Geller Capital Views

Your Mail/Cry of Marvin Dale

2009-01-09T23:57:00.000-05:00

Attn;

My name is Marvin dale Molamba, I am young boy of 17yrs old. I lost my parents and my only sister to the war in Congo which my father Abbas Sula Molamba owned a diamond/gold mine. I am lucky that I was able to flee to this place here in Cote d'Ivoire by the good grace that spared my life.

I am sure you are aware of the on going event in my congo due to the ethnic clash being experienced except you will need me to enlighten you though its on the news and everyone is aware of this crisis situation. I am presently staying in a residence lodging apartment here in Cote d'Ivoire.

I would like to appeal to you confidentialy to assist me concerning my late father's Fund which he deposited in a financial firm, he has the sum of nine million, two hundred and ten thousand Euro (9.210,000) and some treasure in vault company here in Cote d'Ivoire

I want to move out from here because of the my wicked stepmother who plotted with the rebels that killed my father and will stop at nothing to hunt my life except if i flee since my father own a diamond/gold mine.
So please i want to know you better. I am willing to offer you 921,000euro for your assistance after the successful transfer of this money for investment; I have plans to do investment in your country, like real estate, industrial production or any other lucrative investment you bring to my notice in your country.

If you are willing to help me please indicate in your next mail and let me know so that I can mail to you. Let me have your private telephone number & address so that i can communicate with you at any time for more details.

Thanks,
Marvin dale

The Music Is Stopping...Chairs Everyone!

2008-11-20T19:00:00.002-05:00

This bear market has been brutal and in my opinion is not over. I see it this way...the collapse of the world's greatest financial/banking system should lead to the greatest bear market in history. To quote Newton's third law of motion, "To every action there is an equal and opposite reaction." One may argue that the law's of motion don't apply to the stock market but i think they apply just fine. The law of inertia is another one to think about but that one can be more fickle.

The worry now is Citibank. At less than $5 there is obviously a problem. Could C be on the way to insolvency and a government bailout? If C goes bust that may very well be the nail in the coffin that ends this bear market, or at least ushers in the end game.

Using short etf's and other instruments have kept us alive so far and I believe there is more to go on the downside. But, time will tell. Stay tuned.

What a Week! What’s Going On?

2008-10-03T19:06:00.001-04:00

The market really got clocked, down 7 - 10% for the major US indices. However, GCM's portfolios held up perfectly as we have been in cash for nearly 3 weeks and avoided most of this mess. The small "market" short positions that are held added value as well. For the week, we ROSE about 2.5% and dodged a major bullet.

The week started out badly with a near 8% drop on Monday. Lots of backing in filling after that but by weeks end nearly every major US index was at a new low. Late session breaks in the S&P and confirming declines in the Russell 2000 (and Mid Cap, Dow, etc.) are certainly troublesome. But what is most troublesome is the failure of the market to rally in the face of the House passing THE bill. If they can’t muster a rally off of that then what’s next?

We’ll stay in cash, hold those small short positions, and be patient for what may be a great buying opportunity. But for now we are in a good place!

Stay tuned…and have a nice weekend! Please contact me for further or a more personal discussion about how Geller Capital can help with your investment portfolio.

Excuse That Momentary Lapse of Reason

2008-10-02T14:53:00.002-04:00

OK, so I did say there were some reasons to consider going long but I also said I was staying out of it. That's where we've been for several weeks and where we are now, mostly cash with a small short bias in some cases. Yes, some of those big banks look good and they should: the Gov't bailed them out and they are going to make sure they stay afloat and (become more) profitable. But the rest of the market looks terribly weak. Advances/declines & highs/lows look lousy and indicate poor demand for stocks. To boot, several indices went to new lows today: Mid Cap, NASDAQ, Small Cap, and Utilities to name a few. The S&P and Dow are close but holding. So far the volume isn't extreme and some might say that this break is not a "major" one. To that I say "nonsense". So much damage has been done on low volume and I expect that to continue. We have yet to see that massive wipe-out day which might indicate an end to the selling.

The Small Cap break may be significant because that index had held its ground around 650 since January. It finally broke through to a new low today. Usually when an index holds a level as this one did - 4 times over 10 months - it is deemed significant. However, leading into today's break to new lows, the Small Cap had already fallen 15%. It may be unrealistic to expect another major decline from here without some backing and filling. After such acton it may be that the index slides again or fakes out and rallies. But I expect more weakness and that decline could play catchup to the S&P 500.

With the market down so much with the House vote in front of us I think it may be smart to think of the upside. The market seems to be discounting failure. And why not? Our leaders seem to have failed us from many corners and why should they succeed with this massive proposition? But when everyone is leaning on the market it often surprises...just a thought. (I keep trying to think of reasons to go long...) If the House turns it down again, then all hell should break loose.

Stay tuned - it will get more interesting.

Changing Sentiment?

2008-10-02T11:23:00.002-04:00

In my last post I wrote "the fact that we aren't much lower suggests that the street may be thinking that this could be much worse. Maybe the Govt's steps are working in that we are not falling apart. Its something to think about." Here are some things to think about:

- As the market possibly capitulated these past few sessions it is worth noting that the bank stocks and other financials that got us into so much trouble were trading to the higher end of their ranges. See BAC, JPM, & C. I was not bullish on these stocks but they do look potentially bullish.
- Market weakness the past few sessions did not make a new S&P low. Bad economic news and concerns about the House vote may be discounting things that are not as weak as anticipated.
- The Russell 2000 has not made a new low since March 2008. This is the fourth trip to the 650 range and if we hold that expect a nice rally.

