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  • Is US Concrete A Good Bet On The Construction Sector? [View article]
    Dear Reader..

    I was impressed when I saw the use of "enterprise value." And then when I saw corporate revenue used as a comparison against a macro economic variable in the chart I was also impressed.

    And then I saw the conclusion, which if we were in a free market situation, would be true. The concrete and cement business is highly polluting. If demand picks up in a geographical area you are not allowed to build a new facility to service that demand.

    As Cramer, on "Mad Money," likes to say "smart investors love regulation."

    USCR has been acquiring existing plants in areas where you either have a total monopoly or a partial one. They pay reasonable prices and then they increase the margins because many of the functions such as legal, regulatory and accounting that are expensive for smaller business can be added at little cost to the existing operating structure.
    Nov 30, 2015. 12:07 PM | Likes Like |Link to Comment
  • Junk Bond Market Forecasts A Looming Stock Market Crash [View article]
    Dear Reader..

    Why did the author choose a bond series (BBB) where data only exists from 2010.

    This particular corporate bond series at 4.17% has almost zero default risk and why the spread moving a 1/2 of a percent is of any note is only because of the short time frame.

    The reader might be better off looking at the Moody's BAA series which goes back monthly to 1919 and daily to 1986. The current yield is 5.44% and this also has almost a zero default profile. But, you can run the spread between this and U.S. 10 year government bond and see if you have a relationship over the last 50 years with predicting stock market movement.

    When you are talking about the energy debt you are talking about CCC rated bonds trading at current yields of 15.19%. As the author states if the price of energy does not increase over the next 12 months some of these companies will have a liquidity squeeze.

    Historically, what has been the record of future price movements in oil following a 24 month decline of 50%?

    Does momentum trading have a good long term investment record?
    Nov 26, 2015. 10:11 AM | 3 Likes Like |Link to Comment
  • Are The Tailwinds For Stocks Turning Into Tornadoes? [View article]
    Dear Reader..

    I don't even know where this stuff comes from.

    Prior to 2000 and 2007 the Federal Reserve tightened credit significantly in response to worries about bubbles and core inflation above its target.

    In the last 55 years, 1958.12 to 2015.11, you have had median M1 growth 12 mos% of 5.2%..

    1995.12, -2.2%. 1996.12, -4.2%. 1997.12, -1.3%. 1998.12, 1.6%. 1999.12 1.8%.

    Equity markets and real estate markets are functions of monetary behavior on a global scale. See the Ben Bernanke paper on this subject concerning the "Financial Accelerator Model." 1999.12 the S&P was 1469.25.

    As far as price is concerned I use the S&P 12month forward number which you can see the attached release is 16.4x p/e at current prices.

    This is almost the middle of the last 55 years of data. I won't bother looking it up on my spreadsheet. S&P earnings are a function of gross revenue growth. Revenue growth is tied to monetary growth.

    Is China, Japan, the Federal Reserve or the ECB tightening credit?

    One more thing if you download oil prices from the Federal Reserve Bank of St. Louis to excel and create a column for 24 month price change. This is easy. You will find that there have been numerous long drops in oil and metal prices.

    These negative price moves were always bullish. They signal the economy is weak and the global central banks are going to respond. With weakness in actual demand the money creation floods into financial assets. It is the best possible world. This market could be up 50% to 100% before this is over.
    Nov 24, 2015. 04:59 PM | 11 Likes Like |Link to Comment
  • Noah Smith On The Great Chinese Data Conspiracy [View article]

    Thank you for this article. The article you reference was truly absurd and when I traced down the quotes I too noticed they were in many cases very old.

    I happen to think that leaders of institutions have a tendency to set a low goal with the idea that they will exceed the target.

    If you create a simple model with a country having a 20% GDP per capita of the U.S. and a 30% plus savings rate and plug in the rate of increase of retail sales (10%+) and wages (9%+) you get for China something in excess of 7%.

    So the question is why the disparity? I think the explanation lies in the fact that the Shanghai composite had a huge bubble in 2007 and a smaller bubble this year. Stock markets are not just wealth creators for the private sector they also act as signaling mechanisms for those same top 5% of the population that controls all of the nations institutions.

