My Take On The U.S. Presidential Election

Seeing that I have contributed $300 towards Barack Obama's presidential campaign and with 5 more days to the much awaited election, I thought I would put my mouth where my money is.

So far the polls have Barack Obama leading over John McCain and it's almost a foregone conclusion that he will emerge the winner. Since the elections are decided on electoral college votes, it can be a slippery affair trying to predict the winner based on popular votes as was the case in 2000.

My call is that Obama will win by at least 311 electoral college votes to John McCain's 227 electoral college votes. I have him winning in Ohio, Virginia, Iowa, Colorado, Nevada and New Mexico, which all went to George Bush in 2004.

McCain's chances of winning are hinged on 2 states. Taking Pennsylvania from Obama and reclaiming the lead in Colorado. Contrary to the polls, I see McCain winning Florida owing to it's aging demographics. However, it is possible that Ralph Nader and Bob Barr, who are also running for presidency as 3rd party will chip into McCain's aging base as they are popular with elderly and Southern voters.

Should Obama's lead evaporate in the coming days, he needs to win Virginia and Colorado to win the election. And if he loses in Pennsylvania, he will need Iowa, New Mexico and Nevada to claim the lead.

If there are going to be any surprises, then it will be in the following states. Georgia, Indiana, Missouri, Arizona and Montana for Obama, and New Hampshire, Ohio and Iowa for McCain.

My prayer is that Barrack Obama wins decisively and I will be routing for him on election night. Unlike McCain, his path to victory is much wider and this election is his to win.

Casino Royale

Around 1 o'clock I had a peek at the market and the major indices were hardly up. 3 hours later I overheard someone in the corridors at work saying that the Dow was up 900 points.

There couldn't be a bigger disconnect between the rally and the headlines.

Consumer Confidence Index dropped from 61.4 to 38 in September, it's lowest level since 1967. And the Case-Shiller Home Price Index fared no better. House prices recorded an annual decline of 17% in August. Never mind that the mortgage markets froze in September so you can imagine the next data point.

This leads me to believe that today's rally was propelled by shorts covering in anticipation of tomorrows Fed funds rate cut. Beneath the surface, the data was not as spectacular as the rally.

21% and 23% of stocks in the NYSE and NASDAQ, respectively, hit 52-week lows compared to only 5 stocks hitting their 52-week high in both equity markets. And of the 5 stocks, none closed at the 52-week high price level.

Of greater interest to me was the volume of shares traded and the VIX. The latter dropped 13.10% to 66.96 indicating the easing of fear. But then, the week is not over. In fact, we are not even half-way through the week.

Tomorrow we find out if the Fed still has more ammunition left to quell the mutiny in the financial markets.

It Pays To Be Patient

"The best returns come from those who wait for the best opportunity to show it self before making a commitment." - Author Unknown

There is going to be huge payout at the end of this crisis.

The world has never been awash with liquidity like today. There are trillions of dollars sitting on the sidelines waiting to be invested.

When will the best opportunity come? Is it already here and we don't know. Or is it lurking out there? Waiting for the market to devour us all.

The Rich Also Cry

It goes without saying that bear markets are no respecter of person. The rich, the hoi polloi and even the super wealthy are still reeling from this years losses.

Topping the lists are well known individuals. People who made their wealth and name in Wall street.

In April this year, Kirk Kerkorian's, Tracinda Corporation, bought 100 million shares of Ford Motor Company at $6.91 per share and announced plans to buy a further 20 million for $8.50. On Friday, Ford's shares closed at $2.01 and with the the bottom doesn't seem in sight considering the auto industry has been battered by the credit crisis. Never mind that his attempts in 2006 to turn around GM ended up in failure leading him to sell some of his stake for a small loss.

Enter corporate raider Carl Icahn best known for taking CEOs head on. In May this year, he announced that he had bought 59 million shares of Yahoo and planned to buy up to $2.5 billion worth of Yahoo stock. Prior to his announcement, Yahoo shares were trading at around $25 compared to $12.10 at the close of the bell on Friday.

And in today's 60 minutes program, billionaire T. Boone Pickens revealed that he had lost $2 billion as oil prices plummeted from an all time high of $147 per barrel. Pickens, who has taken to lobbying against America's dependence on oil, seems to have been preaching alternative energy while drinking crude oil.

