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Brett Owens
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Brett earned his first contrarian investing profits in 2004 when he purchased an obscure investment (at the time): sugar futures. His friends on Wall Street stopped laughing soon enough when sugar rocketed to multi decade highs, illustrating that it indeed pays to be contrary. Brett quickly... More
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  • Riskalyze 2.0: Finding New Investments To Fit My (Apocalyptic) Financial Outlook
    Last week I had a great lunch (yeah fried chicken at Magpie Cafe!) with my pal Aaron Klein, CEO and Co-Founder of Riskalyze. Aaron and his team are working to bring sanity, perspective, and guidance to the average investor with Riskalyze - a tool aimed at helping you get a grip on your risk tolerance and financial outlook, and find appropriate investments that are harmonious with both.

    Riskalyze's thesis - which I think is a fair one - is that very few investors have an accurate grasp on their personal tolerance for risk. Hence they buy and sell like gunslingers, without any plan, and inevitably sell at the bottom, and buy at the top. Which is part of the reason that most investors - and hell, even most mutual fund managers - underperform market indices!

    In October, we covered Riskalyze's 1.0 release - click here to read this "instant classic" - which we broke before Marketplace's coverage of Riskalyze!

    Now that the team has incorporated initial user feedback into their second release, we're going to take another look at the tool. We'll see if we can overwhelm it this time!

    Step 1 - Enter the stocks or funds that you like

    A stumper out of the gate!

    • INTC - I think reports of Intel's demise are greatly exaggerated...and we'll get paid a phat 3% dividend while things play out
    • SLW - The silver rights purveyor, which I like to refer to as "a call option on a call option" in terms of fiat going down
    • GLD - Nuff said
    • URA - Uranium has to go up again at some point, right? (Great start to '12 for URA thus far)
    • WMT - Wall Street is starting to pay more attention to Wal Mart's heavy and increasing dividend
    Step 2 - Capture your risk fingerprint

    We've got three options:

    • I slowly nurture and grow my money
    • I take risks, but wear a seatbelt
    • I shoot for the stars
    I selected the third option - which was true, back in the day, when I had money to invest (that was before I decided a job sucked and a time tracking software startup was a better option...but I digress).

    Next I received a few questions to gauge my tolerance - and really my mental calculation when determining risk/reward. For example, would I prefer a guaranteed gain of $417, or a 50% chance of losing $10,000 coupled with a 50% chance of winning $15,000? ($10,000 was my the initial "stake" benchmark I used, by the way).

    With an expected return of $2,500, you probably don't have a doubt I rolled the dice on this one.

    Step 3 - My economic prediction

    As tempting as it was to select an apocalyptic option, I had to temper myself. This IS an election year after all (actually there are 40 elections worldwide this year, according to Jim Rogers). And as Jim puts it, money printing is not only a likelihood, it's probably a guarantee. 2013 is the year to worry about.

    As goes Jim, so goes our macro prediction - I selected the sideways market option.

    The Result - My investing roadmap, according to Riskalyze

    Investment Portfolio I slowly nurture my money I take risks, but wear a seatbelt I shoot for the starsResults (Jan 14 - Jan 27)
    SPY ? Stocks (S&P 500) 46% 52% 50% +1.9% 
    AGG ? Bonds (iShares Bond Fund) 30% 17% 2% -0.0% 
    IYR ? Real Estate (Dow Index Fund) 16% 25% 38% +4.8% 
    GLD ? Precious Metals (Gold Trust ETF) 7% 7% 9% +5.3% 
    Risk-Free Savings / CDs 1% 0% 0% +0.03% 
    RESULTS (Jan 14 - Jan 27) +2.0% +2.5% +3.3% 

    Another cool comparison, courtesy of Aaron, is what my profile would look like with varying risk tolerances and economic predictions:


    To get your investment roadmap, you can try Riskalyze, for free, here.

    Disclosure: I am long INTC.

    Feb 19 6:54 PM | Link | Comment!
  • Important Breakdown in Euro, Coupled With a Breakout in Key European Debt Yields
     Our pal Brian Hunt points out today in his must-read Market Notes column that the euro has broken down through key support levels:

    Euro crash 2011(Source: DailyWealth)

    Brian writes:

    If a country runs its finances like a drug addict and racks up crazy debts, its currency depreciates over the long term.

