Seeking Alpha

Hedgephone's  Instablog

Send Message
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
My blog:
View Hedgephone's Instablogs on:
  • How Bernanke and Wall Street have Suckered the Public Again
    So, today we saw a nice take down in the AM followed by a quick short squeeze and tons of on again off again rumors about a debt deal -- this action can pretty much be viewed as the governments playing puppet master with the equity markets as usual as to the men in DC, the stock market IS the economy. Once we hit the 200 day moving averages in June, the M2 mysteriously jumped the largest amount in one week since Lehman Brothers and we got our vertical HFT rally in response. Now we are sitting at an impasse -- it's clear Washington will sacrifice the USD for a breakout in the QQQ, so be watchful of the YTD high in the QQQ at $59.36 -- I would not buy this pump job index over $59.36 but would cover your shorts if we break above this resistance level. We are likely to move higher to squeeze the last rational investor out of his short position before moving lower... Either that, or the US continues to sacrifice the USD for the betterment of the offshore global corporations that represent the DOW and S&P 500 -- so yes, there is a huge conflict of interest between the corporations in the stock market and the US citizens right now, and looking for big business to hire actual Americans is beyond silly. 

           For traders what all of this means is that a weaker economy gives the Fed an excuse to hand the global corporations listed on our exchanges more free money via printing. IF the economy somehow improves, then stocks could move higher in tandem, but given the lofty valuations of the QQQ and IWM I would much rather own commodities than stocks, which is why the principles of blowing a Russell 2000 bubble is so utterly perverse. Maybe Mr. Bernanke is just naive to the fact that printing money only benefits the large cap companies because they earn more money when the Euro strengthens, or maybe he just works for the elites. You be the judge on that one, but what matters to my readers is how to invest here and I am sticking with my long commodity and short technology stock thesis for now. Bernanke's pump and dump will eventually give one way or another -- he can either print the stock market higher, or let it crash... It's all up to him and to our leaders in Washington, which is why today's markets are no where near "free" or rational.

           Last night in after hours trading the QQQ hit a low of around $58.30 only to pop hard to around yesterday’s highs of $59.25 or so… which coincides with YTD highs (and BTW our 7/7/2011 short signal at….

           I am remaining bearish on the technology and small cap indexes here as I don’t buy any of the “recovery” or “web.20″ Koo-laid…. I liked Koo-laid back when they still had it in stock at the local grocery store, but like many trends, Koolaid is not even a major player in beverages anymore and your metaphor today is the internet and it's totally over-hyped right here. Granted, many companies are excelling online and their is better growth here, but Jim Jones served up a mean brew of Koolaid too, and right now Obama/Geethner/Barnacle are doing the same.

           Larry Summers pumped the tech bubble yesterday (without pumping the tech bubble) as well saying that more and more people are on the internet and growing a business is much easier on line -- while I agree with him for the most part I also think that most Americans view him as a bigger A$%hole than the "Winkelry" but then again WTFDIK.

          Look, I agree with statement that the internet is cool and a good business tool -- that’s why I create edgy content for my readers online that is hopefully controversial and outside of their comfort zone. However, the main fact of the matter here is that Wall Street is "jacking" Main street again with the OPEN, LNKD, Z, NFLX  (275.81 ↓-1.99%), AMZN  (213.21 ↓-1.09%) bubble again… It’s 1999 all over again… Except they already repealed Glass Steagall this time!

           I fully expect Web Bubble 2.0 to be volatile and that some companies will do well while the bubble will pop for others. I am skeptical of Zillow on valuation but less so of QPSA  (9.16 ↓-7.75%) for example at a much cheaper multiple as to me the real risk is valuation. That said, anything can happen and with scam stocks you always have to expect growth in unexpected are -- YHOO seems like a much better deal than OPEN, QPSA, CRM, LNKD, etc... QPSA will likely face cash issues soon but I view their hail Mary buyout of to be an interesting play on the web 2.0 craze and somewhat inspiring to me personally -- It looks like a better deal than buying LNKD common at this point, so what the hay!

