President Obama: World's Greatest Market Timer?

Alexander Green
by Alexander Green, Chief Investment Strategist, The Oxford Club
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Imagine someone giving one single piece of investment advice in his lifetime and absolutely nailing it, pronouncing a buying opportunity at one of the greatest inflection points in history, just before large cap stocks doubled and small cap stocks tripled.

Although it's not widely recognized, that's exactly what President Obama did on March 4, 2009.

As you no doubt recall, we were at the tail end of a months-long financial panic that wiped away trillions of dollars in assets. The Dow had collapsed from over 14,200 to nearly 6,500. Depositors were yanking money out of local banks. Even sophisticated investors and hedge fund managers were frightened and reluctant to act.

Then President Obama strode up to the microphones and uttered those immortal words, "What you're now seeing is profit and earnings ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it."

An Amazing Call

On March 9, just five days later - a day when the headline of The Wall Street Journal's Money and Investing section was "How Low Can Stocks Go?" - the market hit rock bottom and began the amazing ascendency that has flowered into one of the great bull markets of the past 50 years.

Does Obama deserve credit for this astonishing call?

Well, yes and no. Its beauty is diminished a bit on closer examination. For starters, he called buying stocks "a potentially good deal."

This breaks the first rule of market timing. If you're going to make a call, make it a confident one. Take Elliott Wave Theorist Bob Prechter, for example. At roughly the same time, he insisted the market collapse was only just getting started and claimed it would be the biggest in 300 years. He proclaimed that the Dow would fall below 1,000. (That's not a misprint.)

This is how real market timers do it. They make a bold and specific pronouncement. Recall the famous Dow 36,000 prediction (and national best-seller of the same title) by James K. Glassman and Kevin A. Hassett in 1999. Now that's a market call, if not a particularly auspicious one.

Of course, when things don't go their way, market timers generally tell their followers that they weren't wrong, "just early." I know some gloom-and-doomers in our industry who have been early for two or three decades now. Many of them are as popular as ever.

Go figure.

Obama was only five days - or three market sessions - early. But he loses a few points for hedging.

The Long Haul

The second problem with the president's market call was the caveat "if you've got a long-term perspective." Snare, bass drum.

I hope anyone reading this column knows that nothing beats a diversified portfolio of common stocks over the long haul. Not bonds. Not cash. Not real estate. Not commodities. Not metals. Not collectibles. Nothing.

So Obama was right about the long term. But he loses points for not realizing that it was a spectacularly good short- and medium-term call too.

However, the biggest demerit comes from the gaffe at the center of his statement, where he talked about "profit and earning ratios" being attractive. Whoops. He meant, of course, price-to-earnings ratios.

The national media had big laughs over George W's misstatements like "nucular" and "misunderestimated," yet didn't seem to pick up on this mash-up, perhaps because their financial literacy is as low as his.

For these reasons, I give President Obama's A+ market call a gentleman's C.

And I suggest you not try short-term market timing at home. Because while stocks are an excellent long-term investment, what they will do in the short run is anyone's guess... even when "profit and earning ratios" are low.

Good investing,

Alex


Editor's Note: Barack Obama may have made a great call in 2009, but he's currently facing the biggest crisis of his presidency. In fact, it could end his presidency. And he knows it. But he can't fix it. Learn all the details by clicking here.

Original image by Tech. Sgt. Dawn M. Price, USAF and found at http://upload.wikimedia.org/wikipedia/commons/3/3f/Barack_Obama_addresses_LULAC_7-8-08.JPG.

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Listen to the Signals

Alex doesn't have much patience for market timing, but that doesn't mean he doesn't recognize proven market signals. His favorite, in fact, is when corporate insiders use their own money to buy shares of their company at market prices.

That's why he created The Insider Alert. The idea is simple: Alex combs SEC filings for evidence of insider buying, then adds his own analysis to find the very best profit-making opportunities.

Take Western Refining Logistics (NYSE: WNRL), for example. Since Alex added this oil-services company shortly after its IPO last fall, shares have surged more than 45%.

The fact that insiders, including the CEO, were putting big wads of their own money into Western's common stock caught his eye. But the fundamentals moved him to act.

Alex explained in October:

"Based in El Paso, Texas, Western Refining owns and operates oil and gas pipelines, storage tanks and terminals in the Southwestern U.S. It has approximately 300 miles of crude oil pipelines and more than a half million barrels of active crude storage.

"Pipelines still offer by far the cheapest way to ship oil and gas over long distances. Trains and trucks offer some competition, but pipelines are much less labor-intensive and require little maintenance.

"Furthermore, there are significant barriers to entry. Acquiring the regulatory approval to build a new pipeline is a long and difficult process. And the significant investment required generally stops new competition in its tracks.

"This is a new issue, however. The stock only began trading on October 10. So there are few analysts who have made earnings forecasts. We are currently in the 'quiet period' after the initial public offering. But some important people are speaking up loud and clear...

"I'm referring to CEO Jeff Stevens and three members of the board of directors. This month Stevens purchased 503,000 shares, an investment of over $11 million. Director Paul Foster picked up 250,000 shares, an investment of $5.5 million. And directors S. Weaver and M. Smith each invested over a half million dollars as well.

"When the quiet period ends, the underwriters will begin issuing favorable recommendations. That should give the stock a short-term boost. But what will carry the stock higher over the medium to long term is unexpectedly strong sales and net income. And that is what the insiders are signaling lies ahead."

- Bob Keaveney with Alexander Green

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