Labels: Market Timing

You have to be thick skinned to be in your profession.

Over my 40 years of investing I've observed that about 75% of newsletters have a negative slant most of the time. It seems that only about 5%-10% of newsletters actually give reasonable forecasts in up and down markets.

I have also observed that the more dour the consensus of newsletters, the more the market seems to climb (the wall of worry). I normally subscribe to or read both types of forecasts as at any time you can find both points of view.

Then, based on information from the newsletters and my personal observations, I make my own investment decisions. I usually find myself on the other side of the consensus. I'm not sure that makes me a contrarian, but it has made me a successful investor.

On the basis of my subscription to your letter for the last year, I put you in that 5%-10% of better investment newsletters.

I pay a very reasonable price to a smart and successful investor to hear his best ideas for buying individual stocks.

Buying individual stocks is exactly what an intelligent investor should do in a bear market. Stocks go up. Stocks go down. But there's always a bull market somewhere. All of the macro stuff is interesting and not without importance, but much of it is simply noise.

I have investigated a lot of investing services and passed on all except for two. I feel I have more than enough bang for my buck with your newsletter and my Motley Fool Hidden Gems subscription. Thanks for your newsletter as I approach my first year with you.

Not all predictions are correct (by definition), and yours may not be either. Alan Greenspan just the other day put the chance of a recession at about 33%. I would put it lower, but it is not zero. So your detractors are not 100% sure to be wrong, any more than you are 100% sure to be right.

But my belief is that the market will be higher six months from now, and that the chance of a recession is low. I have been greatly swayed by the Fed's actions a couple weeks ago and its rate cut last week -- that's the main reason I don't think there'll be a recession near-term: the Fed is going to try to stop it, and I think they acted in time.

The only thing I know about the clock theory is that even a stopped clock is right twice a day.

Labels: Market Timing

I don't know how you snuck into the top ranks of market forecasters, but your latest call to buy stocks here is nuts. Don't you read anything? Look at Faber, a guru much more experienced than you. Look at that economic clock guy. He's also been at this a lot longer than you -- and his clock is ticking down to one of the great crashes in history. Wake up.

We are now on "red alert" for the current month of October. Many of the bigger market crashes have occurred in October, but nobody knows why. So we are just going to accept the reality of this perception.

Another long-held belief of ours: stagflation is returning. Those of us who survived the oil shocks of the seventies and eighties know this scenario: growth stops and inflation rises.

• A strengthening Chinese currency leading to more expensive Chinese products in America, thus inflationary pressure.
• The weakening of the dollar and his belief that it, like all superpower currencies, must collapse.
• Rising commodity prices.
• Slower productivity growth, as evidenced by unit labor costs rising 6x faster than when they bottomed.

Labels: Market Timing

• Dow +5.4%
• S&P 500 +5.0%
• Nasdaq +4.1%

• The Dow One +18.2%
• Double The Dow +10.6%
• Maximum Midcap +6.3%

Your change from cautious to bullish in the middle of the housing collapse and sub-prime debacle looked reckless to me. Then the market rose that first week and I thought I'd wait for a correction to get in, but last week was the best in 2007 so far.

But I'm still queasy. Jon Markman -- who is a proven market genius -- wrote on Friday that we're on the verge of a bear market of epic proportions. Housing data came in bad again last week. Oil is at a record high price. And on and on.

You need to be careful, Jason. This isn't a game. It's people's money on the line and you shouldn't tell them it's OK until there's no reason to fear.

With all that in mind, when do you think will be a better time to start?

Massive levels of debt underlying the world economic system are about to unwind in a profound and persistent way.

He's not sure if it will play out like the 13-year decline of 90% in Japan from 1990 to 2003 that followed the bursting of a credit bubble there, or like the 15-year flat spot in the U.S. market from 1960 to 1975. But either way, he foresees hard times as an optimistic era of too much liquidity, too much leverage and too much financial engineering slowly and inevitably deflates.

Like an ex-mobster turning state's witness, Das has turned his back on his old pals in the derivatives biz to warn anyone who will listen -- mostly banks and hedge funds that pay him consulting fees -- that the jig is up.

Labels: Market Timing

• I wrote that my grandfather flew B-52s in WWII, which of course should have been B-29s. B-52s didn't fly until 1955.
• My edits of Bruce's comments incorrectly described his family. The summary should have read, "I come from a family where my father was drafted into service in WWII, had four children, was wounded in action in France, served willingly, and all four of his sons volunteered for service (two during war and have no regrets and are proud of it). I am one of those four sons."