           Cramer is the ultimate stock pumper and promoter of overvalued equities is the colorful son of a traveling salesman and always entertaining. Last night he had Chipotle (CMG 328.22 ↓-0.55%)‘s CEO on air to explain why PE ratios and valuations don’t matter — we couldn’t disagree more, but we do admire Jim's recent move toward lower PE stocks like MSFT as at least his viewers can learn how to value equities rather than following him like he's David Koresh.

           So in any event, we are reloading some of our short positions here, and will be watching our stops (set at 7/7/2011 levels) and will be getting ready to jump back into silver should we hold the post manipulation channel highs…

    Please follow Business Insider on Twitter and Facebook.
    Follow Nick Levis on Twitter.

    Jul 21 5:25 PM | Link | Comment!
  • 7 of the Best Mutual Funds -- Why It's Time to Switch From Growth to Value and Long/Short Funds
           I view the latest rally as a bit of a growth bubble at current prices. Although many online businesses offer high growth in a low growth world and many investors may be right to be optimistic despite the end of QE2, the average high PE tech (I mean over 200X earnings and 5X book value) stock looks downright nuts to purchase here given the country and the global economy is going through a laundry list of problems. With talks of the debt ceiling, the 85% rally from the lows, and the fact that stocks are up while the economy is down I think now is time to cut allocations to higher PE stocks and add exposure to below book value names and long short managers. Here are 7 mutual funds I would buy with money pulled from the more speculative growth funds if I were the type to own them (which I;m not). While this article may upset some money managers or growth investors and rub many people the wrong way, I call them like I see them and give my readers my honest opinion here. I don't see equities as being risk free and I certainly would not be chasing the highest returning YTD funds or stocks here given the bifurcated valuations in the stock market.

    7 Mutual Funds to Buy:

    AVALX -- Aegis Value is one of the only Ben Graham, deep value investment funds available to investors that buys shares in cheap and unloved stocks trading below tangible book value. Aegis has outperformed the stock market since inception by a wide amount, driving value for fund holders with a X return since inception. Manager Scott Barbee is a Harvard MBA who prefers stocks that Wall Street hates, saying that the investments he likes are like apples -- you have to cut out the rotten spots to find value and separate the completely rotten fruit from the true value bargain. I tend to agree with him that many times the tough job in deep value investing is to decide if a stock is permanently or temporarily impaired and that companies worth buying usually have issues, but that these issues can create opportunity if Wall Street has incorrectly concluded that the end is near.

    FAIRX -- A better known offering, the Fairholme Fund, has had a tough 2011 so far but I view this relative under-performance as a buying opportunity. Fairholme has the best longer term track record of all of the large cap value funds over the past 10 years even after the recent speed bump in performance. This long term value creation has made Fairhome the Morningstar Fund of the Decade. The fund is down pretty badly year to date with a 13% YTD loss. Given their large overweight position in the financials i view their performance as pretty strong all things considered -- most of their top positions are down much more than 13% YTD so investors here should likely stay the course. That said, if things get much worse in the housing and credit markets, the fund could suffer.

    HSGFX -- The Hussman Strategic Growth Fund has not performed all that well during the "recovery" however the fund managed to avoid all of the losses of 2008 and 2009 and has a strong 10 year track record. When viewed on a risk adjusted basis, the Hussmann offering has a ton of merit even though during the current stock market mania the returns here have been muted. The main reason for the dampened upside here of late is that Dr. Hussman looks at the average earnings for the S&P 500 over the past ten years, not just the earnings of the S&P 500 over the past year. To me, this longer term view makes a ton of sense and is also the type of metric Benjamin Graham used to evaluate and value individual equities. I like this fund for a "risk on" environment and I think that we are not embarking on a new secular bull market from the current CAPE of 23X earnings.

