oct 30th. Market participants are now left debating whether this is helping Main Street or Wall Street. Time will tell.

Johnny Rogue was spotted at USA Today, today. Check it out here. Good luck.

After a Rate Cut, then What?

2007-09-17T10:05:00.001-05:00

More fall out from Northern Rock this morning. Don't think we can't have a bank run in the States? Click here for article on what is happening in Northern England. The most striking point is that Lloyds Bank was in talks with Northern Rock days before the Bank of England rescue, and Lloyds didn't even want a so-called juicy steal and a big discount to where the shares once traded just weeks earlier. Obviously they didn't like what they saw! Bearish!

The squeeze is on all over the globe, and investors seem content to think the U.S. Federal Reserve will rescue everybody with a rate cut tomorrow. The question all investors should ask..."after the rate cut, then what!" I suspect it will be hard to beat expectations..it always is!

Dennis Green flips after loss to Chicago Bears.

2007-09-07T09:29:00.001-05:00

Today, the BEARS are who we thought they were. The Nonfarm Payroll numbers are out, plus downward revisions for the previous two months. It's UGLY out there and the BEARS are growling. We'll see if we get a bounce based on a rate cut that now seems inevitable...or will Wall Street declare a fed woefully behind the curve and anything they do today or on the 18th is much too late and a recession is unavoidable. Stay tuned....

The Green Slime or Subprime Slime?

2007-08-31T14:12:00.001-05:00

Coming to a neighborhood near you. Of course, not unless George W Bush has something to say about it.

What a day, a Bernanke speech in WY, and George Bush stealing his thunder from the White House! We now have monetary AND fiscal policy attempting to cure all that ails the good ol U.S. of A. Again the question: On every intervention by outside forces, how much future stock price action gets immediately priced in today?

GOOD LUCK.

Breaking the Greenspan Mold

2007-08-30T09:53:00.000-05:00

Greg Ip's influential WSJ column today compares and contrasts Bernanke to Greenspan. He recounts Bernanke's speech after being nominated to head the Fed, and a key promise was to "maintain continuity with the policies and policy strategies established during the Greenspan years." But in handling his first financial crisis, he is showing signs of a key break. The initial use of the discount window and lengthening the term of loans as opposed to cutting the fed funds rate is the primary break from the past. Alan Binder has a wonderful quote; "There's no doubt they were trying to draw a distinction between using the main tool of monetary policy, which is the fed funds rate, and aiming the discount rate at restoring the plumbing." However, as Ip notes, if/when Bernanke cuts the fed funds rate, as markets anticipate, the contrast to Greenspan will be less sharp.

All eyes on Jackson Hole. Investors should be asking this key question: HOW MUCH IS PRICED IN? Good luck.

Jackson Hole and the Bernanke Put

2007-08-29T16:39:00.000-05:00

The stock market is cautiously waiting to hear from Ben Bernanke this weekend. What is at stake is the notion of the Fed coming to the "rescue" of Wall Street by beginning a series of fed funds rate cuts later this year. Late afternoon talk show icons James Cramer and Lawrence Kudlow have flip flopped so many times in the past 14 days...first pounding on the fed to reduce rates, then calling them magicians after the discount rate cut, only to recently lambaste them days later as if they are failing the U.S. of A. since they haven't cut the fed feds rates in the meantime and the Dow drops 280 points in one day. What is going on here!?

The Fed has a choice. Maybe a hard choice. Here's the question: If they do in fact announce rate cuts, are they imbedding the "Bernanke put" into the hard wiring of the capital markets? Would rate cuts validate the idea that the Fed will bail out any financial market participant when in trouble? Would this insure against losses and encourage risky behavior? I don't have the answers, do you?

PS--that picture is of a big bull elk from Yellowstone Natl Park!

Relief May be Short Lived article

2007-08-28T16:07:00.000-05:00

Here's a link to a prescient article from All Star. Enjoy.

Marrs- Pump Up the Volume

2007-08-28T13:59:00.001-05:00

Cmon Mr. Market - pump up the volume!!

When Light Volume Matters?

