May 23, 2012
The Facebook Goatrodeo Continues
A reader left a link to a Yahoo video discussing the revelation that Morgan Stanley allegedly was going to cut earnings on Facebook (FB) and then gave that info to select clients. This comes on top of what has been a very loud failure of sorts of the actual offering.
We seem to be in an era where this sort of thing can no longer be hidden as well as it used to be which a positive but it will still go on. This is not something I spend much time on as we've never tried to access an IPO and we don't do business with these types of firms. As we move forward with our ETF we will be doing business with several trading firms which creates the potential for "getting our face ripped off" but... Read full post
May 22, 2012
Phew! Stock Market Correction is Over!
Actually I have no idea if the correction but it truly amazes when the market goes down for a stretch the extent to which pundits all pile on that it is going lower then the market has a day like yesterday and we hear about earnings growth and stronger economy.
However bad or good things were on Friday, it is no different after yesterday. This would again seem to be a good time to talk about remaining disciplined to whatever strategy was laid out before the market started selling off and when there was no emotion involved--if you even believe in a defensive strategy.
It is always worth repeating; when the market is doing well, everyone will tell you that of course the market goes down every so often but that is no problem. Then the market starts going down many of those same people will have a serious problem.
May 21, 2012
Facebook Goat Rodeo
Facebook is clearly a life improving service for people interested in catching up with people they lost touch with decades ago, it is a game changer for things like non-profits to create awareness and even for large businesses.
Just as the internet exceeded the hype so too might Facebook be more than we thought but that does not have to mean the stock is a game changer. It might turn out to be, I don't know but this is part of a fad of recent social media names to IPO. Maybe someone can refresh my memory but I don't recall too many internet IPOs around the time Google (GOOG) IPO'd thus GOOG was not part of a fad.
Yesterday was a good day weather-wise at the Gladiator Fire which made for effective fire suppression but today the wind is due to increase and keep increasing for the next couple of days at least.
![](https://blogger.... <a href="http://randomroger.blogspot.com/2012/05/facebook-goat-rodeo.html">Read full post</a></p>
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<p class="date">May 20, 2012</p>
<h3><a href="http://randomroger.blogspot.com/2012/05/sunday-morning-coffee_20.html">Sunday Morning Coffee</a></h3>
<p class="author">By Roger Nusbaum</p>
<p class="blog-text">Some of you may know about a fire near Prescott called the Gladiator Fire. It started last Sunday as a structure fire that got into the forest. This fire is now close enough to Walker that we need start preparing to evacuate and as fire chief I am obviously in the middle of this. My phone has been blowing up, I am in contact with a lot of people, attending a lot of meetings and managing a lot of different things.<br /><br /><div class="separator" style="clear: both; text-align: center;"><a href="http://1.bp.blogspot.com/-J7248kmhwIc/T7gsswK1mcI/AAAAAAAAE6o/yx189bigmwE/s1600/Gladiator+Fire.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="180" src="http://1.bp.blogspot.com/-J7248kmhwIc/T7gsswK1mcI/AAAAAAAAE6o/yx189bigmwE/s320/Gladiator+Fire.jpg" width="320" /></a></div>For the first week, the fire burned up a lot of empty USFS land but as it moves closer to Walker and Potato Patch (just south of Walker) there are now a lot structures at risk (only four have burned so far) which makes Walker the center of attention unless they can stop the fire in its tracks. It is about six or seven miles from top to bottom of the fire and the head of the fire is about 8 miles from Walker as of Saturday night.<br /><br />The neat part of this is all there is to be learned and of course the downside is the threat to the community. Long story short, it is not probable that the fire gets all the way here but it is possible.<br /><br />On Saturday Joellyn... <a href="http://randomroger.blogspot.com/2012/05/sunday-morning-coffee_20.html">Read full post</a></p>
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<p class="date">May 19, 2012</p>
<h3><a href="http://randomroger.blogspot.com/2012/05/big-picture-for-week-of-may-20-2012.html">The Big Picture for the Week of May 20, 2012</a></h3>
<p class="author">By Roger Nusbaum</p>
<p class="blog-text">A reader asks;<br />There is no specific answer. Part of the process as mentioned in past posts is having an understanding of market history and combining that with what appears to be going on now to hopefully make a forward looking analysis.<br /><br />The stock market cycle and economic cycle are both somewhat long in the tooth but there is a relatively low probability of the market cutting half because it did so quite recently. Late 2007 and early 2008 was a little easier than now because the yield curve was inverted and the 2% rule was in play (2% decline three months in a row is a good indication that a bear market has started and the market doesn){kind=small}
The 200 DMA is only 17 points away but the moving average is still sloping upwards ever so slightly. That is not a reason to change strategy but to be a little less aggressive. A couple of years ago the SPX danced around the 200 DMA without ever really going down a lot and that was as the moving average was sloping upwards.
