Thursday, 28 March 2013

Those cheating banks

Crisis, what crisis?

I picked this up on Bloomberg, not an obvious conspiracy theory merchant.

Have a look at this chart:

What it shows is the movement of LIBOR compared with the CDS for the banks that make up the LIBOR panel. Explanation needed! LIBOR is the rate at which major London banks lend money to each other. It is calculated by the banks based on their estimate of what they would have to pay if they borrowed money  from each other. The chart shows that the Cyprus crisis has not caused a ripple in the LIBOR rate.

At the same time the Credit Default Swaps (CDS) soared as the Cyprus crisis developed. CDS represents the insurance premium that a bank has to pay to cover any loan it makes to another bank overnight. They have risen by up to 15%. The LIBOR rate has increased by a mere 1.4%. The discrepancy suggests that the banks are continuing to underestimate the interest costs that they might incur in the interbank market.

They can underestimate because, at present, banks do not need to borrow from each. They have other sources of finance (QE?) So they have to guess at the rate. The chart suggests that they are continuing to underestimate. You will recall that several banks were fined because of cheating by underestimating the LIBOR rate at the time of the 2008 banking crisis.

What is the incentive for banks to cheat? If they show that they would incur low rates of interest if they run out of cash and need to borrow, it gives the impression that they are less at risk of financial stress. The rise in CDS shows that the companies offering insurance against a bank default believe that the risk of default is rising significantly.

I regard the Cyprus banking crisis and the system adopted for solving it as a major break with the past. We can no longer view people who want to stash their money under a mattress as oddballs. There is a real risk that customers will withdraw their funds from weaker banks right across Europe. Lower LIBOR rates can help to mask weakness.

Does this have an implication for stock prices? It certainly does. If interest rates are perceived to be low, and LIBOR is an important contributor to the measure of interest rates, then stocks will be viewed as offering a better return on money. If interest rates are seen as rising, the attraction of stocks diminishes and prices will fall.

What the markets think

In the meantime, back in the real world, the Dow is having a go at breaking out of its channel. Not enough to tempt me. If we get no more than this I shall just widen the channel and see what happens next.

It is one of those classic struggles between the bulls and the bears. The bulls are buying, pushing prices higher while the bears take advantage of these high prices to offload more of their portfolios. At this stage, under normal circumstances, news would drive the market. But seeing how the biggest assault on ordinary bank depositors has been ignored by the market, something quite different is going on. 

Old Blog

I used to write a blog about the way that I saw the world. I stopped about three years ago. I am amazed that it still attracts 15 - 20 readers per day directed there by Google. Most of my hits these days are to an article I wrote about the Sunni Shia conflict, one about the terrible things that the Australian Government did to children in the 1950s and another about political corruption. A popular topic was my description of the sub prime mortgage crisis, though interest there is, understandably, fading. 

I was very surprised that there were two hits, in quick succession to a post that I called Damart Days. It is a little essay on getting older. I would have forgotten about it altogether if it was not for these unexpected visitors. If you would like to have a look click here.

Wednesday, 27 March 2013

Sitting on my hands

I'm mostly out of the market: 87% cash, 9% gold, 4% one remaining UK equity. And as I watch the Dow oscillate in a channel (between the two pink lines), I have to sit on my hands and avoid doing anything silly.

The temptation comes each time I see an up day.

  • Spring is still the time of year when markets rise and I don't want to be left on the sidelines when prices forge ahead. 
  • Governments are still throwing money at the market (though the new UK capital requirement may slow the flow of QE into shares. British banks are required to inject cash into their balance sheets without reducing lending to the "real" economy. No doubt the banks will find a way to cheat but in the mean time the there may be less cash to lend to speculators. That could be one of the reasons the FTSE is losing steam - though the last three days suggest a mild return of confidence). 

Looking at the DAX shows how badly shaken European investors have been by the Cyprus crisis.

Finally, and just for fun, lets have a look at the Hang Seng to see what is happening in the Far East. The market has had a rough old time but clearly they couldn't care less about Cyprus and the Euro Zone's problems.

Saturday, 23 March 2013

Cyprus bailout - simply put

Phew! That was close

I don't pretend to know more than I read in the headlines but this is how I see the Cyprus situation.

