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Where No Bear Market Rally Has Gone Before

Richard Daughty — Tue, 07 Jul 2009 18:30:50 +0000

ChartoftheDay.com had an update of their chart labeled “Depression-Era Bear Market Rallies (Dow 1929-1932)” which is interesting in many, many ways, starting with the fact that it only concerns one particular three-year span, which implies that thereafter there were no more bear market rallies of note, …which is pretty much right, as everything economic continued going into the toilet until finally being “saved” by the government’s massive deficit-spending to wage WWII, which we willingly backed as a vengeful patriotic duty, thanks to Hollywood movies heroically exposing all foreigners as treacherous, murderous backstabbers who speak English with foreign accents and who think we Americans are powerful, omnipotent gods, like Peter Lorre in the movie Casablanca fleeing from the police after emptying his pistol at them but missing every shot, shouting, “Rick! Rick! Save me Rick!”

Or like James Coburn playing the role of Z.O.W.I.E. agent Derek Flint, America’s top secret agent in the ’60s and who could easily kick James Bond’s butt, which could explain why beautiful women were always throwing themselves at him, and while James Bond might score with one or two chicks the whole film, Agent Flint was up to his ears in hot babes, literally having to use karate to hack his way through throngs of adoring hard-body hotties in bikinis lusting after him, many of whom may have had foreign accents but were docile, so you can see what I am talking about.

Anyway, we were talking about the chart, and to get back to the point, the chart has “number of calendar days” down along the horizontal, bottom, x-axis, and “Stock Market Rally (% change)” vertically up along the y-axis. It is the answer to the questions “How big (measured in percentages) and how long (measured in days) were bear market rallies, what is the average percentage gain and have it on my desk immediately!” which you gotta admit is pretty handy!

Anyway, and again with the “anyway,” the chart shows that we are about 100 days into a rally, and looking at the chart, it looks like a stock price rally of about 34%, slightly higher than the statistical average of the percentage-change/days for the six bear market rallies that occurred over the three beginning years of the Great Depression.

In another couple of months, we’ll be at about the record “longest rally” 155-day mark, where we also find the old record stock price gain of about 48% that occurred in November 1929.

Another thing that occurs to me, looking at this chart, is that our current little stock market rally of about 34% of the Dow Jones Industrials is already higher than 4 of these rallies in terms of percentage gains, and is older than all but the biggest and the best of the bear market rallies, and which started in November 1929 and lasted about 155 days! Yikes!

In other words, if there was a third dimension on the graph to indicate time in both Newtonian dimensions and in some weird time-warp where the starship Enterprise, on her five-year mission to explore strange new worlds, seek out new life and go where no man has gone before, is bearing down on the last outpost of previous highs, Scotty would be yelling up to the bridge, “Captain! We’re coming to the edge of Previous Known Highs (PNH) at hyperspace speed, and you know what happened the last time this kind of thing happened!” and Captain Kirk says, “No, what happened?” whereupon Mr. Spock, all calm and logical, would say, “The whole thing collapsed, Jim, sort of like a Glornassian Crapworm when you hit it with a hand phaser,” which would be enough for Kirk to scream out, “Captain’s supplemental log! This is the captain! Abandon ship! We’re going to freaking crash and burn! All hands buy gold!” which, if you knew Captain Kirk like I do, would end up being the smart thing to do by the end of the episode.

In short, all things end, including the phase where a national idiocy prevailed where everyone “invests for the long term” by putting all their money into stocks, bonds, houses, bigger government and an orgy of over-consumption, which is proven to be the wrong thing to do, and where people did not put their money in gold, which is the proven right thing to do, as even a Glornassian Crapworm knows.

And if everybody from a starship captain to a stupid Glornassian Crapworm knows this, then, “Whee! This investing stuff is easy!”

Source: Where No Bear Market Rally Has Gone Before

Currencies Rally

Chuck Butler — Thu, 23 Apr 2009 17:49:50 +0000

Euro climbs back to 1.30… High Yielders bounce back… Gold to hit $1,500? Kurt Richebacher… And Now… Today’s Pfennig!

