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Articles by Donald E. L. Johnson

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Today is Sunday, December 04, 2016

Mutual Funds

Michael Lewis’ ‘Flash Boys’ shows SEC must revise high frequency trading rules

High frequencty trading on the stock exchanges has become a very controversial issue for Wall Street and speculators. Last week, Michael Lewis published his new book, Flash Boys, and took the debate to a new level. I've watched CNBC and Fox Business TV interviews and discussions and read stories about the debate and the book, but I haven't read the book yet. In response to a story on this morning, I thought about the issue and decided the market is probably more manipulated than rigged. And I see the deals the exchanges give HFT funds as the same as the volume discounts Walmart and the Federal government get from their vendors. But the Securities and Exchange Commission, which wrote the rules that guide HFT funds, needs to update them. My thoughts:

Posted by Donald E. L. Johnson on 04/05/14 at 09:43 AM
EthicsTrustMediaFinancial MediaMutual FundsSpeculationTrading StylesStocksTechnology • (0) CommentsRead More

9 tips on how to use your new state health insurance exchange

Millions of insured, underinsured and uninsured Americans are being told by President Obama to sign up for very expensive health insurance plans that will be offered on states' health insurance exchanges beginning Oct. 1.

As expected, newspapers, magazines, broadcasters and cable TV networks are trying to win some new readers and viewers by offering advice on how to use the exchanges and how to pick the health insurance plan that will be best for them.  Most of them are and will be misleading consumers.

My suggestions, which are based on years of blogging against and about ObamaCare and reading numerous articles and comments about the Affordable Care Act (ACA), follow:

1. Exchanges probably will give more choices of insurers in urban markets than in rural markets where only one insurer may be available. That could make rural insurers more expensive.


2. You will have a choice of deductible plans. Chose a plan that involves deductibles and copays that you can pay off in a year or so at your current income.


3. Many state insurance exchanges won't be fully functional on Oct. 1, and nobody can predict when they will be bug free and give you accurate price quotes on your premiums, copays and deductibles. 


4. Health insurance brokers and people certified as "navigators' will be as intimidated by ObamaCare as you are. Don't rush to signup. Give the exchanges, brokers and "navigators" time to learn at the expense of other people.


5. While the government is inviting you to lie on your applications about your income and other variables, remember that sooner or later the IRS will come after you. Violating federal laws is a big deal.


6. Don't believe much of what you see and hear on ABC, NBC, CBS or CNN. They are in the business of selling ObamaCare and making Obama look good. They're serving Obama, not you. The article published recently by shows the same kind of pro-ObamaCare optimism that should be taken with huge grains of salt.


7. Carefully calculate whether you can go wiithout ObamaCare insurance until you have a catastrophic financial loss due to a sickness or accident. Enrollment periods last only six months. That could mean that if you need insurance outside the enrollment period, you won't be able to buy it when you need your free lunch.


8. ObamaCare covers a lot of worthless preventive care and wellness care services for the worried well. The literature warns that such services too often give false positives and result in unnecessary procedures that could do more harm than good. But if you have pre-existing conditions that require wellness or preventive care services, use them. See my previous post.


9. If your health insurance premiums and deductibles seem unaffordable, Obama will be happy to see you stop smoking, skipping your daily Starbucks, canceling your health club and cable TV contracts and keeping your old vehicles for four or five more years than you otherwise would. And you really don't have to buy that new home, appliance, smart phone, computer or mattress.




State insurance exchange blind spots: Unknown risks and unintened consequences, by Seth Kneller. The Health Care Blog.


Will ObamaCare Survive? Nine key questions, by Robert Lazewski. The Health Care Blog.

Values of Colorado’s natural gas fields will depressed for years

Natural gas prices and the exchange traded fund, UNG, that tracks them likely will be depressed for years along with the rest of the economy.  That’s not good news for Colorado and other major natural gas producing states.  Links:  How to trade the short oil long gas futures spread. Brad Zigler at Hard Assets Investor.  Note that there is little substitution of natural gas for oil or vice versa, which means the oil/gas spread makes economic sense. See the comments that follow the Zigler article.  New U.S. natural gas pipeline displacing Canadian gas. Keith Schaefer, Oil and Gas Investments Bulletin.

