Archive for April, 2010

Beginning-of-the-week Thought

Monday, April 19th, 2010

After last week’s shelling, everyone is on edge, it seems, including myself.  This morning I’ve done a very informal survey of sorts, compiling the bottom lines of some folks whose opinions and track records I respect.  Here they are, with no gaming, the coincidental equality of positive and negative views is purely that, coincidence.  On the other hand, it might also coincidentally reflect the uncertainty that usually pervades things.  Quotes are in blue, and the length of the bearish excerpts are not a reflection on the weight I place on it . . . I don’t think so, any way.  To balance that out, I’ll add a fourth to the neutral-to-negative side.

On the neutral to positive side:

  • Jason Goepfert, of sentimenTrader, who is all numbers, says that, historically–back to 1928, when we’ve had actions like last Friday’s in similar environments (i.e. strong market momentum near a high), the action rarely marked a major peak.  That occurred in just 3 of 12 times.
  • Strategas Research called the Goldman Sachs (GS) story noise.  Said that both the fundamental and technical backdrops are positive, while the shorter-term technical backdrop might be murkier.  ” . . . short-term uncertainties aside, technically it’s very difficult to get structurally bearish on the broader market.”
  • JPMorgan–the only one cited here that is a buy-side source–expected to ride out the correction and not try to position for it.
  • Ned Davis, the man, says that the market can’t be faded (read, sold) when some historically strong indicators are flashing new buy signals.  Still, he remains “neutral to mildly bullish,” because of other concerns.

On the neutral to negative side:

  • Dennis Gartman, while not translating GS news into a market malaise, listed nine factors–in a most cumbersome way, I might add, which is typical for him (e.g. “sixthly,” “seventhly,” “eighthly,” etc.)–that were all implications.  He pulled out the familiar saying, “there’s never just one cockroach,” meaning that GS is not going to be the only one.  GS will never be the same company.  There are political implications, too.
  • David Kotokof Cumberland Advisors sees the need to have some cash on hand.  “At Cumberland we have raised some cash.  We exited the capital-market ETF [Cumberland is an ETF-only shop].  We expect this news will be the catalyst for some market correction.  It is long overdue.”
  • Jeff Saut, of Raymond James (okay, it’s a sell-side firm, too, but Jeff is an exception to the run-of-the-mill sell-side strategist) took a decidedly dim view of last week.  He talked about bearish voices on financial television being subdued by bullish hosts and other guests.  “As for the ‘here and now,’ we are increasingly cautions, believing a near-term ‘top’ in the equity markets has been registered.  Longer-term, we remain bullish, thinking the profit-cycle recovery is alive and well.”
  • Investors Intelligence, which has been around since the mid-1900s publishes, weekly, its Buy/Sell Climaxes report.  A buy sell climax is when a stock records a new 52-week high low and ends the week with a loss gainLast week produced a big buying climax, the fourth largest of the last year, and every similar spike over the last year lead to a correction.  Historically, “[their] work shows that sellers into buying climaxes and buyers into selling climaxes [i.e. doing the opposite - GPS] are right about 80% of the time.’]

One problem with the market of late has been the high level of optimism, and Friday’s action hasn’t yet been captured in many sentiment gauges.  If we can work off some of the optimism and not suffer much technical damage (i.e. violate support levels), we should be okay.


Weekly Recap & Outlook – 04.16.10

Friday, April 16th, 2010

Tower Private Advisors


  • Selloff today because of [insert reason here]
  • Troubling economics this week
  • Housing on tap for next

Prior posts



Beginning-of-the-Week Thoughts

Monday, April 12th, 2010

I usually go through this exercise–mentally only or on paper–of cataloging my current fears and concerns and why they might be wrong.  This time, I thought I’d do it electronically.

