What Side Is Wall Street On and What if...?

Its been a strange day watching Wall Street today and the outcomes and words spoken by various parties. For instance, this morning I woke up to a MSN article proclaiming that hedge fund managers were big supporters of Mitt Romney and that Wall Street was not a big supporter of the financial approach Obama's has taken this year. The Market was up over a 100 points by 9:00 am.

Mid afternoon, I checked out another article which stated:  "Daily Game Plan: Schaeffer's Senior Trading Analyst Bryan Sapp suggests the markets could be pricing in an Obama victory" Schaeffer;s Market Recap

So what was it? I couldn't seem to figure out which side the stock market was on. Or if like everything else, it was two sided. By late evening time, I again looked at what MSN had to say about Obama's victory and this is what I saw: 

"Projected Obama win has markets staring at fiscal cliff
Rodrigo Campos and Steven C. Johnson
12:45 AM EST November 7, 2012
NEW YORK (Reuters) - Traders and investors on Wednesday said the best way for U.S. President Barack Obama to celebrate his re-election would be to avoid a budget crisis that could send the U.S. economy reeling.

Stock futures fell about half a percent after Obama edged out Republican Mitt Romney while bond futures rose. While the result ended uncertainty about regulation and monetary policy, some remained on edge about taxes and overall economic health." MSN

So here we were again, full circle to a 'victory celebration' with a poor view on what the president will do for the financial health of the country. I'm curious as to what the news report would have said had Mitt Romney been elected!

It was a confusing day and my colleague Bryan couldn't figure it out either. Perhaps the three digit jump was the only concrete answer we would get. In the end, after all the talk, I guess I was just happy to see my stock in DECK go up! LOL!

32 To 61 Percent!

Yesterday From MSN:

In a hard-hitting session, the Dow Jones Industrial Average (DJI) spiraled more than 262 points at its intraday low, and retreated to its lowest settlement in more than a month. "Earnings season continues to be the main focus for the market and, unfortunately, it hasn't been that great," remarked Schaeffer's Senior Equity Analyst Joe Bell. "Throw in some bad news from Moody's concerning Spain and their economic problems, and you had one of the worst daily losses in months. Stocks in the basic-materials sector are definitely getting hit the hardest."
MSN

Today From MSN:

 "Boeing's more optimistic outlook bucked the recent string of disappointments from global giants including DuPont , United Technologies Corp and 3M Co , all of which lowered their full-year forecasts.

Investors have focused on weak revenue growth so far this earnings season, said Kate Warne, investment strategist at Edward Jones in St Louis.

"Certainly today we've seen some companies with better earnings, but overall, the trend remains one where investors are cautious," said Warne.

Tech stocks weighed to the downside amid signs businesses were putting off spending because of the uncertain economic outlook. Decliners included network equipment maker Cisco Systems Inc , which was down 2.5 percent at $17.55. Movie rental company Netflix slumped 12.2 percent to $59.93 after it cut its subscriber forecast.

Just 38.2 percent of companies have reported revenue that beat analysts' expectations, while 61.8 percent have fallen short, according to Thomson Reuters data. In a typical quarter, 62 percent of companies beat estimates." MSN

Fear and Greed!

Here's a stock quote for you that my friend Troy gave me:
"People make financial mistakes because of two reasons: FEAR and GREED."

So when buying and selling stocks, WHAT is motivating you?!

News update. Yesterday the stock market retreated from its 2007 highs. My friend Bryan believes with Phil Town that a big stock crash could be in the making. Its definitely possible. I asked Bryan what the bad news would be that would create the crash and he replied that we're being surrounded by bad news. Here in the US, our economy is not getting any better. Europe is holding on by a thread. And now even China is having to cut back and their projected growth is being stunted. I'm guessing that perhaps the FED is pumping 30 billion dollars into the economy every month now on an almost vain hope of reigniting the economy. So with all the fear out there, what do you suppose will happen?

Bryans Take: 15% Gain in Two Weeks!

In the stock world, my friend Bryan "just sold a truck load of (stock) ZAGG purchased on 8/29/12 for 7.60 a share for 8.75...a 15% gain in two weeks." Great Work Bryan. I'm watching BIDU right now which is another stock we're both interested in.

Concerning BIDU, Bryan just set a limit order for 109.44 to sell BIDU shares that he bought yesterday at 106.78. He sold earlier today just in case the FED decision brought the market down. He went on to say that's 14 trades in a row with no losses - no, sorry, that's 16.

Albies Take: That's unbelievable Bryan! Great work. :-) Just found out the Fed actually are taking steps to buy back 40 Billion a month of debt to try and revive the economy. Talk about a monthly expense we may all have to pay for later!

The Worlds Woes...

Albies Take:

"What central banks everywhere are doing is trying to make sure people are not focused on the world breaking apart," said Dinakar Singh, CEO..."From MSN

(Albie: "they should be more worried about doing the right thing! Lol!!!)"

Troy's Take:

Absolutely!!! I total agree. Central banks are committing financial treason.,"

Albies Take:

"I understand they don't want a 'run on the bank' so to speak but there's got to be a better way..."

Troys Take:

"There is...let the people/countries who are bankrupt go bankrupt. It's painful in the short term but long term it is best! Stop having the countries who saved & sacrificed pay for the people who were reckless! Lol! Your thoughts?"

Albie's Take:

Yes, painful but probably the right thing to do...it doesn't hurt for countries to help if they can - but not at the expense of their own financial stability and especially should not be 'gambling' w/ money they don't have..."

Troys Take:

"I agree. Prepare for bad times and you will only know good times."(Robert Kiyosaki) and: Proverbs 27:12
"A prudent man sees evil and hides himself, the naive proceed and pay the penalty."

Great quote & verse Troy!

