Chris Lau - Seeking Alpha

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Thursday, January 29, 2009

FOMC Statement

http://www.federalreserve.gov/newsevents/press/monetary/20090128a.htm

Highlights:
  • Global demand appears to be slowing significantly. Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight. The Committee anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are significant
  • The Committee expects that inflation pressures will remain subdued in coming quarters. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.
Analysis:
A prediction for a lack of inflation both challenges and contradiction my call for being long on gold. However, the policy taken by the U.S. to save the banks will not be healthy for the U.S. bonds or the U.S. dollar in the long run. Still, in the short run, the U.S. dollar will out-perform other currencies.

Mass Layoffs Summary (U.S.) for 2008

http://www.bls.gov/news.release/mmls.nr0.htm

Wednesday, January 28, 2009

Keep your Eye on the Ball - All Three

One - Jobs

Company - Job Cut for January 26

Caterpillar Inc. - 20,000 jobs,
Sprint Nextel Corp.- 8,000 jobs
Home Depot Inc. - 7,000 jobs
Texas Instruments - 3,400
Pfizer - 8000 jobs (total will be 20,000)

Total: 207,120 jobs lost in the U.S.
2008 Unemployment total: ~ 2.6 M
illion (7.2% unemployment rate)
U.S. Unemployment projection is 10% by late-2009 or 2010.

Advertising Announcement: this current blog entry by Chris Lau was sponsored by ProfessionalStockTraderLive.com. ProfessionalStockTraderLive.com is your source for learning how to become a better and successful trader and for following trades in real time.

Two - Home Prices
Case-Shiller Housing Prices for November 2008 (U.S.):

The most important figures to review are the Composite-10 and the Composite-20. The Composite-10 illustrates the price change for 10 Metropolitan areas in the U.S. Likewise for the Composite-20, but for 20 areas.

Significance?

The -10 and -20 are down the most year-over-year since the housing bubble burst. Both are down about 25% from the peak.

November November/October October/September 1-Year
Metropolitan 2008 Change Change Change
Area Level (%) (%) (%)
------------ --------- ---------------- ----------------- -------
Atlanta 116.57 -2.7% -2.4% -11.2%
Boston 155.03 -2.6% -1.1% -7.4%
Charlotte 125.61 -1.9% -1.8% -5.3%
Chicago 141.44 -2.8% -1.6% -12.5%
Cleveland 107.43 -1.2% -1.0% -5.2%
Dallas 118.34 -1.9% -1.2% -3.3%
Denver 127.65 -1.1% -1.5% -4.3%
Detroit 83.42 -3.1% -4.5% -20.7%
Las Vegas 138.04 -3.3% -2.8% -31.6%
Los Angeles 175.85 -2.2% -2.6% -26.9%
Miami 169.62 -2.2% -3.0% -28.7%
Minneapolis 133.22 -2.1% -3.3% -16.3%
New York 186.81 -1.6% -1.0% -8.6%
Phoenix 130.54 -3.4% -3.3% -32.9%
Portland 162.62 -2.3% -1.9% -11.5%
San Diego 155.47 -2.3% -3.0% -25.8%
San Francisco 135.28 -3.0% -4.2% -30.8%
Seattle 166.23 -2.5% -1.4% -11.2%
Tampa 160.86 -2.8% -3.4% -20.9%
Washington 180.50 -2.4% -2.7% -19.4%
Composite-10 166.05 -2.2% -2.1% -19.1%
Composite-20 154.59 -2.2% -2.2% -18.2%

Source: Standard & Poor's and Fiserv
Data through November 2008




This current blog entry by Chris Lau was sponsored by ProfessionalStockTraderLive.com. ProfessionalStockTraderLive.com is your source for learning how to become a better and successful trader and for following trades in real time.



Three - Consumer Confidence

  • 37.7 in December 2008 (versus a revised 38.6)
Analysis:
These figures obviously add to the doom and the gloom. It is for this reason that the governments are acting on creating aggressive stimulus packages (see the two previous blog entries). Investors need to be cautious on the consumer discretionary sector. There has been speculation that many malls will close, and many retail companies will be bankrupt this year.

Still, I am optimistic on the companies that thrive in this environment. This includes Family Department Stores (dollar stores) and McDonalds ($1 burgers, value menu).
The other sector to therefore avoid is the commercial real estate sector, and especially the companies that rent out retail space.

