Getting started

I'm going to use this blog to sharpen my thoughts.  This is not really meant for outside readers...but if you come across this fine... unless of course my thoughts are proven correct in which case this actually is meant for outside readers.  Nothing here is meant to be investment advise, this again is only for my personal use to sharpen my thoughts, and keep a record of what I'm doing so that I can learn.  Making this just for personal use gives me some confidence that I'll be able to effectively use this to help me and keep this up - which otherwise may be difficult given my job.  It also means I'm not going to spend too long on grammar, spelling, or punctuation....
I'm currently reading George Soros's, Alchemy of Finance.  Near the end of the book there are some interesting paragraphs.  Part of which has inspired me to pick this back up.  If you've read other posts, or other past failed blogs... sorry.


"Financial markets themselves functioning imperfectly as a mechanism for predicting events in the real world there's always a divergence between prevailing expectations and the actual course of events. financial success depends on the ability to anticipate prevailing expectations and not real world developments... that means that the markets themselves can be viewed as formulating hypothesis ease about the future and then submitting them to the test of the actual course of events the hypotheses that survive the test a reinforced, those that fail are discarded... Reading the market as a mechanism for testing hypotheses seems to be an effective hypothesis. it produces results that are better than a random walk. The real time experiment has shown how greatly my decision making process is influenced by the market action. at first sight this might seem to contradict my original contention that markets are always wrong but the contradiction is more apparent than real markets provide the criteria by which investment decisions are judged.

"Financial markets constantly anticipated events both on the positive and on the negative side which failed to materialize exactly because they have been anticipated"

"To bet against prevailing expectations is far from safe . It will be recalled that in the boom bust model events tend to reinforce prevailing expectations at the time and contradict them only at inflection points and inflection points are notoriously difficult to identify. now that the contrary and viewpoint is become the prevailing bias I've become a confirmed anti-contrarian"


My take on this:  First i need to record my reasons for buying stocks - and if they dont work cut and if they are working press. (reason for the blog).
Second: if we now have actual policies of volatility suppression maybe the markets are not helping us anticipate events and are not helping us see them which means that the next event will be even more catastrophic.  Markets seem to shake of all downturns.  this means prevailing wisdom is to buy all dips maybe short term money making strategy but long term will kill your chances of success. Is there actual volatility suppression occuring?  Do central banks buying stocks and pensions shorting vol count as volatility suppression?  I think it does if that is there intention.  
 

Third:Confidence is high that's not a good recipe for gold unless confidence has peaked. it's at historically very high levels but there's no evidence of the peak. Also liquidity is beginning to drain from the system looks like I might've made a mistake with my gold. liquidity is draining through from the system via interest rate hikes. people truly believe that interest rate hikes are going to continue into the future will take a few meetings of them not being Hiked for that to change. I should get out of HL on Monday on any weakness I should take it easy with JDL see what comes.

Overall I have a number of stock positions.  Some of them I'm not so comfortable with. Compounding my uneasiness is that they are not very liquid.  I've been expermenting with applying technicals to very illiquid stocks.  My thought is that it should work. Except 1. the stock is easier to manipulate to fit a certain picture (if someone wanted), and 2. my tight stops get triggered to often resulting in my needing to ease my stop losses. Two is obviously more of the real concern. 

what I own and why:

$SEA - noticed through Noble House that container rates that bottomed at $600 shot up to $1400.  There have also been massive consolidation in the industry that should enhance their ability to price set vs price take.  I think the USD strength should encourage imports and be positive for them. Also sentiment is black bearish.  PE is 5 or 6 and pays a 5 or 6 % dividend .  Seems to be consolidating above 200 ma. The risks are: 1. trade tarrif is enacted which cuts down on imports 2. global recession/us recession 3. ships are not scrapped fast enough and there are two many ships relative to demand. 3. china to prop gdp keeps building ships.  This is prime case for pressing if working and dumping if it doesnt.

$GBTC -Indian ban on cash and china controls on capital flight are forcing people into non traditional currencies.  Bitcoin is the least regulated and most mobile.  perfect correlation to weak yuan.  risks: 1. chinese capital control reverse or chinse yuan reverses direction. 2. bitcoin is hacked. 3. another block chain currency beats bitcoin. 4. a better bitcoin etf comes to market. 4. this fucker is very illiquid. I'd press now except its too illiquid.  Is there a better way to play this trade?

