The Contrarian's View s published 11 times per year on a mostly-irregular schedule, and the views expressed are those of the author and editor, Nick Chase. Because nobody can predict the future, results of past suggestions or recommendations are no guarantee of future results. My own material in this publication may be freely quoted provided proper attribution is given to its source; quotes from other people are subject to fair-use copyright restrictions. Subscription rate: Free on the Internet. Using your favorite Web-browsing program, open URL http://onashi.org. Former paid subscribers to the printed version are now receiving LIFETIME subscriptions, and subscriptions to the printed version are no longer being accepted. Unsolicited material sent to us by UPS or by courier other than the postal service is refused and returned to sender! ISSN 1536-4429 Phone: (508) 757-2881
In the U.S., when the dust settles, we would find that all of the major banks (and many non-banks) are majority-owned by other nations' sovereign wealth funds and mideast potentates. (Your petrodollars at work!) You can already see this trend underway, even before any possible systemic collapse.
I have seen many "predictions" for the near future, from Kondratyev winter to hyperinflation to deflation to depression to societal breakdown and subsistence living. And the truth is?.... nobody knows what will happen in a systemic collapse of the banking system, or even if, instead of collapse, we will somehow muddle through. What we do know is that the current situation is inherently unstable, and something bad is likely to occur.
I had thought that if we have a systemic failure it would come upon us suddenly, without warning and with no chance to prepare. Instead, what we've seen is a low-level credit crunch of several months' duration, flashing plenty of warning signs and giving us plenty of time to plan for an uglier future, if we were only willing to open our eyes and ears and pay attention.
I am reminded of the Austrian economist Ludwig von Mises, who presciently wrote: There is no means of avoiding the final collapse of a boom brought about by credit expansion. The question is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
So, is this the time that the fiat-money system goes belly-up? Or will the Fed manage to rescue us once again, as it did in 2002, and the final collapse will follow the next bubble? (Or the next, or...)
But what, exactly, do we plan for with so many possible outcomes? If we get hyperinflation, Weimar or Argentina or Zimbabwe-style, then holding (surrogates for) commodities and other real assets is your best protection, with perhaps stocks acting as a reasonable substitute for ownership of hard assets. If we get a crushing deflation and depression, like the 1930s, then cash, cash-equivalents and government bonds (issued by the owner of the money-printing press... who said life is fair?) are your best bets.
If we don't get the von Mises scenario in 2008 or 2009 and instead muddle through, then I would expect us to more or less track the one experience we've had so far in this modern age of financial alchemy.... that of Japan. In the early 1990s the Japanese central bank aggressively printed yen to bootstrap that country back into prosperity, to no avail.... consumer prices underwent a gentle deflation and asset prices crashed, until (only recently) most of the bad debts had been settled. I would expect a variation for us.... consumer prices increase (because our Fed is more successful at printing money than the Japanese) and asset prices crash.... stagflation with a vengeance! In this case your best protection might be to have your assets in foreign currencies, emerging markets and gold.
For myself, as you can see from the portfolios, I have
chosen a blend of cash, bonds, foreign currency,
energy and gold stocks, with only a smattering of
consumer goods and services stocks. Time will tell if
this works out OK. Until the day returns when we
see real growth (as opposed to bogus-CPI-adjusted
"growth") in the US economy, I feel emphasis
should be placed on protecting one's accumulated
assets rather than trying to make outsize profits.
Anyway, this brought up lots of questions, like... what about flame-tip 25-watt and 40-watt candelabra socket bulbs for our dining-room chandelier, hallway, and bathroom side lights? Or bulbs which will fit in the refrigerator, stove and vacuum cleaner? And finally, where are we going to store our lifetime supply of incandescent bulbs, because they're bulky and take up a lot of space? Especially, since I last wrote about fluorescents, we already have had trouble finding storage space for our newly-created lifetime supplies of blank T-120 videotapes (my wife doesn't like DVDs) and Leo&Lamb mugs?
Then I remembered that in our spare (guest) bedroom, which has a low, triangular pitched ceiling, there is empty space behind the bookcases lined up and forming walls for the room.... plenty of space for boxes of light bulbs, where they won't be seen because they'll be hidden by my wife's murder-mystery book collection.
Though we supposedly have five years, we probably won't wait very long to get started stocking up, because... as my wife pointed out. to me... if you look at the light-bulb display in the supermarket, you will see that the compact-fluorescent bulbs are already taking over. (Would you guess that the profit margins on CFs are higher than on incandescents? Nah, that can't be it....)
So we'll begin stockpiling as soon as I can figure out
just how many total light bulbs we'll need if she lives
to be 98 years old.
This recession will be deeper than the shallow contraction earlier in this decade. The dot-com-led downturn was set off by a collapse in business capital spending, which at its peak in 2000 accounted for only 13 percent of the country's gross domestic product. The current recession is all about the coming capitulation of the American consumer - whose spending now accounts for a record 72 percent of GDP. - Stephen Roach
Simply stated: There has never been a housing recession of this degree without triggering an overall recession for the economy. - Jim Stack [Nick's comment: Officially-recognized recession. After adjusting for the government's bogus CPI figures, we've mostly been in recession since 2001.]