Cyprus banks have inadequate cash to cover their capital requirements. They invested heavily in Greek Government bonds and the value of these was cut as part of the Greek bailout. In the good times they lent heavily to the Greek private sector. A large part of those loans has turned sour. The Cyprus government is too small to bail them out (see the first picture). Without extra funds coming from somewhere, the banks would collapse and depositors would lose all their money, Cyprus would be ejected from the Euro and a devaluation would decimate any funds that were left. The EU guarantee of deposits up to €100,000 would be all but worthless.

If you remember there was another little island that let its banks grow out of proportion with its population. If its baks went belly up Cyprus and its inhabitants would end up even worse off than the population of Iceland which lived through a similar crisis beginning in 2008 and officially ending in 2011. The Icelandic bailout cost $5.1bn which came from the IMF and the Nordic countries. Iceland has a population about a third the size of Cyprus's 1.1mn.

It looks as though the new Cyprus deal will involve the nationalization of its banking sector and a split of capital into good banks and bad banks. Depositors of less than €100,000 would retain their guarantees denominated in € but larger investors would not be protected. Moreover it might be several years before these larger savers, probably a majority of whom are foreigners, would see how much of their funds they would get back. In any event they are likely to face a tax (the last proposal called it a levy but these are just words cojoured up to hide the fact that it is a confiscation) on their deposits which will help to fund the Cypriot share of the bailout.

Of the €68bn in deposits €38bn are deposits of over €100,000 (56%). It would appear that this is largely Russian money, some of it ill gotten. This is why there was a hope that the Russian government might pitch in with some funds in exchange for the names of its citizens who, at the very least might be hiding iincome to avoid tax. Russia has refused to join in the rescue.

Moody's have downgraded deposits in Cyprus Banks to Caa3 just two levels above its lowest grade i.e. "you'll be lucky to get your money back."

This useful chart shows the relative scale of the proposed €10bn EU bailout for Cyprus.

Effect on the markets

US stock markets, which have never taken this crisis seriously, ended the week at about the same place they started it. The S&P shown below was very slightly lower.

The effect on European markets was more pronounced but remember the volume spike which caused me to react, occurred on Friday, before the Cyprus crisis kicked off.

My reaction

None of this explains my reaction to Friday's volume spike. For that you have to go back 13 years to when I started to trade on the stock market. I began in September 1998 when the dot com bubble was inflating happily. I went on a course which taught me how to value shares and to pick those which were undervalued. 

This did not include tech shares. These were already horrendously overvalued. But my friends persuaded me, against my better judgement, to jump on a band wagon that was running frighteningly fast. I did and I made money at a rate greater than I could ever have dreamed. Luckily my instincts of self preservation proved stronger than my greed and I jumped off before that wagon came to a shuddering halt. For weeks I watched the market and counted the money I could have been making. This measured in the tens of thousands of pounds. But then it all came to an end.

Some stock brokers, encouraged their clients to take advantage of the "buying opportunity" as prices "pulled back." There were little pull backs but the rout continued for over three years and the stock market lost over half its value. I made modest amounts of money in each of those three years.

I bring this up because of what I learned. When the collapse in the market sets in, it is every man for himself and the devil takes the hindmost.  In those days you bought and sold shares on the telephone. My friends would sit on the end of the 'phone for hours, waiting to speak to their stock broker. Often they would be cut off and have to ring back and rejoin the end of the queue. As they waited the value of their holdings would continue to tumble as those ahead of them dumped their shares on reluctant market makers. Market makers, who aggressively cut the prices they offered.

It would not be any different if it happened now. The internet would not help. An attempt to sell shares online would result in a message saying "no online price is available at this time, please route your deal through a broker." You would get through to a broker after a long, long wait and then you would hold on as the broker tried to get in touch with a market maker. The price would be falling all the while. Just imaging the emotional impact of that scenario.

Best to sell out before the crunch comes and sit on the sidelines.

But this does not solve the problem of what to do with your money once you have cashed in.

Thursday, 21 March 2013

Sold too soon

The DJI is pretty much at the point where I sold out. If I had held the shares which I ditched I would be sitting on another £7000 of profit. I'm kicking myself, as you can imagine. But I have to compliment myself on the sheer quality of my shares picks: yielding such a return in a couple of days in a flat market is no mean feat.

I was playing the odds and they were not in my favour. So I was better out than in.

The FTSE, DAX and CAC have all taken a hit. Not nearly as big as I would have expected given the Cyprus problem, but they are down nevertheless.

Gold languishes.

So I sit here seeing that I have missed an opportunity by running for cover. But I am still here and I have taken the profit I need to lead the good life next year.

