For those of you that have been on my email distribution list prior to the launch of Logical Decisions, you might remember my April 25th comments on Yahoo. Those that are new to my work, here is what I said, "Speaking of deals, if you haven't sold your yahoo stock, today is the day, as the Microsoft friendly offer expires Saturday. If nothing happens, the deal is dead, Yahoo's price likely falls to pre-deal levels under 18, and Ballmer gets to get hostile, and buy shares in the open market for possibly half his announced offer price. If this hallucination actually happens and Yahoo drops toward 10-14, it becomes an interesting play, since an open market race to buy control will likely develop.”
Well, the deal expired, and you can no longer sell your Yahoo stock at 28, like was available that day. Yes, there was a few hours of emotion between now and then with prices between 28 and 30, but few took advantage of “getting’ when the getting’ was good”. Today, Yahoo and Microsoft announced that they had ended their talks and NO DEAL would be coming. The stock fell immediately from 26 to 23, and closed near that low. My comments from April stand; expect Yahoo to decline under 18, eventually toward 10-14. Since you can never play these kinds of deals perfectly, 19 would be the place to begin a position, adding at 16, 13, and 10. With that plan and a perspective of 2 to 4 years, it’s hard to imagine a losing outcome.
For what it's worth,
Ken
Jun 12, 2008
Jun 10, 2008
HOME EQUITY AT HISTORIC LOW...RATES ABOUT TO RISE ! Are we having fun yet?
(click on image to enlarge)
CHART AU COURANT: Above is the monthly bar chart of one of our national obsessions, Microsoft (MSFT). You can see the fantastic parabolic (also known as geometric) rise since the early 1990's, having come public in 1986, to it's all time high in late 1999 at 53 (after adjusting for splits). I'll use this as an example of wealth creation and retention. The yellow lines above and below the green bars are standard deviation bands. They revolve around the gold line in the middle of the bands, which is a 200 day moving average of price. 200 days is approximately the number of trading days in a year, and is very important to institutions, who often like stocks above the 200 day moving average, sell stocks when they fall below. The question arises about how far above or below the 200 day moving average is too far, and therefore suggestive of a change in direction. Notice the how rare it is to see the green bars break above or below the yellow bands. In fact, using this chart, if you bought MSFT whenever it was below the lower yellow band, and sold it every time it was above the upper yellow band, you would be a very, VERY happy and wealthy boychik. You would stayed away during its fall from grace (regardless of the news, analysts comments, personal feelings about the products, or insider tips from friends at the company) from above 48 in 1999 until its 2002 dip below 21, sold again in 2003 above 25, bought in 2004 under 22, sold later in 2004 above 26, bought again in 2006 under 22, sold in 2007 above 35, and be waiting now for the next dip below, likely under 24 (for a short period) in the coming months. Think of all the additional charity Bill and Melinda would have had to fund global everything. Also, look at that study below the bar graph, called stochastics (red and green inter-twined lines). Here, if you bought when the red stochastic line touched the dark red horizontal lower extreme line, and sold when above the upper extreme line, you would be very happy. Now, combine the two techniques and only buy with you get a double buy indicator, and sell when you get a double sell indicator...viola.
Now look at the blue lines I have drawn at the right side of the chart. I call those my "lines of halucination". They project where prices should go, based on history and my decision support models. Even though MSFT has been dead money since 2001, having traded in a range of 17-37, the double buy/sell indicator outlined above could have allowed you to avoid much of the loss and captured much of the available gain within that range. It's not perfect, but hey, do you have something better that only requires you to make a couple decisions per year? Bottom Line: any dip under the lower yellow band around 24 in the coming weeks/months will likely reward you with a move up into the 31-33 range in short order. If that move up breaks above what will be a falling upper yellow band, take your money off the table and wait for the next dip below the lower yellow band. This will likely happen several years in the future, around 2013 +/- 2 years, around 15 +/- 2 dollars. No matter what, if the green line around 13 is ever approached, back up the truck, and leave it alone for the rest of your life, as the move that will follow will eventually break above 53.
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MARKETS: The behavior of short term interest rate markets is starting to suggest that the Fed is done lowering rates for now, and may be posturing for some raises (in their controlled short term arena) after November (rarely does the Fed raise rates just before a Presidential Election), but they could do it prior if the situation required. They'll use the fear of inflation to justify any raises they do, but the real reason will be fear of foreign capital fleeing the US because of the relatively low yield on Treasuries. Inflation won't be the problem for at least the next 5-8 years. The problem will be deflation, which won't be acknowledged until near the end of it. What is deflation? Imagine your stock portfolio declining in value at the same time as your house declines in value, along with your collectables. Basically, due to "underwhelming" demand for everything, there is more supply of everything than the markets can absorb. Since nobody wants anything, mostly because with record unemployment they can't afford to buy anything but what is needed, prices decline to unimaginable levels.
Interesting stocks to add to gently (if you have to): GE from 30 could test 36, SBUX from 13-15 could test 23-25, GRMN from 40-42 as pointed out for weeks (touched 55 so far) could test 60-75, AMGN from 40 (touched 45 so far) could test 52-58, ABK from 2-3 could test 20+ if not in bankruptsy a year from now, WM from 5-10 could test 18-23 also if not in bankruptsy, BAC from 27-32 could test 42, C below 20 could test 40 in coming 12 months, and MSFT from 24-27 could test 31 by year end. More to follow in coming months as prices decline.
For what it's worth,
Ken
According to the Federal Reserve, homeowner's equity across the nation fell to 46.2% in the first quarter of '08, the fifth quarter in a row below 50% equity, and is at the lowest level since the end of World War II. This is quite an accomplishment, considering we're the wealthiest nation on earth, where the streets are supposedly paved with gold (at least that is the global rumor that brings millions of people from around the world to America). Based on the value of the dollar, the gold has morphed into silver, perhaps pewter. Per the latest Beige Book report, there was a "noticable increase in late payments on consumer loans". NO KIDDING? Wonder why that is? It further showed that in some areas of the country, buyers are attracted to lower home prices. Again, NO KIDDING. We're all attracted to that. It's just that not many people can qualify for loans anymore, since we can no longer pay our other loans.
