Calling Out Your Broker

"Trim your exposure to stocks when you feel the need but never get out of the market completely. You must have some exposure to the stock market at all times. The risk of being out of the market completely is just too great."

This is the gospel of the investment industry. This is what sells mutual funds. This is also how people lose money (sometimes lots and lots of money).

I call bullshit.

In fact, I believe the true investor starts with the opposite approach. The true investor begins by putting her hard-earned capital into risk-free t-bills or FDIC-insured CD's, etc. She looks for compelling investment opportunities. When she finds something that she understands to be a very attractive opportunity then, and only then, she commits capital.

It's not rocket science; it's just common sense.

The bottom line is this: if you don't have a very good reason for owning a particular investment you shouldn't own it. It's as simple as that.

The investment industry, however, wants people to believe it's much more complicated than that. The industry wants you to think you're not smart enough to decide what's worthy of your hard-earned capital. The industry wants you to pay commissions 24/7, 365 days a year in a zillion different markets around the world. The sales pitch (scare tactic): "you might miss out on a HUGE upside move if you don't own at least a piece of everything and stay invested at all times."

My counter-argument: you might also lose a boatload in the process (i.e. the stock market over the past decade). Plenty of people have made a fortune simply putting their money to work in t-bills and CD's, saving as much as possible and letting the compounding do the work. You don't need to do any more than this.

You can certainly do better if you can find a few great opportunities over the course of your investing career. But there certainly is no compelling reason to be invested in everything at all times.

Dont Believe The Hype - Public Enemy

SkyGrid: A News Junkie's Dream Fix

I've been playing with a new news service called SkyGrid for the past few weeks. For news junkies like me SkyGrid is one of those apps that comes along and soon becomes an integral part of our daily routine. I put it up there with my Google Reader feeds and My.Alltop in terms of the benefit I get from it.


SkyGrid is currently in private beta right now so it's not easy to get access to it. However, the company has offered me the opportunity to invite a few readers to test it out. If news is as important to your business as it is to mine I highly recommend you check it out. Click here to sign up.

Revisionist History and the Rarefied Air of Bend

"It used to be that when the state caught a cold, Bend caught pneumonia. I think because of our construction and our boom and our growth, we're a bit insulated from the rest of the state." -Oran Teater, June 2005

"It was a frenzy for quite a while. We knew it wasn't going to sustain." -Oran Teater, May 2009

What a difference four years make. In the former mayor and current city councilor's first quote, given to the Bulletin during the height of the real estate bubble, it certainly doesn't sound like he's saying, 'of course, it won't last' or 'the current frenzy is unsustainable' or, better yet, 'beware! Financial Armageddon is coming!'

No. It sounds just a bit more optimistic than that. It sounds as if he's telling Bendites there is really nothing to worry about. Bend is an economic island unto itself, an economic utopia.

Four years and the worst recession in decades later, however, and it seems he was much more prescient about the current "economic Pearl Harbor," as Warren Buffett has dubbed it. Mr. Teater is clearly taking a page out of Sir Alan Greenspan's revisionist playbook.

There were a few of us who actually did know that the real estate bubble and concomitant economic boom were unsustainable. There were even fewer of us who warned of the inevitable consequences. Mr. Teater was not one of us, though he now claims to have been. Politicians will be politicians.

This time Oregon hasn't just caught a cold. It's Oregon that has caught pneumonia and Bend has tuberculosis (or swine flu - take your pick). If the country has, indeed, witnessed "economic Pearl Harbor" then, in comparison, Bend has seen "economic Hiroshima."

Bend currently sports the 8th highest unemployement rate in the country out of 372 metropolitan areas surveyed by the Bureau of Labor Statistics. That's the top 2% in the country, putting us in a very rarefied air (obviously not the kind that the City Council and the Chamber like to brag about, however.)

It doesn't help that the politicians and other organizations that not only witnessed the bubble but encouraged it and actually helped inflate it are now focused on covering their behinds. If we are going to rescue the patient and turn Bend's economy around, it's going to take sober analysis and strong medicine. And I, for one, don't think this is too much to ask of our public servants.

So Many Rush Limbaughs

A few months ago radio megastar (and megalomaniac?) Rush Limbaugh famously said he hoped to see Obama fail in his role as president. He was widely chastised for it and rightly so. The dictates of honor and class don't allow for such vitriol.

I recognize that the stock market is not the same as the office of the President but there is a very loud chorus of market watchers out there right now expressing a very similar discouragement of the current rally in stocks to that Limbaugh expressed towards Obama. "I hope the stock market fails," is now the unspoken mantra of many market pundits and amateur traders alike.

There are many different reasons, obviously, for the continued pessimism. Bears want to see their ultra-dire fantasies become reality so they can say, "i told you so." Bulls want a pullback to give them the opportunity to make purchases they were too scared to make a few months ago.

