Some stocks that got hit earlier in the month have comeback nicely. Despite a couple of defensive moves taken client accounts seem to to be generally keeping up.
This is something I wrote about before. I'm willing to only be up 0.40% on a day the market is up 0.5% right now as was the case on Friday. Today, was a little luckier than that though.
It would be wise to wonder about too much euphoria coming back so quickly as seems to be the case right here.
I am worried about stock prices, but not rooting for a fall like David Tice appears to do (my opinion). Since I have plenty of US exposure, rooting for a drop would be more about serving my ego (I am afterall concerned about the next few months) than my clients.
Read more!
Wikinvest Wire
Monday, October 31, 2005
Back
We made it back Sunday night a couple of hours later than planned but none the worse for wear. I hope to have a picture or two posted later.
I have an email or two to catch up with, as you might imagine.
Stocks look like they will follow through from Friday's nice lift. Asia was up huge over night and Europe looks like its having a good day too. I should look at my Trader's Almanac to see if Halloween is usually a good day.
While I was away I sold Google. For the first $15 I was wrong because the stock has kept going but I had a general price target in mind and stuck to it which isn't the worst thing in the world either.
Time to start in on those emails. I will post more, later.
Read more!
I have an email or two to catch up with, as you might imagine.
Stocks look like they will follow through from Friday's nice lift. Asia was up huge over night and Europe looks like its having a good day too. I should look at my Trader's Almanac to see if Halloween is usually a good day.
While I was away I sold Google. For the first $15 I was wrong because the stock has kept going but I had a general price target in mind and stuck to it which isn't the worst thing in the world either.
Time to start in on those emails. I will post more, later.
Read more!
Friday, October 28, 2005
Coming Home
We are winding down our visit to New Zealand. As write this it is Saturday morning and we are getting ready to leave where we have been staying and head to Auckland, where we will catch our flight on Sunday. We are going to check out Auckland as the last part of our vacation. We take off Sunday around 7:30 pm and arrive in LA around 10:30 am on Sunday. We'll be home around dinner time on Sunday and things will be back to normal Monday.
What a trip. I'll post a picture or two for those that are curious.
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What a trip. I'll post a picture or two for those that are curious.
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Maybe Its Just Me
I analyze ETFs in a manner that makes them useful for me in portfolio construction. I do what I can to relay that process through to this blog.
As a top down manager I start by assessing what parts of the market I want overweight or underweight. Then I seek out what I hope will be the best tools to shape the portfolio.
I think my process for analyzing ETFs, or any product for that matter, is quite simple as I think simple is usually better.
It doesn't take much to look under the hood, take a look at what is there and get some idea of how close the components of a given ETF might bring you to what you are trying to get.
For example I wrote a piece about the materials ETFs for Real Money.com. The ETFs are heavy in Chemicals and have no real correlation to the natural resources part of the sector. So if you want diversification within the materials sector an ETF alone won't cut it.
This is not very complicated but I continue be be amazed at the lack of quality insight in more mainstream media.
The latest example is an article from Morningstar rerun on MSN called 5 Big Myths About ETFs. Here are the myths that Morningstar debunks;
Honestly I can't find any insightful value in it at all. It would be more useful to be tweaked into boilerplate.
I pick on Morningstar a lot because I expect better yet they continually underwhelm. If you subscribe (I do because the portfolio analytical software is very useful) I would ask you to email in and ask for better ETF coverage and not useless articles like this one.
Read more!
As a top down manager I start by assessing what parts of the market I want overweight or underweight. Then I seek out what I hope will be the best tools to shape the portfolio.
I think my process for analyzing ETFs, or any product for that matter, is quite simple as I think simple is usually better.
It doesn't take much to look under the hood, take a look at what is there and get some idea of how close the components of a given ETF might bring you to what you are trying to get.
For example I wrote a piece about the materials ETFs for Real Money.com. The ETFs are heavy in Chemicals and have no real correlation to the natural resources part of the sector. So if you want diversification within the materials sector an ETF alone won't cut it.
This is not very complicated but I continue be be amazed at the lack of quality insight in more mainstream media.
The latest example is an article from Morningstar rerun on MSN called 5 Big Myths About ETFs. Here are the myths that Morningstar debunks;
- ETFs are getting all the fund flows.
- ETFs must perform better than mutual funds.
- ETFs are always the cheapest option.
- Online brokerage fees have dropped, so it's safe to dollar-cost average into ETFs.
- ETFs' structure always makes them the more tax-efficient choice.
Honestly I can't find any insightful value in it at all. It would be more useful to be tweaked into boilerplate.
I pick on Morningstar a lot because I expect better yet they continually underwhelm. If you subscribe (I do because the portfolio analytical software is very useful) I would ask you to email in and ask for better ETF coverage and not useless articles like this one.
Read more!
Thursday, October 27, 2005
Odds N Ends
The market action has not been so hot while I have been away. It is possible my steps to start defensive action before we left for NZ was not the best idea but it was not the worst either.
In the couple of weeks since I sold a couple of stocks the SPX has not been able to mount much of a comback. The 200 DMA was at 1200 when I began to get defensive, as I write this it is at 1185. While this has not been a big move down I am concerned that the move has been important. As I am using someone else's computer I can't save images to post ( I should also add the spell checker won't work I unless I change pop-up setting which I won't do either), but the chart of the SPX looks to have been very faithful to a downtrend of late and from here the market would need to go up some just to challenge that resistance.
On a postive note, there are countless times in market history where the market has big fast rallies for no reason at all. I think this is about the only thing that could lift the market right here.
Lastly I got an email from Bob over at Bob's Adivce For Stocks who told me that this site was mentioned in Kiplinger's. I haven't seen it yet but that's pretty cool.
Read more!
In the couple of weeks since I sold a couple of stocks the SPX has not been able to mount much of a comback. The 200 DMA was at 1200 when I began to get defensive, as I write this it is at 1185. While this has not been a big move down I am concerned that the move has been important. As I am using someone else's computer I can't save images to post ( I should also add the spell checker won't work I unless I change pop-up setting which I won't do either), but the chart of the SPX looks to have been very faithful to a downtrend of late and from here the market would need to go up some just to challenge that resistance.
On a postive note, there are countless times in market history where the market has big fast rallies for no reason at all. I think this is about the only thing that could lift the market right here.
Lastly I got an email from Bob over at Bob's Adivce For Stocks who told me that this site was mentioned in Kiplinger's. I haven't seen it yet but that's pretty cool.
Read more!
Wednesday, October 26, 2005
Benchmarks
A reader sent an email shortly before I left asking me about investment benchmarks.
The emailer said he favors foreign equities and wondered what I thought a suitable benchmark would be.
I'm not positive what type of input he was looking for. A reasonable foreign benchmark would be MSCI EAFE which has no US exposure and is easy to follow, another reasonable benchmark would be the MSCI World which is about 50% US but is very difficult to follow.
Currently I have about 32% in foreign stocks and perhaps I will have more in the future. Even though I have such a large weight to foreign I still use the S+P 500 as a benchmark. The reason for this is that my use of foreign is my attempt to add value to client accounts versus an easy to follow and understand benchmark.
An argument could be for several different broad based measures to use as a benchmark but a lot of the big ones have a fair bit of correlation to them and the SPX lets clients know where they stand.
I manage one account that is targeted to be all foreign, which in practice means 70%-80% foreign. I am not the primary point of contact for this one so I don't know if the firm uses EAFE as a benchmark but I use EAFE for this one as a starting point for portfolio construction and monitoring.
Read more!
The emailer said he favors foreign equities and wondered what I thought a suitable benchmark would be.
I'm not positive what type of input he was looking for. A reasonable foreign benchmark would be MSCI EAFE which has no US exposure and is easy to follow, another reasonable benchmark would be the MSCI World which is about 50% US but is very difficult to follow.
Currently I have about 32% in foreign stocks and perhaps I will have more in the future. Even though I have such a large weight to foreign I still use the S+P 500 as a benchmark. The reason for this is that my use of foreign is my attempt to add value to client accounts versus an easy to follow and understand benchmark.
An argument could be for several different broad based measures to use as a benchmark but a lot of the big ones have a fair bit of correlation to them and the SPX lets clients know where they stand.
I manage one account that is targeted to be all foreign, which in practice means 70%-80% foreign. I am not the primary point of contact for this one so I don't know if the firm uses EAFE as a benchmark but I use EAFE for this one as a starting point for portfolio construction and monitoring.
Read more!
Tuesday, October 25, 2005
I May Rue The Day
I'm not sure if that is how you spell rue or not but this morning I sold Google across the board for clients. Only about 2/3's of the accounts I manage owned the stock.
I am still in New Zealand so I had to wake up at 2:30 am local time to sell it at the open. I bought the stock back in August at about $288 with a specific catalyst in mind, index inclusion. That has not panned out yet but in a post on my blog I said that if I could get $330 or $340 for it quickly I might take it.
Last week the earnings came in and and took the stock to $340. Yesterday in the middle of our drive from Cape Reinga (the very northern tip of New Zealand) down through to the car ferry to Rawene and on to Tane Mahuta (a giant and spiritual Kauri tree) we stopped at an Internet cafe and I saw the stock print $347. Not being a knee jerk guy I thought about it a little and woke up this morning to sell the stock.
Given the totality of the situation, getting the catalyst wrong but getting my price target anyway I sold it at the open for a little over $345.
I still think good things are coming for Goog but after the big run it had in such a short period of time would anyone be shocked if the next 20 points were down??
Read more!
I am still in New Zealand so I had to wake up at 2:30 am local time to sell it at the open. I bought the stock back in August at about $288 with a specific catalyst in mind, index inclusion. That has not panned out yet but in a post on my blog I said that if I could get $330 or $340 for it quickly I might take it.
Last week the earnings came in and and took the stock to $340. Yesterday in the middle of our drive from Cape Reinga (the very northern tip of New Zealand) down through to the car ferry to Rawene and on to Tane Mahuta (a giant and spiritual Kauri tree) we stopped at an Internet cafe and I saw the stock print $347. Not being a knee jerk guy I thought about it a little and woke up this morning to sell the stock.
Given the totality of the situation, getting the catalyst wrong but getting my price target anyway I sold it at the open for a little over $345.
I still think good things are coming for Goog but after the big run it had in such a short period of time would anyone be shocked if the next 20 points were down??
Read more!
Monday, October 24, 2005
Model Portfolio? Who's Model?
A good friend of mine works in the investment services division at one of the big domestic banks. Shortly before I left he faxed me a printout of the bank's model ETF portfolio. I plugged it into Morningstar to help me look under the hood.
Here are the components and weighting of the all equity version, all of the funds are from iShares;
So the portfolio makes no effort to add value with sector weightings. The bank's strategist is on CNBC all time talking about sector weighting so the portfolio does not leverage off of this part of the bank's work.
I believe another flaw is only using EFA for foreign exposure. More than 40% of the fund is western Europe. I have written a few times my belief about the correlation between economic and stock market cycles of Europe and the US growing tighter. If this holds water that should mean the products like EFA will not offer as much diversification as in the past.
The last point to make, and I mention this all the time about ETFs, is that the portfolio yields 1.69% which is a little less than the market. In a flat market I think it makes sense to overweight dividends.
To sum I think a lot of people could come up with the same thing on their own and with just a little bit of effort capture a little more yield and diversification.
Read more!
