Friday, December 31, 2010

The Year Ahead, and Times Gone By

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I was going to do a somewhat witty cynical prediction list for 2011, with some serious thoughts thrown in but most everyone has rolled out their 2011 predictions so why be like everyone else?  Instead, as a very big year approaches (and a chapter closes) I thought I'd steal a page from a few guys who have written some excellent commentary of late.  If you are not reading James Altucher's blog - The Altucher Confidential - he does a great job of personalizing his life experiences into financial lessons, or even life lessons.  It is some compelling reading and he brings a lens to his life everyday - something I'd find difficult being a much more private person.  Josh Brown over at The Reformed Broker who normally writes in a style similar to mine, went much more introspective in a post yesterday, discussing how 2010 has been a turnaround period in his life on so many levels.  We are 'twitter friends' and do quite a bit of online chatting back and forth, so I was surprised to see what a tumultuous year he had.... but his current path is upward in a big way.  So like Josh, I'd thought I'd take a break from the norm and talk about some of the journey, as it helps to personalize people in a world awash in commentary.

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It all started in 197..... wait, I won't go that far back.

I was always fascinated by the market

I don't know when I first started getting into 'the market' but at least as far back as the teenage years it held an interest for me.  Being an analytical type, as a teenager every September I'd look forward to Kiplinger's mutual fund review where they had these massive tables of mutual fund results.  I am pretty sure I was using Lotus 1-2-3, because this was before MS-Excel hit its stride - but I'd look over those charts - find all these best 3 year, 5 year performers - type in all their data into a spreadsheet, sort 'em, analyze 'em, sort 'em again, print them, study them - oh it was fun.  Thankfully the Facebook was not around.  This was before the days of the internets (sic), so magazines like Kiplinger's and Money, and those huge bulky Morningstar "books" at the library was all you really had to research.  So once I had the 'best funds' I could not wait to get to the library to leaf through the Morningstar profiles to see what stocks they held, the fund history, and such.  And no, I did not wonder why I was the only kid at the library vying with tiny men with white hair for those Morningstar books behind the reference desk - but I am sure the librarian did.  So while we did not have the internets, we did have computers - probably the early versions of PCs since I don't think the Commodore 64 could handle spreadsheets - but my memory is fuzzy.

The college years

Eventually I graduated and headed off to Ann Arbor for college where other matters became more pressing - such as a somewhat real life.  I still read the magazines in my free time, but academic and social activities were more the focus, so the investing life was dialed back but never far from mind.  I was one of the first people to get email (had to go to 4 buildings to get it accomplished) but the internet was new and fresh and a huge time sucker for someone like me who is a data whore hog. I am sometimes asked why I did not go into a career in "investing" out of college since it was a passion ... probably much of that was comfort level.  I had no idea where to begin and Michigan is not exactly a hotbed for the investment world ala a NYC, Chicago or Boston.  Being simple minded (what do most 18 year olds know about their future?) I initially picked a career path by process of elimination and what was a clear path.  For example, if you are going to be a doctor you go the pre-med path.... if you are going to be a lawyer you go the pre-law path... if you are going to be an accountant you go to the business school.

I didn't want to be any of those things, but I liked chemistry.  So I came upon the great idea I'd be a chemical engineer.  Didn't know much about it, but I saw in the tables it was well paid and if I could do "chemistry stuff" how bad could it be?  Well I found out it was bad.  It started out ok - I took all these fancy classes that were filled with future engineer or doctors - Calculus I, II, III.... Organic Chemistry I, II.... Physics I, II.   Uhh, I thought college was supposed to be fun?  Long story short - there was a lot less chemistry and a lot more upper level math/physics which were not my favorites - differential equations anyone?  By mid sophomore year I saw this was not for me - I was not passionate enough about this line of work to continue, but now I was stuck.  At Michigan, the undergrad Business School is a 2 year program that you apply for - it's own entity.  I did not even have enough "humanities" to apply at the time, so 2nd half sophomore year was full of (ahem) less rigorous classes.  Got my only A+ during my college career - Anthropology 101 - compared to the heck I had been through the first 3 semesters this was much more palpable.  Then I had to apply for B-school, but I knew my GPA was going to be worse than most due to the type of classes I had taken. Rather than rejecting me right away, they were kind enough to wait list me until right before the fall semester began... and then they rejected me.  Leaving me scrambling for classes - and which direction go.   So I decided to make a hybrid program for myself.  Economics was the only "business" type of major in the "Humanities" part of the college, but I would take a year's worth of applied business (accounting, finance, marketing) - with no credit earned mind you, since I was not part of the business school.  Hence my 4 year program became a 5 year program... but at least I could get a job in a state where Econ majors are not exactly in high demand - we don't have many think tanks in Michigan.

Off to work life

So I had my degree which I feared somewhat useless on a resume if my eventual plan was not to be a professor - but at least had some accounting classes so I could highlight that aspect of my 5 year sojourn.  I was not ready to leave the state since I enjoyed the comfort level of being around family, so I did not utilize the full scope of the career placement - many of the recruiters were from out of state anyhow and most of the jobs I were interested in, were going to those darn B-school kids.  So I found my own way after graduation and ended up in a starter accounting job in a manufacturing business (what else?).  The work was relatively simple and somewhat repetitive, and I stayed far too long in a low paying job - even my boss was telling me to leave (politely) as this work was below me.  In retrospect it was probably the best workplace I ever had - which was a curse - hard to leave an environment you really enjoy.  There were people there 10, 20, 30 years older who I enjoyed - you don't realize how hard that is find until you churn through multiple jobs in life.  In that time, I  found some guys there who were really into the markets so I rekindled my love affair with the markets, but this time mutual funds were out and it was equity time.  I opened my first brokerage account and could place trades electronically via phone!  How cool - of course this was right before the explosion of online brokerages.....this was mid to latter 1990s.  Well me and my work friends - one guy in particular - became geniuses in the late 90s (you too? what a coincidence)  We traded NASDAQ stocks - heck you put the buy in at 10 AM, go do some work, and at 1 PM you check in and you were up 8%.  4 out of 5 days a week - this stuff was easy.  Me and my much older friend even discussed opening a hedge fund as he had some dough, as did some of his friends.  How great that would have turned out.  (!!!)

So like any genius in the stock market, I was not content with just making 80% in 5 months, I was learning about options - yeah!  I tracked options and saw when I bought Athome Networks and it went up 18% in 3 days I could have made 90% if I had bought calls instead.  My path to being a millionaire would be cut by 80%.  All I had to buy the dip, any dip.  Late 99 was the best... the NASDAQ went from 3000ish to 5000ish in just a few months.  Holy smoke - I started to dabble (I did not inhale the options) in calls... and it worked pretty well.  Then February, March 2000 came along and finally a big dip.  All I needed to buy this one and in a few weeks I'd be doing things unheard of in my little part of the world.  Uhhh.... well let's say buying the dip did not work out so well in 2000.  Crash. Burn. Fail.   You lose! You get nothing! Good day sir!