If the 200 DMA slopes down and the 2% rule comes into play then our defensive action will be more aggressive, if those things do not come into play then we would be a little less... Read full post
May 18, 2012
Check Yourself
Yesterday I was asked a question about preemptively taking defensive action before a breach of the 200 DMA in what has obviously been a poor tape for the last couple of weeks or so. Weeks like this is exactly what all those posts about discipline and avoiding emotion are all about.
The market has backed off enough to apparently make people nervous. Getting nervous or even scared is perfectly valid but what matters is what you do in the face of being scared or nervous.The reason to put some sort of objective trigger point in place at a time when emotions are not involved is so that there is no need to guess about what might happen at a time when you might be clouded by emotion.
May 17, 2012
Trade Executed
If you watch any of the shows on stock market television with real traders then you have heard them say on more than one occasion something like "we bought at the low in the after hours yesterday" or "we sold at the high two days ago." Well this isn't one of those stories.
In past posts I've talked about one reason for selling being you are simply wrong. Maybe wrong about just one thing or maybe several but turning out to be wrong one way or another is one reason to sell. It is not possible to be correct on every position. Everyone will get some number of decisions wrong, this turned out to be wrong for us and we will be wrong on other things in the future.
A while back we bought the Market Vectors Coal ETF (KOL). The basic idea was an expected long term increase in global coal demand and to add some volatility to the portfolio. I was also favorably disposed to the country make up of the fund.
While demand is likely to increase over the long term that was never going to be a one way trade of course but I believe I underestimated the extent to which short term visibility for lower demand would pulverize the stocks in the group. In a similar vein I believe I also underestimated the extent to which the group would go down in the face of signs of an economic slowdown.
The general path of the fund since we bought it was that at first it went up nicely (that is good), then it backed off a little in line with the market last year... Read full post
May 15, 2012
Black Swan Alert--Financial Stocks Still Stink
Before anyone gets worked up, the title of this post is meant to be sarcastic, I realize a decline in bank stocks is not a black swan. If anything it is a white swan as I have been saying from the time we knew it was a crisis that there would continue to be shoes to drop for a long time; the worst financial crisis in 80 years will take a while to sort out. Any black swan nazis can instead think of the title as "I want to show you something, it's my shocked face."
The complexities of the businesses of investment banks and derivatives were/are monumental and I believe the totality of the recent event is far less likely to be fully understood by the people who lived through it than with the Great... Read full post
May 13, 2012
Sunday Morning Coffee
Just a brief comment or two about the upcoming Facebook (FB) IPO. According to Barron's, FB has a "user base of 901 million, or 58% of the globe's Internet users (not including China, where the site is restricted)." Barron's quoted company filings as follows "we do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven."
My first thought is it does not seem like there can be much user growth unless the restrictions in China come off. There was no mention of any expectation about growth in Africa, which has one billion people but would seem to be a ways from embracing social media. If this is correct then they need get growth from further monetization of the user base which might be difficult in the short term if more of the growth in usage is coming from mobile which is a weak spot for them.
It is not unreasonable to expect FB to overcome this weak spot but this appears to be what the thesis will rely on.
I haven't written much, if at all. about the FB IPO. Sometimes I get a sense of how these things will go (not to imply I am always correct) but I have no sense of how this one will go. It probably doesn't matter in that I've never tried to game an IPO with client money.
Zooming out ... Read full post
May 12, 2012
The Big Picture for the Week of May 13
The other day I stumbled across an article about the dividend yields for four gold mining stocks including Anglo Gold Ashanti (AU). Before the SPDR Gold Trust (GLD) came along we used AU for our gold exposure. It did ok and then starting in late 2005 in started skyrocketing and we sold it in February 2006 and swapped it share for share into GLD which we've held ever since (we did sell a chunk of GLD last August).
