CNBC never made average Joe rich in good times so why would a person listen to their crummy commentary? The party in the stock market ended in 2000. By the end of 2008 all that happened was that the people still dancing when the music had already been turned off finally got the clue that the party was over. Financial advice is for suckers. Should I also pay for advice about how to place my bets at the casino? The stock market operates as it always has throughout its history, as a kind of pyramid scheme, because in order to profit you need fresh buyers to pay higher prices than you paid. Without those buyers (whether suckers or simply the less initiated) there is no upward momentum and we have a return to lower valuations.The S&P 500 cash index had a breakdown below the November 2008 lows on 2/27/09.
Archive for March, 2009
The financial press, recommendations for suckers
Thursday, March 26th, 2009Breaking the last bubble
Saturday, March 7th, 2009Commodities, real estate, and interest rate products:
Month | Dollar Index |
Dec 00 | 104.65 |
Dec 01 | 109.51 |
Dec 02 | 101.48 |
Dec 03 | 86.21 |
Dec 04 | 80.10 |
Dec 05 | 85.65 |
Dec 06 | 80.89 |
Dec 07 | 73.69 |
Dec 08 | 80.69 |
Jul 08 | 70.91 |
Aug 08 | 74.09 |
Sep 08 | 75.51 |
Oct 08 | 80.39 |
Nov 08 | 82.74 |
Dec 08 | 80.69 |
Jan 09 | 81.01 |
Feb 09 | 83.11 |
As interest rates increase it could trigger a debt bubble collapse. Whether its corporations, municipal or national government debt some players in the game may find themselves overextended and unable to pay.So while there are people that always scream buy gold or silver whether the economy is on the cusp of a crisis or not (these are the folks that make their money by selling silver and gold coins) if there is a severe long-term crisis large quantities of gold and silver coins arent practical. Theres no formally established and tested medium of retail/consumer exchange. Id rather have access to clean water. Your bartering skills will be what matters and your time can be exchanged for goods, for example in the Community Oriented Mutual Economy which makes sense to have on offer in a community regardless of times of prosperity or gloom. Last October a family member spoke of the gold coins he purchased. He had to buy a safe and then had to have it installed. Considering the overhead its tough to come out ahead financially. Fortunately the price of gold rose significantly since he made his purchase but hes not planning to sell the coins, he wants to pass it on to his children. I commented that his children would sell them his wife smiled, she wasnt a supporter of buying the coins.But why worry about the economy entering despair? There is a built-in safety net rich people still want to protect their wealth so the system wont evaporate, itll trudge along so the rich people can maintain their relative affluence.
A sense of urgency in the stock market
Friday, March 6th, 2009Nobody is going to tell you to get out now because if the stock market recovers substantially youll blame him or her if you follow the advice. If financial planners and spokespeople like Suze Orman, or financial analysts in the media got you in, stop listening to them theyre not going to help you or get you out. Orman is paid for talking, not trading or making investments, shes not much better than mutual fund advertisements, and its going to be interesting to see how those funds choose to account for and gloss over their dismal performance in the coming years. I already screamed sell, sell now, you fool months ago but you guys want those comforting and familiar faces lying to you or reassuring you of things they cannot possibly know. They werent aware of the threat of TBTF and they only believed the stock market went up over the long-term because thats all they saw in their sales careers. But some investors are doing a calculation and reasoning that their portfolio has lost twenty percent or eight percent for the year or perhaps lost that amount over a ten to fifteen year period (if one was fortunate enough to have some above average gains to help buffer the decline over the last year or so) and those investors are exiting the market and will put what is left of their capital aside for use in more productive ventures when they arise. 7,470 in the DJIA (Dow Jones Industrial Average), represents a fifty percent decline from the peak during October 2007. The previous bear market bottom was Oct 9, 2002 when the DJIA was at 7,286. The DJIA has recently dropped below that level and at 7,100, we not only fifty percent below the October 2007 high of 14,198.50, but some DJIA or S&P 500 investors that held long-term may consider it as forfeiting fifty percent of the twenty seven year move from the start of the bull market in 1982 to yesterday.If an investor in 1982 bought and held securities, fifty percent of the gains that had accumulated for retirement during that time have evaporated. At the current level (Tuesdays close) of 6,726.02, there may not be established support
