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Pompano Frog  

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  • China's Rate Cuts: Will Cheaper Money Make A Difference? [View article]

    I just read the Mickael Pettis piece on this subject because of your push on this subject.

    I am still not convinced that using the market exchange rate gives me a more accurate impression of China's economy than using PPP.

    If you see an article on this subject that impresses you let me know.

    Aug 27, 2015. 07:46 PM | 1 Like Like |Link to Comment
  • Are You Selling The Drama Or Buying The Rally? [View article]
    Dear Reader..

    The author's article of Aug 18th entitled "A Market Top? 15 Warning Signs" was a classic. It is something that needs to be marked and reread in the future.

    The S&P could double before we have another Central Bank induced slowdown. Of course, we would need to see inflation at 2.5% or greater and a 4.9% unemployment rate (UNRATE). As the central banker's say "we need to see how the data develops."

    It would be historically unlikely to have a significant correction without one of the four major financial centers China, Japan, the U.S. or the Euro zone tightening credit. It is currently the opposite and with p/e ratios at the middle 1/3 of their 50 year historical norms the upside is enormous.

    Hong Kong stocks are selling at 30 year low p/e's. Energy is selling substantially below the equilibrium level necessary to create the production necessary to replace reserves if China and India keep growing.
    Aug 27, 2015. 07:32 PM | 1 Like Like |Link to Comment
  • China's Rate Cuts: Will Cheaper Money Make A Difference? [View article]

    China's economic policies have little to do with Marxist ideology. They have copied the techniques used before them by Singapore and Taiwan. None of that group follows the economic policies of Western economics which has failed to increase the standard of living for the majority of its citizens over the last 20 years.
    Aug 27, 2015. 04:09 PM | 3 Likes Like |Link to Comment
  • China's Rate Cuts: Will Cheaper Money Make A Difference? [View article]

    See the following article from the IMF: "Purchasing Power Parity: Weights matter."

    When I take annual data and try to project future financial market potential I find that using market rates does not give me the right cues of the potential for a lift off.
    Aug 27, 2015. 04:06 PM | 1 Like Like |Link to Comment
  • China Loading Up On Commodities - Why It's Not Driving Up Prices [View article]
    Dear Reader..

    Why do countries devalue their currency?

    Japan and the European Union both had near zero GDP growth rates.

    There is little evidence other than the hopes of Western and Western trained academics that China will not be able to grow at their target of 7% per year.

    Near term trends in auto sales as in the U.S. are tied to the stock market and real estate market. The private sector is on trend to increase its proportion of GDP relative to the State owned sector.

    At the level of GDP per capita on a PPP basis relative to the U.S. it should be easy to achieve its 7% GDP target growth.

    I think the stockpiling is an attempt to buy cheap and to support many of the firms, on a global basis, that China relies on for raw materials.
    Aug 27, 2015. 11:43 AM | 2 Likes Like |Link to Comment
  • A Market Top? 15 Warning Signs [View article]
    Dear Reader..

    Well, we have a good idea how this prognostication is going to turn out.

    Shiller is academic nonsense. He took this technique from Benjamin Graham who used it in the early 1930's because it was an accurate depiction of an economic world where the revenue of a company never changed.

    In all of our long term p/e normalization procedures we are actually forecasting long term trends in revenue and not earnings.

    In the post 1960 world of data central banks act as counter weights to the cyclical economic trend. Money supply (banking deposits) trend constantly upward.

    To be bearish on real financial assets (equities, real estate and companies) you need to believe that there is a contraction in monetary policy. A rise in interest rates is not, in itself, a contractionary event.

    This article is worth rereading in hindsight.
    Aug 27, 2015. 08:35 AM | 4 Likes Like |Link to Comment
  • China's Rate Cuts: Will Cheaper Money Make A Difference? [View article]
    To Readers..

    I don't see any facts that back up the inferred correlations of negative outcomes in China.

    "The problems facing the Chinese corporate world are increasingly those of insolvency, not illiquidity."

    Where are the facts to back up such a statement.

