Was there is no limit to how far President Obama was willing to go to stimulate the economy and reassure his election? So I had to be amused when a friend sent me a link to his proposal. Warning: the source is a college humor website, so I would take it with so many grains of salt. For a good laugh, click here at
http://www.collegehumor.com/video/6710602/obamas-young-adult-novel-plan .
Fellow writers should be prepared for the worst. The economy will not be the only thing stimulated.
Global Market Comments
December 16, 2013
Fiat Lux
Featured Trade:
(REPORT FROM THE FROZEN WASTELANDS OF THE WEST)
Global Market Comments
December 13, 2013
Fiat Lux
Featured Trade:
(DECEMBER 18 GLOBAL STRATEGY WEBINAR),
(MY MARKET TAKE FOR THE REST OF 2013),
(DOUBLING UP ON SOFTBANK), (SFTBY)
(SPY), (XLF), (TLT), (FXY), (SFTBY), (AAPL),
(TESTIMONIAL)
SoftBank Corp. (SFTBY)
SPDR S&P 500 (SPY)
Financial Select Sector SPDR (XLF)
iShares 20+ Year Treasury Bond (TLT)
CurrencyShares Japanese Yen Trust (FXY)
Apple Inc. (AAPL)
I can?t believe how fast the year has gone by. It seems like only yesterday that I was riding the transcontinental railroad from Chicago to San Francisco, writing my 2013 All Asset Class Review. Now 2014 is at our doorstep.
As usual, the market has got it all wrong. There is not going to be a taper by the Federal Reserve next week. If there is, it will be only $5-$10 billion, which means that $70-$75 billion a month in Fed bond buying continues. Either way it is a win-win.
However, managers are eternally loath to trade against an unknown, hence the weakness we are seeing this week. I think that we have entered another one of those sideways corrections that has been a hallmark of the market all year, and that there is a reasonable chance that we saw the low of the entire move down this morning at 1,780 in the S&P 500.
That sets up a dead, range trading market into the Fed decision next Wednesday afternoon. Once their Solomon like choice is out, it will be off to the races for the markets once again, probably all the way until 2014.
However, we are heading in the Christmas holidays, when volume and volatility shrivel to a shadow of its former selves, with daily ranges often falling within 50 Dow points. So it is important to have a large short volatility element to your portfolio.
That way, you will make money on every flat day, of which there should be many. That?s why I have 70% of my current model-trading portfolio invested in call spreads.
My current holding in the (SPY) has me profitable at all points above $175.68. If we move below that, any losses should be more than offset by profits thrown off by the rest of the portfolio. The same is true for my call spread in the financial ETF (XLF).
The Japanese yen is clearly in free fall, probing new lows almost every day. That should take the (FXY) to $95, and explains my triple weight 30% holding in the area. Bonds (TLT) just can?t get a break, failing to rally over $105 for the third time. Lower levels beckon, making my bear put spread look pretty good, my second one this month.
With a dramatically weakening yen, you have to add to Japanese equities, which will benefit hugely. That?s why I doubled up on my position in Masayoshi Son?s Softbank (SFTBY) this morning. The day they announce the Ailibaba IPO, probably early next year, these shares should be up 10%-20%.
To summarize, this portfolio is perfectly set up for the following: ?A sideways move for four more trading days, then an upside breakout after the Fed decision, then going to sleep inside a slow grind up over Christmas and New Years.
The grand finale should come on January 2, the first trading day of 2014, when I expect the value of the portfolio to pop a full 5% or more. This will be delivered by a massive new wave of capital into the markets, which for calendar and legal reasons couldn?t be invested until this day.
What will they buy? Everything that worked last year. After all, that?s why these managers were hired. Why not start the New Year with a bang, and then spend the rest of the year trading against that profit.
It certainly worked this year.
Has It Been That Long?
I have always been a big fan of buying a dollar for 30 cents. That appears to be the opportunity now presented by the Japanese software giant, Softbank (SFTBY).
