The Tide is Turning

What’s in the Szelhamos Portfolio?


Based on a one day move it’s probably a bad idea to suggest that a pattern or trend is developing.

That should be painfully obviouse for anyone that’s been following the markets and the daily intra-day moves the past couple of weeks.

Giddiness quickly dissolves into disbelief, and not the good kind of disbelief.

As usual, there was lots of discussion over the possible root causes for Thursday’s typical 400 point move.

There are those who believe that the European decision to limit short selling on the financials was the impetus. My memory is increasingly fuzzy these days, but didn’t we try that as well? Don’t think that it had quite the longterm impact that the decision architects had hoped.

European bathing suitsOthers pointed to the early return of French ministers from their month long August vacations to attack the French banking issues that are now emerging. The first photos from those finance meetings are a stark reminder that no one should wear European style bathing suits, even if there’s a conference table to obscure the details. 

For my money, I’d rather suspect that someone might have a similar background to mine by looking north of their waistline.

Today, however, I think I spotted the ultimate market indicator that very strongly suggests that the market is heading up with sustained gusto.

During a brief period of time, that seemed all too long, Herb Greenberg disappeared from the CNBC picture. He was always one of my favorites. A calm, analytical approach to macro and more importantly for the individual investor, micro-economic analyses.

Just as an aside, but a follow-up to yesterday’s basic math lesson, people like Greenberg are very valuable to the health of your portfolio.

I’ve never been a fan of mutual funds, but when I was gainfully employed and had to choose from among bad fund choices, I would always opt for funds that performed best during down markets. I certainly can’t take credit for that strategy, but I just don’t recall its source. For purposes of consistency, let’s just say it was from Herb Greenberg.

And it is a good strategy, as it really is more difficult to overcome a single large loss than it is to make up for a multiple missed opportunities.

When Greenspan would talk about “frothy exuberance” and paint on a broad canvas, Greenberg would pragmatically focus down on the specific issues that mattered, your false hopes about inappropriately moving stocks. He consistently highlighted situations where the investor may have been at unexpected and highly significant risk.

Valuable stuff.

Well, thankfully for viewers, he’s back and I hope, enjoying east coast weather. The fact that Sugar Momma and I plan to pack it up and return to her sunny California roots when the kids aren’t looking is in no way meant to be interpreted as a statement regarding the hideous nature of weather in the Mid-Atlantic.

Ever since I re-started the Szelhamos Rules blog in an effort to boost sales of Option to Profit and started Tweeting, Greenberg, no surprise, has been another favorite among the small number that I follow. In fact, after my son, he was the first account that I followed and along with Paul Kedrosky they remain the only three that I have consistently followed.

My son doesn’t necessarily help me with investment ideas, but at least I know what’s going on with his life thanks to Twitter. And if FourSquare is to be believed, he sure does party a lot. I don’t know whether Greenberg and Kedrosky have similar lifestyles.

But to be totally fair, however, I must give my son credit for early detection of VMWare and Iron Mountain, among others.

So here’s the good news.

As any Twitter user knows, it’s all about the Followers. Yesterday’s blog, “Depends on your Perspective” re-affirmed the importance of size in every aspect of life.

For me, Twitter has become life, but based on my number of followers, my life expectancy is somewhat guarded or at least the value of my life is highly suspect, perhaps due to accounting irregularities.

In the 4 months that I’ve been on Twitter I’ve looked forward to the Tweets from Greenberg as they’ve complemented his now increasing on-air presence.

As usual, on Twitter he dispassionately and objectively reports and dissects “data” in his alloted 140 spaces.

Somehow, I once got included in a Tweet sent to Greenberg that included quite a bit of venom packed into its 140 spaces, but as they say, that’s what it takes to make a market. I can only imagine how Jim Cramer’s inbox must look as it’s very easy to sling from behind a firewall of anonymity. (See “Why I No Longer Watch Jim Cramer“)

Maybe it’s the TV, maybe it’s the wide range of fashionably colorful dress shirts, but Herb Greenberg’s Twitter follower base has grown by about 60%, or an additional 4,000+ in short order.

That can mean only one thing.

As viewers and the Twitter universe are being ever more mindful and respectful of a circumspect and wary approach to stocks and the markets, the contrarian in me just knows that we are now poised for a major upward correction.

Forget all of those technical analyses and all of the charts and statistics. Face it, every math and physics PhD. out there has access to the same data and analytical tools and algorithms, yet they arrive at wildly distant conclusions. The fact that I’ve used a second derivative of the velocity of Greenberg’s growth in Followers to create a market strategy is largely irrelevant.

Forget the “science” and go with the “Greenberg Follower Contra-indicator Tool”.

As the number of his followers increases and becomes likewise increasingly engaged, it is a sure sign of investor capitulation. The water’s both too cold and deep and besides, your mother told you to wait an hour after eating before you go back in for a dip.

In the meantime, Greenberg will continue to present sage-like and cautious observations.

I tend to be a cynic and even though I’m a short term pessimist, I am a long term optimist on most everything.

But as individual investors are getting more cautious, I think of the opportunities that are akin to short squeezes. It’s related to something that’s called “FOMO” or “Fear of missing out“. FOMO itself is a first order derivative of greed.

Caution is absolutely the way to go. That’s why I hedge everything, although I don’t think I can use that strategy as an excuse to explain the girlfriend on the side. But when everyone is getting on the caution bandwagon instead of  judiciously exercising caution where appropriate, there is opportunity.

When the fear of missing out dawns on the individual investor prices go up. Demand trumps value.

So I, for one, am very happy to see Herb Greenberg’s growing popularity. By the same token, I fully expect this indicator to break down at some point as those who have blindly followed caution would be fools to unfollow Greenberg once their FOMO takes hold. If anything, they’ll need him even more to better protect what they’ve gained.

At that point I’ll just come up with something else to replace the Color TV indicator and the Greenberg contra-indicator.

It’s even easier than keeping everything contained in this bathing suit.


Addendum: Since this blog entry appeared in August 2011, Herb Greenberg has added on another 12,000 Twitter users, reaching 20,000 on December 1, 2011. Since then, the S&P 500 has gone up 6.8%. Unfortunately, 7.6% of that gain came this week (Nov 28 – Dec 1, 2011). Stay long, my friends.

Additionally, the following was not linked at the time the article originally appeared: “Fear of Missing Out