Bullitt's Account Talk

[Bullitt]

Still comfortable with my allocation. Looks like there's a lot of armchair investors looking to get in on those Oil/Commodity type stocks/ETF's because they've been listening to too much TV. A 20% drop is merely a correction in a secular bull market when it comes to commodities, but a an imminent crash signal when applied to equities. Those guys on TV are looking for someone to sell to. IMO Oil and commodities are done for a while. I'm not big into technical stuff, but just looking at the basic Fib's, support and resistance, any bounce is in oil is a bear bounce or routine fib retracement.

Is this rally for real? Who knows. The headlines say no, it's just a summer rally. Most of it's upside has been driven by the drop in Oil because that's good news for the economy. Or is it? Doesn't that mean demand is dropping because the economy is cooling? Only the market knows why. What happened first, Dollar strength or Oil weakness, you be the judge. USD looks to have been forming a bottom since March. I guess conventional wisdom says the stronger dollar is the cause.

So why am I comfortable having some 30% in S Fund at a time of crisis? Like I said, I think Oil and commodities had their day in the sun for a while. They became a Pop Culture Safe Haven while the Fed was cutting rates. Oil service stocks were some of the only things propping up the market the past few months and we might be experiencing another sector rotation in progress. Oil service stocks currently represent some 14% of the S&P 500 while it's average over the past 15 years has been around 8-9%. Remember early in the year when the crooks were touting Tech Stocks just before the drop? Smart money out, non-smart money rushing in. The charts don't lie because they don't hide what is past us. Small cap/Mid Caps may be extended, but are still exhibiting relative strength compared to the overall market. There is some technical resistance overhead though...

I'll be glad when the FNM and FRE thing is done and over with. Until then, plan on those two stock being day traders favorites.... Down 15%, buy a block at 3:30, sell at the gap up the next day.

Happily buying what nobody else wants, and today that seems to be the EFA, RUT and IYK. Fall is fast approaching, we'll see how the professional traders interpret the market action when they begin returning to their desks after Labor Day.

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Beginning next weekend, we've got weddings lined up for weeks. It's been a busy summer and we've got a lot done, but it's gone by fast. Looks like volume on the MB has been down whenever I've logged in, and I hope it's just because people are enjoying the good life and not giving up on investing. Hope the regular TSP talkers have enjoyed their vacations, lawn mowing, reading, baseball games and backyard beers... err BBQ's and haven't been getting too worked up over this financial Armageddon. I'm looking forward to some good posts when some of my favorite TSP talkers begin returning to their 'trading desks'.

 

[Bullitt]

Let's take a look at this possible scenario...

Imagine that you are running a __________ (fill in blank with Hedge Fund/Pension Fund, etc.). Around May-June time you began getting heavy shareholder pressure to buy into some hot commodity funds and because everybody knows that $4 gas is a bargain and that gas is going to $8 before it goes back to $3. You begin getting redemption requests. You begin selling short financials and going long commodities to pick up some ground so your fund doesn't finish the quarter towards the bottom of the pack. You begin opening Oil contracts in the swaps market with heavy leverage. All begins to look good again, your fund is making up some lost ground. Shareholders are happy.

Oil drops hard, 20% in a matter of days whereas it took months for the Dow to drop 20%. You're losing money and losing it fast. Faster than when you had those stupid financials you thought were bargains. You watch technical level after technical level get breached on the drops as you try to unload your losing oil bets. You're selling lower and lower. Then along comes what the media portrays as the next Black Swan event, hurricane Gustav. This is the mother of all storms, on par with the Tsunamai, Katrina, and 9/11. Retail investors and speculators looking to roll the dice panic and begin buying up commodities and oil with futures and ETF's. Oil has somewhat of a bounce.

Shareholders are telling you this is the big one. Oil is going back to $145, Gas is going to $4.25 by Tuesday. The world is finished. You, being the smart money that you are take a step back. "We've gotta get the heck out of these oil bets we made. It's stairs up elevator down every single time in commodities and right now conventional wisdom says that commodities are part of a long term portfolio. What were we thinking listening to them? We didn't listen to them when they said we should invest in China."

You see some strength in buying but you realize it's not much more than speculators taking one last shot at playing the roulette wheel in the futures market. The market moves are clearly not the heavy hitters like Burlington Northern or Delta Airlines locking in prices on the futures market. You begin selling into whatever strength the hurricane buildup provides and for once you're not having to stagger your sell orders lower. You manage to cut your losses and unwind the rest of your losing commodity bets to the doom and gloomers and enjoy your Labor Day weekend while your peers are at their desks, eyes glued to CNN praying that Oil wipes out the entire Gulf Coast so they can capitalize on their bets.