2007-08-28T13:33:00.000-05:00

Greetings Edgies! Late summer / pre holiday action in the market these days, huh?? Time to spin some tunes, and coin some market tales?

What has me up in arms is all the talk yesterday and today regarding low trading volume, and how today's decline isn't important because so many people are away in the "Hamptons." Contrary to last week, where the bulls were cheering the uptick, although on low volume as well! Isn't it interesting those who are long suggest the market will be just fine next week when people return "from summer vacation" and how things will magically sort themselves out and we'll head towards 14,000 in a blink. I suspect things aren't as simple as that. It would be too easy & Mr. Market is never that easy! Therefore, my view is that we'll get significant selling pressure next week in complete opposition to what the consensus is advising right now. Just an early call as we look in the post Labor Day crystal ball. Of course I could be wrong.

The Gap Returns

2007-08-27T16:40:00.000-05:00

FXI could have been bought for $112 on 8/16, which was 7 market days ago.
Closed at $153.07 today for an easy +36.7% return (annualize that!!).

It might take a mere 40% pullback to get back to March '07 levels, but "only" a 20% decline to get to last week! I guess the next edition of "Shanghai Surprise" wont be all that eventful, will it?

The Plot Thickens

2007-08-24T15:05:00.000-05:00

Last Sunday, August 19, the Fed granted to Bank of America, the right to borrow $25 billion directly from the Fed to provide liquidity to its affiliates. I am reading these stories in WSJ and Bloomberg. They disclosed the exemption in a regulatory filing this week. On Monday, August 20th, the Fed extended the same exemption to Citibank "to extend credit to market participants in need of short-term liquidity to finance their holdings of certain mortgage loans.'' B of A spokesman Robert Stickler said, "We're not sure what's going to happen down the road, so we want to get ready for contingencies.'' Holy toledo...all this talk of stealth fed moves may not even be hitting the mark, it may even be more stealthy than originally thought!

Citi is pleased to inject liquidity....

2007-08-23T14:37:00.000-05:00

We can thank Citigroup for saving America in its time of need. We are so lucky to have such a kind corporate neighbor watching over the financial condition of our country.

The statement from Citi after it joined three other banks calling at the Federal Reserve discount window Wednesday goes like this: "We are pleased to inject liquidity into the financial system during times of market stress and to support creditworthy clients." How touching.

The other newsworthy nugget was that Deutsche Bank actually tapped the discount window last Friday. Citi was joined yesterday by JPMorgan, Bank of America, and Wachovia. A Punk Zeigel analyst had some pointed comments about these actions: "It suggests the stress in the financial system is as great as feared."

Good luck.

Trading Places

2007-08-15T14:24:00.001-05:00

Not Yet, Almost

2007-08-15T14:02:00.000-05:00

I recall the final scene in a 1983 movie called Trading Places, featuring Dan Aykroyd and Eddie Murphy, where they had the Duke brothers (Randolph & Mortimer) on the run with an orange juice trade. As the market was climbing and the Duke's were buying hand over fist ahead of the crop report, Aykroyd turns to Murphy and says: "Not yet, almost." They finally look at each other with a gleam in their eye, and raise their arms and sell the futures contract into the furious rally...a few minutes later, they show the television and the speaker releasing the crop report saying something about not having a cold winter...and the contract immediately crashes. The Duke's were now on the wrong side of the trade. Moments later, we see Aykroyd and Murphy buying back their positions as fast and furiously as they had recently sold them, for a fraction of the price!

That's where we are with the market right now. There are dislocations all over the place. There will be a time to buy, but it isn't right now. The key is to maintain buying power and plan for the day when you can buy and take advantage of the opportunities.

The Leading Edge with the R2K!

2007-08-10T15:56:00.000-05:00

The Russell 2000 provides some clues as to what to expect next week. She appears to be shrugging off the global subprime meltdown and credit freeze, and could be a harbinger for better days ahead for stock investors. While the headlines are bearish, there appears to be positive developments below the surface, as the R2K is showing signs of vibrancy after a bruising 10% pullback. The key point: the market leads the economy, and the market is the ultimate barometer of how things really are, not what some talking head or market pundit wants you to believe (or wants you to believe so that their positions move in their favor!)

