I have published my "11 Rules for Better Trading" previously, but I thought they were so good that it was worth drawing attention to them again. After all, it is the end of the year, and these are the kind of stories we generally see to get ourselves righted for the coming year.
Wednesday, December 29, 2010
Monday, December 27, 2010
The morning news notes as prepared by TL...China raises lending rate, Goldman Sachs bets on the USA for 2011, comments by hedge fund manager David Einhorn, and McKinsey Survey of executives.
Sunday, December 26, 2010
"This time is different". It really, really is. Trust me. It's true. Those famous 4 words of investing that should have you running the other way and that should be relegated to the trash bin of investing along with such phrases as "stocks climb a wall of worry" and the "stock market can stay irrational longer than you can stay solvent" are as true today as any time in the past 10 years.
Saturday, December 25, 2010
It doesn't take a rocket scientist (or Wall Street analyst ~ a downgrade?) to figure out that investors are extremely bullish on the equity markets. Such extremes in sentiment will usually (85% of the time) lead to better risk adjusted buying opportunities in the future. In other words, the next best time to be a buyer of equities will be when investors are bearish not bullish as they are now. The markets don't have to go down just because everyone is bullish, but if you are a "believer" and buyer at these levels, then you will need to identify a market top and get to the exits before the next guy to extract profits. This is a very crowded trade and identifying the top is a tall order.
Monday, December 20, 2010
The morning news notes as prepared by TL...European sovereign debt crisis, Ireland, Korean conflict, Greenspan on economy and stock market, company buy backs increasing, and Japan loves the Colonel over the holidays!!
Sunday, December 19, 2010
It is tough to be bearish for the following reasons: 1) the overwhelming consensus opinion of investors, bloggers, and newsletter writers is bullish now and into 2011; 2) the perception amongst investors is that the Federal Reserve has back stopped the market; 3) there is a persistence to the tape as it marches higher on both good and bad news; and 4) it is the holiday season where thinly traded markets can be easily manipulated higher. Yes, it is tough being bearish when everyone and everything you read is bullish, and the equity market can only go one way -- up. Yet, here I write that I am bearish. Why?
Thursday, December 16, 2010
I have been highlighting higher Treasury yields since October 15 (well before the heard), and I also mentioned on December 8 that the move higher in Treasury yields would "pick up steam". But every price move has its limits, and the Ultra Short Lehman 20+ Year Treasury (symbol: TBT) is no different.
The morning news notes as prepared by TL...housing starts, initial jobless claims, White House review of Obama's Afghan war strategy, European sovereign debt spreads, BAC and new Basel rules published.
Wednesday, December 15, 2010
On November 8, 2010, our composite indicator that looks at the trends in gold, crude oil and yields on the 10 year Treasury registered an extreme value. At that time, I wrote: "A strategy that combines this "fundamental" filter with the 40 week moving average has given a sell signal." With rising Treasury yields and persistence in the trends in gold and crude oil, the composite indicator remains in the extreme zone. This is not the time to buy equities. For those keeping a scorecard at home and for those who are buying the bullish nonsense, the SP500 has gained about 1% over the last 5 weeks.
Tuesday, December 14, 2010
Figure 1 is a weekly chart of the S&P500, which shows the composite sentiment indicator in the middle panel. The indicator is constructed from the "Dumb
Money", Rydex asset data, and InsiderScore total market value of insider buying and selling. These are the set of indicators that I highlight in our weekly round up on sentiment. 9 unique data points are utilized in this indicator.
I am a day late getting the investor sentiment charts out this week. Regardless and as expected, the "dumb money" shows lots of bulls while company insiders continue to sell at a very strong clip. Investors don't seem too concerned - it is the end of the year and the Fed has back stopped the market. My take, which is NOT the consensus opinion, is that complacency is prevalent, and this in and of itself represents a significant headwind.
The morning news notes as prepared by TL...small business optimism rises, retail sales rise, Munis, tax cut package clears procedural hurdle in Congress, Roubini Global Economics on global growth in 2011, judge rules against federal health care mandate, air traffic projections, and CEO summit at the White House.
