Tuesday, April 29, 2008

The Chinese government will NOT allow...

...its stock market to fall any further!

What was the fuel for the Shanghai rocket? The Chinese government sent a clear signal to investors, announcing two major policy changes last week designed to prop up the ailing market ...

Cheaper trading costs. The stock transaction tax, known as the stamp tax, was reduced from 0.3% to 0.1%. This move actually reverses a year earlier move when the Beijing bureaucrats raised the tax to cool what was then an overheated market.

Restrictions for big block sellers. A new 30-day lockup was announced for large institutional investors. Any transaction over 100,000 shares has to be conducted "off" the market in a private institutional transaction. What this effectively does is reduce the amount of new shares hitting the market.

Monday, April 28, 2008


To make money on stocks, go where the growth is. Right now, the so-called frontier markets are hogging it. For example, the Kuwait exchange is up 335 percent over the past five years. Nairobi is up 190 percent. And Nepal has more than doubled.

These are the smaller, somewhat-less-developed "emerging-market" countries. They're still climbing. On the other hand, many bigger emerging-market countries have fallen alongside the U.S. markets.

So how to invest? The ETF that invests most in these markets is the SPDR S&P Emerging Middle East & Africa (GAF) fund. You may think its 56 percent exposure to South Africa invalidates its frontier-markets credentials. Not true. South African companies are increasingly spreading their wings into other parts of Africa. GAF is a nice combination of emerging and frontier markets. Until Vietnam and some of the other frontier-market countries get their own dedicated ETFs, GAF is the best way to leverage their super-fast growth.

Saturday, April 26, 2008

Japan Bank Takes Hit On Cerberus's GMAC.

“Cerberus Capital Management's 2006 deal for finance firm GMAC was billed as a bet that no one else was willing to take. Wednesday, it showed why, with a partner in the deal disclosing that it had lost roughly 26% of the value of its piece of the $8 billion investment.

While the private equity firm has acknowledged it has "significant concerns" with GMAC, it has been short on specifics. Wednesday, Aozora Bank Ltd., a Japanese bank that invested in the deal, disclosed that it booked a $130 million loss on its $500M equity investment in GMAC. Cerberus is Aozora's largest shareholder.” (Wall St. Journal, Apr. 24th)

Friday, April 25, 2008


What a disappointment Microsoft gave analysts, as they reported net income three percent under expectations.

Of course, analysts ignored the fact that earnings beat by three cents AND guidance for the year was above estimates.

If they are down on this news, imagine what happens when they spend over $40 billion buying a company that is already underperforming.

Thursday, April 24, 2008

Try a creative lease option.

Say you normally might be able to offer your house for $205K on a lease option. The other party pays $1,200 a month, and $200 of it goes to equity. Maybe you can offer it for $220K with a $1,250 monthly lease payment... but 100 percent goes to equity if they execute the option to buy!

This is a unique offer. At the end of one year, if they execute, they have to come up with $205,000 - about what you owe. If they don't execute, at least you've pulled in another $15K, reducing your negative cash flow.

Not ideal... but keep in mind that you're trying to make the best of a bad situation.


Making money in the markets has almost nothing to do with how often you win - but everything to do with how you manage your risk.

Repeat this to yourself every time you invest in the market until it becomes ingrained in your thought process.

Why? Have I lost my marbles? How can you make money in a market if you're wrong more than you're right?

The answer is simple, and the proof is mathematically certain. Let me show you ...

The Nature of Risk Equilibrium: The stock market is a dynamic structure that ebbs and flows pursuant to the forces exerted upon it by investors.
Trader A makes 10 trades. Nine are losers - dead wrong each and every time. Only one trade is a winner. Sounds like a pretty lousy track record, right? After all, Trader A was wrong 90% of the time!

If that's how you see it, change your thinking right now. Because making money in the markets has almost nothing to do with winning all the time.