    China and Singapore are the best managed economies in the world. That does not mean they don't make mistakes. But, they make an extreme effort to correct their mistakes. If you want to know what cutting edge economic policy looks like you just need see how they are handling an economic topic.
    Nov 23, 2015. 08:33 AM | Likes Like |Link to Comment
  • It's Time To Prepare For The Bear [View article]
    Dear Reader..

    There is no such thing as an earnings recession..

    Recessions are the result of a significant downturn in new single family home construction and auto sales.

    These are caused by significant movements by the Central Bank to slow the economy down because inflation is running above the Central Bank target.

    The movements to slow the economy down are not just an upwards movement in interest rates. It is not the cost of money it is the availability of money.

    The stock market does not signal an impending recession it creates the recession. The historical data on the financial markets is easily available for download to an excel spreadsheet from the Federal Reserve Bank of St. Louis. Ben Bernanke wrote a paper on this subject in 1996 which is called the "The Financial Accelerator Model."

    The top 20% of the population in the U.S. are the ones who are building new houses and buying new autos. They also own 90% of all equities. In addition, they run all of our institutions. The signaling effect of the equity market influences every decision they make.

    On top of this there is an international component. When you review the historical data you need to remember that in the 1960's and 1970's the U.S. totally dominated the global financial markets. That is no longer the case. We now have four global financial centers which includes China, Japan and the Euro zone.

    Do you see any tightening of credit in any of these monetary zones? The S&P could easily be 50% to 100% higher than these levels before this cycle ends. The incompetence of our political leaders is a plus for the financial markets. The slower the growth of the economy the more inflation is kept within the real core target of 2% to 2.5% core inflation.
    Nov 22, 2015. 01:29 PM | 10 Likes Like |Link to Comment
  • Is China A Building Block In Your Portfolio? [View article]

    You should be giving me more details. You are implying that Chinese companies are somehow shady. It is my experience when reading the annual reports of Chinese companies listed in Hong Kong that in every case they are audited by an arm of a major U.S. accounting firm and that their disclosures are in more detail than similar U.S. companies.

    I think what you are referring to are Chinese internet companies that cannot qualify for listing in Hong Kong or Shanghai because they are not profitable. Obviously, the IPO internet stock market in the U.S. and China is a specialized subset of investing that carries all types of additional risks.
    Nov 14, 2015. 12:50 PM | 2 Likes Like |Link to Comment
  • The 6 Best China GDP Growth Estimates [View article]
    Dear Reader..

    The author has selectively chosen a number of extreme claims, some of which are 5 years old, and then provided little backup as to the reasoning behind these estimates.

    I assure you the author has not attempted to create a regression estimate of GDP himself otherwise he would know these are fallacious.

    He should certainly know that the Federal Reserve Bank of San Francisco recently completed a research project on this subject. See link below:

    The author fails to mention that wages have been growing in excess of 9% a year for many years. In addition, retail sales were up in excess of 10% over the prior 12 months.

    You are talking about a country that has a savings/investment rate in excess of 30%. You can't use a U.S. model of economic stagnation on this country and expect to get an accurate end model.

    All of these statistics correspond to a 7% plus GDP growth rate. That is the same growth rate Japan and South Korea were able to create at similar levels of GDP per capita relative to U.S. GDP. per capita.

    The current China leadership is lowballing their growth rate at 6.5% in order to make it an easy target.

    And most importantly, Chinese stocks trading on the Hong Stock Exchange are selling at a p/e of less than 9x. That is a similar level to the U.S. in March of 2009.
    Go to the First Trust AlphaDex China website for more infor (FCA 21.86).
    Nov 7, 2015. 03:07 PM | 2 Likes Like |Link to Comment
  • Third-Quarter Earnings Season Worst Since 2009, Says Bloomberg [View article]

    That's why you need to not look at charts.

    If you drop oil prices into a spreadsheet, choose a time period, I use 18 months, and look at the historical record you will find similar price drops in oil prices. It is a first decile event, but what is the historical record?

    In each case sellers were convinced the charts were telling the story and there were facts to validate the story. What happened. Not once did the decline continue.

    In half the cases a massive mistake was made and prices quickly reversed. Oil is a global market and the U.S. represents only a small fraction of total supply and demand. China and India are the swing factors.

