Saturday, May 5, 2012

Bob Farrell’s 10 Rules for Investing

Wall Street “gurus” come and go, but in the case of Bob Far­rell leg­end sta­tus was achieved. He spent sev­eral decades as chief stock mar­ket ana­lyst at Mer­rill Lynch & Co. and had a front-row seat at the go-go mar­kets of the late 1960s, mid-1980s and late 1990s, the bru­tal bear mar­ket of 1973–74, and Octo­ber 1987 crash.
Far­rell retired in 1992, but his famous “10 Mar­ket Rules to Remem­ber” have lived on and are sum­ma­rized below, cour­tesy of The Big Pic­ture and Mar­ket­Watch (June 2008). The words of wis­dom are time­less and are espe­cially appro­pri­ate at the start of a new year as investors grap­ple with the dif­fi­cult junc­ture at which stock mar­kets find them­selves at this stage.
1. Mar­kets tend to return to the mean over time
When stocks go too far in one direc­tion, they come back. Eupho­ria and pes­simism can cloud people’s heads. It’s easy to get caught up in the heat of the moment and lose perspective.
2. Excesses in one direc­tion will lead to an excess in the oppo­site direc­tion
Think of the mar­ket base­line as attached to a rub­ber string. Any action too far in one direc­tion not only brings you back to the base­line, but leads to an over­shoot in the oppo­site direction.
3. There are no new eras – excesses are never per­ma­nent
What­ever the lat­est hot sec­tor is, it even­tu­ally over­heats, mean reverts, and then overshoots.
As the fever builds, a cho­rus of “this time it’s dif­fer­ent” will be heard, even if those exact words are never used. And of course, it – human nature – is never different.
4. Expo­nen­tial rapidly ris­ing or falling mar­kets usu­ally go fur­ther than you think, but they do not cor­rect by going side­ways
Regard­less of how hot a sec­tor is, don’t expect a plateau to work off the excesses. Prof­its are locked in by sell­ing, and that invari­ably leads to a sig­nif­i­cant cor­rec­tion eventually.
5. The pub­lic buys the most at the top and the least at the bot­tom
That’s why contrarian-minded investors can make good money if they fol­low the sen­ti­ment indi­ca­tors and have good tim­ing. Watch Investors Intel­li­gence (mea­sur­ing the mood of more than 100 invest­ment newslet­ter writ­ers) and the Amer­i­can Asso­ci­a­tion of Indi­vid­ual Investors Survey.
6. Fear and greed are stronger than long-term resolve
Investors can be their own worst enemy, par­tic­u­larly when emo­tions take hold. Gains “make us exu­ber­ant; they enhance well-being and pro­mote opti­mism”, says Santa Clara Uni­ver­sity finance pro­fes­sor Meir Stat­man. His stud­ies of investor behav­ior show that “losses bring sad­ness, dis­gust, fear, regret. Fear increases the sense of risk and some react by shun­ning stocks.”
7. Mar­kets are strongest when they are broad and weak­est when they nar­row to a hand­ful of blue-chip names
This is why breadth and vol­ume are so impor­tant. Think of it as strength in num­bers. Broad momen­tum is hard to stop, Far­rell observes. Watch for when momen­tum chan­nels into a small num­ber of stocks.
8. Bear mar­kets have three stages – sharp down, reflex­ive rebound and a drawn-out fun­da­men­tal downtrend
9. When all the experts and fore­casts agree – some­thing else is going to hap­pen
As Sam Sto­vall, the S&P invest­ment strate­gist, puts it: “If everybody’s opti­mistic, who is left to buy? If everybody’s pes­simistic, who’s left to sell?”
Going against the herd as Far­rell repeat­edly sug­gests can be very prof­itable, espe­cially for patient buy­ers who raise cash from frothy mar­kets and rein­vest it when sen­ti­ment is darkest.
10. Bull mar­kets are more fun than bear mar­kets
Espe­cially if you are long only or man­dated to be fully invested. Those with more flex­i­ble char­ters might squeak out a smile or two here and there.

This Is How YouTube Is Going To Take Down Television

Watch out television, YouTube's coming for you.
YouTube just held their first ever upfront, Brandcast, where they revealed three new game-changing channels to add to the site. 
The video site already has a few of its own original channels including Machinima,

DanceOn and Nerdist
Machinima, YouTube's gamer channel, has more than 4.4 million subscribers and over 3 billion video views. 
By the end of July, YouTube expects 25 hours of original content on the site every day.
So what are we in store for? Here's an overview of YouTube's three new channels. We've saved the best for last.  (more) 

Gold Miners Still Not Pretty

by Guy Lerner, The Tech­ni­cal Take
I last looked at the tech­ni­cal pic­ture for the Mar­ket Vec­tors Gold Min­ers ETF (sym­bol: GDX) on March 22, 2012.  At that time, prices were near $50, and I was con­cerned that the GDX would roll out of its trend chan­nel and would pro­ceed lower in a water­fall type decline.  This sce­nario appears to be happening.
Fig­ure 1 is a weekly chart of the GDX.  The pink and black dots are key pivot points, which are the best areas of buy­ing (sup­port) and sell­ing (resis­tance).   As stated in the orig­i­nal arti­cle, a close below 3 key pivot points is “a pretty omi­nous sign regard­less of the asset under con­sid­er­a­tion”.   This was an early warn­ing sign of trou­ble ahead, and this break­down point is iden­ti­fied by the down red arrow as prices closed below the 51.95 sup­port level.  Once the 48.74 sup­port level was taken out (up green arrow), prices were rolling out of the down­ward slop­ing trend chan­nel.  This water fall decline will likely end up at the next level of sup­port, which is at 41.83.  Mov­ing to this level also would be con­sis­tent with price pro­jec­tions based upon the prior top­ping formation.
Fig­ure 1. GDX/ weekly

In sum­mary, GDX is head­ing to the next level of sup­port at 41.83.  I would look for prices to sta­bi­lize at this level.

