Category: Invest with Alex

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Just A Reminder. It’s Legal To Kill People This Friday

black friday

As I write this Americans are starting to get ready for the real Hunger Games. Day like no other.  The only day of the year when killing your fellow human beings over a pair of pants is not only legal, but highly encouraged by the Corporate America. A true spectacle to behold.

As ink dries, the crowds are starting to form outside big retailers. They are eager for battle.  Brother will stand against brother, father against son and grandma, well, grandma will stand against everyone. As the clock strikes midnight game participants will literally rip down doors and stampede all over each other for a chance to snatch a TV or perhaps a $2 toaster.  The few unfortunate weaklings who can’t handle the pressure will be the first to go with their brains splattered all over the entrance.  As people continue to do battle insides the store, anything and everything will be used as a weapon. 

The flat screen $49 TV’s will be the first to go. As fist fly and 70 year old grandmas deliver fatal blows, only a few lucky ones will emerge from this battle unscathed. As they run towards the checkout lane, unbelievable scenes begin to unfold all over the store.  Kids beating each other to death with plastic toys, grown men cry as stores run out of cheap beer, nerds killing each with broomsticks over video games and otherwise respectable mothers are strangling each other with 39 cent panties.

As morally bankrupt do battle to buy shit they don’t need with the money that they don’t have, only a few will emerge victorious.  I salute them.  

***I dedicate this article to all the tributes about to die.  Your sacrifice is incredibly important to the natural selection process.  May the odds be ever against you.  

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Just A Reminder. It’s Legal To Kill People This Friday

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A Secret Way To Make A Killing In The Stock Market Over The Next 12 Month

BloombergWrites: Subprime Loans Are Boosting Car Sales

subprime car loans

A woman came into Alan Helfman’s showroom in Houston in October looking to buy a car for her daily commute. Even though her credit score was below 500, in the bottom eighth percentile, she drove away with a new Dodge Dart. A year ago, “I would’ve told her don’t even bother coming in,” says Helfman, who owns River Oaks Chrysler Jeep Dodge Ram, where sales rose about 20 percent this year. “But she had a good job, so I told her to bring a phone bill, a light bill, your last couple of paycheck stubs, and bring me some down payment.”

The New York Times Writes: New Boom in Subprime Loans, for Smaller Businesses

A small, little-known company from Missouri borrows hundreds of millions of dollars from two of the biggest names in Wall Street finance. The loans are rated subprime. What’s more, they carry few of the standard protections seen in ordinary debt, making them particularly risky bets.But investors clamor to buy pieces of the loans, one of which pays annual interest of at least 8.75 percent. Demand is so strong, some buyers have to settle for less than they wanted.

A scene from the years leading up to the financial crisis in 2008? No, last month.

It’s scary how predictable human animal is from the psychological perspective. In fact, contrary to a popular believe human psychology IS the primary driver behind the stock market volatility.

Just two quick observations. First, as the articles above indicate the subprime is back in a big way. In 2003-2007 it was the real estate market, where anyone who could (and even those who couldn’t) fog a mirror could get a massive real estate loan. Today you can see the same situation in car loans and loans for small businesses. Thank god the amounts are smaller. Second, the speculative bubble and the frenzy building in the stock market. Everyone is falling over each other predicting the Dow 20,000 or up +40% in 2014. Of course, exactly at the wrong time.

Where were these people at 2009 bottom? Did any of them predict the DOW going up over +150% between 2009 and today? Of course they didn’t. They were too busy screaming that the world is about to end and we are on the verge of another great depression. Now, with credit easily flowing again, we are committing the same mistakes. Those who can take a step outside the box should now be able to see how easy it is to profit from such insanity.

As I have said so many times before, the bear market will start in 2014. Get ready to short overvalued garbage and make a killing.  

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A Secret Way To Make A Killing In The Stock Market Over The Next 12 Month

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The Secret Behind Bitcoin Madness. Should You Invest?