$UNG - fairly tight supply demand balance.  any prolonged cold will shoot price much higher.  seemingly setting up a very cold winter.  the structure of ung sucks.  I'm assuming it's rolling contracts. for some reason NG companies havent been acting well either.  need another vehicle. 

$TLT - bonds got crushed around the time of Donal Trumps election.  They were due for a pullback and are at historically reculous levels. But the election was defintiely involved in streching them  I dont think trumps policies will have an impact for some time. so grwoth will continue to slow.  that makes government bonds a very good place to be. Spread between US bonds and other governments are huge.  one will go to meet the other. Risk: growth picks up, or inflation picks up. 

I own more... i'll list them later

Lost souls

If any lost cyberspace souls happen to find this barbaric relic of a financial blog, please redirect to my new and improved blog http://drinkingfromthehose.blogspot.com/

FOMC Statement

Today the Fed reaffirmed its commitment to QE II. No real shocker here. I think it will be quite some time before a policy change...

Fed´s QE Ponzi Scheme begins to Backfire

Here is the beggining of a very good piece by Gary Dorsch, from December 8th:

"In a taped interview with CBS’ “60 Minutes” that aired on December 5th, Federal Reserve chief Ben “Bubbles” Bernanketried to brainwash the American public, into believing that “Quantitative Easing” (QE), is absolutely necessary in order to prevent further losses of jobs, and tried to assure his listeners that he has the skills to keep inflation under control. The US-jobless rate would have been far higher, “something like it was in the Depression, at 25%,” -- had the Fed not provided tens of trillions in loans to Wall Street banks and other financial companies, he said.

Two-years ago, the Wall Street Oligarchs played the central role in the greatest financial scandal in the history of the world, - one which wiped out tens of trillions of dollars in wealth, nearly bankrupted giant corporations and entire countries, and plunged the world into the deepest slide in global trade since the Great Depression. Huge profits were made in sub-prime mortgages, based on a Ponzi scheme of exotic financial derivatives and packages. When it came crashing down, the public treasury was looted to cover the financial aristocracy’s losses.

Since then, the Fed has carried QE-1 between March 2009 and March 2010, in which it bought $1.45-trillion in mortgage-backed securities and $300-billion in Treasuries. Together with pegging interest rates at zero-percent, printing of hundreds of billions of dollars, and flooding the financial markets with cheap credit, - the Fed enabled US banks and S&P-500 companies to record bumper profits, even as they slashed jobs and capital spending, and suffered revenue declines.

With QE-1, the Fed channeled interest free money into the coffers of the Wall Street Oligarchs, which in turn, was used to buy higher yielding Treasury bonds. In a single stroke, the Fed monetized the US-government’s debt, and at the same time, bankers earned double or triple the interest rate at which it was borrowed. They pocketed billions under the scheme. Wall Street banks also bought high-grade corporate and junk bonds, and emerging market bonds, to fatten their profit margins. At the end of the day, QE-1 was utilized to recoup the gambling losses of the financial aristocracy, and created fertile conditions for driving-up equity markets."

For the rest of the article click through the link http://www.sirchartsalot.com/article.php?id=149

Rosenberg's Ten Themes for 2011

Below are David Rosenberg's Ten themes for 2011. Though he has been overly bearish on the stock market for some time now, Rosenberg without question, IMO, is one of the best economists out there.


1. Consensus views of 1,350 on the S&P 500 and 4% real GDP growth are far too high. Not one strategist polled by Bloomberg is bearish on equities. So we have a complacency problem on our hands, the exact opposite of what we experienced at the March 2009 and the July 2010 lows. For that reason, the outlook for at least the first half of 2011 is less than positive.

Moreover, equities are at the high end of the range and are priced for good news on earnings and economic growth. Valuations are not at extremes (however, according to the Shiller normalized P/E ratio the market is still on the expensive side) but sentiment is. Negative divergences are increasingly apparent and momentum is actually subsiding. We see better buying opportunities ahead but continue to favor companies that are “special situations” – consistent dividend growth, undervalued, strong balance sheets, and non-cyclical in the sense that they have low correlations with the direction of North American growth.

