IBM was $85 in 1987, fell to $21 and took 10 "YEARS" to recover back to $85...
THAT is what the potential downside is to the overall market and I'm not so sure if even the Oilpatch in this near nirvanna commodity price environment is immune to this potentially hisotric rate hike environment.
While I don't think we have any significant longterm worries in the Oilpatch - we are at bullish valuation multiples in most sectors. In the nearterm the Oilpatch is not immune to negative Fed Rate Hike - market reactions.
Maybe these 10-15 point pullbacks in SLB CAM SII BJS et al are that reaction, or maybe; it's only the beginning ?
The way to trade the NAZ of late has been to realize that "all" rallies will be sold into and that Funds & Institutions are reducing their holdings across the board and using all rallies to do so.
What the tape clearly shows is that all low's go lower, but that there are bounces - as there are still (for the time being) people who will still step in to buy these dips.
Of late; it has paid to wait for a 100+ Point down day on the Naz, average into the blow off & then sell into the open the next day - as the stocks are opening high , but get sold off and usually have trouble reaching their opening balance.
Shortly; this game too shall end.
I am begining to view the risk vs reward potential of the NAZ as getting more negative. We are finally seeing the pillars start to wobble - CSCO INTC MSFT et al.
Everyone seems to realize that there can be no true capitulation - "all clear" bottom untill the pillars of tech - get dumped at any price, in a total freefall tape and that has not happened as yet.
What we've seen is a "death by 1000 cuts" - slow, grinding downturn, or a quick 100-200 point selloff immediately followed by a strong - buy the dip bounce; allthough many times its down 100 & up 75 - never quite returning to where we were - but instead setting a series of lower highs & lower lows in a downward stairstep fashion.
What we haven't seen is a quick 100-200 point Nasdq selloff - followed by another and then yet another. That is when the margin & the speculation gets wiped out of the market and many feel this must occur before any real bottom can be put in.
If we see negative CPI & PPI numbers in June - prompting the strong potential of yet another .50 bp hike; I think we finally get a "capitulation" selloff - one where there is no one willing to step in on a 5%, 10%, or even perhaps a 15% intra-day blow off in major tech names. One where people simply want out - not in at any price, or get sold out by brokers.
I don't think we realize what 2 back to back .50bp Fed Hikes do to the fundamental valuation of present and future earnings and the corresponding contraction in valuation multiples that follows.
How can anyone place anywhere near even historic multiples on the overall market in what would then be one of the most negative rate environments of our time ?
Earnings growth is what has kept the overall market afloat here. But, should we see any wavering in earnings growth,the fundamental case can be made for near historic low multiples to be applied to the overall market - not historic highs - in this rate environment.
Should the economy slow too much in response to the Fed Action - we've got BIG problems...
It is interesting that we still have more people who are buying the dips - refusing to miss the "potential" Mega-Bounce in the Nasdq; than sellers who are just stepping aside. There is no real fear here and many believe that there must be real FEAR, before speculative excess and the corresponding "wealth effect" can be squeezed out of this market by the Fed.
I've done very well trading tech of late but, I sense the risk vs. reward of dancing with the Devil (the Fed) is getting riskier the closer we come to the June CPI, PPI releases & the Fed Meeting.
Surely; one can miss a major Nasdq breakout, but I've got a fair profit in this enviroment from Tech & I am now going to sit and wait with just a very small partial positions in core names and wait to see if we finally get the bottomless tape blow off.
How low can we go ?
...here is an interesting comparison between the Nikkei and the Nasdq from Bill Fleckensteins column:
<<The big bubble picture. . . A recent piece by James Stack puts things in perspective. In the last five years of the Tokyo bubble, we saw the Nikkei go from roughly 11,000 to 38,915. If you take the last five years' percentage move in the Nasdaq and scale it to the Nikkei for comparison, you'd see that the Nasdaq has gone from 11,000 to 79,000. Our bubble is roughly twice as big as Tokyo's was. The 35 percent break we've had off the top for the Nasdaq only correlates to the Nikkei dropping to 29,000 (it's now at 16,000). So folks can see via this analogy that there is still plenty of room for our market to drop from here. And there are many other ways to arrive at lower numbers, as well.>>
Cramer on the Street.Com has continually posted some real life - "Lost it all on margin" - Mea Culpa's of late. Warning investors not to try to fight this Nasdq tape. Some interesting comments on just what it takes for us to reach an "investable bottom" versus a "tradeable bottom."