Albie's Personal Stock Update

Today I've sold out of my long time holdings of SYK and TNDM and am now considering buying BIDU (the google of China). BIDU has doubled its EPS four times in the last ten years. So I'm impressed with its financial numbers. Bidu is way below its half price tag of $286. I would give BIDU a sticker price of $573. So to buy it now at 107.35 seems like an incredible deal. It also has an incredible Net income of almost half of what it makes! Amazing. After throwing the thought of buying this stock with my other investor partners, I will probably buy in today.

The Last TWO Days!

In the stock world, we're still waiting to see if the FED is going to give another massive monetary injection into our economy. Yesterday the stock market jumped to the highest level since 2007 because of it. Craziness still persists over in Europe as they are tightening the screws on the money they give out to save the Euro. Even though they still plan to give out money, they are tightening the regulations about it. Here's a fast news highlight of it:

9-11-12
From MSN:
Updated at 11:30 a.m. ET: Stocks were moving higher Tuesday as investors exercised caution ahead of possible policy action from the Federal Reserve and a key decision by a German court.

The Dow Jones industrial average was lately up over 90 points, having touched its highest level since December 2007.

Equities have rallied on expectations for fresh stimulus measures from central banks, with economists forecasting a 60 percent chance the Fed will announce another round of quantitative easing.


9-10-12
"What central banks everywhere are doing is trying to make sure people are not focused on the world breaking apart," said Dinakar Singh, CEO of TPG-Axon Capital. "Ultimately I don't think lower rates make that much difference anymore. There aren't that many people left that haven't borrowed money -- companies or people -- but would if rates were lower. "

may extend its stated promise to keep interest rates ultra-low further into the future. Some market watchers, and a few Fed policy makers, have expressed concerns those moves could do more harm than good.

Even as low rates have failed to spur growth, they're penalizing savers. Insurance and pension funds have been hit hard by record low returns needed to fund long-term obligations. And, at some point, the Fed will have to start selling its massive holdings in bonds, forcing rates higher and producing a drag on growth. Discussions about that "exit strategy," frequent following the Fed's first round of bond-buying, have all but disappeared from recent Fed deliberations.

Europe's central bank, meanwhile, is also embarking on its second round of bond buying to try to head off a deepening recession. But the ECB's easy money efforts appear to have had even less impact on the eurozone crisis than its American counterpart.

" Following a series of monthly data showing China's once-hot growth winding down, Beijing last week announced a series of new infrastructure projects to try to reverse the downturn.

But the measures are much more limited than the massive stimulus undertaken following the 2008 collapse. That spending spree left China with more roads, bridges, airports and rail lines than it needs. Now, as growth has slowed again, inventories of raw materials and finished goods are piling up."

aced with an ongoing global slowdown, though, central bankers around the world are loathe to do nothing.  Despite the limited impact of dumping more money into the economy, even easy-money skeptics at the Fed will likely go along with another round, according to Neal Soss CSFB chief economist.

"Even those who doubt the efficacy of monetary policy under current circumstances may well feel obliged not to disappoint financial markets," he said. "First, do no harm."

Some preliminary thoughts on BIDU

My Stock News: Yesterday, I found out about a company named BIDU. Today, I found out they are the Chinese equivalent of 'google'. They also have amazing net profits. they have declined a significant amount as you can see, if you look at the monthly chart. This could mean a great buying opportunity - if it's not already too late?! Tomorrow I will inspect there ten year history.

Check it Out too!

Got to check out the stock BIDU today. My investment partner Bryan Davis gave me the heads up about them this morning, so I need to do my due diligence and look into their ten year financials and see if its indeed worth investing in!

Market Awareness, By Albie

The stock market is showing some positive signs this morning ,as I write, with companies boosting profits without having to hire. (At least something positive, although I would like to see a boost in hiring). What's worrying the stock market is the continuing problems in Europe and Facebook's stock price having dropped so much. Here are the details:

"Wednesday, September 5, 2012, 5:33 AM PDT
US productivity grew at 2.2 percent rate in April-June quarter, faster than previously thought." Yahoo news.

"Companies boosted profits without hiring this spring (So how did those companies make more stuff and serve more customers without hiring more workers?)

They didn't ask employees to work more hours. They asked them to work harder. And they didn't hand out raises. 

The Labor Department reported Wednesday that the productivity of the U.S. workforce rose at a much faster clip than previously thought in the second quarter. Productivity – which simply measures the volume of goods and services produced per worker per hour – jumped at a 2.2 percent annual rate. That was faster than many economists had expected." MSN

"After years of speculation that the social media giant would go public, it finally did so in May, and since then its stock price has fallen 53 percent and counting, washing away more than $50 billion in market value.

Facebook's share price hit a new all-time low Tuesday, sinking below $18 for the first time, although it perked up in after-hours trading on news the company had taken steps to reassure investors and its own employees as its share price spirals downward." MSN

Some News And Take One on Zagg

From Yahoo News: Wednesday, August 22, 2012, 7:01 AM PDT
Congressional analysts see $1.1T federal deficit for 2012, 4th straight year exceeding $1T

AM PDT
US home sales rise 2.3 percent in July to 4.47 million, latest sign of housing recovery

So some good news for the economy in house sales but bad news concerning US debt. It seems the Dow Jones decided to react to the debt news today!

As for our investments: I am considering buying Zagg along with Bryan. Here are some of my calculations (for a real summery email me for more details!)

Zaggs 52 wk low is 6.40 & 52 wk high is 15.64. So my question is: Why is price so low right now at 7.34? Let's find out! EPS is .63 and this EPS rate has doubled 3x in the last six years, so I'm guessing that Zaggs growth rate is close to 25-30%. Plugging in all the other numbers to find Zaggs'retail price' and I come up with $37. So its half price would be $18.9. We call this its MOS or "margin of safety." So to sum up and throw Bryan some questions to answer: Bryan, I came to MOS for Zagg around 18.9?! Am I in the ballpark? I see there EPS has doubled 3x in last 6yrs! Also 52wk low is 6.40 or something close - so 7.34 is great price!

PCLN's DROP!: Take TWO...

Albie's Take: Bryan was right. PCLN has dropped to support levels not seen in over a year. My question to Bryan is when do you expect it to jump?