The DOW is getting close to the 12k (line in the sand) number, given in my last entry, quickly, having dropped over 1,000 points in the last month. Here's how the coming test of 12k should look: prices fall to 11,800 to 12,100 and attempt to bounce. The media celebrates the "holding" of 12k. Then the true test of the massive 12k area comes at 11,600, which is the low of the year. If a broad bounce can appear from there and quickly get prices back above 13k, the test will have been successful, and higher prices could levitate though the end of the year or early 2009. On the other hand, if 11,600 fails, big money will pull the rip cord and 9,600 to 10,300 will be seen within weeks. Catalysts, you may be asking? How about the final crude spike into the 150-190 zone, which may only last a day or two, but will surely blacken the mood on Wall Street. As I've said before, commodities often end their manias with "blow off" spikes, and crude is clearly in mania phase.Speaking of commodities (gold, silver, euro, crude), in a historically unusual manner, the last several years have seen normally uncorrelated markets become correlated. Meaning, for most of the past hundred years, these commodities and stocks do not move in the same direction at the same time. However, for the last few years, stocks have risen along with gold, silver, crude, housing prices, and the Euro. Now, to pay the price of that anomaly, they are all falling in unison, as least so far. Eventually, they will return to their non-correlated relationships, and move in ways unrelated to each other. Until then, we can expect them to continue declining, more or less together (that is, once crude ends it's solo finale). Concerning gold, from the $1,030 peak earlier this year, it's a bit over sold short term down here at $870, but if $850 breaks, a test of $800 could be seen quickly before finding buyers. $600-$675 still remains the better longer term buying point, with $450 a possibility if a liquidity crisis unfolds at certain hedgies. This level around $450 is likely the buy of a lifetime. From my call of a Euro top a couple weeks ago near 1.58, it has fallen to 1.53, and is also short term over sold. If you have profits in your short from up there, take at least half off here at 1.53. Add this piece back around 1.56 or if 1.52 breaks. Take profit on half again at 1.5050. Then, again add it back short if 1.48 breaks, taking half off again near 1.44, and so on.
Popular stocks to lighten up on at current prices or higher are: CSCO above 25 (but buy near 18), EBAY above 30 (but buy near 20), AMZN above 80 (but buy near 50), COST above 70 (but buy near 53), INTC above 24 (but buy near 18), YHOO above 27 (touched 22 so far, but buy under 18), SNDK above 30 (touched 24 so far, but buy near 15), RIMM above 151 (but buy under 80), AAPL above 180 (touched 166 so far, but buy near 100), BA above 82 (touched 73 so far, but buy under 50...any close under 70 will activate a head/shoulder top, with 40 as the target), GOOG above 560 (cover here under 550 as a bounce to 625 will be a better exit or reshort level, but buy under 350), DELL above 23 (but buy under 15) to name a few.Interesting stocks to add to gently (if you have to): GE from 30 could test 36, SBUX from 13-15 could test 23-25, GRMN from 40-42 as pointed out for weeks (touched 55 so far) could test 60-75, AMGN from 40 (touched 45 so far) could test 52-58, ABK from 2-3 could test 20+ if not in bankruptsy a year from now, WM from 5-10 could test 18-23 also if not in bankruptsy, BAC from 27-32 could test 42, C below 20 could test 40 in coming 12 months, and MSFT from 24-27 could test 31 by year end. More to follow in coming months as prices decline.
For what it's worth,
Ken
Jun 2, 2008
12,000 Dow or BUST...US foreclosures now 1.1 million...Unemployment at 5.5% (22 year high)
(click on picture to enlarge)
If you check time stamp (9:42 am PST on May 21, 2008) at the bottom of my last blog, and the predicted price range for a peak in the crude market in the opening paragraph, "a quick spike towards $135-$138 or a little higher is possible", you can see a BULLSEYE within 24 hours. Later on the 21st, and again on the 22nd, crude jumped to $135 momentarily, before reversing sharply. Since then, we have seen selling on good news for that market; a sign that there are just no more speculators at these levels, and that the big money is taking profits, likely now betting to the downside. My targets of $100 for sure, and $80 likely this year still stand. This means that gas prices of $4+ per gallon are not likely to hold for long, and $2.75 to $3.25 per gallon should be seen by Thanksgiving at the latest, even if another rumor driven spike takes crude to recent or above. There are unsubstantiated rumors that the US and or Israel is preparing for an attack on Iran circulating across trading floors this week. These are the kinds of rumors that happen after the top occurs, that are designed to bounce crude to allow "big guys" caught in losing trades to get out. The little bounces that occur are usually quickly erased, and further losses follow. To add fuel to the fire of this mania, predictions of $200 oil are surfacing. Interesting that this always happens at or near peaks of dramatic proportion. Examples are the calls for 30k and 40k Dow when the index just crested 14,000, calls for $2000 gold when it crested $1000, Nasdaq 10k eight years ago when it just crested 5k (still not having seen 3k since), calls for google at 1000 when it just crested 700 (remember it fell to 400 in March), and the list goes on.
Oil falling will help gold drop back toward the 600-700 range, and 1.30 +/- .30 in the Euro in the next 12-18 months. Planning European vacations for the first half of 2009 will likely allow the best bang for the Buck for the last couple years.
There is now a line in the sand, that if crossed, will burst the dam of optimism and what little sense of security most of us have left, and it's Dow 12,000. On the long term chart of the Dow above, I've placed a light blue line from the Dow low in 1974, and drawn it through the 2002 low. If you could see the entire picture in log-scale, you would see that is has been the "inflection line" for the past 35 years, including the recent January and March lows of 2008. Currently, this line passes through 12,000 for the month of June. A break of that line, in this case, Dow 12,000, will be the first break of a 35 year support line. Usually when this happens, the institutions wait for prices to get back just under or to the line again, and then sell like there is no tomorrow. So, consider this THE risk level of your portfolio, since under 12,000 will be likely bring in waterfall-like selling. Where is the Dow likely to fall to if 12k breaks? Let's just say that a reasonable target is the panic low of late 2002 around 7,500 +/- 300 points. This would also come very close to the trendline drawn from the 1987 low up through the inflection low in 1990, which is in the 6000-7000 range through the end of 2010. This gives two target surrounding 6,800 +/- 500 points (the average between the two technical analysis methods just mentioned).
What about everyone saying that the economy and lending sector is on the mend? Well, today, the banking index, BKX, will close at a lower low than in January, March, and April, or in other words, a new low for the year, and at levels not seen since 2003. Apparently, the banking system problems ARE NOT over, says the market, who is ALWAYS right!
In fact, today, after I have been suggesting it was coming for 6 months, WAMU replaced Kerry Killinger as Chairman of the Board. He is remaining as the CEO for now, but not for long in my humble opinion. At a price under $9, WAMU could be the buy of the sector, especially if Kerry's CEO days come to an end quickly. Having fallen from $48 in 2007 (a loss of $39 per share), what is the risk of buying at $9? Well, about 80% less than it was at $48. I'd buy under $9 and again under $5, and sell if it gets to $21.