Volatility seems troublingly low

Implied volatility is at levels that, in the past, have suggested trouble for markets, and there seems plenty to worry about.  What’s more, stock markets have moved strongly higher, including something like 30+ days without a correction in the S & P 500.  Volatility is now investable with the advent of iPath S & P 500 VIX Short- (VXX) and Medium-term (VXZ) Futures Exchange Traded Notes (ETN).  Basically, they’re like ETFs in a different guise.  When volatility rises, their prices go up, and vice versa.

Here’s the chart.

A slam-dunk sell, right?

Not so fast, Tiger.  While dips below 20 have also been decent long-term indications of trouble ahead, it was painfully wrong, for a long time, as shown below, and a return to those levels would produce a very painful loss in either of the volatility ETNs.  And, as difficult as it has been to spot mini-tops since the bear market bottom a year ago, one has to be especially careful of using single indicators to suggest bailing.

The weekend “rescue” of Greece by the other European Union nations is only a short-term fix.  The rest of the PIGS–including Greece–are not done squealing.

I haven’t come across much to counter this line of thinking.  Seems to me these are big risks that have been papered over.  Here’s an excerpt from an update from David Kotok of Cumberland Advisors.  He’s a sharp knife, and he thinks the situation in Europe will be resolved okay.

We believe there will be a Greek version of the “hunkering down” outcome. We saw the Baltic version of this process recently in Latvia, where an austerity program cut the deficit in half last year and markets immediately resumed functionality.

Furthermore, we believe the euro will not only survive this test but emerge stronger and more reliable after it. The other EU countries are already moving to improve their fiscal process.

For the present we are underweight Europe in our global portfolios and we are watching carefully before taking a bullish position on the euro. Notwithstanding the recent news, it is still too soon to buy. But when the buying opportunity comes it will come fast, and the nimble will benefit. Surviving this crisis and successfully improving the internal European banking system are the key to the euro emerging as a battle-tested reserve currency.

What we see happening in Greece and in the euro zone is monumental in monetary history.

Maybe one of our bullish datapoints is becoming less bullish.

We’ve had this idea of a bubble in bonds as front and center amongst our bullish data points.  The idea is that, with a record amount of flows into bonds and bond funds by investors fleeing–following a shellacking in stocks in 2008–to safety–the first minus sign in a bond fund investor’s account statement, along with a continued rise in stock prices, and those flows will reverse back to stocks.

Today’s Barron’s had an article titled, “Accentuating the Positive, at Last,” with a sub-title that read,

“Retail investors are finally warming to U.S. stocks, as worries about a double-dip recession subside.  Good news:  one analyst sees the S & P 500 rising another 10% to 15% over the next six months. ”

That article also pointed out that retail (i.e. non-institutional) flows into equity funds were positive for four weeks straight.  And mutual fund managers aren’t letting that cash sit around, which would be a source of buying power.  Recently, Ned Davis mentioned that equity fund mutual funds have their lowest levels of cash–even adjusting for the ultra-low cash yields (which raises the opportunity cost of holding cash)–ever.

What’s more, in at least the 10-year Treasury futures pits, the speculators–this is the group traditionally left holding the bag when markets turn–have their largest ever short position.  They’re very bearish toward the 10-year, and that’s a pretty good proxy for bonds, in general.  I think it’s hard to find a bond bull.

Earnings expectations are high.  Stocks are set to disappoint.

That’s my worry; it’s not the company line. 

Analysts really have high expectations for companies.  According to the consensus of analysts surveyed by Bloomberg, earnings for fiscal 2010 are expected to be 19.9% for the S & P 500 excluding financials; 15.8% for 2011.  In 2010, Financials are expected to show growth of 99.1%; Energy 44.0%; Technology 34.2%.

According to Ned Davis Research, those estimates are in a zone that has, historically, produced per annum returns of minus (-) 3.4%.  Contrarians won’t be surprised to learn that stocks perform best when estimates are the worst.


