Forbes recently reported:
“Multibillionaire hedge fund operator John Paulson, the investment genius who made a killing going short subprime mortgages a few years ago, told a standing room only crowd at New York’s University Club that double-digit inflation is about to rear its ugly head by 2012, killing the bond market, and restoring strength to equities and gold.”
In 2009, Paulson opened up a hedge fund and made some pretty significant bets on gold and gold stocks.
Paulson’s moves have been echoed by China this year. The “communist” nation dumped $33 billion in Treasuries, bringing its total ownership to the lowest level since June of 2009.
More on John Paulson's greatest trade here.
Wednesday, September 29, 2010
Saturday, September 25, 2010
Is a correction coming?
Dow Jones breaking out of symmetrical triangle. More upside ahead?
On my simple indicator, stocks are slightly overbought, and I will not be adding to my current holdings (despite what newsletter writers say).
Thus far, I seem to be finding some consensus. Goola Warden warns of "possible reversing VIX (remember I wrote about very low VIX readings few weeks back), which may cause downward pressure on stocks in the weeks ahead". Guppy says that "GMMA of Shanghai Index has compressed, suggesting that investors are also joining in the selling". UBS says S&P risers/ fallers ratio has risen, signalling concerns of a possible slide in equities into October. Remember, when the majority are bullish, it is time to get bearish.
However, since I am medium-term positive (at least till end 2010), I will leave my stocks untouched. But should there be a slide in equity prices, I will be hitting the Buy button again.
Reasons to be bearish going into 2011
We all know the reasons to be bullish on stocks now: corporate earnings for the third quarter would surprise on the upside; a cloud of investor pessimism still prevails over the market; and stocks are simply attractive compared to U.S. Treasuries that offer little to no return and that may be our next bubble to burst.
Michel Lombardi is bearish on stocks further out in 2011:
"I have great concern towards the U.S. dollar, am concerned about its possible collapse (which would push domestic interest rates up,
sending the stock market down), and see the weight of the U.S.
housing market putting additional pressure on the economy.
The National Bureau of Economic Research said earlier this week
that the worst U.S. recession since the Great Depression ended in
June of 2009. I agree with this. But the U.S. economy is still so
fragile, so very delicate; we could lapse back into recession if the
cards are not played right.
The U.S. brought interest rates down in 2004 to their lowest level in
46 years. And what did Americans do with their access to easy
money? They borrowed and borrowed some more, investing the
borrowed money into real estate. Looking ahead, perhaps the Fed's
actions (of bringing interest rates so low as to entice consumers to
borrow more than they can afford) will one day be regarded as one
of the most costly errors committed by it or any other banking
system in the last 75 years."
On US banks, he has this to say "I don't have any specific statistics to quote, but I believe that U.S. banks have plenty more bad housing loans on their books to eventually deal with and clear out. The banks have been taking
homes back (foreclosing) so much that they have actually slowed
down the foreclosure process, because they do not know what to do
with all the homes they have already repossessed."
Michel Lombardi is bearish on stocks further out in 2011:
"I have great concern towards the U.S. dollar, am concerned about its possible collapse (which would push domestic interest rates up,
sending the stock market down), and see the weight of the U.S.
housing market putting additional pressure on the economy.
The National Bureau of Economic Research said earlier this week
that the worst U.S. recession since the Great Depression ended in
June of 2009. I agree with this. But the U.S. economy is still so
fragile, so very delicate; we could lapse back into recession if the
cards are not played right.
The U.S. brought interest rates down in 2004 to their lowest level in
46 years. And what did Americans do with their access to easy
money? They borrowed and borrowed some more, investing the
borrowed money into real estate. Looking ahead, perhaps the Fed's
actions (of bringing interest rates so low as to entice consumers to
borrow more than they can afford) will one day be regarded as one
of the most costly errors committed by it or any other banking
system in the last 75 years."
On US banks, he has this to say "I don't have any specific statistics to quote, but I believe that U.S. banks have plenty more bad housing loans on their books to eventually deal with and clear out. The banks have been taking
homes back (foreclosing) so much that they have actually slowed
down the foreclosure process, because they do not know what to do
with all the homes they have already repossessed."