Here are the components and weighting of the all equity version, all of the funds are from iShares;
- S+P 500 Barra Growth IVW 32%
- S+P 500 Barra Value IVE 32%
- Russell Midcap Growth IWP 7%
- Russell Midcap Value IWS 7%
- Russell 2000 Growth 3%
- Russell 2000 Value 4%
- MSCI EAFE 13%
- Cash 2%
So the portfolio makes no effort to add value with sector weightings. The bank's strategist is on CNBC all time talking about sector weighting so the portfolio does not leverage off of this part of the bank's work.
I believe another flaw is only using EFA for foreign exposure. More than 40% of the fund is western Europe. I have written a few times my belief about the correlation between economic and stock market cycles of Europe and the US growing tighter. If this holds water that should mean the products like EFA will not offer as much diversification as in the past.
The last point to make, and I mention this all the time about ETFs, is that the portfolio yields 1.69% which is a little less than the market. In a flat market I think it makes sense to overweight dividends.
To sum I think a lot of people could come up with the same thing on their own and with just a little bit of effort capture a little more yield and diversification.
Read more!
Saturday, October 22, 2005
Always Wear Your Helmet!
On each of the last two weekends before we went to New Zealand I participated in very similar medical calls. Both were helmet-less head injuries, one a woman fell off a dirt bike or ATV (she did not remember what she was riding) and the other was a woman that fell off a galloping horse.
I have said before I have no medical training but I can lift and haul which comes in handy and I don't get queasy.
I think there might be an analogy with portfolio management, at least the way practice it. This is a recurring theme for the site but I don't think it matters what type of helmet you use as long as you have something in place.
Exposure to gold, timber, defense stocks, inverse index funds or something else that serves the same general purpose of offering some sort of zig to the stock market's zag.
The other part of an investment helmet is some sort of exit strategy. The lack of one did in countless portfolios managed by sell side firms. During the ten minutes I spent at Morgan Stanley there was no attention given to this concept. The idea with brokerages and banks is to get the assets in the door get them placed and then go after new assets.
Even the managed asset programs don't really allow for exit strategies. When a salesman puts client money with a money manager the manager has to assume the asset allocation decision has been made. The manager invests the money into his discipline; growth or value, small cap, all cap, whatever. While there must be exceptions to this somewhere this is how it is.
If you want to hire someone to manage your money I would ask the person what causes them to take some sort of defensive action and what is the action that is taken. This is obviously my opinion but I think the answer to this question should be very simple.
A while back I met with an investment manager who does everything 180 degrees differently than I do. He believes that the market can not be timed any way shape or form and that people need to accept that there will be years where you are down 25%.
You can decide for yourself but there is now way I would watch my account go down that much without even trying to avoid some of something like minus 25% and I would not let that happen to my clients either, at least not without trying.
Read more!
I have said before I have no medical training but I can lift and haul which comes in handy and I don't get queasy.
I think there might be an analogy with portfolio management, at least the way practice it. This is a recurring theme for the site but I don't think it matters what type of helmet you use as long as you have something in place.
Exposure to gold, timber, defense stocks, inverse index funds or something else that serves the same general purpose of offering some sort of zig to the stock market's zag.
The other part of an investment helmet is some sort of exit strategy. The lack of one did in countless portfolios managed by sell side firms. During the ten minutes I spent at Morgan Stanley there was no attention given to this concept. The idea with brokerages and banks is to get the assets in the door get them placed and then go after new assets.
Even the managed asset programs don't really allow for exit strategies. When a salesman puts client money with a money manager the manager has to assume the asset allocation decision has been made. The manager invests the money into his discipline; growth or value, small cap, all cap, whatever. While there must be exceptions to this somewhere this is how it is.
If you want to hire someone to manage your money I would ask the person what causes them to take some sort of defensive action and what is the action that is taken. This is obviously my opinion but I think the answer to this question should be very simple.
A while back I met with an investment manager who does everything 180 degrees differently than I do. He believes that the market can not be timed any way shape or form and that people need to accept that there will be years where you are down 25%.
You can decide for yourself but there is now way I would watch my account go down that much without even trying to avoid some of something like minus 25% and I would not let that happen to my clients either, at least not without trying.
Read more!
Friday, October 21, 2005
One Up One Down
As I have been here in NZ a few days now I have to say keeping tabs on the market has been fairly easy.
Since I have arrived I have had two broad holding have big moves in opposite directions. Stryker, the human replacement parts company is down a lot and Google is up a lot. The two come close to canceling each other out. I don't really assign too much emotion to either move. I have hard time thinking the long term demand for new hips and other things is really in jeopardy. I wish the stock weren't down but oh well. I have a hard time thinking the things are so different this week for Google than they were last week. I could see both names undoing some of the most recent moves that came from fear and greed.
This little divergence is a great example of a recurring theme of this site. I don't make decisions based on emotion. I do better using logic and common sense so I try to stick to it. So far so good with Stryker and Google.
Read more!
Since I have arrived I have had two broad holding have big moves in opposite directions. Stryker, the human replacement parts company is down a lot and Google is up a lot. The two come close to canceling each other out. I don't really assign too much emotion to either move. I have hard time thinking the long term demand for new hips and other things is really in jeopardy. I wish the stock weren't down but oh well. I have a hard time thinking the things are so different this week for Google than they were last week. I could see both names undoing some of the most recent moves that came from fear and greed.
This little divergence is a great example of a recurring theme of this site. I don't make decisions based on emotion. I do better using logic and common sense so I try to stick to it. So far so good with Stryker and Google.
Read more!
Steve Forbes Interview
The other day I got an email from the managing editor of the Investment U web site. He sent me a link to an interview they got with Steve Forbes. The last time I wrote about these guys was when they interviewed Jim Rogers.
I said then and I'll say now, I don't know who these people are but they get interesting people to talk to them.
In the interview, Steve said that he sees oil going to $35, something he has said repeatedly over the last few months. He also thinks that the only way gold goes to $500 is if we have a recession but that is a possibility as he says the curve could invert if the Fed blunders. I'm not sure what probability he puts on the Fed blundering but I think a Fed blunder has a high probability.
The thing that was new to me (and perhaps I just missed it) was Steve's positive sentiment toward Ireland. I am a big fan of Ireland as an investment destination, just about every client owns one of the bank ADRs as do I.
I first wrote about Ireland on this site in November but I have been aware of it an investment destination since about 1994. The idea is simple. The government is very pro business and actively solicits companies to set up shop there. According to the interview Ireland now has a higher per capita income than England. If you are new to this website and do not know the Irish story it is worth learning.
Read more!
I said then and I'll say now, I don't know who these people are but they get interesting people to talk to them.
In the interview, Steve said that he sees oil going to $35, something he has said repeatedly over the last few months. He also thinks that the only way gold goes to $500 is if we have a recession but that is a possibility as he says the curve could invert if the Fed blunders. I'm not sure what probability he puts on the Fed blundering but I think a Fed blunder has a high probability.
The thing that was new to me (and perhaps I just missed it) was Steve's positive sentiment toward Ireland. I am a big fan of Ireland as an investment destination, just about every client owns one of the bank ADRs as do I.
I first wrote about Ireland on this site in November but I have been aware of it an investment destination since about 1994. The idea is simple. The government is very pro business and actively solicits companies to set up shop there. According to the interview Ireland now has a higher per capita income than England. If you are new to this website and do not know the Irish story it is worth learning.
Read more!
Thursday, October 20, 2005
Settling In
We made it safely to NZ and are settling in. The scenery is beautiful and so far every one seems very friendly.
Perhaps one reason why everyone here seems to be so friendly is how little the local stock market seems to be ingrained in the stream of consciousness. On the little mountain where I live, most folks know what I do and always ask about different things related to stocks. One guy owns a lot of Motorola, another guy trades actively and so on. We saw the local news last night and there was no mention of the stock market at all.
Maybe there is a lesson there. Despite the natural human tendency to want to out smart the market, that fact is it will go on with out you and in the case of the US market it will have an up year 72% of the time no matter how many trades you place.
Read more!
Perhaps one reason why everyone here seems to be so friendly is how little the local stock market seems to be ingrained in the stream of consciousness. On the little mountain where I live, most folks know what I do and always ask about different things related to stocks. One guy owns a lot of Motorola, another guy trades actively and so on. We saw the local news last night and there was no mention of the stock market at all.
Maybe there is a lesson there. Despite the natural human tendency to want to out smart the market, that fact is it will go on with out you and in the case of the US market it will have an up year 72% of the time no matter how many trades you place.
Read more!
Wednesday, October 19, 2005
Getting Rich Slowly
We made it safe and sound and the market rallied nicely while we were sleeping on the plane. So far so good driving on the wrong side of the road. NZ is beautiful. I worked on the following piece right before we left.
As I start to wind down into our New Zealand adventure I thought I would do a write up on investment philosophy. I have a lot of new readers (insert smile) and it has been a while since I have put up this kind of post.
Tools like ETFs, CEFs and other products allow investors to capture different parts of the market. Depending on what is trying to be captured a product might be the best way to go or maybe a stock or something else.
The thing that matters is having some sort of investment plan and method that you can be disciplined with but also be adaptable. There is a balance here that must be learned.
A little bit of discipline and a willingness to continue to learn will keep you fairly close to the market's returns over longer periods of time. The more learning you are able to do the more value you should be able to add to your own portfolio over time.
If you are a long term investor, as opposed to a short term trader I would advise thinking about the market a place to get rich slowly. This means maintaining diversification, realizing that changes will need to be made every now and then, you will have years where you lose money and you will always hear about someone doing better in the market than you.
Something I have written about many times is the idea of being wrong. If you know that in a diversified portfolio you will have some stocks that don't work the way you thought, you will be less likely to lose sleep.
Here, I am not necessarily referring to a stock that goes down. Over the last week or two just about every oil stock I know is down. Conoco Phillips has dropped 11% in the ten days. That certainly is too bad if you bought it ten days ago but that drop does not stand out at all compared to other oil stocks. It is hard to imagine that anyone that did buy COP ten days ago would have thought well if the group goes down COP won't. Or if an investor bought Oracle a year ago as a proxy for big tech they might not be thrilled with being flat after twelve months but that is where big tech is, flat.
However if a different investor bought Oracle for a trade based on a specific catalyst, the stock should be sold after the event whether it works or not. I have to admit I do not do much of this. One that comes to mind was buying Greek phone stock Hellenic Telecom (OTE) in 2003 because I thought Greek stocks might get a lift from the Olympics.
Our personal accounts are structured in such a way that we have a lot of foreign, a lot of yield and very little beta. I would expect this type of mix to outperform a dull market and badly lag the next 25% up year. The reason for this is emotional involvement with my own account will not help me be a better money manager. I do better when I am not emotionally involved.
Regardless of anything, else I have what is right for me. You need what is right for you.
Read more!
As I start to wind down into our New Zealand adventure I thought I would do a write up on investment philosophy. I have a lot of new readers (insert smile) and it has been a while since I have put up this kind of post.
Tools like ETFs, CEFs and other products allow investors to capture different parts of the market. Depending on what is trying to be captured a product might be the best way to go or maybe a stock or something else.
The thing that matters is having some sort of investment plan and method that you can be disciplined with but also be adaptable. There is a balance here that must be learned.
A little bit of discipline and a willingness to continue to learn will keep you fairly close to the market's returns over longer periods of time. The more learning you are able to do the more value you should be able to add to your own portfolio over time.
If you are a long term investor, as opposed to a short term trader I would advise thinking about the market a place to get rich slowly. This means maintaining diversification, realizing that changes will need to be made every now and then, you will have years where you lose money and you will always hear about someone doing better in the market than you.