This gorilla of the Internet space was founded and run by my old friend, Masayoshi Son, who many refer to as a combination of the Jeff Bezos and the Bill Gates of Japan. I have known Mas, as his friends call him, for 30 years, meeting him, of all places, at a University of California Alumni Association meeting. Mas received his BA in economics from Berkeley in 1980.
In three decades, Mas has turned an obscure, hard copy Japanese computer hobbyist magazine into today?s massive online empire. You may know him as the organizer of the huge Comdex conferences in Las Vegas every January, the Woodstock of technology gatherings. Today, Mas has an estimated personal net worth $9 billion, not bad for a kid who wore the same pair of ragged Levis to his economics classes every day.
The really interesting thing about Softbank right now is not what Mas is doing, but what he owns. That includes a 37% stake in the Chinese Internet giant, Alibaba, which boasts an overwhelming 80% market share in the Middle Kingdom.
The Hangzhou based Alibaba is actually a group of Internet-based e-commerce businesses including business-to-business online web portals, online retail and payment services, a shopping search engine and data-centric cloud computing services. Think of it as Amazon (AMZN), eBay (EBAY), Google (GOOG), and Oracle (ORCL) all wrapped into one.
In 2012, two of Alibaba?s portals together handled 1.1 trillion Yuan ($170 billion) in sales, more than competitors eBay and Amazon.com combined.
Its sales account for no less than 3% of China?s total GDP. Yikes! To learn more about their website please: http://news.alibaba.com/specials/aboutalibaba/aligroup/index.html.
Online commerce in China is now growing faster than in any other place on the planet, including the US. Some 5% of retail transactions in the People?s Republic take place on the Internet, and that is expected to grow to 25% over the next three years. By comparison, it took online business in America 15 years to reach that market share.
What is happening in China now is truly fascinating. They are leapfrogging traditional brick and mortar stores, going straight from barter to online purchases, completely skipping the Wal-Mart stage of the retail evolution. I saw the same thing happen during the early nineties, when eastern Europeans jumped straight from having no phones to mobile ones, bypassing decades of unreliable and indifferent landline service.
The value of Alibaba is anyone?s guess as the company is still private. However, my former employers at The Economist magazine estimate that it is worth anywhere from $55-$120 billion. What this means is that you can buy Softbank now purely for the value of its Alibaba ownership, and get everything else the company does in the online universe for free.
But wait! It gets better. Softbank also owns major stakes in Yahoo, whose shares are up a gob smacking 157% since last year (Thank you Marissa Meyer!). It owns a major chunk of Sprint (S), which has gained a mind blowing 325% since 2012. Can Mas pick them, or what? Softbank also owns pieces of Japan Cellular and many other companies.
Add it all up together, and you get a Softbank that is worth at least $250 billion, almost triple its current $97 billion market capitalization. In other words, it?s a steal at this price.
Yes, you may say, this all sounds great. But how do I buy shares in Japan in yen? Easy. Softbank trades on the pink sheets in the US (hence the five letter ticker symbol) and is denominated in US dollars. Normally this means nothing, as liquidity in the pink sheets is notoriously poor.
Not so for (SFTBY), which saw 1.6 million shares worth $67 million trade around $42 a share on a slow Friday with a reasonably narrow spread. You may not be able to margin these, but at least you can get them. You also have some yen exposure here, as these shares are tied to the domestic shares in Japan. As for the big hedge funds, they have to go to Tokyo to get the size they want, and then hedge out their yen risk.
OK, OK, you say. Great story. But the road to perdition is paved with fabulous value plays that were never realized in the marketplace. This thing could stay cheap forever, like Apple (AAPL).
Aha! I got you! Alibaba is about to go public in the US, with Goldman Sachs now polling major institutional investors about potential interest. Given the chance to buy an Amazon clone at ten year ago prices, this IPO will be a blockbuster, making the recent Twitter (TWTR) float pale by comparison.
