Wednesday, September 30, 2009

Phenomenal Investment Opportunities

It is my belief that there will be many phenomenal investment opportunities arising in the near and intermediate future. Many more than during an average time period.

However, I am also of the belief that they will be harder to "realize" for a variety of reasons. Of course, the main prerequisite is having sufficient funds available at the optimal time in order to make such investments.

I define "phenomenal investments" as those that multiply, often many times, in value relative to their holding (time) periods. Those investments that can provide such returns over short periods are, of course, preferable, but usually demand even greater skill.

Phenomenal investments are elusive for many reasons.

SPX at 1049.26 as this post is written

Tuesday, September 29, 2009

The Changing Investment Climate

Here is a link to an interesting White Paper from Guy Haselmann of Gregoire Capital, dated August 2009:

I found it interesting because it discusses a variety of very important concepts such as investment flexibility, market dislocations, inflation vs. deflation, diversification, hedge fund operating risk, etc.

SPX at 1063.22 as this post is written

Monday, September 28, 2009

The "Buy and Hold" Philosophy

Here is a story from on September 23: "Buy-and-Hold Investing Makes A Return After Turbulent Year"

I am not a fan of the "Buy and Hold" philosophy, although I will concede that it worked (very) well, generally speaking, during the 20th Century.

As far as the present and future is concerned, I wrote an article titled "Does Warren Buffett's Market Metric Still Apply?" that discusses various factors that are highly relevant to the "Buy and Hold" investment strategy.

SPX at 1044.38 as this post is written

Friday, September 25, 2009

Gold Below $1000

With Gold now below $1000, I would like to call attention to a post of September 4 titled "Gold and Implications."

I think that Gold below $1000, after having failed to hold above this level, is very significant.

Also significant is the number of people who have been predicting a Gold price considerably higher than $1000, many saying Gold will reach $2000 to $5000/oz.

I like Gold's properties. However, I don't believe that the economic factors now in existence support a strong Gold price, from an "all things considered" basis.

Gold's price is particularly hard to predict, because there is always a "fear factor premium" that may assert itself. While this "fear factor premium" seems to have diminished over the last couple of decades, it can always reassert itself in times of panic. However, I think it was very significant that during the Financial Crisis of the second half of 2008 (especially July - October), Gold faired poorly, which in my mind does not bode well for Gold's "fear factor premium" at least in the near term.

SPX at 1050.78 as this post is written

Thursday, September 24, 2009

An Interesting Poll

Here is a September 17 story detailing a Bloomberg News poll:

I found various aspects of this story to be interesting, but one facet really stood out:

"Respondents were divided over whether the economy will get better or stay the same in the next six months; only 1 in 6 said things will get worse."

1 in 6 seems very low to me on an "all things considered" basis, especially with the unemployment situation.

SPX at 1056.36 as this post is written

Wednesday, September 23, 2009

The "Paycheck to Paycheck" Dynamic

Lately there have been a couple of polls conducted showing the percent of people living "paycheck to paycheck." Here is a story from September 16 regarding this issue:

This "paycheck to paycheck" dynamic is noteworthy, especially since it appears to be widespread. It appears to be relatively common even among those making above $100,000.

It would be very interesting to have a better, and broader, understanding of this "paycheck to paycheck" issue. I'm sure it is an important driver in today's economic situation.

SPX at 1071.66 as this post is written

Tuesday, September 22, 2009

"The Stimulus Didn't Work" article

Below is a link to a September 17 Wall Street Journal op-ed titled "The Stimulus Didn't Work" :

I found the argument presented by the authors to be very interesting and well worth reading.

SPX at 1071.78 as this post is written

Monday, September 21, 2009

"The Greater The Economic Weakness, The Stronger The Recovery"

Recently there has been a thought circulating that the worse the recession (or economic weakness) the stronger the following economic rebound. This refrain has been heard from various quarters.

This belief does appear to be historically accurate, at least to some degree.

However, there are three aspects of this belief that I want to elaborate upon. The first is that even if one believes "the deeper the recession, the stronger the recovery" theory, there is a question of timing. If the period of economic weakness is long, mistaking the timing and making investments or other financial commitments too early in the cycle, before the recovery has begun, can be a costly and painful mistake.

