Rip Van Winkle

Doubleclick on chart to make it larger.

*Long ETFs related to the S&P 500 in client and personal accounts.

All or Nothing Days Continued.

One last thought on all or nothing days.  If we get those 69 days this year that means that approximately 27% of all days in 2011 have had a day with the advance/decline line +/- 400.  More than have the days since the beginning of August have traded this way.  Wow!!!!!

All or Nothing Days

From Bespoke Investment Group, another "all or nothing day": 

"This is getting to be more common than uncommon. With a net daily advance/decline (A/D) reading of 484 today, the S&P 500 had its 60th all or nothing day of the year, and is now on pace for 69 all or nothing days in 2011. For those unfamiliar with the term, an all or nothing day occurs when the net daily a/d reading of the S&P 500 is +/- 400 or more. Of the 84 trading days since the start of August, 43 of them have been all or nothing days."

My comment:  It looks like we are going to have another one of these today.  This is the modern reality I think.  Money simply wants into these markets or it wants out.  Decisions are made before the opening now and at the close.  On Monday the market had a plus 2% move at the open and never came in.  If you wanted to buy this market, you had to do it last Friday right before the close.  This binary type market is driving traders nuts but longer term investors should just accept it for what it is and learn to live with it just as we are having to learn to live with higher volatility.

Link:  Another All or Nothing Day.

*Long ETFs related to the S&P 500 in client and personal accounts.

Leon Cooperman's Plea For A More Civilized Debate

If you have the time today bustle on over and read Leon Cooperman's plea to the President to civilize the economic and tax debate.  Mr. Cooperman wants debate not demagoguery.  So do I!

Link:  Cooperman: Please Mr. President. 

More on 4th Quarter Seasonality

The The Big Picture had this statistical comment on market gains in the 4th quarter {October 1-December 31} the other day:

"Surprising data point about Q4 market numbers:  From 1990-2010, the fourth Quarter has produced gains near 5% — that nets a return higher than the cumulative return first, second and third quarters combined (3.5%).  Consider it a variation of Sell in May."

Link:  4th Quarters are Da Bom 

PreMarks {Central Bank Edition}

Futures are flying this am on news of a coordinated world-wide central bank intervention to inject liquidity into banks.  Couple that with end of the month pressures and better ADP employment numbers and you have the basis for what ought to be a good day.  Assuming this holds and the Europeans give off even an a small amount of ability to work together on their debt problems then you have the basis for what could be the start of an end of the year rally now.

Remember.  There are many people in my business that need that end of day print on 12.31.11 to be much higher than it is now in order to get paid.  I expect those people to start doing what they can to run the market for the next three weeks or so.

More later.....

Happy Thanksgiving

You had to have been born in a certain time and place to remember "The Munsters" and commercials such as this.  Enjoy a Thanksgiving walk down 'Memory Lane".  Happy Thanksgiving everybody!

Super Committee One Last Satirical Look

Out To Grandmother's House

We're going to be taking some time off this week as we do the traditional Thanksgiving thing.  We'll pick things up next week.  We'll break away from the food table though if anything important comes over the transom. 

Happy Thanksgiving!

Are Stocks Cheap? This Writer Thinks So.

Good Smart Money article that does a much better job talking about how the market is cheap.  It is what I was trying to show here.  {Excerpt with my highlights}

 

Panicking About the Markets? Read This -- Now

While the Dow plummeted nearly 250 points Monday, consider that many high-quality blue chips are on sale, and getting cheaper.   By BRETT ARENDS

No wonder markets are tanking. The financial crises, here and in Europe, are terrifying. Just ask anyone on Wall Street.  The super committee has broken apart in failure. The US budget process is in disarray. Meanwhile, across the pond, who knows what will happen next?  The euro could fall apart. The banks could collapse. This could be the next Bear Stearns -- or the next Lehman Brothers. OMG! This is no market for anyone but professional traders, right? I mean, ordinary mom and pop investors should run for the hills, hide in a cave, and put all their money in a sock.

Right?  Bah.  This is exactly why so many people are still so hard up. They don't know how to invest. They don't know how to handle the markets. And they certainly don't know how to handle the headlines.  Do yourself a favor. Stop worrying.....Take a deep breath. And give some thought to buying some good, high quality blue chip stocks. Yes, today.  Thanks to the crisis, they're on sale. And they offer a compelling investment for all but the most risk-averse..... 

....Only you know how your financial situation is fixed. You wouldn't want to invest money you will need in short order. And you may also fear that you already own too many stocks at your stage in life. But you don't need to overthink this too much either.  Could the European crisis get much worse? Certainly. Could the stock market fall much further? Sure. Could we enter another recession? Yup.  Let's even accept that it's a good possibility. I make no guarantees -- none -- about what will happen in the next few weeks or months.....But so what? You make money buying good quality securities when they are cheap, not by predicting the market's next twist or turn.

