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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. 

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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. 

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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…….

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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.

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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.   

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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

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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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