However, the market still acts poorly. Its not difficult to think about the S&P500 between 900 & 1050. I have little reason to take money from cash to go long. Maybe that's reason enough...

There They Go Again

2008-09-29T09:45:00.003-04:00

Last we looked the financial stocks were dropping like stones. They have since recovered but the other shoe dropped. WAMU broken and sold to JPM, WB broken and sold to C. Surprised C did that deal since they have been hurting but I bet the Feds strong armed them to take it on their balance sheet. In turn C will probably dump WB bad assets into the bailout pool. The mess continues.

My view may be naive but collecting all these assets into one large smelly pile doesn't make them go away. Yes, it will cool things off but too many financial institutions are hurting and new lending is probably immaterial at this point. But we can't overlook that balance sheet improvement will occur and that will matter at some point. And we can't overlook the potential that the Big Five - JPM, BAC, GS, MS, & C - have over everyone else. But there is much to worry about, too. Just how will the Feds manage these new assets. What other dangers lurk that will stress a bloated Fed? How bloated can bloated get?

The mess must be paid for and I wonder about how will this happen. Will taxes get raised to foot the bill and just how bad will it be? What if taxpayers revolt or demand an alternative. What if the Gov't sells off other assets it owns instead? Talk about reducing the size of Gov't. Imagine the cronyism on those deals.

The market is breaking down this morning but so far the inherent braking system of the bear is doing its job. The Fed is at it again with massive open market operations to add liquidity. Hooray but I can't imagine any good coming from all of this, especially in the short term. In fact, in the short term I don't understand why we aren't much lower. And I mean MUCH. I think that earnings are generally going to be horrible and when the street wakes up to that there will be some bad days. Realistically, the fact that we aren't much lower suggests that the street may be thinking that this could be much worse. Maybe the Govt's steps are working in that we are not falling apart. Its something to think about.

Stay tuned.

Another Thing...

2008-09-18T12:01:00.000-04:00

Just checked out the major financial stocks as I do regularly. If the Government is restoring calm and order to the system today they are doing a poor job. Almost every major financial is down, most at new lows. Goldman Sachs is down 30% these past 2 weeks, Citibank about the same, AIG down over 90%, the list goes on. These are either screaming buys or another big name is close to failure. Curiously BAC and JPM have held up ok. More curiously, we haven't heard a word from Jamie Dimon. Is no news good news?
Prepare for the worst (Citi), hope for the best (we hold 1150).

Moment of Truth

2008-09-18T11:15:00.000-04:00

Well here we are at 1160 after a sharp opening rally to 1184. They say the market rallied on news that the Fed was injecting massive amounts of liquidity into the system. They say that it was a coordinated efforts with other central banks. Why then are we back at the lows? I think we will break down (targets 1100 and the other i won't mention now) but bear markets are tricky. While they do go down like stones, they also face enormous efforts on the part of enormous market players to stem the tide. So bear markets have an inherent "braking" system in place.

But this is probably not an ordinary bear market. So all the pundits that say "well the average bear market drops 26% so we are there and..." don't realize what's really going on. I hate to sound like a broken record and maybe I am believing too much of my own you-know-what BUT, Bear Stearns, Fannie Mae, Freddie Mac, Lehman, Merrill, now AIG, who is next? all went bust in the last 6 months. Please reread that and think on that. Some questions come to mind...who will step in and replace these "providers of capital to our economy"? what will be the effect of tens of thousands (maybe hundred thousand plus) of unemployed secretaries, clerks, and m&a mba experts? Other than the US Governement (& taxpayers) why weren't there any other bidders for these storied companies? And just what is the Government going to do with all that bad paper and those bloated companies? It occurs to me that none of the answers bode well in the near term. I just do not see this turning out ok for a while.

Give the Government credit. They are taking steps to calm things, to buy time, so that order is restored. But I am concerned that

a: they are running out of "bullets"
and
b: they are now inexperienced custodians of very complicated companies.

Yes, in the long term this might work out but 3-5 years is a long way off. When the Fed is out of bullets I am sure the Government can take other steps but they can't be desirable alternatives. And if the economy weakens further from the decline in bank lending and lack of credit creation then that could put even more pressure on the economy.

What's an investor to do? I just don't see any reason to be long here other than a very small position or to trade a counter trend rally. I think we could go sharply lower with very little 'meaningful' risk to the upside. As I write this, yesterdays low's have been taken out. We are now 1150 and falling...what's the Fed's next move? Wow!

Our Capitalist System - RIP?

2008-09-17T09:27:00.000-04:00

This AIG thing can't be good. The Govt stepped in to avoid the disaster of a violent unwind in the banking system. Firms in bad shape are essentially facing "margin" calls that have created a liquidity crisis. LEH, AIG, MER/BAC, et al, are in the center of the crisis. As they sell to meet their calls, prices fall furhter causing more "margin" calls placing further pressure. Other liquid assets must be sold to help the cause (in addition to non liquid assets). But those liquid assets may include things like stocks and that threatens prices. The break in the market occurred Monday, yesterday was likely a kneejerk sort of reaction, what they call a technical bounce. How low will it go? Today the pressure is on and we'll see if they hold. I just don't see how all this Govt bailout stuff makes the sun shine.

