Archive through April 10, 2008

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ody

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Post Number: 2305
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Tuesday, April 08, 2008 - 06:30 pm:

EUGENIO: INVESTING AT DIFFERENT TIMES

Eugenio, I find your post quite understandable. I have never suggested that going into or out of the market at various points is a strategy to be pursued by everyone.

Your point about Rudy not making money for several months during the first half of 2007 is valid, and Rudy has answered it validly as well. As you know, he and I did not agree on his total exit at the time, and like you I stayed invested myself. Which shows, incidentally, that obviously not all people who go in or out will always agree or get their timing right. By contrast with myself, Rudy was far more convinced than I was about the August 2007 rally, and he proved right.

On the whole, I suppose my main point is ultimately this: there are, observably, certain periods when it is much easier to make money in the market than others. For myself, I prefer to take advantage of the strong periods, and to avoid the weaker ones. It does mean that I AT TIMES will wrongly deny myself the opportunity to make more than (at the moment) 8%, because the market does produce rallies even when it is generally bearish. But one has to keep a sense of perspective about these rallies: (1) they tend to be surrounded by significant falls, and (2) the person who does not take part has lost nothing other than OPPORTUNITY. I am STILL making money, although not a lot - but one thing is certain: I am not running the risk of losing anything through the share market's doings.

I have never felt that what I do would work for you, for you are an even more impatient person than I am (and I don't mean this negatively), so you probably would not really be able to stay out of the market for any length of time. Personally, I don't see a few months as very difficult, and I don't share your optimism about where the market is going, so that means that for me it would actually be harder to be IN than OUT. On many occasions you and I would both be happy to be IN, and occasionally I think you too have been OUT, during this recent bear episode. You may well do perfectly OK staying in the market, but I would, if I were you - and I CAN enter into your way of thinking - keep a reasonably open mind. After all, as you often trade short term, you can very easily go out again, and I wouldn't hesitate to do so if things suddenly took a turn for the worse, for the market does remain vulnerable. However, I for one am quite willing to admit I may get matters "wrong" this time, even according to my own way of working. It is just possible that the market will go up and up - though I think the way to trade a bear market is probably to go in quickly when the rallies start, and out again when they look like crumbling.

One important thing: THIS MARKET IS *NOT* (I REPEAT *NOT*) LIKE THE FIRST HALF OF 2007. The fundamental differences are HUGE. It is not even like the second half of 2007 either, although then, already, one could clearly see that the market would crash as a result of deteriorating fundamentals.

My own assessment remains that, by and large, fundamentals have NOT improved, relative to 2007, but have got worse. The only positive thing I can see just now that IS likely to be a fundamental win is the price of coal, together with what may also turn out to be a higher iron price. THOSE matters, I would agree, MAY have a justified positive impact on the market. But not the Bear Stearns business - sheer empty manipulation, really, which if anything delays poor economic facts rather than that they are tackled.

So: the ONE thing I can see as a positive winner just now is coal plus iron. Just about everything else has tended to get worse rather than better, and the share market has of late failed, as yet, to take account of the deterioration, though perhaps it is now just beginning to do so.

ody

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Tuesday, April 08, 2008 - 06:34 pm:

RECENT BLOOMBERG NEWS ON DETERIORATING PROFITS

This is the sort to keep an eye on in determining how companies worldwide are performing, and what it likely to be ahead. Bloomberg is one of the best financial sites through which to gain timely and accurate info.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aqEFXyLmN7i4&refer=home

eblode

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Tuesday, April 08, 2008 - 07:38 pm:

Ody,

You seem very keen on coal. Have you bought some.....shares I mean. If not, why?
And if so,which ones??

Eugenio

ody

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Post Number: 2307
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Tuesday, April 08, 2008 - 09:32 pm:

Eugenio: coal

What has simply caught my attention is the terrific price-increase in coal as a material. But, ironically, it was in no small measure the difficulties befalling this very industry, in Queensland, which was responsible for our colossal trade deficit. So I'd need to know - and don't - just which stocks to buy, as one's success is obviously going to depend on the company rather than just the "stuff".

Macarthur Coal (MCC) is a stock I once had and which recently Rudy has been looking at. It was a terrific buy some years back: one of my best. But the company's health is now rated only "marginal" by Stock Doctor, which mentions several weaknesses. The T/A is attractive (good graph), and presumably the POTENTIAL fundamentals. But I'd like a stock in stronger health, and I note that even Huntleys', while predictably interested, see the stock as "high risk". I'd really need to know quite a bit more before I'd feel comfortable about buying.

Centennial Coal (CEY) is strong, acc. to SD - but its graph is far less appealing. And again I have all sorts of question marks.

