The Tide is Turning

What's in the Szelhamos Portfolio?

Based on a one day move it's probably a bad idea to suggest that a pattern or trend is developing.

That should be painfully obviouse for anyone that's been following the markets and the daily intra-day moves the past couple of weeks.

Giddiness quickly dissolves into disbelief, and not the good kind of disbelief.

As usual, there was lots of discussion over the possible root causes for Thursday's typical 400 point move.

There are those who believe that the European decision to limit short selling on the financials was the impetus. My memory is increasingly fuzzy these days, but didn't we try that as well? Don't think that it had quite the longterm impact that the decision architects had hoped.

Others pointed to the early return of French ministers from their month long August vacations to attack the French banking issues that are now emerging. The first photos from those finance meetings are a stark reminder that no one should wear European style bathing suits, even if there's a conference table to obscure the details. 

For my money, I'd rather suspect that someone might have a similar background to mine by looking north of their waistline.

Today, however, I think I spotted the ultimate market indicator that very strongly suggests that the market is heading up with sustained gusto.

During a brief period of time, that seemed all too long, Herb Greenberg disappeared from the CNBC picture. He was always one of my favorites. A calm, analytical approach to macro and more importantly for the individual investor, micro-economic analyses.

Just as an aside, but a follow-up to yesterday's basic math lesson, people like Greenberg are very valuable to the health of your portfolio.

I've never been a fan of mutual funds, but when I was gainfully employed and had to choose from among bad fund choices, I would always opt for funds that performed best during down markets. I certainly can't take credit for that strategy, but I just don't recall its source. For purposes of consistency, let's just say it was from Herb Greenberg.

And it is a good strategy, as it really is more difficult to overcome a single large loss than it is to make up for a multiple missed opportunities.

When Greenspan would talk about "frothy exuberance" and paint on a broad canvas, Greenberg would pragmatically focus down on the specific issues that mattered, your false hopes about inappropriately moving stocks. He consistently highlighted situations where the investor may have been at unexpected and highly significant risk.

Valuable stuff.

Well, thankfully for viewers, he's back and I hope, enjoying east coast weather. The fact that Sugar Momma and I plan to pack it up and return to her sunny California roots when the kids aren't looking is in no way meant to be interpreted as a statement regarding the hideous nature of weather in the Mid-Atlantic.

Ever since I re-started the Szelhamos Rules blog in an effort to boost sales of Option to Profit and started Tweeting, Greenberg, no surprise, has been another favorite among the small number that I follow. In fact, after my son, he was the first account that I followed and along with Paul Kedrosky they remain the only three that I have consistently followed.

My son doesn't necessarily help me with investment ideas, but at least I know what's going on with his life thanks to Twitter. And if FourSquare is to be believed, he sure does party a lot. I don't know whether Greenberg and Kedrosky have similar lifestyles.

But to be totally fair, however, I must give my son credit for early detection of VMWare and Iron Mountain, among others.

So here's the good news.

As any Twitter user knows, it's all about the Followers. Yesterday's blog, "Depends on your Perspective" re-affirmed the importance of size in every aspect of life.

For me, Twitter has become life, but based on my number of followers, my life expectancy is somewhat guarded or at least the value of my life is highly suspect, perhaps due to accounting irregularities.

In the 4 months that I've been on Twitter I've looked forward to the Tweets from Greenberg as they've complemented his now increasing on-air presence.

As usual, on Twitter he dispassionately and objectively reports and dissects "data" in his alloted 140 spaces.

Somehow, I once got included in a Tweet sent to Greenberg that included quite a bit of venom packed into its 140 spaces, but as they say, that's what it takes to make a market. I can only imagine how Jim Cramer's inbox must look as it's very easy to sling from behind a firewall of anonymity. (See "Why I No Longer Watch Jim Cramer")

Maybe it's the TV, maybe it's the wide range of fashionably colorful dress shirts, but Herb Greenberg's Twitter follower base has grown by about 60%, or an additional 4,000+ in short order.

