Wednesday, 29 May 2013

Buy Now?

I am going to let you in on a way to make money in stocks. “Buy low, sell high”. Sorry you already heard that one? Ok but the market is this ingenious machine for talking people into doing the opposite. I got a call the other night from an old buddy who had a hot tip on a restaurant stock, and he wanted to know if this is a good time to buy. When the market is on fire like this we all want to chase it. That big red buy button is soo tempting. Just look at it. My answer was: “I would not put new money to work here, I also would buy safety.” Yes we are in a bull market, read the New Momentum to see why, but this bull is looking a little tired and I would expect a pull back this summer. Let me go over a few facts here;

  • It is now more than 100 days since a 3% pull back, that has never happened in my records going back to World War Two.
  • We are over 20% above the 200 day moving average a classic overbought sign
  •  If you bought the S&P500 in January you are up over 19% -- that is two years of gains in a half a year.
  •  Bull runs are often in 26-week spurts and we are 21 weeks into this bull. 

Here is a picture of Thanksgiving and right now you should go bake a turkey, and be thankful. You also should open up a deck of cards and kiss the Queen of Diamonds -- she is the patron saint of traders. As I always say, Bulls make money, Bears make money and Pigs get slaughtered. This is no time to be a hero, play safe and conservative here.

This is a chart for you, please don’t get hung up on it, this is not a magic indicator. You can get the same results from drawing MACD over a chart of SPY. Click on it to enlarge it.

I drew some little green arrows for you. The green arrows are what we call buy low, that is when you sprout horns and go play raging bull. As you can see these cycles fade and it is time to be a little nervous lamb because we can see in the next few weeks they are taking Mr. Bull to the abattoir. I say that to be funny but the truth is a summer pull back will be mild, I guess 10% tops. So wait for a
good time to enter your hot tip stock, and today buy a nice stable ETF such as SPY, DIA or XLF, better yet TBT, with a near by trailing stop. There will be a better day to buy long shots.

So if you need a theme song for this time, here is is: Don't Go Chasing Waterfalls.

After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting.”
- Jessie Livermore

Saturday, 25 May 2013

May 25 2013 Weekend Market Comment

May 25 2013 - Do you recall the high school sweat-heart that ripped your heart out with the words . . .
Oh it is not you, its me, perhaps we should just cool thing a little bit, just for a little while, I need some time to get centred.” Ya you got centred, in the back seat of the captain of the football teams car. Oops sorry I digress.  

Well Wednesday they did not take away the punch bowl exactly but clearly they are threatening to use more fruit punch and less booze. Fed Chairman Ben has been pressured to end his ongoing $85 billion a month buy back program. But Ben is an expert in the 1929 depression and he is going to be very gentle when he breaks the news. You could not be more gentle than his 5 little words. . .  “In the next few meetings.”  Here is the quote:

“If we see continued improvement and we have confidence that that is going to be sustained, then we could in — in the next few meetings, we could take a step down in our pace of purchases. Again, if we do that, it would not mean that we are automatically aiming toward — toward a complete wind-down. Rather, we would be looking to beyond that to see how the economy evolves, and we could either raise or lower our pace of purchases going forward.”

Oh Ben say it is not so . . . I did not even know you watched football.

Lets face it the market is in a flat out bull despite modest corporate earnings, high unemployment and a flaccid international growth outlook. European markets are up 25% but they have 12% unemployment with a staggering 56% of 18 – 27 year olds in Spain out of work.  Europe remains the major risk, as the implicit guarantee that Germany and Mario Draghi’s ECB will finance the south will face increasing pressure from social instability and high youth unemployment.  With Japan and the U.K. in the doldrums, emerging markets have also hit a growth barrier.  Excluding China, they are growing at about 3%, and they will have to work on productivity and investment to push that number back up again.  China is only doing well if you read the official communist party propaganda.   But the reality is the chinese are getting a bad case of road rash from their suspended economic reality economy.  Japanese whose market this week fell 7% in one session after Ben’s comments, is clearly jittery. 
The U.S. economy is doing better than its industrialized peers, with a basic growth trend of around 2%. but the markets are racing up. Bottom line here is that this U.S. bull market is clearly not based on a projected 2% growth rate, and poor global demand, so with no other good news, in must be based on buying bonds forever. So any message otherwise will spook the markets.
Well it was not just Japan, interest sensitive stock like utilities, consumer discretionary and RIETS got the brunt of the pull back. The most obvious was Abercrombie and Finch ticker ANF and their good buddy Areopostal ARO

Even rate sensitive but stable utilities suck this week . . .

