Principles of the Stock Market : Oil

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!

Oil Rally Likely Says Elliott Wave Theory

Richard Schwartz — Wed, 05 Nov 2008 14:18:00 GMT

COMMODITY VIEW. Oil Rally Begins. Elliott Wave theory, originally produced by R. N. Elliott in the early 1900s, and now carried forward by Bob Prechter, past #1 market guru, basically says Elliott waves or complete market movements come in threes. Well, to more accurate, Elliott says movements really come in fives, three in the prevailing direction, and two counterswings in the other direction. Right now I see three distinct and obvious movements downward in oil and other commodities. Meaning I see a complete movement just finished. So now I have to expect a move in the other direction, a rally upward in oil. For chart lover’s edification, and to see what I see, the three legs down are as follows.

Complete Elliott Wave Movement. The 1^st leg lower off the July 3^rd, 2008 crude oil top ended roughly August 12^th. After a minor sideways counterswing upward until August 29^th, oil, and commodities in general, began their 2^nd legs down with a gap lower the next day and continued downward to September 16^th, where the second counterswing rally upward began. This lasted for only a few days, until September 22^nd before the 3^rd leg down began. Starting September 22^nd, oil, and commodities in general, fell along with most everything else financial in the rare forced panic right through to the bottom on October 27^th. So we now have a complete three legged or Elliott Wave decline in place.

Schwartz View: At this point then I expect some type of oil and general commodity rally, which has already begun, beginning six days back. Maybe going hand in hand with a general stock market rally. But remember, there’s no saying oil can’t just keep on falling after this pause or rally attempt ends. We could easily soon start another whole new movement down in oil. But, bottom line important, this is the price and time point where it’s logical to play for a rally if one’s so inclined. I am so I took a small position in oil on Monday on the dip which took oil back down but not down below its October 27^th lows. Then yesterday we had a big up day in oil after which we were left posted a higher high. Add that to a higher low the day before and over the last week we’ve quickly met the definition on an uptrend, a series of higher lows and higher highs. Thus traders might want to take note and mirror me, using the next decline, oil’s down as I write this morning, to do so as long as we don’t break the old crude price lows. As for additional reasons oil why oil may have finally found its leveling off price, crude at its recent low was down a Fibonacci number, down very close to 61.8%. Normally a great point to expect a bounce. Plus hedge fund commodity deleveraging might just be ending along with the thawing and maybe long awaited ending to the horrific credit crisis. Finally, just use some common sense. No matter how poor the US and global economy gets, a certain amount of business is still going to need to be done.. And with no progress made in freeing ourselves from oil over the last 30 years, no matter what I want and believe will is on the way to happening, it’s not going to occur overnight. Oil is still going to have to be utilized for years to come; why not a rally to some leveling off point, say maybe at about 50% off its highs or in the low $70s?

Disclaimer! I own a little oil with small positions in Rydex Oil & Gas Ultra (RYEIX) and in ProFunds Energy (ENPIX).

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.

September 2008 Investment Strategy

Richard Schwartz — Tue, 02 Sep 2008 13:27:00 GMT

Richard Schwartz's

PRINCIPLES OF THE STOCK MARKET

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

Seventeenth 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

Tuesday, September 2^nd, 2008: Had lovely, blue sky, humidity down weather to wind up the summer and the long Labor Day weekend. Indeed, the weather is supposed to stay gorgeous the early part of this week here as well. But don’t mention the grand weather to Lucy since it’s back to school for her today!

THE BIG PICTURE

Last week I wrote about the necessity of staying positive during a downbeat economy and stock market. Staying upbeat right when there’s near term problems and long term concern that America is losing status in the pecking order of the new, globalized world we live in. Hey, America has long encouraged the rest of the globe to go capitalistic and got a massive, all-encompassing global push in that capitalistic direction after so much economic rot was discovered in the Soviet Union sphere after the Berlin Wall came down. Countries switched and let the marketplace work and, voila, the world started moving forward, growing and getting wealthier. So now, with so much new global competition around and thriving, America has to respond in kind by redoubling our efforts to efficientize, modernize and improve our own financial, economic, social, and especially our dysfunctional political system(s). In other words, take our fundamentally solid, well-working capitalistic system and adjust it to today’s new globalized marketplace. Make some fundamentally sound and foresighted long range decisions about energy, education, health, finance, politics, etc. and then exhibit sacrifice and discipline. Again, all while seeing the glass half full.

Schwartz View: That’s why I’m dismayed by hearing friends, including one back from Iraq duty, tell me it really doesn’t matter who gets elected as the next president of the United States. Their rationale? It doesn’t matter since nothing will change anyway. Maybe my generation and the one coming immediately after us is just too jaded. But, from longtime trafficking in the stock market, the one thing I’ve found we can bet on consistently is change. Change does happen. So, I’d say we have to have hope. We have to believe that our votes will prove meaningful. And the youth of America, not being so long disappointed and denied, frustrated and jaded like their elders, us, have responded to this upcoming presidential election. Grass roots efforts by thousands of inspired youth and the ready adoption of the Internet for fundraising from the masses is how Barack Obama overcame sure bet Hillary Clinton to get the Democrat’s nomination in the first place. So I say re: politics, energy use, etc., just like in the stock market, we need to keep upbeat that positive change is out there just over the horizon. So buck up. The realistic investor can forecast hard times ahead and yet get up each day, plaster a smile on his and her face and still believe that better times are out there, knowing that just like the daily cycle, it’s darkest right before dawn … arrives.

Schwartz Reading Recommendations: For those of you who are interested in Big Picture investing, by that I mean not the nuts and bolts of everyday stock trading, charting, etc. but, say financial planning, etc. I’d like to add former Fed chief Alan Greenspan’s tomb of the 20^th century, The Age of Turbulence, to my recommending reading list. It offers up a wonderful history of America growing wealthy, explains how decisions at the Fed are made and gives forward looking guidance to the world ahead. Also let me add the even newer book, THE POST-AMERICAN WORLD (2008) by Fareed Zakaria, which after I got over my provincial American bias, was wonderful in explaining the world’s likely scenario going forward. a world of shared power with extra kudos to author Zakaria in how he gets into the heads of the Chinese and Indians, explaining how they think, operate and their cultures. Interestingly, India with its long-established democracy, and Indians in their outlook on life, are extremely close to how Americans think. Again these books are for those of you interested in longer range financial planning and the like.

