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Wednesday, September 19, 2007

Correction Statistics and Profits Booked

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How many of you took profits as the market rallied so you could put them to use in the correction?

I just booked a $501 gain on 100 shares of Agilent I bought for my newsletter portfolio on August 15, 2007. A $16% gain in just over a month! Booyah!

Correction Statistics for 09/19/07


  • Last Market High 07/16/07 at 1,555.90
  • Last Market low 08/16/07 at 1,370.69
  • Current S&P500 Price 1,536.33
  • Decline in Pts 19.57
  • Decline in % 1.3%
  • Max Decline 11.9%
  • This means the correction from high to low has been 11.9% and we are currently 1.3% off the peak.
  • The decline off the high on a closing basis has been 9.4%
  • More S&P 500 Charts


  • Last Market High 07/17/07 at 14,021.95
  • Last Market Low 08/16/07 at 12,517.94
  • Current DJIA Price 13,853.27
  • Decline in Pts 168.68
  • Decline in % 1.2%
  • Max Decline 10.7%
  • This means the correction from high to low has been 10.7% and we are currently 1.2% off the peak.
  • The decline off the high on a closing basis has been 8.1%
  • More DJIA Charts

Subscribe now and you too can take advantage of market volatility to make extra return.

Click this graph to see the S&P500 bottomed at 1370!

See my article "Using Asset Allocation to make money in a Flat Market" to get a better understanding how I do this.

Sometimes I wish we had this much market volatility every month! 8^)

Saturday, September 15, 2007

Allan Greenspan's new book "The Age of Turbulence"

Click book to order.

On Saturday September 15, 2007, Bob Brinker talked about 81 year old Allan Greenspan's new book "The Age of Turbulence: Adventures in a New World" scheduled for release Monday September 17, 2007.
Greenspan considers himself a "libertarian Republican" and takes the GOP to task for excessive government spending. "My biggest frustration remained the president's unwillingness to wield his veto against out-of-control spending," Greenspan wrote.
From the Wall Street Journal story:
  • Greenspan "attributes the housing boom to the end of communism, which he says unleashed hundreds of millions of workers on global markets, putting downward pressure on wages and prices, and thus on long-term interest rates."
  • "In coming years, as the globalization process winds down, he predicts inflation will become harder to contain. Recent increases in the price of imports from China and a rise in long-term interest rates suggest "the turn may be upon us sooner rather than later."
  • "Left alone, he said, the Fed's policy-making body, the Federal Open Market Committee, can keep inflation between 1% and 2%, but that could require forcing interest rates to double-digits, a level "not seen since the days of Paul Volcker," his predecessor as Fed chairman. "I fear that my successors on the FOMC, as they strive to maintain price stability in the coming quarter century, will run into populist resistance from Congress, if not from the White House," Greenspan writes.
  • Mr. Greenspan writes that in early 1997, he told his colleagues the Fed should raise interest rates as a "preemptive" move against a stock-market bubble. But transcripts of Fed meetings from that period do not support his book's version of events: They show Mr. Greenspan argued for a rate increase principally because of inflation.
Reports say Penguin Books paid Mr. Greenspan over $8 million in advance for the book "The Age of Turbulence: Adventures in a New World" (Please order the book with my link)

Thursday, September 13, 2007

Moneytalk Guest Charlie Maxwell

Excerpt from David Korn's September 8-9, 2007 Newsletter

On Saturday, Bob had on one of his favorite guests, Charlie Maxwell, Senior Energy Analyst for Weedon & Co. Charlie was educated at Princeton and then Oxford. He has been working in the oil industry since the 1950s. In the 1960s he became an analyst on Wall Street and has been rated the #1 energy and oil analyst on many occasions. Bob heaped heavy praise on Charlie as the best of the best in terms of energy analysts and mandatory listening for Moneytalk trekkies. I summarized the interview below.