Bryan's Take: I don't know, I never know. But if I buy at the bottom, a fundamental sort of stop loss is created. All we need is a good day in the markets.

Albie: So what was the fundamental reason PCLN dropped?

Bryan: Poor guidance for Q4 and because of Europe...and they missed revenues by about .02% The thing is, I don't even consider stocks for purchase unless they are in the top .5% of all stocks in terms of fundamentals AND they've been beaten down for a stupid reason by Wall Street. There has to be blood on the streets for me to buy because that means the stock has been oversold because of fear. At the same time, the companies I buy are like cockroaches...you can't kill them and they always come back no matter what. It's just like anything in life...if you hang out with winners YOU are going to win.

Albie: Great take Bryan! Thank you.

Take ONE: Be angry, Be VERY ANGRY!

Bryans Take:

"I just checked the balance of my 401k that I haven't contributed to in two years, but I can't withdraw unless I quit job (Otherwise I would invest it myself). Lo and behold, its exactly the same (within a few dollars) as it was two years ago! There's a moron in a tower somewhere making about half a million bucks a year getting paid to "actively manage" my portfolio. He "earns" so much because he is SUPPOSED TO outperform the overall markets (S & P 500, DOW, etc..), otherwise why would anybody in their right mind give their money to a Fund Manager right??? You could just put your money into an index fund through TD Ameritrade that mirrors the S & P 500 and get the same return as the overall market. WELLLLLLLLL.......of course he must have beaten the overall market benchmarks then....right??? WRONG. The overall market went up almost exactly 30% since two years ago today, and this Jackass (Capitalized) got me a 0% return..."

What We Don't Learn From History… IS THAT WE DON’T LEARN FROM HISTORY!

Take One:
By Troy Flowers

 WHAT WE DON’T LEARN FROM HISTORY… IS THAT WE DON’T LEARN FROM HISTORY
 
This profound quote is from none other than famed investor Warren Buffet.  What we have here in the US is that we have not learned the dangers of trying to tamper with the bond market.
 
The question is what is the “bond market?” Affluent investors tend to own individual bonds. Most average investors have bonds in their portfolios via bond funds.  But most really do not have an idea what bonds do. I will give you a very brief introduction to bonds - specifically government bonds.
 
When the government wants to fund a project but doesn't have the political courage to raise taxes on the citizens - it issues bonds (another word for debt). They basically borrow the money that it needs to pay back (eventually). There are a couple of important aspects of bonds:  the bond price and bond yield. Very simply bond prices are how much you pay to purchase a bond.  Bond Yields are the rate of return an investor gets from investing in a bond. They are inversely related, which means when the bond prices go up then yields go down and vice versus. Even though the stock market and the Dow often command more attention from the media, the bond market is actually many times bigger and is more vital to the ongoing operation of the public and private sector. Thus, when a country’s bond market falters then that the country can go bankrupt. The bond market debacle in Russia is an excellent example of this.

This crisis occurred in August of 1998. What were some of the the root causes? Declining Productivity and the cost of the first war in Chechyna (approximately $5.5 billion). More importantly, Russia  had chronic fiscal deficit problems and artificially high fixed exchange rate. One of the key points is that they had an “artificially high fixed exchange rate.” This means that the Russians thought they had to prop up the currency or keep the value of their currency high to keep investors from taking their money elsewhere .  The Russian finance minister actually hiked rates to 150%!  The problem was that they had to pay interest payments at 150% to the debt holders who held Russian paper. It got so bad that the IMF and the World Bank was forced to step in and issue a $22.6 billion bailout. It was helped but the Russians did not want to abandon its support for the Ruble. The Russians then adopted a floating peg. Which meant if the Ruble fell below a certain range then the central bank would step in and buy the Ruble keeping it propped up.  If the Ruble got too strong then the central bank would sell the Euro.

This resulted in an erosion crisis and investors dumped the Ruble and Russian securities.  This drove the value of the Ruble down. The central bank then tried to spend its reserves to defend the Ruble but that just made matters worse and further eroded investor confidence.

Eventually, on the 13th August 1998 the Russian stock, bond and currency markets collapsed!  From January to August 1998 their stock market lost 75%+ of its value.
 
So what does that have to do with us? A whole lot...
 
Our Federal Reserve is trying to do what the Russians did BUT in reverse. Instead of trying to prop up our currency, the Fed is trying to purposely devalue the US dollar ( i.e. QE 1, QE 2 and Operation Twist) by holding interest rates down. The problem is that very soon US bond investors will realize inflation is NOT 2% like the Fed wants us to believe.  Right now bond yields are at a dangerous low rate of  1.7%.  According to famed economist and author Peter Schiff, interest rates over the last 40 years have averaged 7%.
 
Investors will soon be unwilling to accept a 1.7% rate (or less) anymore and they will demand a higher rate of return for us to use their money. This means the US government will have 7% (for example) interest on +$14 Trillion dollar debt. In addition, investors who hold US paper will see the value of their bond holdings drop like a bad habit as interest rates soar.  As a result, those investors will take (as Wall Street insiders like to call) a severe “haircut.”  This is the problem in countries like Greece, Italy, Portugal and Spain.
 
In the last 13 years let us see what financial history has shown us…:
 
The Russians tried to manipulate the bond market in the late 90’s and it not only didn’t work they nearly went bankrupt. 
 
The US tried to control the bond market/interest rates and artificially pushed interest rates to low levels from 2002 to 2008.  We created a housing bubble that imploded in 2007-2008 and our economy nearly collapsed.
 
So now what’s the new solution to get our economy back on track?  Drum roll please…
 
Drive interest rates EVEN lower?? Really?? (Scratching my head)
 
Didn’t Albert Einstein once say the definition of insanity is doing the same thing over and over again and expecting different results? But hey, what does Einstein know?

So what do we think will happen when this bond bubble collapses? Well, to borrow a great line from the movie 300: “This will not be over quickly. We will not enjoy this.”

