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BitCoin. Crazy or Smart?

Bloomberg Writes: Bitcoin Spawns China Virtual IPOs as U.S. Scrutiny Grows

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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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Stock market optimism is too high. Are You Ready?

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Most market participants buy and sell at exactly the wrong time.  If you watch CNBC there was a parade of bulls in 2007 predicting DOW 20,000 within a year only to be replaced by a parade of bears predicting the end of the world at 2009 bottom. Simple human psychology.

Why is this important? Well, I am glad you have asked. 

As of early August 2013, various metrics measuring/showing investor sentiment indicate an optimistic extreme among market participants.  In fact, some optimistic views expressed wouldn’t be out of place on a space ship heading to Mars.

“This is a buying opportunity of a lifetime, this is the most powerful bull market since the World War II and there is a lot more upside to come” – some guy from a mental asylum on CNBC, August 6th. 

Since then the Dow dropped about 800 points, posting the worst weekly performance since the start of 2013. Yet, that’s just a speed bump for the eternal optimists.

On August 16, a Wharton professor of finance told CNBC, “I certainly wouldn’t throw in the towel. I’m still projecting Dow 16,000 to 17,000 by year end.”  

So, is this a great buying opportunity as most pundits on CNBC and in financial media claim? Are we on our way to DOW 20,000?

HELL NO SON. Get your head out of your ass and start thinking straight.  Here are just a few  facts you might want to consider……

  • Investor sentiment is way too high. Some indicators claim it is at historic levels of extreme kind of high.
  • The US Stock market is overpriced at these levels.
  • The is a lot of emerging market money flooding into the US Stock market looking for safety. This usually happens at exactly the wrong time.  There is no such thing as safety.
  • There is no fundamental case for the US stock market to go to Dow 17 or 20,000. Once again, it is extremely overpriced now.
  • The fundamental business environment for most US Corporation is starting to deteriorate substantially.
  • Interest rates are going higher and the FED has done everything they could up to now. No further stimulus will help and any additional stimulus will be marginal at best.  There is no stimulus velocity left in the system.
  • Technical picture is flashing warning signs and showing  that there is a high probability that the stock market is about to break down.
  • My timing work indicates that the bull run that started at 2009 bottom is coming to an end. The stock market must decline into its 2016 bottom. There is no way to stop the law of nature.

I can go on for another 20 or so points, but you get the idea.  You have been warned. Start positioning yourself for an upcoming decline now. 

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USA. Becoming a Nation of Part-Timers

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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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Egypt about to stabilize? The stock market says YES.

Business Week Writes: Egypt’s Markets Are Strangely Stable

More than 1,000 people have died in Egypt in the past six days, but you’d never know it to look at the Egyptian stock market. Since June 30, the first day of mass protests that contributed to the downfall of President Mohamed Mursi, the country’s two main stock market indexes are up 12 percent.

Not only that, but the rates the Egyptian government has to pay to attract buyers for its bonds have fallen slightly—a sign that global investors aren’t panicking and demanding higher yields. The yield on one-year government bills today was 12.9 percent, down from 14.9 percent in late June.

Pretty surprising considering that much of the nation is paralyzed by a violent confrontation between the military-backed government and supporters of the deposed Islamist president.

 

This is another perfect example of why most people have a wrong understanding of how the stock market works. Most people believe that news and events drive stock market and individual stock prices up or down.   However, quite the opposite is true.

For example,  if we look at the situation in Egypt today based on the news reports we would assume that Egypt is on the brink of a civil war and as such their stock market values and their currency should be collapsing while their bond yields should be surging. Yet, quite the opposite is true.

Stock prices predict the future, not react to existing news or events.  Typically the values you see today predict a couple of months (sometimes years) into the future.  While news events do have a hand in changing values on short term basis, their overall impact is minuscule.

So, will there be a civil war in Egypt? The stock market sends us a clear answer at least for now….NO AND THINGS ARE ABOUT TO STABILIZE. 

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The Long Awaited Decline In The US Stock Market Is Most Likely Here

 

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You very well know my position that I believe that the market has topped or in the topping process and will decline into 2016 bottom from this point, to the tune of 20-40%. What is interesting at this juncture is that we are looking for a technical confirmation that it is indeed true.

At least in the short term the market is a little bit oversold. I would wait for a technical pullback to the upside and then wait for the resumption of the bear market. I think we are a few weeks away from any such technical confirmation, but it pays to know exactly where we are.  

My timing work shows that there is a slight possibility (about 20%) that this bull run will end in March of 2014. However, even if such is the case, the market won’t go that much higher here.  

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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”

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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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India’s Markets Plunge. Time To Buy?

India Bloomberg Writes: India Markets Plunge Pressures Singh as Economy Teeters

India’s biggest two-day stock market slide since 2009, surging bond yields and a plunge in the rupee to a record low are pressuring officials for fresh steps to stem capital outflows and support the economy.

