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I will not chase, I will not chase, I will not chase

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October 14, 2008 – Comments (13)

THIS IS IT, THIS IS IT!!!!!!!  THE MOMENT THAT WE'VE ALL BEEN WAITING FOR!!!!!  THE BIG BOTTOM (and who doesn't like a big bottom, right)?  These are some of the scariest words that anyone can think right now.  I said yesterday that I believe that stocks may have temporarily found a bottom, so why are these words so scary then?  Because just like on the way down when losses snowball as fear takes over, fear seems to be gripping the markets now...fear of missing out on the best buying opportunity in our generation.

I have a cure, but I am going to need all the help that I can get.  I need everyone to chant with me, "I will not chase, I will not chase, I will not chase."  The more non-chasing vibes people send my way, the better.  A few years ago a younger, more impetuous Deej would definitely been sucked right into this buying spree thinking, "Oh schnap, I'm going to miss out on the big one."  Not any more.  As I mentioned yesterday, I have been doing extensive research at night and placing limit orders for absurdly valued stocks at their previous day's closing price.  If they fill, great.  If not, oh well.  I no longer fall so in love with a stock that I must have it, damn the cost.  Those four stocks that I placed limit orders for on Sunday night sure took off on me.  I tried to buy them at Friday's closing price and I missed them all by 14% to 24%.

I'm not going to lose any sleep over it.  I am nibbling at stocks that have absurdly high, safe dividends right now.  I placed another limit order this morning for a fifth stock at yesterday's closing price.  If it fills, great.  If not, I will leave it, along with the four other orders that I placed earlier this week active.  I have a feeling that we will revisit last week's prices before the coming massive recession is all said and done if not, you can thank me once again for putting in a bottom.

Will we enter the second Great Depression?  No.  Why am I so sure you ask?  Because policymakers have learned from previous mistakes and they will not let a depression happen again.  They may cause some other sort of problem, like a massive currency devaluation, but the student of the Great Depression, Ben Bernanke, will do everything within his and his friend Paulson's power to flood the world with money to prevent deflation.  I am more sure of this now than ever. 

Wait you say, if banks don't want to lend they can't force them to.  Oh yeah, well if it comes to it, I suspect that Big Ben and Hank will go door to door handing out hundred dollar bills to unlock the credit markets.  I can see it now:

Halloween night

Ding Dong

"Honey grab the door, it's more trick or treaters."

"I'll get it"

"Happy Halloween!  Man, those are some realistic costumes.  Your Ben Bernanke and Hank Paulson disguises look so real.  Nice job guys."

"What's that, they're not costumes?  You two are the real dynamic duo, Hank and Ben.  What do you want?  Some candy?  Here's some Smarties and a Dum Dum."

"Oh you don't want any candy, you want to give me something?  What?  A million bucks.  Gee thanks.  I just have to promise to spend it quickly.  Sounds good to me.  Thanks guys."

On a related note, I wonder if there really is Halloween costumes for those guys out there.  A Bernanke mask combined with some fake money, which will probably eventually be worth almost as much as the real stuff, would be hilarious.  At least to me, but not any of the other people on my block who would have no idea who I was trying to be. 

 

I digress. 

Back to the economy and inflation versus deflation.  Sure the fact that there isn't as much leverage in the system...and there probably never will be in our lifetimes is going to be a problem for asset values.  When everyone and their mother levers up 20- and 30-to-1 and chases the same assets, it sort of artificially inflates the values of things, but hat's nothing that massive inflation caused by the printing of trillions of dollars in money can't ultimately cure. 

On a related side note, someone at work who doesn't follow the stock market very closely asked me the other day "What happened to all of the money that everyone lost last week?"  I thought to myself for a few minutes and answered "I'm not sure that it ever really existed."  All of the leverage in the system caused the prices of everything, stocks, homes, etc... to get to an unreasonable level that they probably should never have reached and might not reach again for a long time.

Even the price of oil got ahead of itself, but I think that we may have found a bottom in oil prices.  Want to know how I decided that we have?  All of the investment banks are now calling for $50 oil.  If that isn't a sign of a bottom, I don't know what is.  These fools were all sooooooo sure that $150 and $200 oil was here to stay just a few months ago and now they go and pull the plug on that theory.  I've said it before and I'll say it again, the truth is somewhere in the middle.  Oil probably should have never reached $147 and it certainly shouldn't trade for less than $80.  Absent of a skull-crushing global recession, the current low price of oil and tight credit markets should eventually cause oil to be more expensive as deepwater and oil sands projects become no longer economically viable, governments print money and inflate currencies, and companies can no longer access credit to explore.

Hmmm, I'm running out of time.

So I leave you with this, Jim Jubak's timeline for the stock market.  As usual, his thoughts are fairly well aligned with mine:

Your guide to the next 12 month (Great article, definitely check it out)

-  Stage 1: In the next month or so, a big rally

-  Stage 2: The rally fails in early 2009

-  Stage 3: By mid-2009, pessimism deepens

-  Stage 4: In late 2009 and early 2010, the bottom

-  Stage 5: Recovery after 2010

I agree with him that we will ultimately re-test our previous lows.  So I am placing my limit orders and not chasing stocks.  I would appreciate it if everyone would repeat my mantra and send me some positive non-chasing mojo today.  Thanks for reading. 

Deej

13 Comments – Post Your Own

#1) On October 14, 2008 at 8:02 AM, rd80 (98.29) wrote:

Good approach.  Set low ball limit orders, be patient, let market volatility work for you. + 1 rec for positive non-chasing mojo.