Rather, it's the magnitude of the winnings when you are right that counts.

Trader A lost $200 on each of those nine trades (including all costs and commissions). Net loss on the nine losers: $1,800.

But Trader A let his one winning trade run, ultimately netting a huge profit of $3,000.

So how much did Trader A make on those 10 trades? Nine losers for a net loss of $1,800, plus one winner worth $3,000. Total net profit: $1,200!

Imagine that: Trader A was wrong on 90% of the trades - taking losses on nine out of 10 trades - yet still netted a profit of $1,200!

Now, let's compare that to Trader B who claims that nine out of his 10 trades are winners - a 90% win rate. Trader B makes $200 on each of the nine winning trades, for a net gain of $1,800.

But on the 10th trade, Trader B fails to control his risk and loses $3,000!

Result for Trader B: Nine winning trades for a net gain of $1,800. One losing trade for a loss of $3,000. Net result: A $1,200 LOSS!

So while Trader B was right 90% of the time and produced nine winners, he lost $1,200! Get the picture?

Wednesday, April 23, 2008

Will the Dow keep dropping?..

It's hard to say. Sure, the major indices are overbought and should move down from here. But then again, the CBOE Volatility Index (VIX) recently broke under its 200-day moving average.

The VIX typically drops when the market rises. So if the VIX can't get back above its 200-day, you should expect the market to stay flat or rally in the weeks ahead.

Tuesday, April 22, 2008

Government figures understate the true rate of inflation.

John Williams, who spent more than two decades as an economic consultant to Fortune 500 companies, said the government figures understate the true rate of inflation.

Williams, who runs Shadow Government Statistics in Oakland, which tracks changes in inflation, unemployment, the gross national product and other data, said that over the past 25 years, the government has changed the method of calculating price increases in ways that have lowered the reported inflation rate.

The changes include measuring the cost of shelter by rental prices instead of home values, as well as giving nearly as much weight to high-ticket items such as cars and electronics as to daily necessities such as food and gasoline.

According to Williams, if the government measured inflation based on pre-1982 methods, it would be running at 11.6 percent right now, or 7.3 percent using pre-1998 calculations."

-- Union-Tribune (San Diego)

Monday, April 21, 2008


Friday was options expiration for the April options series and there had to be some folks taking some big hits.

After Google and Citigroup posted better than expected earnings, the market soared higher from the word go.

Anyone that had been writing calls as the market declined had to take a big hit, as there wasn't time to get out given the gap higher on the open.

Saturday, April 19, 2008

Small Caps

The Russell 2000 broke out of the trend channel, indicating that the primary down-trend has weakened.

Expect a test of resistance at 730.

The ratio against the Russell 1000 is moving sideways; upward breakout from the narrow channel would be another positive sign for the market.

Downward breakout, however, remains as likely and would warn of another primary decline.

Friday, April 18, 2008

REAL Interest Rates

Let's say you're holding a corporate bond that pays you 5.5% in interest per year. That rate seems decent and roughly in line with the typical interest rate on long-term, AAA industrial company debt over the past few years (using Moody's data).

But what if inflation is running at 5.5%? Then you're not really earning anything. The interest you earn matches the decline in the purchasing power of your dollars. Or in other words, you're simply running in place.

And if inflation is 10%? In this unhappy scenario, you're actually losing money - to the tune of 4.5 percentage points, or 450 basis points, if you prefer.

That's the concept of "REAL" interest rates versus "nominal" ones. You have to not only look at the current, nominal level of rates, but also what inflation is doing, to get an idea of whether monetary policy is easy or tight.

Thursday, April 17, 2008

The flight to safety is real.

The Investment Company Institute reports that money market funds hit a new record at the end of March with $3,500 billion under management. This is 44% more than a year ago.

But the dividend problem we just walked through is sneaking along this cove of safety, too. What's in Wells Fargo's money market fund? Bonds from Wachovia, Citibank and Bank of America-three institutions under pressure-make up three of its top 10 holdings. Fidelity Select Money Market invests more than a fourth of its holdings in the financial services industry.

