I prefer rogues to imbeciles because they sometimes take a rest.” Alexandre Dumas
Many of you know my distain for the bulk of so-called professionals on Wall Street. You know I feel most are like a real estate salesperson tossed off the Empire State building who says all the way down, “so far so good.” The Archangel Gabriel could show up in these folk’s bedrooms and tell them the stock market was going to fall or not go up, yet most would ignore such warnings because their job (and bosses) depends on them getting people to buy. The sad thing, despite realizing how biased the bulk of so-called strategists and advisors are (and their desire to just keep capturing and holding onto assets), is most investors still allow these people to influence and/or make their investment decisions.
If I had a dollar for every time I’ve heard “the market has discounted all the bad news” and “the bottom is in” and “the market is already rising on expectations of a second half economic recovery”, I could go on a long paid vacation. Look, everyone is entitled to their opinions and some will be wrong (including me). But when you take into account the biases just mentioned and the fact that so many of them have been wrong throughout this absolute disaster that has changed lives for the worse for a lifetime, you want to scream out “enough is enough.”
Wake up and smell the roses! This economic upheaval has been misunderstood and badly missed by many. Here are just some of the worst predictions about 2008. Like I said earlier, everyone is going to miss sometime but many of the voices being touted in the media who are saying the worst is behind us, are the very same people who had horrendous and life-changing forecasts for the worse (the guy who shouts and screams on TOUT-TV is a prime example. He and his employer have amnesia on so many of his wrong predictions but have the nerve to run ads that suggest he’s the #1 soothsayer).
This time it is indeed different! For the love of God, stop listening to anyone who keeps comparing this time to previous ones and such comparisons paint a rosy picture just down the road. We’re in unprecedented times and you can throw away many of the past factors that worked in typical downturns. Again, you must realize that most advisors are trained to look at the cup always half-full and can never suggest doing nothing if they wish to keep their jobs.
U.S. Stock Market – Another pet peeve of mine is how these “Don’t Worry, Be Happy” prognosticators continue to note how the market is up 20% from the lows and/or a stock is up 50% or even 100% from its lows. The market falls from 14,000 to 7,500 (which is about 45%) and then rises to 9,000. I’m no mathematician but aren’t I still down 35%? Yes, there will always be someone who buys the bottom or sells the top but the fact remains there will always be countertrend rallies in bear and bull markets. They mean little to anyone other than a trader. The hoopla would become justifiable if and when the market actually breaks above previous highs or above key moving averages. Unfortunately, this market hasn’t done either. In fact, despite all the holiday cheers and New Year optimism, the DJIA has still not taken out resistance just above 9,000. And this comes on the heel of “Investors Intelligence’s” report this week that there are more bulls than bears now since last August. What does this mean? The assumption is if you turned bullish you made your purchases already. So, despite much more assumed buying, the market is unable to move through a level where it has been repelled before. One could start to suggest we’re looking at a triple top. If so, then we need to watch for the market taking out the levels it retreated to each time it was repelled. In this case it’s in the 8,450-8,500 area. What’s even more interesting is how many big bears turned bullish in this timeframe, including a very good friend of mine who was once as bearish as I was and still am. To me, this has all the makings of a bull trap. Stay tuned.
Oil - I continue to suggest purchases of oil-related investments (as per model portfolio) when oil is between $35-$40 until further notice
U.S. Bonds – I’m not alone in my recent belief that the treasury market is a bubble ready to burst. The continuing news that China may greatly lessen its desire for treasuries, how poorly a German bond offering went yesterday, and despite very poor U.S. economic news failing to rally treasuries, all suggest my entry to the short side appears to be at or near the top.
Precious and Base Metals - I remain very bullish on precious metals but continue to urge no real base metals exposure. Base metals remain in a bear market downtrend and only corrected a very oversold condition recently.
U.S. Dollar – The only party that doesn’t know the U.S. Dollar is dead is the U.S. Dollar!!!
Mining and Exploration Shares – the majors are correcting their sharp gains made near the end of 2008 while the juniors are trying to remove themselves from their respirators.
Interesting to note that an overnight bond auction failed to raise money for countries such as china. Opps if they can’t find buyers where will Obama raise money? The bond market may be a bubble about to burst and this may be the first leak.
