Market Musings

I am without internet access for foreseeable future at home.  This will severely impact my postings.
I'll try to post, but likely not in earnest until my access is restored.

Gary of the Smart Money tracker likes gold right here.  And GDX & GDXJ are holding up since my post "Decent Spot for Market Entry".  If the market can't make significant decline a week after the presidential election, my market optimism for gold miners will increase.

For now, if you wish to buy on the low, now is good, with eye on SPX 1395 as a mark to reconsider investments.
The S &P 500 has has a floor above 1400 since a week ago, October 23rd.

In a nutshell, nothing decisive yet.  Some minor technical breaks to indicate gold higher, but not impressive yet.  For actual real analysis, click on Gary's link, 10 buck special to try his service.

Rare Earths

I posted before about my enthusiasm for Rare earth metals.  Since then, much has changed in market prices, collapsing with the economic downturn.

That is a huge issue with natural resources, when economy is picking up, even moderately, resource stocks are fan-tastic.  The moment stocks lose momentum, stock prices can easily be cut by 50% in months.

I am still bullish on Rare earth metals long term for a few reasons.
1) The materials cannot be fabricated by alternate methods.  Companies may say they can, but at what cost of R&D?  Too much compared to just using whats available.
2) China produces 90% of rare earth supply to the world, but has 30% of the rare earth resources
    That gives too much power to China over such a key resources, I expect China to abuse this position.
    The net result of abuse will be at some point, higher prices and competitors entering market.
    It is the competitors I have interest in.
3) New tech, new materials will likely come from exotic materials.   These materials have not been used in earnest until recently.  

As for item 2, ran across article of China tightening rare earth production, and a desire to make production tightly government controlled.  Production has been cut this week to force prices higher.  While I don't expect a price jump immediately, this bolsters for item 2.

Decent spot for market entry

While I remain very concerned of a longer term market decline, I'll be first to admit that anything could happen.

On the PLUS side for market advance, the market knows corporate profits are missing and getting pinched. But yet, the stock prices had not moved down severely.
There is the thought that all financial institutions, governments, and corporations all want stocks to go up.   Financial institutions are employing sophisticated trading platforms to 'manage' the market, such as High Frequency Trading.  The government changes laws to make corporations look better, such as changing accounting rules in place since the great depression.  Corporations continue to innovate to move liabilities to off-book accounting mechanisms.


So while I am skeptical of the market making new highs, doesn't mean it wont.  Today is a good entry point if your mildly optimistic, with a stop-loss if the market closes below SPX 1395.
Futures are pointing up.  US presidential election home stretch is upon us.  The USD may resume it's decline, bolstering stocks until the effects take another bite out of companies.

Image below.  I will buy some GDX, GDXJ today on advice of Gary of the Smart money tracker, but not to the same degree as he may.  Also lighten on HDGE. Good luck.

Paul Volcker Interview

The last Federal Reserve Chairman I have great respect for is Paul Volcker, from back in 1980.  I have posted post from him before.  Recently, did an internet search, put recent interviews of him.

In the third video, Volcker quotes as his hero is John Bogle, I mentioned him post Worst Market in 60 years.

USD time for a break, revisited

On September 24th, posted blog entry USD fell quickly, time for a break?.  In that post I called for USD to trade in a range, and stop the freefall the USD was experiencing at that time.

Four weeks later, this view has proven to be correct, the USD has traded sideways.  However, I believe that this will soon break, probably as the presidential election approaches.

The only question is, which way does it break.   Gary of the Smart money tracker is calling for USD decline.  While I agree the USD will decline, and make spectacular new lows, we may get some surprises in the near term.  But I do agree that it is more likely that it will follow Gary's prediction.

The reason for my restraint on calling for USD decline resuming in earnest is Europe and other countries are struggling.  USD currency valuation is a relative measuring to other fiat currencies.  In a relative world, I call into question the USD will move significantly lower in the next 6 months.  As an example, Japan which has lead the west in debt to GDP ratio, has recently called on printing more, to keep up with other countries in fiat currency creation.  In such a world that countries race to the bottom, its hard to call out USD as leader to the bottom.

I fully expect USD to take the lead after markets depreciate enough to justify the Fed to up the ante beyond QE3 and break the USD as a currency. I expect the USD to begin a lifetime of decline decline.

Right now its watch and see.  USD recovers and rises in the months ahead, expect stock prices to continue to decline.  If USD declines, expect a more choppy market.  Natural Resource costs are already eating away corporate profits.  A lower USD will accelerate that trend, and hardly can stimulate significant market valuation gains.

