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Intrinsic Value Asset Management (IVAM) was founded by Ken Luskin after a fifteen-year career with Wall Street investment banks Morgan Stanley, Smith Barney, and Bear Stearns. IVAM has been managing separate accounts since January, 1998. IVAM is a licensed investment advisor in the state of... More
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  • Advanced Micro Devices: An Example Of How Deregulation Aids Stock Manipulation

    (NYSE:AMD)

    Introduction

    In the aftermath of the 1929 to 1932 stock market crash, and the ensuring Great Depression, the Democratic administration of Franklin Delano Roosevelt and Congress created the Securities and Exchange Commission, and the U.S. Banking act of 1933, commonly known as the Glass-Steagal Act.

    The regulatory power of the SEC, along with the structural reforms of Glass-Steagal , kept the United States from experiencing anymore substantial financial meltdowns until the 1980s, when the Republican administration of Ronald Reagan began systematically deregulating the entire financial sector.

    Wall street gained immense power and wealth from the securitization of America's ballooning debts. They used that wealth and power to continually lobby legislators for greater deregulation, and won it, even under the Democratic administration of William Jefferson Clinton.

    SEC Rule 10a-1, commonly known as the short sale uptick rule, went into effect in 1938, and was eliminated in 2007. The SEC defined and summarized Rule 10a-1: " ..... Short sales were not permitted on minus ticks or zero-minus ticks"

    This article will explore how the deregulation of the short selling uptick rule is aiding stock market manipulation, which is still a criminal violation. Specifically, I will focus on the recent dramatic declines in the shares of Advanced Micro Devices

    Stock Market Manipulation

    Market manipulation is still prohibited in the United States under Section 9(a)2 of the Securities and Exchange Act of 1934.

    Market manipulation is a deliberate attempt to interfere with the free and fair operation of the market, and create artificial, false, or misleading appearances with respect to the price of, or market for, a security, commodity, or currency.

    How aggressive short selling aids in creating artificial, false, and misleading appearances

    When a stock declines dramatically, investors can become alarmed, and start looking for reasons.

    Wall Street manipulators can cause a dramatic decline in an individual stock by aggressively shorting a stock on minus ticks. The uptick rule was instituted by the SEC in 1938, to prevent against this type of market manipulation.

    Unfortunately, now that the uptick rule has been deregulated out of existence, Wall Street manipulators have been returning to one of their old tactics for fleecing investors.

    As the cost of a stock transaction has become de minimis, many investors feel they should trade more actively and use commodity tactics, such as stock loss orders, to prevent large losses.

    Wall street manipulators use the stock loss orders to their advantage, by deliberately manipulating a stock down, so that those orders become market sells. The manipulators can then take quick profits by filling the market sell orders, thereby covering their shorts. Then, the stock manipulators can again start a new round of aggressive short selling, to further artificially depress the stock price, and set off a new round of stock loss orders.

    Part of the SEC rule against market manipulation deal with Pools

    Pools are defined as: "Agreements among a group of traders to delegate authority to a single manager to trade in a specific stock for a specific period of time, and then to share in the resulting profits or losses."

    Traders at large and powerful sell side firms, such as Goldman Sachs, and their best clients, multi-billion $$ hedge funds, do not require formal agreements to conspire to manipulate a stock. Traders can use difficult to trace "throw away" mobile phones to communicate during one of their manipulations.

    Is Goldman Just a Big Hedge Fund?

    The above was the title of an article in the Wall Street Journal, written by Stephen Grocer.

    The article has some excerpts from a PBS NEWSHOUR tonight show.

    The most interesting quote is from Nomi Prins, a former Goldman Sachs trading strategist, who at the time was a fellow at Demos, a progressive think tank.

    Nomi Prins: "the classical investment banking function is a very small portion of their revenues. I think it's about 10% or so. So if he's doing God's work he's only doing it at 10% capacity."

    Narrator Paul Solman: "Most of the rest, says Prins, is so-called "proprietary" trading, for the firm's own profit, rather than its clients'.

    Nomi Prins: "They're a trading house. They can talk about being an investment bank and doing God's work and helping raise financing for companies and all of that, but in the scheme of things they do very little of that."

    The reason I am focusing on Goldman Sachs, is because they have been the most vocal sell side firm that has been strongly advising clients to short the stock of AMD.

