7 signs we’re near a market top, and what to do now

From Marketwatch.com
7th March 2014

"Sitting on the sidelines and waiting for the bull market to top out takes tremendous discipline. Trying to capture that final 5% can be costly if you get the timing wrong (and most people do). Be prepared for increased volatility as we get closer to the end.

Of course, it’s not easy to sit on the sidelines when everyone else seems to be making money. Although many investors are dreaming of another 30% return this year, the odds are good that it will be a difficult year. Yes, during a mania stage anything is possible, but with each passing week, the clock is ticking."

Remember March 4, 2014 — a day that will go down in Wall Street history as the beginning of the end for this latest bull market, which is about to celebrate its fifth birthday.

On March 4, the Dow Jones Industrial Average rose 227 points based on a report that Russian troops were pulling back from Ukraine’s border. This “news” lit the market on fire, a sign that the market is heading into a mania stage where it doesn't take much to boost stocks.

Indeed, nowadays instead of the “Nifty Fifty” stocks that defined the late 1960s market, we have the likes of Facebook, Tesla Motors, and Chipotle Mexican Grill  — the new new things.

Can the market go higher? Sure, although the higher it goes, the more dangerous it becomes. Often, during the latter stages of a bull market, the market separates itself from reality and appears to be on another planet.

Such red flags are everywhere:

1. Retail investors have been pouring money into stock mutual funds. The fear of missing out on the sixth year of a bull market has created something close to a buying panic. Although not as maniacal as we saw in 1999, the stock cheerleaders are back and rooting for their stocks and mutual funds to go higher — just like they always do before a crash or bear market.

2. The Investor’s Intelligence survey is concerning. The closely watched II survey shows a low proportion of bears (less than 20%), which some have pointed out is the lowest proportion since just before the 1987 crash.

Yen’s slide against dollar unlikely to last long

By MarketWatch
27th Dec 2012

The Japanese currency’s recent slide against the U.S. dollar might not last long.

Instead of a continued fall in value, some currency experts warn the yen could reverse direction, and even begin a sustained period of appreciation that would see it end 2013 at a stronger level.

6 buys, 7 sells for the coming 2013 recession

By MarketWatch
16 November 2012

SAN LUIS OBISPO, Calif. (MarketWatch) — The global economic crisis will not end till 2016 or later, warns IMF Chief Economist Olivier Blanchard.

It will take “at least a decade from the beginning of the crisis for the world economy to get back to decent shape,” Blanchard said in a recent interview in Europe, according to a Reuters report.

“It’s not yet a lost decade,” Blanchard said, “but it will surely take at least a decade from the beginning of the crisis for the world economy to get back to decent shape.”

No matter what, you can forget about a 2013 quick fix for America’s fiscal-cliff disaster. Won’t happen.

Individual investors are destroying their wealth - 7 sins that individual investors commit

From Market Watch
By Howard Gold
20 October 2012

NEW YORK (MarketWatch) — OK, individual investors, do me a favor: go to the mirror and take a good, long look.

Now tell me honestly that you really know what you’re doing with your money.

Not too many of you left? I thought not.

Two huge bear markets, a housing depression, a financial crisis, and sudden market blowups from the flash crash to the Facebomb have sent investors fleeing in terror from stocks, which seemed to offer the promise of easy riches in the 1990s.

But I also suspect many people have realized that investing — or at least active investing — just isn’t for them.

That wouldn’t be surprising, given the findings of a 2011 study by two leading academic experts on individual investors’ behavior.

Brad Barber of UC Davis and his colleague Terrance Odean of Berkeley examined nearly the entire body of research on how individuals invest, covering more than 40 studies.

This is much more than the usual “review of the literature”; it’s a painful catalogue of how individual investors make every mistake in the book and wind up either losing money or badly trailing no-brainer index funds.

Among the various sins that investors commit — and which cost them dearly — are:

•Trading too much, incurring big fees that more than wipe out their gains

•Selling winners while clinging to losers

•Focusing too much on individual stocks and not diversifying their portfolios enough

•Falling for stocks that get extensive media coverage or are trading near their highs

•Engaging in thrill-seeking behavior that confuses investing with speculation or gambling

•Trading or investing in financial instruments they don’t understand

•And, finally, despite all of the above, believing in their own superior investing ability

#Self-reflection: Those highlighted are some of my traits currently, should make improvement on.

