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John Gilluly

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  • No Taper Is A Gift: Sell All Long-Term Bonds Now [View article]
    James, you are saying that the 10-Year treasury yield typically trades at 250 bps above annualized GDP, yes? Thus your implication "2.0%-3.0% (GDP) implies 10Y US Treasury yields in the range of 4.5%-5.5% based on historic norms."

    If that is true, then our meager 1.5% GDP growth should be trading at a 4% on the 10 Y today, or a 120 bps (+40%) above where we were this morning (before the Fed announcement).

    Using a simple example from physics, it is a whole lot easier to let the air out of a balloon (lower rates) than it is to blow it up (raise rates), especially from such a low base that the entire world has become accustomed to.

    I think it is a pity that the Fed didn't taper on the Treasuries and leave the MBS alone. Still would have gotten the same rally, but it would have included a road map for unwinding over a long and specific time period.

    But the historical evidence that I saw from 1945-1955 (the last time the 10Y skirted with 3% consistently) says it takes a long long long time to raise the economy from the depths of a Great Depression/Recession, even though Wall Street is rallying its brains out, and the early 50s were a boom economy.

    The Fed's May tapering announcement did probably what no one intended - it factored in a 150 bps tightening in the real world of finance - a tightening that wreaked havoc in the Emerging Markets and our domestic housing markets. I think our "new normal" of 2% GDP is going to last a whole lot longer than anyone now anticipates, and your 4% - 5% rates on the 10Y are maybe 5 years away.

    Methinks New Normal for now (2 years+), and Regular Normal towards the middle of the end of the decade. However, things could surprise to the upside: family formation is running ahead of normal; innovation in the small cap space is remarkable, plus energy advances in gas, oil, and solar could mean we are energy independent by 2020.

    LONG term, I agree with you. But it takes meat on the table (wage income increases [jobs], IRS revenues) to produce stronger interest rates. It's coming. But we are not there yet, which is what the Fed Front-Runners found out today.

    The enormous consternation in the market recently - vis a vis interest-rates - is reminiscent of the tide changes that occur at the beach when we depart one Apex of wave motion and enter the opposite. Lots of foam and volatility.

    And the interest rate cycle is generational - 30 years long in duration. When the last interest rate cycle began almost 60 years ago, it was slow-going for the first 10 years before it really picked up steam. That's when it gets interesting with a comparison to today - a population explosion (baby-boomers) that morphed into a labor-participation rise in 1968 (high school grads) and stopped on a dime in 2000 (early retirement).

    This recent valuation-confusion caused some international equities I follow to change value - plus or minus - 10% every day or two - for much of the summer. It was like investing with the mad-hatter.
    Sep 18 10:58 PM | 29 Likes Like |Link to Comment
  • Homebuilders Will Be Hurt by 20% Down Payment Rule [View article]
    I can't swallow some of the self-righteous garbage written above as a response to this excellent article. Low down-payment FHA and VA loans worked fine for 40 years before the bubble. FORTY YEARS. If there was something so inherently "off" about extending affordability to people who couldn't cough up $20,000 - $100,000 for a 20% downpayment, don't you think the lenders would have figured that out before the bubble? There is nothing wrong with giving young families with good jobs a crack at owning a home.

    So what really happened? Gatekeepers of the financial system threw away ALL the keys in an unmitigated grab for greed. Who's fault is it that a dog or cat could take out a $500,000 loan on a home in 2005? The dog's? The cat's? Who created trillion dollar packages of worthless mortgages - mortgages that were actively encouraged and created by people who knew better - and then bet the farm that they'd fail in thousands of quasi-illegal insurance scams (Credit Default Swaps).

    The same parasites that have inserted themselves between doctors and patients, between retirees and their pensions, between students and their colleges, between constituents and their congressman, inserted themselves between homeowners, builders, and banks to crank-up a placid, plain vanilla business into a casino of gargantuan proportions.

    The early chairman of the Federal Reserve got it right with the Glass-Stagall Act in the 1930s - keep Wall Street out of the banking industry, out of the insurance industry, and out of any other industry that wanted to save its hide before it got fleeced. Alan Greenspan - the 'Great Bubbleonian' - spent his career unwinding protections that careful men had created in Glass-Steagall so that the Great Depression wouldn't happen again.
    Mar 2 08:08 PM | 12 Likes Like |Link to Comment
  • New 13D Filing Reveals More Dilution Ahead For Plug Power [View article]
    My "balanced" view is that Plug Power (PLUG) will likely hit $4.00 (-35% from today's open) before this downturn is done; and if it doesn't hold $4.00, then a meandering range between $2.50 to $4.00 maybe the norm for the remainder of the year.