Politically, there are the Limbaughs of the world that would like to see the stock market validate their negative assessment of the administration. There are others who would like to see a bit more economic weakness to spur another round of stimulus spending.

These various justifications, however, are beside the point. The majority is still widely negative and that continues to give me hope. As I've said before, quoting Bob Dylan quoting Abe Lincoln, "all the people can't be all right all of the time."

In the spring of 2003, the beginnings of the last bull market in stocks, it seemed the market was fueled by skepticism as it rallied nearly 40% from its lows without a single, significant pullback.

This rally has the same feel to it: fueled by skepticism. The crowd may, indeed, get the selloff it's looking for but I wouldn't count on it.

Getting Extrinsic in 2009

Early in January I wrote that "My Back Pages" was "Going Radical in 2009". The blog had become too disjointed with link dumps, charts and tangents that I wanted to refocus it on bigger ideas.

I haven't been totally successful putting this intention into practice so far but I think I've found some help. I've been using a few other services lately that are perfect for link dumps, chart and tangents.

First on the list is Twitter. I've been using it for a while now and I've written about it before. It's also getting a boatload of press lately. Twitter is a very good outlet, in fact the best I've found, for posting links to spark discussions on various topics I'm not eager to write a full blog post about. Join the discussion on Twitter @jessefelder

The second service I've found useful recently is Posterous. I've only been using it for a couple of weeks now but it's ideal for posting charts, photos and the editorial cartoons I love so much. My Posterous Blog can be found here: jessefelder's posterous

Finally, Chi.mp could be the next big thing in the world of social media. It basically works as an aggregator of social media services to create what I call the "poor man's home page." Check out http://jessefelder.mp to see my Chi.mp profile.

Banks Breakout With 70% Rally in 8 Trading Days

The chart above is an updated version of the one I posted a couple of months ago under the title, "Fat Bottom Banks?" The banks rallied after that earlier post but not to the degree I anticipated they might.

Over the past week or so, however, the banks have rallied roughly 70% off their lows and have now clearly broken the downward channel on the chart. Amazingly enough, they are still 40% below the 200-day moving average.

The easy trade, the reversion trade, is now pretty much over, however (as we got the 50% move and then some). Still, the path they take from here will tell us much about the strength of the stock market's current rally.

"Dr. Doom" Does "Party Boy" - Nouriel Roubini and the Cult of Personality

Economist Nouriel Roubini, aka "Dr. Doom," has become a full-blown celebrity since the financial crisis began over a year ago. His uber-bearish predictions have been borne out and then some causing the financial media to elevate him nearly to cult status.

Not only is Dr. Doom basking in the limelight, he's celebrating his success by partying like a rock star. Portfolio.com reports:

Bad times have certainly been good for Roubini’s social life. For years, he has been a manic host of everything from small dinner parties to big bashes. The soirees are more crowded of late, attracting everyone from members of the hedge-fund set to a former Miss Ukraine and propelling the bachelor economist onto the tabloid gossip pages. (He has become a New York Post regular, and CNBC often plays disco music when he appears on the air.)

It seems to me that the case of Roubini's celebrity is exactly the inverse of CNBC making celebrity bulls out of the likes of Mary Meeker, Abby Joseph Cohen and Joe Battipaglia late in the tech bubble. They have since been shamed back into obscurity.

So how long with the "cult of Roubini" last? Dr. Doom, obviously, isn't waiting to find out. He's going to make the most of his 15 minutes and who can blame him?


(Click for video)

Source:
The Prime of Mr. Nouriel Roubini
Helaine Olen
Conde Nast Portfolio.com
April 2009

Bear Stearns: Gone But Not Forgotten

It was just about twelve years ago that I began my career in the investment industry at Bear, Stearns & Co., Inc. At the time, Bear was a behemoth in the industry, doing more business on the New York Stock Exchange than any other firm in the world. As a kid fresh out of college aspiring to an investment career, I was in awe and felt very fortunate for the opportunity to be a part of such a prominent Wall Street icon.

During my short tenure at Bear (I stayed less than a full year) I was fortunate enough to make a trip back east to the company's headquarters in New York. I saw the company's main trading desk where the now-former chairman and Wall Street legend, Alan "Ace" Greenberg, still works today (as part of JP Morgan). I took a tour of the New York Stock Exchange with one of Bear's top floor traders and witnessed the business of Wall Street first-hand. All in all, my experience at Bear was a great introduction to the industry.

Obviously, back then I never would have dreamed that Bear would eventually be wiped out, seemingly overnight, by what essentially amounted to a run on the bank. Above is a copy of the first trading ticket I ran at Bear (sell 50 shares of MRK at the market). I keep it because it reminds me of the feelings of opportunity and excitement that inspired me to pursue an investment career in the first place. And I won't forget them.

My My, Hey Hey (Out Of The Blue) - Neil Young