Something I have written about many times is the idea of being wrong. If you know that in a diversified portfolio you will have some stocks that don't work the way you thought, you will be less likely to lose sleep.
Here, I am not necessarily referring to a stock that goes down. Over the last week or two just about every oil stock I know is down. Conoco Phillips has dropped 11% in the ten days. That certainly is too bad if you bought it ten days ago but that drop does not stand out at all compared to other oil stocks. It is hard to imagine that anyone that did buy COP ten days ago would have thought well if the group goes down COP won't. Or if an investor bought Oracle a year ago as a proxy for big tech they might not be thrilled with being flat after twelve months but that is where big tech is, flat.
However if a different investor bought Oracle for a trade based on a specific catalyst, the stock should be sold after the event whether it works or not. I have to admit I do not do much of this. One that comes to mind was buying Greek phone stock Hellenic Telecom (OTE) in 2003 because I thought Greek stocks might get a lift from the Olympics.
Our personal accounts are structured in such a way that we have a lot of foreign, a lot of yield and very little beta. I would expect this type of mix to outperform a dull market and badly lag the next 25% up year. The reason for this is emotional involvement with my own account will not help me be a better money manager. I do better when I am not emotionally involved.
Regardless of anything, else I have what is right for me. You need what is right for you.
Read more!
Tuesday, October 18, 2005
In Transit
We made to Phoenix and we are headed to the airport soon.
The close was a little uglier than the way the day started. Was the XOM trade really what took the market down? Really?
I suppose it might have but it is hard to imagine that could have a lasting impact. Despite the size, the market has more to worry about than one intentionally loud seller.
Today the little bit of cash I raised looks smart tomorrow my wife may have to wipe some egg off my face while we are trying to get through customs.
Read more!
The close was a little uglier than the way the day started. Was the XOM trade really what took the market down? Really?
I suppose it might have but it is hard to imagine that could have a lasting impact. Despite the size, the market has more to worry about than one intentionally loud seller.
Today the little bit of cash I raised looks smart tomorrow my wife may have to wipe some egg off my face while we are trying to get through customs.
Read more!
Leavin' On A Jet Plane
I do know when I'm coming back again, October 30.
The US market is open from 1:30 am to 8am NZ time. I will be able to catch the last couple of hours when I am there.
I will also be blogging while I am there as well. I will have access to email and will reply to specific things.
On to more important things; the PPI, like the CPI before it, is getting hotter. The idea that these data points were not capturing what was really going on makes sense. My health insurance premium doubled last year and it looks like it will almost double again when I renew next month. Healthcare costs have been going up for quite a while.
American Standard (ASD) reported earnings this morning and the stock is getting crushed. I have written a lot of times about knowing what a stock is capable of doing in response to different types of news. ASD has blowups like this a couple of times a year, so it seems.
ASD may be a great stock but anyone buying the name needs to know it has history of doing this. Cummins Enigne (CMI) is another example.
Read more!
The US market is open from 1:30 am to 8am NZ time. I will be able to catch the last couple of hours when I am there.
I will also be blogging while I am there as well. I will have access to email and will reply to specific things.
On to more important things; the PPI, like the CPI before it, is getting hotter. The idea that these data points were not capturing what was really going on makes sense. My health insurance premium doubled last year and it looks like it will almost double again when I renew next month. Healthcare costs have been going up for quite a while.
American Standard (ASD) reported earnings this morning and the stock is getting crushed. I have written a lot of times about knowing what a stock is capable of doing in response to different types of news. ASD has blowups like this a couple of times a year, so it seems.
ASD may be a great stock but anyone buying the name needs to know it has history of doing this. Cummins Enigne (CMI) is another example.
Read more!
Monday, October 17, 2005
Standing Pat
I gave some color about the defensive action I took recently.
I reduced domestic equity exposure by 7%-8% in most instances and while I had thought I would quickly add a little inverse index fund I have decided to hold off on that for now. I want to give the most recent changes a chance to work themselves out as being either right or wrong.
The market is still only down a little. I am not very concerned about down a little I am trying to miss down a lot. I'm off to a good start if down a lot is in the cards but for now this is good.
As the normal caveat I am talking about longer term money. No outcome would surprise me in the next two weeks and I have no real feel for how to game the rest of the month. If you recall I thought October would be up slightly but kind of boring. The page hadn't even finished loading before that was wrong.
Read more!
I reduced domestic equity exposure by 7%-8% in most instances and while I had thought I would quickly add a little inverse index fund I have decided to hold off on that for now. I want to give the most recent changes a chance to work themselves out as being either right or wrong.
The market is still only down a little. I am not very concerned about down a little I am trying to miss down a lot. I'm off to a good start if down a lot is in the cards but for now this is good.
As the normal caveat I am talking about longer term money. No outcome would surprise me in the next two weeks and I have no real feel for how to game the rest of the month. If you recall I thought October would be up slightly but kind of boring. The page hadn't even finished loading before that was wrong.
Read more!
Financials
Sandy Lincoln from Wayne Hummer Asset Management was in the hot seat on Squawk Box.
He likes the financial sector. He notes that some banks can benefit increasing spreads as rates rise. He also notes that there are other financial stocks like insurers and asset managers are other ways to invest in the sector.
He is not concerned with the overall weight of the sector or its potential ability to drag down the SPX.
Believe it or not there is some history to support his contention. Rates (as measured by the ten year treasury) went up in early 2000 and the financials got hit. Rates went up again in mid 2003 and financials went up. Rates went up in early 2004 and financials were flat. To my way of thinking the Fed and the rise in oil makes it feel more like 2000 than anything else.
If this is anything like 2000 for the financials it may be worth noting that insurers and brokerages did out perform the banks. Thanks for the ideas, Sandy (not a sarcastic comment).
Read more!
He likes the financial sector. He notes that some banks can benefit increasing spreads as rates rise. He also notes that there are other financial stocks like insurers and asset managers are other ways to invest in the sector.
He is not concerned with the overall weight of the sector or its potential ability to drag down the SPX.
Believe it or not there is some history to support his contention. Rates (as measured by the ten year treasury) went up in early 2000 and the financials got hit. Rates went up again in mid 2003 and financials went up. Rates went up in early 2004 and financials were flat. To my way of thinking the Fed and the rise in oil makes it feel more like 2000 than anything else.
If this is anything like 2000 for the financials it may be worth noting that insurers and brokerages did out perform the banks. Thanks for the ideas, Sandy (not a sarcastic comment).
Read more!
Bill McLaren
Last night in his weekly visit on CNBC Europe Bill McLaren talked about the potential end of the bull campaign for the SPX due to the weakness of the last trend up. A break below the levels from last March, he says, would end the up trend.
He concluded that we are now in a very strong move down and an up move would need to go beyond four days to keep the up move intact.
Bill is an American living in Australia. If you don't know about him he is very good at what he does. You can learn more about him here.
If anyone from CNBC is reading this post, you would be doing your viewers a great service by showing his CNBC Europe interviews.
Read more!
He concluded that we are now in a very strong move down and an up move would need to go beyond four days to keep the up move intact.
Bill is an American living in Australia. If you don't know about him he is very good at what he does. You can learn more about him here.
If anyone from CNBC is reading this post, you would be doing your viewers a great service by showing his CNBC Europe interviews.
Read more!
Sunday, October 16, 2005
Quote About GM
I found this quote about GM in Barron's. Interesting.
LAST MONDAY, S&P FURTHER CUT General Motors' debt rating...sending the cost of the company's "credit default swaps" soaring. The pricing, Tadross says, indicates that the market sees a 28% chance of a GM bankruptcy within two years -- and a 56% chance within five.
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LAST MONDAY, S&P FURTHER CUT General Motors' debt rating...sending the cost of the company's "credit default swaps" soaring. The pricing, Tadross says, indicates that the market sees a 28% chance of a GM bankruptcy within two years -- and a 56% chance within five.
Read more!
The Big Picture For The Week of October 16, 2005
I had a couple of good questions come in that I will take a stab at answering.
I'm a newbie who's managing my mom's 401k. It's up about 2.5% ytd. That reflects all asset classes in her "pie chart". It's around 40% divided between a money market and a bond fund; 50% divided among various domestic equity funds, mostly large cap growth and value with a smidgen of small-mid cap exposure; remaining 10% in international equities. My mom's 401k sucks. She has only one fund option per asset class ... and they threw in an index fund (s&p benchmark with relatively high fees). However, her company has a 5% match, so I guess her return is actually 7.5%. Where does 2.5% ytd return (across all asset classes) fall on the asset management bell curve? Also, how do I know when to listen to equity economists and when to listen to bond economists? Is it ever obvious who has the stronger argument?
There's a lot there. So the allocation is 60% equities and 40% bonds and cash. If newbie's Mom is young enough to be working I would suggest reviewing 60%/40% as mix. I don't know this person so I can not know what is right but I can say that a person with normal tolerances for volatility with a life expectancy of more than 20 years may have a lot of inflation to keep up with.
A little nugget I picked up in a book by Nick Murray (don't remember the title) about inflation is that inflation over long periods of time can be easily measured in postage stamps. Remember the Elvis stamps twelve years ago? They were $0.29. Stamps have been $0.37 for a while and might go up soon, I guess. That is a 27% move in ten years (stamps have been $0.37 for a couple of years).
60/40 right now as a defensive position is another matter but as a target should be reviewed.
The reader asks where his YTD of 2.5% return rates. Well if the S+P 500 is the benchmark the readers has a 4.5% spread YTD which is pretty good.
The last question is how to know when to listen to stock market economists or bond market economists.
The current state of the stock market cycle or the economic cycle won't make any type of analyst more or less smart. You should always listen to someone you think is smart and, more importantly, someone you think you can learn from.
Another email asked me about Japan and Mexico.
I have no exposure to Japan. During the last 15 years of economic misery there have been short bursts of good stock market returns and commentary saying this time is different always accompanies those bursts. Maybe this time is different, I don't know. What I do know is that Japan imports 100% of its oil. If the yen goes up vs the dollar that will hurt Japan. There are also a lot of the same systemic problems that have plagued the country. I choose to avoid what I perceive are obvious headwinds but I fully acknowledge that the stock market could now be the place to be as some, like Hugh Hendry whom I think is a smart guy, say.
I have a little exposure to Mexico for some clients and I may add Mexico across the board. This is an oil story even if there aren't really any big oil stocks to own, similar to owning a Canadian bank.
Brazil and Chile are my picks ahead of Mexico though. I should disclose (or remind) that I did get lucky with reducing Chilean exposure a few weeks ago and I may put that back on soon.
John Rutledge picked the iShares S+P Global Health Fund (IXJ) on one of the Fox shows. I own this ETF for some clients for whom individual stocks are not appropriate. IXJ is not my first choice but for some folks it is the best choice as a proxy for the sector, I think.
It does not really matter if IXJ is the best healthcare fund or not and I don't know how good or bad John's returns are but I like the fact that at almost every turn he seems to be trying to create awareness of the product. Its these types of tools that will enable most do-it-yourselfers to succeed with their own portfolios.
Read more!
I'm a newbie who's managing my mom's 401k. It's up about 2.5% ytd. That reflects all asset classes in her "pie chart". It's around 40% divided between a money market and a bond fund; 50% divided among various domestic equity funds, mostly large cap growth and value with a smidgen of small-mid cap exposure; remaining 10% in international equities. My mom's 401k sucks. She has only one fund option per asset class ... and they threw in an index fund (s&p benchmark with relatively high fees). However, her company has a 5% match, so I guess her return is actually 7.5%. Where does 2.5% ytd return (across all asset classes) fall on the asset management bell curve? Also, how do I know when to listen to equity economists and when to listen to bond economists? Is it ever obvious who has the stronger argument?