    If there is a large scale sell-off on the Nasdaq, then there is no telling how low it will go. Manias in alternative energy stocks have preceded previous tops in the NASDAQ in both 2000 and 2007. The fuel stocks of 2014 will likely be no exception to this tradition.

    PLUG power is probably the easiest short to come along in many a moon.

    As large investors exercise the warrants that cost them pennies and immediately sell - and as Air Liquide waits with baited breath for its May 8 release date to cash in on their spectacular investment and sell some of that too - there will be continuous and inexorable downward pressure on the shares to sell. Everyone who got in at 50 cents, at a dollar, at $1.50, at $2.00, at $2.50 will see their profits evaporate and will SELL.

    I have seen this before. Too many people on the dance floor dancing to the same music, but the exits are small, exceedingly small, and as the dancers wish to leave - they will crowd the exits on their way out - even as the music is playing. There have already been two mini-stampedes out of the stock in the last two weeks where the circuit-breakers hit. Today may be another.

    Instead of throwing stones at me for forewarning of PLug's likely fate (for the previous three weeks), investors would be advised to GET OUT, and protect your profits, not your pride. You have already had chances to sell at $11, $10, $9, $8, $7, $6.

    How low does it need to go before you ring your bell?
    Mar 24 01:31 PM | 10 Likes Like |Link to Comment
  • New 13D Filing Reveals More Dilution Ahead For Plug Power [View article]
    Catsrevenge - if you and I watch a bright meteor (a shooting star) steak across the sky and I say, "Look! that one's surely gonna fall"

    Who made it fall - me, or the meteor's own weight?

    And if I hadn't been there, and hadn't carefully observed its path (the path of meteors like it before), would it then not have fallen? Would it have kept streaking brighter onward without me?

    The inner movements of things - especially when they trade tens of millions of shares - follow the lines of least resistance - the direction where their energies can flow the easiest.

    There are two sides to a trade - buyers and sellers.

    You are a buyer. I am a seller.

    That is not evil. That is the way it is.
    Mar 24 02:20 PM | 9 Likes Like |Link to Comment
  • Pulling The PLUG On The Fuel-Cell Mania [View article]
    A lot of comments on the article, and about 9,000 hits (and counting) thus far on SeekingAlpha by 3:30 PM EST, so definitely it's been food for thought for investors PLUGging along.

    For the longs, congratulations. Santa has never had it as good as you have it now, so relish this once-in-a-lifetime fish story that "didn't get away" from you. PLUG must seem like the "Best Ponzi scheme ever". Whoever was on the dance floor first remains the happiest.

    But remember: parabolas have 2 directions - Up and then down. And pigs have only one direction in life: the slaughter-house.

    Earnings next week? In the dotcom days what would always kill a stock was its first earnings announcement after a big run, because what was "under the hood" could then be quantified. A little bit of reality is all it took. Even dotcoms printing a profit were slammed.

    I missed a couple of things in the article - for example - how Walmart mercilessly squeezes its suppliers. I bet that PLUG's profit on those forklifts will be just a little above their cost to sell them. Maybe the CEO offered Walmart the deal of a lifetime to save his company from being delisted? I know I would have if I was him. And Walmart surely wouldn't have minded obliging him, either. "Business as usual", they'd say.

    And since Walmart got such a good deal from PLUG, all the other Big Warehouse Tunas are going to want the same PLUG for themselves too - cheap forklifts.

    Anyway, for those of you who are riding this moonshot higher and believe you've just hit the Klondike while trading in your pajamas, check your oxygen level and keep a steady hand on your stake. There's claim jumpers licking their chops every buck this thing goes higher; and shorts lining up at the door with a begging bowl for more. The short interest in PLUG will probably be over 50% the next time Nasdaq tabulates it.
    Mar 7 03:19 PM | 8 Likes Like |Link to Comment
  • The Housing Market May Be Starting To Crash [View article]
    Dave - the housing index hit a new 52-week high this morning. (See: http://yhoo.it/1frG6rF). New Home sales surprised 9.6% to the upside in January. The replacement cycle remains alive and well. It's likely that there is an acceleration afoot in new home sales this Spring, not a crash.
    Feb 26 10:29 AM | 8 Likes Like |Link to Comment
  • A Simple And Timeless Way To Trade The S&P 500 Successfully [View article]
    Yes, that was always a concern of mine.