Get set to buy stocks after a market crash

By MarketWatch
18 October 2012

SAN FRANCISCO (MarketWatch) — Wall Street has never been a market for old men — but when the going gets tough, the graying veterans get the 3 a.m. call for help.

Today’s stock-market gurus were 25 years younger on Oct. 19, 1987, when they learned a painful lesson in the throes of a full-blown investor panic. The Dow Jones Industrial Average lost almost a quarter of its value that day — its worst single-session percentage drop ever. “Black Monday” conjured fears of that other October crash almost 60 years earlier, which ushered in the Great Depression. 

In fact, the day after Black Monday was a terrific time to buy stocks.

A $10,000 stake in the 30 Dow stocks on Oct. 20, 1987 would be worth more than $137,000 now, according to investment researcher Morningstar Inc. That’s an 11% annualized return, including dividends, and even factoring in shareholders’ “lost decade” between 2000 and 2010.

But buying at points of maximum pessimism takes steel nerves most investors don’t have. Few of us could readily follow Baron Nathan Rothschild’s famous dictum to “buy when there’s blood in the streets — even if it’s your own.” Fear and doubt, in our own lives or caroming off of global, large-scale events, are powerful and limiting emotions.

So how do you take the plunge after a plunge?

The old Masters of Wall Street: how well they understood — and still do. Market pros see the wisdom in Warren Buffett’s admonition, channeling his mentor Benjamin Graham, to “be greedy when others are fearful, and fearful when others are greedy.”

They realize, as the revered market analyst Bob Farrell noted in his famous “Market Rules to Remember,” that there’s money to be made given that “fear and greed are stronger than long-term resolve.” 

And they respect Jack Bogle, founder of the Vanguard Group and the patron saint of the individual investor, who has said time and again that “investors win and speculators lose.” 

After the market closed on Oct. 19, 1987, it was easy around lower Manhattan to recognize who worked on Wall Street: they looked ashen and shocked. Yet a few investors read the situation differently. The next morning they arrived at their offices with wallets open. 

Templeton was one of them. “Let’s find stocks to buy” was his reaction to the crash, recalled Martin Flanagan, now chief executive of mutual-fund firm Invesco Ltd. and then the chief operating officer of Templeton’s firm.

“Today you could see that was an obvious thing to do,” Flanagan recounted in an obituary of Templeton in July 2008. “At the time it was not obvious at all. To have that kind of conviction and leadership is absolutely unique.” 

Most of us, in contrast, would be inclined to sell on the cheap during downturns and hold tight when prices are expensive.

“In fearful times, people think that returns will be low and risk is high. In times of exuberance, people think that returns will be high and risk is low,” said Meir Statman, a finance professor at Santa Clara University in California.

Statman added: “First, understand this is a natural emotion. Second, find ways to counter it. You have to be a contrarian with your emotions. If your emotions say put it all in gold, you should have another voice — a voice of reason — saying if gold is so good, the price must be reflecting that.” 

Easier said than done. What in someone’s wiring allows them to override the instinct to run from danger, and to give up a seat at the table when everyone else is eager to play? Statman ventures that its helpful for investors to think like traders, who tend to see the big picture. They realize that one bad day in the market isn’t going to wipe them out, so they regroup and get back on the horse.“Losses are part of what you are going to experience,” Statman said. “It’s not the end of the world.”Behavioral studies show that people with such an attitude don’t have as much loss aversion — our strong preference to avoid losses even more than make a gain. “They know that not every decision is going to be a winning decision, but they ask themselves, What is a smart decision?” Statman said. “If they continue to make smart decisions, then luck is going to average out.”

Big scores after tumultuous events can also iron out a lot of misses.

“Opportunities to make fortunes usually come in times of greatest dislocation,” said Soo Chuen Tan, a managing member of investment firm Discerene Value Advisors in Stamford, Conn. “You can train yourself to look for dislocations and read all the material on value investing and see the returns one can get if one invests at points of maximum pessimism.

“But that only takes you part of the way,” Tan added. “An important element of value investing is psychological temperament. You either ‘get’ it in your gut, or you don’t. When you read a headline about Greece blowing up, do you think, ‘Where’s my cash and can I move it to a safer bank account?’ Or do you say ‘When’s the next plane out to Athens?’”

[Source]

Bond funds are guaranteed losers

By MarketWatch
10 Aug 2012

"Currently a level of unemployment of 7% or more seems to be required to keep inflation from accelerating, a level quite unacceptable as a permanent situation."