Most of the top money market funds that had invested in mortgages and structured investment vehicles last fall have gotten out of them now. But that still leaves many of them with holdings in assets like bank bonds that can lose value. And with the astounding wave of new money that has washed into these funds, the competition is on for the small pool of high quality assets these funds can (or should) hold.

Wednesday, April 16, 2008


Corporations outside of financial services -- from Cisco Systems Inc. to Coca-Cola Co. -- have collectively socked away more than half a trillion dollars in cash. They have also reduced short-term debt and cut inventories to near record-low levels in relation to sales, leaving them better prepared than in the past to weather a contraction.

Non-financial companies are well-positioned now because they kept firm control of spending during the expansion. That means ``there should be less of an imperative to reduce costs by cutting back on staff and capital spending,'' says John Lonski, chief economist at Moody's Investors Service in New York.

Manufacturers in particular have responded by keeping inventories in check, Achuthan says, removing about half of what he calls the ``recessionary impulse'' of steep cuts in stockpiles that occurred during past declines.

Companies were rewarded for their discipline with 20 consecutive quarters of double-digit profit growth that ended only in the middle of last year. As a result, industrial corporations in the Standard & Poor's 500 have amassed $615.5 billion in cash and cash equivalents, says Howard Silverblatt, senior index analyst at S&P in New York, compared with $352.4 billion in 2001 and $95.5 billion at the time of the 1990-91 recession.

The cash hoards mean companies aren't so dependent on battered banks for money to finance their operations. Debt as a percentage of net worth for non-financial companies outside of farming was 61.3 in the fourth quarter of last year, compared with 68 at the start of the 2001 recession and 93.6 in the 1990- 91 contraction, Fed figures show.

"Cash flows are more than adequate, and the amounts of monies that they need are very readily financed in the weakened credit markets,'' Greenspan said at the April 8 conference.


Tuesday, April 15, 2008

Yourself as an Advocate

Position Yourself as an Advocate

Although the finder ad is designed to attract people long before they show up on any foreclosure lists, some of the people who respond to you will have had some kind of run-in with another investor. That investor may have left a bad impression - the impression of being solely interested in taking the property for profit. That's why it's important to position yourself as an advocate, not as an "opportunistic" investor, in your finder ads and recorded message.

By providing your prospect with a number of potential, step-by-step solutions for them to stop their foreclosure - and only briefly mentioning the possibility that you might be able to buy their home - you are 99 percent more likely to be perceived as being on their side.

Finder Strategies

I use direct-response marketing methods to create "finder strategies" - ads that drive qualified prospects to me. I use classifieds, business cards, flyers, mailers, yard signs, and even Google AdWords.

Like all good direct-response advertising, these finder ads:

1. Have a compelling headline to capture my prospects' attention

2. Make a big promise to create interest.

3. Ignite a desire to find out more.

4. Tell my prospects exactly what action to take

The key to making these ads work is to make sure they offer helpful information to people facing foreclosure. People facing foreclosure experience a wide range of emotions. They can be angry, afraid, depressed - even ashamed. Most of them will be looking for ways to stop the foreclosure and save their homes. They want a solution to their problem... and they want it fast. The only thing they're interested in is ending their pain. The finder ad should do that for them.

Business is Awesome in Asia, Especially in China!

China's trade surplus for the first three months of the year grew to $41.6 billion.

The Chinese number crunchers released their updated, final GDP numbers for 2007, which they revised up from 11.5% to 11.9%, the fastest pace in 13 years. Instead of slowing down, the numbers show that the economy is accelerating ... not slowing down.

China's trade surplus for the first three months of the year grew to $41.6 billion, pushing its war chest of foreign reserves to $1.68 trillion, a whopping 40% increase from a year earlier.