    It is well known that at least one of the recent significant and precipitous declines in AMD's shares was caused by Goldman Sachs. I consider Goldman Sachs to be the "ringleader" in the recent stock manipulation of AMD.

    Misleading statement by the media and Wall street analysts about AMD

    The Wall Street consensus for AMD's Q3 earnings was 2 cents, while the consensus for Q4 sales was $1.49 billion, prior to actual announcement from AMD. AMD earned 4 cents from operations, and guided to sales of $1.53 billion for Q4.

    Yet early the next morning CNBC commentator Jim Cramer, and former Goldman Sachs broker, referred to AMD s earnings as a big miss on TV. Clearly, AMD's earnings nor its guidance was a miss.

    What was impressive about the AMD report was that despite the PC division sales being less than expected, the new businesses at AMD more than compensated, with total sales and earnings beating consensus expectations.

    Cabal of AMD short sellers with large incentive to manipulate AMD shares

    Anybody who understands Wall Street knows that the spreading of false information is a tactic employed by those who engage in stock manipulation, from the earliest days.

    With Wall Street short over 100 million shares before the AMD earnings report, there was a large incentive to "paint" the tape, and spread false information, to drive AMD shares down.

    If global investors were given the impression that AMD's quarterly report and guidance was positive, short sellers could have suffered significant losses in the ensuing trading sessions.

    What would have happened if the media reported the truth, without aggressive short selling?

    What if the headline was: "AMD revenues up 26%, beats consensus earnings expectations, from surging new business sales" ?

    What if the criminals on Wall Street had been kept at bay, by the old short sale uptick rule, so they could not beat down AMD shares in the thin aftermarket hours trading on Thursday?

    While the SEC and the Dept. of Justice are busy collecting $13 billion from the criminals at J.P. Morgan, Goldman Sachs and their hedge fund brethren are still busy manipulating security prices, so they can book trading profits.

    I ll be gone, you ll be gone

    Anybody who has read extensively about Wall Street, especially how the biggest firms deliberately misled the world concerning the subprime mortgages they peddled as AAA, fully understands that lying and manipulation have become the status quo.

    Unfortunately, Wall Street traders are taught only to focus on very short term profits, and not on the consequences of their actions for the long term.

    The US financial markets are the lifeblood of our capital system. The US capital markets allows a couple guys in a garage to turn their hard work into an Intel (NASDAQ:INTC), Hewlett-Packard (NYSE:HPQ), Apple (NASDAQ:AAPL) , Google (NASDAQ:GOOG), Facebook (NASDAQ:FB), etc., etc.,

    If we dismantle the laws that keep Wall Street criminals from turning US financial markets into a charade, then we will all continue to suffer the consequences.

    Conclusion

    While the short term manipulation of AMD's share price will not harm the hard working employees of AMD, who are focused on creating long term shareholder value, it does help destroy the faith of investors in our system.

    Market manipulation does not help the capital formation process.

    Market manipulation aids criminals, and hurts the American system.

    I wrote this article with the hope that some regulator, legislator, or concerned citizen will speak up, the next time the rich and powerful on Wall Street decry financial regulation.

    I wrote this article to call out all those dishonest, greedy, and corrupt people who are aiding and abetting the criminals on Wall Street. You know who you are... and so do I.

    Last but not least, I wrote this article for AMD's long term shareholders, and hard working employees.

    Disclosure: I am long AMD. 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.

    Tags: AMD, long-ideas
    Oct 21 11:24 AM | Link | 1 Comment
  • Part #1 Of 3 Part Series: Why Gold Is In Another Long Term Bear Market

    Part #1 of 3: Why Gold is in another Secular Bear Market

    (NYSEARCA:GLD) (NYSEARCA:IAU) (NYSEARCA:DGP) (NYSEARCA:UGL) (NYSEARCA:GLL) (NYSEARCA:DZZ) (NYSEARCA:DGZ)

    In this article, and subsequent ones to follow, I will discuss Gold as a unique asset class; the history of Gold prices; what factors cause it to appreciate in value relative to the US dollar, and what makes it sink. Only when investors truly understand why Gold rises, can they appreciate that those same factors can work in reverse, to cause Gold to depreciate versus the US dollar. Because the US dollar is the de facto world reserve currency, and the Seeking Alpha readership is predominantly in the US, it does not make sense to analyze Gold in other currencies, for the purposes of these articles. That said, a key component of the demand for Gold, resides outside of the US. Many investors are now owning/trading Gold through one of the many ETFs, rather than having to take physical possession, or trade in the futures' markets.

