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Lake Investor

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  • The Party Won't Last - 4 Reasons To Sell This Rally Now [View article]
    Your four points describe some real world situations but you fail to connect them to the stock market and equity levels. If high debt levels are bad (I agree) then why does sequestration not counteract the high debt trend?

    I think people get too caught up thinking political wranglings will have a bigger impact on the market than they actually do. People get their panties in a twist thinking some idiot politicians in Madrid or Milan can tank our market. It's not so.

    The only big levers on the market are (a) fed policy, (b) changes in fiscal policy (changes in spending or taxes), and (c) changes in trade policy.

    Right now the fed is super accommodative. You can't fight it. Fiscal policy is basically standing pat with the recent budget deal. We've had minor changes in tax rates but those have been expected and discounted for a long time. There is no move to do away with free trade.

    Guys going to cash are going to be very sad when the inflation bug hits. Why would you volunteer to pay the inflation tax that our government is determined to foist on savers?

    Take a clue from Warren Buffett. He is staying nearly fully invested in US equities. He's also spoke favorably about US real estate opportunities (particularly housing) though he hasn't identified a vehicle that will let him make a large scale investment there--though he advises others to do it. Quite frankly, he is positioning himself to be hedged against inflation.

    I will not reconsider bonds until our country adopts a more rational monetary policy that is balanced between the interests of debtors and creditors (savers).
    Feb 5, 2013. 01:31 PM | Likes Like |Link to Comment
  • The Bond Vigilantes Have Been Taken Out Back And Shot [View article]
    Thanks Paulo for the Article.

    The monetization of the US debt began some time ago. The end result will be a creeping confiscation of wealth from savers--especially holders of bonds and cds as a deteriorating currency effectively taxes their wealth away.

    The fed decisions should be analyzed like any other business decision. There are few, if any, participants in the market other than the fed who are piling into long term treasuries. The fed should be doing the opposite of what it is now doing--it should borrow long instead of short to stabilize the budget years out. Consumers are rushing like crazy to refinance homes and tie in historically low rates. The government should do the same (though it would move the market if it did so). The fed will have real and massive losses on the securities it is purchasing today when long bond yields eventually skyrocket. That will be the mother of all bailouts.

    The fed and the Obama administration have not found a magic bullet that will allow long term rates to stay low forever. Reckoning is coming. The bond vigilantes are not gone--they have just moved to other markets and are positioning their wealth in the inflation hedges that will have some chance of staying afloat when inflation comes roaring back.
    Feb 5, 2013. 01:01 PM | 2 Likes Like |Link to Comment
  • S&P To 1872 From Quantitative Easing [View article]
    Macro Investor,

    Thanks for the insightful article. This will anger the guys who have predicted 12 out of the last two big market corrections.

    I doubt the wisdom of QEInfinity but it is the playing field we have in front of us--I don't see any change soon. I don't think Obama is that hard to predict. You just never fight the fed when it is being that accommodating.

    I think a lot of the returns will merely represent inflation of asset prices but there are only a few ways to play an inflation hedge. Like Warren Buffett I prefer equities and real estate to gold as a hedge as gold is too prone to swings and doesn't have a lot of real world uses. I'm not brave enough to leverage my bets too much but I try to position in equities that I think benefit most from easy money. I'm long JPM, GE and AIG who stand to benefit from continued balance sheet repair.
    Feb 5, 2013. 12:45 PM | Likes Like |Link to Comment
  • How To Beat Inflation - Hold 3M Company Stock For Many Years [View article]
    Useful article. Thank you. Beating the inflation bogey is very important to me as an investor. I'm old enough to remember the last vicious inflation cycle. I started working a couple years after Paul Volcker got serious with the task of stamping inflation out during Reagan's terms. I think QE has been carried to an extreme and is kind of ridiculous. It will lead to imbalances and it's good to know which stock investments will serve as a hedge to the next bout of inflation. Been long MMM for over a decade. Not the highest flyer but very steady and committed to shareholder value.
    Feb 4, 2013. 02:57 PM | Likes Like |Link to Comment
  • S&P 500 Nears Record High But Risk Premium Factor Model Shows It's Still Undervalued [View article]
    Good article. Agree caution simply plugging in today's artificially low rates. Still your use of a higher treasury rate than actual shows bias is still to upside.

    That conclusion is further bolstered by large corporate cash balances and historically low payout ratios
    Feb 3, 2013. 01:25 AM | Likes Like |Link to Comment
  • 2012 Review: Why Stocks Rose, Where I Was Wrong And What I Would Do Different [View article]

    You're right that you can't always expect history to repeat itself. Just when you think it has to repeat itself it throws something new at you.