    UMBIX -- Columbia Value and Restructuring is one of the only funds that has outperformed the S&P 500 over the past 15 year period, and has generated an impressive 10% per year return for their shareholders. David Williams takes a longer term, contrarian value approach to investing although he is willing to buy good businesses at fair prices. While I like this fund, the 600 trillion derivatives mess out there keeps me from being all that bullish after the recent 95% up move from the March 2009 lows. That said, I think Williams will continue to outperform the index funds over a longer period of time, which is more than you can say for the other 90% of actively managed mutual funds out there. YTD the fund is up 3.18%...

    SEQUX -- Sequoia Fund is up over 12% YTD and up an average of 6.18% over the past 10 years, besting the S&P 500 over the past decade by 3.33% per year over that time frame, making this offering one of the best long term investments in the Large Value category. Robert Goldfarb and David Poppe have done a great job and continue the tradition of this dyed in the wool value fund that was the only investment fund Warren Buffett recommended to his hedge fund investors after he shut his doors in the 1970's.

    TBGVX -- Tweedy Brown is one of the best global value fund managers in the world, with a 6.16% ten year annual return, besting the MSCI EAFE index by 4.76% per year over that period of time, which represents significant alpha to their fund holders. We like the fund and feel that global value funds make more sense right now than US funds given the lack of regulatory differentiation here with an under-funded S.E.C. and given the tendency for the US to print, borrow, and spend money. Tweedy Browne is a classic value shop with one of the best long term track records in the investment business.

    TAVFX -- Third Avenue Value Fund run by Marty Whitman is another amazing long term value investment fund which looks to buy undervalued businesses which are well managed and without material impairments to their businesses. Whitman faced a pretty steep drawdown in 2008, but he was right in his assessment that his portfolio faced very few impairments on their book values. The fund has outperformed since then but is down 1.24% so far YTD. Whitman's large foreign allocation has underperformed in the near term, but over the longer term I think they are well positioned to outperform the market. The fund is up 6% or so annualized over the past 10 years.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Jun 28 11:15 PM | Link | Comment!
  • Be an Allocator, Not a Trader
    So far this year, our long gold and short IWM pairs trade has held up quite well... At this point, we are looking at Silver here for an interim buy signal but we realize that the metal could get hurt if additional stimulus measures are not undertaken. Keep in mind, that silver moves in parabolic moves up and down. For example, Silver lost 50% of it's value in 2008 and when the 1970's Hunt Brother bubble popped the entire %1,800 gain was pretty much erased in about one year. I am not bearish on Silver, however, as I think we have seen a near term correction in the longer term bull market. The reason I am bullish Silver is the quadrillion of derivatives contracts outstanding and the massive budget and entitlement deficits in the U.S. -- the Fed is already levered to the hilt and all of the leverage in the system is quite bearish for the dollar and therefore bullish for commodities in general and specifically bullish for Silver which has been in a 100 year bear market and was viewed as money for thousands of years, with a relatively stable midevil 16-1 peg to the price of gold. Today, Silver is much less abundant than it was 200 years ago yet the ratio of silver to gold in price is around 40-1. Additionally, with China's 400% increase in Silver demand due to increases in RFID, Solar Panel manufacturing, biocides, etc... Silver appears to have much more favorable non-investment related supply and demand characteristics than Gold and most other commodities. The fact that Silver has traditionally been viewed as money has likely not been priced into the commodity at all as of yet.

           What is driving the fall in silver? Likely the fact that Silver has historically seen massive run-ups followed by massive collapses in price. In 2006 for example the metal was just $10 per troy ounce whereas today the metal is 360% more expensive -- clearly a moster parabolic run has been seen over the past few years, but on an inflation adjusted basis this increase still puts the metal 400% from the highs of the late 1970's while the supply of Silver is far lower and demand far higher than it was back in the days of the Hunt Brothers.