This week, the Mortgage Bankers Association's first quarter report showed that a record 2.5% of all home loans being serviced by its members are now in foreclosure, which works out to about 1.1 million homes. That's up from the 2% of loans, or about 938,000 homes, that were in foreclosure at the end of 2007. The report also showed that 448,000 homes, or about 1% of loans being serviced, began the foreclosure process during the first quarter. That's up from about 382,000 homes, or 0.83%, that entered foreclosure in the last three months of 2007. The number of homeowners behind on their mortgage payments also hit a record high. Nearly 3 million home loans are now at least one payment past due, while about 737,000 are at least three months past due but not yet in foreclosure. This marks the sixth straight quarter in which a record percentage of loans went into foreclosure. The trend has led to a widespread decline in home prices, as well as huge losses for banks and other financial firms that issued or invested in the loans. Nearly half of the homes in foreclosure are concentrated in six states. But those states are undergoing two very different types of housing meltdowns. California, Florida, Arizona and Nevada have been hit by a hangover after a home building boom in the middle of the decade, which was fueled by rising home prices and investors snatching up real estate using risky mortgages. Those four states have about 368,000 homes in foreclosure, or a third of the nationwide total. Roughly 3.7% of all of the loans in these states are now in foreclosure. The other two states that are ground zero for the crisis - Michigan and Ohio - have been hit by the more traditional economic woes stemming from rising job losses, particularly in the automotive sector.
Last week, the government reported that 47 out of our 50 United States have more than 20% increases in foreclosures than the same time last year. Even Seattle and Portland are experiencing a slowdown in home sales, due to a lack of price decreases and stricter lending parameters. Many Governors are proposing that people walking away from their defaulted mortgages be safe from negative credit history reporting. Did we actually elect those idiots? Let's make sure we don't re-elect them in November. Imagine letting those that don't pay their bills get off free of charge? What message does that send to those that do pay their debts? What about the children?
Remember my comment on May 9 regarding municipal bonds and how they are a safety trap? Well, Vallejo, CA just filed for bankruptsy, defaulting on their muni bonds. They are trying to get the court to let them out of obligations and contracts that they say have forced them into the largest municipal default in California's history. The example this could set could lead to widespread city, county, and possibly state default in the coming years. Again, this is NOT the time to buy or hold muni bonds. It's a mine field and little guys like us cannot possibly determine the true risk of ANY municipality. So, don't kid yourself into thinking you can or your stock broker can, let alone your bond fund manager. As I write, muni bond insurers MBIA and Ambak have been placed on the review list at Moody's Bond Rating. Apparently, there is question whether they'll be able to withstand a massive municipal bond default scenario. You read it here first...
Fed Chairman Bernanke said today that the current housing decline has erased more family net worth and faster than the housing recession of the 1980's. If you "need" a new house to live in (by no means the right time to buy for investment purposes), this is a reasonable time to be looking. If you have the credit rating, you can get a great rate on a 30 year fixed mortgage, and in most cities in the country, you can get houses at 20%-50% below the prices they sold at in 2006. If you are in a market that is only 5%-15% off the highs, there is likely room for prices to fall further, but ANYTIME you can buy with a 40% discount to the recent highs, it pays to do so, since historically, that has been a good correction point. Don't talk yourself out of looking and making low ball offers though, as even in Seattle, you can find plenty of values at dramatically discounted prices. And realtors will not tell you about them, nor help you hardball negotiate. Remember, they want the commission, so any transaction is good for them. It's a rare market where buyers have the power, rather than the normal sellers market. So use it to your advantage, and make sure you really want to live there. This is NOT a flipping market, since most people can no longer qualify for housing prices above 500k. Make sure you don't get caught in the year over year "sales numbers" that, in some areas, show April '08 sales are up 25% to 45% over April '07. Remember, those cities have been in the toilet for two years, and 3 sales this April vs. 2 sales in '07 represents a 50% increase in home sales. Expect the numbers to misleading for many months/years to come, and make sure you know the actual number of sales, rather than just the percentage increase.
Speaking of great opportunity...if you don't care how "green" your car is, you can really find values in late model, used SUV's. There are reports that you can find 2007 gas guzzling vehicles at 50% of their new car prices, as people panic out of their exuberant car purchases. This explains why GM is trading at the lowest price since 1982. Normally, it takes about 4 years for a car to fall to half price, at least at the upper end of the price spectrum. So, if you can grab that discount after only a year of usage, with warranties intact, you can afford to burn twice the milage for a long, long time, and still not eat up the difference you saved on the great price.
If you like to trade the leaders of the current, keep your eyes on the "four horsemen" of the current apocolypse: GOOG, AAPL, RIMM, AMZN. The fate of these four will determine the Nasdaq's path. Each of these horsemen have rocketed in the past years and months, but are showing signs of weakening momentum, and waning institutional interest. They are all on my "lighten up" list below, with specific target zones.
Popular stocks to lighten up on at current prices or higher are: CSCO above 25 (but buy near 18), EBAY above 30 (but buy near 20), AMZN above 80 (but buy near 50), COST above 70 (but buy near 53), INTC above 24 (but buy near 18), YHOO above 27 (but buy under 18), SNDK above 30 (but buy near 15), RIMM above 131 (but buy under 80), AAPL above 180 (but buy near 100), BA above 82 (but buy under 50...any close under 70 will activate a head/shoulder top, with 40 as the target), GOOG above 560 (but buy under 350), DELL above 23 (but buy under 15) to name a few.
Interesting stocks to add to gently (if you have to): GE from 30 could test 36, SBUX from 13-15 could test 23-25, GRMN from 40-42 as pointed out for weeks (touched 55 so far) could test 60-75, AMGN from 40 (touched 45 so far) could test 52-58, ABK from 2-3 could test 20+ if not in bankruptsy a year from now, WM from 7-10 could test 18-23, BAC from 27-32 could test 42, C below 20 could test 40 in coming 12 months, and MSFT from 24-27 could test 31 by year end. More to follow in coming months as prices decline.For what it's worth,
Ken
May 21, 2008
Oil Overflowing with Optimism...obviously overdone !
As mentioned in each of my last two posts, crude in the $130 area should mark a significant high. Yes, a quick spike towards $135-$138 or a little higher is possible as short sellers throw in their towels, but this is the same emotional panic seen in many other markets that has exclaimed the manic blowoff just before dramatic reversals. CNBC will air a special report on the OIL CRISIS on Thursday the 22nd. Usually, these types of reports, along with popular magazine covers alerting us to what we already know, are the clarion calls of inflection. Hedge funds that played the lending bubble with massive leverage (not hedged as their name implies) made billions of dollars until that game changed. They inflated the housing market world wide. Recently, they needed a place to throw their money, and have chosen oil, gold, silver, the Euro, etc. When they exit oil (they appear to be leaving gold and silver already, and the Euro currently), the same "uh oh" effect will surface, as the plug gets pulled from that Look at Ambac and MBIA. Both were involved in the great lending bubble as insurers of bonds that were allowing huge speculators to "print money" as they borrowed cheaply in subprime debt and leveraged enormous bets in other markets. When that mania broke, and they ALWAYS break, they both exited three-standard-deviation heaven for 90% slaughters in less than 12 months. The graveyard of former mania "plays" is cluttered with similar stories. EVERY mania in history has ended with a collapse...without exception. If you have profits in oil stocks and oil related stocks, take some off the table and leave the last few hours to days of the bubble to the crazy folks that play it wrong every time. Perhaps taking profits in some solar companies would make sense too? A $30 slam toward $100 should be the minimum seen in the next few months, with $80 still likely this year.
