Monday, August 8, 2011

Knocked Out

What. A. Total. Mess.

Tonight's post will have two parts, a market observation half and the other half more of a rant. If you don't to read one or the other (or neither) you have been warned.

Shots to the Head
Roberto Duran KO8 Davey Moore (MSG, 1983)

I spend a ton of time on charts, various indicators, and screens to find short term trading ideas for my trading account. Vicious sell offs like this one are easy to dodge, just don't play. When the markets are getting dusted by combinations to the head leaving stocks dizzy and off balance, everything gets sold. Everything.

In my long term holding account I do have plenty of gold and silver (yeah!) but look at Hormel Foods (HRL), Hershey's (HSY), Coca Cola (KO), and McDonald's (MCD). I hold all of these from years ago. They are slow growers but are solid companies and pay nice dividends. All are getting whacked down. A drop of 10-15% for these types of companies can take a long time to recover from.

I am not selling anything here and won't unless I need the money (I won't). I am just trying to show you that even conservative portfolios are not spared in market massacres. If you invest in any way you have to accept this.

Everyone wants to know if this is THE bottom. With the FED on tap tomorrow there could be a setup for one amazing rally in short order. If the FED is not helpful, a crash is a likely occurrence in this environment. I have zero interest in playing that trade either way. I am on hold trading wise until we stabilize at SOME level and then move sideways for a bit. Right now if you are of the longer term investment mind set, many companies have been destroyed beyond reason here. Barring a global depression (who knows) some leader names are attractive. Write them down and keep an eye on things, there may be a chance to grab some good things at good prices.

Crippled by Body Shots
Julio Cesar Chavez KO12 Meldrick Taylor (Las Vegas, 1990)

I gave up on writing about the ills of the economic world around this time last year. The US federal Reserve started Quantitative Easing 2.0 (QE2) in an effort to, well, who knows what. Instead of market players and people in power asking the right questions and stopping such a gross application of liquidity most just jumped on board and looked to make a killing off it. Hope they did.

So what now? Record food stamp usage; no jobs; a slowing economy (wait until the market drop hits confidence, you ain't seen nothing yet!); and another historic stock market collapse. Want QE 3? Many are asking, no begging for just that. For what? Another rally fueled by nothing but air, then another collapse?

In boxing shots to the head can be overcome, if you can hold or get to the end of the round. Body shots sap the very heart of a fighter. When he goes down, he does not want to get up. We are at a point where belief in our government, faith in the FED, and trust in markets are putting people down and they don't want to get up.

Watch mutual fund redemptions. Regular folks never really dove back into the markets and those that did probably just got in a few months ago, just to get flushed again. While sitting in cash at 0% return sucks thanks to the FED, it beats getting murderholed to the tune of 20% or more.

Will the general community finally apply the pressure to get some reform? I want to think so. Will the people of the United States send every single incumbent packing next election? I want to think so. Will we finally start to have an adult discussion bout the economic future of this country? I do want that.

Instead, look for QE 3 in whatever form and the real issues to fall along the wayside once again.

Have a good night.


Jake said...

It takes a stomach, but that 10-20% drop in quality names is a win over the long-term. Dividends don't change (as a percent they go up) and if you reinvest dividends, you buy back for less.

Still predominantly on the sidelines, but some names (and discounted close-end funds) are starting the become more attractive. I'll start dipping back in as soon as the markets cool off a bit.

Night GYSC.

getyourselfconnected said...

Hey Jake, thanks for stopping in. I am not moving anything now, but sell offs like this make you wonder if cash at 0% is a viable idea.

Night to you too.

The Sovereign Bohemian said...

The best post I've seen here so far. The "body shots" analagy seems perfect for what we are seeing.

I'm a long term buy & holder for the most part...I don't understand trading well enough. Guess right now it's killing everybody.

Half of my money is in dividend payers and half is not. I'll be following your blog to stay up with things. I trust your site much much more than the talking heads.

Thanks GYSC

Watchtower said...

The market is rockin' and reeling like a drunkard, somebody has to be making a fortune on this volatility.

GawainsGhost said...

My question is this. When there's a massive sell off, who are the buyers?

I mean, you can't have a seller without a buyer. So who is buying into this market?

You want to sell your house? In this market? Good luck. There's so much inventory, and more to come, on the market right now, you won't be very happy with the offer that comes in, assuming you can find a buyer who can qualify for a loan to make an offer. And that buyer would have to be someone with a job, or cash.

Prices are going down. I see it every day. I do all this research, find this house, write a price opinion, just to get a listing. Then I have to market the house, write an ad. As soon as I do that, the seller comes back and knocks $5-10-15000 off the list price. It's insane!

Who's buying into this market? Or any other for that matter. That's my question.

GawainsGhost said...

Now this is rock and roll:

Give me a T for Texas
Give me a T for Tennessee
Give me a T for Thelma
Woman made a fool our of me

GawainsGhost said...

So is this: