Michael Covel

I hope P.E.T.A. doesn’t condemn me for some of the marketing materials we are using for my film. Designers for my movie poster came up with the idea of shaving the movie title into the side of a sheep - spelling out the title that is. Since the shaving of sheep is standard practice, I expect our shaving efforts are acceptable. Poster to follow.

Note: These folks may have some problems with my use of sheep.

I mentioned the other day that one of the Turtles passed away. His name was Michael Shannon. I feel fortunate to have spoken with Shannon for my book “The Complete TurtleTrader”. Of all of the Turtles Shannon was perhaps the most open about the human side of the equation within the Turtle experiment. I hope to share some of Shannon’s recorded interviews in the near future. Words in a book are great, but sometimes hearing the actual voice adds an entirely different dimension to the story.

The Dow hit a high a year ago under the current President and Congress. The Dow hit a low October 2008 under the current President and Congress. If you are going to the polls in America this November to “vote” for the stock market and or economy to go up, I suggest that you seek counseling or therapy instead. Politicians are cheerleaders folks, not catalysts.

Maria Bartiromo interviewed John McCain today. In talking about the interview she mentioned that off camera before it started that she told McCain the market was up 200 points. McCain then asked why it was up 200 points. Now that is a depressing lack of knowledge on McCain’s part. Perhaps Obama is as equally lost when it comes to the market, I don’t know. I do know that hearing a potential President ask Maria Bartiromo why the market was up 200 points, after watching no one be able to predict October 2008, and after watching the random volatility of the last 30 days, makes me feel like getting drunk…and I rarely drink!

A reader, Dave Stancavish, sent me this today:

Hi Michael, I am re-reading an old favorite and came across a quote that made me think of your site, and your comments on market commentary headlines:

“I often wonder why it is that financial writers try so hard to determine the exact causes behind the action of a certain stock on a given day. Doubtless it is because their readers demand it. The variety of their interpretations is amazing. It only shows the futility of attempting to ever gauge market movements by published news.” Humphrey B. Neill, Tape Reading & Market Tactics, New York: BC Forbes Publishing Co., 1931, p.226

Thanks Dave. I saw this line from Mark Cuban today:

At no other time have their been 3 financial news networks and thousands of websites providing so much financial information and opinion. The sum of which has definitely lead us into a situation of “Paralysis by Bullshitalysis”.

Good point from Cuban. A point I make strongly in my film. The whole Cuban post is here.

Andrew Lahde made a ton shorting real estate. He posted a farewell letter as he closed down his hedge fund at highs. The letter has some arrogance for sure, but quite a bit of truth.

As I have mentioned trend followers have had a great October so far. However, it is worth noting how that happened:

1. Trend followers did not know stock markets would crash in October.
2. Trend followers have not made all of their money from shorting stocks in October.
3. Trend followers have made money off many different markets from oil to bonds to currencies.

Their unexpected October 08 performance reminds me of the 1998 Long Term Capital blowup where trend traders won big as well. If I could edit my first book “Trend Following” October 08 would be another “event” for chapter 4.

My comments above brought in this feedback:

Neither did anyone else know the stock markets would crash in October. “Buy and holders”  also did not make all their money from shorting stocks in October. Some of the rest of us also had some diversified holdings. Your observation was rather inane.

This poster missed the point. Trend followers have made lots of money in October 08. Most people don’t know that.

David Harding of Winton Capital outlines the fear of market closures.

I saw Arthur Laffer speak in the mid-nineties at a small forum. His op-ed in today’s Wall Street Journal is good reading.

I saw this headline on the front of the USA Today today:

Voter ‘anger’ has Dems set for big gains in Congress

Forget the political aspects of that headline, what’s with the ‘anger’ nonsense? Does this mean all those people who bought houses and condos with no money down, possessing no job, and now facing foreclosure and or bankruptcy are ‘angry’ at themselves or someone else? This was not just another headline designed to make the average guy feel as if he had no culpability? Let me get this straight. The entire market crash was all just a clever plan to get rich by Wall Street investment banks that have now gone out of business? The banks may have made dumb descisions, but so did the people speculating on dicey real estate. More than a few people have gone broke, and at the end of the day we all have to be responsible for our decisions.