The market opens the day after labor day and Oil has already dropped 7% since Friday. Oh, did I mention your team began buying airline stocks as a play on Gustav being an overreaction last week?

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Just a fictional scenario, but I'm sure it's gone something like this over the past few months. Oil's at $145, it's speculators driving up prices. Oil's at $112 and clearly it's a buying opportunity because Oil is always going to go up... Allegedly.

No matter where Oil is, it's still about the Financials. Chartist, is that a two month cup and handle forming in the SPX with a pivot of 1305?

 

[Steadygain]

WOW !!!

You should copy-write that last post. Honestly - that's as good as anything I could find elsewhere; and frequently I'm trying to find some articles that realistically give me a "pulse" on what's happening.

Good job my friend.

 

[fedgolfer]

as of 10:13 AM EST on 9/2, USO is actually below the lower bollinger on the 3 or 6 month daily candlestick charts. If it holds the $87.50'ish area, its a great time to buy, if it doesn't, the support line that extends back to the highs of March it will signify that the euphoric pop seen in April through mid-July, has not only popped but broken that support. I'm pretty confident we'll see USO get back into the bollinger range over the next several days maybe as high as $96 (but I doubt it will see those levels again unless there's some major geopolitical oil news), but then I'm pretty sure it will not hold over $90 after that in the short and mid-term.

even though C fund is seeing a healthy pop this AM, you'd think that as oil continues unwinding the financials would pop, somewhat lessening the gains of the S&P versus the Sfund... but its not... maybe that'll take a few days to play out. But once this short-term pop plays itself out, and if oil can stabilize and not plummet further, we could see the Cfund the place to be as oil stabilizes in conjunction with financials gaining as well. A lot of what-ifs... but just my 2 cents.

 

[Steadygain]

It's a toss of the coin. Most of those I interact with "outside of the MB" are convinced we'll either go down 20% the remainder of this year; or we'll go up as high as 30 to 40% quickly - and then "POP".

The "POP" is inevitable - but I'm hoping the Political BS will cloud everyone's thinking and euphoria "RULES".

 

[Bullitt]

If we agree that the Dollar made some kind of bottom in March 2008 when Oil was about $108 a barrel, that translates to USO being about $85. Factor in Dollar strength and diminished demand, then we could be seeing another leg down soon.

Basic TA says oil is sitting on support, 200 DMA and an important Fibonacci level at around $110. Next stop $100, which would be a 50% retracement of the highs. For now, it appears Oil is trying to keep it's trendline intact that began in January 2007.

I see oil range bound between $80-$100 in the near future based off of charts alone.

Two questions.

1. I am very interested in seeing how commercial players are positioning themselves in the oil market 5 years out. Where do they believe oil will be after the continuous political pressure?

2. I'm calling National Fuel today. I just got a bill (in which we use the monthly billing plan) and noticed that the payment has gone up 12%. Our usage is down substantially as well from last year. (Lots of blanket and sweatshirt use in the winter instead of heat.) Natty Gas is down over 20% from it's highs. What am I missing?

 

[Bullitt]

The great deleveraging continues on. The GAO basically proved yesterday that Hedge Funds drove Oil and other commodity prices to irrational levels. What are the crooks telling us plebes to buy today? Oil, Gold... the usual suspects, just as they are running for the exits. I'm laughing over this Lehman debacle. How can these analysts come out and tell even the most uninformed investor that Lehman is Neutral/Hold/Equal Weight and expect to be taken seriously?

I see continuous pressure on Oil in the months ahead, and that's only partially based on seasonality. Lower Oil/Gas equals more money for Joe Sixpack to pay mortgages, pay credit cards, buy new cars... well, at least in theory, haha. Lower Gas prices also mean lower inflation. I don't care what the economic numbers say, it's common sense. Less money at the pump means less passed on to consumers at Kroger Foods.

We're going to have to see rate cuts on a global scale for any progress to be made in the stock market. With inflation under control and the global economy under pressure, that should give the Fed wiggle room for an emergency rate cut if need be. After the global economy begins rate cuts, it will provide a further boost for the dollar and continued pressure on commodities in general.

Tweezer bottoms are good. The retail investor stopped participating in this market after they bought in May based on their charts and momentum analysis, and got wiped out over the summer months. We hear over and over again the whole cash on the sidelines thing. I question the validity of that arguement even though I've read articles recently on the record outflows from Mutual and Hedge Funds alike. If that is the case, that there are record levels of cash on the sidelines, then think back to the talkers on the MB who were calling an Oil bubble since the low $80's. It took some time, but that bubble finally burst. It may take some time for the 'cash on the sidelines' bubble to burst, but it will burst.

