WSW Friday, November 20, 2009

If you are expecting global warming stuff, it’s here:

https://chiefio.wordpress.com/gistemp/.

This posting is about the other thing I do, looking at investment markets. Prior postings in this series are available here.

The charts in this posting are live charts, so my comments will describe how it is now, but in a week it will be showing new data and a new week. Since I think it’s more important to be in touch with what the market is doing NOW than to preserve the historical chart, this is, IMHO, a reasonble choice. Just don’t be surprised if the chart I describe is not the one you see a few weeks from now!

Daily Notes

Just a short note that my “health issue” is “all behind me now”, so to speak … Still feeling a bit “slow” and I’ve learned that when you are ill, you ought to just step aside and not trade until ‘back on top’. So I’ve made no trades this week. But as I’m feeling better, I will be doing trades based on the observations below. I will also be looking in slightly greater depth at some of the “new ideas” over the weekend and assuring I’ve got them right. But reading the charts is pretty straight forward for me these days, so I don’t expect any changes.

Wall Street Week – Friday, November 20, 2009

Options Expiration Friday. Every “Third Friday of the Month” we have an options expiration. Billions of dollars of bets on the direction of stocks, indexes, you name it, come due. Traders who where well ‘into the money’ will be looking to sell out and bank the gains (putting pressure on those very gains). On the other side of the trade, folks who were in losing bets will have been trying to ‘cover in’ or just ‘cover’ those bets and cut their losses (putting pressure the other way). At the end of the day, we find out which way the “trade book” was balanced.

Then everyone goes home for the weekend and thinks about what strategy to use Next Week when they place their next round of bets. Continue the same themes? Swap sides? Sit out?

Options expiration is often a time of “Reversion To The Mean”. Emotional excess to the upside (or downside) gets squeezed back to the central tendency.

Sidebar on Why:

Throughout the month, as folks chased a rising stock, “big money” will have sold short into that rise, often while purchasing “call options” behind those shorts as insurance. Those “calls” will expire and the broker who wrote the calls no longer needs to hold a stock position to cover their exposure to that call; this selling pressure moves the price back toward the mean. As that price drops, the original buyer of those calls sees no need to replace them (his short now making money). But the folks who own that stock may well feel the need to protect their positions: so they buy “puts” as “insurance” (with a future-month expiration). The broker who writes those “puts” does a “conversion” that involves selling the underlaying stock so he gets the commission, but at no real risk from the stock price movement… and the oscillator shifts to the downside until the next extreme of the cycle is reached. Then the whole thing happens all over again, cycling back and forth around the central tendency. When a stock is “oversold” the same process happens, but with “puts” and “calls” swapped; and with stock “buy” and “sold” swapped. It is the same emotional rollercoaster, just the sign swaps.

The realitity is a bit more complex than this: not everyone waits until expiration day to wrap up positions, so sometimes the move starts a few days early and the actual day is a dud. Not every month is a reversion to the mean, it depends on how strongly the ‘trend’ ran away from the mean. Some stocks are driven more by movements of the index they are in (such as the DOW or NASDAQ) than by their individual trading (so “Triple Witching” or “Quadruple Witching”, when stock options, stock futures, index futures, and index options all expire, are even more prone to reversion to the mean). But at the end of the day, options expiration tends to be a time of inflections. A time for closely watching the action gong in to expiration, and the changes that happen on the other side. It is the time when Billion Dollar Players think most about changing the side of the table they are on. And you can not stand against them…

We got through options expiration with only a tiny sag. These folks have a nice readable calendar

Last options expriation I said:

This matters because the “hot hands” and “big players” do a lot of options. At expiration, these bets “settle” and you get a “tell” about what they are doing. This week, the “tell” said “more or less balanced book”. The good news is that a balanced trade book is not betting (nor pushing) the market down. The bad news is that we’re near the end of a long run and ‘balanced book’ often proceeds “down soon”. The “smart money” is not yet shorting things (pushing down) nor have they driven it up hard (not making a lot of new bets). We’re in the “cruising” stage. We keep going the way we’ve been going, but not forever…