January 7, 2009
Government Panic Could Herald Dollar Panic
One of the few things more troubling for an economy than government intervention is government intervention driven by panic. Time and again, history has shown that when governments rush to engineer solutions to pressing problems, unintended difficulties arise.
In the current crisis, there is growing evidence that Washington is in a state of increasing panic. Despite its massive cash injections, market manipulations and ‘rescue’ plans, the recession is clearly deepening and spreading. With little to show thus far, politicians don’t know if they should redouble past efforts, break ground on new initiatives, or both. However all agree, unfortunately, that the consequences of doing too little far outweigh the consequences of doing too much.
Although there are many parallels between the current crisis and the Crash of 1929, one key difference is the global profile of the U.S. dollar. In 1929, the dollar was on the rise, and would soon eclipse the British Pound Sterling as the world’s ‘reserve’ currency. Furthermore, the American economy was fundamentally so strong that in 1934 America was the only major nation able to maintain a currency tied to gold.
Ever since, the U.S. dollar’s privileged ‘reserve’ status has been a principal factor in America’s continued prosperity. The dollar’s unassailable position has enabled successive American governments to disguise the vast depletion of America’s wealth and to successfully increase U.S. Treasury debt to where the published debt now accounts for some 100 percent of GDP. The total of U.S. Government debt, including IOU’s and unfunded programs, now stands at a staggering $50 trillion, or five times GDP! If the dollar were just another currency, this never would have been possible.
In today’s crisis however, the dollar is likely making its last star turn as the leading man in the global financial drama. Other stronger, less burdened currencies are waiting in the wings for the old gent to take his final bows.
The dollar’s demise is being catalyzed by the neglect of the Federal Government. Instead of enacting policies that would restructure the U.S. economy, and restore productive, non-inflationary wealth creation, Congress is simply financing the old crumbling edifice.
Faced with the growing realization that America is not doing the work necessary to right its economic ship, it will not be long before America’s primary creditors begin to seriously question the nation’s ability to service, let alone repay, its debts.
There is now the prospect (inconceivable until recently), that America could lose its prestigious ‘triple-A’ credit rating. In today’s risk adverse market, this could cost the Treasury one percent in interest on long bonds. Each additional percentage point of interest would cost America some $10 billion a year on each trillion dollars of new debt, or some $300 billion over the life of a 30-year bond.
Many of the foreign governments who hold huge amounts of U.S. dollar Treasury debt, such as China and Japan, have announced plans to spend money on their own ailing economies. Should these foreign central banks divert to domestic initiatives some of the funds used to buy U.S. Treasuries, serious upward pressure on U.S. interest rates will result. Should they actually sell parts or all of their holdings they will likely put serious downward pressure on the U.S. dollar. Last week, a Chinese official claimed the U.S. dollar should be phased out as the world’s ‘reserve’ currency.
In the short term, as dollar ‘carry-trades’ continue to be unwound and questions of political will and falling interest rates haunt the Euro and some other currencies, the U.S. dollar may be the recipient of some upward appreciation. But with the American Government appearing increasingly to be in panic mode, a run on the U.S. dollar could develop rapidly into cascading devaluation. Even if no such panic run materializes the long-term outlook for the U.S. dollar is one of high risk and low return. This beckons major upward pressure on precious metals.
Hello Peter,
I am concerned with my purchase of the HOU ETF. When I purchased it oil was probably around $37 or $38. My adjusted cost was $11.30. Recently I was ahead roughly 25% on paper when oil was pushing $50. At the present time with oil at $42+ I am down money on this ETF even though I bought it when oil was $37 or $38. I was watching BNN the other day and a guest on there stressed that these 2X leveraged ETF’s should be used as a short term buy because of price adjustments at the end of the day, etc. Do you think HOU is a good holding for the longer term while we wait for oil to go up. My concern is that I am down money on HOU even though oil is up at least 10% from the time I bought it. As always your opinion is much appreciated.
Regards
Nads, some advice… take profits whenever you make 20% or more.
“Pigs get slaughtered”
Hou is a good ETF to play and same with HOD.
For Nads.
