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02.24.12
From the February 23rd Issue

London Financial Times Gets It Right, While Morgan Stanley Shows Us the Quality of Work that Led to the Financial Crisis

On December 1, we warned that the Greek crisis was far from over, even as most pundits claimed then that the worst was over. We warned that the German focus on austerity measures to be taken by eurozone economies was exactly the wrong way to fix those economies, that they needed stimulus instead, and that the German focus on austerity might represent an opportunist effort to stagnate those economies and leave Germany in a hegemonic position.

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12.24.11
Trust the Model

 

Over the last two weeks we made a tactical decision to step aside and not invest in the Short-Term Model Portfolio. In our view the news-driven environment did not give us much of an 'edge.' We were wrong.

Those subscribers who followed our "unofficial" recommendations did quite well over the past two weeks: first, a 15% gain in the Direxion 3X Financial Bear ETF (FAZ) and then an average gain of 8.15% at Thursday's close in our 5 picks from last week. Apparently, the lesson is "Trust the model, Luke!" 

12.17.11
Lions & Tigers and Bulls & Bears

Last week we made a tactical decision to step aside and not publish a short-term portfolio. In our view the cross currents in the news-driven situation did not give us an 'edge.' The timing turned out to be excellent. The market put in a head fake for the bulls and corrected more than 4%.

This week, we are still not interested in buying the dip. Why? The major indices are testing the up-gap that occurred at the end of November. Such moments of enthusiasm are almost always revisited when the market is no longer surprised. The purpose is to check for a consensus among buyers and sellers. If sellers do not rush in around that area, then the breakout is assumed to be a valid move and less emotional buyers will step in.

Bulls and bears are evenly matched at this time, which means rallies are being sold and dips are being bought on a short-term basis. This is options expiration week, however, which often means that stocks get pinned to strike prices and do not move for a few days.

 

12.10.11
All that Doom & Gloom?...ooops.

Last week six of the world's major central banks made a coordinated effort to reassure European bond market investors that in the event of a severe liquidity crisis, the banks are willing and able to provide emergency U.S. dollar loans. Global equities breathed a huge sigh of relief.

The news from the central banks was soon followed by equally good reports from Europe on progress toward greater fiscal unity and better than expected data on the U.S. economy. As a result, last week the Dow Industrials posted its second largest weekly point gain in history.

12.03.11
The End is Nigh!...

... and other mistaken prognostications.

Nouriel Roubini played right into the gloom and doom last Wednesday, saying in an interview that government gridlock ‘Ensures’ a 2012 Recession, and an hour later he said that the IMF does not have enough money to save Europe, and  "The contagion has now gone viral, cross Atlantic and global."…"It's a slow-motion train wreck."  He predicted, "at least a 50% probability" of a breakup of the eurozone in the next 2-to-3 years, which would almost certainly lead to a fast-motion train wreck.

Meanwhile, also last Wednesday, Pimco's Mohamed El-Erian told Bloomberg TV that U.S. economic conditions were "terrifying" and he cited the disappointing report that day on anemic U.S. economic growth and the Super Committee stalemate as delivering odds of one-third to one-half of another recession.

We argued that the European situation had become so dire, literally overnight, that there was no alternative left for world economic leaders but to do something dramatic, and do it immediately. There was no room for error, and so there would not be any error. It was must-do, and must-do right then.

 

08.01.11
Currency and Currency

The Swiss, known for their autonomy, never joined the Eurozone, so the Swiss franc is the only independent currency in Europe that has serious monetary clout. Historically, the Swiss franc is the most inflation-resistant currency (about 1% per year on average), which partially accounts for its recent rise. But there is more.