At the moment I don't trust most analysts either, as many of their predictions have proved grotesquely wrong. But what I need is someone who CAN analyse coal stocks competently and who would give them the all-clear - also on price, because that again is something that needs to be judged. SUPERFICIALLY, MCC looks a clear buy, but I am hesitant because I know far too little and see too much I don't like.

RIO would be a possibility as well, not least because they are very strong on iron ore, which is set to go up, though the price is still under negotiation.

Any help greatly appreciated. This area is one of the few where I'd be willing to look, as it seems pretty remote from financials, and I am not keen on commodities of which the price is not firmly going up. When I bought stocks like MCC in the past, or, say, Zinifex (ZFX), I would do so FOR ONE THING because the price of the underlying commodity was rising. I am not much interested if that is not the case, as I distrust the producers. But in the case of coal, production seems a major trouble-area, so if that remains the case I am not keen at all. That is why I am seeking HELP! There are always people interested in resources on this thread, or IC generally, and maybe they can give us some tips.

The major point is it is not a clear, easy area.

I prefer fertilisers in that respect, and see them as winners: NUF and IPL. But the latter, certainly, seems pretty expensive, and of late has not performed as steadily as it once did. Superficially, NUF looks good - but again I'd need to know more.

Please remember, also - I do really have much less time. As I am not properly researching stocks and need to do other work, I spend only about 30% of the time I used to on the share market. It's just a "hobby" now, which means that I can reasonably keep up with my primary interest in it: what factors are driving the market and where will it go? But not with stocks, really, though I'd be potentially interested if gains look nice and neat. Instead, quite a bit of what I see looks rather messy!

ody

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Tuesday, April 08, 2008 - 11:37 pm:

WALL STREET STUMBLING AGAIN?

http://money.cnn.com/2008/04/08/markets/stockswatch/index.htm

rdumas

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Wednesday, April 09, 2008 - 08:29 am:

I found this very interesting article on the net which explains why analysts tend to be 'behind the curve' when predicting earnings. It points out the close relationship that analysts sometimes have with companies and the fact that companies tend to be over optimistic about their own company performance against the general economy. This is a real study of some of the components that make up market psychology.

http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2008 /04/07/asleep-at-the-wheel-or-how-i-learned-to-stop-worrying-and-love-the-bomb.a spx

ody

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Wednesday, April 09, 2008 - 08:32 am:

EVEN THE FED DOES NOT AGREE WITH WALL STREET'S NEW-FOUND OPTIMISM (WHICH IS BASED ON THE FED'S ACTIONS):

http://money.cnn.com/2008/04/08/news/economy/fed_minutes/index.htm

ody

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Wednesday, April 09, 2008 - 08:42 am:

AND IT SEEMS THAT WALL STREET IS PAYING SOME ATTENTION

Wall Street has not yet once again turned negative, but it IS getting more worried again, because of the Fed's minutes (which seem to be getting more realistic than they have been) and because of worrying news.

It would be a very good development if Wall Street now moderated its foolishly optimistic stance, which, after all, was based on very dubious action by the Fed that supposedly "prevented" an almighty economic crash by "dealing with" Bear Stearns in effective fashion. The last thing that would help us get out of this mess is share markets in denial, as in recent weeks they have tended to be. The more things are seen for what they actually are - i.e. very bad, for the most part, a a result of an irresponsible credit crunch and related matters - the more hope there is for a REAL recovery. Anything by way of denial of fundamentals will only create further uncertainty and delay inevitable further falls, which then would be only the worse.

http://money.cnn.com/2008/04/08/markets/markets_newyork/index.htm

(Message edited by ody on April 09, 2008)

ody

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Wednesday, April 09, 2008 - 08:59 am:

RUDY: JOHN MAULDING ARTICLE

That is certainly a very well argued piece, which tries to get to some of the REAL facts that will eventually determine the market's course, i.e. company earnings, and is especially good at showing to what extent both companies and analysts are still hardly aware just how much earnings have sunk and are likely to sink.

Incidentally, this refusal to face facts is not untypical: I recall similar attitudes - though not AS bad - after the first big 1987 fall. I think the denial is worse this time because the bull market has been exceptionally strong, and for a number of years, in almost "steady" fashion.

But it was a similar state of denial that led to the damaging rally in that bear market which then led to a crash from which many did not escape, as they took the rally for evidence that "the worst was behind us", just as is happening now. (That is: the current reasoning is that the Fed has removed what looked like the risk of a fatal crash by "tackling" Bear Stearns, and the rallying share market is then argued to be evidence that matters are going well.)

