Birchtree's Account Talk

[Birchtree]

Re: Birchtree's account talk

Just finished looking at some graphs representing the NYSE A/D cumulative index and the NYSE A/D cumulative unweighted index. This is not a graph I would care to fall off of - a correction of 10% or greater would cause me to shed blood - a serious bleed. But riding the 60 degree slope - no its more like a 70 degree ski slope - is doable if necessary along with another multitude of those once a year buying opportunities. The problem is it ain't gonna happen - too many technicians waiting for it to happen. No, the problem is the NYSE A/D unweighted cumulative is creating a dust cloud in front of the high capper weighted NYSE A/D. What that probably means is the unweighted will pull up the weighted - to new all-time highs again. Just required to stay in the bull pen and be nervous.

I read someplace that the Hedge funds are in the process of removing their shorts on the small caps and going increasingly long in the small caps - this could be viewed by the few as a contrary indicator - even though Hedge guys are associated with the "smart money". Slow and easy is the mantra to back out over time. This could easily take years.

 

[Birchtree]

Son of Dragon Eye from the Skunk Works

From Merrill by Dave Rosenberg

Indications are that GDP and corporate profits will grow at slower, but still respectable, rates in the quarters ahead. Financials ought to benefit as the yield curve becomes steeper in the coming months; and technology stands to benefit from increases in capital spending. Infrastructure is one of the most promising multi-year investment themes in the emerging markets area. Growth opportunities are one element of a well-balanced portfolio; income considerations are another. Stocks with secure, above-average dividend yields can provide both income and a cushion against possible stock market setbacks.

Policy makers seem to be leaning toward 5%, but the Fed could move to the sidelines if GDP growth slips below a rate of 3% in the second quarter. Participants will know more about the Feds's views when the minutes from the March 27-28 meeting are released on April 18. Policy makers noted that "possible" declines in the unemploymeny rate together with high resource prices have the "potential" to be inflationary. To keep growth and inflation risks in balance, the Fed "may" have to tighten further. Or maybe not. It will depend on the economic data, and a great deal of them - housing, employment, production, prices, sales, productivity, employment costs - are on the way.

In the 2000, 1994, and 1988 cycles, the Fed did not wait for inflation to recede before it pressed the pause button; policy makers simply had to be convinced that the economy was growing at a slower pace, which would then alleviate the "pressures" on inflation (resource utilization). For example, by the June 2000 meeting, all the Fed needed to go on hold were signs of a "tentative" slowdown in demand even as inflation concerns were mounting.

It takes about 9 months for the effect of an interest rate hike (or cut) to work its way through the economy. Thus by the time one sees the effect, it is long past the event which may have caused it. Reminds me of the Dragon Eye unmaned predator aircraft searching the lonely roads in the desert - the Jihad never sees it coming.

 

[robo]

Re: Oh Henry!

Henry, Henry, Henry! What is he going to do now?

Birchtree,

Hope your doing ok my friend? I have been enjoying your comments. We get Bob's latest in a couple of days. I have made some trades in my new Brokerage Accounts. Pretty cool going 2x when you are calling the market correctly.

It will hurt when I'm incorrect, but as we all know you can't get them all correct. Waiting for some short action -2x Baby! I know you will be hoping for the squeeze when I go short, since you are staying long. I can join Henry and short the DOW -2x, but I'll pass on that one for now.

After making some trades found out no charge with ProFunds. American Centry participates in a no Transation Fee program with ProFunds.


Fund Name: ULTRA BULL PROFUND (INVESTOR SHARES)
Fund Family: PROFUNDS
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Description: The Fund seeks to provide investment returns that correspond to 200% of the performance of the S&P 500 Index.
http://www.profunds.com/profiles/Ultra.asp
http://www.profunds.com/profiles/inverse.asp


I'm having a blast and I don't have to worry about the Market Timing Police.
Unlimited trading like TSP, but I can trade up until the last 15 min of Market close.

Take care my friend! HOOAH!!!


GO GO Birchtree!!!!