That can mean only one thing.

As viewers and the Twitter universe are being ever more mindful and respectful of a circumspect and wary approach to stocks and the markets, the contrarian in me just knows that we are now poised for a major upward correction.

Forget all of those technical analyses and all of the charts and statistics. Face it, every math and physics PhD. out there has access to the same data and analytical tools and algorithms, yet they arrive at wildly distant conclusions. The fact that I've used a second derivative of the velocity of Greenberg's growth in Followers to create a market strategy is largely irrelevant.

Forget the "science" and go with the "Greenberg Follower Contra-indicator Tool".

As the number of his followers increases and becomes likewise increasingly engaged, it is a sure sign of investor capitulation. The water's both too cold and deep and besides, your mother told you to wait an hour after eating before you go back in for a dip.

In the meantime, Greenberg will continue to present sage-like and cautious observations.

I tend to be a cynic and even though I'm a short term pessimist, I am a long term optimist on most everything.

But as individual investors are getting more cautious, I think of the opportunities that are akin to short squeezes. It's related to something that's called "FOMO" or "Fear of missing out". FOMO itself is a first order derivative of greed.

Caution is absolutely the way to go. That's why I hedge everything, although I don't think I can use that strategy as an excuse to explain the girlfriend on the side. But when everyone is getting on the caution bandwagon instead of  judiciously exercising caution where appropriate, there is opportunity.

When the fear of missing out dawns on the individual investor prices go up. Demand trumps value.

So I, for one, am very happy to see Herb Greenberg's growing popularity. By the same token, I fully expect this indicator to break down at some point as those who have blindly followed caution would be fools to unfollow Greenberg once their FOMO takes hold. If anything, they'll need him even more to better protect what they've gained.

At that point I'll just come up with something else to replace the Color TV indicator and the Greenberg contra-indicator.

It's even easier than keeping everything contained in this bathing suit.

Addendum: Since this blog entry appeared in August 2011, Herb Greenberg has added on another 12,000 Twitter users, reaching 20,000 on December 1, 2011. Since then, the S&P 500 has gone up 6.8%. Unfortunately, 7.6% of that gain came this week (Nov 28 - Dec 1, 2011). Stay long, my friends.

Additionally, the following was not linked at the time the article originally appeared: "Fear of Missing Out"

Somethings don't get Old

It's been a long week. I probably don't have to tell you that.

For me, the highs and lows of the past few days were more than just quantitative matters, they were matters of the heart.

As Lou Grant would have said, "I hate matters of the heart".

The week in question started on a real high note, as I watched my son graduate from Army Basic Training last Wednesday and escalated as we were able to bring him home with us to start his junior year of college. So, while stocks were just beginning to really shed some real market cap, I didn't mind too much. Joy can make you forget such mundane things like skyrocketing paper losses.

In fact, despite being armed to the teeth with my traveling trading desk, after a few hours in the car on the first part of the trip down to South Carolina, I decided to spare my lap the deep thermal burns, shut down the streaming CNBC feed and give it a rest.

Of course, at the time, the market was up reasonably nicely and I had a feeling of calm and peace. So much so, I didn't even care that much when I learned that the market eventually turned for the worse.

The next two days I was essentially cut off from any timely market related news. Although I did prove to my Sugar Momma that I wan't addicted to the electronic market tether, I did find myself breaking into lots of cold sweats and sucking the residual sugar off of discarded gum wrappers.

For some bizarre reason, when my oldest son, who now follows the markets tracking his undiversified portfolio of one stock informed me that the market was down 500 points last Thursday, I took it in stride, after all, I had my whole family in tow, reminiscent of long car rides together 15 or more years earlier.

Not only did I take the news in stride, but I actually got a kick out of that news, even though I'm not a short seller. Despite the fact that I exercise a covered call strategy on nearly every holding and despite the fact that the bids on most of those call options were close to zero, I still felt a rush.