2. In my view, real GDP growth in the U.S. is set to slow from around 3% in 2010 to 2% in 2011, or possibly even lower. This is not a double-dip but it is a slower growth profile. We went to 3% in 2010 from -2.6% in 2009 so the second derivative was positive. But for the coming year, the second derivative is likely going to decline. This augurs for a non-cyclical exposure; more defensive and still yield-oriented. As the Bank of Canada strongly suggested, global growth is going to slow and hence a sense of caution over global multinational cyclicals is warranted.

3. The fiscal and sovereign credit problems in Europe are not going away. Neither is the instability in the U.S. state and local government sector. Policy tightening in China is also a source of uncertainty. Volatility is likely to intensify with this outlook.

4. The U.S. dollar is likely to strengthen, particularly versus the yen (the Bank of Japan and Ministry of Finance want the overvalued yen to weaken) and the euro (they need it since Eurozone is tightening fiscal policy more dramatically).

5. Emerging markets will struggle as central banks move more forcefully to curb accelerating inflationary pressure. The Chinese stock market may have already signalled that a major top in the region has been achieved.

6. The U.S. fiscal borrowing need for 2011 is no higher than it was for 2010. As such, fiscal concerns in terms of what it means for lower long-term rates are misguided. The yield curve is too steep and will flatten, led by lower bond yields. The recent increase in long-term rates is very similar to what we saw happen in December 2009 and helped ensure that bonds would enjoy a year of positive returns in 2010.

7. The Canadian dollar is overvalued by at least five cents and is likely to succumb to a softer profile for commodity prices. Basic materials appear over-owned in the short-term and bullish sentiment is at a high. The policy tightening effect out of emerging Asia is an obstacle, especially at current price levels. There is likely an election in Canada and the U.S. will not be beset by political uncertainty until 2012. Hence some caution as it pertains to the outlook for the loonie (though I would look to get more positive at 93 cents).

8. Deflation remains the primary intermediate risk for the U.S., notwithstanding the prospect of a near-term follow-through from the recent surge in many commodity prices. Money velocity remains dormant despite the Fed’s reflation efforts. There remains far too much excess capacity in the labor market. This requires an ongoing focus on SIRP (safety and income at a reasonable price) strategies for investors.

9. Corporate bonds are no longer inexpensive but within this space, financials and utilities screen best for value in terms of sectors, the 5–7 year part of the curve in terms of duration, and the BBB-BB area in terms of ratings.

10. One of the most pronounced macro risks is another leg down in U.S. home prices, which actually seems to be underway but is currently receiving very little attention.

Our preferred “buy list” are out-of-favor groups that are not priced for accelerating growth: Utilities, pipelines, oil income, pharmaceuticals (dividend focus as well as being out of favor), food products, and grocery stores.

Real Estate Bubble in China

Question: Is China experiencing a Real Estate Bubble? and what are the long term implications for China?

Answer: In all likely hood China is experiencing a real estate bubble, that will burst at some point in the future. However, throughout history all powerful emerging economies have had set backs and bubbles. So, while it is necessary to be cautious when things move too fast in one direction, it is wise to keep this all in perspective.

Take for example the US in the 19th century; the US had both the Civil war, and the railroad bubble.

I can only imagine that investors in Europe must have looked around the US and said "their just laying too much railroad track-no way their economy can support that, eventually when the money dries up the whole things gonna tank." Well the RR bubble did burst, but that obviously was not the end of the story for US which still went on to be a HUGE growth market.

Point is investors need to see the forest through the trees.

CYS

I am putting a strong buy recommendation on Cypress Sharpridge Investments (CYS), at its current price of around 12.65. CYS's share price has recently been knocked down after having just gone ex-dividend (at a whopping $.60), and then having announced a secondary of 12 million shares at 12.46.

CYS is a an MREIT, that at these prices, is paying out over 19 % in dividends. The two ways to play CYS is to A. continually buy post the ex-dividend and then to sell prior to the next ex-dividend, and then rinse and repeat, OR B. buy after it goes ex-dividend and hold for the long haul.

At the moment I am using the latter strategy (CYS is about 6 % of my portfolio). So long as the Fed keeps rates low, MREITs will be in the proverbial sweet spot.