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Issue for ...
November 26, 2008
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WHY THE INSTITUTE? MAYBE BECAUSE YOU...
* Still work at a J.O.B.? (Just Over Broke.)
* Got drunk and hired a financial planner?
* Aren't getting enough pips? (what's a pip?)
* Got too much month left at the end of your money?
* Got so much debt you're thinking of selling it on Ebay?
* Feel like they threw a prosperity party and you weren't invited?
* Need some solid education and support from some very nice people?
···················· Advertisement ····················
LENDER WINDOW CLOSES IN FOUR DAYS
Until November 30,2008 lenders wishing to participate in the launch of the
Liberty Private Placement Fund, L.P. can contract to receive back TEN TIMES
the amount of their venture capital loan. Interested parties write to gordon@higherearning.com.
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Dear Friend,
The Worst Is Yet To Come... And I Can't Wait!
The buy/sell ratio -- i.e., the ratio of those buying to those selling
stocks each day -- is deeply oversold anytime it goes below .20, which is
when you can start looking for a rally.
One week ago the buy/sell ratio was more oversold that at any time since
record keeping began. It stood at .02, or TEN TIMES LOWER than .20, and had
been stuck there for weeks.
It was so low, in fact, that any meaningful interpretation of technical
indicators had become virtually useless. You could have brought in Jeane
Dixon with a dowsing rod and even she couldn't have told when this market
was going to head back up.
But head back up it did. Congress bailed out Citibank and the market flew
up. Pretty soon the public will get to bailout the automobile manufacturers
as well, and the market may fly even higher. If the rally persists it could
last well beyond the coronation, er, inauguration of B. Hussein Obama whom
the public will credit for the miracle.
When the market rallies, newscasters look chipper once again; talking heads
reporting from the exchange floor are upbeat. The public wipes a torrent of
sweat from its collective brow as many tiptoe back into the markets, cheered
onwards by their financial advisors, brokers and other fee-based sales
professionals.
The front cover of TIME magazine may soon feature a bull rampaging down Wall
Street, sticking a smug horn into the grizzly's derriere. The precise
definition of this phenomenon is what is known as a 'sucker rally.'
As a fan of Warner Brothers cartoons, I have a soft spot in my heart for
Wile E. Coyote who would frequently chase Road Runner right off the edge of
a cliff, only to realize his dilemma as he hung frozen in mid-air, a stunned
and disbelieving look on his face.
With grim anticipation the crafty coyote would gingerly take one small,
tentative step at a time... back towards the cliff's edge... when, suddenly
-- PYOWWWW! -- he would shoot straight down to the canyon floor, cratering
far below in a tiny puff of dust.
When the rally ends, it will be just a matter of time until the DJIA tanks
once again in a new and even more exciting drop, likely straight back down
to the 7,200 area where it may meet resistance again for a while before
plummeting precipitously to its ultimate bottom, known only to God (and
Chubby Checker.) I'd say 3,000-5,000 is a good guess.
Let's recap the action, racing fans. In 2007 the Mighty Dow hit an all-time
high of 14,200. Today it stands at 8,523. That's a swift 40% drop so far. A
nice plunge to be sure, but nothing like what the Dow did back in 1929 when
it gave up about 90% of its October 1929 high. Or like what the Nasdaq did
in 2000 when it gave up 75% over a six-week period. Or like what Japan's
Nikkei did when it gave up 90% starting in 1991.
Markets that can go way up can just as easily go way back down. It's
the natural flow of things, the yin and the yang, the circle of life
(cue the background music.)
It's this simple: markets that are at extreme departures from their
normative performance eventually revert back to that normative level. For
you pocket-protector types, it's called 'reversion to the mean.'
Of course, before doing so, markets always overshoot the mark (by a little
or a lot), thereby creating a larger-than-normal excursion in the opposite
direction. It is this investorial 'pas de deux' that makes savvy traders and
investors rich over time. Everyone else gets a stimulus check.
Students of our Forex trading course know that we get plentiful passels of
perfectly predictable pip production trading this overbought/oversold
phenomenon, using what is known as oscillator divergence. The stock market
is just another example of the same, expect that the cycles are longer.
A drop in the Dow from where we are now to the 5,000 level would constitute
an additional 41% decline, for a grand total plunge of 65% overall. A
sickening, bone-crunching (and wildly lucrative) free fall all the way down
to 3,000 would give short sellers a truly outstanding 79% move, a pretty
nice one if you ask me.
Trades like this don't come along every day. In fact, they don't come along
every generation. Which is why I have not the slightest doubt that, even as
I write, waves of financial planners are flocking to luxurious, offshore
financial conferences where they will be taught by suntanned presenters in
Armani suits how to make even MORE money trading this magnificent collapse
all the way down...
Excuse me a moment... my 9-year old son, Jefferson, just handed me a memo on
which he drew a straight line connecting the highs in the Dow over the past
several years, a line which clearly slopes DOWN.
