WSW – Friday, December 4, 2009

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

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

None Yet.

Wall Street Week – Friday, December 5, 2009

As I said last posting:

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 the 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.

That opinion still holds. A “weekly chart reversal” can take a few weeks to develop. Wait for it…

The Long Term Context

Last posting I said:

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 volume weakens, a trend is running out of gas.

Now look at that volume. (Click on the chart to open it in another window for a bigger sized version). Volume is “in a funk” to put it politely. Some of that may be a side effect of the Thanksgiving Holiday, (holidays are often a bit light) but that “eye” is a big “issue”. Coupled with a ‘going flat trend” it says “Step aside. Just Step Aside.”

At best we can hope for a ‘rolling sideways market” like in 2004-2005. It is time to look at short term trading and dividends, short positions in selected areas, and sector trades. The ‘broad market’ is not going to be our friend for a while, so we need to be more selective about who gets invited to the party…

Also last posting I said:

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”.

This also still holds. The things that have “run up the most” are the things that are at greatest risk of falling. Watch for “sector rotation” to spank the old winners and anoint new ones. For the next few weeks to months the focus needs to be on “new plays” not just riding what brought us to this top. (Though some of the “old plays” may yet be worth riding, but suspect and inspect first…)

10 Years, NYSE

10 years, NYSE

Last posting I said:

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…)

This still holds. Like I said above, a “weekly” chart can take several weeks to manifest a change. So: Wait for it… wait for it… wait…

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

The only thing going up is “WOOD”. PCL Plum Creek Timber is a “timber and lumber” REIT and is going to show better earnings going forward from those rising wood prices. The PCL chart looks very nice too. If you don’t already have some PCL, it would be a nice long term holding.

The “news flow” was all about The Fed raising interest rates in the next few months. We had a modestly good “job growth” number (in that we lost 11,000 jobs but folks were expecting 111,000 loss… good is a relative thing.) This caused the dollar to rise. You can see that as the drop of the Euro and Yen. Gold tumbled too along with silver. The Brazilian Real wobbled sideways, but with a droop at the end.

Now look at that darned near flat “SHY”. Short term bonds / Treasury bills. Notice that “kink” downward? That is where speculation about a Federal Reserve Rate Hike began.

When The Fed raises the prime interest rate BONDS DROP

If you have bonds, especially longer maturity bonds, this is the time to get out of them. (Actually, the time was a while ago, which is why I’ve not been keen on bonds since The Fed stopped dropping rates, but if you are still in, this is the Last Call for a graceful exit…)

When The Fed raises the prime interest rate The Dollar Rises

Folks presume that this means The Fed is willing to defend the dollar. While longer term, I think that the dollar will still be eroded by massive government spending and unfunded entitlement programs and mandates: In the short run it is “market point of view” that matters, not 10 year processes.

It is time to step aside from “dollar down” bets (and that includes raising the risk estimates for foriegn stocks not measured in dollars). The “double dip” of currency and stocks both helping us, now can turn into a double shot against you. As the dollar strengthens, folks fail to make gains in a foreign market, so they sell out, and that puts more downward pressure on the stock. The revenue on the sales gets repatriated to dollars, putting more upward pressure on the dollar and more downward pressure on the “other currency”. There may still be foreign markets that win; but the risk profile has to be estimated as higher. It’s time to hang out the “Here There Be Dragons” sign…

For example, last posting I said:

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.)

And in the last 2 weeks they have made no money. Don’t be the last one out the door…

The SPY is dead flat. The “talking heads” news flow is all about the 3 to 5 day up runs, but the thing that matters is those 1 and 2 day drops and the fact that the tops do not advance. Lay a ruler on the last 3 weeks. You are getting nothing and having all the risk. Not Good. Cash is good. You still get no gain, but without the risk.

The DMI (black line on the bottom) is at about 15 and dropping. There is no trend. Both the blue and red are falling. Again, no trend. Time to step away from “Trend Trading” on the MACD and use the Slow Stochastic for choppy rolling trades or use “stop loss” and “buy if touched” to catch inflections. Or, for non-traders, move to cash and be very selective in your stocks and sectors.

Last posting I said:

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?

And we saw exactly that. A weak “entry” at the end of November, then a short run up, and a plunge on The Fed speculation. Hope you were “out early”. Gold and Silver will not be your friend until the dollar strength and The Fed behaviour is better defined. There is very high risk to the downside right now in Gold.

What about Brazil? A Closer Look.

