Archive for March, 2011

Weekly Recap & Outlook – 03.18.11

Friday, March 18th, 2011

Tower Private Advisors

Prior posts

Below

  • A roller coaster week
  • Ugly February economics
  • You’re on your own next week

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March 15 FOMC Statement via Wordle

Thursday, March 17th, 2011

This might be the best Wordle result yet.  To use Wordle, you paste a bunch of text into its Wordle generator.  Based on how frequently words occur in the text, those words are emphasized.  You can try it yourself at www.wordle.net.  Here is the FOMC’s March 15 statement.

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Cumberland Advisors Dispatch on Japan

Wednesday, March 16th, 2011

This is late to the blog, but I had trouble posting them up earlier.  Cumberland Advisors sends out free, occasional but always timely e-mails.  I highly recommend signing up for them.  In posting them below I have butchered the text formatting, and I apologize to the fine folks at Cumberland Advisors for that.  What follows is an excellent comparison of the current quake situation with Japan to one similar that occured in 1995.  My highlighting below.

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BP an Analog for Japan?

Wednesday, March 16th, 2011

I saw the story immediately below and began thinking about BP disaster as an analog for Japan.  I know, I know–plugging a hole in the bottom of the ocean isn’t the same as stopping a nuclear problem–I mean, we know that, right?  Recalling those images, though, from the undersea cameras as they tried to snake this or that mechanism down there seemed plenty complicated–and they used concrete in that disaster, too, right–makes it sound not so far fetched.

Anyway, here’s the story.  Doesn’t it sound familiar?

So I took it a step further.  In the chart below you’ll see three panels.  In the top and bottom panels are charted BP’s stock and the S & P 500 starting 19 days before the April 20, 2010, well disaster, respectively.  The middle panel shows the Japan ETF (EWJ) from 19 days before the earthquake.  I adjusted the Y-axis on that panel, and it’s, coincidentally, not far off the scale of the BP chart.  It took the S & P 500 about 28 weeks to recoup its pre-spill levels.  From the leak to the bottom of BP stock’s decline was about ten weeks.  I didn’t try to figure out when the well had been plugged/capped because–you’ll recall–there was endless talk about endless lawsuits from the spill; I figured the bottom in the stock was a better measure.

Here are takeaways

  • This thing feels a lot like BP, with the markets trading off every single news story.
  • At times it seemed like we’d have an Old Faithful right in the Gulf, which is to say it seemed like it’d never be plugged.
  • Comparing stock prices to then, there turned out to have been a lot of great values, although BP has yet to get back to its former glory, although that seems like a stretch.
  • I’ve probably taken this to far from the very beginning, but if we take the former bullet point a bit further, we might conclude that avoiding the Japan ETF and investing, instead, in Japan recovery (think oil spill recovery) ideas, might be rewarding over time.

We never want to let time and history be the sole factors in investment decisions, but they can provide useful signposts.  Yes, the situations are absolutely different this time, but I will guarantee you that the traders have not changed a whit.  They’re still prone to swings of emotion, and that’s what makes history-doesn’t-repeat-itself-but-it-often-rhymes such a useful saw.

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Word o’ the Day: tenterhooks

Wednesday, March 16th, 2011

The word of the day is “tenterhooks.”  According to dictionary.com, tenterhooks are the “hooks or nails” that hold the cloth or fabric stretched on a “tenter.”  Looking further, a tenter is used to hold a fabric being manufactured so that it sets up properly.  As your English teacher might have instructed you at one time, please use it in a sentence.  (I always tried to get by with using the following template:  “He tried to use the word tenterhooks in a sentence.”)  Okay, here goes, “the investment guy was on tenterhooks as he saw that S & P futures were off by 50 points.”

Indeed, the market is on tenterhooks, and that’s evidenced by kneejerk reactions to anything and everything, a good example of which is below.  For someone with a longer-term timeframe this is a good time to make some key investments–taking advantage of someone else’s irrationality.  For someone with a shorter timeframe, however, it’s troubling that–even when presented with the facts–i.e. the EU commissioner was nothing close to an expert–that the market doesn’t reverse course.

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