Tuesday, January 27, 2009

Dow Jones Industrial Average (DJIA) 6000?

I include technical analysis in my analysis of market indexes and stocks. One big name in this area of analysis was Ralph Nelson Elliot, a person who had great skills in mathematics. Admittedly, my understanding of his description of wave direction for stock charts still elude me. This type of analysis is not used in my analysis. That said, below are selected Sections from Matt Blackman's Trade Systems Guru. The conclusions are startling.

< ... >

Few in the technical analysis world would argue with the contention that Ralph Nelson Elliott was a genius who lived long before his time, even if they don’t adhere to his teachings. The wave analysis principles he developed would have been amazing had they been developed with the help of computers but they did not exist his Elliott’s day.

Born in 1871, he became an accountant with a rather illustrious career cut short by an amoebic illness picked up while working in Central America. This developed into a debilitating case of pernicious anemia leaving him bedridden at the age of 58. With nothing else to do and an actively mathematically-wired brain, he turned his attention to the markets just as stocks hit their peak in 1929.

< ... >

Targets:

When the current corrective phase is over (and we could see a 2000 or more point bear rally in the meantime), the next five wave impulse pattern should register a similar price decline that unless something goes seriously wrong, puts the target on the Dow well below 7000.

This target gets even more interesting if you plot long-term trendline on the Dow (or S&P500) from the late 1970s and 1980s to present day. It also puts trendline support for the Dow back well below 7000. Finally, Dr. Robert Shiller’s long-term Price/Earnings research shows that in every serious bear market bottom back 120 years, annual trailing-ten year PEs dropped below 10 before a sustainable recovery could occur. That implies a price drop on the S&P500 below 600 or 28% below Friday’s close. And that translates to a Dow below 6000.

Source: http://www.tradesystemguru.com

Monday, January 26, 2009

Peter Schiff Was Wrong

Mish (Mike Shedlock) provided a very good analysis on Schiff and his investment performance for clients. Note that his blog is tracked/bookmarked here (see right panel).

http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html

Points of interest are that Schiff :
  • Called for hyperinflation (weakness in U.S. dollar)
  • Called for "decoupling" (that China and other countries would not be impacted by a weak U.S. economy)
Analysis:
Despite my findings for index downside targets, the simple truth is that we must accept that we don't know which way the market is going. Paraphrase Mish, accepting that we do not know gives no real value to investors.

The simple truth is that the market will keep changing. There is hard work ahead, and we must be malleable enough to adapt to the behavioral changes of the market.

Mish's Conclusions:
We attempt to position our clients for what the market is actually doing, not what we think it ought to be doing. The distinction is paramount, especially when such thinking just might be wrong."

My Take:
I was at a Chapters-Indigo book store reviewing Schiff's book. I didn't like it. The content was light and the investment strategies based on his investment thesis were not appealing to me.

Still, people like Schiff are likely to draw criticism. I admire those who express ideas openly and publicly when they are against the herd. For Schiff, he may not perform "as advertised" from an investor's perspective, but he did call the housing bust in 2004. See Business Week.

Sunday, January 25, 2009

Notes on "Obamarama" and the Proposed $825 Billion Economic Stimulus Package

News on the stimulus funding over the next few weeks will have a positive impact on the stock market. The stock market will more than likely haven trading days on the plus side as it tries to price in the influx of a massive amount of money entering the economy.

While many are interested in the impact to the stock market, in the short-term, investors need to assess the effectiveness of the stimulus package in the both the short- and long-term.

I have been keeping my eye on just a few economic metrics (housing, consumer consumption, and employment). That is not enough. General figures on de-leveraging (amount lent by banks / assets to back that lending) is needed.