THE ECONOMY

Dell Computer’s report last Friday that the US technology spending slump has spread to Western Europe and some Asian countries just confirms all the other evidence showing up that today’s world, economically and financially is very closely intertwined, not decoupled as the Wall Street argument goes. Of course, this intertwined relationship and what that means isn’t that easy to define, it’s gray, not black or white. But for the near term, negative economic ripples sent streaming outward last year when the US subprime mortgage market imploded are now being sighted and felt in other parts of the globe. How severe these global ripples get, these so-called 3^rd-order effects, as economists like to term them, remains to be seen. Bulls say they will prove minor; bears like me say they will prove more severe; only time will provide the answers.

Still, right now, everywhere one looks negative ripples sent outward from the US tsunami in collateralized asset-backed investments are starting to show up. One major problematic ripple in the US and globally is the effect being felt by banks and their business. It isn’t, can’t be “:business as usual” any more. Banks’ fortunes – with huge paper losses and their opaque, illiquid, very leveraged and still deteriorating loans on the books – are now directly tied to US house prices. As house prices fall, the value of these locked in bank investments keep tumbling as well. Leading to write-offs. It’s all a negative domino effect. The lingering loss of confidence leads to a continuing reluctance to make loans, thus to lower stock prices and thus also to a growing need for banks and other financials to repair their balance sheets by raising more and more capital. Which in turn dilutes earnings and the vicious cycle continues.

Schwartz View: My ongoing view is that this widespread consumer, business and investor loss of confidence, combined with the first bout of problematic inflation and a weakening US and now global economy is not some short term event. That we’re now in a downward spiral that will take much time to bottom out and reverse. We’re, bottom line, in an economic event and economic changes just can’t move along anywhere near as fast as stock market participants would like them to. Thus, we see frustration by strategists, money managers and all the bulls out there to find and call a bear market bottom way too early. I believe investors have to exhibit extreme patience for the foreseeable future.

THE STOCK MARKET

Impatient investors keep fishing for a bottom, thus causing the periodic “flashy-splashy” big rallies we get, like last Thursday’s +2% move up. These big one and two day moves up are actually symptoms and signs of a stock market still on the way down, actually now firmly controlled by the grizzly bear, if you believe a recent report by Merrill Lynch after they studied all the ups and downs of the just completed full stock market cycle, starting with the bear market running from 2000 to 2002 and the following bull market running from 2002 to 2007. Big pops happen in bear markets but then get completely washed away over time. Certainly during these bear markets stocks can also cobble together rallies which last for weeks or even months at a time, such as two-month rally we put in from mid-March to mid-May this year. Or the rally we are now experiencing; so far six weeks long and still alive and kicking although very saw tooth in nature. Obviously, nothing ever goes in just one direction. That’s especially so in the stock market whereby prices normally shoot out to extremes, up or down, and then need to balance themselves off.

Right now that’s where I see us. Stocks balancing off upwards after a downward movement that dropped too far, too fast. Actually that’s normal in any extended, economically-catalyzed bear market, investors losing confidence periodically, then regaining their nerve, then losing it again. Again, deteriorating economic trend(s) causing some major decline in stock prices just can’t cycle through its phases anywhere near fast enough to please myopic, very rapidly moving stock market players. So we get quick moves down, then bounces up or sideways movements to get time & price back in sync. Then it repeats again.

Schwartz View: These bounces are when and where traders try to make their profits during multi-year bear markets. Most traders early on realize it’s a lot easier and more profitable in the long run to always stay bullish, thick or thin, bull or bear market. Thus the extreme bullishness shown by a very experienced NYSE floor trader when interviewed late last week by CNBC. His time frame is so much different than the rest of us, he can be very bullish right now, right in the midst of a firmly entrenched bear market.

PORTFOLIO STRATEGY

Net, net this six-week rally may last for another month or even two but I wouldn’t get too attached to it. In fact today, let’s hope the market goes up a whole heck of a lot. I plan to book some profits. The first trading day after Labor Day is normally a seasonally strong day but then September can go south very fast and has proven to be the worst overall month of the year on average. Plus August was our first monthly advance in four months for many key indices so I’d like to take advantage of this normal “rally in a downtrend” and lighten up on some short term trading positions established back in July or early August. And suggest readers do the same, review everything else you now hold as well to see if any sectors are now timely to get out of. Again, to take advantage of this recent bear market rally. For example, please review the technology sector after Dell’s news last week warning it sees spreading, global tech weakness now.

Schwartz View: With big players coming back to work this week and with oil resuming its steep decline, we may extend this recent rally. Rallies can last upwards of three months in bear markets and since this one started on July 15^th, the best case scenario says it can run through October 15^th. Still, best I can deduce, all we’ve been doing this summer is killing time before the next round of bearish news hits. So I would continue to book trading profits as you go, sort of imitating the always in traders on the NYSE floor.

Have a grand week!

Papa Bear Market Downside Target

Richard Schwartz — Mon, 04 Aug 2008 19:16:00 GMT

THE STOCK MARKET

Hope camouflaging a water torture, drip-by-drip decline is one way of describing today’s stock market. The big problem with all the bottom calling a few months back by Bob Doll, BlackRock’s “Trillion Dollar Man”, by Mad Man Cramer last week and by Investor’s Business Daily (IBD) putting the “bull back in the box” last Tuesday and by the majority of Wall Street guests on CNBC is that they all continue to offer up hope to other investors who don’t really watch or track the stock market and economy closely. This continuous bullishness follows the historic pattern of investors not believing a bear market is even here and thus not noticing or ignoring the financial damage they’re occurring by listening to the experts, until somewhere near the bear market’s ultimate bottom. Finally, when they’re surrounding by negative news and can actually feel the economy turn really sour all around them, they take to not sleeping well at night, sweating profusely under the intensifying pressure and end up selling right at the bear market bottom along with everyone else. I’ve studied economic and stock market history and unfortunately I see that normal historical pattern playing out again today.

To make matters worse for the minority who are now waking up to what’s going on, we’re already morphed into getting only sideways stock market corrections upward, not rallies, which means to most investors that it’s too late to sell. As regular readers know I believe we’re still in line to lose as much or more than we’ve already lost so it’s really not too late to sell. It just takes some courageous decision making, terribly difficult today after investors have seen their double digit losses on their quarterly statements. But down the line sometime decision making time will rear it’s ugly head again. Selling then, at or near the bottom, will finally provide short term relief although long term regrets.

