Jonathan Christopher

Is Another October Surprise in the Works?

There are many factors as to why the market plunges in October. One not mentioned in these remarks is the fact that many funds and partnerships close their books for the year between the middle of October and the end of the calendar year. This means they take their profits, declare their losers, declare distributions and begin to build their portfolios for the next year. At the same time, people are selling stock to take loses and profits. The net of this is downward price pressure for much of the month of October, and improving fundamentals in November, before people start to take vacations and celebrate the holidays.

This is not a "Proof"s to why prices decline in October, but it is one factor.

Sucker's Rally Approaching an End

Some things to consider:
1. VERY FEW PEOPLE buy "The Market". People buy individual stocks or basket of stocks.
2. At present prices, you can buy stocks at 20 cents on the dollar, just as you can buy houses at 20 cents on the dollar. Such a deal!
3. This bear market is really about 10 years old, but was hidden because much of the action took place sector by sector.
4. Those things people are mindlessly calling "Toxic Assets" - what are they REALLY? These are pools of mortgages that have been sliced and diced so many ways that nobody really knows what they own. But look at some numbers, -roughly speaking.
say you buy these "Toxic Assets". $1,000,000 face value costs $300,000. (Such a deal!) Of these assets, 90% are current, paying 6% of face value, producing $54,000 per year of interest income. The other 10% go into foreclosure, and you get 50 cents per dollar of loan, so that gives you $50,000 of return of capital for the ones in foreclosure (but that 10% only cost you $30,000 in the first place) . At the end of the first year you got $ 104,000 in income on the $300,000 investment. Not bad for these "Toxic assets".
4. Can you see why a bank might want to use 8% interest TARP loans to get 36%+ returns. Is this not a great deal or what?

Trend Reversal in Oil

I'm no oil expert, but this is the way I look at the situation. I do not include any numbers in this note, but these statements are supportable (except, perhaps my opinions about currency price movements)

During the spike in oil prices, OPEC and other oil producers were unable to control oil prices because production was maxed out. OPEC was unhappy at the loss of control, and began plans to increase production.

As the world economy started to slow, current and projected demand dropped below production capacity. Speculators, who deal with prices at the margin, lost control as producers met and then exceeded demand, and prices plummeted. However oil producers began to shelve their more expensive projects due to lower prices.

For the next several quarters oil capacity will exceed demand by a margin sufficient to maintain OPEC control, at prices I would guess lie in the range 40 to 60 dollars per barrel, at current dollar values. However there are several interesting dynamics.

First is that the oil we purchase is produced in other currencies. Some of these currencies, perhaps the Russian Ruble, the Venezuelan Peso, and the Mexican Peso will decrease in value. Other countries, such as Brazil, Nigeria, and Indonesia may see a rise in the value of their currency. Because of the high inflation potential of huge US budget deficits, the tendency to buy Dollars for safety will be countered by the certainty of future inflation. These factors should increase oil volatility.

Countering the currency-induced volatility is the actual decline taking place in several producing areas. Total oil production in the US, Mexico, North Sea and Russia continue to decrease. The amount of new production coming on line at present prices is very low and do not equal the decline. The net result is decreasing net oil, at a time when underlying demand is increasing. By "underlying demand" I mean the likely demand with the world in constant or increasing GDP.

While there is interest in renewable energy resources, the current low price of oil will shut down most existing projects.

The end result is increasing pressure on oil prices, even with a global recession, and the potential for much higher oil price spikes in the future.

Time To Abandon Stocks?

1. The US fiat currency is under great pressure.
2. Unless tight monetary and fiscal policy is instituted, and quickly, the value of the dollar will continue to decrease.
3. Dollar-denominated assets (including cash,CD, and non-inflation protected bonds are likely to decrease in value
3. Some stocks will go up, some down, but the dollar is certainly going down. Choose your poison.
4. I am personally investing in hard assets,correctly-value... commodities, and solid Real Estate (yes, real estate.)

Time To Abandon Stocks?

1. The US fiat currency is under great pressure.
2. Unless tight monetary and fiscal policy is instituted, and quickly, the value of the dollar will continue to decrease.
3. Dollar-denominated assets (including cash,CD, and non-inflation protected bonds are likely to decrease in value
3. Some stocks will go up, some down, but the dollar is certainly going down. Choose your poison.
4. I am personally investing in hard assets,correctly-value... commodities, and solid Real Estate (yes, real estate.)