As the Wall Street debacle continues to affect paper wealth disproportionally, you can be sure more big names will surface in the news.

Addendum

It's A Washout, Finally

This is it. We are minutes away from open and the market futures are down HUGE! They even had to employ circuit breakers.

I've been expecting this day to come and we are finally there.

Here's what to look at; Volume, Volume and Volume.

I'm not planning on buying today cause Monday's have been known to be apocalyptic.

9:45 ET update; The market support is holding strong but we still have 6 more hours of trading. The bulls are holding the base. This could be a good sign.

Trading Like It's 1930's

"Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble... to give way to hope, fear and greed."

- Benjamin Graham, The Father of Value Investing

If you don't know who Benjamin Graham is, then you'd better look him up before you buy your next stock. His book, Security Analysis published in 1934, remains to date the bible of many value investors including Warren Buffet, the current world's most richest person.

Benjamin Graham's fame arose from the ashes of Great Depression and his principles couldn't be more applicable than in the current bear market. Investors looking for cheap stocks will be rewarded if they follow in the steps of Benjamin Graham.

That said, you want to look for low price/earnings ratio, low price/book ratio, no (or low) debt, high (and safe) dividend yielding high performing stocks in the current stock market wreckage.

Tomorrow Never Comes

Looking at the major indices, it seems that Friday is now the new Monday. As far as trading volume goes, the last 3 Friday's have seen more shares traded than the preceeding Monday.

The second thing that I have noticed is that the Fear Index has peaked in the last 3 Friday's. In all 3 instances, its started the week in the low 50's and closes towards the 70's.

And as far as action is concerned, Wednesday, Thursday and Friday seem to be the most volatile days.

If my observations hold true, then tomorrow should be an interesting day. Today's volume came in at 7 billion shares traded on the NYSE compared to 6 billion on Wednesday. The VIX is 3.6% away from last week's all time high record and there is no shortage of bad news in the media.

Tomorrow we get September's existing home sales. By any measure, I expect the numbers to be ugly because the mortgage market froze in September.

That said, I'm keeping my powder dry in preparation for a huge down day. I still think the market owes investors a major shakedown that will see everyone scamper in fear.

The fact that financial news media has not been apocalyptic about the current bear market means that we there are still many bulls out there.

The End Is Nigh

It's not looking good at all and stocks are fast approaching their 52-week all time lows.

We've already traded 1 billion shares on the NYSE in the first hour and if volume picks up all hell will break lose.

I had planned on taking some profit on one of my positions today but the market beat me to it in the morning.

Keep your eyes on the volume. That is where all the action is.

The Worst Is Yet To Come

The Fear Index (VIX) closed the week at an all time high of 70.33 after hitting a new intraday high of 81.17 on Thursday. On the other hand trading volumes on the NYSE and NASDAQ have dried up which could mean that investors have become complacent despite the record level of fear.

And Warren Buffet's call to buy U.S. equity trading at 'bargain prices' only serves to confirm my fears.

With 2 more weeks in the Bear killer month of October, you can expect that if the stock market crashes it will be when we least expect it (no pun intended).

Brace yourselves!

PS. Google reported blowout 3rd quarter results lifting its shares from a 52-week low price of $309.44 to close the week at $372.54. It looks like investors chose to forget that stock prices are a leading indicator (i.e. forward looking).

Fear Factor Reigns, Part Deux

"That which does not kill us makes us stronger". - Friedrich Nietzsche

When it comes to investing, a lot of people switch off from the market when things go wrong. During bear markets, very few people have the courage to look at the brokerage statement. Come the next bull market, they miss out on the initial run and only after they see others making money do they get into the market.

It is for this reason that I have decided to follow the stock market even closer now that things are going haywire. Beneath the headlines there is a rich array of information which can be very telling.

Take for example today's sell-off. Even though the DJIA lost 7.87%, the volume of trade on the NYSE was much lower than the preceding weeks. To top it off, breadth was negative with 88% of the stocks in decline.

As far as fear is concerned, things are looking grim. The Fear Index closed at 1% within Friday's all high. The fact that the VIX is a leading indicator of sorts, means that the markets could get worse before they recover.

My guess is that it will take one more quarter of earnings report before we can move away from the financial crisis.

Fear Factor Reigns

Following yesterday's blow-out rally, we opened up this morning in what looked like another up day only for the stocks to head south.

