Search results matching tags 'Shorting', 'Investing Strategies', and 'Big Picture View'

Big Names Predict Problematic Inflation: What's An Investor To Do?

RichardSchwartz — Wed, 11 Mar 2009 13:48:00 GMT

ECONOMIC VIEW. Rising Inflation Expected. So predicts a whole slew of big names, everyone seems to be jumping on board this train in the last few days. Now Warren Buffett and Bill Gross have joined Marc Faber and Jim Rogers and more in predicting problematic inflation just out there over the horizon. Yep, as soon as deflation became the consensus buzz word – recessions kill inflation is what I’ve heard repeated from many sources – we’re getting a groundswell of opposite opinion. Well, not quite opposite but close enough, let me explain. Everyone agrees this slump will preclude problematic inflation but all say that’s a temporary phenomenon. No one predicting rising inflation will go so far as to say just WHEN rising inflation is going to emerge but more and more observers are saying it’s definitely coming, arriving when this economic slump is over, whenever that is. Again, rising inflation, no, out of control inflation, no, to put it more accurately, hyperinflation is my biggest worry. That America printing money galore – yes, for bailing out businesses too important to the financial system to allow them to fail, and, yes, for keeping the economy greased and running, and, yes, for stimulating new growth and maintaining existing economic activity, and, yes, for overall deficit spending in this economic downturn – will come back to bite us in a big way. I can handle some inflation, I know how to shop for bargains which will help in food and clothing needs, what I’m worried about is a major currency devaluation which wipes out mine and America’s buffer. America’s savings becoming worthless as has happened time and again across the globe when some country’s finances just go kafluey. When a country can’t pay its bills compounded by a wholesale lack of trust in its currency. Schwartz View: Hasn’t happened in the US yet, but …

So I get more nervous when I hear Warren Buffett, America’s richest man and known as the best value investor of our time, say inflation could go as high as it was in the 1970s, that’s almost double digits! I get even more nervous when Bill Gross, who manages one of the largest bond funds going, says that US government efforts to break this recession will cause “costs for goods and services” to rise. I respect both these guys and their opinions. Now they join long term forecaster Jim Rogers, who is also more worried about rising inflation than deflation, best I can figure. He’s long been predicting an US dollar crisis and really bad inflation ahead and says he’s just waiting for the proper moment to essentially “short US Treasury bonds.” Rogers sees commodity inflation returning with a vengeance since today’s global economic slump in his view is just improving the fundamentals underpinning commodity prices. In other words today’s credit crunch and resulting recession causing miners to delay or even shut down exploration and thus leading to a further drop in supply. He loves to mention that global food inventories are already down to 50 year lows. Finally, Marc Faber, the well regarded international investor and past BARRON’S Roundtable panelist, sees rising inflation from another angle. He figures that the US government is going to have all kinds of problems in raising interest rates down the road or in effect withdrawing all the money it’s pushing into the system now to try to end today’s credit crisis. Schwartz View: This rising inflation camp is growing now, with many others predicting a forthcoming inflation problem as well. I am too.

Schwartz Recommendation. If you also worry about rising inflation, one strategy available today is to buy an inverse ETF or inverse sector fund. One that goes up when long term US interest rates go higher. That’s the natural reaction if inflation rises, yields generally rise forcing bond prices down. For example ProFunds has two such funds, RTPIX and RRPIX while Rydex offers up RYJUX and in the ETF camp there’s TBT which “correspond to twice the inverse” of the US Treasury bond. I recommend such.

Disclaimer! I don’t own any of the above now but can and do change positions without notice.

For a FREE week’s sampling of my complete daily e-letter, please email me at RichardStk@aol.com.

One Way To Handle This Bear Market

RichardSchwartz — Thu, 11 Dec 2008 14:53:00 GMT

SCHWARTZ STRATEGY DETAILED. The Principle of Proper Money Managment. Especially important during a bear market. I know many readers aren’t prepared to keep jumping in and out of the stock market, trading in other words, each time the stock market begins some type of rally. As I suggest. Many of you just want to make some long range investments and stay put thus it’s terribly hard to follow my in and out advice. But that’s also pretty hard to do – buy and hold right now -- since the near and intermediate term outlook is still so iffy. Sorry about that but I can’t do anything about it. Either you operate like Warren Buffett, buying down here with plans you can outwait any trouble ahead, holding for years if necessary. Or you fashion some type of middle ground, somewhere between buy and hold and trading around daily. So here’s one suggestion, along the lines of what I do every day.

