Category: Invest with Alex

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GOLD

investwithalex gold

 

People keep asking me about Gold and other precious metals.

Short Answer:  I have no idea. I am too stupid to understand the metals in order to predict them.

Longer Answer: I have studied Gold for a while now and have heard every bullish and bearing argument for or against it. I understand inflation, deflation, safety and currency issues associated with precious metals. However,  I cannot put a complete analysis together in order to give you a legitimate answer.

Basically, precious metals are too complicated.  Some people see it as money, others as inflation/deflation hedge, then you have fundamental/industrial demands for the metals, then there are national reserves, etc….

All of those points are easy enough individually, but when you put them all together you get a lot of interference and noise without any clear direction. Perhaps it is easier for other people to understand, but it simply does not make sense for me.

I cannot see any fundamental reasons for owning gold.  Is it a hedge against inflation/deflation?  Not really. I would rather hold US Dollars in a deflationary environment and a portfolio of inflation protected stocks in an inflationary environment. Plus, the long term gold chart doesn’t look good from a technical stand point. It is either showing a sideways movement or a breakdown.

investwithalex gold chart

Can Gold and other precious metals appreciate significantly here? Sure, but they can also break down. Once again, I have no idea, nor do I find myself qualified to issue an appropriate opinion. 

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Cash Is King

Bloomberg Writes: Why Cash Costs the U.S. Economy Real Money

 Investwithalex_cash

The use of dollars and coins costs the U.S. economy at least $200 billion each year—roughly $1,739 per household—according to a new study from Tufts University. One reason: Americans waste an average of 28 minutes each month just getting to their cash, with part-timers, retirees, and African Americans likely to spend even more time accessing their money. The worst hit, not surprisingly, are low-income consumers, who are dinged with higher fees, along with the lost time.

For businesses, the biggest cost of cash comes from theft. Even if they can afford armored cars and guards to prevent outsiders from taking their cash, there’s still the risk that insiders will drain the coffers. Government, meanwhile, pays a price in lost tax revenue and the cost of actually making currency.

As technology continues to surge forward there is a considerable push from various interest groups to become a cashless society.  Articles such as the one above are clearly sponsored by the Banking Industry with their own agenda, but there is an important red flag here that you should be aware of.

Call me old fashioned, but I love cash. It’s a great feeling to hold a stack of crispy new $100 bills in your hand and smell them once in a while.  Just one second, I need to go do that…..

All joking aside, this is an important matter that can have real implications on your life.  As I have said before,  cash is king. It is the only thing that you will have control over if something does goes wrong. In the worst case scenario none of your stock holdings or bank database entries will mean anything. They will be worth ZERO.  Cash could be your insurance policy and as such I would suggest keeping a considerable amount of cash that is readily available to you.

Do not buy this nonsense that using cash has real economic cost. The real cost here is losing your freedom and being at the mercy of large financial institutions and/or governments. Remember Cyprus? It reminds me of a time when I tried to withdraw $125,000 in cash from my Bank of America account.  They looked at me and said “Sir, I am sorry, but we do not have that much cash available. It will take us a few days to get it”.

Fair enough, but I do not want to find myself in such a situation ever again. Therefore, I would highly recommend having a considerable amount of cash stashed away somewhere safe for your own good (preferably not in your mattress). It’s a great feeling. Trust me. Mine is buried somewhere in the Nevada desert. 

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Stock Market Update, Sept 10th 2013

Sept 10 2013 chart

The Dow is recovering nicely here, just as anticipated. As I have mentioned before the market was oversold and due for a bounce. I believe this bounce will take the rest of September to complete. 

What is interesting is that the market left a bunch of open holes (gap downs) on the way down around 15,500-15,400 range. After studying the market for many years, I have noticed something. The market doesn’t like these gaps. One way or another the market comes back to close the gap. Even if it takes years.

Other technical and timing works indicate that the market is likely to get into this 15,500 range by the end of September before reversing and heading down. As of right now I would still be in a waiting pattern, looking for various confirmation. There is no need to rush here. Stay patient. 