 

[Birchtree]

Small Cap, Big Punch

From TWSJ:

Lots of investors thought this was going to be the year when the shares of companies with large stock-market values trounced their smaller brethren. But it hasn't happened yet.

So far in 2006, the DJIA and S&P 500 index have each risen about 4.5%. That's not a bad start, but it's nothing like the 13% gain the Russell 2000 small-stock index has seen. If the big guys don't catch up with the small-fries, it will be the fourth year in a row that the Russell has beaten the Dow, and the seventh it has beaten the S&P.

Some studies have shown small cap stocks beat large caps in the long run. But they also tend to be more volatile, and many Wall Streeters have been convinced a reversal is coming. Standard measures of value for small-cap stocks - like price-earnings multiples - are near historic highs compared with large-cap stocks. Stocks in the Russell 2000 small-cap index trade at 44 times the past year's earnings, compared with 18 for the S&P 500. Hedge funds might have something to do with this.

Albert Richards, Citigroup's U.S. small-cap and midcap strategist, notes hedge funds are flocking to small-caps in part because they aren't followed closely by investment bank analysts, presenting hedge funds with opportunities to find companies off Wall Street's radar acreen. By their nature, small-caps also have bigger growth opportunities. (After all, they are small.)

Mr Richards looked at companies in the Russell 3000 index, basically a universe of large, medium and small-cap stocks, and compared that with a sample of hedge funds with combined holdings of $76 billion in assets. He found that companies with a market float of less than $10 billion made up 28% of the Russell 3000 index, but 59% of the hedge-fund holdings. Because stock hedge funds have become such a popular investing strategy, they may be having an outsize effect on the prices of smaller companies' shares.

For valuations to get back into line, he says either hedge funds will have to start betting that large-cap stocks will do better or that investors will have to start putting less money into hedge funds. For this year, that may be a bad bet.

 

[Birchtree]

NDX high cappers attracting attention

In bullish uptrends, price patterns will tend to open lower and gain through out the day. How many times has this played recently? It is interesting to note that the NDX the other day was higher than that of the NASDAQ Composite which is very bullish. What it means apparently is that the high cappers are starting to attract some much needed attention. New all-time highs on the NYAD and the NYUD. And as lomg as money continues to push the A/D line higher and higher, you just have to go with the flow. At this point, even though we are at highs, it's still more risky being out than being in. In to win.

 

[Birchtree]

I can't remember where it came from - but interesting anyhow.

It is extremely likely that the price/earnings ratio of the S&P 500 will drop to 10 or lower some point over the next several years, but this fall in P/E ratio could be driven more by a rise in earnings than a fall in price. And if you think it is unlikely that the S&P 500's earnings will rise by much over the next several years, consider that the composition of the senior stock indices will change. In particular, if commodities are in a secular bull market then 10 years from now oil and other commodity-related stocks - the stocks of companies that are likely to experience very strong earnings growth for many years to come - will probably make up 30% - 40% of the market-cap-weighted S&P 500 index.

Remember it was all the tech that was added to the SPX in 1998-2000 that ran the index to a high of 1527.46. When I start hearing about everyone and their sister rushing to the I fund - me starts to think an intermediate top in the near future is inevitable. Remember 1997 and 1998 - those side blows came out of the blue. Don't get complacent with the internationals. I've started pulling back a little on the small caps and am now seriously considering reducing my load in small increments on the internationals. The best time to do it is when everytime you take some off the table it keeps going up and you sacrifice further profit - I'm not one to turn the other cheek.

 

[Birchtree]

Will the crazy Fed be happy with a 3% GDP until eternity

From my friends at Merrill by David Rosenberg - N.A. Economist
The first quarter's books are closed, and GDP growth probably ran at a rate of "four something". The consensus is 4.6%, and we are comfortable with 4.4%. That, however, is old news. Attention has shifted to what the second quarter will look like, and, in our judgment, it has slow-down written all over it. We think that growth will be in the area of 2.5 to 3%, a more moderate pace than the consensus forecast of 3.2%. Either way, it appears as though the economy will slow to, or below, trend this quarter. That is the classic "pause that refreahes" when it comes to alleviating the latent inflation concerns`that have kept the Federal Reserve in play and the Treasury market on the defensive.