Wary of taking a Stock Position Till SPX Reaches Weekly Support

I would be wary of buying new stocks until the market has run aground on support and gives good signs of rebounding.Yes, the S&P500 is indeed on its way to the bottom of Weekly and Monthly Support as I had predicted. Still I will not take any credit for understanding what the catalyst was except that it was near Resistance and was very likely to drop soon. I believe that spring is historically a low time for the SPX from what I have heard. The data reports have seemed to generally be mixed lately. I believe the SPX will continue to drop to Weekly or Monthly support levels and then hold and rise. If you have any questions, take a look at 'My Prediction' recorded in the last two posts. It will give you a much more detailed explanation!

Take One: Catalyst for the S&P's Drop - Want to ANSWER THAT One For Me?

I had figured the S&P 500 was going to drop, I just didn't expect it to happen before it reached Monthly Resistance. However, it was at Weekly Resistance, so it's no surprise it fell. Still, what was the catalyst that made it drop? Weekly Resistance only or some other fundamental news? To be sure, I don't have any real fundamental news to really mention except that perhaps all the dropping lately has been also due to company earnings. But what company's have done so poorly that it would warrent this? I mean, our unemployment rate has dropped to the lowest levels in four years - very good news. So, yes, I've been in the process of moving to a new home, so perhaps I missed something the last few days? If I did, please fill me in if you know the answer! To my knowledge, I can't think of that many big companies failing earning reports to warrent this drop. So my conclusion is that the drop was more of a technical reason and perhaps the earnings reports were NOT all that bad, but they weren't all that good either which could mean that the technical world won the upper hand. I thought I might add my prediction of late so that you can see what I'm expecting in the next six months:

3-16-12
"My predictions for the S&P500 are that we will see it arrive at the Monthly Resistance this month or next and that after that time stocks will take a downturn toward Monthly Support - which should last some five or six months. Of course, this is not accounting for any catalyst that should turn the tide to break Monthly Resistance and head up to the Highs of 2007. From more of a fundamental point of view, it seems that things are going better for the U.S economy as of late. We seem to be taking a turn out of the 'mud', so to speak. So I honestly cannot tell you what the catalyst to go lower will be upon reaching Monthly Resistance."

Take One: My Prediction

Albie's Take:

My predictions for the S&P500 are that we will see it arrive at the Monthly Resistance this month or next and that after that time stocks will take a downturn toward Monthly Support - which should last some five or six months. Of course, this is not accounting for any catalyst that should turn the tide to break Monthly Resistance and head up to the Highs of 2007. From more of a fundamental point of view, it seems that things are going better for the U.S economy as of late. We seem to be taking a turn out of the 'mud', so to speak. So I honestly cannot tell you what the catalyst to go lower will be upon reaching Monthly Resistance.

My analasys of the Daily and Monthly Support and Resistance is as follows: The S&P500 was riding Daily Support last week but this week has gains going half way up towards Daily Resistance. It has gained new highs in Febuary and March of this year, excellerating up past the Highs of May 2011 and going up past that Resistance line. Technically speaking, the Daily Resistance line should be drawn much lower, as of last weeks major drop but it seems to have broken past those grounds and is back on track with its old Daily Support and Resistance lines. It now is heading toward Daily Resistance of 1418. If the S&P500 has no catalyst that takes it lower, it will in time head up to its monthly Resistance of 1434.4. I expect profit taking and a drop to Daily Support though, before that time. Even if it gets to Monthly Resistance however, it still has 2007 Highs to beat at 1575.1 Why does all this matter? Well, my opinion is that the S&P500 will find a catalyst at some point to gravitate back towards Monthly Support before it ever tries to break through 2007 Highs.

Take One: China, Europe and US Growth Increase.

Albie's Take:

The S&P500 hits Daily Support level. Why does this matter? Well, firstly it gives you an idea that a lot of odds are in favor of stocks rising as a apposed to falling any further! After a week at Resistance levels, and a week dabbling in the middle, the S&P00 has finally made a touch down with Support. Despite so much good news this week, the Dow hitting its highest levels since 2008 and the economy of China, Europe and the US showing positive signs of growth, the S&P500 still found its way to drop to Daily support levels. I see this as a good thing, as stocks will probably begin to rise. It's not that stocks haven't already been rising but the weekly fluctuations have gone to either extreems fairly quickly.

Take One - S&P500

Albie's Take:

The S&P500 is now on its way down to Support after having hung around at Resistance for about a week. Even with all the good news regarding Greece's bailout deal with the Euro, we find there still to not be enough news to create a catalyst to alter the S&P500 decent.

2-25-12: I find myself mistaken slightly. It seems that there was enough catalyst to keep the S&P500 in limbo between Resistance and Support for most of the week. My prediction: As soon as there is a lack of fundamental reasons to keep the market up, the S&P500 will drop to Daily Support.

Take Three: S&P500 Riding Resistance Line, Super Cycle Theory, & DMND's Cooked Books

Albie's Take:

2-10-12: After having ridden the top of the Resistance line all week, the S&P500 found it's excuse to take profits today and drop downtoward support. Problems with Greece's debt deal is no doubt the 'excuse'. Here was my report from earlier this week:

2-8-12: "The S&P has been riding the Daily Resistance line now since last friday and may continue in same manner or break Daily Resistance if all goes well with the Greek debt deal. But pressure is there for traders to take profit and there is reason to start taking a short position. Personally, I would wait till the high's of the news wears off and there is not much fundamental play before I took a short position."

As to the Australian dollar (AUD), it has reason to hold strong against its other currency pairs - especially the EUR: "Australia Holds Key Interest Rate at 4.25%
"Australia’s central bank unexpectedly kept its benchmark interest rate unchanged as domestic growth withstands Europe’s debt crisis, sending the nation’s currency soaring to a six-month high."
www.IronFX.comMARKETS UPDATE
07 Feb 2012"

However, if news breaks in favor of the Greece debt deal, the EUR will have some new fighting power. Presently, speculation about the results are keeping the EUR strong.


