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  • Why "S&P 2000″ Is A Fed Manufactured Mirage: The "Buy The Dips" Chart That Says It All [View article]
    That's blather. The 1920's rally was built on declining stock margins that bottomed at 10% before the crash started and was fueled by brokers raising margins through the crash. In the 20's and 30's the brokerages set the margins which were unregulated. Sound familiar, like LTV's and CLTV's in residential real estate climbing to 100% (or even higher with option ARMs) in the 2000's creating a housing bubble? In the first instance the Fed was hardly involved; in the second case the Fed actually caused the crash when it first raised rates and flattened the yield curve (killing real estate and the economy), and then at the worst possible moment stepped in and shut down subprime and Alt A residential mortgage lending almost overnight with new regulations in October 2006 (actually, led by the Fed but including all the federal and state bank and mortgage regulators in concert). Free financial markets caused the crash of 1929, but regulators caused the housing crash of 2007, not because of excessively low rates but with excessively raised rates plus regulation.
    Aug 25 11:42 PM | 2 Likes Like |Link to Comment
  • A Quick Formula To Estimate Annaly Capital Stock Value And Understand The True Drivers Beyond Its Price [View article]
    Thanks for an interesting exercise, but it appears that many commentators have fingered weaknesses in your results. Your results do seem to reveal the significance of the yield curve. My objection is that the formula doesn't take into account accumulated price drops on ex-dividend days based on the dividend to be paid, which produces discontinuities in the stock price for a good reason. I think you should have a variable that takes into account the sum of dividends to be paid on ex-dividend days over a certain time frame prior to day t, for example sum(-1.00*div@t) where div is the dividend to be paid if stock held on day t and t spans 0 through -n and t=0 for the most recent day of data and -n could be ranged from 0 through -365, to elucidate the time frame during which dividends affect the price the most.

    Rather than try to guess the fair value of the stock and base trading on that, I just hold the stock for the dividend and hedge the capital value with put options. That can actually yield some net capital gain if the stock price crosses strike prices in advantageous time frames.
    Aug 25 07:42 PM | 1 Like Like |Link to Comment
  • 8 Reasons Why A New Global Financial Crisis Could Be On The Way [View article]
    Thanks for a thought provoking article. Perhaps the next crisis will simply be a crash in stock and/or bond markets.

    However, I quibble with one of your assertions. "There is no single episode of financial panic in the last 50 years that could not have been prevented." The subprime crisis (actually a subprime and Alt A crisis) was entirely created by banking and mortgage regulators who made a huge blunder on October 4, 2006 when their new regulations took effect that speedily led to the discontinuation of virtually all subprime and AltA mortgage lending, which also led soon to radical curtailment of availability of home equity lending (80% CLTV max instead of 90-100%). By March, 2007 there were virtually no subprime lenders, and the regulations quickly led to a huge loss in business to Aurora Loan Services, the oldest and biggest AltA lender, and one of the most critical operations of Lehman. The regulations made it inevitable that very few subprime ARM borrowers would be able to refinance before their interest rates and payments exploded after two or three years. Regulators did not bother to regulate adjusted interest rates on ARMs though it should have been very easy to anticipate the devastation they were imposing on subprime borrowers. Similarly Alt A borrowers who relied on good credit and housing equity were also left high and dry since all new mortgage lending would be based primarily on debt-to-income ratios regardless of credit qualification or LTVs and CLTVs (the Alt A crisis is just starting since many Alt A loans had 10-year interest only payments that will start going into 20 year full amortization). The regulations were intended to dampen the most risky forms of mortgage lending, but because they were ill-timed and excessive they wrought havoc on home financing and financial markets. Although the housing market was clearly due for a correction by 2006, and that would have entailed accelerated mortgage defaults, the subprime/Alt A crisis was preventable to a large degree if bank regulators hadn't issued draconian new lending limits at a time when they had already raised interest rates considerably.
    Aug 23 10:00 AM | 9 Likes Like |Link to Comment
  • Pacific Coast Oil Trust: Regulatory Fears Unfounded, While Units Yield 15% And Sell At A Discount [View article]
    Thanks for an informative and very readable review of the situation. But I'd be very interested in expansion on a couple of points. Royalties are 85% on existing 286 wells, 220 of which are in Santa Barbara County. No current producing wells use fracking. Does the operator plan to use fracking in the future to enhance production of existing wells?

