Previous Columns
9:00 AM EST, Tuesday, May 19, 2009. My friend Pete Howley emails me. He's ecstatic. He's 100% invested in the market. He's a big fan of a group of brokers called The Vick/Cho Group of Santa Rosa, CA. As evidence of his brilliance, he emails me their latest (last night's) investor email:

Well, well, well, the "pain trade" continues for those out of the market. Those out of the market include some really big institutional investors and hedge funds. Fuming as they watch their screens turn green and stocks run higher. These investors who are underperforming by not "being in" are in agony. The momentum and the path of least resistance for the time being is up. Any meaningful pullback will undoubtedly bring these investors in to the market and halt the slide. That being said, our Chief Market Technician, Bruce Kamich, feels that the market will continue higher through the end of this month or early June before a meaningful decline begins. The key is to be disciplined, nimble, and to take profits in those stocks or funds that have been the weakest performers to date, keep the proceeds in cash, and wait for the next rebound to come after the pullback. Tactical investing is the key to performance currently versus classic buy and hold. We are also seeing a rotation out of the traditional growth stocks and discretionary sectors into more defensive healthcare and staple stocks.

Equities started the week on a positive note on Monday, May 18, as investors ventured back into the market after last week’s sell-off. In our view, improved housing data and a better-than-expected earnings report from a major home improvement retailer were the main catalysts for today’s strength. Additionally, we believe that investors engaged in some bargain-hunting after the 5% correction in the broad-based S&P 500 last week. For the day, the blue-chip Dow Jones Industrial Average jumped 235.44 points, or 2.85%, to 8,504.08. The S&P 500 Index gained 26.83 points, or 3.04%, to close at 909.71 and the Nasdaq Composite rose 52.22 points, or 3.11% to 1,732.36. Of the 10 S&P 500 sectors, nine closed in positive territory. Financials led with gains of 7.2%, while Utilities stocks finished the day unchanged. Breadth was decidedly positive, with over 91% of New York Stock Exchange Composite stocks finishing the session higher. ...

Of course, I'm one of those "pain trade" investors. I'm largely out of the market. I believe:

1. We remain in a long-term bear market.

2. I'm not talented enough to play the "tactical investing" game. Sometimes I win. Sometimes I lose. The pain is not worth the pleasure.

3. I don't believe anybody is winning, excepting maybe Pete Howley.

I don't need to re-publish yesterday's earnings chart from ChartOfTheDay showing the huge earnings fall.

It's really hard to have a bull market when corporate earnings are the lowest they've ever been.

Nor do I need to publish this chart which I received last night, along with a note that said, "Things are much worse today." (Which they aren't.)

Nor do I need to publish Richard Russell's email from last night:

May 18, 2009 -- "Less bad" is the new "good." And "Green shoots" are the new potential economic miracles.

The most difficult and puzzling study of the stock market is that which deals with secondary reactions against the primary trend.. Because we're in a bear market, I'm going to limit the following discussion to (upward) reactions in bear markets.

Over the weekend I pulled out my volume of Robert Rhea's "The Dow Theory." I went over some of Rhea's comments on secondary reaction in bear market.

"For the purpose of this discussion, a secondary reaction is considered to be an important advance in a bear market, usually lasting three weeks to as many months, during which interval the price movement generally retraces from 33% to 66% of the primary price change since the last preceding secondary reaction.

"Those who try to place exact limits on secondary reactions are doomed to failure, just as surely as would be the weather man who forecasted a snowfall of exactly three and one half inches within a specified time.

"In a bear market steady liquidation of securities by those who prefer or need cash reduces quotations day after day, with professionals, realizing there is more room on the bottom than on the top, hastening the decline with short sales. Eventually, the market is forced to a lower level than is warranted by conditions. The short interest is perhaps too extended, with wise traders sensing the fact the liquidation has, for the time, at least, run its course.

"Quiet, weak spots in bear markets are generally good ones to short, as they generally develop into serious declines.

"In a primary bear market the rallies are apt to be violent and erratic, and always occupy less time than the decline, which they partially recovery. Often the primary movement of several weeks is retracted in a few days.

"Rallies in a bar market are sharp, but experienced traders wisely put out their shorts again when the market becomes dull after a recovery.

"In bear markets, primary movement has an average duration of 95.6 days, whereas the secondary movement averages 66.5 days or 69.6% of the time consumed in the preceding primary movements."

All the above pertains to the price action during rallies in bear markets. But what about business conditions during bear market rallies? My studies show that bear market rallies are technical phenomenons which do not necessarily reflect on business. I'm looking at a chart of the great 1929 to 1930 rally which occurred after the 1929 crash. The Federal Reserve Index turned down in late-1929, and despite the great bear market rally, the Fed Index continued lower into early 1932.

But what of all the "green shoots" talk that is no so prevalent today? I believe these are mostly hopes and wishes. The government and some economists are so anxious to be bullish, that they attach the green shoots level to any area where matters are becoming "less bad." Green shoots and "less bad" are part of the current desperate government propaganda program. It's the same in the stock market. Any rally in the Dow is a sign that the market is in a marvelous recovery of its disastrous losses on 2008-09.

Entrepreneurship remains strong: I love this story from Forbes:

Why Kindle Will Have To Change
It's easy to criticize Amazon's Kindle. Some say the gadget is bound too tightly to Amazon's bookstore. Others don't like the price: $359 for the starter model and $489 for the big-screen Kindle DX due later this year. Also, the thing looks like a really big bar of soap.

Don't worry. That won't last, and entrepreneurs such as Neil Jones are the reason why.

