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  • How Far The Gold Sell-Off Could Go, And Strategies That'll Save You [View article]
    I don't invest in gold, but this is definitely one of the best articles abut gold I've ever read.

    One concern with the rule to sell on a monthly close below the 12-month moving average and buy on a monthly close above the 12-month moving average would be the potential for whipsawing . I ran a chart of GLD with a 12-month average and noticed that the first monthly close after the 1700 top was at 151 the last trading day of December, 2011. Then one would have bought back way up at 170 on the last day of January 2012. Then one would have sold at 151 on the last day of May, 2012, but bought back again at 164 the last day of August, and sold again at 152 the last day of February, 2013 (it's hard to read a monthly chart so closely, but it appears there is potential for the next buy to be at the close this April, 2014 with a close above 125). The three trades beginning January, 2012 through February, 2012 would have netted a loss of 31 points, a rather large drawdown.

    I realize there are an infinite number of possible trading rules one can employ as to when to buy or sell, but I would think there must be rules to use that might capture more of the gain (i.e. lose less of a gain in a correction) and limit losses due to whipsawing (perhaps a rule to buy or sell on weekly closes above or below the 12-month moving average, or some moving average crossover rule).
    Apr 18 12:01 PM | Likes Like |Link to Comment
  • Here's What The Buy Side Expects From Advanced Micro Devices Thursday [View article]
    I'm puzzled by the revenue estimates which have them falling by $229MM or 253MM from FQ4'13 actual of $1590MM. Is the effect of Christmas sales that pronounced? I would have thought that strong video product sales would have revenue at least flat to increasing.
    Apr 16 08:11 PM | 1 Like Like |Link to Comment
  • What Next? Clues From The Futures Markets And Other Sources [View article]
    I agree with most of your article. However, in relation to the futures and options markets I'd use the term "regulated" advisedly! If the CFTC ever did regulate the positions of large traders in oil futures as per Dodd-Frank, we'd get a nice markdown in oil prices, possibly much lower than the 80-87/bbl that is likely going to be the best we can expect.

    Last September I commented on the COTs in notes and bonds as shown on FinViz, and predicted a rally. Two subsequent rallies were cut short, one in November and again in January. For 10-year notes there's a triple bottom near 123 and overhead resistance at 126.5-128. If 126.5 can be significantly penetrated without a major reversal in COT positioning, and holds for a week or two, the price objective would be about 133.5 based on 126.5+2*(126.5-123), almost back to the mid-2012 high of 135. I'd expect that to take at least a few months, maybe over a year, with significant pausing and back filling, and I'd be quite amazed if that happens, but, now that the whole world expects rising rates, I wouldn't rule it out.

    Also, for a few years I've been monitoring the Citi Panic/Euphoria Index in Barron's Market Lab, and that, along with record short interest and persistent high levels of bullish sentiment on stock futures, have led me to expect a major correction or bear market in stocks. It seems to be taking its sweet time in evolving, but might be under way now. Sell in April and go away? I'd expect a short term rally or stabilization soon based on VIX nearing resistance at 20 and the McClellan oscillator in the -50 to -100 level where most short term rallies have started in the last several years.
    Apr 13 10:40 AM | Likes Like |Link to Comment
  • The Market Is Too Dependent On Hopes That Await Evidence [View article]
    Very good article. "Conditions including valuation levels, overbought conditions, investor confidence, and so on, are at levels seen at most previous bull market tops.
    However, hopes are that the market is destined for bubble market conditions like 1997-2000, with the bull market continuing until valuation levels reach the unusual extremes seen at the bubble top in 2000." Amen.