Historically there have been times where the metal outperforms the miners and vice versa. There were rotations between the metal and the miners and back again for this particular trade and every so often you would hear or read someone explaining how this worked. The sale of AU came after a period of miner outperformance and the swap at the time seemed obvious but I had no real expectation of being able to time it again.
Read full postMay 11, 2012
Individuals Have No Business Picking Stocks? Really?
Yesterday on CNBC Steven Rattner made a lot of noise by noting that individuals have no business picking stocks, that they should instead only use index funds. Later in the day the network picked up the ball to try to extend that conversation in a segment with Thomas Lee from JP Morgan and Roger Crandall from Mass Mutual. The segment was a dud due to the guests; I believe the right questions were asked but the answers offered no real help to individual investors.
Crandall kind of agreed with Rattner but also kind of disagreed (please leave a comment if you heard it differently) noting that 70-80% of the people they talk to want professional help. That is of course a useless stat, you would think a firm whose business it is to provide investment advice would not spend a lot of time talking to people with no interest in investment advice.
In terms of thinking about the entire US population, which is where the conversation started, it is a small percentage of people who are attached to the market enough for this to be relevant. The closest many people will ever get is a 401k that hopefully accumulates into something meaningful but the statistics on this tend to be grim.
So really this is a conversation about a subset of the US population and I think it is reasonable to conclude that this subset has more money on average than the rest of the population. If they have more money for what ever reason then they might be inclined to have more interest ... Read full post
May 10, 2012
How Bad Is Europe?
The chart tracks the S&P 500 SPDR (SPY) against what I believe are all of the Eurozone ETFs; iShares France (EWQ), iShares Spain (EWP), iShares Germany (EWG), iShares Italy (EWI), iShares Belgium, iShares Netherlands (EWN), iShares Finland (EFNL) and Global X Greece (GREK).
SPY +7.63%
EWQ +1.23%
EWP -18.50%
EWG +10.30%
EWI -7.67%
EWK +9.14%
EWN +1.57%
EFNL -7.76% (this fund started trading January 26)
GREK -10.15%
There really is a wide range of returns here. Germany and Belgium certainly are surprises as is Finland. Despite it going deathstar, Nokia (NOK) is still the largest holding in EFNL and no doubt contributes to that fund's poor showing (the next three largest holdings have all fared a little better than the fund).
For some reason Bob Pisani was on a jag yesterday about decoupling, saying no one likes it when he talks about decoupling but he said we're decoupling (except for Germany and The Netherlands). My thoughts on decoupling have been pretty consistent which is that any reasonable... Read full post
May 09, 2012
What Does Long Term Actually Mean?
There was a post at Seeking Alpha about client holding Johnson & Johnson (JNJ) with the title JNJ Is Not A Good Long Term Investment For 2012. This was a pretty funny headline. The author made a bearish case mostly noting the lawsuits and image problem. The author went on to suggest a debit put spread on the stock (a bearish strategy).
The conclusion he drew and the trade he suggested will either turn out to be right or wrong but more interesting is the question of what long term actually means. If the author of the above article is an options trader then the rest of 2012 could easily be long term. I've owned JNJ for clients since I started this phase of my career in 2004 and hope to hold it forever.
This is a recurring theme here. For most market participants, picking good stocks or suitable funds to be held for the long term is better than a lot of short term trading. Clearly plenty of people have success with shorter term trading strategies but that does not make it ideal for most participants.
Holding forever is more of a goal than anything else. Long time readers might recall past posts about Bank of America (BAC) which was bought in 2004 with the hope of being a forever hold and back then this was plausible.Not everything that happened with BAC was ideal (talking before the crisis) and this is true... Read full post
May 08, 2012
Social Security Statements Now Online
Smart Money mentioned that Social Security statements are now online. The statements always make for interesting viewing so I took a look at mine. My benefit at 67 is slated to be $2459 per month and at 70 it would go up to $3103. My wife will get 50% of my payout.
So at some point we could be getting $4600/month in today's dollars which sounds great; this is way more than we need to spend to get by every month, way more. Of course this will change depending on how much our health insurance goes up in the future, but I don't think it will go from the current $330 up to $2000 in today's dollars (insert nervous grin).
