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Speaking of insider stampedes, check out this little gem:
http://biz.yahoo.com/t/l/lava.ob.html
Here's the scariest article I have read this weekend. Draconian Argentina-style penalties on redemptions from equity products, to prevent the UK insurance industry from collapsing.
==========
Daily Telegraph (U.K.), 21 July 2002
Exit Penalties to Stop Stampede
By Emma Simon and Grant Ringshaw
Emergency measures to prevent panic selling by private investors of life policies, pensions and other equity-related products have been imposed by leading financial services groups.
They are levying swingeing penalties on consumers who want to cash in their savings plans. In some cases, the penalties are now higher than the stiff charges imposed by Equitable Life, the stricken life insurer which closed to new business in December 2000.
In an unprecedented move, Norwich Union Life - part of Aviva, the UK's largest insurance group - last week pushed up penalties on early redemptions twice. The penalties - known as a market value adjuster (MVA) - are imposed when policyholders try to cash in policies before they mature.
Norwich Union customers now face losing an average of 12 per cent of their investment if they cash in pensions, endowments or with-profits bonds. This figure is almost double the average penalty of 6.5 per cent levied a week earlier.
Meanwhile, Legal & General has introduced a tougher penalty, lifting its MVA on pensions to 22 per cent from 19 per cent earlier this month.
The moves, affecting hundreds of thousands of savers, show the industry's grave concerns that the turmoil in world stock markets could induce mass selling among private investors. Last week the FTSE 100 index dropped 3 per cent to 4,098.3, but in wild gyrations it temporarily fell below 4,000.
Yesterday saw a fresh attempt by President Bush to restore investors' confidence in global stock markets. He called on Congress to rush through legislation introducing tougher penalties on fraudsters. "We will not accept anything less than complete honesty," he said.
Meanwhile, Norwich Union defended its decision to impose tough charges. "You have to see this in the context of what have been pretty significant gyrations in the stock market," said Philip Scott, the chief executive of Norwich Union Life. L&G said: "We are experiencing extreme markets which need significant measures."
In the past month major life insurers including Friends Provident and Scottish Widows have all imposed heavy extra exit penalties. The Financial Services Authority, the City watchdog, said the penalties were matters for individual companies, but added that it could step in if it felt the penalties were unfair to different sets of policyholders.
Last week, leading financial advisers - including Chelsea Financial Services - reported a marked rise in redemptions of equity funds as investors started to lose confidence in a stock market recovery.
There are renewed concerns about the financial health of life insurance funds. According to research by Fox-Pitt Kelton, the securities house, a fall in the FTSE 100 to 4,000 would wipe out all life fund surpluses at Aviva and the life businesses of Abbey National.
If the FTSE 100 fell to 3,500, several large insurers would be forced to raise billions in new capital.
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2002/07/21/cnpen21.xml&sSheet=/money/2002....
<<once the outflows by disgruntled investors stop, the balance will shift to "demand for equities" and with all the sellers gone, a powerful move could arise.>>
Course it might be 2006 before that happens.
http://www.decisionpoint.com, but not sure if is in the free area or pay-per-view.
I have no idea what Weiss's history is. I've been reading his articles recently because his bearishness seems to be in synch with what's happening, and his writing makes sense to me. Therefore, he's useful tactically for the moment.
If you have any interesting info, please share! I follow maybe 15-20 market commentators regularly, and he's just another data point among many.
Many of the people whose stuff I've followed over the past 4 years were in synch with the trend at some point, and were tactically useful at that time. But when they lose their mojo, their tactical usefulness decreases and I stop following them.
Some examples of people who were previously useful but no longer: Michael Murphy, Don Hays, George Gilder, Bob Brinker.
Some examples of commentators who are currently useful: Fred Hickey, Fleck, Peter Eavis, John Roque, Sy Harding, the Comstock guys.
2 years from now I'm sure the list will have changed again.
However: As of this morning's subscriber update, Sy still has all of his model portfolios 100% cash. The consensus of his (many) intermediate-term proprietary indicators is extremely oversold but still bearish... i.e. they still have not rolled over to a buy signal.
He also thinks that short-term TA signals are completely meaningless right now because of emotion and volatility.
Like many others, he is concerned about the psychological effect of the acceleration in the Dow's collapse on Friday. He can see a possibility of panic declines early next week, but also thinks market support by institutions and corporate buybacks will probably be pre-planned and coordinated over the weekend (by phone calls from the Fed and/or the administration). Then it will be unleashed next week if it seems needed.
Harding has a good track record the past 2 years, IMO he's well worth paying attention to.
OK, we agree that high TRIN means that dumping is concentrated into relatively few stocks.
Historically, I believe this was an infallible sign that they were finally "shooting the generals"... the last stage of a bear decline where the biggest stocks got zapped, the IBM's and the GE's etc. And as such, it used to be extremely successful in identifying major turning points.
As is widely known, this characteristic has changed and the "infallible" TRIN signal has quit working. Hence the end of Don Hays' credibility in the past 12 months.
Several possible reasons for this change have been discussed. Decimalization and the pollution of the NYSE with irrelevant preferred stocks have been cited, e.g. by Alan Newman over at CrossCurrents
But I think it's simpler than that. With modern automated trading and sophisticated chart-based modelling of trades, the market just doesn't do selloffs according to the old rules.
So the question of what exactly the TRIN is good for, nowadays, is a very interesting one.
Um ... no offense intended, but that explanation of TRIN is completely wrong. Please read the real scoop here:
http://www.stockcharts.com/education/What/IndicatorAnalysis/indic_TRIN.html
Unless the trend changes today, probability of a reaction from the public on Monday looks pretty high to me. Of course, huge futures buys from institutions could come riding to the rescue at 2:22 p.m. ... again.
