Thursday, November 15, 2012

"With a market in freefall, they can't possibly have the confidence to hold or buy at severely reduced prices." --Howard Marks


WHEN EVERYONE IS ASKING HOW LOW WE'RE GOING, BE A BUYER (November 15, 2012): If you read any financial web site, or turn on any financial cable TV channel, you'll discover some variation of "how much lower is the market going to go?" or "how long will this correction last?" Nearly all important buying opportunities exist when practically everyone is worried about how much more money they're going to lose, rather than what compelling bargains are available. Exactly four years ago, in November 2008, investors had precisely the same concerns. Those who were bold enough to act rather than pout, especially if they purchased cyclical shares such as semiconductors or the shares of commodity producers, were handsomely rewarded as they doubled or tripled by early January 2010. While valuations are not as depressed today as they were after the first election of President Obama, most cyclical shares in materials, energy, and mining industries are close to their lows from July 2009. They are thereby providing the opportunity for gains averaging 25%-35% within a half year. While everyone else is worried about how much lower they're going in the short run, it's far more important to consider how much they would have to gain to merely return to their highs from February-March 2012.

The financial markets are always an anticipating mechanism. When everyone was expecting Facebook to have a successful IPO, its price peaked on the first day and plummeted thereafter. On November 14, when the lockup period ended, everyone figured that Facebook would collapse from the onslaught of new shares for sale, and instead it surged higher. Everyone is worried about the implications of the fiscal cliff, which means that many have sold in expectation of additional future losses. Even if a final resolution is weeks or months away, the eventual anticipation of a deal will soon begin to lift equities higher--and they have plenty of rebounding to do because they have become so oversold in recent weeks.

On November 14, the S&P 500 broke below its 200-day simple moving average. This likely encouraged many investors to sell in anticipation of an alleged downside breakout. If you look back to earlier in the year, the exact same behavior occurred at the beginning of June when the S&P 500 similarly dropped below its 200-day moving average. Many sold in panic when they should have been buying at the lowest prices of the year. A similar panic in early October 2011, which many analysts thought was the herald of a new bear market, proved to be yet another essential buying opportunity. The greater the number of people who think the sky is falling, the more who have already sold out of fear of future losses, leaving few remaining who could become motivated to sell.

If the financial markets were really on the verge of Armageddon, then we'd have the U.S. dollar index soaring, U.S. Treasuries surging higher, and the fear gauge VIX hitting new highs for the year. Instead, we have all three of the above struggling to surpass their highs from the past week, while remaining well below their July 2012 peak levels. Perhaps even more importantly, there has been a surge of insider buying in recent trading days by top executives who recognize how dramatic these bargains have become, while insider selling has diminished so that the ratio of buying to selling has soared to a level which is far above average. This insider buying is occurring heavily for cyclical equities and financial companies, while the selling has remained concentrated mostly in defensive high-dividend shares which had become dangerously overvalued by being so widely recommended by too many financial advisors chasing after yield.

The fewer the number of people you know who are eager to buy stocks, the more aggressively you should buy. Several months from now, when very few will want to sell, you'll know it's time to do precisely that.

Disclosure: Since May 2012 I have been progressively accumulating long positions in funds of commodity producers into pullbacks and especially whenever they are forming higher lows. From my largest to my smallest position, I own GDXJ, VFWPX, KOL, XME, EWZ, REMX, SLX, VEMPX, VINIX, RERGX, RSX, VGPMX, TNRPX, TRIEX, FCG, TAN, GDX, ACTIX, TRSPX, and NLR.

13 comments:

  1. Steve,

    I have to say here that your assumptions providing your prognosis above are totally irresponsible.

    That does not mean that they may not turn out right, or half right, because it is such a highly manipulated environment, by POWERFULL forces, the world is experiencing today, ANYTHING CAN HAPPEN. WHY?
    Because those in control CAN MAKE IT HAPPEN, and will do so if, and when, it is in their interest to achieve their goal.

    The depression of 1929 plunged all shares to unbelieveable lows compared with what they were three years earlier - that is the period with which YOU are comparing the current lows.

    However, they were to sink much lower, after rising.

    If anyone had applied your hypothesis as stated above in 1929, they would have had a very long wait, if they had even been fortunate enough to have had any money left, to see better days.

    It took a huge world war ten years later, much death and destruction, and lots of smaller, but still costly ones, to pull the US out of the worst case scenario.

    There will be no replay of 1929, but by that I mean, it will be a different stage production but with the same plot.

    For example 'West Side Story' was a totally different stage presentation to Shakespeare's 'Romeo and Juliet' but it was the same plot.

    The world's economy, I would say is considerably worse today than in 1929, and the population was far lower. Manufacturing was much more labour intensive, yet we had high unemployment.

    I know what the end game is because we have been constantly told, and shown, so clearly, that I would not waste my time explaining it to anyone who has failed to observe, anymore than I would explain why I know the world is round and not flat.

    And this end goal will be achieved if those who resist have to be dragged their kicking and screaming, and any leader who is a potential threat eliminated by 'drone' terror.