    In part #1, I will describe why Gold is a unique asset class, and the role it plays in the world financial system.

    In part #2, I will discuss the past history of gold prices relative to financial conditions.

    In part #3, I will discuss the present situation, and the prospects for future Gold prices.

    Gold is a unique hybrid Classification asset

    Gold has attributes of a commodity, but also as that of a currency. Therefore, the basic rules that apply to commodities are not strictly applicable, and neither are those that apply to currencies.

    Most commodity prices are driven by end demand for the basic needs of society, such as for food, clothing, shelter, and energy. Only a small fraction of annual Gold production is used by industry. In other words, the world does not require very much Gold to function.

    Gold is a holdover asset from the last few thousand years of human development. Gold as a currency stems from times when there were no other liquid ways for people, in relatively stable democratic societies to store their wealth.

    Most of the annual consumption of gold is still by lower income people living in corrupt and semi backwards societies.

    But, Gold is not an actual currency. Gold must be exchanged for actual currency, in almost all normal cases, before it can be used to purchase goods and services. Therefore, in most liquidity crises, Gold is sold to raise actual usable currency. This was most apparent in the financial crisis of late 2008 and early 2009, when Gold plummeted in price. Gold turned out to be a poor store of value for those investors that held it prior to the economic meltdown.

    The main reason to own Gold is as a hedge against the debasement of paper currency, which produces inflation. But, unlike other inflation protected assets, such as real estate, or basic businesses that have pricing power to pass on inflated costs, Gold does not produce any cash flow.

    Many Sovereign Central Banks Own Gold for Non-Economic Reasons

    In my opinion, the only reason that Sovereign Central Banks still own Gold is for show purposes, and not because it the best use of their capital. The real financial strength of a country, and by extension its Central Bank and currency, is based upon the health of its economy. But, sophisticated Central Bankers realize that the average person does not understand that Gold has become a barbaric relic.

    Platinum and Iridium are more precious than Gold. Silver and Palladium have many industrial uses, and therefore are a better store of value, in my opinion. Additionally, there are many rare earths that are absolutely essential to many components of 21st century equipment.

    "Compound Interest is the Eighth wonder of the world"

    "Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it."

    Albert Einstein

    The main problem with Gold as an investment, as with all commodities, is that Gold provides no current cash flow.

    The advent in the USA of publicly traded Real Estate Investment Trusts (REITS), publicly traded Master Limited Partnerships (NYSEARCA:MLPS), and other publicly traded income pass through investment vehicles, means that investors can gain inflation protection, and have daily liquidity.

    In a relatively stable, rule of law, democratic economy, such as the United States of America, investors can have the best of both worlds relative to inflation protection. If there is inflation, the principal value of the publicly traded inflation protected assets vehicles will rise in value, while these investments are producing current income.

    If a publicly traded inflation protected vehicle is producing a current yield of say 5%, Gold must appreciate at least that much per year, to produce an equivalent return.

    "I think gold is a great thing to sew onto your garments if you're a Jewish family in Vienna in 1939 but I think CIVILIZED people don't buy gold" - Berkshire Hathaway's Vice Chairman, Charlie Munger

    Mr. Munger was essentially saying that in relatively stable western societies, there are better liquid investments to protect against inflation than Gold.

    That said, today in many corrupt societies, which account for a large part of the world's population, Gold can still make sense to own as a store of wealth for people of lesser means. India and China alone, account for about 1/3 of the world's population, and people in these countries have known for many generations, that Gold is a good store of wealth for the long, long term.

    But, in the USA and other western societies, Gold is much more of a cyclical investment vehicle, and generally provides a worse total return than other traditional inflation protected investments, such as real estate.

    Conclusions

    Gold is a unique asset class that still partially functions as one of the world reserve currencies, but does not provide any current income.

    Gold prices are much more volatile against most developed world currencies than is the US Dollar. This is clearly evident as Gold prices declined substantially during the early stages of the world financial crisis of late 2008 to early 2009.

    From a strictly financial point of view, a diversified portfolio of high grade US real estate will provide a better l inflation adjusted total return over the long, long term, than Gold.