    Still, the odds favor sticking with the fed signals. In the sad dark days of 2009 I looked long and hard at the meltdown and stayed in the market. The fed jumped in and provided massive liquidity. I also greatly increased my stock investments at that time and stayed long. I know people who were scared out then and are still out. I'm glad I stayed the course. 12-18 months ago I bought five houses in Las Vegas (where I live) when no one wanted them. Now I see appreciation (per Zillow) of 20-40% on those same houses--all of which are rented.

    I know "published" inflation rates the last few years have been 0-2%. However, I know that the values on my stock and real estate portfolios are up many times that in the same period. You can't change government policy as a single investor but you can react to what the politicians are doing. I feel sorry for the people waiting for a stock market correction parked in bonds. It will end badly for them.
    Feb 1, 2013. 04:36 PM | Likes Like |Link to Comment
  • 2012 Review: Why Stocks Rose, Where I Was Wrong And What I Would Do Different [View article]

    We're all worried about what the fed and politicians will do. Fed may not reverse course and tighten until it is forced to do so (by rampant inflation). In the meantime, past experience suggest one should not fight the Fed. I think it was Marty Zweig who wrote years ago that you usually the best time to reverse course as an investor and get out of the stock market was after the fed had tightened a second time. Major changes in fiscal policy (huge unexpected tax increases) also signal one to get outof the market. Until then, enjoy the ride and stay long.

    The observation you make about the public pulling money out of stock funds for four years is actually a strong contrary indicator that one should stay in the market. Bear markets don't start when sentiment is that negative. It is a great indicator because it is an objective measurable fact that is easier to gauge than what people say (who often have an incentive to lie to mislead the market).
    Feb 1, 2013. 01:14 PM | Likes Like |Link to Comment
  • 2012 Review: Why Stocks Rose, Where I Was Wrong And What I Would Do Different [View article]
    I think Ben Bernanke and central bankers around the world had given plenty of clues over the preceding few years that they would go to great lengths to provide liquidity to struggling economies. Helicopter Ben had shown his stripes well before the end of 2011.

    We probably all have doubts about the wisdom of some central bank policies. As investors, however, we have to focus on what we know and react to that. None of us has the power to change fed policy but we can organize our portfolios to deal with the effects of probable policies. The fed has been saying for a long time that it will be accommodative and that it will hold that stance for an extended period.

    The time to reverse field is usually after a couple rounds of tightening--not yet.
    Feb 1, 2013. 01:04 PM | Likes Like |Link to Comment
  • 2012 Review: Why Stocks Rose, Where I Was Wrong And What I Would Do Different [View article]
    I disagree that you have rebutted in any meaningful way the reasons I cited for the gains.

    I'm not sure the point of your last paragraph. You put a lot of words in my mouth. I did not imply in any way that there is no value in correctly predicting down moves. There is great value in correctly predicting moves in any direction--if you can do it. I don't need the third grade math lesson. I was merely pointing out that your call missed last year's gains. I don't know what market positions you actually took but if you truly believed what you were selling then you probably (a) got out of the market, (b) shorted the market, or (c) bought puts, sold calls or made other bets leveraged to a downside move. Any of those would have made your losses even greater.

    Stop and think about your main point--the tiny lever that is Spain can create havoc in financial markets all over the world. Really? The real things that move markets are (a) changes in monetary policy (don't fight the fed), (b) changes in fiscal policy, and (c) changes in trade policy. Zweig, Laffer and plenty of truly smart guys ahve written and commented on these macro levers. Sure there are scary things out there to which you should pay attention but Spain is not on the top of the list. The fed is still accommodative. No big changes in fiscal policy as we still have divided government and gridlock. No real move to bring back Smoot-Hawley as people and politicians mostly realize that trade is good. That is why I am staying long. I would be scared to death to hold long US bonds right now. Understanding and watching those main macro levers is about as much as the average investor can process.
    Feb 1, 2013. 12:36 PM | 5 Likes Like |Link to Comment
  • 2012 Review: Why Stocks Rose, Where I Was Wrong And What I Would Do Different [View article]
    If you missed the last three years you'll probably never catch up. Better to admit you were wrong then stick with a bad strategy.

    Stocks are not trading with PEs that are out of whack. Companies are not overleveraged (leverage has decreased). Sure countries are overleveraged but thankfully the people running our companies are smarter than our politicians. The earnings yield on stocks is so much greater than government bond yields that favoring stocks over bonds is a no brainer.