With that in mind, here are some key points from Mauldin's latest newsletter about TARP.
(Points below are from Professor Nouriel Roubini and his team at RGE Monitor (www.rgemonitor.com)
  • U.S. banks and broker dealers are estimated to incur about half of these losses, or $1.8 trillion ($1-1.1 trillion loan losses and $600-700bn in securities writedowns) as 40% of securitizations are assumed to be held abroad. The $1.8 trillion figure compares to banks and broker dealers capital of $1.4 trillion as of Q3 of 2008, leaving the banking system borderline insolvent even if writedowns on securitizations are excluded
  • Roubini argues that banks will need an additional $1-1.4 trillion dollars in private- and public-sector investments. Then he and colleague Elisa Parisi-Capone lay out in detail how they come up with their numbers.
  • "Thus, even the release of TARP 2 (another $350 billion) and its use to recapitalize banks only would not be sufficient to restore the capital of banks and broker dealers to internationally accepted capital ratios. A TARP 3 and 4 of up to $1.05 trillion (assuming generously that all of TARP 2 goes to banks and broker dealers) may be needed to restore capital ratios to adequate levels."
  • Net capitalization of US financial institutions may fall to as low as $30 billion, from around $1.4 trillion before the credit crisis; England may be down $2 trillion pounds, which is relatively much larger than the US losses
Conclusions made?
  • The real problem is that we vaporized an entire Shadow Banking System that bought securitized debt in a wide variety of forms: autos, homes, student loans, credit cards, etc. That industry exists no more.
  • Bottom line? It is going to take a lot more TARP and private money to capitalize the banks. A whole lot more. And that is before any of the other stimulus. And all that next $1 trillion does is get the banks back to where they were two years
From Bridgewater Associates (my highlights are in bold):

"The root problem is that debts that were incurred to finance assets at high price levels remain in place at their original amounts even though the assets that they financed are now worth far less. [...] Until the debts are brought in line with the assets and the income, there is no moving forward no matter how much liquidity is provided or how eloquent the speech. And, until this happens, the self-reinforcing nature of the debt squeeze will only reduce incomes and asset values further.

"There is no easy way out of a debt restructuring. Someone will have to bear the cost of prior bad decisions. The people who should bear the cost are those who made the bad decisions to make the loans or those who financed the people who made the loans. They intended to profit and would have profited if they were right. But they were wrong, so they should lose. The government needs to allow the losers to lose and focus their actions on minimizing the knock-on effects of their failure on people who didn't do anything wrong (to minimize systemic risk). They should then take action to minimize the future exposure of the innocent to the future dumb decisions of the small minority, because no amount of regulation will ever eliminate dumb decisions, so you have to plan for them (through much lower bank leverage limits to cushion losses, bank size limits and non-bank entities playing bank-like roles to improve diversification, safety nets to prevent losers from poisoning the whole system, etc.)."

John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to: http://www.frontlinethoughts.com/learnmore

On a Positive Note...

IBM and Google reported solid earnings last quarter. This makes sense, especially for Google. While companies typically cut marketing budgets, Google's adsense is still the most effective way to advertise on the Internet (how do you think this blog is supported, in addition to a sponsorship?). Conversely, Microsoft and Intel did not report good earnings. Microsoft, which has a relatively conservative and consistent stream of revenue for Office and XP/Vista, even went as far to say that it could not forecast the economy (and its impact on earnings) for the next 6 months.

M&A (Mergers and Acquisitions)? Almost unheard of, yet Pfizer might be buying Wyeth.


New! If you want to track my blog on facebook:
http://apps.facebook.com/blognetworks/blog/my_notes_on_the_stock_market/

Wednesday, January 21, 2009

CitiBust?

Business Week questioned the need for Citi to be nationalized. I would agree that this will happen, just as AIG, Fannie Mae, and Freddie Mac were nationalized last year.

This current blog entry by Chris Lau was sponsored by ProfessionalStockTraderLive.com. ProfessionalStockTraderLive.com is your source for learning how to become a better and successful trader and for following trades in real time.


Reasons sited:
  • Liabilities exceed Assets by $63 billion (5.2% of assets)
  • Value of $1.2T in Assets is declining (as real estate values decline)
  • Exposure to $400 billion in consumer and real estate loans
Analysis, Additional Comments and Conclusions:
There were bad signs when Citi announced it was selling its prized assets. This smelt of a need for the company to improve its balance sheet. Second, the bank decided to split its good assets from the bad. This, too, has an S.P.E. (Special Purpose Entity) smell to it. Different accounting methodology but same feathers. That is, offloading toxic items to another balance sheet.

Conclusion: Avoid Citigroup and Bank of America. Avoid Canadian banks (guilt by association) even though Canadian banks display compelling valuation.

