Quickly, I will be on Larry Kudlow's show tonight (Tuesday, June 28), which is at 7 pm Eastern. Larry has promised that we will spend some quality time on some of the current issues facing us. See you there! And now, let's jump in to this week's Outside the Box.
Last January 2009, the Outside the Box featured FusionIQ's quant models that blend both fundamental and technical metrics to determine the strength of 8,000 equities as well as the overall markets (Trading With the Big Boys).
You may recall that CEO Barry Ritholtz, (and good friend and Maine fishing buddy) had been bearish throughout 2008, and was still negative on stocks back in January 2009. Relying mostly on the FusionIQ metrics, Ritholtz flipped bullish on March 2009, and stayed bullish the rest of the year. The firm began raising cash in Q1 of 2010, and by the time the first quarter was over, was only 50% long. They sold more stock in April, and in a bit of good timing that Ritholtz will tell you was "dumb lucky" went to 100% cash on May 5, 2010 – the day before the 1,000 point flash crash.
Some economists see the world from a 30,000 foot overview (that would be me); other analysts work bottoms up. The quants – mathematical analysts whose world view consists of granular data –crunch numbers to reveal what it may about markets and economies. Ritholtz is one of the few that combines all three. This has led to prescient economic and market calls that made his clients and readers money, and kept them out of harm's way when things got ugly. Indeed, Dow Jones noted that "many market observers predict tops and bottoms, but few successfully get their timing right. Jeremy Grantham and Barry Ritholtz sit in the latter category..." heady company indeed.
Regarding the market calls, Ritholtz said "We cheat. We use everything that we know works. Macro economics, technicals, fundamentals, valuation, quantitative – it all goes into the mix. That's our secret sauce." Ritholtz added "I don't know why other people limit themselves to just one discipline – the value guys never look at technicals, the fundamental analysts ignore macro cycles. It creates blind spots in their analyses. When we go over other research reports, they are obvious to see."
I have been intrigued by the Fusion system's ability to warn investors to get out of the way of dangerous stocks sectors, even the entire market – before trouble hit.
Dumb lucky or not, I have found over the last year and a half, looking over Barry's shoulder, that this system does seem to (in general) give some very interesting signals about the market. I wanted to catch up with Barry to see what the FusionIQ system was saying these days – about Energy Stocks, about Housing and anything else that he thought noteworthy. As you can imagine if you know Barry, I got an opinionated earful. (Barry is like me, often wrong, but seldom in doubt.) I asked him to put it in a letter for this week's Outside the Box.
What follows is his explanation as to why Housing fall still has further to fall. He included some charts that explain what stocks and sectors to look at and avoid.
His application of both the macro and micro views, combined with using FusionIQ "to cheat," as he puts it, is why institutions and high net worth individuals seek out the firm's investment advice.
As is my custom, I will give you a link to where you can find out more about their services. Visit their site to learn more about FusionIQ. Watch their demo. Outside the Box subscribers are eligible for a discounted rate (less 20%) on the monthly subscription. http://www.fusioniqrank.com/signup.php?a=1
One caveat. This system is for serious traders. Most of you shouldn't be trading. It takes discipline and time. That is not a knock on anyone. I don't trade or have any business trading, either. A man's got to know his limitations. So I find what Barry writes about below interesting and informative. But some few of you who trade should explore his system as another arrow in your quiver.
Your writing away on his book analyst,