Market Musings 2008 10 29 PM

We are all confused about the direction of the market as well as when the volatility of the beast will return to normal levels.

There has been enough liquidity pumped in to the financial/ banking institutions. There has been worldwide coordination for lowering rates and increasing liquidity. The derivatives based instruments can not be traded. So, we have a whole lot of banks and hedge funds with little to show for capital as derivatives like swaps can not be traded. A whole of hedge funds are facing redemptions and have to sell all their liquid securities. Hence a reduction in many favorite sectors like oil and gas, commodities, making us very confused and baffled.

So, what is in store for us? It seems no body really knows what will happen including me. That is for certain. With that in mind, we can speculate, but, from a slippery perch of confidence:

AAA) Market is closer to bottom. In fact, bottom was probably reached on 10/10/2008. The volume that day has been higher than we have had since. Only with longer hindsight, we will know if 10/10/2008 was the day of capitulation.

BBB) Banks will never earn as much money as they did in last few years, due to lack of derivatives going forward. The regulation from government will not allow as much leverage. Hence my conclusion that their prices may not be as high as they were.

CCC) Despite alternate energy projects, oil will continue to remain the fuel of choice for use with low capital needs for cars, power plants and other projects. Its future can not be ignored. The oil may not go to 150 dollars a barrel, but $100 is still possible, as economies around the world improve. Invest in some of the safe dividend stocks.

DDD) Real Estate investments in USA will remain difficult, as baby boomers need less of a house for living. Real estate abroad will be profitable.

EEE) Invest in China, as it will grow to satisfy consumer and capital needs of the western countries like USA, Australia and Europe and Japan. This is a recommendation without any reservations.

FFF) USA will remain the prime country for leadership and innovations and will generate money and wealth out of nowhere. Recent examples are Google, Microsoft, Airplane and Airplane engine manufacturing. Capital in USA is huge for investment and growth. Alternative energy in the form of wind and sun will evolve and become practical. China is strong in Solar Energy area also.

These are just some ideas for further evaluation and discussion. E-mails with new ideas are requested to my e-mail address mohancapital@gmail.com.

Market Musings 10 22 2008

As you all know, we had a terrible day again with Dow down by 650+ points about 30 minutes before the close and then closed down 514 points. Other market indexes were similarly down. The market was trying to test the lows of 10 10 2008, but, the volume was much lower. And, it was a relief that volume was lower.

But, like all of us, no one knows how long this historically high volatility will last. The volatility measured as VIX by Market Technicians is over 70, higher than the price of oil. And, this a relief that price of oil is coming down, but, implicit in this lowering of price is demand destruction, or significant slow down in economic activity through out the world. I am sure that we are buying smaller cars. China's exports to USA must be down. India's technical manpower needs may be going down and Obama's tax policy would impact, possibly reducing export of jobs from USA.

I hope none of you have exposure to margin and people with margin, mutual funds and hedge funds continue to encounter forced selling due to margin calls.

We will have more selling till the weak hands are forced to sell to stronger market participants. Remember, there is some one buying when some body sells. Today, there were no buyers for the last 200 points and the drop was quite fast.

Stocks like GE, MSFT and others are on sale even though they are AAA rated for credit.

Remember, this is historic time for the market and it can go down further, but not by much. But, it will continue to churn... I wish, it was not, but, market is market, which means that weak hands are trying to survive and strong hands are trying to win over the weaker hands, just like in a poker match.

Just stay cash rich and do not buy any stocks, how so ever cheap they look. Bottom fishing is a loser's game now and it is a losers game most of the time.

Best regards....

Market Musings 10 22 2008

Market Musings 10 10 2008

This is a quick morning update after yesterday's blog.

As you all know, we had a terrible day yesterday with Dow going down drafted by 600+ points. Other market indexes followed. It is quite a surprise to me and I expect a huge rally.

But, like all of us, no one knows when the rally 'that will last' would occur. The volatility measured as VIX by Market Technicians is over 60. Typically it is in 20's. So, the stocks are going up and down with higher velocity. This is unsettling to people whose life savings are tied up in stocks.

For at least a month, I have been telling friends that do not use leverage(margin) and sell into cash, if uncomfortable. It is too late to do this now. This is because we are close to bottom and may have placed the bottom for this cycle. The worst is over.

People who have cash should consider purchasing QQQQ or QLD as the dust settles.... Technology shares were down, due to market conditions and not due to change in the technology landscape by new and disruptive technologies.

Best regards...

Market Musings 10 8 2008

I have not communicated for along time.
One of the reason, I gave up writing was lack of feedback from you all...

As I write this, I am sure that most of us are unhappy with the market and our investments.
But, misery loves company....

Here are what the best mutual fund managers are doing:
(Taken from IBD 10 8 2008)
Fidelity Contra: -32%
Janus 20 : -38%
Brandywine : -38%
Legg Mason OP : -51%

I do not have to tell you, we are experiencing a full fledged bear market.

S&P 500 is down 28.27%.
Nasdaq QQQQ is down 31.94%.
Russell 2000 is down 21.34%.
Semiconductor Sector ETF SMH is down 30.87%
Financial Sector XLS is down 37.78%.

Here are some comments...

A) Compare your portfolio performance with above numbers and see how you did.

B) Best mutual funds that have billion of dollars are doing worse than S&P 500 index, a bench mark that is used by most people to judge performance index.

So, investing in Mutual Funds with buy and hold principal is not very productive for any body. One could say, market is too complicated. And, it is. But you all should learn basic essentials and how much, the stocks anticipate the future changes in economy.

But, my reliable sources in the financial business indicate that most of the blood letting is over. But, they are short term oriented. And, that is just not possible with most of us.

So, hang in there, the end of the bear market is near. We will have to overcome fear to purchase the remaining financial stocks, that survive. That seems like the most difficult thing to do.

Using XLF, an ETF in financial sector is a good choice.

But, I expect some more terrible days in the market....