    What I am reading here is the Euro/American political scientist/english academic view of China.

    They have been wrong for forty years. Hong Kong stocks are selling at historically low p/e ratios as are the Chinese H shares, which are Chinese companies trading on the Hong Kong stock exchange.

    Valuation is still the number one factor in long term investment returns. Is China going to tighten monetary policy? What happened in the U.S. in 2009 when the Central Bank was stimulating and the political pundits told you everything is collapsing?

    I like buying the ETF, First Trust AlphaDex China (FCA 18.82) as a near term and a long term core holding for any pension portfolio.

    The Chinese government has been able to move its GDP per capita to 20% of U.S. GDP per capita on a PPP basis. Japan, Korea and Singapore were all able to continue similar growth at similar levels of development. This is only brain surgery if you were trained in England or a similar place.
    Aug 27, 2015. 08:18 AM | 5 Likes Like |Link to Comment
  • China Chooses Her Weapons [View article]
    To the Author..

    A truly excellent article and this should have been an editor's choice.

    What a great insight into the recent small exchange rate move by China.

    I didn't understand, nor were any reasons given, for describing China in a deflating credit bubble. Every country I have examined needed to expand their debt/GDP ratio during their high growth period.

    China is at a GDP per capita of roughly 20% of U.S. GDP per capita on a PPP basis. At similar levels Japan, S. Korea, Taiwan and Singapore were able to expand at a 7% rate. China being able to learn from their errors should be able to match that performance.

    Chinese companies trading on the Hong Kong Exchange are trading at 8x p/e. Since the Chinese market has been active for only the last 15 years we need to look at the Hong Kong Exchange to see the relative historical valuations. The p/e's are also in the 8x range and are at thirty year lows.
    Take a look at First Trust AlphaDex China (FCA 20.30, S&P 2000). I have no connection with the company.

    I think the gold purchases and the oil purchases are both for the same reasons. If you might face a trade and financial embargo at some future point these make it easier to buy and sell. The Asian infrastructure moves also create the ability to bypass restrictions by the West.

    You notice Russia and Iran, for the exact same reasons, like to accumulate gold.

    The news on China is biased because the Wall Street Journal and the academic community in the West see Asia's state led development to be an intellectual threat to their ideological and economic models.

    The technological developments from the cold war and the space program show that the West is fully capable of efficient state led development.
    Aug 21, 2015. 12:06 PM | 3 Likes Like |Link to Comment
  • A Market Top? 15 Warning Signs [View article]
    Editor's Pick..

    Is this possible? Not one of these 15 "indicators" has any historical relationship to the future movement of equity prices.

    Decreasing dividends are related to future equity prices? Many of the indicators used here are moving because of the weakness in energy stocks.

    The weakness in energy prices is historically predictive of strong future equity markets.

    His 16.7x forward p/e is high? My spreadsheet shows it is within the middle 1/3 of all data points over the last 55 years.

    Oh, I forgot it relates only when real interest rates are 0% to 1%..That's convenient, since that period is only the current period and we have had constantly rising p/e ratios.

    Fed is tightening? I would like to know the definition you are using. All four major financial blocks, China, Japan, the U.S. and the EU, are engaged in monetary stimulus. Monetary stimulus is historically strongly related to rising financial asset markets.

    Go back in Seeking Alpha to some of the articles in 2009 and 2010 and you will see the same nonsense and think of what it has cost.
    Aug 19, 2015. 08:41 AM | 10 Likes Like |Link to Comment
  • AK Steel: Unsecured Notes At 65 And Stock At $3 Are Attractive For Aggressive Investors [View article]

    If AKS went bankrupt the senior debt holders would become the holders of the new common shares.

    Those new common shares, with no debt, would be worth at least 30% of revenue. 30% of 7 bil of revenue is 2.1 bil..

    This depends on the true liabilities to the pension plan in reorganization.
    Aug 19, 2015. 07:57 AM | 1 Like Like |Link to Comment
  • AK Steel: Unsecured Notes At 65 And Stock At $3 Are Attractive For Aggressive Investors [View article]

    I agree with your assessment that this was a detailed thoughtful analysis. I hold a position in this security and it is contingent on the government protecting the U.S. steel industry from subsidized foreign producers.

