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Thursday, August 25, 2011

Gold continues its slide

Gold is down another $50 or so an ounce, or about 2.8%, after the CME raised its margin requirements for the second time this month.  Gold lost $104 an ounce yesterday (Wednesday, August 24th), and has fallen almost $200 per ounce from its all-time high around $1,900, which it hit on Monday of this week, August 22nd.  As I have been writing, I believe gold to be in a massive bubble.  Some may be tempted to buy gold since it has pulled-back somewhat.  Don't do it!  It is still grossly overvalued at $1,700!

Steve Jobs steps down as CEO of Apple

Jobs has been battling a rare form of pancreatic cancer and already had a liver transplant.  He has been out on medical leave since January, but late yesterday announced he would be stepping down as CEO of Apple.  In his letter to the board, he strongly endorsed Tim Cook, who has served as acting CEO in Jobs' absence.  The board quickly voted Cook in as CEO.  Most recently Cook was COO of Apple, and has been the architect of the company's intricate supply chain that has been responsible for high-quality materials and production capabilities.  A detailed succession plan which included Cook has been in place since Jobs first began experiencing serious medical problems back in 2004, which Cook stepped in as interim CEO for Jobs for the first time.

Although Cook is the clear choice of Jobs and the board, and is highly skilled, it will be difficult for anyone to fill the shoes of Jobs - a visionary leader and creative genius behind the stunning success of the iPod and iPad.  Apple shares are down 5% in after-hours trading. I own Apple shares for clients and will hold what I own.

Monday, August 22, 2011

S&P Sacks Its President

Just a few weeks after S&P downgraded the U.S. sovereign debt rating, the company decided to replace its president.  McGraw Hill owns S&P, and they are claiming that this was planned from last year.  Right.  S&P is also under investigation by a Justice Department probe for its activities surrounding the mortgage crisis.  Basically the U.S. government has declared all out war on S&P since the downgrade, at this is unlikely to relent, even if they dump Deven Sharma, their current president.  We reap what we sew.

A flat tax may be our only option - Noozhawk article; 8-22-2011

Sunday, August 21, 2011

Two compelling reasons to buy stocks now

In this post, I will present one technical indicator and one fundamental factor that provide compelling support for buying stocks now.  The first is a technical indicator - the percentage of stocks trading on the New York Stock Exchange that are currently below their 200-day moving average.  This indicator takes the previous 200 trading days and looks at their closing prices for each.  By adding these 200 prices together and then dividing by 200, we arrive at a 200-day moving average for the stock.  The 200-day moving average is a very strong indicator, since the average is taken over such a long period of time (200 trading days).  When more than 80% of the stocks that trade on the NYSE have broken below their 200-day moving averages, historically speaking, the stock market has rallied, both in the following 15 days, and in the following 3 months, both by healthy percentages.  We currently have only 15.22% of all stocks on the NYSE trading above their 200-day moving averages, which means that almost 85% are below their 200-day moving averages.  This is a very strong indicator that the market is about to reverse to the upside in the near future.

On the fundamental side, the S&P 500 is trading at only 11 times its next 12 months of earnings.  We take the earnings estimates for all 500 stocks and add them together using the correct proportion that each stock holds in the index, and then divide the current level of the S&P 500 by the earnings estimate.  Th long-term historical average for the S&P 500 is 15 times earnings.  At just 11 times, we are trading at a deep discount to that average.  However, the rub here is that these are, in fact, only estimates from analysts for what they think companies will earn over the next 12 months.  To the extent that these analysts could be wrong, and they are wrong a lot, we can't trust this indicator all that much.  However, even if they are overly optimistic, which is likely the case, we are still very likely trading at a discount to next year's earnings.

Fear is dictating the direction and trading in the market.  We will need some kind of major reassuring event or announcement to allay those fears, and to get investors to come back to the table on the buy side.  For those willing to take the risk, and who are long-term investors, as opposed to speculators and traders, I feel that there are attractive bargains in high-quality stocks.  There can be no reward without risk!

Monday, August 15, 2011

Stocks erase entire point loss from last week

The S&P 500 closed at 1,204 today, or 4 points above the close of Friday August 5th.  This means that despite all of the volatility that we experienced last week and all of the panic selling that took place, we are actually up from August 5th's close.  You have to feel sorry for those who panicked and sold at the lows last week.  Hopefully stocks will continue to rebound.  We have more news coming on the earnings front this week, as well as some economic data.  It's only Monday!

