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Fritz Hottinger
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Fritz Hottinger (a pseudonym) is a graduate of Northwestern University, with MBA from University of Chicago. While getting his MBA, he was fortunate to be trained under Harry Roberts (statistics) and Roger Ibbotson (stock market theory) when computers were in their infancy. These professors... More
My company:
Hottinger Capital Consulting, LTD
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  • Dour Economic Weather Bulletin
    Dear Fellow Investor,
     
    According to the National Weather Service, the Atlantic Hurricane season that began June 1st will end November 30th.  We have already survived the Washington, DC political hurricane. But whether we survive the hurricane now building from Bernanke's QE-2 is anybody's guess.
     
    The market has been able to climb recently on the strength of the anticipated new QE, but it will soon be facing headwinds that are getting stronger.  Back in August we wrote:
     

    At the risk of sounding like another "Dr.  Doom", I do not see any break in the storm clouds that continue to build on the horizon beyond November.  Soon after the elections the game will end, at which point the chickens will come home to roost: 
      • Europe is waiting for us to recover, while we look in vain for significant results of their own self-imposed debt-recovery process;
      • Asia and Europe are watching for the results of the Geithner/Bernanke exit strategy, whatever it might be;
      • China continues to lower its US dollar exposure by slowly reducing their Treasury holdings;
      • Domestically, we continue to struggle with major unemployment, as well as major uncertainties about the direction of tax policy, fiscal controls, impact of Obama-Care, outcome of and escape from the Fed's QE program, etc, etc.
      • Market-wise, recent TRIN numbers have moved strongly into negative (>1.0) territory, including an astounding 7.39 on August 11, while Advance/Decline ratios continue to slant downward.
    All in all, these are not a sign of good times ahead.  Markets do not like uncertainty - - and uncertainty abounds.  Recovery from a "V" or a "U" or a "W" is not very likely.  Instead, we should be preparing for a long winter of mediocre GDP, continuing high "actual" unemployment (with honest numbers), increasing CPI (again with honest and inclusive numbers), and most likely, a 12 to 18 month struggle with stagflation.
     
    Now we are also beginning to feel the effects of some earlier storms that never made the radar screen, but which have begun to affect our stuttering recovery:
     
    ü  a  realization that this latest recession was not induced so much by easy money, but more by an unwinding of over-valued assets. Thus, recovery will not be as speedy as previous recoveries - - - there are just too many variables and unknowns in the global economy to which we are attached;
     
    ü  a currency/trade battle between ourselves and China (have you any doubts on the outcome?);
     
    ü  the legality of titles to property burdened with mortgages in default.
     
    ü  the incubation of a stock market bubble - - - excessive dollars being printed are generating speculation that the Fed will not be able to control the inflation it is seeking to build, and the best place to park funds is not in fixed assets or bonds or under the mattress, but in stocks, where growth (and exit) can be the fastest.
     
    Adding these new factors to the view in our August crystal-ball, we do not see any path to a swift economic recovery.  This recession we are emerging from is not like previous ones that could be repaired with Keynesian action and Fed fine-tuning.  It will take time for our country's  engine, small business, to evaluate the effects of legislation expected to flow from our new Congress.
     
    Until clarification arrives on Obama-Care, budget and tax strategy, card-check, etc, the uncertainty that now caps corporate and individual investment courage remains in place as an anchor against economic growth.
     
    You can expect to see higher VIX and TRIN numbers, rising PE ratios, and more days with 3 digit swings in the Dow.  Preservation of capital has never been more important that it is today.
     
    We urge you to use the E-Zone System to do so:  take money off the table at opportune times when prices are in or above the Exit Zone; and if you are inclined to average down, do so only on prices in or below the Entry Zone.   You are living in a time when it will pay to be cautious, not courageous.


    Disclosure: Long SDS
    Tags: SDS
    Nov 14 8:48 PM | Link | Comment!
  • Beginning of the End?

    Dear Fellow Investor,

     

    For the past few months we have watched the Dow do its almost daily dips below that holy and revered 10,000 level, and then almost magically recover in the final minutes of trading to present us with a warm and fuzzy message, via the evening news, that, not to worry, the markets still remain healthy.

     

    Meanwhile, CNBC continues to tantalize us with intra-day headline clips:

    "Market (tests - - flirts with - -  recovers) the 10,000 level."

    "Stocks off worst levels of the day."

    "Dow climbs back above 10,000 level."

    "Stocks bounce in last hour."

     

    How much longer can this charade continue?

     

     Not much longer - - -  we entered the final quarter today.   It's my guess the end is near because today the "automatic support team", (aka the PPT, see footnote *), came up just a bit short in the final minutes with the Dow closing at 9985.81.

     

    We can't tell whether this was just a glitch by a support team member, or whether the President's Working Group on Financial Markets finally reached some pre-set limit on the amount of paper they would print. 