Second, even if one has complete faith in this belief, this has to be viewed as a historical fact. Is this time "different?" It certainly appears to be, as I have extensively commented upon. Perhaps the operative phrase should be "Past performance is no guarantee of future results."

Third, this belief seems related to one that I commented on in a June 5 blog post - with the same implications.

SPX at 1061.05 as this post is written

Friday, September 18, 2009

A Notable Quote From Ron Paul

On Wednesday The Wall Street Journal ran a story titled "Anti-Fed Activists Fuel Push for Audit":

One quote from Ron Paul really caught my attention:

"The Fed will self-destruct," Mr. Paul said in an interview. "This economy is going to get worse and this dollar is going to get a lot worse."

I found "The Fed will self-destruct" phrase to be most interesting. I'm not sure what he means by this - perhaps he elaborates on this in his book "End the Fed" - but I think the phrase is worthy of contemplation. Its connotations are massive, should Ron Paul prove correct...

SPX at 1066.04 as this post is written

Thursday, September 17, 2009

Extreme Peril In The Stock Market

Please note – some might find this post disturbing

In this post I will summarize my thoughts on the markets, particularly the stock market. As has been the case since the Economic Crisis began, any stock market weakness will most likely be mirrored in a variety of other markets as well, such as commodities, credit, etc.

As seen in the previous five posts, from a Technical Analysis perspective I believe there is cause for considerable concern. As those who are familiar with Technical Analysis know, rising prices aren't necessarily strongly indicative of market health. That is where we are now - strongly rising stock prices but deteriorating underlying technical conditions. There are many more charts that I could post along those lines. I will likely post more charts on an intermittent basis.

As I believe there is extreme peril in the stock market, the logical question would be how such a condition would be resolved. I believe that a future stock market crash is certain, for a variety of reasons - one being that the fundamental value of the stock market is considerably less than that indicated by the price of the S&P500. Another is that there are many technical indicators that seem to indicate a future crash.

Timing of a crash is always difficult to gauge; however, for a variety of reasons I believe that a stock market crash is likely now through October.

Severe economic weakness is often preceded by a stock market crash, and as I stated on my September 1 blog post:

"I do believe we are heading into what will inarguably be classified as a Depression." One should note that is a condition that I certainly do not want to happen; however, that is the conclusion drawn from my analysis of our economic situation. Hopefully I am wrong; however, my analysis is well-grounded. It should be noted that no one that I am aware of has even mentioned the possibility of a stock market crash.

SPX at 1071.63 as this post is written

Wednesday, September 16, 2009

Peril In The Markets? Part V

For this last post of this blog series, I will comment on the VIX.

As seen below, if one looks casually at the VIX daily chart, there doesn't seem to be much to be concerned about:

VIX daily 1-year chart

Chart Courtesy of

However, I would like to make a couple of observations. First, as one can see, the rate of decline appears to be slowing. Second, as one can see on the 10-year chart below, the level of 20 (as seen by the blue horizontal line) on the VIX seems to be a good demarcation of stress. Not only is the VIX still above 20, but it has been above that level continuously since early September of last year. I think this is signficant:

VIX 10-year daily chart

Chart Courtesy of

Tommorrow I will summarize my thoughts on this series of blog posts, and indicate where I believe we are heading in the markets. As I stated in the first post of this blog series, I believe we are at a very critical juncture here in the markets.

SPX at 1055.65 as this post is written

Tuesday, September 15, 2009

Peril In The Markets? Part IV

The price action in the S&P500 since the March low at ~666 has struck me as being very "impulsive." This is certainly a cause for concern. Also, there certainly has not been any significant "wall of worry" that one would expect given the fundamentals.