All of the deceleration we foresee for the second quarter is in the consumer and housing sectors. We expect consumer spending growth to slow to a rate of 2.5% from more than 5% in the first quarter. Residential construction activity could decline at a 2% annualized rate, something that hasn't happened since the economy was limping out of recession in the fourth quarter of 2001.

On the plus side, capital spending is likely to rise at a rate of 8% in the second quarter, which would be a good showing after the first-quarter pace of 10% or so. Commercial construction, meanwhile, is at a different stage of the cycle than residential housing. We expect non-residential activity to increase at a 4% annual rate this quarter after growing by about 7.5% in the first quarter. Net exports should add to second quarter growth; government spending growth is likely to slow; and inventories will probably be a drag on overall GDP.

All in all, annualized GDP growth of 2.5% for the second quarter would move the four-quarter moving average to 3%. We think the Fed would be comfortable with that figure; growth at that rate would help to create a bit more slack and reduce some of the inflation concerns stemming from the tight labor market and the booming commodities market.

Birchtree says that if the economy does slow you don't want to be in the small-caps too deeply, but rather be in the blue-chip large cap defensive stocks.

Proponents of the idea that a flatter yield curve doesn't bode dark times for stocks point to the mid-1990s, when the spread between the two-year and 10 year Treasury note narrowed dramatically after a rate-tightening cycle by the Fed. In the wake of that narrowing spread the S&P 500 rallied 34% in 1995, and 20% in 1996. In 2005 the S&P 500 companies spent more than $300 billion on buybacks, up more than 50% from 2004. And it continues today.

 

[Birchtree]

Oh, just a wee bit more

From my friends at Merrill by Richard Bernstein
Hedge funds now have a record net-short position in Fed funds futures. In other words, they believe that the Fed will be raising the funds rate in the future. It's uncertain whether that is a bullish or bearish indicator for stock investors. The funds have been long funds futures (ie., on the assumption that the Fed would lower the rate) for nearly all of the tightening cycle. Viewed in that light, the current position might be a capitulation, and perhaps the Fed's long awaited pause might finally happen. It's worth noting that 2001 was the last time hedge funds were net short funds futures. That turned out to be a contrary signal for Fed policy, but the Fed's aggressive easing that year didn't help the equity market.

See the information posted by Jovarn and Robo. Color me BULLISH.

 

[Birchtree]

Just easy on down now

I wanted to purchase the C fund two weeks ago for under $14.00 and had to pay $14.12. And here it comes around again and maybe this time I'll be fortunate enough to catch it under $14.00 but not too far under that target price - since I'm a buy and holder at this point there has to be some sacrifice made on the balance sheet for a temporary time to get lower prices. And if it trends sideways for another month, well that to is OK. To me the name of the game for retirement is to accumulate and accumulate some more.

 

[TiCKed]

Re: Just easy on down now

I wanted to purchase the C fund two weeks ago for under $14.00 and had to pay $14.12. And here it comes around again and maybe this time I'll be fortunate enough to catch it under $14.00 but not too far under that target price - since I'm a buy and holder at this point there has to be some sacrifice made on the balance sheet for a temporary time to get lower prices. And if it trends sideways for another month, well that to is OK. To me the name of the game for retirement is to accumulate and accumulate some more.

Put another way, (and my favorite investment saying), "The only prices that matter are the price you bought at, and the price you sold at. Everything in between is just entertainment."

 

[Birchtree]

If you build capitalism the Chinese will participate

From TWSJ/4/14

Policy shift could ease U.S. pressure over value of the yuan, for now.
China said it will let companies and individuals make investments overseas for the first time. The news comes ahead of Chinese President Hu Jintao's planned April 20 visit to the White House. While the moves fall short of an outright increase in the value of the yuan - which the U.S. has called for - the technical changes could affect China's currency exchange rate system and may strengthen the yaun's value anyway.