Maxwell/Brinker: Bob opened the interview praising Charlie for his predictions on Moneytalk that the price of oil would trade in the $50s to the $70s which has been right on the mark in recent years. Bob asked Charlie if he had changed his forecast. Charlie said we have seen oil go from $25 a barrel in early 2003, to as high as $75 a barrel, with a peak at $78. There was a lot of oil being traded at $75. The rise from $25 to $75 is huge and represents a 200% increase. Nevertheless, Charlie said he thinks supply and demand are roughly in balance today and might stay here for a while, particularly given the weakness that is going on in the U.S. economy. A slower U.S. economy can translate into reduced imports, and thus slow foreign demand from countries like China. This period of transition where we stay in the range of $50s up to $80 a barrel should stay with us for another two years.

Looking forward after the next two years, Charlie gave his forecast as to where he thought the price of oil was going. Charlie pointed out that we have to take into account world population increasing and the demand for more cars in countries such as Russia, India and China -- all this suggests that demand is going up while supply is not. With this as a backdrop, Charlie thinks that by 2010-2011, we could see oil trade at over a $100 a barrel.

EC: Charlie has actually gone on record in the past projecting that West Texas Intermediate Crude would rise to rise to $85 by 2010, $180 by 2015 and $300 by 2020. Based on today's interview, it looks like he raised his 2010 prediction by $15 a barrel.

Maxwell/Brinker: Bob asked Charlie to address Ben Bernanke's view about inflation. Charlie said he thinks the Fed is so cast in the role of fighting inflation that are ignoring the real threat which is deflation. Bob noted that Ben is on record saying that deflation is the biggest threat, but he doesn't act that way. Charlie said he would allow the system to pick up liquidity and began dropping rates by 25 basis points every few months, unless there were serious problems and then he would open the floodgates. Overall, Charlie said he would bet on a 25 basis point cut at the next meeting, and Bob agreed.

Maxwell/Brinker: Bob asked Charlie to comment on alternative ways of getting fuel, like through oil shale and wind power,etc.. Charlie said we have huge reserves of oil shale in places like Colorado. They are extremely expensive to access. It takes almost as much energy to break up the shale to get oil out of it as we derive from it. It's like clean burning coal. We don't have an economic answer yet for oil shale. If you add all this up together, it only accounts for about 2% of world energy. That is such a tiny bit, that even if it grows rapidly to 5%, the problems we are facing from the main sources of energy (oil/coal) make the alternative energy solutions not pragmatic in the short term. The real game for alternative energy will be in the 25-35 year time frame from now. For us, however, the danger lies in the years 2010 to 2020 where we could face serious economic crises if we don't solve the energy problem.

Maxwell/Brinker: Bob asked Charlie to comment on whether hydrogen will ever play an important role in our energy supply. Charlie said he thinks it will in 40- 50 years. Hydrogen is the most plentiful element on the planet, but it bonds so easily and powerfully on a molecular level with other elements that it requires a lot of energy to unbind it. Getting pure hydrogen is therefore expensive, and it costs money to transport and store. We need a lot more research before it becomes useful.

EC: Here is a link to an interesting article addressing hydrogen and peak oil:

Maxwell/Brinker: Bob noted that we use natural gas throughout the country, but we waste a lot by generating electricity by burning natural gas when we should be using it for other things like mass transportation. Charlie agrees and pointed out that the government has allowed the utilities to use natural gas when it was very cheap and so it became embedded as a major part of the utilities fuel (around 21%). For the government to come out now and say we made a mistake is a tough thing to do from a political perspective. Bob said when you use natural gas in a bus system, relative to burning gas or diesel, it is much cleaner and produces half as much pollution as coal. Charlie agreed that natural gas is better, but it is still a hydro carbon fossil fuel. The only fuel we have in sufficient quantity that creates only heat pollution would be the nuclear energy. Charlie said the "green movement" is finally starting to come around to this fact and befriending the nuclear industry. It is clear that electricity will be the dominant form of energy going forward and nuclear energy will have to be the solution.

Charlie said that coal is a real problem. We have obligations to the rest of the world not to pollute so much. But we must also put pressure on India and China to cut back their use. Charlie pointed out that we are now starting to breathe in the refuse from coal burning plants in China and it is starting to pollute our skies.

