The Adens cautious on current corrections

By Peter Brimelow, MarketWatch
The Adens recommend holding current positions but preparing to sell. Overall, they're distinctly more cautious than when I last looked.

On stocks they write: "The major trend identifier is at 8,965, and if the Dow were to decline and stay below that level, we'd recommend selling. For the other stock indices, their major trend levels are at 952 for the S&P 500; 1,840 for the Nasdaq; and 3,460 on the Dow Transportations. So you'll definitely want to keep an eye on those numbers this month."

The Adens believe that record global debt levels will inevitably translate into hyperinflation, but they also have great respect for the authorities' ability to stave off the inevitable. To gauge how this conflict is playing out, they watch long-term interest rates.

They write: "Bond investors aren't stupid. They see what's going on, and they're moving toward the exits. ... How will we know when it's happening? As we've often discussed, the 4.65% level on the 30-year yield will be our guide. This 80-month average is super long-term and it identifies the mega-trend. If the bond yield rises and stays above that level, it will mark the final confirmation that big inflation is coming, the decline in rates that began in the early 1980s is over, and interest rates are going much higher for years to come."

The Adens' current take on gold: They say that what they call the "C Wave" -- which carried it above $1,200 -- is over, and a "

3 stocks for a stock picker's market

3 stocks for a stock picker's market
The recent rally is impressive but historically not surprising. The Fed's money printing continues, and investor risk-taking has resumed. This all calls for caution.

[Related content: stocks, technology, Bill Fleckenstein, software, wireless]
By Bill Fleckenstein
MSN Money
Given the recent market gyrations and the sloppy and weak trading, I thought I'd home in on the action and examine what clues, if any, that action might afford.


How long can the market rally last?
Heading into earnings season, I expressed my belief that most companies were set up to win at "beat the number," which they did. What I was curious to see was how the market would respond, and, in essence, the good news was sold.

Thus I think there's a decent probability that we'll go into some sort of trading range for a while. Whether that turns out to be for a long while or becomes the start of a top, I don't know.

If we do slip into a trading range, I would be somewhat shocked if that resolved itself with a big move to the upside, though given the money printing that continues, I wouldn't rule out that possibility. Consequently, although I am open to the idea of looking for stocks to short, I intend to be extra-cautious.

Right now, I have no reasons to take short positions other than the macroconomic ones, including debt and unemployment, that I've written about before. That backdrop aside, the monetary backdrop is not conducive to shorting stocks because of all the money printing going on.

Even if the market turns out to be rangy or exhibits somewhat of a downward bias, it's possible, in light of the money printing, that some stocks will do OK to well while others will do OK to poorly.

Buying in single packages, not bulk
Thus my long positions in a few non-money-printing-beneficiary companies -- e.g., Microsoft (MSFT, news, msgs), Novatel Wireless (NVTL, news, msgs) and Eli Lilly (LLY, news, msgs) -- as I think we could experience, for the time being, a market of stocks rather than a stock market. (Read "The trouble with techs right now" for more on Lilly and tech stocks in general. I also discussed this outlook in a recent appearance on CNBC; watch the video here.)

In other words, we might witness the evolution of a true stock picker's market for the first time in years, rather than the market's being essentially "all one trade," which has been my view.

We'll see how this plays out, but I thought it was worth introducing some of those ideas as food for thought.


Referring to the market rally of 1930, he points out that if that market could bounce as much as it did, with as little help as it got from the Federal Reserve and the government in terms of large stimulus, then it's no surprise we've seen the rally that we've seen.

His outlook for the market: It's just a guess, but he thinks it might face some tougher going early next year.

"It is hard for me to see what will stop the charge to risk-taking this year," Grantham wrote. "With the near universality of the feeling of being left behind in reinvesting, it is nerve-wracking for us prudent investors to contemplate the odds of the market rushing past my earlier prediction of 1,100. It can certainly happen.


"Conversely, I have some modest hopes for a collective sensible resistance to the current Fed plot to have us all borrow and speculate again. . . . My guess, though, is that the U.S. market will drop below fair value, which is a 22% decline (from the S&P 500 ($INX) level of 1,098 on Oct. 19)."