A Little Perspective: What should matter to investors - Noozhawk article

Friday, August 12, 2011

Stock rally back towards break-even for the week

After a whole lot of volatility this week and today, stocks are attempting to rally back to break-even or perhaps a positive finish to the week.  We are trading at 1,188 on the S&P 500 right now, and with a close last week of 1,200, we are down about 1% for the week at the moment.  In other words, we only need 12 more points to get back to break-even for the week.  This result shows first that there are buyers, and second that long-term investors need to look at the big picture and remain calm during times of uncertainty.  More importantly, they need to have a well thought-out strategy in place so that they can take advantage of drops in the market to add to positions, and to buy quality names at good prices.  This is exactly what I did over the last week for my clients.

Wednesday, August 10, 2011

Dow off over 500

We gave back everything we gained yesterday, plus about 100 points.  This puts us down about 700 points so far for the Dow this week.  Gold spike to above $1,800.  I am sort gold through the GLL (short gold ETF).  I believe gold is grossly over-bought and will get killed as soon as the uncertainty subsides.  It's ugly out there, but there is no reason to panic and no reason for this overreaction.  It is clear that small investors are driving the direction of the markets day to day.  I am not a trader.  I am an investor, and I see value here.  Corporate profits have been very strong for several quarters, and most importantly, top-line revenues for the first quarter since the recession ended were strong.  People and companies are buying stuff, which is good for companies and good for the economy.  We will get past this!

Tuesday, August 9, 2011

New Noozhawk Column!

I am very pleased to announce that starting this coming Monday, I will be writing a weekly column for Noozhawk (  Please go to the Noozhawk site and subscribe to their free email service.  You will receive daily emails of all of the top story headlines of the day, including my column each Monday!  The Internet has forever altered the delivery of information and electronic formats like Noozhawk are the future of information.  I hope you will all enjoy reading my articles!

Stocks rebound sharply; Dow up 430 points

Fantastic rebound in stocks today!  The S&P 500 gained 53 points and the NASDAQ added 125.  Today's bounce underscores the fact that the world is at least not perceived to be ending anytime soon, and investors are willing to risk their capital when prices are attractive.  A great day!  Tomorrow is a new day!

Dump Your Debt System launch!

I have just launched a new website for my Dump Your Debt! System - a simple, easy to use, effective debt elimination strategy that works!  The site is (not .com).  I have developed this System on many years of teaching financial planning courses and have helped literally thousands of people get out of debt and more importantly stay out of debt.  If you or someone you know has debt problems, this System will help them.  Take a look!

Stocks rebound sharply

Stocks are rebounding nicely so far this morning, up over 2%, with the Dow up well over 200 points.  It is still early, and we could see more selling, but this does show that investors are willing to step in and risk cash.  Stocks should be bought and gold should be sold here.

Monday, August 8, 2011

Stocks close at lows

The Dow lost 635, the S&P 500 lost 80, and the NASDAQ lost 175 today.  That's nearly a 7% drop in the NASDAQ today alone.  Wow.  Investors are freaking out.  There is definitely a buyer's strike.  I think today's activity underscores one of the fundamental flaws in the investment industry, which is that the current way in which investment management services are sold--through an asset allocation strategy approach-requires that managers stay fully invested at all times.  This means that, unlike me, they have no flexibility to step in when markets drop as they did today, and buy quality names.  This characteristic of the markets leads to higher levels of volatility, but also to good opportunities for those of us who do hold cash balances, and who do have the flexibility to buy when markets are down hard.

We are seeing market drops similar to where we were at the end of 2008, just after the financial market implosion, the Lehman Brothers failure, and the mortgage and derivatives meltdown.  I would submit to you that things are significantly more positive today.  There is no new news.  I have been talking about the possibility of a double-dip recession and slow GDP growth for months and months.  Today's move as well as that of last week in general, also shows that the small investor-those who really don't understand what is going on, are driving the bus.  Small investors are almost always wrong in the longer-run, and I believe they will be proven wrong this time.