Weekly Recap & Outlook – 04.08.10

Thursday, April 8th, 2010

Tower Private Advisors


  • A new view of charts, narrated
  • Grease
  • Strong ISM Non-Manufacturing report

Prior posts



Recent visit with Williams Inference Center

Monday, April 5th, 2010

We recently met with the fine folks (folk singular?) from the Williams Inference Center (WIC).  Shown below is the menu for the Spring 2010 quarterly meeting.

This was one of our shortest sessions yet with Syd, but there was some good stuff in the materials.  Naturally, we pay for the service to get some investment ideas and/or to divine relevant trends that will impact investments, but the societal anomalies and observations are intriguing in their own right.

Considering the former, there were four folders–or agenda items from the list above–that pertained to investments.  As always, the trick is figuring out to play them.  Here’s a quick run-down of the folders/items.


We’d been aware that cash as a % of assets on company balance sheets was at a record high, and we considered it a bullish factor for certain sectors of equity markets.  That is, we expect that cash to be used for capital expenditures, with the likely first priority being to replace aging information technology systems.  One thing that came out in discussions around the table–including anecdotes and first-hand accounts from participants in our meeting–was the supposition that companies are hoarding cash because they’re scared.

This merits monitoring for several reasons.  First, companies are in the trenches, seeing sales roll–or not roll–in.  Second, if the fears end up being unmerited then it’s probably–as is said–game onfor cap ex spending.  Third, we need to begin screening for companies with outsized net-cash-per-share positions.


Here’s an excerpt from an article excerpt that was featured in the file,

“Nearly four kilometers above seal level in the Bolivian Andes lies the Salar de Uyuni, the world’s largest salt flat.  But there is more to this sureal, moonlike landscape than meets the eye.  Flowing in salt-water channels beneath the surface is the worlds largest supply of lithium–and possibly the future of transportation.”

But this is going to be a tough one to figure an investment angle on.  The car manufacturers might be an idea.  Toyota was cited as having inked a deal to source lithium from Argentina, but for now battery-operated cars are small parts of the auto makers.   Hitachi might be an idea since it’s a supplier of lithium-ion batteries, but HIT is so diversified that heavy earthmoving equipment moves the dial at that company far more than does lithium.  Finally, not surprisingly, there’s no exchange-traded fund (ETF) for Bolivia.  The search continues, but our antennae are now up for mentions of lithium.


While nuclear was the title, the scene stealer seemed to be thorium.  The folder included a number of statistics supporting the increase in nuclear power facilities around the world, but it might be that thorium is preferred over uranium as a fuel source.  A synopsis of an article in the folder said this, “replacing the fuel in conventional uranium reactors with a thorium-uranium mix would make the plants cheaper and safer.”  Again, though, we’re left wondering how to take advantage of this trend.

Our position on these last two items exemplifies one of the WIC’s mottoes:  we don’t have answers; just questions.

There was just one folder that I thought spoke to intriguing societal issues.


The WIC lead in to the folder said this:  “For us, this is the most important file this quarter.”  The folder included five articles. 

  1. The first was from the New York Times and featured an iPhone user scaning a check for deposit with the devicel. 
  2. The second was from The Seattle Times, and it featured the rapid uptake of “digital delivery” of home video at Best Buy and Netflix.
  3. Entertainment in India–as in much of the developing world–is bypassing traditional channels in favor of the cellphone.  One service there allows users to dial a number to hear Bollywood tunes, with one user describing it as “the poor man’s iTunes.”
  4. Jump Point is a recent book by Tom Hayes, the subtitle of which is, How Network Culture is Revolutionizing Business.  The internet is expected to add its three billionth user shortly, and that will mark, “one of the most explosive combinations in human economic history.  The resulting economy will be big, really big–of a scale the likes of which we have never seen before.”
  5. An article from The Economist featured the growth of mobile phone subscriptions versue the decline in fixed-line subscriptions–nothing new in that sentence.  What the article featured as new was the iPhone and other smartphones that allow for downloading/installation of applications.  Sound bite:  ten years ago there were 500 million mobile phone “subscriptions” (crazy Brits); today there are 4.6 billion.