WOT 6-28-2008

Take It Easy — The
Eagles

Every once in a while, I stop to contemplate the unique place blogs have in
our lives. One such reflection is contained in the post Balance from
late last year. I am constantly amazed at the number of people who come to this
blog daily to read the off-the-wall rants and silly observations we make. When
I reflect on this phenomenon more deeply, I see that is exactly why people come
to blogs like this one.

Media outlets are like restaurants, newspapers are akin to the large chains,
and blogs are like the mom-and-pop restaurants of yesteryear. Large chain restaurants
have a consistent and bland menu of food in order not to offend anyone. If you
are looking for unique, tasty foods, you have to seek out the sole proprietor restaurants
where the cook might prepare something bold and special and offend some of the
general public. The sole proprietor does not need to please everyone to stay in
business. If they develop a loyal clientele that appreciates their food
quality, they will find a supportive niche.

Newspapers have become dumbed down to the point of lacking real news or
substantive analysis. Related to this phenomenon is the strict adherence to the
dictums of political correctness. A few feeble protests from some allegedly
aggrieved party are enough to cause newspapers to retract stories and censure
their output. Is it any wonder the truth has become so hard to find? Also,
newspapers are controlled by the dollars of their advertisers. I can tell the
truth about the housing debacle because I do not worry about the local realtors
pulling their ads from the blog. The fear of economic reprisal is another
factor obscuring the truth. People long for the truth. People want to know what
is really going on and why it is happening — even if this truth offends
someone or is not aligned with a powerful group’s economic interests. Blogs
have become popular because they provide this Truth. Blogs provide a unique
perspective unavailable from traditional publishing outlets.

To change the subject a bit, this week saw a large amount of really bad
news. The stock
market sold off hard
, oil
is topping $140 a barrel
, consumer
sentiment is at its lowest levels since 1980
, the
credit markets are in turmoil
, new
home sales are at their lowest levels ever
, existing
home sales are at very low levels
, and 75%
of the country blames Bush for these problems
. When all the news is that
bad, the contrarian in me thinks it might be time to short oil and buy US
equities. It is always darkest before the dawn, and right now, it is pretty
dark. The housing market will continue to decline, and the financials and
homebuilding stocks will likely continue to decline as well, but I can’t help
but wonder if the broader market is near a medium-term bottom and the economy
is near the bottom of our unofficial recession. This isn’t investment advice,
just an observation on the historic relationship between sentiment and market
activity. If our economic woes continue, the sentiment might be right; however
at some point, sentiment will reach a bearish peak, and that will be when
everything improves.

45 thoughts on “WOT 6-28-2008

  1. alan

    I’ve been thinking the same thing. The contrarian invests when everyone else is selling. GM may go a little lower but if the Volt is a success then they could rebound in spades. I don’t know where to go other than shorts up till now so I’ve been hording cash, not the best move but safe. I think I’ll wait till the first big bank fails, I don’t think things will turn around until that happens. Right now I guessing it will be WaMu.

    1. LC

      As much as I detest GM for their anti-human, bad-for-America, and wrong-headed business decisions, I have to admit that they are not going anywhere. It might be worth picking up to make easy money.

      As for WaMu, I would dance in the streets on the day that they go under.

  2. Tim

    But doesn’t this come down to an argument about timing the market? Sure, it’s not unreasonable to short oil right now, but how do you know we’re at the point when it is good to do so? Oil could continue to go up, or it could plateau. In either case, your short would fail.

    As for the Volt, while I applaud GM’s innovation, my limited understanding of the situation is that even if GM brings it to market and it sells well, they will not be making the large margins on it that they were with their full size pickups. Therefore, it is unlikely to get GM back to where it once was.

    1. ndiddy

      i wouldn’t short oil. it may be a bubble but there’s easier money to be made. american car companies have been dying since the 90s..if you want to invest in a car company(don’t know why you would these days), then you’re better off buying toyota since it’s getting dragged down by everything else. when the auto industry rebounds you know they’ll be in the best positioned globally.

      1. tonyE

        Honda.