The bottom line is this: There are at least hundreds of billions of dollars of bad debt sitting on the balance sheets of institutions everywhere. No matter how much external liquidity is provided by the Fed and others - it's still bad debt. - Jack Crooks
It may also be time to check on the safety of your bank if you have substantial deposits that exceed FDIC insurance limits (generally $100,000 per depositor per insured bank).... We haven't had to worry about widespread bank failures for some time. And banks were fairly well-capitalized heading into this mess. But the longer the mortgage and housing crisis drags on, and the higher delinquency rates and losses rise, the more risk there is to the health of the nation's banks. So be proactive, assess your risk now, and move some money around if necessary. - Mike Larson
What we are witnessing is essentially the breakdown of our modern day banking system. - Bill Gross
A large portion of my outrage has always been based on the betrayal inherent in monetary inflation: it victimizes those least able to protect themselves, which is why I equate central bankers with pedophiles. A system that purposefully cannibalizes its own is genetically unfit for existence. - Richard Karn
Events are driving us now, not personalities or even policies. Ben Bernanke, Hank Paulson, and the other characters in the headlines might pretend that they are managing things, but the truth is that problems in the financial sector have spun wildly out of control. The wheels are coming off and we are in that long sickening moment of sideways sliding motion when no attempt at steering will avail to avoid the crash. That it is happening at the very height of the Christmas season, when events have previously been controllable -- the season of manufactured Santa Claus rallies and $50 million bonuses -- shows how perilous the situation is. The reason the financial sector is crashing is really pretty simple: it created too many fraudulent securities. What has been conspicuously absent so far is any sense of accountability for what may go down as history's greatest swindle.... What we're also seeing is a crisis of authority on top of a crisis of capital, and it will probably lead to a crisis of legitimacy -- by which I mean a catastrophic loss of faith that this society can govern itself at any level. Leadership across the board has failed, in government, in business, in what used to be called the press, and in education. Leadership in every sector went along with the program, marveling stupidly at their society's ability to get something for nothing. - Jim Kunstler
This is it. The Kondratieff winter is now underway in earnest and nothing can stop it. The huge credit expansion initiated by the Maestro, the past Federal Reserve Chairman, Alan Greenspan, has now reversed. The ensuing credit contraction will be devastating. It will take down creditor and debtor alike and will result in a destructive and frightening deflationary depression.... As the 4th Kondratieff winter unfolds, most of the world is party to the debt bubble and the congruent speculative mania. The sheer size of this situation is at least 100 times greater than 1920s. Thus, the repercussions are likely to be far more punitive than during the 'dirty 30s'. This huge monetary expansion perpetrated by the Federal Reserve has contributed to the biggest speculation in every conceivable asset category and has been accompanied by unprecedented hubris, greed and outright fraud. This will be punished. The punishment is likely to fit the crime. - Ian Gordon [Nick's comment: "Money" is no longer tied to gold. Printing press meets asset deflation.... we'll see which wins.]
Helicopter Ben believes he can always stop the deflation that follows a credit crunch by dropping in money (liquidity, credit). His recent attempts to do so are not working, as indicated by spreads between Fed Fund rates and commercial rates like LIBOR. This is the endgame of the Greenspan Put. The toxic waste of junk debt is spreading. Worse, there are now hints of lawsuits by aggrieved mortgage holders who got sold those subprime loans even when lower rates were available - the risk may now fall on the lenders for overselling. It is becoming more difficult for the credit markets to stabilize when their exposure keeps growing and growing. In that climate, helicoptering in credit is like pushing on a wet noodle. - Brian Anderson
The Fed has to take a stance. It can: 1. Target inflation aggressively and do their best to slay the beast, economic consequences be damned. That's what legendary Fed Chairman Paul Volcker ultimately did to get us out of 1970s-era stagflation. OR ... 2. Just admit they're trying to reflate the housing and mortgage markets ... that they don't care if that drives inflation higher in the short term ... and that they'll deal with prices later. I mean, that's what's really going on behind all the carefully crafted econo-speak, isn't it? ....The Fed can't seriously expect us to believe them when they say they're worried about inflation ... but do nothing to fight it even though import and producer prices are rising at the fastest rates in decades! - Mike Larson
The banks have been creating trillions of dollars of credit (by originating mortgage-backed securities, collateralized debt obligations and asset-backed commercial paper) without maintaining the proportional capital reserves to back them up. That explains why the banks were so eager to provide mortgages to millions of loan applicants who had no documentation, no income, no collateral and a bad credit history. They believed there was no risk, because they were making enormous profits without tying up any of their capital. It was, quite literally, money for nothing. Now, unfortunately, the mechanism for generating new loans (and fees) has broken down. The main sources of bank revenue have either been seriously curtailed or dried up entirely. (Mortgage-backed) commercial paper (ABCP), one such source of revenue, has decreased by a full third (or $400 billion) in just 17 weeks. Also, the securitization of mortgage-backed securities is DOA. The market for MBSs and CDOs and other complex bonds has followed the Pterodactyl into the history books. The same is true of structured investment vehicles (SIVs) and other "off-balance-sheet" swindles, which have either gone under entirely or are presently withering with every savage downgrade in mortgage-backed bonds. The mighty juggernaut that was grinding out the hefty profits ("structured investments") has suddenly reversed and is crushing everything in its path. The banks don't have the reserves to cover their downgraded assets and the Federal Reserve cannot simply "monetize" their bad bets. There's no way out. There are bound to be bankruptcies and bank runs. "Structured finance" has usurped the Fed's authority to create new credit and handed it over to the banks. Now everyone will pay the price. - Mike Whitney
Non-bank institutions do not have direct access to the Fed and other central banks' liquidity support and they are now at risk of a liquidity run as their liabilities are short term while many of their assets are longer term and illiquid; so the risk of something equivalent to a bank run for non-bank financial institutions is now rising. And there is no chance that depository institutions will re-lend to these to these non-banks the funds borrowed by central banks as these banks have severe liquidity problems themselves and they do not trust their non-bank counterparties. So now monetary policy is totally impotent in dealing with the liquidity problems and the risks of runs on liquid liabilities of a large fraction of the financial system. - Nouriel Roubini
