Search results matching tag 'Personal Remarks'

Weekly Monday Overview

RichardSchwartz — 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

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

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!

Principles of the Stock Market: Sample

RichardSchwartz — Tue, 06 Jan 2009 14:56:00 GMT

Richard Schwartz's

PRINCIPLES OF THE STOCK MARKET

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

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

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

E-mail address: RichardStk@aol.com

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

Tuesday, January 6^th, 2009: OK, back to the rat race. The weather remains ugly. Yesterday am it was all ice. Tonight it seems like snow, then severe ice again tomorrow morning. This is the time of year I wish I lived in southern California or other warmer clime. Still, tiny New Paltz is a college, mountain town with open space, a walk around lifestyle so Lucy & I are there for the duration. Of course with beach vacations.

UPDATE ON THE STOCK MARKET. The latest gigundo $800 billion economic stimulus plan, now called the Obama Recovery Plan or some such, as he puts his fingerprints on it, may cause a bigger stock market rally than I previously thought, I realized last night as I watched the Nightly Business Report (before I got in the bathtub with reams of printed research to read). The Nightly Business Report (NBR) showed very wide differences in economic growth rates. Much stronger economic growth with the plan. Or rather much less economic weakness with next year showing positive Gross Domestic Product (GDP) with the plan and negative GDP without. Now I know the National Bureau of Economic Research (NBER) just said we’ve been in recession since December 2007, sort of bypassing the outdated GDP stat altogether but not every investor realizes this yet. CNBC and other financial media still take the easy way out, constantly stating a recession is two consecutive quarters of negative GDP, but as Peter Schiff writes in his latest book, THE LITTLE BOOK of BULL MOVES in BEAR MARKETS, most government stats are really skewed, biased toward what government wants to say, today. Also please remember, a stronger GDP really measures mostly spending … and overspending which is what we’re trying, what we need for the sake of America’s future, to get away from. More investing our money, not spending (blowing) it on unneeded gadgets, etc. But that’s a story for another day. Yes, what a mess!

THIS RALLY. Right now I can visualize stocks rising right into Senator Obama’s inauguration on January 20^th as the 44^th US president. (Obama as US president? Amazing!) Stocks rise as the plan comes into clearer focus, and as it becomes -- hopefully, cross fingers! -- a non-ideological, non-partisan bill. Hey, many Republicans should be very happy to come on board as surprise tax cuts are included and surprises also about the large size of the tax cuts, importantly including tax cuts and larger depreciation write offs for business! (We have to encourage, not discourage, business to invest, just the opposite of what FDR did during the 1930s.) Schwartz: Myself, I love what I’m seeing from our president-elect. Press conferences actually focused on improving America, not arguing among parties, open and honest talk and also a proposed web site so Americans can see where each of our dollars is going. “Go America Go!”

RALLY ENDS WHEN? Then maybe it’s all over, this bear market rally ends on inauguration day or shortly thereafter, say when the bill gets passed. But if those GDP interpretations I saw on NBR last night are reasonably correct ( it will take much time to discredit and change how we figure GDP to make it more relevant again) then maybe the US economy gets a sizable lift which lasts for some longer period of time before our still emerging problems pull us back down again. If that happens I can see a mini bull market or cyclical (short term) bull market unfolding this year, say starting back at the November 21^st intraday lows.

Schwartz View: Bottom line, my best recommendation this morning is that traders and many slightly longer term investors too get further reinvested back into the stock market. Not 100% for sure yet but higher exposure than in a long while. When? Say right now or very soon. Many key market indices and averages confirmed this new rally once again, on the first trading day of the year, last Friday. That’s the exact point – when we have a “Trader Vic” identified change-of-trend in place, we do, along with a higher low followed by a higher high, we do, and then we get another breakout move up and above that higher high (like occurred last Friday) – where correct strategy is to invest more.

