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Becoming An Investor

Timed Value Part 1. 

I  became interested in financial markets when I first learned about them at the age of 16. Growing up in Russia we had no financial markets. We had a controlled economy where there was no such thing as stocks, bonds, private enterprise or investors. Everything was controlled by the government. Everyone lived in the same type of housing, wore the same type of shoes, the same coat and the same type of  jeans (if you could get a pair). It was a bizarre world indeed.

Shortly after coming to American at the age of 15 I because fascinated with the stock market for one simple reason. I wanted to be rich. I wanted to be a filthy rich billionaire by the age of 30.  No matter how naive that goal looks now, that was my only dream at the time.  Even at that age I understood that if I want to be really rich, one way or another, I have to participate in financial markets. I can either be an investor or build a company and then take it public or build/sell a large private company.  These are the only ways to get into the Billionaire club.

I started studying the market and how it works.  I concentrated on the people who have seen huge success in the stock market.  Of course Warren Buffett stood out as the most successful one, but I did study others as well. People like Peter Lynch,  Jim Rogers, George Soros, Philip Fisher,  Benjamin Graham and many others.

For some reason I really clicked with Value Investing and what Warren Buffett was doing. It made a lot more sense to me than investing in growth or speculating based on other factors such as technical analysis, trends, timing, etc….  It was really simple.  Find an undervalued asset, buy it at a significant discount to its intrinsic value (company value),  sit around and wait for that stock to appreciate over time to reflect  its true value.  Sounds easy enough. Anyone can do that and get rich.  Or so I thought.

Two years into my college education I have decided to drop out of my Pre Med Major (I wanted to be a brain surgeon but wasn’t smart enough) and switched to finance.  By that point I knew that I wanted to participate in financial markets. The degree itself wasn’t very useful.  We rarely talked about how to make money in the stock market.  The courses were mostly filled with useless formulas and academic equations that have no place in the real world.

Soon after graduation I felt that I was ready.  Yet, finding a job working in financial markets in San Diego in 2001 was nearly impossible. The tech bubble has burst and there were very few jobs available. I was offered a few financial product  sales jobs, but I decided to strike out on my own. So, on January 1, 2002 at the tender age of 22, I naturally started my own hedge fund. 

Without a penny to my name, I was able to scrape enough money together to register the business, do some legal stuff, pass needed exams, open a bank account and a brokerage account. After naming the fund Dvorkin Investments, LP (what else) I was ready to go. All I needed now is some capital to invest. After some negotiations with my parents I was able to secure them as my first clients.  With $10,000 now sitting in my brokerage account I was ready to rock and roll. Out of the way everyone I am on my way to becoming a billionaire.  

To be continued tomorrow…..

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Little Known Way To Profit From The US Government Default Scare

BusinessWeek Writes: Go To Cash

idiot in government investiwthalex

I speculate there can’t be a better time to sell than now.

We are linked in our shattered hopes and dreams of wealth creation, the emotional baggage of sequential and frequent black swans.

I further speculate there can’t be a better time to sell than now.

Boehner is not speaking with Obama, who is not speaking to McConnell, who is not speaking to Reid, and around we go. None of them are speaking to Hillary.

I speculate that this moment is surreal and deeply disturbing.

Read The Rest Of The Article Here

As the article above shows, people are starting to freak out about the whole Government Default thing.  It is clear by now that most of our politicians are somehow retarded (no offense to the mentally challenged community) and we just have to live with it now.

Even the stock market and the bond market are starting to show the signs of worry. Should you worry as well?

As I have mentioned in a few previous posts, I don’t believe so.  Even thought our politicians are irresponsible, I don’t think they are irresponsible enough to plunge the country into abyss of economic chaos. I guarantee you there is a lot of movement behind the scenes that I believe will put this issue behind us at any moment now.  Further, I believe the existing setup gives speculators a perfect opportunity to profit. Here is how.

As I have mentioned before, the stock market has opened up a lot of gaps on the way down from the previous top. Before any sustained bear market move can take place, the market must go back up in order to close them.  That should put us into a mid 15,500 range or about an 800 point move from where we are today.

Further, I believe the resolution of the Debt Crisis  would be a clear catalyst for such a move.  As such, traders should be setting themselves up for an upswing to benefit from an eventual resolution of an existing crisis. Who said I was always a bear?