And so a good few years of building up went up into flames in a few months in the options markets.  Lesson learned.  Tuition extracted.  Market player humbled.

Eventually I took the boss's advice and moved on to another company and more fruitful opportunities - and out of accounting (snooze) and into finance, which suited me far better.  And others after that moving up the food chain. It definitely took me a few years of relative hiatus (2001-2002) from actual heavy duty market activity, to get over being burned so badly and still to this day I wake up every day thinking how I can not lose money, rather than how to make money when devising strategy or trade ideas.  Which is why 2008 and early 2009 - while crazy in it's own right, was not particularly game changing on a personal level - I had already lived that nearly a decade earlier and it had never left the conscience.  As the years passed, I continued to watch and read up on the market and now had the internet to supplement my learning curve.  I became scared of what little I knew "back in the day".   But over the years I tried many things - from penny stocks, to buy and hold (did I mention snooze?) to fundamental analysis to technical analysis.  For most of this time, I thought being purely analytical would put me at the top but if that was the case engineers and statisticians would dominate the charts of the world's best investors - they do not.  Patterns, sentiment, human emotion - all of these became things to learn.  Sometimes I'd be active in the markets, other times I would not do a trade for many months as I had a career of course.  Some things worked, some didn't but it was all a learning experience.  I honestly did not mind losing money (too much!) since it was my own; paper trading just was not for me; I learned better from actual pain - whereas if I lost someone else's money (even in a mutual fund recommendation for someone's 401k) it would tear me up.  Which apparently is the complete opposite view that Wall Street takes as other people's money (OPM) is a plaything... ugh.  But I digress.

Follow the dream

By 2005-2006 I had settled into a strategy that was a hybrid of technical and fundamental analysis and worked for me.  I always tell everyone what works for me might not work for you - find what suits your temperament and ability.  It took me a long time to find a sweet spot and even then I did end up leaving a lot on the table with my style as I usually only had 5-6 stocks, and once I got a nice move in 1, I left the stock trying to find the next idea - often to see my old idea continue onward and upward many more tens of %.  So I often wondered what I could do with much more capital where I had many more positions, and I was able to leave a pot of money in older positions while still having money to put in new.  If I only I had a mutual fund or something!!

While I enjoyed the work I did it was never a love.  I'd come home in the evening and spend hours researching companies, reading market websites like (CBS)Marketwatch, Yahoo Finance, TheStreet.com, message boards, etc - blogs were really not part of the big picture then other than the first wave such as Barry Ritholtz's The Big Picture. But I could read and research about markets for hours on end.  There had to be a way to get this as a career.  They say do what you love and you don't work an hour of your life.  Should I just pack up and go to Boston or NYC and start as a runt again from the bottom ladder?  Did I want to do that at my age, not knowing it would ever truly pay off?   I saw the story of the 'red paperclip guy' - he started with a red paperclip and through a series of trades, eventually got a house.  Was this applicable to me?  Not in the direct sense but if that guy could pull that off maybe I can pull off a crazy idea.  I had a decent investing skill set, not the best, not the worst - and I had a decent writing skill set, maybe I can use the internet to marry a skill set with capital.  Worst case scenario I'd give it a year or two, and waste a lot of time.  All I needed to do is find a way to outline my thoughts, trades, ideas, and views... and have a transparent tracking mechanism held by a 3rd party to showcase my portfolio.  (ironically in the past few years, a few services have sprung up to do just these things - I was a few years early to the foray)  I did the homework, I learned what a blog was and how to do it (sounds simple now but they were not all the rage in 2007), I researched who could hold my portfolio so others could view it, and away I went in mid 2007 - perfect timing for the tsunami the market was about to embark upon.

After quite a few years of trial, tribulations, hits, misses, and literally thousands of hours of my life vaporized chasing my goal - here we are.  So that's how *this* came to be and after paying years of dues, I look forward to the next chapter of the book in 2011.  Much like when I started this site, I won't know how the next step will turn out, but I expect to look back in a few years in wonderment at all that has happened during the journey  Have a great new year's.

(Almost) Every Stock That Gained 100%+ in 2010

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While commodities was the place to be in 2010, there were some extremely strong pockets in the equity markets as there are almost every year.  Below I've compiled a list of 'liquid' non micro cap stocks that returned at least 100% in 2010, with 2 hours to go.  There were 112 opportunities to make mad money; of course some were buyouts....if anyone has 2011's list in advance, I'd appreciate an email...

Criteria
  1. Market cap of at least $300M
  2. Return of 100%+
  3. Average daily volume of 200K+
  4. Stock price over $10
I've highlighted names, we've either owned (blue) or discussed (purple) during the year.  Some of these are amongst my favorite fundamental stories, hence I believe 2011 is going to be much tougher to find huge winners as they've had tremendous runs.  Indeed as I expressed a month ago, 2010 might have been my best year ever in terms of the market moving up the names I focus on and championed - APKT, RVBD, FFIV, LVS, CMI, BWA, MGA, et al.