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Economic Lunacy

The Daily Ticker Writes: Krugman Overboard! Says Economic Policy a ‘Horrifying Failure’

economic crazy investwithalex

Nobel Prize-winning economist and New York Times columnist Paul Krugman argues in his new editorial that U.S. economic policy over the last five years has been “an astonishing, horrifying failure.” Krugman, a long-time critic of the Obama Administration’s stimulus efforts, writes that the U.S. government should have spent three times the amount of money it did to get the economy back on its feet:

“…if the U.S. government had actually been able and willing to do what textbook macroeconomics says it should have done — namely, make a big enough push for job creation to offset the effects of the financial crunch and the housing bust, postponing fiscal austerity and tax increases until the private sector was ready to take up the slack…we would be a richer nation, with a brighter future — not a nation where millions of discouraged Americans have probably dropped permanently out of the labor force, where millions of young Americans have probably seen their lifetime career prospects permanently damaged, where cuts in public investment have inflicted long-term damage on our infrastructure and our educational system.”

There you go. These are the idiots at the top of the US Economic Policy food chain.

“An astonishing, horrifying failure, the US Government should have spent 3 times the amount of money it did to get the economy back on track”

They are talking about an additional $3 Trillion in stimulus. WOW!!!. I am beyond speechless. I am not a big fan of either Bush or Obama administrations and what they did during the 2007-2009 meltdown.  In fact, I am a big proponent that they should have left the market alone and let a lot of those companies fail instead. That would have removed economic excesses out of the system a lot faster and we would now be in true economic recovery instead of this artificial credit induced one.

So, these Keynesian clowns believe that throwing more money at the problem would have fixed everything and brought prosperity to the US Economy?  I am starting to think that they don’t even understand basic math. Providing more stimulus here is equivalent to giving Lamar Odom a kilo of coke and saying “Go and shoot it all up at once. It will fix you right up.”   

With economic leadership like this, America has no chance of improving any time soon. A lot of economic pain is just around the corner. 

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FU64H2X4HQRH

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KING DOLLAR

invest with alex usd

All bow before king dollar. Those who know me can testify that I have been a dollar bull for a long time. See, I am bullish on something. 

In fact, I have been advocating for a long time that the US Dollar is one of the best and the most undervalued investments out there. While most people run around screaming inflation and predicting destruction of the US Dollar the reality is quite different.

Yes, the FED is printing or creating a lot of dollars out of thin air. However, those are not real dollars. They are creating credit which is a completely different animal. At the same time there aren’t that many real dollars out there (well, relative to the overall money supply …including credit). 

So, what happens when there is a credit crunch and people need real money to repay the loans? You have guessed it, the value of the dollar goes through the roof.

USD Chart 

Now, this has been an easy and risk free investment strategy I recommended to my parents over 13 years ago.  I simply told them to accumulate/save as many US Dollars as they can and invest them in short term  T-bills and a few other risk free financial instruments. They have and so far they have done very well.  How well?

US Dollar Accumulation & Risk Free Investments:  +67% compounded over the last 13 years.  

While over the same period of time…..

DOW:  +15%

S&P:  +10%

NASDAQ:  -28%

Not bad if you ask me.  Particularly considering the fact that there is absolutely no risk involved and they are not managing an active portfolio. Well, it’s so easy and stress free that they are not managing anything at all.  I will continue to maintain this position for my parents for at least another 3 years.  That is until 2016 stock market bottom and initiation of inflationary environment.

I recommend you do the same. The US Dollar Index looks good from both technical and fundamental perspective. While it doesn’t really matter if you live in the US, any index appreciation gives you that much more for your buck. 

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WARNING!!! Is The Philippine Economy/Stock Market About To Collapse?

Philippine Inquirer Writes: PH “different” from troubled Asean peers, say report

 

The Philippines, Southeast Asia’s fastest-growing economy, can differentiate itself from its regional peers that are grappling with slowing growth and deteriorating external balance sheets, based on a common theme cited by international researchers in the past few days.

Although election spending was a factor behind the better-than-expected 7.5-percent gross domestic product (GDP) growth of the Philippines for the second quarter, a pace matched only by China, some of the reports cited some downside risks

“The local economy’s resilience in the face of external turbulence reinforces our view that the Philippines is somewhat differentiated from its peers not only by having a structural current-account surplus but also by having local growth drivers, mainly public spending and private investments, to lean on. The latter may be traced to local economic authorities’ ability to pursue accommodative policies given a benign inflation outlook and manageable public debt,” New York-based think tank Global Source said in an Aug. 30 commentary written by Filipino economists Romeo Bernardo and Marie-Christine Tang.

In a separate research, Credit Suisse said: “We think the Philippines offers the best macroeconomic prospects out of the Asean-4 economies,” referring to the four emerging markets of Southeast Asia that also included Thailand, Indonesia and Malaysia.

