October 20, 2012 at 11:59 AM EDT
Global Markets Going Into Next Week.
Saturday, October 20, 12 noon. The 50-day moving average has been getting some attention this week. Early in the week the bulls were pointing out that the Dow and S&P 500 had found support again at their 50-day moving average, bouncing off it in a big triple-digit two-day rally Monday and Tuesday. And even with [...]

Saturday, October 20, 12 noon.

The 50-day moving average has been getting some attention this week.

Early in the week the bulls were pointing out that the Dow and S&P 500 had found support again at their 50-day moving average, bouncing off it in a big triple-digit two-day rally Monday and Tuesday.

And even with the big plunge yesterday, they only pulled back to that potential support again.

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However, early in the week the bears were pointing out that yeah but, global markets overall, even factoring in the U.S. market, had broken down through the potential support at the 50-day m.a., and the big rally early in the week only carried them back up to the potential overhead resistance at the m.a.

And they say the decline at the end of the week indicates potential failure at the resistance and at a lower high.

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And next week, the 3rd quarter earnings reports that have been adding to the volatility will be pouring out in full force, with hundreds of companies scheduled to report. Again next week they include numerous potential market-movers, like Amgen, Apple, Boeing, Texas Instruments, 3M, UPS, United Technologies, etc., for the media to pick from as their focus stocks each day.

Meanwhile, are some global markets that have already endured severe bear markets finally bottoming?

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Subscribe to Street Smart Report to see what our indicators are saying about these situations.

Warren Buffett Exposed Again!

There was a chapter in one of my books titled ‘Warren Buffet – Market-Timer Extraordinaire’, in which I discussed the myth Buffett and Wall Street have created that Buffett is just an ordinary guy in Omaha that anyone can emulate. As everyone knows, he is famous for such quotes as “I simply pick stocks based on whether a company is one I’d like to own even if there were no stock market.” And “My favorite holding period is forever”.

No wonder then that investors have the impression that it’s an unbeatable and safe strategy to just buy what his annual SEC filings show he bought (usually several quarters earlier) and just hold them through whatever comes along. Too often when Berkshire Hathaway files its next report it’s discovered he no longer holds several of the stocks that were in the previous report.

The reality is also that far from being the unsophisticated aw shucks country bumpkin investor of folklore that anyone can emulate, there are few participants in the securities industry that could match the education, training, mentoring, and experience he has had from a very young age.

At the age of 11 he was already working at his father’s Omaha brokerage firm after school and during summer vacations. Upon graduating from college he entered graduate school at Columbia University in New York, where he studied under, and was mentored by, famed professor and market statistician Benjamin Graham. After graduating with a Masters Degree in Economics, Buffett returned to his father’s brokerage firm in Omaha for further experience for awhile, before returning to New York for a two-year stint as an analyst at Benjamin Graham’s highly regarded market research firm.

Back in Omaha with more economic and market education, mentoring, and experience in statistical research and market analysis at the age of 27 than most professionals gain in a lifetime, he launched Buffett Partnership, a limited investment partnership similar to today’s hedge funds. Its investors were primarily clients of his father’s firm. He managed that private fund with considerable skill from 1957 to 1969, amassing a sizable fortune in the process.

With exquisite timing, in 1969 this man who says he has no idea of how to time the market, closed the fund and returned investors money to them, telling them they would probably be better off in government bonds for awhile. That was almost precisely at the 1969 bull market top. He stayed away from the market until the major bottom in 1974, when in a famous interview in Barron’s he said “It’s time to start investing again.”

And he did, using Berkshire Hathaway, which he had acquired while out of the market and had used as a vehicle to buy out and operate private companies, as the holding company for his re-entry into stock market investments.

And he continued to exhibit exquisite market–timing abilities, raising huge amounts of cash when he thought market risk was getting too high, for example $50 billion in cash in 1999 just before the 2000-2002 bear market, and then after participating aggressively in the 2003-2007 bull market, raised $40 billion in cash in late 2005 as the housing bubble formed. But it was never admitted as ‘market-timing’, it was that, “I just can’t find anything that interests me right now.” 