BusinessWeek Writes: Bitcoin Buyers Beware: Being Greedy Ain’t Easy

 spending-bitcoins-investwithalex

Fitting, then, that the price of a Bitcoin just crossed—at least for a little while—the $1,000 mark.

Money men who proudly call themselves greedy say that Bitcoin remains undervalued at that price. The preferred currency of online drug dealers, it’s just beginning to become a bit more mainstream. Folks such as Richard Branson are talking about accepting Bitcoin for flights on Virgin America (or, soon, spaceflights on Virgin Galactic). Stores in Silicon Valley will let you buy a sandwich and sushi with the virtual currency. Each new level of visibility is likely to push the value of Bitcoin higher.

Advocates of Bitcoin use liken the currency’s position to the Internet in its early days. We’re in the dial-up phase, they say—you should buy in before the boom of all booms arrives.

Read The Rest Of The Article Here

“You should buy in before the boom of all booms arrives”, WOW is all I have to say. If that is not a clear sign of speculative mania, I don’t know what is.

I have written about Bitcoin before. You can see it here  “Bitcoin: Crazy or Smart”

Even though the currency has appreciated significantly since that write up, I continue to maintain my position. Primarily, that the Bitcoin is nothing more than a speculative investment that warrants no capital outlay.  My biggest problem with Bitcoin is not having the ability to measure and/or analyze its value at this stage. It can be worth zero or it could be worth $1 Million.  In fact, some speculators believe that it should be worth $1 Million. Indeed.

Given its volatility, unpredictability, tiny float and no real value, Bitcoin remains a highly speculative investment. Certainly, it can go to $1 Million just as easily as it could go to Zero. Overnight. As such, only speculators who do not care about losing their money should apply.  I maintain my position that traditional investors must stay away. This is nothing more than a drunken Tulip Mania. 

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The Secret Behind Bitcoin Madness. Should You Invest? 

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Hey Bernanke, Thanks For All The Drugs

BusinessWeek Writes: Thanking the Fed, Reservedly, for Investors’ Bounty

ben bernanke
Would You Like Another Kilo?

 

Don’t look at me like that—Walgreen (WAG) went full-yuletide in August. In any case, should you find yourself looking at your 401(k) for the first time since the Subprime Swoon, be Thanksgivingukkah-grateful for the extraordinary largesse of this Federal Reserve.

Thanks to outgoing Fed Chairmen Ben Bernanke and the nominee to replace him, Janet Yellen, and their colleagues taking down interest rates to near-zero five years ago and keeping them there—on top of the Fed’s nearly $4 trillion of creative asset purchases—investors have enjoyed the restoration of more than $13 trillion in U.S. equity market value. That’s called multiplier effect. And it’s also called remorse, if you were one of the record numbers who bolted stocks altogether and are scrambling to get back in now, after indexes have more than doubled. It’s also called financial repression if you’re a saver having to eat negative real rates on your hard-earned cash.

Read The Rest Of The Article

I have no words. You have got to be f#&*$ kidding me.  I don’t know how many times I have to say this, but thanking Bernanke or the FED would be equivalent to thanking your drug dealer for getting you hooked on crack cocaine, or thanking a hooker for giving you AIDS or thanking God for helping you get home again while driving drunk.

All of these things might feel good at the moment, but they will eventually catch up and kill you. What most people do not understand is that by pumping a tremendous amount of money into the economy over the last 2 decades, the FED has created bubble after bubble in various asset classes.  All while undermining the overall economy.

The stimulus works great until it doesn’t work anymore. We are at that point. With massive amounts of credit flooding the system, the velocity of that money is having less and less impact. When the tide turns, there will be hell to pay not only for the people who are directly involved in the scheme, but for everyone. Not only for the US Economy, but now for the global economy. Everyone.

The sad part is, all of this was preventable is we had the fortitude to stick to sound economic principals. Instead we have a bunch of whack jobs on every level of our government whose sole purpose is to max out our credit cards and kick the can down the road. The upcoming bear market of 2014-2017 will make all of this very clear. 

