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Pompano Frog

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  • China to link Hong Kong and Shanghai stock exchanges [View news story]

    I am relatively sure the Chinese economic planners understand that to reach their private sector growth goals over the next 10 years they need a strong stock market.

    Entrepreneurial capital is a function of M2 (banking deposits) plus the stock market capitalization. A stock market at 20x earnings generates enormous wealth for the entrepreneurial class and it also acts as a signal to this same group that expansion is profitable.

    As the p/e ratios expand they also force companies to raise their growth targets and if you don't your competitors will.

    This is why the economy expands six months (roughly) after the move in the market. It is not because the market, in its infinite wisdom, sees the coming turn.
    Apr 10 06:05 PM | 2 Likes Like |Link to Comment
  • China Does Not Have A Problem [View article]

    I think you will find that the optimal current inflation rate in the current literature for a developing country is 6%. Therefore, China's leaders have leeway to expand or contract to meet their targets without worrying about inflation factors.

    The reason for the 6% is that you want to punish savers for holding deposits and reward them for risk taking in business, real estate and equities. Deposit growth and savings alone does not create economic growth.
    Apr 4 07:10 PM | 3 Likes Like |Link to Comment
  • Investment In Chinese Real Estate No Longer Looks 'Safe As Houses' [View article]
    Your reply gets to the heart of the matter. These articles basically represent the theocracy of the Austrian Economic's School. These articles are here on Seeking Alpha for any reader to review. Take a look at 2009 and see how much money the Austrians made.

    If I missed one of the three largest market moves of the last 50 years I would rethink my basic theories. Oh, I forgot the Austrians don't accept statistical analysis. Do you really believe that there are statistically significant inventory overhangs in the major cities where the population is increasing dramatically every year.

    Consumer disposable income was up 10% in Shanghai just last year. We should be copying what they are doing instead of hiding our heads in the sand. They create more STEM degrees every year to support their increased GDP targets. This is why Bloomberg put together a new engineering university for NYC.

    If this was not standard economics these Asian countries would not have been able to create the largest increase in standards of living in human history.

    Of course, in financial markets what really matters is price. Are the realities discounted in the prices?
    Apr 4 01:18 PM | 4 Likes Like |Link to Comment
  • Investment In Chinese Real Estate No Longer Looks 'Safe As Houses' [View article]
    Long term investors are missing out on the investing opportunity of the decade due to articles such as this.

    The China stock market (FCA 22.22, S&P 1888) is trading at less than 9x price/earnings. This is a similar number to the normalized p/e of the S&P in March, 2009. Global asset allocator's are going to make a move into China equities versus the S&P at 16.5x p/e.

    China is growing at 7%+ and the U.S. has long term growth of 2.5%.

    Comparing an economy with a per capita GDP of $10,000 with the U.S. at $50,000 GDP per capita defies all the economic research done on economic growth.

    To find a suitable comparison you need to go to Korea in 1979. Korea was not a democracy. Korea had the high savings rate which is required to support the high investment rate necessary to break out of your existing economic dynamic.

    Did you make more money buying Korean real estate in 1979 or U.S. real estate?

    China is 50% urbanized. The leadership has targeted 70%. How can real estate collapse with that type of population inflow? This is an economic leadership that has delivered on their goals relentlessly.

    I fully understand that it will be difficult for the West to accept that they have not substantially improved the living standards of their citizens for the last 30 years, but it would be better to face that fact than to think China is going to disappear.

    Just one further item. Economic growth competes with financial assets for funds. This is why you have these huge equity moves when the economy is weak. China industrialists are short of funds and if their equity market was strong it would feed on itself and China growth would be double digit.

    Economists have not fully accepted yet the importance of the real estate markets and the equity markets in economic cycles and development. It's been a costly mistake.
    Apr 4 09:45 AM | 2 Likes Like |Link to Comment
  • Indonesia... Time To Ride The Jokowi Rally [View article]

    Thanks for a great article going over the current situation.

    I can't help but notice that if Jim Rogers was writing this article there might be a mention of valuation. And maybe, relative valuation to other emerging markets.

    And maybe, monetary factors and interest rates.
    Mar 30 05:15 PM | Likes Like |Link to Comment
  • NY Fed Paper Says That Stocks Are Still Cheap [View article]

    Thanks for sourcing a great article. It gives readers a sense of what the academics are thinking. If this was a chemistry class this research would not get more than a "C." There is not one monetary factor in this analysis.

