Wednesday, September 30, 2009
What if the market never closed?
Dear Clients,
At 12:45pm yesterday the Dow was ever so slightly in positive territory. Fifteen minutes later, at the close, it was down 203 points. What amazing volatility we
At 12:45pm yesterday the Dow was ever so slightly in positive territory. Fifteen minutes later, at the close, it was down 203 points. What amazing volatility we
TIME cover 10-74
Dear Clients,
A week ago, the market was flailing; all the news was bad, with seemingly no light at the end of the tunnel. And here we are now, just this Tuesday, in the blink of an eye the market bolted ahead 400+ points, as measured by the Dow Jones Industrial Average. As I
A week ago, the market was flailing; all the news was bad, with seemingly no light at the end of the tunnel. And here we are now, just this Tuesday, in the blink of an eye the market bolted ahead 400+ points, as measured by the Dow Jones Industrial Average. As I
Monday, September 28, 2009
The Great Tree: Chapter 2
As the years unfolded in the land of the Great Tree the people grew by legions and their lives grew complicated. The wise foretold of a coming day when the number of mouths to feed would far exceed, in spite of man’s intervention, the Great Tree’s ability to sustain them. Fear gripped the hearts of all the people – yet even the threat of famine deterred not the gluttons (those who would not store) from consuming every morsel they could gather.
It was therefore declared that for the good of the community and the survival of the Tree, those desiring to pioneer beyond the shelter and create orchards of their own, would be allowed to do so and retain the bounty of their harvests for themselves and their families.
The majority of those eager to venture beyond the shade however, given their history, would not trust their leaders’ intent. They feared their farms would ultimately be subject to the government’s confiscatory practices. Yet, in spite of all historic precedent, and in the face of an otherwise dire fate, their leader’s aims were indeed virtuous.
As necessity then dictated, to inspire the people’s trust and to advance an entrepreneurial spirit, a new constitution, guaranteeing certain inalienable rights and protecting every citizen’s freedom to work and produce on his own behalf, was drafted and unanimously ratified. The old leaders stepped down as new officials, sworn to defend and enforce the covenants set forth in the constitution (its authors in fact), were duly elected by the people.
So it came to pass that those willing to dirty their hands, to extract the seeds from the fruit of the Great Tree, dig the holes, sow the seeds, water and fertilize the soil and ultimately profit from their own harvests, would be free to leave the shade of their once Great Giver in favor of their own bountiful orchards – conditioned only upon the paying of a small duty to the government. This duty amounted to a modest percentage of their annual yield and would fund the enforcement of the rules of law that protected their rights to build the lives of their dreams, as well as provide for certain essential services to the greater community.
While there were indeed many of the Land’s people who found satisfaction in these pursuits, there remained others however who possessed not the desire to produce their own good fortune, who chose instead to continue to live on whatever the Great Tree would bestow upon them.
Henceforth, while the industrious ones no longer needed to take from the Tree’s limbs, her bounty was sufficient to continue to feed those too old, unable, and even those unwilling to work, for some time to come. As the years passed however, the shade beneath her leaves grew crowded once again. Crowded by men and women who lacked either the capacity or the desire to venture beyond the great canopy to provide for themselves.
As the division in terms of the quality of life among those who strove for better and those who did not widened, a distinct envy began to develop among the self-proclaimed have-nots toward the strivers. The shade-dwellers would contend that, although (except for the disabled) their lot was clearly the result of their lack of initiative, the system was somehow unfair. That there simply should not be such a division, that in the interest of the social good, all manner of men should enjoy an equal share of the Earth’s bounty without regard to their contribution to the production and harvesting of such.
As the shade-dwelling masses grew, their influence upon the once great government grew strong. For all manner of men, pioneers and shade-seekers alike were rightfully endowed with the right to vote. And as the powers (and personal benefits) of political office were expanded, the position of policymaker became a highly coveted one indeed. So much so that the men and women campaigning for these positions would, regardless of their own ideals, cater to the group(s) they believed possessed the requisite votes to win them their desired posts.
And so it came to pass that a new era was born, an era where political gain took precedent over the legitimate needs of a growing society, and the shade-dwellers, now great in number, became a most powerful political force. Prospective politicians would stand within the crowded shelter of the Great Tree and pledge that while in office; they would increase taxation on those who, by virtue of their hard work and creativity, enjoyed lifestyles beyond what the shade-dwellers could ever imagine. As if the very spirit that once saved their land from ruin, could now be deemed selfish, greedy and deserving of punishment through excessive taxation.