There's a lot there. So the allocation is 60% equities and 40% bonds and cash. If newbie's Mom is young enough to be working I would suggest reviewing 60%/40% as mix. I don't know this person so I can not know what is right but I can say that a person with normal tolerances for volatility with a life expectancy of more than 20 years may have a lot of inflation to keep up with.
A little nugget I picked up in a book by Nick Murray (don't remember the title) about inflation is that inflation over long periods of time can be easily measured in postage stamps. Remember the Elvis stamps twelve years ago? They were $0.29. Stamps have been $0.37 for a while and might go up soon, I guess. That is a 27% move in ten years (stamps have been $0.37 for a couple of years).
60/40 right now as a defensive position is another matter but as a target should be reviewed.
The reader asks where his YTD of 2.5% return rates. Well if the S+P 500 is the benchmark the readers has a 4.5% spread YTD which is pretty good.
The last question is how to know when to listen to stock market economists or bond market economists.
The current state of the stock market cycle or the economic cycle won't make any type of analyst more or less smart. You should always listen to someone you think is smart and, more importantly, someone you think you can learn from.
Another email asked me about Japan and Mexico.
I have no exposure to Japan. During the last 15 years of economic misery there have been short bursts of good stock market returns and commentary saying this time is different always accompanies those bursts. Maybe this time is different, I don't know. What I do know is that Japan imports 100% of its oil. If the yen goes up vs the dollar that will hurt Japan. There are also a lot of the same systemic problems that have plagued the country. I choose to avoid what I perceive are obvious headwinds but I fully acknowledge that the stock market could now be the place to be as some, like Hugh Hendry whom I think is a smart guy, say.
I have a little exposure to Mexico for some clients and I may add Mexico across the board. This is an oil story even if there aren't really any big oil stocks to own, similar to owning a Canadian bank.
Brazil and Chile are my picks ahead of Mexico though. I should disclose (or remind) that I did get lucky with reducing Chilean exposure a few weeks ago and I may put that back on soon.
John Rutledge picked the iShares S+P Global Health Fund (IXJ) on one of the Fox shows. I own this ETF for some clients for whom individual stocks are not appropriate. IXJ is not my first choice but for some folks it is the best choice as a proxy for the sector, I think.
It does not really matter if IXJ is the best healthcare fund or not and I don't know how good or bad John's returns are but I like the fact that at almost every turn he seems to be trying to create awareness of the product. Its these types of tools that will enable most do-it-yourselfers to succeed with their own portfolios.
Read more!
Friday, October 14, 2005
Good Day
Was today a turnaround? 0.8% in the SPX is nice and hopefully it is a turnaround but I don't know.
To be clear I am no David Tice or Bill Fleckenstein, both of whom I have never heard be bullish. If I think things look good I say so and if I think things look bad I say so, right or wrong.
If anything I want the market to go higher. The defensive action I have taken so far was really just raising a little cash. Generically* speaking, client accounts are up 5.8% YTD and the SPX is down 2.08% YTD. As I think things have deteriorated I would not be upset if, from here, some of the lead evaporates, meaning if I only got 4% of the next 5% up I'd be fine with that. Today the generic was up 0.6% whle the SPX was up 0.8%.
* I maintain a generic account of client holdings on Yahoo Finance that gives me a good idea of where I stand. Some clients have done a little better and some have done a little worse as no two accounts are identical, overlap yes but identical no.
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To be clear I am no David Tice or Bill Fleckenstein, both of whom I have never heard be bullish. If I think things look good I say so and if I think things look bad I say so, right or wrong.
If anything I want the market to go higher. The defensive action I have taken so far was really just raising a little cash. Generically* speaking, client accounts are up 5.8% YTD and the SPX is down 2.08% YTD. As I think things have deteriorated I would not be upset if, from here, some of the lead evaporates, meaning if I only got 4% of the next 5% up I'd be fine with that. Today the generic was up 0.6% whle the SPX was up 0.8%.
* I maintain a generic account of client holdings on Yahoo Finance that gives me a good idea of where I stand. Some clients have done a little better and some have done a little worse as no two accounts are identical, overlap yes but identical no.
Read more!
Jubak's Income Portfolio
Jim Jubak has an article up today about a new income portfolio he is creating that will have ten holdings in it. Today's post revealed the first five, all are energy trusts.
The idea, as I understand it, is to have yield but with more safety than the ten year treasury which is likely to drop in price because of the Fed.
Let me say up front that I am a big fan of the energy trusts. Too much of a good thing is a negative.
The chart shows how Jim's picks have done in the face of the drop in energy prices over the last month.
A 5% drop for an income vehicle in such a short is a lot. If you bought this group a month ago you would be down in price. It is possible that energy prices down here might stay down for long time.
If you buy this portfolio today and oil goes to $55 there could be another similar drop in the trusts. It could take months and months for the prices to come back. If you buy several different types of income vehicles, yes they might all drop at the same time but I think the difference would be that different types of products would need different events to lift the prices back up. I would not want my entire income portfolio to rely on a single outcome. Of course we'll see what his other five picks are.
I added one name to the chart that is not one of Jim's picks, the Fiduciary Claymore MLP Opportunity Fund (FMO). I have been negative on this concept from the start with the idea being that moves in the premium/discount during times of energy market duress could cause the fund to do worse than the individual issues it owns. Well over the last month oil has dropped a lot and FMO has been the worst performer amongst Jim's picks which I assume is a good cross section of the group but maybe not.
Some clients own one of Jim's picks, Kinder Morgan (KMP).
Read more!
The idea, as I understand it, is to have yield but with more safety than the ten year treasury which is likely to drop in price because of the Fed.
Let me say up front that I am a big fan of the energy trusts. Too much of a good thing is a negative.
The chart shows how Jim's picks have done in the face of the drop in energy prices over the last month.
A 5% drop for an income vehicle in such a short is a lot. If you bought this group a month ago you would be down in price. It is possible that energy prices down here might stay down for long time.
If you buy this portfolio today and oil goes to $55 there could be another similar drop in the trusts. It could take months and months for the prices to come back. If you buy several different types of income vehicles, yes they might all drop at the same time but I think the difference would be that different types of products would need different events to lift the prices back up. I would not want my entire income portfolio to rely on a single outcome. Of course we'll see what his other five picks are.
I added one name to the chart that is not one of Jim's picks, the Fiduciary Claymore MLP Opportunity Fund (FMO). I have been negative on this concept from the start with the idea being that moves in the premium/discount during times of energy market duress could cause the fund to do worse than the individual issues it owns. Well over the last month oil has dropped a lot and FMO has been the worst performer amongst Jim's picks which I assume is a good cross section of the group but maybe not.
Some clients own one of Jim's picks, Kinder Morgan (KMP).
Read more!
Big Open?
The S+P Futures were up a little before the CPI number and now they are up a lot. A fade from the open would be a negative and I'm thinking the holding the gain but with low volume might be a negative as well.
I think the comments function wasn't working because I had several comments show up in my email this morning. I am not worried about the oils. The downward move was more than a rolling over which feels like it is more bout emotion than anything else. Other parts of the market though have been rolling over slower which, if I'm right, is more worrisome.
Fannie and Freddie getting worse is a scary thing because they create liquidity for more mortgages to be created. If it works out that less mortgages can be created I have to think that is a big negative, am I wrong? I'm surprised this isn't getting little more attention than it already gets.
One reader mentioned something about my succumbing to emotion. Emotions don't really drive the bus here. I have taken defensive action in raising some cash. If yesterday was a bottom I will have turned out to have been wrong. Since I know that I and every other manager gets some calls wrong there is really nothing to get emotional about. Its like driving through town, I know I will hit some green lights and some red lights. It makes no sense to take a different route at every red light.
To be perfectly clear, I know I will get some wrong. I'm not worried about that. A reasonable goal, once you can accept that you will be wrong, is to be right a little more often than you are wrong. If you think about it, that is all you need to put the odds in your favor over a long time period.
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I think the comments function wasn't working because I had several comments show up in my email this morning. I am not worried about the oils. The downward move was more than a rolling over which feels like it is more bout emotion than anything else. Other parts of the market though have been rolling over slower which, if I'm right, is more worrisome.
Fannie and Freddie getting worse is a scary thing because they create liquidity for more mortgages to be created. If it works out that less mortgages can be created I have to think that is a big negative, am I wrong? I'm surprised this isn't getting little more attention than it already gets.
One reader mentioned something about my succumbing to emotion. Emotions don't really drive the bus here. I have taken defensive action in raising some cash. If yesterday was a bottom I will have turned out to have been wrong. Since I know that I and every other manager gets some calls wrong there is really nothing to get emotional about. Its like driving through town, I know I will hit some green lights and some red lights. It makes no sense to take a different route at every red light.
To be perfectly clear, I know I will get some wrong. I'm not worried about that. A reasonable goal, once you can accept that you will be wrong, is to be right a little more often than you are wrong. If you think about it, that is all you need to put the odds in your favor over a long time period.
Read more!
Thursday, October 13, 2005
Getting Uglier
Today feels uglier than the roughly 4 SPX points we are down right now. I think this is because literally every foreign stock on my board is down, which has got to be hard to do.
This would be an easy time to get shaken out of something based on emotion, especially in the energy sector.
I have reduced domestic exposure by about 8%, in general terms, for fully implemented clients. New clients have various, high amounts of cash as I am slowing down the normal implementation process for those folks.
A little caution never hurt anyone, but too much on the other hand...
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This would be an easy time to get shaken out of something based on emotion, especially in the energy sector.
I have reduced domestic exposure by about 8%, in general terms, for fully implemented clients. New clients have various, high amounts of cash as I am slowing down the normal implementation process for those folks.
A little caution never hurt anyone, but too much on the other hand...
Read more!
Sliding Down
Europe is getting pounded this morning in reaction to the hit in the states yesterday. The S+P 500 is down seven out of eight trading days this month.
Some sort of bounce has to come, so I'd think anyway. Markets don't usually trade one way for too long.
The ten year popped up to 4.50% on the data. That level, 4.50%, looks to be resistance on the chart, a break above here and the yield could go up quite a bit.
An inverted curve is bad but so are rates that are too high for a fragile economy. Maybe the Fed is smarter than everyone thinks and they will engineer something that is not wildly negative.
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Some sort of bounce has to come, so I'd think anyway. Markets don't usually trade one way for too long.
The ten year popped up to 4.50% on the data. That level, 4.50%, looks to be resistance on the chart, a break above here and the yield could go up quite a bit.
An inverted curve is bad but so are rates that are too high for a fragile economy. Maybe the Fed is smarter than everyone thinks and they will engineer something that is not wildly negative.
Read more!
Wednesday, October 12, 2005
Media Appearance
I am scheduled to appear in my usual slot on Asia MarketWatch tonight (between 9:10pm and 9:25pm eastern time).Here is what I am likely to talk about.
- Since my last appearance the S+P 500 has gone below its 200 day moving average (DMA). This signals a problem with demand for equities and is a catalyst for me to start getting defensive in client accounts. So far I have done a little selling in industrial, consumer, tech and convertible bonds. If things don't improve I will do some more selling and add a little more yield, a little more foreign and hold more cash than normal.