You wrote, "America is the greatest country on Earth, yet it hasn't had a proud military moment in two generations. That stinks."

We don't fight wars today like we did then. Ask the people of Japan about atomic bombs, fire raids, massive destruction, and thousands upon thousands of civilian deaths. Today we play PC and put our soldiers at risk. By the way, how many bases and personnel do we have in Japan, Germany, Korea and elsewhere and how long have we been there?

Unfortunately, we have to be seriously hurt and endangered to fight the kind of war we did then, and we will when the big hurt comes and the people demand that the threat be ended!

The TV showers us all with "details at 11" which aren't details at all. They hype news stories as if they had any direct bearing on our lives which, on average, they don't.

I've discovered that with most stuff that happens, it's best to ignore all media reports for six months and after that the truth will start to leak out or there will be enough "facts" around to start to draw some kind of rational conclusion. Took me most of my 62 years to figure that out -- "Too soon old; too late schmart," as the Pennsylvania Dutch saying goes.

Long after the Vietnam war ended, a report crossed my desk pointing out that the continental shelf off Vietnam just might have had a lot of oil under it, as many other continental shelves have proven to have. Funny thing, that; why were we there, again?

Ditto the Falkland Islands War of the early 80s. Why did Argentina attack a small, peaceful, very British bunch of islands like all get-out? Continental shelf connects the Falklands with Argentina, and Argentina, at the time, had virtually no native oil fields.

Why did everyone want a stake in Antarctica? Massive coal deposits, way under the ice. Not economically feasible to recover 25 years ago, or 15 or five, but maybe some day. That's why so many nations have "research stations" on the continent. Not exactly for research, but to put down a footprint. I learned that from the naturalists on a Lindblad cruise to the Falklands and the Antarctic peninsula just after the Falklands war ended.

The Argentineans also carpet-seeded the Falklands's countryside with land mines, most of which, for some peculiar reason, didn't have metal detector rings on them, as the Geneva Conventions mandated. Many farmers were trapped in their homes for days or weeks with nothing to do but listen to their sheep being blown up when they stumbled across mines.

I would guess if we had gone in there, I would still have forces in Baghdad today. We'd be running the country. We would not have been able to get everybody out and bring everybody home.

And the final point that I think needs to be made is this question of casualties. I don't think you could have done all of that without significant additional U.S. casualties. And while everybody was tremendously impressed with the low cost of the (1991) conflict, for the 146 Americans who were killed in action and for their families, it wasn't a cheap war.

And the question in my mind is how many additional American casualties is Saddam (Hussein) worth? And the answer is not that damned many. So, I think we got it right, both when we decided to expel him from Kuwait, but also when the president made the decision that we'd achieved our objectives and we were not going to go get bogged down in the problems of trying to take over and govern Iraq.

I only question your patriotism when you suggest that your subscribers read a book with the title, The Ugly American. Isn't it fair to assume that citizens of other nations have numerous reasons to dislike Americans other than legitimate things Americans have done or currently do? Don't you think that certain stereotypes are supported by the foreign media?

Labels: Geopolitics

I believe that the credit crisis of 2007 is over, at least insofar as it is likely to impact the stock market. To be frank, it ended somewhat sooner than I expected.

A few weeks ago, I published a thesis about the credit mess. In a nutshell:

1. The credit crunch, begun by sub-prime mortgage lending in the USA, had spread into all areas of the credit markets. Ill-advised loans, over-reaching by unqualified borrowers, and over-leveraged purchases of loan packages had led to spreading defaults, the failure of some hedge funds, and the tightening or withdrawal of credit availability not only in the USA but around the world.

2. Investor sentiment had been badly shaken and would continue to yo-yo. Investors would fret over the credit situation, possible effects on the economy, and the ability of the Fed and central banks around the world to contain damage. They would have hair-trigger reactions to any signs, positive or negative. Therefore, severe market volatility was inevitable. Up and down days would exceed 200-300 points repeatedly, with an overall downward trend until the situation clarified. At the time of the article, stocks had already dropped 6% to 7% from their high on July 19.

3. The Fed and other national banks had begun to respond by injecting massive amounts of money into the financial systems to stave off panic, illiquidity, and recession. It was not at all clear whether such moves would stave off a true economic crisis. However, the initial moves did suggest that the central banks recognized the gravity of the situation and would try to head off grave damage.