Friday, December 10, 2010
The morning news notes as prepared by TL...payrolls to increase next year in US, food inflation, overhaul of tax code?, mortgage rates at highest in 6 months, PIMCO raises growth outlook, Nobel Peace Prize to Chinese dissident, and household net worth.
Thursday, December 9, 2010
The morning news notes as prepared by TL...initial jobless claims, spike in Treasury yields, is China diversifying its FX reserves?, the global savings glut, and the tax plan is gaining momentum in Congress.
Wednesday, December 8, 2010
The move higher in long term Treasury yields, that I first started to write about on October 15, 2010, is beginning to pick up steam. This can be seen in figure 1, a daily chart of the i-Shares Lehman 20 + year Bond Fund (symbol: TLT).
The morning news notes as prepared by TL...comments on housing by Toll Brothers' CEO, worldwide auto sales, Build America Bond Program, tax compromise runs into resistance, economists raise growth projections for 2011, Fannie Mae and Freddie Mac in discussions with Treasury and White House on mortgage principle reduction plans, and consumer credit in US.
Tuesday, December 7, 2010
The morning news notes as prepared by TL...Bush era tax breaks to be extended, hiring picks up around the globe, Greece, Ireland, European Commission covers up a report, and more on White House/ GOP tax plan.
Rising long term Treasury yields can be viewed as a sign that the economic recovery is taking hold. That is one interpretation. Another is that rising yields will serve to pressure equities and choke off any rally that may develop. I believe the latter scenario will eventually predominate as there is a limit to how high equity prices can rise in these liquidity fueled rallies.
Monday, December 6, 2010
The morning news notes as prepared by TL...Obama's deficit commission, Economist magazine on the Euro, Bernanke on "60 Minutes", more on Friday's ugly employment report, hiring in the retail industry is changing, regulators see growing putback risk, and the popularity of Presidents over the past 50 years.
Here is an investment thesis for you: "Pro's performance worries will drive stocks" according to Jeff Saut, chief investment strategist at Raymond James.
Sunday, December 5, 2010
Several weeks ago I watched a video where Maria Bartiromo of CNBC interviewed Gary Shilling of A. Gary Shilling and Company. Bartiromo was soliciting Shilling about his opinion on the housing market, and as you can imagine, Shilling was less than sanguine, and in fact, he was calling for further declines in prices. Shilling was clearly at odds with other analysts, and Bartiromo asked (and I paraphrase): "You realize your opinion is at odds with all the other analysts out there?". Shilling's response (and I paraphrase again): "What good is an opinion if it is just consensus?"
Friday, December 3, 2010
The morning news notes as prepared by TL...non farm payrolls, monetary policy shift by China, S&P put Greece on negative watch, Bernanke to appear on 60 Minutes this Sunday, and the President's deficit commission.
Thursday, December 2, 2010
While the S&P500 goes on to test the recent highs, let's make no mistake about it that the last 2 days of positive price action have been predicated on a falling Dollar. Of course, this set of circumstances is no different than the dynamic that has occurred since the March, 2009 lows: that the Dollar and S&P500 have been negatively correlated. A falling Dollar is good for equities and a rising Dollar is a headwind. Ok, nothing new here.
The morning news notes as prepared by TL...initial jobless claims, Obama's deficit commission, Obama administration and off short drilling, the European Financial Stability Facility, leading indicators of global manufacturing improving, ISM v. GDP v. Payrolls ( a nice graph), and Fed officials urge Congress to stimulate the economy.
Wednesday, December 1, 2010
There is no question that we all would like to see a strong stock market. In theory, a higher market should be reflective of a better economic outlook, and if the economy is prospering, then, as a whole, society should benefit. Unfortunately, the current market is not reflective of a strong economy and more likely reflects the wishes of policy makers who see a higher market as a sign of prosperity.
The morning news notes as prepared by TL...ADP employment, Federal Reserve to identify recipients of $3.3 trillion in aid provided during financial crisis, Eurozone sovereign debt, the deficit commission, state spending picking up, US farm income, US housing prices, and President Obama and Republicans to compromise on taxes.