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  • We Actually Do Know What Works
    Dec. 17, 2014 DIA, SPY, QQQ 30 Comments

    Summary

    • There is much frettening about what are often called unprecedented expansionary policies.
    • While these policies do have risks and drawbacks, historical evidence strongly suggests that they work under conditions similar to what many economies experienced in the aftermath of the 2008 financial crisis.
    • Conceptually, it's also not terribly difficult to explain why these policies work, large private sector deleveraging creates a large shortfall in demand which has a tendency to feed on itself.
  • Markets Sell Off But Is The Risk Real?
    Dec. 15, 2014 GDP, HK, KWK 26 Comments

    Summary

    • Markets sold off rather heavily and there was a flight to safety in the bond markets.
    • These movements suggest an increase in perceived risks in the world economy, despite many commentators arguing the large oil price drop is a net benefit.
    • So where is the increased risk perception coming from? A little inventory follows.
  • The Japanese Endgame
    Dec. 11, 2014 FXY 34 Comments

    Summary

    • Some argue Abeconomics has already failed. Others argue it will end in hyperinflation, or in a massive capital flight, or a bond market crash, or all of the above.
    • Others argue that Japan won't reach the escape velocity needed to bring its debt situation under control.
    • While we can't discard these risks entirely, we think that a large yen depreciation could create the necessary growth in nominal GDP to drag Japan back from the brink.
    • Since that is the path on which they seem to be going, there are also some investment opportunities here.
  • A Russian Default?
    Dec. 8, 2014 EEB, BIK, BKF 9 Comments

    Summary

    • It's no secret that Russia is plagued by the crash in the oil price and Western sanctions, but there are also a host of structural economic problems.
    • If the present conditions endure or worsen, there is a reasonable chance that Russia will default on part of its foreign debt, mostly in the hands of private companies.
    • Despite being cheap, Russian stocks generally don't seem a good bet. Not only because of the present problems, but also because of deep seated structural problems in the economy and
  • The ECB Is Way Behind The Curve
    Dec. 7, 2014 FXE 40 Comments

    Summary

    • Further ECB inaction doesn't help when the eurozone slump, already of unprecedented length, continues and a number of countries are trapped in a debt-deflationary spiral.
    • While QE isn't a miracle cure, it should be clear to all but the most stubborn of observers that the present path isn't sustainable.
    • Rather than being forced by the markets, the ECB should get much more active.
  • Where Else Will You Go With Your Money?
    Dec. 4, 2014 DIA, SPY, QQQ 41 Comments

    Summary

    • We analyze some mechanisms producing a slow shift of fund from the real economy to the financial economy.
    • This shift is very beneficial for shareholders in the short and perhaps medium term, where else are you going to go with your money?
    • But in the longer-term, this model has distinct disadvantages.
  • Intrusion Has A Very Favorable Risk/Reward Ratio
    Dec. 3, 2014 INTZ 3 Comments

    Summary

    • The cyber security market represents a big growth opportunity for a small player like Intrusion, especially for its new Savant product dealing with advanced persistent threats.
    • In the previous quarter, Savant beat a big competitor for an order, and the customer enthusiasm has led their big reseller to greatly expand sales efforts.
    • While this has not yet led to a dramatic increase in sales, the opportunity is certainly there. The risk are rather manageable, with the company being in good financial health.
  • Solar And Oil Are Only Marginally Related
    Dec. 2, 2014 JKS, OIL, USO 3 Comments

    Summary

    • The sell-off in solar stocks has accelerated in recent months, although there are few signs of any imminent slow down in the solar market.
    • Most observers relate this sell-off to the fall in oil price.
    • We investigate possible links between the oil price and solar stock performance and see little of substance.
  • Sunny Side Up?
    Nov. 27, 2014 DIA, SPY, QQQ 4 Comments

    Summary

    • Markets have shrugged off the October fall and exploded higher to set new records daily.
    • But equity valuations are stretched providing the dry timber that only needs igniting.
    • Sparks could fly to set fire to valuations from a host of situations, including the eurozone, Russia, and Ukraine.
  • Right-Wing Keynesianism?
    Nov. 26, 2014 138 Comments

    Summary

    • Many on the political right associate Keynesianism with big government and loose monetary policies.
    • This is unfortunate, as Keynesianism offers a good framework for analysis of an economy suffering from general demand deficiencies.
    • This framework has been very accurate in describing the post 2008 economic situation.
    • And perceived "left-wing" solutions aren't written in stone, solutions to demand problems that are more palatable to those on the right are available.
  • Why You Should Buy JinkoSolar
    Nov. 24, 2014 JKS 6 Comments

    Summary

    • JinkoSolar shares sold off, then rallied on Q3 earnings.
    • The first must have been a mistake, as there really wasn't any bad news in the figures or revealed during the CC..
    • The market seems favorable for the shares to rally further as the market expands further, prices are stable, trade frictions might be resolved and the company benefits from an increasing.
  • It's Way Too Early To Write The Obituary Of Abeconomics
    Nov. 22, 2014 EWJ, FXY 39 Comments