Troy's Take: The Super Cycle Theory: This idea was made famous by famed investor Jim Rogers. This concept says that the investment world goes through 20 yr Bull and bear cycle markets in Stocks and Commodities. This concept goes back at least 100 years but I will start from 1940.

1940-1960’s- Stock/Equities were in a Market Bull. We were just recovering from the Great Deflationary Depression. In the early 1950’s the Dow returned to its pre-Depression price.

1960’s to 1980’s- Equities fell into a major bear market. The market was basically flat and the price of Gold surge and basically equaled the price of the Dow at about 850. There was also high inflation during the 1970’s. Stocks (except commodity stocks) were not a place to be.

1980 to 2000-Things changed again. Equities were now back in a bull market. From 1980 to 2000 the Dow went from 835 to over 10,000. The Gold price plummeted from $800 to approximately $260 per ounce. This is what most average investors remember and hope will return soon. This is what I call “Pathological Nostalgia” because it’s not going to return anytime soon.

2000-2020. Things changed again. We started our major recession after the stock market bubble burst in what year? That would be about 2000. Imagine that… This was when gold, silver and oil and other commodities started to trend upwards. This was kinda when gas prices started to get higher… The price of gold fell to about 250 per ounce to $1660 per ounce now…Silver went from about $5 per oz to $30 as of today. This is one of the main reason why I am very bearish on equities. History may not repeat itself but it does rhyme…

Bryan's Take:

"Since Albie and Troy's comments about the Macro environment, gold, and what China is up to lately don't interest me, and I am therefore completely ignorant on the subjects, I present to you something fun and speculative (not for the faint of heart)

Taking a bite of Diamond Foods: An analysis in behavioral psychology

One thing I learned from Warren Buffett is to take big bets when the odds are in your favor, much like someone who counts cards in Las Vegas. You won’t win every time, but when you do win you win big! I believe such an opportunity may have presented itself here in Debacle that Diamond Foods has gotten itself into. In a nutshell (no pun intended) it looks as if management tried to cook the books (again no pun intended) to a certain extent by not categorizing the money paid to Walnut Growers properly on their financial statements to tune of approximately $60 million. The CEO and CFO were both ousted from their posts yesterday because of it. The stock, having already been hammered this year due to financial misgivings, was given a veritable death blow today as it careened down another 40% today finally settling at $23.13 end of day. Keep in mind this was a $90 stock just a few months ago. This puts the P/E ratio at just over 10 times “earnings”. Now, there are many ways you can look at this. A bear might say that they just found two cockroaches in the kitchen and there are always more. In addition, since this debacle is related to their financials, who’s to say what their real financials are? Both valid points.

Here’s how I see it. Since their financials are obviously unreliable, at least for the last couple of years, I can’t really form a thesis based on them. Therefore, I am switching to the other side of my brain, and I ask myself “what would I do if I were Wall Street?” Since the majority of the money in stocks is institutional (mutual funds, ETF’s, Index Funds, etc), whatever they do is going to dictate the direction of the stock, both short term and long term. This stock is like a nightmare to a fund manager right now because it has been going down off and on for several months. When stocks take a nose dive, it means that the institutional guys are fleeing in mass. I think the stock may be at or near it’s bottom now. Why do I think this? Well, first the stock pretty much flat lined all day today after hitting a low of just over $21 dollars. That means that some value oriented investors were there as a buoy in case the stocked dropped down again, in which case they would pick up more shares. But also, just knowing how Wall Streeters think, they bank on certainty. They will kill a stock that misses earnings, much more one that misstates earnings. They are notorious for way overselling stocks surrounded by controversy, and then coming back in slowly as the smoke begins to clear. Think Johnson Meade, Carnival, Pepsi, Netflix….I could go on and on. So here are the 3 scenarios that COULD play out:
Worst Case Scenario: We find out that this thing is even bigger than we thought. There are more cockroaches in the kitchen, and the result is negative earnings. Wall Street news hits Main Street and people in all cities and towns in the world boycott the company, and stop buying Pringles, Walnuts, Almonds, Chips and everything else from Diamond because they are disgusted with their Shenanigans. Their stock drops to zero and we lose all our money as shareholders
Best Case Scenario: The already ousted CEO and CFO take the fall for the company’s misgivings. The financials are restated and it turns it was nowhere near as bad as everyone thought…earnings aren’t affected very much, and an analyst at Piper Jaffray gets excited and upgrades the stock….causing all the high paid lemmings at the other Investment Banks and Institutions to follow suit and the stock goes back to $50 dollars in a matter of a few months.

Most likely scenario: The worst part is over. They got the fall guys out of there already. Diamonds board pledges that their reputation is paramount to their success. The financials are restated and it’s bad but the company will survive and over the next few quarters things start to improve once this is behind them, and once bitten Wall Streeters learn to trust the good folks at Diamond again. They even start to play golf with the new CEO and CFO. People around the world continue to eat Pringles, Chips, and nuts of all varieties. They go about their lives completely oblivious to Diamond Foods former financial problems.
From the money in RISKY BUSINESS portfolio I am betting that the third scenario will play out. I won’t buy right at the open tomorrow. I will wait to see if the stock goes anymore before I purchase, but if it stays under $24 I am pulling the trigger tomorrow morning. I have the advantage of not having to report a profit to my shareholders next quarter, so if it takes a little longer for the company to recover so be it. That just means I won’t have to pay the short term capital gains rate. I am long DMND

Three Takes - The S&P500, RSH & China

Albie's Take:

The S&P500 has reached support and has stopped its spiral downward. However, after having headed back up it has shown weekness again and fallen back to Daily support lines. Hour four Charts are encouraging as new support and resistance lines are now able to be drawn, but it seems that only the Daily support lines are really holding. Reflection on the odds of it going up are still questionable in my mind. I am thinking that the deal between Greece and the Euro will be more of a favorable short term indicator than anything at this point. After having just written this, I see that some progress has been made between Germany and Greece this morning. However, there is still some more work that needs to be done this week before everything is finalized. As I edit this on 2-1-12 The S&P has headed on it's way back up from Daily support.

