Our friend George Hart sent us this photo he took at the site of Jesse Livermore’s grave in Acton, MA. We hope the offerings are worthy of the former Boy Plunger. In our view George’s own words do the photo better justice than we could: ”Jesse’s grave comes perilously close to being unmarked. The simple inscription is on the back side of his grandparents’ stone. His parents are on one side panel. What a quiet near anonymous end to a tumultuous spectacular life as a trader. Ashes tucked in beside his mother just down Nagog Hill Road from the family homestead in Acton. Perhaps on the far side he knows he’ll never be forgotten as long as markets exist, thanks in no little part to Bill O’Neil and yourselves. The inscription is nearly invisible. Some cold dry snow brought it back to life. And a silent prayer was said.”
Please welcome once again Dr. Chris Kacher, co-founder of the website selfishinvesting.com, managing director of mokainvestors.com, and co-author of the recently published Wiley book, “Trade Like an O’Neil Disciple: How We Made 18,000% in the Stock Market.”
Q: In recent weeks, the market has been served up bad news then good news and seems to have trouble finding direction. What are you doing to navigate when you have so many back to back Gap Up & Gap Down days & Up Volume and Down Volume days, and what is your view on this erratic behavior?
The fed’s quantitative easing serves to prop the market but it has been fighting against the flow of negative sovereign debt news out of Europe vis a vis Ireland, Portugal, and Spain, as well as China’s monetary tightening policies, so it is not surprising that this market is screwy and volatile with all the gap-up, gap-down opens we have seen over the past couple of weeks. The fed’s quantitative easing makes the market rise, but this negative flow of news makes the market fall. That said, these directionless periods are generally brief, and my market direction model thrives on trending periods, either up or down, which more than make up for these directionless periods, and thus accounts for its ability to well outperform the general market averages over every cycle as can be seen by its track record on selfishinvesting.com.
Now QE2 (quantitative easing part 2) means the fed is, in effect, inflating the world. World central banks will continue to print money, with the Fed at the vanguard of it all. Foreign currencies must keep pace with the falling dollar otherwise such countries will price themselves out of the market. Of course, the way the fed sees it, the falling dollar means the US can pay down its debt with cheaper dollars, and the US stock market will continue to rise as purchasing power of the US dollar falls.
As for talk about deflation, Bernanke is a student of the Great Depression, and he won’t let deflation occur because it would mean the current levels of US debt would effectively increase because it would be paid back with fewer dollars. So in general, expect precious metals to continue moving higher, and the purchasing power of the dollar to continue to erode, until this quantitative easing comes to an end.
Q: There is talk that the US will support Europe with an even larger aid package, potentially to the tune of $1 trillion. What are the future implications of this aid package?
Last Thursday, there was news about the US helping the Euro Zone with an even larger aid package. This simply means more money will be printed. Ultimately, there may be a very high price to pay for all this printing of money by central world banks, led by the federal reserve. And the inevitably higher interest rates that ensue might force all the world Governments to reconsider their “printing” decision as financing may become “out of reach” if yields rise too high. In the meantime, money will chase hard assets such as precious metals and other commodities. Stock markets can continue higher as well.
Looking out into the future, increased taxes and tariffs as well as rising interest rates will kill the equities market, but the timing of this is probably still out to 2011 or even 2012 as the federal reserve has a lot of ammunition in the way of quantitative easing practices, and has indicated they will continue to ease.
Q: Despite this directionless, erratic market, are there any stocks that have managed to do well?
Most all of the stocks we’ve been recommending have well outperformed the general market. It goes back to our stock philosophy that leaders outperform and can often even buck downtrending markets. Such stocks we have recommended over the past several weeks include cloud computing stocks such as VMW (VM Ware), APKT (Acme Packet), CRM (Salesforce.com), RVBD (Riverbed), FFIV (F-Five) as well as stocks capitalizing on the video-on-demand digital download revolution such as NFLX (Netflix), ROVI (Rovi Corp), and ACTG (Acacia Research). Incidentally, NFLX’s plan to work with Apple TV and become an internet TV preferred provider is helping to fuel the boom in this stock.
Chris’ dad Del Kacher with Englebert Humperdink at the Del Casher Jazz Group gig last week at the Luxe Hotel in West Los Angeles.