    Summary

    • Some argue that Abeconomics alredy failed (after less than two years) and make it a showcase of failed Keynesianism. It's too early to draw conclusions though.
    • It's funny, because what (temparary?) derailed Abeconomics was a tax hike, under the Japanese economic circumstances the very antithesis of Keynesian policy.
    • We should also remind people that Abeconomics was inspired by Japanese policies in the 1930s, which successfully got Japan out of a similar slump.
  • The Top 20% Of US Earners Pay For All Transfer And Government
    Nov. 19, 2014 79 Comments

    Summary

    • The bottom 60% of the US income distribution receives more in transfer payments than it pays in taxes.
    • The top 20% pay for virtually all government and transfer payments, testifying to great "government inequality".
    • Yet, a relevant question is which has a greater economic impact, "government inequality" or market inequality?
  • Euro Exit Plans Exist!
    Nov. 18, 2014 IEV, FXE 10 Comments

    Summary

    • The euro can be broken up after all, authorities admit.
    • While the break-up cost would be very big (depending on how it's handled), the euro in its present form is clearly dysfunctional.
    • The implications for europositions right now are not clear cut, it would entirely depend on how the euro is broken up.
  • Deflation Caused By Tax Hikes?
    Nov. 18, 2014 DXJ, EWJ, NKY 19 Comments

    Summary

    • Japan's tax hike, just as in 1997, again sunk the economy, at least temporarily.
    • However, some argue that it's also responsible for the Japanese deflation, which is a rather odd position to take.
    • We would lay off buying Japanese shares for now, until the economic picture improves and/or the yen resumes its fall.
  • The Ways In Which Germany Is Wrecking The Eurozone
    Nov. 7, 2014 26 Comments

    Summary

    • While Germany has put itself on the line for rescue packages of fellow eurozone countries, and it emphasizes the importance of structural reforms, it's role isn't benign.
    • By undercutting wage growth in the previous decade, leading to an enormous current account surplus, and failing to reflate it makes life for the peripheral countries unbearably hard.
    • The upshot is that we think it is quite realistic to expect the eurozone to succumb to its internal contradictions and different policy preferences.
  • Japanese Shares Still Worth Considering?
    Nov. 3, 2014 EWJ, FXY 6 Comments

    Summary

    • The Bank of Japan provided another shot of monetary stimulus, surprising markets all around.
    • We think that under the conditions, they didn't have much choice, there isn't any clear alternative.
    • We could learn from history, in the 1930s both the US and Japan beat the depression, only to shoot themselves in the foot. The April sales tax hike was similarly.
    • While Japanese markets might have to digest a one-day 5% jump, renewed conviction in Abeconomics will likely produce more gains, as well as a falling currency.
  • Fooled By The Fed, Again?!
    Oct. 28, 2014 34 Comments

    Summary

    • After a steep fall, financial markets have once again bolted higher.
    • According to some, this rebound was caused by some comments from Fed officials.
    • But isn't it curious that a mere whisper from some Fed official can turn around financial markets to the tune of trillions of dollars.
    • Especially for those that tout the robust self-stabilizing nature of markets and the inability of policymakers to fine (or even broad)-tune the business cycle?
  • After The Veil Of QE Is Lifted...
    Oct. 24, 2014 31 Comments

    Summary

    • There are many critics of QE, and indeed it does have limited real effects and produces some risks.
    • However, now that the veil of QE is being lifted, what is revealed is a rather ugly world in which a host of deflationary forces conspire to take definite root.
    • The US has, for now, managed to escape the most severe effects of these, but we wonder for how long, and other areas in the world economy are already perilously.
  • To The Fed's Critics: Deflation, Rather Than Inflation Was Always The Bigger Risk
    Oct. 16, 2014 36 Comments

    Summary

    • In 2010, a host of people wrote an open letter to the Fed warning against the inflationary risks of unconventional monetary policy.
    • Recently it turned out that none of these signatories repented.
    • We'll argue that they got their risk assessment inside-out and explain why deflation was always the much bigger risk.
  • Europe Is Coming Apart
    Oct. 14, 2014 63 Comments

    Summary

    • While it seemed like the ECB had saved the eurozone from imploding a few years ago with Draghi's "whatever it takes," underneath, tensions have remained.
    • While there are some small pockets of improvements (Ireland), mostly, the situation has kept deteriorating- in Italy and France, but also in Germany itself.
    • This isn't a surprise. Just like in the 1930s, a currency union is simply too constraining for it to work.
    • Ultimately, the choice is for Germany, whether they accept the things necessary to give the euro at least a chance, things that go deeply against their economic beliefs.
    • Or they should leave the euro. If they keep dithering more, markets or people in the streets will make the choice for them, that ain't going to be pretty.
  • Falling Oil Price And Energy Stocks
    Oct. 13, 2014 CLR, JKS, PXD 74 Comments