Jones' story is simple. After leaving the start-up he sold to Dun & Bradstreet last year, Jones decided to write a book. When he couldn't find a publisher, Jones, 42, decided to start his own publishing company, which morphed into an online bookstore. And when he couldn't get Sony to agree to supply him with readers for his online bookstore, he decided to build his own.

That was Wednesday, Jan. 14. The following Saturday, Jones was on a plane to Taiwan to meet a contract manufacturer. On Tuesday, Jones and the contract manufacturer had hashed out a design. Three weeks later, he had a prototype. On May 14 Jones' tiny start-up, Interead, began taking orders online. By that morning, he had sold 33 of the devices.

And why not? After all, Jones explains, all these readers are put together out of the same big bag of parts. The processors are interchangeable. The screen technology, developed by E-Ink, is all the same. The field is open for entrepreneurs to try to find the right combination of features, price and design.

Jones' approach is simple. His e-reader, Cool-er, doesn't have wireless access or the Kindle's fancy text-to-speech capability. Then again, it sells for $249, weighs just 6.3 ounces and is designed to be slipped into a jacket pocket.

The Kindle comes in only one color, white, and has rounded edges, like a really big aspirin tablet. Cool-er comes in eight colors and resembles an iPod Nano. If you want to put content on your Kindle, you've got to e-mail it to Amazon's servers first. In contrast, Cool-er sucks up just about anything you can get onto your PC via a USB port. It's not bound to Jones' bookstore. "If you can buy a book cheaper from somewhere else, buy it from somewhere else," Jones says.

To be sure, gadget aficionados will find nits to pick; they always do. However, Jones' story isn't about features or price points. Let the geeks worry themselves over that. The real story is that entrepreneurs are going to force today's electronic book readers to evolve. And if they don't get it right? A ticket to Taiwan and back will only cost you $1,000.

The tech press has written about it, including Wired, cnet and engadget. The company is called Interead. They also have a book store selling ebooks. But it's a disaster. I tried to buy a book this morning. But I haven't been able to. I haven't tried the Cool-er.

You apparently need something called Adobe Digital Editiions which lets you manage your ebooks' collection and lets you read ebooks on your laptop. If you have a light laptop (like the ThinkPad X61), you really don't need the Kndle or the Cool-er. Pick up a free copy of Adobe Digital Editions. It works in color, which neither Kindle nor Cool-er nor Sony do.

My friend Dan is a cheap mother. He won't pay retail, though he is Christian and should. His technique is simple: Try Shopping.com. You put what you want in the little box.

And it gives you a bunch of places you can buy your chosen madness from. As an experiment I typed n Canon G10, my present favorite high-end, point-and-shoot camera and got prices ranging between $449.95 and $579 in 17 stores. And.. drum roll -- tied for the cheapest were Amazon and Buy.com. But Buy.com wins out because it doesn't charge tax. Amazon does these days to fools (like me) who live in New York City.

Why your kids should learn Mandarin. This is also from Richard Russell.

The US national debt was $9.364 trillion a year ago. Today it is $11.256 trillion. That means that over the last 12 months we've added $1.89 trillion to the national debt. I figure that over the next two fiscal years the US national debt should rise by $3 trillion from the current $11.256 trillion to around $14 to 15 trillion. I figure the average interest on the national debt is around 4%. Well, 4% of $14 trillion is over half a trillion dollars a year. How in God's name is the US going to attract over half a trillion dollars every year to carry our national debt? My answer -- higher taxes and inflation. When you think about it, this is one major reason why the government doesn't want gold to sky-rocket. An exploding price for gold tells the world that the US and its financing is backed against the wall, and that inflation plus higher taxes are the only ways out.

Of course, there is one other area that can help.-- cutting government expenses to the bone. The US has over one hundred military and air force bases around the planet. My guess -- within a decade they'll be gone -- we can't afford them. The world's greatest creditor can not be the world's dominant military power. Rome tried it; they failed. "Britannia rules the waves," while the sun never set on the British Empire. What part of the earth does England rule today?

I just finished a long article in the New York Times Magazine section on the symbiotic relationship between the US and China. We buy their goods, and they buy our bonds. The problem is that China owns over a trillion dollars worth of US Treasuries, and as the bonds sink here, China grows more worried. In fact, China is cutting back on its purchases of US Treasuries. China is spending its money on assets such as land in Africa and South American, rare earth metals, other nation's bonds and gold. China is thinking in terms of future decades while the US continues to over-consume. Not only is the US still over-consuming, the US government is trying to figure out how its people can borrow more and consume more.

In time, the US standard of living will decline while the Chinese standard of living will improve. The US/China relationship will be on of the most important events of the next few years. Note how the US has halted its criticism of China's money policy and even its human rights policy. China with its huge monetary resources now holds the winning hand, and the US is acting accordingly.

China thinks in terms of decades. China knows that within decades it will have the greatest monetary reserves, the greatest collection of natural resources, perhaps the greatest military and perhaps the largest hoard of gold and maybe the strongest currency. The US will continue to be the world's greatest debtor, struggling mightily to pay the interest on its mind-boggling mountain of debt.

Cartoons for today's world. If you're not in today's booming stockmarket, perhaps you feel like this:

Favorite New Yorker cartoons: This first one is for Dan Good:

This one is for Pete Howley:

Blue skies are out in New York. Life in business is really not that difficult. It's all about pleasing customers. Put your phone number on your web site, so your customers can call you. The only phone numbers on the Interead web site (the one peddling the Cool-er) are of PR people and they're always on voice mail. How stupid!

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads on this site. Thus I cannot endorse, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Michael's business school tuition. Read more about Google AdSense, click here and here.