Posts

Posted on

Warning: Real Estate Red Alert

Reuters Writes: Nobel Prize U.S. winner warns of ‘bubbly’ global home prices

robert-shiller-investwithalex

(Reuters) – One of three American economists who won the 2013 economics Nobel prize on Monday for research into market prices and asset bubbles expressed alarm at the rapid rise in global housing prices.

Robert Shiller, who shared the 8 million Swedish crown ($1.25 million) prize with fellow laureates Eugene Fama and Lars Peter Hansen, said the U.S. Federal Reserve’s economic stimulus and growing market speculation were creating a “bubbly” property boom.

This was the case in the collapse of the U.S. housing market, which helped trigger the 2008-2009 global financial crisis. Markets are at risk of committing the same error now, Shiller told Reuters after learning he had won the Nobel prize.

“This financial crisis that we’ve been going through in the last five years has been one that seems to reveal the failure to understand price movements,” Shiller said.

“When asset prices are getting way out of line it should be cause for alarm. The monetary authorities should lean against extreme asset price movements,” Shiller said.

The bubbling housing market is not mainly the result of central bank policy, but reflects a shift toward “a more speculative attitude,” Shiller said. “We cannot expect monetary policy to cure all of these problems.”

Read The Rest Of The Article

I have a lot of respect for Mr. Shiller and I am happy that he won. My respect is not necessarily based on his economic work(even though it has been accurate), but on his ability to take sides. Most economists don’t do that. Most talk out both sides of their mouth without as much as saying anything worthwhile. That is academia for you.

I agree with everything Mr. Shiller states in the article above. Indeed, we are in the midst of a “Global Real Estate Bubble”. This is a unique situation that we haven’t seen before on such a massive scale. The culprit is easily identifiable here as well. Cheap financing on a global scale perpetuated by the FED. The outcome is clear as well, an eventual collapse in credit, real estate and financial markets on a global scale. Anything other than that would defy the laws of physics. For now, it is only a matter of time.

In my previous post I Am Calling For A Real Estate Top Here, I have made a gutsy call that we are indeed topping out here.  I firmly stand by that analysis as we continue to get more concrete evidence that the real estate market rally from the 2010 bottom has indeed peaked.

As such, I once again caution you against speculating in real estate at this time. 

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

Posted on

What Everyone Is Ought To Know About Value Investing

Magnifying glass

If you have spent any time in financial markets, you probably already know what Value Investing is. If you are new to investing, Value Investing is probably the easiest investment style to understand and apply towards your own investment purposes.  Also, while debatable, some very successful investors have proven that Value Investing is one of the best ways to approach financial markets over the long term.  Let me first illustrate what Value Investing is with a real world example.

Imagine that you are strolling through your local mall in the middle of July.  The sun is scorching hot and you are just trying to stay cool.  After your 3rd Caramel Frappuccino you decide to check out a nearby sports superstore. Shortly after you walk in you see something and you can’t believe your eyes.  The snowboarding jacket you have always wanted, but were never able to afford is on sale.  And not just any kind of a sale. It is a seasonal liquidation sale. Typically selling at close to $250 during the winter season it is now just $19.99.   

You can’t believe how lucky you are. You check the jacket to make sure there is no big gaping hole in the back of it. Nope, everything looks fine. The size is just right. All zippers work and it’s the color you want. You are beyond excited. You found exactly what you wanted at over 90% discount to what it is really worth.  The timing is not perfect and you can’t use it for the next 6 months, but you know with 100% confidence that you have found a deal of a life time. In 6 months this jacket will be selling at $200-250 again. Without a second of hesitation you take out your wallet and head towards the register.

Value Investing is just like that.

Except, instead of a jacket you are buying shares (or other financial instruments) in publicly traded companies. Basically, you do a lot of fundamental research to find companies that are selling well below their intrinsic or real value and then proceed to buy them at a significant discount. Typically 50-99% discount. The bigger the discount you can obtain the bigger your margin of safety is.  In fact, margin of safety is one of the most important concepts when it comes to Value Investing.

Margin of safety is there to protect your capital. The theory suggest that if you buy stocks at deep enough discounts to their intrinsic value you have an automatic safety net built in. After all, no fundamental research can be 100% accurate and you need something to limit your downside risk. In such a case you are unlikely to lose a lot of money on your stock trade/investment because your investment is unlikely do decline that much further. Remember, it is already very cheap. 