In summary, Grantham believes there is unfinished business on the downside, though he does not think we need to make a new low. His road map seems to be not terribly different from what my current thoughts are. Perhaps that means some variation of that theme will play out -- unless it doesn't.

Windows' 7th heaven
In Microsoft's earnings report last week, the company did far better than most people expected. Even though I was thinking Microsoft might possibly do a bit better than expected, I was surprised at how much better it did. What it will accomplish over the next year or so is pretty much ordained, though.

When you think about the fact that 40% of revenue is derived from a product that for close to a decade has basically been a dry hole (that being the operating system) and that now the company has a really fine product release (Windows 7), you can see how the future looks bright. (Microsoft is the publisher of MSN Money.)

Video: Bull market or bust? Fleckenstein's view

But when you add in that all of Microsoft's major products will see new versions released in the next year and that the company has some interesting new products as well, coupled with the fact that it has cut expenses, I believe Microsoft can do well regardless of the world economy.

Obviously, if the economy is strong, that will benefit the company, but if it's not particularly strong, the company will still do just fine. So, barring some stupid upside move in Microsoft, my ownership of that stock will probably be on autopilot for the next year, though I might have to change my mind down the road.

It has been amazing to me to watch the "dead fish" trip over themselves to avoid MSFT over the past year. I just wish I'd been even bolder when I first started talking about Microsoft a year ago, when it was half the price it is today. Of course, that's the way investing usually is. You never own enough of the winners, even if they look like reasonably safe layups.

At the time of publication, Bill Fleckenstein owned long positions in Microsoft, Eli Lilly and Novatel Wireless.

A tech stock to own now

A tech stock to own now

You may know this company for its stock that soared, then collapsed. It won't ascend like a rocket again, yet it should hold plenty of appeal for conservative investors.
[Related content: stocks, technology, EMC, earnings, Jon Markman]
By Jon Markman
MSN Money

If you tweet or use Facebook, e-mail or instant messaging, you are to blame for creating the largest pile of permanent waste in the history of mankind. Nice going.

Never mind that your messages are ethereal wisps of digits and electrons and that 99% of them are useless a few seconds after they are created. They are 0s and 1s that will be stored on some disk drive somewhere whether you want them or not, ready to be retrieved by your grandkids, prosecutors and historians for all eternity.

A slew of companies have emerged in recent years to manage all of this digital excess, but one stands head and shoulders above the rest. And, amazingly, it is what investors call a "fallen angel," a once-great outfit that has fallen on hard times and yet has the capacity to rise again.

That company's shares may be the one stock that conservative investors need to own for the next few years, particularly those who are a little shy about the rapid recovery in share prices and the uncertainty of the global economy. Its value is already so bombed-out that everyone who wanted to sell it has fled, and now it's owned mostly by new investors who have taken a shine to its slightly scuffed appearance and are ready to dream again about how great it can be.

The company is data-storage specialist EMC (EMC, news, msgs), and I know it's going to be familiar to a lot of people, for good and for not-so-good reasons. Here's why it's so notorious, and why it is such a good bet now.
'90s nostalgia
During the 1990s, which I believe we are about to repeat, EMC shares put in one of the greatest advances in market history. The stock rose 65,450% from January 1990 to December 1999. Ten thousand dollars invested at the start of the decade was worth $6.5 million at the end, if you'd had the foresight and patience to keep it through booms and busts. Which, let's face it, would have been tough. I don't know about you, but every time I have a 10,000% gain, I feel like taking profits.

What happened next at EMC was not a unique story. Excessive optimism crept into entrepreneurs' animal instincts, so new competitors crowded into its space with lower-cost offerings, and the ensuing price war crushed its profit margins. EMC, which was always known to have one of the best sales forces on the planet to go with its great product offerings, managed to annihilate those latecomers with brusque dispatch, but the damage was done: Once the pricing genie is out of the bottle, it's almost impossible to stuff it back in.

