Bearish Again

[KC Scott]

I bought QID (The inverse QQQQ Bear Fund) Today at 52.10

I also Shorted KLAC at 51.02 and ADI at 34.00

The big thing that happened today during trading was the release of the Fed minutes:

http://money.cnn.com/2006/11/15/news/ec ... /index.htm

Basically, they are saying that a cut in the interest rates isn't in the cards until at least next spring.

Also, Applied Materials (AMAT) confirmed today that there is a significant slowdown in the Chip sector.
Inventories are built up for consumer products (like cell phones, laptops, digital cameras)
Companies like Intel have already indicated cuts in capital spending for next year.

I know the companies I work with are indicating reduced CapX for '07 -
This year has been tough on retailers and they are all praying for a blowout Xmas

[Mister Bushice]

assuming that the economy wil slow down, and that the fed cuts the rate in the spring, what direction are you heading in, overall?

I know - bearish. I meant to say what all do you look to in order to determine where to move your money when things are so uncertain?

from my point of view you seem to be micromanaging your portfolio, or is that what you always have to do?

[KC Scott]

assuming that the economy wil slow down, and that the fed cuts the rate in the spring, what direction are you heading in, overall?

You know, If the Pull back isn't as huge as I'm thinking, then I'm back in.
What's crazy is I've never been Bearish before - I've always made money on the buy side -
Well, that is since I started actively trading.

Like everybody else I got hit hard in the tech bubble -
I was making so much money back then I somehow rationalized I didn't want to sell and take profits.
Later, when it dropped, I bought more tech beacuse I figured it was headed back up.
I got out of most tech, studied what funds (REITS, Emerging Markets, Small Caps) were moving and bought those.

Anyway, I won't really have a gameplan until after the market corrects and to see what the rest of the world is doing.
I just read a pretty frightening scenario on the Chinese market melting down - and since they own a shitload of out Debt, If they decide to liquidate - it gets real ugly. Gold, Booze and Guns are never a bad idea under those circumstances. :D

I know - bearish. I meant to say what all do you look to in order to determine where to move your money when things are so uncertain?

Like I said, I went Ostrich with everything and am 100% cash (except for my short positions which are less than 5% of the whole) Since I'm making over 5% in the MM with No risk, I'm happy with that right now.

At 43 I will continue to follow that rule of 100 I wrote about and never have less cash or equivilant than my age.
Like I said, It's tough to say what I'd buy until you see what the carnage has wrought.

from my point of view you seem to be micromanaging your portfolio, or is that what you always have to do?

No, but as mentioned - I forgot about the Buy and Hold forever strategy after getting whacked in the tech bubble.

Before I went All cash I was - 60% Mutual Funds and 10% stocks in my trading portfolio - Rest was Money Market
Again, I don't count my real estate in that breakdown
When I get back in - I'll probably look at a mix of growth and value and index funds for the majority of it.
Again though, It's tough to say what things will look like in 2007.

[poptart]

No, but as mentioned - I forgot about the Buy and Hold forever strategy after getting whacked in the tech bubble.

Buy and hold lets one sleep well at night.

As long as your portfolio is reasonably well diversified and you have no need to liquidate anytime soon you'll almost certainly make out very well in the end.

History is on your side.


How many people actually 'beat the market' in the long haul by jerking in and out of positions .... ?

It's like a carnival game.

[KC Scott]

David,

I respect your opinion, and won't debate anyone's strategy.

Everyone needs to make their own calls, and as long as your confortable with your decisions, then you really don't need to consider alternative strategies

[Mississippi Neck]

How many people actually 'beat the market' in the long haul by jerking in and out of positions .... ?

The number of average investors sitting in their homes in KC, Houston, , Timbuktu, or Korea actually beating the market in the long haul is extremely extremely small. You're not going to outthink the market. Your dreaming if you think so.

Buy quality investments. Diversify your holdings. Max out your 401K. Reinvest your earnings. And in the long haul (retirement age) you will do fine. You should really start to pay attention to your earnings as you get near retirement and start shifting more to cash. Keep an eye on the market, but, avoid making decisions based on one event or a short term trend.

Thank you and have a good evening.

[KC Scott]

Well, I believe it's finally here.


Semi conductors are leading the way down - Guess I was just a little late with the call [/rolleyes] - OK though as both of my Semi shorts are in the money

Today's sell off and the remainder of this week will guide my thought's on how this market proceeds.

Call it fear, or profit taking the result is the same.
Many are remembering last year's sell off and getting out now.

If the "buy the dip" crowd is weak tomorrow then will short more in both Naz and will add short the S&P via SDS.

[poptart]

You said the NAZ was going to drop down to 1700, didn't you .... ?
With today's dip, it's still at 2400.


Got a ways to go, boss.

