Friday, November 06, 2009

BAGAKOAA; November 6th, 2009 What do you want to know?

November 6th, 2009 What do you want to know?

The last week was interesting in the market. While the overall market recovered some of its losses from the week. . . Ok I know I am starting sound like all the other Investment Wall Street news pieces. Thank you goes to a couple of people who mentioned this to me.

One of you recently asked me why I write this blog formerly know as the BAGAKOAA newsletter. I do it to keep myself honest. I do it to put my thoughts down on paper so I can make sense of it. I do it because there were a growing group of people who I would talk to about stocks and I wanted to make sure I had a record of who I told what, and not give one person information and forget to tell someone else. It is also helpful to have a narrative reasoning to some of the decisions I make when I look back. That is why I do it.

In looking back at some of the posts, I agree that I am in many cases just regurgitating the news of the day that you can find almost anywhere. There will be an effort made to make it more relevant although I know there are a handful of you who have been doing this stuff a lot longer and better than I and there a few of you who are just now considering making your first investment.

For example some of you know the details make up of Core PCE inflation, some of you are going right now to Wikipedia to look it up, some of you don’t care, and many of you stopped reading at the top of the page when I said “The last week was an interesting week in the market”. (Core PCE inflation is the measure of inflation without some of the volatile component like gasoline, food and utilities.)
When we consider that Core PCE inflation has been consistently below the Federal Reserve’s target price of 1.7-2.0%, what I try and remember is that this means that the Fed probably won’t bump interest rates which usually plays well for the overall market. We also need to keep in mind that a prolonged low inflation level can lead to deflation, where the purchasing power of the dollar increase but not for good reasons. Lower prices begets, lower production, begets lower employment, begets lower prices, begets lower production begets, you get it. Anyone regardless of their investment experience can get that and realize that we might see an upside short term, but we must protect our gains aggressively.

There was a lot of economic news to digest this last week. We had the ISM Mfg index, construction spending, motor vehicle sales report, several retail sales reports, factor orders, mortgage applications report, several employment reports, wholesale trade report and of course the unemployment report from today. Yesterday I predicted that anything above a 10.1% would whack the heck out of the market and I was wrong. The 10.2% did not have much of an effect.

The week ahead looks light. I will anxiously look forward to getting my Baron’s Magazine to confirm that it will be a light week of economic info, but here is what I know is due out: the usual retail sales reports, new jobless claims on Thursday, petroleum inventories, and the most relevant one would be the international trade report on Friday. It’s called a trade deficit report because we are usually in a deficit position we import more than we export. We should see a drop in the deficit next week because of lower fuel demand and some sizable airplane deliveries from Boeing. The continued erosion of the dollar doesn’t hurt either.

I see no significant changes in my portfolios over the weekend. One of you called me a day trader this week. Ouch! I did add to my new position in And I did take a short position on MCD at 61.61. I did this about 4 weeks ago and got burned. This is a risky attempt to prove my channeling strategy for MCD. I am in at the 61 and will get out at 64 or take my gains at 53.

Salve Lucrum


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