Ticker Company Gain Industry
WNC Wabash National Corp. 543% Trucks & Other Vehicles
IDT IDT Corporation 439% Diversified Communication Services
VHC VirnetX Holding Corp 403% Internet Software & Services
ISLN Isilon Systems, Inc. 393% Data Storage Devices
APKT Acme Packet, Inc. 391% Communication Equipment
TGA TransGlobe Energy Corp. 379% Independent Oil & Gas
REE Rare Element Resources Ltd. 331% Industrial Metals & Minerals
MCP Molycorp, Inc. 305% Industrial Metals & Minerals
KEM KEMET Corp. 285% Diversified Electronics
ENTR Entropic Communications, Inc. 283% Semiconductor - Broad Line
MIPS MIPS Technologies Inc. 258% Semiconductor- Memory Chips
PPO Polypore International Inc. 247% Industrial Equipment & Components
SPRD Spreadtrum Communications Inc. 243% Semiconductor - Broad Line
MSB Mesabi Trust 238% Diversified Investments
TZOO Travelzoo Inc. 231% Internet Information Providers
NFLX Netflix, Inc. 226% Music & Video Stores
LDSH Ladish Co. Inc. 225% Metal Fabrication
AXTI AXT Inc. 224% Semiconductor - Integrated Circuits
QCOR Questcor Pharmaceuticals, Inc. 219% Biotechnology
RVBD Riverbed Technology, Inc. 217% Networking & Communication Devices
FNSR Finisar Corp. 217% Networking & Communication Devices
TRS TriMas Corporation 204% Industrial Equipment & Components
CROX CROCS Inc. 204% Textile - Apparel Footwear & Accessories
AREX Approach Resources, Inc. 199% Oil & Gas Drilling & Exploration
MBI MBIA Inc. 198% Surety & Title Insurance
LVS Las Vegas Sands Corp. 197% Resorts & Casinos
NXTM Nxstage Medical, Inc. 197% Medical Appliances & Equipment
HUSA Houston American Energy Corp. 196% Independent Oil & Gas
FRG Fronteer Gold Inc 194% Gold
HSFT hiSoft Technology International 193% Business Software & Services
BSFT BroadSoft, Inc. 190% Communication Equipment
ACTG Acacia Research Corporation 186% Research Services
OPEN OpenTable, Inc. 183% Business Services
ITMN InterMune Inc. 183% Biotechnology
ATML Atmel Corporation 166% Semiconductor - Broad Line
GGAL Grupo Financiero Galicia S.A. 162% Foreign Regional Banks
GORO Gold Resource Corp 162% Gold
LCAPA Liberty Capital Group 161% Entertainment - Diversified
RES RPC Inc. 160% Oil & Gas Equipment & Services
APL Atlas Pipeline Partners LP 153% Oil & Gas Pipelines
SLW Silver Wheaton Corp. 152% Silver
JAZZ Jazz Pharmaceuticals, Inc. 152% Biotechnology
FFIV F5 Networks, Inc. 150% Data Storage Devices
TAL TAL International Group, Inc. 149% Rental & Leasing Services
RDWR Radware Ltd. 149% Information Technology Services
PANL Universal Display Corp. 148% Computer Peripherals
CMG Chipotle Mexican Grill, Inc. 147% Restaurants
CMI Cummins Inc. 143% Diversified Machinery
TWI Titan International Inc. 141% Auto Parts
SIGA SIGA Technologies, Inc. 141% Drug Manufacturers - Other
DECK Deckers Outdoor Corp. 140% Textile - Apparel Footwear & Accessories
BIDU Baidu, Inc. 139% Internet Information Providers
EXXI Energy XXI (Bermuda) Limited 139% Oil & Gas Equipment & Services
ARMH ARM Holdings plc 138% Semiconductor - Specialized
PWER Power-One Inc. 137% Diversified Electronics
PAY VeriFone Systems, Inc 137% Business Equipment
HNR Harvest Natural Resources Inc. 136% Independent Oil & Gas
WBC WABCO Holdings Inc. 136% Auto Parts
NG NovaGold Resources Inc. 135% Gold
CRUS Cirrus Logic Inc. 134% Semiconductor - Specialized
NOG Northern Oil and Gas, Inc. 134% Oil & Gas Drilling & Exploration
EZCH EZchip Semiconductor Ltd. 134% Semiconductor Equipment & Materials
TEN Tenneco Inc. 133% Auto Parts
URI United Rentals, Inc. 132% Rental & Leasing Services
PETD Petroleum Development Corp 131% Independent Oil & Gas
LULU Lululemon Athletica Inc. 131% Textile - Apparel Clothing
BEZ Baldor Electric Co. 128% Industrial Electrical Equipment
KRA Kraton Performance Polymers Inc. 128% Chemicals - Major Diversified
LOGM LogMeIn, Inc. 127% Information Technology Services
XXIA Ixia 126% Semiconductor Equipment & Materials
CATY Cathay General Bancorp 126% Regional - Pacific Banks
SWC Stillwater Mining Co. 126% Industrial Metals & Minerals
DHX Dice Holdings, Inc. 124% Staffing & Outsourcing Services
BKI Buckeye Technologies Inc. 124% Paper & Paper Products
WNR Western Refining Inc. 123% Oil & Gas Refining & Marketing
CPX Complete Production Services, Inc. 122% Oil & Gas Equipment & Services
TRW TRW Automotive Holdings Corp. 120% Auto Parts
CVI CVR Energy, Inc. 120% Oil & Gas Refining & Marketing
BWA BorgWarner Inc. 119% Auto Parts
ZUMZ Zumiez, Inc. 118% Apparel Stores
MMR McMoRan Exploration Co. 114% Independent Oil & Gas
FOSL Fossil, Inc. 114% Recreational Goods, Other
VRUS Pharmasset, Inc. 112% Drug Manufacturers - Other
VSH Vishay Intertechnology Inc. 112% Semiconductor - Broad Line
VMW VMware, Inc. 112% Technical & System Software
VPHM ViroPharma Inc. 110% Biotechnology
DDS Dillard's Inc. 110% Department Stores
LCC US Airways Group, Inc. 109% Major Airlines
PIR Pier 1 Imports Inc. 109% Home Furnishing Stores
GBX Greenbrier Companies 109% Railroads
ILMN Illumina Inc. 109% Biotechnology
CYD China Yuchai International Limited 108% Diversified Machinery
MGA Magna International, Inc. 108% Auto Parts
ACOM Ancestry.com Inc. 107% Internet Information Providers
TKR Timken Co. 107% Machine Tools & Accessories
BBEP Breitburn Energy Partners LP 106% Oil & Gas Drilling & Exploration
DIN DineEquity, Inc. 106% Restaurants
TIBX Tibco Software, Inc. 106% Business Software & Services
VRX Valeant Pharmaceuticals Int'l 105% Drug Delivery
BFR BBVA Banco Frances S.A. 105% Foreign Regional Banks
MOTR Motricity, Inc. 105% Diversified Communication Services
OVTI OmniVision Technologies Inc. 105% Semiconductor - Integrated Circuits
IGTE iGATE Corporation 105% Information Technology Services
SWKS Skyworks Solutions Inc. 105% Semiconductor - Integrated Circuits
ANN AnnTaylor Stores Corp. 104% Apparel Stores
GTLS Chart Industries Inc. 104% Metal Fabrication
CSTR Coinstar Inc. 103% Business Equipment
TICC TICC Capital Corp. 103% Asset Management
UA Under Armour, Inc. 102% Textile - Apparel Clothing
BID Sotheby's 102% Specialty Retail, Other
IMAX IMAX Corporation 102% Photographic Equipment & Supplies
APSG Applied Signal Technology, Inc. 101% Communication Equipment

Huge Week of Data Ahead

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This market has truly become a snoozer - there have only been a few times when I can remember such little intraday volatility day after day (after day, after day).  I don't know if the economic data matters much nowadays since everyone is convinced 2011 is smooth sailing ahead so anything bad people can say is either backwards looking or will mean QE3 is assured, and anything good is ... good.  Hence, investors are having it both ways right now in the 'can't lose' market.  With the 4 month sprint up, many people are now calling for a pullback right after the new year - but with so many people calling for that one wonders if it will be just that easy.  Especially with the data that is surely to be positive next week.  Maybe it will be a few weeks later when earnings season begins - many stocks are now priced for perfection so if perfection is not shown in the earnings period, we could see selloffs - see Nike (NKE) a few weeks ago.