I had warned that DXJ was the trade everyone was in and that crowded trades are dangerous, here is why I say dangerous:

Even market darlings like CREE (the maker of new age LED light bulbs) is looking weak this week. 

When a winner like that flattens, it looks very toppy like a pull back probably will come in the next 4 weeks. 

Is there any place to hide? 
What does continue to work is my call on TBT -- as bonds wind-down and stocks look over extended.

DVY was off a little with the market pull back but notice how it was not a huge sell off because the holdings in DVY are big stable companies and at market tops you want to play it safe. Plus if the rally does continue you are still long.

The Canadian Market, much to my surprise is rebounding. I still have no faith in Canada as an investment. A bunch of Gold Mines, Oil and Gas firms and some Banks. Those Banks have over investments in the USA with little understanding of how competitive the USA is, bundled with over valued Canadian mortgages. 

Here is a lesson on picking a stock based 100% on dividend yield. Canadian dividend diva, Automodular hit the skids when they lost their biggest client the Ford motor company. I sold weeks ago when I put my bear suit on . . .thank goodness.

Bad news continues to pile up for Gold miners, Bloomberg noted that  ETFs in 2013 sold 467 metric tons of gold value: $20.9 billion. Also this week Barrick Gold was fined $16M for environmental problems Pascua Lama project in Chile.

Indicators Weaker
The key indicators are off slightly but it is still a bull market. This not the time to run and it is not the time to be aggressive. NYSE Stocks above the 50 day moving average is still over 70% but if it keeps falling it could signal a summer pull back.

Same story on the YP Primary Sell - still up

Sum It Up 
It is a US bull market, but don't be a hero here, no margin, no high flyers and stay away from crowded trades in utilities and the DXJ. It is still not the time for global markets and avoid commodities. This is a nice time to be in: short bonds with TBT, broad market ETFs, financial stocks and stable dividend players that have not run too far. Expect a mild summer pull back in the next 5 weeks.

Political Witchhunt
Senator Levin took a shot at Apple this week for innovating in America and then hiding from taxes in Ireland. Careful what you wish for senator they could build an R and D center in Ireland too . . .

Not all lawmakers supported summoning Apple executives to the hearing. Senator Rand Paul, a Kentucky Republican, said Apple was dealing with an “awful” tax code. “I’m offended by the spectacle of dragging in executives from a company that is not doing anything illegal,” Paul said. “I frankly think the committee should apologize to Apple.”

Modern nations have boarders, modern companies don't. The truth is taxing companies that are global is a tricky thing. Especially since what is sold is increasingly ethereal, like a song on iTunes or advice on elance. That is why the world is moving away from customs duties, stamp tax, corporate income tax and moving to sales tax like the European VAT. 

Mitt Romney paid an effective tax rate of 14.1 percent in 2011, a relatively low tax rate resulting from exotic deductions, the special tax treatment for his Bain Capital retirement package and the low tax rate on capital gains. These same politicians look a bit ridiculous when they expect companies to pony up 35% taxes with no fight at all.   

It is a fine line, come down too hard and you cripple the golden goose, no one wants to see Samsung beat Apple due to Washington incompetence. The billions American companies have off shore is telling the government something, Americans must rethink how they tax business

Saturday, 18 May 2013

May 18 2013 Weekend Market Comment

May 18 2013 - Please see my May 11 post and doodle all the charts a little higher . . .

The market just keeps going up. ho hum, Not much to say except be careful.  For example Tuesday is often a good day for stocks, we are up 17 Tuesdays in a row. We are 12.5% above the 200 Moving Average (that is rare). We have more 52 week highs than we have had in 35 years. Now when the markets are this strong, this long, there is either a pull back coming or a short squeeze. This is a lot like what happened a few weeks ago to  my bear suit.  Imagine how much pain the bears are taking right now. If you were short equities right now and the market goes higher at some point you cover your shorts. That is an effective buying of the securities. If there is a ton of short covering right now, the market could really shoot up. If you have seen the action in Netflix and Tesla Motors they are tearing higher on the misery of short covering, soon it could be everywhere. 

OK I guess I can draw some charts for you.
In a rare flash of common sense, Gold continues to plummet. Broke the mid April support. Many gold funds are down 35%, 45% even 50% so far in 2013. 

Billionaire investor George Soros joined Northern Trust Corp. and BlackRock Inc. in cutting holdings of exchange-traded products backed by gold before a bear market in prices last month, while John Paulson maintained a stake that lost about US$165 million in the first quarter.

Gold dropped for the sixth consecutive session on Thursday, hitting its lowest level in four weeks, on a stronger dollar and battered investor sentiment.