Wednesday, September 22, 2010
Newsletter writers are calling for rallies ahead... time to exit stocks?
Richard Band has called for everyone to make sure that we’ve bought all the stocks and funds you’ve been wanting to buy before October 15. Because after that, a powerful rally will drive blue chip indexes back to their April peaks—and higher!
His reasons for buying:
-Since 1995, the S&P has suffered six dismal Augusts—just like the one we experienced—YET in every case, the rest of the year has clocked a gain!
-The double-digit recession crowd is being muted, as industrial-commodity prices hit a new 2010 high in early September.
-Investors are beginning to sense that there’s going to be a big GOP win in the midterm elections.
-Up until a couple weeks ago, investors had left the building. But they are now returning.
P.S. Richard Band called for a buy back in March 2009 in stocks, and he was right on target.
Another newsletter writer, Louis Nevallier wrote that "current market forces have put me in one of the most bullish moods I’ve been in in quite some time". He recorded his reasons in this article.
With so many people turning bullish, is the market due for a correction? I think it may. But if it does, I will add to my current holdings.
His reasons for buying:
-Since 1995, the S&P has suffered six dismal Augusts—just like the one we experienced—YET in every case, the rest of the year has clocked a gain!
-The double-digit recession crowd is being muted, as industrial-commodity prices hit a new 2010 high in early September.
-Investors are beginning to sense that there’s going to be a big GOP win in the midterm elections.
-Up until a couple weeks ago, investors had left the building. But they are now returning.
P.S. Richard Band called for a buy back in March 2009 in stocks, and he was right on target.
Another newsletter writer, Louis Nevallier wrote that "current market forces have put me in one of the most bullish moods I’ve been in in quite some time". He recorded his reasons in this article.
With so many people turning bullish, is the market due for a correction? I think it may. But if it does, I will add to my current holdings.
Saturday, September 18, 2010
Warren Buffett says there will be no double dip recession
Warren Buffett says that based upon all the evidence he is seeing, a double dip recession is out of the question. Given Buffett's track record, and that he was criticized for saying the United States was about to go off a cliff long before others agreed with him, this is a big, big statement. I am definitely paying attention.
Source: Bloomberg, Sept 13 2010
Source: Bloomberg, Sept 13 2010
Friday, September 17, 2010
Dow May Advance 23% by June 2011
Ralph Acampora gained fame for his 1997 prediction that the Dow would reach 10,000, after the index averaged 7,500 that year. It rose to that level in March 1999.
In 2007, he warned investors to avoid equities as strategists at the biggest Wall Street firms forecast gains. We know what happened after that. Now, he has boldly declared that the Dow Jones Industrial Average may climb to 13,000 by next June. This is because investors are too pessimistic about the economic outlook. Read more.
In 2007, he warned investors to avoid equities as strategists at the biggest Wall Street firms forecast gains. We know what happened after that. Now, he has boldly declared that the Dow Jones Industrial Average may climb to 13,000 by next June. This is because investors are too pessimistic about the economic outlook. Read more.
Tuesday, September 14, 2010
What a value hunter is investing today
Peter Langerman is CEO of Mutual Series, whose preoccupation is to hunt for deep-value stocks. Recently, he reveals that his investment team has once again started deploying cash in a big way as buying opportunities arise. Amongst the stocks he is invested in are AP Moller Maersk, Schindler, BAT, Imperial Tobacco, Lorillard Tobacco (Darvas' first big trade), Nestle, Kraft, Carlsberg, Pernod Ricard, Microsoft, Vodafone, Bank of America and Jardine Matheson. This is what he thinks of BOA: The bank has a valuable franchise and is selling near its book value. Confident that it will make it through the rocky period, even if US eonomic growth stalls. Comforting words to me indeed.
Monday, September 13, 2010
Is this still the time to be in stocks?
Alexander Green contends that the market is almost as cheap today as it was during the depths of despair in March 2009.
How is that possible when the Dow is already more than 3,500 points higher?
Because a stock or index price doesn’t tell you anything about valuation. What matters are earnings and the multiple that the market puts on them.