ECONOMIC VIEW. Like I noted yesterday, I’m seeing more and more record statistical drops, like yesterday’s drop-off-the-cliff report from the auto industry; Chrysler leading the way down with a year over year drop of a mere 53%! My point is that just like the phenomenon in stocks when the economy drops fast it may also have a tendency to bounce back rapidly. I note some are now saying the same for oil, using history of something called the forward curve of futures prices. Of course this almost automatic, stock rally back likely doesn’t go all that far. Just like when a car crashes into a wall, bounces back, but still in drive, comes on again. Depends on how bad the crash was on how long the engine keeps running fueling the bounce back. Schwartz View: I have to think this financial crash of ours was extremely bad. Still I can see another big stimulus plan, if pointed at and framed correctly, using our brains and learning from past mistakes, doing a lot to produce some positive stats for a time after implementation.

TECHNICAL VIEW. Many Individual Stock Charts Looking Good! I drew up charts of almost all 100 companies on the latest IBD 100 weekly computerized list of leading stocks, stocks with good fundamentals and generally leading the market upward, yesterday afternoon. And I must say most now look good. A few of them are even already back above their highs set BEFORE the October panic sell off. That’s one of my parameters for possible buying as per my Principle of Relative Strength telling us what to buy. As to what other technical screens I used as I reviewed their charts on two charting services I get, Bloomberg, and for FREE on www.Marketwatch.com, I used RSI and DMI primarily. Briefly RSI stands for Relative Strength Index, it’s an oscillator, and measures market consensus psychology. While DMI stands for Directional Movement Indicator and is a trend-following indicator showing how fast a trend is moving and thus when a trend is worth jumping on board. Traders of all sorts should be familiar with both indicators I’d say. I would recommend Alexander Elder’s 1993 book TRADING FOR A LIVING as the best reference I’m aware of to bone up on these and other indicators.

Here’s a listing of a few companies and their underlying industry sectors which look ripe for trading this latest rally. Remember Investor’s Business Daily turned bullish, put the bull back in the box, back on December 3^rd and hasn’t been forced, by stocks hitting lower lows, to take it out since. This is a major difference for months prior to that. A bullish change. So let me post some stocks which look good to me.

Disclaimer! I own none of these stocks today but am considering buying a package of about three to five today or soon. Please remember my positions can and do change without notice.

IBD 100 STOCKS LOOKING TEMPTING

Market Industry

Price Cap Ranking Business

SXCI SXC Health Solutions 19.03 455m 2 Pharmacy Services

LPHI Life Partners 42.27 502m 3 Insurance Brokers

ESI ITT Educational 92.28 3570m 5 Schools

TWGP Tower Group 28.74 700m 8 Property/Casualty Insurance

HOME Home Federal Bancorp 10.65 184m 11 S&L/Thrifts-Western US

VSEC VSE Corp 42.34 215m 18 Engineering/R&D Services

SXE Stanley, Inc. 35.74 839m 18 Engineering/R&D Services

SYKE Sykes Enterprises 19.65 810m 18 Computer Services

AVAV Aerovironment Inc. 39.38 831m 23 Aerospace/Defense

TDG TransDigm Group 35.00 1703m 44 Aerospace/Defense

NPK National Presto Inds. 77.88 533m 63 Aerospace/Defense

NCIT NCI, Inc. 30.66 410m 70 Computers-Integrated Systems

SXL Sunoco Logistics 48.80 1398m 90 Energy Pipelines

CMP Compass Minerals 63.12 2046m 117 Quarrying

Schwartz View: It’s been some time since I posted stocks off IBD 100 weekly list. Because of this bear market. But this rally looks like it may just have some legs and my market philosophy is to play all decent looking rallies, modestly. I would thus suggest a three to five stock trading portfolio chosen from the stocks above. Some points to keep in mind. Don’t overdue it! We’re still in a bear market after all and one which looks to have more downside, even if it doesn’t come immediately. Also remember IBD recommends investors always focus on the top 40 or so industry groups. Finally, look for a quick +10% profit but cut your losses, individually or whole port6folio-wise, quickly. Remember we just might be starting some type of cyclical (short) bull market now but, on the other hand, the odds still favor much lower prices over time. So participate but always concentrate on your downside, how much you could lose.