This is a huge buying opportunity and those who do not step up and step in will be kicking themselves in a month or two.  I promise you that investors will not even remember why the market was down in a few weeks (not that they understand why right now!)  The S&P 500 is at 1,119.  Remember that level.  I am not saying we can't go lower - we probably will go lower in the short-run.  But down the road, that level is going to look very, very attractive indeed!

Stocks off 5%

We are close to the lows for the day, as investors panic-sell on the S&P downgrade.  Again, this is not new news!  We have known since April that S&P would downgrade the US if Congress did not reduce spending and/or increase revenues by at least $4 trillion over the next 5 years.  Treasuries are actually up in price today, which shows that the U.S. has not lost its place as the most secure place on the planet to invest.  This is a panic blow-out sell-off, which is a very attractive opportunity to buy.  I assure you the world is not coming to an end.  If you have been following my blog or my other commentaries, or have listened to be on the radio or read my articles in the News Press, you know I have been extremely reluctant to buy anything up until now.  I have been sitting in cash for months and months, waiting for this to happen.  Investors have been completely ignoring the problems both here in the U.S. and across the globe, with regard to the mounting debt issues and slow GDP growth.  Finally investors have recognized the reality of the situation, and are overreacting to it.  This is the opportunity of this year and possibly the next few years, to buy high quality companies at great value.  Yes things could go lower.  The chart shows we could go to 1,040 on the S&P 500.  That's ok!  We are not going to get the exact low.  I can't say for sure when investors will feel that prices are so low that they need to start buying, but it will happen, and when it does, stock prices will bounce very quickly - far too quickly for you or I to make our purchases before prices rally.  Don't miss this opportunity!  They just don't come along all that often.  If you are concerned, buy half of what you want to own and wait to put the other half to work in case things go lower.

Downgrade pressuring stocks

Stocks will open down about 2% this morning after the S&P downgrade.  Ironically treasuries are actually higher, with the 10-year yield down to 2.48%.  I would not be surprised to see stocks open down but rebound during the session.  We are now AA+ rated according to S&P, but still AAA from Fitch and Moody's. at least at the moment.  Keep in mind that China, Israel, Spain, Belgium and Taiwan are all AA rated.  Spain and Belgium??  They are two of the countries begging for bailout money from the EU and from the IMF (us).  We might have a similar debt to GDP ratio, but we are a lot stronger economically, more diverse, and certainly much more able to service our debt.  Again, our 10-year treasury is yielding less than 2.5%.  These other countries are paying much, much higher rates for their sovereign debt because their perceived risk is much higher.  I believe the stock markets will bounce, if not today,very soon, and therefore think this is an exceptional buying opportunity.  To get good prices, investors must buy when there is uncertainly, doubt, and fear.

Sunday, August 7, 2011

Charts telling an ugly story

The technicals have been signaling a downturn in stocks for some time, with several confirmations of break-downs recently.  If we believe the charts (and I do), we could see the S&P 500 fall to 1,140, or perhaps even 1,040 in the short-term.  I think we will have a bounce before that, but ultimately, at least according to the chart, we should see lower levels.  However, I am comfortable with the purchases I made at the end of last week (Thursday and Friday) - I bought high-quality companies with encouraging fundamentals.  While I want to get the lowest prices possible, I have found over my 20+ years in the business that you can never get the absolute low, and if you do, it's blind luck.  I have seen too many times where the charts are saying that the market should go one way and it does the opposite.  Here is the chart for the S&P 500 (from Investorplace.ocm):


Saturday, August 6, 2011

S&P downgrade not a surprise

S&P back in April stated that unless the U.S. put in place cuts that amounted to at least $4 trillion, they would downgrade.  They followed-through after the government only put in place $2.1 trillion in cuts over 10 years, most of which will not come within the next 5 years.  We can certainly argue with their reasoning and their timing, but the reality is that $2.1 trillion over 10 years is a drop in the bucket, and is far short of what is needed to contain the ever-expanding national debt.  We need to balance the budget so we can generate a surplus to pay down the national debt to a more reasonable level, far below 100% of GDP.  My concern is that, unless we do something more significant now, we are going to be forced to do something drastic in the near future, that could crush the economy.  With this said, I feel that the downgrade was already baked in the cake, so we shouldn't see too much of a reaction this coming week.  Fitch and Moody's still have us at AAA, although they are both still evaluating us.  We lost 7% on stocks this past week, and globally, $2.5 trillion in stock value was erased.  I think it's time for a rebound, but longer-term, we will have an overhang from the debt problems we face.

