Today’s 5 Minute Podcast Covers The Following Topics.
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Warning: Warren Buffett Shares His Secret On Getting Rich
BloombergWrites: Subprime Loans Are Boosting Car Sales
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.”
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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How To Make A Killing in 2014
Everyone is running their mouth. Bernanke is talking about indefinite QE, Yellen is saying that she will accommodate the markets any way that she can and Larry Summers is talking about 0% interest rates to avoid economic depression. All of that is garbage.
The only thing that truly matter is the 10-Year Note chart above. As you can see the chart is extremely bullish. I have said numerous times here, it is fatal to believe that the FED’s can control interest rates. They can influence them over the short term, but interest rates will behave as they should over the long run. The chart above clearly indicates that interest rates have reversed their course and are climbing up. Given massive amount of leverage and speculation in the system, even a misery 0.5% increase from this point on will have huge negative consequences. Should interest rates zoom up within a short period of time (which they might) there will be hell to pay.
This is the most important trend to watch going forward. So far the trend is incredibly bullish (for interest rates). This plays very well into my forecast of the bear market starting in 2014. This fundamental development confirms it.
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The Biggest Market Story of 2013
The US will lead the world in oil production for two decades starting in 2015, according to a new report. After that, OPEC will reassert its dominance in oil production.
The US is poised to become the world’s largest oil producer beginning in 2015. But its reign will be fleeting as the Middle East reasserts itself two decades from now.
Why? America’s oil boom won’t last forever, according to an annual outlook released Tuesday by theInternational Energy Agency (IEA). And the technologies that have fueled that North American boom in shale rock formations won’t be easily replicated in the rest of the world.
“The capacity of technologies to unlock new types of resources … and to improve recovery rates in existing fields is pushing up estimates of the amount of oil that remains to be produced,” reads the Paris-based agency’s report. “But this does not mean that the world is on the cusp of a new era of oil abundance.”
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In a bit of a good news, this is a positive development for the US Economy and the consumer. While this positive development will not have an immediate impact on the financial markets, over the next decade it will be a huge positive for the overall US Economy.
Just as the US will be the clear winner, there will be many losers who rely on the high price of oil to sustain their faltering economies. Most notably, Russia and most of the OPEC members. Going forward, the US should use this 20-30 year window of opportunity to make a massive investment into renewable energy and new technologies to try and completely eliminate oil dependence. I believe it’s possible and if done right should set the US Economy for massive economic growth over the next 30-50 years. At the same time, if such independence is achieved, middle east countries like UAE (Dubai) and Saudi Arabia will face the full force of economic pain.
Even though they have built massive cities and infrastructure I do not see how such cities can be sustained without oil money. I believe it was one of the Sheikhs who said something along the lines of (and I am paraphrasing here ) “Our fathers rode camels, my children and I ride in Mercedes and my grandchildren will ride camels again”. It looks like his wisdom might become a reality.
So, is now a good time to start investing in a Camel Business?
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Warning: Camel Business Is Forecasted To Boom In The Middle East
Continuation of Part I
Through using trading and position rules described earlier we progress even further in our risk management by minimizing mistakes in our overall investment approach. For example, if all previous approaches agree and we decide to establish an investment position in any given stock or the overall stock market, we would still have to look for the market to confirm our research. If the market moves against our very well researched position, we have to follow our strict trading rules and liquidate our position as fast as possible. While such actions will lead to short-term losses, over the long-term such actions will minimize losses while greatly increasing your return opportunities in more profitable positions.
Once again, by combining all of the factors above into what I call a “Timed Value” style of investing, one gains the ability to compound oversized gains over an extended period of time. All while minimizing risk. An allocation that should ensure in market beating performance if timing techniques used in this book are used in their proper format. It is also important to understand that properly exercised timing techniques can lead not only towards market beating performance, but to capital gains that are typically not available to traditional market participants. If fact, when the market structure is understood in full from the 3-Dimensional perspective, it can be timed with great precision, leading to astronomical returns and very little (if any) risk.
To summarize the Timed Value approach discussed in this book…
In conclusion, I have developed this unique investment approach after more than a decade long participation in financial markets and tens of thousands of hours studying various timing techniques. While the above might not work for everyone, it is the most powerful and the most risk averse approach to the investing that I know of. While “Value” portion can be replaced with many other investment styles (growth, technical, etc..), the timing principles discussed in this book are indeed timeless and cutting edge. An analyst who dedicates his time to studying the market in 3-Dimensional environment should walk away with a much better understanding of how the markets truly work. An understanding that will eventually morph into an exact science allowing the said analyst to time the stock market with the precision most other market participants can only dream about.
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Putting It All Together (Part 2)
Throughout this book we have talked about a number of important investment concepts. We started out by looking at the traditional value investment approach and how to use it in order to minimize risk while maximizing returns. We followed on by looking at things like margin of safety, how to determine the intrinsic value of any stock like a pro, the different types of stocks out there and how to apply macroeconomic analysis in order to supplement fundamental analysis. Basically, this section of the book allowed us to concentrate on the fundamental approach to investing and the best practices associated with it. At the same time, we were able to identify a number of significant problems associated with value investing.
The most significant of them was the fact that value investing doesn’t give us the ability to properly time entry and exit points into the financial instruments we are investing in. Even if our fundamental research is proven to be correct, we might be months or even years away from a properly timed entry point. Yet, timing is the most important element. Properly timed investments allow us to further reduce risk while maximizing our returns. Not only that, but properly timed investments can either confirm or challenge the validity of our fundamental analysis.
