August 2007 Market Timing Update
"Stocks tend to Fluctuate"
- J.P. Morgan
Update: An E-Alert from the Guru:
S&P 500 Index close: 1411.27
In our view, the stock market is currently in the process of forming the area of the S&P 500 Index correction low for calendar year 2007. Correction bottoms are frequently accompanied by a high level of stock market volatility and negative financial news, and both of these factors contribute to the formation of the bottom.
One of our key sentiment gauges, the 60-day put/call ratio, closed today at its historic record high of 1.06. This reading shows extreme pessimism for this contrary indicator, which places it solidly in the positive category.
The Marketimer © stock market timing model © is currently in highly favorable territory.
Any further testing of the area of the correction lows, which we expect to be close to the current S&P 500 Index level, is regarded as an additional buying opportunity for subscribers looking to add to stock market holdings.
Marketimer © expects the S&P 500 Index to register new historic record highs as we move forward into next year.
Bob's outlook into 2008 is positive. He notes as J.P. Morgan is quoted, "Stocks tend to Fluctuate."
He put out an alert suggesting people with money to invest in the market do so in the S&P mid 1400's range..
Economic Market Indicators
Real GDP rebounded to an annual rate of 3.4%. This is much better than the pathetic .6% in the first quarter of the year.
The sorry state of the housing market is more than likely to keep growth from accelerating too much and spooking the inflation phobic fed.
The fed funds rate of 5.25% is likely to continue into the near future. Bob says if they actually reduce rates, he will be first in line to congratulate them on getting it right for once.
Hie is not real pleased with the FOMC statement, "......readings on core inflation have improved modestly in the recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated."
The fed remains paranoid about inflation, to the detriment of the economy and the country.
30 year T-Bills will remain within the 4.75 to 5.5% zone.
The 60 Day Put-Call ration is very high at 1.0, which is a contrary indicator. Bob thinks is a good sign and sees no major market declines in the 20% range in the near future.
He is maintaining his bullish rating and estimates the froward PE ratio estimated in the range of 16x17 times operating earnings. As August begins, the S&P 500 Index P/E Ratio stands at 14.8 times his 2008 earnings estimates.
Buy on weakness and dollar cost average in otherwise.
No changes to the personal portfolio this month. One thing I did do was sell RINN at $2.00 over the purchase price and then bought back a couple days later when the stock tanked a dollar plus. I should have held out a bit longer.
OC has been tanking lately and I think it is because of the sub prime mess. Their earnings announcement was good and things are on the up and up. The company is diversified more globally than many of its competitors. I would be a net buyer right now if I had more funds available and I didn't go much over 4% of the total portfolio.
I don't listen to a lot of Cramer, but in this instance I thought he was spot on.
He blew up on Friday and went after the Fed and their do-nothing attitude in the face of Bear Sterns, sub-prime loans and the economy in general. Here are a collection of clips from August 3.
|A Personal Commentary
Several years ago I was looking around for some information on RYMKX, a mutual fund which leverages the Wilshire 2000. I thought at the time having a position in such a fund might be quite profitable (turns out I was right).
The only information I could find was some commentary by a guy I thought was named kalostrader.
It happens to still be out there:
I found another interesting commentary on Analysts:
After that I started reading his monthly trading journals. I particularly enjoyed his photos and personal opinions in general. His investing style is about 180 Degrees out from anything I would consider ever doing, but it is enjoyable and instructive to see another well expressed point of view.
His monthly journals gave me the idea for doing something like that myself.
At any rate, I hadn't looked at any of his journals since the beginning of the year and was surprised to find they had been discontinued.
I was quite disappointed. The man had talent.
I sent him an email which expressed a belated thanks for taking the time out to provide his opinion on finance, politics and the world in general and said I for one, would miss the monthly journals.
He sent me an email back thanking me and said he was going to be somewhat incapacitated due to some partial knee replacements but he might resume his writing when he got to feeling better.
At any rate, his name is Joel Williams and the index page is http://www.actwin.com/kalostrader
If you like his site, journals and opinions and would like to see more, do me a favor and let him know.We are often too quick to criticize and too late to compliment.... and then it is too late.
Well I'll be...........
I received an email from Mr. Williams himself regarding subprime loans and Bear Sterns. This ties in quite nicely with Bob Brinker's Radio show yesterday ( 08-05-07 - a link is on the main index page).
At any rate, he has a few words to say about the subject:
Subject: Warning on Money Market Funds
So far as market timing is concerned, I think that concentrating on the price action rather than internals, interest rates, etc. is the way to go. Currently we are in a mess because of the sub-prime stuff, which is stuff that should never have been loaned in the first place.
So we know what happened: a bunch of guys found ways to loan money to people who had terrible credit. They made the terms excellent at first, but bumped up the interest rates after a while. They also probably put in pre-payment clauses. Then when the inflated prices of housing came down, there were defaults. Meanwhile, guys at Bear Sterns and elsewhere borrowed a huge amount of money to buy these loans and package them to wealthy guys who are also greedy and stupid. These funds went belly up, and are now worth essentially nothing.
Remember the saying: "You can't cheat an honest man"? But you can take advantage of somebody who is greedy.
Meanwhile, AXA has had to "invest" - translation "give away" some of its own money because a couple of its money market funds have shown losses of about 21%. They invested in sub-prime stuff. Do the math from the article: The funds are down 21%, and they were 41% in sub-prime. If the sub-prime accounted for the losses, then the value of the sub-prime stuff has been cut in half.
It is probably best to take your money out of money market funds, no matter whose, and put in treasuries, or a money market fund that invests only in treasuries. Remember that you do not really know what those guys are doing with your money.