mcbockalds

OK, I'm confused. In response to "Buy low sell high" just the other day you said "buy." Now you give us the headline link above that says, "Dow at 4-year high, Nasdaq hits 11-year high" so I take it you are now telling us it is time to sell eh? Buy low and sell high, right? Cheers John

Just a reminder of that sage market wisdom, "Buy low and sell high." I wonder what time it is now? Here is a fun read by Gary North. I read a bullish-on-the-stock-market article today that was so bad I almost posted it here, but decided someone might take its advice and buy stocks. Its gussied-up argument boiled down to, "the stock market indexes (Dow, S&P) P/E ratios have been below their long term averages for 3 years now and therefore they should go up!" Truly a pitiful application of "buy low sell high." Cheers John

I suppose I would get back into stock funds if I quit reading people like economist John Hussman. Somehow I am more inclined to bet my money on those who show me their models, assumptions, data sets, reasoning and analysis, compared to those who do not. It can be the difference between "data sets" versus "data points" or between "leading" versus "lagging" economic indicators or between "predictive strength" versus "hopeful expectations." If all knowledge were simply relative (back to the 60's: "My reality is my reality.") it might simply boil down to: "the differences listed above are in the eye of the beholder." I don't believe that for a moment. And for the moment Hussman's and the ECRI models are still pointing to recession in the future. In the words of Hussman, I do not hope for a recession. Rather, that is the expectation that the data forces on us. Frankly, much of my time in recent weeks has been devoted to analyzing data in the hope that a more compelling case could be made for avoiding a recession, since that would free us to be more constructive should market internals improve. But that's not what the evidence indicates here, and the recent economic data hasn't reversed that conclusion - not yet at least.... I don't challenge rosy outlooks because I enjoy being defensive - I don't. In fact, I can hardly wait for market conditions where risk is priced appropriately. It's just that Wall Street's simplistic cases that stocks are cheap and recession is "off the table" just don't hold water when we examine the data. Cheers John

Well stated. My own getting into and out of the stock market every 5 to 10 years is not exactly market timing, at least not short term timing. And yet even doing it "long term" still requires getting back in (which I did selectively and well in 2003 through 2006) and I blew it in 2009 by not getting back in. (Although our rather small amount in bond funds have helped, at least until now - because I am no longer in them!) The reason I did not get back in in 2009 was because I agreed with those who were and still are saying that the financial/debt crisis is not over. Not just in Europe, but also in the US. But even if that is true - and it may be false - that is not the same thing as saying the stock market will not rebound as it in fact has. I sometimes try to make myself feel better by thinking that my problem is that I knew too much about the underlying economic causes of the debt crisis, but not enough about the "manic depressive" stock market. Ha Ha how good I can be at making myself feel better. Only time will tell about the crisis and even "then," as now, each of us has to decide how we manage our funds. I am probably more risk adverse than the average person and coupling that with no great need for more financial wealth I will probably always be playing it safe (as I see it) rather than boldly. I don't mean that I have a lot of money. I mean that I don't need a lot of money, but I do have a strong need for financial security. I grew up pretty poor, and I knew it, and that has shaped my need for security much more than wealth. Probably because I was part of a huge extended poor family that overflowed with love and good humor for and with each other. I was luckier than I thought at the time. Fortunately I know it now. Cheers John

I have answered twice that I am not in. BTW it was not my question, it was CINDONA'S. And a good question at that. Cheers John

Here are a few of the better quotes I have read today about yesterday's Fed action and the resulting surge in stocks. Yesterday was a great day to have been long stocks, any stocks! I wish I had been in and I emphasize "had been in," because it was a great day to end the day with "getting out!" IMHO of course. "Stocks are bits of businesses. And businesses do not make more money just because the central banks print money. If this were not so, a few years ago, Zimbabwe’s companies would have been the most profitable on earth. Under the leadership of Gideon Gono, the central bank of Zimbabwe was printing up trillion-dollar notes and handing them out all over town. Trouble was, you couldn’t even buy a cup of coffee with them. In fact, you couldn’t buy a cup of coffee anyway…the whole economy was in such disarray nobody could get any coffee. Or anything else." "The overly indebted — perhaps fatally indebted — financial institutions who will avail themselves of this lending facility will be just as indebted tomorrow as they are today." “Once the central banks start lending to insolvent banks, there can be no orderly exit. When sovereign defaults occur, there will be an acceleration of money-printing to keep the system propped up.” And finally, a rather long one, but I like funny ones. The following quote is from an article that explains the Fed's willingness to provide as much "swap line" liquidity (money) as needed. "What are unlimited and open-ended swap lines, after all, if not an institutionalized form of “layering” — an activity the Patriot Act specifically defines as “money-laundering”? According to the Act, “layering is the stage of laundering in which the origin and trail of funds introduced into the financial system are hidden by creating layers of transactions.” Hmmm…let’s see now…if the Federal Reserve prints dollars, then “swaps” those dollars with some foreign bank, that then distributes those dollars to make loans, make new investments, repay credit lines etc. etc. etc., those original “ill-gotten” dollars from the Fed would have flowed through so many layers that no one could ever trace their source back to Ben Bernanke’s printing press. Perhaps someone should notify the authorities. The Fed is engaged in highly suspicious, un-American activities. We may have a domestic terrorist on our hands…or at least a domestic monetary terrorist." Cheers John

