Category Archives: Investing

Why Some Are Spooked About A Possible “Reversal”

There was a lot of talk circulating in the market this week about a possible “reversal.” Not just in stocks but perhaps commodities as well. For some odd and strange reason, blame it on the stars, the moon or ocean tides the period of time surrounding Sept 22nd makes many traders a bit nervous. Back in 2009 Barron’s editor Randall Forsyth, who cites work by Paul Macrae Montgomery, wrote a bit about this phenomena and the propensity for this period of time to be tied to major market moving shifts or “reversals.” Below is his note on the subject (Source: Business Insider)

Montgomery recalls living through the October “massacres” of 1978 and 1979, the crash of 1987, the mini-crash of 1989, the 1997 Asian collapse and the Long-Term Capital Markets plunges, which started to cascade downward in late September. And while gold bullion topped in January 1980, gold stocks made their highs on Sept. 22 of that year, he adds. That date also saw the peak in many oil stocks.

Looking back farther, on Sept. 22, 1929, the Dow Jones Utility Index became the final major average to make its high before the Great Crash. And in 1873, a panic forced the New York Stock Exchange to shut down, Montgomery further details.

And who can forget 2008, when markets went into free fall in the days following the collapse of Lehman Brothers? What’s remembered less well now is the market chaos in the subsequent days after the House of Representatives initially rejected legislation that created the Trouble Asset Relief Program.

Currencies have seen historic changes around this date as well, he adds. The British pound was taken off the gold standard and was devalued a huge 28% on September 21, 1931. Exactly 54 years later, the Group of Five produced the Plaza Accord, which brought a sharp decline in the dollar and expansion of global liquidity. Black Wednesday, when Britain was forced to withdraw from the European Exchange Rate Mechanism, came a few days early on Sept. 16, 1992.

I also recollect that Treasury note and bond yields made their historic highs in late September, 1981, with shorter maturities hitting 17% and long bonds reaching 15%. That marked the end of a 35-year bear bond market from the end of World War II.

How To “Invest”… The Mental Side Of The Game

There’s a constant debate amongst investors about technique. I’m here​ to tell you now, you won’t be cashing any investment checks based on style points or originality of your routine. With that in mind,​ I encourage everyone to define in broader terms your overall objective. Similar to a golf or baseball swing, there are a million ways to approach and hit the ball, but the real professionals seem to have a similar mindset and process for making “contact.” Great “investors” are the same. The may have a million different strategies and ways they get from point-A to point-B but their mindset is somewhat similar. First off you have to remember,”investors” are much different than “traders.” Investors have a much more long-term approach. When the stock market is in a tailspin, true “investors” do NOT feel a sense of panic. In fact, true “investors” should prefer to see stock prices falling. Remember, the goal of an “investor” is long-term returns. If you really do have a long-term horizon, all that matters is what the value of your investment will be far in the future…when you plan to sell. On the other hand, if you ​’​r​e​ looking to sell and bank profits at some point in the near future or may soon need the money to pay bills or expenses,​ then you need to reclassify yourself and your objective. Multiple personality traits, bouncing between an “investor” and a “trader” ​,​ can often be a dangerous game. Investors tend to have at least a 5-10 year time horizon. Most generally, retired individuals should avoid placing themselves in the category of “investor.” The simpl ​e​ reason is​,​ for most​,​ they are no longer contributing to a qualified retirement plan and they simply don’t have the income or time to replace the losses if and when they occur. In other words, you shouldn’t invest money that you think you’ll need within the next few years. Second, you need to think like an investor. This can be surprisingly hard, because financial news outlets often cater to Wall Street professionals who are not investors but rather “traders” who are constantly buying and selling stocks. Bottom-line, unless you’re close to retirement, it’s often best to play the game as an “investor”… looking for opportunities to “buy” rather than opportunities to “sell.​”​You should be putting money into the market in the near-term, not selling. If you commit to a long-term investing strategy and maintain a long-term investor’s perspective, you literally have to believe lower stock prices near-term are better. If you find yourself worrying excessively about your “investments”, you need to change your mind-set and come to the realization you are a probably a “trader”…this then becomes an entirely different and more difficult game.

When Will Interest Rates Start Moving Higher?

