Beware the Bottom Callers on TV

I spend a good deal of each day watching biz TV and appearing as a talking head on Fox News and Fox Business Channel (given the size of my noggin it was a natural calling). Lately I've been hearing a lot of money managers saying some very dangerous things. Check out today's Rant to find out how to avoid being duped by these guys.

And in the latest "Ask Toby" video, learn what this holiday season's hottest gifts will be and how investors can play them.

Toby

What Does Obama's Win Mean For Investors Now

Change and hope were the two big promises of the Obama candidacy. But there's no hope for a quick reversal of the economic slide we're experiencing. You can blame that on the credit market.

High volatility began in June, and it crushed most investors. However, there was a group that made big bucks during the past few months, including profits of 170%, 310% and 320%.

Find out how you can begin getting rich in this volatile market.

Is It Time to Buy This Market? No Way!

I watch an extraordinary amount of business television given what I do for a living.

When I hear people from the money management industry go on the air and say that "The bottom is in and it's time to put money to work," I get a little sick. Not as sick as I do watching Barney Frank talk economics to his fellow Congressman, but sick nonetheless.

I'm sickened because I know that there are tons of investors out there who listened to these "Johnny-One-Notes" for the past 12 months. And those investors are now looking at 40%-50% losses, and need 100% gains or more just to break even. Sadly, many of those individuals simply do not have that much time left.

It is an indisputable fact that the guys who get paid to manage money based on the amount of money they manage have an incredible blind spot (I'm being kind here) to the business of investing for capital growth.

"Riding out" the bear markets fully invested is an absolutely insane approach to investing in an age when it costs so little to get defensive, when so many people have loss carryforwards that make these moves tax-free (or are in tax-exempt accounts), and when economic surveys like the ones we get from the ChangeWave Alliance are so accurate!

Don't Fall For Their Bull

When asked about the stock market, the professional money managers on TV repeat the same, old mantra: "Stay fully invested. When the market goes bear, buy more. When the market goes bull, rebalance your portfolio at year-end."

This concept is simply BS. Not just because if you followed it you would have zero investment gains since 1998. And not because those money managers or stock brokers don't get paid on your cash balances -- those fees or spreads go to the house.

It's bull because it does not adequately reflect the risk of owning stocks versus owning cash/bonds/short exchange-traded funds (ETFs) during periods of contracting economic growth.

Stocks are valued on an estimate of future earnings times a multiple of those earnings.

Cyclical stocks get a lower multiple because their earnings are cyclical. Secular growth stocks get a higher multiple because their future earnings are growth at a multiple to overall GDP growth.

At ChangeWave Investing, our strategy is to get defensive when our forward-looking surveys show that consumer and corporate aggregate demand and sales are headed 20% or more south.

In other words, we go on the defensive when our survey data unequivocally show that an economic recession is coming (like it did in January 2001 and January 2008).

By going defensive I mean that we sell 50% or more of our equity positions, getting out of any stocks that are close to our full-value calculations or not performing up to expectations, and hedging our portfolio with double-short bear market ETFs.

We do this because we know that investors will not be willing to pay the same multiple for growth and cyclical stocks going into, and during, the upcoming recession. When an economic contraction is coming, an earnings recession is coming, too. And our goal is to buy stocks when an earnings wave is ahead of us, not behind us.

Remember, the most value is created in stocks when the prospect for earnings growth is the easiest to forecast. The most value is taken out of stocks when earnings growth is hardest to forecast.

Utilizing our proprietary ChangeWave research, we are able to look ahead 90 to 120 days via our forward-looking sales pipeline and spending surveys.

Until the financial system meltdown that started with the Bear Stearns debacle, we were forecasting a relatively normal recession that would bring the Dow (DJI) to around 9,000. However, when the financial system collapsed, we were forced to change our outlook.

No Hope For a V-Shaped Recovery

Due to what I now call the Great Financial CrashWave of 2008-2009, we lowered our 2009 earnings estimates to reflect the financial system cataclysm. Our current model suggests $52-$55 per share for S&P 500 (SPX) earnings.

What multiple should be applied?

Old schoolers say at the earnings trough you can pay a 15-17 multiple, because when earnings recover, you are really paying a 12-14 multiple.

My problem with this analysis is that it presumes a V-shaped recovery in late 2009-2010. A sharp recovery is simply not possible. Not when 2%-3% of nominal GDP in the United States between 2003and 2006 came from mortgage equity withdrawals (MEW).

In 2005, there was almost $695 billion in mortgage extractions that went into some kind of consumer spending. According to the graph above, that translated into around a 3% rise in GDP.

For the second quarter of 2008, MEWs came in at just $9.5 billion. Third-quarter 2008 consumer spending was down 3.1%.

For the economy to right itself, it needs oxygen to fuel the recovery. Without $500 billion of cash to spend, we will likely see an L-shaped market for a while, not a V-shaped one.

The following two charts should tell you everything you need to know about the earnings power for companies in Q4 2008:

Consumer Spending

Corporate Spending

Just wait until the 2009 earnings revisions start to take effect.

Toby

P.S. Every Monday, we bring our ChangeWave Investing subscribers the latest results from the ChangeWave Alliance Research Network, along with specific investment recommendations to profit from these findings. Become a ChangeWave Investing member now with a risk-free, 90-day trial.

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Ask Toby: Hot Holiday Gifts

Watch.
Or listen.

In today's video, Toby gives you his take on the top gifts this holiday season and how you might be able to profit from them.

Watch 'Bulls & Bears' on Fox News

Be sure to tune in to Fox News Channel this weekend and join Toby and the crew on "Bulls & Bears" for their weekly market roundtable as they kick off the Fox News Channel business block on Saturday, Nov. 22, at 10 a.m. Eastern. ("Bulls & Bears" replays at 4 p.m. Eastern, Sunday, Nov. 23, and 4 a.m. Eastern, Monday, Nov. 24.) Or you can catch the show Saturday evenings at 6 p.m. Eastern on the Fox Business Network.

Las Vegas Traders Expo Free Webcasts

You don't need to go to Vegas to attend some of the best sessions of the show.

Sign up today and you can attend Michael Shulman's session, "Shorting With Puts, and Puts Alone," Thursday, Nov. 20, at 8 a.m. Pacific.

And Nick Atkeson and Andrew Houghton will show you "How to Trade Options for Big Money," Saturday, Nov. 22, at 1:15 p.m. Pacific.

Don't wait. Sign up to attend free today.

Wine Find: A Mouth-Watering Napa Cab

I was recently in Napa for the wedding of a close friend, and I discovered the 2004 Freemark Abbey Napa Valley Cabernet Sauvignon.

Here's what Robert Parker has to say about the wine:

"The 2004 Cabernet Sauvignon is an outstanding value in Napa Cabernet. With prices on almost every Napa Cabernet now well in excess of $50, a $35 wine that merits 90 points is big news.

"Deep ruby purple in color with loads of licorice, black currant, cedar and spice, this wine has beautiful texture, medium to full body, and a heady finish. The velvety texture and opulence of the wine speak to drinking it over the next 10-15 years."

To share your favorite wine or food experience, e-mail me through the form at: www.changewave.com.