Scary DJIA chart

Knowing it was a bad week I brought up a 10 year chart of the DJIA to see if (hoping) we reached some sort of double bottom. What appeared was a scary looking chart I wasn't fully expecting. I know we reached this level back in October or December, so maybe it's just the mathmatics of the chart and not showing up like I expected...?

The (negative) power of quarterly reports

All the turmoil we are seeing in the markets lately are, in my opinion, caused by short term thinking. CEOs are so tied to short term quarterly thinking they are willing to do anything to make their companies look better. This includes over leveraging and huge debt burdens which look nice on paper, but are really just the tip of a giant ice burg. Then Wall street only really looks at the quarterly numbers and doesn't really rate a company on it's long term viability, only on its most recent quarter. Completely missing the 90% of the iceberg below the surface.

This seems really strange to me. I wish there was another financial report for the sane people in the world. Every year a company should have to come out with a "ten year report". If I could see one of those every year I would have a lot more confidence in these companies as I would at least feel like they are thinking of long term survival. Thinking for the long term, just like I want to invest for the long term. Then all bonuses should be tied to ten year results. This golden parachute thing is ridiculous. You get a bonus even though you caused the company to tank a few years later? What kind of mindless knucklehead thought of that?

So, what we really need to keep our economy on track is a long term mindset. A yearly "ten year report" and all executive bonuses time to the companies financials ten years in the future. Wow, I would go "all in" with a company like that!

Too buy or not to buy.

I loved this article Stocks look cheap, but that doesn't mean you should buy. My favorite part is the secondary title "Are stocks cheap? It depends on earnings", then goes on to say that "many market pundits think expectations for 2009 are way to rosy". Imagine the industry that gave us AAA ratings on on mortgage backed securities telling use that earnings are "Rosy"! Who does Wall Street think we are?

Let me lick my finger and put it in the air. Oh, hey, look at that, earnings look like they are going to be down significantly based on job losses and all the turmoil! I don't have any doubt that this is going to get worse. It's already well below where I got out so I'm staying out. I lost way too much in the dot com bust looking at prices and hearing people tell me "how much lower can it go? Just hold it, the market always goes up eventually." While they are probably selling.

Then you hear them say things like "USG Shares Soar on Warren Buffett's "Expression Of Confidence". There is some serious snake oil in that one. Warren is buying special shares and real ownership in the company. If it does go bankrupt, those shares still have value in company assets. The real stock which you and I own turns into vapor. Of course Warren wants you to follow him on this deal, just like he wanted you to follow him a few months ago when he was buying it at 40 last May! Don't do it. If you are wondering how low it can go, it can go to 0! Then Warren walks away with the bag. I really like Warren and think he's a great investor and has a good morality to him, but in all the cases of his current buying spree he's getting real value. All in all markets don't behave rationally, the behave with individual greed.

Most of us suffer when companies like Loral zero out there stock and reissue the next week at the same value. Yes, the SEC let this happen back around 2003. Most people would call this fraud, the SEC calls it acceptable. Yes, I lost some money on that one.

The two significant downturns I'm looking at and comparing this too are the 1929 crash and the 2000 .com bubble burst. Both of those took two or three years to reach their bottom. I've already shown the chart pointing at 6000 for the Dow as the balancing line (the mean) over an 80 year period and over that period there have been a number of times when it's below the line. So do you think it will stay above that line? 4000 anyone? If I'm wrong I'm willing to miss out on all the money you make and get back in when this starts behaving like a long term market again. If I'm right I'll get back in when this starts behaving like a long term market again. Either way, I play the market with a long term mindset, I just happened to take a little breather when payments for fraud and deceit came due.

Bad Forecast

My mom sent me a link to this site and I responded to her and then forwarded this message to two investment friends.

Watch the video and ignore the text. Granted this is hosted on a website that was built by conspiracy theorists that use completely invalidated information to claim that the government had a hand in 911 and it is an interview from Fox News which is broadcast from a bar which is not my most trusted news source, but I do tend to agree with a lot of what he's saying. If you remember I was buying gold and silver in 2007 because I kept expecting the dollar to devalue significantly, but it just hasn't happened yet. He's saying the same thing as I am, he's just a lot more of a pessimist.

http://www.infowars.com/?p=5938

It doesn't look like this is going to be pretty in any way shape or form. People keep comparing this situation to the Great Depression, but I don't think anyone has any sort of concept of how bad it really was. They just say the words without any comprehension of the fear that it should include.