Friday, August 5, 2011


I don't know what else to say.

117,000 jobs

Not a bad report for July employment, adding 117,000 jobs.  Stock futures are rallying big-time, up over 150 on the Dow already on this report.

Thursday, August 4, 2011

Biggest drop in 2 1/2 years: great buying opportunity!

The Dow dropped 512 today, or 4.31%, The NASDAQ lost more than 5%, down 136, and the S&P 500 fell 60 to 1,200. Only once or twice a year do we get these kinds of opportunities to buy quality stocks at attractive valuations.  It takes a lot of fear and uncertainty to cause the opportunity to materialize, and that's exactly what we are seeing today.  People are freaking, and that's what I love to see!  This is the best buying opportunity we have seen in a long, long time, and I am taking full advantage of it.  I was buying throughout today's trading session and will buy more tomorrow, unless we rebound right off of the open.

The unemployment number will be reported tomorrow, and that's what most people are waiting to see.  I feel that even if it is ugly, stocks may still rally because we are down about 12% from the recent high already.  That is a huge dip in little more than a week, so I feel that many investors will start to buy regardless of the bad news.  We shall see!

This is it!!!

I am buying like crazy right now!  This is the time.  If you have been holding cash, put it to work now!

Wednesday, August 3, 2011

Going straight to 1,200

Watch 1,249 on the S&P 500.  That is the March low, and we are only a few points above that level right now. If we break through that level, there is no support all the way down to 1,200.  I think that's where we are going. The ADP report showed 114,000 jobs added.  That is a good number, but stocks don't care.  Stocks are bouncing around the flat line as we await the ISM Services sector report due any minute now.  If that number is ugly, we are going down further.  The other reports this week - ISM Manufacturing, and the consumer income and spending report, were both negative.  I would expect the services sector report to be equally negative.  We have also had a 60% increase in companies reporting job cuts to come, so we will have to push through that in the coming months, even if Friday's employment report isn't so bad.  The ADP report has not lined up well with the Commerce Department report in the past few months, so I can't really say that the ADP report makes me feel any better about Friday's report.I think, even if the Friday unemployment report is positive, stocks will still probably sell-off.

Tuesday, August 2, 2011

Another bonehead makes another overly optimistic prediction

David Kotok, Chairman & Chief Investment Officer of Cumberland Advisors told CNBC on Wednesday that he expects the S&P 500 to end the year at 1450.  His flawed reasoning is that he believes now that we have a deal on raising the debt ceiling, that somehow this translates to a peak in the national debt, and that the focus will now turn to other things, such as corporate profits.  Wrong!  Even the rosy expectations of the architects of the debt ceiling deal in Congress are only predicting a reduction in the budget deficit of about $2 trillion or so over the coming ten years.  This means that every year of that ten years, and very likely well beyond that time-frame, we will be adding hundreds of billions if not trillions of dollars to the national debt.  This is in addition to all of the interest expense we incur each year to service the debt, which we have to issue additional bonds to cover, since we don't have the money to pay a penny of the principal or a penny of the interest.  Why on earth would Kotok believe that the national debt has peaked??  Far from it.  

I will admit that the investing public has a very short attention span, so after we get past this period of uncertainty surrounding the debt ceiling, they will likely forget about that one problem.  However, the real issue we are struggling with now, and the real reason the market got ht today, has nothing to do with debt, and everything to do with the economy and specifically unemployment.  The ADP report and more importantly the Commerce Department report on Friday on unemployment are the key points of uncertainty which are weighing on the markets.  

Don't be fooled by these so-called experts that don't seem to be able to comprehend the bigger picture issues that appear glaring, serious, and difficult to deal with under our current economy conditions.  We saw the spending report today that showed that consumers are not spending and are saving more already.  The more concerned they become with their job and with the state of the economy, the less they will spend.  This is the risk of a double-dip recession, and it is real, pressing, and comes with a lot of baggage.

