The Tasgall Group

Here’s a run down of the bullet points that make me think the US equities market is headed for a 10% or greater correction: (more…)

John Hussman has a good article on jokes and how investors are following the wrong story line. He argues that “stagflation” is now present in the economy and it’s going to take a while for everyone to realize it.

Hussman’s analysis is insightful… when the consensus changes (like he’s arguing it will) that changes the way the markets behave, react to news, etc.

“The stock market is there only as a reference point to see if anybody is offering to do anything foolish. When we invest in stocks, we invest in businesses. You simply have to behave according to what is rational rather than according to what is fashionable.”

“You don?t know who?s swimming naked until the tide goes out.”

“…holding cash is uncomfortable, but not as uncomfortable as doing something stupid.”

There are many more if you like reading pages full of quotes.

So there is talk of removing some or all tax on gas now that prices are getting high again.? Sounds reasonable enough: lower taxes and gas is magically cheaper.? Assuming for the moment that the US doesn’t rely on this revenue, why should be pay all of this extra money on top of the true value of gasoline?? Simple math states that $3 – $1 = $2.

But for the life of me, I can’t get that answer from my trusty Econo-Calc 3000.? Every time I punch in $3 – $1, I get…$3.? WTF!?? Well, when technology fails, go back to good ol’ pen and paper.? Where’s a good envelope when you need one?? Ah, here’s one.

Scene: Somewhere on the back of an envelope. (more…)

It’s probably too soon to post this, but if I wait to finish my other REIT post then the moment will pass. REIT’s peaked this week and I sold 50% of my REIT holdings on 8/9 (my Tasgall post on the 10th covered this decision). Since then REIT’s have been really hammered and are starting to go what will be a correction at best and a “recession” in the REITs at worst. Their 4+ year run up that at least doubled the REIT market’s value (while halving it’s yield) is likely at an end. I believe that it lasted almost a year longer than it should have. Last Sept I halved my REIT position after things looked just as bad as they do today, only to see things get startlingly better by Dec, so I beefed my position back up again. Now, things are just turning south and I believe that they will continue to do so.

My recent 50% sale was based on the belief that I am right about REITs, and the 50% that I’m still holding is based on the fact that I’m still unaware of all the factors that influence REITs. Plus, it’s nice to have some REITs mixed into my asset allocation and I’ll be purchasing more REITs via dollar-cost-averaging over the next several months to slowly buy back up on the way down. I still like REITs for the long term, but right now they have hit a very rough patch.

It was obvious when Enron went bankrupt in December 2001 that it’s stock was to be avoided.? It wasn’t just because of the details of the scandal, but because Enron didn’t really have much in the way of assets.? Enron sold it’s ideas, it’s concepts, it’s people.

When WorldCom went bankrupt 6 months later due to their spectacular scandals, the stock price plummetted to pennies per share.? After the company entered into Chapter 11, I was fascinated that the stock was still active and actively traded as a penny stock for weeks.? When a few weeks went by with no indication that the stock was going to be delisted, I was influenced by various naive things that I read online that the stock still had value thanks to WorldCom’s extensive assets and MCI division. (more…)

After this morning’s news about a foiled terrorist plot, one would certainly expect some spasmodic behavior in the markets.? When I looked just now, I was surprised at what I found…

• Crude oil down 2.8%
• Unleaded gas down 5.2%
• Gold down 2%
• Gold stocks down 2.2%

Not so surprising, the airline stocks are down, but not by much (down less than 2% each).

I’m not a big believer in one-day price moves based on news, but the weakness in these commodities makes me wonder what is behind the moves.? My guess is that some speculative money wanted to take profits in these areas and re-deploy their capital based on today’s news? Maybe just people scaling back speculative positions to see what happens over the next few days?

An important point, philosophy, or whatever is the fact that “the market” is not efficient.

This flies in the face of much academic theory stating that the markets are efficient, and that one assumption is the basis for much of the modern portfolio theory (MPT) and capital asset pricing model (CAPM). That one assumption is why these are both flawed theories (even nobel winners can be flawed).

The market (and in this way I refer to markets in general, not just the equity markets) is not efficient, it is instead an efficiency process. This is important, as it explains why any of us can take above average profits out of the market over the long term. (The average profits would be dictated by the growth of the economy.)

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It seems like everything I’ve read in the last couple days has focused on whether or not the Fed will raise rates or pause at Tuesday’s meeting. Will Helicopter Ben show up, or the Inflation Targeter that he more tended to portray while in academia. The rate futures have a 25% probability of a hike in August, and about 50/50 for September.

There is the added dimension of what commentary accompanies the actual interest rate. If they raise rates but say, “this is the last one” many people will be excited. If they don’t raise rates but say, “we’re definately raising rates in September” excitement will be mixed… (more…)

While the mainstream press will attribute any and all single-day price changes in the market at large to the prevailing news that day, most of the time the news is not actually that significant in moving the markets.

And then there is the exception. Today, “oil jumped above $77 a barrel after BP began shutting down the biggest oilfield in the United States. The UK oil giant acted after discovering a damaged pipeline at Alaksa’s Prudhoe Bay.” (Reuters)

The $1.85 per barrel constitutes a 3% move before 7am… Total output from Prudhoe is just less than 1 million barrels per day, so if the entire production is shut down, that’s significant in terms of worldwide supply.