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Warning: The Machines Are Coming After Your Job

Bloomberg Writes: A Computer Might Come After Your Job Next

terminator-investwithalex
I am taking your job

 

First it won at “Jeopardy.” Now it might threaten millions of low-wage jobs. At least, that seems to be the implication of a Bloomberg News article on International Business Machines Corp.’s Watson supercomputer.

Developers are now figuring out how to use Watson’s processing power to replicate the experience of working with an “experienced in-store salesperson” when shopping for clothes. The software would combine databases provided by retailers with customer preferences for style and fit to help people find what they’re looking for.

If it works, this technology would be a boon for everyone who prefers to buy things from the comfort of home. Right now, only a small percentage of shopping occurs online. Shipping costs could be one reason. Another is that many people are hesitant to buy things over the Internet when they can’t try them out first, especially clothing. That reticence could be overcome by these new technologies. If a computer knew your body shape and knew the dimensions of each piece of clothing, it could show you exactly how items would fit.

Read The Rest Of The Article Here

As we move deeper into the 21st century, technological changes continue to accelerate. One thing that fascinates me as an investor is what type of an impact machines (computers and robotics) will have on the future of the labor force and by default, the overall economy.

I believe both robotics and enhanced computer systems  are already having a significant impact on the overall labor force. It is difficult to measure, but in many sectors of the economy improved productive means fewer jobs. While I don’t believe it is having an impact on the overall rate of employment just yet,  within a few decades things might be drastically different. Imagine a world where robotics take most (if not all) lower skill manual or blue color type of jobs at the cost of $0.5-2 an hour.  What happens when enhanced computer system get so good that they start to squeeze out white color work force at the fraction of the cost. To be honest with you, I have no idea.

Many will argue that this is a normal economic shift that will create more and better jobs in other sectors of the economy. Perhaps it will, but I don’t see how. This change is very different from the industrial and the low level technology revolution that preceded it.  Given  expected massive worldwide population growth I don’t see where the future high paying jobs will come from.

Does that mean a lower overall standard of living?  Once again, not necessarily. It might mean a better standard of living for future generations. One thing is for sure. This is a trend worth watching as it will impact our lives over the next few decades more than we can imagine. 

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WARNING: The US Real Estate Prices Are About To Decline 45-70%

I HAVE OFFICIALLY CALLED FOR A REAL ESTATE TOP ON OCTOBER 3rd, 2013. CLICK HERE TO SEE

housing bubble

 

Yes, I called it perfectly in 2006-2007 and now I am saying that it is not over. 

Before we can understand where we are now and where we are going in the future we must understand where we came from. The Real Estate run up that we have experienced between 1997-2007 has no historical  precedent.  Real estate data going all the way back to 1790 clearly shows that the US housing market basically appreciated at the rate of inflation.  Yes, there were some bubbles and substantial declines, but overall, appreciation at the rate of inflation is an appropriate way to look at the US real estate sector.

real estate 1 investwithalex

 

A QUICK HISTORY LESSON:

All of that changed in 1997 when Bill Clinton signed The Taxpayer Relief Act into law, basically allowing $250,000 in tax free capital gains in real estate.  While real estate was already appreciating at a good clip at that time, that law added fire to the trend. 

Later,  fearing significant economic slowdown in 2002-2003 the Bush administration added a huge amount of jet fuel to the Real Estate Bubble by cutting interest rates and making mortgage finance available to everyone (even to the dead people).  As people used to say, if you can fog a mirror you can get a mortgage. Of course, all of that led to the largest finance bubble in the history of mankind that “kind of” melted down in 2007-2009. I say “kind of” because most of those excesses are still in the financial system and will have to be worked through in the future.  

 

WHERE ARE WE NOW?

