McKern’s Market Report 8/6/06 (No.1)
June 8th, 2006
Well, I been throwing off “other peoples posts” for months now, like crazy, and writing this and that but its time I bit the bullet. The real purpose of this site was to create a framework that would bring discipline and planning to my investing and trading. Over the next 48 months massive opportunities will unfold and these market reports will record the successes and failures, the stories that drove my trading, my big picture view and the trading plans going forward.
Over the last few years I’ve been on the right track but impatience and inexperience cost me dearly. If I had stopped trading in June 2004 my account would now be worth over $250,000. I saw the commodity bull coming back in 2002 and started buying Oxiana, but after losing my job in 2004, I got hot for a big win, lost perspective and blew up shorting the US market that year. A big mistake!
OK, lesson learnt. My first piece of advice therefore is to remind you all to remember Buffet’s first two rules for making money in the market.
1) Don’t lose money. 2) Don’t forget rule 1.
Market Action
Well, its looking like a bear market guys. The cyclical bear within the secular bear is back. Clearly, in my view at least, the US Bull market ended in 2000 and the action since then has been a massive topping formation that ended three weeks ago. I think that there is a 80% chance that the Australian market has joined the bear, but there is a small chance that we will see new highs before we experience the really major correction. The odds that new highs for the market indexes are dead ahead, are however getting smaller every day. Japan’s monetary base is shrinking and world liquidity is in decline. As Faber has pointed out, we were in a situation where stocks, commodities, bonds, gold and everything else was going up. When assets that do not normally move together do so, its liquidity driven. That the world’s “money preasure” is falling is clear and the impact showed up in the fingers and toes first, middle eastern markets are down 50%. In fact, Icelandic bonds were the first domino to fall, followed by emerging markets and commodities, followed by problems in Asia the US. What I expect is that the US market will continue down until mid October at least. I’s say 8000 on the DOW is a reasonable target. As for the US gold indexes, near a bottom, I’d say, but of course I might be wrong: in a market driven my margin calls and defensive selling everything is going to get sold off if we get a crash. The odds of a crash to DOW 8000 are about 30% and rising. Stay posted.
Currently I’m long Oxiana, both warrants and shares with the expectation that today represents the floor for the stock. I an also short the DOW via Citi warrants. That trade is looking good. Of course, I’m kickin myself I went short too soon and didn’t sell my OXR at the May top and load the boat with more shorts, but the way I hedged my longs with June 11,000 puts does look like protecting me from losses. But as I was expecting the market to turn, I really messed up because I didn't have the stop set. No matter, it won’t happen again.
The only way to play this game is with planning and discipline and by making my positions and thinking public, I’m hoping to shame myself into introducing some. I also hoping for feedback and questions from readers.
The future for all commodities and metals, in particular Gold, Silver and Uranium is very bright and my combining the best that fundamental and technical analysis have to offer a disciplined investor must succeed. The markets, reflecting as they do the nexus of geopolitics, economics, technological change sit at an important juncture.
I look forward to reporting on the ride…