*** Don’t Forget To Do Your Own Research Before You Follow This Advice. 

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The Secret Of Upcoming Real Estate Crash

Bloomberg Writes: A Lonely Housing Bear Predicts a Big Tumble

 housing bubble

Talk to Mark Hanson about the housing market for five minutes and you may find yourself wanting to sell your home and park the cash in a suitcase. 

The Menlo Park, California, real estate analyst, blogger and founder of consultancy Hanson Advisers predicts a decline of 20 percent in housing prices in the next 12 months. Half the gains since the latest housing bottom in 2011 could be erased in the hot areas — Florida, California, Nevada, Arizona and Georgia — by rising interest rates and a thinner herd of speculative private-equity buyers, he says.

Read The Rest Of The Article Here

In my last week’s post I Am Calling For A Real Estate Top Here I have laid out a case of why I  believe the real estate market is topping and should decline from this point on. It seems like other people are starting to see the forest through the trees as well.

Even thought I have briefly mentioned it before, I would like to take this opportunity to talk about an important point as it pertains to the real estate market.  If you study financial markets, as I have, you soon begin to see patterns and similar structures in all markets. One of the easiest things to understand is that markets NEVER go straight up and down and they RARELY complete their moves in one motion.  Typically it takes 3 to 5 distinct moves (up and down) to complete either a bear or a bull move.

As such, what we have experienced in 2007-2010/11 real estate market was only the first leg down.  What we are experiencing now is a rebound, 2010/11 to today. Rebound acts as a perfect tool to suck investors or buyers back in by promising that the worst is over and by offering outsized gains.   Rebounds are often powerful, yet short lived. When they are over, markets tend to shift fast to continue on with their original move.

This is where we find ourselves today. The rebound is topping and the market is getting ready to reverse itself. As soon as it does (and I believe it is already happening) the market will resume its BEAR MARKET in real estate. The third leg down is typically more powerful than the first one. As such, I would expect significant declines over the next few years in the real estate arena.

Fundamental certainly support this development as well. 

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Timed Value. What Is Time?

I am incredibly excited to announce that I have decided to write and publish my first investment book over the next few months.  The topic of the book will be….. 

TIMED VALUE

hands_clock

It will concentrate on the investment style that I have developed over the last 15 years. As far as I know I am the first one to use this investment style and the title associated with it. 

The book will talk about timeless principles of Value Investing, how it works, what to look for and various issues associated with it. 

The book will then shift to mathematical work that I have developed over the last decade that does a great job with timing the market and individual stocks. Most importantly it asks the question “What Is Time” as it pertains to the stock market and dives deep into the subject. 

The book will then go on to tie together Value Investing with My Timing work in order to show you how to maximize returns while minimizing risk. Most importantly, I will write the majority of the book on this blog with various chapters or sections being published on the daily basis.

It is my hope that you can join me on this adventure and exploration of what I believe to me incredibly unique work unavailable anywhere else.  

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The Secret Of Upcoming Government Default

Bloomberg Writes: A U.S. Default Seen as Catastrophe 

 Oct 7, 2013 chart

Anyone who remembers the collapse of Lehman Brothers Holdings Inc. little more than five years ago knows what a global financial disaster is. A U.S. government default, just weeks away if Congress fails to raise the debt ceiling as it now threatens to do, will be an economic calamity like none the world has ever seen.

Failure by the world’s largest borrower to pay its debt — unprecedented in modern history — will devastate stock markets from Brazil to Zurich, halt a $5 trillion lending mechanism for investors who rely on Treasuries, blow up borrowing costs for billions of people and companies, ravage the dollar and throw the U.S. and world economies into a recession that probably would become a depression. Among the dozens of money managers, economists, bankers, traders and former government officials interviewed for this story, few view a U.S. default as anything but a financial apocalypse.

Read The Rest Of The Article Here

The media is in overdrive talking up fiscal disaster or catastrophe associated with the “FIRST EVER DEFAULT” over the next few days,  the American people are freaking out, the stock market doesn’t care, the largest bond fund (Bill Gross) is buying bonds while claiming no default…..hysteria and confusion everywhere.

So, what is going on here? What will happen?

To gain clarity all you need to do is step away from all this mess for a second and keep a close eye on only one indicator. The stock market.

Let me put it this way,  if there is a real default, it would indeed be catastrophic. So much so, that I wouldn’t be surprised to see the stock market drop 20-50% within a very short period of time. A crash so to speak. Yet, crashes do not happen when everyone is expecting them (as in this case).

