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From: Robert A. Christy
Editor/Publisher, ‘The Intelligent Trader’
http://www.intelligent-trader.com
http://www.christyinvestments.com
Date: September 21, 2008
This weeks’ ‘Long and Short of It’
Bullish Percent numbers:
BPNYSE Xs @ 52% OFFENSE
BPOTC Os @ 36% DEFENSE
BPSP500 Xs @ 52% OFFENSE
Last week was one of the most stressful that I have ever lived through.
The Wall Street Journal says that one great lesson of past panics is
that they need not become crashes. The best choices for resolving the
crisis today are the same ones that would have worked 13 months ago. The
best choices are: (1) an energetic emergency plumbing effort to protect
our financial system; (2) a steady monetary policy to defend the dollar;
and (3) a tax cut to spur growth. Note to politicians: this kind of
agenda and the courage to enact it, is the stuff that wins people
elections.
As to the specifics, the Dow Jones finished just down 33.55 points for
the week. At first glance, no big deal, but the fact that we had 4 days
of 350 point moves (2 up and 2 down) serves up some Maalox moments. The
Nasdaq and the S&P 500 were in the same boat.
Short Selling
The short sellers have their drawers in a bunch because the powers to be
want to change the rules. Talking heads were clamoring about this is
good for all concerned. Jim Cramer, talking the loudest, was crowing
about how the shorts are wrecking the system. Note: Cramer forgets just
how much short selling has contributed to his multi-million dollar net
worth. Good for the goose, but not the gander.
Gold
The yellow stuff had a big week. Its role as a safe haven was
overwhelmed by a storm surge flight to safety. Problems here and in
Russia served to send notice that in the worst of times, gold is the
place to be.
Oil
About the only to say about oil is – caveat emptor. Speculators were
blamed for the run up to $147 and nobody is saying a word about the fall
to under $100 this past week. I’ve been surveying the wreckage and it’s
pretty ugly. Remember – in the cash and futures markets, for every
seller you have a buyer. Some people have made a bundle, some people
will never recover. What I find engaging is that the firms who are
supposed to hedge are the ones who are hurting the most. They did not
unwind the positions for fear that they price would spike again. Sad but
very true.
So what’s next for the bubbling crude? Some say that the price could
fall as far as $75 if the global economy slumps further. Others say the
price will rise once supply and demand gets back into balance. My guess
is that oil should be in the ball park of $110-$115 over the course of
2009. My rationale: (1) a demand rebound in China now that the Olympics
are over, (2) stronger demand here in the US because of lower prices,
(3) most of the oil we are using right now is coming out of reserves
because of Hurricane Gustav and Ike. These have to be replaced, and (4)
worldwide demand will put pressure on capacity forcing the prices
higher.
I am a long term bull on oil and oil service companies. During this
crunch, I didn’t really flinch when the prices got whacked. I kept the
positions steady and plan to add more as soon as the market settles. Oil
is going to be in the news for the next few years and most of the news
is not going to be good.
Long Term Capital
Last week reminded me a lot of the calamities surrounding the LTCM
meltdown ten years ago. You’d think people would learn that it isn’t
nice to play with pixie dust when it comes to gaming the market. John
Meriwether, trader extraordinaire, and his Nobel Prize toting partners
brought up to the brink using esoteric instruments and gobs of leverage.
Some things never change. The same stuff crushed the market this time
around and has Meriwether learned anything? Not a lick – it’s reported
that his current fund is down about a billion give or take. (He’s down
about 26% for the year and his clients are pretty ticked off)
Queen Nancy
Just before she closed the session that Congress was in, she woke up to
the fact that we actually had a crisis in the land. After blaming the
administration, she said that, “we are committed to quick, bipartisan
action”. Harry Reid said that he intends to move “heaven and earth” to
get a bill done. What we don’t need is more government intervention.
History will reflect that it was government intervention that created
this whole mess. The bottom line is that we can look for a new
government authority that will be empowered to buy just about all of the
bad securities and loans on the books of our financial institutions.
Talk about a free pass at the tax payers expense. I’ll say here and now
that this is going to create another fiasco down the road. Because Wall
Street has just been given a license to take on as much risk as they can
stomach and they have absolutely no worries about the downside because
the precedent for a bailout has been set in stone.
The Week Ahead
I have no idea what is going to happen next. The Dow Jones gets a new
name on Monday as Kraft rejoins the average. So we’ll have a bit of a
juggle as index funds make the adjustment. The indicators are telling us
that we are back on Offense. I’m taking this with a grain of salt until
the dust settles a bit. The talking heads were calling for a bottom, but
there is no such thing as a “V” bottom. I don’t see anyone rushing head
long into the foray except fools. I took a small long position last week
in Research and Motion (I bought a few call options) and a small short
position on the Naz (QQQQ). Both are short term trades and nothing more.
I am trying to use the volatility to bank a few small profits.
Post Mortem
I don’t know when or where this mess is going to end. A year ago, I said
that this was worse than anyone could imagine. I took some serious heat
for that comment, and not surprisingly from people who worked for firms
that no longer exist. I hate it when people get hurt especially when you
can pull back the curtain and see the crap that goes on. I just wished,
the trucks would pull up out in the Hamptons and take away a few of
their toys.
This crisis will pass just like all the others. We’re beaten up not
broken. Until Wall Street pays for their greed and avarice, they have no
reason to change their stripes. I just wish some of the people who
created this mess would feel at least a little of the pain.
That’s about it for now. Let me here from you if you have any questions.
Robert Christy
The Intelligent Trader
P.S. Are you interested in trading along side me? There are 2 ways to do
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P.S.S. Please fee free to forward this to your peers, friends and
associates you think would benefit from its contents. They will thank
you for it - and so will I!
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Robert Christy is a professional stock trader, money manager, author and
speaker. Mr. Christy is the President CEO of Christy Investment Group,
Ltd., a registered investment advisory firm. He is also the Managing
Partner and Portfolio Manager of Crabapple Capital Group, LLC and the
editor/publisher of The Intelligent Trader, a subscription based
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from time to time write about stocks in which he, Christy Investment
Group Ltd, Crabapple Capital Group, LLC or The Intelligent Trader has a
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Robert Christy
The Intelligent Trader
c/o The Christy Investment Group
P.O. Box 625
Alpharetta, GA 30009-0625
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