So while there is plenty of talk about a U.S. recession, there isn't any debate about China and its Asian neighbors continuing to grow like weeds.

Monday, April 14, 2008

What Do Golf and Trading Have in Common?

By Rick Pendergraft

Last week was Masters week, and I've got golf on the brain. This got me thinking about the similarities between golf - one of my favorite sports - and trading. (And, no, "They are both frustrating as hell" is not one of them.)

Golf is an individual sport and trading is an individual occupation. When a golfer makes a bad shot, there isn't anyone to blame except the person in the mirror. The same goes for trading. When a trader makes a mistake, the only one to blame is himself.

Notice that I said "mistake" instead of "losing trade." Losing trades are part of this game. And, in fact, a losing trade isn't necessarily a bad one. (Though, of course, a bad trade will more than likely be a losing trade.)

One thing I've noticed about my golf game is that if I make a bad shot and then let that shot linger in my head, my next shot is usually bad too. The same thing can happen in trading. If you make a bad trade, don't dwell on it... because that can cause you to make another bad trade.

If you want to master golf or trading, you need to learn from your mistakes. But you've also got to move on without the mental baggage of the last shot or trade. Your game will thank you for it.

Saturday, April 12, 2008

Markets NEVER Behave Rationally

Markets NEVER Behave Rationally

"The markets are acting irrationally."

Well of course they are. Markets never behave rationally - never. How can markets be rational when humans create markets and humans are irrational? Market prices are based on an expected future based on assumptions that are always flawed because the future cannot be forecasted. The best that can be said is that there are "degrees" of rationality in the market.

Some people seem to think that prices are event driven. In other words, economic releases and news events are always what cause prices to move the way they do. In actuality, the people who believe this are wrong.

For instance, if IBM were to report better-than-expected earnings, its share price will go up, right?

Not necessarily. Its share price may go up, but it also may go down!

The price action depends on how the players trading shares of IBM feel about the current earnings report, future earnings forecasts, current market environment, their personal financial situations and so on and so forth.

Friday, April 11, 2008

Investors cheered...

... as Wal-Mart beat earnings estimates yesterday. But why is the street so happy?

Hey, we're in a recession which means low-price is king. And who is the king of low prices? Wal-Mart!

That also means other low price retailers like Costco and the Dollar Tree should see sales increase as this recession rolls on.

Thursday, April 10, 2008


"Developing countries have had bouts of inflation before. Indeed, some are famous for them, like Brazil, which experienced triple-digit inflation in the late 1980s and early 1990s. But two things make this time different, and together promise to send prices higher at Wal-Mart and supermarkets alike in the United States, just as the possibility of recession looms.

"First, developing countries now produce nearly half of all American imports. Second, inflation in these countries is coming at the same time that many of their currencies are rising against the dollar.

"That puts American consumers in a double bind, paying at least some of producers' higher costs for making their goods, and higher prices on top of that because the dollar buys less in those countries."

----The New York Times

Wednesday, April 9, 2008

About volatility...

That's what you have to think when you take a look at how the CBOE volatility index (VIX) relates to stock prices. Typically, this index spikes higher when stock prices drop.

As you can imagine, this index has been trending up since May of last year. But now it's sitting under its 200-day moving average.

If the VIX stays under this average any longer, it could signal the beginning of a long rally in stocks. Be sure you have tight limits on any shorts in the market.

CPHD - Cepheid

CPHD is consolidating just above the 20-day and 200-day moving averages and
could be bought at $22-$23 for a nice trade to possibly $27.

Tuesday, April 8, 2008


Europe. Japan. And the U.S. The economies are in different cycles. As are interest rates and company earnings. Yet, since October 31st, they've tracked each other almost exactly.

In Yen terms, they've lost the same amount. In both dollar and euro terms, the difference has been negligible. So much for protecting your stock investments through diversifying in various developed countries.