Schwartz Daily. First, as I’ve long recommended, you hedge your portfolio. Starting with taking a Big Picture view. If you agree with me about the big picture, that since today’s economic and stock market predicament is the worse most everyone has ever seen, that this bear market will have to last at least another year, roughly two years minimum in total, then you add a couple bear market index plays to you overall portfolio with plans to hold them for some time, say throughout 2009. Obviously if you don’t hold any inverse ETFs or inverse mutual funds right now, you want to initiate them on some strength like possibly this year end rally occurring now. As soon as you can’t wait any longer or if you read here that this rally is nearing its end, you put on these inverse plays. Or hedges as I call them since I’m not trying to make a ton on this bear just avoid getting clawed up really badly. Again, or second, once that’s done you check each position each morning and see how they’ve done over the pervious trading day. You check after big up days, big down days and after modestly moving market days like yesterday. What you’re looking for is how your overall portfolio did versus the general stock market and how each individual long and short did. For example, yesterday my two inverse or short hedges both fell, obviously, because it was an overall up stock market day. My Short NASDAQ 100 ProFund (symbol SOPIX) fell -2.19% and my ProFunds Bear ProFund (symbol BRPIX) lost -1.15%. On the other hand my longs, ProFunds Consumer Goods Ultra (symbol CNPIX) rose +0.76% yesterday. Similarly my ProFunds Utilities Ultra (symbol UTPIX) rose +3.09%, my ProFunds Biotech Ultra(symbol BIPIX) rose +1.13%, while my ProFunds Telecom Ultra (TCPIX), disappointing, fell -3.68% yesterday. So third, you check out why any discrepancies show up and decide if you want to change the mixture or positions. Disclaimer! I hold small positions in the investments above but can and do change my positions anytime.

Two other obvious major factors are (1) your overall percentage invested versus your sidelined cash. I’ve been running most of this year about 20% invested, including my longs, shorts and non-corollary positions like whether I’m long or short the dollar, Treasuries and gold and 80% cash or cash equivalents. And (2) what percentages of each position you hold, for example my two shorts mow total about 5% versus my four longs totaling about 10.75%. So as you can easily note, I’m mostly in cash, about 84% now and what I’ve got in I’m positioned for a rally. But when I see no signs of a rally, I shift to leaning more short than long. What I would love to see are my longs doing well between now and the end of the year while my shorts don’t hurt me. Then a chance to take profits in my longs while leaving my outstanding shorts alone, let them keep running since overall we’re in a bear market. Summing up, numerous investors and traders operate this way. With the plan that their shorts will go up and their longs will go up as well. That’s the ideal anyway. Just another strategy for you to ponder and maybe adapt as your own. Good investing!

Studying Similar Sharp Declines & Their Bottoms

RichardSchwartz — Tue, 07 Oct 2008 18:26:00 GMT

The Principle of Understanding History & The Principle of Technical Analysis. Written Tuesday, October 7th, 2008

OK, yesterday I heard one analyst, I believe it was Liz Ann Sounders, chief investment strategist for Charles Schwab say the recent sharp year-over-year (yoy) stock market decline is only rivaled by the year 1974 and two years back in the 1930s. I could make a good guess which years in the 1930s those steep yoy declines came but I went back and checked anyway because those are the years along with their stock market bottoms that I want to start studying, their charts and their economic, financial and psychological backdrops as well. All three years were big bad bear market years as yoy declines of -30% or more would have to be. 1974 was the year our last Papa Bear market ended, and was the second year of that bear market. 1931 was smack in the middle of that big Papa Bear (stocks bottomed May 1932 and in rallied the second half, preventing 1932 from making the list). And 1937 was the year the five year, first bull market after the Papa Bear of 1929-1932 ran out of steam and the economy ran off the cliff and we had a short but very severe Mama Bear market. (I distinguish Papa bear markets from Mama bear markets by their lengths, the 1937-1938 bear market lasting only one year.) A first, brief cursory review of those big down years is as follows:

· 1974. The total decline in the Dow came to -45.1% in just under two years. The stock market’s bear market ending was immediately preceded by a most severe leg down in stock prices, losing -27% in less than two months from early August through October 4^th. The ultimate bottom was characterized by the Dow Transports NOT making one last new low along with the Dow Industrials in early December. Schwartz View: Diverging in other words.

· 1931. The total decline in the Dow came to -89% and took just under three years, September 1929 to July 1932. 1931 came in the middle of that horrific Papa Bear market so that’s dismaying for us today. But, similar to the bottom in 1974, the 1932 bottom came after a grinding last leg down in stock prices. From March through July 1932, we saw an inexorable day-after-day, four-month decline totaling -54%. Whew! Schwartz View: Trading volume was the distinguishing characteristic of that market bottom, shrinking up noticeably.

· 1937. The total decline in the Dow came to -49% and took almost exactly one year. The bulk of the 1937 Mama Bear market occurred primarily during a sudden market collapse from August through December and encompassed another extended, depressing, sharp down leg of -40%. In October of this four-month leg down, trading volume spiked during a mini crash but that wasn’t the final bottom. Schwartz View: The bottom came on much reduced trading volume in March of the following year and prices didn’t really move up until volume again picked up, in about June.

SCHWARTZ SUMMING UP. My first, quick gleanings from reviewing past market bottoms after the three most severe year-over-year declines in stock prices, like one we're in right now, indicate we might look for anultimate market bottom to include: (1) a sharp leg down just preceding the bottom, (2) a divergence between the Dow and the Dow trannies and/or (3) sharply lower trading volume for some weeks before the ultimate bottom. Stay tuned for more to come while hanging tough.