Regarding the S&P time spent under 1200 is bad. (now 1188, near the day's low) Everyone invested in the S&P/lookalikes over the last 3.5 years sees their positions at a loss. That will put pressure on any upside move. Eventually the supply will be absorbed but that is clearly a concern on top of the aforementioned concerns of a banking unwind. Meanwhile the Russell 2000 shows small caps holding 10% off the lows. This impresses me and if I were going long I would emphasize this sector of the market. Small caps would appear to have less overhead supply and pressure. In either case we must listen to what the market is telling us.

A major brokerage, perhaps Barclays, said the financial sector bottomed with the AIG bailout. Many have said similar things over the past 15 months in this sector and have been wrong. How do we know there aren't more "dead bodies"? Of course I will watch the sector to find future winners but this sector is a mess and other than reversion to the mean rallies I don't see strong enough evidence to support a bullish position on this group.

It's not a dull market.

Back from a long blog vacation...

2008-09-16T21:20:00.003-04:00

What a long vacation that was! It happened but now I am back in the writing mode. So much has transpired since I last reported but suffice it to say the world is a different place today, at least as far as Wall Street is concerned. Several century-old firms with incredible history are now just history themselves. Who would have believed it?

The last post to this blog several months back noted all that had transpired leading up to the Bear Stearns implosion and JP Morgan Chase ‘takeunder’. I noted the potential for ups and downs in the market with the expectation of lower prices ahead. That is just what we saw happen. Along the way I have employed various techniques and tactics to profit from this volatility with limited success. While I am pleased to be ahead of the S&P this year I am displeased to be at a net loss. It’s very difficult to navigate these waters but it can be done. And I believe by the end of the year we will be in much better shape. Maybe all will all be fine with the Federal Government backstopping JP Morgan Chase, Fannie Mae, Freddie Mac, now AIG, and possibly more. While such moves buy time, they also just transfer the problem to another holder. Other than buying time what magic will be expected of the Feds? I’d like to see the sunny ending but I am having difficulty with that vision.

Backing up a few months, I noted that China as the new world leader with the amazing economy and soaring stock market would top with the Olympics. This is seemingly unrelated to the market but many major social phenomenon have coincided with market tops and bottoms. (Remember the Millennium celebration in the US and how the market topped with it?) I was wrong though – China topped well in advance of the Olympics. And to digress for a moment, with billions of people in China, couldn’t the authorities there find a little girl who is pretty AND can sing well?

As China topped, the broad global expansion lost some oomph. More oomph has been lost with the US and Europe slowing as well. Leave it to Wall Street to do the rest. It wasn’t good enough to lose money the old fashioned way – they found newer and better ways to lose money. The key to this banking crisis is the headwind that will work against overall growth as banks are more worried about staying in business rather than expanding their businesses. And if loan growth stays flat or shrinks, so will credit expansion, and so will economic growth. Until the dust settles on the latest LEH-AIG-MER implosion I believe we are best served with minimal exposure and a short bias at that.

There is always the risk that the market will make an explosive move upwards. However, with the unwinding of enormously leveraged balance sheets at the aforementioned firms (and probably others who are counter-party involved) we must respect the risk of a major decline. Yes, the horses may already be out of the barn as the market is down over 20% from its 2007 peak and has retraced 50% of the gains made from the 2002 lows. It’s possible that this is the time to be aggressively buying and not cautious. But with the risks out there I believe that it is better to be on the outside wishing we were in rather than being invested and wishing we weren’t. There will be opportunities and I will jump on them but for now we need some sanity and calm to return to the markets.

Stay tuned – it won’t be boring.

Important Juncture

2008-03-25T23:03:00.003-04:00

The stock market has rallied nicely off last week’s lows and now it’s “crunch time”. Many events occurred last week to suggest a panic low was made: The Fed came to the market’s rescue and in a 5 day period cut interest rates, guided a bailout of Bear Stearns, bailed out Fannie Mae and Freddie Mac by relaxing capital requirements, allowed member brokerage firms to borrow from its discount window for the first time, set up a variety of other lending facilities for the same institutions, provided a minimum $260 Billion in liquidity (internationally in some cases) and, they cut rates once again. Clearly the US Government is stepping up as lender of last resort to protect our banking system and economy. They did not do this because things were status quo. The Fed did those things because we were on the edge of a market and system meltdown – a true crisis was at hand. They saved the day and since then the stock market has jumped 8%. Perhaps betting against Uncle Sam is a bad idea and the panic is over. And that enormous stimulus to the banking system should spur economic growth producing stock market gains.

At market lows, various indicators should reflect greater anxiety than normal. The anxiety levels in Aug ’07 and late Jan ’08 reached more significant levels than last week. Trading volume, which often surges during sharp sell-offs, was running just above average for most of this recent 3 week decline. The VIX, a fear ratio, got close to but well shy of those other panic levels. Other indicators like new lows, proximity to the 50 day moving average, & other short term ratios did not expand widely either. We sure got the newsworthy anxiety but in many ways the market’s reaction was ho-hum. One could say the government should get their due for that – their actions prevented the crash so the anxiety level was muted. Further, we could deduce that the muted response for whatever reason suggests that sellers were not motivated by the news any more than they had been and that their continued impact on prices would be much less than anticipated. For these and other reasons we could build a convincingly bullish case for that stock market.

