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  • The Amazing Race against Silver... Starting April 28, 2011
    In response to the thread on QC #171 about what might be as good as or better than silver, I am tracking these picks versus silver. 

    The idea will be to see which if any outperform silver between now and 12/31/2011 and then 12/31/2012

    If folks add picks, I'll may add them.  I am using the opening price on 4/28/11 for all picks.  This is not like Moon's project, because I will not be updating nor trading in and out of any of these picks.

    The model I will choose is to assume a $10,000 investment in each stock.  This is just to give a round number and to allow me to disregard any money left from "fractional shares".   I won't include friction.  This mean silver is bought and valued at spot and stocks have no commissions.  If that simplification bothers you, you can add adjustments accordingly.

    The Pacemaker -- Silver:  NY open at $49.00 -- 204 ounces

    Silver's Big Brother -- Gold:  NY Open at $1539 -- 6.5 ounces

    DM's Picks.  Intended to represent stable and mainstream stocks that may nevertheless have a nice return in the coming years (including dividend where appropriate).  I don't expect each of these to beat silver, but AAPL should and my theory is the other two will compare well with silver by the end of 2012.

    (NASDAQ:AAPL) Open at $347.04 -- 28 shares
    (NASDAQ:MSFT) Open at $26.55 -- 376 shares
    (NYSE:F)      Open at $15.49 -- 645 shares

    And a wildcard or two:
    (LPH) Open at $1.85 -- 5405 shares


    Maya's Picks.  Representing mostly small stocks that may see explosive growth.
    (OTCQB:AXPW) Open at $0.84 -- 11,904 shares
    (NASDAQ:NVAX) Open at $2.60 -- 3846 shares
    (NASDAQ:KNDI) Open at $2.75 -- 3636 shares
    (NASDAQ:SGMO) Open at $7.49 -- 1335 shares
    (NYSEMKT:DNN) Open at $2.26 -- 4424 shares
    (OTCPK:TAMO) Open at $0.20 -- 50000 shares
    (ATPG) Open at $17.08 -- 585 shares
    (NASDAQ:CPST) Open at $1.93 -- 5181 shares
    (NASDAQ:EGT) Open at $0.32 -- 31250 shares
    (NYSEMKT:GPL) Open at $3.72 -- 2688 shares
    (OTCQX:GWMGF) Open at $0.85 -- 11764 shares
    (OTCPK:LYSCF) Open at $2.32 -- 4310 shares

    Acehart's Picks.
    Gold:  NY Open at $1539 -- 6.5 ounces
    (GPL) Open at $3.72 -- 2688 shares
    (OTCPK:LYSCF) Open at $2.32 -- 4310 shares
    (OTCQB:AXPW) Open at $0.84 -- 11,904 shares
    (NYSE:SLW) Open at $41.08 -- 243 shares
    (SNDXF.PK) Open at $1.12 -- 8928 shares
    (NXY) Open at $25.80 -- 387 shares

    Ricard's Picks.
    GLD Open at $149.90 -- 66 shares

    ThisTimeItsForReal's Picks.
    (NASDAQ:SIRI) Open at $1.98 -- 5050 shares
    (NYSE:C) Open at $4.58 -- 2183 shares
    (NYSEMKT:ONP) Open at $3.76 -- 2659 shares
    (OTC:TLON) Open at $1.61 -- 6211 shares
    (NYSEMKT:VTG) Open at $1.77 -- 5649 shares
    (NASDAQ:INTC) Open at $22.79 -- 438 shares
    (NASDAQ:CSCO) Open at 17.34 -- 576 shares
    (NASDAQ:CPHD) Open at $32.12 -- 311 shares
    (AAPL) Open at $347.04 -- 28 shares
    (MSFT) Open at $26.55 -- 376 shares

    John Petersen's Picks.
    (OTC:CHHP) Open at $7.76 -- 1288 shares
    (OTCQB:AXPW) Open at $0.84 -- 11,904 shares 


    At the end of 2011 and 2012 and maybe more frequently if I feel like it, I'll update the value of these picks.

    I invite others to submit picks.  For apples to apples comparison, I'll use the 4/28 opening price, so no fair waiting for something to explode first and then mentioning it!

    To silverbugs who may take issue with the timing I want to make something clear.  The idea is to compare the legs silver may yet have remaining to some new stock picks.  It is not to dispute or discredit the phenomenal run silver has already had this year.  In other words it is meant as an exercise in "where should your money go today" not as a way to impugn the value of a silver portfolio.  And, of course, it is possible silver may yet put many of these stocks to shame!

    Lastly I should say I am tagging this with the ticker symbol SLV to represent silver, but only so it will show up in searches for SLV, not to equate SLV with silver.

    Addendum for those curious about the "rules":
    You can pick as many as 12 stocks or as few as one (easily priced commodities count too as long as I have a source for the price).  No matter how many you choose, you get $10k value of each pick.  At the end of 2011 and 2012 your picks will be totaled and your avg return calculated.  So if you have one pick that goes to zero and one that doubles, you will be at 0% return (break even).  So it is not an advantage to choose more than one or two unless you want to.  (Although for Maya's rum you need at least 6.)