Citigroup may trade down to $1 if nationalized. Continue to monitor foreclosure rates, home prices, and home inventory. If these metrics continue to decline, the risk for Citigroup nationalizing will increase. Expect a short-lived market rally on the days following a Citigroup nationalization.

Risks to this Assessment: Unanticipated bank bailout announcements and additional bailout packages.

Question about the Tuesday sell-off
Q&A with Don Vialoux, CMT,
http://www.timingthemarket.ca/

Question:

Hi Don,
Do you have any comments on the rising volumes whilst the DJIA traded downwards to current levels? Does that necessarily imply a greater likelihood of a Nov/07 re-test?

Answer:
Dennis Gartman also commented this morning on rising volume yesterday on a down day. Gartman said rising volume “argues that the bearish trend is reasserting itself. This we find rather ominous: others should also”. I share Gartman’s concerns and those concerns were noted in today’s Tech Talk. Yesterday was a brutal day for investor sentiment (as opposed to the actual breaking of key support levels beyond the financial sector).

Ironically, the break below support by XLF yesterday is itself controversial. The ETF broke support, but the S&P Financial Service Index did not. The bulls will say “The Index managed to hold support”. The bears will note that selling was so intense during the last half hour of trading yesterday that XLF temporarily overshot the NAV for its tracking index. Activity in major U.S. bank stocks today is mildly encouraging, but only reduces concerns.

Let’s face it: If Citigroup or JP Morgan go bankrupt, world equity markets have a problem. Chances of an event of this nature are remote.


However, it certainly is on the radar screen. Best guess based on currently available news and the likely flow of information during the next few months (e.g. news on the good bank, bad bank concept, confirmation of Geithner as Treasury Secretary, the passing through the horrible fourth quarter earnings report period, more news on the use of the remaining TARP funds, etc.)will help to stabilize the sector for now. Equity markets will respond accordingly.

My concern is that stability will not hold beyond the next few months as U.S. home prices move lower and the banks are required to provide additional reserves to cover an increasing value of “toxic assets”. Most likely scenario is an additional recovery by North American equity markets during the next few months, but a recovery in a bear market.
Sponsored by:


Other Articles:
Plausible SP 500 Downside Target at 500

Sunday, January 18, 2009

Plus ça Change, Plus C’est la Même Chose

This current Notes on the Stock Market entry authored by Chris Lau was sponsored by ProfessionalStockTraderLive.com. ProfessionalStockTraderLive.com is your source for learning how to become a better and successful trader and for following trades in real time.


Citigroup last week reported its expected weak earnings, announced it was selling its prized asset, and also split into two. One business would be focused on commercial and retail banking, and the other would be on brokerage, retail asset management, consumer finance and troubled assets. In other words, the good part of the company would be split from the bad part.

Bank of America also obtained additional capital support from the U.S. government, in which potential losses would be limited to $118 billion.

Instead of rallying, the two stocks traded down on the day. The market trading activity has also deteriorated. Most significantly:
  • VIX (volatility also known as "the fear index") peaked to 55.16 from 36.88. This increases the odds for more wild market gyrations. There is greater likelihood that the market bottom reached in November will be tested again
Technical charts have not been giving clear signals. What the charts are saying is that many major stocks and indexes are range-bound for the short-term, but that in perhaps a month or sooner, previous lows will need to be tested. It is at that time that I may be able to make a more solid, proactive investment thesis.

The investment thesis - Sector Avoidance - that was made several months ago remain:
  • Avoid the financial sector
  • Avoid the real estate sector (most especially REITs)
  • Accumulate gold
Highlight from Mat Blackman's Weekly Newsletter
http://tradesystemguru.com/content/blogcategory/34/68/
  • Weekly volumes moved back above average for the major indexes but the fact that this occurred on falling prices is bearish (but major support levels continue to hold for the time being)
  • Gold is forming a bearish rising flag pattern accompanied with steadily declining volume as is silver
  • Average earnings are now down 60% versus Q4-07, versus off 48% last week. This compares to a drop of 62% for Q3-08 versus Q3-07.
  • Initial estimates put the 2009 deficit around $1.2 trillion not including any new spending initiatives by Obama, means that the sale of Treasuries to finance the deficit will need to grow to at least $100 billion per month. Add the latest stimulus package of another roughly $1 trillion and the realistic estimate for the 2009 deficit swells to approximately $2.2 trillion which translates to a need of $183 billion in Treasuries per month just to pay the bills on Capital (Matt concludes that the appetite of foreigners to finance this debt is falling)
“Mr. Obama's policy plans are driven by the conventional economic wisdom that the New Deal economic programs ended the Great Depression. Not so. In fact, thanks to New Deal policies and programs, the U.S. economy faltered for years longer than it might otherwise have done.”