Well… We had a rally in the currencies yesterday and this time the rally wasn’t reversed overnight by profit taking! WOW! It’s been some time since we could say that! Maybe it was the good karma the overnight markets received by my little buddy Alex’s base hit last night to drive in 2 runs! Or, the good karma from a Cardinals pitcher going into the 9th inning of a game! WOW! Or… Maybe, just maybe, cause you never know, fundamentals are creeping back into the currency markets?

A one day rally does not make a trend… Nor does a bear market rally that lasts 9 months! Fundamentals dictate trends… Charts do not… And neither does bear market rallies! For they are built on short covering, deleveraging, safe haven flows, and profit taking… Not Fundamentals!

I’ve been wanting to get that off my chest for some time now… I know, I’ve explained this before, but it’s been awhile, and thought it needed to be said once again for a refresher or for the new readers! On that note… Did you know that the Pfennig is now read by a very large number of people each day? It something to behold, for your humble Pfennig writer, that began this endeavor with hand written notes about the overnight markets on the desks of the bond salesmen so they didn’t have to spend their mornings trying to catch up!

OK… Back to the task at hand… Well… I see that Commerzbank is telling their clients that these rallies in the euro are opportunities to sell their positions… Hmmm… Of course they must be talking about “trading positions” clients… Not investment portfolio diversification clients!

The euro, which tried for a week to get back to 1.30, finally climbed above the figure yesterday morning, and has remained there. The single unit received an additional boost this morning when the Good ZEW Business Confidence report that printed earlier this week, was followed up by the European Manufacturing Index rising… Does this mean the Eurozone’s recession is easing? Hmmm… I don’t think so… I just think it shows what I’ve been talking about for some time, and that is the fact that in the Eurozone, 80% of their trade is among themselves… But! You have to like the resiliency, eh?

The Big Dog (euro) was off the porch yesterday chasing the dollar down the street, which means the rest of the smaller dogs get to stretch their legs too! And so, currencies like Aussie, Swiss, kiwi, rand, and real all enjoyed their exercise! One of these things is not like the other, can you guess which one it is? Right! It’s Swiss francs! All the other currencies mentioned are high yielders…

So, what’s with Swiss getting mixed in with the high yielders? Ahhh grasshopper, Credit Suisse posted a return to the black… A profit… And that’s a good thing for Switzerland, as Credit Suisse, and UBS had really pulled the franc down in the past quarter… But don’t look for any sustained gains here, as The Swiss National Bank’s (SNB) vice-chairman, Hildebrand, that the bank would continue to limit gains in the franc… That’s Central Bank parlance for they will intervene, and sell francs to keep it weak…

Now… I find that statement by Hildebrand very interesting… Because just last week, the SNB issued a statement that said they didn’t think it was a competition by countries to weaken their currencies… Hmmm… When a Central Bank makes two different statements within a month talking about how they will extend currency purchases as long as necessary to prevent appreciation of the franc to ward off deflation… You’ve got to wonder how many other Central Banks will follow?

Just to explain further for those of you new to class… A strong currency goes a long way toward fighting inflation… Well, if inflation isn’t your concern, and you would like to actually see some inflation in your economy (not deflation) then a weak currency would go a long way toward achieving that goal…

I think the U.S. Fed and Treasury would love to follow, but they just can’t right now, with all the safe haven flows into the U.S.

Gold pushed higher yesterday and then again this morning at the London fixing… There’s a great story on the U.K. Telegraph by Ambrose Evans-Pritchard regarding Gold, and how it could rise to $1,500… Here’s a link to the whole story… http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/5184036/Gold-price-could-hit-1500.html

But for those of you with no spare time to play on the internet, here are a couple of snippets…

“In normal times, gold mining companies sell – or “hedge” – a chunk of their output in advance through bullion banks. These banks cover their positions by leasing gold from central banks. This bread-and-butter trade created excess supply of 500 Tonnes each year until the start of this decade.

Low real interest rates have caused the process to reverse, creating a shortfall of about 500 Tonnes. The process accelerates as rates turn negative, leading to a scramble by market players to find physical gold.”

