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Paul Price
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Dr. Price writes about stocks, options and the market every weekday on Real Money Pro, a subscription site Paul has been a speaker at the International Traders Expo in New York City and the Options and Forex Expo in Las Vegas. He also gives investment seminars for subscribers of... More
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  • This Week's Rally: Predictable

    The rally did not surprise value investors

    The market's 5% pull-back combined with two additional quarters of rising corporate earnings had driven the Standard & Poors 500's trailing 12-month P/E to a lower level than at the dead low last November.

    The previous five times the broad index touched, or broke below, its 50-day moving average we experienced significant v-shaped rallies. The most recent low was the most extremely oversold condition since last November.

    That was especially true in the NASDAQ where Apple, the largest single component, had tainted the overbought/oversold level to really bearish readings.

    The chart was generated pre-opening on Wednesday June 26, 2013.

    (click to enlarge)

    (click to enlarge)

    Chart source: Helene Meisler - Real Money Pro @ The

    Buying when others are panicking feels scary. It almost always turns out to be the right move. Note the correlation of grossly oversold conditions and the S&P 500's future direction over the following few months.

    Extreme bearishness seems to provide a better guide (less false signals) than do the very overbought conditions.

    Tags: SPY
    Jun 27 10:18 AM | Link | 1 Comment
  • Don't Fear The Taper


    Don't Fear the Taper

    In this week's newsletter, we present reasons for being long stocks and discuss the "Taper."

    Click on link: Don't Fear the Taper, 6-14-13.


    Quantitative easing (QE) programs, courtesy of the Federal Reserve, have pushed cash into Primary Dealer accounts at the fastest rate in history. This has been massively bullish for equities over the past four years, as the Primary Dealers used some of that cash to bid up equity prices. This will likely continue until the Fed significantly curtails or discontinues its QE operations.

    US stock indices have been marking time during the past four weeks gauging "talk" about whether Chairman Ben Bernanke will slow down his printing presses. Notwithstanding the rumors, we doubt that QE tapering is on the horizon.

    In our view, unless the Fed stops funneling money to the Primary Dealers, which we deem doubtful, pullbacks in stock prices are likely temporary pauses along an upward path. Therefore, in both of our Virtual Portfolios (Value and Put Selling), we remain long and unhedged.

    (click to enlarge)

    The Fed is Unlikely to Taper

    America's national debt now runs approximately $16.5 trillion. President Obama use his power to hold rates down because the cost of higher debt service would devastate his political agenda.

    Bernanke does Washington's bidding so he is probably just 'talking down' market enthusiasm by leaking news of a coming 'taper.' In this fashion, he uses fear of reduced QE to contain equity prices without actually changing the Fed's policy.

    During the fiscal cliff debate in December 2012, people assumed tax rates would be much higher in following years. That precipitated an enormous amount of accelerated income and dividend payments that would have been made in 2013. Because of the higher income booked in Q4 2012, estimated tax payments due January 15, 2013, soared. This reduced the size of the expected Q1 deficit.

    Bernanke's primary mission is to monetize the debt created by federal budgets that far exceed revenues. We see no way for the Fed to reverse course on QE regardless of the whispers to the contrary.

    The Fed has painted itself into a corner and there is no way to unwind the QE trade without debt service costs eating everyone alive. Unwinding would cause interest rates on U.S. sovereign debt to soar, because no one would buy debt at interest rates the government could manage. For every one percent rise in interest rates, there would be an estimated $80Bn in increased annual debt service costs at the federal level. The payment of interest would overwhelm all other spending.

    In Love with TINA explains why stocks are attractive. There are no viable competing investments if you seek to protect your life saving's long-term buying power. Absent a major change in policy, a full allocation to equities seems reasonable, as does avoiding fixed income. Bonds today are in a bubble, and a pop of the fixed income bubble is apt to be louder and more astonishing than anything we will see in the equity markets.

    Read the full newsletter here.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jun 16 7:42 AM | Link | Comment!
  • Market Shadows Portfolio - Kickin' Some Butt

    Market Shadows: by Knockout

    Exactly 7 months from our portfolio inception date of Oct. 26, 2012 our unlevered model portfolio was kicking some S&P 500 ass.

    Our original $100,000 had surged to $121,457. Our total return is now up 21.46% (+36.6% annualized). Over the same time frame the S&P 500 has risen 18.38% (+31.4% annualized). In a world where success is often measured in basis points we have shown a 16.8% outperformance versus the benchmark index.

    The Virtual Value Portfolio now holds $8,412 in cash reserves equal to 6.93% of our total asset value.

    See full details of our Stock Portfolio and Put Selling Portfolio here


    Tags: SPY
    May 28 7:01 AM | Link | Comment!
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