    REITs, and other well run high grade publicly traded Trusts/MLPs, will generally provide investors with a better total return (provided they do not buy the peaks) , while providing the same liquidity as Gold.

    I will discuss Gold mining securities as investment vehicles, in a separate article.

    Part #2 of this series will focus on Gold prices since it was allowed to trade freely about 40 years ago, along with the associated economic conditions that caused dramatic long term fluctuations, as priced in US Dollars.

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

    Sep 16 9:36 AM | Link | Comment!
  • Google's Android Is Crushing Apple, Just As Microsoft’S Windows Did 20 Years Ago

    (NASDAQ:AAPL) (NASDAQ:GOOG) (NASDAQ:MSFT) (NASDAQ:BBRY)

    This article will explain why there are dramatic similarities between the Apple story today, and what transpired a couple decades ago. The basic underlying business economics from the past era will assert themselves over the longer term, resulting in a similar outcome. Apple's percentage share of the desktop and Laptop market is stuck in the low teens. Since most of their growth and 80% of profits come from the iPhone, I will focus this article on the mobile phone area.

    History has a Tendency to Repeat Itself

    Most people do not want to see the similarities with the past, because they are financially and emotionally invested in expecting a different outcome.

    Because there is a generational separation between many business cycles, the younger bulls that have, or are experiencing success in the current cycle, believe that older people are not wiser.

    The most recent dramatic example of a repetitive business/economic cycle was the financial crisis caused by overleveraged consumers and banks. The Great Depression was caused by banks allowing investors to buy stocks with just 10% down, resulting in high leverage throughout most of the economy. The removal of the Glass-Steagall law allowed banks to package very low or no down "liar loans" into securities that were sold to investors. Even though investors were not themselves leveraged 10 to 1, the underlying mortgage backed sausages were leveraged at 10 to 1.

    Besides a new generation without personal memory, mistakes are also repeated because of slight variations between the cycles. Hubris created by many years of success allows for numerous rationalizations amongst investors. 21st century bankers had created even more leverage in society than what caused the Great Depression, but very few of our leaders could understand the risks, or wanted stand up to large financial interests.

    In the mobile phone space, as a subsector of consumer electronics, there have been numerous different profit leaders, none of which lasted longer than 5 years or so. Prior to Apple, the last leader, Blackberry , was thought to be so indispensable, that it was nicknamed after a highly addictive narcotic. It turns out that the supposed addictive qualities of Blackberry was a huge mistake, because consumer electronics trends mutate rapidly, based upon ever evolving technologies.

    Apple earns almost all their profits from the sale of hardware, not from services. The bulls argue that Apple will forever command significantly higher profit margins than any consumer electronic company in history, because of their ecosystem. But, Blackberry also had an ecosystem, as did Apple in the 1980s and 1990s.

    The four most dangerous words to investors concerning large business trends are: "this time is different".

    The current bulls on Apple do not want to understand the similarities to what happened a couple decades ago.

    The key to the success of Microsoft and the near death of Apple, was based upon the Windows ecosystem, that was open to numerous hardware manufacturers, and specialized software products.

    Apple's higher priced products were not favored by businesses, which resulted in a continually falling market share. The lower market share became self-reinforcing, as business software developers would not produce versions for Apple. Apple ended up with a 10% market share of people who did not need access to business software, and could afford the higher prices. The business software of the 1990s is the equivalent of what today is called "Apps". Because Apple created the first touch screen smart phone, and the first successful touch screen tablet, there is currently a large amount of Apps, which is why investors do not see the parallels with the past.

    Android Nears 80% Market Share In Global Smartphone Shipments, As iOS And BlackBerry Share Slides, Per IDC

    From the above linked article dated August 7, 2013 :

    "Android smartphone shipments grew a whopping 73.5 percent between the second quarter of 2012 and Q2 2013, according to research firm IDC s latest numbers. 187.4 million Android-powered phones shipped in the most recent quarter, representing 79.3 percent of all smartphones shipped during the quarter. The next closest smartphone platform was iOS, which shipped just 31.2 million units, accounting for 13.2 percent of overall share. What's causing the big Android bump IDC says the Samsung Galaxy S4 was a strong driver, but LG, Huawei, Lenovo and ZTE also had really good quarters with shipments in the double digits. The Android platform represented a win for almost everyone playing in that sandbox, however, as even small manufacturers saw success targeting small, niche markets in developing countries with affordable smartphones.

