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Pompano Frog

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  • Why I Am Buying AK Steel [View article]

    I have run those numbers and I find no correlation with future movement in the steel stocks.

    This stock has characteristics that attracted hedge funds to sell short. I don't believe anything was used rather than a strictly mechanistic system. I am buying this and I believe it is a leveraged play on a continued bull market and economic recovery.
    Jan 25, 2015. 09:02 AM | Likes Like |Link to Comment
  • Shorting China Based On GDP Growth Rate Projections Is Highly Risky [View article]
    Thanks for the article.

    Readers need to understand that the IMF economists are using an American/European economic model to forecast the China economy. In America and Europe you have a low savings rate combined with an anti/investment tax structure.

    The peak in China GDP growth in 2010 at 10% annually was the result of a stock market boom which ended with p/e ratios above 40x.

    At the recent bottom of the China equity market p/e ratios were 8x with a savings rate in excess of 40%.

    Due to the recent runup in the Shanghai market GDP growth is going to come in above the government targets.

    In the U.S., at the market bottom in March, 2009, it took until the 4th qtr for that to be expressed into GDP growth.
    Jan 23, 2015. 12:22 PM | 2 Likes Like |Link to Comment
  • Why I Am Buying AK Steel [View article]

    You have hit on a key point. Markets are not efficient pricing mechanisms. The hedge funds have marketed shorting to their investors. They are then using long term studies, that do not apply, to analyze for potentially negative investment situations.

    What is amazing is how few deep value investors exist. It is what makes this strategy so profitable. Though you have to subtract the costs of a cardiologist.
    Jan 14, 2015. 07:00 AM | Likes Like |Link to Comment
  • There's No Bubble In Bonds, But They Look Frothy [View article]
    Dear Reader..

    Reading this I am incredulous.

    The yield of a bond is no different than the p/e ratio on a stock.

    Yields on all of fixed income are near 55 year lows.

    What financial market investment was a good idea at 55 year highs in valuation?

    Valuation is the most important factor in an investment allocation decision.

    Investment allocation is the decision which will determine 80-90% of your ultimate return.

    Fixed income is in a masive bubble.

    Investors ignored the Central Bank when they inverted the yield curve in 2006/2007 to tighten credit.

    Investors ignored the Central Bank when they created double digit M1 growth in early 2009.

    And today investors are ignoring the Central Bank when they are making it easy to look at what they are doing.

    The reader needs to take 5 minutes to go to the website of the Board of Governor's of the Federal Reserve Board. Just google.

    Across the top press the category "monetary policy."

    Under Features, the fourth line down you will see a heading "related information:"

    Press the last item "View All>"

    Under 2014 FOMC meetings, at the bottom, you will see December 16-17.
    Press "Accessible Materials."

    You will see before you the economic projects of the 18 members of the Federal Reserve for the years 2015, 2016 and 2017.

    For this to be wrong, you need to think you have more knowledge than the staffs of each of these members, plus their ability to create the reality of their projections.

    Holding fixed income is financial suicide.
    Jan 8, 2015. 08:36 AM | 1 Like Like |Link to Comment
  • U.S. Market Valuation: Are U.S. Equities Overvalued? [View article]

    In 1989, Japan's Central Bank was following the German economic/monetary policy model. This calls for maintaining a strong currency and low inflation at all times.

    Until Bernanke wrote his 1996 paper "The Financial Accelerator Model" it was not realized how important the financial markets are in transmitting monetary policy to the real economy.

    If you have an economy operating below its historical growth rate standard practice today is to not only loosen blunt monetary policy, but to make sure that this money flows through the system to weaken your currency, raise inflation and raise the valuation on financial assets.

    The U.S. is the global reserve currency and is a special case.

    You will notice that the U.S. Federal Reserve, in 2009, bypassed the banking system and bought commercial paper directly because of the lag in which banking systems respond.

    Your description of the economy has also been on the Seeking Alpha pages since 2009/2010 and it has not done a good job of describing the investment environment.

    Until Abe Japan did not target inflation, the currency nor financial assets. We will know in a year or two the outcome.
    Jan 2, 2015. 09:16 AM | 1 Like Like |Link to Comment
  • U.S. Market Valuation: Are U.S. Equities Overvalued? [View article]
    Dear Reader..

    This exact same article appeared in Seeking Alpha with the same factors of q ratios and Shiller p/e in 2009/2010!!

    It has cost the readers of Seeking Alpha one of the largest post world war II bull markets.

    A simple spread sheet with the q ratios and shiller and then future s&p returns would show a total lack of forecasting ability.

    These are here because this is what is taught in the universities. It is consistent with their theoretical economic models that consider financial markets to be a minor factor in determining economic outcomes.