Depression, Recession Part 2, Stagflation, or Hyperinflation… Take your pick!
Published : August 17 2010 at 22:52 EDT
Many headwinds for the stock market await. Rising taxes, potentially rising tariffs, overregulation, the eventual rise of interest rates, and the reckless printing of money all work against an economic recovery. Here are some possible scenarios:
DEPRESSION? It could be argued we are already in a depression. Big headwinds lie ahead for the stock market due to higher taxes and potentially higher tariffs. Rising taxes and potentially rising tariffs which could spark trade wars are a repeat of what went on in the early 1930s. In the UK, the effective tax rate for companies and high tax bracket earners last year went from 40 to 50% with an effective 60% being the reality, prompting such companies and individuals to relocate to other nearby countries, thus lowering total tax revenue. In the U.S., the Bush tax cuts are set to expire on January 1, 2011. Taxes not just on a federal level but also on a state, city, and local level have already been on the rise in the U.S. As an interesting comparison, in June 1930, the egregious Smooth-Hawley tariff was passed into law which sparked trade wars between nations. Then from 1931-32, taxes were raised on a variety of levels which was the final nail in the coffin. History now knows the 1930s as the decade of the Great Depression. Are we on the path to repeat history?
Congress should keep the Bush tax cuts going. History has shown time and time again that lower taxes for the middle class and wealthy as well as cuts for corporations of all sizes spur growth in the long run. The reason why governments and politicians keep making the same mistakes is because they’re politicians first, and look to get reelected. They can garner more of the popular vote and win reelection by hiking taxes on the rich and on corporations, even though history has shown this is anathema to growth.
Dizzy (Derek) August 31 2010 at 7:45 am (Edit)
Awesome Chris, thanks for the quick response, that answers the questions I had.
Chris Kacher August 31 2010 at 4:28 am (Edit)
Thank you for your kind words.
The Market Direction Model comes with a built-in fail safe, so if the signal is false, it protects itself by neutralizing the signal. The stop loss fail safe level depends on the volatility of the market. In practice, the stop loss is usually contained to within 3% the NASDAQ Composite, thus QQQQ can be used as a proxy. Of course, if one is trading a 3x ETF such as TYH/TYP, then multiple this 3% by 3 = 9% stop loss. If the market becomes excessively volatile such as after the flash-crash in May, it could go neutral while the market’s volatility works itself out.
Leveraged ETFs used to have larger tracking errors. This inefficiency has largely been exploited so today’s leveraged ETFs have far less tracking error than leveraged ETFs that traded a year ago. For example, the model’s buy signal on 3/1/10 on TNA scored a 38.4% gain when it was then sold when the model switched to a sell signal on 4/19/10. TNA is 3x the Russell 2000 index. By comparison, the Russell 2000 was up 11.2% during this period, so an investor who bought TNA made roughly 3x the Russell 2000, with a few extra percentage points thrown in (as opposed to earlier times when the returns would be less than 3x the Russell 2000.
Dr. Chris Kacher
MoKa Investors, LLC
Registered Investment Advisers
Author of: “Trade Like an O’Neil Disciple: How We Made 18,000% in the Stock Market”
Buy it at amazon: http://bit.ly/cZg7ZO
The information contained herein is not, and should not be construed as an offer to sell or the solicitation of an offer to buy any securities. The information set forth has been obtained from sources which we believe to be reliable, however, these sources cannot be guaranteed as to their accuracy or completeness. The information and content expressed herein are subject to change without notice and MoKa Investors, LLC and/or its employees may from time to time have long or short positions or may acquire direct or indirect beneficial interest in securities mentioned.
“Trade Like an O’Neil Disciple” Authors Gil Morales and Chris Kacher
Q: How long did you work with William J. O’Neil + Company?
Chris Kacher: I worked with William J. O’Neil + Company for roughly six years, from January 1996 to October 2001.
Gil Morales: I worked for O’Neil for exactly eight years, starting in November of 1997 and departing at the end of October 2005. While there I headed up the Institutional Services group as VP and Manager, ran a portion of the internal proprietary portfolio as a Senior Portfolio Manager, served as Chief Market Strategist from 2004‐2005, and co‐authored with William J. O’Neil the Wiley title, “How to Make Money Selling Stocks Short.”