The charts seen in this post are from Maurice Walker, First, a daily chart of the S&P500. As seen in this chart, the 1050 area is certainly one of great significance from a chart pattern perspective. Don't ask where the large rising wedge would project to on the downside, if it indeed proves a legitimate bearish pattern. Also, the large broadening pattern is notable, as is the smaller one, as seen by the dotted line. Also, of immediate concern is the potential bear flag pattern of the last few days:

Chart Courtesy of

Also, here is the Weekly chart. I don't have much to comment on with regard to this chart, other than to say it gives a good longer-term perspective:

Chart Courtesy of

Lastly, here is a weekly chart of the QQQQ. Again, the same rising wedge pattern seen in the SPX...additionally, the price is right at the downtrend line from the all-time highs, so this is a very important juncture:

Chart Courtesy of

Now onto Part V...

SPX at 1049.34 as this post is written

Monday, September 14, 2009

Peril In The Markets? Part III

Moving on to the stock market... The first chart is the NYSE Summation Index. I have put in the SPX (SandP500) as an overlay in green, with the NYSE Summation Index's MACD at the bottom of the chart. What I find interesting here is the negative MACD divergence as indicated on the chart, in blue:

NYSE Summation Index

Chart Courtesy of

Next, a view of the SPX daily chart. I have included the 50 and 200 day moving averages, in blue and red respectively. Also, on the bottom of the chart I have included the MACD. If one looks at this chart casually, as presented there doesn't seem to be any problems, with the possible exception of the MACD. Otherwise, it seems to be a strong, steady that seems to "fit" with the economic recovery scenario that almost all economists and other forecasters are predicting (these forecasts are extensively documented on this blog, and can be found under the "Economic Forecasts" Category listed on the right side of the home page).

However, as I will explain in the next post, upon closer examination, the SPX price action may be far more troubling than it casually appears...

SPX Daily 1-Year Chart

Chart Courtesy of

Now on to Part IV...

SPX at 1042.73 as this post is written...

Sunday, September 13, 2009

Peril In The Markets? Part II

I have included two charts of the Ten-Year Treasury yields below - one daily and one monthly. The monthly is provided for a longer-term perspective.

I would like to address the daily chart. It seems odd that in an environment in which

-inflation is (purportedly) a growing concern
-the economy is supposedly recovering faster than anticipated
-Treasury debt auctions have been materially increasing in size

that since roughly early June, the Ten-Year Treasury yield has been decreasing:

Ten-Year Treasury Yield Daily 1-Year Chart

Chart Courtesy of

Ten-Year Treasury Yield Monthly Chart

Chart Courtesy of

Additionally, is it not odd, on an "all things considered" basis, that the Japanese Yen is rising at what appears to be an increasing rate? This rise commenced in mid-2007, as seen below:

Japanese Yen Daily Chart

Chart Courtesy of

Now on to Part III...

SPX at 1042.73 as this post is written

Peril In The Markets? Part I

The next few posts will contain some of my thoughts on the markets from a Technical Analysis perspective. Typically I don't comment about my observations from a technical perspective. However, I believe we are at a very critical juncture here in the markets. I am not aware of anyone discussing imminent peril in the markets right now, which is interesting in context of what I am seeing both from a Technical Analysis perspective, as well as a fundamental one.

I would like to make a couple of disclaimers before beginning. First, an extensive overview of all of my Technical Analysis observations would be very lengthy, and it would also infringe upon some facets I consider to be proprietary. As such, I will limit my observations, but I think most people will still get a clear overview of my thoughts. Second, I am aware that many people don't believe in Technical Analysis - which is fine with me. Even though I use Technical Analysis extensively, I will readily admit it is not infallible.

I would like to begin by posting some 9-11-09 commentary from that I found interesting. In and among itself, I don't find this 5-day Up Issues Ratio to be conclusive, but I do find it notable when viewed in conjunction with the other charts I will post. Below is the commentary:


Most notable is the 5-day average of the Up Issues Ratio, which moved to an astounding figure of 76%. This means that over the past week, on average 3 out of every 4 issues on the NYSE closed in positive territory. That's the 2nd-highest reading in 22 years (the highest during that time was on January 6th of this year, the red dot on the chart below).

Click chart for larger view

To put this into perspective, out of more than 17,000 trading days since 1940, fewer than 16 of them recorded a reading this extreme.