Rallying stocks have also hurt bullion’s appeal as an alternative investment this year, leading funds to generally liquidate their gold positions. This is the "end of fear" trade I have been on about.  

I hope you were short, I was in DUST and HGD

I also hope you noted my short term trade in Juniper Networks, nice pop on CISCO's earnings. I have a trailing stop waiting to take me out at a huge profit. 

My long long long term trade (ticker TBT) in end of the bond market (See last weeks post), marched higher this week, although we had a scary blip of 1% against us one day last week. But this trade is going to be like that, as we gently move out of bonds. This is a very long term play for years to come.  In case you don't know PIMCO is one of the powerhouse firms behind the BOND market, and Bill Gross is one of the founders, so yeah this guy knows Bonds. In this video he shows a tool to understand the bond market. If you are expecting a lot high level math be ready for a pleasant surprise. This trade is just that simple. 

Of course the flavor of the moment Short YEN long NIKKEI, continues but as I warned boy this is a crowded trade.  

I am also expecting the bottom to drop out of the price of oil -- based on way too much production. Perhaps $66. No hurry on this trade it could take years until the market sees thing my way. The first clue was 2010 when commodities went up and Oil got stuck in this range. I will write a whole article later on why this is going to all end badly like Gold did.   

Ogle that Goggle
As I said last week Google is the new Apple. Google ran in last 4 weeks from 780 to 909. They have over 300 million share outstanding. Let me do the math for you, in less than a month they went up in value one whole Facebook. Just on speculation in four weeks the firm could have bought all of Facebook. But even more amazing with a PE of 27 and a forward PE of 17 for a tech company, it is really not very expensive. WOW!

McDonald's is on a Diet
McDonald's is trimming items from its menu -- blaming consumer confusion. Yeah think?

Saturday, 11 May 2013

Market Comment May 11 2013

May 11 2013 --- Well what can I say, the market is roaring ahead. Just look at this week’s Economist magazine cover.

I can draw you a few charts, but you know things are popping this week. First off lets look at the YP Primary Sell indicator, wow up it goes.
(click any graphic to enlarge it)

Here we have the VIX, this measure fear and again fear has disappeared. Does it look a bit overconfident to you too?

We can also plot the market; here I have added a Keltner Channel, to show how we are way up the edge of parabolic buying and if you look to the left in 2012 you see how it is possible to be pegged at the top of this channel for a while. 

Clearly the Market wants to go up. The economy is not why these markets are rising, it is simply a case of tons of money flowing out of bonds, commodities, Europe, Asia and other global markets -- heading for the only game in town right now – US Equities. The other reason is the US Fed continues to boost the economy trying to bring back jobs. Read The New Momentum for details

When will it all end? Well as many hedge fund managers are lamenting at the SALT conference last week, it should already have ended. But as they say the Markets can remain irrational longer than you can be solvent. So you cannot bet against this mighty freight train of a market, but you can be prudent. For example I am this week in DVY, an ETF that buys big cap firms with large dividends. I have a trailing stop under my investment using a Chandelier Stops. I am hoping for growth but I am going to be “quick to grab the baby” if the market falls. You can use a plain old trailing stop too.  So to be clear, yes the market is overbought, but you must make hay when the sunshines. This is no time to be a hero, but I am back participating. 

Don't get me wrong, we are way overbought and I am cautious. I am also considering buying some VXX as a hedge if the VIX falls much further. (VXX goes up with the VIX climbing) A VIX under 12 seldom lasts very long. At Wednesday's closing bell, the S&P 500 hit 157 points (or almost 11 percent) above its 200-day moving average. The only time we have seen a wider gap between the S&P's 200-day MA and its closing level was back in March of 2000, just before the dot-com crash. Will history repeat or only rhyme, and in Yogi Berra's famous words, "Are you ready for déjà vu all over again?"

I still have some DUST short the gold miners, and as always, I am expecting Gold to do poorly. Looks like I am smarter than Billionaire John Paulson. There are lots of Gold short ETFs pick your favorite.

There is a lot of talk about the Japanese trade, buying the Japanese stock market but in US funds, effectively short Yen long Japanese Equities. You do this by buying the ETF DXJ, I had a lot of it, I wish I did not sell it before.

This trade has become so obvious and overdone  I even saw this cartoon on the web. But to my amazement the trade still works but be warned, this is one crowded trade!!