On another note, IBD certainly changed their tune quickly. They are reporting a "rally under pressure," mere days after a follow through and a new bull market claim. Their take is that in 13 out of 14 times since 1982, when the market has flashed a distribution day within the first three sessions of a follow-through, the rally has gone on to fail. We'll see if they are right. Good luck out there!

Calm, Cool, & Collected

2007-08-09T08:05:00.000-05:00

It may be too late to sell...the stock market is going to gap lower this morning, and those of you setting up sell orders may get taken out at the lows. The news of the morning for me is not that another hedge fund or two is blowing up due to the credit freeze out there, but the fact that the Fed Funds futures are pricing a 100% chance of a rate cut by September. In fact, I hearken back to the 90's when we had a surprise rate cut or two. The stock market zoomed higher after these events. We may be back in the zone where the Fed could come in with shock and awe and take the market by surprise with a rate cut. The bottom line is this: Surprise moves the market, not something that we have been facing down for months (ie SUBPRIME)...the market has been digesting and discounting the worst of the credit freeze, it's what is directly ahead of us that isn't yet priced into the market, and what is ahead could be negative OR positive news! So stay calm, cool, and collected.

IBD says Market in Confirmed Rally

2007-08-08T08:04:00.001-05:00

Anyone catch the subtle shift? They've changed their tilt from "market in correction" to "confirmed rally." They seemed to like the big day we had this past Monday, coming on day 4 of the new rally and it was confirmation of a directional change in the market. Yesterday's Fed announcement continued with their focus & vigilance to inflationary threats, but they did acknowledge heightened credit risks to households, etc..and the market appears to have applauded this modest shift. Financial stocks and home builders had big positive moves yesterday, including the brokerage names too. Many will probably conclude the "all clear signal" isn't necessarily a given, but there is a breadth of fresh air and a collective sigh on Wall Street. Therefore, with plenty of concern and fear still evident, this market might begin to climb the proverbial wall of worry again.

Elimination of the Uptick Rule

2007-08-08T07:56:00.000-05:00

Anyone think it's a coincidence that the market started to roll over soon after the uptick rule was eliminated? Check the chart of the Russell 2000, it declined almost 10% from its recent peak. Small cap stocks have been pummeled and some folks think the ability to short sell shares without waiting for an uptick is one of the reasons for the market swoon of late. I'd suggest it certainly exacerbated the decline, but it is not the sole reason. Nonetheless, it is important to understand the dynamics of what this means to the market. Click here for a solid blog posting about the elimination of the rule and what it might mean for the market. Good Luck!

Volatility = Decline!!!!

2007-08-02T09:20:00.000-05:00

Quick note, as i chuckle day in and day out every time we go through a correction - at the mere mention of the word "VOLATILITY." Talking heads and beat writers drag this word out from under a rock and I hear it over and over and over again. Volatility is code word for decline! Why can't people understand there is such thing as upside volatility too? Ah ha, but "the establishment" doesn't want to tell it like it is, so they try to brainwash you into thinking LOSSES are just VOLATILITY! This is so much fun. The word comes up 23,600,00o times in a 0.05 second search on Google. Doesn't that picture of a roller coaster at Knott's Berry Farm look like a blast?

Any News will be Good News!

2007-08-01T15:09:00.001-05:00

Key data in next 48 hours: Initial jobless claims tomorrow, and non farm payrolls/monthly unemployment report/hourly earnings Friday. Any news will be good news. Why? A weak employment number could draw comments from the Fed and the chit chat will feature well placed and timed notions of cutting rates. The comments may not emanate immediately, but within a few days or few weeks, we'll hear how they are concerned about the economy, and as employment craters, the consumer will be on the ropes with spending (as well as re-setting mortgages) and the financial markets will demand a bail out. Therefore, a seizure in the financial market will force the Feds hands. There is no doubt they are watching closely, and it wont even depend upon Ben Bernanke comments directly, it could be from any Fed Governor or hired gun at the Wall St Journal. The mere mention or discussion the Fed "might" cut rates will stem the correction and cause a turnaround.

