Looking At The Big Picture

Ulli Uncategorized Contact

It’s easy to get caught up in the day-to-day news barrage and meaningless market fluctuations on Wall Street. Additionally, endless discussions as to whether we have hit a permanent bottom or not add to the confusion.

My point has always been that it’s far more important to focus on the bigger picture, which is why I look at major trends via my Trend Tracking Indexes and not minor ones, which may serve the day trader but not the long term investor.

Sometimes it is useful to look at current market activity in historical context to see if there are any parallels to give us some indication as to what might be in store in terms of market direction. Calculated Risk pointed to an excellent chart, which was first featured at dshort.com.

Take a look (double click to enlarge):



It shows the drops of the worst four bear markets in history. What immediately caught my attention was the fact how similar the Crash of 1929 was (left arrow) compared to this year’s drop of the S&P; 500 (right arrow).

Even though the measurement of the 1929 bear was done via the Dow Jones, while this year’s data represent the S&P; 500, there are uncanny parallels. I can now see where many forecasters have come up with the fact that we possibly could be in a bull market for a year or so, before the bottom slowly and surely drops out again in a similar fashion like in the 1929 crash. This is most likely were predictions of a low for the S&P; 500 of 450 to 650 have come from.

I have no idea, if the markets will play out a similar scenario as in 1929 although current economic conditions clearly support that possibility. However, I am sure of one thing. Many investors will be drawn back into the market if the bullish trend continues for some time. The assumption will be that happy times are here again and maybe they will be.

My view is that far more downside risk remains. However, by the time bearish tendencies become obvious to the public, the lessons of 2008 will be long forgotten, and most buy-and-hold investors will again take another serious portfolio hit as the markets slowly deteriorate.

As time goes on, I will review this chart occasionally to see if the similarities continue or if we in fact challenge history with a new bull market.

No Load Fund/ETF Tracker updated through 12/18/2008

Ulli Uncategorized Contact

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

Despite a celebratory rally, caused by the lowest interest rates ever, the major indexes made no noticeable headway this week.

Our Trend Tracking Index (TTI) for domestic funds/ETFs remains below its trend line (red) by -8.51% thereby confirming the current bear market trend.



The international index now remains -21.01% below its own trend line, keeping us on the sidelines.

For more details, and the latest market commentary, as well as the updated No load Fund/ETF StatSheet, please see the above link.

Who’s Responsible?

Ulli Uncategorized Contact

Many readers have complained about the poor handling of the credit crisis by the government along with the bailout orgy involving many industries at tax payer’s expense.

Who is really at fault for the problems that plague this country? To get closer to the truth, the following was sent in by a reader referencing an article written by Charlie Reese, a former columnist for the Orlando Sentinel Newspaper (sorry, no link):

Politicians are the only people in the world who create problems and then campaign against them.

Have you ever wondered why, if both the Democrats and the Republicans are against deficits, we have deficits?

Have you ever wondered why, if all the politicians are against inflation and high taxes, we have inflation and high taxes?

You and I don’t propose a federal budget. The president does.

You and I don’t have the Constitutional authority to vote on appropriations.

The House of Representatives does.

You and I don’t write the tax code, Congress does.

You and I don’t set fiscal policy, Congress does.

You and I don’t control monetary policy, the Federal Reserve Bank does.

One hundred senators, 435 congressmen, one president, and nine Supreme Court justices 545 human beings out of the 300 million are directly, legally, morally, and individually responsible for the domestic problems that plague this country.

I excluded the members of the Federal Reserve Board because that problem was created by the Congress. In 1913, Congress delegated its Constitutional duty to provide a sound currency to a federally chartered, but private, central bank.

I excluded all the special interests and lobbyists for a sound reason. They have no legal authority. They have no ability to coerce a senator, a congressman, or a president to do one cotton-picking thing. I don’t care if they offer a politician $1 million dollars in cash. The politician has the power to accept or reject it. No matter what the lobbyist promises, it is the legislator’s responsibility to determine how he votes.

