October 2008 Archives

Another brutal selloff yesterday but we're getting close to my target zone.  My daily timing model issued a few BUY signals last Friday and the volatility indicator breached 7.  Crazy. I'm curious to see what my weekly timing model says today when I reach the office and update it. All this crazy volatility is due to forced selloff's by funds and investors but its got to end sometime.  My simulations show that 800 is an important level on the S&P500 followed by a test of the 700 level.  I believe that the bottom is somewhere between that range.  If that analysis is correct, then we are looking at a 50% sell off!  That's where I'm firing my last $$$ salvo into our 401K's and sitting tight.

Now's a good time to buy a second property, if you can get a loan IMHO.  I have never seen the banks littered with so many bank owned properties, ever.  Don't know where to find them?  Have a look here.

Argentina set up a national retirement system back in the 90's and I've read numerous reports on how wonderful it is because it helps Juan six-pack not worry about the future.  The Government is looking out for those unfortunate people who don't know how to manage money but want to retire one day.  I wonder what Juan is thinking about that now?

Argentine lawmakers will try to block the government's use of $29 billion in nationalized pension assets to repay debt when they consider President Cristina Fernandez de Kirchner's plan to seize the funds from private money managers.[via Bloomberg]

I know that in the US we borrow from Social Security and other entitlements to pay for overspending but we don't seize funds from private money managers, yet.  I wonder what would happen if Argentina's financial system collapsed and Juan's retirement account can't be repaid? He'd be screwed.

First it was the credit crisis, now its earnings.  When will it stop?

Tokyo's Nikkei 225 tumbled 5.9% to 8,796.10 points in early afternoon trading, as investors nervously anticipated a season of modest to dismal earnings reports and outlooks. Earlier, the Dow Jones industrial average fell 231.77 points, or 2.5%, to 9,033.66, after blue-chip companies posted bleak earnings. [via Forbes]

It'll stop when people throw in the towel.  I thought I saw that recently but people are still too optimistic.  Maybe I'm just a permabear.

This just in.  My timing model issued another SELL signal.  I think we're setting the stage for another leg down.  I sure hope not but I follow my model religously.  My ultimate target is 700 on the S&P500 but we'll probably hang at 900 for a bit.

Trading Forex is a lot like watching Nature.  Its all about the survival of the fittest.  Often when banks intervene in a currency to halt its slide or stop its appreciation, the result is an outlier in the overall trend.  As money floods or leaves the system, the currency will be shocked into the opposite direction.  After a few days or hours, the same trend reasserts itself and the country would've wasted all that time, energy, and money. Interventions in the stock market are a lot like Forex interventions.

The trillion-dollar infusions by the U.S. and European countries into their financial systems didn't seem enough Wednesday to fuel more than a two-day rally. Major Asian markets fell on disappointing earnings and worries about a global recession.[via Forbes]

Why should this time be any different?  My targets for the S&P500 are still at 900 then 700.

I've been thinking of holding a "Introduction to Rapidminer" webcast.  Can any of my readers suggest a good webcast tool (free or pay)? I don't have any date in mind but it will have to either be before my vacation in December or after.  I plan on going over the GUI, basic operators and experiment structure, and building a simple model from scratch. Is there any interest out there for something like this?  Please drop me a comment.  Thanks.

Lately I've been watching Youtube videos of Derren Brown, a UK mentalist.  He uses techniques of pyshcology, hypnosis, and I believe neuro-linguistic programming (NLP) to trick people's minds.  His main goal is to show people how charlatans, psychics, and other tricksters can pull the wool over our eyes.  It's a fascinating journey into malfunctions of our mind and it reminds me a lot of the Invisible Grip.

Or did I mean Wall Vegas?  Now that its after the fact, everyone wants to take the Las Vegas out of Wall Street and return to a kinder and more advisory role for clients. But to do so, you'll have to make some harsh changes to allowable leverage and even get rid of some financial instruments.  Charlie Munger, Warren Buffet's sidekick, suggests we ban all options!