A strong employment number could also stem the pessimistic tide. If the stock market is concerned about mortgages and spending...their concerns will be alleviated with a strong employment report. The pessimists wont be able to argue in the face of recent econ reports that include a 3.6% GDP growth rate, a 112.6 consumer confidence report, and low unemployment or high non farm payrolls.

Therefore, any news tomorrow and Friday could be good news! Good luck.

AHM crushed, down 90%

2007-07-31T14:48:00.001-05:00

This event is spreading like a wind aided California wild fire. The repercussions will be felt like last weeks Countrywide Mortgage earnings report. Brace yourself. That said, as the financial sector transitions into nuclear winter...and the market takes some hits...think of the big picture asset allocation decision: Let's assume a million dollar base and how to invest in the current market environment:

1) Are you going to allocate a significant portion to fixed income?
2) What percentage will you allocate to real estate?

3) Assuming 1&2 are toxic, you are left with some combo of cash (money market or T-Bills), equities (non finance and real estate exposure), and commodities. You could certainly allocate to rare art, classic automobiles, stamps, and a host of other alternative type stuff, but that's not relevant when we are talking about big giant swaths of capital as it moves across the globe.

4) ultimately, a bid is in place for the "stock market": because most other asset classes are bunk. That's my conclusion. Therefore, you can panic out of stocks, but you have to ask yourself, where are you going to put the proceeds?

LULU !!!

2007-07-30T14:30:00.000-05:00

Priced last week and first trade was Friday - in the midst of the carnage - and boy, did she soar! $18 US was IPO price (recall - they are a Canadian shop with aggressive US expansion plans), and today trades over $30. Click here for the release. Watch it closely and add on weakness. This is one hot stock....see my previous post here

What next? Record Short Interest

2007-07-30T14:05:00.000-05:00

Last week I mentioned record short interest as a reason this market will find a bid. Click here for the record short interest stats from the Nasdaq, courtesy of Reuters. With the VIX exploding higher last week, I would hazard a guess that if you were short right now, and the market having pulled back 5% or so in one week, you'd be looking to cover and lock your gains. Therefore, on top of the put/call ratios and advance/decline information, one might argue there are plenty of reasons for a nice rally. Bubblevision also flips to the bearish bent, and they can arrange guest after guest offering negative views. Therefore, what usually works is to fade the noise, and back up the truck. Good luck.

Sentiment

2007-07-27T15:20:00.000-05:00

Today's CBOE's put/call ratio indicated a low of 1.18, and a high of 1.33. Yesterday, the total CBOE put/call ratio of all stocks and indices was 1.53. These are extremely high readings.

I also saw a tout for Lawrence McMillan (option guru) as he cited an unusual occurrence, where the market had two days of 90% down stocks in the past week. There have been only 3 other 90% down days in the past 11 years apparently. In addition, there has been recent record high short interest data coming from some of the exchanges, and Bubblevision's "Breaking News" coverage of the DJIA down 100 points or more is drawing lots of attention and is always cause for people to do harmful things to their portfolios. In fact, the VIX is also Exhibit A for high fear levels and modest panic.

The key is to maintain your discipline, focus on the process, and stay committed to doing those smart things that got you to this point in the first place. We will assess the situation again this weekend and on Monday morning, with the plan to search for signs of full panic & retreat, while seeking an intraday reversal on heavy volume and a upside surge. The market will probably then have to digest the initial thrust higher, perhaps with a re-test to the lows over the resulting few days, and then a sustained push higher would be imminent. Let's watch and wait! Good luck.

Maintain Your Edge!

2007-07-26T13:38:00.000-05:00

When Bubblevision tells you the DOW is off 411 points (and the worst day since Sept 17, 2001 !!), your first instinct is to panic, lose your wits, and immediately log on to your online brokerage account. You are tempted to sell first and ask questions later. You cease to follow your initial intentions and formal plans for long term wealth creation and haphazardly send sell orders for many of your stocks and etfs. Don't do it. Stay calm. Take a few deep breaths. Go take a walk around the block. Recall, many investors blew out of shares this past February and never got back in, and subsequently missed substantial gains. The same scenario could play out again in the next few weeks. Beware of follow thru selling tomorrow morning, and then watch to see if there is a significant rally off the morning lows. We are looking for the one day reversal after a blow off, large volume, capitulation type event.

