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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, 2013. 10:58 PM | 29 Likes Like |Link to Comment
  • Calm Before The Storm [View article]
    Strike. Some great comments. You might want to take a look at three articles on interest rates from 2013.

    The first is by Sy Harding, BEING STREET SMART; U.S. Treasury Bonds Are Oversold, August 23, 2013. Here is the link: http://bit.ly/1kazEGr

    He accurately predicted the 2014 bond rally. His main point is that as the economy warms up and IRS returns improve, the U.S. govt will need to print less and less bonds because revenues will be up, thus making the Fed's tapering less of an economic event. But even so, Fed tapering is still the elephant in the room because of the "percentage" of total bond issuance they represent (even as they taper).

    Then there is this provactive article by Scott Grannis from November, 2013, "Quantitative-Easing Myths" (Link: http://bit.ly/1i8ddlh)

    Scott makes the point that tapering or ending a round of QE (typically in the summer) has coincided with a DROP in yields and thus a rally in the bond market.

    Lastly, there is an article I wrote in December, 2013, "Are Bonds On A Collision Course With Housing, History And The Fed?" (Link: http://bit.ly/1kazLC7). My main point is that super-low interest rates may be with us for the remainder of the decade.

    +++++++++++++++++++++

    This recent article I wrote on the SVXY is a departure. It's not a bear market call. Let's call it a summer health insurance program based on technical evidence of the presence of an absence in volatility - the rarity of it - and the non-probabililty that it will continue to remain so in a levitated state.

    That's kind of a long way of saying it, but it was what I meant. As a trader and investor, I am most concerned with probabilities, and I am always on the hunt for overbought and oversold.
    May 30, 2014. 01:35 AM | 14 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, 2011. 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, 2014. 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, 2014. 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, 2014. 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, 2014. 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, 2013. 11:27 AM | 8 Likes Like |Link to Comment
  • $60: Not A Reasonable Price For Oil [View article]
    I agree with Trade. An excellent, well-written article - with just the right amount of common sense illustrations to support the author's premise. I have written 3 recent SA articles over the last 5 days along the same lines.

    This is a panic, not a fundamental story. Reminds me a lot of
    the bond panic just two months ago. This fall is more about money pushing money down, than any fundamental story.

    What we have is 2008-in-reverse. Once the investing public sees the handwriting on this wall, there could be the mother of all short-squeezes by Friday.
    Dec 18, 2014. 12:37 AM | 7 Likes Like |Link to Comment
  • Calm Before The Storm [View article]
    Sandwah - isn't that the point? In terms of investment returns, TIME CARRIES ALL THE MUSCLE. Compressing the greatest amount of result into the shortest amount of time. Only volatility affords those kinds of opportunities.

    Buying the VIX at a multi-year low in volatility - amidst 10 volatility events in 18 months - seems like a high-probability trade to me; especially because the SVXY does not appear to deteriorate with the passage of time.

    I'm not sure how I could compare it. Maybe a lion on the Serengetti waiting by a water hole for the Wildebeests to return? They have been there before. They will come again. No one's around. Why not stake out a position?

    Or maybe a fisherman down by the lake. The fish aren't biting today, but they've bit here before, and the trout in this lake are huge, so when you score a trout, it's possible you could get a big one. So the fisherman waits with his pole and lure and bides his time.

    I know that if I short 1K of SVXY near $80 and cover a few weeks later at $60-$65, those profits will indeed show up in my brokerage account. They are not statistical phantoms. And if I am wrong here (I don't think I am); I'll simply get out and move on. I'm completely detached about this.
    May 30, 2014. 01:59 AM | 7 Likes Like |Link to Comment
  • Plug Power: Ascension To The Big Leagues Is Imminent [View article]
    Purple K,

    It seems an eternity ago - and close to a 100,000 hits ago - that I wrote several articles on PLUG, discussing its cult status as a casino game par excellence, CEO'd by a barker who'd put PT Barnum to shame.

    When ol' PT said sarcastically, "There's a sucker born every minute" he was probably looking deep into the future and watching Andy Marsh in action.

    It's just amazing to me, the shallow deck of cards this guy brings to the table (almost weekly), and no matter what the hand he holds, he bets the whole pot on it, and bluffs his detractors from calling him on it. It's like he loves betting on credibility and how far he can "push" it.

    PLUG sold equity raises in the gazillions at 15 cents/share in 2013 and was doing the same thing at $5.50 and $5.74 in 2014. Marsh is agnostic to the underlying value. It's your money PLUG wants (and gets).

    However, I think that last equity-raise on PLUG's part finally did it. They might have drawn their last blood from the eternal fount of believing betters. It took 4 days for PLUG to go from $4 to $6 in late February, 2014; and 4 days to fall from its throne from $6 to $4 in late April.

    The easy-money woke up and smelled the coffee. They're gone. And they are not coming back.

    I will take any wager that PLUG NEVER trades above $5 again. Not in my lifetime. Not in yours. The sooner longs know this - and cut their losses - the less they will suffer in the end.

    The $115ML buyers who bought their recent secondary at $5.50 were 28% under water in the blink of an investor's eye. So is the guy who bought his large secondary placement at $5.74. Air Liquide is probably preparing its liquidation papers even as I write.

    We'll probably kick-around here in the low $4s for awhile, but the day will soon come when PLUG reprises its 4 day rise from $2 to $4 in early January, 2014 and falls from $4 to $2; probably in four days again.

    Absurd optimism in fuel cell stocks has always occurred just before a Nasdaq top. This is what happened in 2000, 2007, and now, maybe, 2014.
    May 6, 2014. 02:04 AM | 7 Likes Like |Link to Comment
  • It's Time To Buy The Oil Panic Of 2014 [View article]
    I am approaching this in a simplistic manner. Gold is a storage of value. Oil is a cultural commodity that is the substrate of modern industrial society. Oil is truly ubiquitous and indispensable, fungible at any price. In terms of financial comparisons, Gold we store, oil we use.

    My reason for posting these charts was to pose a question, "Under what previous economic conditions did the ratio reach an extreme in the past? What are the correlations today?" In 20 years, I found 4 bear markets and recently, the European debt-crisis.

    Which follows with the second question, "How far into this drop are we?" If the oil/gold ratio is any indicator, at least 80% by my pencil.

    I accept 8 out of 10 as good odds. And if it goes lower from here - down to the Financial Crisis lows - say to odds of 9 out of 10, or even 9.5 out of 10 - these will be even better probabilities to entertain.

    Where will it bottom? When? That I don't know. But every tick lower from here gets me closer to that bottom and lowers my cost-basis as it falls.

    If you read my previous articles, you will see that I have used this pressure-cooker model to scale into positions before. This method sometimes took weeks, even months, to fulfill. But in the end, they all worked.

    I believe this particular trade will eventually be one of the best things I have ever done, and I am willing to "stick around" till it does. Lower from here only seasons the pot for a tastier soup in 2015.
    Dec 17, 2014. 06:22 PM | 6 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, 2014. 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, 2014. 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, 2013. 12:33 PM | 6 Likes Like |Link to Comment
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