In essences you are buying $1 bills for $0.50 cents or less.  Over time these assets “should” appreciate back to $1 to reflect their true value. Providing you with a large return on your investment while minimizing risk. Yet, as with anything, there are numerous issues associated with value investing. I will cover them in greater detail over the next few chapters.

For now, let me quickly summarize value investing in a five easy steps.

  1. Do a lot of fundamental research to find deeply discounted stocks or other assets.
  2. Buy such bargains or stocks at a significant discount to their intrinsic value. Typically a 50% or more discount is required. By buying at a significant discount you create a margin of safety.  
  3. Margin of safety is your best friend. Maximize it. It protects your capital by limiting the downside.
  4. Patiently wait for asset appreciation to reflect its true value. Such periods can range from days to years.  
  5. Watch your investment like a hawk by constantly updating your fundamental research. Should any developments alter your original investment thesis, you should re-evaluate your investment decision. 

That about covers it. 

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

Posted on

The Secret To Predicting The Future

 BusinessWeek Writes: The Importance of Tuning Out the Noise

 PredictingFuture investwithalex

The Dow Jones Industrial Average jumped more than 300 points yesterday on news of talks in Washington to resolve the government shutdown/debt ceiling crisis. Was it a relief rally? A head fake? Will the points disappear if the talks don’t produce results?

Who knows? I don’t. Nor does Wall Street or the finest brain cells and black boxes in Connecticut hedgie-land. Even the most powerful and decorated economists in the country were pretty much blindsided by the Great Subprime Meltdown, a trauma that chopped stocks in half in just months.

So, yes, we’re all pretty much flying blind.

Read The Rest Of The Article Here

Articles such as these anger me. They perpetuate the notion that predicting financial markets is impossible and that no mortal should even attempt to try it.  If they do, they are surely to fail.  After all,  if not even “brilliant” Nobel winning economist can predict the future, what chance do you have?

Actually, a very good one.  In fact, it is very hard for me to understand why most people or our “brilliant economist” can’t see the future.  I am not by any measure brilliant, yet I could clearly see the 2007-2009 meltdown coming as early as 2005. I have even tried to warn people, yet most wouldn’t listen. Today, it is clear as night and day as well. Not only from the fundamental perspective, but from a cyclical and technical one as well. They all confirm.

Basically, the US Economy and its financial markets are about ready to roll over and go down significantly. No, it will not be an overnight drop, but it is now unavoidable.  My work indicates that it will take 2-3 years for the market to hit its lows with lots of up and downs in between. I will present my timing work over the next few months that will illustrate that a little bit better. 

My only advice is this. We are not flying blind. Ignore financial media and concentrate on reality and fundamentals. When you do, you will very soon realize exactly where we are in the economic cycle and clearly see what is coming up over the next few years. 

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

Posted on

Unknown Secret About China’s Export Drop

Bloomberg Writes: China Exports Unexpectedly Drop

china exports investwithalex 

China’s exports unexpectedly fell in September, signaling constraints from global demand and highlighting distortions from fake invoices that have yet to be eliminated from trade data.

Overseas shipments dropped 0.3 percent from a year earlier, the General Administration of Customs said yesterday in Beijing, trailing all 46 estimates in a Bloomberg News survey that had a median projection for a 5.5 percent gain. The trade slowdown resulted from a high basis of comparison with last year, the agency said in a statement.

“There has been an export recovery since July to the U.S. and Europe but it’s been pretty weak,” Shen said. “The driving force for China’s recovery at this stage is still housing and infrastructure investment.”

Read The Rest Of The Article Here

I am not sure what is so unexpected about the export drop. You could see this coming from a mile away. What’s more is that this is a trend that is just starting. I would continue to expect weakness in the Chinese export sector as the global economy starts to contract. 

This is very basic. The US Economy is literally running on fumes, QE and a lot of credit infused speculation. As such factors dissipate or lose force (already happening) the US Economy will slip back into a recessionary environment. The whole world will follow (or lead) the way. Under such a backdrop, it is impossible for the exports to be anything but down.

Chine exports “Unexpectedly” dropping is just another sign that we are in early stages of such a development. As I have said many times before, right now would be a good time to think about protecting your assets from the upcoming recession.

