Dow Near Record High, But Japanese Nikkei Plunged!
Posted by Frugal on April 18th, 2007
Just when I’m going to write for Friday’s post, reflecting on the market actions, international markets threw another curve ball. Nikkei plunged by 2.3%, down by almost 400 points, while other major Asian markets followed with some 1 to 3% loss.
Will US markets open tomorrow with a loss?
Will the Euro and UK Sterling keep beating up on $US, which just broke $1.36 (Euro) and $2 (UK) levels?
Will gold ascent continue, or be hammered again (for the fifth time on HUI) by the invisible (Fed) hands?
Will uranium spot price continue its parabolic ascent after breaking $100 barrier? Yup, my U.TO (tied directly to the spot price of uranium) has returned 70% in less than a year.
Where was the subprime panic after all? Countrywide (CFC) now is back up to $38. I really wonder who is that stupid to buy those billions of subprime TOXIC loans from Fremont (FMT) and Accredited Home Lenders (LEND)? The only news is that they were sold at a discount (without a doubt). How can there be not a single trace of the loan buyer at all?
In the meantime, my short positions are definitely hurting. I just closed more with a small loss. I still have outstanding 5 short positions in QQQQ, XHB, GM, etc. I was approved for naked short-selling calls, which is allowing me to short stocks that are already on the FTD (Failed-to-Deliver) list via option markets. The advantage of selling calls versus buying puts is obviously that you benefit from time premium. The disadvantage on the other hand is obviously that your profit is limited, while your loss is unlimited.
Despite my short-selling, my net worth on 4/18/07 is just 0.18% below the “all-time” high since I kept a record on this blog (the all-time high was the very first date 5/9/06 quite ironically). My own saving and investing have made up almost 11% shortfall from my company holdings.
Despite all the complacency in the stock market, I’m spending 3+ hours everyday watching the market now (and therefore less time for blogging). This is one of the most dangerous time and my eyes and ears are paying full attention. I fully expect the housing slowdown to hit stock market this calendar year, and I have no time nor mood to cheer the market advances.
I feel almost like I’m back in 1999, when I’m totally shocked by the P/E ratios of the stock markets, while everyone else keeps hooraying all the way into March 2000. NASDAQ however doubled in a single year from 1999 to 2000 during which I was totally abhorrent of the stocks.
From my own investing experiences, I tend to be right, but early (if not way too early). I will delay my own actions, but will make sure that my delayed action won’t turn into inaction.
If you have not gone partially into cash yet, I would say, watch out below. NASDAQ is under-performing SPY, and that is a sign of weakness in this market.
I am prepared to take some amount of haircut even with my shorts which cannot hedge all of my long exposure. What about you?
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April 19th, 2007 at 12:40 am
bought gold today.
April 19th, 2007 at 6:26 am
The subprime market is a much smaller percentage of the overall mortgage market than I believe most people understand. Countrywide does not have much exposure and many of the larger mortgage companies and banks had already withdrawn from more risky loans. Countrywide should continue to perform well. I don’t think the subprime market will push the US into recession. It will slow the economy, but that’s not a bad thing.
As far as what I’m buying? I’ve been bullish on the market and will continue to be for the rest of 2007, and probably into 2008. I’ve still heavily waited overseas where my JAOSX has performed marvelously over the past few years. Some other funds which I own are EUROX, BGRFX and EUROX. The ETF of XLF or IYF which is a basket of financial stocks should show if the bullish rally will continue. In the healthcare sector you have VHT or PPH, which have underperformed and should see gains.
In the highly speculative area I’m investing in hurricane stocks which can easily bring 50% returns up to 200%+. I do not own all of these, but I do at some point own some or have own some of these stocks. As I mentioned they are highly speculative and thinly traded with small floats, but can bring a lofty return if you are not greedy. These are mostly pinks or otcbb stocks. Here is the list in no particular order: NSMG, BUGS, RMGI, ECCI, IPII, and WEGI – As you can already see all of these stocks have seem gains since Jan. They all move based on speculation tied to the hurricane season. Another speculative stock for 2007 into early 2008 is SUPG. I have some Jan 08 calls, and this has the opportunity to bring in a nice return. Once again, these are all speculative plays.
As far as shorting the market at this time, I am staying away. The overall market could see another correction which is fine, but I still see the overall market profitable in 2007 and 2008. When pullbacks occur, you should have cash to buy on the dips.
With the Chinese economy growing at a 11% clip, I’m sure the Chinese will raise interest rates, which will help to slow the economy, but only for the good. It should only have a small temporary hit on markets.
Lastly, I see oil prices continue to rise. This is the time of year when prices normally pull back before the summer season hits, but long term I see no reason for the price of crude to fall back to the 40s. I think we will see 2007 avg close to $55-$60. I only see the prices of crude to continue to rise for the next few years unless a dramatic breakthrough occurs. One of my personal holdings is SLB which has recently had a dramatic rise, but pulled back yesterday partly due to a downgrade, but SLB is currently trading around 24-25 P/E which, and has historically traded in the high 30s. I believe SLB will be a buy until the high 30s for the P/E.
It’s been a long time since I’ve posted, so this was a makeup I guess. Let’s see how the markets take in the Chinese markets and interest rate hike talk. It should be anything but boring. =)
April 21st, 2007 at 8:41 am
John,
I was a bit afraid that you caught the short-term top…. We will see.
April 21st, 2007 at 8:47 am
Ray,
Looks like you’ve got your plan all figured out.
On the subprime, you are right about it being a smaller percentage. However, combining both Alt-A and subprime markets, they are significant. These Alt-A where they packaged loans from 90% to 100% LTV (neg arm or not) loans from people who have good credits but won’t have the ability to repay at the full amortization schedule, I’m not so sure how good credits can help them pay $1000 more in mortgage payment. Of course, as long as the refi market is still opened, then the Ponzi scheme can continue.
It does look like taxpayers are going to pick up the tab again through the backdoors of FNM and FRE who will be buying up these toxic loans.
Frugal
April 21st, 2007 at 1:42 pm
I am getting conflicting messages from people I highly respect. One suggests a crash is a matter of weeks away, while another points to strength for years. No disagreement about one thing: gold. I need to buy some physical.
April 21st, 2007 at 9:55 pm
Novice,
I’ve been noticing the conflicting messages too. No doubt that we are living in the “interesting” time.
It’s very hard to discern the directions right now in all markets.
One thing is for certain in my opinion. If the market does NOT fall, then it MUST be supported by massive liquidity. Liquidity would be good for all assets. If the market falls, supposedly gold would not be correlated to stock market and should rise. However, this has NOT been the case in the recent years (2 to 3 years).
Therefore, based on this information, I think if one is not too greedy, one should probably place bets in gold AND cash. If the liquidity or gold un-correlation turns out to be right, then you gain some. If everything falls, then you still have cash to double down (hopefully on the right asset class).
Gold should be safer than energy play here, since energy may be dragged down by “recession” talk. On the other hand, BOTH gold & energy seems to have built a VERY solid long ranged base. In the next big move up, you do NOT want to trade it. It should be a RE-evaluation of the whole sector.
Of course, I have been waiting for the next big move up for quite a while. But I’m determined to out-wait the consolidation period. I know I’m not smart enough to time every up and down wave. But I sure don’t want to miss a ramp up.