The Kirk Report

10 Questions With Michael J. Panzner

While many people thought they knew and understood many of the risks and challenges that we've encountered over the past year, Michael J. Panzner was one of the few who dedicated a tremendous amount of time and energy in trying to get the word out when it was extremely unpopular and difficult to do so. In fact, most of the predictions in his book Financial Armageddon came true within two years of publication.

In the time I've known Michael I've found his perspectives helpful, especially in countering the on-going hype machine that has destroyed many investment portfolios. Through his books and blog, Michael has been one of the good guys out there trying to inform and educate people long before the herd even recognized the risks.

Prior to his launch of another new book, When Giants Fall, I asked Michael to take a moment and answer 10 questions I prepared for him. The following are his replies. Enjoy!

10 Questions With Michael J. Panzner

Kirk:  While you saw a lot of the recent events coming, what has surprised you the most about how things have played out over the past year?

Michael J. Panzner:  The most surprising -- and frightening -- aspect is the speed at which events have unfolded. When I first published Financial Armageddon in March 2007, I had this image in my mind of a slow-motion train wreck. What we've seen over the past year or so seems more like a rocket-powered crash-and-burn.

Kirk:  In your opinion, how long do you think it will take for the financial systems to repair and heal themselves and why?

Michael J. Panzner:  That's a tough one. To a great extent, it depends on how authorities respond. While I don't think policymakers in Washington (and elsewhere) can reverse the fallout from collapsing credit and housing bubbles, they can certainly slow it down. In addition, there are other factors at play, including a changing geopolitical landscape and brewing resource-related concerns, that will cause all sorts of collateral damage to markets and the economy. In the end, it could be a decade or more before we return to anything resembling a "normal" situation.

Kirk:  What are some things that could go right (and wrong) to speed up or delay the repair process and return us to a healthier market and economy?

Michael J. Panzner:  As I've learned the hard way (through trading, especially), no one knows for certain what the future will bring. In fact, anything can happen. While I think I understand how we got to this point and where we are headed, I could be wrong. Maybe I've underestimated the degree to which human creativity will help us overcome the many challenges. Or perhaps someone will develop new technologies or make other discoveries that can help fix what ails us. Otherwise, history suggests that time is the only cure for the myriad problems we are faced with.

Kirk:  In your view, what is the one thing investors can do to protect and profit from this disaster?

Michael J. Panzner:  Remain disciplined and prepare for the unexpected. The fact that one outcome seems unlikely doesn't mean it won't happen.

Kirk:  You've previously said that you think the world will be "more unsettled, dangerous and uncertain" than what people have been used to. What's the primary implication this new world has for investors in terms of how they should approach the market?

Michael J. Panzner:  Aside from spending more time thinking about personal safety and economic security, investors should steel themselves for a trading environment where liquidity is poor, volatility is high, new and unfamiliar forces are affecting prices, and old rules of thumb don't work like they used to. They should also pay close attention to counterparty risk: know exactly who they are dealing with and where their money is.

Kirk:  Recent events suggest that governments, even in "capitalist" countries like the U.S. and U.K., are getting more involved in markets and industry. What impact do you think this will have and what is the end result in your opinion?

Michael J. Panzner:  In my new book, I make the case that deteriorating economic conditions and geopolitical stresses will force governments around the world to get more intimately involved in all aspects of markets and economies. That will leave private investors at a distinct disadvantage. Among other things, governments often make up rules (favoring them, of course) as they go along; their financial and economic decision-making is often influenced by factors other than maximizing returns (e.g., corruption or favoritism); and, as we've seen in the case of state-controlled companies like Russia's energy giant Gazprom, politicians are not averse to using economic resources as blunt weapons.

Kirk:  Based on your knowledge of market history and valuations, where are we in terms of that cycle?

Michael J. Panzner:  Unfortunately, I think we are only in the early innings of what could be a very long game. And even if you disagree with my pessimistic outlook, which assumes, among other things, that the U.S. won't be the world's sole superpower for long, there are plenty of reasons to be negative right now. For instance, although some people claim that stocks are "cheap," history suggests that during turbulent times -- e.g., the Great Depression, World War II, the late-1970s stagflation -- P-E ratios fell to single digits, while dividend yields were two to four times higher than they are now. Since most people agree that the current crisis is one of the worst this century, that would imply that we have a long way to go before we reach bottom.

Kirk:  In recent months, people have been seeking safety for their money as investors seek capital preservation than accumulation. What impact will this have for the markets this year?