[KC Scott]

You said the NAZ was going to drop down to 1700, didn't you .... ?
With today's dip, it's still at 2400.


Got a ways to go, boss.

Nothing happens in a day, dave.

On Oct. 3 I wrote:

Watch for the following; The Nasdaq will drop hard within the next 6 weeks.
First level of support, when it starts to go south, will be this summers lows around 2,012.

Once that gets taken out - it could fall all the way to 1750 - about 2 years worth of gains.
Of course, this will drag the S&P 500 and the Dow right down with it.

First, I was wrong on the 6 week call - But I still believe the Naz will correct,
I'm going to revise the bottom (of the channel) to 2,075

I absolutely believe we are seeing a top right now.

This is from Investors Business Daily:

Ongoing Dollar Fall Could Slow Growth And Import Inflation

BY KIRK SHINKLE

INVESTOR'S BUSINESS DAILY

Posted 11/27/2006

The dollar continued to slide Monday, as the U.S. currency appears to be straining in the face of a slowing economy.

After holding its own for several months, the dollar has fallen 2.3% vs. the euro over the last week. It's dropped 1.4% against the yen.

The bulk of the damage came last week amid thin trading surrounding the Thanksgiving holiday, but the fact that weakness continued Monday — it hit a 20-month low vs. the euro — may mean long-time predictions by dollar bears are coming true.

They cite slower U.S. growth mixed with huge trade deficits, rising currency rivals and talk of diversification by once dollar-loving central banks for the drop.

Whatever the cause, further declines could bring a few other worrying trends to the fore.

First, look to the U.S. consumer. Thanksgiving weekend showed Americans remain more than willing to spend if there's a deal to be had. But a weaker dollar will boost prices of imported goods.

Second, those rising import costs could feed inflation, which most analysts hoped had been mellowing. That gives the Federal Reserve less room to maneuver by cutting rates even if the economy slows more than expected.

As such, this week's economic data take on a bit more heft.

"The Fed is still data driven, and depending on the outcome of the numbers we see this week it could have a significant bearing on where the dollar goes through the remainder of the year," said Ron Simpson, head of currency research at Action Economics.

Traders on Tuesday will get October existing-home sales as well as a speech by Fed Chairman Ben Bernanke. A host of other economic data will be out this week, including new-home sales Wednesday.

More broadly, dollar weakness has been expected for some time, given slower growth in the U.S. while Europe and Japan improve.

Futures traders are betting the next Fed rate move will be down.

Meanwhile, the euro zone is in the middle of a tightening cycle. Japan is expected to raise rates again early next year as well.

Also, central banks — especially China — have been gorging on dollars. China has more than $1 trillion in foreign exchange reserves mostly held in dollars. Senior officials in that country have signaled the need for diversification. Most analysts see some shift to other currencies as inevitable.

"We've heard lots of noises over the last several months, but maybe people listened to them a bit more last week," said Andrew Balls, a global strategist at Pimco.

A shift from the greenback could mean higher Treasury yields. But the benchmark 10-year rate is 4.55%, right at nine-month lows.

Also, a bit more dollar weakness wouldn't be all bad. Pricier imports and cheaper exports could help right the huge global imbalances, including the huge U.S. trade and budget deficits.

Big U.S. multinational firms in particular would benefit from stronger exports and converting their overseas profits into dollars.

In a worst-case scenario, a big dollar drop would send consumer spending into free fall, fueling inflation in a way that would leave the Fed no choice but to raise rates. With GDP growth slowing already, such a scenario would likely push the U.S. into recession, roiling capital markets and economies worldwide.

Bernake spoke today and remains Hawkish on inflation -
I think this market priced a rate cut in and now you'r going to see selling pick up
Yesterday's drop was a good barometer of just how nervous this market has become.

Again, dave.... The advice is free and you get what you pay for ;)

[War Wagon]

Hey Scott

The NFL forum called, and said that the Chiefs are 7-4 and in the hunt.

And you're down here talking gibberish (to me) and fretting over portfolios?

Dude, get priorities straight.

Are you too good for the NFL forum these days?

Oh, and btw... RACK BSSHS for winning the state championship. I actually watched it for awhile in the 2nd. What a complete demolition. The refs were actually trying to help that putz team by tossing bogus pass int flags. Didn't work.

The two best teams in the state reside in Blue Springs. Hell, Oak Park or Liberty would've bitchslapped those teams from the east side.

[KC Scott]

Sup' Dave (you get the capital D)

I've back burnered football (damn the heresy) in pursuit of the almighty dollar. I've looked at so damn many stats, charts and graphs I'm now qualified to start wearing a pocket protector and coke bottle glasses.

The boys are playing basketball now and I'm coaching that, too, so free baord time is at a minimum.