This is about where we are today, too. But the market movement has flattened. We are in less of a “rocket ride up” and more of a “sideways roller”. Going forward, the risks to the downside ar larger and timing of entry (to avoid buying a top just in time for a drop) becomes even more important. Also, individual stocks will start to separate from the market. We will start to see “rotation”. You will know this is happening when the news flow has a “flat market” but with one sector up and another down. Especially if the “down” sector is the one that was “hot” in the prior months. So look at your best winners and prepare to let them go if they start to move against you. When a Big Money player with a few Billion dollars decides to short your stock, you can not stand against them.

Sidebar on Downtick:

There used to be a ‘downtick’ rule to slow or prevent “Bear Raids” by big money. A stock had to move up a little bit before a big money player could short it. There had to be a ‘natural buyer’ before the short seller could dump a load; AND the folks who actually owned the stock got to sell before the shorts could crash a stock. This rule was first put in place after the great crash of 1929 – 1932. That rule was removed a few years ago (just in time to give Bear Raiders a free run in this last market collapse… which is part of why it was faster and deeper than most.) So watch for an unexpectedly bad “down day” and realize that is a Bear Raider making his opening bid. If that happens, step aside. Just step aside.

Today

So I’m mostly on the sidelines right now. Bet big AT the SMA stack, protect when far away from it.

But there is more. We have two different time lines conflicting now. We had a rising 10 year weekly chart, so if we were out of time sync on the one year daily, we could just wait and know the longer trend was pushing upward. But the 10 year weekly chart is now “looking toppy”. The 1 year chart is also now in a “toppy / flat” context. If you end up “on the wrong side” in a falling daily position, you may find it just rolls into a falling weekly position, for months… Risk of holding a “long” position are rising. Manage the risk.

Oh, and start taking your positions and plotting them all on one chart (as we do here and under the “races” tab. Pick he worst ones and sell them. They will go down the most in a reversal. Pick the ones with large secure dividends and those doing “stairsteps up” (up, flat, up, flat…) as your “hold through the reversal” positions.

The Long Term Context

A few weeks ago I explained this particular chart. This week we look at it again. Volume continues light. The red weekly volume bars are leaving gaps to that sideways red average volumn line. When volumn weakens, a trend is running out of gas. Also, take a look back at 2004 – 2005. We were “off a bottom” about the same amount of time. Notice that the Slow Stochastic was similarly “over white space” and going more or less sideways. What happened next? A “sideways” market with generaly rolling downward for a year. A “consolidation year” while we waited for business results to confirm a recovery. There is a significant probability that a similar pattern will happen now. We ‘return to the SMA stack’, but not by plunging to it, by waiting for time to pull the average to match a flat rolling market.

This is a very long term chart, so I interpret this as saying we’re going to be thining out and looking for a return to the SMA stack by a slow drift sideways / down. If you are a long term invester, you want fat dividend stocks. If you are a trader, you want to move out of the “hot hands stocks” we’ve been holding and start watching for “separation and sector rotation”. It is also a time to shift “style” from a “big bounce – best to stay in if you make a timing error” into a “Rolling Market – time it right or just step aside”.

BTW, the market has many personalities. Where most people get in trouble is they have only one personality. You must change your personality and your style with the market. Sometimes timid, sometimes fearless, sometimes long term holder, sometimes trader of the rolling waves. We are off of a hard crash, and we are substantially “over it” and will not return all the way to that crash bottom. But we can also take a long pause after the last year of rocket ride off that hard bottom.

