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Gann Management Ltd- Celebrating 28 years of
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19th August
2008 |
BATTERED BRUISED BUT STILL AHEAD OF THE
PACK!
NOW IS THE TIME TO ISOLATE THE NEXT OPPORTUNITIES!
CASH & PATIENCE ARE KING
The heading of the last WTFH was 'Opportunities Emerge' and a number
of decision levels were intimated. This turned out to be ill-timed when
decision levels were smashed. These surprising market moves dictate that
extreme caution is essential…so much so that we are 100% liquid.
Whilst we have suffered a not inconsiderable drawdown in performance,
we have ammunition to guide us into the next areas of opportunity. We are still
well ahead of the pack with cash security, whilst my many years of experience
tells me that most others will still be in the land of 'Hope' with vulnerable
holdings in portfolios promising further losses along the line. Our relative
performance should then be further enhanced, subject to my ego not getting in
the way…just follow the market man!
Our priority endeavour in Bear
markets is to maintain capital despite the suffering of others and this aim is
still intact.
Currently it is not too
apparent if any immediate opportunities exist at all. If they do where are they
are to be found? One thing is apparent; we are in an extraordinarily high risk
environment where shares are flying all over the place with moves of up to 50%
per day in both directions! This spells danger indicating that patience is
likely to be the right path for the time being.
Our cash stance falls
in line with our 'Great Defence' strategy. As our strategy statement advises we
are never shy in taking total cash positions when considered necessary…but
a word of warning to investors. I have stated on many occasions that investor's
need wisdom to match that of the manager, a lesson I learned in the 1970's. I
took an identical stance as now from 1973 to 1975. One out of four of our
investors found cash holdings far too difficult to handle and withdrew from our
management. The general feeling was of dissatisfaction for my appearing to do
little and therefore not earning my corn. Furthermore there are those old
arguments that markets always go up in the end and that the markets after a
while are far too low. These are desperately put forward by the marketing arms
of the financial institutions as their costs remain generally static and their
business contracts. To counteract these views an investor in 1929 would have
had to wait until 1957 to get his money back. An investor buying in 2000 would
probably still be losing on his holdings.
Gann advised that it is never
too low to sell provided the trend remains down.
Due to my inexperience
I failed to explain that being fully invested is an easy period in which to
manage with little effort required whilst being in cash demands continuous
vigilance, extreme amounts of work and a great deal of expertise and courage.
Take it from a 70 year old doddering idiot this is what is required now.
"70 year old doddering idiots have the experience that
counts....and stay away from the Harvard Business School cum Wharton fellows
who have everything figured out. They identify cycles with washing machines."
Of course I couldn't possibly go along with this extract from
Harry D, Schultz's 'Panics & Crashes and how to make money out of them' but
I can recommend the book written in 1972 which simply explains why the world is
in such a mess now!
In the event I found the
bottom of the UK stock market on the 28th December 1974, as per the Gann
analysis shown, and entered the stock market, making substantial profits in 3
months. These profits were then reinvested into UK 25 year Gilts with a 16%
annual return thus guaranteeing investors their pensions from 3 basic decisions
of cash - equities - gilts.
We are now probably at the cash position
stage. I would not be surprised to see a repeat of the 1970's stagflation
scenario (rising inflation with a declining economy) with a two year market
low, way way down from here. True bargains will then reap rich rewards for
those who follow the markets rather than listen to Hans Andersen's fairy tales.
The chart above could prove a mirror of the market onwards with us now being in
1973.
At the moment investors are in a much cheerier position than
those in the 1970's…they can make money from falling markets and there is
a far wider range of opportunities world wide. The question is how long will
this last? The odds are heavily in favour of politicians directing their venom
onto others against 'shorting' in an attempt to disguise their own incompetence
and past shenanigans. In the 1970's it was Britain's creepy Prime Minister
Harold Wilson who blamed the Gnomes of Zurich for his woes. This time it is
likely to be speculators both large and small and down will come the
chop.
The lesson here is to make hay while the sun shines…so let's
get started. Whilst I am finding the current scenario fascinating it is not
easy to develop a clear vision of where major opportunities are likely to
occur. This is despite my comprehensive weekly analysis of all speculative
markets. You may not find this particularly inspiring but that is the way it
is. It may mean that time is required before the various pieces fall into
place…so what are the pieces?
WORLD STOCK
MARKETS
Last week I was hearing the IQ whizz kids making
fundamental inspired guesses that the markets are ready to advance with the US
leading the pack. I only have one problem. Almost all of my potential US
signals are 'shorts' with 5 potential buys and 29 shorts!
Indeed
current analysis is still pointing to markets in all areas being vulnerable to
bearish pressures with most wobbling or falling under support or resting just
under heavy resistance. Only last week my analysis reported bullion and gold
stocks nearing possible buy signals…then wallop - supports were smashed.
Today's scenario is demanding perpetual re-analysis resulting in endless
updating of decision levels.
This weeks World Stock Market report could
only drag up the Canadian Comp & Gold indices as contenders for bullish
attention. Over the last two days even these markets are under pressure and now
look vulnerable.
The conclusion from the analysis must be that only
'shorting' is of interest on rallies which directs attention to sector
analysis.
EURO, UK & US SECTORS
This
weekend's assessment has brought out no less than 15 bearish indications for UK
sectors; 8 bearish for Euro Sectors and 6 for US sectors…much work to do
here.
The bullish sectors are just about holding support despite recent
weakness being Euro Basic Resources and Oil & Gas; UK Mining and Oil &
Gas; US Biotech, Natural Gas & Drugs. Buys in most of these sectors are
already lined up.
THE CURRENCY MARKETS
This is an
area which I have ignored for some considerable time due to the narrow trading
ranges in which most crosses found themselves…recent breakouts have now
created significant interest. This area is high on our agenda for near term
opportunities.
THE ENERGY MARKETS
On the 28th July
of this year the Focus Service analysis of Crude Oil clearly Indicated, after
an angle failure, a fall to the 110 level before support would be possible.
We are now at that level.
In support Natural Gas, Heating Oil
and Gasoline have also reached anticipated support. We only now require
strength from here to signal buys and in some cases a little time to elapse
before the supportive timing angle is met.
I have today updated the
Energy stock report which is identifying a myriad of possible buy signals. It
is worth asking the question; what will the stock markets do if the price of
oil reverts to the upside?
I suspect the possibility of carnage if the
rise is strong and protracted.
THE BOND
MARKETS
Again we have not found the Bond/Gilts markets of
particular interest during the year despite us isolating the lows of May. This
was due to the narrow trading range which generally speaking we tend to avoid.
Gilts have now reached resistance and weakness is now expected. If I am wrong
then this surprise will invoke buying interest. US Treasury Bonds and Bunds are
in similar positions with interest being aroused on further strength…so
all is not yet lost.
NATURAL RESOURCES
After a year or
two of progress Natural Resources have taken a beating over the last 3 months
dropping 33.33%. There are now signs that the downward path could be reversed.
Our latest Natural Resources report highlights no fewer than 19 possible buy
signals and the sector analysis is just about hanging on…interesting on
strength.
GOLD BULLION
Bullion surprisingly broke under support
at 850 and is now headed for 743. This being the level where the 2006 top is
located together with growing support calculations. A little more weakness is
indicated before opportunities may develop. A good deal of work is necessary
here on the Gold Mining stocks which also broke their decision levels before
signalling.
TO BE CONTINUED....
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