Here are some bullet points from his short but powerful history lesson.

  • When Roosevelt took office, unemployment hit nearly 25% and within his first 100 days in office, he created “an alphabet soup of new agencies that mandated actions or controlled public spending and impacted private capital flow.”
  • At first his New Deal appeared to be working as unemployment slipped to 14.3% but then the country entered a second depression in 1937 with unemployment soaring back to 19% in 1938.
  • FDR’s New Deal spending programs were compounded by a spate of new taxes “that crushed the innovation, risk taking, and growth plans of entrepreneurs, corporations and investors.” In the decade following the initial stock meltdown in 1929-30, the top marginal income-tax rate was pushed from 25 to 79%, corporate income-tax rate doubled from 12 to 24%, an excess profits tax and undistributed profits taxes piled on plus a dividends excise tax and a new 2% Social Security payroll tax. This Levey says, “forced the allocation of money away from the private sector.”
  • “As economist Henry Hazlitt wrote back in 1946, New Deal programs prevented the creation of the types of jobs which have the multiplier effect of successful businesses.”
Analysis:
Accumulate TBT or short TLT. TBT is a bear ETF for the US 20-year Treasury.


Sponsored by:

Friday, January 16, 2009

Thursday, January 15, 2009

Do It

I have taken an excerpt, again for the second time this week (marked < ... >) from John Mauldin's newsletter (to subscribe or visit his site, see below, or click on the link on the right side of this site). I am not going to bother with lecturing on and on by describing the stock market as a place for buyers and sellers and who represent to extremes of varying psychologies.

What matters is that the macroeconomic health is not good. This is especially the case for the car, housing, and banking industry. This has now spread to consumer spending and employment. The only known events keeping the market from free fall is massive bailout money.

Recent results continue to illustrate that the TARP bailout money is not working at a time frame that everyone wants. As a result, this will create both buying and hedging opportunities for we the investor. Remember:

Patience is a virtue.

...but inaction leads to lost opportunities, which in itself leads to the excerpt below about investor psychology.

< ... >

The Investor Psychology

People make mistakes when they invest. They do so as a result of their biases of judgment or mistake their perceptions as reality. There are several basic mistakes:

  1. Over-Optimism: Most investors tend to exaggerate their own abilities.
  2. Over-Confidence: Lends investors to overstate their knowledge, understate the risks, and exaggerate their ability to control the situation.
  3. Cognitive Dissonance: Investors often have an incredible degree of self-denial.
  4. Heuristic Rules: Rules of thumb that we employ for dealing with the daily information deluge by evaluating based on how closely a situation, person, etc., resembles someone or something, rather than examining and questioning; i.e., we "frame" and/or "anchor" the event/person/action.

Freud once said, "Thinking is rehearsing." What he meant was that after you accumulate the data and analyze the opportunities, then you have to take action. In the world of investing, there is no substitute for taking action.

...

It's not what you make, it's what you keep.

Cliff W. Draughn, Managing Principal

Reproductions. If you would like to reproduce any of John Mauldin's E-Letters or commentary, you must include the source of your quote and the following email address: JohnMauldin@InvestorsInsight.com. Please write to Reproductions@InvestorsInsight.com and inform us of any reproductions including where and when the copy will be reproduced.

< ... >

Spend to Insanity

As I have mentioned numerous times in previous entries, the market was pricing in a huge spending windfall in the U.S. Below are some numerical figures to quantify just how much this is going to cost. My highlights of the author's entry are marked in bold.


Notes from TSG Weekly Market Watch
Written by Matt Blackman

Source: Trading System Guru

< ... ... ... >

Have policy makers lost it?

Tough times call for drastic measures as we have experienced first hand of late but is there a limit to how much money policy makers can give away? And it is obvious the majority are strongly in favor of using the same policies to get us out of this mess that put us in this situation in the first place. It reminds me of that famous definition of insanity – doing the same thing and expecting a different result.