The new investment rules from the State Administration of Foreign Exchange allow professionals to buy overseas stocks and make investments outside of China. The rules also let Chinese individuals buy at least $20,000 in foreign currency each year, while companies will be able to hold more in foreign currencies than currently allowed.

The Treasury Department, the lead U.S. agency on currency issues, greeted the announcement as a small step in the right direction. "What we're seeing is constant, incremental reform."

China's move may be an effort to deflect U.S. criticism without a deliberate move to strengthen the yuan. Currently, the Chinese central bank bolsters the value of the dollar - and keeps the yuan weak - by buying up dollars and selling yuan, putting far more yuan in circulation.

That has drawn fire from the administration, which has been pressing China to allow the yaun to rise against the dollar immediately, with the goal of a free floating currency somewhere in the distant future. America's strong appetite for Chinese goods has created a large U.S. trade deficit with China. A stronger yuan would be a step toward addressing that imbalance by making Chinese goods more expensive and U.S. goods cheaper for Chinese consumers.

Foreign-exchange analysts said the move could represent the latest step in a gradual move by China toward a more open, market-based currency. It follows Beijing's decision last July to revalue the yaun and let it trade against a basket of currencies, and a move in January to permit foreign banks to trade yuan with each other, rather than using the government as an intermediary.

Many analysts expect the new rules will encourage Chinese investors to invest some of their savings abroad - and perhaps even into some foreign stocks - because yields are higher than at home. But analysts suggested that the amount of money flowing abroad was unlikely to be enough to have a significant impact on currency values or in the stock or bond markets receiving the Chinese money. The foreign-exchange market is so big it would take a large number of Chinese all sending money abroad over a short period of time to have an effect. (Only time will tell).

Marc Chandler, a currency strategist at Brown Brothers Harriman, noted that U.S. and other foreign companies continue to make big-ticket investments in China, while hedge funds and other money managers are speculating on the currency and investing in the stock market. These money flows are seen as more powerful than the potential new flows of Chinese money abroad. (Only time will tell).

Chinese authorities seem to be betting that the private sector's hunger for those assets - such as U.S. stocks and bonds - will continue to prop up the dollar. That would give China a ready response to U.S. political pressure: Blame the market, not Beijing. It isn't hard to see why some Chinese money would head overseas. Though China's stock markets have soared this year, they are rebounding from a four-year selloff and are considered highly speculative and risky compared with more-developed markets abroad. Where China's one-year bank deposit rate has been unchanged for years at 2.25%, Chinese investors could get yields of more than twice that bt buying U.S. or European government bonds.

While Americans and others in the developed world are free to invest their money abroad or own foreign currencies, China is among several emerging markets - along with South Korea, India and Brazil - that have restricted the ability of individuals to invest abroad.

All I know is the Birchtree will be waiting in the C fund for the arrival of this money-no safer place for a Chinese investor to participate in our great country.

 

[robo]

Why this year could be like 1995 all over again!

Birchtree,

I thought you might enjoy reading this article.

http://www.tradingmarkets.com/.site/Swingtrading/commentary/ttage/-50976.cfm

No word from Henry. He stated in early comments the DOW could go to 11400. We are very close to breaking out. I'm still bullish long term, but playing both sides now...So far so good! Made 3 successful trades, 2 shorts and 1 long. Made a one day short in the QQQQ's Friday and made 2.35% UltraShort OTC USPIX.
http://www.profunds.com/prices/current.asp

You might want to take a look at ProFunds for some of your Roth money. Filled out the paperwork to transfer money into accounts a few weeks ago. They charge around 1.5%, but for a sharp investor like yourself it would be worth your time. Take a look at historical data. Doubling your investing X2 doubles the fun going both ways, and I really like that.
http://www.profunds.com/prices/performance.asp

Think about this; 200K in a Roth, A 15% return playing both ways, that gets you 30K a year in Tax FREE INCOME. Might be easier said than done, but I think easier due to the flexibility and mix of Internationals / Emerging Markets and sector funds. Anyway, I’ll be shooting for that goal at age 60. The tax rates I think are headed up and soon. I should have a million by retirement with no problem. Using TSP calculator @ 7% gets me there. Currently saving 50K a year in 401k’s and Roth’s.

