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Jobe01 (95.33)

Lemmings Reversing Course

Recs

7

August 17, 2009 – Comments (6) | RELATED TICKERS: QID , GLL , COGO

Those of you who read my comments last week may recall my mention of lemmings and how they all run in the same direction.  As I pointed out about a week ago, all the pundits, wherever you looked, were talking about the 'market having bottomed', 'all the cash on the sidelines just waiting to be invested', how the 'capital infusion' from the government is going to drive the market and earnings higher.  I watched CNBC, Bloomberg, and other financial news channels and noticed how they paraded analyst after analyst across the screen supporting such a thesis.  To be fair, there was the occasional bear thrown into the mix to create discussion.  However, most of the analysts scoffed at any bears.  The governments cash infusion (or should I say the taxpayers cash infusion) into the failed US auto companies, the crooked banks and investment companies, the pork barrel social programs, will do little but provide a temporary blip on the economic graphs. Interestingly this morning, the CNBC and Bloomberg pundits were singing a completely different tune.  Talk now is of the weakness in China spending, and how the government infusions aren't having the impact expected.

Now let's be clear, I'm not a bear.  I believe that the market will grow long term.  In a free market, assuming the government lets it stay that way, entrepreneurship will thrive, and with it growth.  However, nothing has substantially changed economically from where we were back in February.  In my humble opinion, a wise investor will cover all the bases.  One must have cash, and plenty of it.  My mix, about 20-25% cash.  When going long in a nasty market such as this, look for stocks trading near cash levels, low debt, profitable or close to it, growing revenues, a strong product mix, diversified client base, and insiders who are buying or staying put (with large insider ownership).  Also, protect on the down side, why I'm long QID and GLL (tech and gold short etfs).  Why I'm short QLD (tech long etf).  The stocks I like such as cntf, akam, etc...offer excellent balance sheets, growing revenues, large insider ownership and buy activity, etc...

With a portfolio similar to what I've developed, you'll never double your money over night.  However, you will make consistent and steady returns in both down and up markets. 

I hope those who read find my blogs useful.  Next time I post, I'll talk of the value of covered calls and how I trade them.

Happy investing, it's going to be an interesting day.

Jobe

6 Comments – Post Your Own

#1) On August 17, 2009 at 11:43 AM, Entrepreneur58 (95.25) wrote:

Having some cash is probably a good idea.

Being short gold and tech is probably not a good idea.

The combination of the two leaves you exposed if we have a currency collapse.  

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#2) On August 17, 2009 at 11:55 AM, Jobe01 (95.33) wrote:

Thanks for the comment Entrepreneur.  I agree with your comments about being short gold and tech with regard to a currency collapse.  However, part of the way I've offset that, and I'd recommend offsetting that, is by owning tech stocks which fit the profile I've outlined.  Such stocks as that, which are international in their business focus, should do well in just such an environment.  As I alluded to, the idea isn't to hit it out of the park, so to speak, but to consistently make gains, in both down and up markets.

Thanks for taking the time to respond.

Jobe

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#3) On August 17, 2009 at 12:44 PM, leohaas (99.28) wrote:

Why are we still watching CNBC and the like? You are making an excellent point about them being lemmings

"However, nothing has substantially changed economically from where we were back in February"

That is not true. We have averted a Great Depression. The early March lows were formed when the market makers understood we were not going to have a new Great Depression. And for the stock market it makes a big difference if we are just going to have a severe recession, or a depression. About 50%, I would say...

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#4) On August 17, 2009 at 1:16 PM, Jobe01 (95.33) wrote:

Thanks leohass for commenting.  I think you misunderstand my comment about things being unchanged economically from Feb of this year, or perhaps I wasn't clear.  Yes, the stock market has rebounded significantly.  However, I don't think we were in grave danger of a Great Depression, just a deep recession.  Nothings been diverted.  The cash infusion into the financial system and auto industry did little but buy that and and auto industry time.  The same issues which existed in Feb still exists.  Many of the financial institutions are still teetering on the verge of bankruptcy, forclosures are actually higher, unemployment is near 10% (higher if I recall the stas then).  Although auto sales have rebounded a little, there's clear evidence that's attributable to the govt's 'cash for clunkers' offer. 

The infusion from the govt/taxpayers, has done little but buy the economy some time.  Nothing is any better.  Additionally, we now have an astronomical 14 trillion in debt, with no end in sight.  With the government printing money at the rate the 'South' was doing toward the end of the Civil War, it's only a matter of time before interest rates sky rocket and inflation takes the legs out of this so-called recovery.

Quite frankly, I think the government has done more long-term harm by meddling than if they had let the market take its course. 

Jobe

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#5) On August 17, 2009 at 4:27 PM, leohaas (99.28) wrote:

Jobe, you are welcome.

You may think we were not in grave danger of a Great Depression. I disagree with you, and the market supports me. A significant chance of depression was priced in. The rebound in the stock market is primarily a result of that change going to virtually zero. It meant that the March lows were overdone. Way overdone. That is the only explanation for the 50% move up in 5 months, because things haven't really improved as you indicate.

I understand you are no fan of government interference in the economy. And I agree that the long-term effects can be harmful, in particular if this adminstration does not cut spending and increase taxes when the economy has recovered. But the data show that government action (going back to the AIG bailout) has indeed prevented a new Great Depression.

 

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#6) On August 18, 2009 at 1:23 PM, Jobe01 (95.33) wrote:

Thanks again for your response Leo.  It appears we agree on most aspects of the Spring recovery in the stock market.  However, I still have my doubts about the risk of a 'Great Depression'.  However, I do agree with the March lows being way overdone.  March was a great time to make some excellent value purchases.  I bought Cntf at about $1/share.  At the time it was profitable, with no debt, and expanding market share.  Seemed like a no brainer.  Today, it's trading around $2.80/share, still below cash value.

All that said, there can be little debate that the governments meddling will hurt us long-term.  We have over 14 Trillion in debt, massive unemployment, and an economy that is surviving on life support.  Once the printed money the govt is shoving into the economy runs out, once inflation naturally takes hold, we'll probably see aother big selloff.  Time will tell.  Either way, intelligent discourse is always of value.

Happy investing.

Jobe

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