Tuesday, January 15, 2008

I Come To Praise Cramer, Not To Bury Him

Watching Jim Cramer's TV show today, it is only fair that with all my past criticism of him in this blog, that I give credit to him where credit is due. He opened today's (Tuesday) show with an excellent diatribe against Ben Bernanke and the Federal Reserve for fiddling on their collective academic phalanges (my metaphor, not Cramer's) while the stock market crashes and burns.

Cramer's condemnation was spot on, as this market topped in mid October, about the time the credit crisis became apparent to everyone, that is everyone except Helicopter Ben and his merry elves. Those of you who took my advice and read Alan Greenspan's, The Age of Turbulence could not help but realize that with all his faults and oblique rants filled with murky economic theory, a/k/a Greenspeak, Greenspan knew his number one responsibility was preserving economic growth in our economy and not treating it like chips on a craps table as a side bet on a random roll of the dice.

Cramer is calling this a bear market, a Bernanke directed bear market. I am not so sure as market internals are at levels seen at major market bottoms, implying that 3, 6 and 12 months from now stock prices will be higher, maybe much, much higher. But I do agree with my friend Jim, that the carnage we have seen since mid-October can be placed at the feet of the one keeper of our economic lifeblood that is charged with keeping the patient alive, the very unworthy and now discredited successor of Alan Greenspan.

So for this moment, I come to praise Cramer, not to bury him. That will come later.

A

11 comments:

Eric said...

"I am not so sure as market internals are at levels seen at major market bottoms, implying that 3, 6 and 12 months from now stock prices will be higher, maybe much, much higher."

Can you elaborate on the market internals you speak of?

Eric

David M Gordon / The Deipnosophist said...

"I am not so sure as market internals are at levels seen at major market bottoms, implying that 3, 6 and 12 months from now stock prices will be higher, maybe much, much higher"

I agree, Allan. Many measures of market dynamics are at, or even exceed, the extreme levels seen at the lows of 2002. Those lows required a test (March 2003), but that is how bottoms build.

I appreciate the extra effort and time you deploy in your arsenal of general market awareness, which help generate consistently successful returns.

Anonymous said...

Allan,
"GS Capital will pay about $1.1 billion including the assumption of debt. Myers Industries shareholders will receive $22.50 per share in cash for the sale."
This happens before April. What am I missing here? Why isn't everybody loading up for a double?? Any news??

Anonymous said...

How has Gravitas been doing during this drawdown?

Anonymous said...

TradeVilla has been remarkably successful trading AllAllan picks.

tradevilla@yahoogroups.com

Mark in Sandy Utah

PS THANKS! Allan for the unpublished pick send to TradeVilla a few days ago.

Greg said...

Oh Allan, how I disagree with you this time. We are in a pickle of our own doing along with the former Fed Chairman Greenspan (regardless of his unwillingness to acknowledge his responsibility). We have asset inflation that needs to correct, especially real estate values. Stoking inflation and weakening the dollar through Fed rate cuts and massive liquidity infusions are the worng medicine. We must accept the pain and let it cleanse us. Then we can feel good about going long again.

Anonymous said...

Greg:

You are not a member of TradeVilla. We posted a very similar note there from The Professor yesterday.

He agreed with you and with Allan.

Mark.

TradeVilla- THE ONLY ALLALLAN SUPPORT SITE FOR ELITE TRADERS.

DO NOT BE FOOLED BY IMITATIONS.

Allan said...

Greg,

My opinion of Greenspan changed when I read his book, The Age of Turbulence. He knew how to save capital markets, even from his own misguided policies.

A

greg said...

Hi A: Nobody, including the Fed came along to save me in 2000 when I lost 96% of my portfolio value.
What is different this time that the markets need saving now. Let them correct in a big way. I intend to make money on the way down and even more after I buy up bargins on the way back up. I also hope to buy that beachfront condo in Florda for my retirement at a huge discount. Still won't make up for much of what I lost in 2000, but it will help me feel a bit better finally.

yoni said...

market dynamics? market internals?

What do you mean by this?

David M Gordon / The Deipnosophist said...

Hi, Yoni,

I will offer more comments on my website, perhaps late tonight, more likely this weekend. But for now, Joseph Dancy of LSGI Advisors, gives a good summation of several indicators...

IBES Model. Last week the IBES valuation model, also referred to as the "Fed Model", recorded the most bullish reading in 28 years. The IBES valuation model compares the 12-month forward estimated earnings yield of companies in the Standard & Poor's 500 index to the current yield of the 10-year Treasury note. According to this model the U.S. stock market is 52% undervalued – a valuation we would categorize as "extreme". Either the IBES model is broken due to the ongoing financial stress on the economic system, or alternatively it is signaling this could an attractive time to invest in the market for those with a longer term outlook.

Gambill Oscillator. Another measure of interest is the "Gambill Oscillator" – a measure of insider interest in buying stocks. Insiders presumably have a good perspective of when their stocks are undervalued. When insider purchases exceed 25% of insider sales the Oscillator considers this a strong buy signal. Since 2002, when this indicator was first created, whenever the Oscillator generated a strong buy signal the stock market as measured by the Russell 3000 has been up over 10% in the following six months and up 22% over the next year. The Oscillator is now well into the strong buy zone.

AAII Survey. Their most recent release of survey results indicate the three week average of bears to bulls increased to 242%. This is an extraordinarily rare and bullish level for this indicator. The last time the indicator flashed a reading over 200% was on the week ending February 27, 2003 – and the market as measured by the S&P 500 index advanced 36.6% over the next 12 months. Small companies did even better, with the Russell 2000 small cap index advancing 63.2% in the following 12 month period – and the LSGI micro-cap index increased approximately 143%. Historically, in the 20 year history of the AAII sentiment indicator, we find that twelve months after a reading in excess of 200% the S&P 500 has advanced an average 21.75% - with no instances of declines.

Monetary Policy. The Federal Reserve is expected to continue to ease monetary policy, which has been very positive for stocks historically. In the 14 easing cycles since 1954, the S&P 500 was higher one year later in all but one instance. The exception was in 2001 due to the Sept. 11 terrorist attacks. The average gain for stocks during the 12 months after the first rate cut was 18.8%.

ARMS Index. The ARMS Index is a measure of price and volume swings in the markets. Developed in 1967, the formula and calculations are somewhat complex, but the concept is that when we see `panic selling' in the markets the ARMS Index will register readings above 1.7. For only the 6th time in the last decade we now have a bullish reading above 1.7. Examining the signals issued in the last decade, we find that the Russell 2000 index has been up on average 24% twelve months after the 1.7 buy signal is triggered. Measured by the month-end LSGI micro-cap index value after the buy signal issued, we find the average gain twelve months later was 86%.
Keep in mind the ARMS Index buy signals as well as the other buy signals were generated in a general bull market, with up-trending averages. In a long term down-trending bear market the results could be much different.


Summary: While such reports may or may not have a grain of truth to them certain market indicators are flashing long term table pounding buy signals. If they hold true to past performance the market will be flying at warp speed eight by year end.