Archive for the ‘Investing’ Category

Goldman’s Big Day

July 17, 2010

This is an update of an article “Great Day for Goldman” “Great Day for Goldman” that appeared on Seeking Alpha following the SEC press conference announcing the settlement with Goldman Sachs. (more…)


Investment Ideas For An Inflationary Environment

November 30, 2008

Over the past decade, a lot of money has been printed. It was not printed by the U.S. Treasury but in the form of debt instruments by investment banks and others. These debt instruments (which were not subject to any regulation or oversight) became currency which was spent on commodities, stocks, bonds and real estate, including houses. Because this new currency was so plentiful, all of these things had their prices inflated to bubble levels. When a few of the debt instruments became subject to default, a wide range of debt came into doubt and the liquidity of this manufactured currency dried up – financial institutions became reluctant to recognize that it had the value previously assumed. The new currency was no longer working the way it had been and demand for the inflated items (commodities, houses, etc) began to fall.

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Super Cycle Critical Point

November 18, 2008

I have just published another article on the website Seeking Alpha:

Where Are We In the Stock Market Cycle?

October 9, 2008

I just published this article on Seeking Alpha:

Bull or Bear – Let History Be The Guide

September 8, 2008

I recently published an article of stock market history at

Why the Fed Can’t Save the Market

January 27, 2008

While it is probably not a primary objective of the Federal Reserve to boost stock prices, the investment community seems to hold the view that current Fed activities can influence equity prices in the near future much more than it is reasonable to expect.

Historically, falling Fed rates have preceeded, on average, rising stock prices.  The time periods of rising prices are experienced for many months (and even years) after the first rate cut.  However, there are times when the delay from the first rate cut to rising stock prices is very long.  The most recent example is the current bull market which just ended.  It started in the fourth quarter of 2002, well over a year after the Fed started cutting rates.

The latest three day bounce in the stock market is not likely to last.  This week the Fed meets and the futures markets have priced in the expectation of an additional 50 basis point (0.50%) discount rate cut.  What will actually happen is up in the air, in my opinion.  The Fed is really on the spot.  I have a most likely market response scenario for each potential Fed action:

1.  The Fed raises rates this week.  I believe this is an impossiblity.

2.  The Fed takes no action this week.  The market will sell off sharply with much handwringing over an unresponsive Fed being “behind the curve”.

3.  The Fed lowers by 25 basis points.  The market will sell off, but probably not as sharply as in 2.  There will be the same handwringing as in 2.

4.  The Fed lowers by 50 basis points.  This is what is expected by bond traders.  In my opinion, the probability is 50/50 (pardon the pun) or less.  If this happens the market may have a short rally (possibly only minutes) and then start drifting lower again.  The investor psychology will be dominated by a fear that maybe things are even worse than they thought because the Fed has cut the discount rate by 1.25% in a week’s time.

5.  The Fed lowers by 75 basis points.  This is quite unlikely, in my opinion.  If it were to happen, the response would be similar to 4. for the same reasons.

6.  The Fed lowers by more than 75 basis points.  I believe this is impossible.

My view is that whatever the Fed does this week will produce little benefit for stocks.  We still have the weight of unwinding all the complex financial derivatives that were developed over the past five years.  We still have the uncertainty of what the balance sheets really are for the major banks.  We still have a slowing GDP growth rate – some think it may already be negative.  We still have consumers squeezed by record credit card debt, rising variable rate mortgage contracts, falling home values and concerns about keeping their jobs.  With consumer spending accounting for 2/3 of our GDP, our economy is struggling.  Stocks will not put in a bottom until there is hope that all these negative factors will turn up within 3-6 months.  We are not there yet and may not be until late this year.

Market Update

January 6, 2008

We are at a critical juncture in the state of the market.  A classical “Head and Shoulders” pattern has been traced by the three major market indices since 3/13/2007.  All that remains to complete what could be a market top signal for the S&P 500 is a close below 1406.70, the close on 8/15/2007.  A retest of that low on 11/26/2007 produced a close at 1407.22.  The close yesterday (1/4/2008) was 1411.63!

If the S&P 500 has a closing price below 1406.70 in the next several days, we have a bear market signal.  How do we know if a bear market is actually going to occur?  My benchmark to confirm a bear market is a close for the S&P 500 below 1370.60, which was the intraday low reached during trading on 8/16/2007.

If the current situation is simply another (successful) retest of the 8/15 low, the coming week will see a market rally of a few percent.  I do not feel a successful retest can be proclaimed unless the S&P 500 ends the coming week above 1450.  A smaller advance must be viewed with suspicion and judgement reserved.

In August, the recovery from the lows of 8/15 and 8/16 saw the S&P close at 1411.27 on 8/16 and 1445.94 on 8/17.  By Tuesday 8/21 the market closed above 1450.  The high in October (the “Head” of the chart) was a close of 1565.15 on 10/9 and an intraday high during trading on 10/11 of 1576.09.

At the end of November, the S&P 500 reached an intraday low of 1406.10 and closed at 1407.22.  Two days later it closed well above 1450.