The reality is that fears about the European crisis have already driven down stock prices a long way -- including those of many strong, stable companies that will weather crises just fine. So in many cases you are simply getting a very good deal.  Investing in a crisis is simple, because there are cheap stocks all around. It's investing in a boom that's hard.

Take a look at the iShares Global 100. It's made up of companies...{that} have operations all over the world. They are fabulously profitable. They are reaping big profits in western countries, and rising profits in the emerging markets of Asia, Africa and Latin America. Higher-risk financial stocks make up just 12% of the total.   Yet the dividend yield on this fund, even after deducting the 0.4% management fee, comes to 2.9%. To put that in context, a ten-year Treasury bond is only paying 2%.   Plenty of {the fund's} stocks, individually, are yielding better than 3%. Quite a few, especially in Europe, are yielding better than 4%.

Stocks go down as well as up. But over time, they have tended to rise. And, also over time, dividends have generally risen faster than inflation. Bond coupons do not.  That means blue chip stocks offer you some protection against inflation. Regular bonds don't. They put you at risk from inflation.

Study after study shows that when it comes to stocks the public typically does the wrong thing at the wrong time. They sell in a crisis, when shares are cheap and a good buy. Then they wait till prices have boomed and they start buying again.   That's why they dumped huge amounts of stocks during the financial crisis, in the fall of 2008 and the winter of 2009. Data from the Investment Company Institute, a body that represents the mutual fund industry, shows they have been dumping stocks again recently.

Look at what this means. Dalbar, a financial research firm in Boston, does a study every year which compares what the average mutual fund investor actually earned with what they should have earned. Over the past 20 years, says Dalbar, someone who just invested $1,000 in the Standard & Poor's 500 index and left it there, reinvesting the dividends, would have made about $4,750 in profits.  The average investor in an equity mutual fund over that period? They made $1,000. No, really. A fraction of the total.  After accounting for inflation, the average investor barely broke even. No wonder everyone hates stocks.  From 2000 through 2010, the stock market went nowhere. But Mom and Pop mutual fund investors lost billions, because they bought at the wrong time and sold at the wrong time.  There's an obvious conclusion. Someone else made that money. Sophisticated investors. The ones who bought when others were selling in panic, and then sold when others were buying too greedily.  The blue-chip iShares Global 100 has fallen 20% since late May.

Analysts at GMO, the upscale investment firm in Boston, reckoned even a few weeks ago that a basket of high quality U.S. and international blue chips would earn you about 5.5%, plus inflation, over the course of the next seven years. Their numbers are only a guess, but they are based on some common sense assumptions and cautious forecasts. Based on the sell-off last week, the prediction should now be around 6%, plus inflation. To put this in context, cash and bonds are paying you less than inflation. And even a thirty-year mortgage is only costing you 4%, before inflation.

Link:  Panacking About The Markets-Read This Now

*No positions in the ETF or the mutual fund mentioned in the original article.  The stocks mentioned in the article are also positions held as components in various ETFs in which we invest.

Super Committee I Was Wrong

A final post-mortem.  I was wrong.  That wouldn't have changed my investment stance but I was wrong in thinking these fellows would behave rationally and with the best interest of us in mind.  It's important in my business to admit when you made a bad call.  On this I was on the wrong side of the fence.

Super Committee-A Thought

Today's first post may seem kind of silly given the apparent failure of the super committee to come to a deal over the weekend.  Let's just put a few thoughts in on that.

1.  Deadline is Wednesday.  Also deadlines can be usually be extended.  In fairness there may be something in the legislation that originally set up the committee that precludes that.  I haven't looked.  

2.  Automatic cuts of 1.2 trillion set in in 2013 if the committee does nothing.  These cuts are so draconian that it is likely that some kind of deal will be crafted later on.

3.  The best thing might be for political deadlock to set in and have Congress do nothing.  Washington Post columnist E.J. Dionne calculates how a Congress that sets on its hands could save over 7 trillion dollars in the next decade simply by doing nothing.

4.  Things are pretty gloomy and investor sentiment is beyond poor.  Yet stocks are cheap.  Investor sentiment strikes me as in the necessary stage that often sets up a rally.

We'll see how the rest of the week plays out.  I will say that at this point it looks like the super committee is done and I'd say that the blame will be marginally cast more towards the Republicans than the Democrats.  That may be enough to get us some movement at this late date.  We have till Wednesday.   

Seasonality

You're going to hear a lot about market seasonality if you pay any attention to the investment news between now and the end of the year.  Terms such as the "Santa Claus Rally" have been coined to describe what usually happens between Thanksgiving and New Year's Eve.  I did a quick snapshot of the S&P 500 to see how markets have performed recently during this period.  I picked 2008 as a start date simply because that's the year from my perspective when the entire investment landscape changed. There would not be enough data points to reach any solid conclusions about this period if longer dated studies hadn't already confirmed the statistical upward bias to stocks during this time. 

Since 2008 stocks have been up each year, averaging by my work just a bit under 8%.  That number is skewed by a 16.30% return in 2008.  The other two years at 1.84% and 5.73% respectively average just a little under 4% for the period.