OK… Back to me… I’ll follow that up with a story I read the other day that the claims that The NYSE-Liffe futures exchange has, it seems, run out of 1 kg bars of gold. WOW! This physical demand for Gold is really beginning to get very serious… We did some research on our Metals Select product, and found that comparing March 2008 to March 2009, our trades for physical Gold increased by over 200%! I just finished an outline to a presentation that I’ll be making at the Las Vegas Money Show that will be web-cast on Gold… And in the presentation, I talk about these uncertain times… The fear that everyone walks around with, from the crackpots shooting missiles, to those gearing up nuclear capabilities, to those throwing good money at bad situations… Gold, is the answer…

Well… Speaking of throwing good money at a bad situation… I received a couple of emails from people that weren’t happy that I made fun of the $100 million that the Obama camp was told to cut from the Budget… The claimed that I was being unfair to Obama… Well… I said, very quickly… That apparently they hadn’t been readers very long, or else they would recall me lambasting the previous administration for their deficit spending too! Shoot Rudy, I don’t care who’s making the decisions, as long as it involves adding over $3 Trillion to the National Debt in one year, I’m going to point out how bad that is for us, our kids, and our grandkids…

Think the call for an alternative reserve currency by China is a thing of the past? I think the Chinese are just getting warmed up! Memememememememe… Testing, testing, 1,2,3… Ahem, there my voice is clear! Seriously though… The research folks over at ING said that they believe with China’s Trade Surplus swelling to $325 Billion this year, thus boosting their currency reserves (read dollars), it will add pressure on the Chinese to push for an alternative reserve currency, other than the dollar. Recall, that the Chinese earlier this month threw a cat among the pigeons by saying they wanted to create SDR’s (special drawing rights) that would include a number of currencies, and that would be the global currency…

That was met with a cold shoulder at the G-20… But for how long? With that kind of a war chest of dollars, the Chinese could really start throwing their weight around. Recall that Chinese PM Wen Jiabao said earlier this month that he feared that the dollar was going to weaken given the spending, and thus their need to borrow in the U.S.

The Bank of Canada will give the details of their announcement the other day to cut their target rate and place a hold on it, but not the discount rate. They’ll also give details on what they will do with regards to Quantitative Easing…

And… The Bank of England didn’t back off reports that they would issue a budget deficit larger than any since World War II yesterday… That’s exactly what they did… Not, good stuff for the U.K. economy or the pound sterling, folks…

Time to head to the Big Finish, and eat my apple…

Currencies today 4/23/09: A$ .7115, kiwi .56, C$ .8090, euro 1.3050, sterling 1.4525, Swiss .8640, rand 8.9475, krone 6.6750, SEK 8.4125, forint 227.80, zloty 3.3840, koruna 20.60, yen 98.20, sing 1.5010, HKD 7.75, INR 50.07, China 6.8299, pesos 13.22, BRL 2.21, dollar index 86.03, Oil $48.57, Silver $12.47, and Gold… $894

That’s it for today… Do you Twitter? I keep getting asked to join people’s twitter conversations… I have to say that I understand what it is… But don’t understand the need… And, think about it, the base word to Twitter is Twit… That cracks me up! Of course there’s more to that discussion but not here! Late game for my little buddy Alex last night… And on a school night! Good thing I got a 3 hour nap in when I got home! Ok… This is really serious stuff… My friend, Addison Wiggin at Agora Publishing made an announcement the other day that I asked if I could relay to my readers. Remember the late, great Kurt Richebacher? Well, his newsletter is being continued in the framework of the great Austrian economics guru. Here’s a link for more information…

Source: Currencies Rally

Cash Continues to Roll

Justice Litle — Wed, 09 Apr 2008 14:30:15 +0000

Cash McDash is on a roll. Just don’t give him grief over his new nickname. There is an art to making money in bear market rallies. Cash explains. Is this China-based pharma company a great buy… a great short… or none of the above?

JL: So, let’s talk about the rally action in stocks. Last week the Dow gained more than 3%, the S&P was up more than 4%, and the Nasdaq picked up almost 5%. And all that came in the context of weak economic news, the worst employment number in years, and a newly slumping dollar. I’ve got my own take on this, but I know you see the world a little differently. Thoughts?