Gold Bugs Index Set up in the Kill Zone

2007-07-25T12:30:00.000-05:00

Ok, we are presently experiencing fireworks and excitement across the investing landscape. Global markets are skidding, and there are few places to hide. A $12 billion debt offering from Chrysler has been scuttled, and reverberations are rippling across Wall Street. The 10 year treasury is presently yielding 4.90%...anyone notice?! The S&P 500 broke below its 50 day average again. We've been here before, so will this pullback be met with another round of buying? The story since 2002 has been to buy the dips. As for the break in the gold shares, the Gold Bugs Index (HUI) appears to be smack dab in the middle of its Bollinger Band, and we've drawn down to the 20 day moving average as well. If you are seeking to exploit a move in a strong sector, this would be the time to buy. Lastly, the HUI made a powerful move from 320 to 370 (50 points), so if you think there is one more day of downside ahead, you might get the opp to buy in at the 345 level, which is a pullback of 25 points off the recent high - which equates to 50% of the magnitude of the recent move. Good luck.

Uranium Shares Hammered

2007-07-24T16:57:00.000-05:00

The Uranium complex has been selling off recently, and missives from Dines can't even stop the bleeding. CCJ collapsed below its 200 day average on heavy volume today. Here is an interesting article about Cameco, uranium prices, and other thoughts regarding the state of the business. I never get a sense of objectivity when reading pieces such as this, and it doesn't help me determine if the price of U is ready to collapse or not. Plus the Dines folks have been able to support their stocks in the past, but I haven't seen any signs of buying of late, and I gotta believe many could be in danger of falling out of their long term up trends. I wonder if this trade is crowded, and the U-bugs have fallen in love with their story? The game of chicken with the Utilities is close to a turning point, and who will win?

Energy Service Stocks Bid Higher!

2007-07-23T13:03:00.000-05:00

M&A activity in the energy sector today is driving the OSX to new highs. Transocean Inc. (RIG), the world's largest offshore drilling contractor, and rival GlobalSantaFe Corp. (GSF) plan to merge. The combined company will have a market value in excess of $50 billion.

More ETFs for Profit Pleasure

2007-07-20T14:15:00.000-05:00

We've made bank recently on International ETFs such as Australia, Brazil, Canada, China, Germany, & South Korea, to name a few. So let's add a few more to the stable. We've got a bond market sizzling today, coming way back under 5% on the 10 year treasury yield, and with the Dow down over 125 points, it's time to step in and scoop up the bargains. We'll spotlight Taiwan (EWT) and India (INP). Good luck.

XAU Blasting Off - Are you Onboard?

2007-07-19T15:00:00.000-05:00

Gold shares continue to romp higher, and we are fast approaching all time highs. Today's chart and relative strength readings show a slight overbought condition. Have your powder ready if you haven't made an allocation to gold shares yet, and buy any weakness. One significant indicator in our favor here? Bubblevision, not one peep about the XAU so far this week - I haven't heard one commentator or so-called analyst mention gold shares...little if any chit chat on hype-tv. That doesn't mean bloggers such as myself haven't taken notice of what's hot to trot, but it is an extremely powerful underpinning if the herd hasn't been clued in yet. Once bubblevision gets on board, we can expect the additional bid on the shares and perhaps the ultimate breakout. GDX is the ETF to play the miners, and my analysis of their holdings and a break down vis a vis IBD's ranking system suggests core holdings of ABX, AEM, and BVN if you want to play some straight equities. To be clear, those three have high IBD rankings. Others near the top of the list, depending on the day, are PAAS, RNO, & HL. (GDX - the three largest positions are ABX (Barrick Gold) at 14%, NEM (Newmont) and GG (Gold Corp) - are close to 10%) The thesis is to buy the leaders, and the IBD methodology would lead you to them. Good luck.