Michael J. Panzner:  With many professional investors (e.g., hedge funds) going under, individuals fleeing the market (to invest in supposedly safer alternatives), and less surplus funds sloshing around from the once booming global economy, market liquidity can only go one way: down. Aside from helping to keep volatility high, that will make it hard to read the tape and even to get business done, unsettling the playing field for those who make their living (or some portion of it) from trading and investing.

Kirk:  Where do you see the most opportunity for investors in the coming year?

Michael J. Panzner:  For those who have the appropriate risk profile (and the stomach for it), there will be good opportunities to sell short equities and other instruments that have been bid up or supported by those who believe the events of the past year were merely an interruption in the long-running bull market. Otherwise, as I detail in When Giants Fall, accumulating precious metals -- towards the end of this year, as I believe near-term deleveraging risks remain -- will be one of the few ways to preserve and increase wealth in the troubled times I see ahead.

Kirk:  Looking ahead, what do you think will surprise most investors a year from now?

Michael J. Panzner:  They will be most surprised by the fact that the light many saw at the end of the tunnel is actually a freight train heading in their direction. Again, I hate to sound so pessimistic, but in my opinion, at least, the facts only point to one thing: much more more trouble ahead.

Kirk:  Thank you. Those who wish to read more insights and commentary from Michael as we navigate the financial armageddon he predicted are encouraged to read his books and blog.

We Need A Strong Close

As expected, we have a choppy market with a positive bias. The beige book due out this afternoon is probably keeping both the buyers and short sellers somewhat contained as well as overall nervousness flowing from the recent shellacking. Sectors showing the most bounce include precious metals, oil & gas, iron & steel, mining, agricultural products, transportation, semiconductors, drugs, and retail.

Whether this is just another dead cat bounce is unknowable, but unless we see a very strong close, today's trading so far isn't as encouraging as I would like to see in this oversold state. I suspect that folks are currently looking for the all clear signal to be sounded off and are currently debating whether the "bad news is already priced in" is good enough for that signal.

Stocks I'm watching on my trading radar include XING, SMSI, OMNI, LIHRY, SWN, VICL, JOBS, NXG, HSR, LMIA, and ABB. As always, I hope you're having a great day.

My Trading Radar

The sell in May and go away seems to be the one theme we can count on. Yesterday's intraday reversal and the poor timing of the Vonage IPO has spooked some and perhaps everyone is already in holiday mode.

Fear over tomorrow's GDP is also holding the buyers back a bit. In addition, weakness in precious metals - everyone's favorite sector - is keeping the buyers away from making aggressive trades. Meanwhile, stocks on my trading radar include NVAX, BCRX, GILD, XTXI, MED, HAST, VICL, PSS, PEIX, STMP, Q, NVTL, SGMO, ANGO, NVTL, FNET, ANST, BOOM, IIIN, BG, and NEU.

The indicators clearly suggest it is time to buy at least for a trade and my game plan is to hold my nose and scale back in. The herd is selling on strength because they have little choice given their current underwater stance and buy-the-dip mentality that hasn't been fruitful. The upcoming holiday, as I've said before, has also presented a situation where folks are simply walking away until after the weekend. In my view, that presents an opportunity for those who can accept the risk and short-term pain over the next couple of weeks. Most likely we're going to see a fair share of back and forth trading in the short-term until the herd figures out what to do next.

To be absolutely clear - the risk versus reward for trading on the long side is finally back in our favor. This is the reverse mindset of the herd at the moment and I think it is the correct one given where we are and how far we've come in such a short period of time. As always, you'll need to make up your own mind and trade accordingly.

At The Trading Desk

I haven't been this busy trading for awhile, which is indeed a nice change of pace. I have a few trades on OVTI, STXN, FNET, & FNSR and I'm working on a few others. I also had to cover my losing short in the GLD again. Discipline must always trump conviction.

Everyone is focused on the retailers this morning and my screens continue to point to the same companies - CWTR, DBRN, CTRN, & ZUMZ. Perhaps we'll see consumer weakness going forward with higher interest rates and oil prices, but so far that has been a losing trade. Americans are in the habit of spending everything they make and that simply isn't going to change overnight without some major catalysts. For now, the pot continues to slowly boil.

My Trading Radar

The bulls are catching their breath, but the general mood is if you can't get'em down by noon, then we might as well take'em higher.

Overall, it remains a quiet trading day which offers a nice change of pace. Even the sectors that are performing quite well out there are relatively ho-hum.

I've been catching up on my reading this morning (no new trades) and I'll have a post later that will share a few of my favorites. Stocks on my radar this morning include IRIS, QDEL, MFLX, VPHM, CUTR, CMED, IIJI, & PWAV.

