Wrapping Up the Year
Gary Kaltbaum is an investment adviser with over 18 years experience, and a Fox News Channel Business Contributor. Gary is the author of The Investors Edge. Mr. Kaltbaum is also the host of the nationally syndicated radio show “Investors Edge” on over 50 radio stations. Gary is also editor and publisher of “Gary Kaltbaum’s Trendwatch”… a weekly and monthly technical analysis research report for the institutional investor. If you would like a free trial to Gary’s Daily Market Alerts click here or call 888.484.8220 ext. 1.
I would first like to wish each and every one of you a happy and prosperous new year!
I was deciding what kind of report I wanted to end the year with. Normally, I write about my best and worst calls of the year…but this year, there was just a handful of calls made by me…as there was not much to do except to avoid the carnage. For starters:
For the sheer market calls, this was my best year. I have to thank the market for that. Normally in bear markets, you get strong bear market rallies that can turn an overall bear into a near-term bull. The market did not provide anything like that – so my bear market call and my continued calls to stay out worked wonders. Bottom line, my continued call that the market was in a major bear phase all year long won the day. I love telling my audience not just what I am thinking and seeing but also what I am doing. I have seen many in the past year make the right calls but are still down 50%. Not once this year was I ever heavily invested…and any time I did probe, it was more of a rental probe. With the market still down in the 40s this year, I am still whole…to me, somewhat of a miracle. I repeat…the accounts I have managed are still whole!
Specifically, my best calls:
Going back to early to mid ’07, I called the major underperformance and the top in FINANCIALS.
Going back to July ’07, I called the top in the SEMIS and RETAIL.
On the first day of January ’08, I stated that most of the “high flyers” like APPLE had topped as I thought they would join the ugly parade. On cue, those stocks were smoked as they were propped up into the end of ’07.
On July 2, I called for a top in the COMMODITIES…as the action that day, yes…that day…was a major sell signal. Little did I know the COMMODITIES would crash. Little did I know OIL would drop from $147 to $35. I just knew a top was in. On that day, many names dropped 10-15% off their top with their highest single daily volume in history. This was a classic sign of a top right from my studies of many bear market tops throughout history.
Throughout the year, I would say the same thing over and over again: “FINANCIALS WOULD GO FARTHER DOWN THAN ANYONE WILL EVER BELIEVE FATHOMABLE!” I can’t tell you how many told me I was insane. This was somewhat simple…yes simple. In my studies of bear markets, the group that leads down will lead all the way down. All one has to do is look at the TECHNOLOGY/INTERNET stocks in the prior bear market. The other point I continued to make all year was those companies that lost money in a bear market would watch their stocks get slaughtered, no matter what they did, no matter who they were, and no matter who ran the show.
Outside of the market, I posed the question about what happens when the market realizes that people like Bernanke and Paulson do not have a clue. Well, we found out the answer. Nothing personal but both are over their head and in the case of Paulson, I have nothing but utter disdain for someone who made trillions in the free market and when his buddies lost on their insane bad bets, he uses our money to make his buddies whole. Bush fell for it, the Dems fell for it and many republicans fell for it. I have news for you, it is not the Madoff incident that is the biggest Ponzi scheme in history, it is the Bernanke/Paulson scheme of conjuring up money out of thin air to reward criminal acts at the investment banks as well as FNM, FRE, AIG and others. I used to believe the Gottis and Gambinos were bad. Wall Street has turned them into pikers. Our government is now being run by Goldman Sachs and no one is upset about this. We all get to decide whether this is what we want for our future…Goldman Sachs alumni running our world. I am going to be a very loud voice against all the nonsense we have been seeing as we continue to watch the taxpayer be castrated all in the name of saving failed companies. The latest scam is letting non-banks become banks in order to access government largesse. The latest being GMAC…
So, it was a great year for yours truly…and not once did I have to give out a target…not once did I have to predict where the market would be at the end of the year. All I had to do was stay one step ahead or in lockstep with what the market has been saying all year. This in spite of all the ridiculous bottom calls…booyah! And this in spite of all the government interference. Speaking of interference that was the only thing that kept me from really shorting the heck out of the market as it was very tough walking into the office and seeing pre-market up 300-500 points because of another bailout.
So…as we close out the year, here is what I am seeing…which could be described as half empty but POTENTIALLY half full. Half empty because there continues to be no monster leadership. There is simply no stocks breaking out of long trading ranges on heavy volume and moving up 20%, 50%, 100% and more. Not one at this juncture. If there is any one characteristic of a bull market, it is this one. Half empty because even after a 50% drop, rallies have been anemic. Half empty because there seems to be a clear lack of volume on the up days. This is another characteristic that always shows up in bull markets…high volume up days. The half full side of the equation…well, not sure this is so great…but the market continues to defend itself at the 8100 DOW level and the 815 S&P level.