    The big takeaway here is pretty clear, in terms of the top two players: Android is on fire because of choice, availability and price point in emerging markets focused on shifting to smartphones from feature phones on limited budgets. That means it's even more crucial to watch what Apple debuts this fall in terms of a low-cost iPhone device, which is rumored to be based around the iPhone 5 and sport a plastic back that's cheaper to produce."

    So, on a worldwide basis, Apple's iOS is only 13.2% of last quarter's phone shipments. While Apple currently has a large installed smart phone base in the US, the present shipment trend will reduce their share dramatically over the next few years. More importantly, the recently announced "cheap" iPhone 5, is not inexpensive enough to staunch market share losses in either the US or overseas.

    Cloud Music Service Trend Will Eliminate Apple's Key Ecosystem Strength

    Apple gained a key ecosystem competitive advantage a decade ago thru the creation of iTunes, for the purchase of music. In my opinion, iTunes was the real glue of the Apple ecosystem.

    But, today there are numerous music services, so that people do not need to buy individual songs, in order to gain access to their specific tastes in music.

    Google launches streaming music service ahead of Apple shows that Apple is no longer innovating faster than competition.

    In this article, How to Migrate Your Music from iTunes to the Cloud, is a summation of the current music situation:

    "Just because iTunes was so revolutionary, and is still so ubiquitous, doesn't make it the best option for consumers to collect and access their music with these days. As your library grows, iTunes sometimes slows - and besides, a growing number of people want to be able to access their stuff anywhere without having to deal with transferring files around manually, like some sort of music sys admin. Aren't computers and the internet supposed to take care of stuff like that for us? The answer is floating above you: the cloud, where you can store all your tracks so they can beam down at you like so many rainbows.

    From this article, Streaming music services are gaining fast in U.S. market:

    "Streaming music services like Pandora online radio are gaining fast among US listeners under age 35, a survey showed Tuesday.The NPD Group survey found subscription-based and free Internet radio services accounted for 23 percent of the average weekly music listening time among consumers between the ages of 13 and 35 in the fourth quarter of 2012.That compared with a share of 17 percent the previous year. "Driven by mobility and connectivity, music-streaming services are rapidly growing their share of the music listening experience for teens and young adults, at the expense of traditional music listening methods," said NPD analyst Russ Crupnick. The survey also showed a shift to listening to music on mobile devices, with fewer people listening to CDs and digital music files."

    It is clear to me that Apple's iTunes is being eclipsed by free and subscription based music services. As competitive music services become the mainstream way of listening to music, Apple users will feel more comfortable migrating to Android based phones. Since Apple only has 13% share of current global smartphone shipments, the installed base percentage share will dramatically over the next few years.

    Cloud based service providers are the future of mobile devices

    Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Google, Salesforce dotcom (NYSE:CRM), and others are the clear leaders in cloud based services, while Apple seems to be badly lacking in this area. The Siri service is a loss producer, which was badly overhyped. The Apple mapping service is another example of Apple failing to execute in the cloud based service area.

    Conclusion

    Apple has excellent operating system know how, and decent hardware abilities. But, the Asian competitors have now met or exceeded Apple's hardware, at price points dramatically lower than what Apple needs to maintain its current gross margins.

    Most people who buy new iPhones are not paying the outrageous prices that Apple charges to the carriers, which subsidize the costs thru long term contracts. It is only a matter of time before consumers and the carriers refuse to pay 50% more for an equivalent, or inferior piece of equipment. At that point in time, Apple will end up in the same position they were in the 1990s.

    Apple has the second largest market cap in the world, so when growth and margins contract dramatically, the price of Apple's shares will have a commensurate drop in price.

    Apple is going into debt and consuming a large portion of its cash hoard to support its stock price, which appears to be a long term strategic error, in my opinion.

    Future profitability in mobile phones is tied to cloud based services, such as search, in which Apple is not the leader.

    As smartphones become increasingly commoditized, Apple hardware margins will collapse. While Google and others will continue to generate massive profits from cloud based services, only a tiny percentage of Apple's current profits are derived from those services.

    Bottom line, Apple's current profitability is unsustainable, which means the stock is a value trap, similar to all other consumer electronics leaders of the past.

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

    Sep 15 9:05 PM | Link | Comment!
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