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Bob Rubin

 
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  • 3 'Bad' Stocks For Profits [View article]
    Jazz1910, I don't know what Netflix's P/E or Short Interest was when its price was around 300, but assuming that it qualified for the trade we're discussing, you would have been protected against catastrophic loss by a trailing stop and by use of conservative position sizing, both of which I recommend on my site. (See http://bit.ly/pkqOKn/.)

    NFLX didn't fall from 300 to its current price in a couple days. It fell from 298.73 on July 13 to 205.21 on August 23 - more than a month. You would have exited when NFLX hit your trailing stop, or when it fell below its 200-day moving average on August 17 at the latest.

    NFLX did fall from 208.75 on September 13 to 128.50 on September 21, but you would been out of the trade long before. Following the rules protects you.

    Also, NFLX was undone by its surprise announcement of an unpopular restructuring of its business. As I wrote in the article, "If a stock has been going up for a long time, it’s likely to keep going up until some decisive bad news or a bad market pulls it down - routine volatility and pull-backs excluded." NFLX's restructuring announcement was "decisive bad news." This trade works when nothing extraordinary affects the stock.

    Volatile, I wholeheartedly agree.

    Thanks again for the thoughtful comments.
    Oct 19, 2011. 02:56 AM | Likes Like |Link to Comment
  • 3 'Bad' Stocks For Profits [View article]
    Thanks all for your comments.

    Jazz1910, Netflix doesn't qualify. It's P/E is only 29.77 even though its Short Interest is 15.8%. More important, it's not in an up trend. Netflix fell below its 200-day moving average in September and hasn't recovered. The thing to these stocks is that there can be one short squeeze after another, repeatedly kicking up the price. For all those who are bearish, there are enough bulls to keep on squeezing them. They may well come crashing down eventually, but in the immediate future they're good bets.

    Justinsmook, you're right that I usually advise against overpriced stocks. So does everyone else. What makes the stocks that fit these three criteria - high P/E, high SI, confirmed up trend - interesting is that they're an exception to the rules. Another way of saying it is that trend is perhaps more important than anything else. A stock trending up may be worth buying despite apparent weaknesses. Few people know of this exception, which is what makes it a profit opportunity. Big profits are seldom made by doing what everyone does.

    Frankcent, just as you say, everything may blow up. But these stocks, and others like them, have been in a confirmed up trend for a year or more, and that's a powerful thing. Another investing rule is not to fight the market, or in other words, to follow the trend. Even if we can't see why, the fact of a trend should not be ignored. It's better to be right than smart.
    Oct 18, 2011. 03:20 AM | Likes Like |Link to Comment
  • 3 Options Investments For A Safe 10% To 20% Annual Return [View article]
    Would you both be more specific in your comments? I'm happy to respond, but I need something to work with.

    Covered call writing can be highly lucrative if done properly. The three examples I gave are evidence of that. The only real risk is that the stock might plunge. I discuss this in the article. Write calls on "bargains," and you're relatively safe. Also, you shouldn't write calls on stocks you're unwilling to hold for at least a few months.

    Alexion and Whole Foods Market are both as solid as stocks might be right now. Sugar is in the midst of its seasonal price surge. It will continue up until January, so now is a safe time to buy.

    Even when a stock falls, if you know that it's a good value and likely to recover, you can just hold the stock while continuing to write calls. One of the appeals of this strategy is that it lets you earn income regardless of short-term price fluctuations. Short-term movements should not be most investors' focus.

    Thanks for your comments.
    Aug 31, 2011. 11:46 PM | Likes Like |Link to Comment
  • Japan Will Likely Back the U.S. Dollar Again [View article]
    The effect of the Bank of Japan's Yen sale was brief. You'd have had to act fast to profit from it. Meanwhile, the Yen continues to rise against the US Dollar. Good luck with your short trade!
    Aug 19, 2011. 08:26 AM | 1 Like Like |Link to Comment
  • 3 Safe Investments and How to Spot Them [View article]
    Dancing Diva, you're right that there are no completely safe investments - only those that are less risky. Identifying those that are less risky was my theme. Even US Treasuries are being called into question now. Investors should always do their homework.

