The Tasgall Group

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…)

I came across the StockCharts.com Market Summary page and have added it to my Daily News Briefing so that I review it on a daily basis.

The market summary page lists out a lot of information on one page. The different sectiosn include the major markets, major indices, sector ETFs, industry indices, international ETFs, world markets, bonds, commodities (gold, oil, and commodity indexes), currencies, market breadth, and bullish percent indicators.

You can also see this in a “market carpet” format, but I think I prefer the summary page as the carpet doesn’t add any value by spatially organizing the different segments. The market carpet does have some nice features… being able to click and see a 2 month graph is a nice feature of the market carpet that you may find useful, and being able to see market strength across all sectors at once is nice.

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.

One area that I’ve always thought was under-represented was closed-end funds (CEFs). Most people know mutual funds and invest in them, primarily because they can buy mutual funds without incurring commissions (a pretty good reason when you’re investing with every paycheck). (more…)

I just read a blog post at underthecounter (which references a NY Post article) that describes a hedge fund called MotherRock blowing up and losing “almost all of $450 m” after being in business for only two years.

Wow, that’s quite a failure, and fairly foreseeable. They didn’t seem to understand managing their risk and didn’t really care about the potential to lose it all.

This reminds me of some discussion of what it takes to win trading contests… a blatant disregard for risk management, luck, and very aggressive / speculative positions. It’s like these managers thought they were playing a game instead of actually trying to manage real money. After all, who decides on a Hail Mary play when you still have real money that you could return to your investors?

The good news? Trading is a zero sum game. These guys are the other side of the equation from you and I. If they’re making such big mistakes, that means there are still opportunities for us.

It seems as though everyone is pointing to one thing or another and finding imbalances. Austrians and Keynesians fight it out as to what is right.

Schumpeter argued that economic recoveries that are largely a consequence of fiscal and monetary stimulus must ultimately fail. Schumpeter writes:

Our analysis leads us to believe that recovery is sound only if it does come from itself. For any revival which is merely due to artificial stimulus leaves part of the work of depression undone and adds, to an undigested remnant of maladjustments, new maladjustments of its own.

I ponder this quote when I think about how the Fed aggressively lowered rates after the 2000 Nasdaq bubble burst… and how the housing “bubble” immediately formed.

When I go down this path, my main question is, “What’s Next?” So if the Fed, in it’s bubble management role is trying to slow the housing market and create a soft-landing, what maladjustment will that market manipulation produce?

Time to check in with our density theory again.? Today was significant because the S&P 500 reached the top of the value range it has been trading in for a while, pierced it and then faded back down.? So what does the density concept tell us is the most likely event?? Probably a return to the middle of the bell curve that prices have painted recently.? This is around 1256.? The most popular price recently however is more around 1270 and could provide early support or a launching pad if the bulls can win.

What today has done is bring us to an inflection point.? Price has already made many moves back and forth across the face of the bell curve so it may be getting exhausted and need a breakout to new value.? It seems likely that the market will wait for Bernanke first though.? My personal feeling (not worth much) is that a raise is more likely than people think and, even if it isn’t, the pause concept is probably already priced in.? That would lend some credit to the idea that it might return to “center ice” to await the announcement.? I would venture to guess that uncertainty leads to a retreat to old value while certainty leads to a move to new value.? So I’d assign a good probability right now to a move down to 1256 or so.? If it is to do that by the time of the Fed announcement though it would require a pretty quick drop.? That’s why 1270 may be a better catch-all goal and would be perfectly reachable by the FOMC meeting.? Either way, down is the word because old value is currently below the market.

If price does break up to new value, that is probably going to be around 1306.? A break of today’s high would be a pretty bold statement and should mean the bell is finally broken or at least expanding upwards.

Now we can only wait and see…

I commented a while back on the fact that we need more asset classes when defining our asset allocations. A lot of people think that it’s enough just to divide your investments between stocks and bonds. I think the world has come a long way since the original research was done when those were the only two classes of investment.

I’d include the following asset classes in my allocation strategies:

• US Stocks
• US Bonds
• International Stocks
• Inetrnational Bonds
• Real Estate or REITs
• Commodities
• Gold and Precious Metals
• Timber
• Cash

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Well, on Monday I started trading the Uberman’s Portfolio with real money.? The yield is 10.99% at the current leverage.? I made this move after a month of forward trading (24/7 exposure)?and then completing 3 years of backtesting.? They both confirmed the theory that the porfolio does indeed stay tied to the “index” of the interest rate yield.? Random indexes of currencies did not do this.? This has given me the confidence (and data for position sizing) I need to dip my toe in the water.

Hopefully, this will be exactly what I meant about having an approach that allows you to benchmark your performance.?? By knowing that the portfolio is mathmatically driven to “stay in the lines” as best as possible and the road is mapped out ahead of time (the yield), then I have more confidence about the results and what they mean.? If after a year the return is close to the yield and walked the line the whole way, I can be reasonably sure?that the results were not luck but a result of the model at work.? I know that theory by confirmation isn’t the best form of proof, but in trading that may be all we get.

In case you guys haven’t heard about them, Everbank has some interesting CDs available under the names MarketSafe, MetalsSelect, and WorldCurrency.

The theory is that you buy their special CDs and Everbank, and you get a 3 year CD that is tied to the performance of an index. If the index ends the 3 years below a pre-set threshhold, you get your principal back. If the index ends above the threshhold, you get your principal back plus some percentage return based on how much the index was over the threshhold.

The CDs includes indexes based on the price of Gold, Commodities, Oil, currencies (Euro, India, Iceland, Hong Kong, etc.). I think the offering for several of the CDs expires August 22, so if you’re interested do your homework quickly. (more…)