As such and for now, the stock market is predicting that the US Government Fiscal Crisis will be over shortly. In fact, technically speaking the market is setup for a very strong rally here.

Will it be associated with the end of the crisis? I believe so. Take a look at the stock market, everything else is simply noise. I would anticipate the issue to be resolved at any minute now with the stock market surging higher from this point on because of that.  

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Is Egypt On The Brink Of A Civil War?

Bloomberg Writes: Egypt’s Coming Civil War

chart

Three months ago, Egypt’s military seized power in a coup that it said was necessary both to prevent civil war and to restore democracy. By now it is clear that the military is failing on both counts.

Today, suspected Islamists killed at least nine soldiers and police in attacks. Yesterday, security forces killed 51 pro-Muslim Brotherhood protesters at a rally in Cairo that, according to witnesses, had been entirely peaceful. Meanwhile, the country continues to live under a nightly curfew.

Read The Rest Of The Article Here

This is an important matter for regional stability and overall macroeconomic picture. The article argues that Egypt is basically on the brink of a civil war. It goes without saying, should such a war erupt, it will have significant repercussions on the entire region.

At least at this time I am not in the camp that believes Egypt will face civil war.

Why?

Because Egyptian stock market has been on a tear over the last few months (see chart above) indicating further stability and economic growth. Could the stock market be used as an indicator of upcoming economic and civil stability?

Not always, but it is the best future anticipation machine that we have and at least for not it is saying that Egypt will pull through. 

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Educated Slaves Controlled Through Debt

Daily Ticker Writes: This Is The Next Sub-Prime Crisis

Student-Loan-and-Credit-Card-Debt-investwithalex

The staggering cost of student loan debt is daunting — it tops $1 trillion.

Now there is new data showing that students are increasingly faltering under the weight of this debt.

The U.S. Department of Education says figures reveal one in seven borrowers defaulted on their federal student loans. The default rate also rose to 14.7% from 13.4% the year before, the highest level since 1995 based on a related measure, according to Bloomberg News. (The report is for the three years to Sept. 30, 2012.)

In the above video, Jim Rickards, senior managing director at Tangent Capital and author of  Currency Wars: The Making of the Next Global Crisis and the upcoming Death of Money, calls the student loan debt load the “next sub-prime crisis.”

Rickards makes his case based in part on the size of the debt and the nature of its underwriting.

I highly recommend you to click on the link above and watch the video. A very interesting perspective on the student loan issue that I tend to agree with.

Basically, Mr. Rickards views Federal Loan Program simply as another avenue for the Federal Government to prop up the economy. They do so by lowering underwriting standards on the student loans backed by the US Government and pump a huge amount of that money/liquidity into the real economy through students and Universities. Most of that money is then spent (college students don’t save) and that by default flows into the real economy. Of course, enslaving millions of students for decades to come in the process.

When you look at it from a different angle, that is indeed exactly what is happening.  In my previous article Why You Should Default On Your Student Debt…Today!!! I suggested that you should default on your student debt if you owe more than $50,000.

I will say it again.  You shouldn’t hesitate to strike back at an entity (even if that entity is the US Government) that is trying to enslave you for the next few decades under the false pretenses and their own self interests. Figure out how to do it. 

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Chinese Real Estate Is To Go Up Another 1 Million Percent

Bloomberg Writes: Chinese Still Prefer Property Over Stocks

china-empty-cities-investwithalexhousing 

Matthew Zhou and his wife spent 1.6 million yuan ($261,000) to buy a two-bedroom apartment in eastern Shanghai in August because they saw no potential to make money in China’s financial markets. “Home prices keep rising, so I’d rather buy a place now than put the money in the stock market,” says Zhou, 30, an information technology engineer at a state-controlled bank in Shanghai. Gains in equities “could never outpace the growth of home prices,” he says.

Okay Mr. Zhou, that’s quite a believe. Perhaps you should study history in order to see that over the long run capital markets appreciate much faster than real estate. In fact, real estate shouldn’t (outside of artificial stimulus) appreciate faster than the rate of inflation.

Real estate has attracted “the lion’s share” of household investment in China, according to a July report by Standard Chartered (STAN:LN). It has made up more than 60 percent of household assets since 2008, compared with 48 percent in the U.K., 32 percent in Japan, and 26 percent in the U.S., the report says.

That is massive. Another indication of a bubble.