Read the rest of the article here

As of right now the Philippine economy is in a very dangerous situation. I say dangerous by simply relying on the Philippine Stock Exchange (PSEi) stock chart.  The chart looks horrific. It looks as if it is about to break down to the downside ………BIG TIME. 

From a purely technical perspective, if it breaks down below 5,700 level, the Philippine economy and the Philippine stock market is in huge trouble. There is no support of any kind until it reaches down to about 4,000 level.  From my experience,  I would put a chance of a breakdown here and a subsequent significant decline at about 80%.

philippines-stock-market

 Better chart here: http://www.bloomberg.com/quote/PCOMP:IND

What does all of this technical mambo jumbo means for average people. The stock market is a leading indicator. If the Philippine stock market breaks down as I anticipate above,  the Philippine economy will follow and slow down significantly.

The fundamental picture supports this thesis as well.  Due to an upcoming economic slowdown in the US, rising interest rates and a recent (substantial) move in the Philippine Peso, I would anticipate the Philippine Stock Market and the Philippine economy to break to the downside soon. Unfortunately, that would lead to either a significant slow down or even a recession in the country. 

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Chinese Revolution…..Coming Soon?

Reuters Writes: Ditch the stats: China retailers don’t buy signs of recovery

 

HONG KONG (Reuters) – If things are really starting to look up for China’s economy, as a recent spate of better-than-expected government data seems to suggest, nobody appears to have told its biggest retailers.

A Reuters review of first-half earnings showed that more than 20 Chinese companies selling everything from footwear to food were not convinced the economic slowdown had bottomed out, and neither were their traditionally thrifty customers.

“The reality behind the numbers is gloomier,” said leading footwear retailer Belle International Holdings Ltd as a raft of data, supported by government statements, indicated the world’s second largest economy may be stabilizing after two years of slumping growth.

“There are uncertainties in future prospects as the economy is struggling with a difficult transition involving structural rebalancing and revamping the growth model,” said Belle, which has a market value of $11.6 billion and manages more than 18,000 retail outlets across 360 Chinese cities.

“As a defensive reaction, consumers are becoming more inclined to save and less willing to spend,” it added.

Economists have long doubted the accuracy of official economic data and this skepticism has increased as China plots a course towards consumption-led growth. The official retail sales measure, for example, counts a sale from when an item is shipped, rather than when it is actually sold.

The latest data, however, supports retailers’ complaints.  Read the rest of the article here

Listen, Chinese story is fairly easy to understand. Most of Chinese economic growth over the last decade came from massive infrastructure and real estate misallocation.  I say misallocation because there are literally empty cities in China.  If you haven’t already please watch this excellent report by 60 Minutes Here.

Now it is too late. China is left with huge misallocation that cannot just be dismissed. They must collapse. As the US Market slows down and shifts into recessionary environment over the next few years, as European Union continues to drag its feet in its own dysfunctional economic disaster,  I would expect Chinese export based economy to slow down significantly.

The most important question here, is what happens to the Chinese government when property prices finally collapse in China and Chinese families lose all of their multi-generational savings (something that every Chinese believes is impossible).  Of course, as financial professionals we must always look at the other side of the trade when 99% believes otherwise.

I believe we are in for some fireworks in China and fairly soon.  Within the next 5 years.  In fact, I believe we are in for a revolution in China as the government losses control.  One thing is for certain, it will be exciting to watch. 

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The Most Important Financial Story No One Is Talking About

10 Year Note Chart

 

The chart above doesn’t look like much, but it is hugely important. It is the chart for a 10 Year Treasury Note and I cannot stress enough just how important it is. There are 3 things here. 

1. My timing work shows that what you are looking at is a multi-generational bottom in interest rates. It is unlikely that we see interest rates this low over the next 50-100 years. Stock market and interest rate history teaches us that much. 

2. While it doesn’t look like much, this benchmark interest rate moved from 1.43% in July of 2012 to about 2.80% today. That is a 100% increase in interest rates in just 12 months. That is a massive move by any measure and the largest of its kind in nearly 3 decades.    

3. The interest rates are just now starting their climb upwards. The trend has shifted and will continue upward for at least a few more decades. It will not be a straight line move and it will not be fast, but do anticipate a gradual increase from this point on. My timing work shows that these rates should accelerate to the upside after 2016 due to upcoming inflation. 

What does it all mean? In simple terms, this will have a huge negative impact on the overall US and Global economy, it will destroy the US housing bubble once and for all, it will suck down emerging markets (which is already happening). 