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If the only thing the market has going for it is how negative everyone is, is that enough for an investable rally?
No. No. No.
Maybe I am not being clear enough.
NO.
I keep hearing this same refrain. There is so much pessimism. There are so few bulls. There are so many people who dislike it. Give me a break!! Read Byron Wien's interview this weekend. Other than the people who have been forced out of this market by margin requirements, most people haven't sold. They haven't capitulated. You could feel the hope creep in this morning when London jumped. I am sure that it can run. We think it can run a percent without a problem. But that doesn't make it investable. Tradeable, but not investable. Here is what will make it investable:
1. Several months of slower data.
2. An end to the tightenings.
3. Better owners of stock than the holders-on we have now.
4. More supply taken out.
5. More cash takeovers.
6. Valuations that make stocks not easily raidable. (See yesterday's piece on bear raids.)
7. A realization that some selling has to occur and that the market can't be ridden out.
8. More pain than we have had, to the point where there are fewer than 40% bulls.
9. A realization that mutual funds are not "safe" instruments.
10. Massive declines in margin debt.
Until then, we will sell these rallies and redeploy money out of loved tech into stuff that gets hurt less by the constant ratcheting up of rates.
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Got Gold ? - again a quote from the Fleckenstein article concerning the underlying global currency unrest.
<< The big news overnight was that Korea got slammed for about 6 percent, as its currency, the won, got pummeled again. There has been no shortage of smaller currencies that have been pounded lately, all making new lows. There may in fact be a "stealth currency crisis" going on (thank you, Greg Weldon). In no particular order, the South African rand, the Polish zloty, the Ukrainian hyrvna, the Romanian leu, the Philippine, Columbian and Chilean pesos, the Venezuelan bolivar, and the Indian rupee have all hit new lows. So we need to be aware of the possibility of an emerging currency problem. >>
...currency crisis ? Flight to safety = Gold/Gold Stocks.
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Thinking about "Riding Max Margin" in this market ?
Food for thought from Fleckensteins article once again:
"Thought you might like this post for your files from the CYBR board on RagingBull. Sad story, and from his profile, sounds like it's true."
<<'I'm writing with a heavy heart and tears in my eyes. I have worked hard all of my life, always trying to do the right thing for my family, friends and the world in general. I have never taken advantage of another person in any way. I have scrimped and saved over the years as I did not have the luxury of a company pension or retirement plan. When I became aware of CYBR and the EHC, I did voluminous amounts of research and only after I was totally convinced, I started buying. I admit that I probably got caught up in all of the good repartee being bantered about the boards and violated some of my own basic rules of investing, but I really believed and in fact, still do.
'I have literally lost everything I have worked for my entire lifetime. A woman whose husband bought into CYBR on my recommendation called me his morning in tears as she thinks her husband is going to kill himself, as he did what I have done. We are both 62 years old and cannot recover from this. I called their son and told him to get over there. This is one of the most decent human beings you could ever hope to know. His life is ruined now. They are both sick and have less chance than I do of recovering from this.
'The part that is so hard is realizing that there actually are people in this world who can be this mean-spirited - people who get their pleasure from causing others grief. I think a number of the "bashers" have no other agenda other than to amuse themselves. Of course, there are those who do it to make money at the expense of others too.
'I did make a giant mistake by buying on margin. I have had to liquidate shares several times for margin calls and thought that the nightmare was finally over. Then this week happened. I am now so far in the hole that even if I liquidate totally, I still owe! Now that's incredible and shows the dangers of margin. I have until tomorrow and I don't know what to do, other than hope for a miracle
'Even though I haven't participated much, I have read every message posted on the board and feel that I know and respect a good number of you.