4. Investors were likely, but not guaranteed, to recognize that in the overall scheme of things, the credit crisis was limited in size and was unlikely to drag the economy into recession. Pullbacks from the market had driven many stocks down to attractive valuations, and investors were more likely than not to see these as entry points if they could regain confidence that the economy was not going down the tubes. While investor sentiment would swing wildly, on balance it would tilt positive, and the markets were likely to be higher than lower six months hence.

5. Therefore, I recommended that investors (a) look for excellent companies with strong balance sheets; (b) loosen or eliminate sell stops to allow for the likely market volatility over the next few weeks or months; but (c) limit their stock investments to 1/2 or 2/3 of available "stock money" as a hedge against the thesis being wrong.

That thesis has proved quite prophetic. The markets, while extremely volatile, did start to bottom out and trend upward again. It did become more clear that the credit crisis was unlikely to topple the economy into recession.

Now, with Tuesday's slashing of the federal funds rate by 0.5%, and an equal lowering of the discount rate (the amount the Fed charges banks for loans from the government), along with similar moves by central banks around the world, I believe we can declare that the credit panic of 2007 is over.

This does not mean that there won't be more bad news. Some over-leveraged hedge funds and investors may still go belly-up. More borrowers will default, especially as adjustable-rate mortgages reset. Credit will be harder to obtain generally (which is a good thing).

But I now believe it is clear that the Fed and other central banks will contain the damage from the credit crisis. Stock investors can return to more "normal" strategies. Using appropriate caution, they can take advantage of good valuations to purchase shares in excellent companies. If they use sell-stops, they can return them to more normal levels. And they can become fully invested again. There is now a very high probability that the market will continue on an upward trend, and move toward more normal volatility ranges, over the next few months.

Labels: Market Timing

Could you have timed your switch from bearish to bullish any better? That was brilliant. I'm kicking myself for not moving money into the market two weeks ago, when you first said to get back in, and then last weekend when you reiterated the call.

My wife said the market looks scary with all the credit trouble, and she worried that banking problems like England's run on Northern Rock might come to the U.S. She said, "People are lining up at banks and you're gonna put money in the stock market?" That scared me a little, so I stayed away. Now, your Dow strategy is up 10% in the last two weeks or something, and I'm frustrated that I let her talk me out of investing.

Do you think I missed the boat?

• Dow One: +22%
• Double The Dow: +9%
• Maximum Midcap: +8%

Labels: Market Timing, Perma Ports

I've had my eye on Crocs (CROX) ever since their outstanding annual report sent their stock soaring. Honestly, after reading how much their revenue increased, I went to their website and bought a pair of their sandals. They were extremely comfortable and I was glad I bought them.

Now that I've had them for awhile, however, I've noticed that in the rain they are horrendous. Every single time it rains and I walk into a building, I slip. I even think about not slipping while slipping. It is almost impossible to walk on non-carpeted floors without slipping if you aren't 100% focused on keeping balance. I've fallen a couple of times in college buildings, and due to the embarrassment and annoyance, I won't wear the shoes again.

I was wondering what your opinion was about this situation. I like to test out products before I buy them, and I apply the same scenario to stocks. I didn't buy Radio Shack because every one I have been to was unhelpful, but bought Amazon.com because I loved their service. Both have worked out well for me.

Would a situation like mine, assuming that after fundamental analysis you aren't sure if the stock merits such a high P/E ratio, be enough for you to not buy? Unlike other shoes, I don't see people re-buying Crocs because of this slipping problem, and these companies thrive off of continued customer purchases on these consumer goods. This is one of the hottest stocks out there, so I assume you've taken a look at it, if only for a minute.

How should I take this into consideration?

My mother and sister visited me in Japan in May 2006. My mother wore a pair of Crocs sandals that she raved about the entire visit as we walked around Tokyo and flower parks near my home in the countryside. She told me that Crocs were invented in Colorado, where we're from, and that everybody back home had a pair. When my friends in Japan saw the sandals, they asked about them, tried them on, and wondered if I would buy some for them on my next trip back to the States. An actionable tip? You bet. Shares of Crocs were less than $25 that May. In February 2007, they broke $58 for a gain of more than 132 percent in just nine months. I have a feeling Peter Lynch would love this story.

Labels: Beginners, CROX

Has anyone ever stopped to consider that the only reason Saddam Hussein felt emboldened to discard the Gulf War treaty and ignore Security Counsel resolutions was because of the anti-Bush hysteria gripping the Democratic Party and their mainstream media mouthpiece? He had every reason to believe America would not support President Bush's stance that the UN resolutions should be enforced. All the leftwing folks taking to the streets here and abroad protesting the saber rattling are to blame for the war. Mr. Bush pointed a gun at Saddam's head and told him to comply with the UN resolutions, but the Lefties convinced Saddam that the gun was not loaded.