Schwartz View: In terms of a long term Papa Bear market downside target, in the S&P 500, the professional’s benchmark, logic says we should “retest,” or go as low, as the previous Mama Bear market bottom set back in October 2002 of about 770. From 1261 now, that’s about another 35% or more on top of the 20% we’ve lost so far.. That would take us to the bottom end of a multi-year trading range which already has two tops in place. About S&P 500 1550, the early 2000 peak to the grand bull market of the 1990s and the late 2007 peak of about 1575. And put us into a similar multi-year trading range to the one the stock market stalled out into lasting from 1966 to 1982 before it finally broke Dow 1000 to the upside. And confirm a number of theories floating around today. Big picture specialist Jim Rogers’ view that long term bull markets run for about 18 years, www.ComstockFunds view that the 1982 bull market really did top out in 2000, past top dog guru Robert Prechter’s Super Cycle technical peak and super global investor George Soros’s fundamentally-based belief that the 30-year credit expansion which was the engine driving the US economy, as we gave up our manufacturing domination, is indeed over. And most likely prove that Rogers’ recommendation of getting out of the US dollar was correct. Schwartz View: Near term we certainly could rally some, but I wouldn’t bet too much on such. Especially since my previous warning of a weak stock market period surrounding Northeast homeowners getting our winter oil heating bills has arrived. Friday we got the oil bill for our small townhouse. It was at a rate of $4.699 versus last year’s rate of $2.649, an increase of 77%. Meaning the cost of heating is going up from $1181 to $1907.

Reasons For a Summer Rally

Richard Schwartz — Wed, 30 Jul 2008 13:22:00 GMT

UPDATE ON THE STOCK MARKET. Written Wednesday, July 30th, 2008: 6:30 am EST.

Another ‘flashy-splashy’ rally yesterday So typical of bear markets, especially those with much further in time and points to go. Grizzly bear markets thrive on investors’ hope and adamant investor reluctance to believe things can get worse. Bear markets end when that hope is gone. Anyway, everyone jumped on board the stock market yesterday, figuring that, once again, the credit crunch is over or at least winding down. I doubt that and really doubt that the nine month bear market is over but one never knows the future for sure so we always have to keep an open mind.

A SCHWARTZ RECAP. Bulls, still fighting this bear market, did a great job of spinning (it’s always easier to spin when there is a germ of truth) that Merrill Lynch’s capital raising move yesterday and more billions in write offs showed we’re in the “end game” of this crisis. That Merrill selling some distressed assets, doing what no one has wanted to do, selling out and thus setting a low market price, about 20 cents on the dollar, for some of their CDO’s, means that everyone else may be forced to follow suit and thus that will call an end to the prevailing uncertainty. But this game doesn’t end with Merrill alone, this may just be the beginning of the end, which, as we all know, can go on seemingly interminably. And subprime write downs are now just one piece of the now larger and still spreading problem, although a big part I admit. And subprime sell offs at whatever price would have been better if done many months ago, following the old Wall Street rule which Wall Street, when pressed, totally disregarded: “The first loss is the best loss.” Not many are noting the awful details either, that Merrill is paying Temasek Holdings, a Singapore-owned SWF (no, not meaning Single White Female!), a sovereign wealth fund to buy more stock. Previously Temasek bought Merrill stock and lost a bundle. Thus in this deal Merrill is now paying Temasek a cool $2.5 billion to offset some of Temasek’s losses on that first buy. Plus Merrill is financing the deal for Temasek and this deal will increase and dilute Merrill’s outstanding shares by 36%. And, ironically, the sale of these CDO’s are at a price lower than Merrill’s just announced mark-to-market quarterly earnings report and stated value. Finally, this whole new deal flies in the face of what John Thain, Merrill’s relatively new boss, has said previously, that Mother Merrill wouldn’t need or be raising any new capital. Schwartz View: Net, net, some say Merrill is a goner, that it will have to be taken over down the road some. I don’t know any details but agree with the concept, that brokers will have to merge.

TECHNICAL VIEW. IBD PUTS THE BULL BACK IN THE BOX!

Yep, yesterday was a bullish “follow-through” day according to Investor’s Business Daily (IBD). On the 11^th day, pretty late, after the recent July 14^th bottom, a number of key market indices followed through yesterday, that is rallied more than +1.7% and on heavier trading volume than the day before. Obviously lower oil has been the underlying linchpin to this rally; oil down stocks up and vice versa. Schwartz View: My stated view is that this drop in oil will help stocks for a time, for the time it takes investors to realize that lower oil isn’t going to be the panacea for this bearish stock market. That at some point lower oil will scare the pants off investors (so to speak) because they will see lower oil as confirmation that a recession is here and spreading globally. But we’ll have to wait on this theory of mine as for now lower oil does means higher stock prices.

IBD goes on to remind us that: “Every bull market in Wall street history started with a follow-through. But not every follow-through launches a new bull market.” I believe their stats but also know IBD has put the bull back in the box and then had to take it out a few days or a week or so later a couple times during the last few months. So, remember, nothing, no particular indicator, is perfect, by any means.

More Reasons For a Rally. But I’ve also been writing that the market is oversold, that the US government has come up with a boat load of temporary fixes and props to support the stock market including the stimulus plan, unprecedented lending to non-banks and barring short selling or at least making it extremely difficult to short the financials (the SEC extended this one week ban to August 12^th yesterday). And that a historical study of the pace of declines during extended bear markets show the market is now ahead of itself on the downside. Plus I must say I am impressed by many European stock markets posting a sequence of five straight up days after an extended, inexorable, grinding-lower decline, i.e. a bullish Trader Vic 4-Day Rule and change of intermediate trend. So we could certainly have a summer rally now.

Schwartz View: Myself I’d like to see and have written that a Dow Industrials and S&P 500 close above last Wednesday’s highs would give us a series of higher highs and higher lows, the definition of an uptrend. Well, we didn’t get quite that high a close yesterday another good day or two could do it. As for “Trader Vic’s” as easy as 1-2-3 change of trend, we have condition #1, a broken downtrend line and condition #2, a market which has stopped going down in place. We don’t have, as of yet, condition #3, that’s the higher high I’m watching for. Still, Trader Vic Sperandeo in his two excellent books from the early 1990s, get them, writes we don’t need all three, we can turn bullish with just one or two conditions met. Just be more cautious in proceeding and realize there’s always the chance for a whipsaw and have a backup plan for what you’ll do if that happens, how fast you’ll backtrack. With those caveats in mind, I put on some longs yesterday, not a lot and not terribly risky ones. Basically my theme is that as crude and other commodities correct, pressure should come off the food companies, off their raw material and input and power costs. And that at the same time these pressures diminish, food companies are successfully pushing through price increases such as mentioned by Kraft yesterday. If this summer rally holds together, say we get a new higher high by the Dow and S&P, I’ll push the envelope for short term trading purposes further.

