Mullooly Asset Management

Fiduciary Fee-Only Financial Planner | Investment Advisor in Wall, NJ

supply and demand

Forgiving Student Loan Debt Is NOT The Answer

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A recent Business Insider article had quoted current Dallas Mavericks owner, Mark Cuban, in regards to his thoughts on student loan debt.  A rather extreme solution to the growing problem of student loan debt is for the government to ‘forgive’ some of that debt.

According to Cuban, however, that might be the WORST thing that could happen:

“Forgiving the debt is the worst thing you can do, because all it does is bail out the universities”

In regards to President Obama’s recent plan on lowering student loan debt, Cuban went on to say:

“The challenge is that you can’t subsidize or forgive existing debt without very strict rules. Otherwise it allows schools to tell future students not to worry. They too will get some portion forgiven. Which in turn gives the school more leeway to raise tuition.”

While Cuban seems to be spot on with his assessment of the situation, we would be curious to see what would actually drive the prices of colleges and universities lower.  Potentially there is a case of too much supply and not enough demand here.

 

Source:

http://www.businessinsider.com/mark-cuban-forgiving-student-debt-is-the-worst-thing-we-could-do-2015-3

Are Interest Rates Really On Hold?

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The Federal Reserve has announced they are “on-hold” through next year, and likely well into 2014. What kind of effect will that have on the stock market? Does that mean interest rates will stay low that entire time?
Maybe not.

The “bond market” will actually do a “daily” job of setting interest rates. The bond market helps to balance the supply and demand of buyers and sellers of bonds and all things fixed income. But, like stocks, anything with a number can be plotted on a point and figure chart. The patterns that emerge really tell a different story about interest rates.

Remember, when interest rates rise, the VALUE (price) of your existing bonds FALL in the market.
When rates (yields) FALL, the value of your bonds RISE.
There is a direct inverse relationship between interest rates and bond yields. If one side goes up, the other side goes down, much like a see-saw.

Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment or investment strategy will be profitable or equal to past performance levels.

All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions, or withdrawals may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for an investor’s portfolio.

If you are relying on a blog post for specific investment advice, you are making a huge mistake. Please speak with an investment adviser before making ANY investment decisions.
If you do not have an investment adviser, we encourage you to contact Mullooly Asset Management at 732-223-9000, or through our website. Under no circumstances should the content discussed here to be considered specific investment advice.

Wall Street News: Goes Through The Spin Cycle

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When I was in college, I loved listening to a local college radio station (WFUV, Fordham) that had a sports-talk show on Sunday nights.  The show featured something new: phone calls from listeners!  This was more than 25 years ago, before WFAN in New York, ESPN Radio and all the other sports outlets we have today.

Incidentally, one of the announcers was an annoying student at Fordham, Michael Kay.  Kay continues his annoyance today as the obviously homer-voice of the New York Yanke$$.

One day, I got into a conversation with my father about something mentioned on the show.  He asked “where did you hear that?”  I told him about the radio show.

He replied, “So, they are experts?”

That one line really stuck with me…especially as a communications student.  Shortly after, I changed majors to business and focused on economics, later getting my MBA in Finance.  But our conversation continued.

“Tom, the job of the media is to sell.  They sell advertising.  Not a bad profession.  You can make a lot of money.  But the media has no obligation to look out for YOUR best interests…or even tell you the truth.  They want to sell ads.  So what do you think they are going to say?  And they can (and often do) twist a story to get a different perspective.  Be skeptical.”

With that piece as background, let’s look at the top headlines Saturday morning over at CBS Marketwatch:

Freddie Mac to ask for an additional $30 billion

Gosh, that sounds awful, doesn’t it?
But wait…Freddie already was granted a $100 billion line, but only used $13.8 billion.  They are tapping a line that is already established.  Non-story.

Capital One results suggest gloomy 2009

The unreported part: Capital One also said they don’t see a bottomless pit of losses.  Guess CBS Marketwatch missed that.  Or maybe that’s just not a sexy headline today.  The spin continues: “In the last three months of this year alone, Cap One lost a staggering $1.42 billion.”  Sounds bad, right?

