Week #2 Report

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Bill's Portfolio: Until my programmed trading models are working complete with auto reporting of holdings and P&L, hopefully in 2Q05, this part of my weekly report will focus on selected stocks, and selected news items that came up during the week.

Last week I said that both Taser (NDQ: TASR) and the U.S. market were headed for tough times, and boy did I nail that. Taser short-selling opponents threw the kitchen sink at this company. One so-called investigative reporter from (I think) USA Today was a "guest" again on CNBC's Kudlow & Cramer to level against Taser new sensationalistic and absurd allegations.

This stuff makes the 1973 Nixon ‘dirty tricks' operations look like child's play. Or how about the recent campaign against Senator Kerry? And I thought the game of muckraking would basically cease on November 2. Ha!

Well, if you look hard enough, we can all be seen to live in glass houses.

Taser trading this week, in terms of volumes and price extremes, probably set a new record. Day traders could have made a fortune on a couple well-timed trades, which the charts show were quite obvious at the time, as I said they probably would be.

TASR rebounded after the U.S. Department of Defense reiterated the claims in their previous reports that the Taser stun gun works as advertised. I'll take their word, plus the continuing stream of police department orders, over the words of SEC "investigative" lawyers or some muckraking "journalist" any day.

Still, TASR was down $1.18 or 5.58 percent on the week, and investors are now aware that future sales orders for Taser products might be slowed by the (legislated) need by law enforcement and government agencies to compare the product against any principal contenders. As should be the case.

BTW, I see the SEC is about to change its Uptick Rule, which for years has required shorting on an uptick, based on previous complaints of market rigging (called "bear raids") by short selling syndicates. What a joke. As if the same people (the sell-side) who complain of bear raids have not been actively engaged in "bull raids" " which is just as much a form of rigging a free market.

Another news item that caught my eye is the action taken by the National Association of Securities Dealers (NASD) in fining Walter Piecyk, an analyst at Fulcrum Global Partners LLC, in the amount of US$75,000 for circulating "a false and sensational (bearish) rumor" about a stock to eight clients by e-mail and then shorting the stock to make a gain that month of $7,815 on the trade. That shows you what type of thing goes on in Wall Street's investment research and advisory firms.

What got to me was the discussion on CNBC that followed, pointing out that the regulators say it's not illegal to start a rumor " just to financially exploit it. Just think about that for a second. If you're not brain dead, you'll know exactly what I'm thinking.

So the message goes out to the sell-side " it's ok to embellish, just don't cross the line, and when you do, just don't get caught, and when you do get caught, be prepared to fork over some chump change because the industry self-regulators (NASD) have pretences to keep up in making the public think the game isn't rigged.

Isn't it time for government to take away all vestiges of pretence in self-regulation? It's an utter joke in this electronic age (i.e., the real-time digital world) that anything less than 100 percent transparency in any matter involving financial services be permitted. It's not for the people who commit the crimes against society to be those who set the rules and also sit in judgement.

Think about the people in jail for life in our society simply because they stole the food they needed for continued existence. In my opinion, people like Walter Piecyk, who neither admitted nor denied the charges nor the evidence of the multiple e-mails found by regulators, but who is permitted to continue working for his NASD-member firm, would face a different future had he been tried by a jury, not of his friends, but of society.

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ETF: ETFs, which are more appropriate for investors than mutual funds, in my view, because "Each ETF is a basket of securities that is designed to generally track an index—broad stock or bond market, stock industry sector, or international stock—yet trades like a single stock." Moreover, many ETFs are options traded and the all-in cost is a small fraction, and performance superior, to the majority of mutual funds.

This week the WEBS South Korea Country Fund (AMEX: EWY) was an ETF that excelled. On the week, EWY was up $2.15, or 7.8 percent, to $29.85.

When I look at the ETF for an emergency market fund, I re-read the CIA World Factbook entry for that country " just for background.

Then I go to the American Stock Exchange website, and look under the International category of ETF, where I review all the details.