Henceforth, under the guise of fairness, the self-interested politicians would commit their efforts to the redistribution of the land’s wealth and yes, the confiscated booty would be distributed among those who, by contributing nothing more than their votes, were deemed deserving of such.
The workers, the entrepreneurs, the pioneers who dared to risk going beyond the shade to build a better life, and to relieve the Tree of her burden, were perplexed by the chastisement being brought to bear upon them. The rule of law that once made possible and promoted their efforts had, at the hands of the politically ambitious, been manipulated and indeed corrupted to the point where the more successful their labors, the disproportionately greater the duties (taxes, regulatory fees, licenses, etc. etc.) they would be forced to pay. They had become villains. In the government’s eyes they had enjoyed too much success and would hence pay dearly for their perceived sins.
Law abiding as they were, the industrious, while they disagreed in principle, would nonetheless pay the higher taxes and fees levied against them. Yet they remained keenly aware of two fundamental truths; that they, not the policymakers, were responsible for the success of their great society, and that the maintaining of their personal liberties would lie, as perhaps never before, in their own hands.. And they knew therefore that a great day of reckoning was soon to come.
It was therefore declared that for the good of the community and the survival of the Tree, those desiring to pioneer beyond the shelter and create orchards of their own, would be allowed to do so and retain the bounty of their harvests for themselves and their families.
The majority of those eager to venture beyond the shade however, given their history, would not trust their leaders’ intent. They feared their farms would ultimately be subject to the government’s confiscatory practices. Yet, in spite of all historic precedent, and in the face of an otherwise dire fate, their leader’s aims were indeed virtuous.
As necessity then dictated, to inspire the people’s trust and to advance an entrepreneurial spirit, a new constitution, guaranteeing certain inalienable rights and protecting every citizen’s freedom to work and produce on his own behalf, was drafted and unanimously ratified. The old leaders stepped down as new officials, sworn to defend and enforce the covenants set forth in the constitution (its authors in fact), were duly elected by the people.
So it came to pass that those willing to dirty their hands, to extract the seeds from the fruit of the Great Tree, dig the holes, sow the seeds, water and fertilize the soil and ultimately profit from their own harvests, would be free to leave the shade of their once Great Giver in favor of their own bountiful orchards – conditioned only upon the paying of a small duty to the government. This duty amounted to a modest percentage of their annual yield and would fund the enforcement of the rules of law that protected their rights to build the lives of their dreams, as well as provide for certain essential services to the greater community.
While there were indeed many of the Land’s people who found satisfaction in these pursuits, there remained others however who possessed not the desire to produce their own good fortune, who chose instead to continue to live on whatever the Great Tree would bestow upon them.
Henceforth, while the industrious ones no longer needed to take from the Tree’s limbs, her bounty was sufficient to continue to feed those too old, unable, and even those unwilling to work, for some time to come. As the years passed however, the shade beneath her leaves grew crowded once again. Crowded by men and women who lacked either the capacity or the desire to venture beyond the great canopy to provide for themselves.
As the division in terms of the quality of life among those who strove for better and those who did not widened, a distinct envy began to develop among the self-proclaimed have-nots toward the strivers. The shade-dwellers would contend that, although (except for the disabled) their lot was clearly the result of their lack of initiative, the system was somehow unfair. That there simply should not be such a division, that in the interest of the social good, all manner of men should enjoy an equal share of the Earth’s bounty without regard to their contribution to the production and harvesting of such.
As the shade-dwelling masses grew, their influence upon the once great government grew strong. For all manner of men, pioneers and shade-seekers alike were rightfully endowed with the right to vote. And as the powers (and personal benefits) of political office were expanded, the position of policymaker became a highly coveted one indeed. So much so that the men and women campaigning for these positions would, regardless of their own ideals, cater to the group(s) they believed possessed the requisite votes to win them their desired posts.
And so it came to pass that a new era was born, an era where political gain took precedent over the legitimate needs of a growing society, and the shade-dwellers, now great in number, became a most powerful political force. Prospective politicians would stand within the crowded shelter of the Great Tree and pledge that while in office; they would increase taxation on those who, by virtue of their hard work and creativity, enjoyed lifestyles beyond what the shade-dwellers could ever imagine. As if the very spirit that once saved their land from ruin, could now be deemed selfish, greedy and deserving of punishment through excessive taxation.
Henceforth, under the guise of fairness, the self-interested politicians would commit their efforts to the redistribution of the land’s wealth and yes, the confiscated booty would be distributed among those who, by contributing nothing more than their votes, were deemed deserving of such.