Obviously benefits vary and only a smallish slice of the population gets the maximum benefit but in thinking about $4600, the question arises; how in the hell can the government afford to pay every eligible household between $1500 and $4600 per month for the rest of their lives? As a note, I don't know what the minimum benefit is, I just made that number up. Forgetting any research you've done on this for just a moment, thinking of it in this way makes it seem like an even larger problem, speaking unscientifically.
Another interesting number on the website (even if not new information) is how much has been paid in on my behalf which is $150,000. If I am lucky enough to stay at the same income level until I am 70 and the max tax stays about where it is then I will pay in another $312,000 (24 years times $13,000) which would bring... Read full post
May 06, 2012
Sunday Morning Coffee
A client asked what I thought was coming next for the stock market as we had a bad week and there is some level of concern over the election in France.
The market has had relatively mild declines over the last couple of summer and that it should happen again seems plausible especially how much ground was gained from November into the start of the second quarter. A hideous decline like in 2008 seems very unlikely because the market has only cut in half a handful of times over the last 80 years and a second time in four years and a third time in 12 years seems very unlikely.
No matter our opinion we will heed the 200 DMA. If the SPX goes below its 200 DMA we will take defensive... Read full post
May 05, 2012
The Big Picture for the Week of May 6, 2012
One of my favorite blog posts was from 2009 and titled The Five Best Places To Retire. It was a tongue in cheek post about what long time reader SD later dubbed as tax arbitrage. The basic concept was to live in a state with no income tax that was also next to a state with no sales tax. You'd pay not income tax and buy whatever you need in the state with no sales tax (this doesn't work for automobiles).
A not so exhaustive search lead to finding five border towns that meet the above criteria;
- Ranchester, WY which is very close to sales tax-free Montana
- Spearfish, SD close to Montana but actually an empty part of Montana
- Walla Walla, WA which is near sales tax-free Oregon
- Homer, AK there is no sales tax or income tax in Alaska
- Denio, NV which is near Denio, Oregon actually neither Denio appears to have anything
The reason to circle back to this is that Yahoo Read full post
May 04, 2012
A Followup To The CNBC Freakout
A couple of days ago I wrote about whether or not CNBC was freaking out about ratings and what the ratings may or may not say about the sentiment of Americans toward capital markets. The original Daily News article has drawn attention from MarketWatch and Zerohedge.
The Zerohedge angle is a little more interesting. Zerohedge believes that the CNBC personalities (notably Bob Pisani and Steve Liesman) root for Fed central planning. They link to a report that shows volume going down when the Fed intervenes and so the more they root for Fed intervention the more volume will decrease so Zerohedge concludes that CNBC is unknowingly rooting for their own demise--or maybe they do realize they are rooting for their own demise, the article seems to be saying both.
Zerohedge is a very useful outlet. They are very quick to tweet any sort of news and most of it relevant. Their own content reads well and seems to understand the subject very well and they re-run a lot of useful ... Read full post
May 02, 2012
How To Minimize Fixed Income Portfolio Risks
A reader left the following questions;
The first thing to note is that this was an anonymous comment so obviously there is no way an RIA can give specific advice to an anonymous commenter on a website.
As for holding cash. If someone can afford it then I do believe in some sort of cash cushion as an emergency fund. Some would tell you this should be the priority over having an investment portfolio, some would suggest an emergency cash fund should be the secondary priority to an investment portfolio. I don't have one answer here which is why I say if you can afford it.
The other aspect to cash is holding some cash tactically in an investment portfolio which I think is fine and we often do have some cash in the portfolio. With where interest rates are, cash that is in an emergency fund will not grow, which is obviously a tradeoff for the peace of mind the someone might get from having a sum of money for the unexpected. Cash waiting to be deployed in an investment portfolio will also not grow which is a tradeoff for the ability to be opportunistic.
As far as bonds being expensive that is generically the case but not universally true and investors need... Read full post
May 01, 2012
Freaking Out Because There's Nothing to Freak Out About
Barry Ritholtz linked to an article with a sensationalized headline that CNBC is "freaking out" over a decline in ratings. No doubt that a TV network would be concerned over a drop in ratings but who knows if anyone at the network is actually freaking out or not. Over the last few months page views on this blog have gone down.
One observation made in the past is that bull markets are bad for blogging business and probably also stock market television too. There are always threats to the market and now is no exception; Europe is quite obviously deteriorating, jobs in the US might be rolling over a little and the bull run that started three years ago could easily be starting to get long in the tooth. Again these are risk factors (there are others as well) that may or may not matter.