'I have talked to Mike Morrell on 2 different occasions and feel he was being truthful with me. Even after interpolating "salesman talk" I was convinced and still am (until shown otherwise) that he is a good man and the company is sound and has a wonderful future. It's just that now, after enduring all of the pain of the last few months, I won't be able to share in the final rewards. I even took a second mortgage in March to pay margin down, so strong was my belief in this company. Now that money is gone too. So instead of looking forward to a nice retirement, I will have to hope I keep my health and am able to keep on working. This is a hard fact to swallow.
'I really don't know why I'm posting this. I realize that the ones that I respect will empathize with me and that the others will have yet another source of amusement. Hopefully, writing this will have a cathartic effect on me.
'I have been through a lot of troubles in my lifetime, but I can honestly tell you that today is, without question, the worst day of my life.
'I wish all of you well.'>>
...if that wasn't enough - here's another from TSC:
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This was a real letter received by Cramer:
"I am a very dedicated reader of the site and you in particular. But I must share with you the horror of this market and my activities in particular. I must have taken a really big dumb pill two months ago or things have really changed big time. I have managed to lose my entire $2.5 million account in the last nine weeks. I am very experienced and have invested and traded for 13 years.
"I am 33, single and have no kids, thank God. I will be the only one who really suffers this bad dream. I have let my parents and good friends down big time. I think they hurt for me more than the numbness I am feeling. Jim, I knew to take something off and even went to a trusted friend to beg him to make sure I did. The dinner meeting on that Friday was followed by a Monday where I went from $1.9 million to $800,000. I was stunned, frozen stiff, couldn't act to take something off then, heck it was too late, right.
"WRONG! The following Monday I went down to $400,000. Now it was really to late, right? Yeah, right.
"WRONG again. The market had just crashed and heck, Brocade was going to report blowout EPS in a couple of weeks. It should run ahead of the numbers just like last quarter I was thinking.
"WRONG!! This is something I must live with for the rest of my life. It is very difficult, since I knew what to do but got caught in the decline so fast. I will recover eventually, but geez, I wish I could turn the calendar back two months for once in my life. I need a mulligan so bad it hurts.
"I broke the No. 1 rule, survival, be left standing. I have given 5-6 gift subscriptions of TheStreet.com over the past year. I sure hope they listened to take something off and be left standing more than I did."
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Cramers response:
Yep, that's right. This letter writer lost it all. And $2.5 million is a lot to lose. Heck, anything is a lot to lose. I present this sobering email because, 1) I don't want it to happen to you, and 2) It is never too late to take something off the table.
When I started this "take something off the table" call a couple of months ago it was in reaction to a woman screaming at me in a parking lot after I had spoken at the Miami Herald investment conference. She was telling me that I would lose it all. No way, I said, I am taking something off the table.
The following day I wrote a piece for the site outlining again, that I was redoubling my efforts to take something off the table. We took a huge amount off. We even personally switched some money to New Jersey municipal bonds, something I thought I wouldn't do unless I knew thermonuclear war was coming between Jersey and New York!
So, let's get something straight. From Jeff, as I will call this letter writer, it was not too late to take something off three times. But then it was too late.
*** Don't make his same mistake. If you are riding on big, big wins and they aren't as big as they were but they are still big and you have taken nothing off the table, you are being foolish. *** (hello Oilpatch fans !!) ***
The most you will lose is opportunity cost and the taxes to the federal government.
Jeff, by the way, owes no taxes. He has no money! So much for the tax man.
Second, it can happen to you. I don't care how good you are. Objectively you are not better than Julian Robertson, Stanley Druckenmiller or Stanley Shopkorn. Trust me on this. I think I am really good. I have the long-term record to match these guys. But their departure shakes me to my bones. These are mentors, teachers and Hall of Famers.
They are guys I learned to respect when I started 20 years ago. I can't say that my teachers and mentors got too old. I can console myself that they might have gotten too big, but that's a little chimerical because they had been big for years. I respect my elders. These guys were pros. When it is too hard for the pros, it is too hard for the amateurs, no matter what the size.