The area from 1.5750 to 1.5825 in the Euro this week should be as high as it gets before another down wave takes it toward 1.5000 minimum, perhaps 1.4400 in the coming weeks to months, but certainly this year.
Stock indices are rolling over and have likely started their next wave lower, that should slice through the January/March lows and explore the 10,800 Dow, 1100 S&P, and 1800 Nasdaq levels in the not-so-distant future. Are you ready if it happens? The Wall Street saying, "sell in May and go away" refers to the big money leaving after Memorial Day to summer in the Hamptons. Stock Traders Almanac informs us that historically stocks rally a bit into the Memorial Day holiday. Prudence suggests that any near term bump higher into this weekend should be used to exit risky positions (like those on our lighten up list below, but in general, any and all stocks that have rallied from the March low).
Many analysts are saying that tech is still the leader and should be bought right here. I agree that tech is the leader, but see it leading markets lower. In fact, the Semiconductor index, SOX, is breaking 400 now on the way toward the 275 area, or lower this summer. On the other hand, the financials are too far into their current corrections to remain short, so cover most or all of your banks, brokerages, and other financials here. The Banking Index, BKX, is testing, and might slightly break its January/March lows of the 73 area, but should not take out the 2002 lows of 61 on this wave of selling. Rather, a bounce into the 90-100 is more likely later this year. Once the next disaster hits though, probably adjustable rate mortgage repricing in 2009 or credit card defaults, the 60 area could break later in 2009 or 2010.
Popular stocks to lighten up on at current prices or higher are: CSCO above 25 (but buy near 18), EBAY above 30 (but buy near 20), AMZN above 80 (but buy near 50), COST above 70 (but buy near 53), INTC above 24 (but buy near 18), YHOO above 27 (but buy under 18), SNDK above 30 (but buy near 15), RIMM above 131 (but buy under 80), AAPL above 180 (but buy near 100), BA above 82 (but buy under 50...any close under 70 will activate a head/shoulder top, with 40 as the target), GOOG above 560 (but buy under 350), to name a few. More to follow in coming posts.
Interesting stocks to add to gently: GE from 30 could test 36, SBUX from 13-15 could test 23-25, GRMN from 40-42 as pointed out for weeks could test 60-75, AMGN from 40 could test 52-58, ABK from 3-5 could test 20+, WM from 7-10 could test 18-23, to name a few. More to follow in coming months.
For what it's worth,
Ken
The area from 1.5750 to 1.5825 in the Euro this week should be as high as it gets before another down wave takes it toward 1.5000 minimum, perhaps 1.4400 in the coming weeks to months, but certainly this year.
Stock indices are rolling over and have likely started their next wave lower, that should slice through the January/March lows and explore the 10,800 Dow, 1100 S&P, and 1800 Nasdaq levels in the not-so-distant future. Are you ready if it happens? The Wall Street saying, "sell in May and go away" refers to the big money leaving after Memorial Day to summer in the Hamptons. Stock Traders Almanac informs us that historically stocks rally a bit into the Memorial Day holiday. Prudence suggests that any near term bump higher into this weekend should be used to exit risky positions (like those on our lighten up list below, but in general, any and all stocks that have rallied from the March low).
Many analysts are saying that tech is still the leader and should be bought right here. I agree that tech is the leader, but see it leading markets lower. In fact, the Semiconductor index, SOX, is breaking 400 now on the way toward the 275 area, or lower this summer. On the other hand, the financials are too far into their current corrections to remain short, so cover most or all of your banks, brokerages, and other financials here. The Banking Index, BKX, is testing, and might slightly break its January/March lows of the 73 area, but should not take out the 2002 lows of 61 on this wave of selling. Rather, a bounce into the 90-100 is more likely later this year. Once the next disaster hits though, probably adjustable rate mortgage repricing in 2009 or credit card defaults, the 60 area could break later in 2009 or 2010.
Popular stocks to lighten up on at current prices or higher are: CSCO above 25 (but buy near 18), EBAY above 30 (but buy near 20), AMZN above 80 (but buy near 50), COST above 70 (but buy near 53), INTC above 24 (but buy near 18), YHOO above 27 (but buy under 18), SNDK above 30 (but buy near 15), RIMM above 131 (but buy under 80), AAPL above 180 (but buy near 100), BA above 82 (but buy under 50...any close under 70 will activate a head/shoulder top, with 40 as the target), GOOG above 560 (but buy under 350), to name a few. More to follow in coming posts.
Interesting stocks to add to gently: GE from 30 could test 36, SBUX from 13-15 could test 23-25, GRMN from 40-42 as pointed out for weeks could test 60-75, AMGN from 40 could test 52-58, ABK from 3-5 could test 20+, WM from 7-10 could test 18-23, to name a few. More to follow in coming months.
For what it's worth,
Ken
May 16, 2008
OIL PEAK IMMINENT; Credit Card Crisis Becoming Critical !
(click on picture to enlarge)
Crude Oil, also known as West Texas Intermediate, spiked this morning to 128, testing the underside of the 130 level I mentioned last week. This happened as President Bush met in Saudi Arabia with their oil ministers about increasing production. They told him, and Saudi King Abdullah agreed, that they'd let the market determine the price and production levels. Essentially, they told America to "use it lose it", but don't tell us what to do. OUCH ! The froth in crude can be seen below the serface by comparing how bullish traders are currently compared to previous extreme bullish readings in sentiment.
The DSI (Daily Sentiment Index, courtesy of MBH Commodity Advisors, http://www.trade-futures.com/) percentage of bulls shows how expectantly traders greeted the move to within a few dollars of 130 (June contract). In recent days, the daily figure hit 95% and the 5-, 10- and 30-day moving averages all crossed above 90%. As of yesterday, all four permutations were above 90%. The latest to cross that threshold is the 30-day figure, which just hit 90.33% bullish. Getting traders above 90% bullish on anything for 30-days is a rare feat. The only higher 30-day readings are a 90.9% in late October 2004 and 90.43% last November 26. The first was followed by a 22% decline in two months and the second saw prices slip 8.4% in a few days. The unparalleled persistence of the bullishness is another consideration. In October 2004, the 30-day average was above 85% for 10 days before the peak. Last November, bullishness stayed above 85% for a little over a month before the peak. This time traders have been 85% bullish or better since March 18, almost two months. If the positive psychology toward crude oil yields to the usual equal and opposite negative response, the next oil top should be followed by a tsunami of selling, marking the peak for many months or even years. Below 120 will hints at a short term peak and coming test of 100, while below 89 all but guarantees the bubble has burst. This would coincide with dramatic declines of gold, silver, and the Euro toward 650-775, 9.3-13.6, and 1.22-1.37 respectively.
