Archive for December, 2015

The Fed Grabs the Stage

Friday, December 18th, 2015

December 18, 2015

Finally, after nine years without a raise in interest rates, the Federal Reserve has raised interest rates 0.25%.

BUT EVEN MORE IMPORTANT,  Fed Chair, Janet Yellen has announced that the need for further rate increases will be reviewed monthly during 2016…indicating that there will be an uncertainty period for a week before the Fed meeting each month.  Not good for the markets…this constitutes a  psychological head wind.  Maybe Ms. Yellen just wants to show us who is boss.  Could be a very expensive ego trip.

” What isn’t necessary to change is necessary not to change”. Low inflation,  Low oil prices.  No help from the housing market to reinforce the wealth effect for consumers.  Where is the confidence going to come from if the Fed is beginning to apply the brakes….from people who are holding down two jobs ?.  Bad for export jobs  as dollar will be stronger and exports more non competitive.  Bad for income statements of multinationals as 2016 foreign earnings will not translate well on year to year comparisons .

So why the increase ? because Ms Yellen, after endless hinting , felt obliged to come through with higher rates without anywhere near a compelling reason.

Dr. Martin Zweig, ” Winning on Wall Street” preached that stocks will probably climb in an environment where interest rates are declining and stock prices will probably decline in an environment  where interest rates are increasing.  His mantra was ” Don’t fight the Fed “. He was a part time professor of finance at Iona College, New Rochelle, NY ( my alma mater ) and just happened to own ( while he was alive ) the most expensive apartment in NYC, occupying  the top two floors of the Hotel Pierre, 5th avenue.  He obviously followed his own advice.

I can’t give advice…but I can tell you that while I am still invested following the SPY 200 day month end model, I have been lightening up this week out of respect to Fed Chairman Yellen who (and maybe I’m just imagining it ) is beginning to look more and more like a grey haired Black Swan.

 

Richard Maurice Gore

SPY Buy Signal Continues

Tuesday, December 1st, 2015

Market close November 30, 2015

The SPY trend following signal ” BUY ” remains  in effect.

This is based on SPY’s November 30, 2015 closing price being above its 200 day simple moving average.

SPY became a buy October 31 and since then has appreciated..o.37%.. The trade is 20 days old.

SPY is an ETF ( Exchange Traded Fund ).  It represents a basket of the USA’s top 500 companies weighted by the amount of capital invested in a particular stock.  Take the price of a stock and multiply it by the amount of shares outstanding to arrive at total capital.

SPY’s top holding, Apple, represents 3.64% of it’s assets,  while SPY stock #25  of the 500 ( VISA ) represents 0.84% of the value of SPY’s portfolio… and so on, down to holding #500.  Pretty good diversification, for all intents eliminating the risks inherent in investing in one stock.

The remaining risk in SPY, market risk, ( all the boats go out with the tide ) is still there, but my intent is to eliminate that risk by my market trend following ( timing ) activity. Of course, Warren Buffett,  and John Bogle ,( Vanguard ) want you to just buy and never sell SPY, but my back testing  has put me in  the cheeky position of disregarding their advice.

If you want even more diversification, consider Vanguard’s VTI which represents 3,791 USA holdings ( the entire stock market ) in its basket.

I prefer to focus on SPY because SPY is more liquid than VTI and  I also use 50 % of my capital to contingently buy SPY one month out at a price lower than today’s price .For this I receive an upfront premium.  In other words, I’m not afraid to lock myself in to purchasing even more SPY at what I consider to be a better price.

Richard Maurice Gore