Category: Stock Market

It was well past midnight, but everyone was still partying.  Although the booze and drugs were running low, the party was still in full swing.  The entire school was there. Real estate alphas, derivative betas, the car club and who could forget about the speculator zetas.  As sunrise approached everyone was starting to get tired. Some people were even talking about calling it a night and going home.

That was until a good lad Ben Bernanke kicked in the door and yelled  “I got it, let’s party”.  As he opened his duffle bag and emptied the contents on the couch, everyone in the house went wild. There it was. Two kilos of pure Columbian coke. More than enough for everyone.  The party was back on.

As the clock hit 9 am, the house was surprisingly silent.  When the campus police opened the door there were bodies everywhere. Some were laying there motionless and not breathing, some were simply passed out, some were twitching while others sat silently staring at the wall.  As the medical examiner took the bodies out, it was not till much later that the cause of the tragedy was revealed.  For most, there was simply too much coke that night. 

If you are wondering, that is exactly what happened in the stock market today. 

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Business Week writes: “Investors’ Worst Instincts, Revealed (Again)”

The U.S. stock market is killing it. In the two-and-a-half year period from Jan. 1, 2011, to June 28, 2013, U.S. shares returned a cumulative 35 percent—26 percentage points ahead of international developed markets and 47 points better than emerging markets.

Investors, being investors, have taken to this turn of events by doing what they have sworn many times never to do again: They’re chasing the winners. In July, investors crammed a record $40.3 billion into U.S. equity mutual funds and exchange-traded funds—this after years of yanking money from the category.

History offers plenty of examples as to why this is a bad idea. Emerging markets got hot in the mid-1990s, only to melt down just as U.S. dot-coms and tech stocks took over. By the time most retail investors bought in to that doomed mania, small caps, commodities, and BRICs took over. Lather, rinse, repeat….

This is not a surprise. This is how the markets work. This is how the human mind works. Majority of people are followers and seek out safety in numbers. If everyone is making money, I should do it and if everyone is in that mutual fund, I should be in it as well.

I do agree with one premise of the article. The market is significantly overvalued and since most people are once again chasing hot stocks, it is about to go down. I will go even further than that and say that the market is about to go down big time (20%-40%) as my timing work and previous articles indicate.

Don’t be stuck with the bag of shit when the music stops playing.  Right about now is a good time to get out of stocks. It’s might be a little too early to confirm, but technical indicators are showing that the final bear leg that will take us into the 2016 bottom and the end of the bear market that started in 2000 might have already started. There will be a bounce here followed by a decline. All we have to do now is wait for a confirmation.  I will write more about it later. 

What is TIMED VALUE ?

Timed Value is an investment approach that I have developed over the last 15 years.  Please, allow me to first break it down for you into two investment approaches and then bring it back together for a more comprehensive understanding.

 

Value Investing.

If you have been in an investment field for any period of time you know what value investing is and I won’t spend too much time going over it here.

Basically, Value Investing is investing in undervalued companies that for whatever reason are selling at a significant discount to their intrinsic value or what  they should be worth. There could be a million and one reasons why that happens, but markets do swing up and down, improperly and significantly undervaluing great businesses at times. 

By investing in such businesses you automatically reduce your risk due to a margin of safety.  It’s not a sure fire way to prevent losses, but undervalued companies tend to depreciate less if you have made a wrong decision and appreciate more when your fundamental research is proven to be correct.

As you probably know Value Investing has been famously used by a super investor Warren Buffett to amass his $40-60 Billion wealth.  I too firmly believe that value investing is one of the best ways to minimize risk while setting yourself up for a larger gain should the stock recover.  At the same time, value investing has a number of shortcomings.

The biggest problem with value investing is TIMING.  Yes, you might have found a very cheap or very expensive (short side) stock, but you have no idea WHEN this stock will move in your direction. Yes the stock might be cheap, but it can remain cheap and not move anywhere for many years  -OR – worst, move in the opposite direction even though you are 100% confident that your fundamental analysis is correct.     

Let me give you an example. As early as 2006, I have predicted the economic collapse of 2007-2008 and the catalyst behind it. I have made a determination that the market will decline significantly and that it would be best to be on the short side. I have identified the worst of the Sub-prime lenders (companies like LEND) and shorted them.  Yet, these companies kept going up for the next 18 months.  When my fundamental thesis was finally proven, these companies collapsed and filed for bankruptcy within 2 weeks. 