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.

Respect The Bear But Nibble On Energy Savers

Richard Schwartz — Tue, 15 Jul 2008 13:52:00 GMT

MORE RECOMMENDATIONS ON MY NEW ENERGY SAVERS THEME

On Friday, June 13^th, I began a new investment theme, what I called the Energy Savings (Savers) Theme. Essentially a new theme is when some macro force is seen as boosting a whole group of companies, not just one hot company with a new product. And a macro force is one that isn’t going to dissipate quickly.

I began this theme by recommending five companies which should benefit from business in general looking for ways to save themselves energy, and thus money, listed below. Then on Wednesday, June 18^th, I followed up recommending another four stocks, also listed and updated price-wise below. Today, let me recommend two more companies which fall under this same energy savers category as well, also listed below. I first recommended stocks in established uptrends but that strategy is sketchy because when a bear market is on, most all stocks go down, it’s just a matter of time. Today chart patterns show one stock in a sideways trend which just dropped considerably, Altai Nano, and one stock in an uptrend on a sharp pullback, American Superconductor. Summarizing what’s in the table below, I’ve updated my two previous recommended groups and added the two new recommendations below that.

June 13^th, 2008 Recommendations

ENERGY SAVERS

Buy Current

Price Price Business Line

CPST Capstone Turbine Corp. $3.41 3.50 Low-emission turbines; hybrids

BCON Beacon Power $1.72 1.30 Flywheel-based power systems

WGOV Woodward Governor $37.78 35.64 Energy control systems

MXWL Maxwell Technologies $12.57 11.11 Power conversion/purification

CHP C&D Tech $8.40 8.74 Reserve power systems

Disclaimer! I own a small amount of CPST. And plan to buy small portions of the stocks above. Update: I now own a small amount of Beacon Power as well.

June 18th, 2008 Recommendations

ENERGY SAVERS

COMV Comverge Inc. $12.73 13.95 Peak electric demand reduction

ENOC EnerNOC, Inc. $15.65 20.74 Manages electricity consumption across networks

ITRI Itron, Inc. $94.75 88.60 Computerized electric, gas & water meter reading

BMI Badger Meter $50.04 52.50 Water meter measurement

Disclaimer! I own a tiny amount of COMV and may buy some of the others as well.

Schwartz Update: Comverge and EnerNOC both had big up days yesterday. In spite of the down stock market. They seem to being coming into fashion now, being discovered as the notoriously, tortoise-moving utility industry is starting to realize what they offer and employ their energy saving products.

Today’s New Recommendations

Price Mkt Cap

ALTI Altair Nanotech $1.80 152m Supplies a variety of nonmaterial & nanotechnology

AMSC American Superconductor $32.15 1258m Provides superconductor products

Disclaimer! I own a little of Altair and am watching America Superconductor to buy a small position.

Altair is testing their battery and energy storage products with AES Corp (a utility company). American Superconductor is testing chilled superconductor wires in the Holbrook Superconductor project on Long Island. AMSC is seeing much increased revenues; ALTI is still in the revenue start up phase. Please check both company’s business lines and satisfy yourselves before dipping your toe in the water.

Schwartz View: Since we’re deeply enmeshed into a big, bad bear stock market, proper strategy is not to jump into the above recommendations with your normal financial allotment or size. The best way I’ve found is to buy a small portion of stocks you like, figuring that they will probably go down for awhile with the general market. But buy a little since you don’t want to miss the boat departing! And buying a little gets you actively involved. Holding shares makes you more aware of daily or weekly price movements and keeps you interested in what news comes out about your investment and what news comes out about the industry. Again, today’s modern technology, a.k.a the Internet, allows you to list this stocks and prices you bought them and get a free dynamic update whenever you want it. And you can designate also having any related news reports for a stock or industry come right to you automatically as emails. It’s great!

Again, I would suggest buying a small amount of some of the above 11 recommendations, on weakness. Then keeping yourself informed as to their price progress or regression and the industry news with the plan to buyi more down the road.

Good investing!

Yay for the Pickens Plan!

Richard Schwartz — Wed, 09 Jul 2008 14:19:00 GMT

YOUR ALTERNATE CLEAN GREEN ENERGY UPDATE

Finally! A Plan! The Pickens Plan. Kudos to Mr. Boone Pickens!

Yep, it finally came down to a long time oil man to propose a way out of our energy bind. Obviously, it’s only a first step and it has a lot of hurdles and a long way to go before implementation, but Boone Pickens’ proposal is a great first step. We have to get the ball rolling and the country pulling together again. Plan on seeing advertisements about Pickens’ plan because he plans on publicizing it & has the money to do so.

The Pickens Plan:: To dramatically reduce on dependence on foreign oil.

As Boone Pickens unveiled yesterday, he wants to have private industry fund and build thousands of wind turbines in the middle part of America, in what he calls a wind corridor, running north to south from the Canadian border to West Texas. Which can generate about 20% of our electricity needs! Then transport this wind energy to the Midwest, South and Western metropolitan areas by private industry building electric power transmission lines. This will free up the natural gas now used to fuel these Midwestern, Southern and Western regional power plants. We can then redirect this natural gas to replace imported oil as a fuel for transportation vehicles (cars, etc.). Yay!

Schwartz View: Mr. Pickens goes on to request a monthly report on the reduction in foreign oil imports and the progress of development and implementation of natural gas fired vehicles. I’m 100% for this plan and all others of similar ilk. We do have a serious crisis on our hands and we need to get started now in addressing it. Again, I believe there is already critical mass built toward solving the increasingly critical issues of terrorism, global warming or global pollution, a new impetus to growth and our own national security. And all can be resolved by getting off the use of the dirty power source of oil. Go Pickens Go!

* Finally, many boos for the Group of Eight (G-8) leaders who couldn’t agree on anything about energy in their just finishing up three-day meeting in Japan. They all know something needs to be done but they can’t agree on anything. And our President Bush is one of the worst offenders. I like the man but am anxious to see someone replace him because he just doesn’t get it. America is ready to sacrifice for the worthwhile goals of national security, job growth, fighting terrorism and respecting and cleaning up our planet, but he’s locked into a very bad and losing position and to top it off, is stubborn. Hey, being stubborn when wrong is a big no-no-in investing in the stock market, why not in politics too?

