quick market update

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strabes's picture
strabes
Status: Diamond Member (Offline)
Joined: Feb 7 2009
Posts: 1032
quick market update

I thought this might be useful...maybe not.  I keep being surprised at how cheery people are that I bump into day-to-day...those that actually think we're recovering, the govt has succeeded, Obama is God.  So I thought it might be prudent to post this chart of the Great Depression so you don't get stuck in the rude awakening those people are going to suffer from:

29to32percentchart1

1.  Note how some of the biggest market rallies in history occurred in the Great Depression.  Do not let the media's chatter about the rally effect you.  Markets move in waves...today we are just in an upwave in a larger bear market.  We're probably somewhere around Feb 1930 or Feb 1931 on this chart nearing the end of an upwave before the majority of the crash still has to happen.  

2.  Note how even though the %increase during rallies compared nicely to the %decrease during declines, the overall result was a total market collapse.  That's due to the lower basis after a decline, i.e. if the market collapses from 100 (the basis) to 50, that's a 50% decline, but to get back from 50 (the new basis) to 100, it needs to rally 100%.  It gets worse the further down you go, i.e. a 75% decline requires a 300% rally to get back to the original basis!  So again, don't let the media chatter about a big number like 25% rally effect you.  

3.  Regardless of what the media says, the thing to do as this rally matures is exit your long positions...it will be the best place to sell assets before the collapse continues.  I'm not giving specific timing advice here.  I'm just making the observation that the rally has run quite a distance.  It could run more...Elliott Wave thinks it will (though it anticipates a possible intermediate correction) because we haven't come close to reaching the false exuberance necessary to suck everybody back into the market yet which is what occurs in these rallies...their quantitative bull/bear measure still has a ways to go.  But our mindset at this point should be "what's the best time to sell?" rather than "yey...the economy/market is recovering!"  

4.  Traders will tell you to let the rally run and wait til the signal turns against you to sell.  That's true if you're a trader with a timing system you trust.  But for those without a system, note how steep, i.e. rapid, some of the declines were in the depression.  It could quickly run away from you before you have a chance to sell.

5.  According to this chart, the other thing to do as the rally matures is potentially enter short positions to capture the value of the next downwave.  You could either look to exit those as the next upwave starts and keep cycling in and out, or you could just hold the shorts until the end of the larger level collapse that will continue for a couple years.  

A big question is what to do with money as you sell assets (besides using some for shorting/inverse strategies).  In my view, short term T-bills or other safe cash equivalents (a good portion not in US banks).  No inflation risk...they compensate well for inflation since they're so short-term and as you recycle them the rates are reset.  And no deflation risk since principal is safe.  And fairly liquid...you can redeploy them before the market waves change.

But what about the $?  I personally anticipate the $ increasing as the next phase of the crash occurs.  The next phase of the collapse will be deflationary just like the first phase was.  Also, flight to quality will happen until the global monetary system itself crumbles. The global monetary system hasn't crumbled and probably won't until the economic collapse runs its course.  At some point there will be signs for when to engage the Peter Schiff strategy and exit the $, but it won't happen in the middle of a rapid collapse when global capital will be desperately seeking the lowest-risk asset...that's the $ in the global monetary system we currently have.  

Given that view, I'm anticipating lower prices in precious metals as well so there will be a better time to load up on gold/silver.  I'm keeping some physical PM on hand for insurance, but for investment purposes, I sold back in Feb and I'm waiting for lower prices to buy.  Of course, if I'm wrong on the $, then I'm wrong on PM too.

Whew...I'm tired...thoughts?  

 

 

 

 

 

 

Nichoman's picture
Nichoman
Status: Gold Member (Offline)
Joined: Nov 1 2008
Posts: 422
Re: quick market update

Strabes...

Thanks for your post.  The more I research and learn, the more its evident the market is now not only overbought from too optimistic future EPS and thus future P/E's but headed lower since were making the problem worse by more and more debt or living beyond our means.

A thought that comes to mind again and again is interest rates will head higher (much?) starting NLT this summer...facilitating return toward reality (lower markets).  Possible...maybe probable currency instabilities by fall.  Whose going to buy our debt?

Investment possibilities (agree with several here on this site plus CM and other sources I respect) next 12-18 month horizon...

  1. Short T-Bills 
  2. Long Food Commodities (shortages)
  3. Long Energy (especially Oil)
  4. Long Precious Metals (Copper, Gold, Silver)

It would not surprise me to see markets break our current lows S&P below 660 by this fall.

My 2 cents. 