Issue #1: US Home Ownership Rate Is Plunging

On historical basis, home ownership rate in the US is in free fall. Take a look at the chart. I think it speaks for itself.  

homeowership-rate-investwithalex 

Issue #2: Real Estate Affordability Is Plunging

Take a look at the chart as it speaks for itself. The affordability index is in free fall as well. Most likely due to higher interest rates and rising prices. 

Housing Affordability Index

 

Issue #3: Interest Rates Are Going Up             

The trend has shifted up and the 10-year rate is up 100% over the last 12 months. I gave detailed interest rate analysis here. Please take a look here.

 

Issue #4: US Economy & The Stock Market Is About To Turn Down (Big Time)

Please read “The Long Awaited US Stock Market Decline Is Likely Here” as to why.

 

Issue #5: Who Is Buying All Of These Properties For Cash Today?

Chinese buyers, hedge funds, banks themselves, investors, speculators, etc…..  Who cares!!! Remember all those Japanese investors buying everything they could in California and Hawaii in the late 1980’s. I wonder how that turned out for them.

On a more serious note, notice that I didn’t say Average American Family. That is the only category that we should track if we want to accurately predict the future trend in the US Real Estate market. Every other category is irrelevant over the long run.  And guess what? They are not buying.  See the charts above. 

 

Issue #6: Bear Market In Real Estate (sucks people back in)

As I have said here before (US Real Estate At A Turning Point), this is how the bear market works. This is the stage #2 bounce, before the big decline (stage #3).  The bear market tends to suck people back in, offer them perceived safety and a high return before slamming the door, ripping their head off, drinking their blood and taking all of their money.  The US Real Estate market is topping in Stage #2 run up here. That is why you are seeing so many divergences. The market should turn down soon. Beware.  

 

FUTURE OF REAL ESTATE:

Real estate is not made of Gold.  There is a tremendous amount of land available in California, Florida and all over the US.  There is no housing shortage. As such, expect real estate to decline significantly in order to revert back to its natural inflation adjusted mean. It might take a few years, it might be different for various cities, but one way or another the market will get there.

BubbleBurst investwithalex

 

HOW FAR DOWN?

Let’s do very simple math for the San Diego market.  It doesn’t have to be exact for our purposes.

Setup:

  • San Diego Median Family Income: $61,500
  • As Per Various Financial Guidelines Families Shouldn’t Spend More Than 30% Of Their Income On Housing.  That means a $1,500/monthly payment.
  • Median Home Price in San Diego: $500,000 (pushing that level again as per Trulia.com)
  • Interest Rates: 30 Year Mortgage 4.72% (Rates as of 9/4/2013) 

With such fundamental input variables median house value should be $290,000 -OR – A 42% DECLINE     ($1,500x360month@4.72%)

What if interest rates go to 7% over the next 5 years, which can easily happen? 

The fundamental value of the median house drops further to $225,000 -OR- A 55% DECLINE

Also, don’t forget that markets oftentimes overshoot to the bottom, just as they set blow off tops. In such a case I wouldn’t be surprised to see a median price of $150,000- 200K -OR- A 70%-60% DECLINE

You say impossible….. I say study financial markets. Nothing is impossible. 

Now, I understand and agree that there are various market forces at play that make the picture a lot more complicated. Interest rates, timing, mortgage finance, cash buyers, the FED, foreign buyers, speculation, location, supply/demand, etc….    However, fundamentals will always prevail over time. Everything else is just temporary bullshit.

 

ADVICE: 

Your house is not an investment. Don’t be confused. It is the place you live and raise your family. If you are happy with your house, have a fixed interest rate, can afford your monthly payments and don’t care if your house depreciates in value, I would stay put.

If you find yourself in a contrary situation……..I would consider various options. 

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WARNING: The US Real Estate Prices Are About To Decline 45-70%

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Why The Philippine Economy Is About To Collapse

Forbes Writes:  Here’s Why The Philippines Economic Miracle Is Really A Bubble In Disguise

philippines-stock-market

The Philippines’ bubble will most likely pop when China’s economic bubble pops and/or as global and local interest rates continue to rise, which are what caused the country’s credit and asset bubble in the first place. The resumption of the U.S. Federal Reserve’s QE taper plans may put pressure on the Philippines’ financial markets in the near future. Another global economic crisis (as I expect) also puts remittances at risk.