My Trading Radar

Are the fears overblown? That seems the question of the hour as the tape attempts to find some level of support.

Stocks on my trading radar this morning include PQUE, NGAS, RGLD, IMDC, SWIR, TOMO, IPII, ABIX, NTES, NSSC, FUEL, ECA, & VLO. I'm currently sitting on my hands and trying my best to be patient.

Since everything is on auto-pilot at the moment, I'm going to take off, run some overdue errands, and perhaps stop by the golf range for a little practice. I've have a charity golf tournament next weekend and I haven't even held a golf club in September. Come to think of it, with all of the palpable tension in the market, spending some time on the golf course sounds like perfect trade to me.

See you after the market close! :)

Tilting The Odds

• Bush considers tapping emergency stockpiles of oil


• What politicians won't tell you about future oil prices


• "By early November, when that first heating bill has to be paid, we will see how much resolve that mid-upper-income market is going to have." - Marshal Cohen


• Traders should continue to focus on the alternative energy plays


• August has been filled with long periods of inactivity punctuated by a flurry of activity


• Money inflows remain relatively unimpressive


• How much cash on the sidelines is really there to pump up stocks?


• Six tips for putting idle cash to better use


• Odds of a December Fed rate hike are back below 50%?


• "The harder you work, the luckier you get." - Gary Player


• 50 stocks that currently have the highest Stock Scouter technicals rating


• Newsletters tout tech at Washington conference


• Don't take your long-range plans too seriously because you can't control the future. Life is full of surprises!


• Measuring the economy may not be as simple as 1, 2, 3


• Every Monday morning, I read Thomson's Market Week


• A bad August. A worse September?


• Dumping of US dollar could trigger economic September 11


• Eonomists are starting to bite their nails over the nomination of the new Federal Reserve chairman


• Can Google win over the markets as it loses friends?


• Google will overtake Microsoft?


• WiMax: wireless pie in sky or the next tech revolution?


• A hedge fund falls off the face of the earth


• Did you know that Australian real estate is the most expensive in the world?


• The return to normal housing prices could be as painful at the Great Texas Real Estate Crash


• Why most real-estate agents aren't getting rich


• Independent strategic consulting firm, Oxford Analytica, finds that income inequality in America threatens future growth


• AllThingsFinancial hosts the Carnival of Personal Finance


• Chuck Jaffe's stupid investment of the week


• After the nation's big investment banks agreed to pay $1.4 billion to regulators to settle conflict-of-interest charges, the settlement money has not made its way into the hands of jilted shareholders. And most of it never will


• Buying companies with excess cash flow is the best defensive maneuver against financial risk


• The U.S. drug industry is under unprecedented assault


• Encouraging employees not to participate in the company's healthcare plan is a growing trend among small businesses


• A penny saved, is a penny earned


• Aging baby boomers outpace trained doctors


• Tips for designing a safe and comfortable workstation


• 10 steps for a good ergonomic workstation arrangement


• How ergonomically sound is your workspace?


• Lessons from the Stock Market Samurai


• Some interesting thoughts regarding trading journals


• Pluck is my favorite new RSS reader


• This week's vital signs


• "A man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight." - Jesse Livermore

Bulls Hold The Line

The bulls are trying to put up a fight and managed to push us into positive territory, no doubt on the backs of those who went short at the open. The action is focused on the energy sector.

Some notable standout movers include ABIX, ZIGO, GLBL, ASVI, REDF, ENER, OSTE, BDCO, CPST, IPII, BSTE, JOYG, ABLE, SYNM, & GEOI. I'm sitting on my hands and doing very little.

My Trading Radar

Premarket futures are still negative following the initial jobless claims which came in higher than expected (316K versus consensus of 310K). Premarket movers of interest include MYOG, ARRY, RITA, SMRT, MNTA, BCON, DSTI, SOHU, IDNX, SNPS, PXLW, BIDU, GNLB, IDNX, GNTA, & NXXI. I suspect we're in for a volatile trading day. Have a good one!

An Uphill Battle

We're jumping around following the oil and gas inventories report, and while the bulls seem to be trying to work us up higher, it seems like an uphill battle.

We have a few movers out there (REDF, NWD, BCSI, ARXX, CPTH, ALOT, CTTY, CHRS, SNSTA) but nothing I find overwhelming compelling. So, I'm taking this opportunity to study some home office designs as well as shop for a new trading desk and computer.

Although I've had good intentions to get my home office done by Labor Day, unforeseen delays and challenges have prevented me from making substantial progress. So, today looks like a good time to spend working on this goal, at least for a little while. And, as previously promised, once my home office and trading setup is complete, I will share photos right here at the website.