So after that amazing decade, EMC shares began a breathtaking collapse. And now, the once-godlike stock has tripped on leaden feet to fall 80% since the start of this decade. At the stock's peak, expectations got so out of whack with reality that investors were willing to pay more than 100 times earnings -- a superhigh price-earnings multiple of 125. But in the multiyear collapse, those expectations dwindled into a pit of despair, until the P/E multiple hit 10 in February. It's now around 18, based on my estimate of next year's earnings.

That is very cheap for a company of this caliber with potential to grow 20%. You see, companies such as Procter & Gamble (PG, news, msgs) get a forward-looking P/E of 14, and the detergent maker is not going to grow much more than 5% next year, if that much.

EMC may be tarnished, but it has already begun to sparkle a little bit in a few corners. What will make it worth your hard-earned dollars over the next few years?

Expectations are still fairly low, which is always the key to future success in the market. Most analysts expect the company to earn 84 cents a share next year, which would amount to fantastic 32% growth over 2009. But I actually think that's too low coming out of a very low base and that the company has a very good shot at earning $1.10 a share next year.

Growing again, steadily
Here's why EMC will grow: All indications from the marketplace suggest the company enjoyed a very solid September with its elite roster of Fortune 100 customers with stiff data-storage needs, which will allow it to report better-than-expected results Oct. 22. And reports from the field also suggest that the current quarter has already started off with a bang, as customers are finally loosening budgets that were severely tightened during the recession and replacing old equipment with the technology that will permit improved retrieval of every work, play and medical twitch of your increasingly digital lives.

That's the long-term picture. Short-term results will be driven by better gross margins (net income before taxes) due to manufacturing efficiencies and a lower cost structure in the wake of head-count reduction of 7%, around 2,400 EMC workers. Analysts estimate that every 1% reduction in operating expenses results in 2 cents per share to the bottom line.

Both of these elements are important, but the biggest boost will come from better sales, because a company like this needs to keep innovating and creating more reasons for customers to pick up the phone and buy its equipment.

EMC has used the recent fallow period to become the leader in a niche called network-attached storage, which was just a small part of its business five years ago. It has since muscled its way past smaller rivals to become the top vendor, with 36% market share -- about 5 percentage points more than its top competitor, according to calculations from analysts at Broadpoint AmTech.

The majority of its revenue in the storage-area-network space comes from its high-end Symmetrix line, which provides companies with faster access to data because it utilizes solid-state drives with an industry-leading reliability promise of 99.999% -- known as the five nines standard.

And, finally, EMC has retained a large stake in VMware (VMW, news, msgs), a spun-off unit that sells the hottest infrastructure enhancement going for companies trying to save money today: virtualization software. Because most computer servers at companies normally run at a lousy utilization rate of 15%, this software allows them to get more computing power for less money -- the key selling point. VMware is virtually the only company that Fortune 100 companies use for this service, and EMC owns 83% of it.
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Skeptics will say that EMC has seen its best days and that growth will be modest going forward -- and I don't disagree. This is not going to be one of those stocks that rockets 100% a year over the next couple of years, like some of the recommendations I made earlier in the spring and summer.
Find top-rated stocks

Find top-rated stocks

But we're talking about one tech company that can still grow 15% to 20% a year and has the potential to see its price-earnings multiple expand by 5% a year because the need for storage is the only thing in technology that is truly growing exponentially. And that's thanks to all those tweets, Facebook posts, e-mails and instant messages that I mentioned a moment ago -- not to mention the Obama administration's lust to put all medical records in a digital format in the next half-decade.


Figure that EMC, now trading around $18 a share, can get back to about $35 over the next three years with any kind of tailwind from the improving global economy, back to where it traded in 2001. Its rivals IBM (IBM, news, msgs) and Hewlett-Packard (HPQ, news, msgs) have already made that journey, and as long as you keep creating data, it'll keep creating profits.
Fine print
Check out EMC's products and services here and here. Learn more about Broadpoint AmTech here. Learn about virtualization software here. . . . It's great to see the casinos charge back after their weak spring. On May 14, I recommended Las Vegas Sands (LVS, news, msgs) and Multimedia Games (MGAM, news, msgs) around $8 and $2.75, respectively. (See "In an economic desert, signs of life.") They closed Friday at $18.05 and $5.02. . . . For more ideas like this as the market rally progresses, check out my daily newsletter, Strategic Advantage (membership required).

