Friday, 27 June 2014

Dow uptrend solid, oil prices waning

Yesterday's price movement for the DOW has one massive message: the bulls are firmly in control! The market made an effort to follow through on Wednesday's dive but the attempt was squashed by buyers coming back and bouncing the market off the support line established at the end of January. Since that low it has made an 11% rise.

The FTSE is enjoying similar support, even though its pattern does not demonstrate such a powerful move to the upside.  It has only managed 6.5% since the low. The difference is that although the UK has been showing a better economic improvement, that has meant strong signals that an interest rate rise is in the offing.

My big problem is clear. I continue to see trouble ahead (without moonlight or music). And while I have that fear in my bones I am reluctant to take advantage of the market's strength. That has been my trouble all along. and it means that my portfolio is unable to make progress. I have done well enough since the beginning of last November when my luck turned a corner. I have made 7.4% since then while the FTSE has made no progress at all. And I have almost kept up with the DOW which is 8% higher.

But this is not good enough and I have been struggling through June. That was partly because of that foray into the US market in the first week followed by my quick exit. It is partly because I banked GVC's dividend in May and have to wait till August for the next one. And lack of news from GVC means that the upward momentum has stalled (even at today's price it yields 8.4%).

So I just have those newly bought gold shares. They gave me a fright a couple of days ago. But they have hung in and yesterday they recovered despite weakness in gold and silver prices.

Mr Market seems to have decided that conflict in the Middle East is no threat to oil supplies and the oil price spike has been short lived. Looking at the chart it seems to sit comfortably inside the pennant that has been forming since April 2011. It could fall another 3-4% before it meets support.

So I have no plan other than to hold gold and silver miners and GVC unless I see another short term opportunity. I am looking hard and will let you know if I find anything.

Tuesday, 24 June 2014

All that Glisters

There is an faint indication that someone is worried. After my unhappy foray into the market in the second week of June followed by a very rapid exit. I found myself once more on the sidelines  nursing a small but painful loss. But then came a glimmer that suggests I am not the only one worried sick about what might happen. Just a couple of days ago there was a sharp upturn in the gold price.

I've jumped on board with a raft of gold and silver miners that are doing reasonably well so far. It is a risky strategy but so far so good. My selection is as follows SBGL MDW FSM BVN PPP and EXK all on the US market.

And all the time the Dow and S&P plod on upward.

There has been a movement in the oil price but it is still muted and is not out of line with what we have seen over the past three years.

Recipe with no name

Still, it has been a lovely summer so far. I patched together a delicious spaghetti recipe. It has no name so suggestions welcome.

Gently fry one red onion, a couple of peppers (colours don't matter), an aubergine (egg plant) cut into cubes. When all is soft add a can of chopped tomatoes, three or four chopped gherkins, a tablespoon of capers, half a dozen chopped pitted green olives 150 mls vegetable stock, a tablespoon and a half of red wine vinegar and a tablespoon of soft brown sugar (you can adjust quantities to suit your taste in sweet and sour). Salt to taste. Add water if necessary. It is lovely as a spaghetti sauce and leftovers will make a sort of cold ratatouille for lunch tomorrow.

Thursday, 19 June 2014

Stock market crashes I have lived through

I'm throwing my theories out of the window. Yesterday saw another new high on the S&P. and another upward push on the Dow. All because of the FOMC statement. What was in that statement?

  • good economic news - economy doing well
  • inflation below target
  • further reduction in QE
  • measured reductions in QE for the rest of the year
  • no early interest rate rise
I guess the interest rate guidance was the thing that swung the mood of the market. I also keep forgetting that reduced QE is still QE. The Fed. is still handing the banks $35bn of almost free money per month. Plenty of money to pump into a market where businesses are benefiting from better economic growth, low inflationary pressures, and an easy labor market.

All this leaves me in a serious bind. I pulled out of my last little move into the market in a hurry with minimal losses but after the last time, just days ago, I have nothing invested. GVC has had its run and is now basking at a new high level, waiting for the next bit of good news no doubt. I am frightened of repeating a new foray into the market at a new high level.

News from Iraq continues awful. Yes Saddam was dreadful, but this must be worse for a battered population. News coverage is remarkably subdued. So we have to watch and wait on that one too. And all this time Ukraine simmers in the background.

I'll just watch and wait.

You'll be bored listening to me fretting about the market crashing. But I promise that it happens. And when it does the results are devastating and the thunder clap comes out of a clear blue sky.

Here's a chart to show you what I'm talking about. I admit that the 1929 crash was before my time but I have lived through the other two.

PS I forgot the 1987 crash which literally came from nowhere. It was known as Black Monday. It hit in August and by October the market had lost about 40% of its value. None of the explanations of why that crash occurred makes a lot of sense. What is interesting is that within two months the market has resumed its upward trajectory but it took two years to regain its previous high. Here is a chart to delight you. Ideally an investor would have been in cash when the slide began and bought bargains when the market resumed its rise. Staying in would have cost serious money which would not have been recouped for two years.

Monday, 16 June 2014

Iran and Iraq holding hands?? US investors bury their heads in the sand

Big question! Is Friday's collapse in the FTSE the result of

  • the Bank of England's announcement that interest rates are to rise?
  • because of the horrendous news from Iraq (thank you Messrs Bush and Blair)?
  • or is it the market finally moving away from its current high levels? 
I think it is a combination of all of these things. The Iraq situation generates anxiety, the prediction of higher interest hits the relative return on shares and it is strange the way that a tiny drop of a catalyst in the water suddenly changes the whole mood of the market.

