I don't know about you but I'm stuffed.
Not just from Thanksgiving indulgences – it's been a wonderful year in the markets and we have much to be thankful for. It should be remembered that Thanksgiving is one of many harvest festivals celebrated around the world and it may be a good time to think about harvesting some cash from our stock virtual portfolios if it looks like we're heading into a long, cold winter in the markets.
Now this is interesting because I said "if" and, since I started writing this article last night, we already have some member comments treating it as IF I said WHEN it looks like we're heading into a long, cold winter! What happened to Santa Clause and his famous rally? How quickly we all lose faith? I don't know IF the markets will turn back or not, I just want us to be mentally prepared for the not but I stick by my pre-Thanksgiving assertion that we were being flushed out of the markets ahead of a "black Friday" that may see a lot more green than our low expectaions are allowing.
It's not simply because the markets dropped that I think we will bounce, it's the way they dropped. GS clearly came out on the attack, downgrading everything in site the day after CitiBank (who were downgraded by GS too with an outrageous statement that they have $15Bn in losses) downgraded ETFC in a hysterical statement the ETrade may be insolvent which poor ETrade has denied but nobody is listening. This week of negativity was capped off with former Goldman CEO, Hank Paulson suddenly deciding to tell us he sees a mortgage crisis.
There were no new facts and nothing had indeed gotten worse than it was when I was warning you about all this same stuff as the market was flying to 14,000 and we decided to join the crowd and party like it was 1999. This meltdown was so fundamentally obvious that I only missed the exact moment by 24 hours when I called it 3 weeks in advance but now we've had our correction and, as I mentioned two weeks ago in the weekly wrap-up (I'm on the road so I don't have the links), the technical boys are wrong about the bottom because they're not adjusting their charts for the weaker dollar and my numbers say this is it. That's the light in which I think I see shenanigans!
When "THEY" tank the market or a stock right before a holiday it's because "THEY" want that to be the topic of your Thanksgiving dinners. There are 100,000,000 people around the globe who have money in stocks and mutual funds but there are only 800,000 people who read the Wall Street Journal and even less than that watching CNBC so "THEY" need to reach that other 99M people through influencers, and that's you – the active investor. If "THEY" can shake you up, you can shake your family and friends up, then panic will spread, forcing a bottom "THEY" can buy into.
I know this all sounds very paranoid and conspiracy theory-ish but it was William Burroughs who said: “Sometimes paranoia is just having all the facts.”
As I said to members in Wednesday's comments:
"This is the moment we’ve been waiting for! Blood in the streets, panic in the air, C trading at 2003 lows, BA back at ‘06 highs despite double the amount of orders they had then, HOV back at their 20-year average, WMT 20% below Jan ‘04… Did the World end? No! This is my favorite time in the market – hopefully this BS will continue throught the spring when we set up the Stock Club and my hedge fund, both of which will follow the LTP strategy. This is the time that we take a nice hard look at each company and buy them, not based on some silly lines on a graph, but based on can they make money and will they make money for the next few years. If we do that and if we scale in properly and hedge well, then we can laugh off a return to 10,500 while we BUYBUBUY our way into another fantastic 2-year run. Meanwhile, this is turning into a real stock picker’s market and patience is key."
THAT is where I feel we are right now, pretty much right back where we were 12 months ago when I wrote this article on market perspective. We are standing once again on the corner of crisis and opportunity. I'm not saying we should jump in and buy everything in sight. One of the post-its we like to keep on our monitors reads: "It is not my job to save the markets," but keeping our heads while others lose theirs is going to get us through this crazy holiday season and set us up for a very happy and prosperous new year.
I won't put a lot of stock in today's market moves as it's a short, low-volume day. Our PSW Retail Survey (and please, read it over and contribute what you can) shows quite a bit of strength so far (ridiculously so in Apple's case), especially on the higher end and that's where we hang our bull hat right now. We also have the ongoing discussion of an SIV "Superfund" headed by semi-neutral BlackRock which may calm fears in the mortgage markets.
The OECD is pinning mortgage write-offs at $300Bn, still on the lower end of my worry zone (now that other people have finally started worrying about it). “We still have not hit the worst point in resets, delinquencies and ultimate losses on mortgages,” it said. Again, I say: Tell us something we didn't know 6 months ago and we WILL panic. That's all we've been getting for 2 weeks – an admission of what we uncovered and discussed all summer. This is old news to us, we are ahead of the curve so let's not let ourselves get dragged down as the rest of the class struggles to catch up – we need to move on to the next level where we can wait patiently for the sheep to be herded in for the next slaughter.
Not much excitement in the world ahead of our open. The Nikkei is closed but up 50 yesterday and the Hang Seng is up 536 after a wild up and down session. Our man Musharraf has been re-elected and Pakistan's Supreme Court declared that Gen. Musharraf's seizure of emergency powers was legal. "All acts and actions taken are also validated," Chief Justice Abdul Hameed Dogar said.
Well I guess that makes it all OK then. Of course the general purged the court when he declared emergency rule so the remaining judges are all either his cronies or very, very scared people but the good general only learned from the master as it turns out he gave Bush a head's up on the whole thing way back before Nov 3rd and the US raised no objections until the press made an issue of it and, of course, those objections to our ally jailing political opponents, their supporters and the press, was lame at best. Another Bush ally desperately clinging to power is Australia's John Howard, who's promised so much pork to the people if they reelect him that the Aussie dollar is already selling off ahead of Saturday's election.
Europe is clearly on the mend with another day of strong gains and I don't think there will be much in our short session to change their minds. Factory orders are off and business confidence is down as both China and the US falter in their consumption against the very strong Euro. This works for us on two levels as it supports my premise that US equities remain the least sucky place to put your money (given nothing but bad choices) and will pressure the EU to sabotage their own currency and save the dollar as well as the Yen.
At home it's all about Black Friday and let's keep in mind that Back in Black is supposed to be a good thing. This is the day that retailers expect to go from red to black on the books with profits for the year generally taken in between now and Christmas.
I won't be around for most of the fun today but my IPhone is set up to monitor C (got 'em), BAC (need 'em), BSC (got 'em), WFC (need 'em), GS (got 'em) and AIG (got 'em) and, of course, Google (got 'em) and Apple (got 'em, need 'em, can't live without 'em) and I'll have my DIA $130 puts on standby for a DD if we can't retake 12,900 but our virtual portfolios held up very well on Wednesday so I'm not feeling a lot of pressure to take action until I'm back at my desk.
Don't take today too seriously, whatever happens. The real action begins on Tuesday when all the top dogs roll in from their long weekends. Even those that show up on Monday usually spend the day in meetings and, unless retail looks worse than our early survey results project, most of those meetings are likely to be about what to buy into the close of the year.
Have a great day, stay defensive even though they may spike the market, we have a very busy week ahead of us and we'll be wanting some cash!
All the best,
– Phil