South did put it to CBC pretty good, but aside from BS they didn't really have any other close games all year. I can't believe Dalton (South QB) is only a soph. I'm gonna have to listen to 2 more years of South shit from the other coach on eric's team.

Hope your Bond funds are doing OK for you.
Long term Bond's scare the hell outta me right now since the yeild curve is inverted (short interest paying more than long), But then again I keep thinking the whole market is dangling by a fucking thread anyway.

I'm still of the opinion the next soft landing the market see's will be the first, but what the hell - I guess there's a first for everything.

[poptart]

My approach is one of buy and hold, Scott -- with a few adjustments along the way.
That approach is based on two reasons.

1. That approach tends to mirror my character

2. I only have a nuts & bolts understanding of market matters

You have much more information, understanding, knowledge, and background than I, so I am in no position to either necessarily agree or disagree with your takes.

I just read them and consider them from my limited point of view.

Hopefully I can learn more in the future.

Anything that can help my bottom line is cool by me. haha



Chiefs blow, Wagon.

Get lost.

[KC Scott]

This was a real interesting day - I shorted KLAC & ADI on a gap up this morning and then covered after lunch.

I could have made some more if I had swung long on KLAC, but I still live can't quite get the courage up to go long on anything - It all looks so overbought.

Another trader wrote me that the market is just nuts right now.

Consider:

1- We had analysts saying we will rallying another 5 years

2- We had IPOs like CMG double almost overnight

3- We had buyouts in stock and cash rather than reinvest in R&D, core business or buying back their own stock

4- Every night on CNBC I hear analyst or Cramer speculating whats gonna be bought out next day... It's like a carny barker

5- Bizarre price targets by the worst analysts on the Street

6. Every day I must get 50 spams for a pump and dump penny stock

Sounds familiar? Well if you were around in 2000, it would, it was the same scenario during the tech bubble run up.

Another trader just turned me onto Phil Grande - I just listened to his Pod cast for today:

http://archives.warpradio.com/btr/StockTalk/112915.MP3

I was thinking today, that it's not Bearishness any more, but just common sense to take some profits.
The bad thing will be when everyone tries to do it at the same time.

[Ruff]

The bad thing will be when everyone tries to do it at the same time.

Don't sweat it.

My approach is one of buy and hold

Whole lotta $$$ stayin in the market.

[KC Scott]

My approach is one of buy and hold

Whole lotta $$$ stayin in the market.

In the big picture, that may not be an accurate prediction - here's why;

The first waves of baby boomers are retiring now -
as they retire they will be converting (selling) their stocks and mutual funds (including 401K) into cash.

Just like any supply and demand scenario,
there will be more sellers than buyers given the population decrease since the boomer generation.
The only scenario I could see that equaling out in would be if foreign buyers stepped in to pick up the slack.

In the market's today Gold and oil both spiked.
I think the Oil stocks (and Oil company prices will both pull back)

I think Gold is going much higher.

A Trader today made this observation on why Gold is ramping up:

Very simple answer to your question - market is pricing in deflationary recession (which will
eventually convert into depression). Three consequences -

(i) Deflationary recession means fed will lower interest rate - so bonds rise.

(ii) If interest rates go down, dollar becomes less attractive to other currencies- so
money runs out of dollar and dollar falls. Other currencies and gold rise.

(iii) Deflationary recession means commodities are less attractive. So, oil and copper do not rise
as much as gold/silver this time.

For anyone wondering what a deflationary recession is:

Deflation in the United States

There have been two significant periods of deflation in the United States. The first was after the Civil War.

"The Great Sag of 1873-96 could be near the top of the list. Its scope was global. It featured cost-cutting and productivity-enhancing technologies. It flummoxed the experts with its persistence, and it resisted attempts by politicians to understand it, let alone reverse it. It delivered a generation’s worth of rising bond prices, as well as the usual losses to unwary creditors via defaults and early calls. Between 1875 and 1896, according to Milton Friedman, prices fell in the United States by 1.7% a year, and in Britain by 0.8% a year.[4]

The second was between 1930-1933 when the rate of deflation was approximately 10 percent/year. The first was possibly spurred by the deliberate policy in retiring paper money printed during the Civil War; the second was part of America's slide into the Great Depression, where banks failed and unemployment peaked at 25%. Both were world-wide phenomena.

The deflation of the Great Depression did not occur because of any sudden rise or surplus in output. It is generally thought that, because there was an enormous contraction of credit and the money supply into an environment of high asset prices, an ordinary downturn in business was turned into a catastrophic drop in production. The lack of liquidity generated bankruptcies created an environment where cash was in frantic demand, and the Federal Reserve did not adequately accommodate that demand, so even sound banks toppled one-by-one (because they were unable to meet the sudden demand for cash— see Fractional-reserve banking). From the standpoint of the Fisher equation (see above), there was a concomitant drop both in money supply (credit) and the velocity of money which was so profound that deflation took hold despite the increases in money supply spurred by the Federal Reserve.