Nichoman 

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
Status: Martenson Brigade Member (Offline)
Joined: Jan 4 2009
Posts: 2606
Re: quick market update

Nicho - (good to finally meet you at Lowesville, BTW)

Don't get stuck with a green market bias.  EPS and P/E mean nothing to trading the market.  All that is is fodder for the talking heads on CNBC to howl about.  Overbought, oversold - they mean nothing if you trade the moves that the market gives you.  The only thing they might be useful for is that once everyone is talking about it and telling you what you should be doing because of it, you should probably do the opposite because the underlying dynamic has already occurred and the event is over.

Trade the ups, exit on the sideways moves.

Trade the downs, exit on the sideways moves.

Repeat.

Accumulate cash.

DIA, OEX and QQQQ are printing money faster than the Fed.

Nichoman's picture
Nichoman
Status: Gold Member (Offline)
Joined: Nov 1 2008
Posts: 422
Re: quick market update
Dogs_In_A_Pile wrote:

DIA, OEX and QQQQ are printing money faster than the Fed.

Dogs...nice to meet you and Cat at Lowesville as well.

Thanks for your comments.

I'm just at best an investor whose not exceptionally sophisticated.

Can you expand on what DIA, OEX and QQQQ are and what they represent?  Not familiar with what you mean?

Also,  any thoughts about the article below of record insider selling trading.

http://pragcap.com/more-on-insider-selling

Trying to learn a little bit more.

Thanks,

 

Nichoman

 

 

capesurvivor's picture
capesurvivor
Status: Platinum Member (Offline)
Joined: Sep 12 2008
Posts: 963
Re: quick market update

Good to see these posts, thanks for starting, strabes.

Dogs is the expert but I know that his three symbols track Dow Jones, SP 100, and Nasdaq. If you didn't know that, you may not want to invest in them! Dogs has a very specific approach to investing explained elsewhere; if you search CM you can get a good description.

Insiders aren't always right but my guess is that most of them think that this is a sucker's rally in a bear market, as strabes' graphs suggest. What's the GOOD news for stocks? Americans have started to save, not spend, unemployment is rising, housing is terrible, and the commercial real estate and credit card disasters have yet to hit. Doesn't sound positive to me. My state (MA) is not broke, it's under water, maybe until end of 2010.

I have been trying to convert small, "worthless" collectibles to cash and keeping it in money markets and buying a gold coin or two. Commodities are creeping up so I'd like to add some commodities etf funds such as DBA and DBB to some other stuff I own but they are best held in tax-deferred accounts due to being somewhat of a hassle at tax time otherwise. I, also, think that the hard assets are ones to get before they soar. UNG, the natural gas etf is so low you wonder what's happening. Have the Matrtians landed and given us free gas? No way. It's gotta go up. I also have a few USO (oil) call options.

JMHO

 

SG

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: quick market update
capesurvivor wrote:

Commodities are creeping up so I'd like to add some commodities etf funds such as DBA and DBB to some other stuff I own but they are best held in tax-deferred accounts due to being somewhat of a hassle at tax time otherwise. 

SG,

Can you elaborate on these tax difficulties, I am unaware of what your referring to. Is it because these funds hold "foreign" assets?

Thanks for your time.

A. M.'s picture
A. M.
Status: Diamond Member (Offline)
Joined: Oct 22 2008
Posts: 2368
Re: quick market update

Strabes,

Thank you for the awesome write up, and excellent chart.

I'll be following this for further developments - very good information.

Cheers,

Aaron

capesurvivor's picture
capesurvivor
Status: Platinum Member (Offline)
Joined: Sep 12 2008
Posts: 963
Re: quick market update

Hi Jag,

No, I think it's LT and ST capital gains that are always being calculated. This post explains a bit; you might google around for more details.

http://seekingalpha.com/article/54063-etf-update-tax-efficiency-commodit...

It's possible that I'm exaggerating the problem but I do my own taxes and when I traded futures, it was a pain for me. I think the commodity etfs may send you similar forms but it's only what I was told, to try, to hold them in tax-deferred accounts to minimize accounting hassles. I don't want to fil out form 1254 or whatever those futures forms used to be. The K-1 for a REIT I had was a hassle also. Since I don't hold any in taxable accounts, I'm not sure, but check it out before you buy.

I guess I just have low tolerance for tax stuff.

SG

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: quick market update
capesurvivor wrote:

I guess I just have low tolerance for tax stuff.

SG

I couldn't agree more! Just when you think you have your taxes figured out, POW!, some new complexity hits you "upside da head". Thanks a lot for the info, I was totally oblivious to these particular tax hassles.

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