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

Posted on

Becoming An Investor, Part 3

Now, I understand that you might be skeptical of the statement above.  Yet, I ask you to keep an open mind and hold judgment until you finish this book.  Just remember, if I was to suggest 500 years ago that the earth was round or that the sun and not the earth was the center of our solar system,  I would probably be burned at the stake.  As Albert Einstein so famously said “God Does Not Play Dice”, meaning the universe presents us with the perfect order in all things. It is only the stuff that we do not yet understand that is viewed as random or volatile.

By March of 2006 I have made a huge break though in my mathematical work. So much so that I have led myself to believe that I finally broke the “stock market code”.  By this point my work was so well researched and accurate that I truly thought that I have figured it out. I was on could 9. Finally, it was my chance to shine.  That was the final piece to the puzzle I was searching for. I would be an unstoppable force in financial markets now, it was only a matter of time before I would be a billionaire.

By May of 2006 and after some additional confirmation work I was ready to go. In hindsight, what I did next was beyond idiotic. I threw out my value investing book, I threw out all of my rules and I threw out any type of rational thinking along with it. I was ready to be a trader now. I was going to make a ridiculous amount of money 

The next 20-30 trading days were amazing. My work has allowed me to pick 90-95% of significant tops and bottoms with hourly resolution. Meaning I was able to pick almost exact tops and bottoms sometimes in advance and sometimes minutes or so after they have happened.  It was a fascinating time and by the time this period ended I have accrued close to $500,000 in profit.  

Yet, for some reason that wasn’t enough. I was blinded by greed.  I wanted to make more money as I was only 3 years away from being 30 years old.  Beaming with confidence and desire to make an obscene amount of money I became even more aggressive and careless. Not only with my own money, but with the money of my clients and other funds I was managing at the time.

In June of 2006, on the day of the  FED interest rates decision my work showed a powerful move to the downside.  It didn’t matter to me what the decision was, my work clearly indicated a significant move down. Blinded by the accuracy of my work in the past, by the greed running through my blood and by my oversized ego I bet the house on the stupidest trade of my life.

I took all of my money and a large portion of my clients money to buy as many Short Term PUT Options as I could. If my work was to be right I would make a huge amount of money. If it was wrong, well……that was impossible according to my mind.  (If you are not familiar, put options allow you to leverage your trade and make or lose a lot more money faster than you would be able to do investing in an underlying security).

I was right about one thing. There was a powerful high energy move that day, but to the upside.

Long story short, I started the day as a self made multi millionaire hedge fund manager and ended it as broke bum. Thus far that day remains the lowest point of my life. It was so bad that I was literally 10 seconds away from blowing my brains out. If you would like to learn more about this experience I suggest you visit my other website,  LastSpartan.com and search for the first article on that site titled, I Want To Die Today, I Think I Will Blow My Brains Out.

When the day ended I was broke. Not only financially, but spiritually, mentally and in every other way you can think of.  At least for the time being I was finished as an investor. I lost all interest in financial markets.  I shut down my fund and returned capital to my investors. They lost very little, if anything. I used my own capital to prevent their losses. I couldn’t stand to even look at financial markets or my research. I was too devastated and mentally destroyed. I put everything away and moved on to the next chapter of my life.

As time went by my thirst for financial markets came back. My pain went away and by mid 2013 I was ready once again.

I am back baby!!!

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

Posted on

Stock Market Update: October 10, 2013

daily chart Oct 10, 2013

 

Summary: Continue to maintain a LONG/HOLD position.

So far, the stock market is acting just as anticipated. In my earlier post Little Known Way To Profit From The US Government Shutdown Default Scare I have suggested that traders should set themselves up for a fast moving rally that is surely to come due to some sort of a government shutdown deal. Today we got that rally. 

With all of the major indexes up over 2%, a large portion of this move is now complete. As I have mentioned before, the market left a lot of gaps on the way down that it must close if we are to anticipate a prolonged bear market decline. If the government shutdown resolution materializes over the next few days I would expect the market to continue going up into the DOW 15500 range. Then pause and possibly reverse itself for good. 