    Dividends will be calculated for stocks that issue one.  So if you have a stock that doesn't change in value but gives a 3% dividend, your return would be 3%.

    If there are other questions I will clarify later.




    Apr 29 2:25 PM | Link | 55 Comments
  • If this is the second blog on QE2 I get to call it QE2-2
    I'd like to cherry pick a couple of comments made in the previous post so that we can keep the conversation going in a faster thread.  Please do re-read all the great things that have been said in the last post, but carry new comments forward to here.

    John Lounsbury Said:
     
    Hello guys - - -

    You are talking about some of the QE questions that are important. I'll add my understanding and await correction from others:

    1. QE is basically printing money, plain and simple.

    2. QE is monetizing debt.

    3. QE is not inflationary until it is inflationary. Recognizing that boundary is virtually impossible until well after the fact.

    4. QE may help push stocks up, but asset bubbles in a lot of other areas, especially commodities, are a bigger affect.

    5. The bubbles produced by QE in the U.S. are also in other parts of the world as well as the U.S., sometimes more elsewhere, because our trade deficit continues to push dollars overseas.

    6. All that being said, QE may be useful and far from the worst way to go. Deflation because of the failure to monetize can be devastating.

    Steve Hansen has been writing some good stuff on QE leakage into the rest of the world: econintersect.com/word...

    Two other good articles are "Did France Cause the Great Depression" by Doug Irwineconintersect.com/word... and "The Myth of Expansionary Fiscal Austerity" by Dean Baker econintersect.com/word...

    There is no road map to the future, and in the current situation there isn't even compass. We are bushwacking with no map and no compass, just a bunch of economic theories all of which have been found wanting in one way or another. 

    HTL Later said

    I just got reminded of something I've read several times now about the rise in commodities. It's not inflation, according to the thoughts I read. It's a result of carry trade. With $US borrowing @ ~.25% and dollar weakness, yield is being generated by using the dollar as carry trade, just like with the yen.

    That would resolve, for me, why we have the apparent conflict of inflationistas and deflationists.

    The resolution occurs through the following logic mechanism.

    1. Cullen is right - it's an exchange of assets, no new money flows.
    2. Money always seeks yield. If yield is not available here, it leaves.
    3. The best way for this to happen is to leverage by borrowing at *very* low rates to buy something that is appreciating at a much higher rate.
    4. Since there is a *lot* of "free money" available to certain institutions that have *very* sophisticated trading desks, they all lever up and compete with each other for those assets that promise higher yields.
    5. The assets return not only what they would "naturally" yield, but also the additional yield that is a result of increased competition for "scarce" resources - high yielding assets.

    If what I guess is true, we can draw some conclusions.

    1. The assets that have seen such huge run-ups are in a "bubble", or nearly so.
    2. They will continue to grow a larger bubble until something pops them.
    3. The most likely cause of a pop is related to changing currency strength.
    4. A strengthening $US will cause an unwinding of carry trade in $US and force it back to another currency, like the yen.
    5. During the adjustment, the asset prices will deflate, likely overshoot, and then return to some semblance of normalcy.

    Regardless, the inflationary effects of the speculative bubbles formed by a "weak dollar policy" as implemented by BB and TG, regardless of intention or nomenclature, will be (is already being) passed through to the economy and the citizenry, to our great detriment.

    So although QE II may not be inflationary in its mechanical aspects, the mindset, policies and implementation of surrounding policies set up an inflationary scenario even though QE II itself, and its predecessors, are deflationary in nature and mechanical effect.

    In other words, we've properly identified the crime committed but arrested the wrong alleged "perp". With so many ingredients in the stew, it's hard to identify the meat.

    Thoughts? And *if* all this is true, then a strategy based on inflation expectations solely would be a poor stance to take. We would need one that accounts for what I envisioned or its offspring. Remember that this was the intent here - get a strategy that is useful to us. And we can't be certain of that *unless* we can fathom what is *really* happening.

    MHO,
    HardToLove


    And John added:

    I have been following your discussion with great interest.

    If you will allow me to interject some thoughts: If inflation (commodities, energy, food or whatever) is in fact just another bubble, then the final deflation will be draconian and all the "liquidity" provided to the banks by QE and MBS transfer to Fannie, Freddie and the Fed will disappear into a black hole that swallows up the "liquidity" without unwinding a fraction of the excess debt.

    The debt of the world is probably well over $100 trillion and that of the U.S. somewhere around $50 trillion. The total efforts in the U.S. to provide liquidity for handling the debt is of the order of $2+ trillion (heading toward $3 trillion with QE2). All this can do is provide the lubricant to keep moving the debt around. It does little to help reduce the debt. The strategy is to let the banks "earn" their way out of the hole. But if their earnings are actually derived from creating more debt (private or government), they never make much progress. Wonder why it's called extend and pretend? Kind of obvious I think.

    The last over-leverage crisis was the S&L debacle mid-80's into the 90's. Most would agree the banking system was on the ropes then and that was a very small fraction of the size of the current crisis. Most banks were actually insolvent then (even with that much smaller problem) and took nearly a decade to earn enough to (sort of) get back on their feet. What did it take? A tech boom, which of course bubbled, but without a deep impact on the banks.

