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Why Sheep Are Better Investors Than You Are

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

sheep_off_cliffThe 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. 

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The Secret Behind Timed Value

What is TIMED VALUE ?

tunnelTimed 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?

hands_clock

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.

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Stock Market And 3-Dimensional Analysis (Part 10)

basic-trading

Continuation of part 9

Shortcut Two: Trading Techniques

The other way to avoid problems and/or to reduce risk when the lattice structure of the market is not yet known is to implement a strict trading regiment that would help you avoid large mistakes. By implementing strict trading rules and procedures you are able to eliminate all guess work out of the equation. In other words, while the 3-DV analysis gives you the ability to predict the markets, strict trading rules make sure you pull the trigger at the right time.

The rules below are a very simple strategy of getting in and out of stocks. Yet, it produces very powerful results while minimizing risk when you combine it with the fundamental, 3-DV and triangulation analysis  described above. First a few rules.

Avoid Low Priced Stocks:  While it is possible to make a large amount of money with these stocks, for the most part these stocks remain at low levels for a very long time.  Sometimes forever.

Avoid Slow Trading Markets or Stocks:  These are the financial instruments that are stuck in a trading range.  Do not invest in them until and unless the trend is definitely broken either to the upside or the downside.

Concentrate On Fast Moving Markets or Stocks:  This is where most money is made over the shortest period of time. Once the primary trend is identified and the 3-DV analysis work is done, buy the best stocks in the fastest moving industry.

Never Guess:  Take the guesswork (gut feeling) out of your decision making process.  Develop strict trading rules that are followed 100% of the time. While the analytical framework described above is followed, you should never guess if you got it right. Let the market and your trading rules put you in and take you out.  

Always Follow The Main Trend: You will always make money if you follow the main trend.  Either up or down. Remember, stocks are never too high to buy if the stock market is going up and they are never too low to sell if the trend is pointing down. 

Always Use Stop Losses:  I cannot overstate this enough. Always use stop losses to protect your capital. Even if you reach an advanced level in the 3-DV analysis described above, always use stop losses to make sure your work is correct.  Let the actual market prove if you are right or wrong. In the meantime, your capital base will remain save.  

To Be Continued…..

Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!! 

Stock Market And 3-Dimensional Analysis (Part 10)

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Stock Market And 3-Dimensional Analysis (Part 9)

Click To Enlarge
Click To Enlarge

Continuation of Part 8

Let’s take a look at the real stock market example for clarification.  Let see if we would have been able to identify point E on the chart by using triangulation. As discussed earlier, point E had 4 major 3-DVs associated with it.

1.  AE, value of 23,455. Once again and as discussed earlier, this move was the derivative (square root of 5) of 9,922 move prior to 1994. The more than typical variance of the move was caused by the growth spiral in the market.

2. CE, value of 9,810.  As shown earlier, this move was the derivative (square root of 2) of AC move of 14,100.

3. BE, value of 16,613. As discussed earlier, this move was the derivative (square root of 2) of AB move of 11,832.

4. DE, value of 8,137. From earlier discussion I have shown you that AB+BC=CD+DE=18,293. Therefore, by knowing CD, we would automatically know the value of DE (18,293-10,156)=8,137

To identify point E, well ahead of point E occurring, we would calculate where all of the 3-DVs above come together at one point. Well, a point that makes sense. After performing triangulation calculations and running the circumference of the circle for each 3-DV in question you would realize that they all come together in March of 2009.   

In other words, they all intercept each other in March of 2009, between 6,750 and 6,250 on the DOW. Further,  you would be able to get a visual confirmation that the market is indeed headed towards that same point of force you have identified through using triangulation.

In fact, this particular method has allowed me to confirm my other analysis and has allowed me to identify the March of 2009 bottom (between 6,750 and 6,250) as the highly probable turning point.  I did that in October of 2008, when the DOW was still trading between 10,000-9,000. So, as everyone was losing their minds and predicting the next Great Depression or the end of the world, an analyst familiar with 3-Dimensional analysis would know that a significant turning point is coming up in March of 2009.

Not only that, but an investor familiar with this type of analysis would simple reverse from a short position to a long position at point E to attain maximum benefit. Once the confirmation that the point E was indeed the major turning point arrives, the investor is fully aware that the next BULL move will be a prolonged one. By reallocating capital from the short side to the long side at that instance, one is able achieves maximum profitability.    

In summary, triangulation of 3-DVs allows you to find high probability turning points in 3-Dimensional space. It allows you to confirm the lattice structure if your lattice structure analysis has not advanced to the point of certainty. Further, by having multiple 3-DV’s intersect at the same point in the future, you have a fairly good idea of where the market is headed.   

(Don’t forget that this applies on all time frames).   

To Be Continued…..

Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!! 