One could also ask that if this low wasn’t the major washout then when will that other shoe drop? Shouldn’t a bear market end in a crescendo of technical indicators at extreme anxiety levels? There doesn’t have to be another shoe at this point – there is no rule that the market has to do that. And as it turns out, a quick study of various technical indicators going back to the early 1970’s don’t show consistency with regard to technical indicators and market declines. Sometimes they “do”, sometimes they “don’t”. (The tightest correlation seems to be the rate of inflation, recessions, and bear markets.)

Yet, despite all this evidence, there are concerns about the current environment that could delay all the gratification. The rally from S&P 1256 on Mar 17, 2008 has been impressive but volume has lessened the last two days suggesting demand for stocks at this level is softening. Often stocks will revert to their 50 day moving average. The decline we are in began October 2007 – at first it was simply a reversion to the 50 day line following a strong rally. Since then, every decline bounced back to the 50 day +/- a small % and faded as quickly. We are right at that point now but still in a confirmed downtrend and that pressure has to be respected. There is also the issue of overhead supply. This phenomenon occurs when holders of a security have paid prices higher than the current level. In this environment, most anyone who has bought the “market” in the last 15 months is losing money. The concept is that as prices eventually rise those unhappy holders will unload as they near a breakeven, having held on for so long and finally able to cash out without a loss. This headwind should continue for as long as the “top” took to form. In that regard, even if the low was set last week, the top was 13 months long in forming and we’re only 2 months into the overhead supply phenomenon. As prices rise they become vulnerable within this technical pattern so perhaps this is just a relief rally that’s going to fade and we’re still headed lower.

While the Fed changed some important rules for our financial system, there are other elements of the economy that appear to be suffering. For example, there are 10 major S&P sector indices. None of them show strength, 6 are outright bearish, 4 are questionable at best. This suggests that weakness persists now and will for the foreseeable future. One theory explains this overall malaise. Financial institutions have written off' nearly $200 Billion in assets. Those assets factored into the banks' capital ratios. Without them, the ratios suffer and capital must be increased or the loans written against them must be decreased. If de-leveraging is the answer then $1 – 2 trillion in loans must be eliminated. De-leveraging would affect nearly every sector of the economy. Given the U.S.’s $14 trillion GDP, de-leveraging of this magnitude would be significant, enough to pressure economic growth for some time. It’s no wonder the Fed came to the rescue as the de-leveraging effect became pronounced and dangerous. But much of the Fed’s response can also be viewed as inflationary which would introduce another set of problems, perhaps as bad or worse than our current set of problems.

Of course, the biggest question is how much of the future has been discounted by today’s price structure? The panic lows set last week can initiate a bull market and we have to respect that. But, the de-leveraging of the financial system may continue to put pressure on the economy and profits. And we have to respect that, too. Don’t fight the Fed and don’t fight the tape. Although I date myself that way (alas, there are no more ticker tapes) the best answer is to listen to the market. If it takes out previous highs and then corrects but holds above the recent lows then maybe the tide will have turned. Eventually that will happen and maybe it’s happening now. However, until certain market indicators begin to show strength (or stop showing such weakness) a cautious approach is warranted. Long positions will be built in stocks that have weathered the storm and appear poised for future growth – don’t fight the Fed. But positions in mining companies (gold) and short ETFs will be maintained to offset the risks that still persist – don’t fight the tape. We will hope for the best and prepare for the worst.

Bailout, Goodbye Bear, What's Next?

2008-03-17T12:55:00.003-04:00

The Fed came to the rescue and the center held, so far anyway. Previously the S&P was locked into the 1270 - 1400 range that became 1275 - 1325 but has now been broken. After settling at about 1260 prices have rallies towards 1270. This is no surprise as support often becomes resistance and prices often tend to go back to "test" that level. So we can expect some efforts to "regain" 1270. I believe they will fail but we must remain open minded and listen to the market.

Part of me thinks the market should have crashed today to the tune of 10 - 25%. After all, what did the Fed do other than shift the risk to themselves from Wall Street? And, now they have painted an ENORMOUS target on their backs by saying they will treat brokerage firms like banks and backstop them, too. The benefits are obvious in that it buys time and soothes some exposed nerves and one day all this paper should be ok. But the risks are equally obvious, too. Net net, the market is lower but "controlled". Perhaps it shows some strength that we are not crashing but that isn't making me want to reduce shorts and/or add longs.

As long as the market stays below the 1270 - 1275 range we are still very vulnerable to lower prices. Should that change then we must adapt. Until then we move nervously ahead.

For many its been a bad time, fortunately Geller Capital's approach has prevented a disaster for our clients. In some cases we are even positive on the year. Stay tuned, it can and will be both interesting and challenging.

Volatility Anyone?

2008-03-13T19:04:00.004-04:00

Since the last post the stock markets have been mostly lower, very volatile and recently strengthening. For all the excitement we are still locked in the S&P range of 1270-1400, oil and gold are setting new highs, and the $US is setting new lows, amongst other action.

The Fed is scrambling to stabilize our financial system through some clever, sophisiticated techniques beyond simple rate cuts and all of those acts will help to turn the tide eventually. However the current evidence says those acts are not yet causing a difference. Today's rally was spurred by the fine people at S&P who claim that subprime related write-offs are past the midway point. They completely missed this debacle - some 85% of all mortgage bonds issued in the last 3 years were rated S&P AAA. Many of them were clearly not up to that standard and at the same time a good number of such AAA bonds have become worthless. Yet investors respect their current analysis. Its clear they didn't understand this before so why should they be trusted to understand it today? One answer is that the market is "oversold" and normal daily buying is enough to push prices towards the top of the range. If such a bounce occurs I would expect it to peter out between here and the 50 day moving average or about 3% higher, give or take. It is noteworthy that the S&P has bounced off of 1270 5 times in the last 6 weeks and this zone was a congestion area from Q4 2005 - Q4 2006. So those points could indicate that the bulls will hold here, for now. If the rally exceeds 1400 then I would be inclined to back off on some of the downside exposure we have but more on that if and when we cross that bridge.