My next worry is this. Inflationary pressures are sitting in the wings. Prices are likely to rise at rates not seen for many years. Will my portfolio continue to support my standard of living as prices erode the buying power of my profits?

Tuesday, 19 March 2013

It's done

Sell, sell, sell

I did sell everything. I sold as soon as the market opened. If I had waited I could have done better because the market recovered significantly. It had weakened again by the end of the day but never fell to the levels reached overnight.

So what has happened? The markets were spooked overnight by the Cyprus news. But once they had recovered from the shock, they decided to ignore the news and mostly returned to their previous levels.

So was I wrong to pull out? My reason for pulling out had nothing to do with Cyprus. I had made my decision on Friday based on the volume spike in US stock market trading. I was unlucky that the Cyprus news came out because it pushed down the prices at which I could sell.

My thinking was this:

  • big spikes in trade usually signal a change in direction for the market
  • the market has had a very strong run upwards and at the very least it is due for a pull back
  • I have a decent profit which I can take now or I can leave it in the market and risk losing it
  • the odds have shortened significantly and I don't want to the wrong side of those odds
The effect of the spike sometimes takes several days to show itself so I'm back to waiting to see what happens next.

What's a Cypriot urn?

I am not nearly so sanguine as are the markets about the news from Cyprus. I suspect dirty work is afoot and that danger lies ahead. I suspect that the European authorities have a hand in what has happened. 

Here's my scenario:

Banks in several Euro area countries are at serious risk of failing because they have lent money to customers who do not have the means to repay. At present there is a promise to depositors to protect a large part of their money if their banks default. What happens if the funds needed to fulfill that promise are inadequate? Oh dear! we never thought of that.

Now if the authorities could snatch some of the bank customers money that might help to plug the gap. A 10% drop in the value of depositors funds would create an immediate equivalent improvement in the banks' balance sheets. Bingo! 

But what would the political repercussions if we did? Would people take it lying down? "Just another tax!" Or would they kick up a fuss? "The government can put its hand in my pocket any time and grab my money? I'm not having that!"

Here's a thought. Cyprus is a tiny part of the Euro area quite far away from the mainstream. Let's try it there and see what happens. At least we will learn something and know what we will have to deal with when we try it in Spain or Italy.

It is quite a long stretch confiscation of savings in Cyprus to the same thing happening here. But you'd be surprised at how quickly new ideas like that can catch on. Governments are like sheep. Especially if there's an opportunity to fleece their subjects. (Pardon the pun).

Golden opportunity

Selling shares means I have lots of cash and now I know that cash is vulnerable once more. So I have turned to that hoary old faithful of times of trouble: gold. It has not done very well of late but the price now looks attractive.

I have bought through an exchange traded fund (code SGBS) which stores its/my gold bars in a vault in Switzerland. The Swiss are not nearly as reliable as they used to be but it should still be harder for the authorities to grab assets which are lodged there.

Only time will tell if my run for cover was necessary but at least my profits are safe for the moment. As I have to keep reminding myself, this is my sole source of income. I have to get it right.

Pastry making

I had an unlooked for introduction to pastry making the other day. I had planned to make a tomato and cheese tart but when I unwrapped the pre-rolled pastry I found it had gone mouldy. Sunday evening, shops shut. I had to go for a pastry recipe which worked out fairly well. More of fairly in a moment.

I took 200 gms of plain flour, 100gms of butter and mixed them together in a food processor. I added about 50 gms of grated cheddar and a large egg and mixed this all together with my hands, wrapped the mixture in cling film and put it in the fridge. It felt a bit dry so next time I shall try two small eggs instead.

I chopped two peppers (one green one red because that's what I had in the fridge) and large red onion. I fried these very gently in 1 tbs of olive oil, for ages. I halved 250 gms of baby plum tomatoes, and about 20 pitted black olives and sliced two large tomatoes. 

By this time it was time to take the pastry mix out of the fridge. It was rather dry and tended to break up as I rolled it out. I was right about it being too dry. I patched the tears and managed line an oiled pie dish with a push out bottom. I was glad I had not decided to make a quiche because the mixture would have leaked through the pastry and made a terrible mess.