A 4% gain would imply a year end price on the S&P 500 of 1264 from Friday's 1215.65 close while an 8% gain would place us closer to many analyst's fair value target of 1310-1320.

One note of caution if we see no rally.  The year where this pattern was most recently broken was 2007 when stocks lost nearly 5% between Thanksgiving and the new year.  That of course presaged a horrible 2008. 

*Long ETFs related to the S&P 500 in client and personal accounts.

"The Date"

I like commercials, infomercials, etc  if they are well made and tell a story.  This Heineken add fits into both categories.  I'm told it is a take off from a 1965 "Bollywood"-{That is it's Indian made} movie called Gumnaam.  Enjoy!  You can watch the original scene that inspired the commercial below.

Super Committee

One other thing.  You're going to start hearing a lot over the weekend about how the deficit super committee is deadlocked and no agreement is possible.  That may be the case.  However, it is more likely that any agreement will come at the last minute or possibly after an extension so they can iron out their differences if they are close.  The two sides are so ideologically distant that the only way they can possibly get something done is play "hardball" up till the last minute.  This may move the markets as the deadline draws near but I think it more likely that investors are anticipating the same thing as me.

PreMarks 11.18.11

Futures say stocks should rebound at the open as we've probably come down enough in the short term for at least a bounce.  Seasonality should really begin to assert itself now as we head into Thanksgiving.  The day after turkey day is typically one of the best days of the year for stocks.  Trader Larry Connors has a what I think is a different take on why stocks could rise from here to year end  I've excerpted that below:

"Friday’s movement in the stock market is indicative of what to expect through year-end. Any “partially good news” is going to see large rallies. There’s a major political 5-part reason for this.


1. The year finishing in positive ground is a major victory for the Obama Administration. The spin is so strong that all means available will be used to push prices higher.

2. Should the market close higher for the year, Obama has the ability to deflect (and mis-direct) the message about the economy.

3. You’ll start hearing ...{From the Administration} 'When I came into office your 401k was devastated by the Republicans.......My mission for the next four years is to continue to protect your money (from the evils of Wall Street) by initiating further fairness/growth plans like I’ve done since I’ve taken office'.

4. This message will resonate, especially with the majority that base their decisions on sound bites, simple messages, and class warfare.... This message will bring votes and the Obama re-election people know this.

5. Look at the big one-day rallies this year. Most have occurred on holidays/traditionally low volume days. If you’re going to manipulate prices, those are the days to do it. There will be ample low volume holiday related opportunities to do this again over the next seven weeks.....

Link:  Year End Stock Market Bias

Dirty Jobs Nobody Wants

Bloombergbusinessweek.com   article on low paid jobs and how the immigration bill in Alabama affected both laborers and businessmen.  Too long for me to excerpt but a good read in any event.  Statistics suggest that here are 3 million unfilled job openings in the U.S.  These are either jobs with high eduacation requirments or low paid jobs like those discussed in the article below that nobody seems to want. 

Why Americans Won't Do Dirty Jobs

an tSionna {11.17.11}

*Long ETFs related to the S&P 500 in client and personal accounts.

Fund Flows

I came upon this post over at Systematic Relative Strength.com after talking about the trillions of dollars invested in money market accounts yesterday.   Notice all the money still fleeing equities right when statistically they are very cheap.  This is a time honored pattern of individual investors doing the wrong thing at the wrong time, similar to March of 2000 seeing the largest ever inflows into equity mutual funds just before stocks began their ascent into the 2000-2003 bear market.

"The Investment Company Institute is the national association of U.S. investment companies, including mutual funds, closed-end funds, exchange-traded funds (ETFs), and unit investment trusts (UITs). Members of ICI manage total assets of $11.82 trillion and serve nearly 90 million shareholders. Flow estimates are derived from data collected covering more than 95 percent of industry assets and are adjusted to represent industry totals  There were positive flows in all asset classes except for domestic equity funds last week."

Link:  Fund Flows. 

For Love of a Dog

Something away from the normal stock grind:  You can only appreciate this if you've ever owned or loved a dog.

Link:  60 Minutes: Elephant Loses Man's Best Friend.

Congress & Stock Trading.

We'll be taking a different path today.  I think everybody should watch this 60 minutes piece on Congressional trading of stocks as well as the next report on lobbying.  Understand that if you did what these people seem to routinely do regarding stock trades, you would likely go to jail. 

Link:  60 Minutes: Congressional Stock Trading.

Congress & Lobbying

Here's 60 minutes again with convicted lobbyist Jack Abramoff.  Abramoff tells us how he used to get what he wanted from Congressmen and their staffs for his clients.  

Link:  60 Minutes Abramoff.

Premarks: Food For Thought

Markets are looking to be slightly lower at the open as Europe again calls our tune.  Here's something to chew on today though.  S&P 500 four quarter earnings estimates on a going forward basis here in the United States are roughly 106 right now.  That equates to the following based on an S&P close of :

- A market that year to date is down on a price basis about 1/2 a percent.  BUT.....