For me, the exaggerated bounces in the market never get old. They're always exciting, even if I can't find a way to take advantage of them.

Imagine then how excited I must have been on Monday. Can you believe losing even more than on the previous Thursday? If Dow down 500 points is good for the perverse part of my being, how great is 600 points?

When I was younger, I used to measure money in terms of how many color TV's you could buy with that money. Our family got its first color TV back in 1964, just in time to watch the Yankees - Cardinals World Series. I remember spending most of my time trying to get the colors just right and trying to find the perfect antenna position. I usually ended up being the antenna and the grass usually ended up being blue.

After all, for $500 were you expecting perfection?

At Szelhamos' highest earnings year, I calculated that he could have bought 50 color TV's or one each week. Back then I was too unsophisticated to factor in taxes and things like present day value, or concepts like "constant dollars".

Now that I'm older I don't think in such childish and simplistic terms. Instead, I now calculate a days' gain or loss on the basis of how many Szelhamos years worth of earnings it constituted. For example, instead of saying that Monday resulted in a paper loss of 200 color TV's at 1964 prices, I would be much more inclined to say that the losses covered 4 years worth of peak earnings.

What a rush, albeit a downward spiralling rush to poverty.

While the market was going down, despite an occasional tease upward, the joy still overcame all.

Today, the story was quite different. This time, instead of having headed down south for a bit of happiness, I had to trek North back home to New York for a bit of sadness, as word had come of the death of a woman very dear to me. Not an actual relative, but very much a second mother to myself and sister.

A Holocaust survivor, a refugee from communism, she started a new life with her family and friends in America.Always giving, always smiling and door always open. As much as joy can help you to forget, sadness can help you remember.

But in her case all of the memories were wonderful, but unfortunately they had grown old and increasingly dim, until a touching eulogy reminded us that in everyday actions by her children, grandchildren and great grandchildren those memories live on. Sometimes that memory will take the form of a strudel.

And that's alright, too.

As the days' drive to New York began, I was in the passenger seat, once again with full electronic gear at the ready. Pleased to see the market hold its 200 point gain once again those feelings of calm and peace returned, this time though looking at how many TV's I could buy with those paper gains.

At about 3 PM, heading from the funeral home to the cemetery, my oldest son who was in New York on a business and had joined with us, turned to me and calmly let me know that the market had given up all of its gains.

Serenity. Serenity now. Remember. It never gets old. I keep telling myself I love the violent and unexpected moves.

Now, I also love Ben Bernanke as much as the next guy, but I couldn't imagine in my wildest dreams what he could have said to have shaken the markets so much. Normally I'd have been home rapt on every word and nuance, but today I was left to my wonderings. Did he call Tim Geither a "pussy"? I think I'd put up 1o color TV's at 1964 prices to have a front row seat for that cat fight.

And I like both of them.

Finally arriving at the cemetery the rain was pouring upon us. Briefly it stopped and someone remarked "What a miracle, God is smiling on us". Minutes later the rain came back with a vengeance and that same person took the opportunity to say "What a miracle, God is crying with us".

That reminded me of something that does get old. The various talking heads that believe the viewer has no sense of history or at least no functioning memory. I like my analysts and miracles to be consistent.

But at least here the intention was good. Sun was good. Rain was good. We were celebrating a good life.

As I looked around the assembled crowd, it was no longer the elderly crowd that I remembered from my younger days. With very few exceptions, they are now gone, being replaced by newer versions of themselves.

Oy.

Once back in the car, my personal market reporter, whose personal wealth may dwarf mine if the IPO market can survive the downdraft ,once again turned to me and said "Wow, the market turned it around and closed up over 420 points".

That's a lot of color TV's.

Hearing that kind of news never gets old. It may not be strudel, but hearing my son deliver that news is a sign that I will never get old, rain or shine .

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