Those 545 human beings spend much of their energy convincing you that what they did is not their fault. They cooperate in this common con regardless of party.

What separates a politician from a normal human being is an excessive amount of gall. No normal human being would have the gall of a Speaker, who stood up and criticized the President for creating deficits. The president can only propose a budget. He cannot force the Congress to accept it.

The Constitution, which is the supreme law of the land, gives sole responsibility to the House of Representatives for originating and approving appropriations and taxes. Who is the speaker of the House? She is the leader of the majority party. She and fellow House members, not the president, can approve any budget they want. If the president vetoes it, they can pass it over his veto if they agree to.

It seems inconceivable to me that a nation of 300 million can not replace 545 people who stand convicted — by present facts — of incompetence and irresponsibility. I can’t think of a single domestic problem that is not traceable directly to those 545 people. When you fully grasp the plain truth that 545 people exercise the power of the federal government, then it must follow that what exists is what they want to exist.

If the tax code is unfair, it’s because they want it unfair.

If the budget is in the red, it’s because they want it in the red.

If the Marines are in IRAQ , it’s because they want them in IRAQ .

If they do not receive social security but are on a n elite retirement plan not available to the people, it’s because they want it that way.

There are no insoluble government problems.

Do not let these 545 people shift the blame to bureaucrats, whom they hire and whose jobs they can abolish; to lobbyists, whose gifts and advice they can reject; to regulators, to whom they give the power to regulate and from whom they can take this power. Above all, do not let them con you into the belief that there exist disembodied mystical forces like ‘the economy,’ ‘inflation,’ or ‘politics’ that prevent them from doing what they take an oath to do.

Those 545 people, and they alone, are responsible.

They, and they alone, have the power.

They, and they alone, should be held accountable 100% by the people who are their bosses provided the voters have the gumption to manage their own employees.

We should vote all of them out of office and clean up their mess!

It’s hard to argue with his viewpoints; however, I would add that changes will never happen because I don’t see any way where you could get 545 people to agree on anything. Even if they were all replaced, pretty soon we would be back to business as usual.

Reaching ZIRP

Ulli Uncategorized Contact

Even though it might have been the worst kept secret of the year, The Federal Reserve, in an unprecedented move, set its key interest rates at 0% to 0.25%—the lowest level in history.

This makes the U.S. the first country to actually implement ZIRP (Zero Interest Rate Policy). Surely, others will follow as the global recession deepens. Like a drunken sailor, the stock market took ZIRP as a confirmation that this is a good thing and rallied to higher levels. Never mind, that this desperate move by the Fed signals that, economically speaking, the worst is far from being over.

Additionally, the central bank said that they would pump more cash into the economy, a process that is called quantitative easing. The money spigots are now wide open in an attempt to stimulate growth and find a floor for the housing market. Only time will tell if this approach will have the desire effects. If mortgage rates follow suit and take a steep drop as well, you might see a flood of new refinancing applications and qualified buyers taking stabs at buying real estate.

Nobody can be sure about the outcome because we are in un-chartered territory. As I said before, short-term the market trend is up; long-term we are still in bearish territory by -9.38% according to my Domestic Trend Tracking Index (TTI).

We have now been out of the market since our last sell signal was generated on 6/23/08, a date from which the S&P; 500 has now dropped over 30%. Having avoided this haircut affords us now the luxury of not having to desperately participate in bottom fishing to attempt to make up losses. We are in now in the enviable position of being able to wait until a major trend reversal has occurred before returning to equities.

Spam Issues

Ulli Uncategorized Contact

Technology is wonderful but, unfortunately, not always perfect. After installing a new spam filter, I noticed that most of my messages were automatically moved to the Junk email folder rather than into my Inbox.

If you’ve emailed me sometime within the last week and did not get a response, I most likely did not get your email. That would also apply to blog comments.

The problem seems to have been resolved, so please re-send your messages.