This email was circulated from Salem Abraham today:

Dear Investors and Friends, Over the past several weeks many people have called our offices to inquire about our recent performance. Through this volatile period we have done very well. From September 1st through this past Friday the S&P 500 is -31.6% while we have made a gross return of +13.7% (net of fees, this puts us +23.3% YTD). It is also important to note that we have achieved this rate of return with very low volatility. On the attached PDF you can see the daily gross performance of Abraham Trading versus the S&P 500. The benefits of an investment with Abraham Trading Co. have been, and still are, that we are not correlated with traditional investments, including equities. Over the past 21 years our track records shows that we can make money regardless of the direction of the stock market or the overall economy. Despite our recent good performance, we realize we must stay vigilant in avoiding excessive risk while trying to capitalize on the opportunities that come along. That has always been our goal in the past and will continue to be our goal in the future.

I have a feeling Abraham will not be the only trend follower with such a message. Of course, and this is self-serving, Abraham is featured in chapter 13 of my second book for those looking to learn more.

I just received an email that one of Turtles passed away at the age of 53. Once I know more I will post more.

I bet trend followers wish October ended now…cause they are making bloody fortunes during October 2008 (See John W. Henry article). While the rest of the world sinks like a stone, trend followers with their “boring ole” stratgies are kicking major ass. Sure, whenever trend trading performance is high, a drawdown usually follows, but this time might be different. Why? With many of the “fast-money-long-only-leveraged-like-morons” hedge fund managers headed back to graduate school (or going back to live with their parents), we might just see an extended revival of trend following performance. Volatility is gold to trend followers and we have a lot of it now.

Note: In the John Henry article above it states:

“John W. Henry & Co. also has a lot more work to do before it recoups the nearly $2.7 billion in assets it lost this decade. Its total assets now stand at about $330 million.”

That doesn’t mean Henry lost $2.4 billion. It means clients left his strategy of trend following for the safety of real estate and long only the Dow.

Note 2: A look back to an angry reader circa summer 2007.

Lehman Brothers 52 week range is 0.02 - 67.73. No grand statement with that, but rather it is just a simple reminder that whenever a market collapses there are always opportunities to exit with more than nothing.

A good comment in from a reader:

“I am wondering why people spend tens of thousands of dollars and thousands of hours gaining designations like CFA, CIMA, and CMT? They all look nice on a CV or job application but none of them help you to accurately predict where markets are headed or how much they will move. There should be a Trend Following designation. I think that’s the only useful money management strategy. Reactive technical analysis, NOT predictive is really the only sensible way to make money unless you win the lottery or get lucky on a penny stocks or deep out-of-the-money calls.”

An interesting flash graphic showing areas hit hard by the S&L debacle over a decade ago and now the subprime disaster.

My post here brought in this comment:

You’re stubborn [sic] stuck on the faulty idea that investors who buy and hold don’t sell when they see problems ahead or brewing. Buy and hold is as valid an investment/trading strategy as trend following or reading tea leaves. The losses or drawdowns of some of your so called “great traders” are staggering; why aren’t they smart enough to get out when the trend goes against their position; they seem to buy and hold come hell or high water. As you so often say, “they just don’t get it”.  Neither do you. John Hudson.

There were legions of buy and holders “smart” enough to time the market to get out? Interesting. In terms of trend following, this post reveals no understanding of what trend following is, how it works, or why it behaves as it does. I am sure others out there will do a better job of correcting John than I. Please make responses, if any, educational not attacking. John does sound like someone caught in the last few weeks of a buy and hold down turn.

Mr. Greenspan sure had much to say. Perhaps it is a little unfair to find statements like that and assemble them with commentary, but then again what was he thinking?

This excerpt from Yahoo Finance offers sobering numbers for the millions upon millions who bought into buy and hold over the last two decades:

The Dow is down 39.4 percent from its Oct. 9, 2007 closing high of 14,164.53. The S&P is down 42 percent from its high at the same time of 1,565.15. The Nasdaq’s record high was 5,048.62, during the dot-com boom that swelled the index to levels it has not come close to regaining after the high-tech bubble burst. U.S. stock market paper losses came to $1.1 trillion Wednesday, according to the Dow Jones Wilshire 5000 Composite Index, which represents nearly all stocks traded in America.

How can anyone who has paid any money (read: fees) to any mutual fund manager over the last twenty years be happy about those expenses?

One of the interviewees in my film sent this along:

S&P low 1982: 102
S&P high 2007: 1576
S&P low on Friday: 839

(1576-102) * 0.5 = 737.

1576-737 = 839. So we retraced 50 percent of 25 years of work in 1 year and now everything is going to be ok? Think again!