Bryan's Take:

Buy Radioshack! (RSH)

I don't normally make short term predictions or speculate on companies within the stock market. RSH got hammered yesterday and was unduly punished, losing over 30% of its value. This company is not going out of business any time soon. Although I wouldn't consider this a long term play or a wonderful company by my standards, if I had a hankering for a short term trade to make at least a 10-15% quick pop, I would put some money down on this one. Of course this is pure speculation and I could be way off, but I think this one has found a bottom. As I write this, RSH is trading at 7.25 a share. Keep your eye on it!

Albie's Take: Thanks Bryan. I think you've given us something practical to use! On a different note: "Did you read the article on MSN about China? ("China Goes On Gold Binge; World Wonders Why" 1-31-12) China has been dramatically increasing its supply of gold. 'Why' is the question! Here is the quote: "Third, the purchase of gold would be especially risky for the central bank, which is already insolvent from a balance sheet point of view. The PBOC needs income-producing assets in order to meet its obligations on the debt incurred to buy foreign exchange, so the holding of gold only complicates its funding operations." MSN

Troy's response: "In one word: 'Propaganda'. Gold has gone up nearly $200 in the last 4 to 5 wks... In other words ain't selling... I sleep good at night knowing I have gold and silver..."

Albie: "Good to know! But the fact that China has doubled its intake of Gold lately is a fact. China's buying of gold seems fear related. This seems like something I want to keep my eye on..."

Troy: "China doubling its gold in take... For me that's called a clue..."

Albie: "Again - you have a point. I understand its fear of the world economy. But when you consider that gold does not help ITS economy right NOW and its having a hard time keeping currency flowing and jobs. Check out the article quote above. Surely that is based on some real facts!

Troy: "It does help its economy because China has an inflation problem. Gold and silver is the best remedy for this problem..."

Albie: "You are on the ball... But check this out from MSN: "A better explanation for the gold-buying binge of Chinese citizens is that they are using the shiny commodity as an inflation hedge, as the Financial Times recently suggested. Yet the buying of gold has increased while inflation has eased. And that means there must be another explanation. The best explanation is that individuals in China are using gold as a substitute for capital flight."

Troy: [Troy referring to the article from MSN, 1-31-12] "When China says no asset is safe...they are referring to the USD.

Albie: "That makes sense... (Albie's laughing). Why do they say buying gold does not produce income? They can hold and sell gold like anything else?!! Right? The question comes from the quote from MSN:'but there are real constraints on its ability to purchase assets that do not provide current income.'"

Troy: Gold does not purchase income because it's a form of insurance. It's a hedge. It's a hedge that been producing a good appreciation return.
I know it does not produce "income" but most mutual funds don't produce income either. Gold for me is a form of savings not investing

Albie: Good answer. So do u have any clue why China's doing what they're doing considering the bind they're in?

Troy: Yes inflation may be dying down a LITTLe but do you drop your health insurance just because you just got over the flu?

Troy: I think they are preparing for the day where they have the world's major currency.

Albie: True - but do you hold any thoughts on the fact that China is 100% dependant on US. And this quote from MSN: "the Chinese government rarely benefits others - and hurts itself - by telegraphing its short-term investment strategies." How to be a world dominating power when your a miser. Miser's become hated & even rejected because they only think of themselves.

Troy: China 100% dependent on the US?? How many people does China have again?? Gold is not a short term investment. China is thinking long term.. The US is thinking more short term. How is China being a miser?? If they were a miser they would have let the RMB float & the dollar would have tanked. If they were a miser they would have stopped buying our troubled bonds then we would be in deep deep trouble. They have actually been holding us up. We have actually to beg to them to keep buying our bonds to keep the % rates low.

Albie: Wow! Ok - terrific comeback! But China does have tons of people & resources but in the last century its track history of using them was grade of 'D' if you know what I mean, and I don't trust this gov much more than Mao tse Dong's. But the actual people of China are a different matter... True that about them helping USD. But on flip side - what would have happened if we stop buying all their stuff!

Troy: I know exactly how you feel. But people change. But we both have to look at the numbers and as Jim Rohn says the numbers tell the whole story. A legendary bank robber was asked why he robbed banks. His reply? Thats where the moneys at...Unfortunately the Asian countries are where the money is at...

Albie: So true! Haha! Good one!

Bryan 's Take: Success Without Personal Development? Troy's Take: Commodities

Bryan's Take: Why it’s impossible to be a successful long term investor without becoming personally developed along the way.

How you think about money directly affects your performance in stock market as well as in life. We’ve all heard the stories of people who won the lottery and within a short period of time have lost all their money. In fact, statistically this is the norm. We’ve also heard the opposite story about millionaires who lost their money and within a reasonable period of time made it all back, and then some. This is because each one of us has a “money blueprint”, if you will, that goes back to what we were taught about money when we were young. When we come of age, each one of us has the power to change this blueprint and to expand it at the same rate we expand our thinking.

A perfect example: Isn’t it interesting that people who live paycheck to paycheck always have just enough money to make it till the next payday? This is not an accident.
In the same way, if you think you can make riches in stock market, and you have yet to change your blueprint from a middle class or poverty mindset to a rich one, you are severely deluding yourself. Since the decisions you make affect what your eventual return will be, this makes perfect sense. After all, isn’t it the decisions we have made in life that have gotten us to where we are today? And aren’t all of our decisions based on who are at the particular moment we make them? After all, if a person finds themself homeless one day it is because he or she has made a series of bad decisions internally which are reflected now in their lives externally. The adverse is also true. Therefore, if you expect to gain riches in the stock market, but you have not grown mentally to be able to house the types of ideas and thinking of someone ready to receive the money and keep it, ask yourself two questions:

Who makes the buying decisions for the stocks you purchase?