The central point to my thesis is that the confluence of the fallout from the housing bust, the weak consumer, the banking crisis, and the weak dollar (to name a few) will continue to act as a headwind/overhead supply to the economy and the market. Until that changes we will be very careful (perhaps "avoid" is better) in adding more than miminally to long positions. Simply watching the action of the key financial stocks will tell us most of what we need to know. And from that indicator I can say that its not time yet.

Stay tuned.

Checking In

2008-03-05T15:55:00.003-05:00

Not much has changed since my post on Feb 19. We are in a bear market although the "experts" will debate that point. They'll also debate the recession point and I for one hope they are correct. However, it acts like a bear market and it acts like a recession so Geller Capital will play it much differently here than during normal periods.

Positions have been pared to only whats working for as long as they keep working. And most of the longs in position look ok. Gold positions have been added and act well. Ultra ETFs have been added to offset downside risk and they are helping. All in all, GCM is outperforming the down market however we know and expect it to be a difficult road. And a full list of attractivew stocks is in hand, ready for action. But not so fast.

The greatest risks today are large and include the unwinding of the credit bubble and that's potentially very bearish. But the risk that the Dollar is losing its pre-eminent status and that the Fed has only inflation to fight the debt burden is much more worrisome. And until that changes those Ultra shares may make all the difference.

Stay tuned...

More Nails In The Coffin

2008-02-19T14:53:00.002-05:00

The market continues to weaken and the only thing that is being raised are a series of red flags. It seems that many of the foreseen problems will be resolved with lower equity prices. In the last post I noted that the market had rallied 50% off the Jan low getting to about 1400. A quick selloff excited buyers who came out in force but that too faded. Friday brought a late rally that erased the day's decline as we headed into the 3 day weekend. On the strength of oversea's markets, today's action hammered more nails into the coffin as a 1.25% opening rally faded and, as we approach 3pm, is on the verge of going negative.

Why? Oil spiked 4.2% to $99.70 (almost a new high), gold spiked 2.6% to $930 (almost a new high), and US Treasury yields spiked 2.5% to 3.88% (from 3.50% 2 weeks ago). Are they dumping Treasuries because of potentially stronger economic growth or potentially higher inflation? If it was for growth reasons then US stocks should be holding their gains and/or adding to them, not fading. I'm leaning towards an inflationary (or stag-flationary) answer. And, I think there is some sort of de-coupling of global growth from the US economy. Despite what many believe, this can happen and if it does its another thing that bodes poorly for our economy.

Fortunately there are ways to work with this set of possibilities that could lead to enviable returns. Regarding inflation, gold is one answer and, in my opinion, owning shares of gold mining companies is the best alternative. I have specific ideas about stock selection in this area but gold shares are an important part of the mix. Regarding a slowdown, long positions have been pruned to maintain only positions that are working with reasonably tight stops. There are many excellent US companies/stocks but since 3 of 4 stocks follow the market I would lean towards less long exposure. In its place I recommend holding cash or adding short positions via ETFs. It is now possible to go long an ETF that gives the inverse return of a major US stock index. Adding some exposure to these will reduce risk from longs and possibly add to returns if the market heads lower. Finally, from a decoupling point of view, ADRs are one solution to owning foreign stocks without the typical hassles of currency exchange, illiquid markets, etc. They, too, have factored prominently in the new mix.

The best way to make outsized returns is by owning great stocks. Despite my bearish perspective I maintain a list of stocks to buy that look terrific. Once they get to certain levels and/or the market straightens out I will be happy to build positions in them. But until then there will be other areas of focus.

In the short run, a rally in the SPX above 1400 would concern me as well as a decline in gold under $900. Despite my negative view, I respect that the market could shoot like a cannon and for seemingly no reason. There are many huge pools of capital that are betting on a shallow downturn with no recession. They will fight the bear market with everything they got. That will lead to rallies that erase losses and rallies that appear to be strong, like this morning's. But, as long as we continue to see a series of declining peaks in the indices, a weak advance-decline line, weakness in the new high-low ratio and other market internal statistics, the market will grind lower. The fed's reliance on lower interest rates will not stoke demand if their target market is tapped out and has no more gas in the tank. That sounds like the US consumer and what the US stock investor is becoming.

Stay tuned. It will be interesting.

New Month

2008-02-01T16:22:00.000-05:00

Thankfully, or perhaps mercifully, January is over. Not our best month but we have had worse. There is much to be concerned about here with a weakening economy. If the stock market is a leading indicator it tells us we have a lot to be concerned about.

Typically markets correct about 50% of their previous moves. E.g., the bear of 2000-03 on average gave back 50%. The bulll of 1982-1999 fave back 50%. If this 2003-07 bull market gives up half, the target is 10,800, or another 15% lower. Maybe not so bad but if that happens I for one would like to make money in that, not lose more. Officially I am bearish on the outlook from here. As 50% corrections go, it should be noted that the market has rallied back to almost exactly 50% of the decline. I think that the market will sell off and begin to retest the lows soon - days or weeks from now. If they hold, we'll reassess. If they fade further, our cash and gold positions will help. But they might not be enough. In the meantime, I'll be thinking about short ETF's and how they can help us. Enjoy the weekend.