And I too would be horrified if anyone thinks I am recommending buying US long term treasuries now. Now is the time to be selling! The only way safely "to cheer" about a 24% return YTD is to take it...we are. We now only have a token amount in the fund to keep it open. Cheers john

Well, we have established one thing, we disagree. And I don't have too much money under the mattress, but 24% return YTD on our US long term treasuries bond fund is nice. Note, it is always easy to pick out one or two parts of one's portfolio to highlight...it proves nothing in general, so I seldom do it, but just this once seemed right. Cheers John

[quote name=Ed6713' timestamp='1320022992' post='496895' Perhaps the tens of millions of investors that make up the worlds stock markets,believe the problems, very significant problems I might add, are manageable, and that by this time next year, most of the economic problems will have been dealt with. It would seem that Merkel of Germany does not share the possibility that "by this time next year, most of the economic problems will have been dealt with." While she certainly is not sounding any alarms - just the opposite - I can't quite believe her optimism that for the next ten years world economies can get along just fine while the debt problems are resolved in an orderly fashion. On the other hand, I don't expect her to say anything different. To look at one month, the best month, in a long time and figure that one's portfolio is something to cheer about is a bit of a short term view. Just as it is a short term view to be discouraged after a huge one month downturn in one's portfolio. Isn't this obvious to everyone? Cheers John

I am starting to believe DOW 11,000 (a "big round number") is somehow more powerful than even I had guessed. It appears that it will take a mighty powerful piece of bad news to break through its support, as it continues to be able to suck the DOW back up to 11,000 with any piece of hope leaked out of Europe or even a slightly better than expected report of the ISM index. Just how good was the ISM? David Rosenberg noted this today: • The ISM’s non-manufacturing purchasing managers’ index came in at 53 in September — exactly where it was in November 2007. • ISM manufacturing was 51.6 last month — where it was in November 2007. Recession began a month later. Cheers John

Do not watch this if you have a weak heart. Recession Is Here A comment on the video by economist John Hussman: The way you spot a thoughtful economist, in my view, is to listen for an understanding of both data analysis and equilibrium. In our experience, most economists and Wall Street analysts seem to analyze the economy as what I'd call a "flow of anecdotes" - weekly unemployment claims did this, retail sales did that, we got a positive surprise here, and so forth, without putting that information into any real structure and without knowing which data points actually matter or in what combination. In contrast, good economists think about the economy as a system - where multiple sectors interact. We tend to use words like "equilibrium" and "syndrome" when we talk about economic data - emphasizing that the best signals involve a whole conformation of evidence, not one or two indicators, where the data - in combination - captures a particular signature of recession or recovery. Look at how Achuthan described the situation on CNBC on Friday, and you'll see a good example of this sort of thinking. Edited...I just finished reading John Hussman's whole article and it is too good not to reference Recession, Restructuring. Still not in and still not getting in. Cheers John

I am not a trader at heart, but more importantly all our savings/retirement funds are either 403b or IRA funds and trading is virtually prohibited (not more than quarterly in most of them). But it must be an exciting time for those who can be traders! At least this trader is excited .

Even though the Dow swings above and below are getting bigger and bigger, 11,000 is truly the magical number these days. Of course, magic is not what I want to base my investing decisions on so I continue to sit on the sidelines. But at least I am getting more than a few laughs at the rumors about European magical fixes that help (as intended) to hold the line at the magical 11,000. Just like with I don't put my money on these rumors or even on the almost monthly sleight-of-hand bailouts. Cheers John

The cracks in the "world financial system" keep forming (see the links just from today's financial news). From my limited experience as a carpenter when you patch the cracks in plaster walls but don't fix the structural problems that are at fault, the cracks and even new ones keep coming back. But carpentry is so much easier to do than economics. Just ask Ben! He is probably wishing he was a carpenter about now. China shuns Europe Consumer Confidence Lowest Since 2009 Euro Crisis Mounts Too-Big-To-Fail...or Not? World on Eve of Next Financial Crisis Nothing to cheer about John