HOU tracks the oil futures for the trading day, but doesn’t track the after market trading of oil, so readjusts for the next opening. Longer term, it doesn’t quite track 2X, but still beats the underlying commodity price change in percentage terms by quite a bit.
eg. July 2008 Oil high $147 – today’s price @$42 = $105 or a 71% change
July 2008 HOU high $236- today’s price @11 = $225 or a 95% change (5:1 reverse split occurred)
I find the best thing is to do a longer term comparison to see how much better the return is over buying the underlying commodity or index.
In most cases it is used to hedge a current position, but I use it if I think a significant price change is going to occur in a relatively short time period ( days or months not years).
Peter,
I’ve also come to distain the majority so called “professionals”, “financial experts” and “economists”.
This week, the lead economists from Canada’s five big banks blessed a packed house at the Economic Club of Canada giving their views on where things are going and what our government should do. I can’t believe people are still willing to listen to the same people who missed calling the current disaster before it started let alone pay good money to hear them speak.
A couple of sage observations attendees were treated to:
Scotiabank’s Warren Jestin highlighted that the downturn has spread across the globe.
“There’s a remarkable synchronicity going on amongst countries and across markets,” he said. “All major industrial economies will be in recession this year or will be posting declines in GDP. The emerging markets, which earlier last year looked like they might be decoupled from this process, are actually all weakening now.”
“There is no question that the current situation is without precedent,” said Bank of Montreal’s Sherry Cooper. “It is global, it is affecting sectors around the world and there is no place to hide.” Cooper said she believes government policies and monetary stimulus will bring the country out of a recession, and that a recovery will start in the third quarter. [Q3 eh, sorry Ms. Cooper, our largest trading partner is in deep trouble and we won’t begin recovering until they do!]
I guess they (the Bank economists) pulled their heads out of their collective [fill in the blank] and felt it was time to share their insightful expert observations with the ignorant masses who up until then, didn’t realize the scope of the current situation.
Just yesterday my banker called to invite me to a limited seating one evening session with one of their leading portfolio managers. I respectfully declined. For all I know, the gentleman has integrity and had the foresight to steer his clients through this mess BUT, I can’t risk the possibility that he’s just another talking head that spews out sheeple platitudes… I’d either suffer an aneurysm or throw my chair at him! Not a good outcome either way LOL.
The minority with foresight, integrity and intestinal fortitude to call it like they see it seem to be constantly drowned out by the less than enlightened majority. It’s frustrating that the general public only hears the voices that are serving their own interests first.
For the record, I count you in the aforementioned minority.
Thanks for your update and for letting me vent.
D.S.G.
Thanks, I have also looked at the long term numbers for HOU and was convinced that it was a good purchase when oilswas $37 – $38 as Peter recommended it at around $36.50 oil. I just have trouble accepting that HOU has gone down in price when oil has actually gone up.
Peter,
I would still appreciate to hear your opinion on whether or not you think HOU is good to hold onto for the near term and longer term. I don’t see any other oil bull ETF available on the Canadian market (TSX).
Thanks
Interesting article on oil below.
http://www.peakoil.net/
Steelromeo’s Post – - Essentially Trigger A Bomb Within A Bomb
Excellent material here from Mr. Peter G.’s posting thru the responses including #2 (Steelromeo). No time right now, but have to come back and reread all including the material within the responses.
However, it’s worth a comment regarding Steelromeos paragraph about ‘Interest Upon The Interest’. In recent years, the Federal Reserve had been borrowing more heavily on the shorter maturity range. That’s one of the reasons why they’re keeping interest rates so low…..They can’t carry the interest expense on the National Debt. It seems that the market observers are no longer worried about the threat of higher interest rates and the impact upon the deficit.
Years ago, that was a fixation of the market’s – Debt Expense and the impact of rising interest rates upon the deficit. Eventually, interest rates will have to rise to defend the Dollar and that will ‘Essentially Trigger A Bomb Within A Bomb’, consuming ever higher portions of revenue, growing like a Mushroom to widen the deficit or smother out other expenditures.