    We are going to have a lot of volatility, as I mentioned a little earlier. It may seem, at times (with help from media), that good times are around the corner. But anyone that throws caution to the wind will find their money blown with it.

    The vast numbers today who make their money out of the Financial Market 'feeding trough' will ALWAYS ensure that they conform to Baruch's comment he made in the 1930's when he was asked what he thought the market would do - 'The markets will do what they have always done, they will fluctuate.

    All the world's stock markets put together are small potatoes compared with the currency markets.

    And the wild street scenes in Greece, are a small, insignificant (except to Greeks) diversion to what is really happening in our world as immense changes, greater than the Industrial Revolution are moving our world to a new diamension.

    Yes money can be made, and will be made, as all crisise present opportunity. But it will take great care, and perception, and caution, to observe, and sieze those opportunities.

    I say again, Steve. It may turn out as you predict but not for the reasons you have detailed.

    And, at the moment, I do not see anything that would convince me you will be right. However, I hope you are because the alternative options would be tied to that which I do not care to contemplate.

    The motto of the British SAS is 'He who dares wins'. But daring does not mean they abandon caution.

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  2. Enlightened:

    Where was the euphoria that always accompanies a market top? What about the lack of endless experts telling us why the market cannot go down? Instead, we see blog after blog of commentators and experts using words like "fiscal cliff", "collapse" "unemployment", "debt" blah, blah. Scarey stuff to the sheep that will be fleeced when the time is right. If the market does collapse in the near future, it will have been a highly anticipated event. It's not going to happen anytime soon.

    Steve's conclusions are not "assumptions" that are "totally irresponsible". On the contrary, he has maintained a cool head against the endless negative noise and is good enough to tell us what is really going on.

    Throw off that ball and chain of fear and get into the market. The recovery will be explosive and anyone who is currently paralyzed with fear, will regret not buying the bargains we are seeing now.

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  3. The salt lassi is by far my favourite

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  4. Eagleeye,

    I feel you need to read with a little more comprehension. And you can only do that by seeing everything in context and not picking out tiny snippets that tickle your emotional bent.

    Market TOPS? When you look at the history of the market, there has NEVER been a market 'TOP' per se - nor at every other market decline. All have been mere pivotal points of 'historical' market 'CORRECTIONS'.

    As is self evident, the market is greatly bigger, and higher, today, than it reached at the very peak before the 1929 crash, and every so called 'crash' since.

    It all depends on your time frame, and your ability to ride the 'fluctuations' - especially down turns, and spot the 'bottom' of the 'correction'.

    There were MANY voices at every market down turn - even 29, telling the masses, the naive, that the market had bottomed when it still had much further to go.

    There were many voices, long before the end of 2000 calling the bubble. There are HUGE differences today - incidentally Steve from my long association, has never believed in there being any difference. I agree with him that in man's stupidity, there isn't. But in how that stupidity is used (manipulated) there is - especially because of the now growing repercussions from the means available to unite the 'Vox populi'.

    This will be curtailed, on that you can bet your last dime.

    Do the 'RAILS' or the 'AUTOS', the great wonder stocks of the past (1929), there are others, feature today? How many have you bought, or even considered. How many big company names no longer exist today. So just seeing the 'lows' of some companies blows a hole in any prognosis using this as a measure.

    I am making money RIGHT NOW in THIS MARKET, so there is no ball and chain of fear, except in your mind. You are the one using highly emotional terms, and seeing what is not there, in my post.

    I would not make money if I threw CAUTION to the wind and stake all on believing I had detected a market pivotal top, or bottom until its trend had been established. And neither will you, on that single point alone, you, me, or anyone, can be assured.

    I can play, with caution, and I do not mean on a pure 'day' trading principle, the small 'corrections' that occur while they keep you guessing.

    On GOLD, those who make the really big money out of gold make it by TRADING it, or LENDING it. It was through LENDING it that those who control most of it, acquired it. Those who control the gold market in ALL its aspects make the rules, and by them control the world's economy.

    It was only when I really understood this sufficiently to drive it home, and use this understanding, my fortunes, and attitude to life, it's worldwide geopolitical events, causes and effects, changed for the better.

    Anyway, thank you for your comment. I love to know how others view, and act in, the market. I share mine with those who think likewise.





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  5. One other point Steve stands out, you keep knocking those who 'chase yields'. Yet, your last one on the list has has a yield of almost 15%.

    In your list of around 20 stocks (are you trying to bet every horse in the race?) more than half produce reasonable yields - ie., more than bank rate.

    I do not blame you for seeking yield as well as 'hoped for' capital growth, but do you have to knock it to others. Having your money earn while you wait is prudent, it allows you to sit it out, so I do not knock you for that.

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  6. I am surprise to hear you guys are "yield" seekers....

    I am a pure speculator,not even an investor, I see capital gain, big ones.

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  7. QQQQ Who are 'You guys'? And from where did you assume anyone was a 'yield seeker' as in meaning that is their SOLE consideration in the market?

    Some people respond without understanding what they read.

    I do not believe for one minute that Steve chose any of his portfolio purely on any 'yield' they provided.

