Headknocker decreed today that all Head Traders start studying some Zen Buddhism, learn to do Yoga and some of those deep breathing exercises while making those strange Far Eastern type sounds. Everybody say "AUM" and now say "HU". Now, in unison, say "Hare Krishna, Hare Krishna, Hare Rama, Hare Rama, Rama Rama, Hare Hare". Now doesn't that make everyone feel better. (LB of course said no but what can you say when the Old Folks start to act strange.) Possibly, a few minutes of silent mediation during the trading day, contemplating the meaning of it all, will improve on the HTs dismal performance over the past two weeks. HK knows that the market is in the crapper, but that is no excuse. It is time to suck it up, or in the Old Geezer's case, just suck it in some. HK asked the LB to put in the Urban Dictionary definition of "suck it up" since some of our readers from foreign lands are not entirely conversant in American slang.
I had some low ball bids for some exchange traded bonds today, and none of them were filled. Generally, all I will be doing in the upcoming days is to catch some exchange traded bonds, or possibly a preferred stock or two, on downdrafts with day limit orders. I will only be buying small odd lots, to conserve capital, and to average down if necessary as I build up a round lot position in those type of securities. I did sell one of my recently added double short ETFs near the close today, EEV. I will use the proceeds from that sell to invest in bonds or preferred stocks.
The movement today in the ^VIX suggests that a Phase 2 Unstable Vix Pattern may be forming and LB maintains that it has formed as of today: Vix Asset Allocation Model Explained Simply LB does not think that it will be anywhere near as bad as the one that formed shortly after the Lehman failure. (starting on 9/29/2008: ^VIX: Historical Prices for VOLATILITY S&P 500)
The RB is not so positive about the formation of what is referred to here at HQ as the catastrophic pattern, and wants to see at least two confirmation days. LB said the VIX Asset Allocation Model was its creation, and that the close today at 45.79, an increase of almost 30% in one day, was the spike into the 40s required for the formation of a Phase 2 Unstable Vix Pattern, particularly given the action over the past three weeks. ^VIX: Historical Prices for VOLATILITY S&P 500
RB just thinks people have become temporarily unhinged, allowing their fears to run amok, and recommends that investors worldwide take some of those chill pills. Go to the beach, soak in some rays, and forget about it, the RB helpfully added. LB said that a year at the beach will not restore individual's confidence in stocks, governments, financial institutions and their s.o.b. Masters of Disaster, and the s.o.b. stock exchanges.
Whatever the classification is attached to the current VIX pattern, I will not be brave and buy stocks until the VIX steadies and starts to show a continuous movement back toward 20. Then, LB will only nibble at large cap dividend paying companies like JNJ and XOM. RB just called the LB a mamma's boy. It is time to embrace volatility to the downside as a friend, not an enemy, RB emphasized with a howl.
As stated in many prior posts, the current VIX pattern is a dangerous one for individual investors who are long stocks. Without a doubt or maybe a small one is conceivable now, my assessment from posts written last September about the rally off the March lows can now be characterized as proven by events. We are still in a long term secular bear market of uncertain duration.more on 1982 or 1974 1974 or 1982: Start of Cyclical Bull in a Long Term Secular Bear Market or the Start of Secular Bull Market? I continue to believe that there will be another two or three years of this choppy up and down action before a long term secular bull market has a chance to start.
Some more recent posts discussing the characterization of the current market can be found in these posts:
The Roller Coaster Ride of the Long Term Secular Bear Market (May 16, 2010)
/Continuation of the Long Term Secular Bear Market Pattern (May 14, 2010)
Item # 2 Problems Brewing for Stocks and Bonds? (April 1, 2010)
Item # 4 Historical Perspective on S & P Gain Since March 2009 (March 29, 2010)
Possibly, the market will gain some footing tomorrow in the event the German parliament approves Germany's participation in the €750 billion rescue plan. German Bailout Vote
The success now of my investment strategy depends on my large number of income investments continuing to pay their distributions since I am always willing to buy securities with cash flow even in the most tumultuous of times. This will prove to be beneficial when and if the sun shines again.