Bob asked Charlie about the Oxford-based group he is in and to tell the listeners about it. Charlie said the organization is comprised of former ministers of OPEC and other industry executives from 30 countries who meet twice a year to discuss trends within the energy field. Charlie said OPEC is less importance today than 40 years ago, but it is still important. There is an upcoming OPEC meeting on September 11th. If they agree to increase production as they are being asked to do, they could produce another 1-1.5 billion barrels a day, that could provide a base to allow $60 a barrel during the winter months. Charlie, however, thinks they are running scares over the possible recession in the U.S. and they will be afraid to give us greater supplies.

EC: So far, it looks like Charlie might be right about OPEC's decision this coming Tuesday. OPEC's president, Mohammad bin Dhaen al-Hamil, said before leaving for Vienna that "current supplies to the petroleum market are sufficient." Read more at this url:

Charlie said if he is right, that means we will head into the winter months facing $70+ a barrel for oil which is unfortunate because we are running on the edge of recession that could happen going into the first quarter of next year. Charlie said he is working hard with his group to convince people in OPEC to give us the extra oil.

EC: Charlie seems to be a lot more worried about recesssion than Bob, but Bob didn't challenge him on it.

Caller: Is there anything on the horizon that suggests the technology is available to convert coal to other types of fuel like Germany did in World War II? Charlie said that is called the Fisher Tropsch process. It was discovered in 1923 and is still being used and being improved. The problem is it costs a lot of money to convert coal into natural gas. Then you go from gas to a liquid which is a separate process which requires a loss of about 25% of the thermal value of the gas. But then you have a liquid that is very clean burning and you can make it into a diesel for trucks, or gas for cars. It is low sulpher and high quality. If we were in a war time situation, we could use this process, but it is horrendously expensive under the scale we need it. What if we went to 100 times the scale, could we bring the price down under conditions of tight environmental laws? We don't know yet. The real answer is let's talk about it in 10 years because right now it isn't feasible.

EC: The Fisher-Tropsch process is a catalyzed chemical reaction in which carbon monoxide and hydrogen are converted into liquid hydrocarbons. The name comes from German researches Franz Fisher and Hans Tropsch working at the Kaiser Wilhelm Institute in the 1920s. There are a few companies that have commercialized this technology, including Shell, Rentech, Sasol (in South Africa), Choren Industries (German), Changing World Technologies (CWT) and GTL Corporation in Oklahoma.

Caller: The U.S. charges 54 cents a gallon import tax to bring ethanol into the country which begs the question why don't we bring more sugar into the country to produce ethanol. Then you find out there is a cap on how much sugar we can import. Why do we have an import tax on ethanol? Charlie said the reason is political. It acts as a subsidy to certain portions of our country that are heavy corn producers. There is no economic basis to it. Left to market forces without the tax, we would be importing large amounts of ethanol from Brazil where they produce vast amounts of ethanol at much cheaper costs. Right now, 98% of the ethanol produced in our country comes from corn which is driving up the price of corn and related products. This is hurting many people who rely on corn for a source of food. We are trying to develop other sources to produce ethanol other than corn, and that is where we need to devote our time and energy.

EC: James Surowiecki of The New Yorker wrote an article explaining why subsidies in the sugar and ethanol markets were bad policy at this url:

Caller: The caller asked Charlie about the outlook for gas and oil drilling in ANWR with the new female governor in Alaska. Charlie said she is a pistol and thinks you will see a lot of positive and notable developments in Alaska. The problem is that Alaska is only so big. According to Hubbert's peak theory, when oil production begins declining, even if we add on Alaska, it would only give us about an extra four months. Bob said if we get an extra million barrels of oil each day, wouldn't that help? Charlie said it would help the dollar and trade, it just wouldn't make a big difference in the long term relative to supply.

EC: Sara Palin is the current Governor of Alaska. She is only 42-years old. Recently, she joined efforts to promote an "all-Alaska" natural gas pipeline.

