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Pompano Frog

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  • Market Timing Report: 10-20% Correction Due To Extreme Sentiment And Leverage [View article]

    This author has been presenting these same indicators since his first article in Nov, 2013. I presume these opinions have existed for longer than that.

    Institutional investors and analysts, for the most part, use enormously simplistic algorithms to form their views.

    They are interpreting the weakness in oil as a sign of a collapsing industrial sector in Europe and Asia. They are incredibly wrong.

    While supply and demand forces are somewhat a factor the real weakness is being caused by the "Saudi Factor." I mean the Saudis are allowing..allowing the price of oil to fall to its 2 year low.

    This is a reward to Europe and the U.S. for handling the ISIS problem.

    It is an enormous economic stimulus.

    Meanwhile, there are no restrictions from inflation that will stop Yellen from responding to any economic uncertainty. This market will turn on a dime and be moving forward. Watch the M1 numbers after the close on Thursday.

    Large investors are using margin for the same reason corporations are issuing bonds. It's a license to steal. An institutional investor is paying less than 3% for margin. There are investors who have been making 50% plus per year in returns due to margin.
    Oct 1 01:31 PM | 34 Likes Like |Link to Comment
  • Retirees, Don't Count On Stocks To Deliver From Here [View article]

    Shiller is an academic and he developed this academic exercise because you can't use raw p/e ratios to forecast future returns. This is because profit margins are highly volatile to small changes in revenues.

    During recessions earnings can move to near zero and p/e ratios can appear to be high. During booms when p/e ratios are high the earnings growth can be artificial as companies game the system by using their stock to do acquisitions that create the illusion of growth.

    So therefore there is the need for some type of smoothing process. Using a 10 year historical average as a basis for the smoothing is a severe distortion of reality. No one in the last 20 years has made a dime using this metric. Where was the Shiller in March, 2009? It showed the market was fairly valued at a major low of one of the largest bull markets in the last 50 years.

    Long term earnings are a function of long term revenues. The long term revenue line of almost every country is upward sloping. Central banks set monetary policy based on a long term economic growth target. You can go to the Board of Governors of The Federal Reserve web site and see these numbers for the U.S.

    The central bank then sets monetary growth to achieve those growth projections. How can long term revenue be not near the growth rate of the monetary aggregates?

    Yahoo finance shows the current p/e of the S&P 500 at 17.5x.. That is roughly what it is. My smoothing number is 16.5x.. These numbers are within the middle 1/3 of the last 50 years.

    Meanwhile BAA bonds have yields near their 50 year lows.

    Where do you place long term investments? One is selling at the highest historical valuations and the other is selling at near the middle.

    Do you see 3% CPI increases? Do you see 4.5% unemployment numbers? Well when you do you need to start lightening up because the Central Bank will be worried about inflation again. That scenario may be many years from now.
    Sep 30 08:58 AM | 12 Likes Like |Link to Comment
  • China's New Age Of Reform [View article]

    The slowdown from 10% per year growth rate to 7% is not the result of the law of large numbers. You might look back on Seeking Alpha to 2009 and see that U.S. economists missed the economic pickup in the fall because they did not recognize the importance of the rapid ascent of the U.S. equity market on the real economy.

    Ben Bernanke wrote a paper on this in 1996. It is called the "Financial Accelerator Model."

    If the "American/Euro model" is not the point why in a previous comment do you say, "It is when the government starts taking from Peter to pay Paul, or choosing which industry should receive "help", that the distortions begin."

    I could find other quotes that show you have bought your professor's theological nonsense that governments should not interfere in the free market. Well the experiences of China, Japan, Korea, Taiwan and Singapore prove otherwise.

    Just to give you a clue, I think you need to know that Singapore controls credit allocation to the private sector.
    Sep 29 09:28 AM | 1 Like Like |Link to Comment
  • China's New Age Of Reform [View article]
    Dear Reader..

    No one seems willing to take the other side of these articles forecasting low growth rates for China in the future. Oh I forgot, they will be right in twenty years.

    When writers are writing about China it is important to understand their basic economic model they are using in examining the economy and the financial markets. In economics there is the "American/Euro model" and then there is the "East Asia Model." When these writers use the word "reform" this is a code word for adopting the failed policies of the American/Euro model.