1. Mortgage Delinquencies and Home Prices: Adjusted for seasonal variations, the mortgage bankers association reported on Wednesday that more than 10% of homeowners with mortgages missed at least one payment between January through March 2010. This is a record high.Delinquencies, Foreclosure Starts Increase in Latest MBA National Delinquency Survey The seriously delinquent rate, loans 90 days past due or in foreclosure, was 9.54% of total mortgage loans. What a disaster!
The CoreLogic Home Price Index fell .3% in March from the February number. Since this index peaked in April 2006, the decline in home prices nationwide was 30.5% as of 3/31/2010: CoreLogic Index Notwithstanding some recent declines month-over-month, the CoreLogic home index does show a small year-over-year gain of 1.7% compared to the index level in March 2009. This site has an interactive map that shows state-by-state changes in home prices.
2. Japan GDP: Japan's economy grew 1.2% in the first quarter of 2010, which translates into a 4.9% annualized growth rate. The median forecast was for 5.5% annualized growth. Exports increased 6.9%.
3. AMAT (owned): Applied Materials reported net income of 264 million or 20 cents per share for its fiscal 2nd quarter ending on 5/2. The E.P.S. on an operating basis was 22 cents, one cent better than the consensus forecast. AMAT's SunFab solar line continued to lose money, however, and it remains a problematic part of AMAT's business (see discussion in this Seeking Alpha article).
AMAT forecasts a 3rd quarter E.P.S. in the range of 22 to 26 cents and a revenue range of 2.25 billion to 2.42 billion, both ahead of the consensus estimates before the report of an E.P.S. of 20 cents on revenues of 2.21 billion.
I had a small profit in my AMAT shares. I may sell them on a bounce back, and invest the proceeds in a bond in my ongoing effort to increase my cash flow.
Somehow, however, I am still positive for the year by about 4%.
4. WSJ Article on Problems at Knight Trading and Citadel During the Flash Crash on 5/6: The foregoing linked WSJ article discusses how problems at Knight and Citadel, two firms that handle retail order flow, may have contributed to the problems on May 6th. One interesting point made in the article is that Knight and Citadel pay small amounts to the brokers for order flow. Citadel paid TD Ameritrade on average less than .15 cents a share on average. These firms make money by taking the other side of the trade, which would mean buying the stock elsewhere at a lower price and then selling it to the retail investor for a profit.
I did not realize until I read this story in the WSJ that five stocks traded at a $100,000 on May 6h including Apple and HPQ. Is it possible to have confidence in the exchanges and market makers?
5. Double & Triple Short ETFs: I am well aware of the criticisms leveled at Proshares Double Short ETFs. They do have tracking problems. And Cramer makes a valid point when he blames them for exacerbating market declines, as hedge funds and other speculators can pile on using these products.
I do not like the products due to their tracking issues, but they do give me more bang for the buck as a hedge than a simple short on an index which I am not even set up to do anyway. I use them for a very limited purpose that is primarily psychological. I will try to keep them just for a few days or weeks, sometimes I held onto them in 2008 for a few months. On a day like today, I feel better having a few of them cushioning the devastation. When I sell one, I will use the proceeds as a source of funds to go long on some income generating security. I do not own much, and consequently my small positions in them do not provide much of a hedge given the size of my portfolio and the steepness of the current decline.
I sold the UltraShort MSCI Emerging Markets (EEV) today after it gained about 10%. This will provide me with funds to buy bonds without having to dip yet into the cash stash. I will unload the double shorts in the same way that I acquired them recently, one day at a time. I still have a double shorts on sectors, and two other indexes.
6. Sprint (own senior Sprint Capital bonds in TC form only-GJD and DHM): In the Weekday Trader column in Barrons.com, the author has some favorable comments about Sprint's upcoming launch of the first phone to operate on a 4G network. The phone is called Evo 4G and is scheduled to launch on June 6th.
7. AT & T (own common and TCs JZE and JZJ containing a senior bond): Barrons has a summary of a favorable analyst report on AT & T from Cowan & Co., focusing on AT & T's U-Verse IP, Internet, TV and Phone Service.
8. Unemployment Claims: The market was expecting a drop in the weekly unemployment claims. Instead, the Labor Department reported a seasonally adjusted increase of 25,000 in initial claims. ETA Press Release: Unemployment Insurance Weekly Claims Report The non-seasonally adjusted number showed a small decline.
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