But wait: that number includes $1 billion it set aside to deal with expected losses.  They are making provisions for losses that may — or may NOT — happen this year.  I’m not recommending buying this stock whatsoever, but that sounds like pro-active management to me.

Californa-based 1st Centennial Bank Fails

And your point is…?  Look, when banks fail (that is, when banks fail after 1933), they are taken over by the FDIC or sold in a pre-arranged marriage (through the FDIC) to another bank.  In the last real-estate driven recession (18 years ago), 800 banks failed.  Banks are going to fail in recessions.  But accounts don’t get wiped out anymore because of this.  They pull down the signs on Friday and re-open on Monday.

AFLAC assures investors it does NOT need additional capital, but S&P downgrades anyway.

What is S&P saying?  Are they saying management is lying?  Or does S&P just knows AFLAC’s business better than AFLAC?  After all, S&P re-affirmed positive ratings on banks and brokers throughout 2007 and much of 2008 — all the way down the drain!

And from a few days ago:

Microsoft cutting 5000 jobs.

Microsoft announced they were cutting 5000 jobs — over the next 18 months.  And while 5000 “jobs” were being cut, the actual number of employees being let go — again — over 18 months, is expected to be 2000.  Many people will be re-trained and re-assigned.

Look, sites like CBS Marketwatch, Yahoo Finance, magazines like Business Week and channels like CNBC are designed to do two things: generate enough shock value to attract attention and then find a way to keep you glued to them.

This is a waste of your time, and straps you into the emotional roller coaster.  Why do you want to do that?

Remember this:  Everything said and written in the media on Wall Street is written or said to make you do the wrong thing.

I had a longtime client (and friend) call me yesterday.  She told me one of the “experts on TV” said the market could drop another 20% from here.  And she was scared, worried, and nervous.

Wouldn’t you be?

I reminded her — that’s just one guy’s opinion.  If you met a guy named “Mr. CBS Marketwatch” in the line at the grocery store, you wouldn’t believe half of the nonsense he was spitting out.  You’d just nod politely, and pray that he bags his prunes and oatmeal and gets out of your way.

Look, there’s a reason I use these point and figure charts.  For the first fifteen years of my career, I was burned relying on “expert opinions.”   What do you say to a client after you relied on the “experts” and lost money for them?  There’s a lot of brokers wondering exactly that lately.  They instruct brokers to tell clients “you have look at the long term picture.”

That’s nonsense.  And it’s the path to losing money.

I use these charts because there is no “opinion” built into the chart.  They only show price changes.  And from price changes, you can see trends.  And — unlike other types of charts — point and figure charts are not subject to interpretation.  It is what it is.  Charts either trend up, trend down, or stay in place.  No opinion.  Just facts.

And, a funny thing I’ve noticed, time and time again: Point and figure charts often start to move down (meaning, prices are falling) WAY before bad news arrives.  And these charts often start moving up (reflecting rising prices) well before the good news is announced.

Keep that in mind as you read this again: Everything said and written in the media on Wall Street is written or said to make you do the wrong thing.

Don’t ever forget that.

Stock Prices Dropped: How This Affects Your Investments

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Don’t worry about “why” your investment is falling.

Focus on “what” instead.  What is happening now.

Don’t worry about “WHY”…everyone is doing that.  Gyrating stock prices are getting swung around by deceptive news headlines, faulty stories — all designed to play on your emotions.

Do we really NEED to know “why?”
If a chart is breaking down, giving sell signals, breaking the all-important support line, giving a relative strength sell signal, etc.  Does it really MATTER why?

No.  You should sell.

Everyone is searching for clues, answers, reasons WHY the market is falling or where/when the market will hit bottom.
How many times this week will you hear “The market is down today because _____ .”

Just remember, in most cases, they are guessing!

Financial stocks starting breaking down, giving massive sell signals in April-May 2007, nearly a full YEAR before Bear Stearns agreed to sell to JP Morgan for $2.00.  By the way, Bear Stearns broke support at $140/share (that’s $138 above the price they agreed to sell at).

And the point?
The point is that no one knew in the spring 2007 WHY stocks were collapsing — or how spectacular the meltdown would be.  They just were falling apart, period.  All the charts told us is that there were clearly far more sellers than buyers, and that supply was in control.   That was all we needed to see.