Stock Tend Lines

Did some quick analysis of the trend lines since 2008.
Food for thought below.

Stephen Diggle a billionaire trader speaks

Stephen Diggle made over 2.5 Billion dollars in collapse of 2008.  As a hedge fund manager, he was calling for an enconomic collapse years before others, and was ridiculed.

He has given a speech of his view then, now, and the future

The Next Apple Stock

Smartphones are now mainstream, and so are tablets.  The competition for consumers are now from many manufacturers.   I expect this market to continue to be fractional-ized, akin to the car manufacturing market.  In the phone & Tablet markets it will settle into bands like the car market, BMW (Apple?) and Toyota (Samsung?), etc.

So while investing in this market can still be very profitable, the form factor is defined. Sure Android has the cool feature to touch phones shoot over data to another phone, unlike iphone, but all of this is incremental.  A new design like Google Glass will eventually take those form factors on.

Quite amazing when you think about it, the iphone was introduced in June 2007, and here we are in 2012 and the form factor is reasonably defined with tons of competitors.   

I can't but help compare this to the Ford Model T, released in 1908, and mass produced in force by 1914.   Competitors took years to take on Ford en mass.  The model T was so successful, the first model car to surpass Model T production run was the Volkswagen beetle in 1972!  Samsung has already outsold the iphone in recent quarters, although not nearly as profitable as Apple.

We have witnessed the smart phone market to be born in it's full glory and in 5 short years highly competitive sales.

For investing, the future holds the greatest gains.  Biotech, nanotech, alternative energy, and the maker community all offer opportunities for companies to be born to mirror Apple's success.   I think the nature of cell phones, tablets, and PC's cannot easily duplicate the same level of success of Apple in other fields.  But even 1/10th the success of Apple is huge for any company.

I continue to be fascinated by the Maker community, and one of the forces 3d printing.  I am watching carefully which company first makes a break to advertise end consumer 3d printer, which I fully expect in the next 5 years to be announced.   Once Pandora's box is open expect innovation in 3d printers to accelerate and consumer pricing to improve dramatically.

Already companies like Airbus and Boeing are embracing 3d printing as part of their design process.

On kickstarter today, I ran across a 3d printer that you can buy, today, for 580 bucks.  It requires your own assembly and paint.   I am amazed that for the price of a hotel stay in NYC, you can print almost any plastic object you desire.  Granted, the resolution isn't what I'd like to see, for that you need MakerBot for 2K dollars.  I can't wait to see the mass production for general public entrant to this market.

Consider selling stock in any company that makes it's living on cheap plastic parts. ;)
First two videos are summary of advantages of 3d printers, and below that, 3d metal printing, below that 3d printing of human organs! (maybe someday food?)

ETF Proxy Shorting the Market

I can safely say that shorting at the right time, right place, can yield huge gains.  However, math isn't on your side.  In post "this time its different", when the market falls, valuations drop around 50%, but gains are over 100%.   To properly short and gain valuations requires a commitment of time and careful positioning.

I do not have the time, nor the desire to embrace shorting the market as I did in 2006-November 2008. (I couldn't short Dec 2008 to march 2009, I didn't have the guts)

Aside from simply buying fixed income, which by the is the safest play normally, there is an alternative.
There is an ETF called HDGE that manages active shorting.  Meaning, they change their composition and try to remain nimble.  The fund was made public in 2011, and has wiggled around since then.  It's valuation isn't impressive.  Then again, the SPX has moved from 1300 to 1450 in the same time period, (up 11%).

So purchasing HDGE is pretty risky.  But I wanted to share with readers as I am buying some shares the last two weeks, and I'll follow up with some posts as the market develops.

HDGE is available recently around $20.50, I can reference this post in the future.

To find out more about HDGE, here are some handy links.

HDGE fact sheet, video, and current shorting macro allocation.

This time, it's different

I am growing in concern once again about market valuations to the extreme, my position changed on October 1st of this month in post titled "Getting out of the Market".

I wanted to take a step back and look at the market long term from two different angles.  First from 1995 to present, the more recent history of market valuations.  Using this history as an example, looks pretty compelling that we are in for a market correction.

The market hasn't seen below SPX 700 (except briefly in 2009) since 1996.  Assuming SPX 700 is the new bottom, then the rise in 1996-2000 was about 115%, in line with the last two bull markets.

However, if we look back to 1995-6, the market moved from a norm range of 400 to 700 and has never looked back.  That rise was in fact "this time its different".
The market moved from a whole new level.  So using the logic back in 1997 as market went from 400 to 800, you would have been sorely mistaken.