    (Would be nice if they published minutes of their meetings, but so much for that promise of transparency **)

     

    Yes, there will be more 100 point daily swings (good trading opportunities); and yes, the Dow will recover its magic 10,000 point level.  However, IMO, than number is more likely a resistance level now, and not a support.

     

     At the risk of sounding like another "Dr.  Doom", I do not see any break in the storm clouds that continue to build on the horizon beyond November.

    Soon after the elections the game will end, at which point the chickens will come home to roost:  

     

    ·       Europe is waiting for us to recover, while we look in vain for significant results of their own self-imposed debt-recovery process;

    ·       Asia and Europe are watching for the results of the Geithner/Bernanke exit strategy, whatever it might be;

    ·       China continues to lower its US dollar exposure by slowly reducing their Treasury holdings;

    ·       Domestically, we continue to struggle with major unemployment, as well as major uncertainties about the direction of tax policy, fiscal controls, impact of Obama-Care,  outcome of and escape from the Fed's QE program, etc, etc.

    ·       Market-wise, recent TRIN numbers have moved strongly into negative (>1.0) territory, including an astounding 7.39 on August 11, while Advance/Decline ratios continue to slant downward. ***

     

    All in all, these are not a sign of good times ahead.  Markets do not like uncertainty - - and uncertainty abounds.   Recovery from a "V" or a "U" or a "W" is not very likely.  Instead, we should be preparing for a long winter of mediocre GDP, continuing high "actual" unemployment (with honest numbers), increasing CPI (again with honest and inclusive numbers), and most likely, a 12 to 18 month struggle with stagflation.

     

    Prudent investors have at best just a few more months to move to cash or else hedge their holdings with significant contras (QID, SDS, etc).

     

     

    * <<< Conclusion

    Given the available information, we do not believe there can be any doubt that the U.S.

    government has intervened to support the stock market. Too much credible information

    exists to deny this.>>>

    www.sprott.com/Docs/SpecialReports/08_20...

     

    John Crudele, “Some Advice On How To Successfully Rig The Market,” St. Louis Post-Dispatch

    (August 12, 1996).

     

    ** abcnews.go.com/Politics/wireStory?id=10111633

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    *** courtesy MarketWatch

     

     



    Disclosure: Long SDS
    Tags: QID, SDS
    Aug 26 5:50 PM | Link | Comment!
  • Stocks for the Storm

    Well, today’s news has lifted me out of a self-imposed sabbatical, one that had been designed to reduce my blood pressure and build more patience with the Obama administration.  Just look at this chart!

     

     Anyone with eyes to see will note the tremendous volume at (after?) the close, to bring the number back above that precious 10,000 level.  It appears that the low of the day was  9998.03, according to Yahoo Finance.  Isn’t that extraordinary?

     

    Looking ahead, the questions are many:

    How many times can the PPT play this game?

    When does Bernanke run out of paper to manufacture Geithner’s dollars?

    When will interest rates begin to rise, to start mopping up the excess?

    What happens to price levels when those rates rise?

    What effect will Ben’s 2nd mop-up tool, increased reserve levels, have on bank lending?

    Will increased interest rates, coupled with less dollars to lend, bring stagflation?

    What will the US manufacture for export to bring about a trade balance with China?

    When does the ratio of Government employees to private become excessive?
     

    There are enough there for a final MBA exam! I will not try to answer them, but I think you can see where it is leading.  The world markets are facing an historic level of uncertainty - - - from the Middle East to 1600 Pennsylvania Avenue, where the new occupant appears a bit more undressed with each public utterance, (and they certainly have been frequent).

     

    But there is hope with that latest gift from Massachusetts.  However, much still remains in doubt, and the future appears cloudy at best until we, and the world, get the results of the November elections.     Meanwhile, what is a diligent investor to do?

     

    If you do not have an anchor to windward (such as SDS) in your portfolio, it is not too late to add one.  Expectations here are for a continuing slide ( think ping pong ball bouncing down a stairwell).  The momentum is down, and the immediate floor is somewhere around 9,000.   Keeping in mind all those questions above, there could be several more 4-digit floors, all the way to 7,000 – 7,500.

     

    As for growth, we like any ETF(or CEF at discount to NAV) that represents the economies of India, China, Brazil.   These come immediately to mind:

    IIF, IFN, PIN, GXC, FCHI, BZL, EWZ

     

    Those investors seeking regular income should be looking at some of the MLPs that are down in price tonight, but have fairly steady dividend records such as CPNO, LINE, MWE, TCLP.   And for the longer term, a foundation of some TIPS should enhance future results.

     

    It will not be smooth sailing from here on.  Don your foul weather gear, strap on your life-line, and prepare to ride out the storm.



    Disclosure: Looking :IIF, IFN, PIN, GXC, FCHI, BZL, EWZ. Holding:CPNO, LINE, MWE, TCLP

    Disclosure: Long:CPNO, LINE,MWE,TCLP
    Feb 04 9:37 PM | Link | Comment!
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