- The biggest issue, I think, continues to be the Fed. I am surprised at the FOMC's willingness to be the big story. The unknown is whether the yield curve will invert. There is a belief that the Fed wants the middle of the curve to go higher to slow down borrowing for real estate. I expressed concern months ago on the show about the Fed's history of going too far in both directions. I can't imagine that the Fed can engineer the exact result they are looking for.
- Earnings season is under way and I think the bigger stories will be the misses or perceived misses like Lexmark and Apple. Earnings overall could easily be pretty good compared to estimates but I think there are too many other things confronting the US market that are more important.
- The rate at which treasury yields have gone up looks like it has slowed down for now but if the Fed gets what it wants the ten year should go much higher. I have added two year treasuries for more conservative clients.
- On the plus side it seems like sentiment is just awful and the problems at Refco, depending on far it goes, could be significant as well, as big failures often occur closer to the bottom than the top.
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SPX Chart
The market is dropping much faster than the 200 DMA. I'm not sure if this indicates oversold or is in fact a harbinger of bad things. Also interesting is the extent to which the 200 day has been resistance.Different subject; the thing I find most baffling about the whole Refco thing is that the CEO initiated the IPO process while this loan issue was allegedly going on? I have to think that either he has huge stones or the bankers knew or someone else didn't do their job or he didn't do it.
I have no idea either way.
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Joey Batts Gets Defensive?
BusinessWeek interviewed Joe Battipaglia because he is taking a more defensive posture on equity allocation.
For conservative accounts equity exposure drops to 25% from 50% and risk tolerant investors go to 70% from 85%. Has Joe ever made a correct bearish call? I'm not being a wise guy, I really don't know. I can't recall him ever having made this type of call before, at least not publicly.
I have to wonder (or maybe hope) that his call could be a bottom, but I don't think so.
His actions with foreign are interesting. For conservative the foreign weight goes to 5% and for growth investors it goes to 13%. What is interesting is that 2/3 of the foreign exposure is to emerging markets with the EEM ETF. I don't think this is necessarily too much emerging although if they had zero emerging previously I'd have to wonder whether that's a good trade. I am also surprised there is no stock picking for the growth investors.
Long time readers know I use ADRE for some lower risk clients, individual stocks for some more risk tolerant clients but a blend of both for most clients.
Joe is also suggesting gold as a 15% weight for conservative investors with the gold ETFs. I maintain gold exposure at all times for clients but usually smaller than 15%, a lot smaller. I like the idea of gold but I would be very nervous about going from zero to 15% (if that's what he's doing, the article does not say) after such a big run.
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For conservative accounts equity exposure drops to 25% from 50% and risk tolerant investors go to 70% from 85%. Has Joe ever made a correct bearish call? I'm not being a wise guy, I really don't know. I can't recall him ever having made this type of call before, at least not publicly.
I have to wonder (or maybe hope) that his call could be a bottom, but I don't think so.
His actions with foreign are interesting. For conservative the foreign weight goes to 5% and for growth investors it goes to 13%. What is interesting is that 2/3 of the foreign exposure is to emerging markets with the EEM ETF. I don't think this is necessarily too much emerging although if they had zero emerging previously I'd have to wonder whether that's a good trade. I am also surprised there is no stock picking for the growth investors.
Long time readers know I use ADRE for some lower risk clients, individual stocks for some more risk tolerant clients but a blend of both for most clients.
Joe is also suggesting gold as a 15% weight for conservative investors with the gold ETFs. I maintain gold exposure at all times for clients but usually smaller than 15%, a lot smaller. I like the idea of gold but I would be very nervous about going from zero to 15% (if that's what he's doing, the article does not say) after such a big run.
Read more!
Evolution
This morning on Squawk there was a very quick discussion about the future of old media. I touched on this before that I think that is a very tough place to make money and one reader disagreed with me.
Earlier this week I wrote about what has happened to the auto and airline industries recently. I think these little nuggets are evidence of economic evolution occurring in the US.
This is important to be in touch with. Is tech next? What about drug companies? I don't know and I don't think it matters a whole lot what's next. What is important is realizing large American business can lose it standing but it does not happen overnight. This type of change, if it is really even happening, takes a long time to roll over and gives plenty of to make changes.
If your money is long term money you probably don't really need to worry about a stock dropping 15% over the course of a year. 15% or 20% isn't that much if the stock is on its way to losing 75% of its value.
Read more!
Earlier this week I wrote about what has happened to the auto and airline industries recently. I think these little nuggets are evidence of economic evolution occurring in the US.
This is important to be in touch with. Is tech next? What about drug companies? I don't know and I don't think it matters a whole lot what's next. What is important is realizing large American business can lose it standing but it does not happen overnight. This type of change, if it is really even happening, takes a long time to roll over and gives plenty of to make changes.
If your money is long term money you probably don't really need to worry about a stock dropping 15% over the course of a year. 15% or 20% isn't that much if the stock is on its way to losing 75% of its value.
Read more!
Tuesday, October 11, 2005
Very Sorry
I will have a tough time posting today. I am trying to get quarterly reports for clients put together. By and large I was lucky enough to beat the SPX by 200 to 400 basis points so while I might have an inkling about the market I struggle mightily with our software. I might have to ask one of my co-workers for help.
Today and tomorrow are the last days I will be in the office before we head to New Zealand next week, so the reports need to get done one way or another. I really dislike this sort of thing and I am bad at it!
EDIT
Beat the SPX by 200-400 basis points is incorrect. I beat most client'a blended benchmark of stock and bonds by 200-400 basis points. This is very different and while I am thrilled with the quarter I wanted to be clear about this. Apologies
Read more!
Today and tomorrow are the last days I will be in the office before we head to New Zealand next week, so the reports need to get done one way or another. I really dislike this sort of thing and I am bad at it!
EDIT
Beat the SPX by 200-400 basis points is incorrect. I beat most client'a blended benchmark of stock and bonds by 200-400 basis points. This is very different and while I am thrilled with the quarter I wanted to be clear about this. Apologies
Read more!
Things Look Bad
Sentiment stinks, GM, DPH, XLNX, NAVG, RFX, AA rallied after hours to take back $23! I remember trashing AA for Motley Fool months and months ago and it was above $30.
Count me in with the crew that is pessimistic about the next few months or longer but with so many things looking so bad maybe this is a washing out?
One problem with that idea is the market is not down that much. 1997 and 1998 both had 20% drops that were not terror induced. The current market has hardly dropped at all.
Twenty years ago the automotive and airline industries were very important to the stock market and the economy. Their current struggles were probably unimaginable back then, especially GM. I wrote a lot out GM back in the spring. I can sum up my thoughts by saying it has $300 billion in debt, and will need more, with only $30 billion or so in cash.
That GM could fail was an impossibility way back when. The lesson here should be that any company can fail, any company. Market history has plenty of huge companies that one way or another are gone. I wouldn't call Digital Equipment's merger with Compaq a merger of strength, as an example.
The idea changes buy and hold to buy, monitor and hold, for those who are devoted to buy and hold at all.
Read more!
Count me in with the crew that is pessimistic about the next few months or longer but with so many things looking so bad maybe this is a washing out?
One problem with that idea is the market is not down that much. 1997 and 1998 both had 20% drops that were not terror induced. The current market has hardly dropped at all.
Twenty years ago the automotive and airline industries were very important to the stock market and the economy. Their current struggles were probably unimaginable back then, especially GM. I wrote a lot out GM back in the spring. I can sum up my thoughts by saying it has $300 billion in debt, and will need more, with only $30 billion or so in cash.
That GM could fail was an impossibility way back when. The lesson here should be that any company can fail, any company. Market history has plenty of huge companies that one way or another are gone. I wouldn't call Digital Equipment's merger with Compaq a merger of strength, as an example.
The idea changes buy and hold to buy, monitor and hold, for those who are devoted to buy and hold at all.
Read more!
Monday, October 10, 2005
Trades Executed
If you are interested, I did sell a little domestic consumer today ten minutes before the close. I sold what is for most clients 1.5% of the portfolio with this trade.
From here I could get jerked around a little with the market but at this point being wrong would be a shade of grey.
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From here I could get jerked around a little with the market but at this point being wrong would be a shade of grey.
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Taking Action Later Today
I plan to continue defensive action during the last hour of the day if the SPX can not go positive.
I will tweak down domestic consumer exposure with today's trade, again unless the market turns up. After this, I think (subject to change) I may initiate or add more to client's inverse index fund positions.
I executed two sell orders last week, plus the one I have planned for today along with an inverse index trade could reduce equity exposure by about 8% which works out to about 13% of domestic exposure. This is all quickly and easily undone at this point if I turn out to be wrong.
It is worth noting that for the time being my thought about a rally continuing for a while appears to be wrong. My prediction takes a back seat to what I perceive as a message from the market.
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I will tweak down domestic consumer exposure with today's trade, again unless the market turns up. After this, I think (subject to change) I may initiate or add more to client's inverse index fund positions.
I executed two sell orders last week, plus the one I have planned for today along with an inverse index trade could reduce equity exposure by about 8% which works out to about 13% of domestic exposure. This is all quickly and easily undone at this point if I turn out to be wrong.
It is worth noting that for the time being my thought about a rally continuing for a while appears to be wrong. My prediction takes a back seat to what I perceive as a message from the market.
Read more!
Closed End Muni Funds
BusinessWeek has a good article (subscription required) about muni CEFs. The article focused on some of the risk and rewards of these funds and Bill Gross's unyielding faith in them right here.
Here is the list from the article. There are some interesting concepts in this mix.
Gross disclosed that he owns 35 different closed end muni funds and the article concluded that he is really putting his money where his mouth is.
What if 35 different CEFs is only 3% of his portfolio? I'm not saying 3% is right, in fact I have no idea because the article didn't say.
Mr. Gross, if you or any one who works for you reads this site and can clarify what percentage those 35 funds make up that would give a much better idea of where you stand on these.
The article did do a good job of explaining the risk in these funds. As a matter of philosophy I believe in spreading fixed income exposure across many different types of products. Too much of anything, whether it is leveraged muni funds or MLPs or anything else can radically alter the risk profile of your portfolio. It is very difficult to make people understand that low risk vehicles sometimes aren't.
What sort of havoc might be caused in the muni market if there were a hurricane ravaged state that had problems making payments? While it would be no Orange County it would cause dislocations that would be felt worse in the CEF market than with the actual bonds. A little bit of exposure in the face of a crisis would be a bummer but a huge weighting in these funds might set your fixed income portfolio back a couple of years.
I had an email in my Street.com email account from someone bullish on energy who, as I took the email, has a lot of his portfolio and he thinks I am wrong that crude oil could go down another 10%. Oil may not go down at all but the risk taken does not change.
My inability to make understand this type of risk amuses me to no end. Hopefully I can get through to a couple of people.
Read more!
Here is the list from the article. There are some interesting concepts in this mix.
Gross disclosed that he owns 35 different closed end muni funds and the article concluded that he is really putting his money where his mouth is.
What if 35 different CEFs is only 3% of his portfolio? I'm not saying 3% is right, in fact I have no idea because the article didn't say.
Mr. Gross, if you or any one who works for you reads this site and can clarify what percentage those 35 funds make up that would give a much better idea of where you stand on these.
The article did do a good job of explaining the risk in these funds. As a matter of philosophy I believe in spreading fixed income exposure across many different types of products. Too much of anything, whether it is leveraged muni funds or MLPs or anything else can radically alter the risk profile of your portfolio. It is very difficult to make people understand that low risk vehicles sometimes aren't.