I have commented on this several different times, but as I have noted it’s clearly a moving target and we must constantly monitor the situation and re-sight our rifles. As of today it feels like the Fed will begin to gradually raise interest rates sometime in 2015. You can argue which quarter based on your perception of inflation and employment. If you believe the unemployment rate will fall to 5.5% or lower by year end and core inflation will remain under 2.25% then you could easily conclude a rate hike in early-2015 (perhaps Jan-Feb-Mar). From my perspective however, I’m not so sure the employment numbers will be that strong, therefore I’m thinking more like the second quarter of 2015 for the first gradual rate hike. The “kicker” to all of this will be what they call “headline inflation”… which is much more volatile than core inflation and currently appears to be at the mercy of the Middle East and unforeseen global weather events (hurricanes, cyclones, etc…). In other words if turmoil in the Middle East increases and causes energy prices to skyrocket and or some unforeseen weather event causes food prices to inflate then ALL bets are off. The Fed will be concerned if they tighten in the face of increased “headline inflation” without a major increase in wages they could bring the economy to a complete standstill. Remember, weak wage growth has been a bit of a debate amongst analyst for the past several months. Bottom-line, this is a moving target with many variables and dynamics. If all things stay constant the Fed seems prepared to gradually start tightening and raising rates during the first half of 2015. If the variables between core inflation, headline inflation, employment and wage growth begin to shift and or change then so will the Fed’s reaction to the move. Just make sure you’re sighting your rifle in using the same calibrations and wind adjustments that the Fed is using.

Historic EPA Rule To Cut Carbon Emissions…Changes Are Coming!

The Environmental Protection Agency (EPA) just proposed (yesterday) the first rule to cut greenhouse gas emissions from existing US power plants. The goal continues with the same theme, cutting carbon emission by 30% in the 25 years between 2005 and 2030. As of right now US states are being given a flexible timeline to create their own plan for reducing carbon pollution. Word is the plans have to be submitted no later than the summer of 2016. If the state doesn’t comp ​ly, then the US government will implement its own plan. The good news is we have already seen US emissions fall by about 15% from the 2005 levels, so we are basically halfway there. Thoughts are many states will try making the final reductions in emissions by generating more electricity from clean energy, such as wind or solar, or by increasing overall energy efficiency. In addition to cutting carbon emissions by 30%, the Clean Power Plan aims to reduce other pollutants, like nitrogen oxides and sulfur dioxide by 25%. Interestingly the EPA estimates that the plan will save up to $93 billion in energy and health costs by preventing more than 6,000 premature deaths, 150,000 asthma attacks, and 490,000 missed work or school days. In addition the agency also said the new rule will lower electricity bills roughly 8% by increasing energy efficiency. The bad news? Costs. The U.S. Chamber of Commerce figures the plan could cost $50 billion a year in GDP and prevent the creation of more than 220,000 jobs per year. The hit to household disposable income would be more than $550 billion a year (Ouch!) From an investors standpoint you have to believe the primary mechanism for the reduction will be extremely tough emissions limits on “coal-fired” power plants. On the flip side the effect of the rule will most likely be the dramatic expansion of “natural gas” as a fuel for power generation. When burned, natural gas emits just half the carbon of coal. Make sure you are adjusting your investment portfolios accordingly, especially when you see the rules of the game start to change. If you look at the graphic below, which was released by the EPA, you can easily see the power plants are the the largest source of carbon pollution in the US, accounting for over one-third of the nation’s so called “greenhouse emissions.”…NOT the farm! To see the EPA’s full proposal Click Here

India’s Election A “Golden” Opportunity?

There’s starting to be some optimistic buzz in the gold market over the Indian election of Prime Minister Narendra Modi. As we all know, India has historically been a huge buyer of physical gold, but the previous government enacted prohibitive tariffs and import restrictions on the precious metal which greatly reduced the country’s buying. It’s now expected that Modi will relax the restrictions and cut the tariff, which could lead to a flurry of new buying activity. Rolling back the tariffs and changing the rules will take some time, so don’t expect to see an immediate impact, but keep in mind that analysts think added India demand could amount to  100-200 metric tons. Another optimistic outlook is if the new “business friendly” Prime Minister manages to get the country’s economy back on track, that would result in a stronger rupee, which would in turn increase Indian gold investors’ buying power. Maybe gold is setting up to breakout of it’s most recent sideways channel?  Click the chart below to see a larger version.

David Tepper Says It’s “Nervous Time”

David Tepper, founder of Appaloosa Management, who made the most money of any hedge fund manager in 2013 at $3.5 billion, believes believes investors, including himself, should be approaching the market with more caution now. His words are as follows:

“I’m not saying go short, I’m just saying don’t be too fricking long right now.”

“I have a position (where) I’m long enough with exposure where I can bring it up or I can take it down.”

“I am nervous. I think it’s nervous time.”

“I think we’re OK,” he said of the current investing climate, “but listen, there’s times to make money and there’s times not to lose money. This is probably (a time when) you’re supposed to think about preserving some of your money. If you’re 120 percent invested, it’s probably too much. You can still be long, but you probably should have some cash.”