Why? Because the all of the above mentioned markets rely purely on extremely cheap finance and high liquidity. Once you take that away, the markets and the overall economy will start going down fast.

What should you do? This is what I would do as of today. 

  • Start liquidating your stock market portfolio. You can start buying back at much cheaper prices at 2016 bottom.
  • Lock in any loans you have (mortgage, business, personal) at current rates. 
  • Sell all of your real estate holdings if it makes financial sense and satisfies all of your lifestyle choices. Real estate will get completely crushed over the next 10 years.
  • Accumulate cash and keep it safe in short term treasury(1-6 month maturity). Keep rolling it over as interest rates increase.  When the next bottom in the stock market shows up (in 2016)….Go All In. 

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Did the US Recession Already Start?

Well, actually and technically speaking, I believe that the US Economy never left the recession even though the stock market has appreciated well over 100% since the March of 2009 bottom.  Most of the gains where driven by technical reasons as well as massive infusion of capital into the system by the FED. Basically, everything had to appreciate in value.

Please watch this Lance Roberts, Charles Hugh Smith and Gordon T Long video sharing their research on the  question above through the use of 52 slides in this fast moving 43 minute video. I couldn’t agree more and it will soon become evident as the market begins its decline. 

 

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BitCoin. Crazy or Smart?

Bloomberg Writes: Bitcoin Spawns China Virtual IPOs as U.S. Scrutiny Grows

bitcoin_euro

Bitcoin craze is reaching new heighs in China.

Sun Minjie is a 28-year-old Internet worker who lives in Beijing. Eager to profit from growing demand for the digital currency, Sun has invested more than $3,000 in a company called 796 Xchange Ltd., an online exchange for trading stocks and other financial instruments related to Bitcoin, where initial public offerings are also being held.

He’s part of a small but growing group of investors in China who have put the country into contention with the U.S. as the biggest downloader of the virtual money that’s being used to buy a growing range of goods and services online. While intensified scrutiny by U.S. regulators casts doubt on the currency’s future there, China’s Bitcoin industry is expanding.

“What’s worrisome is that a lot of people could be just treating it as a speculative investment,” said Peter Pak, head of trading of BOCI Securities Ltd. in Hong Kong. “In China, the stock market, property and bond market are all not so good, so people get really excited when they hear of a new investment that generates high returns.”

Sun’s outlay of about 28 Bitcoins — or $3,108 — for more than 400 shares in 796 Xchange has returned about 46 percent since the stock’s Aug. 1 debut on the company’s own website. The benchmark Shanghai Composite Index (SHCOMP) has only gained about 2 percent during the same period.

Expensive to Crack’

Bitcoin is similar to other currencies — say, the Mexican peso — except it’s not controlled by any government and the total number is capped at about 21 million coins. Computer users can “mine” them by solving mathematical puzzles — uncovering the hidden series of letters and numbers that matches up with security keys specified by the computer programmers who invented Bitcoin in 2009. As more are mined, the puzzles get harder, and therefore more expensive to crack.

Sun turned to shares of Bitcoin companies after initially trying to mine the currency crunching algorithms on souped-up PCs at his office and home. He gave up after a month, concluding that his computers weren’t up to the task.

“Simple desktops can no longer dig them up,” he said.

Read the rest of the article here.

So, is Bitcoin a legitimate currency, a speculative investment or the future. This is a complex matter to discuss as there could be an infinite number of arguments made for or against it. However, here are some basic points to understand…. 

1. Understand that Bitcoin is a pure speculation at this stage. There is nothing to back it up and there is nothing to assign any sort of fundamental value to it.   As such, speculate away, but know that while it can appreciate significantly it can also go to zero in no time.

2. The US Government can crush it at will and at any time. Yes, I know it cannot be controlled by the government, it is independent and out there on the net. However, don’t be a fool.  As NSA just showed, the US Government basically controls the Internet and as such if it really wants to, it can destroy Bitcoin in hours through various means.

3. There is very little volume and the total value as a currency is very low. While it can be an advantage when the currency is going up, good luck trying to get out of it while it is heading down.  Plus, the fact that people in China see it as an investment vehicle now is a huge negative red flag.

Basically, there is no fundamental value to invest in Bitcoin at this stage. While it can appreciate significantly, know that all gains would be out of pure speculation.  There are no fundamentals to back it up.  On the flip side it can go to zero either because of the speculation or if the US Government decides (for whatever reason) to pull the plug on it.  I say it is too much risk if you value your money.