Sold AMD

I knew it was a mistake going into it and should never have bought that second round of AMD. I know that AMD doesn't have a lot of cash and a new chip takes a while to see revenue so it must be that a lot of people wonder if AMD can even survive in this economy. I almost put in a stop loss at 2.10 last night and this morning it was at 2.00. I put in a stop loss to sell everything at 1.94 and it triggered late in the day. I fully expect it to bounce back at some point, but I'm through with this market and was done with it at the end of November. I'm really glad I sold out then as things are a lot lower now then when I sold. Everyone says this is a long term market, and that $10,000 invested in 1929 would have been worth $6,000 in 1935, but the market didn't bottom out until 1932 and what if you invested your $10,000 then? It would be worth $25,000!!! Not to mention that a lot of stocks went to zero and shareholders almost always get zeroed out in a bankruptcy. Long term is a way for others to get you to help stabalize the market while they play the game. Sure, Warren Buffet is buying a lot of stuff, but he's making deals we can never get and getting all kinds of options and preferred stock. He's in a different league and can lose a few billion without any sort of pain.

So, I'm out of the market (and mostly have been since mid-NOV early OCT) except for a little STMP, the ashes of FNM, FMC and a tiny bit of JAVA just to get financial reports from a company I used to love until Jonathan Schwartz messed up Java really badly (by bloating it and ignoring client apps) and then got the CEO spot to everyone's disappointment. Other than those, I'm out for a while. It took almost 3 years for the market to bottom in 1932 after the 29 crashes so I don't expect this one to take any less time. I'm waiting until this feels like a long term market again...

More napkin analysis

I looked at what I sold early last month and compared prices to today and I made a good choice in most cases. EIX is the only one that is above where I was, but USG is way way down. I'm still about even where I got out of my second half of ATVI and that is really the only stock I would consider at this point, but for now I'm just sort of watching unemployment. I didn't just sell all those stocks. I put in 10% drop sell orders and every one of them triggered. In most cases I put in 10% and 15% selling half at each point.

I did a couple of more looks at charts and these are two I found interesting from the max s&p500 and DJIA. I've already stated in the previous post (October 10) that it looks like we are in a 30 year bubble since 1985. I'm trying to figure out where the bottom might be and I'm really most interested in unemployment as the measure for recovery and bottom, but for now looking at these two images makes me think it can go a whole lot lower.

DJIA 1995-2008

S&P500 1995-2008

"A" is where we are at currently. "B" is where we were in 2003 after the dot com crash. This is interesting to me because the 2003 dip was caused by two things. A big bubble burst in the dot com industry and 911. Given that the 911 event was a short term cycle and not completely related to the economy I'm looking at position A and B on the charts and thinking that current events are much much worse than they were in 2003. So, are we at the bottom? I seriously doubt it since at this point we have virtually every industry in a significant down turn. To me that should look a lot worse on the chart than a dot com burst and a terrorist event. All signs point to this being a recession that is much worse than the 2003 recession and unemployment is looking to be worse than it was in 1992 and some are saying we have to go back to 1980s to see this sort of magnitude. So, will it go below where were were at "A" on the chart? I don't see how it can hold the current level. That is really disappointing.

So why have a "C" on the chart? I keep thinking about unemployment levels being the lowest they've been in 14 years and that puts us at "C" on the chart. That doesn't mean that the economy is smaller in any way, but it does point to a place on the chart. Looking at my previous post, my pen was pointing at 6000 on the DJIA for the non-bubble growth line and if that is the mean then I guess I would expect a true correction to go below that line and 4000 does seem like a balancing point on the two curves.

It doesn't look pretty and it isn't very precise, but it does make some sense to me at this point in the procession.

How low can we go?

All of my positions except for STMP and AMD have sold. I had a sell on the last of my SNE, but it was input incorrectly so it will sell first thing on Monday. I'm not just getting out for no reason at all, I just want to take a breath and look for a bottom. A bottom to me will be when things stabilize and loans start to be issued by Wall street. If Wall street doesn't trust itself to be given a loan between them selves I don't think I should trust them with my investment.

That said, after doing some reading on the 1929 crash a few days ago I again went back and looked at the DJIA chart from max time. This time I held up a pen to see the line that it made if it moved up in a uniform fashion.

Yes, that's my hand holding my pen, taken with my phone. The pen is pointing at 6k. I had previously estimated 7500 so 6k now doesn't look much farther down. Here is a clearer image of the same chart showing the pen replaced by a green line. You should be able to click on it to see it full size.