Recently, I have highlighted the growing rebellion by us little people toward those that have taken advantage of us during the past period of "good times". I mentioned the demonization of former "Maestro of Money" Alan Greenspan, and the growing "throw the bums out" sentiment that is pushing Obama toward the White House. Today, ABC News reported that "communities around the country are taking banks and lenders to court for failing to fix up foreclosed homes", causing property values to decline for those that aren't in foreclosure.
Negative undertone is spreading globally as well, as the United Nations reported Thursday, "The world economy is "teetering on the brink" of a severe downturn and is expected to grow only 1.8 percent in 2008", blaming the weakness on "further deterioration in the U.S. housing and financial sectors in the first quarter", which is expected to "continue to be a major drag for the world economy extending into 2009." Domestically, AAA predicts the first Memorial Day decline in US travel in six years, due to fuel prices.
The next shoe appears ready to drop on our economy in time to spoil the rest of 2008, as we move from the mortgage crisis to the credit card crisis. When times get tough, we do what we have to do to pay our bills. For more and more people, that means maxing out credit cards to put food on the table and gasoline in the family car, even paying the mortgage. This isn't good financial practice when times are good, but is disastrous when times are worsening or bad. The house (no pun intended) of cards that is built when mortgages are paid with credit cards, which are then defaulted on threatens America's largest banks. Nationwide, the credit card delinquency rate in the final quarter of last year jumped 32 percent over the previous year according to TransUnion.com. The fact that much of that credit card debt has been securitized into money market portfolios, bond mutual funds, and hedge funds means that our financial System is on shakier ground than ever in history.
Thinking of making yourself feel better by going out and buying a cheap house? Don't hurry, the bottom in home prices is still a ways away. Today, bad news was again reported by CNNMoney.com, regarding housing: "Construction of single family homes fell to a new 17-year low".
If you are wondering why you're not feeling the tension building, imagine the feeling of those dancing in the ballroom of the Titanic during the hours leading up to the collision with the ice.
For what it's worth,
Ken
The DSI (Daily Sentiment Index, courtesy of MBH Commodity Advisors, http://www.trade-futures.com/) percentage of bulls shows how expectantly traders greeted the move to within a few dollars of 130 (June contract). In recent days, the daily figure hit 95% and the 5-, 10- and 30-day moving averages all crossed above 90%. As of yesterday, all four permutations were above 90%. The latest to cross that threshold is the 30-day figure, which just hit 90.33% bullish. Getting traders above 90% bullish on anything for 30-days is a rare feat. The only higher 30-day readings are a 90.9% in late October 2004 and 90.43% last November 26. The first was followed by a 22% decline in two months and the second saw prices slip 8.4% in a few days. The unparalleled persistence of the bullishness is another consideration. In October 2004, the 30-day average was above 85% for 10 days before the peak. Last November, bullishness stayed above 85% for a little over a month before the peak. This time traders have been 85% bullish or better since March 18, almost two months. If the positive psychology toward crude oil yields to the usual equal and opposite negative response, the next oil top should be followed by a tsunami of selling, marking the peak for many months or even years. Below 120 will hints at a short term peak and coming test of 100, while below 89 all but guarantees the bubble has burst. This would coincide with dramatic declines of gold, silver, and the Euro toward 650-775, 9.3-13.6, and 1.22-1.37 respectively.
Recently, I have highlighted the growing rebellion by us little people toward those that have taken advantage of us during the past period of "good times". I mentioned the demonization of former "Maestro of Money" Alan Greenspan, and the growing "throw the bums out" sentiment that is pushing Obama toward the White House. Today, ABC News reported that "communities around the country are taking banks and lenders to court for failing to fix up foreclosed homes", causing property values to decline for those that aren't in foreclosure.
Negative undertone is spreading globally as well, as the United Nations reported Thursday, "The world economy is "teetering on the brink" of a severe downturn and is expected to grow only 1.8 percent in 2008", blaming the weakness on "further deterioration in the U.S. housing and financial sectors in the first quarter", which is expected to "continue to be a major drag for the world economy extending into 2009." Domestically, AAA predicts the first Memorial Day decline in US travel in six years, due to fuel prices.
The next shoe appears ready to drop on our economy in time to spoil the rest of 2008, as we move from the mortgage crisis to the credit card crisis. When times get tough, we do what we have to do to pay our bills. For more and more people, that means maxing out credit cards to put food on the table and gasoline in the family car, even paying the mortgage. This isn't good financial practice when times are good, but is disastrous when times are worsening or bad. The house (no pun intended) of cards that is built when mortgages are paid with credit cards, which are then defaulted on threatens America's largest banks. Nationwide, the credit card delinquency rate in the final quarter of last year jumped 32 percent over the previous year according to TransUnion.com. The fact that much of that credit card debt has been securitized into money market portfolios, bond mutual funds, and hedge funds means that our financial System is on shakier ground than ever in history.
Thinking of making yourself feel better by going out and buying a cheap house? Don't hurry, the bottom in home prices is still a ways away. Today, bad news was again reported by CNNMoney.com, regarding housing: "Construction of single family homes fell to a new 17-year low".
If you are wondering why you're not feeling the tension building, imagine the feeling of those dancing in the ballroom of the Titanic during the hours leading up to the collision with the ice.
For what it's worth,
Ken
May 9, 2008
Google at 600? Best SELL since 740 in November !
(click on picture to enlarge)
I last opined on March 14th (in an email blast prior to opening this blog), when the Fed and JP Morgan bailed Bear Stearns out of defacto bankruptcy. I said then, "don't rush to buy anything here, it's too soon. Even if the Fed finally arranges a short term market rally or perception of a better real estate market, the final bottom has likely NOT been seen, and won't be until 2009-2011. You'll know it's close when no one is talking about buying cheap real estate or stocks", which is still the case.
