Dubai Thoughts

A few things about the dubai problems. It's definitely something to take note of and when the next bear market hits, this will surely be remembered as an initial warning sign. It kind of reminds me of the announcement a few years back on that hot July day that a Bear Sterns hedge fund had collapsed. The stress cracks are surely starting to show in the market with the clear negative breadth divergences, but now we're seeing them in the headlines- and they are negatively affecting stock prices.

I do wonder what would have happened if this news flash had dropped over the weekend. It's just that, this year since the market finished down some on Thanksgiving week, we're not hearing the complaints of low volume as we have in the past. I have no idea but I presume many had stop losses set and were out of the office, while others had buy orders set while out of the office. The gap down managed to wipe out some weak hands, but proved a buying opp for others.

The US Dollar is surely soon to rally, but the question is when. How many people have lost money picking a bottom on the dollar index? I'm sure quite a few forex accounts got fried in the past month attempting to go long the dollar against another currency. Contarian thought is very difficult because first you need to get an idea of what the mass crowd is thinking, then you have to find out if it's extreme enough, then you have to pull the buy/sell trigger. For all the dollar bearish news out there, I seem to find a corresponding article talking about how it's time to consider buying the dollar. ETF investors may look to hedge by buying UUP, but the risk/reward doesn't strike me as something I'd like to dabble in.

Bonds continue to blow my mind. Are any actual investors buying treasuries or is this whole thing a mass manipulative intervention? I guess we'll find out when QE officially ends, but even then, it may be a black op. Baby boomers are once again going to get crushed with their exodus into the high yield bond market as soon as more defaults begin to occur. With record inflows into bond funds continuing, I just can't believe that the majority will be correct on this call.

As for the general market, I still do not think this cyclical bull is finished. Any rally in the dollar will be a bear rally for now, and the carry trade shall continue. I'm not a believer in seasonality, but from here on, it's that time of year where markets tend to rise, for whatever that might be worth.

Easy money has driven this rally for the past few months, and I am certain that with an election mid term in 2010 we'll see more stimulus and more of that easy money continue to hit the markets. Check out the Market Fear Gauge link to see which way the media is leaning- bullish or bearish- and think the opposite.

 

[grandma]

Bullitt - looking at the Market Fear Gauge, it has been working its way Up since the beginning of the month. ..very nearly at 25%.
When you say your reliance on the `fear factor' would be to go the opposite direction, is this in terms of buy stocks, then?

 

[Bullitt]

Buy only if it hits an extreme level. I may put an extra 10-20% into stocks if we have another good shakeout at or slightly below the 50 DMA, which would be sure to get the fear level higher. A shakeout has been on the horizon for some time and whether or not that was it, I haven't a clue.

 

[CountryBoy]

I liked your comments and with 2 new IFT's coming up, I'll probably push in 25-50% on any decent pull back. I think Chistmas buying will keep the market artifically high, but after that, we may see the true shape of the economy, if the gov't stops artificially pumping it up.

Thanks again

 

[Boghie]

I don't think it is the right time to be playing with standard charting tools. Or rejoicing at a 0.5% uptick in expected (perceived) Black Friday spending.

It is more a time of 'let the market decide'...

Also, I don't think the Fed is anyones Toadie. The Fed is likely to surprise soon enough. They will move to ensure the dollar has strength. Regardless of what that will do to those in power. That time will come soon. And sooner if this Dubai thing doesn't crash the market.

We will see lots of failings in over-leveraged, stupid ideas for the rich and famous.:cheesy:

 

[Bullitt]

Let the market Decide? When do you plan on making your final conclusion? Take a look back on some posts from a year ago, better yet, from late Feb/early March. (Even though some of those guys stopped posting for some reason when the market began to rally, the word crash was being thrown around quite liberally.)

Being bullish doesn't mean, "Go out and buy the farm of your dreams." It simply means, "I am invested and will remain invested until certain things happen. If you play the 100% in and 100% out game, then good luck. It's not good risk management. I'm currently 50/50 and willing to add when the time is right.

