Click chart to enlarge The chart above is a weekly chart of the Dow (each bar/candle represents 5 trading days). We started buying some DDM (about 10% of our portfolio's worth), otherwise we're in cash and have been for some time. The Dow is in virgin territory on the downside and set up for a real crash. While the potential for disaster is clearly outlined by the horrible technical condition of the market, the odds favor a bounce when the Dow reaches the bottom of its channel.
We would NEVER buy a downtrending stock trading below its downtrending moving average because 95% of the time it is a losing proposition. While the Dow is currently in that exact technical position, we are willing to buy the Dow for the long term for obvious reasons. We are looking to add to DDM as the Dow falls, but are still being very cautious because it is from these extremely precarious technical positions that real market crashes happen.
We are not interested in investing any more than 20% of our capital if and when the Dow reaches the bottom of its channel at approx 10,300. It is only if it crashes below that (by a substantial amount - 1500 points in a day?), that we would back up the truck. You can actually look at the Dow in terms of its percentage below its 200dma and get a pretty good idea of where it should stop free-falling. 10,300 is just a rough guess based on a quick trendline.
Of course if something as dramatic as a real market crash were to happen, curbs would kick in, the Fed would cut by a full point and a bottom would be put in. The next day would see a 1,000 point rally. Until then, we're just nibbling on the Dow as it drops.
As an aside, we see a good short candidate in GM. Despite its recent fall, the chart is amongst the weakest we've ever seen.
30 comments:
Hi Snot,
You have repeatedly saying that real estate is now a good time to get into as investment.
Should we at this time, still crashing go buy property that have lost most in value which are far from the main city or the strong area that is much closer to the city and hisotrically price had hold up but did not drop as much?
I live in Southern Californai.
The property that dropped most in value are avg 60% off their height, the one that are strong are about 30 to 38% off their height.
Thanks!
It is a good time to buy real estate because we have the rare combination of lower prices and lower rates. It may get even better, as you suggest, but it really doesn't matter. There are always deals to be had if you shop around. We like to stick with the more desirable (in your example, closer to the city) real estate. We recommend buying raw land if at all possible, because the maintenance is nothing, and the taxes on raw land are extremely low. We suggest placing lowball offers on 20 or 30 properties after doing your due diligence on them. All you need is for just one of them to accept, and you've gotten a great deal. There is nothing to lose by placing a very low offer.
Right now, time is still on your side. If anything, rates may be headed even lower. If the market starts to crash, we may get a suprise 100bp cut.
It is in our opinion that everyone with some money to invest should be keeping their eyes open for bargains in their local real estate markets, and making offers that they know they cannot lose on. There really is very little stress associated with owning a tangible asset regardless of what the market does. A rental property is nice, but raw land is really the way to go.
I agree with Snot, but offer some caveats. I have been in real estate as a broker, investor and developer for over 25 years and have invested all over the country. I sold everything (land and rentals) as the market peaked and am only holding an apartment complex now.
Now I am spending most of my time figuring out how to be a swing trader and am having a mediocre time of it but am working my way up the learning curve nicely.
Anyway, the problem with buying real estate right now is that there are some screaming deals out there but be prepared for your investment to be dead money for a while. I prefer to wait longer, not necessarily to call a bottom, but until signs of life start emerging.
Raw land is great, but you have to be a little more savvy and you have to go all cash, which may not be feasible for many. You won't find much raw land near the major cities of SoCal, a market I know extremely well, since most of the basins have been filled in. If you go a little further out into the really hard hit areas (ie Antelope and Victor Valleys), the pickings will be good - but it will take longer to come back. The taxes on raw land are not lower than any other type of property. In most states it is adjusted in proportion to what you paid for it. The nice part is the low maintenance - although I have had to do some clearing for fire hazard purposes.
The average investor with a day job always will be best served with rentals - homes and condos. You can get in for less money and you get the excess tax writeoffs that you do not get with land. Not to mention the benefits of leverage which compounds your returns when the market goes up. I know leverage is a dirty word now but rental markets are good in many areas. Yes, you have the hassle of tenants, but it's a trade-off. Finally, if you absolutely have to sell, selling a home is a little easier than raw land, all else being equal.