    You indicate that royalties from development wells will be only 25%. Can you also advise how many such development wells there will be, how many of those would be in Santa Barbara County and what portion of those might require fracking for initial production. I'm trying to get an idea of the possible worst case long term effect on potential revenues to ROYT in the event Santa Barbara County or other locations do in fact ban fracking.

    By the way, I usually hold units of royalty trusts with continuous put option hedges, sometimes with a net short position just before scheduled ex dividend dates. In the case of ROYT I cashed in puts at the 12.50 strike for a nice profit in addition to the recent distribution and now hold the units with a partial hedge at the 10.00 strike. I also have a small position in December calls at the 10.00 strike. This looks like a significantly winning position if the distribution yields hold reasonably well, and more so if investors respond favorably to a defeat of Measure P, unless oil prices continue to collapse.
    Aug 22 07:52 PM | 4 Likes Like |Link to Comment
  • Market Timing Report: Indicators Are Cued Up For A Bear Market [View article]
    The article does a great job of presenting overwhelming technical evidence of an overbought and overvalued market, which one might expect foretells of an oncoming bear market. However, certain intermediate and shorter term indicators showed the market very oversold on August 1 when the author made the call. Since that date the S&P has gone from about 1992 to 1999 after a brief dip to about 1990. It appears to me that the market isn't done rising on an intermediate time frame (weeks), although I expect a brief dip next week.

    The July correction brought the NYSE summation index down from overbought at +1000 to 0 on August 1, almost oversold. That was the biggest continuous drop of 1000 points in the index since the May-June correction of 2013 (1400 points). Since August 1 the index has turned up and risen about 340 points and, most importantly, the slope is upward; once the slope changes it's hard to reverse it. The shorter term breadth indicator, the McClellan oscillator, bottomed at -89 on August 1 and has moved back to short term overbought at +55 Tuesday. It usually takes three or four weeks for a bottom to bottom cycle. Next week I would watch for a dip in the oscillator to -50 in the next few trading days. A Fibonacci retracement of the latest 9 point rally would bring SPY to 193 again. That would be a likely initial buy point for a possible continued rally to mid September at least. In the event 193 doesn't hold it's possible that 190 will be tested. It will be interesting to see if those support points hold and what happens to the summation index after the next short term bottom.
    Aug 22 06:21 PM | 3 Likes Like |Link to Comment
  • Royalty Trusts And The ETF Retirement Portfolio [View article]
    I only take a position in a royalty trust that has exchange traded options. I maintain a nearly perpetual hedge with in-the-money put options. A few days before ex date I increase the hedge to -1.5 delta. On ex day the unit price frequently drops more than the amount of the dividend providing increase in value of the put options more than the loss on the unit price. There are occasional transaction costs for rolling over the put options and opportunity cost in keeping funds tied up in the put options, but so far this is working pretty well and eliminates the need for closely tracking or worrying much about financial statements, trust hedge positions or the prices of underlying commodities.

    For trusts paying quarterly I am also considering selling shares soon after the ex date and just buying call options to replace the unit position until some time closer to the next ex date when the calls would be sold or exercised (the put hedge is maintained). That way funds can be invested in other high yield securities that pay during the interim between ex dates. Long SDR, SDT, ROYT, CHKR, looking at PER.
    Aug 17 10:38 PM | Likes Like |Link to Comment
  • Atlas Energy: An Unloved Value Play [View article]
    I note insider buying in ATLS, APL and ARP. With regard to recent drops in market value I note the high Beta of ATLS (2.45) and APL (1.68), so, of course, the unit values followed the recent market downturn with some exaggeration. I also note the recent drop in energy prices which is not supportive of values. I do think the overall equities market and energy prices are oversold on a short term basis, so there is some reason to think current levels might warrant at least a pause with base building, if not a short term bounce. On a technical basis I'd either wait to invest naked long in any of the Atlas MLPs until slow stochastics drop to 20, or else take any initial position hedged with put options.