But then we have the strangest thing of all. The US markets make a small rally on Friday. My only conclusion is that the bulk of investors are fearless - not their money. They will go on sitting behind their bank desks and taxpayers will bail out the institutions which will be crucified by the inertia of their traders. They don't care that the rise in UK interest rates may be the first ripple and that a tidal wave of rises may follow. They don't care that oil prices are on the rise because of the prospect of US  forces marching side by side with their arch enemies to push back Sunni Muslim insurgents who have captured large areas and amjor cities in Western Iraq (the insurgents go under the name of ISIS).

The spike in the oil price has yet to become dramatic. But it is a warning of what may happen if the situation deteriorates.

The US markets have hardly moved on the open today. It's all a bit like Tony Blair denying that the invasion of Iraq is the cause of the present situation. I understand he claims that the cause is lack of intervention in Syria. 

Many may die laughing in Iran as they savor the sight of the Great Satan limping about having shot himself in the foot. Only later will they die for real as battle lines are drawn.

Mark Carney may have done UK investors a huge favour. They may pull out of stocks in advance of a bigger world downturn.

Seven years ago I made an analysis of what ails the Middle East. I published it as a short series of essays on a blog called The articles are still there and with the events of that last few days it seems remarkably prescient. Have a look here for an explanation of how the region is cursed by its oil wealth. It is one of five essays. Links to the others are 

Monday, 9 June 2014


I have been a fan of Steven Levitt and Stephen Dubner ever since I came across their first book: Freakonomics. They use economists's focus on data to review a huge variety of subjects. The titles of their essays tell it all. They range from How is the Ku Klux Klan Like a Group of Estate Agents? to Why do Drug Dealers Sill Live with their Moms?

I have yet to dip into their latest offering  Think Like a FreakBut I am an avid listener to their podcast. From that I have learnt that the new book contains a chapter on the three (or four) hardest words to utter in the English language: I don't know.  It appears that failure to admit ignorance is close to being hard wired. Children, when tested, will make a stab at the right answer, even when asked a nonsensical question. Adults find it very hard to say that they don't have an answer, especially when faced with peer pressure. Even more so when they assume the role of an expert (example a senior member of the marketing department of a company when queried by the MD about the effectiveness of various advertising methods).

Admitting to ignorance is the first step towards making a proper reasoned decision. There follows the need to seek out data which will help draw the correct conclusion and make the right decision.

But what about the time when data is non-existent or ambiguous. The two Steves (or is it Stephes) have an answer. Their web site provides a coin flipping service. The argument is that if a decision is a close call, and you must decide you might as well flip a coin. On their site you have the choice of a straight flip or
a best of three. A good exercise is to see if you can express a preference before the coin flip - you are being prompted to see if you are truely undecided. The same exercise should be repeated after the flip: are you satisfied or do you really wish it had gone the other way?

I tried it on the vexed question of whether I should be sucked into this ever rising market. I cheated for I already knew my answer. I have decided to be in there. At present nothing is upsetting the apple cart so I have decided to go in, admittedly, with trepidation. I am also ready to withdraw at a moment's notice.

My preference is for shares that will make money over days or a couple of weeks, at most. And that means that UK shares are more or less out.

My US picks are as AAV AXAS  PXLW PAM and ENSV. They come from the El Cheapo's Unisearch in Vector Vest. This has been throwing up winners recently. It looks for shares below $10 that offer excellent value for money, are low risk and the price has been moving upward on a relatively smooth trajectory.

In the UK I have bought a substantial holding in JII. This is an investment trust that specialises in the Indian market. It has done well since the election of a new right wing prime minister who promises to emulate the Chinese model for economic development. I may not agree with all Mr Modi's political stances but he has stated aims of improving relations with Pakistan and fighting corruption. Lets hope he succeeds.

Thursday, 5 June 2014

Sitting on my hands again

Now that I'm back my mind focuses on the 76% of my funds that remain uninvested. At the beginning of my financial year on 6th April only 19% of my funds were invested. All of the increase to 24% is due to the performance of the invested part of my portfolio. Haven't I done well!

And now I begin to think: what can I do to put the remainder of my money to work? If I had put all of my available funds into GVC I would comfortably made my target profit for he year. But I would have committed the cardinal sin: putting all my eggs in one basket. Share trading is an essentially unpredictable occupation. Nobody, and I mean nobody knows what tomorrow will bring. Never be sucked in by gurus who claim to know. They don't. I don't. I make best guesses and I act on those guesses.

Feeling sure is dangerous because it sucks you into making unwise choices. And putting all ones eggs in one basket is one of those stupid things to do. At present GVC accounts for 20% of my available funds. That is already very dangerous. Lets say, for sake of argument, that the share price halved. I would lose 10% of my portfolio. Not a happy prospect. Ideally I would never put more than 10% of my portfolio into any one share so that a 50% price fall would wipe out 5% of my portfolio. Painful but bearable.

Why do I feel so confident about GVC? PE and yield. When I bought the shares the PE ratio was not much more than about 6 and the yield was into double figures. Not only that but the management had a stated policy of paying out very high dividends as they generated cash profits. Those profits also allowed them to expand by buying companies for cash.

My view is that the risks involved in holding so much of my portfolio in that particular share are justified. However as the price rises the justification grows weaker. A cheap share becomes one with an average price tag. A time will come when I have to divest and look for opportunities elsewhere.

But I already have a problem looking for a home for all that cash. I have to keep reminding myself that this is a time of year when I lose money. Better to stash it and buy when the market feels less toppy.

Its hard to resist temptation when the market continues upwards. But I must remember that the crash, when it comes, comes out of a clear blue sky.

Nevertheless its hard to keep sitting on my hands.