Principles of the Stock Market : Global Trend

Weekly Monday Overview

Richard Schwartz — Mon, 06 Apr 2009 13:17:00 GMT

Richard Schwartz's

PRINCIPLES OF THE STOCK MARKET

A learning, teaching, always evolving stock market letter and advisory service

Eighteenth Consecutive Year of Publication; Letter #1; September 18^th, 1990

Post Office Box 1236 · New Paltz, New York 12561 - U.S. A. · (845) 255-6894

E-mail address: RichardStk@aol.com

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Monday, April 6^th, 2009: It’s Master’s week so I’m pumped up. It’s golf’s 1^st major of the year, tradition packed, for you non-golfers. Should be great with Tiger back, Phil Mickelson saying he’s playing the best golf of his life, Paddy Harrington going for his 3^rd major in a row and lots of up & comers. All I can say is wow! Even just watching this old southern flower nursery turned into a golf course in the spring, lavished with money for decades, may be worth the watching for any non-golfers out there. For me, it’s just heaven.

THE KEY QUESTION

Instead of discussing The Big Picture today, let’s focus on The Key Question. Since that’s what I keep pondering. Plus it has to be on every investor’s mind as well. “Could this rally be the start of a new bull market?” To intelligently answer -- as during every bear market rally -- necessitates rehashing all the available evidence. I can make a solid case for a cyclical bull market having just started and I can make an even more solid case that this is just a normal bounce in a Papa Bear market. Consider:

MINI BULL MARKET HAS STARTED

·        The economic stimulus is now starting to kick in which will stabilize and bounce the economy.

·        The monetary stimulus, lower interest rates, is also now kicking in and housing sales are increasing.

·        Inventories have been drawn down and need to be restocked which will pump up GDP growth near term.

·        The US and other governments have done everything possible to mitigate this downturn.

·        We now have more coordinated and get along global leadership than in many years.

·        The US economy has proven itself wonderfully resilient to shocks in recent decades.

·        Markets can counter-swing at any time for long periods, posting mini bull markets, versus primary trends.

·        Almost two years has passed since the beginning of the credit implosion back in July 2007.

·        Many independent market gurus think the March 2009 lows will last for a good while, months or longer.

·        The latest government bailout plan has more enthusiasts and support for it than previous plans.

·        Oil stopped falling back in December and is now on the rise possibility indicating growth rebounding.

·        We have recently had a number of better economic data reports from both retail and housing.

JUST A BEAR MARKET BOUNCE

·        The bear market hasn’t lasted long enough to discount all the problems that have come to light.

·        More problems, coming as bearish ripple effects and because of long lag times, are due to show up.

·        The bear market hasn’t fallen deeply enough to factor in the sudden massive shock to the global economy.

·        There hasn’t been enough overall selling or liquidation for a solid bottom. Stock and mutual fund liquidation haven’t reached previous classic big bear market bottom levels.

·        No solid bottom appears on the charts. We need a climatic sell off or a long low volume erosion to bottom.

·        Interest rates have to go up at some point, soon – either with and because of an economic rebound or from panic selling -- which normally depresses stock prices because of this new competitiveness from bonds.

·        The American consumer has suddenly stopped spending. This has slowed down business all over the world and finally exposed the global imbalances problems. Too much manufacturing in China and Asia and too much spending coming from America. Now those imbalances are being forced to readjust. Takes time.

·        The stock market is ignoring soaring unemployment. Yes, employment is a lagging indicator but continuing jobless claims isn’t. A new report just out says that in coming weeks and months, hundreds of thousands of jobless Americans will exhaust their unemployment benefits. Finally, 600,000 new job losses each month is going to add to weaker consumer spending, problems for local communities and cause negative ripple effects.

SCHWARTZ CONCLUSION: In review, we started this big bad bear market back in the year 2000. That was the peak of the last big bull market and thus the beginning of this big bear market. This is evidenced by the benchmark S&P 500 Double Topping in March 2000 and October 2007 and then subsequently and decisively breaking below October 2002’s previous decade-long lows by over 10% in March 2009. Showing that since 2000 and the ending of the Internet boom we’ve really been living on lower interest rates and big tax cuts, a false, “pump me up,” house of cards. Really not any wealth building going on, just paper shuffling to make things look great fueled by easy money credit creation. But now reality has set in. Thus, looking around, we see we’re almost nine years into a bear market which has been interspersed with one bull market, running for five years. So stocks were down almost two & a half years, up five years, now down about another one & a half years, sort of repeating The Visit of the Three Bears. In that infamous and extended bear market run of nine years, netting a -50% loss, there were two cyclical bull markets sprinkled in and surrounded and book-ended by the three bears, Baby, Mama and Papa.

My conclusion remains that this bear market is not over. But that the form and shape of it may get tricky going forward. Because the market has a history of posting cyclical or short term or mini bull markets on the way down when the bear gets ahead of itself. Which is why the stock market remains so fascinating!

THE ECONOMY

Well, the BUZZ has died down about how the economy is slowing its prior quick rate of descent. Guess because we’ve started seeing more bad economic data pop up or because the conversation has moved on. But some investors have decided an end to the economic collapse is out there, just over the horizon, so they are shifting into cyclical stocks now as a result. One can see this money rotating out of defensive sectors such as medical care, consumer staples and even gold. You know the concept, buying in advance of a recession’s end since history shows stocks rise roughly six months before the economy turns up. But if we indeed are stuck with a very mild even “anemic” economic recovery, as many figure, then stocks could also soon level off to mirror that trend as well. That is if the economic and earnings data don’t start sinking fast once again showing the economy is still sinking. For example, last Friday it was reported that the ISM Non-Manufacturing Index which now measures almost 90% of America’s economy - America now being a service oriented economy instead of a manufacturing economy - fell faster in March than in February somewhat debunking the idea that the economy has stabilized. Schwartz View: Yes, there is the possibility that economy-wise we are going to V- back up because sharp moves, in whatever areas of endeavor, are generally followed by responding sharp moves back up. We’re seeing that now in the stock market but after this bounce is over, I agree with the camp forecasting an anemic slow economic recovery.

THE STOCK MARKET

The stock market extended its rally to four straight weeks last week. We did see the first crack in this rally a week ago when the market fell sharply for two days. But then we quickly rebounded to new rally highs. That’s normal, the first crack being overcome but it does show this rally may be starting to struggle. We are getting closer to my minimum upside targets of Dow 8303 and S&P 1627, closing Friday at Dow 8017 and S&P 1621. And one can note trading volume has been slowing some, another sign of sluggishness. Or maybe cautiousness. Makes sense as we’re now moving into another corporate earnings reporting season starting tomorrow, the 1^st quarter January-March 2009 report kicking off after the close with Alcoa (AA), traditionally the first of the 30 Dow stocks to report. With the fall-off-the-cliff economy occurring early in last year’s fourth quarter, it only stands to reason that investors have to be wary of forthcoming earnings and thus wary of this rally as well. Schwartz View: It looks like the stock market has some more strength left in it so with stocks already having rallied beyond the 50% retracement level from their latest leg down, the early January peak, the teeter-totter phenomenon comes into play. Getting halfway up means it’s very likely to go all the way back up. Thus we kick off this week at roughly another key Fibonacci 61.8% price in both the Dow and S&P 500. That’s about 8088 and 838 respectively. If we break through those levels, then the next target is those January highs, Dow 9088 & S&P 944. Not guaranteed but increasingly likely.

