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Year End Review


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#1 wndysrf

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Posted 31 December 2002 - 05:10 PM

Mark’s Market Commentary – December 31, 2002

Today’s Wall Struck Journal has a must read article about Bernie “O Canada” Ebbers. Playing one bank off another to obtain loans to finance yachts, farms, timberland, and all sorts of Good Ole Boy paraphernalia.

When Bank America refused, he found a loan at Toronto Dominion. Then he would refinance that loan with Citibank. Then B of A would give him the second loan, to avoid being outclassed by TD again. Round and round. So many banks. So much liquidity. So many promises. So many hoops to jump through to become “No. 1 in Equity Underwriting”.

Now, its time to reflect on what happened in 2002 and provide an outlook for 2003.

The third year of the bear market has come to an end. Yet there has been no real selling, outside of the big dump in July. In fact, March Madness saw the largest inflows since the 1st quarter of 2000.

As long as the FEED index remains in its current parabola, regular Repo Jams are to be expected. As long as “new money” is created out of thin air, to be inserted into the over 6000 mutual funds and HedgeHogs, there will continue to be individual stocks and/or sectors which will provide spectacular long trading opportunities for the nimble HeatMappers.

That’s because new FEED money can also find itself into the HedgeHogs who are shorting the market. And of course, these guys know no restraint, as all trades are executed with 10 to 1 leverage.

This year I was wrong on many counts.

This year, I expected more traditional bear market action, where ALL stocks are taken down together. I was wrong.

When the real bear market selling gets going, then all stocks will get sold hard, including the precious metals stocks.

I was wrong about the massive unfilled downside gap. Instead we still have upside gaps unfilled from two months ago.

I was wrong about expecting a capitulation this year and a tradeable low.

I was also wrong about CSFB’s Winterthur unit failing by the end of the year.

I lost a rather large bet I made with a co-worker about my year end targets of 4 “Long Term Portfolio Hold” stocks he has in his IRA account:

INTC $19 (one winner)
CSCO at $9
DELL at $19
PFE at $25

I was wrong about shorting stocks at the highs in January and March, and holding them long term. Incredible short squeezes and round trips suffered on PNRA, EXPE, COH, VIA, EBAY, YHOO, etc.

So much profit in hand. All of it slipped away.

Lesson learned is to take profits immediately, and avoid the squeezes. Giant squeezes will be found in the 3rd, 4th, or 5th year of a bear market, as long as Al Green remains FEED Chairman. In fact one could argue that buying squeezed stocks is a safer strategy than trying to short all the time. Especially if profits are taken quickly.

There was not much follow through on yesterday’s retail pump, but I’m still watching closely for a jam job. Downside volume needs to accelerate very quickly, otherwise we are in for another decent rally. The trend remains down, but a reversal could happen any day. I’ll be ready for it.

Top jam prospects for 2003 are likely to be INTC and HD, the two worst performing Dow stocks. Bottom pickers will be jumping all over these two, so we’ll have to keep an eye on these.

Remember EK? One of the worst stocks in the Dow in 2001? Top performer this year.

As far as what will happen in 2003, I have to presume that we’ll have more of the same. Many bears are predicting a major decline, but I’m not so sure. Until the housing market cracks, the GSE Reliquifaction Machine stops, and the FEED Bubble implodes, there will be no serious stock market selling.

Liquidity has continued to “save” the stock market and economy through the worst of times. September 11, a collapsing manufacturing economy, a collapsing dollar, war fears, anthrax, clones, corporate bankruptcies, unlimited scandals, IPO spinning, “beat by a penny” machinations, and the usual lies and distortions which permeate the financial media.

Hysterical bounces continue to occur in a bear market where bullishness remains rampant, complacency at an all time high, and the general investing pubic still in denial about a long term cyclical decline.

Normally, these incidents should have pushed the market down to extreme lows, but Liquidty overpowered all prior bear market rules.

Remember, bubbles get far more extended than most people expect. The Liquidity Bubble is no different.

The worst of the worst consumer borrowers continue to have access to credit, their participation in the Borrow and Spend Bonanza remains unabated, and show no signs of topping yet. PVN and NCEN are up 50% from the recent lows.

Securitizations are still pulled off with relative ease. Boob job loans, timeshare loans, “no interest until 2005” furniture loans, 20-year RV loans, interest-only mortgages, reverse mortgages, margin account loans, whatever. The sky is the limit.

The real estate bubble here in Southern California is showing no signs of exhaustion. Real estate investing is still the rage. Joblessness, high commercial vacancies, war worries, and record foreclosures have had no material impact on the residential bubble here. I thought that 9/11 would have killed the real estate market. But 15 months later, its still going higher. Higher from levels unimaginable after September 11.