My understanding is that a brokerage firms are liquidating shares bought with margin. Plunging stock prices have triggered a wave of margin calls adding more downward pressure on an already depressed market. Billionaire chief executive of Chesapeake Energy Corp., Aubrey McClendon, was among the investors who got a call from their broker. He sold "substantially all" of his stock in the company in a span of three days last week in order to meet margin loan calls.

In addition, fear still reigns high and investors are also dumping their shares by the drove. Yesterday's rally opened up an opportunity for investors to take profit or limit their losses.

It's worth noting that today's volume was heavier than yesterday's which means that fear is still reigning in the markets and there will be a lot of selling pressure.

I don't expect the direction to change soon but I will be following the market volume closely as its volume that determines the direction of the market.

Dead Cat Bounce

The Bulls are back! Or so it seems.

On the surface, the Dow Jones Industrial Average recorded the largest gain since 1933. In total, it closed 11%, reversing some of last week's loss.

A quick look beneath the surface shows that volume was less than spectacular. In total, 7.3 billion shares changed hands in the NYSE. Far less than last Friday's all time record of 11.6 billion shares.

With the market extremely oversold and everyone screaming that shares are cheap, I expect the rally to last for a few days before succumbing to the worsened state of the U.S. economy.

And should my last week's purchase of Provident Energy gain more than 50%, I'll gladly trade the short term gain against the 22% dividend yield. After which, I'll look into getting back onto the CanRoys band-wagon once the stocks give back the gains. As expected last week, my position is 24% up after today's 29% gain from last weeks close.

Enjoy the good times while they last.

Un-Charted Territory

"This is sort of an economic Pearl Harbor we're going through". - Warren Buffet, September 24, 2008

I don't think many people understood what Warren Buffet was talking about when he recently sounded the alarm about the current economic crisis. The fact that he chose to invest $8 billion into both Goldman Sachs and General Electric might have caused investors to be complacent.

In retrospect, it looks like Warren Buffet invested out of fear. He had to do something. Give investors a positive signal against the backdrop of a failing banking system. For him, it was the case of sit on the sidelines and watch capitalism crumble taking down with it everything, including investments that he holds.

I can't stress enough when I say that the events of the past week will be remembered for generations to come. What we saw was unprecedented. In total $7 trillion was wiped off across the board. No continent or country was spared. I don't think anyone understands what really happened and we will have to wait for academicians to explain it all in the future.

From where I sit, here is a recap of what transpired last week.

• For the first the Fear Index (VIX) hit 76.94 and closed at an all time high of 69.95 on Friday. Hardly anyone knows what this means other than investors are very fearful. The old Fear Index (VXO) closed the week at 85.99 which is close to the record levels of the October 1987 stock market crash.

• All stock markets closed down for the week. Trading had to be halted in some bourses around the world and the DJIA closed 18.2% down for the week. Other markets fared worse.

• In the last hour of trading on Friday, 3 billion shares changed hands on the NYSE and 1 billion on the NASDAQ. More shares were traded during this period than is normally traded on a normal Friday. I'm not sure if this was driven by fear of the coming week, short covering or buyers seeking cheap shares.

There is a very high probability that the market will roll over and die. I can't find anything in the news to suggest that the worst is behind us. In fact I can feel some eeriness in the air. It's almost like everyone is feeling bereaved. It's as if everyone is bracing for the sting of death to hit.

The only thing remaining to do is to wait. And for a lot of people, tonight may end up being one of their longest night. Ever.

Sticking My Neck Out, Again

This has got to be one of the longest weeks in the history of capitalism. The stock market hit back and it did hit back hard. Even though a lot of people were terrified that today would be bad, the market held up strong against the onslaught of terrified investors.

In total, 11.6 billion shares and 4.2 billion shares changed hands on the NYSE and the NASDAQ, respectively. And to top it off, the NASDAQ closed up for the day despite trading 2 times as much stocks though breadth was negative.

For a Friday, I must say that the fear must have been extreme as trading volumes towards the end of the week tend to be light. It's no wonder that the Fear Index (VIX) closed at an all time high exceeding the previous day's historic close.

Despite all the doom and gloom, I still went ahead and doubled my position in Provident Energy. There is a possibility that I may be washed out should Wall Street throw out the bath water and the baby in the coming weeks but the prospect of receiving a 20% plus dividend yield makes me determined to ride out the turbulence.