Ive already discussed my feelings in other posts on the DJIA returning to 3300, which is where the index was in 1993. Of course, the index has changed since then, as did the S&P 500 as companies are removed and replaced by the selection committee (sometimes due to changes in the business environment, such as mergers or acquisitions). The index is not a uniform comparison to what it was in the early 1990s or 1980s so Im only referencing it as a guide.Dow Industrials 1982 – 2009
Dow 30 S&P 500 NASDAQ 100
Date Close % Change Close %Change Close % Change
Close 04 10,783.01 1,211.12 1,621.12
Close 05 10,717.50 -0.60% 1,248.29 -3.10% 1,645.20 1.50%
Close 06 12,463.15 16.29% 1,418.30 13.62% 1,756.90 6.79%
Close 07 13,264.82 6.43% 1,468.36 3.53% 2,084.93 18.67%
Close 08 8776.39 -33.84% 903.25 -38.49% 1211.65 -41.89%
30-Jan-09 8,000.86 -8.84% 825.88 -8.57% 1,180.25 -2.59%
6-Feb-09 8,280.59 3.50% 868.6 5.17% 1,277.49 8.24%
13-Feb-09 7,850.41 -5.20% 826.84 -4.81% 1,236.85 -3.18%
23-Feb-09 7,114.78 -9.37% 743.33 -10.10% 1,128.97 -8.72%
27-Feb-09 7,062.93 -0.73% 735.09 -1.11% 1,116.99 -1.06%
Year to Date 7,062.93 -19.52% 735.09 -18.62% 1,116.99 -7.81%So the markets indices at year-end were roughly -34% to -42% in 2008. Those of you with mutual funds lost a bit more due to management fees. The DJIA and S&P 500 are down nearly 20% for the year (of course were only a little over two months in for the year).Other market components:
Only three questions that count
Wednesday, March 4th, 2009The book is being published again but after the market pull back over the past year good luck finding any gems of wisdom. The premise of investing by knowing what others dont is partially common sense thats your edge. But just how exactly are you going to outsmart anyone? Maybe you could think in terms of long-term business trends but is that going to make you rich in this market environment when smart money is exiting the game and earnings arent forecast to improve for many years? So, were now stuck with those three questions:
Are we seeing things wrongly?
Are we seeing at all?
Is what Im seeing actually what Im seeing?When the ad came out for the book it mentioned why investing in cash might be the riskiest thing you do. Come on, that turned out to be the best thing or most appropriate call to action that retail investors could have done over the past year. The ad claimed: All you need is a scientific methoda simple yet disciplined query process. Come, on, there is no scientific method that works in all markets. The only clear thing mentioned in the ad was: You need an advantage over your peers. Yes, but why would someone give it to you?Let me give you a fourth question: Should I be playing the stock game at all? Wasnt that the most important question for the past twelve months? You need a filter, investing is also knowing when not to risk. Or have you forgotten the story about J.P. Morgan receiving a stock tip from the shoeshine boy? The story goes that J.P. Morgan sold his holdings
stocks at all times cannot be a good investment.
Hundred thousand dollar experiment
Tuesday, March 3rd, 2009BX has been under $5 lately. I’ve been watching it since the IPO in June 2007, and now it’s a penny stock. Forbes magazine had an article a month or two ago that said it was a buy at a little above $5 – of course, when the article was released for print the share price had already gone to $7, and then it traded down to a new low under $5 which both excited me and scared me a bit. What attracts me is the dividend. You’ll earn a return anywhere from ten to fifteen percent just holding it for the dividend even if the share price doesn’t advance. I think it will trade upward but I’m not sure how many months it could take to get a few points out of it.
Heres the objective: capturing a few points within the next six months. Ill make a couple of unlikely set-ups here, such as the hundred thousand is sitting in a Roth IRA account that eliminates tax issues. This hundred thousand may only reflect one part of the overall retirement monies for example, perhaps the other money is invested in an investment grade insurance contract. That way, the person is going to have a guaranteed income for retirement even without the hundred thousand in the Roth IRA. Im generally not agreeable to cheap stocks (you’ll recall my last experiment with RBS failed), much less penny stocks as meaningful investments but here we go anyway:Bought: 20,000 shares at $5
***Update***
As I’m getting back from vacation I notice that BX is trading from $12 to $14. Wow, the share price has more than doubled in only a little over two months! I’m not convinced it has enough momentum to push beyond that in the near term. Sure, that’s just a feeling, so using puts and calls to hedge can still provide an income from this position.
***Update***
At most, all one could have probably got out of this position is roughly ten points from 5 or 6 to 16, but that’s worth twenty percent of our hope of reaching for seven figures. At least this one feels like a satisfying experiment.