Peter, As I wrote in a previous blog; when the fundmentals, the technicals and visuals don’t work, as in the case of uranium stocks, there is only one thing left, psychology ! Applying that thinking to the economy and the market, having the dollar go bust, the market drop, and the economy sick as a dog, the fundamentals say,” look out below”, the visuals-technicals looking bad (and maybe misread), perhaps there is a paradox in the works, psychologically the herd in panic and about to stampede. But those who become big winners see which way the herd is running and go the other way. The paradox would be that the market will develop a large move UP and why not , the economy is not the market, but the market is the psychology of the masses. The trend line in the 35yr chart HLC has never been broken and is really the psychology of the masses. I think we are on the treshhold of something big and I don’t think it’s disaster. Good luck to all
Peter, Geologix has risen quite a bit from .20cents is something brewing with the financing ? It seems just today it went up over .11cents. I am hoping it will go up a lot further because I bought it a lot higher.
Thanks
Anna
A Canadian Friend – Vent my friend, vent!
Nads – ETFs aren’t everything they’re crack up to be. However, in this case, I sooner see people buy an oil ETF then oil futures or options on futures
Anna – All I can tell you is there was a board meeting today.
Anna,
Peter has a business relationship with GIX amongst a number of other firms. As such, he is not in the position to comment on rumors, hear say etc. relating to said firms. If he did he would not only subject himself to regulatory action but even worse, loose his reputation as a straight shooting person of integrity. Yes, it’s tempting to ask… but we shouldn’t expect answers if we do.
Hello Peter,
DXO ( USD ) and HOU are supposed to have the similiar functions, both are double on the volatilit of oil. However yesterday DXO was -12.75%, but HOU was -24.5%; today DXO was +1.66%, but HOU was -1.37. Is there any reason behind the price change difference ?
Mac
To Canadian Friend,
I was asking his opinion because he covers this and many other stocks. Peter has the right to update us on any of the stocks he covers whether it is postive or negative a buy, sell or hold. As long as he discloses his position he has done to harm.
Thankyou
Re: HOU Discussion.
HOU is essentially vulnerable to both backwardization and contango, which is possibly the reason why you’re experiencing what you’re experiencing. Horizon Beta Pro makes it very clear that it tracks the daily change, and by daily, it means regular trading hours. Not overnight futures. The same is true for OIL in New York. When the contracts roll over from month to month, that change is NOT accounted for, resulting in Contango. Thus, you will always accept 2 times market risk with HOU and OIL.NY.
HOU, I believe, is also vulnerable to manipulation. It has had large short positions pricely BECAUSE some estute traders are aware of contango and backwardization and are making good cash on the short side…
THUS, I think hedging your position a bit with HOD after rallies is a very smart thing.
Hope this helped.
RE: HOU discussion
Be careful about HOU. It “rebalances” everyday so that it has a very very poor correlation to oil futures. Taking into account the fact that it is double exposure, it should be down 140% compaured to oil’s peak to trough decline (as of Dec 31 2008) of 70%. A far better correlation to oil futures is USO which was down 73% at year end.
If I were to buy HOU, it would be because it is supposed to correlate to oil. If it’s not doing that, why would I buy it?
Ask Horizon yourself about this daily “rebalancing”.
Thank you for your help on the HOU discussion.
The price change difference betweek DXO and HOU is still confuse me. Today the DOX price was -2.58%, but HOU was -7.31%. Both DXO ( US ) and HOU price were close to $2 about two weeks ago while the oil price was around $35-36, but today the DXO is $ 2.98 and HOU is $2.13 ( before the stock reverse split ).
Thanks.
Re: HOU Discussion
Yes, I’ve noticed the same with DXO and HOU- they don’t trade similarly on the downside and upside. When we had this spike to $50 with oil, HOU was up about 14% in a day whereas DXO was only up about 9%. The two ETF’s must track different oil securities. I know Horizon is heavily derivatives-based to produce the leveraged exposure. DXO seems less riskier.
At the same time, if you hold HOU for the long term I think you’ll be fine. I find that leveraged ETF’s are excellent for intra day trading and swing trading.
Stay away from margin with HOU though, because you never know when you’ll suffer a loss from contango and have to dump your position or add more cash.
OIL in NY and HOU track the price of oil during regular trading hours. The same thing happened with OIL- it saw its lows when oil was higher than the previous lows when oil was at a lower price.