Frightening

Barack Obama in a 2001 radio interview :

If you look at the victories and failures of the civil rights movement and
its litigation strategy in the court, I think where it succeeded was to vest
formal rights in previously dispossessed peoples. So that I would now have
the right to vote, I would now be able to sit at the lunch counter and order
and as long as I could pay for it I’d be okay.

But the Supreme Court never ventured into the issues of redistribution of wealth and sort of more basic issues of political and economic justice in this society.

And to that extent as radical as people tried to characterize the Warren court, it wasn’t that radical. It didn’t break free from the essential constraints that were placed by the founding fathers in the Constitution, at least as it’s been interpreted, and the Warren court interpreted it in the same way that generally the Constitution is a charter of negative liberties. It says what the states can’t do to you, it says what the federal government can’t do to you, but it doesn’t say
what the federal government or the state government must do on your behalf. And that hasn’t shifted. One of the I think tragedies of the civil rights movement was because the civil rights movement became so court focused, I think that there was a tendency to lose track of the political and community organizing and activities on the ground that are able to put together the actual coalitions of power
through which you bring about redistributed change and in some ways we still
suffer from that.

"The Constitution is a charter of negative liberties"? And the electorate is going to empower this guy to appoint 2-3 Supreme Court justices? No, he's not a nanny-state Socialist.

God help us.

Week of 10-24-2008

Timing Model = 1.0
70% long, 30% cash

Global allocation of long positions
MSCI EAFE Index 20%
MCCI Emerging Markets Index 10%
Russell 3000 Index - U.S. 70%

Top U.S. Sectors
U.S. Pharmaceuticals 5.5
U.S. Health Care 5.0
U.S. Biotechnology 5.0
U.S. Consumer Goods 4.5
U.S. Utilities 4.5
U.S. Oil & Gas 3.5
U.S. Banks 3.0

Top Intl. ETFs
MSCI Switzerland Index Fund 3

Strategy 3
Money Market 50%
U.S. Long Bonds 50%

Strategy 4
U.S. Long Bonds 25%
Energy 25%
U.S. Small Cap 25%
U.S. Large Cap 25%

Week of 10-19-2008

Timing Model = 1.0
70% long, 30% cash

Global allocation of long positions
MSCI EAFE Index 20%
MCCI Emerging Markets Index 10%
Russell 3000 Index - U.S. 70%

Top U.S. Sectors
U.S. Consumer Goods 5.5
U.S. Health Care 5.5
U.S. Pharmaceuticals 5.5
U.S. Biotechnology 5.0
Small Cap Value 4.5
U.S. Banks 3.0

Top Intl. ETFs
MSCI Switzerland Index Fund 2

Strategy 3
Money Market 50%
U.S. Long Bonds 50%

Strategy 4
U.S. Long Bonds 25%
Energy 25%
U.S. Small Cap 25%
U.S. Large Cap 25%

Sentiment models are giving screaming buy signals at the moment, pushing my timing model to a +1.0 or 70% long. This is as bullish my model can get with all 4 trend indicators negative. In order for my model to lose points, sentiment will have to reverse as stage another push into extreme pessimism. My model can't get any more bullish until we start breaching the 75 day moving average of the S&P 500 or Value Line Composite. My gut tells me we will see higher prices over the next couple months although it will probably be a rocky road.

50% Long

An apparent reversal from extremely pessimistic levels in one of the sentiment models I track has moved my model to 0.0, indicating 50% long, 50% cash.

Week of 10-12-2008

Timing Model = -0.5
40% long, 60% cash

Global allocation of long positions
MSCI EAFE Index 20%
MCCI Emerging Markets Index 10%
Russell 3000 Index - U.S. 70%

Top U.S. Sectors
U.S. Consumer Goods 5.0
U.S. Health Care 5.0
U.S. Biotechnology 5.0
U.S. Pharmaceuticals 4.0
Small Cap Value 4.0
U.S. Banks 3.0
U.S. Real Estate 2.5

Top Intl. ETFs
MSCI Switzerland Index Fund 1
MSCI Malaysia Index Fund 1

Strategy 3
Money Market 50%
U.S. Long Bonds 50%

Strategy 4
U.S. Long Bonds 25%
Energy 25%
U.S. Small Cap 25%
Real Estate 25%

My timing model tacked on another half point this weekend pushing recommended long exposure to 40%. I truly believe the worst is behind us and there is a strong possibility we could see a series of sentiment reversals this week, which would propel the model even higher. There is little chance my model will lose points this week because of the way it is constructed. The only way from here is up.

Going out on a limb...

As of today, the bottom is in. Too many indicators are hitting historical extremes.

30% Long

Timing Model update: One of the sentiment components of my timing model dipped deep enough to trigger improvement. My timing model is now a -1.0, or indicating 30% exposure to equities.

Representation without Taxation

1/3 of all Americans who file a federal income tax return PAY NO TAXES. 1 in 3!

The bottom 50% pay only 2.99% of all federal income taxes and the top 5% of wage earners pay 60%.

What happens in a democractic society when a majority can vote to punder a minority, voting themselves goodies paid by someone else? I doubt our founding fathers even considered such a thing.