The software for this Blog does not allow me to import my Excel chart showing the plot of the “Head and Shoulders” pattern.  If you would like me to e-mail it to you, please contact me at .

This discussion has been on purely technical observations, not economic analysis.  What makes me especially watchful at this time is the confluence of a “perfect storm” on the economic side.  We have a credit crisis, world-wide, still of unkown proportions.  The US consumer, responsible for 2/3 of our economy, is extremely over-extended by falling home equity, record mortgage and credit card debt, high fuel prices (which may well rise further in the coming weeks) and rising unemployment.  One important indicator is help-wanted advertising, which has fallen to lows not seen for more than thirty years.  The possiblity of a recession has increased markedly in the past few months.  Stocks generally do poorly going into a recession.  The bright side is that they start doing very well once we actually are in recession.

How to deal with this?  Be careful in making any new investments while this scenario is playing out.  Trim positions that have had large run-ups in 2007.  If you use stop loss orders to limit risk, tighten (raise) the stops.  If you want to try some short term trading, look at ETFs that short various indices or sectors.  Examples are SDS (200% short the S&P 500), QID (200% short the NASDAQ Composite), SRS (200% short the US Housing Index), SKF (200% short financials) and FXP (200% short the Shanghai Index).  Note: Loss control is critical in using these highly leveraged, very volatile ETFs.

What’s Happening on Wall Street?

November 28, 2007

Wow!  The biggest two day gain in years.  Is it time to celebrate?  Better wait and see.

It is possible that we have successfully tested the August low.  It will be as much as three months before that can be stated with certainty.  It is also possible that we are going to complete what is called a “head and shoulders” top (or a “triple top”), with market peaks early in the year, July and October.  Again it could take three months or more for that scenario to play out.  How do we know which (if either) pattern is emerging?  The “double bottom low” would be confirmed by a rise decisively above the October high  (approximately 14,200).  A close of the Dow above 14,500 would confirm a continuing bull market.  A close of the Dow below the intraday August 16 low (approximately 12,455) would indicate a triple top and the possible start of bear market.

If neither of the above scenarios occurs we would be in a trading range market, with the Dow fluctuating between 12,500 and 14,300.

I use a complex formula of exponential moving averages to decide when buying or selling of securities is indicated.  This morning some banks and international ETFs gave the first “buy” signals in several weeks.  I bought BCS (Barclays Bank), BAC (Bank of America), AIB (Allied Irish Banks) and IRE (Govourner’s Bank of Ireland).  These are four of the six most undervalued large banks in the world.  I also have WB (Wachovia Bank) and WFC (Wells Fargo) on the deeply undervalued list, but they have not yet given “buy” signals.

I do not feel that these banks are sure to be safe from future downturns, but their  investment portfolios and earnings appear to be on better footing than some others, such as CFC (Countrywide Financial), C (Citicorp) and WM (Washington Mutual).  Because they are merely the best of an otherwise suspect crew, I will maintain tight stop loss orders at the prices where my system would indicate a “sell” signal.  Worst case, I will encur 2-4% loss for any bank that does pull back.  Best case, there is an enduring rally and we benefit by 10-20% in a few weeks.  All four banks are trading near 50% (or below 50%) of my calculated fair value, so the upside potential is significant. 

International ETFs with “buy” signals this morning included FXI (Shanghai Index), EWH (Hong Kong Index), EWY (Korea Index), EWS (Singapore Index), RUS (Russian Index) and EWZ (Brazil Index).  I bought EWY, EWS and EWZ early in the day.  Again, as with the banks, very tight stop loss orders have been placed because these ETFs remain very close to the “sell” signal price.

Happy investing, but stay on top of things.  The wild ride is probably not over. 

Buy banks now?

November 12, 2007

The carnage in financials is setting up the mother of all buying opportunities, especially for banks.  The bottom for financials will come when there is a perception that the unkowns about the mortgage crisis will be coming to an end.  That will probably not occur for a few more months.  However, if you wait until you are sure all the bad news is known you will probably be buying banks and other financials 25-30% above the bottom.  It will be better to buy 2-3 months before the bottom than 2-3 months after.

Has the market bottomed?

November 12, 2007

Market turbulence the past three months has people wondering how much more pain will still occur.  The most probable outlook for the next few days (or weeks) is a test of the intraday low on the DJIA (12,455 on 8/16).  If that test fails the next likely support level is around 11,900.  If that fails, ultimate support should be around 10,575 which is 25% below the recent high.

If there is a succesful test of the 8/16 low, the market will probably rally to year end, reaching somewhere around 14,500 on the DJIA.  What is a successful test?  The DJIA has an intraday low of 12,455 +/- 300 and then has three consecutive closes after the lowest intraday low above that low.

If the 12,455 test fails, look for another test at 11,900.  If the 11.900 test fails, the market will probably fall through year end.  The ultimate low for this cycle might not occur until early 2008.  If we actually go into a recession, the market might not rally significantly until mid-year or later.  In this scenario the best investments will be in ETFs that are short the dollar (long other currencies), some European stocks, especially Russia and eastern Europe and utilities.  Other than the above, emerging markets will probably not do well during the early phases of a US recession.