Third, Jeff wasn't a newbie. He had traded for 13 years. He had obviously been through the 1990 and 1994 and 1997 and 1998 downturns and lived to tell about them. He knew enough to play the Brocade (BRCD:Nasdaq - news - boards) upside, a company that is hard to understand, but has done spectacularly and was a good percentage bet. (We made the same one and we are pretty good at the upside surprise game.) Yet, this downturn caused him to lose everything. This downturn is the big storm, the one that gets you.
Fourth, the downturn isn't over. That would be wishful thinking. Sure it could end. But as we will see from this series, time will cause it to end.
Not events. Time.
Fifth, and finally, I am writing this stuff for one reason only: to be sure that you have some money left and can live to play again. The most salient thing in Jeff's note to me is that he recognized the cardinal rule: Survival, to be left standing.
That's what this game is all about. That's what we talk about in the huddles at Cramer Berkowitz. We want to be left standing after the bears romp. Maybe we have to play dead for a while. Maybe we have to hide. Maybe we just have to leave the park altogether for a while and stay in cash.
Whatever. The goal is survival, preservation of capital for when the bears have eaten so many salmon that they lull themselves to sleep or go into hibernation. If you don't believe me, like the marshal in the Fugitive said: "I don't care."
I know I am right.
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For those that think the Oilpatch; or even the E&P's here with $4 Gas & $30 Oil are immune - remember that one of our own here on this thread - got "margin call-liquidated" during the height of the Oilpatch Boom not so long ago. Being over-leveraged merely into one of the Oilpatch's volatile pullbacks is enough to inflict some real damage, if not even total liquidation.
There are some very substantial short term profits that have been made recently in the Oilpatch that will be taken off the table in a heart-beat should the overall market go into a capitulation selloff, if the Fed hikes another .50 bp in June.
Remember the Sept 1999 E&P meltdown - directly into the face of $3 Nat Gas ? - that at that time; was as bullish as $4 Nat Gas is here presently.
Goldman just issued both a large & small cap report - featuring thread fav's here in the E&P sector. There upside thru year end in stocks like APA APC/UPR BR NBL OEI OIL BSNX COG XTO NFX NEV PLX VPI - ranges from "0%" for APA to a max of 21% for PLX - with only NEV having more than 20% upside to their year end price targets.
It may be a bit too early to be counting one's cash per the "potential" upside to the prior cycle valuation multiple highs; in the charts posted here of late.
The impact of the overall market & the Fed Hikes on Oilpatch Valuations is more significant than most here are giving credit for.
I've been very, very lucky in the use of margin & leverage in both the Oilpatch & the Nasdq here of late; but not any more... simply isn't worth the risk, too many profits to protect...maybe, just an occassional bounce play, with tight stops and cut in stone discipline to immediately cut losses and step aside from the trade if it breaks the wrong way.
This is one market where "doubling down" on pullbacks's may not make a lot of sense on "margin". - if one is only partially invested; that's a different story if one is spending cash and not leveraging further on margin.
Nothing wrong with waiting at least untill after the June Fed meeting and perhaps getting a a few of Cramers "10 things that must occur for a bottom to be put in" - to occur before leveraging up again in this environment.
Personally; I'm stepping back again here - sitting in 50% cash & some Gold/Metal stocks - 35% Oilpatch & just 15% tech. Using cash for both a defensive and hopefully an offensive weapon here shortly.
Can't imagine I'm going to miss anything significant in the next couple of weeks leading up to the Fed Meeting.
Time to protect gains, conserve capital & to have lots of cash and ALL one's margin to be able to potentially take advantage of some real bargains should the Fed decide to play another .50bp trump card.
... the old adage warned that "Speed Kills" - so does margin ~
PS: You cant buy the dip - if you were leveraged at the top.
Was it Lombardi who said that - "the best offensive is a good defense" ? ...very shortly Cash - may just be the ultimate offensive weapon and it will be especially valuable since it may be in short supply.
We soon shall see ~ |