So I found an article this week by Cullen Roche, Pragmatic Capitalism, titled ‘The Biggest Myths About Successful Investors’ to be quite interesting.

This is an excerpt:

It’s a widespread case of the Warren Buffett disease taking hold of Wall Street. I’ve theorized in the past that a horrible myth has overcome Wall Street. The Myth of Warren Buffett. This is the myth that you can beat the market by picking value stocks and just buying and holding. Just like old Warren does! Except, that’s not at all what Warren Buffett does. Buffett runs one of the most complex multi-strategy investment portfolios that exists in the world. It’s essentially a dynamically leveraged option writing, dollar cost averaging, active management, distressed asset approach.

Berkshire is brilliantly constructed. Buffett is the master of portfolio construction. What he’s not is the little old value stock picker from Omaha who just sips Cherry Coke and says “ohhh, that’s yummy, I think I’ll buy some of that!”. But that’s basically the pitch Wall Street has been sold and sold on to you. It’s the “We can all be like Buffett . . . . but really we can’t come close to mirroring his approach!”.

The point is, Buffett has a competitive advantage through masterful portfolio design. Most managers can’t say that. And that’s the biggest problem with Wall Street today. Too much myth chasing. Not enough real value add. It’s no wonder the ETF business is growing so quickly as investors slowly catch-on”.

By the way, even if you could you might not want to emulate Buffett’s activity any more. Performance has become a problem since Berkshire Hathaway became so huge. It’s difficult to move in and out of holdings as easily when the moves involve huge positions.

So his investors have had to endure heart-pounding big drawdowns that sometimes took years to get back to previous levels, currently not recovered to the 2007 level. 

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That’s probably part of the reason Buffett has moved so significantly into derivatives over the last several years, as a means of trying to hedge against losses from holdings that he can’t bail out of because of their size. This by a man who in 2003 said, “I view derivatives as time bombs, both for the parties that deal in them and the economic system: derivatives are financial weapons of mass destruction”.

Don’t misunderstand. I’m not putting down Warren Buffett’s history as a great investor, certainly one of the greatest ever, just the myth spread by the media. That myth is that investors do not need to learn much about markets or spend much time on managing their portfolios. They can emulate Warren Buffett’s success by simply buying value stocks all the time and any time, because the market can’t be timed, and holding them forever. But that is not what he does.

To read my weekend newspaper column click here: Gold Has Lost Its Glitter Again!

Subscribers to Street Smart Report: In addition to the charts and analysis in the ‘Premium Content’ areas of today’s blog, there is an in-depth U.S. Market signals and recommendations update from Wednesday in your secure area of the Street Smart Report website.

Yesterday in the U.S. Market.

An ugly day, the biggest one-day decline since during the April-June correction, with the market closing just about on its low of the day. Trading volume was fairly heavy at 0.9 billion shares traded on the NYSE, but higher volume is normal on an expirations day.

The Dow closed down 205 points, or 1.5%. The S&P 500 closed down 1.7%. The NYSE Composite closed down 1.4%. The Nasdaq closed down 2.2%. The Nasdaq 100 closed down 2.4%. The Russell 2000 closed down 1.9%. The DJ Transportation Avg. closed down 1.4%. The DJ Utilities Avg closed down 0.7%.

Gold closed down $22 an ounce at $1,722.

Oil closed down $1.93 a barrel at $90.17 a barrel.

The U.S. dollar etf UUP closed up 0.4%.

The U.S. Treasury bond etf TLT closed up 1.4%.

Yesterday in the Americas outside of U.S..

Argentina closed down 1.1%. Brazil closed down 1.4%. Canada closed down 0.4%.

Yesterday in European Markets.

