This is a very important 11:11 a.m. intraday update of Turov on Timing for Tuesday, November 11, 2008
For the benefit of monthly subscribers who don’t receive the daily Turov on Timing, the following will appear in the
December monthly TOT. But I didn’t want you to have to wait until December for it:
We’ve Done Well
We Might Have Done Better
Why Haven’t We?
Every investor with a really good long term track record is also a really good risk manager. Regardless of
strategy, we all know that managing risk is paramount.
All my models – Intermediate Term, Daily Model, Intraday Model, and NASDAQ model – have significant analyses
of risk built into them.
One of my more significant inputs of risk analysis is a multifaceted evaluation of the interrelationship of
the amount of cash available for investment, the amount of money estimated to be already invested, the velocity of
money, and the leverage of money.
In the November monthly Turov on Timing, I had a detailed Page 1 article entitled, April 28, 2004; A Date
Which Will Live in Infamy. It explained that the reason for the breakdown in the mortgage-backed securities market
(and the stock market and the economy) was an SEC decision to permit unlimited leverage on these securities. I
described how virtually nobody knew about the April 28, 2004 SEC decision. And I concluded that article by saying,
“In essence, the market collapsed in 2008 for the same reason it collapsed in 1929 – thin margins.”
As I was meditating yesterday morning, a thought popped into my head: None of my models ever considered
including the leverage involved in mortgage backed securities! There never was any reason to! My models were
concerned about the leverage in stocks and convertible bonds, not mortgages. But what if these models had taken
into consideration the incredible leverage that the SEC had permitted for mortgage backed securities?
I spent most of the balance of the day trying to answer that question and came up with the only really
important answer: It doesn’t matter any more. Why? Because with the collapse of Bear Stearns and Lehman Brothers
and the ensuing fallout, mortgage backed securities are not being leveraged at the SEC-permitted levels any longer.
Nevertheless, I’m adjusting the risk components of my models to account as best as possible for the real current
leverage in the financial system. That includes the reality that there is more money than there used to be,
courtesy of the Federal Reserve and the Treasury, less velocity of money, courtesy of the recession, and a more
complex analysis of leverage considering that the method of valuation of billions of dollars of securities is murky.
Nevertheless, when the adjustments are made, as well as they possibly can be made, the risk component of the models
will more accurately reflect the extant state of affairs in the financial markets.
We’ve substantially outperformed the market even with an unavoidably-flawed risk evaluation component. I
believe that once my work is completed on these adjustments, we’ll outperform the market even more. The main reason
for that expectation: The adjusted risk model will likely keep us on the sidelines more easily, helping to avoid
I expect that I’ll be able to complete my work by late tonight. So there will be no new recommendations
today, but by tonight we’ll be working on all eight cylinders.