    Now that the McClellan oscillator is nearly -50 and the NYSE summation index has declined about 400 points from the overbought level of +1100 or so, and VIX is near the March high around 18 and near the magic 20 level, we may expect a short term rally soon, or at least stabilization. The level and character of the next short term rally should let us know the likelihood of new highs later. My guess is that the market will not blow off in the next rally, but more likely will reverse and go below the previous short term low until the summation index at least gets to zero or negative oversold territory. I would expect that process to take a long time and not happen in a "crash" mode.
    Apr 13 10:08 AM | 2 Likes Like |Link to Comment
  • Implications Of Deflation Risk For Stock Prices [View article]
    Thanks for a very provocative article. You posit that current market valuation is reasonable in light of low bond yields and low inflation. "In other words, the market is not overvalued in the context of bond yields. I further argued that I don't expect bond yields to rise because of the subdued inflation outlook." Also, "Current market valuations are merited as long as inflation remains within the moderate range (1-6%). Given that current inflation is at the bottom of that range, and that the Fed is reducing monetary stimulus, the principal risk to today's market valuation appears to be lower inflation or outright deflation." However, suppose bond yields rise independently of inflation, as happened in the first half of 2013. In my view that would change the risk free earnings discount rate and hurt stocks significantly, and apparently you would agree.

    Also, regarding stock valuations, there are problems with the current levels apart from considerations of bond yields and inflation. In particular, the following:

    (1) The Tobin Q ratio is at 1.07 versus a median of 0.70 since 1950 and higher than any time except the period 1996-2002 (http://bit.ly/Qije36).
    (2) The S&P 500 capitalization versus GDP is at 1.26 versus a median of 0.65 since 1950 and higher than at any other time except 1999-2001 (http://bit.ly/11BxBzC).
    (3) The dividend yield is at 1.88% versus a median of 4.65% since 1880 and the lowest in that time period except 199-2011 (http://bit.ly/ZzqOI2).

    Most likely, the anticipation of rising interest rates for the next 30 years is the reason valuations should be contained or come down, but one never knows if there will be another blow off like 1997-2001 before the next bear market. One point I have made repeatedly is that there have been bear markets without a flat or negative yield curve, but never a recession. With the sharply positive yield curve we should expect the economy to continue growing, particularly with the entire curve so low in yields. I doubt if the Fed will deliberately flatten the yield curve anytime soon even though short rates may begin to rise along with long rates. The current rally in bond prices while the stock market corrects could be the last hurrah for decades, but 10-30-year rates could stay in a narrow range near recent rates for several more months until the economy gets much better.
    Apr 13 09:46 AM | Likes Like |Link to Comment
  • Further Downside May Be Ahead, Though Long-Term Trend Still Intact [View article]
    The long term trendlines are still intact for the moment, but there is a major problem regarding stock valuations:
    (1) The Tobin Q ratio is at 1.07 versus a median of 0.70 since 1950 and higher than any time except the period 1996-2002 (http://bit.ly/Qije36).
    (2) The S&P 500 capitalization versus GDP is at 1.26 versus a median of 0.65 since 1950 and higher than at any other time except 1999-2001 (http://bit.ly/11BxBzC).
    (3) The dividend yield is at 1.88% versus a median of 4.65% since 1880 and the lowest in that time period except 1996-2008 and 2010-2011 (http://bit.ly/ZzqOI2).

    Record or near-record valuations are probably the result of very low interest rates. Most likely, the anticipation of rising interest rates for the next 30 years is a reason valuations should be contained or come down, but one never knows if there will be another blow off like 1998-2001 before the next bear market. One point I have made repeatedly is that there have been bear markets without a flat or negative yield curve, but never a recession. With the sharply positive yield curve we should expect the economy to continue growing, particularly with the entire curve so low in yields. I doubt if the Fed will flatten the yield curve even though short rates may begin to rise along with long rates. The current rally in bond prices while the stock market corrects could be the last hurrah in bond prices for decades, but 10-30-year rates could stay in a narrow range near recent rates for several more months until the economy gets much better. The question is when, or if, the economy will improve enough to goose earnings enough to overcome the adverse effect of rising rates to bring down valuations without a bear market.
    Apr 13 09:29 AM | 1 Like Like |Link to Comment
  • It's Bubble Time: A Study Of Peak PE For The S&P 500 [View article]
    Another very interesting article. For investors the bottom line is, as you posed, "So, what should a person do in this situation?" The answer depends a lot on time horizon, need for dividend income, risk tolerance and preference for trading versus investing. My answer is to hold for the long term a high proportion of high yield distribution securities and hedge them against capital loss. That's a very conservative approach but not immune to reduced total return. Regarding stock valuations, PEs are not the only measure to consider. For example:
    (1) The Tobin Q ratio is at 1.07 versus a median of 0.70 since 1950 and higher than any time except the period 1996-2002 (http://bit.ly/Qije36).
    (2) The S&P 500 capitalization versus GDP is at 1.26 versus a median of 0.65 since 1950 and higher than at any other time except 1999-2001 (http://bit.ly/11BxBzC).
    (3) The dividend yield is at 1.88% versus a median of 4.65% since 1880 and the lowest in that time period except 199-2011 (http://bit.ly/ZzqOI2).