Under the ETF description, you will find the top ten holdings and industry sectors, which in the case of EWY is (for 9/30) as follows:

Then I go to the JP Morgan free website for ADRs, and the Yahoo Finance website, where I look up the data and charts for some of these ten companies, including the latest news, institutional holders, and so forth.

For the JP Morgan service, I simply go to ADR Universe, enter the country, and hit "submit". If the company is underlined in the list, you will find lots of good info. You can also enter just the sector/industry, and search all the international listings data. This is a really terrific service.

Today, I am not going to get into whether or not I feel the EWY ETF is a timely investment or not. I know Samsung is a major manufacturer in South Korea (including my PC monitor), and a large component of the EWY. Samsung had a good week I guess because of a semiconductor deal with Sony " but you'll have to check that since I am rushed for time today. I'm off to see my parents, and to stay overnight at the country house.

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Bonds: The bond market is an indicator of expectations for economic growth, which we continue to hear from pundits is a work in progress, but a little slow to pan out. As you know, I pay a lot of attention to the "living" yield curve, and I watch the daily yield spreads between the 30-year and 3-month U.S. Treasury debt instruments.

The yield spread got back to a borderline healthy 250 basis points at the close on Friday after sinking into DANGER territory earlier. I like to see a 300 bp spread before I give much credence to Talking Head claims that the economy is in great shape.

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Commodities: Commodity prices in cash (spot) and futures markets are very sensitive to economic reports and to dynamic forex markets, which trade off the USD. And we all know that the USD trading has been extreme in recent weeks, so commodities including the precious metals, metals, oil, and so forth are all trading wildly.

I continuously monitor all the commodity price screens because these commodities significantly impact on the revenues or costs of corporations whose stocks I follow. For instance, you cannot effectively trade the energy or basic materials sectors unless you know what's up in the crude oil futures markets. Also a lot of the basic materials sector is highly correlated to trading in the precious metals or metals.

This week crude oil futures made some noise in the commodity trading pits.

Gold also happens to be on the borderline of support or breakout to the upside, so the gold traders are watching U.S. PPI/CPI data, international trade deficit data and the USD like a hawk, ready to pounce any second.

Most investors however are long term oriented and are simply awaiting an indication of trend. From one TH/pundit, investors hear that oil is headed to $30 and gold below $400. From another, it's $50 on its way to $100 for oil, and $500 going to $1,000 for gold. Makes investing tough, but bear this in mind: if you have a professional advisor, he or she might have a firm outlook, but doesn't know any more than you, me or Santa.

All any of us can do is watch the price data unfold and try to stay onside of the trend, and buy in at cycle bottoms and sell out at cycle tops.

Commodities are traded by industrial professionals. They are well paid to know their business. It's a mugs game to try to beat them.

Reminds me of a situation several years ago. My uncle Bill was head small stock buyer for Canada Packers, a career position in that job. He frequently went to Texas and Alberta to buy whole herds of cattle. He knew his business as well as anyone. Canada Packers is " or was " the Iowa Beef Packers of its kind in Canada " the 800-pound gorilla.

One day my Dad wanted to put up eight calves in the relatively clean (and odor-free) steel barn on his country property, so my uncle made the purchase " at, you guessed it, the cycle low price. Later, when the cattle had been raised, my uncle then told Dad the day to sell " at, you guessed it again, the cycle high price.

Now it never happened again because Mom and Dad didn't want animals in the barn, a couple hundred feet away from their country home, because they don't smell so good. But, this experience in the commodity market proved once again, you cannot beat a pro at his game, and you shouldn't try.

Securities markets are different than commodities markets though because the equity market is one capital market that is dominated and managed (stupidly) by the sell-side (i.e., the financial services industry) whose job it is to get you and me all excited about buying their new products, most of which suck (i.e., are not as good as the seasoned ones). Or, they want you and me to buy their share inventory holdings at inflated prices, which (if you guessed it, again) is inflated because they deliberately make it that way.

But, as the NASD told us this week, what's a little misrepresentation among friends.

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Gold: The gold market is straddling the line between bullishness and bearishness, at about $425. It's a difficult call because the USD trading is really uncertain. The USD, in my view, has to continue its downtrend against the Euro and Yen before gold will be headed north again.