Things will change if they stop letting us invest so much. Be advised my friend, look for some kind of means testing in Social Security down the road. They will tell us if you have plenty of retirement income that you don’t need it. It’s for the poor, class war fair is on the rise! I think they will reduce, or you will get nothing if your retirement income is over 50K a year. Lots of folks fit that category. We shall see!!! Most voters will be below the 50K a year and will be happy, no very excited about the changes!!! They will say "Yes, they don't need that money, those darn rich people." That idea has been kicked around behind closed doors more than once.

And it looks like we are about to get around 40 or 50 million new citizens they will also need are help. The economy is strong now, but when it cycles back down we must all help are new citizens and provide them with services. After all, isn't it a Village. That was a joke my friend.

However, I do agree I will not need Social Security. Debt free and a nice Military retirement, and currently working on another one. I'm not figuring Social Security into my retirement income. I did work hard to get to this point in my life, but I'm still very grateful and don't mind helping those that need it.



Take care my Friend,

Good investing / trading!!!

robo

Sticking with the I Fund in the TSP, but for now currently in G Fund. Looking for buying Op's to go long again.

 

[Birchtree]

Let's get serious here...I'll take 1995, 1996, 1997, 1998, and 1999 all over again.

This time I'll double the green in my pasture.

Robo, Tim has my empathy - I've gotten essentially the same label from some of our participants that have only known me as a bull - I am what I am today and today fortunately plans to last a long time into the future. Doing a little planning for the harvest of the portfolio garden - but on a crop rotating basis. Take some out and put some in. Tim says there were many bullish investors at the 10/02 bottom - perhaps I didn't see them from my vantage position standing at the bottom of the well. I fell into that darn well on three different occassions and each time had to buy my way out. Did the same thing with the 900 point drop 4/05. As I look around today above the well, I see that the bull herd has been diminished. That's actually great - provides more play room. Robo, that article was pleasant - most of my investing triumphs over hope have come from the well. I'm comfortable with reading about and experiencing 900 new all-time lows rather than new highs. In the well situation you know your finite score - but in a roaring secular mega bull trend there ain't no score keeper, it's wide open throttle.

My unforgetable first wild ride, aside from some October black Mondays, was back in 1982, caught me unawares - I mean I knew the bull was a master of disguise and he was snorting, but when he struck I just didn't know what to do with him when I had him by the horns. I eventually realized that as one gets older it is better to stand in back of the bull, not in front. Thus my penchant for superlative bull manure. Someone said it looks like Jan'06 - you bet it does. Only we go much higher with the current momentum. The S&P price pattern so far since Jan'06 looks to be a sideways consolidation forming a basing or platform structure. Not a topping structure or ledge to fall off from, but a platform to launch from to 1400 and beyond.

If the S&P is going to make new recovery highs in this sequence from the Dec'05 lows or bottom, building a base first just below what have been good overhead price resistance at the 1310 level, would make good structural sense in order for something important like this to be achieved. The prior close for SPX was at 311.56, we ended at 1311.28. I'm ready for much, much more racy stuff from the wall flowers.

 

[Birchtree]

Does anyone remember disinflation - it will return.

From my friends at Merrill - David Rosenberg

Exports are likely to accelerate by 10% this year and by 8% in 2007. As consumer spending slows during the next several quarters, import growth is likely to decelerate, averaging only 4.3% in 2007.

We do not envision any upward pressure on inflation despite the commodity boom and much-publicized concerns about the tight labor market, which we believe are overdone. Increases in the core CPI are likely to decelerate through 2006 as the output gap starts to widen. Further ahead, the abrupt slowdown in consumer spending that we forecast for early 2007 is likely to prompt a wave of discounting that will drive core CPI trends even lower. Good trends in productivity growth and very moderate wage gains are likely to keep unit labor costs in check. And even though energy prices may stay high for the next cuople of months, we do not expect any material pass-through to core inflation, nor do we expect the recent rise in non-energy commodity prices to push core inflation higher.