European markets were mostly down yesterday. The Europe Dow closed down 1.1%. The London FTSE closed down 0.4%. The German DAX closed down 0.8%. France’s CAC closed down 0.9%. Italy closed down 2.0%. Russia closed down 0.7%. Spain closed down 2.3%. But Greece closed up 0.9%.

Global markets for the week.

A mixed week in the U.S. thanks only to the ugly final day. A very positive week outside of the U.S. Will rest of world markets catch down on Monday to Friday’s plunge in the U.S. when global markets were already closed?


THIS WEEK (October 19)
DJIA13343+ 0.1%
S&P 5001433+ 0.4%
NYSE8324+ 1.2%
NASDAQ3005- 1.3%
NASD 1002678- 1.5%
Russ 2000821- 0.3%
DJTransprts5082+ 0.8%
DJ Utilities483+ 1.7%
XOI Oils1,252+ 1.9%
Gold bull.1,721- 1.9%
GoldStcks186+ 0.5%
Canada12415+ 1.7%
London5896+ 1.8%
Germany7380+ 2.0%
France3504+ 3.4%
Hong Kong21551+ 2.0%
Japan9002+ 5.5%
Australia4593+ 1.8%
S. Korea1943+ 0.5%
India18682+ 0.1%
Indonesia4331+ 0.5%
Brazil58922- 0.4%
Mexico42386+ 1.7%
China2228+ 1.1%
LAST WEEK (October 12)
DJIA13328- 2.1%
S&P 5001428- 2.2%
NYSE8227- 1.9%
NASDAQ3044- 2.9%
NASD 1002720- 3.2%
Russ 2000823- 2.4%
DJTransprts5044- 0.1%
DJ Utilities475- 0.9%
XOI Oils1,229- 2.5%
Gold bull.1,754- 1.6%
GoldStcks185- 3.5%
Canada12202- 1.7%
London5793- 1.3%
Germany7232- 2.2%
France3389- 2.0%
Hong Kong21136+ 0.6%
Japan8534- 3.7%
Australia4510- 0.1%
S. Korea1933- 3.1%
India18675- 1.4%
Indonesia4311unchgd
Brazil59161- 1.0%
Mexico41665- 0.6%
China2204+ 0.9%
PREVIOUS WEEK (October 5)
DJIA13610+ 1.3%
S&P 5001460+ 1.4%
NYSE8384+ 1.6%
NASDAQ3136+ 0.6%
NASD 1002811+ 0.4%
Russ 2000843+ 0.6%
DJTransprts5046+ 3.1%
DJ Utilities480+ 0.9%
XOI Oils1,260+ 0.1%
Gold bull.1,782+ 0.6%
GoldStcks191+ 0.3%
Canada12418+ 0.8%
London5871+ 2.2%
Germany7397+ 2.5%
France3457+ 3.1%
Hong Kong21012+ 0.8%
Japan8863- 0.1%
Australia4513+ 2.4%
S. Korea1995- 0.1%
India18938+ 0.9%
Indonesia4311+ 1.1%
Brazil58571- 1.0%
Mexico41934+ 2.6%
China21840

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Next week’s Economic Reports:

Next week will be an average week for potential market-moving economic reports, including some important ones like the Fed’s announcement after its FOMC meeting, Durable Goods Orders, and the first report on 3rd quarter GDPTo see the full list click here, and look at the left side of the page it takes you to.

Meanwhile, the 3rd quarter earnings reporting period will continue with reports from potential market-movers including Amgen, Apple, Boeing, Texas Instruments, 3M, UPS, United Technologies, etc.

To read my weekend newspaper column click here: Gold Has Lost Its Glitter Again!

Subscribers to Street Smart Report: In addition to the charts and analysis in the ‘Premium Content’ areas of today’s blog, there is an in-depth U.S. Market signals and recommendations update from Wednesday in your secure area of the Street Smart Report website.

I’ll be back with the next regular blog post on Tuesday morning at 9:25 a.m.

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