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Protecting and preserving capital over the long term is more important than growing capital. Particularly devoted to researching cheap stocks of high quality companies, GARP stocks, Magic Formula names, and stocks trading below intrinsic value. Participate long only without hedge when overall... More
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  • America Is Back To Even: Time To Fold, Call, Or Bluff?

    The booming U.S. stock market is hitting five year highs despite a sluggish economy and the S&P 500 is finally back to pre-crisis levels. So what does S&P $1500 mean psychologically to long term buy and hold investors who held on through thick and thin since March 2009? S&P $1500 means buy and holders of large caps and index funds are just 4% away from the 2007 highs. It also means that after the horrific crash of 2008, most "buy and hold" investors have gotten most, if not all, of their money back. Like any gambler who claws his way back to even against impossible odds, American stock market investors may be thinking about taking some money off of the poker table.

    Some of the most value oriented long term investors are actually up from their highs in 2007, and hedge fund managers are out in their Phantoms and Bugattis once again now that many have clawed back to their high water marks (in other words, they are earning performance fees again and buying up art they don't understand, cars that are completely impractical, and houses with more bathrooms than a typical Marriott!).

    What's most impressive to me, is that value investors who stuck to their guns are reaping big rewards despite a lackluster economy and an increasingly stratified society. Just look at the results for some of the great mutual fund managers out there who have trounced the market over this period of time like Donald Yacktman. The Yacktman Focused Fund (MUTF:YAFFX) is focused like a hawk on making money following a high quality value investing discipline. As you can see, an investment with this "Don" of value investing has turned $10,000 into $30,000 since 2003. Pretty impressive stuff for a concentrated value manager, and hard to refute (sorry, efficient markets people).

    (click to enlarge)

    Two of the most widely followed measures of the economy, as far as investors are concerned, are the US Dollar (and its status as the World's reserve currency) and the U.S. stock market which is making new 5 year highs. Meanwhile, the Dollar keeps hitting multi-year lows against gasoline, foodstuffs, and raw materials prices.

    To the outside observer, the stock market seems to defy gravity and valuation concerns. Profit margins are at peak levels but central banks keep flooding the global economy with cheap money which the banks have used to help "melt up" the stock market -- sure some companies are finding out how to thrive in today's world, but for the average "man on the street" life has not been the same since the economy tanked. Unemployment for recent college graduates, for example, tells us a lot about what the bottom rung is like right now in America.

    So what gives with the stock market? If it feels like things are worse today than ever before, that technologically savvy hustlers are in charge, and that the system is broken you are not alone. So what are investors supposed to do given the crummy economic backdrop and little to no alternatives for parking investment capital? Starting a business is a good idea for younger people, and I highly suggest this route versus trying to make a living from your stock account. I think stock market participants right now are living in a greed bubble that SHOULD pop sometime soon. What should happen, however, and what will happen could be very different outcomes thanks to global central bank currency devaluation. So, if you want to fight the tape, you might want to wait until all of the proverbial bullets are finally exhausted.

    If you trade equities on the long side for a living, think about short selling in addition to your "long only" investment strategies. Stocks are a good hedge against inflation compared to holding bonds but Inflation expectations are everything and markets appear to be in a bubble for some stocks and sectors just as they were in 2007. For Bernanke, the stimulus measures and the increasing financial leverage of the Federal Reserve may be hard to unwind without an ensuing ugly mess. Central banks may have no viable exit strategy to stop QE and reverse course "down the road." In fact, many people believe central bankers will never stop printing/QE at all -- poker pro and famous bluffer Phil Collins said as much in a recent tweet: "no practical way to end QE, U.S. Bond Market would collapse." So, we know the smart money is betting Quantitative Easing ending any time soon. In my opinion, central bankers have overplayed the QE bluff. Hopefully, the "market vigilantes" don't come a call-in.

    QE will likely mean higher asset prices for commodities and stocks, so valuation is a trickier game for short selling -- we think the Russell 2000 €€(NYSEARCA:IWM) is overvalued again and that the IWM is a good short so long as you are prepared for further short term Fed driven pumps. As you can seem IWM investors are back to even and then some. The Russell is extremely overbought on both the MACD and Slow Stochastics.

    Gaming the stock market means beating 80% of computer algorithms and all of the big hedge funds -- for past 12 years, the overall stock market has been pretty much a zero sum game unless you stuck with the Berkshire Hathaways and Coca Colas of the world. For every winner in this QE racket, however, there is more than one loser so make sure to practice proper risk management techniques like investing with top rated value managers or by setting hard stop loss orders on all of your equity positions.

