(B)(N) Extreme Economics – Red Sky In The Morning (The NYSE Mega-Caps)

Figure 1: Red Sky In The Morning/Sailor Take Warning

Drama. It started in Shanghai but when it reached the Dow, the Dow had the biggest intra-day market decline “in all recorded history” (CNN Money) and Monday, August 24 is now called a “Black Monday” and it is one of many such Mondays; please see Figure 1 on the right for this one.

But (sailor take warning) the market has bounced back to even higher levels and we need to deal with that today because Wall Street is in the business of trading our money for stocks and they do it with an awesome efficiency but they are not in the business of making money for us. That’s our job. Thank you.

Figure 2: The Bear Market at still high prices

And the doom is pending and we can deal with it, but it’s a doom that is made in Wall Street and there’s no reason for it (although they’ll think of something) because the market has already defused since last year and nothing else has changed.

But there is more and more money into fewer and fewer stocks and that has to change; please see Exhibit 1 below for the current tally and Figure 2 on the right which clearly shows that we are already in the Bear Market at still high prices and how that ends depends on the investors and not on the companies of which there are only a few thousand and nearly half of them are on sale now in our World Trade portfolio and about two dozen in the NYSE mega-caps that we’ll look at in Exhibit 2 below with more to follow.

But all of the advice from Wall Street is that regardless of the pending doom made on Wall Street, for which they have given us a fair warning in the daily chatter, we should all still walk around with live ammo in our pockets and pure profits in our portfolio at the market price when all that we really need to do is tighten-up our stop/loss prices, good until cancelled, and let the market decide what they want to pay for the stocks that we own – if more, fine; if less, that’s fine too, and we can go shopping for more deals at lower prices and higher dividend yields with more of their money in our pockets.

In other words, the storm is coming and there’s nothing that we can do about it – what would the World be without the weather? And we can sink with Wall Street or we can batten-down the hatches and let out the sails; please see below for today’s Weather Report in New York and what we’re doing about it because all of this activity and billions of trades every day with loose money at high prices is about the earnings and dividends of a few thousand companies and who owns them and when. Count us in.

S.O.S. Save Our Souls

The reason for this Bear Market at high prices is that the price of an income is high, and it’s high because we are working through a global deflation that isn’t going to be solved on Wall Street which is only hoping to cash-in on the high prices and buy some cheap government bonds at higher interest rates and lower prices – after all, if we’ve doubled our money in the stock market then a 2% government bond yield doesn’t look all that bad because our income will be higher than before and that calculus has nothing to do with risk. 

But there aren’t any of those in New York – they’re in China and Brazil or the anemic depressions in Canada and Russia that offer buying opportunities for patient money at lower prices in a cheaper (or cheap) currency.

On the other hand, there are some things in this Bear Market at high prices that we can buy now at low prices and collect our dividends while we wait for the (B)-class to sink (or not); please see Exhibit 1 below for the Weather Report on the NYSE Mega-caps and Exhibit 2 for the Special Eds of which we expect many more in due course and a better use for our cash than just in the bank while the (B)-class is sinking and hitting on our stop/loss prices (or not) (and click on them and again to make them larger as required).

Exhibit 1: The Weather Report and The Price of an Income

Figure 1.1: The Weather Report & The Price of an Income

Exhibit 2: The Special Eds in the Opportunity Class

SLB Schlumberger Limited (Wall Street 35)	WFM Whole Foods Market Incorporated (Wall Street 35)	APA Apache Corporation (NYSE Mega-cap)
APC Anadarko Petroleum Corporation	BAX Baxter International Incorporated	CAT Caterpillar Incorporated
COP ConocoPhillips	CVX Chevron Corporation	DVN Devon Energy Corporation
EMR Emerson Electric Company	EXC Exelon Corporation	FCX Freeport-McMoran Cooper & Gold Incorporated
FOXA Twenty-First Century Fox Incorporated	HAL Halliburton Company	HPQ HP Incorporated
IBM International Business Machines Corporation	MON Monsanto Company	NOV National Oilwell Varco Incorporated
OXY Occidental Petroleum Corporation	QCOM Qualcomm Incorporated	UNP Union Pacific Corporation
UTX United Technologies Corporation	WMT Wal-Mart Stores Incorporated	XOM Exxon Mobil Corporation

For more information and examples of the Free Market Yield and the terms that we have used above, please see our Posts “(P&I) The Dismal Equation (Ecclesiastes 9:1)” and “(B)(N) S&P 100 Volatility Risk and The Full Moon” and “(B)(N) NASDAQ 100 Volatility and The Stone Bunnies“ and for an introduction to The Barometer “(B)(N) What’s A Girl To Do” or “(P&I) The Swiss Franc Debacle“.

And for more information on real “risk management” in modern times and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary and “(P&I) Dividend Risk and Dividend Yield“, and our recent Posts “(P&I) The Profit Box” and “(P&I) The Process – In The Beginning“; and we’ve also profiled hundreds of companies in these Posts and the Search Box (upper right) might help you to find what you’re looking for, such as “(B)(N) TLM Talisman Energy Incorporated” or “(B)(N) ATHN AthenaHealth Incorporated” or “(B)(N) PETM PetSmart Incorporated“, to name just a few.

And for more applications of these concepts please see our Posts which rely on the Theory of the Firm developed by the author (Goetze 2006) which calibrates The Process to the units of the balance sheet and demonstrates the price of risk as the solution to a Nash Equilibrium between “risk-seeking” and “risk-averse” investors within the demonstrated societal norms of risk aversion and bargaining practice. And for more on The Process, please see our Posts The Food Chain and The Process End-Of-Process.

And for more on what risk averse investing has done for us this year, please see our recent Posts on “(P&I) The Easy (EC) Theory of the Capital Markets” or “(B)(N) The Easy (EC) Theory of the S&P 500“, and the past, The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class action, La Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in America, Big Oil, Shopping in America or Banking in America, to name just a few.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”). The Canada Pension Bond®™, The Medina Bond®™, The Barometer®™, the Free Market Yield®™ and Extreme Economics®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.