    The top leadership of China has, in most cases, been promoted because of their prior success in managing from an economic perspective. You can see the private sector represents larger and larger portions of total GDP over time. America is one of the few countries that attempts to be transparent in its monetary policy.

    China has no intention of engaging in the American/Euro economic model. Their talk of change is partially their plans for development as their economy grows, but otherwise it is a form of diplomacy. Think of it as Iran negotiating with Mr. O over their nuclear weapons.

    Their slowdown in GDP growth given the level of monetary stimulus is due to the Chinese equity market moving from 40x earnings to 9x earnings. The stock market and the real estate market are like the banking system part of the financial market process through which monetary policy is transmitted to the real economy and part of the process of credit and savings allocation decisions.

    The writer who is quoted with the 3-4% GDP target gives no facts to support the target. Where is the number coming from? Korea in 1997 had a real GDP per capita of $18,500. The U.S. in 1997 had a per capita of $40,900. That is roughly a 45% ratio. Korea started to slowdown at that level.

    Using a gross number in describing economic development is not a good idea. The right way to do this is to use the ratio. Thus, as China's leaders know it is not the $18,000 mark which is important, but the ratio. We are a long way away from the 45% ratio with U.S. current per capita GDP.

    The China equity market is the same valuation as the U.S. in March/April of 2009.
    See the ETF FCA.
    Sep 28 03:45 PM | 6 Likes Like |Link to Comment
  • 7 Reasons Why The Stock Market Has Peaked [View article]
    Every one of the facts given by this author has nothing...nothing to do with future stock prices.

    Every cycle in the last 50 years has ended with an increase in inflation which has caused the Central Bank to tighten credit. Where is current inflation?

    Oil prices have dropped 15% in the last four months. What does that mean for the developed economies?

    Where is the yield curve? Most market declines have seen a tightening of the yield curve prior to the decline.

    Try to use Schiller's data on a spreadsheet to create an investment policy. It does not work. The S&P is selling at 16.5x historical earnings and this is about the median of the last 50 years.

    If you have missed one of the largest market moves in the last 50 years where we moved from 9x p/e to 16.5x you need to revise your indicators and ideas rather than repeat the same things you said in 2009.
    Sep 25 11:08 AM | 8 Likes Like |Link to Comment
  • Monetary Madness [View article]

    You must mean by "crashing demand" the 17 million in auto sales. Where is the money coming from?

    Allowing housing prices to collapse before taking any action and then raising the downpayment requirements on a depressed asset class was counter productive. But, we are now seeing near double digit increases in existing property values. This will have an impact on new home construction at some point as the price gap between existing housing and new construction closes.

    The authors imply that the Central Banks and the thousands of experts they employ are engaging in some radical experiment. Nothing could be further from the truth. They are executing monetary policy based on the latest current research.

    And from an investment standpoint, those who have held a critical view of the Central Banks have not done well. Missing one of the major investment bull markets of the last 50 years is a major source of animosity towards the Central Banks.
    Sep 25 10:59 AM | 3 Likes Like |Link to Comment
  • AK Steel Shares Remain Risky Despite Analyst Upgrade And Acquisition [View article]
    Dear Reader...

    All of the facts given are correct. The conclusions are not warranted by those facts.

    The author is implying that stocks with high degrees of leverage relative to equity are not good investments.

    This really depends on the valuation the market is giving to companies with strong balance sheets versus those with weak balance sheets.

    Making money in financial markets is mainly about price. It is what you pay for something relative to the quality.

    The vast majority of the market participants favor companies with strong balance sheets and I find those stocks to be typically overpriced relative to their potential.

    The second issue is with any investment you are making economic projections for the economy. If you think housing and auto markets are going to be stronger than expected this is a great stock to own. It gives you maximum leverage to benefit from that scenario.

    I have a large position in this stock so I am a little prejudiced.
    Sep 25 10:44 AM | 6 Likes Like |Link to Comment
  • What Does A Central Bank Do When A Central Bank Can't Do Anything? [View article]

    China does not have a housing bubble. Expenditures on housing in China are determined by the economic planners that set the amount of land to be sold and the price.

    In the U.S. when a house sale takes place money is moving between a buyer and a seller. In China 40% of the value goes to the government in payments. There are massive consumption taxes on housing and autos in China.

    If you want to spend your money on consumption in China you pay huge taxes. Capital gains are taxed at

    China has increased the welfare of their citizens by a greater amount than ever before in human history. The average income in every income quintile rose by nearly 10% last year. How did the bottom 1/2 of the U.S. population do over the last 20 years?

