Brian McMorris

My 2010 Market Predictions

"I disagree with most of your predictions, and here is why. "

Talld: You make some interesting points regarding the problems with certain states like California, that have too many public employees and have been much too generous with their employee benefits. This is a national problem that must be resolved. The overly generous benefit programs are what happen when state and city management extrapolates the present infintely into the future.

But I think these problems will be resolved by the will of the taxpaying public. I see big changes coming for public pensioners in CA and other states, maybe in the form of a "Proposition" in CA. There is no reason why the public employee benefit deals can't get renegotiated ala the UAW retirement deals. As the market overhang from the revision of the programs is gradually removed, it will help the economy and market, not hurt. The reality of the problems is already discounted by the market. If you know it and can talk about it, chances are it is already in the price of stocks.

My 2010 Market Predictions

I referenced this same comment earlier. I admit, I used the wrong word and/or illustration. I should have said "quite a bit" rather than "most". I made the point that from top (Oct 07) to bottom (in March) I had lost 65% of everything I own. From that point (March 9) until today, I am up 124%. That feels to me like "most". But I know I have 30% to go to get back to even. Hopefully, that will happen the next couple of years with better trading (I traded horribly in 2008 as I got caught in the same logic trap as many professional investors, and even Bernanke). My point here is to learn from mistakes. I am not proud of 2008. I was not cautious and in fact was too stubborn. But I am very proud of getting fully invested by April this year (when it still seemed very scary) and capturing almost all of the rebound.


On Dec 29 02:59 PM Bondace wrote:

> Brian, you wrote that you lost 50% in '08 and gained 40% in '09.

My 2010 Market Predictions

No, I do like MLPs. I own a lot of Canroys, which are quite similar (the Canadian equivalent). But I don't know why you attribute return statistics to MLPs. It is just a form of legal organization that passes through profits so they are taxed only once. That enhances returns, but MLPs do not trade as a class or as a sector. However, many are in the Energy space (because of IRS restrictions as to their use), so maybe this is what you are seeing. In this case, I agree, MLPs and Canroys are good vehicles for energy investing.


On Dec 28 10:53 PM strovej1 wrote:

> "The best asset class return in 2009 will be in high yield bonds
> (junk) with a 30% total return; Right by a landslide; and the returns
> were quite a bit better if catching the bottom in March as I did
> (+70% from January, but +90% from March);"
>
> I guess, like most people, you do not consider Master Limited Partnerships

My 2010 Market Predictions

It is something I have considered. I have been developing my understanding of options the past five years. Once I feel I have them mastered (maybe another five years), I will take on futures. I do think I can do better at hedging with them, than with inefficient indexes like SDS. Thanks for the tip.


On Dec 29 09:26 AM ArtfulDodger wrote:

> BM:
> If you're so interested in predicting market direction, why not use
> futures? The leverage is great, and if you're right you can make

My 2010 Market Predictions

Fred, I don't have a big problem with your 11,000 call (or thereabout). That is what I am expecting, too, for a reversal point, probably late Spring. I have long thought that "pre-Lehman" was a good rebound target. But I don't know about your call for "wealth destruction". I maintain that wealth can't be destroyed. It can change hands, but cannot just disappear, unless it is leverage (liabilities) that disappear taking some asset value with it. But the "net worth" remains. If the Bulls lose over the summer, there will be someone on the other side of the trade winning.


On Dec 28 03:34 PM Fred Voetsch wrote:

> Why should the dollar go down when most other countries are also
> debasing their currencies? What will go up is gold as it will be
> left standing as the only true money of any value. BTW, I am certainly
> no gold bug, I simply look at what makes sense.

My 2010 Market Predictions

I like the dialogue. That is why I am here. So, whatever you are reading into my comments, you are reading wrong.

On Dec 28 02:44 PM jambo wrote:

> Watching as you feel the need to answer every contrary opinion. It
> is more telling than the predictions... just sayin.

My 2010 Market Predictions

I acknowledge my miss and don't make any excuses for it. I don't have a profit target on the up side, so don't really get your point there, for private or business purposes (you think it is bad to out-perform your profit goals in business?)

But to the point, this is not a business account, it is personal. I knowingly take on risk that I would not as a care-taker of a business. I have been a GM in the past responsible for P&L, so understand your point. But it is not applicable here.

On Dec 28 10:59 AM SivBum wrote:

> Brian,
>
> When actual numbes are significant better OR worse than forecast,
> it's a miss in my book. Either scenario would have crippled a company
> in the business world.