Long tails on the charts for the past week are a positive sign. Buying right after the bailout was just too obvious and the crooks let the weak hands know it too. Liquidity will slowly return to the secondary mortgage markets. It's not something that's going to happen overnight. Lehman was given ample opportunity to raise money earlier in the year, but they sat on it and said everything was hunky dory while their competition was writing down bad loans and taking in cash infusions left and right.

Retail investors need a reason to come back to the biggest casino in the world to prop the market back up again. Will the bailout be the final capitulation?

 

[Steadygain]

We're going to have to see rate cuts on a global scale for any progress to be made in the stock market. With inflation under control and the global economy under pressure, that should give the Fed wiggle room for an emergency rate cut if need be. After the global economy begins rate cuts, it will provide a further boost for the dollar and continued pressure on commodities in general.

A lot of good thoughts (as usual).

Just as an alternative view: It may be the best thing is not focusing on keeping the overall economy and Markets moving foward. Perhaps the very best situation is letting the Economy take a rest; make the global population experience anxiety, stress, and pain to the point that "the real culprits" are exposed and changes are made. Without things coming to light and dealing with them in a way that prevents a recurrance (such as Fannie/Freddie) there is no way the underlying FOUNDATION will support the growth we need.

 

[ATCJeff]

It's a toss of the coin. Most of those I interact with "outside of the MB" are convinced we'll either go down 20% the remainder of this year; or we'll go up as high as 30 to 40% quickly - and then "POP".

The "POP" is inevitable - but I'm hoping the Political BS will cloud everyone's thinking and euphoria "RULES".

go with the downside.

 

[Steadygain]

go with the downside.

It's amazing how much my perspective has changed since that post of 9/2/08.

I agree Jeff !!

Once I saw the real BEAR emerging - and all the factors that give him strength - I went 100% G Fund.

 

[Bullitt]

I look at the casualty list and it's unbelievable. Dodge and Cox Fund, Ron Muhlenkamp, Marty Whitman, Bill Miller, Bill Nygren, Chinese, Kuwaiti and Saudi Sovereign Wealth Funds. These guys are the ones we refer to as the smart money and they've been blasted into underperformance in only a few months.

Tom referred to the pain threshold in his comments yesterday and I admit, I'm pretty close. These lows don't hold, forget about it. Yeah I read Jason, and I followed him over the top and into no-mans-land in March and July when the smart money was 70 and dumb money was below 30 only to get gunned down by the Maxim Machine guns after a few short strides. Him and countless other pros I read claimed the March lows and current lows the buying opportunity of the decade. We'll have to wait a while for that one to pan out though. One of my guys this week said, "If 1100 doesn't hold, I'm throwing in the towel". Ha! Not the advice you want to hear from a 'professional'.

The worst part about all of this is how each individual bears the sole responsibility of how many fun tickets they'll have in their account when they retire. I continue to take the market talk from the experts around the coffee pot at work with a grain of salt even though some listen to it as if Bill Miller made a guest appearance. We're all seeing the panic first hand. Folks putting money in the G fund for the first time in their career, other folks pulling money out of savings accounts, and money market accounts actually breaking the buck. Man, if I had a buck for every time I heard Money Market Funds are safe prior to this mess....

There are some great traders on this MB, and some of you guys have held up great in this mess. I really hope the real life crooks get rattled when they see that their Hedge Fund crumbled while a bunch of government workers with real jobs managed to finished the year positive without leverage or short selling.

I read a good analogy today about the removal of the uptick rule. It went something like this: It's like in baseball having runners on 1st and 2nd and the batter hits a foul ball. The runners move up on the foul ball and there's nothing the defense can do about it. In my opinion, the removal of the uptick rule, not short selling in general, is the cause of most the bank runs and retail savings account panics.

Knowing your time horizon and staying diversified are two core truths to investing that will hold up even when this debacle is over with. Though I have a longer horizon than most contributers to this site, I can somewhat relate to the turmoil as my father is eligible to go in November from a private corporation. Notice I used the word eligible. Folks that jumped to the G fund, I really can't blame you. You knew your pain threshold and had to pull the plug. It's like knowing your VO2 Max during any marathon or bike tour. The only thing is that with being limited to 2 moves a month, dollar cost averaging back into the market will be very difficult. Instead many of the G funders are going to be forced to use lump sum-all-or-nothing moves to get back into the market. Those 1% down moves are going to hurt more than they did when you had that nice dollar cost average over 10 years of contributions.

The game has changed forever. The arrogance of Donald Trump and Robert Kiyoaski has finally caught up to them. What goes around comes around.