    You've missed out by not being in stocks the last three years. If you're heavy in bonds your real pain is yet to come and you'll probably underperform by even more going forward.
    Jan 31, 2013. 02:24 PM | 1 Like Like |Link to Comment
  • 2012 Review: Why Stocks Rose, Where I Was Wrong And What I Would Do Different [View article]
    I agree. Can't fathom the love and respect for the author of this article. I don't remember reading any other articles by him but this is really muddled. Our market ran because Spain contracted only 1.4% instead of 2%? Really? If Spain has that much of an impact on us we're in trouble.

    You were wrong because (a) stocks were cheap, (b) the fed was forecasting long-term accommodation (don't fight the fed!!), (c) QE money flowed into stock (a derivative of point (b)). Your biggest mistake was listening to the endless drumbeat of negativism on Europe. It was so incessant that the concerns were baked in. The point you got right is that the market reacted favorably to European news that was not as bad as feared. However, that is a typical contrarian call that all people long the market made (including myself).

    I agree with Anonymous Guest's comments about the need for humility in predicting the outcome of a market with a million moving parts. Stay diversified and try for marginal improvements in performance by focusing on big things like valuation metrics, fed policy, etc.

    If market goes up 16% and you miss that you have some hard ground to make up. If you were short the market the task of catching up is even harder.
    Jan 31, 2013. 02:19 PM | 7 Likes Like |Link to Comment
  • Exxon Mobil: What The Numbers Say [View article]
    Thank you for the very informative article.

    Been long XOM for 15 years or so and never really thought about selling. I trust management though they are not perfect (paying top dollar for a gas exploration company hurt a little). All in all they treat shareholders well and are disciplined in buying back shares and seeking new opportunities.

    I think they are probably the savviest in the world when it comes to dealing with sovereign governments. They are careful not to get themselves too exposed to politicians. They have investments in Russia but required their partner to make a similar investment in Non--russian projects so they'll have an offset against attempted nationalizations or phony liability claims. They're still fighting Chavez in arbitration but know Venezuela has US assets to pay any award. Exxon's handling of Iraq is front and center now. They were patient there and it will probably mean they end up with a better deal.

    I sold COP last year--it is not as adept at navigating foreign minefields. I don't like sovereign oil companies because eventually their native politicians will be jealous or covetous and use the companies as a honeypot. For that reason have stayed away from PBR and russian companies (not technically sovereign but essentially controlled by Putin).
    Jan 31, 2013. 12:58 PM | 3 Likes Like |Link to Comment
  • Developments In China Explain The End Of Gold's Rise [View article]
    thanks for the clarification. I still think the assumption that government can coopt and enslave one class (high earners) for its high-minded purposes is wrong. There are practical (economic) why progressive taxation policies don't work past a certain point. I also believe they are immoral when they reach the levels they are at in most developed countries.
    Jan 31, 2013. 12:35 PM | Likes Like |Link to Comment
  • Developments In China Explain The End Of Gold's Rise [View article]
    I admit both parties share blame but only one party has an unlimited appetite for handouts. I fault Republicans for not standing up stronger.

    The blame goes far beyond Obama but he is the one person who could seriously slow down handouts to deadbeats and he has no inclination to do so. By his public words he doesn't even think there are any deadbeats to whom the government hands out largesse. I think he knows better but prefers the world where his power base is tied to him by handouts. I wish it weren't true but unfortunately I am right.

    We should seriously reform, but keep Social Security and perhaps medicare (also a broad social insurance program but ill-conceived and funded).

    We should end federal support to education--all it does is line the pockets of educators. We could provide university education at much lower costs if we allowed advances in technology to bring productivity gains in education (have the best teach internet classes and do away with most professors).

    drastically reduce or eliminate food stamps--food is plentiful and cheap in the US if you don't buy processed foods that aren't good for you. If we do any food assistance it should be limited to distribution of basic food stuffs (beans, rice, wheat, milk).
    Jan 31, 2013. 12:31 PM | 1 Like Like |Link to Comment
  • Developments In China Explain The End Of Gold's Rise [View article]
    Not sure why you made a reference to "ill-gotten wealth." Do you think China and India don't earn their wealth? People in both countries work hard under tough conditions for sums that Americans won't work for. To me their wealth is anything but ill-gotten.

    Ill-gotten wealth is the stuff Obama hands out to lazy people.
    Jan 30, 2013. 01:21 PM | 14 Likes Like |Link to Comment