Wednesday, July 15, 2009

FREE! Copy of a Six Month Old Newsletter! it's yer lucky day.

I came across an issue of the Trend & Value Letter from back in January that I thought was interesting. The analysis wasn't perfect (never is) but since it mentions ABT, which had a bad day today, I thought I'd make it available to the public. the text of the report I have copied below (because I'm a search hit slut), but I suggest that you read the PDF directly by clicking the following link.

Trend and Value Letter 01_21_2009.pdf

this issue is also available on the Old Reports page along with several others. eventually I will probably put every report older than say five or six months up on that page just so people don't think I am cherry-picking the good ones, but who Knows when I'll actually get around to that.

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Trend & Value
for the Morning of
Wednesday, January 21, 2009
“It is shameful that there is no authoritative description of the form that life assumes when
existence is a matter of beliefs, as it is that there has never been a persuasive account of the most
grave and important event in history, one which has happened so many times: the loss or dissipation
of a faith, that strange and dramatic reversal in which a broad human group moves from believing
wholeheartedly in the shape of the world to a state of doubt about it.”
-- Jose Ortega y Gasset
McDonalds. . . Are you short yet? If the
trend-line on the equivolume chart gets
violated, things could get pretty ugly in
burger world. Did you watch the video I put
on the blog last week of Shift Manager
Skinner being interviewed on MSNBC?
Either this guy is an economic imbecile, or
he was just putting on a good show for the
public. Perhaps a combination of the two,
but it scares me that someone of this
stature, the head of one of the most
successful corporations ever, maintains
such a ho-hum attitude about debt.
According to Professor Ortega, whom I've
quoted above, historical crises ensue as a
belief system that was built up across the span of several generations begins to fall
into doubt. Ortega's focus was on History as such, in the broadest sense, but I've
found his historiology very useful when applied to financial markets.
Fluctuations in asset prices, whether of the 'bull' or 'bear' variety (Up? Down? It's all
relative), are specific manifestations of the interplay between belief and doubt. A
decades' long growth in the belief Known as 'Debt' coïncided with (if not caused) the
decades' long inflation of asset prices (e.g., the 'bull' market) that first reached bubble
dimensions in 2000, where it initially faltered, and then really started to roll over
during the last couple of years. But why did the inflation falter? Because the belief
became effectively universal. Beliefs are like the markets; if everyone's already bought
in, then there is no one left to buy. The veracity of the belief may hold up at a plateau
for a while, but eventually doubt creeps in and the structure starts to give way.
So our society at present is moving from the collective belief that that debt is perfectly
OK, to the opposite of this; a strongly held belief that debt is absolutely not OK. But we
haven't gotten to the other end of the spectrum yet. This society is currently mired in
the phase called Doubt. There is no longer sufficient credulity to reverse course and
go back to a full belief in debt, yet it is debt which occupies the center of the belief
system which itself constitutes the center our civilization. It's not like we can simply
shed the belief in debt and once it's gone everything will be the same. No, this belief is
so integral to the 'System', that when it goes, the whole power structure collapses.
But the reader would be in error to construe my thoughts as pessimistic, or 'gloom n
doom'. No, in fact I am optimistic that the System will collapse. Those beholden to the
present System will surely view these years as an apocalyptic period. Mr Buffett has
said this is an 'Economic Pearl Harbor'. The implication in this remark is that 'we' will
prevail in the end. I'd rather call the situation an 'Economic Concord and Lexington,'
with the implication that 'we' will prevail. I trust the reader grasps the difference
between my conception and Mr Buffett's.
Another company we are short in the
Model Portfolio is Abbott Labs (ABT). You
Know how a couple years ago all the
corporations were going into to debt to
fund share buy-backs? Well, ABT kept up
this game through 2008. These
continued share buy-backs are a major
reason I can see that the company's
share price didn't participate much in the
bear moves last year. Just a glance at the
closing prices the last couple years shows
how the price has been propped up.
The other day I was listening to ABT's last
conference call (from October 2008) and
I was just amazed at how arrogant these guys
are. They certainly seem overdue for a dose of
humility.
I am convinced that this stock will fall
substantially. The sell-off may begin this week
or three months down the line, but it's coming.
I'd peg fair value of the shares at
approximately 35 right now, and that's
assuming that their forward earnings'
estimates will be met. If earnings falter at all
then the extent of the decline could prove
much larger.
The SPY:GLD ratio closed below 1.00 yesterday. This looks like bad news for the Stock
Market. Whether it amounts to good news for Gold or not is questionable. I should
point out that while I viewed 1.00 as very important on a closing basis, accounting for
intraday data, the ratio has not yet hit a new low, as you can see on the point and
figure chart.
Should one hold out any hope at all for the Stock Market now? Hey, it might still turn
around soon, but until I see some evidence, I'm certainly not going to recommend
buying any more stocks. I'd be more interested in shorting selected equities on
bounces and on liquidity dips buying more of things like the Australian Dollar or
Agriculture (either through DBA or on the futures market).
Index & Ratio Data
Equal-Weight Currency Indexes:
USD: 104.08
JPY: 105.71
EUR: 96.18
GBP: 99.74
CHF: 96.71
CAD: 100.10
AUD: 96.68