Archives of “January 7, 2019” day

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Bill Gross' Advice To Traders As Stocks Crash- Stay out of the bathroom

  
Analysis, Education
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In a time when the S&P fluctuates with unprecedented velocity and investors need HFT-like reflexes to catch any momentum move, this may be the most practical advice to traders we have heard today.

In an email to Bloomberg, the former (and currently in contention for the title with Jeff Gundlach) bond king Bill Gross says to “stay out of the bathroom” as stock markets enter bear territory.

For those who ate Chipotle.coli for lunch, our condolences.

“Markets are recognizing the limited tools they now have to prop up assets AND real economies,” Gross, who manages the $1.3 billion Janus Global Unconstrained Bond Fund, said in an e-mail.
Stocks fell around the world today, with U.S. equities trading at the lowest levels since August as oil plunged below $30 a barrel. Treasuries gained as U.S. economic data did little to ease concerns that global growth is slowing.


 
“Wealth effect constructed with paper – sometimes corrugated/strong, sometimes toilet/flimsy,” Gross said in a Tweet on Friday from the Janus Capital Group Inc. account. “Stay out of the bathroom.”
Gross warned in December that markets were headed for a fall and urged urged investors to de-risk their portfolios or “look around like Wile E. Coyote wondering how far is down,” a reference to the cartoon character whose schemes to catch the bird Road Runner always backfire, often with a plunge over a cliff.
In his e-mail, Gross said that zero-percent interest rates and quantitative easing created leverage that fueled a wealth effect and propped up markets in a way that now seems unsustainable.

His conclusion: “The wealth effect is created by leverage based on QE’s and 0% rates.”

In other words, it was all an illusion.

Richard Donchian’s Trading Rules (Father of TrendFollowing)

  
  Education
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Richard Donchian developed a plan in 1934 (no, that is not a typo) that he soon published as a set of guidelines. The majority of those guidelines are still relevant to every investor today:

  1. Beware of acting immediately on widespread public opinion. Even if correct, if will usually delay the move.
  2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases.
  3. LIMIT LOSSES, ride profits – irrespective of all other rules.
  4. Light commitments are advisable when a market position is not certain.
  5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for one-day reversal.
  6. Judicious use of stop orders is valuable aid to profitable trading.
  7. In a market in which upswings are likely to equal or exceed downswings, a heavier position should be taken for the upswings for percentage reasons – a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100%.
  8. In taking a position, price orders are allowable. In closing a position, use ‘market’ orders.
  9. Buy strong acting, strong background (markets) and sell weak ones, subject to all other rules.

(more…)

Follow Trends

  
Analysis, Education, US Market
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From Richard Russell:

Primary trends can be likened to the power of the ocean tides. Build a sand castle against the ocean tide, and the first wave will wash your castle away. Build a cement wall against the tide, and in a matter of years the cement wall will be reduced to sand and rubble…primary trends, one way or another, go to completion. Or to put it another way, a primary trend will go to completion, no matter what..I said from the beginning, “let the bear market fully express itself.” One way or another it will express itself regardless of the wishes of Washington or the Fed or the Treasury. Interfering with the primary trend will just drag out the situation and make it worse — it will be turning a menace into a Frankenstein…According to Dow Theory, neither the depth nor the duration of a bear market can be predicted in advance. In this bear market, the Dow could fall to 4,000 or 400. I honestly don’t know the answer. In my experience, primary trend tend to carry further than anyone expects. I do know this — yesterday the following broke below their June lows — the Dow, the Transports, the NYSE Composite (which includes ALL NYSE stocks), the S&P Composite, the NASDAQ and the Russell 2000. Any way you look at it, that’s bad action. Maybe just as bad, new lows on the NYSE surged to 164. Hundreds of stocks are breaking down, and even more are hovering just above their 52-week lows. The lower depths of this market are opening up like a giant graveyard. It is said that in a big bear market, stocks return to their original homes — Wall Street.”

Can it happen? Yes. Does anyone know for sure? No. Follow trends.

"Draghi Where's your Euros"

  
Analysis, Education
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Whilst we wait for the outcome of the current round of Cypriot negotiations, let’s have a jolly song to cheer things up. With no apologies whatsoever to Andy Stewart, TMM give you their version of the Scottish classic “Donald Where’s your Troosers”

“Draghi Where’s Your Euros”
I’m back for a while from the Cyprus Isle 
Where if you want your cash you’ll need some guile
And all the locals shout with bile, 
“Draghi, Where’s your Euros?” 
Let the debt blow high and the growth blow low
We’ll levy a tax on your depo
Russia won’t pay so the the Cyp’s all go,
“Draghi, Where’s your Euros?” 
I sat in on a conference call 
There was slippery talk between them all 
And I was afeared that Europe would fall 
‘Cause they wouldn’t give them Euros (more…)

On The Menu This Afternoon

  
  Education
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All times GMT

1330  US Oct CPI expected 0.1% m/m, from +0.6%, ex food and energy exp +0.1%m/m unchanged

US Nov Empire state survey  expected -8.0 from -6.2

US initial claims (wk Nov 10) exp 375k from 355k

Canadian Sept Mfg sales exp=0.3%m/m down from +1.5%

1400  US Fed’s Lacker speaks on economic outlook

1500  US Nov Philly Fed Survey exp 2.0 from 5.7

1540  US Fed Evans speaking ati 15th annual banking conference

1820  US Chairman Bernanke speaks on Housing and mortgage markets

1945  US Fed’s Fisher speaks at State of West symposium

2130  US Fed’s Plosser  speaks at CATO Institute

2330 US Fed’s Dudley speaks at NY clearing house

Buffett’s Annual Letter – Some Key Takeaways

  
Analysis, Education

Well, it’s that time of year – the annual Buffett letter is out. Love him or hate him, these letters are always must reads as they’re filled with awkward sex jokes and investment knowledge that you can pass on to your kids. The investment knowledge, that is, not the sex jokes. Here are some key takeaways from this year’s letter:

Stocks are really expensive. He writes:

“In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, a sensible purchase price.
That last requirement proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far from spectacular, businesses hit an all-time high. Indeed, price seemed almost irrelevant to an army of optimistic purchasers.
Why the purchasing frenzy? In part, it’s because the CEO job self-selects for “can-do” types. If Wall Street analysts or board members urge that brand of CEO to consider possible acquisitions, it’s a bit like telling your ripening teenager to be sure to have a normal sex life.”

It took him two pages before he made an awkward sex joke. He’s getting impatient in his old age. But one thing he’s definitely patient about is buying stocks at a reasonable price. He apparently doesn’t love the market at these valuations….

Don’t use leverage to buy stocks. Here’s a timely comment on using leverage given the recent fiascos with leveraged ETFs and volatility ETFs: (more…)

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