But unfortunately, the "freeze" is just another fraud - and like the other bailout proposals, it has nothing to do with U.S. house prices, with "working families," keeping people in their homes or any of that nonsense. The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value - right now almost 10 times their market worth. The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process. And, to be sure, fraud is everywhere. It's in the loan application documents, and it's in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies - all the way up to senior management - knew about it. I can hear the hum of shredders working overtime, and maybe that is the new "hot" industry to invest in. - Sean Olender
The Government says they are going to use the credit score as one of the determining factors. But we have learned over the past year that credit scores are not a good predictor of future ability to repay. This is because over the past five years you could refi your way into a great score. Every time you were going broke and did not have money to pay bills, you pulled cash out of your home by refinancing your first mortgage or upping your second. You pay all your bills, buy some new clothes, take a vacation and your score goes up! - Mark Hanson [20-year veteran of the mortgage industry]
However, this 'mortgage freeze' was actually the third bailout/remedy attempt by the government.... The first was this eye-popping 'advance' by the Federal Home Loan Bank system (FHLB) to the overall mortgage market in October.... In the third quarter, loans to member banks, also called 'advances', totaled $822 billion, a 28% leap from $640 billion at the end of June. This is a staggering amount of mortgage buying activity. Where did this $182 billion come from? Did the FHLB just happen to have $182 billion lying around? Since this is utterly improbable, how did the FHLB manage to find buyers for mortgage paper at a time when the mortgage markets were more or less frozen? What sorts of mortgages were purchased? Were they high grade or the subbiest of the subprime? This was a bailout plain and simple. Public monies were used to buy debt instruments that were otherwise unsalable in the vaunted "free market economy". It is an egregious use of public monies that was not voted on but is guaranteed by the public. But the FHLB fiduciary stewards did not stop there. They went further by advancing a stunning $51 billion to Countrywide Financial Corp, recently voted as most likely to fail by its classmates.... The only way I can interpret these moves is that our fiscal and monetary authorities are desperate and panicking. They are shoving enormous amounts of money (and hasty, badly named policies) into a very stressed and ultimately not savable situation. On a personal level these actions bother me a great deal, partly because they send the wrong message and add to the moral hazard ("Hey! Go ahead and live beyond your means and we'll reward you!"), but mostly because big bailouts doubly punish us all first by the inevitable inflation that will result and second because our future will be diminished by debt. - Chris Martenson
The Fed totally underestimated the housing recession arguing - like most market folks - that this was a temporary slump that would bottom out by the end of 2006 (sic!); it kept on saying throughout the winter of 2006 that the sub-prime problem was a niche and contained problem when it was not just sub-prime mortgages but also near prime and prime and excessive and reckless lending and leverage across the entire financial system; it kept on arguing that the housing slump would not affect other sectors and would not lead to a more severe economic slowdown that is in full swing now; it underestimated the risk of broader contagion to the financial system and ended up being literally surprised when the liquidity and credit crunch hit in the summer time; it then deluded itself in believing that this crunch was temporary and that Fed easing would resolve it; and it was then surprised (as Kohn admitted in its last speech) when the crunch got worse rather than better in the fall and has now gotten much worse than in August. So, the Fed has been persistently wrong for over a year now in its assessment of the economy and of financial markets. - Nouriel Roubini
Americans are now so upside down on their auto loans that new car sales will collapse; and when many loans go sour lien holders will be stuck with substantial losses on repossessed vehicles. As the music finally stops for serial credit card balance transferrers, the inability to renew low teaser rates means that fewer borrowers will be able to afford their payments. As delinquencies continue to rise rating agencies will downgrade bonds backed by auto loans and credit card debt, inflicting subprime type losses on a much wider scale. As defaults increase and losses mount, credit will tighten like a noose around the neck of America's consumer based economy. Just as subprime homebuyers are being shut out of the housing market, soon Americans will find that their credit is no longer good at car dealerships or department stores. American consumers that want to buy will need to be prepared to pay cash. - Peter Schiff
The real problem is investors in structured securities have lost confidence in the securities they own. They are too complicated to understand and they have stopped buying new ones.Consequently, existing structured securities are losing value as bids and offers are non-existent... Delinquencies and defaults are not a problem if you understand what you own. Defaults and delinquencies create a panic when operating in the dark - which is what has been happening in the credit markets this year. - Jim Bianco
What has become evident is that banks are concerned about the capital position of other banks. They do not know where the losses resulting from the array of derivative financial instruments will finally come to rest, and I think in the last four weeks we've also seen a more disturbing development, which is that the banks themselves are worried that the impact of their reluctance to lend collectively will lead to a sharper downturn in the United States, and perhaps elsewhere, thus generating further losses outside the housing and financial sectors, which will feed back onto balance sheets and reinforce their reluctance to lend, because of the need to generate more capital. - Mervyn King [Governor, Bank of England]
The central banks are rapidly losing control. By not cutting interest rates nearly far enough or fast enough, they are allowing the money markets to dictate policy. We are long past worrying about moral hazard. They still have another couple of months before this starts imploding. Things are very unstable and can move incredibly fast. I don't think the central banks are going to make a major policy error, but if they do, this could make 1929 look like a walk in the park. - Peter Spencer [chief economist, ITEM Club]
The central banks are trying to dissociate financial problems from the real economy. They are pushing the world nearer and nearer to the edge of depression. We hope they will eventually be dragged kicking and screaming to do enough, but time is running out. - Bernard Connolly [global strategist, Banque AIG]
