Jeffrey Saut: How to Keep the Money We've Made

Excerpt from Raymond James strategist Jeffrey Saut's latest essay, published Monday (March 30th):

Well, here we are; it is quarter’s end and the equity markets have gone from severely oversold on March 6th, to pretty over-bought currently. Moreover, today is day 16 in the upside skein, leaving the equity markets now vulnerable to more than a one- to three-session pause and / or correction. That downside vulnerability should actually increase after quarter’s end.

Consequently, the trick now becomes keeping the money we have made over the past four weeks. While there are various strategies to accomplish this, our preferred technique is to rebalance most of the trading positions by selling partial positions and raising stop-loss points on the remaining positions. In the investment account, we like the idea of partially hedging long positions like SBA Communications (SBAC) by using various options strategies...

...In conclusion, as the must have GaveKal organization writes:

“Something very important happened last week which almost nobody seemed to notice… The members of FASB decided to swallow their pride, [and] quietly announced a reform: an almost complete suspension of the mark-to-market accounting for assets in ‘distressed’ markets. For good measure, FASB also radically widened the definition of ‘temporary’ impairment of troubled assets, thereby allowing banks to ‘write up’ the value of some troubled assets if these have been hit by falling markets without (yet) suffering any significant credit loss. These two reforms were specifically designed to encourage banks to ‘use more judgment’ in valuing distressed assets on the basis of long-term cash-flows, rather than volatile market prices.”

This revelation, ladies and gentlemen, is significant; and, we continue to invest, and trade, accordingly.

The call for this week: Last week the DJIA and DJTA broke out above their respective 50-day moving averages (DMAs). They also now reside above their 10-DMAs and 30-DMAs. The 34% rally by the Transports since their March 9, 2009 low is particularly interesting given the Trannies’ economic sensitivity; and, amid cries that we are in a Great Depression environment. And don’t look now, but lumber has quietly gained nearly 30% since its February 2009 low. Again, that’s pretty impressive action given the current housing backdrop!

Meanwhile, we are watching Personal Consumption Expenditures [PCE], for this is how recessions end. Indeed, if the “real” PCE has stabilized, the end of the recession is not far off. Manifestly, the stock market always turns-up before the economy bottoms. So if the January / February strength in the PCE is for real, it is an extremely positive event. However, if the PCE strength is just a reaction to the +5.8% COLA adjustment, as well as the 13.2% increase in IRS tax refunds year / year, then the upcoming month’s data will revert to a more subdued reading. Accordingly, we are watching the PCE closely.

While we are watching, however, our investments in platinum broke out to new reaction “highs” last week, and indices playing to Brazil are attempting to break out to the upside. Still, it is day 16 in the “buying stampede” and we have turned cautious. And, isn’t it interesting how the markets follow the news, for following “Friday’s fall” (-148 DJIA) the Obama Administration warned that some banks will need more government aid and that bankruptcy might be the best option for GM (General Motors/$3.62) and Chrysler.

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Comments

[Lorimer Wilson:]

What, pray tell, would you or any of your ilk know about how investors should go about saving what little money they have made in the past month when the financial/investment advisors of your firm (and those of most other financial services companies to be honest) failed miserably in advising clients on how to avoid the dramatic decline in the market from September onwards?

You disrespect the major losses that your firm's clients suffered by carrying on as though you, as a representative of Raymond James, are still in a position to give timely, insightful advice.

Let the investment public know what your firm has learned from the failure of its financial/investment advisors and analysts and how you plan to educate them better to deal with such abnormal situations in the future and we will be all ears to what you have to say.

Until then please make better use of your time providing better research, technical indicators and market/economic/fiscal knowledge to your "advisors" so they will be better equipped than the "average joe" investor as to how best to grow their portfolios and avoid major market declines.

Mar 31 05:15 PM