Saturday, November 1, 2008
Analysts who try to call tops and bottoms are a pet peeve of mine. No law of the universe, for example, prevents the Dow Jones Industrial Average from going to 5,000. It's around 9,000 now. It's been as low as 7,773 recently, after peaking at 14,279.96 last fall. Who knows where it'll be next week or next year?
Our own trader extraordinaire, Jeff Clark, is cautious on the overall market. Jeff says, "Don't let the market fool you" and warns his readers that, "no trader in his right mind would carry a position overnight. There's just too much risk of an opening gap the next morning."
Skeptical as I am that bottoms feel anywhere near this good, I soldier on, reveling in the myriad bargains available today, many in the greatest franchises in the world.
I recommended eight stocks in the current issue of Extreme Value, several of which are cheap and liquid enough to buy all their own outstanding shares. I'll have several more to recommend in the next issue. I don't know when bottoms happen until after they happen. By then, stocks that were dirt-cheap could be less dirt-cheap. You literally can't afford to wait.
With all the cheap stocks around today, anyone who says he's waiting for the market to bottom is a speculator, because the odds of knowing when that moment arrives are remote. If you want to know which world-dominating franchises are the ones to buy right now, click here.
John Paulson of hedge fund Paulson & Co (one of this year's few winners) bought 7.4 million, 14.6%, of liquefied natural gas company Cheniere Energy (LNG). PSIA readers may remember Cheniere as Porter's favorite short. He called Cheniere's business model "one of the craziest ideas I've ever seen." You can read his full write-up here.
Since Porter's short-sell recommendation, shares of Cheniere have fallen from $38 to under $1.
As hedge funds and investment banks racked up losses, faced redemptions, and had their credit lines pulled, they sold commodities, including precious metals. This was particularly damaging to silver, which became uncoupled from gold. My bet is as November begins and hedge-fund redemptions are completed, silver will rally.
For the statistically inclined among our audience, the mean gold-to-silver ratio over the last five years is 59 – using monthly samples – with a standard deviation of 8.7. Recently, the gold/silver ratio hit 80, the highest it has been in more than five years – nearly 2.5 standard deviations from the mean. If there's a "snap back" rally in commodities, silver ought to soar.
Says Jeff Clark about silver: "It now takes more than 80 ounces of silver to buy one ounce of gold. That ratio is quite high compared to historic standards – and compared to where it was just two months ago. In fact, this could set up as an interesting pairs trade (long silver and short gold). I like the idea of buying silver here. I also like the silver stocks. It's definitely not an easy trade, though."
At least one banker is making money in this market... A 33-year-old American-born, London-based banker – already a millionaire – is the first winner of the "$1 million a year for life" scratch-off lottery ticket.
"Is it going to materially change my life? No. I have been a very blessed and fortunate person," said Kenan Altunis. And because he lives in Britain, he pays New York state taxes, but not federal taxes. That means he'll net $931,500 a year for the rest of his life.
You might recall last September when the investment banks began to collapse, the CEOs of Lehman and Morgan Stanley vociferously blamed short sellers for their falling share prices. The bankers persuaded the government to ban short selling for about a month in a lame attempt to prop up their insolvent businesses. (The move didn't help. It demonstrated how corrupt our markets are, forced hedged funds out of the financial sector, and sent share prices and investor confidence to new lows. Then, the rule was abandoned.)
Now we have enough data to know whether or not short sellers had anything to do with the declines in Lehman and Morgan Stanley. They didn't. In fact, the short interest on the major investment banks dropped steadily from July. By September, less than 3% of Morgan Stanley's stock was sold short. What caused the massive declines in price? Desperate selling from longtime shareholders – corporate insiders.
From a reader: Thank you, thank you, thank you! I did a search before, after my uncle and aunt passed away in Florida, and only came up with about $90. I tried your recommended search engine and found a $6,000 Christmas present. Guess I'll renew after all.
We're glad to help. We've found many of our subscribers have unclaimed cash they don't know about. If you'd like to check and see if money is waiting for you, click here.
Porter Stansberry writes and edits the daily S&A Digest, which comes free with a subscription to one of our premium products.
Date Range:10/23/2008 to 10/30/2008
Date Range:10/23/2008 to 10/30/2008