PORTFOLIO STRATEGY

2009 may indeed prove to be the year to trade. If stocks fluctuate but go nowhere net, up or down, for many months ahead then it’s going to prove very frustrating for investors. In these times and they do happen, more often than the uninformed investor may realize, the best way to make profits is to: (1) trade individual stocks and (2) discipline yourself to continuously fade the market, buying on dips and selling on strength. Toward that end I’ve started incorporating the Commodity Channel Index (CCI) technical indicator into my work. Comes on most charting services like Bloomberg. Basically it shows deviations from the moving average, when stocks get too far overbought or oversold. Naturally you buy when a stock or index gets oversold. For more on the CCI I suggest getting Oliver Perez’s Swing Trading Tactics DVD or Alexander Elder’s book TRADING FOR A LIVING. Over the last month of rally for instance certain stocks have far outperformed the averages. And numerous tradable asset classes or market sectors like the US dollar and oil have been both up and down offering trading profits but no net profits for buy & holders.

Otherwise than scalping profits what should we do? For now favor the long side and the cyclicals. I like technology, renewable energy and natural resources. Move up a notch in your market exposure to about 30% if you haven’t already but continue to hedge your bets and don’t get out on a limb by going too long. Just subdue your ego, don’t think you know more than Mr. Market does and just go with the flow, modestly. Bottom line take what the market gives you, right now there are some trading opportunities but don’t get carried away. There’s lots more trouble to come but the path ahead is likely to get more tricky as well. So don’t fall into the camp that says “fool me once, shame on you, fool me twice shame on me.”

Have a good week!

Go Tiger Go!

Monday Weekly Strategy

Richard Schwartz — Mon, 22 Dec 2008 14:37:00 GMT

Richard Schwartz's

PRINCIPLES OF THE STOCK MARKET

A learning, teaching, always evolving stock market letter and advisory service

Eighteenth Consecutive Year of Publication; Letter #1; September 18^th, 1990

Post Office Box 1236 · New Paltz, New York 12561 - U.S. A. · (845) 255-6894

E-mail address: RichardStk@aol.com

Subscription · One-Year Morning E-Mail Delivery · $150.00

Monday, December 22^nd, 2008: So here it is, last letter ‘till Monday, January 5^th, as Lucy & I fly off to the white sand, warm blue waters of the Caribbean, maybe on a last hurrah (if the economy keeps sliding). I’m taking Cycles of American History & Rethinking the Great Depression books. Our routine is: Go to the beach, play backgammon, read & go out to dinner. Day after day. Warm our bones & work on new tans.

THE BIG PICTURE

Friday I saw John Bogle, who has been on Wall Street for 50 years and who created the first index fund, the Vanguard 500 Index Fund back in 1975, say investment bankers and bankers generally owe the country a huge apology (which I doubt we ever get). Their imprudent speculations and greed for massive fees from too complex speculations led to today’s financial sector problems, problems which have now fed out to the real economy hurting innocent, hard working, everyday Americans. Mr. Bogle says greed has even spread out to our whole economy, that we’ve morphed into in a “me first” society and it’s something we have to seriously take a look at. Thus capitalism, allowing markets to work unfettered of regulation and based on trust and trusting, has now been “deeply discredited.” Even the underpinnings of capitalism have changed radically. We’re no longer an ownership society whereby individual stockholders used to select and then hold 92% of all common shares; institutions 8%. Now institutions control 75% of shares through huge sums entrusted to them by others and have not invested prudently. Again, because of the incredible fees they got for investing. Mr. Bogle says they sure wouldn’t manage their own monies so recklessly. These institutions were supposed to be wiser than individuals but, again, it’s not their money. Supporting Mr. Bogle’s view is the revelation that 29 of the 30 largest losers in the Bernie Madoff Ponzi scheme scandal were institutions whereby just one of these fund of fund companies was paid $160 million in 2007 alone for recommending the Madoff “hedge fund.” In other words, where was the fiduciary responsibility, the prudency, the probity expected when we entrust institutions to manage 75% of our investments? Schwartz View: Regular readers know I’ve been distressed and pounding the table about a number of these societal issues for years. About capitalism running amuck, culminating its 30-year trend toward widening the gap between it and its counterpart, democracy, with President Bush’s skewed one way Texas twang policy saying the be all and end all is that “bidness is bidness” and thus stifling regulation. And about society becoming so uncivilized, we ended up booing our own hometown, beloved sports teams! So while no one wants to live through what may come next in the economy, I have to say America has finally woken up, albeit after the nightmare it usually takes to precipitate major change, and that we are now started down a long and arduous path, but one finally pointed in the right direction again. As one example, we’ve even started to SAVE once again; amazing! So, for myself, I guess sort of a contrary indicator in recent years, I’m becoming more optimistic and bullish on our future. Finally! “Go America Go!”

THE ECONOMY

It became apparent that the US economy was suddenly falling-off-a-cliff right after Lehman Brothers became the one firm chosen NOT to be bailed out by the Federal Reserve and US Treasury Department. (Looked back upon as a colossal mistake in strategy I’ve read.) Lehman’s bankruptcy rippled out far and wide and led directly to losses in some money market funds, a “breaking of the buck,” and thus then to a total loss of confidence. Now, by all accounts, the economy is in total free fall. This sudden screeching halt in US business activity has caused the same in our global trading partners and most everywhere I look is now in corresponding economic free fall. You extrapolate it for yourselves from here. One view I’m pondering is that many times sharp declines lead to the second leg of a V-move, back up, and we’re overdue. Maybe stocks, with their recent unwillingness to keep going lower on bad news, means Mr. Market (the consensus of large investors) sees some end out there to the economic free fall. Still, we’d have to see some economic revival to expect a sustained V snapback in stocks. For now, I see 2009 providing a steady stream of bad news every time we look up. Just like in the second year of the last Papa Bear bear market, back in 1974, a continuing stream of bad news back then ultimately overwhelmed all attempts to rally until the final months of that year. Schwartz View: The consensus I’m hearing is that this sudden, fall-off-the-cliff global economic contraction is NOT going to lead to a repeat of the depression-spawned 1930s starting with its four-year long period of contraction followed by its anemic recovery, a.k.a. the Great Depression. I hate to follow any consensus especially when this one’s been so wrong for so long. But my own history look backs and studies by Federal Reserve Bank Chairman Ben Bernanke, an expert on what went wrong in the 1930s, turning a recession into a depression, show that we raised taxes, cut spending and blocked global trade, just the wrong policies. So I sure don’t expect any exact repeat of those failed policies. Leading me to think out of the box and that maybe today’s Fed policy of battling a deflationary depression is also implementing incorrect strategy. How about worrying against runaway inflation spawning from all the money the US and now the world has and is still throwing at this economic slump? Just the problems we worried about in the early 1930s but didn’t occur. You know the old saying, people fight the wrong war, the old war, because that’s what’s still fresh in their minds. Thus, summing up, maybe we can’t expect much creativeness from the Fed pointing in the less obvious direction of battling inflation since they are entrusted with getting us through hard times. They will naturally, after learning certain lessons from the 1930s well, not break much new ground. One reason being that if their policies didn’t work, they would be heavily criticized for experimenting. Thus while everyone pooh-poohs an inflation problem, I still worry about one. Seems like the consensus, which may be correct, among the minority expecting and talking about an inflation problem, doesn’t expect one until 2010 at the earliest. Keeps me thinking about that quote I printed here back on Friday, December 5^th, from Sir John Templeton: “It’s impossible to produce a superior performance unless you do something different from the majority.”