- A market trading with an 11.81 price to earnings ratio AND
- A market with an earnings yield of 8.46% WHEN
- Two year treasuries pay less than 1/4 of 1% AND
- The dividend yield on the S&P 500 is near 2%.

Now folks there are all sorts of issues out there:  Our government is dysfunctional right now.  Europe is all over the map and likely headed into a recession.  Israel may attack Iran.  Unemployment is stuck above 9% here.  I could go on.  But what of these aren't known now.  Absent something stirring which we don't yet see.  THIS IS ONE CHEAP STOCK MARKET.

How cheap?

Assume that 106 EPS number for next year is a good estimate on the S&P 500 then see below for various PE ratios with the S&P at 1251.78 {Price estimates do not include dividends potentially paid}:

-A 10 PE equates to 1,060, a 15% decline from these levels {Markets rarely trade this cheap}.
-An 11 PE equates to 1,166, a 7% decline from these levels.
-A 12 PE equates to 1,272 a gain of about 1.5%  {Lower end of  PE band where stocks usually trade.}
-A 13 PE equates to 1,378, a gain of about 10%.
-A 14 PE equates to 1,484, a gain of about 19%.
-A 15 PE equates to 1,590, a gain of about 27%.
-A 16 PE equates to 1,696, a gain of about 35%. {The higher end of stocks usual PE band.}
-A 17 PE equates to 1,802, a gain of about 44%.~
-An 18 PE equates to 1,908, a gain of about 53%.~ 
        {~17 & 18 PEs are high but could be justified if interest rates stay low next year.}

Now there's no law that says any of these will be hit or that any of these are price targets for next year.  For all I know markets could head straight south over the next 12 months.  But the weight of the evidence suggests that stocks are a bargain.  They are close to as cheap as any time that I've been in the business.  When adding in the TRILLIONS of dollars sitting in money market accounts then you have what seems to me as an extraordinary opportunity going forward as probability suggest great things are possible in the next year or so. 

*Long ETFs related to the S&P 500 in client and personal accounts.

Markets and Mondays}

Chart and commentary from Bespoke Investment Group.   

"Equities are starting off the week on a down note today, and based on trends so far for 2011, it is pretty much par for the course. So far this year, the S&P 500 has been positive on Mondays less than any other day of the week (52.5%), averaging a decline of 0.08% on the day. The chart below highlights the average daily return of the S&P 500 in 2011 by the day of the week, and it provides a perfect illustration of the back and forth nature of trading recently. As shown, the average daily change alternates between positive and negative each day of the week. Bad news one day is followed by good news the next and then bad news the next!"

Link:  Markets and Mondays

*Long ETFs related to the S&P 500 in client and personal accounts.

Buy American!

Doug Kass is a money manager and commentator for Jim Cramer's organization {TheStreet.com and Real Money} but also a frequent television guest on CNBC and other outlets.  Kass is highly respected  in the investment community for his well reasoned opinions on the markets.  Another reason he is respected is that he is not afraid to admit when he is wrong.  I think it is fair to say that Kass has been at best a market agnostic for much of this year.  Recently his opinion has begun to change.  In a piece written originally for theStreet.com's subscription site Real Money Pro, Kass outlined six reasons that he has become more positive on the markets.  This has now been placed on their free site and I will reprint it below with a link at the end.
 

Kass: 6 Reasons to Buy American     By Doug Kass 11/09/11 - 02:15 PM EST
{This story originally appeared on Real Money Pro on Nov. 9 at 8:41 a.m. EST.}

"I believe that the events over the past year (especially in the eurozone) highlight the likelihood that the U.S. stock market will be favored among most other investment markets in the world. The U.S. stock market has become the best house in a bad neighborhood for the following reasons:

1.}The U.S. economy, though sluggish in recovery relative to past expansions, is superior (with the exception of some emerging markets) to most of the world's economies in terms of diversity of end markets, quality of global franchises, management expertise, operating execution and financial foundations.

2.}Our banking industry's health, which is the foundation of credit and growth, is far better off than the rest of the world in terms of liquidity and capital. Our largest financial institutions raised capital in 2008-2009, a full three years ahead of the rest of the world. As an example, eurozone banks continue to delay the inevitability of their necessary raises.

3.}Our large corporations are better positioned than the rest of the world. Through aggressive cost cutting, productivity gains, external acquisitions, (internal) capital expenditures and the absence of a reliance on debt markets (most have opportunistically rolled over their higher cost debt), U.S. corporations are rock solid operationally and financially. Even throughout the 2008-2009 recession, most have solidified their global franchises that serve increasingly diverse end markets and geographies.

4.}An aggressive Fed (through its extended time frame of zero interest rate policy) has resulted in an American consumer that has reliquefied more than most areas in the world. Debt service and household debt is down dramatically relative to income.

