Search results matching tags 'Bear Markets', 'Perspective', and 'US Presidential Election'

To Risk "Cleaning Out the System" or Not

RichardSchwartz — Mon, 29 Sep 2008 13:37:00 GMT

THE BIG PICTURE

Written Monday, September 29th, 2008: 6:30 a.m..

What happened in Congress last Friday – House Republicans refusing to go along with the government’s rescue plan – was caused by political/economic ideology combined with Americans not wanting to bail out Wall Street. With the men and women on Main Street contacting their representatives en masse to protest any plan at all to bail out Wall Street, some Republicans decided they were willing to test the thesis that not going along with the government’s plan risked Armageddon for the whole American financial system. Conservative capitalistic ideology says the best and only way to handle economic crises is to let the free marketplace work, meaning let those individuals and corporations who’ve made bad decisions fail. Famed investor Jim Rogers, who’s consistently said Federal Reserve Chairman Ben Bernanke and US Treasury Secretary Henry Paulsen have been following the wrong road during this crisis, must have been pleased. Rogers also feels the best path is to let underwater financial concerns go bankrupt. He says bankruptcies have happened before, will again, and serve a purpose. They effectively clean out the distortions and excesses built up in the economic system so in the future we can start over and move ahead on a strong foundation. Not doing so would set up the same situation here in the US that caused Japan’s “lost decade” of the 1990s whereby the Japanese government let failed banks keep operating. Bailing out and keeping zombie-like banks alive here as well would just slow dramatically or even block America’s economic recovery. Bottom line, with terrific public opposition – calls coming in 100 to 1 against bailing out Wall Street -- late last week some conservatives decided to risk taking the whole country down and into the economic abyss and see what happens. They backtracked a bit over the weekend, giving in to the mantra that “we had to have a deal before the Asian markets opened.” Schwartz View: Boy, do I have mixed feelings! Invading Iraq because of itsreported stockpiles of weapons of mass destruction, proved that acting out of fear can be wrong. Thus when the government forecasts disaster ahead today unless we follow their rescue plan, it feels like they are crying wolf again. Plus I fervently believe we do need to “clean out the system” and show Wall Street we’ve stopped socializing their losses. On the other hand, common sense tells me at all costs we should avoid any economic meltdown which could morph into another 1930s-style depression. Finally I believe in letting the marketplace operate as freely as possible and I agree with the man on street that rich players who’ve gamed the system for so long should share the economic pain the rest of America has been feeling for many depressing years now. Making matters even worse and even more complicated is the absolute horrendous timing of this crisis. Our politicians wanted to recess and get out of Washington, DC last Friday to go campaign in their districts and certainly didn’t want to have to be forced into voting YES on any detested bailout plan. Now they all will have to explain to voters how “we’ll all sink or swim together.”

Monday Weekly Overview Sample Letter

RichardSchwartz — Mon, 28 Jul 2008 13:19:00 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

Monday, July 28^th, 2008: Your New Paltz, NY SUNFLOWER update: A few sunflowers have popped but I noticed the farmer’s market has alternated its plantings so any time you visit you should see some. Just spectacular!

THE BIG PICTURE

Looks like one potential US and global leader gets it. Presumptive Democratic nominee Barack Obama, to shore up his lack of experience on the global stage, embarked on a global tour last week. And was again able to put his finger on the pulse of the world and his audience, exhibiting his knowledge of history and this particular critical point in time speaking at the historic Brandenburg Gate in Berlin. While he didn’t rock star the crowd, fine with me, it was good to see he continues his role as alienate no one, moderator showing again he understands all sides of issues and is committed to leading by example. While not denigrating any political party, say our Republicans, or country, say Old Europe. Thus there is hope that America will soon embark on a new direction, one of getting things done by bringing all parties together and then making logical and effective, not ideological, decisions, forgoing our previous path of fostering divisiveness in the world, between our two political parties and among the American people ourselves.

Schwartz View: Enough said. I always get negative feedback when treading in political waters. I do like presumptive Republican presidential nominee and American hero John McCain quite a lot but just feel we have to drastically change policies going forward, not follow a similar path. America needs to get it’s act together quickly as all long range forecasters have reached consensus, saying we’re on a downward slide, financially, politically, economically, socially. We just need to start cohesively tackling our problems.

THE ECONOMY

Numerous economists last week admitted that the US economy is weakening. Among them Brian Bethune of Global Insight, James O’Sullivan at UBS and Moody’s John Lonski. So, in spite of the US not posting two straight quarters of negative GDP growth, the old and easy definition of a recession, and one not used any longer by the National Bureau of Economic Research which calls and dates recessions but problematically many months late -- remember in today’s new globalized world we need to learn new economic relationships! -- it looks like a recession is here. And in my view is going to stay with us for quite some time. That’s because America has been moneying-over all near term problems for many, many years, thus postponing the always needed recessionary cleansing and efficientizing of the US economy, while we’ve also avoiding developing and implementing solutions to our long term ills, like our increasing oil dependency, our underfunded government pension plans, Social Security and former Fed head Alan Greenspan’s #1 concern, Medicare. America does have a bad habit of avoiding problems until they reach crisis state. Maybe that’s because our representative democracy has become so dysfunctional here in the US. I would suggest we start fixing things right there in Washington by first getting rid of lobbying which skews everything toward those with the money to get their voices heard. Even corporate America, who now realizes it’s entrapped by this self-perpetuating system, would like nothing better than to see lobbying go away as big business now has to carry and fund a large and increasingly onerous lobbying budget.