What sort of havoc might be caused in the muni market if there were a hurricane ravaged state that had problems making payments? While it would be no Orange County it would cause dislocations that would be felt worse in the CEF market than with the actual bonds. A little bit of exposure in the face of a crisis would be a bummer but a huge weighting in these funds might set your fixed income portfolio back a couple of years.
I had an email in my Street.com email account from someone bullish on energy who, as I took the email, has a lot of his portfolio and he thinks I am wrong that crude oil could go down another 10%. Oil may not go down at all but the risk taken does not change.
My inability to make understand this type of risk amuses me to no end. Hopefully I can get through to a couple of people.
Read more!
Sunday, October 09, 2005
Follow Up To Stein and Siegel
I had several comments left on the Stein and Siegel model portfolio post. I'll try to address some of the comments and try to add one or two more useful tidbits.
One comment asked if these were long term or what looks good now? I took both to be long term portfolios that might need to be tweaked every now and then. In general I would love to be able to implement a portfolio and never have to make another trade again. Lower turnover with no tax considerations would be nice but of course its not realistic. With that in mind, only a couple of tweaks a year is nice to shoot for. Some years this will be easy and some years changes may need to be made every month.
One comment seemed to sort of defend Ben Stein. Hopefully my post did not read like an attack on him. I too am a big fan of Mr. Stein and his drive to try to help people. He has an good idea for a portfolio and it has flaws. Any idea I could come with for a model a portfolio would have flaws. The portfolios I manage have flaws. This goes with the territory of assembling any type of portfolio. Mistakes and flaws happen and that is OK.
One comment asked what three sectors I thought would lead for the next five years, a tie in to part of Professor Siegel's portfolio. I don't know. I have spelled out my thoughts about energy many times and the theme seems very obvious. I have not written about healthcare anywhere near as much but that also seems obvious. So if these themes are obvious they should not in fact end up leading, if you know what mean. The consumer staples sector the Siegel references, and was supported in a reader comment, is not clear to me. I understand the logic but if you watch a little CNBC Asia you will see that Proctor & Gamble has plenty of local competition in a lot of emerging markets. Not that the domestic staples idea can't work but it is not shooting ducks in a barrel either.
I forgot to mention in the original post that both portfolios may come up too short on emerging markets and natural resources, excluding energy. Resources could be an area that continues to lead for several more years. I think this means needing more than just oil stocks. More and more products will be created to accommodate these markets very soon. This then gets us into the debate about too much supply of investment products but that is still a ways off.
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One comment asked if these were long term or what looks good now? I took both to be long term portfolios that might need to be tweaked every now and then. In general I would love to be able to implement a portfolio and never have to make another trade again. Lower turnover with no tax considerations would be nice but of course its not realistic. With that in mind, only a couple of tweaks a year is nice to shoot for. Some years this will be easy and some years changes may need to be made every month.
One comment seemed to sort of defend Ben Stein. Hopefully my post did not read like an attack on him. I too am a big fan of Mr. Stein and his drive to try to help people. He has an good idea for a portfolio and it has flaws. Any idea I could come with for a model a portfolio would have flaws. The portfolios I manage have flaws. This goes with the territory of assembling any type of portfolio. Mistakes and flaws happen and that is OK.
One comment asked what three sectors I thought would lead for the next five years, a tie in to part of Professor Siegel's portfolio. I don't know. I have spelled out my thoughts about energy many times and the theme seems very obvious. I have not written about healthcare anywhere near as much but that also seems obvious. So if these themes are obvious they should not in fact end up leading, if you know what mean. The consumer staples sector the Siegel references, and was supported in a reader comment, is not clear to me. I understand the logic but if you watch a little CNBC Asia you will see that Proctor & Gamble has plenty of local competition in a lot of emerging markets. Not that the domestic staples idea can't work but it is not shooting ducks in a barrel either.
I forgot to mention in the original post that both portfolios may come up too short on emerging markets and natural resources, excluding energy. Resources could be an area that continues to lead for several more years. I think this means needing more than just oil stocks. More and more products will be created to accommodate these markets very soon. This then gets us into the debate about too much supply of investment products but that is still a ways off.
Read more!
Saturday, October 08, 2005
The Big Picture For The Week of October 9, 2005
A neighbor of ours subscribes to a newsletter type of magazine called Bottom Line. She gives me a stack of them every so often because there is usually an investing article or two in each issue. Every so often there will be a very interesting article.
I just went through a stack of them and found two model-ish portfolios, one from Jeremy Siegel and the other from Ben Stein.
Ben Stein's portfolio was a little more specific;
40%-60% of your retirement account allocated over three ETF, two of which should be foreign;
He says the rest should be in REITs/Mutual Funds;
Read more!
I just went through a stack of them and found two model-ish portfolios, one from Jeremy Siegel and the other from Ben Stein.
Ben Stein's portfolio was a little more specific;
40%-60% of your retirement account allocated over three ETF, two of which should be foreign;
He says the rest should be in REITs/Mutual Funds;
- Cohen & Steers Quality Income Realty Fund (RQI)
- Alpine Dynamic Dividend Fund (ADVDX)
- iShares TIPs Fund (TIP)
- Templeton Emerging Markets Income Fund (TEI)
- Pimco Corporate Income Fund (PCN)
- Vanguard Total Bond Market Index Fund (VBMFX)
- 10% in "El Dorado" stocks which represent golden opportunities. He cited ABT, AZN, BP, KO, CL, DEO, NVS, PFE and RD.
- 10% in "well-established" companies that have attractive P/E ratios, make everyday products and have good dividend yields. No names were mentioned.
- 30% in ETFs of the three sectors likely to lead the stock market in the next decade which he feels will be energy, consumer staples and healthcare
- 30% in an index fund like Vanguard Total Stock Market Index fund (VTSMX)
- 20% in iShares S&P Global 100 (IOO) or streetTRACKS Global Titans Index Fund (DGX)
Read more!
Friday, October 07, 2005
Worthy Cause-Re-run
I plan to rerun this a couple times. Thank you so far!
As some of you may know I am very involved with our local volunteer fire department, the Walker Fire Protection Association (WFPA). I was recently named co-assistant fire chief, I am also vice-president of the board of directors after having been treasurer for the last two years.
We have 20-25 active volunteers. This is a picture of me from a drill we had last weekend.
Below is a picture of our fleet of vehicles which is very antiquated (the white truck is just for parades). We have $15,000 set aside in a vehicle fund. We need another $10,000 to buy a late model pick up truck that we can then fashion into a brush truck, also known as a type six.
I am making an appeal to my readership. During the week this site gets 800-900 hits per day. Taking the mid point, 850, I am asking anyone that reads this site to donate $11.77 to the WFPA which will raise the $10,000.
The WFPA web site has a link to make a donation via Paypal about half way down the page that I am linking to in this post. In case the link I pasted is bad, here is the address, http://walkerfire.org/fire.htm.
The physical address is;
WFPA
5881 Walker Road
Prescott, AZ 86303
I can provide a tax ID number to anyone, after they have donated, for tax purposes, just let me know.
This is very important to me. Hopefully you will indulge me in this little effort as I plan to republish this post a few times.
Thank you!!
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Queued Up
Hang in there. I have orders queued up and ready to enter if the market turns. My fingers are crossed.
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Oil Shakeout
Oil stocks have had a nasty few days and are snapping back today (for now anyway). If you own too many oil companies or MLPs you probably felt it this week. The names I own were for clients were down too.
If Wednesday and Thursday did make you sweat your energy holdings I would say you do have too much and I would tell you to sell 10%-15% of what you have right here while the group is having a good day.
This has nothing to do with the future of the sector but is about managing risk in a portfolio. The last few days were nasty. If you badly lagged this week that might mean you have too much. We learned what this group is capable of this week. Oil is about where I thought it could go, close to $60 (I wrote this several times). If I am wrong and it goes to $55 we may see more panic selling in the group. If you were uncomfortable with a drop to $61 you should be prepared for the next 10% down in the commodity to be worse on the stocks that what we have had thus far.
Again, this is about managing risk and volatility.
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If Wednesday and Thursday did make you sweat your energy holdings I would say you do have too much and I would tell you to sell 10%-15% of what you have right here while the group is having a good day.
This has nothing to do with the future of the sector but is about managing risk in a portfolio. The last few days were nasty. If you badly lagged this week that might mean you have too much. We learned what this group is capable of this week. Oil is about where I thought it could go, close to $60 (I wrote this several times). If I am wrong and it goes to $55 we may see more panic selling in the group. If you were uncomfortable with a drop to $61 you should be prepared for the next 10% down in the commodity to be worse on the stocks that what we have had thus far.
Again, this is about managing risk and volatility.
Read more!
Absolute Return
A reader is Greece forwarded along this link from the WSJ about absolute return OEFs. First, thanks for the link.
The idea of absolute return is interesting to me and may become more important in the next few years, or maybe this year.
The article is more about demand or future lack of demand if there is an up a lot year and less about mechanics and strategy.
The concept as I understand it, is to target a certain return and doing what it takes to achieve that return regardless of what is happening in the world. For example a target of 2% above inflation might be the goal of a this type of fund (although I don't specifically know if any of the funds actually have that as a goal).
There are not too many funds like this yet but the article says a lot are in the works.
I would categorize these similarly to closed end call writing funds. Both reduce volatility in a portfolio, perhaps offer a little bit of yield and should lag a raging bull market.
If this appeals to you I would say to wait a while until there are more of these out there. There is one CEF that might fit into the absolute return category, the Old Mutual Long Short Fund (OLA).
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The idea of absolute return is interesting to me and may become more important in the next few years, or maybe this year.
The article is more about demand or future lack of demand if there is an up a lot year and less about mechanics and strategy.
The concept as I understand it, is to target a certain return and doing what it takes to achieve that return regardless of what is happening in the world. For example a target of 2% above inflation might be the goal of a this type of fund (although I don't specifically know if any of the funds actually have that as a goal).
There are not too many funds like this yet but the article says a lot are in the works.
I would categorize these similarly to closed end call writing funds. Both reduce volatility in a portfolio, perhaps offer a little bit of yield and should lag a raging bull market.
If this appeals to you I would say to wait a while until there are more of these out there. There is one CEF that might fit into the absolute return category, the Old Mutual Long Short Fund (OLA).
Read more!
Up A Little?
Starting the day up a lot would make me nervous. Right now markets are looking like up a little to start. Maybe that means we can build slowly throughout the day.
If I sell anything today it will probably be from the consumer sector and I will trade at the end of the day. As I always write, I hope I don't have to sell anymore.
The jobs report was in fact puzzling as it turns out it didn't count jobs lost in a manner that would be expected. The were upward revisions to previous reports which does indicate some measure of strength.
The various signs of strength and weakness and signs of inflation and no inflation make this little stretch of time very unique. It is these divergences that I think will catch investors leaning the wrong way no matter what direction the market goes in. If this makes any sense, paying attention to things like the 200 DMA or whatever is important to your investment strategy takes on more importance.
The ten year is now up to 4.42%. It moved up so quickly I have to wonder if it is oversold.
Bernard Sanders from Vermont has to be the most entertaining politician in the country.
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If I sell anything today it will probably be from the consumer sector and I will trade at the end of the day. As I always write, I hope I don't have to sell anymore.
The jobs report was in fact puzzling as it turns out it didn't count jobs lost in a manner that would be expected. The were upward revisions to previous reports which does indicate some measure of strength.