My 2010 Market Predictions

Thanks! Great tip for everyone. In fact this is what I have started using the past year. As mentioned in a previous post, most of my portfolio was stuck in mutual funds in IRA and 401K accounts and I have been moving those into trading accounts where I can apply options strategies.

My favored strategy has become to use vertical spreads (bull spreads at this time) by buying deep in the money calls (to eliminate most of the time premium) about 4 months out and about 25-30% deep (below current stock price). Then I cover that call with an out of the money sold call at 15-20% above the current price, giving me room for appreciation. It has worked like a charm the past few months. If I want to get a little trickier, I can also buy an OTM put below the strike price of the call I buy. This "collars" the bought call and can be done at zero cost with a little care. But so far I haven't done this as the market continues bullish.

I can reverse this strategy when I feel the bear coming (like I did in 2007) and use bear spreads buying a DITM Put and selling a OTM put against it. I did not have this bear tactic in my tool kit in 2006-07 but wish I had.


On Dec 28 10:38 AM joliver wrote:

> Use options for protection this will change your entire hedging and
> performance, hope it helps.

My 2010 Market Predictions

Good Job!! In 2006 I shorted Countrywide, Krispycreme, Lulu and a few other retail high flyers. I know how to short (or buy puts on) hot momentum stocks. But late 2007 was a different environment than I have ever seen. I have used SDS a little. I tried using BEARX to hedge, but it did not help very much. I also used SKF in August and Sept 08 and that helped some. But so much of my portfolio has been in a 401k and IRAs that did not have good hedging options (I have since corrected this with my IRA buy moving to a trading account). My only option was to go cash, and I didn't because I expected the Feds to backstop the bank crisis. They did so with Bear Stearns with good results and I extrapolated that success (as did economic and political leaders, including Bernanke), much to my regret. I admire those who went cash in late 2007 or early 2008. It was bold and smart. I went cash in early 2007, but was burned as the market went higher and so let myself reinvest at just the wrong time. Then I began averaging down, with leverage, because I saw a meltdown as a "black swan" outlier and thought the govt was smarter than it turned out to be. Most of the meltdown could have been avoided by doing what was eventually done, but sooner. One bad year like 2008 can wreck 10 years of good work previously. Fortunately, I have my mojo back. Live and Learn.

BTW...my investing record since 2001 is there for everyone to see. I don't hide anything. You will see my short and long calls back in 2006 and my concern about RE in 2004 (and my call to sell REITs, about 3 years too soon). You will also find my call to get into gold and oil in 2002. Find this all at my website: wealth-ed.com. The December archive is where the previous Outlooks are posted.


On Dec 27 10:20 PM marko6547 wrote:

> Hey Brian,
> What happened to you in 2008??? It was my biggest winner in 44 years
> of investing....my portfolio was up 111% (thank you-SDS-QID
> TWM!!!). This year I underperformed. Maybe I'm up 20%?
> I will let my company, Fidelity, do the year end arithmetic for me!...........veni

My 2010 Market Predictions

I am not offering advice...if I were, you would be asked to pay for it.

How well do you think the majority of mutual funds have done over the same time frame? The average is 3.46% (skewed by Bear funds) but many are worse. And for that guidance you pay 1.5% of your investment every year.

I think an investor should review, analyze and discuss performance continually, not just after a great year (and I have had those, too, like 1999, 2000, 2003, 2004, 2006 and 2009). I was ahead of the averages on a 10 year basis until 2008. I will be again.

On Dec 27 10:25 PM The EconomicJoker wrote:

> "I take some very small satisfaction in being down only an average

My 2010 Market Predictions

John, I would disagree with you on this point. There are always more people coming into a position to buy a home, so the "fence" always has new sitters. Also, the credit has been expanded to everyone, not just first time buyers. There is an income limit, but it is quite generous ($250K, I believe). That will make a lot of new buyers, first time or otherwise, eligible. Home sales volume will continue to grow in 2010.


On Dec 28 12:33 AM John Grimes wrote:

> The extension of the "new home owners credit" has probably pushed
> those so inclined off the fence. I doubt this ploy is going to generate

My 2010 Market Predictions

Thanks for the comments Steve. No, unfortunately for me, the numbers are not flawed and I can only hope my conclusions are correct (won't know till this time next year). If you read the entire piece carefully, it is all there. I mentioned that I was down 65% from top to bottom, worse than the SPY. And I also mention I am a high beta investor with an optimistic bent, so I do much better in bull markets and much worse in a bear, try as I might to hedge my risk (and believe me, I did try in 2006-08, but was unsuccessful).

