jeff
Reply:

October 22nd, 2009 at 4:54 PM

you obviously didn’t see my “dow theory” sell-call of 11-26-07 . . .

After reading your dow theory sell-call, I’m glad I did miss it. Is this the one ?

“Due to the aforementioned observations, we find ourselves asking the question, ‘Has the leadership baton been passed to the 4Q07 leaders of utilities, techs, consumer staples, and healthcare?’ If so, the daily list of ‘new lows’ might be a fertile universe for ideas now that we are entering the ‘teeth’ of tax selling season. While only time will tell, the recent decline ‘feels’ different than the one we anticipated, and bought at the lows, last summer. Moreover, when interest rates cuts are met by sinking stocks, and a Dow Theory ‘Sell Signal,’ it always makes us nervous! Nevertheless, ‘they’ are going to try and talk-up last week’s action as a successful ‘retest’ of the August lows and may just be able to get things going on the upside, which is why we are trading some ‘long’ indexes like the S&P 500 Geared Fund (GRE/$17.04) with a close trading stop-loss point.”

. . . Jeffrey Saut, written Strategy comment, 11-26-07

So, it would seem that your “call” was to go long on 11/26 with XGREX, which consequently dropped from $16 to $8 a share. Great call, Jeff !!

I saw your other comment with another reader where you “made your year” with your March “all call”. Did you make up that drop from XGREX ? I am sure you were smart enough to have pulled out in time. You’re a smart guy.

Dude — YOU MISSED THE CALL !!! The goal in my opinion is to dispense advice to the private investor in such a way they can increase their capital overtime in a reasonable way. It’s not to rewrite history.

I agree with John. You are too focussed on the upside, and fail to give enough credence to genuine structural issues, and as a result, your advice must be taken in that context.

I’ll make a prediction. We will retest the March lows in 2010. Let’s see if you call that one in time, too.

If that’s actually you – thanks for the clarification. Big fan of your work.

Best,

TPC

While I don’t disagree with your overall point, since from experience I have been burned by flip advice on multiple occasions, there are analysts out there with a better than 60% record. The nice thing about the web is you can go back in time and measure their accuracy.

The best example out there I have observed is Jeremy Grantham. While he missed the rally off the Tech Crash lows in 2003, he properly called the mortgage crash; he also called this most recent rally; and is now bearish due to high valuations. There are others.

A small investor can make money in any market. You must be balanced in your approach and rigidly objective – which is what I think TPC strives to do. The biggest key is risk tolerance and controlling your emotion. While all this is easily said, it is extremely difficult to implement.

From my perspective, I think we are headed for a pullback of 500 to 1000 points (DOW). The current rally from a fundamentalist standpoint is a false one: GDP is up from equation flukes; earnings are up because MTM is dead; final demand from the consumer is weakening as evidenced by sales. (As David Rosenberg suggests, the stimulus is driving the market, which gives the appearance of a recovery.) Recently, China began issuing cautionary statements about their stimulus, which will fuel the uneasiness of recent days; and cause on over emphasis on poor earnings results for the remainder of earnings season. Finally, we won’t go much below 9,000, because the emotion of the perma-bulls will see this as a great buying opportunity and bid the market back up.

But, ultimately probably by Q4 earnings, the stimulus will be on the downslope, which will lead to a miss in earnings (just like Japan in 1989) and you will see the beginning of the retest of the lows in 2010. The key to all of this is the timing of the stimulus. As spending wanes, so will earnings, which will lead to a dramatic retest of the lows.

Bottomline is that just like 1937 after 5 years of ever increasing government spending, the market pulled back 50%, because FDR never addressed the central issue – organic demand. He had the key to it back then, too — electrification of the United States (this was the time during which the infrastructure for electricity was built). But, he dropped the ball and killed the incipient entrepeneurial spirit, which ultimately would have reignited organic demand. Fortunately for the United States’ economy (not the millions of people who passed away) Germany wiped out the competitions’ industrial base, leaving the US as the only developed nation who could provide to the world.

I am not suggesting that we are headed for a world war; just pointing out, my belief that FDR only did half the job — spend money. He failed to create a self-reinforcing, positive economic cycle fueled by final demand (the consumer) even though the key was electrification, which he squandored. Since the recovery occurred so close to the start of WWII, many people blur the results of FDR’s policies with the conditions of created by WWII.

We just need to find our golden goose on top of the stimulus. I was hoping Obama might be a creative thinker. Unfortunately, it appears that he is being held hostage by the halfway policies of FDR as personified by Larry Summers and Timmy “the Tax Cheat” Geithner; who (Summers and Geithner) by the way, counseled the Japanese through the first part of their 20 year industrial decline.

Stay focussed on the fundamentals, and realize that humans’ emotions cause the ebbs and flows. If you do that, then you can create the internal confidence to make the ‘right’ moves, which will lead to capital growth over time.

I agree with salman. I like your blog even more.

Emotionless, relentless, objectivity is the key to successful investing.

I also apologize for coming on so strong. It genuinely bothers me that ‘professionals’ are so flip in providing their opinion. Through the school of hard knocks I have learned to take my own counsel, and look at others’ using a jaded perspective.

Furthermore, I maintain that the media puts on the talking heads which predict what the market is doing at the moment, rather than those that are any good at predicting what it will do in the future. When the market is going up almost all the talking heads are bulls, but when the markets are going down most of the talking heads seem to be bears.