    The possibility of the global economy stagnating over the next two years is near zero. Each of the four major financial zones are expanding monetary liquidity. Those are China, Japan, the Euro zone and the U.S.

    Rising interest rates in the U.S. is not the same as tightening liquidity. I can find no historical example of economic stagnation with this amount of monetary liquidity. In fact, I would be shocked if we don't have an explosive bullish move in equities due to the bond/equity yield differential.
    Aug 18, 2015. 04:34 PM | 3 Likes Like |Link to Comment
  • Assured Guaranty - Roughly 50% Of Liquidation Value [View article]
    AGO is a great company, but it is an insurance company which is forced by regulatory authorities to hold long term fixed income instruments.

    This could be a disaster in a rising interest rate environment.

    New companies able to invest at higher rates would be able to undercut premiums in competition with AGO.

    Interest rates are near 55 year lows in yield. I would think you want to be borrowing at these rates rather than buying this paper.
    Aug 8, 2015. 07:02 PM | 1 Like Like |Link to Comment
  • Here's The Next Crisis 'Nobody Saw Coming' [View article]
    Be here..

    GDP, government spending/borrowing and the equity market are, over the long term, functions of monetary policy.

    This is not just my idea. See Bernanke 1996, "The Financial Accelerator Model." It was so long ago that I majored in economics that I can't think of the name for the statistical relationship. It will come to me eventually.

    This is why the government, both state and federal, relying on income taxes is a terrible idea. Periods of high stock market appreciation create an acceleration in tax revenues through capital gains and politicians spend it thinking it is ongoing or maybe because they are..

    In China they have zero capital gains tax and tax heavily home and auto purchases.
    Aug 8, 2015. 05:34 PM | 3 Likes Like |Link to Comment
  • Here's The Next Crisis 'Nobody Saw Coming' [View article]

    The data is meaningless. It has nothing to do with investing. You can easily set up a spreadsheet with this data and then in the next column put the S&P 500 over any historical period. There is no relationship with this data and the future prices of financial assets.

    Reinhart and Rogoff who wrote "This Time is Different," which is a wonderful book, have recently published articles where they take back some of their conclusions regarding debt/GDP.

    My argument here is that you could have written the exact same article in 1980 with the exact same charts.

    When I look at the historical data, over the last 55 years, I see two sets of factors that create future financial market movements. They are valuation and monetary.

    Declining consumer spending is defined by the word recession. If you look at the data recessions are drops in auto sales and new home construction.

    These do not take place without a tightening of monetary policy. A rise in interest rates is not a tightening of monetary policy.

    All four major economic areas the U.S., the Euro Zone, China and Japan are engaged in expansionary economic policies. It doesn't get any better for an investor.

    Market prices are set by institutional investors and hedge funds that are short term trading. An individual investor who has an outlook of 1 to 2 years out has an enormous advantage. Value investors can pick up oil and gas stocks at a fraction of their replacement costs and insiders are doing just that.
    Aug 8, 2015. 04:34 PM | 5 Likes Like |Link to Comment
  • Here's The Next Crisis 'Nobody Saw Coming' [View article]
    Dear Reader..

    These charts are incredibly misleading.

    They come from the Federal Reserve Bank of St. Louis website and their FRED data base.

    In the search box, you just need to type "State and Local Governments" and the first chart presented will appear.

    Click "Graph Settings." Then click on "Log Scale."

    This chart will show the same data with the distance between the axis labels equal to their percentage movements. Thus the distance between $400 bil and $800 bil is equal to the distance between $800 bil and $1600 bil.

    This new chart shows the exact opposite of the author's contentions. You can see an enormous flattening of state and local borrowing in recent years versus its long term trend.

    Every reader of Seeking Alpha needs to know how to go to FRED and see what is available. It is an enormous resource.
    Aug 7, 2015. 09:37 AM | 13 Likes Like |Link to Comment