I’ve been out of pocket most of the day — I have access to a PC for only 5 minutes — but the market crossed my triggers, and I have redeployed 10% of my cash raised following my March 29th negative call.
10,400, 1181 and 2000 have all been crossed simulataneously. That’s enough to get me to put some of my cash back to work. On the possibility that this is the world’s greatest headfake, I am scaling in slowly (10%/20%/30%/40%). On further shows of strength — or a pullback to support that holds — I will add to my positions further. (I am still long the previously mentioned TLT position)
I still expect a retest of the lows sooner rather than later. Nor does this change my long term view that there are significant structural problems.
But as Ned Davis asked, "Do you want to be right, or do you want to make money?"
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UPDATE May 18, 2005 8:16 pm
I’ve been reviewing the action today — volume was modestly better than we’ve seen the past few days, but hardly impressive. Only the Nasdaq showed a volume increase that could be described as "significant."
I am a big believer in "scaling in" — I mentioned putting 10% of cash to work today. I’ll deploy the next 20% if we pullback to support and hold.
As mentioned earlier in the week, this bounce was not unexpected.
I do not like to rely on my gut, cause that’s neither consistent nor quantifiable. Yet there’s something here that doesn’t quite feel right, and I’m not sure what it is.
Maybe after I dissect the CPI data, I can get a better handle on this. For now, I scaling in slowly . . . .
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Gee, gold is up more today than yesterday.
I’d like to hear your views on gold and why it is so weak. I was expecting gold to be up yesterday and today but much more strongly.
No significant inflation near term and less prospect of inflation long term, low interest rates…. Why should gold stocks do much?
Gold stocks should go up becasue energy prices are going down. Many of their earnings were killed last Q because of these high costs.
Gold is trading near inverse to the dollar so that is why it is suffering lately. Watch the Euro or the US dollar index to get an idea when gold will be rising/falling.
Inflation expectations are also part of the picture.
Bearish sentiment had gotten a little out of hand the last couple weeks. That TLT long might take a hit on another good jobs report.
technical rallies also end, and this one will also end soon.
GOLD, TLT, OIL… What happens after the two collateral assets are deflated? Best template… Japan. If the fed is concerned about risks rising in the banking system due to aggressive real estate lending http://www.federalreserve.gov/boarddocs/press/bcreg/2005/20050516/ and they have observed that the ‘savings crisis’ is linked to irrational expectations of real estate appreciation http://www.federalreserve.gov/boarddocs/speeches/2005/20050422/default.htm … they’re likely to continue on their path until the risk of aggressive lending is recognized and the irrational expectations are corrected- regardless of ‘moderating’ inflation numbers.
So they deflate expectations in stocks (2000) and real estate markets (2005/6?). In so doing we solve the spend thrift consumer problem! Might be some side effects however.
12 months out I think our concern will be deflation… and I would speculate that we will have a firm dollar AND higher gold prices. Gold ETFs preferred over miners for now.
This morning I was going to write: so what is a bear to do? Watch all those bulls partying? Thanks for providing a place for us to commiserate about missing the party. Seriously didnt Reagan create a deficit about which serious economists created many doubts. So I wondered if no matter what the dangers the administration created, the rest of the group want things to continue if they are somewhat good
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Re CPI/PPI: Didn’t the PPI just show us that, at the core, producers don’t have pricing power and, at the full face value, were faced with mounting materials costs? And didn’t the CPI show us, at the core, that sellers also have no pricing power, so wouldn’t that all suggest that margins are getting squashed across the board. And to only look at the core CPI and find that to be good news, aren’t we ignoring the huge energy and food imposts on consumers? Don’t these all add up to a picture of struggling economy? Is this good?
And since I’m full of questions, did you suffer a “loss” just because you were in cash and missed a rally. Now if you had been short, that would be a loss, but do you “count” opportunity costs, cause if so, you can really flay yourself in this market.
Yes opportunity costs. I am not positioned for a rising market I am more concerned with alternatives such as owning foreign companies valued in Euros and feeling that the investment is transparent.
IF you believe that energy has peaked (which sounds to be a key piece in the bullish thesis here) I believe Birinyi study shows that the best performing sectors are staples and health care over the next 12 months. Then again if cash was included in that study it out performed all sectors; as the best were just down less than the others but negative. Nothing wrong with cash here if you are not benchmarked. If you are benchmarked business/professional risks must be considered.
It strikes me that too many are seeking profits in international securities. If the U.S. consumer is the only real growth driver in the world it is unlikely that economies already on the ropes will prove profitable IF the U.S. also rolls over. And economies that are booming due to U.S. consumpion will clearly be hit hard.
Recent strength in the dollar, comodities rolling over and the renewed strength in long treasuries are all pointing towards a global slow down… doesn’t make a case for run away upside in equities.
If you are underinvested (for your own comfort) the thing to do here is either scale in as Barry is doing, add exposure at the next oversold opportunity or add exposure through defensive equities.
Bonds are sufficiently overbought to justify taking some dollars off… if the fed should decide to pause (unlikely, but possible) bonds I believe could take a pretty good whack. Gold (GLD, IAU) has recently reacted inverse to the TLT and represents an attractive investment here with low equity correlation and low volatility.
At the end of this quarter we will experience Hedge Funds’ redemption period wherein they must cash out investors upon request. They are selling now and will be selling after the redemption period to raise cash as there will be a run of sorts.