The long term picture remains exciting. While I continue to maintain a LONG HOLD position for the time being, I believe the market is in final stages of setting itself up for beginning of a 2-3 year bear market. We are still waiting for a confirmations here, but things are looking good. Once the market tops here (assuming it won’t go over 15,700) we should start the bear leg. Triple tops are notorious for ending bull markets. 

A little secret for you here. Multiple tops are caused by various cycles hitting at different times. Each top means that the cycle has already reversed itself and is not pointing down. Once the major trend shifts it will be a powerful move down. 

For now we wait while maintaining our long position. 

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

Posted on

Who Else Wants To Cancel Christmas?

Yahoo Finance Writes: Retailers’ Warning to Congress: You’re Killing Christmas!

 grinch investwithalex

In an open letter to congressional leaders, National Retail Federation (NRF) president & CEO Matthew Shay made a persuasive case that without an immediate end to the government impasse the American economy is facing disaster with or without a technical debt default. According to the NRF the recurring nature of the debt ceiling debates have created repeated headwinds for his industry over the last several years, suggesting a temporary bargain is of limited value.

The problem is reaching an apex at the worst possible moment for retailers. Traditionally the holiday season accounts for the bulk of a retailers’ profits. In fact, Black Friday earned the name because most merchants would be in the red (losing money all year) if not for the month between Thanksgiving and Christmas.

Read The Rest Of The Article

In my previous post titled Why I Really Hate Christmas & My Gift To You I have predicted that retailers will have a miserable holiday season.  I have also suggested that you should wait till the last moment to buy your Christmas gifts this year. By that point stores will literally be giving stuff away.  Today, we are beginning to see a much more clearer evidence of just that.

Retailers now claiming that the Government shutdown is the primary reason for their weak sales. Certainly the government shutdown does have an impact, but not nearly to the extent that most retailers claim. The real culprit the US Economy.

Now running out of steam, the US Economy and the Financial Markets face a certain future. They are heading south, way south.  The economy is not nearly as strong as the US Government and the media want us to believe. With high structural unemployment, overwhelming debt and no income growth, the American consumer is tapped out.  As I have said before, expect a terrible retail holiday season this year. 

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

Posted on

Becoming An Investor, Part 2

As a side point, you do not really need that much money to start a hedge fund.  While most people believe you need millions to start one, it is possible to get away with spending as little as $200 to $500 on all of the above points. You do need to have capital to invest, but the overall structure of the hedge fund is fairly easy and inexpensive to setup. If you do have questions about setting one up, please don’t hesitate to contact me so I can point you in the right direction.

Now, with money sitting in my brokerage account and my fingers getting itchy I decided to concentrate on the following Value Investment Strategy.

  1. Find substantially undervalued stocks (companies) selling at a significant discount to their intrinsic value.
  2. Such companies must either be growing rapidly, about to grow rapidly or have some sort of a catalyst in the works to release value in point #1.
  3. Concentration. These types of investments are hard to find.  As such, you should concentrate on having only 3-5 stocks in your portfolio. This is what Warren Buffett does as well. Diversification is a myth.  
  4. Do an enormous amount of fundamental research to confirm points 1 through 3.
  5. Watch your investments like a hawk in case of any change.

The first three years were amazing.  While the DOW remained basically flat in net terms during this time (2002-2004), my fund returned an astounding +149.75% net of fees.  I was on fire, I could do no wrong.  Most of the things I touched turned to gold.  

I was starting to get more clients, more money and making contacts in the industry.  I was now making fairly good money, but I was getting restless.  I was growing sick and tired of the strategy above. It was not exciting enough for me. There were only a few stocks/companies that matched my criteria and after a while I knew everything there is to know about them.  There is only so many times you can look at the balance sheet of any given company before getting bored out of your mind

Yet, I couldn’t sit still. I knew there had to be a better way to invest. A more advanced way. One of the major problems with value investing is timing. While you can identify a substantially undervalued asset, it might take years before its value is realized. You don’t know when it is going to happen.  It might be tomorrow it might be 2.7 years from today. In the meantime you have your investors calling you and questioning everything that you do.

The competition for capital in the investment industry is fierce.  While I am telling my clients about the balance sheet, fundamentals, valuations and why this company should appreciate significantly given enough time, their Lehman Brothers broker is screaming how NOW is a “Generational Buying Opportunity.”  I think they teach that phrase in the stock broker school.