Caller: What has the energy department done in terms of trying to set policy? Charlie said the energy department has its policy set by others. It can't set its own policy -- it is the Presidential administration and Congress that tells the energy department what to do. One problem is that there is such a varying degree of opinions out there. Exxon, for example, which Charlie said is very knowledgeable, thinks there is no problem. Charlie said that sounds incredible because if there was no problem why did oil go from $25 to $75 in the last few years? Exxon doesn't see a Hubbert's peak and thinks production will rise for the next 30-40 years and meet our needs. Others say we can use all the coal we want, but others don't want to use coal because it pollutes. In a Democracy such as ours, all of these different opinions have their own lobbying groups. The energy department says it will execute a policy, but what is the policy? As a whole, our country has not been able to formulate a policy because we just don't know what to do. Perhaps the only way to create one is if it evolves out of a crises, at which time a consensus will quickly be formed.

EC: There is a lot of good information on the U.S. Department of Energy's web site which is at this url:

Maxwell/Brinker: Bob noted that France is way ahead of the game in terms of building nuclear plants and is getting close to 90% self-sufficient power from nuclear energy. Our country has a dismal record recently for nuclear power. Charlie said it goes back to the environmental movement. Chernobyl scared the wits out of many people, as did Three Mile Island. But lately, safety has increased and the environmentalists are beginning to form alliances with nuclear because it is cleaner than oil and coal. Our coal is the number one polluter in the world, but next year China will take over that role. And the scary thing is China is growing and has little regulation to control that.

EC: I always enjoy it when Charlie Maxwell is on the show. He is a real class act. Charles Maxwell's bio is at this link:
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Saturday, September 08, 2007

10-day and 60-day Put Call Ratio at Record Highs!

In his September Marketimer, Bob Brinker wrote very highly of the "extraordinary" high levels for the 10-day and 60-day moving average of the CBOE put/call ratio.

Click graph to view full sized

The CBOE (Chicago Board Options Exchange) Put/Call Ratio (CPC) is the ratio of the trading volume of put options to call options. Bearish investors buy put options that gain in value when the market goes down. Bullish investors buy call options that gain in value when the market goes up. A high put/call ratio is bullish for us contrarian investors.

I track the 10-day and 66-day moving averages of the put call ratio. 66 days is three months. As the graph shows, the 66-day and 60-day moving averages are nearly identical and both are at record high levels. This is GREAT NEWS for us bulls!!!

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Friday, September 07, 2007

Dollar Cost Average or Lump Sum?

Should you Dollar Cost Average (DCA) or Lump Sum into the market?

Lump sum investments into the market usually offer the best returns but dollar cost averaging can help you avoid the pain of unexpected declines.

Bill Flanagan eloquently stated on Moneytalk back on June 2006 that dollar cost averaging (or DCA) was for the timid and not a good idea for getting the best long-term investment results.

Bill made the point if you believe the market is going to be higher in the future, then you should lump sum your money in ASAP. The reason you do this is the odds favor being in the market so the sooner you are in the better your odds are of making maximum returns.

I agree with Bill. I tell new subscribers to my newsletter that if they want to get my advertised returns going forward, then they have to plug their noses, duplicate my portfolio exactly, and mirror my moves exactly. Since I have very large gains and some cushion for short-term losses, I can handle market declines since I would still be up and they would be down. For this reason, I suggest they might want to dollar cost average into my recommended positions to avoid the pain of sudden losses but they will not get my returns going forward.

  • If you believe the market will be higher in the long term, then you usually get the best returns going forward if you lump sum into the market. Corrections can be painful, but you are investing for the long term. You only recommend dollar cost averaging if you believe the pain of corrections outweighs the potential for higher returns.

Bob Brinker recommends DCA almost all the time. For example, Brinker has been mostly recommending DCA since he told his listeners in March 2003 that he recommended a fully invested position. Read David Korn's summary of this here. Rare exceptions for DCA by Brinker are after the market has had a significant correction, such as the S&P 500's recent correction where Brinker has a buy in the "mid 1400's."

Bill Flanagan correctly states that the odds favor the market going up so it make sense to lump sum in ASAP in most all situations. He is 100% correct.

Newsletter writers such as Brinker and I have learned over the years that people hate to lose 10% but they hardly complain if they only make 10% rather than 20% from being too conservative. That is they hardly feel 10% in "lost opportunity to the upside" but they feel terrible about an actual 10% loss to the downside. Thus, telling people to dollar cost average helps them not only get into the market but stay in the market for the long term should there be a significant market correction soon after they start their DCA program.