Rally To Where?

2008-01-28T17:19:00.000-05:00

Lots going on in the markets these days. Last week's surprise rate cut wasn't such a surprise but the SocGen mess was. In fact it may have spurred the Fed who saw panic and took action. Rates have cratered, stocks have rallied, fear factors are high and gold continues to rise.

Regarding rates, the Fed has no choice but to lower to help a sloppy-at-best economy. Among many things, it will ensure that hundreds of billions of resetting mortgages in 2008 do not rise and add to economic pain. To be sure the Fed is clear that it will fight economic weakness at the risk of inflation. In fact, inflation may be just what's needed as it will raise asset and income levels and make the debt load that much easier to swallow. Flooding the market with dollars will accomplish this. More money available at lower cost are two key ingredients to growth, the missing one is velocity. Once velocity rises the economy will take off and "pay" back for the risks taken. Until that time however there will be major perceived risks about the dollar and inflation. Just look at charts of the interest rates, the dollar and gold and you can see this picture. The question is are we earlier or later in the cycle and how much is left on the table? The way I see it the Fed is boxed in and the only weapons they have are inflationary. Add this to the view that the Fed is unproven and suspect at best (among other things political) and its hard to see an improving dollar. Rates suggest that economic weakness is for real. Gold tells us to be concerned about something or a lot of things. Inflation is high on that list.

Look at market sectors and the most bullish are basic materials and mining especially those related to gold. Look at highs and lows in the stock market and golds are there again. Again, the big question is are we late or early? While most of the stocks in this sector are up nicely in the last 6 months, they mostly appear to be coming out of 12-18 month price bases. Not only do I think we are not late, I think that we may be at the cusp of a sharp move in this sector. AEM, NEM, GOLD, ABX are the best of the bunch.

The market got creamed - down 20% in 3 months, most of that coming in less than one month. From the low the market got a third of that back in 5 sessions and is right near resistance. S&P 500 resistance is roughly the range of 1370 - 1420. Financials rose sharply in the last week or so and are at similar resistance levels. The advance decline line is still holding up ok but new highs/lows are still poor. Few stocks are healthy as only 20% of stocks are above their 200 day ma. Other notable puzzle pieces include NYSE volume which has declined daily thru this rally and the probable concern about what the Fed will do this week. The market is telling us that it is tired. What will make it more tired is the supply of stock that was bought at 1400 or higher (on the S&P) during the past year and is ALL underwater. Any rally from here will help those holders breakeven and will put pressure on the market. While I don't see the market getting much above 1400 on this move I respect that forces out there can change on a dime and turn this weakness into a huge rally to new highs. But we will see that developing if the market holds and failes to follow through on the weak economy/weak dollar/rising inflation and fear scenario. Market weakness and volatility should dominate for at least six months at such time we should see evidence that the Fed is winning the war. Or not.

Its the current battle that we are most concerned with. The plan is to be defensive, sell daily into rallies and add to gold positions until the market tells us that's a bad idea. Until then, stay tuned. The retest of the lows will happen - it always does - and we will learn much about our thesis at that time. In the mean time I will be thinking of all the things that could go right for the market which would be wrong for us...

Is it really a "happy new year"?

2008-01-17T11:49:00.000-05:00

wow, what a mess. the stock market acts terribly, particularly the main indices. way too many issues are breaking down: only 25% of stocks are above their 200 day moving average. this is one big definition of poor market health. the only thing that looks ok is the advance decline line which is an important indicator. i'm not sure just how this thing is holding up since everywhere i look weakness is what i see. i'm not pinning my hopes on one lone indicator but it is worth noting.

the best move had been to lighten in late december and again in january. i know that geller capital can pick the right stocks at the right time so the trick is avoiding major losses until then. therefore the thing to do is stay light, sell weakness as it happens, and avoid increasing losses. there will be a better time to go long and take risks. the best wall street maxim regarding this is 'don't try to catch falling knives'. its certainly a good visual! i hate being pessimistic after a near 10% decline but there are not that many reasons to be bullish. maybe that in of itself is a reason but there is a large overhang in the market - essentially anyone who bought the s&p/s&p look-alikes over the last 14 months is holding a loss. my perception is when that happens the upside will be limited. in this case its more a market of stocks than a stock market since there are some good names out there. but if it looks and acts like the s&p 500 then it will be hard to gain an edge where "everyone" is crowded around.

a surprise rate cut would not surprise me here and that might help in the short run. the biggest concern is that the fed is going to fight this recession with low interest rates but that will spur inflation. lets face it - an ok economy with inflation is the better alternative to a depression. keep in mind the billions in mortgages that will be resetting this year and what would happen to our beleagured consumer if they reset at higher rates. so rates will come down for that reason and to make the banks healthier from the carry trade.

its a mess but there are solutions. they will just take time. i plan on being in place when that time is right. for now, stay warm and dry!