    Most likely, the anticipation of rising interest rates for the next 30 years is the reason valuations should be contained or come down, but one never knows if there will be another blow off like 1997-2001 before the next bear market. One point I have made repeatedly is that there have been bear markets without a flat or negative yield curve, but never a recession. With the sharply positive yield curve we should expect the economy to continue growing, particularly with the entire curve so low in yields. I doubt if the Fed will flatten the yield curve even though short rates may begin to rise along with long rates. The current rally in bond prices while the stock market corrects could be the last hurrah for decades, but 10-30-year rates could stay in a narrow range near recent rates for several more months until the economy gets much better.
    Apr 12 09:38 PM | 2 Likes Like |Link to Comment
  • Senate Staffers 'Do The Hustle' With Fannie And Freddie Shareholders [View article]
    BuyLOw, I liked your comment. Regarding those who think "the FED "saved America" in the '08 crash," that may have some truth, however, not before the FED, in concert with all the other federal bank regulators and state mortgage regulators, actually caused the crash and destroyed the lives of many citizens with their ill-advised radical new mortgage regulations that destroyed the mortgage market as we knew it (see my comment above for more detail).
    Apr 12 08:36 PM | 1 Like Like |Link to Comment
  • Senate Staffers 'Do The Hustle' With Fannie And Freddie Shareholders [View article]
    divSTrong, you are right on with all your comments above. We already had the economic experiment in eliminating access to mortgages and witnessed the massive destruction it wrought via the Great Recession and housing collapse with attendant mortgage mayhem. On October 6, 2006 the new banking rules of the "Interagency Guidance on Nontraditional Mortgage Product Risks" went into effect. That was a nuclear bomb on the mortgage industry created by the Fed and all the other federal banking regulators with the unanimous agreement of state mortgage regulators. In effect, overnight it did the following:
    (1) completely eliminated the subprime mortgage market by virtually prohibiting subprime ARMs (virtually no subprime lenders were in business by March 2007), and made it virtually impossible for borrowers using subprime ARMs to refinance before their interest rates and payments exploded;
    (2) effectively eliminated the Alt-A mortgage industry (of which Lehman was the leader with its Aurora operation) thereby bankrupting Lehman and making it almost impossible for millions of Alt-A ARM borrowers to refinance as their 10-year IO ARMs go into 20-year amortization starting last year and for the next three years;
    (3) eliminated "stated income" prime mortgages by GSE's, regardless of historical success;
    (4) made all ARMs with five years or less fixed rate periods, including prime ARMs, much more difficult to qualify for;
    (5) essentially prohibited layering of second mortgage HELOCs at high LTVs (most such loans are now limited to 85% CLTV) thereby killing the home equity lending market and thereby bankrupting many banks.