There has been no meaningful movement on the credit situation, and it is rapidly spiraling out of control. So far, stock markets have been in denial for the most part. That has to change for the worse. Eventually, the mushrooming damage from the collapsing credit markets will cause a world stock detonation. - Christopher Laird
We've all heard about the defaults on subprime mortgage loans. But so far, the real story is how little the broader American economy has suffered [Nick's comment: So far!].... Today, banks usually sell their loans to third parties... If a large group of people can't pay their mortgages, they may lose their homes. But the banks don't suffer as they used to - local American lenders have already converted those loans into cash and sold off their risk. In fact, German regional banks suffered some of the most significant losses from bad American mortgages. Other European and Asian banks and hedge funds took their lumps as well. American banks essentially bought insurance by exporting their risk overseas. - Tyler Cowen [clueless economist, George Mason University]
A year ago I thought a drop in prices was inevitable, but I didn't know if it would be a bubble bursting or the air leaking out of the balloon. At this point we're seeing a quick meltdown.... People still haven't caught up with the fact that this is a larger issue for the mortgage market as a whole rather than just subprime. - Dean Baker [co-director, Center for Economic and Policy Research]
Starting in May 2006, the CME set up futures contracts for 10 metropolitan real estate markets, allowing investors to bet whether prices would go up or down and by how much. By the end of 2006 those futures were pointing to real estate price declines between 5 percent and 7 percent in those markets.... That ended up in line with the 6.7 percent annual decline in the October reading of S&P/Case-Shiller home price index, which was the largest drop recorded in that 20-year-old price measure.... Those futures today are far more bearish about future housing prices than most current economists - foreseeing an additional 4 percent to 14 percent drop in prices over the next year. - Chris Isidore
When bond default insurance was first introduced years ago, my father and I questioned the methodology used to evaluate the risk on something that never existed before. But the bond insurers hauled out an obscure, never-published Ph.D. dissertation about municipal bond failures in the Great Depression. Their rationale: "All we need is enough capital to cover the worst-case depression scenario. Then, as long as actual default rates stay below those levels, we'll be in good shape." The Wall Street rating agencies bought this argument hook, line and sinker. And the bond insurers have received triple-A ratings ever since. But in recent years, in tandem with the housing bubble, the bond insurers have also insured massive amounts of mortgage-backed securities and other CDOs, for which there was no historical precedent whatsoever - not even an obscure thesis. In other words, they abandoned the original basis for bond insurance and marched off into completely unchartered territory. Now, a large percentage of these new investments are in default ... or soon will be. And now, the entire rationale underlying bond insurance is out the window. - Martin Weiss
According to IRS data, the average American consumer earned less in 2005 than in the year 2000. Not all Americans are affected in the same manner, however. Since the early 1960s, the top 1% of households have increased their net worth more than 50% over the median wealth in the United States. The main reason for the developing chasm between the classes is clear: Poorer Americans hold less of the assets and investments that increase in value when the dollar is depreciated. They also tend to hold occupations in the low paying service sector, whose salaries do not increase with the cost of living. In the long term, it is better to have most Americans' standards of living increase rather than just a select few, and it is a stable and sound currency that allows this to occur. - Michael Pento
First, let us all revel at the Severe Comedy that has become US Presidential Politics. Good looks, meaningless promises, catchy campaign slogans, bulging campaign coffers, these all accompany a truly futile procession of charlatans offering hope. Harken back to November 2006, when a new Congress was elected. They, under new leadership have done not a blessed thing promised to turn the country away from its disastrous course, regarding the war, the economy, taxation, budget allocation, in a follow through mandated by voters. Expect nothing at all in change from any viable presidential candidate, who all seem like midgets. - Jim Willie
I've often said America faces danger from creeping fascism.... If government has the power to ban something
so incredibly benign and useful as the incandescent light bulb, what doesn't government have the power to
do? No one has ever been killed by an incandescent light bulb. The billions of them that have been used
around the world have done nothing they weren't intended to do. They produced light, efficiently and
economically. But they have been legislated away - without so much as a single public opinion poll to
determine what Americans think about the idea. And they will be replaced, by the way, by a hazardous
alternative - one that will almost assuredly cost lives and hurt the environment. That may be the most
amazing part of the story. The alternative to incandescent light bulbs is the CFL, or compact fluorescent,
which contains mercury, costs far more and produces light many find unattractive and even unsettling. In
fact, just wait to see how much the alternative bulbs cost when they are no longer alternatives, but your only
choice. Nevertheless, the nannies in Congress know what's best for you. And they've made their decision.... If
the oligarchs can get away with this, they can damn well get away with anything! This is madness. This is not
freedom. This is fascism. This is not the United States of America. - Joseph Farah [Nick's comment:
Unfortunately, it is.]
Credit crunch meets printing press in an election year with politicians trying to bribe their way into power using your taxes. An ugly scenario; take a year off, go for the gold. A "growth" junior gold mining stock is US Gold (UXG on the ASE), which traded below book value in December 2007 when most junior gold miners took a real bath. If you see no recession ahead in 2008... if you see the value of the dollar ascending in a spectacular recovery.... if you see the Federal Reserve miraculously stopping the credit crunch dead in its tracks... if you see the housing market picking up again in 2008.... then don't buy this stock. If you'd like a little insurance for the inverse of the preceding scenarios happening, then consider it.
When I pick a stock for publication elsewhere, I don't just randomly grab onto something which I think might soar into the stratosphere if all the stars line up just right. I generally select something I already own, or think I might be buying in the near future. It's not fair to other people to mislead them by suggesting they buy something that I don't, or am not likely to own myself. (If we go down, we go down together.)
My point in reprinting the above pick is not to promote US Gold, which is further described below under the "Inheritance" portfolio. It is to emphasize what I see as the extreme crosscurrents and riptides in the financial ocean as we enter 2008.