Brazil the EWZ ETF vs the BZF currency ETF

Brazil ETF vs Currency Race

In the prior posting I had said:

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.

and in this chart now we see a “higher high”; but not by much. Now look at that Friday Drop. The DMI has gone below 20 into “trade rolling sideways” land. There will be gut wrenching rolls here, and with MACD going in a sideways weave, there may even be a mild upward tilt over longer time periods. But I’m interested in more of a “sleep well” position than a “high risk of plunge – little upside” position. My conclusion from last posting still holds. We are “out of Brazil” and do NOT reenter until it is back at an SMA stack and with a positive trend to ride (and not with a potentially strengthening dollar to fight):

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…

Though I would add: Or even for a mildly positive one.

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?

A nice basket of “sleep well” stocks based on the notion that we will continue to eat, drink, smoke, need cough drops, and generally get on with life. Not a spectacular concept, but rising from lower left to upper right. Can’t really argue with that.

Last posting I promised a list, then did not fill it in. There was not much of interest from “The ETF tool” and then Climategate broke and I was focused elsewhere for a while. I don’t think we missed anything. Here is the present list:

Basic straight runs:
Price > 25 > 50 > 75 
=============================== has 829 valid symbols (2 older than one business day)
   KXI 78
   HHH 63
   PGM 45
   RJZ 44
   DBB 43
   BDD 42
   BSV 29
   MBB 29
   DGL 27
   DGP 27
   DPN 27
   GLD 27
   IAU 27
   UBG 27
   UGL 27
   DBP 25
   PTM 25
   GDX 24
   JJP 24
   BRF 23
   ECH 23
   EEB 23
   EWZ 23
   HAO 23
   ILF 23
   KOL 23
  MCRO 23
   MKH 23
   PMA 23
   PPH 23
  PSAU 23
   PWB 23
   RTH 23
   RYH 23
   XLP 23

And as a partial “make up” for not delivering the list last time, here is an experimental run against a universe of both ETFs and individual stock tickers. You will need to do some of your own homework here, but it’s a nice “pick list” for a starting point. For example, the top listing is IMW an “energy bear” fund. Not for everyone. CAK is a Merrill Lynch fund with no volume on Friday. Yet NVS is Novartis, a great drug company and in a 45 degree rise lower left to upper right. So that’s why it is experimental. You MUST do homework on each ticker on this list:

Basic straight runs:
Price > 25 > 50 > 75 
pf has 4735 valid symbols (167 older than one business day)
   IMW 125
   CAK 104
   CVT 103
   NVS 102
   MAO 95
   BJW 90
   ORH 79
   KXI 78
   SHR 77
   SEP 73
   EPB 67
   PPI 67
  GOOG 66
   DEP 65
   OKS 65
   SFO 65
   SKP 65
   SKC 64
   XKN 64
   XVF 64
   DKL 63
   HHH 63
   HHI 63
   KVU 63
   BWP 62
   KSK 62
   CBE 61
   TZK 61
   PDJ 60
   PJE 60
  SEPR 58

Some of these I know, like HHH that is “Internet Holders”, an ETF, and GOOG is Google. Others are a complete black box. Use care.

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 tab shows a gold spike turning into a plunge and the Yen getting whacked by speculation that the “carry trade” will need to unwind some long yen / short dollar positions.

Be out of the Japanese Yen as that unwind happens. Be out of gold until it is back at a ‘reentry’.

Many other currencies are either flat or with modest downturns against the dollar. Nothing like a whiff of “The Fed might raise rates” to boost the dollar. I’ll be holding dollars for a while (have been for about a month). The one very interesting on is the Mexican Peso. Rising against the tide. Probably folks betting on a US recovery driving demand for things like Mexican Cement. Take a look at CX Cemex and EWW… EWW is in a nice run, but not at an entry yet. I’ll be taking a peek at the holdings inside EWW over the next week.


Last posting I’d said:

The only things of interest are Gold, up very fast and hard… too 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.

There was a minor dip in gold near month end, then a gentle rise, and a plunge. An OK trade if you were defensive about the peak (i.e. stop losses and early out behaviours). The Yen advice had been very good for the last year or so, but I missed the call on The Fed during the last week. The distraction of Climategate. OK, it was a good call for the FIRST week of the last posting… but that is why you use stop loss orders and why you (and me too…) are supposed to inspect your positions and charts at least once a week… At any rate, enough self flagilation: Be out of Yen now.

