Erik Gholtoghian's  Instablog

Plain and simple, the WTO, NAFTA, free trade, the housing crisis, and all the rest.  It is all related.  Everything was caused by Chinese currency manipulation of the US dollar.  Free trade with other countries caused it too.  This is allowed by the US and isn't pressed because the long run result is it makes the United States the technology leader of the world.

In other words, China finds it artificially easy to build factories and ship products to buyers in the US because of the currency situation.  The US on the other hand is becoming a country without dirty industry.  A country in which the only way to survive and compete is to reduce cost through technological means to compete with currency manipulators.  The end result is a country which essentially eliminates costs of production of all types.

My prediction is that 50% of the US working population and possibly students will be telecommuting on a daily basis in as soon as five years.  When that gigantic process is completed, the United States will have officially taken over the world economy by regaining the illusory capital flows it has lost.

You see, the US is so powerful that there truly is no long run competition.  As the Chinese have devalued their own currency for decades, the US has been forced to adapt into the absolute top technology-based economy in the world.  There is no other economic solution for US businesses to survive in the free market.

Just think back to economics 101.  Imagine a very three dimensional, illusory dimension which only Gods can see.  The image which should be burned into your mind is the topic of "golden growth."

The US is in the process of possibly the largest expansion of golden growth economics in its history.  This is not nominal growth; this is growth which re-engineers the very landscape in which we work and play each day.  In due time, the trade deficit will finally shrink down to nothing, and the world will witness the most perfectly functioning economy in recorded history.  Health care for all who need it.  Cars which do not pollute nor require more than the slightest amount of fuel.  People will be able to see this in the coming year, emerging from the cocoon.

It appears to me that the US is destined to become a nation of information technology-based researchers, who work from their homes and earn excellent pay. 

Some look back to the dot com boom as a problem in US economic history, but sometimes it takes something that big to usher in the future.  Real estate may even be falling due to a lack of commercial demand over the long run, as companies that used to house people in large skyscrapers no longer need to spend the funds on this.  Instead, these companies can save tremendous amounts of money by just designing companies in which all or nearly all of the workers telecommute.

We could one day see the freeways to big cities in the US nearly empty because so few people commute by car anymore.  While countries with artificial funds use those funds to build intricate transportation systems, the US is being forced to due away with transportation entirely.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

AT&T (T), Verizon (VZ), and now Sprint (S) all offer Iphone service.  Because the Iphone is such a dominant product across the sector, figuring out which company offers the best deal will truly lend insight into each company's relative profits.

First the deal from Sprint.  For unlimited service you pay $99.99 per month not including taxes.  The cost of the Iphone 4S 16GB is $199, for a total 2 year cost of $2600.

Verizon allows unlimited calling service but limited data for anywhere from $100 to $200 per month.  Average users would be happy with the $140 per month service.  The Iphone 4S 16GB costs $199, which brings the two year cost not including taxes to $3560 for an individual, almost $1000 more than the Sprint option.

AT&T offers unlimited calling for $135 per month, not including taxes.  This also limits data to 4GB per month.  The Iphone 4S sells for $199 at AT&T.  The total two year cost comes out to be $3440; slightly cheaper than Verizon, but significantly more expensive than Sprint's option.

Because service from Sprint is considered by the public to be nearly identical in quality to both AT&T and Verizon, I think many, many users will likely end up switching to Sprint for their Iphone service.  Saving almost $1000 over two years is not something rational consumers will ignore for long.

For the simple fact that consumers are rational in the long run, and because the economy has still not caught fire to regain high growth rates, analysts ought to recognize that Sprint will lead the industry in Iphone subscriber growth this next quarter or two.  With Sprint's profit problems, this is indeed an essential time for this to occur too.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

With the market seemingly in recovery mode, investors who are bullish on the economy might be looking for a way to increase risk and return in their portfolios.  If you need more exposure to financials, buying these stocks might be worth your time.

Drumroll please...

Number 5:  With a beta of 3.2, Genworth Financial (GNW) starts the list at number five.  It is mainly an insurance company.  The company is earning significant profits and is forecast to see 50+% profit growth for the next several years.

Number 4:  Calimos Asset Management Inc (CLMS).  The company is actually quite profitable and recently raised its dividend.  The beta is 3.3.

Number 3:  The PMI Group (PMI), a mortage insurance company, with a beta of 3.4 takes the third riskiest financial spot.  This company is saddled with debt and earnings are expected to be negative for 2011.

Number 2:  American International Group (AIG) comes in at number two with a beta of 3.7.  AIG is an infamous insurance company, and earnings are estimated to be positive for the next two years.  It is possible the bad repuation AIG has gained may have created value in the stock from investors avoiding it like the plague regardless of its fundamentals.

Number 1:  Bank of Ireland (IRE) is the riskiest financial stock traded in the US at this time.  It has a beta of 4.2.  S&P has the company at credit watch negative at this time.

You can see below that these stocks have been very volatile versus the S&P500 over the past 3 years.  The S&P has outperformed every one of these stocks over this period of time, so if there truly is a bull market, you can rest assured that these high risk stocks will continue to exhibit high risk and return chartacteristics.



One should note this isn't a buy or sell recommendation.  This is an observation that if one wanted to increase financial sector risk, these five stocks would likely do the best job doing that this year.  This is important for a number of reasons, but the biggest is increasing risk can increase returns without relying on margin loans.  Meaning, you don't have to expose yourself to margin calls or option decay to gain exposure to risk.  Additionally, because these companies offer the HIGHEST risk, it may be accurate to say they deserve a slight premium because they are offering a specific return that no other assets can.

Because these companies are so volatile, and because you can see that they can change by hundreds of percent in less than a year, there is no need to overexpose yourself to this group of stocks.  Allocating only a small portion of your portfolio to these stocks and putting the rest into risk free or low risk assets could prove to be a very effective combination.  Essentially a mixture of the riskiest of assets with the least risky of assets.

On the other hand, if you are bearish, these are the companies to short sell now.

*Special advice for those seeking precisely measured high beta stocks: Beta is an excellent statistic for determining risk, but in rare cases beta can be misleading.  To reduce the margin of error when using beta as a proxy for risk, one might want to consider creating an R² aspect into their study.  For example, if your beta is high but your explantory power is very low for some stocks and high for others, you may not be able to rely on beta as an accurate measure because some stocks may have exhibited higher betas simply by chance.  You could easily calculate betas from stock data and then create a perentile rank to throw out the worst 20% of R² scores to make sure that what you end up with is statistically sound high beta stocks relative to the market. 


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.