    But in both the 2000 and 2008 bears, there was a long "topping" formation in which several M/As converged near the top, including the 50 day. So watching the index slice through the 50 day would be a good first step, and maybe the first decision point to get out (above the 50- in, below the 50 - out). Because in those days - in those markets - it went through the 50 and then the 300 fairly close in time.

    The 50 day has the least amount of "chatter" of any moving average for both the SPX and the NDX. I have Excel spreadsheets with 20 years of daily data where I can adjust the moving average to garner the most amount of black (positive return) and the least amount of red (negative return), and the two averages that always "fit" the best seem to be the two most well-known ones - the 50 and the 200. Maybe that's why Wall Street technical analyst rely on them so much as indicators.

    Probably the reason my dad chose the 300 is that it is the category-killer, beyond which there is little doubt. I wasn't exaggerating when I said those bear markets began in a single day. The feeling of that time was unmistakable. Terrifying.

    Bear markets begin with mass confusion and there is a tendency to "hunker down" and hope for the best instead of get liquid quick and get out. My dad told me that for 30 years after the '29 crash the only relevant question for a broker was, "What did you do for your people at the time of the Crash. And did you get them out and keep them out?" If the answer wasn't yes, you probably didn't do business with him. That's how damaged and hurt investors were from their 1929-32 experience. It took until the great bull markets of the 60s before the general public began investing again.
    Nov 9 11:27 AM | 8 Likes Like |Link to Comment
  • Pulling The PLUG On The Fuel-Cell Mania [View article]
    Yes, all true. And so is this: "A forklift is a forklift is a forklift", even if you sprinkle pixie-dust on it.
    Mar 7 05:29 PM | 6 Likes Like |Link to Comment
  • The Housing Market May Be Starting To Crash [View article]
    I think the fact that you sell-short the stocks that you recommend to do so is personally commendable. You have skin in the game; actual risk. I do too. Everything I write about I own, or would like to own.

    My worry about your excessive bearishness is the opportunity-cost to traders who have followed your line of thinking. Unless they were very adept and sure-footed, they could be looking at significant losses at this point; in fact, months of significant losses.

    You are not a single voice in the crowd (as you might assume). You have a large following of over a 1,000 readers on S/A. The one question I think worth considering is if there could be any circumstances - some day, some way - which might convince you to change your mind?

    At this point your fervor to short construction-related stocks seems boundless. However, the actual performance of the builders does not appear to confirm that fervor.
    Feb 26 05:01 PM | 6 Likes Like |Link to Comment
  • America's Rental Crisis [View article]
    What I have seen from the low income housing available in San Francisco is this: as soon as ownership becomes a possibility, even housing projects transform themselves from crime-ridden areas to communities with a "moat".

    That moat is ownership.

    Say what you will, that's how it worked out. I was a private religious-social worker in some of the worst areas, and as soon as they became condos or condos mixed with affordable rentals, the atmosphere changed. I was amazed at how the "intractable crime" seemed to die down when people were given the opportunity to have some skin in their game.

    The same rules of the road applied that work with all housing sales: moderate underwriting; careful screening for criminal records, domestic abuse, or serious credit risks.

    When you ignore underwriting, you ignore human nature.

    That's really what the 2008 Financial Crisis was really about. Probably what all life in a capitalist society is about, if you think about it.

    Just because you are poor doesn't mean you're a criminal. But you sure would like to live in a crime-free (or freer) atmosphere for you and your children. Here is where the stupidity of politicians comes in - lumping everyone under one-income-size fits all.

    I recently was part of one of the largest affordable ownership/renting offerings in the United States. It was enormously successful for the 700 families that took part in the lottery. 3,500 people applied - some from other parts of the USA. Everyone who applied - who hung in there - eventually was accepted over a 4 year period and acquired a condo or an affordable rental.

    But there was one small geography - located in a pristine area along the San Francisco Bay in a secluded area - surrounded by spacious alfalfa fields and total quietude - a completely brand new complex of maybe 75 units - where the units were rented (big mistake) instead of sold as affordable units to low-income families - and NO UNDERWRITING or SCREENING was done.