The market has risen since then, but not due to the problem being solve. More likely, the Fed took so much historic action surrounding that bailout that a short term selling purge ran out of supply. In other words, temporary equilibrium was restored (at much lower and worse levels). This is ironic, since our tax dollars are being used to fund the bailout, as risk is being transferred from Wall Street to Main Street. The Fed's PPT (Plunge Protection Team), groups of undercover floor traders that get to "goose" the market with newly printed cash, has been in full force, trying to hold off the coming debacle that will be the next wave of realization…"uh oh, it's worse than we thought !" We still hear that the economy is slowing, but not in recession, but new home sales were reported on April 24 to have declined to a level not seen since 1981. Last week, the government reported that 18% of all homes in the US have negative equity (are worth less than the debt held on them). In the last two weeks, Intel, Motorola, Starbucks, Amazon, Microsoft, Google, Apple, Citigroup, Wamu, BofA, and hundreds of other companies have reported earnings, and have either missed their estimate, or had reduced their estimates so much that they were able to beat their massively reduced estimates. Either situation has resulted in most company's stock prices falling, some below their March or January lows.
Imagine what the recession (or worse) is going to look like. In Seattle, we're blessed with many things including diversity of industry, natural geographic beauty, relatively clean air and water (usually 56 rain-free days per year), but we all know that the golden real estate days are no more. This Spring will be the test, as most have kept their pricing high, allowing homes to remain on the market longer than in recent years by a factor of 3 or 4 (two months vs. two weeks in the glory days of '05 and '06). Under the surface of for sale signs, just getting financed is at least twice as hard as it was a year ago. One needs twice the assets for half the loan amount now, not to mention actually having to put up the down payment these days. We actually flipped a house in Clyde Hill recently that should have taken six weeks, but took six months. It was in foreclosure and we did a short sale on it. We got the bank to take an $800k loss on their loans, which is another sign of the times, especially in Seattle, one of the top two markets in the country, behind only Manhattan. We did another transaction in Oklahoma City that is more indicative of the national scene. We bought a single family house on a full acre, that was appraised at $70k, from the bank for $43k. We're currently working on several deals in Sonoma County, California for around 60 cents on the dollar vs. the current market value. We fully expect to be able to get closer to 40 cents or lower on the dollar by the time the bottom shows up, closer to 2010. In Florida this week, huge bank auctions were held where 4 bedroom houses went for $80-100K, just to get them off the banks' books. Thousands of homes were moved in a matter of hours. Again, as restated above, the bottom won't occur until those auctions are attended. And, it's not just an American issue either. While our housing market is collapsing nationally, but not yet in Seattle, many countries are still flying high. Ireland, Netherlands, and Britain lead the world with double digit growth nationally. Soon though, global recession will take hold in those market too, just like eventually in Seattle.
Remember not that long ago when Alan Greenspan was a hero? The Maestro was his nickname. Now, he's being blamed for ruining the economy, and when he speaks, the media calls it "promoting his book and speaking career". It's no longer glorious to be a CEO either, as all the blame for problems falls on them. Kerry Killinger at Wamu is the only one that has avoided the exit (so far). Kerry has personally overseen $30 billion of shareholder wealth destroyed under his guidance, and in a very short time. Congrats Kerry, but you had better renew the Teflon on that suit of yours. Speaking of blame, by the time the election arrives, the sentiment should be at the worst levels in years (even worse than the Bill and Monica event). The "throw the bums out" mentality will likely make it impossible for the GOP to be voted back into office, setting up a historical win for either the first woman or the first black President, or some combination thereof. The only way for the Repubs to save their party would be for an immediate admission by President Bush that he has been suffering from advanced dementia and was out of his mind for the last seven years, apologizing for everything that has happened, and asking for forgiveness from the country.
Recent news stories highlight spikes in rice prices fueling anger and fears of unrest in Asia; truckers pulling their rigs off New Jersey highways to protest fuel prices; and food price rioting breaking out in Egypt, Cameroon, Ivory Coast, Senegal, Ethiopia, Pakistan, and Thailand (per Wall Street Journal). English Prime Minister Gordon Brown calls the growing food crisis a threat to world stability. Those that know history know the last time food rationing was seen on a large scale was here in the 1930's. Current circumstances, however, are affecting the entire globe.
To make matters worse, The Wall Street Journal says that unfunded pension liabilities now exceed $1 TRILLION, with a T, nationally. How does that matter to me, you might be saying? Well, if a bunch of retirees don't get their pensions, where and how will they live and spend? Clearly, they'll put their houses on the market, which already has 11 months of national supply, not seen since 1981. They won't be buying stuff they don't need, like is our national pastime, and since they're all related to us, will become our dependents, like we were theirs 30-50 years ago, when they used to SAVE money, which we no longer do.
Ready for the bad news? The glory, cheap money, days are over for municipalities. Cities, Counties, and States have not only run out of money, but out of credit worthiness to get more. California says it's cutting $200 billion from its budget. Schools across the state are closing and sharing campuses as programs are being slashed. Jefferson County, Alabama (where Birmingham is) is already defacto bankrupt, and is the largest County to become insolvent in US history, surpassing Orange County, California in the 1990's. If you have or know those that have large portfolios of Muni Bonds, this is the time to sell or reduce the size of their holdings, as yields are about to skyrocket to attract new investors. Rising yields means falling prices. If you want to know what that will mean in value? The Bond Buyer 25 Revenue Muni Bond Index currently yields 5.25%, and could easily reach 10% (with potential for its 1982 high of 15%), the value of a current bond portfolio of similar high quality munis would fall to half its current value, and to 1/3 if the 1982 level was tested. And those are highly rated muni bonds. Here's the thing to avoid at ALL costs…as times get really tight for municipalities, they will try to float bonds to finance their "current" expenses. This is the last step before they file for bankruptcy. NEVER buy these bonds, no matter what yield they "intend" to pay, or you could be left holding an empty bag.
What about the recent deals where huge investors bought into Citigroup, Wamu, Countrywide, Bear Stearns, Merrill Lynch, City National, etc.? You guessed it, some are going to be very disappointed, since if last quarter was not THE low, by definition, some of these deals will either not happen, or happen and make the buyer wish they hadn't done it. The window is closing on easy money opportunities even on Wall Street, as the IPO market has closed. In the first quarter of '08, 83 companies pulled their IPO's and 24 delayed sales of secondary shares. Why? Because the public doesn't want to share other peoples risk right now, since we all have enough of our own.
April 30th, the Fed cut interest rates yet again to keep from disappointing the markets. It's interesting that after 325 basis points of rate reduction, the economy still entered recession, despite what the government says, and conditions are worsening by the week. Stock indices are still relatively high, especially compared to where they have the potential to go in the next few years. If you can't live through a Dow near 5000 or Nasdaq near 1000, it might be prudent to lighten up on some holdings. Real potential exists for those levels in the next few years. Just think of the opportunities that will be available if that happens though. You just have to preserve your capital so you can take advantage of it. Cash remains king, and Tbills are still risk free.