2008 is a presidential election year. US stock markets seldom go down in presidential election years.... because the powers that be (incumbents) grease the wheels of the economy as best they can to make certain it peaks around election time, so they can get re-elected.
For stocks to go down in 2008, the powers that be would have to lose control to some degree. This is what I expect to happen. This is what I think could happen in a really big way, via systemic failure (a complete loss of control). As you can see under the "Inheritance" portfolio, I was pretty disappointed with the weakness of the so-called "Santa Claus" rally in late December.... when tax-loss selling abates, we usually get a much better bounce.... and I felt my previous expectation of a secondary (but probably lower) top in early to mid-January might not happen at all. Instead, stocks might just catch up to the reality of the deepening recession. As I write this (January 4), so far that appears to be a good call.
Bullishness dies hard. Investors want to send stocks up; and they will go up until another unpleasant fact, such as yet another subprime writeoff, or bailout fund creation, or earnings disappointment, or dreadful statistic knocks them down. So until late spring (May/June) I expect a shallow to moderate bear market (as long as we don't get systemic meltdown). From late spring into the fall is when I expect US stocks to take a real beating, as the loss of control accelerates. Even if it is an election year.
The risk of another major systemic failure remains
high.... about 95% for the foreseeable future. As I
wrote for Dick Davis, don't try to be a hero. Take the
year off.... work on protecting what you already have.
A. "Inheritance" - real (normalized) "dividend and interest distribution" portfolio:
SUMMARY - "Inheritance":
Original cost: $100,000.00 (normalized)
Present value: $117,891.07 (see below)
Increase: $17,891.07 [+17.89%]
COMMENT on "Inheritance": New to the portfolio this issue is a flyer on another junior gold miner, US Gold. In 2005 former Goldcorp CEO Rob McEwen took charge of this near-dead outfit and proceeded to build up assets, acreage and gold reserves, in the same way he had built Goldcorp. So we have the first "tickler" to interest me in a stock.... new corporate management. The second "tickler" is the dreadful chart.... investors, expecting a Goldcorp rerun, had bid the stock way up, but became disappointed in the tortoise-like rate of progress - so the stock sold off sharply this fall, then became depressed below book value in year-end tax-loss selling. McEwen continues to increase his ownership (through exercise of warrants) and if he sees brighter prospects for US Gold, I'm willing to bet he will deliver.
As we neared the end of the year, I also realized that I had accumulated more short-term losses than I needed for the year ($3000 max allowed on Federal return, only $1000 allowed on Mass. return to offset interest and dividends, remainder must be carried to future years, both Federal and state), so I decided to take profits on a few shares of ProShares Ultrashort Financials, Real Estate and Russell Midcap, especially since it seemed to me that the US and European central banks had printed up enough money short-term to stay the credit crunch through the end of the year, thus a year-end stock-market rally was likely. This brought the portfolio, which had a bearish (profit from decline) cast, to a more neutral position.
Then, at the very end of the year, not being impressed with the "Santa Claus rally" up to that point and feeling that the primary bear market would return in January sooner than I previously had anticipated, I decided to establish ultrashort positions in two areas that had not yet felt the brunt of the onrushing recession, as financials and real estate already had.... consumer goods (SZK; the consumer is finally tapped out and can borrow no more money to spend) and emerging markets (EEV; the drop in US consumer spending will tank the Asian tigers who manufacture the gadgets US shoppers love). This again positioned the portfolio to a bearish bias.
The portfolio cost (normalized) is $107,868.42 with $14,272.28 currently in cash or near-cash.
B. "Professors' Investment Group (PIG)" - investment club portfolio.
SUMMARY - "PIG":
Original cost: $10,699.00
Present value: $25,106.72
Increase: $14,407.72 [+134.66%]
COMMENT on "PIG": There is no change from the last issue. (I never did get that "dead-cat bounce" to buy the second $1000 worth of Prudent Bear.)
C. Roth IRAs - real portfolio:
SUMMARY - Roth IRAs:
Original cost: $30,046.19
Present value: $34,597.27
Increase: $ 4,551.08 [+15.15%]
COMMENT on Roth IRAs: Additional purchases of Precision Drilling and Tortoise Capital Resources round out the transformation of the Roth IRAs into a portfolio of energy stocks.
D. TIAA/CREF 403(b) and (non-Roth) IRA retirement plans: My TIAA-CREF and Fidelity non-individual-stocks retirement investments, both the part from which I am making monthly withdrawals and the parts that are "resting", are invested as follows: TIAA traditional, 77.47%; money-markets, 14.52%; inflation indexed bonds, 0%; TIAA real estate, 2.74%; MLPs, 4.67%; FXP, 0.46%; TIAA-CREF High-Yield II, 0.14%.
TIAA-CREF values, 4Jan2008: stock, 251.43; equity-index, 95.62; MM, 24.91; bond, 84.96; inflation-indexed bond, 52.28; real estate, 310.91; TIAA current yield in SRA, about 4.8%. COMMENT on NYSE "Timer's Trend": We are currently on a SELL signal of November 1, 2007.
