The Rude Awakening
Wall Street, New York
Thursday, January 19, 2006 ------------------------- - Learn how to see through the luminous lust of a fresh
bull market and secure your investments,
- The bull traps are set, make sure you don't get your
feet caught early in the season and,
- Someone else preparing your food and clearing your
dishes…what's to complain about?
------------------------- Eric Fry, musing from Rancho Santana, Nicaragua… The night before departing from Baltimore for the balmy and
inviting Pacific coast of Nicaragua, your editor strolled
into the Oceanaire restaurant for a pint of beer and a
dozen Malpeque oysters…Seven oysters into the meal, the
bartender volunteered, "I've been doing this for 20 years."
"Oh really," your editor replied politely. "Yep," the bartender continued, "I spent 17 years in Aspen
and three down here. So I've seen it all. I've seen every
kind of a**hole you can imagine." "No doubt," we blandly responded. "I spent almost 10 years
in the restaurant business myself, part of it as manager
off the Hard Rock Café in Los Angeles. So I'm pretty
familiar with a broad range of personality types - the
good, the bad…and the ugly drunks." "So you know what I'm talking about!" the barman smiled.
"Y'know, I've read that there are now about 900,000
restaurants in the United States. And you can be sure that
every single one of those restaurants serves at least one
a**hole per night…and many restaurants serve more than
one. So that means that there are more than one million
a**holes roaming around in American restaurants every day!" "I hadn't thought of it that way," we said. "Yeah, well YOU know it's true…and I just don't get it.
How can a person act like a complete jerk in a restaurant?
There's just nothing better than going out to dinner. You
don't have to cook and someone's waiting on you the whole
time. How can you be a jerk in a situation like that?"
"Unfortunately," we said, "It's much easier to check on
overcoat at the front door than a lame attitude." "Very true," the barman continued. "The thing I really
can't stand is arrogance. I can't stand these people with
entitlement disorders. I could understand being arrogant if
you were someone like Mick Jaggar. I mean, he's kind of
earned it. But if you're just the CEO of Acme Plumbing or
something, don't be strutting into my restaurant with an
attitude. Just because you terrorize your employees all day
long, and they're afraid of you, that means nothing to me.
Guys like that are pathetic." "Agreed," we replied. "My most memorable moment in the
restaurant business involved a guy just like that. He shall
remain nameless, but he was - and still is - one of the
game show hosts on TV, and he seemed to imagine himself a
kind of movie star. One busy Sunday afternoon, he visited
our restaurant with a small group of friends. About 15
minutes after I took their order, I informed them that the
chefs were a little backed up and that the meal would be
slow to arrive. The game show host said nothing. About 15
minutes later, however, as I was bringing more bread to the
table, he exploded into a rage. He launched into an F-word-
laced tirade about my @#!#@! service. "To which I replied, 'I'm very sorry Mr. X, I'm trying to
get the food out as quickly as the chefs will allow…By
the way, do you happen to remember me? I'm Eric Fry. When I
was in high school, I used to attend church with your
daughter.' The game show host gasped, blushed, stammered a
profuse apology and, eventually, left a very large tip." "Great story," the bartender chuckled. "I'm actually in the
process of compiling a book of real-life anecdotes just
like that one." "Well, I work for a publisher," I informed him. "Let me
know if I can help." "Oh wow!" said the barman, "You write too?" "Yes, after working a decade in restaurants, I've spent
more than a decade as a professional writer. So I know how
to punctuate a sentence and I also know how to make a
Caipirinha…In fact, I've been known to do both at the
same time…" Two days have passed since the conversation with the
Baltimore barman, and your New York editor finds himself
without Caipirinhas, but with many sentences to punctuate,
nonetheless. Yet, he suffers his privation stoically…in
the knowledge that it is only 7:00 A.M. here in Nicaragua.
