Friday, May 1, 2009
Decision makers don't have time to study all of the data, yet they make huge decisions every day based on what they believe to be the market outlook. Smart decision makers rely on someone who is unbiased to study all of the data and provide a fair outlook.
National sales volumes have not bottomed, as reported earlier this month. New home sales are falling in all regions of the country. Existing home sales have risen sharply in the West and, while they continue to fall elsewhere, it is at a slower rate of decline in more recent months.
Recent headlines based on Seasonally Adjusted (SA) data are misleading. Reporters have been trained to cover the SA numbers each month. While the SA numbers have merit, they bounce around a lot because of sample size, weather, or other issues such as whether Easter is in March or April. These issues are often addressed in the body of the article, or in the later stages of the TV report, but most people unfortunately do not pay attention to the details.
To get a more reliable (but less newsworthy) picture of the housing market, we track a rolling 12-month total of sales. When the rolling 12-month total line flattens or begins to flatten, year-over-year sales have equaled and the appearance of a bottom is beginning to form. This data has some of the same seasonal issues, but is less prone to the wild and misleading headlines that often accompany the Seasonally Adjusted data. (more)
In some circles, those are fighting words. There are companies that blame all their problems on that kind of trading, which is illegal if it is intended to manipulate the market. There are claims that it has destroyed thousands of public companies, although those making the claims have trouble naming any such companies.
But now, it appears, naked shorting — the practice of selling shares short without borrowing them — is almost gone. The Securities and Exchange Commission’s hurried changes of short-selling rules last fall appear to have all but eliminated the number of companies where such selling seems to be occurring. This appears to be an example of regulation working.
The primary example of the decline in naked short-selling is in the shares of Overstock.com, an Internet retailer whose chief executive, Patrick M. Byrne, has for years been on what he called a “jihad” against such trading. Overstock has sued many Wall Street firms for facilitating such trading, as well as a hedge fund and a research firm that it believes acted illegally in spreading negative information about the company. The suits have not yet gone to trial.The primary evidence of naked short-selling is a large number of trades where shares were not delivered on time, causing a “fail” in Wall Street jargon. Naked short-selling can save a trader the costs of borrowing shares, or can make it possible to short a stock where borrowing is very difficult because so many others want to sell it short. A large number of fails does not prove naked short-selling, since there are other reasons for trades to fail, but such a number does indicate it is likely. (more)
May 1, 2009
Beginning investors are often happy to earn market-matching returns. But given the way the stock market has performed recently, you may have had enough of settling for big losses during down years.
In order to break out of that rut, you'll have to go beyond your comfort zone and start branching out into unfamiliar territory. You don't have to do it all at once, though. Just dipping your toes into new stocks that you've never looked at before will be enough to get you started on the road to better returns.
It's not all or nothing
One common debate among investors involves whether people should stick entirely with passive strategies like index investing or should strive to beat the market by actively managing their portfolios. Proponents of active investing point out that deciding just to match an index's return means suffering big losses during bear markets, such as the 37% loss in the S&P 500 during 2008. (more)
Jim Willie CB
Jim Willie CB is the editor of the "Hat Trick Letter"
Apr 30, 2009
The battle for survival continues, as banks resorted to basic revisionist accounting (aka fraud) in order to claim improved health. Their reward was a financial sector stock rally of the most queer kind. The rally depended on all manner of contrived demand from the most sordid of chambers opposed to free markets, using tactics that are typically abhorrent. Next this beleaguered sector must withstand valuation checks and fair value scrutiny. Unless analyst dissent is declared illegal, the sector should fall in value. The new facade of Stress Tests has filled the void left by Financial Accounting Standards Board (FASB) concessions that led to phony balance sheets. These Stress Tests are neither a test nor a reflection of stress. They are rigged excuses for continued funds, and worse, might be used to coerce healthier regional banks into merging with dead Wall Street banks laced with insolvency and fraud. These ridiculously hollow institutions continue to engage in sales of USTreasurys with rampant failures to deliver funds in order to maintain cash flow, not mentioned in quarterly earnings reports. See a related article entitled "Wall Street Selling Imaginary Treasuries" on Market Skeptics (CLICK HERE). This is called naked shorting, counterfeit, and not even complicated fraud. Imagine selling lemonade at a stand and handing over empty glasses. Regulators remain quiet on the subject, a continuation of permitted fraud from lack of oversight that continues from the last administration to the new. Nothing changed except claims of change. The US financial sector is reminiscent of an army of zombies that usurp the vitality of any firm they come in contact with, aided by a guiding government hand that directs living firms into their snares (and shares). (more)
We don’t take note of the Dow-gold ratio on a daily basis, but for the record, it stands today at roughly 9:1. We mention this because Byron King sent along this chart going all the way back to the year Charles Dow created his famous index of blue chips.
For the uninitiated, let’s back up. The chart measures the number of ounces of gold it would take to buy the Dow Jones industrial average. So in 1980, for example, when the Dow sat around 800 and gold was $800 an ounce, the ratio was 1:1. At the height of the tech bubble in 1999, it was 44:1.
Notice where we are now… and where in all likelihood we’re going based on what’s happened before. “That last drop of gold, from 9 ounces to the 1-2 ounce range,” says Byron, “can bring a lot of hurt to the stock market along the way.”
“One way or another, we'll see, say, $5,000... either $5,000 gold or $5,000 Dow. Even if the Dow stays at the current 8,000, that implies, say, $4,000 gold at a 2-to-1 ratio.”
“It ain't over. Fat Lady is still warming up backstage.”
Byron’s just put the final touches on a strategy to put this trend to maximum advantage. He doubts few people will have the stomach for it, but the few who do will get “miserable rich.” No, that’s not grammatical, but he promises an explanation. Details coming to your inbox later today.