No Mr. Bond I Expect You To Die
Recently the Bond trade was declared dead. Read More Here:
Wall Street Journal - InvestmentNews
Bloomberg - Pimco
The word is leaking out that there is an end to falling rates and when that happens bondholders will hurt. That could be a great long-term pattern that could make slow steady returns for years.  If you want to play that move you could buy the inverse 20 year bond ETF called TBT:

What is Working Now
Some stocks are perking up, the theme is Risk On. We saw some interesting reactions from (china) BIDU (consumer) LLL.TO and (drugs) ALXN 

King of LED Light bulbs CREE, but careful with this stock they are about to go toe to toe with GE and Philips who will not give up 100 years controlling this  market easily.

Investors are still treading with care after this big run up to May, here is an ETF with a broad range of holdings based on the the Value plays RPV

There is a new Tiger in Asia, the Philippines

Tenet Health Care was first mentioned here April 1 it had a pull back and is riding the market up. 

Networking is doing well due to some good news at Cisco -- I bought some Juniper Networks this week for a short term hold.  

Here is great bit of news from this week:

One World Trade Center spire installed.  

 (Click for a great Video)

Wednesday, 8 May 2013

The Future of Zombietown

 “Thanks to the condo kings there's cable now in Zombietown
-         Billy Joel Lyrics

May 8 2013 -- I am sure some people have very interesting lives, people like the President Barack Obama or Brad Pit. But for the working people in my neighborhood life looks a lot more like the opening sequence of the Simpson’s, where middle class America waits for the whistle to blow so they can rush home to watch the tube.

It is that huge middle American home audience that makes the pay-TV industry is one of the largest and most lucrative segments of the entire U.S. media ecosystem, but trouble is on the horizon.

Hardware developers such as Roku and Western Digital have had success selling new set top boxes, with content streamers including Netflix, Hulu, Amazon Prime and YouTube moving into the sector. Similar capabilities are in Samsung's newest smart TV and Blu-Ray players. They offer a cheaper, Web-based video service, bypassing conventional pay-TV suppliers.

In its latest earnings report, Netflix said 2 million U.S. customers and 1 million international customers had been added to its streaming service, for a total of more than 36 million streaming users. Meanwhile, research firm Nielsen reported that traditional TV ratings have been falling in the past 12 to 18 months.

The Game Changer
In February 2013 Netflix Changed the business model of streaming content by releasing “House of Cards”, a mini series only available to Netflix subscribers. Netflix are looking to the HBO model, where quality dramas like Game of Thrones and Sopranos air commercial-free, in their original form.

The difference is that, by making every episode available at once, streaming services like Netflix eliminate the need for viewers to make an appointment each week to watch, and then wait for the next episode the following week. Eliminating the wait is a potential game-changing play.

By offering exclusive content Netflix creates a great value add that differentiates there service from other would be entrants.

"The launch of 'House of Cards' provided a halo effect on our entire service," Netflix Chief Executive Officer Reed Hastings and Chief Financial Officer David Wells said in a letter to shareholders. Hastings, in an interview, said "House of Cards" provided a "very modest, positive impact" on subscriber growth in the first quarter, and its value would increase with future seasons.

That is really some Halo -- with staggering prior losses and near record short interest - Netflix has the amazing PE ratio of over 500! The reason is simple, investors are paying for the "future" growth of technology and business model lead Netflix has. 

We've Seen this Movie Before
The Columbia Pictures empire and Tri-Star pictures were sold on in the fall of 1989 to electronics giant Sony for the amount of $3.4 billion. Many felt that the merger was a bad idea and that Sony paid too much for the acquisition. The goal for Sony was to move out of low margin electronics and into controlling the content. Sony, hurting and bitter from the defeat of its Betamax video recording system to the technologically inferior VHS system, began looking for other ways to ensure its future technologies would find widespread adoption in the media industries. Sony’s management came to believe that proprietary media, made through Columbia, would ensure industry standards for future generations of digital video technology.

HBO began as the dream of Long Island entrepreneur Charles Dolan. In the summer of 1971, as he cruised
to France on the Queen Elizabeth II, he came up with the idea of a pay-cable channel. At the time, those major networks – CBS, ABC and NBC – accounted for 97 per cent of all television watched in the US. Dolan thought there might be a way of creating a subscription channel that people would actually pay to watch. If he attracted enough subscribers, he wouldn't need to battle it out with the network behemoths for advertising revenue. He concluded that uncensored, uninterrupted films would provide the biggest attraction for viewers.

Dorland, a loud, garrulous figure (he was once described by Esquire magazine as 'the man who ate Hollywood') wanted his channel to be more than just the home of other people's content. He envisaged HBO as a brand; not just an alternative to network television but a form of entertainment that was too cool to be without.