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#2) On October 14, 2008 at 8:49 AM, TDRH (99.65) wrote:

Will not bottom until median home prices are in line with historic relationship with median incomes.   First glimmers of hope spring of 2010 at current rate of decline.    Markets can overshoot the bottoms though, but you will know when the fundamentals are there.

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#3) On October 14, 2008 at 9:13 AM, EnigmaDude (89.37) wrote:

i'll try to resist. Hard to sit on the sidelines with cash when it looks like fear has turned to greed... But - I will resist the urge to chase!

Good wake up call (literally, i just woke up)  - a rec for you.

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#4) On October 14, 2008 at 9:14 AM, awallejr (81.55) wrote:

I wouldn't go crazy at this point either.  I am concerned of the "buy on rumor, sell on news."  We saw this happen Sept 19.  But there are still some high yielders at very low prices.  Thinking of picking up some more LINE today.

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#5) On October 14, 2008 at 11:17 AM, dpid (88.16) wrote:

What do people think of deepwater drill services (RIG, NE) with the tight credit markets and decreasing price of oil?

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#6) On October 14, 2008 at 2:07 PM, nuf2bdangrus (< 20) wrote:

I wish I'd learned this earlier.  Set limit orders on ubelievable cheap prices starting with smallest position at hights price, and widening the scales as te price falls.  If it catches non, there will be other opportunities.,  Ifit catches some, you've averaged in properly, and emotions are not involved.

 

PM was a steal at 34 the other day, CHK at 11,  PFF 20  PPH 51 it goes on and on.

 

I bought, VERY small, and sold much of it into the rally, even shorting GE on the open.

 

Now I'm on the sidelines, 1/3 stocks and 2/3 cash, aith a bit of gold, silver & CEF.  I'm waiting for a chance to short the TLT

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#7) On October 14, 2008 at 2:27 PM, dwot (47.53) wrote:

Excellent post.  Patience is my friend.

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#8) On October 14, 2008 at 2:34 PM, nuf2bdangrus (< 20) wrote:

Notice we opened up 4500 and are now pressing down 100+.  The supply/demand of shares has more sellers than buyers, and fewer willing to hold overnight.  Institutions are standing on the sidelines, for redemptions as well as valuation.  The consumer is hocked, and paying down debt.  Thus, they will borrow against 401's, and with the rally, many are saying 'nuff.

 

You'ge got active managers like Bill Gross screaming for more gov't intervention to save his book, as we desparately print money to avoid deflation, as our income, the real culprit, cannot be printed.  That will reveal itself, and already is in the real world, by the public changing currencies, i.e. buying gold.  Physical gold is much cheaper than paper gold, and that is a tell.

 

Real interest rates must rise substantially to equate risk with reward in the private sector.  And despite the artificial lowering, they eventually will as the cost of borrowing for the Treasury will eventually rise.

 

Thus, when you her CNBC in their climactic frenzies when stocks rise, remember, what's cheap today will be cheaper tomorrow.

 

The biggest returns are made from the lowest prices.

Repeat that.

 

 

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#9) On October 14, 2008 at 6:51 PM, rudolphsteiner (< 20) wrote:

I chaseth not the mad market.

I fear the legendary black beast of debt 

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#10) On October 15, 2008 at 1:33 AM, gman444 (28.71) wrote:

Great post.  I've been looking for the current drama for awhile now--I've felt since before 9/11 that the numbers just don't add up right. 

Particularly generally overlooked is that Bernanke as well as Greenspan are students of the Great Depression.  I believe Greenspan wrote during his graduate school years about the mistakes made then, and his perspective then could have predicted his loose money ways.

I also agree that the alternative plan to that practiced during the Great Depression is to flood the world with money---I expect that present events will be seen in hindsight as a dip in the longer term inflationary trend.

But I also see a common personalitiy thread running through most of our  leaders:  Hubris.   That is why I think expect that in the end, we will again suffer massive deflation, but not before we have ruinous hyperinflation....

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#11) On October 18, 2008 at 11:48 AM, disaster2008 (< 20) wrote:

Good advice.  I typically impatient and buy too early, and then have regret.  I am trying to be patient now and using low-ball limit orders.   I try not to watch the market during the day and reassess in the evening and over the weekend.  Looking for stocks that have good dividend yields, very low forward P/E, PEG, and P/B ratios and companies with management that have excellent ROE and ROA.  I also have been selling if I feel certain I can buy the stock back at a lower price.

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#12) On October 18, 2008 at 7:02 PM, kamuirei (< 20) wrote:

TDRH mentioned the ratio between median income and house prices. 

 Here's a chart:  http://www.schwab.com/cms/P-2806760.3/MI101608SMP5HousePricesHigh.GIF?cmsid=P-2806760&filename=MI101608SMP5HousePricesHigh.GIF

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#13) On October 20, 2008 at 1:44 AM, TheGarcipian (42.84) wrote:

My chicken bones are telling me through my star charts that my educated guess is in line with Jim Jubak. By my reckoning (the latest here a week ago, and two weeks ago here), we've still got 12-15 months to go before we see a bottom. So late 2009 to early 2010 is just about right. The Housing Market Index has not yet bottomed, as I have new data from 15-Oct-2008 that I've not yet posted. The HMI dropped 22% in one month, from 18 to 14. Until this puppy levels off, we won't see any bottom. And that won't for 12-15 months afterwards. It's gonna be a long, long year a'coming.

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