Monday, April 7, 2008

Assuming we are entering a period of stagflation, certain investing principles apply:

1. Cash is king.
2. Buy value.
3. Buy into the recovery.
4. Invest in what you know.
5. Limit expenses.
6. Be ready to seize opportunity when it arises. Because it will arise.

Saturday, April 5, 2008

Unsold Homes Tie Down Would-Be Transplants.

“Mobility opens up job opportunities… When housing is not an obstacle, more than five million men and women, nearly 4% of the nation’s work force, move annually from one place to another — to a new job after a layoff, or to higher-paying work…

Now, unable to sell their homes… tens of thousands of people… are making the labor force less flexible just as a weakening economy puts pressure on workers to move to wherever companies are still hiring…

Census Bureau: In a booming [housing] market, interstate migration reached 2.2 million people in 2006… In 2007, interstate migration plunged to 1.6 million people.” (NY Times, Apr. 3rd)

Friday, April 4, 2008

Congress is closer to passing a mortgage relief bill...

...despite intellectual and philosophical differences among Congressional Republicans, their Democratic counterparts, and the executive branch.

Put simply: The battle royale between free market forces and government intervention continues to rage ... and intensify ... in the housing and mortgage markets.

The Fed has torn up its playbook and intervened more aggressively on Wall Street than at any time since the Great Depression. And the nation's mortgage industry is moving farther down the path of quasi-nationalization.

Thursday, April 3, 2008


Investors pulled $100 billion dollars out of equity funds around the world last quarter. Traditional stock and income funds were hardest hit.

A little new money trickled in, most moved around. And where did it go? To cash and near-cash like money market funds.

Commodities funds also enjoyed triple the inflows they had a year ago. But the surprising thing given that investors were fleeing a risky market was that high-risk, high-cost hedge funds got a good chunk of extra money.

Wednesday, April 2, 2008

Game Over?

$1.19 trillion is owed to the Federal Reserve!!

Remember, the Fed is a private corporation. A large portion of its owners are also elitist banking foreigners.

If you add what is owed to the Fed with what is owed to commercial banks, you get the grand sum of $3.65 trillion. This is 34 percent of the total borrowed amount of $10.73 trillion. The Fed's $1.19 trillion is 11 percent of the total borrowed. Nice pay for six years of "work," no?

What exactly did the Fed do to earn this money? They didn't even have to go to the trouble of printing it. They just make digital entries on the master computer and the "money" appears.

They "monetize" political promises (lies), cow chips, failed mortgages, or whatever they choose. We owe them this sum! That, my friend, makes you a serf. Pay up.

At some point the national debt is similar to the debts owed by a bankrupt individual on a last-minute spending spree. Right before the plastic is cut into pieces. Broke is broke - might as well go out in style. Maybe the U.S. can find further funding to continue exponentially expanding its debt, but that is exceedingly unlikely.

Someone (individuals, institutions, or nations) has to continue loaning money to the U.S. When it becomes blatantly obvious to all that the money cannot be repaid, the loans will stop. There will be demands for repayment of existing loans. Game over.

Tuesday, April 1, 2008

The New Exurbs

The new exurbs are typically three to four hours (or more) from major metro areas. They have access to clean water and dependable utilities. The new exurbs are typically not an easy commute to a big city. The new exurbs are not the suburbs!

The new exurbs have an educated population that is generally tech-literate. There is typically a concentration of ex-corporate professionals and entrepreneurs.

The new exurbs tend to have quality restaurants, small museums, and entertainment (but obviously on a smaller scale than in the big cities). And in the best-case scenario, there will be a private or municipal airport nearby.

The new exurbs are almost always clean, quiet, and scenic, and often border national or state parks.

Some examples of the new exurbs in the U.S.:

Telluride, CO
Laconia, NH
Coeur d'Alene, ID
Sedona, AZ
Hilton Head Island
Jackson Hole, WY
Marshalltown, IA