At the time of publication, Jon Markman owned shares of the following company mentioned in this column: Hewlett-Packard.

Charts Will Save You A Fortune

These Three Charts Will Save You A Fortune
By: Tom Dyson
Contributing Editor
Daily Wealth

Published: October 5, 2009

Russell Napier, a well-known stock market historian, studied market tops and bottoms over the last 100 years and showed corporate bonds tend to lead the stock market by several months at important turning points.

When this bond fund starts falling, you should exit the stock market, but until then, you have a green light to speculate...

LQD has turned lower in the last four trading sessions. Please keep an eye on this chart. If it breaks below 103, immediately exit the stock market. A large decline may be imminent.

LQD isn't the only indicator I follow to track the health of the market. I also watch the British pound...



The British pound is one of the most important financial indicators in the world. Britain was at the epicenter of the credit crisis. It had a huge housing and mortgage bubble... even bigger than the housing bubble in the U.S. Britain also had a huge banking and finance bubble. In this bubble, London became the world's largest financial center. Finance represents almost 10% of Britain's GDP.

In other words, the pound is the perfect symbol for housing and financial excess. When the pound is rising, it means the pain is subsiding and the storm clouds are breaking. When the pound is falling, financial misery is increasing.

Here's the chart of the pound. On Friday, the pound broke down to new four-month lows.

Here's another bearish development. Commodities are falling in terms of gold...

Gold is a safe haven. People turn to gold when they're afraid of financial chaos. But when they're optimistic, people use more energy, eat more food, and live in bigger houses. These activities require industrial commodities like oil, copper, aluminum, and corn.

So the relationship between gold and industrial commodities is an excellent barometer of fear and greed in the stock market. When commodities fall against gold, there's fear in the air. But when they rise against gold, people are growing optimistic.

This chart shows the price of gold set against the CRB Index of commodities. This barometer led the stock market by three weeks in March, when the bull market started.

In September, the commodity-gold ratio broke down to a new four-month low. It hasn't made a new low for three weeks. But watch this one. There may be misery coming in the stock market if it makes a new low...

If you invest in the stock market, you need to follow the performance of these three charts. They're among the best gauges of fear and greed in the market. As their prices go, so goes the stock market.

Right now, these charts are hinting at a new downtrend. My advice, hold off on making new buys, cut your most risky positions, and tighten your stop losses.

-- Tom Dyson
Contributing Editor

Now if only I knew this then Rules to avoid a bear

Rules to avoid a bear
First is the fact that bad things happen in bear markets. The Sept. 11, 2001, attacks happened after a bear market was well under way. The Great Depression happened after a bear market had begun. The collapse of Lehman, Bear Stearns, Washington Mutual, Fannie Mae and Freddie Mac all happened during a bear market. The Nixon impeachment hearings that helped kill the market in 1974 happened during a bear market. So really, the first order of business is to avoid the bear.
This is easily done using one very simple timing rule that I have recommended often in the past, as it has worked for at least the past 60 years: Get out of the market when the Standard & Poor's 500 Index ($INX) ends a month at a level below its 12-month average. Don't return until it closes a month above the one-year average. Using this rule, you were out of the market after December 2007 at 1,468 on the S&P 500, and did not return until after July, at around 987. You're not out at the top or in at the bottom, but you still avoid a 32% collapse. If you want to get out and in sooner, with slightly higher risk, use the 10-month moving average instead; in the present case, you'd be out on Dec. 1, 2007, and back in on June 1, 2009.
Using this simple rule, the Lehman collapse was just a curiosity for you rather than a calamity. As for individual stocks, Clews' cane approach is less straightforward. You cannot buy right away, as panics are seldom over quickly. In most cases, you can wait at least a few weeks after an event that's large enough to break out of the financial news section onto the front page of newspapers, because you must wait for negative psychology to jar the shares of the most-admired companies out of the hands of suddenly frightened longtime holders. As a rule, my research shows that the stocks you buy should be at least 40% off highs immediately prior to the start of the emotional event.
Many famous companies fit this description in the two months after the Lehman collapse, and almost all are much higher now. IBM (IBM, news, msgs) fell to 40% off its pre-Lehman high at $72 in November; it's close to $120 now. Amazon.com (AMZN, news, msgs) was 40% off at $51 in October; it's around $80 now. DuPont (DD, news, msgs) fell 40% to $25.50 in November; it's around $31 now. Cisco Systems (CSCO, news, msgs) fell to $14.40 in November; it's about $21 now. Goldman Sachs (GS, news, msgs) dropped to $53 in October; it's $163 now. The 40% rule works in most cases of severe panics. Buying will feel so wrong at the time, but if you want to get well ahead of the crowd at emotional lows, you must accept the risk when others shun it.
No downturn on the horizon
I'm telling you this not to be a smart aleck, but to help you prepare for next time. And there most definitely will be a next time within our lifetimes. I do not think, though, that it will be as soon as the bears would have you believe. Every time that a 12-month-average buy signal has been given after a bear market of a year or more, the ensuing up move has itself lasted at least a year -- and more often three or four.