It seems he has been googling 'financial planner performance' and discovered
that over 90% of our nation's fee-based financial professionals have been
trading this collapse UP, which is to say, to the long side, thereby losing
big chunks of their clients' entire life savings in the process.
When I explained the sheer insanity of the situation to the lad, he must
have had some kind of prepubescent epiphany, because he suddenly began
running around the office, laughing hysterically, flapping his arms and
making a hooting sound, clearly intended to mimic the sea gulls in the movie
'Finding Nemo.'
Needless to say, this was not a complimentary gesture. I must remind myself
to lecture the boy on the necessity of humility.
So why DO people trade in the wrong direction? This has always puzzled me.
Pigeons are now known to have a gland in their head that keeps them aligned
with magnetic fields. One science writer postulated this as the reason why,
in spite of the best efforts of Tom Lehrer, individual pigeons can easily
find their way, repeatedly, to specific iron balconies high up on Big Apple
skyscrapers.
What would it take for financial planners to be able to tell that a market
is collapsing and to actually trade it in that direction? Some kind of newly
installed market direction-detecting gland in their head? Or a trained
pigeon? One can only speculate.
Here at the Institute we can clearly tell when things are going up, and when
they are going down. We also carefully avoid trying to pick magic tops and
bottoms. Day to day, we simply trade what we see.
Think of it this way. You are a stock market investor. You are also an
instrument-rated commercial airline pilot. You are flying merrily along at
30,000 feet, keeping one eye on your retirement portfolio... when a storm
comes in. And it's a bad one. A 'perfect storm,' you might say.
CRACK! There goes the subprime market, just as... BLAM!... a crackling
lightning bolt strikes one engine and it flames out.
No big deal. You make the necessary adjustments to trim and performance
parameters, while reaching over to the laptop on the console that separates
you from a visibly concerned copilot to close a portion of your long
positions and take some profits.
Then BOOM!!!... Fanny Mae, Freddy Mac and numerous Wall Street banks
vaporize, just as... WHAM!!... you lose a second engine.
You casually close out some more profit positions as the copilot departs to
go assist flight attendants who are attempting to stop desperate passengers
from opening the cabin door and bailing out while clutching their seat
cushions, believing them to be parachutes and not merely flotation devices.
And you? You are still calmly staring at the dashboard, monitoring your
altitude, air speed and other in-flight indicators as you cooly close out
your remaining long positions and go entirely to cash, thereby locking in
all of your profits, while smoothly bringing the plane down to a nice, safe
landing on all that runway foam, made all the easier since most of the
passengers finally managed to jump and the plane is much lighter now.
It is worth remembering that the stock market is not a market of stocks, it
is a market of emotion. Stocks simply provide an excuse to buy or sell
something and trade it up or down in sync with the psychological mood of the
public. Here are the cycles.
BULL MARKET: We start at the bottom and curve up through Optimism,
Excitement, Thrill and Euphoria which is when we reach the top. This is
where everyone is buying and should be selling.
BEAR MARKET: We now curve back down as Anxiety turns to Denial, then Fear,
then Depression, Panic, Capitulation, Despondency and finally, Depression.
This is where everyone sells when they should be buying. It's marvelous how
this works, and highly dependable!
BULL MARKET: After a while there is once again Hope, then Relief and
eventually, Optimism from whence we proceed up the happy-happy-stock-index
to Excitement, Thrill..., etc.
Here's how it looks summarized as a list...
Optimism
Excitement
Thrill
Euphoria
Anxiety
Denial
Fear
Depression
Panic
Capitulation
Despondency
Depression
Hope
Relief
Optimism
So where are we now? We already passed Fear in October 2008, so I would say
we are edging close to Depression but not quite yet at Panic which may well
occur during the next steep leg down which could come after the early-stage
Obama bloom is off the rose.
Capitulation will mark the true bottom of this collapse. That's when
investors everywhere -- totally disgusted and filled with self-loathing,
combined with hatred for the entire stock market -- throw in the towel and
sell everything, creating a HUGE, final selling wave that squashes stocks as
flat as a pancake and causes the remaining financial planners to enter the
Witness Protection Program.
Beyond Capitulation come Despondency and then Depression. That is where
things lay low for a while, a period similar to the three final steps in the
Kübler-Ross grief cycle: Depression, Testing and Acceptance.
After Acceptance comes a glimmer of Hope. Could it be? Are things actually
getting better? You mean I really don't have a terminal illness after all?
Yippee! This is called Optimism, soon to be followed by Excitement.... what
a Thrill!!... soon overcome by EUPHORIA!!! ... 'I'M GONNA' BE RICH!!!'...
you get the picture. For these are the early stages of a new bull market.
But back to the present. We are presently moving beyond mere Fear and moving
into Depression. Looking into my crystal ball I see the U.S. experiencing a
severe recession that will last throughout 2009 and possibly beyond.