Good trading! Have a great day!

Monday Weekly Strategy

RichardSchwartz — Mon, 22 Dec 2008 14:37:00 GMT

Richard Schwartz's

PRINCIPLES OF THE STOCK MARKET

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

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

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

E-mail address: RichardStk@aol.com

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

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

THE BIG PICTURE

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

THE ECONOMY

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

THE STOCK MARKET

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

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

PORTFOLIO STRATEGY

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

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

Happy Holidays & Happy New Year!

Richard

September 2008 Investment Strategy

RichardSchwartz — 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!

San Jose to Lake Tahoe

RichardSchwartz — Tue, 08 Jul 2008 13:42:00 GMT

Just got back from vacation and before jumping back headlong into the stock market again, thought I'd relive and relate the highlights of my trip. My best, Richard

A RECAP OF LAKE TAHOE & SAN JOSE

Before my memory fades, let me recap Lucy and my just completed vacation to California and Nevada, to San Jose and Lake Tahoe. This retelling may help others who have similar interests and/or vacation plans.

No big problem with Continental Air out Newark airport. Lucy and I have been going there recently instead of LaGuardia or Kennedy, whenever we can. Just an easier drive in and out starting 90 miles up the Hudson River from NYC. I would recommend using the Park ‘N Go’s surrounding Newark airport on the perimeter road. Worked well for us three times now. Our flight was late taking off, nothing new, but we made up the time with a tailwind. The highlight was upon landing. When the tech gadgets went on in the still darkened cabin. All the cell phones glittering colorfully in the dark made me want to get one, to move into the modern world. “Whoa Richard, just another bill!”

Our good friends, whom we went to visit, drove us to Lake Tahoe from San Jose in their SUV. The drive was edifying, eye-opening and awe-inspiring. Driving south past Sacramento on the highway, there were miles and miles of gorgeous white and pink bushes. I didn’t get their names but they were ubiquitous near the capital and I saw them elsewhere too. Past Sacramento and beautiful but bankrupt Vallejo we got into farm country. Fields and fields of foodstuff growing in a massive flat valley or basin between mountain ranges. It looked like wheat as I saw big combines working. When we got out of the car for a pit stop, it actually spelled like farm country. I remember that smell as I used to visit my grandmother’s big farm for a week in the summer in Canandaigua, NY, just south of my hometown of Rochester. Then we started driving up into the mountains. Funny how we couldn’t really see them coming or going; maybe it was because of the lingering smoke from all those California brush fires in the air. We did see firemen putting out a fire on the way back to San Jose, actually no fire but charred bushes. Happily we didn’t run into any big fires anywhere while driving although even 6252 feet up in Lake Tahoe the air had a tint of smoke to it.

The drive through the Sierra Nevada’s, a small part of it anyway, not part of the Rockies I understand, was a big highlight of the trip for me. All the magnificent views and vistas as we saw signs saying 4000, 5000, 6000, 7000 feet. Holding on tight with the back seat of the SUV swinging slightly and looking out of (just) the side windows was awesome. I saw giant mountain ranges up really close, ranges which went up and up and up, finally kinking my neck. I saw valleys which were gigantic and if the car had driven off the road, we would have floated seemingly for miles before we hit. Trees looking like they went up forever actually growing well on steep ridges making the view even more awe-inspiring. The huge, straight up tree trunks looked black when in the shadows but many were reddish brown close up; I’d guess redwoods. These trees grew straight up forever and the boulder-filled trout streams looked like Lake Placid’s famous and powerful West Branch of the Ausable but were much wider, larger, longer, steeper and all encompassing. Wow! They must be something to fish. Maybe in my later years but then I’ll be too old.

