Friday, October 31, 2008

Charles Nenner on Deflation, Commodity Stocks, and THE Market Bottom.

Bloomberg: Charles Nenner Sees Opportunity in Commodity Stocks: Video.

Note: To view the video, click on the link towards the right side, under the heading "Related Video and Graphics".

Sunday, October 26, 2008

Fear and Loathing in Closed End Funds.

Closed end funds are like ETFs (exchange traded funds) in that they are traded on an exchange like stocks, and are made up of a bundle of other securities. Closed ends funds are unlike ETFs in that ETF shares are created and de-created (for lack of a better term) each day dynamically as demand warrants. Closed end fund shares do not have this dynamic creation/de-creation aspect. The other big difference is that closed end funds often trade at discounts or premiums to their underlying asset value, depending on how the market feels. When everybody wants in, they tend to trade at premiums, and when there is less or no demand, they tend to trade at discounts, sometimes severe.

It's interesting to look at the premiums/discounts that closed end funds have traded at over time. Sometimes it can identify an extreme in market emotion that could signal a panic bottom.

Below I show a few closed end funds and their premium (+) or discount (-) from their net asset value. The data is from Barron's. Notice the extreme swings and readings on the week ending October 13, 2008. It's too early to call the exact bottom in the market, but based on these readings, and the way we traded on Friday (futures limit down, lots of talk of a crash, but a day turned out less feverish than anticipated) suggests the extreme panic point may be behind us.

Premium/Discount from Net Asset Value on Selected Closed End Funds.

BDV = Blackrock Dividend Achievers
BGR = Blackrock Global Energy
GUT = Gabelli Utility
APB = Asia Pacific Fund

WIA = Western Asset Inflation Linked
HIS = Blackrock High Income (High Yield)
BFK = Blackrock Muni Income


04-02-07 -6.3 -10.2 +18.6 -11.7 -10.3 -4.0 +16.4

06-30-08 -12.2 -15.7 +31.1 -9.6 -9.0 -12.1 +3.5

09-22-08 -17.6 -16.1 +44.8 -4.3 -14.0 -25.0 -7.2

10-13-08 -17.7 -23.4 -0.4 -22.2 -23.2 -38.1 -28.3 <-- Fear Itself

10-20-08 -12.0 -11.9 +41.8 -3.3 -14.5 -19.3 -6.1

10-27-08 -9.2 -13.8 +37.6 -13.4 -10.9 -19.6 -4.5

Unfortunately, it's difficult to make those line up very well.

Monday, October 06, 2008

The Panic of 2008 bottoms on Oct 14-15?

I see that Barry Ritholtz has come up with the moniker of "The Great Financial Crisis of 2008", but I personally like "The Panic of 2008" a bit better.

While there are certainly legitimate roots for some of the selling, it is now extending well beyond that into a pure financial panic that is spreading into many corners of the market and around the globe.

I highlight here a recent video from Charles Nenner, who makes market predictions based on history and studying various cycles. Why highlight Charles Nenner? Well, he has a pretty good track record of making market calls, including a call that 2008 was going to be a bad year and one that it would be very difficult to make money in.

Mr. Nenner is now suggesting that we may hit a cycle low around October 14 or 15th, but it's also very important that we hold the lows we made recently. Unfortunately, October 14/15 (i.e. next week) seems a very long way off right now, and it doesn't appear that we will hold the market lows. His work also suggests that oil will go back to new highs sometime in mid-2009. And if next week seems a long way off...

Charles see Fox News video at the top for his latest views.

Friday, October 03, 2008

When good (lefty) papers go bad.

When the New York Times starts bringing up the possibility of global cooling, you know it's about to get interesting. Note the oblique reference to global cooling, "would more than offset the warming effect".

New York Times: Sunspots Are Fewest Since 1954, but Significance Is Unclear.


Scientists are not sure why this minimum has been especially minimal, and the episode is even playing into the global warming debate. Some wonder if this could be the start of an extended period of solar indolence that would more than offset the warming effect of human-made carbon dioxide emissions. From the middle of the 17th century to the early 18th, a period known as the Maunder Minimum, sunspots were extremely rare, and the reduced activity coincided with lower temperatures in what is known as the Little Ice Age.

Compared to the Maunder Minimum, the current pace of sunspots “makes it look like we’re having a feast, not a famine,” Dr. Hathaway said.

Scientists expect that sunspot activity will pick up in the coming months, but exactly what will happen next is open to debate. Dr. Hathaway had predicted two years ago, based on the Sun’s behavior near the end of the last cycle, that the maximum this time would be ferocious.

“I’m getting worried about that prediction now,” he said. “Normally, big cycles start early, and by doing that, they cut short the previous cycle. This one hasn’t done that.”

But many of the other competing predictions — more than 50 over all — pointed to a quieter-than-average cycle. “They do kind of go all over the map,” said Douglas Biesecker, a physicist at the Space Weather Prediction Center who led an international panel that reviewed predictions.