5.}After watching regime after regime fall in Europe in recent weeks (and given the instability of other rulers throughout the Middle East), it should be clear that the U.S. is more secure politically and from a defense standpoint than most other regions of the world. Our democracy, despite all its inadequacies, has resulted in relatively balanced legislation and law that has contributed to social stability and a sense of order.

6.}Our regulatory and reporting standards are among the strongest in the world. Compare, for example, the opaque reporting and absence of regulatory oversight in China vs. the U.S.

In summary, conditions that have evolved over the past decade have conspired to favor risk assets in the U.S. over many other areas of the world. In the period ahead, I expect a reallocation trade out of non-U.S. equities into U.S. equities."

Link:  6 Reasons To Buy American.

Armistice Day

An earlier generation knows that the origins of our modern Veterans Day comes from  the commencement of an armistice that ended the hostilities on the Western Front during World War I.  The Armistace took place on the "eleventh hour of the eleventh day of the eleventh month of 1918.  Today of course is 11.11.11.  Many parts of the world still take two minutes of silence at 11:00 AM to honor the more than 20 million people who died in that war.  Today's post is a repeat of an article we first published back in 2006:

Most of the world has never heard of John McCrae. A Canadian of Scottish descendant whose family had a history of military service, John Alexander McCrae was both a physician and soldier. McCrae served in the Second Boer War and World War I. He also taught medicine at the University of Vermont and McGill University in Montreal.

However, McCrae is not remembered for being either a soldier or a physician. McCrae was appointed as a field surgeon in the Canadian artillery and was in charge of a field hospital during the Second Battle of Ypres in 1915. There, touched by the battle death of his friend and former student, Lt. Alexis Helmer, and inspired by the red poppies that grew in profusion near Ypres, McCrae wrote one one of the best known poems to come out of the “War To End All Wars” It is still recited by Canadian school children……

In Flanders fields the poppies blow

Between the crosses, row on row,

That mark our place; and in the sky

The larks, still bravely singing, fly

Scarce heard amid the guns below.

We are the Dead. Short days ago

We lived, felt dawn, saw sunset glow,

Loved, and were loved, and now we lie

In Flanders fields.

Take up our quarrel with the foe:

To you from failing hands we throw

The torch; be yours to hold it high.

If ye break faith with us who die

We shall not sleep, though poppies grow

In Flanders fields.

In 1918, while still serving in the same field hospital, McCrae caught pneumonia and meningitis and died. Poppies, particularly in Commonweath Countries are still used as symbols of the Great War and are still closely associated with Veteran’s Day here in the United States.

Please take a moment today to remember all of our soldiers past and present. Especially remember those who have made the ultimate sacrifice in the service of our country.

Still At Sea SS Edmund Fitzgerald-36 Years Ago Today.

an tSionna {11.10.11}

*Long ETFs related to the S&P 500 in client and personal accounts.

Trouble Posting

I have a chart ready to post but technical considerations with the blog are in the way.  Look for it soon.

Government Intervention

From Investors Business Daily.  {Excerpt with my highlights.}

Economy: Wall Street firms are said to be raking in the money. But don't tell investors. They're avoiding big bank and brokerage stocks — along with other industries in which Uncle Sam is involved — like the plague. 

In a Sunday story that other liberal media eagerly regurgitated, the Washington Post asserted that "Wall Street" has amassed more profits in the first 2 1/2 years of the Barack Obama presidency than in all eight of George W. Bush's.....

Fact is, stocks of money-center banks are among this year's weakest performers.  {Money Center Banks}... rank 195th among the 197 subgroups tracked by IBD. Investment brokers rank just above the bottom 20, in the 177th spot.  And no wonder. Investors are shying away from industries that are being blamed for everything from the housing crisis to income disparity and socked with regulations that have grossly expanded the federal government's reach. Estimates put the annual cost of regulation at $1.8 trillion — a dead weight around the neck of American business.

Banks and brokerages aren't only examples, of course. No fewer than 14 of the 20 worst-performing groups...are either heavily regulated or controlled by the government.  The low rank of the medical subgroups needs no explanation, what with government's imminent takeover of the health care system. Two of the three automakers have already been taken over, and look how their much-ballyhooed comeback has been greeted by the market. Their weakness has spilled over to "cousin" groups, including tire and original equipment manufacturers.  And at the very bottom of the list is solar — the industry on which the administration is putting all its (or in this case, our) money.  Now look at the best-performing groups. It is dominated by retailers, few of whom let the government tell them what to do.....

Link:   Govt Tosses Stocks an Anchor.

*Long ETFs related to certain banking indices & certain health care indices in client accounts.  In addition many of the stocks or sector mentioned here are components of certain ETFs we own for clients and in personal accounts. 