Too many people loitering around the beach cities in the middle of the weekday, chatting on their cellphones, charging expensive lunches, cruising around in their BMW 330’s and Hummer H2’s. No worries, no fears of job loss or income interruption. The longest episode of MTV Spring Break continues.

I expect more jamming and bouncing and erratic trading this year. That includes the usual OE Racketeering and Month End Jam Jobs.

The good news is that as long as liquidity remains intact, the gold and silver stocks will continue to climb, as that sector is now currently enjoying the status of “girlfriend of the month”, with Fidelity throwing huge amounts of money into these shares.

No doubt that greedy HedgeHogs will eventually use the ongoing supply of free Keno chips to try to “test” the gold short theory, and try to ram the gold market higher to see if in fact the massive short positions really exist.

My goal in 2003 is to try to exercise more discipline by playing the bounces and/or covering shorts earlier.

I will keep a close eye on all sectors to alert everyone of possible upcoming squeezes.

It is entirely possible to have a cyclical bull market start without seeing any major capitulation. The really ugly capitulation may not appear for a couple more years. For now, this ultra low-volume decline is satisfying the requirements of some type of partial retest of the October lows. The same type of retest which was experienced at the 1974 bottom. Right now there just isn’t any force to the downside.

Until the liquidity bubble reverses, we have to assume that the October lows will probably hold for now. But if the liquidity bubble gets popped, all rally bets are off.

I will also keep an eye for the inevitable reversal of liquidity flows, which is bound to happen at some point. Maybe it will happen in January. Maybe not until 2004. Will the current $USD slide be the trigger? Who knows? Al Green probably has more tricks up his sleeve. Ban on short selling of ETFs on downticks? Increased margin requirements on short selling? Tighter Program Robot selling limitations on big down days? Who knows?

Like Buddha says, it’s always dangerous to trade against your own government. Until the FEED loses control of the vicious liquidity spiral, it’s best to watch out for the incessant jamming.

And today was another example of the usual jam job, which appeared out of nowhere, which always seems to show its face after some disasterous economic number comes out.

Buddha appeared briefly to comment on the usual and predictable:

“True to form, Al Green pulled out the Dirk Digger autographed vacuum pump and is packing all cylinders under full pressure in attempt to attract some street action and maybe warrant a drunken squeeze from Andrea in the darkness beyond the lobby of the West Wing tonite. All these clowns will be partying together. The horror. I wonder what kind of a celebration Paul O'Squeal is planning. Maybe lining up some empty bottles of Boone’s Farm on the picket fence outside the old family hovel in Appalachia and swapping civil war stories with some of the locals. Then, come early morn, go look for a good hog to cornhole.”

Coming up in the next couple of weeks, we’ll get the official forecasts by the strategists and anal cysts at the Barron’s 2003 Roundtable discussion.

Already, we are seeing some “top portfolio picks” rolling across the tape:

”S&P names its top stock picks for 2003 (WMT, NWS, NOK, AMGN, LEH, C, CSCO, TOY, NCF, NWL, KFT, ACS, CAS, CHG) by Allen Wan Standard & Poor's announced the constituents of the S&P PowerPicks 2003 Portfolio, a model portfolio containing 40 stocks that its equity anal cysts consider their "best ideas" for the coming year. The 40 stocks are: Affiliated Computer, ALLTEL Corp, Amgen, Apache Corp, Boston Scientific, Cardinal Health, Chelsea Property Group, Cisco Systems, Citigroup, Corinthian Colleges, Dentsply, Entergy, FedEx Corp, IMC Global, IndyMac Bancorp, Invitrogen Corp, Jacobs Engineering Group, Kraft Foods, Lear Corp, Lehman Bros., Eli Lilly, MetLife, Microchip Technology, Moody's Corp., Nabors Industries, Nat'l Commerce Financial, Newell Rubbermaid, News Corp, Nokia Corp., Nucor Corp, Overture Services, P.F. Chang's China Bistro, Precision Castparts, Questar, Quiksilver, Sybase, Synopsys, Sysco, Toys R Us and Wal-Mart Stores.”

Model Portfolios

AJC’s 2002 Barron’s Roundtable Planet of the Apes portfolio closed down by 24.1% for the year. Not bad, considering the portfolio was down a disasterous38.1% earlier this year. Another 7 figure salary strategist who failed to beat the S & P 500. Any dart thrower could have done better. Here are the results:

BAC up10%
CVX down 25%
CHKP down 72%
DELL down 7%
IBM down 37%
VIA down 12%

The “I Dare You” short portfolio is up by 15.5% since October 22. This portfolio will be tracked until April 22, the six month termination date.

