Random Ramblings

I’ve been standing on my soapbox the last month asking what’s up with this market and stating that it can’t go up this high this quickly.  Irrational exuberance is being shown based upon lackluster results.  I couldnt understand why it kept on going up.

Finally, the market is getting tested.  It has lost 3% in the last 5 days.  Asia is getting hammered.  Asia is the growth engine for the next decade, they are a leading indicator.  We may be in for trouble.  I was up almost 20% YTD last week and was about to just take all my money off the table for the year.  I should have!  I was too scared to do it though.

I stated the following things earlier:

july 30th “The strength of the most recent rally has really surprised me.  I didn’t think it could or would last this long. ”
july 22nd “What I’m probably going to do is gradually move my assets to short term investments maybe 5% or so every good week that we have. Basically take some money off the table because I believe we’re due for a fall.”

So over a month ago I had predicted this.  I hope it doesn’t go as low as I fear … (see previous posts)
But if I’m right. what this tells me is that my predications are leading indicators of the market and that whatever I say, I should wait and do in 2-3 weeks after I say it

But again, the market = herd mentality thus all common sense can be thrown out the door too with momentum.  I say short transports, swine flu is going to scare people, buy on the rumor type of trade.  Do it in 2-3 weeks instead of today.

Bernanke says US economy on cusp of recovery

Poll: Americans losing confidence in Obama

Cash for Clunkers to end on Monday

And the market is still going up (at 1022 now)!!   I’m not complaining since I still have 65% of my money in stocks but it makes me more and more nervous.  Usually I would be 90-100% in stocks (appropriate risk allocation based on age) but last year scared me.  It could have been much worse if I didn’t move 30-50% into bonds.

Cash for Clunkers was a good program.  Stimulated dealerships and auto companies.  But the demand is not going  to be sustained, hopefully they didnt ramp up production as fast as they thought they needed to.  Benanke’s words could ease some fears but if you read his statement, we still have a lot of problems ahead of us.  Maybe the market will ignore it and simply continue going up.  Or maybe it doesnt think these problems are really an issue.  Problems being lack of new jobs, house still on  the skids, and credit is hard to come by still for businesses. 

I’ve been looking at downward support levels and strategizing with them but maybe i should look at upward support levels now just in case this rally continues.  Let’s see …

1000 is definitely the resistance point for the last year.  If we can stay above that for awhile, come down but still come back up past it … then it marks a very good sign.

After that … its a tough read based upon the HUGE drop we had last year.

1150
1200
1300 (strong resistance)
1375 (strong resistance)

If this thing holds .. we might go to 1150, which would be amazing.   Holding the ship steady right now and just gonna see which way the wind blows to decide to be more or less aggressive with my holdings.

Lots of articles coming out recently about inflation risks and deflation risks for our economy.  Folks are afraid of inflation but in the future, no near term risk.  I agree with that per my old post.  Others are saying that deflation is more of a short term risk.  I can see that since the value of the dollar is increasing against foreign currency and our economy is not growing very strong.   I think deflation is more of a possible short term risk than inflation but do not think its gonna happen soon, maybe it’ll be obvious in 9 months, which means it most likely started in 6 months.

http://finance.yahoo.com/tech-ticker/article/298981/Inflation-Not-a-Problem-%22Deflationary-Depression%22-in-Our-Future-Prechter-Says?tickers=skf,sds,sso,dxd,ddm,iyr,srs

Was an intersting article. I’m sticking with 40% bonds for the time being, if the 970 resistance point goes, then the next resistance is 950, then 880.  If it breaks that, then it will be scary.

So I may move to 60-70% bonds if it breaks 950 and if it keeps on going lower past 880, cash is king.

My house is 16 years old and the A/C units are still chugging along.  However, most of my neighbors have had to replace theirs and based upon the new tax credits, I was thinking about being proactive.  Looking at the following page about the qualification standards, I was confused.  I’m sure a lot of people are confused.  My coworker’s husband works at a HVAC company and answered some of my questions and I figured it would be helpful to post his replies because he says that a lot of folks do not understand the rules and are being misinformed by HVAC sales folks.

http://www.energystar.gov/index.cfm?c=tax_credits.tx_index#c3

My Layout:
Approx. 2500 sq ft house
Central A/C
2 Outside AC units – 1993 Carrier 10 SEER (one for upstairs, other for downstairs)
2 furnaces, one in the attic, one in the crawlspace

Questions/Answers:
1. What is the difference between a Split System and Package System?

>> What you have is considered a split system. A split system is a system that has two separate components to do the job. The condensing unit which sits outside and an evaporator coil on the inside.

2. What would I have to replace to achieve the EER and SEER rating?

>> On split A/C systems the Federal Tax credit requires A/C units with gas furnaces to achieve a minimum of 16 SEER and 13 EER. To accomplish this you will most likely have to change the gas furnaces also.

3. Do I have to replace the furnace as well as the A/C unit so that their SEER ratings match?

>> Most likely

4. RE: “Tax Credit – 30% of cost, up to $1,500″.  Does this apply to both years?  In other words, If I replaced one unit in  2009 and another in 2010, would I get a $1500 credit for 2009 and get another  $1500 credit in 2010 when I replace the other unit?  Or is it a $1500 TOTAL for both years?

>> The tax credit cap of $1500.00 is for 2009-2010. That is the total credit for both years combined. This cap of $1500.00 applies to all energy improvements you may make. New windows, insulation etc.