    This author has been publishing the same article since 2009. Investors influenced by such arguments, which are not true, have missed one of the largest bull markets in history.
    Sep 18 12:39 PM | 2 Likes Like |Link to Comment
  • What Causes Recessions? [View article]

    The Panic of 1873 along with all of the other panics of that era was the reason for the creation of a U.S. Central Bank.

    It is my understanding of that particular panic that it did have a central bank actor. The Bank of England refused to honor the notes from U.S. banks backed by cotton shipped to England.

    That's all I can remember. I was very impressed with a book entitled, "A Nation of Deadbeats, an economic history of the U.S."
    Sep 16 02:08 PM | Likes Like |Link to Comment
  • How To Use Money Supply Statistics For Market Predictions [View article]
    Dear Reader..

    My latest number for M1 Non Seasonally adjusted is 2925.0 $bil. The data date was Sept 1, 2014 released Thurs Sept 11th. That is a 10th decile event on my spreadsheet versus 1 year prior. M1 is an important predictor of future equity performance. But, not the only one and used in isolation can mislead the user.

    The writer says "..when a big player like a major commercial wants to spend money on stocks..."

    My understanding of this is as follows. When anyone purchases any asset from another entity it has no effect on M1. The money moves from one account to another account. It is still M1.

    When a central bank purchases a bond M1 is increased by the amount of the purchase and the financial asset goes on the balance sheet of the central bank.

    I have too much work to do otherwise I would say more. We need an economics professor to comment on this article or someone who can run the numbers.
    Sep 14 02:07 PM | 2 Likes Like |Link to Comment
  • Michael Pettis On The Risks Of The 'Long Landing' Scenario [View article]

    Why has China's growth slowed from 10% to 8% given the increase in financial liquidity?

    I would argue that you don't want to accept the "Western" answer that it is because of a lack of "democratic values." It is because equity markets influence the "real" economy.

    I think, conceptually, of a stock market increase as the same as a bank loan you don't have to pay back and has no interest requirement. Think about it.

    Also, stock markets have signaling effects to those groups that are heavily involved in investment decision making. A strong equity market creates more aggressive investment trends.
    Sep 12 09:02 AM | Likes Like |Link to Comment
  • Is Valuation A Good Market Timing Indicator? [View article]

    Thank you for leading me to this site. This guy is doing some real work. Thanks again.
    Sep 12 08:55 AM | Likes Like |Link to Comment
  • Is Valuation A Good Market Timing Indicator? [View article]

    I comment on SA to keep a diary for my own review. You might want to take a moment and go back to my historical comments from 2009.

    I mention a number of indicators that had been historically important in predicting future market movements and risk.

    Since few on SA are looking at historical data and its relationship to future market returns, and it is a lot of work, the true risks and rewards are unknown.
    Sep 12 08:52 AM | 1 Like Like |Link to Comment
  • Is Valuation A Good Market Timing Indicator? [View article]
    Henry Ma..

    Thanks for doing the math. When this first came out I assure you every portfolio manager ran the historical numbers on a spreadsheet and saw it was useless.

    But, valuation is the most important factor in making an investment and determining risk.

    The stock market is not trading at 26x earnings. This was developed to be in sync with the academic financial theories of capital asset pricing.

    My numbers are we are currently at 16.7x and at 20x we would be at an earnings yield of 5%. That means 3,000 on the S&P within 3 years is almost locked in. At $150 of earnings in 3 years versus $125 today. I am not looking at my sheets so I may be a little off.
    Sep 11 02:52 PM | Likes Like |Link to Comment
  • Michael Pettis On The Risks Of The 'Long Landing' Scenario [View article]

    Look up the Bernanke paper 1996 "Financial Accelerator Model." The stock market is the transmission mechanism of monetary policy to the real economy. You just need to read the intro and the conclusion. Use wikepedia to look up any mumbo jumbo you don't understand.

    Every investor needs to know this. It has always been this way. The financial markets move the real economy rather than the other way around.

    Another great book is "Debtors Nation," an economic history of the U.S.

    Very readable. Very sophisticated.

    Low unemployment and a booming economy is not the friend of financial assets. The data is easily available to check that statement.
    Sep 11 01:37 PM | 1 Like Like |Link to Comment