Posted by Donald E. L. Johnson on 07/10/09 at 12:52 PM
ColoradoEconomicsEnergyMutual FundsCommodity FundsETFsPermalink

Is the ultrashort 20-year bond exchange traded fund, TBT, a good hedge against ObamaCare, inflation?

Worried about how President Obama’s proposed health insurance reform legislation will send interest rates soaring?

Many believe his health care reform, or ObamaCare, will be very inflationary along with the already enacted stimulus bill. The inflationary concerns related to proposed universal health legislation came up during an interesting and pretty balanced discussion today on about the obstacles facing Obama’s health care legislation. The thread is pretty representative of the health care policy debates that have been going on over the last 35 years.

Among the big obstacles facing Obama’s health insurance legislation are predictions it will cost between $1 trillion and $2 trillion over the next 10 years. Opponents worry that the cost of providing insurance that will cover only a third of the uninsured, or about 16 million folks, will be inflationary. But 16 million would be double the actual number of uninsured American citizens, which is between 6 million and 8 million.

Whatever the cost, it’s expected to contribute to the inflationary spiral many are predicting Obama’s stimulus bill and other programs will cause over the next two to 10 years.

Scott Gottlieb, M.D., a resident fellow at the American Enterprise Institute, writes that investors worried about ObamaCare should “short health care” and buy the ProShares Ultrashort Lehman exchange traded fund TBT, which tracks the 20-year bond. Or, if you don’t like the risk of trading an ultrashort exchange traded fund, you could short the Vanguard long-term bond fund BLV. As interest rates rise in anticipation of inflation, bond prices shrink.

You can short health care by shorting the Vanguard Health Care Viper (VHT) exchange traded fund. But it trades less than 100,000 shares a day, which means it’s not very liquid.

Another way to short health care is to short Johnson & Johnson (JNJ), a major health care conglomerate that owns more than 100 medical device, medical supply and drug companies. I prefer to trade stocks instead of exchange traded funds, which charge small managment fees of 0.10% and higher, but it’s easier to short heavily traded ETFs, I think.

Charts for TBT, BLV, VHT and JNJ are here. Click on a chart to see a gallery of charts for a stock or ETF.

There’s one small problem with shorting BLV, VHT and JNJ. They’re all in relatively good uptrends.

The gallery of charts for the ultrashort TBT is here. When the 20-year bonds drop in price, the price of TBT goes up with interest rates.

TBT’s daily chart is turning bearish even though it’s trading well above its 50- and 200-day moving averages. The PPO oscillator has fallen below zero, which is a sell signal. The CMF chart, which tracks cash money flow into and out of a security, also is pointing south.

TBT’s weekly chart, however, still is mostly bullish despite TBT’s current correction. Although TBT is still above its 50 DMA line, the line is declining.

TBT closed today at $53.59. On its point and figure chart, TBT has a bullish price objective of $71 a share. But it’s threatening to make a bearish breakout if it falls to $52 a share.

Traders will play the charts. Longer-term fundamentalists will play the inflationary fears surrounding the health care legislation that is making its way through Congress.

For more fundamental opinions about TBT, BLV, VHT and JNJ, search those symbols at

I don’t have positions in any of the securities discussed above.

For educational purposes only. Investigate before you speculate. I am not recommending any trades and take no responsibility for how others trade stocks, ETFs, commodities or anything else.

Posted by Donald E. L. Johnson on 06/16/09 at 05:55 PM
Mutual FundsETFsStocksStocks MedicalPermalink

Bonds out perform stocks over long-term, but rising interest rates make them risky

Over the last 200 years, bonds have outperformed stocks for long periods and even over the last two centuries, according Robert Arnott’s article, Bonds: Why Bother?.

However, since we’re facing the risks of a soaring budget deficit and the hyper inflation that that might produce, interest rates are rising, causing bond prices to drop. So this isn’t a good time to buy bonds, and I’m considering bailing on my bond funds.