The three main reasons for buying high-quality stocks now are:
1.Near zero interest rates.
2.Little inflation.
3.most stocks are unloved and undervalued around the world.
And the best time to buy stocks would be - when so many others stop believing in it -and that time is now. Read the article.
My personal portfolio:
BOA
SOHO China
Noble
NOL
Sembmar
SPDR Gold
How is that possible when the Dow is already more than 3,500 points higher?
Because a stock or index price doesn’t tell you anything about valuation. What matters are earnings and the multiple that the market puts on them.
The three main reasons for buying high-quality stocks now are:
1.Near zero interest rates.
2.Little inflation.
3.most stocks are unloved and undervalued around the world.
And the best time to buy stocks would be - when so many others stop believing in it -and that time is now. Read the article.
My personal portfolio:
BOA
SOHO China
Noble
NOL
Sembmar
SPDR Gold
Saturday, September 11, 2010
When to buy and sell stocks? The VIX indicator
The CBOE Volatility Index (^VIX) is a measure of market sentiment, based on options trading among the S&P 500 companies.
The most extreme bullish is at 13 and the most bearish events is at 49.
- At 13: This means investors are very complacent. We should buy the VIX and sell stocks.
- At 49-Plus: This means investors are panicking. We should sell the VIX and buy stocks.
Currently, the VIX indicator is at the low 20s, and declining. It is time to get ready to sell. A more detailed discussion can be found here.
The most extreme bullish is at 13 and the most bearish events is at 49.
- At 13: This means investors are very complacent. We should buy the VIX and sell stocks.
- At 49-Plus: This means investors are panicking. We should sell the VIX and buy stocks.
Currently, the VIX indicator is at the low 20s, and declining. It is time to get ready to sell. A more detailed discussion can be found here.
Friday, September 10, 2010
Why I would not be following some investors on rushing to the exits
Current picture:
1. Investor sentiment is as bad as it was during the market's low in March 2009
2. Only 29% of stocks rated by the usually uber-bullish analysts have a buy rating
3. The stagnating economy, the persistently high jobless rate, taxes, war....
Why we should be buying stocks?
1. In 2010, S&P 500 earnings are expected to grow 46%, the largest increase since at least 1988.
2. Next year, the S&P is expected to earn $94.31 per share, putting the P/E at a low 12 times expected earnings and below the 14% growth rate.
3. Since 1988, the S&P 500 has traded at an average historical P/E of 19.3. Today, it's at 15, implying a return to 1,417 if it simply trades back to its average P/E.
"Times are tough, but that's when you're supposed to buy stocks, before things turn around. Perhaps it truly is "different this time." But I'm not buying it. I'm buying stocks instead." - Mark Lichtenfeld
1. Investor sentiment is as bad as it was during the market's low in March 2009
2. Only 29% of stocks rated by the usually uber-bullish analysts have a buy rating
3. The stagnating economy, the persistently high jobless rate, taxes, war....
Why we should be buying stocks?
1. In 2010, S&P 500 earnings are expected to grow 46%, the largest increase since at least 1988.
2. Next year, the S&P is expected to earn $94.31 per share, putting the P/E at a low 12 times expected earnings and below the 14% growth rate.
3. Since 1988, the S&P 500 has traded at an average historical P/E of 19.3. Today, it's at 15, implying a return to 1,417 if it simply trades back to its average P/E.
"Times are tough, but that's when you're supposed to buy stocks, before things turn around. Perhaps it truly is "different this time." But I'm not buying it. I'm buying stocks instead." - Mark Lichtenfeld
Monday, September 6, 2010
Noble represents good value
Finally, Noble has turned, and has broken its 20-day high. According to the turtle trading method, this is a buy signal. Fundamentally, now could be time to pick up shares of the China-backed commodity supply- chain manager. CEO Ricardo Leiman told shareholders and analysts via a conference call on Aug 12. “Despite the fall in profit, we are on target to double our profits to US$1 billion within the next three years.” Analysts' target for the stock range from 1.62 to 2.26. Current price is 1.71. More on this article
Noble Group: Share price falls to attractive levels as earnings take a hit
Monday, 23 August 2010
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Monday, 23 August 2010
© 2010 - The Edge Singapore
What is overbought can remain overbought
C K Ee's explanation of why RSI can remain overbought is an extremely interesting one.
