LOTM Blog

=========================

LOTMs Guru’s Corner:

Bill Gross is recognized as the world’s bond king. Gross very publicly said to avoid US Government debt and in fact sold out of his position in US Government bonds. Recently he has purchased US Treasuries though likely a small amount. Linked here are Gross’s comment on the debt ceiling.

Warning to Washington: Don’t mess with the debt ceiling July 13, 2011 Bill Gross, Washington Post

Diane Swonk, economist at Mesirow Financial. “We expect a re-acceleration in growth from the summer, and 2012 might be a year of solid gains in activity levels, although job creation will remain subdued,” said Diane Swonk July 14^th 2011 Reuters

Marc Faber, the author of the closely-watched Gloom, Boom and Doom report in an interview with CNBC on Thursday. “It is mind boggling that people would consider buying 10-year U.S. Treasurys with yields trading at around 3 percent. I don’t think the U.S. will default in terms of not paying the interest on its debt. They will though default via a falling dollar as Bernanke begins printing more money.”

Mark Mobius asked about the Greece debt crisis in the Financial Journal July 15 2011:

Q: For more than 40 years, you put money in emerging markets. They are accustomed to debt and currency crises. What lessons do you draw from?

NEW! FREE WORKSHOP

Making a Million – $5,000 to $1 Million – The Challenge Begins!

In the 1990’s Tom took $5,000 and with no money added turned it in to more than $1 million dollars. Luck? Skill? A bit of both perhaps? Now Tom will attempt to repeat what he did in the 1990’s. Starting with $5,000 Tom will try a second time to turn $5,000 in to a million dollars!
Subscribers to the LOTM Newsletter will be notified, if they choose, to the trades as Tom makes the trades. You can track along with Tom’s trades.

CLICK HERE FOR .PDF WITH MORE INFORMATION

NEXT FREE WORKSHOP (Open to subscribers and non-subscribers):

When: Thursday July 28, 2011

Time: 7 PM to 9:00 PM

Where: Two Tigers Gallery
Northwind Lofts Building
2400 N 2nd St. Suite 107
Minneapolis MN 55411

To RSVP email: tom@livingoffthemarket.com

* Please note: You do not need to live in the Minneapolis area to subscribe to our newsletter and participate in the “Making a Million” program!

In every crisis, there is an opportunity. Where is the opportunity here? Bloomberg reported that the Price Earnings ratio for the stock market is at a 25 year low. We live in interesting times. Embrace it. Enjoy it. Find the opportunities!

LOTM would like to introduce a new service – it’s free.

What do the Gurus Think?

When I started in the stock business back in 1976, I did not know who to believe or not to believe. Everyone had his or her own opinion – often conflicting with the guidance, I had just heard from the person before the current speaker. Over my 35 years in the market, I have found some market people that I always listen to because I have seen their comments come to life more often than not. Yes – no one is perfect. But right more often than not is good.

LOTM will consolidate, as we find them, comments from these proven Guru’s. LOTM will keep to the stock, bond and commodities market but may occasionally stray into other topics. Words from people who have lived, experienced, survived and prospered are worthy of note.

Marc Faber: Marc Faber is a Swiss investor and market analyst who has gained fame, in part, for his consistently bearish views on the US and world economy. Faber is the author of the investment letter GloomBoomDoom.com

June 14,2011 story link – suggestions by Faber.

Buy Proctor & Gamble (PG) $64.77

Buy Johnson & Johnson (JNJ) $67.10

Buy Roche Holdings (RHHBY.pk) $42.14

Buy H.J. Heinz (HNZ) $53.71

Buy Raytheon (RTN) $49.05

Sell Short Salesforce.com (CRM) $137.10

Dr. Joseph Mark Mobius (born August 17, 1936) is a global investor and emerging markets fund manager, and is considered to be one of the leaders in the industry as he has been involved in these markets for over 40 years. B ecause of his in-depth knowledge of emerging markets, Mobius has been a key figure in developing international policy for emerging markets. In 1999, he was selected to serve on the World Bank’s Global Corporate Governance Forum as a member of the Private Sector Advisory Group and as co-chair of the Investor Responsibility Taskforce. He has also been featured as a speaker  for the World Bank in 1999 and has given seminars for many other groups, including for the Asian Development Bank in 2002 and as a motivational speaker for the London Speaker Bureau.