I'm always reading any classic I'm able to get my hands on from authors like Bill Bonner and Peter Schiff to John Bogle and Jeremy Seigel. From titles such as "Why you should invest in Gold" to "Random Walk on Wall Street". Sorry, but if TSP offered us gold, I wouldn't invest in it. I'm a believer in Index Funds and dollar cost averaging over a long term horizon. Build wealth slowly and realize that not everyone is going to make it to the major leagues.

The purging of the excesses and forced selling has probably made for some bargains out there, but if we can assume that most gains from the 80's onward were due to leverage, then PE ratios have a ways to go until they bottom. I have no idea when they are going to bottom so I'll continue to use a dollar cost average contribution approach. Maybe some day I'll be able to look back and realize that it actually worked.

I'm still hoping to see the Cubbies or Brew Crew in the World Series this year.

 

[JTH]

Great read Bullitt, thanks

 

[Bullitt]

Bill Miller is another one of those guys who's gone from Hero to Zero in this market. I follow his buys/sells and sector allocations but this past year I don't know what happened. It's almost like he threw out every risk model there was and blindly piled money into GM, Visa, Capital One, Countrywide, Merrill Lynch, Washington Mutual, homebuilder stocks in July 2008... It just goes on and on.

The link below is his 3rd Quarter 2008 Letter to shareholders. With the benefit of hindsight, I also agree with his opinion that letting Lehman fail will be looked upon as a mistake of historic proportions. Some good words and investment advice from the guru contained within, but to me he seems a bit rattled by this bear market. However, if Scottrade brokered Legg Mason funds I'd be investing with Bill Miller at these levels.

http://www.leggmason.com/individualinvestors/documents/insights/D6485-MillerShareholder.pdf

 

[robo]

With the benefit of hindsight, I also agree with his opinion that letting Lehman fail will be looked upon as a mistake of historic proportions.
http://www.leggmason.com/individualinvestors/documents/insights/D6485-MillerShareholder.pdf

Yep - Bob talked about it on his show. Bush's boys let Lehman fail because the mod wanted the pigmen to be punished. Well, it worked. Many jobs were lost due to that BIG MISSTAKE.... and it's far from over. It has deepened the recession.

Wait and see what happens when GM and Ford go under.... It's not about how you feel; it's about what will be best for the current economy which is in a recession. I personnel own two 2008 Acura's ( TL and RDX )and a 2008 Nissan Frontier, but if those companies go under it will not be good. Many of us are government workers and don't feel the outcome of these decisions.

Nice to see ya post again.... and I enjoyed reading Bill's comments.


Take Care!

Robo

 

[Bullitt]

You can see my posts on investing from now on at the TSP Talk Blog section of MB. I will be using my account talk thread solely for changes in my TSP contributions and allocations. Follow the link in my signature below for a redirect.

 

[Bullitt]

Made an IFT on Wednesday I think it was. 35C 30S 35I. Just a rebalancing act, my allocations had drifted a few percentage points away from my targets. I still continue to benchmark my TSP account towards a Total Global Market allocation.

I learned it's better to do these rebalacings at what's perceived to be a low price than a high price. We won't know until hindsight if this was a low area, but it's a chance I'm taking.

My future outlook for my TSP includes chaning my contributions in a small percentage to F fund shares (I never thought I'd say that) after the 20 and 30 year bond collapses. Maybe first I have to figure that fund out because right now it's it's own enitity. That F Fund never did me any good in the past, but I'm more than willing to buy some if it crashes.

I've learned a few valuable lessons this year in the financial world and you can see some of them on my latest blog post.

 

[Bullitt]

What will lead the market going forward from here?

 

[Bullitt]

We have the potential to run a couple million stop loss orders on the short ETF types around SPX 855-860. Do I think it's going to happen today, probably not, but I'm not in the day to day business of predictions. The boys are going to put it on just as main street devours the horrendous job figures and puts their sell orders in on a weekend of contemplation and reading Barrons.

I'm currently as bullish as I was in early March 2008 in regards to the general market. A Dow theory buy is a bit of a ways off, but I see less risk on the long side than short side at this point. For those who read the daily charts and 5 minute tickers in search of the holy grail or are just looking to make that 1-2% on an in/out trade, I think it's time to take a step back and observe the forest, not the leaves. I truly believe that a run to 1050-1100 SPX could happen by springtime. It's not going to be a straight shot and I expect chartists to get hammered along the way with whipsaws just as any chartist has been hammered in the gold sector since the November lows.

 

[Birchtree]

There goes 860 - stand back and let's witness the carnage in the bear camp.

 

[Gumby]

There goes 860 - stand back and let's witness the carnage in the bear camp.

Great place to go short this morning. Bought more SDS and waiting for reality to set in.