10 Years, NYSE

10 years, NYSE

Notice MACD. The two lines have converged. If they cross to the downside, the market is headed down in a “correction”. They may simply stay merged sidways: A steady growth market. But that is a very unlikely case. Look again back at the 2003 to 2007 interval. The typical case is a crossover to the downside and a minor market correction back to the SMA stack. The minor case is like that of late 2003 where we had ‘steady growth’ for 5 months or so. The “best bet” is to presume a cross over is coming “soon” and prepare for it. But remember that on a weekly chart, “soon” can be weeks away. Just don’t get suckered into daily movements changing your emotional state. Look here to regain focus on the trend. And the trend is flattening. (Though flattening from a rocket ride up…)

What Is Our Context

Let’s look at the S&P 500 largest stocks in America compared with some other kinds of assets; a couple of month maturity bond fund, oil, gold, Yen.

Asset Class Races

Asset Class Recent Race

SPY       The S&P 500 ETF
GLD       Gold ETF
USO       Oil ETF
FXY       Japanese Yen currency fund
SHY       1 to 3 year U.S. Treasury Bond fund
FXE       Euro currency ETF
SLV       Silver fund
BZF       Brazilian currency ETF
EWA       Austria ETF
WOOD      A wood and paper products fund

Look at the “two tops” in EWA. “Failure to Advance”. I stepped out of my Australia holdings a while ago. That trade is over for a while. Similarly, the BZF (that is a green line on my image) has ‘two flat tops’. The Brazil currency trade is over (and that implies weakness in the Brazilian stocks will be less well defended by currency moves.)

We do see that the SPY had a slightly higher high this month compared to last month, but not by very much. We’re seeing a ‘flat roller” more than a “moving higher” pattern. RSI is rolling about the 50 midline. MACD is a good trade in/out indicator and it looks like we’re in a weaking flattening trend with ‘be out soon’. When we look at DMI, the “strength” part of it (the DMI black line) is below 25 in the ‘weak trend’ range (so Slow Stochastic is a better trade indicator than MACD for SPY. It will respond faster in a flat rolling market). And we see blue and read approaching each other as the trend fades. Time to swap over to Slow Stochastic for SPY trades.

It is time to move to shorter, faster trades, and particular market segments. The broad market is “going flat”. And the foreign resource market trades are tired and also “going flat”. In a flat market you take all the risk, but none of the gains. Step aside. Just step aside. Olay!

We do see Gold and Silver rising (though with very strong monthly cycles.) These are often driven by major government buys and sells. Hard to predict and politically managed. Be careful and be smart. ONLY buy on a dip and realize that it can “open down hard” so you can’t use stop losses to protect your position. You have to sell ahead of the moment (the Gold Fix is done in London, by the time the US market opens, you have already been “whacked” if the IMF decided to dump a few tons of gold…) So use “early out” ok?

What about Brazil? A Closer Look.

Brazil the EWZ ETF vs the BZF currency ETF

Brazil ETF vs Currency Race

In a special posting I had said to bail from Brazil as their President had started talking about special taxes on foreign stock trades. Here we see the “failure to advance” to the topside has joined the party. We are still a ways above the SMA stack, but the trend has gone flat. This peak of RSI is well below the one a while ago at 80. MACD has gone down, then failed to pull back up into another up run. It’s in a ‘weak flat sideways’ and we see DMI below 20. Trendless. It is time to leave the beaches of Brazil behind.

We will keep an eye on them (it is a growing vibrant market), but for now, Brazil is not your friend. They were good to us for a nice long time. They will likely be good again. But they can be violently bad in a down market. And with The Ministry of Stupidity speaking, well, I have no need to take on that risk for a flat (or negative!) return…

Running ETFs

I have a new tool that searches chart patterns and finds those that I describe to it as “interesting”. For this section, “interesting” is those that have price over 25 day Simple Moving Average over 50 SMA over 75 SMA. Basically, those that are in a steady up run.

This is most likely to continue, but will at some point each ticker will hit a “dip” and fall off this search, only to return at the next rise. So a high number is good, until it fails, and a low number can mean time for a second bite at the apple. Being ON the list can be as important as rank on the list. Races tell you how to rank them. Realize that these have not been filtered in any way for the quality of the fund, nor for the volume traded, nor for what they hold. Each ticker must be looked at for those qualities before buying anything. This is just a way to find “things of interest” to explore. So what is on the top of the list?