Rudy: let me "slap your back"! A very good article to post.

rdumas

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Post Number: 1308
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Wednesday, April 09, 2008 - 09:08 am:

BHP breaks through descending trend line.

I note that BHP recently finally broke through the descending trend line that has been in operation since the middle of October 2007. This would be a bullish sign to me.

SWAY (I think it was) asked me a few days ago how I use the RSI indicator. I have provided the chart below to show how whilst it spends most of the time in unison with the share price, there are times when it acts as a leading indicator of the future share price movement. Note the two occasions that I have pointed out where this happened.

It will be interesting to see if it warns us the next time that BHP is about to turn down.

ody

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Post Number: 2312
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Wednesday, April 09, 2008 - 09:24 am:

COMMODITIES ALSO DOWN

Note how the latest (one day old) fear that matters are not as good as the share market rally seemed to suggest has immediately "infected" prices for commodities as well.

There is, thus, a POSSIBILITY that the rally will not continue at the same level: will become more subdued, and possibly go sideways or - one would have thought more likely - go into reverse again, as it has in effect been based ONLY on unwarranted sentiment, not on any good economic news that justified the rally in the first place. Fundamentally bad news, or the absence of fundamentally good news, will always catch up with market sentiment if that is unwarranted, and particularly during periods of uncertainty.

In other words, the current rally is of the "clutching at straws" variety, and largely has come about because people could not, psychologically, take in the fact that the bull market is over. In essence, the psychology is strongly based on the "precedent" of several corrections we have had since 2003 - not on acceptance of the fact that economies really ARE deteriorating, and that the markets should anticipate that deterioration rather than a supposed fundamental recovery in the second half of this year.

The evidence would appear to be that share markets have been much too hasty: have underrated how much economic weakness is inevitably still ahead, and especially how much companies are likely to disappoint in their results. You can't have a financial crisis of the kind we have seen, and are still in, without that having significant CONSEQUENCES for some considerable time, and the rises in share markets have in essence predicted a recovery well before that is at all likely to occur.

The housing markets - in several countries, now, including our own - are clearly heading south, which is further inescapable evidence of economic deterioration, and entirely in tune with post-1987 developments. Then, too, a lot of money initially held up the residential market, but, in its typical way, it followed the share market down, which then in its turn helped people in the share market to see that the economic malaise was going to be more serious, and would last longer, than early rallies had suggested.

rdumas

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Wednesday, April 09, 2008 - 09:24 am:

Hi Ody,

Thanks for the compliment. The above article is only one of the interesting psychological tricks that is played on the minds of investors and market participants. The other is a point that I made some time ago but which appeared to pass un-noticed and that is the human condition which allows it only a certain amount of pain before it puts up barriers (denial in your words) that shield further pain from it. This is a trait that many people would have experienced during extremely painful periods in other parts of their lives.

If you noticed the recent past where the fear reached a peak before the Bear Stearns incident. That latter incident appeared to be the point at which the market decided that it no longer could stand any further pain and basically started ignoring further negative leads from the economy. The insane response to companies earnings not falling to catastrophic lows and going to the market for more money were taken as positive signs rather than what would have been extremely negative signs during more normal conditions.

Since that pain barrier went up there was the initial optimistic rally and now for the last week where the US market has virtually been suspended in mid air absorbing all of the information before deciding whether to capitulate or to continue the blissful ignorance. It is certainly an interesting time to see market psychology being so clearly demonstrated on a global scale. The great part about not being part of it is that you can see it as an amazed observer.

ody

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Post Number: 2313
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Wednesday, April 09, 2008 - 09:44 am:

COAL/IRON ORE IMPORTANT "PROTECTION" FOR AUSTRALIA

To an extent they no doubt will be. Hence the jump in BHP that Rudy referred to. And it is just possible that a number of resources companies WILL withstand the negative trend.

But the signs are that the psychology of investors in the share market is beginning to get more cautious again, and although that is not to say that resources companies will immediately go south, there is no guarantee that they will not be affected by negativism about economies overall. Spot prices for resources went down overnight (not, of course, for coal and iron ore, for which there are no such prices, and optimism about those two should still support affected companies today).

In general, is interesting to see how investors do actually take note of the minutes of the Fed. I suppose that if you can't think for yourself, there is a certain logic in that. After all, if you believed the Fed was doing something magnificent in "supporting" failing companies, and thought that somehow failing companies should actually be seen as a good thing ("because it could have been so much worse / the Fed might not have 'saved' them"), then it would be illogical now NOT to have belief in the Fed's own negative views. Whether investors will, in fact, take the Fed's (still very moderate) words seriously remains in part still to be seen. But certainly some of the totally unwarranted recent euphoria seems to be wearing off.