June 10, 2010 – Mobius ‘Optimistic’ on Thai Stocks

May 30, 2011 – Mobius Says Another Financial Crisis ‘Around The Corner’

Barton M. Biggs is a money manager running Traxis Partners, a multi-billion dollar hedge fund based in New York City. He formerly held the title of “chief global strategist” for Morgan Stanley and was with that firm for 30 years. The son of a chief investment officer of Bank of New York, Biggs graduated from Yale University in 1955. Biggs later taught English, a prep and played semiprofessional soccer and tried his hand at short-story writing. He joined E.F. Hutton in 1961, with a starting salary of $7,200 a year. Biggs joined Morgan Stanley as a managing director and general partner in 1973. The firm’s first research director, he established Morgan Stanley Investment Management in 1975.He left Morgan Stanley in part, he said, because he found his job had evolved too much into managing people rather than formulating strategy

Jun 7, 2011 – Hedge fund guru Barton Biggs says he’s continuing to find opportunities in the stock market right now, though he’s not too bullish on financials. Biggs tells Bloomberg that worries about further housing-related write downs and questions about the legitimacy of their book values make financials a question mark. One area he likes: “older” tech stocks like Intel and Cisco, which he says are now “incredibly cheap”.

Perspective is often shaped by those with control. Therefore it is helpful to look at the view of events from outside the umbrella we live under.

The headline stories in Asian Times Online give what might be a more accurate read of the recent events concerning the death of Osama bin Laden.

The story by Spengler – Bin Laden a casualty of the Arab revolt is particularly informative. While U.S. forces may have done the deed in bin Laden’s death, there is a bigger story at work. The Asian Times suggests bin Laden was a causality of the Saudi’s need to develop an ally in Pakistan in its cold war between itself and Iran.

Why bring this up in a stock newsletter? Today the markets appear to be up because of bin Laden’s death – oil is down for the same reason. The Asian Times article reveals a bigger picture that suggests the game is entering a “new phase” and not an “end game” for the U.S. in its dealing with radical groups. The Saudi no longer views the U.S. as a strong friend. In the war on terror this is not a good development.

The market is somewhat over bought. Certainly there are still attractive deals available for investing and trading.

LOTM is bullish as long as the U.S. and China have an easy money policy. Having said that, the easy money from QE2 in the U.S. will be ending in June. That leads to some “taking of the fuel” away from the market. Additionally, there could be some back lash from al-Qaeda as mentioned in the Asian Times article Osama’s al-Qaeda ready for a fight. LOTM does not believe there will be any tightening of monetary policy as the system is still very fragile. There is room for negative surprise and concern, however, so be vigilant.

Raise some cash on rallies and buy some shares of what you like on weakness. With QE2 ending in June, one might want to be a bit cautious going into summer.

One result from the ending of QE2 could very well be a stronger than expected US Dollar. This would be negative for the price of gold and oil.

Stocks and cash would be the favored asset classes from among the choices – stocks, cash, bonds, gold & oil. LOTM likes dividends and there are still some very attractive dividend stocks available. We will tend to stay focused on dividend ideas for new purchases for now.

That was a lot to think about for a Monday morning…

Bill Gross of PIMCO is considered the guru of the bond market. Last month, Gross sold his long position in the US Treasury market. This month Gross is selling short US Treasuries. To give a fair and balanced account of Gross’s action, Bill Gross is a macro investor. This mean his position is not a short-term trade like so many of the hedge funds you hear about. Gross’s position is based on longer-term trends that he sees developing. This trade – selling and going short US Treasuries, is not a new conversation. Many professional traders are calling rising interest rate trade, the trade of the decade. LOTM agrees. Interest rates in the United States are artificially low because of the financial crisis of 2008. It is natural to expect the Federal Reserve to raise interest rates after dropping them to lower than normal levels during the crisis.

What can we expect along with rising interest rates?

For one, we can expect the stock market to continue to rise for the time being. Rising interest rates in the beginning is simply bringing back balance–back to what a “normal” rate is. Rising interest rates is a positive signal that we have returned to normal.

