August 2009

(In the years leading up to the dot-com boom, I freelanced an investment column to the Sunday San Francisco Examiner. Following is one of my favorites. It tells how Louie Piro, my barber when I lived in Mountain View, became a multimillionaire by investing his spare cash - amounting to all of $5 a week - in promising companies when he started cutting hair in the 1950s. Louie was still cutting hair long after he could have retired, but his weekend getaways were anything but ho-hum: marlin fishing in Cabo, golfing in Las Vegas and Hawaii, and casino junkets to Atlantic City. RA) If there is a single word to sum up the success of investor Louis Piro, that word is "dull."  Piro has never made a killing on a stock.  He doesn't play hunches and he runs from hot tips.  He says he passed up Pfizer not long ago because its shares were too pricey even before impotent men started flocking to their Viagra pill for a cure.     Nor will Piro sell anything from his portfolio.  He just keeps buying -- and then only with money he knows he won't need any time soon.  He adds stock whenever the price drops substantially. Piro shuns companies that sell products or services he can't understand, and he has never even owned a share of a Silicon Valley upstart. His favorite word -- "dividend" -- could be the mantra of a successful hypnotist.  Zzzzzzzz.  Finally there is this pearl, the cliché that underlies nearly every investment decision that Louis Piro has made in the last 45 years:  "Buy shares in companies that will grow with America." 'Build a Little Nest Egg' That Piro, 63, could have amassed considerable riches by following such homely rules is probably not unusual.  What is striking,

Anyone who bought the 11.31 downside target given here on Friday would have caught a strong bounce from within a penny of the intraday low. Some partial profit-taking was in order, but if you still hold a position, you should be using a stop-loss that will take you out of it with no loss or a small gain.  UNG's violent relapse just before the close hints of more trouble to come, which could mean  slippage to as low as _____.  More immediately, though, there are two Hidden Pivots associated with a lesser pattern that could brake DXY's fall at either 11.26 or _____.   Alternatively, DXY would need to touch _____ today to suggest that Friday's bounce was more than a fleeting reaction. 

At Friday's beaten-down lows, the Dollar Index still had a ways to go before hitting the downside target at 76.58 given here earlier. Keep in mind that if the support fails, that would grease the skids down to as low as 72.93, the 'D' target of a larger pattern.

Is Cash for Clunkers Our Economic Destiny? Although we had vowed to let the by-now tiresome inflation vs. deflation debate simmer for a while, it came to an unexpected boil last week after some provocative comments were posted by “Senor Cuidado” in the Rick’s Picks forum. Like us, the Senor finds it difficult to imagine how all of those printing-press dollars the banks are currently sitting on will find their way into the consumer economy.  So far, the banks have recoiled from the idea of lending out their digital funny-money, using it instead mostly to purchase U.S. Treasury... Read the Rest of the Article | Comments *** Consumer ‘Surge’ Downgraded to a Blip Yesterday’s selloff on Wall Street was attributed to disappointment over consumer spending data that suggest a hoped-for surge in recent weeks is looking more like a blip. Who could possibly have believed the economy was returning to life in the first place?  Actually, one guy does come to mind - our telegenic friend Larry Kudlow — but we suspect that even he didn’t really buy into the “green shoots” story - other, perhaps, than as a metaphor that engaged the fancy of credulous news editors for a few short weeks. There’s The Wall Street Journal, for one, where editors have found reason to celebrate an uptick in... Read the Rest of the Article | Comments *** Hyperinflation Won’t Be Like Germany’s I thought I’d overdosed on the inflation vs. deflation debate, but that was before I started reading Adam Fergusson’s When Money Dies: The Nightmare of the Weimar Collapse. Fascinating stuff. Anyone who thinks it couldn’t happen here is right in one respect: It won’t take ten years to play out in the U.S., as it did in Germany.  Far from it. My guess is that our own

Reader T.H. McGraw, 70, is also a writer, and old enough to remember some pithy anecdotes about the Great Depression.  In an article he wrote for the History News Network of George Mason University, he recalls an America that had the fortitude to weather hard times with a sanguine spirit.  Read Remembering Past Hard Times, an excerpt from which is appended below, by clicking here. "Someone from 'the thirties' seeing today’s consumerism might initially express surprise, maybe admiration. After seeing its magnitude they might tactfully inquire as to the means for all the affluence. Few of them would easily be aware of the associated dissipation of personal savings, reckless destruction of resources and environmental ravages. That seems to evade even modern comprehension as consumerism is suggested by most as the proper nostrum for current economic problems - using credit if need be. Not that people of the Depression years were unfamiliar with credit buying. We can find Woody Guthrie’s 'Dollar Down and a Dollar a Week' in the pop-song offerings today. Generalizing from our readings, those in the 'hard years' seemed a good deal more circumspect, less entitled, and indeed adept at material self-denial."

A  midpoint support at 13.720 beckons, and you could bottom-fish there with a stop-loss as tight as three ticks. If it's hit, though, expect the futures to continue their fall down to at least 13.365.  Alternatively it would take a print at 14.295 to turn the hourly chart bullish. _______ UPDATE (2:52 p.m.) : The futures have trampolined 58 cents from within a penny of the 13.720 midpoint flagged above.  If you caught a ride, profit-taking shouldn't be much of a problem at this point. If you bought more than one contract, I'd suggest holding a third to a half of the position for scale-out selling, but with a stop-loss suited to your comfort zone. (Note: This tout was originally published as a Side Bet, below.)

Some high-minded discussion of our economic malaise, originally published at LeCafe Americain, can be found at this link  (with thanks to the chat-roomer who posted it earlier.) Here's an excerpt: "The most intractable part of the current financial crisis, and the ongoing problem of the US economy is the huge tax which is levied on the American public by its corporations, primarily in the financial and health care sectors, and a political system based on lobbyists and their campaign contributions."

Index futures were giving ground Thursday night, but not so seriously as to suggest that it is sellers, rather than buyers, who are calling the shots. Whatever happens, it seems unlikely to me that stocks will break from August's suffocating, pointless tedium as the week draws to a close.

The September contract has slowly been making its way toward a potentially important top at 1.4647, a Hidden Pivot that is derived from a rally cycle begun in mid-May from 1.3416.