Thursday, August 7, 2014

“The Kid” predicts investors lose their shirts

“Fredd, looks like a 10-12% correction in store for the markets this month.”  This sentiment was uttered in a post script comment  to me just a few days ago. The Kid, proprietor of the site Diary of a Right Wing Pussycat  has gazed into his relatively reliable crystal ball and has spoken.

If this is indeed our future, we would all make some serious scratch if  we were to short the shares of some index stocks such as QQQQ and SPY, which mirror the general direction of assets in the exchanges.

So far, I have made some pretty good bucks on Kid’s predictions, although he has missed the mark recently on a marijuana stock (PHOT), the only blight on Kid’s record.  And I’ll be danged if so far this month, stocks are certainly trending in that general negative direction.

From an all-time high of 17,138, the Dow Jones index has fallen to 16,443, or about 4% in a few weeks.  We’ll give The Kid some slack, and allow his prediction of ‘this month’ to start at the high of July 22nd or so, and continue for 30 days.  To reach The Kid’s prediction of at least a 10% correction, the markets must lose another 1000 points or so in the next two weeks, or by August 22nd.

Go ahead and ask me if I am betting the farm and pumping my life’s savings into equity shorts.  Not on your life.  The Kid, even with his huge, bulging brain working overtime analyzing the markets is probably wrong on this prediction.  We have two weeks to see, but I am betting on the markets staying the course and moving at worst sideways, but probably ticking upwards in the next two weeks.

Here’s why: Obama is president, and people don’t like Barry’s effect on the markets.  That is not arguable, since both times he won, in 2008 and 2012, the markets tanked the following day.   He is a socialist (not even arguable here either), and firmly and steadfastly believes in redistribution of wealth.  The market doesn’t share his beliefs in this regard, and has been strangled owing to so much capital sitting on the sidelines and overseas since his election.  Imagine how equity markets might have performed had Mitt Romney been elected in 2012 – perhaps a Dow Jones topping 20,000 or more.  No way to tell now, but my theory is as follows:

There is pent up demand for equities, but investors are tentative in putting their hard earned money into the markets in earnest until they are convinced that uncertainty regarding tax policy, foreign policy and health care costs has been alleviated.  The administration has also set the Fed funds rate at 0.0%, which affects interest rates throughout the economy, so bonds and CD’s are not attracting any money, either.

So where does all the money go, waiting for some certainty to return to the markets, besides sitting overseas and in low interest bearing cash accounts?  The money that is not sitting on the sidelines (a huge amount, folks, YOOGE)  is still in the market, since the stock market is still the only game in town.  And this ‘town’ consists of the entire world. 

Once Barry is gone, all of that pent up demand for investments that have attractive ROI’s is going to be unleashed in a big way.  When President Christie, President Cruz, President Paul or President Romney (a dark horse) is elected in 2016, watch the markets hit dizzying highs.  We could possibly even see a huge surge in stocks if the US Senate changes hands this November.

Until then, there is still no place else to park your spare cash that earns anything close to reasonable returns: the US equity markets.  Our feeble recovery is simply reflecting reticence on part of worldwide investors in investing in a socialist-leaning American economy.  It’s still the best bet in the world, but it will be a much better bet with adults in charge, rather than the hapless fools that are holding us back now.

Either Kid is wrong, or I am wrong.  We will see in the next few weeks, so stay tuned, boys and girls…..


Ed Bonderenka said...

I hate to see either of you wrong.
But that's life.

Fredd said...

Ed: Yup, one of our crystal balls is cracked.

I think Kid's ball needs a tune up, although it has been firing on all eight cylinders not all that long ago.

Yup, a tune up is in order, or at minimum a lozenge.

Kid said...

Aw Shucks Fredd. Thank you really. I'm humbled.

But we are actually both right. It's all in the time frame.

Here's the actual prediction. I don't look at the DOW much, I look at the S&P500 which is what most market timers look at. (They will look at the DOW and the Transports index for DOW Theory confirmations or not. google Dow Theory)

Without Further Ado. S&P500 down to at least 1860, and probably further before recovering. This is a short term correction.

Long term, we are in a multi-year Secular Bull Market and the market will be much higher next year, maybe even later this year.

We're Both Right! Yahooooooooo!

If you have cash, I'd start deploying it at SP 1860, maybe in 25% increments, then close your eyes and wait for the bull to reappear.
For long term stocks, I really like Tesla(TLSA) and some solar stocks(FSLR is probably best of breed) Don't throw it all in at once. Try to get it when it is weak and you are afraid to buy as that's the best time. (look at MACD)
Now, I must confess, a lot of this (general market stuff) comes from a gentleman named Jeff Saut, Chief Market Strategist with Raymond James and has a very impressive track record.

Though I will take credit for finding the right people to listen to. One of those people is You Fredd. You keep me honest.

All the best.
Oh, and make sure your warp containment field is never below 98%; Keep the dylitium crystls shiny, and keep your hands off the yomans behind..All will be well. There is always new growth in the spring if the roots are healthy.

Kid said...

PS, 10-12% from the high would be measured from the high on the S&P500 of 1991. 1991 - 199 = 1792 (10%)

So we'll see.

Fredd said...

S&P 500, Dow, po-TAY-to, po-TAH-do.

Same same. Stocks are stocks. Equities are equities.

Love ya like a brother, Kid, BUT:

Telling me that I am all wet in my analysis because you meant the S&P 500, not the Dow is like saying that examining the DNA of a Chihujuajua is completely different than the DNA of a Doberman.