As you know by now the first day of the month is now almost always a winner... so I'd assume the fund inflows that drive the first day of the month will only accelerate on the first day of the year.  Plus China reports its Purchasing Managers Index ahead of the our open Monday and we have also now construed the Chinese to be perfect.  If the data is strong, we say "China is still on track - just booming!".... if the data comes in weaker, we say "China is doing an excellent job of cooling down its inflationary conditions!".  Once more, a "can't lose" psychology.

Yesterday's Chicago Purchasing Managers Index was the best it's been in 20 years which should bode well for the ISM Manufacturing figure next week.  Granted manufacturing employs less than 10% of the U.S. workforce nowadays, but people still treat this report as if we are living in 1975. 

 (hat tip Bespoke on the chart)

ISM Non-Manufacturing is more important to today's workforce ... it has been lagging the manufacturing index throughout the recovery but has shown better the past 6 months than the first year+ of the 'non recession'.  The other big report of the week is Friday's monthly jobs data - if you recall last month's was a complete outlier [Dec 3, 2010: Quite a Disappointment - November Figures +39K Jobs, Unemployment Rate +9.8%] so I'd expect a big revision upward to the November data and decent data in December.  This economy needs to be churning out 250K-350K jobs to really begin to make a dent in the unemployment rate but for the market any figure over 0 seems enough. But frankly with the government feeding money into the hands of Americans (another leg of this begins next week as the 2% payroll tax kicks in) and no one worried about the double dip now beginning in housing - these are not big concerns to the market.

Technically this sideways action has consolidated the big move from late August and helped to work off overbought conditions - so as long as the 'can't lose mentality' continues we could see another leg up as a multitude of reports hit next week.  Bears will want to see a non reaction to good news as their chance to possibly have a moment in the sun i.e. yesterday's blockbuster Chicago PMI did not budge the market (granted it was a holiday session).  Once good news fails to move the market, we should believe it's finally been discounted.  At this point we are discounting Goldilocks.



Monday - ISM Manufacturing, Construction Spending (both 10 AM)
Tuesday - Factory Orders (10 AM)
Wednesday - ADP Employment (8:15 AM), ISM Non-Manufacturing (10 AM)
Thursday - Weekly Claims (8:30 AM)
Friday - Monthly Employment (8:30 AM), The Bernank Speaks (10 AM)

NYT Dealbook: New Round of Financing for Groupon Sets Stage for Late 2011 IPO

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Whatever the valuation the story of Groupon is just amazing; this company was not even in existence 10 quarters ago... and now has turned down a deal to be bought by Google for $6 Billion.  [Nov 30, 2010:  From Startup in 2008 to Potential $5-$6B Buyout from Google in 2010]   Just as awe inspiring is revenue over $1B... in 2 years... incredible.  Judging by the valuation the rabid "It's 1999 all over again, just replace Alan with Ben" investors have placed on the Youku's of the world (which in a word is cuckoo!), Groupon might be worth $20 billion.  [Dec 13, 2010: Careful About that Youku on Your Shoe] Not saying this is a sensible valuation, but with easy money flying out of every orifice and a major dearth of high growth companies in our country, any visible rapid growers are going to attract mounds of money.  In Youku terms Facebook should be worth more than Apple + Exxon combined...

And if you are wondering, I asked around if I would have any chance to be part of this sort of financing (which I would be very interested in getting in) and I could tell from the laughter meant no.   If you are not one of the kingpins you can forget it.

Via NYT:
  • The 30-year-old founder and chief executive of Groupon, Andrew Mason, could raise as much as $950 million from investors in the next few weeks, laying the groundwork for a multibillion-dollar initial public offering in 2011.
  • The social buying site, which offers coupons for local businesses, has so far locked up $500 million in fresh capital from Fidelity Investments, Morgan Stanley, T. Rowe Price, and other large investors — allowing Mr. Mason and eight other directors to take a significant amount of cash off the table.  In the coming weeks, the company could bring in another $450 million, according to a Securities and Exchange Commission filing on Thursday.
  • If successful, Groupon’s latest fund-raising effort would be the largest ever for a start-up (if?)
  • On Dec. 20, Groupon hired its first chief financial officer, Jason Child, a former Amazon.com executive. By Thursday, Fidelity, T. Rowe Price, Morgan Stanley, and others had committed $500 million.
  •  Meanwhile, Groupon, with revenue above $1 billion, continues to grow at a breakneck pace. In the last month, the site’s subscriber base has jumped 42.3 percent to more than more than 50 million worldwide, the company said.
  • Groupon could be rushing its debut, in part, to cement its dominance in the online advertising market. While Groupon is the 800-pound gorilla, it is a highly competitive space that has spawned scores of clones that are becoming viable threats. The No. 2 player, LivingSocial, has more than 10 million subscribers and recently raised $175 million from Amazon.  For now, Groupon has first-mover advantage. But that edge can quickly evaporate as Friendster and MySpace learned when Facebook entered the social media fray years ago.
  • “If they raise all this money privately and then become the first to go public in this space, they will become the de facto winner,” said Peter Falvey, co-head of technology investment banking for Morgan Keegan. “They have a good lead, but the idea is to go for the knockout punch — an I.P.O. would be a huge branding event.”
  • For Groupon’s new class of investors, it is all about that eventual payday. By jumping in now, T. Rowe Price, Fidelity and Morgan Stanley get an opportunity to peer into the company’s books and more important, get in before the public offering so the potential for a windfall is greater.
 No positions

[Video] Rare Earth Metals, the Serengeti, and China

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I caught a edited for size version of this report on last night's NBC Nightly News; but the Today show has an extended version of the same piece which I've embedded below.  With the way it was edited I was confused why a government had decided to cut a road through a reserve that I assume is one of it's largest revenue generators via tourists.  But in the last few seconds of the piece, they laid out the reason - a shortcut for trucks to get to rare earth metals, sponsored by China.  Just can't escape the rare earths nowadays.  If you are unfamiliar with some of our older stories, China is all over Africa - it is the new paradigm colonialism.  In return for access to resources, China provides funding for development which a relatively poor continent (and it's politicians) are happy to receive. [Sep 30, 2009: China Attempting to Secure 1/6th of Nigeria's Proven Oil Reserves] And certainly it is now just African countries China is 'developing'.  [Aug 2, 2010: Bloomberg - New "Silk Road" Built by China Connects Asia to Latin America] [Nov 11, 2009: China Continues Expanding "Infrastructure for Resources" Policy with Agreement in Malaysia]

This is a tough one because while they flip through some aghast foreign tourists at the end of the piece, who are we to tell another country what to do.   Even if for the betterment of global society, we wish these things would not happen.