Before Bill Gross proclaimed that "the cult of inflation may only have just begun," I discussed here a few months ago that we were likely already “ Passing from deflation to inflation .”

I was not alone of course. A quick search shows that many people have been talking about inflation for a few years now. Most, however, have just been making knee-jerk reactions to their not-terribly-well-informed observations of the Fed.

What good mathematicians know however, is that the Fed hasn't quite printed us into inflation just yet. We are at an important juncture, however. In the next year, the world will have to decide between a deeper depression or moving back to growing the global economy.

Ignore ‘fiscal cliff’ at your own peril

By MarketWatch
9 Aug 2012

The markets are in a party mode and have forgotten the approaching dark cloud of the “fiscal cliff.”

The fiscal cliff refers to the expiration of Bush tax cuts and simultaneous significant reduction in government spending in the United States at the end of the year.

US Economics Reports 30th July to 3rd Aug

By Market Watch
28 July 2012

NEXT WEEK'S U.S. ECONOMIC REPORTS

TIME (ET)	REPORT	PERIOD	ACTUAL	FORECAST	PREVIOUS
MONDAY, JULY 30
	None scheduled
TUESDAY, JULY 31
8:30 am	Personal income	June		0.4%`	0.2%
8:30 am	Consumer spending	June		0.1%	0.0%
8:30 am	Core PCE price index	June		0.2%	0.1%
8:30 am	Employment cost index	June		0.5%	0.4%
9 am	Case-Shiller home prices	May		--	1.3% nsa
9:45 am	Chicago PMI	July		52.0%	52.9%
10 am	Consumer confidence index	July		61.5	62.0
WEDNESDAY, AUG. 1
8:15 am	ADP employment	July		--	176,000
8:58 am	Markit PMI	July		--	52.5
10 am	ISM	July		50.5%	49.7%
10 am	Construction spending	June		0.4%	0.9%
2:15 pm	FOMC announcement
TBA	Motor vehicle sales	July		14.0 mln	14.1 mln
THURSDAY, AUG. 2
8:30 am	Weekly jobless claims	7-28		370,000	350,000
10 am	Factory orders	June		0.3%	0.7%
FRIDAY, AUG. 3
8:30 am	Nonfarm payrolls	July		110,000	80,000
8:30 am	Unemployment rate	July		8.2%	8.2%
10 am	ISM nonmanufacturing	July		52.9%	52.1%

Warren Buffett’s winning ways, 50 years on - Famed investor’s ‘Ground Rules’ from early 1960s hold true

By Market Watch
27 July 2012

SAN FRANCISCO (MarketWatch) — Warren Buffett doesn’t usually make market predictions, but in an early July letter to shareholders, the legendary investor offered insights to help them through a treacherous stretch for stocks.

“I think you can be quite sure that over the next ten years there are going to be a few years when the general market is plus 20% or 25%, a few when it is minus on the same order, and a majority when it is in between,” Buffett wrote. “I haven’t any notion as to the sequence in which these will occur, nor do I think it is of any great importance for the long-term investor.”

Water is the new gold, a big commodity bet

By MarketWatch
24 July 2012

SAN LUIS OBISPO, Calif. (MarketWatch) — “Is water the gold of the 21st century?” asks Fortune. Answer: Yes, water is the New Gold for investors this century.

In 2010 global water generated over a half trillion dollars of revenue. Global world population will explode from 7 billion today to 10 billion by 2050, predicts the United Nations. And over one billion “lack access to clean drinking water.”

Reuters

A girl carries a container of water on her head at a creek in Myanmar's new capital Naypyitaw.

Climate and weather patterns are changing natural water patterns. And industrial pollution is making water a scarce commodity. So the good news is that huge “opportunities exist for businesses that can figure out how to keep the pipes flowing.”

Yes, it’s a hot market. So, expand your vision for a minute. How many bottles of water do you drink a week? How much did you use for a shower? When you flushed a toilet? Wash your car? Cooking? Lattes? And my guess is your city water bill’s gone up in recent years.

So ask yourself: What happens in the next 40 years when another three billion people come into the world? Imagine adding 75 million people every year, six million a month, 200,000 every day, all demanding more and more water to drink, to shower, to cook, to everything. All guzzling down the New Gold that’s getting ever scarcer.