I baked it blind with baking beans on grease-proof paper at 180 degrees for about 15 mins and then for a further 5 mins without the beans. I then spread the base with whole grain mustard added a layer of grated gruyere and cheddar mixed, and then the onion and pepper mix, and the plum tomatoes followed by the sliced tomatoes and olives and some capers. The whole went back in the oven at about 200 degrees for a further 20 mins. It was a major success despite the less than perfect pastry which, it has to be said, was tasty despite being aesthetically challenged. I shall not be frighted of making pastry in future.

Monday, 18 March 2013

Clairvoyance in the market

On Saturday, well before the announcement of the confiscation of Cypriot bank depositors funds, I said that Monday would be a big day. It's 6:00 am and the futures markets are signalling a  150 point drop in the DJI, a 130 point drop in the FTSE and a 183 point fall in the Euro against the dollar.

I said I would dump my shares as soon as the markets opened, but the markets have gt there before me. Can't do anything about that now except grit my teeth and swallow the loss that's coming. 

Is there anything that I could have done? Yes there is and I am kicking myself about it. I have been taking sneak previews at the volume of trade in DJI stocks during the trading day to get an idea of the total market volume, which does not get published until after the close. If I had done that on Friday I would have sold my shares a day early like all those smart traders who knew what was coming and lifted that volume on Friday. No-one claims to know how they know but the chart I showed on Saturday demonstrates that they do. 

My belief that "you should not listen to the rubbish that's published as news, but just watch the market" is vindicated once more.

As it is I only sold a quarter of my shares in time, and today I will have to wait till the US market opens and sell the rest in the general panic. Lesson: don't let down your guard for a moment.

Here's a picture of what the futures markets are saying.

Saturday, 16 March 2013

Big day

Margin trading

I had a thought overnight. Dr Keen's margin trading versus stock market movement chart may not be all that it seems at first sight. It presents a chicken and egg problem. Does the margin trading drive the market or does the market encourage margin trading. I would guess it's a bit of both. Nevertheless the availability and take up of credit is linked to QE. And the relationship between stock brokers and banks provides a mechanism for all that money to find its way into the market.

And what comes next?

I have been bleating incessantly: What do I do next? What should I do now?  The market continues onward and upward and I don't want to miss that train. But is it too high? Should I take my profits? Moan, moan moan.

Monday will not be like that. I know exactly what to do. Have a look at the chart. You all know hat I think about volume spikes..

When the market opens I shall sell everything. I have already dumped a quarter of my holdings as nerves  frayed. I shall try to be as quick as possible in case there is a sharp fall. With luck the market will hold up and there may be a bit of a rally. Maybe my decision will be wrong and the market will continue upwards. But I don't care. I believe that the odds have shifted and I don't want to be the wrong side of those odds. I can always buy back. But if I am right, my profits will evaporate.

And now for something completely different

A few days ago I made a cake with a difference. When I first tasted it I thought it was a mistake. It was OK but with its slightly earthy quality it was nothing to write home about. But the next day it had started to mature and over the next couple of days it turned into one of the best chocolate cakes I've ever tasted. It was very different. The chopped up chocolate gave it the texture and mouth feel of chocolate and this combined delightfully with the lightness of cake.

I mixed 175 gms of self raising flour, 50 gms of cocoa, 200 gms caster sugar, a couple of tsp of baking powder. Then I chopped up 250 gms of cooked beetroot in a food processor. Next I mixed three eggs and 200 ml of olive oil with my Baymix. This I added this to the flour mixture. I then blended all together with the Baymix. Into this mixture went the chopped beetroot, together with  a 100 gms of high quality  dark chocolate (70% cocoa) cut up into approx. half cm. squares. (My guess is that these little squares melted and re-solidified without fully blending with the rest of the mixture so giving the cake a chocolate mouth feel.)

I have bought some silicone cake tin liners from Lakeland. They are fabulous. Instead of fiddling around greasing your tins you just put one of these liners into your tin and pour or spoon in your mix. The cake comes out perfectly. I baked at 170 degrees for an hour. (But test a bit sooner with a skewer which should come out clean when the cake is done). I cooled it on a rack and kept it in an air tight tin. 

I recommend leaving the cake to mature for a day before trying it. You might like it with some cream but I like it just as it comes..

Friday, 15 March 2013

A really simple explanation of how Quantitative Easing is fueling the rise in the stock markets.

Printing money

I have mentioned many times in this blog that I think the reason why stock markets are rising relentlessly while economies continue to languish is the result of Quantitative Easing. QE is the most up-to-date euphemism for printing money. 

