RevolutioNewsletter 0002: Still Calling 'Em and Trading 'Em As I See 'Em

Here's an email I just got from a long-time friend, colleague and reader of mine:

Hey, Cody,

Did you see this?

Two central bank officials, speaking at the annual economic forum in
Beijing said exports shrank in November.  This is compared to Bloomberg
estimate of +14.8% and the October reading of +19.2%.  A decline in
exports would be the first since June 2001.

Not sure if it was exports or China GDP that you predicted would be
negative in 2009......plus, you were saying oil would fall to $30, back
when it was trading $120+.......you should use these predictions in
marketing your newsletter.

CS

It's GDP.  Exports going negative doesn't bode well for GDP staying positive in an export-driven economy like China's though.  I thought using his marketing idea was a pretty good idea.  So I just did use it in marketing my newsletter. Thanks, Charlie.

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Here's the introduction to the latest and greatest RevolutioNewsletter:

For most of the last fifty years, the best approach to investing in the stock market has been to slowly scale into buying stocks in the very best companies in the country when the broader economic cycles have turned vicious and stocks are down at least 40% or more from their recent highs.  We’re certainly getting there in this market.  But just as every economic cycle takes time to turn from virtuous to vicious as this one did in 2007/2008, so too will it take some time for this now vicious economic cycle to turn virtuous again.  Slow and steady buying with an understanding that you’re getting to invest in some companies you’ll want to own for a decade or more is key.  Still. Slow and steady.  Still. Always.

Indeed, I’ve long argued that investors ignore the broader economic cycles at their own peril.  I thought some perspective from when I turned cautious and bearish at the top of the cycle in late 2006 and throughout most of 2007.

Trading 'Em as I See 'Em
By Cody Willard
4/25/2007 4:31 PM EDT

That action today can only be called classically bullish. That's pretty much a continuation of the market's upward bias this earnings season, though today's juice had extra pulp. And that extra pulp comes from Amazon and its blow-out guidance. A 25% pop in Amazon spiked it back to its multiyear highs.

For the last few months, I've been referring to data points like this Amazon pop and reminding us that these things don't happen at bottoms. And while I'm far from certain that this market and economic cycle are topping out -- indeed, I'm still looking for my possible "echo techo bubble " -- I sure don't think it's wise to invest as aggressively to the long side as we have been for the last few years.

Invariably, when I attribute my cautiousness about this market -- that really started afresh last May 10, to the day -- to my concerns about being aggressive this long into the economic cycle, I get pushback about how I should just focus on individual names and not the broader cycle. I understand what people mean by that, and I'm much more about individual stock picking than trying to time big-picture cycles.

But I also know that markets and economies can turn bad. For several years out of the bust, I was mostly aggressively long tech. And while I had an Avanex or two in that run that I sold for losses, I also still have some huge winners in names like Google and Apple that I bought at about $90 and at $7 respectively.

Certainly I recognize that buying great names and letting the winners run is a great way to trade and invest.

And I do mostly ignore the broader economic trends that most of the mainstream media thinks most traders pay attention to, like the CPI and employment as measured by our government.

But I also saw the unwinding of a tech bubble that has left the Nasdaq still more than 50% lower than it was a full seven years ago. And even the best tech stocks got crushed in that downturn. Those folks who bought Apple in 2000 had to wait for six years to get even, for example.

I'm certainly not joining the permabear camp, and I'm not predicting a 75% decline in the Nasdaq like we had after the bubble popped in 2000. But neither do I have to be a vocal, leveraged, aggressive bull either. I will continue to focus on paired trades and finding great individual names.

I'm not going to get earholed by this market like I did in eighth grade by Tularosa, when we called a quarterback keeper trick play around the left end and I shattered my ankle into six pieces.

-

I can tell you right now even as I sold every last bit of my partners’ and my own exposure to the stock market by October 2007, that I, as usual, had beforehand taken a long, steady and slow approach to that selling.  It took more than a year before we had scaled out and we sold our very last bit of market exposure.

And I obviously got even more outright bearish as the collapse of the broader economic cycle became more apparent as 2008 took hold and the many virtuous economic cycles turned vicious as I outlined in the intro to the prior newsletter.

I would probably still have some long stock exposure today had I not taken this job as an anchor on Fox Business Network and decided that my new work schedule would make it impossible to continue running other people’s money.   On that note, I will tell you that despite all the intense pressure that comes from anchoring a national TV news show five days a week, nothing compares to the endless self-flogging that any successful money manager must endure to avoid complacency.

My mentor and friend, Jim Rogers, the legendary investor who helped co-found that little Quantum Fund with that little money manager named George Soros, tells people that the best investments are when you see a bag of gold in the corner and all you have to do is go pick it up.

The good news is that there’s lot of gold in these corners of our declining US economy.  The even better news is that this declining US economy will eventually turn itself back around.  The bad news though – come on, you know no good news comes without some bad news, right? – is that our US economy is likely to remain in decline and our stock markets in the bear markets that they are in, until we get some semblance of law back into our markets.

Unfortunately, the egregious TARP and Auto bailouts and the many bailouts that they portend along with the horrendous unintended consequences of shifting money out of the private, profit-seeking marketplace and into the political, vote-seeking marketplace is going to undermine any V-like recovery we might otherwise have enjoyed.   The huge stimulus and asset-inflation dynamic that our foolish, shortsighted, socialist government has put over on us hard-working, taxpaying, non-welfare/bailout citizens is likely to create some illusion of sustainable economic growth coming down the pike in 2009.  The markets will bounce off their lows as we plod along in this new socialist, less-profit-driven economy in our country, but I continue to expect that we’re rangebound between 7000 and 9500 on the DJIA.

Aggressive traders can look to buy any dips to 7500 (and get a bit long at 7000).  And they can look to sell any rip above 9000 (and get a bit short at 9500).   But for the most part, as I outlined in the inaugural RevolutioNewsletter, you’ll simply want to slowly but surely scale into the very best, long-term US-based companies.  Including the new one I add to the RevolutionPicks stock list below.  I’d also note that as the return on Treasuries turned negative today even as stocks have bounced nearly 20% from their recent lows, that I’d be looking for a serious hit to this stock market in the near term.  Investors and traders are fleeing to Treasuries and are willing to take 99 cents tomorrow – interest be damned.  That’s not healthy and certainly after the recent pop to stocks as they bounce here in the high 8000s, I’d rather be short than long when the Treasury market – much larger than the stock market in overall size – is not healthy.

Well, anyway…onto the long-term Revolution Stock Picks then…

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