Okay, here is the good news. The dollar is no longer falling off the face of the earth, even though the media is still on that bandwagon. If you have overseas exposure of business or are paid in other currencies that get converted, this is the time to lean TOWARD the dollar for several months. Unfortunately, it likely hasn't reached its ultimate bottom either, since the government hasn't cleaned up its mess yet. Six to twelve months of relief from global dollar bashing is in order here though. Rising dollar should mean reduced foreign sales for US companies, so further earnings deterioration is in store for the remainder of 2008, and likely 2009.
However, from every disaster, opportunities are born. There are some stocks that have already been beaten down to level of interest. Amgen and Starbucks offer a safer haven than most at this time. Many others will offer interesting opportunity at lower levels. The picture above shows the pattern of the Nasdaq leading up through the dot.com bubble bursting, the initial decline that sliced 80% off that high, and the six year rise from 2002 that barely regained half the loss . Since the November '07 peak, marked as (B), the initial wave lower of the final wave of decline from the all time highs has begun. The light blue line that ends under 1000, somewhere out in 2011 +/- 1 year, is my hallucination of what is to come. (click on picture above to enlarge)
Reminding those that were at my November Caution Summit, Google was at 740 that evening and I said my indicators showed the price was at risk of immediate decline to the 450 range in the coming months. By March '08, Google had been slaughtered to 415. I put out a near term buy forecast a bit higher at 444, with a target of 550-600 in the near term. As clear as the signal offered at 740 in November'07 before falling 340 pts to 400 in March'08, Google at 580-600 is NOW allowing those that prayed for a bounce to get out at higher prices. Technically, the daily chart has rolled over and the weekly chart is at extreme overbought levels, about to roll over. Certainly a test of 380-400 is coming, with potential for 280-320 to be seen sometime during 2008. Any buying opportunity surrounding 300 should be the opportunity we've all been hoping for since exuberance struck in 2006, taking Google from the 300's to 740 in under a year. If 690 is broken above, odds favor a new high above 740, but this is NOT the best bet.
Starbucks near 15, Garmin near 42, and Amgen near 42 offer long side opportunities currently, with secondary entry levels of 10.5-12.5, 33, and 30 respectively. Minimum upside targets are 23-28, 75-80, and 60 respectively later this year. Almost every other stock that has risen from the lows of January and March are current selling opportunities. Those that like to hedge portfolio holdings, rather than sell, should check into QID. This is an ETF that is an inverse 2:1 bet on the Nasdaq 100 Index. If that index falls 20%, this security will rise 40%.
Believe it or not, crude oil is likely topping and setting up for a test of at least the 80, possibly the 50's in the next 12-24 months, even though 130 could be seen first. Gold peaked around 1000 and should at least test 650-700, if not 580 in the coming 12 months. The Euro has peaked, at least short term, with a test of 1.39 to 1.41 due prior to any new highs above 1.60. There is good chance to see 1.18 to 1.23 within the coming 12-24 months.
30 year yields peaked recently around 3.95% and should at least test 3.00% during 2008. After that level is tested, yields should rise for several years, possibly reaching the high single digits not seen since 1994. Refinancing and/or locking in longer term loan rates around current levels will prove to be one of the best financial moves in the next 10 years, second only to eliminating debt all together.
For what it's worth,
Ken
The market has risen since then, but not due to the problem being solve. More likely, the Fed took so much historic action surrounding that bailout that a short term selling purge ran out of supply. In other words, temporary equilibrium was restored (at much lower and worse levels). This is ironic, since our tax dollars are being used to fund the bailout, as risk is being transferred from Wall Street to Main Street. The Fed's PPT (Plunge Protection Team), groups of undercover floor traders that get to "goose" the market with newly printed cash, has been in full force, trying to hold off the coming debacle that will be the next wave of realization…"uh oh, it's worse than we thought !" We still hear that the economy is slowing, but not in recession, but new home sales were reported on April 24 to have declined to a level not seen since 1981. Last week, the government reported that 18% of all homes in the US have negative equity (are worth less than the debt held on them). In the last two weeks, Intel, Motorola, Starbucks, Amazon, Microsoft, Google, Apple, Citigroup, Wamu, BofA, and hundreds of other companies have reported earnings, and have either missed their estimate, or had reduced their estimates so much that they were able to beat their massively reduced estimates. Either situation has resulted in most company's stock prices falling, some below their March or January lows.
Imagine what the recession (or worse) is going to look like. In Seattle, we're blessed with many things including diversity of industry, natural geographic beauty, relatively clean air and water (usually 56 rain-free days per year), but we all know that the golden real estate days are no more. This Spring will be the test, as most have kept their pricing high, allowing homes to remain on the market longer than in recent years by a factor of 3 or 4 (two months vs. two weeks in the glory days of '05 and '06). Under the surface of for sale signs, just getting financed is at least twice as hard as it was a year ago. One needs twice the assets for half the loan amount now, not to mention actually having to put up the down payment these days. We actually flipped a house in Clyde Hill recently that should have taken six weeks, but took six months. It was in foreclosure and we did a short sale on it. We got the bank to take an $800k loss on their loans, which is another sign of the times, especially in Seattle, one of the top two markets in the country, behind only Manhattan. We did another transaction in Oklahoma City that is more indicative of the national scene. We bought a single family house on a full acre, that was appraised at $70k, from the bank for $43k. We're currently working on several deals in Sonoma County, California for around 60 cents on the dollar vs. the current market value. We fully expect to be able to get closer to 40 cents or lower on the dollar by the time the bottom shows up, closer to 2010. In Florida this week, huge bank auctions were held where 4 bedroom houses went for $80-100K, just to get them off the banks' books. Thousands of homes were moved in a matter of hours. Again, as restated above, the bottom won't occur until those auctions are attended. And, it's not just an American issue either. While our housing market is collapsing nationally, but not yet in Seattle, many countries are still flying high. Ireland, Netherlands, and Britain lead the world with double digit growth nationally. Soon though, global recession will take hold in those market too, just like eventually in Seattle.
Remember not that long ago when Alan Greenspan was a hero? The Maestro was his nickname. Now, he's being blamed for ruining the economy, and when he speaks, the media calls it "promoting his book and speaking career". It's no longer glorious to be a CEO either, as all the blame for problems falls on them. Kerry Killinger at Wamu is the only one that has avoided the exit (so far). Kerry has personally overseen $30 billion of shareholder wealth destroyed under his guidance, and in a very short time. Congrats Kerry, but you had better renew the Teflon on that suit of yours. Speaking of blame, by the time the election arrives, the sentiment should be at the worst levels in years (even worse than the Bill and Monica event). The "throw the bums out" mentality will likely make it impossible for the GOP to be voted back into office, setting up a historical win for either the first woman or the first black President, or some combination thereof. The only way for the Repubs to save their party would be for an immediate admission by President Bush that he has been suffering from advanced dementia and was out of his mind for the last seven years, apologizing for everything that has happened, and asking for forgiveness from the country.