Did I mention that my buddy, Dan Loeb of hedge fund giant Third Point Partners, totally agrees with me, and has bought $1 billion worth of Softbank shares already? In fact, many believe that Alibaba could be the Apple of this decade, about to deliver a tenfold increase in its share price.
That seems to be the right thing to do this year.
Hitch Your Wagon to MasGlobal Market Comments
December 12, 2013
Fiat Lux
Featured Trade:
(IS THIS THE BIG TRADE OF 2014?),
(GLD), (SLV), ($SSEC), (EEM), (FXI),
(JJC), (DBA), (CORN), (CU), (USO), (KOL),
(A CHRISTMAS DONATION FOR THE WORTHIEST OF CAUSES)
SPDR Gold Shares (GLD)
iShares Silver Trust (SLV)
Shanghai Stock Exchange Composite Index ($SSEC)
iShares MSCI Emerging Markets (EEM)
iShares China Large-Cap (FXI)
iPath DJ-UBS Copper TR Sub-Idx ETN (JJC)
PowerShares DB Agriculture (DBA)
Teucrium Corn (CORN)
First Trust ISE Global Copper Index (CU)
United States Oil (USO)
Market Vectors Coal ETF (KOL)
I follow a broad range of unconventional, but highly useful leading economic indicators that gives me a decisive edge when predicting the future direction of global financial markets. One of them has started flashing a warning sign.
I fund an orphanage in remote Zhanjiang, in China?s southern Guangdong province, near Hainan Island called The Zhanjiang Kids Organization that catches the kids who missed out on China?s economic miracle.
Lacking America?s social safety net, child abandonment in the Middle Kingdom usually leads to a cruel death through malnutrition or disease at the few primitive public institutions that exist. With China?s one child policy now 30 years old, most families prefer their sole heir to be a boy, which means that girls account for the vast majority of orphan children.
Recently, there has been an upsurge of children dropped off at the orphanage and a sudden increase in the age of the kids. Twelve-year-old boys are being dumped because they cannot be fed.
For a Chinese family to give up a boy this close to working age is truly an act of desperation. As a trader, this is all proof to me that the Chinese economy is slowing faster than people realize, and that the global economy will take a deeper dip this summer.
I usually avoid organized charities like the plague. The great majority are scams where 95% of the funds raised go to ?administrative costs? that usually end up in someone?s personal bank account. As we all know, the corruption in China is rampant.
The Zhanjiang Kids Organization is a rare exception. I know the organizers personally, who originally got involved by adopting a couple of girls there, and they are saints. They carefully oversee the spending of every single dollar, assuring that it gets spent for its intended purposes.
Instead of doling out cash to local organizations, which often gets lost, as other organizations do, they undertake physical delivery of desperately needed food, books, and medical supplies. They also organize trips for volunteer pediatricians, educators, and administrators from the US.
As a result of my spring fund raising effort, I am told that the administrators were able to pay for a pediatrician and a dentist to fly in from the US. Kids were also given new toys. Initially, some didn?t know what to do with these, as they had never seen toys before. We take things like blocks, puzzles, and picture books for granted. Imagine what goes through a five year olds mind when he or she sees one for the first time.
Yes, I know that I am a hardened old ex-Marine combat veteran and am driven by the harsh reality of numbers, and not emotion. But when I hear stories like these, I melt. I know a lot of you have made a bundle following my advice this year, with some up as much as 500%.
If you made $1 million, please donate $1,000. If you clocked $100,000, that should be worth a $100 gift. This is a rare example where $1 worth of generosity creates $1,000 worth of good. Talk about bang per buck!
To learn more about The Zhanjiang Kids Organization, please visit their website http://www.zhanjiangkids.org/. There, you can contribute directly through your PayPal account or credit card. If you have any further questions about this fine organization, please contact director Susan Doshier directly at susandoshier@gmail.com .