My intention was to wait till the closing hour and pick up a few stocks depending on how the market unravels. With one eye on the volume and another on the major indices, I watched as Bears battled to take the market to new lows. Even though they succeeded, the market edged higher towards the last hour of trading, signaling that the support levels had not been breached.

Next Monday will be the day to watch. In light of this evening's announcement of the government's plan to acquire a stake in banks, I expect that the trading volumes may explode and exceed today's record volumes.

Should stocks move lower on Monday, this market will crash (and burn) big time. It will be 1929 all over again. I don't expect this to happen because investors have been calling on Treasury to capitalize the banks rather than take over distressed assets and the goverments have been working overtime to rescue the markets.

I'll stay by the sidelines next week should investors rush in to buy battered stocks as this will signify the beginning of the second phase that will see stock prices appreciate rapidly only to fall back again once we start receiving a wave of bad news that will signal that we are well into a global recession.

NB; This is a very risky market and the events of this week will forever be remembered. If you can't afford to lose money, stay on the sidelines. The risks have never been higher, but so are the rewards.

Fools Rush In

We are 1 hour into the close of the most dreadful week in the market. As I type this, the DJIA is 4% down and the S&P 500 has lost 5.6%. For a Friday, volume is very high. 8 billion shares and counting traded on the NYSE.

The big question is what happens on Monday when markets open? My guess is that there may be a huge gap up or we fall into oblivion. G7 meets over the weekend and the outcome of their talks will determine our fate. So far, investors don't seem to be paying any attention to any news from the bureaucrats.

While I can not pinpoint what will happen next week, I expect that the current state of fear will be followed by a phase of desperation. We will then see a huge swing upwards just as fast we have declined.

The 2nd phase will be followed in the weeks to come by another massive sell-off that will see the market retest this week's lows. It is during this 3rd phase that most investors call it quits and liquidate everything. After which we will return to 'normal' trading and retrace our way back up slowly.

I don't expect a quick return to normalcy owing to the magnitude of the housing woes in the U.S. The jury is still out regarding the nature of global recession and it will be a while before the situation becomes clear.

As far as trading is concerned, the 2nd phase is the worst time to buy shares unless you are in it for the long run. However, this will be an opportune time for anyone wanting to exit the market.

Are We There Yet?

Well, well, well. Where do we go from here? Down? Up? Probably sideways?

I won't even try calling today a bottom because we still have one more trading day to go before the week is over. Today's volume was 1 billion plus shares short of the volume of shares traded on September 17th on the NYSE.

It so turns out that Lehman Brothers was too big to fail. On September 16, they filed for bankruptcy and tomorrow $400 billion of Lehman's credit derivatives will be settled.

Short of another major bank failing, I am almost certain that we are as close to the bottom as it gets. And unless we are now in a tailspin, the current support levels should hold.

Yesterday's pick, PVX at $5.25, held well against today's devastating washout and closed at $5.50. I'll be looking to double my position before October 22nd ex-dividend date for October's distribution. They've been paying $0.12 per share monthly dividend since November 2003 when oil was trading at $30 per barrel and therefore the 20% yield should be safe with oil at $70 per barrel. And with proven reserves of 18.1 years this may be a good time to establish a long term position.

Until they announce a dividend cut or there is a total collapse in oil prices, the downside will remain limited.

Related post; CanRoys; High Oil Price Pay-off post contains more information regarding Canadian Royalty Trusts.

Testing The Waters

I've been in the market long enough to know that they don't go down in a straight line. We've been down for the last 3 days, including Friday last week, and there is a possibility we will close down again today.

With everyone in despair, investors are stampeding in the droves. Nobody wants to be the last one to turn off the lights in this brutal bear market. But I still believe we have not seen the worst. Probably if the Fed didn't slash rates for the up tenth time this morning we would have capitulated. This means we'll just have to wait a little bit longer before the market caves in.

That said, stocks have never looked so cheap. The majority of stocks are off 50% their 52 weeks high. The fact that over $3 trillion in sitting market accounts makes it clear that the situation is not good at all.

During the dot-com crash, I remember guys rushing in to buy cheap shares only to see them get cheaper. Eventually, a lot of the tech stocks got wiped out while those that survived never fully recovered. It may be the same with financials and housing this time around.

That said, I couldn't resist sticking my neck out. With oil down to $86 from July's high of $147, Canadian Royalty trusts are also 55% off from their summer highs. In turn, they are now paying 20 to 30% in dividends.

