Bill Fleckenstein had some interesting thoughts in his piece titled “Our housing-bubble hangover.” Here are some highlights:
The market has been bouncing around on misplaced hopes that the Federal Reserve will somehow save the day. Beyond the din, it’s important to focus on one overarching fact: The fundamental problem in our country is the aftermath of the housing bubble.
We’ll be dealing with it for some time. That’s because the math doesn’t work — in terms of the average person trying to buy the average house. And it’s not likely the math will improve, via lower mortgage rates, given our inflation rate and given where yields will probably go.
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Meanwhile, as the financial system continues to reel, there has been no shortage of ink spilled on the recent proposal by Treasury Secretary Henry Paulson to “overhaul” the financial system and give the Fed greater regulatory powers.
It’s slightly ironic that we would consider putting the fox in charge of guarding the henhouse. The Fed was sound asleep as all these problems developed. Of course, many of them sprung from the Fed’s ill-fated attempts to pick the right interest rates in the first place.
Roger Lowenstein got it exactly right in a recent New York Times story called “Bleakonomics”: “The formula of laissez faire in advance and intervention in the aftermath has it exactly wrong.”
We don’t need more regulation to solve the financial system’s problems. What we need is enforcement of the rules and laws already on the books. Had that occurred and had the Fed not pursued its practice of setting interest rates too low, this debacle could never have reached the mammoth size it did. But we are where we are: staring down a recession that intervention will not silence.
While this is a good analysis, we can’t ignore that fact that the market has a mind of its own and rarely acts in a way that is expected or pleases most investors. Given all the negative economic news of last week, including UBS’s $19 billion write-down, the market averages ‘should be’ down, but they’re not, and we find ourselves within shouting distance of a domestic buy signal.
This is why continue to advocate getting away from trying to analyze facts and opine about them as opposed to simply following price trends.
With that in mind, we got stopped out of our gold position last week. Other asset classes have rallied strongly above their respective trend lines issuing a buy of their own. Today, we added a small holding in Latin America and in an Intermediate-term bond ETF.
If the market holds at these levels, I suspect that we will get more buy signals in other areas as well, probably before our domestic buy is generated. We will ease our way carefully into those areas with upward momentum by using only a small exposure and adding to it once the trend has been confirmed.
As of yesterday, our Trend Tracking Indexes (TTIs) retreated slightly and are positioned as follows:
Domestic TTI: +1.13%
International TTI: -3.07%
Comments 2
Ulli;
Yesterday you wrote, “Other asset classes have rallied strongly above their respective trend lines issuing a buy of their own. Today, we added a small holding in Latin America and in an Intermediate-term bond ETF.”
This seems in conflict with your advise to follow the TTIs before buying. Yesterday, International TTI was a -3.07%
Please advise, thanks!
You brought up a good point. Please see my detailed explanation in tomorrow’s post.
Ulli…