Day 1 of the New Rally

2007-11-13T16:13:00.000-05:00

Stocks snapped back HARD today rising after four difficult down days. We had the right idea, selling what wasn't acting well, however the weakness in our other holdings gave us indigestion anyway. It would have been nice to take some profit at the highs on RIMM, AAPL, GOOG, etc. but we had built up a substantial cash position anyway. We tried to put some of that to work this morning but unfortunately the big Wall Street 30% off sale was closed. I saw no reason to pay up today thinking our former big winners turned very recent losers would give us a big lift. Indeed they did with the likes of the aforementioned rising 4 to 14% today so we got back a nice amount of performance and we still have our cash. The fact is that the advance decline line still stinks, and the new highs and lows have a similar bad odor. Perhaps the only bright spot is the volume which ran very high during the selloff and maybe exhausted the sellers.
Here's what will happen next...the bulls will continue to buy thinking the selling is overdone. The bears will sell into their rally expecting the other shoe to drop on housing, mortgages, the dollar, inflation, etc. At that point we will see if they can take the market below yesterday's close or if the bulls will step in once again. I believe the market can go higher but the technical damage to stocks needs to be fixed which 0nly time and money can do. While there is a chance that buying today would have been the right thing, I'm comfortable waiting to see what happens. Our returns to this point have mostly been outstanding so why force the issue with so much unclear. Better to be on the outside wishing we were in (for more) than being on the inside wishing we were out. Stay tuned.

New Things to Worry About

2007-11-07T12:10:00.000-05:00

Now its oil at almost $100 on top of the writedowns from sub-prime stupidity and significant weakness in the financial sector. Then there's Gold soaring to 28 year highs that makes us realize the inflation train could be getting ready to leave the station. And, if the $ keeps falling against the euro (and anything else on the forex markets) that situation will only intensify. Add this to the continued weakness of the NYSE advance/decline line, the negative new high/low list, and the upside down volume flows. There are other negative divergences but let's not get too negative here.
Fact is, we don't invest in or directly own any of those things that I mentioned. We own stocks and other than most of them, there are some stocks that just won't quit. RIMM, GOOG, & AAPL each set a new 52 week high today. Other names stay close to their upper range and act well so we stay with them. And others feel like the momentum is shifting and we lighten up there. As long as we stay flexible we'll do just fine. Stay tuned.

New Highs/Unusual Volatility/What’s Next?

2007-10-31T22:38:00.000-04:00

Today was another big day in the U.S. stock market. The NYSE composite closed at a new high on a volume surge – exactly the type of action that an investor wants to see. The NASDAQ soared even more and closed at a new 7 year high. More to the point, the stocks that GCM holds in its models jumped again, outperforming the market handily. Its hard not to be bullish right now from where I sit. My gut says we are poised to go higher but other parts of me are questioning the sanity of such a perspective.

In fact, there has been much to be concerned with over the last 2 ½ months as the market surged. Perhaps most troubling has been the series of negative divergences that have developed among key technical indicators. While the above indices are making new highs, the advance decline line has not. To the contrary, the line is below the October 12th level when the market was at the last new high and it is even further below the July 16th level when the market was at the last new high before the subprime mortgage meltdown. This suggests that the average stock is not moving higher and the pizzazz in the indices is due to the gains of a select group of stocks. As leadership narrows, a bull market is threatened.

Volume flows are out of sync on the NYSE and the NASDAQ. During the summer rally, volume was not overwhelming but it generally ebbed and flowed with the market. After the volume surge during the ensuing summer selloff, the market rose on noticeably lower volume. The lowest volume was about 3 weeks ago, at the last peak suggesting weak demand at higher prices. Then, as the market dipped in later October, volume picked up suggesting sellers were getting aggressive. As the market rose during the last week volume ebbed again – a buyers strike? Volume is the weapon of the bull and should rise with rallies (aggressive buyers) and fall on declines (an absence of buyers/weak selling). Since just the opposite has been happening, we have yet another negative divergence.

Finally, the new high/low list has been anemic. The 10 day moving average of new highs to lows has been deteriorating. As the market has just “broken out” one would expect a surge in new highs, perhaps 500 or more a day, not the 150 or so we have been seeing on average. Other factors are more subjective – tremendous volatility on a day to day basis in select “hot” stocks as well as the WCG debacle. Lots of anxiety over interest rates, credit, the China bubble, to name a few.

Yet, the indices feel like they are going higher and a breakout could carry us 15% quickly, maybe by year end or early February 2008. Ultimately we buy and sell prices, not volume or new highs or breadth. So we should respect the price action the most.

So what’s a portfolio manager to do? For me, the answer became simple – raise more cash. If the market breaks out, our list of winners (RIMM, PCU, MTW, AMX, STRA, etc.) will likely do more than their share of the lifting. If necessary we can add to existing positions or take on new ones – there is no dearth of ideas in this shop right now. But, if the negative divergences cause this potential rally to fade, that cash will help us grind through that period and make better decisions near the low. In other words, it will be better being more on the outside wishing we were in rather than being more on the inside wishing we were out.