THE STOCK MARKET

Maybe we’ve started off on a new, lasting stock market rally as many now say. Maybe the November 20^th closing low and November 21^st intraday low did end this bear market or at least this phase of it and start us up and on a new mini bull market. But I don’t think we can determine that from these final days of stock market trading this year. This jig jag, saw-tooth modest rally we’ve had in December – the Dow remains down -2.8% this month, but up +13.6% from its closing low on November 20^th – still looks like just a time killer rally to me after stocks fell -6% in September, -14% in October and another -5% in November. So while I’m off on my annual winter beach vacation, I’m leaving my managed portfolios hedged with a slight long bias, still with my modest overall about 20% or less market exposure which I’ve carried since late last year. You remember late last year? At least as a lesson learned for the future, if for no other reason. After the stock market rallied back from its original car wreck in July, in what amounted to a head fake, false move, dead cat bounce and pretty obvious sucker’s rally, and a failed break out to new highs by the Dow and S&P (while the rest of the stock market refused to confirm).

Anyway, last week I ended the letter by noting that psychologically we should rally since bad news couldn’t drive prices down in recent days. Technically we had what could prove to be two months of base building everywhere I looked on the charts (but bases which could easily prove false). Fundamentally we even finally had low enough market valuations, like P/E ratios, to support a rally as well. But how about a catalyst? Well, let me offer up: (1) much lower gasoline prices which keeps our wallets and purses fuller and healthier, and (2) the good feelings anyone watching our president-elect making non-partisan, non-political, non-ideological selections for his cabinet, should feel. There may be a wellspring of good feeling, a sort of honeymoon psychological effect on investors, business, consumers and most all of us as we hope our new president can perform miracles. Schwartz View: Unfortunately no one man is going to remake America overnight. So, while keeping an open mind and watching all unfolding developments, for now I’ll back history which says this “worst financial crisis since the Great Depression” has to lead to an extended Papa Bear market, one which lasts at least a couple of years. Not just for one year, where we stand today.

PORTFOLIO STRATEGY

I hate to follow or even agree with some of what I’m hearing about going forward strategy, especially if such is espoused by those who were so wrong all this year. I’m speaking specifically about Bob Doll, now at BlackRock as their “Trillion Dollar” fund manager. I don’t want to pick on anyone but since he’s been leading the charge forward as stock markets collapse and getting all the face time doing such, I guess I have to. I start off very skeptical because my belief is that these big money managers are not going to get on TV and recommend anything before they and their clients get first crack at their thinking, ideas and recommendations and position themselves accordingly. I already wrote awhile back many old stock market books talk extensively about how big money always used to try to sucker the little investors. The age old technical Wall Street term “distribution” implied big guys needed little guys to unload their big positions on to when they foresaw a bear market ahead and thus put on a bullish face. It took much time to unload huge positions these large investors stockpiled so much frenzied excitement about the stock market had to be built up as big money sold. What better way today than Bob Doll coming on CNBC ubiquitously and always saying we are now in a bottoming process. He said that back in March and those who followed him are much the worst after the October panic crash. Anyway, that’s all secondary, although supporting, my main point. My main point is that Mr. Doll now says next year is going to be a good one for those taking on risk, not for those playing it safe. Again sounds good to me, at least at first blush. We all know what goes down the most generally can bounce tremendously when psychology changes. But do we really want to buy really risky investments in just the early part of the second year of a big, bad bear market? I say no. Bear markets of this size and scope historically have taken a lot longer than one year to work through.

Net, net, probably Mr. Doll will be proven correct about taking on risk, if one doesn’t factor in any time period. I’d guess risky asset classes will move fast when this bear market ultimately does end but do I really believe its going to end soon? No. And if we do have a 2009 mini bull market, say because stocks have fallen so much, then I’m not going to count on Bob and other institutional investors to tell me and us exactly when to get back out. No, starting off next year next week, I’d suggest still playing our cards close to the vest. Yes, play modestly for a continuing rally but look at it for now as just a bear market rally.

Happy Holidays & Happy New Year!

Richard

Re-Regulation Begins a Multi-Decade Road

Richard Schwartz — Mon, 06 Oct 2008 14:39:00 GMT

THE BIG PICTURE

Today’s Big Picture view revolves around the probable coming re-regulation of the financial markets. History shows regulation of markets is similar to a grandfather’s clock pendulum swinging back and forth although not as regular. A brief look back to the start of the 20^th century, shows free markets and a first age of globalization, with the introduction of the telegraph and telephone, steamships and railways, at a peak. Millions even migrated without passports while trade flourished meaning free markets were in charge.

· Governments Take Charge. Then, in August 1914, with World War I, that age ended abruptly. WWI left people disillusioned and looking for something better and many turned to socialism and communism. The Russian Revolution in 1917 drew followers and essentially sought to end capitalism for good, making private property illegal. Socialists and other government controlled economic systems were winning the battle of ideas, governments were in charge, free markets were in retreat. In less than 30 years, one third of humanity, including Eastern Europe, China and the Soviet Union, would be living under socialism or communism. Capitalism looked to be doomed except for in America. The 1920s in America was still a boom time, Americans buying cars, buying illegal gin, buying stock. Radio was the Internet of the 1920s. It was a classic bubble. Finally the 1929 stock market crash started Americans on the way to despair, a complete economic collapse "with no ability to earn, repay, spend, consume." Everything spiraled downward while about half the banks in the US closed. America turned toward government for help and thus re-regulation with President Roosevelt’s numerous new government regulatory agencies. Around the globe, governments gained power … over free markets. In Italy, Spain and Germany fascism took charge. World War II then arrived and even afterwards people all around the globe still blamed capitalism for causing the depression. The whole world kept moving towards more regulated economies. England even went socialistic as Winston Churchill, the great war leader, was beaten by the socialists! Most of the world operated under this sort of government planning process for the next 30 years.

· Free Markets Regain Control. But in the 1970s free markets began a resurgence. Margaret Thatcher came to power in England with free market thoughts as did Ronald Regan here in the US. with his Reganomics. Both cut back on government regulations, giving markets more ascendancy and free markets again starting coming to the forefront. England started privatizing its economy while President Regan cut taxes and let free markets regain control as epitomized by breaking the air controllers strike. Thus capitalism got a free hand which lasted for aboutt 30 years, even through the dot.com boom and bust. But after last year’s incredible debacle with investment banks, money center banks, insurance companies, etc. losing billions after irresponsibly leveraging up their investments 20 or 30 times, it’s apparent to most everyone that, just like in the 1930s, we can’t afford to have any similar financial market collapse spawning from totally free markets to happen again any time soon.

