2008 Nov 15 - Sat

Receding Recession Indicator

The last time the Dow was at current levels looks to be back in May of 2003. But going back a bit more, it was May of 2002 that the Dow dropped below 10,000. It hit a low of 7600 during the beginning of October 2002. December and January were relatively 'happy' months before the Dow retested 7700 in March 2003. It took a steady rise till December 2003 to cross back above the magic 10,000. The year 2004 saw a few minor dips below 10,000, but nothing serious. October 2007 seeems to have been the recent peak at around 14,000. It declined bit by bit until September/October of this year when it bit the dirt.

In the last few weeks, it hit a low of 8451 around Oct 10, another lower low October 27 of about 8175, and retested with a mid-low at 8282 on November 12.

All this to say that we haven't made any recent lower lows. Yet. Leonard Novy says a Donald Luskin, the bear market will be over when "stocks have rallied at least 20% from any given low point, over at least two calendar months". The pattern in December 2002 almost but not quite made the 20% criteria. It wasn't till after March 2003 did things conform to pattern.

Perhaps 2008/2009 may hold a similar pattern to 2002/2003.

2008 Aug 06 - Wed

Market Notes for August 6, 2008

This article really isn't about today. Nor is it about yesterday. It is about Monday. But becuase I only read Mark Hulbert's colummn today, which he penned yesterday, which is about Monday's 332 point gain, I've dated my article for today.

Mark's point of the day revolves around another rule of thumb: the day was not a 9-to-1 up day. This type of day is when 90% of the volume of shares that rose or fell in price was in shares that went up. The term was coined by Martin Zweig, who used to publish several investment newsletters. On Monday, for the NYSE, it was only an 8.1-to-1 day.

According to his 1986 book called "Winning on Wall Street", Zweig states "Every bull market in history, and many good intermediate advances, [has] been launched with a buying stampede that included one or more 9-to-1 up days".

In Mark's article of yesterday, he mentions that valuations are still a little high. As such, a bull market may not be in the offing yet. So far July 15 is considered our low of the current bear market.

I think because of additional mortgage resets happening later this year, we may not be completely ready for bullish thinking. Maybe a nice little volatile rally, but we may see some more lows.

2008 Jul 15 - Tue

Market Notes: 2008/07/15
I guess the markets really are bearish about what is happening in the world. The Dow gapped downwards on open and played with 10850 for a bit. It seems that with Bernanke's Congressional testimony later in the morning being hard and to the point, the markets had their edge taken off and rebounded to a little in the positive zone. OPEC indicated that their demand forcasts are being reduced, which caused a $5 dollar drop in Brent crude in the midst of a $10 high low swing for the day as traders took their profits. Usually the Dow has an exact opposite swing, but narry a blip occurred, and actually closed down for the day under 11000.

2008 Jul 12 - Sat

Freddie Mac and Fannie Mae

The markets are not very patiently waiting for all the sub-prime mortgages to reset later this year and next year. I've always thought that it will be during that time period in which we'll find out if we are in a repression, depression, or a recession.

It seems we have lots of near term worries. Various and sundry resets must already be taking place. The financial system seems to be stressing all over the place. I'm curious to know just how leveraged the industry is. After all, in the end, the money has to be some place. If leverage is the problem, someone is going to be left holding the bag, and I guess that is starting to happen now.

This reminds me of the great internet expansion a number of years ago. Every who thought they knew what a fibre optic cable was, starting laying the stuff across land and under water. Most if not all of those companies reorgainized or got sold at pennies on the dollar. The smart guys on the sidelines smiled and spent their pennies on valuable infrastructure. Mean while the original investors and vendors probably didn't fair so well. in the end, after the market settled, we have high capacity bandwidth at reasonable prices (well for North America anyway, we in Bermuda still pay an arm and a leg for the privilege, although that should change with the new consortium laying new fiber later this year).