Wanted to give some perspective of market view, from the last 18 years, and from before.   I for one think 1996 was the realization of technology, and the last two bubbles have been  ponzi-scheme-like driven. However, Nano-tech, makers, biotech, alternate energy could be poised to bring us to the new level.

The market may recover and hit a new all time high, but I can't get on board with SPX 1400 moving to 2000 or 2800 in the next 3 years.  A MAJOR random element of course is USD currency valuations.  I simply cannot see a major USD decline until 2016-17.

Pictures for thought.  Fixed income, some core precious metals (small) and possibly short fund. (I'll do post on ETF short fund HDGE).  To the charts!

Deflation everywhere, except monetary policy

The typical view many armchair economists take is viewing the capital markets and central bank policies, calling foul when central planners bend or break the law in the spirit of saving the economy.

I agree in spirit that central planning is bad vs free markets.  If a regulated, transparent capital market was set free to evolve on it's own, there is no question in my mind that the world will adapt to change much faster, and efficiently.

But what most miss is part of the problem IS efficiency.  Technology RUTHLESSLY tears down inefficient and helps evolved business and social fabric to a more efficient model.   What efficiency effects are basically less people can do more.  Meaning, you don't need as much middlemen from the Makers to the Consumers.
As this happens, the net result is if your not a maker, or wealthy enough to be a eager consumer, you fall into the cracks.  This group of people is ever widening, as technology moves forward.

What compounds this effect is global trade efficiency, in effect allowing others around the world compete for work.  Net this is a good thing, for people who most desperately needs work can get work.  But the effect when looked at closer can be more personal and disturbing.  Plus global trade raises questions of what is efficiency....and what is fair.

Easier examples of technology efficiency effect is music industry, software makers, open hardware, financial trading, retail distribution, farming, and hosts of other industries.  When you look at each one to see how they have changed and are changing over the last decade, it is easy to see the displacement of workers.

The makers and consumers benefit from a more direct relationship, yielding cheaper prices and more competition.  But the channel distribution now yields less workers.  Consider WalMart vs mom and pop stores across the country, music stores vs iTunes, local book store vs Amazon.
Farming is moving towards 100% robots ...except for on-call mechanics...as cheap labor is driven out by cheaper labor, robots.

When you see the changing landscape, if left up to a more efficient market, we may see honest assessment of unemployment in USA of 25% or more.  Possibly in some areas of Europe of 50%.  By artificially keeping inefficient human processes afloat with Government spending, Central Bank intervention, what is being done is avoiding the reality today in hope a better answer appears tomorrow.
Extrapolating into the future, (with DOUBLING of technology every 18 months!) this problem will accelerate.  Picture a world where renewable energy accounts for 75% of energy use, self driving cars, planes, google glass, and robotic factories.  A world where a flexible robot can be easily adapted to a wide variety of custom tasks.  This is NOT a world of full employment, for those less skilled simply cannot compete vs automation.

So when people pound the ground that we need to return to an efficient capital marketplace, you best be a maker, a skilled specialist, or a well positioned consumer, for the rest may not like the world that leaves them out.

Nigel Farage and the Fall of Europe

I have posted on Nigel Farage before, a shrewd politician who speaks directly on the weakness of European Financial positions.

This interview is a good one on Nigel.  My only hesitation with Mr. Farage is I am unsure of what his long term objectives are.  The stereo typical politician panders to the fundraisers, explaining why Nigel stands out so much.  A good watch none the less.  at 25 minutes in, a good commentary from Jamie Diamond and purchase of Bear Sterns with Government encouragement.

In Europe news, Greece unemployment 25% and climbing, French Economy taking a hard turn down, Spanish bonds being dumped abroad, and European union secession support gains in Belgium.

Market Musings

A week ago I posted "Getting out of the Market", over the next couple of days the market went higher after I sold, SPX was about 1450 at the open, and  the market closed on Thursday and Friday at about 1460, with intra-day high at about 1470.  Today Market closed at about 1432.

My goal is to stay out of the market until SPX hits above 1557, or pulls back to 1250 and I re-evaluate.
Of course, any major news can change my opinion.

Gary of Smart Money Tracker is calling for new highs, passing SPX 1557, click here to read.
Anything is possible.

Good luck.

Makers

I am going to deviate from the theme of this blog, and start covering Makers and financial news.
Why? Because I believe Making is a key role of America for the next 100 years.

America is a story of making, since its founding.  America Maked and the world taked.
Since Reagan with trade agreements favoring China and the world, America has reduced making substantially.