With Barack Obama as our POTUS and a Democratic controlled congress, we'll certainly find out.

Week of 10-5-2008

Timing Model = -1.5
20% long, 80% cash

Global allocation of long positions
MSCI EAFE Index 20%
MCCI Emerging Markets Index 10%
Russell 3000 Index - U.S. 70%

Top U.S. Sectors
U.S. Consumer Goods 5.0
U.S. Health Care 4.0
U.S. Biotechnology 3.5
U.S. Banks 3.0
U.S. Pharmaceuticals 2.5
Small Cap Value 2.5

Top Intl. ETFs
MSCI Switzerland Index Fund 1

Strategy 3
Money Market 50%
U.S. Long Bonds 50%

Strategy 4
U.S. Long Bonds 25%
Energy 25%
U.S. Small Cap 25%
Agriculture 25%

It doesn't look like the Value Line Composite or S&P 500 will break through their 75 day moving average any time soon. I'm currently focused watching for sentiment reversals, which is quite possible because we're oversold on both a short and intermediate term basis.

If I notice any sentiment changes that impact my timing model during the week I will post them.

You are the Problem

I find it funny that people would support Obama for POTUS because they're worried about their investments and retirement funds. Presumably most investors have a large equity allocation in their retirement accounts, and I can't imagine any government policies worse for equities than what Obama is proposing.

The fact is the vast majority of Americans haven't a clue about the economy and have been
systematically indoctrinated to believe fallacies promoted by the leftest disinformation
trifecta: the news media, the entertainment industry, and our education institutions.

We live in country where the average family owes $12,000 in unsecured debt and has 13 credit card, the average savings rate is negative, the average retirement age is 63, where a buying new car is an obligitory 4 year ritual, where iphones, the latest game consule, and high def TVs aren't luxury items for the few, but must-have items for the masses.

And we absolutely love to listen to politicians tell us how unfortunate we are, how we need "change" and "hope" because the rich guy and wall street is holding us down. And we're told the sub-prime lending mess had nothing to do with the greed or stupidity of applicants or politicians who want to bestow the status of "homeowner" upon them, but was 100% the result of financial institutions who bought and sold new-fangled mortgage securities. Politicians instinctively know there are a lot more subprime homeowners (voters, aka "main street") than rich fat cats.

We live in a country where 2/3 of Americans are overweight, 2/5 smoke, and many more regularly drink to excess, use recreational drugs, don't exercise, and/or engage in other risky behaviors - but most believe THE GOVERNMENT needs to do something about rising healthcare costs..."heathcare is a fundamental right" we've been told.

We live in a country where the motto has changed to "ask not what you can do for your country, ask what your country can do for you". Personal responsibility is now a meaningless catch phrase infrequently used by politicians who have acquired a whole new lexicon: "fair share", "disenfrancised", "entitled", and "taxpayers". "Taxpayers" is the 21st century Orwellian term for people who don't pay taxes, never to be pointed out by the MSM.

I would like a see politician once, just once, look into the camera and say "My fellow Americans, YOU are 90% of this country's problem."

Bored to Tears

As volatile as the market has been lately, my timing model has be stuck with readings suggesting an exposure between 20%-30% long. Mechanical systems like mine offer many advantages over seat of the pants investing, but they require both enormous patience and quick, decisive action.

As I've discussed before, my timing model is roughly composed of half trend indicators, and half sentiment indicators/models. I'll try to illustrate the current situation with the aid of the charts below.

The first chart is the S&P500 index and 3 moving averages. In a sense, it represents 2 trend components of my timing model. Because the index close and 5 day moving average is below both the 75 and 200 day moving average, two trend components of my timing model are negative. In order for either of them to go neutral or positive, the index will have to put on some serious gains from here.

The second chart is the Value Line Composite index and it's 3 moving averages. It represents 2 additional trend components of my timing model. Like the S&P 500, the Value Line close and 5 day moving average is below both the 75 and 200 day moving average. On a percentage basis, this index is closer to it's 75 day moving. Like the S&P 500 components, I need to see the Value Line Composite index breach it's 75 day moving average in order to earn points for the model.

The last chart is of the S&P 500 (top clip) and a longer term stochastic oscillator (bottom clip). I am using this for illustrative purposes only, to approximate the behavior of sentiment models and how they impact my timing model. I am prohibited from posting the actual proprietary models/charts I use from sentimentrader.com - It's a subscription service.

The green horizontal line in the bottom clip represents a level of extreme pessimism. Currently all four of the sentiment models I use in my models have reached such levels. As you can see from the grey arrows on this chart, it usually pays to wait until this particular oscilator reverses course by breaking out above it's lower band. The same holds true for sentiment indicators. Extreme levels are never an all's clear sign.

Because all four sentiment model are at extreme levels, and because 2 have even begun to curl up, they have contributed enough to my model to warrant 20%-30% exposure. However, they will need to begin breaking north of their lower band in order push the model any higher. The current status of the stochastic oscillator in the lower clip is actually a pretty fair represention of the sentiment models right now; oversold but yet to reverse.

I hope this helps to shed a little light into the mechanics of my model. It probably sounds a lot more complicated than it actually is, but I could teach a child to use it.