Rising interest rates can be expected to put a damper on inflation – gold, oil and food prices have had a great rally. Higher interest rates are competition to commodities and therefore slow down or stop the commodity rally.

LOTM has mentioned various ETF’s in past blogs — you can check the archive of past headers and see our comments. As a longer term and passive way to participate in rising interest rates, you can buy the ProShares Ultra Short 20 year plus US Treasury ETF (TBT) $38.07.

The market looks both strong and weary depending on how one looks at it. I think Datalink (DTLK)* and Multiband (MBND)* charts are indicative of what we might expect from the general market; a strong performance but sharp corrections along the way. It would not surprise me at all to see a sharp correction in the general market. However, my comment as of now is we are seeing rotating corrections within the market. Individual stocks are making big moves, correcting, and another stock takes off. This is good action.

When viewing the number of stocks trading above their respective 40 day and 200 day moving averages prices it looks like the market might be extended again.

72.64% of companies are trading above their 40-day Moving Average. The low of March 17^th was at 27.7%.

For the 200-day moving average it is currently at 78.34% with the correction low being 68.58%

Conclusion: The longer term 200-day moving average suggest a more stable and positive market trend while the shorter 40-day is rising and correcting around the more stable and rising long term trend.

Chatter on the Street is the US Dollar will rally in the second half of 2011 with the stock market correcting after QE 2 expires. In order for the US Dollar to strengthen, we should see interest rates rise, in my opinion. That might actually be a good thing. While banks say they have money to lend, they are only working with the best credit scores. If interest rates rise, it is anticipated that banks will lower the credit scores they will work with because they can get bigger margins on loans with the higher interest rates. This might be good for real estate transactions and values. A rising dollar would be negative for gold which is looking a bit toppy. No strong trends yet other than stocks are strong and oil is strong. Gold is flat Vs stocks and oil. Interest rates are low but expected to rise in the second half of 2011.

The study below about the gold/Treasury bond ratio was of interest to me and I thought it might be to you as well. The author, Kevin Klombies, is suggesting the possibility that gold is at a multi-year high. Kevin is using the ratio between gold and U.S Treasuries to form his conclusion. I find the study credible because of the constant relationship of two globally traded items – gold and U.S. Treasuries.

Gold and U.S. Treasury bonds are well traded, difficult to manipulate for long time periods, and have a long history of being interrelated. As interest rates rise and the dollar strengthens, gold can be expected to decline. I guess the big question is: when will interest rates begin to rise in the U.S.?

As readers of the LOTM Newsletter know, LOTM placed a short sale position in gold earlier in the year. We were stopped out of the trade with a tiny profit.

One conundrum to consider is the question – with oil rising, the Middle East going up in revolution and the U.S. Dollar weakening, why isn’t gold exploding higher? Perhaps higher gold prices are coming. Certainly, the trend in gold is up, but the rise seems rather muted in light of world events. Our guess is that the hot stock market is beginning to drain attention and money away from gold. Our position now is neutral with LOTM waiting for the price of gold to break down before shorting again. We do want to stalk this trade for the possibility of a big downward move.

Notice the CMF (Chaikin Money Flow) in the bottom third of the chart below for GLD. It is suggesting that there is a strong out flow from GLD even as the price of GLD goes up.

There is a Wall Street saying, started by Joseph Granville that goes something like this –

When water begins to drain out of the bathtub, you don’t see any movement on the surface of the water, but as the tub nears completion of the draining process, you hear the sucking sound and see the swirling water disappearing –  too late to save much water.

So it is with stocks and money. That is why we watch for indicators other than the price action of the stock alone to give us some clues of what might be coming.

Equity/Bond Markets by Kevin Klombies 3/25/2011

We are not sure whether this is an inspired piece of thinking, or a simple fixation on a potential coincidence but… we thought we would take another run at it just in case.

It has to do with the month of March in the ‘1’ year of a new decade. As premises go this one may be a bit of a stretch.

The chart just below shows the ratio between gold prices and the price of the U.S. 30-year T-Bond futures. The argument in yesterday’s issue was that the price of gold relative to long-term bonds peaked in 1980, declined for 20 years, and then rose for the next ten years back to the original peak. In other words, as bond prices trended upwards for the past 30 years gold prices weakened on a relative basis for 20 years and then shot back up to the original extreme through the last decade.