PreMarks 11.09.11: Italy

Stocks are set to get clobbered at the open on investor concerns that Italy is quickly becoming the next Greece.  The opening looks to be down 1.5-2% on most stocks and indices.  From our perspective this may have more to do with the fact that the market is over bought in the shortest term we measure.  It's not like Italy was an unknown event going into today.  What will be most important will be to see how investors react to this news.  A market that it met with this 2% down open and then bought would be indicative of a market that wants to go higher in the days ahead as it would likely be showing a "buy the dips" mentality.  If we head down and stay down or go lower it could mean that stocks have more work to do digesting the recent gains.  The trendlines we highlighted in yesterday's post below will likely be in play today.  We'll garner more clues about future market action by how price reacts to these areas of support and resistance. 

an tSionna {11.08.11}

Somewhat busy longer term chart of the S&P 500 ETF {symbol SPY}.  That main horizontal line we've highlighted above in blue runs around 126 on the SPY or 1260 in the actual index.  It is a very important reference in our work.  First it represents a level from where stocks first broke out in 1998 while on their way to a final speculative blow out at the end of the last bull market.  That line also performed the same function back in late 2005 when stocks began their final move up before their collapse in late 2007.  It is also from this level where stocks collapsed back in 2008 and also this summer.  You can see in the chart above how this level has acted as both support and resistance this year.  So far in this current rally which began in August we've had one attempt to move through this level which failed.  Based on  premarket trading we're poised to attack this level again today.  We'll garner clues on the market's health by how we react here in the coming days.

Bu the way there are huge differences in valuation between the previous periods when we've approached 1260.  In 1998 when we first reached these levels the S&P 500 had a price earnings ratio close to 20 times earnings.  In 2006 the index carried roughly a 16 PE.  Today that PE ratio on expected 2011 earnings is closer to 12-13.

*Long ETFs related to the S&P 500 in client and personal accounts. 

  

PreMarks 11.07.11

I think stocks are going to be higher by year end {based on what we currently know}.  Irregardless of my longer term optimism, I think we could churn around a bit between now and Thanksgiving.  That also means we could go a bit lower in the next few weeks.  One of my main arguments is that we are currently short term overbought.  You've seen before how I measure this in my chart work {see here }.  Here is another way:

According to Bespoke Investment Group , "85% of stocks in the S&P 500 remain above their 50-day moving averages. Even at this level, besides the last several days, it's higher than it's been at any other time since last November.  Three sectors have more than 90% of stocks above their 50-days -- Financials (93%), Energy (95%) and Utilities (94%). Technology is just under 90% at 89%. Health Care, Consumer Staples and Telecom -- all defensives -- have the weakest breadth readings."  But even those readings by Bespoke's measurements are high.

Stocks are moderately weaker as we begin the week.  But well off their lows in premarket trading.

Link:  Bespoke: Stocks above their 50 day moving averages.

*Long ETFs related to the S&P 500 in client accounts.  Long ETFs related to energy, technology and financial sectors in both client and personal accounts.  Long ETFs directly related to health care and utilities in certain client accounts.  Also please note that all of these sectors mentioned above are represented in many of the broader based ETFs we own for clients. 

Big Birthday Weekend Around Here.

And because of  that event we're gonna take today off!  We'll leave you with this little gem {because the person who's birthday we're celebrating requested it} and see you back here bright and early Monday!  Cue it Harry!

Investors Fleeing The Market? Not Really!

I found this article interesting regarding the individual investor, particularly as it mirrors my experience about their reactions to market volatility and sharp market declines.  In effect while the conventional wisdom is that the "little guy" usually panics during these events, I almost never see that.  Apparently online brokerage firms  that largely deal with individuals don't either.  I also like what this article says about ETFs.  I've long felt that ETFs are a game changer for the investment industry and I think this article backs up a bit of what I've said.

{Excerpt with my highlights.}

"Meet Nancy Stein.  Nancy is a retired real estate agent from Illinois, and she's had it with the stock market. Unnerved by market volatility, she sold almost all of her investments earlier this year....she told The Wall Street Journal, which interviewed her for a story on investors cashing out of stocks. "Across the country, investors are fleeing the stock market for the safety of cash," it wrote.  Now meet Fritz Dixon.  Fritz is a former physician from Idaho. He, too, was interviewed by The Wall Street Journal for a separate story on investors fed up after this summer's rout. Dixon has dumped all of his stocks and says the odds are "zero" that he will ever own them again.....

The Journal isn't alone in profiling the plight -- and flight -- of small investors. Several media outlets have highlighted stories of investors abandoning stocks and swearing them off for good.....You can probably relate to these investors' frustrations. Market volatility became so erratic this summer that it often felt like a rigged game. ..But take heart. Dig through the details and this story isn't nearly as frightening as it looks on the surface. As a whole, individual investors are not fleeing the stock market, and there's no reason you should be, either.

Journalists use techniques like the anecdotal lede to transform relatable personal stories into broad trends. But in a market with tens of millions of investors, what Nancy Stein or Fritz Dixon do with their investments is irrelevant. You have to look at the broad numbers to accurately gauge what's going on. And even then, you have to look at the right numbers and put them in the right context.  When attempting to show that investors are fleeing the market, you'll likely see data from the Investment Company Institute showing money flows into and out of mutual funds. So far in 2011, retail investors have pulled $50 billion out of stock-based mutual funds, which might appear like an exodus.