Lake Tahoe itself, again, looked like a Lake Placid, NY, just much larger all round. One afternoon we went to the beach and I went swimming twice. The water was cool but not anywhere near as cold as when the outdoor pools first opened up here around New Paltz. Then there was a gondola a block from Harvey’s, one of the four major casino/hotel resorts all together lying just over the Nevada stateline which runs straight through Lake Tahoe, the town and lake. So the winter, if one can get to Lake Tahoe, must be great for skiers. Myself, I loved swimming laps in Harvey’s heated outdoor pool in the early morning (before the kids took over) while seeing snow on the surrounding mountains and western blue jays (darker coloration than our powder blue jays) before sharing a light breakfast with Luce and getting ready for the opening of Belmont at the Sports Book. A Sports Book is just a big room with TV’s everywhere showing horse race tracks everywhere and legalized gambling. There was a cavernous Sports Book in Las Vegas last year but I liked the one at Harvey’s after finding the golden mean chair to sit in. Pretty waitresses served us whatever we wanted, complimentary as long as we kept betting. I found I really liked betting in the morning while my mind was still fresh, just like writing this column in the early mornings. Reading the racing form is a commitment best done fresh. I held my own, cashing a few tickets including a $100 exacta with two horses laid off for six months, topped by Missinglisalewis now trained by Lisa Lewis. Wonder what the story behind the story behind the story behind the story is about that one. I also played golf although not at the expensive course near Harvey’s being used for this week’s 19^th Annual American Century Championship (think it’s on TV this Saturday at 4 pm EST). The ball did seem to fly further while it also seemed easier to swim, easier to lift my arms out of the water, with much less gravity pressing down up that high in the mountains. We were as much as 4000 feet higher than Lake Placid here in New York.

Too soon we had to leave Tahoe but again the drive -- thanks so much Leslie for driving! -- was awesome. I was still into the grander of the massive trees and am still thinking about them days later. But Leslie then showed us San Jose. What an up and coming technology city, actually already the 3^rd largest metro area in California. Modern, multicultural, uplifting and the home of San Jose State, a 30,000 plus school with a gorgeous campus. One day we stumbled on a Hawaiian Fest with great music and vendors on campus. Other times we just sat on a bench and read since the weather was so good, and again no humidity at all. Bob and Leslie said it hasn’t rained for months. After eating chicken and sushi (not me) at great places, we even topped it off with refreshing drinks at a Japanese place which didn’t have or know about Pepsi. Then 4^th of July fireworks! And finally we topped the whole great trip off downtown at the San Jose Technology Museum. Hey, San Jose being the heart of Silicon Valley, we couldn’t miss seeing the history of the semiconductor chip, etc., now could we? All in all, a great trip! Thanks to our very hospitable friends and Lucy’s sounding board, confident and best friend!

Have a wonderful day!

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.

Obama, High Gas Prices = Tough Love, What We Need

RichardSchwartz — Thu, 05 Jun 2008 14:58:00 GMT

POLITICAL VIEW. With CNBC making a big fuzz about the Dow selling off quickly on the news that Senator Barack Obama was the presumptive Democratic nominee for the November US presidential election, I have to comment. Actually I hate to talk politics, first ‘cause I detest politics, but secondly because everyone’s got their own strong views, thus I ruffle feathers. Without question. Some write to me about it, others probably just sit and stew. Still, I have to comment that, sure, the stock market wouldn’t like populist Senator Obama getting sworn in as our next president. Certainly Democratic, a little older, white women are very bitter and upset about him presumably getting the nod. They surely wanted to see a woman president before their time is up and Hillary Clinton was supposed to be the one. So, who knows, they may just vote for Republican John McCain on the rebound. Senator McCain is a true American hero, he’s authentic and fighting the war on terrorism outside our shores makes sense. But with the entry of millions of new Americans being inspired and entering the political system by Obama’s message of change it looks like Obama should win. Especially if the US economy goes to h - - - in a hand basket by the time we vote in November.