Position Summary:

No changes. The real volume should show up on Thursday. We’ll wait and see which direction they will push it.

We are 44% short, 24% long, 16% cash.

Half Short:

LOW at $42
INTU at $53
C at $38
TGT at $34
MBI at $50
JPM at $25
AMGN at $52

Quarter Short:

FRE at $68
CFC at $49
KBH at $49
LEN at $56
TOL at $27
BBBY at $35
COCO at $40
KSS at $66
NCEN at $28
NYT at $45
WSM at $27

Full Long:

GG at $11

Half Long:

BGO at $1.31
HL at $4.10
PAAS at $5
DROOY at $3.35
GLG at $9
MDG at $16
GSS at $1.72
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#2 DrStool

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Posted 31 December 2002 - 05:27 PM

Thanks Mark! Happy New Year.

Everyone- Don't forget to vote in the Stoolie Market Poll for January . The poll is supposed to close today but I'll leave it there through Jan 1. The weighted average of the December poll missed the S&P close by 17 points. Poll Archive in Stool News

If your portfolio has you feeling irregular, for fast, long lasting relief, take a subscribatory. And support your local Stool!

#3 Takachi

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Posted 31 December 2002 - 05:40 PM

Great job Mark every day all year - thank you! Greasepan is reputed to have said he hoped he was Feed chairman during a K-winter cylcle as he would beat it with liquidity, which he is trying to do and will fail. The scenario you outline for what you thought would happen is the rational scenario. Seems to me, if Greasepan would just have let it go, we could be 3/4s done with a severe recession and probably halfway through a post crash rally already. As it is, he has doomed millions to a prolonged agony that will consequently take more wealth and more spirit out of a depressed economy than it otherwise would have.

Your comment on the miners and gold taking a dive with everything else when the real deal starts is the pattern seen after 1929. Gold stocks crashed and then saw a monster rally in the midst of carnage everywhere else in the market. I'm wondering if the artificial cap on POG and the miners hasn't already played out that weakness. IOW, I'm not sure that the recognition of gold's role, having been identified by constant unrelenting suppression won't take it through the crash relatively unscathed. A sympathy drop yes, but I don't see the miners taking much of a breather unless the gov't comes up with a windfall profit tax or something as equally stupid.

Thanks again for all the education and laughs you've provided.

#4 seamus

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Posted 31 December 2002 - 06:41 PM

Merry New Year Stoolies...
Let the festivities begin - :P

#5 phatbubble

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Posted 31 December 2002 - 07:16 PM

thanks mark. great work here - lots of hilarious and insightful high points.

i'm feeling that on the jam job. several astro reversal signs take place this week as well. i expect....something....of no longer duration than a couple weeks. maybe a failing effort to prop things up that nets out in a flattened up cycle. collected some HD jan calls today for a 2-3 day trade, assuming we'll see the beginnings of this something on thursday. will dump them immediately if it doesn't turn up. we'll know soon enough.

in any case, shortly it'll be on to the real business at hand. the 'really ugly capitulation' may NOT appear for a couple years....but i'm betting on this spring. the bottom will drop out, gradually and then dramatically....through jul/oct lows and then gone, spx into the 600s and then 500s before summer. planning to be heavily in phat-lambda (high leverage / way OTM) index puts by NO LATER than the end of next week.

and, right now, so much for all that.

Happy New Stool everyone. this place is the best. glad to be here with you. may fortunate stoolwinds be at your back to bless your journey in 2003. :D :D :D
Quod Severis Metes

Your life is the sum of a remainder of an unbalanced equation inherent to the programming of the Matrix. You are the eventuality of an internal anomaly, which despite my sincerest efforts, I have been unable to eliminate from what is otherwise a harmony of mathematical precision. While it remains a burden assiduously avoided, it is not unexpected, and thus not beyond a measure of control. Which has led you, inexorably, here.
You haven't answered my question.
Quite right. Interesting. That was quicker than the others.

#6 Guest_The CoinGuy_*

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Posted 31 December 2002 - 07:20 PM

Hello Fellow Stoolies,

Wasn't around late in the afternoon, so I didn't get a chance to wish everyone a HAPPY NEW YEAR. I also am hoping(& praying) for great health and prosperity for every stoolie and their family in the coming new year.

well...I started positions in URPIX, USPIX, and BEARX in the trading account. So I can eat my words from last night :unsure: . I think we'll get a bounce in the first two weeks of the new year, and I'm allowing for entry points for evey +10 points on the S&P cash(I only watch the S&P, and trade off of it) all the way up to my 923-925 target, then I'll be 100% short. So the Avatar stays, until I cover.