Stock Market And 3-Dimensional Analysis (Part 9)

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The Secret Behind Obama’s Bubble

Bloomberg writes ” Obama Focuses on Risk of New Bubble Undermining Broad Recovery”

 

President Barack Obama, who took office amid the collapse of the last financial bubble, wants to make sure his economic recovery doesn’t generate the next one.

Obama this month spoke four times in five days of the need to avoid what he called “artificial bubbles,” even in an economy that’s growing at just a 1.7 percent rate and where employment and factory usage remain below pre-recession highs.

 “We have to turn the page on the bubble-and-bust mentality that created this mess,” he said in his Aug. 10 weekly radio address.

Obama’s cautionary notes call attention to the risk that the lessons of the financial crisis, which was spawned by a speculator-driven surge in asset values, will be forgotten, widening the income gap and undermining a broad-based recovery.

“Clearly, this is a growing concern both in the administration and at the Fed,” said Adam Posen, a former member of the Bank of England’s monetary policy committee.

Not Imminent

That may explain why six years after the housing meltdown ignited the worst recession since the 1930s and vaporized $16 trillion in household wealth, bubble reminders are intruding on Obama’s speeches.

“It’s a legitimate concern from an economic perspective,” says Roberto Perli, a partner in Cornerstone Macro, a Washington economic-research firm, and a former Fed official. “But I don’t think it’s motivated by consideration of imminent risk.”

The U.S. recovery, outpacing Europe and Japan, has created 6.7 million jobs since February 2010. Claims (INJCJC) for jobless benefits fell last week to their lowest level in almost six years. And after a two-decade-long borrowing binge, households have pared their debt burden to mid-1980s levels.

Still, growth has been below historical trend for the past four quarters, according to the ChicagoFederal Reserve Bank’s National Activity Index, a blend of 85 indicators measuring employment, production, housing and consumption.

 

Are you F$&*% kidding me?  He “wants to make sure his economic recovery doesn’t generate the next bubble”

obama

I don’t know if I should cry or laugh. I am sorry to break it to you Mr. Obama, but as we stand today, as of August of 2013 we are in the biggest financial bubble of all time. EVER. Bigger than 1929, bigger than 2000 and bigger than 2007/8.

That’s what happens when instead of letting defaults and previous imbalances (credit collapse and real estate) work through the system, you put the pedal to the metal and paper everything over with more money created out of thin air. 

The imbalances are so massive at this point in time,  that pain is simply unavoidable. We have never seen anything like that. The result?  Stagnated and a significant US Stock Market Decline into 2016-2018 bottom. Inflation thereafter.  

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What Everybody Is Ought To Know About Obamacare

part-time-jobs

Reuters writes:  Obamacare, tepid U.S. growth fuel part-time hiring

(Reuters) – U.S. businesses are hiring at a robust rate. The only problem is that three out of four of the nearly 1 million hires this year are part-time and many of the jobs are low-paid.

Faltering economic growth at home and abroad and concern that President Barack Obama’s signature health care law will drive up business costs are behind the wariness about taking on full-time staff, executives at staffing and payroll firms say.

Employers say part-timers offer them flexibility. If the economy picks up, they can quickly offer full-time work. If orders dry up, they know costs are under control. It also helps them to curb costs they might face under the Affordable Care Act, also known as Obamacare.

Yep, exactly. Companies must be crazy to start hiring full time workers in this environment. The only time it would make sense if the economy is surging higher and unemployment is low. Neither one is the case, nor will it be any time soon.

This can all become a less-than-virtuous cycle as new employees, who are mainly in lower wage businesses such as retail and food services, do not have the disposable income to drive demand for goods and services.

Some economists, however, say the surge in reliance on part-time workers will fade as the economy strengthens and businesses gain more certainty over how they will be impacted by Obamacare.

Keep dreaming. The only place this economy is going is down the toilet. You cannot define the law of physics and mathematics forever.  

Executives at several staffing firms told Reuters that the law, which requires employers with 50 or more full-time workers to provide healthcare coverage or incur penalties, was a frequently cited factor in requests for part-time workers. A decision to delay the mandate until 2015 has not made much of a difference in hiring decisions, they added.

“Us and other people are hiring part-time because we don’t know what the costs are going to be to hire full-time,” said Steven Raz, founder of Cornerstone Search Group, a staffing firm in Parsippany, New Jersey. “We are being cautious.”

Everyone knows the costs of hiring full-time right now. That cost is “Too Expensive”

Raz said his company started seeing a rise in part-time positions in late 2012 and the trend gathered steam early this year. He estimates his firm has seen an increase of between 10 percent and 15 percent compared with last year.

Other staffing firms have also noted a shift.

“They have put some of the full-time positions on hold and are hiring part-time employees so they won’t have to pay out the benefits,” said Client Staffing Solutions’ Darin Hovendick. “There is so much uncertainty. It’s really tough to design a budget when you don’t know the final cost involved

Rest of the article here:

The bottom line is this. This Obamacare law is idiotic.  Any law that adds costs and uncertainty to any company in a bear market or downshifting economy is simply stupid. The output is very clear…. 