Schwartz View: I can’t and wouldn’t want to argue with those that say Republicans are better for the stock market (in spite of the recent record, with the stock market booming during the Clinton presidency and being, let’s say, less than inspiring during the Bush years). But as I see it there’s more to growing the economy than the immediate response by the stock market. We need to bring some fairness back to all America and all Americans once more. In other words more democracy or the equitable distribution of America’s bounty and equitable representation of all, and a little less “capitalism unfettered” as even Senator McCain calls it. A fairer balance in the long run will prove better for our economy than forever cutting taxes, piling up more debt and just producing whatever sells, like SUVs. We need to change our entrenched overspending habit which is just eating away at our built up wealth from years long past when we produced and saved. When we do these things then the greenback will start to improve and our deficits will shrink. What better for the stock market than an America again as a productive member of today’s global community? So I’m all for change and having it come as soon as possible. It’s the same tough love medicine that I think is needed to solve our dependence on dirty oil and coal. We need continued high gasoline prices now to allow capitalism to work its wonders over time. As long as crude oil stays way up in price, it’s causing tons of money to go into finding alternative,better and clearner nergy sources. That’s capitalism at work, right? As whoever finds the way out of us depending on our enemies for energy while we pollute the planet will get rich many, many times over. Go Capitalism. And Go Tough Love!

Daily Review

RichardSchwartz — Thu, 03 Apr 2008 14:05:00 GMT

Thursday, April 3^rd, 2008: 6:30 am: Got Lucy to play 9 holes last Sunday. Cajoled her by saying she’d get a tan, flatten her stomach with golf then a swim, that she hit some great 8 iron bump & runs last fall, I’d pay, and she could brag on Monday. She went for it & played well. What got to her the most? Bragging at school. UPDATE ON THE STOCK MARKET. Stocks weakened a bit yesterday morning when Federal Reserve Chairman Ben Bernanke acknowledged for the first time that a U.S. recession was possible yesterday about 10 am. But then stocks steadied up and headed slightly higher as Dr. Bernanke continued his testimony. A bit later when the questioning got around to the details of the Bear Stearns deal and the assets which the Fed is using to keep Bear in business, Bernanke got a little more fuzzy. In fact his voice quivered a little when the question was posed about BlackRock’s (BLK) introduction into the equation. BlackRock was essentially hired by the Fed to value, manage and liquidate if needed Bear Stearn’s assets. This is the same BlackRock company whose manager Bob Doll has been the biggest proponent that an important stock market low was put in back on March 10^th. I’m just starting to wonder about this whole process. As the police say there is always a story behind the story behind the story. Just like behind former New York Governor Elliott Spitzer’s quick departure from office; turns out someone ratted him out from the other party and also that the NYS Police may have their own agenda. So now I’m wondering if there’s some big collusion story among BlackRock, the US Treasury, the President’s Working Group, a.k.a the Plunge Protection Tem, the Federal Reserve Bank and even the recent decline in the price of gold. But, hey, no use me speculating about all that. What is, is. As to the bullish Double Bottom in place, I see where renowned investor George Soros weighed in about that yesterday saying: “We had a good bottom.” And predicting a bounce will last six weeks to three months. But also predicting that the US economy keeps edging closer to a recession, that this financial crisis is the worst since the Great Depression and thus, that this bottom won’t be the final bottom, that “markets will fall more this year after this brief rebound.” Schwartz View: All the above sounds pretty accurate to me. I also don’t think we’ve seen a final bottom, that we seem to be on the way to recession but its progressing very slowly, probably because businesses never really hired a lot of workers over the last few years of this artificially-stimulated economic rebound and that normally intermediate corrections, in this case upward, do last from three weeks to three months, three months being about the maximum duration. Since the decline lows came about January 22^nd, I’m targeting a rebound to run for another three weeks, probably not as long as most would think and possibly not all that much further upside progress from here. We’ll soon see. By the way, further buttressing Mr. Soros’ views is his past history of being the trader, which showed up in my studies of his ex-partner Jim Rogers. (Rogers was the analyst in their two man super successful Quantum Hedge Fund in the 1970s.)

