OK, I'm not one to instill fear, but I like to at least make people interested enough to look for they leap.  I had lunch with a friend this afternoon.  He's told me the story before about his old man who is an on again, off again retiree.  He was first about to retire in 2001.  We know the story there.  He did finally sometime around 2004 or 2005.  Well guess what, he's down 40% (which is actually outperforming the market) and again looking to come out of retirement.  Well, except for one thing. His brokerage firm, who shall remain nameless, but you've all heard of them, has given him a "fail proof" strategy.  For one of the clients its returned him 94% over the last few months.  In fact, Mr. Broker thinks its so great that he's putting in his own money.  What's worse, he's got my friend's old man to put up about 30K out of his dwindling retirement money.  I don't know what percentage of his overall investments that is, but for someone who fades in and out of retirement, 30K sounds like a meaningful amount.

It gets better though, while my friend claims near ignorance, he did know enough to tell me that it has something to do with calls and puts and some out in the future and stuff.  So I can certainly gather we're using options here.   This should make it all the easier to model true risk/reward and put this issue to rest.  My friend mentioned that his old man has been "testing the theory" in Excel for the last week.  Maybe he needs a copy of RightEdge?   But anyway, he's tested it for a week in Excel and has gone from skeptic to fully on board.

Here's my guarantee.  I told my friend that if his old man is onto something (we know he isn't, right?), I'll sink in everything I own and give him 99% of the profits. What's more, I'll let all of you in on the "secret" as well and we can all be fabuluosly wealthy.   I honestly think it's diagonals or calendar spreads.  It might be condors.

This morning's news was pretty bad.  Initial jobless claims up again to numbers not seen since 1982.  What does the market do?  So far it's taking it in stride.  Dow futures are actually up 82 this morning after the news was released.  To steal a quote seen recently about the news "That's news for a rally in this bizarro world".  You can see similar behavior on the upside.  When companies are nailing earnings or announcing lucrative contracts, products or markets and their stock goes down, this is a sign that it may be exhausted.  Could be time to move along.

Going back to the dot bomb crash, we regularly heard of jobless claims numbers in the 400,000's.  Anything above 400K was considered recessionary.  Now the 4-week moving average is 639,000.  Makes 400K look like a roaring economy. 

I've blogged about the recession and mortgage mess in the past and in particular, how the media was blowing it out of proportion.  Things were happening indeed, but I still can't feel that this was a bit of a self fullfilling prophecy.  I think a correction was due, maybe overdue, but chopping the Dow in half wasn't exactly what I had imagined.  I suppose markets can be like a box of chocolates, you never know what you're going to get.  Well this time, we got the chocolate filled with toothpaste.  The one that will take a bit to get that nasty taste out of our mouths.  It'll go away for certain, but you might have to eat another chocolate or two as a chaser.

At the present time, the fundamentals are still in the toilet.  However, I see more and more articles speaking optimistically of the economy.  The worst is over, the bottom is in, they say, with no basis for that assumption ... much like before the market rolled over.  I also see smart people who watch the market everyday showing some signs of capitulation.  They've been saying all along that this is the down side of a cycle (and it is), but this one is still normal.  Now that the Dow is down 50% or so from its highs, they're beginning to come off of the "this is normal" posture.  I'm not in that camp yet ... markets cycle, 40-50% down is a bit on the high side, 50% down twice in a decade seems like a dream, but it happened.  It still doesn't mean it's inconceivable.  We had three major bubbles burst this decade ... you only heard of two, you say?  Well there was the tech bubble in 2000-2002.  I lived through that sector.  It seemed like a depression for us.  Everyone I knew in the business had lost their jobs at some time or another.  Including yours truly.  Obviously, the second bubble was housing/financial.  Not having our business really tied to those sectors directly, this particular downturn doesn't sting quite so bad.  People are still buying copies of RightEdge, thank goodness.    And the third bubble burst caused much rejoicing for the most part and that is the commodity bubble.  Go find a Joe the Plumber type that was angry that the price of oil collapsed.

In 2002 as the tech wreck was settling, we were all convinced (or maybe told) that the housing bubble (it was even called a bubble then) was propping up the economy.  People were using their homes as ATMs through equity.  It was pretty apparent to most sensible people that we had a problem waiting to happen.  Commodities had also been on a massive bull run through the tech wreck.  This was also commented on from time to time and again, it seemed like a bubble that was forming.  It became more and more apparent especially after Katrina.  Everything was going up with oil and groceries making the nightly news.

So why am I so optimistic today?  Well, a lot of very nasty things seem to be well in progress on working themselves out.  During the previous equity bear, I still felt uneasy.  In fact, I was waiting for the housing collapse around 2002 which would in turn whack retail and send the market spiraling down some more.  We were down 50% and still had this housing issue and credit problem lingering.  Could you imagine if we were here today and the housing bubble hadn't burst, but was going to tomorrow?  Could you handle another 50% down (i.e. Dow 3500?).

At this point, I don't really foresee a major market or major sector on the brink.  The only exception might be alternative energy.  It has a very dot-comish feel because companies are at prices that don't make a lot of sense.  But that sector could collapse and have little to no impact on broader things.  Automotive could still disappear in this country, but I don't think that will have the impact that the UAW and Beg 3 would have you believe.  I think the market news outlets might be feeling this as well.  Don't get me wrong, I don't see overwhelmingly positive news, but it seems the inverse of the rollover in October 2007.  All summer in 2007 there were many seemingly baseless negative articles.  Now I'm beginning to see seemingly baseless positive articles.