Bill Flanagan is a regular guest host of ABC's "Moneytalk" and author of Dirty Rotten CEOs. Read more about Bill Flanagan here and feel free to offer comments about his dollar cost average comments or this article.

Bob Brinker is the regular host of ABC's "Moneytalk" and author of Marketimer newsletter. We also have a Bob Brinker Discussion Forum that many like to use to discuss the market, Bob Brinker's general advice and Marketimer newsletter.

I look forward to your comments about this article or those radio hosts in general.

Effect of Bob Brinker's QQQQ advice on his Reported Model Portfolio Returns

This article examines the effect of Bob Brinker's QQQQ Advice on his model portfolios.

In Jan 2000 Brinker moved 60% of his equity portfolios to cash. In August 2000 he moved another 5% to cash for a total of 65% in cash reserves. He told subscribers to wait for instructions on how to use these cash reserves. If he had stayed there, this move would have looked brilliant. But, the story is only beginning.

On October 16, 2000, Brinker’s subscribers got a special bulletin vial USPS mail advising the they could"Act Immediately" and buy QQQ in anticipation of a 2 to 4 months "counter trend rally" for a 20% or more gain. Confused callers to the Marketimer office were told "Bob is comfortable with QQQ at $86" by office staff. You can read the rest of what happened at Bob Brinker's QQQQ Advice but basically the QQQ(Q) fell from a high of $87 to just under $20 and Bob held all the way down. This was not reflected in his model portfolios where he kept the 65% cash reserves in cash, thus having it both ways.

In the October 2000 bulletin, Brinker recommended 30 to 50% of cash reserves be put into QQQ(Q) for his aggressive (Model Portfolio #1) subscribers. The average price for the week after the bulletin was sent was about $82.

  • P1 money market allocation on 9/30/2000: $95,359
  • Adjusted P1 money market allocation after QQQ buy: $47,969.50
  • Added P1 QQQ allocation: $47,969.50

In the March 2003 bulletin, Brinker made no mention of the prior advice for QQQQ but he recommended subscribers return to a fully invested position per the model portfolios.

Reported P1 money market allocation on 2/28/2003 : $102,716

Since the money market balance includes the accumulated interest, removing half of the ending balance from the March 2003 total automatically takes into account the loss in interest. This reduces the money market balance by $51,358.

QQQ closed at about $24 on the day the second bulletin was issued, and again on the next day. Since Brinker's new P1 recommendations were all mutual funds, the closing price is the one he had to use in calculating his reported results.

March 2003 PRICES for QQQQ

The $47,969.50 in QQQ was reduced to $47,969.50 x 24/82 = $14,039.85.

The reported balance for P1 on 2/28/2003 was $126,712. We need to subtract the half of the money market fund that was used to buy QQQ and replace it with what was left of the QQQ holding.

  • $102,716 - $51,358 + $14,039.85 = $89,393.85 "adjusted" P1 balance.

Calculate the reduction in Model Portfolio #1 reported results due to QQQ:

  • [($126,712 - $89,383.85) / $126,712] x100% = 29.5%

Thus, anyone who followed Brinker's advice with 50% of cash reserves that was also in his "model portfolio for aggressive investors" saw their totals reduced 29.5% from what Brinker reports in his advertising.

  • Brinker's P1 on 01/01/88 $20,000 Brinker's P1 on 07/27/07 $206,144
  • Brinker's Reported APR 12.7 %
  • QQQQ Effect is 29.0 % or $59,782
  • Subtract QQQQ Effect $146,362
  • QQQQ Adjusted APR 10.7 %
  • Wilshire 5000 APR 12.0 %
    (Wilshire 5000 APR over the period 1/1/88 to 7/27/07 was calculated by Padraig Cremin of Wilshire Associates Inc and "Ivan Smile". )

What do you think? Did I make a mistake on any of these calculations?

Conclusion: I calculate the QQQQ advice caused Brinker's reported total to drop by 29% and his APR to drop 2.0% a year such that his best performing portfolio #1 under performs the buy and holders of the Wilshire 5000 by 1.3% per year since the inception of P1.

Please post your questions below.

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