By Bill Schmick - June 05, 2008
iBerkshires Columnist
I first met John Roque in early 2001 while working for a boutique Wall Street investment bank that has since been bought by the French. John was our technical analyst.
I had no interest in the subject at the time so I ignored him. That is, until he wrote his first positive report on gold that year and a year later wrote a similar report on the bullish future of oil and gas. It was then that I realized my mistake. Now, when John Roque talks, I listen.
An avid sports fan, you can usually find this dark-haired Bronxville, N.Y., native striding through his firm’s cavernous trading floor talking to traders about stocks and markets. His customers, a vast array of money managers and other institutional investors throughout the world, manage trillions of dollars for clients like you and me. Back in the day, when he first took a stand on gold and oil, he recalled, his opinion was met with disdain, even contempt.
We were aggressive believers in gold and gold stocks in October, 2001. Gold had bottomed and begun to move higher. I met tremendous disagreement with that call. Institutional investors demanded a reason why gold and then energy were moving up but there was no inflation, no financial crisis, and no currency problems. I didn't understand it myself. The only thing I knew was it was changing direction."
John, who has been analyzing markets for 15 years, admits it is really difficult to look at a chart and see what is going on with a stock. His desk is stacked with charts sandwiched between books on economics, finance, baseball and sports legends.
"If someone can identify which direction a security is going in a chart then that goes a long way in characterizing a stock or any security," he admits, but he uses more than technical analysis in his work.
"The components I look at besides technical analysis are market sentiment, bonds, interest rates, currencies, commodities and what I call news response syndrome," he explained. "How does a news item impact the security or the market? Does bad news cause a security to go up or down? This gives me clues but it is not enough by itself."
In his work Roque maintains a balance sheet of positive and negative assets analyzing all his components before making a decision on a particular investment. Most of all he tries to discover long-term trends which contradicts the oft-cited criticism that technical analysis demands a short term, trading mentality.
"That's a misnomer," he argues, "and tech guys do themselves a disservice by being perceived in that way. Guys that concentrate on trends do a better job over the long term. I'm not a trader."
He believes the toughest part of his work is to be cognizant of a developing trend and not to listen to detractors spouting conventional wisdom. "We almost always get taken out of our game, like a good player who is booed by the crowd to the point he starts to believe the ridicule. In baseball it's called acquiring rabbit ears."
Roque'’s ears, last I looked, were still normal-sized under a shock of thick black hair so it would be fair to say that he is an exception to that rule. I asked him what his views of the markets are now and in the months ahead.
"During the last big correction in 2003 it took the S&P 500 nine months to recover. We tested that bottom three times in July, October and a final retest in March of 2003. It wouldn’t surprise me that this correction continued through the summer months."
Roque believes basic materials, energy and natural resources will lead the markets out of this correction and higher both here and overseas. Ultimately, he believes energy will be a bigger weighting in the S&P then financials.
"I go through a ton of charts on a weekly basis and I keep coming up with great mid-cap energy stock charts. The big guys don't see them because their market cap are too small for them but over time most of them will grow into large cap stocks and then they will buy them."
As for commodities in general, he believe they are in a corrective phase. "These kinds of corrections can be sharp and debilitating. They shake you to your bones and end up shaking you right out of your position."
But long term he thinks they are under owned compared to 15 years ago when all the big research houses on Wall Street had commodity departments and institutional investors regularly invested in commodity stocks .
"As prices rise I think more and more professional investors will be forced to throw in the towel and start investing in these markets."
Sectors of the market he would avoid are health care that has underperformed and financials.
"A lot of people believe financials are going to be the leadership group going forward but I disagree. In my opinion, stocks that make ten year lows do not lead the market higher. Once broken, a group takes many years to recover. They will be poor performers for some time to come."
He is also not a big fan of bonds right now and expects long term interest rates to move higher in the near future as well as the dollar. Roque believes inflation is a real threat which is part of his bullish case for commodities in general. He predicts the Producer Price Index may well top 9 percent before all is said and done.
"If history is any guide, inflation is going higher and only Wall Street strategists, economists and Fed Board Governors think otherwise."
Bill Schmick is a licensed investment adviser representative and portfolio strategist with Berkshire-based Dion Money Management, managing more than $800 million for middle-class Americans from coast to coast. Direct your inquiries to Bill at 1-877-850-7942, Ext. 146, (toll free) or e-mail him at wschmick@dionmm.com. You can also visit www.afewdollarsmore.com for more of Bill's insight.
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