The workers, the entrepreneurs, the pioneers who dared to risk going beyond the shade to build a better life, and to relieve the Tree of her burden, were perplexed by the chastisement being brought to bear upon them. The rule of law that once made possible and promoted their efforts had, at the hands of the politically ambitious, been manipulated and indeed corrupted to the point where the more successful their labors, the disproportionately greater the duties (taxes, regulatory fees, licenses, etc. etc.) they would be forced to pay. They had become villains. In the government’s eyes they had enjoyed too much success and would hence pay dearly for their perceived sins.
Law abiding as they were, the industrious, while they disagreed in principle, would nonetheless pay the higher taxes and fees levied against them. Yet they remained keenly aware of two fundamental truths; that they, not the policymakers, were responsible for the success of their great society, and that the maintaining of their personal liberties would lie, as perhaps never before, in their own hands.. And they knew therefore that a great day of reckoning was soon to come.
Monday, September 21, 2009
We Have Nothing to Fear but the Lack of Fear Itself
When your teenager is about to hop in the car and head to the beach, what are your parting words?
Tuesday, September 15, 2009
Private Client Commentary - Oil Conversation
Dear Clients,
After a strong month in April and a positive start to May, the market seems to be running into a little trouble at the moment. Not that we should be the least bit concerned with a couple of days of downside action, or, for that matter, a few months or even a year or two of downside action (since periodic and, at times, prolonged downside action is normal for the stock market), but it's always big news when the Dow takes a few hundred point hit. So lets listen to our two hypothetical friends converse on the events of the day
After a strong month in April and a positive start to May, the market seems to be running into a little trouble at the moment. Not that we should be the least bit concerned with a couple of days of downside action, or, for that matter, a few months or even a year or two of downside action (since periodic and, at times, prolonged downside action is normal for the stock market), but it's always big news when the Dow takes a few hundred point hit. So lets listen to our two hypothetical friends converse on the events of the day
Private Client Commentary - oil and capitulation
Dear Clients,
Last week I passionately expressed my concern over why the concept of a win fall profits tax, on anything, is a very bad idea. Apparently that commentary got your attention. I received some interesting comments - everything from concern over my blood pressure, to rousing applause, to how dare I use my commentary as a political platform. Of course I vehemently deny that I was doing anything more than showing my concern over a policy that I believe would lead us down a very dangerous economic path.
As for this week I'm feeling a little more subdued, but if you'll indulge me, I would like to stay on the oil topic for just another moment.
In a recent commentary, I made the statement that higher prices (of any given commodity) ultimately take care of higher prices. What essentially happens is that when the price of a commodity reaches levels that effectively causes consumers to reduce their overall spending (an economic slowdown), the demand for said commodity begins to decline, which brings the price down. While the commodity was previously soaring to record heights, production increased dramatically while the suppliers rushed to capitalize on the inflated price, thus increasing supply. We then end up in a situation where we have lots of supply, but slowing demand - causing the price of the commodity to fall. As the price declines, speculators unwind their positions, creating even more downward momentum.
This is how it works, and this is how it will continue to work as long as we allow it to - as long as the 'powers that be' continue to support the notion that markets over time, by themselves, will work to correct any and all imbalances. Imbalances that begin with fundamental phenomena - like strong global economic growth forcing the price of oil higher, which creates incentive for investors (and speculators as the case may be) to jump in, creating momentum that feeds on itself. We saw this in technology stocks in the late nineties, then real estate in the early two thousands, and now we seem to be experiencing it in energy.
Will the recent pullback in oil ultimately amount to a 'bursting of the energy bubble', driving prices further down? Or, is it simply a correction in oil's current bull market? Of course, no one, and I mean no one, knows for sure - just a few short weeks ago, when oil was sitting at $140+ per barrel, the majority of the 'experts' on CNBC were predicting $170+ by year's end. While today, pretty much all we're hearing is that the bubble has popped and, for the foreseeable future, prices will settle anywhere from $100 down to $70 per barrel.
As for stocks, at the moment it seems the declining price of oil and a strengthening U.S. dollar have resulted, near term at least, in a positive trend for the market. So have we seen the worst of this now ten month old bear market? Are we at the early stages of the next bull? Or, is it just a bear market rally? Of course no one, and I mean no one, knows for sure - just a few shorts weeks ago, when the Dow was sitting below 11,000, the majority of the 'experts' on CNBC were predicting that the worst was yet to come. While today, not all, but more than a few are telling us that indeed the worst is over, and its blue skies ahead.
