The Tasgall Group

For this week’s discussion, I bring you two long term charts… (more…)

I’m sure we’ll all be watching the market closely to see how it responds to the “W” formation that Mauldin pointed out as a significant technical indicator of the overall market trend in the near-term.? We’re at the tail end peak of the “W” and thus at a tipping point, according to this technical analysis.? I’m wondering if the increased emphasis of 401K and retirement investments over the last 5 years isn’t creating a larger and more consistent influx of cash into the market that has historically been privy to, thus creating an environment where the market has a tendancy to drift slowly and steadily upward.? I was trying to interpret the Fed Z.1 cash-flow data this weekend with little initial success.? The data is clearly laid out and readable, but there’s just so much of it and so much out of context to something actionable and tradable that it was difficult to get my head around how to use this information to profit from it.? The general increase in consumer debt is worrisome, but less so if the typical consumer isn’t likely to invest in the market anyway, but who’s company is automatically investing for them and their debt is used to buy products and services that are driving the economy further into the black (double benefit).? This may just be the ramblings of a non-economist, but I have to think that positive cash flow into the markets will create a general rise in equity prices.

A topic that I played around with extensively over the weekend is trading sector ETFs on a small scale.? Now I know the general guidance is to avoid trading sector ETFs since there’s a great deal of market forces unbeknownst to many when you get into sector trading.? The general guidance is to stick to major classifications, like large-cap, mid-cap, small-cap, etc. since it’s too risky trying to time buying and selling sectors.? While it’s true that the risk is greater trading sectors, I think there’s a higher chance for profit as well and ETFs present an attractive medium for trading sector ETFs.

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The new Pension Reform Act, known on the street as the 401K law, will obviously cause major downward pressures on manufacturing and airline stocks which will need to divert signifiant resources into their pensions over the next 7 years or more to meet the new requirements. The law will also be a major lift to firms like Fidelity and Vanguard who offer 401K services (however both companies are privately held, so there’s no equity investment opportunity to be had there). The real question is: will the rise in 401K contributions be a major contributor to a future stock market rally? (more…)

From Bloomberg:

Goldman, Wall Street’s most profitable firm, paid employees an average of $521,000 each last year. The firm earned more than either of its biggest rivals, Merrill Lynch & Co. or Morgan Stanley, with half as many employees. Bonuses are typically paid out at the start of the year and vary from about $50,000 for junior analysts to $5 million or more for investment bankers and star traders.

Damn there’s a lot of money sloshing around out there…

Back in a previous post, I linked to a web page that will calculate the odds of a recession based on research by the Federal Reserve.

The inputs for the calculation are the yields for the 10 year bond, 3 month bond, and the Fed Overnight rate.? Unfortunately I’m too lazy to want to go plug those things in regularly, so I threw together a little script that would automatically download the rates and do the calculation for me.? I’ve created a new page on this blog that contains the script:? Recession Calculator.? I have also added the page to my Daily News Briefing.

It’s worth noting that this model does underestimate the real odds of a recession.? Also, all three rates are inverted right now.

Back on July 26 I wrote a quick note about Scottish Re (SCT) emphasizing the amount of cash they held relative to the market cap. Apparently the long downtrend was prescient about the prospects of the company at large. On July 31the stock price went into free-fall when they announced revisions to earnings and the CEO resigned.

The stock quickly dropped from $15 to a low of $3.50. Wow. After about two weeks of recovery it seems to have stabilized in the $6 to $8 range. In my previous post I said “wait for an uptrend” and that seems to have been the right approach — simply buying because of fundamentals would have been the equivalent to trying to catch a falling knife.

It’s also interesting to me to look at the technical indicators on the SCT chart. Having RSI below 30 is typically a sign of being over-sold, where SCT had an RSI below 30 for almost 3 months!

After all the carnage the stock was up 15% on Friday on rumors of a buyout. I don’t think Scottish is an Enron or a WorldCom… it is still a strong company and worth watching for a trend change (assuming they’re not bought outright). I might consider it again if it spends some time consolidating at current prices then breaks out above $8.

Ok, so the definition of maudlin is “drunk enough to be emotionally silly”.? Not sure that really applies to John Mauldin but I couldn’t pass up the obvious similarity between the word and his name.? I’m a sucker for puns.? But my general purpose is served to use some sort of adjective with a negative spin.? Do I have negative thoughts about John Mauldin?? The jury is out.? But I wanted to talk about some interesting data collected about his newsletter that does little to shine a positive light on the man’s market opinions.? (more…)

On the LTCM disaster:

I don’t yet know the balance between whether this was a random event or whether this was negligence on theirs and their creditors’ parts. If a random bolt of lightning hits you when you’re standing in the middle of the field, that feels like a random event. But if your business is to stand in random fields during lightning storms, then you should anticipate, perhaps a little more robustly, the risks you’re taking on.

– Michael Covel (quoting someone else)

Yes, Virginia, you can time the markets. It begs more careful research but this is an interesting read for the more passive investor. You have to be careful about ever-changing cycles and transaction costs etc. but I like the idea that this is based not just on observed correlations but on a logical explanation for the occurance of this correlation.