This is as follows:
For Long, buy when
-RSI cuts back into overbought territory the second time. Condition is that RSI has to remain above 50.
- Exit when RSI cross below 50.
Example:
This is as follows:
For Long, buy when
-RSI cuts back into overbought territory the second time. Condition is that RSI has to remain above 50.
- Exit when RSI cross below 50.
Example:
Sunday, September 5, 2010
The meaning of expected value
Say in a game of roulette, there are 37 numbers, 0 to 36.
The casino payout is 35:1 for winning no.
The odd of winning is 1/37.
The odd of losing is therefor 36/37.
EV = 1/37 x ($35) + 36/37 x ($1)
= - 0.027
Hence, we say the expected value to us is -$0.027
The casino payout is 35:1 for winning no.
The odd of winning is 1/37.
The odd of losing is therefor 36/37.
EV = 1/37 x ($35) + 36/37 x ($1)
= - 0.027
Hence, we say the expected value to us is -$0.027
Saturday, September 4, 2010
The Turtle Trading Method
I have long been interested to learn the trading method, but have not managed to, until recently, when I attended C K Ee's workshop. In short this is what it is about:
It is a trend-following system based on:
System 1: Long on 20-day high
Exit on 10- day low
or vice-versa
System 2: Long on 55-day high
Exit on 20-day low
or vice-versa
Initial stop-loss at 2 x ATR
Limitations of the Turtle trading include 1. Whipsaw losses
and 2. Slow and insensitive
However, in the long run, the expected return is positive (about 4%). Therefore, it is a system that is worth applying, especially with penny stocks.
It is a trend-following system based on:
System 1: Long on 20-day high
Exit on 10- day low
or vice-versa
System 2: Long on 55-day high
Exit on 20-day low
or vice-versa
Initial stop-loss at 2 x ATR
Limitations of the Turtle trading include 1. Whipsaw losses
and 2. Slow and insensitive
However, in the long run, the expected return is positive (about 4%). Therefore, it is a system that is worth applying, especially with penny stocks.
Wednesday, September 1, 2010
What is the right bet now?
On March 13, 2000, The Wall Street Journal ran an op-ed piece from Wharton Professor Dr. Jeremy Siegel entitled "Big-Cap Stocks Are a Sucker Bet." The column shocked the investment community.
Siegel focused on the 33 largest firms based on market capitalization - those with values greater than $85 billion. Of these, 18 were technology stocks. He noted that their market-weighted P/E equaled 126. What's more, he pointed out that half of the large-cap technology stocks had P/Es over 100. For these stocks, the market-weighted P/E was 208.
These prices were totally unjustifiable. There was no way that these companies could grow fast enough to support such insane valuations.
Are You Heeding Siegel's Current Warning?
That month, the Nasdaq - home to these tech giants - hit its all-time high of 5,132. From there, it imploded. Many of the stocks he singled out in the column - like Yahoo! (Nasdaq: YHOO) and JDS Uniphase (Nasdaq: JDSU) - plunged over 99%.
Even today - more than 10 years later - the Nasdaq is 60% below its high.
It's great when a knowledgeable analyst like this rings a clear warning bell at the top. So understand that he's doing it again today.
Earlier this month, he wrote another Wall Street Journal op-ed piece. This one is called "The Great American Bond Bubble."
Siegel says: "What is happening today is the flip side of what happened in 2000. Just as investors were too enthusiastic then about the growth prospects in the economy, many investors today are far too pessimistic."
As a result, they're plowing money into Treasuries and Treasury mutual funds.
This will almost certainly end badly.
Unless we have a full-blown deflationary depression, these bonds are a horrible bet, offering minuscule yields and huge downside risk. Many investors don't realize how badly they can get clobbered in super-safe Treasuries when the bond market turns down. (And those holding leveraged bond funds could see 40% or more of their principal vanish in a matter of months.)