The S&P BSE Sensex (SENSEX) Index sank 1.6 percent at the close in Mumbai, extending the 4 percent loss on Aug. 16. The rupee tumbled 2.3 percent against the dollar, touching an all-time low of 63.23. The yield on the government bond due May 2023 rose 34 basis points to 9.24 percent, the highest on a 10-year note since 2008.

Policy Concern

“Our primary concern is that the policy authorities still don’t ‘get it’ –- thinking this is a fairly minor squall which will simmer down relatively quickly with fairly minor actions,” Robert Prior-Wandesforde, an economist at Credit Suisse Group AG in Singapore, wrote in a note. “If this remains the case, then a swift move to 65 against the U.S. dollar is probable, which in turn should help focus minds.”

“Slow growth, high inflation, a high fiscal deficit and high current-account deficit all point to the inescapable conclusion that India’s problems are deep and structural,” said Prasanna Ananthasubramanian, an economist at ICICI Securities Primary Dealership Ltd. in Mumbai. 

Staunch Outflows

While other developing nations are also striving to staunch outflows, the rupee’s 13 percent fall in the past three months is the worst after the about 16 percent drop in Brazil’s real in a basket of 24 emerging markets tracked by Bloomberg.

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The question is, does this market plunge in India as well as their currency slide represent a buying opportunity or beginning of a trend for all emerging markets such as SEA?

From an emerging market perspective India finds itself in a unique situation due to its structural problems.  As of right now, other emerging markets are fairing much better. Where it is not unique, is the capital outflows from all emerging markets and subsequent capital inflows into an overpriced US Stock Market.

In simple term, people are looking for safety. They are taking money from emerging markets and pilling it into the US Market under the pretense  that the US Market is somehow safer. However, quite the opposite is the case. The US Market is the most overpriced and by definition the most risky. This time around it is simply lagging behind the emerging markets on the downside.

Bottom line, I wouldn’t touch India or other emerging markets right now. Rarely do markets or stocks make a V shape recovery.  While an argument can be made that emerging markets are undervalued (and some of them are), I believe they are leading the decline and the US Markets is surely to follow them shortly. 

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Timed Value. The Most Powerful Way To Invest. What Is It?

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?

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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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You Are Your Own Worst Enemy. Why The Market Is About To Take Your Money Again….If You Don’t Listen

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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Homes Are Flying Off The Market & Other Real Estate Stupidity

AMAZING, ARE YOU STUPID ENOUGH TO BELIEVE THIS HYPE…….AGAIN?

Housing Bubble Stage 2

Business Week Writes:

The housing site Redfin measures what it calls “selling velocity,” or how briskly homes are finding buyers. The faster homes go under contract, the higher the selling velocity. In the 19 major markets in February, more than a third of houses sold within two weeks of being listed. In California, the velocity is even higher. In San Jose, 63.1 percent of homes sell within two weeks; in San Francisco, 56.8 percent do. Further south, in Los Angeles, Ventura, the Inland Empire, and San Diego, about half of homes went under contract within two weeks. This is the housing equivalent of “flying off the shelves.”

Part of the frenzy comes from a lack of inventory. Buyers have returned to the market while sellers sit on the sidelines, and Redfin says inventory is down 32 percent from last year in those top markets. But there are forces that may increase inventory. Chief among them are rising prices. Bank of America estimates that prices will increase 8 percent this year, stimulating a “positive feedback loop” to help the market pick up even more. “Someone say house party?” the bank’s analysts wrote earlier this month.

Wall Street Journal Writes:

More than half of all homes sold last year and so far in 2013 have been financed without a mortgage, according to an analysis by economists at Goldman Sachs Group.

The analysis estimates that around 20% of all homes sold before the housing crash were “all-cash” sales (or around 30% of sales by dollar volume). But over the past seven years, the all-cash share of sales has more than doubled, increasing by more than 30 percentage points, according to economists Hui Shan, Marty Young and Charlie Himmelberg.

OK, fair enough. So we have one fact straight. As of right now there is an insane amount of speculation in the real estate sector. Anyone who has studied finance and markets knows that cash buyers, foreign investors, begging people to sell you a house is the LAST stage of any mania.

No market goes straight up and down. The first stage of the bear market in the housing market has started in 2007. What you seeing now is the second leg up (rebound) that sucks people back in by making it look like the worst is over and the time to get in is now.

Of course, it is not. What’s next, might you ask? 

A massive 3rd leg down in the real estate market. It will take everyone by surprise and will put a final nail in the coffin that is the real estate market. No one will be able to do anything about it. Not the Fed and not this time. When will it start? Based on the market sentiment above, it should start fairly soon. 

“Someone say house party?” Wait a second, where did I hear that before? Oh yeah, 2001-2007.  Good laugh.