logicalthought

Best Black Friday Forecast in 5 Years

Every year on "black Friday" the TV commentators talk about "how jammed the parking lots are" (including last year, which was awful). What counts is SPENDING, so think of it this way: If each person spends just 5% less than last year (as in: "Hmmm, maybe I'll buy a $95 sweater instead of a $100 one, and a $19 toy instead of a $20 one"), the results will be considered to be AWFUL.

Think the U.S. Economy Is Headed Toward Inflation? Think Again

Okay, I will answer several commentators here at once:

De Kirk wrote:
>>Even if the dollars depreciate, the consumer will learn just to live within their means.... Deflation occurs once people start to reduce debts and start saving.<<

Davewmart wrote:
>>One way or another, living standards are going to decline.... Prices will still rise, but won't be matched by pay increases. So you have rising prices but are still in a deflationary environment, not an inflationary one.<<

And "Mr. Big" wrote:
>>...at the end of the day, inflation really is a monetary concept.<<

I think that at the end of the day, we may have both "inflation" and "deflation" at the same time; i.e., "inflation" in dollar-denominated items that are internationally fungible (such as commodities and finished goods that are made using commodities) and "deflation" in domestic services that are non-fungible. So yes, the inflationary component of this is clearly caused by monetary policy (as there's plenty of slack capacity out there and, I think, will continue to be) and the deflationary component (primarily wage pressure and things such as real estate prices in U.S. areas not desirable to foreign buyers) may co-exist with this.

This is why I think the "extend and pretend" policy a lot of banks are following in regard to their underwater loans is doomed to failure; to paraphrase Keans, "the real estate markets will remain depressed longer than those banks can remain solvent."

And as for move4ward's comment about inflation not being a problem here because of dollar-denominated imports from China (via the dollar-linked yuan), if the Chinese continue to link their yuan to the dollar then there could be substantial price increases for the commodity inputs used to manufacture those goods, and those increase will have to be passed along to U.S. consumers. And, on the other hand, if the Chinese revalue their yuan, well, that will mean higher prices, too.

This is why Bernacke and Timmy Boy are shooting themselves in the foot by paying nothing more than lip service to a strong dollar, because it's a strong dollar that will help make life livable for all of the wage deflation we're destined to suffer.

Being Thankful for Bullish Economic Data

>>we may finally be seeing stability in the housing market that will point to sustained economic growth.<<

Let's say you're right and we're seeing "stability". (Personally, I think there's another 10% or so to go on the downside, but let's set that aside for a moment.) "Stability" means that prices stop going down, but it could be YEARS before they can substantially move up, and meanwhile, 25% of the country (I think that's the latest stat) will still be underwater in its homes (as I assume these are relatively new mortgages and thus these folks won't be paying down much principal for a while). So, why will we necessarily see "growth" rather than just "crawling along on the bottom stagnation"? And without "growth", do you really think the S&P 500 can maintain an 18x run-rate PE multiple? I don't.

>>the employment picture is looking better with initial jobless claims dropping much more than forecast to 466,000.<<

The commentator above me (cayman) is spot-on: This is STILL a massive loss of jobs, and at SOME point, sure, the losses will stop, but that doesn't necessarily mean that net hiring will begin. Even in a "years crawling along on the bottom" scenario, there will be a point at which net job loss finally hits zero... and stays there long enough to cause pretty severe multiple compression in stocks.

$59 Billion Dubai Debt Default Could Have Much Wider Implications

I hope that no one on Wall Street has spent his or her 2009 bonus yet, because I guarantee you that this time, no one in Congress (who wants to keep his or her job) will vote to bail out ANYONE.

Think the U.S. Economy Is Headed Toward Inflation? Think Again

>>To have high inflation in this country... Either we need to have rising wages... or... some external shock invalidating the profit expectations of firms, leading them to raise prices.<<

What about a declining dollar leading to higher dollar-denominated commodity prices, thus raising food, energy and raw material costs for the U.S. consumer while-- as the author states-- the high unemployment level simultaneously holds down wages? This is a recipe for stagflation and, as I posted elsewhere a week or so ago, could soon bring back that relic from the 1970s known as the "Misery Index":
en.wikipedia.org/wiki/...

Is the "Dollar Down - Stocks Up" Relationship Finally Decoupling?