I will be filling these in a bit later.  After market close Friday.
  

OOTUS – Out Of The U.S.

See the racing stocks tab for currencies and for foreign emerging stock markets for the latest moves.

The currencies are all generally “gone flat”. We’re now getting more movement of individual currencies relative to each other, and less of a “dollar driven” basket move. The only things of interest are Gold, up very fast and hard… to strong to buy into now, wait for a drop first; and the Yen FXY (a “carry trade” currency, so it will rise as stocks fall and fall as stocks rise.) If you have cash to park somewhere, park it in Yen or Dollars. Then buy gold on a major ‘dip’ (that looks like they are coming near month ends.

Indonesia Fund 1 Year Chart

Indonesia Fund 1 Year Chart

This chart compares FXI – China 25 big stocks, EWZ – Brazil, EWO – Austria, EPI – Wisdom Tree India fund, and the Indonesia fund.

The “Emerging Market” trade has gone flat. The only one still rising is China. They have some structural ‘features’ that tend to let them overshoot a trend (no shorting in some markets, for example); so I would not expect them to continue this rise against the tide forever. It is time to step away from the Emerging Market basket.

VIX the Volatility Index

The chart of VIX – the Volatility Index.

Low, very low. It is saying “time to be sold”. We can buy back in again on one of those little blip / peaks to the upside.

VIX  - Volatility Index (not a ticker, you can't trade it)
VXX - Short term VIX futures ETN (a ticker you can trade)
VXZ - Medium term VIX futures ETN (a ticker you can trade)
FXY  Japanese Yen
SH  "Short" sell of SPY
SPY  S&P 500 benchmark

The Dollar

Dollar Trade -Down - Slowly Going Flat

Dollar Trade -Down - Slowly Going Flat

What I said a month ago still holds:

The “dollar down trade” has moved above the last high. Our “failure to advance” has been broken.

Also, on the RSI, we have this peak being far lower than the last peak. That usually means a trade is “ending soon”.

I would not expect the dollar to run up, but rather to go ‘flat’ for a while. Then it will likely resume the drop as the “stimulus” and “spending programs” continue. We’ve got a $1.4 Trillion deficit this year and no sign of any attempt to reduce spending. That is pretty much guarnateed to “bugger the dollar” long term. And “dollar strength” will be short lived and an opportunity to re-enter OOTUS and “dollar down” trades.

We have a very slow process, driven by goverments slamming trillions of currencies and gold around. Beware of dancing elephants… But for now, you can hold cash in US Dollars with some short term stability. Longer term? If the spending continues, well, those dips in Gold will look better and better as buying oportunities…

FXY, the Japanese Yen, is a safe place to park your money followed closely by the Swiss Franc FXF (and I’ve taken the Real off the list until we see what games their central bank wants to play and I’ve also rumoved the Aussy FXA as their stock market goes flat – there will be selling pressure from stock sales on the currency).

Ideas of the Week

Cash is good. I like cash. You need to ‘reload the cash gun’ if you will have any money to ‘buy the dips’ of gold and stocks.

What does the 10 day hourly chart say is happening now?

Here’s a 10 day houly chart of the Dow 30 Industrials (DIA), the S&P 500 (SPY), the Nasdaq tech companies (QQQQ), the Russel 2000 (RUT), and both a Brazil fund (EWZ) and an Australia fund (EWA). It also has a ‘short fund’ (SH) on the chart so you can see what being short this market is doing right now. We also have EWO, an emerging Europe Austria fund, EWW for Mexico and IIF for India.

10 Day Hourly Interval Broad Market

10 Day Hourly Interval Broad Market

In two weeks we’ve gone nowhere. We are presently dropping, but RSI is saying a ‘rebound soon’ is possible. It is time to be day trading or be out.