I shouldn’t complain, I had great and understanding clients. Yet, I wasn’t naive, all they wanted from me is performance. If I couldn’t outperform this quarter or the next one, they would be gone.

At that time it was easy for me to figure out WHAT will happen, but next to impossible to try and figure out WHEN it will happen.  As such I shifted my research work on TIMING. I wanted to see if it was possible. I have studied everything I could put my hands on.  Technical analysis, cycle analysis, planetary movements, physics, mathematics, various other sciences and even witchcraft.  At the end of the day and after a tremendous amount of work I found what I was looking for.

Let me state this in no uncertain terms as the whole premise of this book relies on this statement.

Yes, it is absolutely possible to time the markets and/or individual stocks. I have proven that fact to my entire satisfaction.  Math doesn’t lie.  

To be continued tomorrow…….

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

Posted on

What Everyone Ought To Know About The Future

CNN Money Writes: Fed minutes: Decision not to taper was a ‘close call’

ben bernanke cat investwithalex

Federal Reserve officials were torn on whether to continue their stimulus program at their last meeting in September, according to minutes released Wednesday.

At that meeting, the Fed surprised investors and economists, who were largely expecting the central bank to start reducing its $85 billion in monthly bond purchases — a gradual wind-down process that has come to be known as “tapering”.

The decision not to taper, was a ‘relatively close call’ for several members of the Fed’s policymaking committee, the minutes said.

What tipped the scale?

Read The Rest Of The Article Here

This is the most important news no one is talking about. Forget the Government shutdown.  That situation will resolve itself shortly. The subject matter above is much, much, MUCH MORE important.

As I have mentioned before the only thing that is keeping the US Economy afloat is QE buying of Bonds to the tune of $85 Billion per month. That is the only thing keeping interest rates down and the economy humming along. Even thought the velocity of monthly QE impact is getting weaker and should dissipate itself soon either way, removing or tapering this stimulus will have immediate negative consequences on the US Economy and the financial markets.

Basically, the interest rates will shoot up, the economy will slow down drastically and shift into the recessionary environment.  The stock market, the real estate market, car sales and the rest of the economy will decline substantially.

We are beginning to see cracks at the FED in terms of QE decision making process. That is significant because it is the first clear indication that at least some at the FED are ready to start tapering. Eventually they will. When they do all of the above will happen.

Please be aware that the stock market is a future discounting mechanism and as such will decline long before the FED announces anything. That is why looking for first cracks is so incredibly important. You have been warned.

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

Posted on

The Secret Of Russian Billionaires

Wall Street Journal Writes: Who Wants to Be a Russian Billionaire?

 new russians investwithalex

MOSCOW—When it comes to household wealth, it seems Russia has come full circle.

In the days of the Soviet Union, the country boasted that all its citizens shared the wealth equally, but a new report has found that a mere 20 years after the end of Communism, wealth disparity has soared with 35% of the country’s entire wealth now in the hands of just 110 people.

“Russia has the highest level of wealth inequality in the world, apart from small Caribbean nations with resident billionaires,” Credit Suisse’s annual global wealth report says.

Read The Rest Of The Article Here

After beating up on China for a while, it is now time for mother Russia. I highly encourage everyone to read the article above in full to gauge a better understanding.  

I am not surprised by the numbers above. If you are not aware, at least the first round of Russian Billionaires made their money from theft of Soviet Union resources. Most Billionaires in the western world had to work for it, but not in Russia. It was done by picking up the phone back in the early 1990s by a few very well connected people and saying “Hey Boris (Boris Yeltsin), can I have that Zink/Gold/Oil factory/refinery in Siberia, it is in disrepair anyway”.  If the Boris was drunk enough or happy enough or paid off well enough he would do you a favor and give you a factory. That was their secret. 

BOOM. You are now a Billionaire. While the explanation above is very simplistic, it is not that far from reality.

Either way you twist this, this is not a good state of affairs for Russia. Given its natural resources and the boom in the commodities market over the last 10-15 years Russia should be much further along. Yet, it is not.

This is of course the failure of its government and those in power. Given the situation I do not see a bright future for Russia.  While it will remain a powerful player on a global scale I don’t see how it can compete with either the US or even China in economic terms. Should commodity prices decline, expect Russian economy to dive into a deep recession (many argue its already there).

It is unfortunate, but some things never change.   

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