As I have written, I do not believe we will see 1,450 by year end.  Keep in mind we are in a down trend right now and it is already August.  I see the markets headed lower in the short-run, but believe we will get a bounce of some magnitude.  I will be buying this week, especially if the market goes lower.  I feel comfortable putting cash to work at current levels or below.  A rally back to 1,350 would be an 8% run from here, and maybe 10% from where I think we are headed. Certain sectors within the overall market will do much better than that, if we get that move to 1,350.  I will be more than satisfied with that!

Layoffs could signal a double-dip, or a fundamental shift

Recently we have seen multiple companies in multiple industries laying-off workers at an alarming pace, including HSBC, a major global banking firm, that just announced this week that they were dumping 30,000 workers.  On Friday Merck announced that they were kicking 13,000 to the curb, while Borders, which is bankrupt, is sending 10,700 to the unemployment lines.

We saw GDP come in last week at an anemic 1.3%, far, far below what most economists and analysts had previously expected, including the mighty Goldman Sachs, which recently cried uncle and dropped their 2011 GDP estimate from 3% to 2% (they are still too high).  Goldman still maintains a 1,405 target for the S&P 500 by the end of 2011, which wasn't looking so unachievable a few weeks back when the S&P 500 was above 1,350, but at 1,250 looks like wishful thinking.  That target would represent a 16% advance from where we are today, and we are not at the bottom, unfortunately for them.

The layoffs could signal a growing risk of a double-dip recession, which I have written about extensively.  While I still think a double-dip is entirely possible, I am not convinced that these layoffs should be interpreted to mean that companies, even the ones doing the layoffs, are performing poorly.  On the contrary, all evidence points to companies doing better, not worse.  We have seen strong earnings reports for several quarters, going all the way back to the third Q last year.  More impressive is the fact that in the most recent quarter, we have seen the majority of companies reporting top-line revenue gains that strongly indicate that people are spending money in the economy.

This leads me to the conclusion that companies are not laying people off because they think the economy is bad today, or more importantly because they think the economy will be bad in the future.  These layoffs tell me that companies are facing increasing competition, made even worse by the weak dollar, which is drawing more and more companies from outside the U.S. into our markets, and this increasing competition is forcing companies to cut costs anywhere they can.  Add to that advancing technology which allows companies to do what they do with fewer humans, and you have a recipe for higher unemployment.

This trend, unfortunately for those looking for work, is not going to necessarily improve with our GDP growth rate.  Unemployment will only improve if and when new companies are being formed at a brisk pace, driving demand for workers.  New companies will not be able to get off the ground though, unless the tax code and healthcare costs are reined-in to incentivise people to take risks with their capital, time, and efforts.  The current climate, economic, financial and political, is not conducive to entrepreneurship.  Without new businesses, I do not believe we will see unemployment coming down; at least not until or unless GDP growth rises well above 3%, which I do not expect to see before 2013 at the earliest.

And then panic set in

Panic selling has pounded stocks today, driving the Dow below 12,000 with a decline of 265 points today.  The S&P 500 closed down 33 at 1,254, right above that magic 1,250 I have been waiting so patiently for!  Many investors are selling just because the market is declining.  While this is foolish, it is also providing an opportunity for those with cash (like my clients).  We have the ADP employment report coming tomorrow, and the government employment number on Friday.  That is what everyone is worried about, and could push stocks down a lot lower.

You will hear all kinds of explanations (excuses) for why the market is going down including the debt situation here and in Europe, the possibility of a double-dip recession, inflation, commodity prices, blah, blah, blah.  The reality is that if stocks were fairly priced, they would not get hammered.  Stock prices are inflated (or at least have been before this 100 point drop on the S&P 500), and that's why people are selling.

I will be putting some cash to work this week, unless we rebound sharply.  Investors with long-term time horizons should have a well-defined strategy and should be looking to add to positions at these more attractive prices.  If they don't, they will be kicking themselves when we rally back up.

Last hurrah for gold

I have already written about gold being in a bubble, as are all commodities, but this issue bears repeating - gold is grossly overpriced and will crash.  At $1,640 or so this morning, we are seeing the last push of the shinny metal before the realities of inflation taming actions by the Fed, slow growth, and a deal on the debt ceiling signal the start of spending cuts and higher taxes.  Gold benefits from uncertainty and inflationary fears, two drivers we have experienced in spades.  When the music stops, make sure you have a seat!