____________________________ NYSE TIMER'S TREND _______________________________
Mon 16 Jul 07 . |# . |13950.98 | + *
Tue 17 Jul 07 . |# . |13971.55 | .+ *
Wed 18 Jul 07 .# I . |13918.22 | + *
Thu 19 Jul 07 . | .# |14000.41 |+. *
Fri 20 Jul 07 #. I . {|13851.08 + . *
Mon 23 Jul 07 . I# . |13943.42 + . *
Tue 24 Jul 07 # . I . |13716.95 | - *
Wed 25 Jul 07 # . I . |13785.07 | .- *
Thu 26 Jul 07 # . I . |13473.57 | . -*
Fri 27 Jul 07 # . I . |13265.47 @|*-~~~~~~~~~~~~~~~~~~~~~~~~~~
Mon 30 Jul 07 .# I . |13358.51 @| . - *
Tue 31 Jul 07 # . I . |13211.99 @| . - *
Wed 1 Aug 07 #. I . |13362.37 @| . - *
Thu 2 Aug 07 .# I . |13463.33 | . - *
Fri 3 Aug 07 # . I . |13181.91 | . - *
Mon 6 Aug 07 .# I . |13468.78 | . - *
Tue 7 Aug 07 .# I . |13504.30 | . - *
Wed 8 Aug 07 . I #. |13657.86 | .- *
Thu 9 Aug 07 # . I . |13270.68 | . - *
Fri 10 Aug 07 # . I . |13239.54 | .- *
Mon 13 Aug 07 #. I . |13236.53 | . - *
Tue 14 Aug 07 # . I . |13028.92 | . - *
Wed 15 Aug 07 # . I . |12861.47 @|~.*-~~~~~~~~~~~~~~~~~~~~~~~~
Thu 16 Aug 07 # . I . |12845.78 @| . - *
Fri 17 Aug 07 . I# . |13079.08 @| . - *
Mon 20 Aug 07 # I . |13121.35 @| . - *
Tue 21 Aug 07 .# I . |13090.86 | . - *
Wed 22 Aug 07 . | # |13236.13 | - *
Thu 23 Aug 07 . #| . |13235.88 |-. *
Fri 24 Aug 07 . | .# |13378.87 + . *
Mon 27 Aug 07 . #| . |13322.13 + . *
Tue 28 Aug 07 # . I . |13401.85 |-. *
Wed 29 Aug 07 . | #. |13289.29 |-. *
Thu 30 Aug 07 # I . |13238.73 | - *
Fri 31 Aug 07 . | . # |13357.74 |-. *
Tue 4 Sep 07 . | . # |13448.85 +~.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~*
Wed 5 Sep 07 #. | . |13305.47 |+. *
Thu 6 Sep 07 . | #. |13363.35 |+. *
Fri 7 Sep 07 # . I . |13113.38 + . *
Mon 10 Sep 07 #. I . |13127.85 | - *
Tue 11 Sep 07 . | .# |13308.39 | - *
Wed 12 Sep 07 . #I . |13291.65 | - *
Thu 13 Sep 07 . | #. |13424.88 | - *
Fri 14 Sep 07 . # . |13442.52 + . *
Mon 17 Sep 07 # I . |13403.42 + . *
Tue 18 Sep 07 . | . # }|13739.39 |+. *
Wed 19 Sep 07 . | . # |13815.56 | + *
Thu 20 Sep 07 . |# . |13766.70 | + *
Fri 21 Sep 07 . | . # |13820.19 | .+ *
Mon 24 Sep 07 . |# . |13759.06 | . + *
Tue 25 Sep 07 . #| . [|13778.65 | + *
Wed 26 Sep 07 . | .# ]|13878.15 | + *
Thu 27 Sep 07 . | . # |13912.94 | + *
Fri 28 Sep 07 . | #. |13895.63 | + *
Mon 1 Oct 07 . | . # |14087.55 |~.+~~~~~~~~~~~~~~~~~~~~~~~~~~~~~*
Tue 2 Oct 07 . | . # |14047.31 | . + *
Wed 3 Oct 07 . | #. |13968.05 | . + *
Thu 4 Oct 07 . | .# |13974.31 | . + *
Fri 5 Oct 07 . | . # |14066.01 | . + *
Mon 8 Oct 07 . | #. |14043.73 | . + *
Tue 9 Oct 07 . | . # |14164.53 | . + *
Wed 10 Oct 07 . | .# |14078.69 | . + *
Thu 11 Oct 07 . | # |14015.12 | . + *
Fri 12 Oct 07 . | .# |14093.08 | . + *
Mon 15 Oct 07 . # . |13984.80 | .+ *
Tue 16 Oct 07 # I . |13912.94 |+. *
Wed 17 Oct 07 . I# . |13892.54 |+. *
Thu 18 Oct 07 . & . |13888.96 + . *
Fri 19 Oct 07 # . I . {|13522.02 |*-~~~~~~~~~~~~~~~~~~~~~~~~~~
Mon 22 Oct 07 # I . |13566.97 | .- *
Tue 23 Oct 07 . I #. ]|13676.23 | - *
Wed 24 Oct 07 # I . [|13675.25 | - *
Thu 25 Oct 07 . I# . |13671.92 | - *
Fri 26 Oct 07 . | . # }|13806.70 + . *
Mon 29 Oct 07 . | . # |13870.26 | + *
Tue 30 Oct 07 . & . |13792.47 |+. *
Wed 31 Oct 07 . | . # |13930.01 | .+ *
Thu 1 Nov 07 # . I . {|13567.87 | + *
Fri 2 Nov 07 # I . |13595.10 + . *
Mon 5 Nov 07 # . I . |13543.40 | - *
Tue 6 Nov 07 . I #. |13660.94 | - *
Wed 7 Nov 07 # . I . |13300.02 | . - *
Thu 8 Nov 07 #. I . |13266.29 | . - *
