August 11, 2011- There’s Enough Money Around.

There’s Enough Money Around. Period.

Why am I bullish? ( Especially in the Philippine mining sector)  It’s because of only one reason.  — There’s enough money around that wants to be in the markets.  Period.

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Most of my readers will not be satisfied with that answer though.  People want lengthy reasons, with data, statistics and all the sh*t in the world. So okay, here goes: Equities are still better parking lots for your cash.  Yep. That’s the only reason why the markets rallied.  When Mr. Bernanke announced to the world that rates will remain 0 until mid 2013- markets went up 5-6%, though of course some short squeezing here and there, could have triggered the break neck speed of that rally.

Savings accounts pay 1% if you are lucky. The S&P 500 stock index pays a 2% dividend and many stocks pay 3% or more. Given the financial backdrop for U.S. corporations relative to the U.S. government, which do you think is a better investment; lending the government money for 10 years at 2.5% or buying McDonalds stock and collecting a 2.9% annual dividend? Investment capital will find its way to the best opportunities and even with slow growth along with the possibility of a double-dip recession, U.S. stocks will look attractive relative to other asset classes. (Reference: MarketWatch)

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I’ve been asked yesterday (exactly the short term low of our market) if it was time for them to sell their shares, since they’ve held them for the past 2 years and are still making hefty profits despite the massive plunges of the market.  How typical is it that the passive market participants always get the short term bottoms right?  Joshua Brown lays it out in a beautiful chart.

Remember this.

Smart Money. Institutional Investors. Public.

I do not wish to dish out several research studies anymore just to make a point.  You can google and read it yourself, or take my opinion as is, that smart money (i.e. corporate insiders, large majority shareholders of the company’s stock, corporate officers, directors etc) almost always are “immaculate” in their market timing.  David Einhorn even wrote a book Fooling Some People ALL OF THE TIME.  Why this is so- I don’t know, but it just is.

Oh, and just sharing this powerful buying I’ve been noticing (amongst many others)-  I’ve noticed a lot of institutional investors have been bargain hunting these past two days (August 9-10, 2011) on AGI – Alliance Global.  All foreign brokers seem to be net buyers for this company, at least from a short term’s standpoint.(Maximum holding time of 1-2 weeks) .  I’m not sure if I’m seeing what I want to see, or whether the data in front of me is telling me the foreign brokers are bullish with this casino (technical standpoint only).

In any case, I’d like to end my post with some great insights I’ve been reading from first rate bloggers in the US.

Here are a list of reasons that Capital Observer believes the current situation is different from 2008:

  • Credit spreads for corporations are relatively tight now. In 2008 spreads blew out to historic levels.
  • In 2008 companies were raising capital every chance they had. Today corporations are buying back stock.
  • In 2008 there were systemic issues after Lehman Brothers collapsed. The ECB seems to have Europe under control for the time being. There has yet to be  a Lehman Brothers.
  • Corporations are wildly profitable right now. In late 2008, when the collapse occurred profits had already imploded.
  • There are far fewer over leveraged corporations today.
  • While it certainly feels like there are forced liquidations occurring it does not seem like it is on the same scale as 2008.
So if you’re feeling bullish now, let me just give my most important reminders:

1.) Nothing is certain when you enter into any trade.  

Here’s what the top fund managers are doing: “Market sentiment was horrible, so we legged into the trade, nibbling as prices fell, entering the full position as prices began to rise, once the cascade of forced selling abated.  A few months later, we legged out of the position for a good-sized profit in bond terms.” – Aleph Blog

2.) Wait for the fat pitches and bet when the betting is good.

Like any good poker player, you wait until the odds are significantly stacked in your favor, and then you bet when you have the best of it. You can only have an edge on so many investments – the human capital required to know more about every company out there is impracticable and uneconomical. Stick to those areas where you have an edge, hedge against tail risks, and in my opinion, you should make out just fine.

– Distressed Debt Investing

3.) Happily, as Warren Buffett has pointed out, we operate in a “no strike” game, which is to say that we can let many pitches pass us by before swinging at the ball that comes right to our sweet spot.” – Dan Loeb 

4.)  I will say this: The range of outcomes has increased dramatically. And the tails are getting fatter. A prudent investor should understand that to win the race, you must actually finish the race. – Distressed Debt Investing

5.) Finally, In-depth information does not translate into in­-depth profits. – Dreman

– The Faceless Trader

 

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3 Responses to August 11, 2011- There’s Enough Money Around.

  1. spyfrat says:

    the beauty of parabolics is that the 5th or the last wave up will always be the talked about 🙂

    Like

  2. Adrian Vivas says:

    Hi, your poker reference in 2.) caught my attention. Do you play poker by any chance? Poker and trading are similar in many aspects and if you are interested in learning the game I’d be happy to teach you what I’ve learned. Send me an email anytime! Thanks!

    Like

    • Sure. I play poker too but only on a fun level. I figured there’s more money made in the markets haha. But yep, similarities with trading are a lot 🙂 I’ll go message you when I get back, and play perhaps. Will see.

      Like

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