    Three years and 26 evictions later - and almost daily police visits to stem the drug-running, speeding, and drive-bys - a reasonable selection process was re-instated for the area and the mess died down.

    Politicians - in their "caring desire" to help families in a high-crime housing project - had simply imported the king-pins of that local scene into a luxurious setting they never would have been given in the first place. This stupidity gave a bad name to the whole project - endangered those who lived there - and it affected the property values and the reputation of an otherwise successful and happy community.

    If you drove to this area or flew over it in a helicopter, you would assume that it was a high-priced condo development. It just goes to show you can put the wrong people into even the most salubrious environment and they can turn into hell on earth. This probably echoes some of the other comments made here by landlords of low-income housing. At the end of the day it's all about selection - and the selection process.

    Which leads me to the second point being made here: education. As a high school teacher, every day I see students making the decision to prepare for college and/or a career; and another 30% actively engaging in decisions - contrary to all encouragement and support to NOT go that way - preparing for a life of poverty, poor job opportunities, and poor choices.

    Often the future is a decision, not just the result of an environment. Every immigrant to America has had a chance to prove that over and over again; and I see it every day in my work.
    Dec 16 12:33 PM | 6 Likes Like |Link to Comment
  • 3 Indicators That Signaled The 2007 Top: They're Back [View article]
    Take a look at this indicator (http://bit.ly/1eBL1n6). It's never failed me, and saved a lot of heartache in the process. Here is an article explaining the rationale behind the indicator: (http://bit.ly/1eBL1n7).

    The article was written 4 years ago, and it is as true today as it was back then. The market will speak to you if you let it. That's what technical analysis is really for.
    Sep 10 08:30 PM | 6 Likes Like |Link to Comment
  • U.S. Housing - A 20,000 Foot View [View article]
    What we are seeing on the ground in the SF Bay Area is 1.4 months of housing inventory and falling. There's already bidding wars in San Francisco and San Jose. Homes are going for median asking prices elsewhere, and those prices have risen about 10% from April through June, 2012.

    As soon as someone has a job, they go look for a house because of the compelling opportunity you've outlined. In almost all cases it's cheaper than the rising rents around here. The rental market has become a shark pit. My home - Mello Roos taxes and all - costs me $2,700/mo to own. The rental cost in my neighborhood for the same thing is $3,500. I have never seen a time in CA where home ownership is cheaper than renting. Even in the mid 1990s, owning a home cost twice as much a month as renting. Today, owning can be as much as 25% CHEAPER. Plus - if you have the 3% for FHA downpayment - it's still cheaper than renting.

    One fact the naysayers never say - people with stable jobs who are moderately underwater (15-25%) aren't putting their homes up for sale. They are riding it out. For the 90% of Americans with decent jobs and an underwater home, that shadow inventory is a meaningless statistic.

    And what about the foreclosure inventory? Wall Streeters and cash buyers gobble it up for flips or rentals as soon as its available. Cash cost for that inventory is less than replacement cost (of new construction) by about 25%. Our post-bubble environment reminds me a lot of the post-S&L crisis, where that glut of homes was bought up from the Feds for a song at the beginning of the last real estate cycle (1990-95).

    All this should put demand pressure on builders to provide inventory. I like KBH, the largest CA builder by volume.
    Jul 10 10:36 AM | 6 Likes Like |Link to Comment
  • Playing PLUG Power [View article]
    Cactus jack 65

    The reason that authors do not respond more is because we are encouraged by the editors to put a great amount of thought into our writing - and our comments - so our work will not be diminished by some off-the-cuff reply in the comments section (which is NOT edited by S/A).

    I am new to PLUG (only 10 days, actually) and decided to write about the company because its movement was so different from the sleepy realm of real estate I am accustomed to analyzing. Real estate going up 25% in a single year is the biggest of big deals - "Bubble talk invades the nation".

    But PLUG power rising 25% in a day? No big deal. Investors say the run is just getting started and everyone wants in. I have heard this story before. A forklift company with scant IP (Intellectual Property) leading the leagues (to pan a baseball comparison) in batting average, home-runs, triples, doubles, STEALS, every imaginable metric in stock trading - and this is just the beginning?

    Nope. It 's not going to pan out.

