Fall 2013 US Economic Prediction

I am beginning to convince myself that the US economy is headed for a 3-5 year window of high sustained growth. Here are a few reasons why:

Recall that 2008 was the last year that people with terrible credit could obtain easy housing credit. 2008 + 5 is 2013, which means that this is the last year that banks have to deal with uncertainty about large numbers of borrowers with cheaper 5-year Adjustable Rate mortgages going through foreclosure. The orderly winding down of these toxic assets will enable local and national banks to open up their reserves for legitimate business lending more freely.

Also, competition for high-tech workers is really heating up in the job market. I'm getting the kinds of unsolicited phone calls and emails I got back in 1998 and 2005. Yes, this portends a future bubble-burst, but one that is several years out, with the actual, you know, bubble, in the meantime.

Finally, the stock market has shown uncanny resilience in the face of multiple fiscal crises from Washington over the past 10 months. The right kind of stocks are heading in the right direction: temporary worker companies like Manpower and for-profit education companies like DeVry.

(disclaimer: I don't have any financial interest in either of the stocks mentioned except perhaps accidentally via my employer's 401(k) benefit)

New Year's Eve - Or Is It?

We Interrupt This Holiday To Bring You A Special Announcement:

The calendar is a useful fiction, meant to serve us - not to be our master. In fact, the earth is not exactly where it was 365.25 days ago, because the Sun is also falling through space as is the Sun's star cluster and the Milky Way itself. It is not December or January or 2012 or 2013. It is "Now": the only time you will ever have.

Two immediate practical consequences of this observation are: You don't ever have to put your life on hold, waiting for a date on a calendar to come around in order to have a new start. And, you're always only as old as you feel you are.

You may now return to your celebrations with the people you love who imagine there are weeks and months and years to pay attention to.

Fall 2012: Prelude To Recession

In my opinion, the U.S. economy has begun a slide into probable recession. This prediction is based on a technical reading of the major stock market averages (Dow Industrial, Nasdaq, S&P 500) as well as analysis of several recent shocks to our economic system. I have "called" these economic movements in the past and occasionally been correct about them. I want to give you, the reader, an opportunity to understand what I'm seeing, so I will use this blog to explain the analysis that happens behind the predictions.

In stock charting, we don't just show the price points making up the chart. We usually also draw a line on the chart showing the average price of the last 50 trading days. Additionally, we draw a 200-day moving average. Taken together, these moving average lines depict the longer-term direction of the price that is being tracked.

In a healthy stock market, the prices of the major indexes stay above their 50-day moving average lines (and the 50-day moving average lines stay above the 200-day moving average lines). This indicates the price is increasing and its long term trend is upward.


Thanks to stockcharts.com

Here is a daily price chart of the S&P 500 Index from late May 2012 to the date of this blog post. We have healthy behavior in portion 1, within the green circle, where the daily price lines are moving upward above the blue line, which is the 50-day moving average line.

A few weeks ago, in portion 2, (yellow circle) we have a warning indicator. The daily values have dropped below their 50-day moving average, but they are still above their 200-day moving average. Stocks and indexes occasionally bread down below their 50-day moving averages but then recover above them. That is not what has happened here.

A few days ago, in portion 3, (red circle) we see a serious warning that the S&P 500 index may have begun a longer-term downward trend. The daily values have crossed below their 200-day moving average. Notice that the index has remained below the warning level for several trading days. The Nasdaq 100 and the Dow Jones Industrial average are both also below their 200-day moving averages and have been there several trading days longer than the S&P 500 index has.

so we start with the facts - reality - the three major indexes have all fallen into the danger zone, and have not recovered so far. To be sure, there have been occasions in the past when they all crossed below the danger thresholds then recovered back up into healthy territory. On the other hand, every recession in this country dating back at least to the Great Depression, has been signaled by the major indexes of the day slipping below their 200-day moving averages and not recovering.

In concert with the stock market danger zone, we have: 1) the "fiscal cliff" of tax hikes and federal spending cuts looming, 2) continuing uncertainty regarding solvency in Europe, 3) a recent swell of unemployment due to the destruction from Hurricane Sandy, 4) thousands of troops returning from foreign wars also joining the pool of the unemployed, and 5) Atlas Shrugged - in the form of pissed off Republican business owners retaliating for four more years of Barack Obama by cutting hours and positions to protest what they see as a slide into Socialism.