Wiping away the smudges left by my two-year old daughter, Victory, who loves
playing with Daddy's turn-it-upside-down snow globe (believing it to
actually be a crystal ball), I see deflation continuing as ongoing
de-leveraging protracts the credit crisis.
Peering deeper and borrowing my daughter's imagination, I see the credit
contraction contagion spreading to prime mortgages, credit cards and auto
loans.
I see further legislation as Nancy and the Go-Faster-Socialists pass more
and more bailout bills, using taxpayer money they don't yet have and paper
dollars not yet printed.
I see commodity prices dropping farther. I see gold perhaps going down to
$600 USD.
I see sales of SPAM skyrocket, which reminds me that I haven't tasted SPAM
since my rock musician days when we used to cook it over Sterno in the back
of our rental U-Haul.
I see stock brokers sleeping in their cars (cooking SPAM over
Sterno.)
I see the U.S. military enforcing curfews in the nation's largest
concentration camps (Los Angeles, Detroit, Philly, etc.)
So there you have it, maybe. Who knows? I could be right, and I could be
wrong. It would be wrong to believe one is always right. And right to
believe that one may be wrong.
When I am wrong, I am right to find out why. When I am right, I am right to
remember that I could have been wrong. For trading and investing has nothing
to do with guessing, second-guessing or regret.
It is a matter of cold, calculating observation, tempered like steel
in the crucible of objectivity, molded by experience and reinforced
by a bit of mathematics, fortunately performed at the 6th grade
level (4th if you were home-schooled.)
In closing, you can write this motto on your refrigerator (being sure to use
a dry erase marker.) It combines the most rudimentary pattern recognition
with a consideration of the fact that hope and well-wishing -- along with
all other moods, sentiments and emotions -- are but mild forms of religion,
while incorporating the admonition which is rumored to appear over the
entrance to Hades:
'Abandon Hope, All Ye Who Enter Here, And Invest Only In That Direction In
Which The Market Actually Moveth.'
Amen to that.
And May The Pip Be With You,
Gordon Philips for
THE INSTITUTE OF HIGHER EARNING
gordon@higherearning.com
.· ´¨¨)) -:¦:-¸.·´ .·´¨¨))
((¸¸.·´ ..·´ When you wish -:¦:- -:¦:-
-:¦:- ((¸¸.·´* upon a pip... -:¦:- -:¦:-
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PUBLISHED BY:
The Institute Of Higher Earning
P.O. Box 113
Milford, NH 03055 USA
800-504-2340
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WHAT IS THE HIGHER EARNING REPORT?
* A highly prestigious Internet newsletter.
* A deeply cathartic literary experience.
* A total waste of innocent electrons.
* A compass for your retirement ark.
* A financial air bag for your portfolio.
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YOUR EDITOR
Gordon Philips, Senior Researcher, Head Trader, Custodian (I take out the
pips), Home School Principal, Sibling Rivalry Referee, and Complaint
Department Manager for the Institute
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OUR SLOGANS
'What Goes Up, ...'
'Build Your Own Ark. Quick.'
'So Many Trades, So Little Time.'
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FAVORITE SONGS ABOUT MONEY:
--- Bull Market Music ---
'Million Dollar Girl' -- Eddie Money
'For The Love Of Money' -- The O'Jays
'This Golden Ring' -- Gary Lewis and the Playboys
--- Bear Market Music ---
'Ain't Too Proud To Beg' -- The Temptations
'Been Down For So Long It's Lookin' Like Up To Me Now' -- Junior Johnson
'Brother, Can You Spare A Dime?' -- Various Impoverished Artists
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LAST BOOK READ:
'The Trial Of Henry Kissinger' by Christopher Hitchins
CURRENTLY READING:
'The Evolution Of Consciousness' -- by Robert Ornstein
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FREE WEDNESDAY NIGHT 'OPEN HOUSE' -- JOIN US!
Join the Institute on a FREE telephone conference call this Wednesday night
at 8:00PM U.S. Eastern time (5:00PM on the extreme left coast) and get your
questions about Forex trading, debt elimination, saving and investing, fiat
money, precious metals and how to protect your family in the event of a
cataclysmic meltdown of the entire U.S. financial system answered. ;-)
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DISCLAIMER
Information from The Institute Of Higher Earning is provided for educational
and informational purposes only. No one on our utterly terrific staff is
licensed to utter personalized financial advice. Before trading or investing
we suggest that you seek the counsel of a registered financial advisor who
is thoroughly versed in the equities and currency markets and can
demonstrate long term, consistent success in both. Warning: this may be a
protracted search. Our work is based on what we've learned as financial
journalists and graduates summa cum laude from The School Of Hard Knocks. It
may contain errors and you shouldn't make any investment decision based
solely on what you read here (watch MSNBC first ;-.) There is risk inherent
in all forms of trading and investing, from baseball cards to church bingo,
so don't trade or invest with money that you cannot afford to watch go up in
smoke and still sleep well. If in doubt, consult spouse.
Thank you. |
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