Summary:

Based upon his answers it makes no economic sense for me to upgrade my units, I’m just going to keep my fingers crossed that they just keep on chugging away.  Having to replace the furnaces as well as the units killed the deal. The furnace would have been about $7500-$10,000 each.  But they last about 30 years, so they shouldn’t have to be replaced.  Except in this case … you would have to in order to meet the EER AND SEER rating.  By having to achieve BOTH ratings, it really makes it tough to qualify for this credit.  The approximate total would have been about $25,000 for everything.  Even if I did qualify … $1500 is only 6% of $25,000.  So I would only be saving less than the sales tax amount.  haha … no  thanks.

I guess the only folks this makes economic sense for are those with single unit heatpump A/C’s.

My opinion is that they should either increase the amount of credit given or loosen the standards just a bit.  One of the goals of this credit was to stimulate work for small businesses such as HVAC companies.  It’s very tough to qualify and thus not many folks are taking advantage of this from what I have been told.  Good idea, just needs to be tweaked just like the housing stimulus plan.

Incredibly … it hit 1000 yesterday.  My thoughts … well I can’t believe it went back up to this level so soon but my allocation is still leaning towards equities so I’ll take it.  Makes me very wary of a sudden fall though.  I’m still waiting for one to jump all the way back in.  I’m not sure what the contrarion play would be right now.  Everyone seems to be buying but more people are expecting a fall as well.  Maybe I’ll just keep the ship steady.  We’ll see …

Personal Rate of Return from 01/01/2009 to 08/03/2009 is 15.9% vs. 10.68% for the S&P500
My current allocation:
50% Domestic Equities
18% Foreign Equities
13% Bonds
19% Short Term

The strength of the most recent rally has really surprised me.  I didn’t think it could or would last this long.   It withstood some bad news from msft and amzn as well as other weak housing and unemployment numbers.  So it could have some legs.   I don’t believe earnings are THAT great or the unemployment numbers are THAT much better.  BUT … I have to remember that the market is a predictive indicator and that it uses herd mentality.  Thus, people must believe that things are going to get better faster than they previously expected and the media must continue to highlight good news instead of bad news.

I’m not all into stocks yet, but I may put a little bit of new money into play so I don’t miss this herd mentality rally if it comes to fruition.    I still like my stock/bond position and will keep it as it is with a little lean towards stocks now if this rally continues to show it has legs.  If it runs up too fast though, I’ll take some out of stock to alleviate the eventually fall/stall.

The market keeps on going up this week, this is good, I haven’t made any moves in my asset allocation besides going a little bit more into bonds/short term.  My current allocation:

50% domestic equities

18% foreign equities

15% bonds

17% short term

Personal Rate of Return from 01/01/2009 to 07/21/2009 is 11.2%

The S&P is +1.8% YTD

Some thoughts:

1. Have been reading lots of articles talking about how consumers in China are beginning to spend more instead of saving.  They have opened up more trading accounts as well.
2. US is printing out more and more money, will potential give more tax credits for this and that, another stimulus package coming?  Inflation is a real danger if this continues.
3. US dollar losing value, may cause deflation for other countries
4. Q2 earnings are coming in better than expected or as expected but this is probably due to cost cutting and not actual increase revenue.  You can only cut costs for so long.

But … the market keeps on going up.  Here are the take aways:

1. Short term bonds are a hedge against inflation, move towards that direction once people realize inflation is coming.  Can’t move too soon because people don’t look too far out in the distance so you don’t want to beat the market to the punch too quickly as you’ll lose money.
2. China is a good play.  BRIC nations are good play overall, china, brazil, india.  Invest more in foreign gradually.
3. Long term foreign bonds would be a good hedge again foreign deflation

What I’m probably going to do is gradually move my assets to short term investments maybe 5% or so every good week that we have. Basically take some money off the table because I believe we’re due for a fall.  Then put it back into equities once it’s clear we have bottomed out again.  Most likely end of Q3 or beginning of Q4 I’ll be bullish again.

My garage feels like a steam room in the summer and a fridge in the winter so I started doing research on how best to help this issue. My garage door has good weather stripping and it seems to be the kind that has insulation in it but there had to be something else I could do. I’m not sure it has insulation between the metal sheets but I hope it does.

I found this stuff called reflectix, it seemed like a good solution, it couldn’t hurt. There’s also tax credits for insulation so the government is gonna pitch in a few bucks to help insulate my garage door. I went to Lowes to buy the stuff, cost about $90 for the insulation and HVAC tape. You’ll just need the tape and scissors for installation. Measure the size of the pieces you will need and simply cut them out.

It took about 3-4 hours to finish the project and I can tell a little bit of difference. The room upstairs is a bit cooler and the garage is not as hot. The real test will be when we hit the 90’s again. It’s only been in the 80’s this week so I have not been able to gauge how well the stuff works yet. I’ll let you know.

I think I have found the latest addictive app. Go download baseball sluggers! It’s on sale today for just 99 cents. It’s an arcade style homerun derby game BUT it allows you to play against others over the internet. It keeps stats, rankings, allows customization of your player … very addictive.

If you want to play against me, my screen name is bigpen15. I’ve been a big Pittsburg Penguins fan since I was 15.

Obama threw the first pitch at the all star game yesterday. He must have been stressed because if he threw a bad one, every media outlet would replay it over and over again for days.

And as I stated before the media affects the market and if he messed up, the world would think that the US and our economy was weak. Silly theory? Let’s see …

He came through and made a nice pitch and the stock market is happy. It has been up nicely since this morning and the dow is currently +173 right now (12:06pm EST). Thanks Obama!