Meme Watch - The Iraqi Effort is Falling Apart

If you watch a broad spectrum of the media news outlets, I really don't know how you can tell WHAT is happening in Iraq. I watch NBC and they have all but written the effort off, acting as if we should be getting out immediately. Then I turn on Fox and actual soldiers are on TV saying that Iraq really isn't that bad. How in the world can you gauge the geopolitical risk?

While listening to a popular radio program the other day, I heard a soldier tell the host that he is 3 times as frightened about Iraq while watching the news media in the US, than he is while he is actually in Iraq. What is that saying? How are we to react to a news media that seems to want to hold us hostage to the lens with which they view the situation?

Is it just politics? Are we merely moving through a political cycle where everything (including the disruption of a nation) is fair game? Would this have worked during World War 2? Could we have fought a World War while obsessing about abuses in one prison camp? How many prison camps were there in World War 2? Do you mean to tell me this is the FIRST time this has happened? I say no. The only thing different is that the media has become ubiquitous. It seems wrong to me.

Not my job to judge here though. My job is to game this. So, as in any game I have to believe that you have to play this AWAY from the major networks. There is clearly a disconnect with their base when they feed this constant slam on the US administration. They forget that Americans always fall back on pride. Telling them that they have nothing to be proud of is a losers game. This will affect their revenues and further decentralize the average viewer. Making them more niche oriented as Cable variety moves in to fill the void (the harbinger of all this being the Fox New Channel).

Short and sweet. Here is how I would play this:

1. Short the networks and their associated stocks. They will loose viewers as alternatives from cable grow stronger. Mis-steps like their current jag only serve to further destabilize their base.
2. Buy cable companies with broadly diversified offerings for subscriber revenue. They will be the benefactor of the major network exodus.
3. Sell Major Advertising concerns. They will be faced with a landscape of smaller "cable savvy competitors as the network loose their clout. Their contracts with the major networks will render them useless.
4. Buy Niche oriented content plays. Buy networks, both interactive and cable video that cater to wide niches of people that have been overlooked by the networks.
5. Do not buy Network Sponsored entities. These are cable and content outlets that are owned by the networks and thus tied to their downward spiral. Buy scalable pure plays.

That is how I would play it.

DISCLAIMER: I own some stock that fit the above categories. However I do not own many and may have positions that contradict the above advice.

Cruelty- The ultimate backhand from the Market

Yesterday was just a cruel day for equities. Just cruel. We started the day up big, held it all day long, only to be sold off to a down 30 on the Dow by the time it was all over. Volume surged in the last hour as well, lending an exclamation point on this market that said "Nope, everyone is still too happy and optimistic for the market to move higher.". For those of us who are long, days like yesterday hold an irony reserved only for fools who try to divine the future.

Another funny thing I'm beginning to observe is the complete lack of reference for the type of movement we are seeing. Well respected writers I follow say things like "Why is this happening? I don't know." or "I have no idea who actually buys and sells these types of moves, but I'm sure glad they are there.". A complete lack of perspective.

Most say it is because Oil continues to make higher highs, the 10 year is now hovering around 4.80, and there is a general lack of urgency coming from the Fed.....Not to mention Iraq. I'm sure it is all of those things, but I'm starting to feel like we need to simply game the psychology and forget about fundamentals. When I get to this point, I always stop and remind myself that I'm not in this to fall folly to that markets whims. I'm in this to grow my investments at a more aggressive pace than a bond or a mutual fund. So I sit back down, take my hands off the keyboard, and stop trading. Which I will not do until some semblance of order comes back to this market. I suspect that the reason we can't break support or surge past resistance is because my view is a popular one.

Trading Track - A glimmer of hope in K-Mart

Ed. Note - We have added the ability to comment on these posts. Please let me know your thoughts! Just click on the comments link below each post, scroll to the bottom of the next page and add a comment! - GJL

Check out the action in K-Mart. Just bursting upward with no restraint. I'm encouraged by this since K-Mart got relentlessly pounded last year for poor management, slow growth, and underperformance in comps. The reason I'm encouraged is that K-Mart seems to be a bottom low enough for investment, and thus starts to show us where stocks need to be valued in order to move up in this market.

I'm sure you are going to stare in disbelief when I write that I'm hoping we go down further. K-Mart is WAY DOWN, and it now has upward momentum. The rest of the market, unfortunately, is not WAY DOWN enough to equal where K-Mart is rebounding. So we continue to drift around, never creating enough down draft to create a sustainable rally. I believe in this ideal fully. Market momentum is perhaps the most powerful thing it can provide us.

Heres hoping for Dow 9000!!! I hope I'm wrong, but without geopolitical catalysts, and without significant changes in business momentum, I'm afraid all we have is market momentum.