The Web Will be Everywhere
This could spell trouble for cable TV, yes they control the high speed internet   access for most, but perhaps not or long. In the coming age of the web cloud, Internet data will be ubiquitous. Free Wi-fi is common in hotels, coffee shops, malls, airports and most homes. Plans are in place for Wi-fi in the clouds on
commercial airlines, But more is coming some wired cities like Victoria BC the internet is available all over town for free. It's part of a growing movement in cities worldwide to provide free Wi-Fi to residents and tourists. In Canada, Fredericton pioneered free Wi-Fi, setting it up almost 10 years ago. There, it is viewed as part of the municipal infrastructure. Even if you can’t get wifi, new 4G plans are offering unlimited data under $10 per month.  It is entirely possible that the web will evolve into a kind of massive “ public drinking fountain” with state sponsored micro-cells offering seamless connectivity to your phone, tablet and car. Clearly there is no guarantee for cable companies, or any ISP that they even have a future.

Set top boxes are not needed either, not only can you play the Netflix app on your computer, media players (like roku) but they are also built right into some smart TVs. I often watch web content on my TV through my iPad that has a TV dock. The lines between what is a phone, a computer, a tablet and a TV are blurring.     

Streaming may one day help people finally cut the cable completely. Many people I talk to have trouble understanding this concept, because they have been on cable so long they forgot this. TV “broadcasters” are called that because they do also transmit their signals in major metropolitan markets for free. Just like your local FM radio, your local TV can come over an antenna just like it did in the 1950s. Yup you can by a high def antenna and put it on the side of your house, run a wire to your modern flat screen TV and get 5 – 10 local channels for free and often in a higher definition signal than cable offers.  For details click here

What I am say here is that the business of delivering signals could be gone, and all the matters is the content. People have started to cut the cable. That is good for Paramount, not so good for Comcast.

Netflix Was First
Management at Netflix see why Sony and HBO saw content as key. Netflix has shown that not only is the future about streaming data it is also about differentiation through original content. Anyone can stream, but can you show me something special. That strategy of in house production takes deep pockets, but there are many new players who understand this too. HBO itself has a digital streaming strategy called HBO Go. Of course there are a few 10-ton gorillas in the wings planning their own strategy. Apple has started very modestly with Apple TV, but they have over 137 billion in the Bank, Goggle has well over $50 billion in cash reserves and of course owns YouTube. The YouTube videos have always been free to viewers and layered with advertising, but the company is experimenting with a paywall-like plan that would allow some content providers to offer their libraries for a monthly fee. Microsoft has over $60 billion in cash and Bill Gates was talking of this idea back in 1995 it was called WebTV and it could be time for a come back  Of course the company that understands data as entertainment the most is Amazon there first trial is called Amazon Prime Instant Video. Also the big three broadcast networks, the major Hollywood studios, cable TV companies and even firms like Richard Branson’s Virgin Group will want to be part of the multi-billion dollar party.

One of Many Apple Data Centers
Both Amazon and Apple have built massive data centers in multiple locations, which have far too much capacity for their current offerings.  Look at that photograph -- that is one of two twin Apple data centers in North Carolina. That massive building is 338,000 sq feet -- full of “blade servers”. There might be over one million servers in there. There are more centers in places like Reno NV too.  Obviously video requires big data centers and the investment would make perfect sense if that were their ambition.

There was once a product called Lotus 123, it dominated the spreadsheet market, until Microsoft crushed it with Excel. So Netflix is the visionary with a clear lead. However, this is a very important market and this eventually could be a case of  "It is the second mouse that gets the cheese". 

We Are Going to Entertain Your Butts Off
Big budget Sports like the NFL, MBL and NHL  will not sit back and just wait for ESPN to act, expect content to be flowing from all sorts of sources. Dying print media companies have already started streaming highly focused video media from brand names like the New York Times, National Geographic and the BBC World Service.  Bloomberg and CNBC are well along in streaming media to financial community. Even the hard of thinking can view UFC on a streaming ap. New independent online only TV stations are popping up filling niche markets from Survivalist tips to golf.  

But the real blow your socks off change will come when these tech firms go to war -- like the battle we saw in cell phone technology. There is going to be more video content produced in the next 10 years than in all history. I predict a flood of high production value, quality programming, like we have never scene before. Imagine Apple producing 250 mega budget motion pictures a year. They could afford for each production to have a $250 million plus production budget. Then envision the same production volume flowing out of any combination of the 10 of the above-mentioned potential players. My god I need to buy some stock in Con Agra Foods* (yes, they own Orville Redenbacher)  

* ticker CAG on the NYSE