Windy: I've read each and every Mark-to-Market, and I just wanted to thank you for the great reading, and to let you know this Stoolie thinks you're "Top Shelf" material. I only wish some of your literary skills could rub off :) . As a side note, didn't you pick up a 1/2 long on GSS? Did you dump it already? If so I missed it.

Happy New Year everybody, and be Safe,

The CoinGuy

#7 flufflander

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Posted 31 December 2002 - 07:31 PM

A healthy, happy, and prosperous new year to all Stool Pigeons!!

Peace to all.

#8 Hiding Bear

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Posted 31 December 2002 - 07:41 PM

Thanks Mark and Doc for some interesting and valuable guidance this year.

Today's the Wall Struck Journal states:
Asked whether the cost of war with Iraq might be worth it, Mr. Bush said, "An attack from Saddam Hussein or a surrogate of Saddam Hussein would cripple our economy."

Translation:
As the FEED has told me, this credit bubble pyramid is coming down. The FEED will do their printing press thing and I am going to do my part to support wasteful government spending, even on dubious military adventurism if necessary. Especially if confronted by a surrogate from the Axis of Evil.

Best wishes and good luck to all in the new year.

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Posted 31 December 2002 - 07:47 PM

2003 is feeling OK right at this moment. Felt great to wake up to the new year with higher POG and check out the action in silver.

I never got round to thanking Lance Lewis for taking his holiday when he did, otherwise Mark wouldn't have stepped in to and outgrown his shoes. Mark's postings are my first stop everyday and I am grateful for all the experience that is posted here so graciously everyday.

Happy New Year stoolies, - Sydney's fireworks message this year was peace - let's all hope.

#10 GTNWORSE

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Posted 31 December 2002 - 07:51 PM

Hey Guys,
Wanted to wish all of you a Happy New Year!
Mark I've enjoyed your commentary immensely.

If some of you would care to comment, I have a large sum of $$$ maturing on 1/2/03. It's been earning 5 1/2% in a CD and my mother lives off the interest. I was thinking about Vanguard GNMA fund or Nuberger Berman High Yield, but I want to be somewhat conservative.
Any thoughts from you very wise folks in stoolville?
Many Thanks,
Be Well

#11 wndysrf

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Posted 31 December 2002 - 08:02 PM

CoinGuy:

Yes, I'm in GSS at $1.72.

Forgot to add that today. I think I put it in yesterday's lineup, though....

Go gold....
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#12 brian4

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Posted 31 December 2002 - 08:03 PM

Happy New Year-Mark, Doc and my fellow CITIZENS of STOOLVILLE. Well I have my long ladder built to 925 on the SPX-Coin Guy is building his ditto Phat-just remember guys to have the ripcord handy-after the expected rally is when the FUN begins. I agree with Phat I think spring will be straight down-the invasion begins, downgrades, lousy earnings, bankruptcies etc. Speaking of which anyone willing to step up on NT- anyone? anyone?-I thought not! NORTEL may she rest in peace- had her fenders blown off today- and closed at seventy freaking cents in the aftermarket. So another high flyer is ready to hit the chapter 11 dumpster. In the last two months anal cyst after anal cyst has touted it as a great buy a month ago they were all jumping up and down because it almost hit 3 bucks-watch JDSU follow it shortly(great short). Hug your loved ones tonite and I'll see you next year-Trade Safe!

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Posted 31 December 2002 - 08:07 PM

-Takaichi,

:grin: AMEN!!

#14 Flaming Turds

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Posted 31 December 2002 - 08:19 PM

Happy New Year to all the cohorts here. May 2003 be good to the bears. (Especially for my short q's and long gold :D )

#15 Guest_AssMaster_*

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Posted 31 December 2002 - 09:24 PM

Hah! I have a friend with an average cost of 40 bucks on that POS NT. TOld her to SELL two years ago. 6 months ago she said "well they're not going out of business are they?" Sheesh.

However, that POS was one of the most profitable trades I made all year. Bought at .60-.80 and sold at 1.60. It's a miracle! :grin:

Told them to buy gold in fall 2000. Didn't listen.

Seeing everything I said come true is somehow not as satisfying because I know a lot of people who didn't listen and have suffered - including myself.

This year, I plan to follow my own advice (whatever it is) and let everyone else take care of themselves - unless they ask for my advice.





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