Other Asset Classes

The 6 month asset class race:

Asset Class Race

Asset Class Race


SPY  S & P 500 US stocks
GLD  Gold
EEM  Emerging Markets
FXY  Japanese Yen
JJC  Copper
SHY  Short term bonds 1-3 year
USO  U.S. Oil
DBA  Agricultural basket
SLV  Silver
WOOD  Wood / Timber

Gold, Silver, even copper. Metals trading has promise. Volatile. Hard to time (best by NOT using trend following, but by using “ranges”. Buy when it is near a lower trend line, sell when near an upper trend line. And do it before the move happens, don’t wait to try and follow the trend. It is over in a day or two and you end up trading exactly out of phase… not good.) Copper looks to be dipping mid month, and gold dipping end of month. A Gold / Copper oscillation has real potential here. But copper also looks to be following Gold with just a bit of lag. Maybe trade copper the day after Gold moves? Hmm… worth investigation.

So what happened in the Tech Market relative to world markets?

Tech is beating the rest of the US Markets, but weakening. Slow Stochastic is being a very nice trade indicator. Buy when Slow Stoch is near / below 20. Sell when it is near / above 80. Tick Tock Tick Tock..

Recent months - A Tale of Two Markets

Recent months - A Tale of Two Markets


QQQQ  Nasdaq 100 mostly Tech companies
DIA  Dow Jones 30 Industrials
SPY  S & P 500 largest companies in the U.S.A.
MDY  Midcap  (Middle sized in terms of market capitalization)
RUT  Russel 2000 - a collection of 2000 companies from small to large.
EWZ  Brazil fund
EWA  Australia fund
EWO  Austria fund
EWW  Mexico fund

Were Bonds a good idea?

OK, lets take a peak at the Bonds Race.

A month ago I said:

WIP and TIP are winning and that indicates a general world concern about inflation. You ought to have a concern as well. Other bonds are not doing so well. That’s a clue too. Out of regular bonds. In strong currencies. Money to inflation protected assets. WIP and TIP are inflation protected bond funds. TIP is U.S. Treasuries with an inflation adjustment, WIP is “world” bonds with a similar inflation “kicker”.

Still true. Though we are seing a bit of a rise in some of the shorter term bond funds too. I’d also note that the TIPs are up more relative to the WIPs this last week as the dollar gained a bit of strength. Having a mixed bag of 1/2 each would dampen the dollar wobble as verious central banks try to stabilize currencis and buy or sell buckets of dollars and / or gold. You get the yield of both, you get inflation protection, and you ‘hedge out’ the central bankers games. Nice way to make steady money with minium risks of all kinds. Not a lot of money, but not losses either. A very nice “sleep well” strategy.

LQD corporate bonds are flat rolling and TLT the long term treasuries are falling. If you must do bonds and can’t do an inflation protection version, at least stay with very short maturities, like SHY. You will still lose the amount of inflation in real purchasing power, but at least you will not have the loss of sales price from a dropping bond market.

Also of note: The “news flow” on CNBC has advice to stay away from California Muni Bonds. I agree. We are likely to see significant defaults and significant risk exists of loss (either from direct default or just from price drops as one bond is down graded and folks sell the rest too.)

California is just a Socialism Shiny Thing basket case at this point. Business is abandoning the state and our government has responded by passing a law that large screen TVs must use 1/3 (or some such) less power to “be more green”. Well, I don’t know who they think will be buying all those large screen TVs. With no jobs and business leaving, the only “bull market” here is in moving vans out of state…

Dear Governator and Assembly/Senate Critters: Get a clue.

Stop beating “your” population and businesses. Use honey; or you will be left with an empty room and no one to whack with your Authority Stick.

You will be keeping all the welfare recipients, though. Good Luck finding “someone with cash left” in the state to use to feed them…

“Sooner or Later you run out of Other People’s Money to spend.”

That time is now.

IF you own any California State or MUNI bonds DUMP THEM NOW.

What sectors won this week?

10 Best Performing Industries

TO BE ADDED AFTER MARKET CLOSE

What About Oils?