Checks should be made payable to the ?Zhanjiang Kids Organization? and sent to Zhanjiang Kids Organization, c/o Susan Doshier, 2 Abbey Woods Lane, Dallas TX 75248, USA. Print out a hard copy of your receipt. This organization is set up as a US 501 (3) (c), so all contributions are fully deductible on the 2012 Form 1040, schedule ?A?. There is no reason why Uncle Sam shouldn?t pick up one third of the tab.
Act in your own self-interest. You may be working for one of these orphans someday. If you don?t, your kids will.
Global Market Comments
December 11, 2013
Fiat Lux
Featured Trade:
(THE BIPOLAR ECONOMY),
(SAY GOODBYE TO YOUR FAVORITE TEACHER),
(RAILROADS ARE BREAKING OUT ALL OVER),
(UNP), (CSX), (NSC), (CP), (ACI)
Union Pacific Corporation (UNP)
CSX Corp. (CSX)
Norfolk Southern Corp. (NSC)
Canadian Pacific Railway Limited (CP)
Arch Coal Inc. (ACI)
Corporate earnings are up big! Great! Buy! No wait! The economy is going down the toilet! Sell! Buy! Sell! Buy! Sell! Help! Anyone would be forgiven for thinking that the stock market has become bipolar. There is, in fact, an explanation for this madness. According to the Commerce Department?s Bureau of Economic Analysis, the answer is that corporate profits accounts for only a small part of the economy. Using the income method of calculating GDP, corporate profits account for only 15% of the reported GDP figure. The remaining components are doing poorly, or are too small to have much of an impact. Wages and salaries are in a three decade long decline. Interest and investment income is falling, because of the low level of interest rates and the collapse of the housing market. Farm incomes are up, but are a small proportion of the total. Income from non-farm unincorporated business, mostly small business, is unimpressive. It gets more complicated than that. A disproportionate share of corporate profits are being earned overseas. So multinationals with a big foreign presence, like Apple (AAPL), Intel (INTC), Oracle (ORCL), Caterpillar (CAT), and IBM (IBM), have the most rapidly growing profits and pay the least amount in taxes. They really get to have their cake, and eat it too. Many of their business activities are contributing to foreign GDP?s, like China?s, much more than they are here. Those with large domestic businesses, like retailers, earn far less, but pay more in tax, as they lack the offshore entities in which to park profits. The message here is to not put all your faith in the headlines, but to look at the numbers behind the numbers. Those who bought in anticipation of good corporate profits last month, got those earnings, and then got slaughtered in the marketplace. Buyer beware. 
Don?t bother taking an apple to school to give your favorite teacher, unless you want to leave it in front of a machine. The schoolteacher is about to join the sorry ranks of the service station attendant, the elevator operator, and the telephone operators whose professions have been rendered useless by technology.
The next big social trend in this country will be to replace teachers with computers. It is being forced by the financial crisis afflicting states and municipalities, which are facing red ink as far as the eye can see. From a fiscal point of view, of the 50 US states, we really have 30 Portugals, 10 Italys, 10 Irelands, 5 Greeces, and 5 Spains.
The painful cost cutting, layoffs, and downsizing that has swept the corporate area for the past 30 years is now being jammed down the throat of the public sector, the last refuge of slothful management and indifferent employees. Some 60% of high school students are already exposed to online educational programs, which enable teachers to handle far larger class sizes than the 40 students now common in California.
It makes it far easier to impose pay for productivity incentives on teachers, like linking teacher pay to student test scores, as a performance review is only a few mouse clicks away. These programs also qualify for government funding programs, like ?Race to the Top.? Costly textbooks can be dispensed with.
The alternative is to bump classroom sizes up to 80, or close down schools altogether. State deficits are so enormous that I can see public schools shutting down, privatizing their sports programs, and sending everyone home with a laptop. The cost savings would be huge. No more pep rallies, prom nights, or hanging around your girlfriend?s locker. Of course, our kids may turn out a little different, but they appear to be at the bottom of our current list of priorities.
The Old School Marm Will Be Sorely Missed