    With regard to ATLS in particular, I note the very high debt/equity ratio of 8.16 which is likely a source skepticism for many investors and short sellers (even most mREITs don't engage in such leverage these days). The long term debt/equity ratio is 8.15, so almost all debt is long term. Given the ROI of -2.90% and ROE of -19.1%, and a net profit margin of -2.6%, it makes sense to question how it is possible for ATLS to earn its cost of capital without stellar growth in sales and improved margins.

    The analysis of distribution coverage of an MLP is best focused on free cash flow dynamics. I think the author would have done readers a service by elucidating that analysis before making recommendations about values. I wouldn't buy one just on the basis of hope for M&A activity.

    I've been watching ARP for a while and the distribution yield of almost 12% with monthly payments certainly looks appealing. Pending further due diligence before a naked long position, I think an initial position with a put hedge at the 20 strike price looks attractive.
    Aug 10 10:30 AM | 2 Likes Like |Link to Comment
  • Intel: Losing Dominance In The Server Segment? [View article]
    The general market has been down. Intel beta is 0.93. Also valuation is a bit high for a 9% earnings grower. PEG ratio 1.83; price/free-cash-flow at 32.92.
    Aug 9 09:40 AM | Likes Like |Link to Comment
  • How To Use The CAPE Ratio To Double The Return Of The S&P 500 [View article]
    Thanks for a very interesting food-for-thought article. I was intrigued by your reference to a study showing superior performance of a CA-BM [cyclically adjusted book value to market capitalization] methodology. Here are some key excerpts from the Gray and Vogel paper you referenced:

    "Stock returns are measured from July 1973 through December 2012. ...An annually rebalanced equal-weight portfolio of high CA-BM stocks earns 16.6 percent a year and generates the highest Sharpe (.64) and Sortino (.85) ratio among all cyclically adjusted metrics tested. While CA-BM is the marginal top performer over the past 40 years, all cyclically-adjusted value measures have outperformed market benchmarks by large margins.
    ...Employing a monthly rebalance enhances the performance of all valuation measures. For example, the CA-BM strategy goes from a 16.6 percent compound annual growth rate (OTCPK:CAGR) to a 19.3 percent CAGR.
    ...Using the monthly rebalanced portfolios, we split each decile into high and low momentum. Employing this additional momentum screen adds at least 100 basis points across the different valuation metrics. For example, the high-momentum CA-BM portfolio has a compound annual growth rate of 21.6 percent, which is 230 basis points higher than the monthly rebalanced CA-BM portfolio.
    ...Our data sample includes all firms on the New York Stock Exchange (NYSE), American Stock Exchange (AMEX), and Nasdaq firms with the required data on CRSP and Compustat. We only examine firms with ordinary common equity on CRSP and eliminate all REITS, ADRS, closed-end funds, and financial firms. ...To ensure there is a baseline amount of liquidity in the securities in which we perform our tests, we restrict our analysis to firms that are greater than the 40th percentile NYSE market equity breakpoint at June 30th of each year.
    ...The monthly results do not account for taxes or transaction costs, which are assumed to be much higher relative to the annually-rebalanced results"

    That looks like a very promising methodology for superior long term performance, perhaps restricting rebalancing to quarterly frequency to reduce the necessary time comittment and transaction costs. Has the author considered publishing a portfolio of stocks conforming to that approach? Does anybody know of an ETF that uses such methodology?
    Aug 3 12:17 PM | Likes Like |Link to Comment
  • 8 Indicators That Tell Us Where Gold Might Go Next [View article]
    On a weekly bar chart for GLD, now at 124.38, RSI is trending down from 60%, a point of resistance for recent rallies. Slow stochastic turned down from over 80%, where all significant recent rallies have topped, and is now at 73.92 with a long ways to go to another bottom below 20 (typically takes 2.5 to 3 months). Money flow index has also turned down from about 60, also a point of resistance for short term rallies during the last two years, and should drop to at least 20-30 for another good bottom. I'd be waiting for a possible test of the previous two bottoms at 115 over the next two months and check indicators' statuses at that point. I also note that commercial hedgers in gold futures are more short now than they were at the previous two intermediate tops at 1420 and 1390, and that's bearish.