When there is too much supply (of anything), prices are heading lower. You don’t need the “why.”
So…focus on “what”…like what IS happening now?

People seem to be preoccupied with “what will get the market moving again?”  and “when will the bottom be reached?”  SImply, when buyers outnumber sellers, prices WILL go up.  That’s economics 101.

But unfortunately that doesn’t sell newspapers.
By the way…we may have ALREADY put a bottom in place – a month ago!

Is 1100 on the S&P 500 Like the Equator For Buy and Hold Investors?

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Like crossing the equator on a ship — should buy and hold investors get some kind of recognition (or have some celebration) for crossing the line?  The S&P 500 crossed 1100 in 1998 (twice), 2001 (3X!), 2002, 2004 and 2008.  Look, when I drive around the same block twice, even I ask for directions!  Oh, and today the S&P 500 is at 940.  Ready for 9 passes in ten years?

So, “Buy and Hold” investors have passed the same intersection now 8 times in the last ten years.  Ten YEARS!  Essentially, if you’ve followed “buy and hold” you have not made money this decade.  And don’t forget: Warren Buffet has been stockpiling mountains of cash for the better part of the last ten years.  Think he’s been riding the S&P 500 merry-go-round?  Buffet has a 20 to 30 year-plus time horizon.  Do you?

See. we Americans examine our self-worth every month at the mailbox. And Buffet’s strategy isn’t really “buy and hold,” it’s “own the business.”    We don’t have the capital to do that.   But I think his letter to the NY Times last week was right.

Don’t misunderstand, we are facing one of the single BEST buying opportunities right here.  But “right here” doesn’t mean “this week” — or maybe even “this month.”  This “opportunity” may be here for several months.

If we learn anything from history of bad markets, the next few months will NOT be easy.  There will be great opportunities, but there will also be stress.  Without knowing — with certainty — that “this is the bottom” it’s imperative that all investments come with an “exit strategy.”

What this means is anything that is purchased at this point in time needs to have the exit points clearly marked, in case of trouble.

Supply and Demand : Measured by Point and Figure Charts

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There’s a great story I read in the New York Times. It’s part business/part technology. While it delves into some pretty sophisticated topics, I’ll try and summarize it as best I can right here.

The author, Anne Eisenberg, wrote about an experimental website, www.many-eyes.com. This is a site where visitors can upload data they want to visualize and use tools to generate displays.

Basically, what they’re trying to do is take a range of data — and instead of leaving it on a spreadsheet for people to interpret, they use images, charts and graphs to “paint” a better picture. The idea being that a picture may tell a better story — a clearer story — than trying to sift through data on a spreadsheet.

I hate to break it to the author, but Charles Dow came up with that concept nearly 120 years ago. Dow was the first publisher of the Wall Street Journal, and the Dow Jones Industrial Average that bears his name. Dow kept listening to all of the “experts” who were giving all of their fundamental reasons why particular stocks “should” go up or “should” go down.

Dow simply came up with a method to plot the price movement. The “image” that he came up with on a chart gave him a much clearer view of stocks that were in demand and stocks that were in supply. Much clearer than what any analysts could ever “predict.” Anything “in demand” must see a price increase. And anything “in supply” will see a price decline. That’s not an economic theory — it’s a law. It’s called the law of supply and demand, and even a fourth grader can explain it.

The article quoted a professor of computer science (Pat Hanrahan) at Stanford, “when analyzing information, no single person knows it all,” he said. This helps dispel the thinking of the “expert stock analyst” following a stock. Rather, a chart shows the “flow” between supply and demand. The chart shows the cumulative votes that people make (on a daily basis) to either get in — or get out — of a particular stock.

One of the founders of the site, Dr. Viegas, mentioned “… why not a visual that gives you some insight into the sea of data that surrounds us? I might find one thing; someone else, something completely different, and that’s where the conversation starts.”

This is precisely the problem when trying to make investment decisions based on only fundamental analysis. The data can be twisted in so many different directions to paint a very good — or very bad — story. Additionally, the fundamental information (supplied by the company… like earnings) can be wrong, or rewritten in the future.

For those of you who have seen these point and figure charts I use in managing the risk in your investments…do they help paint a clearer view of what’s happening? Let’s hear it!