XOM  Exxon Mobil - Largest, U.S. / Global
COP  Conoco Philips - U.S.  with Russian exposure
CVX  Chevron Texaco - U.S.
PBR  Petrobras - Brazil
PCZ  Petro Canada HAS NOW MERGED WITH SU SUNCOR
BP   British Petroleum
STO  Norway
E    Eni Italy
TOT  Total - France
RDSA  Royal Dutch Shell
IMO  Imperial Oil - Canada Oil and Oil Sands
SU   Suncor - Canadian Oil Sands
SSL  Sasol - South African Synthetic Oil Company

The only action was a news driven event where Warren Buffet has bought a chunk of Exxon. Nothing of intrest here to me.

Some Near Oil and Oil Related Comparisions

.

A nice long run, come to an end. We have “failure to advance” all over the place. The most recent tops are below the prior tops in most cases. Only EWZ has a slightly higher top and I expect that to be treated as a ‘failure to advance’ as it is basically flat.

Time to pick a new sector as a favorite… With oil flat / down a bit, transports often gain. I’ll be looking more closely at shippers and putting an update here late Friday / Saturday. The news flow about the Baltic Dry Index has been good an some “pundits” are recommending ships like DRYS and DSX. Worth an investigation.

SEA - A Boatload of Boats ETF

SEA - A Boatload of Boats ETF

Slow Stochastic is acting as a nice trade indicator while the chart in general shows a nice recovery from the bottom and a continued trend to the topside. We are “at resistance” back at that June top, but with the “higher lows” of a “wedging in” pattern that usually resolves to the upside. Buy on the dips and expect a breakout if it punches through that June resistance price. Decent trade vehicle. Long term upside potential. Though a bit deeper look into broad shipping is warranted.

The REITS race – Real Estate Investment Trusts


PEI  Pennsylvania Real Estate - Mall REIT
VTR  Ventas - sr. care, nursing homes, hospitals
PSA  Public Storage - junk storage units
BXP  Boston Properties - office REIT on BosWash corridor  
HCN  Health Care REIT -  extended care, senior care, medical offices
HCP  Health Care Properties - ex. care, senior living, Dr. offices
PCL  Plum Creek Timber - lumber and trees REIT
SPY  S & P 500 broad stock market benchmark
RPT  Ramco Mall REIT
PLD  Prologis - logistics 

PLD is in a very nice run. The others are rather like I mentioned a month ago:


Nice slow rising bottom fish. I think there is more money to be made elsewhere, but “buy a tiny” and start accumulating good properties at this bottom.

The REITS have a decade long recovery in front of them. Still plenty of time. Just check the “coverage ratio” on their debt and make sure you are well diversified. (i.e. 3 or 4 of them, not just one, OK?)

I’d start to raise that “tiny” to a larger fraction “on the dips”. PLD is back at the SMA stack. Check the news flow on it first, though.

Conclusions and Likely Actions

Holding cash and big dividend paying positions in well capilalized companies (like LNG tankers and oil trusts). Picking up a little realestate cheap. Watching for the “sector rotation” and stepping out of “Emerging Markets”. Waiting for a dip in Gold / Silver / Copper for an entry. WIPs and TIPs perhaps too.

Stock Indicators – what and how


If all this talk of indicators is leaving you wondering what the heck I’m talking about, hit the link in the heading of this section and there is a bit of an explanation.

Click for Disclaimers, Disclosures, and Where To Get Charts

Remember that on any stock or ticker I say I’m looking at, you don’t just go buy it. You wait for a stock entry indication to get the best possible entry into the position.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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5 Responses to WSW Friday, November 20, 2009

  1. Iridium says:

    Just to leave an encouragement and a big thank you on that non-AGW section, where you certainly have much less traffic.
    Some people are reading it!
    I am learning a lot with your posts (those technicalities are easier to grab for me than computer code! don’t know why, perhaps the appeal of money turns my brain ON).
    Now I experiment trading (stocks/forex) with real money for a bit more than a month. experiments = loosing money, but not as much as I was expecting to loose. Thanks in part to your advices. Very close from break-even. And I learned more during this month than during the last 10 months I tried to learned about online trading using website and demo accounts (real and direct experience is always better than second or third hand stories).
    So, please, don’t get completely caught by crappy code :D

  2. E.M.Smith says:

    Thanks!