(6 minute video)






Thursday, December 30, 2010

[Video] CNBC - Blackrock's Will Landers on Brazil

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Excellent oversight on the Brazilian market by Blackrock's Will Landers in this video via CNBC.  One amazing note is the capital expenditure budget for Petrobras (PBR) over the next 5 years: $250 Billion.... i.e. $150 million A DAY!  An entire economic ecosystem can survive just rotating around the sphere that is PBR.

9 minute video but the discussion with Landers begins at the 2 minute mark



x

Every Year it is Something; This Year it's Rare Earths

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Usually during holiday trading there is some nonsense sector that gets bid to the stratosphere by the daytrading community only to come crashing down to earth a few months later.  It could be biotechnology stocks with no revenue, it could be Chinese solar stocks, it could be dry bulk shippers, it could be dot coms.  You name it, they'll find something to move to the stratosphere on a news story or "theme" that sounds great in principle but will eventually end in tears.  This year's flavor are rare earth metal stocks.  Many of these don't even have a mine open but have "prospects".... others are related to rare earths like you are related to Kevin Bacon... perhaps 4 degrees rather than 6.  My favorite is Qiao Xing Universal Resources (XING).... the name looked familiar but the ticker is one that stands out.  I looked at this name perhaps 2 years ago when it was a ..... telecom related company.  Now, I see in that short span of time they have reinvented themselves as a mining company.... somewhere in China a few guys have to be laughing at how easy it all is.  But all that matters is money and not reality - so for those of you who caught yesterday's 80% move in China Shen Zhou Mining (SHZ) I raise some gadolinium to you.






Molycorp (MCP) and an Australian company named Lynas  (LYSCF) are the only 2 that really have any near term prospects (by near term I mean they will actually be opening mines by end of 2011 or first half 2012) and actually deal with rare earths... and even the rare earths they deal with apparently are the 'less rare' ones.  But no need for facts, it is holiday trading and the dot coms of 2010 are here.  (I know, I know there is a "real theme" behind these companies just as there was a real theme behind Chinese solar, and internet taking over the world, and the huge increase in global trade and Iomega)

As for the market, one wonders why it is open.  1/4th the normal volume, and an index that crawls up or down 1-3 S&P points a day.  Just open the rare earth metal stocks and let everyone else take the week off.

No position

Monday, December 27, 2010

WSJ: Silver, Silver, Silver! (Said in the Voice of Jan Brady)

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If you are new to the miracle of silver, the WSJ has a nice piece on one of the hottest commodities of 2010. [Commodity-palooza - Year to Date Returns in the Commodity Complex] Silver has a combo bet going on - it is part precious metal so an alternative currency like gold (a place for people to flee the antics of central bankers and their effects on fiat money), and part industrial metal so it benefits from good vibes from the global economy ala copper.  And like many commodities it has been 'financialized' over the past decade so much easier for large swathes of money to move in (and out) of.   Hence true physical supply and demand apparently means very little... see oil for much of mid 2009+ and almost all of 2010.  When the hot money starts to abandon ship, I expect a very ugly ending here... but it could be years away.



While I get antsy seeing so much attention being a contrarian, the time to be very fearful is when you see silver on the front page of Money Magazine, Kiplinger's or indeed something like USA Today.  For now, it's only yellow flag time.

Via WSJ
  • An unexpected surge in investor demand is sending silver prices soaring—and speculators and mining companies are digging in.  In the past four months, the metal has upended forecasts, rising 51% to a series of 30-year highs, before inflation. Silver closed Thursday at $29.31 a troy ounce, up from $16.822 at the beginning of 2010.  Gold, by contrast, is up 26%.
  • Prices are rising despite oversupply and a lackluster recovery in industrial demand. Many analysts expected those factors would keep a lid on prices in 2010. What they didn't expect was an overwhelming flow of money into the market from investors eager to ride a commodities rally.   "This is a story almost entirely about investment," says Stephen Briggs, senior metals strategist at BNP Paribas.
  • Exchange-traded funds backed with silver have enabled investors to invest in a market that traditionally was harder to participate in. The largest silver ETF, the $10.2 billion iShares Silver Trust, has seen a $1.1 billion net inflow for the first 11 months of this year. In recent months, concerns about inflation, the European debt crisis and the U.S. Federal Reserve's recent moves to boost the economy have driven investors to hard assets, also benefitting silver prices.
  • The global silver appetite partly reflects world economic improvements. Investors from the U.S. to China turned to "hard" assets such as copper and other commodities in part as a hedge against inflation worries. Silver benefits from a dual role as industrial commodity and precious metal. 
  • The craze has reached the coin market. In November, silver American Eagle coins sold by the U.S. Mint amounted to 4.26 million ounces, a monthly record in the agency's history. 
  • Silver's reliance on investors to prop up the price could cause it to tumble suddenly. "When investor support for the metal fades, the downside is going to be pretty substantial," says Credit Suisse analyst Tom Kendall. He forecasts an average price of $30.10 per troy ounce next year as "a lot of factors that have led people to buy silver would still be there in 2011." But he cautions, "The number is only going to be achievable as long as fresh money keeps moving in."
  • This year investors are expected to pile a record $4.5 billion into the silver market, accounting for 24% of the world's total demand.  (that's incredible... 1 in 4 dollars for silver are due to investment demand, not actual usage)  Silver's relatively small market size—$19 billion compared with $170 billion for gold—has also played a role in amplifying the impact of investors
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While $30 seems high, in inflation adjusted terms it still has a long way to go to reach old highs.  Of course there was the little issue of the Hunt Brothers cornering the market... then again we now have the JPMorgan brothers, who unlike the Hunt clan is backstopped by the U.S. government (TBTF) and Federal Reserve.  
  • Silver's all-time high was set in January 1980 at $48.70 an ounce, or $129.32 when adjusted for inflation.

  • The strength in silver prices has prompted a flurry of development around the globe and pushed anticipated production in 2010 to 733.2 million ounces, up 3.3% from 2009 levels, and up 14% since 2006.  
  • Concerns are lingering over excess supply. The market is set to see a surplus of 64.4 million ounces in 2010, says Barclays Capital, which could curb prices. 
  • Silver has some inherent appeal due to its industrial use in electronics, silverware and coins. And reserves are limited. According to the U.S. Geological Survey, there are fewer years of U.S. silver production left in the ground than any other precious metal including gold.

Next on the docket in the "financialization of commodities" appears to be copper... so yet another metal that should skyrocket for reasons that have little to do with actual usage, indeed institutional money already seems to be front running the 2011 physical ETFs in the pipeline.