I commented to another poster that my verbiage might be flawed. Maybe rather than "most" I should have said "a lot". I acknowledge I am still 30% down from the peak, but then so is the SP500. And I know how I am invested and I will exceed the SP500 on the way up, as I have in the past. I hope to be a little better anticipating and protecting against corrections. That is the part of investing that is very hard for me (knowing when to sell and where to put the proceeds).


On Dec 28 08:32 AM User 288129 wrote:

> Read your predictions with interest and note that you have invested
> in PWE which is an equity we have in common.

My 2010 Market Predictions

<IMG class=authors_reply src="static.seekingalpha.co..."> Paul, there is always more to learn in investing. Canroy is shorthand for Canadian Royalty Trust. These trusts are very similar to Master Limited Partnerships (MLPs) in the States. Both share in common a limited liability partnership form of organization and the tax structure that goes with. So, with a Canroy, they invest your money in oil and gas exploration, well development and production (at least the ones I buy) and you receive dividends from the cash flow that results from the sale of the oil and gas. Currently, there is no corporate tax on Canroys (and MLPs for that matter). So, profits are taxed only once, at the dividend tax rate to the stockholder in America.

Because of the small size and perceived risk, Canroys have a very nice payout. Most are around 12% annual dividends. But Canroys will lose this tax advantage in 2011 when the Canadian govt requires them to convert to corporate status (among other options). At that point, they will not have much incentive or ability to pass through large dividends and will instead likely do more exploration and acquisition to create deductions against income. I personally believe they will either grow large or sellout to a big oil company like Exxon or BP. But both those scenarios will result in a nice premium. So, I am hanging in there since the dividends are not important to me.


On Dec 27 03:44 PM User 479563 wrote:

> Brian,
> Nice article.

My 2010 Market Predictions

<IMG class=authors_reply src="static.seekingalpha.co..."> First off, I am not here to convince anyone of anything. I am just sharing my game planning for next year. That's it. But since you bring up the points you do, here are my responses:

1. Unemployment lags the economy and really lags the market. Always has, always will. It is a classic lagging economic indicator. I have shown this in previous posts by researching historical Govt stats. It is very consistent. Employment has NEVER led the economy out of recession, not in 100 years.

2. Foreclosures will lag the economy and market even more than unemployment. It takes several months of delinquency before legal proceedings can even be taken (no. of months varies by state). Right now, the banks are so backlogged, they are not foreclosing as quickly as they legally can.

3. Housing sales are improving, but slowly. The affordability index is near all-time highs (low index number). 90% are still employed and can buy a house if they need to. Housing sales will not lead the economic recovery either. They will lag employment, which will lag the recovery. First thing to recover will be business capital spending. And home builders will not benefit until the inventory of already built houses is sopped up. So, new home starts will lag home sales numbers.

4. Banks are backstopped by the govt. That has been proven the past year. The regulators are making sure the reserves are adequate to cover "worst case" foreclosures, so the mortgage, credit card, auto loan, CRE problems are already in the stock prices and in economic expectations (this was the whole "stress test" exercise a few months ago). And CRE is not ready to collapse. That is absurd. You have nothing to back that up. In fact, General Growth is being pursued by several CRE suitors who have money to invest.

5. The Christmas season retail numbers were much better than expected. This will be seen in about a month when the Q4 numbers are released. But we already know this by the weekly reports from the industry.

6. I do have reservations about govt spending. This is why I have a weak dollar strategy the first part of the year. I am planning on the Fed taking back money supply and the govt cutting back spending. If that doesn't happen, I will just stick with my weak dollar plays. Worst case here is a profligate govt and a reckless Fed that continually weaken the dollar. I have a good game plan for that which is commodities, emerging markets and other anti-dollar investments. So, I can win in this scenario, as long as the keep the presses printing.

Too many people like you get stuck in ideology. Investing is not about idealism, it is about strategy, pragmatism and flexibility. I have no axe to grind with anyone. Just trying to make a living. Good luck to you.

On Dec 27 09:00 PM marketman54 wrote:

> Brian, I take issue with your optimistic forecast.
>

My 2010 Market Predictions

John, Fadel Gheit, who I respect, read and listen to, has been on CNBC many times in the past. You are quite wrong. CNBC is a very balanced resource for investment, economic and political news as far as I am concerned (and even humorous at times, a plus). I don't know why people like you go after them.


On Dec 27 02:54 PM John Eickholt wrote:

> Its time we stop this treason in the Commodities markets.