Schwartz View: So after reviewing the history of the 20th century and seeing how over long periods, market regulation swings back and forth, I have to figure we’ve just started a long term swing back on the way to re-regulation. For more on this topic, I recommend you watch Commanding Heights, the Battle for the World Economy, by Daniel Yergin and Joseph Stanislaw which was turned into a DVD and a PBS prouction, a wonderful esplanation of the battle for economic minds in the 20th century. Filled in some missing pieces for me and should for you all as well.

Where Now Inflation?

Richard Schwartz — Fri, 12 Sep 2008 13:39:00 GMT

THE FIRST INFLATION SURGE IN 25 YEARS IS OVER. So, what now?

First, let me give credit when credit is due. Federal Reserve Chairman Ben Bernanke and the Fed finally got one right. They’ve been promising us moderating inflation for a year or more and now with -30% lower crude oil prices and a big general commodity collapse we’re finally we’re seeing it happen. Or, at least, starting to (most things economic happen with a lag). And with the US dollar now surging, that’s going to reverse/diminish rising, problematic imported inflation as well. So now the deflationists out there, those who say deflation is our real problem facing us for some time – Gary Shilling, Robert Prechter, Ron Insana to name just three -- can really have their time in the sun.

Still, there remains some debate whether problematic rising inflation is going quiescent. Mac Courtenay of Seeking Alpha, I guess a boutique research firm, offers up seven reasons why inflation isn’t going away:

1. Inflation is already firmly entrenched. Schwartz View: I agree. I’ve been observing the Fed’s incessant jawboning that inflation expectations remain low is wrong and we all know that the government’s inflation data is terrible skewed to the downside from what inflation really is.

2. Inflation is already here. Schwartz View: The Producer Price Index (PPI) is up +9.8% over last year, and that’s only what the government grudgingly admits to.

3. Inflation is now moving its way through the “food chain” showing up in consumer prices as well. After some hope that because of global competition (globalization) producers would eat the higher inflation. Schwartz View: This rippling through is evidenced by the Consumer Price Index (CPI) rising too, again up the fastest in 17 years.

4. Average weekly earnings fell in July the largest since 1990. Schwartz View: I’d guess Mr. Courtenay’s point is that when earnings drop, we can’t buy as much. ???

5. More and more Federal Reserve governors are talking about raising interest rates next, not lowering them. Especially if we see energy prices stabilize above $100 and bounce. Schwartz View: Of course, these Fed officials, meeting again next Tuesday, can change their views.

6. Global (food?) consumption patterns are heading higher. Schwartz View: I don’t know if author Courtenay is talking about food, metals or just what. But I agree with him on food. As people get a little money, one of the first things they spend it on is more and better food. Thus global food consumption patterns should keep heading higher even if the global economy recesses.

7. The markets will take charge. If the Fed doesn’t raise rates, the marketplace will raise them. Schwartz View: Not sure about this reason he positing for inflation staying problematic. Right now the markets, the long US Treasury market, is still forecasting a slowdown by yields going lower and lower, which to me means more disinflation ahead, not rising inflation.

Schwartz View: He goes on to say part of oil’s recent comeuppance, coming down, is forced hedge fund liquidation because of Congressional pressure (I agree). And that it’s a great time to buy TIPs (Treasury Inflation Protected Securities) and the easiest way is to buy the symbol TIP. And to buy commodities on this correction, recommending also symbols DBC (a basket of commodities) and GDX (gold). Myself, while I believe this commodity pullback is indeed a correction, I think it’s too early to buy them back.

Schwartz BIG PICTURE Inflation View. My belief, garnered from studying stock market history and looking at thousands of charts over the last 20+ years, is that when any new trend begins, many times it begin with a surge in the new direction, then a pullback or at least a pause, sort of to regroup, consolidate gains, make believers out of disbelievers, open the eyes of others who are slow to see and just basically kill enough time to see if the new trend has legs. Then after this pullback correction, which more often than not can be large and long lasting, runs its course, the new trend reasserts itself.

Basically that’s where I see us today with rising inflation, in a pause to refresh. I’ve theorized over the last year than oil and other commodities would stay stronger, longer than most thought this year. I’d say that proved correct with oil going up all the way to about $147 and related sectors like natural gas, energy services, solar, wind and other alternative clean green leading the stock market for the whole first half of 2008. Similar to what happened during the first year of the last severe Papa Bear stock market back in 1973-1874 (oil stayed high the first year). But now, with commodities reversing downward and in major correction, it’s obvious change has occurred, that a pause to refresh is underway. And we can expect this new trend to last longer and correct deeper than many would think I’d venture. Sure, first because commodities are inherently extremely volatile, much more so than stocks and bonds. But also because of the emerging new, macroeconomic backdrop. We seem to be in line for a major, global economic slowdown which will throw a big detour on the road to a new long term trend to rising global inflation. If the global economy really goes blah for the next few years, commodities will take a longer than expected breather. Schwartz View: Still I’m in agreement with former Federal Reserve Chairman Alan Greenspan who predicted in his 2007 book The Age of Turbulence that we live in an inflationary world and that the disinflation trend dominating all during his tenure as Fed chief is coming to an end. And I’m in agreement also with famed, global investor Jim Rogers who says commodities normally correct 50% or more and that’s what we’re seeing now, a correction not the end, to this so far about 9-year commodity bull market.

We Need To Move Past Oil!

Richard Schwartz — Fri, 25 Jul 2008 13:49:00 GMT

YOUR ALTERNATE CLEAN, GREEN ENERGY WEEKEND UPDATE

With not much stock market stuff to write about since I don’t want to recommend buying or selling this morning as we all should have our portfolios hunkered down and pretty much in place for a rocky and rough summer by now. Sure, stock market aficionados can always fine tune their portfolios and do some long and short trading, trying to scalp some profits here and there while long term investors stand pat, but with not that much going on, please let me rant and rave a little about those people out there who are slow in moving forward on American’s vital energy issue. And, don’t get me wrong, we all have to change our mindsets about energy and life in America and it will take everyone their own period of time since we’re all coming from different lifestyles, histories, jobs and places. Still, change is a coming now – I agree with George Soros who writes he sees America and the world moving from an established order and certainty to great change and thus greater uncertainty -- and we’ll all have to adapt. No problem for us Americans as that’s what we’ve always done; we’ve always adapted to change well.

“Drill, drill, drill!” I almost can’t believe Larry Kudlow on CNBC this morning. That’s his mantra: Drill, drill, drill. OMG (Oh my gosh!) I have to believe Larry, “a great American” no doubt and always bullish, is living on another planet or is somewhere back decades in time. He just doesn’t get it! But then I shouldn’t be so harsh on Larry. Millions of American’s still don’t get it as well. Though I’m delighted to see T. Boone Pickens gets it as he is now paying millions for TV ads publicizing The Pickens Plan, his idea to harness America’s wind corridor running north to south from Canada to West Texas, replacing natural gas as an energy source for cities and use that natural gas to power America’s vehicles.