Not very scientific, but I do think it is reasonable. What do you think? Based on the 29 crash we'll see a few more up days and some more rich people buying stocks to try and stem the red flow, but overall we are going to see a downward trend until the banks start to lend money again. If we start seeing a bunch of bankruptcies in big companies I think it will mean the banks will be even less likely to lend money (since they lost it) and we'll see the next tier of companies failing. Not much different than the housing market drying up. People could no longer refinance their houses and ended up defaulting. Companies will not be able to refinance their payroll and end up defaulting or cutting back. This is not a good place we have come to and I hope I'm wrong!

Bleeding badly

My account has been bleeding badly as I'm sure yours has to. A few days ago I put a bunch of 3% lowere stops on many of my positions and they have been selling off. I also bought some more gold and silver. My account is in transition from one brokerage to another and I have a more limited view of my account. It has a lot of cash in in now and I'm planning on keeping more "real" assets for the near term.

I wrote an e-mail yesterday to my dad about my thoughts on the current market problems.

So, if this is as bad as everyone is saying which is that it is the worst market conditions since the great depression I decided to do a comparison to then and now and maybe try and figure out where this thing will bottom out? (if it really is that bad?)

http://finance.yahoo.com/echarts?s=^DJI#symbol=^DJI;range=my

October 1, 1929 343.45
April 1, 1932 42.82

A drop of -88%

July 1, 2007 13,895.62
January 1, 2010 1667.47

Let's hope it's not as bad as everyone is making it out to be!

My guess was that it would drop to 7500. 1667 seems inconceivable, but I'm betting it seemed pretty inconceivable back in 1929 as well.

The one thing that really got me thinking about this was seeing Bank Of America stumble yesterday. That set off some alarm bells for me.

I found this to be a good article after I wrote this e-mail.
http://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929

Placed GE Stop

I finally decided to at least place a stop order in on GE in case it decided to slide even more. I put it at 31.78 and I'm selling all (~9%) in my account if it drops to that number. I came up with that number looking at this three month chart. Which shows the low at 31.70 on March 10 and 31.75 on April 14. I wanted to be a little above those marks thinking maybe other people would choose those as their sell point and I wanted to jump the gun a little if it headed that way. I may still sell this in the near term if I see more of this type of infighting in the leadership or if I see more bad news about possible spill over from the credit crisis.

GE Sneezed and didn't bounce back

I'm really changing my stance on GE.

GE: Quintessential American Finance Company

No bounce back?

I was holding it because it is a solid big cap manufacturer and not thinking how much of a hold they have in the finance arena. The fact that it didn't bounce back even a little while the market made a huge bounce is very troubling to me. Especially since other big caps (IBM/Intel) announced great earnings. This tells me that something else is going on here and maybe the credit crisis is about to pummel them. I will probably sell in the next few days if it goes down any more or doesn't come back a little. Right now I'm down 7% which isn't all that bad, but if it is part of the credit mess things could get much worse very quickly.

Link between war and credit crisis

This is a great article about the ongoing debate on a link between the war and the credit crisis.

Those price increases are self-perpetuating, Stiglitz argues. Oil-rich Persian Gulf states are so awash in money that they are not sure what to do with it all. By holding back oil production, they make more off what they do produce and keep their greatest asset -- oil -- in the ground as they search for ways to spend their cash.

That cash, through state-owned sovereign wealth funds, has flowed into stocks, bonds and other investments, creating incentives for lenders to offer low-interest loans, many of which have now gone sour.

But that is only one factor, by Stiglitz's accounting. The federal government has sunk deeply into debt, first with tax cuts, then with accelerating war expenditures that have easily topped half a trillion dollars. That limited the government's ability to keep the economy on track through tax cuts or domestic investments, so the Federal Reserve Board used low interest rates and the free flow of money to keep the economy growing. Cheap credit sparked rash loans, a housing bubble and the current crisis.

If you go into debt to allow yourself to spend more in hopes that your spending will fix your debt problems you are in for a tailspin. It just seems that our government has been printing more money for the past 30 years as a way to alleviate budget and economic crisis's. That doesn't seem like good policy to me.

I think investment and economic development is good policy, but that seems to have turned into giving your political friends money for development that doesn't always develop anything. I don't have a solution, but a little more honesty and openness at the top would lead to a lot more honesty and openness in the general population. Leadership through smoke and mirrors and divisiveness has lead to more and more of the same and that is 'waste'. We used to be a country where people cared about each other. That was what made us great. Now we just look for ways to own a fancy car no matter the cost to those around us.