Almanac Investor Alert 6/22/6

Almanac Investor Alert - 6/22/2006

*** What s Going On? ***

Weekly Changes

DOW 11019.11 3.92 0.04%
S&P500 1245.60 -10.56 -0.84%
NASDAQ 2122.98 -21.17 -0.99%


We just finished watching the U.S. World Cup soccer team s elimination by Ghana a country 22 million strong, less than a tenth of the U.S. We are casual soccer fans at best but make it a point to watch the World Cup every four years. As kids we kicked around soccer balls on school teams and youth soccer leagues. Some ravenous football nuts have taught us a few of the finer points of the game. In general we enjoy most sports played on a world class level but are not by any stretch, soccer aficionados.

That being said, during this year s tournament we realized that there are some striking similarities between football (now that the US is eliminated, the sport must be referred to as football because no one left in the World Cup could possibly get confused) and the stock market.

First of all, most people in this country watching football have no real idea what is going on. They possess enough information to follow the game that they probably picked up in gym class in third grade. One team is shooting towards a goal and defending a goal and vice versa for the other team, but the true nuances elude them.

The game seems simple enough, but is incredibly complicated. Passing is not random. Defenses set up in premeditated patterns. There are rehearsed set plays. The terms are confusing too. After a nutmeg, the sweeper lays an apple to the winger resulting in a perfect snipe. In retaliation, the Governor of the other team, after losing a 50/50, lays a late UMF Farm tackle resulting in a Red Card. Got it?

The commentators don t help matters either. The truly talented announcers work for Telemundo or Univision. They have fantastic insights and are a joy to listen to. The commentary sounds like a perfectly in tune symphony. The problem is, that unless you are extremely fluent in Spanish, you have no idea what is going on. It sounds great, but means nothing to you.

So you are forced to listen to easier to understand broadcasters, generally ex-players, muddle through 90 minutes of play. They are forced to explain complicated intricacies in layman s terms and thus transform the Joga Bonito into mundane pabulum. Sentanta Sports from the Emerald Isle across the pond provides insightful color commentary in English but is only available on satellite $12 a month from DirecTV.

By now you must be asking yourself what the heck this has to do with investing. The same problem that Americans are having watching the World Cup seems to be prevalent in the investing community. People watching don t seem to understand what is really going on. They don t understand terms, history or strategy that has been helping savvy investors win for decades.

Most investors have little background on historical perspectives of the market and thus don t comprehend market nuances. Sure they know of the crashes of 1929 and 1987 and could tell you that there were some bad bear markets in the 70s, but their understanding of market intricacies is limited. That is why there is such confusion on the Street these days.
The market is up today due to renewed investor confidence based of a confluence of strong forward looking earnings and dovish overtones from the Atlanta Fed. The down market was caused by an inversion in the yield curve in conjunction with a weakening dollar against the Yuan and the Euro and revised earnings from big blue. Got it?

The commentators don t help matters either. The truly talented analysts communicate in protracted prose that are either too hard to understand or too dull to get through. The mass media have excellent analysts, but they are forced to dumb-down complicated situations in between fluff pieces while maintaining their bullish bias as to not offend a public that does not digest negative financial news well.

The best thing to do right now is to get out of the way. There are too many dangerous elements in play on the Street and far too many people that don t understand what is really going on. Worse, a lot of dangerous money in the form of Hedge Funds and derivatives has reportedly flooded the Street lately. These fickle funds will get pulled out of equities faster than World Cup referees whip out a Yellow Card.

We don t need to belabor our bearish stance. Revisit our analyses on housing, inflation, historical patterns, and the effect of war on the markets in recent issues and Alerts. For the record, we hate being bears. We cannot wait to publish an issue of the Almanac Investor with BUY BUY BUY BUY BUY eighteen times across the top as we did in October 2002 and October 1974. But that time is not now. Continue to sell into any rally and consider buying puts, bonds, bear market funds and holding cash.

Stock Updates

GrafTech International (GTI) closed below our Stop Loss of 5.50 on 6/19/06 and was sold.

Wave Systems (WAVX) closed below our Stop Loss of 0.67 on 6/19/06 and was sold.
STANDARD TRADING GUIDELINES!

BUY LIMITS ARE GOOD TILL CANCELLED. ALL STOPS EFFECTIVE ONLY WHEN THE STOCK CLOSES BELOW THE STOP PRICE. ALWAYS SELL HALF ON A DOUBLE.
Please trade carefully.

Those who study market history are bound to profit from it.

Sincerely,
Jeffrey A. Hirsch, Editor & Publisher
J. Taylor Brown, Vice President & Director of Research