Anyway, Larry just will have to realize that economic growth isn’t the be all and end all. Near term growth is just near term growth. We really need long term, sustainable economic progress to make the US and world a more prosperous place. And that switching from oil today, while a big burden now, is the best thing for us and for future generations to come. Thus we shouldn’t be doing anything to drive down oil and thus gas prices today. We need to leave them be because high and higher gas prices now will help drive America in getting off oil by creating profit in developing alternative power sources. That more and more Americans see this already and those that don’t will soon wake up to this fact going forward, and are or will be willing to sacrifice for the good of the country. And that this major change over – like moving to indoor plumbing, to railroads, to cars, to electricity in generations past – can be and should be done.

So my major #1 point is that we don’t want to drill for oil any more! Certainly not lift the moratorium on offshore drilling like President Bush has just proposed and Larry got all excited about. Or go up to Alaska and ruin one of the last remaining unspoiled parts of our planet and home. For what? Temporary relief and to lower by a dollar or so gas prices now? And then a few decades from now, when we use up that offshore and Alaskan oil, we’ll just have to address the same issue once again?

You’re not convinced? You still want to know more reasoning why we shouldn’t drill for oil any longer? Well, because we have to move beyond using oil as a power source. That’s the bottom line. We immediately have to start putting any and all plans in place now, today, to stop using oil and dirty coal as well. Now, I know what some of you are thinking: “Richard, get realistic! That’s impossible.” Maybe Larry Kudlow and George Bush 2 are thinking that too, that there’s no way to get off oil and coal. But someone has to give them a (loving) slap across their cheeks and wake them up to coming change. It is a total change of mindset but it’s happening here and all over the world. It’s happening here with movies such as Wall E. Lucy saw that movie with her granddaughter Elizabeth and says it make her more into a green believer. And the influence that movies have is great, thus every kid who sees the movie will be left with the unconscious thought that they’d better live a green, clean, low carbon footprint life.

And, as I’ve consistently written since December 2006, I’ve noted a critical mass already built up supporting a change in how we live on this planet. From scientists, to governments to large and small business alike, to venture capitalists, to individuals. Supported by logic, the reasoning that using a cleaner energy source will: (1) be a major, maybe knock out blow to global terrorism, (2) create millions of new jobs in the US and globally and thus spur the whole world into a new more prosperous phase and of course, be a big step forward in leaving Mother Earth at least as clean and healthy as we found it, just the right way to live. Back in December 2006 as a result, I took my own advice to you all and started using 95% of my IRA account to just buy small allotments of any and all companies involved in inventing, using, working on alternative, clean renewable energy sources. I’ve posited here time after time that fortunes will be made by those companies and individuals pursuing this same course. Thus I’ve listed many times in this space as many companies involved in alternative power as I could find. Solar companies, wind companies, battery technology, hydrogen tech, geothermal, thin film solar technology, energy savers, and on and on and on. And I must say this strategy has worked. My Ira has risen while the stock market has been on a slide for the last year now.

SCHWARTZ SUMMING UP. Sure we still need oil and coal today and let’s find more where we can, where we’re already drilling. But we need a new mindset in America and I see it as already occurring, already in place and inevitable that it’s going to change America and the world as we know now it. Better to ride this incoming tide, open up our minds to new thinking by ourselves rather than have it forced down our throats. Some will not see this major change coming or resist it, not being able to adapt to a new world ahead, but not so my readers, I hope. There’s so much support already that there’s no going back so the sooner we all cross over to the other side of this vital energy issue the better.

America's Path Forward

Richard Schwartz — Wed, 09 Jul 2008 14:31:00 GMT

A Recap of: THE WORLD IN 2020: POWER, CULTURE AND PROSPERITY

By Hamish McRae (1994)

Before my memory fades, let me recap a bit of the fact and opinion filled book I read on my vacation. Essentially Mr. McRae, an acclaimed commentator with a 25-year career writing for two British national newspapers interpreting the international and economic scenes and previously already a best selling author, portrays how the world will develop by 2020. Basically he briefs us about where the world stood in 1994, then discusses the major forces for change, including demographics, natural resources, trade, tech and government, and then concludes by describing the world as he sees it in 2020. (Mr. McRae's book offers great perspective. I recommend getting and reading it yourself.)

Let me begin at the very end. I was absolutely delighted to find in the final chapter this McRae conclusion: “If the US does reimpose majority values, it will do so in a spirit of decency and humanity. The United States has to come to terms with an inability to increase living standards for the majority of its people until and unless its citizens behave in a more ordered way. But it will do so.” Schwartz View: Yay! That’s my belief too. America must start living in a more orderly, civilized way to really regain our leadership role and again improve our living standards which have been stagnating for far too long.. Thus I’m relieved and delighted to come upon some other observer of life and the times noting the same thing I have.

This morning I’ll just describe America in 2020. But in forthcoming letters, say in my regular GLOBAL VIEW section, and elsewhere when and where appropriate, I’ll fill you in on Mr. McRae’s views on other countries’ progress and their standing in 2020 as well.

The United States In 2020. The US will continue to get multicultural, much more so than any other country. Thus it will feel much different than the past and different also from the rest of the world which discourages immigration. We’ll feel “big and vibrant” but not “particularly rich.” There will continue to be large pockets of poverty. [Schwartz: Unfortunately, that’s just how capitalism works.] The incoming immigrant population will keep the ideas flowing and innovation happening and the US growing faster than Europe or Japan but will cost us more as running a multicultural society is expensive. By 2020 we will be well on our way to de-industrialization, having less then 10% of America employed in manufacturing. We will be depending more and more on the service sector and will be the global leader in services by far. [Schwartz: This is debate about whether abandoning manufacturing is a good thing or not.] We will see a decline in the old city centers and further growth in edge cities which will also be different than the rest of the world. Edge cities just being semi-urban agglomerations inhabited mostly by professionals. Better communications will make large cities redundant as more workers will telecommute. More work and social life will be done by phone, videoconferencing, email and fax. Our neighbors, Canada and Mexico, will become even further integrated into the US economy as migration continues. Cultural and economic borders, if not political ones, will disappear. Although likely losing our richest nation role, the intellectual leadership of the US will remain and we will continue to export our culture, ideas and language.

We have three big issues facing us domestically; bureaucracy, security and lifestyle. Bureaucracy-wise, we are running an inefficient society now, for one example, too much litigation is a big drag on the economy. Security-wise, we have too much crime, as another example. And lifestyle-wise, we have too much divorce, too many single moms, low savings and low education standards. Schwartz View: Any and all ways of running our economy, political system and lifestyles inefficiently hurts our economic growth, no question about that. But Mr. McRae feels the US will break this negative cycle. And get back on track, living in a more orderly way, rebuilding the family unit, etc. McRae speculates on how this change will happen: “At some stage, most probably in the second decade of the next century, there will be one of those great radical shifts in US political attitude which take place from time to time, a shift akin to the New Deal …” Hey, it can’t come too soon for me as I rail under the monkey-see, monkey-do atmosphere of Hollywood, the New York Post and Mike & the Mad Dog, crude and rude, using whatever sells, taking no responsibility, gaming the freedeom of free speech, just living off other people. I see this shift beginning no matter who becomes our next president, although I see it really accelerating if presumptive Democratic nominee Barack Obama wins.