The printing of money inevitably results in inflation: more cash chasing the same volume of goods leads to a rise in prices so there must be inflation somewhere. This is one of the first things a student of economics learns.

Consumer, commodity and property prices have remained relatively stable or falling until recently. And this while governments have been printing money continuously. Somehow the cash must be finding its way into the only arena where asset prices have been rising: stock markets. What I did not know was how the mechanism worked. That is until I came across an interview by Steve Keen.

Dr Keen showed the link between margin debt and the level of the US markets. This means that investors are buying shares on margin (another word for borrowed money) supplied by their brokers. 

The way QE works is this: governments buy bonds (which are long term assets) from banks and pay for it with newly-created money. The banks are now sitting on a pile of cash.

What the governments want, and their motive for printing money in the first place, is that it should be lent to companies to invest in their businesses and to consumers to buy goods from companies. In short, they hope it will be a shot in the arm for the real economy.

Partly because the banks are fearful of lending to customers who will subsequently default; and partly because people and businesses are uncertain that they will be unable to repay what they borrow, banks can't easily find borrowers. So they lend it to stock brokers who offer margin to their customers who buy stocks. They are willing to pay interest on money which they invest to make capital gains as their stocks appreciate. And the banks rub their hands as they earn good returns on the cheap money provided by the governments' QE.

The parallel between margin debt and the DJI shown in Dr Keen's chart is scary. The video is here.

I have noticed that there has been a flurry of adverts by lenders who specialize in lending to high risk borrowers. I wonder if QE money is finding its way into this market too: lending at extortionate interest rates to people who don't care whether they can pay their debts or not. It used to be called sub-prime; now it's called payday loans.

My portfolio gets a pounding

Part of the reason I have done so well in the last couple of months is the relentless fall in the pound. Since the beginning of the year it has slid from almost 1.64 dollars to the pound to 1.48 on Tuesday 12th March. And because more or less the whole of my portfolio is now in dollars I have benefited.

To give you an example, one of my best performing picks was BBY. I bought some of these for $11.9 per share, so each 100 shares cost $1190. In sterling that was £725.50 at an exchange rate of 1.64. The price had rocketed to $20.3 on Tuesday, increasing my dollar investment by 71% to $2030 per 100 shares.  The exchange rate was 1.48 so in pounds my shares were worth £2743, an increase of 89%.

As you can see on the chart,  the Pound's value enjoyed an abrupt reversal of fortune. This followed a comment yesterday by Mervyn King, Governor of the Bank of England, that the Bank was not trying to push down the currency's value. Those of you who like chart patterns will notice that the market anticipated the announcement by creating a doji formation two days before.

For me the change in direction has cost me money. BBY continued its rise since Tuesday and is now at $21.50 a 6% rise. Sterling has risen to 1.516 so my 100 shares  worth $2150 in dollars are worth only £1418 in pounds, a rise of just 3%.

Tuesday, 12 March 2013

End of the road?

The health of the market

When a market has had a good run it regularly pauses for breath. The question that has to be on the mind of anyone committed to the market is: Have we come to the end and should I grab my profits while I can?

Is this such a juncture? It is evidence of my nervousness that I should ask myself this question at this moment, half way through the American trading day. I immediately wonder whether I should dump some of the poorer performers in my portfolio. In the US this is not such a big decision as when trading in the UK. Spreads are tighter and there is no stamp duty to pay. The part of my portfolio that is in my ISA requires a bit more thought because of the exchanging of currency which costs a bit more than 2% for a round trip. Still I believe that not doing a trade because of cost is always a mistake when the market dictates that the trade should be done.

Here is what I am looking at in the DOW and in the S&P.

Since there is no volume data till after the market closes I have a quick look at some large cap companies in the DJI and find that the volume of trade is not particularly high. This gives me the confidence to wait till tomorrow, perhaps.

The S&P has fallen a bit more than the DOW but is currently recovering. More support for my decision to leave things as they are for the moment.

One of my kind readers, You know who you are, alerted me to a stock pick that was rather weaker than the rest, MNST. I had a look and saw he was right and ditched it. Withe the market undecided as to direction I have yet to replace it. Thanks for the heads up.

My health

I have hinted in the past that my health is not the best. I take loads of medication to keep me going. There was an interesting edition of Thinking Allowed on Radio 4  called Drugs for l
Life. Its thrust was that we are moving from medicine to cure disease: you get ill doctors provide treatment and you get better; to medicine designed to preempt health problems in the future: your blood gets tested, you are shown to be at risk of something or other and you are put on drugs for the rest of your life. The author of the book that gave rise to the item wanted to show that drug companies favour this second approach this to boost their profits.