    I certainly do not, and I doubt that Eagleeye does as he, from his posts here, closely follows Steve's methodology.

    In a market as it is at present, that is no strong trend in any direction to hug and follow, and those who do chase stock with 'yields' make a stock behave in a manner that presents an opportunity for a quick profit, then I will trade it.

    I will even take a profit of a few dollars if there is nothing better, or I detect a believed 'mover' was faltering.

    Markets go through moods, and we have to adapt to those moods - well, at least, I do.

    Stay happy whatever you all do, because happiness is a gratifying pursuit. No good having money and being miserable.

    I get happiness from gazing out of my long wide windows at a great panoramic vista of one of the greatest cities on earth - London. And it doesn't cost me a dime.

    Have a great weekend. Thanksgiving for you Americans next Thursday. Oh Steve, I hope you have remembered it is not a celebration for thanking the Deity for victory over the British. This was around one and a half centuries before, and the feast was provided by the British.

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  8. China is set to implode-Chineese rich are getting out putting their money in Western Banks.Hopefully it does not get bad enough that the military takes over-this could put a drag on commodity stocks for awhile-although the gold miners should fair well

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  9. Matteo, I believe, without any patronising, that you are a decent guy who means well. But, might I respectfully suggest you stop reading the 'gutter press', well, at least, believing it.

    The 'gutter press' includes ALL media - even the Chinese. The Chinese rarely rebut those who misundertand them. They just let them trip themselves up,eventually, and can even encourage the misunderstanding

    They all have one philosophy with three key points - Deception, deception, deception. (it's the art of war)

    To understand the Chinese, well, at least to get on the first rung of the ladder, you must understand the philosophy of Confucius, emphasis on UNDERSTAND. And read the 'Art of War' by Sun Tzu (which is really more about 'avoiding it', but if one can't avoid it, then how to win.

    (Apply it to economic conflict, which we are experiencing now. And will likely continue for a long time.)

    I will give you some dangers of misinterpreting the Chinese that will lead you up the wrong path (led by US dominated media.

    The US sees half uninhabited Chinese towns (cities) as a
    Chinese 'folly' and potential real estate bubble.

    But where better to put your money than in real estate when you have a greater population than the US waiting for the time China pushes its growing wealth - vast wealth, out to the as yet untouched areas. ALL PLANNED!

    It is all a question of TIMING!

    The new Chinese rich emigrating. To emigrate, you move your wealth. This is being ENCOURAGED by China, for a specific purpose.

    But you, led by your media see it as disenchantment with their homeland, or fear.

    The Chinese, rich and poor, love their families, and their homeland - always have. But instead of the poor of yesterday, under the warlords, leaving merely to make money to survive, today it is the rich expanding the reach of China as it integrates into 'ONE WORLD, ONE DREAM' (Slogan of the Beijing Olympics).

    They are establishing businesses that will be linked to home. They are gaining knowledge of our world, and gaining, through their wealth, influence in many areas.
    They are all Ambassadors.

    Now, can you think of another cultural race that did that centuries(milleniums?) ago? Many of them are in China, and in very high influential positions.

    That's enough for the present. This is not just for you Matteo, but for those who are so easily deceived by media.

    Whatever happens - watch the gold, and watch the banks.

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  10. Hope you all had a great Thanksgiving. I did. But then, to me, everyday is Thanksgiving.

    For the past TWO years GDXJ has been in a downtrend. It currently stands at exactly where it was twelve months ago.

    However, there are two ways in which one could have profited from buying this stock twelve months ago - (1) trading it within its many fluctuations (ups, and dips). That depends on how well you have trained (disciplined) yourself in timing, and controlling 'greed' and being thankful for small mercies.

    Always know that if you happened to sell and the trend up had the indications it was going to be sustained (like analysts are always forecasting for these juniors) you can always buy back in again. True trends last for some time. This stock has been in a downtrend for THREE years. In other words, it is lower today than it was THREE YEARS ago - and downtrends tend to be shorter than the 'up' ones. And so they are if you take a long term view, but then, with gold, one finds that 'long term' its rise merely keeps place with inflation.

    (2) Another way would have been to sell covered calls on your holding. Like with everything, you need to perfect your skill at where to pitch your strike price, and time in which to hold your option.

    But the stock market is no place to be for those who are not prepared to monitor, and improve, their skill -especially their DISCIPLINE! (including emotions).

    Stop taking in the Media garbage. They will have you believing the moon is made of green cheese.

    Do you know (you should) The Iranian, Turkish, Pakistani, Palestinian, and other Arab nation's scientists, along with Israeli, yes ISRAELI scientists are all joined together in a huge expreimental scientific project centre in Jordan. But that can't be right, can it, as media tells us they are sworn enemies?

    Work it out for yourself.

    If GDXJ goes according to this period in other years, it should rise in January. If it does, then after that? We must wait and see.

    I will still trade it, or sell covered calls. Reason? I cannot, as yet, see anything more critical than what we have already had over the past decade that would send Gold, or at least these mining juniors, rocketing out of reach over night.

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