  • Companies will hire very few  full time workers.
  • Companies will start firing full time workers and replacing them with part time workers.  So, even if you have a stable full time job now (in the private sector), count your lucky stars if you still have one 5-10 years from now.

Simple as that. America is about to become a nation of part timers. Thank you  President Obama. 

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Should You Invest In BitCoin

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. 

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US Recession Has Already Started

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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Stock Market And 3-Dimensional Analysis (Part 8)

triangulation-investwithalex

Continuation of part 7

But what if the forecast above is incorrect?

As I have mention so many times before in this book, no analyst or investor should look at any forecast in absolutely certain terms.  Until the lattice structure of the market is fully understood, there is always a possibility of being wrong. Unfortunately, understanding the lattice structure of the market is outside the scope of this book.  It is too complex and dynamic to be explained in this relatively short book. Volumes of work must be published before clarity could be obtained. Yet, any analyst willing to put in the work, should be able to determine the underlying structure.

For those unwilling to do the work there are a number of available shortcuts. They are….

Shortcut One:  3 Dimensional Space Triangulation.

Earlier in this book I have mentioned that 3-DV exist on multiple time frames. From hourly to yearly to decades to centuries.  At any given time there are hundreds of various length 3-DV tracing out market points of force (turning points). What I have found in my research over the years is that major turning points in the stock market or individual stocks are never represented by only one 3-DV. In most cases, such points are represented by a number of different 3-DV coming together at a singular turning point. Once again, these multiple 3-DV can range from hourly to centuries long.

Let me give you an example.  As you know, when 3-DV of any length moves in 3-Dimensional space they tend to trace out the circumference of a circle. The radius of a circle represents maximum reach of any given 3-DV. In other words, it represents all possible points on the two dimensional chart where the 3-DV in question can terminate its move.

Further, let’s assume that we are studying five 3-DVs from various points on the stock market chart that have similar termination points. By drawing -OR – calculating their circumferences in either 3-Dimensional space or on 2-Dimensional stock market chart, we will be able to see where those circumferences intersected.  As a rule of thumb, if we have multiple intersection at a singular point of time and price, the probability is high that such point will be a major turning point.  The probability increases further if the market is heading towards such a point.

In simple terms, triangulation allows us to figure out high probability turning points by identifying at what points multiple 3-DVs come together.  By combining this type of analysis with 3-DV lattice structure above we are able to either confirm or increase probability of a turning point.

Let’s take a look at the real stock market example for clarification.  

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Stock Market And 3-Dimensional Analysis (Part 8)

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Stock Market And 3-Dimensional Analysis (Part 7)

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Click To Enlarge

Continuation of part 6

Step #2: Perform analysis of 3-DVs and its derivatives from each point.

For example, let’s take a look at point E.  At point E we can work with 4 different 3-DVs and their derivatives. They include  DE, BE, CE and AE.  Meaning, it is highly probable that EF will be equal to the four 3-DVs above and/or their derivatives.

As mentioned earlier, the 3-DV of EF today is 12,364. If we analyze the four 3-DVs above, we will soon find out that 3 different numbers closely resemble today’s value of 12,364. They are

  • DE 14,094
  • AE 13,542
  • CE 13,873

All other 3-DVs and their derivatives either fall short or are outside the scope of our analysis. You will notice that the value AE is the closest one to our present value of 12,364. That basically means the market is not yet done moving up.  It also means that once the value AE 13,542 is reached, it is highly probable that it will mark the turning point in the stock market.

Further,  as of today the value EF consists of 2 input variables. Time Value of 7,742 trading hours and Price Value of 9,641 points.  Let’s further assume that based on our research we believe that March of 2014 will be the top of the bull market and/or the move EF.  This gives us an additional 80 trading days or 520 trading hours.  By adding 520 trading hours to 7,742 trading hours we get all necessary information to make an accurate estimate of the bull market top.

In addition,  we can estimate how much the market will move up between now and March of 2014. We simply adjust our 3-DV equation to look like this

SQRT (8,262^2 + X^2 ) = 13,542

When we solve the equation for X, the X = 10,730. This value represents the PRICE portion of the equation at the completion of the move.  With today’s PRICE value being at 9,641 this means the market is likely to go up another 1,089 points (10,730 – 9,641) between today and March of 2014.

Think about this for a second and how powerful this simple calculation is. If you got your lattice structure figured out and/or you know the next 3-DV move,  you can predict with 100% certainty exactly when the stock market will top out. Not only when, but exactly where. To the day and to the point. So, while everyone else is playing the guessing game of how long this bull market will continue, you know the answer well ahead of that turning point taking place.  You know that you must hold for another 4 months in order to realize the maximum gain and then simply reverse to short position to benefit from the upcoming bear market decline.  Amazing, isn’t it?

But what if the forecast above is incorrect?

To Be Continued…..

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Stock Market And 3-Dimensional Analysis (Part 7)