The lesson of the story is…… while your fundamental analysis might be right on the money and you have minimized risk by creating a margin of safety, still you don’t know WHEN it will happen.  In might be 10 years from today.  In the meantime, you have investors calling you and bitching why hasn’t their portfolio performed well.

Which brings us to the TIMED part of the equation.

I believe it is instrumental to know WHEN something is going to happen. When will that stock start moving in the direction that your fundamental analysis indicates.

If you believe that timing is impossible to predict, you would be WRONG.   And no, it has nothing to do with the technical analysis.

Before we go any further we must define a CRITICALLY IMPORTANT concept.

WHAT IS TIME?

I know it is a deep question. There are libraries full of philosophy and physics books that define time in a million different ways.

For our purpose, we have to ask a question. Is the time linear or is it cyclical?

The stock market chart identifies time as linear (from past to present to future), yet if you begin to actually study what time is you will very soon come to a conclusion that time is anything but linear.  Nature is not linear. Everything in nature is cyclical. It might look linear to an untrained eye, but once you look under the hood, the situation is completely different.

For example, you are born, you grow up, you live, you grow old, you die. The cycle is now complete.

Same thing is with time. Time does not flow at a constant rate nor does it flow in one direction. Time vibrates and cycles at its own speed and rate of vibration.

Before I get in too deep let me restate it from a much simpler perspective as it applies to the stock market or individual stocks.

Because time is cyclical (not linear) and has its own rate of vibration as it applies to the stock market or individual stocks, that rate of vibration can be determined and as such be used to precisely identify WHEN any given stock or the overall market will move in any given direction.

Yes, you have heard it right, my mathematical work clearly indicates that the stock market can be predicted and timed to within daily resolution. Due to this, out sized returns can be achieved.   Just as a note, this has nothing to do with technical analysis as my work moves well beyond TA. 

So, what is TIMED VALUE? It is exactly what you think it is. It is investing in undervalued companies (minimizing risk) while precisely identifying the time of WHEN that move will occur. Once again, identifying the exact timing of the event is not only possible, but a reality. I have proven that fact to my entire satisfaction.

As such, when you implement TIMED VALUE you have accomplished both the reduction of risk and maximization of profit (low risk and high return). What more can you ask for as an investor?

Interested in my TIMING work? Please contact me with any inquiries.

Bloomberg writes: German Jobless Unexpectedly Rises Even as Economy Grows

The number of people out of work increased by a seasonally adjusted 7,000 to 2.95 million, the Nuremberg-based Federal Labor Agency said today. Economists predicted a decline by 5,000, according to the median of 25 estimates in a Bloomberg News survey. The adjusted jobless rate stayed at 6.8 percent, near a two-decade low.

The economy in Germany, which faces elections next month, is forecast to slow after growth was bolstered last quarter by a rebound from a colder-than-usual winter that curbed output. While the euro area, the nation’s largest export market, has emerged from its longest-ever recession, some companies are still cutting jobs as countries in the periphery of the region struggle to recover.

“If data that signal the economy will gather pace in the second half of the year are to be believed, there’s a good possibility that employment will increase and unemployment will drop next year,” said Jens Kramer, an economist at NordLB in Hanover. “In the euro area, there’s at least hope that the worst is behind us.”

I think the best way to look at Europe at this point in time in from Macro Economic perspective. 

Obviously Germany is by far the strongest economy in the region and the only reason European Union hasn’t collapsed yet. The rest of the countries there are in a big time mess. 

I do not believe the worst is yet over for Europe. Not by a long shot. The only reason you are seeing an improvement and better data coming out of Germany is the same reason you see it in the US. Massive amounts of liquidity in the system. 

What is quite shocking is how weak the recovery has been in the European Union region even though record amounts of capital were deployed to sustain it.

What will happen next is quite simple. 

As interest rates continue to increase on the global scale, as the US Stock market begins to go down, as emerging markets continue their decline….there won’t be any reason for European Union to recover. As a matter of fact, quite the opposite. As all stimulus disappears, expect most of the European Union to fall back into a depression environment.  

An eventual break up of the European Union is not out of the question. As a matter of fact, I would be surprised if it doesn’t happen over the next 5 years. 

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