Well, I think the problem is that if they kill their export business, they will have a new revolution on their hands (from the hundreds of millions of then-unemployed) long before they have the chance to become the "sole economic superpower". But I'll tell you what-- if you want to talk about "reasonable people disagreeing", here's a REAL outlier of a position on China:
ftalphaville.ft.com/bl.../


On Nov 25 08:12 PM Swashbuckler wrote:

> logicalthought and Northern Dancer----I believe that China has already
> decided to abandon the yuan-dollar peg in favor of a new reserve
> currency. All that remains is the timing. I formerly believed and
> stated for the past couple of years that they would be committing
> economic suicide to bail out of dollars. I have recently concluded
> just the opposite. What do we owe them, $800 trillion? I believe
> they buy commodities the world over and then pull the plug. I am
> not well versed in monetary policy or international economical relations.
> I reached my conclusions on my own. But I have done much reading
> on the subject over the past several months. The person whose opinions
> I am most closely aligned with on this matter, although her IQ probably
> has me covered by 50+ points, is a poster here, named Freya. Her
> comments on SA regarding China, posted on 4-28, 5-03, and 11-08 are
> my own thoughts, in a manner beyond my ability to express them. Again,
> any conclusions I have on the matter were arrived at on my own. But
> her posts reinforce my own opinions. Keep in mind, she is stating
> primarily what China CAN do. My thoughts are that China WILL do what
> they CAN do. My thoughts are that China will sacrifice themselves
> to whatever extent they deem necessary in order to arrive as the
> sole economic superpower. Which is not to say I am correct, as I
> have been wrong many times. Time will decide. Nothing wrong with
> reasonable people disagreeing about a matter such as this. Respectfully,
> Swash.

Is the "Dollar Down - Stocks Up" Relationship Finally Decoupling?

swash,

I don't necessarily agree re. China massively dumping the dollar. They're WAY too export-dependent to do anything to deliberately drive the dollar down further-- if they did, the worldwide pressure for them to abandon the yuan-dollar peg would be unbearable.


On Nov 25 06:48 PM Swashbuckler wrote:

> Northern Dancer---I think China is headed down the same road as Russia,
> with regard to the USD. And not a damn thing we'll be able to do
> about it. When China pulls the plug, I believe it may precipitate
> a collapse in our economy which will in turn devastate our society.
> It won't bother Beranke and the people who sold us down the river;
> they'll still have their penthouses and Porsches and hookers even
> though mainstream America will be shot to shit for many decades.
>

Is the "Dollar Down - Stocks Up" Relationship Finally Decoupling?

This year, I had DCTH as a 2.5-bagger (bought last year in the low-to-mid-$1s and sold in the low $3s... Now it's in the $5s! When I bought it, it would trade 30,000-40,000 shares a day, and no one had ever heard of it. (It's still a great story, and now that the financing risk is gone I'd probably buy it back in the low $3s.) My other big win this year (I sure as hell haven't made any money this year on the short side!) was MNKD, bought in the $2s last year and sold in the $8s this year. This one wasn't as tiny as DCTH ($200mm market cap when I bought it), so it was actually tradeable all the way through (and I did trade around my core position).


On Nov 25 06:53 PM Swashbuckler wrote:

> Thanks for the explanation. You ever tagged one of these microcaps
> big? Like a three bagger or five bagger etc.? If so, did you learn
> anything new in the process?

Is the "Dollar Down - Stocks Up" Relationship Finally Decoupling?

Check out this "Turkey Factor" post on Zero Hedge:

www.zerohedge.com/arti...


On Nov 25 05:53 PM Northern Dancer wrote:

> Since June, the dollar has lost a stunning 8% of its value. Today
> alone, another full percentage point. But while nobody was looking
> today, with a full 1% devaluation of the dollar, the equities markets
> essentially went sideways. Not too long ago, when the dollar fell,
> the markets surged. In fact, when priced in any currency except USD,
> the American markets have been flat since June. In other words, it's
> been a rally since June based on absolutely nothing other than currency
> depreciation. And yet today, the currency absolutely fell off the
> cliff, and the markets didn't react. This is absolutely ominous.
>
>
> It sure looks to me like the day has come when we're going to be
> seeing the dollar and the equity markets falling at the same time.
> Today Russia said it's given up on any hope Bernanke gives a shyt
> about the American dollar. As a result, Russia now wants Canadian
> and Australian currencies where the economies are well run and sanity
> still prevails. He'll begin the process of slowly unloading Russia's
> holdings of American dollars. Can't blame him one bit. Surely that's
> embarrassing enough for Bernanke to do something? Probably not, since
> he doesn't give a shyt about the American people, as long as his
> buddies are making another fortune in the cheap American dollar carry
> trade. God, what bastards.
>
> One final possibility. It could be an orchestrated event which would
> give Bernanke reason to shock the world and do something to support
> the buck. It's a long shot, but possible. After all, the sentiment
> on the dollar is 98% bearish and it wouldn't take much to spark off
> a rally for the ages.
>
> .

Is the "Dollar Down - Stocks Up" Relationship Finally Decoupling?

This is definitely not (yet) something one can trade. I've owned a lot of these kinds of stocks, and they're "buy and holds" (as long as the fundamentals stay strong) until over time both the price and volume pick up, and then they become tradeable. The unique thing about this one is the surprisingly large institutional ownership for such a tiny company-- normally, institutions won't touch something this small because it's too tough to buy in any kind of quantity. However, this situation is a bit unique in that Morgans Waterfell and Fidelity bought this when it was a much larger, more liquid stock and stuck with it, and I think that Deerfield (which is a very smart pure-play healthcare fund) must've bought its stake as a large block (or blocks) from one of the other big institutions that bailed out at some point when the stock cratered.