Be sure to read the skeptical comments that follow the article.

I think the history presented in the article, which appears on is so important that I’ve sent a link to it to family and friends.

From the conclusion:

Many cherished myths drive our industry’s equity-centric worldview. The events of 2008 are shining a spotlight, for professionals and retail investors alike, on the folly of relying on false dogma.

For the long-term investor, stocks are supposed to add 5 percent per year over bonds. They don’t. Indeed, for 10 years, 20 years, even 40 years, ordinary long-term Treasury bonds have outpaced the broad stock market.
For the long-term investor, stock markets are supposed to give us steady gains, interrupted by periodic bear markets and occasional jolts like 1987 or 2008. The opposite—long periods of disappointment, interrupted by some wonderful gains—appears to be more accurate.
For the long-term investor, mainstream bonds are supposed to reduce our risk and provide useful diversification, which can improve our long-term risk-adjusted returns. While they clearly reduce our risk, there are far more powerful ways to achieve true diversification—and many of them are out-of-mainstream segments of the bond market.
Capitalization weighting is supposed to be the best way to construct a portfolio, whether for stocks or for bonds. The historical evidence is pretty solidly to the contrary.

As investors become increasingly aware that the conventional wisdom of modern investing is largely myth and urban legend, there will be growing demand for new ideas, and for more choices.

Why are there so many equity market mutual funds, diving into the smallest niche of the world’s stock markets, and so few specialty bond products, commodity products or other alternative market products? Today, investors are still reeling from the devastation of 2008, and the bleak equity results of this entire decade. They have already begun to notice that there were opportunities to earn gains, sometimes handsome gains, in a whole panoply of markets in the past decade—most of which are still difficult for the retail investor to access.

Posted by Donald E. L. Johnson on 05/28/09 at 04:42 PM
EconomyMutual FundsBond FundsPermalink

Investment committees make bad decisions for clubs, colleges, mutual funds and charities

It’s becoming better known that letting a financial adviser, or stock broker, make your investment decisions for you is a bad idea, especially when you have the work ethic and incentives to manage your own money.

What probably isn’t as well known is that many, if not most, so-called investment committees make lousy money management decisions. Indeed, in his Wall Street Journal article (April 25, 2009), “How group decisions end up wrong-footed,” Jason Zweig’s most important graphs discuss the history of group decision making and why they usually go wrong:

Posted by Donald E. L. Johnson on 05/04/09 at 03:01 PM
Mutual FundsSpeculationStocksRead More

Markets may need more than nine years to reach October ‘07 highs

History indicates that the Standard & Poor’s 500 index probably will need more than nine years to rise 131% from its March 9 low of 676 to it’s October 2007 high of 1565, Peter J. Tanous writes in today’s Wall Street Journal.

The question:

Posted by Donald E. L. Johnson on 03/30/09 at 07:34 AM
Mutual FundsStock FundsStocksRead More

Managing your money is as important as your day job

Financial advisers and stock brokers who live off commissions helped most of their clients lose 30% to 50% of their money over the last 17 months while investors who traded on line and managed their own money probably still have much more of their money than those who depended on mutual funds and portfolio managers to make them richer and preserve their capital.

The conflicts faced by commission-paid stock brokers and financial advisers are described here. Be sure to read the comments, which confirm the huge conflicts of interest facing these brokers. They are under tremendous pressure from their wealth management firms to keep investors fully invested regardless of what’s happening in the markets.

The bottomline is that anyone who is too busy to manage their money is asking for trouble. People who are lazy and indecisive when it comes to investing should at least use fee-based financial advisers. Pay $200 a month for advice. Do the trading yourself online.

Posted by Donald E. L. Johnson on 03/03/09 at 08:09 AM
Mutual FundsStocksPermalink

Stock pickers are seeing some encouraging signs in the charts; beware of bear market rally

Nimble day traders and even some other short-term traders are beginning to see some strength in the market technicals.