This understanding forced us to look at the various timing techniques and their associations with the stock market. Primarily, by introducing a completely new way to look at the stock market we were able to concentrate on the 3-Dimensional analysis as our primary tool to time the markets. As this book clearly illustrates, the stock market is not random, but is, indeed, highly structured. Once the structure is understood through the use of 3-Dimensional analysis, one can time the market with great precision.
Further, an analyst working with the timing techniques described in this book should be able to identify with great accuracy not only what any given stock or the overall market will do, but exactly when it is going to happen. This was followed by the cycle analysis and an explanation of how cycle analysis truly works. Most analyst have had issues with using cycle analysis in the past because cycles tend to work over a certain period of time, only to break down and to never work again. This conundrum was clearly explained and it was shown how the cycle analysis can be used to mimic the stock market with great precision. Once the cycles are arranged in proper configuration an analyst can determine with great precision not only the price and time, but the velocity of the upcoming move as well. Once again, confirming price/time and minimizing risk in the process.
So, what is Timed Value?
It is exactly what it sounds like. Three powerful investment strategies, all wrapped into one. Fundamental analysis, 3-dimensional analysis and the cycle analysis. Combining all three into one allows us to predict the stock market (or individual stocks) with great precision in both price and time. This further reduces risk while maximizing the returns. For instance, working with fundamental analysis and macroeconomic understanding we would be able to identify “Rocket Ships” stocks that are set for rapid and significant advance. We would then use 3-Dimensional analysis and cycle work in order to confirm our fundamental analysis and timing. If everything aligns and the price movement confirms, it is ideal to start building a trading or an investment position.
To be continued….
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Putting It All Together
Continuation of part 5….
PRIMARY CYCLES WORKING IN THE STOCK MARKET
(Please note that it took me a considerable amount of time to work out the cycles and their appropriate allocation. After reading this section, I would highly encourage you to perform your own cycle analysis to confirm the cycles below. Doing so will give you a better level of understanding and reassurance.)
Market Cycle #1: 5-Year Cycle. This cycle represents the primary trend in the stock market. In fact, this cycle had been mentioned earlier in this book when it was indicated that this particular cycle represents major long-term movements in the stock market. For example, 1982 to 1987, 1994 to 2000 and 2002 to 2007 are ALL represented by this exact five year cycle. Typically this cycle moves 5-years up and then 5 years down.
Internally, this cycle moves in the following fashion. Five years up and five years down. During the bull market the cycle moves 2 years up-1 year down-2 years up and during the bear market 2 years down-1 year up – 2 years down. Because this cycle represents the primary trend in the stock market, an analyst who is working with this cycle would have to multiply the composite created by the cycles below by the five year cycle in order to create an accurate representation of the stock market.
Market Cycle#2: 52-Months Cycle. This cycle moves bottom to bottom every 52 months. Meaning the bull phase is represented by the first 26 months and the bear phase is represented by the following 26 months.
Market Cycle#3: 27-Months Cycle. This cycle moves bottom to bottom every 27 months. Meaning the bull phase is represented by the first 13.5 months and the bear phase is represented by the following 13.5 months.
Market Cycle#4: 18-Month Cycle. This cycle moves bottom to bottom every 18 months. Meaning the bull phase is represented by the first 9 months and the bear phase is represented by the following 9 months.
Market Cycle#5: 13-Month Cycle. This cycle moves bottom to bottom every 13 months. Meaning the bull phase is represented by the first 6.5 months and the bear phase is represented by the following 6.5 months.
The cycles above represent the longer term moves in the market. However, as mentioned before cycle analysis can be applied to any time frame. An analyst working with shorter time frames (daily/hourly) would just have to narrow down the window of analysis in order to figure out the short term cycles and their relevant application to the stock market. When done, these shorter term cycles must be added into the composite above. Doing so will produce a very accurate composite on both the long-term and the short-term time frames.
To be continued……
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Timing The Market & Advanced Cycle Analysis (Part 6)
Fewer Americans than forecast signed contracts to buy previously owned homes in September, the fourth straight month of declines, as rising mortgage rates slowed momentum in the housing market.
The index of pending home sales slumped 5.6 percent, exceeding all estimates in a Bloomberg survey of economists and the biggest drop in more than three years, after a 1.6 percent decrease in August, the National Association of Realtors reported today in Washington. The index fell to the lowest level this year.
Mortgage rates last month reached two-year highs and some homeowners are reluctant to put properties up for sale as they wait for prices to climb, leading to tight inventories. Those forces are pushing some would-be buyers to the sidelines and slowing the pace of recovery in real estate, giving Federal Reserve policy makers reason to delay reducing stimulus when they meet this week.
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On October 3rd, 2013 I put my foot down and made a gutsy call. I have called for a housing top at the time. You can read the article here. I Am Calling For A Real Estate Top Here
Even though most people have dismissed this forecast I continue to stand by it. As new data points for the real estate market continue to come in, it looks as if I have made the correct and exact call. Yes, certain markets will roll over and start going down a little bit later, but the overall market is starting to look top heavy here. I would expect to continue seeing weakness over the next few quarters until we begin to see clear indications that the real estate market is heading down. At that time a lot of people will freak out and we should see a real inventory spike followed by even lower real estate prices. Of course this cycle will feed on itself for a long time.
Remember, this will be the 3rd leg down for the real estate sector. The first one was the initial decline between 2007 and 2010. Typically, 3rd legs down are longer and steeper. As such one shouldn’t be surprised to see large drops in housing prices over the next few years. As my previous valuation work here showed, overpriced markets like So. Cal should and could go down as much as 50%.
For now we wait and see as the housing market continues its rolling over process.
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What Everyone Is Ought To Know About The Upcoming Real Estate Meltdown
