June 26, 2012
Last Friday I reminisced about accompanying my Mother to Foley's Department Store in downtown Houston. I noted that the bargain basement sales were similar to the stark atmosphere of a Sam's Club, the bare plywood almost screams 'bargain basement' the same way the scattered piles of clothes did in Foley's basement.
The NYSE is a department store as well. What 'blows your skirt' as one of my clients used to say? Retail, automobiles, banks, health care, you name it, it's all present at the NYSE. And sometimes special sales are held in these various departments. This is one of those time.s The media however does not emphasize that a sale is taking place. Instead they frame the price mark down with the same headline that accompanies a tsunami in Japan or Indonesia.
Now honestly have you seen a story like this
'GDXJ Marked Down to 2010 Price Levels'
Did you miss out on the run in GDXJ from 20 to 40, were you kicking yourself as gold ran from 1100 to 1900 and GDXJ doubled? Well good news, the NYSE has a come on back sale with GDXJ reduces near its all time low around twenty bucks. Back then gold was trading at $1,000 an ounce, a whopping $600 under today's price.
Instead you get stories like this
Gold No Safe Haven amid Euro Difficulties
Investors hoping that their gold mining shares would be a safe harbor from the ills of Greece, Spain, Portugal, and Slobbovia have been mightily disappointed. Share prices have sagged back to 2010 levels gutting a full 50% of the value from portfolio highs.
This of course makes it psycholologically difficult to buy.And so the public sells at the bottom.
But department stores do not have all the sales scheduled for the same time. The sales in different departments occur at different times. This keeps a steady stream of shoppers coming back to the store.
The fact that different markets bottom at different times also gives the media new ammunition to dance on the grave of the latest fallen idol.
GDXJ bottomed first on May 16
The SPX for those interested bottomed June 1
Crude Oil is bringing up the rear bottoming June 21
both GDXJ and SPX have put in a pattern of higher lows since then. But the media does not report that, instead we get all day long 'news that 'stocks plunged amid Euro uncertainties.' As one can see every couple of weeks the media has had another 'new low' for another gloom and doom headline.
Crude Oil and XES
One analyst believes crude oil will fall to $70, who knows, in a time of panic it might. But if history from last summer repeats, and I expect just that, whatever the low price is, it won't last long, that is the nature of the frantic shoppers in the bargain basement.
Yesterday I doubted oil would fall much further. The reason is that it is putting in a higher low along with other commodities like gold and silver. Again XES is back to Sept 2010 price levels even though the oil field activity is at 1981 all time peak levels.
But as I say, when social mood is as erratic as it is now, crude prices are all over the place. Thinking that one will be clever enough or has enough time to stay glued to the monitor to pick the bottom is the height of self delusion. The better idea is to place orders in lower succession in small amounts for what you want to buy.
Handily the NYSE 'answers the phone' and will take such orders, Foley's never did, one had to drive downtown and arrive in person. First come first serve.
Buyers at Foley's were fairly rational, the cheaper the goods became, generally the faster they sold. But buyers at the NYSE do not always act in such a fashion.
So here is a fundamental question for our readers. If I offered you an unlimited amount of twenty dollar bills (just for fun let's sweeten the deal to a twenty dollar bill plus nine cents) for $19.91, how many 20s would you buy from me? No that is not a misprint, if you could buy $20.09 for less than $20 would you do that?
Surprisingly the buyers at the NYSE have passed on such a deal. One reader e mailed me complaining about the deteriorating quality of this blog for even suggesting such a thing. You see
General Motors has $20.09 a share in cash. Yesterday it closed at $19.91. Book value is $18.43. GM has tax credits such that it will not pay any Federal Income Tax for years courtesy of the Obama bailout. It is big in China and is making billions of dollars.
You tell me, is that a buy?
I have no idea where the low will finally be but we have the same setup as when I recommended it in December. The fundamentals are simply incredible but I have not seen a single analyst recommend the stock on CNBC or Marketwatch. The WSJ did run an article on the difficulty of changing the GM culture. Nothing like negative news at the bottom. I am not suggesting you mortgage the farm and buy GM but I am not selling the 400 shares purchased two bucks higher. True many in the public will not buy the stock because of the bail out.
And so it goes. How many of us loaded up on silver at $3.50 or gold at $280 aorund Year 2000. Or did you buy Exxon at $30 in Year 200 when crude oil was less than $20? Today XOM is about 80- bucks and has paid a dividend every quarter.
It was easy to buy at Foley's when the sale was in progress, Mom never failed to do so.
It's a lot harder at the NYSE Department store. The media which runs the ads for today's department stores never does the same in their news stories about the stock market. A great buy in the Ad from Target Department Store is never echoed in the financial section. Buyers instead are rushing into the ten year note which yieldds 1.6%.
Go figure. Thanks for reading The Market Perspective.