The Tasgall Group

“The stock market is there only as a reference point to see if anybody is offering to do anything foolish. When we invest in stocks, we invest in businesses. You simply have to behave according to what is rational rather than according to what is fashionable.”

“You don?t know who?s swimming naked until the tide goes out.”

“…holding cash is uncomfortable, but not as uncomfortable as doing something stupid.”

There are many more if you like reading pages full of quotes.

I think we’ve mentioned it before in spoken conversations, but here is a definative source. TaxProf Blog: Gas Taxes Exceed Oil Companies’ Profits.

The government collects more in tax revenues applied to gas and oil than oil companies make in profits.

The next time Congress is pandering and trying to buy your vote, ask them to remove some of their legislated taxes instead.

It makes me wonder again why the CPI exclude taxes…

As individual investors, we have a unique advantage that most institutional investors don’t have… the ability to staand aside when the market is not favorable. That means either not trading, or getting out of your buy-and-hold investments and moving to cash or cash equivalent investments. (more…)

After this morning’s news about a foiled terrorist plot, one would certainly expect some spasmodic behavior in the markets.? When I looked just now, I was surprised at what I found…

• Crude oil down 2.8%
• Unleaded gas down 5.2%
• Gold down 2%
• Gold stocks down 2.2%

Not so surprising, the airline stocks are down, but not by much (down less than 2% each).

I’m not a big believer in one-day price moves based on news, but the weakness in these commodities makes me wonder what is behind the moves.? My guess is that some speculative money wanted to take profits in these areas and re-deploy their capital based on today’s news? Maybe just people scaling back speculative positions to see what happens over the next few days?

An important point, philosophy, or whatever is the fact that “the market” is not efficient.

This flies in the face of much academic theory stating that the markets are efficient, and that one assumption is the basis for much of the modern portfolio theory (MPT) and capital asset pricing model (CAPM). That one assumption is why these are both flawed theories (even nobel winners can be flawed).

The market (and in this way I refer to markets in general, not just the equity markets) is not efficient, it is instead an efficiency process. This is important, as it explains why any of us can take above average profits out of the market over the long term. (The average profits would be dictated by the growth of the economy.)

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Jeremy Grantham’s 3Q Letter is another good read (free registration required). Here is a quote:

The May through June shock to the low risk premium caused a rapid response, not surprisingly, from the newly gigantic hedge funds. They moved quickly to reduce their leverage and the carry trade in sensitive areas. …I would hope that most of the fastest guns have shot by now, but since we have never lived in a $1.2 trillion hedge fund world before, we have to guess. A great majority of all hedge fund money has never known a world that was not dominated by Greenspan moral hazard ? heads you win and tails I?ll help you out ? and this fact has two consequences: first, they should be very slow to entirely give up speculative confidence; and second, there is an awful lot of speculative confidence to finally give up!

In addition to the recent market action, Grantham discusses the trends in risk premium, the correlation between EAFE and domestic equities, personal savings rates, reversion to the mean, An Inconenient Truth, efficient market hypothesis tyrany, and a whole lotta other stuff.

The 3 page section after the quarterly letter is titled, “Everything I Know About the Market in 15 Minutes” and does a good job of describing Grantham’s style and beliefs.

For those who don’t know, Jeremy Grantham is the front man for GMO, one of the big money managers with over US$122 billion under management. He’s not afraid to make unpopular arguments and certainly isn’t afraid to call out things like “career risk” that do affect returns.

To see the other side of the argument, check out Bill Gross’s latest Investment Outlook. He calls the end of the bond bear market and gives some good background on why he thinks so.

Recession/no recession is really a faux decision to be entertaining at bond market turning points. Any number of cyclical histories point toward bond market prices bottoming ? and the Fed peaking ? as the economy downshifts into second or first gear as opposed to breaking to a full stop. (more…)

It seems like everything I’ve read in the last couple days has focused on whether or not the Fed will raise rates or pause at Tuesday’s meeting. Will Helicopter Ben show up, or the Inflation Targeter that he more tended to portray while in academia. The rate futures have a 25% probability of a hike in August, and about 50/50 for September.

There is the added dimension of what commentary accompanies the actual interest rate. If they raise rates but say, “this is the last one” many people will be excited. If they don’t raise rates but say, “we’re definately raising rates in September” excitement will be mixed… (more…)

I came across the StockCharts.com Market Summary page and have added it to my Daily News Briefing so that I review it on a daily basis.

The market summary page lists out a lot of information on one page. The different sectiosn include the major markets, major indices, sector ETFs, industry indices, international ETFs, world markets, bonds, commodities (gold, oil, and commodity indexes), currencies, market breadth, and bullish percent indicators.

You can also see this in a “market carpet” format, but I think I prefer the summary page as the carpet doesn’t add any value by spatially organizing the different segments. The market carpet does have some nice features… being able to click and see a 2 month graph is a nice feature of the market carpet that you may find useful, and being able to see market strength across all sectors at once is nice.

While the mainstream press will attribute any and all single-day price changes in the market at large to the prevailing news that day, most of the time the news is not actually that significant in moving the markets.

And then there is the exception. Today, “oil jumped above $77 a barrel after BP began shutting down the biggest oilfield in the United States. The UK oil giant acted after discovering a damaged pipeline at Alaksa’s Prudhoe Bay.” (Reuters)

The $1.85 per barrel constitutes a 3% move before 7am… Total output from Prudhoe is just less than 1 million barrels per day, so if the entire production is shut down, that’s significant in terms of worldwide supply.