As I’ve been saying even before this summer’s EM panic, I expect the ultimate popping of the emerging markets bubble to cause another crisis that is similar to the 1997 Asian Financial Crisis, and there is a strong chance that it will be even worse this time due to the fact that more countries are involved (Latin America, China, and Africa), and because the global economy is in a much weaker state now than it was during the booming late-1990s.

Read The Rest Of The Article

The article above is a MUST read for anyone living in the Philippines. Even though Philippines was the fastest growing economy in the world in the 3rd quarter of this year, the party is about to end.  I am sorry to say, but the Philippine economy is about to go through a major decline/contraction/collapse.   

I love the Philippines and I wish the economic backdrop was different, but the reality is hard to ignore. The article above is right on the money, providing outstanding reference points and data. Once again, I highly encourage you to read it.  Instead of commenting on the points in the article, allow me to introduce the Philippine stock market technical picture into the equation.

From technical side the market looks very weak. It looks like it is about to break down to the downside. Big time.  The market has tried on multiple occasions to go higher,  but was unable.  A breakdown below 5,500 level would indicate that the bear market in the Philippines in back. The problem is (a huge problem) is that there is no real technical support until it gets to about 2,000. That would be a 66% decline from today’s market prices. In other words, the stock market is predicting a devastating full on economic collapse in the Philippines.

Why do we care about this and what does it have to do with the Philippine economy? The stock market is a leading indicator. As it goes, the economy ALWAYS follows.  If we break down below 5,500 level, I would expect the Philippine economy to be in a recession within 6 months.  Everything else will follow. 

***In reality, this is a worldwide issue. A massive credit bubble is indeed here (driven by the US Fed and unsustainably low interest rates) and it will play a major role in the demise not only of the US Economy, but all emerging markets. Including China. As I have stated on numerous occasions, the US bear market will start in March of 2014.

When it does, anyone and everyone who relies on cheap credit to grow their economies will pay the price.  Unfortunately, that includes the Philippines. It is simply unavoidable. Get ready. 

P.S. PLEASE DONATE TO TYPHOON HAIYAN VICTIMS HERE

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The Secret Behind Upcoming Stock Market Top

Bloomberg Writes: Stock Funds Lure Most Cash in 13 Years as Market Rallies

 money flowing investwithalex

Investors are pouring more money into stock mutual funds in the U.S. than they have in 13 years, attracted by a market near record highs and stung by bond losses that would deepen if interest rates keep rising.

“The timing of retail investors tends to be terrible,” said Jonathan Pond, an independent financial adviser in Newton, Massachusetts, who oversees $200 million. The deposits may be a contrarian indicator of a market near a top, he said.

Jeremy Grantham, chief investment strategist at Boston-based money manager Grantham Mayo Van Otterloo & Co., told clients in a letter this week, “We will have the third in the series of serious market busts since 1999.” BlackRock Inc. Chief Executive Officer Laurence D. Fink said this month that stocks may decline as much as 15 percent because of political risks in China, Japan, France and the U.S.

Read The Rest Of The Article

As the melt up in the stock market continues, retail investors are the last ones to join the party. As always. As the article indicates, last time we had similar inflows was at the end of 1999 and early 2000 or right before the tech collapse and the subsequent recession.

I would go even further and suggest that today’s investor psychological backdrop is identical to that of 2000 top.  For example, even though multiple high performing investors did spot the technology bubble and have tried to warn the others, for the most part they were completely ignored until it was too late.  It was the “NEW” economy the old guard did not understand.  Today’s environment is identical, except one fact. Instead of it being the NEW economy, today most markets participants believe that the FED can control the economy and its interest rates. That is of course a mirage that they will pay for dearly. Overall, the bullish sentiment is off the charts. As always, retail investors will lose the most as soon as the bear market kicks in.