Granted, there have been three follies to Mr. Bush's approach:

1) Islamic societies are incapable of our system of democracy, justice, and civil liberties.

2) If you're going to fight a war, you don't do so by trying not to offend the people you're killing. The only language those people understand is violence, and to speak in any other voice is a waste of time.

3) Iran and Syria should be bombed back to the stone age if there's hard evidence they're involved in the deaths of our soldiers.

The war began on the grounds of WMD. When none were found they shifted to ousting Saddam. When he was found and detained and the violence escalated instead of waning, the war was lost.

Many military people were opposed to the war. Just militarily it was a bad idea. My father is a Navy captain and his best friend is an Army two-star general, neither support the war, both have spent their lives serving the country.

Movies are not where you go to get unblemished and unbiased view of politics, war, etc. -- too many people today have no understanding of our country's history other than badly blemished movies that deride "the greatest country on God's green earth". We are not perfect, but we are damn good, gracious, generous and much admired by many with any knowledge of history -- we are also the object of disdain for our success by those who feel they cannot compete and find it makes them feel better about themselves to do so. I come from a family where my father was drafted into service in WWII, had four children, was wounded in action in France, served willingly, and all four of his sons volunteered for service (two during war and have no regrets and are proud of it). I am one of those four sons.

If you want objectivity you have to read stuff by the respected writers of both sides, understanding where they sit and where they stand and are willing to at least provide a balanced review of what happened and when and what the circumstances were at the time the events occurred. Did the Congress not overwhelmingly support going to war after viewing the same intelligence the president saw -- 9/11 not being the first incident of terrorism but one of many prior? We made some mistakes along the way, so what, anybody that does something makes mistakes. Did the president not do what he thought was the right thing to do at that time which, by the way, was what many had been demanding (Democrat leaders and Republican, I can supply quotes) during the Clinton administration? Does any sensible, knowledgeable person believe the president lied and people died?

There are fanatics on both sides -- most on the Democratic side of the aisle -- who are demagogues who will stop at nothing for power to turn this country into a socialist state.

Psychologists know that regardless of what you say, what you do is who you are. We also know that children learn much more from the example of behavior than from the speeches made to them, and those examples wind up being the major character-forming issues in their lives. Leadership at any level is a role model, and one that affects character and behavior of those who follow them in the same way. When leaders play fast and loose with the rules or by pass them with excuses, they are making unwritten rules that say "you can ignore the established rules and make up your own". This is an example to all who are below that leader; it authorizes and encourages similar abuse on their level. If our CEO (the dubya shrub) can't demonstrate character in his position, given all his power, why should CEOs in industry or leaders in other fields?

The broad presence of character would be the universal antidote for social and political ills. Character is self-regulation to values that can be respected by society as a whole. We need laws only because self-regulation is not an automatic quality of the human species, and because far too many people do not value it in themselves, do not recognize it in others or do not use it as a selective tool in determining who they allow to lead or influence them. A president ignoring law or adjusting it to suit himself is the ultimate bad example of contempt for law and lack of character. When there is a blatant lack of character at the very top, you can expect it to trickle down in all areas, then multiply and become epidemic if it's not stopped cold. That does not appear likely to happen, despite the vast amount of evidence that it should.

I fully expect this to become a greater issue in the market and economy in the near future because of the vacuum of character in current adminsitration that will continue for at least another 15 months.

Labels: Geopolitics

Remember how Bush strong-armed us into invading Iraq in the first place? It was the "actual satellite photographs" of Saddam's "weapons of mass destruction". Four years have now passed since we learned there were no nukes at all. Since being "found out", Bush has continually tried to control public opinion with scare tactics. According to him, pulling our troops from Iraq would directly allow terrorists to come kill us on our own soil. The price tag? A war bill as high as $1 trillion and, even worse, 3,700 dead young Americans, and counting.

Remember the attempts on the part of Congress to find out more before we invaded? Bush wouldn't take no for an answer. Why? I believe the reason Bush invaded Iraq was that he saw 9/11 as an opportunity to establish strategic control over at least a portion of the oil in the Middle East. I also think that Bush and his closest advisors believe that, down deep inside, the American people are more willing to lose a few young men (from poor families) than deal with the inconvenience of a mandatory rapid conversion to a non oil-dependent lifestyle. It is my opinion that Bush's arrogance caused him to overstep his bounds as president. Now, with public opinion crashing down upon him, he is simply attempting to use smokescreens to politically survive until the election, when he can pass the Chinese finger puzzle he put us in to the next president, and hope he (or she) will be blamed for it.