    For traders, it appears that a short position is currently indicated, perhaps with October or longer dated puts on GLD, or gold futures. I'd be surprised if there wasn't at least a small short term trading bounce from 120. If it takes at least two months to drop to 120 with indicators in bottoming status, that would signal a very possible turn in the intermediate and long term turn in trend at 120. A subsequent breach of 120 would indicate a test of 115, and a serious breach of 115 would indicate the likelihood of a continuing bear market or grinding sideways bottoming process below 115 for a while longer.
    Aug 3 10:50 AM | Likes Like |Link to Comment
  • The Day The Trend Changed... Or Not [View article]
    I thoroughly enjoyed this article and your previous one. You write very well and with great humility and humor.

    Regarding possible timing clues, I can't help noting on the chart above for the DJIA that every time in the last three years that the slow stochastic has dropped below 25 has coincided with a buying opportunity and that's now the case. I see the possibility of a further drop intraday to 16,400 followed by a sharp rally, either intraday or the next day to reestablish upward momentum.

    I also note that the McClellan oscillator hit -89 yesterday, and that any level near -100 has coincided with a significant intermediate low in the last few years.

    I further note that the summation index has quickly dropped from an overbought level near +1100 to a near neutral level of +287. Drops of such magnitude in the last few years have coincided with significant lows. Particularly if the index gets into negative territory and its slope reverses from downward to upward, that has been particularly telling of a new uptrend.

    Your previous article coincided with a short term top to be sure, and one can never be certain where a new short term downtrend ultimately leads. However, for those who wish to try a short term or swing trade, or to add to long term positions, it appears that the odds favor a new or expanded long position currently or very soon for the short term or longer until indicators once again suggest a top. I'm guessing that by next December you might not be completely happy with having sold out if you remain so.

    I also think the recent drop has delivered tempting price levels and higher yields in several of the high yielding securities that pay 10-30% distributions and also can be hedged with options against capital loss. For example, PSEC, FSC, AGNC, IVR, CYS, REM, ARR, JMI, BBEP, PER, SDT, SDR, CHKR and ROYT among many others. If you hold those with hedges you can still make 10% or better on an ongoing basis just from distributions while you consider your buying opportunities for indices and stocks of faster growing companies.
    Aug 2 05:10 PM | Likes Like |Link to Comment
  • The Day The Trend Changed... Or Not [View article]
    Very well thought out and good advice. Over a year ago I actually started writing an article which made almost identical points with the thought of possibly submitting it to SA. I didn't finish it and had forgotten about it until I read your comment. Since you beat me to publishing the concepts perhaps you should submit for an article. In any case, defining the intended time frame for holding securities and the investment objective are keys to deciding whether and when to sell (or vice versa in the case of short sales).
    Aug 2 04:39 PM | Likes Like |Link to Comment
  • An End To Our Relationship With Yahoo, A New Era For Equity Research [View article]
    I don't use Yahoo finance much. However, I often go to finviz to get basic financial data, charts and insider data, and when you get data for any stock they cover there is a list of articles ordered by date, including SA articles among many others. So, I often use finviz to find the most recent SA articles about a stock (finviz doesn't cover penny stocks, however).
    Jul 27 06:37 PM | 1 Like Like |Link to Comment
  • The Day I Sold Everything [View article]
    Too early to sell, and actually no need to sell ever to protect capital value if you can hedge. If you need to sleep better, sell a few shares to raise enough cash to buy some long term puts at a strike to protect some of your profits, if any, or calendar put spreads using long long-term puts and short short-term puts at a lower strike price. If you don't expect your stocks to move significantly higher real soon, or you're currently satisfied with current price level, sell some out of money calls to pay for some cost of the puts. If you're well hedged, you won't give up any dividends and can protect most capital value, and even continue to benefit from some appreciation.
    Jul 26 05:21 PM | 1 Like Like |Link to Comment
  • The Day I Sold Everything [View article]
    "The yield curve is strongly positive. What severe correction ever took place without a tightening of the yield curve?" 1987, 1990, 2010, 2011. I agree the odds of a severe correction are lower with a positive yield curve. However, it's true there's never been a notable economic recession with a positive yield curve. But, as we've seen the stock market and the economy are truly different animals, although they influence each other.
    Jul 26 05:05 PM | 2 Likes Like |Link to Comment