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. There might be some return to growth later, but for now it’s all risk and volatility without the “stair steps up to the right”. We need to watch, wait, and see; but the risk / reward is not so good. I’d lean toward India from this chart, but it’s just not an attractive mix.

VIX the Volatility Index

The chart of VIX – the Volatility Index.

Low, very low. It is saying “time to be sold”. VIX tends to go flat at longer term tops. I’m not liking what I’m seeing.

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

Look at the ADX- (that red line on the bottom DMI bar). Red has crossed over blue. The DMI line is still weak (below 20 to 25) so the trend is not a strong one (yet) but the statement is clear:

The “dollar down” trade is over

At least for a while.

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

Last posting I’d said:

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.

And this 2 week period we’ve also gone roughly nowhere. You did get a couple of nicee “day trade” opportunities, but that’s a hard way to make a buck and takes minute by minute engagement with the market. MACD is cycling around zero (so no trend, but cyclical trades) and even DMI on the hourly chart is “gone flat” at below 20. Flat sideways roller on the short term charts. “Toppy” on the 10 year weekly. All the probability is for a drop longer term and a rolling sideways short term. “Disbursement”. Sell the tops, do not buy the dips…

Though again we see an interesting rise in Mexico…

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

Not seeing much to like here. Wood. Copper that looks “toppy” and with a downturn at the end and news flow about “the end of the commodities trade”. Oil slowly sliding downward. Emerging markets looking OK, but with that long flat top “failure to advance” to overcome.

But last posting I’d noted:

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.

And that implies copper has more downside risk than upside, given that gold has rolled over into a drop. I don’t like the risk profile here.

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

Tech too has gone flat. So flat, in fact, that even the Slow Stochastic “fast trade” indicator has gone muddy. Step aside, just step aside…

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.

The “TIP” inflation protected bonds has had a MACD crossover to the downside. Time to sell TIPs. After touching “near 80” on the RSI and with a MACD crossover, the risk is all for a downside move. The “red line” ADX- on the DMI bar has crossed over to the topside too. We’ve had a nice long run up in TIP, but it is time to say adeu…

On the other hand…

Take a look at the TBT “Short sell of Long Bonds” line. After a long drop, it’s waking up! A “sell short” of bonds has great promise, especially with The Fed likely to start raising rates in some future months. It’s time to swap sides and begin ‘shorting bonds’.

TBT - Short Selling of Long Bonds

TBT - Short Selling of Long Bonds

We’ve got RSI with a ‘higher low”. MACD oscillating about zero but with a crossover to the upside in a general uptrend. SMA stack converged into a weave and TBT Price punching through to the upside. DMI has been dead flat for a few months and now ADX+ is pushing above. Yeah, the trend isn’t established yet, it’s still a bit of an early entry. But this is what you look for to know “what’s next”. I’ll probably start with a tiny in TBT and add to the position as the trend developes. This trade will run for as long as The Fed is tightening rates (though being based on options, it will have ‘ripples’ in it around expiration) so we can play this trade for the next year or two (depending on Bernanke and The Fed actually raising rates…)

What sectors won this week?

10 Best Performing Industries
  Industry Name
Percent Change (over time selected)  

19.99%  DJ US Airlines Index
13.39%  DJ US Business Training & Employmen...
8.07%   DJ US Platinum & Precious Metals In...
7.94%   DJ US Semiconductors Index
7.38%   DJ US Specialty Finance Index
7.29%   DJ US Hotels Index
6.78%   DJ US Travel & Tourism Index
5.90%   DJ US Tires Index
5.72%   DJ US Recreational Products Index
5.38%   DJ US Trucking Index

NEVER own an airline. You can trade them (and this shows an ‘oil dropping consumer not dead’ trade and nothing more).

This chart shows a “We’re not dead yet” theme. Businss is going to hire temps. Industrial catalysts needed. Export lead semiconductors. Paycheck cashing. Folks might even take vacations again. And they will replace their balding tires. OK, you can click through the title and then click through the individual sectors to see the companies inside. It think the “cruise lines and hotels” play has legs. Tires we talked of before. OK, but I just don’t get excited about black rubber doughnuts. The interesting new one is the temp agencies. Worth exploring. They ought to have a couple of year business recovery in front of them.

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
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

Dropping with the price of oil. Nothing of intrest here to me. Volatile 5% moves happening overnight. You have to guess in advance to make the trade. OK, I could probably do it, but … it’s buy at this price sell at that and against the day or two trend. Hard to keep that style in your head and do “trend follow” elsewhere. It’s “day trader” land.