Schwartz View: All I’ve read recently has been about how there are so many inefficiencies corrupting our inherently great economic and social framework that it’s a wonder anything can get done. Such as the US having 600,000 lawyers while Japan has 15,000 (those figures were about 10 years back but obviously haven’t changed for the better). And all the broken marriages and unwed mothers costing America a fortune as well. It’s almost funny, after encouraging the rest of the world to move to free markets for decades, when the Soviet Union collapsed and showed the economic rot hidden there, the world finally started followed our recommendations. And economic success followed suit but that led to tremendous and widespread global competition, so it’s vital we get our own act together as soon as possible, to just keep up. Thus the silver lining to this current economic slowdown, a slowdown that isn’t responding to our normal response of throwing money at it, is that crisis is when change really does occur in America

THE STOCK MARKET

Stocks have again gotten ahead of themselves on the downside although not as much out of whack as at the first bottom back in mid-March. Figuring the Dow Industrials and S&P 500’s previous bull market tops were set back last October, after nine months of a bear market or at the recent July 15^th lows, we are down on average about 2.5% per month versus the historic average bear market monthly decline of 2%. So we could easily see a backing and filling trading range here and now or even a modest rally, the two normal ways bear markets correct themselves. Much government intervention has come together to force down the price of oil and thus commodities in general, prop up housing and consumer spending, keep the financial system from breaking down completely and holding interest rates way below the rate of inflation. So all this government stimulus has to go somewhere just as previous stimulus found places to bubble up. Plus new government props and controls historically have been able to put a temporary fix in place.

Still, over a period of time the stock market reflects the economy and things aren’t really getting any better there, despite Q2 GDP growth out this Thursday going to again be positive. In point of fact, the economy is continuing to get worse if one looks under the surface at signals like credit spreads, a rough definition being the difference in yield between US government bonds and non-US government guaranteed bonds, which remain wide. Or if we factor in historic trends which show that economic downturns tend to surface hidden problems which end up feeding on themselves. Today’s continuing wide credit spreads mean at some point MBIA & Ambac and Fannie & Freddie, the other 17 big financials which have also been taken off the allowed short selling list & all the other financials who’ve lost billions of dollars aren’t going to be able to hide things any longer and are going to have to really own up. So stocks remain iffy for now. And with the rug pulled out from under the remaining stock leadership in the stock market over the last two weeks, out from under energy, the energy complex and other commodities, any market rallies are going to be just technically based, say from an oversold position or short sellers being forced to cover. Sure, a rally may then feed on itself and last longer than bears think, but should ultimately roll over as data worsens.

Schwartz View: Technically then, we could be embarking on a summer rally and if so sharp traders with the courage to risk their monies in the propped up financials may be able to scalp the stock market. And other pockets of strength should or may show up (hopefully in the health sector as that is now my focus with my few longs) normally searched out and propelled along by momentum players.

PORTFOLIO STRATEGY

LONG TERM PORTFOLIO STRATEGY continues to be hunkering down until this big storm passes. I expect that to be longer than most government and Wall Street economists and market strategists believe or at least publicly state. Publicly state because we all know that bearish Wal Street analysts and economists ultimately get fired and that in the aftermath of the dot.com bubble bursting, we got some theretofore hidden insight into what analysts really think. I see widely-followed, economist Nouriel Roubini, formerly holding various high level economic advisory positions in government, believes the US and European economies are now sinking as last Friday he said Wall Street was in spin mode and that financial institutions are “… manipulating at will their earnings, and analysts [are] falling for this supreme baloney.”

NEAR TERM PORTFOLIO STRATEGY depends more on whether this two-week, fledgling rally proves it has legs or not. I’m using as a key gauge whether the Dow and S&P are able to close above their last Wednesday’s closing highs, Dow 11,632.40 and S&P 1282.19. If these key indices close higher, then we will have the definition of a new up trend in place, a series of higher lows and higher highs. Strategy then will be to favor the long side but with say with no more than 50% at most market exposure. Planning on a modest summer rally for a month or two, with strategy being trying to scalp some short term profits.

AS FOR INCOME INVESTORS, we’ve all gotten used to our income fixes after 25 years of income investing being easy during a bull market in bonds, meaning just riding the trend toward lower and lower long term rates, I know it’s a struggle for you all today. My best suggestion is to watch for weakness in income sectors, say in utilities, royalty trusts and even REITs, then strike. Only move in and in a small manner AFTER a sector has just been blasted. This gives you some profit buffer as primary extended downtrends many times have sharp sell offs after disillusioned investors finally give up hope and sell, right before they rally. This can get you in at unusually good prices, at least for the near and intermediate term.

INCOME IDEAS. Thus I would currently search through the utility sector as the Dow Utility Index has just fallen a sharp -8% over the last two weeks. Or take another look at my previous July 11^th, 2008 two energy income recommendation Cross Timber Royalty Trust (CRT) and San Juan Basin Royalty Trust (SJT), both haven tumbled hard with crude. Both go ex-dividend tomorrow, meaning today’s the last day to get in to collect the substantial August dividend (both pay monthly). Or finally, revisit my other income recommendation, back on July 10^th, 2008, of two large European pharmas, GlaxoSmithKline PLC (GSK) AstraZeneca PLC (AZN) paying moderate dividend yields of 4.4% and 5.8% respectively. You need to buy GSK today to be entitled to this quarter’s dividend and buy AZN soon before it goes ex-dividend (not declared yet but last year it went ex on August 8^th). Good income investing!

Have a great week!

Sample Monday Overview Letter

RichardSchwartz — Mon, 30 Jun 2008 14:55:00 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

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.