We will continue to monitor the markets closely and hopefully continue to add meaningful gains to the already excellent year we are having. Stay tuned!

some questions answered

2007-10-25T11:39:00.000-04:00

since the last post where the market's strength was questioned we've seen a 3% drop. normal range and on the surface not much to get excited about. but, much has been happening.

in "the big picture" on a1 of the investor's daily, yesterday's fed rate cut rumor was billed as the driver of yesterday's afternoon rally. the fed has at least one problem and its the economy - not so hot domestically. they can't let housing drag it down too much more so more rate cuts are coming. my reaction to this rumor/news is that the fed needs the stock market to replace the wealth lost in housing. that's the easy solution and one that they figure will probably work reasonably well.

however, the market signals are telling us something else. the volatility index is swinging sharply - in the last 5 days we've had 4 20% swings. that is fairly unusual and mimicks some of the trading from late july/early august. the level of subprime related writedowns are not really surprising but the recent ones from merrill and wachovia were grim reminders that there is a problem out there that has not completely gone away. a look at the money center banks (c, bac, jpm) is more depressing. these great drivers of monetary growth are not carrying their weight. c is at a new 4 year low, bac is at a new 18 month low, jpm is the champ of the group but it is underperfoming 55% of all other stocks so its hardly worth getting excited about. this is probably why the fed needs to steepen the yield curve further (thru rate cuts) so the banks can make more money and improve their weak levels of loan activity.

if the fed reinflates this mess then inflation worries will abound. so for every fed rumor that gets mentioned, the materials sector should rally. keep an eye on copper (pcu, fcx), gold (aem), and dry shippers (drys) to get a sense of how serious the inflation threat is. the dollar/euro relationship also bears watching.

at the same time, watch those winning stocks. we have a few parabolic names in the list and profit taking is tempting but it seems like the rally is a few good days from an explosive move. i think that move goes higher but anything can happen in this edgy environment. stay tuned.

been a while

2007-10-11T22:48:00.001-04:00

you know something, its really easy to get used to not writing a blog every day. much easier than getting used to writing one every day! the last few months have been chaotic but having managed to survive the last 3 months, and having gone from peak to peak and then some, today brought an inside-out day on the market, or something like that. this is a technical phenomenon where major indexes reach new break-out highs and then reverse to new weekly lows. today, they mostly settled somewhere in the middle to lower end of the range. volume rose which suggests the selling was more intense than recent buying. so will tomorrow bring ornery bulls back to the table to buy aggessively and reset the peak? we have seen these self-sealing markets since 2003's breakout and they can't be counted out. since this bull market started 4+ years ago we have yet to have even a 12.5% market correction so it would not surprise me at all to see a nearly immediate reversal back up.
but, the market cannot continue to go up on low volume. pre the july peak we ran 1.5-1.6B shares a day avg volume but now its been a 1.2-1.3B daily affair at most. and then today aggressive selling hit some major air pockets. e.g. rimm was on the verge of another new high off the open when selling came in. it settled down a couple of points but around 2pm it starting falling and was down about 10 PERCENT in 15 minutes. that is not healthy action no matter how you slice it.
unless of course the self sealing market resumes. its been nice to be mostly invested but right now anything that has much deterioration is going to get kicked to some extent. we did that yesterday with a few names but our average 15% cash weighting is starting to feel a little light. let's face it - this 190 point s&p 500 rally in less than 3 months (1700 dow points) will correct. with recent big outperformance its ok to book some profit from the most extended stocks and cut losses on the weakest. while the downturn should produce an opportunity it will likely be brief and one we should scale into to make sure we get some at lower prices before the rally to new highs resumes.
or, is mr. market about to kick our butts in another of the bar-room brawl type corrections we seem destined to deal with. it would be so poetic - we finally get the sp500 and dow to set record highs on the same day and a new correction begins. i don't really advocate trading that much but i cannot stop thinking about being nimble here.
i hope to write again soon.

Nailing It...and Coming Clean

2007-08-10T12:18:00.000-04:00

On Tuesday I wrote that the S&P should rally to 1500 and then retest to 1525-1550. We got the upside by Wednesday and on Thursday the market caved in a big way, following thru this am to a low of 1430. Prices have reversed and are now up 21bps to 1456. There are parts of me that want to believe that the correction has retested its lows, held, and is now working on its recovery.

However, what has occurred in the financial markets has been dramatic. The question is did they overdo it or are they just getting started? Is the Fed & the ECB injecting billions in liquidity because the markets have lost a sense of reason or are they in worse shape than thought? The answers are not easy to come by today. Initially my view was the the mortgage mess was isolated to the US and would have no impact on, e.g., China and India (et al) industrializing. But, is the revelation that a French and a German bank both got stung by subprime mortgages a little more of the iceberg or is it isolated? If banks globally pull back on credit and lending then in fact global growth could begin to slow.

Or, is this just a typically nasty securities markets correction that overwhelms the crowd and makes them lose their grip on the real story: phenomal global growth due to the introduction of free market systems to billions of people and the ensuing demand for numerous products and services. Thats the story that will, in my opinion, come back and dominate the longer term direction of market prices.

In the short run however this correction has been a backbreaker. Numerous stocks gapped down HARD and found no bottoms. Big winners in mid July are now down on the year. Admittedly, GCM's portfolios surrendered more of their gains and outperformance than we would normally expect to. It would be easy to surrender to pressures, sell out, and start the portfolios over. That would only be a smart move if the markets dropped sharply from here. In my experience, when the fear is thick the risk is actually lower than the street thinks. It could be wrong to go against that but the probability is that is where we are in the cycle. Of course we won't know that for several weeks but GCM's approach is to hold the cash thats in the portoflios in case another shoe drops, sell broken stocks since they no longer fit our mold, build the buy lists and wait. Wait for the market to stabilize, retest the lows some more, and show direction. The benefit of a correction is that finding winners actually becomes easier and that is largely how we are spending our time here. We can't do much about the last 3 weeks but we can do everything possible to make the rest of the year as successful as most of the preceding period.

Its not the first time and it certainly wont be the last that markets fail to move in straight lines.