Being Street Smart, By Sy Harding
Being Street Smart, By Sy Harding
Nov 10 2011, 03:51 PM
Joined: 20-August 03
From: Cincinnati, OH
Member No.: 1
Our Seasonal Timing Strategy™ is now in its favorable season, and 100% invested, its entry signal triggered Oct. 14. Our non-seasonal Market-Timing Strategy remains on the buy signal of October 27. We are on a buy signal for gold from October 26, and remain on the sell signal for U.S. Treasury bonds of October 19.
November 9, 2011. DJIA: 12,170; S&P 500: 1,273; Nasdaq: 2,727 (11-8-11 close).
Isn’t it interesting how the market rarely does what it’s “supposed” to do. Or as the old saying goes; “The market will do whatever it must to fool the majority.”
In the November issue of his ‘Investor’s Edge’ news-letter, my friend and friendly competitor Joe Shaefer talks a bit about it.
To quote Joe, “We see it in the market every day. Peo-ple who “know” that gold “must” go up to $5,000, or “must” go down to $100 an ounce. Or they “know” that a certain sector or industry or stock is overpriced and “must” decline. Or that a certain company “has to” be a ten-bagger. They become ever more stubborn and angry the more their certainty begins to fray in the harsh light of reality.”
That got me thinking about the unusual last decade, how the ‘big picture’ things have also not worked out as popular opinions and analysis said they would “have to”.
In 2000, it was a “sure thing” that the federal budget surpluses of 1999 and 2000 would continue, allowing the entire U.S. federal debt to be paid off by 2012, Social Security to be fully funded, and significant improve-ments made in healthcare availability.
It was especially a “sure thing” because the collapse of the Soviet Union, and decade of peace in the 1990’s, would allow further big reductions in defense spending and the U.S. military presence around the world.
Instead everything went in the opposite direction, with two recessions, two wars, and the return of record budget deficits. Then the Great Recession of 2007-2009 “had to” worsen into the next Great Depression because the massive rescue and stimulus efforts (begun by the Bush Administration and continued by the Obama Ad-ministration) “absolutely” could not work.
For several years it’s also been that the increase of high frequency trading, and use of leveraged derivatives would “have to” result in a market crash.
And if those didn’t cause it, the spreading European debt crisis would.
For the last two years it’s also been that the economic and debt problems facing the Obama Administration, coupled with its “inept” policies, would “have to” bring another big recession, probably a Depression, and a se-vere stock market collapse.
I don’t want to jinx the current situation, but none of these ‘big picture’ sure things have come to pass yet, some unfortunately, like peace and continued budget surpluses, and others, like a Great Depression and market crash, thankfully.
And here we are with a positive stock market for three straight years, even defying the history of the Four-Year Presidential Cycle, in which a serious decline usually takes place in the first or second year (or both) of a new Administration.
Anything can happen, and according to Murphy’s law eventually will. But its obvious that trying to time the economy or market based on big picture opinions and analysis doesn’t work in either direction.
The current outlook:
Concerns over the eurozone debt crisis, and slowing economic growth in Europe and parts of Asia are dominating the market on a day-to-day and week-to-week ba-sis as reports vacillate between encouraging and discour-aging news. It continues to create nervousness and vola-tility even as reports increasingly indicate the U.S. econo-my has bottomed and a nascent recovery is underway.
In the last couple of weeks those U.S. reports have included that economic growth accelerated in the 3rd quarter, GDP growth coming in at an annualized rate of 2.5%, after only 1.3% growth in the 2nd quarter, moving nicely away from the recessionary trend.
Moving into the 4th quarter, auto sales were strong in October, 7.5% higher than October of last year.
And while last Friday’s employment report was that only 80,000 new jobs were created in October, a bit short of the 90,000 that were forecast, there were substantial upward revisions to previous reports. The number of jobs created in September was revised to 158,000 from the previously reported 103,000, and hiring in August was revised up to 104,000 new jobs from the previously re-ported 57,000.
Also on the jobs front, the Labor Department reported yesterday that job openings in U.S. workplaces rose al-most 10% to 3.35 million in September, the highest level since August 2008, with overall job openings rising to 22% above a year ago.
And our intermediate-term technical indicators are on a buy signal from October 27.
The market is in its favorable season, and in the usual-ly positive three-month period of November, December, and January.
And after reaching very bearish and pessimistic levels usually seen at market lows, investor sentiment has be-come more bullish, but is still well below the bullish and euphoric levels usually reached before rallies top out.
But if the market needs a traditional wall of worry to climb when it rallies, it certainly does have that with the eurozone debt crisis. And:
Big Picture Concerns.
Big picture concerns remain and are not to be this-missed as unimportant.
Record government debt in Europe and the U.S. are monstrous dark shadows overhanging the future. No one knows if or when or how they will evolve. Mishandled they could easily result in global economic collapses.
The precarious condition of banks, with unknown debt risks, since they have not been required to ‘mark to mar-ket’ the real value of foreclosed properties, or their expo-sure to mortgaged-backed securities and derivatives.
The condition of the housing industry (along with the auto industry the most important driver of the economy) now mired in a five-year long Great Depression of its own. Still held down by the extra million homes built during the housing boom for which there were not enough potential home-buyers, a fact that was obscured by the willingness of ‘investors’ to snap them up on hopes of flipping them for a profit.
And the dismal fact that close to 25% of actual home-owners not in foreclosure owe more on their mortgages than their homes are worth. How will that end?
In the background, is the high level of unemployment and decreased ability of a growing segment of the popu-lation to contribute to economic recovery.
Add to these that we are still in a secular bear market that began at the market peak in 2000, and probably has several more years to run, during which buy and hold investing is likely to continue to be ‘dead money’ at best.
More than enough ‘big picture’ worries.
As noted on the previous page, the market cannot be timed by big picture analysis. It takes too long to play out and often undergoes changes and unexpected reversals before it can. As they say, life is the reality of what hap-pens while long range plans are being made.
While the current ‘big picture’ is worrisome, the econ-omy continues to cycle between slowdowns, even reces-sions, and recoveries, the stock market between corrections, even bear markets, and sizable new rallies, from which profits in both directions can be made.
Our Seasonal Timing Strategy currently is in its favor-able season, since its re-entry signal on October 14, and is 100% invested. It’s up 14.7% for the year so far, com-pared to the S&P 500 being up 1.6% year-to-date.
Our non-seasonal Market-Timing Strategy remains on its new buy signal of October 27. So far it’s also up for the year, about 9%, primarily thanks to downside posi-tions against the stock market during the summer months, long and short positions in bonds as signals changed, and a profitable trade in gold.
More at http://streetsmartreport.com/index.php
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