Trading Track - Gaming the 1990 Scenario

I'm hearing that traders are starting to compare this market to the 1990 scenario (Post War Daddy Bush's long slide into oblivion). The idea is that we have to price in a complete rollback of the last year to the beginning of the war, because inflation will kill the consumer, and the banks, and everyone is coming along for the ride. It is at times like these when we question the nature of our recovery in the US, and indeed the world.

I've always found that it is best to stop and take a pause at this type of juncture. We have been here before...Recently...From the 1987 crash, to the first Iraqi War, to the Dot Bomb Bubble, to 9/11, to Madrid. You have to look at the world and ask yourself if doomsday is actually around the corner, and make your trading judgments as a result of what you see. Right now I see instability. That is for sure. A geopolitical situation fraught with uncertainty and the ability to spiral out of control at a moment's notice.

I urge you all to see that while we seem to be teetering on the brink of something we all have no clue how to game, we have never actually gone over the brink. Right now the market is pricing in some sort of cataclysmic crush of problems that will seem to actually defeat our economy soundly. This is an extreme sentiment to say the least. The strength of the US business landscape is great enough to overcome this type of crush. The question is, when will the markets decide that they are at a level low enough to stop the onslaught of selling.

Indexes - Not even thinking about this yet.
Bonds - Had some trading activity here. Took advantage of some of the higher yields in the 18 year range, and took down a block of Floaters with good structure. I have a feeling that these trades are going to look even better once we start seeing the fear bid come back into bonds.
Equities - I'm getting shelacked. That's all I can say. I'm almost fully committed with about 3% cash left. If I try to take advantage of lower levels, I will have to start liq'ing down positions. I don't feel comfortable with that, particularly since this is clearly an exercise to wipe out all the bravado that was in the market. I feel like we can ride it out and not liq anything. Yes. I'm getting killed on all plays from raw materials, to the cable plays to the tech, to the advertising. Scaling into oil stocks over the last three weeks has been a buoy and kept the PF from falling. Right now I'm about to take the stance that most of my stocks pay divs and I'm just going to get paid to wait this one out doing no activity at all. Somehow I think that some angles will materialize and Ill start trading around the market again. Nothing right now.

Meme Watch - Rebound and The Election Year Media

Rebound

Watch carefully. There are a lot more signs that the market is bottoming out from this recent sell off. Did I get caught by surprise? Yup. Was I 80% committed at Dow 10,500? Absolutely. Do I have average downs the whole way back through 10,000. Most definitely.

Why? Because the sell pressure is subsiding. Things just cant go down much further without taking out stops that will bring us to Dow 8500. No one thinks we are going back there with an earnings picture like we have, and with economic indicators coming in the way they are. Even Inflation seems to be capped with a Fed number of about 2.5 to 3. That says we have a floor, and a top. A range that we are at the bottom of.

I know. I'm a bull. I can't help it. Believe me, two years ago, I was holding dividend paying stock only and not trusting market action at all. I guess you could say that I traded my way through the bad, and this is nothing compared to the market in 2001 and 2002. Back then we had to trade against abysmal earnings, and even worse economic numbers.

The Election Year Media

This can not be discounted the way everyone seems to be going along with it. Lets face it, the main media outlets are gunning for Bush. They report all of the bad and let the good bubble up every once and a while. Is it our fault? They seem to think that we WANT to hear this scandalous stuff. When I talk to people and read the blogs I read, I don't see that. I see people who want to have pride in their country as we are under siege and turn away from news that makes us feel shame. That's all I hear from the news outlets. Shame on the military, shame on Bush, shame on Rumsfeld, shame on the greedy CEOs, and on and on and on and on.

They are either working for the terrorists, or they want to change the political picture. Since Tom Brokaw wouldn't be able to survive in a cave without his "product", I have to believe that they are trying to affect politics. That is manipulation, and we have to turn away from it. Yet the markets seem to want to react to it. The trader in me KNOWS I have to game it that way, but the citizen in me, the US citizen who has invested in both the economic, municipal, and political landscape wants to expose it and bring it down. I have a feeling that it is going to have to be a little of both for me for now.

Trading Track - What more is there to say?

Many of you have emailed me wondering about my thoughts with this market. I haven't posted because I don't think anything has changed since my last post. We are getting the thing that I always knew we would have to face, the interest rate motivated selloff. The knee jerk reaction that most traders get when faced with a new interest rate environment. I was expecting it AFTER the Fed started to tighten, but I have to say I'm glad we are getting it out of the way. I know, this is exceptionally painful for the longs out there (of which I am now fully 100% a member of).

The nice thing about this move down is that we are wringing out a lot of the weak hands involved in the last run up. Many of whom were wondering if they should sell weeks ago, now see themselves at breakeven or a little worse and just capitulating. They have now had enough pain and want to make it stop.