           Another reason that silver has been under pressure lately is the current crash in equity prices -- the Dow is now below $12,000 while the S&P 500 is now down 7% from the year to date highs. Is this the start of a new bear market for equities? The real question is what will happen to the U.S. Dollar -- if the U.S. has entered into a new era of monetary collapse, stocks are not a good short because fundamentally shorting stocks is not only a bearish bet on U.S. businesses and equity valuations but also an expression of bullishness on the U.S. Dollar as equities have been a good inflation hedge in some cases during hyperinflation such as in Wiemar Germany where stocks kept up with around 30% of the increases in the price of Gold -- IE gold and silver are likely much better investments than equities during hyperinflation but betting against equities has not always worked during the collapse of central planning regimes and currencies throughout history.

           The case for a long Gold and Silver and short Equities position is also quite clearly logical if viewed in the context of other periods of currency collapse in several countries throughout history.

           At we are students of history, and we have studied currency collapses in several nations and the affect on various asset classes in each case. For example, when the Soviet union collapsed and the Ruble was devalued, Russian stocks and currencies both plummeted at the same time. It was better to stay long Gold and short stocks during the collapse of Russia because Russian equities dropped some 80% during that period of time. In latin america several currency collapses also confirm a long Gold and short Equity position makes sense. During the currency collapse of Mexico and Argentina the stock markets in these countries were decimated in both real and inflation adjusted terms, meaning a long Gold, foreign currency, and short stock position was the best play on collapse of currency. When Mexico's Peso was devalued in the 1980's Real Estate was not a good place to hide because you could not collect higher rents -- rents remained exactly the same while costs went up dramatically for things like lumber, cement, paint, etc... Stocks, likewise, did not receive a Wiemar effect as did Germany's stock market in the 1930's.

           All in all, we are in a very weak position economically but at the same time the trends behind the long Gold and short Equity trade remain in place -- with that said, at some point we have to convert paper profits into cold, hard cash. In my view, the logical trade is to convert that cash into a more stable currency. Many of the commodity based currencies such as the Australian and Canadian currencies look much more stable than the U.S. Dollar but at the same time if the global economy crashes these commodity based currencies will face additional headwinds. All in all, it seems to me that most paper currencies suffer from the same risks and headwinds over the next five years. The hard part about investing in this environment is that nothing is completely safe -- if we let the deflationary forces behind a weakening GDP and economy take hold, holding

           Gold and Silver may be more risk thanone can stomache. I feel a good mix of currencies both domestic and foreign as well as a good mix of physical silver and gold held in your own bank vault or private safe beats treasuries as the yields are so low that opportunity costs make a 1% yield simply too low to make any sense. Owning a diversified basket of currencies in nations with surpluses and also physical gold, silver, and farmland seems to be the best policy for investing going forward.

           Likewise, residential real estate and high yielding cash flow positive farmland seem to be better investments today than stocks and are a good diversification tool for investors holding as mix of cash, gold, silver, foreign currencies, long and short equity positions, etc... Real estate in south Florida, for example, seems to be quite reasonably priced. I am currently in S. Florida looking at properties which should yield a 15% cash on cash return and an even higher return when a mortgage at 4.5% is taken out against properties which have declined some 75% from their highs in 2007. When markets crash 75%, we start to get interested in longer term investments here at and residential real estate is starting to look quite attractive to us in S. Florida at present prices. Property taxes, hurricane insurance, tourism, etc... are all factors that need to be investigated but the discount to rental cash flow seems more than enticing at present valuations for many homes. Yes, the overhang of mortgage paper and supply is a worry on a nominal basis, but if you are worried about inflation a mortaged property which is free cash flow positive is a good way to mitigate your risks. Additionally, rents are unlikely to fall by 40% which is essentially the level needed to put your investments at a longer term risk. I am not suggesting investors should rush out and buy real estate, but I am suggesting that the longer term picture seems to be better for Real Estate than stocks and could possibly be better for Real Estate than Gold. Currently, Gold is in a bull market while real estate is in a bear market but longer term these trends could reverse if fiscal discipline is implimented in Washington. All in all, we feel wide diversification is prudent and that shorting overvalued tech bubble equities is a better hedge and a more conservative investment approach than owning U.S. treasuries

    Jun 18 7:04 PM | Link | Comment!
Full index of posts »
Latest Followers


More »

Latest Comments

Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.