A deal on the fiscal cliff would certainly give a positive jolt to the economy but it remains to be seen whether that, alone, would provide enough impetus to restore it to the path of slow, gradual growth it had been on prior to November.

Fall 2009: Stock Market Likely to Decline

If you have exposure to the stock market, you may want to dial it back to a money market fund or cash. Both the S&P 500 and the NASDAQ composite indexes pierced below important levels of support today. (their 50-day moving averages) This often happens when the market is going to decline for a period of time.

All in all, not a terrible run since March when the market turned positive: a 58% increase for the NASDAQ and a 45% increase for the S&P 500.

Several companies declined sharply this week after reporting earnings that just barely missed estimates. Some declined even though they beat their earnings estimates. This is typical behavior when the market is turning south, when even good news is not enough to keep stocks moving up.

I have sold all the stocks in my personal portfolio and am looking now for opportunities to make money on declines.

Remember - don't blame the government or your retirement plan company if you fail to keep an eye on your nest egg!

Not-As-Bad No Substitute for Good

After leaving my full-time job in September, my inital inclination was to immediately relocate to a faster growing city. This notion was influenced by two major hypotheses: 1) If I start a business, I want to do it in a market with plenty of demand for my products or services. 2) If I invest in real estate, I want to buy in areas where the rents will produce great cash flow even after paying for the mortgage, taxes, and repairs. Orlando has a lot going for it, but it's been hit pretty badly by our current recession. No. I reasoned that since I had nothing tying me to Orlando, I should select the best US metro area I could find, start from scratch there, and allow its rising tide to lift my boat as well.

A funny thing happened on the way to relocation-ville. As I researched cities according to their US Census Bureau growth statistics and monthly unemployment rates, I got a bit sidetracked from my primary criteria by the noise of the data. At first Atlanta looked attractive due to its high population growth from 2000 to 2008. When I discovered it had a higher unemployment rate than the national average, however, its luster faded. More recently, Austin, TX seemed promising due to its combination of high population growth and lower unemployment rate.

But digging deeper into Austin's data has revealed that while unemployment is lower there, it is still increasing on a monthly basis. "Slower slowing" is not the criterion I started with. I require growth. Data published on USA Today's website from Moody's economy.com shows that it may be well into 2011 before Austin or, indeed, any sizeable US city shows significant jobs growth. This correlates pretty well with our last recession: the market topped in 2000, it bottomed in 2003, and jobs began to return about 18 months later. In the current recession, the stock market topped at the end of 2007, hit bottom in March of 2009 and here we are, waiting for the jobs to show up again.

Let me mention why this is so important. Jobs are what fuel the kind of population increases that are attractive to real estate investors. As jobs grow and populations rise, people become willing to pay the kind of rental rates that can cover mortgage payments, taxes, and repair bills. Ultimately it is the prosperity of an environment like this that creates healthy growth in property values, since more and more people go for the dream of owning a home. On the other hand, when an area is simply losing jobs more slowly than others, you end up with less people in the area than there are rental units. Now your rental property is compared to others solely based on price and nobody wins in that environment.

My strategy remains the same. I will ultimately relocate to a major US metro area based on its growth in population and jobs. However, I'm not going to try to guess in advance which city that will be. I'm going to keep my finger on the pulse of the monthly data and allow candidate cities to emerge in their own sweet time. The second halves of recessions are like that: months and months of seeming inactivity, and then, POW, the heavens seem to open, corporate budgets are expanded, and jobs look like they're falling out of the sky.

A final note. I may yet relocate in the near term. But if I do, it will likely be because there was a better reason to hang out somewhere else during this current non-growth period of time than here in Orlando. I'll keep you posted.

Locking In the Gains of 1H 2009

I sold all of my stock holdings this week since my instincts tell me the market has decided to take a breather. The major indexes were down more that one percent two days in a row recently. (although on tame volume) The market has had a nice run up since mid-March, it's about time for it to digest its gains.

Here's how I did in this period: Shanda Interactive (SNDA) +24%, Net Ease (NTES) +34%, Chanyou (CYOU) +72%. (you read that right, seventy-two percent)

I'm half tempted to dig into my savings, fire my employer, and strike out on my own to seek fame and fortune. But I've gained just enough maturity to realize this would be a reaction based on the hubris of my recent market success. That success is about five percent due to my brains, ten percent due to my bravery in the shadow of difficult economic times, and eighty-five percent due to the fact that a rising tide raises all boats. The key was to get into the market when I did and let it do the magic it does when it is in an upswing. The brains part was noticing that Asian gaming stocks were some of the darlings of the spring rally.