The new Making revolution I am witnessing is the start of the rebirth, not just of America, but of western society.   As it grows it will change society view of the order of things.  It will also bring investment opportunities the likes of Microsoft and Apple to us.  The fun will be spotting the biggest winners and investing.   For more on making click label Maker on bottom of any article or here.

My friend Bob sent me a link on a nifty video of a Heli-copter-thingie that someone made.
I highly recommend full screen, in a quiet room, watch and enjoy.

Heli showreel late summer 2012 from Esben Nielsen on Vimeo.

Jim Chanos and China Economics

This video is a few weeks old, but great to watch.
Jim Chanos talks frankly about China and how their miracle growth isn't there.

I recommend a watch, click here.

Jim Crammer spars with Chanos on china

Credit Card Cash Back

This is a follow up to post "Saving Money With Credit Cards".  See also "Paying off Credit Cards"

Since that post, I acquired the primary three cards mentioned in the post, and since then flushed out details.
To help you calculate your annual savings, I have put together an Google Spreadsheet, accessible below.

Short version is by getting these three credit cards, you can maximize your cash back from all household spending.   Your spending habits may reflect different categories selected by the USBank card, which offers 12 different 5% categories for cash back.  Fidelity Investments card does require an account to recieve 2% back on all purchases, which may be worth while depending on your spending habits.   A typical American Express or other point systems work out to 1/2% to 1% cash back, excluding travel rewards.

For most families, the 6% Grocery and 3% gas cash back is well worth getting American Express Blue Preferred card. (Max $6000 per year for grocery)
NOTE: if you get two cards, one for him different account for her, can get back on 12,000 per year for groceries!

To access the sheet, click on the image below or the link here.
*WARNING* If someone else is modifying the sheet at same time as you, you will see each other making changes.  To get a private copy select "File" then "Download as" and pick EXCEL. Or come back later when the sheet is not in use.  Look in upper right corner to see if others are viewing the sheet.

I used stickers to mark the cards to make it easier to follow.  You can access the template I used for Avery Template 5162 by clicking here.  It will look messed up, you need to download the file. Click "File" then choose Download.

I researched American Express points, various Citibank cards, and other rewards.  Excluding travel rewards, the cards above are the best rewards I could find.  If you find better, please click the word comments below to add to this post.

After searching the web, it seems cash back is considered a discount, not income.  Only tax implication is if you spend 100 bucks, you can write off 98 bucks (2% Cash Back) as an expense.

Alternately, you can SELL your points for cash, at a 'grey' market vendor I had no issues with, www.rewards2cash.com.  If you sell your points, buy airfare on sale and get points it usually works out better.

UPDATE: I booked flights with Amex points.  The airfare was 841 bucks.  The points to pay for it was 84100 points.  Since each 1 dollar gives 1 point, that works out exactly 1% payback.  Therefore best ROI is to get cards above and simply pay for airfare from cash back, and as bonus get additional 2% off the airfare itself.   It is possible to get special trips for better ROI if shopping offerings.

Manufacturing Revolution Revisited

This past weekend I went to MakerFaire in NYC.  This is related to the post I did titled American Manufacturing Revolution.  The phrase Maker in this context refers to people who...make things.  As an engineer, I focus on 3d printers, Arduino, Rasberry Pi, Robotics, and manufacturing machines like laser cutters.   However Maker can refer to anyone who makes including artists, musicians, foodies, etc.

I linked to various terms above if unfamiliar with terms.   Seeing the capabilities of the 3d printers, the influence of Arduinos, and robot progress, I am very convinced we are back in the IBM PC days of 1981 for this new technological revolution.  I believe 3d printers and other related tech are moving towards Moores law, where we will start seeing great progress in capability every 18 months.

It is not out of the question that in 16 years, we will have a sort of Star-Trek machine that can create anything we want made of metal and plastic, even simple electronics.  30 years, print your own cell phone.

Like any new trend, the gains are greatest earlier relative to the previous tech level.

So I bring you below videos from Makerfaire.  As for investing, well...I messed up on that one.  When I posted the American Manufacturing Revolution post in Dec 2011, if I immediately bought 3d printer stocks, I would have done fan-tastic.  Not to say its too late, but I don't want to buy in earnest unless I see a fire sale after such a quick rise.  I may buy a little of each for now. (100 shares)
Stocks to look at: ssys , ddd, ARCM (Swedish)
More interesting is 3d printing organs...yes, you read that right.  ONVO , (TOO SPECULATIVE!)
Makerbot is NOT yet public, but I believe they are moving in that direction.  They closed sourced their latest printer.

Videos!

Presidential Debate #1

I enjoyed watching the presidential debate tonight.  Romney left with a much better impression than I started with.