Continued Success for Nintendo

2007-07-17T08:57:00.000-05:00

Nintendo's name keeps popping up on the radar screen. They've had tremendous success with the Wii, but also have solid hits with their Gamecube and DS Systems. The shares trade on the Pink Sheets in the US - under the symbol NTDOY. Nintendo finds themselves amongst the top ten highest market cap stocks that trade in Japan, recently surpassing Sony (SNE) in market cap.

Apparently educators in Japan are creating a stir as they are suggesting certain educational games for young children to play as they seek unique ways to foster learning in school children. Click here to review a report about Nintendo in Money & Markets and why teachers in Japan love the DS Game System.

Last week, Nintendo was the buzz at the E3 Summit in Los Angeles, having debuted additional new games for the Wii. Some of the new games even promise to make you healthy - very cool!

Forbes spotlighted Nintendo's financial success in a article here.

iShares Japan (EWJ), a $13 billion ETF, has over 1% of its assets in Nintendo, and it is the 12th largest holding in this particular ETF. All in all, Nintendo is a compelling story, now isn't it?

Surprise Moves the Market

2007-07-16T15:21:00.000-05:00

From the Wall Street Journal today: What Could Topple Bulls' "Wall of Worry"?....these types of articles can be found in print (newspaper and magazines), on the internet, or in discussion at the local coffee shop....just about anywhere and everywhere on land or sea...we get the litany of "worries" for the stock market. This is not a new phenomenon - year in and year out, we'll have to contend with and face the uncertainty of investing in intangibles. Today's list includes: High risk investments (subprime mortgages), global growth rates, inflation, the weak US dollar, and liquidity. Heck, I could type the same list 10 years from now and it will probably be the same worries then as now! I'm surprised they didn't have a few paragraphs about political instability, global terrorism, high oil prices, etc etc...The question that I think should be asked is: by how much have these "worries" been priced in by the market? On the face of it, none of these items will cause the market to roll over tomorrow...what WILL cause the market to change direction in a meaningful way (up or down) is when there is new information, or new surprises, for the investor to digest. The stock market in and of itself is a pretty good discounter of known information..sure, there are inefficiencies that can be exploited from time to time, but overall, millions and millions of investors making millions and millions of buy and sell decisions each day certainly brings a large amount of efficiencies to stock prices. Warren Buffett once said, "In the short run, the market's a voting machine and sometimes people vote very unintelligently. In the long run, it's a weighing machine and the weight of business and how it does is what affects values over time." That makes sense to me, and that is also why I don't get too pre-occupied with the latest headline about the dollar, oil, sub prime mortgages, etc etc...The key is to find and exploit existing trends, stocks on the move, and securities in favor, and finally, to maintain some risk management and stop loss discipline just in case you are wrong (or new information (aka surprise) causes your position to go the other way!!!) Good luck.

Wanna own Tech??, then buy EMC!

2007-07-12T14:33:00.001-05:00

Cramer is right on this one. He featured it last night. Click here for his post. Trading Goddess is on board too. (Note, Trading Goddess is a very popular site, but PG-13 rated)....

What's the fuss about EMC - it's all about VMware. EMC is going to spin this out and it will be the most popular IPO of the summer. Cramer thinks the road show for the VMware IPO will generate a ton of buzz for EMC, and he's probably right. The stock is breaking out, and tech is hot, so why not buy some shares? Good luck.

Fireworks in the Gold/Silver Shares

2007-07-12T14:04:00.001-05:00

The XAU Index is vaulting higher today. She is entering a fascinating area. Anything above 150 and we are in rarefied air. These levels have been reached three times in the past 20 years...There are various technical reasons to be long precious metals, but add the bonus of a weak dollar, world wide political instability, emerging China and India, massive petro dollars floating around, M&A activity in the space, and last but not least - a quasi defensive position if the general equity market falls apart. The money has to go somewhere, and GOLD is a safe haven!!