Some Near Oil and Oil Related Comparisions


I’m sticking with the prior description:

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.

At least until something “shows me some love”… When the Mexican Peso FXM is the strongest trend in the herd, the herd “has issues”…

By The Sea…

Time to pick a new sector as a favorite… With oil flat / down a bit, transports often gain. 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.

This still holds too. I’m not real enthusiastic about the ships just yet, but someone is buying those dips and they get bid up earlier each time…

Though FDX Federal Express is smoking and both RCL Royal Carribean and NMM are both doing well in this broad transports comparison chart

Even the rails are doing nicely (though BNI Burlington Northern had a spike to flat on the BRKA Birkshire Hathaway buyout.) NSC and CSX look like they still have upside. UNP is already a bit high and going flat. GWR is a nice regional that has an intersting spike at the end. Looks like it dips near the end of month, start of the next. Nice tradeable ripples in a general up trend.

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 continues a very nice run. The others are starting to wake up as well. It looks like time to move a bit more money into REITS.

Before I’d said:

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.

I’d now add some of the others. RPT, a retail mall REIT, and HCP, a health care proprety REIT are both looking nice here. News flow for JOE and been good (a Florida property company) and I’d look at CTO as well (also in Florida).

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 stepped out of “Emerging Markets”. Watching the emerging markets to see if this is a long term out or just a pause. Starting to pick up some transports and doing more day trade / swing trades of a few days duration.

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.

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...
This entry was posted in Wall Street Week... and tagged , . Bookmark the permalink.

3 Responses to WSW – Friday, December 4, 2009

  1. Pingback: Tweets that mention WSW – Friday, December 4, 2009 « Musings from the Chiefio --

  2. pyromancer76jj says:

    E.M. Smith, you are a wonder. Where do you get the time? Anyway I read your post this morning and I returned this evening to read comments. Sorry there are none. I can’t believe you don’t have many readers. I am grateful for your ideas about whatever is going on in global markets and finance. So much looks dicey to me. Currently, I am worried about U.S. debt and where to put one’s not-for-risk savings. (And I am worried about debt to GDP in Japan and Europe — in fact, where should I not be worried?) Is any country (or any of our U.S. states, some of which have larger GDPs than many countries) living “within its means”?

    By the way, I could not get an enlargement of any of your charts.

    Do you have any affinity for Karl Denninger of Market Ticker?

    REPLY: [ The stats show a large number or readers, but not too many comment. I can only assume I’ve done such a stellar job there is nothing more to say ;-) (Actually, I do wonder about the number who look yet do not participate. Yet on WUWT there are now many hundred thousands hits and comments run to a couple of hundred on long threads.. so it’s not just me). Today, the number on this posting alone was about 58. Not huge and much smaller than the AGW postings, but still it means that many folks looked and were, one hopes, helped. Over a week or two, it’s a few hundred on this post alone.

    Per the time: If you only knew… It helps to not sleep…

    The key to ‘where to put things’ is that it contantly changes. There are some places more stable than others, and there are some trends that last longer than others. But at the end of the day, the answer is: “The answer changes with the times”. That is what most of the method here is devoted to. Finding ‘what is right for now?’

    It’s been gold, and will be gold again, but the parabolic rise in gold followed by a plunge on just the RUMOR of Fed rate hikes says: Not Gold Right Now. For right now, dollars of cash is good. A year from now? Highly unlikely to be the right answer. But it also depends a bit on “What will you do with your money?”. So I have a chunk of oil trusts that I never sell. They pay a high dividend directly proportional to oil price. It is balanced so that the dividends just cover my energy bill. I no longer care what happens either to oil or the trust. I’ve “hedged out” my energy risk for all time. Gas / oil price up? My bills are bigger but so are my dividends. Oil plunges? Dividends drop, but so does the gas bill… The exact opposite of a “trade”. Trade, hedge, or preserve. The three major states.