However both candidates lied heavily tonight.  I am amazed that Romney didn't asked on anything Obama said he would do....why didn't he try last week, last year?

Why do I say both lie?  Balance budgets but cut nothing that drives 90% of the costs....the magical 10% left will reduce 33% of the government spending.....right.

For the first time in my life, I like no candidates.  None.   Maybe thats a sign I have matured to an adult finally.   Anyway, worth a watch.  Romney got his ass handed to him in past weeks, now the media will hype the comeback, yawn, same thing each election.

Economic Outlook from CEOs, Bernanke, and Beyond

Thanks for Mish for his post US CEOs Sharply Reduce Expectations for Economic Outlook, Hiring; Third Largest Plunge in 6-Month Expectations in History; Reflections On "Uncertainty".

The survey hasn't seen this outlook level since 2009, inferring a slowdown is upon us.

Ben Bernanke must have read my post on Monday.  Mish reports Bernanke Begs Congress to Address "Fiscal Cliff", Pledges to Hold Interest Rates Near Zero Through Mid-2015 Even If Economy Picks Up
Which is exactly what I posted on Monday, that the fiscal cliff is going to be a political showdown at the expense of US citizens and the world.  Mr. Bernanke not only promised to purchase 40 Billion per month indefinitely  but keep low interest rates through 2015.  Once again, I ask you, what else can the fed do to prop up inflated asset prices?  There is always more, but only if there is a situation that justifies taking more extreme measures.

Looks like Austerity is the fad in Europe, and France has joined Greece, Spain, Italy, Portugal and others in cutting back spending.  As governments around the world grow more conservative in spending, is that a economic boom or would deflation likely follow.....
Mish reports Austerity Programs Hit France; Marchers Demand Vote on Treaty; Hollande Reneges on Campaign Promise

To add fuel to the Europe fire, Mish reports Concerns Mount that ECB Bond-Buying Program Is Illegal; Concerns? What Concerns?.   If the ECB was forced to stop bond buying, even for a few months, it would be devastating to prices.

The US Federal Debt is now at over 16 Trillion dollars.   The US GDP is about 16 Trillion dollars.  Congratulations USA, we now owe as much as the entire US Generates in 1 year!.  At this point the debt should never be paid back, not that anyone believes it will.  The real issue is not actually paying back, but the interest alone today every citizen owes the US is 12K and counting.  The interest will strangle the US budget and economy in the years ahead.

What we may be facing in the years ahead is not an Arab Spring, but a World Spring, as the central banks perversion of risk pricing, asset inflation, and capitalism distortions create more acute pain.  2013 is looking to be a real fun year, and at some point I'll do gold and gold miners again.

Getting out of the Market

Update: see post Market Musings
Monday AM update: Gold spiking up VERY fast, same with Oil, I am sticking with my plan below
I have given quote some thought about the market as of recent.
I have decided to "get out of dodge" for now, the reasons.

1. I waffled quite a bit the last week or so.  Such waffling usually means I am fighting fear and greed, and greed is winning.  Usually a bad thing.
2. Gary of Smart money tracker is also waffling.  
3. The Federal Reserve bank did blow its big announcement, buying 40 billion EVERY month indefinitely of US troubled mortgages from banks.  Not sure how they can top that one in the near future.  And to top it, I assume something bad will happen first.
4. If Obama wins, the republicans may make Obama's life difficult when tax increases occur in January.  I do not like the current democrats OR republicans.  All they have to do is NOT play nice with dems and allow taxes to increase in January, as it is set now.  That should really put the nail on any optimism.
5. Miners etf went from 40 bucks to 54 bucks in couple of months or so.  30% gain when 30 year bonds pay 3%...lets not get too greedy.
6. I will eat my hat, and turn around when the market hits a mere 100 points higher on the S&P 500 from recent high of 1447 to 1557, topping the old high back in 2007.  I can miss those 100 points if I am wrong, but rather miss losses of 100's of points if we decline.  Re-valuate at 1250 or so.
7. I said to sell on any strength last week, and frankly, if I had done that it would have been perfect timing.  Best to get out of dodge before more damage is done.

So there ya have it.  I am dumping almost across the board.  irony is I'll probably keep Facebook, Groupon, and Zenga from the post a while back, they got soooo beat up, eh, they may buck.

I will keep Tiny core positions.  I'll sit on my hands until above 1557 or radical news comes out.

Look at the chart below, really, why hold for 100 more up? I'll rebuy then when proven wrong.

Influences are across the board, including John, Slope of Hope (click, nice vid), Gary, and reality (click).