The primary reason: The government and central bank response to a calamity like the Lehman Bros. collapse and panic is typically so powerful and over the top that the monetary infusion cycle -- fiscal stimulus and superlow interest rates -- that ensues is much more persistent than anyone expects.

Robert Drach, a veteran analyst who has been researching these cycles for the past 40 years from his base in Florida, believes that the current monetary infusion cycle will exceed the last similar one that extended roughly from 1991-99. He's expecting that the major indexes will ultimately advance at least 450% from their lows, which would put the S&P 500 at 3,000 in the next 10 years. See you then.

The house that Jack built

The house that Jack built
Commentary: Time is on your side, Vanguard's Bogle tells investorsBy Chuck Jaffe, MarketWatch

On whether investors should be upset with fund managers, financial advisers or both:

"Defeat has 1,000 fathers. We really don't have much choice but to trust the investor to make his own asset allocation, with or without the help of a financial adviser. I don't think you can expect the fund manager to do it. ... Letting one fund manager decide for all investors how much to have in stocks or cash doesn't really seem to work for most investors. There are not many managers who can do it, for starters, but it's just impossible to know the needs.

"You have to be prepared to take the bad times with the good. There are a lot of good active managers who failed last year -- Longleaf, Marty Whitman {Third Avenue funds], Dodge & Cox, Weitz -- and if you are going to be with an active manager and have found someone who has the values you believe in and who is in the investment business and not the marketing business, then go with it but be prepared to lose one year out of three. I think most investors can't handle that; they are their own worst enemies.

"But advisers don't help this, I think. They hold a magnifying glass up to the worst of things. You say 'God I have to get out of here,' and they say 'Go now' instead of saying 'Stay the course.'"

an old forbes article on Irwin Yamamoto

Irwin Yamamoto: Maui Wowie Nikhil Hutheesing, 02.18.03, 2:00 PM ET


Irwin Yamamoto

Hawaiian born, Irwin Yamamoto, editor of the Yamamoto Forecast, doesn't like publicity, and he will give little details about the success of his newsletter. We do know that Yamamoto, 47, picks stocks from downtown Kahului on the island of Maui, and, according to Timer Digest, his market-timing signals were up 45% in 2002. His success, he says, comes from being a contrarian. As the threat of war with Iraq increases, many advisers recommend fleeing stocks and investing in gold. Yamamoto says to do the opposite.

Forbes: We are on the verge of going to war with Iraq, yet in your latest newsletter you recommend 100% investment in stocks. Why?

Sign up for Forbes' Free Investment Guru Weekly e-mail.
Yamamoto: Right now, everything is about the war. What do I think will happen? I think that it will either be a quick war or, at the very last moment, Saddam will go into exile. So I'm bullish on stocks because I think the market is overreacting. Look at what happened in the Gulf War. As soon as bombs started falling and the market sensed victory, there was a rally. I think the market is currently oversold--on a short-term basis. On a long-term basis, it is still pricey.

So you aren't a long-term bull, just a short-term bull?