Of course, yours truly is never going to make a near-term market prediction, but I will say that I'm not convinced at this point that the bear is done growling. Oh don't get me wrong, I'm sure he will lose his voice sooner or later, and then go into hibernation while the bulls take over. But it would be very normal at this stage of the game to see another "testing of the lows", as they say - particularly since we haven't experienced the "capitulation" that often spells the death of a bear market. Capitulation is what they have termed the big, high volume sell off that tends to occur at the end of a long decline in stocks. It's essentially what happens when the last group of nervous investors (the fence sitters) finally give up the ghost and take their losses - leaving just you and me holding stocks. With no one left to sell, the next orders will be a buys
Last week I passionately expressed my concern over why the concept of a win fall profits tax, on anything, is a very bad idea. Apparently that commentary got your attention. I received some interesting comments - everything from concern over my blood pressure, to rousing applause, to how dare I use my commentary as a political platform. Of course I vehemently deny that I was doing anything more than showing my concern over a policy that I believe would lead us down a very dangerous economic path.
As for this week I'm feeling a little more subdued, but if you'll indulge me, I would like to stay on the oil topic for just another moment.
In a recent commentary, I made the statement that higher prices (of any given commodity) ultimately take care of higher prices. What essentially happens is that when the price of a commodity reaches levels that effectively causes consumers to reduce their overall spending (an economic slowdown), the demand for said commodity begins to decline, which brings the price down. While the commodity was previously soaring to record heights, production increased dramatically while the suppliers rushed to capitalize on the inflated price, thus increasing supply. We then end up in a situation where we have lots of supply, but slowing demand - causing the price of the commodity to fall. As the price declines, speculators unwind their positions, creating even more downward momentum.
This is how it works, and this is how it will continue to work as long as we allow it to - as long as the 'powers that be' continue to support the notion that markets over time, by themselves, will work to correct any and all imbalances. Imbalances that begin with fundamental phenomena - like strong global economic growth forcing the price of oil higher, which creates incentive for investors (and speculators as the case may be) to jump in, creating momentum that feeds on itself. We saw this in technology stocks in the late nineties, then real estate in the early two thousands, and now we seem to be experiencing it in energy.
Will the recent pullback in oil ultimately amount to a 'bursting of the energy bubble', driving prices further down? Or, is it simply a correction in oil's current bull market? Of course, no one, and I mean no one, knows for sure - just a few short weeks ago, when oil was sitting at $140+ per barrel, the majority of the 'experts' on CNBC were predicting $170+ by year's end. While today, pretty much all we're hearing is that the bubble has popped and, for the foreseeable future, prices will settle anywhere from $100 down to $70 per barrel.
As for stocks, at the moment it seems the declining price of oil and a strengthening U.S. dollar have resulted, near term at least, in a positive trend for the market. So have we seen the worst of this now ten month old bear market? Are we at the early stages of the next bull? Or, is it just a bear market rally? Of course no one, and I mean no one, knows for sure - just a few shorts weeks ago, when the Dow was sitting below 11,000, the majority of the 'experts' on CNBC were predicting that the worst was yet to come. While today, not all, but more than a few are telling us that indeed the worst is over, and its blue skies ahead.
Of course, yours truly is never going to make a near-term market prediction, but I will say that I'm not convinced at this point that the bear is done growling. Oh don't get me wrong, I'm sure he will lose his voice sooner or later, and then go into hibernation while the bulls take over. But it would be very normal at this stage of the game to see another "testing of the lows", as they say - particularly since we haven't experienced the "capitulation" that often spells the death of a bear market. Capitulation is what they have termed the big, high volume sell off that tends to occur at the end of a long decline in stocks. It's essentially what happens when the last group of nervous investors (the fence sitters) finally give up the ghost and take their losses - leaving just you and me holding stocks. With no one left to sell, the next orders will be a buys
Monday, September 14, 2009
Beware the Bond
The following is an excerpt from Making Lemonade where I featured a short essay I had written back in May 2004 on what I saw as the then risk of the bond market.Every so often I
Friday, September 11, 2009
If I
Wednesday, September 9, 2009
Tuesday, September 1, 2009
Private Client Commentary - September's rep
Dear Clients,
Last Monday the Dow tumbled 180 points, in spite of some upbeat economic news. So why, if the news was good, did the market take such a hit? Well some
Last Monday the Dow tumbled 180 points, in spite of some upbeat economic news. So why, if the news was good, did the market take such a hit? Well some
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