September, 2010 Market Timing Update

money

September, 2010

"We're not trying to push financial reform because we begrudge success that's fairly earned.

I mean, I do think at a certain point you've made enough money.

But, you know, part of the American way is, you know, you can just keep on making it if you're providing a good product or providing good service.

We don’t want people to stop, ah, fulfilling the core responsibilities of the financial system to help grow our economy."

~ Your Teleprompter on Wall Street reform, Quincy, Ill., April 29, 2010

The Professional Opinion

DJIA: 10014.72

Stats:

LEI - Leading Economic Indicators: Increased .1% in July. Is entering a 'slower growth trajectory'.

Economic Growth - Not improving anytime soon with weak housing numbers and high unemployment. Real GDP growth grew at an average rate of 2.7% during the first six months of the year.

Leading Economic Index Indicators:

Up: Interest Rate Spread, Vendor Performance, Avg Weekly Manuf Hrs, Avg Unemployment Claims, New orders on non-defence goods.
Down: Consumer Expectation Index, building permits, real money supply and stock prices.

Coincident Economic Index - Rose .2% in July.

Up: Industrial Production, Personal Income, Manufacturing and Trade Sales..
Down: The number of employees on non-farm agrictultural related payrolls.

4 Week Average Jobless Claims: Stubbornly High - Teleprompters are not the answer to job growth.

Industrial Production: Up and helped out by GM keeping most of its procuction facilities going.

Business Equipment: Up 1.8% in July. Computers and electronics rose 1.1% . Industry leaders predicted a 'Modest Recovery.'

Housing: Not good, although the average median price for home sales has risen .7% to $182,000 and change.

Inflation: None on the horizon.

Summary

A reminder that every mid-term off-presidential year correction over the past 50 years has prodced a rally in the S&P 500 index of at least 27%, making a range of 1275 to 1325 not out of the ball park.

Assuming you wish to take on market risk, stay fully invested and buy on the dips.

Buy Recommendations

Suncor (SU) when you can get it under $33.00 a share.

Comment: I have found that with this stock and a beta of somewhere around 1.7, Suncor makes for a better trading stock than a buy and hold stock. You just need a little patience.

So How have Bob's Funds been doing since 2005?

Fund Performance

This is another reason why I think one could do better with a portfolio of stocks.

You know you're having a bad day when not even the goats are interested.

Personal Portfolio

I beat the pants off Bob's portfolios once again, even in this market. This is a reason why index funds are not always the best bet.

Back to the Summer Doldrums again.......

How about an idea for making some money in the short term?

To get the economy moving in a positive direction, the pundits I listen to say that what really is required is a change in management from the top down.

We can't do that for another two years but in another two months odds are we are going to see a major shift in makeup of the house, and possibly in the senate.

Can you say 'Relief Rally?'

Here's what I'm thinking - Take the income oriented funds and go invest those in a good value fund, preferably on a day the market really craters.

Hold the fund until the mid-term elections are over and then sell on what is going to be one heck of a relief rally in the markets. Take the proceeds and reinvest back into the original income funds.

Sound like a plan?
Finance

Personal Portfolio

08-19-2010 - Jobless claims came out at 500,000 this morning and the market is tanking. I will lay odds that when the teleprompter gets off its latest vacation, it will roundly demonize......something.....in order to distract the populace at large from the fact that unemployment is not coming down anytime soon. Note to self: Keep some extra cash handy .

Blame

Better late than never......

Turns out teleprompters can't count either. The teleprompter can ram through any legislation it wants without a single republican vote so what does it do? Demonize the republicans or course.

This leads to the markets realizing the the teleprompter just doesn't get it and that leads to lower confidence in the markets and a big sell- off.

That led to commodities tanking which meant I got more Suncor at a nice price.

Not much else you can do as the teleprompter fiddles while vacationing once again, gorging itself on lobster and ice cream.

The whole thing is truly surreal.

I think this side by side comparison imparts more than the creator of this pic intended.

Using a Bumpy Market to Add more Quality Shares

I have basically what I need but it also nice to add more at no additional cost when the markets present the opportunity. The following method works well most of the time:

1. You need a quality, low beta stock - a stock that is less volatile than that of its tracking index. ATT's beta is currently around .71, which means its price moves less than that of its tracking index. In other words, it is quite stable.

AT&T

ATT is a core holding because of its high dividend payout but that doesn't necessarily mean you need to hold it all the time.

2. You need a quality, high beta stock - a stock with higher highs and lower lows than its tracking index. A good place to look is in the commodities sector and the stock in this case is Suncor (SU).

Suncor

Suncor's Beta is around 1.75, which means it is quite a bit move volatile than its tracking index.

S&P

Now all we need is some market turmoil..........

In this example everything is tanking and Suncor is really tanking in relation to AT&T. I sold AT&T and bought Suncor.
A week or so later I sold Suncor and bought AT&T back, which netted me around 12% more shares of AT&T than I originally had.
You probably won't get rich doing this, but over time it is a good way add more quality shares to the portfolio.

Some things to consider:

1. You have to have patience. It may take a month or much longer before buy and sell targets and the stars all fall into alignment.
2. What goes down may stay down - for a long time. This is why I use quality stocks.
3. Factor in the cost of losing the dividend vs gain on the future stock buyback if you miss the 'owner of record' date.
4. The trade is being done in a tax deferred account. Such a transaction may be an issue in a taxable account.
5. Sustained periods of volatility are required to really take advantage of this. Doing this during a listless market won't work - well.
6. And lastly the teleprompter may open its mouth at entirely the wrong time, thoroughly screwing your trade for months.

Bandon, Oregon - a good place to get out of the summer heat.