Answer: YOU DO

Who makes the selling decisions for the stocks you sell?

Answer: YOU DO

Isn’t it apparent then, that since your success in stocks is wholly dependent on making the decisions a rich person would make, that you need to learn to think this way in order to have success? Now, here's the million dollar question: If you make the stock buying decisions a poor person would make, what do you think you will continue to be?

Troy's Take:

From a Commodities perspective gold & silver have consolidated and they both appear to be trending back up again. Silver, several weeks back, was at about $27.00/oz (because that's when I bought some more) and now its about $32.00. Gold has, for several weeks, corrected to the $1560 range and now its back up around the $1650's. I'm still paying lots of attention to whats going on in the Euro. When Europe gets their finances together (one way or another) I believe that the idea that the US dollar - as a safe haven - will have run its course. I think you may start seeing another flight from the dollar.   Which is usually bullish for the precious metals.

TAKE TWO

Albie's Take:

S&P500 has reached Daily Resistance/Retail value and chances are there will be some profit taking. These are my expectations but with all the good news on fri & weekend it might continue up to Weekly resistance.

News Events That I see as effecting the market:

Yahoo News: "The CBOE Volatility Index, or VIX, a measure of what investors are paying to protect themselves against the risk of losses, is at its lowest level in seven months."

IronFX: "Manufacturing in India and China improved in December, a sign the world’s fastest-growing major economies are withstanding Europe’s debt crisis."

MSN: Friday 20th "Cash-strapped Greece is fast running out of time as it pushes to wrap up an agreement by Monday paving the way for a fresh injection of aid before 14.5 billion euros ($18.5 billion) of bond repayments fall due in March."
TODAY: Yahoo.news: "Eurogroup chief: Eurozone wants interest rate on swapped Greek bonds 'well below 3.5 pct'"

Yahoo News: Thursday, January 19, 2012, 3:00 PM PST
"Rate on 30-year fixed mortgage falls to 3.88 percent, the 8th record low in the past year."

NOTE: Don't forget to look at Take Three on the last blog. Many of the takes are still valid!

Bryan's Take:

Since I take a long term approach to investing,the way I view these events are as something temporary and inconsequential. They are merely a snapshot as to state of things on a particular day. The way I invest is to consider whether individual businesses are worthy of being bought as an enterprise. If so, then I buy as many shares of that business as possible, provided I can get the shares at the right price taking into account it's probable future cash flow generation. Case in point: Today I bought shares of TNAV because the company boasts high returns on invested capital (a sign that management is adept at investing the company's excess capital at high returns)and is trading at an extremely reasonable valuation compared with it's future growth prospects. So the events and indicators Albie mentions, though they may useful tools for various types of Traders and Chart Enthusiasts, have about as much relevance to me as they would to your local convenience store owner. They are not going to have an affect on his business on a day to day basis, and are certainly not something he would pay the least bit of attention to...

Albie: Albie's Take:

Even though I agree that valuing a company and finding a great price to buy in on it is a great thing, I do not think that world economics plays only a part in the short term traders life. Big events happen very slowly. Identifying key things can help you get a grasp on what the turns the market will make for possibly six months to several years. And though I am presently in the process of valuing some new business to invest in, I also find that getting into a trade just to hold it at the same price or watch it fall for six months or more due to world events is perhaps a waste of my 'money's time'. As I found out a while back, Wall Street often will have a bad day not because anything bad is happening in the US. It often will take a spin out of control based on the EURO or something happening in China for instance. And if the Dow or S&P500 is having a bad day or month or year - it very well could mean my stock is too. If things are in process to influence long term trends for a bear or bull market, I for one want to know about it so that I at least have some clue as to how long I expect the market to continue this way. On the flip side, as Bryan stated in 'Take Three' (1-19-12) more negativity means a better discount price to get into a stock. And while this is plausible and desirable, it also helps to know what the S&P500's support line is so that you can get a feeling for the bottom price. If the odds that your stock will drop even lower along with the market, I would rather wait to buy.

Take Three!

Isaac Newton once said, " I can calculate the movement of the stars but I cannot calculate the madness of men."

Albie: "You're quotes are genius Troy!"

Troy: [Laughing]

Narrator: "Before Albie, Troy and Bryan begin to give their 'Takes on the Market', first here are some Market Highlights":

A) "The global economy is entering into a new phase of uncertainty and danger," said the [World] bank's chief economist, Justin Yifu Lin. "The risks of a global freezing up of capital markets as well as a global crisis similar to what happened in September 2008 are real."

Albie: "My wife said all this financial talk sounds like the Charlie Brown teacher: waa, waa, waa...[Laughing]!"

Troy: [Laughing] "Your wife RULES!"

B) Eurozone is being hurt by S&P credit downgrades, and by the negativity concerning Greek bonds.

C) For the United States, the World Bank forecast 2.2 percent growth from 2.9 percent and for 2013 to 2.4 percent from 2.7 percent.

D) MSN had this to say about China's expansion and commodities: [it] slowed to a 2 1/2-year low of 8.9 percent in the three months ending in December from the previous quarter's 9.1 percent.

E)Prices of energy, metals and farm products are down 10 to 25 percent from their peaks in early 2011, Timmer said."

F) The United States has already been effected from Europe's crisis.

G) IronFX had this to say about the Euro: "The euro rose for the first time in three days against the dollar and the yen as Spanish and Greek borrowing costs fell at auctions,
the market is already very short the currency, so positioning certainly explains some of today’s move toward a stronger euro.” A short position is a bet a currency will weaken."

Albie's Take:

"The S&P500 is in positive territory, maintaining Daily Technical up trend on its climb to Weekly Retail levels. I would personally wait till it reaches its Daily and Weekly retail (resistance) level and then see if if begins to head back down to wholesale (support). Since the S&P is in a general uptrend, I would wait till it falls to support levels and then put a buy stop in when it begins its climb up again. This move is called a 'Pull Back Buy'. From more of a fundamental view, the list from above are the problems that are effecting stocks this week. With all these things happening, there is much negativity in the market and fear. I will be watching with great curiousity how this negativity will effect the technical support and resistance levels. As far as commodities are concerned, this fear increases the odds of the price of gold and silver rising - which is one of the few bright spots on the horizon."