As Siegel concludes: "Those who are now crowding into bonds and bond funds are courting disaster... The possibility of substantial capital losses looms large."
What does Siegel propose that income investors hold instead?
Don't Be a Sucker: Invest in This Asset Class Instead
Large-cap dividend stocks.
He points out that the 10 largest dividend-payers in the United States are:
AT&T (NYSE: T)
Exxon Mobil (NYSE: XOM)
Chevron (NYSE: CVX)
Procter & Gamble (NYSE: PG)
Johnson & Johnson (NYSE: JNJ)
Verizon (NYSE: VZ)
Phillip Morris (NYSE: PM)
Pfizer (NYSE: PFE)
General Electric (NYSE: GE)
Merck (NYSE: MRK)
And together...
They sport an average dividend yield of 4%, substantially more than what 10-year Treasuries are paying.
Their average P/E ratio is 11.7 versus 13 for the S&P 500.
Aside from the mountain of cash they're sitting on, their prospective earnings will cover their dividends by more than 2 to 1.
Despite fears of another stock market dip, income investors are wise to switch from Treasuries to high-dividend stocks. It might not feel like the right thing to do, but neither did buying stocks at the market low 17 months ago.
Adapted from Alexander Green's article "Are You One of the Millions Making This Sucker Bet?"
Siegel focused on the 33 largest firms based on market capitalization - those with values greater than $85 billion. Of these, 18 were technology stocks. He noted that their market-weighted P/E equaled 126. What's more, he pointed out that half of the large-cap technology stocks had P/Es over 100. For these stocks, the market-weighted P/E was 208.
These prices were totally unjustifiable. There was no way that these companies could grow fast enough to support such insane valuations.
Are You Heeding Siegel's Current Warning?
That month, the Nasdaq - home to these tech giants - hit its all-time high of 5,132. From there, it imploded. Many of the stocks he singled out in the column - like Yahoo! (Nasdaq: YHOO) and JDS Uniphase (Nasdaq: JDSU) - plunged over 99%.
Even today - more than 10 years later - the Nasdaq is 60% below its high.
It's great when a knowledgeable analyst like this rings a clear warning bell at the top. So understand that he's doing it again today.
Earlier this month, he wrote another Wall Street Journal op-ed piece. This one is called "The Great American Bond Bubble."
Siegel says: "What is happening today is the flip side of what happened in 2000. Just as investors were too enthusiastic then about the growth prospects in the economy, many investors today are far too pessimistic."
As a result, they're plowing money into Treasuries and Treasury mutual funds.
This will almost certainly end badly.
Unless we have a full-blown deflationary depression, these bonds are a horrible bet, offering minuscule yields and huge downside risk. Many investors don't realize how badly they can get clobbered in super-safe Treasuries when the bond market turns down. (And those holding leveraged bond funds could see 40% or more of their principal vanish in a matter of months.)
As Siegel concludes: "Those who are now crowding into bonds and bond funds are courting disaster... The possibility of substantial capital losses looms large."
What does Siegel propose that income investors hold instead?
Don't Be a Sucker: Invest in This Asset Class Instead
Large-cap dividend stocks.
He points out that the 10 largest dividend-payers in the United States are:
AT&T (NYSE: T)
Exxon Mobil (NYSE: XOM)
Chevron (NYSE: CVX)
Procter & Gamble (NYSE: PG)
Johnson & Johnson (NYSE: JNJ)
Verizon (NYSE: VZ)
Phillip Morris (NYSE: PM)
Pfizer (NYSE: PFE)
General Electric (NYSE: GE)
Merck (NYSE: MRK)
And together...
They sport an average dividend yield of 4%, substantially more than what 10-year Treasuries are paying.
Their average P/E ratio is 11.7 versus 13 for the S&P 500.
Aside from the mountain of cash they're sitting on, their prospective earnings will cover their dividends by more than 2 to 1.
Despite fears of another stock market dip, income investors are wise to switch from Treasuries to high-dividend stocks. It might not feel like the right thing to do, but neither did buying stocks at the market low 17 months ago.
Adapted from Alexander Green's article "Are You One of the Millions Making This Sucker Bet?"
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