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      Oil ETF v Oil Stocks? No Real Choice for Individual Investors

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      In some commodities investors have a viable choice between buying an ETF that attempts to reflect the movement of the commodity versus buying stocks that are related to that commodity.  For example, gold etf v gold stocks or silver etf v silver stocks.  However many commodity ETFs are highly flawed due to their construction - they deal in contracts that must be rolled out each month and hence cause a lot of dislocations in price, and the investor does not get the bang for their buck.  You might see said commodity rise 17% and you wonder why your ETF which is tracking that commodity is up 3%.   Oil is one such commodity.  The most popular ETF that I know of to track the commodity is the United State Oil Fund (USO) which trades nearly 9M units a day, and has close to $2B worth of assets.  But while crude oil is up some 14%ish for the year, USO has returned 0%.  Hence, in this case there really is no choice in the "do I buy the commodity or the stock?" debate if you are not an institutional trader who has access to the commodity pit itself.

      While not a huge fan of buying ETFs to cover a host of stocks in a sector rather than picking or choosing a few individual names myself, the oil space is one area I do like the ETF strategy, since there are so many public exploration companies and most tend to move together in our "HFT + EFT" driven market.  As goes one oil stock, so shall go most of them as HAL9000 and his merry crew make a decision to move en masse to the hot new sector.  Now not all ETFs are made the same and the oil space is no different - many times you will see ETFs top loaded with the big boys like Exxon (XOM), Chevron (CVX) and a few huge integrated companies.  Rather than go that route a far more inclusive ETF would be something like SPDR S&P Oil & Gas Exploration & Production (XOP).  Here are the top 10 holdings as of 11/30/2010.  We see it is not concentrated in a few mega cap names, and indeed the top 10 holdings only make up 1/3rd of the entire portfolio.  You even have some refiners thrown into the mix for a truly broad exposure to the sector.  XOP is also liquid with some 3.6M units trading each day, unlike many other sector specific ETFs.

      SPDR S&P Oil & Gas Exploration & Prod: Top holdings


      Top holdings
      Company name% Net assets
      Atlas Energy Inc3.76%
      Tesoro Corporation3.29%
      Newfield Exploration Company3.26%
      Concho Resources, Inc.3.24%
      EXCO Resources, Inc.3.23%
      SM Energy Co3.19%
      Holly Corporation3.14%
      Pioneer Natural Resources Company3.09%
      Anadarko Petroleum Corp.3.03%
      Whiting Petroleum Corporation3.02%

      Percentage of holdings  32.25%


      How has an ETF like USO compared to an ETF like XOP?  Clearly one has been the superior performer and in 2010 at least has actually surpassed the performance of the physical commodity itself.

      [click to enlarge]



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      Did You Buy the Dip?

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      Don't say this market never gave you the chance to get in?  The S&P 500 was down a full 0.4% this morning and you had an hour to join the party.



      Back in September and October the market held each time it fell to the 13 day moving average and bounced; this continued for over 2 months.  Now we have a month where even a fall to the 10 day moving average is rare - it has only happened once; hence in the market that can only go up or sideways we have to be thankful for even a drop to the 5 day moving average.

      This morning's selloff (hard to use that word with a straight face) was pinned on the Chinese who raised interest rates a tad.  I believe the more reasonable answer is the 'urgent buyer' (he who buys SPY futures at any price as he is not price sensitive and simply cannot wait until 9:30 AM to get into the stock market each morning) who has showed up almost daily since Obama told us in March 2009 it would be a great time to buy stocks (hint hint) between 6 AM and 9 AM to boost premarket futures by 0.3-0.4%, obviously lives on the East Coast and was not able to make it into work this morning to offer his normal gifts.  Hence we did not get our normal morning mini gap up.

      Bigger picture as I think about the grand year that 2011 will be, with many targets now for S&P 1400ish, that only offers about 11% upside from here. (and I assume 8% of it will come in premarket)  Spread over 12 months that is only about 1% a month.  Hence we are in danger of returning to a market that........ (wait for it) .....can experience periods of downtime that last longer than 45 minutes again.  It will take some adjusting to no longer receive 4-6% a month as we have enjoyed constantly since 'The Bernank' pledged to manipulate the market upward (as is apparently now stated as the 3rd obligation of the Fed charter ....printed in font size 1) back in late August.

      Other than that, this market has become intolerably boring - when there is no 2 way action it is like playing a table where the dealer always wins. 

      x

      Friday, December 24, 2010

      Bespoke: Bullish Sentiment Reaches Historical Extremes

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      If the market continues its levitation through next week and the first day of the month (which almost always is up) odds would favor at least a short term bearish position on the 2nd trading day of the new year or so as bullish sentiment is approaching 'off the chart' levels.  The two main sentiment surveys Investors Intelligence and the American Association of Individual Investors, taken alone each show extremes, but in this measure that Bespoke put together combining them show where we are historically.

      Essentially we have not seen these levels aside from right before the historical crash of 1987 ("Black Monday"), the height of the NASDAQ bubble in 1999, and a few weeks in 2003-2004.   Excluding 1987 one parallel to today and 1999 and 2003-2004 was a Fed gunning the system with easy money (Y2K money in 99, and at the time historic 1% rates that set the seeds of the housing fiasco in 2003-2004).  Who says the Fed does not move markets?



      We are now above any level in the post March 2009 period by a long shot, and even above the mood that hung over investors at the market peak in fall 2007.   Our world shall be very interesting if the Fed ever takes its peddle off the metal.

      Have a good Christmas.


      Thursday, December 23, 2010

      Mock Up of New Fund Website & Launch Timeline Update

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      Since our launch date is 'open ended' I want to give future investors a better timeline now that I have a better understanding of the next few months and how it will unfold.  I will continue to put updates on progress on the tab 'Fund FAQ/Pledges' as I have more information to report.

      We are currently in SEC review 'stage 1' awaiting first comments back on the prospectus and SAI (Statement of Additional Information).  The SEC waits about 6-8 weeks to respond to your initial request (I'll save any jokes about why things take so long at a governmental agency).  This should take things to end of January/first week of February.   We then respond to their comments/questions after a review with counsel, and can get that done in about 5 days (requires specific type of filings).  Then one moves to final review and approval by SEC, which will hopefully be "a matter of weeks" after our response to their first round of comments.  Hence my working target will be late February, early March 2011 for the SEC to put the final stamp of approval on.  That is not a firm date, or a promise - could be sooner, could be later.  It is out of my hands of course, but this is what 'should' happen but this portion of the launch is mostly reliant on other organizations and not myself.

