Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 4
I will not chase, I will not chase, I will not chase

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.

Print the post Back To Top
No. of Recommendations: 0
"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."

You have the Cramer(you know, the fella of "they know nothing" fame) crowd chanting with you. I believe he told his viewers last night to sell today. That could be good for the overall health of the markets. A little pessimism could go a long way and prevent an unsustainable rocket like launch of the global equities and start a steady creep back to more rational levels.
Print the post Back To Top
No. of Recommendations: 2
Jubak is turning out to be a nut case like Cramer. I have been regularly reading his articles for a few years now. The quality of research has certainly gone down and he is more and more clueless about what is happening. His actions are more of a response to what is happening rather than insight based.

I cannot fathom where all the government action will take the world but I will comment this: Financial disasters have occured in 1873, 1930, 1986 and now. In each case, different conditions led to a common theme: credit crunch and collapse of financial institutions. In each case, the economic downturn lasted for >4 years with different levels of govt interventions. To expect something different in terms of an economic swing would not be Foolish. There are a lot of things that are different about the current crisis: global nature and massive global bailouts. Some components of the economy will eventually pay for these bailouts. The cost of these bailouts could be a prolonged global economic slump. What the world may have purchased is insurance against a sudden downfall that does not give people time to adjust to lowering standards with job losses, stagflation and/or frozen or falling wages.

In the last few weeks we have seen massive swings in the market, to the deep down and back up. There is no reason to assume that this will not keep occuring for a while.

Regarding the oil. Is there any point trying to figure out the bottom? My questions have not changed. From 2007 till now, the demand has only gone down. Why the march up from $60? The usual argument of drying oil wells does not sound convincing to me for a lot of reasons. As for the analysts, Goldman predicted oil at $200 when it was at $40 and when it was at $147 they predicted it below 100. I think they got it right. Really. No one anticipated this kind of a crash so increasingly downward estimates. Estimates are always made to the extreme point: high or low.

Oil at $60 or less will help the global economy kick start. So I wish earnestly for a lower oil prices. The stocks related to oil industry are selling at a price when oil was below $40 and oil over $100 was not anticipated this first. Clearly a market dislocation. I don't think that oil has a place below $40 without a massive global depression. But it does have a place at $60 for a few years in a an environment which sees very poor auto sales, reduced air traffic, reduces shipping and trucking due to recession across the globe.

It is important to be realistic: economic malaise can last for 4 - 10 years. Sunk commodity prices are more likely to help the economy than not. High commodity prices are in fact one of reasons for the collapse that no one talks about. How long could the price of consumer goods fallen with steeply rising inputs that includes the salaries in outsourced nations? How could the potential increase in consumer goods prices along with all the commodities be tolerated with near flat wages in the developed world? How long could the rich western consumer depend on credit? This is more than real estate crash or investment bank failures. An entire way of life based on high spending is as much of an underlying cause. To change a way of life is not easy. All of us want every latest item out there in our house within 2years whether we can afford it or not. It will take several years to break this habit and will only occur by the force of a recession.

So I would neither call it a bottom nor predict where the bottom lies from this point. What we all need to do is put a survival plan in place: what is the probability of loosing our day job? What are the potential impacts of loosing the job? And prepare accordingly. It is hard to find jobs in a recession. This is when people are forced to liquidate their assets at firesale prices. No wonder people with a lot of cash make the most of recessions. Most just slip thru the cracks. A backup plan right now is far more important than waiting for the recession to engulf us completely in next 6-12 months.

As for me, I had cash position for a 20-30% fall from the peak and not to this point. I have chased the bottom so far but I will looking forward to book tax losses where ever it makes senses with the temporary upswings. I need to rebuild cash positions as well.

Print the post Back To Top
No. of Recommendations: 1
I am nibbling at stocks that have absurdly high, safe dividends right now.

I have heard the same thing from most of the talking heads. I have decided to hold off.

We have seen the problems in bank, financial institutions, old school manufacturers, housing, credit shortages, slowdowns, shifts in markets, commodities, hedging ....

In my low tech head I am feeling warning buzzers saying "Bears, what if you buy that company for that tasty dividend and when the Q report comes out and the dust settles on October, they reduce that dividend?"

Does that spell selloff when dividends are being hyped?

Print the post Back To Top
No. of Recommendations: 0
A number of pipeline MLPs, one of the main sectors that I was focusing my dividend search on, have long-term contracts to deliver oil and natural gas...regaredless of what the price of those commodities are. It would take the absolute destruction of our entire economy for them to be unable to payout at their current level.

Print the post Back To Top
No. of Recommendations: 1
Deej is right. Check out II picks. Most likely these are the ones he is buying.
Print the post Back To Top