    Things usually “slow down” in the markets during the holidays. There is often a bit of a “sag” going into December, then a “Christmas Rally” in the last half of December. Not always, but it is a bias.

  3. alantrer says:

    I’ve spent the last few weeks hyper-meandering through your gistemp work. As a software engineer by trade I marvel at your work. How you can take an incredibly dry subject (calculating global average temperatures) and a numbingly tedious task (code and data analysis) and chronicle it as an approachable and entertaining mystery-hyper-novel. Maybe its just me. I rarely read real novels. They bore me. But your work has me coming back daily.

    Anyway, the subject of my post is more investment related. I notice your approach is mostly based on technical analysis. I’ve tried a few times to get into it without much success. I mostly use it to confirm macro timing for investment theses.

    I’ve had the most success with taking advantage of market inefficiencies. Which is another way of saying “knowing something before the majority of the market does.” I mostly stick with high tech because I know more about that than most of the rest of the market.

    In that respect I can’t help but notice the lack of headline coverage this whole “global warming meltdown” is receiving. I personally believe most of the main stream media is emotionally invested in the whole AGW thing. For now they are content to place their fingers in their ears and chant “la – la – la – la!”. That will change quickly when the competition is getting eye balls because of it. For some reason the blog channel doesn’t count yet for them.

    My market nose is catching a whiff of market inefficiency.

    I’m a believer in renewable energies. Not for reducing green house gases of course but for reducing dependance on oil. Its a security issue and a huge drain on GDP. But most consider the big driver of alternative energies (green energies) to be the reduction of global warming from green house gases.

    My scientific curiosity has lead me to investigate and try to understand the whole global warming debate. Its surprising how many consider it a settled matter. Because of that sure thing, huge, huge fortunes are being committed to solving the “problem”. I’m fairly close to concluding (to some extent) that not only is man’s contribution to green house gases not contributing significantly to global warming but indeed there may not be any warming at all. It is more likely warming in some regions and cooling in others. The earth, its atmosphere and the sun are going about their business as if our anthropogenics (sp?) hardly mattered.

    I wonder what effect “major” headlines suggesting the Earth’s atmosphere may not be warming would have on certain industries and investments. I suspect that day is approaching. I of course don’t know when, but things appear to moving quickly at some level just below the main stream radar.

    I’m not soliciting any investment advice of course I’m just trying to gage my thesis in regard to this apparent market inefficiency.

    Your thoughts? … no doubt you have a few.

    REPLY: [ Thanks! Yes, the technical details can be mind numbing. But it’s rather like mining for gold. Both are hard dirty boring jobs that few folks can do for more than an hour or two withough giving up and deciding to find easier work to do. Then you find a little nugget or two… I’ve chosen to do the digging and let others share the nuggets. “Why? Don’t ask why. Down that path lies insanity and ruin. -emsmith” Just accept that it is…

    Per investing off of this. Two things:

    1) “It’s not about you, and it’s not about what you know, it’s all about them. -emsmith”

    So the ‘change’ will only happen as the mass understanding changes. You must wait for it… and wait for it… and wait for it…

    2) One tulip during the top of the tulip mania sold for the cost of a nice home. A fad, frenzy, mania, etc. can go quite far before it collapses. It could be a long wait. Look how many ‘lose weight magically’ gizmos are still sold on nightly TV. But IFF and when the “Ah Ha” moments hits the general public, the “green theme” stocks could take a hit rather quickly.