I don't fully agree so I responded to Laurie Taylor by telling my health story.

Your item on drugs for life interested me strangely. I have yet to read the book that gave rise to the item but, from what I heard, it seemed to me that an important point was startlingly absent: the effect of the age of the population. I will give the example of my life story to illustrate.

When I was young I would expect to get ill, be treated and get better. As I grew older chronic diseases started to rear their heads.

The first sign that I was one of the 100% of people destined to die came in my early 30s when a medical for an insurance policy showed slightly elevated blood pressure. At the time I was lithe and energetic and was told to go away and not to worry.

Twenty years later I ended up in hospital with something called malignant hypertension, blood pressure so high that it would kill in the short term if left untreated. I left hospital after intensive treatment and a pile of pills to take for the rest of my life. I also had lost 25% of my kidney function and had a diagnosis of diabetes. I was told to go away, modify my diet and they would keep an eye on me.

Fast forward another 11 years  to my early 60s. My blood sugar control had deteriorated and I began my first course of blood glucose drugs. These increased gradually over the next couple of years and a statin was added.

Then a new disease struck. It was probably Lyme disease but was never diagnosed as such. This time I was in hospital for over two weeks and lost the use of my legs and hands due to neurological damage. When I left hospital my legs had recovered but not my hands and it took a neurological drug to restore my ability to use them. Another lifetime pharmaceutical to add to my list.
However, this episode was definitely a case of getting ill, being treated, and getting better (even if the doctors did not claim credit for my recovery). But I had a new diagnosis as a result of the mass of inconclusive tests that were done.

This time it was Lupus. It seems to be asymptomatic so they are keeping an eye on me but offering no treatment.

Finally my pancreas has now given up trying to produce enough insulin and I have to inject. The number of pills I take has decreased but I have to count carbohydrates.

As I move relentlessly to the point when I join the majority of all those who have ever lived, I am happy and active. I can do what I like. And I have doctors and their friends in the pharmaceutical industry to thank. Without them I would be long gone as a result of one or more of my chronic diseases, or something which I did not catch because I was inoculated.

I am very grateful for the work that their researchers have carried out on my behalf. Go for it guys. Crack the malaria parasite problem next.

Friday, 8 March 2013


A couple of posts ago I listed the shares I had shed, and then later, new ones I had bought when my confidence in the market recovered. Here is my current portfolio. It is still doing as well as before. An average rise of 2.2% per week would translate to over 100% per year.

The market will never let me make all of that because it will pull back at some point. But my reaction will be to look for early warning signs and take my profits and cut my losses so I keep as much of the profits in hand as possible. As I have said in an earlier post "it's all money" and needs to be garnered.

This year has been a dismal year for me. I lost my nerve in the spring as my profits faded and sat on a small loss all the year, I had to kick myself hard to get going again, I restarted in December buying both UK and US shares. By the beginning of January I was making good money, especially in the US. I switched all my investing to the US despite the fact that trading in the US from inside an ISA is costly. You are obliged to sell pounds each time you sell shares and repurchase dollars when you buy new shares. But the temptation to switch was too great. I was making about four times as much profit in the US as in the UK.

Bottom line is that since December i.e. in about three and a half months I have made my profit target for the year (my years run April to April). I am keeping my fingers crossed and hope that the remaining couple of weeks will let me keep what I have made and perhaps earn a little extra. I must remember never to be complacent.

Here is a list of my holdings with percent profits earned after purchasing costs. All of these have been picked using Vector Vest Unisearches chosen by means of rigorous back testing. (See earlier posts for more details.)

Remember that nothing I write should be construed as  is not an offer or invitation to buy or sell securities. It is a record of my own trading written as a diary of my own activities which I am prepared to share with others in case they find it entertaining..

Thursday, 7 March 2013

Uncharted territory

Go back a couple of posts and you will find this chart:

I noted that the high volume of trades was significant. I worried that it could signal the end of the line for the market movement. I was right. The flat period had come to an end. But I was wrong about the direction it would take. Part of my natural anxiety. I described it like this "my outlook on the market would appear to be hopeful but cautious." 

What happened next was this:

One day's increase in volume should never be ignored. As the market picked up my confidence picked up too and, as you know, I refilled my portfolio.