Bear Market to Continue

RichardSchwartz — Mon, 31 Mar 2008 13:44:00 GMT

THE STOCK MARKET: Monday, March 31st, 2008

I have to say the stock market is now stuck in a wide, very ragged trading range. It’s being supported by the Bernanke Put (just like the old Greenspan Put when stocks go down, the Fed steps in with something, interest rate cuts, bail out deals, etc). This Federal Reserve Bank has even extended its powers to pick and choose which companies are vital to keeping the financial system from freezing up, like investment bank, Bear Stearns. So stocks have a big force on their side. But stocks are also being held back by a complete loss of confidence by investors and bankers alike. And until confidence returns its going to difficult to make any upside progress. So we’re stuck in the middle (with you). I would like to predict that this current standoff will eventually get resolved to the upside but I don’t believe that. From my studies of history, like a look back at the Bank Panic of 1907 and its chart, a daily assessment of investor confidence and a look forward at what’s problematic issues are coming down the road later in 2008 and in 2009, I have to still judge that time is working against us. In other words we’re now in a bear market, one in which as time passes things get worse, not better. Many sectors of the economy are in sad shape, especially housing and financials, and their stock prices in turn are deeply in bear markets. The remaining currently strong industry sectors, like commodities, agricultural stocks, export stocks, global infrastructure plays, which are now benefiting from long established momentum and being late business cycle industries will eventually get hit as well. Schwartz View: Unhappily, I see this bear as being ornery, powerful and long lasting, maybe even the first real Papa Bear market to come along since the early 1970s. That would mean two to three years in duration and we’re still less than one year into it. So keep the hatches battened down.

Monday Weekly Letter: Full Sample

RichardSchwartz — Mon, 03 Mar 2008 14:20:00 GMT

PRINCIPLES OF THE STOCK MARKETA learning, teaching, always evolving stock market letter and advisory serviceSeventeenth Consecutive Year of Publication; Letter #1; Sept 18, 1990

Monday, March 3^rd, 2008: Three people yesterday told me they were sick of winter. They weren’t angry, just tired of fighting Mother Nature. Today we’re supposed to get a touch of spring, high about 50º. Yay!

THE ECONOMY

Boy, I feel bad for President Bush! I like him but he sure has had bad karma and has made some poor decisions. I won’t go through his whole record but his recent decision to push ethanol is sure backfiring! First, ethanol doesn’t reduce our overall energy use, we use energy to produce ethanol, and it isn’t clean which starting early last year became my first/biggest concern, finding clean, green energy alternatives. And look at what’s happened to food prices and thus global inflation. It’s surely not all President Bush’s fault, but the sharply increased demand for corn to produce ethanol has sparked off food inflation, here and worldwide. That’s all I see on CNBC now, how higher prices for all foodstuffs are starting to work their way through to consumer prices. Tortillas in Mexico, bagels and Hershey Bars in the US, etc., etc., etc. with lots more to come. According to long term value investor Jim Rogers, whose investment perspective was formed and weaned during the previous commodity bull market of the 1970s, agricultural commodities would have risen anyway, even if the sharp demand for corn hadn’t led to smaller plantings of other crops, since supply has dwindled for many years. Add sharply rising inflation to the Fed’s other two big issues, battling the suddenly-emerged, global financial and credit breakdown, along with the slow motion US economic slowdown which seems to be accelerating and spreading worldwide now and the Fed, the economy and the stock market all have big problems.

Bottom line, an unusual, if not classic, credit crunch now prevails with FEAR of further losses, call it a “growing risk aversion” dominating institutional investor’s thinking. Banks are thus reducing lines of credit, adding new charges and fees, tightening lending standards and terms, thus causing secondary financing markets to dry up. Even interest rates on consumer loans for cars and mortgages are refusing to follow the Fed’s rate cuts down point for point, moving grudgingly downward, more like one down for every five (basis points) the Fed cuts. So net, net, the Fed is effectively now “pushing on a string” validating my long held theory that the stock market would only be in trouble when the Fed starting cutting rates. The Fed not getting very far with its rate cuts is scary! Jeepers, creepers!