    Rather, "Playing PLUG" has become the online "casino game of the month" - the minnow that swallowed the whale of Wall Street.
    Mar 16 05:19 PM | 5 Likes Like |Link to Comment
  • The Housing Market May Be Starting To Crash [View article]
    Dave,
    1) " why, if the housing market is so robust, they can't finance their operations from cash flow?"

    Simple answer. Why spend their own money to build homes if someone else will give them the money to do it practically for free? The public builders have almost unlimited access to dirt-cheap capital with very few strings attached. Gratis QE and the Federal Reserve.

    2) You're right about the employment to population ratio; but it's more than just bad management and the financial crisis's fault. Those things simply exacerbated it.

    Rather it's demographics.

    The Post WW II generation - the largest in history - is retiring, and has been retiring (early) since the year 2000 when the numbers first began to level off, and soon after, recede. If you look at the EMRatio you'll see that it really got rocking when the first baby-boomers graduated from high school in 1963, went practically straight up til the year 2,000 (37 years later), when the first boomers began early retirement at 55 years old.

    Now that cohort is in the 65 to 70 year range, and leaving the work force. That's why the numbers look so bad. It's not because something is "wrong". It's because it is the way it is. The difficult thing about the financial crisis is that these experienced workers lost a lot of retirement money in the market, and if they are currently unemployed now or were laid off, are unlikely to be employed professionally again. So yes, there is a human tragedy - exacerbated by the financial crisis - but we would have had this kind of EMratio in any case.

    3) Who is going to buy all these homes? I wonder about that too, but they keep buying them. Maybe it is stock market money; maybe it's good jobs in specific areas (not everywhere is super-expensive LA, San Francisco Bay Area, Silicon Valley, NYC, Boston). There's really brightening economies in other metros where land is not so expensive and nice homes run $250K - very doable with 4.5% mortgage rates. The point is, builders are only building new communities where the jobs are happening. It is for the statistical and real that they build for, not the theoretical nor the hopeful.

    Simple description of their stategy: location, location, location.

    Where I live - a metro area of maybe 15,000, there's ONE FOUR-BEDROOM home for sale, and it will likely go for $50K above asking. There is little to no inventory in the desirable parts of the SF Bay Area. It's like the current drought - driest year on record. Must be the lowest local inventory numbers on record too.

    And new homes? Practically non-existent and they sell quickly. There's actually waiting-lines for new homes, and the builders change the prices once a week if the demand is too high. I have read about families camping out in tents in front of the sales office at new communities in the East SF Bay (Dublin, CA)

    The only reason that Tri-Pointe (TPH) and KB Home (http://bit.ly/Ws2zLQ) have not sold every coastal CA home they could build is that they DON'T WANT TO. Where would they ever get replacement lots? At 2010-2012 prices? Forget it. Those days are gone.

    So they meter out the lots like little old ladies with tea cups pouring tea, and sell each lot and each home for a few thousand bucks more. Cancellations? Bring em on. The builders will try to keep the deposit and sell the home to a new buyer (almost immediately) for 5% higher.

    Where you see imminent disaster, I see builders shooting fish in a barrel. You don't see how they could possibly do it. I don't see how they could possibly lose.
    Feb 27 03:58 AM | 5 Likes Like |Link to Comment
  • A Simple And Timeless Way To Trade The S&P 500 Successfully [View article]
    Yes and No. In a bull market - at the end of it all - with all the dips and all - you would have done better mathematically simply by staying in until it was REALLY the time to exit.

    Remember the old guy in Livermore's book, "Reminiscences of a Stock Reporter"? Every time Jesse would try to get him to sell to take profits his answer was, "Why should I lose my position? It's a bull market you know."

    I once tried to talk my dad out of his Lockheed Martin stock which he had acquired in the 1960s as a vice-president at Litton. It had gone up 4 or 5 fold and was having a great year that year because of military spending. It looked like a telephone-pole chart, if you know what I mean. Of course you sell it!

    My dad's response, "Do you know what my cost basis in that stock is? Two bucks. Why should I sell it at 90?". So he didn't. Wouldn't even hear of it. And in the next 15 years it went up multiples again.

    Jesse Livermore had a comment about this kind of investment attitude too, "It's often what you DON'T DO that makes all the money for you...I've made my most money by simply SITTING (paraphrase)."
    Nov 10 05:15 PM | 5 Likes Like |Link to Comment
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