    Espey earns about 80% of its revenue from the US military. Mark St. Pierre, Espey's CEO, acknowledged in an interview with The Business Review that there would likely be future cutbacks in military spending which might affect Espey. He said his job is to make educated guesses about which programs will flourish, so that Espey can invest there. I'd add that the recent debt ceiling deal in Washington only called for cuts in the growth of spending, not for actual cuts. There are few guarantees in business, but Espey remains among the safer bets for late 2011.
    Aug 14, 2011. 09:09 PM | Likes Like |Link to Comment
  • Japan Will Likely Back the U.S. Dollar Again [View article]
    In my July 22 article, I forecast that Japan would intervene again in the currency markets before the end of 2011, in order to drive down the Yen against the US Dollar, helping Japan's export business.

    This past Thursday - August 4, 2011 - the Bank of Japan sold about 4.5 trillion Yen. The effect lasted only a few hours, but the BoJ said it might act again, depending on the condition of the markets.

    You heard it here first, and only had to wait about 2 weeks.
    Aug 7, 2011. 12:17 AM | Likes Like |Link to Comment
  • Japan Will Likely Back the U.S. Dollar Again [View article]
    Hi, Luke,

    Reuters reported back in April that GPIF planned to cover pension shortfalls of 4.7 trillion Yen in 2011 by not re-investing in Japan government bonds as they mature. It will also raise about 2 trillion Yen by selling other stocks and bonds. GPIF is aware of the possible market effects of its actions, and is considering possible bank loans of 2 trillion Yen instead of selling part of its portfolio. Simply by not rolling over its Japan government bonds, GPIF will flood the market with Yen, helping to dive down the currency.

    Visit the White House site re the stimulus (www.recovery.gov), and you'll find that only 84% of the stimulus money mandated by the 2009 law has been spent. Another $124.4B is to come before the 2012 election. So it may be a long while before the effects of the stimulus are behind us. That would be about the 18 months you mention.

    So long as Japan is unsure of the long-term direction of US monetary policy, it may hesitate to act. The rise in trade with China may be an adequate substitute for trade with the US, so the USD/JPY trade becomes less important to them. Still, Japan's interests are tied to a weak Yen, so the odds are still that they will act to protect that.

    Thanks for a stimulating comment.
    Jul 24, 2011. 10:06 PM | Likes Like |Link to Comment
  • Japan Will Likely Back the U.S. Dollar Again [View article]
    LKofEnglish, sorry to report I'm only the likable Bob Rubin, not the powerful one. I let the other guy use my name.

    Rick Flair, I don't think this is a 3 year wait. That the Bank of Japan has already intervened twice in less than a year shows how important the issue is to them, and that they see it as urgent now.

    P. Dennis, the Yen is viewed as one of the world's "safe haven" currencies, despite the troubles you mentioned. Weakness in the US Dollar and the Euro only underscore the relative stability of the Yen. Yet Japan's economic policy stands on exports to the US and China. Japan's government will do what it can to back exports, especially since the recent catastrophes disrupted its economy. Nothing will change the positions of the US and Japanese economies, but government intervention can alter the trajectory of the foreign exchange market. The Bank of Japan has made two recent attempts. The chances for a third may depend on Japan's estimate of US policy. The outcome of the current debt limit debate in Washington may roil currency markets. Japan is unlikely to act before they know what's happening. If the US allows its credit rating to slip, the negative effect on the US Dollar may be too great for Japan to fight. Assuming our leaders don't let that happen, and the US Dollar stabilizes, then Japan should act.
    Jul 23, 2011. 03:05 PM | 1 Like Like |Link to Comment
  • Taking Brazil and Indonesia Over China [View article]
    Thanks for your comment, Dr. John. I agree that Malaysia is an attractive growth economy. South Korea also looks strong (EWY up about 41.5% in a year). Asia is bursting with growth.
    Jul 16, 2011. 05:51 AM | Likes Like |Link to Comment
  • Taking Brazil and Indonesia Over China [View article]
    The Brazilean Real and the Indonesian Rupiah have both been rising against the US Dollar - evidence of the relative strength of these economies.

    Currency exchange also provides a measure of insurance for US investors. Any loss would have to exceed the gain on currency before it would be felt.

    The Wall Street Journal reported today that inflation is ebbing in Indonesia. Estimates have been revised downward from 6% to 5%.

    The official US rate is 3.6%, and that's achieved with statistical manipulation. According to shadowstats.com, US inflation is now above 6%, using the measurement methods of the 1980s.

    Brazil's inflation is now 6.7%. In March, 1980, US inflation was at an annual rate of 14.76%, and the US went on to decades of growth. Brazil and Indonesia both have inflation typical of rapidly growing economies.