The G-8 statement? They will cut greenhouse gas emissions by at least 50% by 2050. Regular readers know when any proposal goes out more than 10 years or so it’s just a sop. And this statement has no plan, no measurements, no starting point, just about nothing. We truly need new global leadership!

Is This Your Portfolio?

Richard Schwartz — Fri, 27 Jun 2008 15:14:00 GMT

WHERE YOU SHOULD STAND TODAY. The Ideal Portfolio (another Schwartz View).

Yep, let me offer up one man’s view of what the ideal portfolio should be today and why:

· Very minimal exposure to the stock market! This major, modern day margin call on institutional investors is causing havoc. I’ve likened this margin call to the one which wiped out many individual investors quickly back after the 1929 stock market crash, only this time around its institutional investors getting slaughtered and thus the process of meeting their margin calls is being stretched out. All are deleveraging their portfolios big time and since the securitized investments killing them are so opaque and illiquid, it’s a terrible, long, drawn out process.

· Where you do have exposure, have some in the Energy Service sector. Business is going to remain strong and money is going to funnel into this sector as long as oil stays up there, even if oil tanks 50%. The world is in now in a new competitive battle to secure our energy futures. Thus companies which help countries like Brazil find and produce oil should do well.

· Where you can, hedge your long stock exposure. One does this by having some inverse mutual funds and/or ETFs (exchange traded funds). Happily today, investors have access to this modern day invention of being able to go short (bet on declines) with inverse investments. You just buy a fund or ETF which goes up as the market goes down. I would recommend having small inverse positions, especially in financials. This allows you to ride through a day like yesterday knowing that a part of your portfolio is rising while your long positions are falling. The next day you check your portfolio’s value and see how you did. That’s what I do each morning. Say the stock market fell -3.00%, like yesterday, & your account lost just -0.20% like my ProFunds managed account did you might figure your hedge is just right. Just tinker with the hedge until you get it right.

· Hold NO BONDS. I’ve been recommending this for some time now. Yes, we may get a deflationary collapse at the end of this 25 year “too much of everything” Kondratieff disinflationary economic backdrop we’ve been in since former Fed chairman Paul Volker broke the back of runaway inflation in the early 1980s. But the world is now experiencing our first return to higher inflation jolt. Thus we’ve started a new bear market in bonds. I can’t help but remember when I first became a stockbroker with Merrill Lynch back in the late 1970s, the client who say she would never, ever buy a bond again, after losing money on bonds going back two or three decades. Well, we’ve had a 25 year bull market in bonds and its over or close. Thus, my recommendation is no bonds. (Except some very short term laddered US Treasuries for income.)

· Hold a little Gold. Yes, some will keep warning of a deflationary collapse ahead, when the economy really tanks and thus say gold will collapse as well. But gold is in a long term uptrend, a bull market, and no one knows quite how it will react in various market and economic scenarios. Buy SPDR Gold Trust (symbol GLD) as opposed to the miners themselves, thus eliminating one unneeded uncertainty. FYI, I’ve seen gold rise and gold sector funds fall, so watch yourselves.

· Hold a little foreign currencies. Again, in today’s modern day investment world, the individual investor can easily bet on foreign currencies … by buying their ETFs or tracking stocks. I’ve been recommending & still am, buying Swiss francs & Japanese yen, symbols FXF and FXY. Both are Big Picture superstar guru Jim Rogers’ picks and are in long term bull markets and dipping now so it’s a good spot to buy in on weakness. Today let me add the Chinese renminbi, symbol CNY, to the buy list since there is a exchange-traded note in existence. Not a fast mover but it’s also in a long term bull market and probably is now one of the most reliable bull markets going.

· Hold a little agricultural commodity position. The middle class global world has grown tremendously, yay!, and thus the general commodity bull market has now spread out to foodstuffs. A larger global middle class, means more and better food is needed, especially increased protein. Food commodities are up so only buy on pullbacks here if you don’t own any now. My picks have been and remain symbols RJA and DBA. Again buy the commodities themselves as much as possible and not the companies which produce such although ETFs like MOO have been doing well to this point. Today, let me add iPath Livestock ETN (symbol COW) to the buy list if I haven’t already, a livestock play. Looks like with corn prices so high, cattle is being killed off (thus one can still get steak and hamburger at $1.99 a pound) because it costs too much to feed ‘em. But that will change too and red meat prices will skyrocket.

· Finally, hold small positions in lots of alternative, clean green energy stocks. I see new fortunes being made by those riding the wave of the US and globe getting off oil. The best way I’ve found to buy these is to keep the shopping list of alternate, clean green stocks I’ve compiled and posted for you back on June 6^th in this space handy. (If you don’t have it email me and I’ll send you a copy.) Buy a bunch of these stocks on weakness. I bought one for myself yesterday.

Disclaimer! I hold or plan on holding many of the ideas recommended above.

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.

Once a Century Day of Reckoning Starting?

Richard Schwartz — Mon, 09 Jun 2008 13:44:00 GMT

THE BIG PICTURE

Ok, here’s a Big Picture of where America and we Americans stand today. A fairly downbeat Big Picture so buckle your seatbelts. America has been on the verge of a major comeuppance for many, many years. But its been postponed and postponed. Because the US dollar is the world’s reserve currency we’ve been able to play by different rules than the rest of the world but now we’ve pushed that special benefit to the limit and beyond. But each time we’ve come close to going into a major economic recession, which almost by definition means a near term cleansing out and thus longer term strengthening of the economy, we get “bailed out,” so to speak, by the Federal Reserve or by our much deteriorated if not totally corrupted political system, i.e., by the sitting president and his staff or by Congress. Our economic problems which terribly need to be resolved, just get more and more money thrown at them (which just makes them worse and more deeply entrenched) say by President Bush’s multiple tax cuts upon taking office in 2000 or by the Fed dropping interest rates rapidly or through the floor or both. For example, former Fed Chairman Alan Greenspan numerous, back to back to back interest rate cuts in 2001 and 2002 and current Fed Chairman Ben Bernanke’s dramatic rate cuts since September. So our economy has been artificially pumped up and stimulated by what I call, financial “steroids.” time and time again for many years now. But now this use of steroids just isn’t working. Now all the money the Fed is pumping into the system to mitigate the credit crunch and crisis is just causing a big bubble in gasoline (and heating fuel prices) in America which at $4.00+ a gallon is now being felt widely. I say $4.00 is the tipping point and things are going to get worse quickly now because of the four following examples over the past weekend. First, Lucy let her Honda get down to a quarter of a tank for the first time in a long time. She called the dollar cost to fill it up

“eye-opening” numerous times as we drove off and away. I could hear the wheels turning in her head. Second, a real estate owner told me he was feeling this recession with a massive increase in real estate taxes, etc. and that he never felt any previous economic downturns in his life. Knowing me I probably blurted out it was just beginning, but I hope not. Third, awhile after my Sunday early morning bird walk, while reading the paper and drinking my coffee I heard the morning manager of Stewart’s, the local all purpose convenience store, tell another customer, a bit desperately, she couldn’t afford to drive to work now. And lastly, when I called to wish my brother-in-law Happy Birthday, my sister, retired but who was a bank trust officer in Buffalo for many years, says she’s never seen anything like this looming downturn. All in all, I expect $4 gas or out of control oil prices in general, is what the stock market discounted roughly six months back, it’s normal advance foresight time frame, when it really collapsed back in January, it’s first leg down in this bear market.

