T:
Have had a few phone calls and emails, enquiring as to my health, financial well being, love life, etc. Great to have friends. (g)
In a nutshell, all is well for Earlie. Kids are doing well (which is really all that matters) and delightfully, I experienced a decent (but not great) year in the markets. Yes, I tip-toed into the short side a few times, during 2003 and of course took losses on some of those forays. Fortunately, those Vaderian adventures were both small and short termed, so the related damage was light. Delightfully, I actually booked some decent profits on a few of the shorts (Air Canada, Delta, United) but as of year end, the short side provided a small loss.
As I noted back in the fall of 2002, (and took considerable criticism for so saying) the fundamentals relating to gold appeared superb to me, so that is where much of the ammo was deployed during 2003. The results were nifty to say the least. A few of my junior "favs" and a couple of the medical stocks I mentioned on the thread also performed well, hence at year end, there was cause to be thankful.
Over the past two decades, some very nasty lessons were learned when I shorted particular stocks far too "early". Usually, the research proved to be accurate and eventually the targeted stocks did crash and burn, but frequently, this occurred a day or two after I was forced to capitulate. In 2003, those preceding nasty lessons were respected and they paid a solid dividend in the form of avoided wounds.
As the current rally started to pick up steam in early 2003, conversations with many fund managers led me to believe that, as a group, they would likely bet ("commit") heavily. Most had lost a bunch of their clients' dough during the preceding sell-off and hence could ill afford to miss any ensuing rally (I commented on this item here on this thread). As the year wound down, I noted that earlier enthusiasm was waning as many fund managers recognized that, as a group, they were sitting on decent (but unrealized) profits and low cash reserves. Most recognized that "timing the exit" would be a huge concern this time around. As well, most also recognized that the fundamentals simply did not support the move. At the same time, most also felt that the building "momentum" and positive technical factors could carry this nutty market much farther than would otherwise be the case, hence most decided to "ride it out" in the hopes that they could spot the downside triggers and/or simply call an appropriate exit. Good luck to the few who manage to pull this off.
Currently, I continue to accumulate (and not trade) my favourite gold stocks. From my perspective, this is a remarkably low risk/high reward scenario that allows one to enjoy life with little stress. I wrote earlier that I expected to see gold move through $400 before Christmas 2003, and it did this in spades. During 2004, I can see nothing to slow the current upward movement of gold, hence I expect a very similar percentage gain for gold during 2004, and perhaps even an acceleration of its upward movement.
Most of the markers I follow suggest that the US economy simply continues to deteriorate. Yes, the Fed has sloshed buckets of liquidity into the system, and yes, the government has moved to huge deficits and tax reductions to try to rejuvenate the jello. For a time, this stupidity indeed does delay the "day of reckoning" but it also intensifies the ugly aftermath. More importantly, there are limits to the number of rabbits that can exist in any given hat.
All economies "evolve" over time and the US economy is doing just that. Unfortunately, few investors seem to recognize that as a consequence of this fact, specific economic markers will become more important in tracking the economy even as others become less important. From my perspective, the markers that ought to be followed most closely continue to paint an ugly picture for the future, but of course each of us must make up his/her own mind in reading these tea leaves. Here are some of the markers I consider to be currently valuable along with a quick comment on each.
Employment. No joy here. The rate of lay-off announcements has fallen only slightly (BLS employment numbers continue to be a well-recognized global joke and most firms have learned NOT to announce lay-offs in any event). Unless this situation turns, a serious recession is inevitable and with most firms continuing to "downsize" this appears probable.
Insider selling. Throughout the current rally, insiders have sold at historic rates. I wonder which side will be proven most intelligent?
US Dollar. It has dropped roughly 30% of its global buying power already. Given the fact that foreign buying of US denominated assets sustains the markets, can this continue for much longer?
Mortgage applications. Down 90% (year-over-year) for "refis" (and that is what has provided the consumer with spending cash) and starting to slide for standard mortgages (if the current real estate bubble is pricked,......).
Retail sales The coming release of Q4 numbers will tell the tale of a disappointing Christmas sales season. Worse, the inventory carry-though has been big. The US consumer appears to be (finally) recognizing his financial limitations. Heaven help us if this proves to be the first sign that his previously frenetic buying is ending.
Pension fund problems. With the market up in 2003, this gigantic issue moved to the back burner for many investors, but once the market starts to slip, pension fund woes will become a very consequential problem. Pension underfunding is supposed to take precedence over reported profits.
Gold. A rising gold price is every central banks' worst nightmare as it defines the imploding buying power of fiat currencies for even the dullest citizen. Gold is slowly but surely re-establishing itself as "real money". "Dollar-down-equals-gold-up" will become a well understood reality for most during 2004.
While not short much at the moment, I expect to move heavily into the Vaderian mode fairly soon. That said, I am not interested in trying to "pick the top". I suspect that this time around, the downside action will intensify once it picks up some momentum, particularly given the degree to which funds have little cash and Joe Two-pack has once again established huge margin positions. The fact that the shorts have been crushed in this rally also means that "short clearing" will not "slow the descent" as it normally does. If the next down leg turns out to be as nasty as I expect, there will be plenty of opportunity to participate with lowered risk. A nice bite out of the middle portion of the next slide should provide more-than-acceptable returns for the non-greedy.
Long winded comment, but of course, I haven't taken up much bandwidth of late. (g)
Best, Earlie |