It is a wee bit early for a cocktail, as the sun is just
beginning to peak above the eastern horizon and to illumine
another impossibly gorgeous day in this Pacific paradise. These early morning sunrays also cast a glare across the
screen of your editor's laptop. But again, he suffers this
adversity without complaint. Instead, from his cliffside
perch above the Pacific, he absorbs the soothing sensations
of this Central American Eden - the rhythmic pounding of
the waves some 300 feet below, the balmy, intermittent
breezes, the procession of pelicans gliding past…and the
rapture of being somewhere other than New York City. This place is utterly intoxicating…and your editor is not
easily intoxicated. If, therefore, today's column lacks its
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http://www.agora-inc.com/reports/SRR/ESSRFC12 ------------------------- Lost in Love
By Eric Fry A rallying financial market is like a new romance. Warm,
fuzzy feelings triumph over all other considerations. The
impulse to criticize, or even to analyze, recedes into the
anesthetizing bliss of gentle kisses, candlelit dinners and
afternoon delights…like strolling through the botanical
garden, for instance. But of course, suppressing one's critical faculties rarely
produces a favorable result, especially when romancing a
financial market. So please allow those of us who are not
so easily swept off of our feet to express the negative
thoughts that very few investors can bring themselves to
consider. The financial markets currently contain a number of
ravishing and alluring rallies. And though we are
captivated by these beauties, we can no longer suppress the
urge to examine their blemishes. To preview the conclusions
of our dispassionate analysis, many of the financial
markets that have been going up might soon start going
down. Specifically, U.S. stocks, emerging market stocks and
gold. Although no single influence could explain the simultaneous
rallies in these markets, they all seem to be responding to
the flash flood of institutional money that has been
pouring into financial assets since first trading day of
2006. This cascade of institutional money often produces
booming New Year's rallies, and this particular New Year
has been a classic case. But we are leery of these fleeting
financial floodwaters, knowing that they can disperse
almost as quickly as they first rushed in. In particular,
we are leery of the rallies in U.S. stocks and gold. We
expect both of these asset classes to correct very
soon…and only one of them to make a meaningful new
advance later this year. "There's nothing like a one-way up stock market to force
opinion into the bullish camp," remarks Jay Shartsis, a
seasoned options trader and savvy market observer. "One of
the sentiment surveys, the 'Marketvane,' just recorded a
three-week average of 71% bulls. In 18 years of data, this
is the second highest number of bulls ever seen. The only
higher time was in the summer of 1997, which preceded the
Asian currency crisis and a 15% drop by the S&P into
October of that year. "It is interesting to observe that during the greatest
stock market mania in history, the period of 1995-2000, the
'Vane' survey only had one three-week period of more
bullish respondents than it does presently. Momentum rules,
but what happens when it burns off?" Shartsis also notes that the usually correct commercial
futures traders (the 'Commercials,') have acquired a net
short position in the S&P 500 futures that is larger than
any prior short position of the past five years, save for
two instances. Those two prior extremes occurred just
before the market peaks of December 2004 and February 2001. "It can then be said," Shartsis observes, "that the
Commercials' current short position does not at all support
the notion that a new rally phase has started. Taken alone,
this indicator suggests that this rally will turn into a
bull trap." But the U.S. stock market is hardly the only financial
market to display troubling blemishes. The rallies in
emerging market stocks, oil and gold are all displaying
defects as disturbing as bad table manners…or leaving the
cap off the toothpaste. We are particularly disturbed by the parabolic price spike
in gold, and also by this precious metal's remarkably
extreme new-found popularity. "The Daily Sentiment Index (MBH Commodity Advisors) reached
93% bulls on gold last week." Shartsis notes, "That's an
extreme not far from the super extreme 96% bulls recorded
at the December peak of gold prices. "Further, the distance in which gold is trading above its
200-day moving average has reached levels even more extreme
than it did at that December price peak. This sector could
use a pullback," he concludes. Meanwhile, the Commercials have also established a very
large short position in gold futures. Their current net
short position totals more than 150,000 contracts, compared
to only about 35,000 contracts one year ago. The hefty bet
by the Commercials on the short side of the gold market
does not guarantee a selloff of course - not as long as
Iran continues advancing its nuclear program, anyway - but
neither does it bode glad tidings for gold investors.
Net-net, our passion for both U.S. stocks and gold has
faded somewhat…at least for the moment. But just because
we find a blemish or two, doesn't mean we have to end the
romance. For example, we are still in love gold…but the two us
just need a little time apart. [Joel's Note: We've certainly found ourselves in similar
positions before, both romantically and financially. There
is nothing worse than going against the advice and
indicators then finding yourself in a bull trap.
Fortunately, one man knows how to play BOTH sides of the
market with such effectiveness that you are almost
guaranteed to come out on top. Learn the easy way to make
money on the raging bull and the timid bear right here: Play both sides for larger, more consistent profits
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