      As noted in previous posts, once approved the fund can be launched to direct investors and we can apply to brokerage accounts to petition for approvals on various platforms.  The application process is generally 4-6 weeks, but a handful are 2-3 weeks.  From my survey a few weeks ago, in my limited sample of investors, about half are coming with direct accounts and half via brokerages.  Therefore I am planning to launch the fund to the public roughly 3 weeks after SEC approval to close the time gap between when direct investors can begin to invest and when those coming in via brokerages can invest.    The key reason for that of course is the first few weeks will be seeing heavy fund inflows and I can't really begin with a coherent strategy if on day 8 I have $3M and on day 22 I have $7M to work with.  (that is 100%+ growth in 2 weeks)  My goal is to have the bulk of the fund's initial capital from the reader base in house within 4 weeks of launch, so I can begin to implement strategy.

      So the process will work like this:
      1. Fund Approved by SEC
      2. Immediately apply to brokerages to get approved on their platforms
      3. Officially launch fund 3 weeks after SEC approval to investors creating direct accounts
      4. The brokers which grant approval, should have the fund available for investors to purchase on their platform 4-6 weeks after initial application is put in.

      ------------------------------

      On a related front, the person who is volunteering (many hours) to help me with new fund website, and I, decided to do an overhaul of the design the past week to hopefully give it a more professional air.   Still a work in progress in terms of text alignment, content, and some design issues but here is a first pass of the home page.   Even when the design is done, I am not allowed to release it until another regulator (not SEC) reviews it, and it is just not a high priority item yet so I'm standing in line on that issue as well.  I was hoping it would be up in December but we're stymied on this one.

      I'll move this entire post to the front page of FMMF during the holiday weekend for those who missed it.

      [click to enlarge]


      Commodity-palooza - Year to Date Returns of the Commodity Complex

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      Via Finviz we see if you threw a dart in the commodity pit you made money in 2010 as long as you missed natural gas, cocoa, and rice.  Cotton [Oct 17, 2010: Get Your Cotton On]  continues to be the star of the year along with silver, palladium, and coffee.  Thankfully this chart means nothing to the Fed, so QE-infinity it is.  [Dec 16, 2010: Consumer Inflation as Measured in 1980 Would be 8%+, as Measured in 1990 Would be 4%]

      [click to enlarge]



      On a serious note, as I've noted in the past the big one is crude oil.  It's been quite benign this year sitting between $70 and $90.  It just broke out over $90 earlier this week, so any continued upward trend is the potential game changer.  If it has a 'sugar like' year in 2011, it will be back over $110; if it has a 'corn like' year in 2011, it will be back to $130.  A 'silver like' year in 2011?  $150+.  We just have to see where Goldman and JPMorgan take it....err, I mean where the free market of supply and demand based on emerging market demand takes it.  Ahem.

      One of the major downside risks being completely ignored by the market at this point in any material move by crude in 2011 - this is a massive tax on consumer and producer alike.  This helped put the final nail in the coffin of the economy in 2008, and many consumers are in worse shape now than they were then.  It will pressure corporate profit margins just as it did in 08.

      That said, on the consumer side with 7M households not paying a mortgage up to 2+ years ($1200-$2000 a month straight to their pockets), many others recently refinanced down to a coupon that offers an extra $200-$300 a month of cash flow, and the payroll tax deduction of 2011 giving a household of $50K an additional $2000 per year, and a household of $100K an additional $4000 - we have a buffer built in for part of society to absorb a move to $110-115 oil.  For those who rent, who subsist on fixed income, or are unemployed - the story is not so positive.

      p.s. do you really think we're going to allow the 2% payroll tax deduction revert back up a year from now with unemployment at 9%+?  Especially if Ben continues to inflate our commodities to the moon with his free money policies?  Once a tax is reduced in America in can never be raised again. So that's $120B a year less to go into an already empty social security fund... ponzi baby.

      Reuters Special Report: Is America the Sick Man of the Globe?

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      A year ago at this time, as 'green shoots' sprouted the discussion was when the Federal Reserve would withdraw "emergency" policies and begin to do things such as expunge some of the massive inventory of mortgage bonds it had bought during QE1.  Of course despite the 'recovery', and a few trillion thrown at the economy via fiscal and monetary means we never reached that point.  Indeed, the only major setback in the stock market's relentless rally from March 2009, was a period post April 2010 when the Fed stopped buying bonds under QE1 and before they began recycling maturing debt back into new purchases during QE1.5 in late summer.  That was the only time the economy and market seemed to be acting in a somewhat organic way and both weakened in a material way.

      Of course you know the story since QE2 - the David Tepper world of "we can't lose" and a globally backstopped system of moral hazard run amok.   [Sep 24, 2010: [Video] Appaloosa David Tepper - Ben Bernanke Will Make Everything Go Up in the Can't Lose Environment]  Even though in theory we are in a wonderful recovery.  With a new fiscal stimulus finalized earlier this month to mirror the $800B version in early 09, this will be close to $2 trillion of debt financed stimulus in the period of 2009-12, and that only includes the 2 major Congressional blockbuster packages.  We are not discussing the multitude of homeowner backstop / bailouts, cash for clunkers, cash for appliances (did you forget that one already?), the surge in unemployment benefits, [Nov 5, 2010: USA Today - Anti Poverty Programs Surpass Cost of Medicare in US] the usage of food stamps in the country from 1 in 11 Americans to 1 in 7 [Dec 8, 2010: Food Stamp Usage Nearing 1 in 7 Americans], the self created stimulus of many Americans defaulting on their mortgage but still living in the house (7M households) [Jun 2, 2010 - Even More Anecdotal Benefits of Strategic Default], etc.    I could go on but the list could fill an entire blog.

      The larger comment is, we are in a steroid filled economy when in a typical economic recovery we should be rip roaring at 4-5%+ GDP growth from ORGANIC means.  Indeed after such deep recessions as we suffered, we should have had multiple quarters of 5-6%+.  Instead, we are struggling to maintain 2-3% GDP with completely SYNTHETIC means.  We are celebrating the chance of 3-3.5% GDP in 2011 - ignoring the reasons of how it is being achieved.   This is not how a 'recovery' should be proceeding - many quarters after the recession 'ended' the Fed is continuing emergency policies and indeed the debate has begun whether a new round of said policies will begin next summer.  Our fiscal policy likewise is similar to what we did in the depths of the Great Recession.  With all the 'recovery' going on, why are we putting additional programs in with similar price tags?