The federal budget deficit, estimated at around $450 billion for 2008, is projected to grow to $1.2 trillion in 2009 and that is without any more new spending or bailout initiatives. There is little doubt that with a Democratic President, Senate and Congress at the helm, Mr. Obama’s American Recovery and Reinvestment Plan estimated to cost $775 billion (so far) will most certainly grow in size. And it is equally likely that other programs will follow. Let’s do the math. At $1 trillion we are facing a budget deficit of 8% of GDP and that assumes GDP growth holds steady, which is not the case. But be that as it may, this size deficit would be a first in U.S. history. A shrinking economy and expanding bailout costs means the final ratio could be significantly higher. What does that mean?

First, Treasury will have to sell foreigners a lot more of its securities. At a deficit of $1.2 trillion, it would mean roughly three times more than last year. Are foreigners willing to pony up another $1.2 trillion in a deteriorating economy even if they are able? When our Asian sugar daddies finally pull the plug, they will leave a debt-ridden cash junkie behind and we all know what happens when demand exceeds supply. The cost of money goes up and the bigger the need, the faster the cost will rise as debt rapidly becomes a much more challenging habit to maintain.

So while spending like there is no tomorrow to stem the tide of bankruptcies and foreclosures may seem like a good idea on first blush, it is a plan that has the potential to produce some short-term gain in exchange for serious and very expensive long-term pain.

When that happens, expect to see the word ‘risk’ to gain a big pant-load more respect.

< ... ... ... >
Analysis:
The long-term 20-year U.S. bonds will need to fall in time. Its mini-rise since November 17th will need to be challenged, once the foreign money flows away from U.S. government debt. This will not happen immediately, since foreign investors are finding it difficult to look for alternate holdings. It can be seen that since the US dollar has rallied, gold (an alternate holding to the USD) has fallen, and the 20 yr. bond is still holding up, this scenario has yet to play its course.

See TLT Chart.


Tuesday, January 13, 2009

Deflation

Excerpt from John Mauldin's Newsletter
My highlights are in bold. To obtain the complete newsletter (which includes John's predictions for 2009), see disclaimer. I have also linked his site from this blog (right side of site).

<----->

This you can take to the bank: If the Fed buys $500 billion in assets of various kinds and if the US government spends an extra trillion dollars and deflation is still a concern, they are going to double down and do it again. And yet again if they think it is necessary. They are not going to stop until the nominal economy is growing and inflation is above at least 1%.

How much will that number finally be? No one really knows. This has never been attempted. Maybe the initial stimulus package and Fed debt purchases will be enough. My bet is that it won’t be, but that is just a guess. We are in uncharted waters. But the captains of the boats are all Keynesians. They are going to fight a recession and deflation with old-fashioned stimulus. And that means we had better adjust our portfolios and businesses for that.

John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to: http://www.frontlinethoughts.com/learnmore

To subscribe to John Mauldin's E-Letter please click here:
http://www.frontlinethoughts.com/subscribe.asp

To change your email address please click here:
http://www.frontlinethoughts.com/change.asp

<----->

Analysis: Implication for Canada

If deflation is going to be the story for 2009 like I think it will be, then commodity prices will collapse at levels not thought of by even the most bearish of traders. Canada and more notably the provinces of Alberta (oil) and B.C. (forestry) will be affected most significantly.

The only commodity I may find appealing is gold and silver. This is more for reasons around the U.S. dollar, and U.S. bonds.

Actions

Profiting as an investor in the stock market is going to take a toll on all of us. The fatigue is already setting in for those who keep hoping for an positive, bullish, return. But I can promise you that this will be like an extended tennis game. The opponent is a bear that will not go away, wants to wear you out, and as a result, you are on the defensive. The only thing you can do to stay in the investment game is to keep the ball in play.

How?

You cannot hit winning points (at the cost of missing and falling further behind). You need to hit what are called "neutral" balls: shots that won't win points, but won't be erroneous ones either that you will lose the point. This sort of strategy, as it applies to the market, will be that:

  1. You're still in the game
  2. When the opportunity finally arrives to win the point (and to make a profitable trade), you will be ready

Monday, January 12, 2009

Game Playing In Your Portfolio
Hot Stock: Activision Blizzard IncGame Stop reported a same store sales increase of 10.2% in December. During the 2008 holiday period, total sales were $2,856.0 million, a 22.3% increase from the prior year of $2,334.6 million.