In any event, the low point for the ratio was reached in March of 2001. After two decades of declining, gold prices fell to a major – and perhaps generational – relative strength bottom in March of 2001.

Fast forward ten years and we are now in the month of March in 2011.

Next, we show the same ratio to make the point that the gold/TBond ratio has risen to its highest level since 1980 when it spent a mere four trading days north of 12:1 before collapsing lower.

The offset to the peak in the gold/TBonds ratio may well be the ratio between the Nikkei 225 Index and Canada’s S&P/TSX Composite Index. The chart below right shows that the Nikkei made a post-earthquake low relative to Canadian stocks this month. The arguments are that IF the gold/TBond ratio is at a peak- perhaps for years or even decades- then the Nikkei/TSX ratio could potentially have made a generational bottom.

About the Author

Kevin Klombies is a prolific writer and market analyst. After graduating in 1980 from the University of Saskatchewan with a Bachelor of Commerce degree (Honors) in Finance/Economics, he was a broker for about 16 years for Wood Gundy Inc. /CIBC Wood Gundy (changed name around 1990) Private Client Division.

At LOTM, we are not ready to say that GOLD is not in a topping stage; however, we are not going to stand in front of the current rally. We will/have stopped out our short position in Gold by selling the reverse index in GOLD – DZZ. We will review this trade if or when the decline in GOLD resumes.

LOTM Negative on the Price of Gold

Recent events in Egypt, both past and the resolution thereof, have failed to draw money into gold to the point of changing the technical picture for gold.

LOTM continues to believe that gold is in a short term to intermediate term topping pattern. There are two ways to play this opinion. The first would be to sell short GLD, the ETF so popular for owning gold. The second would be to purchase the DZZ – the double short gold ETF. LOTM would suggest buying the DZZ as the preferred way to participate in a decline in the price of Gold. Keep a stop loss at 10% below your entry point. Looking at the chart below, DZZ appears to be in a basing pattern. The price did not break to new lows (gold breaking to higher highs) on the recent unrest in Egypt. If a crisis of this nature failed to stimulate the price of gold, what event will?

The LOTM view is based on technical opinion only. We have no anti-gold view nor do we have a pro-gold view. The charts say gold is having trouble going up and that usually means, in the stock and commodity markets, that the path of least resistance is down. We will reverse our view when gold changes its price pattern in a positive way.

Here are comments from stock market Professionals who are very good, and not always bullish to raise money, but Professionals who trade both ways and don’t care what the direction of the market is.

Stock ‘Party to Go on For Long Time’: Laszlo Birinyi

Hedge fund guru Barton Biggs, managing partner at Traxis Partners, predicted a surge in equities in 2011 on Tuesday, Jan 11^th. Biggs gained notoriety in 2001 for stating that “hedge fund mania” was fueling a speculative bubble which would eventually go pop. Now investors listen to him.

Jan 31 2011, - Jim O’Neill, the chairman of Goldman Sachs Asset Management and the man who coined the term BRICs, says this is “the year of the U.S. comeback.” Meanwhile, Bob Doll, (same link as Jim O’Neill above) chief equity strategist for fundamental equities at BlackRock, says we should expect “a nice surprise” from U.S. equities. Is it time to put your inner bear back in its cage and make a big bet on U.S stocks?

LOTM: In watching too much Bloomberg TV and CNBC, one theme I’m picking up is there’s a lot of cash on the sidelines that wants to get in this market, and is hoping for a deeper correction to get that money to work. Usually that means the correction does’nt go too deep. Smaller companies should do well, and perhaps extraordinary, but one might want to accumulate the biggies like Intel (INTC), General Electric (GE) and Microsoft (MSFT) that have been flat for the last decade.

A more conservative and passive approach would be to buy market indexes/ETFs NASDAQ 100 (QQQQ) or the S&P 500 (SPY). Our heart is with individual companies rather than indexed funds, but ETF’s are great for certain goals. The main goal for owning an index fund is being a broad and diversified way to catch a big trend. The S&P 500 is at 1286.5 – Birinyi is projecting (in the link above) a move in the S&P 500 to the 2500 area by 2013 time period.