LET ME BE CLEAR…a break below these levels…and look out. But if these levels continue to hold, it gives the market a chance to build from here. I suggest we will know soon enough as the market will most likely tip its hand in short order. I must add that if the market decides to get some legs to the upside, it will be led by COMMODITIES again as the whole complex is trying to carve out the same low the major averages are attempting. But it will take time. Remember, unlike the constant bottom callers who have never spent one minute studying bottoms, my studies show bottoms take time and price. Bottoms are not an event…they are a process. So far, markets have held those lows for 12 weeks so hopefully a process is underway. I don’t know how this plays out yet but if we are indeed seeing this process, just remember 2002-2003 took 5-6 months and in ’87, markets sat around for almost a year before they got going again. So be patient.
I am patient because I know what new bull markets look like. They all have the same characteristics that cannot be hidden. When they show up, I will be screaming it. So far, all we have is 12 weeks of holding lows with a nauseating range being played out.
A word of warning to the wise. As I said, I believe Bernanke and Paulson do not have a clue…and not so sure anyone in the next administration will have a clue either. These people continue to believe the answer to everything is more leverage and more easy money. They continue to shoot the middle finger at all of us…the taxpayer in their never-ending quest to save the day and save their buddies.
Amazingly, it was leverage and easy money that got us into this position in the first place. There has to be only one outcome for what we are seeing these people do. From my studies of governmental policy, especially bad policy, we are only going to see another bubble created…as the fed does nothing but cause bubbles. I suggest watching the bond market. Amazingly, the fed is buying up bonds…WHEN THEY SHOULD BE SELLING BONDS AT THESE LOW INTEREST RATES to pay down all this debt. But no!
I also expect in the coming years to see interest rates get out of hand to the upside, as this bubble will not last…and if nothing changes, a bubble in inflation. The definition of inflation is too much money chasing too few goods. These dudes can now write the book.
I now leave with the quotes of the year and some from years past.
The fact is I could write a book about these quotes…ok…I will. I left out Bernanke quotes because they were too numerous in being 100% wrong:
“Innovation has brought about a multitude of new products, such as sub-prime loans and niche credit programs for immigrants … With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers … Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in sub-prime mortgage lending … fostering constructive innovation that is both responsive to market demand and beneficial to consumers.” – Alan Greenspan, former Federal Reserve chairman, undated.
“Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.” – Alan Greenspan, 2004.
“We have a good deal of comfort about the capital cushions at these firms at the moment.” – Chris Cox defending Bear Stearns to reporters days before Bear goes bye-bye, March 8.
“The fundamentals of the economy are strong.” – John McCain on Sept 15.
“A senate seat is a f—ing valuable thing. You just don’t give it away.” – Governor Blago, undated.
“Credible and specific allegations regarding Madoff’s financial wrongdoing going back to at least 1999 were repeatedly brought to the attention of SEC staff. I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate the allegations or at any point to seek formal authority from the politically appointed commission to pursue them.” – Chris Cox with the “YOU THINK” quote of the year!
“Bernard Madoff is a man of integrity!” – One of Madoff’s imbecilic lawyers.
“I am indeed sticking my neck out right here, right now, declaring emphatically that I believe the market will not revisit the panicked lows it hit on July 15. and I think anyone out there who’s waiting for that low to be breached is in for a big disappointment and (they’re) missing a great deal of upside. Stop waiting, (and) buy the next dip because I think it might be the last big one.” – The great charlatan Jim Cramer with another bottom call gone awry! (Actually, I can fill up a novel of bad calls from this “guru!”)
And I give you the quote superstar of the year: HANK PAULSON…and yes, I could have made him look even more foolish with many of his other nonsensical quotes!
“I don’t see (subprime mortgage market troubles) imposing a serious problem. I think it’s going to be largely contained.” – April ’07.
“Long-term fundamentals of the U.S. economy are strong.” – Jan 18, 2008.
“I’m not interested in bailing out investors, lenders and speculators.” – March 2, 2008.
“The worst is likely to be behind us.” – May ’08.
“Tax rebates, business incentives will help create more than 500,000 jobs by year end!” – May ’08.
“U.S. economy diverse, resilient, with healthy long-term fundamentals!” – May ’08.
“Worst of credit crisis over!” – May ’08.
“Economy’s pace should pick up by year end!” – May 16, 2008.
“Financial firms must be allowed to fail.” – July ’08.
“We will work with FED, FDIC to develop strategies; transparency in process will be important! – Oct ’08.
“We will buy illiquid assets from banks under rescue plan as well as equity!” – Oct 16, 2008.
“We expect participating banks to deploy, not hoard, new capital” – Oct 20, 2008.
“I will not apologize for changing approach as facts change!” – November ’08.
“I urge Congress to “get money” for U.S. automakers!” – Nov 16, 2008.
“The Treasury is actively mulling new rescue programs!” – Dec 1, 2008.
And Lastly, I leave you with a final quote by a wise man named Thomas Jefferson who once said: “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.”
Disclaimer: The opinions expressed herein are those of the writer and may not reflect those of Wunderlich Securities, Inc. or any of its affiliates. The information herein has been obtained from sources believed to be reliable, but we cannot assure its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results.