1/5/11…who do you trust

…your broker and the pundits on CNBC, OR the Fed? Do you really think companies will begin to hire en masse again – here in the U.S. of A., or continue to outsource and hire mainly part-timers here? Is the ADP survey correct that U.S. companies added 297,000 jobs in December, or are they wrong again as they were in December?…or is the survey of 33 economists by Bloomberg which ranged from 50k-150k (medina 100k) correct? Does it really matter that weekly jobless claims are below 400k or that Challenger, Gray & Christmas said there were 32k firings announced in December (lowest since June 2000), and down 29% from a year ago? Not to TB who believes you can’t keep laying off workers indefinitely…even with outsourcing…but you that doesn’t necessarily mean that you are starting to hire?

After the rocky-road markets of 2009, where TB thought the peak might have come in November on that one day (337 point gain on the Dow on 11/4) followed by a string of declines that culminated with a 303 point rally on December 1 from which point it was up, up, and away, you had better think long and hard about these questions especially if you are one of those selling bonds and commodities to buy stocks…your year’s performance could be at stake. Which side will win? Dunno, but then you nor anyone else does either do you?

The last two days, which may be a precursor to the volatility of 2011 much like that of 2010, after that long sweeping rally from the March 2009 lows, show just how uncertain things can be. Again we had a strong first trading day of the month, that fizzled – where was the follow-thru? Volume was certainly there (albeit still below the 1.15B average of 2010 but we are at least getting closer), 1.09B shares following Monday’s 1.06B share day, the first 1B plus share days since December 17’s 2.02B share day, and only the second back-to-back 1B plus days since 12/8-9. Will we once again see a period where you should sell after the 5th trading day of the month and wait for the first of the following month? Is that a sign of a strong market?

Which brings us back to the Fed…the minutes of the December meeting released yesterday should give little confidence that this is a strong economy…they plan to continue the quantatative easing (memo to GOP: go slowly on your rhetoric as you may well pay for it in 2012!…and once you start with the cuts – perhaps you should start by eliminating your own earmarks – persuading the teabaggers you are wrong may prove a difficult task…unless they too come to their senses and realize you can’t cut the budget without giving up some of your favorite things.

Inflation? What inflation??? Oh yes, food…which continues to rise even as gold and crude fell off a cliff yesterday…but hey, food and energy are deducted from CPI and PPI because after all they are volatile (there’s that word again…get used to it!). World food prices reached a record but apparently nobody recalls the riots of 2008 – TB didn’t until Bloomberg reminded him…ugh!

Remember Peter Lynch’s famous statement that ‘over any twenty year period you have not lost money in the S&P 500?’ Well that is a long time horizon, especially given the events of the past ten years and what he didn’t say was that that was the index (which also has had huge changes in composition over the years…out with the losers, in with the winners), and not adjusted for TAXES OR INFLATION! That bon mot falls apart when you factor those two unavoidable events.

There is simply one rule of success in stock investing: buy low, sell high. Ok…diversification, and a few others but unless you are in a boom, be it railroads, utilities, or dotcom’s, you had better be buying value. Despite this, the vast majority of managers try to beat the S&P 500 and after fees few do. The others carve out niches that do very well in some periods and poorly in others…witness bonds, commodities, etc.

Thanks to John Mauldin TB found out about an investment advisor who on their website provided 100 years of data on stock returns in a table that you could cross reference any two years and find what the return would have been. It also gave the p/e of the S&P 500 for each year and without exception if you could buy a market p/e of less than 10 you had outstanding performance and above 15 you lost…also they had raw returns, after tax, after inflation, and both…it absolutely destroyed the myth of investing in stocks for the long run. TB believes the name was Fairmont or Fairmount but is checking…if anyone can recall please let him know.

The problem is even more complex in this era where the big money has become HOT money…and buy and hold is a term for losers…sadly, because that is what investing is about…the rest is speculation. Welcome to our brave new world…of cheaters and cowards!

So watch closely the payroll numbers on Friday and even if they are strong, will they be sustainable? We need growth of 400k for months to even make a debt on the unemployment and they had better start coming from manufacturing and construction not just services and temporary workers.

. . . - - - . . .    . . . - - - . . . (S.O.S.)

How does the GOP continue to shoot itself in its proverbial foot – just like the Dems did when they had the helm in Congress? That is what happens when you are beholding to one main benefactor: financial services. Yet despite what Wall Street did to Main Street they are oblivious…keep trying to lower the bar through less regulation, more ‘too big to fail’ and tax breaks for the wealthiest who pay less as a percentage than most people earning $100,000…even with the alternative minimum tax (a stupid Democrat idea by the way to get 90 or so people who paid no tax at that time!).

Yesterday on CNBC there was a heated debate between a Dem and a Republican on jobs…the GOP’er having been quoted that the key to growth is through ‘outsourcing’ jobs!!! That is not just one man’s thinking…that is the mainstream as it helps their biggest supporters…but have any of these rocket scientists asked: who will be able to buy the products they are producing??? How much of what is ‘made in America’ is really assembled here? How much in services is done outside the country? Call a company sometime and you will get a clue! No, the road ahead is very rocky and won’t get better for a long, long time…and that is if we don’t have another bubble…once again induced by the Fed…but this time with the best of intentions…good luck, Ben!

By the way, when you buy over the internet, think how many fewer jobs are created…how much less food, etc. is sold at shopping centers. TB was at the Mall of America (MOA) on Saturday…despite the sales it was hardly a gold rush…busy but didn’t see a lot of packages carried about.

Have a grand day!


Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries...as he sees it...and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Copyright TBD Capital LLC, January 5, 2011.



  1. LDH said

    TB, was it Ed Easterling and his Crestmont Research? He has a matrix such as that, was reproduced last Sunday 1/2 NY Times Business section. Crestmont has a website, as well. LH

    • traderbill said

      Thanks Lyman… a friend sent the link…I didn’t have time to read it but it jogged my mind so both links will be on tomorrow’s blog….thank you for the comment.

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