Apr

19

Almost Totally Right So Far - and Happy To Let The Market Be My Judge:

Let us look at what has happened in the markets since the FTSE overshot my 6480 target by about 35 points on Monday. But it peaked that day and it has not managed to hold above 6480 for more than two successive closes. It closed at 6449.4 on April 18, 2007. Such missed targets are common. The locals in a market will want to make the wise speculator not quite correct if he is foolish enough to make his stops too tight. That's why it happens. It might be called, I suppose, the bulls' last revenge! Figuratively, the animal is mortally wounded but still has enough energy left to kill the successful hunter who comes too near too soon.

A similar phenomenon characterized the last hour of trading on the Dow Jones today. Again, to put it figuratively, the blow to the heart delivered on February 27th mortally wounded the old bull. Yet it crawled back to its old high and then, tonight, in one final act of revenge, unexpectedly leapt up above where everyone expected. It killed off all the foolish gloating bears who'd come too near too soon. In other words it had put their stops too close to the market.

These figurative ways of thinking about the market may seem simplistic but they have enormous predictive power if used correctly.

So where do we go from here? In a word, down. The next three days, April 19th, 20th, and 23rd, will all see lower closing prices than the day before, on both the Dow Jones and the FTSE. This is the start of a major bear market which will last about three years and be the greatest one since 1929-32.

I, like many others and your esteemed self, am weary beyond words by perpetual bears that cry "wolf." Or should it be bear every other week? If I am wrong about this week, I am a fool and should never be taken seriously again. I am happy to let the market be my judge - and, figuratively, my executioner!

Janice Dorn writes:

My research (possibly incomplete and inaccurate) indicates that William Hutton is a pseudonym for a British geologist who bases much of his work on the prophecies of Edgar Cayce. He also calls on esoteric writings from Gurdjieff and Ouspensky, among others.

He is far from alone is this type of fear mongering. There are plenty of people who live and breathe this stuff as they prepare for apocalypse. The Association for Research and Enlightenment (with which he has been associated for 40 years and most likely founded) is based in Virginia Beach, Virginia. His mailing address also appears to be Virginia Beach. His webmaster, Jonathan Eagle, is the co-author of his book entitled: Earth's Catastrophic Past and Future. I should be so lucky to have a webmaster who can co-author books with me! 

Steve Leslie adds: 

I do not know who William Hutton is. I have no idea what his credentials are nor whom he represents if anyone or anything. He may very well be a very respected person in the financial world therefore I will withhold judgment. I wonder aloud where he did surface from and what his qualifications are. I suspect this is some sort of an incipient joke perpetuated by someone who is using the name of a former investment house in his name. I can see the subtle joke in that when E.F. Hutton talks people listen.

That said, I wish to express my view on his posting. I find his inflammatory comments entirely counterproductive and destructive. In fact, I warned this type of writing would spew forth directly around Feb 27th when the market took a very big hit. If one would like to read my column, you can find it on dailyspeculations.com titled Cowboy Up. I cautioned against listening to "nattering nabobs of negativism" who will try to rubber stamp themselves and their careers by predictions of cataclysm in financial markets.

I wonder what good possibly comes out of such grandiose and garish predictions. This reminds me of Joe Granville who built a career out of one grand call in the market, and spent the rest of his career losing money for people, or Elaine Garzarelli who in 1987 suggested there would be a major collapse in the market. She has since become less prevalent yet she still lurks in the background. There have been many comments over the years attributed to Alan Abelson and his constant harping about an overvalued market. This quintessential uber-bear who can brighten up a room just by leaving it specializes in schadenfreude. Ad an editor, who as far as I can tell has never managed money nor had any track record, he is a very flowery and entertaining writer and an interesting character but a crusty curmudgeon nonetheless.

I must say that I cannot recall whether he has ever made any money by owning stocks or if he was ever ebullient about the stock market or the United States economy or commerce in general.

Even Robert Prechter who when properly motivated can be quite a trader, and in the early 1980s won several trading championships on a national level, has been warning about a super bear cycle predicted by his work with Elliott Wave since the 1980s.

Of course, the most sanctimonious prig of them all is Warren Buffet. The Oracle of Omaha seems to have made so much money and has decided to give so much of it away that he sees no need for anyone else on the planet to make any more money that they should therefore acknowledge their pathetic lots in life and submit to a cold and heartless destiny of insignificance. I am hard pressed to recall a time when he proclaimed that it is a great time to own equities. He reminds me of the great college football coach Lou Holtz who could never find a reason why his Notre Dame football team could possibly win a football game, yet consistently stood atop the polls at the end of the football season.

Then there was the time, I went to a national conference in 1995 and attended a lecture by a very respected financial newsletter writer at the time from Montana. He was riding a crest of stardom. His views were that inventories were rising at unsustainable rates and the markets were extremely risky here and going forward. In his view, we were to enter a period of unstained growth and his predictions were that we were about to embark on a very bearish and cruel time in the market. Any casual student of the financial markets will remember that this was the beginning of the greatest stock market advance in history.

Now we fast forward to William Hutton. Here is an excerpt from his post here:

"So where do we go from here? In a word, down. The next three days, April 19th, 20th, and 23rd, will all see lower closing prices than the day before, on both the Dow Jones and the FTSE. This is the start of a major bear market which will last about three years and be the greatest one since 1929-32.

"I, like many others and your esteemed self, am weary beyond words by perpetual bears that cry "wolf." Or should it be bear every other week? If I am wrong about this week, I am a fool and should never be taken seriously again. I am happy to let the market be my judge - and, figuratively, my executioner!"

Now, I mentioned on Tuesday that historically the market tends to rally directly after tax deadline and the 5 days following the drop date are quite positive. This was based on historical numbers reaching back 13 years. I also espoused that technology tends to do well for the quarter following April 15th.

I do not know what the future will hold. It may very well be the stock market falls dramatically; we enter a phase where equity prices erode to levels approaching that of the great depression. It is possible. It is also entirely possible that a butterfly flutters its wings in China and this causes a hurricane and an ensuing tidal wave that wreaks mass destruction in California. I am sure that there are even numbers people who can tell us what the likelihood of such an event is. It is possible but not very likely.

At the end of the day, for the week and for the year it really does not matter what Mr. Hutton has to say. Nor does it matter much what I have to say or what anyone else has to say.

What matters is how one maximize the chance to make money in the markets, how we as investors can actually deploy our hard-earned capital with a positive expectation and yield, and how we utilize information profitably so our standard of living for ourselves and our family can grow substantially on a yearly basis. This is the greater good and the greatest goal.

Theories and anecdotal comments and worthless and useless. The proof is in the financial pudding.

So finally, I say to Mr. Hutton assuming he exists, in the words of Arnold Schwarzenegger, "You have been erased."


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