What Snot said about putting in a lot of lowball offers is a great idea in this market. Start doing your research now, and over time you will be that much more knowledgeable.
So Snot and AK, do you guys recommend any state/location that's good for raw land investment now? Greatly appreciated.
Snot, how come you didn't buy FXP knowing the DOW is breaking?
Thanks for the replies!
AK, which part of Los Angeles, Orange, riverside area are good for the earliest bounce and are strong desirable market?
Anyway to avoid more taxes if I do it as investment and also as a rental after I sold it for a profit?
also which one is better investment at this time or say half year later, House or Condo or town house or apartment?
Is that the silhouette of The Four Horsemen Of The Apocalypse on the horizon???
I wonder if C.L.arke now understands why everyone was talking about Capitulation Day a few months back.
VIX at 42!
>>I wonder if C.L.arke now understands why everyone was talking about Capitulation Day a few months back.
Do you think it's capitulation day today, or more pain to come?
The market needs to hit a bottom on its own. Not with the help of some ridiculous bit of manipulation by the PPT.
If the market wants to go down and they intervene to prop it up, they are only making things worse.
Today wasn't Capitulation Day. You'll know it because you'll have to clean the puke off of your keyboard.
If tonight's meeting between Hank, Ben & House leadership doesn't result in a strong pre-market announcement, tomorrow we may see what a Capitulation Friday looks like.
Otherwise I agree; this latest bailout will only prolong the inevitable.
All of these bailouts have just helped us avoid an all-out crash. They haven't done anything in terms of preventing the market from going where it wants to go. If the market wants 8,000, it will get there. The Fed will just make sure that doesn't happen in a single day. It's amazing when you think that BSC, FRE, FNM, MER and LEH no longer exist, and the market is only down 3000 points.
We're just hoping for another rate cut (for purely selfish reasons). All these other bailouts don't help us any. They just make it a lot harder to trade.
So that's what is on my keyboard.
Oh, BTW, Clarke made money on that sort-of-something-like-a-capitulation day. He wuz short. How many of you made money that day? I didn't. I was too busy cleaning my keyboard.
Should we have more real estate talks since we are mostly sidelined from stock?
yes, I'm also interested by raw land investment. Snot & AK - do you have any areas on your radar? Can you give an example of good deal, in terms of $$$/area ?
Snot.
Create an entity to deal with bad debts, similar to what has been done in the savings and loan crisis of 1980 Resolution Trust Corporation (RTC)
And new measures to protect investors from the sale to the naked call (naked selling )................... could prevent the fall of dow in the medium term?
greetings.
Yesterday it seemed like we were finally headed for Capitulation Day but that's been given a rain delay. I agree with Snot that the DOW will go where it wants to go, and yesterday I was convinced that it wants to tap 10,000.
If yesterday would've been allowed to run it's course we might have got there by today or Monday.
Now we'll get a firestorm of an overreaction bear market rally and have to wait for (how long?) for it to get there?
Sold all DDM at 61+ this morning. Wasn't planning on selling, but we just tacked on 800 points in two days... way too much too soon. The Dow is getting closer to its moving averages, and we don't want to own it there. Looking to reload if we tank again.
We're 100% cash for the first time in a while.
I need some advice. I am short ALL (allstate) i got caught in the upswing yesterday and this morning. I could not even get on my brokers site this morning. ALL is on the no short list. As of this moment I am down about 11% should I just eat that or hope there will be a drop in the 10 days left before I have to sell it? At least that is my understanding....Also what are peoples thoughts on UYG. Even though it is up about 18% at the moment. I am thinking there may now be a continued updraft on all the finacial stocks for at least a week or so.
Looks to us like we've just kissed goodbye whatever remnants of free-enterprise we had left before today. Cheers!