Wang Jianlin, China’s richest man and owner of Dalian Wanda Group, the country’s biggest commercial land developer, says the property market is “definitely” in a bubble, though it’s “controllable, not big.”

Ok, Mr. Wang Jianlin,  which one is it. By definition bubbles cannot be controlled.  At least in this case you can’t have your cake and eat it too. If controlled, by whom? You, Chinese government or millions of Chinese citizens speculating on real estate. Will they be rational?

Michael Chang, a 33-year-old investment manager in Shanghai, isn’t concerned about bubbles. He spent 1 million yuan on a 215-square-foot, one-bedroom apartment in Beijing in August last year and 5 million yuan on a 1,400-square-foot unit in a Tishman Speyer Properties development in Shanghai this year. “You see home prices rally even when the curbs are in place, not to say when the bans are lifted,” says Chang, who expects Shanghai prices to rise 50 percent in the next five years. Citing a recent ranking of global housing prices in which Shanghai placed sixth and Beijing did not appear, he says: “Let’s talk about bubbles when Beijing and Shanghai rank among the world’s top five most expensive cities.”

Read The Full Article Here

If the statement above doesn’t scream “Bubble” nothing else will.  Mr. Chang anticipates 50% rise in 5 years in an already overpriced market while there are literally hundreds of empty cities all over China.

Perhaps Mr. Chang is right. Perhaps it will go up 100% over the next 5 years. Who knows. Perhaps you should even invest with Mr. Chang. Markets tend to be irrational at times. However, make no mistake. This market will blow up and when it does millions of Chinese families will lose everything.

How do you say Revolution in Chinese? 

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Save As Much As You Can. The Storm Is Coming

AP Writes: Five years after crisis, families are hoarding cash

money-saving-investwithalex 

Five years after U.S. investment bank Lehman Brothers collapsed, triggering a global financial crisis and shattering confidence worldwide, families in major countries around the world are still hunkered down, too spooked and distrustful to take chances with their money.

An Associated Press analysis of households in the 10 biggest economies shows that families continue to spend cautiously and have pulled hundreds of billions of dollars out of stocks, cut borrowing for the first time in decades and poured money into savings and bonds that offer puny interest payments, often too low to keep up with inflation.

“It doesn’t take very much to destroy confidence, but it takes an awful lot to build it back,” says Ian Bright, senior economist at ING, a global bank based in Amsterdam. “The attitude toward risk is permanently reset.”

Read A Rest Of The Article Here

A bit of a good news for a change. While most economist will disagree with me, people are starting to act rationally by saving and not spending every single cent that they have. Such economists would argue that by saving (instead of spending) people are slowing down the velocity of the overall economy at the time when the economy needs stimulus the most.

Of course, they would be right. However, in this case saving money is a wonderful idea. In fact, I have been recommending this to my clients and my own family for a long time. My advice is simple, save as much cash as you can and get ready for a buying opportunity of a lifetime at the bear market bottom.

When will such a bottom occur?  My work shows 2016 as the date when the bear market that started in 2000 will finally bottom. At that stage those who have saved and preserved their capital will be presented with an opportunity of a lifetime to buy stocks at give away prices. In net terms, perhaps lower than March of 2009. When the eventual rebound comes, a lot of money will be made by those who are ready.  

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Stock Market Update, October 3rd, 2013

daily chart Oct 3, 2013 

Summary: Continue to maintain a LONG position.

With the US Government shut down, threats of the first ever default and politicians pointing fingers at each other, it has been quite a boring week for the stock market with the Dow down about 250 points (so far) for the week and about 700 points over the last 3 trading weeks.

Let’s attribute that to normal market fluctuations. However, things are starting to get interesting. It is possible that the fundamental and the technical factors are indeed lining up for the confirmation I have been seeking for so long. Please allow me to explain.

The market has opened up a bunch of gap downs over the last 3 weeks. Some of them being as high as 15,600. That means the market will have to go back up in order to close them. As I have mentioned before, I believe the government shut down should be short lived. There are already signs that Republicans are starting to capitulate. If that happens I would expect a short term relief rally that should push stocks higher to close all the gaps.

That COULD be our point of inflection. If the market reverses itself at that point and continues lower by breaking recent lows, I would most likely welcome you to the beginning of the bear market I have been predicting. For now, we continue to wait for our confirmations.

As such and for the time being I continue to maintain my “HOLD” position for the DOW if you are long.  

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