But mutual funds are just one slice of the investment world -- and they're a dying slice at that. Focusing on mutual funds alone ignores one of the biggest trends in modern finance: Over the past decade, mutual funds have been replaced by exchange-traded funds, or ETFs, which are far more convenient to trade and typically come with lower management fees than traditional mutual funds.   And guess what? While investors have been pulling money out of stock-based mutual funds, they've been adding money to stock-based ETFs. Year to date, retail investors have added about $20 billion in net cash to stock-based ETFs, according to National Stock Exchange. Add that to the $50 billion pulled out of mutual funds, and net stock outflows this year total about $30 billion. Consider that U.S. households and nonprofits hold more than $14 trillion of stock assets, and that's barely a rounding error -- a fraction of 1%.  Here's another figure that might come as a surprise to those proclaiming the death of the individual investor: In 2006, when the economy and markets were booming, U.S. households and nonprofits held $13.8 trillion of stock assets. Earlier this year, when investors were supposedly fleeing markets, the total stood at more than $14 trillion.

Indeed, when we checked in with some of the largest brokerage houses in the country to gauge how investors reacted to this summer's volatility, we got the same answer again and again: with remarkable calm.  At the Vanguard Group, 98% of investors didn't make a single change to their retirement portfolios in August, when market volatility peaked. "Ninety-eight percent took the long-term view," wrote Steve Utkus, who oversees the Vanguard Center for Retirement Research. "Those trading are a very small subset of investors."   Even during longer periods when markets underwent gut-wrenching drops, the percentage of Vanguard investors who called it quits was incredibly small. "We know from our research that during a financial crisis, few investors actually cash out their entire portfolios," Utkus wrote. "Yes, there is always a small fraction of investors -- 3% in the recent financial crisis -- who sell everything, so there's always someone to interview about getting out of the market. But they aren't typical investors." A Nancy Stein or a Fritz Dixon can always be profiled, but they simply don't reflect broader investor trends.

We found an even more bullish sentiment at TD AMERITRADE (Nasdaq: AMTD ) . Over the week of Aug. 8, as markets plunged, "retail clients were slight net buyers of securities," a spokesperson said.... What's more, while the Dow was on its way to dropping 635 points on Aug. 8, call-center volumes were up 72% versus the company forecast. Yet, again, TD AMERITRADE's retail investor clientele were net buyers of the dip.  Scottrade had a similar storyline.....Rival E*TRADE (Nasdaq: ETFC ) added a net 116,000 new brokerage accounts in the year ended Sept. 30, including 13,000 in the most recent quarter.

There is, it seems, a disconnect between anecdotal evidence and actual evidence. Vanguard's Utkus summed it up nicely: "When markets are falling, trading activity jumps, sometimes by large amounts. And we are somehow misled into believing that 'everyone' is dumping stocks and getting out of the market. But overall ... most investors have a long-term perspective and don't react to falling markets."  This is encouraging. As Ben Graham, Warren Buffett's early mentor, used to say, "In the short term, stocks are a voting machine, and in the long term, stocks are a weighing machine." Volatility is just that -- temporary ups and downs, not long-term structural fractures that should derail your goals. Graham's wisdom is as true today as it's ever been. And thankfully, it's a lesson that individual investors don't appear to have forgotten."

Link:  Amid Waves of Panic a Sea of Calm

*Both AMTD and ETFC are held in certain financial ETFs that we own for clients.  In addition certain clients of our firm are long ETFC in their accounts.  In addition I own a personal position in ETFC.

Siri the Google Slayer

Forbes article on why Siri is a major threat to Google.  Don't know about that but the author makes some pretty good points.  {Excerpt with my highlights.}

It’s now been a couple of weeks since Siri debuted as part of Apple’s (AAPL) 4S. The response from most people has been very positive.  However, in {the author's} opinion, Siri is tremendously under-valued.....Siri will be vastly more improved in as little as 2 years from now. And the boundless number of applications using Siri will explode.  In the way that the January 2007 launch of iPhone set a ripple in the ocean that would eventually overtake Research In Motion (RIMM) in an all-out tsunami, {the author} believes Siri’s launch this month spells a future crippling of Google’s business (GOOG).  Here’s why:

1. Siri works. Voice recognition has been the next big thing for 15 – 20 years....Siri is the best voice rec app ever — and it’s still in “beta.”

2. Siri has personality.....It’s that personality which makes the app addictive because we start to feel over time that we truly have a personal assistant who is our friend.