        It has the greenest fleet.
        Most advanced (cost efficient) hybrids.
        Working fuel cell (cars and power equipment)
        Next generation Solar Panel Cell (Honda Soltec)

        All in all, I think Honda is better positioned than Toyota. Honda is a “motor” company and they are positioning themselves to provide next generation, green power.

        Cars are just a byproduct.. they’ve always needed something to put their motors in…

        1. alan

          You may be talking based on their annual report…

          But my brother in law test drove hybrids before buying Toyota. He found that Toyota’s had a quieter starter motor and the car starts up again from motor off better than any other brand, that’s why he bought the Toyota hybrid instead of the off brand car.

          Just like MS’s Zune vs ipod. In many ways Zune looks like a better product on paper, but it’s hard to fight the market leader.

          1. cara

            No you didn’t! You did not just call my Civic Hybrid the “off-brand” car!

            🙂

            Actually the louder electric motor is a safety feature (IMO). My sister has a prius and has gotten into 2 fender benders and a couple of near misses because people don’t hear her car in parking lots. (And then there’s my husband who just thinks prius’s are ugly)

          2. Blueberry Pie

            That’s silly. Drivers can’t hear ANY cars in parking lots. The car being electric had nothing to do with it.

          3. cara

            If your windows are down in the cool San Francisco air you can. Or if you own an old car with less than perfect sound proofing. You’d be amazed how much you use the hints of sound while driving (if they’re there). I had to relearn how to drive quite a bit in my new car because it’s too well sound-proofed.

            Although, admittedly all cars these days are quieter at low speeds than they used to be.

  3. Soapboxpolitico

    I couldn’t have said it better. The old saw goes something like, “May you live in interesting times.” We’ve certainly no shortage of issues, problems and confusion to discuss these days, no?

    Like you I spend a lot of time trying to decide where this is all going. Although I pay attention to where we are today, I often find myself looking down the road wondering where it all leads. I’m in the technology business so I suppose I may have developed this trait as a means of survival in an often chaotic and fast moving environment.

    I come to this blog because I find many well thought out and relayed responses to some very big questions. Some are abrasive, some I disagree with but that is the beauty of this format … an unfiltered opinion offered for consideration. I do wonder if that is what it was like many years ago in coffee shops and newstands around this country. Did people share such ideas in an agreeable environment where each participant held an unsaid pact to not be easily offended? I can say politics has certainly changed, so is that a reflection of us or is it a aberration of our collective personality? Who knows. After all this is said and done, I hope this blog continues under whatever format might be useful for the day.

    As for the economic news these days I find myself oddly conflicted. I get angry at what I see taking place knowing it all could’ve been avoided if more of us had just paid a little more attention and not been so damn greedy. Just when the hell did greed become a virtue in this country? What angers me more is watching it all happen again. The current oil market is displaying the same friggin’ behaviors as the housing market did, profit taking and money grabbing at it’s naked worst. When will we learn? But then I find myself getting sanguine about the whole thing. I take comfort in the fact that I’ve protected myself as best I can. I’m not investing in anything, I’ve reverted to the 21st century version of burying my cash in Mason jars. 🙂

    So now I sit on my cash and I wait to see where this might play out. Maybe not a perfect strategy but believe me, my cash has come hard-won and I don’t intend to flush it down the drain. Just my two cents and thanks for listening!

    1. LC

      You could be making money on the downside, too. There is no reason why you should be waiting. He who hesitates is lost.

    2. Joseph

      I’ve been doing the same thing–i.e., cash-sitting and more liquid holdings–but I don’t feel very confident about it. With this current bailout housing bill proposal passed by the House, soon to be passed by the Senate, and a lame-duck president probably no longer vetoing it, I don’t see how inflation can be prevented from getting further out of control. So for the sake of a ridiculous bailout plan of home-loaners and the real estate industry, we can kiss our dollar-depreciating cash holdings good-bye. But what’s the alternative? Investing in a tanking market? Shaky mutual funds? Unless you have a sweet defined-benefit plan shielding you from the current turmoil (which I don’t), I think it’s going to be a lose-lose situation for at least the short haul.