Sample Monday Overview Letter

Richard Schwartz — Mon, 30 Jun 2008 14:55:00 GMT

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PRINCIPLES OF THE STOCK MARKET

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Monday, June 30^th, 2008: Ok, I’m off this afternoon. For a week of revitalizing rest and recreation, I hope. Actually San Jose to Lake Tahoe runs through some of the worst housing bust in America, with one county near there declaring bankruptcy. So I may be back with some first hand knowledge & new insights. Have a great week and a greater 4^th of July. I hope everyone gets to listen to lots of patriotic songs. We all have to believe in this country which has done so many good things, for us, and the rest of the world too.

THE BIG PICTURE

In today’s Big Picture view, let me lay out how big bad bear markets historically have unfolded. Thereby to offer up some guidelines on what to expect over the next year or two. Essentially this model scenario comes from my many years of studying past history and also from my first hand experience of being in this fascinating stock market business for the last 35 years (dating myself). Yep, when I add it up, it’s been that long. Actually that’s also approximately how long its been since we suffered through the last Papa Bear market as I expect this one to prove to be. I had just gotten out of college and started work at “Mother” Merrill Lynch and asked a rep which stock to buy. He said buy Merrill Lynch, which I did and it promptly went down from about $23 to $8. I really didn’t understand what was going on back then.

Bear markets, Papa, Mama or Baby, go through psychological stages or phases. The first psychological phase is when investors deny and thus fight tooth and nail that a bear market has even really begun, after being so locked into bullish expectations for so darn long (in today’s case for five years, longer than normal). The second psychological phase is when the news turns so bad that even firmly entrenched bulls have to admit that something is wrong out there. That maybe the economy is sinking or in recession because the economic data (as inexact and easily manipulated as it is) then coming out is so negative. This phase can go on for quite a long time and is generally the longest of the three phases. Investors still look to find ways to invest and make profits through this phase although that becomes harder and harder as the incoming news goes from bad to worse. And finally the third psychological phase is capitulation.. That’s when even the most adamant bulls lose all hope, give up the ship. And sell. This capitulation phase can be short or long but is epitomized by massive selling all at once, as everyone still invested feels the heat and pressure, can’t sleep and somehow all give in to the pressure at the same time. After this massive selling, the pressure comes off stocks as everyone who wanted to sell has. Still we generally need additional time to heal, thus after a lack-of-sellers bounce, stocks generally retreat once again, but this time on shrinking trading volume, they successfully “retest” their capitulation lows and the stage is set for a new bull market.

Schwartz View: I think we’re in for a similar performance to the above scenario. President Bush probably thinks he did something truly good with his multiple tax cuts following in President Regan’s footsteps but the early 2000 tax cuts just went primarily to the super rich. And Bush’s Iraq invasion and following years of morass just went on our credit card. And our looming long term critical economic and social problems like Medicare & Medicaid, Social Security, energy and health care haven’t been tackled. Thus I see big problems accumulated for the next US president as he is going to have to tackle and come up with some very important solutions. During this period, say the first two years of a new presidential term, most everyone in America is going to have to change our lifestyles, from freewheeling and overspending and living on credit to living a more disciplined, controlled lifestyle. All in all in today’s very competitive global economy and world we live in the sooner America and Americans get our acts together the better. I want to turn bullish on America again asap and thus benefit from America showing the world what we can do when we’re all pull together on the same page and right path. But for now we’ve got a tough period to slug through, so hunker down. Our fortitude, intellect and culture should stand us in good stead.

THE STOCK MARKET

We could see a stock market bounce soon, any time now after stocks have dropped so much, so fast, recently. After the Dow Industrials plunged through its March lows last Thursday and the S&P 500 fast approaching its own March lows now, closing at 1278.38 on Friday, just +0.39% above its March 10^th closing low of 1273.37. Generally institutional, professional investors like to defend old lows and other key prices levels I’ve found. I mean there are sign posts in the stock market and besides low lows another is when a key index drops -20% from its peak, that’s a price level where market observers start calling a decline a bear market and no one wants that. For instance, the Dow hit that -20% point off last October’s high last Friday, CNBC started flashing the news and stocks promptly rallied, a bit. Again, some investors will fight new trends at these key price levels. We’ve seen this play out over the last few years during the bull market, at important correction points, like down -10% whereby mysteriously in came buyers time after time. Maybe it’s a black box phenomenon, some trading strategy hedge funds have and profit by.

Anyway, and on the other hand, we may NOT get such a bounce this time down or at this point. In fact, we’d better not count on it, not with crude oil making new highs every time we turn around, like this morning rising to another record, now about $143 a barrel. Yes, some are calling for oil and commodities to collapse, calling their rise just another bubble. Oil dropping $10 a barrel in a day and $30 in a few days would likely help the stock market but after the knee-jerk upside reaction, investors would probably decide lower commodities also broke the back of any and all remaining stock market strength and leadership. And that resulting sigh-of-despair would then lead to even more selling. Plus, who’s to really know whether the commodity boom isn’t really a sign that all the world wants to lock up vital crude oil, natural gas, foodstuffs and all other needed natural recourses to keep their economics functioning. We do live in a suddenly, very competitive one global marketplace after all. It’s interesting that the two super successful, first mover, hedge fund investors who teamed up way back in the 1970s with the Quantum Fund today have slightly different views of what’s going on in commodities, but pretty much the same. Jim Rogers, the analyst of the pair, says buy commodities, these soaring prices are because the supply-demand equation is way out of whack. Prior to recently soaring global demand there’d been no incentive and thus little search for new supplies in most any commodities going back two decades. And George Soros, the trader of the pair, says yes there is a bubble in place today in oil and commodities but it’s superimposed on an credible long term uptrend. In other words, both can see a big decline in demand during the next global slowdown, a major glitch, but both can see further commodity price rises over time ahead. All combining with past US history, there for anyone to look at, that oil and oil stocks did very well during the first year of the last major market, in 1973-1974, thus supporting my theory that oil will hang in there longer than most expect. And my recommendation to keep one toe in the energy patch; I’m recommending the oil service sector.

Schwartz View: Looks to me like a second leg down in stock prices (as contrasted to a second psychological phase which seems also to have started) in this bear market has begun and thus that this summer could offer up much lower stock prices rather than more sideways, complacent trading of the last three months. I would play your cards close to the vest. Please see PORTFOLIO STRATEGY below.

PORTFOLIO STRATEGY

With the stock market now down substantially -- and hopefully everyone reading my letter having already following my consistent and persistent advice over the last seven months of cutting back stock market exposure -- I still have to recommend “getting smaller” like well-known trader Dennis Gartman likes to say. I mean it’s so easy to just be complacent here, figuring stocks are already down -20% so most of the risk is over. But history shows the opposite, that stocks drop more like -50% or more during big bad bear markets. Just seems logical to cut back even more as a second leg of price trouble begins. And there’s no guarantee that these bear market legs will just number three, following along with the psychological phases of bear markets, as www.Comstockfunds.com calls them, denial, concern and capitulation. In the 1929 to 1932 bear market, I remember reading there were like seven legs down in stock prices. Thus, as I jet off on a quick vacation, be back writing next Monday, I’m reviewing my own managed portfolios to find the best places to cut back my exposure even while only being 40% exposed in one portfolio, only 30% in another and pretty well hedged with inverse sector funds in the other three more actively traded accounts. Please, yourselves, attempt to take a look out six months or a year ahead, over the horizon yourself, a necessary step when managing other people’s monies, and consider the Big Picture. Just say things unfold poorly. What would you do next summer if the economy is finally post terrible stats and corporate profits have plunged? And if your portfolios are then down -50% or more? Are you going to sell then? No. Today we still have time to sell and looking back selling would have been correct strategy if that likely scenario unfolds, wouldn’t you agree. Bottom line, in big bad bear markets it’s better to be safe than sorry. Wait until the next bull market comes along before you starting going for the gold. Oops, hold a little gold here.

