Spear Report , which has been long and holding since 2/13 they have been red hot the past year.(p.s. they also have a Spear Report for shorting only)
Here is their commentary as of this friday.
Always an excellent read.
<<Hangover Effect
Executive Summary
We seek rational investment opportunities in the midst of the most irrational environment and find them in abundance in New Consensus. This week we profile a mix of companies: Ugi Corp (UGI), the #1 PWR ranked stock this week, along with Hi-Tech Pharmaceutical (HITK) and China Mobile (CHL). You knew we'd get in a China play, didn't ya? The Timing Model is at 100% investment.
Iraq War Editorial
In the weeks before this war began, polls put the percentage of people opposed to acting without UN approval at 35% to 60%. Even at the low end of that range, this was the highest opposition to any imminent military action in recorded US history. The action has been condemned as criminal and a wholesale violation of international law by some of our closest allies. Most of the world is outraged at the attack coming in the middle of a UN effort to resolve the crisis peacefully and in direct opposition to the wishes of the Security Council, the world's highest legal body, which the US and the world has depended upon for world order for the last 50 years.
.American society is founded upon a deep commitment to the rule of law, and has long rejected vigilante justice as a way of life. But in this attack, and in the weeks of hostile rhetoric that preceded it, the US asserts the right to international vigilante justice, which ranks us right up there with you-know-who.
151 US cities passed resolutions asserting that Iraq should only be attacked with UN approval and a growing chorus of US Congressional representatives has joined with countless foreign heads of state and literally millions of demonstrators world-wide in calling this action criminal.
That judgment has nothing to do with whether Saddam should be removed, by force if necessary. It has to do with who gets to decide. What the US military is doing may very well need to be done, but that does not give us the right to do it - not in a civilized society - not in a world bound by the rule of law. While we sympathize with the rape victim, we do not allow her loved ones to assassinate the alleged rapist. Sometimes we wish they could, but we know better than to go down that road. We know it leads to loss of innocent life, and to a general state of lawlessness or worse, dictatorship. So we defend the rule of law, and even seek to extend it to any place on earth where it is supplanted by the rule of force and vigilante justice.
The US must learn to live with the rule of law on an international level, especially in its efforts to extend such rule to areas where it is now denied. We cannot win support for our efforts to extend the rule of law to the people of Iraq by trampling upon the law of the UN. Are we a defender of democracy and an upholder of the rule of law, or are we an empire, which acts with imperial disregard for legalities, because we are strong enough to get away with it?
Taking the empire route in Iraq has cost us dearly in public perception, branded us as a lawless nation, weakened our most important military alliance, set back our efforts to isolate and weaken our enemies and encouraged countless future acts of terrorism against us.
We must show the world that we are not the vigilantes that our President has made us out to be. Now, it is up to us to show the world how democracy really works.
I recognize that my views may differ from those of many readers(edit-you got guts gregory! to risk subscription cancellations to speak out. Max) and while I generally refrain from political commentary in these pages, there are moments in history where the duties of a citizen in a democracy include taking an unpopular stand, as publicly as possible. I thank you for the opportunity to present these views and promise not to abuse the privilege. I trust that our mutual commitment to democracy allows us to disagree and remain respectful of each other's positions.
Gregory R. Spear
The Market
According to the Oracle of Omaha, the market is suffering from a hangover after a binge. That's certainly true, but even more importantly, post-party, the veneer of niceness has been removed and a different, more competitive character has emerged. When one understands the real motivation within the market system, one ceases to expect rationality and, paradoxically, then the Pre-War rally we are currently experiencing makes sense.
If we had forgotten that the market tends to be counter-intuitive, we certainly have had our memory refreshed by the pre-war rally. In 1991 the market sold off before the war, but when good news was confirmed it rallied for years. This time the pattern may be reversed. Over the years, we have referred to counter-intuitive market movements as "Wall Street logic." There is a method to the apparent madness, however, but one has to look under the surface to find it. The Oracle of Omaha points us in the right direction.
In Warren Buffet's report to shareholders he remarked, "Accountability and stewardship withered in the last decade, becoming qualities deemed of little importance by those caught up in the Great Bubble. As stock prices went up, the behavioral norms of managers went down. By the late '90s, as a result, CEOs who traveled the high road did not encounter heavy traffic."
Rational Investing vs WWF
The market is nothing other than the collective reflection of the personalities of millions of investors and traders who have a stake in it. To the extent that the collection of stakeholders acts rationally the market will be somewhat predictable. Rational investing is based on fundamentals that have a solid basis in fact: things like balance sheets and revenue growth and reasonable valuation and sharp management focused on building shareholder value. But like the humans that constitute it, the market has periods when it is rather far from a rational entity. Now is one of those times.
As the "veneer of niceness' has been eroded from Wall Street, the highly competitive nature of the financial markets is getting more apparent. Not only is there a buyer and a seller for every transaction but these days, there are large short-term bets on derivative instruments like options and futures that are used to hedge other positions. These large bets create "exposure" and risk for those putting them on and are the targets of speculative forays by those who desire to profit from the risk of others. In other words, these days, stocks rally in the face of bad news not necessarily because investors see value, but because certain groups of traders see short-term opportunities to take advantage of those on the other side of the trade. Welcome to the WWF.
The Oracle concurs; valuation continues to concern Buffett. "Despite three years of falling prices, which have significantly improved the attractiveness of common stocks, we still find very few that even mildly interest us," Buffett writes. "That dismal fact is testimony to the insanity of valuation reached during The Great Bubble. Unfortunately, the hangover may prove to be proportional to the binge."
In a bull market the market does not have a hangover, instead it climbs a "Wall of Worry" but it does so successfully. No one is afraid to open their brokerage statements and folks are rewarded for enduring the anxiety that always seems to accompany life on Broad and Wall. In a bear market, however, there is a smooth veneer of denial, sometimes called a "slope of hope" that seems to smooth the path downward. This is the "Hangover Effect." Folks are always looking for the "bottom" and every one is certain it either just happened or is just about to happen. [To paraphrase an old joke, "I'd rather have a bottom in front of me than a frontal lobotomy."] Then when the bottom really does fall out instead, a mini panic sets in, but this only sets us up for a sharp rally about half way back up the hill. Then the process starts all over again. We have completed five of these cycles in the bear market so far and we are in number six now.
Buffett's answer? "Occasionally successful investing requires inactivity." He's going to do that until he sees "a very high probability of at least 10% pretax returns." Of course, that's the pure value perspective. Folks like Buffett will be buying hugely when the bottom is really in.
Until then, everything is a trade. >> |