  4. Malibu Renter

    I am concerned about a double dip recession like the early 1980s. The second recession was when the Fed had to apply tremendous pressure to reduce inflation.

    In the current case, I am concerned there will be moderate inflation (5-7%) and the second phase of the housing downturn in the bubble areas (the top end).

    1. Major Schadenfreude

      “I am concerned about a double dip recession like the early 1980s.”

      That’s the problem. I can’t tell if it is 5:00 AM “before the dawn” or just 2:00 AM, i.e. it will still get darker.

      1. idrnkurmlkshk

        Why don’t people address the problem we are having with the dollar? This fiat currency, is the main reason everything is getting more expensive.

        It is losing value faster than he Irvine housing market.

        If the dollar collapses, we got bigger problems.

  5. Major Schadenfreude

    “People want to know what is really going on and why it is happening.”

    I was so happy to have found this site last year and learn the fundamental reasons why I opted out of buying a house in the spring of ’04.

    The fact that I couldn’t get this information through the traditional media outlets is pathetic, yet not surprising.

  6. Jon

    IMO, Mutual funds and Wall St are working on final window shopping for the Q, and will start selling energy related stocks right on July 1st. Financial stocks will lead the rebound in about 3 weeks.

    Given 2% fed fund rates and enormous money printed in last few years, the stock won’t crash yet, at least now before Nov. The ramification of globalization and high inflation, it won’t be a prolong bear market this time.

    My guess the Dow will rebound from 10800 to 12500 and will start decline after election.
    The bottom maybe around next April or July.

  7. Craig

    No, the worst isn’t over for stocks. The decline so far is just the economy skidding off the road to the shoulder. The big drop off the cliff is yet to come.

  8. Jon

    Oil will go down to $100 a barrel before the election and everyone will thanks Bush for this !
    (Can’t you see MM is manipulating the market now).
    Remember, because dollar is so weak, Dow 10000 is actually 7000 compare to 8 year ago. Plus inflation is running at 8% last 3 years. The Dow is actually 5000 if it goes down to 10000.

    Anyway, if you are 100% cash (I was 100% since last year). In a month, there is an entry point.
    I’ll star buying some S&P;500 related mutual funds (and may out again after 4 months). C, AIG is also a good buy if you dare to gamble and GE is a safe bet.

  9. Kirk

    Oh boy, my favorite subject: Oil.

    The following is the opinion of the author and is *not financial advice*.

    It’s a no-brainer that the price of oil will be dramatically lower within the next 5 years. A simple inflation adjusted chart will tell you that. The final nail in the coffin is the same thing that popped the housing bubble – a pullback in real demand. This is happening now. Just watch the Colbert Report – the only reliable source for news.

    This would generally mean a short position on oil would be an outstanding investment. However, there are problems – for me and people like me.

    The price of oil was not pushed up to this level by fundamentals. It was pushed up by speculators on the long end. It was pushed up by Joe American that doesn’t know jack-poop about investing and bought up all the oil (and gold and wheat and etc.) index funds that they could afford.

    Congress knows this and there are rumblings about closing down these funds. This is both a problem and an opportunity. It’s a problem, because if you are like me you will be shorting oil through one of these funds. If you buy in (on the short side) and the price of oil goes up, which is likely in the short term, then you are sitting on losses. Now Congress shuts the fund. Those losses are no longer on paper – they are real – you just got cashed out. That’s the biggest problem, but it shouldn’t be a problem until next year if it becomes a problem at all.

    It’s also an opportunity. If you take a short position, and oil doesn’t go up that much, there will be a rush to the door by the long speculators to get out of their fund before it is closed. Why the rush? Enough people know that closing these funds will dry up speculative demand and drive prices down. These people will be out the door first and prices will fall. A pretty nice deal if you are sitting on a short position and aren’t already bleeding so badly that you won’t have time to recover your losses.

    And there is another short term problem: President Bush. If we bomb Iran and you are sitting on the short end of oil then you are pretty much fooked. At least in the short term. But, if Congress then shuts your fund it is no longer a short term problem.

