Daily Investment Interpretations
November 6, 2008
Another dark day at the bourse. The major indices are down about 5% again today.
They're still significantly above their October 10th lows, but they've given up
about 2/3rds of their recent gains. There's bad news from all quarters. One of
the startling straws in the wind is the precipitous rate at which layoffs are
occurring. Tomorrow will see the latest government numbers on employment (which
are expected to be bad). To lend perspective to this outlook, only a few months
ago, we were being told that overseas economies would continue to buoy U. S.
industry because of its overseas markets, and that this time, the rest of the
world would be decoupled from the U. S. Instead, the whole world is underwater.
The NASDAQ fell 72.94 (4.85%) to 1,608.70, the Dow gave up 443.48 points (4.34%) to close at 8,695.79, and the S&P backed up 47.89 points (5.03%) to end at 904.88. Oil fell today to $61 a barrel in anticipation of reduced demand, while gold lost $10.20 to $732.20. The VIX moved up to 63.38 as the level of angst rose.
The Motley Fool has recommended that no one get back in the market until the Dow surpasses 12,000. The latest Cabot China and Emerging Markets newsletter still recommends a 100% cash position. Its author mentions that current levels of volatility are virtually unprecedented. With the market indices up 11% in one day, and then down 10% a few days later, there's no way to invest with any confidence that we won't be pistol-whipped. The rip tides and cross-currents are just too great.
I've been receiving newsletter solicitations the last few weekends that have been telling me that "Black Monday" was at hand (the stock market was about to tank), and that if I signed up for their newsletter ($995), untold riches could be mine. The first time this happened, four weeks ago, on October 10th, the S&P 500 closed at 899. It then proceeded to jump 90 points on "Black Monday". From there, it worked its way down the rest of the week to close the week at 940.55 on October 17th. That weekend, I received another exhortation to sign up before Monday before the bottom fell out of the market. On "Black Monday", October 20th, the S&P climbed 42 points. The rest of the week it fell, closing at 877 on Friday, October 24th. Then it fell 28 points on "Black Monday", October 27th, hitting its lowest close at 848 (but not penetrating its intra-day low of 840) but rose the rest of the week to close 120 points higher on Friday, October 31st. This last weekend, it treaded water on Monday, November 3rd, rose on Tuesday, and fell on Wednesday and Thursday. Shorting the market wouldn't have paid off, especially if you started that first weekend, when it closed at 899. Its closing price tonight was 905. In the meantime, I've been exhorted every weekend about the imminent market collapse. If I had subscribed to this advice a year ago, I'd probably be a lot better off now, but between then and last spring, I was following the advice of Mark Hulbert's best market timers, who were recommending staying the course. And, of course, if this is the kind of meltdown that occurs once every century... or maybe once every other century... then you can't fault Mark Hulbert's best market timers too vigorously for failing to pick up on this stealthy storm.
By the by, my Roth IRA's had hit $863,000 last October thanks to the option strategies that I had employed coming out of the August pullback. In the absence of the "black swan" event that we're experiencing, my portfolio should have crossed the million-dollar mark within a couple more weeks, at which point, or by the 1st of December, whichever came first, I planned to scale back, setting aside $600,000 in cash, and surfing the stock market with the remaining $400,000. But the highly unexpected happened: we had two corrections in rapid succession, and I'm lucky that I escaped with no more damage than I've incurred. On the bright side, the farther down the stock market goes, the greater the potential for a dramatic recovery. (The only reason for not jumping in now to snap up bargains is that this has been a very rapidly accelerating collapse, and there's no way to be sure just how far down the bottom will be or when we'll get there. Under any other circumstances, I would advise riding it out, and would have more money than I do in the stock market.)
My point in mentioning this is that this was the third time that I've made a killing in the stock market and then lost most (though fortunately, not all) of my gains through well-intentioned but bad advice. This is why I'm hopeful that you can avail yourself of beaten-down stocks and/or mutual funds to recoup losses you might have incurred over the past year. But not yet. And of course, this wouldn't work if too many people tried the same ploys at the same time. (If everybody tried to buy at the same time, they would drive up the prices of the stock(s) or ETF(s), and if everybody tried to sell at the same time, they would drive down the prices of the stocks or ETFs.)
Right now, with the VIX at historic highs, option premiums tend to make options fool's gold in my opinion. In the meantime, ultra-ETF's are my preferred vehicles for navigating these treacherous waters, but right now, even these are off-limits for me, except for hedging those stocks and mutual funds that I don't want to sell... e. g., Suntech (STP), First Solar (FSLR), the Wilderhill Clean Energy Fund (PBW), and Vestas Wind Systems (VWSYF).
Meanwhile, from Mark Hulbert, Shades of Camelot? Let's hope not, and from Peter Brimelow, Brimelow on profiting from street smarts.
If I sound as though I really know what I'm doing, please don't be taken in by my line of patter. I've made catastrophic blunders, like selling my Baidu (BIDU) at $106 to buy KAL Energy Systems (KALG) at $1.40 based on a story I heard on the Internet. I know! Anybody with two brain cells to click together knows better than to spring for a song-and-dance about a stock pushed on the Internet. But shucks, it sounded so convincing!
Then there was buying call options on the iShares China index and riding it into the dirt. But it's late. Maybe tomorrow, I can recount more of my goof-ups. (But don't let Tommie Jean know what kinds of mistakes I've made!)