Dollar Hitting Lows & Gold Shares Percolating

2007-07-11T09:17:00.000-05:00

Gold prices seem to be firming as the dollar continues to decline. Seeking a pure play gold stock basket brought me to GDX - the Market Vectors Gold Miners ETF. In addition, the top holding at 14% of assets in this particular ETF is ABX - Barrick Gold. I plotted the chart of ABX and immediately was drawn to the Golden Cross that was just put in. A GC (Golden Cross) is a powerful sign that higher prices may be imminent.

Energy Hormone! - DKA

2007-07-06T16:54:00.000-05:00

Wisdom Tree's International Energy Sector ETF (DKA) has a beautiful looking chart. They own a basket of 57 oil and gas issues throughout the world. Click here to see the recent holdings.

If you think the price of oil can sustain itself in the $70 range, this ETF may continue to do well.

The Technology Spider - XLK

2007-07-05T15:58:00.000-05:00

One headline today was about the Nasdaq trading at 6 year highs. Too bad those who have bought and held the Nasdaq are still about 50% under water from the early 2000 peak. That's all water under the bridge, as we are focused on the here and now.

WIN - What's Important Now - a special phrase coined by Lou Holtz has us checking the action in the XLK shares. See the chart above - XLK is breaking out and in a nice uptrend. Click here to learn more about this ETF. This is one simple and concise way to play the buoyant tech sector.

Totally Geeked for this Movie - Transformers & GM

2007-07-03T11:27:00.000-05:00

Click here for a report on the new Transformers movie and how it might positively impact General Motors (GM). The common stock of GM has been on a tear of late, and it recently marked a Golden Cross. This is usually a bullish sign and one where investors might want to sit up and take notice...just like how your ten your old child is geeked about the movie opening in theaters today.

The Fidelity Select Automotive Fund (FSAVX) has 7% of its assets in GM. It's other large holding are Johnson Controls (JCI - 17%), Harley Davidson (HOG - 15%), and Ford (F - 9%). Click here for a Morningstar snapshot of the fund.

An Object in Motion Stays in Motion

2007-07-02T15:32:00.000-05:00

I read one analyst today mentioning how his favorite sectors for Q3 are materials and energy - and I think, reading between the lines, that his thesis was primarily technical in nature, calling for continued strength in these leading sectors. He was making a case for holding the names that have worked best all year (and last), and why sell now? Who am I to argue. The OIH graph today is encouraging. We've made a nice move off the middle Bollinger band, and today's volume was better than the previous day. I'll take it. The price of oil edged over $72 momentarily today, before backing off slightly at the close, so maybe the case for the energy names is spot on. Let's see if new highs are imminent!

Brokerage Stocks caught in the Subprime Mess?

2007-06-29T15:29:00.000-05:00

Bear Stearns hedge fund woes could be spreading. At least equity investors in brokerage type issues think so. Check the chart of KCE above. Are investors assuming where there is smoke there is fire? The 68 level is first support, after that, this ETF may trade down to the 64 level if things get ugly.

Semi Dis-connect?

2007-06-28T14:18:00.000-05:00

I've been pointing out the strength in the semiconductor shares of late, but a headline a few hours ago caught my attention. Novellus Systems (NVLS), a $3.5 billion cap semi equipment firm, lowered guidance for their 2nd quarter today. In addition, comments from an analyst at Goldman Sachs and at CIBC were particularly interesting:

Goldman Sachs analyst James Covello, who has a "Sell" rating on the stock, thinks things could get worse. He predicts a fall in orders for production equipment used to make DRAM, or dynamic random access memory semiconductors, could have "a significant negative impact on company fundamentals over the coming quarters." Covello does not, however, think that Novellus' problems are unique to the company. "(We) would expect the excess capacity situation in the DRAM industry to drive significant order reductions to all of the front-end semiconductor production equipment suppliers for the remainder of the calendar year," Covello wrote in a client note.

CIBC analyst Gary Hsueh thinks Novellus' warning offers little hope of a rebound this year.
"Ordinarily in a cyclical soft spot, results closer to the low end of guidance would not merit a pre-announcement. However, commentary on weakening equipment demand and the need to take pre-emptive actions on cost clearly imply that there is no hope of an order rebound for Novellus in the second half of the year," Hsueh wrote in a client note.