The economy's stronger momentum and the Fed's focus on inflation suggest that policymakers will keep the funds rate pegged at 5% through the second half of this year, barring a major market setback. Rate reductions will be a story for 2007, in our view. Many people at the Fed seem to think that the economy will expand solidly during the next four-to-six quarters; with that in mind, Fed Chairman Ben Bernanke may be reluctant to cut rates until he sees firm confirmation that the economy is slowing and inflation pressures are easing. We expect four rate cuts of 25 basis points each in the next cycle, which would bring the funds rate down to 4% by the end of 2007.

The stronger-than-expected momentum of the economy also suggests that the upward pressure on long term interest rates will persist for awhile longer. Even so, investors with a time horizon that is longer than six to 12 months should probably regard the current and prospective backup in yields as attractive buying opportunities. We believe that inflation expectations remain too high and that global secular disinflation trends remain in place.

Folks - can you see the future yet - get ready to launch.

 

[Birchtree]

U.K stocks touch 5 year highs

The FTSE components comprise 27.5% of the I fund. In the U.K., the stock market has rebounded in the past three years, as a range of conditions has favored investors. U.K. corporate profitability is very high; the cost of their financing isn't; share price valuations are still low; and the interest-rate environment, where the Bank of England has recently cut rates, is supportive. Continued strength in the oil price and fresh records in the price of some metals also have buoyed the U.K. market. Around a fourth of the markets capitalization is in mining and oil companies.

Another factor in the FTSE's rise has been the increase of merger-and-acquisitions activity in the U.K., where around $98 billion has been spent buying up British companies so far this year, up 40% from this point last year. The deals are cash deals, meaning that monbey is going back into investors' pockets and into the market again. Some strategists fear forecasts for European per-share earnings growth of around 10% for 2006 might prove too optimistic. Some, though, believe U.K. stocks just no longer look so cheap. The Birchtree will hold his international fund for now.

 

[Birchtree]

Re: Birchtree's account talk

Many investors seem to think an end to rate increases will be good for stocks. That was the case in 1995, when the Fed stopped raising interest rates and yields on longer-term interest rates fell. That brought down corporate borrowing costs and made stocks attractive relative to bonds. But don't be so sure of a repeat. Back in the 1960s, the opposite happened. Back then, the Fed stopped raising interest rates, longer-term interest rates rose, and stocks suffered.

As those situations show, much depends on how bond investors react to the Fed's big decision. If bond investors believe the Fed's done its job of stifling inflation, longer-term rates should remain relatively low, which could lead to a stock-market rally. But if the Fed stops and bond investors think it hasn't finished the job, then this whole game of when will they stop could have an unhappy ending.

Be happy my friends - step right into the frey and make some money. There could very easily be another three thousand point run on the way - be ready.

 

[Birchtree]

Re: Birchtree's account talk

Read this for a history lesson:

http://www.leggmason.com/funds/knowledge/management/2006millercommentaryQ1.pdf

 

[Birchtree]

Re: Birchtree's account talk

John Hussman has said, "The upshot is that the points where defensive aggressive investments positions are most effective are also typically the points where one will, at least briefly, look like an idiot for taking them" I feel so much more gratification now with my 100% C fund position. I needed those kind words of encouragemnent.

 

[Birchtree]

Re: Birchtree's account talk

The continuous equally weighted commodity (CCI) index rose by nearly 100% after the 16-year breakout in the early 1970s, before taking a pause. The index is now up 16% after a 25-year breakout. I believe materials and energy make up 12.5% of the S&P 500. C fund your time approaches.

 

[SkyPilot]

Re: Birchtree's account talk

Birch, I think you will be correct, eventually. However, isn't the I fund a more immediate and compelling opportunity? How much of a run up is it worth to miss while waiting for the C to kick in.

I agree with your analysis, but I think it may have a while yet to materialize. However, I respect your commitment to this perspective. You gotta go with what ya know!