I believe that this sets us up for a big run north after all the capitulation is done. But then again, I've been saying that for two weeks now (thus the lack of posting). Here is the fundamental thesis that works the same way that saying the jobs numbers were wrong when everything else was pointing to a better economy. This is economy is now solidly growing and expanding. This is something that was not present when we crashed so hard in 2000. Everything looked like it was behind us then. Now everything is in front of us and we have the economic engine to participate. People may be selling, but it sure isn't because business is bad. That is flawed logic, and I have to buy that.

Meme Watch - Inflation - Again

I'm getting very concerned about the future for growth in the stock market. Although a healthy dose of human nature should cure the condition, I feel like once interest rates ACTUALLY start rising, everyone is going to loose their heads. We have not even had ONE FED TIGHTENING, and everyone is acting like this is the end of things for stocks. What happens when things actually start going up and stay up? Its like watching a junkie wean off crack.

How do we play this? I've got some good sized bets on raw materials, cable, tech, and ad spending for medium term turns in stocks, and I'm starting to nibble at some bonds again. As yields perk up, there are some good deals in the "slightly under 20 year" range in munis so I picked some up yesterday with some new dollars from the stock PF. So, in a word, this next stretch in the market is going to be selective stock picking and a migration to better yields.

Trading Track - Uneasy relief

I really don't like what the general markets meme likes these days. I ask myself all they time why I feel different about it but I cant seem to work it through. Yesterday, the Fed came out and said that they were not raising right now, but that that they may act soon and in small "measured" levels. Meaning they would start tightening in .25 or .50 bp moves over a protracted period of time. The markets liked this because, while they don't like higher rates, they favor a slow, inch by inch approach.

I continue to wonder why the market feels this way. I wonder why we are paying attention at all until the fec gets to 2.5 or 3!!! That would put us in the mid range. For those of you counting, that would mean the Fed will need to do FOUR tightenings at .50 or EIGHT tightenings at .25! Eight tightenings would last two years using this approach. Even THEN we would still only be at a nominal FF rate. I don't think that the world is going to wait this long and the forces of inflation will creep up on the Fed and overwhelm it.

This says two things to me....Change the stock strategy, and wait for higher rates because they are right around the corner. Inflation isn't in check folks, and just because the government says that food, gas and general services costs are not part of inflation doesn't mean that the consumer doesn't get hit.

So....

Indexes - Still dormant here. Cant game a 10,000 to 11,000 range on the Dow when you are in the middle of it.

Individual Stock - Commodity recovery seems to be taking on some steam. Steep recovery in PD and a slight one in AA. CHRT getting hit but I remain steady on it and am looking to buy more at 3.5 if I get the chance. CMCSA recovering nicely after they dropped the Disney bid. About to go positive on CMCSA. Nice gain and holding in Estee Lauder. Going to liq it soon. EMC still down but inching back. Jury is still out on this one.

Bonds - Had a setback on a new CMO I was purchasing, had to bust the trade. Now have more FX cash than I'd like. Trying to hold out for a nice 5% muni. Going to wait as long as I can before the income picture starts to bother me. Gave up on trying to do a Treasury. Rather buy a muni instead.

Meme Watch - America is bad

First off, I believe in America and the American way of doing things. I'm a free markets kind of guy and would be pleased if absolutely EVERYTHING was open to a free and open marketplace. In this meme-watch, Id like to examine the prevalent, recurring meme (as opposed to a single, fading meme) that America, on a global scale equals domination, corruption and greed. This meme is affecting our markets in the terrorism/fear bid that surfaces in safe havens at the slight hint of geopolitical discord. Therefore it is important to develop a thesis about the meme and apply it to our trading methodology.

Here is what I feel the big secret is about "The America is Bad" meme. I always ask myself the question "As opposed to what?"......As opposed to Saddam? Nope. As opposed to the EU? The ever-capitulating, ever transient polices of the EU? Nope. As opposed to the Spanish Socialists? I'm not even going to answer that. As opposed to Putin? I think he has his own issues. America isn't bad, America is a mirror. America lets you see what happens under the covers whether you like it or not......And here is the big pitch, the big irony of this whole meme......It goes on EVERYWHERE, all the time, in all forms of badness. No one is immune, no country rules or governs better than the other....It is all messy, ugly, and insults the sensibilities. America is the ultimate victim of its' freedom. BUT THAT DOES NOT MAKE IT BAD.

This is why when we get these panic selloffs because of this meme, we should buy the weakness with both hands. Because the reality of it is, while we may seem bad for the moment, most realists examine the situation and realize that there isn't anything better than American freedom, which is why even though selloffs are bleak and the bears wring their hands. Dollars ultimately come back to the American markets. Always have, and always will until there is a better form of freedom. I wont hold my breath, and neither should you.