    So we have a much bigger pit now. Where is the 10X boom (compared to the tech boom) going to come from in the next 10 years to address a crisis which is much more than 10x the S&L crisis?

    Hope I didn't overstay my welcome with this long winded comment.

    BTW, Dirk Bezemer has a very interesting article which discusses how the Babylonians handled debt crises: econintersect.com/word.... Ancient Babylonia dealt with debt crisis in a process akin to bankruptcy for speculators and support mechanisms for producers. Today we are doing just the opposite.
     

    Lots of other great stuff was added by others, which you know by now if you have followed along, but I wanted to capture the essence of the issue and try to move the discussion here.

    For my own part, I am trying to remain a devils advocate against deflation and collapse, mostly because I grew up in the 1970's and heard all this gloom and doom before.  It was arguably true then, as later crises bore out, but it was also not true in the sense of the world is still turning and we haven't yet blown ourselves up.  So it will take a lot of drama to convince me we are finally at the end point that so many have been calling for for so long.  The argument only gets stronger with each passing decade, yet if it influenced your investment strategy you would have been toast (unless you're George Soros).

    So the most important question we have moving forward is the drum that HTL keeps beating -- what does all this say about how we should be positioning our investments?

    Is cash in the mattress really the play of the 20-teens?  History suggests this is not the case.  Is it "different this time?"




    Disclosure: Long SLV, physical silver and other related items
    Nov 28 7:17 PM | Link | 24 Comments
  • Let's kick around some thoughts about QE2 and money supply.
    A short time ago, HTL linked to this article in a comment:

    http://seekingalpha.com/article/235809-understanding-the-mechanics-of-a-qe-transaction

    HTL asked if there were any flaws in the author's logic and if not whether we should protect ourselves from too much enthusiasm about QE2 or the assumptions about what it will do in the market.

    After reading the article, I responded with my thoughts, which are reproduced here.  The author was clearly on a logical path and appears to know his stuff, yet some of his conclusions and suggestions for the implications of QE2 (or more precisely lack of implications) baffled me.

    Here is my original response to HTL, which he suggested we bring to an insta in order to explore more fully (hopefully with help from others!):

    ...This is the part that makes no sense to me,

    "They are merely changing the composition of the bank balance sheet. The logical question that most people ask is: “where did the Fed get the money to buy the bonds?” They didn’t get it from anywhere. It truly is ex nihilo."

    As at least one commenter pointed out, this sounds a lot like where the money is being printed.

    And even if it is not being created... well let's look at my analogy.

    Let's say I take a HELOC out on my house for $100,000. I haven't printed any money, I've only "changed my balance sheet." In the author's words, I have exchanged one less liquid asset for a more liquid asset with an interest penalty (the author was talking about losing out on interest income and in my example one loses via interest payments).

    But you tell me, just because this is a "balance sheet adjustment" does that mean it is not inflationary? Of course not. I will spend the $100,000 and increase the velocity of the money, which is inflationary.

    Swapping bonds for cash doesn't seem like the non-event the author describes. And furthermore when the cash for these purchases is not "created" but "just comes from out of nowhere", that doesn't even pass the sniff test.

    I think folks arguing along these lines may be technically correct about the composition of the bark, but they are unaware they are lost in the forest. (I think that's how that saying goes...)

    Attempts to spur lending have failed in the past. Why? Because all the extra liquidity always seems to get sucked up by a quicker and easier place to make money -- the stock market. So regardless of what this stunt will do to spur economic activity and regardless of whether saying it increases the money supply will get you a failing grade on a senior level economics exam, it seems clear to me that it is increasing liquidity (even the author agrees with this) and that this liquidity will be pumped into the market as dollars seek return. This is only more certain if the stated goal of QE2 succeeds and interest rates are kept low. Dollars chasing return will have no place to go but the currency, equities, and commodities markets. This will help inflate, or at least prop up these markets.

    And I think Ben is okay with that. Inflating a stock bubble is -- I think by his way of thinking -- a little like giving a weak and starving person a sugary drink. He wants to get the economy moving even if the boost has no nutritional value and the crash will only make matter worse. He is afraid if we fall asleep we will die. He is hoping by inflating a bubble (the sugar rush) we will get up and find our own food. There are obvious political components of pointing to the malnourished patient on the sugar rush saying "see everything is okay". But I think the policy is quite deliberate and if he were honest he'd admit it was out of desperation.

    The author implies there is a nothing to see here component of QE2. If this were the case, they would not be bothering to try this at this late hour and with all traditional ammunition spent. You can say that my $100,000 HELOC has only changed my balance sheet, but if you think it won't affect my economic activity as a result, you are sadly mistaken.

    (My HELOC example is intentionally chosen for its implicit cautionary elements.)

    My conclusion, therefore, is that QE2 does suggest artificial inflows into the stock market. And an equity bubble is inflationary. Even Ben hopes it is inflationary. So I disagree with the author that counting on QE2 to help push up equities is mistaken.


    Disclosure: Long PM and mining stocks
    Nov 12 2:22 PM | Link | 127 Comments
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