To rid Wall Street of its Las Vegas tone, Munger suggests leveling the options exchanges in Chicago and New York, and banning completely all derivatives contracts, a rather impossible vision but one that's true to his spirit. He's also furious with the accountants, in particular for letting Wachovia (nyse: WB - news - people ) report actual profits on accrued interest from risky mortgages when, in fact, the interest wasn't paid but added to the principal amount due on the mortgages.[via Forbes]

The idea to return to a more normal role for Wall Street institutions and sounder accounting methods is a great one and I welcome it, but I believe options have their place in the market. What are your thoughts?

We took a big step toward nationalization this weekend as the Federal Reserve and Great Britain decided to inject taxpayer money into the banking system to stabilize things, emphasis mine.

Before markets opened in Europe, a statement from the Federal Reserve in Washington said that it, along with the Bank of England, the European Central Bank and the Swiss National Bank would provide funds at a fixed interest rate in advance of each operation “against the appropriate collateral in each jurisdiction.” The Federal Reserve said it would increase its swap lines with those central banks “to accommodate whatever quantity of U.S. dollar funding” institutions demand. The Bank of Japan was considering joining the plan, the Federal Reserve said in a statement. [via NY Times]

This bailout plan is probably going to work but it will come at the expense of the US Dollar and a lot higher inflation.

I had the pleasure of meeting Ralf Klinkenberg, founder of Rapid-I, this weekend in New York City.  He was in town finishing up the first set of Rapidminer training courses and he dropped me an email to see if I had some time to meet. We talked about the birth of Rapidminer (formerly Y.A,L.E.), why he started it, what's the ultimate plan for Rapidminer, and their growing team in Dortmund. We had a good long talk over Malaysian food and decided to strengthen ties between Rapid-I and Neural Market Trends.  We even talked about the possibility of me co-presenting one of their financial training courses next year.  I must say, I walked away rather excited about the possibilities and I look forward to growing our relationship in the future! Oh BTW, Ralf will be back next week in NYC for more Rapidminer training courses.  The courses he's presenting focus on an introduction to datamining and financial datamining and analysis.  I'll post the exact list of courses and availability on here later, so check back!

After a week like this, I'm glad the weekend is here.  I need time to relax and not think about this imploding market.  Although things are really bad out there, and will likely get worse before its over, I'm pretty upbeat.  I'm upbeat because I believe we will see a once in a lifetime opportunity to buy some great, and surviving, companies.  The hard part is figuring out when to get long. Just like countless others investors out there, my money is trapped in a 401K, and its painful to watch years of gains evaporate.  Although timing the market by averaging down, I'm still showing a big short term loss.  Many of my co-workers don't have that luxury and are extremely stressed, especially those who planned on retiring in the next 5 years. If things are stressing you out, I want to offer this piece of advice to you.  The most important thing you have in your life is not money, but your health and family.  It's in these darkest hours that we need to support each other and invest in humanity.  Be calm and be at peace.

I hope.

While Nouriel Roubini comes across as a bit of a kook sometimes, he does make a valid point about investing in infrastructure rather than buying troubled assets as a way to help us get out of our current financial mess.

If the private sector does not spend and/or cannot spend, old-fashioned traditional Keynesian spending by the government is necessary. It is true that we already have large and growing budget deficits; but $300 billion of public works is more effective and productive than spending $700 billion to buy toxic assets. [via Forbes]

As an Austrian School of Ecomomics believer, I feel that the government should just be in business to create policies (i.e. taxes) and incentives that encourage private entities to build new infrastructure using their money instead of the governments.  Why keep spending our way to another debt ridden future?

I believe that we are fast approaching a bottom based on my market timing model and simulations.  I know I've said that before but these levels of panic can't sustain themselves for long without some sort of capitulation.  Below is a superimposed weekly chart (from 1990 through last week) of the my market timing indicator relative to the S&P500. It's a pretty good indication that some sort of top (not necessarily thee top) was made if a rapid rate of change in the indicator occurs while simultaneously making a new high.  Usually at these times I like to skim some profits and put them in bonds or cash. Likewise, if the indicator experiences a massive rate of change while simultaneously making a new low, you have a pretty good idea that you've made a new bottom of sorts.  The timing model can't tell me if I've made the BIG top or bottom, so I have to rely on other models to tell what that probability is and gauge how much money to take out or put into the markets. Granted, we are seeing things in this market that are unprecedented but my model seems to be coping farily well.  The scary thing is I just watch my indicator blow through the 3.0, then 4.0, and now approach the 5.0 level without blinking.  These markets are in a free fall and I'm feeling the pain! So how far will she go? A hastily drawn yellow trend line on the chart shows the S&P500 finding support around the 1000 level first and the model issued a major BUY signal at the level.  Unfortunately we've already blown through 1000 so the next level of support, from inspecting the previous BIG bottom in 2003 is around the 800 level.  Then using my Genetic Algorithm model and Monte Carlo simulations, I come up with my most probable BIG bottom.  That's the 700 level, more than 50% off the all time market high. Could it go lower than 700, you bet!  But I'm willing to dump more money into my 401k at that level and then hold on tight.