    For the long book, we would look for sectors tied to farming and agriculture, solid blue chips at good prices, or equities with abnormally low valuations -- hard assets are probably less risky than paper assets even if the economy recovers to full strength because of currency devaluation. We will be posting a list of cheap asset plays soon.

    We urge investors to avoid pricey technology and "new media" stocks because they are speculative and currently overvalued in our humble opinion. It looks like (NYSE:CRM), (NASDAQ:AMZN), Facebook (NASDAQ:FB), and LinkedIn (NYSE:LNKD) are all extremely expensive and speculative at current valuations. Maybe the best way to play these is to short them intra-day or at least set tight stop loss orders if you choose to short these names. Eventually value wins out, but in the short run the voting machine appears to be either rigged or badly malfunctioning!

    Right now seems to be a decent time to take some profits on our Plum Creek Timber (NYSE:PCL) buy recommendation, made here: the reason being that lumber prices are down some 15% from their highs while PCL is still trading at the highs of the recent move, up 20% from where we suggested buying shares last summer. Even though Plum Creek's timber properties are valued at only $1,100 per acre 0or so, we think taking profits when stocks gain 20% or more in a short period of time is almost always a good idea. PCL is still undervalued as an asset play, and if you are looking for a basket of longs to use to hedge a basket of short positions, this is certainly a good candidate to watch.

    In conclusion, we think it's time to lighten up on stocks or at least hold 40% in uncorrelated assets like real estate, hedge funds, gold, silver, timberland, etc... Gold and silver are down significantly from the highs and are investable here versus Dollars. Investors should consider raw timber land, farming, mining, oil and gas, and fishing businesses as a productive way to hedge against inflation and QE infinity. Stagflation may end up getting the better of the Russell 2000 over time and we are certainly skeptical of the parabolic move higher. If you are going to buy stocks, consider letting a pro at Yacktman, Tweedy Browne, or Sequoia (MUTF:SEQUX) do it for you. We don't think you should abandon the stock market altogether, but you should consider hedging market risk and these three mutual funds as a lower risk/higher returning investment than a blind bet on the Russell 2000.

    Disclosure: I am short IWM, CRM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Jan 26 3:24 PM | Link | 2 Comments
  • Netflix Imploded -- These 5 Stocks Could Be Next

    Most investors are taught to assume that markets are efficient and that investment decisions are made in an honest and professional manner. In fact, none of the major finance textbooks (think CFA and MBA here) cover things like pools, pump and dumps, affinity fraud, market manipulation, marking the tape, front running, cooking the books, etc... in an in depth and exhaustive manner.

    Many times, investor ignorance costs the general public dearly. At our main goal is to help investors steer clear of investment scams and pump and dump companies. We have learned the hard way that fraud in corporate America is an ever-present, ever-persistent problem.

    Netflix (NASDAQ:NFLX) investors learned the hard way about investment pools (loose agreements between big money traders to manipulate a stock). We believe that Netlflix was indeed a massive pump and dump (whether this was criminal or simply chaotic randomness) orchestrated by management, institutional investors, the media, and other interested parties whether they were actively manipulating the stock or not.

    In our view, corporate insiders decided to go for a stock bubble valuation by juicing cash flow in the short term, moving toward an internet only "revolutionary" business model, and getting Jim Cramer to relentlessly pump the stock via Mad Money. The team is confirmed by interlinking director members from, Netflix, etc... and from huge insider sales near the top of the bubble. If Cramer and company liked the stock so much, why were the corporate insiders who knew the business better than anyone else dumping shares like there was no tomorrow? In my view, this was simply a case of insiders dumping into the pumping whether they believed the hype or not. As a professional investor and part time fellow journalist, I was astounded to see nothing but positive articles (except of course from other authors at Seeking Alpha....) on the company from the likes of TheFool, The,, etc.. etc... right before the implosion. We were extremely bearish. Not that it makes us special but it means that this was predictable (if we got it right, the big money managers from Harvard Business School certainly should have!).

    The onslaught of BS in the financial media led to Netflix being priced at $300 per share and for over 100X what in hind sight look to be questionable earnings because they were later erased by huge losses. While most people simply believe the action in Netflix was based on a rational, efficient markets we think the stock traded the way it did because of speculation, media hype, and some old fashion stock promotion. Many authors argued that developments within the company caused the stock crash, but we think the action of the name was more typical of a micro-cap stock promotion. The fact that was so positive on Netflix while sharing board of director members with Netflix seems like a pretty obvious conflict of interest to me -- nothing criminal, mind you, just a little bit slick.

    At, we aren't here to tattle on people but to educate them. We are looking for the next pool ready to blow up and we don't think Netflix was the last organized pumped up and over-hyped stock to burn the little guy... Here is a quick and dirty list of companies we are investigating currently and why we think they are more hot air than hot stock at current valuations.