The various signs of strength and weakness and signs of inflation and no inflation make this little stretch of time very unique. It is these divergences that I think will catch investors leaning the wrong way no matter what direction the market goes in. If this makes any sense, paying attention to things like the 200 DMA or whatever is important to your investment strategy takes on more importance.
The ten year is now up to 4.42%. It moved up so quickly I have to wonder if it is oversold.
Bernard Sanders from Vermont has to be the most entertaining politician in the country.
Read more!
Thursday, October 06, 2005
Amusing Anecdote Or Encouraging Sign
I just looked on the ETF report page at Morningstar and see there has been no new ETF reports since iShares Canada on September 22. Two weeks is a long time between reports for them but not unprecedented either. Also I may have missed a report on somewhere else on the site.
I criticized their methodology for analyzing ETFs very publicly on Real Money. I am hoping that they will apply a little more brain power to their process, it wouldn't be that difficult.
Despite my picking on them, Morningstar offers a lot of value, but this one area is a gaping hole in their product.
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I criticized their methodology for analyzing ETFs very publicly on Real Money. I am hoping that they will apply a little more brain power to their process, it wouldn't be that difficult.
Despite my picking on them, Morningstar offers a lot of value, but this one area is a gaping hole in their product.
Read more!
Here's Hoping I Get Whipsawed
I sold half positions on a big tech stock and a big industrial name. I had planned to sell some of a consumer name but held off for now.
I reduced exposure by about 2% or 3% but the reduction in domestic exposure is more like 5%. I hope I an wrong and the market rallies up over the next few days. I have a couple of other ideas about what to sell, though. I am thinking that starting strong tomorrow and finishing weak will trigger another sale but I will let you know.
Disciplined baby steps.
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I reduced exposure by about 2% or 3% but the reduction in domestic exposure is more like 5%. I hope I an wrong and the market rallies up over the next few days. I have a couple of other ideas about what to sell, though. I am thinking that starting strong tomorrow and finishing weak will trigger another sale but I will let you know.
Disciplined baby steps.
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Not Understanding
Just as I was launching the last post, good ole' Richard Fisher was piping up again about inflation.
There is a strangeness about this guy and the way he speaks publicly that I don't understand. I wouldn't be surprised if he moved in to academia sometime soon.
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There is a strangeness about this guy and the way he speaks publicly that I don't understand. I wouldn't be surprised if he moved in to academia sometime soon.
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Could Be Better Could Be Worse
The S+P 500 seems to be plus or minus two points most of the time. I have spent the morning figuring what and how much to sell if the market is not up today. I will probably wait until about 30 minutes to the close before taking action.
I am glad we are not seeing a panic buying spree today but I would like to see a little steady strength and I would not describe today's trade as steady strength.
Our dog is not seriously ill, only mildly so.
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I am glad we are not seeing a panic buying spree today but I would like to see a little steady strength and I would not describe today's trade as steady strength.
Our dog is not seriously ill, only mildly so.
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Heeding Messages
I write about heeding messages of the market. I may have to do some heeding today with a couple of trades.
I am also heeding a different message today. We were supposed to hike the grand canyon tomorrow. We do a rim-to-rim hike of the canyon every so often and we had one planned for Friday. Its about 21 miles and takes about ten hours.
Yesterday my wife's family had to deal with her father because he has a bad blood clot in his leg.
We had worked out the logistics, which mostly involved dog sitting, to still go to the canyon. This morning we woke up to find our puppy, Tater Tot, has what seems to be an obstruction of some sort and she is in a lot of pain. Joellyn, my wife, is taking the dog to the vet when they open at 8am.
Someone does not want us to go hike, so we won't.
This can be relevant to the market as well. Heeding what you think the market is saying makes a lot of sense. If the market is not higher toward the end of the day I will sell a little bit of stock as I mentioned yesterday. Here's hoping the market goes up and stays up.
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I am also heeding a different message today. We were supposed to hike the grand canyon tomorrow. We do a rim-to-rim hike of the canyon every so often and we had one planned for Friday. Its about 21 miles and takes about ten hours.
Yesterday my wife's family had to deal with her father because he has a bad blood clot in his leg.
We had worked out the logistics, which mostly involved dog sitting, to still go to the canyon. This morning we woke up to find our puppy, Tater Tot, has what seems to be an obstruction of some sort and she is in a lot of pain. Joellyn, my wife, is taking the dog to the vet when they open at 8am.
Someone does not want us to go hike, so we won't.
This can be relevant to the market as well. Heeding what you think the market is saying makes a lot of sense. If the market is not higher toward the end of the day I will sell a little bit of stock as I mentioned yesterday. Here's hoping the market goes up and stays up.
Read more!
Wednesday, October 05, 2005
Panic and Blood and Mayhem
Ah-ooga, ah-ooga.
Please. As I read BigCharts.com the 200 DMA is right at 1200. According to the Bloomberg Terminal it is 1200.10. Right now we are below the simple 200 DMA and right at the exponential 200 DMA. This post will be exactly like a couple of other posts about this topic.
Today I took no action. Tomorrow I will see what happens. If the market does not take back its 200 DMA tomorrow I will sell some or all of one consumer name and one industrial name. These will both be domestic names.
I wrote before that I will ease into this. The market is down a little. The last couple of times this happened that market found support just below the 200 day. The only thing that really matters to me is the discipline to stick to my plan, not trying to be too smart and try to out guess whether this is or is not the turning point.
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Please. As I read BigCharts.com the 200 DMA is right at 1200. According to the Bloomberg Terminal it is 1200.10. Right now we are below the simple 200 DMA and right at the exponential 200 DMA. This post will be exactly like a couple of other posts about this topic.
Today I took no action. Tomorrow I will see what happens. If the market does not take back its 200 DMA tomorrow I will sell some or all of one consumer name and one industrial name. These will both be domestic names.
I wrote before that I will ease into this. The market is down a little. The last couple of times this happened that market found support just below the 200 day. The only thing that really matters to me is the discipline to stick to my plan, not trying to be too smart and try to out guess whether this is or is not the turning point.
Read more!
Hiccups
Yesterday Lexmark (LXK) got smacked. Today Human Genome (HGSI) is getting smacked.
A few times I have expressed an opinion about the equity market not rewarding risk takers. The types of moves we have seen in these two stocks tell me that risk is still not being rewarded and may not be rewarded for a while.
I am surprised by how much the market has moved in the last two days. While oversold comes to mind I have to wonder if the buying demand I thought was coming has already come and the move up I was expecting has already come. If so, I was wrong about magnitude and time frame.
The SPX cash index is still a few points above its 200 DMA but it is close. The 200 day held as support in late August, as one would expect, an hopefully it will hold again here.
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A few times I have expressed an opinion about the equity market not rewarding risk takers. The types of moves we have seen in these two stocks tell me that risk is still not being rewarded and may not be rewarded for a while.
I am surprised by how much the market has moved in the last two days. While oversold comes to mind I have to wonder if the buying demand I thought was coming has already come and the move up I was expecting has already come. If so, I was wrong about magnitude and time frame.
The SPX cash index is still a few points above its 200 DMA but it is close. The 200 day held as support in late August, as one would expect, an hopefully it will hold again here.
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Out Of Order
I have a short week because we are hiking the Grand Canyon on Friday (we live two hours away). I wanted to chime in on the jobs report coming on Friday.
On Yahoo Finance it says Briefing.com is looking for -200,000 and under the Market Expects column it says -150,000. Nothing in the number would shock me, I would also expect heavy revisions to the number next month. While the market might react to the number this should not have a lasting fundamental impact on anything. At least I don't think it will.
On a separate note Richard Fisher is one loose cannon, or at maybe that's just what is being portrayed but has there ever been a regional Fed President that moved the markets like this guy? His ninth inning crack on squawk box moved the markets one way a few months ago and they went the other way on Tuesday.
The stock and bond markets are clearly pricing in some new thoughts about the Fed. The move in stocks, though, could have been partially attributable to some sort of unwind of the quarter end......on a delayed basis?
Who knows, but the trade was so sharp that it may turn out to be an overreaction. I have to admit that this is hard to get a handle on.
I had this comment left last night in response to my oil post from David at Dismally;
Roger, according to the CIA Factbook, the calculations don't look good for oil. Looking at an increase of .5 barrels per capita increase in oil, that puts daily demand around 365K per day. We can't get the Saudi's to raise enough as is. This would kill the world economies if this increase were to occur. Sadly, it's very plausible.
Gulp.
Read more!
On Yahoo Finance it says Briefing.com is looking for -200,000 and under the Market Expects column it says -150,000. Nothing in the number would shock me, I would also expect heavy revisions to the number next month. While the market might react to the number this should not have a lasting fundamental impact on anything. At least I don't think it will.
On a separate note Richard Fisher is one loose cannon, or at maybe that's just what is being portrayed but has there ever been a regional Fed President that moved the markets like this guy? His ninth inning crack on squawk box moved the markets one way a few months ago and they went the other way on Tuesday.
The stock and bond markets are clearly pricing in some new thoughts about the Fed. The move in stocks, though, could have been partially attributable to some sort of unwind of the quarter end......on a delayed basis?
Who knows, but the trade was so sharp that it may turn out to be an overreaction. I have to admit that this is hard to get a handle on.
I had this comment left last night in response to my oil post from David at Dismally;
Roger, according to the CIA Factbook, the calculations don't look good for oil. Looking at an increase of .5 barrels per capita increase in oil, that puts daily demand around 365K per day. We can't get the Saudi's to raise enough as is. This would kill the world economies if this increase were to occur. Sadly, it's very plausible.
Gulp.
Read more!
Tuesday, October 04, 2005
We No Longer Need Oil
Oil and oil stocks are getting pounded today. You will no doubt read somewhere that now is the time to sell oils. This also happened a few weeks ago. In fact a new boss of mine was one of the folks making that type of call.
Over the last couple of weeks I have written that I thought oil might move closer to $60 and stay there for a while. Well, its moving there and we'll see if it stays there.
An average price of $55-$60 for a quarter will mean phenomenal earnings numbers for the sector, BP's (client holding) news notwithstanding.
I will call on Puru Saxena's nugget about per capita consumption of oil. US per capita consumption is about 25 barrels per year. China's and India's per capita consumption is less than one barrel. What do you think will happen to global demand for oil when their demand rises to 1.5 barrels per year?
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Over the last couple of weeks I have written that I thought oil might move closer to $60 and stay there for a while. Well, its moving there and we'll see if it stays there.
An average price of $55-$60 for a quarter will mean phenomenal earnings numbers for the sector, BP's (client holding) news notwithstanding.
I will call on Puru Saxena's nugget about per capita consumption of oil. US per capita consumption is about 25 barrels per year. China's and India's per capita consumption is less than one barrel. What do you think will happen to global demand for oil when their demand rises to 1.5 barrels per year?
Read more!
Comment on OEFs
A reader left the following comment in response to my earlier post about OEFs.
I am of the opion that if I want to buy an actively managed fund I have the expectation that it would beat the benchmark index. So I don't mind the manager deviate from the strict style box! With so many index funds and etf's available,there is no problem to select a combination of index and actively managed funds for my portfolio. However, I question the need to have all style box filled in this market. Personally I do not own US large cap funds, yet I own all sorts of international funds(emerging, Eastern europe, Latin America and Europe).
I think there is something to be learned here. First and foremost the strategy spelled out is perfectly valid, no US large cap exposure. I imagine this person's portfolio has done very well. I have been writing for ages about mega caps lagging and I think they will continue to lag. However, when will they lead again? Personally, I'm not sure. I don't see any visibility now but I am not sure that I will catch a turn when it comes. Future success for this reader relies on transitioning into US large cap some where close to the right time. The exact time won't be important just within six months or so, probably. The reader might execute this very well whenever the time comes.