Also, if standard charting tools' need not apply today, then what we're really saying, "this time is different."

 

[Boghie]

Bullitt,

We are actually on the same page. You took my comment way too hard.

I am 55% in G/F and 45% in C/S/I - but that was pure luck. Anyway, the 'market' has flattened for some time now - I don't know where it is going. We may be at a long term equilibrium right now - or, we might be at the beginning of a downturn.

Anyway, the 'market' decided in February/March that it wasn't a good place to be in. Anyone more than 50% in equities at that time is probably an asset allocator with big nads. Hopefully they increased their contributions. The market also decided in March/April that it was a good place to be. A crash is not a norm - capitalize on the panic. Folks who bailed out of fear of crashing to zero are still not in. Folks who reduced risk got back in. Right now, we seem to be at an equilibrium.

So, in the end, the market decides. It is kinda easy to spot a fail or a boom. Right now (two months) the market is flat. I see nothing. And, charts are flat so there is no information. So, right now where to go. 50/50. A nice spot to move back in, a nice spot to bail out. This week could easily point the direction. I think sentiment is the lead - and, that really is not a good place to be.

 

[Bullitt]

No worries Boghie. To me, you always seemed to be one of the smarter players on this MB and the comments weren't directed to you, but more at the folks who make decisions based on what Jim Cramer or Fast Money is saying. Thanks for the comments- at least we're able to talk about the market, and that's something that has been missing from this MB for a few months now.

I by no means claim to be a market timer, but more of an asset allocator. I ended up riding down the market the whole way down in 2000-2009 so I look at how much credence is placed on YTD stats and get a laugh out of it. If I could go back, I wouldn't have ridden this mess down, but for sure would have bailed at the top. It's probably better that it happened like this though because for me the important lesson of the credit story was- 'you need better risk management. Buy and hold doesn't work in a bear market and probably won't work in a stagflation environment'. While others were, "dabbling a foot into the markets at 950", I took one foot out of the water.

You're right. At the end of the day, the market will decide whether or not this Dubai thing is trouble or not.

Sentiment wise- It seems front page news is that a negative dollar is good for stocks. Seeing that this correlation has never been quite as telling in the history of the stock market, it's only going to work until it stops working; and tomorrow, it could stop working. The tsptalk sentiment gauge did call the bottom in March when many were leaning towards Armageddon. And yes, this Dubai thing is probably the initial clear cut warning sign.

 

[Boghie]

Bullitt,

I've noticed a bit too much politics too. Regretfully, I have taken part in it. Maybe not so regretful. Keeps the blood moving. It looks, however, as if Tom is trying to contain that fever swamp:toung:. I think he is succeeding in that endeavor.

Riding down the market wasn't a bad move - excepting 20/20 hindsight vision. There really wasn't any reason for such a massive downturn. I lucked into a more conservative asset allocation my missreading a Ric Edelman chart in 'The Lies About Money' . One of the luckiest 'failures' I have ever made. But, also one of the best moves I had ever made - by that I mean the research I did to get a better understanding of asset allocation.

Now, my goal is to use three of Edelman's allocations in a Goldilocks rotation. However, like CoolHand, I just can't trust this market - it can move way too fast. Sometime soon I will make a dumb move that a true allocator would never have made. To some extent, it has already happend; that is why I am trying to force myself into smaller IFT allocation changes.

 

[Bullitt]

Ric Edelman writes some decent stuff for general finance questions. I have two of his books on my shelf, but not the 'Lies About Money". I liked his first book, 'Money', but he now believes in Index Funds over active management. I don't have a problem with that!

I decided to only contribute to the G Fund a while back, and whenever my allocation was off by a few percent, I'd rebalance into weakness. So far, I like the results, but too bad I can't find a better way to track it than the TSP website. Microsoft Money is a bust for keeping stats on TSP accounts. I'm waiting for the 2010 Quicken so I can import 8 years of Microsoft Money.

We all have different time horizons, and surely that plays a part in asset allocation. Coolhand and I have talked about figuring risk into a sound financial strategy many times...