This is from a speech Ben Bernake gave in 2002

http://www.federalreserve.gov/boardDocs ... efault.htm

Deflation: Its Causes and Effects
Deflation is defined as a general decline in prices, with emphasis on the word "general." At any given time, especially in a low-inflation economy like that of our recent experience, prices of some goods and services will be falling. Price declines in a specific sector may occur because productivity is rising and costs are falling more quickly in that sector than elsewhere or because the demand for the output of that sector is weak relative to the demand for other goods and services. Sector-specific price declines, uncomfortable as they may be for producers in that sector, are generally not a problem for the economy as a whole and do not constitute deflation. Deflation per se occurs only when price declines are so widespread that broad-based indexes of prices, such as the consumer price index, register ongoing declines.

The sources of deflation are not a mystery. Deflation is in almost all cases a side effect of a collapse of aggregate demand--a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers.1 Likewise, the economic effects of a deflationary episode, for the most part, are similar to those of any other sharp decline in aggregate spending--namely, recession, rising unemployment, and financial stress.

However, a deflationary recession may differ in one respect from "normal" recessions in which the inflation rate is at least modestly positive: Deflation of sufficient magnitude may result in the nominal interest rate declining to zero or very close to zero.2 Once the nominal interest rate is at zero, no further downward adjustment in the rate can occur, since lenders generally will not accept a negative nominal interest rate when it is possible instead to hold cash. At this point, the nominal interest rate is said to have hit the "zero bound."

Deflation great enough to bring the nominal interest rate close to zero poses special problems for the economy and for policy. First, when the nominal interest rate has been reduced to zero, the real interest rate paid by borrowers equals the expected rate of deflation, however large that may be.3 To take what might seem like an extreme example (though in fact it occurred in the United States in the early 1930s), suppose that deflation is proceeding at a clip of 10 percent per year. Then someone who borrows for a year at a nominal interest rate of zero actually faces a 10 percent real cost of funds, as the loan must be repaid in dollars whose purchasing power is 10 percent greater than that of the dollars borrowed originally. In a period of sufficiently severe deflation, the real cost of borrowing becomes prohibitive. Capital investment, purchases of new homes, and other types of spending decline accordingly, worsening the economic downturn.

Although deflation and the zero bound on nominal interest rates create a significant problem for those seeking to borrow, they impose an even greater burden on households and firms that had accumulated substantial debt before the onset of the deflation. This burden arises because, even if debtors are able to refinance their existing obligations at low nominal interest rates, with prices falling they must still repay the principal in dollars of increasing (perhaps rapidly increasing) real value. When William Jennings Bryan made his famous "cross of gold" speech in his 1896 presidential campaign, he was speaking on behalf of heavily mortgaged farmers whose debt burdens were growing ever larger in real terms, the result of a sustained deflation that followed America's post-Civil-War return to the gold standard. 4 The financial distress of debtors can, in turn, increase the fragility of the nation's financial system--for example, by leading to a rapid increase in the share of bank loans that are delinquent or in default. Japan in recent years has certainly faced the problem of "debt-deflation"--the deflation-induced, ever-increasing real value of debts. Closer to home, massive financial problems, including defaults, bankruptcies, and bank failures, were endemic in America's worst encounter with deflation, in the years 1930-33--a period in which (as I mentioned) the U.S. price level fell about 10 percent per year.

Beyond its adverse effects in financial markets and on borrowers, the zero bound on the nominal interest rate raises another concern--the limitation that it places on conventional monetary policy. Under normal conditions, the Fed and most other central banks implement policy by setting a target for a short-term interest rate--the overnight federal funds rate in the United States--and enforcing that target by buying and selling securities in open capital markets. When the short-term interest rate hits zero, the central bank can no longer ease policy by lowering its usual interest-rate target.5

Because central banks conventionally conduct monetary policy by manipulating the short-term nominal interest rate, some observers have concluded that when that key rate stands at or near zero, the central bank has "run out of ammunition"--that is, it no longer has the power to expand aggregate demand and hence economic activity. It is true that once the policy rate has been driven down to zero, a central bank can no longer use its traditional means of stimulating aggregate demand and thus will be operating in less familiar territory. The central bank's inability to use its traditional methods may complicate the policymaking process and introduce uncertainty in the size and timing of the economy's response to policy actions. Hence I agree that the situation is one to be avoided if possible.

I had not considered the possibility of a deflationary recession, probably since the last one was in 1930

But considering the massive debt load of the nation, business and the consumer, it is not beyong the realm of possibility