    And another potential problem: That fund you are in… is it really doing what it says it’s doing? I mean, did they play the derivatives correctly or is this like a mini banking fiasco where the fund doesn’t have the assets to pay out its investors if enough of them leave? I wouldn’t normally worry about this, but we don’t exactly have a proactive SEC right now. Who knows what these funds have been doing?

    These are all my anxieties since I will likely (not a certainty) enter a short position in July through one of these funds. But, because of my concerns I’m not willing to make a big investment in this area (at this time) even though it may be one of the best investment opportunities I have ever seen.

    The thing about oil (and gold) is that it’s difficult to figure out when to get in on a short position. It is not difficult to figure out when to get out. There are historical prices that follow inflation (like housing). You can collect the data and figure out an exit price. Other shorts aren’t so easy. When do you get out of shorting financials? It’s hard enough figuring out a target price for one company, how do you figure out a target price for a basket of companies? This problem doesn’t exist for oil.

    Disclosure – I hold the following investments related to this comment:
    SKF – (ProShares UltraShort Financials)

    1. Kirk

      Two corrections:
      1) For a short position, you should look at nominal prices. Not inflation adjusted.
      2)”Index funds” should just read “funds”. Most will use ETF’s.

  10. EdDunkle

    This has been the worst decade for stocks since the 1930s. I keep wondering how much else can go wrong? Sure, if inflation gets going that will make a recovery very difficult.

    One technical indicator with a very high batting average is how much the S&P;500 is down year over year. If it gets to minus 20% — which could happen if it goes down just a bit more by this October — you should at least dip a toe in the water.

    Timing the market is tough. A friend of mine has been long QID — another ultrashort ETF — since February of 2007 and is still down a bunch.

  11. MacBuff

    Timing the market is tough.

    Wrong, this is totally a lie made by Wall St.
    The only hard part is to confront fear and greedy. There are always a lot of evidences when market about to hit the turning point.

    1. GoldSlut

      I agree 100%. I just read the daily and month charts like a hawk and that’s made all the difference.

      Looks like those gold and silver stocks are ready to rock! While the DOW was tanking on Thursday, and Friday, the gold and silver stocks were rocketing on the upside…. First time Ive ever seen that before since 2002. Expect some pull back this week while the DOW bounces, but if the gold and silvers hold support, Ill be adding more.

  12. IrvineResident

    the pain in stock market is far from over. short term we might see a bounce. the March low of SPY would be history once the third wave of the current bear market ends.

  13. lunatic fringe

    Look back to the stock market from 2000-2002 and compare the general economy between then and now.

    Now answer me this – Are you seriously thinking we’ve reached a bottom in stocks?

    The time to buy will be when nobody wants to own stocks. We are not there yet, not even close.

    Wake up.

    1. Rocker

      I can’t compare the 2000-2002 stock market valuations, P/Es, etc. to today’s market, that market was insanely high.

      The S&P500;trailing P/E ratios are below historic averages, the question is how the forward P/E ratios are going to look like if the US consumer retraces back?

      As Buffet says: “you can’t drive a car forward looking through the rearview mirror”.

      It’s been more than 1 year of bad news already, knowing how the stock market discounts the future I’d expect to be close to the bottom, now I don’t expect a “V” bottom, something more like a prolonged “U” bottom.

      1. Kirk

        I’m with Rocker… to a point. Stocks are not out of line with fundamentals. However, the fundamentals will get worse for the next 2 years or so. Therefore, I expect stocks to fall. They’ll probably be a good place to be in about 2 years and are not horrible to be in now – although I’ve tried to avoid them as much as possible. (I’ve got nowhere to go in my 401k – it doesn’t have a money market, it has a stable value fund that I don’t want to touch because of its exposure to banks and insurance companies.) But, this is all opinion.

  14. movingaround

    I do not have the technical skill that many here have but there have been many times when I start feeling that finally everyone realizes everything is bad – maybe time to get back in the dollar (and were I living somewhere other than CA maybe buy a house – maybe!). But then, I get in more in depth conversations with people and realize that they may not really realize it – flip comments about housing like – oh well it will go back up, etc. I think it may be hard to know what people are really feeling until after the election – so many people are counting on one or the other candidate to help in some way – maybe Obama will give stimulus checks and maybe McCain will drill drill drill.