    Shiller used Benjamin Graham as his source for his model. Graham was brilliant, but he lived in the world of the 1930's. Revenue growth of his industries was almost zero and therefore he saw a world where stock prices fluctuated back and forth over a fixed flat line.

    This is nonsense in today's economic environment. All central banks create monetary increases in line with what they perceive their countries economic potential to be. That means that you have the business cycle fluctuating around a rising line of long term economic growth.

    Global central banks are increasing liquidity and this is pushing the price of financial assets higher. China could move 50 to 100% this year. (FCA)

    I need to go.
    Jan 1, 2015. 11:30 AM | 16 Likes Like |Link to Comment
  • The Keynesian End Game Crystalizes In Japan's Monetary Madness [View article]

    Writing comments on Seeking Alpha is a break for me and I was rushing. I did not mean to imply that the U.S. had spent large amounts on infrastructure and economic development relative to its GDP in the last 30 years.

    I was referring to the Asian countries I mentioned.

    As an aside, I think a comment by you in 2009 got me started on Seeking Alpha. I thank you for that. By taking a break I seem to accomplish more. Its been a great six years.
    Dec 30, 2014. 04:19 PM | 1 Like Like |Link to Comment
  • The Keynesian End Game Crystalizes In Japan's Monetary Madness [View article]
    In 1965 or 1975, this article would get an A+ in any economics class. But, not in 2014.

    The reader is asked to believe that all of the economists who work at the FRB and the BOJ know nothing and instead we should rely on the theologies of our two political parties in the U.S. that have their theological origins in the 1930's and prior.

    Are there many economic papers that insist that demographics determines a country's economic destiny? Yes..Yes.

    The reason you get such a result is that most countries don't change their basic institutional structure as they are sucked down the drain by their current circumstances. When Korea applied to the World Bank for a loan to build a steel mill in the 1960's they turned it down. Korea's military leaders had determined they were not going to settle for the status quo.

    How do you explain that Singapore, which after the War was on a par with Africa currently has 1 of 6 of its residents with a net worth over a million dollars? Unless the political elites of a country are not satisfied with the status quo whatever the current endowments of a country are becomes that country's destiny.

    I believe that Japan, unlike the U.S., realizes that China has decided to become belligerent towards its neighbors. Japan's elites realize that without economic growth there is no possibility to maintain military parity with China.

    Therefore, they have decided to create economic expansion. They are using the same techniques that have been used in Singapore, China, Korea and Taiwan. This is not new.

    Three percent inflation, with economic growth, will wipe out the value of the existing bonds. Everyone of the countries previously listed has created enormous growth in wealth for its population through government expenditure on infrastructure and economic development.

    I don't believe Stockman could find one economic paper that would support the thesis that government expenditure on development and infrastructure was an economic negative. Does that mean that mistakes are not made? Of course not.

    We don't live in the world of the 1930's, as the Greeks might find out the hard way. The U.S. has the capacity to have a 4% long term growth rate. Can we make that happen with supporting massive unskilled illegal immigration? Can we do this with an educational system geared to turning out liberal arts majors? Probably not.

    Can we do this without investing in moving the frontiers of science and technology?

    And this is the important point. All of this means little regarding your investment strategy. There are global business cycles whether you have good government or bad government. To set a good investment strategy you need to be aware of what these major central banks are doing and why. If you move with them you will do fine.

    And that's what makes this author so dangerous. Not only is his economics not current but he is encouraging investment outlooks that run counter to the direction the central bank is taking. Good luck with that.
    Dec 29, 2014. 06:37 PM | 7 Likes Like |Link to Comment
  • How Much Does It Cost To Produce One Barrel Of Oil? (Tight Oil, Part III) [View article]
    Dear Reader..

    This is one of the best articles I have read on the oil industry in Seeking Alpha. Thanks for a great contribution..

    It is our job as investors to make the judgement on oil prices and what our investment allocation should be.
    Dec 28, 2014. 04:48 PM | 1 Like Like |Link to Comment
  • What Lies Behind The Plunge Of The Ruble? [View article]
    Dear Reader..

    In the first paragraph, you state recession looming, interest rate up, inflation up and capital flight up.

    I am not investing in Russia at this time because as in the U.S. in 2007/2008 you don't want to invest in countries before the recession hits.

    But, as far as the capital flight goes, I think the author has little basis to project the recent past into the future. There has been a dramatic increase in interest rates by the Russian Central Bank. That increase compares in size to other interest rate shocks that were effective in changing investment preferences and behavior.

    In addition, Saudi Arabia is budgeting an oil price of $80 for 2015. Not only does Saudi Arabia have the ability to give a reasonable forecast, but like our own Federal Reserve they have the ability in reality to influence the forecast. And, just like our FRB their forecast is linked to their reputation. If it turns out to be way off the mark its going to have a future effect. I am betting the Saudi's know best.