    As you know I think the market has made a major blunder in China which has created a once in a decade country investment with massive upside. Given that I expect energy usage to respond to lower prices. Energy is a classic mean reversion investment.
    Nov 5, 2015. 05:18 PM | Likes Like |Link to Comment
  • Third-Quarter Earnings Season Worst Since 2009, Says Bloomberg [View article]

    Some observations on the observations.

    You may think I have lost my mojo, but I have not.

    A central bank can do little about the long term growth rate of an economy. Rarely do the goals of the political elites change to focus on the long term economic growth rate. It is usually during periods of military threat or perceived threat.

    But, central banks do have the power to generate near term growth almost in any condition. In most cases central banks, including ours, have political limitations.

    Core inflation is almost 2%. You can check the number at the Federal Reserve Board of St. Louis. The symbol is (CPILFENS). With interest rates at near 55 year lows that creates a negative interest rate for borrowers. Let us to be kind, just say potential borrowers are uninformed at the gift they are being offered.

    It is just a matter of time before the public jumps on the bandwagon. Think of the loss of capital to those who have not been in the stock or real estate market in the last 3 years.

    I don't see "deflationary pressures" except a slight rise in the value of the dollar.

    Dr. Yellen is in total agreement with the other 19 members of the Federal Reserve Board. Take a quick look at the dot graph below. The Federal Reserve Board is also in line with the thinking at all of the major central banks.

    Does it strike you as slightly off that the writers in Seeking Alpha seem to know more than the world's central bankers and their staffs?
    Nov 5, 2015. 12:49 PM | 1 Like Like |Link to Comment
  • Third-Quarter Earnings Season Worst Since 2009, Says Bloomberg [View article]
    Dear Reader..

    The best thing for equity price appreciation is a slow economy. The Central Bank faced with a slow economy provides excess liquidity which is the fuel for equity prices. It has always been this way.

    When the French landed in colonial America to help us with the revolution against the British they paid their men and paid for supplies in Silver which roughly doubled the American money supply. The price of real estate skyrocketed.

    Ben Bernanke wrote a paper on this subject in 1996 entitled the "Financial Accelerator Model."

    Rising equity prices not only have a wealth effect, but more importantly they act as a signaling device to those with control over the societies institutions to become more aggressive or fall behind their competitors.

    Over fifty percent of S&P earnings are from foreign operations. The S&P is, long term, a play on global economic growth rather than purely U.S. growth.

    Equities compete for the same pool of funds with real estate investment and corporate expansion needs. At market tops the economy is booming, inflation is picking up and the central bank is tightening credit to slow things down.

    Rising interest rates are not necessarily a sign of tightening credit. It is not the cost of credit it is the availability of credit that is critical.
    Nov 5, 2015. 09:43 AM | 3 Likes Like |Link to Comment
  • China's 5-Year Plan: Managing Market Expectations [View article]

    I agree with most of what you wrote. In fact, I think there is strong evidence that Japanese war planners were emulating the German economic system of 1933 forward. Those war planners survived the war and had made many improvements based on their experiences. Those were the economic leaders coming out of World War II. The whole Asian model is based on generating war time increases in production in peace time.

    There have been a couple books published on the Russian experience. Sachs found in Russia that they knew nothing about capitalistic systems and he therefore was providing the leadership. He did advocate to U.S. political leaders to support reform. Those political leaders, like they did with Bernanke during the financial crisis, were only thinking of their domestic near term political consequences.
    Nov 2, 2015. 12:38 PM | 1 Like Like |Link to Comment
  • China's 5-Year Plan: Managing Market Expectations [View article]

    There are three types of negative outcomes for adopting the American/European economic theology which stresses that democratic institutions should come before economic development.

    The first is investment decisions. Investors globally are missing an opportunity to invest in a country that is probably going to be the growth leader for the next 10-20 years at a a price which we know has historically always given large portfolio returns.

    Second, the economic theories expressed in these articles were used when Russia went through political change. They are responsible for Putin being in power. The failed economic policies of our experts created Putin. The failed economic policies of the West created India. They have left South America and Africa in a shambles.

    Third, these economic theories have kept the U.S. from adopting some of the economic strategies employed by China. We don't have to have a long term economic growth rate of 2%. Your historical economic growth rate does not have to be your destiny.
    Oct 30, 2015. 06:59 AM | 1 Like Like |Link to Comment
  • China's 5-Year Plan: Managing Market Expectations [View article]
    Dear Reader..