Gold has been strong for some time. It are represented by the exchange traded Funds (ETFs) GLD and GDX. Their charts are here.

As a result of the market’s bounce this week, other ETFs that track important indexes also are showing strength in their daily charts. Charts for DIA, SPY, QQQQ, MDY, IWM and EEM are here.

Note that most of the charts show prices are above the 50-day moving average, and most MACD charts are turning positive. These are both preliminary positive signs.

I don’t own any of these securities.

For educational purposes only. Investigate before you speculate. I am not recommending any trades and take no responsibility for how others trade stocks, ETFs, commodities or anything else.


Posted by Donald E. L. Johnson on 02/06/09 at 05:43 PM
Mutual FundsCommodity FundsETFsSpeculationMarket TimingPermalink

How to stash cash in corporate and government exchange traded bond funds

With stocks in a seemingly bottomless bear market and treasuries over-priced, sophisticated investors are putting their cash into exchange traded bond funds that yield 4% and up, according to a timely article by Jonathan Burton at MarketWatch. com.

Corporate bond funds include


Posted by Donald E. L. Johnson on 02/02/09 at 02:45 PM
Mutual FundsBond FundsETFsRead More

January was bad for Warren Buffett’s Berkshire Hathaway (BRK.B)

The last month’s total returns for the 39 stocks owned by Warren Buffett’s Berkshire Hathaway (BRK.A, BRK.B) were worse than those for the overall market.

In the last month, the average price of




Posted by Donald E. L. Johnson on 02/01/09 at 10:04 PM
Mutual FundsETFsSpeculationGurusStocksRead More

Bear market rally’s over; stock pickers beware

Back on Jan. 4, the stock market looked like it was in a nice bear market rally, but the next day the market went south, and it’s looking pretty bearish again.

This just goes to show that bear market rallies can be deceiving, and bullish charts can mislead.

Look at them now.

Suddenly, they’re all trading below their 50-day moving averages on their two-month daily charts. The MACD charts say sell. Click on a chart to see hourly, daily, weekly and point and figure charts.

The Dow Jones Industrials ($indu) point and figure chart has a bearish price objective of 7200. That is 1,000 points, or 12.2% below tonight’s close.

While bearish charts can be as deceiving as bullish ones, deny their messages at your own risk. Realize that when the averages go down, most stocks go with them, no matter how strong their fundamentals and technicals may be.

This may be a good time to buy bear market exchange traded funds, but you have to ask whether the market is down so much that it can’t go much lower. But, then, people have been making that incorrect call for two years.




Posted by Donald E. L. Johnson on 01/14/09 at 09:32 PM
Mutual FundsETFsNot CategorizedSpeculationMarket TimingTechnical AnalysisStocksPermalink

How to not pick health and medical stocks

Some stockpicking gurus are worth following and some are not.

Don’t pay much attention to mutual funds’ portfolio managers who brag about outperforming the market even though their fund was down 28% last year and they charged their investors 0.83% of their assets to hold their money.

Barron’s Online today interviewed such a portfolio manager about his top health and medical stocks. While he had some interesting and spot on comments about health care stocks, I wouldn’t buy any of his biggest holdings at the moment. Their technicals are weak, and some of them have questionable fundamentals.

Never buy a fund’s top holdings just because the fund has a lot of shares of the stocks. You don’t know when the stocks were bought or at what price. And you don’t know whether the stocks have been sold since the list was compiled or whether they are on a list of stocks about to be sold. You need to look a stock’s current fundamentals and technicals before buying it.

Barron’s listed 10 of his top holdings: ALXN, AMGN, BAX, CEPH, DNA, GILD, MHS, TEVA, VRTX and WYE. Their daily charts are here.

Their point and figure charts are here.

Click on a chart to see a gallery of hourly, daily, weekly and point and figure charts.

As a result of the overall market’s declines since early last week, many of these stocks have weakening daily and weekly charts. A few have bullish price objectives on their point and figure charts, but they’re correcting.

And since the market is bearish long term, it pays to avoid all but the fundamentally and technically strong stocks. And there aren’t many to choose from because it’s almost impossible to forecast the economy or the stock market at this time.