Am I calling a bottom?  Nah.  But it wouldn't surprise me to see the market in a much better place within the next year.  Selfishly, I hope it isn't.  I have a 12 month plan that would allow me to free up some capital.  This free capital would be going into the markets.  I'd rather have the market lower 12 months from now.  I really think it's unlikely though.

So the market is gyrating between red and green a bit this morning.  This morning the bulls were interested in the market for reason du jour and now they decided that they're not interested any longer for excuse du now.  I've always been a little fascinated at how and why this is news and entire businesses are centered around this.  And if businesses are centered around this, there is clearly a market, which means there are a lot of people interested.  My question is 'why?'.  It's pointless.  It's entertaining at absolute best ... deceiving and stupid at worst.

I think it's important to separate this noise from your life and definitely your trading.

I do find some merit in looking at a chart in your respective time period and analyzing how this changes the probability of your trade.  But if candlestick x is black and candlestick y is white, who cares?  One of my talents that will never allow me to join the circus, I'm afraid, is bringing up a stock chart of the Dow for any time period and rattling on at great length.  I also have my very own chart formations and their names.  My personal favorite is the whizzing off the balcony chart formation.  This is when the market goes up on the morning session, levels off around lunch, falls rapidly in the afternoon and closes the last hour in a tight range.  I can tell you that the whizzing off the balcony chart formation does not predict a higher or lower session the following day.  But I can tell you for a solid 60 seconds what caused every bit of this chart pattern to form (read, bullshit).

So I'm interested ... does anyone who reads a marketwatch or watch CNBC actually believe any of this crap justification?  Why do we do it? 

I've been one to take this downturn in stride and not get overly worked up about it, but I have to say there are a lot of folks that are really scared, depressed, hurting. I tune in to A.M. talk radio most of the time and typically on the weekends they have financial type call in shows.  Not uncommon.  The questions are fairly similar, I have money what do I do with it? What makes sense in my particular situation? ... etc.  The one I tuned into yesterday was filled with desperate and very frustrated people.  The situations ran the gamut as usual.  People frustrated with the system because the rules keep changing.  People who are facing foreclosure or other financial hardship.  It truly seems like a situation that most people thought impossible.  It's something I've been anticipating.

I like to think I associate with people who mostly have a decent head on their shoulders.  As a result, they've been whining a lot abot how they played by the rules, meanwhile, the irresponsible folk are in line for a government hand out to keep their homes.  I can agree that this is a bit frustrating, but can you imagine the emotional suffering involved in losing your home?  I would consider myself a personal and professional failure if something like that were to happen.  As a result, I probably erred on the side of conservative money management.  Thankfully, the rest of the family is on board which makes it immensely easier.

We have a reasonable amount of liquid savings not because we made gobs more money than most people, but because we decided to stash it away and live well below our means.  To give you an idea, we haven't had an honest to goodness family vacation in 7 years.  The cars at the house are 7 years old or more (and paid for).  Going out to eat usually means Taco Bell.  I have worn shirts that were picked up from garage sales.  So you get the idea, I'm an extreme case.

The item I've been pondering over the last couple of weeks is how to deploy these funds.  I already have a good bit in the markets, sure, but there seems to be bargains everywhere you turn.  Real estate seems to have cracked a bit in the Atlanta area after remaining relatively firm.  Vacation homes seem like a real possibility where before they were totally out of reach.  And of course, the stock market to me still looks juicy from a long term stand point.

The point here is that folks who did play by the rules can make it rather nicely.  I've been looking at real estate for years, but the numbers never made sense.  Now they do, almost to the point of being a no brainer.  They won't stay that way forever.  Same thing for the markets.  The valuations are low.  Could they go lower? Absolutely!  But my thoughts are in 5 years any asset you pick up today will likely make you look back and smile.

Sounds easy, right?  Well, the problem that I'm contending with at the moment is paralysis by analysis.  I mention that there are many opportunities.  Which one makes the most sense?  I don't know and will most like pick the one that performs the least over the next 5 years. 

So even in near slam dunk situations, psychology plays a factor.  I may share the progress or lack thereof moving forward.  I'll also likely share my final decision for the sake of argument.

If you're a landlord especially on the residential side, I'd love to hear from you.  If I picked up a residential property, this would be my first on that side.  I do own some commercial property which is virtually maintenance and headache free.  I suspect that will not be the case so much for residential.

Hello, hello.  It's been awhile.  Normally my morning routine consisted of a blog post with the first cup of coffee, but things have been so hectic that that was becoming more and more difficult each day.  Couple that with the fact that the market, to me, was once again stuck in a nauseating range.  And still more, I'm running pretty dry on the ammo at this point.  Sure, I kick in a few bucks each month as a matter of course, but that's not enough to make real moves.  So I'm really in a "buy and holed" mode right this moment.

I did want to bring up something that is very germaine to the creation of this blog to begin with.  For those that are new, that would "questioning conventional wisdom and self proclaimed experts".  I usually consider someone like Cramer low hanging fruit, but it's nice to see a "reputable" source outline just how horrible this man is. We already know that a chimp can outperform the man, but his recommendations are bad for your portfolio's health.

Please read: Cramer's Star Outshines His Stock Picks in Barron's.

Next month I should have a bit more scratch to play speculatively and you may see more of me as I analyze these ideas. 

Enjoy the weekend.