Now, Price Inflation. This commodity inflation, this cost of living inflation or price inflation, is starting to work its way through the economy in food prices as well. Watching the free marketplace work, in effect dramatically weeding out, killing off cattle herds because it costs too much to feed the cattle, that’s going to reverberate into higher hamburger and steak prices down the road. Plus Chinese wage demands will now work their way into much US clothing prices as well during this cycle. And if the US dollar keeps dropping, as it will because the US balance sheet is in such terrible shape, all prices will rise even faster. I’d go so far as to say commodity guru Jim Rogers’ and Peter Schiff’s predictions of hyperinflation are becoming a distinct possibility. All this rising inflation as the economy sinks and US wages stagnate or go lower and jobs shrink. So it’s not a pretty picture. And it’s possibly worse than a normal recession because we’ve put off this day of reckoning for so, so long. For example, in Trader Vic Sperandeo’s two early 1990s books, Trader Vic – Methods of a Wall Street Trader and Trader Vic II – Principles of Professional Speculation, he predicted a day of reckoning right then or very soon. And related to us a little history of how the US government operates, trying to paper over our problems by lowering rates, cutting taxes and whatever else they can think up to throw more money at our problems. This works and works and works … until it doesn’t work anymore. So far no one really has been able to predict when the day of reckoning will arrive. In the late 1980s/early 1990s was a flash point for trouble but we muddled through. Then another flash point around the dot.com bust from 2000 to 2002. But lower taxes and lower interest rates got us through. But now, 2008 -- 10 is the next flash point. Who knows? This time may indeed by the real thing. It sure looks it. Why? Obviously because the extremely important financial sector, the very area which has been driving the stock market higher by soaking up all the Fed and other government liquidity and manipulating it to make things look better and better on paper, has now imploded and gone bust. As Peter Schiff writes in his 2007 book, Crash Proof and Robert Prechter Jr. wrote in his 2002 book Conquer The Crash manipulating financial paper/assets/capital around to make it seem like we’re getting wealthier is a lot different than when America did grow wealthy by actual manufacturing, producing things people need and thus were willing to pay for. In the 1950s and 1960s we were the manufacturing colossus we lived on some of our profit and saved the rest. That’s how you build wealth. This disparity is one of Mr. Schiff’s key theses. Also one of Mr. Prechter’s major theses as well, just illustrated differently. Mr. Prechter, a chartist, says the US economy performed its best in the 2^nd leg up of this long term business cycle, say from the 1950s through the 1970s which shows this 3^rd leg up is nearing a major top. Schwartz View: So it’s all coming together now, seemingly. All the wrong paths we’ve followed for years coming home to roost now. That’s my guesstimate anyway. So, is this latest market decline really the beginning of America’s day of reckoning whereby the rest of the world finally loses confidence in America, waking up to the deception of the dollar as the world’s reserve currency, as Mr. Schiff describes it? Does the US dollar really head down as the world unloads our Treasury bonds, thus forcing up long term interest rates, which in turn ratchets up the already gigundo squeeze on America and us individual Americans and make the situation even worse? No one really knows for sure as Mr. Prechter reports these true economic disasters only occur about once a century! Like in the 1930s in the just departed 20^th century and once in the 19^th century as well. Why would this once in a century event be beginning now? As bad as things now look, maybe somehow we’ll get bailed out and the day of reckoning postponed once again. But since I began this stock market letter, 18 years ago in September 1990, I’ve watched things get worse and worse, not on the surface where we had a great stock market run in the 1990s, but under the surface, as democracy got pushed back and back, as labor unions lost power, as corporate statesmen became extinct, as much needed government regulation somehow morphed into a swear word and became despised, as liberalism or helping the unfortunate became obsolete behavior and as capitalism ran away unchecked, benefiting from fiscal and monetary stimulus over and over again whenever the economy lapsed into the normal down wave of a business cycle leaving us today with just a shell of the old wealth producing US economy. Yep, all looming economic crises and recessions have been pushed to the back burner by our dysfunctional political system which now listens only to corporations through their lobbying efforts. A system which even business if fed up with. Social Security, Medicare & Medicaid, pensions, health care, energy, the environment, a big wow! when I write them all down, all these long term vital issues have been avoided because of capitalism gone wild, because doing anything about them would “… hurt the economy and be bad for business … .” The same mantra Congress just used as its reason last week to kill a critical climate bill! Just awful action. Politicians should know there’s more to the economy than keeping the steroid sham going year after year, there’s more than keeping the business lobbyists happy near term and there’s more than their next election result. The US economy needs to be cleansed out from time to time and thus made fundamentally stronger for the longer term and more competitive in today’s new global economy. We still have the strongest, most fundamentally sound economic, financial and social system going from all I can tell. And the country has more than just our economy to worry about and strengthen for the longer run. We also need to re-strengthen our democracy once again after the loss of common man representation that’s taken place over the last 30 to 40 years. Actually, it’s no one’s fault, this push into Supercapitalism as Robert Reich terms it in his latest book of the same name, what has happened in America over the last few decades. But now it’s time to look at and push the flip side of the coin, to reawake democracy which is vital to American life as well. We need to regain representation for little towns and smaller groups, non-profits, etc., etc., all those groups who can’t get their sides of the story heard any more today as corporate lobbyists dominate. Again, I don’t blame anyone for what’s evolved. That’s capitalism, if left “unfettered” as even Republican presumptive presidential nominee Senator John McCain has described today’s economy, it will go to an extreme … as it now has. * For the record, one can get all five books I’ve just mentioned above from www.Amazon.com or elsewhere. And I recommend them all.

Oil Near a Peak? Yes.