It is worth noting that their is uncertainty as to whether they will maintain the pay-outs. That said, oil prices are at February support levels and will it worsening economic conditions to bring down the price even further.

I can now say that I am now a proud shareholder of the CanRoys again. I dumbed my holdings, earlier in the year and I now look forward to collecting my 20% monthly dividends.

Bye-Bye 401(k), Hello 201(k)

The situation is now turning from bad to worse. Whoever said we are in a bear market must have been joking.

My 401(k) is fast turning into a 201(k). Between tonight and the last time I checked my retirement account, I have lost $5,000.

I can't help but wonder about guys who are 5 years or less away from retiring. The more one has saved, the more they've probably lost. Like this guy at my place of work who's dad is in his late 50's and he has seen $80,000 of his hard earned money disappear in the last few months. Poof! Just like that.

And to add insult to injury, many companies are now laying off older employees who tend to earn more money than younger employees owing to their years in service. Just imagine working for donkey years trying to save something small to see one through their sunset years. And now this.

At this rate, there will be no difference between the guys who over the decades ponied up their wages for retirement and the one's who saved nothing.

I know the stock market will rebound but I just wish I could stop saving for retirement, go out and spend my money.

The more I think of it, the more I wonder why the hell I'm I not driving M5 BMW. And while I'm at it, I might as well get my missus a Mercedes Benz R class so that she too can enjoy the simple pleasures of life.

PS: I'm not convinced that bottom is in. Someone, somewhere is preventing the market from capitulating. Today the VIX (Fear Index) hit an all time high going back to its inception, but the was no corresponding action in the market. Until we see a repeat of Sept 17 - 18 at a higher volume, we still have some way to go. The earlier this happens, the earlier we move on to other things like buying the BMW :).

George 'Mugabe' Bush

Normally, the mere mention of George Bush in my church is accompanied by a thunderous applause. Not this past Sunday.

You could hear a pin drop the moment our pastor asked that we pray for the president as he prepares to leave office.

With his ratings at a record low, George Bush has joined the ranks of Uganda's Idi Amin, Kenya's Daniel Arap Moi and Zaire's Mobutu Sese Seko, who drove their country's economies to the brink of destruction.

Dubya's legacy after he leaves office in January next year will certainly rival that of his harshest critic, Robert Mugabe.

Second to Bob, his administration has presided one of the greatest expansion in liquidity in modern times.

So long George Bush. Your time is up.

October To Remember

To say that September was terrible would be an understatement. I mean, who would have thought that several banks fold in a matter of weeks. While a lot of people are glad to have survived, it doesn't look like the worst is behind us.

For starters, we are headed into Halloween and yet its like stores are still trying to clear out the summer inventory. Unlike previous years where shoppers are greeted by Halloween paraphernalia in the stores, the mood seems to be subdued this time.

I've also noticed that there are yard/garage sales still going on. I can't remember seeing a lot of people disposing off stuff this late into the year. And what makes it even odd is that I've seen some homes holding yard sales almost every weekend. Like they are trying to get rid of everything. Or is it that they are trying to raise money?

Then there is the auto industry. If you've lived in America, then you are aware that cars are treated more like disposables. Households buy new cars once every few years and in some cases as frequent as every two years. With the economy in doldrums, a lot of car dealers are now closing shop. On the main throughfare in my county, I've counted no less than 4 dealerships have closed. And in the local news, there are reports of others going bankrupt.

It doesn't help that this week ushers in the 3rd quarter earnings season. All eyes will be on Alcoa, which reports on Tuesday, and General Electric which reports on Friday. GE, which closed the week at -15% despite raising $3 billion from Warren Buffet, issued an earnings warning last Wednesday in an unusual 8K filing.

With Main Street hurting, I can only imagine the jitters in Wall Street. The mood on the ground is grim now that both jobs and credit, the lifeline of America, are hard to come by. And it's not just the 401ks that are taking a beating. People are watching the value of their homes decline and it's getting harder to sell houses.

Knowing the knack of the market to crash in the month of October, there is a possibility that we will see carnage in the stock market in the coming weeks. The current 3rd quarter earnings estimates for the S&P 500 is $20.83, compared to $20.87 last year, leaving a lot of room for disappointments.

Lord, I hope I am wrong by a mile on this one.