3. Siri is hard to copy. For anyone who doesn’t understand voice applications, it’s easy to think that Siri will be easy to copy. It won’t. There are 2 parts to making a successful voice app: the voice rec technology which has improved a lot but is basically a commodity and the app itself, which is a combination of art and artificial intelligence. It’s that 2nd part that’s so tough to replicate and that’s why Apple bought Siri last year. It’s true Google has experience in the voice rec space and doing some simple voice apps but they do not have the personality and AI of Siri and that will be very difficult to copy — especially for a company that doesn’t sit at the intersection of the humanities and technology.

4. Siri helps own the customer experience for Apple. ....Siri is a new interface for customers wanting to get information. It used to be text-based input to their desktops. Then, it was thumbing it in to their mobile devices. Now, Apple is attempting to make it voice-based.....Now, they’re training you to rely for doing any task by leaning on Siri to do it for you. At the moment, most of us still rely on Google for getting at the info we want. But Siri has a foot in the door and it’s trusting that it will win your confidence over time to do basic info gathering. Siri can be potentially leveraged in other devices that Apple ships in the future like TV to become the primary way you interface with info you need.

5. Siri will vastly improve in the next 2 years based on all the data it’s amassing. ....{T}he biggest advantage over any other voice application out there today, and the apps still to be developed, is the massive data Siri is now and will continue to collect in the next 2 years. We know after the first weekend alone, there were 4 million Siri-enabled devices out there probably collecting 1 – 2 utterances a day worth of data — all being stored in Apple’s massive North Carolina data center. All that data will allow Siri to get better and better. Think Siri has awesomely funny answers to your crazy questions now? Just wait two years. She’ll be even more your friend then, knowing you perhaps better that you know yourself in some situations.....

6. When Siri opens up its API to 3rd party developers, this thing’s growth and adoption will go ballistic. At the moment, Siri is in “beta” and no 3rd party app exists. But what happens when you allow developers to write Siri-enabled scripts that tie into their websites....Siri will become even smarter. For users, it will become even more valuable because better and better data results will come back to it. And Apple — as happened in the iPhone and then iPad spaces — will have a huge lead in 3rd party apps tied into this powerful interface.

Ultimately, Siri is a “rich get richer” story. An amazing app today has such a head-start that it will encourage massive adoption, which will allow Scott Forstall and his team at Apple to make it even better with an enormous lead....Ultimately, Siri is intended to be a Google killer. It won’t happen overnight. Research in Motion didn’t collapse after the iPhone was released in January 2007.....But we might be watching the beginning of the end of Google, thanks to innocuous introduction of Siri in the 4S.

*Both Google and Apple are major components of the various ETFs we own for clients.  I have a few clients with individual positions in Apple {of their own choice} and no individiual stock positions in google.

Link:  Why Siri is a Google Killer

an tSionna {11.01.11} First Of The Month

Lot's of moving parts yesterday in the market.  MF Global's filing for bankruptcy and further squawking out of Europe combined to make for a bad day and close out on a sour note what had turned into a pretty good month.  While all of that played a part, we will go back to some of what we said yesterday {see directly below this post}. First you can see in the chart above that by our indicators, we'd become extremely overbought since the market began this rally.  The other thing is that you can see the S&P 500 {as shown through its ETF proxy the SPY} had recently penetrated through its 200 day moving average to the upside.  It is likely that we are going to at least make some attempt to test that moving average as a resistance level at some point soon.  

Indicators are now pointing to a market that is likely going to muddle along for awhile.  We likely need to digest the move we had in October which shot the averages up something like 11% and have moved them within shouting distance of their break even points for 2011.  November along with December tends to be a pretty good month for stocks. It is likely that year end pressures may come into play more this year than in others.  CNBC reported yesterday afternoon that on average hedge funds are down 8% versus the market.  If that is true than the prospect of their general partners getting paid out of the profits is becoming more remote as the year runs out of days.  Look for them to try to step up in here on weakness and push stocks higher in the last two months.

Corporate earnings have come in pretty much better than expectations this earnings season and that should support stocks on the fundamental side unless we begin to see more evidence of economic deterioration.  Certainly there is nothing to move us away from our belief that stocks can trade between 1250-1300  on the S&P 500 by year's end. That is the potential for a 6% move to the upside from here if stocks move to the high end of our range by December 31st.  

Look, there are things that could still go wrong.  Europe remains a mess and this MF Global news may have some short term strings.  I'd note that's why we have the playbook and game plan to refer to if things go sour.  But ultimately economic news should trump all the rest and so far that news has been positive.  This gives us a belief that we could still move higher.  It may get a bit rocky over the next few weeks, particularly as stocks digest some of these gains and as European headlines move stocks.  But given what we know today, stocks look more likely than not to head higher as we roll into the new year.

*Long ETFs related to the S&P 500 in client and personal accounts.

**Please note that the above reflects solely the opinions of Lumen Capital Management, LLC. As such it is designed solely for the clients and friends of our firm. Since we do not know the investment parameters of casual readers of this blog, they are advised to consult their own investment adviser's or do their own homework. Nothing in this posting should be construed as a recommendation or a guarantee of any sort. Better yet, hire us and we'll show you how our work is done!!!

 

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