Richard Schwartz — Thu, 29 May 2008 18:56:00 GMT

OIL VIEW. I’ve been reading a lot about oil, the current state and the history of oil as we see prices keep rising and we all wonder where a top is. So below are some interesting tidbits which I’ve unearthed from the Internet (a great modern day development!) for you to ponder, some obvious, some insightful (I hope):

· OPEC has used oil as a weapon against western countries in the past. Schwartz View: A bad precedent. The October 1973 embargo effectively raised prices quickly and sharply to a new plateau (from $3 a barrel in 1972 to $12 a barrel) which lasted for the rest of the 1970s.

· The Iran revolution (getting rid of the Shah) in 1978 and the following war between Iraq and Iran in September 1980 again raised the price of oil quickly, doubling oil prices from $14 to $35 a barrel by 1981. Schwartz View: So both times oil rose sharply in price and stayed there.

· Oil is notoriously price inelastic according to some researchers. Another reports says: “The supply and demand for oil are both inelastic in the short run …” Which is what commodity guru Jim Rogers sees, that it takes many years for oil supplies to increase when demand increases which is his basis for the whole commodity complex to keep rising. Schwartz View: I’ve been waiting a year or so now for “higher prices to resolve higher prices.” Now I understand this is a too simplistic argument and why it hasn’t happened that way just yet. Another reason is because we are much less dependent on oil today. “Energy costs;’ share of GDP has fallen from 8% in 1973 to 2% today.” (From an Internet article written in 2005).

· Over time though, the supply and demand for oil is more elastic. Schwartz View: Thus the past history of oil prices rising sharply, then slowly sliding lower over time as more supply comes on board. Probably the price pattern we’ll follow again although we’ve likely raised the base price level or floor such as transpired in the past.

· Commodity (and China) guru Jim Rogers says his research shows commodity bull markets last roughly 17 years. Schwartz View: I see the price of oil slid from 1981 to November 1998 when it bottomed out about $13 a barrel. Just about when Rogers called a new commodity bull market.

· From the last bear market bottom in oil in 1998, we’ve had the first bull market leg up from the bottom in November 1998 to June 2000 as oil rose from $11 to $35 a barrel. Then after a price correction downward and a breather, we put in a 2^nd bull leg up from November 2001 at $20 to a peak around Hurricane Katrina at about $75. After that blow off peak, prices fell for five months coming back to $50. Since it’s been straight up in a third bull market leg. Schwartz View: Since we’ve now put in the normal three legs up which compose a full bull market we could easily be due for a sharp and severe pullback in oil.. Especially so since I see a guest on CNBC talking up $200 oil, bullish predictions being a normal sign of bulls getting carried away just before a top.

· The US placed price controls on domestically produced oil during the first energy shock in the early 1970s. This caused US consumers to pay less for gasoline than they otherwise would have. Longer term, price controls kept America from reducing our oil consumption in the middle 1970s and thus our dependence on foreign oil producers. Thus when the 2^nd oil shock hit in the late 1970s we were much more negatively impacted by prices jumping sharply. Schwartz View: This is why I advocate keeping oil prices high now, let America take the pain now, so money keeps flowing into developing alternate energy sources. Let’s not repeat the mistakes of the 1970s!

· History shows higher oil prices in the early 1970s, the late 1970s and then in 1990 after Iraq invaded Kuwait all led to recessions. Schwartz View: Maybe it will be different this time around but we all know predicting “this time it’s different” usually proves disastrously wrong.

· Here’s the rationale behind higher oil prices leading to recession: “Higher oil prices have historically led to recessions because they act as a tax on spending by absorbing consumer dollars that would be spent elsewhere, by reducing corporate profits through increased costs and lower demand, and by causing higher inflation which in turn causes higher interest rates.” Schwartz View: All of which seem to be developing today except, so far, higher interest rates because the Fed has been lowering shot term rates to free up the frozen-up financial system. These lower rates which ultimately should lead to even higher inflation.

· The 1970s were characterized by “stagflation” after sharply higher oil prices raised inflation levels while simultaneously reducing economic growth. Schwartz View: Isn’t the same economic ripple effect happening right now? I’d say yes.

· The 10-year US Treasury bond yield rose from 6% to 15% during the oil shocks in the early and late 1970s. Schwartz View: This time the 10-year, benchmark Treasury bond yield has stayed low because of the credit crunch and the “flight to safety” trade by investors. Doesn’t it seem logical that when the Fed stops lowering rates and/or says the credit markets are back to normal, long term interest rates will once again rise? Does to me. In fact, higher long term rates may be happening now. That’s one big reason why I’m not recommending bonds and haven’t been.

SCHWARTZ SUMMING UP. Actually I could go on and on researching and commenting on oil. And I’m interested in continuing my research so I may add a few more comments/insights in coming days. But for now the history & current spike higher in oil makes me predict that soon we’ll see some type of peak in oil very soon!

Don't Let Hot Solar Stocks Distract You!

Richard Schwartz — Fri, 23 May 2008 14:29:00 GMT

YOUR WEEKEND ALTERNATIVE, GREEN CLEAN ENERGY UPDATE

I haven’t issued a clean, green update in quite a while. Distracted by other areas. But watching my IRA consistently grow – holding almost only alternative, clean, green stocks -- in spite of today’s iffy stock market makes me desire to get back to this bullish trend. To refresh regular readers and/or to prep new readers, let me reiterate I’ve detected a critical mass now built worldwide to back any/all alternatives to using oil and coal; dirty fuels in general. Obviously one goal is to get energy prices down for the long run, a critical need to boost, not drag on, future global economic growth. But secondly, to change the awful, long established pattern of funding many of our stated enemies, rogue governments and terrorism in general by buying what they have; OIL! And thirdly, of course, to change another long-entrenched, bad habit trend of polluting and killing off planet Earth. I mean Earth is our home after all and we’re ruining it at an accelerating pace. So today we have at least three solid reasons to get rid of using oil as our power source; (1) price, (2) to win a war and (3) to live up to the responsibility of the custodianship of the planet, to leave our kids something livable. Any one of these reasons alone should be reason enough to change.