Russia backs return to Gold Standard to solve financial crisis...

Russia has become the first major country to call for a partial restoration of the Gold Standard to uphold discipline in the world financial system....

Chinese and Russian leaders both plan to open debate on an SDR-based reserve currency as an alternative to the US dollar at the G20 summit in London this week...

A long-time friend and colleague had told me early last week that someone he knows who lives in Switzerland said that the financial circles had been buzzing with a rumor that the BRICs were going to unveil a new currency trading/clearing system that would enable the world to conduct commercial trade without using the dollar or the nefarious SWIFT system.

Looks like there may be some truth to that rumor - here's the article:  LINK
I want to point out and correct one egregiously incorrect statement in the article.  The author avers that the dollar inflation caused by the Viet Nam War and the Great Society social welfare programs forced Nixon to "close" the gold window.

Actually what happened was that the Bretton Woods Agreement created a gold-backed system in which the United States could only issue debt to the extent that it had gold to back the amount of debt outstanding. Foreign sovereign creditors had the option of redeeming their debt claims for gold at the Fed "window."  Eventually it became obvious to those paying attention - i.e. Charles De Gaullle - that the U.S. had issued debt well in excess of its gold holdings.  The French began to redeem their Treasury notes for gold.  When it was rumored that the Swiss were going to start doing the same, it became necessary for Nixon to close the gold window or risk a run on the U.S. gold "bank" and being exposed for violating Bretton Woods by issuing more debt there was gold in Ft. Knox to back it.

The rest, as they say, is history.  Many of us have been arguing that eventually the Chinese/Russians/etc would eventually reassert a gold standard.  When this happens the dollar price of gold will do a space launch and the standard of living in this country - for those who don't have any gold and silver - will decline to 3rd World standards...

Frontline Documentary On The Financial Crisis

Frontline aired the last parts of their 4-episode documentary "Money, Power & Wall Street" Tuesday.

Starting where the last week's episodes ended, the new part explores the American government's attempts to reform the financial industry following the crisis, the criticism of the culture of Wall Street and how the risks developed by the financial system has spread around the globe.

Just like last week, the documentary featured an all-star list of experts, including journalists, former Wall Streeters and government officials, allowing the documentary to reflect on the changes since the crisis.  (click here to watch)

Natural Gas Coiling After Upmove

On April 24, with natural gas futures in the 1.970 to 2.028 range, we alerted subscribers to an imminent up-move, writing: "The little speck of an upturn off of last Thursday's decade low at 1.902 into yesterday's high at 2.022 (+6.03%) accompanied by powerful anecdotal oscillator evidence that natural gas is exhausted on the downside, and that we are witnessing the initial up-move within what should be a base building period ahead of a forthcoming bull phase."

Well, it has certainly gotten that move and then some. Now what?
In the aftermath of the two week up-move in natural gas futures from 1.902 to 2.385 (+25%) that exhibited extremely bullish price structure, all of the action off of the May 1 high so far has taken the form of a coil-type of consolidation pattern that has preserved 70% of the initial April-May up-leg, and in itself represents a shallow, bullish digestion period.
The ability of natural gas to hold above 2.200 prior to climbing to new highs should trigger powerful upside continuation towards 2.900-3.000. Conversely, a sustained break of 2.200 has potential to trigger a much deeper correction, into the 2.050-2.000 area prior to my expectation of upside continuation that projects to 2.6500-2.700.
Only a plunge that breaks the April 20 low at 1.9020 will invalidate my constructive intermediate-term outlook for natural gas prices and the ProShares Ultra Long Natural Gas ETF (BOIL).

By Mike Paulenoff

The Breakdown in Crude Oil and Gasoline

Would a decline in Crude Oil prices be good for the S&P 500? The "Power of the Pattern" asked this question on February 27 when Crude Oil stood at $109 (see post here). In the past 60 days, Crude Oil has declined around 8% and the 500 index has become fairly choppy.
The February 27 post reflects a high degree of correlation between the S&P 500 and Crude Oil. Joe Friday suggests that the upcoming action of Crude Oil and Gasoline prices (see post here) could tell us as much or more about the future of equity prices than the jobs report that came out this morning!

When it comes to portfolio construction, having a feel for the future direction of Crude Oil has been very helpful per what amount of monies should be in risk assets. Joe Friday suggests that we should respect the breakdown in Crude Oil and Gas prices this week!


By Chris Lehner, Archer Financial Services

With the wide basis for new crop corn and soybeans, a large majority of Midwestern corn producers are now looking at corn for December delivery at $4.90/bushel, or lower and November soybeans priced at $12.75/bushel or lower.

For decades the United States was the bread basket to the world. After World War II, grain exports from the US were being sent to new ports where, years earlier, battleships were needed for protection and military engagements. The US had the best technology, farmers embraced new methods of farming and acres and acres of tillable land were and are now planted with seeds of science.

However, today the US is just one of the many loaves in the basket. Fortunately, US grain producers have maintained their desire to be stewards of the land and in doing so the US continues to be one of the stronger exporters. There is powerful competition to take market share from the US.

One of the most striking examples of the need to export grain came when the US embargoed wheat to Russia. In 1980, President Carter placed an embargo on wheat sold to Russia because of the Russian invasion of its southern neighbor Afghanistan. In 1980, wheat prices rallied from a low in June to late October because of a dry summer in the US and good demand. Chicago wheat went from below $4.40/bushel to climb over $5.50/bushel. When the embargo was placed on Russia, it took less than a month and a half to give up the entire gain of the summer rally. (more)