What's even more unusual is that this has occurred so long after the market bottomed. It's not at all unusual to see huge breadth thrusts coming out of a major oversold condition (something we discussed extensively this spring), but it's terribly unusual to see it six months after a low.


Now on to Part II...

SPX at 1042.73 as this post is written

Friday, September 11, 2009

Political Ideologies and Economics

I've found it interesting that economic analysis is being categorized as coming from different political sources. For instance, it is often said that Ben Bernanke was appointed by a Republican, Paul Krugman is a "liberal economist," etc.

This type of classification was also seen in President Obama's speech on Wednesday, when he said " idea which has the support of Democratic and Republican experts."

The examples are many. What I find disconcerting about them is that they seem to imply that there are multiple sets of economic realities, determined by the differing political ideologies. In a way, kind of like different "flavors" among which one can choose.

It is important to realize that there is only one correct economic interpretation of a given situation.

SPX at 1046.86 as this post is written

Thursday, September 10, 2009

An Interesting Chart On Job Losses, Revisited

Here is an updated chart from that I have shown and discussed previously, in my July 7 post:

There are other charts similar to this, from other sources...however, I find this chart particularly interesting as it incorporates the long-term averages of two other periods.

As I wrote in my July 7 post:

"As one can see, the current degree of job losses is rather atypical.

I would also like to highlight another issue as well. From a historical perspective, this (purported) recession, that the NBER has classified as having started in December 2007, is getting "long in the tooth" from a historical perspective. The following blog post does a good job of summarizing how long recessions typically last:

As one can see, from a historical standpoint the severity of the job losses, as well as the length of this (purported) recession are atypical. Both have persevered in the face of very large amounts of intervention, including stimulus efforts.

As I have written about previously, the above is yet more evidence that we may well be in a "new (economic) environment" - with the associated implications..."

SPX at 1031.85 as this post is written

Wednesday, September 9, 2009

Homeless Children

I ran across this story about homeless children in the New York Times:

As I discussed in my September 3 post, I think it is important to have stories and statistics concerning poverty and misfortune published on a more frequent basis. While they are certainly disheartening, it is far better to have awareness of the trends and circumstances regarding poverty and related issues than to be ignorant of them, and pretend they don't exist.

It is important to be aware of (and effectively act upon) the societal impact of this period of economic weakness, and homeless children is but one example.

SPX at 1029.35 as this post is written

Tuesday, September 8, 2009

Is Deflation A Benefit?

Lately I have seen a few articles that have openly stated that deflation would be a "positive" for individuals. There are various reasons given for this conclusion.

One of the reasons that has been given is that deflation would lower the price of goods, and thereby increase purchasing power.

My thought on the matter is that the overall topic of deflation and its effects is a complex one. Adding to the complexity is the definition of deflation. Most people define deflation in terms of CPI, but of course there are many different ways of defining the concept.

As to whether the purported "benefits" of deflation would happen, especially the increase in purchasing power, is difficult to answer as it relies on many different factors. However, I do think that given today's economic environment, it would be difficult to draw the conclusion that deflation would be a net positive. Sure, if deflation (as defined in terms of CPI) were to occur, there would be some benefits, such as the aforementioned (theoretical) increase in purchasing power. However, there would likely be significant other negative factors that could, and probably would, overwhelm whatever benefit the increase in purchasing power would have.

SPX at 1016.4 as this post is written

Friday, September 4, 2009

Gold and Implications

The strong price action of gold lately has been interesting.

As seen in the daily price chart, the $1000 level has been a pivotal area.

For a variety of reasons I am closely watching whether this $1000 price level will be surpassed. I am under the impression, due to a variety of factors, that either gold will soon strongly surpass this $1000 level, or fail to and begin a strong descent. In essence, I think we have approached the "moment of truth" for gold, and it will "break" from this $1000 level decisively either up or down.

As many know, gold has a long-standing reputation as performing strongly during what is perceived to be inflationary conditions. As such, how it performs here in the short-term could prove instructive on this topic, which would impact many other markets.