I've followed this war very closely from the start. The deaths and sacrifices of some of my friends and comrades have affected me deeply. That being said, I would like to share the following thoughts and I ask that whether you consider yourself a liberal or a conservative, you give this little piece of writing a chance and at least read it through to the end.

Whenever we describe something as either liberal or conservative, we often take a situation or idea that is very complex and try to fit it into one or two overly broad categories. This is dangerous when we are trying to understand a situation because terms such as liberal and conservative immediately cause people to involve a flurry of associations and emotions.

The founding fathers of this country were wary of political parties because they saw the divisive effect they had in European countries. True, the Republicans and Democrats are fighting about what we should do in Iraq. Should this change what I believe about the war? No. The stances of the political parties are a secondary issue to me. They should be for you too. After all, that is what they are there for, to represent your beliefs. Don't just adopt the party's position as your own because you consider yourself a Democrat or Republican. I decide what I believe first and then take a look around and see what the official party stance on the matter might be.

I also try to remember that there is no official international stance (hawkish or dovish) associated with the Republican or Democratic party over the long run. Remember, in the most general terms a liberal president took us into Vietnam and a conservative president took us out.

When I see a liberal Congressman say that everything in Iraq is going wrong, I think, "Shame on you, that is not an accurate statement." When I see a conservative Congressman gloss over all the problems we are having, I think, "Shame on you, there are indeed serious problems in Iraq."

Maybe there are some brilliant thoughts emanating from the Democratic party and some brilliant thoughts emanating from the Republican party and the only thing stopping them from coming together in a solid plan is that these ideas each have political stigmas attached to them and would never gain the support of both parties at the same time.

The divisiveness and polarization of the American political parties that has increased over the last few years is probably not helping policy makers have a healthy debate about the best way to proceed in Iraq.

So I try to do my part as an American and keep a cool head and hear out a person's opinion for what is: a summation of a lifetime of experience and thinking and not just conservative or liberal. I write my Congressmen and tell them I prefer to see discussion and debate with the focus on a truly thoughtful outcome. I don't want the Democratic party to win at all costs and I don't want the Republican party to win at all costs.

I am in the military. I get up every day and work extremely hard for this country because I care about it. I sacrifice. When I see people ask thoughtful questions and then get hateful responses, whether they are liberal or conservative, it makes my heart weary. In my head, this isn't America the liberal or America the conservative. This is America your country, America my country, and America our country. I don't care if you think you are a liberal, a conservative, or a Martian, I'll listen to your thoughts because I know you would do the same for me.

I thought your article was dead on, and I look forward to seeing the film. Part of the reason I subscribe to your newsletter and have enjoyed your books is that you offer a perspective quite different from most investment-related writers, most of whom, regardless of merit, I find tedious, politically predictable, and boring. Your theories have consistently made money for me, and I have always enjoyed your writing. I'm surprised that anyone familiar with your writing would be surprised by your comments. I don't know your politics, but your writing has consistently demonstrated open-mindedness on a wide range of topics. Your criticizing the war at this point shouldn't really come as a shock to anyone. I enjoy the opportunity to read someone who's obviously not part of the Republican Wall Street establishment to which so many investment writers seem to belong. Keep up the good work.

Labels: Geopolitics

Not being a Washington employee or a part of the government community, neither you nor I really know that that thoughtful process didn't occur. Unfortunately, too often many people tend to overlook the good for the bad or "not so good" which resonates an aura of negativity. Fortunately, in spite of all that negative hype, our economy continues to flourish under the Bush Administration, so "they" aren't doing all that bad of a job. If only people could get off their negative soap boxes and develop some objectivity; I wonder if this aura of negativity would shift too.

I'm embarrassed that you took the opportunity of the 9/11 anniversary to spew liberal, left-wing filth on your website. Given your views, I'm ashamed that I give you money for advice of any kind. I've always wondered why you choose to live in Japan, and I guess I now understand. You want to live in a country where you can apologize daily for your foolish fellow citizens. Perhaps you and Sean Penn hang out on a regular basis.

If I'm wrong, please feel free to address any of my points. While I understand it is your website and you control the content, I do not pay for nor appreciate the political op-ed you chose to post. If your stance is as left-wing/socialist as your site posts suggest, why do you write books about entrepreneurship and investing? Shouldn't we wait for the government to plan for our futures?