I really think this is worth around $4/share "as-is", based on 2x run-rate revenue + net cash + the NOL carry-forwards. And if a larger company with a built-in derm salesforce bought it, the acquirer could probably pay more like $7-$8 (although that kind of premium wouldn't happen unless the price first got up into the $3-$4 range "on its own").

I was a buyer in there today (@$1.52) for a few thousand more shares, in order to maintain my 20% position.

On Nov 25 05:20 PM Swashbuckler wrote:

> Logicalthought----Because the float is so thin, you aren't worried
> about getting screwed by the specialists making the market in DUSA
> when you get in and out of the position?

Is the "Dollar Down - Stocks Up" Relationship Finally Decoupling?

LOL... How true!


On Nov 25 05:00 PM Swashbuckler wrote:

> Seems like everywhere I looked in the past few months, I've seen
> articles and comments regarding the irrefutable logic of the inverse
> relationship of the dollar and stocks. "OF COURSE a weak dollar means
> higher stocks." Nowadays it is accepted dogma for all the 'generals
> fighting the last war'. Or anyone looking in the rear view mirror.
> People stumble on a new methodology like this, make some money, and
> think they have some kind of divine touch. The eternal key to the
> stock market vault. Never mind the fact that the relationship has
> existed now probably just long enough for it to collapse of its'
> own weight. Six years. Wouldn't surprise me in the least if things
> transition back to the historic norm over the next few months. Not
> to worry. Some new "ironclad" indicator will arise and work. Until
> it collapses.

Interview with Scott Wren: Forward Earnings Estimates Are Too Low

>>...earnings estimates for this year, 2010, and 2011 are probably too low... I think that the demand for credit is very low... I think it’s going to be hard for housing prices to recover a lot over the next few years.<<

Somehow, I don't see how "b" and "c" follow from "a".

Investors Still Nervous, Despite Equity Rally

Sorry-- at the beginning of that last paragraph I meant to say "the reason for the steep yield curve..." (not "inverted" yield curve).


On Nov 24 06:50 PM logicalthought wrote:

> >>Even though equity markets have rebounded, recovering investors
> have flocked to the drug store with their prescriptions for bonds.
> <<
>
> Traditionally, investors kept a much higher allocation of bonds than
> they had been doing during the last 20 or so years. Current bond
> allocations may simply be a return to tradition.

Investors Still Nervous, Despite Equity Rally

>>Even though equity markets have rebounded, recovering investors have flocked to the drug store with their prescriptions for bonds.<<

Traditionally, investors kept a much higher allocation of bonds than they had been doing during the last 20 or so years. Current bond allocations may simply be a return to tradition.

>>The mountains of cash on the sidelines have the potential of fueling further gains under the right conditions.<<

Sure... And those conditions would be folks having substantial positive equity in their houses and a high degree of confidence about their future incomes. In other words, don't hold your breath waiting for "sideline cash" to buy your stocks at higher prices than you paid for them.

>>...the yield curve is the steepest it has been in the last 25 years. This... should provide comfort to those blue investors that cried through inverted yield curves (T-Bill yields higher than 10-Year Notes) that preceded the recessions of 2000 and 2008.<<

The reason for the inverted yield curve is not the traditional expectation of capacity-constrained inflation going forward. Instead, it's due to a combination of inflationary fears caused by the recent massive money printing, as well as the fear that higher rates will be necessary in order to attract enough capital to continue to fund the enormous level of Federal debt. So, rather than being bullish, the inverted yield curve is symptomatic of some huge problems around the corner.

I Took My SDS up to a 60% Position Tonight After the Close

Yes, this is absolutely true re. "stops", although it won't be an issue with something as liquid as SDS. In fact, I'm comfortable selling something such as this "at-market", as the bid-ask spread is less than a penny during market hours. However, I'm under no such allusions re. an illiquid little company such as my DUSA, but companies such as these are very fundamental buys for me, and I never set "sell stops" on them. Instead (barring, of course, any fundamental changes) I tend to buy more at lower prices, in order to maintain the same percentage of them in my portfolio. However, I am also fully cognizant of the fact that if one morning the company announces a significant negative fundamental change to its prospects, I'm pretty much stuck there. This is why I tend to allocate my capital to my "five best ideas" rather than to my "one or two best ideas", and if I don't have five great ideas, I simply hold a lot of cash. The reason I have no problem overallocating something such as SDS is because it's extremely liquid and no matter what good news could possibly happen, it's unlikely that the overall market could gap up more than 5% or so overnight, thus limiting my risk of overnight losses to no more than around 10% or so on the position.


On Nov 24 09:07 AM tripleblack wrote:

> Yes. Hence my pile-of-cash plan, LOL. This is particularly true
> for low-volume stocks, which is where I got burned last time, despite
> "stops". 20% stops sold at 30-40% down.