    I could go on, but the mortgage and housing crisis were a direct result of this abrupt, aggressive, adle-brained, clumsy attempt to curb some mortgage abuses brought to you by the investment banks peddling subprime RMBS. My guess is that the rules eliminated almost half of prospective borrowers from the market with attendant cratering of housing prices, spikes in foreclosures by those who cannot refinance, unemployment, recession, etc. Not much has changed except for those who managed to refinance with HARP or HAMP. If any government party is guilty of illegal "taking" in the mortgage mess, it would be the bank regulators who conspired to destroy home equity and prevent millions of homeowners from benefiting from future refinances. I can't imagine how they could repay the citizenry for the direct and consequential financial damages inflicted on them.
    Apr 12 07:21 PM | 1 Like Like |Link to Comment
  • Investing Alongside The Best Buy & Hold Blogger While Limiting Your Downside Risk [View article]
    I have read your articles with interest, and today added you to my followed authors. I believe in the use of hedges for risk control or enhanced return. I have helped my very elderly father with his investments to produce a portfolio consisting mostly of high distribution yield securities with option hedges (mREITs, a couple BDC's, royalty trusts, PGX, REM and PCEF). Most of the time the hedges are just long puts, usually slightly in the money or at the money. The hedges have generally been adjusted before expiration when the stock moves significantly above or below strike prices. There is no intention of ever selling the securities, so he doesn't let any puts get exercised. So far, calls have not been sold on anything, but that is under consideration for securities that don't have much prospect for rallying above nearest out of the money strikes but do have significant call premiums (many of the securities being held do not have significant call premiums at the nearest out of the money call strikes).

    I'll be taking a closer look at your writings and methods to decipher what are considered "optimal" hedges. So far, the hedges that have been used provide very tight risk control, but come with a greater cost than your optimal hedges that allow 10-15% losses. Many of the securities in the portfolio don't fluctuate a lot, so I'm getting the idea that a reasonably safe approach would be to use slightly out of the money puts or calendar put spreads (long long term at the money puts, short shorter term out of money puts and possibly long further out of the money long term puts) that might allow better returns with little added risk.
    Apr 6 11:36 AM | Likes Like |Link to Comment
  • Market-Makers' Guesses About Market Direction: Any Good? [View article]
    A very fascinating article which I will need to read again earlier in a day to absorb all the stats and interpretation thereof. The question that came to mind early in the read is how exactly are the forecast ranges determined. Late in the article you mention an algorithm that hasn't changed in ten years. Is that your proprietary algo or something in the public domain? It appears you know a system to beat the odds most of the time, which must drive the random walkers nuts, but it appears to involve lots of market monitoring and statistics keeping and frequent trading. How is it different than looking at rsi level and direction, or interpreting MA's, stochastics or futures premiums?
    Mar 30 11:28 PM | 2 Likes Like |Link to Comment
  • Emerson Radio Is No Longer A Value Trap [View article]
    If not, and I were the head of marketing for Funai, I'd commission a well-designed focus group study to find out if customers are buying the price tag or the name.
    Mar 30 03:29 PM | Likes Like |Link to Comment
  • Emerson Radio Is No Longer A Value Trap [View article]
    Are there any "cozy" relations between some of the principals?
    Mar 30 03:24 PM | Likes Like |Link to Comment
  • Emerson Radio Is No Longer A Value Trap [View article]
    Isn't there a significant potential problem with the Funai license expiring in March, 2018? I wonder if there will be any value to the name in four years. I suspect that The US and Canadian folks buying the low end ("budget") Emerson products mainly look at the price tag not the name. I don't think they'll care if it says "Emerson," "Funai" or some other name. Doesn't that make a prospective non-operating MSN potentially more like a royalty trust liquidating in less than four years? What's the PV3.5 value of a non-operating entity?
    Mar 30 03:10 PM | Likes Like |Link to Comment
  • 17.8%-Yielding CEFL - Diversification On Top Of Diversification, Or Fees On Top Of Fees? [View article]
    I prefer the non-leveraged PowerShares CEF Income Composite ETF, symbol PCEF. Pays monthly, yields 8.3% currently, and has options to enable hedging.
    Mar 29 08:08 PM | 1 Like Like |Link to Comment
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