As I have stated so many times before, the bear market will start in March of 2014 and will take 3 years to complete. While it will not be a violent move to the downside, it will shave off about 30-50% from today’s market prices over the next few years.  You have been warned.  

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What Everybody Ought To Know About Upcoming Emerging Market Crisis

BusinessWeek Writes: Bad Loans Could Spark an Emerging-Markets Crisis

emerging markets investwithaelx

The world’s largest emerging markets recovered quickly from the 2008 financial crisis because consumers and companies went on a borrowing binge. Now, as those economies cool, bad loans are haunting banks from Turkey to South Africa. India is injecting money into state-run lenders facing a huge rise in soured debt, and Chinese banks have been told to increase provisions against lending losses. “Credit growth in emerging markets has been phenomenal since 2008,” says Satyajit Das, author of a half-dozen books on financial risk.

He blames near-zero-percent interest rates in the U.S. and other developed nations, which have kept borrowing costs artificially low. “Many borrowers will struggle to repay the debt,” he says. “We’re ripe for a new emerging-market crisis.”

Read The Rest Of The Article

Could spark an emerging-markets crisis? You think?  How about will spark an emerging-market crisis. How about its already happening in countries like India with their currency being in a free fall.  

This is a systemic issue that comes from a singular source of low interest rates propagated by the FED. Of course everyone will borrow as much as they can when financing is flowing freely and interest rates are close to zero.  Particularly those in a week financial position. It allows them to survive for a little bit longer and they have nothing to lose. Yet, there is no chance in hell that these companies or borrowers can ever repair these loans.  Particularly not when both the US Economy and its financial markets are facing strong headwinds. The outcome? Massive defaults and substantial equity price declines in most emerging markets. 

Especially when you take the 2014-2017 bear market in the US into consideration (forecasted based on my mathematical timing work). While the US market is set for a 30-50% haircut, most emerging markets will not fare as well. 

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Stunning Obama Admission. US Economic Depression Is Coming

Huffington Post Writes: Larry Summers’ Desperate Depression-Fighting Idea May Soon Be Reality

Learning From History

If you think people who save money are being punished by low interest rates, wait until they have to deal with negative interest rates.

Slashing rates well below zero to make it painful not to spend money is the desperate approach to avoiding an economic depression recently endorsed by Larry Summers, President Obama’s former top economic advisor and one-time pick to run the Federal Reserve. With economic growth likely to be weak for the next infinity, the job market stubbornly awful and inflation disappearing, central bankers around the world have been toying with the idea for a while. Every day it gets closer to being a reality.

Read The Rest Of The Article Here.

Well, there you have it.

First, why are they talking about a depression?  If you listen to Bernanke, Yellen and/or Obama you would believe things are great and getting better. Unemployment is down, economy is up, stock markets are surging, etc….   What the hell do they mean by “desperate approach to avoiding an economic depression.”  Is Larry Summers on drugs?

Maybe the FED’s are not as stupid as I make them out to be.  If that is true, that makes them liars and criminals, committing economic crimes against the American people. Technically speaking that is exactly what they are doing. Uhmmmm, moving on before I get a call from NSA……

Listen, they know what they did and they know what is coming. The only way to combat that is to continue pumping a tremendous amount of money into the economy while hoping that interest rates stay low. However, they are running out of options.  Given current economic backdrop there isn’t that much more they can do.  Will bringing interest rates down to zero work ?

The answer is NO. Japan has tried that for 20 years without any success.  All they succeeded at is destroying their economy while trying to stimulate it. Here is the kicker….

Everyone, and I mean everyone believes that the markets behave based on what the FED does. Everyone believes that the FED’s can control and manipulate financial markets at will. That is the biggest and the most dangerous misconception everyone has. It might look that way, but they do not.

Remember 2007-09? Eventually markets will readjust on their own accord. When they do, there will be hell to pay. With or without 0% interest rates. The bear market is coming in 2014. 

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