This is significant. Sales for consumer goods declined in December. On a relative basis, computer and console gaming products were healthy. A number of key products from Activision in particular made the top sellers list:

Call of Duty: World at War
Guitar Hero World Tour,
Blizzard Entertainment's World of Warcraft

In the chart I posted above, the stock is at a cusp of rallying. Downside risk is still at $8.10 in the short-term. But the upside is $11.91. If I were a consumer who had the choice between dressing comfortably in ragged clothes among friends dressed the same to play these games, or shopping for clothes and high-end goods when I expect prices will keep falling, I would choose the former.

When the company reported its results in November, the numbers were healthy. I expect this to remain the case for the current quarter.

My short-term target price for ATVI is therefore $11.91, a potential 32% return.

Saturday, January 10, 2009

Market Recovery in 2nd Half 2009

There have been some predictions from professional analysts who claim that there will be a recovery in the stock market. This is contingent on a "relief" plan by President-elect Obama to the tune of 1 Trillion dollars (I suddenly get a flashback of the Austin Powers scene where Dr. Evil asks for 1 Trillion zillion billion billion dollars).

There is no doubt that printing money will result in the stock markets moving higher. The money must be moved somewhere. The market cannot sustain having so much money flood the markets. This boost will be very short term. Perhaps 2009 is the year of a stock market rebound, but we should all know by now that nothing in life is free. If it is free, there is a catch to it.

If it's too good to be true, it probably is.

Peter Schiff has a very good argument on what will happen to the U.S. Treasury market (currently in a mini-bubble):



Another video. I wanted to post it because I like the music, too:

http://www.youtube.com/watch?v=uTkAnp1-dK4

Friday, January 09, 2009

Rapid Stats: Employment Figures

I love numbers. It is sexy. You can report all sorts of numbers, and they can be twisted in a way that suits a situation. However, there is nothing good to report from the numbers below. I believe that Canada is only going to start to see increased unemployment, especially in the oil/energy and automobile sector of the economy.

U.S.
  • The U.S. unemployment rate is 7.2 percent in December, the highest level in 16 years, as nervous employers slashed 524,000 jobs
  • The unemployment number, however, wasn't. And the 7.2% unemployment rate -- which rises to a whopping 13.5% if you use the broader figure which includes the underemployed as well -- is very, very scary
Source: http://seekingalpha.com/article/114055-yet-another-gruesome-employment-report

Canada
  • Canada's jobless rate up 6.6% in December 2008, an increase of 0.3%
  • Weakness in the construction industry was a major factor in the December jobs report, with 44,000 jobs lost in the sector. Statistics Canada said
  • Employment edged down in most provinces, with Alberta posting the largest loss as it shed about 16,000 jobs. The province's unemployment rate rose by 0.7 percentage points to 4.1 per cent, but that was still the lowest in the country.
Source: http://www.cbc.ca/money/story/2009/01/09/unemploymentdec.html?ref=rss

Thursday, January 08, 2009

Embrace the Unknown

The harder it is to predict the direction of the markets, the more important investors need to keep things simple. With a tug of war going on between post-Christmas rally and the return of the bears, less information is more.

Concentrate on monitoring the key figures that actually matter: job count, housing prices, and LIBOR spreads.

The Bad news: Latest figures
Jobs
  • Continuing to claim jobless benefits jumped unexpectedly by 101,000 to 4.61 million
  • Unemployment figures due out Friday are expected to show that the U.S. lost a net total of 500,000 jobs in December
  • job cuts are expected to send the unemployment rate to 7 percent in December, up from 6.7 percent the previous month
December Sales
  • The International Council of Shopping Centers-Goldman Sachs same-store sales tally dropped 1.7 percent for December, (estimate was for a 1 percent decline
  • Same-store sales for the November-December period dropped 2.2 percent, the weakest holiday period since at least 1969
The "Good" News:
  • Jan 20 - possible news for a $775 billion package of tax cuts and government spending over two years to revive the moribund economy (up to $850 billion with add-ons by lawmaker)
Source: http://news.yahoo.com/s/ap/20090108/ap_on_bi_go_ec_fi/financial_meltdown_20

Monday, January 05, 2009

Summary Notes from TradeSystemGuru.com
http://tradesystemguru.com/content/blogcategory/34/68/

  • Since their peak in July 2006, existing home prices have now fallen 23.42% with no end in sight. This followed last week’s revelation that both new and existing home sales were still falling rapidly
  • “Broadly speaking, financial crises are [more] protracted affairs [than recessions]. More often than not, the aftermath of severe financial crises share three characteristics:

First, asset market collapses are deep and prolonged. Real housing price declines average 35 percent stretched out over six years, while equity price collapses average 55 percent over a downturn of about three and a half years.