    But there are some “old standards” that hold for the long haul. Birkshire Hathaway BRKA / BRKB (the A shares are $100,000 range…) gets you the worlds best capital allocator deciding what to buy. I have some that I never sell. It’s a core position. Regular and persistent out perform of the market. Owns things like GEICO insurance, Coca Cola, Sara Lee, … and now, Berlington Northern rail road. And Swiss Francs tend to be a very stable currency. FXF. They pride themselves on that and it does not change with the season. Some times it rises against the dollar, some times it falls (but the reality is that it is the dollar who’s value is drifting…)

    So you watch the dollar, surf in and out with the waves of emotion by everyone else and when in doubt, preserve by parking in a basket of FXF, FXY, Gold, some core stocks, and short term bonds. When there are clear future trends, you use them to your advantage as a trade. For example, The Fed WILL raise rates. The only question is 3 months or 2 years? That means long duration bonds WILL FALL. There is no more rate cutting to come, so it’s time to leave US bonds. US Treasuries are DEFINED as risk free, yet they have price changes based on The Fed and value changes based on inflation. There is no risk free. But you can balance risks…

    Per making charts larger: On the PC in Firefox I just did an “alternate click” (i.e. the bottom mouse key on the laptop) and open image in new window. It then opens with a + in the cursor. Click on the picture and it gets bigger. Your browser may vary.

    I don’t know Karl nor Market Ticker. How about a comment telling me what they are and what they do for you?

    BTW, I’ve been consistently surprised that folks would rather rail about AGW than make money. While I have my take on AGW too, I would have expected more folks to care about the ‘money posts’. Yet even close personal friends for whom I originally started doing these posts are more concerned about the brand of coffee they are drinking than they are about losing $100,000 from inattention. (Yes, that’s a real number). Folks just want the money to grow and without any tending. When it doesn’t, they figure it is fait, not sloth on their part. 90%+ of all people sampled. Yes, trading and investing can be complicated, but it is well worth it to learn. I’ve taught the concepts to 2 different friends as a test of ‘transferable skill’ and it works. But you have to want it more than you want another hour watching the latest soap opera or football game; and most folks don’t.

    Oh, and a direct answer to “who is living in their means?”: China, India, Brazil, Japan. There are some others, but they tend to be small countries. Some by force of the IMF and so still not good investments. Some, like Switzerland, by moral discipline. So EWL gets a basket of Swiss companies and FXF buys Swiss Francs. FXI gets a China basket while CYB gets the Yuan, EWZ buys Brazilan stocks and BZF gets the Real, IFN, INP, EPI, IIF all get slightly different baskets of India (I like the EPI fund managed on a profit screen, but there is an “India Race” on the racing stocks tab so you can compare them) and ICN gets a Rupee note fund. EWJ is a Japan fund and FXY buys the yen. There is a list of currency ETFs here:

    And there are other countries that tend to live in their means, though not always. So New Zealand has a currency ETF BNZ and Australia is FXA though the two country stocks tend to be blended in “Australia Region” baskets. EWA is Australia. NZT is New Zealand Telecom and has a nice dividend. Canada has EWC and FXC. The minor countries, like Indonesia IDX or South Africa (EZA and SZR) become more volatile as money flows in and out. Regional funds work better for the very small countries. So you can get a “middle east” GAF fund or an “Asia minus Japan” EEP to pick up a basket of relatively profitable countries like Singapore, Taiwan, etc. Israel has a very stable currency and CEL is the cell phone company with a 9.6% dividend from a rock stable currency. Only problem is if they get nuked tomorrow… And there is GUR for the “emerging Europe” (also on the “around the word” race up top).

    The problem, though, is that all these countries have their markets and their currencies move relative to the USA and to each other, and not always higher relative to the USA. So you can use a “good morals” screen to select them as candidates: But you still must use the charts for assessing present directions. For example, NZT had a nice run up, but is now “topped” and CYB is pegged to the dollar, so has been spanked along with the dollar (despite China amassing giant piles of other countries money). Markets move based on traders emotions and news flow for weeks or months at a time. Fundamentals are important on the decades scale. It is hard to stick with “fundamentals” when “trade trends” have cut your account in half…

    So if you want a “put stuff here and forget it” plan, there isn’t one. The closest you can come it to pick a basket of 20 to 40 of these things and diversify so much that you hedge out the local risks. (So, for example, having 2.5% each of NZT and CEL gives a very nice average dividend and very low political risk, on average. Having 2.5% of PCL and 2.5% of PWE gives good dividends and a hedge against inflation from the commodities they own. Repeat until done). You lose a bit of “trade gain” but gain a lot of “sleep and play” time.

    IFF there is any interest in such a “massively diversified sleep well” model portfolio, just say so, I’ll put on up as an example.


  3. Fred B says:

    Years ago as an amateur spelunker I was told that you could measure the yearly average temperature of an area by simply taking the temperature 6 feet inside of a cave. This was why there is ice inside of some caves in the middle of the summer. I don’t know if this is really true but it made sense to me.
    I wonder if any of that data is available?

Comments are closed.