    So for me, I’m following the contrarian path. I own some oil trusts and I’m looking at coal (though I’ve never been as good with it as with oil and gas). I also have some positions in “alternative oil” companies that make oil from things like trash, coal, and algae. Not because I think these are going to be winners, but because I firmly believe we need to tell OPEC to go pound sand and use non-OPEC energy supplies. Basically, I own non-oil oils for emotional reasons. (But they can win in a ‘green’ world and they can win in a ‘peak oil’ world, so it does have a speculative edge to it…)

    Most companies have just done a ‘greenwash’ and not a real shift of focus. If the AGW theme collapses, they can just do a new color of wash. GS Goldman Sachs and a couple of others have expectations of large future revenues from Carbon Credit trading, but those are not real yet, so the impact would be on expectations. They would find a new expectation to hype. Folks like GE who make wind turbines, would just shift to hawking coal combined cycle gas turbines that they also make.

    In short, I don’t see a big investment theme here. It will be long, slow, and muddied with other investment themes. One could short folks who were, say, making solar cells; but that would be a short term play. The costs of solar panels continue to drop and they will make economic sense in some places even as the volume blips down from subsidy collapse. The only really strong play I’d see is the CO2 sequestration folks would get squashed. Don’t know as there is a clear play there, either. Coal stocks would likely rise (being out from under a stigma).

    Oh, and yes, most of my present activity is “technical”. I started life as a ‘deep value’ guy and still like the Graham and Dodd approach. It is in the back of my mind when picking places to put money. My largest single holding is Berkshire Hathaway. So since I can “hire the master” by buying BRKA, BRKB why would I do the work myself? I also learned that “deep value” can mean “long long long wait”. So I used technical signals to time my entry into the deep value positions. Not always perfectly, but it’s very helpful. So in the end, I wandered into technical trading from the backdoor side of wanting to better time when “THEY” discovered the deep value I’d been sitting on for 2 years… waiting and waiting and waiting…

    So in the end, I found that it was great to “know something before everyone else”, but that tries one’s patience. Sometimes for many years. It is better to measure “when everyone else is starting to know it” and jump in then. So I try to find a value thesis, then time the entry with technicals. (I was writing code to automate this when the whole AGW thing took over my life… my biggest error is spotting a play a year+ in advance, then getting bored watching it, and skip a few months, only to come back and find the run underway. An automated watcher is needed for me. On my “to do” list. I’ve got the code basically running, but need to put some scripting and notification bits around it. Operations stuff. If I were greedier I’d be done already…)

    -ems ]

  4. alantrer says:

    I appreciate your views. I’ve learned the hard way (read “expensive”) to always solicit different views before going off half cocked. Even polling some of my greener colleagues.

    I can appreciate the timing issue. More than once I have bailed on a thesis due to impatience only to see it execute months/years later.

    I was into day trading in the mid 90’s when Datek came out with $19 trades. At first I made a bundle but got blind sided by the currency debacle. Still made out OK but its a relative thing from the high’s … right? Learned its not the winnings on the table its the cash you walk out the door with.

    Since then I have taken a longer value view due to the allure of long term capital gains. Still I like to get in and out of positions based their market position, their market conditions and the market in general.

    Solar is a technology I follow quite closely. It is within 1 to 2 years of grid parity. The industry is crowded as hell. Ripe for consolidation and shake out. Very volatile to supply and demand news. Adverse headlines could violently shake this sector. My plan is to pick up some quality survivors when the shock waves hit. Waiting sucks, but wait I must.

    Gas is facing a supply glut. Technology has made several new reserves accessible in the the US and likely more are yet to come. Still studying how to play this one. Maybe no play at all.

    Oil in the US is a tortured story. ANWR is a non-starter. Too much emotion associated with snow covered areas :) Offshore drilling is a joke. They can’t even get legislation through for off shore wind farms or wave energy rigs. NIMBY prevails.

    Quite honestly the best solutions are the simplest technically but difficult socially. Conservation yields the greatest returns. With a little homework and investigation I was able to cut my electrical bill by 1/3. Simple changes in habit we hardly notice. Tools and methods to enable this would be a great investment.

    Anyway, I feel significant changes are a comin’.

    Always appreciate your view. And of course a continued admirer of your work.

    Al

  5. really interesting to read it :P

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