Bryan to Albie: "Good take."


Troy's Take:

"I think it will be a very volatile market because of the S&P downgrades. The S&P is on the war path! There is also a bond market bubble!"

Albie: "Yes - GREAT points! What does the bond bubble do on a practical level for stocks and what would make the bond bubble bust?"

Troy: "When the bond markets busts, there will be collateral damage especially equities... The price (not yield) on the 10 yr is bidding up! It's already over par right now at 101-07 for a yield of 1.86%. Please! I think it's absolutely insane for investors to be over paying for so little!"

Albie: "Wow - ok...(amazing how I don't even speak 'bond language'!)"

Troy: "Overall, the S&P downgrades around the financial world are generally good for gold and other commodities. Just as in late August of 2011, metals and other commodities such as Gold, Silver, Copper, Natural Gas, Crude Oil, Platinum etc are up as of the morning I am writing this. Why? Whenever investors are fearful, they run for the safety of precious metals (gold and/or silver). I am very certain that unless the US & other countries address their debt issues, there are more downgrades to come. The downgrades will be especially detrimental for the US bond market. I am very certain that there is a bubble in the bond market that will pop in the next 2-3 years (if we even have that much time). When it bursts then one of the asset classes investors will run to, are precious metals for safety. I am of the belief that gold (at about $1650) and silver (at $30) are a EXTREMELY undervalued asset class."

Albie: "Fantastic take Troy!"[Changing subject] "Tell me a little about what happens to stocks when the USD is down?"

Troy: "Usually when the USD is down, stocks tend to go up BUT that is inflationary. If we get a trend of a stronger USD and a rising market that is really good. That is value! BUT we have not really had that since the 1990's."

Albie: "Thank you Troy - that is VERY helpful. I'm sold. I need to go buy some gold!"


Bryans Take:

"I am not sure what effect rising oil, S & P downgrades, China's slowing economic growth, or the Easter bunny for that matter, will have on the entire stock market in the short term, nor do I really care to speculate on it. In the short term the stock market is a voting machine, in the long term is a weighing machine. If I had to choose, I would rather have the market go down in the short term as it may present further buying opportunities among the select companies I keep an eye on in my watchlist. In addition, none of those factors should have much of an impact on the underlying economics of the types of businesses I am looking for that I would consider to be within my "circle of competence". Whereas my cohorts here are in the business of speculation, or viewing what a stock has done in the past in order to determine its future prospects, I am in the business of valuing companies, and buying wonderful ones at cheap prices as often as I can. So bring on the pessimism!"

Albie: "Excellent take Bryan! I love youre focus on what's important. I'm glad I took your advice and found some great companies to invest in. Thank you!"


Narrator: "Here are some more Takes by Bryan this week":

Bryan: "If I were an avid trader, which I am not, I would take advantage of short term, bad news situations, some of which can be gleened from the news we see everyday. Case in point. With the recent Carnival cruise disaster, Carnival's stock CCL dropped precipitously overnight to open about 15% lower than it closed the previous. In the the last two days of trading it has regained some of its losses, though it still is about 10% away from fully recovering. Will this incident affect the company's earnings in the short term? Possibly. But long term the stock and company should fully recover and then some. Short term bad news situation such as these present compelling buying opportunities for those with a long term perspective. Buy when others are fearful and sell when others are greedy!"

Albie: "You know, this is very clever. Thanks Bryan for this great insight!"

Bryan: "Some interesting thoughts on Google(GOOG). They reported earnings today and, like a parent a child can never please despite straight A's on his report card, Google's shares got hammered in after hours trading. Here's the news:

Google, based in Mountain View, Calif., reported that net income in the fourth quarter rose 6.4 percent, to $2.71 billion, or $8.22 a share, from $2.54 billion, or $7.81 a share, in the period a year earlier. Excluding the cost of stock options and the related tax benefits, Google’s fourth-quarter profit was $9.50 a share, up from $8.75 a year ago. Analysts had expected $10.49 a share.

The company said revenue climbed 25 percent, to $10.58 billion, from $8.44 billion.

Net revenue, which excludes commissions paid to advertising partners, was $8.13 billion, up from $6.37 billion. Analysts had expected net revenue of $8.4 billion.

As you can see, Wall Street is not very forgiving if you fall the least bit short of their expectations, especially if you have met expectations consistently in the past. So, I wouldn't be surprised if we see a sell off in GOOG on Friday resulting in an overreaction and shares falling a bit too much. This would present a buying opportunity. I believe shares of Google are worth at least $800 dollars conservatively factoring in a growth rate of 15%. The Street estimates their future growth at over 18%. So if Wall Street slaps Google hard enough tomorrow we could see the stock start to come into the upper end of a buying range. The problem with being a small individual investor is that you don't have constant float to invest at your every whim, and hence you must sell your second favorite position in order to buy your first favorite one. I believe my current holdings will still yield a higher return on investment than GOOG, even if it drops a bit. For this reason, though GOOG will probably drop a fair amount tomorrow, I would have to see it fall to the $400's for me to consider a purchase. At this point I would load up the truck, and hold for the long term. Google's not going away any time soon folks. It's hard to compete against a company that gives it's product away for free, so if you if you buy it even at these levels you are certain to make money in the future. Happy investing!~~



*We WANT to hear YOUR TAKE too! Your comments are APPRECIATED and if you would like to ask a question of Albie, Troy or Bryan, please leave a message and or email on the sight and we will try to answer you as soon as possible!

**Please keep in mind that this blogs main intent is not the reporting of world or financial news, only the opinions of what is of real importance in the stock market, world market and commodities to 'Three Takes on the Market'. Thank you for your understanding. :-)