Second, the aftermath of banking crises is associated with profound declines in output and employment. The unemployment rate rises an average of 7 percentage points over the down phase of the cycle, which lasts on average over four years. Output falls (from peak to trough) an average of over 9 percent, although the duration of the downturn, averaging roughly two years, is considerably shorter than for unemployment.

Third, the real value of government debt tends to explode, rising an average of 86 percent in the major post–World War II episodes. Interestingly, the main cause of debt explosions is not the widely cited costs of bailing out and recapitalizing the banking system. Admittedly, bailout costs are difficult to measure, and there is considerable divergence among estimates from competing studies. But even upper-bound estimates pale next to actual measured rises in public debt. In fact, the big drivers of debt increases are the inevitable collapse in tax revenues that governments suffer in the wake of deep and prolonged output contractions, as well as often ambitious countercyclical fiscal policies aimed at mitigating the downturn.”

In summing up, the authors concluded that “recessions surrounding financial crises have to be considered unusually long compared to normal recessions that typically last less than a year. Indeed, multiyear recessions typically only occur in economies that require deep restructuring.”

Without a doubt, the aspect given shortest shift today is the severe impact past crises have had on public debt. If, after this crisis has come to its final end, we suffer the average increase in government debt, it will mean that the current $10 trillion will be nearly $19 trillion. But such a situation would also see total credit market debt, currently at 350% of GDP nearly double as well to new uncharted territory, debt that could well take decades after the recovery has arrived to finally bring back under control.

That is certainly not the kind of legacy baby-boomers intended to leave their children and children’s children.

Friday, January 02, 2009

Humble Predictions for 2009

I would like to start this year making grand predictions about the market, using the wizardry of technical charts, fundamental analysis, seasonality, and gauging the emotions of the market. But the trading volumes for December, and the inflow of government money in January will make providing a prediction inaccurate. Instead, we investors need to achieve two things this year:
  1. Gain experience in trading in a market whose direction is unknown
  2. Achieve a state of objectivity for the markets
From 'Beyond the Bull - Taking Stock Market Wisdom to the Next Level' By Ken Norquay, we all need to learn from our experience. It's more than just going through the steps to make or lose money. We need to step outside of that reality to observe ourselves objectively:




All the world's a stage,
And all the men and women merely players;


Norquay states that:

"Securities analysis is about predicting the future. But the more we understand what it means to be objective, the more we realize that everything in the future is unknown."

How is this zen concept resolved? Norquay says "we have to understand that there are many things we can never know. In order to be free, we have to embrace the unknown."

Cheers to embracing life by embracing the unknown this year for 2009. Above all this, invest only what you are willing to lose. I for one value my sleep.

In the end, the things that really matter to us is not money. It is time and experience.

Personal Performance Notes ending Dec 31 2008 on KaChing.com
as at Dec 31 2008








































Week Month 3 Months 6 Months
Return 1.4% 1.2% 6.2% 31.3%
S&P 500 4.0% 10.7% -22.2% -29.7%
Rank (Elite) 19 16 11 10
Rank (Premium)


93 out of 32,840 competitors
Rank (Basic)


1,147 out of 325,997 competitors




My Portfolio:
http://www.kaching.com/kaching#portfolio/5916/holdings

KaChing Launches on December 16, 2008
http://news.cnet.com/8301-17939_109-10123887-2.html

http://www.techcrunch.com/2008/12/15/sec-gives-social-investing-site-kaching-green-light-to-take-on-mutual-funds/

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/12/15/BUJ214OE86.DTL

http://venturebeat.com/2008/12/16/kaching-offers-new-sec-approved-take-on-social-investing/

http://www.mercurynews.com/scottharris/ci_11246369

http://www.wallstreetandtech.com/trading-technology/showArticle.jhtml?articleID=212500778