    I think the Western media exaggerates the negative factors effecting China and Russia and as investors we should be on alert.

    Further, it looks like growth in oil production in the U.S. will flatten due to current oil pricing. Meanwhile, growth in oil usage by China and India will increase this year. It's complicated.
    Dec 28, 2014. 04:38 PM | 4 Likes Like |Link to Comment
  • Interest Rates Are Coming: My Top REIT Picks For 2015 [View article]

    I find the argument that because of historical performance you should not analyze the underlying structural model of an investment to be weak.

    It is the same argument that was raised in 2006/2007 on housing pricing or Japan in 1987-1989.

    I would appreciate a comment from a real estate broker on Realty Income (O) who might have access to their current leases.

    They are currently buying yield at 7.1% and the investor through the stock is netting about 5.0%.

    Why are these companies not financing through Insurance companies? I would suspect that the amounts paid for the property would not hold up under true due diligence. I suspect, and if any reader knows otherwise I would appreciate a correction, that these free standing buildings are built by an outside entity and include full buildouts of the interiors.

    They are then resold to the reit's as if they are just the basic structure and the land. Typically, investments of this type are resold through different entities to hide the move up from replacement values with fees at each stepup.

    Many years ago, the President of one of the top 10 companies that sell to Realty Income was a client of mine. We had long conversations about these vehicles as investments as in those days they were sold to individual investors. You would not want to hear his views on these things.

    That's enough. I am working on another topic.
    Dec 28, 2014. 03:39 PM | 2 Likes Like |Link to Comment
  • Interest Rates Are Coming: My Top REIT Picks For 2015 [View article]

    I didn't cover all the details of my statement. Japan in the late 1980's and 1990's was being threatened by trade retaliation by the Euro market and the U.S.

    Japan was running huge trade surpluses. The export zaibatsu's were the entities that would feel the effect. Japan's economic policies were based on the German model which also used monetary policy to target the currency as well as inflation.

    We know this since economists can create models which use both to predict monetary policy during this period and see that it is a very close fit to the actual policy that took place.

    Japan did not want their currency weakening since it would cause the trade balance to skyrocket. BOJ had lost control of monetary policy as a weapon.

    In the 1980's the BOJ nor did other central banks understand that letting the real estate and stock markets move into a bubble would not eventually come back to haunt them.

    The Federal Reserve Board determines the short term interest rate. Read the minutes of their latest press conference and look at their projections. Every member of the FRB submits their estimates.

    Understanding monetary policy is central to making investment decisions.
    Dec 28, 2014. 03:14 PM | Likes Like |Link to Comment
  • Interest Rates Are Coming: My Top REIT Picks For 2015 [View article]

    To cite your first example. Realty Income (O) misrepresents what it is to the public. This is mainly a fixed income instrument w/ some slight equity characteristics.

    These companies could not finance these properties through traditional lenders since they would be aware that they were absorbing all of the risks with none of the gain. They have created an investment vehicle whereby individual investors are deluded into thinking they are making a traditional real estate investment.

    I would say more, but I have work to do.
    Dec 26, 2014. 07:19 PM | 1 Like Like |Link to Comment
  • Interest Rates Are Coming: My Top REIT Picks For 2015 [View article]

    Rates can stay low only if that is the will of the central bank. That is an oversimplification.

    Japan's Central Bank (BOJ) was verbalizing increasing liquidity in the financial system. They were not doing that. They were holding up the currency for the benefit of the large zaibatsus. (large Japanese export conglomerates)

    Any central bank is careful as they increase or decrease liquidity and they tend to use a ratchet methodology because they can't totally predict how market forces will react.

    But, if they want to move rates they will eventually put the system under enough pressure. You will notice they inverted the yield curve in August, 2006. It took quite a while for the markets to notice.

    If things are booming the cost of credit becomes meaningless. It is only the availability of credit that eventually causes the bubble to burst. Another oversimplification.
    Dec 26, 2014. 03:10 PM | 2 Likes Like |Link to Comment
  • Oil, Interest Rates, And The U.S. Stock Market [View article]

    Thanks for great articles. Very few on Seeking Alpha are doing macro work with any statistical backup.

    Oil price drops are highly correlated with future positive movements in equity prices.

    Small Cap Value has historically been the place to be. I favor the ETF (RZV).

    I also would suggest that China is going to get the same boost over the next 12-24 months. The valuation is incredibly cheaper than the U.S. and they have enormous room for liquidity/central bank expansion. I favor First Trust AlphaDex China (FCA).

    What a great market environment.
    Dec 26, 2014. 10:49 AM | 1 Like Like |Link to Comment