Moving on, my constant reading of investment information shows most everyone is lined up behind this goal of powering the world going forward by using clean energy sources. Businesses, governments, scientists, venture capitalists, individuals, governments, just about everyone except for President Bush and a few blinkered, therefore almost blind, “business first at all costs” advocates like the publishers of The New York Post and Investor’s Business Daily (the two primary papers I read daily; it’s awful their nearsightedness!). But “the trend is our friend” in this vital, critical global challenge, finally! As opposed to back in the 1970s when the world wasn’t worried about, there was no issue with, global warming. And we can certainly make this massive changeover! We switched from wood to oil. We build railroads from coast to coast. We invented and implemented electricity and telephones and the Internet. We now have indoor plumbing. We moved from horse and buggy to cars. And on and on. So there’s no doubt we can stop using oil and coal to power ourselves. We just need some real leadership to do so. Even without that leadership almost every day I see step by step progress being made. This morning, it’s a story about how big companies like Google, Chevron and Goldman Sachs are betting big and building solar power mirrors in the Mojave Desert to power Southern California.

What brings me to today’s investment tie in and idea. That is for investors to follow my tack since it’s proving so successful. That is to buy a little of each alternative, clean green energy company one can. And I don’t mean just the solar companies. Sure they’ve had a big boom and are therefore now on everyone’s radar screens. First Solar (FSLR) is up 885% since I first began this alternative energy theme back in December 2006. SunPower (SPWR) is still up 125% over the same time frame, after being up 287% at its peak. Most other solar stocks have soared as well and stolen all the attention. And I would still own these stocks, buying them on weakness anytime. The news almost consistently is great and when some glitch does comes along, like the last couple days in Solarfun (SOLF), it goes back on the shopping list to buy.

But this morning I want to raise a clarion call for investors to not forget or overlook the rest of the alternative, clean green energy stock complex. While solar and wind get all the attention there are plenty of other technologies and ideas out there and likely the real long term solution to our three –pronged, and now critical, problem with (1) the high price of energy, (2) paying our enemies for their oil and (3) to cleaning up the planet before it’s too late, will come out of somebody’s garage like Microsoft, Google and others did. Thus I would buy little pieces – no one can predict which individual company – of battery technology, natural gas for cars, electric motors, power electronics, fuel cell tech, meter reading, distributed generation, etc., etc., etc. I don’t mean to profess I deeply understand these technologies but I do know there’s lots and lots of companies in this space.

I won’t give you a list of the exact 15 or so companies I own in my IRA today. For fear of conflict of interest. But I plan to rerun the full list of alternative energy companies I used to run when I first started writing about this theme back in December 2006. And update it to include many more companies I’ve found since. For today, suffice it to say, almost daily, the news from these companies is bullish. One day it’s a signed contract to provide services or products. Another day it’s a report about how strongly revenue growth is occurring. Another day it’s about how much money venture capitalists are pouring into discovering some new energy source. Another day it’s Governor Schwarzenegger saying the changeover to clean energy will provide much needed job growth. And on & on. Stay tuned next week for more on this.

1973-1974 Redux

Richard Schwartz — Thu, 22 May 2008 14:09:00 GMT

The Principle of History. Knowing one’s history gives us guidelines and a basis to work from. So yesterday I began to compare the last Papa Bear market we lived through, 1973-1974, which encompassed the first really oil crisis, to today’s ongoing bear market and oil shock. I said I was printing research off the (wonderful!) Internet & get back to you. Well, I’m baaack.

1973-1974 OIL CRISIS COMPARED TO TODAY

Studying the 1972 through 1974 period in more depth yesterday, please let me note that:

There were three separate legs down in the two-year Papa Bear bear market of 1973-1974:
The first leg down was sharp and came in January 1973. From a peak on January 11^th, 1973, the Dow fell -10% over the next 30 trading days. Then kept sawtoothing lower until late August when it completed a seven-month loss of over -18%. This first leg down can be compared to what the Dow has recently gone through, since its peak on October 9^th last year. From Dow 14,164.50 to the Dow low of 11,740.20 the Dow lost -17.12%. Schwartz View: So about comparable in time, seven months versus five months, and extent, -19% to -17% to the first leg down in the Papa Bear market of 1973-1974.
The stock market in 1973 then rallied +15% from its lows over the following two months. That brought us back to within about -6% of its old January 1973 high and peak. Schwartz View: This time around the Dow has rallied +11% from the March 10^th lows to the May 2^nd highs, so for just under two months. And has brought the Dow within -7.8% of its old highs. So a weaker, shorter rally, which may be bad, IF it’s indeed over.
Going forward from that bear market ally high in August 1973, the two-month rally where some investors “were likely lulled into believing that a new leg up was occurring” the market began its second leg down, which brings us up to date and to today.
Looking back again to what happened in 1973, and projecting forward to what unfolds today, the 1973 second leg down began in August and ran until December and the Dow dropped an additional and even more severe -20%. The leadership of that era, the “Nifty Fifty,” resolved its previous divergence, holding up while the smaller cap stocks got hurt during the first leg down, and caught up on the downside as shown by the -20% Dow drop. This drop took roughly three to four months. Schwartz View: Thus I have to project a second and more severe leg down starting now or soon. Probably including the remaining leading energy and commodity sector taking a hit.

Other similarities and/or dissimilarities from the oil shock and crisis back in 1973-1974 to today’s oil shock which I unearthed in my research yesterday are:

1. Rising inflation was a big issue in both periods.

2. The Vietnam War ended during that past bear market, something similar to what I expect to happen during this bear, us getting out of Iraq.

3. The US dollar was under pressure back then even in the early stages of the bear market, in February 1973, it was devalued by 10%. It’s losing value again, now.

4. Oil jumped from $3 a barrel to $5.11 a barrel, beginning with the October 1973 OPEC oil embargo, a quick jump of 70%. We all know oil has soared the last couple of years as well.

5. We had massive layoffs of 142,000 in the auto industry in 1974; yesterday American Airlines announced “large layoffs” ahead.

6. We had Franklin National Bank be declared insolvent in 1974; this year Bear Stearns effectively was declared insolvent by the Fed. Other banks, investment and money center remain under great pressure.

7. BARRON’s Roundtable was unanimously bullish starting off 1973; same thing from Barron’s Roundtable kicking off last year.

8. The US economy from 1972 to 1974 dropped from a growth rate of +7.2% to -2.1%. And the UK economy dropped from +5.1% to -1.1%. This time around both the US and UK economies are also dropping quickly.

9. Stocks priced in gold were priced very low back then. Same low valuation in terms of gold today with gold at 900$+.

10. We had a new Fed chairman, Arthur Burns, arrive in 1970, who encouraged inflation. We have a new Fed Chairman, Ben Bernanke, who is also encouraging inflation today.

SCHWARTZ SUMMING UP. No use looking out too far, looking at the third leg down in 1974 for instance, which came after another always-to-be-expected stock market rally and multi-month trading range. Let’s hope this time around isn’t so bad although I must say things do look pretty bad to me.