Right. This won't be the start of a bull market, but rather it will be a significant, tradable rally. Current price-earnings ratios and book values are too high for a bull market to start. But because of short-term worries about war, the overhead resistance to stocks will be removed. So there will be a chance for profit taking.

When war isn't the overriding concern, how do you pick stocks?

I follow three indicators: fundamental, technical and market sentiment. In the beginning of January, my long-term indicator was bearish. But by the end of January, I changed it to bullish. I turned out to be right. Stocks were heading up until mid-January, then they began coming down. When we had that initial advance, I thought the rally wouldn't last, so I turned negative. I still think the market is waiting for war. But to take a longer view, the war factor has already been priced in and is largely discounted.

So give me some examples of what you look at before you buy a stock?

I look at technicals. Because of the fast decline in January, on a short-term basis the market is oversold. But even if there is no war, I think there will be a reflex rally, a technical bounce. Throw in the fundamentals. Once problems are removed, there should be a rally. Now consider sentiment. Everyone is saying not to touch stocks now. I go to the Borders bookstore here and check Barron's out on Sundays. It always correlates. During the dot-com bubble, the newspaper was always sold out. Everyone was buying, and you know what happened.

Now, because of the war, no one is interested in stocks, and there are plenty of issues of Barron's on sale at Borders. When I invest, my question is, "Have people heard any favorable news lately about this company?" If the answer is yes, I don't buy the stock because I would be paying a premium for it. So I look companies that are hated. I think brokerage stocks fit in that category.

Continued on next page

You are 100% in stocks right now. Which companies do you like now?

The companies I am buying I like on a short- and long-term basis. A.G. Edwards has a spotless reputation and no debt. It is a big regional brokerage firm and a possible takeover candidate. Also, along the same lines is Raymond James. Even if these two are not taken over, they can stand well on their own. I also like Walt Disney. The stock is close to its lows, and when there is a perception that the economy is recovering, advertising will pick up. I recommend Japan Equity Fund because if there is a recovery in the U.S., that will help Japan in terms of exporting goods to the U.S. Japan is on the verge of a major financial change. Once the news is out about the major restructuring changes in Japan and the cleaning out of bad loans, Japan's market will soar.

Playboy is another great buy. You won't get a free subscription as a dividend, but management has said that the next year will be a profitable one. The stock is worth $30, but you can buy it now for $9.50. Alexander & Baldwin is another company I really like. It has over 90,000 acres of Hawaiian land, so it's a great asset play. The stock yield is 3.5%--a great dividend, especially if it's tax-free. Then, Wall Street will be attracted. On a conservative basis, I think the stock is worth $35 to $40, yet it is selling at just $25. So you get the yield while you wait for the price recognition.

What about investing in oil, bonds and precious metals?

As a contrarian, I was into gold and oil when it was low. Remember, buy low, sell high. Oil is high, so I'm selling it. I think when the war starts, in the first hour or so the price of oil and gold will plunge, especially if it looks like it'll be a quick war. In the Gulf War, American markets were closed when the war began. The gold and oil markets continued to surge, but before the U.S. market opened the next day, oil and gold plunged in price because a quick victory was viewed.

As for bonds, right now, bonds are also used as a safe haven. But by the second half of this year there will be an economic recovery, so the multiyear bull market in bonds is practically over. Good news in the economy is bad for bonds, and soon people will think the economy can recover. Then, bonds will sell off, and people will move into stocks.

But many advisers take a different view. They think that gold shares should continue to do well, especially since the current uncertainties remain.

We are at the top of the gold market now. Uncertainty is favorable to gold, but it will be removed within a matter of weeks.

Yes, but gold was showing strength even before talk of war with Iraq. And there are many other factors that are positive for gold, such as weak currencies, the Fed's monetary policy and inflation pressures.

Before the talk of war, gold was going up because of supply and demand and the weakness of the dollar. But over the last month or so, many of the gains have been directly related to the uncertain situation with Iraq. So if things look good with Iraq, gold investors won't be worried about the recession or soft dollars. That's why I think the best opportunities right now are in stocks.

Thank you.

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