I guess Marty Weiss is still bearish, LOL.
WEISS COMMENTS
Market Mayhem
-- July 15, 2002
The Dow plunged over 400 points today before ending down about 50 points. It was the sixth consecutive day of declines for the index -- last week was the worst trading week for the index in 10 months. And judging by today's action, that record could be broken again this week!
This is only the beginning of the Dow's sell-off. Today, the Dow skimmed its post-September 11th lows, and bounced back. But it won't be long before the Dow smashes through those levels on its way to 5,000. Over and over again, we've seen the Dow test resistance levels and recover, only to plunge through them days later. And that's what's happening right now.
As the crisis of confidence in Wall Street grows, there will be fewer and fewer investors willing to step into the market. And as that happens, you're likely to see a series of days where the Dow closes down 400 points or more.
http://www.safemoneyreport.com/home/daily.asp
Thanks for your posts today. They've been very helpful, especially the SI message to sylvester. I agree with your view of things.
One small nit: you are repeatedly referring to the VIX/VXN chart dropping at "a 45-degree angle". That doesn't mean anything. Depending on how much you stretch the scale on the X and Y axes, you can make a slope look like any angle you want. Please clarify what you mean.
Preferred stock arbitrage?
You have mojo? Could I borrow some? lol
I've noticed a flood of questions like this the past week. Whether it's just a side-effect of IHub allowing people to post wthout paying, or whether it implies serious concern about the market by a greater cross-section of long-term investors, I don't know.
My gf and I both have parents in their 70's, financially comfortable on both sides. My parents in England have bought annuities (this is kind of mandated by UK laws on how you can use retirement savings). My gf's father (in Seattle) is mostly in high quality tax-free muni bonds... he owns the bonds directly and will hold them to maturity, so very little risk to principal.
My point is, if there is sufficient money to support your father using very conservative investments like the above, it is most responsible to use them, because that way the risk is minimized. It simply makes no sense to expose an elderly person to any risk of major loss of capital unless there isn't enough money to last his lifetime. In that case, as an individual decision, some risk might be accepted to provide needed return.
I assume the Nebacle is the time the nebbish finally panic?
Ah, you would be the same guy who posts on the KLIC board on Yahoo?
If so, very glad you're here! I really like your carefully thought out opinions.
SLAB has a very high short interest. Eventually, that many shorts are usually right. Of course, it could go higher before lower, but be aware this is a pure momo gambling vehicle.
Jim Stack has an interesting proprietary indicator on his web site this weekend. I don't know how it's derived but it seems to have a good track record. It's predicting we are at or very near a significant market bottom.
http://www.investech.com/
OK I guess we disagree on whether INTC is in a mature business or not. I betcha INTC sees $12 before $22, but thats a shorter term issue <g>.
Its much worse than that. Measuring INTC in PE/Growth or PS/Growth terms, it is hugely overvalued compared to historical norms. The G has collapsed and will never return anywhere near previous levels.
Bumping its pathetic dividend from 0.5% to 3% or so would be a very smart move for INTC. Since it's defacto a mature business, it would be best served by behaving as such.
Please give a URL for this. Since it mentions Lyndon LaRouche as a person whose opinions are worth notice, I assume it is from some lunatic fringe publication or website.
I know Brinker had a big following until his debacle in late 2000 with that QQQ call. At the time his aggressive model portfolio was 65% cash, and he recommended sinkng 30-50% of the cash into QQQ at about 83 for a countertrend rally. As far as I know, that trade has never been closed. He made that call at the height of his popularity, and it cost a lot of people (I know some) a lot of money.
http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=14593169
However, Rydex Ursa (1x inverse SP500) has an excellent record on slipppage. They've actually had consistently NEGATIVE slippage, somehow they manage to make more interest on cash deposits than what they lose on options slippage (or whatever they use).
"One year subscription, $120 US. Check or money order to The High-Tech Strategist, payable on a US bank. Three month trial $50 US. Fax delivery available for an additional charge of $30 to the US. Please send name, address and payment to:
The High-Tech Strategist
PO Box 3133
Nashua NH 03061-3133"
Hickey never distributes his letter except by hard-copy. Probably the best $120 I've spent this year.
I only pay money for 5 gurus nowadays: Fred Hickey, Fleck at realmoney.com, Sy Harding at www.streetsmartreport.com, Michail Shadkin at traderpulse.com, and now $80 for Zeev at investorshub.com.
LOL, Fred Hickey's 7/4 letter was 8 pages of deep bearishness, and you managed to quote the only slightly bullish paragraphs in it.
How about these quotes:
"Unless there's an explosion in PC demand in Q3 (a highly unlikely outcome at this point), there's NO chance that Intel will be able to make the second half earnings estimates. In two weeks they'l have to guide lower."
"I've been hearing persistent reports of a growing cell phone inventory problem, particularly in Asia. Texas Instruments has been a beneficiary of the inventory buildup. Second half results will likely be hurt. A warning ... could come on 7/22."
"Business at Cisco turned down significantly in recent weeks according to my sources. Juniper is likely to miss the quarter's estimates and guide lower for the remainder of the year. The whole networking equipment market has taken a sharp turn for the worse in recent weeks."
"Renewed weakness in all major semiconductor end markets has even begun to impact the order flow of the Taiwanese foundry giants, UMC and TSMC. I'm told that UMC will likely announce capital spending cutbacks within the next couple of weeks."
"Even with another massive IBM restructuring charge and thousands of layoffs, IBM's second half and 2003 estimates are a joke. They have to come down".
Given Hickey's excellent track record the past 2 years, I would NOT advise going long any tech the next couple of weeks. If Hickey's right, it could be nasty.