Almanac Investor Alert 7/27/6

Almanac Investor Alert - 7/27/2006

*** California Dreamin’ ***

Weekly Changes

DOW 11100.43 172.33 1.58%
S&P500 1263.20 14.07 1.13%
NASDAQ 2054.47 15.05 0.74%

When you constantly monitor the pulse of the financial world, as adroit investors do, you often lose perspective on the sentiment that “ordinary investors” have with regard to the stock market. After all, not everyone waits for the EIA data or the most recent NAHB release with bated breath.

Cross-country air travel is a nuisance to say the least; but it does offer you a unique opportunity to acquire insight into what individuals from across the globe think about the markets. The best place to do this is the Presidents Club (or whatever your airline calls their private waiting room). In front of the TV airing CNBC or Bloomberg you will likely find someone who generally has a vested interest in stocks. Moreover, they are probably bored out of their minds waiting for a plane and often would like nothing more than a good conversation.

On a recent trip to Los Angeles we came away with two main observations. In fairness and due diligence the canvassing was far from scientific or calculated. This is nothing more than raw experience.

1) The majority of people who considered themselves investors own mutual funds and not individual stocks. In actuality they have no real idea of what they own. For example, they know that the Fidelity Emerging Markets Fund is in their 401k, but don’t know what countries they have exposure to. Or they have a Vanguard Large Cap Growth Fund, and know what was in it when they bought it, but currently don’t know the top-five holdings. However, they do know what is on the bottom line of their quarterly statement.

Sure they know about what headline stocks are doing. You can talk Google and GM with them, and they might have a small position in their holdings, but a staggering amount of cash in this country is being left at daycare. Many individuals have their life’s savings and retirement in the hands of professionals and that is a good thing. But the fact that they have no real grasp of what they own struck us as odd and seems precarious. If you left your child at daycare you sure would know how they were spending the day.

2) There is too much sanguinity and confidence for a bona fide bottom. Optimists greatly outnumber pessimists and the pessimism is more like concern rather than blatant negativity. Pundits are looking for and trying to call the bottom. But bottoms never have and probably never will form with this many cheerful investors.

One more thought occurred while exploring beautiful LA. If the California power grid is indicative of the overall state of electrical power distribution systems of this country, we are in big trouble. It is time to begin questioning the blatant neglect and obvious state of disrepair much of the infrastructure of the United States is in.

We are staying the course and remain firmly embedded in our bear fortress of cash, bonds, and puts. Rallies are nothing more than powerful up days with little or no follow-through that resemble oversold spastic moves up fueled by the longs squeezing the shorts; a tug-of-war that the bulls are furiously fighting but are destined to lose.

The trend of lower highs and lower lows persists while market internals deteriorate. As far as the state of geopolitical affairs and their potential impact on the market, these are most dangerous of times. [We see] no good reason to be exposed to equities right now, but with every passing day we are closer to a major buying opportunity.

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
The next issue will be available after the close on August 17, 2006.