Fri 9 Nov 07 # . I . |13042.74 |*-~~~~~~~~~~~~~~~~~~~~~~~~~~
Mon 12 Nov 07 # . I . |12987.55 | . - *
Tue 13 Nov 07 . I# . |13307.09 | . - *
Wed 14 Nov 07 #. I . |13231.01 | . - *
Thu 15 Nov 07 # . I . |13110.05 | . - *
Fri 16 Nov 07 #. I . |13176.79 | . - *
Mon 19 Nov 07 # . I . |12958.44 | . - *
Tue 20 Nov 07 # . I . |13010.14 @| . - *
Wed 21 Nov 07 # . I . |12799.04 @| . -*
Fri 23 Nov 07 . I# . |12980.88 | . - *
Mon 26 Nov 07 # . I . |12743.44 @| . *
Tue 27 Nov 07 .# I . |12958.44 | . - *
Wed 28 Nov 07 . I # |13289.45 | .- *
Thu 29 Nov 07 .# I . |13311.73 | - *
Fri 30 Nov 07 . I # |13371.72 |-. *
Mon 3 Dec 07 # I . |13314.57 |-. *
Tue 4 Dec 07 # . I . |13248.73 |-. *
Wed 5 Dec 07 . I # |13444.96 |-. *
Thu 6 Dec 07 . | . # |13619.89 + . *
Fri 7 Dec 07 . | .# |13625.58 |+.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~*
Mon 10 Dec 07 . | . # |13727.03 | + *
Tue 11 Dec 07 # I . |13432.77 | .+ *
Wed 12 Dec 07 . & . |13473.90 | + *
Thu 13 Dec 07 # . I . |13517.96 + . *
Fri 14 Dec 07 # . I . |13339.85 | - *
Mon 17 Dec 07 # . I . |13167.20 |~.~*-~~~~~~~~~~~~~~~~~~~~~~~
Tue 18 Dec 07 # I . |13232.47 | . - *
Wed 19 Dec 07 # . I . |13207.27 @| . - *
Thu 20 Dec 07 # I . |13245.64 | . - *
Fri 21 Dec 07 . I #. |13450.65 | . - *
Mon 24 Dec 07 . | .# |13549.33 |-. *
Wed 26 Dec 07 . |# . |13551.69 |-. *
Thu 27 Dec 07 # . I . |13359.61 |-. *
Fri 28 Dec 07 #. I . |13365.87 |-. *
Mon 31 Dec 07 # . I . |13264.82 | - *
Wed 2 Jan 08 # . I . |13043.96 | . - *
Thu 3 Jan 08 #. I . |13056.72 | . - *
Fri 4 Jan 08 # . I . |12800.18 @|~.~*-~~~~~~~~~~~~~~~~~~~~~~~
--------------------------------------------------------------------------------
COMMENT on NASDAQ "Timer's Trend": We're on a SELL signal of October 15, 2007.
____________________________ NASDAQ TIMER'S TREND _____________________________
Mon 16 Jul 07 . I# . {| 2697.33 |+. *
Tue 17 Jul 07 . I # | 2712.29 | + *
Wed 18 Jul 07 #. I . | 2699.49 |+. *
Thu 19 Jul 07 . I .# | 2720.04 |+. *
Fri 20 Jul 07 # . I . | 2687.60 |-. *
Mon 23 Jul 07 . & . | 2690.58 |-. *
Tue 24 Jul 07 # . I . | 2639.86 | .- *
Wed 25 Jul 07 # I . | 2648.17 | .- *
Thu 26 Jul 07 # . I . | 2599.34 | . - *
Fri 27 Jul 07 # . I . | 2562.24 | . - *
Mon 30 Jul 07 .# I . | 2582.57 @| . - *
Tue 31 Jul 07 # . I . | 2545.57 | . - *
Wed 1 Aug 07 #. I . | 2553.87 @| . - *
Thu 2 Aug 07 . #I . | 2575.98 | . - *
Fri 3 Aug 07 # . I . | 2511.25 | . - *
Mon 6 Aug 07 # I . | 2547.33 | . - *
Tue 7 Aug 07 .# I . | 2561.60 | . - *
Wed 8 Aug 07 . I # | 2612.98 | .- *
Thu 9 Aug 07 # . I . | 2556.49 | .- *
Fri 10 Aug 07 # . I . | 2544.89 | .- *
Mon 13 Aug 07 # I . | 2542.24 | .- *
Tue 14 Aug 07 # . I . | 2499.12 | . - *
Wed 15 Aug 07 # . I . | 2458.83 @| . - *
Thu 16 Aug 07 # . I . | 2451.07 @| . - *
Fri 17 Aug 07 . I #. | 2505.03 | . - *
Mon 20 Aug 07 .# I . | 2508.59 | . - *
Tue 21 Aug 07 .# I . | 2521.30 | . - *
Wed 22 Aug 07 . I # | 2552.80 |-. *
Thu 23 Aug 07 .# I . | 2541.70 |-. *
Fri 24 Aug 07 . I # | 2576.69 + . *
Mon 27 Aug 07 . #I . | 2561.25 + . *
Tue 28 Aug 07 # . I . | 2500.64 |-. *
Wed 29 Aug 07 . I# . | 2563.16 | - *
Thu 30 Aug 07 . I# . | 2565.30 |-. *
Fri 31 Aug 07 . | . # | 2596.36 |-. *
Tue 4 Sep 07 . | . # | 2630.24 |+. *
Wed 5 Sep 07 .# I . | 2605.95 | + *
Thu 6 Sep 07 . | #. | 2614.32 | + *
Fri 7 Sep 07 # . I . | 2565.70 + . *
Mon 10 Sep 07 # I . | 2559.11 |-. *
Tue 11 Sep 07 . I #. | 2597.47 | - *
Wed 12 Sep 07 . #I . | 2592.07 | - *
Thu 13 Sep 07 . I# . | 2601.05 | - *