Hubris-avoidance aside, I'm enjoying my day job. I look forward to the process of developing the online game that my team is creating. I intend to achieve the kind of satisfaction that only comes from collaborating with others to accomplish a challenging goal. It is not without relevance that the salary I'm drawing will help me save up additional capital so that I'm better prepared for my eventual - inevitable - enterpreneurial siezure. (as Michael Gerber calls it in his famous "E-Myth" books

Everybody - Back Into The Pool!

"People fear when they should hope and hope when they should fear." -Jesse Livermore

If you have investment money that you've pulled into cash or a money market account, consider putting it back at risk in the stock market. If you don't want to follow individual stocks, you could consider a no-load S&P 500 index mutual fund available through low-cost online brokers such as TD Ameritrade or Scottrade.

Stocks are now in a bull market and have been for about 3 weeks. This is not hyperbole, the fact is that the major market indexes have been climbing higher for the past 3 weeks. They have all crossed above their critical support lines (50 day moving average) and stayed above them with conviction. The past 10 trading days have been marked by the indexes rising on higher volume and falling on lower volume.

As I wrote in this article, it is very easy to miss what is happening today - now - due to fact that our news sources always lag truly current events. Pundits and analysts are still busy trying to decide which industry sector or government bureaucracy holds greater blame for last year's problems. (or greater credit for its triumphs)

I'm asking you not to get caught up in all that. Consider this an inviting you to take a closer look at the data for yourself, along with me, and make the decisions you may have delegated to others in the past. If you lost money in the recent bear market, do whatever you need to do to get the upset from that loss out of your system so that you can do today what is possible to make a better tomorrow.

Disclaimer: I do not currently work as a stock broker or professional money advisor. The views I have expressed are my own opinions. Investing in the stock market entails risk, including the possibility of losing all of your invested capital.

Market Update - Asian Gaming Stocks On The Rise

Analysts from Barrons to Forbes are asking the question, "Does the current uptrend have any legs?" Last week was marked by impressive gains in the Dow, S&P500, and Nasdaq indexes. Although Friday and yesterday were down days, partly due to uncertainty about the the Obama administration's intervention in the auto industry, the volume wasn't all that impressive. On the other hand, today's activity seems to indicate the market has digested the news and is continuing its recent ascent.

I am as concerned as the professionals about the specter of poor earnings announcements and higher unemployment projections for the second quarter. These dynamics could derail the current uptrend. However my stock investing mentor, William J. O'Neil, hails from a heritage whose only sacred mantra is, "Never argue against the market!". Therefore we say that the market is heading up because, well, it is in fact heading up. We can leave the wherefores and whys to the professional analysts while attempting to benefit from the facts of the matter.

One area of impressive growth of late has been in asian stocks that provide computer gaming/entertainment to that part of the world. This morning, I decided to load up on some shares in this sector, we'll see how that goes.

In case you're wondering how my market adventure into stem cells went, I have two words for you: "not well". But I learned a(nother) valuable lesson from Mr. Market about my own tendency to predict which industry groups will lead the market and when. Today's purchases were not about predicting, they were about following what is already leading. (which, when you boil it down, is the main difference between value investing and growth investing)

Seeds of an Economic Turnaround?

At this time, the American economy is in a downturn with a good bit of the popular press devoted to subjects such as the sub prime mortgage crisis, the low value of the dollar, unemployment, and the credit crunch. Yet, among the stories on reuters.com today:

* Hedge funds sell oil as ratio to gold narrows
* Gasoline prices retreat, could fall more: survey

And so the seeds of the next epoch of the American economy start cracking open beneath the soil.

It would be easy to miss this information. Most of the economic reports and opinions floating about (at any given time) are lagging indicators. They are based on the good or bad news of the last few months or even years. So it turns out that there's a reason why it always seems "darkest before the dawn". When a situation begins to change, we tend not to notice it because we are busy mentally processing the old bad news. The same holds true for good news too, which is why we also say, "Pride goes before a fall."

By the way, I'm not predicting a turnaround. The stories I mentioned above are merely seeds beneath the soil. They could be wiped out by unforeseen events even before they have a chance to sprout. I'm simply pointing out that since nothing ever stands still, it's useful to pay particular attention to what is presently happening if you wish to develop independent opinions about current events. And possibly even profit from them.