Jobe01 (96.47)

Lemmings Have Reversed Course Yet Again

October 27, 2009 – Comments (2) | RELATED TICKERS: TQNT , QID , DVAX

I find the analyst speak so odd at times.  It would be funny were it not for people being hurt by the ignorance on Wall Street.  Just two weeks ago, a plethora of analysts were on CNBC, spewing about how investors needed to jump on the Bull Run Bandwagon, or risk being left behind.  The same individuals crowed incessantly about the Obama financial rescue, and how it had forever changed things in the market.  It reminded me of similar talk from about 10 years ago with regard to a 'New Paradigm'.  Nothing could be farther from the truth then or now.  Now the lemmings are beginning to wake up, and are grudgingly turning course and heading full steam in the other direction.

What's happened over the last couple weeks.  Earnings from the S&P 500 have been hitting, and have been relatively good.  However, unemployment continues to rise.  Energy prices, as I mentioned in a blog back in the Summer are on the rise again.  New mortgages are down.  Consumer sentiment is down, there's a surprise.  Jobless claims on a weekly basis continue to be very high.  Add to that, we're trillions of dollars in debt, and the government's talking about more bailouts.

Here's what will happen.  Energy costs will continue to escalate.  Interest rates, now very low, will begin to heat up, further dampening mortgage loans, new construction loans, purchases of durable goods, etc....inflation, will skyrocket, given our massive dept.  It all sounds like a recipe for disaster to me.  Prepare for a huge correction, going into the end of the year.

How does one prepare?  Buy some QIDs, GLLs.  On your long positions, those you have a profit or near break-even, sell call options going into Jan and Mar of 2010.  Keep about 20-25% cash, that's what I'm doing.  For new positions, look for stocks with pristine balance sheets.  No debt, or very little, plenty of cash, trading at or below book value, and if you're lucky, close to cash value.  Look for companies in a growth sector.  Companies whose revenues and profits are increasing.  Companies who have been unfairly punished.  Companies whose rsi is at or below 30, indicating an oversold situation.

A perfect example.  Tqnt.  No debt, strong positive cash flow, increasing revenues and profits, strong projections, new products hitting, in a growth industry. 

Want an example of a lemming?  James Cramer, a few weeks ago he was touting Tqnt going into earnings when the stock was over $8/share.  Their earnings hit, they were in line.  They softened their guidance with revenues still growing by over 10% quarter over quarter, but slightly below analysts (lemmings) expectations.  For the slight downward revisiong, the stock was rocked from 8+ to 5.50 as of this morning.  I went long at 6, and again at 5.47.  After losing over $2/share from his recommended buy, Cramer no longer likes the stock.  Why?  because they guided lower on revenues to a range of $175m to $185m, from the expected $180 to $190m or so.  Now, that's a laugh,and if he's not a lemming, I don't know the definition.

My point, don't follow the lemmings/analysts.  If you do, you're behind the curve, and will be caught in the backlash when things fall apart, as they're beginning to do.  Complete your own research.  Use common sense.  If the auto companies couldn't increase demand without the 'cash for clunkers' gimmick, they're not going to change that in an environment of increasing energy costs and 10% unemployment.  Go against the grain when it makes sense, but complete your own due diligence.  If you don't feel comfortable doing that, find a wise financial planner, one who doesn't follow the crowd but bases advice on sound fundamental and technical research.

My portfolios will never score a consistent 100 in this venue.  However, they'll consistently score in the 90s, resulting in double digit gains on a consistent basis.

 Jobe