    Angie's List (NASDAQ:ANGI) -- We started covering ANGI at $15.50 a share and so far this short has been a nice winner similar to our call to short Groupon at $22 a share. Angie's List reported dismal earnings last week as the company managed to lose another $14MM in the last quarter. Sure, revenues were up big but paying for business only makes sense for start up web companies right now because there is a bubble in these names created by massive economic stimulus and mal-investment (think 1999). Without this bubble, ANGI should probably be worth around 1X sales or about $150MM -- a full 80% drop from current levels. The balance sheet looks sketchy, the bottom line is blood red, and even though web traffic is up the stock looks like a great short at today's prices.

    Linkedin (NYSE:LNKD) -- While this is clearly a great company, the stock is not a great investment in the classic Ben Graham 1934 Security Analysis sense of the term. LinkedIn is a bubble stock trading for 900X earnings. There is no rational explanation for this other than it is a repeat of the 1990's technology bubble. While I wouldn't short LNKD, I do think that investors should try starting their own web company versus investing in this clearly overpriced security. (NYSE:CRM) -- While cloud computing is a "revolution" in innovation, we don't think that the market valuation for CRM is a real one. In fact, we think Salesforce is another "pool" manipulated by the big guns in the trading world. We also think the current technology bubble is so important to the Federal government that fraud charges will never be levied on any of the major manipulators or bubble company executives in the future even though these crimes are clear and identifiable. You see, we have created a culture of fraud on Wall Street and Main Street loses every time. That's just the way it is -- expect to "beat" earnings and ramp a little higher before ultimately blowing up sometime in the next year or two.

    YELP (NYSE:YELP) -- Yelp is a lot like Angie's List because it is clearly just an eyeball and mouse-click valuation. The company lacks earnings, cash flow, book value, etc... but the market loves anything with a dot com at the end of it's name. Yelp is one of the worst investments I can remember at this price but like all internet businesses anything can happen and the company may eventually grow into this astronomical valuation.

    Disclosure: I am short ANGI, CRM.

    May 07 12:19 PM | Link | Comment!
  • Futures Update: The Dollar and Stocks Tank While Gold and Silver “Nuts” are Banking, Here’s Why
    Futures Update: The Dollar and Stocks Tank While Gold and Silver “Nuts” are Banking, Here’s Why

           For months now, I have been warning readers of that the end of the Dollar as the World’s Reserve Currency was close at hand. While I myself have been urging people to buy gold and silver, like many other traders I have not been bullish enough on these “hard currencies.” It’s hard to predict moves in currencies and also to time the gold and silver rally perfectly, and I haven’t been bullish enough on the metals in the past, recommending a 30% allocation to the metals.

           What is finally clear to me and to most people with ears, is that something very fishy is going on at Treasury and the Federal Reserve. The onion is being peeled back right now, and lots of Americans are starting to tear up and wake up to the subversive moves happening in our economy.

           To be fair, I am not a huge fan of conspiracy theories, but I have to give credit to Alex Jones and his movement because he has been proven to be right almost every time about his theories on our government and their plans to merge our country with Europe and the rest of the world in a currency and fiscal union. The IMF SDR looks to be the endgame here, as our reckless central bankers and Treasury Czars are simply bankrupting the country at an ever increasing pace.

           So how should we invest if we have lost faith not only in the U.S. Federal Reserve Note, but also the full faith and credit of our debt and therefore our bonds?

           One thing is certain, cash is trash and so are government bonds. It’s time to get out of U.S. assets altogether — Swiss Francs, Canadian Dollars, Australian Dollars, Silver, Gold, Platinum, Palladium, Commodity Futures, etc… all look to be far more secure here than “trusting” the government with an investment in USD or US Treasuries.

           Americans have to wake up and smell the ponzi — unfortunately, it may be to late to take back our economy, but it may not be too late to take back our country. We all need to wake up and vote for Ron Paul in 2012 or at least prepare for a further destruction of our Constitution by purchasing firearms and metals. I am a huge advocate of peace, and I hate to advocate heavily arming yourself to protect your family, but without loyal Constitutionalists there is simply no hope for American Sovereignty anymore in a system that is built for the Bankster by the Bankster. Our country’s independence appears to be highly threatened presently, and for that reason Americans have to learn how to protect themselves for what’s happening and not just roll over and give in to what I view as a increasing tyranny.

           Anyways, I hope very much that I am wrong, but I feel that it’s more than likely that a threat to our nation’s solvency, independence, and Constitution is very real and ever-present.

           In my view, platinum has moved up much less than gold or silver and could make a nice complimentary investment along with physical silver and gold to hedge against the planned destruction of our nation’s currency

    Jul 24 7:46 PM | Link | Comment!
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