If you follow this type of strategy in your portfolio this is what you need to be in touch with. The risk you are taking by not being properly diversified is missing something or worse, staying too long in hot sectors . There is absolutely no question that large cap will lead again, that is just how markets work. It is not valid, in my opinion, to believe large will never lead again (not what the reader is saying).
I am not willing to bet my clients' money that I can nail the timing of the rotation from small back to large.
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I am of the opion that if I want to buy an actively managed fund I have the expectation that it would beat the benchmark index. So I don't mind the manager deviate from the strict style box! With so many index funds and etf's available,there is no problem to select a combination of index and actively managed funds for my portfolio. However, I question the need to have all style box filled in this market. Personally I do not own US large cap funds, yet I own all sorts of international funds(emerging, Eastern europe, Latin America and Europe).
I think there is something to be learned here. First and foremost the strategy spelled out is perfectly valid, no US large cap exposure. I imagine this person's portfolio has done very well. I have been writing for ages about mega caps lagging and I think they will continue to lag. However, when will they lead again? Personally, I'm not sure. I don't see any visibility now but I am not sure that I will catch a turn when it comes. Future success for this reader relies on transitioning into US large cap some where close to the right time. The exact time won't be important just within six months or so, probably. The reader might execute this very well whenever the time comes.
If you follow this type of strategy in your portfolio this is what you need to be in touch with. The risk you are taking by not being properly diversified is missing something or worse, staying too long in hot sectors . There is absolutely no question that large cap will lead again, that is just how markets work. It is not valid, in my opinion, to believe large will never lead again (not what the reader is saying).
I am not willing to bet my clients' money that I can nail the timing of the rotation from small back to large.
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Open End Fund Issue
I stumbled across an article in the back of the current BusinessWeek about growth funds and the growth/value style question.
The article leads off with the actions and opinion of Harry Lange who manages the Fidelity Capital Appreciation Fund. The article says that Lange has the freedom to buy any kind of stock and lately he has moved "heavily into growth."
As I see it, this creates a problem for do-it-yourselfers and professionals that put clients into OEFs. If the goal is a diversified portfolio, there will be at some point in the process a decision made about how much growth and value to have. Then every so often changes to the balance might be made. If you have a fund that can own anything it wants you really have no way of knowing where it is now, or what the manager might be thinking about for the future.
This is not a knock on the fund, it might be great and Mr. Lange might do a fantastic job navigating the construction of the portfolio. But that doesn't change the fact that you may not know where the fund is right now or how to work it in to a portfolio.
So if you don't really know what type of fund this is or will be in six months, how do you know how much to buy to integrate into your portfolio? Unless I am missing something the only thing you are buying is the manager. There is no reliable effect here that adds to diversification.
Yet another reason why I think these are the wrong product for a lot of investors.
Read more!
The article leads off with the actions and opinion of Harry Lange who manages the Fidelity Capital Appreciation Fund. The article says that Lange has the freedom to buy any kind of stock and lately he has moved "heavily into growth."
As I see it, this creates a problem for do-it-yourselfers and professionals that put clients into OEFs. If the goal is a diversified portfolio, there will be at some point in the process a decision made about how much growth and value to have. Then every so often changes to the balance might be made. If you have a fund that can own anything it wants you really have no way of knowing where it is now, or what the manager might be thinking about for the future.
This is not a knock on the fund, it might be great and Mr. Lange might do a fantastic job navigating the construction of the portfolio. But that doesn't change the fact that you may not know where the fund is right now or how to work it in to a portfolio.
So if you don't really know what type of fund this is or will be in six months, how do you know how much to buy to integrate into your portfolio? Unless I am missing something the only thing you are buying is the manager. There is no reliable effect here that adds to diversification.
Yet another reason why I think these are the wrong product for a lot of investors.
Read more!
Monday, October 03, 2005
Back Up The Truck On Latin America?
Did you see the very indepth 75 second package on foreign investing on CNBC?
There was one chap at the end from Barclays who was bullish on Latin America. I have been a fan of the region from long before I started this blog. I have two individual names, one from Brazil and one from Chile, to try to capture the effect in addition to whatever influence Latin America may have on ADRE.
In the last month or so most of the stocks from this part of the world have had a big spurt higher, very big. Last week I reduced exposure on one of the names because of how much the group has moved. I am no less bullish but the weighting is a little bigger than ideal and that the group could pull back for a month or two seems plausible.
If you have zero exposure, you probably should have some but if you already have some it may make more sense to wait a little. This opinion may seem two faced but that it might stall out for a while could be wrong. Anyone that owns the region will benefit if it rallies more from here, which is possible. No exposure obviously means no benefit.
Read more!
There was one chap at the end from Barclays who was bullish on Latin America. I have been a fan of the region from long before I started this blog. I have two individual names, one from Brazil and one from Chile, to try to capture the effect in addition to whatever influence Latin America may have on ADRE.
In the last month or so most of the stocks from this part of the world have had a big spurt higher, very big. Last week I reduced exposure on one of the names because of how much the group has moved. I am no less bullish but the weighting is a little bigger than ideal and that the group could pull back for a month or two seems plausible.
If you have zero exposure, you probably should have some but if you already have some it may make more sense to wait a little. This opinion may seem two faced but that it might stall out for a while could be wrong. Anyone that owns the region will benefit if it rallies more from here, which is possible. No exposure obviously means no benefit.
Read more!
ISM!
That was a very hot ISM this morning. I'm not sure why, but I haven't read anything that questioned it as a blip, we'll see about that.
If it is not a blip, it makes things very confusing. A solid argument could be made for stagflation and a solid argument could be made for a couple more quarters of solid GDP growth.
The biggest reaction seems to be happening in the bond market.
It ok to be confused. No one can solve every issue right away.
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If it is not a blip, it makes things very confusing. A solid argument could be made for stagflation and a solid argument could be made for a couple more quarters of solid GDP growth.
The biggest reaction seems to be happening in the bond market.
It ok to be confused. No one can solve every issue right away.
Read more!
Why, You Ask Why?
Let's say that 2006 IS going to be a very bad year for stocks. First, are we talking all stocks in all markets? If not, then what stocks or sectors should investors think about moving to right now? Also, I'm not clear on the rationale behind your pessimistic outlook for 2006.
I have written about this stuff many times so hopefully there will be some consistancy. As I write this I am sure I will leave a couple of things out but here is a list of the obstacles I see.
Knowing this is how it works means there is nothing to get worked up about. The capital markets will warn of problems and I hope you heed things like the 200 DMA, inverted curve, the market going down slowly over a period of three months or some other things that you can learn about from other sites.
I have written many times about where I expect to shift to within the portfolio as well; more foreign, more yield, more fixed income, more cash, more commodities and perhaps one or two other things to be determined later.
I am not making much headway on any of these trades now because the market is not saying it is the right thing to do yet. To repeat none of this may happen or be the right thing to do. Part of this has to be gut feeling as well. I still have no interest in trying to out guess a major change in the US market because there is a high likelihood of being wrong.
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I have written about this stuff many times so hopefully there will be some consistancy. As I write this I am sure I will leave a couple of things out but here is a list of the obstacles I see.
- The Fed is raising rates aggessively. We will either have longer rates going higher (a negative more often than not) or an inverted yield curve.
- The Fed sees inflation coming. Clearly CPI has been missing a couple of things. I am not certain bad inflation is coming but I don't know more than the Fed.
- Curtailing inflation this time around has a high likelihood of slowing down the economy.
- The hurricanes will also take a bite out of GDP.
- Gas at $2.60-$3.00 could hurt consumption as could much higher home heating bills. Anyone aware of that ugly statistic about most recessions starting in the face of rising energy prices?
- This cyclical bull market is 2 1/2 or three years old (depending on when you start counting) which is about a long as they go.
- Earnings are expected to grow slower in 2006.
- Just what exactly, if anything, is gold telling us? Gold zigs when stocks zag. If this latest move we are in the middle of for gold sticks, I might take that as a leading indicator for stocks.
- LEI has been down so many times in the last year and a half, I have to wonder when that might again matter.
Knowing this is how it works means there is nothing to get worked up about. The capital markets will warn of problems and I hope you heed things like the 200 DMA, inverted curve, the market going down slowly over a period of three months or some other things that you can learn about from other sites.
I have written many times about where I expect to shift to within the portfolio as well; more foreign, more yield, more fixed income, more cash, more commodities and perhaps one or two other things to be determined later.
I am not making much headway on any of these trades now because the market is not saying it is the right thing to do yet. To repeat none of this may happen or be the right thing to do. Part of this has to be gut feeling as well. I still have no interest in trying to out guess a major change in the US market because there is a high likelihood of being wrong.
Read more!
Sunday, October 02, 2005
New Email Address
I am giving up on Yahoo Mail. Something has happened with my Yahoo email that every enhancement to the program in the last few years has disappeared, like in this screen shot, 90% of the time.I gave Yahoo's mail support permission to access my account and they told me everything is working normally. Um, no it isn't.
I first picked a Yahoo email account back in the 90's so that I would never have to change it. Oh well.
A reader of this site was kind enough to send me a gmail invite.
My new email is roger.nusbaum@gmail.com. I have changed it for this site and will transition completely over the next couple of months.
If anyone from Yahoo reads my site (I know as fact at least one person does) and wants to weigh in or give me a little better help I am open. I would rather not change my email.
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Saturday, October 01, 2005
The Big Picture For The Week of October 2, 2005
So October is here, what will the market do this month? Trying to pick for a month can be very problematic. Assuming no weather or man caused tragedy (I may blown ot of the water right there) I think October will see a continued narrow range. I think the S+P can put on 15-20 points, meaning a percent and a half. The 1270-ish top that I have been sticking pretty close to for a couple of months would then maybe happen in November, if I am going to be right. To be clear my prediction will not drive whether I get defensive. The market is fragile right now, 20 more points or not. As I think 2006 will be rough, the market could crack at anytime.
John Rutledge picked iShares Pacific ex-Japan (EPP) on Bulls and Bears. Apparently he likes Australia, Singapore and Hong Kong. I'm on board with the idea, as you know, but more so with Australia.
Dr. Rutledge mentioned being able to capture these three markets with the product. EPP does correlate to Australia. If you look at the chart here you can decide for yourself whether you think it correlates to Singapore or Hong Kong. Hong Kong used to have a higher correlation than it does now.
I have nothing negative to say about EPP but I'm not sure Singapore is being captured that much as only 10% of EPP is in Singapore.
Fellow blogger Greg Newton from Naked Shorts had an excellent piece published in Barron's about the new micro-cap ETFs. You can read it here if you have a subscription.
Read more!
John Rutledge picked iShares Pacific ex-Japan (EPP) on Bulls and Bears. Apparently he likes Australia, Singapore and Hong Kong. I'm on board with the idea, as you know, but more so with Australia.
Dr. Rutledge mentioned being able to capture these three markets with the product. EPP does correlate to Australia. If you look at the chart here you can decide for yourself whether you think it correlates to Singapore or Hong Kong. Hong Kong used to have a higher correlation than it does now.
I have nothing negative to say about EPP but I'm not sure Singapore is being captured that much as only 10% of EPP is in Singapore.
Fellow blogger Greg Newton from Naked Shorts had an excellent piece published in Barron's about the new micro-cap ETFs. You can read it here if you have a subscription.
Read more!
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