Schwartz View: I just can’t see things getting better any time soon. Worse more likely as we haven’t even seen all the problems emerge yet, although each week, something new crawls out of this now opened can of worms. Last week, while we got some capital injection for the muni bond insurers struggling to keep their all-important AAA ratings so as not to spark a further muni meltdown – munis just had their worst month in memory! -- the muni market got blindsided by the suddenly inoperable auction-rate bond market. Now that this credit vehicle has become unworkable, muni dealers are now bracing for an overwhelming flood of new supply as municipalities all over America need to find a new way to finance. Bottom line, I don’t think we’re even close to having all the problematic issues out on the table yet.

THE STOCK MARKET

Well, Friday was one of the worse days since January’s first two weeks of day-after-day big drops, with stocks down big right from the get go. Wasn’t a major surprise although the last five weeks of sideways to slightly up action may have lulled some investors into believing the worst was over. You know that old complacency which naturally builds after a big market drop and when stocks stop going down and we can all breathe once more. I commented last week that if the stock market couldn’t rally now, what with: (1) multiple Fed rate cuts, and (2) the emergency government fiscal stimulus plan, and (3) multiple Depression-style homeowner bail out plans, and now (4) Federal Reserve Chairman Ben Bernanke’s reassurance last week that the Fed would continue its rate cuts, we’d be set up for big, big trouble and coming sooner rather than later. If all this monetary and fiscal help can’t support the market along with whatever rigging the government’s “Plunge Protection Team” is implementing as well, the stock market may indeed be ready for another leg down. And remember to go along with the “head feint” sideway triangle patterns which first broke upwards, then reversed downwards, it’s always something fundamental popping up during a bear market. Some quotes about the opaque-to-most-of-us muni market written about in THE ECONOMY above were: “The municipal market in the last week and a half or so has been in a free fall” by one muni bond manager and “The damage has been unbelievable” by another.

Schwartz View: Slammed by this difficult nexus of negatives, even the time-tested Wall Street adage of “Don’t Fight the Fed!” isn’t working. With the major indices having held up somewhat, if you want to call losses of -10% to -15% holding up, many, many stocks have already undergone big bear markets since the Fed starting cutting rates. Bottom line, I expect further losses ahead, coming sooner rather than later after both the Nasdaq Composite and Dow Utilities closed below their previous late January bear market lows last Friday. Though there’s still a chance we hold at January’s lows, the odds against have risen.

PORTFOLIO STRATEGY

Is there ‘blood in the streets’ yet? No, I don’t think so. Although what’s been going on in the stock market and economy is no fun. Because of years of globalization, our economy is much more diverse, varied, deep and resilient today than in decades past. If we had today’s housing crash and auto problems a couple decades past, employment and the US economy would have dropped precipitously by now and the stock market would have followed suit being down some -30% or -40%. But today we are benefiting from the free world economy having become much larger and more integrated. Still I have to figure the old January lows will eventually fall as well; they started breaking last Friday. So for now, I still can’t take a ton of risk. My strategy has been, and remains, to hold much less overall market exposure than normal, stay in those sectors which remain in uptrends like commodities, and where I can find ways to hedge, say in the ProFunds funds family, use some inverse (short) funds and keep closely on top of portfolio values and fight tooth and nail to keep them up. First Rule; don’t lose money! Sure there may be some bargains out there. For example, PIMCO’s Bill Gross, who manages the largest bond fund in existence, says he’s looking to scoop up some fire sale muni bonds which stressed financial companies, hoping to stave of bankruptcy, have to sell. But I don’t have that capability. Or the time necessary to allow these depressed assets to regain fair value. Buy the Pimco Total Return Fund for that. I’m still in protect our assets mode.

Down the line some I’ll be delighted to look for capital gains on the upside. But as long as I keep hearing positive reports from guest after guest on CNBC, I have to remain skeptical. And watch for and take advantage of head fakes upward. Lat week I read where we had five rallies during the 2000-2002 Mama Bear market of 10% or more and none was ultimately proven correct. As I figure it, and history shows, bear markets don’t bottom until everyone turns bearish. Not the case today.