Therefore, the take away is for caution. In addition, additional fireworks could be in store for next week, as i've read reports that have guys standing in lines for iPhones, which they will immediately dismantle Friday night to see whose chips and other components are inside. What you do with that information I'm not quite sure, but it could make for some wild trade on Monday.

Finally, as i type and glance at the ticker tape, LSI Logic (LSI) is cutting 13% of their work force and cutting views on its 2nd quarter as well. Here's the story. Yes, caution is warranted right now in semi land!

BTW - Micron (MU) reports after the close today. Stay tuned!

Fade the Fear

2007-06-26T13:38:00.001-05:00

One lesson learned throughout the 4 year bull market is this: fade the fear, buy the pullbacks, and ride those positions to new highs. We've noted the elevating VIX readings of late, closely resembling levels hit during the mini melt-down in late February and early March. The market just hasn't flinched, as if it wants to go higher; and once the tension dissipates, she might catapult ahead. Therefore, maintain composure (that's right, i said composure as opposed to exposure) and wait patiently to see if the market can bounce in the face of the rising bearishness. It has in the past and perhaps it will again.

Up 100+, then a Topsy Turn to Negative

2007-06-25T15:16:00.001-05:00

The DJIA was all over the board today. The news du jour continues to be the Bear Stearns hedge funds that are taking hits with some exotic and complex debt strategies that contain subprime mortgages. According to a recent Bear Stearns balance sheet, BSC has approx $12.1 billion of stockholder equity, and today the report was that Bear was putting $3.5billion of their own capital into one of the ailing funds. That's a big chunk of shareholder equity going into one fund. The market can turn toxic very quickly when things get bad, but it also creates opportunities for others, and maybe BSC didn't want to give away assets that they think are worth more than they appear according to today's discounted market price. I've heard talking heads say the toxic hedge funds hold paper worth anywhere from 10 cents to 50 cents on the dollar. Of course, something might be worth 10 cents today, only to be priced at 20 cents tomorrow.

How to Play Semis: IGW, PSI, SMH, USD, XSD

2007-06-21T12:37:00.000-05:00

Semis are on a tear today. We've been watching closely and have updated our target list with the leveraged semi play available through ProShares ETFs; symbol = USD. Again, stocks tend to lead the economy by 6 to 12 months, so we don't want to get too cute analyzing why semis are moving powerfully ahead, the fact is that they just are. The fundamental reasons will be clear after the fact.

Just Another Manic Wednesday

2007-06-20T15:58:00.000-05:00

I chuckle when i see quotes like these on the financial websites. It reminds me to stand back from the day to day noise to stay focused on the big picture.

AP Stocks Plummet on Surging Bond Yields Wednesday June 20, 4:52 pm ET By Madlen Read,
Stocks Fall As Soaring Bond Yields Rekindle Interest Rate Fears
NEW YORK (AP) -- A surge in Treasury yields rattled Wall Street Wednesday, forcing stocks to give up early gains and drive down the Dow Jones industrial average more than 140 points.
The 10-year Treasury note's yield soared to 5.15 percent late Wednesday from 5.09 percent late Tuesday, reigniting worries among stock investors that high rates could thwart corporate deal-making and further injure the limping housing market....

TRUE BLUE; EWA

2007-06-19T15:59:00.001-05:00

A visitor to this blog reminded me about the red hot Australian market today, esp in light of the 1.4% move in the EWA's today. We were comparing the weather here in the Lone Star State with that in Scotland (his location) as well as far flung Sydney, Australia, and none other than the world famous Bondi Beach! It's a crowded beach, and you must take care of rips, rocks, sharks, and of course, locals! Another way to play the panoramic Australian market is to buy Wisdom Tree Pac ex Japan Hi Yield - symbol DNH - which is primarily Australia at 88% weight. Add the wonderful Kiwi exposure of 6% and you are 94% combined Australia and New Zealand with DNH. These are stone cold winning ETFs right now!