      I concluded long ago the country (and globe) is going through structural adjustments, and the outcome of these changes for many in Americans will be dour - especially in the lower to middle tranches of the economic food chain. [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?]  We have evolved to a 3 tier system - the top 20%, the public + pseudo government (healthcare, education) worker, and everyone else.  [Sep 7, 2009: Citigroup - America; A Modern Day Plutonomy]  I am beginning to read more and more news outlets, and 'experts' come around to these views.  Now again, you might wonder with all the happiness (indeed giddiness) of late on the prospects of 2011, how this fits?  After all the stock market is up, and we all become rich by yet another Fed induced gaming scheme (it worked so well in 1999 NASDAQ and 2004-2006 housing, what could go wrong this time around!?) - although clearly any wealth effects will be concentrated mostly in the top tranches of society.  [Nov 10, 2010: Who Will Any Form of Intermediate Term Wealth Effect Really Help?  Not the Masses]  We won't even discuss the long run costs of what creating a transitory Fed induced wealth effect does to the real economy (think crashes in stocks 2000-2002 and housing 2007-2010+).  Just remember to clap and worship 'the Bernank'. (spelling intentional)

      It is quite clear - we are buying 'growth' with our steroids.  I'll gladly pay you Tuesday for a hamburger today.  If we want to inject $2 Trillion into a $14 Trillion economy each year (a 14% steroid injection), we can create a synthetic high and mask reality.  (or in our favorite terms, kick the can)  Indeed, we saw earlier this week that net liabilities rose $2 trillion in 2010.
      • The U.S. government fell deeper into the red in fiscal 2010 with net liabilities swelling more than $2 trillion as commitments on government debt and federal benefits rose, a U.S. Treasury report showed on Tuesday.
      • The Financial Report of the United States, which applies corporate-style accrual accounting methods to Washington, showed the government's liabilities exceeded assets by $13.473 trillion. That compared with a $11.456 trillion gap a year earlier.  The biggest increase in net liabilities in fiscal 2010 stemmed from a $1.477 trillion increase in federal debt repayment and interest obligations.
      • Unlike the normal measurement of government intake of receipts against cash outlays, accrual accounting measures costs such as interest on the debt and federal benefits payable when they are incurred, not when funds are actually disbursed.  
      You don't want to know what happens in accrual type accounting if the interest rates on our long term Treasuries begin to spike. We continue to benefit from historically low rates, and hence our obligations - as fast as they are rising - are not showing the true potential of what very likely is headed our way.  It is just impossible to know when.

      ---------------------------------

      But in Wall Street terms: "who cares?"  We live for today, and tomorrow is another issue.  Anything out past a week is too long term to care about.  Indeed I saw a gentlemen on Mr. Kudlow's show last evening who literally said this - he wants QE3, QE4, and QE5 - he only cares about making money, at any cost.  He was giddy about 2011 and said he'll worry about 2012 when it gets here.  Anyone who disagrees with this thesis needs to understand this appears to be the prevailing thought on 'the Street'.  I only assume these people do not have children because apparently long term consequences for heirs means nothing as long as bonus check comes in next year.

      I know from emails and comments on the site many readers don't share such a view, and wish to balance the long term with the near term.  So for those of you, I wanted to point out a fantastic read on many of the structural issues we've discussed ad nauseum in a special report Reuters has out: Is America the Sick Man of the Globe? (click here to go there)  While the topics are very familiar to readers of FMMF, if you are newer to the site - this is an excellent overview of the challenges we face as a nation and why both our federal government and central bank are forced to continue to take actions consistent with a deep recession, even as we celebrate the statistical recovery and glowing prospects of 2011 .<<<---bought and paid for by the grandchildren

      Outside of that, we'll return to your normally scheduled melt up - although early this morning we seem to have a malfunction.  I see a disaster scenario playing out as the S&P 500 is down 0.1%.  This must be the 'dip' they were talking about...

      [Sep 3, 2010: FT.com - The Crisis of Middle America]
      [July 26, 2010: [Video] DatelineNBC - America's Increasing Ranks of Poor]
      [Jul 29, 2009: Japan's "Herbivore" Men - Young American Men's Future?]

      Is the US Dollar Weak or Not?

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      Some interesting conversations on financial infotainment TV the past few days regarding the contention that the U.S. dollar is actually quite stable, and people should stop complaining that the Fed is impacting it with debasement policies.  The problem is, as with everything, things are not so simple.

      There are 3 major currencies in the world - dollar, yen, and euro.  (one could throw the British pound in there if they are very lenient)  These are the most liquid currencies and hence easy for billions upon billions to slosh through at a moment's notice.  They just so happen to reflect regions which are highly indebted, and whose central bankers have taken extraordinary steps to debase themselves to kick the proverbial can down the road.  In short, we call this "the race to the bottom".  All major currencies of the world are in an ugly duckling contest.

      Further, the U.S. dollar is the world's reserve currency - so in times of crisis, it is the least ugly, being the most liquid.  (in many countries in Africa, or the Middle East, or Asia, or Latin America you could go and exchange dollars in commerce - not so much the yen or the euro for example)  So ironically, as the U.S. was the nexus of the global crisis in 2008 and early 2009, a very strange thing happened.  People fled into the country's currency (and bonds).  That is completely atypical - usually people flee the country at the center of the crisis, causing all sorts of havoc.  So the U.S. benefited greatly in terms of stability from concurrently being the cause of global crisis, yet having people flee TO it, rather than AWAY from it.

      So when we view the dollar over the past few years versus the euro or yen (or pound) we are comparing mirror imagines of the U.S. - highly indebted, slower growth economies.  (there are a few exceptions in Europe but I am speaking broadly about the union)  Hence to infer any 'strength' by comparing the team who is ranked 30th in the NFL versus the team ranked 28th is silly - they both stink.

      What we can do is compare the greenback versus countries whose fiscal house is viewed much more favorably - even if their currency is less liquid on a global stage (and hence not a place trillions of money can slosh to in an instant).

      U.S. Dollar v Canadian Dollar



      U.S. Dollar v Australian Dollar



      U.S. Dollar v Swiss Franc (the spike in 2010 was due to the Greek crisis)



      (and as a bonus)  U.S. Dollar v non fiat money (Gold)



      What we see above is very consistent - excluding the 'flight to safety' trade in 08 and early 09, the loss of value in the dollar continues when compared to more prudent countries. (or a currency with no liabilities - gold)  While the Fed and policy makers can defend themselves by saying the USD is "holding in there" when compared to the other major currencies - all of which are running similar schemes to the U.S. to try to self debase their currencies to 'inflate' their way out of their massive debts - it is certainly not shaping up well against countries in the next tier. 

      So is the dollar withstanding the actions of our policy makers?  Only if your bar is extremely low - our drunken stupor is about equal to that of the Japanese, and Euro Union.  And those currencies (along with the pound) make up the majority of the dollar index - so things appear benign on the surface lately.  If however you compare said greenback to countries whose fiscal policies would be considered sensible, the story changes dramatically.  Against that basket, our policy makers are slowly but surely eroding our wealth via inflationary theft... i.e. debasement of our currency and hence, our savings and/or ability to eventually consume.  We're doing the same work, but being rewarded with a less valuable item in return.  Another strike against the saver class of Cramerica and why the magical rise in the stock market in nominal terms means something very different than in real terms.

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