Ok so isolating those risk factors or any others important to you and things really aren't that bad right now and haven't been for a while. Please note this is not a discussion about the social disillusionment toward the stock market, simply an observation that the stock market has gone up far more often than not in the last 38 months more than doubling and people still involved with markets might be feeling pretty good.
If people are feeling pretty good or... Read full post
April 30, 2012
Stock Rover
Barron's Electronic Investor column reviewed a site called Stock Rover. The review was compelling enough that I checked it out and registered. The interface is more like a software program than a website interface that you might be familiar with from Yahoo Finance. Below are a couple of screen shots to give some sense of what it looks like.
In the lower left hand corner of the interface is a... Read full post
April 29, 2012
Sunday Morning Coffee
A reader left a comment on a post from earlier in the week that I think ties in with something that came up in my Thursday call with AdvisorShares. In his comment the reader noted that we've been in a bull market since the March 2009 low and that in his opinion the bull does not look long in the tooth.
In the AdvisorShares call I was asked about my outlook for the rest of the year and I felt as though giving a complete answer for 2012 included something of a look ahead to 2013. Although not new for long time readers, I mentioned that if 2012 finishes up a little (or better than up a little) that will be four years with out a decline (I think of 2011 as being flat). Historically the US equity market is down one year in four so in a way if we are up in 2012 then it could be argued that we would be overdue for a down year.
April 28, 2012
The Big Picture For the Week of April 29, 2012
I
Confirmation bias being what it is I take this as a validation for some sort of objective trigger point for taking defensive action when chances for a large decline increase. Obviously at our firm we use the S&P 500 going below its 200 day moving average. There are several others that are similar like the 50 DMA crossing below the 200 DMA.
While things are going well it is worth pointing out that markets are cyclical... Read full post
April 27, 2012
Holding Stocks Long Term
Yesterday I did a conference call with AdvisorShares that covered a lot of ground including a reason or two to try to hold stocks (or funds) for the long term. In related news client holding Johnson & Johnson (JNJ) hiked its dividend for the 50th year in a row.
In yesterday's call there were questions about our performance and the context of a call like that allows for specific numbers (the blog does not because it makes a blog post an advertisement which needs approval) and so I made a couple of references to things we have held for years.
Although not mentioned on the call we owned JNJ as far back as when the portfolio's performance started being tracked in 2004. Since then JNJ has paid 31 dividends (I believe the clock on the portfolio starts in August 2004) totaling $13.57. On a price basis JNJ has trailed the S&P 500 by about 15 percentage points. The dividends add another 25 percentage points on to the JNJ result. After factoring in the the SPX yield it is probably close to a push. I would note that the same study done on December 31, 2011 would probably have JNJ noticeably ahead as the stock is flat this year versus an 11% gain for the market.
The stock has not been a huge winner but the yield clearly helps the total return and the relatively low volatility helps with smoothing out the ride.
Another example with a more noticeable difference is Statoil (STO) versus the Energy SPDR (XLE). We've owned STO for almost... Read full post
April 26, 2012
Reminder:Scheduled To Appear
As a reminder I will be participating on the AdvisorShares Alpha Call talking about exchange traded funds, our firm's relationship with AdvisorShares and portfolio construction and management. The call starts when the market closes today and should last about 30 minutes.
Call in number 1 800 977 8002
If you're in Canada 1 404 920 6650
Access Code 777534#
I hope you can listen in.
April 25, 2012
Wait, Maybe We Are Doomed
I don't actually believe we are doomed but there were some scary headlines related to Social Security this week and that it may run into serious funding issues a little sooner than previously expected. A succinct description that I read elsewhere said that paying the disability benefit will have to start coming from the general fund in 2016, earlier than expected, which creates a strain on the entire program earlier than expected.
There were of course also comments from Tim Geithner noting that in "2033, incoming revenues and trust fund resources will be insufficient to maintain payment of full benefits."
A recent post of mine on this subject that was re-run on Seeking Alpha drew 75-80 comments with some making the case that social security is fine and there were similar comments left here on the original post as well. Joseph Weisenthal from Business Insider appears to be one who believes all is well if I am reading this post correctly.
There was a heated discussion in the Seeking Alpha comments as to whether or not Social Security is or ... Read full post
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