Still not in and still not getting in. Cheers John

I reckon today was another good "selling opportunity" about an hour or so before the market closed. I also reckon a few people are waiting for Ben to reopen the money spigots next week and that is suppose to finally support the market. Or will that actually produce another great "selling opportunity?" Unless, of course, he doesn't. Just like in 2008 the market seems to find courage/hope at the "big round numbers" like 11,000 and probably again at 10,000 (although 12,000 flew by). It seems to take a major piece of bad news to break through these "courage/hope producers." It isn't hard to imagine future financial events that will do the job. On the other hand a bit of good news, no matter how thin, can sure take the market up. Take, for example, today's announcement by German Chancellor Angela Merkel and French President Nicolas Sarkozy, who issued a joint statement following a phone call with Greek Prime Minister George Papandreou, that reminded us (i.e., old news) that "enacting a set of proposals the European Council, announced in July, to support Greece and prevent a broader crisis are now more important than ever to ensure the stability of the eurozone." Those proposals included an agreement by European leaders to provide another 109 billion euros in emergency funding for Greece. Ahh...well...no wonder the market shot up today, now that that problem is resolved. I am reminded of the great film, One Flew Over the Cuckoo's Nest. Where, of course, the mental institution represents the market. But I'm not sure who Nurse Ratched represents - maybe the legion of market analysts who always tell us it is a good time to buy? Or perhaps the really-big-money investors who are already out of the market (indeed their getting out is what caused it to go down). Or maybe "Wall Street" who seem to get their bonuses no matter how crazy the game becomes and the inmates suffer? This is too depressing...I think I will go watch a horror film. Cheers John ►

DOW is way up on light volume today. Is this the last good selling opportunity for awhile? This week's article by John Hussman is really worth reading.

Why Buy Stocks Now This article and its analysis is almost a repeat of articles I remember reading back in Feb., July, and Nov. of 2007 when the DOW took some 600 to 1,000 point nosedives. All were touted as buying opportunities, none were selling opportunities, even though, as now, the news was full the housing and sub-prime crisis and other possible impending problems. Oh my, here we go again. To read about the simplicity and incorrectness of simply using forward operating earnings and current low interests rates to predict buying opportunities read John Hussman's articles like, Rich Valuations and Poor Market Returns, where Hussman says, While we can certainly find analysts who believe stocks are cheap, we can easily test the long-term accuracy of their methods (which often amount to nothing more than applying an arbitrary multiple to forward operating earnings, or dividing the forward earnings yield by the 10-year Treasury yield). Frankly, many of those alternative methods stink. Regardless of whether an analyst claims that stocks are cheap or expensive, they should be expected to provide some sort of evidence that their methods have a strong relationship with subsequent market returns.

I have no secret! I sometimes wonder why I even post anything about investing. As a retired academic (small college) economist I probably know less about investing than your average diesel mechanic, who really understands something important. That said, I guess I just like to see my writing in print, so here I am saying what I THINK, not KNOW about financial markets. I agree with you that, "things don't look great for our investments regardless of preferences on where to put your money." (Although gold MAY continue to do well, but I don't have access to gold or commodities in our retirement funds.) And given that belief, I guess the only way I can hope to do fairly well with our IRA funds and 403b funds is to try to time the market...not to make a killing but to preserve assets and get a bit of growth. So far about all I have done is to preserve assets (except for some good growth in the past with precious metals and energy funds), but inflation too has not been kind to me since then since I have been on the sidelines. I do hope to get in soon, but don't believe our economy is going to support even these lowered stock market evaluations. "You pays your money and you makes your choice." Cheers John

True. But also true is " a gain is only on paper unless you sell!" And just how long should a timeline be before one sells? TheDOWhas been at the low 11,000 value too many times over the past 10+ years to get me real excited about gains on paper. And when considering inflation it is much worse. Total inflation from 2000 to now is about 30%. So a DOW of 11,000 in year 2000 would compare to an inflation adjusted DOW of more than 14,000 today. That means, a DOW of 14,000 today has shown no real growth compared to a DOW of 11,000 in year 2000. We all understand inflation, but we don't often think about it when talking about stock values. The new saying is becoming more and more relevant, "buy and hold" has become "buy and hope." And there hasn't been a whole lot of hope in the past decade. Does the next decade look brighter? Not to me.

But this is not your Grandfather's August. "Volatility pumps up the volume in August." If you are 25 years old, then "stay the course" is an OK idea, otherwise...NOT. Any "up day" is a "selling opportunity." Cheers John

I see some/many analysts already asking today, is this the bottom...is this a buying opportunity? Hmmm, as one writer with a different point of view said this morning, "The term “buying opportunity” is posted in so many circles, and what is interesting is that you never ever hear the term “selling opportunity” on Wall Street." He also pointed out that, "The Investor’s Intelligence survey right now is at 46.3% bulls and 24.7% bears; again, at last summer’s market bottom, the number of bears outnumbered the bulls by eight percentage points. At last count, the bulls outrank the bears by 22 percentage points. Where is the panic button? When you see that, then it may be time to get back in." Or in other words, with the market up today, it may be another good day to get out! Cheers John

Yes, we got out...back in 2002!! OK, we were a bit early...actually late, because we had lost 25% before getting out. From 2004 to about 2007 we had 80% in bond, money market funds and 20% in Precious Metals and Natural Resource stock funds (Vanguard) and got very lucky with those funds! With only a 20% exposure we recouped our 25% loss and then some. From then until now we have been about 95% in bond and money market funds. I did not trust the past 2-year bull rally, so stayed out and have been waiting for a significant correction such that stock valuations "match" the real economy which I think is still in a long run recession. I look forward to once again investing in stock funds and getting back to a diversified portfolio. Obviously these days I am smiling.