    Nor are there any of the factors that create dramatic changes in monetary policy. When I started the source material I thought the jig might be up and the "academics" may have caught up to reality. No such problem.

    I presume in academia you are not allowed to use a predictive factor unless it fits your theory. So instead of making an attempt to change the theory they discarded predictive factors.

    The BAA corporate bond rate would be a better comparison to the equity earnings yield. Let's see, in August of 1987 the BAA was at near 11% and the p/e ratio on the S&P was near 18x. That p/e equals an earnings yield of roughly 5.5%.

    I guess there was no reason for the market to have tanked in the October "surprise."

    This is just one indicator. Think about how high interest rates have to go to generate a major correction without tight monetary policy.
    Mar 30 04:29 PM | 1 Like Like |Link to Comment
  • The Sum Of All Fears: Public Service Announcement - The Russell 2000 Is Wildly Overvalued! [View article]

    Dear Reader..

    This article is absurd. Yahoo Finance under "holdings" shows the p/e for the IWM as 19.7x and the price/book at 2.1.

    The Guggenheim Small Cap Value (RZV) is at 15.0x and 1.1x price/book.

    Why the difference? It is mostly because of the overweight in IWM to the biotechnology sector, 12.7% vs 6.1% in the RZV.

    The Ishares Biotech ETF (IBB) sells at 29.3x p/e and 6.8x price/book. The reason being it is selling based on merger/acquisition activity in the sector.

    The rest of this article is a summary of the ideas expressed in seeking alpha since the bottom in March, 2009. But, let me make additional comments on two.

    This is a bond analyst and yet, there seems to be no realization that when you have interest rates at near 50 year record lows it does not make enormous sense to be issuing as much debt as you can. Interest rates could easily go up 50-100% from these levels and we would have to make adjustments to the balance sheet for unrecorded asset values.

    China..China has a GDP per capita equal to 20% of U.S. per capita GDP. They have the highest investment rate, in excess of 40% of GDP, of any country and they have the highest growth rate at 7.5%.

    The proper historical comparison is Korea in 1979 when it was at 20% of U.S. GDP per capita. In 1979 Korea was not the country you see today. Countries at this stage of development have enormous problems to deal with.

    As an investor the important question, always, is price. The China ETF (FCA) sells at 9.0x p/e and has a dividend of 4.0%. If you have a pension account which is the better long term investment 9x earnings for a country with a 7.5% growth or 16.5x p/e for a country with 2.5%. Let me think about that.

    I need to work on a spreadsheet. So I will give it a rest.
    Mar 24 11:13 AM | 12 Likes Like |Link to Comment
  • Turning Bullish On Bonds [View article]
    Last Boomer..

    Your facts are totally correct.

    Our Central Bank has no direct control over the banking system as they do in most other nations. This has been an enormous strength for the U.S. economy as it has led to a highly diversified system of financial intermediaries.

    Yes, they can be off by 12 months or 24 months in their inflation forecasts. But, when reality falls short of the forecast that stimulates more response. You are seeing this currently. The trend in auto sales has been weak for months. It would be impossible for the Central Bank to meet its economic forecasts with weak auto sales.

    In response, M1 is increasing at a 15% rate from one year prior. That is an enormous move given that the economy is typically reducing inventories and receivables seasonally. I guess the financial markets are going to have a substantial bounce.

    You see a number of countries with 2.5 or 3% inflation targets. This seems to be the trend in current research as to the optimal target. By overshooting the 2% target you can still claim to be averaging 2%. I expect inflation to pick up at some point with no response from the Central Bank.

    All of this is incredibly bullish for equities and makes fixed income and income related equities dangerous.
    Mar 18 07:33 AM | 2 Likes Like |Link to Comment
  • Japanese Stock Market Will Underperform [View article]
    A very interesting article.

    Every one of the facts are correct and yet all of the conclusions about future movements in the financial markets are theology rather than fact.

    So you are telling me, that over the last 50 years globally, 10 year bond yields have averaged below dividend yields on stocks? I don't think so. I think it is just the opposite.

    Just look at the Board of Governors of the FRB and look at the model forecasts for the U.S. economy for the long term. These are simply averages for the last 50 years for the U.S.

    A weak current account should tend toward currency weakness which would increase domestic revenues and earnings and increase foreign earnings.