Have a great week and a terrific 4^th of July!

* Please also, go ahead and overdose on America’s heritage this week, listen to a lot of wonderful July 4^th songs and let them infuse you with a renewed sense of patriotism.

Ho Hum, Another Bear Market Summer Day

Richard Schwartz — Fri, 20 Jun 2008 14:08:00 GMT

UPDATE ON THE STOCK MARKET. Witten Friday, June 20th, 2008: 6:30 a.m.

Looked to me like yesterday’s stock market rally was a knee-jerk reaction to China announcing it was going to raise oil prices by 17%. Crude dove on the news while stocks jumped. But if one thinks it through, is China raising oil prices really such good news? The bullish knee-jerk was that higher prices for gasoline in China will mean lower overall oil demand from China and that will reduce oil prices globally. As we’ve been hearing a lot lately that it’s government subsidized gas prices in China, India and many other developing countries that isn’t allowing crude demand destruction to occur and thus lower global crude prices. I mean Americans drove 30 billion fewer miles from November through April and that hasn’t lowered prices. The bullish train of thought continues that if the world gets lower oil prices, everything will improve. But, with further thought, if gasoline prices go up in China, won’t that cause demands from Chinese workers for higher wages? I mean the very last thing that the current communist Chinese leadership wants is any revolution from the Chinese people. Already, super big picture investor and Chinese advocate Jim Rogers says its inevitable that China’s government will go capitalistic over time, what with the Chinese people getting a taste of free markets for the last decade or so and realizing that free markets are the pathway to future wealth. Remember: “To be rich is glorious,” is the Chinese people’s new mantra. Hm? … and won’t higher Chinese wages mean higher Chinese export prices, thus higher import prices for us here in the US since we import tons and tons of stuff from China? And thus higher consumer goods prices intensifying the already ongoing and tightening squeeze on US consumers? We’ve had stagnant wages for many, many years with no light at the end of that tunnel and now we’re seeing higher prices for just about everything; food, fuel, health care, taxes, etc. Guess the still entrenched bulls figure lower crude will lead to lower gasoline, diesel, heating oil, and food too, eventually. And since the trend is the thing in the stock market, meaning the markets start discounting immediately upon seeing a new trend emerge, stocks rose yesterday. Still, is a gas hike in China really going to bring down global energy prices? I mean China already raised gas prices late last year and that didn’t bring prices lower. And we now live in a very globally competitive world as all countries and regions want to secure their energy and other needed mineral futures. And food futures too now after the recent global rice shortage has exposed the fallacy that it’s ok to depend on other countries for food staples. Anyway, the first thought was that lower oil is good for stocks and thus the stock market got stronger as the afternoon proceeded, led by lower energy beneficiaries such as the Dow Transports. But while I turned bullish on the Transports back in late March, after technically it broke three fan lines and formed a Head & Shoulders Bottom, I’m now bearish on the group after the two-month dead cat rally ended and the transports formed a bearish, rarely seen Broadening Top, an indication of loss of intelligent sponsorship and leadership. Thus I would certainly use yesterday’s nice bounce back in the trannies to get out if you haven’t already. And, for aggressive traders, if you can find a way to short the transports, I’d do so in a small way now. Schwartz View: Again, yesterday seems like just another bounce in a larger bear market environment, caused by entrenched bulls who refuse to admit the primary trend has now changed and is now pointed downward. The problem with this bullishness -- investors refusing to admit they are wrong, a terrible habit in the stock market! -- is that it indicates we’re still in the early stages of this bear market. Again, safely position yourselves and, unless you’re a trader, take the summer off. Of course, keep reading my letters. Why? Well, let’s see, to improve your knowledge base of how the stock market works and to make sure you don’t miss the opportunity to get back in. Bear markets do have endings. The last Mama Bear market, 2000-2002, ran for slightly less than two years with the most damage coming in the 2^nd year. The last Papa Bear market, in 1973-1974 ran for two years. And that very famous big bad Papa Bear market, which this one is looking more & more like, ran from 1929-1932, or just under three years. So all bad times do pass.

New Investment Theme Unveiled!

Richard Schwartz — Fri, 13 Jun 2008 13:54:00 GMT

A NEW INVESTMENT THEME FOR YOU TODAY. Quiet, don’t tell anyone about this new theme until you get invested. Anyway, finding a successful theme early on, before the crowd finds it, is one of many different ways to profitable investing in the stock market. I’d say it’s one of the best for all time frame investors. Regular readers will remember we found the REITs theme early on, rode that for years and how well it served us. Then, more recently, a year and a half back or thereabouts, we got on the fertilizer theme, stocks like Potash, Mosaic, Agrium, etc. which is still ongoing, and the solar energy theme. The solar energy theme gave us doubles on stocks like First Solar, Suntech Power and SunPower. Other themes I haven’t been as lucky with have been energy and global infrastructure. But I must say I’m learning, and hope you are too, that we need to stay with a theme when we find a good one like a dog with a bone as many super investors/traders advise. Themes can and generally do run a lot longer than anyone would believe. Anyway, today let me introduce my new theme to you.

The Energy Savings Theme. Let me call it, for lack of a better name, the Energy Savings Theme. You see I’m reading about how now, after $4.00 gas has became a reality, how individuals are coping by “lowering the thermostat, eating out less, buying cheaper version of products then need, spending less on clothes and medicines and changing the education plans, …” Also by buying less food, driving less, buying fewer necessities, closing off parts of their home, spending more time outdoors (to save on AC), taking on 2^nd jobs, buying more efficient energy systems and appliances, using less water, changing to compact florescent light bulbs and more. So it only makes sense to me that businesses and corporations are already doing the same thing or discussing the same, how they can use less energy in their business models, where to get energy savings. If I was a top honcho at just about any company, I’d be holding meetings centered on this issue, that’s for sure. And from what I read many companies like General Motors and many industries like airlines believe higher energy costs are here to stay. Thus they have to plan for that long term scenario, start changing how they operate now. To me, that’s the beauty of and necessity of today’s high energy prices, this tough love. Americans absolutely need to change our lifestyles toward using less energy. Doing so will pay off very handsomely over time in key ways. It will get us off oil and thus our dependence on people and countries who don’t like us and want to harm us. It will get America’s finances, so badly out of whack, back in shape. And it will help preserve and respect the planet we live on as it’s quickly becoming too late. Have you noticed the 50-year snow storms in China, their massive horrific earthquake and the 100-year floods plaguing Iowa & our Midwest right now?

