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INM Jul '09 - Down On Dollars?
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net
The title of last month's INM article, "Leadership Expansion Needed To Fuel A Healthy Summer Rally", clearly identified the most obvious shortcoming of the current confirmed rally (read here). The Rolling Stones are still on the radio singing, "You can't always get what you want", and insisting, "you get what you need." Unfortunately, the market has not been getting what it needs to maintain a lasting rally.
In recent weeks, I have heard an immense amount of feedback from many clients – all of whom had no losses to complain about in over a year! It is never pleasant to be stopped out of a trade, and in a couple of instances that is what happened. However, we know that taking a small loss is often necessary to avoid having to take a much larger loss later down the road.
We do our best to closely follow a set of proven investment rules, not trade on a hunch or personal opinions. If a stock falls below your purchase price and hits your predetermined protective stop level (which is what happened with us) then it should be sold, without hesitation.
Regarding the overall account performance for our actively managed accounts, it is important to note that we are still outperforming the vast majority of money managers (mutual and hedge funds). It is important to compare like accounts, meaning compare our performance with any other money managers' performance and see how we did compared to them. I am confident we will have done rather well in that regard.
This has been a brutal bear market, and it has destroyed some of the world's largest financial institutions. The latest rally effort has produced little sound leadership to speak of. Our clients can see that our trading has been very limited, and it shall remain that way until a new batch of high-ranked leadership emerges. Additionally, the broader market (M criteria) concerns us at this point, since most leading stocks are now retesting important areas of support, or they have broken down completely. Until leadership expands, we are staying in cash. Until then, patience is key.
Pundits Almost Unanimously Bearish on Dollar
I felt it was worth framing up that point before sharing something that I found rather interesting in mid-June, when attending the Private Wealth Management and Fund of Funds Summits. During the 3-day series of presentations, discussion panels, and networking forums, pundits from Moody's, S&P, IMF, OECD, several giant financial firms including Wachovia (which owns Source Capital Group's clearing firm, First Clearing LLC) and other industry experts rambled and speculated about what the future holds. Nearly unanimous were the opinions that the US dollar will drop considerably in value (relative to other leading currencies) in the next couple of years. While I am also inclined to believe the government's overzealous spending plans are a serious threat to the greenback's buying power, the fact that it has already suffered an unprecedented decline in recent years cannot be overlooked.
At one point I had to ask, "Why is it so difficult for any of those we've heard pontificating to envision any plausible scenarios where the US dollar might actually rally against other currencies and surprise those who only now are betting that it will be substantially devalued?" John Lonski, from Moody's, a representative of the industry on the discussion panel, was quick to backtrack and acknowledge that indeed the US dollar is currently "under-valued" by many measures. However, he went on to argue some of the reasons why he believed it would get even more undervalued. Never mind the fact that Moody's is one of the ratings agencies currently being criticized for maintaining high "investment grade" ratings on paper that has ultimately turned out to be "junk".
The world's wealth could one day rush to the dollar as a safe haven again, and we need not speculate on what catalyst that would take. If or when that happens, there will surely be a huge crowd of "wrong way" investors who were betting on profiting on the exact opposite scenario. Investment managers who are anxious to make up the damage from past mistakes seem particularly vulnerable to losses by being on the wrong side of the trade yet again.
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net :
Kenneth J. Gruneisen has successfully completed the CAN SLIM® Certification Program. Mr. Gruneisen became a Registered Representative in 1987 and his career includes experience offering personalized assistance to investors with more than a decade of experience as a Registered Principal managing a branch office.
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