Friday, January 30, 2009

The Kirk Report

The Kirk Report

Another Mailbag

Posted: 30 Jan 2009 02:00 PM CST

It's Friday and time to open up the mailbag. Questions I plan to cover this week are focused on the following:

  • Basket Trading

  • Using RSI For Timing Purposes

  • Here's What I Would Do If I Were Obama

  • Beyond The Short-Term: Intermediate & Beyond

  • TA On The Top Performing Stock In The S&P This Month

  • Trading Against Or With Sector Trends

  • Managing Two Workstations Efficiently

  • A Position Sizing Calculator

  • Focus On Process Versus Results

  • Screening For Dividends

  • A Quick View Of GE

  • James Stewart's Common Sense Approach

  • Faber's Short Of The Century

  • What Is Trail & Scale?

  • Low Expectations = Opportunity

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10 Questions With Michael J. Panzner

Posted: 30 Jan 2009 08:03 AM CST

Michael Panzner
While many people thought they knew and understood many of the risks and challenges that we've encountered over the past year, Michael J. Panzner was one of the few who dedicated a tremendous amount of time and energy in trying to get the word out when it was extremely unpopular and difficult to do so. In fact, most of the predictions in his book Financial Armageddon came true within two years of publication.

In the time I've known Michael I've found his perspectives helpful, especially in countering the on-going hype machine that has destroyed many investment portfolios. Through his books and blog, Michael has been one of the good guys out there trying to inform and educate people long before the herd even recognized the risks.

Prior to his launch of another new book, When Giants Fall, I asked Michael to take a moment and answer 10 questions I prepared for him. The following are his replies. Enjoy!

10 Questions With Michael J. Panzner

Kirk:  While you saw a lot of the recent events coming, what has surprised you the most about how things have played out over the past year?

Michael J. Panzner:  The most surprising -- and frightening -- aspect is the speed at which events have unfolded. When I first published Financial Armageddon in March 2007, I had this image in my mind of a slow-motion train wreck. What we've seen over the past year or so seems more like a rocket-powered crash-and-burn.

Kirk:  In your opinion, how long do you think it will take for the financial systems to repair and heal themselves and why?

Michael J. Panzner:  That's a tough one. To a great extent, it depends on how authorities respond. While I don't think policymakers in Washington (and elsewhere) can reverse the fallout from collapsing credit and housing bubbles, they can certainly slow it down. In addition, there are other factors at play, including a changing geopolitical landscape and brewing resource-related concerns, that will cause all sorts of collateral damage to markets and the economy. In the end, it could be a decade or more before we return to anything resembling a "normal" situation.

Kirk:  What are some things that could go right (and wrong) to speed up or delay the repair process and return us to a healthier market and economy?

Michael J. Panzner:  As I've learned the hard way (through trading, especially), no one knows for certain what the future will bring. In fact, anything can happen. While I think I understand how we got to this point and where we are headed, I could be wrong. Maybe I've underestimated the degree to which human creativity will help us overcome the many challenges. Or perhaps someone will develop new technologies or make other discoveries that can help fix what ails us. Otherwise, history suggests that time is the only cure for the myriad problems we are faced with.

Kirk:  In your view, what is the one thing investors can do to protect and profit from this disaster?

Michael J. Panzner:  Remain disciplined and prepare for the unexpected. The fact that one outcome seems unlikely doesn't mean it won't happen.

Kirk:  You've previously said that you think the world will be "more unsettled, dangerous and uncertain" than what people have been used to. What's the primary implication this new world has for investors in terms of how they should approach the market?

Michael J. Panzner:  Aside from spending more time thinking about personal safety and economic security, investors should steel themselves for a trading environment where liquidity is poor, volatility is high, new and unfamiliar forces are affecting prices, and old rules of thumb don't work like they used to. They should also pay close attention to counterparty risk: know exactly who they are dealing with and where their money is.

Kirk:  Recent events suggest that governments, even in "capitalist" countries like the U.S. and U.K., are getting more involved in markets and industry. What impact do you think this will have and what is the end result in your opinion?

Michael J. Panzner:  In my new book, I make the case that deteriorating economic conditions and geopolitical stresses will force governments around the world to get more intimately involved in all aspects of markets and economies. That will leave private investors at a distinct disadvantage. Among other things, governments often make up rules (favoring them, of course) as they go along; their financial and economic decision-making is often influenced by factors other than maximizing returns (e.g., corruption or favoritism); and, as we've seen in the case of state-controlled companies like Russia's energy giant Gazprom, politicians are not averse to using economic resources as blunt weapons.

Kirk:  Based on your knowledge of market history and valuations, where are we in terms of that cycle?

Michael J. Panzner:  Unfortunately, I think we are only in the early innings of what could be a very long game. And even if you disagree with my pessimistic outlook, which assumes, among other things, that the U.S. won't be the world's sole superpower for long, there are plenty of reasons to be negative right now. For instance, although some people claim that stocks are "cheap," history suggests that during turbulent times -- e.g., the Great Depression, World War II, the late-1970s stagflation -- P-E ratios fell to single digits, while dividend yields were two to four times higher than they are now. Since most people agree that the current crisis is one of the worst this century, that would imply that we have a long way to go before we reach bottom.

Kirk:  In recent months, people have been seeking safety for their money as investors seek capital preservation than accumulation. What impact will this have for the markets this year?

Michael J. Panzner:  With many professional investors (e.g., hedge funds) going under, individuals fleeing the market (to invest in supposedly safer alternatives), and less surplus funds sloshing around from the once booming global economy, market liquidity can only go one way: down. Aside from helping to keep volatility high, that will make it hard to read the tape and even to get business done, unsettling the playing field for those who make their living (or some portion of it) from trading and investing.

Kirk:  Where do you see the most opportunity for investors in the coming year?

Michael J. Panzner:  For those who have the appropriate risk profile (and the stomach for it), there will be good opportunities to sell short equities and other instruments that have been bid up or supported by those who believe the events of the past year were merely an interruption in the long-running bull market. Otherwise, as I detail in When Giants Fall, accumulating precious metals -- towards the end of this year, as I believe near-term deleveraging risks remain -- will be one of the few ways to preserve and increase wealth in the troubled times I see ahead.

Kirk:  Looking ahead, what do you think will surprise most investors a year from now?

Michael J. Panzner:  They will be most surprised by the fact that the light many saw at the end of the tunnel is actually a freight train heading in their direction. Again, I hate to sound so pessimistic, but in my opinion, at least, the facts only point to one thing: much more more trouble ahead.

Kirk:  Thank you. Those who wish to read more insights and commentary from Michael as we navigate the financial armageddon he predicted are encouraged to read his books and blog.

GDP & More

Posted: 30 Jan 2009 07:50 AM CST

Good morning. Premarket futures have been volatile and currently point to a negative open.

Traders are sorting through the latest earnings reports (including Exxon), a better than expected GDP, and more bank bailout speculation.



After the opening bell we have the NAPM Chicago Business Barometer and the University of Michigan Consumer Sentiment.

Hard to believe, the market is headed for its first weekly gain in four weeks so long as they don't give it back in today's session. FYI - the same levels we've been looking at all week remain in play. Have a great day!

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