CASH: My friend, we both know that bear markets can be notorious for mauling investors. We also know that some of the strongest and sharpest rallies take place in bear markets, as you and I have both pointed out. So the way I see it, there’s nothing wrong with trading these rallies as long as you keep a clear head. You just have to be careful not to get juked out and to remember the primary trend.

JL: Right. As the bard once sang, “You don’t need a weatherman to know which way the wind blows.” Though it helps to be paying attention. Speaking of getting “juked,” how’s that fancy footwork holding up? Has it been a good week in the trenches for Cash Mcdash?

CASH: Well I must say, despite my modest nature –

JL: Ahem!

CASH: Need a lozenge there, pal? Maybe a bottle of water?

JL: Nah, I’m good.

CASH: Oh good. As I was saying… have to tell you that last week was my best so far this year. LongTop Financial (one of our recommended names) hit a new recovery high, and GFA (another one) was up 10%, finishing Friday on a great note with two times normal volume. The solar stocks we tipped for a comeback, JA Solar (JASO) and LDK Solar (LDK), were up 21% and 25%. And don’t forget my buddies over at Blackstone (BX). That one crossed $17 and finished the week 21% higher.

JL: Man, that’s not a bad week. Not too bad at all.

CASH: No kidding. In fact, you can call me butter ‘cause I’m on a ROLL!

JL: Alrighty then. Calm down there, Butter…

CASH: Hardy har har. You know I’m just messin’ around. But I do get pretty passionate about this. There’s nothing more satisfying than working hard, getting the trades on, and then seeing that hard work pay off. It just feels good to win.

JL: Oh, no doubt. I’m with you all the way there. But tell me, do you think we’re going to see continued strength? Are you hanging onto your positions?

CASH: Actually, I think the easy money for the time being –

JL: Hold on, hold on, hold on. You think those gains were easy? In this market?

CASH: Sure! When you’ve got the patience to wait until the mood is incredibly sour, and you couple that with the discipline to buy quality names that have been beaten down, and then mix in the fortitude to hold them through a rally few believed would happen… then the game really does feel easy!

JL: And playing golf like Tiger Woods is easy, too, I take it. You just line up your club the right way, take a nice swing, hit the ball 400 yards…

CASH: Ha ha, point taken. Yes, I was oversimplifying things a bit there. Every trader has ups and downs. (The great Tiger Woods has ups and downs, too.) But markets have patterns. These newly issued names have highly measurable tendencies. And don’t forget, I’ve been doing this day in and day for out for many years. A longtime student of the market can gain a meaningful edge just by watching, understanding and absorbing the patterns. A wise man once said, “It’s amazing how much you can learn just by paying attention.”

JL: That wasn’t me was it?

CASH: I said a wise man, not a wise guy.

JL: True. Okay then, so what’s next? Are you going to be closing these positions? Getting liquid? Going short?

CASH: No, I still have a bullish bent to my trading; it’s just not as screaming obvious as it was a few weeks ago. I used Friday’s exceptional strength in the solar names to lighten up positions a bit, while still holding partial positions. I’m still constantly trolling for good long-term names that will give us months of good returns, while scaling out of short-term names that offered some nice quick pops.

JL: Sounds good, Butter.

CASH: Are you going to keep calling me that?

JL: Hey, it was your personal request! Are you saying that’s no longer your preferred name? You’re abandoning it already? I can’t believe it’s not butter.

CASH: Ouch! You should be fined for that one. In fact, you may need clinical help. Which reminds me…

JL: You’re reminded you need to go to the clinic?

CASH: No, wise guy. I want to tell you about the latest name on “the calendar.” Remember, the syndicate calendar we talked about last week?

JL: Ah, gotcha. A clinical IPO.

CASH: It’s actually a secondary offering. The name is Wuxi Pharmatech (WX on the NYSE).

JL: Wuxi Pharmatech, huh? That name just rolls right off the tongue.

CASH: And the company continues to roll out new services! Have you heard of contract research organizations, or CROs for short?