    Most smart analysts put the status of the European Union's balance sheet in the "drug addict" category. In order to pay for all sorts of bailouts and handouts, nations like Greece, Ireland, Portugal, and Spain have run up impossible debts. Bond and stock prices are plummeting in those nations as they struggle to pay them back. Bank stocks in Portugal, for instance, just struck 15-year lows.

    All this is hard on the paper currency backing the mess, the euro. As you can see from the chart below, the euro enjoyed a rally in late 2010 as folks got to thinking things were great. But in the past few months, the euro got clobbered... and just last week, declined past $1.30 to reach an important new low. The race to the lower right-hand side of the chart is on...

    Source: DailyWealth

    As the euro slides towards the lower right, yields on European sovereign debt continue their climb towards the upper right - first stop, Greece:

    Greece 10 Year Bond YieldSince the EU's "shock and awe" bailout of Greece, yields have resumed their inexorable climb, and now stand perched near all-time highs once again. (Source: Bloomberg.com)

    Economist Kenneth Rogoff of This Time is Different fame was in the news a few days ago, commenting that a Greek default would not surprise him.

    Meanwhile yields on Spain's 10-year continue their "breakout" to the upside:

    Spain 10 Year Bond YieldSource: Bloomberg.com

    And the REAL elephant in the room, as our astute correspondent Dr. Evil has frequently pointed out, it Italy - spreads on Italian debt continue to break out, signaling a big fat RED FLAG:

    Italy 10 Year Bond Yield January 2011Source: Bloomberg.com

    With Italy's debt-to-GDP ratio of approximately 120%, these rising yields are a very serious matter.  A bailout of Italy would run a cool $1 trillion or 2 - not an option with the current funds in the EU bailout piggy bank.

    Some believe the US would become the lender of last resort, because we run the world's printing press.  Others believe it's more likely that Italy will bow out of the EU as soon as this year - so that it can devalue and/or default again.

    Either way, something has to give!

    And economic growth is unlikely to come to Italy's rescue - its economic growth lagged much of the rest of the world in the 2000's, and thedemographics of Italy are a complete disaster as well.

    Normally I'd say that things are likely to get worse before they get better - except with the demographic Sword of Damocles hanging over the entire equation (both for Italy, and more broadly speaking, Europe), I think we can only conclude that things will get worse, and probably soon!



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Jan 11 6:50 PM | Link | Comment!
  • Did the Elections Cast "Perfect Setup" for California Credit Default?

    This may be an interesting time to go long a future "credit event" involving debt issued by the State of California.  Trading volume in Intrade's Prediction Market is still light - but those 2011 contracts sure look potentially interesting: 

    California Credit Default Futures ContractSource: Intrade.com

    California (as usual) bucked the national trend last night as a lone bright spot for Democrats.  As an impartial, local armchair observer to the farce that is California's budget, things sure look like they may be all teed up for a California default over the next few years.

    Let's see the magic combination of ingredients that have dropped into our financial crock pot:

    1. A stagnant economy (leading to stagnant tax revenues)
    2. A lack of low hanging fruit in terms of budget cuts - the easy stuff has been lopped off
    3. Jerry Brown back in control (not that Whitman would have brought austerity, but Brown is the guy you'd have cast your vote for if you were rooting for all out system collapse, simply playing the percentages)
    4. Republican control of the House (less likely to be sympathetic to a bailout of the hippies in California)

    For the record, I lean towards the small/no government school of thought.  Which is not embraced by either political party - the Republicans talk a good game, but I haven't seen any evidence of Republican control actually shrinking the size of government.

    So given the choice of Democrat/Republican, I choose neither.  Let's let the whole system come down.  California is usually a leading indicator for the United States - for better or for worse - and this time, I think we're teed up to lead the way with a debt crisis.

    Bring it on.  System collapse is the only way out - might as well get it over with as soon as possible.

    "If something is about to fall off a cliff, it deserves to be pushed." - Friedrich Nietzsche 

    Disclosure: No positions
    Nov 03 2:37 PM | Link | Comment!
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