Anyway, this energy savings theme is going to be widespread, and go corporate as well as individual, with company after company jumping on board in some form or manner, one group of businesses interested in and investing in new energy savings products and services, doing the buying, while another corporate sector will be highlighting their products and services they offer which save energy, doing the selling,

Thus let’s start this theme today by highlighting one sub sector of my already ongoing alternative, clean green energy theme. That is what I’ve previously termed the Power Conversion/Energy Controls companies. Thus below I’ve pulled out of last Friday’s fairly all-encompassing shopping list of companies working on powering the world with clean green energy. I went through each stock and looked for stocks already in uptrends and that save other businesses energy by using their products. Here’s the list:

ENERGY SAVERS

CPST Capstone Turbine Corp. $3.41 Low-emission turbines; hybrids

BCON Beacon Power $1.72 Flywheel-based power systems

WGOV Woodward Governor $37.78 Energy control systems

MXWL Maxwell Technologies $12.57 Power conversion/purification

CHP C&D Tech $8.40 Reserve power systems

Schwartz View: While I believe we’ve in for an extended bear market, I do believe there may be some groups and stocks which can make some upside progress. And remember, I’ve posited that energy and related stocks should outperform early on in this first year of this bear market. While I wouldn’t bet too much on anything right now, I would suggest starting a small in size portfolio with the above fire stocks.

Disclaimer! I own a small amount of CPST. And plan to buy small portions of the rest of the stocks above.

US Slowdown Spreading Global

Richard Schwartz — Wed, 04 Jun 2008 13:49:00 GMT

GLOBAL VIEW. Yep, when I started reading the Bloomberg newswire this morning, I found: (1) that European “retail sales declined -2.9% in April, more than three times as much as economists forecast,” (2) that March’s retail spending was revised downward from -1.6% to -2.3%, (3) that UK services “unexpectedly contracted for the first time in five years,” taking the reading below the 50 level which delineates expansion from contraction and which shows “…service companies shed jobs at the fastest pace since 1996,” (4) that S&P says the risk of default is rising in Europe and that (5) which we already knew, that European inflation is rising at the fastest pace in 16 years. So it’s no wonder Europe is having a really bad stock market day today. Schwartz View: My sense is that the US economic slowdown is fast going global, well, slowly if you operate on right now Wall Street time, but fast if you really think about how economics works, almost always with a time lag. Thus Europe today is just providing me with more evidence today that my sub-section headline in this space yesterday:

“INFLATION IS RISING, WORLDWIDE, & THINGS KEEP GETTING WORSE”

is right on track. My best advice? Hunker down with what you plan on holding if we do experience the worst economy and worst stock market since the Papa Bear market of 1973 – 1974 over the next couple of years. (1973-1974 was a period very similar to today if you take a look back at comparables.)

Top of Bear Market Rally? Protect Yourselves!

Richard Schwartz — Wed, 28 May 2008 15:15:00 GMT

Written Tuesday, May 27th, 2008

THE STOCK MARKET

Briefly, the stock market pulled back sharply last week. Obviously this pullback may be about over and may be just a normal “shake out” on the way to higher prices. While that could be true, it usually is during bull markets, another alternative is it also could be the top of a bear market rally. And selling near the tops of any/all rallies has always a good thing in the past, right? So I would listen to the market -- it does communicate with investors who monitor it closely enough – and bow down to its judgment. Today, that means protecting ourselves. And if this doesn’t prove to be any big top, just a shake out, short and intermediate term players can jump back in. Remember my first guesstimate was we were just running out of buying power and thus could fall back to where this last run up began, about Dow 12,325, S&P 1330, Nasdaq 2275 and the mid April lows in the other indices. Now, though, after watching all the bad technicals show up last week and some reemerging economic worries, like more inflation and less growth, I’d say the odds have risen that we’ve just seen an important bear market rally top. Schwartz View: Bottom line, it’s much more important today to protect our portfolios than continue to take on unnecessary risk right when we could be headed into a second and possibly even worse leg down than we’ve just been through. If we do go down and break to lower lows, there won’t be any disagreement left that we’re just in a normal bull market correction. And that could feed on itself and lead to a more extended market decline. We don’t want to be complacently caught up in the early days of that move down. So better to be safe than sorry. Maybe we’re going to miss a market “melt up” such as the most bullish advisors think is ahead but even most of the bulls feel it’s going to be a tough slug ahead. So let’s protect ourselves here.

PORTFOLIO STRATEGY

The always-to-be-expected bounce back rally after the July/October declines to the March lows may be over. The technicals pronounced such last week. Four day or more sequences, distribution days, poor breadth, narrowed-down leadership and weak trading volume all said the two-month rally is kaput. Investor complacency, built after the Fed backstopped Bear Stearns and thus implicitly, the whole financial system, just adds to the likelihood that this decline may be a resumption of the big bad bear market. Thus my recommendation last week which read: ‘We’ve played this “sigh of relief” market bounce since the mid-March lows back up. But now’s the time to cut back exposure to about where we stood back at the lows, to again hunker down to the point where we can ride out any retreat back to test those lows or even go lower.’

Schwartz View: I’ll stick with that market advice kicking off a new week. If you increased your stock market exposure back near the January lows and then maybe again near the March lower lows, which I suggested, and thus made yourself some paper profits since, cut back now, get rid of that extra exposure, and lock in those profits now. I followed my own advice last week and now have added some bets on the market dropping again, going back into inverse funds. I want to be back in my hunkered-down position going into summer. FYI, I’m still nervous about what July will bring since about six months earlier, in January this year, stocks fell so sharply. Mr. Market discounts about six months in advance. And July’s can be awful as I remember back on vacation in Hawaii in July of 2002 seeing the stock market open down and sink lower day after day after day.

Odds Still Favor Deep Recession

Richard Schwartz — Mon, 12 May 2008 13:59:00 GMT

THE BIG PICTURE & THE ECONOMY Today’s Big Picture view comes down to whether the US economy is going into a severe, long lasting recession or not. My belief remains that we are, that’s where today’s slow-motion economic slowdown...(read more)

Always Expect Rallies

Richard Schwartz — Thu, 08 May 2008 14:42:00 GMT

THE STOCK MARKET Written Monday, May 5th, 2008: Weekly Overview. We’ve been up for three straight weeks now. At least for the large cap indices, the Dow Industrials , the S&P 500 and the Nasdaq Composite . You know those US-headquartered but...(read more)

"Are Emerging Markets Overpriced?"

Richard Schwartz — Wed, 23 Apr 2008 13:57:00 GMT

I was just asked: “Are emerging markets overpriced?” Let me answer that question for all of us. Emerging markets are fairly valued. Not overvalued, considering their substantial going forward growth prospects but not undervalued either considering they...(read more)

China Scale-In Buy Starts Today!

Richard Schwartz — Wed, 23 Apr 2008 13:50:00 GMT

SCHWARTZ BUY RECOMMENDATION this morning. Yes, with China (domestically) down -50% off its peak and the related Chinese region indices down slightly less but now showing some signs of a bottom and turn around, I’d suggest that its time to put some sidelined...(read more)