Fri 14 Sep 07 . #I . | 2602.18 |-. *
Mon 17 Sep 07 #. I . | 2581.66 |-. *
Tue 18 Sep 07 . | . # | 2651.66 + . *
Wed 19 Sep 07 . | . # | 2666.48 |+. *
Thu 20 Sep 07 . |# . | 2654.29 |+. *
Fri 21 Sep 07 . | . # | 2671.22 | + *
Mon 24 Sep 07 . I# . | 2667.95 | .+ *
Tue 25 Sep 07 . I# . | 2683.45 | + *
Wed 26 Sep 07 . | # | 2699.03 | + *
Thu 27 Sep 07 . | # | 2709.59 | + *
Fri 28 Sep 07 . I# . | 2701.50 |+. *
Mon 1 Oct 07 . | . # | 2740.99 | + *
Tue 2 Oct 07 . | . # }| 2747.11 | .+ *
Wed 3 Oct 07 . |# . [| 2729.43 | .+ *
Thu 4 Oct 07 . | #. | 2733.57 | + *
Fri 5 Oct 07 . | . # ]| 2780.32 | . + *
Mon 8 Oct 07 . | .# | 2787.37 | .+ *
Tue 9 Oct 07 . | . # | 2803.91 | .+ *
Wed 10 Oct 07 . | .# | 2811.61 | . + *
Thu 11 Oct 07 . # . [| 2772.20 | . + *
Fri 12 Oct 07 . | .# ]| 2805.68 | .+ *
Mon 15 Oct 07 .# I . {| 2780.05 | + *
Tue 16 Oct 07 # I . | 2763.91 + . *
Wed 17 Oct 07 . I #. | 2792.67 + . *
Thu 18 Oct 07 . & . | 2799.31 + . *
Fri 19 Oct 07 # . I . | 2725.16 | - *
Mon 22 Oct 07 . #I . | 2753.93 | - *
Tue 23 Oct 07 . I #. | 2799.26 |-. *
Wed 24 Oct 07 # . I . | 2774.76 | .- *
Thu 25 Oct 07 #. I . | 2750.86 | .- *
Fri 26 Oct 07 . I #. | 2804.19 | - *
Mon 29 Oct 07 . I #. | 2817.44 |-. *
Tue 30 Oct 07 . #I . | 2816.71 | - *
Wed 31 Oct 07 . I # | 2859.12 + . *
Thu 1 Nov 07 # . I . | 2794.83 + . *
Fri 2 Nov 07 .# I . | 2810.38 |-. *
Mon 5 Nov 07 # . I . | 2795.18 | .- *
Tue 6 Nov 07 .# I . | 2825.18 | .- *
Wed 7 Nov 07 # . I . | 2748.76 | . - *
Thu 8 Nov 07 # . I . | 2696.00 | . - *
Fri 9 Nov 07 # . I . | 2627.94 @| . - *
Mon 12 Nov 07 # . I . | 2584.13 @| . - *
Tue 13 Nov 07 . I# . | 2673.65 @| . - *
Wed 14 Nov 07 #. I . | 2644.32 | . - *
Thu 15 Nov 07 # . I . | 2618.51 | . - *
Fri 16 Nov 07 # I . | 2637.24 | . - *
Mon 19 Nov 07 # . I . | 2593.38 | . - *
Tue 20 Nov 07 # . I . | 2596.81 @| . - *
Wed 21 Nov 07 # . I . | 2562.15 @| . - *
Fri 23 Nov 07 . #I . | 2596.60 | . - *
Mon 26 Nov 07 # . I . | 2540.99 @| . - *
Tue 27 Nov 07 . #I . | 2580.80 | . - *
Wed 28 Nov 07 .# I . | 2662.91 | . - *
Thu 29 Nov 07 .# I . | 2668.13 | .- *
Fri 30 Nov 07 .# I . | 2660.96 | .- *
Mon 3 Dec 07 #. I . | 2637.13 | .- *
Tue 4 Dec 07 # . I . | 2619.83 | . - *
Wed 5 Dec 07 . #I . | 2666.36 | .- *
Thu 6 Dec 07 . I #. | 2709.03 | .- *
Fri 7 Dec 07 . #I . | 2706.16 | - *
Mon 10 Dec 07 . |# . | 2718.95 |-. *
Tue 11 Dec 07 # . I . | 2652.35 |-. *
Wed 12 Dec 07 .# I . | 2671.14 |-. *
Thu 13 Dec 07 #. I . | 2668.49 | .- *
Fri 14 Dec 07 # . I . | 2635.74 | . - *
Mon 17 Dec 07 # . I . | 2574.46 @| . - *
Tue 18 Dec 07 # I . | 2596.03 | . - *
Wed 19 Dec 07 # I . | 2601.01 | . - *
Thu 20 Dec 07 . #I . | 2640.86 | . - *
Fri 21 Dec 07 . I #. | 2691.99 | .- *
Mon 24 Dec 07 . | # | 2713.50 |-. *
Wed 26 Dec 07 . | # | 2724.41 + . *
Thu 27 Dec 07 # . I . | 2676.79 + . *
Fri 28 Dec 07 #. I . | 2674.46 |-. *
Mon 31 Dec 07 # . I . | 2652.28 | - *
Wed 2 Jan 08 # . I . | 2609.63 | . - *
Thu 3 Jan 08 #. I . | 2602.68 @| . - *
Fri 4 Jan 08 # . I . | 2504.65 @| . - *
--------------------------------------------------------------------------------
"Timer's Trend" is based on 4% and 10% exponential moving averages of the New York Stock Exchange or NASDAQ advance/decline
lines (that is, the ratio of advancing to declining stocks). There are many symbols shown above, but the ones that count are the braces:NEXT ISSUE - might appear as late as early March 2008. Until then, keep on your toes!