  15. FutureIrvinite

    IR,
    it would be nice to make an updated post of 4 RAINSTAR, Irvine, CA 92614. The asking price has come down to $999k. I just went to your original post and reread the price estimate of ipo, quite off the mark.

    1. george8

      FutureIrvinite:

      How do I get back to the original “4 RAINSTAR, Irvine, CA” posts?

      Thanks,

      George

  16. WaitingToBuyByAndBy

    Irvine Renter, I believe you are spot-on when comparing mainstream media to blogs.

    However, and for what’s worth, I don’t come here to read the endless predictions or rants of fools.

    I have mostly benefited from the analysis articles. I also find it worthwhile to sift through the forums. In the forums I feel like I can tell who is worth reading and who I should just skip past.

    I suggest you contemplate the future of the Irvine Housing Blog, because I also have to admit that as great a job as you have done, once I buy a home, I will have little reason to visit. Of course, from my viewpoint you have at least one to two years to decide.

    Are you interested in chronicling the Great Depression II (I know, I know we’re in a recession, not a depression — just wait).

  17. Hank Jestor

    There are things we do not know, but one of them is not what will happen in the next five years in stocks. They are going down.
    All the ponzi schemes are unwinding and the chickens are coming home to roost. THey told us we could have an economy of lawyers, bankers and burger flippers….they were fools.

    Please take this time in the next few months to take advantage of the Supreme Courts ruling.

  18. Genius

    “If you are looking for unique, tasty foods, you have to seek out the sole proprietor restaurants where the cook might prepare something bold and special and offend some of the general public.”

    You spice up my life IR. <3

    Mainstream media is terribad.

  19. Genius

    This is a bit OT, but since mention of the economy was made I feel compelled:

    I was at a rave last night in los angeles, which as many of you know is a bit of a haven for drug users/dealers. The sellers were desperate to unload their wares, something I had not witnessed before. Now, I have my own views on drugs (I think they should be legal, but I won’t touch them), but I thought that industry would be immune from any economic woes. Hearing dealers so eager to negotiate on price was kind of economically terrifying. I guess the contagion of subprime really does spread to every market.

    I’m only half joking. And yes, I am too old to be going to raves.

    1. Chris

      Great observation. I’m surprised to hear that. I would thought the same as well (the illicit drug market is immune).

  20. ochomehunter

    For all who think oil and commidities are currently in bubble and will fall, the answer is yes in the short term. But I would not short oil as we got GS and MS behind this manipulation with Fed issued billions of $$. Why did Saudis invote GS and MS to oil summit on June 20th? There is money to be made or atleast safer plate to park. Following are few recommendations:

    SMN – this is ETF ultrashort pro of basic materials. We got big bubble and SMN is at all time low.

    DUG – THis is ETF ultrashort pro of US oil and gas companies. This is also at all time low. Good investment for 3-6 months

    PM – (philip moris intl.)This is brand stock that pays high dividends and has no US exposure. The stock has been very stable even with the fall of US economy and stockmarket.

    V and MA – this is where the growth is. Entire globe is going plastic and this is no secret. Actually in emerging markets, we got several hundred people per one card as compared to several cards per person in USA. Tremendous growth opportunity and profits lie in these two companies. Plus they are not subject to credit crunch as its fee based and plastic will continue to be swiped by more and more people.

  21. the g man

    It’s extremely hard to feel sorry for those who splurged on huge cars and huge houses because they considered cheap gas a permanent condition.

    Gripes me no end that the responsible among us are going to be taxed to bail them out.

    Not only individual home “owners,” who apparently number in the millions, but also the home builders, the bankers, the realwhores. They privatize profits but publicize losses.

  22. montereyrenter

    LOL, ya got me there CC. I didn’t even look at her location, and the analogy is right on…but in a way someone from Fl answering a ? about California real estate does kind of reinforce my initial assessment of her cogency, no?

Comments are closed.