The hyperinflation / inflation / deflation debate is of foremost importance at this time for many reasons. How this debate is "answered" will have vast implications for investors, business, and the nation's financial standing.

SPX at 1003.24 as this post is written

Thursday, September 3, 2009

Poverty And The Wealth Disparity

I find it interesting that we constantly see stories concerning the "highest paid" and wealthiest people of society and how much money they are making.

However, when it comes to the other end of the spectrum, how many stories and statistics do we see about such things as those living in poverty, the wealth disparity, etc? Few if any.

I'm not sure why this is so...I'm sure it is "sexier," more fun, and more popular to talk about the wealthy.

I, for one, would like to see much more press coverage and statistics with regard to those less fortunate. I think it is very important both socially, and from an economic standpoint, to be highly aware of (and acting effectively upon) how well all members of society are faring, especially during this period of economic weakness.

SPX at 994.05 as this post is written

Wednesday, September 2, 2009

P/E Ratios and Inflation/Deflation

I recently came across an interesting chart titled "Relationship Of Inflation and Price/Earnings Ratios (1900-2008)." It is from Crestmont Research and can be found at this link:

It shows the effect of inflation and deflation (as defined by the CPI) on the P/E Ratio. I think that it is worth looking at for a variety of reasons.

One of the reasons I point it out is that it provides some historical background to the Inflation/Stock Valuation topic I discussed in the article "Does Warren Buffett's Market Metric Still Apply?"

The "inflation is good for stocks" theory is widely held. The logic says that inflation promotes higher revenue and earnings. In my opinion this logic is theoretically flawed and/or incomplete. From a practical perspective, history shows it isn't justified, as indicated in the chart.

Furthermore, even if inflation were to appear favorable to stock prices, one has to view the stock market returns on a "real" basis.

SPX at 995.81 as this post is written

Tuesday, September 1, 2009

Are We Going Into A Depression?

Please note - some might find this post disturbing

I would like to provide an overall update as to my thoughts on our current economic situation.

First, however, a brief recap of what others think of our current economic situation (details of which can be found under the "Economic Forecasts" and "Stock Market" categories on the right-hand side of the home page):

-Practically all economists, federal officials, companies and investment professionals are confident that we have "seen the worst" of the economic damage, and are heading toward a gradual recovery

-Only a small handful of economists think even a "double-dip" recession (further economic weakness before a lasting recovery) is possible. None that I have seen are forecasting an economic dropoff that would lead into a Depression.

-Corporate Earnings growth is projected to be robust through (at least) 2010

-The stock market (as seen by the S&P500) is above 1000 - after having a very strong multi-month rally

Given the above, how likely is renewed economic weakness and how strong could it possibly be? What is the potential downside?

My analysis and overall thoughts on our economic condition, and likely future outcome, has not changed. Although I am an optimistic person by nature, my overall analysis of our current economic condition does not engender optimism. I do not believe that we have even come close to having seen "the bottom" as far as economic weakness is concerned. Furthermore, I see our future economic situation as one that holds great peril and rather severe potential downside. I do believe we are heading into what will inarguably be classified as a Depression.

The reasons for my conclusions are many. In general, we face an array of complex and deeply embedded problems. For those who want a more specific background of my thoughts on this matter, I would recommend reading the articles I have written (which can be found listed under the Directory Of Articles) and the various blog posts on this site.

In particular, I would like to call attention to my four-part Depression series that started with the June 22 post.

Since I wrote the article "A S&P500 Target of 100?" discussed in the last post of that Depression series I have used the S&P500 price of 100 as a type of potential endpost, and have been thinking of what type of probabilities to assign to its likelihood of occurring in the near future (a two-year window since it was written). Most people would think that such a price target is simply impossible. However, since I wrote the article in early March, the probabilities I have assigned to it have increased, unfortunately.

Our current and future economic conditions are of great complexity. As I have previously stated, I do not want further economic weakness to occur and I do hope that my analysis and conclusions regarding our economic course are completely incorrect. My overall desire is for us to attain what would be considered Sustainable Prosperity.


For those who haven't yet read this site's disclaimer, please see the "Special Note"

SPX at 1020.62 as this post is written