The GLD ETF, which trades on the NYSE, is exactly one-tenth the spot price of gold bullion. The short-term trend has been down along with the brief rally in the USD. It's possible the price will start higher this week, but to trade it, you have to watch the intra-day data closely.

The Yahoo Finance content for the GLD ETF is very good.

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Forex: Last week, I took a risk in calling for an end to the short-term rally in the USD. It happened to be a good guess. As I expected, the international trade deficit by the Americans grew to unprecedented levels, as reported mid-week, so I was correct in my belief that the USD would weaken. But the USD moves north and south based on many factors, of which trade is one " albeit an important one.

I still believe the USD will soon break below 100 Yen to the Dollar, and above 1.35 Dollar to the Euro. It's possible this week will be that time.

I will be watching.

Having said that, the world needs a stable forex market, so that traders of goods and services can conduct normal business relations. Unfortunately, speculative traders in the big bank houses are upsetting this apple cart. If there is anybody to blame for the forex volatility, look to the money centre bank operators playing their zero sum game, trying to steal "profits" from one another.

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Int'l Equities: As to the global stock markets, the relatively small Canadian market is about 3 percent of total global market capitalization. Still there are some important companies here, Nortel (NYSE: NT) and Rim (NDQ: RIMM) included. Being Canadian, I get a lot of requests for research and commentary on Canadian stocks, and I intend in 2Q05 to start a daily write-up on this market. The problem today is I'm just not yet organized to do more.

The Canadian ETF (AMEX: EWC) is popular to international traders. The AMEX website lists the top ten holdings, and these all represent good investment value. It's just that the timing issues need to be considered.

Long term, the global capital markets are in the inflation part of the cycle. That is not to say that inflation is a problem, but just that inflation (PPI/CPI of most of the G20 countries) is rising. This is a time, because the U.S. is the greatest importer nation in the world, that the USD trends south, and commodity-sensitive economies like Canada, Brazil, and Russia, are going to relatively out-perform.

That usually means " but not always -- the leading stocks of the country will do well.

If you look at the EWC for instance you can see it does well when the USD does not.

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U.S. Equities: Last weekend I said that "the U.S. equity market is due for a strong pull-back", and heaven forbid, the DOW/S&P and NDQ all tanked, Monday through Thursday. Then after the flourishing close on Wednesday, I said that Wall Street was once again acting suspiciously, and Thursday morning, the market showed I called it right again. Then just after 7 AM ET Friday morning, I showed you "who's your Daddy" by calling an end (temporarily) to the market collapse, by saying that "conditions are ripe for a 50-to-100 point up move in the DOW today" " or something like that " and heaven forbid, once again, I was right. On Friday, the Dow closed up 52.

Now, I'm either prescient or a wizard. People used to call me a Wizard. Then real gremlins got into the act I had been enjoying, so now I'm just known as Bill Cara. Not so mythical, but still pretty good as a market forecaster nonetheless.

The problem with telling people you can call the market ahead of time " and I can usually do a good job of it " is that people come to expect it. But, that is not why I do this blog. I do it to educate and inform. That's because the capital markets are my passion.

So, you'll notice I have taken to saying that this or that was merely a good guess. I feel better doing that.

Still, there are days when I really do yearn to have a competition set up with the chief market strategists of Wall Street sell-side financial services companies. Because I know what my crystal ball is telling me.

As to the DOW's close on Friday, I'm not too impressed by the actions of traders that sent you home for the weekend thinking all's well. If you paid attention to what was happening, the 52-point DOW gain on the day, was actually 25 points gained in the last 32 minutes. But who's counting anyway?

Is that a true market rally in the DOW or simply what people refer to as "putting lipstick on pigs".

You make the call. It's your money.

As for me, I have to now go deal with something real. My Mom's cancer is in her liver and she had to take additional painkillers this week. She asked if I would go up to the country house to pick up winter coats, hats and gloves for her and Dad. My brother is coming in this week from Thunder Bay and he'll take them up to the house for a day trip. I wonder if that will be the last.

You see, when it's real, you always wonder.

BCara@BillCara.com