Agr8gem57
Per Newswire from Ameritrade streamer, 9/19/2008 @ 11:25 AM:
Bethesda, Md., Sept 19, 2008 (Business Wire) - Due to the emergency action announced by the Securities and Exchange Commission on September 18, 2008, temporarily prohibiting short sales on certain financial companies, Short Financials ProShares (SEF) and Ultra Short Financials ProShares (SKF) are not expected to accept orders from Authorized Participants to create shares until further notice. Unless notified otherwise, shares will be available for redemption by Authorized Participants as normal. The shares of these ProShares are expected to trade in the financial markets today, but may trade at prices that are not in line with their intraday indicative values.
SOURCE: ProShares
Media: Hewes Communications, Inc., Tucker Hewes, 212-207-9451, tucker@hewescomm.com
Copywright Business Wire 2008
Just a guess, but ALL should come down a bit more. Like the Dow, it's a case of too much too soon. This intervention thing does make it very hard to trade, though.
Agr8gem said it best... we don't have a free market in this country.
Snot I have been watching from the sidelines for months now, I'm afraid this market is due for a once in a lifetime crash. When the government starts dictating what you can and cannot do we are in trouble. You can kiss you freedom of speech and other liberties goodbye. I am afraid this is but the first step down the road to oblivion.
Andrey,
C.L.arke made nice money shorting metals, Ags, oil and airlines etc. when you were still calling for another iteration in oil. Infact, he made the call on July10th, go take a look. He even caught yesterday's upmove perfectly. He is even scared of his own accuracy of late.
While you were asking on the 18th if there was capitulation on this board, C.L arke made huge money on SSRI, shorting the dollar.
I guess one should care about one's own hedge fund.
I should have addressed the previous post to "anonymous".
Infact, if you have read my blog late august, I even said we won't go all the way to the 200d in that iteration. And that the situation would be similar to a january - march decline.
Finally, if you think markets "crash" so late in a bear market , you are playing against probability. Can you terrorize the scared - maybe. Can you ambush him - sure.
"AK, which part of Los Angeles, Orange, riverside area are good for the earliest bounce and are strong desirable market?"
"which one is better investment at this time or say half year later, House or Condo or town house or apartment?"
"do you have any areas on your radar? Can you give an example of good deal, in terms of $$$/area ?"
I don't want to talk too much more real estate on Snot's board but here goes:
If you are asking questions like that, you may not be ready to invest your hard earned money in real estate. You need to do your own research. I would recommend the following:
- join a real estate investors group in your area. You can find many at www.nationalreia.com in the "find a REIA" link. There are many experienced investors in those groups, in your own area, that you can talk to and get a feel for specifics. After attending a few meetings you will begin to learn what the better areas to invest in are.
- go to www.realtor.com. Put in any city or zip code and you can search listings anywhere in the US. I use it all the time. You can use it periodically to gauge how fast prices are changing and what areas may be in your price range. But try to stay in your own area or areas you visit frequently, it's common sense. There are many other sites like Zillow etc that do pretty much the same thing but have different bells and whistles.
There are many areas now that are on my radar. I like sunbelt areas in general because long term the population flows are going there and businesses are following them (and I hate cold :-)). Also, the closer you are to major work centers is always a big plus - but I've made money in resort areas when the timing was right.
Bottom line - what I like may not fit your investment parameters. You have to do your own research and eventually you will get that "aha" moment when you are confident enough to invest wisely.
Hey Hal! Good to see you're still around. "Sidelines" best describes our trading lately. Only when something major happens (like this past week), when the markets get a little out of whack (on the downside or upside) is it worth pulling the trigger on anything. We would love to see the Dow rally strongly to the 200dma so we could back up the truck with confidence on DXD. At this point, we just can't justify owning anything. These are truly scary times, not in their magnitude, but in the sense that there is no time frame for a recovery. It is plausible that 3 years from now, we are still struggling to get out of a stagnant economy. That's the part that has us on the sidelines. The magnitude (failure of major investment firms) is not the scary part of all this.
We figured that after its S-curve was complete that OIL's sharp drop was definitively over, but today's move is just ridiculous. We're curious to see if today's $25 gain for oil will be reflected at the pumps, adding to an already grossly inflated number. If so, expect increased pressure on the Dow, which is directly correlated to inflation indicators, such as the price of commodities.
We're at 13.2% inflation this year, but who's really counting?
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