No it ain't, Kid. Dow is 30 issues added up, and then some mumbo jumbo equalizers thrown in to come up with a number, vs the biggest 500 issues added up and averaged.

You know that you can lay the graph of the S&P performance over the last 25 years on top of the Dow chart, and there will not be one dime of difference in how they line up, not one lousy anomaly on either line vs the other over the entire 25 years.

Choosing an index with 30 monster issues to look at, rather than an index with 500 stocks when we are talking about the performance of a market with about 8000 listed companies will result in the same answers.

Of course, we squabble about trivial little nothings, here Kid.

Fredd said...

Part II, Kid:

Sorry, one of us has to be wrong, just like Ed The Grey said above. And I believe we are talking short term, here, and not over the last quarter of a century.

That quote at the start of this post was an actual cut and paste of your comment. It was exact. You said it.

Parsing it becomes Clintonian. 10 to 12 percent correction. I understand that meaning. This month. I get that too.

I was being generous in allowing the losses in the market to add up in the period before your statement, giving you the best shot at being right. I don't want you to be right, since my portfolio is 85% equities, but I don't think the markets care what dumb ol' Fredd wants, anyway.

For the purposes of this discussion, you don't get to go back to 1991 for a starting point when you clearly said this month. That dog don't hunt, as Dan Rather would say.

Fredd said...

Kid: No comment on my blaming all our economic woes on Barry?

Joe said...

I have followed some economists some of the time and others at other times. I have found them to be equally right/wrong, with a tip toward the wrong.

Kid's explanation seems good, but I can't tell whether or not he is right.

In the end, it seems to those who are not classically trained in anything economic to be a sort of crap-shoot. One maybe worth taking, but a crap-shoot, nonetheless.

Kid said...

Ok Fredd, a little clarification is necessary.

10-12% market correction. All inclusive. I was just saying the pros usually look at the S&P number when doing the technical analysis. It's like how people don't talk in kilometers and miles at the same time but so many Kms will be so many miles.

Ok, 10-12 from Aug 1 or whenever my original deal was. :)

btw - 85% in equities.. Do you pick your own stocks? fwiw, the pro says this is a good time to cut stocks that have not enjoyed the great market gains, raise some cash, and pick some new stocks when you think the correction is getting near its end.

BTW - MJ Stocks. GWPH is getting a lot of respect. Support at 80 and today's price around 82. Not a bad risk to reward meaning if you buy at 82 and it falls much below 80 you can stop yourself out and not give much back.

The other idea on MJ stocks is one of the big tobacco stocks. Eventually they will get into the business. Altria, RJR, etc.

On Gold, there is a lot of good thought for gold miners to rally this year yet. Especially Junior miners since there are just too many of them and the pros are expecting some big fish eating small fish in this sector. Buyouts.

The ETFs for the junior miners are GDXJ 1 for 1, JNUG (3X Bullish Bet) JDST (3X Bear bet)

I currently have some JNUG and am looking for longish term appreciation on it.

Kid said...

PS, I love you too Fredd !

Kid said...

PPS, All economic woes are to be blamed on democrats. Natch !

Z said...

Kid: No comment on my blaming all our economic woes on Barry? that open to OPINION?!!

Fredd said...


85% equities - 'the pro sez...' This pro of yours has no better crystal ball than anybody else.

Trying to time the market is a fools errand. Thinking the market is at a high, selling stocks, then looking for undervalued stocks (buying low, selling high) just doesn't work out in the long run. We call these guys 'day traders.'

The transaction fees, commissions, etc. just eat up any kind of market timing luck you have.

Words to the wise: Buy good, solid, diversified ETF's or mutual funds (Class C), with good 3, 5 and 10 year performance records, and hold them for 3, 5 or 10 years. Also, fire your super expensive and crooked 'pro,' and put your assets into TD Ameritrade, or some other low cost FINRA accredited trading firm.

Yes, I pick my own stocks, as everyone should. Pros only recommend stuff that makes them money, they are tainted with conflicts of interest. That, and most financial pros are flaming assholes.

For what it's worth.

Fredd said...

Z: 'blame woes on Barry..' Yes, your opinion is usually fact. And welcome here.

Kid said...

Fredd, your "resistance" does describe the vast majority of 'pros'. 99%+ probably.

But my guy, who I don't pay, has a many years long extremely good track record. fwiw.

And there is nothing wrong with your approach. Over the long term, your money will appreciate along the line of any 20 year stock index chart line from low left to upper right. Add in dividends reinvested and over the long term you can't lose. It is extremely hard to time the market and most lose trying.

Kid said...

Joe, Fredd. Nobody and I mean nobody knows what the market is going to do. I post things like this sort of tongue in cheek.

But there are signposts that those astute in the mechanics of the market can read and come to a conclusion of when it is appropriate to be cautious.

As in Nothing goes straight up. Historically, the strongest bull markets have taken a break at the 63-64-65 months from the bottom point. We are currently at month 64 from the 666 bottom in the S&P.

We are in a secular bull market that has many years to run, but we've not had a correction in all that time. It's a signpost, that's all, and it deserves some caution. You certainly don't sell it all and hide, but maybe you trim some stocks now that have not had the same appreciation markup as the general market %. At the worst, you may end up in some better stocks. Even better you can buy stocks that hold up well in a potential correction better than other stocks do, and when the correction is over you have a much healthier portfolio.

Yep. No one knows. If someone says they know what the market is going to do, OR why it just did what it did. Run from those people as fast as you can.

Making sense I hope.