Of these stocks, two present possible fundamental problems.

Genentech (DNA) is a takeover target. It’s price may be inflated because Roche is trying to buy the shares of DNA that it doesn’t own. Given the likely transaction price of $99 to $105 and the current price of $87.47, there’s not a lot of upside potential compared with the downside risk that the stock will plunge if the deal doesn’t go through as speculators expect.

Medco Health Services (MHS) is a middle man in the prescription drug business, and the new Congress and president may make its life very difficult. Also, some of its clients may try to take their business in house.

I’m also bothered by the fact that Wyeth (WYE) is the only stock in the group paying a decent dividend of about 3.25%.

What to do? Watch these stocks. If one that looks promising shows technical strength on its daily, weekly and point and figure charts, it may be a good speculation, assuming that the overall market looks fairly bullish.

I don’t own any of these picks.

For educational purposes only. Investigate before you speculate. I am not recommending any trades and take no responsibility for how others trade stocks, ETFs, commodities or anything else.


10 stock picks from the Barron’s roundtable

Two professional stockpickers on the Barron’s roundtable picked 10 stocks and exchange traded funds (ETFs) for 2009.

Some of these picks were questioned by other members of the panel who will disclose their picks in the next two issues of Barron’s.

Since most of the panelists are very bearish on the market for the next five to six years or more, all of these picks probably will face strong resistance to significant rallies. 

Since they’re all depressed, if they do rally, they will face selling by current owners who will be trying to cut their losses on the rallies, which, again makes a good rally difficult.

Often, stocks picked in the Barron’s roundtable go up on the Monday after they’re announced and then settle down for awhile. It will be interesting to see what they do tomorrow morning.

Picks by Meryl Witmer, general partner, Eagle Capital Partners, New York

Kaiser Aluminum Corp. (KALU), $22.32.

Allegheny Energy Inc. (AYE), $33.32.

Assurant Inc. (AIZ) $30.15.

Discover Financial Inc. (DFS) $8.71.

Picks by Fred Hickey, editor, The High-Tech Strategist, Nashua, N.H.:

Microsoft (MSFT) $19.52.

Cadence Design Systems (CDNS) $4.29.

Mkt. Vectors Gold Miners ETF (GDX) $31.31.

Agnico-Eale Mines (AEM) $49.52.

PowerShares DB Agriculture ETF (DBA) $26.45.

iShares FTSE/Xinhua China 25 Index ETF (FXI) $27.71.

Daily charts for 10 of the picks are here.  Click on a chart to see a gallery of charts. It is important to look at weekly and point and figure charts as well as the daily charts.

As last week’s market action showed, bullish charts don’t always mean stocks will keeping up.

Seeking Alpha provides another summary of the Barron’s roundtable here.

I don’t own any of these picks.

For educational purposes only. Investigate before you speculate. I am not recommending any trades and take no responsibility for how others trade stocks, ETFs, commodities or anything else.



Posted by Donald E. L. Johnson on 01/11/09 at 01:44 PM
Mutual FundsETFsSpeculationFundamental AnalysisTechnical AnalysisStocksPermalink

Don’t listen to market forecasters; they don’t know

Touts on CNBC are forecasting a bounce in the stock market.

Warning: They don’t know.

They have a 50% chance of being correct, and if they’re wrong, who will remember?

Traders who listen to them will remember if they lose money. And traders who listen and make money on the short or long side might remember.

There’s no question that there are bullish charts out there, which day traders and swing speculators will try to exploit.

But a review of charts for the exchange traded funds (ETFs) that track the major indexes are bearish. They’re all trading below their 50-day moving averages. Click on any chart to see weekly and point and figure charts.

I don’t own any ETFs.

For educational purposes only. Investigate before you speculate. I am not recommending any trades and take no responsibility for how others trade stocks, ETFs, commodities or anything else.

Posted by Donald E. L. Johnson on 12/26/08 at 09:09 AM
Mutual FundsETFsStocksPermalink
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