Recent news stories highlight spikes in rice prices fueling anger and fears of unrest in Asia; truckers pulling their rigs off New Jersey highways to protest fuel prices; and food price rioting breaking out in Egypt, Cameroon, Ivory Coast, Senegal, Ethiopia, Pakistan, and Thailand (per Wall Street Journal). English Prime Minister Gordon Brown calls the growing food crisis a threat to world stability. Those that know history know the last time food rationing was seen on a large scale was here in the 1930's. Current circumstances, however, are affecting the entire globe.
To make matters worse, The Wall Street Journal says that unfunded pension liabilities now exceed $1 TRILLION, with a T, nationally. How does that matter to me, you might be saying? Well, if a bunch of retirees don't get their pensions, where and how will they live and spend? Clearly, they'll put their houses on the market, which already has 11 months of national supply, not seen since 1981. They won't be buying stuff they don't need, like is our national pastime, and since they're all related to us, will become our dependents, like we were theirs 30-50 years ago, when they used to SAVE money, which we no longer do.
Ready for the bad news? The glory, cheap money, days are over for municipalities. Cities, Counties, and States have not only run out of money, but out of credit worthiness to get more. California says it's cutting $200 billion from its budget. Schools across the state are closing and sharing campuses as programs are being slashed. Jefferson County, Alabama (where Birmingham is) is already defacto bankrupt, and is the largest County to become insolvent in US history, surpassing Orange County, California in the 1990's. If you have or know those that have large portfolios of Muni Bonds, this is the time to sell or reduce the size of their holdings, as yields are about to skyrocket to attract new investors. Rising yields means falling prices. If you want to know what that will mean in value? The Bond Buyer 25 Revenue Muni Bond Index currently yields 5.25%, and could easily reach 10% (with potential for its 1982 high of 15%), the value of a current bond portfolio of similar high quality munis would fall to half its current value, and to 1/3 if the 1982 level was tested. And those are highly rated muni bonds. Here's the thing to avoid at ALL costs…as times get really tight for municipalities, they will try to float bonds to finance their "current" expenses. This is the last step before they file for bankruptcy. NEVER buy these bonds, no matter what yield they "intend" to pay, or you could be left holding an empty bag.
What about the recent deals where huge investors bought into Citigroup, Wamu, Countrywide, Bear Stearns, Merrill Lynch, City National, etc.? You guessed it, some are going to be very disappointed, since if last quarter was not THE low, by definition, some of these deals will either not happen, or happen and make the buyer wish they hadn't done it. The window is closing on easy money opportunities even on Wall Street, as the IPO market has closed. In the first quarter of '08, 83 companies pulled their IPO's and 24 delayed sales of secondary shares. Why? Because the public doesn't want to share other peoples risk right now, since we all have enough of our own.
April 30th, the Fed cut interest rates yet again to keep from disappointing the markets. It's interesting that after 325 basis points of rate reduction, the economy still entered recession, despite what the government says, and conditions are worsening by the week. Stock indices are still relatively high, especially compared to where they have the potential to go in the next few years. If you can't live through a Dow near 5000 or Nasdaq near 1000, it might be prudent to lighten up on some holdings. Real potential exists for those levels in the next few years. Just think of the opportunities that will be available if that happens though. You just have to preserve your capital so you can take advantage of it. Cash remains king, and Tbills are still risk free.
Okay, here is the good news. The dollar is no longer falling off the face of the earth, even though the media is still on that bandwagon. If you have overseas exposure of business or are paid in other currencies that get converted, this is the time to lean TOWARD the dollar for several months. Unfortunately, it likely hasn't reached its ultimate bottom either, since the government hasn't cleaned up its mess yet. Six to twelve months of relief from global dollar bashing is in order here though. Rising dollar should mean reduced foreign sales for US companies, so further earnings deterioration is in store for the remainder of 2008, and likely 2009.
However, from every disaster, opportunities are born. There are some stocks that have already been beaten down to level of interest. Amgen and Starbucks offer a safer haven than most at this time. Many others will offer interesting opportunity at lower levels. The picture above shows the pattern of the Nasdaq leading up through the dot.com bubble bursting, the initial decline that sliced 80% off that high, and the six year rise from 2002 that barely regained half the loss . Since the November '07 peak, marked as (B), the initial wave lower of the final wave of decline from the all time highs has begun. The light blue line that ends under 1000, somewhere out in 2011 +/- 1 year, is my hallucination of what is to come. (click on picture above to enlarge)
Reminding those that were at my November Caution Summit, Google was at 740 that evening and I said my indicators showed the price was at risk of immediate decline to the 450 range in the coming months. By March '08, Google had been slaughtered to 415. I put out a near term buy forecast a bit higher at 444, with a target of 550-600 in the near term. As clear as the signal offered at 740 in November'07 before falling 340 pts to 400 in March'08, Google at 580-600 is NOW allowing those that prayed for a bounce to get out at higher prices. Technically, the daily chart has rolled over and the weekly chart is at extreme overbought levels, about to roll over. Certainly a test of 380-400 is coming, with potential for 280-320 to be seen sometime during 2008. Any buying opportunity surrounding 300 should be the opportunity we've all been hoping for since exuberance struck in 2006, taking Google from the 300's to 740 in under a year. If 690 is broken above, odds favor a new high above 740, but this is NOT the best bet.
Starbucks near 15, Garmin near 42, and Amgen near 42 offer long side opportunities currently, with secondary entry levels of 10.5-12.5, 33, and 30 respectively. Minimum upside targets are 23-28, 75-80, and 60 respectively later this year. Almost every other stock that has risen from the lows of January and March are current selling opportunities. Those that like to hedge portfolio holdings, rather than sell, should check into QID. This is an ETF that is an inverse 2:1 bet on the Nasdaq 100 Index. If that index falls 20%, this security will rise 40%.
Believe it or not, crude oil is likely topping and setting up for a test of at least the 80, possibly the 50's in the next 12-24 months, even though 130 could be seen first. Gold peaked around 1000 and should at least test 650-700, if not 580 in the coming 12 months. The Euro has peaked, at least short term, with a test of 1.39 to 1.41 due prior to any new highs above 1.60. There is good chance to see 1.18 to 1.23 within the coming 12-24 months.
30 year yields peaked recently around 3.95% and should at least test 3.00% during 2008. After that level is tested, yields should rise for several years, possibly reaching the high single digits not seen since 1994. Refinancing and/or locking in longer term loan rates around current levels will prove to be one of the best financial moves in the next 10 years, second only to eliminating debt all together.
For what it's worth,
Ken
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