    A budget deficit has historically been associated with bull markets. The reason being budget deficits take place in a weak economic environment and the central bank is increasing monetary activity which is stimulating financial markets.

    Oh, and then there is the last comment on consumer sentiment. I suppose in March, 2009 Seeking Alpha was full of bullish articles on the S&P. Ok, maybe not.

    The problem with using correlation to examine financial data is that you are blending in data over large time frames where the data point is having no impact on what you are trying to predict. You need to switch to a signals approach.

    The economics professors know little about financial markets and most don't care. As you know, if a data point doesn't agree with their theories they refuse to use it. That's always helpful in analysis.
    Mar 18 07:12 AM | Likes Like |Link to Comment
  • Turning Bullish On Bonds [View article]
    Beautifully written and organized.

    The author has been writing since Feb 5, 2013 and thus, it is not possible to review his historical thoughts on financial matters.

    Seeking Alpha seems to have changed the way you can review the historical comments making it almost impossible to go back historically. It was truly one of the strengths of Seeking Alpha.

    On March 3, 2013 the author published an article, which was an "editor's pick," which made mostly the same points that he makes here. I repeat myself too.

    The ten year government bond was at 2.04 the week of March 15, 2013. It is currently 2.71.

    The author's points about deflation are, to me, strange. We have had numerous Federal Reserve officials testify in front of congress on this issue. They have stated numerous times that they were fully confident they could deal with any move in that direction.

    The Board of Governor's website has a chart of where each of the members is forecasting the major economic variables. Those who ignored these same forecasts in 2009 have missed one of the largest bull markets in modern economic history.

    I think, last weeks money supply numbers were 15% above 12 months prior. There have not been many deflationary episodes with such a scenario. I think the record is zero.

    I will let it go. Investors should know that a theological analysis is not going to make it happen. There are bad governments all over the world. I assure you the factors that create the business/liquidity cycle have little judgement as to the good government factor.
    Mar 17 09:14 PM | 3 Likes Like |Link to Comment
  • Time To Short China? [View article]

    I love the comments. Not one change since March, 2009. Thanks. You would think if your mental model of the financial markets has not been profitable for five years you might think of going back to 2009 and look at other models that were more predictive.

    A classic example of human "herding."
    Mar 16 08:42 AM | 1 Like Like |Link to Comment
  • Time To Short China? [View article]

    I was rushing but, what are your numbers? Thanks.
    Mar 16 08:36 AM | Likes Like |Link to Comment
  • Time To Short China? [View article]


    In March, 2009 the S&P normalized price/earnings ratio was under 9x. It is currently 16.5x. First Trust AlphaDex China (FCA 21.81) is at 9x.

    I actually invest in the markets and not just other people's money. I think if you go back historically on these pages and look at the reasoning you will see that these techniques which appear to be reasonable are not predictive of financial markets.

    China is hated by the West. This has created an enormous investment opportunity.

    China has a 2013 est GDP per capita of $9,800. (CIA est) The U.S. is $52,800.
    That is 18.9%.

    To find a similar comparison you need to go to Korea in 1979 when their GDP was $5,500. The U.S. was $29,500. That is 18.7%. This is the appropriate comparison: 1979. Think about it.
    Mar 14 08:35 AM | 4 Likes Like |Link to Comment
  • Why United States Steel Is An Absolute No-Go Investment [View article]

    All of the facts presented by this writer are correct. The problem is they have nothing to do with future movements in the stock price.

    It is fairly easy to determine historical periods where steel stocks outperformed the S&P. We are five years into a business cycle. If you expect things to collapse and you expect the Federal Reserve to tighten credit the high debt would be a huge problem.

    If you expect further increases in the equity and housing markets with moderate global energy prices this whole group could see price strength on increased domestic demand and restrictions on import competition.

    All of the factors stated need to be tested against different macro economic backgrounds. There should be a successful investment strategy for any background.
    Mar 12 06:51 PM | 4 Likes Like |Link to Comment
  • United Insurance: 5 Different Insiders Have Purchased Shares During The Last 30 Days [View article]
    This is one of my four core holdings. My understanding of this company is that the new management has special expertise in the reinsurance market which is critical since they are taking on high risk policies. Of course, the company is getting paid large premiums for absorbing that risk.

    They are also expanding into other states since they have a lot of unique expertise in their particular specialty. They are small thus are able to generate significant profitable growth.
    Mar 11 04:30 PM | 1 Like Like |Link to Comment