After watching yesterday's market plunge, followed by the 9.4% selloff in Tokyo last night, I'm thoroughly convinced that the race for the bottom is in on.

In Japan, the benchmark index dropped the most in 21 years as investors were chilled by a report in the Nikkei business daily based on unnamed sources that asserted that Toyota's profit was likely to fall around 40% in the year to next March on weak sales in the key North American market and slower growth in China--far worse than the automaker’s previous forecast. [via Forbes]

As I said before, my simulations show a race to 700 for the S&P500.  I still have a little bit of cash left to inject into my 401k at that level.  If it goes lower I'll be injecting my capital into new shotgun, spam, and toilet paper.

The only bright spot I can see for our economy is lower oil.  It's sure to help with heating costs this year as people struggle to heat their McMansions or fill the tank on their Hummers.

``Sentiment is extremely pessimistic, people believe we'll see a global recession despite the measures being taken by governments,'' said Jochen Hitzfeld, an analyst at UniCredit Markets & Investment Banking. ``Many commodities like platinum, agricultural commodities or gasoline have fallen below their production costs.''[via Bloomberg]

It might be time to buy a bicycle and start walking to the grocery store.  This market crash in equities and commodities will rewrite human history, as it did in 1932.

I don't condone violence but this is funny.

“From two very senior sources – one incredibly senior source – that he went to the gym after … Lehman was announced as going under. He was on a treadmill with a heart monitor on. Someone was in the corner, pumping iron and he walked over and he knocked him out cold. And frankly after having watched this [ed. Fuld's testimony], I’d have done the same too.” [via Businesandmedia]

I wonder if some other "unlucky" CEO from another failed institution were to be dragged into the streets and beat to a bloody pulp, would other CEO's still be as eager to engage in risky investments in the future?

The Market Crash of 2008 continues.  I watched the carnage unfold on my market model in real time and I've never seen this level of panic before.  Scary.  The VIX touched 58 yesterday, a new all time high.  It probably would've touched 60 if we went any lower than the lows yesterday. Everyone at work is scared about their 401k's and pulling money out. What did I do? I upped my  % contribution yesterday.

My friends, these are the times that try men's souls.  I believe we are starting "the race" to the bottom (or not).

``We're seeing panic all over the markets right now,'' said Javier Barrio, head of equity sales for Spanish clients at Banco BPI SA in Madrid. ``Governments are taking steps to try to reduce investors' fears but confidence is weak.''[via Bloomberg]

The scary thing is that one of my simulations show the S&P500 could reach 700 rather quickly.

I remember Warren Buffet getting long Yen about a year or two ago.  Was he lucky or just shrewd?

After seven years of providing the cheapest source of funds for investors buying higher-yielding New Zealand dollars, Australian dollars and Brazil reais, the yen is appreciating as $587 billion of subprime mortgage-related losses force banks to restrict credit. It strengthened 4.4 percent on a trade-weighted basis in September, according to the Bank of Japan's effective exchange rate, the most since August 2007, when the seizure in capital markets began.[via Bloomberg]

Shrewd is the answer.

I know this was so last week but CitiGroup is buying Wachovia's banking business.  Whether or not its a smart move remains to be seen but things *might* be turning around for this bad boy.  Any glimmer of hope is welcome news to long term shareholders, like myself.  What'll make me feel really good is if CitiGroup (C) can get back above the 50 WMA.  At least my $20 average cost positions would offset my $40 average cost positions.  :)

Update: I must be cursed.  Right after I posted this, news comes out that Wells Fargo wants to buy Wachovia in its entirety.  Ugh!