Long may this rally continue. We are now clear of the previous all time high and are in uncharted territory. There is no guide to where the next stopping point will be, based on the DOW. The S&P has some 35 points to go before it reaches its all time high so that's where we should be looking next.

Wednesday, 6 March 2013

New high for the DOW

Up, up and away???

I write this as the US market is about to close on Tuesday night. It’s a nail-biting moment. The DOW JONES 30 index has broken its all-time high and is currently pulling back. 

Will it close above that high or will profit takers pull it down again? Will tomorrow be the day that profit takers move in and grab what they can, while they can? Or has this been the moment when markets push into the stratosphere and get ready to plummet into a new bear market? My money, cautiously (as ever) is on the last possibility. We should note that the S&P 500 still has a way to go before it hits its own all-time high.

Well the market has closed now and the DOW is some 40 points above that all time high number. The futures market tentatively suggests another rise tomorrow. The volume of trades was low and the move up has not been dramatic so there is little to suggest that this is the end of the line. 

The main cause for worry is that it has made the news headlines. News headlines are important because they signal the moment that everyone knows what has been happening. The reason why the volume of trades is important is that when volume is low it suggests that money is still waiting on the side-lines. There has been no panic by uncommitted investors who jump onto the fast moving train before it’s too late. Big rises on high volume are the kiss of death for a market. Soon there'll be no more money.

My new shares

What have I been doing? Over the last few days I've been refilling my portfolio. (Recently it dropped below 70% because I was fearful of the slowdown in the market and shed my weaker shares, but I’m now 96% invested).

On Sunday I made a thorough examination of the selection criteria that Vector Vest offers and picked out three that seem to work very well: two that I have been using for some time and one new one. They are:

  • ·         Stocks that have improved in their fundamentals over the past three weeks, are in industries that have been doing well, and stocks that have relatively low prices
  • ·         Stocks  which have shown a sharp rise in earnings in the past quarter with decent fundamentals and price movement
  • ·         Stocks that have hit a new one year high, have rising earnings, have good fundamental qualities and have relatively low market capitalization.

The shares I have picked to fill my portfolio are: (all US stocks):

You see that my approach is to spread my risk. The trick to tracking all these shares is to have a very robust and flexible system for keeping an eye on them. I know immediately when any are falling behind. I am ruthless in weeding out dead wood and taking profits on shares that have done well but are beginning to fade.

I keep the information easily accessible on an Excel sheet that is linked to a live feed. It is neither hard work, nor time consuming to check what is happening. At present I hold 35 shares.

Friday, 1 March 2013

The wait goes on

Within 50 points of the all time high

The DOW climbed to withing 50 points of its all time high before throwing in the towel and ending the day down. Worryingly this was on moderately high volume so it could be a sign that this is the end of the line. 

Over the past couple of days, I have been shedding shares that have not done so well without replacing them (LRAD, GVA, MSO, SOMX). This, together with earlier sales, has brought my cash holding up to 32%. So, deeds being more significant than words,  my outlook on the market would appear to be hopeful but cautious. I can't say more than that.

I have been making cakes over the past couple of weeks. Yesterday I made one to my own recipe that worked out rather well. It was based on a Jamaican fruit cake recipe that I found but was impractical because it had huge quantities of ingredients. I had also seen a recipe with wholemeal flour which I wanted to try so I linked the two together.

Jamaican fruit cake recipe


I mixed up 140gms of wholemeal self raising flour, 140 gms of sugar, 140gms of butter, two eggs and a generous teaspoon of baking powder. I used my Baymix (a sort of stick mixer) to blend these ingredients.

When all this was thoroughly mixed together I added about 150ml of wine, about 200ml of rum and a couple of desert spoonfuls of treacle. (My wife, it turns out, does not like the flavour of treacle so next time I will give it a miss.) The added liquid made the mixture a bit runny so I added some wholemeal flour to thicken it a little but not too much (say 50 gms). 

I added about 50 gms of cut up dried exotic fruit from Sainsbury's and similar amounts of cut up dates and walnuts and a peeled cored, and chopped apple. I mixed in the fruit and nuts with a fork and spooned the mixture into loaf tin with a silicon lining. I baked this in a preheated oven at 180 degrees C for an hour. I checked with a skewer to make sure it was cooked through and then turned it out on a wire tray to cool. 

It is moist and delicious.