    Summary

    • Falling oil prices have decimated energy stocks.
    • For some, like those producing shale oil, this seems warranted as lower oil price is a direct threat to the viability of many.
    • But the selloff in alternative energy names, equally violent, provides an opportunity.
  • Secular Stagnation In... Germany?
    Oct. 11, 2014 FXE, EUO, EWG 23 Comments

    Summary

    • Germany has been held up by many as an economic success story and a recipe for others to follow.
    • But the success is faltering of late, producing a raft of bad economic figures.
    • A closer look at what's going on reveals that even doing all the right things doesn't guarantee escape from the forces of secular stagnation, quite the contrary.
  • Cenveo Share Price Slide Isn't Warranted
    Oct. 7, 2014 CVO 4 Comments

    Summary

    • Shares in Cenveo slid lower from $3.80 in July to $2.40 now, almost in a straight decline, taking the shares into deeply oversold levels.
    • We couldn't find many reasons for that, Q2 figures were somewhat disappointing, but these were marred by a host of one-offs.
    • Management is convinced they're still on track to make full year guidance and they seem to have a reasonable case. The steep sell-off is unwarranted if these expectations materialize.
  • Germany's Eurozone Recipe
    Oct. 7, 2014 FXE, EUO, EWG 12 Comments

    Summary

    • Germany has been the lone economic success story in the eurozone, but should other eurozone countries follow the German model?
    • It's invariably argued that the German success is based on fiscal discipline and structural reforms.
    • As usual, the real picture is a good deal more complex.
  • To Raise Or Not To Raise...
    Oct. 2, 2014 RINF, INFL, UINF 20 Comments

    Summary

    • A primer on the arguments pro and contra tightening monetary policy.
    • Those who are in favor fear asset bubbles, rising wages and want to protect income from savers.
    • Those who are against argue that rising rates risks the recovery, inflation is low, rates would be low in the absence of Fed expansionary policies and there is still considerable.
  • Monetary Madness
    Sep. 25, 2014 43 Comments

    Summary

    • The blitz most of the central banks in advanced nations have unleashed on the world is actually the least effective, and the most risky, way to stimulate economies.
    • Its main transmission channel is to stuff money into banks in order to entice households to borrow more at exactly the time when they're least likely to respond.
    • There has to be a better way.
  • Bill Fleckenstein Does Misunderstand Monetary Policy
    Sep. 22, 2014 150 Comments

    Summary

    • Notable Fed critic and hedge fund manager Bill Fleckenstein sticks to his gums.
    • But Fleckenstein's position depends on a prediction that hasn't yet materialized.
    • So we think CNBC's Futures Now host Jackie DeAngelis asked a few poignant questions, questions which Fleckenstein hasn't really answered.
  • The Purest Play In The Cannabis Wave And It Trades On The NYSE
    Sep. 18, 2014 XXII 10 Comments

    Summary

    • Having unique IP that lets the company regulate nicotine levels of tobacco genetically, 22nd Century Group (XXII) acquires licenses in technology that can do the same for HTC levels in hemp.
    • In a stroke, it becomes the only NYSE listed company in the cannabis space, a fast growing market and the technology opens up several interesting revenue streams.
    • But it's not just a commodity cannabis play, it has unique IP giving it a competitive advantage that is difficult to match, just like in the cigarette business.
  • Turn The Lose-Lose Economic War With Russia Into Trading Profits
    Sep. 15, 2014 RSX, RUSL, RSXJ 28 Comments

    Summary

    • While riding a wave of domestic popularity, Putin has made a bad gamble for Russia.
    • Instead of developing an 21st century economy by stimulating value-added industries and human capital, he got stuck on 20th century concepts like sphere's of influence.
    • The resulting sanctions will hurt Russia and the West, but this isn't a situation Russia can win.
    • The situation nevertheless provides some interesting short-term trading opportunities.
  • Currency Debasement
    Sep. 15, 2014 GLD 43 Comments

    Summary

    • Real rates have declined almost everywhere in the developed world, the savings glut doesn't turn into an investment glut.
    • The result is excess capacity, slow growth and underperforming economies. How can this be turned around?
    • If desired savings and investment can equate only at deeply negative real rate, higher inflation targets are one logical solution to get there, but not one without cost or risk.
    • One of the risk is that we'll finally get the long predicted currency debasement.
  • Japanese Shares Are Still A Buy
    Sep. 9, 2014 DXJ, EWJ, DFJ 4 Comments

    Summary

    • We think that Japanese shares are still attractive, for a number of reasons.
    • They are not expensive, haven't done much this year, profits are good, big institutions are buying and the government is hell bent of getting Japan out of its deflationary funk.
    • The main risk to us is that the recent tax hike might have done more damage to the reflationary effort than first hoped.