    The author has a constantly pejorative tone to her articles concerning China. ..."it remains very much a centrally planned economy." As if that is a negative. I would like to know what countries a reader or the author is looking at that were able to go through the development process post world war II that were not centrally planned.

    Certainly, Germany after the War was a centrally planned economy with one political party dominant. When a second political party reached near parity that was the end of the economic miracle as both parties in the "democracy" raced to buy votes.

    Japan was centrally planned. South Korea was a military dictatorship during its growth phase. So was Taiwan.

    Singapore was and even today has one political party dominant that focuses on long term economic growth.

    China has a GDP per capita of roughly 20% of U.S. GDP on a PPP basis. This is similar to Japan in 1955 to 1959. Japan was able to achieve 7% growth in the 1960's why would China not be able to match that performance?

    I love living in a democracy. I can fend for myself with a long term 2% growth rate. I feel sorry for those in the lower 50% of the population who a 2% growth rate condemns them to little hope for a better life.

    Democratic institutions are a luxury good. They have many positive attributes. But, generating the political will to follow long term economic policies which create an environment for economic growth is not one of them.

    Small government and free markets do not create economic growth. Neither do socialist redistribution policies.

    There is a China etf which is composed of 50 Chinese companies trading on the Hong Kong Stock Exchange at a p/e of less than 9x. (First Trust AlphaDex China (FCA 21.36)) It pays a little dividend too.

    Look up the whitepaper on the First Trust website on their selection methodology.
    Download a list of the underlying companies and you can use yahoo finance to read a few of the annual reports.
    Oct 28, 2015. 03:26 PM | 4 Likes Like |Link to Comment
  • China's GDP Growth: An Important Rebalancing Milestone [View article]

    Take any country in the world, including the U.S., and download the retail sales number. You can get this number on almost all countries from the FRB St. Louis. For China it was up 10.9% from a year ago. That is consistent with a 7% GDP.

    Retail sales has an Rsquare in logs with GDP in the .90+

    Indus production is .40. That's a big difference. Your other statistics don't show forecasting ability.

    You are expecting a country that has a GDP per capita of less than 20% of the U.S. or Singapore to offer equal amenities. So we can't compare the two countries today.

    But, China is emulating what Singapore was doing in 1969. Singapore at that time had a GDP per capita of 20% of the 1969 U.S. number.

    This isn't my idea. Everyone who studies this uses this technique except the politicians. Take a look on the internet for "Bad Samaratins." A great book on this economic development topic.

    The Federal Reserve Board of San Francisco last month published a paper on the China GDP numbers. It is an easy read.

    From an investment standpoint, if you get China wrong everything is wrong.
    Oct 26, 2015. 08:23 PM | 2 Likes Like |Link to Comment
  • Stock Rally - Color Me Skeptical [View article]

    "Real Wage Growth" (wage growth after the effects of inflation) mostly takes place when the unemployment rate falls below 5%.

    The unemployment rate for people with technical and professional degrees is already under 3% and they are seeing "real wage growth."

    The reason the average Joe has not seen an increase in wage growth is because the rise of the population has been nearly as great as the rise in GDP. This was a political decision. It has economic effects.

    The Central Bank (the Federal Reserve Board) has almost no control on the factors that increase the long term economic growth. Those factors are well known.

    Read the free book on the internet "Bad Samaritans." It is readable. It is written by a professor of economic development at Cambridge.

    Not stimulating those factors of long term growth is a political decision. Part of the problem is that the two political parties express economic views which are from the 1930's. I am not joking. They sound good if you know almost nothing about the economic process.

    There is no debt bubble. Politicians in both parties have taken something they read that has been recanted by the economists who made that charge.(Reinhart and Rogoff)

    This article and the comments are sad.

    One more thing. The new Bernanke book is readable to anyone who writes comments on Seeking Alpha. It walks you through the central bank thinking process slowly and in depth in an easy to understand manner.

    Bernanke taught the beginning undergraduate course in macroeconomics at Harvard.
    Oct 26, 2015. 07:18 AM | Likes Like |Link to Comment