My current buy recommendations are listed below:

SCHWARTZ BUY RECOMMENDATIONS: Disclaimer: I hold small positions in a number of my recommendations. Buy Current Price Price Hedge your betsDecember 13, 2007: BUY MYY ProShares Short MidCap 400 59.91 64.83BUY SBB ProShares Short SmallCap 600 70.87 76.64BUY SH ProShares Short S&P 500 60.28 66.60BUY MZZ ProShares UltraShort MidCap 53.20 62.71BUY SDD ProShares UltraShort SmallCap 69.70 80.68BUY SDS ProShares UltraShort S&P 500 52.92 64.47BUY SHPIX ProFunds Short Small Cap 16.58 17.53BUY UCPIX ProFunds UltraShort Small Cap 13.65 16.16BUY BRPIX ProFunds Bear Fund 25.94 28.10 Schwartz View: Well, we got that market strength I wrote about last Monday as a good time to buy some of these “short” or inverse funds, last Monday thru Wednesday. In a bear market a good time to short is late in the trading day, after two or three days up if the market isn’t following through. Thus last Wednesday late would have been ideal as Thursday’s modest drop and Friday’s debacle decline left all the above inverse funds ahead on the week. Looking at their charts this morning, I must say we could easily see further and steeper declines ahead. Again, I’d have a couple shorts to hedge your long portfolios if you’re not into selling. “Soft” Agricultural CommoditiesOctober 31,2007 BUY RJA Elements -Agricultural Total Return 10.13 12.94August 31, 2007 BUY DBA PowerShares DB Agriculture Fund 26.63 41.56 Schwartz View: Somehow the commodities sector is holding up and RJA and DBA rose again last week. I would recommend buying on weakness. Sure, they will top out at some point as the US and global economy weakens further but my theory remains it may be later than most now believe. One of the unique characteristics of this business cycle is that for the first time we’re really, truly in a global economy. Thus it’s only natural for late cycle sectors like materials and industrials to hold up. And with today’s new global competition by countries to secure for their long term futures enough minerals, foodstuffs, energy and all commodities, it makes sense. I’d hold a couple soft commodity positions. Foreign CurrenciesSeptember 27, 2007 BUY FXY CurrencyShares Japanese Yen Trust 86.50 96.13BUY FXF CurrencyShares Swiss Franc Trust 85.50 96.25 Schwartz View: Major upside week for foreign currencies, especially the two carry-trade currencies recommended above. Continue to hedge against a falling US dollar. Same as for the general stock market, if the dollar can’t rally here with all the gloom and doom surrounding it, we could be on the precipice of an even worse decline. SCHWARTZ SUMMING UP. Correct strategy is to hold much less market exposure than normal in any bear market, such as the one we’ve been in going on five months now. Also go short with today’s new-fangled inverse ETFs and mutual funds, hold some inversely correlated commodities, the commodity positions themselves not the underlying companies where you can, and finally bet against the dollar. All these strategies have been performing well as you can note above, while we wait out this grizzly bear. The problem is I expect this bear market to be a Papa Bear and thus last for at least a couple of years and cause the key averages to give back half of the previous bull market’s gains. Those approximate minimum downside targets are Dow Industrials 10,600 and S&P 500 1172. Those would be total losses off last October’s five year bull market highs of about 25% for both, thus meaning we need to stay hunkered down. Have a great week! Hang tough! SCHWARTZ SUMMING UP. Correct strategy is to hold much less market exposure than normal in any bear market, such as the one we’ve been in going on five months now. Also go short with today’s new-fangled inverse ETFs and mutual funds, hold some inversely correlated commodities, the commodity positions themselves not the underlying companies where you can, and finally bet against the dollar. All these strategies have been performing well as you can note above, while we wait out this grizzly bear. The problem is I expect this bear market to be a Papa Bear and thus last for at least a couple of years and cause the key averages to give back half of the previous bull market’s gains. Those approximate minimum downside targets are Dow Industrials 10,600 and S&P 500 1172. Those would be total losses off last October’s five year bull market highs of about 25% for both, thus meaning we need to stay hunkered down. Have a great week! Hang tough!