That story leads me into today's newsletter by John Mauldin. He is saying that sub-prime resets aren't our only problem. Orbourous is eating its tail. Lenders to lenders and lenders to corporate beings are starting to cause problems. A figure like $1600 billion dollars of losses in the international banking system are being bandied about. That is a terrific amount of business failure, residential collapse, and bad business judgement. Is there a figure somewhere that suggests what the equivalent of a world wide Gross Domestic Product might be? (I know that appears to be a contradiction of terms, but with the ever shrinking world, there is an element of realism there). With a WW GDP, this type of loss could be put in to perspective. Grasping at straws, I came up with one form of perspecitive. According to the US Federal Reserve Statistical Release, that is $300 Billion more than the M1 money supply and about 23% of the M2 money stock measure.

Anyway, his previous articles had some concrete examples as to what sort of numbers losses were based upon. In this article, there seems to be a bunch more hand waving going on. Perhaps the Bridgewater Associates report to which he refers offers up some concrete basis for their opinion.

Finding the headwaters of investment sources is what John Mauldin's friend David Kotok specializes in. In a recent newsletter, he is saying that Freddie and Fannie (F&F), between them, hold about $5000 Billion in mortgages. Me, coming from the outback, think that a $150,000 mortgage is big. Having one of that size, and if I've used the correct number of zeros in my calculations, that could mean about 30 million mortgages. To stretch the statistic even further, that would be a mortgage for 1 out of every 10 US residents. That is a lot of cash flow to them and to their holders of sub-paper.

Both of the authors tend to agree that holding paper from F&F is not too risky being that the mortgages that they do hold are reasonably sturdy, and they both agree that holding shares is valueless. So, so long as the cashflow meets payment expectations, things shouldn't be too bad.

However, all this is contrary to what the notable publications such as WSJ are publishing, so no wonder we bounced off the Dow 11,000 level yesterday. I think Mauldin even joked about the 9XXX level not being too far off the mark in his article.

One other thing Mauldin mentioned is that he is doing a survey. As a reward for filling out his survey, he provides a link to speech in which he talks about how the markets might re-arrange themselves. Perhaps this might be similar to what happened with the post fibre-laying companies... will the new credit/debt institutions be valuable because of what they got for pennies on the dollar?

I wrote this article in order to set a baseline of expectations of what is to come. Will we, indeed be seeing more losses, more than what the subprime fiasco has caused directly? In which direction are the markets headed and what will be their prime motivator? Will it be more credit problems? I'll be able to look back here and hopefully see what happened when we start our descent into the 10K category.

2007 Feb 27 - Tue

2007/02/27 Market Notes

Well that was an interesting day. The Dow bottomed out around 537 and rebounded up to being down 400 for the day. The one point I wanted to remind myself of was that the Dow futures were noticeably down in early morning trading, before the bell. Even before that, there were notes about early morning Chinese sell-offs happening. It is said that during yesterday's trading, "China's Shanghai Composite reversed early losses to end at a record in its first day after Lunar New Year celebrations".

Today's "declines came on concerns that the government may introduce additional macro-economic tightening measures to cool speculative activity".

It has been noted that this day approached the one day loss of September 17, 2001.

The market psychologists would probably suggest a rebound slightly for tomorrow as the professionals buy back. I can't put a date on it, but a the beginning of last year, oils caused a big dip, but the original market highs were re-attained within a week or so. Come to think of it, it may have been the year before where we had a dip and a rebound.

It is interesting to note that John Mauldin's Weekly E-Letter on Saturday talked about the 51.9% Recession based upon an inverted yield curve.

So, we have a toss up, are the pro's going to buy back in, or is retail going to bring it down more for the next couple of days.

2007 Feb 18 - Sun

2007/02/18 Market Notes

Upcoming on Wednesday are a couple of economic releases: the index of U.S. leading economic indicators, and the U.S. Consumer Price Index, the later of which will be released at 8:30 a.m. by the Bureau of Labour Statistics.

In looking at the daily candles for the Down JOnes Industrial Average over the last few months, it looks like trading for the upcoming week could be flat or in a downwards direction as traders do some profit taking.

The Darvas trades obviously work well on positive DOW days, and seem to keep somewhat above water on flat days. On down days, it looks like an effort will be needed to stay afloat. On down days, the goal would be to find a low point of the day, and then enter the trades there. I'm currently looking at the Arms Index to see if that will help at all.

So if my eyeballed pattern analysis is any good, Tuesday looks like it could be another relatively flat day or the start of downward temporary correction.