    I wrote nothing about India.
    Jul 12, 2011. 04:47 PM | Likes Like |Link to Comment
  • Federal Reserve Bank Credit May Be a New Leading Indicator [View article]
    Flow5, thanks for the depth and care of your analysis. You add to our understanding.

    I'm happy we agree that among the principle engines of inflation are "the volume of credit (new money) created by the Reserve and the commercial banks, plus the expenditure rate (velocity) of these funds." My article pointed out that the Fed has indeed created significant new credit, and that since 2009 the S&P 500 has seemed to wax and wan in proportion to the flow of this credit. If anecdote is to be believed, the public has adjusted its expenditures down to compensate for economic uncertainty. This might explain why inflation, though high, has not reached the hyper-inflation feared by many.
    Jul 7, 2011. 12:47 PM | Likes Like |Link to Comment
  • Federal Reserve Bank Credit May Be a New Leading Indicator [View article]
    Thanks for a stimulating idea, flow5. I went back to the FRED data and found that the long-term trend of the velocity of money has been down since 1980. It's moved up and down in a crude sine wave, but the trend has been down, most markedly since the mid-1990s. There's no correlation to the S&P 500. Prior to 1980, the velocity of money trended strongly up. I have no immediate explanation for this data.
    Jul 7, 2011. 02:18 AM | Likes Like |Link to Comment
  • Federal Reserve Bank Credit May Be a New Leading Indicator [View article]
    The comments agree that the relation of liquidity to market prices is obvious and not worth mentioning; that the relation of liquidity to market prices is unproven or insignificant; and that the relation of liquidity to market prices is a temporary phenomenon. Whew!

    The relationship is too clear and on too large a scale to ignore.

    User241885/(FAMCO) raises an interesting point about the money supply. I looked at that first, and the Fed's data only partially supports a linkage to the market. From the mid-1970s to today, increases in M1 or M2 or MZM did accompany increases in the S&P most of the time. However, during the great bull market of the late 90s, money supply actually shrank; it rose as that bubble collapsed. Money supply again remained flat during the 2007 bull market, only to rise sharply as that bubble collapsed.

    It has been government policy to stimulate the economy with extra liquidity. Much of this liquidity has been provided indirectly through purchases of Treasury debt and bank debt by the Federal Reserve Bank. Cash was intended to reach the economy through increased government spending and bank lending.

    These debt purchases are counted as credits issued by the Fed. They are de facto increases to the money supply because the debt was purchased with credit created from nothing by the Fed. These credits then appear as spendable assets of the government and banks. Milton Friedman observed many years ago that when a bank made a loan it was creating new money, because the loan remained an asset of the bank at the same time it was used by the loan recipient. What we see now is Friedman's point writ large. The phenomenon is most clearly seen when we look at credit rather traditional measures of money supply.
    Jul 6, 2011. 02:24 AM | Likes Like |Link to Comment
  • Federal Reserve Bank Credit May Be a New Leading Indicator [View article]
    Easy to understand how liquidity could drive up stock prices. Less easy to understand how stock prices could drive up liquidity throughout the government and banking system, though credit does seem to lag a bit behind the market in the chart. My guess would be anticipation. The market always looks ahead. The end of QE1 and the start of QE2 were both well publicized and known in advance. Institutional traders might have acted in anticipation.

    I did run the chart for long time periods, but the correlation is only evident from 2009. There have probably never been Fed interventions on the scale of the two QEs.

    The broad point is that the Fed can juice the stock market with interventions that are on the public record and can be tracked by investors, unlike the actions of the storied "plunge protection team." Much of the market's behavior for the last two years can be explained this way. Slumps or rallies for the next year may be predictable from credit levels.
    Jul 5, 2011. 02:10 AM | 1 Like Like |Link to Comment
  • Federal Reserve Bank Credit May Be a New Leading Indicator [View article]
    I wouldn't expect macro-economic facts to be more than loosely correlated with the market, unless they make headlines and everyone knows about them. This is too technical to appeal to news media. Still, the correlation seems striking. The pause between QE1 and QE2, when the market also flattened, is especially notable. If you take the data and extend it back many years, the correlation breaks down. It seems this is an unprecedented effect of an unprecedented Federal policy.
    Jul 4, 2011. 03:55 PM | 1 Like Like |Link to Comment
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