With each passing week, the economic news gets worse. For example, the Institute of Supply Management reported that the service sector reached an all-time low of 37.3% in November. Unemployment in the U.S. was 4.09M, its highest since December 1982. The numbers continue to be dire, but the three numbers investors need to keep an eye on are the following:
1) New Housing Sales and Average Home Prices
2) Volatility Index
3) LIBOR Spread
The first is obvious: the lower the average price of a home, the greater the mortgage paper loss is for US banks. The second, volatility, will give investors some indication on how convincing a rally or a sell-off is. It is very, very difficult right now to make a good investment decision if no trend exists. At best, there are wild fluctuations. This environment might benefit the day trader, but not buy and hold long term investors.
Finally, the LIBOR spread will indicate an investor's willingness to take on risk. It has been narrow, so that is at least a good sign.
This video is long but valuable. Shiller has some insightful ideas. They are good in theory, but can they be implemented in practice or accepted by government law makers?
Shiller says crisis may last for ‘years and years’
http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vwJrIHv24Ics.asf
Hot Stock: Short EWC (iShares Canada)
Canada is only starting to feel the pain of woes in the U.S. The commodity bubble earlier this year has literally popped, the housing sector is starting to weaken, and the automobile sector is imploding. The only positive is that the US dollar has strengthened, perhaps making Canadian exports more attractive. These factors make Canada an unfavorable place to invest. Although I am long on gold, I believe that shorting EWC @$15.26 would be profitable. According to P&F charting, EWC may reach $10.50. Note also that HXD is a bear ETF for the TSX60.
The Good News
Congratulations to kaChing, formerly known as FSX Player. The facebook application completed its registration as an investment advisor with the SEC. Many of my readers have been skeptical about the merits of playing investment challenges. Some say they don't have the time, but in today's markets, sometimes inaction is the best action to take, with real money.
Here's a blurb from kaChing:
What does it mean that you are a Registered Investment Advisor with the SEC now? It means the best managers on kaChing can now make some serious “bling”, REAL MONEY managing a virtual portfolio on kaChing. How? By earning high risk-adjusted returns and attracting a large following, we will soon (second half of ’09) allow your followers to link their brokerage account to your behavior. You will be paid a convenience fee (our term for mgmt fee) and a percentage of the commissions generated by your follower’s broker. Just as Ebay powersellers have bustling businesses on Ebay, you can have your own investment business on kaChing. To give you an example of how much money a successful manager on kaChing can make: Let’s say you have the following:
* 2,000 followers
* Your followers have an average account size of $10,000
* Assume 1% convenience fee (our term for mgmt fee)
* Assuming you make a few trades a month (you earn a percentage of commissions)
* Total = $350,000 revenue split between YOU and kaChing
